SCHEDULE
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Proxy
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Washington,
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YP
CORP.
4840
East Jasmine Street
Suite
105
Mesa,
Arizona 85205-3321
(480)
654-9646
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON APRIL 7, 2006
To
Our
Stockholders:
The
2006
Annual Meeting of Stockholders of YP Corp. will be held at the Mesa Hilton,
1011
W. Holmes Avenue, Mesa, Arizona 85210, on April 7, 2006, beginning at 10:00
a.m.
local time. The Annual Meeting is being held for the following
purposes:
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1.
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To
elect two directors to our company’s board of directors to serve for a
term of three years (such term being subject to approval of Proposal
No.
2);
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2.
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To
amend our Amended and Restated Articles of Incorporation to de-classify
the board of directors, providing for the annual election of all
of our
directors;
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3.
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To
ratify the appointment of Epstein, Weber & Conover, P.L.C., as our
independent auditors for the fiscal year ending September 30, 2006;
and
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4.
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To
transact such other business that may properly come before the
meeting.
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Only
stockholders of record at the close of business on March 5, 2006 are entitled
to
notice of and to vote at the meeting or any postponement or adjournment thereof.
Your vote is important.
All
stockholders are cordially invited to attend the meeting in person. In order
to
assure your representation at the meeting, however, we urge you to complete,
sign, and date the enclosed proxy as promptly as possible and return it to
us
via facsimile to the attention of John Raven at 480-324-2507or in the enclosed
postage-paid envelope. If you attend the meeting in person, you may vote in
person even if you previously have returned a proxy.
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By
Order of the Board of Directors
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/s/
Daniel L. Coury, Sr.
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| Daniel L. Coury, Sr. | |
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Chairman
of the Board
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March 7,
2006
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Mesa,
Arizona
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TABLE
OF CONTENTS
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ABOUT
THE MEETING
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1
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What
is the purpose of the Annual Meeting?
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1
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Who
is entitled to attend and vote at the Annual Meeting?
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1
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How
do I vote?
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1
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What
if I vote and then change my mind?
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1
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What
are the Board’s recommendations?
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2
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What
constitutes a quorum?
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2
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What
vote is required to approve each item?
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2
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Can
I dissent or exercise rights of appraisal?
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3
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Who
pays for this proxy solicitation?
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3
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ELECTION
OF DIRECTORS (Proposal No. 1)
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3
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General
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3
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Vote
Required
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3
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Nominees
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3
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How
are directors compensated?
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4
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How
often did the Board meet during fiscal 2004?
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5
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What
committees has the Board established?
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5
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Audit
Committee Report
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7
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EXECUTIVE
OFFICERS AND COMPENSATION
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10
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Executive
Compensation Summary
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11
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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12
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SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND
MANAGEMENT
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14
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PROPROSAL
TO AMEND OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION (Proposal
No.
2)
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17
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Vote
Required; Effective Date of Amendments
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18
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RATIFICATION
OF INDEPENDENT AUDITORS (Proposal No. 3)
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19
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STOCKHOLDER
PROPOSALS AND NOMINATIONS
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20
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OTHER
MATTERS
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20
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ELECTRONIC
DELIVERY OF FUTURE ANNUAL MEETING MATERIALS
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20
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YP
CORP.
4840
East Jasmine Street
Suite
105
Mesa,
Arizona 85205-3321
(480)
654-9646
PROXY
STATEMENT FOR
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON APRIL 7, 2006
This
Proxy Statement relates to the 2006 Annual Meeting of Stockholders of YP Corp.
The Annual Meeting will be held on April 7, 2006 at 10:00 a.m. local time,
at
the Mesa Hilton, 1011 W. Holmes Avenue, Mesa, Arizona 85210, or at such other
time and place to which the Annual Meeting may be adjourned or postponed.
The
enclosed proxy is solicited by our board of directors.
The
proxy materials relating to the Annual Meeting are first being mailed to
stockholders entitled to vote at the meeting on or about March 13,
2006.
ABOUT
THE MEETING
What
is the purpose of the Annual Meeting?
At
the
Annual Meeting, stockholders will act upon the matters outlined in the
accompanying Notice of Annual Meeting and this Proxy Statement, including (i)
the election of two directors, (ii) amendment of our Amended and Restated
Articles of Incorporation to provide for a de-classified board of directors,
and
(iii) the ratification of auditors. In addition, management will report on
our
most recent financial and operating results and respond to questions from
stockholders.
Who
is entitled to attend and vote at the Annual Meeting?
Only
stockholders of record at the close of business on the record date,
March 5, 2006, or their duly appointed proxies, are entitled to receive
notice of the Annual Meeting, attend the meeting, and vote the shares that
they
held on that date at the meeting or any postponement or adjournment of the
meeting. At the close of business on March 5, 2006, there were issued,
outstanding, and entitled to vote 49,974,736 shares of our common stock,
par value $.001 per share, which are entitled to 49,974,736 votes. You may
not cumulate votes in the election of directors.
How
do I vote?
You
may
vote on matters to come before the meeting in two ways: (i) you can attend
the
meeting and cast your vote in person; or (ii) you can vote by completing,
dating, and signing the enclosed proxy card and returning it to us or by the
use
of mail or facsimile. If you do so, you will authorize the individuals named
on
the proxy card, referred to as the proxy holders, to vote your shares according
to your instructions or, if you provide no instructions, according to the
recommendations of our board of directors.
What
if I vote and then change my mind?
You
may
revoke your proxy at any time before it is exercised by either (i) filing with
our Corporate Secretary a notice of revocation; (ii) sending in another duly
executed proxy bearing a later date; or (iii) attending the meeting and casting
your vote in person. Your last vote will be the vote that is
counted.
1
What
are the board’s recommendations?
Unless
you give other instructions on your proxy card, the persons named on the proxy
card will vote in accordance with the recommendations of our board of directors.
Our board’s recommendations are set forth together with a description of such
items in this Proxy Statement. In summary, our board recommends a vote FOR
election of the nominated slate of directors, FOR amendment of our Amended
and
Restated Articles of Incorporation to provide for a de-classified board of
directors, and FOR the ratification of the auditors.
With
respect to any other matter that properly comes before the meeting, the proxy
holders will vote as recommended by our board of directors or, if no
recommendation is given, in their own discretion.
What
constitutes a quorum?
The
presence at the Annual Meeting, in person or by proxy, of the holders of a
majority of the issued and outstanding shares on the record date will constitute
a quorum, permitting us to conduct our business at the Annual Meeting. Proxies
received but marked as abstentions and broker non-votes (defined below) will
be
included in the calculation of the number of shares considered to be present
at
the meeting for purposes of determining whether a quorum is
present.
What
vote is required to approve each item?
Election
of Directors.
Election
of a director requires the affirmative votes of the holders of a plurality
of
the shares present in person or represented by proxy and entitled to vote at
a
meeting at which a quorum is present. The two persons receiving the greatest
number of votes will be elected as directors. Since only affirmative votes
count
for this purpose, a properly executed proxy marked “WITHHOLD AUTHORITY” with
respect to the election of one or more directors will not be voted with respect
to the director or directors indicated, although it will be counted for purposes
of determining whether there is a quorum. Stockholders may not cumulate votes
in
the election of directors.
Amendment
to our Articles of Incorporation. The
approval of the proposed amendment to our Articles of Incorporation will require
the affirmative vote of the holders of 662/3
% of our
outstanding shares of common stock. A properly executed proxy marked “ABSTAIN”
with respect to any or all of these proposals will not be voted, although it
will be counted for purposes of whether there is a quorum at the meeting.
Because approval of the proposed amendments requires the affirmative vote of
all
of our outstanding shares of common stock, abstentions and broker non-votes
will
have the effect of votes against a proposal to amend our Articles of
Incorporation.
Ratification
of Auditors. The
ratification of the appointment of Epstein, Weber & Conover, P.L.C., as our
independent auditors will require the affirmative vote of the holders of a
majority of the shares represented in person or by proxy and entitled to vote
on
the proposal. A properly executed proxy marked “ABSTAIN” with respect to any
such matter will not be voted, although it will be counted for purposes of
determining whether there is a quorum. Accordingly, an abstention will have
the
effect of a negative vote.
Effect
of Broker Non-Votes.
