CNE GROUP, INC.
255 WEST 36TH STREET
SUITE 800
NEW YORK, NEW YORK 10012
INFORMATION STATEMENT
PURSUANT TO SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
NO VOTE OR OTHER ACTION OF
THE COMPANY'S STOCKHOLDERS IS REQUIRED
IN CONNECTION WITH THIS INFORMATION STATEMENT
Introduction
CNE Group, Inc., a Delaware corporation, is mailing this Statement on or
about November 4, 2005 to holders of record on November 3, 2005 of our shares of
common stock. We are furnishing this Statement in connection with the change of
all of our directors to be effected at a meeting of our board of directors to be
held on November 14, 2005, referred to herein as the Effective Date.
Background of the Transaction and Change in Control
On November 2, 2005, we issued 10,000,000 shares of our Series AAA
Preferred Stock to Empire Advisory, LLC in payment for a note in the principal
amount of $125,000,000 issued by Arrow Resources Development Ltd., our
wholly-owned subsidiary. Arrow issued the note to Empire for a marketing and
distribution agreement that Empire induced Arrow Pacific Resources PNG Ltd.,
referred to herein as PNG, to enter into with Arrow. In connection therewith,
Empire has agreed to pay certain of our expenses, including expenses relating to
this transaction, aggregating $350,000, of which approximately $70,000 has been
paid as of the date hereof and the balance will be paid on the Effective Date.
George W. Benoit, our Chief Executive Officer, will be paid $60,000 of this
amount on the Effective Date for services that he is rendering to us. Empire was
founded and is managed by Peter J. Frugone, who, on the Effective Date, will
become our President and Chief Executive Officer as well as one of our directors
In April 2005 Empire entered into a merchant banking agreement with Arrow
Pacific Resources (S) Pte. Ltd., referred to herein as APR, an affiliate of PNG,
pursuant to which Empire agreed to assist APR to obtain a potential US public
company merger candidate and financing. APR paid Empire $150,000 for these
services. In connection therewith, Empire introduced us to APR and, as of the
date hereof, Empire has represented to us that it has obtained debt financing
for this transaction from certain investors, some of whom will become our
directors on the Effective Date, including Mr. Frugone. Empire plans to repay
this debt by delivering shares of Series AAA Preferred Stock in satisfaction
thereof to the debt holders and transfer the balance to APR. Empire believes
that at least approximately 8,500,000 shares of Series AAA
Preferred Stock will be transferred to APR and the balance to the debt holders
to be allocated among them on a mutually agreeable basis.
APR and PNG have represented to us that they and their affiliated
companies have initiated the commercial development of timber resources and a
eucalyptus plantation operation in Papua, New Guinea. On August 1, 2005, Arrow
entered into the marketing and distribution agreement with APR to act as the
exclusive worldwide marketer and distributor for all of APR's timber and
derivative products. This agreement terminates on July 31, 2103 unless sooner
terminated or renewed in accordance with its terms. APR has been granted a
license by the government of Papua, New Guinea for the development of plantation
operations on more than 100,000 hectares of land and has entered into land
leases with the owners of this property. The license terminates in 2098. The
marketing agreement provides for Arrow to retain 10% of the gross sales
generated by all plantation operations from all resources and all derivative
products, such as paper, pulp and chips.
On May 28, 2005, Arrow entered into five-year Engagement Agreement with
Hans Karundeng, the sole owner of APR. Pursuant to this agreement Mr. Karundeng
will provide Arrow with business and financial consulting services for which he
will be paid $1,000,000 annually. On August 1, 2005, Arrow entered into a
five-year Employment Agreement with Rudolph Karundeng, Hans Karundeng's son,
pursuant to which Rudolph Karundeng will be employed as our Chairman of the
Board and be responsible for executive oversight, strategic planning and
direction of field operations. He will be paid $1,000,000 annually for these
services and be granted certain stock options.
On August 1, 2005, Arrow also entered into a five-year Management
Agreement with Empire. Pursuant to this agreement Empire will manage Arrow's
business and financial affairs and, in connection therewith, provide Arrow with
Mr. Frugone's services as President and Chief Executive Officer. Arrow will pay
Empire a management fee of $1 million during the first year of the agreement,
which will increase annually by 125%, and $600,000 each year for expenses,
including rent, incurred by Empire.
The management, engagement and employment agreements all provide that the
payment of fees and/or salaries pursuant thereto will be subject to available
cash flow generated by the operation of Arrow's business.
Each share of preferred stock issued to Empire has the right to cast 62.4
votes on any matter brought before our stockholders for a vote. Based thereon,
the shares of preferred stock grant Empire the right to cast 96% of all votes on
any matter brought before our stockholders for a vote.
