SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
|X||x| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Payment Data Systems, Inc.
(Name of Registrant as Specified in its Charter)
---------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|x| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
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1. Amount Previously Paid:
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4. Date Filed:
1.
PAYMENT DATA SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 22, 200421, 2005
The annual meeting of stockholders of Payment Data Systems, Inc. (the "Company")
will be held at the principal offices of the CompanyHilton San Antonio Airport located at 12500 San Pedro,
Suite 120,611 NW Loop 410, San
Antonio, Texas, 78216, on Tuesday, June 22, 2004,21, 2005, at 10:00 a.m., Central Time,
(the "Annual Meeting") for the following purposes:
1. To elect one director to serve until the 20072008 annual meeting of stockholders.
2. To approve an amendment to the 1999 Comprehensive Employee Stock Plan.
3. To approve an amendment to the 1999 Non-Employee Director Plan.
4.
To ratify the appointment of the independent auditors of the Company.
5.
To transact any other business that properly comes before the meeting.
Stockholders of record at the close of business on April 23, 200429, 2005 are entitled
to notice of, and to vote at, the Annual Meeting or any adjournment thereof (the
"Record Date").
If you cannot attend the Annual Meeting in person, please sign and date the
accompanying Proxy and return it promptly to the Company. This way, your shares
will be voted as you direct even if you can't attend the meeting.
MICHAEL R. LONG
Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROVIDE YOUR PROXY
BY COMPLETING, SIGNING, DATING, AND PROMPTLY MAILING THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED.
2.
GENERAL INFORMATION
Q. WHO IS SOLICITING MY PROXY?
A. The Board of Directors of Payment Data Systems, Inc.
Q. WHERE AND WHEN IS THE ANNUAL MEETING?
A. 10:00 a.m., Central Time, Tuesday, June 22, 2004, at the principal offices
of the Company located at 12500 San Pedro, Suite 120, San Antonio, Texas,
78216.
Q. WHAT AM I VOTING ON?
A. Management of the Company is seeking the authorization of the stockholders
to elect one Director to the Board of Directors of the Company, approve an
amendment to the 1999 Comprehensive Employee Stock Plan to increase the
number of shares of Common Stock available under that plan to 10,000,000,
approve an amendment to the 1999 Non-Employee Director Plan to increase the
number of shares of Common Stock available under that plan to 1,500,000 and
ratify the appointment of the Company's independent auditors.
Q. WHAT SHOULD STOCKHOLDERS DO NOW?
A. Stockholders should mail their signed and dated proxy card in the enclosed
envelope, as soon as possible, so that their shares will be represented at
the Annual Meeting.
Q. CAN STOCKHOLDERS CHANGE THEIR VOTE AFTER THEY HAVE MAILED A SIGNED PROXY
CARD?
A. Yes. Stockholders can change their vote in one of three ways at any time
before their proxies are used. First, stockholders can revoke their proxies
by written notice. Second, stockholders can complete new, later-dated proxy
cards. Third, stockholders can attend the stockholders' meeting and vote in
person.
Q. WHOM SHOULD STOCKHOLDERS CALL WITH QUESTIONS?
Stockholders who have questions about the materials in this Proxy Statement
should call Michael R. Long, the Company's Chief Executive Officer, at
(210) 249-4040.
3.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements including statements
containing the words "believes," "anticipates," "expects," "intends" and words
of similar import. These statements involve known and unknown risks and
uncertainties that may cause the Company's actual results or outcomes to be
materially different from those anticipated and discussed herein. Important
factors that the Company believes might cause such differences include: (1)
concentration of the Company's assets into one industry segment; (2) the nature
of the Company's business (as defined herein); (3) the impact of changing
economic conditions; (4) the actions of competitors, including pricing and new
product introductions; and (5) those specific risks that are discussed in the
cautionary statements accompanying the forward-looking statements in this Proxy
Statement and in the Risk Factors detailed in the Company's previous filings
with the Securities and Exchange Commission. In assessing forward-looking
statements contained herein, stockholders are urged to read carefully all
cautionary statements contained in this Proxy Statement and in those other
filings with the Securities and Exchange Commission.
4.
PAYMENT DATA SYSTEMS, INC.
PROXY STATEMENT
INTRODUCTION
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES
BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR USE AT
THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 22, 2004 (THE "ANNUAL MEETING") OR
ANY ADJOURNMENT THEREOF.21, 2005
This Proxy Statement, the Notice of the Annual Meeting and the accompanying
Proxy are being mailed to stockholders on or about May 3,
2004.6, 2005.
Proxy Solicitation Information
General
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Payment Data Systems, Inc. (the "Company") for use
at the Annual Meeting of Stockholders to be held on 10:00 a.m., Central Time,
Tuesday, June 21, 2005, at the Hilton San Antonio Airport located at 611 NW Loop
410, San Antonio, Texas, 78216 and at any adjournments thereof (the "Meeting").
Cost of Solicitation
The cost of this solicitation, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their expenses
in forwarding proxy material to such beneficial owners. In addition to
solicitation by mail, officers, directors and employees of the Company, who will
receive no extra compensation for their services, may solicit proxies personally
or by telephone or facsimile.
Mailing of Proxy Statement and Proxy
This Proxy Statement and the accompanying Proxy will be mailed on or about
May 6, 2005, to all Stockholders entitled to notice of and to vote at the
Meeting.
Form 10-KSB
A copy of the Company's principal executive offices are locatedAnnual Report for the fiscal year ended December 31,
2004 will be mailed concurrently with this Proxy Statement to each stockholder
entitled to vote at the Meeting. The Annual Report is not part of the Proxy
Statement. The Company will provide, without charge, a copy of the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004 and
related financial statements and financial statement schedules to each
stockholder entitled to vote at the Meeting, who requests a copy of such in
writing. Requests should be sent to Payment Data Systems, Inc., 12500 San Pedro,
Suite 120, San Antonio, Texas 78216.
Stockholders Entitled to Vote
The close of business on April 29, 2005 has been fixed as the record date
for determining the Stockholders entitled to notice of and to vote at the
Meeting. As of the close of business on April 29, 2005, there were 28,884,529
shares of Common Stock outstanding and entitled to vote. With respect to all
matters that maywill come before the Annual Meeting, each stockholder will
be entitled tomay cast one vote
for each share of the Company's Common Stock held by himregistered in his or her at the close of businessname on the Record Date. A majority of the issued and
outstanding Common Stock presentrecord date.
Quorum
The presence, in person or by proxy, at the Annual Meeting,
regardless of whether the proxy has authority to vote on all matters,
constitutes a quorum for the transaction of business at the Annual Meeting. As
of the Record Date, there were 21,495,181holders of a majority of the
shares of Common Stock issued, outstanding, and outstanding. Theentitled to vote must be present
to hold the Meeting. This is referred to as a quorum. Proxies received that
withhold authority to vote for a nominee for Directorelection as a director and those
that are marked as abstentions and broker non-votes will be approved bycounted for the
purpose of determining whether a quorum is present.
1
Votes Required for Election of Directors
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Annual Meeting. All other matters subjectMeeting is required for the election of
directors. This means that the nominee receiving the highest number of "For"
votes will be elected as director. A properly executed proxy marked "Withhold"
with respect to the election of a nominee will not be counted as a vote "cast"
or have any effect on the election of stockholders at the Annual Meeting shall be approved upon receiving thesuch nominee.
Votes Required for Ratification of Auditors
The affirmative vote of 10the holders of ten percent of the quorumvotes cast by
the stockholders present or represented by proxy and entitled to vote at the
Annual Meeting is required for the approval of the vote for ratification of auditors. A
properly executed proxy marked "Abstain" with respect to this proposal will be
treated as shares present or represented and entitled to vote on such proposal
and will have the same effect as a vote against the proposal.
Returned Proxy Cards Which Do Not Provide Voting Instructions
Proxies that matter.are signed and returned will be voted in the manner
instructed by a stockholder. If you sign date, and return your proxy but do not mark your voting preference,card with no
instructions, the individuals named as proxies hereinproxy will vote your Common Stock FOR (1)be voted "For Nominee" with respect to the election
of the nominee for Director, (2)director named in this Proxy Statement and "For" the approval of the amendment to the
1999 Employee Comprehensive Stock Plan, (3) the approval of the amendment to the
1999 Non-Employee Director Plan, (4) the ratification of Akin, Doherty, Klein &
Feuge, P.C. as the independent auditors of the Company for the year ending
December 31, 2004, as applicable.
The purpose of the Annual Meeting is to (a) elect one individual to serve as a
Class I Director of the Board of Directors whose term will expire at the 2007
Annual Meeting of the Stockholders of the Company, (b) approve an amendment to
the 1999 Comprehensive Employee Stock Plan, as amended, to increase the number
ofproposal
set forth in Item 2.
Broker Non-Votes
If you hold your shares of Common Stock available under that plan to 10,000,000, (c) approve
an amendment toin "street name" (that is, through
a broker, bank or other representative), you are considered the 1999 Non-Employee Director Plan, as amended, to increase the
number of shares of Common Stock available under that plan to 1,500,000, and (d)
ratify the appointment of Akin, Doherty, Klein & Feuge, P.C. as the independent
auditorsbeneficial owner
of the Company forshares held in street name. As the year ending December 31, 2004. The Companybeneficial owner, you have the right
to direct your broker how to vote. Brokers who have not received instructions
from beneficial owners generally have the authority to vote on certain "routine"
matters, including the election of directors and ratification of the selection
of auditors. With respect to a non-routine matter, a broker is not aware at this time of any other matters thatpermitted to
vote such shares on your behalf as to such matter. Shares representing such
"broker non-votes" with respect to a non-routine matter will come before the Annual
Meeting.
All shares of Common Stock represented by properly executed Proxies that are
returned and not revoked will be voted in
accordance withfavor of such matter and will also not be counted as votes cast on such matter.
Accordingly, "broker non-votes" will have no effect on the instructions, if
any, given therein or as otherwise specifically indicated herein. A stockholderoutcome of the vote.
Changing Your Vote
You may revoke any such Proxythe proxy that you give the Company at any time before itthe
proxy is exercised by either givingvoted at the Meeting. In order to do this, you must:
- send a written notice, of such revocationstating your desire to the Secretary of the Company or submitting
a later-dated Proxyrevoke your proxy, to the
Company,
prior- send the Company a signed proxy that bears a later date than the one you
intend to revoke, or
- attend the Annual Meeting. A stockholder
attending the Annual Meeting may revoke his or her Proxy and vote in person if
he or she desires to do so, but attendance atperson. In this case, you must notify the
Annual Meeting will notInspector of itself revoke the Proxy.
VOTING SECURITIES
SECURITIES OUTSTANDING
On the Record Date there were 21,495,181 shares of the Common Stock of the
Company issued, outstanding and entitledElections that you intend to vote at the Annual Meeting. The
Company has no other voting securities outstanding. Each stockholder of record
is entitled to one vote per share of Common Stock held on all matters submitted
to a vote of stockholders. Cumulative voting is prohibited.in person.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to our knowledge, certain information concerning
the beneficial ownership of our Common Stock as of April 5, 200426, 2005 by each
stockholder known by us to be (i) the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each current director, (iii) each of
the executive officers named in 5.
the Summary Compensation Table who were serving
as executive officers at the end of the 20032004 fiscal year and (iv) all of our
directors and current executive officers as a group:
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
- -------------------- ---------------------- --------------------
5% STOCKHOLDERS
CheckFree Investment Corporation 3,168,242(2) 14.8%
2920 Green Valley Road
Building 3, Suite 321-19
Henderson, NV 89014
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Michael R. Long 1,490,001(3) 6.9%
Louis A. Hoch 1,468,034(4) 6.8%
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
- ---------------------------------------------------------- -------------------- --------------------
5% STOCKHOLDERS
CheckFree Investment Corporation 3,058,242(2) 9.9%
2920 Green Valley Road
Building 3, Suite 321-19
Henderson, NV 89014
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Michael R. Long 3,313,175(3) 11.0%
Louis A. Hoch 2,904,829(4) 9.7%
Larry Morrison 519,039(5) 1.8%
Peter G. Kirby 118,600(5) 0.6%
All executive officers and
directors as a group (3 people) 3,076,635(6) 14.3%
(1) Based on a total of 21,445,181 shares of Common Stock issued and
outstanding on April 5, 2004.
(2) Based on a Schedule 13(g)/A filed on February 2, 2003, the most recent date
for which information is available.
(3) Includes 898,334 shares that Mr. Long has the right to acquire upon the
exercise of stock options.
(4) Includes 765,000 shares that Mr. Hoch has the right to acquire upon the
exercise of stock options.
(5) Includes 118,000 shares that Mr. Kirby 593,500(6) 2.0%
All executive officers and directors as a group (4 people) 7,330,543(7) 23.1%
(1) Based on a total of 28,794,529 shares of Common Stock issued and outstanding on April 26, 2005.
