SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [ ]
Filed by a party other than the registrant [X]
Check the appropriate box:
[ ] Preliminary proxy statement.
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[X] Soliciting material under Rule 14a-12.
C-PHONE CORPORATION
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(Name of Registrant as Specified in its Charter)
SEEDLING TECHNOLOGIES CORPORATION
DOUGLAS B. SPINK
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
_________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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:__________________________________________________________
Filed by
SEEDLING TECHNOLOGIES CORPORATION AND
DOUGLAS B. SPINK
Pursuant to Rule 14a-12 of the Securities Exchange Act of 1934
Subject Company: C-Phone Corporation
Commission File No. 000-24426
FOR IMMEDIATE RELEASE
Contact:
Mr. Douglas B. Spink
Seedling Technologies Corporation
519 SW Third Avenue, Suite 805
Portland, OR 97204
Phone: (800) 893-8894
Facsimile: (800) 893-8895
Email: doug@seedling.net
- ----------------------------
Seedling Technologies Corporation Releases Letter to Shareholders of
C-Phone Corporation.
Portland, OR/August 2, 2001 - Seedling Technologies Corporation
Chairman and CEO Douglas Spink announced today that Seedling has released a
formal position statement on the proposals being presented to shareholders of
C-Phone Corporation (OTCBB: CFON) at its upcoming special meeting. A copy of the
letter was filed today with the Securities and Exchange Commission on Schedule
14A and can be viewed on the SEC's website at www.sec.gov.
In connection with the mailing of the shareholder letter, Mr. Spink
stated "I believe that ever since C-PHONE went public in 1994, its Board and its
successive management groups have done an unsatisfactory job in growing and even
maintaining value on behalf of shareholders. Furthermore, since management
finally admitted in late 2000 that its historical business model and product
offerings would never reach profitability, they have made no credible attempt to
successfully re-deploy available resources into other more compelling business
segments. Instead, they have chosen an ill-suited path of corporate termination
for reasons that I cannot understand. Despite all of this, I also believe there
still exist great possibilities to build real shareholder value at C-PHONE,
which is why Seedling has worked for the past six months to prevent incumbent
management from destroying C-PHONE once and for all.
In my opinion, C-Phone retains enough cash and other assets to actively
pursue opportunities in newer, more attractive businesses. However, despite
Seedling's repeated attempts to both invest new capital in C-Phone at a price
substantially above the market price of C-Phone's shares and effect a
restructuring and strategic transformation of the company, C-Phone's incumbent
management has spurned our offers and chosen a path of corporate termination.
C-Phone's Board has recommended that the company be liquidated and what remains
of C-Phone's cash and other assets after expenses be paid to shareholders at an
unspecified time in the future. C-Phone's management has publicly stated that
the most shareholders can expect is $0.03 per share. Since many shareholders
bought their stock between $5 and $10 per share and since the company has raised
over $28M since 1994, this amount is a pittance and an insult to shareholders.
It is a complete and total admission of defeat by incumbent management, and
would effectively take away from C-Phone's shareholders their one last hope to
recoup their investment.
We firmly believe that C-Phone's Board and management team are shirking
their fiduciary duty to their shareholders in not pursuing other opportunities
in lieu of corporate suicide. They have called a special shareholder meeting and
are already attempting to convince shareholders to vote for the destruction of
the company. We believe that the best way -- and perhaps the only way -- to
maximize shareholder value at this point is to vote AGAINST amending C-Phone's
charter to allow a majority vote to dissolve the company and to vote AGAINST the
sale of C-Phone's remaining physical assets to Motion Media and the consequent
liquidation of the company.
Furthermore, a vote AGAINST these two motions set forth by incumbent
management will be the start of C-Phone's turnaround. What is best for C-Phone
is a campaign to replace the current Board of Directors with an independent
slate of Directors who are willing to make the decisions necessary to return
value to C-Phone's shareholders. Although any new board and management team
cannot guarantee that C-Phone's share price will return to the values at which
current shareholders purchased their shares, Seedling is confident that any
directors and managers it has a role in selecting can achieve value
substantially above the maximum of $0.03 that incumbent management has offered.
C-Phone' s incumbent management group and Board may not have the fortitude to
work to turn their company around, but Seedling does."
Seedling Technologies Corporation owns 0.1% of C-Phone's common stock,
and has announced its intention to put forth a proxy campaign favoring the
rejection of the permanent dissolution of the company.
C-Phone's last Annual Meeting was held August 4, 2000. According to New
York State corporate law, if no meeting is called to elect members of the Board
of Directors within 13 months of the previous election of the Board of
Directors, shareholders can demand a special meeting to reelect the current
Board or replace it.
