UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-12.
INTELLI-CHECK, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant) Payment of
Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
INTELLI-CHECK, INC.
246 Crossways Park West
Woodbury, New York 11797
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 16, 2006
To the Shareholders of
INTELLI-CHECK, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
INTELLI-CHECK, INC. (the "Company"), a Delaware corporation, will be held at the
American Stock Exchange, 86 Trinity Place, New York, New York 10006, on Friday,
June 16, 2006, at 11:00 a.m., local time, for the following purposes:
1. To elect, subject to the provisions of the By-laws, one director to
serve for a three-year term until his respective successor has been
duly elected and qualified;
2. Ratification and approval of our 2006 Equity Incentive Plan, which
amends and restates the Company's 2004 Stock Option Plan;
3. To consider and act upon a proposal to approve the appointment of
Amper, Politziner and Mattia, P.C. as our independent public
accountants for the 2006 fiscal year; and
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on April 21, 2006
as the record date for the meeting and only record holders of shares of the
Company's Common Stock at that time will be entitled to notice of and to vote at
the Annual Meeting of Shareholders or any adjournment or adjournments thereof.
This proxy statement and the accompanying proxy will be mailed on or about May
19, 2006.
By order of the Board of Directors,
Frank Mandelbaum
Chairman of the Board
Woodbury, New York
May 19, 2006
IMPORTANT
IF YOU CANNOT PERSONALLY ATTEND THE MEETING, IT IS
REQUESTED THAT YOU INDICATE YOUR VOTE ON THE ISSUES
INCLUDED ON THE ENCLOSED PROXY AND DATE, SIGN AND MAIL
IT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES
INTELLI-CHECK, INC.
246 Crossways Park West
Woodbury, New York 11797
--------------------------------------------------------
P R O X Y S T A T E M E N T
for
ANNUAL MEETING OF SHAREHOLDERS
to be held Friday, June 16, 2006
--------------------------------------------------------
SOLICITATION OF PROXY
The accompanying proxy is solicited on behalf of the Board of Directors of
Intelli-Check, Inc. (the "Company"), for use at the annual meeting of
shareholders of the Company (the "Annual Meeting") to be held on Friday, June
16, 2006 at the American Stock Exchange, 86 Trinity Place, New York, New York
10006 at 11:00 a.m., local time. This proxy statement contains information about
the matters to be considered at the meeting or any adjournments or postponements
of the meeting. In addition to mail, proxies may be solicited by personal
interview, telephone or telegraph by our officers and regular employees, without
additional compensation. We will bear the cost of solicitation of proxies.
Brokerage houses, banks and other custodians, nominees and fiduciaries will be
reimbursed for out-of-pocket and reasonable expenses incurred in forwarding
proxies and proxy statements. The Board of Directors has set April 21, 2006 as
the record date (the "Record Date") to determine those holders of record of
common stock, par value $.001 ("Common Stock") who are entitled to notice of,
and to vote at the Annual Meeting. On or about May 19, 2006, the Company's 2005
Annual Report, including financial statements, this Proxy Statement and the
proxy card (the "Proxy Card" or "Proxy") are being mailed to stockholders of
record as of the close of business on April 21, 2006.
ABOUT THE MEETING
What is being considered at the meeting?
You will be voting on the following:
o the election of one director to serve for a three year term;
o the ratification and approval of our 2006 Equity Incentive Plan, which
amends and restates the Company's 2004 Stock Option Plan;
o the approval of the appointment of Amper, Politziner and Mattia, P.C., as
our independent public accountants.
Who is entitled to vote at the meeting?
You may vote if you owned common stock as of the close of business on
April 21, 2006. Each share of common stock is entitled to one vote.
How many votes must be present to hold the meeting?
Your shares are counted as present at the meeting if you attend the
meeting and vote in person or if you properly return a proxy by mail. In order
for us to conduct our meeting, a majority of the combined voting power of our
common stock as of April 21, 2006 must be present at the meeting. This is
referred to as a quorum. On April 21, 2006, there were 12,137,444 shares
outstanding of common stock entitled to vote.
How do I vote?
You can vote in two ways:
o by attending the meeting in person; or
o by completing, signing and returning the enclosed proxy card.
Can I change my mind after I submit my proxy?
Yes, you may change your mind at any time before a vote is taken at the
meeting. You can do this by either (1) signing another proxy with a later date
and returning it to us prior to the meeting or filing with our corporate
secretary a written notice revoking your proxy, or (2) voting again at the
meeting.
What if I return my proxy card but do not include voting instructions?
Proxies that are signed and returned but do not include voting
instructions will be voted FOR the election of the nominated director, FOR the
approval of our 2006 Equity Incentive Plan amending and restating the 2004 Stock
Option Plan and FOR the approval of the appointment of our independent public
accountants.
What does it mean if I receive more than one proxy card?
It means that you have multiple accounts with brokers and/or our transfer
agent. Please vote all of these shares. We recommend that you contact your
broker and/or our transfer agent to consolidate as many accounts as possible
under the same name and address. Our transfer agent is Continental Sock Transfer
and Trust Company. The transfer agent's telephone number is (212) 509-4000.
Will my shares be voted if I do not provide my proxy?
If you hold your shares directly in your own name, they will not be voted
if you do not provide a proxy. Your shares may be voted under certain
circumstances if they are held in the name of a brokerage firm. Brokerage firms
generally have the authority to vote customers' unvoted shares on certain
"routine" matters, including the election of directors and the ratification or
approval of the appointment of independent public accountants. When a brokerage
firm votes its customer's unvoted shares, these shares are counted for purposes
of establishing a quorum. At our meeting these shares will be counted as voted
by the brokerage firm in the election of directors and the approval of the
appointment of our independent public accountants.
What vote is required to approve each item?
The affirmative vote of a plurality of the votes cast at the annual
meeting is required for approval of the election of directors, the affirmative
vote of a majority of the votes cast is required for the approval of the 2006
Equity Incentive Plan, amending and restating the 2004 Stock Option Plan and the
affirmative vote of a majority of the votes cast is required for the approval of
the appointment of our independent public accountants.
Do we currently have, or do we intend to submit for stockholder approval, any
anti-takeover device?
Our Certificate of Incorporation, By-Laws and other corporate documents do
not contain any provisions that contain material anti-takeover aspects except
for our classified board of directors. We have no plans or proposals to submit
any other amendments to the Certificate of Incorporation or By-Laws or other
measures in the future that have anti-takeover effects.
2
Proposal No. 1
ELECTION OF DIRECTORS
Our board of directors is a classified board with each class of directors
being elected each year for a term of three years. The persons named in the
accompanying proxy will vote for the election of the following person as a
director, who is presently a member of the Board of Directors, to hold office
for the term set forth below or until his respective successor has been elected
and qualified. Unless specified to be voted otherwise, each proxy will be voted
for the nominee named below. The nominee has consented to serve as a director if
elected.
Position with the Company Director Current Term
Name Age and Principal Occupation Since Expires
---- --- ------------------------ ----- -------
Jeffrey Levy 63 Director 1999 June 16, 2006
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
director and executive officer as of April 21, 2006:
Position with the Company Held Office Current Term
Name Age and Principal Occupation Since Expires
---- --- ------------------------ ----- -------
Frank Mandelbaum 72 Chairman, Chief Executive Officer and Director 1996 July 2007
Edwin Winiarz 48 Senior Executive Vice President, Treasurer, Chief 1999 June 2008
Financial Officer and Director
Russell T. Embry 42 Senior Vice President and Chief Technology 2001 N/A
Officer
Todd Liebman 32 Senior Vice President, Marketing and Operations 2004 N/A
Ashok Rao 56 Vice Chairman and Director 2004 July 2007
Jeffrey Levy 63 Director 1999 June 2006
John E. Maxwell 52 Director 2005 July 2007
Arthur L. Money 66 Director 2003 June 2008
Guy L. Smith 57 Director 2005 June 2008
Business Experience
Frank Mandelbaum has served as our Chairman of the Board and Chief
Executive Officer since July 1, 1996. He also served as Chief Financial Officer
until September 1999. From January 1995 through May 1997, Mr. Mandelbaum served
as a consultant providing strategic and financial advice to Pharmerica, Inc.
(formerly Capstone Pharmacy Services, Inc.), a publicly held company. Prior to
January 1995, Mr. Mandelbaum was Chairman of the Board, Chief Executive Officer
and Chief Financial Officer of Pharmerica, Inc. From July 1994 through December
1995, Mr. Mandelbaum served as Director and Chairman of the Audit and
Compensation Committees of Medical Technology Systems, Inc., also a publicly
held company. From November 1991 through January 1995, Mr. Mandelbaum served as
Director of the Council of Nursing Home Suppliers, a Washington, D.C. based
lobbying organization. From 1974 to date, Mr. Mandelbaum has been Chairman of
the Board and President of J.R.D. Sales, Inc., a privately held financial
consulting company. As required by his employment agreement, Mr. Mandelbaum
devotes substantially all his business time and attention to our business.
3
Edwin Winiarz was elected Senior Executive Vice President in July 2000 and
a director in August 1999 and became Executive Vice President, Treasurer and
Chief Financial Officer on September 7, 1999. From July 1994 until August 1999,
Mr. Winiarz was Treasurer and Chief Financial Officer of Triangle Service Inc.,
a privately held national service company. From November 1990 through July 1994,
Mr. Winiarz served as Vice President Finance/Controller of Pharmerica, Inc.
(formerly Capstone Pharmacy Services, Inc.). From March 1986 until November
1990, Mr. Winiarz was a manager with the accounting firm of Laventhal & Horwath.
Mr. Winiarz is a certified public accountant and holds an MBA in management
information systems from Pace University.
Russell T. Embry was elected Senior Vice President and Chief Technology
Officer in July 2001 and was Vice President, Information Technology, since July
1999. From January 1998 to July 1999, Mr. Embry was Lead Software Engineer with
RTS Wireless. From April 1995 to January 1998, he served as Principal Engineer
at GEC-Marconi Hazeltine Corporation. From August 1994 through April 1995, he
was a staff software engineer at Periphonics Corporation. From September 1989 to
August 1994, Mr. Embry served as Senior Software Engineer at MESC/Nav-Com. From
July 1985 through September 1989, he was a software engineer at Grumman
Aerospace. Mr. Embry holds a B.S. in Computer Science from Stony Brook and an
M.S. in Computer Science from Polytechnic University, Farmingdale.
Todd Liebman joined Intelli-Check, Inc. in December 2004 as its Senior
Vice President of Marketing and Operations. Prior to joining Intelli-Check, Mr.
Liebman served as President of Quick Kiosk, a Kinetics Company, LLC (QK), a
self-service solution provider focused on the quick serve restaurant market
industry from October 2000 to December 2004. In September 2004, Mr. Liebman
completed the sale of QK to NCR Corporation (NYSE:NCR). Prior to founding QK,
Mr. Liebman served as Director of Business Development of Trex Communications
Corporation (TrexCom), a telecommunications start-up focused on satellite
communications systems and multi-media interactive response systems, which was
sold to L-3 Communications, Inc. in February 2000. TrexCom grew from a start-up
in 1997 to $50 million in revenues and profitability in less than two years.
