SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential; for use
|_| Definitive Proxy Statement of the Commission Only
|_| Definitive Additional Materials (as permitted by Rule
|_| Soliciting Material Pursuant to 14a-6(e)(2))
Rule 14a-11 or Rule 14a-12
INTELLI-CHECK, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Information Statement)
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INTELLI-CHECK, INC.
775 Park Avenue, Suite 340
Huntington, New York 11743
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 13, 2000
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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
offices of Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New
York, New York 10119, on Thursday, July 13, 2000, at 11:00 a.m., local time, for
the following purposes:
1. To elect eight directors to serve, subject to the provisions of the
By-laws, until their re-elections and until their respective successors
have been duly elected and qualified;
2. To consider and act upon a proposal to amend the Company's 1998 Stock
Option Plan;
3. To consider and act upon a proposal to amend the Company's 1999 Stock
Option Plan;
4. To consider and act upon a proposal to amend the Certificate of
Incorporation to provide for the classification of directors into three
classes;
5. To consider and act upon a proposal to approve the selection of Arthur
Andersen LLP as the Company's independent auditors for the 2000 fiscal
year; and
6. 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 June 2,
2000 as the record date for the meeting and only holders of shares of record at
that time will be entitled to notice of and to vote at the Annual Meeting of
Shareholders or any adjournment or adjournments thereof.
By order of the Board of Directors.
Frank Mandelbaum
Chairman of the Board
Huntington, New York
June 12, 2000
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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
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<PAGE>
INTELLI-CHECK, INC.
775 Park Avenue
Suite 340
Huntington, New York 11743
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PROXY STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS
to be held July 13, 2000
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June 12, 2000
The enclosed proxy is solicited by the Board of Directors of
Intelli-Check, Inc., a Delaware corporation (the "Company") in connection with
the Annual Meeting of Shareholders to be held at the offices of Milberg Weiss
Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119 on
Thursday, July 13, 2000, at 11:00 a.m., local time, and any adjournments
thereof, for the purposes set forth in the accompanying Notice of Meeting.
Unless instructed to the contrary on the proxy, it is the intention of the
persons named in the proxy to vote the proxies:
o FOR the election as directors of the nominees listed below;
o FOR the amendment to the 1998 Stock Option Plan;
o FOR the amendment to the 1999 Stock Option Plan;
o FOR the amendment to the Certificate of Incorporation; and
o FOR the confirmation of the selection of Arthur Andersen LLP as the
Company's independent auditors for the 2000 fiscal year.
The record date with respect to this solicitation is the close of business
on June 2, 2000 and only shareholders of record at that time will be entitled to
vote at the meeting. The principal executive office of the Company is 775 Park
Avenue, Suite 340, Huntington, New York 11743, and its telephone number is (631)
421-2011. The shares represented by all validly executed proxies received in
time to be taken to the meeting and not previously revoked will be voted at the
meeting. This proxy may be revoked by the shareholder at any time prior to its
being voted. This proxy statement and the accompanying proxy were mailed to you
on or about June 12, 2000.
<PAGE>
QUORUM AND REQUIRED VOTE
The number of outstanding shares entitled to vote at the meeting is
[6,547,652] common shares, par value $.001 per share. Each common share is
entitled to one vote. The presence in person or by proxy at the Annual Meeting
of the holders of a majority of such shares shall constitute a quorum. There is
no cumulative voting. Assuming the presence of a quorum at the Annual Meeting:
o directors shall be elected by a plurality of the votes cast;
o the affirmative vote of a majority of the common shares present at the
meeting and entitled to vote on each matter is required for:
o the approval of the amendment to the company's 1998 Stock Option
Plan;
o the approval of the amendment to the company's 1999 Stock Option
Plan;
o the confirmation of the selection of the Company's auditors,
Arthur Andersen LLP, as the Company's independent auditors for
fiscal 2000.
o the affirmative vote of the holders of a majority of the total
outstanding common shares is necessary to approve the amendment to the
Certificate of Incorporation.
Votes shall be counted by one or more persons who shall serve as the
inspectors of election. The inspectors of election will canvas the shareholders
present in person at the meeting, count their votes and count the votes
represented by proxies presented. Abstentions and broker nonvotes are counted
for purposes of determining the number of shares represented at the meeting, but
are deemed not to have voted on the proposal. Broker nonvotes occur when a
broker nominee (which has voted on one or more matters at the meeting) does not
vote on one or more other matters at the meeting because it has not received
instructions to so vote from the beneficial owner and does not have
discretionary authority to so vote.
Proposal No. 1
ELECTION OF DIRECTORS
A Board of eight directors is to be elected. The persons named in the
accompany ing proxy will vote for the election of the following eight persons as
directors, who are presently members of the Board of Directors, to hold office
for one year or until such later time as may be established by the effectiveness
of the proposed amendment to the Certificate of Incorporation
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<PAGE>
(see "Amendment of Certificate of Incorporation" below and the text of the
proposed amendment to the Certificate of Incorporation as set forth in Exhibit
A). The effect of the proposed amendment to the Certificate of Incorporation
would be to classify the Board of Directors into three classes having staggered
terms of three years each and make an initial classification of the nominees
listed below. This provision would extend the terms of three directors by one
year and the terms of three other directors by two years. Directors would then
serve until the annual meeting of stockholders at which directors of their class
are to be elected.
