AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
VIA EDGAR ON DECEMBER 3, 1999
REGISTRATION NO. 333 -_________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
CNF TECHNOLOGIES, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
Delaware 3577 23-2997171
- ------------------------------- ---------------------------- -----------------------------------
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
CNF Technologies, Inc.
7722 East Gray Road
Scottsdale, Arizona 85260
(480) 718-4065
-------------------------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office
and principal place of business)
Mr. David G. Thompson
7722 East Gray Road
Scottsdale, Arizona 85260
(480) 718-4065
-------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
(215) 665-3873
----------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
following effectiveness of this Registration Statement.
-----------------------------------
<PAGE>
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement in the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class Amount to be Offering Price Per Aggregate Amount of
of Securities to be Registered Registered (1) Share (2) Offering Price(2) Registration Fee (2)
------------------------------ ------------------------------------ ------------------ --------------------
Common Stock,
<S> <C> <C> <C> <C> <C>
$.0001 par value 1,756,624 (3) $5.6875 9,990,792 $3,027.51
</TABLE>
(1) Represents shares of the Company's Common Stock which may be offered by
certain Selling Security Holders. See "SELLING SECURITY HOLDERS."
(2) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee. Based on the average of the bid and asked prices per share
of the Company's common stock as reported on the OTC Bulletin Board on
November 29, 1999.
(3) Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
registration statement also includes additional shares of Common Stock
issuable upon stock splits, stock dividends or similar transactions.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
The information in this Prospectus is not complete and may be changed. The
Selling Security Holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 3, 1999
PRELIMINARY PROSPECTUS
CNF TECHNOLOGIES, INC.
1,756,624 Shares of Common Stock
The Selling Security Holders identified on page 46 of this Prospectus, may
offer and sell, from time to time, up to 1,756,624 shares of Common Stock of CNF
Technologies, Inc. The shares were issued by us in private placement
transactions. The Selling Security Holders may sell all or a portion of their
shares through public or private transactions at prevailing market prices or at
privately negotiated prices. We will not receive any part of the proceeds from
sales of these shares by the Selling Security Holders.
Our Common Stock is traded on the OTC Bulletin Board under the symbol
"CNFT". The last reported bid price of our Common Stock on November 29, 1999 on
the OTC Bulletin Board was $5.00 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this preliminary prospectus is December 3, 1999
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
PROSPECTUS SUMMARY................................................................................................1
THE OFFERING......................................................................................................3
SUMMARY CONSOLIDATED FINANCIAL DATA...............................................................................4
RISK FACTORS......................................................................................................5
USE OF PROCEEDS..................................................................................................13
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS......................................................13
CAPITALIZATION...................................................................................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................16
DESCRIPTION OF BUSINESS..........................................................................................25
MANAGEMENT.......................................................................................................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................41
DESCRIPTION OF SECURITIES........................................................................................43
SELLING SECURITY HOLDERS.........................................................................................46
PLAN OF DISTRIBUTION.............................................................................................47
LEGAL MATTERS....................................................................................................48
EXPERTS..........................................................................................................49
WHERE YOU CAN GET MORE INFORMATION...............................................................................49
FINANCIAL STATEMENTS............................................................................................F-1
</TABLE>
ABOUT THIS PROSPECTUS
This Prospectus is part of a registration statement we filed with the
United States Securities and Exchange Commission. You should rely only on the
information provided in this Prospectus. We have not authorized anyone to
provide you with information different from that contained in this Prospectus.
The Selling Security Holders are offering to sell, and seeking offers to buy,
shares of Common Stock only in jurisdictions where offers and sales are
permitted. The information contained in this Prospectus is accurate only as of
the date of this Prospectus, regardless of the time of delivery of this
Prospectus or of any sale of Common Stock. This Preliminary Prospectus is
subject to completion prior to this offering.
i
<PAGE>
PROSPECTUS SUMMARY
The following information is intended to summarize the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. This section is not intended to be a complete
description of all aspects of our business or the Common Stock being offered by
the Selling Security Holders. Investors should carefully consider the
information set forth under the caption "RISK FACTORS" beginning at page 5 of
this Prospectus. Unless the context otherwise requires, all references to "CNF,"
the "Company," "we," "us" or "our" refer to CNF Technologies, Inc. and our
subsidiaries.
About CNF Technologies, Inc.
We design, manufacture and market portable computer peripherals and
accessories for laptop computers to notebook PC vendors, wholesale distributors,
computer resellers, computer retail stores and corporate end users. Our devices
are designed to bring the functionality and power of desktop computers to
portable computer users.
Our core products
o Internal high-capacity removable storage devices for various notebook
computers (including Zip and LS/120 Super Disk drives)
o Portable DVD-ROM drives
o Portable CD-ROM drives
o Universal bay replicators branded as deviceDOCK's(TM)
o Monitor stands
o Numeric keypads
o Proprietary and universal auto adapters
o Universal port replicators
In addition to the core products described above, we plan to introduce a
universal docking station to complement our universal port replicator during the
next fiscal year. The universal port replicator and the universal docking
station are product devices which enable users of almost any make or model of
portable computer to transform their laptop into a desktop computer. These
products are designed to link a laptop to a network, a full-size monitor,
keyboard and mouse, as well as an array of external and internal peripherals.
Industry and market information
According to International Data Corporation, a market research firm,
portable computers are currently the fastest growing segment of the personal
computer market. This growth has
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<PAGE>
been fueled by advances in computer technology and the increasing demand for
computer mobility. International Data Corporation also predicts that the
portable computer market will grow at a compound annual rate of 15%, from 14.1
million units in 1997 to approximately 25 million units by 2001.
We market our products through wholesale distributors, original equipment
manufacturers ("OEMs"), resellers, and to a lesser extent, directly to corporate
end users throughout the United States, Canada, Australia, Japan and Europe. The
market for personal computers and computer peripherals is subject to intense
competition and characterized by both rapid technological change and shifting
consumer demands. In order to effectively compete in this industry, we must
continually develop and introduce new products with improved features in a
timely and cost-efficient manner. This requires us to maintain superior research
and development, comprehensive market research and effective communication
channels with manufacturers, distributors and corporate end users.
Our Mission
We believe that current industry trends will lead to an increased demand
for the use of peripherals and accessories designed to maximize the portability
and enhance the functionality of laptop computers and create a substantial
potential market for our products. Our overriding mission is to design,
manufacture and market peripheral products which can integrate any laptop
computer into any network or desktop computer at any time. Our products are
designed to permit laptop computer users to rely exclusively on their laptop by
eliminating the need to rely on a specific stationary office or network. Our
primary focus is to anticipate technological advancements and consumer
preference as far in advance as possible, develop new products and improved
features to meet such market demands and transform ideas from concept to market
as quickly as possible.
Corporate information
We were incorporated under the laws of Florida on September 23, 1996 as JLL
Ventures Corp. and on April 1, 1999, reincorporated into the State of Delaware.
Thereafter, our wholly owned subsidiary acquired CNF, Inc., a California
corporation ("CNF, Inc."), by merger (the "Merger") and assumed the historic
operations of CNF, Inc. In connection with the Merger, we changed our name to
CNF Technologies, Inc. ("CNF") and changed the name of our wholly owned
subsidiary to CNF Mobile Solutions, Inc. Prior to the Merger, we were an
inactive company whose shares were listed for quotation on the OTC Bulletin
Board.
Our principal executive offices are located at 7722 East Gray Road,
Scottsdale, Arizona 85260 and our telephone number is (480) 718-4065.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling Security
Holders: 1,756,624 Shares
Common Stock currently outstanding: 11,352,830 Shares(1)
Common Stock to be outstanding after the Offering: 11,502,830 Shares(1)(2)
Use of Proceeds: We will not receive any of the proceeds from the sale of
shares by the Selling Security Holders.
</TABLE>
Trading Symbol (OTC Bulletin Board): "CNFT"
- --------------------------
(1) The number of outstanding shares includes 2,000,000 shares which are subject
to possible cancellation upon the terms set forth in an escrow agreement
entered into in connection with the Merger. These shares will be released
from escrow based on the proceeds we receive in a private placement of our
Common Stock which terminates on February 15, 2000 and the principal amount
of outstanding indebtedness, if any, which is converted into shares of our
Common Stock on or before February 15, 2000. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - Material Escrow Arrangements."
The number of outstanding shares does not include:
o 4,163,188 or more shares issuable upon the conversion of 4,163,188
outstanding shares of the Company's Series A Convertible Preferred
Stock (the "Series A Preferred Stock");
o 792,440 or more shares issuable upon exercise of outstanding options to
purchase 792,440 shares of Series A Preferred Stock at exercise prices
ranging from $.24 to $1.21 per share which vest over a four (4) year
period commencing on the date of grant;
o 200,000 shares issuable upon exercise of outstanding warrants; and
o up to 200,000 shares issuable upon exercise of warrants issuable upon
completion of a private placement transaction. Warrants to purchase
66,667 of such shares have been issued.
See "DESCRIPTION OF SECURITIES" and "MANAGEMENT - Outstanding Options;
Stock Incentive Plan."
(2) Includes 150,000 shares being offered hereunder which are issuable upon
conversion of outstanding shares of Series A Preferred Stock.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA (1)
The following table sets forth our summary financial data. This table does
not present all of our financial information. You should read this information
together with our financial statements and the notes to those statements
beginning on page F-1 of this Prospectus and the information under "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended March 31 Six Months Ended September 30
1999 1998 1999 1998
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $9,425,947 $7,726,484 $6,114,459 $6,593,389
Gross Profit 3,337,398 3,265,540 2,249,198 2,281,809
Loss before income taxes (3,119,725) (58,167) (2,360,679) (443,995)
Net Loss (3,074,525) (79,267) (2,360,679) (443,995)
Basic and Diluted loss per share: (2) (1.23) (0.03) (0.31) (0.18)
Basic and Diluted Weighted average
number of shares outstanding: 2,500,250 2,500,000 7,518,457 2,500,000
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of
March 31, 1999 As of September 30, 1999
-------------- ------------------------
Actual Actual ProForma(3)
----------- ----------- ------------
<S> <C> <C> <C>
Working capital (deficiency) $(3,062,743) $(3,460,854) $ (45,854)
Total assets 3,538,687 4,789,207 6,529,207
Total liabilities 6,265,324 7,835,082 6,160,082
Stockholders equity (deficit) (2,726,637) (3,045,875) 369,125
</TABLE>
- -------------------
(1) The financial data presented above reflect the relevant Statement of
Operations Data of CNF, Inc. CNF, Inc. was acquired by us pursuant to the
Merger in which CNF, Inc. was merged with and into our wholly owned
subsidiary JLL Ventures Acquisition Corp., a Delaware corporation. Upon
completion of the Merger, JLL Ventures Acquisition Corp. changed its name to
CNF Mobile Solutions, Inc. Because the former stockholders of CNF, Inc.
acquired a controlling interest in the Company (the Company was inactive at
the time), the Merger has been accounted for as a "reverse acquisition."
Accordingly, for financial statement presentation purposes, CNF, Inc. is
viewed as the continuing entity and the related business combination is
viewed as a recapitalization of CNF, Inc., rather than an acquisition by the
Company.
(2) Basic income (loss) per common share is based upon the weighted average
number of common shares outstanding for each period presented. Diluted
income (loss) per common share is based upon the weighted average number of
common shares plus the dilutive effect of the existing convertible
securities outstanding for each period presented. Convertible securities
have not been included as their effect would be anti-dilutive.
(3) Gives effect to the following events which occurred after September 30,
1999:
o the retirement of 1,000,000 shares of Series A Preferred Stock
o the receipt of net proceeds of $1,740,000 from the sale of 666,667
shares of Common Stock in a private placement transaction which closed
on November 26, 1999
o the issuance of 1,005,000 shares of Common Stock upon the conversion of
$1,675,000 of short-term indebtedness.
4
<PAGE>
RISK FACTORS
An investment in our Common Stock involves a high degree of risk and should
only be made by investors who can afford to lose their entire investment. You
should carefully consider the risks and uncertainties described below and other
information in this Prospectus before deciding to invest in our Common Stock. If
any of the following risks actually occur, our business, results of operations
and financial condition could be materially, adversely affected. This could
cause the trading price of our Common Stock to decline and a loss of part or all
of any investment in our Common Stock.
FORWARD LOOKING STATEMENTS
The words "may," "will," "expect," "anticipate," "believe," "continue,"
"estimate," "project," "intend," and similar expressions used in this Prospectus
are intended to identify forward-looking statements. You should not place undue
reliance on these forward-looking statements, which speak only as of the date
made. We undertake no obligation to publicly release the result of any revision
of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events. You
should also know that such statements are not guarantees of future performance
and are subject to risks, uncertainties and assumptions. Should any of these
risks or uncertainties materialize, or should any of our assumptions prove
incorrect, actual results may differ materially from those included within the
forward-looking statements.
WE HAVE A HISTORY OF LOSSES FROM OPERATIONS AND ANTICIPATE FUTURE LOSSES
WILL OCCUR
During the fiscal year ended March 31, 1998 we sustained a net loss of
$79,267. During the fiscal year ended March 31, 1999 we sustained a net loss of
$3,074,525. This trend continued during the six months ended September 30, 1999
as we sustained additional net losses of $2,360,679. Our operating losses will
likely continue at these levels if operations remain at current levels. Our
business plan assumes a significant increase in sales as we expect our new
products to achieve commercial acceptance and gain market share. This plan
requires us to make significant investments in operations to support
technological development as well as marketing and sales activities. This will
result in continued and substantial increases in our operating expenses. To
execute this plan we need to generate significant additional revenue from new
products and raise substantial additional capital. Since we are uncertain that
we will be able to secure any financing or generate sufficient cash flow from
operations, our operating losses may continue.
OUR FINANCIAL CONDITION RAISES SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
SUSTAIN OPERATIONS
As of March 31, 1999, our current liabilities exceeded our current assets
by $3,062,743 and our total liabilities exceeded our total assets by $2,726,637.
As a result, our financial condition raises uncertainty as to our ability to
continue as a going concern. Our long-term viability will depend upon our
ability to generate sufficient cash flow from operations to meet
5
<PAGE>
our current obligations, raise significant additional capital and ultimately
attain profitable operations.
WE HAVE EXPERIENCED, AND EXPECT TO CONTINUE TO EXPERIENCE, SIGNIFICANT
FLUCTUATIONS IN OPERATING RESULTS
We recently introduced one new product and intend to introduce another new
product during the next fiscal year. These new products are designed to provide
universal connectivity for almost any make or model of a PC-based portable
computer. Since there are no similar products widely available in the market, it
is difficult or impossible for us to predict the future revenues which could be
generated by these products. In addition, given the intense competition, rapid
technological change, substantial swings in consumer demand and short product
life cycles, the continued acceptance of and the revenues generated by our
existing products are difficult or impossible to predict. The development of
superior products by our competitors could also render our existing products
obsolete. As a result, our revenues and operating results are likely to
fluctuate significantly.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND OUR PRODUCTS
COULD BECOME OBSOLETE
The portable computer industry is characterized by rapid technological
change, frequent introduction of new products, continuing changes in consumer
demand, shall produce life cycles and rapidly evolving industry standards. The
introduction of products utilizing new technology or the emergence of new
industry standards can render existing products obsolete and unmarketable very
quickly. Our future success will depend in large part upon our ability to
satisfy changing customer needs by continuing to develop new products and
upgrade existing products as quickly and efficiently as possible. Any failure by
us to anticipate or respond to such technological developments or shifting
consumer requirements or any significant delay in product development or
introduction could substantially and adversely impact our competitive position
in the market.
WE FACE INTENSE COMPETITION IN THE MARKETS IN WHICH WE OPERATE
As the markets for portable computers and associated peripherals continue
to grow, we expect the markets for our products to become more competitive. The
principal competitive factors in the computer peripherals industry are:
o product innovation
o design
o functionality
o performance
o ease of use
o price and availability
6
<PAGE>
Our principal competitors are large, nationally recognized OEMs as well as more
specialized computer peripheral manufacturers. Many of our competitors have
established reputations and significantly greater financial, marketing,
personnel and other resources than we do. As a result, these competitors may be
in a better position than us to quickly respond to rapid technological change
and consumer demand. For example, large OEMs, particularly those manufacturing
notebook PCs, not only have advance knowledge of technological improvements to
their own products, but also greater resources which may permit them to develop
superior peripheral products faster than we can. This could render our products
obsolete for portable computers manufactured or marketed by such OEMs. For these
and other reasons, we may not be able to compete effectively in the markets in
which we operate.
WE COULD BE AFFECTED BY A DECLINE IN INDUSTRY GROWTH RATE
Our future success is dependent not only on our own growth rate but also
the growth rate of the portable computer notebook industry. Even though
notebooks are one of the fastest growing segments of the personal computer
market, we are uncertain whether this growth will continue. An overall decrease
in the demand for portable computers would result in a material adverse effect
on our business.
THE SALES OF A PRINCIPAL PRODUCT LINE ARE LIKELY TO DECREASE
Our CD-ROM sales constitute a substantial percentage of our sales (5%
during the six months ended September 30, 1999, 19% during the six months ended
September 30, 1998, 41% during fiscal year ended March 31, 1998 and 38% during
the fiscal year ended March 31, 1999.) Two market factors indicate that the
product life of external CD-ROM products may be coming to an end. First, most
major notebooks come standard with an internal CD-ROM, making the need for an
external one unnecessary. In fact, Sherwood Research estimates that only 10% of
the notebooks currently being manufactured are shipped without internal drive
capabilities. Second, there appears to be a shift from CD-ROMs to DVD. Since
these trends reduce the demand for CD-ROMs, our sales of CD-ROMs will continue
to decrease. We are currently attempting to respond to these market forces by
focusing on DVD technology. Our future success will, to some extent, depend upon
our continued development of products that incorporate DVD technology.
WE RELY ON THIRD-PARTY SUPPLIERS TO PROVIDE COMPONENTS THAT ARE CRITICAL TO
OUR BUSINESS
We are currently dependent on two main product lines (CD-ROMs and Zip
Drives) which accounted for approximately 80% of our revenue during the six
months ended September 30, 1999 and approximately 73% of our revenue during the
fiscal year ended March 31, 1999. One supplier provides the main component for
CD-ROMs and another provides the main component for Zip Drives. We purchase
these components under purchase orders and do not have a long-term contract with
either supplier. Any termination or disruption of our relationship with either
supplier or any material adverse change to the financial condition of either
supplier would prevent us from filling customer orders. Although we believe that
our relationships with these suppliers are good, we cannot assure you that these
relationships will continue or whether these suppliers will continue to be able
to provide our components in a timely and cost efficient
7
<PAGE>
manner. Although alternate suppliers are available, there are a limited number
of such suppliers and finding and qualifying replacement suppliers could take
several months. We are also dependent upon these suppliers to manufacture and
deliver components that are free from defect, competitive in functionality and
cost and in compliance with our specifications, all of which are beyond our
control.
WE HAVE LIMITED INTELLECTUAL PROPERTY PROTECTION
Our success and ability to compete are dependent, in part, upon proprietary
technology. We rely primarily on a combination of patent, copyright and
trademark laws, trade secrets and technical measures to protect our proprietary
rights. We have been issued one patent and have five patent applications pending
with notification that one of those pending patents will likely be issued within
the next 60 days. We cannot be certain that patents pending or future patent
applications will issue, or that if issued, we would have the resources to
protect any such issued patent from infringement. We also enter into
confidentiality, non-compete and/or work for hire invention assignment
agreements with our key employees and limit the access to and distribution of
our product design documentation and other proprietary information. We cannot
assure you that these efforts will deter misappropriation or to prevent an
unauthorized third party from obtaining or using information which we deem to be
proprietary. Although we believe that our technology does not currently infringe
upon patents held by others, we cannot assure you that such infringements do not
exist or will not exist in the future, particularly as the number of products
and competitors in our industry segment grows.
WE ARE DEPENDENT UPON A LIMITED NUMBER OF THIRD-PARTY DISTRIBUTORS, OEMS AND
PRINCIPAL CUSTOMERS
We derive a substantial portion of our product sales from distributors. We
do not maintain an exclusive distributorship with any significant distributor
and our distribution agreements can be terminated at any time. Accordingly, our
distributors are not obligated to purchase products from us in the future and
may represent competing lines of products. As a result, the ultimate
distribution of our products to end-users is beyond our control. In addition,
four customers directly or indirectly accounted for 89% of our revenues during
the six months ended September 30, 1999 and 65% of our revenues during the
fiscal year ended March 31, 1999. A loss of any of these customers could
substantially reduce our sales. Although we believe our relations with these
distributors/customers are good, we cannot assure you that any or all of them
will continue to do business with us in the future.
WE ARE AT RISK OF PRODUCT DEFECTS AND EXPOSURE TO POTENTIAL PRODUCT
LIABILITY CLAIMS
Given the complex nature of our products, they may contain undetected
errors or performance problems particularly when new products are introduced.
Although our products undergo extensive testing prior to introduction to the
market, it is typical in the computer industry for such products to contain
errors and performance problems which are discovered after commercial
introduction. To the extent these defects and errors are discovered after
shipment, they could result in a loss of sales revenues, delay in market
acceptance, product returns, warranty claims and the loss of a potential market
all of which could have a material
8
<PAGE>
adverse effect on our business. In addition, components and other products
manufactured and distributed by others which are incorporated into our products
may also contain such defects and errors which could substantially reduce the
performance of our products. We are also at risk of exposure to potential
product liability claims from distributors and end users for damages resulting
from a defect in products that we distribute. Although we maintain product
liability insurance we cannot assure you that this insurance will be adequate to
cover any claims brought against us. To the extent these claims are not covered
by insurance, they severely and negatively impact our business.
THE LOSS OF SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL COULD HARM OUR
OPERATIONS
A loss of one or more of our current officers or key personnel could
severely and negatively impact our operations. Although we have employment
contracts with most of our key personnel, these contracts do not prevent them
from resigning or otherwise leaving our Company. Effective product development
and innovation is dependent upon our ability to attract and retain talented
technical and marketing personnel. The market for such persons is extremely
competitive. We cannot be certain that we will have the financial or other
resources to attract and retain such individuals.
OUR COMMON STOCK HAS A LIMITED MARKET AND MAY BE ADVERSELY EFFECTED BY THE
INFLUX INTO THE MARKET OF THE SHARES COVERED BY THIS PROSPECTUS
The public trading market for our Common Stock recently commenced on the
OTC Bulletin Board. There is minimal supply of shares eligible for public resale
(100,000 shares) and trading has been extremely limited. Accordingly, we are
uncertain that a regular trading market for our Common Stock will develop, and
if it develops, whether it can be sustained. By its very nature, trading on the
OTC Bulletin Board provides very limited market liquidity. The trading market
for our Common Stock may be adversely effected by the influx into the market of
the 1,756,624 shares of Common Stock covered by this Prospectus. Although it is
impossible to predict market influences and prospective values for securities,
it is possible that, in and of itself, the substantial increase in the number of
shares available for public sale could have a depressive effect on the market.
Until a more seasoned trading market develops, if at all, the market price for
our Common Stock is likely to be volatile and factors such as success in
developing new products, competition and fluctuations in operating results may
all have a significant effect. In addition, the stock markets generally have
experienced, and continue to experience, extreme price and volume fluctuations
which have affected the market price of many small capitalization companies and
which have been unrelated to the operating performance of these companies. These
broad market fluctuations, as well as general economic and political conditions,
may adversely affect the market price of our Common Stock.
THE ABILITY TO TRADE OUR SHARES COULD BE ADVERSELY EFFECTED IF THE TRADING
PRICE FALLS BELOW $5.00 PER SHARE
The SEC has adopted regulations imposing limitations upon the manner in
which certain low priced securities (referred to as a "penny stock") are
publicly traded. Under these
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regulations, a penny stock is defined as any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on a national exchange, the Nasdaq
National Market System or SmallCap Market and any equity security issued by a
Company that has (i) net tangible assets of at least $2,000,000, if such issuer
has been in continuous operation for three years, (ii) net tangible assets of at
least $5,000,000, if such issuer has been in continuous operation for less than
three years, or (iii) average annual revenue of at least $6,000,000 for the last
three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the associated risks. The
regulations also require certain broker/dealers who recommend such securities to
persons other than established customers and certain accredited investors to
make a special written suitability determination for the purchaser and receive
the purchaser's written agreement to a transaction prior to sale. These
requirements make it more difficult to effect transactions in penny stocks as
compared to other securities. Since our Common Stock presently trades above
$5.00 per share, it is not considered a "penny stock." We are uncertain that
trading prices at this level can be sustained. Should trading prices fall below
$5.00 per share, our shares could be considered a "penny stock."
OUR SHARES MAY NOT BE ELIGIBLE TO TRADE ON THE OTC BULLETIN BOARD AFTER
JANUARY 12, 2000
During January 1999, the National Association of Securities Dealers, Inc.
("NASD") adopted a rule to preclude "non-reporting" public companies from
trading on the OTC Bulletin Board. Under the new rule in order for securities to
be eligible for trading on the OTC Bulletin Board they must be registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Since our
shares were eligible for trading prior to the effective date of the new rule,
our Common Stock remains eligible for trading on the OTC Bulletin Board even
though our shares are not registered under the Exchange Act. In order to
maintain such trading, we must secure Exchange Act registration by no later than
January 12, 2000. Otherwise, our Common Stock would only be eligible to be
traded in the illiquid "pink sheet" system.
OUR COMMON STOCK WILL LIKELY BE SUBJECT TO ADDITIONAL DILUTION
We are in need of substantial additional financing. This will entail the
issuance of additional shares of Common Stock or common stock equivalents which
will have the effect of increasing the number of shares outstanding. In
connection with other business matters, we will likely undertake the issuance of
additional shares of Common Stock. This may be done in order to, among others,
acquire assets or stock of another business, compensate employees or consultants
or for other valid business reasons at the discretion of our Board of Directors.
Under applicable Delaware law, we can issue additional shares without notice to,
or approval of, existing stockholders. In addition, in conjunction with the
Merger, we issued 5,163,188 shares of Series A Preferred Stock (of which
1,000,000 have been surrendered) and options to purchase 836,790 shares of
Series A Preferred Stock (of which 44,350 have been cancelled). Each share of
Series A Preferred Stock is initially convertible into one (1) share of Common
Stock. Depending on our financial performance during the fiscal year ended March
31, 2000, each share of Series A Preferred Stock is convertible into up to 2.25
shares of Common Stock. Accordingly, no later than June 30, 2000, the Series A
Preferred Stock will convert into a minimum of 4,163,188 and a maximum of
9,367,173, shares of Common Stock. In addition, the options could be exercised
10
<PAGE>
for up to 671,065 (currently vested) or 1,782,990 (upon full vesting) additional
shares of Common Stock. We also intend to adopt a stock option plan pursuant to
which we may grant options to purchase shares of Common Stock equal to 10% of
our then outstanding shares of Common Stock.
WE ARE CONTROLLED BY A LIMITED NUMBER OF STOCKHOLDERS.
As of the date of this Prospectus, our officers, directors and a limited
number of principal stockholders beneficially own more than approximately 65% of
our outstanding voting shares. These stockholders will be in a position to elect
all of our directors and control the outcome of other corporate matters without
the approval of our other stockholders.
WE MAY BE ADVERSELY AFFECTED IF OUR PRODUCTS AND TECHNOLOGY ARE NOT YEAR 2000
COMPLIANT.
We are presently attempting to respond to Year 2000 issues. Year 2000
issues are the result of computer programs being written using two digits rather
than four to define the applicable year associated with the program or an
associated computation. Any such two-digit computer programs may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions of operations, including
among other things, a temporary inability to process transactions, send invoices
or engage in normal business activities.
To address such "Year 2000" issues, we established a Year 2000 Project
Team. We have successfully completed testing of current products and products
under development and do not believe there is significant risk of noncompliance.
We are uncertain that certain previous releases of our products, which are no
longer under support, will prove to be Year 2000 compliant. We have completed
initial evaluation, analysis and testing of our core internal systems. We do not
currently expect any significant issues to be identified during further review,
however, further inquiry and review is expected to continue throughout 1999.
Failure on our part to correct any issues with internal systems could result in
material disruption to our operations. We have completed our initial assessment
of the readiness of third-party business partners, including significant vendors
and customers. The assessment of the compliance of third party business partners
is on-going and is also expected to continue throughout 1999. Even where
assurances are received from third parties there remains a risk that failure of
systems and products of other companies on which we rely could have a material
adverse effect on us.
Our total cost for these Year 2000 compliance issues is not anticipated to
be material to our financial position or results of operations in any given
year. These costs and the date on which we plan to complete the Year 2000
modification and testing processes are based on our best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, we are uncertain that these estimates will be achieved and
actual results could differ from those plans. In addition, because many
companies may need to upgrade or replace computer systems and software to comply
with Year 2000 requirements, we believe that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to upgrade their current software systems
for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase products such
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as those offered by us, which could have a material adverse effect on our
business, results of operations and cash flows.
DELAWARE'S ANTI-TAKEOVER LAW MAY DISCOURAGE CHANGE IN CONTROL TRANSACTIONS.
As our shares become more widely held, listed on NASDAQ or on a
national exchange, we will become subject to Section 203 of the General
Corporation Law of the State of Delaware, an anti-takeover law. In general, the
law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three (3) years
after the date of the transaction in which the person became an interested
stockholder, unless the "business combination" is approved in a prescribed
manner. "Business combinations" include mergers, asset sales and other
transactions resulting in a financial benefit to our stockholders. An
"interested stockholder" is a person who, together with its affiliates and
associates, owns, or within three (3) years, did own fifteen percent (15%) or
more of a corporation's voting stock. To the extent this provision of Delaware
law becomes applicable to us, it could have the effect of delaying, deferring or
preventing a change in control of the Company or the removal of our existing
management. This could deter or delay unsolicited changes in control of our
Company by discouraging open market purchases of our stock or a non-negotiated
tender or exchange offer for such stock. Since takeover transactions frequently
afford stockholders the opportunity to sell their shares at a premium over
current market prices, these provisions may be disadvantageous to a majority of
our stockholders who may otherwise desire to participate in such a transaction
and receive a premium for their shares.
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<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Security Holders.
MARKET FOR OUR COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Market Information
Since October 7, 1998, our Common Stock has been listed for quotation on
the OTC Bulletin Board under the symbol "CNFT." The market for our shares is
extremely limited. We are uncertain if a significant trading market for our
Common Stock will develop or, if developed, will be sustained.
In order for our Common Stock to remain eligible for quotation on the OTC
Bulletin Board, our Common Stock must be registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") by no later than January
12, 2000. Upon the effective date of this Prospectus, we will be filing a
registration statement for the purpose of registering our Common Stock under the
Exchange Act which will be effective upon filing with the SEC. Accordingly, if
this Prospectus is not declared effective by the SEC prior to January 12, 2000,
our shares will no longer be eligible for quotation on the OTC Bulletin Board.
The following table sets forth the range of the high and low closing bid
prices per share of our Common Stock during each of the calendar quarters
identified below. These bid prices were obtained from the National Quotations
Bureau, Inc. and do not necessarily reflect actual transactions, retail markups,
mark downs or commissions. The transactions include inter-dealer transactions.
Based on the very limited public float and trading in our Common Stock, we
believe that such data is anecdotal and may bear no relation to the true value
of our Common Stock or the range of prices that would prevail in a liquid
market.
<TABLE>
<CAPTION>
1998 High Low
---- ---- ---
<S> <C> <C> <C>
4th Quarter * *
<CAPTION>
1999 High Low
---- ---- ---
<S> <C> <C> <C>
1st Quarter * *
2nd Quarter $6.00 $5.50
3rd Quarter $6.4375 $4.00
4th Quarter (through November 29, 1999) $6.00 $5.00
</TABLE>
* No bids reported
- ------------------------------
The closing bid price of our Common Stock as of November 29, 1999 was $5.00
per share.
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Holders
As of November 29, 1999, we had approximately 110 stockholders of record,
although we believe that there are additional beneficial owners of our Common
Stock who own their shares in "street name."
Dividends
We have not paid any cash dividends, to date, and we have no intention of
paying any cash dividends on our Common Stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the Board
of Directors and to certain limitations imposed under the General Corporation
Law of the State of Delaware. The timing, amount and form of dividends, if any,
will depend, among other things, on our results of operations, financial
condition, cash requirements and other factors deemed relevant by our Board of
Directors.
Shares Eligible for Public Sale and Registration Rights
As of the date of this Prospectus, there are 11,352,830 outstanding shares
of our Common Stock. Of these shares, 100,000 are eligible for public trading.
Assuming that we comply with the adequate public information disclosure
requirements of SEC Rule 144 promulgated under the Securities Act, a substantial
number of additional shares will be eligible for public resale under Rule 144 on
the dates and in the amounts set forth below:
o March 15, 2000 - 900,000 shares
o June 10, 2000 - 8,167,500 shares
o August 15, 2000 - 424,081 shares
o November 2, 2000 - 600,000 shares
o November 26, 2000 - 1,161,249 shares
We have agreed to register the public resale of 2,423,291 of the shares
identified above; 1,756,624 of which are being registered for public resale
hereunder. We have agreed to file a registration statement with the SEC
permitting the public resale of 666,667 shares of our Common Stock identified
above by no later than on or about August 26, 2000 and up to 400,000 additional
shares issuable upon exercise of warrants issued or issuable to our placement
agent by no later than November 26, 2000.
Shares Issuable Upon Exercise or Conversion of Outstanding Options, Warrants
and Preferred Stock
We have issued options to purchase an aggregate of 792,440 shares of Series
A Preferred Stock of which 298,251 are currently exercisable. The remaining
options vest in ratable monthly installments over a three (3) year period. We
have also issued warrants to purchase an aggregate of 200,000 shares of Common
Stock all of which are currently exercisable. In connection with a
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<PAGE>
private placement transaction, we have agreed to issue warrants to our placement
agent to purchase up to an additional 200,000 shares of Common Stock which will
be immediately exercisable. As of the date of the Prospectus, we have issued
warrants to purchase 66,667 of these shares. Finally, we have issued an
aggregate of 4,163,188 shares of Series A Preferred Stock which are initially
convertible into one (1) share of our Common Stock. Depending on our financial
performance during the fiscal year ending March 31, 2000, each share of Series A
Preferred Stock is convertible into up to 2.25 shares of our Common Stock.
Accordingly, the shares of Series A Preferred Stock are convertible into a
minimum of 4,163,188 shares of Common Stock and a maximum of 9,367,173 shares of
Common Stock.
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on an actual basis and on a pro forma basis, giving effect to the pro forma
adjustments discussed within the Summary Consolidated Financial Data table. This
table should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Actual Pro Forma
------ ---------
<S> <C> <C>
Long -term debt $251,881 $251,881
Preferred Stock 516 416
Common Stock 959 1,135
Additional paid in capital 2,048,466 5,463,390
Accumulated deficit (5,095,816) (5,095,816)
Total stockholders' equity (deficiency) (3,045,875) 369,125
---------- ----------
Total capitalization (2,793,994) 621,006
---------- ----------
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of a
number of factors, including those set forth in "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
We design, manufacture and market computer peripheral devices and
accessories. Our product lines include:
o internal Zip and SuperDisk Drives
o universal bay replicators branded as Device Docks
o portable optical storage devices like DVD and CD-ROM drives
o external numeric keypads
o monitor stands
o auto adapters
We have in the past derived most of our revenue from the sale of internal
Zip and SuperDisk drives and CD-ROMS. We believe that our future growth will be
in our universal docking products. These products enable users of almost any
make or model of PC based portable computer to essentially turn their portable
computer into a desktop computer allowing them to link portable computers to a
network, a full-size monitor, keyboard, mouse, an array of external and internal
peripherals. Principal among this product line is the universal port replicator
and the planned introduction of a universal docking station during the next
fiscal year.
In fiscal 1999 and the first six months of fiscal 2000, 73% and 80%,
respectively, of our revenue was derived from sales of the Inner Bay Notebook
Zip Drives and CD-ROMs. We believe that these product lines will decrease as a
percentage of our revenue as our recently introduced universal port replicator
achieves market acceptance. Current trends indicate that the CD-ROM product life
is coming to an end. While we believe that sales of Inner Bay Notebook Zip
Drives will continue to account for a significant portion of our revenue and
gross profit, our future results of operations will be highly dependent upon the
success of the universal docking products. See "RISK FACTORS."
We market and sell our products worldwide through multiple indirect
channels, primarily distributors and resellers, and a substantial majority of
our revenue in fiscal 1999 and the first six
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months of fiscal 2000 was derived from sales to distributors and resellers.
Certain of our products, in particular our Inner Bay Notebook Zip Drives, and
Device DOCK products, are sold to OEMs and we intend to increase our sales to
OEMs in the future. We support our indirect channels with our own sales and
marketing organization. Our key distributors include Ingram Micro and Merisel
America. In fiscal 1999, sales to Ingram Micro accounted for 14% of our revenue.
In the first six months of fiscal 2000, sales to Ingram Micro accounted for 33%
of our revenue and sales to Merisel America accounted for 51% of our revenue.
The loss of, or reduction in sales to, any of our key customers could have a
material adverse effect on our business and results of operations. We provide
price protection rights and limited product return rights for stock rotation to
most of our distributors and resellers. See "RISK FACTORS."
We recognize revenue when products are shipped to customers. Our cost of
revenue consists primarily of costs associated with components, outsourced
manufacturing of certain subassemblies and in-house labor associated with
assembly, testing, shipping and quality assurance. Our gross margin is affected
by a number of factors including:
o product mix
o competitive product pricing pressures
o manufacturing costs and
o component costs
We anticipate that our gross margin may decline in the future as a result of
shifts in our product mix and competitive pricing pressure. In particular, we
expect our gross margin on sales of the Innerbay Notebook Zip Drives will
decline as a result of a shift in product mix toward lower the priced solutions.
We seek to mitigate the effects of declining prices by improving product design
and reducing costs, primarily manufacturing and component costs. See "RISK
FACTORS."
Our operating results have fluctuated significantly in the past and are
likely to fluctuate significantly in the future on a quarterly and an annual
basis. Prior growth rates that we have experienced in revenue should not be
considered indicative of future growth rates. Factors that could cause the our
future operating results to fluctuate include:
o the level of demand for our products
o our success in developing new products
o the timing of new product introductions and product enhancements by us
and our competitors
o market acceptance of our new and enhanced products
o the emergence of new industry standards
o the timing of customer orders
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<PAGE>
o the mix of products sold
o competition
o the mix of distribution channels through which our products are sold and
general economic conditions
Many of these factors are beyond our control.
The markets for our products are characterized by rapidly changing
technologies, evolving industry standards, frequent new product introductions
and short product life cycles. Our future success will depend to a substantial
degree upon our ability to enhance our existing products and to develop and
introduce, on a timely and cost-effective basis, new products and features that
meet changing customer requirements and emerging and evolving industry
standards. The introduction of new or enhanced products also requires us to
manage the transition from older products in order to minimize disruption in
customer ordering patterns, to avoid excessive levels of older product
inventories and to ensure that adequate supplies of new products can be
delivered to meet customer demand. There can be no assurance that we will
successfully develop, introduce or manage the transition to new products.
RESULTS OF OPERATIONS
Comparison of the Six Month Period Ended September 30, 1999 to the Six
Month Period Ended September 30, 1998
Total Revenue
Revenue for the six months ended September 30 1999 amounted to $6,114,459
compared to $6,593,389 for the six months ended September 30, 1998, a decrease
of 7%. The decrease is attributable to a number of factors including an
inability to fulfill orders as a result of working capital deficiencies, as well
as a change in product mix towards lower priced products (in recognition of
competitive pricing pressure). Sales were also adversely affected by a temporary
delay in product shipments caused by weather-related problems suffered by one of
our principal suppliers. Anticipated decreases in the sale of CD-ROMs are
expected to be offset in part by sales of products that incorporate DVD
technology, as well as the introduction of our universal docking products.
Gross Profit and Cost of Revenue
Gross profit and gross profit percentage during the six months ended
September 30, 1999 amounted to $2,249,198 and 37%, respectively, as compared to
$2,281,809 and 35%, respectively, during the six months ended September 30,
1998. Our cost of revenue for the six months ended September 30, 1999 was
$3,865,261 or 63% of revenue as compared to $4,311,580 or 65% of revenue during
the six months ended September 30, 1998. The increase in gross profit and
corresponding decrease in cost of revenue during the six months ended September
30, 1999 was principally due to a shift in our product mix to higher gross
profit
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<PAGE>
products, primarily monitor stands. The increase was offset, in part, by
increased sales of zip drives, which provide a lower gross profit.
Research and Development
Research and development expenses generally consist of salaries and other
personnel costs of our research and development teams, product supplies and
tooling costs. Research and development expenses amounted to $631,735 during the
six months ended September 30, 1999 as compared to $487,963 during the six
months ended September 30, 1998, an increase of 29%. The increase in research
and development costs is primarily due to increased staffing, development of the
universal docking station, and the release of the universal port replicator
during fiscal 2000. We expect research and development expenses to increase in
the future, although such expenses may vary as a percentage of revenue.
Sales and Marketing Expenses
Sales expenses and marketing generally consist of salaries, commissions and
other personnel costs of the Company's sales, marketing and support personnel,
advertising, promotions and travel. Marketing and sales expenses during the six
months ended September 30, 1999 amounted to $550,403 as compared to $506,536
during the six months ended September 30, 1998, an increase of 9%. As a
percentage of revenue, such expenses increased from 8% during the six months
ended September 30, 1998 to 9% during the six months ended September 30, 1999.
The increase was primarily attributable to promotional costs associated with the
introduction of the universal port replicator and trade shows. The Company
expects marketing and sales expense to increase in the future, although such
expenses may vary as a percentage of revenue.
General and Administrative Expenses
General and administrative expenses primarily consist of salaries, facility
costs, depreciation and other general operation costs. General and
administrative expenses increased to $2,728,589 during the six months ended
September 30, 1999 from $1,683,039 during the six months ended September 30,
1998. As a percentage of revenue, general and administrative expenses increased
from 26% to 45%. This increase is primarily attributable to increased salaries
and wages, employee recruitment costs, insurance and legal fees.
Other Expense, Net
Other expense, net in the six months ended September 30, 1999 increased by
$650,884 to $699,150 from $48,266 in the six months ended September 30, 1998.
The increase in other expenses was attributable to $709,243 of interest expense,
which includes $544,439 attributable to equity incentives associated with bridge
financing beginning in April 1999.
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<PAGE>
Fiscal Year Ended March 31, 1999 compared to 1998
Total Revenue
Revenue for the year ended March 31, 1999 ("Fiscal 1999") amounted to
$9,425,947 compared to $7,726,484 for the year ended March 31, 1998 ("Fiscal
1998"), an increase of 22%. The increase in revenue was principally due to
increased unit sales of ZIP drives and increased unit sales of monitor stands.
As a percentage of revenue, sales of our CD-ROMs amounted to 38% in Fiscal
1999 and 41% in Fiscal 1998, respectively. We believe that unit sales of CD-ROMs
will continue to decline as the product life cycle comes to an end. Revenue from
this product line is expected to decline as a percentage of our revenue as our
other products achieve market acceptance. While we believe that sales of DVD's
will replace some of the decrease in revenue attributable to CD-ROM's, our
future results of operations will be highly dependent upon the success of our
universal docking products.
Gross Profit and Cost of Revenue
Gross profit and gross profit percentage during Fiscal 1999 amounted to
$3,337,398 and 35%, respectively, as compared to $3,265,540 and 42%,
respectively, during Fiscal 1998. Our cost of revenue for Fiscal 1999 was
$6,088,549 or 65% of revenue as compared to $4,460,944 or 58% of revenue during
Fiscal 1998. The decrease in gross profit and corresponding increase in cost of
revenue during Fiscal 1999 was principally due to a shift in our product mix to
lower gross profit products, primarily ZIP drive products. The decrease was
offset, in part, by increased sales of monitor stands, which provide a higher
gross profit.
Research and Development
Research and development expenses amounted to $1,200,939 during Fiscal 1999
as compared to $890,944 during Fiscal 1998. As a percentage of revenue, research
and development costs remained relatively constant. The increase in research and
development expenses during Fiscal 1999 was principally due to increased
personnel costs associated with the development of new products such as the port
replicator and device dock as well as the continuing development of ZIP products
for new notebooks. We expect research and development expenses to increase in
the future, although such expenses may vary as a percentage of revenue.
Sales and Marketing Expenses
Sales and marketing expenses during Fiscal 1999 amounted to $1,086,265 as
compared to $480,170 during Fiscal 1998, an increase of 126%. As a percentage of
revenue, such expenses increased from 6% in Fiscal 1998 to 12% in Fiscal 1999.
The increase in marketing and sales expenses during Fiscal 1999 was due
primarily to the increase in personnel and promotional activities. We expect
marketing and revenue expenses to increase in the future, although such expenses
may vary as a percentage of revenue.
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<PAGE>
General and Administrative Expenses
General and administrative expenses increased to $3,960,673 during Fiscal
1999 from $1,916,877 during Fiscal 1998. As a percentage of revenue, general and
administrative expenses increased from 25% to 42%.
This increase is primarily attributable to increased personnel costs.
Technical personnel, sales representatives, and a management team were hired in
order to guide us through our projected growth. We also moved our headquarters
from Morgan Hill, CA to Scottsdale, AZ. Our new location contains over 40,000
square feet; 16,000 square feet of office space and 24,000 square feet of
manufacturing and inventory stockroom. This location is substantially larger
than our prior offices. We expect general and administrative expense to increase
in the future, although such expenses may vary as a percentage of revenue.
LIQUIDITY AND CAPITAL RESOURCES
We have historically funded our operations primarily through cash generated
from operations and lending institutions. Net cash used in operating activities
amounted to $2,698,440 during the six months ended September 30, 1999. Net cash
used in operating activities amounted to $52,726 during the six months ended
September 30, 1998. The increase in cash used in operating activities is
primarily attributed to an increased net loss. Net cash used in operating
activities amounted to $702,828 and $444,212 during Fiscal 1999 and Fiscal 1998,
respectively. This 58% increase was primarily the result of an increased net
loss and an increase in inventory and other assets.
Accounts receivable were $834,383 at March 31, 1999, compared to $1,084,527
at March 31, 1998. Days sales outstanding ("DSO") were 37 days at March 31, 1999
compared to 34 days at March 31, 1998. We expect that accounts receivable will
increase as revenue increases and as revenue from international and OEM
customers represent a higher percentage of our total revenue. While to date we
have not experienced significant losses related to accounts receivable, there
can be no assurance that we will not experience losses related to accounts
receivable in the future.
Net cash used in investing activities amounted to $85,874 and $155,232
during the six months ended September 30, 1999 and 1998, respectively. The
decrease is primarily attributable to a reduction in property and equipment
purchases. Net cash used in investing activities amounted to $211,044 and
$273,929 during Fiscal 1999 and Fiscal 1998, respectively. The increase
primarily reflects the net purchase of property and equipment used in
operations.
Net cash provided by financing activities amounted to $2,766,326 and
$47,196 during the six months ended September 30, 1999 and 1998, respectively.
The increase was primarily due to an increase in notes payable and the Merger
with JLL. Net cash provided by financing activities amounted to $869,116 and
$620,195 during Fiscal 1999 and Fiscal 1998, respectively. The increase was
primarily from notes payable.
As of March 31, 1999, we had two collateralized bank-revolving lines of
credit with balances of $83,000 and $599,120 bearing interest at the lender's
prime rate plus 2.0% and 3.5%,
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respectively. As of September 30, 1999, the outstanding amounts due under these
lines of credit totaled $229,713. The lines of credit were paid in full on
October 6, 1999.
Prior to the Merger, we issued Bridge Notes (aggregate principal amount of
$1,775,000) and certain additional promissory notes at an interest rate of 10%
per annum paid annually in arrears.
Bridge Notes in the principal amount of $1,075,000 at an interest rate of
10% are due at the earlier of (i) one year from the date of issuance; or (ii)
our completion of an equity financing transaction of at least $3,000,000. The
holders of $925,000 principal amount of these Bridge Notes have converted such
notes into common stock. Bridge Notes in the principal amount of $700,000 at an
interest rate of 10% are due on the earlier of (i) one year from the date of
issuance; or (ii) our completing a financing transaction in the amount of
$4,000,000. The holder of $550,000 principal amount of these Bridge Notes has
converted such notes into common stock.
We issued additional promissory notes in the aggregate principal amount of
$778,259 at an interest rate of 10% due on the earlier of (i) one year from the
date of issuance; and (ii) our completing a financing transaction in the amount
of $4,000,000. The holders of these notes have converted $547,253 of outstanding
indebtedness due thereunder into an aggregate of 359,081 shares of Common Stock.
Finally, during July and August 1999, we issued promissory notes in the
aggregate principal amount of $650,000 at an interest rate of 10% which is due
on the earlier of (i) two years from the date of issuance; and (ii) our
completing a financing transaction in the amount of $5,000,000. The holders of
$200,000 principal amount of these Bridge Notes have converted such notes into
Common Stock.
Upon completion of the Merger, we obtained $1,000,000; representing the
proceeds from the sale of Common Stock prior to the Merger. The Merger Agreement
provided for the completion of a private placement to yield gross proceeds of
$2,000,000 to $6,000,000, (including for this purpose the conversion of certain
indebtedness). In this connection, we commenced a private offering (the "Private
Offering") of shares of our Common Stock seeking to raise a minimum of
$2,000,000 and a maximum of $6,000,000. On November 26, 1999, we conducted the
initial closing of the Private Offering pursuant to which we obtained gross
proceeds of $2,000,000 from the sale of 666,667 shares of Common Stock. The
Private Offering will continue until February 15, 2000.
We believe that our existing negative working capital and borrowing
capacity, coupled with the funds generated from our operations, will be
insufficient to fund our anticipated working capital, capital expenditures and
debt payment requirements through March 31, 2000. We will require an additional
$5,000,000 in a combination of new capital and the conversion of indebtedness to
execute on our operations plan. In the longer term, unless we can generate
significantly greater cash flow from operations, we will likely require
additional sources of liquidity to fund future growth. Such sources of liquidity
may include additional equity offerings or debt financing. In the normal course
of business, we evaluate acquisitions of businesses, products and technologies
that complement our business.
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We intend to continue to pursue strategic investment in products,
technologies or distribution networks in order to broaden our product lines and
to provide a more complete solution to the mobile computer user. We may acquire
businesses, products or technologies in the future. There can be no assurance
that we will not require additional financing in the future or, if we were
required to obtain additional financing in the future, that sources of capital
will be available on terms favorable to us, if at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field which recognized "00" as
1900 rather than 2000. These date code fields will need to accept four digit
year entries to distinguish 21st century dates from 20th century dates. To
address such "Year 2000" issues, we established a Year 2000 Project Team which
is currently in phase four of its five-phase plan to assess the Company's Year
2000 compliance. In prior phases, we identified the following three key areas
critical to successful Year 2000 compliance: products, financial and information
systems and third-party relationships.
We have successfully completed testing of current products and products
under development and do not believe there is significant risk of noncompliance.
There can be no assurance that certain previous releases of our products, which
are no longer under support, will prove to be Year 2000 compliant.
We have completed our initial evaluation, analysis and testing of our core
internal systems and we do not currently expect any significant issues to be
identified during further review, however, further inquiry and review is
expected to continue throughout 1999. Our failure to correct any issues with
internal systems could result in material disruption to our operations.
We have completed our initial assessment of the readiness of third-party
business partners, including significant vendors and customers. The assessment
of the compliance of third party business partners is on-going and is also
expected to continue throughout 1999. Even where assurances are received from
third parties there remains a risk that failure of systems and products of other
companies on which we rely could have a material adverse effect on us.
Contingency plans will be developed if it appears that we, or our key
suppliers, will not be year 2000 compliant, and such noncompliance is expected
to have a material adverse impact on our operations. Since no material
non-compliance has been detected, no contingency plans have been developed.
Based on the work done to date, we have not incurred material costs and do
not expect to incur future material costs to address the Year 2000 problem for
our systems and products. At this time, we cannot reasonably estimate the
potential impact on our financial position, results of operations and cash flows
if internal systems are found to be noncompliant or if key suppliers, customers
and other business partners do not become Year 2000 compliant on a timely basis.
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Because many companies may need to upgrade or replace computer systems and
software to comply with Year 2000 requirements, we believe that the purchasing
patterns of customers and potential customers may be affected by Year 2000
issues as companies expend significant resources to upgrade their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase products such as those offered by us, which
could have a material adverse effect on our business, results of operations and
cash flows.
The foregoing statements are based upon our best estimates at the present
time, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors.
SEASONALITY
We believe the markets for our products are somewhat seasonal, with a
higher proportional share of total sales occurring in the fourth fiscal quarter
(first calendar quarter) and a sales slowdown commonly occurring during the
first fiscal quarter (second calendar quarter). See "DESCRIPTION OF BUSINESS -
Seasonality And Other Fluctuations Of Revenue."
INFLATION
We do not believe that inflation has to date had a material impact on our
operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets from non-owner
sources during the period. There were no differences between net loss and
comprehensive net loss for the years presented.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued, which establishes accounting and reporting
standards for derivative instruments and hedging activities which are required
for fiscal quarters beginning after June 15, 1999. On May 20, 1999, the FASB
issued an Exposure Draft, which would have the effect of deferring the effective
date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. On July 7, 1999, the FASB adopted the Exposure Draft as SFAS No.
137. This statement requires balance sheet recognition of derivatives as assets
or liabilities measured at fair value. Accounting for gains and losses resulting
from changes in the values of derivatives is dependent on the use of the
derivative and whether it qualifies for hedge accounting. On a preliminary
basis, we do not believe that eventual adoption will have a significant impact
on our financial statements.
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DESCRIPTION OF BUSINESS
General Development of Business and Overview
CNF, Inc. was incorporated under the laws of the State of California in
1988 to design, manufacture and market computer peripheral devices and
accessories. Over time our business has evolved so that we currently focus our
resources exclusively on peripherals and accessories for laptop computers. Our
operations are conducted from offices in Scottsdale, Arizona. Prior to our
relocation to Scottsdale, Arizona in July 1998, we operated in Morgan Hill,
California.
From inception in 1988 until the Merger with JLL on June 8, 1999, we
operated as a independent privately held corporation. By virtue of the Merger,
we became a non-reporting public company whose shares are eligible for quotation
on the OTC Bulletin Board.
We design, manufacture and market portable computer peripherals and
accessories. We provide a broad range of affordable, easy-to-use devices that
make the functionality and power of desktop computers available to portable
computer users. Our current products include:
o internal high-capacity removable storage devices for various notebook
computers (including Zip and LS/120 SuperDisk drives)
o portable DVD-ROM drives
o portable CD-ROM drives
o universal bay replicators branded as deviceDOCK's(TM)
o monitor stands
o numeric keypads
o proprietary and universal auto adapters
o universal port replicators
o universal docking stations (planned introduction during the next fiscal
year)
Universal Port Replicator and Docking Systems
The universal port replicator and universal docking station enable users of
almost any make or model of PC based portable computer to essentially turn their
portable computer into a desktop computer. These devices link portable computers
to a network, a full-size monitor, keyboard, mouse, an array of external and
internal peripherals using parallel, serial, USB, SCSI-2, EIDE, etc.
connections. The universal docking stations will also include PCI expansion
capability.
Prior to our introduction of universal docking solutions all existing
docking stations were compatible with only one particular PC model. Such
"proprietary" docking solutions are more expensive and less flexible than our
universal docking products. We believe that our universal docking products will
expand the overall size of the estimated docking market for a number of reasons.
First, several notebook manufacturers have removed the proprietary docking
connector from their notebooks (e.g., IBM ThinkPad 240 and Toshiba Satellite
2500). Accordingly, the only way to "dock" with these notebooks is through a
universally compatible product such as ours. Second, since a universal product
requires a retailer to only carry one product, we believe that retailers can add
incremental revenue by offering docking solutions to their customers without
stocking a multitude of different products. Third, we believe
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that universal solutions open up entirely new applications for docking such as
multi-brand notebook environments, guest offices, hotel rooms, conference
centers, service bureaus and kiosks.
Industry Background
According to International Data Corporation, a market research firm
("IDC"), the portable computer market is the fastest growing segment of the
personal computer industry. Growth in this market has been fueled by advances in
computer technology and the increasing demand for computer mobility. IDC
predicts that the portable computer market (excluding handheld devices) will
grow at a compounded annual rate of 15% from 14.1 million units in 1997 to
approximately 25 million units in the year 2001. In addition, the handheld
companion market (as defined by IDC) is expected to grow at a compounded annual
rate of over 40% from 3 million units in 1997 to approximately 13 million units
by 2001. We believe this translates to an addressable potential market of at
least $2 billion per year for portable peripheral products.
Coupled with this trend toward portability, there is an increased demand
for computers that are smaller and lighter but have functionality and
convenience similar to the traditional desktop computer. To meet this demand,
there has been an increased use of peripherals and accessories such as high
capacity storage devices, DVD drives, CD-ROM drives, keypads, auto adapters,
monitor stands, port replicators, docking stations, and Universal Serial Bus
(USB) devices which enable users to maximize their computer's portability while
enhancing its functionality.
To make these smaller computers more convenient to use in the office and
home, port replicators and docking stations have been developed to allow users
easy connections to networks, full-size monitors, keyboards, and other
peripheral devices providing portable computer users with all of the features
and functionality of a traditional desktop computer. IDC reported that 74% of
all notebook computers sold in 1997 served as the users' primary computer.
Sherwood research reported that 19% of all notebook buyers use a Docking Station
and 22% of users use a Port Replicator.
Port replicators provide users with ports for utilizing peripherals such as
a standard-size keyboard, mouse and monitor, as well as connecting to other
devices such as an Ethernet network, printer, modem, etc. The main function of a
port replicator is to connect peripherals to a notebook in a fast and convenient
manner. This allows users to take their notebook home or on the road with
maximum convenience.
