SCHEDULE 14A INFORMATION
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 ss. 240.14a-11(c) or ss. 240.14a-12
Payment Data Systems, Inc.
(Name of Registrant as Specified in its Charter)
---------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the 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:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
PAYMENT DATA SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 21, 2005
The annual meeting of stockholders of Payment Data Systems, Inc. (the "Company")
will be held at the Hilton San Antonio Airport located at 611 NW Loop 410, San
Antonio, Texas, 78216, on Tuesday, June 21, 2005, at 10:00 a.m., Central Time,
(the "Annual Meeting") for the following purposes:
To elect one director to serve until the 2008 annual meeting of stockholders.
To ratify the appointment of the independent auditors of the Company.
To transact any other business that properly comes before the meeting.
Stockholders of record at the close of business on April 29, 2005 are entitled
to notice of, and to vote at, the Annual Meeting or any adjournment thereof (the
"Record Date").
If you cannot attend the Annual Meeting in person, please sign and date the
accompanying Proxy and return it promptly to the Company. This way, your shares
will be voted as you direct even if you can't attend the meeting.
MICHAEL R. LONG
Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROVIDE YOUR PROXY
BY COMPLETING, SIGNING, DATING, AND PROMPTLY MAILING THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED.
PAYMENT DATA SYSTEMS, INC.
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
JUNE 21, 2005
This Proxy Statement, the Notice of the Annual Meeting and the accompanying
Proxy are being mailed to stockholders on or about May 6, 2005.
Proxy Solicitation Information
General
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Payment Data Systems, Inc. (the "Company") for use
at the Annual Meeting of Stockholders to be held on 10:00 a.m., Central Time,
Tuesday, June 21, 2005, at the Hilton San Antonio Airport located at 611 NW Loop
410, San Antonio, Texas, 78216 and at any adjournments thereof (the "Meeting").
Cost of Solicitation
The cost of this solicitation, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their expenses
in forwarding proxy material to such beneficial owners. In addition to
solicitation by mail, officers, directors and employees of the Company, who will
receive no extra compensation for their services, may solicit proxies personally
or by telephone or facsimile.
Mailing of Proxy Statement and Proxy
This Proxy Statement and the accompanying Proxy will be mailed on or about
May 6, 2005, to all Stockholders entitled to notice of and to vote at the
Meeting.
Form 10-KSB
A copy of the Company's Annual Report for the fiscal year ended December 31,
2004 will be mailed concurrently with this Proxy Statement to each stockholder
entitled to vote at the Meeting. The Annual Report is not part of the Proxy
Statement. The Company will provide, without charge, a copy of the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004 and
related financial statements and financial statement schedules to each
stockholder entitled to vote at the Meeting, who requests a copy of such in
writing. Requests should be sent to Payment Data Systems, Inc., 12500 San Pedro,
Suite 120, San Antonio, Texas 78216.
Stockholders Entitled to Vote
The close of business on April 29, 2005 has been fixed as the record date
for determining the Stockholders entitled to notice of and to vote at the
Meeting. As of the close of business on April 29, 2005, there were 28,884,529
shares of Common Stock outstanding and entitled to vote. With respect to all
matters that will come before the Meeting, each stockholder may cast one vote
for each share registered in his or her name on the record date.
Quorum
The presence, in person or by proxy, of the holders of a majority of the
shares of Common Stock issued, outstanding, and entitled to vote must be present
to hold the Meeting. This is referred to as a quorum. Proxies received that
withhold authority to vote for a nominee for election as a director and those
that are marked as abstentions and broker non-votes will be counted for the
purpose of determining whether a quorum is present.
1
Votes Required for Election of Directors
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Meeting is required for the election of
directors. This means that the nominee receiving the highest number of "For"
votes will be elected as director. A properly executed proxy marked "Withhold"
with respect to the election of a nominee will not be counted as a vote "cast"
or have any effect on the election of such nominee.
Votes Required for Ratification of Auditors
The affirmative vote of the holders of ten percent of the votes cast by
the stockholders present or represented by proxy and entitled to vote at the
Meeting is required for the approval of the vote for ratification of auditors. A
properly executed proxy marked "Abstain" with respect to this proposal will be
treated as shares present or represented and entitled to vote on such proposal
and will have the same effect as a vote against the proposal.
