SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF
THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[X] Definitive Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
YP.NET, INC.
(Name of Registrant As Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which the transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
YP.NET, INC.
4840 EAST JASMINE STREET, SUITE 105
MESA, ARIZONA 85205
NOTICE OF ACTION TO BE TAKEN PURSUANT TO THE WRITTEN CONSENT OF
MAJORITY STOCKHOLDERS IN LIEU OF A SPECIAL MEETING OF THE STOCKHOLDERS, DATED
JULY 21, 2003
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the adoption of the YP.NET, Inc. 2003 Stock
Plan (the "Plan") will be taken pursuant to the written consent of a majority of
stockholders dated July 21, 2003, in lieu of a special meeting of the
stockholders. Such action will be taken on or about August 12, 2003, the date
that is 20 days after delivery to you of the attached Information Statement.
We are notifying you and all other holders of capital stock of YP.NET, Inc.
(the "Company") in connection with the adoption of the Plan. As explained more
fully in the accompanying Information Statement, the Board of Directors believes
that the Plan is an essential element of the Company's comprehensive
compensation program.
The Plan facilitates the Company's efforts to retain key service providers,
including management, and to provide incentives to these individuals to promote
the financial success of the Company over the long-term, primarily through the
use of grants of restricted stock, performance shares and performance-based
awards that will create value only as value is created for the Company's
stockholders. The Plan is designed to reward key personnel on an ongoing basis
for helping the Company achieve operating performance goals.
The accompanying Information Statement is furnished pursuant to Section
14(c) of the Securities Exchange Act of 1934 and Regulation 14C and Schedule 14C
thereunder.
We are mailing the Information Statement on or about July 23, 2003 to
stockholders of record of the Company at the close of business on June 30, 2003.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS AND NO STOCKHOLDER
MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED HEREIN.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED TO SEND US A PROXY.
By Order of the Board of Directors,
/s/ ANGELO TULLO
Angelo Tullo
Chairman, President and Chief Executive Officer
Mesa, Arizona
July 23, 2003
YP.NET, INC.
4840 EAST JASMINE STREET, SUITE 105
MESA, ARIZONA 85205
INFORMATION STATEMENT
PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND REGULATION 14C AND SCHEDULE 14C THEREUNDER
July 23, 2003
This Information Statement is being mailed on or about July 23, 2003 to the
stockholders of record on June 30, 2003 (the "Record Date") of YP.NET, Inc., a
Nevada corporation (the "Company"), in connection with the adoption of the
Company's 2003 Stock Plan (the "Plan") pursuant to the written consent by the
majority stockholders of the Company, dated as of July 21, 2003. The action to
be taken pursuant to the written consent shall be made effective on or about
August 12, 2003, 20 days after the mailing of this Information Statement.
The Plan provides for the granting of restricted stock, performance shares
and performance-based awards to key service providers, including management,
consultants and other persons who perform services which contribute to the
successful performance of the Company.
The Board of Directors of the Company approved the adoption of the Plan by
unanimous written consent dated as of June 30, 2003 as it believes that such
actions are in the best interests of the Company and its stockholders. The
majority stockholders of the Company, which comprise ownership of 27,816,062
shares of common stock out of a total of 42,930,722 shares issued and
outstanding as of the Record Date, approved the adoption of the Plan by written
consent dated as of July 21, 2003. This Information Statement is furnished only
to inform stockholders of the Company of the above action taken by the majority
stockholders of the Company before such action takes effect in accordance with
the Securities Exchange Act of 1934, as amended from time to time (the "Exchange
Act").
The elimination of the need for a special or annual meeting of stockholders
to ratify or approve the Plan is authorized by Section 78.320(2) of the Nevada
General Corporation Law (the "NGCL") and Article II, Section 2.5 of the
Company's Bylaws, which provide that the written consent of stockholders holding
at least a majority of the voting power may be substituted for such a special or
annual meeting. In order to eliminate the costs and management time involved in
holding a special or annual meeting and in order to effect or ratify the Plan as
early as possible in order to accomplish the purposes of the Company as
hereafter described, the Board of Directors of the Company voted to utilize the
written consent of stockholders holding a majority of the voting power of the
Company.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
OUTSTANDING SHARES AND VOTING RIGHTS
As of the Record Date, the Company's authorized capitalization consisted of
100,000,000 shares of common stock, $0.001 par value, of which 42,930,722 were
issued and outstanding as of the Record Date, 140,000,000 shares of Preferred
Stock, $0.001 par value, 3,000,000 shares of which are designated Series A
Convertible Preferred Stock, of which no shares are outstanding; 2,500,000
shares of which are designated Series B Convertible Preferred Stock, of which no
shares are outstanding; 45,000,000 shares of which are designated Series C
Convertible Preferred Stock, of which no shares are outstanding; 45,000,000
shares of which are designated Series D Preferred Stock, of which no shares are
outstanding; and 200,000 shares of which are designated Series E Convertible
Preferred Stock, of which 131,840 shares are outstanding. Holders of common
stock of the Company have no preemptive rights to acquire or subscribe to any of
the additional shares of common stock.
Each share of common stock entitles its holder to one vote on each matter
submitted to the stockholders. However, because stockholders holding at least a
majority of the voting rights of all outstanding shares of capital stock as at
the Record Date have voted in favor of the foregoing proposal by resolution
dated July 21, 2003 and having sufficient voting power to approve such proposal
through their ownership of capital stock, no other stockholder consents will be
solicited in connection with this Information Statement.
Pursuant to Rule 14c-2 under the Exchange Act, the adoption of the Plan
will not take effect until a date at least 20 days after the date on which this
Information Statement has been mailed to the stockholders. The Company
anticipates that the actions contemplated herein will be effected on or about
the close of business on August 12, 2003.
The Company has asked brokers and other custodians, nominees and
fiduciaries to forward this Information Statement to the beneficial owners of
the common stock held of record by such persons and will reimburse such persons
for out-of-pocket expenses incurred in forwarding such material.
This Information Statement will serve as written notice to stockholders
pursuant to Section 78.370 of the NGCL.
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS
AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of July 21, 2003, with respect to (i) each
person known to the Company to be the beneficial owner of more than 5% of the
Company's common stock; (ii) each officer and director of the Company; (iii)
each person intending to file a written consent to the adoption of the proposal
described herein; and (iv) all directors, executive officers and designated
stockholders of the Company as a group. This information as to beneficial
ownership was furnished to the Company by or on behalf of the persons named.
Unless otherwise indicated, the business address of each person listed is 4840
East Jasmine Street, Suite 105, Mesa, Arizona 85205.