(2) Includes 2,179,121 shares that CheckFree has the right to acquire upon the exercise of stock
warrants.
(3) Includes 1,298,334 shares that Mr. Long has the right to acquire upon the exercise of stock options.
(4) Includes 1,190,000 shares that Mr. Hoch has the right to acquire upon the exercise of stock options.
(5) Includes 200,000 shares that Mr. Morrison has the right to acquire upon the exercise of stock
options.
(6) Includes 293,000 shares that Mr. Kirby has the right to acquire upon the exercise of stock options.
(7) The address of all individual directors and executive officers is c/o Payment Data Systems, Inc.,
12500 San Pedro, Suite 120, San Antonio, Texas 78216.
PROPOSAL 1
ELECTION OF DIRECTOR
As established by the Company's Bylaws, the Directors are divided into three
classes serving staggered three-year terms. As of April 23, 2004,29, 2005, Michael R.
Long, Louis A. Hoch and Peter G. Kirby are the only members of the Board of
Directors of the Company. Terri A. Hunter resigned her position on the Board of
Directors in August 2003, in connection with her resignation as Executive Vice
President and Chief Financial Officer of the Company. Michael R. LongPeter G. Kirby is the only nominee for election to the
Board of Directors of the Company. Mr. Long 'sKirby's term on the Board of Directors,
if elected thereto, will expire on the 20072008 Annual Meeting of the Stockholders
of the Company.
3
The individuals named as proxies will vote the enclosed Proxy FOR the election
of the nominee unless you direct them to withhold your vote. If the nominee
becomes unable to serve as a Director before the Annual Meeting (or decides not
to serve), the individuals named as proxies may vote for a substitute or may
reduce the number of members of the Board.
Below are the names and ages of the Directors and the nominee for Director, the
years they became Directors, their principal occupations or employment for at
least the past five years and certain of their other directorships, if any.
6.
CLASSClass III Director Nominee for Election to a Three-Year Term Ending with the
2008 Annual Meeting of the Stockholders of the Company
Peter G. Kirby, Ph.D. SPHR CM. Age 65. Mr. Kirby has been our Director since
June 2001. Mr. Kirby distinguished himself in professional and community
activities in a career that spans thirty-five years. He is an accomplished
public speaker and has provided consulting services to Fortune 100 firms. Mr.
Kirby has published numerous works in the fields of management, decision-making
and human resources. He has been a director on many university advisory councils
and boards and has served on many charitable committees and foundations. Mr.
Kirby is currently a tenured professor of Management at Our Lady of the Lake
University in San Antonio, Texas, where he has taught for the past fifteen
years.
Class II Director with a Three-Year Term Ending with the 2006 Annual Meeting of
the Stockholders of the Company
Louis A. Hoch. Age 39. Mr. Hoch has been our President, Chief Operating
Officer, and Director since July 1998. Mr. Hoch has more than fifteen years of
management experience in large systems development; earning him national
recognition as an expert in call centers, voice-systems and computer telephony
integration. Mr. Hoch has held various key management positions with U.S. Long
Distance, Billing Concepts, Inc. and Anderson Consulting. Mr. Hoch holds a BBA
in Computer Information Systems and an MBA in International Business Management,
both from Our Lady of the Lake University Business School. In 2000 and 2001, he
served as a board member of Office e-procure, which provides branded office
supply e-commerce sites for businesses.
Class I DIRECTOR NOMINEE FOR ELECTION TO A THREE-YEAR TERM ENDING WITH THEDirector with a Three-Year Term Ending with the 2007 ANNUAL MEETING OF THE STOCKHOLDERS OF THE COMPANY
MICHAELAnnual Meeting of
the Stockholders of the Company
Michael R. LONG.Long. Age 59.60. Mr. Long has been our Chief Executive Officer,
Chairman of the Board and Director since July 1998. In addition, Mr. Long has
been our Chief Financial Officer since September 2003. Mr. Long has more than
thirty years of senior executive management and systems development experience
in six publicly traded companies, as well as operating a systems consulting
business. Before assuming the top position at Payment Data Systems, Mr. Long was
Vice President of Information Technology at Billing Concepts, Inc., the largest
third party billing clearinghouse for the telecommunications industry. Mr.
Long's career experience also includes financial services industry business
development for Anderson Consulting and several executive positions in publicly
traded telecommunications and financial services companies.
CLASS III DIRECTORS WITH A THREE-YEAR TERM ENDING WITH THE 2005 ANNUAL MEETING
OF THE STOCKHOLDERS OF THE COMPANY
PETER G. KIRBY, PH.D. SPHR CM. Age 64. Mr. Kirby has been our Director since
June 2001. Mr. Kirby distinguished himself in professional and community
activities in a career that spans thirty-five years. He is an accomplished
public speaker and has provided consulting services to Fortune 100 firms. Mr.
Kirby has published numerous works in the fieldsRecommendation of management, decision-making
and human resources. He has been a director on many university advisory councils
and boards and has served on many charitable committees and foundations. Mr.
Kirby is currently a tenured professorBoard of Management at Our Lady of the Lake
University in San Antonio, Texas, where he has taught for the past fourteen
years.
CLASS II DIRECTOR WITH A THREE-YEAR TERM ENDING WITH THE 2006 ANNUAL MEETING OF
THE STOCKHOLDERS OF THE COMPANY
LOUIS A. HOCH. Age 38. Mr. Hoch has been our President, Chief Operating Officer,
and Director since July 1998. Mr. Hoch has more than fourteen years of
management experience in large systems development; earning him national
recognition as an expert in call centers, voice-systems and computer telephony
integration. Mr. Hoch has held various key management positions with U.S. Long
Distance, Billing Concepts, Inc. and Anderson Consulting. Mr. Hoch holds a BBA
in Computer Information Systems and an MBA in International Business Management,
both from Our Lady of the Lake University Business School. In 2000 and 2001, he
served as a board member of Office e-procure, which provides branded office
supply e-commerce sites for businesses.
RECOMMENDATION OF BOARD OF DIRECTORSDirectors
The Board of Directors of the Company recommends a vote FOR the nominee for
election to the Board of Directors.
COMPENSATION OF DIRECTORS
Mr. Long and Mr. Hoch receive no compensation for serving on the Board of
Directors of the Company due to their status as officers of the Company.
In 2003,2004, we did not pay any cash compensation to our independent DirectorsDirector for
theirhis services on our Board of Directors. However, on December 30, 2003, we
granted options to purchase 175,000 shares of our Common Stock with a one-year
vesting period at an exercise price of $0.14 per share to our independent
director, Peter G. Kirby, as compensation for his service as a Director.
4
PROCEEDINGS WITH DIRECTORS, OFFICERS, AND AFFILIATES
Beginning in December 2000, the Companywe pledged as loan guarantees certain funds held as
money market funds and certificates of deposit to collateralize certain margin loans of fourfor
the following executive officersofficers: (1) Michael R. Long, then Chairman of the
Company (only twoBoard of whichDirectors and Chief Executive Officer; (2) Louis A. Hoch, then
President and Chief Operating Officer; (3) Marshall N. Millard, then Secretary,
Senior Vice President, and General Counsel; and (4) David S. Jones, then
Executive Vice President. Mr. Millard and Mr. Jones are currentlyno longer employed by
the Company). These funds were classified as Cash pledged as
collateral for related party obligations on the Company's balance sheet at
December 31, 2002.us. The margin loans were obtained in March 1999 from institutional lenders and
were secured by shares of the Company'sour common stock heldowned by these officers. The Company'spledged
funds were held in our name in accounts with the lenders that held the margin
loans of the officers. Our purpose in
7.
collateralizing the margin loans was to
prevent the sale of the Company'sour common stock heldowned by these officers while the Company waswe were
pursuing efforts to raise additional capital through private equity placements.
The sale of the Company'sthat common stock could have hindered the Company'sour ability to raise capital
in such a manner and compromised the Company'sits continuing efforts to secure additional
financing. The highest total balanceamount of funds pledged for the margin loans
guaranteed by the Companyus was approximately $1.3 million at December 31, 2002. The Company$2.0 million. At the time the funds were
pledged, we believed it hadwe would have access to them because (a) the unrestricted legal right to usestock price
was substantial and the stock pledged by the officers, if liquidated, would
produce funds for its operations, if
necessary, based on (i) its interpretationin excess of the loan guarantee agreements,
(ii) the market price of the Company's stock at the time of the pledge,loans payable, and (iii) assurances the Company received from(b) with respect to one of the
institutional lenders (who was also assisting us as a financial advisor at the
time), even if the stock price fell, we had received assurances from that
institutional lender that the pledged funds would be made available ifas needed.
During the fourth quarter of 2002, the
Company soughtwe requested partial release of the funds for
operating purposes, which request was denied by an institutional lender. At that
time, the stock price had fallen as well, and it became clear that both
institutional lender, based upon their interpretation oflenders would not release the loan
guarantee agreements.pledged funds. In light of this action, the Companythese
circumstances, we recognized a loss on the guarantees of $1,278,138 in the
fourth quarter of 2002 and recorded a corresponding payable under related party
guarantees on the Company'sour balance sheet at December 31, 2002.2002 because it became probable
at that point that we would be unable to recover our pledged funds. During the
quarter ended March 31, 2003, the lenders applied the pledged funds to satisfy
the outstanding balances of the loans. The total balance of the margin loans
guaranteed by the Companyus was zero at December 31, 2003. The Company2004. We may institute litigation or
arbitration concerningin collection of the outstanding repayment obligations of Mr. Long,
Mr. Hoch, Mr. Millard, and Mr. Jones, which currently total $1,278,138.
Presently, we have refrained from initiating action to recover these matters, whichfunds from
Mr. Long, Mr. Hoch, and Mr. Millard because they may resulthave offsetting claims that
total $1,445,500 collectively by virtue of the change of control clause in their
respective employment agreements based on our preliminary analysis. We
understand that these individuals may assert such claims based on our sale of
substantially all of our assets to Harbor Payments, Inc. on July 25, 2003. We
have not initiated any formal settlement negotiations with these individuals
because they have been under an extended employment contract with us or have not
been amenable to such an action. On July 25, 2004, our employment agreements
with Michael Long, Chief Executive Officer and Chief Financial Officer, and
Louis Hoch, President and Chief Operating Officer, expired. We intend to enter
into new employment agreements with both of these individuals and are currently
negotiating the assertionterms of claims by these officers under
their employeesuch agreements. We have not pursued the outstanding
repayment obligation of Mr. Jones because we do not consider a recovery attempt
to be cost beneficial. In order to attempt a recovery from Mr. Jones, we
estimate that we would incur a minimum of $20,000 in estimated legal costs with
no reasonable assurance of success in recovering his outstanding obligation of
approximately $38,000. Because of the limited amount of the obligation, we also
anticipate difficulty in retaining counsel on a contingency basis to pursue
collection of this obligation. The ultimate outcome of this matter cannot
presently be determined.
On July 25, 2003, certain of our stockholders of the Company (such(those stockholders being Mike
Procacci, Jr., Mark and Stefanie McMahon, Anthony and Lois Tedeschi, Donna and
James Knoll, John E. Hamilton, III, William T. Hagan, Samuel A. Fruscione, Dana
Fruscione-Penzone, Gia Fruscione, Alicia Fruscione, Joseph Fruscione, Robert
Evans, John Arangio, Gary and JoAnne Gardner, Lee and Margaret Getson, G. Harry
Bonham, Jr., Gary Brewer, Bob Lastowski, Robert Filipe, Mitchell D. Hovendick,
Dr. John Diephold, Joseph Maressa, Jr., and Charles Brennan
(collectively, the "Plaintiffs"))Brennan) commenced legal
action against the Company,us, Ernst & Young, LLP, and certain of the Company'sour current and former
directors (such directors being Louis A. Hoch, Michael R. Long, David S. Jones, Roger
Hemminghaus, E. Scott Crist, Peter Kirby, Richard Bergman, and Terri A. Hunter
(the "Defendant Directors"))(including the executive officers named above) in the District Court
of the 45th Judicial District, Bexar County, Texas (the "Suit"). The PlaintiffsTexas. With respect to us and the
current and former directors named in the suit, the plaintiffs allege as the Suit
pertains to the Company, that the Company,we,
acting through the Defendant
Directors,such directors, misstated in the Company'sour 2000 and 2001 Form 10-Ks the Company'sour
ability to use for operational purposes the funds pledged as security for margin
loans of certain officers of the Company,our executive officers, as discussed above. The Plaintiffsplaintiffs
allege and seek resulting economic and exemplary damages, rescission, interest,
attorneys' fees and costs of court. The Company believes the Suit to beWe believe this suit is without merit and
intendsintend to vigorously defend itselfthe company and the Defendant Directors.directors named in the suit. As
5
of the date of this report, there have been no material developments in the suit
other than the case being set for trial in late 2005. The results of legal
proceedings cannot be predicted with certainty. If we fail to prevail in this
legal matter, our financial position, results of operations, and cash flows
could be materially adversely affected.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
THE AUDIT COMMITTEEThe Audit Committee
The Audit Committee, established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended, is currently comprised of our only
independent director, Mr. Kirby, and it operates under a written charter adopted
by the Board of Directors. Mr. Kirby meets the independence standards for
independent directors under the rules of the Nasdaq Stock Market published in
the Nasdaq Marketplace Rules. The composition of the Audit Committee, the
attributes of its members and the responsibilities of the Committee, as
reflected in its charter, are intended to be in accordance with applicable
requirements for corporate audit committees. The Committee reviews and assesses
the adequacy of its charter on an annual basis.