Seedling Technologies benefits from two-way communications with other
C-Phone shareholders regarding their views of the current Board and possible
alternative board composition and members. Shareholders can contact Seedling at
the address listed below; contact is encouraged, irrespective of the size of an
investor's holdings in C-PHONE.
SEEDLING TECHNOLOGIES CORPORATION
attn: DOUGLAS B. SPINK
519 SW Third Avenue, Suite 805
Portland, OR 97204
Phone: (800) 893-8894
Facsimile: (800) 893-8895
Email: doug@seedling.net
AN IMPORTANT MESSAGE TO THE SHAREHOLDERS OF
C-PHONE CORPORATION FROM SEEDLING TECHNOLOGIES CORPORATION
Dear C-Phone shareholder:
I am writing to you as a fellow shareholder in C-Phone Corporation.
Seedling Technologies Corporation owns 10,100 shares, or 0.1%, of C-Phone. As
you may have read in C-Phone's announcements on file with the SEC, the incumbent
management of C-Phone wants us to believe that the best way to maximize our
shareholder value is to kill the company and return to the shareholders a
pittance - less than $0.03 per share. This amount is to be given back to us, the
shareholder, only after incumbent management has paid in advance for three years
of insurance designed to indemnify themselves against any future shareholder
lawsuits. In fact, they want to spend more of our money paying for their own
insurance protection than they return to the shareholders themselves. This is an
outrage.
Seedling understands that, acting together, we shareholders can and
will chart a far better path for our company than that set forth in the
defeatist, self-serving, and indefensible plan being pushed by incumbent
management. In this letter, I would like to share Seedling's thoughts and plans
directly with you. I hope that, over time, you will share your thoughts with us,
as well.
We believe that the C-Phone's shareholders share a common goal: the
maximization of the intrinsic value of the Company. It is our position that the
facts demonstrate clearly that C-Phone' s incumbent management team and Board of
Directors have placed their personal goals and agendas above their fiduciary
duty to us, the shareholders. They have even gone as far to claim that the best
they can do for shareholders is liquidate the company and use our money to pay
for three years worth of indemnity against almost any legal action that we, as
shareholders, may wish to pursue against them for their failure to responsibly
manage our company and its resources in the past.
If C-Phone' s Board was truly acting in the interest of shareholders,
why would their first and overriding priority be the gerrymandering of a plan to
shut our company down in order to prepay their personal defenses against
potential shareholder lawsuits?
Fortunately for all of C-Phone's shareholders, who are in fact the true
owners of the company, C-Phone's Board of Directors needs our permission to kill
our company. Furthermore, they need the agreement of 2/3 of C-Phone's
shareholders to do so.
As part of their plan to dismantle our company, they are encouraging
you to vote for an amendment to C-Phone's corporate charter that would allow a
mere majority (over 50%) of shareholders to vote for sale of all of C-Phone' s
assets and termination of the company. The reality is that, under this scenario,
management would only need to convince 36.01% of outside shareholders to vote
for the sale and dissolution of our company. This is because insiders currently
control approximately 14% of issued and outstanding shares. It is these insiders
who stand to benefit exclusively from their termination plan and prepayment of
insurance premiums, just as they have all personally benefited as our company
has seen its share price drop 99.8% under their leadership. We believe all the
insiders will therefore vote for termination of C-Phone forever, which is why
your vote is so important to the company and the future of your investment.
Blocking the first step in this plan - incumbent management's proposal
to modify our company's bylaws to ease the termination of our company -
effectively blocks the termination itself. Voting against both the amendments
and the termination sends a strong message to incumbent management: we do not
trust you to run our company any more, or make decisions for us, as your
decisions in the past have all but wiped out our investment and our company
itself.
As for dissolving C-Phone, it is just not possible to see how shutting
our company down permanently and returning less than 0.8% of the capital
invested in it to date to shareholders is in the best interest of the company's
real owners. Despite incumbent managements claims to the contrary, C-Phone is
not dead, and pennies a share (or, more likely, nothing at all) is not the best
that we as shareholders should expect from the leaders we have entrusted to look
after our interests.
A careful examination of incumbent management's proposal for
permanently terminating our company and their public filings to date caused
Seedling to develop a host of items that any independent shareholder will
certainly find objectionable:
o A majority of the Board of Directors have significant,
non-resolved conflicts of interest in regards to the Motion
Media transaction and dissolution plan and therefore in no way
can be considered capable of making an unbiased decision in
regards to the proposed transaction.
First, Former President Daniel Flohr and his wife Tina Jacobs
- who are both still voting C-Phone Directors - stand to
personally profit handsomely from the sale of assets to Motion
Media. Specifically, Motion Media has agreed to assume the
lease for C-Phone's Wilmington, North Carolina facility (which
is personally owned by Mr. Flohr and his wife) upon completion
of the sale transaction. The terms of the lease were never
disclosed in C-Phone's Preliminary Proxy Statement; however,
the lease price as of C-Phone's last 10K filing was
approximately $75,000 per year, an amount that may well have
increased.