Prior to joining Trex Communications, Mr. Liebman was Associate Director,
Business Development for Thermo Electron Corporation (NYSE:TMO), a $4 billion
conglomerate and parent company of Trex Communications. From 1996 to 1997, he
worked as a Management Consultant at EMI Strategic Marketing, a strategic
consulting firm. Mr. Liebman received his Bachelor's of Science in Management
from Tulane University's A.B. Freeman School of Business. Mr. Liebman has also
participated in an Executive Education program at the University of
Pennsylvania's Wharton School of Business.
Ashok Rao was appointed a director in December 2004 and Vice Chairman in
January 2005. Mr. Rao is currently an angel investor in numerous high-tech
start-ups as well as the producer of motion pictures. Mr. Rao was CEO of Prime
Wave Communications, a broadband wireless access technology subsidiary of L3
from 2000 to 2003. Previously, he was the founder and chief executive officer of
TrexCom. He was instrumental in the sale of TrexCom to L3 in 2000. Mr. Rao holds
a bachelor's degree in mechanical engineering from the Indian Institute of
Technology, New Delhi, a master's degree in systems engineering from Marquette
University, and a diploma in Financial Management from the London School of
Economics. Mr. Rao is also a trustee of numerous charitable organizations.
Jeffrey Levy was elected a director in December 1999. He has been, since
January 1997, President and Chief Executive Officer of LeaseLinc, Inc., a
third-party equipment leasing company and lease brokerage company. Prior to
1997, Mr. Levy served as President and Chief Executive Officer of American Land
Cycle, Inc. and Goose Creek Land Cycle, LLC, arboreal waste recycling companies.
During that time he also served as Chief Operating Officer of ICC Technologies,
Inc. and AWK Consulting Engineers, Inc. Mr. Levy has had a distinguished career
as a member of the United States Air Force from which he retired as a colonel in
1988. He serves as a board member of the Northern Virginia Chapter of Mothers
Against Drunk Driving, the Washington Regional Alcohol Program, the Zero
Tolerance Coalition and the National Drunk and Drugged Driving Prevention Month
Coalition and is a member of the Virginia Attorney General's Task Force on
Drinking by College Students and MADD's National Commission on Underage
Drinking. Mr. Levy holds a BS in International Relations from the United States
Air Force Academy, a graduate degree in Economics from the University of
Stockholm and an MBA from Marymount University.
4
John E. (Jay) Maxwell was appointed a director in September 2005. Mr.
Maxwell retired as the Senior Vice President of Technology and the Chief
Information Officer (CIO) of the American Association of Motor Vehicle
Administrators (AAMVA) in August 2005. He was responsible for all of the
information systems developed, implemented and operated by AAMVA. At AAMVA, Mr.
Maxwell had the responsibility to direct AAMVA's development of Driver License
and ID Card Specifications intended to fight driver license and ID fraud and
abuse. Prior to that, from 1997 to May 2002, he was the President and Chief
Operating Officer of AAMVAnet, Inc., a subsidiary of AAMVA. Before joining AAMVA
in July 1989, Mr. Maxwell spent 11 years with the U.S. Department of
Transportation, working for the Federal Highway Administration and the National
Highway Traffic Safety Administration developing information systems to improve
highway safety.
Arthur L. Money was elected a director in February 2003. Mr. Money was
confirmed by the Senate and served as the Assistant Secretary of Defense for
Command, Control, Communications and Intelligence from 1999 to 2001 and was also
the Chief Information Officer for the Department of Defense from 1998 until
2001. Prior to that he served as the Senior Civilian Official, Office of the
Assistant Secretary of Defense, from 1998 to 1999 and was earlier confirmed by
the Senate as Assistant Secretary of the Air Force for Research, Development and
Acquisition and served as Chief Information Officer, from 1996 to 1998. Mr.
Money currently serves as a member of the advisory board of several corporations
including the Boeing Company (NYSE: BA). He also serves on the Board of
Directors of numerous companies including Silicon Graphics, Inc. (NYSE: SGI) and
CACI International (NYSE: CAI) and has been recognized for his vision,
leadership and commitment to excellence in systems and process re-engineering.
Mr. Money, who holds a Master of Science Degree in Mechanical Engineering from
the University of Santa Clara (Calif.) and a Bachelor of Science Degree in
Mechanical Engineering from San Jose (Calif.) State University also currently
serves on several U.S. Government Boards and Panels such as NIMA Advisory Board,
Defense Science Board, US Air Force AC2ISR Center Advisory Board and the US Navy
"DSAP" Special Advisory Panel. Prior to his government service, he had a
distinguished business career having served as President of ESL Inc., a
subsidiary of TRW, Inc., from 1990 to 1994 prior to its consolidation with its
Avionics and Surveillance Group when he became Vice President and Deputy General
Manager of the Group.
Guy L. Smith was elected a director in June 2005. Mr. Smith has been the
Executive Vice President of Diageo, the world's leading premium drinks company,
since 2000 and is responsible for Corporate Relations and Marketing Public
Relations. At Diageo, Mr. Smith's responsibilities include overseeing the
corporation's civic and social responsibility efforts in North America,
including the Diageo Marketing Code. The Code governs the company's social
responsibility activities with regard to the marketing and sale of alcoholic
beverages and the company's undertakings to reduce underage access and abuse of
alcohol. From 1998 - 1999, prior to joining Diageo, Mr. Smith was Special
Advisor to President Clinton on The White House staff, where he served on the
impeachment defense team. Mr. Smith also served as an informal strategic
communications advisor to President Clinton from the beginning of the Clinton
Administration. From 1999 - 2000, Mr. Smith was associated with The Hawthorn
Group, a Washington-based public affairs firm, as well as with his own firm,
Smith Worldwide Inc., from 1994 - 1996, which focused on reputation and crisis
management. He was Chief Operating Officer of Hill & Knowlton International
Public Relations, from 1992 - 1993, where he consulted with the firm's largest
consumer product, technology, and legal clients. Prior to that Mr. Smith was
Vice President-Corporate Affairs, the senior public affairs and public relations
officer, for Philip Morris Companies Inc. from 1975 - 1992. During his 17 years
with Philip Morris, Mr. Smith led the Corporate Affairs departments of the
Miller Brewing Company and The Seven-Up Company, both then Philip Morris
operating companies. Mr. Smith began his career as a reporter and assistant city
editor for The Knoxville Journal. He is currently chairman of the Barrier Island
Trust, an environmental protection organization and sits on the Board of
Advisors of Mount Vernon, George Washington's home outside Washington, DC. Mr.
Smith also serves as an Honorary Battalion Chief of the Fire Department of New
York.
5
Directors generally serve for staggered terms of three (3) years and hold
office until the next annual meeting, following the conclusion of their term, of
stockholders and the election and qualification of their successors. Executive
officers are elected by and serve at the discretion of the board of directors.
Compliance with Section 16(a) of the Exchange Act
The Securities and Exchange Commission has adopted rules relating to the
filing of ownership reports under Section 16 (a) of the Securities Exchange Act
of 1934. One such rule requires disclosure of filings, which under the
Commission's rules, are not deemed to be timely. During the review of Forms 4,
it was determined that: Mr. Rao failed to file a timely report concerning the
grant of 7,500 stock options on July 27, 2005; however, such failure was
remedied by the reporting of this transaction on August 5, 2005; Mr. Mandelbaum
failed to file a timely report concerning the grant of 25,000 stock options on
November 8, 2005, however, such failure was remedied by the reporting of this
transaction on February 1, 2006; Mr. Winiarz failed to file a timely report in
concerning the grant of 5,000 stock options on November 8, 20005, however, such
failure was remedied by the reporting of this transaction on February 1, 2006;
Guy L. Smith failed to file a timely report concerning the acquisition of 957
shares of our common stock on August 23, 2005, however such failure was remedied
by the reporting of this transaction on March 29, 2006. All other transactions
were reported in a timely fashion.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 2005, the board of directors
held eight meetings, the audit committee held five meetings, the corporate
governance and nominating committee held one meeting and the compensation
committee held no meetings. All of the directors attended at least 75% of the
aggregate of all Board and meetings of committees on which they served. The
Board of Directors has determined that Messrs. Levy, Maxwell, Money, Rao and
Smith, are each independent directors as defined in Section 121(A) of the
American Stock Exchange's listing standards. The Company does not have a written
policy relating to attendance by members of the board of directors at annual
shareholder meetings. However, it is communicated and understood by all
directors that they are required to attend barring any unforeseen circumstance.
With the exception of Arthur Money, all directors attended last year's annual
shareholder meeting.
Compensation Committee
The board of directors has established a compensation committee which is
currently comprised of Mr. Money, chairperson, Mr. Levy and Mr. Maxwell, each of
whom is independent as defined in Section 121(A) of the American Stock
Exchange's listing standards. The compensation committee reviews and recommends
to the board the compensation for all officers and directors of our company and
reviews general policy matters relating to the compensation and benefits of all
employees. The compensation committee also administers the stock option plans.
Corporate Governance and Nominating Committee
The board of directors has established a corporate governance and
nominating committee, which is comprised of Mr. Levy, chairperson, Mr. Money and
Mr. Smith, each of whom is independent as defined in Section 121(A) of the
American Stock Exchange's listing standards. The corporate governance and
nominating committee has adopted a written charter. The charter sets forth
responsibilities, authority and specific duties of the corporate governance and
nominating committee. A copy of the corporate governance and nominating
committee charter is attached hereto as Exhibit A. The corporate governance and
nominating committee reviews our internal policies and procedures and by-laws.
With respect to nominating director candidates, this committee identifies and
evaluates potential director candidates and recommends candidates for
appointment or election to the Board.
6
The corporate governance and nominating committee may consider those
factors it deems appropriate in evaluating director nominees, including
judgment, skill, diversity, strength of character, experience with businesses
and organizations comparable in size or scope to the Company, experience and
skill relative to other board members, and specialized knowledge or experience.
Depending upon the current needs of our Board of Directors, certain factors may
be weighed more or less heavily by the corporate governance and nominating
committee. In considering candidates for our Board of Directors, the corporate
governance and nominating committee will evaluate the entirety of each
candidate's credentials and, other than the eligibility requirements established
by the corporate governance and nominating committee, will not have any specific
minimum qualifications that must be met by a nominee. The corporate governance
and nominating committee will consider candidates for the Board from any
reasonable source, including current board members, shareholders, professional
search firms or other persons. The corporate governance and nominating committee
will not evaluate candidates differently based on who has made the
recommendation.
Although we do not currently have a formal policy or procedure for
stockholder recommendations of director candidates, the Board of Directors
welcomes such recommendations and will consider candidates recommended by
stockholders. Because we do not prohibit or restrict such recommendations, we
have not implemented a formal policy with respect to stockholder
recommendations. However, the Board may consider implementing such a policy in
the future.
Process for Sending Communications to the Board of Directors
Shareholders that wish to communicate with the board of directors are
welcomed to put their comments in writing addressed to the Company's Investor
Relations Representative, Edwin Winiarz. Such communications may be sent to the
Company's corporate headquarters located at 246 Crossways Park West, Woodbury,
NY 11797. Upon receipt, Mr. Winiarz will distribute the correspondence to the
directors.
Audit Committee
The board of directors has a separately designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, which is currently comprised of Mr. Rao, chairperson, Mr. Maxwell
and Mr. Smith. The members of the Audit Committee are independent as defined in
Section 121(A) of the American Stock Exchange's listing standards. The audit
committee recommends to the board of directors the annual engagement of a firm
of independent accountants and reviews with the independent accountants the
scope and results of audits, our internal accounting controls and audit
practices and professional services rendered to us by our independent
accountants. The Audit Committee has adopted a written charter. The charter sets
forth the responsibilities, authority and specific duties of the Audit
Committee. A copy of the Audit Committee Charter is attached hereto as Exhibit
B.
