UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
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| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to §240.14a-12 |
| JETPAY CORPORATION |
| (Name of Registrant as Specified In Its Charter) |
| N/A |
| (Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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1175 Lancaster Avenue, Suite 200 Berwyn, PA 19312 484-324-7982
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: Tuesday, August 5, 2014
Time: 10 AM, Eastern Time
Location:
Offices of Dechert LLP
2929 Arch Street, 21st Floor
Philadelphia, PA 19104
To JetPay Corporation Stockholders:
We invite you to attend the 2014 Annual Meeting of Stockholders of JetPay Corporation (“JetPay” or the "Company"). At this meeting, you and the other stockholders will be able to vote on the following proposals, together with any other business that may properly come before the meeting.
| 1. | Election of two directors to the Board of Directors (the “Board”) for three-year terms. The Board has nominated for election Diane (Vogt) Faro and Robert B. Palmer. |
| 2. | Ratification of the appointment of Marcum LLP as JetPay’s registered public accounting firm for fiscal year 2014. |
You may vote on these proposals in person by attending the Annual Meeting or by proxy. The attached proxy statement provides details on voting by proxy. If you cannot attend the Annual Meeting, we urge you to complete and return promptly the enclosed proxy card in the enclosed self-addressed stamped envelope so that your shares will be represented and voted at the Annual Meeting in accordance with your instructions. Of course, if you attend the Annual Meeting, you may withdraw your proxy and vote your shares at the Annual Meeting.
Only stockholders of record at the close of business on July 2, 2014 can vote at the Annual Meeting and any adjournment or postponement of the Annual Meeting. As of the record date, there were 11,863,823 shares of common stock outstanding.
| By Order of the Board of Directors, | ||
| /s/ Peter B. Davidson | ||
| Berwyn, Pennsylvania | Peter B. Davidson | |
| July 3, 2014 | Secretary |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2014 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 5, 2014.
JetPay’s Proxy Statement for the 2014 Annual Meeting of Stockholders and the Annual Report
on Form 10-K for the fiscal year ended December 31, 2013 are available via the Internet at http://www.cstproxy.com/jetpaycorp/2014
TABLE OF CONTENTS
| INTRODUCTION | 1 | |
| About these Proxy Materials | 1 | |
| About the Annual Meeting | 2 | |
| Voting at the Annual Meeting | 2 | |
| Vote Required to Approve Proposals | 3 | |
| How to Vote Your Shares | 3 | |
| THE PROPOSALS | 4 | |
| Proposal 1. Election of Directors | 4 | |
| Proposal 2. Ratification of Independent Registered Public Accounting Firm | 7 | |
| INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 8 | |
| About Prior Audits | 8 | |
| Audit Fees and Related Matters | 8 | |
| Presence of Independent Registered Public Accounting Firm | 9 | |
| ABOUT THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS | 9 | |
| About the Board and its Committees | 9 | |
| Meetings of the Board and its Committees During 2013 | 9 | |
| Director Compensation | 10 | |
| Nominating Committee | 11 | |
| Audit Committee | 11 | |
| Audit Committee Report | 12 | |
| Compensation Committee | 13 | |
| Compensation Committee Report | 13 | |
| Compensation Committee Interlocks and Insider Participation | 13 | |
| Current Executive Officers | 13 | |
| EXECUTIVE COMPENSATION | 14 | |
| Compensation of Executive Officers for 2013 and 2012 | 14 | |
| THE PRINCIPAL STOCKHOLDERS OF JETPAY | 16 | |
| Beneficial Ownership | 16 | |
| Section 16(a) Beneficial Reporting Compliance | 17 | |
| ADDITIONAL INFORMATION | 17 | |
| Certain Relationships and Related Party Transactions | 17 | |
| Deadline for Stockholder Proposals | 19 | |
| Stockholder Access Policy | 19 | |
| JetPay’s Annual Report | 19 | |
| Householding of Proxy Materials | 19 | |
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1175 Lancaster Avenue, Suite 200 Berwyn, PA 19312 484-324-7982
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PROXY STATEMENT
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INTRODUCTION
The Board of Directors of JetPay Corporation (“JetPay” or the “Company”) is soliciting proxies to be used at the 2014 Annual Meeting of Stockholders of JetPay to be held on Tuesday, August 5, 2014, at 10 AM, Eastern Time, at the offices of Dechert LLP, 2929 Arch Street, 21st Floor, Philadelphia, PA 19104. JetPay will begin mailing this proxy statement and the enclosed proxy card on or about July 8, 2014 to its stockholders entitled to vote at the Annual Meeting.
The Board of Directors of the Company (the “Board”) is soliciting your proxy to vote on the proposals at the Annual Meeting and to obtain your support for the proposals. You are invited to attend the Annual Meeting and vote your shares directly. If you do not attend, you may vote by proxy, which allows you to direct another person to vote your shares at the Annual Meeting on your behalf, using the accompanying proxy card. Even if you plan to attend the Annual Meeting, it is a good idea to complete, sign and return the proxy card in case your plans change. You can always vote in person at the Annual Meeting, even if you have already returned the proxy card, by revoking your original proxy card.
About these Proxy Materials
The Proxy Card. The proxy card permits you to vote by proxy, whether or not you attend the Annual Meeting. When you sign the proxy card, you appoint certain individuals as your representatives at the Annual Meeting. They will vote your shares of JetPay common stock at the Annual Meeting as you have instructed on the proxy card. If a proposal comes up for a vote that is not on the proxy, and for which the Company did not receive notice of at least 45 days before this proxy solicitation, they will vote your shares as they deem appropriate.
This Proxy Statement. This proxy statement contains important information for you to consider when deciding how to vote on the proposals. Please read it carefully. It is divided into six sections following this Introduction:
| Sections | Page | |
| The Proposals | 4 | |
| Independent Registered Public Accounting Firm | 8 | |
| About the Board of Directors and Executive Officers | 9 | |
| Executive Compensation | 14 | |
| The Principal Stockholders of JetPay | 16 | |
| Additional Information | 17 | |
JetPay will bear the cost of soliciting proxies for an affirmative vote on the proposals. JetPay will not reimburse any other person or entity for the cost of preparing its own proxy materials or soliciting proxies for any matter. JetPay’s directors, officers and employees may solicit proxies, but will receive no special compensation for any solicitation activities. Proxies may be solicited by mail, in person, by telephone, facsimile or by other means. JetPay will reimburse brokers, nominees, custodians and fiduciaries for their reasonable out-of-pocket expenses in forwarding proxy materials to the beneficial owners of JetPay common stock.
About the Annual Meeting
When And Where. JetPay will hold the Annual Meeting on Tuesday, August 5, 2014, at 10 AM, Eastern Time, at the offices of Dechert LLP, 2929 Arch Street, 21st Floor, Philadelphia, PA 19104.
Record Date. The Board has fixed the close of business on July 2, 2014 as the record date for the Annual Meeting. All stockholders of record at that time are entitled to notice of and are entitled to vote in person or by proxy at the Annual Meeting.
Quorum Requirement. JetPay’s Bylaws require that a majority of the outstanding shares of JetPay common stock entitled to vote be represented at the Annual Meeting, whether in person or by proxy, to constitute a quorum, in order to transact business at the Annual Meeting. Abstentions and broker non-votes will be counted in determining whether there is a quorum at the Annual Meeting.