As set forth in more detail in its charter, the Audit Committee's purpose is to
assist the Board of Directors in its general oversight of the Company's
financial reporting, internal control and audit functions. Management is
responsible for the preparation, presentation and integrity of the Company's
financial statements, accounting and financial reporting principles and internal
controls and procedures designed to ensure compliance with accounting standards,
applicable laws and regulations. Akin, Doherty, Klein & Feuge, P.C., the
Company's independent auditing firm, is responsible for performing an
independent audit of the consolidated financial statements in accordance with
generally accepted auditing standards.
8.
The Audit Committee members are not professional accountants or auditors, and
their functions are not intended to duplicate or to certify the activities of
management and the independent auditor, nor can the Audit Committee certify that
the independent auditor is "independent" under applicable rules. The Audit
Committee serves a board-level oversight role, in which it provides advice,
counsel and direction to management and the auditors on the basis of the
information it receives, discussions with management and the auditors and the
experience of the Audit Committee's members in business, financial and
accounting matters.
Among other matters, the Audit Committee monitors the activities and performance
of the Company's internal and external auditors, including the audit scope,
external audit fees, auditor independence matters and the extent to which the
independent auditor may be retained to perform non-audit services. The Audit
Committee and the Board of Directors have ultimate authority and responsibility
to select, evaluate and, when appropriate, replace the Company's independent
auditor. The Audit Committee also reviews the results of the internal and
external audit work with regard to the adequacy and appropriateness of the
Company's financial, accounting and internal controls. Management and
independent auditor presentations to and discussions with the Audit Committee
also cover various topics and events that may have significant financial impact
or are the subject of discussions between management and the independent
auditor. In addition, the Audit Committee generally oversees the Company's
internal compliance programs.
In overseeing the preparation of the Company's financial statements, the Audit
Committee has had access to the Company's management to review and discuss all
financial statements prior to their issuance and to discuss significant
accounting issues. Management advised the Audit Committee that all financial
statements were prepared in accordance with U.S. generally accepted accounting
principles. The Audit Committee has met with the Company's independent auditors
with regard to the audited financial statements of the Company for the year
ended December 31, 2003.2004. For the year ended December 31, 2003,2004, the Audit
Committee did receive the independent auditor's letter and written disclosures
required by the Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees).
6
For the year ended December 31, 2003,2004, the only member of the Audit Committee was
Mr. Kirby. The Audit Committee met one time in relation to the year ended
December 31, 2003.2004. The Company does not have an audit committee financial expert
serving on its Audit Committee because the Company has been unable to replace
the independent director serving as the audit committee financial expert after
his resignation during 2003. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OR THE SECURITIES EXCHANGE ACT OFThe Company is still seeking an independent
director to serve as the audit committee financial expert.
Compensation Committee Report on Executive Compensation
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act or the Securities Exchange Act of
1934, AS AMENDED (THE "EXCHANGE ACT"as amended (the "Exchange Act"), THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THIS COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
GENERAL.that might incorporate future filings,
including this Proxy Statement, in whole or in part, this Compensation Committee
Report on Executive Compensation shall not be incorporated by reference into any
such filings.
General. The Company's Board of Directors has established a Compensation
Committee with authority to set all forms of compensation of the Company's
executive officers, including the grant of stock options and restricted shares.
Mr. Kirby is the sole member of the Compensation Committee.
COMPENSATION PHILOSOPHY.Compensation Philosophy. The Board of Director 's compensation philosophy is to
reward executive officers for the achievement of short and long-term corporate
and individual performance, as measured by the attainment of specific goals for
the creation of long-term shareholder value. Also, to ensure that the Company is
strategically and competitively positioned for the future, the Compensation
Committee has the discretion to attribute significant weight to other factors in
determining executive compensation, such as maintaining competitiveness,
expanding markets, pursuing growth opportunities and achieving other long-range
business and operating objectives. The level of compensation should also allow
the Company to attract, motivate, and retain talented executive officers that
contribute to the long-term success of the Company. The compensation of the
Chief Executive Officer and other executive officers of the Company is comprised
of cash compensation and long-term incentive compensation in the form of base
salary and stock options.
TOTAL COMPENSATION FOR EXECUTIVES.Total Compensation for Executives. For 2003,2004, the Company's total compensation
for executive officers consisted 9.
of base salary and common stock options.awards. In
setting 20032004 compensation, the Compensation Committee considered the specific
factors discussed below:
BASE SALARY.Base Salary. In setting the executive officers base salaries, the
Compensation Committee considers the performance of the executive officers'
respective business units, as well as individual performance. Base salaries are
targeted to approximate the average base salaries paid to executives of similar
companies for each position. To ensure that each executive is paid
appropriately, the Compensation Committee considers the executive's level of
responsibility, prior experience, overall knowledge, contribution to business
results, executive pay for similar positions in other companies, and executive
pay within the Company.
OPTION PLANS.Stock Plans. In addition to the foregoing, executive officers of the
Company may be compensated through awardsgrants of options to purchase Common Stock of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATIONChief Executive Officer Compensation
Mr. Long's annual base salary for 20032004 was $190,000. He received a totalcommon stock
option
award of 400,000 options321,174 shares granted on December 30, 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONJanuary 7, 2005 valued at $96,352 in lieu of
$65,769 of his unpaid base salary for 2004, resulting in total compensation for
Mr. Long for 2004 of $220,583.
Compensation Committee Interlocks and Insider Participation
For the year ended December 31, 2003,2004, Mr. Kirby was the only member of the
Compensation Committee. To carry out its responsibilities, the Compensation
Committee met one time during 2003.
THE NOMINATING COMMITTEE2004.
7
The Nominating Committee
The Company considers recommendations for Director candidates from its
Directors, officers, employees, shareholders, customers, and vendors. The Board
of Directors selects the Director candidates slated for election. The Company
does not have a Nominating Committee in light of resource allocations made by
the Board of Directors in its business judgment.
THE ENTIRE BOARDThe Entire Board
During 2003,2004, the entire Board of Directors of the Company met two times for
regular and Annual meetings. During this period, each Director attended all
meetings of the Board of Directors and any committee on which he or she served. In all
other instances in 2003,2004, the Board of Directors acted by unanimous written
consent.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1999 COMPREHENSIVE EMPLOYEE STOCK PLAN
GENERAL
The Board of Directors proposes to increase the number of shares of Common Stock
available under the 1999 Employee Comprehensive Stock Plan (the "Comprehensive
Plan")by 5,000,000 for a total of 10,000,000 shares. The material features of
the Comprehensive Plan are discussed below, but the description is subject to
and is qualified in its entirety by the full text of the Comprehensive Plan,
which is attached as ANNEX A to this Proxy Statement.
The purpose of the Comprehensive Plan is to advance the interests of the Company
by providing additional incentives to attract and retain qualified and competent
officers and employees, upon whose efforts and judgment the success of the
Company (including its subsidiaries) is largely dependent. In furtherance of
this purpose, the Comprehensive Plan authorizes the granting of incentive and
non-qualified stock options ("Comprehensive Options") to purchase common stock
to qualifying officers, employees and consultants of the Company (the
"Participants"). In addition, the Comprehensive Plan authorizes the issuance of
restricted Common Stock ("Restricted Shares") to Participants. Currently, a
total of 5,000,000 shares of Common Stock are reserved for issuance upon the
exercise of Comprehensive Options. However, the Board of Directors proposes to
amend the Comprehensive Plan to increase the number of shares available to
10,000,000 shares so that the Company can
10.
continue to use the Comprehensive Plan to attract and retain Participants.
Information about the number of shares of Common Stock authorized for issuance
under the Comprehensive Plan as of December 31, 2003, is as follows:
Weighted-average Number of securities
Number of securities to be exercise price remaining available for
issued upon exercise of of outstanding future issuance under
outstanding options options Comprehensive Plan
-------------------------- ----------------- -----------------------
Comprehensive Plan approved
by shareholders 4,018,767 $ 0.63 704,233
TERMS AND CONDITIONS
The Comprehensive Plan provides that the Company's Board of Directors shall
appoint a committee of two or more directors appointed to administer the
Comprehensive Plan. The committee may, at any time during the term of the
Comprehensive Plan, grant any Participant an option exercisable for such number
of shares of Common Stock as it shall deem to be in the best interest of the
Company and which will serve to further the purposes of the Comprehensive Plan.
No Participant shall receive any grant of options under the Comprehensive Plan
exercisable for more than 500,000 shares of Common Stock during one fiscal year
of the Company. Options granted to Participants under the Comprehensive Plan
will vest according to the vesting schedule provided in the applicable option
agreement executed between the Company and the employee.
Under the Comprehensive Plan, options must be granted at an exercise price per
share that is no less than the fair market value of the Common Stock at the date
of grant. The exercise price of an option may be paid in cash, certified or
cashier's check, money order, or by delivery of already owned shares of Common
Stock having a fair market value equal to the exercise price (to the extent such
shares have been owned by the optionee for at least six months and only if
permitted by the applicable option agreement), or by delivery of a combination
of such methods.
The options are not assignable or transferable other than by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order.
During the lifetime of an optionee, the Comprehensive option is exercisable only
by him, his guardian or legal representative.
The expiration date of each option shall be fixed by the Committee, but such
expiration date shall not exceed 10 years from the date of the grant.The
Comprehensive Plan will automatically terminate on January 4, 2009, and any
option outstanding on such date will remain outstanding until it has either
expired or been exercised. The Board may terminate, amend or suspend the
Comprehensive Plan from time to time as the Board deems advisable.
RESTRICTED STOCK
The committee, in its sole discretion, may make awards of restricted stock to
selected Participants, which awards shall be evidenced by an award agreement
that contains such terms and conditions, including vesting, as the committee may
determine. As a condition to any award of restricted stock, the committee may
require a Participant to pay to the Company the amount (such as the par value of
such shares) required to be received by the Company in order to assure
compliance with applicable state law. Any award of restricted stock for which
such requirement is established shall automatically expire if not purchased in
accordance with the committee's requirements within sixty (60) days after the
date of grant.
Subject to the terms and conditions of the respective award agreement, the
Participant, as the owner of the Common Stock issued as restricted stock and any
retained distributions with respect thereto, shall have the rights of a
stockholder, including, but not limited to, voting rights as to such Common
Stock and the right to receive cash dividends or distributions thereon when, as
and if paid.
Within the limits set forth in the Comprehensive Plan, an award of restricted
stock may be subject to such vesting requirements as may be fixed by the
committee. Vesting may be accelerated by a change of control. Vesting may also
be accelerated upon death, permanent disability or retirement.
11.
Restricted stock and any retained distributions with respect thereto may not be
sold, assigned, transferred, pledged, or otherwise encumbered during the
restricted period, which shall be determined by the committee and shall not be
more than two years from the date such restricted stock was awarded. The
committee may, at any time, reduce the restricted period with respect to any
outstanding shares of restricted stock and any retained distributions with
respect thereto awarded under the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences summarized below are based upon current tax
laws and thus are subject to change. Moreover, this summary is not intended to
be a complete description of all federal, state and local tax consequences of
the Comprehensive Plan.
The Comprehensive Plan permits Participants to receive grants of non-qualified
stock options and qualified stock options. The Company has been advised that
under the Internal Revenue Code, an optionee will not recognize any income for
federal income tax purposes at the time a stock option is granted, nor will the
Company be entitled to a tax deduction at that time. At the time of exercise,
however, the optionee will recognize ordinary income in an amount equal to the
excess of the fair market value of the shares at the time of exercise over the
option price of such shares. The Company generally will be entitled to a federal
income tax deduction in an amount equal to the ordinary income recognized by the
optionee upon exercise of a stock option.