The Board of Directors has determined that it has at least one audit
committee financial expert serving on our audit committee. Mr. Rao holds a
diploma in Financial Management from the London School of Economics is an "audit
committee financial expert" and is an independent member of the board of
directors.
Acquisition Committee
The board of directors has recently established an acquisition committee
comprised of Ashok Rao, Frank Mandelbaum and Edwin Winiarz. The acquisition
committee recommends to the board of directors opportunities within the
Corporation's area of strategic development for merger and/or acquisition which
may enhance shareholder value.
7
Audit Committee Report
The following shall not be deemed to be "soliciting material" or to be
"filed" with the Commission nor shall such information be incorporated by
reference into any future filing of Intelli-Check under the Securities Act of
1933 or the Securities and Exchange Act of 1934.
With respect to the audit of the fiscal year ended December 31, 2005, and
as required by its written charter which sets forth its responsibilities and
duties, we have reviewed and discussed the Company's audited financial
statements with management.
In the course of its review, we have discussed with the independent
auditors those matters required to be discussed by Statement on Accounting
Standards No. 61, as amended, "Communication with Audit Committees," by the
Auditing Standards Board of the American Institute of Certified Public
Accountants.
We have received and reviewed the written disclosures and the letter from
the independent auditors required by Independence Standard No. 1, as amended,
"Independence Discussions with Audit Committee," by the Independence Standards
Board and have discussed with the auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommended to
the board of directors that the financial statements referred to above be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2005.
Audit Committee: Ashok Rao (Chair)
John E. Maxwell
Guy L. Smith
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 21, 2006 certain information
regarding beneficial ownership of Intelli-Check's common stock by each person
who is known by us to beneficially own more than 5% of our common stock. The
table also identifies the stock ownership of each of our directors, each of our
officers, and all directors and officers as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
Unless otherwise indicated, the address for each of the named individuals
is c/o Intelli-Check, Inc., 246 Crossways Park West, Woodbury, NY 11797-2015.
Shares of common stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise or conversion of options, warrants or
other similar convertible or derivative securities are deemed to be outstanding
for the purpose of computing the percentage ownership of such individual or
group, but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
8
The applicable percentage of ownership is based on 12,137,444 shares
outstanding as of April 21, 2006.
----------------------------------------------------------------------------------------
Shares
Beneficially
Name Owned Percent
----------------------------------------------------------------------------------------
Frank Mandelbaum (1) 1,627,330 12.34
----------------------------------------------------------------------------------------
Edwin Winiarz (2) 225,000 1.82
----------------------------------------------------------------------------------------
Todd Liebman (3) 165,000 1.34
----------------------------------------------------------------------------------------
Russell T. Embry (4) 59,000 *
----------------------------------------------------------------------------------------
Jeffrey Levy (5) 130,980 1.07
----------------------------------------------------------------------------------------
Arthur L. Money (6) 157,000 1.28
----------------------------------------------------------------------------------------
John E. Maxwell (7) 47,000 *
----------------------------------------------------------------------------------------
Guy L. Smith (8) 80,457 *
----------------------------------------------------------------------------------------
Ashok Rao (9) 98,500 *
----------------------------------------------------------------------------------------
Todd Cohen (10) 673,660 5.53
----------------------------------------------------------------------------------------
Empire State Development Corporation, formerly New York State
Science and Technology Foundation (11) 605,000 4.98
----------------------------------------------------------------------------------------
All Executive Officers & Directors as a group (9 persons) 2,590,267 18.31
----------------------------------------------------------------------------------------
* Indicates beneficial ownership of less than one percent of the total
outstanding common stock.
(1) Includes 1,047,549 shares issuable upon exercise of stock options and
rights exercisable within 60 days. Does not include 9,000 shares and 880
rights held by Mr. Mandelbaum's wife, for which Mr. Mandelbaum disclaims
beneficial ownership
(2) Includes 225,000 shares issuable upon exercise of stock options
exercisable within 60 days.
(3) Includes 165,000 shares issuable upon exercise of stock options
exercisable within 60 days.
(4) Includes 59,000 shares issuable upon exercise of stock options exercisable
within 60 days.
(5) Includes 128,580 shares issuable upon exercise of stock options
exercisable within 60 days.
(6) Includes 157,000 shares issuable upon exercise of stock options
exercisable within 60 days.
(7) Includes 47,000 shares issuable upon exercise of stock options exercisable
within 60 days.
(8) Includes 79,500 shares issuable upon exercise of stock options exercisable
within 60 days.
(9) Includes 98,500 shares issuable upon exercise of stock options exercisable
within 60 days.
(10) Includes 49,560 rights and 4,000 warrants which are exercisable within 60
days. The address is PO Box 20054, Huntington Station, NY 11746.
(11) Frances A. Walton, the Chief Financial Officer exercises voting and
dispositive power over the shares. The address is 30 South Pearl Street,
Albany, NY 12245.
9
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to executive officers
whose compensation was in excess of $100,000 for any of the three fiscal years
ended December 31, 2005. No other executive officers received total salary and
bonus compensation in excess of $100,000 during any of such fiscal years.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
------------ ------------
Securities
Underlying
Name and Principal Position Year Salary($) Options/SARS (#)
--------------------------- ---- --------- ----------------
Frank Mandelbaum 2005 250,000 25,000
Chairman and 2004 250,000 75,000
Chief Executive Officer 2003 250,000 100,000
Edwin Winiarz 2005 161,343 30,000
Senior Executive Vice President 2004 151,318 65,000
Chief Financial Officer 2003 141,750 30,000
Russell T. Embry 2005 162,766 5,000
Senior Vice President 2004 152,063 10,000
Chief Technology Officer 2003 150,000 12,500
Todd Liebman 2005 135,128 --
Senior Vice President 2004 4,231 175,000
Marketing and Operations
The options shown above were granted under the 1998, 1999, 2001, 2003 and
2004 Stock Option Plans as well as outside these plans and are exercisable as
follows: (1) Frank Mandelbaum - 25,000 options which are currently exercisable
at an exercise price of $3.22 per share; 75,000 options which are currently
exercisable at an exercise price of $4.37 per share and 100,000 options which
are currently exercisable at an exercise price of $8.22 per share; (2) Edwin
Winiarz - 25,000 options which are currently exercisable at an exercise price of
$5.64 per share; 5,000 options which are currently exercisable at an exercise
price of $3.18 per share; 50,000 options which are currently exercisable at an
exercise price of $4.37 per share; 15,000 options which are currently
exercisable at an exercise price of $5.25 per share and 30,000 options which are
currently exercisable at an exercise price of $8.22 per share; (3) Russell T.
Embry - 5,000 options which are currently exercisable at an exercise price of
$3.18 per share; 10,000 options which are currently exercisable at an exercise
price of $4.37 per share; 12,500 options at an exercise price of $7.44 per
share, which are currently exercisable; and (4) Todd Liebman - 175,000 options
at an exercise price of $4.57 per share of which 145,000 options are currently
exercisable and the remaining 30,000 options shall become exercisable upon Mr.
Liebman reaching certain sales goals. All options expire either five or ten
years after the date of vesting.
Option Grants in Last Fiscal Year
The following table summarizes options granted during the year ended
December 31, 2005 to the named executive officers:
10
-------------------------------------------------------------------------------------------------
Individual Grants
-------------------------------------------------------------------------------------------------
Number of % of Total Exercise Expiration Potential Realizable
Securities Options Price Date Value Assumed Annual
Underlying Granted to Rates of Appreciation
Name Options Employees In for Option (1)
Granted 2005 Fiscal ---------------------
Year 5% 10%
-------------------------------------------------------------------------------------------------
Russell T. Embry 5,000 3.3% $3.18 11/17/10 $ 4,393 $ 9,707
-------------------------------------------------------------------------------------------------
Frank Mandelbaum 25,000 16.5% $3.22 12/30/15 $22,241 $49,146
-------------------------------------------------------------------------------------------------
Edwin Winiarz 5,000 3.3% $3.22 12/30/15 $ 4,448 $ 9,829
-------------------------------------------------------------------------------------------------
Edwin Winiarz 25,000 16.5% $5.64 06/08/17 $38,956 $86,082
-------------------------------------------------------------------------------------------------
(1) The amounts shown as potential realizable value represent hypothetical
gains that could be achieved for the respective options if exercised at the end
of the option term. The 5% and 10% assumed annual rates of compounded stock
price appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent our estimate or projection of our future common
stock prices. These amounts represent certain assumed rates of appreciation in
the value of our common stock from the fair market value on the date of grant.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the common stock and overall stock market conditions. The amounts
reflected in the table may not necessarily be achieved.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values
The following table summarizes unexercised options granted through the
year-end December 31, 2005 to the named executive officers:
----------------------------------------------------------------------------------------------------------------------------
No. of Aggregate
Shares Dollar Value Value of Unexercised
Name Received Received No. of Securities In-the-Money
Upon Upon Underlying Unexercised Options At Fiscal
Exercise Exercise Options / Warrants Year End 12/31/05 (1)
----------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------------------------------
Frank Mandelbaum Chairman
& CEO 9,277 $ 44,250 975,000 0 $378,250 0
----------------------------------------------------------------------------------------------------------------------------
Edwin Winiarz, Senior
Executive VP & CFO 0 0 225,000 0 $ 3,350 0
----------------------------------------------------------------------------------------------------------------------------
Russell T. Embry, Senior
VP & CTO 0 0 59,000 0 $ 875 0
----------------------------------------------------------------------------------------------------------------------------
Todd Liebman, Senior VP
Marketing & Operations 0 0 145,000 30,000 0 0
----------------------------------------------------------------------------------------------------------------------------
(1) Based on the closing price of our common stock ($3.89) on December 30,
2005.
11
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements
On November 9, 2004, we entered into a new one-year employment contract
with our Chairman and Chief Executive Officer, Frank Mandelbaum, effective
January 1, 2005. The agreement provides for an annual base salary of $250,000.
In addition, we granted to Mr. Mandelbaum an option to purchase 75,000 shares of
common stock at an exercise price of $4.37 per share, of which 25,000 options
became exercisable on January 1, 2005; 25,000 options became exercisable on
January 1, 2006 and the remaining 25,000 options shall become exercisable on
January 1, 2007.
Effective January 1, 2006, we entered into a letter of understanding with
our Chairman and Chief Executive Officer that provides for an annual base salary
of $255,604. In addition, on November 8, 2005, we granted to Mr. Mandelbaum an
option to purchase 25,000 shares of common stock at an exercise price of $3.22
per share. We also agreed to provide a severance arrangement that in such case
that we were to terminate Mr. Mandelbaum for any reason other than cause we
would pay Mr. Mandelbaum 2 years of his annual cash base salary in 12 equal
monthly installments.
If there shall occur a change of control, as defined in the agreement, Mr.
Mandelbaum may terminate his employment at any time and be entitled to receive a
payment equal to 2.99 times his average annual compensation, including bonuses,
during the three years preceding the date of termination, payable in cash to the
extent of three months salary and the balance in shares of our common stock
based on a valuation of $2.00 per share.