The Proposals. Stockholders will vote on the following proposals at the Annual Meeting:
| · | election of two directors; and |
| · | ratification of the appointment of Marcum LLP as JetPay’s independent registered public accounting firm for fiscal year 2014. |
Other Matters. There are no stockholder proposals submitted for the Annual Meeting for inclusion in this proxy statement. Neither JetPay nor its Board intends to bring any other matter before the Annual Meeting. If other matters requiring the vote of the stockholders properly come before the Annual Meeting, which were omitted from this proxy statement pursuant to Rule 14a-8 or 14a-9 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the persons named in the enclosed proxy card will have discretionary authority to vote the proxies held by them with respect to such matters in accordance with their best judgment on such matters.
Presence of Independent Registered Public Accountants. Representatives of Marcum LLP, JetPay’s independent registered public accounting firm, will be present at the Annual Meeting. They will have the opportunity to make a statement at the Annual Meeting, if they choose, and they are expected to be available to respond to appropriate stockholder questions.
The Stockholders. As of the record date of July 2, 2014, there were 11,863,823 shares of JetPay common stock issued and outstanding. A complete list of stockholders entitled to vote at the Annual Meeting will be available for inspection by any stockholder, for any purpose relating to the Annual Meeting, for ten days prior to the meeting during ordinary business hours at JetPay’s headquarters located at 1175 Lancaster Avenue, Suite 200, Berwyn, Pennsylvania 19312.
Voting at the Annual Meeting
You are entitled to one vote for each share of JetPay common stock that you owned of record at the close of business on July 2, 2014. The presence, in person or by proxy, of the holders of a majority of the shares of common stock issued and outstanding and entitled to vote at the Annual Meeting is necessary to constitute a quorum. Abstentions are counted as “shares present” at the meeting for purposes of determining whether a quorum exists. Abstentions have the effect of a vote “against” any matter to which they are specified. Proxies submitted by brokers that do not indicate a vote for some or all of the proposals because they do not have discretionary voting authority and have not received instructions as to how to vote on those proposals (so-called “broker non-votes”) are considered “shares present” at the meeting for purposes of determining whether a quorum exists. Broker non-votes will not affect the outcome of the vote on any matter unless the matter requires the affirmative vote of a majority of the outstanding shares and in such case will have the effect of a vote “against” that matter.
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Vote Required to Approve Proposals
With respect to Proposal 1, the two nominees for director receiving the highest number of affirmative votes shall be elected as directors. Stockholders do not have the right to cumulate their votes in the election of directors. Proposal 2 requires the approval of a majority of all shares of JetPay common stock entitled to vote for such proposal that are represented at the Annual Meeting in person or by proxy.
How to Vote Your Shares
You may vote in one of two ways:
| · | return your completed, signed and dated proxy card before the Annual Meeting; or |
| · | cast a written ballot in person at the Annual Meeting (you will need a legal proxy from your broker if you hold your shares in street name). |
Voting By Proxy The proxy card has simple instructions. By returning a completed proxy card before the Annual Meeting, you will direct the appointed persons (known as “proxies”) to vote your shares at the Annual Meeting in accordance with your instructions. Gregory M. Krzemien and Peter B. Davidson will serve as proxies for the Annual Meeting. If you complete the entire proxy card except for the voting instructions, the proxies will vote your shares for the election of the nominated directors, and for the ratification of the appointment of Marcum LLP as JetPay’s independent registered public accounting firm for fiscal year 2014. If any nominee for election to the Board is unable to serve, which is not anticipated, then the designated proxies will vote your shares for any substitute nominee chosen by the Board. If any other matters properly come before the Annual Meeting, then the designated proxies will vote your shares in their discretion on such matters.
How To Revoke Your Proxy You may revoke your proxy at any time before it is exercised at the Annual Meeting by any of the following means:
| · | notifying JetPay’s Secretary in writing (notice to be sent to JetPay’s executive offices, the address for which is located on the first page of this proxy statement); |
| · | submitting another proxy card with a later date; or |
| · | attending the Annual Meeting and voting by written ballot (mere attendance at the Annual Meeting will not by itself revoke your proxy). |
Only the record owner of your shares can vote your shares or revoke a proxy the record owner has given. If your shares are held in street name, you will not be able to revoke the proxy given by the street name holder.
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THE PROPOSALS
| Proposal 1. Election of Directors |
Election of two directors to the Board for three-year terms and until their respective successors are duly elected and qualified.
Nominees |
| Diane (Vogt) Faro | Robert B. Palmer |
The director nominees currently serve on the Board and were nominated by the Board’s nominating committee (the “Nominating Committee”) and approved by the Board. The nominees have agreed to be nominated to stand for election at the 2014 Annual Meeting.
Pursuant to our Amended and Restated Certificate of Incorporation, the number of directors shall be set from time to time by the Board. The current number of directors is set at eight. Our Board, other than the directors appointed by the holders of our shares of Series A Preferred Stock (the “Series A Directors”), is divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the first class of directors, consisting of Messrs. Braddock and Hammer, will expire at the 2016 annual meeting of stockholders. The term of office of the second class of directors, consisting of Mr. Palmer and Ms. Faro, who filled a vacancy left by Mr. Ryan’s resignation from the Board, will expire at this annual meeting. The term of office of the third class of directors, consisting of Messrs. Lubert and Shah, will expire at next year’s annual meeting. Pursuant to our Certificate of Designation for our Series A Preferred Stock, the term of office for Messrs. Edwards and Michienzi is indefinite.
Biographical information for each nominee and the current directors not currently standing for re-election appears below.
Diane (Vogt) Faro has been on the Board since April 1, 2014 and is 62 years of age. Since December 2011, Ms. Faro has been President of National Benefit Programs, LLC, a provider of brand loyalty and discount programs to small to mid-size businesses. Prior to joining National Benefit Programs, from 2009 to December 2011, Ms. Faro was a consultant for the electronic payments industry focused on assisting companies in growing revenues. From 2005 to 2009, Ms. Faro was President of Global Merchant Services at First Data Corporation, a payment processing company where she was responsible for over $1 billion in annualized revenues. Ms. Faro also served as President of First Data’s Alliance Group. Prior to these roles at First Data, Ms. Faro was Chief Executive Officer of Chase Merchant Services LLC, which processed over $170 billion in payment volume annually during her tenure. Ms. Faro currently serves on the board of directors of the Electronic Transactions Association (“ETA”), Merchant Link and Front Stream Payments, all of which are private companies in the payment processing industry. Ms. Faro is one of the founding members of the Women’s Networking in Electronic Transactions (W.net), which offers women in the payments industry a place to network and find mentors. Ms. Faro’s extensive experience in the payments industry will enable her to provide management with insight into marketing and operational issues.
Robert B. Palmer has been on the Board since February 2, 2011 and is 74 years of age. Mr. Palmer worked for CoreStates Financial Corp for 32 years, with titles including Executive Vice President for Retail Banking, Operations and Data Processing, and President and Chief Executive Officer of the Philadelphia National Bank. He also served as Vice Chairman of CoreStates and Chairman of its First Pennsylvania Bank. He retired from CoreStates in 1995 and later served as Vice Chairman of the newly-formed Asian Bank in Philadelphia. Mr. Palmer has been a board member of VISA, USA and Schramm, Inc., West Chester, Pennsylvania. He has been Chairman of The World Affairs Council and International Visitors Council and Vice Chair of the Police Athletic League, all of Philadelphia, and has served on numerous civic boards. Mr. Palmer holds a B.A degree from Yale University. We believe that Mr. Palmer’s experience as an executive in the financial services industry provides him with the necessary skills to serve as a member of our board of directors and will enable him to provide valuable insight to the board regarding operational and management issues.