Docking stations include basic port replicator features, as well as more
advanced capabilities such as PC card slots, internal drive bays for storage
devices, and PCI/ISA slots. Docking stations enable the user to expand the
notebook into a virtual desktop computing device. Attaching and releasing the
portable computers from the port replicator or docking station is typically a
one-step procedure that takes seconds to complete compared to the burdensome
task of attaching or releasing each external device separately. When the
portable computer is detached from the connectivity product, all external
devices connected to the connectivity product stay in place, ready to be
reattached.
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Currently, close to 100% of the docking station market is served internally
by the various portable computer OEMs ("Original Equipment Manufacturers").
These OEMs have historically designed port replicators and docking stations for
their makes and models of portable computers and subcontracted these products
for assembly to various vendors. Because computer OEMs primarily focus on
providing the latest technological capabilities with strong price and
performance characteristics for portable computers, their development of port
replicators and docking stations has often been a secondary focus. The port
replicators and docking stations developed by OEMs are generally expensive, lack
configuration flexibility and are often available only well after the computer
model is launched. Additionally, OEMs generally retool each generation of
portable computers and have not created standardized port replicators and
docking stations that are independent of model or manufacturer.
Because user demand for high performance portable computers has fueled the
growth in the port replicator and docking station markets, there is a large
opportunity to provide a complete, cost-effective connectivity solution that is
independent of manufacturer and model. In this context, we believe that we have
a significant opportunity to create a new mobile computing product category with
the introduction of our universal port replicators and docking stations, thereby
creating a significant additional market opportunity. We believe that the
universal aspects of these products will open new market segments for docking,
including hotels, kiosks, guest offices and service bureaus.
Products
We currently offer seven major product lines: (i) internal Zip and
SuperDisk drives; (ii) external bay replicators; (iii) portable optical storage
devices like DVD and CD-ROM drives; (iv) external numeric keypads; (v) monitor
stands; (vi) auto adapters; and (vii) universal port replicators. During the
current fiscal year, we plan to introduce a universal docking station. The key
features of the our products are summarized in the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Features
- ------- --------
<S> <C>
InnerBay(TM) Notebook Zip Drives
- --------------------------------
Toshiba Tecra 8000 series, Tecra 520-550 and 100 MB storage; 400% faster than an external parallel port Zip
Satellite Pro 440-490 drive; 40% faster than an external SCSI Zip drive; designed for
HP OmniBook 4100 and 900 series the portable computer with low power consumption and
Dell Latitude CP series durability in mind
InnerBay(TM) SuperDisk LS-120 Drives
- ------------------------------------
Toshiba Tecra 8000, 520-550, Satellite Pro 440- 120 MB storage; 500% faster than a floppy drive. Backwards
490 and Satellite 220-225 compatible with 1.44MB floppy disks.
deviceDOCK(TM) - External Bay Replicator
- ----------------------------------------
Toshiba Tecra SelectBay1 Allows simultaneous use of multiple internal devices transforms
IBM 755, 760, 765 UltraBay1 proprietary devices into universally compatible devices;
- --------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Features
- ------- --------
<S> <C>
eliminates need to purchase new peripherals when changing
portable computers. Attaches though PC Card interface.
Portable DVD & CD-ROM Drives
- ----------------------------
cardport 20x, 24x and 32x CD-ROM 20x, 24x and 32x CD-ROM; 2x generation DVD-ROM; draws
cardportDVD - with software MPEG-2 power directly from the portable computer via the PCMCIA
connection; Plug and Play; compatible with most major portable
computers.
Universal Docking Products
- --------------------------
theBUS Universal Port Replicator - School Bus Works on most portable computers with a Type II
Yellow or Transit Black PCMCIA/CardBus slot providing 10Base-T Ethernet, video port,
theBUS Universal Port Replicator - with serial port, parallel port, keyboard and mouse ports.
Ethernet
Universal Docking Station (Yet to be
- -------------------------
announced)
Universal Keypads
- -----------------
PS/2 Numeric Keypad Black 18-key numeric keypad; connects via serial or PS/2 port;
PS/2 Numeric Keypad White professional typist tactile feel.
PS/2 Numeric Keypad Grey
PS/2 Numeric Keypad for IBM ThinkPad
Serial Numeric Keypad - Black
Serial Numeric Keypad - Ivory
Universal Monitor Stands
- ------------------------
Monitor Stand Black Creates space for portable computer on the desktop with access
to all ports; supports a 150 pound monitor, ergonomically height
adjustable.
Auto Adapters
- -------------
Pocket Power II 100w - Universal Auto Generates AC power from 12V DC cigarette plug; the most
Adapter compact, lightweight 100-watt inverter on the market.
Panasonic Auto Adapter
- ---------------------- Powers select Panasonic notebooks with a simple connection to a
Panasonic Auto Adapter- Hard Wire cigarette plug.
- --------------------------------------------------------------------------------
</TABLE>
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Product Development
We operate in an industry that is subject to rapid technological change and
shifting consumer demands. As a result, our future success depends in
significant part on our ability to continually develop and introduce, in a
timely manner, new products with improved features and to develop and
manufacture these products at an affordable cost. Accordingly, in order to
maintain our competitive position in the market, we must continually enhance our
existing products and develop new products.
Two elements drive our product development strategy. First, our
ear-to-the-market discipline of proactively exploring which new products are
demanded by our customers. Through discussions with an OEM customer, for
example, we developed the idea to design and develop an InnerBay(TM) Zip drive
for the customer's line of portable computers. The customer had been unable to
develop a Zip drive for its line because the Zip drive mechanism was too large
to fit into the inner bay of the portable computer. CNF's InnerBay(TM) Zip
drives for this customer's line of portable computers began shipping in December
1998. Our development team has also provided novel solutions to similar problems
experienced by other OEM customers.
The second element of our product development strategy is an emphasis on
bringing new products to market quickly. Our development team can take a new
product from concept to prototype in several weeks. Similarly, we believe that,
on average, we can take new products from prototype to beta version in several
months.
Our product development is managed by a team that includes electrical,
mechanical and software engineers, marketing and sales personnel, project
managers and component buyers, as well as manufacturing and operations
representatives. The average industry experience of the team members is in
excess of 10 years, and certain members are individually named in over 10
patents and 25 patent applications.
Our engineers start the design process in-house using computer aided design
("CAD") workstations. Printed circuit boards are laid out, and the files are
sent electronically to partner printed circuit board houses in the United States
and Taiwan. These partner companies generally return the printed circuit boards
within one to five days. Concurrent with the design of custom printed circuit
boards and metal components, we design prototypes for any plastic components in
the product. For such plastic prototyping, we use stereolithography, a process
that produces an exact replica of a design on a CAD workstation in one to four
days. The newly formed parts are then painted and have the appearance of a final
tooled and molded part. While the hardware components are being designed and
manufactured, any software code necessary for the product is developed by our
software team, which includes two individuals who have in excess of 17 years
experience as software developers.
We use product prototypes to begin compatibility testing, regulatory
testing, form and fit testing, ergonomic testing, and thermal tests. We also use
the prototypes to garner early market/customer feedback before hard tooling
takes place. Once any final product changes have been implemented in the design
files, the files are sent electronically to a partner company in Taiwan that
cuts steel molds using computer aided machining and some hand processing. The
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molding process utilized generally requires approximately 8 to 10 weeks, which
we believe is substantially faster than many of our competitors. After the new
product is developed, but before it begins shipping, we test the product in our
product assurance lab for various issues, including compatibility, power
consumption, drop testing, and software issues.
Although we believe we have the human resources to effectively develop new
products and respond to market forces, we can give no assurance that we will be
successful in developing, manufacturing and marketing new and enhanced products
that meet both the performance and price demands of the market. It is uncertain
that we will have sufficient capital resources to develop and market new
products on a longer-term basis. See "RISK FACTORS."
Manufacturing
We focus our manufacturing efforts on producing high-quality products while
at the same time minimizing costs. Our manufacturing operations are located at
our headquarters in Scottsdale, Arizona and consist mainly of materials
procurement, final assembly, testing, quality assurance and shipping.
Low-cost suppliers in Taiwan perform the vast majority of the manufacturing
of our products. Local manufacturing is used to ramp up new products and to
satisfy orders requiring the most immediate delivery. Some of our products,
including the monitor stands and external numeric keypads, are manufactured in
their entirety by third parties. Our current significant supplier or third-party
manufacturing relationships include: Goldteck International, Inc.; Ditron
Manufacturing; Iomega; Mitsubishi Electronics; Performance Mold & Engineering;
and TYI Systems Limited. We oversee the Taiwanese manufacturers through a
liaison. We are also able to monitor the manufacturing lines of one of our key
suppliers via live Internet transmissions. Finally, our representatives visit
suppliers on a regular basis.
Certain select components used in our products are currently available from
a limited number of suppliers. Disruption in service by any of our manufacturers
or our suppliers could lead to supply constraints or delays in the delivery of
our products. This could have a material adverse effect on our business. See
"RISK FACTORS."
Sales And Marketing
Prior to 1998, we marketed and sold our products primarily through direct
sales to OEMs and corporate users of portable computers. Since 1998, we have
marketed and sold our products primarily through indirect channels, including
wholesale distributors, OEMs and resellers.
Our key distributors include Ingram Micro and Merisel Americas,
Incorporated. During the six months ended September 30, 1999, sales to Ingram
Micro accounted for 33% of our revenue and sales to Merisel America accounted
for 51% of our revenue. In the year ended March 31, 1999, sales to Ingram Micro
accounted for 14% and sales to Merisel America accounted for 5% of our revenues.
We intend to increase our sales through distributors in the future.
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In international markets, we have agreements with 22 distributors located
in more than 18 foreign countries. During the six months ended September 30,
1999, international sales represented 7% of revenues. During the year ended
March 31, 1999, international sales represented 10% of revenues. We expect that
international sales will continue to comprise a similar proportion of our
revenues in the future.
We believe that fostering the distribution of our products through
cooperation agreements and alliances with a variety of key companies within the
computer and consumer electronic industries, is a critical element of our
strategic goal of being "the first name you think of once you buy or sell a
notebook computer."
We work directly with the major portable computer manufacturers to achieve
approval of our products as "Standard" or "Approved" products for use with the
manufacturers' portable computers. In many cases, we agree to place the logo of
the manufacturer of the portable computer for which a given peripheral has been
designed on the approved product. We believe that these approvals result in
increased sales of our products to corporations, which account for 60-70% of US
portable computer sales. Most corporations only allow their employees and
purchasing managers to purchase portable computer peripherals that are approved
by the manufacturer of the portable computer in question.
A significant portion of our products are sold as approved or standardized
products of a given portable computer manufacturer. However, in the year ended
March 31, 1999, 15% of our revenues were derived from OEM sales, when such sales
are strictly defined as direct sales to portable computer manufacturers. The
vast majority of our products, even those that bear the logo of the portable
computer manufacturer, are primarily sold through indirect industry channels,
including distributors and resellers, with the approval of the portable computer
manufacturer. We plan to introduce new OEM products during the second half of
calendar 1999.
We support our direct and indirect channels with our own sales and
marketing organization. We manage our sales and marketing activities primarily
from our offices in Scottsdale, Arizona. Our field and in-house sales and
marketing staff is largely responsible for generating end user demand for our
products by soliciting prospective customers, providing technical advice with
respect to our products and working closely with distributors to sell our
products. Our sales and marketing staff actively participate with distributors
and resellers in the selling process, which provides end users with the level of
support needed for the successful integration of solutions in enterprise
networks.
Additionally, our sales force concentrates on providing "Fortune 1000"
companies with solutions for their laptop users. Many of these companies use
"standards lists" to test and approve products and only allow their employees to
purchase products from such lists. The goal of the sales force is to penetrate
these "standards lists."
We provide some of our distributors and resellers with limited product
return rights for stock rotation. We also provide most of our distributors and
resellers with price protection rights. Price protection rights require that we
grant retroactive price adjustments for inventories of our products held by
distributors or resellers if we lower our prices for such products.
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We believe that our sales strategy of working closely with OEM's to approve
products, working with the distributors to make the product available, and
working directly with the corporate end-users to standardize the product
provides us with a competitive advantage.
Backlog
Because our customers typically require prompt delivery of products and a
substantial majority of our sales are booked and shipped in the same quarter,
the timing and volume of customer orders are difficult to forecast. Accordingly,
we typically operate with a relatively small order backlog. Further, sales are
generally made pursuant to standard purchase orders that can be rescheduled,
reduced or canceled with little or no penalty. We believe that our backlog at
any given time is not a meaningful indicator of future revenue.
Seasonality And Other Fluctuations Of Revenue
We believe the markets for our products are somewhat seasonal, with a
higher proportional share of total sales occurring in the fourth fiscal quarter
(first calendar quarter) and a sales slowdown commonly occurring during the
first fiscal quarter (second calendar quarter). Sales in a given period may also
be influenced by new product introductions, component supply availability,
working capital availability, and other factors. Revenues and growth rates for
any prior quarter are not necessarily indicative of revenues or growth rates to
be expected in any future quarter. Like other firms in the information
technology industry, we anticipate that during the second half of calendar 1999,
revenues may be adversely affected by the postponement or cancellation of
information technology spending due to concerns relative to Year 2000 issues.
Service and Support
We believe that service and support are critical components of end user
satisfaction and the success of our business. Our support includes a toll-free
technical support hotline to provide a range of telephone support to our
distributors, dealers and end-user customers as well as fax back, e-mail and
online Internet support. The service and support group also handles product
returns and updates.
Competition
The market for computer products, in general, is intensely competitive,
subject to rapid technological change, and sensitive to new product
introductions or enhancements, and marketing efforts by industry participants.
The principal competitive factors affecting the markets for our product
offerings include price, corporate and product reputation, innovation with
frequent product enhancement, breadth of integrated product line, product
design, functionality and features, product quality, performance, ease-of-use,
and support. We can give no assurance that we can maintain our competitive
position against current or potential competitors, especially those with greater
financial, marketing, service, support, technical or other competitive
resources.
We currently compete primarily with the internal design efforts of OEMs.
These OEMs, as well as a number of our potential non-OEM competitors, generally
have larger technical
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staffs, more established and larger marketing and sales organizations and
significantly greater financial resources than we do. Although we believe that
we have a proprietary position with respect to our technologies, which could
pose a competitive barrier for companies seeking to develop or sell competing
products in our markets, we can give no assurance that such competitors will not
be able to respond more quickly to new or emerging technologies and changes than
we can, or develop products that are superior to our products or that achieve
greater market acceptance. We can give no assurance that we will be able to
compete successfully against our competitors or that the competitive pressures
that we face will not have a material adverse effect on our business, results of
operations and financial condition.
Our competitors include notebook manufacturers such as Toshiba, IBM and
Compaq, as well as third party suppliers such as Mobility Electronics, EXP, VST
Technologies, Port/Targus, and Extended Systems.
Our future success will depend, in large part, upon our ability to increase
our share of our target market and to sell additional products and product
enhancements to existing customers. Future competition may result in price
reductions, reduced margins or decreased sales, which, in turn, would have a
material adverse effect on our business, results of operations and financial
condition.
Proprietary Rights
We rely on a combination of patent, copyright and trademark laws, trade
secrets, nondisclosure agreements and technical measures to protect our
technology. While we currently intend to vigorously enforce our intellectual
property rights, we can give no assurance that the steps we take to protect our
technology and enforce our rights will be successful or that we will have the
resources to do so. We have four patents pending in the United States and eight
patents pending in over 21 other countries. The categories of patent
applications include: universal docking and port replication solutions, data
multiplexing, power management, and external and internal device solutions. In
August 1999, we were granted a Notice of Allowance from the United States Patent
and Trademark Office for the issuance of a patent for our Digitari Universal
Docking and Port Replication Technologies. On or about October 28, 1999 the
Australian Patent Office issued us a patent for our Digitari Universal Docking
and Port Replication Technolgies. In August 1999, we were issued a patent from
the United States Patent and Trademark Office for our Universal Device Dock
Technologies.
The process of seeking patent protection can be expensive and time
consuming. We can give no assurance that patents will issue from pending or
future applications or that if issued, these patents will not be challenged,
invalidated or circumvented, or that the rights granted to us will provide
meaningful protection or other commercial advantage. Also, we can give no
assurance that any patents that we obtain will provide us with substantial value
or protection, that their validity will not be challenged, that affirmative
defenses to infringement will not be asserted or that we will have the financial
resources to protect such patents.
Due to the rapid technological change that characterizes our industry, we
believe that the success of our products will also depend on the technical
competence and creative skill of our personnel in addition to legal protections
afforded our existing drive and disk technology. As is
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typical in our industry, from time to time, we have been, and may in the future
be, notified of claims that may be infringing certain patents, trademarks and
other intellectual property rights of third parties. It is not possible to
predict the outcome of these claims and we can give no assurance that these
claims will be resolved in our favor. If one or more of these claims is resolved
unfavorably, we can give no assurance that the outcomes will not have a material
adverse effect on our business or financial results.
Our industry has been characterized by significant litigation relating to
infringement of patents and other intellectual property rights. We can give no
assurance that future intellectual property claims will not result in
litigation. If infringement were established, we could be required to pay
substantial damages or be enjoined from manufacturing and selling the infringing
product(s) in one or more countries, or both. In addition, the costs of engaging
in intellectual property litigation may be substantial regardless of outcome,
and we can give no assurance that we will be able to obtain any necessary
licenses on satisfactory terms. Certain technology used in our products is
licensed on a royalty-bearing basis from third parties. The termination of a
license arrangement could have a material adverse effect on our business and
financial results.
Facilities
Our executive offices and production facilities are located at 7722 East
Gray Road, Scottsdale, Arizona. The office space consists of approximately
16,000 square feet of leased space. The production facility consists of
approximately 24,000 square feet of leased space and houses two production
lines. The warehouse has four overhead truck doors for incoming and outgoing
materials as well as an industrial freight lift. Both facilities are leased
under an agreement which expires in April, 2001. We believe that our present
facilities will provide adequate space for our business activities and
production for the foreseeable future.
Employees
As of December 1, 1999, we had approximately 66 employees (approximately 21
in operations, 14 in engineering, 23 in sales and marketing and 8 in
administration). None of our employees are covered by a collective bargaining
agreement. We consider our relationship with our employees to be good.
Legal Proceedings
We are not a party to any material legal proceedings, although we are
involved from time to time in routine litigation incident to business.
34
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following sets forth certain information regarding each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Paul Charles 38 Chairman of the Board of Directors
David Thompson 44 Interim Chief Executive Officer, Chief
Financial Officer and Secretary
R. Daniel Rudich 29 Vice President of Marketing
Frank Layland 42 Vice President of Operations
</TABLE>
The following is a brief summary of the business experience of each of the
above-named individuals:
Paul Charles founded CNF, Inc. in 1988 and currently serves as Chairman of
the Company's Board of Directors. Mr. Charles had served as President and Chief
Executive Officer of the Company until November 15, 1999. Mr. Charles has been
primarily responsible for product design, development and innovation and has
been instrumental in the development of each of the Company's principal
products. Between 1985 and 1988 Mr. Charles worked for International Business
Machines in cost accounting and inventory control management, where he
distinguished himself by instituting various cost savings initiatives. Mr.
Charles earned a Bachelor's degree in Finance and Accounting from Brigham Young
University in 1985.
David Thompson was appointed the Interim Chief Executive Officer of the
Company on November 15, 1999. He has served as the Chief Financial Officer and
Secretary since January 1998. Prior to joining the Company, he was the Chief
Financial Officer and Vice President of Information for International Computer
Graphics, Inc. ("ICG"), a leading wholesale distributor of computer monitors and
video cards. Prior to joining ICG, Mr. Thompson operated his own accounting
practice where he specialized in working with closely held corporations involved
in mergers, acquisitions, private placements and other financing transactions.
Mr. Thompson graduated from Eastern Washington University with a Bachelor's
degree in Business Administration with an emphasis in professional accounting.
R. Daniel Rudich has served as the Company's Vice President of Marketing
since December 1997. Prior to joining the Company, he was the worldwide Product
Manager for notebook Zip products at Iomega Corporation where he was responsible
for the development and marketing of the notebook Zip drive. Prior to his
position with Iomega, Mr. Rudich held various marketing positions at Compaq
Computer Corporation and Matrox Electronics. He graduated
35
<PAGE>
from McGill University in Montreal, Canada with a Bachelor of Commerce degree in
Marketing and International Business and earned an MBA from Yale University.
Frank Layland has served as the Company's Director of Operations since
August 1998. Between 1985 and 1998, Mr. Layland served as a Project Operations
Manager for Lockheed Martin Corporation where he was principally involved with
governmental contracts. Mr. Layland has experience managing subcontractors,
monitoring costs, production schedules and quality control. He graduated from
Brigham Young University with a Bachelor of Science in Business Management.
Board of Directors
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
Mr. Charles is currently the sole director of the Company. In conjunction
with the Merger, the Company agreed to maintain a Board of Directors in which
Mr. Charles would have one (1) designee, provided the Board consists of less
than five (5) members, and two (2) designees if the Board consists of five (5)
or more members. It is anticipated that additional persons will be appointed to
the Board of Directors.
Directors Compensation
Directors who are also officers of the Company receive no additional
compensation for serving on the Board of Directors, other than reimbursement of
reasonable expenses incurred in attending meetings. The Company has not yet
formulated a policy regarding the compensation, if any, of non-employee
directors.
36
<PAGE>
Executive Compensation
The following table provides certain summary information concerning
compensation paid to or accrued by CNF's Chief Executive Officer, and all other
executive officers who earned more than $100,000 (salary and bonus) (the "Named
Executive Officers") for all services rendered in all capacities to CNF (and its
predecessors) during the fiscal years ended March 31, 1997, 1998 and 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------- ----------------------
Restricted
Name and Principal Fiscal Other Annual Stock Options/
Position Year Salary Bonus Compensation(1) Awards SARs (#)
- --------- ---- ------ ----- ------------ ------ --------
<S> <C> <C> <C> <C> <C>
Paul Charles(2) 1999 $150,000 -- -- -- --
President and Chief 1998 $117,243 -- -- -- --
Executive Officer 1997 $110,993 $288,871 -- -- --
David Thompson(3) 1999 $150,000 -- -- -- 339,277(4)
Interim Chief Executive 1998 $18,367 -- -- -- --
Officer, Chief Financial
Officer and Secretary
R. Daniel Rudich(5) 1999 $100,000 -- -- -- 203,565(4)
Vice President of Marketing 1998 $28,353 -- -- --
</TABLE>
- --------------------------
(1) With respect to each of the executive officers named in the table, if not
separately reported, the aggregate amount of perquisites and other personal
benefits, securities or property received was less than either $50,000 or
10% of the total annual salary and bonus reported for such executive
officer.
(2) Mr. Charles resigned his position as President and Chief Executive Officer
of the Company effective November 15, 1999.
(3) Mr. Thompson commenced his employment with CNF on January 1, 1998. Effective
November 15, 1999, Mr. Thompson was appointed as the interim Chief Executive
Officer of the Company.
(4) Consists of options to purchase shares of Series A Preferred Stock which
were issued in exchange for options to purchase shares of CNF common stock
in connection with the Merger.
(5) Mr. Rudich commenced his employment with CNF on December 1, 1997.
37
<PAGE>
OPTION/SAR GRANTS TABLE
<TABLE>
<CAPTION>
Option/SAR Grants in the Last Fiscal Year
======================================================================================================================
Individual Grants
- ----------------------------------------------------------------------------------------------------------------------
% of Total
Options/SARs
Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year ($/Sh) Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul Charles __ __ __ __
Chairman of the Board of Directors
- ----------------------------------------------------------------------------------------------------------------------
David Thompson 339,277 41% $.24 April 15, 2008
Interim Chief Executive Officer,
Chief Financial Officer and
Secretary
- ----------------------------------------------------------------------------------------------------------------------
R. Daniel Rudich 203,565 25% $.24 April 15, 2008
Vice President of Marketing
======================================================================================================================
</TABLE>
(1) Consists of options to purchase shares of Series A Preferred Stock which
were issued in exchange for outstanding options to purchase shares of CNF,
Inc. common stock in connection with the merger.
Employment Arrangements
The Company has entered into employment agreements with Messrs. Charles,
Thompson, Rudich and Layland. The employment agreements are for a term of three
(3) years commencing May 19, 1999, provide for annual base salaries of,
$125,000, $208,000, $85,000 and $85,000, respectively, and an annual merit based
discretionary bonus to be determined by the Board of Directors or Compensation
Committee. Mr. Rudich's salary will be increased to $120,000, upon the Company
reporting two consecutive profitable quarters. Mr. Thompson's agreement provides
for a mandatory bonus for the fiscal year ending March 31, 2000 equal to $21,000
in the event that the Company achieves the first of the financial performance
targets set forth within the Certificate of Designation for the Company's Series
A Convertible Preferred Stock and an additional $10,500 for each additional
financial performance target the Company's achieves. See "DESCRIPTION OF
SECURITIES - Preferred Stock." Mr. Rudich's agreement provides for the payment
of a commission equal to $0.35 for each unit of CNF InnerBay ZIP(TM), CNF
Digitari and all products developed by the Company subsequent to January 1, 1998
which are sold and paid for subject to a maximum commission of $200,000 per
year.
All executives are entitled to participate in the Company's fringe benefit
programs, any incentive plan adopted by the Company and to reimbursement for
certain company-related travel expenses. Each of the agreements provide for
termination "for cause" which includes failure to achieve individual or
corporate performance goals as determined by the Board of Directors of the
Company or executive management. Commencing on or about May 19, 2000, any
executive may be terminated without cause at the discretion of the Board of
Directors of the Company. In
38
<PAGE>
the event of a termination without cause, certain of the executives are entitled
to receive severance pay in the form of salary continuation for an additional
period of one year.
The agreements contain standard clauses regarding confidentiality,
non-compete and non-solicitation of customers, suppliers and employees. The
agreements also provide for the executive to disclose all works and inventions
to the Company, assign any and all patents to the Company and for all
copyrightable material created by any executive during the term of his
employment to be the property of the Company.
Outstanding Options; Stock Incentive Plan
In connection with the Merger, the Company assumed CNF, Inc.'s 1997 Equity
Incentive Plan (the "CNF Plan"). The CNF Plan provided for the grant of options
to purchase up to 602,026 shares of CNF common stock to employees, officers,
directors and consultants of CNF, Inc. The CNF Plan provided for the grant of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and the grant of non-qualified
stock options at exercise prices not less than the fair market value at the date
of grant in the case of incentive stock options and not less than ninety (90%)
of the fair market value at the date of grant for non-qualified options. The CNF
Plan also provided for the issuance of restricted stock awards.
As of the closing of the Merger, CNF, Inc. had granted options (the "CNF
Options") to purchase an aggregate of 405,658 shares of CNF, Inc.'s common stock
to certain officers and employees of CNF, Inc. The CNF Options were granted
during the fiscal year ended March 31, 1999, expire ten (10) years from the date
of grant and vest twenty-five percent (25%) after the first year and in ratable
installments each subsequent month over the following three (3) years. The CNF
Options were issued at exercise prices ranging from $.50 to $2.50 per share. In
connection with the Merger, the Company assumed the CNF Options which now
represent the right to purchase an aggregate of up to 836,790 shares of Series A
Preferred Stock of the Company (of which 44,350 have been cancelled) at exercise
prices ranging from $.24 to $1.21 per share. At this time, the Company's Board
of Directors does not intend to issue any additional options under the CNF
Option Plan.
The Board of Directors does, however, intend to adopt a stock incentive
plan and have such plan approved by the Company's stockholders. It is
anticipated that any such plan will cover the grant of incentive and
non-qualified options as well as the issuance of restricted stock awards and
stock appreciation rights to officers, directors, key employees and consultants
of the Company. The proposed plan will likely cover the issuance of options to
purchase ten percent (10%) of the total number of then outstanding shares of the
Common Stock of the Company and will be administered by the Board of Directors
or a committee thereof.
39
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans to Officers
In February 1997, the Company loaned Paul Charles $195,000 under a
promissory note payable in full on February 14, 2002 at an interest rate of 8%
per annum. This note was paid in full on August 14, 1998.
Agreements with Officers and Directors
The Company has entered into employment and option agreements with Messrs.
Charles, Thompson, Rudich and Layland. See "MANAGEMENT - Employment
Arrangements," - "Outstanding Options; Stock Incentive Plan" and "Executive
Compensation."
Amendment to Merger Agreement
Effective November 15, 1999, the Company entered into an agreement with
Paul Charles and Synergy Group International, Inc., a principal stockholder of
the Company ("Synergy"), which amended certain provisions of the Merger
Agreement. Specifically, Mr. Charles agreed to resign his position as Chief
Executive Officer and to surrender 1,000,000 of the shares of Series A Preferred
Stock issued to him in the Merger. The agreement also amended the provisions of
the Merger Agreement relating to the private financing obligations. These
consisted of reducing the minimum required proceeds from $3,000,000 to
$2,000,000, including the conversion of indebtedness as proceeds and amending
the escrow provisions relating to the 4,000,000 shares of Common Stock owned by
Synergy and others to secure the funding obligations. As amended, 2,000,000 of
these shares were released upon the Company realizing gross proceeds of
$2,000,000, an additional 1,000,000 shares will be released upon the Company
realizing $4,000,000 of gross proceeds and the remaining 1,000,000 shares will
be released upon the Company realizing $6,000,000 of gross proceeds. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Material
Escrow Arrangements."
40
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 29, 1999 information with
respect to the securities holdings of all persons which the Company, pursuant to
filings with the Securities and Exchange Commission, has reason to believe may
be deemed the beneficial owners of more than 5% of the Company outstanding
Common Stock. Also set forth in the table is the beneficial ownership of all
shares of the Company's outstanding stock, as of such date, of all officers and
directors, individually and as a group.
<TABLE>
<CAPTION>
Shares Owned Beneficially Percentage of
Name and Address and of Record (1) Outstanding Shares
---------------- ----------------- ------------------
<S> <C> <C>
Paul Charles 4,157,000(2) 26.8%
7722 East Gray Road
Scottsdale, AZ 85260
David Thompson 134,299(3) 1.2%
7722 East Gray Road
Scottsdale, AZ 85260
R. Daniel Rudich 80,579(4) *
7722 East Gray Road
Scottsdale, AZ 85260
Frank Layland 12,033(5) *
7722 East Gray Road
Scottsdale, AZ 85260
Vincent J. Marold 1,477,500(6) 12.8%
c/o Synergy Group
International, Inc.
3725 East Sunrise Drive
Tucson, AZ 85718
Fincord Holding Corp. 725,000 6.4%
P.O. Box 4608
Great Neck, NY 11203
Geneco Investment Corp. 578,000 5.1%
220 E. 42nd Street, 12th Floor
New York, NY 10017
Godwin Finance Limited 700,000(7) 6.2%
Whitehill House
Newby Road
Hazel, Cheshire
England SK7 50A
William J. Meris 765,000 6.7%
8652 East Carrie Drive
Scottsdale, AZ 85200
All Directors 4,383,911 27.8%
And Executive Officers as a Group (4
persons)
</TABLE>
- ---------------
*Represents less than 1% of the outstanding shares of Common Stock.
41
<PAGE>
(1) The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the rules and
regulations promulgated under the Exchange Act, and accordingly, may include
securities owned by and for, among others, the spouse and/or minor children
of an individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or
shares voting or investment power or which such person has the right to
acquire within 60 days after the date of this Prospectus pursuant to the
exercise of options, or otherwise. Beneficial ownership may be disclaimed as
to certain of the securities. This table has been prepared based on
11,352,830 shares of Common Stock outstanding as of November 29, 1999.
(2) Consists of 4,157,000 shares issuable upon conversion of Series A Preferred
Stock. The number of shares issuable upon conversion is subject to
adjustment up to a maximum of 9,353,250 shares. See "DESCRIPTION OF
SECURITIES."
(3) Consists of shares issuable upon exercise of options to purchase 134,299
shares of Series A Preferred Stock which shares are convertible into a like
number of shares of Common Stock. The number of shares issuable upon such
conversion is subject to adjustment to a maximum of 302,173. See
"DESCRIPTION OF SECURITIES." Does not include 204,978 shares issuable upon
exercise of options to purchase 204,978 shares of Series A Preferred Stock
which are subject to vesting.
(4) Consists of shares issuable upon exercise of options to purchase 80,579
shares of Series A Preferred Stock which shares are convertible into a like
number of shares of Common Stock. The number of shares issuable upon such
conversion is subject to adjustment to a maximum of 181,303. See
"DESCRIPTION OF SECURITIES." Does not include 122,986 shares issuable upon
exercise of options to purchase 122,986 shares of Series A Preferred Stock
which are subject to vesting.
(5) Consists of shares issuable upon exercise of options to purchase 12,033
shares of Series A Preferred Stock which shares are convertible into a like
number of shares of Common Stock. The number of shares issuable upon such
conversion is subject to adjustment to a maximum of 27,074. See "DESCRIPTION
OF SECURITIES." Does not include 29,223 shares issuable upon exercise of
options to purchase 29,223 shares of Series A Preferred Stock which are
subject to vesting.
(6) Includes 477,500 shares owned of record by Synergy Group International, Inc.
of which Mr. Marold is the sole shareholder.
(7) Includes 750,000 shares owned of record by Meris Capital Partners, L.P.
which Mr. Meris is deemed to beneficially own.
Material Escrow Arrangements
2,000,000 shares of the Company's outstanding Common Stock have been
deposited into escrow and remain subject to cancellation upon the terms set
forth in a certain escrow agreement entered into in connection with the Merger.
Specifically, certain historic shareholders of the Company, including Vincent J.
Marold, have deposited these shares into escrow to secure an obligation under
the Merger Agreement to complete a private placement which provides the Company
with proceeds of between $2,000,000 and $6,000,000 (inclusive of the conversion
of certain indebtedness) by no later than on or about February 15, 2000. These
shares will be
42
<PAGE>
released based on the gross proceeds realized by the Company completion of the
private placement and conversion of indebtedness and the conversion of certain
indebtedness. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Amendment To
Merger Agreement."
2,000,000 of the shares of Series A Preferred Stock issued to Mr. Charles
under the Merger Agreement were subject to cancellation upon the terms set forth
in a separate escrow agreement by and between the Company and Mr. Charles. These
shares were deposited into escrow to secure Mr. Charles' indemnification
obligations under the Merger Agreement with respect to certain representations,
warranties and covenants thereunder. Provided that there were no claims for
indemnification under the Merger Agreement pending against Mr. Charles,
1,000,000 of these shares were subject to release on or about December 8, 1999
and the remainder were subject to release on or about December 8, 2000. Pursuant
to an amendment to the Merger Agreement, Mr. Charles agreed to surrender for
cancellation the 1,000,000 shares which were subject to release from escrow on
or about December 8, 2000. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Amendment To Merger Agreement."
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
$.0001 par value per share, of which 11,352,830 are outstanding as of the date
of this Prospectus.
Holders of Common Stock have equal rights to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available therefor.
Holders of Common Stock have one vote for each share held of record and do not
have cumulative voting rights.
Holders of Common Stock are entitled, upon liquidation of the Company, to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
Common Stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock are fully paid and nonassessable.
Preferred Stock
Within the limits and restrictions provided in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 15,000,000 shares of preferred stock, $.0001
par value per share (the "Preferred Stock"), in one or more series, and to fix,
as to any such series, any dividend rate, redemption price, preference on
liquidation or dissolution, sinking fund terms, conversion rights, voting
rights, and any other preference or special rights and qualifications.
Series A Convertible Preferred Stock. The Board of Directors of the Company
has authorized the designation of 6,000,000 shares of Preferred Stock as "Series
A Convertible Preferred Stock" of which 4,163,188 are outstanding. The Company
has also issued options to purchase an additional 792,440 shares of Series A
Preferred Stock. The following describes the
43
<PAGE>
material features of the Series A Preferred Stock which are more fully set forth
in the Company's Certificate of Designation on file with the Delaware Secretary
of State.
The Series A Preferred Stock is essentially a common stock equivalent. The
Series A Preferred Stock does not have a liquidation preference, does not
provide for a preferred dividend other than those declared by the Company's
Board of Directors out of funds legally available therefor and votes on an as
converted into common stock basis. Commencing on the date of issuance, each
share of Series A Preferred Stock is convertible into one (1) share of common
stock. Thereafter, the conversion ratio is subject to upward adjustment based on
the Company achieving certain financial performance targets as reflected in the
Company's audited results of operation for the fiscal year ending March 31, 2000
(the "Audited Financial Statements") as follows:
<TABLE>
<CAPTION>
Shares of common stock to be
issued upon conversion of each
Financial Performance Target Share of Series A Preferred Stock
---------------------------- ---------------------------------
<S> <C>
Gross Revenues of $22.5 million and Net Income of $900,000 1.5
Gross Revenues of $38.25 million and Net Income of $1.53 million 1.75
Gross Revenues of $51 million and Net Income of $2.04 million 2.00
Gross Revenues of $64 million and Net Income of $2.56 million 2.25
</TABLE>
The Financial Performance Targets with respect to Gross Revenues and Net
Income shall be considered to have been achieved if actual Gross Revenues or Net
Income, as applicable, as reported in the Audited Financial Statements are
within 10% of the targeted amount. All shares of Series A Preferred Stock which
have not been converted shall automatically convert into common stock upon the
earlier of (i) the completion of the Audited Financial Statements; and (ii) June
30, 2000.
Dividend Policy
The Company has never paid cash dividends on its Common Stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future as
it intends to retain future earnings, if any, to finance the growth of the
business. The payment of future cash dividends will depend on such factors as
earnings levels, anticipated capital requirements, the operating and financial
condition of the Company and other factors deemed relevant by the Board of
Directors.
44
<PAGE>
Delaware Anti-Takeover Law and Provisions of Company's Certificate of
Incorporation
As the Company's shares become more widely held, listed on NASDAQ or on a
national exchange, to which there can be no assurance, the Company will be
governed by Section 203 of the General Corporation Law of the State of Delaware
(the "GCL"), an anti-takeover law. In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combinations"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with its affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock. The provisions regarding
certain business combinations under the GCL could have the effect of delaying,
deferring or preventing a change in control of the Company or the removal of
existing management. A takeover transaction frequently affords stockholders the
opportunity to sell their shares at a premium over current market prices.
As described above, the Company's Board of Directors is authorized without
further stockholder action, to designate any number of series of Preferred Stock
with such rights, preferences and designations as determined by the Board.
Shares of Preferred Stock issued by the Board of Directors could be utilized,
under certain circumstances, to make an attempt to gain control of the Company
more difficult or time consuming. For example, shares of Preferred Stock could
be issued with certain rights that might have the effect of diluting the
percentage of common stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid that the
Board of Directors determines is not in the best interest of the Company and its
stockholders. The existence of the Preferred Stock may, therefore, be viewed as
having possible anti-takeover effects. A takeover transaction frequently affords
stockholders the opportunity to sell their shares at a premium over current
market prices.
Transfer Agent
The transfer agent for the Company's securities is StockTrans, Inc., 7 East
Lancaster Avenue, Ardmore, Pennsylvania 19003, (610) 649-7300.
45
<PAGE>
SELLING SECURITY HOLDERS
The Selling Security Holders identified in the following table are offering
for sale 1,756,624 shares of Common Stock. These shares include:
o 1,606,624 shares of Common Stock
o 150,000 shares of Common Stock which may be issued upon the conversion
of Series A Preferred Stock
We previously issued these shares of Common Stock and Series A Preferred
Stock in private placement transactions. 850,000 of these shares are being
offered by directors, officers or principal stockholders of the Company.
Of the 1,756,624 share of Common Stock being offered by the Selling
Security Holders, 852,082 shares are subject to lock-up agreements with the
Company. The lock-up agreements prohibit the offer or sale of these shares until
nine (9) months after the date of this Prospectus.
The Selling Security Holders may offer their shares of Common Stock for
sale from time to time at market prices prevailing at the time of sale or at
negotiated prices, and without payment of any underwriting discounts or
commissions except for usual and customary selling commissions paid to brokers
or dealers. See "PLAN OF DISTRIBUTION."
The following table sets forth as of November 29, 1999 the number of shares
being held of record or beneficially by the Selling Security Holders and
provides by footnote reference any material relationship between the Company and
the Selling Security Holder, all of which is based upon information currently
available to the Company.
<TABLE>
<CAPTION>
Beneficial Ownership of
Selling Security Holder Beneficial Ownership of
Prior to Offering (1) Shares After Offering (2)
----------------------------- Number of Shares ----------------------------
Name of Selling Security Holder Number Percent Offered Hereby (2) Number Percent
- ------------------------------- ------ ------- ------------------ ------ -------
<S> <C> <C> <C> <C> <C>
Paul Charles (3) 4,157,000 26.8% 150,000 4,007,000 26.1%
Enrico E. DiVito, DDS 35,918 * 35,918 0 -
Michael G. Glynn 97,500 * 87,500 10,000 *
Keith and Carol Henrichsen 11,507 * 5,754 5,753 *
Imperium Capital Corporation 250,000 2.2% 250,000 0 -
Lawrence Kaplan 347,574 3.1% 173,787 173,787 1.53
Allen and Jane Kelsey 35,890 * 35,890 0 -
Lindzon Capital Partners (4) 186,562 1.6% 126,562 60,000 *
Meris Capital Partners, L.P. (5) 750,000 5.97% 700,000 50,000 *
Blair Portigal 71,822 * 71,822 0 -
Harold Rubenstein 113,151 1.01% 83,151 30,000 *
Rochelle and Shelden Terman 36,240 * 36,240 0 -
TOTAL 1,756,624
=========
</TABLE>
- -------------
* Represents less than 1% of the outstanding shares of Common Stock
(1) Applicable percentage of ownership is based on 11,352,830 shares of Common
Stock outstanding as of November 29, 1999, plus any common stock equivalents
held by such holder.
(2) Assumes that all shares are sold pursuant to this offering and that no other
shares of Common Stock are acquired or disposed of by the Selling Security
Holders prior to the termination of this offering.
46
<PAGE>
Because the Selling Security Holders may sell all, some or none of their
shares or may acquire or dispose of other shares of Common Stock, we cannot
estimate the aggregate number of shares which will be sold in this offering
or the number or percentage of shares of Common Stock that each Selling
Security Holder will own upon completion of this offering.
(3) Mr. Charles is the Chairman of the Board of Directors and a principal
stockholder of the Company. See "MANAGEMENT" and "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
(4) Lindzon Capital Partners is an investment fund managed by Howard Lindzon
who beneficially owns an additional 332,500 shares of Common Stock and 6,188
shares of Series A Preferred Stock.
(5) Under applicable SEC Rules, these shares are deemed to be beneficially owned
by William J. Meris, a principal stockholder of the Company. SEE "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Under agreements with the Selling Security Holders, the Company will pay
all offering expenses except the fees and expenses of any counsel and other
advisors that the Selling Security Holders may employ to represent them in
connection with the offering and all brokerage or underwriting discounts or
commissions paid to broker-dealers in connection with the sale of the shares.
PLAN OF DISTRIBUTION
The Selling Security Holders have not advised us of any specific plan for
distribution of the shares offered hereby, but it is anticipated that the shares
will be sold from time to time by the Selling Security Holders or by pledgees,
donees, transferees or other successors in interest. Such sales may be made on
the OTC Bulletin Board, any exchange upon which our shares may trade in the
future, over-the-counter, or otherwise, at prices and at terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions. The shares may be sold by one or more of the following:
o a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer for its account pursuant to this
Prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchases;
o through options, swaps or derivatives;
o in privately negotiated transactions;
o in transactions to cover short sales;
o through a combination of any such methods of sale; or
o in accordance with Rule 144 under the Securities Act, rather than
pursuant to this Prospectus.
47
<PAGE>
The Selling Security Holders may sell their shares directly to purchasers
or may use brokers, dealers, underwriters or agents to sell their shares.
Brokers or dealers engaged by the Selling Security Holders may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions,
discounts or concessions from the Selling Security Holders, or, if any such
broker-dealer acts as agent for the purchaser of shares, from the purchaser in
amounts to be negotiated immediately prior to the sale. The compensation
received by brokers or dealers may, but is not expected to, exceed that which is
customary for the types of transactions involved. Broker-dealers may agree with
a Selling Security Holder to sell a specified number of shares at a stipulated
price per share, and, to the extent the broker-dealer is unable to do so acting
as agent for a Selling Security Holder, to purchase as principal any unsold
shares at the price required to fulfill the broker-dealer commitment to the
Selling Security Holder. Broker-dealers who acquire shares as principal may
thereafter resell the shares from time to time in transactions, which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above, in the over-the counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions. In connection with resales of the shares, broker-dealers may pay
to or receive from the purchasers of shares commissions as described above.
The Selling Security Holders and any broker-dealers or agents that
participate with the Selling Security Holders in the sale of the shares may be
deemed to be "underwriters" within the meaning of the Securities Act. In that
event, any commissions received by broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
From time to time the Selling Security Holders may engage in short sales,
short sales against the box, puts and calls and other hedging transactions in
our securities, and may sell and deliver the shares in connection with such
transactions or in settlement of securities loans. These transactions may be
entered into with broker-dealers or other financial institutions. In addition,
from time to time, a Selling Security Holder may pledge its shares pursuant to
the margin provisions of its customer agreements with its broker-dealer. Upon
delivery of the shares or a default by a Selling Security Holder, the
broker-dealer or financial institution may offer and sell the pledged shares
from time to time.
Of the 1,756,624 shares of Common Stock being offered by the Selling
Security Holders, 852,082 shares are subject to lock-up agreements with the
Company. The lock-up agreements prohibit the offer or sale of these shares
until nine (9) months after the date of this Prospectus.
We will not receive any proceeds from the sale of the shares. We will pay
the expenses of preparing this Prospectus and the related registration
statement. The Selling Security Holders have been advised that they are subject
to the applicable provisions of the Exchange Act, including without limitation,
Rules 10b-5 and Regulation M there under.
LEGAL MATTERS
Certain legal matters, including the validity of the Shares being issued,
will be passed upon for the Company by Buchanan Ingersoll Professional
Corporation, Eleven Penn Center, 1835 Market Street, 14th Floor, Philadelphia,
PA 19103.
48
<PAGE>
EXPERTS
The financial statements as of March 31, 1999 and 1998 and for each of the
two years in the period ended March 31, 1999 included in this Prospectus, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein (which report expresses an unqualified opinion and
includes an explanatory paragraph regarding the Company's ability to continue as
a going concern), and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN GET MORE INFORMATION
We have filed a Registration Statement on Form SB-2 with the SEC. This
Prospectus, which forms a part of that Registration Statement, does not contain
all of the information included in the Registration Statement and the exhibits
and schedules thereto as permitted by the rules and regulations of the SEC. For
further information with respect to the Company and the shares of Common Stock
offered hereby, reference is made to the Registration Statement, including the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to herein are not
necessarily complete and, where such contract or other document is an exhibit to
the Registration Statement, each such statement is qualified in all respects by
the provisions of such exhibit, to which reference is hereby made. You may
review a copy of the Registration Statement at the SEC's public reference room
in Washington, D.C., and at the SEC's regional offices in Chicago, Illinois and
New York, New York. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Registration
Statement can also be reviewed by accessing the SEC's Internet site at
http://www.sec.gov. As a result of this offering, we will become subject to the
information and reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC.
49
<PAGE>
CNF TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF THE COMPANY
CNF TECHNOLOGIES, INC.
Independent Auditor's Report.................................................F-2
Financial Statements
Balance Sheets......................................................F-3
Statements of Operations............................................F-4
Statements of Shareholder's (Capital Deficiency) Equity.............F-5
Statements of Cash Flows............................................F-6
Notes to Financial Statements.......................................F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CNF Technologies, Inc.
Scottsdale, Arizona
We have audited the accompanying balance sheets of CNF Technologies, Inc.
(formerly CNF, Inc.) (the "Company") as of March 31, 1999 and 1998, and the
related statements of operations, shareholder's (capital deficiency) equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 1999 and 1998, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company's recurring losses from operations, negative
working capital, and shareholders' capital deficiency raise substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are described in Note 13. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
May 25, 1999 (June 11, 1999 as to paragraph 1 of Note 1, paragraph 2 of Note 4,
and paragraphs 4, 5 and 7 of Note 13)
F-2
<PAGE>
CNF TECHNOLOGIES, INC.
(Formerly CNF, Inc.)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
March 31,
September 30, -----------------------
ASSETS 1999 1999 1998
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 166,675 $ 184,663 $ 229,419
Accounts receivable - trade (net of allowance of $390,000,
$390,000 and $330,000 at September 30, 1999, March 31, 1999
and 1998, respectively) 2,043,536 834,383 1,084,527
Accounts receivable - employees and other 4,326 31,736 118,128
Inventories (Note 2) 1,647,513 1,656,001 1,505,140
Prepaid expenses and other current assets 164,580 112,782 314,729
Income tax receivable 95,717 95,717 30,732
----------- ----------- -----------
Total current assets 4,122,347 2,915,282 3,282,675
PROPERTY AND EQUIPMENT - Net (Note 3) 628,581 582,233 338,261
NOTE RECEIVABLE FROM RELATED PARTY (Note 9) 7,609 9,906 95,000
OTHER ASSETS 30,670 31,266 14,054
----------- ----------- -----------
TOTAL $ 4,789,207 $ 3,538,687 $ 3,729,990
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S (CAPITAL DEFICIENCY) EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,764,547 $ 3,642,535 $ 2,101,691
Accounts payable - related party 345 10,000
Lines of credit (Note 4) 229,713 682,120 672,135
Short-term obligations (Note 5) 503,259
Short-term obligations - related parties (Note 5) 2,675,000 397,551
Accrued compensation 311,483 225,716 144,626
Accrued expenses 515,923 437,050 139,113
Current portion of capital leases (Note 7) 32,379 17,826
Current portion of notes payable (Note 5) 54,156 71,623 62,279
----------- ----------- -----------
Total current liabilities 7,583,201 5,978,025 3,129,844
CAPITAL LEASES (Note 7) 84,416 67,136
NOTES PAYABLE (Note 5) 167,465 220,163 259,758
----------- ----------- -----------
Total liabilities 7,835,082 6,265,324 3,389,602
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 7, 10, 12 and 13)
SHAREHOLDER'S (CAPITAL DEFICIENCY) EQUITY (Note 6):
Preferred stock, par value of $.0001: 15,000,000 shares authorized;
5,163,188 shares issued and outstanding at September 30, 1999 516
Common stock, par value of $.0001: 50,000,000 shares authorized;
9,591,981 shares issued and outstanding at September 30, 1999 959
Common stock, no par value: 25,000,000 shares authorized; 2,503,000
and 2,500,000 shares issued and outstanding as of March 31, 1999
and 1998, respectively 1,000 1,000
Additional paid-in capital 2,048,466 7,500
(Deficit) retained earnings (5,095,816) (2,735,137) 339,388
----------- ----------- -----------
Total shareholder's (capital deficiency) equity (3,045,875) (2,726,637) 340,388
----------- ----------- -----------
TOTAL $ 4,789,207 $ 3,538,687 $ 3,729,990
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
CNF TECHNOLOGIES, INC.
(Formerly CNF, Inc.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Six Months Ended
September 30, Years Ended March 31,
--------------------------- ---------------------------
1999 1998 1999 1998
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES (Note 11) $ 6,114,459 $6,593,389 $ 9,425,947 $7,726,484
COST OF REVENUES 3,865,261 4,311,580 6,088,549 4,460,944
----------- ---------- ----------- ----------
Gross profit 2,249,198 2,281,809 3,337,398 3,265,540
----------- ---------- ----------- ----------
OPERATING EXPENSES:
General and administrative 2,728,589 1,683,039 3,960,673 1,916,877
Research and development 631,735 487,963 1,200,939 890,944
Sales and marketing 550,403 506,536 1,086,265 480,170
----------- ---------- ----------- ----------
Total operating expenses 3,910,727 2,677,538 6,247,877 3,287,991
----------- ---------- ----------- ----------
LOSS FROM OPERATIONS (1,661,529) (395,729) (2,910,479) (22,451)
----------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest income 1,863 177 20,528 1,070
Interest expense (709,243) (60,149) (248,342) (68,552)
Other income 8,230 11,706 18,568 31,766
----------- ---------- ----------- ----------
Other expense - net (699,150) (48,266) (209,246) (35,716)
----------- ---------- ----------- ----------
LOSS BEFORE INCOME TAX (BENEFIT)
PROVISION (2,360,679) (443,995) (3,119,725) (58,167)
(BENEFIT) PROVISION FOR INCOME
TAXES (Note 8) (45,200) 21,100
----------- ---------- ----------- ----------
NET LOSS $(2,360,679) $ (443,995) $(3,074,525) $ (79,267)
=========== ========== =========== ==========
BASIC AND DILUTED LOSS PER SHARE -
Applicable to common shareholders $ (0.31) $ (0.18) $ (1.23) $ (0.03)
=========== ========== =========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING - Basic and diluted 7,518,417 2,500,000 2,500,250 2,500,000
=========== ========== =========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CNF TECHNOLOGIES, INC.
(Formerly CNF, Inc.)
STATEMENTS OF SHAREHOLDER'S (CAPITAL DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Preferred Stock Common Stock Additional Retained Shareholder's
------------------- -------------------- Paid-in Earnings Equity (Capital
Shares Amount Shares Amount Capital (Deficit) Deficiency)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
APRIL 1, 1997 2,500,000 $1,000 $ 418,655 $ 419,655
Net loss (79,267) (79,267)
---------- ------ ----------- -----------
BALANCE,
MARCH 31, 1998 2,500,000 1,000 339,388 340,388
Common stock issued
(Note 5) 3,000 $ 7,500 7,500
Net loss (3,074,525) (3,074,525)
---------- ------ ---------- ----------- -----------
BALANCE,
MARCH 31, 1999 2,503,000 1,000 7,500 (2,735,137) (2,726,637)
Net loss (unaudited) (2,360,679) (2,360,679)
Retirement of
CNF, Inc. stock
(unaudited) (Note 13) (2,503,000) (1,000) (1,000)
Issuance of new
stock (Notes 6 and 13):
Preferred stock
(unaudited) 5,163,188 $ 516 516
Common stock
(unaudited) 9,591,981 959 2,040,966 2,041,925
--------- ----- ---------- ------ ---------- ----------- -----------
BALANCE,
SEPTEMBER 30, 1999
(unaudited) 5,163,188 $ 516 9,591,981 $ 959 $2,048,466 $(5,095,816) $(3,045,875)
========= ===== ========== ====== ========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
CNF TECHNOLOGIES, INC.
(Formerly CNF, Inc.)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
Six Months
Ended September 30, Years Ended March 31,
-------------------------- -------------------------
1999 1998 1999 1998
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,360,679) $(443,995) $(3,074,525) $ (79,267)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 84,085 60,838 140,323 60,797
Amortization of discount on note payable
subject to 50% conversion (Note 5) 503,259
Loss (gain) on sales of assets 3,122 (1,409) 8,233
Deferred income taxes - net (12,557)
Expenses satisfied with issuance of common stock 60,174 7,500
Expenses associated with merger (50,250)
Changes in assets and liabilities:
Accounts receivable - trade (1,209,153) (67,253) 250,144 (802,276)
Accounts receivable - other 27,409 27,159 86,392 (102,926)
Inventories 8,488 641,561 (150,861) (931,665)
Prepaid expenses and other assets (51,202) (173,126) 184,735 (248,997)
Accounts payable - trade 122,012 (143,584) 1,540,844 1,654,744
Accounts payable - related party (345) (9,510) (9,655)
Income tax receivable (64,985) (24,806)
Accrued compensation 85,767 24,520 81,090 25,310
Accrued expenses 78,873 32,073 297,937 17,431
----------- --------- ----------- ----------
Net cash used in operating activities (2,698,440) (52,726) (702,828) (444,212)
----------- --------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (88,171) (250,232) (296,138) (273,929)
Loan to officer (9,906)
Collection of note receivable 2,297 95,000 95,000
----------- --------- ----------- ----------
Net cash used in investing activities (85,874) (155,232) (211,044) (273,929)
----------- --------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on lines of credit, net (452,407) 8,668 9,985 672,135
Loan and note payable 36,892 540,151
Notes payable - related party 2,302,449 39,000 397,551
Equity transaction (Note 13) 1,000,000
Principal payments on capital leases (4,178) (4,032) (11,429)
Principal payments on notes payable (79,538) (33,332) (67,142) (51,940)
----------- --------- ----------- ----------
Net cash provided by financing activities 2,766,326 47,196 869,116 620,195
----------- --------- ----------- ----------
NET DECREASE IN CASH (17,988) (160,762) (44,756) (97,946)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 184,663 229,419 229,419 327,365
----------- --------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 166,675 $ 68,657 $ 184,663 $ 229,419
=========== ========= =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 45,185 $ 60,149 $ 146,289 $ 68,552
=========== ========= =========== ==========
Cash paid for income taxes $ -- $ 19,000 $ 20,635 $ 59,429
=========== ========= =========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in connection with the
conversion of notes payable $ 528,259 $ -- $ -- $ --
=========== ========= =========== ==========
Capital expenditures financed through obligations under
capital leases $ 45,384 $ 69,641 $ 96,391 $ --
=========== ========= =========== ==========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
CNF TECHNOLOGIES, INC.
(Formerly CNF, Inc.)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited) AND
YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. BUSINESS AND BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business - CNF Technologies, Inc. (formerly CNF, Inc.) (the "Company") was
incorporated in California in June 1988. In July 1998, the Company relocated its
corporate headquarters to Scottsdale, Arizona. The Company designs, manufactures
and markets portable peripherals to notebook PC vendors, wholesale distributors,
computer resellers, computer retail stores and corporate end users. As described
in Note 13, on June 8, 1999, the Company completed a merger with JLL Ventures
(Delaware) Corp., a Delaware Corporation, (JLL) and JLL ACQUISITIONS CORP., a
Delaware corporation and wholly-owned subsidiary of JLL (JLL ACQUISITIONS). JLL
subsequently changed its name to CNF Technologies, Inc. and JLL ACQUISITIONS
changed its name to CNF Mobile Solutions, Inc.
