AGREEMENT
AND PLAN OF REORGANIZATION
among
CNE GROUP, INC.
CNE ACQUISITION CORP. ll
Econo-Comm, Inc. D/B/A Mobile Communications
and the
Stockholders of Econo-Comm, Inc.
dated
April 22 , 2003
TABLE OF CONTENTS
1. Recitals................................................................. 5
2. Merger................................................................... 5
(a) The Merger.......................................................... 5
(b) Effective Time...................................................... 6
(d) Effects of the Merger............................................... 6
(e) Certificates of Incorporation, Bylaws and Name...................... 6
(f) Directors........................................................... 6
(g) Officers............................................................ 6
(h) Conversion of CNE, Merger Sub and Target Securities................. 6
(i) Exchange Procedures................................................ 7
(j) No further ownership rights in Target Common Stock.................. 7
(k) Stock Transfer Books................................................ 8
(l) Approval of Merger and declaration of Appraisal Rights.............. 8
3. Representations and Warranties Concerning the Transaction................ 8
(a) Representations and Warranties of Target Shareholders............... 8
(b) Representations and Warranties of CNE............................... 10
4. Pre-Closing Covenants.................................................... 13
(a) General............................................................. 13
(b) Notices and Consents................................................ 13
(c) Operation of Business............................................... 14
(d) Preservation of Business............................................ 14
(e) Full Access......................................................... 14
(f) Notice of Developments.............................................. 14
5. Post-Closing Covenants................................................... 14
(a) General............................................................. 14
(b) Litigation Support.................................................. 14
(c) Transition.......................................................... 15
(d) Confidentiality..................................................... 15
(e) Covenant Not to Compete............................................. 15
(f) CNE Shares.......................................................... 15
6. Conditions to Obligation to Close........................................ 16
(a) Conditions to Obligation............................................ 16
(b) Conditions to Obligation of the Shareholders........................ 17
7. Termination.............................................................. 19
(a) Termination of Agreement............................................ 19
(b) Effect of Termination............................................... 19
(c) Survival............................................................ 19
8. Miscellaneous............................................................ 19
(a) Nature of Certain Obligations....................................... 19
(b) Press Releases and Public Announcements............................. 20
(c) No Third-Party Beneficiaries........................................ 20
(d) Entire Agreement.................................................... 20
(e) Succession and Assignment........................................... 20
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(f)Counterparts...............................................................20
(g) Headings and Gender references............................................20
(h)Notices....................................................................20
(i)Governing Law..............................................................20
(j)Amendments and Waivers.....................................................21
(k)Expenses...................................................................21
(l)Construction...............................................................22
(m)Incorporation of Exhibits....................................................
3
Signatures ................................................................22
Exhibit A Owners of Shareholders Shares
Exhibit B Econo-Comm, Inc. Financial Statements
Exhibit C Econo-Comm, Inc. Title to Property
Exhibit D Econo-Comm, Inc. Litigation
Exhibit E Econo-Comm, Inc. Income Tax Returns
Exhibit F Econo-Comm, Inc. Withholding Tax Statements
Exhibit G Certificates of Designation of Series C Preferred Stock of CNE
Exhibit H CNE Financial Statements
Exhibit K CNE Income Tax Returns
Exhibit L CNE Tax Claims
Exhibit M Escrow Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement"), dated as of
the 22nd day of April, 2003 is among CNE GROUP, INC., a Delaware corporation
("CNE"), CNE ACQUISITION CORP II., a Florida corporation and a wholly owned
subsidiary of CNE ("Merger Sub"), each with an office at 200 West 57th Street,
Suite 1103, New York, New York 10019, Econo-Comm, Inc. D/B/A Mobile
Communications, a Florida corporation (the "Target"), a Florida corporation,
("Target"), with an office at 3733 NW 16th Street, Lauderhill, FL 33311, and the
persons listed on the signature pages hereof under the caption "Shareholders"
(hereinafter defined as the "Shareholders").
RECITALS:
WHEREAS, the parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which Target
will merge with and into Merger Sub on the terms and subject to the conditions
set forth herein (the "Merger");
WHEREAS, the respective Boards of Directors of CNE, Merger Sub and Target have
approved this Agreement and the Merger pursuant to the terms and conditions
herein set forth;
WHEREAS, the Shareholders own an aggregate of 100 shares of Target common stock,
par value $1.00 (the "Target Common Stock"), which represents 100% of the
outstanding Target Common Stock and each Target Stockholder will agree, subject
to the terms and conditions of this Agreement, to vote his or her shares of
Target Common Stock to approve the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger shall
qualify to the extent possible as a reorganization described in Section
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
NOW, THEREFORE, in consideration of the above premises and the mutual promises
set forth in this Agreement, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
1. Recitals The recitals are hereby incorporated herein and made a part
hereof.
