UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section
14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant
þ
Filed by a Party other than the Registrant
o
Check the appropriate box:
o
Preliminary Proxy Statement
o
Confidential,
For Use of the Commission Only (As Permitted by Rule 14a-6(e)(2))
þ
Definitive
Proxy Statement
o
Definitive
Additional Materials
o
Soliciting
Material under Rule 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):
þ
No
fee required
o
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 (set forth the amount on which the filing fee is calculated and state how it was determined):
|
|
(4)
|
Proposed maximum aggregate value of transaction:
|
o
Fee
paid previously with preliminary materials.
o
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.:
|
Notice
of 2017 Annual
Shareholders’
Meeting
and
Proxy Statement
|
Tuesday, June 6, 2017
at 10 a.m.
|
Hilton Garden Inn San Antonio
Airport Fountain
Grass Garden Room, 12828 San Pedro
Avenue,
San Antonio, Texas 78216
TABLE OF CONTENTS
Letter to our Shareholders from our Board of Directors
|
|
1
|
Notice of Annual Meeting of Shareholders
|
|
2
|
Proxy Summary
|
|
3
|
General Voting and Meeting Information
|
|
3
|
Voting at the Annual Meeting
|
|
3
|
Questions and Answers
|
|
4
|
Governance
|
|
6
|
Proposal 1 – Election of Director
|
|
6
|
Directors and Nominees
|
|
7
|
Director Independence and Related Person Transactions
|
|
10
|
Information about Corporate Governance
|
|
11
|
Director Compensation
|
|
13
|
Executive Officers
|
|
14
|
Executive Compensation
|
|
15
|
Outstanding Equity Awards at Fiscal-Year End
|
|
18
|
Proposal 2 – Advisory Vote to Approve Executive Compensation
|
|
20
|
Share Ownership
|
|
21
|
Equity Compensation Plan Information
|
|
21
|
Security Ownership of Certain Beneficial Owners
|
|
21
|
Section 16(a) Beneficial Ownership Reporting Compliance
|
|
23
|
Audit Matters
|
|
23
|
Report of the Audit Committee
|
|
23
|
Proposal 3 – Ratification of the Appointment of Independent Registered Public Accounting Firm
|
|
24
|
Principal Accountant Fees and Services
|
|
24
|
Audit Committee Pre-Approval Policies and Procedures
|
|
24
|
General Information
|
|
25
|
Shareholder Proposals
|
|
25
|
Householding
|
|
26
|
Other Matters
|
|
26
|
Appendix A – Proxy Card
|
|
28
|
12500 San Pedro, Ste. 120
San Antonio, TX 78216
(210) 249-4100
April 27, 2017
Dear Fellow Shareholder:
You are cordially invited to
attend the 2017 Annual Meeting of Shareholders of Payment Data Systems, Inc. The meeting will be held at 10 a.m. local time on
Tuesday, June 6, 2017, at the Hilton Garden Inn San Antonio Airport, Fountain Grass Garden Room located at 12828 San Pedro Avenue,
San Antonio, Texas 78216.
The formal notice of the 2017
Annual Meeting and Proxy Statement has been made a part of this invitation.
Payment Data Systems continues
to grow and evolve, and we are committed to ensuring that highly qualified individuals are seated on our Board of Directors, and
that our compensation and stock incentive plans are fair, just, and appropriately motivating, and that our capital structure is
appropriate. Through careful evaluation of this proxy statement, you can help us to achieve these goals.
Whether or not you attend the
Annual Meeting, it is important that your shares be represented and voted at the Annual Meeting. After reading the Proxy Statement,
please promptly vote and submit your proxy by dating, signing and returning the enclosed proxy card in the enclosed postage-prepaid
envelope.
Your shares cannot be voted unless you submit your proxy or attend the Annual Meeting in person.
Important Notice Regarding
the Availability of Proxy Materials for the Annual Shareholder Meeting to Be Held on June 6, 2017
: The Proxy Statement, form
of proxy, Annual Report on Form 10-K for the year ended December 31, 2016 and related materials are available at www.proxyvote.com,
by using the QR codes at the end of this document, or by contacting our Investor Relations department through email at ir@paymentdata.com.
The Board of Directors and
our Company Management look forward to seeing you at the Annual Meeting.
Thank you.
|
|
Page
1
|
Notice
of 2017 Annual Meeting of Shareholders
Tuesday, June
6, 2017, 10:00 a.m., Central Time
Hilton Garden Inn San Antonio
Airport, Fountain Grass Garden Room, 12828 San Pedro Avenue, San Antonio, TX 78216
We are pleased to invite you
to join our Board of Directors, senior leadership and other shareholders for our 2017 Annual Meeting of Payment Data Systems, Inc.
Shareholders. The meeting will be held at the Hilton Garden Inn San Antonio Airport, Fountain Grass Garden Room, located at 12828
San Pedro Avenue, San Antonio, TX 78216, at 10:00 a.m. local time on Tuesday, June 6, 2017. The purposes of the Meeting are:
|
●
|
To elect one Class III Director, Miguel A.
Chapa, nominated by our Board of Directors, to serve until the 2020 Annual Meeting of Shareholders;
|
|
●
|
To consider and vote on whether to approve,
on an advisory basis, the compensation paid to our Named Executive Officers;
|
|
●
|
To ratify the appointment of Akin, Doherty,
Klein & Feuge, P.C. as our independent registered public accounting firm for the year ending December 31, 2017; and
|
|
●
|
To transact such other business as may properly
come before the meeting and at any adjournments or postponements of the meeting.
|
The Board of Directors has set
April 13, 2017 as the record date for the meeting. This means that only shareholders of record of Payment Data as of the close
of business on that date are entitled to:
|
●
|
Receive notice of the meeting; and
|
|
●
|
Vote at the meeting and any adjournment or
postponement of the meeting.
|
For ten days prior to the 2017
Annual Meeting, a complete list of shareholders entitled to vote at the 2017 Annual Meeting will be available at the Secretary’s
office, 12500 San Pedro, Suite 120, San Antonio, TX 78216.
This Proxy Statement, form of
proxy and our Annual Report for the year ended December 31, 2016 are available online at www.proxyvote.com and www.paymentdata.com/proxy
and www.paymentdata.com/10k or by using the QR codes at the end of this document. You can also access these materials by contacting
our Investor Relations Department by email at ir@paymentdata.com.
By Order of the Board of Directors,
____________________
Louis A. Hoch
President and Chief Executive
Officer
San Antonio, Texas
Your
Vote is Important to us
.
Regardless of whether you plan to attend, we urge all shareholders to vote on the matters described
in the accompanying proxy statement we hope that you will promptly vote and submit your proxy by dating, signing and returning
the enclosed proxy card. This will not limit your rights to attend or vote at the Annual Meeting.
|
|
Page
2
|
Proxy
Summary
General Voting and Meeting Information
The Notice and Access cards
detailing the availability of this proxy statement and proxy card are first mailed to shareholders on or about April 27, 2017,
and all proxy documents will be made available via www.proxyvote.com. It is important that you carefully review the proxy materials,
and follow the instructions below to cast your vote on all voting matters.
Voting Methods
Even if you plan to attend the 2017
Annual Meeting of Shareholders in person on June 6, 2017, please vote as soon as possible by using one of the following advance
voting methods. Make sure to have your
notice card
,
proxy card
or
voting instruction form
in hand and follow
the instructions
You can
vote
in advance
through one of three ways:
|
|
Via the Internet
*
–
Visit the website listed on your notice card,
proxy card or voting instruction form.
|
|
|
By Telephone
*
–
Call the telephone number listed on your notice
card, proxy card or voting instruction form.
|
|
|
By Mail –
If you are a shareowner of record
and received a notice regarding the availability of proxy materials, you may request a written proxy card by following the instructions
in the notice. Then sign, date, and return your proxy card/voting instruction form in the enclosed envelope
|
* If you are a beneficial owner you
may vote via the Telephone or Internet if your bank, broker, or other nominee makes those methods available, in which case they
will include the instructions with the proxy materials. If you are a shareholder of record, Payment Data will include instructions
on how to vote via Internet or Telephone directly on your notice or proxy voting card.
Voting at the Annual Meeting
Shareholders of record may vote
at the Annual Meeting. Beneficial owners may vote in person if they have a legal proxy.
Even if you plan to attend the 2017
Annual Meeting, we recommend that you also submit your proxy or voting instructions or vote by telephone or the Internet so that
your vote will be counted if you later decide not to attend the meeting.
Voting Matters and Board Recommendations
Shareholders are being asked to vote on
the following matters at the 2017 Annual Meeting:
Proposal
|
Recommendation
|
PROPOSAL 1 - Election of Director
|
FOR
|
Election of one Class III
director nominee, Miguel A. Chapa. The Board believes that the nominee’s knowledge, skills, and abilities will positively
contribute to the function of the Board as a whole. Accordingly, your proxy holder will vote your shares FOR the election of the
Board’s nominee named below unless you instruct otherwise.
|
|
|
|
Page
3
|
PROPOSAL 2 - Advisory Vote to
Approve Executive Compensation
|
FOR
|
The Say-on-Pay Proposal, to approve,
on an advisory basis, the compensation paid to our Named Executive Officers for the year ended December 31, 2016. The Company has
designed its compensation programs to reward and motivate employees to continue to grow the Company. The Board of Directors takes
shareholder views seriously and will take into account the advisory vote in future executive compensation decisions. Accordingly,
your proxy holder will vote your shares FOR the approval of the executive compensation paid to our Named Executive Officers unless
you instruct otherwise.
|
|
PROPOSAL 3 - Ratification of Independent Registered Public Accounting Firm
|
FOR
|
Akin, Doherty, Klein
& Feuge, P.C. has been appointed as the Company’s independent registered public accounting firm for the year ending
December 31, 2017. The Audit Committee and the Board believe that retention of the firm is in the best interests of the Company
and its shareholders. Accordingly, your proxy holder will vote your shares FOR the ratification of the appointment of Akin, Doherty,
Klein & Feuge, P.C. as our independent registered public accounting firm unless you instruct otherwise.
|
|
Questions and Answers
1. What is a proxy statement, what is a proxy
and how does it work?