The Board of Directors believes that the Comprehensive Plan assists in
attracting and retaining qualified employees and officers and has the effect of
more significantly aligning the interests of the officers and directors with the
Company's stockholders. The Board of Directors believes that increasing the
number of shares under the Comprehensive Plan to 10,000,000 will permit the
Company to continue utilizing the benefits of the Comprehensive Plan.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of the Company recommends a vote FOR the approval of the
amendment to the Comprehensive Plan.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE 1999 NON-EMPLOYEE DIRECTOR PLAN
GENERAL
The Board of Directors proposes to increase the number of shares of Common Stock
available under the 1999 Non-Employee Director Plan (the "Non-Employee Director
Plan") by 700,000, for a total of 1,500,000 shares. The material features of the
Non-Employee Director Plan are discussed below, but the description is subject
to and is qualified in its entirety by the full text of the Non-Employee
Director Plan, which is attached as ANNEX B to this Proxy Statement.
The purpose of the Non-Employee Director Plan is to advance the interests of the
Company by providing additional incentives to attract and retain qualified and
competent non-employee directors, upon whose efforts and judgment the success of
the Company (including its subsidiaries) is largely dependent. In furtherance of
this purpose, the Non-Employee Director Plan authorizes the granting of
non-qualified stock options to purchase Common Stock to such directors.
Currently, a total of 800,000 shares of Common Stock are authorized for issuance
upon the exercise of the options. However, the Board of Directors proposes to
amend the Non-Employee Director Plan to increase the number of shares available
to 1,500,000 shares so that the Company can continue to use the Non-Employee
Director Plan to attract and retain non-employee directors. Information about
the number of shares of Common Stock authorized for issuance under the
Non-Employee Director Plan as of December 31, 2003, is as follows:
12.
Number of securities
Weighted-average remaining available for
Number of securities to be exercise price future issuance under
issued upon exercise of of outstanding Non-Employee
outstanding options options Director Plan
-------------------------- ---------------- -----------------------
Non-Employee Director Plan
approved by shareholders 533,003 $ 1.88 266,997
TERMS AND CONDITIONS
Under the Non-Employee Director Plan, options must be granted at an exercise
price per share that is no less than the fair market value of the Common Stock
at the date of grant. The exercise price of an option may be paid in cash,
certified or cashier's check, money order, or by delivery of already owned
shares of Common Stock having a fair market value equal to the exercise price
(to the extent such shares have been owned by the optionee for at least six
months and only if permitted by the applicable option agreement), or by delivery
of a combination of such methods. The options are excisable only by the optionee
or the optionee's legal representative and are not assignable or transferable
other than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order.
The expiration date of each option shall not exceed ten (10) years from the date
of the grant. The Non-Employee Director Plan will automatically terminate on
July 10, 2009, and any option outstanding on such date will remain outstanding
until it has either expired or been exercised.
The Board of Directors believes that the Non-Employee Director Plan assists in
attracting and retaining qualified non-employee directors and has the effect of
more significantly aligning the interests of the non-employee directors with the
Company's stockholders. The Board of Directors believes that increasing the
number of shares under the Non-Employee Director Plan to 1,500,000 will permit
the Company to continue utilizing the benefits of the Non-Employee Director
Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company recommends a vote FOR the approval of the
amendment to the Non-Employee Director Plan.
PROPOSAL 4
RATIFICATION OF AKIN, DOHERTY, KLEIN & FEUGE, P.C. AS INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of its Audit Committee, appointed
Akin, Doherty, Klein & Feuge, P.C. as independent auditors to examine the
Company's consolidated financial statements for the fiscal year ending December
31, 20042005 and to render other professional services as required.
The Company is submitting the appointment of Akin, Doherty, Klein & Feuge, P.C.
to stockholders to obtain your ratification. Representatives of Akin, Doherty,
Klein & Feuge, P.C. will be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and are expected to be
available to respond to questions.
RECOMMENDATION OF THE BOARD OF DIRECTORSRecommendation of the Board of Directors
The Board of Directors of the Company believes that ratification of Akin,
Doherty, Klein & Feuge, P.C. as the Company's independent auditors for the
fiscal year ended December 31, 20042005 is in the best interests of the Company and
its stockholders. Accordingly, the Board recommends a vote FOR the ratification
of Akin, Doherty, Klein & Feuge, P.C. as the Company's independent auditors for
the fiscal year ended December 31, 2004.
13.
2005.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, certain executive officers and persons
holding more than 10% of the Company's Common Stock must report their initial
ownership of the Common Stock, and any changes in that ownership, to the
Securities and Exchange Commission. The Securities and Exchange Commission has
designated specific due dates for these reports. Based solely on its review of
copies of the reports filed with the Securities and Exchange Commission and
written representations of its directors and executive officers, the Company
believes all persons subject to reporting timely filed the required reports in
2003,2004, except that Mr. Kirby filed a Form 4 on January 6,December 29, 2004 with respect to
a stock option grantsale occurring on December 30, 2003.9, 2004.
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of all of our directors and executive officers, along with
their respective positions, term of office and period such position(s) was held,
is as follows:
- --------------------------------------------------------------------------------
NAME POSITION HELD AGE
- --------------------------------------------------------------------------------
Name Position(s) Held Age
- -------------------- ----------------------------------------------------------------- ---
Michael R. Long Chief Executive Officer, Chief Financial Officer, Chairman of the 60
Board and Director
- --------------------
Louis A. Hoch President and Chief Operating Officer and Director 39
- --------------------
Larry Morrison Vice President, Business Development 45
- --------------------
Peter G. Kirby Director 65
8
Biographies of Officers and Directors
Michael R. Long Chief Executive Officer, Chief Financial Officer,
Chairman of the Board and Director 59
Louis A. Hoch President and Chief Operating Officer and Director 38
Peter G. Kirby Director 64
BIOGRAPHIES OF OFFICERS AND DIRECTORS
MICHAEL R. LONG.Long. See biography of Mr. Long on page 7.
LOUIS4.
Louis A. HOCH.Hoch. See biography of Mr. Hoch on page 7.
PETER4.
Larry Morrison. Mr. Morrison has been our Vice President, Business Development
since July 2003. Mr. Morrison has over 25 years of experience in all aspects of
sales and sales management. Before joining Payment Data Systems, Inc. to oversee
all sales and marketing functions, Mr. Morrison served as a major accounts
executive for a tier one telecommunications provider and vice president of sales
and operations for a major two-way communications firm. His background also
includes management and implementation of large government communication systems
installations both domestic and abroad.
Peter G. KIRBY.Kirby. See biography of Mr. Kirby on page 7.4.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned during each of the years
ended December 31, 2004, 2003 2002 and 20012002 to our Chief Executive Officer and each
other executive officer that earned over $100,000 during the year ended December
31, 2003.2004.
-----------------------------------------------------------
ANNUAL
COMPENSATION (1) LONG TERM COMPENSATION
- -----------------------------------------------------------------------------------------------------------
AWARDS ALL OTHER
- ------------------------------------------------------------------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY SECURITIES UNDERLYING COMPENSATION
OPTIONS (#) (2)
- -----------------------------------------------------------------------------------------------------------
Annual Compensation (1) Long Term Compensation
--------------------------- ------------------------------
Awards
-----------
Securities All Other
Underlying Compensation
Name and Principal Position(s) Year Salary Bonus Options (#)(2) (3)
- --------------------------------- ---- ------- ------- ------- -------
Michael R. Long.......................... 2003 $190,000 400,000Long 2004 $220,583 - $11,529
Chairman, Chief Executive Officer 2003 $190,000 400,000 $11,529
and Chief Financial Officer 2002 $190,000 340,000 $11,130
and Chief Financial Officer 2001 $190,000 325,000 $11,074
Louis A. Hoch............................ 2003 $175,000 425,000Hoch 2004 $193,103 $15,000 - $900
President and Chief Operating 2003 $175,000 425,000 $900
Officer 2002 $175,000 340,000 $1,950
Officer 2001 $175,000 250,000 $1,596
Terri A. Hunter.......................... 2003 $152,499Larry Morrison 2004 $116,096 - $540
Executive$360
Vice President, Business 2003 $46,154 100,000 $180
Development
(1) In 2004, salary compensation for each of the named officers includes the fair market value of common stock
received in lieu of base salary as follows: Mr. Long, $96,352 in lieu of $65,769; Mr. Hoch, $65,219 in lieu of
$47,115; and Chief 2002 $145,000 350,000 $1,560
Financial Officer 2001 $145,000 150,000 $1,368
14.
(1) Each of the named executives except for Ms. Hunter has entered into
employment agreements expiring on July 25, 2004, which provide for annual
salary and bonuses at the discretion of the Board of Directors. Ms. Hunter
resigned her position as Executive Vice President and Chief Financial
Officer effective August 31, 2003. In 2004, each of the named officers is
to receive salary compensation as follows: Mr. Long, $190,000; and Mr.
Hoch, $175,000.Mr. Morrison, $50,712 in lieu of $34,615.
(2) We did not grant any stock options to any of our named executive officers during fiscal year 2004.
(3) Reflects premiums paid for term life insurance coverage.
OPTION GRANTS
The following table provides information regarding the grant of stock options
during fiscal year 2003 to the named executive officers pursuant to our Employee
Comprehensive Stock Plan.
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise Price
Name Granted in Fiscal 2003 ($/Share) Expiration Date
- ------------------ -------------------- -------------------- -------------- ---------------
Michael R. Long 400,000 22.8% $ 0.14 12/30/13
Louis A. Hoch 425,000 24.2% $ 0.14 12/30/13
Terri A. Hunter (1) - - - -
(1) We did not grant any stock options to Ms. Hunter during fiscal year 2003.
OPTION EXERCISES AND YEAR-END VALUES9
Option Exercises and Year-End Values
The following table provides certain information related to the exercise of
options during the year ended December 31, 20032004 by the named executive officers
and the number and value of options held by the named executive officers at
December 31, 2003.2004.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
-------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END (#) FISCAL YEAR-END ($) (1)
- -------------------------- ON EXERCISE REALIZED -----------------------------------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money Options at
On Exercise Realized Options at Fiscal Year-End (#) Fiscal Year- End ($) (1)
------------------------------ ---------------------------
Name. (#) ($) Exercisable Unexercisable Exercisable Unexercisable
Michael R. Long - $ 0 898,334 400,000 $ 0 $ 8,000$0 1,248,334 50,000 $109,400 $9,000
Louis A. Hoch - $ 0 765,000 425,000 $ 0 $ 8,500$0 1,115,000 75,000 $109,400 $13,500
Larry Morrison - $0 200,000 - $41,000 -
(1) Calculated using the year-end per share price of $0.32.
(1) Calculated using the year-end per share price of $0.16.
DIRECTORS COMPENSATION
In 2003,2004, we did not pay any cash compensation to our independent directors for
their services on our Board of Directors. However, on December 30, 2003, we
granted options to purchase 175,000 shares of our Common Stock with a one-year
vesting period at an exercise price of $0.14 per share to our independent
director, Peter G. Kirby, as compensation for his service as a Director.
15.
EMPLOYMENT CONTRACTS
We haveOn July 25, 2004, our employment agreements with our executive officers. TheMichael Long, Chief Executive
Officer and Chief Financial Officer, and Louis Hoch, President and Chief
Operating Officer, expired. We intend to enter into new employment agreements
provide for an annual salary, bonuses atwith both of these individuals and are currently negotiating the discretionterms of the Board
of Directors and health benefits. In 2004, each of the named officers is to
receive salary compensation as follows: Mr. Long, $190,000 and Mr. Hoch,
$175,000.
Our agreements with our executive officers provide for change in control
protection for each executive. We may terminate any such
agreement not later
than thirty days after a change of control. In such event, the executive would
be entitled to deferred compensation. Deferred compensation is calculated as the
greater of (A) the base salary payments the executive would have received had
his or her employment continued for the remaining term of the agreement
(including yearly increases calculated at the maximum increase for the prior two
years); or (B) an amount equal to 2.95 times the highest annual compensation
earned by the executive in the past two years.
In addition, the executive would be entitled to all of the benefits otherwise
provided in the agreement during a certain period of time defined in the
agreement as the greater of the remaining term of the agreement or one year. The
executive may also be entitled to an amount equal to the pro rata portion of the
bonus compensation for the year in which the executive's employment is
terminated determined on the basis of the number of days elapsed in such year
prior to such termination. Upon termination of employment, each employee is
prohibited from competing with us for a period of two years. The employment
agreements were supposed to terminate upon the change of control that occurred
on July 25, 2003, but were extended at our option for a period of one year. If
an extended agreement is not renewed for a period of one year prior to the
expiration of that extended agreement on July 25, 2004, such executive officer
shall be entitled to the deferred compensation as provided above.agreements.