Second, Stuart Ross - a voting Director and Vice-President of
C-PHONE - has been offered a lucrative position at Motion
Media upon the completion of the transaction. Should the sale
and consequent dissolution of C-PHONE go through, according to
C-Phone's proxy statement "(w)e currently anticipate that Mr.
Ross would be terminated by us following the closing of our
sale to Motion Media, in which event Mr. Ross would be
entitled to severance," which according to C-Phone' s proxy
would consist of $65,000, in addition to the salary and
signing bonus he would receive from Motion Media.
Thus, three of the five Directors voting on the disintegration
of our company stand to personally benefit financially from
the consummation of the C-Phone/Motion Media deal. The fact
that the majority of the C-Phone Board of Directors stands to
gain financially from the completion of the Motion Media deal
undermines any claim by the Board that they are acting in the
interests of shareholders.
Further, we believe that, because certain Directors had a
personal interest in the success of the Motion Media deal, the
Board never seriously considered any other alternatives for
C-Phone, notwithstanding the Company's public statements to
the contrary. Instead of seeking to maximize the value of our
company, the C-Phone Board of Directors have simply maximized
their own personal returns to the direct detriment of every
legitimate shareholder of C-Phone.
o We believe that a $0.03 per share return to C-Phone's
shareholder's hard-earned investment is inherently unfair. If
you agree to C-Phone's proposals, you guarantee the most you
will ever receive for any money you have invested in C-Phone
is $0.03 per share.
Furthermore, under management's proposal, there is no
assurance that you will ever receive any money whatsoever. In
fact, the soonest you can expect your distribution is one to
three years from now. The $0.03 per share number is the
maximum shareholders can hope to receive, and we doubt that
shareholders will receive anything at all.
Adding insult to injury, C-Phone's management cannot guarantee
that you will keep even this pittance if in fact it is ever
disbursed at some point in the indeterminate future. According
to their proxy statement, should C-Phone require additional
capital to pay unforeseen liabilities, C-Phone shareholders
will be required to return what little they may have received
from C-Phone.
o What is especially egregious in Seedling's opinion is the
large portion of our money left in the company that is
earmarked by incumbent management for three years of prepaid
D&O (Directors and Officers) insurance for CEO Paul Albritton
and the rest of the Board of Directors and executive group.
Directors and Officers insurance insures individuals - not
companies - against financial liabilities arising from civil
actions and suits regarding decisions made by directors
personally during their tenure.
Although they will not disclose exactly how much they will
spend on D&O insurance, we estimate the cost of such insurance
to be approximately $100,000 per year based on our own
research into market prices for such insurance. If three years
of such insurance costs $300,000, shareholders will receive
less in distributions than the Board has spent to protect
itself from those very same shareholders. Thus, shareholders
are being asked to cut their already miniscule cash equity in
half to guarantee that C-Phone's management group will never
be held personally accountable for the decisions and mistakes
they have made or will make, including the decision to
liquidate the company. We believe that this is inherently
unfair and against shareholders interest. Management should
not be given a free pass at our expense.
o Management is pushing C-Phone's shareholders to make a snap
decision regarding the future of our company and our
investment when, in Seedling's opinion, a responsible board
would take due care and ensure that they had exhausted all
possibilities before taking the last-ditch and irreversible
step of liquidating the company forever.
Seedling believes that completing the Motion Media transaction
and liquidation of the company quickly serves no one's
interests except those of the Board members. Furthermore,
management constantly cites the need to preserve cash as a
motive for having turned down numerous other options in the
past, and they state that a shareholder vote against their
ill-advised proposals will lead to management depleting our
remaining assets and exhausting all funds available to
shareholders. This is inherently disingenuous; if incumbent
management wanted to save cash, they could have shuttered
operations almost nine months ago when they came to the
belated realization that they had failed in their efforts to
bring a viable product to market. Instead, incumbent
management has continued to pay themselves and their employees
for months while putatively considering other options. Then,
other options have been rejected out of a fear of spending
cash. It is a sadly circular argument that has left C-Phone in
a precarious position in spite of Seedling's efforts to save
the company for the last six months running. Since January 1st
of this year, C-Phone's management admits to have spend over
$1,100,000 of our money - even though they company was
essentially shut down in early January. That is 4.7 times more
than they say they will ever return to us shareholders in a
best-case scenario, years in the future.
Seedling cannot help but conclude that in rushing shareholders
to vote on their biased proposal, C-Phone' s current
management group is attempting to force a decision that should
never have been required in the first place.