2
Shares Percent of
Name Beneficially Owned Shares Outstanding (1)
---- ------------------ ----------------------
Angelo Tullo (2) 4,300,000 10.5%
Gregory B. Crane (3) 1,077,500 2.51%
DeVal Johnson (4) 1,125,000 2.63%
David J. Iannini (5) 300,000 *
Daniel L. Coury, Sr. 50,000 *
Peter Bergmann 50,000 *
Matthew & Markson Ltd. (6) (7) 10,566,062 24.7%
Morris & Miller Ltd. (6) (7) 10,350,000 24.2%
Sunbelt Financial Concepts, Inc. (8) 4,000,000 9.4%
All executive officers and
directors as a group
(6 persons) 6,902,500 16.1%
* Represents less than one percent (1%) of our issued and outstanding common
stock.
________________
(1) Based on 42,780,722 shares outstanding as of July 21, 2003. This amount
includes 2,000,000 shares issued and held as collateral for obligations of
the Company under two promissory notes. Upon timely payment of the notes,
the shares will be returned to the Company for cancellation.
(2) Of which 4,000,000 shares are owned by Sunbelt Financial Concepts, Inc.
("Sunbelt") which are also shown separately in this table. While Mr. Tullo
is the President of Sunbelt, he has no ownership interest in Sunbelt, he
does, however, share dispositive powers over the stock owned by Sunbelt.
Hickory Management is the owner of Sunbelt and Mr. Tullo is not the control
person of Hickory Management.
(3) Of which 1,000,000 shares are owned by Advertising Management and
Consulting Services, Inc. ("AMCS"). While Mr. Crane is the President of
AMCS, he has no ownership interest in AMCS, although, as President of AMCS,
he shares dispositive power over the stock owned by AMCS. Adam Holding
Trust is the owner of AMCS and Mr. Crane is not the control person of Adam
Holding Trust.
(4) Of which 1,000,000 shares are owned by Advanced Internet Marketing, Inc.
("AIM"). Mr. Johnson is President of AIM and his minor children are the
beneficiaries of the trust which owns AIM.
(5) Of which 250,000 shares are owned by Mar & Associates ("Mar"). Mr. Iannini
is trustee of the trust which owns Mar.
(6) Address is Woods Centre, Frair's Road P.O. Box 1407 St. John's Antigua,
West Indies.
(7) The number of shares held by Matthew & Markson, Ltd. includes 2,000,000
shares issued as collateral for a note payable issued by the Company.
Matthew & Markson has voting control of these shares. These shares will be
returned to the Company and cancelled upon timely payment of the note. Ilse
Cooper, AMT Director is the control person for both Matthew & Markson as
well as Morris & Miller.
3
(8) Address is 4710 E. Falcon Drive, #204A, Mesa, Arizona, 85215.
INFORMATION REGARDING MANAGEMENT, EXECUTIVE AND DIRECTOR COMPENSATION
Officer Compensation.
---------------------
The following table reflects all forms of compensation for the fiscal years
ended September 30, 2002, 2001 and 2000 for the Chief Executive Officer and the
other most highly compensated executive officers of the Company, whose salaries
exceed $100,000 annually, for the years stated.
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------- ------------
Other
Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year (US$) (US$) (US$) Options (US$)
--------------------------- ---- ----- ----- ----- ------- -----
Angelo Tullo (1) 2002 240,000 208,000 - - -
Chairman, Chief Executive 2001 210,000 - 44,000 - -
Officer, President 2000 121,662 - 21,000 - -
Pamela J. Thompson (2) 2002 177,768 - - - -
Former Chief Financial 2001 255,855 4,500 - - -
Officer, Former Secretary, 2000 - - - - -
Former Treasurer
DeVal Johnson (3) 2002 113,800 20,000 - - -
Vice President, Secretary 2001 - 5,618 - - -
and Director 2000 10,000 - 10,500 - -
Gregory B. Crane (4) 2002 237,000 35,000 - - -
Vice President and Director 2001 114,000 - - - -
2000 34,500 - 10,500 - -
_____________
(1) The amount shown herein as compensation to Mr. Tullo is the total amount
paid by the Company to Sunbelt for services provided to the Company by Mr.
Tullo and his staff, but may not reflect Mr. Tullo's actual compensation
from Sunbelt, which may be greater or less. Mr. Tullo is not directly
compensated by the Company. Includes 200,000 shares of Company stock valued
at $.22 per Share in 2001 and 100,000 shares of Company stock valued at
$.21 per share in 2000. Subsequent to September 30, 2002, 4,000,000 shares
of Company stock valued at $.075 per share in 2002 were issued to Mr.
Tullo. Such shares and related amounts are not included in the table. On
September 20, 2002, the Company entered into an Executive Consulting
Agreement with Sunbelt pursuant to which Mr. Tullo provides services to the
Company. See "Employment and Consulting Agreements."
(2) The amount shown herein as compensation to Ms. Thompson is the total amount
paid by the Company to The Thompson Group P.C. for services provided to the
Company by Ms. Thompson and her staff, but may not reflect Ms. Thompson's
actual compensation from The Thompson Group
4
P.C., which may be greater or less. Ms. Thompson was not directly
compensated by the Company. Includes $16,898 issued as a Note Receivable in
2002 and 50,000 shares of Company stock valued at $.09 per share in 2001.
Ms. Thompson resigned from the Company on May 24, 2002. David J. Iannini
was named as her replacement as Chief Financial Officer in August 2002.
(3) The amount shown herein as compensation is the total amount paid by the
Company for the services of AIM including Mr. Johnson and his staff but may
not reflect Mr. Johnson's actual compensation from AIM, which may be
greater or less. Mr. Johnson is not compensated directly by the Company.
Includes 50,000 shares of Company stock valued at $.21 per share in 2000.
Subsequent to September 30, 2002, 1,000,000 shares of Company stock valued
at $.075 per share were issued to Mr. Johnson. On September 20, 2002, the
Company entered into an Executive Consulting Agreement with AIM pursuant to
which Mr. Johnson provides services to the Company. See "Employment and
Consulting Agreements."
(4) The amount shown herein as compensation to Mr. Crane is the total amount
paid by the Company to AMCS for services provided to the Company by Mr.
Crane and his staff, but may not reflect Mr. Crane's actual compensation
from AMCS, which may be greater or less. Mr. Crane is not directly
compensated by the Company. Includes 50,000 shares of Company stock valued
at $.21 per share in 2000. Subsequent to September 30, 2002, 1,000,000
shares of Company stock valued at $.075 per share were issued to Mr. Crane.
On September 20, 2002, the Company entered into an Executive Consulting
Agreement with AMCS pursuant to which Mr. Crane provides services to the
Company. See "Employment and Consulting Agreements."
Compensation Pursuant to Stock Options.
---------------------------------------
No options were granted to executive officers during the fiscal year ended
September 30, 2002, and through the eight-month period ended May 31, 2003.