Our Directors held a Board meeting on October 21, 2005, at which they
agreed to cause Arrow to satisfy its $125,000,000 note to Empire by issuing the
10,000,000 shares of voting Series AAA Preferred Stock to Empire on the
condition that we receive (i) an independent valuation of Arrow's marketing and
distribution agreement with PNG acceptable to us and (ii) Arrow's financial
statements, independently audited as of September 30, 2005, that would reflect a
stockholders' equity of approximately $124,000,000 after repayment of the
$125,000,000 note to Empire without incurring debt
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to effect that repayment. Our Board believed that, in reliance upon the
independent valuation, the effectiveness of APR's license with the government of
Papua, New Guinea and the land leases in accordance with their terms, and upon
the accuracy of Arrow's audited financial statements and the information
provided to us by APR about its business, our issuance of the 10,000,000 shares
of voting Series AAA Preferred stock to Empire in payment for Arrow's
$125,000,000 note to Empire would be fair to our existing stockholders from a
financial and equitable point of view. We have received the independent
valuation and the audited Arrow financial statements. Based on the foregoing,
our Board effected the issuance of the Series AAA Preferred and all related
transactions and the change in control.
Our Board also approved that, as part of our agreement with Empire, we
would change our name to Arrow Resources Development Limited or a similar name,
change our jurisdiction of organization from Delaware to Bermuda and amend our
Certificate of Incorporation to increase the number of shares we are authorized
to issue to 1 billion. The Board also agreed that upon repayment of the Note, we
would cancel all of our preferred stock other than the Series AAA Preferred
Stock to be issued to Empire, all of our material debt obligations and all of
our outstanding warrants and options. In furtherance thereof, we:
(i) exchanged all of our 1,392,630 shares of Series A Preferred Stock
for our common stock at the rate of one share of Preferred Stock for
one share of common stock and thereafter retired this Preferred
Stock;
(ii) purchased all of our 4,400 shares of Series B Preferred Stock for an
aggregate price of $20,000.00 and thereafter retired this Preferred
Stock;
(iii) exchanged all of our 1,145,000 Series G Preferred Stock at the rate
of one share of Preferred Stock for two shares of common stock and
thereafter retired this Preferred Stock
(iv) exchanged all of our outstanding debt, exclusive of accrued but
unpaid salaries, directors' and professional fees and expenses, and
exclusive of the debt cancelled pursuant to a transaction described
below under Related Transactions relating to the sale of one of our
subsidiaries, in the aggregate amount of approximately $1,370,000
for an aggregate of 2,837,533 shares of common stock;
(v) issued 373,277 shares of common stock to independent contractors for
services they rendered to us; (vi) except for the warrants and
options referred to in the transaction relating to the sale of our
subsidiary, exchanged all of our warrants and options for an
aggregate of 6,275,772 shares of common stock; and
(vii) executed mutual general releases with certain of our creditors
including, among others, our officers and directors, pursuant to
which all of our accrued but unpaid salaries, directors' and
professional fees and expenses in the aggregate amount of
approximately $1,350,000 were released.
We issued all of our common stock in the foregoing transactions pursuant
to the exemptions from the registration provisions of the securities Act of 1933
provided by Sections 3(a)(9) and 4(2) thereof.
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Each of our directors, including Mr. Benoit, has agreed with APR that he
would, from the date hereof through the Effective Date, which is ten days after
filing this Statement with the Securities and Exchange Commission, referred to
herein as the Filing, and its transmission to our stockholders of record:
(i) take no material action as a director and/or officer, as the case
may be, except in consultation with APR; and
(ii) upon the expiration of ten days after the Filing, together with our
other directors, vote at a meeting of our board to resign seriatim
from the board while appointing Rudolph Karundeng, Peter J. Frugone,
John E. McConnaughy, Jr. and John W. Allen, the individuals
designated by Empire, to serve as our directors.
Mr. Benoit has also agreed to resign as our Chief Executive Officer on the
Effective Date.
Our board has scheduled a meeting to be held on the Effective Date, at
which time Mr. Benoit, Anthony S. Conigliaro, Charles W. Currie, and David W.
Dube, who comprise all of our current directors, will effect the actions
described in paragraph (ii) above. At that time, Messrs. Karundeng, Frugone,
McConnaughy and Allen, as our new board, will (i) elect Mr. Frugone as our
President and Chief Executive Officer and Rudolph Karundeng as our Chairman of
the Board and Senior Vice President; and (ii) retain Hans Karundeng as our
Senior Advisor.
Reason for Information Statement
Because we are changing a majority of our directors otherwise than at a
meeting of our stockholders, we are required, pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 promulgated by the Commission
thereunder, to provide our stockholders and the Commission with certain
information not less than ten days prior to the date on which the change will
take place. We are filing this Information Statement with the Commission and
sending it to our stockholders in compliance with that Rule.
Information Relating to our Securities
Capital Stock
-------------
We are authorized to issue 40 million shares of common stock, par value
$0.00001 per share, and 25 million shares of preferred stock, par value $0.00001
per share.
Common Stock
------------
Under our certificate of incorporation, our board is authorized, subject
to limitations prescribed by law, without further stockholder approval, from
time to time to issue up to an aggregate of 40 million shares of common stock.
There are 25,543,260 shares of our common stock currently issued and
outstanding. Holders of our common
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stock are entitled to:
o one vote per share;
o share in all dividends that our board, in its discretion, declares
from legally available funds; and
o receive our assets pro rata in the event of our liquidation,
dissolution or winding up, subject to the prior rights of creditors,
including holders of our debt securities, and holders of any of our
preferred stock.