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Bipin C. Shah has been the Chairman of the Board and Chief Executive Officer of JetPay or the Company since inception and is 75 years of age. Since the sale of Genpass, Inc. to U.S. Bancorp in 2005, Mr. Shah has been a private investor, focusing on opportunities in the payments business. From 2000 to 2005, Mr. Shah was the Chief Executive Officer of Genpass, Inc. where he led the development of the MoneyPass, a surcharge-free ATM network, as well as a payroll debit card used by several large payroll companies. From 1992 until its sale to Paymentech in 1996, he was the Chief Executive Officer of Gensar, Inc., a company that specialized in the processing of restaurant debit and credit card transaction. During his tenure at Gensar, Inc., he led development of the “Tip Management System” along with other technology enhancements. From 1980 to 1991, Mr. Shah was employed by CoreStates Financial Corp and its predecessor, Philadelphia National Bank, ultimately serving as Vice Chairman and Chief Operating Officer. While at CoreStates, Mr. Shah oversaw the acquisitions of seven ATM and point of sale businesses and was active in the development of several products for the financial services industry’s payments infrastructure, including the Money Access Center network, the introduction of debit to the point-of-sale, cash-back, and pay-at-the-pump. From 1985 to 1992, Mr. Shah served as a director of VISA USA and VISA INTERNATIONAL. He has served on the Board of Trustees for Baldwin-Wallace College and the Franklin Institute. Earlier in his career, he was a Senior Vice President at the Federal Reserve Bank of Philadelphia and a Senior Vice President at American Express, as well as the President of Vertex Division of MAI. Mr. Shah holds a Bachelor of Arts in Philosophy from Baldwin-Wallace College and a Masters in Philosophy from the University of Pennsylvania. We believe that Mr. Shah’s career as an executive in the payment processing industry and as an investor generally provides him with the necessary skills to chair the Board and lead JetPay’s management team with respect to operational, strategic and management issues as well as general industry trends.
Richard S. Braddock has been on the Board since February 2, 2011 and is 72 years of age. Mr. Braddock is currently the Executive Chairman of Join’em, an internet startup company. He previously served as Chairman and Chief Executive Officer of Mozido, a mobile payments company and Chairman and Chief Executive Officer of Fresh Direct, an internet-based service for the purchase of grocery and household products from 2005 until he stepped down in March 2011. Mr. Braddock began his business career in 1965 spending a number of years in product management at General Foods. He joined Citicorp in 1973, was elected to the board of directors in 1985 and was elected President and Chief Operating Officer of Citicorp and its principal subsidiary, Citibank, N.A. in January 1990. Mr. Braddock resigned from Citicorp in November 1992, and subsequently served as Chief Executive Officer of Medco Containment Services, Inc., a prescription drug services company, until its acquisition by Merck & Co., Inc., and then spent a year as a principal at Clayton, Dubilier & Rice, Inc., a private equity firm. He served as Chairman (non-executive) of True North Communications Inc. from December 1997 to January 1999. He served as Chairman and Chief Executive Officer of priceline.com from August 1998 to April 2004. Mr. Braddock served as Chairman of MidOcean Partners, a private investment firm, from April 2003 until December 2007. Mr. Braddock serves on the Board of Directors of several private companies. We believe that Mr. Braddock’s experience as an executive in the financial services industry and his knowledge of the payment processing industry generally provide him with the necessary skills to serve as a member of the Board and enable him to provide valuable insight to the Board regarding operational and management issues as well as general industry trends.
Donald J. Edwards has been on the Board since October 11, 2013 and is 48 years of age. Mr. Edwards is the Managing Principal of Flexpoint Ford, LLC, a private equity investment firm focused on healthcare and financial services, which currently has $980 million under management. Mr. Edwards has been with Flexpoint Ford, LLC since 2004. Previously, from 2002 to 2004, Mr. Edwards was President and CEO of Liberte Investors (now First Acceptance Corporation), which he guided through the acquisition of a leading provider of non-standard consumer automobile insurance. Mr. Edwards was a Principal of GTCR, a private equity firm with more than $6 billion under management from 1994 to 2002, where he was the head of the firm’s healthcare investment effort. From 1988 to 1992, Mr. Edwards was an associate at Lazard Freres and Co., specializing in mergers and acquisitions. Mr. Edwards holds a B.S. degree in finance with highest honors from the University of Illinois and an M.B.A. from Harvard Business School where he was a Baker Scholar. We believe that Mr. Edwards’ experience as an executive in a private equity firm focused on the financial services industry and his knowledge of the capital markets generally provide him with the necessary skills to serve as a member of the Board and enable him to provide valuable insight to the Board regarding strategic issues, general investor trends, as well as capital raising matters.
Frederick S. Hammer has been on the Board since February 2, 2011 and is 78 years of age. Mr. Hammer has been Co-Chairman of Inter-Atlantic Group since 1994. Prior thereto Mr. Hammer served as Chairman, President and Chief Executive Officer of Mutual of America Capital Management Corporation. Mr. Hammer is a Director of Inter-Atlantic Group Homeowners of America Holding Corporation. In addition, he currently serves as a Director on the Board of CBRE Clarion Realty Funds and is a former director of several public and private companies, including VISA USA and VISA International. He received his A.B. from Colgate University, magna cum laude, and his M.S. and Ph.D. degrees from Carnegie Mellon University. We believe that Mr. Hammer’s experience as an executive in the financial services industry provides him with the necessary skills to serve as a member of the Board and enable him to provide valuable insight to the Board regarding operational and management issues.
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Jonathan M. Lubert has been on the Board since February 2, 2011 and is 34 years of age. Since its founding in 2003, Mr. Lubert has been the Chief Executive Officer of I.L. Hedge Investments, a mid-sized alternative investment company, where his primary responsibility is to manage the portfolio of underlying funds and other assets owned by I.L. Hedge Investments. Mr. Lubert is the founder of Next Generation Lending, a small real estate investment and lending company, JL Squared Group, LLC and IL Hedge Investments LLC. Mr. Lubert was a director of Global Affiliates, Inc. from 2004 until 2010. Mr. Lubert’s previous experience includes a leveraged finance investment banking analyst position at Bear Stearns and a minority ownership in Spencer Capital Management, a value based, event driven fund that focused on long term risk adjusted returns. Mr. Lubert is currently an advisory board member of the American Infrastructure MLP Fund and serves on the Board of the Valley Forge Casino and Resort. In addition, Mr. Lubert serves on the Dragon Fund Advisory Council, an advisory board for the Drexel student run investment fund. Mr. Lubert is currently involved with the Young Friends of Children’s Hospital, the Make-A-Wish Foundation and The Lubert Family Foundation. Mr. Lubert’s educational background includes a B.S. in Business Administration which was earned with highest distinction from the University of North Carolina at Chapel Hill. We believe that Mr. Lubert’s experience as the Chief Executive Officer of I.L. Hedge Investments provides him with the necessary skills to serve as a member of the Board and enable him to provide valuable insight to the Board regarding general investor trends.