2. Merger
a. The Merger. At the Effective Time (as hereinafter defined) and upon the
terms and subject to the conditions of this Agreement and in accordance
with the Florida General Corporation Law (the "FGCL"), Target shall be
merged with and into Merger Sub. Following the Merger, Merger Sub shall
continue as the surviving corporation (the "Surviving Corporation") and the
separate corporate existence of Target shall cease.
b. Effective Time. As soon as practicable after the Closing, the parties
hereto will file with the Secretary of State of the State of Florida, a
certificate of merger in such form as required by,
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and executed in accordance with, the relevant provisions of the corporation
law of such state. The effective time of the filing of the certificate of
merger with the Secretary of State of the State of Florida is the
"Effective Time."
c. Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of CNE concurrently with
the merger of Merger Sub and Target and shall be on or before April 30,
2003. The date on which the Closing occurs is herein referred to as the
"Closing Date."
d. Effects of the Merger. The Merger shall have the effects set forth in
the FGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of Target and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target and Merger Sub
shall become the debts, liabilities and duties of the Surviving
Corporation.
e. Certificate of Incorporation, Bylaws and Name. The Certificate of
Incorporation of Merger Sub in effect at the Effective Time amended to
change the corporate name to Econo-Comm, Inc. shall be the Certificate of
Incorporation of the Surviving Corporation until amended in accordance with
applicable Law. The bylaws of Merger Sub in effect at the Effective Time
shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable Law. The trade name Mobile Communications shall
be concurrently registered for the Surviving Corporation in Florida.
f. Directors. The directors of Merger Sub at the Effective Time shall be
the directors of the Surviving Corporation, to hold office in accordance
with the Certificate of Incorporation and bylaws of the Surviving
Corporation until their successors are duly elected or appointed and
qualified or until their earlier death, resignation or removal.
g. Officers. The officers of Merger Sub at the Effective Time shall be the
officers of the Surviving Corporation, to hold office in accordance with
the Certificate of Incorporation and bylaws of the Surviving Corporation
until their successors are duly elected or appointed and qualified or until
their earlier death, resignation or removal.
h. Conversion of CNE, Merger Sub and Target Securities.
(i) At the Effective Time, each outstanding share of the common stock
$1.00 par value per share, of Target shall, by virtue of the Merger and
without any action on the part of CNE or Merger Sub, be converted into
fully paid and non-assessable securities of CNE as described below;
(ii) each share of Target Common Stock issued and outstanding
immediately prior to the Effective Time that shall be owned by a
Shareholder shall, by virtue of the Merger and without any action on the
part of CNE, Merger Sub, Target or any holder thereof, be converted into
and be exchangeable for the right to receive 48,679.38 newly issued fully
paid and non-assessable non-voting shares of CNE's $0.00001 par value
Series C Preferred Stock with no liquidating preference and a stated value
of $1.00 per share ("the Stated Value"). An aggregate of 4,867,938 shares
of Series C Preferred Stock shall be issued pursuant to this Paragraph
2(h)(ii). At CNE's option, CNE may redeem all, but not any part, of the
then outstanding Series C Preferred Stock
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after 60 months from the date of issuance, for a period of six months
thereafter, (the "Redemption Period"). Each share of Series C Preferred
Stock shall be redeemed, at the Company's option, for (i) cash, as set
forth in the certificate of Designations for the Series C Preferred Stock;
(ii) one share of the Company's Common Stock subject to adjustment for any
forward or reverse stock splits that occurred subsequent to the Closing
Date; (iii) shares of CNE'S Class E 10% Cumulative Preferred Stock (the "E
Preferred Stock") having an aggregate stated value of Seven Million, One
Hundred and Fifty Three Thousand Nine Hundred and Seventy Seven
($7,153,977) Dollars, with quarterly dividend payments and, under certain
circumstances as provided in the E Preferred Stock Certificate of
Designations, be granted certain voting rights. To the extent that the
Company shall determine not to redeem shares of Series C Preferred Stock
during the Redemption Period, the Series C Preferred Stock then remaining
outstanding shall thereafter bear a 12% cumulative dividend, payable
quarterly in cash. In the event that the Company shall fail to pay two
consecutive quarterly dividends (a "Dividend Payment Failure"), the holders
of a majority of the then outstanding shares of Series C Preferred Stock
shall have the right to elect the majority of the Company's directors until
the Dividend Payment Failure shall have been cured. If, during the period
prior to the Company curing a Dividend Payment Failure, the holders of the
Company's Series A Preferred Stock (the "Series A Preferred Stock") shall
obtain the right to elect the majority of the Company's directors as the
result of a Dividend Payment Failure as defined in the Certificate of
Designations for the Series A Preferred Stock, then the holders of a
majority of the shares of the A Preferred Stock and the Series C Preferred
Stock shall have the right, voting as a single class, to elect the majority
of the Company's directors until the Dividend Payment Failure of the
applicable Class of Preferred Stock shall have been paid. A copy of the
Series C Preferred Stock Certificate of Designations is attached hereto as
Exhibit G. In addition, the Series C Preferred Stock shall be issued
together with the Company's Class C Warrants, each Warrant to purchase one
share of Common Stock, initially, at the higher of the average closing
price of CNE Common Stock on the AMEX for the ten (10) trading days
preceding the Closing or at $1.00 per share, at the rate of one Warrant for
each share of Series C Preferred Stock. The Series C Preferred Stock and
the lass C Warrants attached thereto shall not detachable from each other
or separately transferable for 66 months after the issuance thereof and the
certificates representing the shares of Series C Preferred Stock issued to
the holder thereof shall bear an appropriate legend reflecting this
restriction.
i. Exchange Procedures.