Our common stockholders have no cumulative voting rights and no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to our common stock. Our certificate of incorporation
provides for the election of different classes of directors with the term of
each class ending at a different time.
Preferred Stock
---------------
Our amended certificate of incorporation authorizes our board of
directors, without any vote or action by the holders of our common stock, to
issue up to 25 million shares of preferred stock from time to time in one or
more series. Our board is authorized to determine the number of shares and to
fix the
o powers,
o designations,
o preferences, and
o relative, participating, optional or other special rights
of any series of preferred stock. Depending on the terms established by our
board, any or all series of preferred stock could have preference over the
common stock with respect to dividends and other distributions and upon our
liquidation as well as other matters.
There are 10 million shares of our preferred stock currently outstanding,
all of which is the Series AAA Preferred Stock that has been issued to Empire.
Each outstanding share of this stock
o entitles the record holder thereof to 62.4 votes on all matters that
are to be presented to our stockholders for their consideration,
o has a liquidating preference over all of our other equity of $60.00,
o has no dividend rights,
o is automatically convertible into 62.4 shares of our common stock,
subject to certain anti dilution provisions, immediately after our
stockholders have approved the conversion and increased the number
of shares of common stock we are authorized to issue in order to
effect the conversion, and
o obligates the holder thereof to vote to approve the conversion and
increase the authorization of common stock.
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Principal Stockholders
The tables below set forth, as of the date hereof, certain information
about the shares of our common and Series AAA Preferred stock, which constitute
all of our voting securities, owned beneficially; by each of our current and
proposed directors and executive officers, by all of our current and proposed
directors and executive officers as a group, and by persons known to us to own,
beneficially, more than five percent of the outstanding shares of each class of
such stock. The information relating to the proposed directors has been provided
by APR and Empire and is set forth in reliance thereon.
A person is deemed to be a beneficial owner of securities that can be
acquired by such person within 60 days after the filing of this Information
Statement upon the exercise of options and warrants or conversion of convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that options, warrants and convertible securities that are held by such
person, but not held by any other person, and that are exercisable or
convertible within 60 days after the filing of this Information Statement have
been exercise or converted. Except as otherwise indicated, and subject to
applicable community property and similar laws, to our knowledge each of the
persons named in the tables has sole voting and investment power with respect to
the shares shown as beneficially owned.
All percentages of beneficial ownership are calculated based the number of
shares outstanding as of the date hereof. On this date we have 25,543,260 shares
of common stock issued and outstanding and 10,000,000 shares of preferred stock
issued and outstanding.
SERIES AAA PREFERRED STOCK
--------------------------
Name of Stock Percent
and Address of Beneficially of
Beneficial Owner Owned Class
---------------- ----- -------
Empire Advisory, LLC.
(1)(2)(4)(5)(6)(7)(8) 10,000,000 100.00
George W. Benoit (3) -0- -0-
Anthony S. Conigliaro(3) -0- -0-
Charles W. Currie (3) -0- -0-
David W. Dube (3) -0- -0-
Rudolph Karundeng (1)(4)(5) -0- -0-
Peter J. Frugone (1)(2)(5) -0- -0-
John E. McConnaughy, Jr.(1)(5) -0- -0-
John W. Allen (1)(5) -0- -0-
All Directors and Executive Officers as a
group (8 persons)(6) -0- -0-
(1) The address for this person is c/o Empire Advisory, LLC, 152 West 57th
Street, 27th Floor, New York, New York 10019.
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(2) Empire has represented to us that it has obtained debt financing for this
transaction from certain investors, including some of whom who will become
our directors on the Effective Date. It plans to repay this debt by
issuing shares of Series AAA Preferred Stock in satisfaction thereof to
the debt holders and transfer the balance to APR. Empire believes that at
least approximately 8,500,000 shares of Series AAA Preferred Stock will be
transferred to APR and the balance to the debt holders to be allocated
among them on a mutually agreeable basis. Mr. Frugone is Empire's founder
and Managing Director.
(3) The address for this person is CNE Group, Inc., 255 West 36th Street,
Suite 800, New York, New York 10018.
(4) Hans Karundeng is the sole owner, officer and director of APR. Mr.
Karundeng's address is c/o Empire Advisory, LLC, 152 West 57th Street,
27th Floor, New York, New York 10019. Hans Karundeng is the father of
Rudolph Karundeng.
(5) The person has loaned funds to Empire that Empire intends to repay by
delivering shares of Series AAA Preferred Stock to him.
(6) This group includes all of our current directors, Messrs. Benoit,
Conigliaro, Currie and Dube, all of whom will resign on the Effective
Date, and Messrs. Rudolph Karundeng, Frugone, McConnaughy and Allen, who
will become our directors and/or executive officers on the Effective Date.