Interim Period Presentation - The unaudited financial statements for the six
months ended September 30, 1999 and 1998 have been prepared on the same basis as
the audited financial statements included herein. In the opinion of management,
such unaudited financial statements include all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation of the results of
operations and cash flows. The results of operations for the six months ended
September 30, 1999 are not necessarily indicative of results that may be
expected for the year ending March 31, 2000 or any future period.
Basis of Presentation - The accompanying financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
financial statements, during the six months ended September 30, 1999 and the
years ended March 31, 1999 and 1998, the Company incurred net losses of
$2,360,679 (unaudited), $3,074,525 and $79,267, respectively, and, as of
September 30, 1999 and March 31, 1999, the Company's current liabilities
exceeded its current assets by $3,460,854 (unaudited) and $3,062,743,
respectively, and its total liabilities exceeded its total assets by $3,045,875
(unaudited) and $2,726,637, respectively. These factors, among others, may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to comply with the terms and covenants of its
financing agreements, to obtain additional financing or refinancing as may be
required, and ultimately to attain successful operations. Management is
continuing its efforts to obtain additional funds so that the Company can meet
its obligations and sustain operations from sources that are described in Note
13 to the financial statements.
F-7
<PAGE>
Summary of Significant Accounting Policies
a. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
b. Cash and cash equivalents consist of cash held in bank demand deposits and
highly liquid investments purchased with initial maturities of three months
or less.
c. Inventories are stated at the lower of cost (first-in, first-out method) or
market.
d. Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets of
five to seven years. Leasehold improvements are amortized over the shorter
of the estimated useful lives or the underlying lease term. The Company
evaluates the recoverability of long-lived assets on an on-going basis.
e. Income Taxes - The Company accounts for income taxes using the asset and
liability approach. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and operating loss and tax credit carryforwards
measured by applying current enacted tax laws.
f. Revenue Recognition - Revenues, less reserves for returns, are generally
recognized upon shipment to the customer. Title to the product transfers
upon shipment to the customer. Revenues from sales to distributors and
authorized resellers are subject to terms allowing certain rights of return
and price protection rights. Accordingly, accruals for estimated future
returns are provided for upon recognition of revenue. Such amounts are
estimated based on historical rates of return, distributor inventory levels
and other factors. At September 30, 1999, reserves of $390,000 (unaudited)
were recorded by the Company for estimated future returns and bad debts. At
March 31, 1999 and 1998, reserves of $390,000 and $330,000, respectively,
were recorded by the Company for estimated future returns and bad debts.
g. Certain Significant Risks and Uncertainties - The Company participates in a
dynamic high technology industry and believes that changes in any of the
following areas, among others, could have a material adverse effect on the
Company's future financial position or results of operations: advances and
trends in new technologies and industry standards; competitive pressures in
the form of new products; changes in certain strategic partnerships;
litigation or claims against the Company based on intellectual property,
patent, product, regulatory or other factors; risk associated with changes
in domestic and international economic and/or political conditions or
regulations; availability of necessary components; risks associated with
year 2000 compliance; and the Company's ability to attract and retain
employees necessary to support its growth.
h. Recently Issued Accounting Standards - In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS
No. 130 requires that an enterprise report, by major components and as a
single total, the change in its net assets from non-owner sources during
the period. There were no differences between net loss and comprehensive
net loss for the years presented.
F-8
<PAGE>
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued, which establishes accounting and reporting standards for
derivative instruments and hedging activities which are required for fiscal
quarters beginning after June 15, 1999. On May 20, 1999, the FASB issued an
Exposure Draft, which would have the effect of deferring the effective date of
SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. On July 7, 1999, the FASB adopted the Exposure Draft as SFAS No. 137. This
statement requires balance sheet recognition of derivatives as assets or
liabilities measured at fair value. Accounting for gains and losses resulting
from changes in the values of derivatives is dependent on the use of the
derivative and whether it qualifies for hedge accounting. The Company has not
yet determined the effect the adoption of SFAS No. 133 will have on its
financial statements.
2. INVENTORIES
Inventories consist of the following:
March 31,
September 30, -------------------------
1999 1999 1998
------------- ---------- ----------
(Unaudited)
Raw materials $ 962,876 $1,011,970 $ 575,675
Work in process 91,494 47,169
Finished goods 593,143 596,862 929,465
---------- ---------- ----------
Inventories $1,647,513 $1,656,001 $1,505,140
========== ========== ==========
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31,
September 30, -----------------------
1999 1999 1998
------------- --------- ---------
(Unaudited)
Equipment $ 849,825 $ 737,195 $ 414,872
Furniture and fixtures 48,557 30,754 23,818
Leasehold improvements 7,806
Vehicles 38,025 38,025 1,624
---------- --------- ----------
Total 936,407 805,974 448,120
Accumulated depreciation and
amortization (307,826) (223,741) (109,859)
---------- --------- ----------
Property and equipment - net $ 628,581 $ 582,233 $ 338,261
========== ========= =========
Assets recorded under capital leases consist of the following:
September 30, March 31,
1999 1999
------------- ---------
(Unaudited)
Equipment $141,774 $ 96,391
Accumulated amortization (24,156) (12,932)
-------- --------
Total $117,618 $ 83,459
======== ========
Depreciation and amortization expense was $84,085 and $60,838 for the six months
ended September 30, 1999 and 1998 (unaudited), respectively. Depreciation and
amortization expense was $140,323 and $60,797 for the years ended March 31, 1999
and 1998, respectively.
F-9
<PAGE>
4. LINES OF CREDIT
In August 1997, the Company borrowed $100,000 and $600,000 under two bank lines
of credit, which bear interest at prime (7.75% at March 31, 1999 and 8.5% at
March 31, 1998) plus 2 percent and 3.5 percent per annum, respectively. The
Company had outstanding borrowings of $682,120 and $672,135 under the lines of
credit as of March 31, 1999 and 1998, respectively. As described in Note 13,
subsequent to March 31, 1999, the Company's lines of credit maturity dates were
extended under a loan modification agreement. Per the loan modification
agreement, on June 7, 1999 and on June 30, 1999, a $100,000 principal-only
installment shall be due and payable. In addition, a $100,000 principal-only
payment shall be due and payable upon execution of the loan modification
agreement. Interest-only installments will be due and payable on the tenth day
of each month. The remaining balance on the lines of credit was due and payable
on July 31, 1999.
In accordance with the loan modification agreement, the Company made a $100,000
principal-only payment, as well as a $100,000 payment for execution of the loan
modification agreement, on June 4, 1999.
The Company made an additional principal only payment in August 1999 in the
amount of approximately $152,000 and negotiated a second loan modification
agreement extending the maturity date to September 30, 1999 (unaudited). On
October 6, 1999, the Company paid the final installment on its lines of credit
(unaudited).
F-10
<PAGE>
5. DEBT
Short-term obligations at consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- ---------
(Unaudited)
<S> <C> <C>
Note payable to a shareholder, unsecured, with interest at 10%, payable upon the
earlier of the completion of a $3,000,000 financing transaction by the Company
or March 19, 2000. 3,000 shares of common stock were
issued to the investor as additional consideration. $ 100,000 $100,000
Notes payable to related-parties, unsecured, with interest at 10%, payable
upon the earlier of the completion of a $4,000,000 financing transaction by
the Company or February 22, 2000 ($250,000) and March 9, 2000 ($25,000).
Holder of the note has the right to convert the note to shares of the
Company's stock at a price equal to a 25% discount from the offering price in
a subsequent offering of the Company's stock, should one occur. On July 15,
1999, one party exercised its option to convert its $25,000 note, plus
accrued interest of $892, to 11,507 shares of the Company's common stock. 250,000 275,000
Note payable to the president of the Company, unsecured, with interest at 10%. 22,551
at 10%.
Notes payable to four shareholders, unsecured, with interest at 10%, payable
upon the earlier of the completion of a $3,000,000 financing transaction by
the Company or one year from the date of the note (maturities range from April
7, 2000 to May 6, 2000). 97,500 shares of common stock were issued to the four
shareholders as additional consideration. Holders of the notes have the right
to convert the notes to shares of the Company's stock at a price equal to a
25% discount from the offering price in a subsequent
offering of the Company's stock, should one occur. 975,000
Notes payable to four shareholders, unsecured, with interest at 10%, payable
upon the earlier of the completion of a $4,000,000 financing transaction by the
Company or one year from the date of the note (maturities range from
May 26, 2000 to June 4, 2000). 70,000 shares of common stock were issued to
the investors as additional consideration. Holders of the notes have the right
to convert the notes to shares of the Company's stock at a price equal to a
25% discount from the offering price in a subsequent offering of the
Company's stock, should one occur. 700,000
Notes payable to eight shareholders, unsecured, with interest at 10%, payable
upon the earlier of the completion of a $5,000,000 financing transaction by
the Company or one year from the date of the note (maturities range from
July 8, 2000 to August 18, 2000). 65,000 shares of common stock were issued
to the investors as additional consideration. 650,000
---------- --------
Total related-party short-term obligations 2,675,000 397,551
Note payable, unsecured, with interest at 10%, payable upon the earlier
of the completion of a $4,000,000 financing transaction by the Company or
January 8, 2000. Holder of the note had the right to convert the note to
shares of the Company's stock at a price equal to a 50% discount from the
offering price in a subsequent offering of the Company's stock, should one
occur. On July 15, 1999, the holder of the note exercised the option to
convert the $503,259 note, plus accrued interest of $18,102, to
347,574 shares of the Company's common stock. 503,259
--------
Total short-term obligations $2,675,000 $900,810
========== ========
</TABLE>
F-11
<PAGE>
Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
-------------------------
1999 1999 1998
--------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Note payable to bank, unsecured, with interest at prime
plus 2% (9.75% at March 31, 1999) payable
in monthly installments of $1,068 through May 2001 $ 45,000 $ 65,000
Note payable to bank, unsecured, with interest at prime
plus 2.25% (10% at March 31, 1999) payable in
variable monthly installments through September 2003 $ 200,914 220,871 257,037
Other notes payable 20,707 25,915
--------- -------- --------
Total long-term obligations 221,621 291,786 322,037
Less current portion (54,156) (71,623) (62,279)
--------- -------- --------
Total long-term obligations $ 167,465 $220,163 $259,758
========= ======== ========
</TABLE>
Future annual maturities of the Company's long-term notes payable for the years
subsequent to March 31, 1999 are as follows:
2000 $ 71,623
2001 77,177
2002 58,134
2003 55,149
2004 29,703
--------
Total $291,786
========
6. SHAREHOLDER'S EQUITY
Common Stock
In November 1997, the Board of Directors approved a 250-for-1 split of the
outstanding shares of common stock. All share amounts in these financial
statements have been adjusted to give retroactive effect to the stock split.
Stock Option Plan
In November 1997, the Board of Directors adopted the 1997 Equity Incentive Plan
(the "Plan"). Under the Plan, the Company may grant options to purchase up to
602,026 shares of the Company's common stock to employees, officers, directors,
and consultants at prices not less than the fair market value (as determined by
the Board of Directors) at the date of grant for incentive stock options and not
less than 90 percent of the fair market value at the date of grant for
nonqualified stock options.
During fiscal 1999, the Company granted options of 405,658 shares of common
stock to certain employees of the Company. These options expire ten years from
the date of grant and vest over a four-year period, 25 percent after the first
year and ratably each subsequent month for the balance of the four years. Vested
options must be exercised within 45 days of termination of employment.
F-12
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding
-------------------------
Options Exercise
Available Price
for Grant Shares Per Share
---------- -------- --------------
<S> <C> <C> <C>
Balance, April 1, 1997 --
Authorized 602,026
Balance, March 31, 1998 602,026
Granted (405,658) 405,658 $0.50 to $2.50
---------- -------- --------------
Balance, March 31, 1999 196,368 405,658 $0.50 to $2.50
======== ======== ==============
</TABLE>
In June 1999 (unaudited), the Company issued (i) 5,163,188 shares of Series A
Preferred Stock to the holders of all outstanding shares of common stock of CNF;
and (ii) options to purchase 836,790 shares of Series A Preferred Stock to the
holders of all outstanding options to purchase shares of common stock of CNF in
connection with the merger with JLL and JLL ACQUISITIONS. The options to
purchase shares of preferred stock have a variable conversion rate to shares of
CNF Technologies, Inc. common stock based on financial performance for the year
ending March 31, 2000 (Note 13).
Subsequent to March 31, 1999, the Company issued 9,591,981 shares of common
stock (unaudited). These shares were sold to accredited investors in private
placement transactions.
The following summarizes certain weighted average information on options
outstanding at March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------ -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$0.50 376,658 9.07 $0.50 0 $0.50
$2.50 29,000 9.83 $2.50 0 $2.50
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its Plan. There was no compensation cost charged against income for its Plan
for 1999. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the method of SFAS No. 123, the Company's net loss and net loss
per share for the year ended March 31, 1999 would have been adjusted to the pro
forma amounts indicated below:
Net loss - as reported $ (3,074,525)
============
Net loss - pro forma $ (3,093,583)
============
Basic and diluted loss per share - as reported $ (1.23)
============
Basic and diluted loss per share - pro forma $ (1.24)
============
F-13
<PAGE>
The following summarizes certain weighted average information on options
outstanding at September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$0.24 771,812 8.57 $0.24 268,112 $0.24
$1.21 20,628 9.42 $1.21 0 $1.21
</TABLE>
Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant dates for awards under the Plan consistent with
the method of SFAS No. 123, the Company's net loss and net loss per share for
the six months ended September 30, 1999 would have been adjusted to the pro
forma amounts indicated below:
Net loss - as reported $ (2,360,679)
============
Net loss - pro forma $ (2,372,958)
============
Basic and diluted loss per share - as reported $ (0.31)
============
Basic and diluted loss per share - pro forma $ (0.32)
============
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants: no dividend yield; expected volatility of 35 percent; risk-free interest
rate of 5 percent; and an expected life of seven years.
Concurrent with the merger discussed in Note 13, the Plan was frozen subsequent
to March 31, 1999 and no additional options will be issued.
On July 14, 1999 (unaudited), the Company issued a Private Placement Memorandum
(the "Private Placement") offering 1,000,000 shares of the Company's common
stock at a price of $3.00 per share, subject to an increase of up to an
additional 1,000,000 shares to cover over-allotments. The offering period
expires on September 14, 1999. However, this date was extended through
December 6, 1999 at the election of the Company (Note 13).
F-14
<PAGE>
7. LEASES
The Company's operations utilize leased equipment and facilities. Future minimum
lease payments under noncancellable operating leases and capital lease payments
as of March 31, 1999 consist of the following:
Capital Operating
Leases Leases
-------- ---------
2000 $23,366 $319,020
2001 23,689 319,020
2002 20,971
2003 17,807
2004 13,162
Thereafter 323
------- --------
Total 99,318 $638,040
========
Less - interest (14,356)
-------
Present value of minimum capital lease obligation 84,962
Less current portion of capital lease obligation (17,826)
-------
Long-term portion of capital lease obligation $67,136
=======
Rent expense was $197,413 and $192,634 for the six months ended September 30,
1999 and 1998 (unaudited), respectively. Rent expense was $412,567 and $54,371
for the years ended March 31, 1999 and 1998, respectively.
8. INCOME TAXES
The (benefit) provision for income taxes for the years ended March 31 consists
of the following:
1999 1998
-------- --------
Current:
Federal $(45,200) $ 32,122
State 1,535
-------- --------
Total current (45,200) 33,657
Deferred:
Federal (9,769)
State (2,788)
Total deferred (12,557)
-------- --------
Total (benefit) provision from income taxes $(45,200) $ 21,100
======== ========
F-15
<PAGE>
A reconciliation of the (benefit) provision for income taxes and the amounts
that would be computed using federal statutory tax rates are as follows:
<TABLE>
<CAPTION>
September 30, March 31,
----------------------------
1999 1999 1998
--------- ----------- --------
(Unaudited)
<S> <C> <C> <C>
Computed expected tax benefit $(759,854) $(1,060,707) $(19,777)
State income taxes - net of federal benefit (827)
Nondeductible expenses and other credits 37,982 (94,618)
Change in valuation allowance 759,854 977,525 136,322
--------- ----------- --------
Total $ -- $ (45,200) $ 21,100
========= =========== ========
</TABLE>
The following summarizes the effect of deferred income tax items and the impact
of "temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. Temporary
differences and carryforwards which give rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
September 30, March 31,
---------------------------
1999 1999 1998
---------- ----------- ---------
(unaudited)
<S> <C> <C> <C>
Net operating loss $1,773,635 $ 1,013,781
Credit carryforwards 127,746 127,746 $ 106,873
Temporary differences:
Sales returns 65,000 65,000 42,000
Depreciation (92,680) (92,680) (12,551)
---------- --------- ---------
Total 1,873,701 1,113,847 136,322
Valuation allowance (1,873,701) (1,113,847) (136,322)
---------- ----------- ---------
Total $ -- $ -- $ --
========== =========== =========
</TABLE>
The valuation allowance is maintained against deferred tax assets as a result of
uncertainties concerning the Company's future ability to realize the benefits of
such deferred tax assets.
9. RELATED PARTY TRANSACTIONS
In February 1997, the Company's President borrowed $195,000 from the Company
under a note payable due in full with interest on February 14, 2002. This notes
interest rate was 8 percent per annum. At March 31, 1999, the balance was paid
in full. The Company's President loaned the Company $39,000 at an interest rate
of 10 percent on August 19, 1998. The balance of this note was $22,551 as of
March 31, 1999. At September 30, 1999, the balance was paid in full.
The Company's Chief Financial Officer borrowed funds during the fiscal year
ended March 31, 1999 totaling $9,700. The note bears interest at an interest
rate of 8.5 percent per annum. Payments are due monthly with the balance to be
paid in full as of November 5, 2000. The balance of the note as of March 31,
1999 and September 30, 1999, including interest, was $9,906 and $7,609,
respectively.
The Company leased its California facility from its President. For the years
ended March 31, 1999 and 1998, rent expense for such lease was $34,000 and
$42,800, respectively.
F-16
<PAGE>
10. EMPLOYEE BENEFIT PLAN
In January 1999, the Company adopted a defined contribution plan under Section
401(k) of the Internal Revenue Service Code covering all eligible employees (the
"401(k) Plan"). Eligible participants may contribute up to 15 percent of their
total compensation. Participants will be immediately vested in their personal
contributions and over a six-year period for amounts contributed by the Company.
The Company did not make any matching contributions to the 401(k) Plan for the
fiscal year ended March 31, 1999 or the six months ended September 30, 1999.
11. BUSINESS SEGMENTS
The Company's only business activity is the manufacture and sale of peripheral
devices for laptop computers. Therefore, the Company currently operates within
one business segment.
Two customers accounted for 84 percent of revenues for the six months ended
September 30, 1999 (Customer E accounted for 51 percent and Customer C for 33
percent). Three customers accounted for 72 percent of revenues for the six
months ended September 30, 1998 (Customer A accounted for 32 percent, Customer B
for 21 percent and Customer D for 19 percent). Two customers accounted for 99
percent of accounts receivable (Customer E accounted for 68 percent and Customer
C for 31 percent) at September 30, 1999 (unaudited).
Four customers accounted for 65 percent of revenues for the year ended March 31,
1999 (Customer A accounted for 22 percent, Customer B for 16 percent, Customer C
for 14 percent, and Customer D for 13 percent of revenue). One customer
accounted for 13 percent of revenues for the year ended March 31, 1998. Export
sales accounted for 10 percent and 17 percent of revenues for the years ended
March 31, 1999 and 1998, respectively. Two customers accounted for 81 percent
(Customer C accounted for 48 percent and Customer E for 33 percent) and three
customers accounted for 45 percent of accounts receivable (Customer F accounted
for 27 percent, Customer G for 18 percent, and Customer H for 13 percent) at
March 31, 1999 and 1998, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal matters that management considers to be
in the normal course of business. In management's opinion, all matters will be
settled without material effect on the Company's financial position or results
of operations.
13. SUBSEQUENT EVENTS
On April 16, 1999, the Company entered into a definitive agreement to merge with
JLL Ventures (Delaware) Corp., a Delaware corporation, ("JLL") and JLL
ACQUISITIONS CORP., a Delaware corporation and wholly-owned subsidiary of JLL
("JLL ACQUISITIONS") (the "Merger"). JLL was an inactive public company. In
connection with the Merger, all shares of the Company are to be exchanged for
shares of JLL. JLL held $1,000,000 in cash at the time of the Merger. The
Company will assume no additional liabilities as a result of its merger with
JLL. Furthermore, JLL is required by the merger agreement to assist the Company
in obtaining additional financing in the form of bridge loans from unrelated
parties within 30 days after the Merger closing date. As a result of the Merger,
the shareholders of the Company will maintain a controlling interest in the
Company and the Merger will be accounted for as a "reverse acquisition."
Accordingly, for financial statement presentation purposes, the Company is
viewed as the continuing entity and the related business combination is viewed
as a recapitalization of the Company, rather than an acquisition by JLL.
F-17
<PAGE>
Each of the Company's shareholders will exchange each share of Company's common
stock for 2.06 shares of JLL's preferred stock. The preferred stock has voting
rights and has a variable conversion rate to common stock of CNF Technologies,
Inc. based on financial performance for the year ending March 31, 2000:
Financial Performance Targets with Preferred Stock Conversion Rates
- -------------------------------------------------------------------------------
Conversion
Target Rate
- ------ ----------
Gross revenues of $20.25 million and net income of $810,000 1.50
Gross revenues of $34.43 million and net income of $1.38 million 1.75
Gross revenues of $45.9 million and net income of $1.84 million 2.00
Gross revenues of $57.6 million and net income of $2.30 million 2.25
The Financial Performance Targets are to be derived from the results of
operations reflected within the Company's audited financial statements for the
fiscal year ending March 31, 2000. Prior to that time, preferred stock can be
converted by the holder to common stock on a one-to-one basis. Should the
Company not meet the financial performance targets, the preferred stock will
automatically convert to common stock on a one-to-one basis. In any event, all
shares of preferred stock shall be converted to shares of common stock no later
than June 30, 2000.
Subsequent to March 31, 1999 and prior to the closing of the Merger, in
accordance with the merger agreement, the Company received $975,000 in bridge
loans from four unrelated parties, unsecured, with interest at 10 percent,
payable upon the earlier of (i) completion of an unsecured $3,000,000 financing
transaction by the Company or (ii) one year from the date of the note
(maturities range from April 7, 2000 to May 12, 2000). Also, prior to the
closing of the Merger, in accordance with the merger agreement, the Company
received $700,000 in bridge loans from four unrelated parties, unsecured, with
interest at 10 percent, payable upon the earlier of (i) completion of an
unsecured $4,000,000 financing transaction by the Company or (ii) one year from
the date of the note (maturities range from May 26, 2000 to June 4, 2000).
Holders of the notes have the right to convert the notes to shares of the
Company's stock at a price equal to a 25 percent discount from the offering
price in a subsequent offering of the Company's stock, should one occur.
On June 8, 1999, the Merger was completed and JLL ACQUISITIONS changed its name
to CNF Mobile Solutions Inc. On June 11, 1999, JLL changed its name to CNF
Technologies, Inc.
In connection with the anticipated completion of the Merger, the lines of credit
maturity dates were extended under a loan modification agreement. Per the loan
modification agreement, on June 7, 1999 and on June 30, 1999, a $100,000
principal-only installment shall be due and payable. In addition, a $100,000
principal-only payment shall be due and payable upon execution of the loan
modification agreement. Interest-only installments will be due and payable on
the tenth day of each month. The remaining balance on the lines of credit will
be due and payable on July 31, 1999.
On June 4, 1999, in accordance with the loan modification agreement, the Company
made the required $100,000 principal-only payment, as well as the $100,000
principal payment due on execution of the loan modification agreement.
The Company made an additional principal only payment in August 1999 in the
amount of approximately $152,000, and negotiated a second loan modification
agreement extending the maturity date to September 30, 1999 (unaudited).
F-18
<PAGE>
Event Subsequent to the Interim Period Ended September 30, 1999 (unaudited)
On October 6, 1999, the Company paid the final installment on its lines of
credit.
During October and November 1999, the Company converted $1,704,164 of bridge
loans ($1,675,000 principal amount and $29,164 of interest) for 1,019,582 shares
of common stock.
On November 15, 1999, the Company entered into an agreement with Paul Charles
and Synergy Group International, Inc. a principal stockholder of the Company.
The agreement amended certain provisions of the Merger. Specifically, Mr.
Charles agreed to resign his position as the Chief Executive Officer and
President of the Company and to surrender 1,000,000 of the shares of Series A
Preferred Stock issued to him in the Merger, all of which were being held in
escrow to secure Mr. Charles' indemnification obligation under the Merger.
On November 26, 1999, the Company conducted an initial closing of the Private
Placement pursuant to which the Company obtained gross proceeds of $2,000,000
from the sale of 666,667 shares of common stock. In connection with the Private
Placement, the Company issued warrants to purchase 200,000 shares of common
stock, all of which are currently exercisable. In addition, the Company agreed
to issue warrants to the Company's placement agent to purchase up to an
additional 200,000 shares of common stock, which will be immediately
exercisable. On November 26, 1999, the Company issued 66,667 of these warrants.
All warrants have an exercise price of $3.00 and expire in November 2004.
* * * * *
F-19
<PAGE>
Until _________ (ninety (90) days after the date of this Prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
1,756,624 Shares
[LOGO]
CNF TECHNOLOGIES, INC.
Common Stock
-------------------
P R O S P E C T U S
-------------------
December __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws reflect the adoption
of the provisions of Section 102(b)(7) of the Delaware General Corporation Law
(the "GCL"), which eliminate or limit the personal liability of a director to
the Company or its stockholders for monetary damages for breach of fiduciary
duty under certain circumstances. If the GCL is amended to authorize corporate
action further eliminating or limiting personal liability of directors, the
Certificate of Incorporation provides that the liability of the director of the
Company shall be eliminated or limited to the fullest extent permitted by the
GCL. The Company's Certificate of Incorporation and Bylaws also provide that the
Company shall indemnify any person, who was or is a party to a proceeding by
reason of the fact that he is or was a director, officer, employer or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorney's fees) actually
and reasonably incurred by him in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be or not opposed to the
best interests of the Company, in accordance with, and to the full extent
permitted by, the GCL. The determination of whether indemnification is proper
under the circumstances, unless made by the Court, shall be determined by the
Board of Directors.
Reference is made to Item 28 for the undertakings of the Registrant with
respect to indemnification of liabilities arising under the Securities Act of
1933, as amended (the "Act").
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the preparation and filing of this Registration
Statement.
SEC Registration Fee.......................................... $ 3,027
Printing and Engraving........................................ $20,000
Accountants' Fees and Expenses................................ $15,000
Legal Fees and Expenses....................................... $30,000
Other Offering Expenses....................................... $ 5,000
-------
Total.................................................... $73,027
=======
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Recent Sales of Unregistered Securities
1. On November 26, 1999, the Company issued 666,667 shares of Common Stock
at $3.00 per share raising gross proceeds of $2,000,000. The Company paid
brokerage commissions and non accountable expense equal to $260,000 together
with warrants to purchase 66,667 shares of Common Stock at an exercise price of
$3.00 per share to a registered broker-dealer. These securities were sold in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder to the following accredited investors:
Name Number of Shares
---- ----------------
Donald Parvin & Philip Parvin JTROS 8,333
Pueblo Properties L.L.C. 8,333
Daljit S. Buttar 108,333
Michael K. Havrilesko 83,333
Myron H. Reinhart 83,333
Steve Katz & Becky Katz JTROS 16,667
David Henry Sutton 8,333
Neil Druks 16,667
Allen Jacobson 16,667
Jacob Roth & Yentil Roth JTROS 16,667
Amro International S.A. 100,000
Balmore Funds 83,334
Austost Anstalt Schaan 83,334
Frederick G. Heumann 33,333
-------
TOTAL 666,667
2. Effective November 26, 1999, the Company issued 419,583 shares of Common
Stock in consideration of the cancellation of $675,000 of outstanding
indebtedness, $29,164 of accrued interest and additional equity incentives.
These securities were sold to accredited investors in a private placement
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof directly by the Company without payment of
underwriting discounts or commissions to the following accredited investors:
Name Number of Shares
---- ----------------
Enrico E. DiVito, DDS 30,918
Michael G. Glynn 75,000
Allen and Jane Kelsey 30,890
Lindzon Capital Partners 126,562
Blair Portigal 61,822
Harold Rubenstein 63,151
Rochelle and Shelden Terman 31,240
-------
TOTAL 419,583
II-2
<PAGE>
3. On November 2, 1999, the Company issued 600,000 shares of Common Stock
in consideration of the cancellation of $1,000,000 of outstanding indebtedness
and additional equity incentives and 75,000 shares of Common Stock in
consideration of the advance of a bridge loan in the principal amount of
$500,000. These securities were sold to accredited investors in a private
placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof directly by the Company without
payment of underwriting discounts or commissions to the following accredited
investor:
Name Number of Shares
---- ----------------
Meris Capital Partners, L.P. 600,000
Imperium Capital Corporation 75,000
-------
Total 675,000
4. During July 1999, the Company issued 359,081 shares of Common Stock in
consideration of the cancellation of $547,253 of outstanding indebtedness. These
securities were sold in a private placement transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
directly by the Company without payment of underwriting discounts or commissions
to the following accredited investors:
Name Number of Shares
---- ----------------
Larry Kaplan 347,574
Keith and Carol Henrichsen 11,507
5. During July and August 1999, the Company issued 65,000 shares of Common
Stock together with promissory notes in the aggregate principal amount of
$650,000. These securities were sold in a private placement transaction exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof directly by the Company without payment of underwriting discounts
or commissions to the following accredited investors:
<TABLE>
<CAPTION>
Principal Amount Number
Name of Notes of Shares
---- ---------------- ---------
<S> <C> <C>
Daljit S. Battar $150,000 15,000
Creative Business (Asia Online Publications) 100,000 10,000
Enrico E. Divito DDS 50,000 5,000
Allen and Jane Kelsey 50,000 5,000
Kerzner Revocable Trust 50,000 5,000
Larfer Family Trust 100,000 10,000
Blair Portigal 100,000 10,000
Myron Reinhart 50,000 5,000
-------- ------
TOTAL $650,000 65,000
</TABLE>
6. After the completion of the Merger, during June 1999, the Company issued
167,500 shares of Common Stock in connection with the issuance of the Promissory
Notes in the aggregate principal amount of $1,675,000. These shares were sold in
a private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof directly by the Company without
payment of underwriting discounts or commissions. These shares were issued to
the following accredited investors in consideration of
II-3
<PAGE>
the substantial additional risk undertaken by such investors by advancing
unsecured funds to CNF, Inc. prior to completion of the Merger:
<TABLE>
<CAPTION>
Principal Amount Number
Name of Notes of Shares
---- ---------------- ---------
<S> <C> <C>
Jim Caljeen $ 100,000 10,000
Michael G. Glynn 125,000 12,500
Helen and Jerry Holden 50,000 5,000
Lanny Lahr 100,000 10,000
Meris Capital Partners, LP 1,000,000 100,000
Harold Rubenstein 250,000 25,000
Rochelle and Sheldon Terman 50,000 5,000
---------- --------
TOTAL $1,675,000 167,500
</TABLE>
7. On June 8, 1999, the Company issued 5,163,188 shares of Series A
Preferred Stock to the holders of all outstanding shares of Common Stock of CNF,
Inc. in connection with the Merger. These shares were issued in a private
placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof directly by the Company without
payment of underwriting discounts or commissions to the following accredited
investors:
Name Number of Shares
---- ----------------
Paul Charles 5,157,000
Howard Lindzon 6,188
8. During May and June 1999, the Company issued and sold an aggregate of
8,000,000 shares of Common Stock raising gross proceeds of $1,120,000. These
shares were issued to accredited investors in a private placement transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder. This offering was
undertaken by the Company without payment of underwriting discounts or
commissions prior to the closing of the Merger. At that time the Company was an
inactive Company with no assets or liabilities. Investors in such offering were,
therefore, subject to a number of risks and uncertainties, including the
material contingencies associated with completion of the Merger.
Name Number of Shares
---- ----------------
ACA Trading Intermediates 370,000
All Pro Security 65,000
Avalon Financial Services LLC 130,000
Beaumont Investment Holding Ltd. 340,000
Jeff Berman 70,000
Blake Group Inc. 395,000
Boyett Investment Ltd. 318,000
Brookabby Investments Ltd. 5,000
Edmund J. Burgassi 5,000
Capital Growth Trust 175,000
II-4
<PAGE>
Name Number of Shares
---- ----------------
Kenny Cook 100,000
Dwyer Investments LP 5,000
EBR Investments 50,000
FAC Enterprises Inc. 292,000
Clifford Feldstein 25,000
Fincord Holding Corp. 425,000
Michele R. Ganz 20,000
Geneco Investment Corp. 578,000
Marvin Gersten 125,000
Michael Glynn 10,000
Godwin Finance Ltd. 400,000
Michael Goldstein 10,000
Carolyn Gordon 5,000
Cathy Graham 45,000
Gunhill Capital Inc. 50,000
Huber Family Trust 12,000
Imperium Capital 175,000
Allan E. Jacobson 15,000
Ron Jaffe 10,000
Jay Josephs 15,000
KAB Investments Inc. 225,000
Robert S. Kant 20,000
Alan and Jan Kelsey 25,000
Kenneth Kirshcenbaum 50,000
Steven Kram 25,000
Jack Leadbeater 100,000
Howard Lindzon 332,500
Lindzon Capital Partners 60,000
Sara L. Marold Bypass Trust 150,000
Vincent J. Marold Exempt Trust 1,000,000
MCZ Corp 48,000
William Meris 15,000
Meris Capital Partners LP 50,000
Anna Maria Mintz 20,000
Carolyn J. Orena 25,000
Robert Perlitz 5,000
Tom Peterson 25,000
RMLH Holding, LLC 120,000
Harold and Beverly Rubenstein 25,000
Lynda Rufo 20,000
Mark Scatterday 45,000
Arthur Van Beuren Seavey 5,000
Seavey Funds Inc. 108,000
Rob Segal 90,000
Michael S. Siegal 35,000
SPH Investments 257,000
Synergy Group 177,500
Patricia Trish Trust 30,000
Troy Funding Corp. 212,000
II-5
<PAGE>
Name Number of Shares
---- ----------------
Richard Tully 20,000
Wabering Investment Group Ltd. 400,000
Wexler & Burkhart 30,000
Gordon Douglas Young 10,000
----------
TOTAL 8,000,000
ITEM 27. EXHIBITS
THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
2.1 Agreement and Plan of Merger (the "Merger Agreement") dated April Filed herewith
16, 1999 by and among JLL Ventures (Delaware) Corp., JLL Ventures
Acquisition Corp., CNF, Inc. and Paul Charles
2.2 Amendment No. 1 to Merger Agreement dated May 24, 1999 Filed herewith
2.3 Agreement dated November 1, 1999 (resulting in a second amendment Filed herewith
to Merger Agreement)
3.1 Certificate of Incorporation Filed herewith
3.2 Certificate of Amendment to Certificate of Incorporation Filed herewith
3.3 Certificate of Designation of Series A Convertible Preferred Stock Filed herewith
3.4 By-Laws, as amended to date Filed herewith
5.1 Opinion of Buchanan Ingersoll Professional Corporation To be filed by amendment
10.1 Employment Agreement dated May 19, 1999 by and between the Company Filed herewith
and Paul Charles
10.2 Addendum to Employment Agreement dated November 2, 1999 by and
between the Company and Paul Charles
10.3 Employment Agreement dated May 19, 1999 by and between the Company Filed herewith
and David Thompson
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
10.4 Employment Agreement dated May 19, 1999 by and between the Company Filed herewith
and R. Daniel Rudich
10.5 Addendum to Employment Agreement dated November 2, 1999 by and Filed herewith
between the Company and R. Daniel Rudich
10.6 Employment Agreement dated May 19, 1999 by and between the Company Filed herewith
and Frank Layland
10.7 Escrow Agreement dated June 8, 1999 by and among, inter alia, the Filed herewith
Company, Synergy Group International, Inc. and certain
shareholders of the Company (as amended by Exhibit 2.3)
10.8 Escrow Agreement dated June 8, 1999 by and among, inter alia, the Filed herewith
Company and Paul Charles (as substantially amended by Exhibit 2.3)
21.1 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Buchanan Ingersoll Professional Corporation Filed under Exhibit 5.1
23.2 Consent of Deloitte and Touche LLP Filed herewith
27.1 Financial Data Schedule Filed herewith
</TABLE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended; (ii) reflect in the prospectus any facts or events arising after the
effective date of the registration statement which, individually or together,
represent a fundamental change in the information in the registration statement;
and (iii) include any additional or changed material information on the plan of
distribution.
2. For the purpose of determining liability under the Securities Act of
1933, as amended, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-7
<PAGE>
3. To file a post-effective amendment to remove from registration any of
the securities being registered which remain unsold at the termination of the
offering.
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized in the City of Scottsdale, Arizona on
December 3, 1999.
CNF TECHNOLOGIES, INC.
By: /s/ David G. Thompson
---------------------------------------
Interim Chief Executive Officer and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID G. THOMPSON his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments (including, without limitation, post-effective amendments) to
this Registration Statement and any related Registration Statements filed
pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Paul D. Charles Chairman December 3, 1999
- ---------------------------------
Paul D. Charles
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger (the "Merger Agreement") dated April
16, 1999 by and among JLL Ventures (Delaware) Corp., JLL Ventures
Acquisition Corp., CNF, Inc. and Paul Charles
2.2 Amendment No. 1 to Merger Agreement dated May 24, 1999
2.3 Agreement dated November 1, 1999 (resulting in a second amendment
to Merger Agreement)
3.1 Certificate of Incorporation
3.2 Certificate of Amendment to Certificate of Incorporation
3.3 Certificate of Designation of Series A Convertible Preferred Stock
3.4 By-Laws, as amended to date
5.1 Opinion of Buchanan Ingersoll Professional Corporation*
10.1 Employment Agreement dated May 19, 1999 by and between the Company
and Paul Charles
10.2 Addendum to Employment Agreement dated November 2, 1999 by and
between the Company and Paul Charles
10.3 Employment Agreement dated May 19, 1999 by and between the Company
and David Thompson
10.4 Employment Agreement dated May 19, 1999 by and between the Company
and R. Daniel Rudich
10.5 Addendum to Employment Agreement dated November 2, 1999 by and
between the Company and R. Daniel Rudich
10.6 Employment Agreement dated May 19, 1999 by and between the Company
and Frank Layland
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.7 Escrow Agreement dated June 8, 1999 by and among, inter alia, the
Company, Synergy Group International, Inc. and certain
shareholders of the Company (as amended by Exhibit 2.3)
10.8 Escrow Agreement dated June 8, 1999 by and among, inter
alia, the Company and Paul Charles (as substantially
amended by Exhibit 2.3)
21.1 Subsidiaries of the Registrant
23.1 Consent of Buchanan Ingersoll Professional Corporation*
23.2 Consent of Deloitte and Touche LLP
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To Be Filed By Amendment.
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
JLL VENTURES (DELAWARE) CORP.
JLL VENTURES ACQUISITION CORP.
CNF, INC.
AND
PAUL CHARLES, THE PRINCIPAL SHAREHOLDER OF
CNF, INC.
Dated: April 16, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I: MERGER OF CNF WITH AND INTO JLL AND RELATED MATTERS.................1
1.1 The Merger........................................................1
1.2 Conversion of Stock; Conversion of Outstanding Options............2
1.3 Merger Consideration..............................................3
1.4 Escrow Agreements.................................................4
1.5 Additional Rights; Taking of Necessary Action; Further Action.....5
1.6 No Further Rights or Transfers....................................5
ARTICLE II: THE CLOSING........................................................5
2.1 Closing Date......................................................5
2.2 Closing Transactions..............................................5
ARTICLE III: CERTAIN CORPORATE ACTION..........................................9
3.1 CNF Corporate Action; Shareholder Consent.........................9
3.2 Acquiror and JLL Corporate Action.................................9
ARTICLE IV: REPRESENTATIONS AND WARRANTIES.....................................9
4.1 Representations and Warranties of CNF and the Shareholder.........9
4.2 Representations and Warranties of Acquiror and JLL...............21
ARTICLE V: AGREEMENTS OF THE PARTIES..........................................24
5.1 Access to Information............................................24
5.2 Confidentiality; No Solicitation.................................25
5.3 Interim Operations...............................................27
5.4 Consents.........................................................29
5.5 Registration Statements..........................................29
5.6 All Reasonable Efforts...........................................29
5.7 Public Announcements.............................................30
5.8 Notification of Certain Matters..................................30
5.9 Expenses.........................................................30
5.10 Financial Statements............................................30
5.11 Lock-Up.........................................................31
5.12 Bridge Notes....................................................31
5.13 Private Placement...............................................31
5.14 Documents at Closing............................................32
5.15 Prohibition on Trading in Acquiror Stock........................33
5.16 Reservation of Shares...........................................33
5.17 Acquiror Post-Closing Actions...................................33
5.18 Acknowledgment of Approvals; Written Consent of Stockholders....33
5.19 Matters of Corporate Governance.................................33
5.20 Grant of Proxy..................................................34
i
<PAGE>
5.21 Production of Schedules and Exhibits............................34
ARTICLE VI: CONDITIONS TO CONSUMMATION OF THE MERGER..........................35
6.1 Conditions to Obligations of CNF and the Shareholder.............35
6.2 Conditions to Acquiror's Obligations.............................36
ARTICLE VII: INDEMNIFICATION..................................................38
7.1 Indemnification..................................................38
ARTICLE VIII: TERMINATION.....................................................40
8.1 Termination......................................................40
8.2 Notice and Effect of Termination.................................40
8.3 Extension; Waiver................................................41
8.4 Amendment and Modification.......................................41
ARTICLE IX: MISCELLANEOUS.....................................................41
9.1 Survival of Representations and Warranties; Remedies.............41
9.2 Notices..........................................................42
9.3 Agreement; Assignment............................................42
9.4 Binding Effect; Benefit..........................................43
9.5 Headings.........................................................43
9.6 Counterparts.....................................................43
9.7 Governing Law....................................................43
9.8 Arbitration......................................................43
9.9 Severability.....................................................44
9.10 Release and Discharge...........................................44
9.11 Certain Definitions.............................................45
ii
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
EXHIBITS
- --------
Exhibit 1.2(c) - Form of Acquiror Option Agreement
Exhibit 1.3(a) - Certificate of Designation of Series A Convertible Preferred
Stock
Exhibit 1.4(a) - Form of Acquiror Escrow Agreement
Exhibit 1.4(b) - Form of Shareholder Escrow Agreement
Exhibit 2.2(a)(ii) - Form of Investment Letter
Exhibit 5.5(b) - Form of Registration Rights Agreement
Exhibit 5.20 - Form of Voting Proxy
SCHEDULES
- ---------
1.1(c)(vii) Officers and Directors of the Surviving Corporation
1.2(c) Schedule of Option Holders
1.3(b) Allocation of Merger Consideration
4.1(a) Articles of Incorporation and Bylaws of CNF
4.1(c) Consents
4.1(c)(ii) Conflicts
4.1(d) Capitalization and Share Ownership
4.1(e) Financial Statements
4.1(f)(i) Location of Leased Property
4.1(f)(ii) Written Notice
4.1(g) No Contingent Liabilities
4.1(h) Litigation
4.1(i) Taxes
4.1(j)(i) Employee Benefit Plan
4.1(j)(ii) Employee Benefit Plan (for which CNF has obligation
to contribute)
4.1(j)(iv) Material Employment Arrangements, Contracts, etc.
4.1(k) Insurance Coverage
4.1(n) Personal Property
4.1(q) Material Contracts
4.1(o) Intellectual Property
4.1(p) Accounts Receivable
4.1(r)(i) Labor Relations; Employees
4.1(r)(ii) List of Employees
4.1(r)(v) Strikes, grievance proceedings, arbitrations, etc.
4.1(r)(vii) Employment and Benefit Arrangements
4.1(s) Suppliers and Clients
iii
<PAGE>
4.1(t) Conflicting Interests
4.1(u) Absence of Certain Changes or Events
4.2(a) Certificate of Incorporation and Bylaws of Acquiror
4.2(e) Acquiror Financial Statements
4.2(g) Contingent Liabilities
4.2(h) Litigation
4.2(k) Material Contracts
9.10 Shareholder Release and Discharge
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and
entered into as of April __, 1999, by and among JLL VENTURES INC., a (DELAWARE)
CORP., a Delaware corporation, ("Acquiror"), JLL ACQUISITION CORP., a Delaware
corporation and wholly owned subsidiary of Acquiror ("JLL"), CNF, INC., a
California corporation ("CNF"), and Paul Charles, an individual residing at
10931 East Laurel Lane, Scottsdale, AZ 85260___________________________________,
and the principal shareholder of CNF ("Charles" or "Shareholder").
Recitals
WHEREAS, Acquiror and CNF have determined that it is in the best
interests of their respective shareholders for CNF to merge with and into JLL
upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the respective Boards of Directors of Acquiror, CNF and JLL
have each approved this Agreement and the consummation of the transactions
contemplated hereby and approved the execution and delivery of this Agreement;
and
WHEREAS, for federal income tax purposes, it is intended that the
merger shall qualify as a reorganization under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing premises and
representations, warranties and agreements contained herein, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
MERGER OF CNF WITH AND INTO JLL
AND RELATED MATTERS
1.1 The Merger.
(a) Upon the terms and conditions of this Agreement, at the
"Effective Time" (as defined herein), CNF shall be merged with and into JLL (the
"Merger") in accordance with the provisions of the General Corporation Law of
the State of Delaware (the "DGCL") and the California General Corporation Law
("CGCL"), the separate corporate existence of CNF shall cease and JLL shall
continue as the surviving corporation under the laws of the State of Delaware.
(b) The Merger shall become effective upon the later of (i)
the filing of a certificate of merger with the Secretary of State of the State
of Delaware (the "Certificate of Merger"); and (ii) the filing of articles of
merger (the "Articles of Merger") with the Secretary of State of the State of
California in accordance with the provisions of Section 252 of the DGCL and
Sections 1103 and 1108 of the CGCL, respectively, and the confirmation by the
Certificate of
<PAGE>
Merger and the Articles of Merger that the Merger is effective as of such filing
date. The date and time when the Merger shall become effective is referred to
herein as the "Effective Time."
(c) At the Effective Time:
(i) JLL shall continue its existence under the laws
of the State of Delaware as the surviving corporation as "CNF, Inc.";
(ii) the separate corporate existence of CNF shall
cease;
(iii) all rights, title and interests to all assets,
whether tangible or intangible and any property or property rights owned by CNF
shall be allocated to and vested in JLL as the surviving corporation without
reversion or impairment, without further act or deed, and without any transfer
or assignment having occurred, but subject to any existing liens or other
encumbrances thereon, and all liabilities and obligations of CNF shall be
allocated to JLL as the surviving corporation, which shall be the primary
obligor therefor and, except as otherwise provided by law or contract, no other
party to the Merger, other than JLL as the surviving corporation, shall be
liable therefor;
(iv) the Certificate of Incorporation of the
surviving corporation shall be the Certificate of Incorporation of JLL as in
effect immediately prior to the consummation of the Merger;
(v) Each of JLL and CNF shall execute and deliver,
and file or cause to be filed with the Secretary of State of the State of
Delaware, the Certificate of Merger and with the Secretary of State of the State
of California, the Articles of Merger, with such amendments thereto as the
parties hereto shall deem mutually acceptable;
(vi) the Bylaws of the surviving corporation shall be
the Bylaws of JLL as in effect immediately prior to the consummation of the
Merger, and shall continue in full force and effect until thereafter amended as
provided by law and such Bylaws; and
(vii) the officers and directors of JLL shall resign
upon the Effective Time and the officers and directors of the surviving
corporation shall consist of those individuals identified on Schedule
1.1(c)(vii), and such persons shall serve in such positions for their respective
terms provided by law or in the Bylaws of the surviving corporation and until
their respective successors are elected and qualified.
1.2 Conversion of Stock; Conversion of Outstanding Options.
(a) Conversion of Stock. At the Effective Time:
(i) the shares representing 100% of the issued and
outstanding common stock, no par value per share, of CNF ("CNF Common Stock") as
of the Closing shall, by virtue of the Merger and without any action on the part
of Charles, be converted into and represent the right to receive, and shall be
exchangeable for the merger consideration identified at Section 1.3 hereafter
(the "Merger Consideration");
2
<PAGE>
(ii) each share of capital stock of CNF held in
treasury as of the Effective Time shall, by virtue of the Merger, be canceled
without payment of any consideration therefor and without any conversion
thereof;
(iii) each share of Common Stock of CNF outstanding
as of the Effective Time, by virtue of the Merger, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist.
(b) Transfer; Delivery of Certificates after Effective Time.
From and after the Effective Time, there shall be no transfers on the stock
transfer books of CNF of shares of its Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates for shares of CNF Common Stock that were outstanding immediately
prior to the Effective Time, shall be delivered to CNF, they shall be canceled
and exchanged for the consideration to be received therefor in connection with
the Merger as provided in this Agreement.
(c) Conversion of Outstanding Options.
(i) As of the date of the Closing, there will be
outstanding options, warrants or other rights to purchase an aggregate of
405,658 shares of CNF Common Stock or approximately 13.96% of the outstanding
shares of CNF Common Stock on a fully diluted basis (collectively, the "CNF
Options"). At the Effective Time, holders of the CNF Options shall be entitled
to receive, in exchange therefor, options to purchase that number of shares of
common stock, $.0001 par value per share, of Acquiror ("Common Stock") equal to
13.96% of the total number of shares of Common Stock issuable upon conversion of
the Preferred Shares (as that term is defined in Section 1.3(a)). Specifically,
immediately prior to the Effective Time, each holder of a CNF Option identified
on Schedule 1.2(c) shall surrender to the Acquiror for cancellation any
certificate or agreement evidencing a CNF Option and receive in exchange
therefor, an Acquiror option ("Acquiror Option"), on terms, and for exercise
prices substantially similar to the CNF Options being exchanged thereof. Each
Acquiror Option shall be evidenced by a written option agreement issued by
Acquiror in the form attached hereto as Exhibit 1.2(c).
(ii) The Shareholder shall assume responsibility for
the issuance of Common Stock upon exercise, if at all, of the Acquiror Options
such that upon any exercise thereof, the Shareholder shall surrender for
cancellation that number of shares of Common Stock equal to the number of shares
issuable upon exercise of such Acquiror Option.
1.3 Merger Consideration.
(a) Subject to the provisions of Section 1.4(b) hereafter, the
Merger Consideration, consisting of the total purchase price payable to the
holders of 100% of the outstanding CNF Common Stock (the "CNF Shareholders") in
connection with the acquisition by merger of CNF, shall be delivered and shall
consist exclusively of 6,000,000 newly issued shares of Series A Convertible
Preferred Stock, $.0001 par value per share, of Acquiror (the "Preferred
Shares"). The Preferred Shares shall be convertible at the option of the holder
thereof into shares of Common Stock of Acquiror and have those rights,
preferences and designations set forth in
3
<PAGE>
that certain Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock (the "Certificate Of Designation"), a true and
correct copy of which is attached hereto and made a part hereof as Exhibit
1.3(a).
(b) The Merger Consideration shall be allocated among the CNF
Shareholders in the proportion of their share ownership of the outstanding
shares of CNF Common Stock at the Closing as set forth on Schedule 1.3(b). It is
intended that the delivery of the Merger Consideration shall qualify as a
tax-free exchange under the Code.
(c) The Preferred Shares to be delivered at the Closing shall
be fully paid and non-assessable and shall be free and clear of all liens,
levies and encumbrances except that such shares shall (i) be "restricted
securities" pursuant to Rule 144, promulgated under the Securities Act of 1933,
as amended (the "Securities Act"); and (ii) be subject to the lock-up provisions
set forth in Section 5.11 hereof.
1.4 Escrow Agreements.
(a) Acquiror Shares to be Placed Into Escrow. Upon Closing,
certain historic shareholders of Acquiror (the "Historic Acquiror Shareholders")
shall place an aggregate of 4,000,000 shares of Common Stock (the "Acquiror
Escrow Shares") into escrow pursuant to the terms of the Escrow Agreement
attached hereto as Exhibit 1.4(a) (the "Acquiror Escrow Agreement"). The
Acquiror Escrow Shares shall secure the Historic Acquiror Shareholders'
obligations under Section 5.13(a) hereof. While retained in escrow, the
beneficial owners of the Acquiror Escrow Shares shall retain full voting rights
with respect to any such Acquiror Escrow Shares.
(b) Shareholder Shares to be Placed Into Escrow. In order to
secure the Shareholder's indemnification obligations under Article 7 hereof,
2,000,000 of the Preferred Shares issuable to the Shareholder hereunder (the
"Shareholder Indemnification Escrow Shares") shall be placed into escrow
pursuant to the escrow agreement attached hereto as Schedule 1.4(b) (the
"Shareholder Escrow Agreement"); 1,000,000 of which shall be retained for a
period of six (6) months after the Closing and 1,000,000 of which shall be
retained for a period of eighteen (18) months after the Closing. Shareholder
shall place an additional 850,000 of the Preferred Shares issuable to the
Shareholder hereunder (the "Option Escrow Shares" and together with the
Shareholder Indemnification Escrow Shares, the "Shareholder Escrow Shares") into
escrow pursuant to the Shareholder Escrow Agreement in order to secure the
Shareholder's obligations under Section 1.2(c) hereof. The Option Escrow Shares
shall be released, if at all, to the Shareholder in accordance with the terms of
the Shareholder Escrow Agreement upon the earlier of (A) the expiration of all
Acquiror Options; or (B) the exercise of all Acquiror Options. While retained in
escrow, the Shareholder shall retain full voting rights with respect to the
Shareholder Escrow Shares.
1.5 Additional Rights; Taking of Necessary Action; Further Action.
Each of Acquiror, CNF, JLL and the Shareholder, respectively,
shall use their best efforts to take all such action as may be necessary and
appropriate to effectuate the Merger under
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the CGCL and DGCL as promptly as possible, including, without limitation, the
filing of the Articles of Merger and Certificate of Merger consistent with the
terms of this Agreement. If at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of this Agreement,
the officers of such corporations are fully authorized in the name of their
corporations or otherwise, and notwithstanding the Merger, to take, and shall
take, all lawful and necessary action.
1.6 No Further Rights or Transfers.
At and after the Effective Time, the CNF capital stock
outstanding immediately prior to the Effective Time shall cease to provide the
holder thereof any rights as a shareholder of CNF, except for the right to
surrender the certificate or certificates representing such shares and to
receive the Merger Consideration to be received in the Merger as provided in
this Agreement.
ARTICLE II
THE CLOSING
2.1 Closing Date.
Subject to satisfaction or waiver of all conditions precedent
set forth in Section 6 of this Agreement, the closing of the Merger (the
"Closing") shall take place at the offices of counsel to CNF at 2 North Central
Avenue, Suite 1800, Phoenix, Arizona 85004, at 10:00 a.m., local time on (a) the
later of: (i) the first Business Day following the day upon which all
appropriate Acquiror, JLL and CNF corporate action has been taken in accordance
with Section 3 of this Agreement; or (ii) the day on which the last of the
conditions precedent set forth in Section 6 of this Agreement is fulfilled or
waived; or (b) at such other time, date and place as the parties may agree, but
in no event shall such date be later than April 30, 1999 unless such date is
extended by the mutual agreement of the parties.
2.2 Closing Transactions.
At the Closing, the following transactions shall occur, all of
such transactions being deemed to occur simultaneously:
(a) CNF and the Shareholder shall deliver, or cause to be
delivered, to the Acquiror and JLL, the following documents and shall take the
following actions:
(i) The CNF Shareholders shall surrender and deliver
to Acquiror as the surviving corporation certificates representing all of the
issued and outstanding shares of CNF Common Stock;
(ii) The CNF Shareholders shall, to the extent
necessary to comply with applicable federal and state securities laws, execute
and deliver at the Closing a copy of an investment letter in the form attached
to this Agreement as Exhibit 2.2(a)(ii) (the "Investment Letter");.
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(iii) The CNF Options and any certificate or
agreement evidencing the CNF Options shall have been surrendered to CNF for
cancellation in accordance with Section 1.2(c) hereof;
(iv) Any outstanding shareholder agreements relating
to the CNF capital stock shall have been terminated and evidence of such
termination satisfactory to Acquiror shall have been delivered to Acquiror;
(v) CNF and the Shareholder shall execute and
deliver, and file or cause to be filed with the Secretary of State of the State
of California, Articles of Merger with such amendments thereto as the parties
hereto shall deem mutually acceptable;
(vi) A certificate shall be executed by an authorized
officer of CNF and the Shareholder to the effect that all representations and
warranties made by CNF and the Shareholder in this Agreement are true and
correct on and as of the Closing, as though originally given to Acquiror and JLL
on said date;
(vii) A certificate of good standing shall be
delivered by CNF and the Shareholder from the Secretary of State of the State of
California, dated at or about the Closing, to the effect that such corporation
is in good standing under the laws of said state;
(viii) An incumbency certificate shall be delivered
by CNF signed by all of the officers thereof dated at or about the Closing;
(ix) Articles of Incorporation certified by the
Secretary of State of the State of California at or about the Closing Date and a
copy of the Bylaws of CNF certified by the Secretary of CNF dated at or about
the Closing shall be delivered by CNF;
(x) Board and shareholder resolutions shall be
delivered by the Secretary of CNF dated at or about the Closing authorizing the
transactions contemplated by this Agreement;
(xi) The Shareholder Escrow Agreement in the form
attached hereto as Schedule 1.4(b) shall be executed and delivered by the
Shareholder;
(xii) The Shareholder Escrow Shares shall be
delivered into escrow pursuant to the Shareholder Escrow Agreement;
(xiii) CNF and the Shareholder shall deliver those
documents deemed adequate and necessary by Acquiror to evidence (i) the consent
of Wells Fargo Bank to the
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transactions contemplated by this Agreement; and (ii) compliance with the terms
of Section 6.2(j) hereof, unless otherwise waived by Acquiror;
(xiv) Shareholder shall have executed an assignment
of intellectual property rights to Acquiror in form and substance satisfactory
to Acquiror;.