Steven M. Michienzi has been on the Board since October 11, 2013 and is 30 years of age. Mr. Michienzi is a Vice President of Flexpoint Ford, LLC, where his primary responsibilities include the evaluation and management of investments across the financial services industry. Mr. Michienzi has been with Flexpoint Ford, LLC since 2009. From June 2006 to June 2009, Mr. Michienzi worked in the investment banking division of Wachovia Securities specializing in mergers and acquisitions and capital raising advisory assignments. Mr. Michienzi serves as a Director of GeoVera Investment Group, Ltd., a homeowners insurance company, and previously served as a Director of Financial Pacific Holdings, LLC, an equipment leasing company. Mr. Michienzi graduated magna cum laude with a B.S. in economics from Duke University where he was elected into Phi Beta Kappa honor society. We believe that Mr. Michienzi’s experience as an investment professional at a private equity firm focused on the financial services industry and his knowledge of evaluating and managing investments generally provide him with the necessary skills to serve as a member of the Board and enable him to provide valuable insight to the Board regarding strategic issues, general investor trends, and future acquisition investments.
The Board recommends that you vote FOR the election of Diane (Vogt) Faro and Robert B. Palmer to JetPay’s Board.
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| Proposal 2. Ratification of Independent Registered Public Accounting Firm |
Ratification of the Audit Committee’s appointment of Marcum LLP as JetPay’s independent registered public accounting firm for fiscal year 2014.
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The audit committee of the Board (the “Audit Committee”) selects the independent registered public accounting firm to audit JetPay’s books of account and other corporate records. The Audit Committee’s selection of Marcum LLP to audit JetPay’s books of account and other corporate records for 2014, which has been approved by the Board, is being submitted to you for ratification. Stockholders are not required to ratify the appointment of Marcum LLP as the Company’s independent registered public accounting firm. However, the ratification of Marcum LLP is being submitted as a matter of good corporate practice. If stockholders do not ratify the appointment of Marcum LLP, the adverse vote will be considered a directive to the Audit Committee to select other auditors for the next fiscal year.
The Board recommends that you vote FOR the ratification of the appointment of Marcum LLP as JetPay’s independent registered public accounting firm for fiscal year 2014.
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
About Prior Audits
The reports of Marcum LLP on JetPay’s consolidated financial statements for the fiscal year ended December 31, 2013, the transition period ended December 31, 2012, the fiscal year ended September 30, 2012 and the period November 12, 2010 (Inception) through September 30, 2011 did not contain any adverse opinion or disclaimer of opinion or modification or qualification as to uncertainty, audit scope or accounting principles. In connection with its audits for each of these periods, there have been no disagreements between JetPay and Marcum LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Marcum LLP, would have caused them to refer to any such disagreements in their report on JetPay’s consolidated financial statements for such period.
Audit Fees and Related Matters
Audit Fees
The Company was billed $307,000 by Marcum, LLP for the audit of JetPay’s annual financial statements for the year ended December 31, 2013 and for the review of the financial statements included in JetPay’s Quarterly Reports on Form 10-Q filed for each calendar quarter of 2013. The 2013 fees noted above included $57,300 for service rendered in connection with JetPay’s Registration Statement on Form S-3 (“S-3”) and related S-3 amendments.
During the period from November 12, 2010 (Inception) through September 30, 2011, fees for our independent registered public accounting firm were $70,872, $50,000 for the fiscal year ended September 30, 2012, and $306,000 for the three months ended December 31, 2012, for a total of $426,872. Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s annual financial statements, review of the interim financial statements included in quarterly reports, and services that are normally provided by Marcum LLP in connection with statutory and regulatory filings or engagements.
Audit-Related Fees
During the period from November 12, 2010 (Inception) through December 31, 2013, we did not incur any audit-related fees.
Tax Fees
During the period from November 12, 2010 (Inception) through December 31, 2013, there were no fees billed for income tax preparation services by our independent registered public accounting firm.
All Other Fees
During the fiscal year ended September 30, 2012, fees from our independent registered public accounting firm for other services were $120,000 for target due diligence.
Pre-Approval Policy
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the Company’s independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with such pre-approval. The Audit Committee approved all of the Company’s Audit Related Fees, Tax Fees and All Other Fees incurred by the Company in 2013 and 2012.
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Presence of Independent Registered Public Accounting Firm
Representatives of Marcum LLP will be at the Annual Meeting and will have the opportunity to make a statement at the Annual Meeting, if they desire. Representatives of Marcum LLP are expected to be available to respond to appropriate stockholder questions.
ABOUT THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
About the Board and its Committees
JetPay’s Board is currently comprised of eight directors: Richard S. Braddock, Donald J. Edwards, Diane (Vogt) Faro, Frederick S. Hammer, Jonathan M. Lubert, Steven M. Michienzi, Robert B. Palmer, and Bipin C. Shah. The Chairman of the Board and Chief Executive Officer is Mr. Bipin C. Shah.
The Board has determined that Messrs. Braddock, Edwards, Hammer, Lubert, Michienzi, Palmer, and Ms. Faro are independent under the rules and regulations of The NASDAQ Stock Market (the “Independent Directors”).
In addition to the Audit Committee, the Board has a Nominating Committee and a compensation committee (the “Compensation Committee”). All of the committees of the Board are governed by a charter and such charters, along with the Company’s Corporate Governance Guidelines and Bylaws, are posted on the Company’s website at www.jetpaycorp.com.
Board Leadership Structure and Role in Risk Oversight.
Mr. Shah serves as the Company’s principal executive officer and chairman of the Board. We do not currently have a lead independent director. The Board has determined that this leadership structure is appropriate as the Board believes that its other structural features, including seven independent, non-employee directors on a board consisting of eight directors and key committees consisting wholly of independent directors, provide for substantial independent oversight of the Company’s management. However, the Board recognizes that depending on future circumstances, other leadership models may become more appropriate. Accordingly, the Board will continue to periodically review its leadership structure.
Risk Oversight
Management is responsible for the day-to-day management of risks faced by our company, while the Board currently has responsibility for the oversight of risk management. In its risk oversight role, the Board seeks to ensure that the risk management processes designed and implemented by management are adequate. The Board also reviews with management the Company’s strategic objectives, which may be affected by identified risks, the Company’s plans for monitoring and controlling risk, the effectiveness of such plans, appropriate risk tolerance and our disclosure of risk. The Audit Committee is responsible for periodically reviewing with management and independent auditors the adequacy and effectiveness of our policies for assessing and managing risk. The other committees of the Board also monitor certain risks related to their respective committee responsibilities. All committees report to the full Board as appropriate, including when a matter rises to the level of a material or enterprise level risk.
Meetings of the Board and its Committees During 2013
JetPay’s Board held four formal meetings and took action by unanimous written consent five times during 2013. The Chairman of the Board is Bipin C. Shah. Committees of the Board held six formal meetings during 2013, as set forth on the following chart. All directors attended more than 80% of the aggregate of JetPay’s Board meetings and the meetings of the committees of the Board on which they served. The Company does not have a policy with respect to attendance of members of the Board at annual meetings. Two directors attended the 2013 annual meeting.
| 9 |
The following chart describes the calendar year 2013 composition and the functions of the standing committees of the Board and of the Independent Directors.
| BOARD COMMITTEES | |||
Committee |
Members |
No. of Meetings Held in 2013 |
Functions |
Audit |
January 1, 2013 to November 8, 2013: Robert B. Palmer* Frederick S. Hammer Jonathan M. Lubert
November 8, 2013 to December 31, 2013: Robert B. Palmer* Jonathan M. Lubert Steven M. Michienzi |
4 |
· Selects independent registered public accounting firm. · Confers with independent registered public accounting firm and internal personnel on the scope of registered public accounting firm’s examinations. · Reviews internal controls and procedures. · Reviews related party transactions.