If your
shares are held by your broker in “street name,” you are receiving a voting
instruction form from your broker or the broker’s agent asking you how your
shares should be voted. Please complete the form and return it in the envelope
provided by the broker or agent. No postage is necessary if mailed in the United
States. If you do not instruct your broker how to vote, your broker may vote
your shares at its discretion or, on some matters, may not be permitted to
exercise voting discretion. Votes that could have been cast on the matter in
question if the brokers have received their customers’ instructions, and as to
which the broker has notified us on a proxy form in accordance with industry
practice or has otherwise advised us that it lacks voting authority, are
referred to as “broker non-votes.” Thus, if you do not give your broker or
nominee specific instructions, your shares may not be voted on those matters
and
will not be counted in determining the number of shares necessary for approval.
Shares represented by such “broker non-votes,” however, will be counted in
determining whether there is a quorum. Accordingly, a broker non-vote will
have
the effect of a negative vote.
2
Can
I dissent or exercise rights of appraisal?
Under
Nevada law, holders of our voting stock are not entitled to dissent from any
of
the proposals to be presented at the Annual Meeting or to demand appraisal
of
their shares as a result of the approval of any of the proposals.
Who
pays for this proxy solicitation?
Our
company will bear the entire cost of solicitation, including the preparation,
assembly, printing, and mailing of this Proxy Statement, the proxy card, and
any
additional solicitation materials furnished to the stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries,
and
custodians holding shares in their names that are beneficially owned by others
so that they may forward the solicitation material to such beneficial
owners.
ELECTION
OF DIRECTORS
(Proposal
No. 1)
General
Our
board
of directors currently is divided into three classes, as nearly equal in number
as possible. Each class serves three years with the terms of office of the
respective classes expiring in successive years. The term of office of directors
in Class I expire at the 2006 Annual Meeting. Subject to the approval of
Proposal No. 2, our board of directors proposes that the nominees described
below, who are currently serving as Class I directors, be reelected to Class
I
for a new term of three years, or until their earlier resignation or removal,
or
until their successors are duly elected and qualified. Our board of directors
has no reason to believe that the nominees will not serve if elected, but if
they should become unavailable to serve as a director, and if the board
designates a substitute nominee, the persons named as proxies will vote for
the
substitute nominee designated by our board.
Vote
Required
If
a
quorum is present and voting, the two nominees receiving the highest number
of
votes will be elected to our board of directors.
Our
board of directors recommends a vote FOR election of the director
nominee.
Nominees
for Director
The
names
of the nominee and certain information about them are set forth
below:
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Name
of Nominee
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Class
(1)
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Proposed
Term
(1)
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Age
|
Position
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Joseph
Cunningham
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I
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2009
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57
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Director
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Elizabeth
DeMarse
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I
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2009
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51
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Director
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____________________
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(1)
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If
Proposal No. 2 is approved at the 2006 Annual Meeting, all directors,
including Mr. Cunningham and Ms. DeMarse (if re-elected), will be
subject
to re-election on an annual basis beginning with the 2007 Annual
Meeting
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JOSEPH
CUNNINGHAM.
Mr.
Cunningham has served as a director of our company since January 2006 and as
Chairman of the Audit Committee since January 8, 2006. Mr. Cunningham founded
and has been the President and Chief Executive Officer of Liberty Mortgage
Acceptance Corporation since 1992. Liberty Mortgage Acceptance Corporation
is a
nationwide mortgage lender. From March 1985 to 1992, Mr. Cunningham was the
Chief Executive Officer of Socal Mortgage Corporation. From March 1984 to
February 1985, Mr. Cunningham was the Chief Operating Officer of Colwell
Financial Corporation and from January 1980 to February 1984, was the Executive
Vice President and Chief Financial Officer of Granite Financial Corporation.
Mr.
Cunningham received a B.S. in Accounting from Boston College in
1969.
3
ELIZABETH
DEMARSE.
Ms.
DeMarse has served as a director of our company since January 8, 2006. Ms.
DeMarse was the Chief Executive Officer and President of Bankrate, Inc. from
April 2000 until July 2004. From January 1999 to May 2000 Ms. DeMarse was an
Executive Vice President at Hoover’s Inc. From October 1998 to January 1999 Ms.
DeMarse was President of Newco, a private equity firm. Ms. DeMarse received
a
degree in History from Wellesley College in 1976 and an M.B.A. from Harvard
Business School in 1980.
Other
Directors
Our
board
of directors currently consists of three members, In addition to Mr. Cunningham
and Ms. DeMarse, our board of directors will include the following individual
following the Annual Meeting:
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Name
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Class
(1)
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Current
Term
(1)
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Age
|
Position
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Daniel
L. Coury, Sr.
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II
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2007
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52
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Chairman
of the Board and acting Chief Executive
Officer
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__________________
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(1)
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If
Proposal No. 2 is approved at the 2006 Annual Meeting, all directors
will
be subject to re-election on an annual basis beginning with the 2007
Annual Meeting.
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DANIEL
L. COURY, SR.
Mr.
Coury has served as a director of our company since February 2000. Since 1990,
Mr. Coury has served as President and Chairman of Mesa Cold Storage, Ltd.,
which
owns and operates the largest cold storage facilities in Arizona. Before Mr.
Coury purchased Mesa Cold Storage, he had experience in international trade,
real estate development, real estate exchanges and serving as a consultant
to
various family businesses, including five General Motors dealerships, numerous
commercial and residential developments and mortuary services.
How
are directors compensated?
The
directors receive a base fee of $36,000 per year for their service on the board
payable monthly. Additionally, committee chairpersons are paid an additional
$10,000 annually payable monthly. Upon election to the board, directors are
awarded 150,000 shares of restricted common stock. This payment schedule was
amended from prior years, in February, 2006, and replaces the previous schedule
of payments based on meetings attended. The shares of restricted common stock
will vest pursuant to the Company’s 2003 YP Corp Stock Plan.
In
addition to regular compensation provided our directors, we have an arrangement
with one of our directors, Mr. Coury, whereby we have agreed to pay $10,000
per month for board and committee services to DLC Consulting, Inc., an entity
owned by Mr. Coury, instead of paying Mr. Coury directly.
4
In
fiscal
2005, our directors received the following compensation for their service as
directors:
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Director
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Cash
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|||
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Alistair
Johnson-Clague
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0
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Paul
Gottlieb
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23,500
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DeVal
Johnson
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18,500
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John
T. Kurtzweil
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34,500
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Daniel
L. Coury, Sr.
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140,000
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Peter
Bergmann
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18,500
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|||
How
often did the board meet during fiscal 2005?
Our
board
of directors met 13 times during fiscal 2005, either telephonically or in
person. Attendance by directors at the meetings of the board and board
committees on which they served was 100% during fiscal 2005.
What
committees has the Board established?
Our
board
of directors has a Corporate Governance and Nominating Committee, a Compensation
Committee, and an Audit Committee.
Corporate
Governance and Nominating Committee.The
purpose of the Corporate Governance and Nominating Committee is to (a) identify
individuals who are qualified to become members of our board of directors,
consistent with criteria approved by the board, and to select, or to recommend
that the board select, the director nominees for the next annual meeting of
stockholders or to fill vacancies on the board; (ii) develop and recommend
to
the board a set of corporate governance principles applicable to our company;
and (iii) oversee the evaluation of the board and our company’s management. Ms
DeMarse is currently the sole member and chairperson of the Corporate Governance
and Nominating Committee, Each member of the committee satisfies the
independence standards specified in Section 121A of the American Stock Exchange
(“AMEX”) Company Guide. Our board of directors has adopted a charter for the
Corporate Governance and Nominating Committee, a copy of which is posted on
our
website at www.yp.com.
The
board formed the Corporate Governance and Nominating Committee in
December,
2005,
and the committee met once during fiscal 2005. Members present at that meeting
were Paul Gottlieb, John Kurtzweil and Alistair Johnson-Clague.
Compensation
Committee.The
Board
currently has no members appointed to the compensation committee.
Audit
Committee.
The
purpose of the Audit Committee is to assist our board of directors in overseeing
(i) the integrity of our company’s accounting and financial reporting processes,
the audits of our financial statements, as well as our systems of internal
controls regarding finance, accounting, and legal compliance; (ii) our company’s
compliance with legal and regulatory requirements; (iii) the qualifications,
independence and performance of our independent public accountants; (iv) our
company’s financial risk; and (v) our company’s internal audit function. In
carrying out this purpose, the Audit Committee maintains and facilitates free
and open communication between the board, the independent public accountants,
and our management. Mr. Cunningham currently is the sole member of our Audit
Committee. Mr. Cunningham. the chairman of the Audit Committee is independent
in
accordance with Section 121A of the American Stock Exchange Company Guide.