Returned Proxy Cards Which Do Not Provide Voting Instructions
Proxies that are signed and returned will be voted in the manner
instructed by a stockholder. If you sign and return your proxy card with no
instructions, the proxy will be voted "For Nominee" with respect to the election
of the nominee for director named in this Proxy Statement and "For" the proposal
set forth in Item 2.
Broker Non-Votes
If you hold your shares of Common Stock in "street name" (that is, through
a broker, bank or other representative), you are considered the beneficial owner
of the shares held in street name. As the beneficial owner, you have the right
to direct your broker how to vote. Brokers who have not received instructions
from beneficial owners generally have the authority to vote on certain "routine"
matters, including the election of directors and ratification of the selection
of auditors. With respect to a non-routine matter, a broker is not permitted to
vote such shares on your behalf as to such matter. Shares representing such
"broker non-votes" with respect to a non-routine matter will not be voted in
favor of such matter and will also not be counted as votes cast on such matter.
Accordingly, "broker non-votes" will have no effect on the outcome of the vote.
Changing Your Vote
You may revoke the proxy that you give the Company at any time before the
proxy is voted at the Meeting. In order to do this, you must:
- send a written notice, stating your desire to revoke your proxy, to the
Company,
- send the Company a signed proxy that bears a later date than the one you
intend to revoke, or
- attend the Meeting and vote in person. In this case, you must notify the
Inspector of Elections that you intend to vote in person.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to our knowledge, certain information concerning
the beneficial ownership of our Common Stock as of April 26, 2005 by each
stockholder known by us to be (i) the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each current director, (iii) each of
the executive officers named in the Summary Compensation Table who were serving
as executive officers at the end of the 2004 fiscal year and (iv) all of our
directors and current executive officers as a group:
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
- ---------------------------------------------------------- -------------------- --------------------
5% STOCKHOLDERS
CheckFree Investment Corporation 3,058,242(2) 9.9%
2920 Green Valley Road
Building 3, Suite 321-19
Henderson, NV 89014
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Michael R. Long 3,313,175(3) 11.0%
Louis A. Hoch 2,904,829(4) 9.7%
Larry Morrison 519,039(5) 1.8%
Peter G. Kirby 593,500(6) 2.0%
All executive officers and directors as a group (4 people) 7,330,543(7) 23.1%
<FN>
(1) Based on a total of 28,794,529 shares of Common Stock issued and outstanding on April 26, 2005.
(2) Includes 2,179,121 shares that CheckFree has the right to acquire upon the exercise of stock
warrants.
(3) Includes 1,298,334 shares that Mr. Long has the right to acquire upon the exercise of stock options.
(4) Includes 1,190,000 shares that Mr. Hoch has the right to acquire upon the exercise of stock options.
(5) Includes 200,000 shares that Mr. Morrison has the right to acquire upon the exercise of stock
options.
(6) Includes 293,000 shares that Mr. Kirby has the right to acquire upon the exercise of stock options.
(7) The address of all individual directors and executive officers is c/o Payment Data Systems, Inc.,
12500 San Pedro, Suite 120, San Antonio, Texas 78216.
PROPOSAL 1
ELECTION OF DIRECTOR
As established by the Company's Bylaws, the Directors are divided into three
classes serving staggered three-year terms. As of April 29, 2005, Michael R.
Long, Louis A. Hoch and Peter G. Kirby are the only members of the Board of
Directors of the Company. Peter G. Kirby is the only nominee for election to the
Board of Directors of the Company. Mr. Kirby's term on the Board of Directors,
if elected thereto, will expire on the 2008 Annual Meeting of the Stockholders
of the Company.
3
The individuals named as proxies will vote the enclosed Proxy FOR the election
of the nominee unless you direct them to withhold your vote. If the nominee
becomes unable to serve as a Director before the Annual Meeting (or decides not
to serve), the individuals named as proxies may vote for a substitute or may
reduce the number of members of the Board.
Below are the names and ages of the Directors and the nominee for Director, the
years they became Directors, their principal occupations or employment for at
least the past five years and certain of their other directorships, if any.
Class III Director Nominee for Election to a Three-Year Term Ending with the
2008 Annual Meeting of the Stockholders of the Company
Peter G. Kirby, Ph.D. SPHR CM. Age 65. Mr. Kirby has been our Director since
June 2001. Mr. Kirby distinguished himself in professional and community
activities in a career that spans thirty-five years. He is an accomplished
public speaker and has provided consulting services to Fortune 100 firms. Mr.