|
Nominating
|
January 1, 2013 to November 8, 2013: Arthur F. Ryan* Richard S. Braddock Robert B. Palmer
November 8, 2013 to December 31, 2013: Richard S. Braddock* Donald J. Edwards Frederick S. Hammer
|
1 |
· Develops and recommends to the Board criteria for the selection of new directors to the Board. · Seeks candidates to fill vacancies in the Board. · Retains and terminates search firms to be used to identify director candidates. · Recommends to the Board processes for evaluating the performance of the Board. · Recommends to the Board nominees for election as directors at the annual meeting of stockholders.
|
Compensation |
January 1, 2013 to November 8, 2013: Frederick S. Hammer* Jonathan M. Lubert Arthur F. Ryan
November 8, 2013 to December 31, 2013: Frederick S. Hammer* Donald J. Edwards Robert B. Palmer
|
1 |
· Annually reviews CEO compensation and performance. · Annually establishes goals for CEO. · Annually reviews CFO and Chief Marketing Officer compensation. · Annually approves compensation for CEO, CFO and Chief Marketing Officer. · Reviews and determines director compensation. · Hires compensation consultants. · Recommends executive compensation to the Board. · Administers Stock Incentive Plans. · Administers director compensation.
|
* Chairman of Committee
Director Compensation
The following table provides summary information concerning cash and certain other compensation paid or accrued by JetPay to or on behalf of JetPay’s Directors for the year ended December 31, 2013.
| DIRECTOR COMPENSATION | ||||||||
| Option Awards ($) | Total ($) | |||||||
| Richard S. Braddock | 5,535 | 5,535 | ||||||
| Frederick S. Hammer | 5,535 | 5,535 | ||||||
| Jonathan M. Lubert | 5,535 | 5,535 | ||||||
| Robert B. Palmer | 5,535 | 5,535 | ||||||
| Arthur F. Ryan | 5,535 | 5,535 | ||||||
| Donald J. Edwards | - | - | ||||||
| Steven M. Michienzi | - | - | ||||||
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Through December 31, 2013, the Company’s directors were not provided cash compensation for their services other than reimbursement for out-of-pocket expenses. Effective April 1, 2014, the Compensation Committee approved a plan which the Board ratified to provide cash compensation to the independent non-employee directors of the Company for their service. The plan includes: a $10,000 annual retainer to be paid in quarterly installments in arrears; a $1,000 fee to each non-employee director for each board meeting attended in person or by teleconference; and a $500 fee to each non-employee director for each board committee meeting attended in person or by teleconference. Additionally, an annual retainer fee of $5,000 will be paid to the Chairman of the Compensation Committee and a $10,000 annual retainer fee to the Chairman of the Audit Committee.
On December 12, 2013, the Company’s Compensation Committee awarded Messrs. Braddock, Hammer, Lubert, Palmer, and Ryan each an option grant to purchase 10,000 shares of the Company’s common stock under the Company’s 2013 Stock Incentive Plan at an exercise price of $3.00 per share as compensation for services provided in 2013. Additionally, the Company’s directors purchased shares of the Company’s common stock in a private placement prior to the Offering. In addition, the Company issued warrants to its directors, in a private placement occurring concurrently with the Offering. The Company believes that, because its directors own such shares and warrants, no compensation (other than reimbursement of out-of-pocket expenses) was necessary prior to 2013.
Nominating Committee
The Company has established the Nominating Committee, which currently consists of Messrs. Braddock (Chair), Edwards and Hammer, each of whom is an independent director under the rules and regulations of The NASDAQ Stock Market. The Nominating Committee operates pursuant to a charter that complies with current federal and NASDAQ Capital Market rules relating to corporate governance matters. The Nominating Committee charter has been posted on the Company’s website and can be found at www.jetpaycorp.com. The Nominating Committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The Nominating Committee considers persons identified by its members, management, shareholders, investment bankers and others.
Guidelines for Selecting Director Nominees
The guidelines for selecting nominees, which are specified in the Nominating Committee Charter, generally provide that persons to be nominated:
| · | should have demonstrated notable or significant achievements in business, education or public service; | |
| · | should possess the requisite intelligence, education and experience to make a significant contribution to the board of directors and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and | |
| · | should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of the stockholders. |
The Nominating Committee will consider a number of qualifications and factors relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The Nominating Committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time. The Nominating Committee does not have a policy with regard to consideration of candidates for directors recommended by stockholders and does not distinguish among nominees recommended by stockholders and other persons. The Nominating Committee held two meetings since its inception. Stockholders wishing to recommend a nominee for director are to submit such nomination in writing, along with any other supporting materials the stockholder deems appropriate, to the Secretary of the Company, Peter B. Davidson, at the Company’s corporate offices at 1175 Lancaster Avenue, Suite 200, Berwyn, Pennsylvania 19312.
Audit Committee
The Company has established an Audit Committee. As required by the rules of The NASDAQ Stock Market, each of the members of the Audit Committee are able to read and understand fundamental financial statements. In addition, the Company considers Mr. Palmer to qualify as an “audit committee financial expert” and as “financially sophisticated,” as defined under the rules of the SEC and The NASDAQ Stock Market, respectively. The Audit Committee operates pursuant to a charter (the “Audit Committee Charter”). The Audit Committee Charter has been posted on the Company’s website and can be found at www.jetpaycorp.com. The Audit Committee’s duties, which are specified in the Audit Committee Charter, which complies with current federal and NASDAQ Capital Market rules relating to corporate governance matters, include:
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| · | reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the full board of directors whether the audited financial statements should be included in our Form 10-K; | |
| · | discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements; | |
| · | discussing with management major risk assessment and risk management policies; | |
| · | monitoring the independence of the independent auditor; | |
| · | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; | |
| · | reviewing and approving all related-party transactions; | |
| · | inquiring and discussing with management our compliance with applicable laws and regulations; | |
| · | pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed; | |
| · | appointing or replacing the independent auditor; | |
| · | determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; and | |
| · | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies. |
The Audit Committee currently consists of Messrs. Palmer (Chair), Lubert and Michienzi, each of whom is an independent director under the rules and regulations of The NASDAQ Stock Market.
Audit Committee Report
Management is responsible for the Company’s internal controls and the financial reporting process. Marcum LLP, JetPay’s independent registered public accounting firm, is responsible for performing an independent audit of JetPay’s consolidated financial statements in accordance with auditing standards generally accepted in the United States and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes and review all related party transactions. In this context, the Audit Committee has met and held discussions with management and Marcum LLP regarding the Company’s audited consolidated financial statements. Management has represented to the Audit Committee that JetPay’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and Marcum LLP. The Audit Committee discussed with Marcum LLP matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees) as adopted by the Public Company Accounting Oversight Board. Marcum LLP also provided to the Audit Committee the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with Marcum LLP that firm’s independence. Based on the Audit Committee’s discussion with management and Marcum LLP, and the Audit Committee’s review of management’s representation and Marcum LLP’s report to the Audit Committee, the Audit Committee recommended that the Board of Directors include the Company’s audited consolidated financial statements in JetPay’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
| The Audit Committee of the Board of Directors | |
| Robert B. Palmer, Chairman | |
| Jonathan M. Lubert | |
| Steven M. Michienzi |
| 12 |
Compensation Committee
The Company formed the Compensation Committee concurrent with the recent completion of the acquisition of JetPay, LLC and AD Computer Corporation. The Compensation Committee is currently composed of four members of our board of directors with the May 2014 appointment of Ms. Faro to the committee in addition to Messrs. Hammer (Chair), Edwards, and Palmer.