On November 9, 2004, we entered into a new employment agreement with our
Senior Executive Vice President and Chief Financial Officer, Edwin Winiarz,
effective January 1, 2005. The agreement, which expires December 31, 2006,
provides for a fixed base annual salary of $162,086. In addition, we granted to
Mr. Winiarz an option to purchase 50,000 shares of common stock at an exercise
price of $4.37 per share, of which 25,000 options became exercisable on January
1, 2005 and 25,000 options became exercisable during the fourth quarter of 2005.
Each of the agreements requires the executive to devote substantially all
his time and efforts to our business and contains non-competition and
nondisclosure covenants of the officer for the term of his employment and for a
period of two years thereafter. Each agreement provides that we may terminate
the agreement for cause.
Compensation of Directors
Effective January 1, 2006, the board increased the fee non-employee
directors receive to $3,000 for in-person attendance at board meetings and $500
for attendance at such meetings telephonically. Each non-employee director will
also receive a fee of $250 for participation, either in-person or
telephonically, at each separately convened committee meeting not held in
conjunction with a board meeting. During 2003 and through 2005, non-employee
directors received 25,000 options for each full year of service on the Company's
board of directors. However, the board recommended that beginning in 2006
non-employee directors be given the choice of either the grant of restricted
shares of our common stock or stock options for their service as a board member
or as a member of a committee. The number of restricted shares or stock options
as proposed would be determined by the board at each annual board meeting.
During 2005, non-employee directors received a fee of $500 for attending
board meetings and $250 for attendance at such meetings telephonically. They
also received a fee of $300 for each committee meeting held on a date other than
that of a board meeting and are reimbursed for expenses incurred in connection
with the performance of their respective duties as directors. In addition,
non-employee directors who are members of a committee received grants of stock
options for each year served. The chairperson of the audit committee received an
option to purchase 7,500 shares of our common stock and audit committee members
received an option to purchase 3,000 shares of our common stock. Of the
remaining committees, each chairperson received an option to purchase 2,500
shares of our common stock, while a committee member received an option to
purchase 1,500 shares of our common stock. These options are immediately
exercisable during the committee members' term and expire ten years from date of
grant, unless the Director does not complete his full term, in which case the
options expire in ninety (90) days from the end of their service as a Director.
12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Introduction. The disclosure rules of the Securities and Exchange
Commission require us to provide certain information concerning the compensation
of the Chief Executive Officer and other executive officers of our company. We
review and recommend to our board of directors compensation of the executive
officers of our company. Decisions on the compensation of our Chief Executive
Officer are made by the board and salaries of other executive officers are set
in relation to the salary of the Chief Executive Officer.
Structure. Compensation of our executive officers has consisted of salary
and stock option grants. Stock options have been used to reward executives for
actions which increase shareholder value and to attract and retain high quality
executives by providing long-term incentives. The Company had no bonus plan
through 2005 for executives nor does it provide retirement benefits. We believe
our compensation policy is fair to our employees and shareholders. Our total
compensation package is competitive within our industry. For 2006, the Board of
Directors approved a bonus plan for executives and employees which consists of a
bonus pool of up to $200,000 should the Company exceed the financial projections
included in the approved 2006 budget by that amount. Should Mr. Mandelbaum and
Mr. Winiarz attain their goal for a bonus as defined in their understanding of
employment/employment agreements, they would not be eligible to participate in
the afore-mentioned bonus pool.
Base Salary. Since 1996, we have relied on our own informal surveys of
compensation levels as well as the financial condition of the Company to gauge
the reasonableness of the compensation of Frank Mandelbaum, our Chief Executive
Officer. Mr. Mandelbaum's compensation was at an annual rate of $250,000 for the
2005 fiscal year which was established in February 2002 when we entered into a
new three year employment agreement with him. Effective January 1, 2006, we
entered into a letter of understanding with Mr. Mandelbaum that provides for an
annual base salary of $256,804. We also agreed in case we were to terminate Mr.
Mandelbaum for any reason other than cause, we would pay Mr. Mandelbaum two (2)
years of his cash base salary in twelve (12) equal monthly installments.
All executive officer salaries are reviewed on an annual basis. In
deciding on changes in the annual base salary of the Chief Executive Officer,
which will occur annually, the Compensation Committee considers several
performance factors. Among these are operating and administrative efficiency and
the maintenance of an appropriately experienced management team. The
Compensation Committee also evaluates the Chief Executive Officer's performance
in the area of finding and evaluating new business opportunities to establish
the most productive strategic direction for our company. Salary changes for
other executives are based primarily on their performance in supporting the
strategic initiatives of the Chief Executive Officer, economic and competitive
factors, meeting individual goals and objectives set by the Chief Executive
Officer, and improving the operating efficiency of our company. Also, where
applicable, changes in the duties and responsibilities of each other executive
officer may be considered in deciding on changes in annual salary.
Stock Options. Stock options have been administered by the Compensation
Committee of the Board of Directors. Our board and shareholders have approved
four stock option plans for employees, directors and consultants of our company.
Amounts available and options granted pursuant to those plans are set forth in
the tables below.
Compensation Committee: Arthur L. Money (Chair)
Jeffrey Levy
John E. Maxwell
13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The board of directors has established a compensation committee which is
currently comprised of Mr. Money, chairman, Mr. Levy and Mr. Maxwell. No member
of the Compensation Committee has a relationship that would constitute an
interlocking relationship with Executive Officers or Directors of the Company or
another entity.
CERTAIN TRANSACTIONS
On January 1, 2005, we renewed our agreement with Alexandros Partners LLC
to act as a consultant in advising us in financial and investor relation
matters. John Hatsopoulos, who was a member of our Board of Directors, is a
principal of Alexandros Partners LLC. We agreed to pay a consulting fee of
$50,000, payable in 12 equal monthly installments of $4,166. The agreement
terminated on December 31, 2005. This transaction was approved by all of the
independent directors of our Board of Directors.
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return on
our common stock assuming a $100 investment as of December 31, 2000, and based
on the market prices at the end of each fiscal year, with the cumulative total
return of the AMEX Market Value Index and the AMEX Technology Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG INTELLI-CHECK, INC., THE AMEX MARKET VALUE (U.S.) INDEX
AND THE AMEX TECHNOLOGY INDEX
[LINE CHART OMITTED]
* $100 invested on 12/31/00 in stock or index-including
reinvestment of dividends. Fiscal year ending December 31.
Cumulative Total Return
---------------------------------------------------
12/00 12/01 12/02 12/03 12/04 12/05
---------------------------------------------------
INTELLI-CHECK, INC 100.00 167.26 63.45 72.74 41.38 35.77
AMEX MARKET VALUE (U.S.) 100.00 88.73 75.76 108.19 128.37 142.31
AMEX TECHNOLOGY 100.00 90.91 53.94 84.40 93.92 83.94
14
Proposal No. 2
PROPOSED 2006 EQUITY INCENTIVE PLAN
There is being submitted to the shareholders for the approval at the
Annual Meeting, the Intelli-Check, Inc. 2006 Equity Incentive Plan, which amends
and restates the Company's 2004 Stock Option Plan (the "2006 Plan"). The number
of shares authorized for issuance under the 2006 Plan remains 850,000 shares of
our common stock. However, the 2006 Plan now provides for the issuance of both
restricted stock awards and stock options. The 2006 Plan, amending and restating
the Company's 2004 Stock Option Plan, was approved by our board of directors at
a meeting held on March 24, 2006, subject to shareholder approval.
The table below reflects options to purchase shares of the Company's
common stock that were granted to the indicated persons under the Company's 2004
Stock Option Plan, which the Company is asking stockholders to amend in this
Proposal 2.
2006 Equity Incentive Plan (1)
Name and Position Dollar Value($) Number of Units
----------------------------------- --------------- ---------------
Frank Mandelbaum 0 0
Chairman & CEO
Edwin Winiarz 0 0
Senior Executive Vice President and
CFO
Russell T. Embry 0 0
Senior Vice President and CTO
Todd Liebman $385,988 125,000
Senior Vice President, Marketing
and Operations
All named executive officers as a $385,988 125,000
group
All non-executive directors as a $787,243 216,000
group
All non-named executive officers as 0 0
a group
(1) The description of the 2006 Plan below reflects the 2006 Plan as it
would amend the 2004 Stock Option Plan if this Proposal 2 were approved by the
company's stockholders.
The purposes of the 2006 Plan are to attract and retain key employees,
directors, consultants and advisors who are expected to contribute to our future
growth and success and to provide additional incentive by permitting such
individuals to participate in the ownership of the Company. There are currently
options to purchase 509,000 shares of the Company's common stock outstanding
under the 2004 Stock Option Plan. Any proceeds derived from the sale of Shares
subject to options will be used for general corporate purposes. A copy of the
2006 Plan as it would be adopted by the approval of Proposal 2 is attached to
this Proxy Statement as Exhibit C.
15
If Proposal 2 is approved, the administrators of the 2006 Plan will be
permitted to issue restricted shares of common stock and options to purchase
shares of common stock to participants. The addition of restricted stock awards
will provide the Board of Directors with additional flexibility to determine how
to provide the most incentive to participants and the type of incentives to
grant due to the recent changes in the accounting rules with respect to the
issuance of stock options.
Under the 2006 Plan, as it would be amended by Proposal 2, up to 850,000
shares of the Company's common stock are authorized for issuance to directors,
employees and independent contractors of, the Company and any subsidiary
corporations pursuant to options or restricted stock awards. Options granted
under the 2006 Plan may be either incentive stock options (incentive options)
within the meaning of Section 422 of the Code and/or options that do not qualify
as incentive options (nonqualified options); provided, however, that only
employees of the Company or a subsidiary corporation are eligible to receive
incentive options. The 2006 Plan, which expires in March 2016, is administered
by the Compensation Committee of the Board of Directors (the "Committee").
Options granted under the 2006 Plan will be exercisable for a period fixed
by the Committee, but no longer than 10 years from the date of grant, at an
exercise price which is not less than the fair market value of the Company's
common stock on the date of the grant, except that the term of an incentive
option granted under the 2006 Plan to a stockholder who owns (or is deemed to
own) more than 10% of the outstanding voting power may not exceed five years and
its exercise price may not be less than 110% of the fair market value of the
shares on the date of grant. To the extent that the aggregate fair market value,
as of the date of grant, of the shares of the Company's common stock for which
incentive options become exercisable for the first time by an Optionee during
the calendar year exceeds $100,000, the portion of such option which is in
excess of the $100,000 limitation will be treated as a nonqualified option.
Options granted under the 2006 Plan to employees (including officers) of
the Company may be exercised only while the Optionee is employed by the Company
or within three months of the date of termination of the relationship, except
that: (i) if the individual is terminated for cause, the option shall terminate
immediately and no longer be exercisable, and (ii) if options which are
exercisable at the time the Optionee's employment is terminated by death or
disability such options may be exercised within one year of the date of
termination of the employment relationship. With respect to options granted to
individuals who are not employees of the Company, the Committee shall determine
the consequences, if any, of the termination of the Optionee's relationship with
the Company. Payment of the exercise price of an option may be made by cash, by
surrender of Shares having a fair market value equal to the exercise price, or
by any other means that the Committee determines.