Mr.
Cunningham serves as the committee’s chairman and is the “audit committee
financial expert” as defined under Item 401(h) of Regulation S-K. Our Audit
Committee reports its findings directly to the full board. The board of
directors has adopted a charter for the Audit Committee a copy of which was
attached as Appendix
A
to the
proxy statement for our 2005 annual meeting of the stockholders.
Compensation
Committee Interlocks and Insider Participation.
There
were no interlocking relationships between our company and other entities that
might affect the determination of the compensation of our executive
officers.
5
What
are the procedures of the Governance and Nominating Committee in making
nominations?
The
Governance and Nominating Committee will establish and periodically reevaluate
the criteria and qualifications for board membership and the selection of
candidates to serve as directors of our company. In determining whether to
nominate a candidate for director, the Governance and Nominating Committee
will
consider the candidate’s independence standards, experience relevant to the
needs of our company, leadership qualities, diversity, and the ability to
represent our stockholders. The committee, if it so chooses, has the authority
to retain a search firm to identify director candidates and to approve any
fees
and retention terms of the search firm’s engagement.
The
committee shall formulate a process to identify candidates for nomination or
to
be recommended to the board for nomination as directors. The process, at a
minimum, shall
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·
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reflect
the minimum qualifications that in the view of the committee are
required
for membership on the board;
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·
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reflect
any additional qualifications that in the view of the Committee are
required of one or more members of the board;
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·
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provide
for the consideration of the qualifications, performance, and
contributions of incumbent board members who consent to re-election;
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·
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provide
for the identification and evaluation of potential nominees for positions
for which the Committee does not select qualified incumbents for
re-election; and
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·
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provide
for appropriate documentation of the nominations process.
|
Our
board
of directors is of the view that the continuing service of qualified incumbents
promotes stability and continuity in the board room, giving our company the
benefit of the familiarity and insight into our company’s affairs that its
directors have accumulated during their tenure, while contributing to the
board’s ability to work as a collective body. Accordingly, the process of the
Governance and Nominating Committee for identifying nominees reflects the
practice of re-nominating incumbent directors who continue to satisfy the
committee’s criteria for membership on the board, who the committee believes
will continue to make important contributions to the board, and who consent
to
continue their service on the board.
What
are our policies and procedures with respect to director candidates who are
nominated by security holders?
The
Governance and Nominating Committee shall
formulate and recommend for adoption to the full Board a policy regarding
consideration of nominees for election to the Board who are recommended by
security holders of the Company. The policy shall state at a minimum that the
Committee will consider candidates nominated by shareholders of the Company.
The
policy shall contain any other elements that the Committee deems appropriate.
These elements may include requirements relating to minimum share ownership
of
recommending security holder; qualifications of recommended candidates; and
compliance with procedures for submission of recommendations.
The
Committee shall adopt procedures for the submission to the Committee of
shareholder recommendations of nominees for election to the Board, consistent
with the policy adopted by the Board. These procedures, at a minimum, shall
include requirements and specifications relating to the following:
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·
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the
timing for the submission of
recommendations;
|
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·
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the
manner of submission of
recommendations
|
|
·
|
information
required to be provided concerning the recommending security
holder
|
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·
|
information
required to be provided concerning proposed
nominee;
|
6
|
·
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the
consent of the proposed nominee to be contacted and interviewed by
the
Committee;
|
|
·
|
and
the consent of the proposed nominee to serve if nominated and
elected.
|
What
is our policy on director attendance at our annual
meetings?
The
Governance and Nominating Committee of the Board of Directors shall formulate
and recommend to the Board for adoption a policy regarding attendance of
directors at annual meetings of the Company’s stockholders. The policy may
provide for attendance of directors by appropriate means of electronic
conferencing.
Four
of
our directors attended our 2005 annual meeting of stockholders. All current
directors anticipate attending the 2006 annual meeting of
stockholders.
How
can investors communicate with the board of directors?
It
is the
policy of our company to facilitate security holder communications to the board
of directors and to provide a method whereby interested parties can make their
concerns known to the board’s non-management directors. The
Governance and Nominating Committee of the Board of Directors shall formulate
procedures for security holders to send communications to the Board. The
Committee shall also formulate procedures for interested parties to communicate
with non-management directors. These procedures, at a minimum, shall include
requirements and specifications relating to the following:
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·
|
the
manner in which communications may be sent to
directors;
|
|
·
|
any
information required to be provided concerning the communicating
security
holder or other party;
|
|
·
|
the
process for collecting and organizing
communications;
|
|
·
|
the
process for determining which communications will be relayed to the
directors;
|
|
·
|
the
manner and timing of delivery of communications to the
directors;
|
|
·
|
and
in the case of communications to non-management directors, procedures
for
determining if and when such communications should be shared with
management.
|
Does
the company have a code of ethics?
We
have
adopted a code of ethics that applies to all directors, officers, and employees
of our company, including the Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer, and Chief Technical Officer. We have filed our code
of
ethics as an exhibit to our annual report on Form 10-K for the year ended
September 30, 2005. In addition, our code of ethics is posted under “Investor
Relations” on our Internet website at www.yp.com. We will mail a copy of our
code of ethics at no charge upon request submitted to YP Corp., Attention:
Investor Relations, 4840 East Jasmine Street, Suite 105, Mesa, Arizona, 85205.
If we make any amendment to, or grant any waivers of, a provision of the code
of
ethics that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller where such amendment or
waiver is required to be disclosed under applicable SEC rules, we intend to
disclose such amendment or waiver and the reasons therefore on Form 8-K or
on
our Internet website at www.yp.com.
Audit
Committee Report
The
Securities and Exchange Commission rules require us to include in our proxy
statement a report from the Audit Committee of our board of directors. The
following report concerns the Audit Committee’s activities regarding oversight
of our financial reporting and auditing process and does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other filing that we make under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent we specifically
incorporate this report in such filings.
7
It
is the
duty of the Audit Committee to provide independent, objective oversight of
our
accounting functions and internal controls. The Audit Committee acts under
a
written charter that sets forth the audit-related functions we are expected
to
perform. Our functions are to:
|
·
|
Serve
as an independent and objective party to monitor YP Corp.’s financial
reporting process and system of internal control
structure;
|
|
·
|
Review
and appraise the audit efforts of YP Corp.’s independent auditors;
and
|
|
·
|
Provide
an open avenue of communication among the independent auditors, financial
and senior management, and the board of
directors.
|
We
meet
with management periodically to consider the adequacy of YP Corp.’s internal
controls and the objectivity of its financial reporting. We discuss these
matters with YP Corp.’s independent auditors and with appropriate financial
personnel. We regularly meet privately with the independent auditors, who have
unrestricted access to the Audit Committee. We also recommend to the board
the
appointment of the independent auditors and review periodically their
performance and independence from management. Toward that end, we have
considered whether any non-audit related services provided by YP Corp.’s
independent auditors are compatible with their independence. In addition, we
review our financing plans and report recommendations to the full board for
approval and to authorize action.
Management
of YP Corp. has primary responsibility for its financial statements and the
overall reporting process, including its system of internal control structure.
The independent auditors (a) audit the annual financial statements prepared
by
management, (b) express an opinion as to whether those financial statements
fairly present YP Corp.’s financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles, and (c)
discuss with YP Corp. any issues they believe should be raised. Our
responsibility is to monitor and review these processes.
It
is not
our duty or responsibility to conduct auditing or accounting reviews or
procedures. We are not employees of YP Corp. while serving on the Audit
Committee. We are not and we may not represent ourselves to be or to serve
as
accountants or auditors by profession or experts in the fields of accounting
and
auditing. Therefore, we have relied, without independent verification; on
management’s representation that the financial statements have been prepared
with integrity and objectivity and in conformity with accounting principles
generally accepted in the United States of America and on the representations
of
the independent auditors included in their report on YP Corp.’s consolidated
financial statements. Our oversight does not provide us with an independent
basis to determine that management has maintained appropriate accounting and
financial reporting principles or policies, or appropriate internal controls
and
procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, our considerations and discussions
with management and the independent auditors do not assure that YP Corp.’s
consolidated financial statements are presented in accordance with accounting
principles generally accepted in the United States of America, that the audit
of
YP Corp.’s consolidated financial statements has been carried out in accordance
with generally accepted auditing standards or that YP Corp.’s independent
accountants are in fact “independent.”