(xv) Shareholder shall execute and deliver the
Registration Rights Agreement in the form attached to this Agreement as Exhibit
5.5(b); and
(xvi) Each of the parties to this Agreement shall
have otherwise executed whatever documents and agreements, provided whatever
consents or approvals and taken all such actions as are required under this
Agreement.
(b) Acquiror will deliver, or shall cause to be delivered, to
CNF and the Shareholder, the following documents and shall take the following
actions:
(i) Subject to Section 1.4(b), Acquiror shall deliver
or shall cause to be delivered to the CNF Shareholders certificates evidencing
6,000,000 Preferred Shares in payment of the Purchase Price. 2,850,000 of the
Preferred Shares issuable to the Shareholder shall be delivered into escrow
pursuant to the terms of the Shareholder Escrow Agreement;
(ii) Acquiror shall deliver certificates evidencing
the Acquiror Options to the persons and in the amounts set forth on Schedule
1.2(c);
(iii) Acquiror shall cause certain shareholders of
Acquiror to deliver voting proxies to the Shareholder with respect to an
aggregate of 1,600,000 shares of Common Stock, in the form attached to this
Agreement as Exhibit 5.20;
(iv) JLL shall execute and deliver, and file or cause
to be filed with the Secretary of State of the State of Delaware, the
Certificate of Merger with such amendments thereto as the parties hereto shall
deem mutually acceptable;
(v) A certificate shall be executed by an authorized
officer of Acquiror to the effect that all representations and warranties of
Acquiror under this Agreement are true and correct as of the Closing, as though
originally given to CNF and the Shareholder on said date;
(vi) A certificate shall be executed by an authorized
officer of JLL to the effect that all representations and warranties of JLL
under this Agreement are true and correct as of the Closing, as though
originally given to CNF and the Shareholder on said date;
(vii) A certificate of good standing shall be
delivered by Acquiror from the Secretary of State of the State of Delaware dated
at or about the Closing that Acquiror is in good standing under the laws of said
state;
(viii) A certificate of good standing shall be
delivered by JLL from the Secretary of State of the State of Delaware dated at
or about the Closing that JLL is in good standing under the laws of said state;
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(ix) An incumbency certificate shall be delivered by
Acquiror signed by all of its officers dated at or about the Closing;
(x) An incumbency certificate shall be delivered by
JLL signed by all of its officers dated at or about the Closing;
(xi) Certificate of Incorporation of Acquiror
certified by the Secretary of State of the State of Delaware at or about the
Closing Date and a copy of the Bylaws of Acquiror certified by the Secretary of
Acquiror dated at or about the Closing;
(xii) Certificate of Incorporation of JLL certified
by the Secretary of State of the State of Delaware at or about the Closing Date
and a copy of the Bylaws of JLL certified by the Secretary of JLL dated at or
about the Closing;
(xiii) Certified Board resolution shall be delivered
by the Secretary of Acquiror dated at or about the Closing authorizing the
transactions contemplated by this Agreement;
(xiv) Certified Board and shareholder resolutions
shall be delivered by the Secretary of JLL dated at or about the Closing
authorizing the transactions contemplated by this Agreement;
(xv) Acquiror will execute and deliver and cause the
Historic Acquiror Shareholders to execute and deliver the Escrow Shares pursuant
to the Escrow Agreement in, the form attached to this Agreement as Exhibit
1.4(a);
(xvi) Cause the Historic Acquiror Shareholders to
deliver the Acquiror Escrow Shares (4,000,000 shares of Acquiror Common Stock)
into escrow pursuant to the Acquiror Escrow Agreement;
(xvii) Each of the officers and directors of Acquiror
shall have tendered their resignation in form and substance satisfactory to CNF
and the Shareholder;
(xviii) Acquiror shall execute and deliver the
Registration Rights Agreement in the form attached to this Agreement as Exhibit
5.5(b); and
(xix) Each of the parties to this Agreement shall
have otherwise executed whatever documents and agreements, provided whatever
consents or approvals and shall have taken all such actions as are required
under this Agreement.
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ARTICLE III
CERTAIN CORPORATE ACTION
3.1 CNF Corporate Action; Shareholder Consent.
(a) CNF, acting through its Board of Directors, shall, in
accordance with applicable California law, its Articles of Incorporation and
Bylaws obtain the unanimous written consent of the CNF Shareholders to this
Agreement and the transactions contemplated hereby, including the Merger in
accordance with the CGCL. The execution of this Agreement by the Shareholder
shall constitute his written consent to the Merger in accordance with Section
604 of the CGCL on and as of the date hereof with respect to all of the shares
of CNF Common Stock owned by the Shareholder.
(b) CNF shall cause to occur all other corporate action
necessary to effect the Merger and to consummate the other transactions
contemplated hereby.
3.2 Acquiror and JLL Corporate Action.
Acquiror and JLL shall cause to occur all corporate action
necessary to effect the Merger and to consummate the other transactions
contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of CNF and the Shareholder.
As a material inducement to Acquiror and JLL to execute this
Agreement and consummate the Merger and other transactions contemplated hereby,
CNF and the Shareholder, jointly and severally, hereby make the following
representations and warranties to Acquiror and JLL. The representations and
warranties are true and correct in all material respects at this date, and will
be true and correct in all material respects on the Closing as though made on
and as of such date.
(a) Corporate Existence and Power. CNF is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except where the failure to have any of the foregoing would not have
a Material Adverse Effect. Except as set forth on Schedule 4.1(a), CNF is duly
qualified to do business as a foreign corporation and is in good standing in
Arizona and in each other jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
True, correct and complete copies of the Articles of Incorporation and Bylaws of
CNF, as amended to date, are attached hereto as Schedule 4.1(a) and are made a
part hereof. CNF owns no interest in any other entity and has no subsidiaries.
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(b) Due Authorization and requisite approvals. (i) This
Agreement has been duly authorized, executed and delivered by CNF and the
Shareholder and constitutes a valid and binding agreement of CNF and the
Shareholder, enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium, and
other similar laws relating to, limiting or affecting the enforcement of
creditors rights generally or by the application of equitable principles. As of
the Closing all corporate action on the part of CNF required under applicable
law in order to consummate the Merger will have occurred; and (ii) the Board of
Directors of CNF has approved the execution of this Agreement and the
consummation of the Merger and related actions contemplated hereby.
(c) No Contravention. The execution and delivery of the
Agreement does not, and the consummation of the transactions contemplated hereby
will not: (i) conflict with or result in any violation of any provision of the
Articles of Incorporation or Bylaws of CNF; or (ii) except as set forth in
Schedule 4.1(c)(ii), conflict with or result in any violation or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of a right or obligation or loss
under, any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise, license, judgment,
order, decree, or, to the best of their knowledge, statute, law, ordinance, rule
or regulation applicable to CNF, or the Shareholder, or any of their respective
properties or assets, or result in the creation or imposition of any mortgage,
lien, pledge, charge or security interest of any kind ("Encumbrance") on any
assets of CNF, except such as is not reasonably likely to have a Material
Adverse Effect or prevent CNF or the Shareholder from consummating the
transactions contemplated by this Agreement. Except as set forth on Schedule
4.1(c), no consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required by or with respect to CNF in connection with the execution and delivery
of this Agreement by CNF and the Shareholder or the consummation by CNF and the
Shareholder of the transactions contemplated hereby, except the filing of the
Articles of Merger and Certificate of Merger.
(d) Capitalization and Share Ownership. As of the Closing, the
authorized capital stock of CNF will consist solely of Twenty-Five Million
(25,000,000) shares of common stock, no par value per share, of which there will
be outstanding 2,503,000 shares of CNF Common Stock, all of which are owned by
the shareholders identified on Schedule 1.3(b). By his signature at the end
hereof, the Shareholder has indicated his consent to the Merger and the
transactions contemplated hereby. The outstanding shares of capital stock of CNF
have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights. Except as set forth in this Section
4.1(d) and on Schedule 4.1(d), there are outstanding (A) no shares of capital
stock or other voting securities of CNF, (B) no securities of CNF convertible
into or exchangeable for shares of capital stock or voting securities of CNF and
(C) no options, warrants or other rights to acquire from CNF, the Shareholder or
any other person, and no obligation of CNF to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of CNF, and there are no agreements or commitments to do any
of the foregoing. There are no voting trusts or voting agreements applicable to
any shares of capital stock of CNF. The CNF Common Stock to be surrendered in
the Merger will be owned of record and beneficially by the Shareholder, free and
clear of all liens
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and encumbrances of any kind and nature, and have not been sold, pledged,
assigned or otherwise transferred. There are no agreements (other than this
Agreement) to sell, pledge, assign or otherwise transfer such securities.
(e) Financial Statements. Attached on Schedule 4.1(e) are
unaudited consolidated financial statements of CNF for the fiscal years ended
March 31, 1999 and March 31, 1998 (collectively, the "Financial Statements").
Such Financial Statements will have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
reported upon and will fairly present in all material respects the financial
position of CNF as of the dates thereof and the results of operations for the
periods then ended. The books and records of CNF have been maintained, and the
Financial Statements have been prepared, in a manner that will permit an
unqualified audit of the Financial Statements in compliance with Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(f) Real Properties.
(i) CNF currently leases real property at those
locations identified on Schedule 4.1(f)(i) hereto pursuant to the true, correct
and complete copies of the lease agreements attached to Schedule 4.1(f)(i). CNF
owns or leases no other real estate. None of the leasehold interests held by CNF
is subject to any Encumbrance, except (a) liens for ad valorem taxes not yet due
or being contested in good faith; and (b) contractual or statutory mechanics or
materialmen's liens or other statutory or common law Encumbrances relating to
obligations of CNF that are not delinquent or are being contested in good faith.
There are no Encumbrances which materially interfere with the present use of
such leasehold interests.
(ii) Except as described on Schedule 4.1(f)(ii)
hereto, neither CNF nor the Shareholder has received any written notice from any
governmental entity having jurisdiction over CNF or over any of the real
property leased by CNF of any violation by CNF of any law, regulation or
ordinance relating to zoning, environmental matters, local building or fire
codes or similar matters relating to any of the real property leased by CNF or
of any condemnation or eminent domain proceeding.
(iii) Except such as has not had and is not
reasonably likely to have a Material Adverse Effect, all of the buildings leased
by CNF and all plumbing, HVAC, electrical, mechanical and similar systems are in
good repair and adequate for their current use, ordinary wear and tear excepted.
(iv) Except as described on Schedule 4.1(f)(iv), CNF
is not a party to any lease, sublease, lease assignment or other agreement for
the use or occupancy of any of the leasehold premises wherein CNF is the
landlord, sub-landlord or assignor, whether by name, as successor-in-interest or
otherwise. There are no outstanding agreements with any party to acquire the
leasehold premises or any portion thereof or any interest therein.
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(v) All certificates of occupancy and all other
licenses, permits, authorizations, consents, certificates and approvals required
by all governmental authorities having jurisdiction over the leasehold premises
occupied by CNF have been issued, are fully paid for and are in full force and
effect, will survive the Closing and will not be invalidated, violated or
otherwise adversely affected by the Merger or the other transactions
contemplated by this Agreement.
(g) No Liabilities. Except contained within the Financial
Statements or otherwise as described on Schedule 4.1(g), at the Closing, CNF
shall have no material liabilities, whether related to tax or non-tax matters,
known or unknown, due or not yet due, liquidated or unliquidated, fixed or
contingent, determined or determinable in amount or otherwise, and to the best
knowledge of the Shareholder and CNF, after due inquiry, there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, except as and to the extent reflected on this
Agreement or any Schedule or Exhibit hereto or which has been incurred in the
ordinary course of business and as accurately reflected on the books and records
of CNF.
(h) Litigation. Except as described on Schedule 4.1(h) hereto
there is no action, suit, investigation or proceeding (or, to the knowledge of
CNF or the Shareholder, any basis therefor) pending against, or to the knowledge
of CNF or the Shareholder, threatened against or affecting CNF or any of its
properties before any court or arbitrator or any governmental body, agency or
official that (i) if adversely determined against CNF, would have a Material
Adverse Effect or (ii) in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the Merger or any of the other transactions
contemplated by the Agreement.
(i) Taxes. Attached hereto on Schedule 4.1(i) are true and
correct copies of all federal and state tax returns of CNF for the period of its
three (3) most recent fiscal years. Except as disclosed on Schedule 4.1(i), CNF
has timely filed all tax returns required to be filed by them, or will timely
file when due all tax returns required to be filed by them between the date
hereof and the Closing. CNF has paid in a timely fashion or will pay when due in
a timely fashion, all taxes required to be paid in respect of the periods
covered by such returns, and the books and the financial statements of CNF
reflect, or will reflect, adequate reserves for all taxes payable by CNF which
have been, or will be, accrued but are not yet due. CNF is not delinquent in the
payment of any material tax, assessment or governmental charge. No deficiencies
for any taxes have been proposed to CNF, asserted or assessed against CNF. CNF
and the Shareholder are not aware of any facts which would constitute the basis
for the proposal or assertion of any such deficiency and there is no action,
suit, proceeding, audit or claim now pending or threatened against CNF,
asserting any deficiency in the payment of taxes. All taxes which CNF is
required by law to withhold and collect have been duly withheld and collected,
and have been timely paid over to the proper authorities to the extent due and
payable. For the purposes of this Agreement, the term "tax" shall include all
federal state, local and foreign income, property, sales, excise and other taxes
of any nature whatsoever. Neither CNF nor any member of any affiliated or
combined group of which CNF is or has been a member has granted any extension or
waiver of the limitation period applicable to any tax returns. There are no
Encumbrances for taxes upon the assets of CNF except Encumbrances for current
taxes not yet due. There are no tax sharing or tax allocation agreements to
which CNF is now or ever has been a party. CNF will not be
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required under Section 481(c) of the Internal Revenue Code of 1986, as amended
(the "Code"), to include any material adjustment in taxable income for any
period subsequent to the Merger. CNF (a) has not been a member of an affiliated
group filing a consolidated federal income tax return (other than a group the
common parent of which was CNF) and (b) has no liability for the taxes of any
person (other than CNF) under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract or otherwise.
(j) ERISA.
(i) Schedule 4.1(j)(i) identifies each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), that is subject to any provision of
ERISA, and either (i) is maintained, administered or contributed to by CNF or
any affiliate (as defined below), (ii) covers any employee or former employee of
CNF or any affiliate or (iii) under which CNF or any affiliate has any
liability. Copies of such plans and, if applicable, related trust agreements)
and all amendments thereto and any written interpretations thereof have been
furnished to Acquiror, together, if applicable, with (A) the most recent annual
reports (Form 5500 including, if applicable, Schedule B thereto) prepared in
connection with any such plan and (B) the most recent actuarial valuation report
prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Employee Plans." Any Form 5500 for any plan year of
any Employee Plan that has not been filed, but for which the filing date has
passed on the date of this Agreement, shall be filed prior to the date of the
Merger. For purposes of this Section, "affiliate" of any Person means any other
Person which, together with such Person, would be treated as a single employer
for any purpose under Section 414 of the Code.
(ii) Schedule 4.1(j)(ii) identifies all Employee
Plans to which CNF currently has any obligation to contribute. CNF is not a
party to any multiemployer plan as defined in Section 4001(a) (3) of ERISA
("Multiemployer Plans"), and neither CNF nor any affiliate has any outstanding
liability to contribute to any Multiemployer Plan, for delinquent contributions
or for withdrawal liability pursuant to Section 4201 of ERISA.
(iii) There are no Employee Plans that are intended
to be qualified plans under Section 401(a) of the Code, except as may have been
shown and identified as such on the list referred to in subparagraphs (i) or
(ii) above. Each Employee Plan has been maintained in compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Plan, other than any failure to comply
that is not reasonably likely to have a Material Adverse Effect.
(iv) Schedule 4.1(j)(iv) identifies each material
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that is not an Employee Plan
and (A) is entered into, maintained or contributed to, as the case may be by CNF
or any of its affiliates or (B) covers any employee or
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former employee of CNF or any of its affiliates or (C) under which CNF or any of
its affiliates has liability. Such contracts, plans and arrangements as are
described above, copies of all of which have been furnished previously to
Acquiror, are referred to collectively herein as the "Benefit Arrangements."
Each Benefit Arrangement has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations that are applicable to such Benefit Arrangement other than
any failure to comply that is not reasonably likely to have a Material Adverse
Effect.
(v) Neither CNF nor any affiliate has or maintains
nor has maintained any Employee Plan or Benefit Arrangement providing
post-retirement health or medical benefits in respect of any active or former
employee of CNF or any affiliate or former affiliate, except as may be required
pursuant to the provisions of COBRA.
(k) Insurance Coverage. Schedule 4.1(k) sets forth a list of
all CNF key-man life insurance policies and other insurance policies material to
the current and proposed business of CNF. CNF maintains insurance covering its
assets, business, equipment, properties, operations, employees, officers and
directors with such coverage, in such amounts, and with such deductibles and
premiums as management believes is adequate and necessary for the operation of
its business. All of such policies are in full force and effect and all premiums
payable have been paid in full and CNF is in full compliance with the terms and
conditions of such policies. Neither CNF nor the Shareholder has received any
notice from any issuer of such policies of its intention to cancel or refusal to
renew any policy issued by it or of its intention to renew any such policy based
on a material increase in premium rates other than in the ordinary course of
business. Except as set forth on Schedule 4.1(k), none of such policies are
subject to cancellation by virtue of the Merger or the consummation of the other
transactions contemplated by this Agreement. There is no claim by CNF pending
under any of such policies as to which coverage has been questioned or denied.
(l) Compliance with Laws. To the best knowledge of CNF and the
Shareholder, CNF is not in violation of, nor has any such entity violated, any
applicable provisions of any laws, statues, ordinances or regulations, other
than as would not be reasonably likely to have a Material Adverse Effect or
constitute a felony. Without limiting the generality of the foregoing, to the
best knowledge of the Shareholder and CNF, CNF has all licenses, permits,
certificates and authorizations needed or required for the conduct of business
of CNF as presently conducted and for the use of its properties and premises
occupied by it, except where the failure to obtain a licenses, permit,
certificate or authorization would not have a Material Adverse Effect.
(m) Investment Banking Fees. There is no investment banker,
broker, finder or other similar intermediary, including, but not limited to,
Hogan Company and Carriage House LLP which has been retained by, or is
authorized by CNF or the Shareholder to act on its or his behalf who might be
entitled to any fee or commission from CNF, the Shareholder, Acquiror, JLL or
any of their respective affiliates upon consummation of this Merger, the
issuance of the Bridge Notes (as defined in Section 5.12 below) or the Private
Placement (as defined in Section 5.13 below) irrespective of the amount of
proceeds raised by the Private Placement.
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(n) Personal Property. CNF has good and valid title to all of
its personal property, tangible and intangible, reflected on the Financial
Statements and to all other personal property owned by it, free and clear of any
Encumbrance. CNF is the owner of all of its personal property now located in or
upon their leased premises and of all personal property which is used in the
operation of their business. All such equipment, furniture and fixtures and
other tangible personal property are in good operating condition and repair and
do not require any repairs other than normal routine maintenance to maintain
such property in good operating condition and repair.
(o) Intellectual Property; Intangible Property. The corporate
names of CNF and the trade names and service marks listed on Schedule 4.1(o) are
the only names and service marks which are used by CNF in the operation of its
business (the "Names and Service Marks"). CNF has not done business and have not
been known by any other name other than by its Names and Service Marks. Schedule
4.1(o) also includes all patents and patent applications held by or filed by or
on behalf of CNF (collectively, the "Patents"). To the best of its knowledge,
CNF owns and has the exclusive right within the states and countries in which it
operates, to use all intellectual property presently in use by it and necessary
for the operation of its business as now being conducted, which intellectual
property includes, but is not limited to, the Patents, any trademarks, trade
names, service marks, including the Names and Service Marks, copyrights, trade
secrets, proprietary customer lists, inventions, formulas, methods, processes
and other proprietary information. Except as set forth on Schedule 4.1(o), there
are no outstanding licenses or consents granting third parties the right to use
any intellectual property, including any of the Patents, owned by CNF. Except as
set forth on Schedule 4.1(o), no royalties or fees are payable by CNF to any
third party by reason of the use of any of its intellectual property, including,
but not limited to, the Patents. CNF has not received notice of any adversely
held patent, invention, trademark, copyright, service mark or tradename of any
person, or any claims of any other person relating to any of the intellectual
property subject hereto, and to the best knowledge of CNF and the Shareholder,
there is no reasonable basis for any such charge or claim. To the best knowledge
of CNF and the Shareholder, there is no presently known or threatened use or
encroachment of any such intellectual property, including any of the Patents.
(p) Accounts Receivable. The accounts receivable of CNF
referred to within the Financial Statements constitute valid claims in the full
amount thereof against the debtors charged therewith on the books of CNF to
which each such account is payable and has been acquired in the ordinary course
of business. Except as set forth in Schedule 4.1(p), the accounts receivable are
fully collectible to the extent of the face value thereof (less the amount of
the allowance for the doubtful accounts reflected on the Financial Statements)
in the due course of normal commercial dealings. To the best knowledge of the
Shareholder, no account debtor has any valid setoff, deduction or defense with
respect thereto, and no account debtor has asserted any such setoff, deduction
or defense. There are no accounts receivable which arise pursuant to an
agreement with the United States Government or any agency or instrumentality
thereof.
(q) Contracts, Leases, Agreements and Other Commitments. CNF
is not a party to or bound by any oral, written or implied contracts,
agreements, leases, powers of attorney, guaranties, surety arrangements or other
commitments excluding equipment and furniture leases entered into in the
ordinary course of business (which do not exceed $100,000 in
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liabilities or commitments in the aggregate), except for the following (which
are hereinafter collectively called the "Material Contracts"):
(i) The leases and agreements described on Schedules
4.1(f), 4.1(j)(i) and (ii) and 4.1(r)(i); and
(ii) Agreements involving a maximum possible
expenditure or obligation on the part of CNF to spend not more than Twenty-Five
Thousand Dollars ($25,000) separately or more than Fifty Thousand Dollars
($50,000) in the aggregate.
The Material Contracts constitute all of the material agreements and
instruments which are necessary and desirable to operate the business as
currently conducted by CNF. True, correct and complete copies of each Material
Contract described and listed under subsection 4.1(q) are listed on Schedule
4.1(a) and will be made available to Acquiror prior to the date hereof. The term
"Material Contract" excludes purchase orders entered into in the ordinary course
for personal or inventory which may be returned to the vendor without penalty.
All of the Material Contracts are valid, binding and enforceable against the
respective parties thereto in accordance with their respective terms. Except as
set forth in Schedule 4.1(q), following the Merger, the Acquiror as the
surviving entity shall become entitled to all rights of CNF under such of the
Material Contracts as if the Acquiror were the original party to such Material
Contracts. All parties to all of the Material Contracts have performed all
obligations required to be performed to date under such Material Contracts, and
neither CNF, and, to the best of its knowledge, nor any other party, is in
default or in arrears under the terms thereof, and no condition exists or event
has occurred which, with the giving of notice or lapse of time or both, would
constitute a default thereunder. The consummation of this Agreement and the
Merger will not result in an impairment or termination of any of the rights of
CNF under any Material Contract..
(r) Labor Relations; Employees.
(i) Set forth on Schedule 4.1(r)(i) is a list of:
(A) All collective bargaining agreements
and other agreements requiring
arbitration of employment disputes,
and any written amendments thereto,
as well as all arbitration awards
decided under any such agreements,
and all oral assurances or
modifications, past practices,
and/or arrangements made in relation
thereto, to which CNF is a party or
by which it is bound; and
(B) All employment agreements, and all
severance agreements which have not
been fully performed, to which CNF
is a party or by which it is bound.
(ii) Set forth on Schedule 4.1(r)(ii) is a list of
all key management employees of CNF, broken down by location, together with
their rate of compensation and title.
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(iii) CNF will deliver to Acquiror true and correct
copies of all of the documents referred to on Schedule 4.1(r)(i) hereof and all
of the personnel policies, employee and/or supervisor handbooks, procedures and
forms of employment applications relating to the employees of CNF.
(iv) There is no union representing or purporting to
represent any of the employees of CNF, and CNF is not subject to or currently
negotiating any collective bargaining agreements with any union representing or
purporting to represent the employees of any of the foregoing.
(v) Except as set forth on Schedule 4.1(r)(v):
(A) There are no strikes, slow downs or
other work stoppages, grievance
proceedings, arbitrations, labor
disputes or representation questions
pending or, to the best knowledge of
CNF and the Shareholder, threatened;
(B) CNF has complied in all material
respects with all laws relating to
labor, employment and employment
practices, including without
limitation, any provisions thereof
relating to wages, hours and other
terms of employment, collective
bargaining, nondiscrimination and
the payment of social security,
unemployment compensation and
similar taxes, and CNF is not (1)
liable for any arrearages of wages
or any taxes or penalties for
failure to comply with any of the
foregoing or (2) delinquent in the
payment of any severance, salary,
bonus, commission or other direct or
indirect compensation for services
performed by any employee to the
date hereof, or any amount required
to be reimbursed to any employee or
former employee; and
(C) There are no charges, suits,
actions, administrative proceedings,
investigations and/or claims pending
or threatened against CNF, whether
domestic or foreign, before any
court, governmental agency,
department, board or
instrumentality, or before any
arbitrator (collectively "Actions"),
concerning or in any way relating to
the employees or employment
practices of CNF, including, without
limitation, Actions involving unfair
labor practices, wrongful discharge
and/or any other restrictions on the
right of CNF to terminate its
respective employees, employment
discrimination, occupational safety
and health, and workers'
compensation.
(vi) There are no express or implied agreements,
policies, practices, or procedures, whether written or oral, pursuant to which
any employee of CNF is not terminable at
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will and except as required by law, no employee is entitled to any benefit or to
participate in any employee benefit plan of CNF following such termination of
employment.
(vii) Except as set forth in Schedule 4.1(r)(vii),
CNF is not a party to any oral or written (A) agreement with any executive
officer or other key employee of CNF (1) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving CNF of the nature of the transactions contemplated by this
Agreement, (2) providing any term of employment or compensation guarantee
extending for a period longer than one year, or (3) providing severance benefits
or other benefits after the termination of employment of such executive officer
or key employee regardless of the reason for such termination of employment; or
(B) agreement or plan which will remain in effect after the Closing, including,
without limitation, any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(viii) CNF has not taken any action which requires
or, taken together with the transactions contemplated hereby, would require the
giving of any notice under the Worker Adjustment Retraining and Notification Act
or any comparable state or local law or regulation.
(s) Suppliers and Customers. Set forth on Schedule 4.1(s) is a
list of the ten largest customers of CNF based on the percentage of revenue
represented by those customers for the fiscal year ended March 31, 1999. The
relationship of CNF with its suppliers and customers are good commercial working
relationships and no material supplier or customer of CNF has canceled,
curtailed or otherwise terminated or threatened to cancel or otherwise
terminate, his or its relationship with CNF. CNF has no knowledge, or reason to
believe, that the Merger or any other transaction contemplated hereby would
adversely affect any such material supplier or customer relationship.
(t) Conflicting Interests. Except as set forth on Schedule
4.1(t), neither the Shareholder nor any director, officer or employee of CNF nor
relative or affiliate of any of the foregoing (i) sells or purchases goods or
services from CNF or has any pecuniary interest in any supplier or client of any
of the foregoing or in any other business enterprise with which CNF conducts
business or with which any of the foregoing is in competition, or (ii) is
indebted to CNF except for money borrowed and as set forth on the Financial
Statements.
(u) Environmental Protection. CNF has not been notified by any
governmental authority, agency or third party, and CNF and the Shareholder have
no knowledge, of any violation by CNF of any Environmental Statute (as defined
below). All registrations by CNF with, licenses from or permits issued by
governmental agencies pursuant to environmental, health and safety laws are in
full force and effect. The term "Environmental Statutes" means all statutes,
ordinances, regulations, orders and requirements of common law concerning
discharges to the air, soil, surface water or groundwater and concerning the
storage, treatment or disposal of any waste or hazardous substance. To the
knowledge of CNF and the Shareholder, there is no
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hazardous substance at any premises currently or previously occupied by CNF. CNF
has not received any notice or any request for information, notice of claim,
demand or other notification that it may be potentially responsible with respect
to any investigation or clean-up of any threatened or actual release of
hazardous substances. To the knowledge of CNF and the Shareholder, all hazardous
wastes and substances, if any, have been stored, treated, disposed of and
transported in conformance with all requirements applicable to such hazardous
substances and wastes.
(v) Absence of Certain Changes or Events. Except as and to the
extent set forth on the Financial Statements, to the extent contained in this
Agreement, or as set forth on Schedule 4.1(v), between March 31, 1999 (the date
of the most recent Financial Statements) and the Closing, there will not be (i)
any material adverse change in the business, assets, properties, results of
operations, financial condition or prospects of CNF, (ii) any entry by CNF into
any material commitment or transaction which is not in the ordinary course of
business; (iii) any change by CNF in accounting principles or methods except
insofar as may be required by a change in generally accepted accounting
principles; (iv) any declaration, payment or setting aside for payment of any
dividends or other distributions (whether in cash, stock or property) in respect
of capital stock of CNF, or any direct or indirect redemption, purchase or any
other type of acquisition by CNF, or any direct or indirect redemption, purchase
or any other type of acquisition by CNF of any shares of its capital stock or
any other securities for an aggregate sum not in excess of $5,000, (v) any
agreement by CNF, whether in writing or otherwise, to take any action which, if
taken prior to the date of this Agreement, would have made any representation or
warranty in this Section 4.1 untrue or incorrect; (vi) any acquisition of the
assets of CNF, other than in the ordinary course of business and consistent with
past practice and not in excess of $5,000 in the aggregate; or (vii) any
execution of any agreement with any executive officer of CNF providing for his
or her employment, or any increase in the compensation or in severance or
termination benefits payable or to become payable by CNF to its officers or key
employees, or any material increase in benefits under any collective bargaining
agreement or in benefits under any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan or arrangement or
understanding (whether or not legally binding) providing benefits to any present
or former employee of CNF. Since the date of the Financial Statements, there has
not been and to the knowledge of CNF and the Shareholders there is not
threatened, any material adverse change in financial condition, business,
results of operations or prospects of the business or any material physical
damage or loss to any of the properties or assets of the business or to the
premises occupied in connection with the business, whether or not such loss is
covered by insurance.
(w) Investment Intent.
The Shareholder represents as follows:
(i) The Preferred Shares and the shares of Common
Stock issuable upon the conversion thereof (collectively, the "Securities") are
not being registered under the Securities Act on the basis of the statutory
exemption provided by Section 4(2) thereof and Regulation D promulgated
thereunder, relating to transactions not involving a public offering, and
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the Acquiror's reliance on the statutory exemption thereof is based in part on
the representations contained in this Agreement;
(ii) The Shareholder (A) has such knowledge and
experience in financial and business matters that he is capable of adequately
evaluating the risk of investing in the Acquiror; (B) he has been advised that
the Securities will not be registered under the Securities Act and accordingly,
he may only be able to sell or otherwise dispose of such Securities in
accordance with Rule 144 or as otherwise provided in this Agreement; (C) the
Securities will be held for investment and not with a view to, or for resale in
connection with the public offering or distribution thereof; (D) the Securities
will not be sold without registration thereof under the Securities Act (unless
such shares are subject to registration or in the opinion of counsel to the
Acquiror an exemption from such registration is available), or in violation of
any law; (E) the Securities will be subjected to the lock-up provisions set
forth in Paragraph 5.11 hereof; and (F) the certificate or certificates
representing the Securities will be imprinted with a legend in form and
substance substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, BASED ON AN OPINION LETTER OF COUNSEL FOR THE
COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION."
Acquiror is hereby authorized to notify its transfer agent of the
status of the Securities and to take such other action including, but not
limited to, the placing of a "stop-transfer" order on the transfer agent's books
and records to assure compliance with the Securities Act, as amended.
(iii) The Shareholder has, either upon the date
hereof or before the Closing hereunder, been afforded the opportunity to review
and is familiar with all material information regarding Acquiror and has based
his decision to invest solely on the information contained therein, and the
information contained within this Agreement and the associated exhibits and
schedules, and had not been furnished with any other literature, prospectus or
other information except as included in such material or this Agreement;
(iv) The Shareholder is able to bear the economic
risks of an investment in the Securities; and
(v) The Shareholder understands that no federal or
state agency has approved or disapproved the Securities, passed upon or endorsed
the merits of the transfer of such shares set forth within this Agreement or
made any finding or determination as to the fairness of such shares for
investment.
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(x) Statements And Other Documents Not Misleading. Neither
this Agreement, including all exhibits and schedules and other closing
documents, nor any other financial statement, document or other instrument
heretofore or hereafter furnished by CNF or the Shareholder to Acquiror in
connection with the Merger or the other transactions contemplated hereby, or any
information furnished by CNF to Acquiror taken as a whole contains or will
contain any untrue statement of any material fact or omit or will omit to state
any material fact required to be stated in order to make such statement,
information, document or other instruments, in light of the circumstances in
which they are made, not misleading. There is no fact known to CNF or the
Shareholder taken as a whole which may have a Material Adverse Effect on the
business, prospects, financial condition or results of operations of CNF or of
any of its properties or assets which has not been set forth in this Agreement
as an exhibit or schedule hereto.
4.2 Representations and Warranties of Acquiror and JLL.
As a material inducement to CNF and the Shareholder to execute
this Agreement and to consummate the Merger and the other transactions
contemplated hereby, Acquiror and JLL hereby jointly and severally, make the
following representations and warranties:
(a) Corporate Existence and Power. Each of Acquiror and JLL is
presently a corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware. Each of Acquiror and JLL has all
corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except where the
failure to have any of the foregoing would not have a Material Adverse Effect.
Each of Acquiror and JLL is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and Bylaws of Acquiror and JLL, as amended to date, are attached
hereto as Schedule 4.2(a) and are made a part hereof.
(b) Due Authorization. This Agreement, and as of the Closing
the other agreements described herein to which Acquiror or JLL is a party, has
been, or as of the Closing will be, duly authorized, executed and delivered by
Acquiror or JLL, as applicable, and constitutes, or as of the Closing will
constitute, a valid and binding agreement of Acquiror or JLL, as applicable,
enforceable in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium, and other similar laws
relating to, limiting or affecting the enforcement of creditors rights generally
or by the application of equitable principles. As of the Closing all corporate
action on the part of Acquiror and JLL required under applicable law in order to
consummate the Merger will have occurred.
(c) No Contravention. The execution and delivery of the
Agreement does not, and the consummation of the transactions contemplated
thereby will not (i) conflict with or result in any violation of any provision
of the Certificate of Incorporation or Bylaws of Acquiror or JLL or (ii)
conflict with or result in any violation or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any right
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or obligation or to a loss or a benefit under, any provision of the Certificate
of Incorporation or Bylaws of Acquiror or JLL or any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or JLL or their properties
or assets or result in the creation or imposition of any Encumbrance on any
asset of Acquiror or JLL, except, only as to clause (ii) above, such as is not
reasonably likely to have a Material Adverse Effect or prevent Acquiror or JLL
from consummating the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, is required by or with
respect to Acquiror or JLL in connection with the execution and delivery of this
Agreement or the consummation by them of the transactions contemplated hereby,
except the filing of a Certificate of Merger with the Secretary of the State of
Delaware and Articles of Merger with the Secretary of State of the State of
California.
(d) Capitalization.
(i) The authorized capital stock of Acquiror consists
of 50,000,000 shares of common stock, $.0001 par value per share and 10,000,000
shares of preferred stock, $.0001 par value per share. As of the Closing, the
outstanding capital stock of the Acquiror shall consist solely of 9,000,000
shares of common stock, $.0001 par value per share. All shares of capital stock
of Acquiror outstanding as of the Closing, will have been duly authorized and
validly issued and subject to the Acquiror Escrow Agreement, are fully paid and
nonassessable and free of preemptive rights. Subject to Section 1.4(b), upon the
issuance of the Preferred Shares, such shares will be duly authorized, validly
issued, fully paid and nonassessable shares of preferred stock of Acquiror.
Except for the Acquiror Options, Acquiror shall as of the Closing, have no
outstanding options, warrants other convertible securities, stock appreciation
rights or other rights to acquire securities of Acquiror. At Closing, Acquiror
shall deliver to Shareholder a complete and accurate list of the stockholders of
Acquiror.
(ii) The authorized capital stock of JLL consists
solely of 1,000 shares of common stock, par value $.01 per share, of which 100
shares are issued and outstanding and owned of record and beneficially by
Acquiror. The outstanding shares of JLL common stock have been duly authorized
and validly issued is fully paid and nonassessable and free of preemptive
rights.
(iii) Acquiror has a sufficient number of its
authorized but unissued shares of Common Stock to permit it to issue the number
of shares of Common Stock due upon conversion of the Preferred Shares and
exercise of the Acquiror Options.
(e) Financial Statements. Acquiror shall deliver to CNF and
the Shareholder, no less than five (5) days prior to Closing, copies of audited
financial statements of Acquiror for the fiscal years ended December 31, 1997,
December 31, 1996 and the interim period ended September 30, 1998 (collectively,
the "Acquiror Financial Statements"). Such Acquiror Financial Statements will
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods reported upon and will fairly
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present in all material respects the financial position of Acquiror as of the
dates thereof and the results of operations for the periods then ended.
(f) Real Properties. Neither Acquiror nor JLL owns or leases
any real property.
(g) No Liabilities. Except contained within the Acquiror
Financial Statements or otherwise as described on Schedule 4.2(g) or agreed to
by the parties hereto, at the Closing, Acquiror and JLL shall have no material
liabilities, whether related to tax or non-tax matters, known or unknown, due or
not yet due, liquidated or unliquidated, fixed or contingent, determined or
determinable in amount or otherwise, and to the knowledge of the Acquiror, there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, except as and to the
extent reflected on this Agreement or any Schedule or Exhibit hereto or which
has been incurred in the ordinary course of business and as accurately reflected
on the books and records of Acquiror.
(h) Litigation. Except as described on Schedule 4.2(h) hereto
there is no action, suit, investigation or proceeding (or, to the knowledge of
Acquiror or JLL any basis therefor) pending against, or to the knowledge of
Acquiror or JLL threatened, against or affecting Acquiror, JLL or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official including, but not limited to, the Securities and Exchange
Commission ("SEC") that (i) if adversely determined against Acquiror or JLL,
would have a Material Adverse Effect or (ii) in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the Merger or any of the other
transactions contemplated by the Agreement.
(i) Compliance with Laws. To the knowledge of Acquiror and
JLL, neither Acquiror nor JLL is in violation of, nor has either Acquiror or JLL
violated, any applicable provisions of any laws, statues, ordinances or
regulations, other than as would not be reasonably likely to have a Material
Adverse Effect or constitute a felony.
(j) Non-Reporting Company. Certain shares of Common Stock of
Acquiror are eligible for trading on the OTC Electronic Bulletin Board by virtue
of certain broker-dealers having filed a Form 211 with the National Association
of Securities Dealers, Inc. ("NASD") and Acquiror having provided information
required under SEC Rule 15(c)2-11 to certain broker dealers and all such
information included therein is true and correct in all material respects.
Acquiror does not file reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(k) Material Contracts. Except for this Agreement, the
agreements evidenced by the exhibits hereto and a registration rights agreement
identified on Schedule 4.2(k) (relating to the Registration Statement defined in
Section 5.5(b) hereof), Acquiror is not a party to or bound by any oral, written
or implied contract, agreement, lease, power of attorney, guaranty, surety
arrangement or other commitment involving a maximum possible expenditure or
obligation on the part of Acquiror to spend in excess of Twenty-Five Thousand
Dollars ($25,000) following the Closing.
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(l) Taxes. Except as disclosed on Schedule 4.2(i), Acquiror
has timely filed all tax returns required to be filed by it or will timely file
when due all tax returns required to be filed by it between the date hereof and
the Closing. Acquiror has paid in a timely fashion or will pay when due in a
timely fashion, all taxes required to be paid in respect of the periods covered
by such returns.
(m) Investment Banking Fees. There is no investment banker,
broker, finder or other similar intermediary which has been retained by, or is
authorized by Acquiror or JLL to act on its behalf who might be entitled to any
fee or commission from CNF, the Shareholder, Acquiror or JLL or any of their
respective affiliates upon consummation of this Merger.
(n) Statements And Other Documents Not Misleading. Neither
this Agreement, including all exhibits and schedules and other closing
documents, nor any other financial statement, document or other instrument
heretofore or hereafter furnished by Acquiror or JLL to CNF or the Shareholder
in connection with the Merger or the other transactions contemplated hereby, or
any information furnished by Acquiror or JLL taken as a whole contains or will
contain any untrue statement of any material fact or omit or will omit to state
any material fact required to be stated in order to make such statement,
information, document or other instruments, in light of the circumstances in
which they are made, not misleading. There is no fact known to Acquiror or JLL
taken as a whole which may have a Material Adverse Effect on the business,
prospects, financial condition or results of operations of Acquiror or JLL or of
any of its properties or assets which has not been set forth in this Agreement
as an exhibit or schedule hereto.
ARTICLE V
AGREEMENTS OF THE PARTIES
5.1 Access to Information.
At all times prior to the Closing or the earlier termination
of this Agreement in accordance with the provisions of Section 8, and in each
case subject to Section 5.2 below, each of the parties hereto shall provide to
the other parties (and the other parties' authorized representatives) full
access during normal business hours and upon reasonable prior notice to the
premises, properties, books, records, assets, liabilities, operations,
contracts, personnel, financial information and other data and information of or
relating to such party (including without limitation all written proprietary and
trade secret information and documents, and other written information and
documents relating to intellectual property rights and matters), and will
cooperate with the other party in conducting its due diligence investigation of
such party.
5.2 Confidentiality; No Solicitation.
(a) Confidentiality of CNF-Related Information. With respect
to information concerning CNF that is made available to Acquiror pursuant to the
terms of this Agreement, Acquiror agrees that it shall hold such information in
strict confidence, shall not use such information except for the sole purpose of
evaluating the Merger and related transactions
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and shall not disseminate or disclose any of such information other than to its
directors, officers, employees, shareholders, affiliates, agents and
representatives who need to know such information for the sole purpose of
evaluating the Merger and the related transactions (each of whom shall be
informed in writing by Acquiror of the confidential nature of such information
and directed by Acquiror in writing to treat such information confidentially).
If this Agreement is terminated pursuant to the provisions of Section 8,
Acquiror shall immediately return all such information, all copies thereof and
all information prepared by Acquiror based upon the same; provided, however,
that one copy of all such material may be retained by Acquiror's outside legal
counsel for purposes only of resolving any disputes under this Agreement. The
above limitations on use, dissemination and disclosure shall not apply to
information that (i) is learned by Acquiror from a third party entitled to
disclose it; (ii) becomes known publicly other than through Acquiror or any
party who received the same through Acquiror, provided that Acquiror has no
knowledge that the disclosing party was subject to an obligation of
confidentiality; (iii) is required by law or court order to be disclosed by
Acquiror; or (iv) is disclosed with the express prior written consent thereto of
CNF. Acquiror shall undertake all necessary steps to ensure that the secrecy and
confidentiality of such information will be maintained in accordance with the
provisions of this paragraph (a). Notwithstanding anything contained herein to
the contrary, in the event a party is required by court order or subpoena to
disclose information which is otherwise deemed to be confidential or subject to
the confidentiality obligations hereunder, prior to such disclosure, the
disclosing party shall: (A) promptly notify the non-disclosing party and, if
having received a court order or subpoena, deliver a copy of the same to the
non-disclosing party; (B) cooperate with the non-disclosing party, at the
expense of the non-disclosing party in, obtaining a protective or similar order
with respect to such information; and (C) provide only such of the confidential
information as the disclosing party is advised by its counsel is necessary to
strictly comply with such court order or subpoena.
(b) Confidentiality of Acquiror-Related Information. With
respect to information concerning Acquiror that is made available to CNF and the
Shareholder pursuant to the provisions of this Agreement, CNF and the
Shareholder agree that they shall hold such information in strict confidence,
shall not use such information except for the sole purpose of evaluating the
Merger and the related transactions, and shall not disseminate or disclose any
of such information other than to their directors, officers, employees,
shareholders, affiliates, agents and representatives who need to know such
information for the sole purpose of evaluating the Merger and the related
transactions (each of whom shall be informed in writing by CNF or the
Shareholder of the confidential nature of such information and directed by such
party in writing to treat such information confidentially). If this Agreement is
terminated pursuant to the provisions of Section 8, CNF and the Shareholder
agree to return immediately all such information, all copies thereof and all
information prepared by either of them based upon the same; provided, however,
that one copy of all such material may be retained by the Shareholder's outside
legal counsel for purposes only of resolving any disputes under this Agreement.
The above limitations on use, dissemination and disclosure shall not apply to
information that (i) is learned by CNF or the Shareholder from a third party
entitled to disclose it; (ii) becomes known publicly other than through CNF, the
Shareholder or any party who received the same through CNF or the Shareholder,
provided that CNF or the Shareholder have no knowledge that the disclosing party
was subject to an obligation of confidentiality; (iii) is required by law or
court order to be
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disclosed by CNF; or (iv) is disclosed with the express prior written consent
thereto of Acquiror. CNF and the Shareholder agree to undertake all necessary
steps to ensure that the secrecy and confidentiality of such information will be
maintained in accordance with the provisions of this paragraph (b).
Notwithstanding anything contained herein to the contrary, in the event a party
is required by court order or subpoena to disclose information which is
otherwise deemed to be confidential or subject to the confidentiality
obligations hereunder, prior to such disclosure, the disclosing party shall: (i)
promptly notify the non-disclosing party and, if having received a court order
or subpoena, deliver a copy of the same to the non-disclosing party; (ii)
cooperate with the non-disclosing party at the expense of the non-disclosing
party in obtaining a protective or similar order with respect to such
information; and (iii) provide only such of the confidential information as the
disclosing party is advised by its counsel is necessary to strictly comply with
such court order or subpoena.
(c) Nondisclosure. Neither CNF, the Shareholder, Acquiror nor
JLL shall disclose to the public or to any third party the existence of this
Agreement or the transactions contemplated hereby or any other material
non-public information concerning or relating to any other party hereto, other
than with the express prior written consent of the other parties hereto, except
as may be required by law or court order or to enforce the rights of such
disclosing party under this Agreement, in which event the contents of any
proposed disclosure shall be discussed with the other party before release;
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, any party hereto may disclose this Agreement to any of its
directors, officers, employees, shareholders, affiliates, agents and
representative who need to know such information for the sole purpose of
evaluating the Merger, and to any person whose consent is required in connection
with the Merger or this Agreement. The parties anticipate issuing a mutually
acceptable, joint press release announcing the execution of this Agreement and
the consummation of the Merger.
(d) No Solicitation. In consideration of the substantial
expenditure of time, effort and money to be undertaken by Acquiror in connection
with the transactions contemplated by this Agreement, neither the Shareholder,
CNF nor any of their respective affiliates will, prior to the earlier of the
Closing or ninety (90) days after the termination of this Agreement directly or
indirectly, through any officer, director, agent or otherwise: (i) solicit,
initiate or encourage the submission of inquiries, proposals or offers from any
person or entity relating to any acquisition or purchase of assets of or any
equity interest in CNF or any affiliate thereof or any tender offer (including a
self-tender offer), exchange offer, merger, consolidation, business combination,
sale of a substantial amount of assets or sale of securities, liquidation,
dissolution or similar transaction involving CNF or its affiliates (a
"Transaction Proposal"); (b) enter into or participate in any discussions or
negotiations regarding a Transaction Proposal, or furnish to any other person or
entity any information with respect to the business, properties or assets of CNF
or its affiliates in connection with a Transaction Proposal; or (c) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage
any effort or attempt by any other person to do or seek a Transaction Proposal.
CNF or the Shareholder shall promptly notify Acquiror if any such proposal or
offer, or any inquiry or contact with any person or entity with respect thereto
is made. Notwithstanding the foregoing, if Acquiror terminates this Agreement or
fails to close for any reason other than CNF's or Shareholder's failure to
satisfy the conditions set forth in Section 6.2,
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the foregoing provision shall be of no force or effect.
5.3 Interim Operations.
During the period from the date of this Agreement and
continuing until the Closing:
(a) Interim Operations of CNF. CNF agrees (except as expressly
contemplated by this Agreement, including any Exhibits and Schedules hereto, or
to the extent that Acquiror shall otherwise consent in writing) that:
(i) Ordinary Course. CNF shall carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business organizations, keep
available the services of their present officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it;
(ii) Dividends; Changes in Stock. CNF shall not and
shall not propose to (a) declare, set aside or pay any dividend, on, or make
other distributions in respect of, any of their capital stock, (b) split,
combine or reclassify any of their capital stock or issue, authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of their capital stock (c) redeem, repurchase or
otherwise acquire any shares of their capital stock or (d) otherwise change
their capitalization.
(iii) Issuance of Securities. Except as contemplated
by this Agreement, CNF shall not sell, issue, pledge, authorize or propose the
sale or issuance of, pledge or purchase or propose the purchase of, any shares
of its capital stock of any class or securities convertible into, or rights,
warrants or options to acquire, any such shares or other convertible securities.
(iv) Governing Documents. CNF shall not amend its
Articles of Incorporation or its Bylaws.
(v) No Dispositions. CNF shall not sell, lease,
pledge, encumber or otherwise dispose of or agree to sell, lease, pledge,
encumber or otherwise dispose of, any of its material assets except in the
ordinary course of business consistent with prior practice and in no event
amounting in the aggregate to more than $100,000 in value of such assets.
(vi) Indebtedness. CNF shall not incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt securities of others other than
in the ordinary course of business consistent with prior practice and in no
event amounting in the aggregate to more than $100,000.
(vii) Benefit Plans; Etc. CNF shall not adopt or
amend in any material respect any collective bargaining agreement or Employee
Benefit Plan (as defined herein) which will have the result of increasing the
cost of any such agreement or Employee Benefit Plan to Acquiror.
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(viii) Executive Compensation. CNF shall not grant to
any executive officer any increase in compensation or in severance or
termination pay, or enter into any employment agreement with any executive
officer.
(ix) Acquisitions. CNF shall not acquire (by merger,
consolidation or acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or subdivision thereof, or make any
investment by either purchase of stock or securities, contributions to capital,
property transfer or, except in the ordinary course of business, purchase of any
property or assets, of any other individual or entity.
(x) Tax Elections. CNF shall not make any material
tax election or settle or compromise any material federal, state, local or
foreign tax liability.
(xi) Waivers and Releases. CNF shall not waive,
release, grant or transfer any rights of material value or modify or change in
any material respect any Material Agreement other than in the ordinary course of
business and consistent with past practice.
(xii) Other Actions. CNF shall not enter into any
agreement or arrangement to do any of the foregoing. CNF shall not take any
action, or fail to take any action, that is reasonably likely to result in any
of the representations and warranties of them set forth in this Agreement
becoming untrue in any material respect.
(b) Interim Operations of Acquiror and JLL. Acquiror and JLL
agree (except as expressly contemplated by this Agreement, including any
Exhibits and Schedules hereto, or to the extent that CNF and the Shareholder
shall otherwise consent) that:
(i) Ordinary Course. Acquiror and JLL shall conduct
no business activity other than in connection with the transactions contemplated
by this Agreement in connection with the Merger.
(ii) Dividends; Changes in Stock. Neither Acquiror
nor JLL shall (and neither shall propose to) (a) declare or pay any dividend,
on, or make other distributions in respect of, any of its capital stock, (b)
split, combine or reclassify any of its capital stock or issue, authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, (c) repurchase or otherwise
acquire any shares of its capital stock or (d) otherwise change its
capitalization.
(iii) No Dispositions. Neither Acquiror nor JLL shall
sell, lease, pledge, encumber or otherwise dispose of, or agree to sell, lease,
pledge, encumber or otherwise dispose of, any of its assets that are material,
or any other assets except in the ordinary course of business consistent with
prior practice.
(iv) Placement Activities. Prior to the Closing,
Acquiror shall have completed a private placement of shares of Common Stock to
accredited investors which, after expenses, yields net proceeds of no less than
$1,000,000 to Acquiror.
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(v) Other Actions. Acquiror shall take any action, or
fail to take any action, that is reasonably likely to result in any of its
representations and warranties set forth in this Agreement becoming untrue in
any material respect.
5.4 Consents.
Acquiror, CNF and the Shareholder shall cooperate and use
their best efforts to obtain, prior to the Closing, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts as are necessary for the consummation of
the transactions contemplated by this Agreement; provided, however, that no loan
agreement or contract for borrowed monies shall be repaid and no contract shall
be amended materially to increase the amount payable thereunder or otherwise to
be materially more burdensome in order to obtain any such consent, approval or
authorization without first obtaining the written approval of the other parties
hereto.
5.5 Registration Statements.
(a) Form 10. As promptly as possible following the completion
of the Audited Financial Statements, Acquiror shall prepare and file with the
Securities and Exchange Commission, a registration statement on Form 10 for the
purposes of registering Acquiror's Common Stock under the Exchange Act and
shall, by virtue of such undertaking, become a "reporting company" under the
Exchange Act.
(b) Registration of Resale of Certain Shares of Common Stock.
As soon as practicable following the effectiveness of the registration statement
on Form 10, or earlier in the discretion of Acquiror's Board of Directors,
Acquiror shall prepare and file a registration statement with the SEC under the
Securities Act in order to register the reoffer and redistribution of certain
shares of Acquiror Common Stock (the "Registration Statement"). The only shares
of Acquiror Common Stock to be included for the public reoffer and
redistribution as part of the Registration Statement shall include: (i) 900,000
shares of Acquiror common stock outstanding prior to the Closing; (ii) the
shares sold in the Private Placement identified at Section 5.13 hereafter; (iii)
the shares previously issued by Acquiror as part of the private placement
transaction identified at Section 5.3 (b)(iv); and (iv) the 150,000 shares of
Acquiror Common Stock issuable to the Shareholder upon conversion of Preferred
Shares. The resale of the shares issued to the Shareholder are included within
the terms of the registration rights agreement in substantially the form
attached to this Agreement as Exhibit 5.5(b) (the "Registration Rights
Agreement").
5.6 All Reasonable Efforts.
Subject to the terms and conditions of this Agreement and to
the fiduciary duties and obligations of the boards of directors of the parties
hereto to their respective shareholders, as advised by their counsel, each of
the parties to this Agreement shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, or to remove any
injunctions or other impediments or delays, legal or otherwise, as soon as
reasonable practicable, to consummate the Merger and the other transactions
contemplated by this Agreement.
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5.7 Public Announcements.
Acquiror, JLL, CNF and the Shareholder shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Merger, this Agreement or the other transactions
contemplated by this Agreement and shall not issue any other press release or
make any other public statement without prior consent of the other parties,
except as may be required by law or, with respect to Acquiror, by obligations
pursuant to rule or regulation of the Exchange Act, the Securities Act, any rule
or regulation promulgated thereunder or any rule or regulation of the NASD.
5.8 Notification of Certain Matters.
CNF and the Shareholder shall give prompt notice to Acquiror,
and Acquiror shall give prompt notice to CNF and the Shareholder, of (a) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which would cause any of its representations or warranties in this Agreement to
be untrue or inaccurate in any material respect, as to CNF and the Shareholder,
at or prior to the Closing, and, as to Acquiror or JLL, as of the Closing and
(b) any material failure of CNF and the Shareholder, on the one hand, or
Acquiror and JLL, on the other hand, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
them under this Agreement; provided, however, the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available to the party receiving such notice under this Agreement as expressly
provided in this Agreement.
5.9 Expenses.
All costs and expenses incurred in connection with the
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses whether or not the Merger is consummated; provided,
however, that the costs and expenses to be paid by CNF shall not exceed $35,000.
5.10 Financial Statements.
CNF and the Shareholder shall cooperate with the Acquiror
following the Closing so that within sixty (60) days of the Closing, Acquiror
shall cause to be prepared an audit of the Financial Statements of CNF prepared
in compliance with generally accepted accounting principles, consistently
applied, and in accordance with all applicable SEC rules and regulations (the
"Audited Financial Statements"). The Audited Financial Statements shall not
reflect any material adverse changes from the Financial Statements. For the
purpose of this Section 5.10 only, the term "material adverse change" shall mean
any reduction reflected within the Audited Financial Statements of five percent
(5%) or more of the CNF revenues, or shareholder's equity or any 5% or greater
increase in loss from the corresponding period of the Financial Statements
provided under Section 4.1(e).
5.11 Lock-Up.
In addition to any prohibition on transfers or sales under
applicable federal or state securities laws, the Shareholder shall not sell,
transfer, encumber or otherwise dispose of the Securities issued or issuable to
him for a period of two (2) years following the Closing.
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Notwithstanding such limitation, the Shareholder may include the resale of
150,000 shares of Acquiror Common Stock (issuable upon conversion of the
Preferred Shares) upon the terms set forth within the Registration Rights
Agreement attached hereto as Exhibit 5.5(b).
5.12 Bridge Notes.
(a) Within thirty (30) days after the later of: (i) the
Closing; or (ii) the completion of the Audited Financial Statements, Acquiror
shall secure gross proceeds of at least $2,000,000 through the issuance of
promissory notes on standard and customary terms (the "Bridge Notes"). The
Bridge Notes shall be in the aggregate principal amount of $2,000,000 (subject
to adjustment as set forth in subsection (b) below), have a maturity date of the
earlier of (A) two (2) years after the Closing Date; and (B) the closing of the
Private Placement described in Section 5.13 hereof and bear interest at the rate
of 10% per annum payable upon maturity.