Each restricted stock award will be evidenced by a written restricted
stock agreement. The Committee may determine if any consideration will be
required to be paid by the plan participant to receive the shares of common
stock other than in the form of services performed under the terms and
conditions determined by the Committee and specified in the restricted stock
agreement. Terms and conditions for shares that are part of the award may
include the completion of a specified number of years of service or attaining
certain performance goals prior to the restricted Shares subject to the award
becoming vested. Upon termination, if the restricted stock is not vested, the
shares will be canceled by the Company.
A participant may be granted more than one award under the 2006 Plan. The
Committee will, in its discretion, determine (subject to the terms of the 2006
Plan), among other things, who will be granted an award, the time or times at
which awards shall be granted, and the number of shares of common stock subject
to each award, whether options are incentive options or nonqualified options,
the manner in which options may be exercised and the vesting schedule of any
award. In making such determination, consideration shall be given to the value
of the services rendered by the respective individuals, their present and
potential contributions to the success of the Company and its subsidiaries and
such other factors deemed relevant in accomplishing the purposes of the 2006
Plan. The maximum number of Shares issuable pursuant to awards granted to a plan
participant in a fiscal year of the Company is 150,000.
16
The 2006 Plan may be amended or terminated by the Board at any time,
provided that no amendment requiring stockholder approval by law or by the rules
of the American Stock Exchange or any other market in which Shares are traded
may be made without stockholder approval. The 2006 Plan specifically provides
for repricings or reissuances of options without stockholder approval. Also, no
amendment or termination may materially adversely affect any outstanding award
without the written consent of the participant. The foregoing summary of the
2006 Plan is qualified in its entirety by the specific language of the 2006
Plan.
If Proposal 2 is not adopted, the 2004 Stock Option Plan will remain in
full force and effect unamended.
Currently, there are twenty-five (25) employees and directors who would be
entitled to receive stock options and/or restricted shares under this Plan.
Future new hires and additional consultants would be eligible to participate in
the Plan as well. The number of stock options and/or restricted shares to be
granted to executives and directors cannot be determined at this time as the
grant of stock options and/or restricted shares is dependent upon various
factors such as hiring requirements and job performance.
The 2006 Plan will be administered by the Compensation Committee appointed
by the Board of Directors. The Compensation Committee currently consists of
Messrs. Money, Levy and Maxwell. None of Mr. Money, Mr. Levy or Mr. Maxwell is
an employee of our Company.
Equity Compensation Plan Information
We maintain various stock plans under which options vest and shares are
awarded at the discretion of our Board of Directors or its Compensation
Committee. The purchase price of the shares under the plans and the shares
subject to each option granted is not less than the fair market value on the
date of grant. The term of each option is generally five to ten years and is
determined at the time of grant by our Board of Directors or its Compensation
Committee. The participants in these plans are officers, directors, employees
and consultants of the Company and its subsidiaries or affiliates. The table
below provides information relating to our outstanding stock plans as of
December 31, 2005.
-----------------------------------------------------------------------------------------------------------------
Weighted
Number of average Number of securities
Securities exercise price of remaining available for future
Plan Category to be issued upon outstanding issuance under equity
exercise of options, compensation plans
outstanding options, warrants (excluding securities reflected
warrants and rights and rights in column a)
(a) (b) (c)
-----------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders (1) 1,925,530 $7.27 728,361
-----------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders (2) 839,425 $6.55 None
-----------------------------------------------------------------------------------------------------------------
Total 2,764,955 $6.77 728,361
-----------------------------------------------------------------------------------------------------------------
(1) Includes options outstanding under the Company's 2004 Stock Option Plan,
which the Board of Directors is asking the stockholders to amend in
Proposal 2.
(2) The shares of common stock listed under equity compensation plans not
approved by stockholders in the above table consist of shares of common
stock issuable pursuant to the Board's approval of such options granted to
our officers, employees or consultants. The vesting schedule of the
options varies, with some vesting immediately and some vesting upon the
completion of certain performance objectives.
17
Federal Income Tax Consequences
The following is a general summary of the federal income tax consequences
under current tax law of options and restricted stock. It does not purport to
cover all of the special rules, including special rules relating to participants
subject to Section 16(b) of the Exchange Act and the exercise of an option with
previously-acquired shares, or the state or local income or other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the underlying shares or the ownership and
disposition of restricted stock.
A participant will not recognize taxable income for federal income tax
purposes upon the grant of a nonqualified option or an incentive option.
Upon the exercise of an incentive option, the Optionee will not recognize
taxable income. If the Optionee disposes of the shares acquired pursuant to the
exercise of an incentive option more than two years after the date of grant and
more than one year after the transfer of the shares to him or her, the Optionee
will recognize long-term capital gain or loss and the Company will not be
entitled to a deduction. However, if the Optionee disposes of such shares within
the required holding period, all or a portion of the gain will be treated as
ordinary income and the Company will generally be entitled to deduct such
amount. Long-term capital gain is generally subject to more favorable tax
treatment than ordinary income or short-term capital gain.
Upon the exercise of a nonqualified option, the Optionee will recognize
ordinary income in an amount equal to the excess, if any, of the fair market
value of the shares acquired on the date of exercise over the exercise price
thereof, and the Company will generally be entitled to a deduction for such
amount at that time. If the Optionee later sells shares acquired pursuant to the
exercise of a nonqualified option, he or she will recognize long-term or
short-term capital gain or loss, depending on the period for which the shares
were held.
In addition to the federal income tax consequences described above, an
Optionee may be subject to the alternative minimum tax, which is payable to the
extent it exceeds the Optionee's regular tax. For this purpose, upon the
exercise of an incentive option, the excess of the fair market value of the
shares over the exercise price therefore is an adjustment which increases
alternative minimum taxable income. In addition, the Optionee's basis in such
shares is increased by such excess for purposes of computing the gain or loss on
the disposition of the shares for alternative minimum tax purposes. If an
Optionee is required to pay an alternative minimum tax, the amount of such tax
which is attributable to deferral preferences (including the incentive option
adjustment) is allowed as a credit against the Optionee's regular tax liability
in subsequent years. To the extent the credit is not used, it is carried
forward.
A participant who receives a grant of restricted stock will generally
receive ordinary income equal to the fair market value of the stock at the time
the restriction lapses. Alternatively, the participant may elect to be taxed on
the value at the time of grant. The Company is generally entitled to a deduction
at the same time and in the same amount as the income required to be included by
the participant.
Our Board of Directors is recommending the adoption of the 2006 Plan. The
description of the proposed 2006 Plan set forth above is qualified in its
entirety by reference to the text of the 2006 Plan as set forth in Exhibit C,
attached hereto.
18
Proposal No. 3
APPROVAL OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of our board of directors appointed Amper, Politziner
& Mattia, P.C. as independent public accountants to examine Intelli-Check's
financial statements for the fiscal year ending December 31, 2006. The board of
directors recommends approval of such appointment.
On April 21, 2004, the Company dismissed its independent auditors, Grant
Thornton LLP ("Grant Thornton"), and engaged Amper, Politziner & Mattia P.C.
("Amper") as its new independent registered public accounting firm. The change
in auditors became effective immediately. This determination followed the
Company's decision to seek proposals from independent accountants to audit the
financial statements of the Company, and was approved by the Company's Board of
Directors upon the recommendation and approval of its Audit Committee. The audit
reports of Grant Thornton on the Company's financial statements for the years
ended December 31, 2003 and 2002 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During our fiscal years ended December 31,
2003 and 2002, and through the date of Grant Thornton's dismissal on April 21,
2004, there were no disagreements between the Company and Grant Thornton on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to Grant
Thornton's satisfaction, would have caused Grant Thornton to make reference to
the subject matter of the disagreement in connection with its reports.
Representatives of Amper, Politziner & Mattia, P.C. are expected to be
present at the annual meeting of shareholders with the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
Principal Accountant Fees and Services
Until April 21, 2004, our principal independent auditor was Grant Thornton
LLP. Thereafter, our principal independent auditor was Amper, Politziner &
Mattia, P.C. The services of each were provided in the following categories and
amount:
AUDIT FEES
We were billed $6,000 by Grant Thornton LLP for fees relating to the
transition to Amper, Politziner and Mattia, P.C. as our auditors during 2004.
The aggregate fees billed by Amper, Politziner and Mattia, P.C. for
professional services rendered for the audit of the Company's annual financial
statements for the fiscal years ended December 31, 2004 and 2005 and for the
reviews of the financial statements included in the Company's Quarterly Reports
on Form 10-Q for fiscal years 2004 and 2005 amounted to $78,400 and $86,625,
respectively.
AUDIT RELATED FEES
Other than the fees described under the caption "Audit Fees" above, Amper,
Politziner and Mattia, P.C. did not bill any fees for services rendered to us
during fiscal year 2004 or 2005 for assurance and related services in connection
with the audit or review of our financial statements.
TAX FEES
Amper, Politziner and Mattia, P.C. billed us for tax related services for
fiscal 2004 totaling $4,500, and will perform tax related services for us for
fiscal 2005, which we estimate to be approximately $4,000.
19
ALL OTHER FEES
We were billed $18,725 by Grant Thornton LLP for fees relating to our
private placement completed in 2005.
The aggregate fees billed by Amper, Politziner and Mattia, P.C. for
professional services rendered in connection with our private placement
completed August 8th and 9th, 2005 and the filing of our Registration Statement
on Form S-3 amounted to $24,000.
No other fees were billed by our auditors for 2004 or 2005.
PRE-APPROVAL OF SERVICES
The Audit Committee pre-approves all services, including both audit and
non-audit services, provided by our independent accountants. For audit services,
each year the independent auditor provides the Audit Committee with an
engagement letter outlining the scope of proposed audit services to be performed
during the year, which must be formally accepted by the Committee before the
audit commences. The independent auditor also submits an audit services fee
proposal, which also must be approved by the Committee before the audit
commences.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
mentioned above to be presented to the meeting. However, if other matters
properly come before the meeting, the individual named in the accompanying proxy
shall vote on such matters in accordance with his best judgment.
ANNUAL REPORT
Our annual report to stockholders concerning our operations during the
fiscal year ended December 31, 2005, including audited financial statements, has
been distributed to all record holders as of the record date. The annual report
is not incorporated in the proxy statement and is not to be considered a part of
the soliciting material.
UPON WRITTEN REQUEST, WE WILL PROVIDE, WITHOUT CHARGE, A COPY OF OUR
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005, TO EACH
SHAREHOLDER OF RECORD OR TO EACH SHAREHOLDER WHO OWNED OUR COMMON STOCK LISTED
IN THE NAME OF A BANK OR BROKER, AS NOMINEE, AT THE CLOSE OF BUSINESS ON APRIL
21, 2006. ANY REQUEST BY A SHAREHOLDER FOR OUR ANNUAL REPORT ON FORM 10-K SHOULD
BE SENT TO INVESTOR RELATIONS AT INTELLI-CHECK, INC., 246 CROSSWAYS PARK WEST,
WOODBURY, NEW YORK 11797.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders' proposals intended to be presented at next year's Annual
Meeting of Shareholders must be submitted in writing to INVESTOR RELATIONS at
INTELLI-CHECK, INC., 246 CROSSWAYS PARK WEST, WOODBURY, NEW YORK 11797, no later
than January 26, 2007 for inclusion in the Company's proxy statement and form of
proxy for that meeting. Although proposals that are not timely submitted will
not be included in the proxy statement for next year's Annual Meeting of
Shareholders, the SEC rules allow proxies to grant discretionary authority to
vote on matters that were not timely submitted to the Company for inclusion in
the proxy statement, provided that the Company had notice of such matters no
later than March 30, 2007.