COMMON STOCK
------------
Name of Stock
and Address of Beneficially
Beneficial Owner Owned Percent of Class
--------------- -----
Grace C. Lindblom
1412 West Colonial Drive,
Orlando, FL 32804 1,970,167 7.71
George W. Benoit (1) 4,715,333 18.46
Barry W. Blank (2)
P.O. Box 32056, Phoenix,
Arizona 85064 2,569,795 9.32
Anthony S. Conigliaro 1,864,538 7.30
Charles W. Currie (3) 384,419 1.51
David W. Dube 76,117 *
Rudolph Karundeng -0- -0-
Peter J. Frugone -0- -0-
John E. McConnaughy, Jr. 560,000 2.19
John W. Allen -0- -0-
All Directors and Executive
Officers as a group (8
persons) 7,600,407 29.98
------------------------------------
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* Owns less than one (1%) percent.
(1) Ownership and percentage numbers include 90,700 shares of common stock
held in Mr. Benoit's 401K Plan and 2,656,326 shares owned by Maureen
Benoit, Mr. Benoit's wife. Mr. Benoit disclaims beneficial ownership of
the shares owned by his wife.
(2) Ownership and percentage numbers include 2,035,695 shares of common stock
that Mr. Blank can acquire by exercising warrants.
(3) Ownership and percentage numbers include (a) 200 shares of common stock
owned by Mr. Currie's wife, and (b) 9,900 shares of common stock held in
Mr. Currie's Individual Retirement Account.
Change in Control
We have changed the control of the Company by issuing 10,000,000 shares of
preferred stock to Empire in exchange for repaying Arrow's $125,000,000 note to
Empire. These shares represent 96% of the voting rights of our stockholders.
Legal Proceedings
We are a party to various vendor related litigations. We have accrued a
liability of approximately $100,000 and, accordingly, this liability has been
reflected in accounts payable and accrued expenses within our consolidated
financial statements at December 31, 2004.
Neither any of our current directors, officers or affiliates, nor any of
our proposed directors, officers or affiliates, nor any owner of record or, to
our knowledge, beneficially of more than five percent of our common stock, nor
any associate of any of the foregoing, is a party in any legal proceedings
adverse to us or any of our subsidiaries or has a material interest adverse to
us or any of our subsidiaries.
Directors and Executive Officers
Set forth below are our current directors and executive officers and those
who will replace them, their respective names and ages, positions with us,
principal occupations and business experience during at least the past five
years. The information relating to the proposed directors has been provided by
APR and Empire and is set forth in reliance thereon.
Name Age Position
---- --- --------
George W. Benoit (1) 69 Chairman of the Board and Chief
Executive Officer
Anthony S. Conigliaro (1) 55 Director
David W. Dube (1) 49 Director
Charles W. Currie (1) 62 Director
Peter J. Frugone (2) (3) 56 President and Chief
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Executive Officer
Rudolph Karundeng (2) (3) 26 Chairman of the Board and Senior
Vice President
John E. McConnaughy, Jr. (2) 75 Director
John W. Allen (2) 66 Director
Hans Karundeng (3) 56 Senior Advisor
---------------------------
(1) These directors plan to resign at a board meeting scheduled to be held on
November 14, 2005.
(2) Messrs. Frugone, Rudolph Karundeng, McConnaughy and Allen are designees of
Empire. They will replace Messrs. Benoit, Conigliaro, Dube and Currie as
directors at the board meeting scheduled to be held on November 14, 2005.
The new directors will serve until our next annual meeting and until their
successors have been elected and qualified.
(3) Upon their election, the new directors will appoint Mr. Frugone as our
President and Chief Executive Officer, Rudolph Karundeng as the Chairman
of our board and our Senior Vice President and Hans Karundeng as our
Senior Advisor. The new officers will serve at the discretion of our board
of directors.
GEORGE W. BENOIT has been our Chief Executive Officer and one of our
directors since 1971 and our Chairman of the Board since 1972.
ANTHONY S. CONIGLIARO was our Vice President and Chief Financial Officer
from March 1999 through August 31, 2005, when he resigned. He became a Director
in June 2004.
DAVID W. DUBE has been one of our directors since June 1996. Mr. Dube is
President of Peak Capital Corporation, a corporate finance and management
advisory firm, and Peak Securities Corporation, a registered broker-dealer. Mr.
Dube was Senior Vice President and Chief Financial Officer of FAB Capital Corp.,
a merchant banking and securities investment firm, and served in various other
capacities with this company from 1997 through October 1999. From 1996 to 1997
he was President and Chief Executive Officer of Optimax Industries, Inc., a
company that engaged in the horticultural, decorative giftware and truck parts
accessories industries. Mr. Dube serves on the Board of Directors of
publicly-traded GlycoGenesys, Inc. and New World Wine Group, Ltd.
CHARLES W. CURRIE has been one of our directors since 1986. Mr. Currie is,
and has been since October 2002, a partner in First American Fund Services,
Inc., a company that provides marketing services to investment managers. Mr.
Currie was a partner in Asset Management Services LLC from August 1996 through
September 2002.
PETER J. FRUGONE founded Empire Advisory, LLC, formerly known as Electra
Capital Corporation, in 1991 and has served as its Managing Director since then.
Empire is a consulting and investment banking firm specializing in transactions
generally ranging between $1 million and $10 million. Mr. Frugone intends to
devote
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approximately 75% of his time to our business.
RUDOLPH KARUNDENG has been working with his father, Hans Karundeng, since
2000.