Position With the Company
Name and Age and Principal Occupation Held Office Since
------------ ------------------------ -----------------
Frank Mandelbaum, 66(a) Chairman, Chief Executive 1996
Officer and Director
Kevin Messina, 34 President, Chief Technology 1998
Officer and Director
Edwin Winiarz, 42(b) Executive Vice President, 1999
Treasurer and Chief Financial
Officer and Director
Paul Cohen, 59(b) Director 1996
Evelyn Berezin, 75(b) Director 1999
Charles McQuinn, 59(a) Director 1999
Jeffrey Levy, 58(a) Director 1999
Howard Davis, 44 Director 2000
(a) If approved, the proposed amendment to the Certificate of Incorporation
would extend the term of office of these directors by two years.
(b) If approved, the proposed amendment to the Certificate of Incorporation
would extend the term of office of these directors by one year.
On May 8, 2000, Anthony Broderick, a director since 1996, resigned from
the board.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1999, the Board of Directors
held nine meetings. Only one of the directors did not attend all of the meetings
of the Board of Directors.
The board of directors has established a compensation committee which is
comprised of Mr. Davis, chairperson, Mr. Mandelbaum and Mr. Cohen. The
compensation
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committee reviews and determines 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. Mr. Broderick served as chairperson until his resignation
from the board on May 8, 2000 when Mr. Davis was elected to take his place.
The board of directors has established an audit committee which is
comprised of Ms. Berezin, chairperson, Mr. McQuinn and Mr. Davis. 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. In compliance with recent regulations, on May 8, 2000, the audit
committee adopted its charter.
The board of directors has established a corporate governance committee,
which is comprised of Mr. McQuinn, chairperson, Ms. Berezin and Mr. Levy. The
corporate governance committee reviews our internal policies and procedures and
by-laws and acts as our nominating committee for the Board of Directors. Mr.
Broderick served as a member of the corporate governance committee until his
resignation from the Board on May 8, 2000 when Mr. Levy was elected to take his
place.
The board of directors has also established a technology oversight
committee comprised of Mr. Levy, chairperson, Ms. Berezin and Mr. McQuinn. The
technology oversight committee monitors the development of products and services
offered by our company and advises management in planning future development of
products and services within the framework of consumer, regulatory and
competitive environments. This committee also monitors actions taken to protect
our intellectual property and recommends appropriate actions in furtherance of
that protection.
EXECUTIVE OFFICERS
The executive officers of the Corporation are Frank Mandelbaum, Chairman
and Chief Executive Officer, Kevin Messina, President and Chief Technology
Officer, Edwin Winiarz, Executive Vice President, Treasurer and Chief Financial
Officer, information as to each of whom is set forth above and W. Robert
Holloway, Vice President - Sales, who joined the Company in October, 1999. From
April 1999 to October 1999, Mr. Holloway was Director of Sales for The
IdentiScan Company LLC. In February and March 1999, Mr. Holloway worked as an
independent consultant. From August 1996 to January 1999, Mr. Holloway was
Global Sales Manager for Welch Allyn, Inc. From October 1994 to July 1996, Mr.
Holloway was Vice President and Sales Manager of Bowne & Company of New York.
Mr. Holloway holds an AB in economics from Columbia University and an MBA in
finance from Boston University.
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,
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1999. No other executive officers received total salary and bonus compensation
in excess of $100,000 during any of such fiscal years.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
---------------------------------------------
Securities
Underlying
Name And Principal Position Year(s) Salary ($) Options/SARS (#)
--------------------------- ------- ---------- ----------------
Frank Mandelbaum 1999 150,000 75,000
Chairman & CEO 1998 150,000 50,000
1997 150,000 --
Kevin Messina 1999 150,000 75,000
President 1998 150,000 --
1997 150,000 50,000
Todd Cohen 1999 -0- --
Former President 1998 50,000 15,000
1997 150,000 50,000
The options shown above were granted under the 1998 and 1999 Stock Option
Plans, are exercisable at $3.00 per share, and generally expire five years after
the date of grant. Mr. Cohen's options expire on August 15, 2000.