ANNUAL MEETING ADVANCE NOTICE REQUIREMENTS
A stockholder may recommend a nominee to become a Director of the Company by
giving Michael R. Long, the Chief Executive Officer of the Company, a written
notice mailed to 12500 San Pedro, Suite 120, San Antonio, Texas, 78216 and
setting forth certain information, including: (1) the name, age, and business
and residence addresses of the person intended to be nominated, (2) a
representation that the nominating stockholder is in fact a holder of record of
Common Stock of the Company entitled to vote at the meeting and that he or she
intends to be present at the meeting to nominate the person specified, (3) a
description of all arrangements between the nominating stockholder, the nominee
and other persons concerning the nomination, (4) any other information about the
nominee that must be disclosed in proxy solicitations under Rule 14(a) of the
Securities Exchange Act of 1934, and (5) the nominee's written consent to serve,
if elected. Such nominations must be made pursuant to the same advance notice
requirements for stockholder proposals.
The Company's 2005 Annual Meeting of Stockholders is currently scheduled for
May
2005.June 2006. Copies of the Company's Bylaws are available upon written request
made to Michael R. Long, the Chief Executive Officer of the Company, at 12500
San Pedro, Suite 120, San Antonio, Texas, 78216. The requirements described
above do not supersede the requirements or conditions established by the
Securities and Exchange Commission for stockholder proposals to be included in
the Company's proxy materials for a meeting of stockholders. The Chairman of the
meeting may refuse to bring before a meeting any business not brought in
compliance with applicable law and the Company's Bylaws.
10
INDEPENDENT PUBLIC ACCOUNTANTS
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On February 10, 2004, our Board of Directors, upon recommendation of the Audit
Committee, dismissed Ernst & Young LLP as our independent accountantsChanges in and appointed the firm of Akin, Doherty, Klein & Feuge, P.C., a professional
corporation, to serve as our independent public accountants for the fiscal year
ending December 31, 2003.
Ernst & Young's reportDisagreements with Accountants on our consolidated financial statements for the fiscal
year ended December 31, 2002 contained a qualified opinion asAccounting and Financial
Disclosure
None.
Fees Paid to the uncertainty
of our ability to continue as a going concern.
16.
During the years ended December 31, 2002 and 2001 and through the date hereof,
there were no disagreements with Ernst & Young on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Ernst & Young's satisfaction, would have
caused them to make reference to the subject matter of such disagreements in
connection with their report on our consolidated financial statements for such
years; and there were no reportable events as defined in Item 304(a)(1)(iv) of
Regulation S-K. Ernst & Young's letter confirming this to the Securities and
Exchange Commission pursuant to Item 304(a)(3) of Regulation S-K is incorporated
herein by reference to Exhibit 16.1 to the Company's 2003 Annual Report on Form
10-K as filed with the Securities and Exchange Commission.
During the years ended December 31, 2002 and 2001 and through February 10, 2004,
we did not consult with Akin Doherty with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our consolidated
financial statements, or any other matters or reportable events as set forth in
Items 304(a)(2)(i) and (ii) of Regulation S-K.
FEES PAID TO THE INDEPENDENT ACCOUNTANTSIndependent Accountants
The aggregate fees billed to us for professional accounting services, including
the audit of our annual consolidated financial statements by our principal
accountant for the fiscal years ended December 31, 20032004 and 20022003 included in our
Form 10-K,10-KSB, are set forth in the table below. These amounts includeThe amount for 2003 includes
approximately $35,800 and $100,820$38,450 of fees billed to us by Ernst & Young LLP, our former
independent auditor, for 2003 and 2002, respectively, related to audit and non-audit services.
2004 2003
2002
------------- ----------------------- ----------
Audit fees $ 48,80048,025 $ 88,320
Audit-related fees - 4,00051,450
Tax fees 5,125 7,000
8,500
------------- ----------------------- ----------
Total fees $ 55,80053,150 $ 100,820
============= =============58,450
========== ==========
For purposes of the preceding table, the professional fees are classified as
follows:
o- Audit Fees--TheseFees-These are fees for professional services billed for the audit
of the consolidated financial statements included in our Form 10-K10-KSB
filings, the review of consolidated financial statements included in our
Form 10-Q10-QSB filings, comfort letters, consents and assistance with and
review of documents filed with the SEC. The fees in the 20032004 column include
amounts billed to us through the date of this Proxy Statement for the year
ended December 31, 20032004 and the fees in the 20022003 column include amounts
billed to us through the date of this Proxy Statement for the years ended
December 31, 2002.
o Audit-Related Fees--These are fees for assurance and related services
that traditionally are performed by our independent accountant. More
specifically, in 2002 these professional services were provided in
connection with the review and evaluation of financial information systems
and related controls for purposes of obtaining a SAS 70 certification.
o2003.
- Tax Fees--TheseFees-These are fees for professional services rendered by our
independent accountant for tax compliance, tax planning and tax advice. Tax
compliance involves preparation of original and amended tax returns. Tax
planning and tax advice encompass a diverse range of subjects, including
assistance with tax audits and appeals, tax advice related to dispositions,
and requests for rulings or technical advice from taxing authorities.
All of the services performed by our independent accountant described above were
approved in advance by our Audit Committee.
17.
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended December
31, 20032004 and Management's Discussion and Analysis of Financial Condition and
Results of Operations are incorporated herein by reference to the Company's 20032004
Annual Report on Form 10-K10-KSB as filed with the Securities and Exchange
Commission, which is being mailed to stockholders with this Proxy Statement.
PROPOSALS BY STOCKHOLDERS
In accordance with rules established by the Securities Exchange Commission, any
stockholder proposal submitted pursuant to Rule 14a-8 intended for inclusion in
the proxy statement and form of proxy for next year's Annual Meeting must be
received by the Company no later than December 31, 2004.2005. Proposals should be
submitted to Michael R. Long, the Company's Chief Executive Officer, at 12500
San Pedro, Suite 120, San Antonio, Texas 78216. To be included in the proxy
statement, the proposal must comply with the requirements as to form and
substance established by the Securities Exchange Commission and must be a proper
subject for stockholder action under Nevada law. No shareholder proposals will
be considered for the 20052006 Annual Meeting after December 31, 2004.2005.
11
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the Company
does not know of any business that will be presented for consideration at the
Annual Meeting other than that specified herein and in the Notice of Annual
Meeting of Stockholders. If other matters are presented, it is the intention of
the persons designated as proxies to vote in accordance with their judgment on
such matters.
SOLICITATION
The costDISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements including statements
containing the words "believes," "anticipates," "expects," "intends" and words
of soliciting Proxiessimilar import. These statements involve known and unknown risks and
uncertainties that may cause the Company's actual results or outcomes to be
materially different from those anticipated and discussed herein. Important
factors that the Company believes might cause such differences include: (1)
concentration of the Company's assets into one industry segment; (2) the nature
of the Company's business (as defined herein); (3) the impact of changing
economic conditions; (4) the actions of competitors, including pricing and new
product introductions; and (5) those specific risks that are discussed in the
cautionary statements accompanying form will be borne by the Company.forward-looking statements in this Proxy
Statement and in the Risk Factors detailed in the Company's previous filings
with the Securities and Exchange Commission. In additionassessing forward-looking
statements contained herein, stockholders are urged to read carefully all
cautionary statements contained in this Proxy Statement and in those other
filings with the solicitation of Proxies by the use of the mails,
certain officersSecurities and associates (who will receive no compensation therefore in
addition to their regular salaries) may be used to solicit Proxies personally
and by telephone or fax. In addition, banks, brokers and other custodians,
nominees and fiduciaries will be requested to forward copies of the Proxy
materials to their principals and to request authority for the execution of
Proxies. The Company will reimburse such persons for their expenses in so doing.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2003, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED
WITHOUT CHARGE TO ANY STOCKHOLDER OF THE COMPANY WHOSE PROXY IS SOLICITED BY
THIS PROXY STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON ADDRESSED TO
MR. MICHAEL R. LONG, CHIEF EXECUTIVE OFFICER, PAYMENT DATA SYSTEMS, INC., 12500
SAN PEDRO, SUITE 120, SAN ANTONIO, TEXAS 78216. SUCH A REQUEST FROM A BENEFICIAL
OWNER OF THE COMPANY'S COMMON STOCK MUST CONTAIN A GOOD FAITH REPRESENTATION BY
SUCH PERSON THAT, AS OF THE RECORD DATE, HE OR SHE WAS A BENEFICIAL OWNER OF THE
COMPANY'S COMMON STOCK.
Please SIGN and RETURN the enclosed Proxy promptly.
By Order of the Board of Directors:
MICHAEL R. LONG
Chief Executive Officer
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY
18.
ANNEXExchange Commission.
12
Appendix A
PAYMENT DATA SYSTEMS, INC.
AMENDED AND RESTATED
1999 EMPLOYEE COMPREHENSIVE STOCK PLAN
1. PURPOSE.12500 San Pedro, Suite 120
San Antonio, Texas 78216
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The purposeundersigned hereby appoints Michael R. Long, Louis A. Hoch, or any one or
more of this Amendedthem, as proxies, each with the power to appoint his or her substitute,
and Restated 1999 Employee
Comprehensive Stock Plan (the "Plan") ishereby authorizes each of them to furtherrepresent and to vote, as designated
below, all the successshares of common stock of Payment Data Systems, Inc., formerly billserv.com, Inc., and Billserv, Inc., a Nevada
corporation (the
"Company"), and certain held of its affiliatesrecord by making available
Common Stockthe undersigned on April 29, 2005 at the Annual
Meeting of the CompanyStockholders to certain Employees and Consultants of the Company
and its affiliates, and thus to provide an additional incentive to such
individuals to continue in the service of the Companybe held on June 21, 2005, or its affiliatesany adjournments
thereof.
(Continued and to give them a greater interest as stockholders in the success of the Company.
Subject to compliance with the provisions of the Plan and the Code, Incentive
Stock Options as authorized by Section 422 of the Code and stock options which
do not qualify under Section 422 of the Code are authorized and may be granted
under the Plan. Further, the Company may grant Restricted Stock, as defined
below.
2. DEFINITIONS. As used in this Plan the following terms shall have the
meanings indicated:
(a) "Award" means an award of stock options (including Incentive Stock
Options) or Restricted Stock, on a stand alone, combination or tandem basis, as
described in or granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the terms of
an Award, in the form prescribed by the Committee.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" shall mean, in the context of the termination of a
Participant, as determined by the Board, in the reasonable exercise of its
business judgment, the occurrence of one of the following events as they relate
(1) to an Employee: (i) conviction of or a plea of nolo contendere to a charge
of a felony (which, through lapse of time or otherwise, is not subject to
appeal); (ii) willful refusal without proper legal cause to perform, or gross
negligence in performing, Participant's duties and responsibilities; (iii)
material breach of fiduciary duty to the Company through the misappropriation of
Company funds or property or otherwise; or (iv) the unauthorized absence of
Participant from work (other than for sick leave or disability) for a period of
thirty working days or more during any period of forty-five working days, and
(2) to a Contractor: (i) conviction of or a plea of nolo contendere to a charge
of a felony (which, through lapse of time or otherwise, is not subject to
appeal), (ii) serious misconduct in connection with performance of his services
to the Company, a Parent, or any Subsidiary, or (iii) a material breach of any
contractual agreement or other arrangement between the Contractor and the
Company, its Parent, or any Subsidiary; provided, further, within one year
following a Change of Control, "Cause," with respect to an Employee, shall be
limited to the conviction of or a plea of nolo contendere to the charge of a
felony (which, through lapse of time or otherwise, is not subject to an appeal),
or a material breach of fiduciary duty to the Company through the
misappropriation of Company funds or property or otherwise.
(e) "Change of Control" shall be deemed to have occurred if (i) any
"Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing more
than 40% of the combined voting power of the Company's then outstanding voting
securities, or (ii) at any time during the 24-month period after a tender offer,
merger, consolidation, sale of assets or contested election, or any combination
of such transactions, at least a majority of the Board shall cease to consist of
"continuing directors" (meaning directors of the Company who either were
directors prior to such transaction or who subsequently became directors and
whose election, or nomination for election by the Company's stockholders, was
approved by a vote of at least two thirds of the directors then still in office
who were directors prior to such transaction), or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 40% of the total voting
power represented by the voting securities of the Company or such surviving
19.
entity outstanding immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement of sale or disposition by the Company of all or
substantially all of the Company's assets.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Committee administering the Plan described in
Section 3 hereof.
(h) "Common Stock" means the Company's common stock, par value $.001 per
share.
(i) "Consultant" means any person, except an Employee, engaged by the
Company or a Parent or any Subsidiary of the Company to render personal services
to such entity. The term "Consultant" as used in this Plan is limited to persons
eligible to receive Common Stock from the Company or a Parent or any Subsidiary
of the Company registered under Form S-8 of the Securities and Exchange
Commission. As provided in Rule 405 promulgated under the Securities Act of
1933, as amended from time to time, or other applicable law, Consultants must be
natural persons who provide bona fide services to the Company, which services
may not be in connection with the offer or sale of securities in a
capital-raising transaction or directly or indirectly related to promoting or
maintaining a market for the Company's securities.
