COOPERATIVE HOLDINGS INC, S-1, 2000-04-07

COOPERATIVE HOLDINGS INC
S-1, 2000-04-07

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 2000

REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

COOPERATIVE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 4813 22-3713227
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

------------------------
412-420 WASHINGTON AVENUE,
BELLEVILLE, NEW JERSEY 07109
(973) 759-8100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LOUIS A. LOMBARDI, SR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COOPERATIVE HOLDINGS, INC.
412-420 WASHINGTON AVENUE
BELLEVILLE, NEW JERSEY 07109
(973)759-8100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:

DAVID J. SORIN
WILLIAM J. THOMAS
BUCHANAN INGERSOLL PROFESSIONAL CORPORATION
650 COLLEGE ROAD EAST
PRINCETON, NEW JERSEY 08540
(609) 987-6800
BARRY M. ABELSON
MICHAEL P. GALLAGHER
PEPPER HAMILTON LLP
EIGHTEENTH AND ARCH STREETS
3000 TWO LOGAN SQUARE
PHILADELPHIA, PENNSYLVANIA 19103-2799

(215) 981-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value per share..................... $82,800,000 $21,859.20
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed. These
securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED APRIL 7, 2000

PROSPECTUS

[COOPERATIVE HOLDINGS, INC. LOGO]
COOPERATIVE HOLDINGS, INC.

COMMON STOCK

------------------------

This is the initial public offering of common stock by Cooperative
Holdings, Inc. We are selling shares of our common stock and a selling
stockholder is selling shares of common stock for a total of
shares of common stock. We will not receive any of the proceeds from the sale of
shares by the selling stockholder.

There is currently no public market for our common stock. We currently
expect that the initial public offering price will be between $ and
$ per share, and have applied to have our common stock included for
quotation on the Nasdaq National Market under the symbol "CCII."

------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT RISKS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

------------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to Cooperative (before expenses)................... $ $
Proceeds to selling stockholder............................. $ $
</TABLE>

The underwriters may also purchase up to additional shares of
common stock from the selling stockholder at the initial public offering price,
less the underwriting discount, to cover over-allotments.

Delivery of the shares will be made on or about , 2000.

------------------------

PENNSYLVANIA MERCHANT GROUP ROTH CAPITAL PARTNERS, INC.

Prospectus dated , 2000
<PAGE> 3

"QuikSpeed," "Much More than Dial Tone" and "New Jersey's own
Telecommunications Company" are our servicemarks. All other trademarks or
servicemarks appearing in this prospectus are the trademarks or service marks of
their respective companies.
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. The summary may not contain all the information that you should
consider before investing in our common stock. This prospectus includes
forward-looking statements which involve risks and uncertainties. You should
carefully read the entire prospectus, especially "Risk Factors" beginning on
page 7 and our combined financial statements and related notes before deciding
whether to invest in our common stock. All references to "we," "us," or "our,"
in this prospectus mean Cooperative Holdings, Inc. and its wholly-owned
subsidiaries Cooperative Communications, Inc., Eastern Computer Services,
L.L.C., CPV Communications, Inc. and KDR Communications, Inc.

OUR COMPANY

DSL technology has emerged as a commercially viable, cost-effective means
of providing high-speed data transmission using an existing telecommunications
network. Industry sources have projected the United States small business market
for DSL will reach $2.3 billion by 2003. Our DSL service offers high-speed data,
voice, Internet and video connectivity. We began offering QuikSpeed on a limited
basis in September 1999 and are preparing to broadly introduce the service in
April 2000. As of March 15, 2000, we had 137 orders for DSL service and we had
installed the necessary DSL equipment for 100 of these orders.

In marketing our DSL service, we believe we have several competitive
advantages over our current and potential competitors, particularly those who do
not currently offer local and long distance services. These include:

- our ability to offer one-stop services for voice, including local and
long distance, and data, all on a single bill;

- our ten years of providing superior customer service to small and
medium-sized businesses, as evidenced by our low customer turnover or
churn rate which has averaged 4.7% over the last three years;

- our in-depth knowledge of our geographic market, including our long-term
relationship with our customers;

- our ability to offer Virtual Private Network, or VPN, functionality for
voice and data transmission;

- our QuikSpeed DSL service permits voice over DSL, creating a lower cost
solution to our customers, and does not require our customers to have
their own Internet service provider, or ISP;

- our ability and willingness to offer customized application-oriented
solutions to our small and medium-sized business customers, including
700 directory assistance, sales tracking, specialized billing formats
and call blocking; and

- our interconnection agreement with Bell Atlantic for New Jersey.

Our Centrex voice service network currently interfaces with 70 Bell
Atlantic central offices in New Jersey. Where we do not have collocation
facilities, we will install DSLAMs, ATM switches and test
<PAGE> 5

equipment in leased facilities which we will connect to the central office. In
March 2000, we entered into an interconnection agreement with Bell Atlantic
which allows us to collocate our networking equipment in Bell Atlantic central
offices in each local area in which we operate in New Jersey, providing a direct
connection between us and our customers. We expect to have approximately 20
collocations operational by December 31, 2000. This agreement further enables us
to provide fully operational local and toll service. We believe that pursuing a
"smart-build" strategy, whereby we own more of the network elements, while
continuing to lease transmission lines, will allow us to generate higher
operating margins, obtain origination and termination fees from other carriers
and maintain greater control over our network operations and service quality.

We believe that small and medium-sized businesses have significant and
increasing needs for advanced telecommunications services which have been
generally neglected by the incumbent local exchange carriers. We seek to meet
these needs by offering customized solutions, integrated telecommunications
services and our QuikSpeed DSL services all on a single bill. Many of our target
customers want customized solutions but do not have the internal expertise to
design, purchase and maintain these kinds of systems and services themselves.

We believe that superior customer service is critical to attracting and
retaining customers. We continually seek to enhance our service approach, which
utilizes a highly trained team of customer sales and service representatives to
coordinate customer installation, billing and service. Our information systems
provide integrated functionality for all aspects of our business. Our
experienced customer care representatives provide 24x7 customer support. Our
superior track record for customer service is evidenced by our low customer
churn rate, which has averaged 4.7% over the last three years.