Messrs. Mandelbaum and Messina have Employment Agreements expiring
December 31, 2001, which provide for base annual salaries of $225,000. However,
until such time as we receive payment for gross sales of at least $1,000,000,
the salaries are capped at $150,000. Because of our limited resources in the
past, Messrs. Mandelbaum and Messina have from time to time agreed to defer the
receipt of substantial portions of their salaries. In May 1999, Mr. Mandelbaum's
deferred salary was reduced by $150,000 by the issuance to him of 75,000 shares
of our common stock and warrants entitling him to purchase an additional 75,000
shares of our common stock at a price of $3.00 per share at any time prior to
May 3, 2001. In May 1999, Mr. Messina's deferred salary was reduced by $10,126
through the issuance to him of 5,063 shares of our common stock and warrants to
purchase 5,063 shares of our common stock at a purchase price of $3.00 per share
at any time prior to May 3, 2001. As of June 30, 1999, Mr. Mandelbaum's deferred
salary was approximately $375,000, Mr. Messina's deferred salary was
approximately $200,000 and Mr. Todd Cohen's deferred salary was approximately
$110,000. In June 1999, Mr. Messina received, in lieu of all deferred salary,
options to purchase 207,000 shares of common stock at an exercise price of $3.00
per share. Also in June 1999, Mr. Mandelbaum received, in lieu of all deferred
salary, options to purchase 375,000 shares of common stock at an exercise price
of $3.00 per share.
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Mr. Cohen resigned as President in April 1998. In June 1999, Mr. Cohen
received, in lieu of all deferred salary, options to purchase 110,000 shares of
common stock at an exercise price of $3.00.
All the options granted in exchange for deferred salary expire five years
after the date of grant.
The following table summarizes options granted during the year ended
December 31, 1999 to the named executive officers other than stock options
granted for deferred compensation:
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Value at
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Number of % of Total Assumed Annual Rates
Securities Options of Stock Price
Underlying Granted To Exercise Expiration Appreciation for Option
Options Employees Term
in
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1999
Name Granted Fiscal Year Price Date 5% 10%
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<S> <C> <C> <C> <C> <C> <C>
Frank 75,000 24.5% $3.00 9/04/04 $777,734 $981,405
Mandelbaum
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Kevin 75,000 24.5% $3.00 9/04/04 $777,734 $981,405
Messina
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</TABLE>
Pursuant to their employment agreements, Messrs. Mandelbaum and Messina
each received a grant in August 1999 of options to purchase 75,000 shares of our
common stock at a purchase price of $3.00 per share. The options became
exercisable with respect to 25,000 shares of our common stock on January 1,
2000, an additional 25,000 shares will become exercisable on January 1, 2001,
and the final 25,000 shares will become exercisable on January 1, 2002. The
options expire five years from the date of grant. During the year ended December
31, 1999, we granted employees other than the executive officers named above
options to purchase 156,000 shares of common stock under the 1998 and 1999 Stock
Option Plans.
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
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overall stock market conditions. The amounts reflected in the table may not
necessarily be achieved.
EMPLOYMENT AGREEMENTS
Effective January 1, 1999, Mr. Mandelbaum and Mr. Messina each entered
into a three-year employment agreement with Intelli-Check. Each of the
agreements provides for a base salary of $225,000. However, until such time as
we receive payment for gross sales of at least $1,000,000, the salaries are
capped at $150,000. The agreements also provide for the payment of a bonus if
our sales exceed $2,000,000 in the previous year. The bonus will be in the
amount of $50,000 plus 1% of the amount of sales in excess of $2,000,000 in each
year. In addition, for each fiscal year ending during the term of the employment
agreements, we will grant to each of the executives an option to purchase the
greater of 25,000 shares of our common stock at fair market value on the date of
grant or 10,000 shares of our common stock at fair market value on the date of
grant for each full $250,000 by which pre-tax profits for each year exceeds
pre-tax profits for the prior fiscal year. However, we are not required to grant
options to purchase more than 150,000 shares of our common stock with respect to
any one fiscal year.
If there shall occur a change of control, as defined in the employment
agreement, the employee 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. Included within the
definition of change of control for purposes of the employment agreements is the
first day on which a majority of the directors of the company do not consist of
individuals recommended by Messrs. Mandelbaum, Messina and one outside director.
We have entered into a two-year employment agreement with Mr. Winiarz,
which became effective on September 7, 1999. The agreement provides for a base
salary of $125,000. In addition, we granted Mr. Winiarz an option to purchase
50,000 shares of common stock, of which 30,000 options are immediately
exercisable at $5.00 per share and 20,000 options will become exercisable on
September 7, 2000 at $5.00 per share.
We entered into a two-year employment agreement with Mr. Holloway, which
became effective on October 25, 1999. The agreement provides for a base salary
of $115,000. In addition, we granted Mr. Holloway an option to purchase 50,000
shares of common stock at $7.50 per share, of which 20,000 shares are
immediately exercisable and 5,000 shares become exercisable for each 10,000
units of ID-Check sold that exceed 10,000. The maximum options that can be
earned in any calendar year may not exceed 100,000. Any options earned above the
initial 50,000 options will be at fair market value on the date of grant.