(i) The Surviving Corporation will act as exchange agent in connection with
the Merger.
(ii) At the Closing the Target Stock Holders shall deliver to the Surviving
Corporation, acting as transfer agent, their certificates representing
Target Common Stock in exchange for receiving the Series C Preferred Stock
and the Class C Warrants. CNE shall make available for exchange in
accordance with this Section 2.i certificates representing Series C
Preferred Stock and the Class C Warrants issuable pursuant to Section 2 h.
Upon surrender of the certificates formerly representing shares of Target
Common Stock owned by each Target Stock Holder (the "Certificates"), such
Target Stock Holder shall be entitled to and shall receive in exchange
therefore the shares of Series C Preferred Stock and the Class C Warrants
as set forth in Exhibit A hereto. ). Anything to the contrary not
withstanding, the Target Stockholders agree that at the Closing an
aggregate of One Million (1,000,000) shares of the C Preferred Stock and a
like number of C Warrants issuable to them in exchange for
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their shares of Target Common Stock as provided herein, shall be delivered
to Lawrence D. Greenberg, Esq., as escrow agent, to be held in escrow
pursuant to the terms of the escrow agreement (the "Escrow Agreement"),
dated as of the date hereof, which is being executed by all parties hereto
and is appended hereto as Exhibit M.
j. No Further Ownership Rights in Target Common Stock. All CNE Securities issued
upon conversion of Target Common Stock in accordance with the terms of this
Article 2 shall be deemed to have been issued in full satisfaction of all rights
pertaining to Target Common Stock.
k. Stock Transfer Books. The stock transfer books of Target shall be closed
immediately upon the Effective Time and there shall be no further registration
of transfers of Target Common Stock thereafter on the records of Target. On or
after the Effective Time, any Certificates presented to the Surviving
Corporation or CNE for any reason shall be converted into Series C Preferred
Stock with respect to Target Common Stock formerly represented thereby at the
rat the rate of one share of Series C Preferred Stock for one share of Target
Common Stock.
l. Approval of Merger and declaration of Appraisal Rights. This executed
Agreement shall constitute agreement and acknowledgment of each of the
Shareholder to (a) vote his shares of Target Common Stock to approve the Merger
and (b) decline any appraisal rights under Sections 607.1302 and 607.1320 FGCL .
By executing this Agreement, the Shareholders acknowledge receipt of written
notice of appraisal rights and a copy of Sections 607.1302 and 607.1320 of FGCL
at least 10 days prior to the date of executing this Agreement.
3. Representations and Warranties Concerning the Transaction
a)Representations and Warranties of Target and the Shareholders Each of the
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Shareholders and Target represents and warrants to CNE that the statements
contained in this ss.3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date with respect
to himself.
(i) Authorization of Transaction. Target and each of the Shareholders
has full power and authority to execute and deliver this Agreement and
to perform his and its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the
Shareholder and Target, enforceable in accordance with its terms and
conditions. Neither the Shareholders nor Target need give any notice
to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
the Shareholder is subject or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Shareholder is a party
or by which he is bound or to which any of his assets is subject.
(iii) Brokers' Fees. The Shareholder has no liability or obligation to
pay any fees or
8
commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which CNE could become
liable or obligated.
(iv) Investment. The Shareholder (A) understands that CNE Shares are
not being registered under the Securities Act, but are being issued,
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring CNE
Shares solely for his or its own account for investment purposes, and
not with a view to the distribution thereof, (C) is a sophisticated
investor with knowledge and experience in business and financial
matters, (D) has received certain information concerning CNE and has
had the opportunity to obtain additional information as desired in
order to evaluate the merits and the risks inherent in holding CNE
Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding CNE Shares, and (F) is an Accredited Investor.
(v) Target Shares. The Shareholder holds of record and owns
beneficially the number of Target Shares set forth next to his name in
Exhibit A, free and clear of any restrictions on transfer (other than
any restrictions under the Securities Act and state securities laws),
taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The Shareholder
is not a party to any option, warrant, purchase right, or other
contract or commitment that could require the Shareholder to sell,
transfer, or otherwise dispose of any capital stock of the Target
(other than this Agreement). The Shareholder is not a party to any
voting trust, proxy, or other agreement or understanding with respect
to the voting of any capital stock of the Target.