(j) "Continuous Status as a Participant" means (1) for an Employee, that
the employment relationship with the Company or a Parent, or any Subsidiary of
the Company has not been terminated or interrupted, and (2) for a Consultant,
the absence of any interruption, expiration, or termination of such person's
consulting or advisory relationship with the Company or a Parent or any
Subsidiary of the Company or the occurrence of any termination event as set
forth in such person's Award Agreement.
(k) "Date of Grant" means the date on which an Award is granted under an
Award Agreement executed by the Company and a Participant pursuant to the Plan.
(l) "Disinterested Person" means a "disinterested person" as such term is
defined in Rule 16b-3 promulgated under the Exchange Act or any successor
provision.
(m) "Effective Date" means the effective date of this Plan specified in
Section 14 hereof.
(n) "Employee" means any person, including an officer, who is a common law
employee of, receives remuneration for personal services to, is reflectedsigned on the official human resources database as an employee of, and is on the payroll of
the Company or a Parent or any Subsidiary of the Company. A person is on the
payroll if he is paid from the payroll department of the Company or a Parent or
any Subsidiary of the Company. Persons providing services to the Company or a
Parent or any Subsidiary of the Company pursuant to an agreement with a staff
leasing organization, temporary workers engaged through or employed by temporary
or leasing agencies, and workers who hold themselves out to the Company or a
Parent or any Subsidiary of the Company to which they are providing services as
being independent contractors, or as being employed by or engaged through
another company while providing the services to the Company or a Parent or any
Subsidiary of the Company are not Employees for purposes of the Plan, whether or
not such persons are, or may be, reclassified by the courts, the Internal
Revenue Service, the U.S. Department of Labor, or other person or entity as
common law employees of the Company or a Parent or any Subsidiary of the
Company, either solely or jointly with another person or entity.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as it may be
amended from time to time.
(p) "Good Reason" shall mean the occurrence of any of the following
events: (a) removal from the principal office held by the Employee on the date
of the most recent Award, or a material reduction in the Employee's authority or
responsibility, including, without limitation, involuntary removal from the
Board, but not including termination of the Employee for Cause; or (b) the
Company otherwise commits a material breach of this Plan or the Employee's
employment agreement or the Contractor's service agreement, if applicable;
provided, however, that within one year following a Change of Control, "Good
Reason" shall mean (i) removal from the
20.
principal office held by the Employee on the date of the most recent Award, (ii)
a material reduction in the Employee's authority or responsibility, including,
without limitation, involuntary removal from the Board, but not including
termination of the Employee for Cause; (iii) relocation of the Company's
headquarters from the San Antonio, Texas metropolitan area, (iv) a material
reduction of Employee's compensation, or (v) the Company otherwise commits a
material breach of this Plan or the Employee's employment agreement or the
Contractor's service agreement, if applicable.
(q) "Incentive Stock Option" means an option qualifying under Section 422
of the Code.
(r) "Parent" means a parent corporation of the Company as defined in
Section 424(e) of the Code.
(s) "Participants" means Employees or Consultants of the Company, its
Subsidiaries and its Parent (including those directors of the Company who are
also employees of the Company, its Parent or one or more of its Subsidiaries).
(t) "Restricted Period" shall mean the period designated by the Committee
during which Restricted Stock may not be sold, assigned, transferred, pledged,
or otherwise encumbered, which period shall not be more than two years from the
Date of Grant.
(u) "Restricted Stock" shall mean those shares of Common Stock issued
pursuant to an Award that remain subject to the Restricted Period.
(v) "Retained Distributions" shall mean any securities or other property
(other than cash dividends) distributed by the Company or otherwise received by
the holder in respect of Restricted Stock during any Restricted Period.
(w) "Retirement" shall mean retirement of an Employee from the employ of
the Company, its Parent, or its Subsidiaries, as the case may be, in accordance
with the then existing employment policies of any such employer.
(x) "Subsidiary" means a subsidiary corporation of the Company as defined
in Section 424(f) of the Code.
3. ADMINISTRATIONreverse side)
ANNUAL MEETING OF THE PLAN. The Board shall appoint a committee (the
"Committee") comprised of two or more directors to administer the Plan. Only
directors who are Disinterested Persons shall be eligible to serve as members of
the Committee. The Committee shall report all action taken by it to the Board,
which shall review and ratify or approve those actions that are by law required
to be so reviewed and ratified or approved by the Board. The Committee shall
have full and final authority in its discretion, subject to the provisions of
the Plan, to make determinations with respect to the participation of
Participants in this Plan, to prescribe the form of Award Agreements embodying
Awards made under the Plan, and, except as otherwise required by law or this
Plan, to set the size and terms of Awards (which need not be identical or
consistent with respect to each Participant) including vesting schedules, price,
whether stock options granted hereunder shall constitute an Incentive Stock
Option, restriction or option period, post-retirement and termination rights,
payment alternatives such as cash, stock or other means of payment consistent
with the purposes of this Plan, and such other terms and conditions as the
Committee deems appropriate. Except as otherwise required by this Plan, the
Committee shall have authority to interpret and construe the provisions of this
Plan and the Award Agreements, to correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Award Agreement in the manner
the Committee deems advisable for the administration of the Plan and make
determinations pursuant to any Plan provision or Award Agreement, which shall be
final and binding on all persons. The Committee may authorize any one or more of
their number or any officer of the Company to execute and deliver documents on
behalf of the Committee.
4. COMMON STOCK SUBJECT TO PROVISIONSSTOCKHOLDERS OF THIS PLAN. Upon approval of this
Plan by the directors and shareholders of the Company, the total number of
shares to be subject to options under this Plan shall be 10,000,000 of the
authorized and unissued Common Stock of the Company. Thereafter, an amount of
additional shares to be subject to options shall automatically be available for
award under this Plan, such that at no
21.
time shall the total number of shares subject to options under this Plan be less
than five percent (5%) of the then issued and outstanding Common Stock of the
Company. In all events, the total number of shares shall be subject to
appropriate increase or decrease in the event of a stock dividend, split or
reclassification of shares subject to this Plan.
5. ELIGIBILITY. Except as hereinafter provided, Awards may be granted to
any Participant as the Committee shall determine from time to time. In
determining the Participants to whom Awards shall be granted and the number of
shares to be covered by each such Award, the Committee may take into account the
nature of the services rendered by the respective Participants, their present
and potential contributions to the Company's success and such other factors as
the Committee in its sole discretion shall deem relevant. A Participant who has
been granted an Award under the Plan may be granted an additional Award or
Awards under the Plan, in the Committee's sole discretion.
6. AWARDS UNDER THIS PLAN. The Committee, in its sole discretion, may
make Awards of stock options (including Incentive Stock Options and stock
options that do not qualify as Incentive Stock Options) as described in Sections
7 and 8 hereof, and of Restrictive Stock, as described in Section 10 hereof.
7. OPTIONS AUTHORIZED. The options subject to Award under this Plan may
be Incentive Stock Options or stock options that do not qualify as Incentive
Stock Options (sometimes referred to herein as "nonqualified options" or
"nonqualified stock options"). The Committee shall have the full power and
authority to (i) determine which options shall be nonqualified stock options and
which shall be Incentive Stock Options, (ii) grant only Incentive Stock Options
or, alternatively, only nonqualified stock options, and (iii) in its sole
discretion, grant to the holder of an outstanding option, in exchange for the
surrender and cancellation of such option, a new option having a purchase price
lower than that provided in the option so surrendered and canceled and/or
containing such other terms and conditions as the Committee may prescribe in
accordance with the provisions of the Plan. Under no circumstances may
nonqualified stock options be granted where the exercise of such nonqualified
stock options may affect the exercise of Incentive Stock Options granted
pursuant to the Plan. In addition to any other limitations set forth herein, (1)
no Participant shall receive any grant of options, whether Incentive Stock
Options or nonqualified stock options, exercisable for more than five hundred
thousand (500,000) shares of Common Stock during any one fiscal year of the
Company, and (2) the aggregate fair market value (determined in accordance with
Paragraph 8(a) of the Plan as of the time the option is granted) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by a Participant in any calendar year (under all plans of the Company
and of any Parent or Subsidiary) shall not exceed one hundred thousand dollars
($100,000.00).
8. TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the Plan
shall be evidenced by an Award Agreement executed by the Company and the
applicable Participant and shall contain such terms and be in such form as the
Committee may from time to time approve, subject to the following limitations
and conditions:
(a) OPTION PRICE. The option exercise price per share with respect to each
option shall be determined by the Committee, but shall in no instance be less
than the par value of the shares subject to the option. In addition, the option
exercise price per share with respect to Incentive Stock Options granted
hereunder shall in no instance be less than the fair market value of the shares
subject to the option as determined by the Committee. For the purposes of this
Paragraph 8(a), fair market value shall be, where applicable, the closing price
of the Common Stock on the Date of Grant of such option as reported on any
national securities exchange on which the Common Stock may be listed. If the
Common Stock is not listed on a national securities exchange but is publicly
traded on the Nasdaq Stock Market's National Market or on another automated
quotation system, the fair market value shall be the closing price of the Common
Stock on the Date of Grant, or if traded on the Nasdaq Small Cap or Nasdaq
Over-The-Counter market, the fair market value shall be the mean between the
closing bid and ask prices on any such system or market. If the Common Stock was
not traded on the Date of Grant of such option, the nearest preceding date on
which there was a trade shall be substituted. Notwithstanding the foregoing,
however, fair market value shall be determined consistent with Code Section
422(b)(4) or any successor provisions. The Committee may permit the option
exercise price to be payable by transfer to the Company of Common Stock owned by
the option holder with a fair market value at the time of the exercise equal to
the option exercise price.
22.
(b) PERIOD OF OPTION. The expiration date of each option shall be fixed by
the Committee, but notwithstanding any provision of the Plan to the contrary,
such expiration date shall not be more than ten (10) years from the Date of
Grant of the option.
(c) VESTING OF STOCKHOLDER RIGHTS. Neither the optionee nor his successor
in interest shall have any of the rights of a stockholder of the Company until
the shares relating to the option hereunder are issued by the Company and are
properly delivered to such optionee, or successor.
(d) EXERCISE OF OPTION. Each option shall be exercisable from time to time
(but not less than six (6) months after the Date of Grant) over such period and
upon such terms and conditions as the Committee shall determine, but not at any
time as to less than one hundred (100) shares unless the remaining shares that
have become so purchasable are less than twenty five (25) shares. After the
death of the optionee, an option may be exercised as provided in Section 9(c)
hereof.
(e) DISQUALIFYING DISPOSITION. The Award Agreement evidencing any
Incentive Stock Options granted under this Plan shall provide that if the
optionee makes a disposition, within the meaning of Section 424(c) of the Code
and regulations promulgated thereunder, of any share or shares of Common Stock
issued to him pursuant to exercise of the option within the two-year period
commencing on the day after the Date of Grant of such option or within the
one-year period commencing on the day after the date of issuance of the share or
shares to him pursuant to the exercise of such option, he shall, within ten (10)
days of such disposition date, notify the Company of the sales price or other
value ascribed to or used to measure the disposition of the share or shares
thereof and immediately deliver to the Company any amount of federal income tax
withholding required by law.
(f) LIMITATION ON GRANTS TO CERTAIN STOCKHOLDERS. An Incentive Stock
Option may be granted only to an Employee Participant, and only if such
Participant, at the time the option is granted, does not own, after application
of the attribution rules of Code Section 424, stock possessing more than ten
percent (10%) of the total combined voting power of all classes of Common Stock
of the Company or of its Parent or Subsidiaries. The preceding restrictions
shall not apply to an Employee Participant if at the time the option is granted
the option price is at least one hundred ten percent (110%) of the fair market
value (as defined in Section 8(a) above) of the Common Stock subject to the
option and such option by its terms is not exercisable after the expiration of
five (5) years from the Date of Grant.
(g) RESTRICTION ON ISSUING SHARES. The exercise of each option shall be
subject to the condition that if at any time the Company shall determine in its
discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares pursuant thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
(h) CONSISTENCY WITH CODE. Notwithstanding any other provision in this
Plan to the contrary, the provisions of all Award Agreements relating to
Incentive Stock Options pursuant to the Plan shall not violate the requirements
of the Code applicable to the Incentive Stock Options authorized hereunder.
9. EXERCISE OF OPTION.
(a) Any option granted hereunder shall be exercisable according to the
terms of the Plan and at such times and under such conditions as determined by
the Committee and set forth in the Award Agreement. An option shall be deemed
exercised when (i) the Company has received written notice of such exercise in
accordance with the terms of the Award Agreement, (ii) full payment of the
aggregate option exercise price of the shares as to which the option is
exercised has been made and (iii) arrangements that are satisfactory to the
Committee in its sole discretion have been made for the Participant's payment to
the Company of the amount, if any, that the Committee determines to be necessary
for the Company to withhold in accordance with applicable federal or state
income tax withholding requirements.