(b) Any interim debt financing provided or secured by
Acquiror, Synergy or any affiliate thereof for, or on behalf of, CNF, commencing
April 6, 1999, shall reduce the amount of gross proceeds Acquiror is required to
secure under Section 5.12(a) by the amount of any such interim financing
provided. Within 48 hours after the date of this Agreement, Acquiror shall
secure $250,000 of interim debt financing for CNF. Within seven (7) days of the
date of this Agreement, Acquiror shall secure an additional $250,000 of interim
debt financing for CNF; however, this requirement shall be of no further force
or effect if a Closing occurs prior to such seventh day or if the Agreement is
otherwise terminated prior to such seventh day.
(c) In the event that Acquiror issues any shares of capital
stock in connection with the sale of any of the Bridge Notes, other than shares
issuable in the Private Placement (as defined in Section 5.13) upon cancellation
of such Bridge Notes, and other than in connection with the interim debt
financing provided under Section 5.12(b) above, Acquiror shall cause certain of
the Historic Acquiror Shareholders to surrender that number of shares of Common
Stock equal to the number of shares of Common Stock so issued.
5.13 Private Placement.
(a) After the Closing, Acquiror shall undertake a private
placement transaction to accredited and institutional investors which is
intended to yield net proceeds of no less than $5,000,000 through the sale of
shares of Common Stock (the "Private Placement"). For the purposes of this
Section 5.13, the term "net proceeds" shall mean cash or cancellation of
indebtedness evidenced by surrender of the Bridge Notes (whether converted at
the offering price or any discount thereto) in payment for the shares of Common
Stock offered in the Private Placement. The Private Placement shall be completed
during an offering period of ninety (90) days, which shall be subject to an
automatic extension of sixty (60) days unless the Board of Directors of Acquiror
resolves, by the affirmative vote of 80% of its members, not to grant such
extension (the "Offering Period"), which shall commence upon the completion of a
standard and customary private placement memorandum which shall be within no
later than 30 days after receipt of the Audited Financial Statements. Acquiror's
obligation to complete the Private Placement is conditioned upon (i) there
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being no material adverse change, or any development involving a prospective
material adverse change in or affecting the condition, financial or otherwise,
of CNF, or the earnings, business affairs, management or business prospects of
CNF; and (ii) there being no pending material indemnification claim hereunder
regarding the breach of any of the representations, warranties, agreements or
covenants of CNF or the Shareholder hereunder on and as of the date of the
closing of the Private Placement. If the Acquiror's Board of Directors is unable
to agree on whether an event set forth in Section 5.13(a)(i) or 5.13(a)(ii) has
occurred, such dispute shall be submitted to arbitration in accordance with
Section 9.8 hereof. The proceeds of the Private Placement shall be utilized for
working capital purposes and to repay the Bridge Notes which are not canceled in
payment for shares issuable in the Private Placement. The Private Placement may
be completed through the use of a placement agent which is a broker-dealer
registered with the Securities and Exchange Commission and in good standing with
the NASD, upon payment of sales commissions, expenses and warrants which are
reasonable and customary in transactions of this nature.
(b) Subject to Section 5.13(c) below, if a closing with
respect to the Private Placement is not completed within fifteen (15) days after
the expiration of the Offering Period, the Historic Acquiror Shareholders shall
surrender that number of Acquiror Escrow Shares determined by multiplying the
total number of Acquiror Escrow Shares by a fraction the numerator of which
shall be an amount equal to 5,000,000 less the amount of net proceeds raised in
the Private Placement and the denominator of which shall be 5,000,000.
(c) Notwithstanding the provisions of Section 5.13(b) above,
the Historic Acquiror Shareholders shall not be required to surrender any of the
Acquiror Escrow Shares in the event that a closing with respect to the Private
Placements is not completed within fifteen (15) days after the expiration of the
Offering Period as a result of: (i) the occurrence of any events set forth at
Section 5.13(a)(i); (ii) the occurrence of any events set forth at Section
5.13(a)(ii); or (iii) Acquiror or Shareholder failing to execute a definitive
placement agent or similar agreement for the placement of securities within 30
days from the time first proposed in writing by any placement agent or
broker-dealer in connection with the Private Placement.
5.14 Documents at Closing.
Each party to this Agreement agrees to execute and deliver at
the Closing those documents identified in Section 2.2.
5.15 Prohibition on Trading in Acquiror Stock.
CNF and the Shareholder acknowledge that the United States
Securities Laws prohibit any person who has received material non-public
information concerning the matters which are the subject matter of this
Agreement from purchasing or selling the securities of the Acquiror, or from
communicating such information to any person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell securities
of the Acquiror. Accordingly, until the Closing, the Shareholder agree that they
will not purchase or sell any
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securities of the Acquiror, or communicate such information to any other person
under circumstances in which it is reasonably foreseeable that such person is
likely to purchase or sell securities of the Acquiror, until counsel for
Acquiror believes that any such non-public information has been adequately
disseminated to the public.
5.16 Reservation of Shares.
As of the Closing, Acquiror shall have authorized and reserved
for issuance sufficient shares of Common Stock to permit the issuance of the
shares of Acquiror Common Stock due upon conversion of the Preferred Shares.
5.17 Acquiror Post-Closing Actions.
As soon as practicable after the Closing, Acquiror shall take
all necessary corporate action in order to (i) change its name to CNF Holdings,
Inc.; and (ii) change its fiscal year such that it ends on March 31 of each
year.
5.18 Acknowledgment of Approvals; Written Consent of Stockholders.
By virtue of their respective signatures to this Agreement,
Acquiror, JLL, CNF and the Shareholder acknowledge their approval of this
Agreement and their consent to the consummation of the transactions identified
herein and, with respect to the Shareholder, shall constitute his approval of
the Merger and this Agreement by written consent in accordance with Section 603
of the California General Corporation Law on and as of the date hereof with
respect to all of the shares of CNF Common Stock owned by the Shareholder on and
as of the date hereof.
5.19 Matters of Corporate Governance.
(a) Concurrent with the Closing, members of Acquiror's Board
of Directors shall resign and shall be replaced with a Board of Directors of
five (5) members, consisting of: (i) two (2) designees of Acquiror's Board of
Directors immediately prior to the Closing (the "Acquiror Designees"); and (ii)
three (3) designees of the Shareholder.
(b) For a period of two (2) years following the Closing, the
Shareholder agrees to vote all voting securities of Acquiror owned beneficially
or of record by him at every Annual Meeting of Stockholders, at any Special
Meeting of Stockholders called for the purpose of electing members to the Board
of Directors, or will act by written consent or otherwise take such action as is
required, to vote for and elect a Board of Directors in the manner identified in
subparagraph (a) above. The Shareholder further agrees not to take any action
inconsistent with this Section 5.19, including voting any voting securities of
Acquiror to amend the Acquiror's By-laws or Certificate of Incorporation in a
manner inconsistent with this Section 5.19.
(c) For a period of two (2) years following the Closing,
approval of any of the following transactions shall require the affirmative vote
of 80% of the members of Acquiror's Board of Directors: (i) any merger,
consolidation, sale of all or substantially all of the assets of Acquiror or
recapitalization involving Acquiror; (ii) transactions between Acquiror and any
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interested party (including all directors, officers, employees or principal
stockholders); and executive officers, or principal (i.e., over 5%)
stockholders); (iii) any modification to the terms of this Agreement or any
other agreements entered into upon the Closing; (iv) any issuance of shares of
Acquiror's Common Stock, Preferred Stock or securities exercisable or
convertible into shares of Acquiror's Common Stock or Preferred Stock, equal to
or exceeding 10% of the Acquiror's then outstanding shares of Common Stock or
voting power; (v) any amendment to the Company's By-laws or Certificate of
Incorporation; and (vi) the determination of an event specified in Section
5.13(a)(i) or Section 5.13(a)(ii). Notwithstanding the foregoing, in the event
that a closing with respect to the Private Placement is not completed within
fifteen (15) days after the expiration of the Offering Period, Sections
5.19(c)(i) and 5.19(c)(iv) shall be of no force or effect. Notwithstanding
anything contained in this Agreement to the contrary, commencing two (2) years
after the Closing, a super-majority vote of the Acquiror's Board of Directors
shall not be required to approve any transaction except as may be required under
applicable Delaware law.
5.20 Grant of Proxy.
(a) Upon Closing, certain shareholders of Acquiror shall grant
a voting proxy to the Shareholder with respect to 1,600,000 shares of Common
Stock which shall terminate on the earlier of (i) the completion of audited
financial statements of Acquiror for the fiscal year ending March 31, 2000; or
(ii) June 30, 2000 (the "Initial Proxy Term").
(b) In the event that Acquiror achieves any of the Financial
Performance Targets set forth in the Certificate of Designation attached hereto
and made a part hereof as Exhibit 1.3(a), certain shareholders of Acquiror shall
upon the expiration of the Initial Proxy Term: (i) adjust, upward or downward,
as the case may be, the number of shares covered by the voting proxy so as to
equal that number of shares necessary to grant voting power to the Shareholder
equal to 51% of the total voting power of all outstanding voting securities of
Acquiror; and (ii) extend the term of the voting proxy granted pursuant to
Section 5.20(a) hereof for a period of one (1) year following the expiration of
the Initial Proxy Term.
5.21 Production of Schedules and Exhibits.
Each of the parties hereto shall utilize its reasonable best
efforts to produce all Schedules and Exhibits required to be produced by it
under this Agreement upon the execution hereof. In the event that any party has
not produced all Schedules and Exhibits required to be produced by it hereunder
upon the execution of this Agreement, all such Schedules and Exhibits shall be
produced by such party within fifteen (15) business days thereafter but in no
event shall such Schedules and Exhibits be delivered less than five (5) business
days prior to the Closing Date. The Schedules and Exhibits produced subsequent
to the execution of this Agreement, shall be given such force and effect as
though such Schedules and Exhibits which were produced upon execution of this
Agreement.
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ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 Conditions to Obligations of CNF and the Shareholder.
The obligations of CNF and the Shareholder to consummate the
Merger and the other transactions contemplated to be consummated by it at the
Closing are subject to the satisfaction (or waiver by CNF and the Shareholder)
at or prior to the Closing (or at such other time prior thereto as may be
expressly provided in this Agreement) of each of the following conditions:
(a) The representations and warranties of Acquiror and JLL set
out in this Agreement shall be true and correct in all material respects at and
as of the time of the Closing as though such representations and warranties were
made at and as of such time.
(b) Acquiror shall have complied in a timely manner and in all
material respects with the respective covenants and agreements set out in this
Agreement.
(c) The Merger shall have been approved by JLL in accordance
with the provisions of the DGCL. The Board of Directors of JLL and Acquiror
shall have approved the execution of this Agreement and the Merger thereby.
(d) Acquiror shall and shall cause the Historic Acquiror
Shareholders to enter into, and the Acquiror Escrow Shares shall be delivered
pursuant to the, the Acquiror Escrow Agreement the form of which is attached
hereto as Exhibit 1.4(a).
(e) Acquiror shall deliver certificates evidencing the
Acquiror Options to the persons and in the amounts set forth on Schedule 1.2(c);
(f) Certain shareholders of Acquiror shall have delivered
voting proxies to the Shareholder the form of which is attached hereto as
Exhibit 5.20 with respect to an aggregate of 1,6000,000 shares of
Common Stock;
(g) CNF and the Shareholder shall not have received written
advice from their tax advisors to the effect that the Merger will not qualify as
a tax-free reorganization under the Code;
(h) There shall be delivered to CNF and the Shareholder an
officer's certificate of Acquiror to the effect that all of the representations
and warranties of Acquiror set forth herein are true and complete in all
material respects as of the Closing, and the Acquiror has complied in all
material respects with the covenants and agreements set forth herein that are
required to be complied with by the Closing.
(i) There shall be delivered to CNF and the Shareholder an
officer's certificate of JLL to the effect that all of the representations and
warranties of JLL set forth herein are true and complete in all material
respects as of the Closing, and JLL has complied in all material
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respects with the covenants and agreements set forth herein that are required to
be complied with by the Closing.
(j) Acquiror shall have completed a private placement to
accredited investors which, after expenses, produced net proceeds of no less
than $1,000,000. Acquiror shall, upon the Effective Time, have cash on deposit
of no less than $1,000,000, subject only to those liabilities reflected within
the Acquiror Financial Statements, Schedule 4.2(g) and any additional
liabilities incurred in connection with this transaction that have been agreed
to by all parties hereto.
(k) All director, shareholder, lender, lessor and other
parties' consents and approvals, as well as all filings with, and all necessary
consents or approvals of, all federal, state and local governmental authorities
and agencies, as are required under this Agreement, applicable law or any
applicable contract or agreement (other than as contemplated by this Agreement)
to complete the Merger shall have been secured.
(l) No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Merger or the related
transactions.
6.2 Conditions to Acquiror's Obligations.
The obligation of Acquiror to consummate the Merger and the
other transactions contemplated to be consummated by it at the Closing are
subject to the satisfaction (or waiver by Acquiror) at or prior to the Closing
(or at such other time prior thereto as may be expressly provided in this
Agreement) of each of the following conditions:
(a) The representations and warranties of CNF and the
Shareholder set out in this Agreement shall be true and correct in all material
respects at and as of the time of the Closing as though such representations and
warranties were made at and as of such time;
(b) CNF and the Shareholder shall have complied in a timely
manner and in all material respects with its covenants and agreements set out in
this Agreement;
(c) There shall be delivered to Acquiror an officer's
certificate of CNF to the effect that all of the representations and warranties
of CNF set forth herein are true and complete in all material respects as of the
Closing, and that CNF has complied in all material respects with covenants and
agreements set forth herein required to be complied with by the Closing; and
there shall be delivered to Acquiror a certificate signed by the Shareholder to
the effect that the representations and warranties of CNF and the Shareholder
set forth herein are true and correct in all material respects and that CNF and
the Shareholder have complied in all material respects with their covenants and
agreements required to be complied with them by Closing;
(d) CNF shall have secured the written consent of the holder
of 100% of the outstanding shares of CNF Common Stock and shall have delivered a
certificate of an authorized officer of CNF to this effect;
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(e) All CNF Shareholders .shall have executed and delivered an
Investment Letter the form of which is attached hereto as Exhibit 2.2(a)(ii);
(f) The Shareholder shall have entered into, and the
Shareholder Escrow Shares shall be delivered pursuant to, the Shareholder Escrow
Agreement the form of which is attached hereto as Schedule 1.4(b);
(g) Holders of the CNF Options shall have surrendered to CNF
for cancellation any certificates or agreements evidencing the CNF Options in
accordance with Section 1.2(c);
(h) CNF shall have restructured to the reasonable satisfaction
of Acquiror, the employment agreements of certain key CNF personnel with respect
to: (i) the development of financial targets to evaluate employee performance;
and (ii) the addition of standard and customary non-competition,
non-solicitation and confidentiality provisions;
(i) CNF and the Shareholder shall have paid in full or
restructured the terms of all obligations of CNF to Wells Fargo Bank to the
satisfaction of Acquiror or obtained the consent of Wells Fargo Bank to this
Agreement and the consummation of the transactions contemplated hereby;
(j) CNF shall have paid in full or restructured the terms of
any and all other outstanding indebtedness which is accelerated, in whole or in
part upon consummation of the Merger or any of the transactions contemplated by
this Agreement to the satisfaction of Acquiror or obtained the consent of such
creditor to this Agreement and the consummation of the transactions contemplated
hereby;
(k) All director, shareholder, lender, lessor and other
parties' consents and approvals, as well as all filings with, and all necessary
consents or approvals of, all federal, state and local governmental authorities
and agencies, as are required under this Agreement, applicable law or any
applicable contract or agreement (other than as contemplated by this Agreement)
to complete the Merger shall have been secured;
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(l) The Acquiror shall have completed a due diligence review
of the business, operations, financial condition and prospects of CNF and shall
have been satisfied with the results of its due diligence review in its sole and
absolute discretion;
(m) Shareholder shall have executed an assignment of its
intellectual property rights to Acquiror in form and substance satisfactory to
Acquiror.
(n) The Board of Directors of CNF and the Shareholders shall
have approved the Merger in accordance with the CGCL; and
(o) No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Merger or the related
transactions.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification.
(a) Shareholder. The Shareholder shall indemnify, defend and
hold harmless Acquiror and JLL from and against any and all demands, claims,
actions or causes of action, judgments, assessments, losses, liabilities,
damages or penalties and reasonable attorneys' fees and related disbursements
(collectively, "Claims") incurred by Acquiror which arise out of or result from
a misrepresentation, breach of warranty, or breach of any covenant or agreement
of CNF or the Shareholder contained herein or in the Schedules annexed hereto or
in any deed, exhibit, closing certificate, schedule or any ancillary
certificates or other documents or instruments furnished by CNF or the
Shareholder pursuant hereto or in connection with the transactions contemplated
hereby or thereby; provided that such indemnification obligations hereunder
shall be limited to the Shareholder Indemnification Escrow Shares delivered into
escrow pursuant to the Shareholder Escrow Agreement. The Shareholder shall also
indemnify Acquiror against (i) any Claims that may arise out of the EEOC
proceeding referred to upon Schedule 4.1(r)(v), should the costs, fees, awards,
assessments or losses associated with such matter exceed $25,000; and (ii) any
Claims that may arise in connection with the settlement or litigation with Greg
LeVeille referenced upon Schedule 4.1(r)(v), should the costs, fees, awards,
judgments, assessments or losses associated with such matter exceed $60,000.
(b) Acquiror. Acquiror shall indemnify, defend and hold
harmless CNF and the Shareholder from and against any and all Claims, as defined
at subsection 7.1(a) above, incurred by CNF and/or the Shareholder which arise
out of or result from a misrepresentation, breach of warranty or breach of any
covenant of Acquiror contained herein or in the Schedules annexed hereto or in
any deed, exhibit, closing certificate, schedule or any ancillary certificates
or other documents or instruments furnished by Acquiror pursuant hereto or in
connection with the transactions contemplated hereby or thereby. Acquiror shall
also indemnify CNF against any
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claims that may arise out of the assertion of dissenters rights by the former
Shareholders of JLL Ventures Corp., in connection with the reincorporation of
JLL Ventures Corp. into Acquiror.
(c) Methods of Asserting Claims for Indemnification. All
claims for indemnification under this Agreement shall be asserted as follows:
(i) Third Party Claims. In the event that any Claim
for which a party (the "Indemnitee") would be entitled to indemnification under
this Agreement is asserted against or sought to be collected from the Indemnitee
by a third party the Indemnitee shall promptly notify the other party (the
"Indemnitor") of such Claim, specifying the nature thereof, the applicable
provision in this Agreement or other instrument under which the Claim arises,
and the amount or the estimated amount thereof (the "Claim Notice"). The
Indemnitor shall have thirty (30) days (or, if shorter, a period to a date not
less than ten (10) days prior to when a responsive pleading or other document is
required to be filed but in no event less than ten (10) days from delivery or
mailing of the Claim Notice) (the "Notice Period") to notify the Indemnitee (a)
whether or not it disputes the Claim and (b) if liability hereunder is not
disputed, whether or not it desires to defend the Indemnitee. If the Indemnitor
elects to defend by appropriate proceedings, such proceedings shall be promptly
settled or prosecuted to a final conclusion in such a manner as to avoid any
risk of damage to the Indemnitee; and all costs and expenses of such proceedings
and the amount of any judgment shall be paid by the Indemnitor.
If the Indemnitee desires to participate in, but not control,
any such defense or settlement, it may do so at its sole cost and expense. If
the Indemnitor has disputed the Claim, as provided above, and shall not defend
such Claim, the Indemnitee shall have the right to control the defense or
settlement of such Claim, in its sole discretion, and shall be reimbursed by the
Indemnitor for its reasonable costs and expenses of such defense. Neither
Indemnitee nor Indemnitor shall be liable for any settlement of any Claim
without the prior written consent of the other party.
(ii) Non-Third Party Claims. In the event that the
Indemnitee should have a Claim for indemnification hereunder which does not
involve a Claim being asserted against it or sought to be collected by a third
party, the Indemnitee shall promptly send a Claim Notice with respect to such
Claim to the Indemnitor. If the Indemnitor does not notify the Indemnitee within
the Notice Period that it disputes such Claim, the Indemnitor shall pay the
amount thereof to the Indemnitee. If the Indemnitor disputes the amount of such
Claim, the controversy in question shall be submitted to arbitration pursuant to
Section 9.8 hereafter.
(d) Right of Set-Off. Subject to the terms of the Shareholder
Escrow Agreement, in the event a Claim arises pursuant to subparagraph 7.1(a),
Acquiror shall have the right to apply the amount of the Claim which is agreed
to by the other parties against the Shareholder Indemnification Escrow Shares
identified at subparagraph 1.4(b).
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ARTICLE VIII
TERMINATION
8.1 Termination.
This Agreement may be terminated and the Merger may be
abandoned at any time prior to or at the Closing:
(a) by mutual written consent of Acquiror, CNF and the
Shareholder;
(b) by any of Acquiror, CNF or the Shareholder;
(i) if the Closing shall not have occurred on or
before April 30, 1999, unless otherwise extended in writing by all of the
parties hereto; provided, however, that the right to terminate this Agreement
under this Section 8.1(b)(i) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before that date; or
(ii) if any court of competent jurisdiction, or any
governmental body, regulatory or administrative agency or commission having
appropriate jurisdiction shall have issued an order, decree or filing or taken
any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
(c) by CNF and the Shareholder if any of the conditions
specified in Section 6.1 have not been met or if satisfaction of such a
condition is or becomes impossible (other than through the failure of CNF or the
Shareholder to comply with their respective obligations under this Agreement)
and CNF and the Shareholder have not waived such conditions on or before the
Closing; or
(d) by Acquiror if any of the conditions specified in Section
6.2 have not been met or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Acquiror to comply with their
respective obligations under this Agreement) and Acquiror has not waived such
condition on or before the Closing.
8.2 Notice and Effect of Termination.
In the event of the termination and abandonment of this
Agreement pursuant to Section 8.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision pursuant to which
such termination is made. Upon termination, this Agreement shall forthwith
become void and all obligations of the parties under this Agreement will
terminate without any liability on the part of any party or its directors,
officers or shareholders and none of the parties shall have any claim or action
against any other party, except that the provisions of this Section 8.2 and
Sections 5.2, 5.7 and 5.9, shall survive any termination of this Agreement.
Nothing contained in this Section 8.2 shall relieve any party from any liability
for any breach of this Agreement other than in the event of a termination
pursuant to Section 8.1.
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8.3 Extension; Waiver.
Any time prior to the Closing, the parties may (a) extend the
time for the performance of any of the obligations or other acts of any other
party under or relating to this Agreement; (b) waive any inaccuracies in the
representations or warranties by any other party or (c) waive compliance with
any of the agreements of any other party or with any conditions to its own
obligations. Any agreement on the part of any other party to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
8.4 Amendment and Modification.
This Agreement may be amended by written agreement of
Acquiror, JLL, CNF and the Shareholder.
ARTICLE IX
MISCELLANEOUS
9.1 Survival of Representations and Warranties; Remedies.
All representations and warranties contained in or made
pursuant to this Agreement or in any agreement, certificate, document or
statement delivered pursuant hereto shall survive the Closing for a period of
eighteen (18) months from the Closing Date, unless otherwise specified in such
agreement, certificate or document; provided, however, that notwithstanding the
foregoing, (i) the representations and warranties set forth in Section 4.(d)
(relating to the title to the CNF Common Stock and the capitalization of CNF),
Section 4.1(u) (relating to environmental matters), Section 4.1(e) (relating to
the Financial Statements), Section 4.1(g) (relating to contingent liabilities)
and Section 4.1(i) (relating to taxes) and all covenants and agreements of the
parties relating to the subject matter(s) thereof shall survive the Closing
without such applicable limitation. The right to indemnification, payment of
damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any Knowledge acquired (or capable of being acquired) at any time by JLL
or Acquiror, whether before or after the execution and delivery of this
Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, or obligation. The
waiver of any condition based on the accuracy of any representation or warranty,
or on the performance of or compliance with any covenant or obligation, will not
affect the right to indemnification, payment of damages, or other remedy based
on such representations, warranties, covenants, and obligations.
The rights and remedies of the parties to this Agreement are
cumulative, not alternative. In addition to their respective rights to damages
or other remedies they may have, and without limitation thereof, Acquiror shall
have the right to obtain injunctive relief to restrain any breach or otherwise
to specifically enforce the provisions of this Agreement, it being agreed by the
parties that money damages alone would be inadequate to compensate Acquiror for
such breach or other failure to perform the obligations of CNF and the
Shareholder under this Agreement.
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9.2 Notices.
All notices requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given on the date if delivered
personally, or upon the second business day after it shall have been deposited
by certified or registered mail with postage prepaid, or sent by telex, telegram
or telecopier, as follows (or at such other address or facsimile number for a
party as shall be specified by like notice):
(a) if to CNF, Inc. to it at with a copy to:
7722 East Gray Road Stephen Boatwright, Esquire
Scottsdale, AZ 85260 Gammage & Burnham
Attn: Paul Charles 2 North Central, 18th Floor
Phoenix, AZ 85004
(b) if to Paul Charles, to him at with a copy to:
c/o CNF, Inc. Stephen Boatwright, Esquire
7722 East Gray Road Gammage & Burnham
Scottsdale, AZ 85260 2 North Central, 18th Floor
Phoenix, AZ 85004
(c) if to Acquiror, to it at: with a copy to:
c/o Synergy Group International, Inc. Stephen M. Cohen, Esquire
2390 E. Camelback Road Buchanan Ingersoll, P.C.
Phoenix, AZ 85016 Eleven Penn Center, 14th Floor
Attention: Vincent J. Marold Philadelphia, PA 19103
(d) if to JLL, to it at: with a copy to:
c/o Synergy Group International, Inc. Stephen M. Cohen, Esquire
2390 E. Camelback Road Buchanan Ingersoll, P.C.
Phoenix, AZ 85016 Eleven Penn Center, 14th Floor
Attention: Vincent J. Marold Philadelphia, PA 19103
9.3 Agreement; Assignment.
This Agreement, including all Exhibits and Schedules hereto,
constitutes the entire Agreement among the parties with respect to its subject
matter and supersedes all prior agreements and understandings, both written and
oral, among the parties or any of them with respect to such subject matter and
shall not be assigned by operation of law or otherwise.
9.4 Binding Effect; Benefit.
This Agreement shall inure to the benefit of and be binding
upon the parties and their respective successors and assigns. Nothing in this
Agreement is intended to confer on any
42
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person other than the parties to this Agreement or their respective successors
and assigns any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.5 Headings.
The descriptive headings of the sections of this Agreement are
inserted for convenience only, do not constitute a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
9.6 Counterparts.
This Agreement may be executed in two or more counterparts and
delivered via facsimile, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
9.7 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the laws
that might otherwise govern under principles of conflicts of laws applicable
thereto.
9.8 Arbitration.
Any claim, dispute or other matter in controversy
(collectively referred to herein as "Dispute"), whether based on contract, tort,
statute, or other legal theory (including but not limited to any claim of fraud
or misrepresentation), arising out of or related to this Agreement, any exhibits
or schedule hereto, or any subsequent agreement between the parties, or the
breach thereof, shall be settled according to the procedures set forth below
exclusively; provided however, that either party may seek preliminary judicial
relief if, in its judgment, such action is necessary to avoid irreparable damage
during the pendency of such procedures.
Any Dispute shall be settled by arbitration in Phoenix,
Arizona, in accordance with the then current Commercial Rules of Arbitration
(the "Rules") of the American Arbitration Association ("AAA"), as supplemented
or modified by the following:
(a) Notwithstanding any choice of law or other provisions of
this Agreement to the contrary, this agreement to arbitrate shall be governed by
the Federal Arbitration Act, 9 U.S.C. ss.1 et seq. (the "Act"), which shall not
be superseded or supplemented by any other arbitration act, statute or
regulation.
(b) In no event shall a demand for arbitration be made when
the institution of legal or equitable proceedings based on such claim, dispute
or other matter in question would be barred by laches or any applicable statute
of limitations.
(c) The arbitration panel shall consist of three (3) members,
one of whom shall be selected by each party and the third shall be selected by
the two (2) so selected. If either party fails to select an arbitrator within
ten (10) days after the last of them have been appointed, then
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AAA shall select the arbitrator(s). All arbitrators must be familiar with
private and public capital raising transactions.
(d) The award may not grant any relief that could not be
granted in court litigation to resolve the dispute under the law of the place
governing the substance of the dispute. The arbitration panel shall award the
prevailing party its reasonable attorneys' fees and costs incurred in connection
with the arbitration. Otherwise, the parties shall equally share costs of
arbitration.
(e) The arbitration award shall be in writing and shall
include a statement of the reasons for the award. Subject to Section 9.8(f)
below, the award rendered by the arbitrator(s) shall be final and judgment may
be entered upon it in accordance with the Act in any court having jurisdiction.
As to the facts found, the arbitration award shall be final and conclusive.
(f) Either party can appeal to the U.S. District Court for the
District of Arizona if such court has jurisdiction, and otherwise to any state
court of record in Arizona having jurisdiction, to vacate and remand, or modify
or correct the arbitration award for any of the grounds specified in the Act.
9.9 Severability.
If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
9.10 Release and Discharge.
By virtue of their execution of this Agreement, except as set
forth in Schedule 9.10, as of the Closing and thereafter, the Shareholder hereby
agree to release, remise and forever discharge CNF from and against any and all
debts, obligations, liabilities and amounts owing from CNF to the Shareholder
prior to the Closing, and CNF is not obligated to take any action or make any
payments to third parties on behalf of the Shareholder.
9.11 Certain Definitions.
As used herein:
(a) "Affiliate" shall have the meanings ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended to date (the "Exchange Act");
(b) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which federally chartered financial institutions are not open
for business in the City of Phoenix, Arizona.
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(c) "Knowledge" shall mean the actual current knowledge of the
party , and/or the executive management of the party to this Agreement, as the
case may be, to whom knowledge is ascribed.
(d) "Material Adverse Effect" shall mean any adverse effect on
the business, condition (financial or otherwise) or results of operation of the
relevant party and its subsidiaries, if any, which is material to such party and
its subsidiaries, if any, taken as a whole;
(e) "Person" means any individual, corporation, partnership,
association, trust or other entity or organization, including a governmental or
political subdivision or any agency or institution thereof; and
45
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IN WITNESS WHEREOF, Acquiror, CNF and the Shareholder have caused this Agreement
to be signed by their respective officers hereunto duly authorized, all as of
the date first written above.
JLL VENTURES (DELAWARE) CORP.,
a Delaware Corporation
By: /s/ Vincent J. Marold
------------------------------
Name: Vincent J. Marold
Title: President
JLL VENTURES ACQUISITION CORP.,
a Delaware Corporation
By: /s/ Vincent J. Marold
------------------------------
Name: Vincent J. Marold
Title: President
CNF, INC., a California Corporation
By: /s/ Paul Charles
------------------------------
Name: Paul Charles
Title: President
PAUL CHARLES
/s/ Paul Charles
----------------------------
Signature
46
Exhibit 2.2
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
DATED APRIL 16, 1999
BY AND AMONG
JLL VENTURES (DELAWARE) CORP.
JLL VENTURES ACQUISITION CORP.
CNF, INC.
AND
PAUL CHARLES, THE PRINCIPAL SHAREHOLDER
OF CNF, INC.
Dated: May 24, 1999
<PAGE>
AMENDMENT NO. 1
TO THE AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 (the "Amendment") to that certain AGREEMENT AND
PLAN OF MERGER (the "Agreement") is made and entered into as of May ___, 1999 by
and among JLL VENTURES (DELAWARE) CORP., a Delaware corporation ("Acquiror"),
JLL VENTURES ACQUISITION CORP., a Delaware corporation and wholly owned
subsidiary of Acquiror ("JLL"), CNF, INC., a California corporation ("CNF"), and
PAUL CHARLES, an individual residing at 10931 East Laurel Lane, Scottsdale, AZ
85260, and the principal shareholder of CNF ("Charles" or "Shareholder").
Recitals
WHEREAS, the parties to the Agreement wish to amend the Agreement in
accordance with the following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing premises and
agreements contained herein, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Exhibits and Schedules. The table of Exhibits and Schedules is
hereby amended to delete Exhibit 1.2 (c) - Form of Acquiror Option Agreement in
its entirety and to include the following additional Exhibit:
"Exhibit 5.20 - Form of Proxy"
2. Exhibits and Schedules. The table of Exhibits and Schedules is
hereby amended to include the following additional Schedules:
"Schedule 4.1(f)(iv) - Sublease Agreements
Schedule 4.1(y) - CNF Stock Option Plan
Schedule 5.22 - Personal Guarantees"
3. Recitals. The third "WHEREAS" clause is hereby deleted in its
entirety.
4. Name of Surviving Corporation. Section 1.1(c)(i) is hereby amended
to provide in its entirety as follows:
"JLL shall continue its existence under the laws of the State
of Delaware as the surviving corporation as "CNF Mobile Solutions,
Inc.";"
<PAGE>
5. Officers and Directors of JLL and Acquiror. Section 1.1(c)(vii) is
hereby amended to provide in its entirety as follows:
"The officers and directors of each of JLL and
Acquiror shall resign upon the Effective Time and the officers
and directors of the Surviving Corporation and the Acquiror
shall consist of those individuals identified on Schedule
1.1(c)(vii), and such persons shall serve in such positions
for their respective terms provided by law or in the Bylaws of
the Surviving Corporation or Acquiror, as applicable, and
until their respective successors are elected and qualified."
6. Title of Section 1.2. The title of Section 1.2 is hereby amended to
provide in its entirety as follows:
"1.2 Conversion of Stock; Assumption of Outstanding
Options."
7. Assumption of Outstanding Options. Section 1.2(c) is hereby amended
to provide in its entirety as follows:
"(c) Assumption of Outstanding Options. As of the
Closing, there will be outstanding options, warrants or other
rights to purchase an aggregate of 405,658 shares of CNF
Common Stock or approximately 13.96% of the outstanding shares
of CNF Common Stock on a fully diluted basis (collectively,
the "CNF Options" and individually, a "CNF Option"). The CNF
Options were issued under the CNF 1997 Equity Incentive Plan
(the "Plan"). At the Effective Time, Acquiror shall assume the
Plan and all obligations of CNF under the Plan including, but
not limited to, the obligation to issue shares of CNF Common
Stock upon the exercise of the CNF Options. At the Effective
Time, in accordance with the terms of the CNF Options, each
CNF Option shall represent the right to purchase that number
of Preferred Shares equal to the product obtained by
multiplying that number of shares of CNF Common Stock
purchasable upon exercise of such option by 2.0628. The
exercise price of each CNF Option shall be reduced to an
amount equal to the quotient obtained by dividing the current
exercise price of such CNF Option by 2.0628. Schedule 1.2(c)
identifies each holder of a CNF Option, the exercise price and
number of shares of CNF Common Stock issuable upon exercise of
such option prior to the Effective Time and the exercise price
and number of Preferred Shares issuable upon exercise of such
option after the Effective Time."
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8. Merger Consideration. Sections 1.3(a) and 1.3(b) are hereby amended
to provide in their entirety as follows:
"(a) Subject to the provisions of Section 1.4(b)
hereafter, the Merger Consideration, consisting of the total
purchase price payable to the holders of 100% of the
outstanding CNF Common Stock (the "CNF Shareholders") in
connection with the acquisition by merger of CNF, shall be
delivered and shall consist exclusively of the issuance of
2.0628 newly issued shares of Series A Convertible Preferred
Stock, $.0001 par value per share, of Acquiror (the "Preferred
Shares") for each share of CNF Common Stock outstanding (on a
fully diluted basis), thus resulting in the issuance of
5,163,202 Preferred Shares to the CNF Shareholders at Closing
and the reservation of an additional 836,798 Preferred Shares
issuable upon exercise of the CNF Options resulting in an
aggregate of 6,000,000 Preferred Shares on a fully diluted
basis. The Preferred Shares shall be convertible at the option
of the holder thereof into shares of common stock, $.0001 par
value per share, of Acquiror (the "Common Stock") and have
those rights, preferences and designations set forth in that
certain Certificate of Designation, Preferences and Rights of
Series A Preferred Stock (the "Certificate of Designation"), a
true and correct copy of which is attached hereto and made a
part hereof as Exhibit 1.3(a).
(b) The Merger Consideration shall be allocated among
the CNF Shareholders in the proportion of their share
ownership of the outstanding shares of CNF Common Stock at the
Closing as set forth on Schedule 1.3(b)."
9. Shareholder Shares to be Placed Into Escrow. Section 1.4(b) is
hereby amended to provide in its entirety as follows:
"In order to secure the Shareholder's indemnification
obligations under Article VII hereof, 2,000,000 of the
Preferred Shares issuable to the Shareholder hereunder (the
"Shareholder Indemnification Escrow Shares") shall be placed
into escrow pursuant to the escrow agreement attached hereto
as Schedule 1.4(b) (the "Shareholder Escrow Agreement");
1,000,000 of which shall be retained for a period of six (6)
months after the Closing and 1,000,000 of which shall be
retained for a period of eighteen (18) months after the
Closing. While retained in escrow, the Shareholder shall
retain full voting rights with respect to the Shareholder
Escrow Shares."
10. Closing Transactions. Section 2.2(a)(iii) is hereby deleted in its
entirety.
3
<PAGE>
11. Closing Transactions. Section 2.2(b)(i) is hereby amended to
provide in its entirety as follows:
"Subject to Section 1.4(b), Acquiror shall deliver or
shall cause to be delivered to the CNF Shareholders
certificates evidencing 5,163,202 Preferred Shares in payment
of the Purchase Price. 2,000,000 of the Preferred Shares
issuable to the Shareholder shall be delivered into escrow
pursuant to the terms of the Shareholder Escrow Agreement;"
12. Closing Transactions. Section 2.2(b)(ii) is hereby deleted in its
entirety.
13. Closing Transactions. Section 2.2(b)(xvii) is hereby amended to
provide in its entirety as follows:
"Each of the officers and directors of each of
Acquiror and JLL shall have tendered their resignations in
form and substance satisfactory to CNF and the Shareholder;"
14. Representations and Warranties of CNF and Shareholder. Section
4.1(y) is hereby added to provide in its entirety as follows:
"(y) CNF Stock Option Plan. Attached hereto as
Schedule 4.1(y) is a true, correct and complete copy of the
CNF 1997 Equity Incentive Plan (the "Plan"). The Plan is in
full force and effect on and as of the date hereof and has not
been amended, modified, superseded or qualified in any manner
whatsoever. The Plan has been duly adopted by all necessary
corporation action on the part of CNF. All of the CNF Options
were issued under the Plan in accordance with the terms of the
Plan. All CNF Options have been duly and validly authorized by
all necessary corporate action on the part of CNF and have not
been amended, modified, superseded or qualified in any manner
whatsoever."
15. Acquiror Post-Closing Actions. Section 5.1(vii) is hereby amended
to delete the words "CNF Holdings, Inc." and replace them with the words "CNF
Technologies, Inc."
16. Voting Agreement. Section 5.20 is hereby amended to provide in its
entirety as follows:
"(a) Subject to Section 5.20(b) below, until the
later of (i) the completion of audited financial statements of
Acquiror for the fiscal year ending March 31, 2000; or (ii)
June 30, 2000 (the "Term"), those shareholders of Acquiror
holding an aggregate of 2,100,000 shares of Common Stock as of
the Closing identified as signatories to this Amendment (the
"JLL Shareholders") agree to vote all voting securities of
Acquiror owned beneficially or of
4
<PAGE>
record by such holder at every Annual Meeting of Stockholders,
at any Special Meeting of Stockholders called for the purpose
of electing members to the Board of Directors, or will act by
written consent or otherwise take such action as is required,
to vote for and elect a Board of Directors in the manner
identified in Section 5.19(a) of this Agreement and not to
take any action inconsistent with Section 5.19 of this
Agreement, including voting any voting securities of Acquiror
to amend the Company's By-laws or Certificate of Incorporation
in a manner inconsistent with Section 5.19.
(b) In the event that the Acquiror issues additional
shares of Common Stock during the Term, it shall cause
shareholders of Acquiror holding that number of additional
shares of Common Stock equal to 50% of the number of
additional shares of Common Stock so issued to be subject to
the provisions of Section 5.20(a). In addition, if during the
Term certain of the Historic Acquiror Shareholders are caused
to surrender certain shares held in escrow or any events occur
such that the Shareholder holds voting power over more than
51% of the total number of Acquiror securities outstanding,
then, and in that event, the number of shares subject to
section 5.20(a) shall be reduced to equal only that number
necessary to grant voting power to the Shareholder (when added
to his then record and beneficial direct or indirect
ownership) equal to 51% of the total voting power of all
outstanding voting securities of Acquiror. Any shares of
Common Stock or other securities of Acquiror issued during the
Term upon exercise of any CNF Options shall be deemed to be
beneficially owned by Shareholder for the purpose of
determining whether Shareholder holds voting power over more
than 51% of the total number of Acquiror securities
outstanding.
17. Indemnification of Certain Obligations. Section 5.22 is hereby
added to provide in its entirety as follows:
"5.22 Indemnification of Certain Obligations. As set
forth on Schedule 5.22, Shareholder, Julie Charles, the wife
of the Shareholder, and David Thompson, the Chief Financial
Officer of CNF are personal guarantors of certain obligations
of CNF outstanding as of the Closing (the "Guarantees"). By
executing below, JLL and Acquiror hereby agree to indemnify,
defend and hold harmless, Shareholder, Julie Charles and David
Thompson from and against any and all demands, claims, actions
or causes of action, judgment, assessments, losses,
liabilities, damages or
5
<PAGE>
penalties and reasonable attorneys' fees and related
disbursements incurred by such person which arise out of or
result from any obligation of such person under any of the
Guarantees."
18. Capitalized Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed thereto in the Merger
Agreement.
19. Full Force and Effect. All other provisions in the Merger Agreement
shall remain in full force and effect except those identified within this
Amendment.
20. Counterpart and Facsimile. This Amendment may be executed in two or
more counterparts and delivered via facsimile, each of which shall be deemed to
be an original, and all of which together shall be deemed to be one and the same
instrument.
6
<PAGE>
IN WITNESS WHEREOF, Acquiror, JLL, CNF and the Shareholder have caused
this Amendment to be signed by their respective officers hereunto duly
authorized, all as of the date first written above.
JLL VENTURES (DELAWARE) CORP.,
a Delaware Corporation
By: /s/ Vincent J. Marold
---------------------------
Name: Vincent J. Marold
Title: President
JLL VENTURES ACQUISITION CORP.,
a Delaware Corporation
By: /s/ Vincent J. Marold
---------------------------
Name: Vincent J. Marold
Title: President
CNF, INC., a California Corporation
By: /s/ Paul Charles
---------------------------
Name: Paul Charles
Title: President
PAUL CHARLES
/s/ Paul Charles
---------------------------
Signature
7
<PAGE>
For the sole purpose of evidencing their agreement to the provisions of
Section 5.20 of the Agreement, the undersigned have executed this Agreement as
of the date first written above.
JLL SHAREHOLDERS
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
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<PAGE>
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
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Name:
------------------------
Number of Shares of Common Stock:
-------
By:
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Name:
------------------------
Number of Shares of Common Stock:
-------
9
<PAGE>
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
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Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
------------------------
Number of Shares of Common Stock:
-------
By:
--------------------------------
Name:
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Number of Shares of Common Stock:
-------
By:
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Name:
------------------------
Number of Shares of Common Stock:
-------
10
<PAGE>
Schedule 4.1(f)(iv)
Sublease Agreements
Sublease of 7722 East Gray Road,
Scottsdale, AZ 85260,
as amended
Located at Pages 02477-02478
of the Due Diligence Binders
11
<PAGE>
Schedule 4.1(y)
CNF Stock Option Plan
1997 Equity Incentive Plan
Located at Pages 01574-01590
of the Due Diligence Binders
12
<PAGE>
Schedule 5.22
Personal Guarantees
U.S. Small Business Administration Guarantee
Located at Pages 02753-02755
of the Due Diligence Binder
Commercial Guarantee
Loan #SJ02535721
Located at Pages 02757-02760
of the Due Diligence Binder
Commercial Guarantee
Loan #SJ04340901
Located at pages 02762-02768
of the Due Diligence Binder
13
EXHIBIT 2.3
AGREEMENT
AGREEMENT made as of the first day of November, 1999, by and among CNF
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), SYNERGY GROUP
INTERNATIONAL, INC., a Nevada corporation ("Synergy"), VINCENT MAROLD, an
individual residing at 4725 East Sunrise Drive, #228, Tucson, Arizona 85718
("Marold"), and PAUL CHARLES, an individual residing at 10931 East Laurel Lane,
Scottsdale, Arizona 85260 ("Charles").
W I T N E S S E T H:
WHEREAS, on April 16, 1999, an Agreement and Plan of Merger was entered
into among JLL Ventures (Delaware) Corp., ("JLL"), JLL Ventures Acquisition
Corp. ("JLL Acquisition"), CNF, INC., a California corporation ("CNF") and Paul
Charles as the principal shareholder of CNF (the "Original Merger Agreement"),
the purpose of which was to effectuate the merger of CNF with and into JLL
Acquisition (the "Merger");
WHEREAS, on May 24, 1999, the parties to the Original Merger Agreement
entered into Amendment No. 1 to the Agreement and Plan of Merger dated April 16,
1999 ("Amendment No. 1 to the Merger Agreement");
WHEREAS, in connection with the Original Merger Agreement and Amendment No.
1 to the Merger Agreement (referred to in the aggregate as the "Merger
Agreement"), Charles entered into an escrow agreement pursuant to which certain
of his shares of JLL were to be placed in escrow for indemnification claims,
among others (the "Shareholder Escrow Agreement"), and certain historic
stockholders of JLL entered into an escrow agreement pursuant to which certain
of their shares of JLL were placed in escrow to assure certain post-closing
placement activities (the "Acquiror Escrow Agreement");
<PAGE>
WHEREAS, effective as of June 19, 1999, the Merger was completed (the
"Closing") pursuant to which CNF merged into JLL Acquisition, JLL Acquisition
changed its corporate name to "CNF Mobile Solutions, Inc." and JLL changed its
corporate name to "CNF Technologies, Inc.";
WHEREAS, on July 14, 1999, the Company commenced a private placement of
shares of its common stock in a manner contemplated in the Merger Agreement (the
"Private Placement");
WHEREAS, in order to induce the interest of certain investors to invest in
the Private Placement, the Company and the parties hereto have agreed to modify
certain components of the Private Placement, which, in turn, require an
amendment to certain of the agreements entered into in connection with the
Merger; and
WHEREAS, the parties hereto have agreed to enter into this Agreement
(the "Agreement") which is intended to constitute a formal amendment to the
Original Merger Agreement, Amendment No. 1 to the Merger Agreement, the
Shareholder Escrow Agreement and the Acquiror Escrow Agreement.
NOW THEREFORE, in consideration of the premises and agreements contained
herein, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Matters of Corporate Governance
(a) Section 5.19 of the Original Merger Agreement shall be deleted in its
entirety, and shall be replaced by the following:
"Until May 19, 2001, Synergy, plus those other shareholders
who execute the signature page hereof, will agree to vote
their shares of common stock of the Company at any regular or
special meeting of its stockholders, or by written consent,
solicitation or otherwise, called or required for the purpose
of electing the Company's Board of Directors, for the
nomination of Charles to the Company's Board of Directors
should there be a Board consisting of less than
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<PAGE>
five (5) members; and for the nomination of Charles and an additional
designee of Charles, should the Board consist of five (5) or more
members."
(b) The Company shall amend its bylaws as promptly following the date
hereof as is practicable in order to effectuate the foregoing.
2. Voting Agreement.
Section 5.20 of the Original Merger Agreement and Section 16 of Amendment
No. 1 to the Merger Agreement shall be deleted in their entirety, and that
portion of Amendment No. 1 to the Merger Agreement pursuant to which certain of
the Company's stockholders executed the agreement to evidence their agreement to
the provisions of Section 5.20 shall be null and void.
3. Employment Arrangements.
(a) The Company shall enter into amended employment agreements with Paul
Charles, David Thompson and Reuben Daniel Rudich on terms agreed to by the
parties, as evidenced by a Term Sheet dated October 22, 1999.
(b) Charles has agreed to relinquish his position as Chief Executive
Officer and to cooperate with the Company's newly constituted Board of Directors
to select a replacement candidate with industry and other corporate experience
deemed acceptable to the investors of the Private Placement.
4. Surrender of Preferred Shares.
(a) In order to accommodate the issuance of equity considerations by the
Company to a new chief executive officer, and to encourage the conversion to
equity of holders of bridge indebtedness, Charles agrees to surrender to the
Company for cancellation 1,000,000 shares of Series A Convertible Preferred
Stock (the "Preferred Shares").
(b) The Company agrees to accord to Charles' remaining Preferred Shares the
same terms and conditions as may be provided to any other holders of the
Preferred Shares, should the
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<PAGE>
Company elect to modify, extend, alter or waive any of the terms and conditions
of the Preferred Shares.
5. Removal of Certain Charles Shares Held in Escrow.
(a) Section 9 of Amendment No. 1 to the Merger Agreement shall be modified
such that the 1,000,000 Preferred Shares surrendered according to Section 4 of
this Agreement shall be removed from the Preferred Shares held in escrow for
eighteen (18) months. Accordingly, the Shareholder Escrow Agreement is deemed
amended and modified to the extent necessary to remain consistent with the
above.
6. Private Placement: Modification to Acquiror Escrow.
(a) Section 5.13 of the Original Merger Agreement shall be deleted in its
entirety and shall be replaced by the following:
"(a) After the Closing, the Company shall undertake a private
placement transaction to accredited and institutional investors which
is intended to yield gross proceeds (the "Gross Proceeds") of no less
than $2 million, nor more than $6 million, through the sale of shares
of Common Stock (the "Private Placement"). For the purposes of this
Section 5.13, the term "Gross Proceeds" shall mean cash realized from
the sale of Common Stock, as well as the principal and accrued
interest cancelled by conversion of the Bridge Notes or other
unsecured indebtedness into equity (whether converted at the offering
price or any discount thereto) however issued during the "Offering
Period" (as herein defined). The Private Placement shall be completed
during an offering period (the "Offering Period") commencing July 14,
1999 through February 15, 2000. The Company's obligation to complete
the Private Placement is conditioned upon (i) there being no material
adverse change, or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise,
of CNF Mobile Solutions, Inc. ("CNF"), or the earnings, business
affairs, management or business prospects of CNF; and (ii) there being
no pending material indemnification claim hereunder regarding the
breach of any of the representations, warranties, agreement or
covenants of CNF or Charles hereunder on and as of the date of the
closing of the Private Placement. If the Company's Board of Directors
is unable to agree on whether an event set forth in Section 5.13(a)(i)
or 5.13(a)(ii) above has
-4-
<PAGE>
occurred, such dispute shall be submitted to arbitration in accordance
with Section 9.8 hereof. The Gross Proceeds of the Private Placement
shall be utilized for working capital purposes and, depending on the
amount of Gross Proceeds, to repay the Bridge Notes which are not
canceled in payment for shares issuable in the Private Placement or
otherwise. The Private Placement may be completed through the use of a
placement agent which is a broker-dealer registered with the
Securities and Exchange Commission and in good standing with the NASD,
upon payment of sales commissions, expenses and warrants which are
reasonable and customary in transactions of this nature.
(b) Subject to Section 5.13(c) below, the Historic Acquiror
Shareholders shall surrender that number of Acquiror Escrow Shares to
the Company for cancellation in accordance with the following:
(i) If Gross Proceeds of less than $2 million are realized
by the Company through either the Private Placement or through
conversion of Bridge Notes or other unsecured indebtedness by
December 6, 1999, the Historic Acquiror Shareholders shall
surrender 2,000,000 shares, and the Acquiror Escrow Agreement
shall terminate thereafter with no further obligation on the
Historic Acquiror Shareholders to surrender any additional
shares;
(ii) If $2 million of Gross Proceeds are raised by December
6, 1999, however, an additional $2 million of Gross Proceeds are
not realized by the Company through either the Private Placement
or through conversion of Bridge Notes or other unsecured
indebtedness by December 15, 1999, the Historic Acquiror
Shareholders shall surrender 1,000,000 shares; and
(iii) If $4 million of Gross Proceeds are raised by December
15, 1999, however, an additional $2 million of Gross Proceeds are
not realized by the Company through either the Private Placement
or through conversion of Bridge Notes or other unsecured
indebtedness by February 15, 2000, the Historic Acquiror
Stockholders shall surrender 1,000,000 shares.
(c) Notwithstanding the provisions of Section 5.13(b) above, the
Historic Acquiror Shareholders shall not be required to surrender any
of the Acquiror Escrow Shares in the event that a closing with respect
to the Private Placement is not completed within fifteen (15) days
after the expiration of the Offering Period as a result of: (i) the
occurrence of any events set forth at Section 5.13(a)(i); (ii) the
occurrence of any events set forth at
-5-
<PAGE>
Section 5.13(a)(ii); or (iii) Acquiror or Shareholder failing to
execute a definitive placement agent or similar agreement for the
placement of securities within 30 days from the time first proposed in
writing by any placement agent or broker-dealer in connection with the
Private Placement."
(b) The Acquiror Escrow Agreement shall be deemed amended so as to reflect
terms and conditions consistent with those set forth in Section 5.13(b) of the
Original Merger Agreement, as amended by the foregoing Section 6(a) of this
Agreement.
7. Private Sale of Securities.
Synergy will either purchase, or arrange for the purchase, of 200,000 of
the Preferred Shares owned by Charles, at a price of $1.25 per share, within no
more than ninety (90) days of the date the Company first files a registration
statement (on either Form 10 or Form SB-2) with the Securities and Exchange
Commission. The Preferred Shares shall be paid for at least 25% upon the date of
purchase, with the balance paid in three ratable monthly installments
thereafter.
8. Effective Date.
This Agreement shall be of full legal force and effect upon execution,
however, shall automatically terminate and be of no further force and effect,
and all of the actions contained herein shall be rescinded in the event that the
Company does not realize Gross Proceeds of $2 million by December 6, 1999
through the sale of stock in the Private Placement or through the conversion
into equity of Bridge Notes or other unsecured indebtedness.
9. Capitalized Terms.
All capitalized terms utilized herein and not otherwise defined herein,
shall have the meaning ascribed thereto in the Merger Agreement.
10. Full Force and Effect.
All other provisions in the Merger Agreement shall remain in full force and
effect except those identified in this Agreement.
-6-
<PAGE>
11. Counterpart and Facsimile.
This Agreement may be executed in two or more counterparts and delivered
via facsimile, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
(This Space Left Blank Intentionally)
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the date and year first written above.
CNF TECHNOLOGIES, INC.
By: /s/Paul Charles
-----------------------------------------------
Name: Paul Charles
Title: Chief Executive Officer
SYNERGY GROUP INTERNATIONAL, INC.
By: /s/Vincent Marold
----------------------------------------------
Name: Vincent Marold
Title: President
/s/Vincent Marold
----------------------------------------------
Vincent Marold, as designee of Acquiror's
Board of Directors pursuant to Section 5.19(a)
of the Original Merger Agreement
/s/Paul Charles
----------------------------------------------
Paul Charles
For the sole purpose of acknowledging their agreement to vote their shares in
the manner provided at Section 1(a) of this Agreement:
BY:____________________________ BY:____________________________
Name:__________________________ Name:__________________________
Number of Shares:______________ Number of Shares:______________
BY:____________________________ BY:____________________________
Name:__________________________ Name:__________________________
Number of Shares:______________ Number of Shares:______________
-8-
<PAGE>
BY:____________________________ BY:____________________________
Name:__________________________ Name:__________________________
Number of Shares:______________ Number of Shares:______________
BY:____________________________ BY:____________________________
Name:__________________________ Name:__________________________
Number of Shares:______________ Number of Shares:______________
BY:____________________________
Name:__________________________
Number of Shares:______________
-9-
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
JLL VENTURES (DELAWARE) CORP.
1. The name of the Corporation is:
JLL VENTURES (DELAWARE) CORP.
2. The address of its registered office in the State of Delaware is 1209
Orange Street, Wilmington, Delaware 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust
Company.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
4. The Corporation is authorized to issue capital stock to the extent of:
(a) Fifty Million (50,000,000) Shares Common Stock
Par Value $.0001 per Share; and
(b) Fifteen Million (15,000,000) Shares Preferred Stock
Par Value $.0001 Per Share (the "Preferred Stock")
The board of directors of the Corporation shall have the authority to
issue shares of Preferred Stock in series or subseries and to fix by
resolution the designations, powers, preferences, rights and the
qualifications, limitations, or restrictions in respect of any such
series or subseries.
5. The name and mailing address of the Sole Incorporator is as follows:
Paula S. Belcher
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
6. The Corporation is to have perpetual existence.
7. Indemnification and Insurance:
(a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of
<PAGE>
the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer, of the Corporation or
is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding
is alleged action in an official capacity as a director, officer,
employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including
attorney's fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be
director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however,
that, except as provided in paragraph (b) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors
of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity
as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled
to be indemnified under this Section or otherwise. The Corporation may,
by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect
as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit: If a claim under
paragraph (a) of this Section is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense
-2-
<PAGE>
shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard or conduct, shall be a
defense to the action or create a presumption that the claimant has not
met the applicable standard of conduct.
(c) Notwithstanding any limitation to the contrary contained
in subparagraphs 7(a) and 7(b), the Corporation shall to the fullest
extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify
under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section,
and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be
entitled under any By-Law or agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under Delaware General
Corporation Law.
8. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director for any act or omission; provided,
however, that the foregoing shall not eliminate or limit the liability
of a director (a) for any breach of the director's duty or loyalty to
the Corporation or its stockholders, (b) for any act or omission not in
good faith or which involves intentional misconduct or a knowing
violation of law, (c) under Section 174 of the General Corporation Law
of the State of Delaware, or (d) for any transaction from which the
director derived an improper personal benefit. Any repeal or
modification of this article by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification.
9. In furtherance and not in limitation of the powers conferred by the
General Corporation Law of the State of Delaware, the Board of
Directors of the Corporation is expressly authorized to make, alter, or
repeal the By-Laws of the Corporation.