We plan to be a leading one-stop provider of voice, data and Internet
telecommunications services in the Bell Atlantic footprint starting with New
Jersey, Pennsylvania, New York, Massachusetts and portions of Connecticut.
Elements of our strategy to meet this objective include:

- implementing a rapid DSL roll-out;

- offering our customers one-stop shopping;

- maximizing speed to market through our smart-build strategy;

- focusing on the small and medium-sized business market;

- building market share by focusing on direct sales; and

- providing superior customer service.

2
<PAGE> 6

THE OFFERING

Common Stock offered by
Cooperative......................... shares

Common Stock offered by the selling
stockholder....................... shares

Total............................... shares

Common Stock to be outstanding after
the offering........................ shares

Proposed Nasdaq National Market
symbol.............................. "CCII"

Use of proceeds..................... We intend to use the net proceeds from
this offering to fund:

- capital expenditures in connection
with our planned roll-out of DSL
service and planned expansion of
our network, including the
installation of DSL equipment in
central offices, the acquisition
of DSL modems to lease to
customers and the purchase of ATM
switches;

- the acquisition of rights for
collocation of our equipment with
Bell Atlantic and other service
providers;

- the enhancement of our network to
enable us to provide additional
value-added services;

- the hiring of direct sales
personnel and expansion of our
marketing efforts;

- the improvement of our network
management, billing and other back
office systems; and

- working capital and general
corporate purposes, including
possible future acquisitions or
strategic investments.

Risk factors........................ Investing in the common stock involves
certain risks. See "Risk Factors."

The number of shares of common stock to be outstanding after this offering
is based on the shares outstanding as of February 29, 2000 and does not
include:

- 3,540,000 shares of common stock authorized for issuance under our 2000
Stock Plan, 1,029,047 of which will be outstanding upon the consummation
of this offering at exercise prices equal to the initial public offering
price; and

- 30,000 shares of common stock issuable upon exercise of an outstanding
non-plan option as of the date of this prospectus at an exercise price of
$0.01 per share.

Unless otherwise noted, all information in this prospectus:

- assumes the underwriters will not exercise their option to purchase
additional shares of common stock to cover over-allotments, if any; and

- gives effect to the reorganization of Cooperative Communications, Inc.
and Eastern Computer Services, L.L.C. as wholly-owned subsidiaries of
Cooperative Holdings, Inc. in March 2000.

3
<PAGE> 7

CORPORATE INFORMATION AND REORGANIZATION

In February 2000, Cooperative Holdings, Inc. was incorporated in Delaware
and in March 2000 each of the security holders of Cooperative Communications,
Inc. and Eastern Computer Services, L.L.C. exchanged or contributed all of their
outstanding securities for newly issued securities of Cooperative Holdings, Inc.
with equal rights and preferences. As a result of this reorganization,
Cooperative Communications, Inc. and Eastern Computer Services, L.L.C. became
wholly-owned subsidiaries of Cooperative Holdings, Inc. CPV Communications, Inc.
and KDR Communications, Inc. are wholly-owned subsidiaries of Cooperative
Communications, Inc. Cooperative Communications, Inc., the operating company,
was incorporated in New Jersey in 1990. Eastern Computer Services, L.L.C. was
organized in New Jersey in 1995.

Our principal offices are located at 412-420 Washington Avenue, Belleville,
New Jersey 07109, and our telephone number is (973) 759-8100. We maintain a
website at www.cooperativenet.com. Any references to our website do not
incorporate by reference the information contained at our website into this
prospectus, and the only information that you should rely on in making your
decision whether to invest in our common stock is the information contained in
this prospectus.

All of the historical financial information in this prospectus reflects the
combined operations of our wholly-owned subsidiaries, Cooperative
Communications, Inc. and Eastern Computer Services, L.L.C. Prior to the
formation of Cooperative Holdings, Inc. and the reorganization, all of our
operating activities were conducted through Cooperative Communications Inc. and
Eastern Computer Services L.L.C.

4
<PAGE> 8

SUMMARY COMBINED FINANCIAL DATA

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

You should read the summary selected combined financial data together with
our combined financial statements and related notes and the sections of this
prospectus entitled "Capitalization" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1998 1999
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenue.............................. $12,573 $20,474 $28,718 $37,200 $40,598 $20,441 $19,827
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Costs of revenue (excluding
depreciation and amortization)... 9,383 16,314 22,468 29,073 31,725 16,418 16,382
Selling, general and administrative
expenses......................... 2,869 4,736 5,957 7,286 8,222 3,956 3,853
Depreciation and amortization...... 46 194 333 455 780 356 389
Stock based compensation........... -- -- 840 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 12,298 21,244 29,598 36,814 40,727 20,730 20,624
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.... 275 (770) (880) 386 (129) (289) (797)
Other income (expense), net.......... (27) (78) (61) 92 109 38 (269)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax
expense.......................... 248 (848) (941) 478 (20) (251) (1,066)
Income tax expense (benefit)....... 100 (215) 128 195 98 98 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)(1)............... $ 148 $ (633) $(1,069) $ 283 $ (118) $ (349) $(1,066)
======= ======= ======= ======= ======= ======= =======
Pro forma information:
Historical loss before income tax
expense (benefit)................ $ (20) $(1,066)
Pro forma income tax expense
(benefit) (unaudited)(2)......... 200 (350)
------- -------
Pro forma net loss (unaudited)..... $ (220) $ (716)
======= =======
Pro forma net loss per common share
(unaudited)(3):
Basic............................ $ $
Diluted.......................... $ $
======= =======
Pro forma weighted average common
shares outstanding
(unaudited)(4):
Basic............................
Diluted..........................
======= =======
</TABLE>

(2) Pro forma income tax expense (benefit) gives effect to the change of Eastern
from a limited liability company to a tax paying entity as though this event
occurred as of June 1, 1998.

(3) Pro forma basic net loss per common share is computed by dividing pro forma
net loss by the pro forma weighted average common shares outstanding assuming
Cooperative Holdings, Inc. was formed on June 1, 1998. Pro forma diluted net
loss per common share is calculated in a manner consistent with pro forma basic
net loss per common share except that it also includes the dilutive effect of an
option granted in fiscal 1997 to acquire 30,000 shares of our common stock at a
nominal value.

(4) Pro forma weighted average common shares outstanding reflects all of our
issued and outstanding shares of common stock and gives effect to the
reorganization of Cooperative Communications, Inc. and the exchange of all of
its common stock for shares of our common stock. Diluted pro forma weighted
average common shares outstanding includes the option described in footnote 3
above.