Furthermore, management's claim to be trying to save cash have
been repeatedly and consistently contradicted by their own
actions. C-Phone's Board announced in November of 2000 that
they had come to the decision that the video conferencing
business was not a sustainable market. However, since that
time, instead of shuttering the business and minimizing costs
so as to guarantee themselves the time and financial resources
to seek out the best possible alternative for C-Phone's
shareholders, they have continued to accrue expenses at a high
rate. As of February 28, 2001, C-Phone had assets of
approximately $1.6 million dollars. However, instead of
conserving these assets for the benefit of shareholders,
C-Phone's management has chosen to spend the majority of it,
which is strange considering the fact they have decided to
close the business. For example, they have incurred operating
expenses of $733,000 and allocated $988,161 for liquidation
expenses. They have maintained a highly-paid executive team
and until July of 2001, President Paul Albritton paid himself
$12,500 per month. Paul Albritton and the rest of the Board
will continue to be paid even after the company is liquidated
so they can decide when to return your pennies to you. They
have the power to decide when you will get your pennies, and
the longer they hold your money, the longer they will get
paid. Despite their claims to be interested in saving cash,
they are burning it at rate that is in direct contradiction to
their goals. It seems that the only thing they refuse to do
for cash reasons are actions that would benefit shareholders,
such as staying current with SEC filings and maintaining a
NASDAQ and/or OTC bulletin board listing, and hiring an
outside entity to advise or oversee the sale of C-Phone's
assets. They certainly are not cheap or economical when it
comes to the prepayment of D&O insurance or their salaries.
o Seedling also concludes that C-Phone's current management
group is using unconscionable scare tactics in a disgraceful
attempt to coerce shareholders into supporting the permanent
liquidation of our company. They have stated that should
shareholders fail to approve their proposals "(i)n such an
event, and because we have determined that the video
conferencing business is not a viable business for us with our
limited resources, we will continue to attempt to liquidate
our assets, to the fullest extent practicable, without
shareholder approval."
They further go on to threaten that, should they fail to find
other suitable transactions, the "cost of continuing to
maintain our existence [sic] will, in all likelihood, deplete,
in time our then remaining assets. If such were to occur, no
distribution would be made to shareholders and shareholders
would lose their entire remaining investments in us."
This in our opinion is a clear and shocking threat -
essentially saying to us that if we choose to not vote with
incumbent management, they will attempt to sell the assets
anyway- directly going against the demonstrated wishes of the
majority of C-Phone shareholders. Such statements, consciously
displaying an intent to flout shareholder wishes and
willingness to brazenly use threats in the process, seriously
tarnish any claim by the Board to be acting at the direction
of their shareholders, who in fact own and should control
C-Phone.
Management has also stated that "before distribution of our
remaining net assets to shareholders pursuant to the Plan of
Dissolution, we may be sued or threatened with suit by a
creditor, shareholder or other party that seeks to obtain a
"greenmail" payment for permitting the Plan of Dissolution to
be implemented. In such event, we would expend corporate
assets to defend against such a threat or actual lawsuit if we
believed that the claims against us were without merit. Doing
so would almost certainly delay, diminish or even preclude any
distribution to shareholders."
We believe this is a desperate attempt to label any outside
shareholder seeking to oppose the Board as a "greenmailer."
This statement also seems to state that any action taken by an
outside party would jeopardize shareholders distributions. It
is our opinion that this additional thinly-veiled threat is
designed to intimidate shareholders into ignoring good-faith
efforts (including Seedling's) to oppose the permanent
destruction of C-Phone.
If current management had done an adequate job running our
company, they would not be facing angry shareholders. Seedling
owns a modest number of shares in C-Phone and does not seek -
and in fact would not benefit materially from - a so-called
"greenmail" scenario. This clear attempt to smear Seedling or
other independent shareholders is indicative of our experience
in the past six months as we have worked to turn around
C-Phone for the benefit of all C-Phone shareholders, not just
fortunate insiders. Rather than balanced and reasoned
responses, we have received only prevarication, dissimilation,
threats, stalling tactics, and evasion.
o We have serious concerns about the fairness of the sale of the
videoconferencing assets to Motion Media. Specifically, we
find it troubling that there was no outside, third party
advising C-Phone' s Board on the sale of their assets. C-Phone
even admits that retaining a third party such as an investment
banker is the usual practice for such a transaction - which is
true. However, the current Board decided that they did not
want to engage the services of an independent banker for the
sale of the company's sole material assets, the development of
which consumed over $27 million of shareholder investment.
Management claimed that hiring an investment banker was not
cost justified; since many smaller investment banks are
compensated principally on a contingency basis (paid as a
percentage of funds realized in the sale, for example), we
believe the real reason for the Board's decisions to skip this
critical step has more to do with their own personal goals and
little or nothing to do with saving cash.