20
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Shareholders may read and copy any reports, statements
or other information that we file at the SEC's public reference room in
Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference room. Our public filings are also available from
commercial document retrieval services and at the Internet Web site maintained
by the SEC at http://www.sec.gov.
SHAREHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROXY STATEMENT TO VOTE THEIR SHARES AT THE ANNUAL MEETING.
NO ONE HAS BEEN AUTHORIZED TO PROVIDE ANY INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED MAY 19,
2006. STOCKHOLDERS SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE.
By Order of the Board of Directors,
Frank Mandelbaum
Chairman
21
Exhibit A
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE CHARTER
Composition and Term of Office
The Board of Directors shall designate annually three or more of its independent
members to constitute members of the Nominating and Corporate Governance
Committee.
Responsibilities
The Committee shall have the power and duty to:
1. Review, at least annually, the structure of the Board to assure that
the proper skills and experience are represented on the Board. At
least 2/3 of the members of the Board shall be independent
directors.
2. Recommend to the full Board:
(a) nominees to fill vacancies on the Board as they occur; and
(b) prior to each annual meeting of shareholders, a slate of
nominees for election or reelection as Directors by the
shareholders at the annual meeting.
3. Seek out and evaluate candidates to serve as Board members, and
consider candidates submitted by shareholders of the Company in
accordance with the notice provisions and procedures set forth in
the by-laws of the Company.
4. Periodically make recommendations to the Board with respect to the
size of the Board.
5. Recommend to the Board the membership of the committees of the
Board.
6. Periodically make recommendations to the Board with respect to the
compensation of Board members.
7. Make all determinations as to whether or not an individual is
independent, taking into account any applicable regulatory
requirements and such other factors as the Committee may deem
appropriate.
8. Make recommendations to the Board regarding corporate governance
matters and practices, including formulating and periodically
reviewing corporate governance guidelines to be adopted by the
Board.
9. Perform such other functions as may from time to time be assigned by
the Board of Directors.
Meeting Times
The Committee shall meet prior to the annual meeting each year and at such other
times as any member of the Committee may request.
The Committee may diverge from the specific activities outlined throughout this
Charter as appropriate if circumstances or regulatory requirements change. In
addition to these activities, the Committee may perform such other functions as
necessary or appropriate under applicable laws, regulations, AMEX rules, the
Corporation's certificate of incorporation and by-laws, and the resolutions and
other directives of the Board.
This Charter is in all respects subject and subordinate to the Corporation's
certificate of incorporation and by-laws, the resolutions of the Board and the
applicable provisions of the Delaware General Corporation Law.
22
Exhibit B
AUDIT COMMITTEE CHARTER
The Audit Committee of the Board of Directors (the "Committee") shall assist the
Board of Directors in fulfilling its fiduciary and other obligations with
respect to accounting and financial matters. Specifically, and without limiting
the generality of the foregoing, the Committee shall:
1. Consist of at least three qualified (solely) Independent members of
the Board of Directors ("Board") appointed by the Board, each of
whom is able to read and understand fundamental financial
statements. The audit committee must have at least one member that
has employment experience in finance or accounting, professional
certification in accounting or any comparable experience or
background which results in the individual's financial
sophistication including being or having been a CEO, CFO or other
similar senior officer financial role. The Board also appoints the
chairperson of the Committee.
2. Review the qualification, performance and independence of the
Corporation's independent auditors and recommend independent
auditors for appointment annually by the Board.
3. Establish an open avenue of communications among the independent
accountants, financial and senior management and the Board of
Directors. Affirm that the independent accountants report directly
to the Audit Committee and the Board.
4. Review with the auditors the adequacy and effectiveness of the
Corporation's system of internal financial controls and accounting
practices to achieve reliability and integrity in the Corporation's
financial statements, and initiate such examinations of such
controls and practices as the Committee deems advisable. As part of
this process, the Committee shall review the auditor's management
review letter each year.
5. Review the authority and duties of the Corporation's chief financial
officer and chief accounting officer and the performance by each of
them of their respective duties.
6. As the outside auditors are ultimately accountable to the board of
directors and the audit committee, the audit committee will
evaluate, sole authority to select and where appropriate, replace
the outside auditor(or to nominate the outside auditor to be
proposed for shareholder approval in any proxy statement)
7. Prior to the commencement of the Corporation's annual external
audit, review with the Corporations' independent auditors the scope
of their audit function and estimated audit fees.
8. Subsequent to the completion of the Corporation's annual external
audit, review the report and recommendations of the independent
auditors with the independent auditors and the Corporations'
management, as well as any difficulties encountered during the
course of the audit.
9. Review the annual and quarterly consolidated financial statements of
the Corporation and other financial disclosures of the Corporation
and the accounting principles being applied in such statements and
disclosures.
10. Prior to public release, review with management and the independent
accountants, the financial results for the prior year including the
Corporation's annual report on Form 10-K.
23
11. Meet with the chief financial officer and the independent
accountants, in separate executive sessions, to discuss any matters
that the committee or these groups believe should be considered
privately.
12. Review the insurance programs of the Corporation including
professional malpractice, general liability, director and officer
liability and property insurance, and the insurers carrying the
Corporation's insurance.
13. Oversee the establishment and thereafter periodically review a
corporate code of conduct and the Corporation's policies on ethical
business practices.
14. Define a policy on corporate securities trading.
15. Review and reassess the adequacy of this charter on an annual basis.
24
EXHIBIT C
INTELLI-CHECK, INC.
2006 EQUITY INCENTIVE PLAN
Amending and Restating the 2004 Stock Option Plan
1. Purpose. Intelli-Check, Inc., a Delaware corporation ("Intelli-Check"),
desires to attract and retain the best available talent and to encourage the
highest level of performance. The Intelli-Check, Inc. 2004 Stock Option Plan
originally effective July 18, 2004 is hereby amended and restated effective
March 24, 2006 (the "Effective Date") and renamed the 2006 Stock Option Plan
(the "Plan") to bring it into compliance with recent changes in applicable laws
and to add to the Plan the ability to grant Restricted Stock. The Plan is
intended to provide eligible directors, employees and independent contractors of
Intelli-Check and its affiliates (whether or not incorporated) (collectively,
with Intelli-Check, the "Company") the opportunity to acquire a proprietary
interest in Intelli-Check through the grant of stock options ("Options") to
purchase shares of common stock, $.001 par value per share, of Intelli-Check
("Common Stock") and the grant of restricted shares of Common Stock ("Restricted
Stock").
2. Administration.
(a) In General. Subject to paragraph (b) hereof, the Plan shall be
administered by the board of directors of Intelli-Check (the "Board"). The Board
shall have plenary authority in its discretion, to the maximum extent
permissible by applicable law, subject to and not inconsistent with the express
provisions of the Plan, to make all awards of Options and/or Restricted Stock
under the Plan ("Awards"), to select from among eligible persons those
individuals who will receive Awards, to determine the number of shares of Common
Stock covered by each Award, the Option exercise price per share of Common Stock
covered by each Option (and, in connection therewith, determine the Fair Market
Value (as defined in Section 18(c)) of the Common Stock consistent with
applicable laws), and the restrictions, if any, which shall apply to the Common
Stock subject to an Option or Award of Restricted Stock, to determine the terms
and conditions of each Award, to approve the form of each Award agreement (an
"Award Agreement"), to amend any such Award Agreement from time to time, to
construe and interpret the Plan and all Award Agreements executed thereunder and
to make all other determinations necessary or advisable for the administration
of the Plan. In exercising its authority to set the terms and conditions of
Awards, and subject only to the limits of applicable law, the Board shall be
under no obligation or duty to treat similarly situated grantees of an Award
Agreement ("Grantees") in the same manner, and any action taken by the Board
with respect to the grant of an Option and/or Restricted Stock to one Grantee
shall in no way obligate the Board to take the same or similar action with
respect to any other Grantee. The Board may adopt such rules as it deems
necessary or advisable in order to carry out the purpose of the Plan. All
questions of interpretation, administration and application of the Plan shall be
determined by a majority of the members of the Board then in office, except that
the Board may authorize any one or more of its members, or any officer of the
Company, to execute and deliver documents (including any applicable Award
Agreement) on behalf of the Board or Intelli-Check. Any interpretation or
determination made by the Board pursuant to the foregoing shall be conclusive
and binding upon any person having or claiming any interest under the Plan. No
Restricted Stock or Options may be granted by any person other than the Board.
No Award may be granted under this Plan subject to Board approval by the
officers of Intelli-Check unless the Committee (as defined below) approves the
grant of such Restricted Stock award or option subject to Board approval.
(b) Appointment of Committee. Notwithstanding paragraph (a), the
Board may appoint a committee of not fewer than two members of the Board (the
"Committee") and transfer to the Committee some or all of its authority
hereunder. If the Board creates a Committee, the Board may from time to time
appoint members of the Committee in substitution for or in addition to members
previously appointed and may fill vacancies, however caused, in the Committee.
To the extent necessary to comply with Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Act") with respect to Awards to officers,
directors and holders of 10% or more of our outstanding common stock, each
member of the Committee shall be a "non-employee director" within the meaning of
Rule 16b-3 and, to the extent necessary to exclude Options and/or Restricted
Stock granted under the Plan from the calculation of the income tax deduction
limit under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), each member of the Committee shall be an "outside director" within the
meaning of Code Section 162(m). To the extent necessary to be consistent with
the provisions of this paragraph (b), any reference in the Plan and/or an Award
Agreement to a decision, determination or action of the Board shall be read and
understood as referring to a decision, determination or action of the Committee.
25
(c) Liability of Board and Committee Members. Except as otherwise
required by law, no member of the Board or the Committee shall be liable for
anything whatsoever in connection with the administration of the Plan other than
such member's own willful misconduct. Under no circumstances shall any member of
the Board or the Committee be liable for any act or omission of any other member
of the Board or the Committee. In the performance of its functions with respect
to the Plan, the Board and the Committee shall be entitled to rely upon
information and advice furnished by Intelli-Check's officers, Intelli-Check's
accountants, Intelli-Check's legal counsel and any other party the Board or the
Committee deems necessary, and no member of the Board or Committee shall be
liable for any action taken or not taken in reliance upon any such advice.
3. Compliance with Code Section 409A. Notwithstanding any other provisions
of the Plan, the Board shall have no authority to issue an Award under the Plan
under terms and conditions which would cause such Award to be considered
nonqualified "deferred compensation" subject to the provisions of Code Section
409A. Accordingly, by way of example but not limitation, no Options shall be
issued with an exercise price below Fair Market Value and all Restricted Stock
shares shall be issued and reported as income to the Grantee no later than two
and one half (2 1/2) months after the end of the calendar year in which the
right to such shares becomes vested.
4. Type of Awards. The Board shall have authority to grant both Options
and Restricted Stock under the Plan. Options granted under the Plan may be
either incentive stock options ("ISOs") intended to meet the requirements of
Code Section 422 or nonqualified stock options ("NSOs") which are not intended
to meet such Code requirements. Restricted Stock may be granted under the Plan
pursuant to Section 8 or may be received by exercise of an Option as provided in
Section 7 of the Plan.