(vi) Financial Statements Attached hereto as Exhibit B are the
following financial statements (collectively the "Financial
Statements"): (i) audited balance sheets, profit and loss statements
and statements of cash flows for the fiscal years ended December 31,
2001 and December 31, 2002. The Financial Statements present fairly
the financial condition of the Target as of such dates and the results
of operations of the Target for such periods and they have been
prepared in accordance with GAAP.
(vii) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End and until the Closing Date, unless specifically
and identifiably disclosed in the Most Recent Financial Statements,
there has not been any material adverse change in the business,
financial condition, operations, results of operations, or future
prospects of the Target.
(viii) Title to Property. Except as set forth on Exhibit "C", Target
has good and marketable title to all the real property and good and
valid title to all other property included in the Target Financial
Statements other than property disposed of in the ordinary course of
business after said date. Except as set forth in Exhibit "C", the
properties of Target are not subject to any mortgage, encumbrance or
lien of any kind except minor encumbrances which do not materially
interfere with the use of the property in the conduct of the Target
Business.
(ix) Litigation. Except as set forth in Exhibit "D." Target is not
involved in any pending litigation or governmental investigation or
proceeding and to the best of Target and to the best of the
Shareholder's knowledge, no material litigation, claim, assessment or
9
governmental investigation or proceeding is threatened which might
reasonably be expected to result in any material change in the
business or condition, financial or otherwise, of Target or in any of
its properties or assess or which might reasonably be expected to
result in any material liability on the part of Target or which
questions the validity of this Agreement or which would, in the case
of officers, directors or employees of Target, impair their ability to
carry out their duties as such officers, directors, or employees now
or in the future, or which might reasonably be expected to otherwise
adversely effect Target or CNE, or of any action taken or to be taken
pursuant to or in connect on with the provisions of this Agreement.
The Shareholder represents that it is not involved in any pending
material litigation or governmental investigation or proceeding which
would to the best of their knowledge and information, affect their
ownership of the Target Shares or their ability to enter into this
Agreement or to carry out its terms and conditions. The Shareholder
further covenants that to the best of their knowledge and information,
no such material litigation, claim, assessment or governmental
investigation or proceeding of any kind exists or is threatened.
(x) Tax Returns and Payments. Except as set forth in Exhibit "E",
Target has filed all federal, state, local or foreign tax returns or
reports required to be filed under applicable law, and is not in
default with respect to the payment of any taxes, assessments, fees or
other governmental charges (U.S., foreign, state, local or other) upon
it or upon any of its properties, assets, income or franchises which
are due and payable. The reserves, on its books and financial
statements in respect of taxes for which it is or may be liable for
all fiscal periods to date are adequate. Target's federal income tax
returns for all taxable years including those ended December 31, 1999,
December 31, 2000 and December 31, 2001 have not been audited by the
IRS. No deficiency or other adjustment with regard to the
aforementioned returns is claimed by the IRS; nor is Target in receipt
from the IRS of a notice of intention to audit nor is there any
ongoing audit by the IRS in progress relating to the same and no
waiver of assessment is outstanding. Except as set forth in Exhibit
"F" hereto, Target has withheld or collected from each payment made to
each of its employees the amount of all taxes required to be withheld
or collected there from and has paid the same to the proper tax
receiving authority as required.
(i) There is no claim against Target for any Taxes, and no
assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to
Target, other than those disclosed (and to which are attached
true and complete copies of all audit or similar reports) in
Exhibit F
(ii) Except as set forth in Exhibit F, there is not in force any extension of
time with respect to the due date for the filing of any Tax Return of or with
respect to Target, or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to Target. The total amounts
set up as liabilities for current and deferred Taxes in the December 30, 2002
Balance Sheet are sufficient to cover the payment of all Taxes, whether or not
assessed or disputed, which are, or are hereafter found to be, or to have been,
due by or with respect to Target up to and through the periods covered thereby.
(b) Representations and Warranties of CNE and Merger Sub CNE and
---------------------------------------------------------
Merger Sub represents and warrants to the Shareholders that the
statements contained in this ss.3(b) are correct and complete as of
the date of this Agreement and will be correct and complete as of the
Closing Date.
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(i) Organization of CNE and Merger Sub. CNE and Merger Sub are
corporations duly organized, validly existing, and in good standing
under the laws of Delaware and Florida, respectively.
(ii) Authorization of Transaction. CNE and Merger Sub have full power
and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of CNE and Merger Sub, enforceable in accordance with its
terms and conditions. CNE and Merger Sub need not give any notice to,
make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement or, if
needed will be obtained by the Closing Date.
(iii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
CNE or Merger Sub is subject or any provision of its charter or bylaws
or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other
arrangement to which CNE or Merger-Sub is a party or by which it is
bound or to which any of its assets is subject.
(iv) Brokers' Fees. CNE has no liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Shareholder
could become liable or obligated.
(v) Investment. CNE understands that the Target Shares are not being
registered under the Securities Act, but are being issued, offered and
sold in reliance upon federal and state exemptions for transactions
not involving any public offering, (B) is acquiring the Target Shares
solely for its own account for investment purposes, and not with a
view to the distribution thereof, (C) is a sophisticated investor with
knowledge and experience in business and financial matters, (D) has
received certain information concerning the Target and has had the
opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Target
Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding the Target Shares, and (F) is an Accredited
Investor or otherwise is a proper person to acquire the Target Share.