Management also stated that, because of its size, C-Phone
would have trouble finding a "competent and interested"
investment banker or advisor. Seedling has bought and sold
companies larger and smaller than C-Phone and had no problem
finding outside advisors on a cost-effective basis. This
statement, again, does not hold up under scrutiny. Why is the
Board not willing to engage a neutral expert?
The Board also decided not to even hire an outside party to
offer a "fairness opinion" on whether or not the purchase
price of C-Phone's assets was fair from a financial
perspective, instead claiming that "our Board was able to
independently reach such conclusion (that the purchase price
was fair) and to determine that, under the circumstances, the
sale of our video conferencing business is in the best
interests of our shareholders."
Seedling simply cannot see how a Board that includes insiders
with dramatic and unresolved conflicts of interest can be
trusted to "independently" conclude that the sale of assets
that over $27 million was spent to develop for less than $1
million is in shareholder's best interest. Any outside opinion
regarding the price for C-Phone's assets would have been
comforting; instead, we have nothing other than the word of
the Board and management group that has presided over $18.8
million in losses since 1997 and a 99.8% loss in share price.
This is not comforting, nor appropriate.
New York law does not permit shareholders appraisal rights in
conjunction with the Motion Media sale and the dissolution of
the company; thus shareholders are given no choice but to
accept the promises of management that the deal in front of
shareholders is the best one possible. Seedling knows that
better transactions have been turned down by this very same
Board, when it became clear that the Board would not
personally profit from alternative transactions.
A vote against management's proposal is a choice you can make.
It is a vote to conserve our company and its remaining
resources, and to allow a better-qualified management team to
run our company and grant us the opportunity to earn back some
or all of our losses under previous management.
o Although the videoconferencing assets of C-Phone are to be
sold for approximately $1 million, only a small portion of
this purchase price will ever find its way back to the company
and, eventually, to shareholders. Motion Media is currently
operating the video conferencing assets of the company and
profiting from their use (and has apparently been doing so for
the past seven months), while C-Phone's shareholders are being
charged for the expenses of their operation.
According to C-Phone's Proxy Statement, upon liquidation of
the company, shareholders will be charged for all operating
costs prior to closing of the sale. An estimate provided in
the Statement of these costs is $733,136. Therefore, the sale
of all of C-Phone's operating assets will net shareholders a
paltry $233,000 net of expenses. Seedling cannot see how any
deal that lets Motion Media profit from C-Phone's assets while
shareholders bear Motion Media's cost of operations can be
good for C-Phone and its shareholders.
In Seedling's opinion, a management team truly interested in
conserving cash would not continue to bear the operating costs
of a business they know is not profitable. Why do they still
pay the salaries of their workers? Why are they still paying
their chief engineer and other well-compensated officers? Why
are still leasing facilities? If management was serious about
saving cash and looking after shareholder value, they would
have shut their facilities and sold their equipment in a
transaction that does not underwrite the operations of said
assets.
Furthermore, even after the liquidation of the company,
shareholders will have to bear the costs of maintaining a
management team, a board of directors and the cost of trustees
and other administrative costs of creating a liquidating
trust. Such behavior leads Seedling to believe that
management's main goal is in fact the depletion of all C-Phone
assets and the expedient death of our company. Apparently,
this unfortunate scenario serves their personal needs and thus
is the only path they are willingly to voluntarily undertake
without being voted out of office by their own shareholders.
o Seedling does not believe that C-Phone has ever made a good
faith attempt to find a purchaser for the rest of the company,
net of the videoconferencing assets. In their public filings,
C-Phone's incumbent management group stated that in November
of 2000 "we also announced that, while we are still seeking a
business combination for the remainder of the company without
the video conferencing business, the likelihood of our success
in these endeavors was remote." Seedling has several
objections to this characterization.
For one, it suggests that management was predisposed towards
believing that the sale of the rest of the company was
unlikely even before they started to seriously entertain
offers. This is a defeatist attitude, or worse.
In fact, Seedling Technologies Corporation offered in March of
2001 to invest $1.27 million cash in C-Phone, at a 48% premium
to C-Phone's then current market price, in exchange for
approximately 10 million shares of C-Phone's common equity.
Our offer would have represented a 64% increase in book value
per share. Yet C-Phone's management asserted that it could not
determine that such an offer would be in the interest of
shareholders. Our offer also contemplated the sale of assets
to Motion Media in accordance with the previously signed
agreement. Instead of a $1.27 million cash infusion with an
increase of $0.07 per share in equity, the Board has now
determined that liquidation with a maximum "possible" return
of $0.03 per share is in the best interests of shareholders.
We think this position is indefensible.
It is Seedling's position that by turning down the deal with
Seedling, C-Phone's Board failed in their fiduciary
responsibility to maximize shareholder value. With Seedling's
recapitalization, C-Phone's commons shares would have had a
value of approximately $0.11 a share based on cash on hand.