A proxy statement is a document
that the U.S. Securities and Exchange Commission requires us to give you when we ask you to sign a proxy card designating someone
other than you to vote the stock you own. The written document you sign indicating who may vote your shares of common stock is
called a proxy card and the person you designate to vote your shares is called a proxy. The Board of Directors is asking to act
as your proxy. By signing and returning to us the proxy card you are designating us as your proxy to cast your votes at the 2017
Annual Meeting of Shareholders. We will cast your votes as you indicate on the proxy card.
Our employees, officers and
directors may solicit proxies. We will bear the cost of soliciting proxies and will reimburse brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation material to the owners
of our common stock.
2. Who is entitled to vote
at the 2017 Annual Meeting of Shareholders?
Only shareholders who were
Payment Data Systems, Inc. shareholders of record at the close of business on April 13, 2017, or the Record Date, may vote at
the 2017 Annual Meeting of Shareholders. As of the close of business on the Record Date, there were 11,761,111 shares of our common
stock outstanding (which excludes 613,763 treasury shares). Each shareholder is entitled to one vote for each share of our common
stock held as of the Record Date.
3. What is the difference
between a shareholder of record and a beneficial owner?
If your shares are registered
directly in your name with Payment Data’s transfer agent, American Stock Transfer and Trust Company, LLC, you are considered,
with respect to those shares, a
shareholder of record
. As a shareholder of record, a Notice Regarding the Availability
of Proxy Material for the 2017 Annual Meeting of Shareholders has been sent directly to you by us.
If your shares are held in
a brokerage account or by a bank or other nominee, you are considered the beneficial owner of your shares of common stock. The
Notice Regarding the Availability of Proxy Material for the 2017 Annual Meeting of Shareholders has been forwarded to you by your
broker, bank or nominee who is considered, with respect to those shares, the shareholder of record. As the beneficial owner, you
have the right to direct your broker, bank or nominee how to vote your shares by using the voting instruction form included in
the proxy materials.
|
|
Page
4
|
4. What does it mean if
I receive more than one proxy card?
If you hold your shares in
multiple registrations, or in both registered and street name, you will receive a notice card, proxy card or voting instruction
form for each account. Please vote each proxy card or voting instruction form you receive using one of the voting methods outlined
elsewhere in this proxy statement.
5. What proposals will be
voted on at the 2017 Annual Meeting of Shareholders?
The following proposals will
be voted on at the 2017 Annual Meeting of Shareholders:
|
·
|
The election of one Class III director, Miguel A. Chapa, nominated by the
Board of Directors, to serve until the 2020 Annual Meeting of Shareholders or until his successor is duly elected and qualified;
|
|
·
|
The Say-on-Pay Proposal, to approve on an advisory basis, the compensation
paid to our Named Executive Officers;
|
|
·
|
The ratification of the appointment of Akin, Doherty, Klein & Feuge,
P.C. as our independent public accounting firm for the year ending December 31, 2017;
|
6. What are the Board’s
recommendations?
Our Board recommends that you vote:
|
·
|
“FOR” Proposal No. 1 to elect one Class III director nominee,
Miguel A. Chapa;
|
|
·
|
“FOR” Proposal No. 2, the Say-on-Pay Proposal, to approve on
an advisory basis, the compensation paid to our Named Executive Officers;
|
|
·
|
“FOR” Proposal No. 3 to ratify the appointment of Akin, Doherty,
Klein & Feuge, P.C. as our independent registered public accounting firm for the year ending December 31, 2017;
|
7. Will there be any other
items of business on the agenda?
We do not expect any other
items of business because the deadline for shareholder proposals and nominations has already passed. Nonetheless, in case there
is an unforeseen need, the accompanying proxy gives discretionary authority to the persons named on the proxy with respect to
any other matters that might be brought before the meeting. Those persons intend to vote that proxy in accordance with their best
judgment.
8. How will my shares be
voted?
To designate how you would
like to vote, fill out the proxy card or voting instruction form indicating how you would like your votes cast. If you sign and
return the proxy card, but do not specify how to vote, we will vote your shares as follows:
|
·
|
“FOR” Proposal No. 1 to elect one Class III director nominee,
Miguel A. Chapa;
|
|
·
|
“FOR” Proposal No. 2, the Say-on-Pay Proposal, to approve on
an advisory basis, the compensation paid to our Named Executive Officers;
|
|
·
|
“FOR” Proposal No. 3 to ratify the appointment of Akin, Doherty,
Klein & Feuge, P.C. as our independent registered public accounting firm for the year ending December 31, 2017;
|
9. Can I change my vote or revoke
my proxy?
You may change your vote or revoke your proxy
at any time prior to the vote at the 2017 Annual Meeting. If you submitted your proxy by mail, you must file with our Secretary,
at Payment Data Systems, Inc., 12500 San Pedro, Ste. 120, San Antonio, TX 78216, a written notice of revocation or deliver a valid,
later-dated proxy. If you submitted your proxy by telephone or the Internet, you may change your vote or revoke your proxy with
a later telephone or Internet proxy, as the case may be.
Attendance at the 2017 Annual Meeting will not have the effect of revoking
a proxy unless you give written notice of revocation to the Secretary before the proxy is exercised or you vote by written ballot
at the 2017 Annual Meeting.
|
|
Page
5
|
10. What is a broker non-vote
and what is the impact of not voting?
A broker “non-vote”
occurs when a nominee holding shares of common stock for a beneficial owner, such as a bank or broker, does not vote on one or
more proposals because the nominee does not have discretionary voting power on that matter, which is also referred to as holding
shares in street name. Your bank or broker does not have discretion to vote uninstructed shares on the proposals in this Proxy
Statement, except for Proposal No. 3 to ratify the appointment of our independent registered public accounting firm. As a result,
if you hold your shares in street name it is critical that you provide instructions to your bank or broker, if you want your vote
to count in the election of directors and the advisory vote related to executive compensation.
11. What constitutes a quorum?
A quorum is the minimum number
of shareholders necessary to conduct the Annual Meeting. The presence at the 2017 Annual Meeting, in person or by proxy, of the
holders of a majority of common stock outstanding on the Record Date will constitute a quorum. As of the close of business on the
Record Date, there were 11,761,111 shares of our common stock outstanding (which excludes 613,763 treasury shares). Votes withheld
from any nominee, abstentions and broker “non-votes” are counted as present or represented for the purpose of determining
the presence of a quorum.
12. Is cumulative voting permitted
for the election of directors?
No. Shareholders may not cumulate
votes in the election of directors, which means that each shareholder may vote only the number of shares he or she owns for a
single director candidate.
13. What is the vote required
for a proposal to pass?
Proposal No. 1—Election
of Directors:
The affirmative vote of a plurality of the shares of common stock present or represented by proxy and entitled
to vote at the 2017 Annual Meeting, in person or by proxy, is required for the election of the nominee. Thus, assuming a quorum
is present at the 2017 Annual Meeting, the nominee who receives the most affirmative votes will be elected as Class III director.
Abstentions and broker “non-votes” will have no effect on the voting outcome with respect to the election of directors.
Proposal No. 2—Say-on-Pay:
Because this proposal asks for a non-binding, advisory vote, there is no required vote that would constitute approval. We value
the opinions expressed by our shareholders in this advisory vote, and our Compensation Committee, which is responsible for overseeing
and administering our executive compensation programs, will consider the outcome of the vote when designing our compensation programs
and making future compensation decisions for our Named Executive Officers. Abstentions and broker “non-votes,” if any,
will not have any impact on this advisory vote.
Proposal No. 3—Ratification
of the selection of our independent registered public accounting firm:
The affirmative vote of the holders of a majority of
shares of common stock present in person or represented by proxy and entitled to vote at the 2017 Annual Meeting, is required
to ratify our selection of Akin, Doherty, Klein & Feuge, P.C. as our independent registered public accounting firm for the
year ending December 31, 2017. A properly executed proxy marked “ABSTAIN” with respect to this proposal will not be
voted, although it will be counted for purposes of determining the number of shares of common stock entitled to vote. Accordingly,
an abstention will have the effect of a negative vote. Because Proposal No. 3 is a routine proposal on which a broker or other
nominee is generally empowered to vote, broker “non-votes” likely will not result from this Proposal. Thus, if you
are a beneficial owner holding shares through a broker, bank or other holder of record and you do not vote on this Proposal, your
broker may cast a vote on your behalf for this Proposal.
Governance
Proposal No. 1 – Election of Director
Election of one Class III director
nominee. The Board believes that the nominee’s knowledge, skills, and abilities would positively contribute to the function
of the Board as a whole. Accordingly, your proxy holder will vote your shares
FOR
the election of the Board’s nominee
named below unless you instruct otherwise.
|
|
Page
6
|
Directors and Nominees
As established by our Bylaws,
our Directors are divided into three classes serving staggered three-year terms. Our Board currently consists of four directors:
|
Name
|
Position with our Company
|
Director Since
|
Term Expires
|
Class I
|
|
|
|
|
|
Louis A. Hoch
|
President, CEO, and Class I Director
|
1998
|
2018
|
Class II
|
|
|
|
|
|
Michael R. Long
|
Chairman of the Board, and Class II Director
|
1998
|
2019
|
|
Steve Huffman
|
Class II Director
|
2016
|
2019
|
Class III
|
|
|
|
|
|
Miguel A. Chapa
|
Class III Director
|
2015
|
2017
|
With regard to the election of directors, votes
may be cast “FOR” or “WITHHOLD.” Provided that a quorum is present, the affirmative vote by the holders
of a plurality of the shares of common stock present and voting at the 2017 Annual Meeting is required to elect the nominee for
director.
What am I voting on?
Shareholders are being asked
to elect one Class III director nominee for a three-year term. The following sections include information about all Directors,
including Miguel A. Chapa, this year’s nominee.
Required Vote
The affirmative vote of a plurality
of the shares of common stock present or represented by proxy and entitled to vote at the 2017 Annual Meeting, in person or by
proxy, is required for the election of the nominee. Thus, assuming a quorum is present at the 2017 Annual Meeting, the nominee
who receives the most affirmative votes will be elected as Class III director. Abstentions and broker “non-votes”
will have no effect on the voting outcome with respect to the election of directors.
Voting Recommendation
The Board of Directors recommends
a vote
FOR
the election of Class III Director, Miguel A. Chapa.
Director Biographies and Qualifications
The biographies of our directors
and certain information regarding each director’s experience, attributes, skills and/or qualifications that led to the conclusion
that the director should be serving as a Director of Payment Data Systems, Inc. are stated below.