All of the members of our Compensation Committee are independent under the rules of the NASDAQ Stock Market, are “non-employee directors” within the meaning of Rule 16b-3(b)(3) of the Exchange Act and are “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Pursuant to its charter, the Compensation Committee is charged with performing an annual review of our executive officers’ salary, incentive opportunities and equity holdings to determine whether they provide adequate incentives and motivation to the executive officers and whether they adequately compensate the executive officers relative to officers in other comparable companies.
| · | The Compensation Committee annually reviews and approves corporate goals and objectives relevant to CEO compensation, evaluates the CEO’s performance in light of those goals and objectives, and determines the CEO’s compensation levels based on this evaluation. |
| · | The Compensation Committee annually makes recommendations to the Company’s Board with respect to the compensation of the Company’s Chief Financial Officer and Vice-Chairman. In addition, the Compensation Committee has the authority to review the compensation of all of the Company’s executive officers. The CEO advises the Compensation Committee on the annual performance and appropriate levels of compensation of our executive officers (other than the CEO). |
| · | The Compensation Committee has the authority to retain and terminate any compensation consultant to assist in the evaluation of director, CEO and other executive officer compensation. No compensation study was commissioned for 2013 or 2012. |
| · | The Compensation Committee has the authority to form and delegate authority to subcommittees. |
Compensation Committee Report
The Compensation Committee has reviewed and discussed the compensation discussion and analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the compensation discussion and analysis be included in this Proxy Statement on Schedule 14A.
| The Compensation Committee of the Board of Directors | |
| Frederick S. Hammer, Chair | |
| Donald J. Edwards | |
| Diane (Vogt) Faro | |
| Robert B. Palmer |
Compensation Committee Interlocks and Insider Participation
There are no interlocking relationships between our executive officers and board of directors and the board of directors or compensation committees of any other company.
Current Executive Officers
The current executive officers are as follows:
| Name | Age | Position | ||
| Bipin C. Shah | 75 | Chairman of the Board and Chief Executive Officer | ||
| Gregory M. Krzemien | 54 | Chief Financial Officer | ||
| Peter B. Davidson | 60 | Vice-Chairman and Corporate Secretary |
| 13 |
Biographical information for the Company’s executive officers who are not members of the Company’s Board is set forth below.
Gregory M. Krzemien has served as the Company’s Chief Financial Officer since February 7, 2013. From 1999 to October, 2012, Mr. Krzemien served as Chief Financial Officer, Treasurer and Corporate Secretary of Mace Security International, Inc., a publically traded company that is a manufacturer of personal defense sprays, personal protection products and electronic surveillance equipment, and the operator of a UL rated wholesale security monitoring station. From 1992 to 1999, Mr. Krzemien served as Chief Financial Officer and Treasurer of Eastern Environmental Services, Inc., a publically traded solid waste company. From 1981 to 1992 Mr. Krzemien held various positions at Ernst & Young LLP, including Senior Audit Manager from October 1988 to August 1992. Mr. Krzemien has significant experience in the areas of mergers and acquisitions, Securities and Exchange Commission reporting, strategic planning and analysis, financings, corporate governance, risk management and investor relations. Mr. Krzemien holds a B.S. Honors Degree in Accounting from the Pennsylvania State University.
Peter B. Davidson has served as the Company’s Chief Administrative Officer and Corporate Secretary since inception and is now the Company’s Vice-Chairman and Chief Marketing Officer, while still retaining his duties as Corporate Secretary. Mr. Davidson was formerly Chief Executive Officer of Brooks FI Solutions, LLC, an entity that provides retail banking and payment solutions that he founded in 2006. Immediately prior to founding Brooks FI Solutions, Mr. Davidson was Executive Vice President of Genpass, Inc. where, from 2002 until its acquisition and subsequent integration by U.S. Bancorp in 2005, he led its efforts to bring stored value products to market. While at Genpass, Inc., he was also involved in the development and implementation of MoneyPass, a surcharge-free ATM network. Earlier in his career, Mr. Davidson served as President of Speer & Associates, leading domestic and international consulting engagements in the retail banking and electronic funds transfer industry; Executive Vice President at HSBC USA and President of HSBC Mortgage, where he was responsible for managing its consumer businesses; and Senior Vice President at CoreStates Financial, where he managed the credit card and consumer lending businesses and developed remote banking strategies. Mr. Davidson holds a B.S. in Economics from the Wharton School of the University of Pennsylvania in Finance and Accounting, and an MBA from Widener University in Finance. We believe that Mr. Davidson’s experience as an executive in and knowledge of the payment processing industry provides him with the necessary skills to serve as an officer of the Company and enable him to provide valuable insight regarding operational issues and general industry trends.
EXECUTIVE COMPENSATION
Compensation of Executive Officers for 2013 and 2012
The following table sets forth the compensation earned by the Company’s named executive officers (the “Named Executive Officers”) for the fiscal year ended December 31, 2013 and for the preceding fiscal year.
| SUMMARY COMPENSATION TABLE | |||||||||||||||
| Name and Principal Position | Year | Salary | Option | Total ($) | |||||||||||
| Bipin C. Shah, Chairman of the Board | 2013 | 300,000 | 2,780 | 302,780 | |||||||||||
| and Chief Executive Officer | 2012 | - | - | - | |||||||||||
| Peter B. Davidson, | 2013 | 243,666 | 1,390 | 245,056 | |||||||||||
| Vice-Chairman | 2012 | - | - | - | |||||||||||
| Gregory M. Krzemien, | 2013 | 226,483 | 114,861 | 341,344 | |||||||||||
| Chief Financial Officer | 2012 | - | - | - | |||||||||||
| (1) | The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes, including the impact of estimated forfeitures, for the years ended December 31, 2013, for all existing stock option awards and thus include amounts relating to awards granted in 2013. Assumptions used in the calculation of this amount are included in Note 14 to the Company’s Audited Financial Statements for the year ended December 31, 2013. The Company (i) granted no restricted stock awards and (ii) maintained no other long-term incentive plan for any of the Named Executive Officers, in each case during the fiscal years ended December 31, 2013 and 2012. Additionally, the Company has never issued any stock appreciation rights (SARs). |
| 14 |
On December 12, 2013, the Compensation Committee awarded Mr. Shah and Mr. Davidson an option grant to purchase 250,000 and 125,000 shares, respectively, under the Company’s 2013 Stock Incentive Plan at an exercise price of $3.00 per share. These options vest equally over four years on the annual anniversary date of the grant.
On August 30, 2013, as part of his offer of employment, the Compensation Committee awarded Mr. Krzemien an option grant to purchase 200,000 shares of common stock under the Company’s 2013 Stock Incentive Plan at an exercise price of $3.10 per share. These options vest over a two year period in 24 equal monthly installments.