Furthermore, C-Phone would have had a new board and management
team willing and capable of turning C-Phone around. However,
after the failure of the deal C-Phone's shares continued to
languish around $0.04 a share before falling to their current
$0.025 per share (the price as of July 30, 2001).
Seedling simply cannot see how choosing a course of corporate
termination versus letting a new team with the cash and the
desire to turn around C-Phone could ever serve shareholder
interests. It is Seedling's belief that C-Phone' s management
team never had any true intention of pursuing an investment
from Seedling; rather, they were only stalling to buy time
while they finalized their plans to sell their assets to
Motion Media and forever terminate C-Phone.
o C-Phone's shareholders have not been presented with other
options for their company besides liquidation. One plan,
although not optimal for C-Phone investors, would be
participating in a "reverse merger" in which a public shell,
in this case C-Phone, would acquire a non public company. The
private company becomes public and the shareholders of the
shell retain a substantial stake in the new company.
However, despite claiming to give consideration to a reverse
merger, C-Phone's management team seemed to dismiss outright
such a transaction, no matter how much better it might be for
the shareholders versus a termination of the company.
C-Phone's preliminary proxy filing states: "Most (and,
perhaps, all) of such potential acquirers wanted our cash
resources and appeared to have limited financial resources and
operating history, lack of depth of management and generally
poorly- defined future plans, or if interested only in our
"public shell," without our cash assets, poorly defined goals,
which needed to be better focused before they would be ready
to negotiate a transaction with us. Given the limited time
available to locate an appropriate acquirer for our "public
shell," perform adequate due diligence and then negotiate a
favorable transaction, our Board anticipated that such a
transaction did not then appear to be feasible."
This circuitous statement does not stand up to scrutiny, and
again speaks more to management's single-minded drive to shut
down C-Phone than it does to any concerns about a viable
turnaround transaction.
There simply is no time constraint that requires management to
reject further searching for transactions that would offer
shareholders something besides the hope of $0.03 cents three
years in the future. If incumbent management had lowered or
eliminated its continuing burn rate, the company would have
had the time and cash resources to actively continue the
search for potential transactions. Under this scenario, share
prices should not go down, since C-Phone trades below its cash
value as of July 20, 2001. Since the Motion Media transaction
came to management's attention at the same time of the
preceding announcement, we cannot help but to speculate that
management wanted to quickly eliminate all other potential
options with the end of pushing one that benefits members of
the Board more than the shareholders.
We also do not understand why C-Phone's management would
dismiss public shell transactions out of hand. Their statement
that "most (and, perhaps, all)" potential acquirers were
lacking direction and wanted their cash, seems to illustrate
an inherent bias of management against such transactions, a
bias that is unfounded. Many strong, historically profitable
companies, such as Waste Management, came into being through
reverse mergers.
Seedling sees nothing wrong with potential acquirers using
C-Phone's cash to build a sound company in which every
shareholder benefits. If a company can use C-Phone's cash
towards creating a profitable company, that is certainly a
better use than paying for D&O insurance for C-Phone's
management and underwriting Motion Media's operating costs.
C-Phone raised over $28 million dollars and at the end can
only offer shareholders $232,924 - at most. If someone else
can offer the potential to create profits and shareholder
value in exchange for C-Phone's remaining cash, surely this is
superior to a couple of pennies a share in one to three years
best-case.
It is ironic that C-Phone's management would turn down
companies for "appear(ing) to have limited financial resources
and operating history, lack of depth of management and
generally poorly-defined future plans," when such a
description seems to characterize C-Phone's current position.
If C-Phone's management truly applied these criteria, they
would have resigned outright years ago as their own failure to
build a company despite tens of millions of dollars of
investor cash became clear. It is unfortunate for C-Phone's
shareholders that incumbent management judges itself competent
despite their proven track record of failure.
Seedling finds it disturbing that C-Phone's management did not
give out the names or more specific descriptions of the
companies they rejected. They have effectively given us no
choice but to take their word that they are looking after our
interests. However, in the light of their conflicts of
interest, contradictory and inaccurate statements, and
unwillingness to let shareholders decide what is the best
future for C-Phone, we cannot help but conclude that such
trust has not been earned and thus C-Phone's Board and
incumbent management group cannot be trusted to work in the
interests of the parties they are duty-bound to serve - the
shareholders of C-Phone. In addition, one cannot help to
wonder if C-Phone talked to any reverse acquirers at all,
besides Seedling. We are skeptical, given their track record
of less-than-forthright announcements and self-dealing
transactions.