5
<PAGE> 9

The following table provides selected combined balance sheet data. The as
adjusted column reflects the sale by us of shares offered hereby,
assuming an initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.

<TABLE>
<CAPTION>
NOVEMBER 30, 1999
MAY 31, ------------------------
1999 ACTUAL AS ADJUSTED
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................. $7,180 $ 2,327 $
Working capital (deficit)................................. 470 (1,516)
Total assets.............................................. 19,131 15,105
Stockholders' and members' deficit........................ (1,630) (2,696)
</TABLE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning our
operations, performance and financial condition, including our future economic
performance, plans and objectives and the likelihood of success in developing
and expanding our business. These statements are based upon a number of
assumptions and estimates which are subject to significant uncertainties, many
of which are beyond our control. The words "may," "would," "could," "will,"
"expect," "anticipate," "believe," "intend," "plan," "estimate" and similar
expressions are meant to identify such forward-looking statements. Actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those set forth in "Risk Factors."

Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect our views only as of the date of this prospectus. We
undertake no obligation to update such statements or publicly release the result
of any revisions to these forward-looking statements which we may make to
reflect events or circumstances after the date of this prospectus or to reflect
the occurrence of unanticipated events.

6
<PAGE> 10

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us
or that we currently consider immaterial may also impair our operations. If any
of the following risks or uncertainties actually occur, our business, financial
condition and/or results of operations could be materially adversely affected.
In this case, the trading price of the common stock could decline, and you may
lose all or part of your investment.

Risks Related to Growth and New Service Offerings

CUSTOMERS MAY NOT ACCEPT US AS THEIR PROVIDER OF INTEGRATED TELECOMMUNICATIONS
SERVICES.

Our continued success will depend upon the willingness of customers to
accept us as a provider of integrated telecommunications services -- local, long
distance and data services, as well as new services, such as DSL. Some of our
competitors, such as Bell Atlantic, Covad, AT&T and Sprint, have greater
resources, name recognition and existing relationships with customers which may
provide them with a competitive advantage over us. We cannot assure you that we
will be accepted by customers and the failure to be accepted would adversely
affect us.

OUR LIMITED HISTORY AS A PROVIDER OF INTEGRATED VOICE AND DATA SERVICES MAY NOT
BE A RELIABLE BASIS FOR EVALUATING US.

Although we began reselling long distance telecommunications services in
1990, we only began providing local exchange service in 1993 and DSL services in
September 1999. Because of our short operating history as a provider of
integrated voice and data telecommunication services, we have limited operating
and financial data which you can use to evaluate our performance and determine
whether you should invest in our common stock.

WE HAVE HAD A HISTORY OF OPERATING LOSSES AND CURRENTLY HAVE NEGATIVE WORKING
CAPITAL.

We incurred net losses of approximately $1.1 million and $118,000 in fiscal
1997 and fiscal 1999, respectively. We also incurred net losses of approximately
$349,000 and $1.1 million in the six month period ended November 30, 1998 and
1999, respectively. As of November 30, 1999, we had negative working capital of
$1.5 million. Although we had net income of $283,000 in fiscal 1998, we cannot
be certain that we will be able to achieve profitable levels of operations in
the future.

OUR FAILURE TO CONTINUE OUR EXPANSION WOULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION.

If we do not expand our business to achieve economies of scale and to
benefit from our infrastructure, it would adversely affect our business
prospects, financial condition and results of operations. Our planned expansion
could fail if we are not able to:

- access potential markets;

- obtain required governmental authorizations, franchises and permits;

- obtain interconnection and collocation arrangements with incumbent local
exchange carriers;

- develop a sufficient customer base;

- lease adequate transmission capacity from interexchange carriers,
incumbent local exchange carriers and other competitive local exchange
carriers; and

- purchase and install switches in additional markets.

7
<PAGE> 11

WE MAY NOT BE ABLE TO MANAGE OUR PLANNED GROWTH, WHICH COULD ADVERSELY AFFECT
OUR BUSINESS.

Future expansion of our business, in particular our planned network
expansion, will place significant additional strains on our personnel, financial
and other resources. If we fail to effectively manage our growth, the quality of
our services, our business and our financial condition would be adversely
affected. Our ability to manage our planned geographic growth will be
particularly dependent on our ability to develop and retain an effective sales
force, customer service personnel and qualified technical personnel across
several different locations. The competition for qualified personnel in the
telecommunications industry is intense, and we may not be able to hire and
retain sufficient qualified personnel.

In addition, we may not be able to maintain the quality of our operations,
to control our costs, to maintain compliance with all applicable regulations,
and to expand our internal management, technical, information and accounting
systems in order to support our planned growth.

WE MAY NOT HAVE SUFFICIENT FUNDS AVAILABLE TO EXPAND OUR BUSINESS.

We will need to make significant capital expenditures in order to expand
and develop our current business and to enter new markets. We expect to fund
these expenditures through existing resources, internally generated funds, and
equity and debt financings. If we are unable to raise sufficient funds, we may
have to delay or abandon some of our expenditures or plans for future expansion.
This would result in underutilization of our established infrastructure and
reduced profitability and may negatively affect our ability to compete for and
satisfy the demands resulting from the growth and expansion of our customers.

If we are able to raise funds through the issuance of additional equity
securities, the percentage ownership of our then-current stockholders will be
reduced and the holders of new equity securities may have rights, preferences or
privileges senior to those of the holders of our common stock. If additional
funds are raised through a bank credit facility or the issuance of debt
securities, the holder of this indebtedness would have rights senior to the
rights of the holders of our common stock and the terms of this indebtedness
could impose restrictions on our operations.

WE MAY BE SUBJECT TO RISKS ASSOCIATED WITH FUTURE ACQUISITIONS.

We may acquire complementary businesses, although we have no definitive
agreements to do so at this time. An acquisition may not produce the revenue,
earnings or business synergies that we anticipate, and an acquired business
might not perform as we expect. If we pursue any acquisition, our management
could spend a significant amount of time and effort in identifying and
completing the acquisition and may be distracted from the operation of our
business. If we complete an acquisition, we would need to devote a significant
amount of management resources to integrating the acquired business with our
existing operations, and that integration may not be successful.

WE CANNOT PREDICT THE FUTURE GROWTH OF THE HIGH-SPEED DATA TELECOMMUNICATIONS
INDUSTRY.