JOHN E. MCCONNAUGHY, JR. is Chairman and Chief Executive Officer of JEMC
Corporation, a personal holding company that he founded in 1985. His career
includes positions of management with Westinghouse Electric and the Singer
Company, as well as service as a director of numerous public and private
companies. In addition, he previously served as Chairman and CEO of Peabody
International Corp. and Chairman and CEO of GEO International Corp. He retired
from Peabody in February 1986 and GEO in October 1992. Mr. McConnaughy served on
the board of Fortune Natural Resources Corporation from 2000 through January 20,
2004. On June 1, 2004, Fortune filed for protection under Chapter 11 of the
Federal Bankruptcy law in the United States Bankruptcy Court for the Eastern
District of Louisiana, Case No. 04-14112. The case is still pending. Mr.
McConnaughy currently serves on the boards of five public companies; Wave
Systems, Inc., Varsity Brands, Inc., Consumer Portfolio Services, Inc., and
Levcor International, Inc. He also serves as acting Chairman of the Board of
Trustees and Executive Committee of the Strang Cancer Prevention Center and is
Chairman Emeritus of the Harlem School of the Arts. Mr. McConnaughy holds a B.A.
of Economics from Denison University and an M.B.A. in Marketing and Finance from
Harvard's Graduate School of Business Administration.
JOHN W. ALLEN is Chairman and Chief Executive Officer of Spring Investment
Corporation, a family owned investment firm based in New York City that he
founded in 1989. He is also, and has been since January 2003, Chairman and Chief
Executive Officer of Greater China Corporation, a U.S. public company with
operations in Hong Kong and China seeking business investment opportunities in
China. In 1999 he co-founded Turtlesnap Ventures, Inc., a company that
identifies promising technology opportunities through its "Global Trends in
Technology" Symposia. Mr. Allen continues to serve as its Chairman and Chief
Financial Officer.
Mr. Allen serves as a Director, Advisor or Trustee of the following
non-profit organizations: AIESEC Yale, formerly Chairman of the Board of AIESEC,
U.S., the Maryland Information Technology Center, George Soros' International
Science Foundation, previously, Trustee of the Soros Open Society Institute, and
the Chinese Cultural Foundation. He holds a B.A. from Yale University and an
M.B.A. from Harvard Business School.
HANS KARUNDENG has, since 2000, engaged in the business of foreign
exchange speculation under his own name, primarily in London, England. Since
2002 he has also been engaged in developing forestry projects and, in 2004,
began the process of obtaining licenses for mining operations in Indonesia.
There are no family relationships among our current or prospective
directors or executive officers except that Rudolph Karundeng is the son of Hans
Karundeng, APR's sole stockholder and director.
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Executive Compensation.
(a) Executive Officer Compensation
The following table sets forth all compensation awarded to, earned by or
paid to, our Chief Executive Officer and our most highly compensated executive
officers. In 2004, annual salaries of such individuals did not exceed $100,000.
The table reflects annual compensation for all services rendered in all
capacities to us by individuals earning $100,000 or more during 2004, 2003 and
2002.
Summary Compensation Table
--------------------------
Name and Principal All Other
Position Year Salary Bonus Compensation
-------- ---- ------ ----- ------------
George W. Benoit, President, 2004
Chief Executive Officer and 2003
Chairman 2002
Anthony S. Conigliaro, 2004
former Vice President and 2003
Chief Financial Officer 2002
Executive compensation can vary widely from year to year. We may pay
discretionary bonuses to our salaried employees. The Compensation Committee of
our Board of Directors determines the bonuses. There were no bonuses paid in
2004.
We had three-year employment agreements with Messrs. Benoit and Conigliaro
and one of our former subsidiaries had a three-year employment agreement with
Thomas L. Sullivan, the president of that subsidiary, all commencing April 2003.
Our agreements with Messrs. Benoit and Conigliaro have been terminated. These
agreements provided for annual salaries as follows:
Executive Officers Annual Salary
------------------ -------------
George W. Benoit $ 150,000
Anthony S. Conigliaro $ 110,000
Thomas L. Sullivan $ 100,000
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We paid Mr. Benoit no salary and paid Mr. Conigliaro $45,846 during 2004.
Any accrued unpaid salaries have been forgiven pursuant to agreements described
below under Related Transactions.
In 2004 we had employment agreements with three former executive officers.
These agreements were terminated in September 2004. The compensation we paid to
each of these individuals pursuant to these agreements did not exceed $100,000
during 2004.
See Background of the Transaction and Change in Control above for
information relating to Arrow's Management Agreement with Empire, Engagement
Agreement with Hans Karundeng and Employment Agreement with Rudolph Karundeng
pursuant to which, among other things, Arrow will pay fees to Empire and Hans
Karundeng and salary to Rudolph Karundeng.
(b) Compensation Pursuant to Plans
401(k) Cash or Deferred Compensation Plan. CareerEngine Network, Inc., one
-----------------------------------------
of our subsidiaries, maintains a tax-qualified 401(k) cash or deferred
compensation plan that covers all employees who have completed three months of
service and attained age 21. Participants are permitted, within the limitations
imposed by the Internal Revenue Code, to make pre-tax contributions to the plan
pursuant to salary reduction agreements. CareerEngine may, in its discretion on
an annual basis, make additional contributions. The contributions of the
participants and those of CareerEngine are held in separate accounts.