It is our intent to highlight some of the most significant problems
Seedling has identified in the proposals put forward by C-Phone's management
team. Our intent is to stress that the incumbent Board are unfit stewards of our
company, and that they are currently pushing a transaction that benefits only
them at our expense. We believe that C-Phone can and should be saved. It is the
only viable path for our company to survive, recover, and grow into the future.
However, this process requires several steps, the first and most
important of which is the rejection of management's attempt to destroy C-Phone
forever. After we have defeated management's ill-considered attempt to destroy
our company, we will work to replace C-Phone's Board with a new, independent
board that will effectively and honestly represent the interests of all
shareholders.
This new Board will cut all non-essential operating costs, reexamine
the Motion Media transaction, and search for new alternatives for C-Phone while
informing and consulting with shareholders. Seedling will only profit if and
when other shareholders profit.
Though I cannot guarantee that you will recover your entire investment
in C-Phone if you vote against the incumbent Board's destruction proposal, I am
confident that we will be able to achieve per-share trading prices well above
the maximum of three cents after one to three years that C-Phone's incumbent
management is promising to you in their proposal.
We at Seedling have worked for months to save C-Phone, and we are now
at a critical juncture in this process. Vote AGAINST the dissolution plan and
by-laws amendment, and by doing so vote in favor of a future for C-Phone.
Seedling will continue to support the company every step of the way, and we will
fight to create something of real value here in spite of the challenges ahead.
REMEMBER: THIS IS OUR COMPANY! WE HAVE THE RIGHT TO INSIST THAT OUR BOARD
ACTIVELY SEEK TO MAXIMIZE SHAREHOLDER VALUE! DO NOT LET THEM TAKE THE FINAL
CHANCE FOR PROFIT OUT OF YOUR HANDS FOREVER.
On behalf of Seedling Technologies Corporation,
Douglas B. Spink
August 2, 2001
Seedling Technologies Corporation is a participant in the solicitation of
proxies from shareholders of C-Phone Corporation for use at the Special Meeting
of C-Phone shareholders to be held in September of 2001.
Investors are advised to read the Seedling's preliminary proxy statement and
definitive proxy statement when they become available, because these documents
will contain important information. Investors may obtain a free copy of the
preliminary and definitive proxy statements (when they are available) and other
documents filed by Seedling with the SEC at the SEC's internet website at
www.sec.gov. The preliminary and definitive proxy statements (when they are
available) and such other documents may also be obtained free from the Seedling
by directing such request to the Seedling Technologies Corporation at (800)
893-8894.
ABOUT SEEDLING
Founded in 1999, Seedling Technologies Corporation (OTCBB: SEED) and
its operational subsidiaries define, develop, and deploy technology solutions
via recapitalizations and turnarounds of existing companies. Seedling identifies
opportunities in the technology and telecommunications sectors and either
develops these projects internally or matches them with existing companies,
thereby acting as a catalyst for growth and profitability. Our portfolio
development projects and client engagements take various courses, from the
nurturing of early-stage technologies through mergers and business development
consulting and all the way to outright acquisitions of existing companies.
Additionally, Seedling acts as a catalyst to revive the operations of
troubled public technology companies, both in friendly transactions and in
hostile tender, proxy, and consent solicitation scenarios.
When Seedling decides to acquire or partner with a company, we first
seek to enter into a transaction in a friendly manner. Seedling seeks to work
constructively with management teams to structure transitions in a smooth and
shareholder-friendly process. However, if Seedling's overtures are rebuffed or
if Seedling concludes that incumbent management is being materially disingenuous
in its negotiations, Seedling can and has used other means to facilitate
shareholder friendly change, including hostile tenders, proxy contests, and
consent solicitations.
Our overriding concern is with shareholder value creation and
management. Sometimes, the path to shareholder rights enforcement is a rocky
one, and conflict results. In these situations, the "no action" option is often
highly unattractive to existing shareholders who have seen essentially all of
the value of their investment dissipate under incumbent management. Hostile
scenarios are complex and noisy affairs, but outright failure through lack of
action is always more painful to existing shareholders of deeply troubled
companies - irrespective of the outcome of a control contest. Forcing change is
preferable to slow, predictable failure via inaction.
Seedling's goal for C-Phone is the creation of long-term profitability
and shareholder value. Seedling buys and earns equity positions in target
companies and when we are successful in executing turnarounds and restructurings
we profit alongside other outside shareholders. Seedling does not "strip" target
companies of assets or cash; we rebuild companies into stable, profitable
economic entities and earn returns for our own shareholders through the win-win
restructuring of troubled companies. We only profit if all shareholders profit,
which does not appear to be true of C-Phone's current Board Members.