During the fiscal year ended September 30, 2002, there were no outstanding
stock options. Also during such fiscal year, no long-term incentive plans or
pension plans were in effect with respect to any of the Company's officers,
directors or employees.
5
Securities Authorized for Issuance Under Equity Compensation Plans.
-------------------------------------------------------------------
The following table provides information as of the Record Date about the
Company's common stock that may be issued upon the exercise of options granted
to employees or members of the Board of Directors under the Plan, which is the
Company's only existing equity compensation plan.
Number of securities Number of securities
to be issued upon Weighted-average remaining available for
exercise of exercise price of future issuance under equity
Plan Category outstanding options outstanding options compensation plans
-----------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders (1) 0 N/A 3,000,000
Equity compensation
plans not approved by
security holders 0 N/A N/A
Total 0 N/A 3,000,000
(1) The 2003 Stock Plan was approved by written consent of a majority of the Company's
stockholders on July 21, 2003.
Director Compensation.
----------------------
The directors receive $2,000 per meeting or per quarter for their service
on the Board and may receive $250 per hour for services related to Board
Committees on which they serve or work performed by the Board. Upon appointment
to the Board, Mr. Tullo was awarded 100,000 shares of our common stock. All
other directors were awarded 50,000 shares. The shares awarded were earned
monthly for director services performed. The 425,000 shares of common stock paid
to the directors as compensation for their services were valued at $.22 per
share for a total value of $93,500 and the value is considered based upon the
average bid and ask price as of date of issuance by the Board of Directors and
is in reliance on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended from time to time. Mr. Bergmann, joined
the Board in April 2002 and received his 50,000 shares in July 2002. They were
valued at $.09 per share, or $4,500.
Effective September 30, 2002, the Company pays $10,000 monthly to DLC
Consulting. DLC Consulting is owned by Daniel Coury, Sr., a director of the
Company. The payments relate to various financial, strategic and administrative
services performed for the Company's Board of Directors.
In compliance with the new rules implemented by the Sarbanes-Oxley Act of
2002, the Company has established a hotline in order to receive anonymous calls
and complaints concerning accounting, internal accounting controls, or auditing
matters. Mr. Coury receives an annual fee of $3,000 for monitoring this
hotline.
Employment and Consulting Agreements.
-------------------------------------
Sunbelt Financial Concepts, Inc. On September 20th, 2002, the Company and
Sunbelt Financial Concepts, Inc. ("Sunbelt") entered into an Executive
Consulting Agreement, which replaced a prior agreement, dated the previous
September. The Sunbelt agreement has a term of 3 years. Angelo Tullo is
6
the President of Sunbelt. The Sunbelt agreement provides that Mr. Tullo, through
Sunbelt, will provide the Company with the services of Chief Executive Officer,
Chairman and President among other administrative services and personnel. As
part of the Sunbelt Agreement, Sunbelt will receive $32,000 per month with a 10%
annual increase in each succeeding year, Board of Director fees and fees and
reimbursements for certain ancillary items. In addition, the Sunbelt agreement
also awarded Sunbelt 4 million shares of the Company's common stock, grossed-up
for taxes, subject to achieving certain performance goals for the Company in
Fiscal 2003. If such goals are not achieved, then part of the award is forfeited
on a pro rata basis. The agreement also awarded a bonus of $208,000 to Sunbelt
relating to performance in Fiscal 2002. As part of the agreement, Sunbelt's
previous line of credit with the Company (on which $197,640 was outstanding at
September 30, 2002 and repaid to the Company with interest subsequent to year
end.) was cancelled and a Flex Compensation program was instituted which allows
Sunbelt to draw up to $220,000 (increased by 10% on each anniversary date of
this Agreement) as additional compensation, subject to sufficient cash on hand
at the Company. In addition, the agreement contains a Due on Sale clause whereby
if there is a change of control of the Company, as defined, then Sunbelt will
receive the greater of 30% of the amounts due under the Agreement or 12 months
worth of fees. As of this filing, Sunbelt had drawn approximately the entire
$220,000 under its Flex compensation agreement.
A previous separate agreement with Sunbelt, dated January 2002, wherein the
Company leases two vehicles for Sunbelt in the Company's name, while Sunbelt
pays the leases, remains in effect until the conclusion of the respective
leases. The monthly amount of the leases for the vehicles are $1,079 and $1,111
respectively and the leases expire on January, 2005 and February, 2005
respectively.
While Mr. Tullo is the President of Sunbelt, he has no ownership interest
in Sunbelt. As President of Sunbelt, he does, however, maintain disposative
powers over the shares of Company stock issued to Sunbelt.
Advertising Management & Consulting Services, Inc. On September 20th, 2002,
the Company and Advertising Management & Consulting Services, Inc. ("AMCS")
entered into an Executive Consulting Agreement. The AMCS agreement has a term of
three years. Greg Crane is the President of AMCS. The AMCS agreement provides
that Mr. Crane, through AMCS will provide the Company with the services of
Director and Vice President - Marketing, among other administrative services and
personnel. As part of the AMCS agreement, AMCS will receive $32,000 per month
with a 10% annual increase in each succeeding year, Board of Director fees and
fees and reimbursements for certain ancillary items. In addition, the AMCS
agreement also awarded AMCS with 1 million shares of the Company's common stock,
grossed-up for taxes, subject to achieving certain performance goals for the
Company in Fiscal 2003. If such goals are not achieved, then part of the award
is forfeited on a pro rata basis. The Agreement also awarded a bonus of $35,000
to AMCS relating to performance in Fiscal 2002. As part of the agreement with
AMCS, a Flex Compensation program was instituted which allows AMCS to draw up to
$50,000 (increased by 10% on each anniversary date of this Agreement) as
additional compensation, subject to sufficient cash on hand at the Company. In
addition, the agreement contains a Due on Sale clause whereby if there is a
change of control of the Company, as defined, then AMCS will receive the greater
of 30% of the amounts due under the agreement or 12 months worth of fees. As of
this filing, AMCS had drawn $50,000 under its Flex compensation agreement.
Advanced Internet Marketing, Inc. On September 20th, 2002, the Company and
Advanced Internet Marketing, Inc. ("AIM") entered into an Executive Consulting
Agreement. The AIM agreement has a term of three years. DeVal Johnson is the
President of AIM, and AIM is wholly-owned by a trust for the benefit of Mr.
Johnson's children. The AIM agreement provides that Mr. Johnson, through AIM,
will provide the Company with the services of Director, Corporate Secretary and
Vice President - Corporate Image, among other administrative services and
personnel. As part of the AIM agreement,
7
AIM will receive $18,000 per month with a 10% annual increase in each succeeding
year, Board of Director fees, and fees and reimbursements for certain ancillary
items. In addition, the agreement also awarded AIM with 1 million shares of
Company common stock, grossed-up for taxes, subject to achieving certain
performance goals for the Company in Fiscal 2003. If such goals are not
achieved, then part of the award is forfeited on a pro rata basis. The agreement
also awarded a bonus of $20,000 to AIM relating to performance in Fiscal 2002.