The high-speed data telecommunications industry is only in the early stages
of development and is subject to rapid and significant technological change.
Because of this, we cannot accurately predict the rate at which the market for
our service will grow, if at all, or whether emerging technologies will render
our services less competitive or obsolete. If the market for our services fails
to develop or grows more slowly than anticipated, our business prospects,
financial condition and results of operations could be materially adversely
affected. Many providers of high-speed data telecommunication services are
testing products from numerous suppliers for various applications, and these
suppliers have not broadly adopted an industry standard. In addition, certain
industry groups are in the process of trying to establish standards which could
limit the types of technologies we could use. Certain critical issues concerning
commercial use of DSL technology for Internet access, including security,
reliability, ease and cost of access and quality of service, remain unresolved
and may impact the growth of these services.

8
<PAGE> 12

Risks Related to Telecommunications Agreements

A FAILURE TO ESTABLISH AND MAINTAIN INTERCONNECTION AGREEMENTS ON FAVORABLE
TERMS WOULD ADVERSELY AFFECT OUR BUSINESS.

We must interconnect with incumbent local exchange carriers to lease
network facilities from the incumbent carrier and to enable our customers to
make and receive calls to and from customers of other carriers. Under the
Telecommunications Act of 1996, or Telecom Act, incumbent local exchange
carriers may be required to allow companies like ours to interconnect with their
networks, lease elements of their networks, and locate our equipment at their
facilities. However, the Telecom Act does not assure the time frame in which
those services will be offered to us or assure that we will be able to purchase
those services at rates and on terms and conditions that allow us to remain
competitive and profitable. Because we compete with incumbent local exchange
carriers in our markets, they may be reluctant to cooperate with us. They have
incentives to delay our entry into, and renewals of, interconnection or resale
agreements with them. Many new carriers have experienced difficulties in working
with incumbent local exchange carriers with respect to initiating,
interconnecting, and implementing telecommunications services and locating their
equipment in the offices of the incumbent local exchange carriers. If we have
difficulties obtaining high quality, reliable and reasonably priced services
from the incumbent local exchange carriers on a timely basis, our services will
be less attractive to customers and our business will be adversely affected.

To date, we have entered into only one interconnection agreement, which
governs our interconnection with Bell Atlantic in New Jersey. We will need to
establish and maintain interconnection agreements with Bell Atlantic and other
incumbent local exchange carriers for the other states where we plan to offer
local telecommunications services by means other than resale. At present, such
agreements typically are for terms of one or two years. Our initial agreement
with Bell Atlantic is for a term of two years. Our initial agreement with Bell
Atlantic requires Bell Atlantic to perform certain responsibilities -- for
example, providing collocation and access to unbundled network elements -- only
to the extent required by applicable laws, regulations and ordinances. Because
implementation of the Telecom Act is subject to numerous federal and state
policy rulemaking proceedings and judicial review, there is still uncertainty as
to the extent to which our agreement with Bell Atlantic will provide us with the
facilities and services we require.

Under the Telecom Act we must first attempt to negotiate the terms of
interconnection agreements with incumbent local exchange carriers. If
negotiations fail, then any disputed issues may be resolved by arbitration. We
cannot be certain that we will be able to enter into new or replacement
interconnection agreements on favorable terms. Whether reached by negotiation or
arbitration, interconnection agreements must be approved by state regulators and
are also subject to oversight by the FCC and the courts. These governmental
authorities may modify the terms or prices of our interconnection agreements in
ways that could adversely affect our ability to deliver service and our business
and results of operations.

OUR OFFERING OF SERVICES IS DEPENDENT UPON OUR ABILITY TO ESTABLISH AND MAINTAIN
EFFECTIVE RESALE AGREEMENTS.

As part of our one-stop shopping offering of bundled telecommunications
services to our customers, we offer a variety of services. We have relied and
will continue to rely on other long distance and local exchange carriers to
provide transmission and termination service for much of our traffic. Agreements
with long distance carriers typically provide for the resale of long distance
services on a timed basis and may contain minimum volume commitments. Agreements
with local carriers typically provide for maximum line limits. Negotiation of
these agreements involves estimates of future supply and demand for transmission
capacity as well as estimates of the calling pattern and traffic levels of our
future customers. If we fail to meet our minimum volume commitments, we may be
obligated to pay underutilization charges and if we underestimate our need for
transmission capacity, we may be required to obtain capacity through more
expensive means. In the past, we have had to obtain additional lines under
tariffs which

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were more expensive than the rates under our agreements. We expect that we will
exceed our maximum line limits until we have migrated a sufficient number of
customers to our DSL service.

We also have entered into agreements with Bell Atlantic that allow us to
obtain at a discount Bell Atlantic's local retail services for resale to our
customers. We currently have agreements with Bell Atlantic in New Jersey and
Pennsylvania. Where tariffs are available from incumbent local exchange carriers
and there is no need to enter into resale agreements, we plan on obtaining local
services through tariffs. We have relied and will continue to rely on resale
agreements with Bell Atlantic or other incumbent local exchange carriers to
provide much of our local services including, in some instances, DSL services.
Resale agreements for local services must be negotiated or arbitrated and then
approved by state regulators. Resale agreements are also subject to oversight by
the FCC and the courts. These governmental authorities may modify the terms or
discount rates contained in our resale agreements in ways that could adversely
affect our ability to deliver service and our business and results of
operations. We cannot be certain that we will be able to enter into new or
replacement resale agreements on favorable terms.

We also rely on resale agreements to provide our customers with other
services, including cellular service, teleconferencing and Internet access. We
currently resell cellular services under a resale agreement with Bell Atlantic
Mobile, or BAM. BAM currently is required to permit unrestricted resale of its
cellular services under the FCC's rules. Those rules, however, are scheduled to
expire in November 2002. We cannot be assured that we will be able to resell
cellular services on acceptable terms, or at all, after November 2002. If we
were unable to resell BAM's cellular services for any reason, we may be unable
to obtain replacement services on acceptable terms or at all. Any of these
developments could adversely affect our ability to deliver service and could
materially and adversely impact our business and results of operations.

Risks Related to Equipment, Capacity and Facilities

OUR INABILITY TO OBTAIN SUFFICIENT LEASED TRANSMISSION CAPACITY COULD SERIOUSLY
LIMIT OUR OPERATIONS.