23.
(b) Unless otherwise provided in the Award Agreement and as permitted by
applicable law, upon Retirement or other termination of the Participant's
Continuous Status as a Participant, other than (a) a termination that is either
(i) for Cause, or (ii) voluntary on the part of a Participant and without the
written consent of the Company, a Parent, or any Subsidiary, or (b) a
termination by reason of death, the Participant may (unless otherwise provided
in his Award Agreement) exercise his option at any time within three (3) months
after such termination of the Participant's Continuous Status as a Participant
(or within one (1) year after termination of the Participant's Continuous Status
as a Participant due to permanent and total disability within the meaning of
Code Section 22(e)(3)), or within such other time as the Committee shall
authorize, but in no event may the Participant exercise his Option after ten
(10) years from the Date of Grant thereof (or such lesser period as may be
specified in the Award Agreement), and only to the extent of the number of
shares for which his options were exercisable by him at the date of the
termination of the Participant's Continuous Status as a Participant. In the
event of the termination of the Continuous Status as a Participant of a
Participant to whom an option has been granted under the Plan that is either (i)
for Cause or (ii) voluntary on the part of the Participant and without written
consent, any option held by him under the Plan, to the extent not previously
exercised, shall forthwith terminate on the date of such termination of the
Participant's Continuous Status as a Participant. Options granted under the Plan
shall not be affected by any change of employment so long as the Employee holder
continues to be an Employee of the Company, a Subsidiary or a Parent. The Award
Agreement may contain such provisions as the Committee shall approve with
respect to the effect of approved leaves of absence.
(c) Unless otherwise provided in the Award Agreement and as permitted by
applicable law, in the event a Participant to whom an option has been granted
under the Plan dies during, or within three (3) months after the Retirement or
other termination of, the Participant's Continuous Status as a Participant, such
option (unless it shall have been previously terminated pursuant to the
provisions of the Plan or unless otherwise provided in his Award Agreement) may
be exercised (to the extent of the entire number of shares covered by the option
whether or not purchasable by the Participant at the date of his death) by the
executor or administrator of the optionee's estate or by the person or persons
to whom the optionee shall have transferred such option by will or by the laws
of descent and distribution, at any time within a period of one (1) year after
his death, but not after the exercise termination date set forth in the relevant
Award Agreement.
(d) If as of the date of termination of the Participant's Continuous
Status a Participant (other than as a result of the Participant's death) the
Participant is not entitled to exercise his or her entire options, the shares of
Common Stock covered by the unexercisable portion of the option shall revert to
the Plan. If the Participant (or his or her designee or estate as provided in
Section 9(c) above) does not exercise his or her options within the time
specified in the Plan and the Award Agreement, the unexercised options shall
terminate and the shares of Common Stock covered by such options shall revert to
the Plan.
10. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) GENERAL. The Committee, in its sole discretion, may make Awards of
Restricted Stock to selected Participants, which Awards shall be evidenced by an
Award Agreement that contains such terms and conditions, including vesting, as
the Committee may determine. As a condition to any Award of Restricted Stock
hereunder, the Committee may require a Participant to pay to the Company the
amount (such as the par value of such shares) required to be received by the
Company in order to assure compliance with applicable state law. Any Award of
Restricted Stock for which such requirement is established shall automatically
expire if not purchased in accordance with the Committee's requirements within
sixty (60) days after the Date of Grant.
Subject to the terms and conditions of the respective Award Agreement,
the Participant, as the owner of the Common Stock issued as Restricted Stock and
any Retained Distributions with respect thereto, shall have the rights of a
stockholder, including, but not limited to, voting rights as to such Common
Stock and the right to receive cash dividends or distributions thereon when, as
and if paid.
Within the limits set forth in the Plan, an Award of Restricted Stock
may be subject to such vesting requirements as may be fixed by the Committee.
Vesting may be accelerated by a Change of Control. Vesting may also be
accelerated upon death, permanent disability or Retirement.
24.
Unless otherwise provided in the Award Agreement, in the event that an
Award of Restricted Stock is made to a Participant whose employment or service
is subsequently terminated by reason of death, permanent disability or
Retirement or for such other reason as the Committee may provide, such
Participant (or his estate or beneficiary) will be entitled to receive such
additional portion of his Restricted Stock and any Retained Distributions with
respect thereto that the Participant would have received had the Participant
continued services or remained in the employment of the Company, Parent, or
Subsidiary, as applicable, through the date on which the next portion of the
shares of non-vested Restricted Stock subject to the Award of Restricted Shares
would have vested.
Unless otherwise provided in the Award Agreement, in the event an
award of Restricted Stock is made to a Participant whose Continuous Status as a
Participant is subsequently terminated by the Participant for Good Reason or by
the Company, Parent or Subsidiary as applicable, other than for Cause, then in
any such event, the Participant will be entitled to receive such additional
portion of his or her shares of Restricted Stock and any Retained Distributions
with respect thereto that the Participant would have received had the
Participant remained in Continuous Status as a Participant through the date on
which the next portion of the shares of unvested Restricted Stock subject to the
Award of Restricted Stock would have vested.
Unless otherwise provided in the Award Agreement, in the event that an
Award of Restricted Stock is made to a Participant whose Continuous Status as a
Participant is terminated by voluntary resignation or for Cause, then all such
Restricted Stock and any Retained Distributions with respect thereto as to which
the Restricted Period still applies shall be forfeited by such Participant and
shall again become available for grant under the Plan.
(b) TRANSFERABILITY. Restricted Stock and any Retained Distributions with
respect thereto may not be sold, assigned, transferred, pledged, or otherwise
encumbered during the Restricted Period, which shall be determined by the
Committee and shall not be more than two years from the date such Restricted
Stock was awarded. The Committee may, at any time, reduce the Restricted Period
with respect to any outstanding shares of Restricted Stock and any Retained
Distributions with respect thereto awarded under the Plan.
Shares of Restricted Stock, when issued, will be represented by a
stock certificate or certificates registered in the name of the Participant to
whom such Restricted Stock shall have been granted and shall bear a restrictive
legend to the effect that ownership of such Restricted Stock (and any related
Retained Distributions) and the enjoyment of all rights appurtenant thereto are
subject to the restrictions, terms and conditions provided in the Plan and the
applicable Award Agreement. Each certificate shall be deposited by the
Participant with the Company, together with stock powers or other instruments of
assignment, each endorsed in blank, which will permit transfer to the Company of
all or any portion of the Restricted Stock and any securities constituting
Retained Distributions that shall be forfeited or that shall not become vested
in accordance with the respective Award Agreement. The certificate or
certificates issued for the Restricted Stock may bear such legend or legends as
the Committee may, from time to time, deem appropriate to reflect the
restrictions under the Plan for such Restricted Stock.
(c) STOCK CERTIFICATES; ADDITIONAL RESTRICTIONS. Shares of Restricted
Stock shall constitute issued and outstanding shares of Common Stock for all
corporate purposes. Each Participant will have the right to vote the Restricted
Stock held by such Participant, to receive and retain all cash dividends and
distributions thereon and exercise all other rights, powers and privileges of a
holder of Common Stock with respect to such Restricted Stock, with the exception
that:
(i) the Participant will not be entitled to delivery of the stock
certificate or certificates representing such Restricted Stock until the
Restricted Period applicable to such shares or portion thereof shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled;
(ii) other than cash dividends and distributions and rights to
purchase stock which might be distributed to stockholders of the Company, the
Company will retain custody of all Retained Distributions made, paid, declared
or otherwise received by the holder thereof with respect to Restricted Stock
(and such Retained Distributions will be subject to the same restrictions, terms
and conditions as are applicable to the Restricted Stock with respect to which
they were made, paid or declared) until such time, if ever, as the Restricted
Period applicable
25.
to the shares with respect to which such Retained Distributions shall have been
made, paid, declared or received shall have expired, and such Retained
Distributions shall not bear interest or be segregated in separate accounts; and
(iii) upon the breach of any restrictions, terms or conditions
provided in the Plan or the respective Award Agreement or otherwise established
by the Committee with respect to any Restricted Stock or Retained Distributions,
such Restricted Stock and any related Retained Distributions shall thereupon be
automatically forfeited.
(d) MERGERS AND OTHER CORPORATE CHANGES. Unless otherwise provided in the
Award Agreement, upon the occurrence of a Change of Control, all restrictions
imposed on the Participant's Restricted Stock and any Retained Distributions
shall automatically terminate and lapse and the Restricted Period shall
automatically terminate; provided, however, that if the Change of Control occurs
within six months of the Date of Grant the restrictions and Restricted Period
shall terminate on the six month anniversary of the Date of Grant.
11. ADJUSTMENTS. The Committee, in its discretion, may make such
adjustments in the option price, the number or kind of shares and other
appropriate provisions covered by outstanding Awards that are required to
prevent any dilution or enlargement of the rights of the holders of such options
that would otherwise result from any reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, issuance of
rights or any other change in the capital structure of the Company. The
Committee, in its discretion, may also make such adjustments in the aggregate
number and class of shares that may be the subject of Awards which are
appropriate to reflect any transaction or event described in the preceding
sentence.
12. AMENDMENT, SUSPENSION, AND TERMINATION OF THE PLAN. The Board may at
any time suspend or terminate the Plan or may amend it from time to time in such
respects as the Board may deem advisable in order that the Awards granted
thereunder may conform to any changes in the law or in any other respect that
the Board may deem to be in the best interests of the Company; provided,
however, that without approval by the stockholders of the Company voting the
proper percentage of its voting power, no such amendment shall make any change
in the Plan for which stockholder approval is required in order to comply with
(i) Rule 16b-3, as amended, promulgated under the Exchange Act, (ii) the Code or
regulatory provisions dealing with Incentive Stock Options, (iii) any rules for
listed companies promulgated by any national stock exchange on which the
Company's Common Stock is traded or (iv) any other applicable rule or law.
Unless sooner terminated hereunder, the Plan shall terminate ten (10) years
after the Effective Date. No amendment, suspension, or termination of the Plan
shall, without a Participant's consent, impair or negate any of the rights or
obligations under any Award theretofore granted to such Participant under the
Plan.
13. TAX WITHHOLDING. The Company shall have the right to withhold from any
payments made under this Plan, or to collect as a condition of payment, any
taxes required by law to be withheld. At any time when a Participant is required
to pay to the Company an amount required to be withheld under applicable income
tax laws in connection with a distribution of shares of Common Stock pursuant to
this Plan, the Participant may satisfy this obligation in whole or in part by
electing to have the Company withhold from such distribution shares of Common
Stock having a value equal to the amount required to be withheld. The value of
the shares of Common Stock to be withheld shall be based on the fair market
value, as determined pursuant to Section 8(a) hereof, of the Common Stock on the
date that the amount of tax to be withheld shall be determined (the "Tax Date").
Any such election is subject to the following restrictions: (i) the election
must be made on or prior to the Tax Date; (ii) the election must be irrevocable;
and (iii) the election must be subject to the disapproval of the Committee. To
the extent required to comply with rules promulgated under Section 16 of the
Exchange Act, elections by Participants who are subject to Section 16 of the
Exchange Act are subject to the following additional restrictions: (i) no
election shall be effective for a Tax Date which occurs within six (6) months of
the grant of the Award; and (ii) the election must be made either (a) six (6)
months or more prior to the Tax Date or (b) during the period beginning on the
third business day following the date of release for publication for the
Company's quarterly or annual summary statements of sales and earnings and
ending on the twelfth business day following such date.
14. EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
date (the "Effective Date") of the last to occur of (i) the adoption of the Plan
by the Board and (ii) the approval, within twelve (12) months of such adoption,
by a majority (or such other proportion as may be required by state law) of the
outstanding
26.
voting shares of the Company, voted either in person or by proxy, at a duly held
stockholders meeting or by written stockholder consent but in any event not
before the effectiveness of the Company's Form 10 Registration Statement filed
under the Exchange Act.
15. SPECIAL PROVISIONS REGARDING CHANGE OF CONTROL. The Board or the
Committee may, from time to time, make special provisions for one or more
Participants respecting a possible Change of Control of the Company, a
Subsidiary, or Parent, and, to the extent that any such special provisions made
with the consent of the affected Employee or Consultant may have the effect of
accelerating vesting of stock options granted under the Plan or removal of
restrictions on Restricted Stock allotted under the Plan or the effect of
preventing a termination or dilution of benefits, such special provisions shall
be controlling over and shall be deemed to be an amendment of any inconsistent
terms of the applicable Award Agreement.