This
year, we reviewed YP Corp.’s audited consolidated financial statements and met
with both management and Epstein, Weber & Conover, P.L.C., YP Corp.’s
independent auditors, to discuss those consolidated financial statements.
Management has represented to us that the consolidated financial statements
were
prepared in accordance with accounting principles generally accepted in the
United States of America. We have received from and discussed with Epstein,
Weber & Conover, P.L.C. the written disclosure and the letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit
Committees). These items relate to that firm’s independence from YP Corp. We
also discussed with Epstein, Weber & Conover, P.L.C. any matters required to
be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees), as amended by Statement on Auditing Standards No. 89 and
No. 90.
8
Based
on
these reviews and discussions, we recommended to the board that YP Corp.’s
audited consolidated financial statements should be included in YP Corp.’s
Annual Report on Form 10-K for the fiscal year ended September 30, 2005.
The
Audit Committee
Joseph
F.
Cunningham, Chairman
9
EXECUTIVE
OFFICERS
Executive
Officers
Our
executive management consists of the following personnel:
|
Name
|
Age
|
Position
|
|
Daniel
L. Coury Sr.
|
52
|
Acting
Chief Executive Officer
|
|
John
Raven
|
41
|
Chief
Operating Officer
|
DANIEL
L. COURY, SR.
Mr.
Coury has served as a director of our company since February 2000 and as our
acting Chief Executive Officer since January 2006. Since 1990, Mr. Coury has
served as President and Chairman of Mesa Cold Storage, Ltd., which owns and
operates the largest cold storage facilities in Arizona. Before Mr. Coury
purchased Mesa Cold Storage, he had experience in international trade, real
estate development, real estate exchanges and serving as a consultant to various
family businesses, including General Motors dealerships, numerous commercial
and
residential developments and mortuary services.
JOHN
RAVEN.
Mr.
Raven has served as our Chief Operating Officer since July 2005. Mr. Raven
has
served as our Chief Technology Officer since September 2003. Mr. Raven has
over
eleven years experience in the technology arena and 16 years of overall
leadership experience working with companies such as Perot Systems (PER), where
he worked in 2003 and managed 640 staff members, Read-Rite Corp (RDRT), where
he
worked from 2000 to 2003, and as Cap Gemini Ernst & Young (CAPMF), where he
worked from 2000 to 2002. Mr. Raven also served as Director of Information
Technology at Viacom’s ENG Network division, where he worked from 1996 to 1999.
Mr. Raven has experience in software engineering, data and process architecture,
systems development, and database management systems. At NASA’s Jet Propulsion
Laboratory, where he worked from 1993 to 1996, Mr. Raven was a team member
and
information systems engineer for the historic 1997 mission to Mars conducted
with the Pathfinder space vehicle and the Sojourner surface rover. Mr. Raven
received his Bachelors of Science in Computer Science from the California
Institute of Technology in 1991. His certifications include Cisco Internetwork
Engineer, Project Management from the Project Management Institute, Certified
Project Manager from Perot Management Methodology Institute, Microsoft Certified
System Engineer, and Certified Novel Engineer.
10
EXECUTIVE
COMPENSATION
Executive
Compensation Summary
The
following table sets forth the total compensation for the fiscal years ended
September 30, 2005, 2004, and 2003 paid to or accrued for our Chief
Executive Officer and our other executive officers who earned more than $100,000
in salary and bonus during fiscal 2005. Additionally, we have included the
compensation for one former executive officer who departed during the last
fiscal year and whose compensation actually paid would have placed her among
our
executive officers who earned more than $100,000 in salary and bonus during
fiscal 2005. These executive officers are collectively referred to as the “Named
Executive Officers.”
SUMMARY
COMPENSATION TABLE
|
Annual
Compensation
|
Long
Term
Compensation
|
||||||||||||||||||
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual
Compensation($)
|
Restricted
Stock
Awards($)(1)
|
All
Other
Compensation
($)(2)
|
|||||||||||||
|
Peter
J. Bergmann (3)
|
2005
|
$
|
220,833
|
$
|
130,000
|
-
|
$
|
85,000
|
$
|
18,500
|
|||||||||
|
Chairman,
Chief Executive
|
2004
|
50,000
|
181,796
|
-
|
1,777,250
|
37,800
|
|||||||||||||
|
Officer,
President
|
2003
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
W.
Chris Broquist (4)
|
2005
|
$
|
156,867
|
-
|
-
|
$
|
42,500
|
-
|
|||||||||||
|
Chief
Financial Officer
|
2004
|
18,000
|
-
|
-
|
153,500
|
-
|
|||||||||||||
|
and
Secretary
|
2003
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
John
Raven (5)
|
2005
|
$
|
211,500
|
$
|
30,000
|
-
|
$
|
21,250
|
-
|
||||||||||
|
Chief
Operating Officer
|
2004
|
151,888
|
-
|
-
|
-
|
-
|
|||||||||||||
|
2003
|
8,654
|
-
|
-
|
150,000
|
-
|
||||||||||||||
|
Penny
Spaeth (6)
|
2005
|
$
|
102,083
|
$
|
1,000
|
-
|
$
|
21,250
|
-
|
||||||||||
|
Chief
Operating Officer
|
2004
|
114,245
|
-
|
-
|
-
|
||||||||||||||
|
2003
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||
___________________
|
(1)
|
The
amounts under the Restricted Stock Awards column represent the dollar
value of shares of restricted stock issued to the Named Executive
Officers
under our 2003 Stock Plan. The holders of these shares of restricted
stock
receive dividends on such shares when and if declared and paid on
shares
of our common stock. At September 30, 2005, the number of shares
of
restricted stock held by each of the Named Executive Officers and
the
value of such shares, based on a closing price of $0.880 per share
on that
date, was as follows: Mr. Bergmann: 1,300,000 shares ($1,144,000);
Mr.
Broquist: 150,000 shares ($132,000); Mr. Raven: 125,000 shares ($110,000);
and Ms. Spaeth: 0 shares ($0.).
|
|
(2)
|
The
amounts shown for fiscal 2005 reflect Directors fees paid to Mr.
Bergmann
during the year.
|
|
(3)
|
Mr.
Bergmann served as our President, Chief Executive Officer and Chairman
from May 2004 until December 2005. Mr. Bergmann’s compensation
arrangements are described below under “Certain
Relationships and Related Transactions - Agreements with Executive
Officers.”
|
|
(4)
|
Mr.
Broquist was appointed Chief Financial Officer in August 2004. Mr.
Broquist’s compensation arrangements are described below under
“Certain
Relationships and Related Transactions - Agreements with Executive
Officers.”
|
|
(5)
|
Mr.
Raven joined our company in August 2003. Mr. Raven’s compensation
arrangements are described below under “Certain
Relationships and Related Transactions - Agreements with Executive
Officers.”
|
|
(6)
|
Ms.
Spaeth served as our Chief Operating Officer from April 2004 until
July
2005. Ms. Spaeth’s compensation arrangements are described below under
“Certain
Relationships and Related Transactions - Agreements with Executive
Officers.”
|
11
Compensation
Pursuant to Stock Options
No
options were granted to any of the Named Executive Officers during the fiscal
year ended September 30, 2005. As of September 30, 2005, 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.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements
with Executive Officers
Mr.
Bergmann was appointed our President, Chief Executive Office, and Chairman
of
the Board in May 2004. Mr. Bergmann previously had been an independent director
of our company since May 2002. In connection with Mr. Bergmann’s appointment, we
entered into an employment agreement with him. The employment agreement had
a
three year term. Under the employment agreement, Mr. Bergmann was entitled
to an annual base salary of $200,000, subject to annual increases to $225,000
during the second year and $275,000 during the third year of the employment
agreement, in addition to performance bonuses of our company’s common stock
issued out of our 2003 Stock Plan. In connection with the execution of the
employment agreement, Mr. Bergmann received 1,000,000 shares of restricted
common stock of our company. Mr. Bergmann also was entitled to housing and
automobile allowances and reimbursement for all business expenses incurred
by
him in connection with his employment.