(vi) Financial Statements Attached hereto as Exhibit H are the
following financial statements (collectively the "Financial
Statements"): Form 10KSB for the fiscal year ended December 31, 2001
and Form 10QSB for the Nine Months Ended September 30, 2002 present
fairly the financial condition of CNE as of such dates and the results
of operations of CNE for such periods and are prepared in accordance
with GAAP.
(vii) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End and until closing date, unless specifically and
identifiably disclosed in
11
with the SEC, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or
future prospects of CNE or is subsidiaries.
(viii) Title. Except as set forth in filings with the SEC, CNE and its
subsidiaries have good and marketable title to all the real property
and good and valid title to all other property included in CNE
Financial Statements. Except as set forth in SEC filings, the
properties of CNE and its subsidiaries are not subject to any
mortgage, encumbrance or lien of any kind.
(ix) Litigation. Except as set forth in filings with the SEC, neither
CNE nor any of its subsidiaries is involved in any pending litigation
or governmental investigation or proceeding and to the best of CNE's
knowledge, no material litigation, claim, assessment or governmental
investigation or proceeding is threatened which might reasonably be
expected to result in any material change in the business or
condition, financial or otherwise, of CNE or in any of its properties
or assess or which might reasonably be expected to result in any
material liability on the part of CNE or which questions the validity
of this Agreement or which would, in the case of officers, directors
or employees of CNE, impair their ability to carry out their duties as
such officers, directors, or employees now or in the future, or which
might reasonably be expected to otherwise adversely effect CNE, or of
any action taken or to be taken pursuant to or in connect on with the
provisions of this Agreement. CNE represents that it is not involved
in any pending material litigation or governmental investigation or
proceeding which would to the best of their knowledge and information,
affect their ability to issue CNE Shares or their ability to enter
into this Agreement or to carry out its terms and conditions. CNE
further covenants that to the best of its knowledge and information,
no such material litigation, claim, assessment or governmental
investigation or proceeding of any kind exists or is threatened.
(x) Tax Returns and Payments.
(A) Except as set forth in Exhibit K (and except for filings and
payments of assessments the failure of which to file or pay will not
materially adversely affect CNE), to the knowledge of the CNE (i) all
Tax Returns which are required to be filed on or before the Closing
Date by or with respect to CNE have been or will be duly and timely
filed, (ii) all items of income, gain, loss, deduction and credit or
other items required to be included in each such Tax Return have been
or will be so included and all information provided in each such Tax
Return is true, correct and complete, (iii) all Taxes which have
become or will become due with respect to the period covered by each
such Tax Return have been or will be timely paid in full, (iv) all
withholding Tax requirements imposed on or with respect to CNE have
been or will be satisfied in full, and (v) no penalty, interest or
other charge is or will become due with respect to the late filing of
any such Tax Return or late payment of any such Tax.
(B) There is no claim against CNE for any Taxes, and no assessment,
deficiency or adjustment has been asserted or proposed with respect to
any Tax Return of or with respect to CNE, other than those disclosed
(and to which are attached true and complete copies of all audit or
similar reports) in Exhibit L
---------
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(C) Except as set forth in Exhibit L, there is not in force any
extension of time with respect to the due date for the filing of any
Tax Return of or with respect to CNE, or any waiver or agreement for
any extension of time for the assessment or payment of any Tax of or
with respect to CNE. The total amounts set up as liabilities for
current and deferred Taxes in the Interim Balance Sheet are sufficient
to cover the payment of all Taxes, whether or not assessed or
disputed, which are, or are hereafter found to be, or to have been,
due by or with respect to CNE up to and through the periods covered
thereby.
(xi) SEC Documents. CNE has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the Commission
pursuant to the Securities Act and the Exchange Act (the "SEC
Documents"), and during the twelve (12) calendar months prior to the
Effective Time all such SEC Documents have been filed in a timely
manner. The SEC Documents have complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the Commission
promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the Commission,
contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the
financial statements of CNE included in the SEC Documents complied as
to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission
with respect thereto. Such financial statements have been prepared in
accordance with GAAP, consistently applied, during the periods
involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto, or (b) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be
condensed or summary statements) and fairly present in all material
respects the financial condition of CNE as of the respective dates
thereof and the results of its operations and cash flows for the
respective periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). CNE has not
received notification from the Commission, the AMEX and/or any federal
or state securities bureaus that any investigation (informal or
formal), inquiry or claim is pending, threatened or in process against
CNE and/or relating to any of CNE's securities.
(xii) Merger Sub. Merger Sub is a corporation duly incorporated under the
laws of the State of Florida, is validly existing and in good standing under
such laws and is a wholly-owned subsidiary of CNE. Merger Sub has no assets,
liabilities or obligations and has engaged in no business except as contemplated
by this Agreement.
4. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its reasonable best
-------
efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in ss.6 below).
13
(b) Notices and Consents The Shareholders will cause the Target to
---------------------
give any notices to third parties, and will cause the Target to use
its reasonable best efforts to obtain any third party consents, that
CNE reasonably may request in connection with the matters referred to
in this agreement.
(c) Operation of Business. The Shareholders will not cause or permit
---------------------
the Target to engage in any practice, take any action, or enter into
any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Shareholders will not
cause or permit the Target to declare, set aside, or pay any dividend
or make any distribution with respect to its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock.
(d) Preservation of Business. The Shareholders will cause the Target
------------------------
to keep its business and properties substantially intact, including
its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and
employees.
(e) Full Access. Each of the Shareholders will permit, and the
------------
Shareholders will cause the Target to permit, representatives of CNE
to have full access at all reasonable times, and in a manner so as not
to interfere with the normal business operations of the Target, to all
premises, properties, personnel, books, records (including tax
records), contracts, and documents of or pertaining to the Target. CNE
will treat and hold as such any Confidential Information it receives
from any of the Shareholders and the Target in the course of the
reviews contemplated by this ss.4(e), will not use any of the
Confidential Information except in connection with this Agreement,
and, if this Agreement is terminated for any reason whatsoever, will
return to the Shareholders and the Target, all tangible embodiments
(and all copies) of the Confidential Information which are in its
possession and delete any electronically, digitally or computer saved
confidential information.
(f) Notice of Developments The Shareholders will give prompt written
----------------------
notice to CNE of any material adverse development causing a breach of
any of the representations and warranties in ss.3 above. Each Party
will give prompt written notice to the others of any material adverse
development causing a breach of any of his or its own representations
and warranties in ss.3 above.
5. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action
-------
is necessary to carry out the purposes of this Agreement each of the
Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the
requesting Party. The Shareholders acknowledge and agree that from and
after the Closing CNE will be entitled to possession of all documents,
books, records (including tax records), agreements, and financial data
of any sort relating to the Target.
(b) Litigation Support. In the event and for so long as any Party
-------------------
actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or
demand in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident,
14
action, failure to act, or transaction on or prior to the Closing Date
involving the Target, each of the other Parties will cooperate with
him and his counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or
defending Party.
(c) Transition No Party will take any action that is designed or
----------
intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Target from
maintaining the same business relationships with the Target after the
Closing as it maintained with the Target prior to the Closing, except
as CNE and Shareholders may agree.
(d) Confidentiality. Each of the Parties will treat and hold as
---------------
confidential all of the Confidential Information, refrain from using
any of the Confidential Information except in connection with this
Agreement, and deliver promptly to the Party (or Target) from which it
was obtained or destroy, at the request and option of the Party (or
Target) from which it was obtained, all tangible embodiments, and all
electronically, digitally or computer saved confidential information
(and all copies) of the Confidential Information which are in his
possession. In the event that any of the Parties (or Target) is
requested or required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, that Party will promptly notify the other Parties (or the
Shareholders will cause the Target to promptly notify all the Parties
if such request or requirement is directed to Target) of the request
or requirement so that CNE may seek an appropriate protective order or
waive compliance with the provisions of this ss.5(d). If, in the
absence of a protective order or the receipt of a waiver hereunder,
any of the Parties (or Target) is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand
liable for contempt, that Party (or Target) may disclose the
Confidential Information to the tribunal; provided, however, that the
disclosing Party (or Target) shall use his reasonable best efforts to
obtain, at the reasonable request of any of the other Parties (or
Target), an order or other assurance that confidential treatment will
be accorded to such portion of the Confidential Information required
to be disclosed as such Party (or Target) shall designate.
(e) Covenant Not to Compete. For a period of three years from and
-------------------------
after the Closing, none of the Shareholders will engage directly or
indirectly in any business that the Target conducts as of the Closing
Date in the State of Florida; provided, however, that no owner of less
than 1% of the outstanding stock of any publicly-traded corporation
shall be deemed to engage solely by reason thereof in any of its
businesses. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this ss.5(e) is invalid or
unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time
within which the judgment may be appealed or, if appealed, when the
appellate decision and any further decision pursuant thereto, becomes
final. Nothing herein shall limit the ability of any Shareholder (or
target) to participate with or in the business and operation of
Econo-Comm, Inc. d/b/a Mobile Communications.