Under the terms of the agreements, each of the executives has the right to
receive his compensation in the form of shares of common stock valued at 50% of
the closing bid price of our shares of common stock as of the date of the
employee's election, which is to be made at the beginning of each quarter. In
addition, each of the employment agreements requires the executive to devote
substantially all his time and efforts to our business and contains
non-competition and
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nondisclosure covenants of the officer for the term of his employment and for a
period of two years thereafter. Each employment agreement provides that we may
terminate the agreement for cause.
COMPENSATION OF DIRECTORS
Non-employee directors receive a fee of $500 for attending board meetings
and $250 for attendance at such meetings telephonically. They also receive a fee
of $250 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 August 1999, each
non-employee director, Messrs. Paul Cohen, Broderick and McQuinn and Ms.
Berezin, received a grant of a non-qualified stock option to purchase an
aggregate of 45,000 shares of our common stock upon their election as a director
at an exercise price of $3.00 per share. Of these options, 15,000 are
immediately exercisable and an additional 15,000 will be exercisable on the
succeeding two anniversaries of the date of grant, provided the director is
re-elected. On December 13, 1999, Mr. Levy and Mr. Davis were each granted
non-qualified options to purchase 15,000 shares of our common stock at an
exercise price of $11.625, the fair market value on the date of grant. These
options are immediately exercisable. Options granted to non-employee directors
expire three months after the date his or her service terminates. Messrs.
Broderick and Paul Cohen have previously been granted options to purchase 30,000
shares of common stock exercisable at $3.00 per share. Mr. Cohen also received
an option to purchase 50,000 shares of common stock exercisable at $3.00 per
share in connection with a one-year consulting agreement dated November 1, 1997.
Mr. Broderick resigned as a director on May 8, 2000.
In addition, non-employee directors who are members of a committee are
entitled to receive grants of stock options for each year served. Each
chairperson of a committee receives options to purchase 2,500 shares of our
common stock, while a committee member receives options to purchase 1,500 shares
of our common stock. In March 2000 the following non-qualified options were
granted to committee chairpersons:
Name Committee Number of Options
---- --------- -----------------
Mr. Broderick Compensation 2,500
Ms. Berezin Audit 2,500
Mr. McQuinn Corporate Governance 2,500
Mr. Levy Technology Oversight 2,500
The following non-qualified options were granted to committee members:
Name Committee(s) Number of Options
---- ------------ -----------------
Mr. Cohen Compensation, Audit 3,000
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Name Committee(s) Number of Options
---- ------------ -----------------
Mr. Broderick Audit 1,500
Ms. Berezin Corporate Governance,
Technology Oversight 3,000
Mr. McQuinn Audit, Technology Oversight 3,000
Mr. Davis Audit 1,500
These options, which are exercisable at $12.125, the fair market value on
the date of grant, are immediately exercisable during the committee member's
term and expire five years from date of grant.
Due to Mr. Broderick's resignation on May 8, 2000, Mr. Davis was elected
chairperson of the Compensation Committee and was granted an option to purchase
2,500 shares of our common stock and Mr. Levy was elected to the Audit Committee
and was granted an option to purchase 1,500 shares of our common stock. These
options are exercisable at $8.00, the fair market value on the date of grant,
are immediately exercisable during the committee member's term and expire five
years from date of grant.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The full Board of Directors made all decisions concerning executive
compensation during fiscal 1999. During fiscal 1999, one executive officer of
the Corporation served as a member of the board of directors of another entity,
however such entity did not transact any business with Intelli-Check and the
executive officer resigned from the board of directors of such entity.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 30, 2000 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., 775 Park Avenue, Huntington, New York 11743.
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
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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.
The applicable percentage of ownership is based on 6,547,532 shares
outstanding as of April 30, 2000.
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Name Shares Beneficially Owned
Percent
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Frank Mandelbaum 1,322,000 18.5
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Kevin Messina 1,417,000 20.5
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Edwin Winiarz 30,000 *
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W. Robert Holloway 20,000 *
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Paul Cohen 284,385 4.2
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Anthony Broderick 49,000 *
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Evelyn Berezin 20,500 *
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Charles McQuinn 20,500 *
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Jeffrey Levy 19,300 *
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Howard Davis 19,000 *
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Todd Cohen 1,100,000 16.8
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Empire State Development, formerly 550,000 8.2
New York State Science and Technology
Foundation
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All Executive Officers and Directors as a 3,201,685 38.5
group (10 persons)
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* Indicates beneficial ownership of less than one percent of the total
outstanding common stock.
The amounts shown for Mr. Mandelbaum do not include 50,000 shares held by
Mr. Mandelbaum's wife, for which Mr. Mandelbaum disclaims beneficial ownership.
The amounts shown for Mr. Paul Cohen do not include 25,000 shares held by
Mr. Cohen's wife and 2,500 shares held by Mr. Cohen's daughter, for which Mr.
Cohen disclaims beneficial ownership.
Mr. Todd Cohen's address is 5 Violet Drive, Huntington Station, New York
11746.
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Due to recent legislation, all assets of the New York State Small Business
Technology Investment Fund which were located in the New York State Science and
Technology Foundation were transferred to The Urban Development Corporation
d/b/a Empire State Development. The Commissioner of Empire State Development is
Charles A. Gargano. The members of the Board of Directors are Charles A.