On
November 3, 2005, Mr. Bergmann resigned as Chairman and President of our company
and we entered into a separation agreement with Mr. Bergmann. In connection
with
the separation agreement, on November 3, 2005, our company and Mr. Bergmann
terminated his employment agreement and his restricted stock agreement. Pursuant
to the separation agreement, Mr. Bergmann resigned as our Chief Executive
Officer immediately upon the filing of our Annual Report on Form 10-K and Mr.
Bergmann was to continue to serve as a director of our company until the Annual
Meeting. Mr. Bergmann resigned as a director of the Company on January 9,
2006.
In
consideration of a waiver of all rights to severance and certain other covenants
and a general release of all claims by Mr. Bergmann, the separation agreement
provided for the continued payment of Mr. Bergmann’s monthly salary until his
resignation as CEO. We also paid to Mr. Bergmann 18 months of his current salary
in one payment of $337,500 on or before January 2, 2006. We also will continue
to provide Mr. Bergmann with health insurance for 12 months or until he is
employed elsewhere with a company that offers an insurance program.
Pursuant
to the separation agreement, Mr. Bergmann forfeited all shares of our common
stock and any other unvested capital stock or options to purchase such stock
received by Mr. Bergmann, or an affiliated party, while employed by our company
except for (i) 50,000 shares granted to Mr. Bergmann in 2002 that were fully
vested, (ii) 600,000 shares of the total 1,000,000 shares granted to Mr.
Bergmann under a restricted stock agreement and (iii) 100,000 shares granted
to
Mr. Bergmann in April 2005. The parties agreed that the shares set forth in
(ii)
and (iii) above will remain subject to contractual restrictions on transfer
for
18 months, or until a change of control or our stock price achieving certain
sustained levels.
On
August
3, 2004, we hired W. Chris Broquist as our Chief Financial Officer and entered
into an employment agreement with him. The employment agreement has a three
year
term. Under the employment agreement, Mr. Broquist is entitled to an annual
base salary of $144,000, subject to annual increases to $160,000 in the second
year and $176,000 in the third year, in addition to performance bonuses of
our
company’s common stock issued out of our 2003 Stock Plan. In connection with the
execution of the employment agreement, Mr. Broquist received 100,000 shares
of
restricted common stock. Mr. Broquist also is entitled to housing and automobile
allowances and reimbursement for all business expenses incurred by him in
connection with his employment.
On
January 19, 2006, the Company entered into a Separation Agreement & General
Release with Chris Broquist, its Chief Financial Officer, pursuant to which
Mr.
Broquist and the Company have agreed to terminate their employment relationship
effective February 28, 2006. Pursuant to the terms of the Separation Agreement
& General Release, among other items, Mr. Broquist will receive a severance
package consisting of six months of compensation and health benefits and the
continued vesting of his restricted stock and Mr. Broquist has agreed not to
compete with the Company or solicit any of the employees of the Company for
a
period of two years.
12
On
September 21, 2004, we entered into a two-year employment agreement with
John Raven, who now serves as our Chief Operating Officer. Under the employment
agreement, Mr. Raven is entitled to an annual base salary of $165,000,
subject to an increase to $185,000 in the second year, in addition to a $35,000
signing bonus and performance bonuses of restricted stock. Mr. Raven’s agreement
was renewed and extended as of February 6, 2006 for an additional two years
whereby he is to receive a base salary of $181,500. Salary for subsequent years
will be determined by the Compensation Committee but in no event be less that
110% of the prior years salary. On April 1, 2006, Mr. Raven is to receive a
cash
bonus of $50,000. Additionally, Mr. Raven is to receive a bonus of 150,000
shares of restricted stock under the 2003 Stock Plan either upon change of
control as defined in the plan or when the when the Company’s stock trades at
$2.00 per share: which ever comes first
Effective
January 2006, Mr. Daniel L. Coury Sr. was appointed Chairman of the Board and
acting Chief Executive Officer. In addition to the director fees he currently
receives, Mr. Coury is to receive $25,000 per month for months he serves in
the
capacity of acting Chief Executive Officer. He is also granted 300,000 shares
of
restricted stock under the Company’s 2003 YP Corp Stock Plan. He is also to
receive an additional 100,000 restricted shares upon appointment of a new CEO
and an additional 100,000 restricted shares in the event YP Corp. common stock
closes at a price of $2.00 per share for a period of 31 days.
On
November 1, 2004, we entered into a two-year employment agreement with Penny
Spaeth, who served as our Chief Operating Officer from April 2004
until July
2005. Under the agreement, Ms. Spaeth was entitled to an annual base salary
of
$137,500, subject to an increase to $151,020, in addition to performance bonuses
of 25,000 shares of restricted stock. Ms. Spaeth was entitled to receive $400
per month allowance for automobile usage and $100 per month allowance for
cellular phone charges. Under the terms of Ms. Spaeth’s separation agreement,
she received severance payments totaling $80,000 and received health benefits
for six months.
Other
Relationships and Related Transactions
Termination
Agreements with Former Executive Officers
Prior
to
fiscal 2004, our company entered into executive consulting agreements with
(i)
an entity controlled by Angelo Tullo, our then-President, Chief Executive
Officer, and Chairman of the Board; (ii) an entity controlled by David Iannini,
our then-Chief Financial Officer; (iii) an entity controlled by Gregory Crane,
a
former director of our company; and (iv) an entity controlled by DeVal Johnson,
our then-Vice President, Secretary, and a director of our company. The
agreements called for fees to be paid to those entities for the services
provided by those individuals as officers of our company, as well as their
respective staffs. During fiscal 2004, our company terminated the executive
consulting agreements with the entities controlled by Messrs. Tullo, Iannini
and
Crane. In fiscal 2005, our company
terminated the remaining executive consulting agreement with Mr. Johnson.
The
termination agreements provided for cash payments totaling $2,145,000 in
exchange for consulting services and non-compete agreements. In the fourth
quarter of fiscal 2005, however, we concluded all matters with respect to these
parties and made all remaining payments owed under the termination
agreements.
Shareholder
Agreements
Prior
to
and during fiscal 2004 we advanced funds to our two largest stockholders, Morris
& Miller, Ltd. and Mathew and Markson, Ltd. (together, the “Stockholders’).
We terminated the line of credit agreement with the Stockholders effective
April
9, 2004. During the fiscal year ended September 30, 2004, the Stockholders
made
accelerated principal reductions of $1.6 million almost three years in advance
of their maturity.
On
April
1, 2005, our company and the Stockholders entered into a Transfer and Repayment
Agreement. Under the agreement, the Stockholders satisfied all of their
outstanding debt obligations to our company as follows:
|
·
|
The
Stockholders agreed to surrender and deliver to our company 1,889,566
shares of common stock previously owned by the Stockholders;
|
13
|
·
|
The
Stockholders forgave $115,865 of debt and all related accrued interest
owed by our company to the Stockholders;
|
|
·
|
The
Stockholders released any liens they previously had on any shares
of our
company’s common stock;
|
|
·
|
The
Stockholders assigned certain intellectual property to our Company;
and
|
|
·
|
The
Stockholders agreed to a non-compete and non-solicitation agreement
whereby the Stockholders and their affiliates agree not to compete
with
our company or solicit any customers for a period of five years.
|
Related
Party Transaction Policy
Our
general policy requires adherence to Nevada corporate law regarding transactions
between our company and a director, officer or affiliate of our company.
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
stockholders or if the transaction is otherwise fair to our company. It is
our
policy that transactions with related parties are conducted on terms no less
favorable to our company than if they were conducted with unaffiliated third
parties. During the fiscal year ended September 30, 2005, there were no related
party transactions except as described above.
SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of March 5, 2006, with respect to (i) each Named Executive
Officer and each director of our company; (ii) all Named Executive Officers
and
directors of our company as a group; and (iii) each person known to our company
to be the beneficial owner of more than 5% of our company’s common stock. The
information as to beneficial ownership was furnished to us 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.
|
Name
|
Shares
Beneficially
Owned
|
Percentage
of
Shares
Outstanding (1)
|
|||||
|
W.