Kirby has published numerous works in the fields of management, decision-making
and human resources. He has been a director on many university advisory councils
and boards and has served on many charitable committees and foundations. Mr.
Kirby is currently a tenured professor of Management at Our Lady of the Lake
University in San Antonio, Texas, where he has taught for the past fifteen
years.
Class II Director with a Three-Year Term Ending with the 2006 Annual Meeting of
the Stockholders of the Company
Louis A. Hoch. Age 39. Mr. Hoch has been our President, Chief Operating
Officer, and Director since July 1998. Mr. Hoch has more than fifteen years of
management experience in large systems development; earning him national
recognition as an expert in call centers, voice-systems and computer telephony
integration. Mr. Hoch has held various key management positions with U.S. Long
Distance, Billing Concepts, Inc. and Anderson Consulting. Mr. Hoch holds a BBA
in Computer Information Systems and an MBA in International Business Management,
both from Our Lady of the Lake University Business School. In 2000 and 2001, he
served as a board member of Office e-procure, which provides branded office
supply e-commerce sites for businesses.
Class I Director with a Three-Year Term Ending with the 2007 Annual Meeting of
the Stockholders of the Company
Michael R. Long. Age 60. Mr. Long has been our Chief Executive Officer,
Chairman of the Board and Director since July 1998. In addition, Mr. Long has
been our Chief Financial Officer since September 2003. Mr. Long has more than
thirty years of senior executive management and systems development experience
in six publicly traded companies, as well as operating a systems consulting
business. Before assuming the top position at Payment Data Systems, Mr. Long was
Vice President of Information Technology at Billing Concepts, Inc., the largest
third party billing clearinghouse for the telecommunications industry. Mr.
Long's career experience also includes financial services industry business
development for Anderson Consulting and several executive positions in publicly
traded telecommunications and financial services companies.
Recommendation of Board of Directors
The Board of Directors of the Company recommends a vote FOR the nominee for
election to the Board of Directors.
COMPENSATION OF DIRECTORS
Mr. Long and Mr. Hoch receive no compensation for serving on the Board of
Directors of the Company due to their status as officers of the Company.
In 2004, we did not pay any cash compensation to our independent Director for
his services on our Board of Directors. However, on December 30, 2003, we
granted options to purchase 175,000 shares of our Common Stock with a one-year
vesting period at an exercise price of $0.14 per share to our independent
director, Peter G. Kirby, as compensation for his service as a Director.
4
PROCEEDINGS WITH DIRECTORS, OFFICERS, AND AFFILIATES
Beginning in December 2000, we pledged as loan guarantees certain funds held as
money market funds and certificates of deposit to collateralize margin loans for
the following executive officers: (1) Michael R. Long, then Chairman of the
Board of Directors and Chief Executive Officer; (2) Louis A. Hoch, then
President and Chief Operating Officer; (3) Marshall N. Millard, then Secretary,
Senior Vice President, and General Counsel; and (4) David S. Jones, then
Executive Vice President. Mr. Millard and Mr. Jones are no longer employed by
us. The margin loans were obtained in March 1999 from institutional lenders and
were secured by shares of our common stock owned by these officers. The pledged
funds were held in our name in accounts with the lenders that held the margin
loans of the officers. Our purpose in collateralizing the margin loans was to
prevent the sale of our common stock owned by these officers while we were
pursuing efforts to raise additional capital through private equity placements.
The sale of that common stock could have hindered our ability to raise capital
in such a manner and compromised its continuing efforts to secure additional
financing. The highest total amount of funds pledged for the margin loans
guaranteed by us was approximately $2.0 million. At the time the funds were
pledged, we believed we would have access to them because (a) the stock price
was substantial and the stock pledged by the officers, if liquidated, would
produce funds in excess of the loans payable, and (b) with respect to one of the
institutional lenders (who was also assisting us as a financial advisor at the
time), even if the stock price fell, we had received assurances from that
institutional lender that the pledged funds would be made available as needed.