-3-
<PAGE>
10. Elections of directors need not be by written ballot except and to the
extent provided in the By-Laws of the corporation.
I, Paula S. Belcher, being the Sole Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying and this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 17th day of March, 1999.
/s/ Paula S. Belcher
-----------------------------------------
Paula S. Belcher, Sole Incorporator
-4-
Exhibit 3.2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
JLL VENTURES (DELAWARE) CORP.
The undersigned, desiring to amend the Certificate of
Incorporation of JLL Ventures (Delaware) Corp., a Delaware corporation (the
"Corporation"), pursuant to Section 242 of the Delaware General Corporation law,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by
unanimous written consent evidenced by board resolutions, and
approval of the requisite vote of the stockholders of the
Corporation, has duly adopted the following resolution
proposing and declaring advisable the following amendment to
the Certificate of Incorporation:
RESOLVED, that Article I of the Certificate of
Incorporation of the Corporation be amended to provide in its
entirety as follows:
"1. The name of the Corporation is:
CNF Technologies, Inc."
SECOND: That the aforesaid amendment has been duly adopted in
accordance with Section 242 of the Delaware General
Corporation Law.
THIRD: That this amendment shall become effective upon the
filing of this Certificate with the Secretary of State of the
State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by, Paul Charles, its Chief Executive Officer, and David
Thompson, its Chief Financial Officer this 10th day of June, 1999.
JLL VENTURES (DELAWARE)
CORPORATION
By:/s/Paul Charles
-----------------------------
Paul Charles
Chief Executive Officer
By:/s/David Thompson
-----------------------------
David Thompson
Chief Financial Officer
Exhibit 3.3
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES A Convertible Preferred Stock
of
JLL VENTURES (DELAWARE) CORP.
Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware
JLL Ventures (Delaware) Corp. a Delaware corporation (the "Company"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, as amended, and in accordance with the provisions of Section
151(g) of the General Corporation Law of the State of Delaware, its Board of
Directors (the "Board of Directors") in an action taken as of April 16, 1999,
has duly adopted the following resolution amending a series of its Preferred
Stock, $.0001 par value, designating a segment thereof as Series A Convertible
Preferred Stock:
WHEREAS, the Certificate of Incorporation of the Company presently
authorizes the issuance of up to 15,000,000 shares of Preferred Stock, $.0001
par value, in one or more series upon terms and conditions that are to be
designated by the Board of Directors, of which no shares are currently issued
and outstanding;
WHEREAS, in order to effectuate a merger transaction deemed to be in
the Company's best interests by the Board of Directors, the Board of Directors
does hereby seek to provide for the designation of a segment of the Company's
Preferred Stock as "Series A Convertible Preferred Stock"; and
WHEREAS, the terms, conditions, voting rights, preferences, limitations
and special rights of the Series A Convertible Preferred Stock in their entirety
are as provided herein.
NOW, THEREFORE, be it:
RESOLVED, that a series of the class of authorized Preferred Stock,
$.0001 par value, of the Company hereinafter designated "Series A Convertible
Preferred Stock," be hereby created, and that the designation and amount thereof
and the voting powers, preferences and relative, participating and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
Section 1. Designation and Amount.
The shares of such series shall be designated as the "Series A
Convertible Preferred Stock" (the "Series A Convertible Preferred Stock") and
the number of shares initially constituting such series shall be 6,000,000,
which may be issued in whole shares.
<PAGE>
Section 2. Dividends and Distributions.
The holders of shares of Series A Convertible Preferred Stock
shall be entitled to receive such dividends or other distributions as are
declared by the Company's Board of Directors on the same basis, and to the same
extent as if the Series A Convertible Preferred Stock had already been converted
into shares of the Company's Common Stock, based upon the Conversion Ratio
applicable on the record date of the dividend or other distribution.
Section 3. Voting Rights.
The holders of all Series A Convertible Preferred Stock issued and
outstanding, in the aggregate, shall be entitled to the number of votes equal to
the number of shares of Common Stock into which such shares of Series A
Convertible Preferred Stock are convertible on any record date, or, if no such
record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, such votes to be counted together with all
other shares of stock of the Corporation having general voting power and not
separately as a class. Fractional votes by the holders of Series A Convertible
Preferred Stock shall not, however, be permitted, and any fractional voting
rights shall (after aggregating all shares into which shares of Series A
Convertible Preferred Stock held by each holder could be converted) be rounded
to the nearest whole number.
Section 4. Liquidation, Dissolution, Winding Up or Certain Mergers or
Consolidations.
(a) If the Company shall adopt a plan of liquidation or of
dissolution, or commence a voluntary case under the federal bankruptcy laws or
any other applicable state or federal bankruptcy, insolvency or similar law, or
consent to the entry of an order for relief in any involuntary case under such
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Company or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due and on account of such event the Company shall liquidate, dissolve or
wind up, or upon any other liquidation, dissolution or winding up of the
Company, or engage in a merger, plan of reorganization or consolidation in which
the Company is not the surviving corporation, then and in that event, the
holders of the Series A Convertible Preferred Stock shall be entitled to no
preference over the holders of the Company's Common Stock; rather, in that
event, the holders of the Series A Convertible Preferred Stock shall be
entitled, pari-passu with the holders of the Common Stock, to receive whatever
cash, securities or other consideration is payable or distributable to the
holders of the outstanding Common Stock of the Company, as if the Series A
Convertible Preferred Stock had already been converted into shares of the
Company's Common Stock, based upon the Conversion Ratio applicable on the record
date of the payment or distribution.
(b) Except as provided in subparagraph (a) above, neither the
consolidation, merger or other business combination of the Company with or into
any other person or persons in which the Company is the surviving corporation
nor the sale, lease, exchange or conveyance of all
2
<PAGE>
or any part of the property, assets or business of the Company to a person or
persons other than the holders of the Company's Common Stock, shall be deemed to
be a liquidation, dissolution or winding up of the Company.
Section 5. Conversion.
(a) The shares of Series A Convertible Preferred Stock shall
convert into shares of the Company's Common Stock (the "Conversion Date") upon
the earlier of: (i) the completion of audited financial statements of the
Company for the fiscal year ending March 31, 2000; (ii) June 30, 2000; or (iii)
upon whatever earlier date the holder elects to convert.
(b) Subject to the provisions for adjustment hereinafter set
forth, the shares of Series A Convertible Preferred Stock shall be convertible
into fully paid and non-assessable shares of Common Stock, based upon the
conversion ratio hereinafter set forth (the "Conversion Ratio"):
(i) Subject to subparagraph (ii) below, the
Conversion Ratio shall be one (1) share of Common Stock issuable for each share
of Series A Convertible Preferred stock converted or subject to conversion.
(ii) If, however, the Company achieves any of the
financial performance targets identified in the chart below, relating to the
Company's audited results of operations for the year ending March 31, 2000 (the
"Financial Performance Targets"), in lieu of the Conversion Ratio identified in
Subparagraph (i) above, the Conversion Ratio shall be as set forth in the chart
below:
<TABLE>
<CAPTION>
Conversion Ratio: Shares of Common
Stock to be Issued Upon Conversion
Financial Performance Targets(1) of each Share of Preferred Stock Held
-------------------------------- -------------------------------------
<S> <C>
Gross Revenues of $22.5 million(2) and Net Income 1.5
of $900,000(3)
Gross Revenues of $38.25 million(2) and Net Income 1.75
of $1.53 million(3)
Gross Revenues of $51 million(2) and Net Income of 2.00
$2.04 million(3)
Gross Revenues of $64 million(2) and Net Income 2.25
of $2.56 million(3)
</TABLE>
(1) The Financial Performance Targets are to be derived from the results of
operations reflected within the Company's audited financial statements for
the fiscal year ending March 31, 2000.
(2) The Financial Performance Targets with respect to Gross Revenues shall be
considered to have been achieved if actual Gross Revenues are within 10% of
the targeted amount.
(3) The Financial Performance Targets with respect to Net Income shall be
considered to have been achieved if actual Net Income is within 10% of the
targeted amount.
3
<PAGE>
(c) The number of shares of Common Stock into which each share
of Series A Convertible Preferred Stock is convertible also shall be subject to
adjustment from time to time as follows:
(i) In case the Company shall, at any time or from
time to time while any shares of Series A Convertible Preferred Stock are
outstanding, declare a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock or subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares or combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then in each case,
(A) the number of shares of Common Stock
into which each share of Series A Convertible Preferred Stock is convertible
shall be adjusted so that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of Common Stock which
the holder of a share of Series A Convertible Preferred Stock would have been
entitled to receive after the happening of any of the events described above had
such share been converted immediately prior to the happening of such event or
the record date therefor, whichever is earlier; and
(B) an adjustment made pursuant to this
clause (i) shall become effective (I) in the case of any such dividend or
distribution, immediately after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive such
dividend or distribution, or (II) in the case of any such subdivision,
reclassification or combination, at the close of business on the day upon which
such corporate action becomes effective.
(ii) In case there shall be, at any time or from time
to time while any shares of Series A Convertible Preferred Stock are
outstanding, a capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 5) or a merger or consolidation of the Company with or
into another corporation pursuant to which the Company is not the acquiring
entity and pursuant to which the stockholders of the Company are requested to
exchange or convert their securities for securities of an acquiring entity, or
the sale of all or substantially all of the Company's assets, then, as a
condition of the consummation of such transaction, in addition to the
requirements of paragraph 4(a), lawful and adequate provision shall be made so
that each holder of shares of Series A Convertible Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Convertible
Preferred Stock, the number of shares of Common Stock or other securities or
property of the Company, or of the successor corporation of such merger or
consolidation to which such holder would have been entitled if such holder had
converted its shares immediately prior to the consummation of such transaction.
(d) If the nature and/or character of the Common Stock
issuable upon the conversion of the Series A Convertible Preferred Stock shall
be changed into the same or different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification or otherwise
(except as provided pursuant to Section 5(c) above), then and in each such
event, the holders of Series A Convertible Preferred Stock shall have the right
thereafter to convert such shares into the kind and amount of shares of stock
and other securities and property
4
<PAGE>
receivable upon such capital reorganization, reclassification or other change
which such holders would have received had their shares of Series A Convertible
Preferred Stock been converted immediately prior to such capital reorganization,
reclassification or other change.
(e) The holder of any shares of Series A Convertible Preferred
Stock may exercise his right to convert such shares into shares of Common Stock
by surrendering for such purpose to the Company, at the address set forth below,
or any successor location, a certificate or certificates representing the shares
of Series A Convertible Preferred Stock to be converted with the form of
election to convert (the "Election to Convert") attached hereto as Exhibit A
completed and executed as indicated, thereby stating that such holder elects to
convert all or a specified whole number of such shares in accordance with the
provisions of this Section 5 and specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. The Election to Convert and the stock certificate(s) to be converted
shall be delivered as follows:
JLL Ventures (Delaware) Corp.
4725 East Sunrise Drive, #228
Tucson, Arizona 85718
Attention: Vincent Marold, President
Telephone: (520) 615-1100
Facsimile: (520) 299-5149
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
Telephone: (215) 665-3873
Facsimile: (215) 665-8760
In case the Election to Convert shall specify a name or names other
than that of such holder, it shall be accompanied by payment of all transfer or
other taxes payable upon the issuance of shares of Common Stock in such name or
names that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series A Convertible Preferred Stock pursuant
hereto. The Company will have no responsibility to pay any taxes with respect to
the Series A Convertible Preferred Stock. As promptly as practicable, and in any
event within five business days after the surrender of such certificate or
certificates and the receipt of the Election to Convert, and, if applicable,
payment of all transfer or other taxes (or the demonstration to the satisfaction
of the Company that such taxes have been paid), the Company shall deliver or
cause to be delivered (i) certificates representing the number of validly
issued, fully paid and nonassessable full shares of Common stock to which the
holder of shares of Series A Convertible Preferred Stock so converted shall be
entitled and (ii) if less than the full number of shares of Series A Convertible
Preferred Stock evidenced by the surrendered certificate or certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of
5
<PAGE>
shares evidenced by such surrendered certificate or certificates less the number
of shares converted. Such conversion shall be deemed to have been made at the
close of business on the date of giving of the Election to Convert and of such
surrender of the certificate or certificates representing the shares of Series A
Convertible Preferred Stock to be converted so that the rights of the holder
thereof as to the shares being converted shall cease except for the right to
receive shares of Common Stock in accordance herewith, and the person entitled
to receive the shares of Common Stock shall be treated for all purposes as
having become the record holder of such shares of Common Stock at such time. The
Company shall not be required to convert, and no surrender of shares of Series A
Convertible Preferred Stock shall be effective for that purpose, while the
transfer books of the Company for the Common Stock are closed for any purpose
(but not for any period in excess of 15 calendar days); but the surrender of
shares of Series A Convertible Preferred Stock for conversion during any period
while such books are so closed shall become effective for conversion immediately
upon the reopening of such books, as if the conversion had been made on the date
such shares of Series A Convertible Preferred Stock were surrendered, and at the
conversion rate in effect at the date of such surrender.
(f) In connection with the conversion of any shares of Series
A Convertible Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Company shall pay a cash adjustment in respect
of such fractional interest in an amount equal to the fair market value of such
fractional interest, as determined by the Company's Board of Directors in the
good faith exercise of its reasonable business judgment.
Section 6. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share of
Series A Convertible Preferred Stock is convertible is adjusted as provided in
Section 5 hereof, the Company shall promptly mail to the holders of record of
the outstanding shares of Series A Convertible Preferred Stock at their
respective addresses as the same shall appear in the Company's stock records a
notice stating that the number of shares of Common Stock into which the shares
of Series A Convertible Preferred Stock are convertible has been adjusted and
setting forth the new number of shares of Common Stock (or describing the new
stock, securities, cash or other property) into which each share of Series A
Convertible Preferred Stock is convertible, as a result of such adjustment, a
brief statement of the facts requiring such adjustment and the computation
thereof, and when such adjustment became effective.
Section 7. Redemption.
The Company shall not have the right to redeem all or any part of the
Series A Convertible Preferred Stock and the Holder shall not have the right to
cause or request such a redemption.
6
<PAGE>
Section 8. Registration Rights.
The holders of the Series A Convertible Preferred Stock shall have the
registration rights as set forth in the Registration Rights Agreements attached
as Exhibit 5.5(b) to the Merger Agreement dated as of April 16, 1999.
Section 9. Amendment.
So long as any shares of Series A Convertible Preferred Stock are
outstanding, the Company shall not, without first obtaining the approval of the
holders of at least a majority of the aggregate number of then outstanding
shares of Series A Convertible Preferred Stock, take any action that alters the
rights, preferences or privileges of the Series A Convertible Preferred Stock.
Section 10. Reacquired Shares.
Any shares of Series A Convertible Preferred Stock converted, purchased
or otherwise acquired by the Company in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof, and, if necessary to
provide for the lawful purchase of such shares, the capital represented by such
shares shall be reduced in accordance with the General Corporation Law of the
State of Delaware. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock, $.0001 par value, of the
Company and may be reissued as part of another series of Preferred Stock, $.0001
par value, of the Company.
RESOLVED FURTHER, that appropriate officers of the Company are hereby
authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 151 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation of Series A Convertible Preferred Stock to be duly executed by its
President this 19th day of May, 1999.
JLL VENTURES (DELAWARE) CORP.
By:/s/Vincent Marold
------------------------------
Vincent Marold,
President
7
<PAGE>
EXHIBIT A
ELECTION TO CONVERT
(To be Executed by Holder
in order to Convert Shares of Series A Convertible Preferred Stock)
The undersigned, as a holder ("Holder") of shares of Series A Convertible
Preferred Stock ("Preferred Shares") of JLL Ventures (Delaware) Corp. (the
"Company"), hereby irrevocably elects to convert _____________ Preferred Shares
for shares ("Common Shares") of common stock, par value $.0001 per share (the
"Common Stock"), of the Company according to the terms and conditions of the
Certificate of Designation for the Preferred Shares as of the date written
below. The undersigned hereby requests that share certificates for the Common
Stock to be issued to the undersigned pursuant to this Election to Convert be
issued in the name of, and delivered to, the undersigned or its designee as
indicated below. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed thereto in the Certificate of Designation.
Conversion Date: __________________________
Conversion Information: NAME OF HOLDER: ____________________________________
By: ____________________________________
Print Name: ____________________________________
Print Title: ____________________________________
Print Address: ____________________________________
____________________________________
____________________________________
Issue Common Stock to: _____________________________
at: _____________________________
_____________________________
If Common Stock is to be issued to a person other than Holder,
Holder's signature must be guaranteed below:
SIGNATURE GUARANTEED BY: _____________________________
THE COMPUTATION OF NUMBER OF SHARES OF COMMON STOCK TO BE RECEIVED IS SET FORTH
ON PAGE 2 OF THE CONVERSION NOTICE.
Page 1 of Conversion Notice
<PAGE>
COMPUTATION OF NUMBER OF SHARES OF COMMON STOCK TO BE RECEIVED
Number of shares of Preferred Stock converted: ________ shares
Conversion Ratio: _________________
Explain method and basis of computation of Conversion Ratio
(include cross-reference to applicable section, if necessary):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please issue and deliver _____ certificate(s) for shares of Common Stock in the
following amount(s):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
If the Holder is receiving certificate(s) for shares of Preferred Stock upon the
conversion, please issue and deliver _____ certificate(s) for shares of
Preferred Stock in the following amounts:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Page 2 of Conversion Notice
Exhibit 3.4
BY-LAWS
of
JLL VENTURES (DELAWARE) CORP.
1. Offices
JLL Ventures (Delaware) Corp. (hereinafter the "Corporation")
may have offices and places of business at such places, within or without the
State of Delaware, as the Board of Directors may from time to time determine or
the business of the Corporation may require.
2. Meeting of Stockholders
2.1 Place of Meetings.
All meetings of the stockholders for the election of directors
shall be held at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver thereof.
2.2 Annual Meeting.
Annual meetings of stockholders commencing with the year 2000
shall be held on the date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting or in a duly
executed waiver thereof.
2.3 Special Meetings.
Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President or Board of Directors and shall be
called by the President or Secretary at the request in writing of stockholders
owning not less than one-fifth of the entire capital stock of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
2.4 Notice.
Written notice of each meeting of stockholders shall be given
in the manner prescribed in Article IV of these By-laws which shall state the
place, date and hour of the meeting and, in the case of a special meeting, shall
state the purpose or purposes for which the meeting is called. In the case of a
meeting to vote on a proposed merger or consolidation, such notice shall
<PAGE>
state the purpose of the meeting and shall contain a copy of the agreement or
brief summary thereof and, in the case of a meeting to vote on a proposed sale,
lease or exchange of all of the Corporation's assets, such notice shall specify
that such a resolution shall be considered. Such notice shall be given to each
stockholder of record entitled to vote at the meeting not less than ten (10) nor
more than sixty (60) days prior to the meeting, except that where the matter to
be acted on is a merger or consolidation of the Corporation or a sale, lease or
exchange of all or substantially all of its assets, such notice shall be given
not less than twenty (20) nor more than sixty (60) days prior to such meeting.
If mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the corporation.
2.5 Business.
Business transacted at any special meeting of stockholders
shall be limited to the purpose or purposes stated in the notice.
2.6 Quorum and Adjournment.
Except as otherwise provided by statute or the Certificate of
Incorporation, the holders of a majority of the shares of the Corporation issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall be necessary to and shall constitute a quorum for the
transaction of business at each meeting of stockholders but in no event shall a
quorum consist of less than one-third of the shares entitled to vote at the
meeting. If a quorum shall not be present at the time fixed for any meeting, the
stockholders present, in person or by proxy, and entitled to vote thereat shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. At such adjourned
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.7 Voting.
Unless otherwise provided in the Certificate of Incorporation
and subject to the provisions of Article VI, Section 4 of these By-laws, each
stockholder shall be entitled to one vote, in person or by proxy, for each share
of capital stock held by such stockholder. If the Certificate of Incorporation
provides for more or less than one vote for any share, on any matter, every
reference in these By-laws to a majority or other proportion of stock shall
refer to such majority or other proportion of the votes of such stock.
2.8 Vote Required.
When a quorum is present at any meeting, in all matters other
than the election of directors, the vote of the holders of a majority of the
shares present in person or represented by
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<PAGE>
proxy and entitled to vote on the subject matter shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the statutes or of the Certificate of Incorporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question. Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors.
2.9 Voting Lists.
The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
2.10 Proxy.
Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy, but no
such proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that
it is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
2.11 Consents.
Any action required or permitted to be taken at any annual or
special meeting of the stockholders may be taken without a meeting, without
prior notice and a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Where corporate action is taken in such manner by less than
unanimous written
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<PAGE>
consent, prompt written notice of the taking of such action shall be given to
all stockholders who have not consented in writing thereto.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by statute to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
3. Directors
3.1 Board of Directors.
The business and affairs of the Corporation shall be managed
by or under the direction of its Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, except as
provided in the Certificate of Incorporation.
3.2 Number; Election and Tenure.
The number of directors which shall constitute the whole Board
shall be not less than one (1) nor more than five (5). The first Board shall
consist of one (1) director. Thereafter, within the limits above specified, the
number of directors shall be determined by resolution of the Board of Directors
or by the stockholders at the annual meeting. The directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 3 of this
Article, and each director elected shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Any director
may resign at any time upon written notice to the Corporation. Directors need
not be stockholders.
3.3 Vacancies.
Vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, or until his earlier resignation or removal. If at
any time, by reason of death or resignation or other cause, the Corporation
should have no directors in office, then any officer or any stockholder or an
executor, administrator, trustee or guardian of a stockholder, or other
fiduciary entrusted with like responsibility for the person or estate of a
stockholder, may call a special meeting of stockholders in accordance with the
provisions of the Certificate of Incorporation or
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the By-laws or may apply to the Court of Chancery for a decree summarily
ordering an election as provided by statute.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
3.4 Meetings.
The Board of Directors of the Corporation may hold its
meetings, and have an office or offices, within or without the State of
Delaware.
3.5 First Meeting.
The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
3.6 Notice.
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board. A special meeting of the Board may be called by the President or
any Vice President and a special meeting shall be called by the President on the
written request of two directors. Notice of each special meeting of the Board of
Directors, specifying the place, day and hour of the meeting, shall be given in
the manner prescribed in Article IV of these By-Laws and in this Section 6,
either personally or by mail, by courier, telex or telegram to each director, at
the address or the telex number supplied by the director to the Corporation for
the purpose of notice, at least 48 hours before the time set for the meeting.
Neither the business to be transacted at, nor the purpose of any meeting of the
Board, need be specified in the notice of the meeting.
3.7 Quorum and Voting.
Except as may be otherwise specifically provided by statute or
by the Certificate of Incorporation, a majority of the total number of directors
shall constitute a quorum for the
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transaction of business. The vote of the majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors.
Members of the Board or members of any committee designated by
the Board may participate in meetings of the Board or of such committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in such meeting shall constitute presence in person at such meeting.
3.8 Consents.
Unless otherwise restricted by the Certificate of
Incorporation, any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
3.9 Committees.
The Board of Directors may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of one or more directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation; and, unless the resolution, By-laws or Certificate
of Incorporation provides, no such committee shall have the power or authority
to declare a dividend or to authorize the issuance of stock. In the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by the Board of
Directors.
3.10 Committee Minutes.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
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3.11 Compensation of Directors.
The directors as such, and as members of any standing or
special committee, may receive such compensation for their services as may be
fixed from time to time by resolution of the Board. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
The directors may be paid their expenses, if any, for
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
3.12 Removal of Directors.
Any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
4. Notices
4.1 Form of Notice.
Whenever, under the provisions of the Delaware General
Corporation Law or of the Certificate of Incorporation or of these By-laws,
notice is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
first class or express mail, addressed to such director or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail, except that, in the case of
directors, notice sent by first class mail shall be deemed to have been given
forty-eight hours after being deposited in the United States mail. Whenever,
under these By-laws, notice may be given by telegraph, courier or telex, notice
shall be deemed to have been given when deposited with a telegraph office or
courier service for delivery or, in the case of telex, when dispatched.
4.2 Waiver of Notice.
Whenever notice is required to be given under any provisions
of the Delaware General Corporation Law or the Certificate of Incorporation or
these By-laws, a written waiver, signed by the person or persons entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
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committee of directors need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation or the By-laws.
5. Officers
5.1 Selection of Officers.
The officers of the Corporation shall be chosen by the
directors and shall consist of a president and secretary. The Board of Directors
may also choose a treasurer, one or more vice presidents, and one or more
assistant secretaries. Any number of offices may be held by the same person,
unless the Certificate of Incorporation or these By-laws otherwise provide. A
failure to elect officers shall not dissolve or otherwise affect the
Corporation.
5.2 Term of Office, Removal and Vacancies.
Each officer of the Corporation shall hold his office until
his successor is elected and qualifies or until his earlier resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring by death, resignation, removal or otherwise, in
any office of the Corporation, shall be filled by the Board of Directors.
5.3 Compensation.
The salaries of the officers of the Corporation may be fixed
by the Board of Directors.
5.4 Bond.
The Corporation may secure the fidelity of any or all of its
officers or agents by bond or otherwise.
5.5 The President.
The President shall be the chief executive officer of the
Corporation, shall preside at all meetings of the stockholders and the Board of
Directors, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall have the power to appoint and remove
such subordinate officers and agents other than those actually appointed or
elected by the Board of Directors as the business of the Corporation may
require.
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5.6 Vice President.
Each Vice President, if any, shall perform such duties as
shall be assigned to him by the Board of Directors or President, and, in the
absence or disability of the President, the most senior in rank of the Vice
Presidents shall perform the duties of the President.
5.7 Secretary.
The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Board of Directors and the stockholders in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or President.
He shall be the custodian of the seal of the Corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it, and when so affixed, it may be attested by his signature or by the signature
of such assistant secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
5.8 Assistant Secretary.
The Assistant Secretary, if any, or assistant secretaries, if
more than one, shall perform the duties of the secretary in his or her absence
and shall perform such other duties as the Board of Directors, the President or
the Secretary may from time to time designate.
5.9 Treasurer.
The Treasurer shall have custody of the corporate funds and
securities and shall keep, or cause to be kept, full and accurate amounts of
receipts and disbursements in books kept for that purpose. He shall deposit all
monies, and other valuable effects, in the name and to the credit of the
Corporation, in such depository as the Board of Directors shall designate. As
directed by the Board of Directors or the President, he shall disburse monies of
the Corporation, taking proper vouchers for such disbursements and shall render
to the President and directors an account of all his transactions as Treasurer
and of the financial condition of the Corporation. In addition, he shall perform
all the usual duties incident to the office of Treasurer.
6. Certificates of Stock and Transfers
6.1 Certificates of Stock; Uncertificated Shares.
The shares of the Corporation shall be represented by
certificates, provided that the Board of Directors may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation.
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Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the Corporation by, the President or any Vice President, and
countersigned by the Secretary or any Assistant Secretary or the Treasurer,
representing the number of shares registered in certificate form. Any or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
6.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificate or Uncertificated Shares.
The Board of Directors may issue a new certificate of stock or
uncertificated shares in place of any certificate therefore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative to give the Corporation a bond sufficient to indemnify it against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate or
uncertificated shares.
6.3 Record Date.
In order that the Corporation may determine the stockholders
entitled to notice of, or to vote at, any meeting of stockholders or at any
adjournment thereof in respect of which a new record date is not fixed, or to
consent to corporate action without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
date shall not be more than sixty (60) nor less than ten (10) days before the
date of any such meeting, nor more than ten (10) days after the date on which
the date fixing the record date for the consent of stockholders without a
meeting is adopted by the Board of Directors, nor more than sixty (60) days
prior to any other such action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
6.4 Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as of any record date fixed or
determined pursuant to Section 3 of this Article as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part
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of any other person, regardless of whether it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of Delaware.
7. General Provisions
7.1 Dividends.
Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock, subject to the provisions of the Certificate of Incorporation.
7.2 Liability of Directors as to Dividends or Stock Redemption.
A member of the board of directors, or a member of any
committee designated by the board of directors, shall be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by any
of its officers or employees, or committees of the Board of Directors, or by any
other person as to matters the director reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid, or with which the Corporation's
stock might properly be purchased or redeemed.
7.3 Reserve for Dividends.
Before declaring any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
7.4 Annual Statement.
The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
7.5 Signing Checks, Notes, etc.
All checks or other orders for the payment of money and all
notes or other instruments evidencing indebtedness of the Corporation shall be
signed on its behalf by such
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officer or officers or such other person or persons as the Board of Directors
may from time to time designate, or, if not so designated, by the President or
any Vice President of the Company.
7.6 Fiscal Year.
The fiscal year of the Corporation shall end on December 31of
each year or as otherwise determined by resolution of the Board of Directors.
7.7 Seal.
The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
7.8 Voting of Securities of Other Corporations.
In the event that the Corporation shall, at any time or from
time to time, own and have power to vote any securities (including but not
limited to shares of stock or partnership interests) of any other issuer, they
shall be voted by such person or persons, to such extent and in such manner, as
may be determined by the Board of Directors or, if not so determined, by any
duly elected officer of the Corporation.
8. Indemnification
8.1 Indemnification.
Except as otherwise provided below, each person who was or is
made a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding") and
whether or not by or in the right of the Corporation or otherwise, by reason of
the fact that he or she, or a person of whom he or she is the heir, executor or
administrator, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as director or officer or trustee of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director or officer or trustee, or in any other capacity while serving as a
director or officer or trustee, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by law, as the same exist or may
hereinafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than are permitted the corporation to provide prior to
such amendment), against all reasonable expenses, including attorneys' fees, and
any liability and loss, including judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement, incurred or paid by such
person in connection therewith, and such indemnification shall continue as to a
person who has ceased to be a director or officer or trustee; provided, however,
that except as provided in paragraph (b)
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hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this section shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of the final
disposition thereof; provided, however, that to the extent required by the law,
the payment of such expenses incurred by an officer or director in advance of
the final disposition of a proceeding shall be made only upon receipt of an
undertaking, by or on behalf of such person, to repay all amounts so advanced if
it shall ultimately be determined that he or she is not entitled to be
indemnified under this section or otherwise. The right to indemnification and
advancement of expenses provided herein shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person.
8.2 Right to Claimant to Bring Suit.
If a claim under Section 1 of this Article is not paid in full
by the Corporation within thirty (30) days after a written claim has been
received by the Corporation, the claimant may, at any time thereafter, bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim.
8.3 Non-Exclusivity of Rights.
The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of a final disposition conferred
in this Article VIII shall not be exclusive of any other rights to which those
seeking indemnification or advancement of expenses hereunder may be entitled
under any bylaw, agreement, vote of stockholders or directors or otherwise, both
as to action in his official capacity and as to action in any other capacity
while holding that office.
8.4 Funding.
The Corporation may create a fund of any nature, which may,
but need not be, under the control of a trustee, or otherwise secure or insure
in any manner its indemnification obligations, whether arising under or pursuant
to this bylaw or otherwise.
9. Amendments
These By-laws may be altered, amended or repealed, and new
By-laws may be adopted, by the stockholders, or by the Board of Directors when
such power is conferred upon the Board of Directors by the Certificate of
Incorporation.
Dated: March 26, 1999
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Amendment to the ByLaws:
EXCERPT FROM 5-19-99 WRITTEN CONSENT
"RESOLVED, that pursuant to the authority vested in this Board
of Directors under Article IX of the Bylaws, Article 7.6 of the Bylaws is hereby
amended to read in its entirety as follows:
"7.6 Fiscal Year. The fiscal year of the Corporation
shall end on March 31 of each year or as otherwise determined by resolution of
the Board of Directors."
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Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 19th day of May, 1999, by and between
JLL VENTURES (Delaware) CORP., a Delaware corporation (hereinafter "Company"),
and Paul D. Charles an individual (hereinafter "Executive").
W I T N E S S E T H:
WHEREAS, on the date hereof, JLL Ventures Acquisition Corp., a Delaware
corporation ("JLL"), and wholly-owned subsidiary of the Company, acquired CNF
Inc., a California corporation ("CNF"), pursuant to the terms of an Agreement
and Plan of Merger (the "Merger Agreement");
WHEREAS in connection with the Merger Agreement, Executive agreed to
become employed with the Company upon the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants
of the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
A. The Company hereby employs Executive and Executive hereby
accepts employment by the Company as its Chief Executive Officer and President.
Executive agrees to serve the Company in such capacity, subject to the terms and
conditions of this Agreement, for a term, commencing on the date hereof and
expiring three years from that date of this Agreement (the "Term").
2. Duties.
A. During the Term, Executive shall use his best efforts to
perform all duties required in furtherance of his position, including without
limitation all such duties as are
<PAGE>
customarily associated with such position or as are assigned to him from time to
time by the Board of Directors of the Company.
B. Executive shall diligently and faithfully devote his entire
time, energy, skill, and best efforts to the performance of his duties under
this Agreement during reasonable business hours. Executive shall conduct himself
at all times so as to advance the best interests of the Company, and shall not
undertake or engage in any other business activity or continue or assume any
other business affiliations which conflict or interfere with the performance of
his services hereunder without the prior written consent of the Board of
Directors of the Company. Executive also agrees that he shall not usurp or
misappropriate, either to himself, or to any other person or entity, any
corporate or other opportunities that would otherwise be available to the
Company.
3. Compensation.
A. The Company shall pay Executive and Executive shall accept,
as his base compensation ("Base Compensation") for all services rendered to the
Company pursuant hereto, an annual salary of $250,000, to be paid in accordance
with the general payroll practices of the Company as from time to time in
effect, subject to all applicable federal and state tax withholding
requirements. Executive shall also be entitled, subject to the terms and
conditions of particular plans and programs, to all fringe benefits afforded to
other executives of Company in the discretion of the Board of Directors,
including, but not limited to, the right to participate in any pension,
retirement, major medical, group health, disability, accident and life
insurance, and other employee benefit programs made generally available, from
time to time, by the Company (collectively, "Benefits").
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B. In addition to Base Compensation, a "Discretionary Bonus"
may be awarded to Executive on the basis of merit performance on an annual basis
in the discretion of the Company's Board of Directors or Compensation Committee.
Base Compensation and Discretionary Bonus shall hereinafter collectively be
referred to as "Compensation."
C. Executive shall be entitled to participate in any stock
option programs adopted by the Company to the extent determined on a
discretionary basis by the Board of Directors of the Company or Compensation
Committee thereof.
4. Vacation and Reimbursement of Expenses.
A. Executive shall receive paid vacation in each calendar year
in accordance with the written policy of the Company, or as otherwise determined
by the board of Directors of the Company, to be taken at times which do not
unreasonably interfere with the performance of the Employee's duties hereunder
and in no event shall Executive schedule more than ten (10) consecutive days of
vacation during any three month period without the prior written consent of the
Board of Directors;
B. Executive shall be reimbursed for such reasonable expenses
as are directly incurred for the business of the Company upon presentation by
Executive of an itemized account of such expenditures, but only to the extent
that such expenses are deductible to the Company pursuant to rules and
regulations adopted by the United States Internal Revenue Service; provided,
however, that any expenses are in accordance with Company policy.
5. Termination.
A. Executive's employment and rights to Compensation and
Benefits hereunder shall terminate immediately if Executive voluntarily leaves
the employment of the Company; except that the Company shall have the obligation
to pay Executive such portion of his
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Base Compensation provided for in Section 3.A hereof as may be accrued but
unpaid on the date Executive voluntarily leaves the employment of the Company.
In the event that Executive voluntarily leaves the employment of the Company, he
shall provide at least ninety (90) days' written notice.
B. The Company may at any time, upon written notice to
Executive giving the reasons therefor, terminate Executive's employment and his
right to Compensation hereunder "For Cause." As used herein, the term "For
Cause" shall be defined to include: (i) with respect to the fiscal year ending
March 31, 2000, the Company's audited financial statements for such period
reflecting: (a) revenues of less than $17,500,000; or (b) a net loss exclusive
of extraordinary items determined in accordance with generally accepted
accounting principles in excess of $500,000; (ii) with respect to all subsequent
periods during the Term, if the Company fails to achieve for two (2) consecutive
quarters such quarterly financial performance targets for revenue and pre-tax
net income as are determined by the Compensation or similar committee of the
Board of Directors (a majority of whose members shall be non-employee
directors), in consultation with executive management, as determined prior to or
during the first fiscal quarter of each fiscal year; (iii) conviction of
Executive of any felony, fraud, embezzlement, or crime of moral turpitude; (iv)
controlled substance abuse or drug addiction; (v) alcoholism which interferes
with or affects Executive's responsibilities; (vi) grossly negligent, reckless
or intentional misconduct which is materially injurious to the Company; (vii)
violation of any express written direction of or any reasonable written rule or
regulation established by the Company's Board of Directors from time to time
which violation has not been cured to the Company's satisfaction within thirty
(30) calendar days of the dispatch of written notice to the Executive of the
violation. In the event of a termination For Cause, Executive's employment and
right to Compensation and Benefits
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hereunder shall terminate immediately, except that the Company shall have the
obligation to pay Executive such portion of his Base Compensation as may be
accrued but unpaid on the date his employment is terminated.
C. Commencing on the one (1) year anniversary of the
Agreement, Executive may also be terminated for any reason ("Without Cause") in
the discretion of the Board of Directors of the Company. In the event of a
termination Without Cause, Executive's employment and right to Compensation and
Benefits shall terminate immediately and Executive shall, in lieu thereof, be
entitled to severance pay consisting of a continuation of Base Compensation and
Benefits for a period of one (1) year. During the period in which payments are
made to Executive pursuant to this Section 5.C, Executive shall remain subject
to the limitations identified in Section 6 hereafter.
D. Unless Executive's employment hereunder is terminated by
reason of: (i) his voluntary resignation or retirement; or (ii) by reason of any
of the "For Cause" events set forth at Section 5.B(ii) (vii), Executive shall be
removed as a guarantor of any Company obligations in force as of the date of
this Agreement prior to any termination becoming effective and by virtue of this
agreement Executive does hereby grant the Company the right in his place and
stead to secure the removal of any such guaranteed obligations at no cost to
Executive.
6. Confidentiality and Related Matters.
A. Acknowledgment of Nature and Value of Confidential
Information: For the purposes of this Section 6 only, the term "Company" shall
include the Company, all subsidiaries of the Company and CNF. Executive
recognizes, acknowledges and agrees: (i) that in the course of Executive's
employment by the Company, it has been, and will continue to be, necessary for
Executive to acquire, in a fiduciary capacity of trust, information which could
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include, in whole or in part, but is not limited to: information concerning the
Company's rate schedules; rate quotations; the names, addresses, credit terms
and nature of services provided by the vendors utilized by the Company; the
names, addresses, credit terms and nature of services provided to customers of
the Company; the identity of the Company's suppliers, sales representatives,
shippers or other entities with whom Executive has come into contact as a result
of his employment with the Company, or which should otherwise come into his
knowledge during the term of this Agreement; the salaries, skills, education or
abilities of the Company's employees; the Company's sales, sales volume, sales
methods and sales proposals; the identities of the Company's customers and/or
prospective customers; the identities of key purchasing personnel in the employ
of customers and prospective customers; the amounts and/or kinds of customers'
purchases from the Company; the Company's sources of information and supply; the
Company's products and product designs; the Company's computer programs, system
documentation, source code and algorithms, special hardware or software, service
or product hardware or software, and related software or hardware development;
any useful process, machine or other device or composition of matter which is
new and which is being used or studied by the Company and is not described in a
patent or described in any literature already published and distributed
externally by the Company; the Company's manuals, formulae, tools, processes,
methods, machines, compositions, ideas, improvements, trade secrets, including
but not limited to information falling under the definition of a "trade secret"
pursuant to the Uniform Trade Secret Act (or, if applicable, the version thereof
adopted by Delaware), patents, inventions, intellectual property, or other
information or materials relating to the Company's affairs (collectively
referred to herein as the "Confidential Information"); (ii) that the
Confidential Information is the property of the Company and constitutes a major
asset of the Company; (iii) that the use, misappropriation or
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disclosure of the Confidential Information would constitute a breach of trust
and could cause irreparable injury to the Company; and (iv) that it is essential
to the protection of the Company's goodwill and to the maintenance of the
Company's competitive position that the Confidential Information be kept secret
and that Executive neither disclose the Confidential Information to others nor
use the Confidential Information to Executive's own advantage or to the
advantage of others.
B. Acknowledgment of Necessity for Protections of Company's
Business. Executive further recognizes, acknowledges and agrees that it is
essential for the proper protection of the business of the Company that
Executive shall not: (i) solicit or induce any employee of the Company to leave
the employ of the Company; (ii) hire or attempt to hire any employee of the
Company; (iii) solicit the trade of, or trade with, the customers or suppliers
of the Company for any business purpose other than that of the Company; and (iv)
compete against the Company for a reasonable period of time and within a
reasonable geographic area following the termination or nonrenewal of
Executive's employment with the Company, as more fully addressed in Section 6.F,
below.
C. Work Made For Hire. Executive hereby acknowledges and
agrees that each of the copyrightable related to the business of the Company
works authored by Executive (including without limitation, all software and
related documentation, and all written and graphic materials prepared or
conceived by Employee), alone or with others, during Executive's employment with
the Company shall be deemed to be works prepared by Executive within the scope
of Executive's employment with the Company and, as such, shall be deemed to be
"works made for hire" under the United States copyright laws from the inception
of creation of such works. In the event that any of such works shall be deemed
by a court of competent jurisdiction
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not to be a "work made for hire," this Agreement shall operate as an irrevocable
assignment by Executive to the Company of all right, title and interest in and
to such works, including, without limitation, all worldwide copyright interests
therein, in perpetuity. The fact that such copyrightable works are created by
Executive outside of the Company's facilities or other than during Executive's
working hours with the Company shall not diminish the Company's right with
respect to such works which otherwise fall within this paragraph. Executive
agrees to execute and deliver to the Company such further instruments or
documents as may be requested by the Company in order to effectuate the purposes
of this paragraph.
D. Non-Disclosure of Confidential Information. In recognition
and consideration of Executive's employment, Compensation and Benefits, the
information which the Company has given and will give Executive regarding the
Company's business, the Executive's introduction to the Company's customers and
prospective customers made in the course of Executive's employment with the
Company, and the carefully-guarded methods of doing business which the Company
utilizes and deems crucial to the successful operation of its business,
Executive has held, and agrees to continue to hold and safeguard, the
Confidential Information in trust and in a fiduciary capacity for the Company,
its successors and assigns. Executive expressly agrees that he shall not,
without the prior written consent of the Company, misappropriate or disclose or
make available to anyone for use outside the Company's organization at any time,
either during Executive's employment with the Company or subsequent to the
termination or nonrenewal of such employment with the Company, for any reason,
including without limitation termination by the Company For Cause or Without
Cause, any of the Confidential Information, whether or not developed by
Executive, except as required by the Company in the performance of Executive's
duties to the Company. Notwithstanding the above, term "Confidential
Information"
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shall not include information which becomes generally available to the public
(other than as a result of disclosure by the Executive). Furthermore, if you are
formally required to disclose any Confidential Information in the context of a
civil, governmental or regulatory proceeding, you shall provide the Company with
prompt notice of any such requirement so that the Company may seek an
appropriate protective order or waive compliance with the provisions of this
Agreement. If, failing the entry of a protective order or the receipt of a
waiver hereunder, you are, in the opinion of your counsel, compelled to disclose
Confidential Information or else stand liable for contempt of suffer other
censure or penalty, you may disclose that portion of the Confidential
Information which your counsel advises you to disclose. In any event, you will
not oppose action by, and will cooperate with the civil, governmental or
regulatory agency to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Confidential
Information.
E. Disclosure of Works and Inventions/Assignment of Patents.
In consideration of the promises set forth herein, Employee agrees to disclose
promptly and fully to the Company, or to such person whom the Company may
expressly designate for this specific purpose (its "Designee"), any and all
works, inventions, discoveries and improvements authored, conceived or made by
Employee, solely or with others, during the period of employment by the Company
and where the subject matter of such works, inventions, discoveries or
improvements results from or is suggested by any work which Employee may do for
or on behalf of the Company shall have all rights to such works, inventions,
discoveries and improvements, whether they are patentable or not. The fact that
such works, inventions, discoveries and improvements are made or conceived by
Employee outside of the Company's facilities or other than during the Employee's
working hours with the Company shall not diminish the Company's rights with
respect
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to such works, inventions, discoveries and improvements which otherwise fall
within this paragraph. Employee agrees that, whenever he is requested to do so
by the Company, during or after termination of Employee's employment by the
Company, Employee shall execute or join in executing any and all applications,
assignments or other instruments which the Company shall deem necessary to apply
for and obtain Letters Patent or Copyrights of the United States or any foreign
country or to otherwise protect the Company's interest therein, and Employee
shall assign all such applications to the Company or its Designee, and shall
provide the Company or its agents or attorneys with all reasonable assistance in
the preparation and prosecution of patent applications, drawings, specifications
and the like, all at the expense of the Company, and shall do all that may be
necessary to establish, protect and maintain the rights of the Company or its
Designee in the works, inventions, discoveries, improvements, patent
applications and Letters Patent in accordance with the spirit of this paragraph.
Such obligations shall continue beyond the termination or nonrenewal of
Employee's employment with respect to any works, inventions, discoveries and/or
improvements that are authored, conceived of, or made by Employee during the
period of Employee's employment, and shall be binding upon Employee's
successors, assigns, executors, heirs, administrators or other legal
representatives. The Company shall have no rights pursuant to this Agreement in
any work, invention, discovery or improvement of the Employee made during the
Term of Employee's employment by the Company if such work, invention, discovery
or improvement has not arisen out of the or by reason of Employee's work with
the Company or does not relate to the products, business or operations of the
Company, although Employee shall nonetheless inform the Company of any such
work, invention, discovery or improvement.
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F. Restrictions on Competition. Executive covenants and agrees
that, for and in consideration of the Compensation received hereunder, the
sufficiency and receipt of which is hereby acknowledged, during the period of
Executive's employment hereunder (and for the period during which payments are
made pursuant to Section 5.C. hereof), and for a period of one (1) year
thereafter, Executive shall not, in any state or foreign country in which the
Company does business, engage, directly or indirectly, whether as principal or
as agent, officer, director, employee, consultant, shareholder, or otherwise,
alone or in association with any other person, corporation or other entity, in
any "Competing Business". For purposes of this Agreement, the term "shareholder"
shall exclude any interest owned by Executive in a public company to the extent
the Executive owns less than ten percent (10%) of any such company's outstanding
common stock. For the further purposes of this Agreement, the term "Competing
Business", shall mean any person, corporation or other entity that is engaged in
the business of selling portable computer peripherals or similar products being
manufactured, developed, sold, distributed or licensed by the Company which
directly competes with the business of the Company at the time of such
termination or nonrenewal. Accordingly, the Company is granted the right by
Executive to apply to any court of competent jurisdiction for one or more
temporary or permanent injunctions enjoining Executive, his agents and
employees, from violating the provisions of this Agreement and/or from
continuing to breach such provisions. This Section 6.F shall not be effective
for any purpose whatsoever if Executive is terminated Without Cause; except
during the period which payments are being made pursuant to Section 5.C hereof.
G. Non-Solicitation of Customers and Suppliers. Executive
agrees that during the course of his employment with the Company (and for the
period during which payments are made pursuant to Section 5.C. hereof), and for
a period of one (1) year thereafter, he shall not,
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directly or indirectly, solicit the trade of, or trade with, any past or present
customer or supplier of the Company for any business purpose that competes
directly or indirectly with the business being undertaken by the Company.
H. Non-Solicitation of Employees. Executive agrees that,
during the course of his employment with the Company (and for the period during
which payments are made pursuant to Section 5.C hereof) and for two (2) years
following any termination or nonrenewal of Executive's employment with the
Company, including, without limitation, termination by the Company For Cause or
Without Cause, Executive shall not, directly or indirectly, solicit or induce,
or attempt to solicit or induce, any employee of the Company to leave the
Company for any reason whatsoever, or assist or participate in the hiring of any
employee of the Company to work for another entity.
I. No Prior Agreements. Executive represents and warrants that
Executive is not a party to or otherwise subject to or bound by the terms of any
contract, agreement or understanding which in any manner would limit or
otherwise affect Executive's ability to perform his obligations hereunder,
including without limitation any contract, agreement or understanding containing
terms and provisions similar in any manner to those contained in this Section 6.
Executive further represents and warrants that his employment with the Company
will not under any circumstances require him to disclose or use any confidential
information belonging to prior employers or other persons or entities, or to
engage in any conduct which may potentially interfere with the contractual,
statutory or common-law rights of such other employers, persons or entities. In
the event that Executive knows or learns of any facts whatsoever which suggest
that such interference might arguably occur as the result of any proposed
actions by either
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Executive or the Company, Executive expressly promises that he will immediately
bring such facts to the Company's attention.
J. Remedies. In the event of a breach by Executive of any of
the terms of this Agreement, the Company shall be entitled, if it shall so
elect, to institute legal proceedings to obtain damages for any such breach, or
to enforce the specific performance of this Agreement by Executive and to enjoin
Executive from any further violation of this Agreement, and to exercise such
remedies cumulatively or in conjunction with all other rights and remedies
provided by law. Executive acknowledges and agrees that money damages for any
breach by him of any of the provisions of this Agreement may be inadequate to
compensate the Company for the injuries it may suffer as the result of any such
breach, and accordingly that the Company shall be entitled to injunctive relief
against Executive, in addition to money damages, in the event of any such breach
by Executive.
K. Review by Counsel. Executive expressly acknowledges and
represents that Executive has been given a full and fair opportunity to review
this Agreement with an attorney of Executive's choice, and that Executive has
satisfied himself, with or without consulting with counsel, that the terms and
provisions of this Agreement, specifically including, but not limited to, the
restrictive covenant and related provisions of Section 6 hereof, are reasonable
and enforceable.
L. Return of Materials. Upon the termination or nonrenewal of
Executive's employment with the Company for any reason, including without
limitation termination by the Company For Cause or Without Cause, or at any time
upon demand, Executive shall promptly deliver to the Company all Company
property and materials, including without limitation all documents or other
materials constituting, containing, referencing or relating to the "Confidential
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Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
M. Company-Created Materials. All material that may be
furnished to the Executive, together with literature, rate schedules, customer
lists, forms, filing systems and any other property, documents or other
materials furnished or made available by the Company to the Executive, shall be
and remain the property of the Company, and shall be returned by the Executive
to the Company upon any termination or nonrenewal of employment or at any time
upon demand.
N. Executive-Created Materials. All material created by the
Executive during the term of his employment with the Company which is incidental
to or related in any way to the Executive's employment, or to the Company's
business, shall be the property of the Company, and shall be delivered to the
Company upon any termination or nonrenewal of Executive's employment or at any
time upon demand.
O. Definitions. For purposes of this Section 6, the term,
"material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic, magnetic, or mechanical storage
device, any passwords, codes or keys required to access all or any portion of
such material, and the "Confidential Information" referred to in Section 6.A.
hereof.
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7. Conflict of Interest.
Executive covenants that, during the Term, he will disclose to
the Company, in writing, any and all interests he may have, whether for profit
or compensation or not, in any venture or activity which could potentially
interfere with his ability to perform under this Agreement or create a conflict
of interest for him with the Company. For purposes of this paragraph 7 only,
"conflict of interest" shall mean ownership of greater than one percent (1%) of,
or $250,000 worth of equity in, another company which conducts business similar
to that undertaken by the Company.
8. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, at the following addresses or to such other
address as either party may designate by like notice:
A. If to Executive, to:
Paul D. Charles
10931 East Laurel Lane
Scottsdale, AZ 85260
With a copy to:
Stephen Boatwright, Esquire
Gammage & Burnham
2 North Central, 18th Floor
Phoenix, AZ 85004
B. If to Company, to:
JLL Ventures (Delaware) Corp.
7722 East Gray Road
Scottsdale, AZ 85260
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With a copy to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn.: Stephen M. Cohen, Esquire
9. Basic Indemnification.
Company shall indemnify and defend Executive and his heirs,
executors and administrators against any costs or expense (including reasonable
attorneys' fees and amounts paid in settlement, if such settlement is approved
by the Company), fine, penalty, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer,
unless with respect to such matter Executive shall have been adjudicated in any
proceeding not to have acted in good faith or in the reasonable belief that the
action was in the best interests of the Company, or unless such indemnification
is precluded by law, public policy, or in the judgment of the Company's Board of
Directors, such indemnification is being sought as a result of actions of
Executive which were either : (i) grossly negligent; (ii) reflective of
Executive misconduct; (iii) in violation of rules, regulations or laws
applicable to the Company; or (iv) in disregard of Company policies. Company
shall utilize its best efforts to obtain Directors and Officers Liability
Insurance in an amount which is standard and customary for a business such as
the Company.
10. Additional Provisions.
A. Binding Agreement. This Agreement, including without
limitation its confidentiality, restrictive covenant and related provisions,
shall inure to the benefit of, and be binding upon, the Company and its
successors and assigns and Executive, his heirs, executors,
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administrators and legal representatives, subject to the provisions of Section
10.F. hereof, which expressly prohibits the assignment or delegation of any of
Executive's personal rights or obligations hereunder.
B. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
cannot be modified orally. This Agreement supersedes all prior and
contemporaneously-made written or oral agreements between the parties or between
Executive and CNF relating to the subject matter hereof. No modification or
waiver of any of the provisions hereof shall be effective unless set forth in a
writing that specifically states that it is intended to be a modification of
this Agreement and that is signed by the Chief Executive Officer of the Company.
C. Modification. If any provision(s) of this Agreement shall
be or shall become illegal or unenforceable in whole or in part, for any reason
whatsoever, the remaining provisions shall nevertheless be deemed valid, binding
and subsisting, and any invalid or unenforceable provision(s) shall be deemed
modified to the least extent possible so as to make them valid and enforceable
and so as to give the maximum effect allowable by law to the parties' original
intent as expressed by the terms hereof.
D. No Waiver. No failure on the part of the Company to
exercise, and no delay by the Company in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Company of any right, power or remedy hereunder, preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy by the Company.
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E. Person. "Person" as used herein shall mean a natural
person, joint venture, corporation, partnership, trust, estate, sole
proprietorship, governmental agency or authority or other juridical entity.
F. Personal Services Contract. This is a personal services
contract and the rights and obligations set forth herein may not be assigned or
delegated by Executive, except as otherwise specifically provided in this
Agreement with respect to benefits payable upon Executive's disability or death,
without the express, written consent of the Company. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns. This Agreement may be assigned by the Company to any party, without the
consent of Executive. The transfer of Executive to any parent, affiliate or
subsidiary of the Company shall constitute an assignment of this Agreement.
G. Headings. The headings of the several sections of this
Agreement have been inserted for convenience of reference only and shall in no
way be used to restrict, modify, or explain any of the terms or provisions
hereof.
H. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without regard to its, or any other sovereignty's, conflicts of laws principles.
The parties agree that any claims brought pursuant to this Agreement shall be
brought in a court of competent jurisdiction located in Phoenix, Arizona.
I. Tolling Period. The non-competition, non-disclosure and
non-solicitation obligations contained in Section 6 of this Agreement shall be
extended by the length of time during which Executive shall have been in breach
of any of the provisions of such Section 6.
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J. Company Violation Not a Defense. In an action by the
Company to enforce any provision of this Agreement, any claims asserted by
Executive against the Company shall not constitute a defense to the Company's
action.
K. Release. In consideration of Executive's employment
hereafter with the Company, Executive acknowledges and represents that, with the
exception of ordinary course reimbursement of business expenses and accrued
vacations reflected within the financial statements of CNF, Inc., he has no
outstanding claims of any kind whatsoever, including but not limited to, any
claim for outstanding indebtedness, past salary, reimbursements, or benefits of
any type against CNF or any of its affiliates or subsidiaries and that if he has
any such claim, any and all such claims are hereby forever waived and released.
L. Construction. This Agreement shall be construed according
to the plain meaning of its terms, and not strictly for or against either party
hereto.
M. Counterparts. This Agreement may be executed in
counterpart, and the counterparts, taken together, shall constitute the entire
Agreement. The Agreement may further be executed by facsimile transmission, and
the facsimile signatures may be deemed original signatures for all purposes,
including for purposes of the Best Evidence Rule and all other rules or
doctrines of similar effect.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS TO OBTAIN
OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE COMPANY. BY SIGNING
IT, EXECUTIVE ACKNOWLEDGES THIS FACT, AND FURTHER ACKNOWLEDGES THAT HE
HAS BEEN ADVISED BY THE COMPANY TO READ THE AGREEMENT CAREFULLY, AND/OR
TO CONSULT WITH COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF
SIGNING THE AGREEMENT, PRIOR TO SIGNING IT.
By: /s/ Vincent J. Marold Dated:
-------------------------------- ------------------------------
Vincent J. Marold, President
By: /s/ Paul D. Charles Dated:
-------------------------------- ------------------------------
Paul D. Charles as Executive
WITNESS:
20
Exhibit 10.2
ADDENDUM
To May 19, 1999 JLL Ventures Employment Agreement of Paul D. Charles
Employment Agreement shall be amended to reduce Employee's salary to the
following beginning December 1, 1999: Paul Charles - $125,000. Mr. Charles will
resign as President and CEO concurrent with the receipt of $2,000,000 in the
private placement, and will continue to serve as the Chairman of the Board
pursuant to the Company's Bylaws and Certificate of Incorporation and will also
be employed by the Company in an outside sales capacity.
Employee
/s/ Paul D. Charles 10-3-99
- ---------------------- ---------------------
Paul D. Charles Date
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 19th day of May , 1999, by and between
JLL VENTURES (Delaware) CORP., a Delaware corporation (hereinafter "Company"),
and David G. Thompson an individual (hereinafter "Executive").