As part of the agreement, a Flex Compensation program was instituted which
allows AIM to draw up to $30,000 (increased by 10% on each anniversary date of
this Agreement) as additional compensation, subject to sufficient cash on hand
at the Company. In addition, the Agreement contains a Due on Sale clause whereby
if there is a change of control of the Company, as defined, then AIM will
receive the greater of 30% of the amounts due under the Agreement or 12 months
worth of fees. As of this filing, AIM had drawn the entire $30,000 under its
Flex compensation agreement.
Mar & Associates. On May 1, 2003, the Company and Mar & Associates, Inc.
("MAR") entered into an Executive Consulting Agreement. David Iannini is the
President of MAR, and MAR is wholly-owned by a family trust, of which Mr.
Iannini is trustee. The MAR agreement provides that Mr. Iannini, through MAR,
will provide the Company with the services of Chief Financial Officer, among
other administrative services and personnel. As part of the MAR agreement, MAR
will receive $17,500 per month with a 10% annual increase in each succeeding
year, and fees and reimbursements for certain ancillary items. In addition, the
agreement also awarded MAR with 250,000 shares of Company common stock,
grossed-up for taxes, subject to achieving certain performance goals for the
Company in Fiscal 2003. If such goals are not achieved, then part of the award
is forfeited on a pro rata basis. The agreement also awarded bonuses of $15,000
to MAR relating to performance in Fiscal 2003, $21,000 relating to performance
for Fiscal 2004 and 10% of annual salary for each fiscal year thereafter for the
term of the Agreement, which is December 31, 2007 unless otherwise extended by
the parties. As part of the agreement, a Flex Compensation program was
instituted which allows MAR to draw up to $15,000 (increased by 10% on each
anniversary date of this Agreement) as additional compensation, subject to
sufficient cash on hand at the Company. In addition, the Agreement contains a
Due on Sale clause whereby if there is a change of control of the Company, as
defined, then MAR will receive the greater of 30% of the amounts due under the
Agreement or 12 months worth of fees. As of this filing, MAR had drawn the
entire $15,000 under its Flex compensation agreement.
Related Party Transaction Policy. The Company's general policy requires
adherence to Nevada corporate law regarding transactions between the Company and
a director, officer or affiliate of the corporation. Transactions in which such
persons have a financial interest are not void or voidable if the interest is
disclosed and approved by disinterested directors or shareholders or if the
transaction is otherwise fair to the corporation. It is our policy that
transactions with related parties are conducted on terms no less favorable to us
than if they were conducted with unaffiliated third parties. During fiscal year
ended September 30, 2001, through September 31, 2002, there have been no related
party transactions, except those noted herein, and quarterly 10Q filings and 10K
filings for the periods indicated.
ADOPTION OF THE YP.NET, INC. 2003 STOCK PLAN
(PROPOSAL 1)
General.
-------
The Board of Directors has adopted, and the majority stockholders of the
Company have approved pursuant to the written consent dated as of July 21, 2003,
a new stock plan called the "YP.NET, Inc. 2003 Stock Plan" (the "Plan") for
employees of, and consultants to, the Company. The Plan will become effective on
or about August 12, 2003, 20 days after the mailing of this Information
Statement (the "Effective Date").
8
The Board of Directors believes that the Plan will promote the success, and
enhance the value, of the Company by linking the personal interest of
participants to those of Company stockholders and by providing participants with
an incentive for outstanding performance.
The Plan provides for the granting of restricted stock, performance shares,
and performance-based awards to eligible individuals. The summary of the
principal provisions of the Plan is set forth below. The summary is qualified
by reference to the full text of the Plan, which is attached as Annex A.
-------
Administration.
--------------
The Plan shall be administered by the Compensation Committee of the Board
or such other committee as appointed by the Board. The Committee will have the
exclusive authority to administer the Plan, including the power to determine
eligibility, the types and sizes of awards, the price and timing of awards and
the acceleration or waiver of any vesting or restriction, provided that the
Committee will not have the authority to waive any performance restrictions with
respect to any performance-based awards.
Eligibility.
-----------
Persons eligible to participate in the Plan include all employees of,
non-employee service providers, and consultants to, the Company and its
subsidiaries, as determined by the Committee. As of July 21, 2003, there were
approximately 100 eligible participants of the Company and its subsidiaries.
Limitation on Awards and Shares Available.
-----------------------------------------
An aggregate of 3,000,000 shares of common stock is available for grant
under the Plan.
The maximum number of shares of Stock payable in the form of
performance-based awards to any one participant for a performance period is
1,000,000 shares. As of July 21, 2003, the closing price of the common stock on
the OTC Bulletin Board was $1.31 per share.
Awards.
------
The Plan provides for the grant of restricted stock, performance shares, or
performance-based awards. No determination has been made as to the types or
amounts of awards that will be granted to specific individuals under the Plan.
See the Summary Compensation Table and Compensation Pursuant to Stock Options on
pages 4 and 5 for information on prior awards to named executive officers.
As discussed above, restricted stock may be granted under the Plan. A
restricted stock award is the grant of shares of common stock at a price
determined by the Committee (including zero), that is nontransferable (unless
otherwise approved by the Committee or provided for in an award agreement) and
subject to substantial risk of forfeiture until specific conditions are met.
Conditions may be based on continuing service, achieving performance goals or
other criteria allowed by the Plan and established by the Committee. During the
period of restriction, participants holding shares of restricted stock may have
full voting and dividend rights with respect to such shares. The restrictions
will lapse in accordance with a schedule or other conditions determined by the
Committee.
A performance share is a contingent right to receive a pre-determined
amount if certain performance goals are met. The value of performance units
will depend on the degree to which the specified performance goals are achieved
but are generally based on the value of Stock. Payment of earned performance
units will be made within the time determined by the Committee days after the
end of
9
the measurement period for the performance unit. The Committee may, in its
discretion, pay earned performance shares in cash, or common stock, or a
combination of both.
The amount of payments made to a participant will be the value of the
performance share for the level of performance achieved multiplied by the number
of performance shares earned by the participant. Prior to the beginning of each
measurement period for the performance share, participants may elect to defer
the receipt of the performance unit payout on terms acceptable to the Committee.
Grants of performance-based awards under the Plan enable the Committee to
treat restricted stock and performance share awards granted under the Plan as
"performance-based compensation" under Section 162(m) of the Code and preserve
the deductibility of these awards for federal income tax purposes. Because
Section 162(m) of the Code only applies to those employees who are "covered
employees," as defined in Section 162(m) of the Code, only covered employees are
eligible to receive performance-based awards.