5. Eligible Persons. Subject in the case of ISOs to Section 7(f), Options
and/or Restricted Stock may be awarded to directors, employees and/or
independent contractors of the Company. For purposes hereof, the term
"independent contractors" shall include consultants, advisors and directors of
the Company. In determining the persons to whom awards shall be made and the
number of shares to be covered by each Award, the Board shall take into account
the duties of the respective persons, their present and potential contributions
to the success of the Company and such other factors as the Board, in its
discretion, shall deem relevant in connection with accomplishing the purposes of
the Plan.
6. Shares Subject to the Plan. No more than eight hundred fifty thousand
(850,000) shares of Common Stock shall be issued pursuant to Awards under the
Plan. The maximum aggregate number of shares of Common Stock for which Options
may be granted to any one individual within one fiscal year of Intelli-Check
shall be one hundred fifty thousand (150,000). Such aggregate numbers shall be
subject to adjustment as provided in Section 12. If an Award expires, is
canceled, is forfeited or expires without being exercised, the shares of Common
Stock subject to the Award shall become available for future Awards under the
Plan. Shares which are delivered by the Grantee or withheld by the Company upon
the exercise of an Option or receipt of an Option in payment of the exercise
price thereof or tax withholding thereon, may again be awarded hereunder,
subject to the limitations of this Section. If shares of Restricted Stock are
forfeited or repurchased by the Company, such shares shall become available for
future grant under the Plan. If an Option is exercised in whole or in part by an
Grantee by tendering previously owned shares of Common Stock, or if any shares
are withheld in connection with the exercise of its Option to satisfy the
Grantee's tax liability, the full number of shares in respect of which the
Option has been exercised shall be applied against the limit set forth in this
Section. Notwithstanding the provisions of this Section, no shares may again be
subject to future award if such action would cause an outstanding ISO to fail to
qualify as an incentive stock option under Code Section 422.
7. Option Awards.
(a) Term of Options. The term of each Option shall be fixed by the
Board and specified in the applicable Award Agreement, but in no event shall it
be more than ten (10) years from the date of grant, subject to earlier
termination as provided in Section 14.
(b) Vesting. The Board shall determine the vesting schedule
applicable to a particular Option grant and specify the vesting schedule in the
applicable Award Agreement. Notwithstanding the foregoing the Board may
accelerate the vesting of an Option at any time.
(c) No Deferral Feature. The Award Agreement shall not provide for
any deferral feature with respect to an Option constituting a deferral of
compensation under Code Section 409A.
(d) Termination of Relationship to the Company.
i. Options Granted To Employees. With respect to an Option
granted to an individual who is an employee of the Company at the time of Option
grant, unless the Award Agreement expressly provides to the contrary, (i) the
Option shall terminate immediately upon the Grantee's termination of employment
for Cause (as defined in Section 18(a)); (ii) in the event that the Grantee's
employment with the Company shall terminate by reason of death or Disability (as
defined in Section 18(b)), the unvested portion of the Option shall terminate
immediately and the vested portion of the Option shall terminate one (1) year
following such termination of employment (i.e. the Option shall not continue to
vest during such one year period); and (iii) in the event that the Grantee's
employment with the Company shall terminate for any other reason, the unvested
portion of the Option shall terminate immediately and the vested portion of the
Option shall terminate three (3) months after such termination of employment
(i.e. the Option shall not continue to vest during such three month period);
provided, however, that in the event that the Grantee is subject to any
non-compete or confidentiality agreement which he or she violates, the Option
shall immediately terminate upon such violation. Notwithstanding anything herein
to the contrary, in no event shall an Option remain exercisable beyond the
expiration date specified in the applicable Award Agreement. An Award Agreement
may contain such provisions as the Board shall approve with reference to the
determination of the date employment terminates for purposes of the Plan and the
effect of leaves of absence, which provisions may vary from one Award Agreement
to another.
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ii. Options Granted to Directors or Independent Contractors.
With respect to an Option granted to an individual who is not an employee of the
Company at the time of Option grant, the Board shall determine and specify in
the applicable Award Agreement the consequences, if any, of the termination of
the Grantee's relationship with the Company.
(e) Option Exercise Price. Subject in the case of ISOs to Section
7(f), the Option exercise price per share of Common Stock covered by either an
ISO or a NSO granted under that Plan shall be no less (and shall have not
potential to become less at any time) than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the date of grant.
(f) ISO Provisions.
i. Employment Requirement. ISOs may only be awarded to
employees of Intelli-Check or a corporation which, with respect to
Intelli-Check, is a "parent corporation" or "subsidiary corporation" within the
meaning of Code Sections 424(e) and (f), respectively. Furthermore, except as
otherwise provided in Code Section 422, if a Grantee is no longer employed by
Intelli-Check or a parent corporation or subsidiary corporation of
Intelli-Check, the Grantee's Option shall cease to be treated as an ISO.
ii. Option Exercise Price. The Option exercise price per share
of Common Stock covered by an ISO shall be no less than the Fair Market Value of
a share of Common Stock on the date of grant of the Option, except in the case
of an individual who at the time of grant owns or is deemed to own under Section
424(d) of the Code stock possessing more than ten percent (10%) of the total
combined voting power of all classes of the stock of Intelli-Check or of a
parent or subsidiary corporation of Intelli-Check, in which case, (i) the Option
exercise price of the Common Stock covered by any ISO granted to such person
shall in no event be less than one hundred and ten percent (110%) of the Fair
Market Value of the Common Stock on the date the ISO is granted and (ii) the
term of an ISO granted to such person may not exceed five (5) years from the
date of grant.
iii.$100,000 Limit. The aggregate Fair Market Value
(determined at the time an ISO is granted) of the Common Stock covered by ISOs
exercisable for the first time by an employee during any calendar year (under
all plans of the Company) may not exceed one hundred thousand dollars
($100,000).
iv. Options Which Do Not Satisfy ISO Requirements. To the
extent that any Option which is issued under the Plan exceeds the limit set
forth in paragraph (iii) or otherwise does not comply with the requirements of
Code Section 422, it shall be treated as a NSO.
(g) Exercise of Options.
i. An Option may be exercised at any time and from time to
time, in whole or in part, as to any or all full shares as to which the Option
is then exercisable; provided, however, that if so specified in the Award
Agreement, the Option may not, in a single exercise, be exercised for fewer than
the minimum number of shares specified in the Award Agreement, unless the
exercise is for all of the shares as to which the Option is then exercisable. An
Option may not be exercised with respect to a fractional share. If an Option is
exercised with respect to all of the whole shares as to which the Option is
exercisable, and the Option remains exercisable with respect to less than one
share of Common Stock, the Option shall immediately and without any further
action by the Company or the Grantee be cancelled with respect to the remaining
fractional share, without any consideration being paid by the Company. A Grantee
(or other person who, pursuant to Section 9, may exercise the Option) shall
exercise the Option by delivering to Intelli-Check at the address provided in
the Award Agreement a written, signed notice of exercise, stating the number of
shares of Common Stock with respect to which the option exercise is being made,
and satisfy the requirements of subparagraph (ii) of this Section. Upon receipt
by Intelli-Check of any notice of exercise, the exercise of the Option as set
forth in that notice shall be irrevocable.
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ii. Upon exercise of an Option the Grantee shall pay to
Intelli-Check the Option exercise price per share of Common Stock multiplied by
the number of full shares as to which the Option is then exercised. A Grantee
may pay the Option exercise price by tendering or causing to be tendered in
cash, by delivery of shares of Common Stock owned by the Grantee for at least
six (6) months preceding the date of exercise of the Option (or such shorter or
longer period as the Board may approve or require from time to time) having a
Fair Market Value equal to the exercise price or other property permitted by law
and acceptable to the Board, or any combination thereof. Without limiting the
foregoing, payment of the exercise price may be facilitated by an outside
broker.
iii.The certificate representing the shares as to which an
Option has been exercised shall bear an appropriate legend setting forth any
restrictions applicable to such shares.
(h) Taxes. A Grantee shall, upon notification of the amount due,
promptly pay or cause to be paid the amount determined by the Board as necessary
to satisfy all applicable tax and other withholding requirements. A Grantee may
satisfy his withholding requirements in any manner satisfactory to the Board.
(i) No Stockholder Rights. No Grantee shall have the rights of a
stockholder with respect to shares covered by an Option until such person
becomes the holder of record of such shares. If in connection with an exercise
of the Option the Grantee pays all or a portion of the Option exercise price
with shares of Common Stock, the Grantee shall continue to be the stockholder of
record with respect to the shares which he has tendered as exercise payment
until the Grantee becomes the holder of record of the shares of Common Stock to
be acquired upon such exercise.
(j) Award Agreement. The terms and conditions of each Option grant
shall be set forth in an Award Agreement in the form approved by the Board. Each
Award Agreement shall be executed by Intelli-Check and the Grantee. Each Award
Agreement shall, at a minimum, specify (i) the number of shares of Common Stock
subject to any Option, (ii) whether the Option is intended to be an ISO or NSO,
(iii) the provisions related to vesting and exercisability of the Option,
including the Option exercise price, (iv) that the Option is subject to the
terms and provisions of the Plan and that in the event of any conflict between
the Award Agreement and the Plan, the Plan shall control. The Award Agreement
may also contain such other terms and conditions as the Board determines to be
necessary or advisable. Award Agreements may vary from one to another.
8. Restricted Stock Awards.
(a) Restricted Stock Grant. The Board may grant Restricted Stock to
such directors, employees and independent contractors of the Company, in such
amounts, and subject to such terms and conditions as the Board may determine, in
its sole discretion, including restrictions on transferability which may lapse
separately or in combination at such times, under such circumstances, in such
installments, or otherwise, as the Board shall determine.
(b) Restricted Stock Purchase. The Administrator may require an
Grantee to pay a purchase price to receive Restricted Stock at the time the
Award is granted, in which case the purchase price and the form and timing of
payment shall be specified in the Award Agreement in addition to the vesting
provisions and other applicable terms.
(c) No Deferral Provisions. A Restricted Stock Award shall not
provide for any deferral of compensation recognition after vesting with respect
to Restricted Stock which would cause the Award to constitute a deferral of
compensation subject to Code Section 409A.
(d) Rights as a Shareholder. The holder of Restricted Stock shall
have rights equivalent to those of a shareholder and shall be a shareholder when
the Restricted Stock grant is entered upon the records of the duly authorized
transfer agent of the Company
(e) Award Agreement. The terms and conditions of each grant of
Restricted Stock shall be set forth in an Award Agreement in the form approved
by the Board. Each Award Agreement shall be executed by Intelli-Check and the
Grantee. Each Award Agreement shall, at a minimum, specify (i) the shares of
Common Stock subject to the Award, (ii) the terms, conditions, and restrictions
applicable to such Restricted Stock, and (iii) that the Restricted Stock grant
is subject to the terms and provisions of the Plan and that in the event of any
conflict between the Award Agreement and the Plan, the Plan shall control.
Restricted Stock grants shall be evidenced by certificates registered in the
name of the holder and bearing an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock. The Company
may retain physical possession of any such certificates, and the Company may
require a Grantee awarded Restricted Stock to deliver a stock power to the
Company, endorsed in blank, relating to the Restricted Stock for so long as the
Restricted Stock is subject to a risk of forfeiture or a requirement to sell
Restricted Stock back to the Company. The Award Agreement may also contain such
other terms and conditions as the Board determines to be necessary or advisable.
Award Agreements may vary from one to another.