W I T N E S S E T H:
WHEREAS, on the date hereof, JLL Ventures Acquisition Corp., a Delaware
corporation ("JLL"), and wholly-owned subsidiary of the Company, acquired CNF
Inc., a California corporation ("CNF"), pursuant to the terms of an Agreement
and Plan of Merger (the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement the Company assumed CNF's
Stock Option Plan and all obligations of CNF thereunder including the obligation
to issue securities to Executive upon exercise of options owned of record by
Executive which have been issued under such plan; and
WHEREAS in connection with the Merger Agreement, Executive agreed to
become employed with the Company upon the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants
of the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
A. The Company hereby employs Executive and Executive hereby
accepts employment by the Company as its Chief Financial Officer and Treasurer.
Executive agrees to serve the Company in such capacity, subject to the terms and
conditions of this Agreement, for a term, commencing on the date hereof and
expiring three years from that date of this Agreement (the "Term").
<PAGE>
2. Duties.
A. During the Term, Executive shall use his best efforts to
perform all duties required in furtherance of his position, including without
limitation all such duties as are customarily associated with such position or
as are assigned to him from time to time by the Board of Directors of the
Company.
B. Executive shall diligently and faithfully devote his entire
time, energy, skill, and best efforts to the performance of his duties under
this Agreement during reasonable business hours. Executive shall conduct himself
at all times so as to advance the best interests of the Company, and shall not
undertake or engage in any other business activity or continue or assume any
other business affiliations which conflict or interfere with the performance of
his services hereunder without the prior written consent of the Board of
Directors of the Company. Executive also agrees that he shall not usurp or
misappropriate, either to himself, or to any other person or entity, any
corporate or other opportunities that would otherwise be available to the
Company.
3. Compensation.
A. The Company shall pay Executive and Executive shall accept,
as his base compensation ("Base Compensation") for all services rendered to the
Company pursuant hereto, an annual salary of $208,000, to be paid in accordance
with the general payroll practices of the Company as from time to time in
effect, subject to all applicable federal and state tax withholding
requirements. Executive shall also be entitled, subject to the terms and
conditions of particular plans and programs, to all fringe benefits afforded to
other executives of Company in the discretion of the Board of Directors,
including, but not limited to, the right to participate in any pension,
retirement, major medical, group health, disability, accident and life
insurance, and
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other employee benefit programs made generally available, from time to time, by
the Company (collectively, "Benefits").
B. In addition to Base Compensation, for the fiscal year
ending March 31, 2000, Executive shall be entitled to a mandatory bonus
("Mandatory Bonus") equal to (i) $21,000 if the Company achieves the first of
the Financial Performance Targets set forth within the Certificate of
Designation for the Company's Series A Convertible Preferred Stock, which are
attached hereto and made a part hereof as Exhibit A; and (ii) an additional
$10,500 for each additional Financial Performance Target achieved. For example,
if the Company achieves the third Financial Performance Target, Executive would
be entitled to $42,000. The Mandatory Bonus for the fiscal year ending March 31,
2000 shall be payable within thirty (30) days after completion of the Company's
audited financial statements for such period. For each fiscal year during the
term of the Agreement ending after March 31, 2000, Executive shall be entitled
to a Mandatory Bonus in an amount equal to up to the maximum amount of the
Mandatory Bonus payable during fiscal year ending March 31, 2000 upon achieving
certain annual individual and Company performance goals ("Performance Goals").
The Performance Goals shall be determined by the Compensation or similar
committee of the Board of Directors, a majority of whose members shall be
non-employee directors, prior to or during the first fiscal quarter of each
fiscal year during the Term. The Performance Goals for each fiscal year ending
after March 31, 2000 shall, upon determination, be attached hereto and made a
part hereof as Exhibit B.
C. In addition to Base Compensation and the Mandatory Bonus, a
"Discretionary Bonus" may be awarded to Executive on the basis of merit
performance on an annual basis in the discretion of the Company's Board of
Directors or Compensation Committee.
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Base Compensation, Mandatory Bonus and Discretionary Bonus shall hereinafter
collectively be referred to as "Compensation."
D. Executive shall be entitled to participate in any stock
option programs adopted by the Company to the extent determined on a
discretionary basis by the Board of Directors of the Company or Compensation
Committee thereof.
4. Vacation and Reimbursement of Expenses.
A. Executive shall receive paid vacation in each calendar year
in accordance with the written policy of the Company, or as otherwise determined
by the board of Directors of the Company, to be taken at times which do not
unreasonably interfere with the performance of the Employee's duties hereunder
and in no event shall Executive schedule more than ten (10) consecutive days of
vacation during any three month period without the prior written consent of the
Chairman of the Board of Directors;
B. Executive shall be reimbursed for such reasonable expenses
as are directly incurred for the business of the Company upon presentation by
Executive of an itemized account of such expenditures, but only to the extent
that such expenses are deductible to the Company pursuant to rules and
regulations adopted by the United States Internal Revenue Service; provided,
however, that any expenses are in accordance with Company policy.
5. Termination.
A. Executive's employment and rights to Compensation and
Benefits hereunder shall terminate immediately if Executive voluntarily leaves
the employment of the Company; except that the Company shall have the obligation
to pay Executive such portion of his Base Compensation provided for in Section
3.A hereof as may be accrued but unpaid on the date Executive voluntarily leaves
the employment of the Company. In the event that Executive
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voluntarily leaves the employment of the Company, he shall provide at least
ninety (90) days' written notice.
B. The Company may at any time, upon written notice to
Executive giving the reasons therefor, terminate Executive's employment and his
right to Compensation hereunder "For Cause." As used herein, the term "For
Cause" shall be defined to include: (i) with respect to the fiscal year ending
March 31, 2000, the Company's audited financial statements for such period
reflecting: (a) revenues of less than $17,500,000; or (b) a net loss exclusive
of extraordinary items determined in accordance with generally accepted
accounting principles in excess of $500,000; (ii) with respect to all subsequent
periods during the Term, if the Company fails to achieve for two (2) consecutive
quarters such quarterly financial performance targets for revenue and pre-tax
net income as are determined by the Compensation or similar committee of the
Board of Directors (a majority of whose members shall be non-employee
directors), in consultation with executive management, as determined prior to or
during the first fiscal quarter of each fiscal year; (iii) conviction of
Executive of any felony, fraud, embezzlement, or crime of moral turpitude; (iv)
controlled substance abuse or drug addiction; (v) alcoholism which interferes
with or affects Executive's responsibilities; (vi) grossly negligent, reckless
or intentional misconduct which is materially injurious to the Company; (vii)
violation of any express written direction of or any reasonable written rule or
regulation established by the Company's Board of Directors from time to time
which violation has not been cured to the Company's satisfaction within thirty
(30) calendar days of the dispatch of written notice to the Executive of the
violation. In the event of a termination For Cause, Executive's employment and
right to Compensation and Benefits hereunder shall terminate immediately, except
that the
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Company shall have the obligation to pay Executive such portion of his Base
Compensation as may be accrued but unpaid on the date his employment is
terminated.
C. Commencing on the one (1) year anniversary of the
Agreement, Executive may also be terminated for any reason ("Without Cause") in
the discretion of the Board of Directors of the Company. In the event of a
termination Without Cause, Executive's employment and right to Compensation and
Benefits shall terminate immediately and Executive shall, in lieu thereof, be
entitled to severance pay consisting of a continuation of Base Compensation and
Benefits for a period of one (1) year. During the period in which payments are
made to Executive pursuant to this Section 5.C, Executive shall remain subject
to the limitations identified in Section 6 hereafter.
D. Unless Executive's employment hereunder is terminated by
reason of: (I) his voluntary resignation or retirement; or (ii) by reason of any
of the "For Cause" events set forth at Section 5.B(ii) (vii), Executive shall be
removed as a guarantor of any Company obligations in force as of the date of
this Agreement prior to any termination becoming effective, and by virtue of
this agreement Executive does hereby grant the Company the right in his place
and stead to secure the removal of any such guaranteed obligations at no cost to
Executive.
6. Confidentiality and Related Matters.
A. Acknowledgment of Nature and Value of Confidential
Information: For the purposes of this Section 6 only, the term "Company" shall
include the Company, all subsidiaries of the Company and CNF. Executive
recognizes, acknowledges and agrees: (i) that in the course of Executive's
employment by the Company, it has been, and will continue to be, necessary for
Executive to acquire, in a fiduciary capacity of trust, information which could
include, in whole or in part, but is not limited to: information concerning the
Company's rate schedules; rate quotations; the names, addresses, credit terms
and nature of services provided by
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the vendors utilized by the Company; the names, addresses, credit terms and
nature of services provided to customers of the Company; the identity of the
Company's suppliers, sales representatives, shippers or other entities with whom
Executive has come into contact as a result of his employment with the Company,
or which should otherwise come into his knowledge during the term of this
Agreement; the salaries, skills, education or abilities of the Company's
employees; the Company's sales, sales volume, sales methods and sales proposals;
the identities of the Company's customers and/or prospective customers; the
identities of key purchasing personnel in the employ of customers and
prospective customers; the amounts and/or kinds of customers' purchases from the
Company; the Company's sources of information and supply; the Company's products
and product designs; the Company's computer programs, system documentation,
source code and algorithms, special hardware or software, service or product
hardware or software, and related software or hardware development; any useful
process, machine or other device or composition of matter which is new and which
is being used or studied by the Company and is not described in a patent or
described in any literature already published and distributed externally by the
Company; the Company's manuals, formulae, tools, processes, methods, machines,
compositions, ideas, improvements, trade secrets, including but not limited to
information falling under the definition of a "trade secret" pursuant to the
Uniform Trade Secret Act (or, if applicable, the version thereof adopted by
Delaware), patents, inventions, intellectual property, or other information or
materials relating to the Company's affairs (collectively referred to herein as
the "Confidential Information"); (ii) that the Confidential Information is the
property of the Company and constitutes a major asset of the Company; (iii) that
the use, misappropriation or disclosure of the Confidential Information would
constitute a breach of trust and could cause irreparable injury to the Company;
and (iv) that it is essential to
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the protection of the Company's goodwill and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret and that
Executive neither disclose the Confidential Information to others nor use the
Confidential Information to Executive's own advantage or to the advantage of
others.
B. Acknowledgment of Necessity for Protections of Company's
Business. Executive further recognizes, acknowledges and agrees that it is
essential for the proper protection of the business of the Company that
Executive shall not: (i) solicit or induce any employee of the Company to leave
the employ of the Company; (ii) hire or attempt to hire any employee of the
Company; (iii) solicit the trade of, or trade with, the customers or suppliers
of the Company for any business purpose other than that of the Company; and (iv)
compete against the Company for a reasonable period of time and within a
reasonable geographic area following the termination or nonrenewal of
Executive's employment with the Company, as more fully addressed in Section 6.F,
below.
C. Work Made For Hire. Executive hereby acknowledges and
agrees that each of the copyrightable related to the business of the Company
works authored by Executive (including without limitation, all software and
related documentation, and all written and graphic materials prepared or
conceived by Employee), alone or with others, during Executive's employment with
the Company shall be deemed to be works prepared by Executive within the scope
of Executive's employment with the Company and, as such, shall be deemed to be
"works made for hire" under the United States copyright laws from the inception
of creation of such works. In the event that any of such works shall be deemed
by a court of competent jurisdiction not to be a "work made for hire," this
Agreement shall operate as an irrevocable assignment by Executive to the Company
of all right, title and interest in and to such works, including, without
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limitation, all worldwide copyright interests therein, in perpetuity. The fact
that such copyrightable works are created by Executive outside of the Company's
facilities or other than during Executive's working hours with the Company shall
not diminish the Company's right with respect to such works which otherwise fall
within this paragraph. Executive agrees to execute and deliver to the Company
such further instruments or documents as may be requested by the Company in
order to effectuate the purposes of this paragraph.
D. Non-Disclosure of Confidential Information. In recognition
and consideration of Executive's employment, Compensation and Benefits, the
information which the Company has given and will give Executive regarding the
Company's business, the Executive's introduction to the Company's customers and
prospective customers made in the course of Executive's employment with the
Company, and the carefully-guarded methods of doing business which the Company
utilizes and deems crucial to the successful operation of its business,
Executive has held, and agrees to continue to hold and safeguard, the
Confidential Information in trust and in a fiduciary capacity for the Company,
its successors and assigns. Executive expressly agrees that he shall not,
without the prior written consent of the Company, misappropriate or disclose or
make available to anyone for use outside the Company's organization at any time,
either during Executive's employment with the Company or subsequent to the
termination or nonrenewal of such employment with the Company, for any reason,
including without limitation termination by the Company For Cause or Without
Cause, any of the Confidential Information, whether or not developed by
Executive, except as required by the Company in the performance of Executive's
duties to the Company. Notwithstanding the above, term "Confidential
Information" shall not include information which becomes generally available to
the public (other than as a result of disclosure by the Executive). Furthermore,
if
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you are formally required to disclose any Confidential Information in the
context of a civil, governmental or regulatory proceeding, you shall provide the
Company with prompt notice of any such requirement so that the Company may seek
an appropriate protective order or waive compliance with the provisions off this
Agreement. If, failing the entry of a protective order or the receipt of a
waiver hereunder, you are, in the opinion of your counsel, compelled to disclose
Confidential Information or else stand liable for contempt of suffer other
censure or penalty, you may disclose that portion of the Confidential
Information which your counsel advises you to disclose. In any event, you will
not oppose action by, and will cooperate with the civil, governmental or
regulatory agency to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Confidential
Information.
E. Disclosure of Works and Inventions/Assignment of Patents.
In consideration of the promises set forth herein, Employee agrees to disclose
promptly and fully to the Company, or to such person whom the Company may
expressly designate for this specific purpose (its "Designee"), any and all
works, inventions, discoveries and improvements authored, conceived or made by
Employee, solely or with others, during the period of employment by the Company
and where the subject matter of such works, inventions, discoveries or
improvements results from or is suggested by any work which Employee may do for
or on behalf of the Company shall have all rights to such works, inventions,
discoveries and improvements, whether they are patentable or not. The fact that
such works, inventions, discoveries and improvements are made or conceived by
Employee outside of the Company's facilities or other than during the Employee's
working hours with the Company shall not diminish the Company's rights with
respect to such works, inventions, discoveries and improvements which otherwise
fall within this paragraph. Employee agrees that, whenever he is requested to do
so by the Company, during or
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after termination of Employee's employment by the Company, Employee shall
execute or join in executing any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters Patent or Copyrights of the United States or any foreign country or to
otherwise protect the Company's interest therein, and Employee shall assign all
such applications to the Company or its Designee, and shall provide the Company
or its agents or attorneys with all reasonable assistance in the preparation and
prosecution of patent applications, drawings, specifications and the like, all
at the expense of the Company, and shall do all that may be necessary to
establish, protect and maintain the rights of the Company or its Designee in the
works, inventions, discoveries, improvements, patent applications and Letters
Patent in accordance with the spirit of this paragraph. Such obligations shall
continue beyond the termination or nonrenewal of Employee's employment with
respect to any works, inventions, discoveries and/or improvements that are
authored, conceived of, or made by Employee during the period of Employee's
employment, and shall be binding upon Employee's successors, assigns, executors,
heirs, administrators or other legal representatives. The Company shall have no
rights pursuant to this Agreement in any work, invention, discovery or
improvement of the Employee made during the Term of Employee's employment by the
Company if such work, invention, discovery or improvement has not arisen out of
the or by reason of Employee's work with the Company or does not relate to the
products, business or operations of the Company, although Employee shall
nonetheless inform the Company of any such work, invention, discovery or
improvement.
F. Restrictions on Competition. Executive covenants and agrees
that, for and in consideration of the Compensation received hereunder, the
sufficiency and receipt of which is hereby acknowledged, during the period of
Executive's employment hereunder (and for the
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period during which payments are made pursuant to Section 5.C. hereof), and for
a period of one (1) year thereafter, Executive shall not, in any state or
foreign country in which the Company does business, engage, directly or
indirectly, whether as principal or as agent, officer, director, employee,
consultant, shareholder, or otherwise, alone or in association with any other
person, corporation or other entity, in any "Competing Business". For purposes
of this Agreement, the term "shareholder" shall exclude any interest owned by
Executive in a public company to the extent the Executive owns less than ten
percent (10%) of any such company's outstanding common stock. For the further
purposes of this Agreement, the term "Competing Business", shall mean any
person, corporation or other entity that is engaged in the business of selling
portable computer peripherals or similar products being manufactured, developed,
sold, distributed or licensed by the Company which directly competes with the
business of the Company at the time of such termination or nonrenewal.
Accordingly, the Company is granted the right by Executive to apply to any court
of competent jurisdiction for one or more temporary or permanent injunctions
enjoining Executive, his agents and employees, from violating the provisions of
this Agreement and/or from continuing to breach such provisions. This Section
6.F shall not be effective for any purpose whatsoever if Executive is terminated
Without Cause; except during the period which payments are being made pursuant
to Section 5.C hereof.
G. Executive's Abilities. Executive represents that
Executive's experience and capabilities, and the limited provisions of the
immediately-preceding Section 6.F, are such that he will not be prevented from
earning his livelihood in businesses similar to the Company, other than the
"Competing Business," as specifically defined in the immediately preceding
Section 6.F. Executive acknowledges that there are a significant number of
businesses for which his qualifications and experience would render him
qualified for employment that are within the
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states and foreign countries referred to in Section 6.F. which do not constitute
a "Competing Business" such that his ability to become employed after the
termination or nonrenewal of this Agreement would not be impaired.
H. Non-Solicitation of Customers and Suppliers. Executive
agrees that during the course of his employment with the Company (and for the
period during which payments are made pursuant to Section 5.C. hereof), and for
a period of one (1) year thereafter, he shall not, directly or indirectly,
solicit the trade of, or trade with, any past or present customer or supplier of
the Company for any business purpose that competes directly or indirectly with
the business being undertaken by the Company.
I. Non-Solicitation of Employees. Executive agrees that,
during the course of his employment with the Company (and for the period during
which payments are made pursuant to Section 5.C hereof) and for two (2) years
following any termination or nonrenewal of Executive's employment with the
Company, including, without limitation, termination by the Company For Cause or
Without Cause, Executive shall not, directly or indirectly, solicit or induce,
or attempt to solicit or induce, any employee of the Company to leave the
Company for any reason whatsoever, or assist or participate in the hiring of any
employee of the Company to work for another entity.
J. No Prior Agreements. Executive represents and warrants that
Executive is not a party to or otherwise subject to or bound by the terms of any
contract, agreement or understanding which in any manner would limit or
otherwise affect Executive's ability to perform his obligations hereunder,
including without limitation any contract, agreement or understanding containing
terms and provisions similar in any manner to those contained in this Section 6.
Executive further represents and warrants that his employment with the Company
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will not under any circumstances require him to disclose or use any confidential
information belonging to prior employers or other persons or entities, or to
engage in any conduct which may potentially interfere with the contractual,
statutory or common-law rights of such other employers, persons or entities. In
the event that Executive knows or learns of any facts whatsoever which suggest
that such interference might arguably occur as the result of any proposed
actions by either Executive or the Company, Executive expressly promises that he
will immediately bring such facts to the Company's attention.
K. Remedies. In the event of a breach by Executive of any of
the terms of this Agreement, the Company shall be entitled, if it shall so
elect, to institute legal proceedings to obtain damages for any such breach, or
to enforce the specific performance of this Agreement by Executive and to enjoin
Executive from any further violation of this Agreement, and to exercise such
remedies cumulatively or in conjunction with all other rights and remedies
provided by law. Executive acknowledges and agrees that money damages for any
breach by him of any of the provisions of this Agreement may be inadequate to
compensate the Company for the injuries it may suffer as the result of any such
breach, and accordingly that the Company shall be entitled to injunctive relief
against Executive, in addition to money damages, in the event of any such breach
by Executive.
L. Review by Counsel. Executive expressly acknowledges and
represents that Executive has been given a full and fair opportunity to review
this Agreement with an attorney of Executive's choice, and that Executive has
satisfied himself, with or without consulting with counsel, that the terms and
provisions of this Agreement, specifically including, but not limited to, the
restrictive covenant and related provisions of Section 6 hereof, are reasonable
and enforceable.
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M. Return of Materials. Upon the termination or nonrenewal of
Executive's employment with the Company for any reason, including without
limitation termination by the Company For Cause or Without Cause, or at any time
upon demand, Executive shall promptly deliver to the Company all Company
property and materials, including without limitation all documents or other
materials constituting, containing, referencing or relating to the "Confidential
Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
N. Company-Created Materials. All material that may be
furnished to the Executive, together with literature, rate schedules, customer
lists, forms, filing systems and any other property, documents or other
materials furnished or made available by the Company to the Executive, shall be
and remain the property of the Company, and shall be returned by the Executive
to the Company upon any termination or nonrenewal of employment or at any time
upon demand.
O. Executive-Created Materials. All material created by the
Executive during the term of his employment with the Company which is incidental
to or related in any way to the Executive's employment, or to the Company's
business, shall be the property of the Company, and shall be delivered to the
Company upon any termination or nonrenewal of Executive's employment or at any
time upon demand.
P. Definitions. For purposes of this Section 6, the term,
"material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic,
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magnetic, or mechanical storage device, any passwords, codes or keys required to
access all or any portion of such material, and the "Confidential Information"
referred to in Section 6.A. hereof.
7. Conflict of Interest.
Executive covenants that, during the Term, he will disclose to
the Company, in writing, any and all interests he may have, whether for profit
or compensation or not, in any venture or activity which could potentially
interfere with his ability to perform under this Agreement or create a conflict
of interest for him with the Company. For purposes of this paragraph 7 only,
"conflict of interest" shall mean ownership of greater than one percent (1%) of,
or $250,000 worth of equity in, another company which conducts business similar
to that undertaken by the Company.
8. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, at the following addresses or to such other
address as either party may designate by like notice:
A. If to Executive, to:
David G. Thompson
17221 N 60th Place
Scottsdale, AZ 85254
With a copy to:
Stephen Boatwright, Esquire
Gammage & Burnham
2 North Central, 18th Floor
Phoenix, AZ 85004
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B. If to Company, to:
JLL Ventures (Delaware) Corp.
7722 East Gray Road
Scottsdale, AZ 85260
With a copy to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn.: Stephen M. Cohen, Esquire
9. Basic Indemnification.
Company shall indemnify and defend Executive and his heirs,
executors and administrators against any costs or expense (including reasonable
attorneys' fees and amounts paid in settlement, if such settlement is approved
by the Company), fine, penalty, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer,
unless with respect to such matter Executive shall have been adjudicated in any
proceeding not to have acted in good faith or in the reasonable belief that the
action was in the best interests of the Company, or unless such indemnification
is precluded by law, public policy, or in the judgment of the Company's Board of
Directors, such indemnification is being sought as a result of actions of
Executive which were either : (i) grossly negligent; (ii) reflective of
Executive misconduct; (iii) in violation of rules, regulations or laws
applicable to the Company; or (iv) in disregard of Company policies. Company
shall utilize its best efforts to obtain Directors and Officers Liability
Insurance in an amount which is standard and customary for a business such as
the Company.
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10. Additional Provisions.
A. Binding Agreement. This Agreement, including without
limitation its confidentiality, restrictive covenant and related provisions,
shall inure to the benefit of, and be binding upon, the Company and its
successors and assigns and Executive, his heirs, executors, administrators and
legal representatives, subject to the provisions of Section 10.F. hereof, which
expressly prohibits the assignment or delegation of any of Executive's personal
rights or obligations hereunder.
B. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
cannot be modified orally. This Agreement supersedes all prior and
contemporaneously-made written or oral agreements between the parties or between
Executive and CNF relating to the subject matter hereof. No modification or
waiver of any of the provisions hereof shall be effective unless set forth in a
writing that specifically states that it is intended to be a modification of
this Agreement and that is signed by the Chief Executive Officer of the Company.
C. Modification. If any provision(s) of this Agreement shall
be or shall become illegal or unenforceable in whole or in part, for any reason
whatsoever, the remaining provisions shall nevertheless be deemed valid, binding
and subsisting, and any invalid or unenforceable provision(s) shall be deemed
modified to the least extent possible so as to make them valid and enforceable
and so as to give the maximum effect allowable by law to the parties' original
intent as expressed by the terms hereof.
D. No Waiver. No failure on the part of the Company to
exercise, and no delay by the Company in exercising, any right, power or
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remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise by the Company of any right, power or remedy hereunder,
preclude any other or further exercise thereof, or the exercise of any other
right, power or remedy by the Company.
E. Person. "Person" as used herein shall mean a natural
person, joint venture, corporation, partnership, trust, estate, sole
proprietorship, governmental agency or authority or other juridical entity.
F. Personal Services Contract. This is a personal services
contract and the rights and obligations set forth herein may not be assigned or
delegated by Executive, except as otherwise specifically provided in this
Agreement with respect to benefits payable upon Executive's disability or death,
without the express, written consent of the Company. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns. This Agreement may be assigned by the Company to any party, without the
consent of Executive. The transfer of Executive to any parent, affiliate or
subsidiary of the Company shall constitute an assignment of this Agreement.
G. Headings. The headings of the several sections of this
Agreement have been inserted for convenience of reference only and shall in no
way be used to restrict, modify, or explain any of the terms or provisions
hereof.
H. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without regard to its, or any other sovereignty's, conflicts of laws principles.
The parties agree that any claims brought pursuant to this Agreement shall be
brought in a court of competent jurisdiction located in Phoenix, Arizona.
I. Tolling Period. The non-competition, non-disclosure and
non-solicitation obligations contained in Section 6 of this Agreement shall be
extended by the length of time during which Executive shall have been in breach
of any of the provisions of such Section 6.
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J. Company Violation Not a Defense. In an action by the
Company to enforce any provision of this Agreement, any claims asserted by
Executive against the Company shall not constitute a defense to the Company's
action.
K. Release. In consideration of Executive's employment
hereafter with the Company, Executive acknowledges and represents that, with the
exception of ordinary course reimbursement of business expenses and accrued
vacations reflected within the financial statements of CNF, Inc., he has no
outstanding claims of any kind whatsoever, including but not limited to, any
claim for outstanding indebtedness, past salary, reimbursements, or benefits of
any type against CNF or any of its affiliates or subsidiaries and that if he has
any such claim, any and all such claims are hereby forever waived and released.
L. Construction. This Agreement shall be construed according
to the plain meaning of its terms, and not strictly for or against either party
hereto.
M. Counterparts. This Agreement may be executed in
counterpart, and the counterparts, taken together, shall constitute the entire
Agreement. The Agreement may further be executed by facsimile transmission, and
the facsimile signatures may be deemed original signatures for all purposes,
including for purposes of the Best Evidence Rule and all other rules or
doctrines of similar effect.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS TO OBTAIN
OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE COMPANY. BY SIGNING
IT, EXECUTIVE ACKNOWLEDGES THIS FACT, AND FURTHER ACKNOWLEDGES THAT HE
HAS BEEN ADVISED BY THE COMPANY TO READ THE AGREEMENT CAREFULLY, AND/OR
TO CONSULT WITH COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF
SIGNING THE AGREEMENT, PRIOR TO SIGNING IT.
By: /s/ Vincent J. Marold Dated:
---------------------------------- ------------------------------
Vincent J. Marold, President
By: /s/ David G. Thompson Dated:
---------------------------------- ------------------------------
David G. Thompson as Executive
WITNESS:
- ---------------------------
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EXHIBIT "A"
Financial Performance Targets(1)
First: Gross Revenues of $22.5 million(2) and Net Income of $900,000(3)
Second: Gross Revenues of $38.25 million(2) and Net Income of $1.53 million(3)
Third: Gross Revenues of $51 million(2) and Net Income of $2.04 million(3)
Fourth: Gross Revenues of $64 million(2) and Net Income of $2.56 million(3)
- ----------
(1) The Financial Performance Targets are to be derived from the results of
operations reflected within the Company's audited financial statements for
the fiscal year ending March 31, 2000.
(2) The Financial Performance Targets with respect to Gross Revenues shall be
considered to have been achieved if actual Gross Revenues are within 10% of
the targeted amount.
(3) The Financial Performance Targets with respect to Net Income shall be
considered to have been achieved if actual Net Income is within 10% of the
targeted amount.
<PAGE>
EXHIBIT "B"
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 19th day of May, 1999, by and between
JLL VENTURES (Delaware) CORP., a Delaware corporation (hereinafter "Company"),
and Ruben Daniel Rudich an individual (hereinafter "Executive").
W I T N E S S E T H:
WHEREAS, on the date hereof, JLL Ventures Acquisition Corp., a Delaware
corporation ("JLL"), and wholly-owned subsidiary of the Company, acquired CNF
Inc., a California corporation ("CNF"), pursuant to the terms of an Agreement
and Plan of Merger (the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement the Company assumed CNF's
Stock Option Plan and all obligations of CNF thereunder including the obligation
to issue securities to Executive upon exercise of options owned of record by
Executive which have been issued under such plan; and
WHEREAS in connection with the Merger Agreement, Executive agreed to
become employed with the Company upon the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants
of the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
A. The Company hereby employs Executive and Executive hereby
accepts employment by the Company as its Vice president of Marketing. Executive
agrees to serve the Company in such capacity, subject to the terms and
conditions of this Agreement, for a term, commencing on the date hereof and
expiring three years from that date of this Agreement (the "Term").
<PAGE>
2. Duties.
A. During the Term, Executive shall use his best efforts to
perform all duties required in furtherance of his position, including without
limitation all such duties as are customarily associated with such position or
as are assigned to him from time to time by the Board of Directors of the
Company.
B. Executive shall diligently and faithfully devote his entire
time, energy, skill, and best efforts to the performance of his duties under
this Agreement during reasonable business hours. Executive shall conduct himself
at all times so as to advance the best interests of the Company, and shall not
undertake or engage in any other business activity or continue or assume any
other business affiliations which conflict or interfere with the performance of
his services hereunder without the prior written consent of the Board of
Directors of the Company. Executive also agrees that he shall not usurp or
misappropriate, either to himself, or to any other person or entity, any
corporate or other opportunities that would otherwise be available to the
Company.
3. Compensation.
A. The Company shall pay Executive and Executive shall accept,
as his base compensation ("Base Compensation") for all services rendered to the
Company pursuant hereto, an annual salary of $120,000, to be paid in accordance
with the general payroll practices of the Company as from time to time in
effect, subject to all applicable federal and state tax withholding
requirements. Executive shall also be entitled, subject to the terms and
conditions of particular plans and programs, to all fringe benefits afforded to
other executives of Company in the discretion of the Board of Directors,
including, but not limited to, the right to participate in any pension,
retirement, major medical, group health, disability, accident and life
insurance, and
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other employee benefit programs made generally available, from time to time, by
the Company (collectively, "Benefits").
B. In addition to Base Compensation, the Executive will,
unless otherwise agreed to, be entitled to receive a commission equal to $0.35
for each unit of CNF InnerBay ZIP, CNF Digitari, and all products developed by
CNF or JLL as a successor thereto (exclusive of monitor stands, keypads and auto
adapters) subsequent to January 1, 1998, sold and paid for during the year of
sale, subject to a maximum commission of $200,000. Commissions are to be earned
and paid per company policy only during the term of employment. For OEM
accounts, commissions will only be paid on those accounts which Executive is
actively involved in originating and servicing the account. This commission
doesn't apply to the Siemen's account.
C. In addition to Base Compensation, a "Discretionary Bonus"
may be awarded to Executive on the basis of merit performance on an annual basis
in the discretion of the Company's Board of Directors or Compensation Committee.
Base Compensation and Discretionary Bonus shall hereinafter collectively be
referred to as "Compensation."
D. Executive shall be entitled to participate in any stock
option programs adopted by the Company to the extent determined on a
discretionary basis by the Board of Directors of the Company or Compensation
Committee thereof.
4. Vacation and Reimbursement of Expenses.
A. Executive shall receive paid vacation in each calendar year
in accordance with the written policy of the Company, or as otherwise determined
by the board of Directors of the Company, to be taken at times which do not
unreasonably interfere with the performance of the Employee's duties hereunder
and in no event shall Executive schedule more than ten (10) consecutive days of
vacation during any three month period without the prior written consent of the
Chairman of the Board of Directors;
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B. Executive shall be reimbursed for such reasonable expenses
as are directly incurred for the business of the Company upon presentation by
Executive of an itemized account of such expenditures, but only to the extent
that such expenses are deductible to the Company pursuant to rules and
regulations adopted by the United States Internal Revenue Service; provided,
however, that any expenses are in accordance with Company policy. Additionally,
the Executive will be reimbursed for all reasonable legal expenses and costs to
obtain his green card, but not to exceed $4,000 from the Executive's first date
of employment with CNF.
5. Termination.
A. Executive's employment and rights to Compensation and
Benefits hereunder shall terminate immediately if Executive voluntarily leaves
the employment of the Company; except that the Company shall have the obligation
to pay Executive such portion of his Base Compensation provided for in Section
3.A hereof as may be accrued but unpaid on the date Executive voluntarily leaves
the employment of the Company. In the event that Executive voluntarily leaves
the employment of the Company, he shall provide at least ninety (90) days'
written notice.
B. The Company may at any time, upon written notice to
Executive giving the reasons therefor, terminate Executive's employment and his
right to Compensation hereunder "For Cause." As used herein, the term "For
Cause" shall be defined to include: (i) with respect to the fiscal year ending
March 31, 2000, the Company's audited financial statements for such period
reflecting: (a) revenues of less than $17,500,000; or (b) a net loss exclusive
of extraordinary items determined in accordance with generally accepted
accounting principles in excess of $500,000; (ii) with respect to all subsequent
periods during the Term, if the Company fails to achieve for two (2) consecutive
quarters such quarterly financial performance targets for revenue and pre-tax
net income as are determined by the Compensation or similar committee of
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the Board of Directors (a majority of whose members shall be non-employee
directors), in consultation with executive management, as determined prior to or
during the first fiscal quarter of each fiscal year; (iii) conviction of
Executive of any felony, fraud, embezzlement, or crime of moral turpitude; (iv)
controlled substance abuse or drug addiction; (v) alcoholism which interferes
with or affects Executive's responsibilities; (vi) grossly negligent, reckless
or intentional misconduct which is materially injurious to the Company; (vii)
violation of any express written direction of or any reasonable written rule or
regulation established by the Company's Board of Directors from time to time
which violation has not been cured to the Company's satisfaction within thirty
(30) calendar days of the dispatch of written notice to the Executive of the
violation. In the event of a termination For Cause, Executive's employment and
right to Compensation and Benefits hereunder shall terminate immediately, except
that the Company shall have the obligation to pay Executive such portion of his
Base Compensation as may be accrued but unpaid on the date his employment is
terminated.
C. Commencing on the one (1) year anniversary of the
Agreement, Executive may also be terminated for any reason ("Without Cause") in
the discretion of the Board of Directors of the Company. In the event of a
termination Without Cause, Executive's employment and right to Compensation and
Benefits shall terminate immediately and Executive shall, in lieu thereof, be
entitled to severance pay consisting of a continuation of Base Compensation and
Benefits for a period of one (1) year. During the period in which payments are
made to Executive pursuant to this Section 5.C, Executive shall remain subject
to the limitations identified in Section 6 hereafter.
6. Confidentiality and Related Matters.
A. Acknowledgment of Nature and Value of Confidential
Information: For the purposes of this Section 6 only, the term "Company" shall
include the Company, all
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subsidiaries of the Company and CNF. Executive recognizes, acknowledges and
agrees: (i) that in the course of Executive's employment by the Company, it has
been, and will continue to be, necessary for Executive to acquire, in a
fiduciary capacity of trust, information which could include, in whole or in
part, but is not limited to: information concerning the Company's rate
schedules; rate quotations; the names, addresses, credit terms and nature of
services provided by the vendors utilized by the Company; the names, addresses,
credit terms and nature of services provided to customers of the Company; the
identity of the Company's suppliers, sales representatives, shippers or other
entities with whom Executive has come into contact as a result of his employment
with the Company, or which should otherwise come into his knowledge during the
term of this Agreement; the salaries, skills, education or abilities of the
Company's employees; the Company's sales, sales volume, sales methods and sales
proposals; the identities of the Company's customers and/or prospective
customers; the identities of key purchasing personnel in the employ of customers
and prospective customers; the amounts and/or kinds of customers' purchases from
the Company; the Company's sources of information and supply; the Company's
products and product designs; the Company's computer programs, system
documentation, source code and algorithms, special hardware or software, service
or product hardware or software, and related software or hardware development;
any useful process, machine or other device or composition of matter which is
new and which is being used or studied by the Company and is not described in a
patent or described in any literature already published and distributed
externally by the Company; the Company's manuals, formulae, tools, processes,
methods, machines, compositions, ideas, improvements, trade secrets, including
but not limited to information falling under the definition of a "trade secret"
pursuant to the Uniform Trade Secret Act (or, if applicable, the version thereof
adopted by Delaware), patents, inventions,
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intellectual property, or other information or materials relating to the
Company's affairs (collectively referred to herein as the "Confidential
Information"); (ii) that the Confidential Information is the property of the
Company and constitutes a major asset of the Company; (iii) that the use,
misappropriation or disclosure of the Confidential Information would constitute
a breach of trust and could cause irreparable injury to the Company; and (iv)
that it is essential to the protection of the Company's goodwill and to the
maintenance of the Company's competitive position that the Confidential
Information be kept secret and that Executive neither disclose the Confidential
Information to others nor use the Confidential Information to Executive's own
advantage or to the advantage of others.
B. Acknowledgment of Necessity for Protections of Company's
Business. Executive further recognizes, acknowledges and agrees that it is
essential for the proper protection of the business of the Company that
Executive shall not: (i) solicit or induce any employee of the Company to leave
the employ of the Company; (ii) hire or attempt to hire any employee of the
Company; (iii) solicit the trade of, or trade with, the customers or suppliers
of the Company for any business purpose other than that of the Company; and (iv)
compete against the Company for a reasonable period of time and within a
reasonable geographic area following the termination or nonrenewal of
Executive's employment with the Company, as more fully addressed in Section 6.F,
below.
C. Work Made For Hire. Executive hereby acknowledges and
agrees that each of the copyrightable related to the business of the Company
works authored by Executive (including without limitation, all software and
related documentation, and all written and graphic materials prepared or
conceived by Employee), alone or with others, during Executive's employment with
the Company shall be deemed to be works prepared by Executive within the
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scope of Executive's employment with the Company and, as such, shall be deemed
to be "works made for hire" under the United States copyright laws from the
inception of creation of such works. In the event that any of such works shall
be deemed by a court of competent jurisdiction not to be a "work made for hire,"
this Agreement shall operate as an irrevocable assignment by Executive to the
Company of all right, title and interest in and to such works, including,
without limitation, all worldwide copyright interests therein, in perpetuity.
The fact that such copyrightable works are created by Executive outside of the
Company's facilities or other than during Executive's working hours with the
Company shall not diminish the Company's right with respect to such works which
otherwise fall within this paragraph. Executive agrees to execute and deliver to
the Company such further instruments or documents as may be requested by the
Company in order to effectuate the purposes of this paragraph.
D. Non-Disclosure of Confidential Information. In recognition
and consideration of Executive's employment, Compensation and Benefits, the
information which the Company has given and will give Executive regarding the
Company's business, the Executive's introduction to the Company's customers and
prospective customers made in the course of Executive's employment with the
Company, and the carefully-guarded methods of doing business which the Company
utilizes and deems crucial to the successful operation of its business,
Executive has held, and agrees to continue to hold and safeguard, the
Confidential Information in trust and in a fiduciary capacity for the Company,
its successors and assigns. Executive expressly agrees that he shall not,
without the prior written consent of the Company, misappropriate or disclose or
make available to anyone for use outside the Company's organization at any time,
either during Executive's employment with the Company or subsequent to the
termination or nonrenewal of such employment with the Company, for any reason,
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including without limitation termination by the Company For Cause or Without
Cause, any of the Confidential Information, whether or not developed by
Executive, except as required by the Company in the performance of Executive's
duties to the Company. Notwithstanding the above, term "Confidential
Information" shall not include information which becomes generally available to
the public (other than as a result of disclosure by the Executive). Furthermore,
if you are formally required to disclose any Confidential Information in the
context of a civil, governmental or regulatory proceeding, you shall provide the
Company with prompt notice of any such requirement so that the Company may seek
an appropriate protective order or waive compliance with the provisions off this
Agreement. If, failing the entry of a protective order or the receipt of a
waiver hereunder, you are, in the opinion of your counsel, compelled to disclose
Confidential Information or else stand liable for contempt of suffer other
censure or penalty, you may disclose that portion of the Confidential
Information which your counsel advises you to disclose. In any event, you will
not oppose action by, and will cooperate with the civil, governmental or
regulatory agency to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Confidential
Information.
E. Disclosure of Works and Inventions/Assignment of Patents.
In consideration of the promises set forth herein, Employee agrees to disclose
promptly and fully to the Company, or to such person whom the Company may
expressly designate for this specific purpose (its "Designee"), any and all
works, inventions, discoveries and improvements authored, conceived or made by
Employee, solely or with others, during the period of employment by the Company
and where the subject matter of such works, inventions, discoveries or
improvements results from or is suggested by any work which Employee may do for
or on behalf of the Company shall have all rights to such works, inventions,
discoveries and improvements, whether
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they are patentable or not. The fact that such works, inventions, discoveries
and improvements are made or conceived by Employee outside of the Company's
facilities or other than during the Employee's working hours with the Company
shall not diminish the Company's rights with respect to such works, inventions,
discoveries and improvements which otherwise fall within this paragraph.
Employee agrees that, whenever he is requested to do so by the Company, during
or after termination of Employee's employment by the Company, Employee shall
execute or join in executing any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters Patent or Copyrights of the United States or any foreign country or to
otherwise protect the Company's interest therein, and Employee shall assign all
such applications to the Company or its Designee, and shall provide the Company
or its agents or attorneys with all reasonable assistance in the preparation and
prosecution of patent applications, drawings, specifications and the like, all
at the expense of the Company, and shall do all that may be necessary to
establish, protect and maintain the rights of the Company or its Designee in the
works, inventions, discoveries, improvements, patent applications and Letters
Patent in accordance with the spirit of this paragraph. Such obligations shall
continue beyond the termination or nonrenewal of Employee's employment with
respect to any works, inventions, discoveries and/or improvements that are
authored, conceived of, or made by Employee during the period of Employee's
employment, and shall be binding upon Employee's successors, assigns, executors,
heirs, administrators or other legal representatives. The Company shall have no
rights pursuant to this Agreement in any work, invention, discovery or
improvement of the Employee made during the Term of Employee's employment by the
Company if such work, invention, discovery or improvement has not arisen out of
the or by reason of Employee's work with the Company or does not relate to the
products, business or operations of the Company,
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although Employee shall nonetheless inform the Company of any such work,
invention, discovery or improvement.
F. Restrictions on Competition. Executive covenants and agrees
that, for and in consideration of the Compensation received hereunder, the
sufficiency and receipt of which is hereby acknowledged, during the period of
Executive's employment hereunder (and for the period during which payments are
made pursuant to Section 5.C. hereof), and for a period of one (1) year
thereafter, Executive shall not, in any state or foreign country in which the
Company does business, engage, directly or indirectly, whether as principal or
as agent, officer, director, employee, consultant, shareholder, or otherwise,
alone or in association with any other person, corporation or other entity, in
any "Competing Business". For purposes of this Agreement, the term "shareholder"
shall exclude any interest owned by Executive in a public company to the extent
the Executive owns less than ten percent (10%) of any such company's outstanding
common stock. For the further purposes of this Agreement, the term "Competing
Business", shall mean any person, corporation or other entity that is engaged in
the business of selling portable computer peripherals or similar products being
manufactured, developed, sold, distributed or licensed by the Company which
directly competes with the business of the Company at the time of such
termination or nonrenewal. Accordingly, the Company is granted the right by
Executive to apply to any court of competent jurisdiction for one or more
temporary or permanent injunctions enjoining Executive, his agents and
employees, from violating the provisions of this Agreement and/or from
continuing to breach such provisions. This Section 6.F shall not be effective
for any purpose whatsoever if Executive is terminated Without Cause; except
during the period which payments are being made pursuant to Section 5.C hereof.
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G. Executive's Abilities. Executive represents that
Executive's experience and capabilities, and the limited provisions of the
immediately-preceding Section 6.F, are such that he will not be prevented from
earning his livelihood in businesses similar to the Company, other than the
"Competing Business," as specifically defined in the immediately preceding
Section 6.F. Executive acknowledges that there are a significant number of
businesses for which his qualifications and experience would render him
qualified for employment that are within the states and foreign countries
referred to in Section 6.F. which do not constitute a "Competing Business" such
that his ability to become employed after the termination or nonrenewal of this
Agreement would not be impaired.
H. Non-Solicitation of Customers and Suppliers. Executive
agrees that during the course of his employment with the Company (and for the
period during which payments are made pursuant to Section 5.C. hereof), and for
a period of one (1) year thereafter, he shall not, directly or indirectly,
solicit the trade of, or trade with, any past or present customer or supplier of
the Company for any business purpose that competes directly or indirectly with
the business being undertaken by the Company.
I. Non-Solicitation of Employees. Executive agrees that,
during the course of his employment with the Company (and for the period during
which payments are made pursuant to Section 5.C hereof) and for two (2) years
following any termination or nonrenewal of Executive's employment with the
Company, including, without limitation, termination by the Company For Cause or
Without Cause, Executive shall not, directly or indirectly, solicit or induce,
or attempt to solicit or induce, any employee of the Company to leave the
Company for any reason whatsoever, or assist or participate in the hiring of any
employee of the Company to work for another entity.
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J. No Prior Agreements. Executive represents and warrants that
Executive is not a party to or otherwise subject to or bound by the terms of any
contract, agreement or understanding which in any manner would limit or
otherwise affect Executive's ability to perform his obligations hereunder,
including without limitation any contract, agreement or understanding containing
terms and provisions similar in any manner to those contained in this Section 6.
Executive further represents and warrants that his employment with the Company
will not under any circumstances require him to disclose or use any confidential
information belonging to prior employers or other persons or entities, or to
engage in any conduct which may potentially interfere with the contractual,
statutory or common-law rights of such other employers, persons or entities. In
the event that Executive knows or learns of any facts whatsoever which suggest
that such interference might arguably occur as the result of any proposed
actions by either Executive or the Company, Executive expressly promises that he
will immediately bring such facts to the Company's attention.
K. Remedies. In the event of a breach by Executive of any of
the terms of this Agreement, the Company shall be entitled, if it shall so
elect, to institute legal proceedings to obtain damages for any such breach, or
to enforce the specific performance of this Agreement by Executive and to enjoin
Executive from any further violation of this Agreement, and to exercise such
remedies cumulatively or in conjunction with all other rights and remedies
provided by law. Executive acknowledges and agrees that money damages for any
breach by him of any of the provisions of this Agreement may be inadequate to
compensate the Company for the injuries it may suffer as the result of any such
breach, and accordingly that the Company shall be entitled to injunctive relief
against Executive, in addition to money damages, in the event of any such breach
by Executive.
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L. Review by Counsel. Executive expressly acknowledges and
represents that Executive has been given a full and fair opportunity to review
this Agreement with an attorney of Executive's choice, and that Executive has
satisfied himself, with or without consulting with counsel, that the terms and
provisions of this Agreement, specifically including, but not limited to, the
restrictive covenant and related provisions of Section 6 hereof, are reasonable
and enforceable.
M. Return of Materials. Upon the termination or nonrenewal of
Executive's employment with the Company for any reason, including without
limitation termination by the Company For Cause or Without Cause, or at any time
upon demand, Executive shall promptly deliver to the Company all Company
property and materials, including without limitation all documents or other
materials constituting, containing, referencing or relating to the "Confidential
Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
N. Company-Created Materials. All material that may be
furnished to the Executive, together with literature, rate schedules, customer
lists, forms, filing systems and any other property, documents or other
materials furnished or made available by the Company to the Executive, shall be
and remain the property of the Company, and shall be returned by the Executive
to the Company upon any termination or nonrenewal of employment or at any time
upon demand.
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O. Executive-Created Materials. All material created by the
Executive during the term of his employment with the Company which is incidental
to or related in any way to the Executive's employment, or to the Company's
business, shall be the property of the Company, and shall be delivered to the
Company upon any termination or nonrenewal of Executive's employment or at any
time upon demand.
P. Definitions. For purposes of this Section 6, the term,
"material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic, magnetic, or mechanical storage
device, any passwords, codes or keys required to access all or any portion of
such material, and the "Confidential Information" referred to in Section 6.A.
hereof.
7. Conflict of Interest.
Executive covenants that, during the Term, he will disclose to
the Company, in writing, any and all interests he may have, whether for profit
or compensation or not, in any venture or activity which could potentially
interfere with his ability to perform under this Agreement or create a conflict
of interest for him with the Company. For purposes of this paragraph 7 only,
"conflict of interest" shall mean ownership of greater than one percent (1%) of,
or $250,000 worth of equity in, another company which conducts business similar
to that undertaken by the Company.
8. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, at the following addresses or to such other
address as either party may designate by like notice:
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A. If to Executive, to:
Ruben Daniel Rudich
9641 East Friess Drive
Scottsdale, AZ 85260
With a copy to:
Stephen Boatwright, Esquire
Gammage & Burnham
2 North Central, 18th Floor
Phoenix, AZ 85004
B. If to Company, to:
JLL Ventures (Delaware) Corp.
7722 East Gray Road
Scottsdale, AZ 85260
With a copy to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn.: Stephen M. Cohen, Esquire
9. Basic Indemnification.
Company shall indemnify and defend Executive and his heirs,
executors and administrators against any costs or expense (including reasonable
attorneys' fees and amounts paid in settlement, if such settlement is approved
by the Company), fine, penalty, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer,
unless with respect to such matter Executive shall have been adjudicated in any
proceeding not to have acted in good faith or in the reasonable belief that the
action was in the best interests of the Company, or unless such indemnification
is precluded by law, public policy, or in the judgment of the
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Company's Board of Directors, such indemnification is being sought as a result
of actions of Executive which were either : (i) grossly negligent; (ii)
reflective of Executive misconduct; (iii) in violation of rules, regulations or
laws applicable to the Company; or (iv) in disregard of Company policies.
Company shall utilize its best efforts to obtain Directors and Officers
Liability Insurance in an amount which is standard and customary for a business
such as the Company.
10. Additional Provisions.
A. Binding Agreement. This Agreement, including without
limitation its confidentiality, restrictive covenant and related provisions,
shall inure to the benefit of, and be binding upon, the Company and its
successors and assigns and Executive, his heirs, executors, administrators and
legal representatives, subject to the provisions of Section 10.F. hereof, which
expressly prohibits the assignment or delegation of any of Executive's personal
rights or obligations hereunder.
B. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
cannot be modified orally. This Agreement supersedes all prior and
contemporaneously-made written or oral agreements between the parties or between
Executive and CNF relating to the subject matter hereof. No modification or
waiver of any of the provisions hereof shall be effective unless set forth in a
writing that specifically states that it is intended to be a modification of
this Agreement and that is signed by the Chief Executive Officer of the Company.
C. Modification. If any provision(s) of this Agreement shall
be or shall become illegal or unenforceable in whole or in part, for any reason
whatsoever, the remaining provisions shall nevertheless be deemed valid, binding
and subsisting, and any invalid or unenforceable provision(s) shall be deemed
modified to the least extent possible so as to make
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them valid and enforceable and so as to give the maximum effect allowable by law
to the parties' original intent as expressed by the terms hereof.
D. No Waiver. No failure on the part of the Company to
exercise, and no delay by the Company in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Company of any right, power or remedy hereunder, preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy by the Company.
E. Person. "Person" as used herein shall mean a natural
person, joint venture, corporation, partnership, trust, estate, sole
proprietorship, governmental agency or authority or other juridical entity.
F. Personal Services Contract. This is a personal services
contract and the rights and obligations set forth herein may not be assigned or
delegated by Executive, except as otherwise specifically provided in this
Agreement with respect to benefits payable upon Executive's disability or death,
without the express, written consent of the Company. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns. This Agreement may be assigned by the Company to any party, without the
consent of Executive. The transfer of Executive to any parent, affiliate or
subsidiary of the Company shall constitute an assignment of this Agreement.
G. Headings. The headings of the several sections of this
Agreement have been inserted for convenience of reference only and shall in no
way be used to restrict, modify, or explain any of the terms or provisions
hereof.
H. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without regard to its, or any other
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sovereignty's, conflicts of laws principles. The parties agree that any claims
brought pursuant to this Agreement shall be brought in a court of competent
jurisdiction located in Phoenix, Arizona.
I. Tolling Period. The non-competition, non-disclosure and
non-solicitation obligations contained in Section 6 of this Agreement shall be
extended by the length of time during which Executive shall have been in breach
of any of the provisions of such Section 6.
J. Company Violation Not a Defense. In an action by the
Company to enforce any provision of this Agreement, any claims asserted by
Executive against the Company shall not constitute a defense to the Company's
action.
K. Release. In consideration of Executive's employment
hereafter with the Company, Executive acknowledges and represents that, with the
exception of ordinary course reimbursement of business expenses and accrued
vacations reflected within the financial statements of CNF, Inc., he has no
outstanding claims of any kind whatsoever, including but not limited to, any
claim for outstanding indebtedness, past salary, reimbursements, or benefits of
any type against CNF or any of its affiliates or subsidiaries and that if he has
any such claim, any and all such claims are hereby forever waived and released.
L. Construction. This Agreement shall be construed according
to the plain meaning of its terms, and not strictly for or against either party
hereto.
M. Counterparts. This Agreement may be executed in
counterpart, and the counterparts, taken together, shall constitute the entire
Agreement. The Agreement may further be executed by facsimile transmission, and
the facsimile signatures may be deemed original signatures for all purposes,
including for purposes of the Best Evidence Rule and all other rules or
doctrines of similar effect.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS
TO OBTAIN OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE
COMPANY. BY SIGNING IT, EXECUTIVE ACKNOWLEDGES THIS FACT, AND
FURTHER ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY THE COMPANY
TO READ THE AGREEMENT CAREFULLY, AND/OR TO CONSULT WITH
COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF SIGNING
THE AGREEMENT, PRIOR TO SIGNING IT.
By:_/s/ Vincent J. Marold________ Dated:__________________
Vincent J. Marold, President
By:_/s/ Ruben Daniel Rudich______ Dated:__________________
Ruben Daniel Rudich as Executive
WITNESS:
__________________________
20
Exhibit 10.5
ADDENDUM
To May 19, 1999 JLL Ventures Employment Agreement of Reuben Daniel Rudich
Employment Agreement shall be amended to reduce Employee's salary to the
following beginning December 1, 1999: Reuben Daniel Rudich - $85,000. Mr.
Rudich's salary will return to his Base Compensation level, as defined in
section "3. Compensation" of the Employment Agreement, upon achieving two
consecutive profitable quarters.
Employee
/s/ Reuben Daniel Rudich Nov 2 / 99
- --------------------------- ---------------------
Reuben Daniel Rudich Date
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 19th day of May, 1999, by and between
JLL VENTURES ACQUISITION CORP., a Delaware corporation (hereinafter "Company"),
and Frank Layland an individual (hereinafter "Employee").
W I T N E S S E T H:
WHEREAS, on the date hereof, the Company acquired CNF Inc., a
California corporation ("CNF"), pursuant to the terms of an Agreement and Plan
of Merger (the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement the parent of the Company
assumed CNF's Stock Option Plan and all obligations of CNF thereunder, including
the obligation to issue securities to Employee upon exercise of options owned of
record by Employee which have been issued under such plan; and
WHEREAS in connection with the Merger Agreement, Employee agreed to
become employed with the Company upon the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants
of the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
A. The Company hereby employs Employee and Employee hereby
accepts employment by the Company as its Director of Operations. Employee agrees
to serve the Company in such capacity, subject to the terms and conditions of
this Agreement, for a term, commencing on the date hereof and expiring three
years from that date of this Agreement (the "Term").
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2. Duties.
A. During the Term, Employee shall use his best efforts to
perform all duties required in furtherance of his position, including without
limitation all such duties as are customarily associated with such position or
as are assigned to him from time to time by executive management or the Board of
Directors of the Company.
B. Employee shall diligently and faithfully devote his entire
time, energy, skill, and best efforts to the performance of his duties under
this Agreement. Employee shall conduct himself at all times so as to advance the
best interests of the Company, and shall not undertake or engage in any other
business activity or continue or assume any other business affiliations which
conflict or interfere with the performance of his services hereunder without the
prior written consent of the Board of Directors of the Company. Employee also
agrees that he shall not usurp or misappropriate, either to himself, or to any
other person or entity, any corporate or other opportunities that would
otherwise be available to the Company.
3. Compensation.
A. The Company shall pay Employee and Employee shall accept,
as his base compensation ("Base Compensation") for all services rendered to the
Company pursuant hereto, an annual salary of $85,000, to be paid in accordance
with the general payroll practices of the Company as from time to time in
effect, subject to all applicable federal and state tax withholding
requirements. Employee shall also be entitled, subject to the terms and
conditions of particular plans and programs, to all fringe benefits afforded to
other employees holding similar positions with the Company in the discretion of
the Board of Directors, including, but not limited to, the right to participate
in any pension, retirement, major medical, group health, disability, accident
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and life insurance, and other employee benefit programs made generally
available, from time to time, by the Company (collectively, "Benefits").
B. In addition to Base Compensation, a "Discretionary Bonus"
may be awarded to Employee on the basis of merit performance on an annual basis
in the discretion of the Company's Board of Directors or Compensation Committee.
Base Compensation and Discretionary Bonus shall hereinafter collectively be
referred to as "Compensation."
C. Employee shall be entitled to participate in any stock
option programs adopted by the Company to the extent determined on a
discretionary basis by the Board of Directors of the Company or Compensation
Committee thereof.
4. Vacation and Reimbursement of Expenses.
A. Employee shall receive paid vacation in each calendar year
in accordance with the written policy of the Company, or as otherwise determined
by executive management or the Board of Directors of the Company, applicable to
employees holding similar positions within the Company to be taken at times
which do not unreasonably interfere with the performance of the Employee's
duties hereunder; provided, however, in the event that Employee is entitled to
in excess of ten (10) paid vacation days, Employee shall not schedule more than
ten (10) consecutive days of vacation during any three month period without the
prior written consent of the Company's Chief Executive Officer or the Chief
Financial Officer.