We depend heavily upon facilities-based carriers for telecommunications
transmission lines. We currently lease transmission capacity from various
third-party carriers to connect our switching equipment to the incumbent local
exchange carriers' networks. If we cannot lease sufficient transmission
capacity, our operations could be limited or we could be forced to make
additional unexpected up-front capital expenditures to install our own
transmission capacity. This could adversely affect our business prospects,
financial condition and results of operations.

WE DEPEND ON PORTIONS OF THE INCUMBENT LOCAL EXCHANGE CARRIERS' NETWORKS FOR DSL
TECHNOLOGY WHICH MAY NOT OPERATE AS EXPECTED ON INCUMBENT LOCAL CARRIER NETWORKS
AND MAY INTERFERE WITH OR BE AFFECTED BY OTHER TRANSPORT TECHNOLOGIES.

We depend significantly on the quality of the copper telephone lines we
obtain from Bell Atlantic, or other incumbent local exchange carriers providing
services in our target markets, and their maintenance of these lines to provide
DSL services. All transport technologies using copper telephone lines have the
potential to interfere with, or to be interfered with by, other traffic on
adjacent copper telephone lines. This interference could degrade the performance
of our services or make us unable to provide service on selected lines.

In addition, incumbent carriers may claim that the potential for
interference by DSL technology permits them under the FCC's rules to restrict or
delay our deployment of DSL services. The telecommunications industry and
regulatory agencies are still developing procedures to resolve interference
issues between competitive carriers and incumbent carriers, and these procedures
may not be effective. We may be unable to successfully negotiate interference
resolution procedures with incumbent carriers. Interference, or claims of
interference, if widespread, would adversely affect our speed of deployment,
reputation, brand image, service quality and client retention and satisfaction
and may have a material adverse effect on our business prospects, financial
condition and results of operations.
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WE DEPEND ON INCUMBENT LOCAL EXCHANGE CARRIERS SUCH AS BELL ATLANTIC FOR
LOCATING OUR EQUIPMENT AND FOR NECESSARY TRANSMISSION FACILITIES.

We must use telephone lines controlled by the traditional telephone
companies such as Bell Atlantic to provide connections to our customers. We also
depend on the traditional carriers for locating certain critical equipment at or
near their premises, known as collocation, and for a substantial portion of the
transmission facilities we use to connect our equipment in the traditional
carriers' central offices to our network. We purchase these services from the
incumbent carriers such as Bell Atlantic pursuant to an applicable tariff and/or
our interconnection agreement. In addition, we depend on the traditional
carriers to test and maintain the quality of the lines that we use. We have not
established a history of obtaining access to collocation and transmission
facilities from traditional carriers in large volumes. The traditional carriers
may also experience a shortage of collocation space or transmission capacity,
and there is no guarantee that we will be able to secure space in the future. In
addition, because we compete with traditional carriers in our markets, they may
be reluctant to cooperate with us. The increasing number of other competitive
telecommunications companies that request collocation space from the traditional
phone companies will also affect the availability of space and transmission
capacity.

In connection with our planned DSL roll-out, we intend to have 20
collocations operational by December 31, 2000. However, we have experienced, and
expect to experience in the future, lengthy periods between our request for and
the actual provision of the collocation space and telephone lines. In many
cases, we may be unable to obtain access to collocation and transmission
facilities from the traditional carriers, or to gain access at acceptable rates,
terms and conditions, including timeliness. If we are unable to obtain adequate
and timely access to collocation space or transmission facilities on acceptable
terms and conditions from traditional carriers, we may not have alternate means
of connecting all of the facilities necessary to provide service to our
customers, which could result in delays, additional costs or our inability to
provide services in certain locations. Any such delays, additional costs or
failure of services could materially and adversely impact our business.

ALTHOUGH WE CURRENTLY LEASE OR RESELL THE TRUNKING CAPACITY WE NEED, IF WE MUST
INSTALL OUR OWN CAPACITY IN THE FUTURE WE WOULD HAVE TO OBTAIN PERMITS OR
RIGHTS-OF-WAY WHICH MAY AFFECT OUR ABILITY TO DEVELOP OUR NETWORKS.

Thus far, we have leased from Bell Atlantic and other carriers the local
fiber trunking capacity required to connect our switching equipment to
particular central offices of Bell Atlantic. We intend to continue obtaining the
capacity we need by leasing it from other carriers. In the future, however, we
may seek to replace this leased trunk capacity with our own fiber if warranted
by traffic volume growth. We cannot assure you that all required trunking
capacity will be available to us on a timely basis or on favorable terms. The
failure to obtain leased fiber could delay our ability to penetrate some of our
markets or require us to make additional unexpected up-front capital
expenditures to install our own fiber and could have a material adverse effect
on our business, financial condition and results of operations. If and when we
seek to install our own fiber, we must obtain local franchises and other
permits, as well as rights-of-way to utilize underground conduit and aerial pole
space and other rights-of-way from entities such as incumbent local exchange
carriers and other utilities, railroads, long distance companies, state highway
authorities, local governments and transit authorities. We cannot assure you
that we will be able to obtain and maintain the franchises, permits and rights
needed to implement our planned network expansion on favorable terms. Our
failure to enter into and maintain any such required arrangements for a
particular network may affect our ability to develop that network and may have a
material adverse effect on our business prospects, financial condition and
results of operations.

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Risks Related to Technology and System Failures

THE TECHNOLOGIES THAT WE USE MAY BECOME OBSOLETE, WHICH WOULD LIMIT OUR ABILITY
TO COMPETE EFFECTIVELY.

The telecommunications industry is subject to rapid and significant changes
in technology. If we do not replace or upgrade our technology and our equipment
becomes obsolete, we will not be able to compete effectively because we will not
be able to meet customer expectations. Further, if we attempt to incorporate new
technologies or products into our systems, those new technologies and products
may not be compatible with our existing technologies and services. We may not be
able to obtain timely access to new technology on satisfactory terms or
incorporate new technology into our systems in a cost effective manner or at
all.

A SYSTEM FAILURE, INCLUDING A FAILURE WHICH IS BEYOND OUR CONTROL, COULD DELAY
OR INTERRUPT OUR SERVICES.