Chris Broquist
|
150,000
|
*
|
|||||
|
John
Raven
|
125,000
|
*
|
|||||
|
Daniel
L. Coury, Sr. (2)
|
650,000
|
1.3
|
%
|
||||
|
Joseph
Cunningham
|
150,000
|
0
|
|||||
|
Elizabeth
DeMarse
|
150,000
|
0
|
|||||
|
Costa
Brava Partnership III, L.P. (7)
|
2,469,200
|
5.1
|
%
|
||||
|
Ewing
& Partners (8)
|
2,801,943
|
5.8
|
%
|
||||
|
Grand
Slam Asset Management (6)
|
3,745,880
|
7.7
|
%
|
||||
|
Mathew
and Markson Ltd. (3)
|
4,060,062
|
8.3
|
%
|
||||
|
Morris
& Miller Ltd. (3)
|
3,711,434
|
7.6
|
%
|
||||
|
Angelo
Tullo (4)
|
4,066,580
|
8.
3
|
%
|
||||
|
Sunbelt
Financial Concepts, Inc.(5)
|
4,066,580
|
8.
3
|
%
|
||||
|
All
executive officers and
directors
as a group (5 persons).
|
1,225,000
|
2.5
|
%
|
||||
_________________________
*
Represents less than one percent of our issued and outstanding common
stock.
|
(1)
|
Based
on 48,726,594 shares outstanding as of February 23, 2006.
|
14
|
(2)
|
Of
the number shown, (i) 55,000 shares are owned by Children’s Management
Trust (the “Coury Trust”), of which Mr. Coury is a co-trustee, and (ii)
10,093 shares are owned by DLC & Associates Business Consulting, Inc.
(“DLC”), of which Mr. Coury is the President. Mr. Coury disclaims
beneficial ownership of the shares owned by the Coury Trust and DLC
except
to the extent of any of his proportionate interest therein, if
any.
|
|
(3)
|
Address
is Woods Centre, Friar’s Road, P.O. Box 1407, St. John’s, Antigua, West
Indies. Ilse Cooper is the control person for both Mathew and Markson
and
Morris & Miller.
|
|
(4)
|
Of
the number shown, 3,616,580 shares are owned by Sunbelt Financial
Concepts, Inc., See footnote 5. Mr. Tullo is the President of Sunbelt
and
has dispositive power over the shares of Common Stock owned by Sunbelt.
Mr. Tullo disclaims beneficial ownership of the shares owned by Sunbelt
except to the extent of any proportionate interest therein. Mr. Tullo’s
address is 4710 E. Falcon Drive, #209, Mesa, Arizona
85215.
|
|
(5)
|
Hickory
Management is the owner of Sunbelt and J.C. McDaniel, Esq. is the
control
person of Hickory Management. Sunbelt’s address is 4710 E. Falcon Drive,
#209, Mesa, Arizona 85215.
|
|
(6)
|
Address
is One Bridge Plaza, Ft. Lee, New Jersey
07024
|
|
(7)
|
Address
is 420 Boylston St., Boston Massachusetts
02116
|
|
(8)
|
Address
is 4514 Cole Avenue, Suite 808, Dallas Texas
75205
|
|
(Cayman)
Limited, 36C Bermuda House, British American Center, Dr. Roy’s Drive, P.O.
Box 513GT, George Town, Grand Cayman, Cayman Islands, B.W.I. The
address
of Asset Management is One Bridge Plaza, Fort Lee, New Jersey 07024.
The
information set forth above is based upon the Schedule 13D/A filed
by
Master Fund and Asset Management on December 23,
2005.
|
Equity
Compensation Plan Information
WE
MAINTAIN THE 2003 STOCK PLAN PURSUANT TO WHICH WE MAY GRANT EQUITY AWARDS TO
ELIGIBLE PERSONS. THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION ABOUT
EQUITY AWARDS UNDER OUR 2003 STOCK PLAN, AS WELL AS AN INDIVIDUAL EQUITY
COMPENSATION ARRANGEMENT WITH OUR CHIEF EXECUTIVE OFFICER,
AS
OF SEPTEMBER 30, 2005:
|
(a)
|
(b)
|
(c)
|
||||||||
|
Plan
category
|
Number
of securities to
be
issued upon exercise of
outstanding
options,
warrants
and rights
|
Weighted-
average
exercise price of
outstanding
options,
warrants
and rights
|
Number
of securities
remaining
available for future
issuance
under equity
compensation
plans
(excluding
securities reflected
in
column (a))
|
|||||||
|
Equity
compensation plans
approved by security
holders (1)
|
2,943,000
(2
|
)
|
N/A
|
2,057,000
|
||||||
|
Equity
compensation plans
not approved by security
holders
|
1,000,000(3
|
)
|
N/A
|
0
|
||||||
|
Total
|
3,943,000
|
N/A
|
2,057,000
|
|||||||
___________________
|
(1)
|
The
2003 Stock Plan was approved by written consent of a majority of
our
company’s stockholders on July 21,
2003.
|
|
(2)
|
This
number represents the number of shares of restricted stock granted
to
eligible persons under the 2003 Stock
Plan.
|
|
(3)
|
This
number represents shares of restricted stock that were granted to
Peter J.
Bergmann, our Chairman and Chief Executive Officer, pursuant to a
restricted stock agreement dated June 6, 2004. These shares were
not
granted under our 2003 Stock Plan. These shares of restricted stock
vest
in accordance with a performance-based vesting schedule. As of September
30, 2004, none of these shares is vested. For a description of this
equity
compensation arrangement, see Note 14 in the notes to our financial
statements in Item 7 of this Form
10-KSB.
|
15
Our
2003 Stock Plan
During
the year ended September 30, 2002, our stockholders approved the 2002 Employees,
Officers & Directors Stock Option Plan (the “2002 Plan”), which was intended
to replace our 1998 Stock Option Plan (the “1998 Plan”). The 2002 Plan was never
implemented, however, and no options, shares or any other securities were issued
or granted under the 2002 Plan. There were 3,000,000 shares of our common stock
authorized under the 2002 Plan. On June 30, 2003 and July 21, 2003,
respectively, our Board of Directors and a majority of our stockholders
terminated both the 1998 Plan and the 2002 Plan and approved our 2003 Stock
Plan. The 3,000,000 shares of common stock previously allocated to the 2002
Plan
were re-allocated to the 2003 Stock Plan.
In
April
2004, our stockholders and our Board of Directors approved an amendment to
the
2003 Stock Plan to increase the aggregate number of shares available there
under
by 2,000,000 shares in order to have an adequate number of shares available
for
future grants.
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors, and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (“SEC”). Based solely on
our review of the copies of such forms filed under the SEC during the year
ended
September 30, 2005, we believe that during such year our executive officers,
directors and ten percent stockholders complied with all such filing
requirements except for Matthew and Markson Ltd. and Morris & Miller Ltd.,
who filed several reports late.
PERFORMANCE
GRAPH
16
PROPOSAL
TO AMEND OUR
AMENDED
AND RESTATED ARTICLES OF INCORPORATION
TO
PROVIDE FOR THE ANNUAL ELECTION OF ALL DIRECTORS
(Proposal
No. 2)
General
Information
Our
Amended and Restated Articles of Incorporation (the “Articles”) currently
divides our board of directors into three classes, with the directors in each
class elected to three-year terms. Because the stockholders currently elect
directors to only one class each year, roughly one-third of our directors are
elected annually pursuant to this classified board structure. The board of
directors, in its continuing review of corporate governance matters, and after
careful consideration and consultation with management and outside advisors
and
now recommends stockholder approval of a proposal to amend Article 5 of the
Articles to eliminate the classification of our board of directors.
Background
of the Proposal
Classified
boards have been widely adopted and have a long history in corporate law. The
board of directors considered arguments for maintaining, as well as for
eliminating, the classified board structure, as follows:
Advantages
of a Classified board
Proponents
of classified boards believe that they provide continuity and stability to
the
board, facilitate a long-term outlook by the board, and enhance the independence
of non-employee directors. Overlapping three-year terms of directors promote
continuity and stability of management by ensuring that, at any given time,
two-thirds of the directors have at least one year’s experience on the board. In
addition, three-year director terms strengthen director independence by
lessening the threat that a director who refuses to act in conformity with
the
wishes of management or other directors will not be re-nominated for election
as
a director.