At the 2013 annual meeting, our stockholders elected to conduct non-binding advisory votes on the compensation of the Named Executive Officers every three years. The next non-binding advisory vote on executive compensation will take place at the 2016 annual stockholders’ meeting.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth the outstanding equity awards held by our Named Executive Officers as of December 31, 2013.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END Option Awards | ||||||||||||||||
| Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price |
Option Expiration Date | ||||||||||||
| Bipin C. Shah | (1) | - | 250,000 | $ | 3.00 | 12 /12/23 | ||||||||||
| Peter B. Davidson | (1) | - | 125,000 | $ | 3.00 | 12 /12/23 | ||||||||||
| Gregory M. Krzemien | (2) | 83,333 | 116,667 | $ | 3.10 | 8 /30/23 | ||||||||||
| (1) | Options granted on December 12, 2013 to Mr. Shah and Mr. Davidson vest equally over four years on the annual anniversary date of the grant. |
| (2) | Options granted on August 30, 2013 to M. Krzemien vest over a two year period in 24 equal monthly installments. |
Potential Payments upon Termination or Change-in-Control
Currently, we do not have employment agreements with any of our Named Executive Officers, nor any other contract, agreement, plan or arrangement that provides for payments to such Named Executive Officer in connection with any termination of employment, a change in control of the Company or a change in the Named Executive Officer’s responsibilities.
| 15 |
THE PRINCIPAL STOCKHOLDERS OF JETPAY
Beneficial Ownership
The following beneficial ownership table sets forth information as of June 30, 2014 regarding ownership of shares of JetPay common stock by the following persons:
| · | each person who is known to JetPay to own beneficially more than 5% of the outstanding shares of JetPay common stock, based upon JetPay’s records or the records of the SEC; |
| · | each director of JetPay; |
| · | each Named Executive Officer; and |
| · | all directors and executive officers of JetPay, as a group. |
Unless otherwise indicated, to JetPay’s knowledge, all persons listed on the beneficial ownership table below have sole voting and investment power with respect to their shares of JetPay common stock. There were no shares of JetPay common stock subject to options or warrants exercisable within 60 days of June 30, 2014. Unless otherwise indicated, the address of the holder is c/o the Company, 1175 Lancaster Avenue, Suite 200, Berwyn, PA 19312.
| Name and Address of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned | Approximate
Percentage of Outstanding Common Stock Beneficially Owned (11) | ||||||
| 5% or Greater Stockholders: | ||||||||
| Flexpoint Fund II, L.P. (1) | 3,800,000 | 24.3 | % | |||||
| WLES, L.P. (2) | 3,666,667 | 30.9 | % | |||||
| Ira Lubert (3) | 1,675,765 | 13.4 | % | |||||
| R8 Capital Partners, LLC (6) | 1,274,819 | 9.9 | % | |||||
| Wellington Management Company, LLP (4) | 1,150,428 | 9.7 | % | |||||
| C. Nicholas Antich (5) | 972,173 | 8.2 | % | |||||
| Carol A. Antich (5) | 972,173 | 8.2 | % | |||||
| Mendota Insurance Company (6) | 921,110 | 7.4 | % | |||||
| Bipin C. Shah Trust U/A dated July 31, 2001(8) | 733,171 | 6.2 | % | |||||
| Directors and Named Executive Officers: | ||||||||
| Donald J. Edwards (8)(2) | 3,800,000 | 24.3 | % | |||||
| Bipin C. Shah (7)(8) | 358,696 | 3.0 | % | |||||
| Peter B. Davidson (7)(8) | 167,495 | 1.4 | % | |||||
| Gregory M. Krzemien (8)(10) | 150,000 | 1.3 | % | |||||
| Jonathan M. Lubert (7)(8)(9) | 146,576 | 1.2 | % | |||||
| Frederick S. Hammer (7)(8)(9) | 43,180 | * | ||||||
| Robert B. Palmer (7)(8)(9) | 43,180 | * | ||||||
| Richard S. Braddock (7)(8)(9) | 43,180 | * | ||||||
| Steven M. Michienzi (8) | - | * | ||||||
| Diane (Vogt) Faro (8) | 500 | * | ||||||
| All current directors and executive officers as a group (9 persons) | 4,752,807 | 30.0 | % | |||||
* Represents less than 1%
| (1) | The business address of Flexpoint is 676 N. Michigan Avenue, Suite 3300, Chicago, IL 60611. The general partner of Flexpoint Fund II, L.P. is Flexpoint Management II, L.P., of which the general partner is Flexpoint Ultimate Management II, LLC. The sole managing member of Flexpoint Ultimate Management II, LLC is Donald J. Edwards. Represents 3,800,000 shares subject to conversion of Preferred Stock at the holder’s option. |
| (2) | The business address of WLES, L.P. is 3361 Boyington Drive, Carrollton, TX 75006. The general partner of WLES, L.P. is Transaction Guy & The Triumphant Ones, LLC a Texas limited liability company. The controlling members of the general partnership are Trent R. Voigt and Sue Lynn Voigt, husband and wife and individual residents of the State of Texas. |
| 16 |
| (3) | The business address of the individual is 2929 Arch Street, 29th Floor, and Philadelphia, PA 19104. Excludes 107,314 shares of common stock eligible to be purchased by Wellington at their option under Note 4 and includes 666,667 shares subject to conversion of secured convertible notes at the individual’s option. Ira Lubert is the father of Jonathan M. Lubert. |
| (4) | Based solely on the information contained in Schedule 13D filed by Wellington Management Company, LLP on January 10, 2013. The business address of the entity is 80 Congress Street, Boston, Massachusetts 02210. Assumes that the exclusion of 386,811 shares of common stock issuable upon exercise of options held by certain investment advisory clients and 256,500 shares subject to conversion of Preferred Stock at the holder’s option because each of the options provides that the holder thereof does not have the right to exercise the option to the extent (but only to the extent) that such exercise would result in it or any of its affiliates beneficially owning more than 9.9% of the common stock. Includes. |
| (5) | The business address of each of the individuals is 3939 West Drive, Center Valley PA 18034. Includes 204,420 shares beneficially owned by Mrs. Carol A. Antich, the wife of Mr. C. Nicholas Antich, 404,480 shares owned by Mr. C. Nicholas Antich and Carol A. Antich, as Tenants by the Entireties and 25,520 shares owned by Brittany N. McCausland Trust u/a 2/17/99, of which Mr. and Mrs. Antich are the trustees and on whose behalf Mr. and Mrs. Antich have the right to act. |
| (6) | Includes shares subject to conversion of secured convertible notes in the amounts of 666,667 for Mendota Insurance Company and 1,000,000 by R8 Capital Partners, LLC, each at such individual’s option. The business address of each of the individuals is 2805 Dodd Road, Suite 300, Eagan, MN 55121 and 180 North Stetson, Suite 3500, Chicago, IL 60601, respectively. |
| (7) | Excludes share of common stock eligible to be purchased by Wellington at their option under Note 4 above, as follows: Bipin C. Shah 189,035 shares, Peter B. Davidson 35,502 shares, Jonathan M. Lubert 26,828 shares, and Messrs Frederick S. Hammer, Robert B. Palmer, and Richard S. Braddock 7,033 share each. |
| (8) | The business address of each of the individuals is c/o JetPay Corporation, 1175 Lancaster Avenue, Suite 200, Berwyn, PA 19312. |
| (9) | Includes 10,000 shares of common stock subject to outstanding options that are exercisable within 60 days of June 30, 2014. |
| (10) | Includes 150,000 shares of common stock subject to an outstanding option that is exercisable within 60 days of June 30, 2014. |
| (11) | Percentage calculations based on 11,863,823 shares outstanding on June 30, 2014. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of such forms furnished to us and written representations from certain reporting persons, we believe that all of our officers and directors, with the exception of Messrs. Edwards and Michienzi, each filed one late report during the year ended December 31, 2013.