15
(f) CNE Shares. Each certificate representing CNE Shares will be
imprinted with a legend substantially in the following form:
The securities evidenced by this Certificate have been acquired
for investment and have not been registered under the Securities
Act of 1933 (the "Securities Act"), in reliance on certain
exemptions contained therein, or under the Securities Act of any
State (the "State Acts") in reliance on certain exemptions
contained in the Securities Act. These securities may not be
sold, transferred or otherwise disposed of except in a
transaction (a) registered under the Securities Act or exempt
from registration thereunder and registered under the State Acts
or exempt from registration thereunder, or (b) otherwise in
compliance with the Securities Act and the State Acts.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of CNE. The obligation of CNE to consummate
--------------------------------
the transactions to be performed by it in connection with the Closing is
subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(a) and ss.4
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Shareholders shall have performed and complied with all of
their covenants hereunder in all material respects through the
Closing;
(iii) the Target shall have procured all of the material third party
consents specified in ss.3(a) above;
(iv) Except for any action brought by CNE, it's assignees, successors,
or on behalf of any of them, no action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of CNE to own the Target
Shares and to control the Target, or (D) affect materially and
adversely the right of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(vi) appropriate action shall been taken by Shareholders to have the
board of directors of the Target to be appointed by CNE.
(viii) all actions to be taken by the Shareholders in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to CNE.
(ix) CNE shall have received the favorable opinion of counsel
addressed to CNE and
16
dated the Closing Date, in form and substance reasonably satisfactory
to CNE with respect to the following matters:
a) Organization. Target is a corporation duly organized, validly existing
and in good standing under the laws of Florida and have all the
requisite power and authority to own and operate their respective
assets and business.
b) Capacity of and Execution by the Shareholders. The Shareholders have
full legal power and capacity to execute and deliver certificates
representing the Target Shares owned by the Shareholders and full
legal power to sell the Target Shares to CNE in accordance with this
Agreement. Without limiting the generality of the foregoing, no
authorization, consent or approval or other order or action of or
filing with any court, administrative agency, or other governmental or
regulatory body or authority is required for the execution and
delivery by the Shareholder of this Agreement or the Shareholder
consummation of the transactions contemplated hereby, and transfer and
delivery of the Target Shares to be transferred by the Shareholder to
CNE hereunder, in accordance with this Agreement, will vest good title
to the Target Shares to CNE free and clear of all security interests,
liens, encumbrances, claims and equities of every kind other than
restrictions on disposition contained in applicable federal and state
securities laws.
(c) Common Stock. The capital stock of Target and the number of shares
issued and outstanding immediately prior to the Closing Date, all of
which were duly authorized, issued and outstanding, are issued and
non-assessable of common stock of such corporation.
(d) Corporate Action. All necessary corporate proceedings, including
appropriate action by the officers and directors of Target, to approve
this Agreement and the execution, delivery and performance thereof and
all other proceedings required by law or by the provisions of this
Agreement have been taken, and the Shareholder has full power, right
and authority to enter into this Agreement and to carry out the terms
thereof without further action.
(e) Suits, Actions or Proceedings. To the best knowledge of such counsel,
except as herein indicated, there are no suits, actions, claims or
proceedings pending or threatened against Target and /or its officers
and directors that would subject CNE to any claim, order, judgment,
decree, agreement, stipulation or consent of or with any court or
administrative agency, nor, to the best knowledge of such counsel, is
any investigation pending or threatened against Target.
CNE may waive any condition specified in this ss.6(a) if it executes a writing
so stating at or prior to the Closing.
(b) Conditions to Obligation of the Shareholders. The obligation of the
---------------------------------------------
Shareholders to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in ss.3(b) above
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) CNE shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
17
(iii) Except for any action brought by Shareholders, their assignees,
successors, or on behalf of any of them, no action, suit, or
proceeding shall be pending before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) All actions to be taken by CNE in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and
substance to the Shareholders.
(v) The Shareholders shall have received the favorable opinion of CNE'
counsel addressed to the Shareholders and dated the Closing Date with
respect to the following matters:
(a) Organization. CNE and Merger Sub are corporations duly organized,
validly existing and in good standing under the laws of Delaware and
Florida respectively and have all the requisite power and authority to
own and operate their respective assets and business if any.
(b) Common Stock. The capital stock of CNE and Merger Sub and the number
of shares issued and outstanding immediately prior to the Closing
Date, all of which were duly authorized, issued and outstanding, are
issued and non-assessable of common stock of such corporations.
(c) Preferred Stock. The preferred stock of CNE none of which is
outstanding immediately prior to the Closing Date, all of which were
duly authorized.
(d) Corporate Action. All necessary corporate proceedings, including
appropriate action by the officers and directors of CNE and Merger
Sub, to approve this Agreement and the execution, delivery and
performance thereof and all other proceedings required by law or by
the provisions of this Agreement have been taken, and CNE and Merger
Sub have full power, right and authority to enter into this Agreement
and to carry out the terms thereof without further action.
(e) Suits, Actions or Proceedings. To the best knowledge of such counsel,
except as indicated herein or in the documents filed by CNE with the
Commission, there are no suits, actions, claims or proceedings pending
or threatened against CNE or Merger Sub and / or its officers and
directors that would subject CNE or Merger Sub to any claim, order,
judgment, decree, agreement, stipulation or consent of or with any
court or administrative agency, nor, to the best knowledge of such
counsel, is any investigation pending or threatened against CNE or
Merger Sub.