Class I Director with a Three-Year
Term Ending with the 2018 Annual Meeting of Shareholders
Louis A. Hoch, age 51 – President,
Chief Executive and Operating Officer and Vice Chairman of the Board
Mr. Hoch has served as our
Chief Executive Officer since August 4, 2016, and as our President, Chief Operating Officer, and a director of our Company since
July 1998. He also serves as Vice Chairman of our Board of Directors and as Chief Executive Officer of our wholly-owned subsidiary
FiCentive, Inc. Mr. Hoch is a valuable member of our Board as he has over twenty years of management experience, sixteen years
of which were at a senior executive level in large systems development, and he is an expert in payment processing, call center
operations and service bureau operations. He holds inventor status on U.S. Patent No. 7,021,530 (“System and method for
managing and processing stored-value cards and bill payment therefrom.”). Mr. Hoch has held various key management positions
with U.S. Long Distance, Billing Concepts, Inc. and Andersen 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.
|
|
Page
7
|
Class II Directors with a
Three-Year Term Ending with the 2019 Annual Meeting of Shareholders
Michael R. Long, age 72 – Chairman
of the Board and Co-Founder
Mr. Long has served as our
Chairman of our Board of Directors since July 1998. He has also held the position of our Chief Executive Officer from July 1998
to August 2016, and Chief Financial Officer from September 2003 to March 2015, in addition to his other positions with us. Mr.
Long has more than thirty years of senior executive management and systems development experience in six publicly traded companies,
as well as experience operating a systems consulting business. Before assuming the highest position with our Company, 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 Andersen Consulting and several executive positions in publicly traded telecommunications and financial services companies.
Mr. Long is a valuable member of our Board due to his depth of operating, strategic, systems development, transactional, and senior
management experience in our industry. Additionally, Mr. Long has held positions of increasing responsibility at our Company and
holds an intimate knowledge of our Company due to his longevity in the industry and with us.
Steve Huffman, age 63 –
Director
Mr. Huffman currently serves
as the President of Huffman Developments, LLC, which specializes in turnkey commercial real estate development, primarily for
medical and professional office buildings. Mr. Huffman began his commercial real estate career in 1983, while also running a successful
public accounting practice. In addition to his own ventures, Mr. Huffman is often engaged to serve as an owner’s representative
to help other organizations, typically nonprofit organizations, complete their own real estate projects. Currently Mr. Huffman
is overseeing the development of the National Museum of the U.S. Army, an 185,000 square foot museum including an 82 acre campus
at Fort Belvoir. Mr. Huffman has been actively involved in leadership positions on various civic boards and commissions including
the Greater San Antonio Chamber of Commerce, the Finance committee of the Santa Rosa Health Care System, the San Antonio Chapter
of the Texas Society of CPAs, Ella Austin Community Center, San Antonio Job Training commission, United Way, the Boy Scouts of
America, and Ballet San Antonio. He also was the founder and serves as President of Returning Heroes Home. Mr. Huffman has over
30 years of experience developing commercial real estate, and has a background as a Certified Public Accountant. Mr. Huffman earned
his Bachelor of Business Administration from the University of Texas at Austin and began his career as an accountant with Peat
Marwick (now KPMG) from 1978 to 1983.
Class III Director with a
Three-Year Term Ending with the 2017 Annual Meeting of Shareholders
Miguel A. Chapa, age 44 – Director
During the past 17 years, Mr.
Chapa focused primarily on building a highly successful entrepreneurial career. His skills of business planning, financial analysis,
strategic planning, management, negotiations and leadership has led him to build successful companies in the retail customer service
industry, such as restaurants and entertainment venues. Mr. Chapa has served as the Chief Executive Officer of Rio Ventures Ltd.,
and Rio Club LLC since January 2012 and EFJM, Inc. since January 2014. Previously, he was the Chief Executive Officer for 6400
Beverage LLC and Bar Rio Management of Houston LLC from March 2005 to October 2009 and Casa Grande Holdings LLC from June 2010
to December 2011. Mr. Chapa completed his education with a Bachelor of Arts degree in Finance in 1998 from the Monterrey Institute
of Technology and Higher Education.
Other Involvement in Certain
Legal Proceedings
None of our directors have
been involved in any bankruptcy or criminal proceedings, nor have there been any judgments or injunctions brought against any
of our directors during the last ten years that we consider material to the evaluation of the ability and integrity of any director.
|
|
Page
8
|
Board Meetings and Annual Meeting
Attendance
Our Board of Directors held
9 meetings during 2016, and in addition, took action from time to time by unanimous written consent. Each director attended at
least 75% of the aggregate number of meetings of the Board of Directors held during the period for which such Director served
on our Board of Directors and of the Committees on which such director served.
We do not have a policy that
requires the attendance of directors at our Annual Meetings of Shareholders. Louis Hoch attended the 2016 Annual Meeting
of Shareholders.
Committees of the Board of Directors
Effective November 11, 2016,
our Board of Directors appointed Mr. Steve Huffman and Tom Jewell as independent directors. Mr. Jewell resigned from the Board
and his respective committee assignments on January 6, 2017, as a result of becoming our Chief Financial Officer. Miguel Chapa
serves as our independent director since April 24, 2015. On May 19, 2015, our Board established our new committee structure by
appointing an Audit Committee, a Compensation Committee, and a Nominations and Corporate Governance Committee. The Board of Directors
has determined that each director who serves on these committees is “independent,” as that term is defined by the NASDAQ
Listing Rules and rules of the SEC. The Board of Directors has adopted written charters for its Audit Committee, its Compensation
Committee and its Nominations and Corporate Governance Committee. Copies of these charters are available on our website at www.paymentdata.com/invest.
In addition to the number of meetings referenced below, the Committees also took actions by unanimous written consent.
Information about each of our
committees is stated below:
Name of Committee Member
|
Audit
|
Compensation
|
Nominations and Corporate Governance
|
Steve Huffman
|
«
|
«
|
«
|
Miguel Chapa
|
●
|
●
|
●
|
«
Committee
Chair
●
Committee member
Audit Committee
Effective November 11, 2016,
our Board appointed Mr. Huffman as chairperson of our Audit Committee to join Mr. Chapa, both of whom meet the independence standards
for independent directors under the rules of the NASDAQ Stock Market published in the NASDAQ Marketplace Rules. Mr. Huffman meets
the standard of “audit committee financial expert,” as defined in Item 407(d)(5)(ii) of Regulation S-K. Mr. Jewell,
as an independent director, served on the Audit Committee from November 11, 2016 to January 6, 2017, when he resigned to become
our Chief Financial Officer. The Audit Committee has a written charter. The Audit Committee met six times in
the year ended December 31, 2016.
The Audit Committee’s
purpose is to assist the Board of Directors in its general oversight of our financial reporting, internal control and audit functions.
Management is responsible for the preparation, presentation and integrity of our 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., our independent auditing firm, is responsible for performing an
independent audit of the consolidated financial statements in accordance with standards of the Public Company Accounting Oversight
Board.
The Audit Committee is not
made up of professional accountants or auditors, and its function is 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.
|
|
Page
9
|
Among other matters, the Audit
Committee monitors the activities and performance of our 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
our independent auditor. The Audit Committee also reviews the results of the internal and external audit work with regard to the
adequacy and appropriateness of our 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
our internal compliance programs.
In overseeing the preparation
of our financial statements, the Audit Committee has had access to our 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. For the year ended December 31, 2016,
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).
Compensation Committee
Effective November 11,
2016, our Board appointed Mr. Huffman to the Compensation Committee to join Mr. Chapa, both of whom meet the independence
standards for independent directors under the rules of the NASDAQ Stock Market published in the NASDAQ Marketplace Rules. Mr.
Jewell, as an independent director, served as chair of the Compensation Committee from November 11, 2016 to January 6, 2017,
when he resigned to become our Chief Financial Officer. On January 6, 2017, our Board appointed Mr. Huffman as the chair of
the Compensation Committee. The Compensation Committee has a written charter. The Compensation Committee met two times in the
year ended December 31, 2016.
The Compensation Committee’s primary function
is to assist the Board of Directors in meeting its responsibilities in regards to oversight and determination of executive compensation
and to review and make recommendations with respect to major compensation plans, policies and programs of our Company. Other specific
duties and responsibilities of the Compensation Committee are to review and approve goals and objectives relevant to the recommendations
for approval by the independent members of the Board of Directors regarding compensation of our Chief Executive Officer and other
executive officers, establish and approve compensation levels for our Chief Executive Officer and other executive officers, and
to administer our stock plans and other equity-based compensation plans.
Nominations and Corporate Governance Committee
Effective November 11, 2016,
our Board appointed Mr. Huffman to the Nominations and Corporate Governance Committee to join Mr. Chapa, both of whom meet the
independence standards for independent directors under the rules of the NASDAQ Stock Market published in the NASDAQ Marketplace
Rules. Mr. Jewell, as an independent director, served on the Nominations Committee from November 11, 2016 to January 6, 2017,
when he resigned to become our Chief Financial Officer. On January 6, 2017, our Board appointed Mr. Huffman as the chair of the Nominations
and Corporate Governance Committee. The Nominations Committee has a written charter. The Nominations and Corporate Governance
Committee met three time in the year ended December 31, 2016.
The Nominations and Corporate Governance Committee’s
primary function is to identify qualified individuals to become members of the Board of Directors, determine the composition of
the Board and its Committees, and to monitor a process to assess Board effectiveness. Other specific duties and responsibilities
of the Nominations and Corporate Governance Committee are to recommend nominees to fill vacancies on the Board of Directors, review
and make recommendations to the Board of Directors with respect to director candidates proposed by shareholders, and review, on
an annual basis, the functioning and effectiveness of the Board and its Committees.
Director Independence and Related
Person Transactions
Independent Directors
Standard for Independence
— We determine independence using the definitions set forth in the NASDAQ Listing Rules and the rules under the Securities
Exchange Act of 1934. These definitions define independence based on whether the director or a family member of the director has
been employed by the Company in the past three years, how much compensation the director or family member of a director received,
how much stock the director or a family member of the director owns in the Company and whether the director or a family member
of the director is associated with the Company’s independent auditor.
|
|
Page
10
|
Effective on April 24,
2015, our Board of Directors appointed Mr. Kirk Taylor and Mr. Miguel Chapa as independent directors. Effective November 11,
2016, our Board of Directors appointed Mr. Steve Huffman and Mr. Tom Jewell as independent directors. Mr. Taylor resigned on
August 1, 2016 and Dr. Kirby retired on November 11, 2016. Mr. Jewell resigned from the Board on January 6, 2017 when he
became our Chief Financial Officer. The Board has determined that Mr. Taylor, Mr. Huffman, Mr. Jewell and Mr. Chapa are
independent as defined by Rule 5605(a)(2) of the NASDAQ Listing Rules.