During the fourth quarter of 2002, we requested partial release of the funds for
operating purposes, which request was denied by an institutional lender. At that
time, the stock price had fallen as well, and it became clear that both
institutional lenders would not release the pledged funds. In light of these
circumstances, we recognized a loss on the guarantees of $1,278,138 in the
fourth quarter of 2002 and recorded a corresponding payable under related party
guarantees on our balance sheet at December 31, 2002 because it became probable
at that point that we would be unable to recover our pledged funds. During the
quarter ended March 31, 2003, the lenders applied the pledged funds to satisfy
the outstanding balances of the loans. The total balance of the margin loans
guaranteed by us was zero at December 31, 2004. We may institute litigation or
arbitration in collection of the outstanding repayment obligations of Mr. Long,
Mr. Hoch, Mr. Millard, and Mr. Jones, which currently total $1,278,138.
Presently, we have refrained from initiating action to recover these funds from
Mr. Long, Mr. Hoch, and Mr. Millard because they may have offsetting claims that
total $1,445,500 collectively by virtue of the change of control clause in their
respective employment agreements based on our preliminary analysis. We
understand that these individuals may assert such claims based on our sale of
substantially all of our assets to Harbor Payments, Inc. on July 25, 2003. We
have not initiated any formal settlement negotiations with these individuals
because they have been under an extended employment contract with us or have not
been amenable to such an action. On July 25, 2004, our employment agreements
with Michael Long, Chief Executive Officer and Chief Financial Officer, and
Louis Hoch, President and Chief Operating Officer, expired. We intend to enter
into new employment agreements with both of these individuals and are currently
negotiating the terms of such agreements. We have not pursued the outstanding
repayment obligation of Mr. Jones because we do not consider a recovery attempt
to be cost beneficial. In order to attempt a recovery from Mr. Jones, we
estimate that we would incur a minimum of $20,000 in estimated legal costs with
no reasonable assurance of success in recovering his outstanding obligation of
approximately $38,000. Because of the limited amount of the obligation, we also
anticipate difficulty in retaining counsel on a contingency basis to pursue
collection of this obligation. The ultimate outcome of this matter cannot
presently be determined.
On July 25, 2003, certain of our stockholders (those stockholders being Mike
Procacci, Jr., Mark and Stefanie McMahon, Anthony and Lois Tedeschi, Donna and
James Knoll, John E. Hamilton, III, William T. Hagan, Samuel A. Fruscione, Dana
Fruscione-Penzone, Gia Fruscione, Alicia Fruscione, Joseph Fruscione, Robert
Evans, John Arangio, Gary and JoAnne Gardner, Lee and Margaret Getson, G. Harry
Bonham, Jr., Gary Brewer, Bob Lastowski, Robert Filipe, Mitchell D. Hovendick,
Dr. John Diephold, Joseph Maressa, Jr., and Charles Brennan) commenced legal
action against us, Ernst & Young, LLP, and certain of our current and former
directors (including the executive officers named above) in the District Court
of the 45th Judicial District, Bexar County, Texas. With respect to us and the
current and former directors named in the suit, the plaintiffs allege that we,
acting through such directors, misstated in our 2000 and 2001 Form 10-Ks our
ability to use for operational purposes the funds pledged as security for margin
loans of certain of our executive officers, as discussed above. The plaintiffs
allege and seek resulting economic and exemplary damages, rescission, interest,
attorneys' fees and costs of court. We believe this suit is without merit and
intend to vigorously defend the company and the directors named in the suit. As
5
of the date of this report, there have been no material developments in the suit
other than the case being set for trial in late 2005. The results of legal
proceedings cannot be predicted with certainty. If we fail to prevail in this
legal matter, our financial position, results of operations, and cash flows
could be materially adversely affected.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The Audit Committee
The Audit Committee, established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended, is currently comprised of our only
independent director, Mr. Kirby, and it operates under a written charter adopted
by the Board of Directors. Mr. Kirby meets the independence standards for
independent directors under the rules of the Nasdaq Stock Market published in
the Nasdaq Marketplace Rules. The composition of the Audit Committee, the
attributes of its members and the responsibilities of the Committee, as
reflected in its charter, are intended to be in accordance with applicable
requirements for corporate audit committees. The Committee reviews and assesses
the adequacy of its charter on an annual basis.
As set forth in more detail in its charter, the Audit Committee's purpose is to
assist the Board of Directors in its general oversight of the Company's
financial reporting, internal control and audit functions. Management is
responsible for the preparation, presentation and integrity of the Company's
financial statements, accounting and financial reporting principles and internal
controls and procedures designed to ensure compliance with accounting standards,
applicable laws and regulations. Akin, Doherty, Klein & Feuge, P.C., the
Company's independent auditing firm, is responsible for performing an
independent audit of the consolidated financial statements in accordance with
generally accepted auditing standards.