The Shareholders may waive any condition specified in this ss.6(b) if they
execute a writing so stating at or prior to the Closing.
18
(c) Survival. The representations and warranties of the Parties shall
--------
expire at the Closing, except for those contained in ss.3, which shall
continue in full force and effect, subject to any applicable statutes of
limitation.
7. Termination
(a) Termination of Agreement The indicated Parties may terminate this
-------------------------
Agreement as provided below:
(i) CNE and the Shareholders may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) CNE may terminate this Agreement by giving written notice to the
Shareholders at any time prior to the Closing (A) in the event Target
or any of the Shareholders has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, CNE has notified the Shareholders' Representative of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before April 30, 2003, by reason of the failure of any
condition precedent under ss.6(a) hereof (unless the failure results
primarily from CNE itself breaching any representation, warranty, or
covenant contained in this Agreement);
(iii) the Shareholders may terminate this Agreement by giving written
notice to CNE at any time prior to the Closing (A) in the event CNE
has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, any of the
Shareholders has notified CNE of the breach, and the breach has
continued without cure for a period of 30 days after the notice of
breach or (B) if the Closing shall not have occurred on or before
April 30, 2002, by reason of the failure of any condition precedent
under ss.6(b) hereof (unless the failure results primarily from any of
the Shareholders themselves breaching any representation, warranty, or
covenant contained in this Agreement); and
(b) Effect of Termination If any Party terminates this Agreement pursuant
---------------------
to ss.7(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for
any liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in ss.5(d) above shall survive
termination.
8. Miscellaneous
(a) Nature of Certain Obligations
-----------------------------
l
(i) The representations, warranties and covenants of each of the
Shareholders concerning the transfer of his Target Shares to CNE in
ss.3(a) iv above are several obligations in his Target Share
Proportion. This means that the particular Shareholder making the
representation, warranty, or covenant will be solely and not jointly
responsible for any adverse consequences CNE may suffer as a result of
any breach thereof.
19
(ii) The remainder of the representations, warranties, and covenants
in this Agreement are joint and several obligations. This means that
each Shareholder and Target will be responsible for the entirety of
any adverse consequences CNE may suffer as a result of any breach
thereof, although any Shareholder who makes any payment or undertakes
any actions in satisfaction of Adverse Consequence to CNE to an extent
greater than his Target Share Proportion shall be entitled to recover
from the other Shareholders so that all the Shareholders making
payments or undertaking actions to settle Adverse Consequences will do
so in proportion to their Target Share Proportions to the extent
feasible.
(iii) CNE will be responsible for any Adverse Consequences resulting
from its breach of any of its representations, warranties and
covenants in this Agreement.
(b) Press Releases and Public Announcements. No Party shall issue any press
------------------------------------------
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of CNE and the Shareholders;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities, if any (in which case the disclosing
Party will use its reasonable best efforts to advise the other Parties prior to
making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any rights or
----------------------------
remedies upon any Person other than the Parties and their respective heirs,
personal representatives, successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they relate to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and inure to
-------------------------
the benefit of the Parties named herein and their respective heirs, personal
representatives, successors and permitted assigns.
(f) Counterparts. This Agreement may be executed in one or more counterparts,
------------
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
(g) Headings and Gender References. The section headings contained in this
--------------------------------
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement. Words of any gender herein shall
include all other genders, to the extent appropriate.
(h) Notices. All notices, requests, demands, claims, and other communications
-------
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
20
If to the Shareholders: Thomas Sullivan & Gary Eichsteadt
Econo-Comm, Inc.
3733 NW 16th Street
Lauderhill, FL 33311
If to CNE: Michael J. Gutowski
CNE
3733 NW 16th Street
Lauderhill, FL 33311
and
George W. Benoit
200 West 57th Street
Suite 1103
New York, New York 10019
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims, and
other communications hereunder, or copies thereof, are to be delivered
by giving the other Parties notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the law of the State of Florida applicable to
contracts executed and delivered by residents of Florida, and fully to
be performed, in Florida.
(j) Amendments and Waivers. No amendment of any provision of this
-----------------------
Agreement shall be valid unless the same shall be in writing and
signed by CNE and each of the Shareholders that is to be bound by the
amendment. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or
not, shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(k) Expenses. Each of the Parties will bear his own costs and expenses
--------
(including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby, except that CNE
upon a successful closing will bear the cost of obtaining the Audited
Statements. The Shareholders agree that the Target has not borne and
will not bear any of the Shareholders' costs and expenses (including
any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
21
(l) Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties and no presumption
or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement.
Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation.
(m) Incorporation of Exhibits The Exhibits identified in this
---------------------------
Agreement are incorporated herein by reference as if set forth in full
at this place.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
CNE Acquisition, Corp. ll CNE GROUP, INC.
By: By:___________________
------------
George Benoit George Benoit, CEO
Title: CEO
_____________________
----------------------
Thomas Sullivan Gary Eichsteadt
Econo-Comm, Inc.
By: _____________
Gary Eichsteadt
Title: President
22