Related Person Transactions
It is our policy that all employees,
officers and directors must avoid any activity that is or has the appearance of conflicting with the interests of our Company.
Our Audit Committee reviews all related party transactions for potential conflict of interest situations on an ongoing basis and
all such transactions relating to executive officers and directors must be approved by the Audit Committee. In carrying out this
responsibility, the Audit Committee has determined that we have the following related party transactions.
Directors and Officers
On December 27, 2016, we repurchased
246,717 shares in a private transaction at the closing price on December 27, 2016 from employees and directors to cover the respective
employees’ and directors’ share of taxes for shares that vested on that day, as approved by our Board of Directors
and our Audit Committee on the same day, with the respective directors recusing themselves. In particular we repurchased the following
shares from our Named Executive Officers and Directors:
Louis A. Hoch:
|
|
124,542 shares valued at $1.75 per share or total $217,949;
|
Michael R. Long:
|
|
76,269 shares valued at $1.75 per share or total $133,471;
|
Dr. Peter Kirby:
|
|
11,573 shares valued at $1.75 per share or total $20,253;
|
Larry Morrison:
|
|
17,874 shares valued at $1.75 per share or total $31,280.
|
Louis Hoch
During the year ended December
31, 2016 and 2015, we purchased $2,250 and $857, respectively, of corporate imprinted sportswear, promotional items and caps from
Angry Pug Sportswear. Nikole Killough and Louis Hoch, our President and Chief Executive Officer are each
50% owners of Angry Pug Sportswear.
Miguel Chapa and Louis Hoch
During the year ended December
31, 2016 and 2015, we received $51,500 and $20,901, respectively, in revenue from Club Rio Maroc Bar, Lush Rooftop, and Nirvana
Bar and Rock. Miguel Chapa, a member of our Board of Directors and is an owner in Club Rio Maroc Bar, Lush Rooftop, and Nirvana
Bar and Rock. Louis Hoch, our President and Chief Executive Officer, is also an owner in Lush Rooftop.
Arrangements or Understandings
between our Executive Officers or Directors and Others
There are no arrangements or
understandings between our executive officers or directors and any other person pursuant to which he was or is to be selected as
a director or officer.
Information about Corporate
Governance
Board Leadership Structure
Mr. Long has served as our
Chairman of our Board of Directors since July 1998. He has also held the position of our Chief Executive Officer until August
4, 2016, and as our Chief Financial Officer from September 2003 to March 2015. Since August 4, 2016, Mr. Hoch is our Chief Executive
Officer. Mr. Hoch manages the day-to-day affairs of our Company and leads the Board meetings. Mr. Hoch has also served as our
President, Chief Operating Officer, and a director of our Company since July 1998, and also serves as Vice Chairman of our Board
of Directors. Mr. Miguel Chapa served on our Board of Directors since April 2015. Effective November 11, 2016, our Board appointed
Mr. Tom Jewell and Steve Huffman as independent directors. Mr. Tom Jewell resigned from our Board when he became our Chief Financial
Officer on January 6, 2017. Our Board is currently searching for a suitable candidate to fill our vacant Board seat. Our Board
believes, having a majority of independent directors serves our Company well.
|
|
Page
11
|
The Board believes that its
structure should be informed by the needs and circumstances of our Company, the Board, and our shareholders. With this in mind,
the Board believes that its structure is currently serving our Company well, and intends to maintain this where appropriate and
practicable in the future.
Risk Oversight Management
The Board of Directors takes
an active role, as a whole and at the committee level, in overseeing management regarding our Company’s risks. Our management
keeps the Board of Directors apprised of significant risks facing our Company and the approach being taken to understand, manage
and mitigate such risks. Specifically, strategic risks are overseen by the full Board of Directors; financial risks are overseen
by the Audit Committee; risks relating to compensation plans and arrangements are overseen by the Compensation Committee; risks
associated with director independence and potential conflicts of interest are overseen by the Audit Committee. Additional review
or reporting on enterprise risks is conducted as needed or as requested by the full Board of Directors or the appropriate committee.
Director Nominations
The Board of Directors nominates
directors for election at each Annual Meeting of Shareholders and appoints new directors to fill vacancies when they arise. The
Nominations and Corporate Governance Committee has the responsibility to identify, evaluate, recruit and recommend qualified candidates
to the Board of Directors for nomination or election.
One of the Board of Directors’
objectives in evaluating director nominations is to ensure that its membership is composed of experienced and dedicated individuals
with a diversity of backgrounds, perspectives and skills. The Nominations and Corporate Governance Committee will select nominees
for director based on their character, judgment, diversity of experience, business acumen, and ability to act on behalf of all
shareholders. We do not have a formal diversity policy. However, the Nominations and Corporate Governance Committee endeavors
to have a Board representing diverse viewpoints as well as diverse expertise at policy-making levels in many areas, including
business, accounting and finance, manufacturing, marketing and sales, education, legal, government affairs, regulatory affairs,
research and development, business development, technology and in other areas that are relevant to our activities.
The Nominations and Corporate
Governance Committee believes that nominees for director should have experience, such as those mentioned above, that may be useful
to our Company and the Board of Directors, high personal and professional ethics and the willingness and ability to devote sufficient
time to carry out effectively their duties as directors. The Nominations and Corporate Governance Committee believes it appropriate
for at least one, and, preferably, multiple, members of the Board of Directors to meet the criteria for an “audit committee
financial expert” as defined by rules of the SEC, and for a majority of the members of the Board of Directors to meet the
definition of “independent director” as defined by the NASDAQ Listing Rules. The Nominations and Corporate Governance
Committee also believes it appropriate for key members of our management to participate as members of the Board of Directors.
Prior to each Annual Meeting of Shareholders, the Nominations and Corporate Governance Committee identifies nominees first by
evaluating the current directors whose term will expire at the Annual Meeting and who are willing to continue in service. These
candidates are evaluated based on the criteria described above, including as demonstrated by the candidate’s prior service
as a director, and the needs of the Board of Directors with respect to the particular talents and experience of its directors.
In the event that a director does not wish to continue in service, the Nominations and Corporate Governance Committee determines
not to re-nominate the director, a vacancy is created on the Board of Directors as a result of a resignation, an increase in the
size of the Board or other event, the Committee will consider various candidates for Board membership, including those suggested
by the Committee members, by other Board members, by any executive search firm engaged by the Committee or by shareholders. The
Committee recommended the nominees for election included in this Proxy Statement.
We consider recommendations
for director candidates from our directors, officers, employees, shareholders, customers, and vendors. Shareholders wishing to
nominate individuals to serve as directors may submit such nominations, along with a nominee’s qualifications, to our Board
of Directors at Payment Data Systems, Inc., 12500 San Pedro, Suite 120, San Antonio, Texas, 78216, and the Board of Directors
will consider such nominee.
|
|
Page
12
|
Shareholder Communications with
the Board of Directors
If you wish to communicate
with the Board of Directors, you may send your communication in writing to: Secretary, Payment Data Systems, Inc., 12500 San Pedro,
Suite 120, San Antonio, Texas, 78216. Please include your name and address in the written communication and indicate whether you
are a shareholder of Payment Data. The Secretary will review any communication received from a shareholder, and all material communications
from shareholders will be forwarded to the appropriate director or directors or Committee of the Board of Directors based on the
subject matter.
Director Compensation
The following table sets forth
information concerning the compensation provided to each person who served as a non-employee member of our Board of Directors
during the year ended December 31, 2016. Compensation provided to Directors who are also employees is listed in the Summary Compensation
Table for the years ended December 31, 2016 and 2015 in the section addressing Executive Compensation.
Name
|
Fees earned or paid in cash
($)
|
Stock
awards
($) (1)
|
All other compensation
($) (2)
|
Total
($)
|
Peter G. Kirby (3)
|
29,000
|
14,848
|
10,667
|
54,515
|
Kirk Taylor (4)
|
42,000
|
--
|
--
|
42,000
|
Miguel A. Chapa (5)
|
29,000
|
35,003
|
--
|
64,003
|
Steve Huffman (6)
|
1,000
|
38,446
|
--
|
39,446
|
Tom Jewell (7)
|
1,000
|
38,446
|
--
|
39,446
|
|
(1)
|
Represents the fair value of accrued prior stock awards recognized for financial statement reporting
purposes only. The fair value of each restricted stock award is amortized to expense monthly on a straight-line basis over the
vesting period of the restricted stock award for the fiscal year ended December 31, 2016 in accordance with Financial Accounting
Standards Board Accounting Standards Codification (ASC) Topic 718. See Note 10 of the Notes to our Financial Statements contained in the annual report on Form 10-K for a discussion of all assumptions
made by us in determining values of our stock awards.
|
|
(2)
|
Represents the difference in value for stock awards at grant date and vest date.
|
|
(3)
|
Dr. Kirby served on our Board of Directors until November 11, 2016. For the year ended December
31, 2016, he received $4,000 in meeting fees and $25,000 as a one-time cash bonus.
|
|
(4)
|
Mr. Taylor served on our Board of Directors until August 1, 2016.
|
|
(5)
|
Mr. Chapa was appointed to our Board of Directors effective April
24, 2015. For the year ended December 31, 2016, he received $4,000 in meeting fees and $25,000 as a one-time cash bonus. As of
December 31, 2016, there were 20,001 shares outstanding for Mr. Chapa.