The Audit Committee members are not professional accountants or auditors, and
their functions are not intended to duplicate or to certify the activities of
management and the independent auditor, nor can the Audit Committee certify that
the independent auditor is "independent" under applicable rules. The Audit
Committee serves a board-level oversight role, in which it provides advice,
counsel and direction to management and the auditors on the basis of the
information it receives, discussions with management and the auditors and the
experience of the Audit Committee's members in business, financial and
accounting matters.
Among other matters, the Audit Committee monitors the activities and performance
of the Company's internal and external auditors, including the audit scope,
external audit fees, auditor independence matters and the extent to which the
independent auditor may be retained to perform non-audit services. The Audit
Committee and the Board of Directors have ultimate authority and responsibility
to select, evaluate and, when appropriate, replace the Company's independent
auditor. The Audit Committee also reviews the results of the internal and
external audit work with regard to the adequacy and appropriateness of the
Company's financial, accounting and internal controls. Management and
independent auditor presentations to and discussions with the Audit Committee
also cover various topics and events that may have significant financial impact
or are the subject of discussions between management and the independent
auditor. In addition, the Audit Committee generally oversees the Company's
internal compliance programs.
In overseeing the preparation of the Company's financial statements, the Audit
Committee has had access to the Company's management to review and discuss all
financial statements prior to their issuance and to discuss significant
accounting issues. Management advised the Audit Committee that all financial
statements were prepared in accordance with U.S. generally accepted accounting
principles. The Audit Committee has met with the Company's independent auditors
with regard to the audited financial statements of the Company for the year
ended December 31, 2004. For the year ended December 31, 2004, the Audit
Committee did receive the independent auditor's letter and written disclosures
required by the Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees).
6
For the year ended December 31, 2004, the only member of the Audit Committee was
Mr. Kirby. The Audit Committee met one time in relation to the year ended
December 31, 2004. The Company does not have an audit committee financial expert
serving on its Audit Committee because the Company has been unable to replace
the independent director serving as the audit committee financial expert after
his resignation during 2003. The Company is still seeking an independent
director to serve as the audit committee financial expert.
Compensation Committee Report on Executive Compensation
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that might incorporate future filings,
including this Proxy Statement, in whole or in part, this Compensation Committee
Report on Executive Compensation shall not be incorporated by reference into any
such filings.
General. The Company's Board of Directors has established a Compensation
Committee with authority to set all forms of compensation of the Company's
executive officers, including the grant of stock options and restricted shares.
Mr. Kirby is the sole member of the Compensation Committee.
Compensation Philosophy. The Board of Director 's compensation philosophy is to
reward executive officers for the achievement of short and long-term corporate
and individual performance, as measured by the attainment of specific goals for
the creation of long-term shareholder value. Also, to ensure that the Company is
strategically and competitively positioned for the future, the Compensation
Committee has the discretion to attribute significant weight to other factors in
determining executive compensation, such as maintaining competitiveness,
expanding markets, pursuing growth opportunities and achieving other long-range
business and operating objectives. The level of compensation should also allow
the Company to attract, motivate, and retain talented executive officers that
contribute to the long-term success of the Company. The compensation of the
Chief Executive Officer and other executive officers of the Company is comprised
of cash compensation and long-term incentive compensation in the form of base
salary and stock options.
Total Compensation for Executives. For 2004, the Company's total compensation
for executive officers consisted of base salary and common stock awards. In
setting 2004 compensation, the Compensation Committee considered the specific
factors discussed below:
Base Salary. In setting the executive officers base salaries, the
Compensation Committee considers the performance of the executive officers'
respective business units, as well as individual performance. Base salaries are
targeted to approximate the average base salaries paid to executives of similar
companies for each position. To ensure that each executive is paid
appropriately, the Compensation Committee considers the executive's level of
responsibility, prior experience, overall knowledge, contribution to business
results, executive pay for similar positions in other companies, and executive
pay within the Company.
Stock Plans. In addition to the foregoing, executive officers of the
Company may be compensated through grants of Common Stock of the Company.
Chief Executive Officer Compensation
Mr. Long's annual base salary for 2004 was $190,000. He received a common stock
award of 321,174 shares granted on January 7, 2005 valued at $96,352 in lieu of
$65,769 of his unpaid base salary for 2004, resulting in total compensation for
Mr. Long for 2004 of $220,583.