Participants are only entitled to receive payment for a performance-based
award for any given performance period to the extent that pre-established
performance goals set by the Committee for the period are satisfied. These
pre-established performance goals must be based on one or more of the following
performance criteria: pre- or after- tax net earnings, sales or revenue,
operating earnings, operating cash flow, return on net assets, return on
shareholders' equity, return on assets, return on capital, shareholder returns,
gross or net profit margin, earnings per share, price per share, and market
share. These performance criteria may be measured in absolute terms or as
compared to any incremental increase or as compared to results of a peer group.
With regard to a particular performance period, the Committee shall have the
discretion to select the length of the performance period, the type of
performance-based awards to be granted, and the goals that will be used to
measure the performance for the period. In determining the actual size of an
individual performance-based award for a performance period, the Committee may
reduce or eliminate (but not increase) the award. Generally, a participant will
have to be employed on the date the performance-based award is paid to be
eligible for a performance-based award for that period.
Amendment and Termination.
-------------------------
The Committee, subject to approval of the Board, may terminate, amend, or
modify the Plan at any time; provided, however, that stockholder approval will
be obtained for any amendment to the extent necessary and desirable to comply
with any applicable law, regulation or stock exchange rule.
Federal Income Tax Consequences.
-------------------------------
A participant receiving restricted stock, performance shares, or
performance-based awards will not recognize taxable income at the time of grant.
At the time the restrictions lapse on restricted stock, or performance shares or
performance-based awards are paid, the participant will recognize ordinary
taxable income in an amount equal to the difference between the amount paid for
such award and fair market value of the Stock or amount received on the date of
exercise, lapse of restriction or payment. The Company will be entitled to a
concurrent deduction equal to the ordinary income recognized by the participant.
Change in Control.
-----------------
In the event of a Change in Control (as defined) of the Company, unless
otherwise provided in the Award Agreement, the Board has the discretion to
provide that all awards under the Plan will become fully exercisable and all
restrictions on awards will lapse.
10
New Plan Benefits.
-----------------
No awards will be granted under the Plan until the Effective Date.
Therefore, it is not possible to determine the benefits that will be received in
the future by participants in the Plan or the benefits that would have been
received by such participants if the Plan had been in effect in the last fiscal
year ended September 30, 2002.
Vote Required.
-------------
Adoption of the Plan requires approval by holders of a majority of the
outstanding shares of Company common stock who are present, or represented, and
entitled to vote thereon, at a special or annual meeting of stockholders.
Section 78.320(2) of the NGCL and Article II, Section 2.5 of the Company's
Bylaws provide that the written consent of stockholders holding at least a
majority of the voting power may be substituted for such a special or annual
meeting. The majority stockholders of the Company approved the adoption of the
Plan by written consent dated as of July 21, 2003.
ADDITIONAL INFORMATION
Under Nevada Law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the adoption of the Plan.
The Company has received no indication from any of its directors or
non-employee directors of any intent to oppose any action to be taken by the
Company. There have been no proposals for action submitted to the Company by any
stockholders other than the proposal, which is the subject of this Information
Statement.
By Order of the Board of Directors,
/s/ ANGELO TULLO
Angelo Tullo
Chairman, President and Chief Executive Officer
Mesa, Arizona
July 23, 2003
11
ANNEX A
YP.NET, INC.
------------
2003 STOCK PLAN
---------------
ARTICLE 1
PURPOSE
1.1 GENERAL. The purpose of the YP.Net, Inc. 2003 Stock Plan (the "Plan") is to
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promote the success, and enhance the value, of YP.Net, Inc. (the "Company")
by linking the personal interests of its employees and non-employee
services providers to those of Company stockholders. The Plan is further
intended to provide flexibility to the Company in its ability to motivate,
attract, and retain the services of its employees and non-employee services
providers upon whose judgment, interest, and special effort the successful
conduct of the Company's operation is largely dependent.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan is effective as of the date the Plan is approved
--------------
by the Company's Stockholders (the "Effective Date").
ARTICLE 3
DEFINITIONS AND CONSTRUCTION
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the initial
-----------
letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in
this Section or in Sections 1.1 or 2.1 unless a clearly different meaning
is required by the context. The following words and phrases shall have the
following meanings:
(a) "Award" means any Restricted Stock Award, Performance Share Award or
Performance-Based Award granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means termination of employment or service as a result of any of
the following events: (1) the commission of an act of dishonesty, fraud,
embezzlement, theft or other similar acts of misconduct by the Participant,
whether within or outside the scope of the Participant's employment or
service with the Company, (ii) the breach of duty by the Participant in the
course of employment or service, unless waived in writing by the Company,
(iii) the neglect by the Participant of the Participant's duties with the
Company, unless waived in writing by the Company, (iv) the Participant's
disobedience or refusal or failure to discharge the Participant's duties to
the Company under any employment
A-1
agreement or otherwise, (v) the breach of obligations of the Participant to
the Company under this Agreement or any employment or other agreement with
the Company, unless waived in writing by the Company, (vi) the breach by
the Participant of any fiduciary duty to the Company involving personal
gain or profit, including acceptance of gifts, gratuities, honorarium,
lodging, and other items of direct economic value in excess of One Hundred
Dollars ($100.00) from any one source, provided that this section does not
apply to gifts or items received from family members or other non-business
or professional persons, (vii) the violation by the Participant of any law,
rule, regulation, court order (other than a law, rule, or regulation
relating to a traffic violation or similar offense) or a final cease and
desist order, or (viii) the Participant economically committing the Company
beyond the Participant's expressly approved authority as communicated to
the Participant by the Company from time to time.
(e) "Change of Control" means any of the following:
(1) any merger of the Company in which the Company is not the continuing or
surviving entity, or pursuant to which Stock would be converted into cash,
securities, or other property other than a merger of the Company in which
the holders of the Company's Stock immediately prior to the merger have the
same proportionate ownership of beneficial interest of common stock or
other voting securities of the surviving entity immediately after the
merger;
(2) any sale, lease, exchange or other transfer (in one transaction or a series
of related transactions) of assets or earning power aggregating more than
50% of the assets or earning power of the Company or any major subsidiary,
other than pursuant to a sale-leaseback, structured finance or other form
of financing transaction;
(3) the shareholders of the Company approve any plan or proposal for
liquidation or dissolution of the Company; or
(4) any person (as such term is used in Section 13(d) and 14(d)(2) of the
Exchange Act), other than (A) any current shareholder of the Company or
affiliate thereof, or (B) an employee benefit plan of the Company or any
Subsidiary or any entity holding shares of capital stock of the Company for
or pursuant to the terms of any such employee benefit plan in its role as
an agent or trustee for such plan, or (C) any affiliate of the Company as
of the Effective Date becomes the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of 50% or more of the Company's
outstanding Stock.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the committee of the Board described in Article 4.