Proponents
of a classified board also believe the structure reduces the likelihood of
an
unsolicited and disadvantageous takeover of control of our company, which might
cause our stockholders to receive less than an adequate price for their stock,
because a would-be acquiror cannot replace a majority of our board of directors
at a single annual meeting. Because a would-be acquiror cannot easily remove
a
classified board, our board of directors may possess greater bargaining power
to
obtain the best price from an acquiror and is likely to have more time to search
for superior alternatives.
Disadvantages
of a Classified Board
An
increasing number of investors have come to believe that classified boards
reduce accountability of directors because they limit the ability of
stockholders to evaluate and elect all directors on an annual basis. In
addition, many investors believe that a staggered board may become entrenched
and discourage acquisition proposals that might otherwise be in the best
interest of stockholders.
The
Board’s Decision to Adopt the Proposal
Our
board
of directors is committed to good corporate governance. The board believes
that
the election of directors is a primary means for our stockholders to have a
voice in the management of our company, to influence corporate governance
policies, and to hold management accountable for implementing those policies.
The board recognizes that the annual election of all directors is in line with
emerging practices in the area of corporate governance, because an annual
election provides stockholders with the opportunity to register their views
on
the performance of the entire board each year. The board consulted with our
company’s management and our outside advisors when it considered the various
positions for and against a classified board. Based upon that analysis and
the
recommendation of the Nominating Committee, the board has determined that
amending the Articles to provide for the annual election of all directors is
in
the best interests of our company and its stockholders at this
time.
17
Approval
of the Proposal; Vote Required; Effective Date of the
Amendment
The
board
of directors has approved, and recommends that stockholders consider and
approve, a proposal to amend the Articles to eliminate the current division
of
the board of directors into three classes. The affirmative vote of the holders
of 662/3%
of our
issued and outstanding shares of common stock as of the record date and present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to approve the proposal to amend our Articles. Because approval
of the amendment requires the affirmative vote of holders of 662/3%
of the
shares of our common stock outstanding and entitled to vote thereon, abstentions
and broker non-votes will have the same effect as votes cast against a proposal
at the Annual Meeting.
If
the
proposed amendment is approved, all directors would be elected to one-year
terms
commencing with the 2007 Annual Meeting. In order to facilitate the transition
from classified three-year terms to non-classified one-year terms, each director
whose term would not otherwise expire at the 2007 Annual Meeting has agreed
to
tender his resignation effective immediately prior to the 2007 Annual Meeting.
The
board
has set the current number of directors at 5, which the proposal would not
change. The board, however, will retain the authority to change that number
and
to appoint directors to fill any board vacancies, including any that result
from
an increase in the size of the board.
If
the
amendment to Article 5 of the Articles is adopted pursuant to this proposal,
Article 5, Section 5.1(a) would be amended in its entirety and Article 5,
Section 5.1(b) would be renumbered as Article 5, Section 5.2 and amended. The
text of Article 5, as amended, would read as follows:
“5. Board
of Directors.
The
affairs of the Corporation shall be governed by a Board of Directors. Subject
to
any rights to elect directors (“Preferred Stock Directors”) granted to the
holders of any series of Preferred Stock as set forth in the Certificate of
Designation for such series or class of Preferred Stock, the number of persons
to serve on the Board of Directors, and the number of directors in each class
of
directors, shall be fixed as set forth in the Bylaws and such number may be
increased or decreased from time to time in such manner as provided by the
Bylaws, but the number of directors shall never be less than three. Directors
of
the Corporation need not be residents of the State of Nevada and need not own
shares of the Corporation's stock.
5.1 Terms
of Directors.
Beginning with the Corporation’s annual meeting of stockholders to be held in
2007, the directors shall be elected for terms lasting until the next annual
meeting of stockholders following their election, and until their successors
are
elected and qualified, subject to their earlier death, resignation or removal
from the board of directors.
5.2 Removal
of Directors.
Notwithstanding any other provision of these Amended and Restated Articles
of
Incorporation or the Bylaws of the Corporation, any director of the Corporation
may be removed at any time, but only for cause and only by the affirmative
vote
of the holders of at least 662/3%
of the
voting power of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose. Notwithstanding the foregoing, whenever the holders of any one or
more
series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
preceding provisions of this Article 5 shall not apply with respect to the
director or directors elected by such holders of preferred stock.”
Appendix
A to
this
Proxy Statement shows the changes to the relevant portions of Article 5 of
the
Articles resulting from the proposed amendment, with deletions indicated by
strike-outs and additions indicated by underlining. If approved, this proposal
will become effective upon the filing of Articles of Amendment with the
Secretary of State of the State of Nevada. Our company will make such a filing
promptly after approval of the proposal at the Annual Meeting. At that time,
conforming amendments to the Company’s Bylaws would also become
effective.
18
If
the
amendment is not approved, the board of directors will remain classified, the
directors elected at this Annual Meeting will serve a three-year term, and
all
other directors will continue in office for the remainder of their respective
three-year terms. Directors also will continue to be removable only for cause,
and directors elected to fill board vacancies and newly-created directorships
will serve for the remainder of the three-year term that corresponds to the
class to which they are elected.
Our
board of directors recommends a vote FOR the proposal to amend our Amended
and
Restated
Articles of Incorporation to provide for the annual election of all
directors.
RATIFICATION
OF INDEPENDENT AUDITORS
(Proposal
No. 3)
Our
Audit
Committee, pursuant to authority granted to it by our board of directors, has
selected Epstein, Weber & Conover, P.L.C., certified public accountants, as
independent auditors to examine our annual consolidated financial statements
for
our fiscal year ending September 30, 2006. Our board is submitting this proposal
to the vote of the stockholders in order to ratify the Audit Committee’s
selection. If stockholders do not ratify the selection of Epstein, Weber &
Conover, P.L.C., the audit committee will reconsider the selection of
independent auditors.
We
have
paid or expect to pay the following fees to Epstein, Weber & Conover, P.L.C.
for work performed in 2004 and 2005 or attributable to Epstein, Weber &
Conover, P.L.C.’s audit of our 2004 and 2005 consolidated financial
statements:
|
2004
|
2005
|
||||||
|
Audit
Fees
|
$
|
70,574
|
$
|
75,842
|
|||
|
Audit-Related
Fees
|
10,840
|
573
|
|||||
|
Tax
Fees
|
0
|
0
|
|||||
|
All
Other Fees
|
0
|
0
|
|||||
In
January 2003, the SEC released final rules to implement Title II of the
Sarbanes-Oxley Act of 2003 (the “Sarbanes-Oxley Act”). The rules address auditor
independence and have modified the proxy fee disclosure requirements. Audit
fees
include fees for services that normally would be provided by the accountant
in
connection with statutory and regulatory filings or engagements and that
generally only the independent accountant can provide. In addition to fees
for
an audit or review in accordance with generally accepted auditing standards,
this category contains fees for comfort letters, statutory audits, consents,
and
assistance with and review of documents filed with the SEC. Audit-related fees
are assurance-related services that traditionally are performed by the
independent accountant, such as employee benefit plan audits, due diligence
related to mergers and acquisitions, internal control reviews, attest services
that are not required by statute or regulation, and consultation concerning
financial accounting and reporting standards.
The
audit
committee has reviewed the fees paid to Epstein, Weber & Conover, P.L.C. and
has considered whether the fees paid for non-audit services are compatible
with
maintaining Epstein, Weber & Conover, P.L.C.’s independence. The audit
committee also has adopted policies and procedures to approve audit and
non-audit services provided in fiscal 2005 by Epstein, Weber & Conover,
P.L.C. in accordance with the Sarbanes-Oxley Act and rules of the SEC
promulgated there under. These policies and procedures involve annual
pre-approval by the audit committee of the types of services to be provided
by
our independent auditor and fee limits for each type of service on both a
per-engagement and aggregate level. Additional service engagements that exceed
these pre-approved limits must be submitted to the audit committee for further
pre-approval. The audit committee may additionally ratify certain de minimis
services provided by the independent auditor without prior audit committee
approval, as permitted by the Sarbanes-Oxley Act and rules of the SEC
promulgated there under. We will disclose all such approvals by the audit
committee, as applicable, in upcoming years.
Representatives
of Epstein, Weber & Conover, P.L.C. are expected to be present at the Annual
Meeting. They will have the opportunity to make a statement if they desire
to do
so and will be available to respond to appropriate questions.