28
(f) Taxes. A Grantee shall, upon notification of the amount due,
promptly pay or cause to be paid the amount determined by the Board as necessary
to satisfy all applicable tax and other withholding requirements. A Grantee may
satisfy his withholding requirements in any manner satisfactory to the Board.
9. Nontransferability.
(a) Subject to Section 9(b), Options granted under the Plan shall
not be assignable or transferable other than by will or the laws of descent and
distribution and Options may be exercised during the lifetime of the Grantee
only by the Grantee or by the Grantee's guardian or legal representative. In the
event of any attempt by an Grantee to transfer, assign, pledge, hypothecate or
otherwise dispose of an Option or any right thereunder, except as provided for
herein, or in the event of the levy of any attachment, execution or similar
process upon the rights or interest hereby conferred, Intelli-Check may
terminate the Option by notice to the Grantee and it shall thereupon become null
and void.
(b) Notwithstanding Section 9(a), if and only if (and on the terms)
so provided in the applicable Award Agreement, an Grantee may transfer a NSO, by
gift or a domestic relations order, to a Family Member of the Grantee (as
defined in Section 18(d)). If a NSO is transferred in accordance with this
subparagraph, the Option shall be exercisable solely by the transferee, but the
determination of the exercisability of the Option shall be based solely on the
activities and state of affairs of the Grantee. Thus, for example, if after a
transfer the Grantee ceases to be a directors or an employee of the Company,
such termination shall trigger the provisions of Section 87(d) hereof.
Conversely, if after a transfer the transferee ceases to be a director or an
employee of the Company, such termination shall not trigger the provisions of
Section 7(d) hereof
(c) Restricted Stock shall not be assignable or transferable except
under the terms and conditions specified in the applicable Award Agreement.
10. Compliance with Law; Registration of Shares.
(a) The Plan and any grant hereunder shall be subject to all
applicable laws, rules, and regulations of any applicable jurisdiction or
authority or agency thereof and to such approvals by any regulatory or
governmental authority or agency or securities exchange which, in the opinion of
Company's counsel, may be required or appropriate.
(b) Notwithstanding any other provision of the Plan or Award
Agreements made pursuant hereto, the Company shall not be required to issue or
deliver any certificate or certificates for shares of Common Stock under the
Plan prior to fulfillment of all of the following conditions:
i. Effectiveness of any registration or other qualification of
such shares of the Company under any law or regulation of any applicable
jurisdiction or authority or agency thereof which the Board shall, in its
absolute discretion or upon the advice of counsel, deem necessary or advisable;
and
ii. Grant of any other consent, approval or permit from any
applicable jurisdiction or authority or agency thereof or securities exchange
which the Board shall, in its absolute discretion or upon the advice of counsel,
deem necessary or advisable.
The Company shall use all reasonable efforts to obtain any
consent, approval or permit described above; provided, however, that except to
the extent as may be specifically required in an Award Agreement with respect to
any particular Option grant, the Company shall be under no obligation to
register or qualify any shares subject to an Award under any federal or state
securities law or on any exchange.
11. No Restriction on the Right of Intelli-Check to Effect Corporate
Changes. The Plan and the Options and/or Restricted Stock granted hereunder
shall not affect in any way the right or power of Intelli-Check or its
stockholders to make or authorize any or all adjustments, recapitalization,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of stock
or of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks whose rights are superior to or affect the
Common Stock or the rights of holders thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
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12. Certain Adjustments.
(a) In the event that Intelli-Check or the division, subsidiary or
other affiliated entity for which an Grantee performs services is sold
(including a stock or an asset sale), spun off, merged, consolidated,
reorganized or liquidated, the Board may determine that (i) the Option shall be
assumed, or a substantially equivalent Option shall be substituted, by an
acquiring or succeeding entity (or an affiliate thereof) on such terms as the
Board determines to be appropriate; (ii) upon written notice to the Grantee,
provide that the Option shall terminate immediately prior to the consummation of
the transaction unless exercised by the Grantee within a specified period
following the date of the notice; (iii) in the event of a sale or similar
transaction under the terms of which holders of Common Stock receive a payment
for each share of Common Stock surrendered in the transaction (the "Sales
Price"), make or provide for a payment to each Grantee equal to the amount by
which (A) the Sales Price times the number of shares of Common Stock subject to
the Option (to the extent such Option is then exercisable) exceeds (B) the
aggregate exercise price for all such shares of Common Stock; or (iv) may make
such other equitable adjustments as the Board deems appropriate. Immediately
prior to a Change of Control, any shares of Restricted Stock which are not
vested and any Option Agreements which are not fully exercisable shall vest or
become fully exercisable, as applicable. The term "Change of Control" means any
single transaction or event, other than an Acquisition, pursuant to which (i) a
majority of the members of the Board resign or are replaced, or (ii) one person
or a number of persons acting together as a group own more than 50 percent of
the combined voting power of Company. The term "Acquisition" means (1) a
dissolution, liquidation or sale of all or substantially all of the assets of
the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; or (3) a merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise.
(b) In the event of any stock dividend or split, recapitalization,
combination, exchange or similar change affecting the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company, the Board shall make any or all
of the following adjustments as it deems appropriate to equitably reflect such
event: (i) adjust the aggregate number of shares (or such other security as is
designated by the Board) which may be acquired pursuant to the Plan, (ii) adjust
the option price to be paid for any or all such shares subject to the then
outstanding Options, (iii) adjust the number of shares of Common Stock (or such
other security as is designated by the Board) subject to any or all of the then
outstanding Options and (iv) make any other equitable adjustments or take such
other equitable action as the Board, in its discretion, shall deem appropriate.
For purposes hereof, the conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
(c) Any and all adjustments or actions taken by the Board pursuant
to this Section shall be conclusive and binding for all purposes.
13. No Right to Continued Engagement or Employment. Neither the Plan nor
any Award Agreement or action taken hereunder shall be construed as giving any
director, employee or any independent contractor any right to continue as a
director, an employee or an independent contractor of the Company or affect the
right of the Company to terminate such person's employment or other relationship
with the Company at any time.
14. Amendment; Early Termination. The Board may at any time and from time
to time alter, amend, suspend or terminate the Plan in whole or in part;
provided, however, that no amendment requiring stockholder approval by law,
rules or regulations, or by the rules of any stock exchange, inter-dealer
quotation system, or other market in which shares of Common Stock are traded,
shall be effective unless and until such stockholder approval has been obtained
in compliance with such rule or law; and provided, further, that no such
amendment shall materially and adversely affect the rights of an Grantee in any
Award previously granted under the Plan without the Grantee's written consent.
Without limiting the foregoing, outstanding Options may be repriced downward
and/or reissued subject to applicable laws without stockholder approval.
15. Effective Date. This restated Plan shall be effective as of the
Effective Date, subject to the approval thereof by the stockholders of
Intelli-Check entitled to vote thereon within twelve (12) months of such date.
In the event that such stockholder approval is not obtained within such time
period, the restated Plan and any Award granted under the restated Plan on or
prior to the expiration of such 12 month period shall be void and of no further
force and effect.
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16. Termination of Plan. Unless terminated earlier by the Board in
accordance with Section 14 above, no further Awards may be granted under the
Plan after the tenth (10th) anniversary of the Effective Date.
17. Severability. In the event that any one or more provisions of the Plan
or an Award Agreement, or any action taken pursuant to the Plan or an Award
Agreement, should, for any reason, be unenforceable or invalid in any respect
under the laws of the United States, any state of the United States or any other
jurisdiction, such unenforceability or invalidity shall not affect any other
provision of the Plan or Award Agreement, but in such particular jurisdiction
and instance the Plan and/or Award Agreement, as applicable, shall be construed
as if such unenforceable or invalid provision had not been contained therein or
if the action in question had not been taken thereunder.
18. Definitions.
(a) Cause. The term "Cause" when used herein in conjunction with
termination of employment (or other relationship) means (i) if the Grantee is a
party to an employment or similar agreement with the Company which defines
"cause" (or a similar term), the meaning set forth in such agreement (other than
death or Disability), or (ii) otherwise, termination by the Company of the
employment (or other relationship) of the Grantee by reason of the Grantee's (1)
intentional failure to perform reasonably assigned duties, (2) dishonesty or
willful misconduct in the performance of his duties, (3) involvement in a
transaction which is materially adverse to the Company, (4) breach of fiduciary
duty involving personal profit, (5) willful violation of any law, rule,
regulation or court order (other than misdemeanor traffic violations and
misdemeanors not involving misuse or misappropriation of money or property), (6)
commission of an act of fraud or intentional misappropriation or conversion of
any asset or opportunity of the Company, or (7) material breach of any provision
of the Plan, the Grantee's Award Agreement or any other written agreement
between the Grantee and the Company, in each case as determined in good faith by
the Board, whose determination shall be final, conclusive and binding on all
parties.
(b) Disability. For purposes hereof, the Grantee shall be deemed to
have be terminated by reason of "Disability" if the Grantee is permanently and
totally disabled, within the meaning of Section 22(e) of the Code.
(c) Fair Market Value. As used herein, the term "Fair Market Value"
shall be defined in accordance with applicable laws and shall mean, with respect
to Common Stock on any given date, the closing sales price of the Common Stock
for such date (or, in the event that the Common Stock is not traded on such
date, on the immediately preceding trading date) on the Nasdaq Stock Market or
any stock exchange on which the Common Stock may be listed, as reported in The
Wall Street Journal. If the Common Stock is not listed on the Nasdaq Stock
Market or on a national stock exchange, but is quoted on the OTC Bulletin Board
or by the National Quotation Bureau, the Fair Market Value of the Common Stock
shall be the mean of the bid and asked prices per share of the Common Stock for
such date. If the Common Stock is not quoted or listed as set forth above, Fair
Market Value shall be determined by the Board in good faith by any fair and
reasonable means (which means, with respect to a particular Option grant, may be
set forth with greater specificity in the applicable Award Agreement). The Fair
Market Value of property other than Common Stock shall be determined by the
Board in good faith by any fair and reasonable means.
(d) Family Member of the Grantee. As used herein, "Family Member of
the Grantee" means the Grantee's lineal descendant, stepchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which the
Grantee and/or these persons have more than 50% of the beneficial interest, a
foundation in which these persons (or the Grantee) control the management of
assets, and any other entity in which these persons (or the Grantee) own more
than 50% of the voting interests.
19. Transfers to and from Affiliates. For all Plan purposes, a transfer of
an employee from Intelli-Check to a Intelli-Check affiliate or visa versa, or a
transfer from one Intelli-Check affiliate to another, will not be treated as a
termination of employment.
20. Headings. The headings of sections and subsections herein are included
solely for convenience of reference and shall not affect the meaning of any of
the provisions of the Plan.
21. Governing Law. This Plan and all rights hereunder shall be construed
in accordance with and governed by the laws of the State of New York, without
regard to any conflict of law provision that would defer to the substantive laws
of another jurisdiction.
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* * * * * * *
I hereby certify that the Plan was duly adopted by the Board of Directors of the
Company on _______________, ____.
Executed at ________________________, _______________ on this ____ day of
____________, ____.
By: ____________________________________
Name: __________________________________
Title: _________________________________
* * * * * * *
I hereby certify that the foregoing Plan was approved by the shareholders of the
Company on _______________, ____.
Executed at ______________________, _________________ on this ____ day of
_____________, ____.
By: ____________________________________
Name: __________________________________
Title: _________________________________
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