Participants are always fully vested in both accounts.
1990 Incentive Compensation Plan. This Plan was terminated on June 3,
--------------------------------
1999. On March 14, 2003 the recipients of all outstanding awards under the Plan
waived their rights to such awards.
1999 Stock Option Plan. This Plan was terminated on April 23, 2003. On
----------------------
March 14, 2003 the recipients of all outstanding awards under the Plan waived
their rights to such awards.
2003 Stock Incentive Plan.
-------------------------
Our Stockholders approved the 2003 Stock Incentive Plan, which provides,
among other matters, for incentive and non-qualified stock options to purchase
10,000,000 shares of our common stock. The purpose of the 2003 Plan is to
provide incentives to officers, key employees, directors, independent
contractors and agents whose performance will contribute to our long-term
success and growth, to strengthen our ability to attract and retain officers,
key employees, directors, independent contractors and agents of high competence,
to increase the identity of interests of such people with those of our
stockholders and to help build loyalty to the Company through recognition and
the opportunity for stock ownership. The Incentive Compensation Committee of the
Board administers the 2003 Plan.
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The 2003 Plan permits the granting of both incentive stock options and
non-qualified stock options. Generally, the option price of both incentive stock
options and non-qualified stock options must be at least equal to 100% of the
fair market value of the shares on the date of grant. The maximum term of each
option is ten years. For any participant who owns shares possessing more than
10% of the voting rights of the outstanding shares of our common stock, the
exercise price of any incentive stock option must be at least equal to 110% of
the fair market value of the shares subject to such option on the date of grant
and the term of the option may not be longer than five years. Options become
exercisable at such time or times as the Board may determine at the time it
grants options.
Under the 2003 Plan, incentive stock options may be granted only to
officers and employees and non-qualified stock options may be granted to
officers, employees as well as directors, independent contractors and agents.
The 2003 Plan may be amended, terminated or modified by the Board at any
time, except that the Board may not, without approval by a vote of our
stockholders (i) increase the maximum number of shares for which options may be
granted under the 2003 Plan, (ii) change the persons eligible to participate in
the 2003 Plan, or (iii) materially increase the benefits accruing to
participants under the 2003 Plan. No such termination, modification or amendment
may affect the rights of an optionee under an outstanding option or the grantee
of an award.
The following table sets forth certain information relating to incentive
stock options, each to purchase one share of our common stock, that have been
granted by our Incentive Compensation Committee:
Weighted average
per share
Date of Grant Recipients Number of Options exercise price
------------- ---------- ----------------- ----------------
April 30, 2003 five officers 1,800,00 $1.32
April 30, 2003 one employee 187,500 $1.32
November 4, 2003 three officers 950,000 $1.09
January 1, 2004 one officer and
18 employees 601,000 $0.50
September 12, 2004 one officer 500,000 $0.28
December 1, 2004 15 employees 110,000 $0.40
The following table sets forth certain information relating to
non-qualified stock options, each to purchase one share of our common stock,
that have been granted by our Board of Directors to certain of our independent
contractors and outside directors:
Date of Grant Number of Options
------------- -----------------
April 30, 2003 435,000
November 4, 2003 220,000
November 21, 2003 100,000
January 21, 2004 295,500
September 12, 2004 900,000
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All recipients of all outstanding awards under the 2003 Plan have waived
their rights to these awards pursuant to agreements described below under
Related Transactions. No options granted under this Plan have ever been
exercised.
On June 10, 2004, as amended pursuant to an agreement dated as of
September 28, 2004, we entered into an Option Cancellation Agreement with Thomas
L. Sullivan, an officer of one of our former subsidiaries, and Gary L.
Eichsteadt, an employee of that subsidiary who is also one of our former
directors, relating to 420,000 incentive stock options issued on January 21,
2004 pursuant to which they relinquished all right and title to their awards in
consideration for 104 equal weekly cash payments aggregating $50,000. These
payment obligations were cancelled when we sold this subsidiary to them in a
transaction described below under Related Transactions.
On January 10, 2005, as part of the settlement of a litigation with us,
three of our former officers and directors agreed to exchange all of their
incentive stock options, as well as all of their Class AA and Class C Preferred
Stock for 850,000 shares of our common stock, which we issued to them May 10,
2005. We issued these shares pursuant to the exemptions from the registration
provisions of the Securities Act of 1933 provided by Sections 3(a)(9) and 4(2)
thereof. We have retired the preferred stock and cancelled the options.
(c) Director Compensation
Until October 1, 2003, we did not pay directors who were also our
employees any fees for serving as directors, but reimbursed them for their
out-of-pocket expenses in connection with such duties. Effective October 1,
2003, we agreed to pay directors who are not also our employees a monthly
retainer of $1,000, plus expenses incurred for attending meetings of the Board,
Annual Stockholders Meetings, and for each meeting of a committee of the Board
not held in conjunction with a Board meeting. In addition, effective October 1,
2003, any director who is also a member of the Executive Committee was to be
paid an additional monthly retainer of $1,000. We accrued director compensation
in the aggregate amount of $58,000 in 2004. All of this accrued compensation was
cancelled pursuant to agreements described below under Related Transactions.