Gargano, J. Patrick Barrett, Charles E. Dorkey, III, David Feinberg, Anthony
Gioia, Deborah Weight and Elizabeth McCaul. The address for that fund is 30
South Pearl St., Albany, NY 12245.
The amounts shown in the table above for the following persons include the
right to acquire the number of shares shown pursuant to currently exercisable
stock options and/or warrants at the exercise price shown:
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NAME NUMBER OF SHARES EXERCISE PRICE
--------------------------------------------------------------------------------
Frank Mandelbaum 596,000 $3.00
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Kevin Messina 357,000 $3.00
--------------------------------------------------------------------------------
Edwin Winiarz 30,000 $5.00
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W. Robert Holloway 20,000 $7.50
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Paul Cohen 138,000 $3.00 - $12.125
--------------------------------------------------------------------------------
Anthony Broderick 49,000 $3.00 - $12.125
--------------------------------------------------------------------------------
Evelyn Berezin 20,500 $3.00 - $12.125
--------------------------------------------------------------------------------
Charles McQuinn 20,500 $3.00 - $12.125
--------------------------------------------------------------------------------
Jeffrey Levy 9,000 $11.625 - $12.125
--------------------------------------------------------------------------------
Howard Davis 9,000 $11.625 - $12.125
--------------------------------------------------------------------------------
Todd Cohen 100,000 $3.00
--------------------------------------------------------------------------------
Empire State Development,
formally New York State Science
and Technology Foundation 550,000 $3.00
--------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
In October 1994, Messrs. Todd Cohen and Kevin Messina co-founded
Intelli-Check and each purchased 975,000 shares of common stock for $975. In
April 1998, Mr. Todd Cohen resigned as an officer of our company for personal
reasons and in August 1999, he completed his term as a director.
In June 1996, Mr. Messina's company, K.M. Software, assigned two
copyrights covering certain software employed by ID-Check and a patent
application covering the ID-Check technology to Intelli-Check for an agreement
to pay $98,151 plus interest. The agreement also
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gave K.M. Software, or its successor, the right to reclaim the rights to the
copyrights and the patent under certain specified conditions. In May 1999, the
prior agreement was superseded and in exchange Mr. Messina received 69,937
shares of our common stock and warrants to purchase 69,937 shares of our common
stock, at $3.00 per share, exercisable at any time prior to May 3, 2001. The May
1999 agreement provides for the payment by Intelli-Check of royalties equal to
0.005% of gross sales from $2,000,000 to $52,000,000 and 0.0025% of gross sales
in excess of $52,000,000. Also, in May 1999, Mr. Messina's deferred salary was
reduced by $10,126 through the issuance to him of 5,063 shares of our common
stock and warrants to purchase 5,063 shares of our common stock at a purchase
price of $3.00 per share at any time prior to May 3, 2001. In June 1999, the
balance of Mr. Messina's deferred salary was reduced to zero by the issuance of
options to purchase 207,000 shares of our common stock at a purchase price of
$3.00 per share at any time prior to June 30, 2004.
In June 1996, Frank Mandelbaum, Intelli-Check's Chief Executive Officer
and Chairman of the Board of Directors, purchased 950,000 shares of common stock
for $50,000. From time to time since then, Mr. Mandelbaum loaned money to
Intelli-Check totaling $142,000. In November 1997, Mr. Mandelbaum converted his
outstanding loans into 71,000 shares of our common stock and warrants to
purchase 71,000 shares of our common stock at $3.00 per share expiring on June
30, 2000. In May 1999, Mr. Mandelbaum's deferred salary was reduced by $150,000
through the issuance to him of 75,000 shares of our common stock and warrants to
purchase 75,000 shares of our common stock at a purchase price of $3.00 per
share at any time prior to May 3, 2001. In June 1999, Mr. Mandelbaum's deferred
salary was reduced to zero by the issuance of options to purchase 375,000 shares
of our common stock at an exercise price of $3.00 per share at any time prior to
June 30, 2004.
In November 1997, one of our directors, Paul Cohen, received an option to
purchase 50,000 shares of common stock exercisable at $3.00 per share in
connection with a one-year consulting agreement. Also in November 1997, Mr.
Cohen's wife purchased 25,000 units consisting of one share of common stock and
one warrant to purchase an additional share of common stock for $3.00 in
connection with one of our private placements. The purchase price was $50,000.
In August 1999, Mr. Cohen purchased one unit in connection with our most recent
private placement. The unit consists of a promissory note having a principal
amount of $50,000, bearing interest at the annual rate of 10% and a warrant to
purchase 2,500 shares of our common stock for $3.00 per share.
In June 1999, all deferred compensation due to Todd Cohen, our former
President and director, was eliminated by the issuance of options to purchase
110,000 shares of common stock at an exercise price of $3.00 per share at any
time prior to June 30, 2004.