Compensation Committee Interlocks and Insider Participation
For the year ended December 31, 2004, Mr. Kirby was the only member of the
Compensation Committee. To carry out its responsibilities, the Compensation
Committee met one time during 2004.
7
The Nominating Committee
The Company considers recommendations for Director candidates from its
Directors, officers, employees, shareholders, customers, and vendors. The Board
of Directors selects the Director candidates slated for election. The Company
does not have a Nominating Committee in light of resource allocations made by
the Board of Directors in its business judgment.
The Entire Board
During 2004, the entire Board of Directors of the Company met two times for
regular and Annual meetings. During this period, each Director attended all
meetings of the Board of Directors and any committee on which he served. In all
other instances in 2004, the Board of Directors acted by unanimous written
consent.
PROPOSAL 2
RATIFICATION OF AKIN, DOHERTY, KLEIN & FEUGE, P.C. AS INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of its Audit Committee, appointed
Akin, Doherty, Klein & Feuge, P.C. as independent auditors to examine the
Company's consolidated financial statements for the fiscal year ending December
31, 2005 and to render other professional services as required.
The Company is submitting the appointment of Akin, Doherty, Klein & Feuge, P.C.
to stockholders to obtain your ratification. Representatives of Akin, Doherty,
Klein & Feuge, P.C. will be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and are expected to be
available to respond to questions.
Recommendation of the Board of Directors
The Board of Directors of the Company believes that ratification of Akin,
Doherty, Klein & Feuge, P.C. as the Company's independent auditors for the
fiscal year ended December 31, 2005 is in the best interests of the Company and
its stockholders. Accordingly, the Board recommends a vote FOR the ratification
of Akin, Doherty, Klein & Feuge, P.C. as the Company's independent auditors for
the fiscal year ended December 31, 2005.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, certain executive officers and persons
holding more than 10% of the Company's Common Stock must report their initial
ownership of the Common Stock, and any changes in that ownership, to the
Securities and Exchange Commission. The Securities and Exchange Commission has
designated specific due dates for these reports. Based solely on its review of
copies of the reports filed with the Securities and Exchange Commission and
written representations of its directors and executive officers, the Company
believes all persons subject to reporting timely filed the required reports in
2004, except that Mr. Kirby filed a Form 4 on December 29, 2004 with respect to
a stock sale occurring on December 9, 2004.
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of all of our directors and executive officers, along with
their respective positions, term of office and period such position(s) was held,
is as follows:
Name Position(s) Held Age
- -------------------- ----------------------------------------------------------------- ---
Michael R. Long Chief Executive Officer, Chief Financial Officer, Chairman of the 60
Board and Director
- --------------------
Louis A. Hoch President and Chief Operating Officer and Director 39
- --------------------
Larry Morrison Vice President, Business Development 45
- --------------------
Peter G. Kirby Director 65
8
Biographies of Officers and Directors
Michael R. Long. See biography of Mr. Long on page 4.
Louis A. Hoch. See biography of Mr. Hoch on page 4.
Larry Morrison. Mr. Morrison has been our Vice President, Business Development
since July 2003. Mr. Morrison has over 25 years of experience in all aspects of
sales and sales management. Before joining Payment Data Systems, Inc. to oversee
all sales and marketing functions, Mr. Morrison served as a major accounts
executive for a tier one telecommunications provider and vice president of sales
and operations for a major two-way communications firm. His background also
includes management and implementation of large government communication systems
installations both domestic and abroad.
Peter G. Kirby. See biography of Mr. Kirby on page 4.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned during each of the years
ended December 31, 2004, 2003 and 2002 to our Chief Executive Officer and each
other executive officer that earned over $100,000 during the year ended December
31, 2004.
Annual Compensation (1) Long Term Compensation
--------------------------- ------------------------------
Awards
-----------
Securities All Other
Underlying Compensation
Name and Principal Position(s) Year Salary Bonus Options (#)(2) (3)
- --------------------------------- ---- ------- ------- ------- -------
Michael R. Long 2004 $220,583 - $11,529
Chairman, Chief Executive Officer 2003 $190,000 400,000 $11,529
and Chief Financial Officer 2002 $190,000 340,000 $11,130
Louis A. Hoch 2004 $193,103 $15,000 - $900
President and Chief Operating 2003 $175,000 425,000 $900
Officer 2002 $175,000 340,000 $1,950
Larry Morrison 2004 $116,096 - $360
Vice President, Business 2003 $46,154 100,000 $180
Development
<FN>
(1) In 2004, salary compensation for each of the named officers includes the fair market value of common stock
received in lieu of base salary as follows: Mr. Long, $96,352 in lieu of $65,769; Mr. Hoch, $65,219 in lieu of
$47,115; and Mr. Morrison, $50,712 in lieu of $34,615.