ADDITIONAL INFORMATION
Certain Relationships and Related Party Transactions
From December 2010 through December 2012, the Company issued a series of principal amount unsecured promissory notes to UBPS Services, LLC (“UBPS Services”), an entity controlled by Mr. Shah, CEO and Chairman of the Company, totaling $425,880. These notes were non-interest bearing and, except for $15,000, were paid upon consummation of the acquisitions of JetPay, LLC and AD Computer Company on December 28, 2012. Additionally, in February 2013 and June 2013, the Company issued unsecured promissory notes to UBPS Services for $72,000 and $60,000, respectively. Total outstanding notes to UBPS Services of $147,000 were repaid on October 15, 2013. The June 7, 2013 promissory note earned interest at an annual rate of 4% with interest expense of $855 recorded in 2013. The February 2013 promissory notes were non-interest bearing. All such transactions were approved upon resolution and review by the Company’s Audit Committee of the terms of the notes to ensure that such terms were no less favorable to the Company than those that would be available with respect to such transactions from unaffiliated third parties.
| 17 |
On June 7, 2013, the Company issued an unsecured promissory note to Trent Voigt, Chief Executive Officer of JetPay, LLC, in the amount of $491,693. The note matures on July 31, 2014 and bears interest at an annual rate of 4% with interest expense of $11,318 and $4,850 recorded in the fiscal year ended December 31, 2013 and the three months ended March 31, 2014, respectively. The transaction was approved upon resolution and review by the Company’s Audit Committee of the terms of the note to ensure that such terms were no less favorable to the Company than those that would be available with respect to such transactions from unaffiliated third parties.
JetPay Payroll Services’ headquarters are located in Center Valley, Pennsylvania and consist of approximately 22,500 square feet leased from C. Nicholas Antich and Carol A. Antich. Mr. Antich is the President of ADC. The rent is currently approximately $41,750 per month with annual 4% increases, on a net basis. The office lease has an initial 10-year term expiring May 31, 2016. Rent expense under this lease was $516,500 and $129,140 for the fiscal year ended December 31, 2013 and the three month ended March 31, 2014, respectively.
JetPay Payroll Services shares office space and related facilities with Serfass & Cremia, LLC, and the accounting firm of which Joel E. Serfass, a previous shareholder of PTFS, is a member. Such office space consists of 4,300 square feet, located on one floor of a multi-tenant building in Bethlehem, Pennsylvania. Pursuant to a cost sharing agreement among PTFS, Joel E. Serfass and Serfass & Cremia, LLC, PTFS pays an 85% share of the total expenses of operating such facilities (which total expenses include office rental, equipment rental, telephone, utilities, maintenance, repairs and other operating costs and a 15% administrative fee payable to Joel E. Serfass), which amounted to $107,400 and $24,600 for the fiscal year ended December 31, 2013 and the three months ended March 31, 2014, respectively. The cost sharing agreement is terminable by any party with a 90 day notice.
JetPay Payment Processing retains a backup center in Sunnyvale, Texas consisting of 1,600 square feet, rented for approximately $3,000 per month from JT Holdings, an entity controlled by Trent Voigt, Chief Executive Officer of JetPay, LLC. The terms of the lease are commercial. Rent expense was $36,000 and $9,000 for the fiscal year ended December 31, 2013 and the three months ended March 31, 2014, respectively.
The above transactions with respect to JetPay Payroll Services and JetPay Payment Processing were approved prior to the acquisition of ADC, PTFS and JetPay, LLC. Going forward, all related party transactions with respect to such entities will be reviewed and approved by the Company’s Audit Committee to ensure that the terms of such transactions are no less favorable to the Company than those that would be available with respect to such transactions from unaffiliated third parties.
At the closing of the acquisition of ADC, funds were paid to the ADC stockholders as a result of a preliminary working capital calculation. Prepaid expenses at December 31, 2012 included a receivable from the stockholders of ADC of $450,776 for an overpayment related to this preliminary calculation. The funds were repaid to the Company in February 2013.
In connection with the closing of the JetPay, LLC acquisition, the Company entered into a Note and Indemnity Side Agreement with JP Merger Sub, LLC, WLES and Trent Voigt (the “Note and Indemnity Side Agreement”) dated as of December 28, 2012. Pursuant to the Note and Indemnity Side Agreement, the Company agreed to issue a promissory note in the amount of $2,331,369 in favor of WLES. Interest accrues on amounts due under the note at a rate of 5% per annum, and is payable quarterly. Interest expense was $117,860 and $29,142 for the fiscal year ended December 31, 2013 and the three months ended March 31, 2014, respectively. The note is due in full on December 31, 2017. The note can be prepaid in full or in part at any time without penalty. As partial consideration for offering the note, the Company and JP Merger Sub, LLC agreed to waive certain specified indemnity claims against WLES and Mr. Voigt to the extent the losses under such claims do not exceed $2,331,369.
On March 28, 2014, the Company entered into a Securities Purchase Agreement (the “Common Stock SPA”) with each of Bipin C. Shah, its Chairman and Chief Executive Officer, and C. Nicholas Antich, the President of AD Computer Corporation (d/b/a JetPay Payroll Services). Pursuant to the Common Stock SPA, on April 4, 2014, the Company received aggregate proceeds of $1.0 million and issued an aggregate of 333,333 shares of Common Stock to Messrs. Shah and Antich. The proceeds were used to satisfy a portion of the EarlyBirdCapital award.
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Deadline for Stockholder Proposals
June 1, 2015 is the deadline for stockholders to submit proposals pursuant to Rule 14a-8 of the Exchange Act for inclusion in JetPay’s Proxy Statement for JetPay’s 2015 Annual Meeting of Stockholders. If any stockholder proposal is submitted after June 1, 2015, the Proxy holders will be allowed to use their discretionary voting authority when the proposal is raised at the 2015 Annual Meeting without any discussion of the matter in the Proxy Statement for that meeting.
Stockholder Access Policy
Stockholders who wish to communicate with directors should do so by writing to the Company’s Secretary, Peter B. Davidson, at the Company’s offices at 1175 Lancaster Avenue, Suite 200, Berwyn, Pennsylvania 19312. The Secretary of the Company reviews all such correspondence and regularly forwards to the Board of Directors a summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board of Directors or Board Committees or that he otherwise determines requires their attention. Directors may at any time review all correspondence received by the Company that is addressed to members of the Board of Directors and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters will be brought to the attention of the Audit Committee.
JetPay’s Annual Report
A copy of JetPay’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, with financial statements, but excluding exhibits, accompanies this Proxy Statement, but is not to be regarded as proxy solicitation material. Upon request and with the payment of a reasonable fee, JetPay will furnish to record and beneficial holders of its common stock copies of exhibits to the Form 10-K. Direct all requests for copies of the above materials or directions to the Annual Meeting of Stockholders to Peter B. Davidson, Secretary, at the offices of JetPay set forth on page 1 of this Proxy Statement.
Householding of Proxy Materials
Certain stockholders who share the same address may receive only one copy of the Proxy Statement and JetPay’s 2013 Annual Report to Stockholders in accordance with a notice delivered from such stockholders’ bank, broker or other holder of record, unless the applicable bank, broker or other holder of record received contrary instructions. This practice, known as “householding,” is designed to reduce printing and postage costs. Stockholders owning their shares through a bank, broker or other holder of record who wish to either discontinue or commence householding may request or discontinue householding, or may request a separate copy of the Proxy Statement or JetPay’s 2013 Annual Report to Stockholders, either by contacting their bank, broker or other holder of record at the telephone number or address provided in the above referenced notice, or contacting the Company by telephone at (484) 324-7982 or in writing at 1175 Lancaster Avenue, Suite 200, Berwyn, Pennsylvania 19312, Attention: Secretary. Stockholders who are requesting to commence or discontinue householding should provide their name, the name of their broker, bank or other record holder and their account information.
| By Order of the Board of Directors, | ||
| /s/ Peter B. Davidson | ||
| Peter B. Davidson, Secretary |
Berwyn, Pennsylvania
July 3, 2014
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