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Proposal No. 2
APPROVAL OF THE AMENDMENT TO THE 1998 STOCK OPTION PLAN
There is being submitted to the shareholders for approval at the Annual
Meeting a proposal to amend the Company's 1998 Stock Option Plan (the "1998
Plan") to effect the following change:
o Acceleration of Vesting upon a Change of Control. The amendment provides
that all options outstanding under the 1998 Plan may become immediately
exercisable in full upon a Change of Control at the sole discretion of
the Board of Directors.
For purposes of the 1998 Plan, a Change of Control occurs upon the sale or
conveyance of all or substantially all of the property and assets of
Intelli-Check or any consolidation or merger of Intelli-Check.
Summary of the 1998 Plan.
Our 1998 Stock Option Plan was adopted by the Board of Directors and
stockholders in June 1998. Up to 400,000 shares of our common stock have been
authorized and reserved for issuance under the plan. Under the plan, options may
be granted in the form of incentive stock options or non-qualified stock options
from time to time to employees, officers, directors and consultants of
Intelli-Check, as determined by the compensation committee of the board of
directors. The compensation committee determines the terms and conditions of
options granted under the plan, including the exercise price. The plan provides
that the committee must establish an exercise price for incentive stock options
that is not less than the fair market value per share at the date of the grant.
However, if incentive stock options are granted to persons owning more than 10%
of the voting stock of Intelli-Check, the plan provides that the exercise price
must not be less than 110% of the fair market value per share at the date of the
grant. Each option must expire within five years of the date of the grant. There
are currently 370,000 options outstanding which have been granted under the
plan. 310,000 are immediately exercisable at $3.00 per share and 15,000 are
immediately exercisable at $7.50 per share. The other 45,000 options, upon
vesting over a period of years, will be exercisable at prices ranging from $3.00
- $7.50 per share.
Proposal No. 3
APPROVAL OF THE AMENDMENT TO THE 1999 STOCK OPTION PLAN
There is being submitted to the shareholders for approval at the Annual
Meeting a proposal to amend the Company's 1999 Stock Option Plan (the "1999
Plan") to effect the following change:
o Acceleration of Vesting upon a Change of Control. The amendment provides
that all options outstanding under the 1999
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Plan may become immediately exercisable in full upon a Change of Control
at the sole discretion of the Board of Directors.
For purposes of the 1999 Plan, a Change of Control occurs upon the sale or
conveyance of all or substantially all of the property and assets of
Intelli-Check or any consolidation or merger of Intelli-Check.
Summary of the 1999 Plan.
Our 1999 Stock Option Plan was adopted by the Board of Directors and
stockholders in August 1999. Up to 1,000,000 shares of our common stock have
been authorized and reserved for issuance under the plan. Under the plan,
options may be granted in the form of incentive stock options or non-qualified
stock options from time to time to employees, officers, directors and
consultants of Intelli-Check, as determined by the compensation committee of the
board of directors. The compensation committee determines the terms and
conditions of options granted under the plan, including the exercise price. The
plan provides that the committee must establish an exercise price for incentive
stock options that is not less than the fair market value per share at the date
of the grant. However, if incentive stock options are granted to persons owning
more than 10% of the voting stock of Intelli-Check, the plan provides that the
exercise price must not be less than 110% of the fair market value per share at
the date of the grant. Each option must expire within five years of the date of
the grant. There are currently 505,000 options outstanding which have been
granted under the plan. 252,000 are immediately exercisable at prices ranging
from $5.00 per share to $12.125 per share. The other 253,000, upon vesting over
a period of years, will be exercisable at prices ranging from $3.00 - $7.50 per
share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the Federal income tax treatment of the
stock options which may be granted under the 1998 and 1999 Plans based upon the
current provisions of the Internal Revenue Code.
An option holder who exercises a non-qualified stock option will recognize
taxable compensation at the date of exercise with respect to the difference
between the fair market value of the option shares at exercise and the exercise
price paid to purchase such shares. Intelli-Check generally will be entitled to
a corresponding deduction for such compensation. At such time as the option
stock is sold, the option holder will recognize either short-term or long-term
capital gain income (depending upon the length of time such stock has been held)
in an amount equal to the difference between the amount realized on such sale
and the tax basis of the shares sold. In general, the option holder's tax basis
in the shares will be equal to their fair market value on the date of exercise,
and the holding period of the shares will begin at exercise with respect to the
excess of the option stock sale price over the exercise price paid to purchase
such shares.
An option holder which exercises an incentive stock option will not
realize any regular taxable income. At the date of exercise, the option holder
may, depending on his or her
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personal tax situation, be subject to Alternative Minimum Tax ("AMT") because
the difference between the fair market value of the shares at exercise and the
exercise price represents an AMT preference item.