(h) "Covered Employee" means an Employee who is, or could be, a "covered
employee" within the meaning of Section 162(m) of the Code.
(i) "Disability" shall mean any illness or other physical or mental condition
of a Participant which renders the Participant incapable of performing his
customary and usual duties for the Company, or any medically determinable
illness or other physical or mental condition resulting from a bodily
injury, disease or mental disorder which in the judgment of the
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Committee is permanent and continuous in nature. The Committee may require
such medical or other evidence as it deems necessary to judge the nature
and permanency of the Participant's condition.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
(k) "Fair Market Value" means, as of any given date, the fair market value of
Stock determined as follows:
(1) Where there exists a public market for the Stock, the Fair Market Value
shall be (A) the closing price for the Stock for the last market trading
day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price
was reported) on the stock exchange determined by the Committee to be the
primary market for the Stock or the Nasdaq National Market, whichever is
applicable, or (B) if the Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of
the Stock on the Nasdaq Small Cap Market for the day prior to the time of
the determination (or, if no such prices were reported on that date, on the
last date on which such prices were reported), in each case, as reported in
The Wall Street Journal or such other source as the Committee deems
reliable; or
(2) In the absence of an established market for the Stock of the type described
in (1), above, the Fair Market Value thereof shall be determined by the
Committee in good faith.
(l) "Participant" means a person or entity who, as an employee or non-employee
services provider of the Company or any Subsidiary, has been granted an
Award under the Plan.
(m) "Performance-Based Awards" means the Restricted Stock or Performance Share
Awards granted to selected Covered Employees pursuant to Articles 7 and 8,
but which are subject to the terms and conditions set forth in Article 9.
All Performance-Based Awards are intended to qualify as "performance-based
compensation" pursuant to Section 162(m) of the Code.
(n) "Performance Criteria" means the criteria that the Committee selects for
purposes of establishing the Performance Goal or Performance Goals for a
Participant for a Performance Period. The Performance Criteria that will be
used to establish Performance Goals are limited to the following: number of
customers, pre- or after-tax net earnings, sales or revenue, operating
earnings, operating cash flow, return on net assets, return on
stockholders' equity, return on assets, return on capital, stockholder
returns, gross or net profit margin, earnings per share, price per share of
Stock, and market share, any of which may be measured either in absolute
terms or as compared to any incremental increase or as compared to results
of a peer group. The Committee shall, within the time prescribed by Section
162(m) of the Code, define in an objective fashion the manner of
calculating the Performance Criteria it selects to use for such Performance
Period for such Participant.
(o) "Performance Goals" means, for a Performance Period, the goals established
in writing by the Committee for the Performance Period based upon the
Performance Criteria. Depending on the Performance Criteria used to
establish such Performance Goals, the Performance Goals may be expressed in
terms of overall Company performance or the performance of a division,
business unit, or an individual. The Committee, in its discretion, may,
within the
A-3
time prescribed by Section 162(m) of the Code, adjust or modify the
calculation of Performance Goals for such Performance Period in order to
prevent the dilution or enlargement of the rights of Participants (i) in
the event of, or in anticipation of, any unusual or extraordinary corporate
item, transaction, event, or development, or (ii) in recognition of, or in
anticipation of, any other unusual or nonrecurring events affecting the
Company, or the financial statements of the Company, or in response to, or
in anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions.
(p) "Performance Period" means the one or more periods of time, which may be of
varying and overlapping durations, as the Committee may select, over which
the attainment of one or more Performance Goals will be measured for the
purpose of determining a Participant's right to, and the payment of, a
Performance-Based Award.
(q) "Performance Share" means a right granted to a Participant pursuant to
Article 8, to receive cash, Stock, or other Awards, the payment of which is
contingent upon achieving certain performance goals established by the
Committee.
(r) "Plan" means the YP.Net, Inc. 2003 Stock Plan.
(s) "Restricted Stock" means Stock granted to a Participant under Article 7
that is subject to certain restrictions and to risk of forfeiture.
(t) "Stock" means the common stock of the Company and such other securities of
the Company that may be substituted for Stock pursuant to Article 11.
(u) "Subsidiary" means any corporation or other entity of which a majority of
the outstanding voting stock or voting power is beneficially owned directly
or indirectly by the Company.
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by a Committee appointed by, and
---------
which serves at the discretion of, the Board. If the Board does not appoint
a Committee to administer the Plan, the Plan shall be administered by the
Board and all references herein to the Committee shall refer to the Board.
4.2 ACTION BY THE COMMITTEE. A majority of the Committee shall constitute a
--------------------------
quorum. The acts of a majority of the members present at any meeting at
which a quorum is present and acts approved in writing by a majority of the
Committee in lieu of a meeting shall be deemed the acts of the Committee.
Each member of the Committee is entitled to, in good faith, rely or act
upon any report or other information furnished to that member by any
officer or other employee of the Company or any Subsidiary, the Company's
independent certified public accountants, or any executive compensation
consultant or other professional retained by the Company to assist in the
administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power, authority
------------------------
and discretion to:
A-4
(a) Designate Participants to receive Awards;
(b) Determine the type or types of Awards to be granted to each Participant;
(c) Determine the number of Awards to be granted and the number of shares of
Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the Plan
including but not limited to the purchase price, if any, any restrictions
or limitations on the Award, any schedule for lapse of forfeiture
restrictions or restrictions on the exercisability of an Award, and
accelerations or waivers thereof, based in each case on such considerations
as the Committee in its sole discretion determines;
(e) Amend, modify, or terminate any outstanding Award, with the Participant's
consent unless the Committee has the authority to amend, modify, or
terminate an Award without the Participant's consent under any other
provision of the Plan;
(f) Determine whether, to what extent, and under what circumstances an Award
may be settled in, or the purchase price of an Award, if any, may be paid
in, cash, Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(g) Prescribe the form of each Award Agreement, which need not be identical for
each Participant;
(h) Decide all other matters that must be determined in connection with an
Award;
(i) Interpret the terms of the Plan or any Award Agreement;
(j) Establish, adopt, or revise any rules and regulations as it may deem
necessary or advisable to administer the Plan; and
(k) Make all other decisions and determinations that may be required under the
Plan or as the Committee deems necessary or advisable to administer the
Plan.
4.4 DECISIONS BINDING. The Committee's interpretation of the Plan, any Awards
------------------
granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final,
binding, and conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1 NUMBER OF SHARES. Subject to adjustment provided in Section 11.1, the
------------------
aggregate number of shares of Stock reserved and available for grant under
the Plan shall be 3,000,000.
5.2 LAPSED AWARDS. To the extent that an Award terminates, expires, or lapses
--------------
for any reason, any shares of Stock subject to the Award will again be
available for the grant of an Award under the Plan.