B. Employee shall be reimbursed for such reasonable expenses
as are directly incurred for the business of the Company upon presentation by
Employee of an itemized account of such expenditures, but only to the extent
that such expenses are deductible to the Company pursuant to rules and
regulations adopted by the United States Internal Revenue Service;
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provided, that any expenses are in accordance with Company policy, only if such
expenses are pre-approved in writing by the Company's Chief Executive Officer or
Chief Financial Officer.
5. Termination.
A. Employee's employment and rights to Compensation and
Benefits hereunder shall terminate immediately if Employee voluntarily leaves
the employment of the Company; except that the Company shall have the obligation
to pay Employee such portion of his Base Compensation provided for in Section
3.A hereof as may be accrued but unpaid on the date Employee voluntarily leaves
the employment of the Company. In the event that Employee voluntarily leaves the
employment of the Company, he shall provide at least ninety (90) days' written
notice.
B. The Company may at any time, upon written notice to
Employee giving the reasons therefor, terminate Employee's employment and his
right to Compensation hereunder "For Cause." As used herein, the term "For
Cause" shall be defined to include: (i) failure to achieve those individual or
corporate performance goals which shall be determined from time to time by
executive management of the Company; (iii) conviction of Employee of any felony,
fraud, embezzlement, or crime of moral turpitude; (iv) controlled substance
abuse or drug addiction; (v) alcoholism which interferes with or affects
Employee's responsibilities; (vi) grossly negligent, reckless or intentional
misconduct which is materially injurious to the Company; (vii) violation of any
express written direction of or any reasonable written rule or regulation
established by the Company' Board of Directors from time to time which violation
has not been cured to the Company's satisfaction within thirty (30) calendar
days of the dispatch of written notice to the Employee of the violation. In the
event of a termination For Cause, Employee's employment and right to
Compensation and Benefits hereunder shall terminate immediately, except that the
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Company shall have the obligation to pay Employee such portion of his Base
Compensation as may be accrued but unpaid on the date his employment is
terminated.
C. Commencing on the one (1) year anniversary of the
Agreement, Employee may also be terminated for any reason ("Without Cause") in
the discretion of the Board of Directors of the Company. In the event of a
termination Without Cause, Employee's employment and right to Compensation and
Benefits shall terminate immediately and Employee shall, in lieu thereof, be
entitled to severance pay consisting of a continuation of Base Compensation and
Benefits for a period of six (6) months. During the period in which payments are
made to Employee pursuant to this Section 5.C, Employee shall remain subject to
the limitations identified in Section 6 hereafter.
6. Confidentiality and Related Matters.
A. Acknowledgment of Nature and Value of Confidential
Information: For the purposes of this Section 6 only, the term "Company" shall
include the Company, CNF, JLL Ventures (Delaware) Corp., a Delaware Corporation
("JLL"), and all subsidiaries of JLL. Employee recognizes, acknowledges and
agrees: (i) that in the course of Employee's employment by the Company it has
been and will continue to be necessary for Employee to acquire, in a fiduciary
capacity of trust, information which could include, in whole or in part, but is
not limited to: information concerning the Company's rate schedules; rate
quotations; the names, addresses, credit terms and nature of services provided
by the vendors utilized by the Company; the names, addresses, credit terms and
nature of services provided to customers of the Company; the identity of the
Company's suppliers, sales representatives, shippers or other entities with whom
Employee has come into contact as a result of his employment with the Company,
or which should otherwise come into his knowledge during the term of this
Agreement; the salaries, skills, education or abilities of the Company's
employees; the Company's sales, sales volume, sales
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methods and sales proposals; the identities of the Company's customers and/or
prospective customers; the identities of key purchasing personnel in the employ
of customers and prospective customers; the amounts and/or kinds of customers'
purchases from the Company; the Company's sources of information and supply; the
Company's products and product designs; the Company's computer programs, system
documentation, source code, algorithms, special hardware or software, service or
product hardware or software, and related software or hardware development; any
useful process, machine or other device or composition of matter which is new
and which is being used or studied by the Company and is not described in a
patent or described in any literature already published and distributed
externally by the Company; the Company's manuals, formulae, tools, processes,
methods, machines, compositions, ideas, improvements, trade secrets, including
but not limited to information falling under the definition of "trade secret"
pursuant to the Uniform Trade Secret Act (or, if applicable, the version thereof
adopted by Delaware), patents, inventions, intellectual property, or other
information or materials relating to the Company's affairs (collectively
referred to herein as the "Confidential Information"); (ii) that the
Confidential Information is the property of the Company and constitutes a major
asset of the Company; (iii) that the use, misappropriation or disclosure of the
Confidential Information would constitute a breach of trust and could cause
irreparable injury to the Company; and (iv) that it is essential to the
protection of the Company's goodwill and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret and that
Employee neither disclose the Confidential Information to others nor use the
Confidential Information to Employee's own advantage or to the advantage of
others.
B. Acknowledgment of Necessity for Protections of Company's
Business. Employee further recognizes, acknowledges and agrees that it is
essential for the proper
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protection of the business of the Company that Employee shall not: (i) solicit
or induce any employee of the Company to leave the employ of the Company; (ii)
hire or attempt to hire any employee of the Company; (iii) solicit the trade of,
or trade with, the customers or suppliers of the Company for any business
purpose other than that of the Company; and (iv) compete against the Company for
a reasonable period of time and within a reasonable geographic area following
the termination or nonrenewal of Employee's employment with the Company, as more
fully addressed in Section 6.F, below.
C. Work Made For Hire. Employee hereby acknowledges and agrees
that each of the copyrightable works authored by Employee related to the
business of the Company (including without limitation, all software and related
documentation, and all written and graphic materials prepared or conceived by
Employee), alone or with others, during Employee's employment with the Company
shall be deemed to be works prepared by Employee within the scope of Employee's
employment with the Company and, as such, shall be deemed to be "works made for
hire" under the United States copyright laws from the inception of creation of
such works. In the event that any of such works shall be deemed by a court of
competent jurisdiction not to be a "work made for hire," this Agreement shall
operate as an irrevocable assignment by Employee to the Company of all right,
title and interest in and to such works, including, without limitation, all
worldwide copyright interests therein, in perpetuity. The fact that such
copyrightable works are created by Employee outside of the Company's facilities
or other than during Employee's working hours with the Company shall not
diminish the Company's right with respect to such works which otherwise fall
within this paragraph. Employee agrees to execute and deliver to the Company
such further instruments or documents as may be requested by the Company in
order to effectuate the purposes of this paragraph.
7
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D. Non-Disclosure of Confidential Information. In recognition
and consideration of Executive's employment, Compensation and Benefits, the
information which the Company has given and will give Executive regarding the
Company's business, the Executive's introduction to the Company's customers and
prospective customers made in the course of Executive's employment with the
Company, and the carefully-guarded methods of doing business which the Company
utilizes and deems crucial to the successful operation of its business,
Executive has held, and agrees to continue to hold and safeguard, the
Confidential Information in trust and in a fiduciary capacity for the Company,
its successors and assigns. Employee expressly agrees that he shall not, without
the prior written consent of the Company, misappropriate or disclose or make
available to anyone for use outside the Company's organization at any time,
either during Employee's employment with the Company or subsequent to the
termination or nonrenewal of such employment with the Company, for any reason,
including without limitation termination by the Company For Cause or Without
Cause, any of the Confidential Information, whether or not developed by
Employee, except as required by the Company in the performance of Employee's
duties to the Company. Notwithstanding the above, term "Confidential
Information" shall not include information which becomes generally available to
the public (other than as a result of disclosure by the Executive). Furthermore,
if you are formally required to disclose any Confidential Information in the
context of a civil, governmental or regulatory proceeding, you shall provide the
Company with prompt notice of any such requirement so that the Company may seek
an appropriate protective order or waive compliance with the provisions off this
Agreement. If, failing the entry of a protective order or the receipt of a
waiver hereunder, you are, in the opinion of your counsel, compelled to disclose
Confidential Information or else stand liable for contempt of suffer other
censure or penalty, you may disclose that portion of the Confidential
8
<PAGE>
Information which your counsel advises you to disclose. In any event, you will
not oppose action by, and will cooperate with the civil, governmental or
regulatory agency to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Confidential
Information.
E. Disclosure of Works and Inventions/Assignment of Patents.
In consideration of the promises set forth herein, Employee agrees to disclose
promptly and fully to the Company, or to such person whom the Company may
expressly designate for this specific purpose (its "Designee"), any and all
works, inventions, discoveries and improvements authored, conceived or made by
Employee, solely or with others, during the period of employment by the Company
and where the subject matter of such works, inventions, discoveries or
improvements results from or is suggested by any work which Employee may do for
or on behalf of the Company shall have all rights to such works, inventions,
discoveries and improvements, whether they are patentable or not. The fact that
such works, inventions, discoveries and improvements are made or conceived by
Employee outside of the Company's facilities or other than during the Employee's
working hours with the Company shall not diminish the Company's rights with
respect to such works, inventions, discoveries and improvements which otherwise
fall within this paragraph. Employee agrees that, whenever he is requested to do
so by the Company, during or after termination of Employee's employment by the
Company, Employee shall execute or join in executing any and all applications,
assignments or other instruments which the Company shall deem necessary to apply
for and obtain Letters Patent or Copyrights of the United States or any foreign
country or to otherwise protect the Company's interest therein, and Employee
shall assign all such applications to the Company or its Designee, and shall
provide the Company or its agents or attorneys with all reasonable assistance in
the preparation and prosecution of patent
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<PAGE>
applications, drawings, specifications and the like, all at the expense of the
Company, and shall do all that may be necessary to establish, protect and
maintain the rights of the Company or its Designee in the works, inventions,
discoveries, improvements, patent applications and Letters Patent in accordance
with the spirit of this paragraph. Such obligations shall continue beyond the
termination or nonrenewal of Employee's employment with respect to any works,
inventions, discoveries and/or improvements that are authored, conceived of, or
made by Employee during the period of Employee's employment, and shall be
binding upon Employee's successors, assigns, executors, heirs, administrators or
other legal representatives. The Company shall have no rights pursuant to this
Agreement in any work, invention, discovery or improvement of the Employee made
during the Term of Employee's employment by the Company if such work, invention,
discovery or improvement has not arisen out of the or by reason of Employee's
work with the Company or does not relate to the products, business or operations
of the Company, although Employee shall nonetheless inform the Company of any
such work, invention, discovery or improvement.
F. Restrictions on Competition. Employee covenants and agrees
that, for and in consideration of the Compensation received hereunder, the
sufficiency and receipt of which is hereby acknowledged, during the period of
Employee's employment hereunder (and for the period during which payments are
made pursuant to Section 5.C. hereof) and for a period of one (1) year
thereafter, Employee shall not, in any state or foreign country in which the
Company does business, engage, directly or indirectly, whether as principal or
as agent, officer, director, employee, consultant, shareholder, or otherwise,
alone or in association with any other person, corporation or other entity, in
any "Competing Business". For purposes of this Agreement, the term "shareholder"
shall exclude any interest owned by Employee in a public company to the
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extent the Employee owns less than ten percent (10%) of any such company's
outstanding common stock. For the further purposes of this Agreement, the term
"Competing Business", shall mean any person, corporation or other entity that is
engaged in the business of selling portable computer peripherals or similar
products being manufactured, developed, sold, distributed or licensed by the
Company which directly competes with the business of the Company at the time of
such termination or nonrenewal. Accordingly, the Company is granted the right by
Employee to apply to any court of competent jurisdiction for one or more
temporary or permanent injunctions enjoining Employee, his agents and employees,
from violating the provisions of this Agreement and/or from continuing to breach
such provisions. This Section 6.F shall not be effective for any purpose
whatsoever if Employee is terminated Without Cause, except during the period
during which payments are made pursuant to Section 5.C hereof.
G. Employee's Abilities. Employee represents that Employee's
experience and capabilities, and the limited provisions of the
immediately-preceding Section 6.F, are such that he will not be prevented from
earning his livelihood in businesses similar to the Company, other than the
"Competing Business," as specifically defined in the immediately preceding
Section 6.F. Employee acknowledges that there are a significant number of
businesses for which his qualifications and experience would render him
qualified for employment that are within the states and foreign countries
referred to in Section 6.F. which do not constitute a "Competing Business" such
that his ability to become employed after the termination or nonrenewal of this
Agreement would not be impaired.
H. Non-Solicitation of Customers and Suppliers. Employee
agrees that during the course of his employment with the Company (and for the
period during which payments are made pursuant to Section 5.C hereof), and for a
period of one (1) year thereafter, he shall not,
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directly or indirectly, solicit the trade of, or trade with, any past or present
customer or supplier of the Company for any business purpose that competes
directly or indirectly with the business undertaken by the Company.
I. Non-Solicitation of Employees. Employee agrees that during
the course of his employment with the Company (and for the period during which
payments are made pursuant to Section 5.C hereof) and for two (2) years
following any termination or nonrenewal of Employee's employment with the
Company, including, without limitation, termination by the Company For Cause or
Without Cause, Employee shall not, directly or indirectly, solicit or induce, or
attempt to solicit or induce, any employee of the Company to leave the Company
for any reason whatsoever, or assist or participate in the hiring of any
employee of the Company to work for another entity.
J. No Prior Agreements. Employee represents and warrants that
Employee is not a party to or otherwise subject to or bound by the terms of any
contract, agreement or understanding which in any manner would limit or
otherwise affect Employee's ability to perform his obligations hereunder,
including without limitation any contract, agreement or understanding containing
terms and provisions similar in any manner to those contained in this Section 6.
Employee further represents and warrants that his employment with the Company
will not under any circumstances require him to disclose or use any confidential
information belonging to prior employers or other persons or entities, or to
engage in any conduct which may potentially interfere with the contractual,
statutory or common-law rights of such other employers, persons or entities. In
the event that Employee knows or learns of any facts whatsoever which suggest
that such interference might arguably occur as the result of any proposed
actions by either
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Employee or the Company, Employee expressly promises that he will immediately
bring such facts to the Company's attention.
K. Remedies. In the event of a breach by Employee of any of
the terms of this Agreement, the Company shall be entitled, if it shall so
elect, to institute legal proceedings to obtain damages for any such breach, or
to enforce the specific performance of this Agreement by Employee and to enjoin
Employee from any further violation of this Agreement, and to exercise such
remedies cumulatively or in conjunction with all other rights and remedies
provided by law. Employee acknowledges and agrees that money damages for any
breach by him of any of the provisions of this Agreement may be inadequate to
compensate the Company for the injuries it may suffer as the result of any such
breach, and accordingly that the Company shall be entitled to injunctive relief
against Employee, in addition to money damages, in the event of any such breach
by Employee.
L. Review by Counsel. Employee expressly acknowledges and
represents that Employee has been given a full and fair opportunity to review
this Agreement with an attorney of Employee's choice, and that Employee has
satisfied himself, with or without consulting with counsel, that the terms and
provisions of this Agreement, specifically including, but not limited to, the
restrictive covenant and related provisions of Section 6 hereof, are reasonable
and enforceable.
M. Return of Materials. Upon the termination or nonrenewal of
Employee's employment with the Company for any reason, including without
limitation termination by the Company For Cause or Without Cause, or at any time
upon demand, Employee shall promptly deliver to the Company all Company property
and materials, including without limitation all documents or other materials
constituting, containing, referencing or relating to the "Confidential
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Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
N. Company-Created Materials. All material that may be
furnished to the Employee, together with literature, rate schedules, customer
lists, forms, filing systems and any other property, documents or other
materials furnished or made available by the Company to the Employee, shall be
and remain the property of the Company, and shall be returned by the Employee to
the Company upon any termination or nonrenewal of employment or at any time upon
demand.
O. Employee-Created Materials. All material created by the
Employee during the term of his employment with the Company which is incidental
to or related in any way to the Employee's employment, or to the Company's
business, shall be the property of the Company, and shall be delivered to the
Company upon any termination or nonrenewal of Employee's employment or at any
time upon demand.
P. Definitions. For purposes of this Section 6, the term,
"material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic, magnetic, or mechanical storage
device, any passwords, codes or keys required to access all or any portion of
such material, and the "Confidential Information" referred to in Section 6.A.
hereof.
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7. Conflict of Interest.
Employee covenants that, during the Term, he will disclose to
the Company, in writing, any and all interests he may have, whether for profit
or compensation or not, in any venture or activity which could potentially
interfere with his ability to perform under this Agreement or create a conflict
of interest for him with the Company. For purposes of this paragraph 7 only,
"conflict of interest" shall mean ownership of greater than one percent (1%) of,
or $250,000 worth of equity in, another company which conducts business similar
to that undertaken by the Company.
8. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, at the following addresses or to such other
address as either party may designate by like notice:
A. If to Employee, to:
Frank Layland
17221 N. 60th Place
Scottsdale, AZ 85254
With a copy to:
Stephen Boatwright, Esquire
Gammage & Burnham
2 North Central, 18th Floor
Phoenix, AZ 85004
B. If to Company, to:
JLL Ventures (Delaware) Corp.
7722 East Gray Road
Scottsdale, AZ 85260
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With a copy to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn.: Stephen M. Cohen, Esquire
9. Basic Indemnification.
Company shall indemnify and defend Employee and his heirs,
executors and administrators against any costs or expense (including reasonable
attorneys' fees and amounts paid in settlement, if such settlement is approved
by the Company), fine, penalty, judgment and liability reasonably incurred by or
imposed upon Employee in connection with any action, suit or proceeding, civil
or criminal, to which Employee may be made a party or with which Employee shall
be threatened, by reason of Employee's being or having been an employee, unless
with respect to such matter Employee shall have been adjudicated in any
proceeding not to have acted in good faith or in the reasonable belief that the
action was in the best interests of the Company, or unless such indemnification
is precluded by law, public policy, or in the judgment of the Company's Board of
Directors, such indemnification is being sought as a result of actions of
Employee which were either : (i) grossly negligent; (ii) reflective of Employee
misconduct; (iii) in violation of rules, regulations or laws applicable to the
Company; or (iv) in disregard of Company policies.
10. Additional Provisions.
A. Binding Agreement. This Agreement, including without
limitation its confidentiality, restrictive covenant and related provisions,
shall inure to the benefit of, and be binding upon, the Company and its
successors and assigns and Employee, his heirs, executors, administrators and
legal representatives, subject to the provisions of Section 10.F. hereof, which
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expressly prohibits the assignment or delegation of any of Employee's personal
rights or obligations hereunder.
B. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
cannot be modified orally. This Agreement supersedes all prior and
contemporaneously-made written or oral agreements between the parties or between
Employee and CNF relating to the subject matter hereof. No modification or
waiver of any of the provisions hereof shall be effective unless set forth in a
writing that specifically states that it is intended to be a modification of
this Agreement and that is signed by the Chief Executive Officer of the Company.
C. Modification. If any provision(s) of this Agreement shall
be or shall become illegal or unenforceable in whole or in part, for any reason
whatsoever, the remaining provisions shall nevertheless be deemed valid, binding
and subsisting, and any invalid or unenforceable provision(s) shall be deemed
modified to the least extent possible so as to make them valid and enforceable
and so as to give the maximum effect allowable by law to the parties' original
intent as expressed by the terms hereof.
D. No Waiver. No failure on the part of the Company to
exercise, and no delay by the Company in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Company of any right, power or remedy hereunder, preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy by the Company.
E. Person. "Person" as used herein shall mean a natural
person, joint venture, corporation, partnership, trust, estate, sole
proprietorship, governmental agency or authority or other juridical entity.
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F. Personal Services Contract. This is a personal services
contract and the rights and obligations set forth herein may not be assigned or
delegated by Employee, except as otherwise specifically provided in this
Agreement with respect to benefits payable upon Employee's disability or death,
without the express, written consent of the Company. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns. This Agreement may be assigned by the Company to any party, without the
consent of Employee. The transfer of Employee to any parent, affiliate or
subsidiary of the Company shall constitute an assignment of this Agreement.
G. Headings. The headings of the several sections of this
Agreement have been inserted for convenience of reference only and shall in no
way be used to restrict, modify, or explain any of the terms or provisions
hereof.
H. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without regard to its, or any other sovereignty's, conflicts of laws principles.
The parties agree that any claims brought pursuant to this Agreement shall be
brought in a court of competent jurisdiction located in Phoenix, Arizona.
I. Tolling Period. The non-competition, non-disclosure and
non-solicitation obligations contained in Section 6 of this Agreement shall be
extended by the length of time during which Employee shall have been in breach
of any of the provisions of such Section 6.
J. Company Violation Not a Defense. In an action by the
Company to enforce any provision of this Agreement, any claims asserted by
Employee against the Company shall not constitute a defense to the Company's
action.
K. Release. In consideration of Executive's employment
hereafter with the Company, Executive acknowledges and represents that, with the
exception of ordinary course
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reimbursement of business expenses and accrued vacations reflected within the
financial statements of CNF, Inc., he has no outstanding claims of any kind
whatsoever, including but not limited to, any claim for outstanding
indebtedness, past salary, reimbursements, or benefits of any type against CNF
or any of its affiliates or subsidiaries and that if he has any such claim, any
and all such claims are hereby forever waived and released.
L. Construction. This Agreement shall be construed according
to the plain meaning of its terms, and not strictly for or against either party
hereto.
M. Counterparts. This Agreement may be executed in
counterpart, and the counterparts, taken together, shall constitute the entire
Agreement. The Agreement may further be executed by facsimile transmission, and
the facsimile signatures may be deemed original signatures for all purposes,
including for purposes of the Best Evidence Rule and all other rules or
doctrines of similar effect.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS
TO OBTAIN OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE
COMPANY. BY SIGNING IT, EXECUTIVE ACKNOWLEDGES THIS FACT, AND
FURTHER ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY THE COMPANY
TO READ THE AGREEMENT CAREFULLY, AND/OR TO CONSULT WITH
COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF SIGNING
THE AGREEMENT, PRIOR TO SIGNING IT.
By:_/s/ Vincent J. Marold__________ Dated:______________________________
Vincent J. Marold, President
By:_/s/ Frank Layland______________ Dated:______________________________
Frank Layland as Executive
WITNESS:
___________________________________
20
Exhibit 10.7
ACQUIROR
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") dated as of June __, 1999 by and
among JLL VENTURES (DELAWARE) CORP., a Delaware corporation ("Acquiror"),
SYNERGY GROUP INTERNATIONAL, INC., an Arizona corporation ("Synergy"), those
stockholders identified on the signature page hereto (the "Signatories") and
STOCKTRANS, INC., a Pennsylvania corporation, as escrow agent ("Escrow Agent").
Synergy and the Signatories are hereinafter collectively referred to as the
"Shareholders" and individually as a "Shareholder".
WHEREAS, Acquiror, CNF, Inc., a California corporation ("CNF"), and the
principal shareholder of CNF are parties to an Agreement and Plan of Merger
dated as of April 16, 1999, and as amended thereafter (the "Merger Agreement"),
providing for Acquiror's acquisition of all of the issued and outstanding
capital stock of CNF; and
WHEREAS, the Merger Agreement provides in Section 1.4(a) for the
establishment of an escrow fund (the "Escrow Fund") to be delivered by certain
stockholders of Acquiror prior to the closing of the Merger Agreement consisting
of 4,000,000 shares of common stock, $.0001 par value per share, of Acquiror
(the "Escrow Shares").
NOW, THEREFORE, in consideration of Acquiror and CNF executing the
Merger Agreement and of the mutual premises and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions, Other Agreements.
(a) All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned to such terms in the Merger
Agreement.
(b) It is expressly understood and agreed by the parties hereto that
all references in this Agreement to the Merger Agreement and to any exhibits to
such Merger Agreement are for the convenience of the parties hereto other than
the Escrow Agent, and the Escrow Agent shall have no obligations or duties with
respect thereto other than the obligation to refer to the Merger Agreement for
the purpose of determining the definitions of certain capitalized terms used
herein and not otherwise defined herein or to interpret any provisions of such
other agreements referred to in this Agreement for purposes of implementation
thereof.
2. Appointment of Escrow Agent.
StockTrans, Inc. hereby accepts its appointment as Escrow Agent to
serve in accordance with the terms, conditions and provisions of this Agreement.
The acceptance by the Escrow Agent of its duties under this Agreement is subject
to the terms and conditions set forth at Section 7 hereafter, which the parties
to this Agreement hereby agree shall govern and control with respect to the
rights, duties, liabilities and immunities of the Escrow Agent.
<PAGE>
3. Establishment of Escrow Fund; Power of Attorney.
(a) Pursuant to Section 1.4(a) of the Merger Agreement, at the Closing,
Shareholders shall deposit with the Escrow Agent, the Escrow Shares constituting
the Escrow Fund in order to secure Acquiror's obligations under Section 5.13 of
the Merger Agreement. The Escrow Agent shall hold the Escrow Shares in trust on
behalf of the Shareholders, who shall remain the record and beneficial owners of
the Escrow Shares comprising the Escrow Fund in the amounts as set forth on the
signature page hereof. If dividends are paid or a distribution is made by
Acquiror with respect to the Escrow Shares in cash or in property, such
dividends or distributions shall be held as a part of the Escrow Fund. In the
event of any stock splits, recapitalizations or other adjustments to the capital
stock of Acquiror, the resulting number of shares, or other securities into
which the Escrow Shares convert, shall be included in the Escrow Fund.
(b) By virtue of the Shareholders' execution of this Escrow Agreement,
each of the Shareholders has, without any further act, consented to: (i) the
establishment of this escrow pursuant to the Merger Agreement in the manner set
forth herein, and (ii) all of the other terms, conditions and limitations in
this Agreement.
(c) By virtue of the Shareholders' execution of this Escrow Agreement,
each of the Shareholders hereby irrevocably constitutes and appoints the Escrow
Agent the true and lawful agent and attorney-in-fact of the Shareholders with
respect to all matters arising in connection with this Escrow Agreement,
including the administration of the Escrow Fund pursuant to Section 4 below and
the subsequent surrender and cancellation of the Escrow Shares pursuant to
Section 4 herein.
4. Operation and Administration of the Escrow Fund; Release of Escrow
Shares.
(a) To the extent provided herein and in the Merger Agreement, the
Escrow Fund shall be established and thereafter applied as set forth in this
Section 4 to secure the performance of Acquiror with respect to the completion
of the Private Placement pursuant to Section 5.13 of the Merger Agreement.
(b) Upon the closing, if any, with respect to the Private Placement in
accordance with Section 5.13 of the Merger Agreement, Synergy, on behalf of the
Shareholders, shall deliver an application to the Escrow Agent, with a copy to
Acquiror (the "Synergy Application"). The Synergy Application shall set forth
the amount of net proceeds raised in the Private Placement, the number of Escrow
Shares to be delivered to Shareholders and the number of Escrow Shares to be
delivered to the Acquiror, if any, for cancellation as determined pursuant to
Section 5.13(b) of the Merger Agreement and, subject to Section 4(e) herein,
shall instruct the Escrow Agent to apply the Escrow Shares in the manner set
forth in this Section 4.
(c) In the event that fifteen (15) days after expiration of the
Offering Period a closing with respect to the Private Placement is not completed
in accordance with Section 5.13 of the, Merger Agreement, other than by reason
contained within Section 5.13(c) of the Merger Agreement, Acquiror shall deliver
an application to the Escrow Agent (the "Acquiror Application"), with a copy to
Synergy on behalf of the Shareholders. The Acquiror Application
2
<PAGE>
shall state that a closing with respect to the Private Placement has not
occurred and shall instruct Escrow Agent to apply, subject to Section 4(e)
herein, the Escrow Shares in the manner set forth in this Section 4. If a
closing with respect to the Private Placement does not occur as a result of the
conditions stated within Section 5.13(c) of the Merger Agreement, then, at the
time of the occurrence of any of such conditions, Synergy shall make application
to the Escrow Agent to release the Escrow Shares in full to the Shareholders.
Such application shall also be referred to as the "Synergy Application".
(d) Unless the Escrow Agent is otherwise informed in writing by Synergy
(with respect to the Acquiror Application) or by Acquiror (with respect to the
Synergy Application) within thirty (30) days from the date of its receipt of
either the Acquiror Application or the Synergy Application, as applicable,
disputing the direction contained within such application then the Escrow Agent
shall apply the Escrow Shares in the manner set forth in either the Acquiror
Application or the Synergy Application.
(e) If the Escrow Agent is notified that Synergy (with respect to the
Acquiror Application) or Acquiror (with respect to the Synergy Application) in
good faith contests the direction contained within such application, then, and
in that event, the Escrow Agent shall be permitted to submit the issues in
dispute to arbitration in accordance with the provisions of Section 9.8 of the
Merger Agreement.
(f) Any cash received in respect of the Escrow Shares (e.g., dividends)
shall be placed in an interest bearing account of Escrow Agent and shall become
a part of the Escrow Fund.
5. Termination.
(a) The Escrow Shares shall remain in escrow until Escrow Agent's
receipt of either the Acquiror Application or the Synergy Application.
Notwithstanding the above, in the event that there is a dispute with respect to
an application, the Escrow Shares which are subject to such dispute shall remain
subject to escrow until resolution of the matters identified herein.
(b) Once all of the Escrow Shares have been either released to Acquiror
for cancellation or returned to the Shareholders, the provisions of this Escrow
Agreement other than Section 17 shall no longer be of any force and effect and
this Escrow Agreement shall be deemed to have terminated.
6. Fees and Expenses of Escrow Agent.
The Escrow Agent shall be entitled to a fee of $1,250 and reimbursement
of all reasonable out-of-pocket expenses incurred by the Escrow Agent in
connection with the performance of its duties hereunder, including reasonable
fees and disbursements of counsel. The responsibility for payment of the $1,250
fee and reimbursement to the Escrow Agent shall be paid by Acquiror.
7. Duties and Liabilities of the Escrow Agent.
(a) The Escrow Agent shall act hereunder as depository only, and it
shall not be responsible or liable in any manner whatever for any determinations
regarding the cancellation and
3
<PAGE>
forfeiture of the Escrow Shares to be made pursuant to Section 4 hereof. It is
agreed that the duties and obligations of the Escrow Agent are those herein
specifically provided and no other. Except as otherwise specifically provided in
this Agreement, the Escrow Agent shall not have any liability under, nor duty to
inquire into, the terms and provisions of any agreement or instrument, other
than this Agreement. The duties of the Escrow Agent are ministerial in nature,
and the Escrow Agent shall not incur any liability whatsoever other than for its
own willful misconduct or gross negligence.
(b) The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instructions
given by the parties hereto. The Escrow Agent shall not have any responsibility
for the genuineness or validity of any document or other material presented to
or deposited with it nor shall it have any liability for any action taken,
suffered or omitted in accordance with any written instructions or certificates
given to it hereunder and believed by it in good faith to be what it purports to
be and to be signed by the proper party or parties, nor for retaining the Escrow
Fund in the absence of instructions to the contrary.
(c) The Escrow Agent shall not be liable for any error of judgment, or
for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection with this Agreement, except its own gross negligence or willful
misconduct.
(d) The Escrow Agent may consult with, and obtain the advice of, legal
counsel selected by it in the event of any question as to any of the provisions
hereof or its duties hereunder, and the Escrow Agent shall incur no liability
and shall be fully protected for any action taken, suffered or omitted by it in
good faith in accordance with the advice of such counsel, provided that the
Escrow Agent shall have used reasonable care in the selection of such counsel.
(e) In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall have received instructions, claims or
demands from any party hereto which, in its reasonable opinion, conflict with
any of the provisions of this Agreement or with instructions, claims or demands
of any other party hereto, the Escrow Agent shall refrain from taking any action
and its sole obligation shall be to keep safely all property held in escrow
hereunder until it shall be directed otherwise in writing by all of the parties
hereto or by a final order or judgment of an arbitration panel or court of
competent jurisdiction, or an award of an arbitrator pursuant to an arbitration
conducted pursuant to Section 9.8 of the Merger Agreement.
(f) The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to initiate or defend any
legal proceedings which may be instituted against it in respect of the subject
matter of this Agreement, provided that the Escrow Agent shall at all times take
such action as is reasonably necessary to keep safely all property held in
escrow hereunder. If the Escrow Agent does elect to so act or is required to so
act in order to keep safely all property held in escrow hereunder, the Escrow
Agent will do so only to the extent that it is indemnified to its reasonable
satisfaction against the cost and expense of such defense or initiation.
4
<PAGE>
8. Amendment.
This Agreement may be amended, modified or rescinded only by a writing
executed by Acquiror, Shareholder and Escrow Agent.
9. Voting of Escrow Shares; Rights During Escrow Period; Restriction on
Transfer.
All rights to vote the Escrow Shares while they are part of the Escrow
Fund shall be retained by the Shareholders. The Shareholders shall not have any
right to transfer or assign their interest in the Escrow Shares in the Escrow
Fund during such period of time as such Escrow Shares remain a part of the
Escrow Fund unless Acquiror shall first have consented thereto in writing and
provided that any such transferee shall deliver to the Escrow Agent a duly
signed stock power covering such Escrow Shares and the Escrow Agent shall hold
such transferee's shares and stock powers in escrow subject to this Agreement.
10. Notices.
Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by certified mail, postage prepaid and
return receipt requested, or by hand delivery or by telecopy (promptly confirmed
by delivery of an original copy of such notice or communication):
(i) If to the Acquiror, to:
c/o Synergy Group International, Inc.
4825 East Sunrise Drive
Tucson, AZ 85718
Attention: Vincent J. Marold
(ii) If to the Principal Shareholders, to
Synergy Group International, Inc.
4725 East Sunrise Drive
Tucson, AZ 85718
Attention: Vincent J. Marold
(iii) If to Escrow Agent, to:
StockTrans, Inc.
7 East Lancaster Avenue
Ardmore, PA 19003
Attention: Jonathan Miller
5
<PAGE>
11. Parties in Interest.
This Agreement shall be binding upon and shall inure to the benefit of
the successors and permitted assigns of each of the parties hereto.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13. Governing Law.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Delaware applicable to contracts
executed and to be performed entirely within said State.
14. Severability.
In case any provision in this Agreement shall be held invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions hereof will not in any way be affected or impaired thereby, unless
the provisions held invalid shall substantially impair the benefits of the
remaining portions of this Agreement.
15. Consent to Limited Jurisdiction.
The Escrow Agent hereby agrees that any legal action or proceeding with
respect to disputes arising out of this Agreement not otherwise subject to
arbitration under Section 9.8 of the Merger Agreement may be brought in the
state or federal courts of the State of Pennsylvania, Philadelphia County, and,
by execution and delivery of this Agreement, the Escrow Agent irrevocably
accepts for itself and in respect of the property held by it as Escrow Agent
hereunder the jurisdiction of the aforesaid courts, it being understood and
agreed that such consent to jurisdiction is for the sole and limited purpose of
resolving disputes under this Agreement and shall in no way be deemed to be a
general and unconditional consent to the jurisdiction of the aforesaid courts.
16. Resignation and Removal of Escrow Agent.
(a) The Escrow Agent may at any time resign as Escrow Agent hereunder
by giving written notice of its resignation to each of the parties hereto, at
their respective addresses set forth in Section 10 of this Agreement, at least
thirty (30) days prior to the date specified for such resignation to take
effect. The Escrow Agent may be removed at any time by an instrument in writing
executed by a majority of the parties hereto other than Escrow Agent and
delivered to the Escrow Agent.
(b) If at any time the Escrow Agent shall resign or shall be removed in
accordance with the provisions of clause (a) above, Acquiror and Synergy shall
use their respective best efforts to jointly appoint a successor escrow agent
under this Agreement. In the event of the
6
<PAGE>
resignation or removal of the Escrow Agent, if no appointment of a successor
escrow agent shall have been made pursuant to the preceding sentence within the
thirty (30) day period referred to in the first sentence of paragraph (a) above,
then the retiring Escrow Agent may apply to any court of competent jurisdiction
to appoint a successor escrow agent. Such court may thereupon, after such
notice, if any, as such court may deem proper and prescribe, appoint a successor
escrow agent hereunder.
17. Indemnification.
Acquiror and the Shareholders, jointly and severally agree to
indemnify, defend and hold the Escrow Agent harmless from and against any and
all loss, damage, liability and expense that may be incurred by the Escrow Agent
arising out of or in connection with its duties, obligations or performance as
Escrow Agent hereunder, except as caused by its gross negligence or willful
misconduct, including without limitation the reasonable legal costs and expenses
of defending itself against any claim or liability in connection with its
performance hereunder. The terms of this Section 17 shall survive the
termination of this Agreement and, with respect to claims arising in connection
with the Escrow Agent's duties while acting as such, the resignation or removal
of the Escrow Agent. The Escrow Agent agrees to notify Acquiror and the
Shareholders in writing of the written assertion of a claim against the Escrow
Agent or of any suit or proceeding commenced against the Escrow Agent promptly
after the Escrow Agent has received any such written assertion of a claim or has
been served with the summons or other legal process, in each case giving
information as to the nature and basis of the claim, but in no event will the
failure to give such notice affect the obligation of Acquiror to indemnify the
Escrow Agent pursuant to this Section 17 unless the rights of Acquiror and
Shareholders shall have been materially impaired by such failure. Each of
Acquiror and the Shareholders will be entitled to participate at its own expense
in the defense of any suit or proceeding brought to enforce any such claim and,
if it so elects in writing, may assume the entire defense and control of any
such suit or proceeding. Neither Acquiror nor the Shareholders shall be liable
for any counsel fees or other expenses incurred by the Escrow Agent after the
date that Acquiror or the Shareholders shall have so elected to assume the
defense and control of any such suit or proceeding. In addition, neither
Acquiror nor the Shareholders shall be liable for any settlement of any such
suit, proceeding or claim without the prior written consent of Acquiror and the
Shareholders.
18. Counterparts. This Agreement may be executed in two or more
counterparts and delivered via facsimile, each of which shall be deemed to be an
original, and all of which together shall be deemed to be one and the same
instrument.
(THIS SPACE LEFT BLANK INTENTIONALLY)
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed as of the date first written above.
JLL VENTURES (DELAWARE) CORP.,
a Delaware corporation
By: /s/ Vincent J. Marold
-----------------------------
Name: Vincent J. Marold
Title: President
SYNERGY GROUP INTERNATIONAL, INC., a
Delaware corporation
By: /s/ Vincent J. Marold
-----------------------------
Name: Vincent J. Marold
Title: President
STOCKTRANS, INC.
By: /s/ Jonathan Miller
------------------------------
Name: Jonathan Miller
Title: President
Shareholders contributing Shares to be held in Escrow
We, the Historic Acquiror Shareholders, hereby agree that the certain
Agreement and Plan of Merger by and among JLL Ventures (Delaware) Corp., JLL
Ventures Acquisition Corp., a Delaware corporation, CNF, Inc., a California
corporation and Paul Charles, an individual residing in Scottsdale, Arizona, is
for our benefit and shall be bound by the terms and conditions contained in
Section 1.4(a), 5.12(c) and 5.13 thereof.
- ------------------------------------- ------------------------------------
Name Name
- ------------------------------------- ------------------------------------
Signature Signature
- ------------------------------------- ------------------------------------
No. of Escrow Shares No. of Escrow Shares
- ------------------------------------- ------------------------------------
Name Name
- ------------------------------------- ------------------------------------
Signature Signature
- ------------------------------------- ------------------------------------
No. of Escrow Shares No. of Escrow Shares
8
Exhibit 10.8
SHAREHOLDER
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") dated as of May __, 1999 by and
among JLL VENTURES (DELAWARE) CORP., a Delaware corporation ("Acquiror"), PAUL
CHARLES ("Shareholder"), the principal shareholder of CNF, Inc., a California
corporation ("CNF"), and STOCKTRANS, INC., a Pennsylvania corporation, as escrow
agent ("Escrow Agent").
WHEREAS, Acquiror, CNF and the Shareholder are parties to an Agreement
and Plan of Merger dated as of April 16, 1999, and as amended thereafter (the
"Merger Agreement"), providing for Acquiror's acquisition of all of the issued
and outstanding capital stock of CNF; and
WHEREAS, Section 1.4(b) of the Merger Agreement provides for the
establishment of an escrow fund delivered from the Merger Consideration
consisting of an aggregate of 2,000,000 shares of Series A Convertible Preferred
Stock, $.0001 par value per share (the "Preferred Stock"), of Acquiror.
NOW, THEREFORE, in consideration of Acquiror and the Shareholder
executing the Merger Agreement and of the mutual premises and agreements herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions, Other Agreements.
(a) All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned to such terms in the Merger
Agreement.
(b) It is expressly understood and agreed by the parties hereto that
all references in this Agreement to the Merger Agreement and to any exhibits to
such Merger Agreement are for the convenience of the parties hereto other than
the Escrow Agent, and the Escrow Agent shall have no obligations or duties with
respect thereto other than the obligation to refer to the Merger Agreement for
the purpose of determining the definitions of certain capitalized terms used
herein and not otherwise defined herein or to interpret any provisions of such
other agreements referred to in this Agreement for purposes of implementation
thereof.
2. Appointment of Escrow Agent.
StockTrans, Inc. hereby accepts appointment as Escrow Agent to serve in
accordance with the terms, conditions and provisions of this Agreement. The
acceptance by the Escrow Agent of its duties under this Agreement is subject to
the terms and conditions set forth at Section 7 hereafter, which the parties to
this Agreement hereby agree shall govern and control with respect to the rights,
duties, liabilities and immunities of the Escrow Agent.
<PAGE>
3. Establishment of Escrow Fund; Power of Attorney.
(a) Pursuant to Section 1.4(b) of the Merger Agreement, at the Closing,
Acquiror shall deposit with the Escrow Agent: 2,000,000 shares of Preferred
Stock (the "Escrow Shares") into an escrow fund (the "Escrow Fund") in order to
secure Shareholder's indemnification obligations under Article 7 of the Merger
Agreement. The Escrow Agent shall hold the Escrow Shares on behalf of the
Shareholder who shall remain the record and beneficial owner of the Escrow
Shares comprising the Escrow Fund. If dividends are paid or a distribution is
made by Acquiror with respect to the Escrow Shares in cash or in property, such
dividends or distributions shall be held as a part of the Escrow Fund. In the
event of any stock splits, recapitalizations, other adjustments to the capital
stock of Acquiror or conversion of the Preferred Stock, the resulting number of
shares or other securities into which the Escrow Shares convert shall be
included in the Escrow Fund.
(b) By virtue of the Shareholder's execution of this Escrow Agreement,
Shareholder has, without any further act, consented to: (i) the establishment of
this escrow pursuant to the Merger Agreement in the manner set forth herein, and
(ii) all of the other terms, conditions and limitations in this Agreement.
(c) By virtue of the Shareholder's execution of this Escrow Agreement,
the Shareholder hereby irrevocably constitutes and appoints the Escrow Agent the
true and lawful agent and attorney-in-fact of the Shareholder with respect to
all matters arising in connection with this Escrow Agreement, including the
administration of the Escrow Fund pursuant to Section 4 below and the subsequent
surrender and cancellation of the Escrow Shares pursuant to Section 4 below.
4. Operation and Administration of the Escrow Fund.
(a) To the extent provided herein and in the Merger Agreement, the
Escrow Fund shall be established and thereafter applied to the payment of
indemnification claims ("Claims") asserted by Acquiror during the eighteen (18)
month period following Closing for the benefit of Acquiror as provided in
Article 7 of the Merger Agreement.
(b) Acquiror shall make application to the Escrow Agent, with a copy
to the Shareholder (each an "Application"), if it has incurred or suffered
damages or losses pursuant to Section 7.1(a) of the Merger Agreement. The
Application shall identify the amount of the damages or losses (the "Claim
Amount") and shall include proof that such damage or loss has been paid or
incurred by Acquiror and shall instruct the Escrow Agent to apply, the Claim
Amount, as subject to potential adjustment in paragraph 4(e) below, in the
manner set forth in paragraph 4(g) below.
(c) Unless the Escrow Agent is otherwise notified in writing by the
Shareholder within thirty (30) days from the date of its receipt of the
Application, that Shareholder is disputing the Claim Amount or the application
thereof against the Escrow Fund, then the Escrow Agent shall apply the Claim
Amount against the Escrow Fund in the manner set forth in paragraph 4(g) below.
2
<PAGE>
(d) If the Escrow Agent is notified in writing by the Shareholder
within thirty (30) days from the date of Shareholder's receipt of the
Application that the Shareholder in good faith contests the Claim Amount or the
application of the Claim Amount against the Escrow Fund, then, and in that
event, the Escrow Agent shall be permitted to submit the issues in dispute to
arbitration in accordance with the provisions of Section 9.8 of the Merger
Agreement.
(e) If the arbitration results in a finding (or settlement between the
parties) in support of the Application (which for this purpose shall include any
finding, conclusion or settlement which awards Acquiror at least 80% of the
Claim Amount (hereafter, the "Adjusted Claim Amount")); then, and in that event,
there shall be added to the Adjusted Claim Amount interest on the Adjusted Claim
Amount in the amount of ten (10%) percent per annum, applied from the date of
the Application.
(f) Any cash received in respect of the Escrow Shares (e.g., dividends)
shall be placed in an interest bearing account of Escrow Agent and shall become
a part of the Escrow Fund.
(g) The Claim Amount shall be applied against the Escrow Fund; first
against any cash therein and thereafter, against the Escrow Shares in the
following manner. The Claim Amount shall be applied against the Escrow Shares by
surrender of such number of Escrow Shares to Acquiror for cancellation as
determined by dividing the Claim Amount by the "fair market value" of the Escrow
Shares. For this purpose, the "fair market value" of the Escrow Shares shall be
sixty percent (60%) of the average closing price of the Acquiror's common stock
(on the exchange, NASDAQ or OTC Electronic Bulletin Board on which the shares
principally trade) for the ten (10) trading days prior to the final
determination of the Claim Amount.
5. Release of Escrow Shares; Termination.
(a) Subject to Section 5(c) below, 1,000,000 of the Escrow Shares shall
remain in escrow until six (6) months following the Closing whereupon, at the
expiration of such period, such Escrow Shares shall be delivered and released to
the Shareholder.
(b) Subject to Section 5(c) below , the remainder of the Escrow Shares
shall remain in escrow hereof for a period of eighteen (18) months following the
Closing; whereupon, at the expiration of such period, the Escrow Fund shall be
delivered and released to the Shareholder.
(c) Notwithstanding the above, the Escrow Agent may continue to retain
in escrow, subject to the terms of this Agreement, any Escrow Shares that may be
necessary to satisfy any pending, outstanding or contested Claim(s) timely
submitted prior to the release of such Escrow Shares. The Escrow Shares retained
pursuant to this subparagraph shall remain subject to escrow until resolution of
the matters identified herein.
(d) Once all of the Escrow Shares have been either released to Acquiror
for cancellation or returned to the Shareholder, the provisions of this
Agreement other than Section 17 shall no longer be of any force and effect and
this Agreement shall be deemed to have terminated.
3
<PAGE>
6. Fees and Expenses of Escrow Agent.
The Escrow Agent shall be entitled to a fee of $1,250 and reimbursement
of all reasonable out-of-pocket expenses incurred by the Escrow Agent in
connection with the performance of its duties hereunder, including reasonable
fees and disbursements of counsel. The responsibility for payment of the $1,250
fee and reimbursement to the Escrow Agent shall be paid by Acquiror.
7. Duties and Liabilities of the Escrow Agent.
(a) The Escrow Agent shall act hereunder as depository only, and it
shall not be responsible or liable in any manner whatever for any determinations
regarding the cancellation and forfeiture of the Escrow Shares to be made
pursuant to Section 4 hereof. It is agreed that the duties and obligations of
the Escrow Agent are those herein specifically provided and no other. Except as
otherwise specifically provided in this Agreement, the Escrow Agent shall not
have any liability under, nor duty to inquire into, the terms and provisions of
any agreement or instrument, other than this Agreement. The duties of the Escrow
Agent are ministerial in nature, and the Escrow Agent shall not incur any
liability whatsoever other than for its own willful misconduct or gross
negligence.
(b) The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instructions
given by the parties hereto. The Escrow Agent shall not have any responsibility
for the genuineness or validity of any document or other material presented to
or deposited with it nor shall it have any liability for any action taken,
suffered or omitted in accordance with any written instructions or certificates
given to it hereunder and believed by it in good faith to be what it purports to
be and to be signed by the proper party or parties, nor for retaining the Escrow
Fund in the absence of instructions to the contrary.
(c) The Escrow Agent shall not be liable for any error of judgment, or
for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection with this Agreement, except its own gross negligence or willful
misconduct.
(d) The Escrow Agent may consult with, and obtain the advice of, legal
counsel selected by it in the event of any question as to any of the provisions
hereof or its duties hereunder, and the Escrow Agent shall incur no liability
and shall be fully protected for any action taken, suffered or omitted by it in
good faith in accordance with the advice of such counsel, provided that the
Escrow Agent shall have used reasonable care in the selection of such counsel.
(e) In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall have received instructions, claims or
demands from any party hereto which, in its reasonable opinion, conflict with
any of the provisions of this Agreement or with instructions, claims or demands
of any other party hereto, the Escrow Agent shall refrain from taking any action
and its sole obligation shall be to keep safely all property held in escrow
hereunder until it shall be directed otherwise in writing by all of the parties
hereto or by a final order or judgment of
4
<PAGE>
an arbitration panel or court of competent jurisdiction, or an award of an
arbitrator pursuant to an arbitration conducted pursuant to Section 9.8 of the
Merger Agreement.
(f) The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to initiate or defend any
legal proceedings which may be instituted against it in respect of the subject
matter of this Agreement, provided that the Escrow Agent shall at all times take
such action as is reasonably necessary to keep safely all property held in
escrow hereunder. If the Escrow Agent does elect to so act or is required to so
act in order to keep safely all property held in escrow hereunder, the Escrow
Agent will do so only to the extent that it is indemnified to its reasonable
satisfaction against the cost and expense of such defense or initiation.
8. Amendment.
This Agreement may be amended, modified or rescinded only by a writing
executed by Acquiror, Shareholder and Escrow Agent.
9. Voting of Escrow Shares; Rights During Escrow Period; Restriction on
Transfer.
All rights to vote the Escrow Shares while they are part of the Escrow
Fund shall be retained by the Shareholder. The Shareholder shall not have any
right to transfer or assign his interest in the Escrow Shares in the Escrow Fund
during such period of time as such Escrow Shares remain a part of the Escrow
Fund unless Acquiror shall first have consented thereto in writing and provided
that any such transferee shall deliver to the Escrow Agent a duly signed stock
power covering such Escrow Shares and the Escrow Agent shall hold such
transferee's shares and stock powers in escrow subject to this Agreement.
10. Notices.
Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by certified mail, postage prepaid and
return receipt requested, or by hand delivery or by telecopy (promptly confirmed
by delivery of an original copy of such notice or communication):
(i) If to the Acquiror, to:
c/o Synergy Group International, Inc.
4825 East Sunrise Drive
Tucson, AZ 85718
Attention: Vincent J. Marold
5
<PAGE>
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, P.C.
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
(ii) If to Shareholder, to
Mr. Paul Charles
c/o CNF, Inc.
7722 East Gray Road
Scottsdale, AZ 85260
with a copy to:
Stephen Boatwright, Esquire
Gammage & Burnham
2 North Central, 18th Floor
Phoenix, AZ 85004
(iii) If to Escrow Agent, to:
StockTrans, Inc.
7 East Lancaster Avenue
Ardmore, PA 19003
Attention: Jonathan Miller
11. Parties in Interest.
This Agreement shall be binding upon and shall inure to the benefit of
the successors and permitted assigns of each of the parties hereto.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13. Governing Law.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Delaware applicable to contracts
executed and to be performed entirely within said State.
14. Severability.
6
<PAGE>
In case any provision in this Agreement shall be held invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions hereof will not in any way be affected or impaired thereby, unless
the provisions held invalid shall substantially impair the benefits of the
remaining portions of this Agreement.
15. Consent to Limited Jurisdiction.
The Escrow Agent hereby agrees that any legal action or proceeding with
respect to disputes arising out of this Agreement not otherwise subject to
arbitration under Section 9.8 of the Merger Agreement may be brought in the
state or federal courts of the State of Pennsylvania, Philadelphia County, and,
by execution and delivery of this Agreement, the Escrow Agent irrevocably
accepts for itself and in respect of the property held by it as Escrow Agent
hereunder the jurisdiction of the aforesaid courts, it being understood and
agreed that such consent to jurisdiction is for the sole and limited purpose of
resolving disputes under this Agreement and shall in no way be deemed to be a
general and unconditional consent to the jurisdiction of the aforesaid courts.
16. Resignation and Removal of Escrow Agent.
(a) The Escrow Agent may at any time resign as Escrow Agent hereunder
by giving written notice of its resignation to each of the parties hereto, at
their respective addresses set forth in Section 11 of this Agreement, at least
thirty (30) days prior to the date specified for such resignation to take
effect. The Escrow Agent may be removed at any time by an instrument in writing
executed by a majority of the parties hereto other than Escrow Agent and
delivered to the Escrow Agent.
(b) If at any time the Escrow Agent shall resign or shall be removed in
accordance with the provisions of clause (a) above, Acquiror and the Shareholder
shall use their respective best efforts to jointly appoint a successor escrow
agent under this Agreement. In the event of the resignation or removal of the
Escrow Agent, if no appointment of a successor escrow agent shall have been made
pursuant to the preceding sentence within the thirty (30) day period referred to
in the first sentence of paragraph (a) above, then the retiring Escrow Agent may
apply to any court of competent jurisdiction to appoint a successor escrow
agent. Such court may thereupon, after such notice, if any, as such court may
deem proper and prescribe, appoint a successor escrow agent hereunder.
17. Indemnification.
Except for the expenses in Section 6 of this Agreement, Acquiror and
the Shareholder, jointly and severally agree to indemnify, defend and hold the
Escrow Agent harmless from and against any and all loss, damage, liability and
expense that may be incurred by the Escrow Agent arising out of or in connection
with its duties, obligations or performance as Escrow Agent hereunder, except as
caused by its gross negligence or willful misconduct, including without
limitation the reasonable legal costs and expenses of defending itself against
any claim or liability in connection with its performance hereunder. The terms
of this Section 17 shall survive the termination of this Agreement and, with
respect to claims arising in connection with the Escrow
7
<PAGE>
Agent's duties while acting as such, the resignation or removal of the Escrow
Agent. The Escrow Agent agrees to notify Acquiror and the Shareholder in writing
of the written assertion of a claim against the Escrow Agent or of any suit or
proceeding commenced against the Escrow Agent promptly after the Escrow Agent
has received any such written assertion of a claim or has been served with the
summons or other legal process, in each case giving information as to the nature
and basis of the claim, but in no event will the failure to give such notice
affect the obligation of Acquiror to indemnify the Escrow Agent pursuant to this
Section 17 unless the rights of Acquiror and Shareholder shall have been
materially impaired by such failure. Each of Acquiror and the Shareholder will
be entitled to participate at its own expense in the defense of any suit or
proceeding brought to enforce any such claim and, if it so elects in writing,
may assume the entire defense and control of any such suit or proceeding.
Neither Acquiror nor the Shareholder shall be liable for any counsel fees or
other expenses incurred by the Escrow Agent after the date that Acquiror or the
Shareholder shall have so elected to assume the defense and control of any such
suit or proceeding. In addition, neither Acquiror nor the Shareholder shall be
liable for any settlement of any such suit, proceeding or claim without the
prior written consent of Acquiror and the Shareholder.
18. Counterparts. This Agreement may be executed in two or more
counterparts and delivered via facsimile, each of which shall be deemed to be an
original, and all of which together shall be deemed to be one and the same
instrument.
(THIS SPACE LEFT BLANK INTENTIONALLY)
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed as of the date first written above.
JLL VENTURES (DELAWARE) CORP.,
a Delaware corporation
By: /s/ Vincent J. Marold
-----------------------------
Name: Vincent J. Marold
Title: President
PAUL CHARLES
/s/ Paul Charles
----------------------------
Signature
STOCKTRANS, INC.
By: /s/ Jonathan Miller
----------------------------
Name: Jonathan Miller
Title: President
9
EXHIBIT 21.1
1. CNF Mobile Solutions, Inc.
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CNF Technologies, Inc.
on Form SB-2 of our report dated May 25, 1999 (June 11, 1999 as to paragraph 1
of Note 1, paragraph 2 of Note 4, and paragraphs 4, 5 and 7 of Note 13), (which
report expresses an unqualified opinion and includes an explanatory paragraph
regarding the Company's ability to continue as a going concern) appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
December 2, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CNF
TECHNOLOGIES, INC'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH
31, 1999 AND THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENT.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 SEP-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 184,663 166,675
<SECURITIES> 0 0
<RECEIVABLES> 1,224,383 2,433,536
<ALLOWANCES> (390,000) (390,000)
<INVENTORY> 1,656,001 1,647,513
<CURRENT-ASSETS> 2,915,282 4,122,347
<PP&E> 805,974 936,407
<DEPRECIATION> (223,741) (307,826)
<TOTAL-ASSETS> 3,538,687 4,789,207
<CURRENT-LIABILITIES> 5,978,025 7,583,201
<BONDS> 0 0
0 0
0 516
<COMMON> 1,000 959
<OTHER-SE> (2,727,637) (3,047,350)
<TOTAL-LIABILITY-AND-EQUITY> 3,538,687 4,789,207
<SALES> 9,425,947 6,114,459
<TOTAL-REVENUES> 9,425,947 6,114,459
<CGS> 6,088,549 3,865,261
<TOTAL-COSTS> 6,088,549 3,865,261
<OTHER-EXPENSES> 6,208,781 3,900,634
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 248,342 709,243
<INCOME-PRETAX> (3,119,725) (2,360,679)
<INCOME-TAX> (45,200) 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,074,525) (2,360,679)
<EPS-BASIC> (1.23) (.31)
<EPS-DILUTED> (1.23) (.31)
</TABLE>