(2) We did not grant any stock options to any of our named executive officers during fiscal year 2004.
(3) Reflects premiums paid for term life insurance coverage.
9
Option Exercises and Year-End Values
The following table provides certain information related to the exercise of
options during the year ended December 31, 2004 by the named executive officers
and the number and value of options held by the named executive officers at
December 31, 2004.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money Options at
On Exercise Realized Options at Fiscal Year-End (#) Fiscal Year- End ($) (1)
------------------------------ ---------------------------
Name. (#) ($) Exercisable Unexercisable Exercisable Unexercisable
Michael R. Long - $0 1,248,334 50,000 $109,400 $9,000
Louis A. Hoch - $0 1,115,000 75,000 $109,400 $13,500
Larry Morrison - $0 200,000 - $41,000 -
<FN>
(1) Calculated using the year-end per share price of $0.32.
DIRECTORS COMPENSATION
In 2004, we did not pay any cash compensation to our independent directors for
their services on our Board of Directors. However, on December 30, 2003, we
granted options to purchase 175,000 shares of our Common Stock with a one-year
vesting period at an exercise price of $0.14 per share to our independent
director, Peter G. Kirby, as compensation for his service as a Director.
EMPLOYMENT CONTRACTS
On July 25, 2004, our employment agreements with Michael Long, Chief Executive
Officer and Chief Financial Officer, and Louis Hoch, President and Chief
Operating Officer, expired. We intend to enter into new employment agreements
with both of these individuals and are currently negotiating the terms of such
agreements.
ANNUAL MEETING ADVANCE NOTICE REQUIREMENTS
A stockholder may recommend a nominee to become a Director of the Company by
giving Michael R. Long, the Chief Executive Officer of the Company, a written
notice mailed to 12500 San Pedro, Suite 120, San Antonio, Texas, 78216 and
setting forth certain information, including: (1) the name, age, and business
and residence addresses of the person intended to be nominated, (2) a
representation that the nominating stockholder is in fact a holder of record of
Common Stock of the Company entitled to vote at the meeting and that he or she
intends to be present at the meeting to nominate the person specified, (3) a
description of all arrangements between the nominating stockholder, the nominee
and other persons concerning the nomination, (4) any other information about the
nominee that must be disclosed in proxy solicitations under Rule 14(a) of the
Securities Exchange Act of 1934, and (5) the nominee's written consent to serve,
if elected. Such nominations must be made pursuant to the same advance notice
requirements for stockholder proposals.
The Company's 2005 Annual Meeting of Stockholders is currently scheduled for
June 2006. Copies of the Company's Bylaws are available upon written request
made to Michael R. Long, the Chief Executive Officer of the Company, at 12500
San Pedro, Suite 120, San Antonio, Texas, 78216. The requirements described
above do not supersede the requirements or conditions established by the
Securities and Exchange Commission for stockholder proposals to be included in
the Company's proxy materials for a meeting of stockholders. The Chairman of the
meeting may refuse to bring before a meeting any business not brought in
compliance with applicable law and the Company's Bylaws.
10
INDEPENDENT PUBLIC ACCOUNTANTS
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Fees Paid to the Independent Accountants
The aggregate fees billed to us for professional accounting services, including
the audit of our annual consolidated financial statements by our principal
accountant for the fiscal years ended December 31, 2004 and 2003 included in our
Form 10-KSB, are set forth in the table below. The amount for 2003 includes
approximately $38,450 of fees billed to us by Ernst & Young LLP, our former
independent auditor, related to audit and non-audit services.
2004 2003
---------- ----------
Audit fees $ 48,025 $ 51,450
Tax fees 5,125 7,000
---------- ----------
Total fees $ 53,150 $ 58,450
========== ==========
For purposes of the preceding table, the professional fees are classified as
follows:
- Audit Fees-These are fees for professional services billed for the audit
of the consolidated financial statements included in our Form 10-KSB
filings, the review of consolidated financial statements included in our
Form 10-QSB filings, comfort letters, consents and assistance with and
review of documents filed with the SEC. The fees in the 2004 column include
amounts billed to us through the date of this Proxy Statement for the year
ended December 31, 2004 and the fees in the 2003 column include amounts
billed to us through the date of this Proxy Statement for the years ended
December 31, 2003.