An additional 6,667 shares vested on January 1, 2017,
and 6,667 shares vest on January 1, 2018.
|
|
(6)
|
Mr. Huffman was appointed to our Board of Directors effective November 11, 2016. On November, 11,
2016, we granted Mr. Huffman 66,667 restricted stock units convertible into 66,667 shares of our common stock at the start of his
directorship term, pursuant and subject to the terms of our 2015 Equity Incentive Plan. 22,223 restricted stock units of common
stock vested on January 1, 2017, and were converted into stock on April 12, 2017. 22,222 shares vest on January 1, 2018, and 22,222
shares vest on January 1, 2019.
|
|
(7)
|
Mr. Jewell was appointed to our Board of Directors effective November 11, 2016 and served until
January 6, 2017 when he became our Chief Financial Officer. On November 11, 2016, we granted Mr. Jewell 66,667 restricted stock
units convertible into 66,667 shares of common stock with a grant date fair value of $115,334. 22,223 shares of common stock vested
on January 1, 2017, and were converted into stock on April 12, 2017. As a result of Mr. Jewell accepting the Chief Financial Officer
position on January 6, 2017 and resigning from the Board, the remaining 44,444 unvested shares were cancelled.
|
|
|
Page
13
|
Narrative to Director Compensation Table
During 2016, Messrs. Long and Hoch received no
compensation for serving on our Board due to their status as officers of our Company.
Effective on April 24, 2015, our Board of Directors
appointed Mr. Kirk Taylor and Mr. Miguel Chapa as two independent directors. In connection with Mr. Taylor’s and Mr. Chapa’s
appointments, we entered into independent director agreements with Mr. Taylor, Mr. Chapa and our long-standing director, Dr. Peter
Kirby. We agreed to pay each director $1,000 for participating in each quarterly board meeting, including the annual shareholder
meeting. As Chairman of the Audit Committee, Mr. Taylor received $15,000 in additional annual compensation, but no additional compensation
for ad hoc or preparatory meetings or for being the chair of another committee. We also agreed to pay Dr. Kirby one-time cash-bonuses
of $20,000 in 2015 and $25,000 in 2016 for continued loyalty and service to our Company. Mr. Chapa and Dr. Kirby do not receive
any additional compensation for ad hoc or preparatory meetings or for being the chair of a committee. On August 1, 2016, Mr. Taylor
resigned from our Board of Directors, and on November 11, 2016, Dr. Kirby retired from our Board of Directors.
On April 24, 2015, we also granted Mr. Taylor
33,334 shares of common stock with a grant date fair value of $180,000 for his services on our Board of Directors. 11,111 shares
vested on April 24, 2015, and 11,112 shares vested on January 1, 2016. 11,110 shares scheduled to vest on January 1, 2017 were
cancelled in 2016 as a result of Mr. Taylor’s resignation from the Board on August 1, 2016. On April 24, 2015, we also granted
Mr. Chapa 33,334 shares of common stock with a grant date fair value of $180,000 for his services on our Board. 13,334 shares vested
on April 24, 2015, 6,667 shares vested on January 1, 2016, 6,667 shares vested on January 1, 2017, and 6,667 shares vest on January
1, 2018. On April 11, 2017, Mr. Chapa returned 2,000 shares at the closing price of April 11, 2017 of $1.85 per share to cover
taxes.
Effective November 11, 2016, our Board of Directors
appointed Tom Jewell and Steve Huffman as independent directors. In connection with Mr. Jewell and Mr. Huffman’s appointments,
we entered into our customary independent director agreements with Mr. Jewell and Mr. Huffman. Pursuant to the independent director
agreements, the terms of their respective directorships terminate on the earliest of the following: (a) the death or disability
of the director; (b) the termination of the director from membership on the board by mutual agreement; (c) the removal of the respective
director from the board by the majority stockholders of the Company; and (d) the resignation by the director from the board.
We agreed to pay each director $1,000 for participating
in each quarterly board and committee meeting, including the annual shareholder meeting. Mr. Jewell and Mr. Huffman will not receive
any additional compensation for ad hoc or preparatory meetings or for being the chair of a committee, other than the Audit Committee
and only if appointed the Chair of the Audit committee or for being a regular or non-Chair member of the Audit committee and holding
a valid CPA license.
Mr. Jewell and Mr. Huffman were also granted
66,667 restricted stock units convertible into our common stock at the start of their directorship terms, pursuant and subject
to the terms of our 2015 Equity Incentive Plan. Such units will vest in three installments: (1) 22,223 on January 1, 2017, (2)
22,222 on January 1, 2018, and (3) 22,222 on January 1, 2019. As a result of Mr. Jewell accepting the Chief Financial Officer
position on January 6, 2017 and resigning from the Board, his remaining 44,444 unvested shares were cancelled.
Executive Officers
Executive Officers’ Biographies
and Qualifications
The biographies of our executive
officers and certain information regarding each officer’s experience, attributes, skills and/or qualifications that led
to the conclusion that the officer should be serving as an officer of Payment Data are stated below.
Louis A. Hoch, age 51 – President,
Chief Executive and Operating Officer and Vice Chairman of the Board
For Mr. Hoch’s biography,
please refer to page 7 in the section entitled “
Director Biographies and Qualifications
.”
|
|
Page
14
|
Tom Jewell, age 60 – Chief Financial
Officer
Mr. Jewell has served as our Senior Vice
President and Chief Financial Officer since January 6, 2017. He was a member of our Board of Directors from November 11, 2016 to
January 6, 2017. Mr. Jewell has over 35 years of business leadership experience focused on management, auditing, accounting, internal
controls and finance. Previously, Mr. Jewell was the founder and owner of LTJ Financial Consulting, LLC. LTJ Financial Consulting
which provided CFO and Controller advisory services for middle market companies in need of accounting process improvements or were
looking to scale their business. Mr. Jewell performed this role from May 2009 to January 2017. His clients included start-ups seeking
funding, clients in retail, staffing, construction and software industries and included serving as an FDIC approved consultant
assisting the FDIC close failed banking institutions during the banking crisis. Prior to 2009, Mr. Jewell served as CFO for a multi-state
photography studio chain from 2007 to 2009. Prior to 2007, Mr. Jewell provided financial leadership to divisional units of RadioShack,
Verizon and Kentucky Fried Chicken. Mr. Jewell, a Certified Public Accountant, began his career at Touche Ross (Deloitte). Mr.
Jewell is a member of the Dallas and Fort Worth chapters of Financial Executives International (FEI) and a founding member of the
Dallas Chapter of the CFO Leadership Council.
Houston Frost, Ph.D., age 35 – Senior
Vice President, Corporate Development and Prepaid Products
Mr. Frost has served as our
Senior Vice President Corporate Development and Prepaid Products since December 2014. Prior to joining us, Mr. Frost served as
President and Chief Executive Officer of Akimbo Financial, Inc. since its inception. Mr. Frost co-founded Akimbo in January 2010
motivated by a desire to reinvent the prepaid card. Mr. Frost has more than six years of experience in the prepaid and payments
industry and ten years of experience in financial services. Prior to Akimbo, Mr. Frost worked in New York as an Associate at JPMorgan
Chase & Co. on the Fixed-Income Strategy team. Mr. Frost earned his Ph.D. in Chemical and Biological Engineering from Northwestern
University in 2007 and a Bachelor’s of Science in Chemical and Biological Engineering from the University of Colorado in
2003.
Larry Morrison, age 57 – Senior Vice
President, Sales and Marketing
Mr. Morrison has served as
our Senior Vice President Sales and Marketing Officer since July 2003. Previously, he also served as our Vice President. Mr. Morrison
has over 27 years of experience in all aspects of sales and sales management. Before joining us 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.
Other Involvement in Certain
Legal Proceedings
None of our executive officers
have been involved in any bankruptcy or criminal proceedings, nor have there been any judgments or injunctions brought against
any of our executive officers during the last ten years that we consider material to the evaluation of the ability and integrity
of any executive officer.
Executive Compensation
Named Executive Officers
This Proxy Statement contains
information about the compensation paid to our Named Executive Officers, as defined by Item 402(m)(2) of Regulation S-K, during
our fiscal year ended December 31, 2016. In accordance with the rules and regulations of the Securities and Exchange Commission
for smaller reporting companies, we determined that the following officers were our Named Executive Officers:
|
●
|
Michael R. Long, Chief Executive Officer until
August 4, 2016;
|
|
●
|
Louis A. Hoch, Chief Executive and Operating
Officer;
|
|
●
|
Houston Frost, Senior Vice President, Corporate
Development and Prepaid Products Officer; and
|
|
●
|
Larry Morrison, Senior Vice President, Sales
and Marketing.
|
|
|
Page
15
|
Compensation Overview
We qualify as a “smaller
reporting company” under the rules promulgated by the Securities and Exchange Commission, and we have elected to comply
with the disclosure requirements applicable to smaller reporting companies. Accordingly, this executive compensation summary is
not intended to meet the “Compensation Discussion and Analysis” disclosure required of larger reporting companies.
Role of the Compensation Committee
The Compensation Committee’s
primary functions are to assist the Board of Directors in meeting its responsibilities in regards to oversight and determination
of executive compensation and to review and make recommendations with respect to our major compensation plans, policies and programs.
All compensation for our executive officers is determined by the Compensation Committee of our Board of Directors, which is composed
only of independent directors. The Compensation Committee is charged with the responsibility of reviewing the performance and
establishing the total compensation of our executive officers on an annual basis. The Compensation Committee often discusses compensation
matters as part of regularly scheduled board and committee meetings. The Compensation Committee administers our incentive plans,
and is responsible for approving grants of equity awards under such plans. The Compensation Committee acts under the authority
of a written charter, which is available on our website at paymentdata.com/invest.
Compensation Philosophy and
Objectives
Due to the size of our Company,
the performance of the Named Executive Officers directly affects all aspects of our results. Consequently, our 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 we are 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 us to attract, motivate,
and retain talented executive officers that contribute to our long-term success. The compensation of our Chief Executive Officer
and other executive officers is comprised of cash compensation and long-term incentive compensation in the form of base salary,
restricted stock awards and stock options with the possibility to earn bonuses.
Summary Compensation Table for
the Years Ended December 31, 2016 and 2015
The following table sets forth the compensation for the fiscal years ended December 31, 2016 and 2015 awarded to, earned by,
or paid to (i) all persons who served as our principal executive officers during the last fiscal year; (ii) our most highly
compensated executive officer other than the principal executive officers; and (iii) one other person for whom disclosure
would have been provided but for the fact that the person was not serving as an executive officer at the end of the last fiscal
year. We refer to the individuals included in the Summary Compensation Table as our “named executive officers.”