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5.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist,
------------------
in whole or in part, of authorized and unissued Stock, treasury Stock, or
Stock purchased on the open market.
ARTICLE 6
ELIGIBILITY AND PARTICIPATION
6.1 ELIGIBILITY.
-----------
(a) GENERAL. Persons eligible to participate in this Plan include employees and
-------
non-employee service providers of the Company or a Subsidiary, as
determined by the Committee.
(b) FOREIGN PARTICIPANTS. In order to assure the viability of Awards granted to
--------------------
Participants employed or providing services in foreign countries, the
Committee may provide for such special terms as it may consider necessary
or appropriate to accommodate differences in local law, tax policy, or
custom. Moreover, the Committee may approve such supplements to, or
amendments, restatements, or alternative versions of the Plan as it may
consider necessary or appropriate for such purposes without thereby
affecting the terms of the Plan as in effect for any other purpose;
provided, however, that no such supplements, amendments, restatements, or
alternative versions shall increase the share limitations contained in
Section 5.1 of the Plan.
6.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee
---------------------
may, from time to time, select from among all eligible individuals, those
to whom Awards shall be granted and shall determine the nature and amount
of each Award. No individual shall have any right to be granted an Award
under this Plan.
ARTICLE 7
RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards of
----------------------------
Restricted Stock to Participants in such amounts and subject to such terms
and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
7.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such
---------------------------
restrictions on transferability, repurchase, and other restrictions as the
Committee may impose (including, without limitation, limitations on the
right to vote Restricted Stock or the right to receive dividends on the
Restricted Stock). These restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments,
or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
7.3 FORFEITURE. Except as otherwise determined by the Committee at the time of
----------
the grant of the Award or thereafter, upon termination of employment or
services during the applicable restriction period, Restricted Stock that is
at that time subject to restrictions shall be forfeited, provided, however,
that the Committee may provide in any Restricted Stock Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from
specified causes, and
A-6
the Committee may in other cases waive in whole or in part restrictions or
forfeiture conditions relating to Restricted Stock.
7.4 CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the Plan
-----------------------------------
may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the
name of the Participant, certificates must bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, and the Company may, at its discretion, retain physical
possession of the certificate until such time as all applicable
restrictions lapse.
ARTICLE 8
PERFORMANCE SHARES
8.1 GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
------------------------------
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion
to determine the number of Performance Shares granted to each Participant.
All Awards of Performance Shares shall be evidenced by an Award Agreement.
8.2 RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant
------------------
rights, valued as determined by the Committee, and payable to, or
exercisable by, the Participant to whom the Performance Shares are granted,
in whole or in part, as the Committee shall establish at grant or
thereafter. Subject to the terms of the Plan, the Committee shall set
performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to
which they are met, will determine the number and value of Performance
Shares that will be paid to the Participant.
8.3 OTHER TERMS. Performance Shares may be payable in cash, Stock, or other
------------
property, and have such other terms and conditions as determined by the
Committee and reflected in a written Performance Share Award Agreement.
Unless otherwise provided in an Award Agreement, Performance Shares will
lapse immediately if a Participant's employment or service is terminated
for Cause.
ARTICLE 9
PERFORMANCE-BASED AWARDS
9.1 PURPOSE. The purpose of this Article 9 is to provide the Committee the
-------
ability to qualify the Restricted Stock Awards pursuant to Article 7 and
the Performance Share Awards pursuant to Article 8 as "performance-based
compensation" pursuant to Section 162(m) of the Code. If the Committee, in
its discretion, decides to grant a Performance-Based Award to a Covered
Employee, the provisions of this Article 9 shall control over any contrary
provision contained in Articles 7 or 8.
9.2 APPLICABILITY. This Article 9 shall apply only to those Covered Employees
-------------
selected by the Committee to receive Performance-Based Awards. The
Committee may, in its discretion, grant Restricted Stock Awards or
Performance Share Awards to Covered Employees that do not satisfy the
requirements of this Article 9. The designation of a Covered Employee as a
Participant for a Performance Period shall not in any manner entitle the
Participant to receive
A-7
an Award for the period. Moreover, designation of a Covered Employee as a
Participant for a particular Performance Period shall not require
designation of such Covered Employee as a Participant in any subsequent
Performance Period and designation of one Covered Employee as a Participant
shall not require designation of any other Covered Employees as a
Participant in such period or in any other period.
9.3 DISCRETION OF COMMITTEE WITH RESPECT TO PERFORMANCE AWARDS. With regard to
-----------------------------------------------------------
a particular Performance Period, the Committee shall have full discretion
to select the length of such Performance Period, the type of
Performance-Based Awards to be issued, the kind and/or level of the
Performance Goal, and whether the Performance Goal is to apply to the
Company, a Subsidiary or any division or business unit thereof. Unless
otherwise provided in an Award Agreement, Performance-Based Awards will be
forfeited if a Participant's employment is terminated for Cause.
9.4 PAYMENT OR GRANT OF PERFORMANCE AWARDS. Unless otherwise provided in the
-----------------------------------------
relevant Award Agreement, a Participant must be employed by the Company or
a Subsidiary on the day a Performance Award for such Performance Period is
paid or granted to the Participant. Furthermore, a Participant shall be
eligible to receive payment pursuant to a Performance-Based Award for a
Performance Period only if the Performance Goals for such period are
achieved. In determining the actual size of an individual Performance-Based
Award, the Committee may reduce or eliminate the amount of the
Performance-Based Award earned for the Performance Period, if in its sole
and absolute discretion, such reduction or elimination is appropriate.
9.5 MAXIMUM AWARD PAYABLE OR GRANTED. The maximum Performance-Based Award
------------------------------------
payable or granted to any one Participant pursuant to the Plan for a
Performance Period is 1,000,000 shares of Stock, or in the event the
Performance-Based Award is paid in cash, such maximum Performance-Based
Award shall be determined by multiplying 1,000,000 by the Fair Market Value
of one share of Stock as of the date of grant of the Performance-Based
Award.
ARTICLE 10
PROVISIONS APPLICABLE TO AWARDS
10.1 STAND-ALONE AND TANDEM AWARDS. Awards granted under the Plan may, in the
--------------------------------
discretion of the Committee, be granted either alone or in addition to or
in tandem with any other Award granted under the Plan. Awards granted in
addition to or in tandem with other Awards may be granted either at the
same time as or at a different time from the grant of such other Awards.
10.2 EXCHANGE PROVISIONS. The Committee may at any time offer to exchange or buy
-------------------
out any previously granted Award for a payment in cash, Stock, or another
Award (subject to Section 10.1), based on the terms and conditions the
Committee determines and communicates to the Participant at the time the
offer is made.