Meetings of the Board and its Committees
During 2004, the Board had 15 meetings and each director attended at least
75% of the aggregate of the total number of Board meetings and meetings of all
committees of the Board on which he served.
Our By-Laws provide for an Executive Committee consisting of the Chairman
of the Board and not less than two other directors to exercise the powers of the
board during the intervals between meetings of the board. During the period
January 1 through June 17, 2004, the Executive Committee consisted of Messrs.
Benoit and Dube, and Michael J. Gutowski and Larry M. Reid, former directors,
and it had ten meetings. For the period June 18, 2004 through September 11,
2004, the Executive Committee consisted of
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Messrs. Benoit, Dube, Gutowski and Reid, and Joseph G. Anastasi, a former
director, and it had four meetings. For the period September 12, 2004 through
January 14, 2005 the Executive Committee consisted of Messrs. Benoit, Anastasi,
Conigliaro, Currie and Dube and it had four meetings. On August 31, 2005, Mr.
Conigliario resigned from this committee and October 21, 2005, Mr. Anastasi
resigned from this committee when he resigned from our Board. On January 15,
2005, Mr. Eichsteadt joined the Executive Committee and he resigned on November
3, 2005. On the Effective Date Messrs. Benoit, Currie and Dube will resign from
this Committee and be replaced by Messrs. McConnaughy and Allen.
The Board also has an Audit Committee that consists of our outside
directors. This committee discusses audit and financial reporting matters with
both our management and our independent public accountants. To ensure
independence, our independent public accountants may meet with the Audit
Committee with or without the presence of management representatives. During the
period January 1 through December 31, 2004, the Audit Committee consisted of
Messrs. Anastasi, Currie and Dube and had seven meetings. Mr. Anastasi resigned
from this committee on October 21, 2005. Each of these committee members is an
Independent Director as the American Stock Exchange defines that term, where our
stock was listed for trading during 2004. Our stock was suspended from trading
on August 25, 2005 and delisted on September 26, 2005. It now trades on the over
the counter Bulletin Board. In addition, Mr. Dube is a financial expert as
defined in the Commission's rules. We believe that each current Audit Committee
member is independent of management and free of any relationship that would
interfere with his exercise of independent judgment as a member of this
committee. On the Effective Date Messrs. Currie and Dube will resign from this
Committee and be replaced by Messrs. McConnaughy and Allen.
The principal function of the Audit Committee is to serve as an
independent and objective party to assist the Board of Directors in monitoring
the integrity of our financial statements, our compliance with legal and
regulatory requirements, and the independence and performance of our auditors.
The Board also has a Compensation Committee for the purpose of reviewing
the compensation of our officers and employees and making recommendations to the
board with respect thereto. During 2004 this Committee consisted of Messrs.
Benoit, Gutowski, Reid and Dube and had no meetings. Messrs. Gutowski and Reid
were removed from this Committee on September 11, 2004. On the Effective Date
Messrs. Benoit and Dube will resign from this Committee and be replaced by
Messrs. McConnaughy and Allen.
The Board also has a Nominating Committee to propose nominees for election
to the Board. During 2004 this Committee, which consisted of Messrs. Benoit,
Gutowski, Reid and Dube, had no meetings. Messrs. Gutowski and Reid were removed
from the Committee on September 11, 2004. On the Effective Date Messrs. Benoit
and Dube will resign from this Committee and be replaced by Messrs. McConnaughy
and Allen. The Nominating Committee will consider suggestions for potential
nominees submitted by stockholders if mailed to the Chairman of the Board.
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The Board also has an Incentive Compensation Committee for the purpose of
administering and making incentive compensation awards under our Incentive
Compensation Plans. During 2004 this Committee, which consisted of Messrs. Dube,
Anastasi and Currie, had two meetings. Mr. Anastasi resigned from this committee
on October 21, 2005. On the Effective Date Messrs. Currie and Dube will resign
from this Committee and be replaced by Messrs. McConnaughy and Allen.
Related Transactions
See Background of the Transaction and Change in Control above for
information relating to Arrow's Engagement Agreement with Hans Karundeng,
Employment Agreement with Rudolph Karundeng, Marketing Agreement with PNG and
Management Agreement with Empire. See Background of the Transaction and Change
in Control and the table under Series AAA Preferred Stock above for information
relating to Empire transferring Series AAA Preferred Stock to APR and to the
directors proposed by Empire to satisfy loans made by them to Empire. The
information in this Information Statement relating to agreements among Empire,
APR, PNG and their affiliates has been provided by Empire and APR and is set
forth herein in reliance thereon. In addition, see Background of the Transaction
and Change in Control above for information relating to a payment to be made on
the Effective Date to our Chief Executive Officer.