Name and Principal Position
|
Fiscal Year Ended Dec. 31
|
Salary ($)
|
Bonus ($)
|
Stock Awards ($)(1)
|
All Other Compensation ($)
|
Total ($)
|
Michael R. Long
Chairman, Former Chief Executive Officer (2)
|
2016
|
255,000
|
--
|
212,179
|
81,367 (4)
|
548,546
|
2015
|
255,000
|
90,491 (3)
|
223,248
|
66,697 (5)
|
635,436
|
Louis A. Hoch
Vice Chairman, President and Chief Executive Officer
(6)
|
2016
|
272,600
|
--
|
226,430
|
320,242 (8)
|
819,272
|
2015
|
235,000
|
20,000 (7)
|
243,432
|
127,775 (9)
|
626,207
|
Houston Frost
Senior Vice President, Corporate Development and
Prepaid Products
|
2016
|
130,000
|
--
|
139,400
|
5,788 (11)
|
275,188
|
2015
|
130,000
|
43,119 (10)
|
139,400
|
6,433 (12)
|
318,952
|
Larry Morrison
Senior Vice President, Sales and Marketing
|
2016
|
130,000
|
--
|
68,800
|
34,562 (13)
|
233,362
|
|
|
Page
16
|
|
(1)
|
Represents the amount recognized by our Company for the specific executive during this period for
financial statement reporting purposes only and is not compensation earned by the executive. The fair value of each restricted
stock award is amortized to expense on a straight-line basis over the vesting period of the restricted stock award in accordance
with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718. See Note 10 of the Notes to our Financial
Statements contained in the annual report on Form 10-K for a discussion of all assumptions made by us in determining values of
our stock awards.
|
|
(2)
|
Mr. Long is our current Chairman of the Board of Directors and served as our Chief Executive Officer
until August 4, 2016. In 2016 and 2015, Mr. Long elected to receive a base salary of $255,000 per year in lieu of the base salary
of $375,000 that would have been due to him for 2016 and 2015 under the employment agreement effective February 27, 2007, as amended.
No deferred compensation is owed to Mr. Long for 2016 or 2015.
|
|
(3)
|
Mr. Long’s 2015 bonus compensation consisted of one-time cash bonus of $90,491. All bonus
compensation was granted pursuant to the terms of our employment agreement, as amended, with Mr. Long declining to receive the
full allotted bonus of $216,000.
|
|
(4)
|
Mr. Long’s 2016 other compensation consisted of (a) $2,550 of matching 401k contributions,
(b) $12,117 in life insurance premiums, and (c) $66,700 representing the fair value of accrued prior unvested stock awards recognized
for financial statement reporting purposes only.
|
|
(5)
|
Mr. Long’s 2015 other compensation consisted of (a) $3,445 of matching 401k contributions,
(b) $12,117 in life insurance premiums, and (c) $51,125 representing the fair value of accrued prior unvested stock awards recognized
for financial statement reporting purposes only.
|
|
(6)
|
In 2016 Mr. Hoch received a base salary of $235,000 per year at Mr. Hoch’s election, which
was increased to $350,000 in August 2016 when Mr. Hoch became our Chief Executive Officer consistent with his employment agreement.
In 2015, Mr. Hoch elected to receive a base salary of $235,000 per year in lieu of the base salary of $350,000 that would have
been due to him for 2015 under the employment agreement. No deferred compensation is owed to Mr. Hoch for 2016 and 2015.
|
|
(7)
|
Mr. Hoch’s 2015 bonus compensation consisted of one-time cash bonus of $20,000. All bonus
compensation was granted pursuant to the terms of our employment agreement, as amended, with Mr. Hoch declining to receive the
full allotted bonus of $216,000.
|
|
(8)
|
Mr. Hoch’s 2016 other compensation consisted of (a) $9,827 of matching 401k contributions,
(b) $4,710 in life insurance premiums, and (c) $305,705 representing the fair value of accrued prior unvested stock awards recognized
for financial statement reporting purposes only.
|
|
(9)
|
Mr. Hoch’s 2015 other compensation consisted of (a) $10,200 of matching 401k contributions,
(b) $3,831 in life insurance premiums, and (c) $113,744 representing the fair value of accrued prior unvested stock awards recognized
for financial statement reporting purposes only.
|
|
(10)
|
Mr. Frost’s 2015 bonus compensation consisted of one-time cash bonuses of $43,119.
|
|
(11)
|
Mr. Frost’s 2016 other compensation consisted of (a) $5,200 of matching 401k contributions,
and (b) $588 in life insurance premiums.
|
|
(12)
|
Mr. Frost’s 2015 other compensation consisted of (a) $5,845 of matching 401k contributions,
and (b) $588 in life insurance premiums.
|
|
(13)
|
Mr. Morrison’s 2016 other compensation consisted of (a) $5,200 of matching 401k contributions,
(b) $ 2,622 in life insurance premiums, and (c) $26,700 representing the fair value of accrued prior unvested stock awards recognized
for financial statement reporting purposes only.
|
|
|
Page
17
|
Narrative to Summary Compensation
Table
Named Executive Officer Employment Agreements
We entered into an employment
agreement with Michael R. Long effective February 27, 2007, as amended. Under the agreement, Mr. Long agreed to serve as our Chairman
of the Board. The agreement provides for an annual base salary of $375,000 per year, unless increased by us. In addition, Mr.
Long will receive an annual bonus of $216,000 during the term of the agreement to be paid in cash or stock at our sole discretion.
In 2016 and 2015, Mr. Long elected to receive a base salary of $255,000 per year in lieu of the base salary of $375,000 that would
have been due to him for 2016 and 2015 under the employment agreement. No deferred compensation is owed to Mr. Long for 2016 or
2015. Mr. Long’s 2015 bonus compensation consisted of a one-time cash bonus of $90,491. The bonus compensation was granted
pursuant to the terms of our employment agreement, as amended, with Mr. Long declining to receive the full allotted bonus of $216,000.
We entered into an employment
agreement with Louis A. Hoch effective February 27, 2007, as amended. Under the agreement, Mr. Hoch agreed to serve as our Vice
Chairman of the Board, President and Chief Executive and Operating Officer. Mr. Hoch assumed the Chief Executive Officer role
in August 2016. The employment agreement provides for an annual base salary of $350,000 per year, unless increased by us. In addition,
Mr. Hoch will receive an annual bonus of $216,000 during the term of the agreement to be paid in cash or stock at our sole discretion.
In 2016, Mr. Hoch received a base salary of $235,000 per year at Mr. Hoch’s election, which was increased to $350,000 in
August 2016 when Mr. Hoch became our Chief Executive Officer consistent with his employment agreement. In 2015, Mr. Hoch elected
to receive a base salary of $235,000 in lieu of the base salary of $350,000 that would have been due to him under the employment
agreement. No deferred compensation is owed to Mr. Hoch for 2016 or 2015. Mr. Hoch’s 2015 bonus compensation consisted of
a one-time cash bonus of $20,000. All bonus compensation was granted pursuant to the terms of our employment agreement with Mr.
Hoch, as amended, declining to receive the full allotted bonus of $216,000.
We entered into an employment
agreement with Houston Frost, Ph.D. from December 23, 2014 to December 31, 2016 when the employment agreement was not renewed and
terminated according to its terms. Under the expired employment agreement, Mr. Frost agreed to serve as our Senior Vice President
Corporate Development and Prepaid Products through December 31, 2016. We agreed to pay Mr. Frost an annual base salary of $130,000
and a bonus not to exceed 50% of the highest salary received in any year of the agreement and approved and calculated by our executive
compensation committee and/or Chief Executive Officer. In addition, Mr. Frost received 266,667 shares of our common stock to be
vested 120,000 shares in equal increments of 3,334 shares a month with the first 3,334 shares vested January 31, 2015 and the last
3,334 to vest December 31, 2017. The remaining 146,667 shares will vest all on January 31, 2025. The stock was issued on a restricted,
non- registered basis. Mr. Frost will also be entitled to receive stock grants and future stock options as authorized by our executive
compensation committee and/or our Chief Executive Officer. As of January 1, 2017, Mr. Frost is serving as our Senior Vice President
Corporate Development and Prepaid Products at-will.
We do not have an employment
agreement with Larry Morrison.
Outstanding Equity Awards at Fiscal Year-End
The following table shows grants
of unexercised stock options and unvested stock by grant date outstanding on December 31, 2016, the last day of our fiscal year,
to each of the named executive officers included in the Summary Compensation Table. Share numbers have been adjusted for 1-for-15
reverse stock split effective July 23, 2015.
Name
|
Stock awards
|
Grant date
|
Number of shares or units of stock that have not vested (#)(1)
|
Market value of shares or units of stock that have not vested ($)(2)
|
Michael R. Long
|
|
|
|
|
1/09/2008
|
516,667
|
955,834
|
|
10/04/2012
|
66,667
|
123,334
|
|
12/29/2014
|
533,334
|
986,668
|
Louis A. Hoch
|
|
|
|
|
1/09/2008
|
516,667
|
955,834
|
|
10/04/2012
|
66,667
|
123,334
|
|
12/29/2014
|
533,334
|
986,668
|
Larry Morrison
|
|
|
|
|
1/09/2008
|
46,667
|
86,334
|
|
10/04/2012
|
30,000
|
55,500
|
|
12/29/2014
|
200,000
|
370,000
|
Houston Frost (3)
|
|
|
|
|
12/23/2014
|
40,000
|
74,000
|
|
12/23/2014
|
146,667
|
271,334
|
|
|
Page
18
|
|
(1)
|
Unvested common stock granted January 9, 2008 vests on January 9, 2018. Unvested common stock granted
on October 4, 2012 vests on October 4, 2022. Unvested common stock granted on December 29, 2014 vests on December 29, 2024.
|
|
(2)
|
Calculated using the NASDAQ Capital Markets closing price of $1.85 per share of our common stock
on December 30, 2016.
|
|
(3)
|
The shares vest in equal increments of 3,334 shares a month with the first 3,334 shares vested
on January 31, 2015 and the last 3,334 to vest December 31, 2017. The remaining 146,667 shares will vest all on January 31, 2025.
|
Narrative to Outstanding Equity
Awards at Fiscal Year-End Table
Retirement Benefits
We do not have any qualified or non-qualified
defined benefit plans. We do have a tax-qualified defined contribution plan pursuant to Section 401(k) of the Internal Revenue
Code. All of our eligible full and part-time employees who meet certain age requirements may participate in this 401(k) plan. Participants
may contribute between 1% and 80% of their pre-tax compensation, but may not contribute more than the maximum as mandated by law.