Our operations are dependent upon our ability to support our highly complex
network infrastructure. Many of our customers are particularly dependent on an
uninterrupted supply of services. Any damage or failure that causes
interruptions in our operations could result in the loss of these customers and
could have a material adverse effect on our business and our financial
condition. We also depend on the incumbent local exchange carriers to provide
and maintain their transmission lines and the transmission lines between our
network and our customers' premises. The occurrence of a natural disaster,
operational disruption, breach of security or other unanticipated problem could
cause interruptions in the services we provide and could jeopardize the security
of confidential information being transmitted by our customers. Additionally,
the failure of a major supplier to provide the transmission capacity we require
as a result of a natural disaster, operational disruption, breach of security or
any other reason, could cause interruptions in the service we provide, impact
our ability to acquire, manage or service our customers and adversely affect our
business prospects, financial condition and results of operations.

Risks Related To Competition

OUR STRATEGY ALSO DEPENDS ON OTHER CARRIERS WHO ARE OUR COMPETITORS.

In addition to interconnecting with Bell Atlantic's network to provide our
services, we also rely on the telecommunications services of Bell Atlantic,
Sprint, Cable & Wireless and Qwest, among others. Each of these companies
competes with us in the sale of certain telecommunications services.
Consequently, these companies have certain incentives to delay and obstruct:

- our entry into, and renewals of, interconnection or resale agreements
with them;

- our access to their central offices to install our equipment and provide
our services;

- our access to acceptable transmission lines and copper telephone lines;
and

- our introduction and expansion of our services.

Any such delays would negatively impact our ability to implement our business
plan and harm our competitive position and adversely affect our business
prospects, financial condition and results of operations.

In June 1998, we informally settled an ongoing dispute with one of our
major suppliers. The settlement was formalized by written agreement in June
1999.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST BELL ATLANTIC AND OTHER
CARRIERS IN PROVIDING LOCAL EXCHANGE SERVICE.

In each of our target markets, we will be competing principally with Bell
Atlantic, the incumbent local exchange carrier serving those markets. As our
markets expand, we will also compete with other incumbent local exchange
carriers. The incumbent local exchange carriers, including Bell Atlantic, are

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<PAGE> 16

well-established providers of local telephone services serving most of the
telephone subscribers within their respective service areas. In addition,
incumbent local exchange carriers have long-standing relationships with
regulatory authorities at the federal and state levels. We depend significantly
on the quality of the transmission lines we obtain from Bell Atlantic, or other
incumbent local exchange carriers providing services in our target markets, and
their maintenance of these lines to provide our services. We may be unable to
obtain the transmission lines and the services we require from these incumbent
local exchange carriers on a timely basis or at quality levels, prices, terms
and conditions satisfactory to us. Further, there can be no assurance that such
incumbent local exchange carriers will maintain the lines in a satisfactory
manner. We may not be able to overcome these advantages and other advantages
that incumbent local exchange carriers such as Bell Atlantic enjoy in competing
with us.

We face additional competition from long distance carriers, such as AT&T,
MCI WorldCom and Sprint, seeking to enter, reenter or expand entry into the
local exchange marketplace. In addition, we face competition from other
competitive local exchange carriers, resellers, cable television companies,
electric utilities, microwave carriers, wireless telephone system operators and
private networks built by large end-users. This places downward pressure on
prices, which may make it difficult for us to provide these services profitably,
and we may not be able to compete effectively with these companies.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN PROVIDING LONG DISTANCE SERVICE.

We face intense competition from long distance carriers in the provision of
long distance services, which places downward pressure on prices for long
distance service and may make it difficult for us to provide these services
profitably. Although the long distance market is dominated by three major
competitors, AT&T, MCI WorldCom and Sprint, hundreds of other companies also
compete in the long distance marketplace. We may not be able to effectively
compete with these industry participants.

The regional Bell operating companies, created by the break-up of AT&T, are
prohibited from providing most types of long distance telecommunications
services originating within their home service areas. However, the Telecom Act
established a procedure in which such a company could lift this restriction upon
a showing that it had taken sufficient steps to open its local
telecommunications network to competitors. On December 22, 1999, the FCC
approved Bell Atlantic's application for authority to provide all forms of
originating long distance service in New York State. This decision, which has
been appealed to the United States Court of Appeals for the District of Columbia
Circuit, could adversely affect our business. Previously, competitive carriers
such as us enjoyed a competitive advantage because we could offer one-stop
shopping for local and long distance service while the regional Bell operating
companies could not. This advantage no longer exists in New York, one of our
target markets where Bell Atlantic has already started to offer long distance
service.

Bell Atlantic is in various stages of applying for this same authority in
other states within our target geographic region. In Pennsylvania, the public
utility commission has approved a proposal requiring Bell Atlantic to establish
separate affiliates for the provision of wholesale and retail services. The
commission's decision has been appealed and an alternative proposal under which
a separate affiliate would be required only for advanced services has been
submitted to the appellate court. Any resulting requirement for Bell Atlantic to
provide certain services through a separate affiliate could facilitate Bell
Atlantic's ability to obtain FCC authority to provide all forms of long
originating long distance in Pennsylvania. We believe other regional Bell
operating companies will seek permission to provide long distance services
during the next one to two years.

We are unable to predict the outcome of the appeal of the Bell Atlantic-New
York decision, the Pennsylvania separate affiliate proceeding or of subsequent
applications by the regional Bell operating companies for long distance
authority. If other regional Bell operating companies obtain FCC approval to
enter the long distance market, our business could be further adversely
affected. In addition, both proposed and recently completed mergers involving
regional Bell operating companies, including Bell Atlantic's proposed merger
with GTE, SBC's merger with Ameritech and Qwest's proposed acquisition of US
West as well as MCI WorldCom's proposed acquisition of Sprint, could facilitate
such a combined entity's

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<PAGE> 17

ability to provide many of the services offered by us, thereby making it more
difficult to compete against them.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN PROVIDING DSL SERVICE.

We face intense competition from other providers of DSL service such as
Covad and Northpoint. This competition places downward pressure on prices for
DSL service and may make it difficult for us to provide these services
profitably.

OUR FAILURE TO SUSTAIN DESIRED PRICING LEVELS COULD IMPAIR OUR ABILITY TO
ACHIEVE PROFITABILITY OR POSITIVE CASH FLOW.