Douglas B. Spink is Seedling's Chairman and CEO. Mr. Spink is a
specialist in early-stage investments in technology companies and complex
corporate turnarounds in public-company environments. He founded Strategicus
Partners, Inc., a technology consultancy that was acquired by Stonepath Group
(AMEX: STG) in mid-1999, at which point he joined the Board and became Chief
Technical Officer of this technology investment company. After leaving
Stonepath, Mr. Spink led a shareholder group which successfully compelled
Stonepath's Board to change their money-losing business model. Press releases
regarding Mr. Spink's efforts can be found on Seedling's website at
www.seedling.net.
Mr. Spink has invested in, co-founded, or served as an advisor to more
than a dozen successful technology companies, including webmodal.com (cofounder,
former Board member), assetexchange.com (advisor, investor), and metacat.com
(founder, investor, and Board member). Prior to Strategicus, Mr. Spink founded
and served as CEO of Athletica Endurance and Timberline Direct, a sports
nutritional and direct marketing company, respectively. He sold both of these
companies to a large Northwest retailer in 1998. Doug was formerly a consultant
with the Boston Consulting Group and a database marketing analyst at Leo Burnett
& Co., where he consulted with Fortune l00 companies.
Doug earned his MBA in marketing from the University of Chicago, and
his BA in cultural anthropology from Reed College, and is currently studying for
his Ph.D. in Systems Science at Portland State University, with a research focus
on quantitative theories of consciousness. He is an active rock climber,
ultramarathon distance trail runner, BASE jumper, and Muy Thai kickboxer. He
also owns Timberline Farm LLC, an importer and breeder of Grand Prix showjumping
Holsteiner horses, which he rides competitively. He is married with four
children, and lives in Gaston, Oregon.
Paul Peterson is Seedling's President and a member of its Board of
Directors. Mr. Peterson is a specialist in corporate finance, credit and asset
management, investor relations and business development. He has served his
clients, employers and shareholders well in such challenging positions as Vice
President of Discover Mortgage Bank, where he managed cross-collateral lending
on securities and real estate, President of Investors Network Corporation, a
Honolulu-based venture capital firm, Vice President, Corporate Finance of Wall
St. Financial, a publicly-traded investor and holding company, Financial
Consultant for Merrill Lynch in Honolulu, where he also directed Merrill Lynch
Credit Corp. operations and Merrill Lynch International Bank in Osaka, Japan
where he served institutional clients in asset and credit management.
Mr. Peterson has a Masters degree in International Business Management
from Kansai University of Foreign Studies in Osaka, Japan, and undergraduate
degrees from the University of Minnesota and St. Thomas College in Foreign
Languages, Linguistics, and International Business & Economics. He speaks, reads
and writes fluently in Japanese, Mandarin and Russian, is an avid surfer and
scuba diver, a world-class competitive trap & skeet shooter, an aerobatics
flight instructor in powered aircraft and gliders, and an accomplished
mountaineer.
Any C-Phone shareholders or other interested parties may contact
Seedling with any questions or comments between 7:00AM and 9:00PM PST at:
Douglas B. Spink
Chairman and CEO
Seedling Technologies Corporation
doug@seedling.net
519 SW Third Avenue, Suite 805
Portland, OR 97204
Phone: 800-893-8894
Facsimile: 800-893-8895
International: 503-294-6401
You are also welcome to visit our website at www.seedling.net.
SEEDLING TECHNOLOGIES CORPORATION
DOUGLAS B. SPINK
519 SW Third Avenue, Suite 805
Portland, OR 97204
This does not constitute a request for a proxy. You will receive a
definitive proxy statement the same time as a proxy is requested from you.
We would like to hear from you. We would appreciate it if you would take a few
minutes to fill out the information requested below. Thank you for your time and
cooperation.
- ---------------------------------------------------------------
SHAREHOLDER INFORMATION
NAME: ______________________________________________________
FIRM: ______________________________________________________
ADDRESS: ______________________________________________________
CITY: ________________________STATE: ____ZIP: ______________
PHONE: ____________________________FAX: _____________________
EMAIL: ______________________________________________________
I HOLD MY C-PHONE SHARES THROUGH:
- -------------------------------------- ---------------------------
(NAME OR BROKERAGE FIRM OR BANK) (NUMBER OF SHARES OWNED)
STOCK BROKER OR FINANCIAL ADVISOR INFORMATION
NAME: ______________________________________________________
FIRM: ______________________________________________________
ADDRESS: ______________________________________________________
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COMMENTS: ______________________________________________________
______________________________________________________
PLEASE MAIL THIS FORM TO OUR ATTENTION AT THE ADDRESS INDICATED ABOVE IN THE
STAMPED ENVELOPE PROVIDED IN THIS MAILING. IF YOU PREFER, YOU MAY FAX IT TOLL
FREE TO SEEDLING TECHNOLOGIES CORPORATION AT (800) 893-8894; ATTN: MR. DOUGLAS
SPINK