- Tax Fees-These are fees for professional services rendered by our
independent accountant for tax compliance, tax planning and tax advice. Tax
compliance involves preparation of original and amended tax returns. Tax
planning and tax advice encompass a diverse range of subjects, including
assistance with tax audits and appeals, tax advice related to dispositions,
and requests for rulings or technical advice from taxing authorities.
All of the services performed by our independent accountant described above were
approved in advance by our Audit Committee.
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended December
31, 2004 and Management's Discussion and Analysis of Financial Condition and
Results of Operations are incorporated herein by reference to the Company's 2004
Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission, which is being mailed to stockholders with this Proxy Statement.
PROPOSALS BY STOCKHOLDERS
In accordance with rules established by the Securities Exchange Commission, any
stockholder proposal submitted pursuant to Rule 14a-8 intended for inclusion in
the proxy statement and form of proxy for next year's Annual Meeting must be
received by the Company no later than December 31, 2005. Proposals should be
submitted to Michael R. Long, the Company's Chief Executive Officer, at 12500
San Pedro, Suite 120, San Antonio, Texas 78216. To be included in the proxy
statement, the proposal must comply with the requirements as to form and
substance established by the Securities Exchange Commission and must be a proper
subject for stockholder action under Nevada law. No shareholder proposals will
be considered for the 2006 Annual Meeting after December 31, 2005.
11
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the Company
does not know of any business that will be presented for consideration at the
Annual Meeting other than that specified herein and in the Notice of Annual
Meeting of Stockholders. If other matters are presented, it is the intention of
the persons designated as proxies to vote in accordance with their judgment on
such matters.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements including statements
containing the words "believes," "anticipates," "expects," "intends" and words
of similar import. These statements involve known and unknown risks and
uncertainties that may cause the Company's actual results or outcomes to be
materially different from those anticipated and discussed herein. Important
factors that the Company believes might cause such differences include: (1)
concentration of the Company's assets into one industry segment; (2) the nature
of the Company's business (as defined herein); (3) the impact of changing
economic conditions; (4) the actions of competitors, including pricing and new
product introductions; and (5) those specific risks that are discussed in the
cautionary statements accompanying the forward-looking statements in this Proxy
Statement and in the Risk Factors detailed in the Company's previous filings
with the Securities and Exchange Commission. In assessing forward-looking
statements contained herein, stockholders are urged to read carefully all
cautionary statements contained in this Proxy Statement and in those other
filings with the Securities and Exchange Commission.
12
Appendix A
PAYMENT DATA SYSTEMS, INC.
12500 San Pedro, Suite 120
San Antonio, Texas 78216
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael R. Long, Louis A. Hoch, or any one or
more of them, as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated
below, all the shares of common stock of Payment Data Systems, Inc. (the
"Company") held of record by the undersigned on April 29, 2005 at the Annual
Meeting of Stockholders to be held on June 21, 2005, or any adjournments
thereof.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
PAYMENT DATA SYSTEMS, INC.
June 21, 2005
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
\/ Please detach along perforated line and mail in the envelope provided. \/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTOR AND "FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK
INK AS SHOWN HERE [x]
1. Election of Director: 2. Proposal to ratify the FOR AGAINST ABSTAIN
appointment of Akin, Doherty, [ ] [ ] [ ]
NOMINEE: Klein & Feuge, P.C., certified
public accountants, as the
[ ] FOR NOMINEE Peter G. Kirby independent auditors of the
Company for the year ending
[ ] WITHHOLD AUTHORITY December 31, 2005.
FOR NOMINEE In their discretion, the proxies are authorized to vote
upon such other business as may properly come before
the meeting or any adjournment thereof.
This proxy when properly executed will be voted in the
manner directed herein by the undersigned shareholder.
If no direction is made as to a proposal, this proxy will be
voted FOR such Proposal.
To change the address on your account, [ ]
please check the box at right and
indicate your new address in the address
space above. Please note that changes to
the registered name(s) on the account may
not be submitted via this method.
Signature of Stockholder Date: Signature of Stockholder Date:
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.