Prices for telecommunications services have historically fallen, a trend we
expect to continue. Accordingly, we cannot predict to what extent we may need to
reduce our prices to remain competitive or whether we will be able to sustain
future pricing levels as our competitors introduce competing services or similar
services at lower prices. Our failure to achieve or sustain market acceptance at
desired pricing levels could impair our ability to achieve profitability or
positive cash flow, which could have a material adverse effect on our business
prospects, financial condition and results of operations.

OUR COMPETITION HAS SUPERIOR RESOURCES, PLACING US AT A COST AND PRICE
DISADVANTAGE.

Many of our current and potential competitors have substantially greater
financial, personnel and other resources, including brand name recognition and
relationships with existing customers. As a result, some of our competitors can
raise capital at a lower cost than we can. Also, our competitors' greater name
recognition may provide them with a competitive advantage in marketing their
services. In addition, our competitors' costs advantages give them the ability
to reduce their prices for an extended period of time if they so choose. We may
not be able to compete effectively with these companies.

Risks Related to Government Regulations

OUR SERVICES ARE SUBJECT TO EVOLVING FEDERAL, STATE AND LOCAL LAWS AND
REGULATIONS, AND CHANGES IN LAWS OR REGULATIONS COULD ADVERSELY AFFECT THE WAY
WE OPERATE OUR BUSINESS.

Federal Laws and Regulations. Our provisioning of telecommunications
services is heavily regulated at the federal, state, and local levels.
Compliance with these regulations imposes substantial costs on us and restricts
our ability to conduct our business.

The Telecom Act opens the local services market by requiring incumbent
local exchange carriers such as Bell Atlantic to permit interconnection to their
networks and establishing incumbent local exchange carrier's obligations with
respect to network elements, resale of incumbent local exchange carrier retail
services, number portability, dialing parity, access to rights of way and other
services that must be made available to competitors such as us.

Incumbent local exchange carriers are required to negotiate in good faith
with carriers which request any or all of the above arrangements. Under the
Telecom Act, if we cannot reach agreement within a prescribed time, either
carrier may request binding arbitration of the disputed issues by the state
regulatory commission. Even when an agreement has not been reached, incumbent
local exchange carriers remain subject to interconnection obligations
established by the FCC and state telecommunications regulatory commissions. We
may not be able to obtain interconnection and reciprocal compensation on
satisfactory terms without extensive delays and expense. Further, because
implementation of the Telecom Act is subject to numerous federal and state
policy rulemaking proceedings and judicial review, there is still uncertainty as
to what impact it will have on us.

In 1996, the FCC established interconnection rules implementing the above
requirements and providing guidelines for review of interconnection agreements
by state public utility commissions. These rules have been the subject of
litigation in the federal courts including the United States Supreme Court.
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<PAGE> 18

This litigation continues to cause uncertainty about the rules governing the
pricing, terms and conditions of interconnection agreements and other aspects of
competition between companies like us and incumbent local exchange carriers such
as Bell Atlantic. Although state public utilities commissions have continued to
conduct arbitrations, and to implement and enforce interconnection agreements
during the pendency of the litigation in federal courts, this litigation may
affect the scope of state commissions' authority to conduct such proceedings or
to implement or enforce interconnection agreements and could also result in new
or additional rules being promulgated by the FCC. Given the general uncertainty
surrounding these rules, we may not be able to continue to obtain or enforce
interconnection terms that are acceptable to us or that are consistent with our
business plans. Even our initial interconnection agreement with Bell Atlantic
does not insulate us from these ongoing regulatory and court proceedings,
because the agreement requires Bell Atlantic to perform certain
responsibilities -- for example, providing collocation and access to unbundled
network elements -- only to the extent required by applicable laws, regulations
and ordinances. The outcome of these ongoing regulatory and court proceedings
could adversely affect our ability to compete against Bell Atlantic and other
telecommunications companies in our target markets.

Our cost of providing long distance services, as well as our revenues from
providing local services, will be affected by changes in the access charge rates
imposed by incumbent local exchange carriers on long distance carriers for
origination and termination of calls over local facilities. The FCC has made
major changes in the interstate access charge structure pursuant to the Telecom
Act, including recently granting greater pricing flexibility for incumbent local
exchange carriers and deregulation of some access services. The FCC has also
initiated a rulemaking to consider measures that would further deregulate access
services provided by incumbent local exchange carriers and to determine whether
it should regulate the access charges of competitive local exchange carriers. If
the increased pricing flexibility for incumbent local exchange carriers and
other deregulatory measures are not effectively monitored by federal regulators,
it could have a material adverse effect on our ability to price our interstate
access services competitively.

The FCC has significantly expanded the federal universal service subsidy
regime. Providers of interstate telecommunications service, such as us, as well
as certain other entities, must pay for the programs funded by this regime. Our
contribution to these universal service funds is based on our telecommunications
service end-user revenues. We offset the contribution to the federal universal
service subsidy by passing on our cost of the contribution to our customers as
permitted by FCC regulations. We are currently unable to quantify the amount of
future subsidy payments that we will be required to make and the effect that
these required payments will have on our financial condition because of
uncertainties in the outcome of ongoing FCC, state PUC, and court proceedings or
Congressional action. We cannot be assured that universal service contribution
requirements will not have a material adverse affect on our business prospects,
financial condition or results of operations.

We cannot predict the outcome of the proceedings, litigation and
legislation described above or other proceedings, litigation and legislation
that may affect us. Any changes in the existing regulatory framework may
increase our legal, administrative or operating costs, or may otherwise limit or
constrain our activities, any of which could have a material adverse effect on
our business prospects, financial condition, or results of operations.

State and Local Regulation. Our business and operations are also subject
to state regulators who determine whether and on what terms we will be
authorized to operate as a competitive local exchange carrier in their state. In
addition, local municipalities may require us to obtain various permits which
could increase the cost of services or delay development of our network. For
example, in each state in which we desire to offer our services, we must obtain
prior authorization from the appropriate state authorities. Our business and our
financial condition could be adversely affected if the state PUCs impose fines,
revocation, or other penalties on us for failure to comply with regulatory
requirements. Many states require prior approvals or notifications for certain
transfers of assets, customers or ownership or reorganization of certificated
carriers, and for the issuance of equity securities, notes or indebtedness and
related transactions. We are filing several applications which seek permission,
retroactively as necessary, for our reorganization into a holding company
structure. We have no assurances whether these applications or applications we
may file for future transactions will be granted. Such notice and approval
requirements
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could prevent or delay our completion of any of these transactions and could
prevent another company from acquiring us. In addition, state and local
regulatory requirements may change with little notice, which could adversely
affect our business prospects, financial condition and results of operations.