Subsequent to satisfying Arrow's note to Empire by issuing Empire the
10,000,000 shares of Series AAA Preferred Stock, on November 3, 2005, we entered
into an agreement with Messrs. Eichsteadt and Sullivan and David B. Batzer
pursuant to which we sold SRC Technologies, Inc. our wholly-owned subsidiary,
and SRC-ECI, Inc., SRC's wholly-owned subsidiary, and a patent associated with
these businesses, to Messrs. Eichsteadt and Sullivan in consideration for the
cancellation of debt in the aggregate amount of $50,000 we owed to Messrs.
Eichsteadt and Sullivan, the cancellation of debt in the aggregate amount of
approximately $150,000 SRC owed to Mr. Eichstead, the cancellation of debt in
the aggregate amount of approximately $300,000 SRC owed to Mr. Batzer, and the
return to us by Messrs. Eichsteadt and Sullivan of an aggregate of 1,000,000
shares of our Series AA Preferred Stock and 4,867,938 shares of our Series C
Preferred Stock and the return by Messrs. Eichsteadt, Sullivan and Batcher of
options and warrants to purchase an aggregate of 486,000 shares of our common
stock. We have since retired and/or canceled all of the securities returned to
us pursuant to this agreement. As part of this transaction Mr. Eichsteadt
resigned as a director. All inter company debt was eliminated prior to closing.
We have obtained releases from Messrs. Benoit, Conigliaro, Currie and
Dube, our current directors, and Joseph G. Anastasi, a former director, pursuant
to which, for nominal consideration, they have each released us from our
obligation to pay him any accrued but unpaid compensation, directors fees and/or
advances, as the case may be, that we may owe him. We have also released them
from all actions we may have against them except for those prohibited by
applicable law. The following table sets for the amounts that they have
released:
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Name Amount Released
---- ---------------
Joseph G. Anastasi $ 30,000
George W. Benoit $1,307,050
Anthony S. Conigliaro $ 223,333
Charles W. Currie $ 28,000
David W. Dube $ 35,000
We have also entered into agreements with Messrs. Anastasi, Benoit,
Conigliaro, Currie and Dube, members of Mr. Benoit's family, and Grace C.
Lindblom and Frank Ciolli, each a beneficial owner of more than 10% of our
outstanding common stock at the time of the agreements, pursuant to which we
issued them our common stock in exchange for debt owed by us, Series G Preferred
Stock and/or options or warrants, each to purchase one share of our common stock
at various prices. We were paid $1.00 per share for the Series G Preferred
Stock. The following table sets forth certain information relating to these
transactions:
Name Consideration Exchanged Number of Shares Issued
--------- ----------------------- -----------------------
Joseph G. Anastasi 25,000 options and $26,667 debt 116,894
George W. Benoit (1)(2)(4) 600,000 options 479,887
Maureen Benoit (1) 3,007,903 options and $515,000 debt 2,656,326
George W. Benoit, Jr. (2) 49,600 shares of preferred stock 496,000
Kevin J. Benoit (2)(3) 59,400 shares of preferred stock,
514,277 options and $56,667 debt 712,750
Frank Ciolli (3) 1,542,833 options and $181,625 debt 377,324
Anthony S. Conigliaro 1,314,277 warrants and
options and $56,667 debt 1,857,538
Charles W. Currie 25,000 options and $26,667 debt 112,639
David W. Dube 100,000 options 72,117
Grace C. Linblom (3) 2,081,550 options and $250,000 debt 545,167
Anne B. Mullen (2) 22,913 shares of preferred stock 228,930
Michael Mullen (4) 8,000 shares of preferred stock 80,000
Nancy C. Zucco (2) 43,003 shares of preferred stock 430,230
---------------------------------
(1) Maureen Benoit is George W. Benoit's wife.
(2) This person is an adult child of George W. Benoit.
(3) This person was a holder of 10% or more of our common stock at the time of
the agreement.
(4) Mr. Mullen is George W. Benoit's son-in-law.
We issued all of our common stock in the transactions referred to in the
foregoing table pursuant to the exemptions from the registration provisions of
the securities Act of 1933 provided by Sections 3(a)(9) and 4(2) thereof.
Indebtedness of Management
With respect to any indebtedness to us incurred since January 1, 2004,
there has been no transaction in which we have loaned money in an amount
exceeding $60,000 to
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any of the following: (a) any of our directors, executive officers or nominees
for election as director, (b) any family member of any of the foregoing, (c) any
corporation or other organization of which any of our directors, executive
officers or nominees for election as director is an executive officer or partner
or, directly or indirectly, the beneficial owner of ten percent or more of any
class of equity securities, or (d) any trust or other estate in which any of our
directors, executive officers or nominees for election as director has a
substantial interest.
Resignations, from our Board of Directors
None of our directors has resigned or declined to stand for re-election to
our board of directors since the date of the last annual meeting of our security
holders for any reason whatsoever except for Carol L. Gutowski, who resigned on
June 28, 2004, Michael J. Gutowski and Larry M. Reid, who resigned on January
11, 2005, Joseph G. Anastasi, who resigned on October 21, 2005 and Gary L.
Eichsteadt, who resigned on November 3, 2005.
Dated: November 4, 2005 CNE GROUP, INC.
By: /s/ George W. Benoit
-------------------------------
George W. Benoit
Chief Executive Officer
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