16. MISCELLANEOUS PROVISIONS.
(a) If approved by the Board, the Company or any Parent or Subsidiary may
lend money or guarantee loans by third parties to an individual to finance the
exercise of any option granted under the Plan to continue to hold Common Stock
thereby acquired. No such loans to finance the exercise of an Incentive Stock
Option shall have an interest rate or other terms that would cause any part of
the principal amount to be characterized as interest for purposes of the Code.
(b) This Plan is intended and has been drafted to comply in all respects
with Rule 16b-3, as amended, under the Exchange Act ("Rule 16b-3"). If any
provision of this Plan does not comply with Rule 16b-3, this Plan shall be
automatically amended to comply with Rule 16b-3.
(c) No person shall have any claim or right to be granted an Award, and
the grant of an Award shall not be construed as giving a Participant the right
to continue in service as an Employee or Consultant of or for the Company, a
Parent, or any Subsidiary for any period of specific duration. Nothing in this
Plan shall interfere with or limit in any way the right of the Company, a
Parent, any Subsidiary to terminate any Participant's service as an Employee or
Consultant at any time, with or without cause, nor confer upon any Participant
any right to continue service as an Employee or Consultant for the Company, a
Parent, or any Subsidiary.
(d) To the extent that federal laws do not otherwise control, this Plan
shall be construed in accordance with and governed by the laws of the State of
Nevada or the property laws of any particular state.
(e) In case any one or more of the provisions of this Plan shall be held
invalid, illegal or unenforceable in any respect under applicable law and
regulation (including Rule 16b-3), the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and the invalid, illegal or unenforceable provisions shall be deemed null and
void; however, to the extent permissible by law, any provision which could be
deemed null and void shall first be construed, interpreted or revised
retroactively to permit this Plan to be construed in compliance with all
applicable laws (including Rule 16b-3) so as to foster the intent of this Plan.
Notwithstanding anything in this Plan to the contrary, the Committee, in its
sole and absolute discretion, may bifurcate this Plan so as to restrict, limit
or condition the use of any provision of this Plan to Participants who are
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning this Plan with respect to other Participants.
(f) None of a Participant's rights or interests under the Plan may be
assigned or transferred in whole or in part, either directly or by operation of
law or otherwise (except pursuant to a qualified domestic relations order or, in
the event of a Participant's death, by will or the laws of descent and
distribution), including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
right or interest of any Participant in the Plan shall be subject to any
obligation or liability of such individual.
(g) No Restricted Stock or any Retained Distributions shall be issued
hereunder unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal, state, or other securities laws.
27.
(h) The expenses of the Plan shall be borne by the Company.
(i) By accepting any Award under the Plan, each Participant or beneficiary
claiming under or through him shall be conclusively deemed to have indicated his
acceptance ratification of, and consent to, any action taken under the Plan by
the Company, the Committee or the Board.
(j) Awards granted under the Plan shall be binding upon the Company, its
successors and assigns.
(k) The appropriate officers of the Company shall cause to be filed any
reports, returns, or other information regarding Awards hereunder or any Common
Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the
Exchange Act, or any other applicable statute, rule or regulation.
(1) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required.
28.
ANNEX B
PAYMENT DATA SYSTEMS, INC.
AMENDED AND RESTATED
1999 NON-EMPLOYEE DIRECTOR PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of
Payment Data Systems, Inc., formerly billserv.com, Inc.,June 21, 2005
Please date, sign and Billserv, Inc., a
Nevada corporation (the "Company"), by providing an additional incentive to
attract and retain qualified and competent directors, upon whose efforts and
judgment the success of the Company is largely dependent, through the
encouragement of stock ownershipmail
your proxy card in the
Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of Payment Data Systems,
Inc.
(b) "Committee" shall mean the committee, if any, appointed by the
Board pursuant to Section 12 hereof.
(c) "Date of Grant" shall mean the date on which an Option is granted
to an Eligible Person pursuant to Section 4 or Section 5 hereof.
(d) "Director" shall mean a member of the Board or a member of the
board of directors of a Parent on the date of adoption of the Plan.
(e) "Eligible Person(s)" shall mean those persons who are Directors of
the Company or a Parentenvelope provided as soon
as possible.
\/ Please detach along perforated line and who are not employees of the Company or a
Subsidiary.
(f) "Fair Market Value" of a Share on any date of reference shall be
the closing price on the business day immediately preceding such date. For this
purpose, the closing price of the Shares on any business day shall be (i) if the
Shares are listed or admitted for trading on any United States national
securities exchange, the last reported sales price of Shares on such exchange,
as reported in any newspaper of general circulation, (ii) if actual transactionsmail in the Sharesenvelope provided. \/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTOR AND "FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK
INK AS SHOWN HERE [x]
1. Election of Director: 2. Proposal to ratify the FOR AGAINST ABSTAIN
appointment of Akin, Doherty, [ ] [ ] [ ]
NOMINEE: Klein & Feuge, P.C., certified
public accountants, as the
[ ] FOR NOMINEE Peter G. Kirby independent auditors of the
Company for the year ending
[ ] WITHHOLD AUTHORITY December 31, 2005.
FOR NOMINEE In their discretion, the proxies are authorized to vote
upon such other business as may properly come before
the meeting or any adjournment thereof.
This proxy when properly executed will be voted in the
manner directed herein by the undersigned shareholder.
If no direction is made as to a proposal, this proxy will be
voted FOR such Proposal.
To change the address on your account, [ ]
please check the box at right and
indicate your new address in the address
space above. Please note that changes to
the registered name(s) on the account may
not be submitted via this method.
Signature of Stockholder Date: Signature of Stockholder Date:
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are included in the Nasdaq National Marketheld jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or are reported on a
consolidated transaction reporting system, the closing price of the Shares on
such system, (iii) if Shares are otherwise quoted on the Nasdaq system, or any
similar system of automated dissemination of quotations of securities prices in
common use, the mean between the closing high bid and low asked quotations for
such day of Shares on such system, and (iv) if none of clause (i), (ii) or (iii)
is applicable, the mean between the high bid and low asked quotations for Sharesguardian, please give full title as reported by the National Daily Quotation Service if at least two securities
dealers have inserted both bid and asked quotations for Shares on at least five
(5) of the ten (10) preceding days.
(g) "Internal Revenue Code" or "Code" shall mean the Internal Revenue
Code of 1986, as it now exists or may be amended from time to time.
(h) "Nonqualified Stock Option" shall mean an option that is not an
incentive stock option as defined in Section 422 of the Internal Revenue Code.
(i) "Option" shall mean any option granted under Section 4 or 5 of
this Plan.
(j) "Optionee" shall mean a person to whom an Option is granted under
this Plan or any successor to the rights of such person under this Plan by
reason of the death of such person.
(k) "Parent" shall mean a parent corporation of the Company as defined
in Section 424(c) of the Code, if any.
(l) "Payment Date" shall have the meaning set forth in Section 2(a).
29.
(m) "Plan" shall mean this 1999 Non-Employee Director Plan of Payment
Data Systems, Inc.
(n) "Prior Plan" shall mean any plan which may have been in place
prior to the execution of this plan.
(o) "Share(s)" shall mean a share or shares of the common stock,
($0.001 per value, of the Company.
(p) "Subsidiary" shall mean a subsidiary corporation of the Company as
defined in Section 424(f) of the Code.
3. SHARES AND OPTIONS. The maximum number of Shares to be issued
pursuant to Options under this Plan shall be Eight Hundred Thousand (800,000)
Shares. Shares issued pursuant to Options granted under this Plan may be issued
from Shares held in the Company's treasury or from authorized and unissued
Shares. If any Option granted under this Plan shall terminate, expire, or be
canceled or surrendered as to any Shares, new Options may thereafter be granted
covering such Shares. Any Option granted hereunder shall be a Nonqualified Stock
Option.
4. AUTOMATIC GRANT OF OPTIONS. (a) Options shall automatically be
granted to Directors as provided in this Section 4. Each Option shall be
evidenced by an option agreement (an "Option Agreement") and shall contain such
terms as are not inconsistent with this Plan or any applicable law. Any person
who files with the Committee, in a form satisfactory to the Committee, a written
waiver of eligibility to receive any Option under this Plan shall not be
eligible to receive any Option under this Plan for the duration of such waiver.
(b) The Options automatically granted to Directors under this Plan
shall be in addition to regular director's fees and other benefits with respect
to the Director's position with the Company or its Subsidiaries. Neither the
Plan nor any Option granted under the Plan shall confer upon any person any
right to continue to serve as a Director.
(c) No Options shall otherwise be granted hereunder, and neither the
Board nor the Committee, if any, shall have any discretion with respect to the
grant of Options within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, or any successor rule.
5. OPTION PRICE. (a) The Option price per Share of any Option granted
pursuant to this Plan shall be one hundred percent (100%) of the Fair Market
Value per Share on the Date of Grant.
6. EXERCISE OF OPTIONS. Options may be exercised at any time after
the date on which the Options, or any portion thereof, are vested until the
Option expires pursuant to Section 7; provided, however, that no Option shall be
exercisable prior to six (6) months from the Date of Grant. An Option shall be
deemed exercised when (i) the Company has received written notice of such
exercise in accordance with the terms of the Option Agreement, (ii) full payment
of the aggregate Option price of the Shares as to which the Option is exercised
has been made and (iii) arrangements that are satisfactory to the Committee in
its sole discretion have been made for the Optionee's payment to the Company of
the amount, if any, that the Committee determines to be necessary for the
Company to withhold in accordance with applicable federal or state income tax
withholding requirements. Pursuant to procedures approved by the Committee, tax
withholding requirements, at the option of an Optionee, may be met by
withholding Shares otherwise deliverable to the Optionee upon the exercise of an
Option. Unless further limited by the Committee in any Option Agreement, the
Option price of any Shares purchased shall be paid solely in cash by certified
or cashier's check, by money order, with Shares (but with Shares only if
permitted by the Option Agreement or otherwise permitted by the Committee in its
sole discretion at the time of exercise) or by a combination of the above;
provided, however, that the Committee in its sole discretion may accept a
personal check in full or partial payment of any Shares.such. If
the exercise pricesigner is paida corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
whole or in part with Shares, the value of the Shares surrendered
shall be their Fair Market Value on the date the Shares are receivedpartnership name by the
Company.
7. TERMINATION OF OPTION PERIOD. The unexercised portion of an Option
shall automatically and without notice terminate and become null and void at the
time of the earliest to occur of the following:
30.
(a) one (1) year after the date that an Optionee ceases to be a
Director (including for this purpose a Director of a Parent) by reason of death
of the Optionee, or;
(b) the tenth (10th) anniversary of the Date of Grant of the Option.
8. ADJUSTMENT OF SHARES. (a) If at any time while this Plan is in
effect or unexercised Options are outstanding, there shall be any increase or
decrease in the number of issued and outstanding Shares through the declaration
of a stock dividend or through any recapitalization resulting in a stock
split-up, combination or exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the maximum number of
Shares then subject to being optioned under this Plan, so that the same
proportion of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned; and
(ii) appropriate adjustment shall be made in the number of Shares and
the exercise price per Share thereof then subject to any outstanding Option, so
that the same proportion of the Company's issued and outstanding Shares shall
remain subject to purchase at the same aggregate exercise price.
In addition, the Committee shall make such adjustments in the
Option price and the number of shares covered by outstanding Options that are
required to prevent dilution or enlargement of the rights of the holders of such
Options that would otherwise result from any reorganization, recapitalization,
stock split, stock dividend, combination of shares, merger, consolidation,
issuance of rights, spin-off or any other change in capital structure of the
Company.
(b) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with a direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number of or exercise price of Shares then subject
to outstanding Options granted under this Plan.
(c) Without limiting the generality of the foregoing, the existence of
outstanding Options granted under this Plan shall not affect in any manner the
right or power of the Company to make, authorize or consummate (i) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business; (ii) any merger or consolidation of
the Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the Shares subject to outstanding
Options; (iv) the dissolution or liquidation of the Company; (v) any sale,
transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
9. TRANSFERABILITY OF OPTIONS. Each Option Agreement shall provide
that such Option shall not be transferable by the Optionee other than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order and that, so long as an Optionee lives, only such Optionee or
his guardian or legal representative shall have the right to exercise the
related Option.
10. ISSUANCE OF SHARES. No person shall be, or have any of the rights
or privileges of, a stockholder of the Company with respect to any of the Shares
subject to an Option unless and until certificates representing such Shares
shall have been issued and delivered to suchauthorized person.
As a condition of any
transfer of the certificate for Shares, the Committee may obtain such agreements
or undertakings, if any, as it may deem necessary or advisable to assure
compliance with any provision of this Plan, any Option Agreement or any law or
regulation, including, but not limited to, the following:
(i) A representation, warranty or agreement by the Optionee to the
Company, at the time any Option is exercised, that he or she is acquiring the
Shares to be issued to him or her for investment and not with a view to, or for
sale in connection with, the distribution of any such S