The 401(k) plan allows for us to make discretionary and matching contributions. In 2016 and 2015, we matched 100% of employee contributions
up to 3% and 50% of the employee contribution over 3% with a maximum employee contribution of 5%. We made matching contributions
of $52,905 and $49,636 in 2016 and 2015, respectively.
Non-qualified Deferred Compensation
We do not have any non-qualified
defined contribution plans or other deferred compensation plans.
Potential Payments Upon Termination or Change
of Control
The employment agreements we
entered into with Mr. Long and, Mr. Hoch, respectively, provide for potential payments upon termination or a change of control.
Pursuant to our respective
employment agreements with Michael Long, Chairman, and Louis Hoch, President, Chief Executive Officer, and Chief Operating Officer,
as amended, in the event of change in control, termination without cause, or non-renewal of the employment agreement, we will
be liable for separation payments, equaling an amount of (a) 2.95 the respective base salary and bonus payments, plus (b) a pro
rata portion of the respective annual bonus based on the number of days elapsed in the year prior, plus (c) 2.0 times the respective
base salary for non-competition, and (d) one year of continuing other benefits. We will also accelerate vesting of stock incentive
awards, which as of December 31, 2016 are approximately $1.2 million each.
In the case of termination
of the agreement due to death of the executive, we will be liable for separation payments, equaling an amount of 2.95 the respective
base salary. The deferred compensation does not include amounts paid or accrued to executive for bonuses or bonus compensation,
benefits or equity awards. Unpaid and unearned bonus compensation or bonus deferred compensation is forfeited. No deferred compensation
will be due as long as we and/or an insurance company continue to pay executive’s base salary, minus any monthly base salary
already paid to the executive prior to his death pursuant to the executive’s disability, to the executive’s estate
for a period of up to 36 months. If these continuing payments cease before 36 months, we will have to pay the executive’s
estate the deferred compensation minus any base salary payments within 30 days of the cessation. Further, all stock options issued
to the executive and all restricted stock granted to executive shall continue on their vesting schedule.
|
|
Page
19
|
In the case of termination
of the agreement due to disability without death, we will be liable for separation payments, equaling an amount of disability
benefits constituting base salary for 3 years. Unpaid and unearned bonus compensation or bonus deferred compensation is forfeited.
Further, all stock options issued to the executive and all restricted stock granted to executive shall continue on their vesting
schedule. No further compensation will be due for compliance with the agreements’ non-compete, non-solicitation and disparagement
clauses.
Proposal No. 2 – Advisory Vote to Approve
Executive Compensation
The Dodd-Frank Wall Street
Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934. As required pursuant to Section 14A
of the Exchange Act, Proposal No. 2 is a non-binding, advisory proposal on the compensation that we paid to our Named Executive
Officers for the year ended December 31, 2016. The Board of Directors is providing shareholders with the opportunity to cast an
advisory vote on the compensation of our Named Executive Officers. This proposal, commonly known as a “say-on-pay”
proposal, gives you, as a shareholder, the opportunity to endorse or not endorse our 2016 executive compensation programs and
policies and the compensation paid to our Named Executive Officers for the year ended December 31, 2016.
We believe in the power of
open disclosure and know the only way to build and strengthen our reputation and our Company is through honesty and trust. In
connection with that belief and as required by SEC rules, we are asking our shareholders to approve, on an advisory basis, the
compensation that we paid to our Named Executive Officers.
As discussed under the heading
“
Executive Compensation—Compensation Overview
” in this proxy statement, our compensation objectives are
to: attract and retain highly qualified individuals with a demonstrated record of achievement; reward past performance; provide
incentives for future performance; and align the interests of the Named Executive Officers with the interests of our shareholders.
The Board is asking shareholders to support this proposal based on the disclosure set forth in these sections of this proxy statement,
which, among other things, demonstrates:
|
●
|
our commitment to ensuring executive compensation
is aligned with our corporate strategies and business objectives and competitive with those of other companies in our industry;
|
|
●
|
the design of our compensation programs is
intended to reward our Named Executive Officers for the achievement of key strategic and financial performance measures by linking
short- and long-term cash and equity incentives to the achievement of measurable corporate and individual performance goals; and
|
|
●
|
our strong emphasis on the alignment of the
incentives of our Named Executive Officers with the creation of increased shareholder value.
|
Required Vote
Because this proposal asks
for a non-binding, advisory vote, there is no required vote that would constitute approval. We value the opinions expressed by
our shareholders in this advisory vote, and our Compensation Committee, which is responsible for overseeing and administering
our executive compensation programs, will consider the outcome of the vote when designing our compensation programs and making
future compensation decisions for our Named Executive Officers. Abstentions and broker “non-votes,” if any, will not
have any impact on this advisory vote.
Voting Recommendation
The Board of Directors is asking
shareholders to cast a non-binding, advisory vote
FOR
the following resolution:
“RESOLVED, the shareholders
of Payment Data Systems, Inc. approve on an advisory basis, the compensation paid to our Named Executive Officers as disclosed
pursuant to the compensation disclosure rules of the SEC, including the compensation tables and accompanying narrative disclosure
under the heading “
Executive Compensation.
”
|
|
Page
20
|
Share
Ownership
Equity Compensation Plan Information
The following table provides
information as of December 31, 2016 with respect to compensation plans (including individual compensation arrangements) under
which our equity securities are authorized for issuance:
Plan Category
|
Number of securities to be issued upon exercise of outstanding options and rights
|
Weighted-average exercise price of outstanding options and rights
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
Equity compensation plans approved by security holders
|
-
|
-
|
5,350,495
|
Equity compensation plans not approved by security holders
|
-
|
-
|
-
|
Total
|
-
|
-
|
5,350,495
|
Our 2015 Equity Incentive Plan provides for the
grant of incentive stock options as defined in Section 422 of the Internal Revenue Code and the grant of Stock Options, Restricted
Stock, Stock Units, Performance Awards, or other Awards to employees, non-employee directors, and consultants.
The Board of Directors authorized 5,000,000 shares
(adjusted for the 1-for-15 reverse split effective on July 23, 2015) of our common stock for issuance under the 2015 Equity Incentive
Plan, including automatic increases provided for in the 2015 Equity Incentive Plan through fiscal year 2025. The number of shares
of our common stock reserved for issuance under the 2015 Equity Incentive Plan will automatically increase, with no further action
by the shareholders, on the first business day of each fiscal year during the term of the Plan, beginning January 1, 2016, in
an amount equal to 5% of the issued and outstanding shares of stock on the last day of the immediately preceding year, or such
lesser amount if so determined by the Board or the Administrator. During 2016, we granted 133,334 shares from the plan to directors.
On January 1, 2016, the authorized common shares under the plan increased by 601,495 shares in accordance with the automatic increase
provision described above. On January 1, 2017, the authorized common shares under the plan increased by 589,797 in accordance
with the automatic increase provision described above.
Security Ownership of Certain Beneficial Owners
The following tables set forth,
to our knowledge, certain information concerning the beneficial ownership of our common stock as of April 13, 2017 by: (i) each
shareholder known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock, (ii) each of
our Named Executive Officers, (iii) each of our current directors, and (iv) all of our directors and executive officers as a group.
We have determined beneficial
ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information
furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to
all shares of common stock that they beneficially own, subject to applicable community property laws.
In computing the number of
shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares
of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days after April
13, 2017. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other
person.
|
|
Page
21
|
Shareholders Known by Us to
Own 5% or More of Our Common Stock
Name and Address of Beneficial Owner
|
Amount and Nature of Beneficial Ownership
|
Percentage of Shares Beneficially Owned (1)
|
National Services, Inc. (2)
750 E. Green St.
Pasadena, CA 91101
|
712,500
|
6.1%
|
(1)
|
On April 13, 2017, we had a total of 11,761,111
shares of common stock outstanding (which excludes 613,763 treasury shares).
|
|
(2)
|
We relied on the Schedule 13G filed by National Services, Inc. with the SEC on March 18, 2016 for this information.
|
Officers and Directors
|
|
Amount of Beneficial Ownership
|
Percent of Shares Beneficially Owned (3)
|
Name and address of beneficial owner (1)
|
Nature of beneficial ownership
|
Shares Owned
|
Shares – Rights to Acquire (2)
|
Total
|
|
Michael Long
|
Chairman of the Board
|
2,517,251
|
--
|
2,517,251
|
21.4%
|
Louis Hoch
|
President, Chief Executive Officer, and Vice Chairman of the Board
|
2,229,972
|
--
|
2,229,972
|
18.9%
|
Houston Frost
|
Senior Vice President
|
294,027
|
--
|
294,027
|
2.5%
|
Larry Morrison
|
Senior Vice President
|
342,839
|
--
|
342,839
|
2.9%
|
Tom Jewell
|
Chief Financial Officer
|
22,223
|
200,000
|
222,223
|
1.9%
|
Miguel Chapa
|
Director
|
33,334
|
--
|
33,334
|
*
|
Steve Huffman
|
Director
|
22,223
|
44,444
|
66,667
|
*
|
All directors and executive officers as a group (7 persons)
|
5,461,869
|
244,444
|
5,706,313
|
48.5%
|
|
*
|
Indicates ownership of less than 1.0%.
|
|
(1)
|
Unless otherwise stated, the address of each beneficial owner listed on the table is c/o Payment
Data Systems, Inc., 12500 San Pedro, Suite 120, San Antonio, Texas 78216.
|
|
(2)
|
Represents shares subject to outstanding stock options and warrants currently exercisable or exercisable,
or currently vested or that will vest, within 60 days of April 13, 2017.
|
|
(3)
|
On April 13, 2017, we had a total of 11,761,111 shares of common stock outstanding (which excludes
613,763 treasury shares).
|
As of December 31, 2016, there
are no arrangements among our beneficial owners known to management which may result in a change in control of our Company.
|
|
Page
22
|
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires our directors, executive officers and persons who own more than 10% of a registered
class of our securities to file reports of beneficial ownership and changes in beneficial ownership with the Securities and Exchange
Commission on Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities)
and 5 (Annual Statement of Beneficial Ownership of Securities). Officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a
review of copies of such reports furnished to us by our officers and directors, we believe that, during the fiscal year ended December
31, 2015, no person required to file reports under Section 16(a) of the Securities Exchange Act of 1934 failed to file such reports
on a timely basis during such fiscal year, except for one Form 4 for one transaction filed eight days late by Mr. Frost. On October
20, 2015, our Board of Directors agreed to reduce the number of Section 16(a) filers, removing the obligation from Kenneth Keller,
Larry Morrison, John Pullin, and Matthew Decker.