10.3 TERM OF AWARD. The term of each Award shall be for the period as determined
-------------
by the Committee.
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10.4 FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any
------------------------------
applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary for the payment of an Award, if any, may be made in
such forms as the Committee determines at or after the time of grant,
including without limitation, cash, promissory note, Stock, other Awards,
or other property, or any combination, and may be made in a single payment
or transfer, in installments, or on a deferred basis, in each case
determined in accordance with rules adopted by, and at the discretion of,
the Committee.
10.5 LIMITS ON TRANSFER. No right or interest of a Participant in any Award may
-------------------
be pledged, encumbered, or hypothecated to or in favor of any party other
than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than
the Company or a Subsidiary. Except as otherwise provided by the Committee
or as otherwise provided in this Plan or in the applicable Award Agreement,
no Award shall be assignable or transferable by a Participant other than by
will or the laws of descent and distribution.
10.6 BENEFICIARIES. Notwithstanding Section 10.5, a Participant may, in the
-------------
manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to
any Award upon the Participant's death. A beneficiary, legal guardian,
legal representative, or other person claiming any rights under the Plan is
subject to all terms and conditions of the Plan and any Award Agreement
applicable to the Participant, except to the extent the Plan and Award
Agreement otherwise provide, and to any additional restrictions deemed
necessary or appropriate by the Committee. If the Participant is married, a
designation of a person other than the Participant's spouse as his
beneficiary with respect to more than 50 percent of the Participant's
interest in the Award shall not be effective without the written consent of
the Participant's spouse. If no beneficiary has been designated or survives
the Participant, payment shall be made to the person entitled thereto under
the Participant's will or the laws of descent and distribution. Subject to
the foregoing, a beneficiary designation may be changed or revoked by a
Participant at any time provided the change or revocation is filed with the
Committee.
10.7 STOCK CERTIFICATES. All Stock certificates delivered under the Plan are
-------------------
subject to any stop-transfer orders and other restrictions as the Committee
deems necessary or advisable to comply with Federal or state securities
laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on which the Stock is listed,
quoted, or traded. The Committee may place legends on any Stock certificate
to reference restrictions applicable to the Stock.
10.8 CHANGE OF CONTROL. Unless otherwise provided in an Award Agreement, if a
-------------------
Change of Control occurs, the Board shall have the discretion to remove all
restrictions on, or accelerate the vesting of, outstanding Awards. Upon, or
in anticipation of, such an event, the Committee may cause every Award
outstanding hereunder to terminate at a specific time in the future and, if
applicable, shall give each Participant the right to exercise Awards during
a period of time as the Committee, in its sole and absolute discretion,
shall determine.
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ARTICLE 11
CHANGES IN CAPITAL STRUCTURE
11.1 GENERAL. In the event a stock dividend is declared upon the Stock, the
-------
shares of Stock then subject to each Award (and the number of shares
subject thereto) shall be increased proportionately without any change in
the aggregate purchase price therefor. In the event the Stock shall be
changed into or exchanged for a different number or class of shares of
Stock or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger or
consolidation, the Committee has the authority to substitute for each such
share of Stock then subject to each Award the number and class of shares of
Stock into which each outstanding share of Stock shall be so exchanged, all
without any change in the aggregate purchase price for the shares then
subject to each Award.
ARTICLE 12
AMENDMENT, MODIFICATION AND TERMINATION
12.1 AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the Board, at
---------------------------------------
any time and from time to time, the Committee may terminate, amend, or
modify the Plan; provided, however, that to the extent necessary and
desirable to comply with any applicable law, regulation, or stock exchange
rule, the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
12.2 AWARDS PREVIOUSLY GRANTED. Except as otherwise provided in the Plan,
---------------------------
including without limitation, the provisions of Article 10, no termination,
amendment, or modification of the Plan shall adversely affect in any
material way any Award previously granted under the Plan, without the
written consent of the Participant.
ARTICLE 13
GENERAL PROVISIONS
13.1 NO RIGHTS TO AWARDS. No Participant, employee, non-employee service
----------------------
provider, or other person shall have any claim to be granted any Award
under the Plan, and neither the Company nor the Committee is obligated to
treat Participants, employees, non-employee service providers, and other
persons uniformly.
13.2 NO STOCKHOLDERS RIGHTS. No Award gives the Participant any of the rights of
----------------------
a stockholder of the Company unless and until shares of Stock are in fact
issued to such person in connection with such Award.
13.3 WITHHOLDING. The Company or any Subsidiary shall have the authority and the
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right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of this
Plan.
13.4 NO RIGHT TO EMPLOYMENT OR SERVICES. Nothing in the Plan or any Award
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Agreement shall interfere with or limit in any way the right of the Company
or any Subsidiary to terminate any Participant's employment or services at
any time, nor confer
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upon any Participant any right to continue in the employ of, or to provide
services to, the Company or any Subsidiary.
13.5 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded" plan
----------------------------
for incentive compensation. With respect to any payments not yet made to a
Participant pursuant to an Award, nothing contained in the Plan or any
Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Subsidiary.
13.6 INDEMNIFICATION. To the extent allowable under applicable law, each member
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of the Committee or of the Board shall be indemnified and held harmless by
the Company from any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by such member in connection with or resulting
from any claim, action, suit, or proceeding to which he or she may be a
party or in which he or she may be involved by reason of any action or
failure to act under the Plan and against and from any and all amounts paid
by him or her in satisfaction of judgment in such action, suit, or
proceeding against him or her provided he or she gives the Company an
opportunity, at its own expense, to handle and defend the same before he or
she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
13.7 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken
---------------------------------
into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or other benefit plan of
the Company or any Subsidiary.
13.8 EXPENSES. The expenses of administering the Plan shall be borne by the
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Company and its Subsidiaries.
13.9 TITLES AND HEADINGS. The titles and headings of the Sections in the Plan
---------------------
are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
13.10 FRACTIONAL SHARES. No fractional shares of stock shall be issued and the
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Committee shall determine, in its discretion, whether cash shall be given
in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up or down as appropriate.
13.11 SECURITIES LAW COMPLIANCE. With respect to any person who is, on the
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relevant date, obligated to file reports under Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be void to the extent permitted by law and
voidable as deemed advisable by the Committee.
13.12 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to make
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payment of awards in Stock or otherwise shall be subject to all applicable
laws, rules,
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and regulations, and to such approvals by government agencies as may be
required. The Company shall be under no obligation to register under the
Securities Act of 1933, as amended (the "1933 Act"), any of the shares of
Stock paid under the Plan. If the shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, the Company
may restrict the transfer of such shares in such manner as it deems
advisable to ensure the availability of any such exemption.
13.13 GOVERNING LAW. The Plan and all Award Agreements shall be construed in
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accordance with and governed by the laws of the State of Arizona.
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