The tax consequences of a disposition of incentive stock option depends
upon the length of time the stock has been held by the employee. If the employee
holds the option stock for at least two years after the option is granted and
one year after the exercise of the option, any gain realized on the sale is
long-term capital gain. In order to receive long-term capital gain treatment,
the employee must remain in Intelli-Check's employ from the time the option is
granted until three months before its exercise (twelve months in the event of
termination due to the death of disability of the employee). Intelli-Check will
not be entitled to a deduction in this instance.
If the option stock is not held for the requisite holding period described
above, a "disqualifying disposition" will occur. A disqualifying disposition
results in the employee recognizing ordinary compensation income to the extent
of the lesser of: (1) the fair market value of the option stock on the date of
exercise less the option price ("the spread"), or (2) the amount realized on
disposition of the option stock less the option price. Intelli-Check will be
entitled to a deduction at this time for such ordinary compensation income. The
option holder's basis in such shares will be the fair market value on the date
of exercise.
The exercise of an option through the exchange of common shares already
owned by the option holder generally will not result in any taxable gain or loss
on the unrealized appreciation of the shares so used and so long as the shares
were held by the optionee for at least six months prior to exercise of the
option and Intelli-Check will not realize any tax consequences.
If an option holder transfers previously owned stock that was acquired
other than by exercising incentive stock options to exercise a non-qualified
option or an incentive stock option, this may be done in a manner that will not
result in taxation up to the fair market value of the surrendered stock. This
transaction is viewed as a tax-free exchange of stock in the same corporation up
to an equal value of option stock. In this situation, there is no taxation to
the option holder or to Intelli-Check on any appreciation in value of the
previously held stock. However, if additional shares of option stock are
received by the option holder, they are treated as taxable compensation for
services includible in his or her gross income. Intelli-Check is entitled to a
corresponding tax deduction for such compensation.
If an employee transfers previously owned incentive stock option stock to
exercise an incentive stock option, this may be done in a tax-free manner unless
a disqualifying disposition of such previously owned incentive stock option
shares, incentive stock option "pyramiding rules" apply whereby the
post-acquisition gain in value of such shares is taxed to the employee as
compensation. In addition, compensation is attributed to the employee to the
extent of the spread at the acquisition date of such previous owned incentive
stock option shares. Intelli-Check is entitled to a corresponding tax deduction
for such compensation.
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For purposes of determining whether shares have been held for the
long-term capital gain holding period, the holding period of shares received
will generally include the holding period of shares surrendered only if the
shares received have the same basis, in whole or in part, in the employee's
hands as the shares surrendered.
Whenever under the 1998 and 1999 Plans shares are to be delivered upon
exercise of a stock option, Intelli-Check shall be entitled to require as a
condition of delivery that the option holder remit to Intelli-Check an amount
sufficient to satisfy all Federal, state, and other governmental withholding tax
requirements related thereto.
Proposal No. 4
APPROVAL OF CLASSIFICATION OF DIRECTORS
There is being submitted to the shareholders for approval at the Annual
Meeting a proposal to amend the Certificate of Incorporation to classify the
Board of Directors into three classes having staggered terms of three years and
make an initial classification of the nominees listed in Proposal No. 1 -
Election of Directors. This provision would extend the terms of three directors
by one year, and the terms of three other directors by two years. Directors
would then serve until the annual meeting of stockholders at which directors of
their class are to be elected.
Vacancies occurring on the Board of Directors as a result of resignation
or death could be filled by the remaining directors for the full unexpired term
of the class in which the vacancy occurred, but persons elected by the Board of
Directors to newly created directorships would serve only until the next annual
meeting of shareholders. Because it would take two years before a person
acquiring a substantial amount of stock in Intelli-Check could elect a majority
of the Board of Directors, the proposed amendment would permit the Board to
protect the interests of the remaining shareholders. While continuity of
leadership and stability for Intelli-Check might be advanced by classification
of directors, it would be more difficult than at present for shareholders to
effect a change in directors if they thought it desirable to do so.
Proposal No. 5
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors recommends the selection of Arthur Andersen LLP as
independent auditors to examine Intelli-Check's financial statements for the
fiscal year ending December 31, 2000.
Representatives of Arthur Andersen LLP 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.
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OTHER MATTERS
The Board of Directors does not know of any matters other than those
mentioned above to be presented to the meeting.
SHAREHOLDER PROPOSALS
Proposals by any shareholders intended to be presented at the next Annual
Meeting of Shareholders must be received by Intelli-Check for inclusion in
material relating to such meeting not later than March 14, 2001.
EXPENSES
All expenses in connection with solicitation of proxies will be borne by
Intelli-Check. Officers and regular employees of Intelli-Check may solicit
proxies by personal interview and telephone and telegraph. 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.
By Order of the Board of Directors,
Frank Mandelbaum
Chairman
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Certificate of Amendment
of
Certificate of Incorporation
of
Intelli-Check, Inc.