Audit
Matters
Report of the Audit Committee
The Audit Committee was comprised
of our independent directors Mr. Kirk Taylor (chair) (until August 1, 2016), Dr. Peter G. Kirby (until November 11, 2016), Mr.
Miguel Chapa, Mr. Steve Huffman (chair) (starting November 11, 2016) and Tom Jewell (from November 11, 2016 to January 6, 2017)
during the year ended December 31, 2016.
The Audit Committee’s
purpose is to assist the Board of Directors in its general oversight of our financial reporting, internal control and audit functions.
Management is responsible for the preparation, presentation and integrity of our 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., our independent registered auditing firm, is responsible for performing
an independent audit of the consolidated financial statements in accordance with standards of the Public Company Accounting Oversight
Board.
In overseeing the preparation
of our financial statements, the Audit Committee has had access to our 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 our
independent auditors with regard to our audited financial statements for the year ended December 31, 2016. For the year ended
December 31, 2016, 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).
In reliance on the reviews
and discussion with management and the independent registered public accounting firm referred to above, the Audit Committee recommended
to the Board of Directors, and the Board approved, the inclusion of the audited financial statements in Payment Data Systems’
Annual Report on Form 10-K for the year ended December 31, 2016, for filing with the SEC. The Audit Committee recommended, and
the Board has appointed Akin, Doherty, Klein & Feuge, P.C. to serve as Payment Data Systems’ independent registered
public accounting firm for the year ending December 31, 2017.
Audit Committee
Steve Huffman Miguel
Chapa
(Chairman)
|
|
Page
23
|
Proposal No. 3 – Ratification of the
Appointment of Akin, Doherty, Klein & Feuge, P.C.
The Audit Committee has recommended
and the Board has appointed Akin, Doherty, Klein & Feuge, P.C. as our independent registered public accounting firm for the
year ending December 31, 2017. Representatives of Akin, Doherty, Klein & Feuge, P.C. are expected to be present at the 2017
Annual Meeting. They will have an opportunity to make a statement, if they desire to do so, and will be available to respond to
appropriate questions. Although shareholder ratification of our independent registered public accounting firm is not required
by our Bylaws or otherwise, we are submitting the selection of Akin, Doherty, Klein & Feuge, P.C. to our shareholders for
ratification to permit shareholders to participate in this important corporate decision.
Principal Accountant Fees and
Services
Akin, Doherty, Klein &
Feuge, P.C. has audited our financial statements since 2003. The aggregate fees billed to us for professional accounting services,
including the audit of our annual consolidated financial statements by our independent registered public accounting firm for the
years ended December 31, 2016 and 2015, are set forth in the table below.
|
Year Ended December 31,
|
2016
|
2015
|
Audit fees
|
$75,000
|
$60,000
|
Audit-related fees
|
-
|
-
|
Tax fees
|
$16,635
|
$20,200
|
Other fees
|
$14,330
|
$9,530
|
Total fees
|
$105,965
|
$89,730
|
For purposes of the preceding table, the professional fees are classified as follows:
Audit Fees
. Audit fees include fees for professional services
billed for the audit of the consolidated financial statements included in our annual report on Form 10-K filing, the review
of consolidated financial statements included in our quarterly reports on Form 10-Q filings, comfort letters, consents and
assistance with and review of documents filed with the SEC.
Audit-Related Fees
.
Audit-related fees include assurance and related services that are traditionally performed by the independent accountant including
employee benefit plan audits, due diligence related to mergers and acquisitions, accounting consultation and audits in connection
with acquisitions, internal control reviews, attest services related to financial reporting that are not required by statute or
regulation and consultation concerning financial accounting and reporting standards.
Tax Fees
. Tax fees include fees for professional services
rendered by our independent registered public accounting firm 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.
Other Fees
. Other fees include fees for professional services
rendered by our independent registered public accounting firm for fees other than represented in Audit Fees and Tax Fees. For 2016,
this included review of the annual proxy, review of amendments to the executive employment agreements, and review of the stock
buy-back program. For 2015, this included review of the Akimbo acquisition and purchase accounting rules, listing application for
NASDAQ, review of the annual proxy, review of the 2015 Equity Incentive Plan, and review of the related S-8 registration statement.
Audit Committee Pre-Approval
Policies and Procedures
We may not engage our independent
registered public accounting firm to render any audit or non-audit service unless our Audit Committee approves the service in
advance. 100% of the services performed by our independent registered public accounting firm described above were approved in
advance by our Audit Committee.
|
|
Page
24
|
Required Vote
Ratification of the appointment
of Akin, Doherty, Klein & Feuge, P.C. requires the affirmative vote of a majority of the shares present and voting at the
2017 Annual Meeting in person or by proxy. Unless marked to the contrary, proxies received will be voted “FOR” ratification
of the appointment. A properly executed proxy marked “ABSTAIN” with respect to this proposal will not be voted, although
it will be counted for purposes of determining the number of shares of common stock entitled to vote. Accordingly, an abstention
will have the effect of a negative vote. Because this Proposal is a routine proposal on which a broker or other nominee is generally
empowered to vote, broker “non-votes” likely will not result from this Proposal. Thus, if you are a beneficial owner
holding shares through a broker, bank or other holder of record and you do not vote on this Proposal, your broker may cast a vote
on your behalf for this Proposal. In the event ratification is not obtained, the Audit Committee and the Board will review its
future selection of our independent registered public accounting firm but will not be required to select a different independent
registered public accounting firm.
Voting Recommendation
Your Board of Directors recommends
a vote
FOR
the ratification of Akin, Doherty, Klein & Feuge, P.C. as our independent registered public accounting
firm for the year ending December 31, 2017.
General
Information
Below you will find general
information on Shareholder Proposals, “Householding” of Proxy Materials, and more specific instructions on how to
vote, which can be found on your proxy voting card.
Shareholder Proposals
There are no shareholder proposals
for the 2017 Annual Meeting. If you would like information on submitting a shareholder proposal to be included in the 2018 Proxy
and Annual Meeting, please refer to the information below.
How do I submit a Shareholder Proposal to be Included in the Proxy Statement?
|
|
Who
Presents the Proposal at the Meeting?
|
You must submit your proposal to
our Secretary no later than December 28, 2017 – 120 calendar days before the anniversary of this Proxy Statement release.
This is to comply with Rule 14a-8 under the 1934 Act.
|
|
The Shareholder proponent, or a representative
who is qualified under state law, must appear in person at the 2018 Annual Meeting of Shareholders to present the proposal.
|
What if the date of the
2018 Annual Meeting is significantly different?
|
|
How Should I Send my Proposal?
|
If the date of the Annual
Meeting is changed by more than 30 days, the proposal must be submitted to our Secretary by the close of business on the later
of:
• 90 days
prior to the Annual Meeting, OR
• 7 days
following the first public announcement of the Annual Meeting date
|
|
Please send your proposal
to our Secretary at:
Payment Data Systems, Inc.
Attn. Secretary
12500 San Pedro, Ste. 120
San Antonio, Texas 78216
We strongly suggest that
proposals are sent by Certified Mail – Return Receipt Requested.
|
|
|
Page
25
|
What Must be Included in My Notice that I send to the Secretary?
|
1. A brief description
of the proposed business
2. The text
of the proposal
3. Reasons for
conducting the business at the meeting
4. Name and
address (as they appear on our books) of the shareholder proposing such business
5. The beneficial
owner (if any) on whose behalf the proposal is made
6. Any material
interest of the shareholder in such business
7. Any other
information required by proxy proposal submission rules of the SEC
|
“Householding” of Proxy Materials
The SEC has adopted rules that
permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements with respect to two or
more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This process,
which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and cost savings
for us. Under this procedure, multiple shareholders who share the same last name and address will receive only one copy of the
annual proxy materials, unless they notify us that they wish to continue receiving multiple copies. We have undertaken householding
to reduce our printing costs and postage fees.
If you wish to opt-out of householding
and continue to receive multiple copies of the proxy materials at the same address, you may do so at any time prior to thirty
days before the mailing of proxy materials, which will typically be mailed in June of each year, by notifying us in writing at:
Secretary, Payment Data Systems, Inc., 12500 San Pedro, Ste. 120, San Antonio, TX 78216, or by contacting us at (210) 249-4100.
You also may request additional copies of the proxy materials by notifying us in writing at the same address or contacting us
at (210) 249-4100, and we will undertake to deliver such additional copies promptly. If you share an address with another shareholder
and currently are receiving multiple copies of the proxy materials, you may request householding by notifying us at the above
referenced address or telephone number.
Other Matters
Your Board of Directors does
not know of any other business that will be presented at the 2017 Annual Meeting. If any other business is properly brought before
the 2017 Annual Meeting, your proxy holders will vote on it as they think best unless you direct them otherwise in your proxy
instructions.
Whether or not you intend to
be present at the 2017 Annual Meeting, we urge you to submit your signed proxy promptly.
By Order of the Board of Directors.
__________________
Louis A. Hoch
President and Chief Executive
Officer
San Antonio, Texas
The Notice of Annual Meeting,
Proxy Statement, form of proxy and our 2016 Annual Report on Form 10-K are available at www.proxyvote.com. We will provide copies
of our Proxy Statement and our 2016 Annual Report free of charge upon request. We will also provide copies of exhibits to our 2016
Annual Report, but will charge a reasonable fee per page to any requesting shareholder. Shareholders may make such requests in
writing to Secretary, Payment Data Systems, Inc., 12500 San Pedro, Ste. 120, San Antonio, TX 78216. The request must include a
representation by the shareholder that as of April 13, 2017, the shareholder was entitled to vote at the 2017 Annual Meeting.
|
|
Page
26
|
Thank You
Thank you for being a shareowner of
Payment Data Systems, Inc.
Learn more at
http://paymentdata.com/
|
|
|
|
|
|
|
|
Our 2017 Proxy Statement
|
Our 2016 Annual Report
|
Our Company Website
|
Our NASDAQ
Listing
|
|
|
Page
27
|
Appendix A
|
|
Page
28
|
Page 29
Usio (NASDAQ:USIO)
Historical Stock Chart
From Aug 2024 to Sep 2024
Usio (NASDAQ:USIO)
Historical Stock Chart
From Sep 2023 to Sep 2024