19
The
affirmative vote of a majority of the shares of common stock present in person
or represented by proxy and entitled to vote at the annual meeting is required
to ratify the selection of Epstein, Weber & Conover, P.L.C. as independent
auditors for fiscal 2006. Therefore, abstentions effectively count as votes
against this proposal.
Our
board of directors recommends a vote FOR ratification of Epstein, Weber &
Conover, P.L.C. as our company’s independent auditors for fiscal
2006.
STOCKHOLDER
PROPOSALS AND NOMINATIONS
To
be
considered for inclusion in our proxy materials relating to our 2007 Annual
Meeting, stockholder proposals must be received at our principal executive
offices by October 27, 2006, which is 120 calendar days prior to the anniversary
of the mailing date for this year’s proxy materials. All stockholder proposals
must be in compliance with applicable laws and regulations in order to be
considered for possible inclusion in the proxy statement and form of proxy
for
the 2007 Annual Meeting.
OTHER
MATTERS
As
of the
date of this Proxy Statement, our board of directors does not intend to present
at the Annual Meeting any matters other than those described herein and does
not
presently know of any matters that will be presented by other parties. If any
other matter is properly brought before the meeting for action by stockholders,
proxies in the enclosed form returned to us will be voted in accordance with
the
recommendation of the board of directors or, in the absence of such a
recommendation, in accordance with the judgment of the proxy holder.
A
copy of
our Annual Report for the year ended September 30, 2005 has been mailed to
you
currently with this Proxy Statement. The Annual Report is not incorporated
into
this Proxy Statement and is not to be considered a part of these proxy
soliciting materials or subject to Regulations 14A or 14C or to the liabilities
of Section 18 of the Securities Exchange Act of 1934. The information contained
in the “Audit Committee Report,” “Compensation Committee Report,” and
“Performance Graph” shall not be deemed “filed” with the Securities and Exchange
Commission or subject to Regulations 14A or 14C or to the liabilities of Section
18 of the Exchange Act. We
will provide upon written request, without charge to each stockholder of record
as of the record date, a copy of our Annual Report on Form 10-K for the fiscal
year ended September 30, 2005, as filed with the SEC. Any exhibits listed in
the
Form 10-K report also will be furnished upon request at the actual expense
incurred by us in furnishing such exhibits. Any such requests should be directed
to our Corporate Secretary at our principal executive offices at 4840 East
Jasmine Street, Suite 105, Mesa, Arizona 85205-3321.
ELECTRONIC
DELIVERY OF FUTURE ANNUAL MEETING MATERIALS
We
are
offering our stockholders the opportunity to consent to receive our future
proxy
materials and annual reports electronically by providing the appropriate
information when voting via the Internet. Electronic delivery could save us
a
significant portion of the costs associated with printing and mailing Annual
Meeting materials, and we hope that our stockholders find this service
convenient and useful. If you consent and we elect to deliver future proxy
materials and/or annual reports to you electronically, then we will send you
a
notice (either by electronic mail or regular mail) explaining how to access
these materials but will not send you paper copies of these materials unless
you
request them. We may also choose to send one or more items to you in paper
form
despite your consent to receive them electronically. Your consent will be
effective until you revoke it by terminating your registration at the website
www.investordelivery.com if you hold shares at a brokerage firm or bank
participating in the ADP program, or by contacting our transfer agent, Registrar
and Transfer Company, if you hold shares in your own name.
By
consenting to electronic delivery, you are stating to us that you currently
have
access to the Internet and expect to have access in the future. If you do not
have access to the Internet, or do not expect to have access in the future,
please do not consent to electronic delivery because we may rely on your consent
and not deliver paper copies of future Annual Meeting materials. In addition,
if
you consent to electronic delivery, you will be responsible for your usual
Internet charges (e.g., online fees) in connection with the electronic delivery
of the proxy materials and annual report.
|
YP
Corp.
|
|
| /s/ John Raven | |
| John Raven | |
|
Secretary
|
|
|
March
7, 2006
|
|
20
APPENDIX
A
5. Board
of Directors.
The
affairs of the Corporation shall be governed by a Board of Directors. Subject
to
any rights to elect directors (“Preferred Stock Directors”) granted to the
holders of any series of Preferred Stock as set forth in the Certificate of
Designation for such series or class of Preferred Stock, the number of persons
to serve on the Board of Directors, and the number of directors in each class
of
directors, shall be fixed as set forth in the Bylaws and such number may be
increase or decreased from time to time in such manner as provided by the
Bylaws, but the number of directors shall never be less than three. Directors
of
the Corporation need not be residents of the State of Nevada and need not own
shares of the Corporation’s stock.
5.1 Terms
of
Directors. Beginning with the Corporation’s annual meeting of stockholders to be
held in 2007, the directors shall be elected for terms lasting until the next
annual meeting of stockholders following their election, and until their
successors are elected and qualified, subject to their earlier death,
resignation or removal from the board of directors.
REVOCABLE
PROXY
YP
CORP.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
|
x
|
PLEASE
MARK VOTES AS IN THIS EXAMPLE
|
|
Annual
Meeting of Stockholders-April 7, 2006
|
||
|
The
undersigned revokes all previous proxies, acknowledges receipt of
the
Notice of the Annual Meeting of Stockholders to be held on April
7, 2006
and the Proxy Statement and appoints W. Chris Broquist, the proxy
of the
undersigned, with full power of substitution to vote all shares of
Common
Stock of YP Corp. (the “Company”) that the undersigned is entitled to
vote, either on his or her own behalf of any entity or entities,
at the
Annual Meeting of Stockholders of the Company to be held at the Mesa
Hilton, 1011 W. Holmes Avenue, Mesa, Arizona 85210 on April 7, 2006
at
10:00 a.m. local time, and at any adjournment or postponement thereof,
with the same force and effect as the undersigned might or could
do if
personally present thereat. The shares represented by this proxy
shall be
voted in the manner set forth on the reverse side.
|
||
|
Please
be sure to sign and date this Proxy in the box below.
|
Date
|
|
|
Stockholder
sign above
|
Co-holder
(if any) sign above
|
|
|
1. Election
of Directors
|
For
|
With-hold
|
|
Joseph
F. Cunningham Jr.
|
o
|
o
|
|
Elizabeth
Demarse
|
o
|
o
|
|
2. To
approve the amendment to our Articles of Incorporation:
|
For
o
|
Against
o
|
Abstain
o
|
|
3. To
ratify the appointment of Epstein, Weber & Conover, P.L.C., as our
independent auditors for the fiscal year ending September 30,
2006:
|
For
o
|
Against
o
|
Abstain
o
|
| 4. In their discretion, the Proxy is authorized to vote upon such other business as may properly come before this meeting. |
For
o
|
Against
o
|
|
|
Please
disregard the following if you have previously provided your consent
decision:
|
|||
|
o
By
checking the box to the left, I consent to future delivery of annual
reports, proxy statements, prospectuses, other materials, and shareholder
communications electronically via the Internet at a webpage that
will be
disclosed to me. I understand that the Company may no longer distribute
printed materials to me regarding any future stockholder meeting
until
such consent is revoked. I understand that I may revoke my consent
at any
time by contacting the Company’s transfer agent, Registrar and Trust
Company, 10 Commerce Drive, Cranford, NJ 07016 and that costs normally
associated with electronic delivery, such as usage and telephone
charges
as well as any costs I may incur in printing documents, will be my
responsibility.
|
|||
|
IF
YOU RETURN YOUR PROPERLY EXECUTED PROXY, WE WILL VOTE YOUR SHARES
AS YOU
DIRECT. IF YOU DO NOT SPECIFY ON YOUR PROXY HOW YOU WANT TO VOTE
YOUR
SHARES, WE WILL VOTE THEM FOR PROPOSAL 1, 2, AND 3 IN THE DISCRETION
OF
THE PROXY ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING
OR
ANY ADJOURNMENTS THEREOF.
|
|||
^
Detach above card, sign, date and mail in postage paid envelope provided.
^
YP
CORP.
|
Please
sign EXACTLY as your name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full
title
as such. If more than one trustee, all should sign. If shares are
held
jointly, both owners must sign.
THIS
PROXY CARD IS VALID WHEN SIGNED AND DATED.
MAIL
YOUR PROXY CARD TODAY.
|
IF
YOUR
ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED BELOW
AND
RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
____________________
____________________
____________________