-----------------------------------------------------------------
Under Section 242 of the
Delaware General Corporation Law
-----------------------------------------------------------------
Intelli-Check, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation") hereby certifies as follows:
1. The Certificate of Incorporation of the Corporation is hereby amended
by adding a new article thereof numbered eleventh so that said Article ELEVENTH
shall be and read as follows:
ELEVENTH: The Board of Directors shall be divided into three classes as
nearly equal in number as may be, with the initial term of office of Class
I expiring at the annual meeting of stockholders in 2001, of Class II
expiring at the annual meeting of stockholders in 2002, and of Class III
expiring at the annual meeting in 2003.
The directors whose names are shown below are hereby designated initial
members of the classes indicated, to serve as directors in such classes
until the appropriate annual meeting of stockholders, as indicated in the
paragraph immediately preceding, or until their respective successors are
elected and qualified:
-------------------------------------
CLASS I
-------------------------------------
Kevin Messina
-------------------------------------
Howard Davis
-------------------------------------
CLASS II
-------------------------------------
Paul Cohen
-------------------------------------
Edwin Winiarz
-------------------------------------
Evelyn Berezin
-------------------------------------
<PAGE>
-------------------------------------
CLASS III
-------------------------------------
Frank Mandelbaum
-------------------------------------
Jeffrey Levy
-------------------------------------
Charles McQuinn
-------------------------------------
At each annual meeting of stockholders, directors elected to succeed those
whose terms then expire shall be elected for a full term of office expiring at
the third succeeding annual meeting of stockholders after their election. When
the number of directors is increased, and the newly created directorships are
filled by the Board of Directors, the additional directors so elected shall hold
office only until the next annual meeting of stockholders, at which time such
directorships shall be classified by the Board of Directors in accordance with
the first sentence of this Article ELEVENTH and successor directors shall be
elected to fill such directorships, in addition to the other directors whose
terms of office then expire. Subject to the foregoing, directors elected to fill
a vacancy shall hold office for a term expiring at the annual meeting at which
the term of the class to which they shall have been elected expires. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
2. The foregoing amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation law of the State of
Delaware by the vote of a majority of each class of outstanding stock of the
Corporation entitled to vote thereon.
IN WITNESS WHEREOF, we have signed this Certificate this 13th day of July,
2000.
/s/ Frank Mandelbaum
-------------------------------------
Frank Mandelbaum, Chairman
and Chief Executive Officer
ATTEST:
/s/ Susan Pritchard
------------------------------------
Susan Pritchard, Assistant Secretary
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INTELLI-CHECK, INC.
PROXY
Annual Meeting of Shareholders - Thursday, July 13, 2000.
The undersigned shareholder of Intelli-Check, Inc. (the "Company") hereby
appoints Frank Mandelbaum the attorney and proxy of the undersigned, with full
power of substitution, to vote, as indicated herein, all the common shares of
the Company standing in the name of the undersigned at the close of business on
June 2, 2000 at the Annual Meeting of Shareholders of the Company to be held at
the offices of Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza,
New York, New York 10119 at 11:00 a.m., local time, on Thursday, July 13, 2000,
and at any and all adjournments thereof, with all the powers the undersigned
would possess if then and there personally present and especially (but without
limiting the general authorization and power hereby given) to vote as indicated
on the proposals, as more fully described in the Proxy Statement for the
meeting.
(Please fill in the reverse side and return promptly in the enclosed envelope.)
<PAGE>
Please mark boxes [X] or [X] in blue or black ink.
1. Election of Directors.
FOR all nominees [ ]
WITHHOLD authority only for those nominees whose name(s) I have written below
[ ]
WITHHOLD authority for ALL nominees [ ]
Nominees for Directors are: Frank Mandelbaum
Kevin Messina
Edwin Winiarz
Paul Cohen
Evelyn Berezin
Charles McQuinn
Jeffrey Levy
Howard Davis
--------------------------------------------------------------------------------
2. Proposal to approve the amendment to the 1998 Stock Option Plan.
For [ ] Against [ ] Abstain [ ]
--------------------------------------------------------------------------------
3. Proposal to approve the amendment to the 1999 Stock Option Plan.
For [ ] Against [ ] Abstain [ ]
--------------------------------------------------------------------------------
4. Proposal to amend the Certificate of Incorporation to classify directors.
For [ ] Against [ ] Abstain [ ]
--------------------------------------------------------------------------------
5. Proposal to approve the selection of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000.
For [ ] Against [ ] Abstain [ ]
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--------------------------------------------------------------------------------
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR THE
ELECTION OF THE PROPOSED DIRECTORS AND FOR THE ABOVE PROPOSALS UNLESS OTHERWISE
INDICATED.
SIGNATURE(S) should be exactly as name
or names appear on this proxy. If
[Sign, Date and Return the Proxy Card stock is held jointly, each holder
Promptly Using the Enclosed Envelope.] should sign. If signing is by
attorney, executor, admin istrator,
trustee or guardian, please give full
title.
Dated , 2000
-----------------------
-------------------------------------
Signature
-------------------------------------
Print Name
-------------------------------------
Signature
-------------------------------------
Print Name
3