ONGOING REGULATORY AND COURT PROCEEDINGS COULD ADVERSELY AFFECT OUR ABILITY TO
PROVIDE DSL SERVICES AND TO COMPETE IN THE DSL MARKET.

We offer DSL services in competition with incumbent local exchange carriers
such as Bell Atlantic and other competing DSL providers. To provide DSL services
we will lease necessary network elements from incumbent local exchange carriers
such as Bell Atlantic or resell the DSL services that they offer to their retail
customers. The FCC has adopted or is considering several regulations that affect
our ability to provide DSL services to our customers. These rulings require
further implementation by state PUCs, and some of the rulings are subject to
appeals in court. For example, in August 1998 the FCC adopted requirements for
incumbent local exchange carriers such as Bell Atlantic to offer to competitive
local exchange carriers such as us the necessary unbundled network elements to
provide advanced data transmission services. An appeal of the FCC's decision on
this issue is pending before the United States Court of Appeals for the District
of Columbia Circuit. Also, the FCC recently ruled that incumbent local exchange
carriers are required to provide line sharing, which will allow competitive
local exchange carriers such as us to offer data services over the same copper
line the consumer uses for voice services without the competitive local exchange
carriers being required to offer the voice services. The FCC's order could
result in lower costs for competitive local exchange carriers to provide some
types of DSL services. The FCC's order, however, has been appealed and, even if
upheld, could be subject to further litigation over the applicable rates and
other implementation issues at the state level. We cannot predict the outcome of
these proceedings and cannot be assured that they will not adversely affect our
ability to offer DSL services.

The FCC also concluded in its August 1998 order that incumbent local
exchange carriers must offer their retail DSL services at a discount to
competitive local exchange carriers for resale. However, in November 1999 the
FCC clarified that DSL services provided to ISPs would not be subject to resale
at a discount. Accordingly, incumbent local exchange carriers may enter into
volume and term discounts for the provisioning of DSL services for ISPs without
having to make such arrangements available to other requesting competitive local
exchange carriers at discounted rates. For example, the FCC has allowed Bell
Atlantic to sell its DSL services at a discounted price to ISPs who commit to
buying Bell Atlantic's DSL service in bulk over a multi-year period for resale
to consumers. This FCC decision could adversely affect us if it gives ISPs,
particularly large ISPs such as America Online, an economic incentive to use
Bell Atlantic to meet all of their DSL needs in order to qualify for the bulk
discount pricing that Bell Atlantic now offers. There is no guarantee that we
would be able to offer rates that would be competitive with the incumbent
carriers' discounted rates or the rates offered by the ISPs that purchase lines
under a bulk discount.

In various proceedings, the FCC has considered whether incumbent local
exchange carriers such as Bell Atlantic may or should provide advanced data
services through a separate affiliate. For example, in the proceeding in which
the FCC recently granted Bell Atlantic authority to provide long distance
services in New York, Bell Atlantic agreed to provide DSL services in New York
through a separate affiliate. As discussed above, a proposal for a similar
separation is pending in Pennsylvania. At present we cannot predict how Bell
Atlantic's, or other incumbent local exchange carriers', use of a separate
affiliate to provide DSL services will affect us. Under the FCC's rules,
competitive DSL providers such as us are entitled to obtain wholesale services
from an incumbent local exchange carrier at the same rates, terms and conditions
that it provides to its separate affiliate. However, by offering their DSL
services through a separate affiliate that would be largely unregulated,
incumbent local exchange carriers such as Bell Atlantic may gain some degree of
competitive advantage which could make it more difficult for us to compete for
these services.

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Risks Related to Market Performance

VARIABILITY OF QUARTERLY OPERATING RESULTS COULD RESULT IN FLUCTUATIONS IN THE
TRADING PRICE OF THE COMMON STOCK.

Our quarterly operating results have fluctuated, and will continue to
fluctuate, significantly from period to period depending upon factors including:

- the success of our efforts to expand our customer base;

- changes in and the timing of expenditures relating to the continued
expansion of our network;

- the development of new services;

- the success of our sales and marketing efforts;

- changes in pricing policies by us and by our competitors; and

- factors relating to acquisitions.

As a result, it is likely that in some future quarters our operating
results will be below the expectations of investors and securities analysts. If
this happens, the trading price of the common stock could decline.

OUR STOCK PRICE MAY BE VOLATILE.

We expect that the market price of our common stock will fluctuate as a
result of variations in our quarterly operating results. These fluctuations may
be exaggerated if the trading volume of our common stock is low. In addition,
due to the technology intensive and evolving nature of our business, the market
price of our common stock may rise and fall in response to a variety of factors,
including:

- announcements of technological or competitive developments;

- acquisitions or strategic alliances by us or our competitors;

- the operating and stock price performance of comparable companies;

- changes in estimates of our financial performance or changes in
recommendations by securities analysts regarding us or our industry;

- general market or economic conditions; or

- rulings made by the FCC or state regulatory authorities which affect our
competitors or us.

In addition, the stock market in general has experienced dramatic price and
volume fluctuations from time to time. These fluctuations may or may not be
based upon any business or operating results. Our common stock may experience
similar or even more dramatic price and volume fluctuations which may continue
indefinitely.

IT IS DIFFICULT TO PREDICT WHETHER A MARKET FOR OUR COMMON STOCK WILL DEVELOP.

We cannot predict the extent to which investor interest in our common stock
will lead to the development of a trading market or how liquid that market might
become.

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<PAGE> 21

WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION WHICH
YOU MIGHT FAVOR AND COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.

Provisions of our Certificate of Incorporation and Bylaws and provisions of
Delaware law could delay, defer or prevent an acquisition or change of control
on terms you find attractive or otherwise adversely affect the price of our
common stock. For example, our Certificate of Incorporation:

- authorizes 5,000,000 shares of undesignated preferred stock which our
board of directors can designate and issue without further action by our
stockholders;

- establishes a classified board of directors;

- eliminates the rights of stockholders to call a special meeting of
stockholders; and

- eliminates the ability of stockholders to take action by written consent.

In addition to delaying or preventing an acquisition, the issuance of a
substantial number of preferred shares could adversely affect the price of the
common stock.

Risks Related to Management and Personnel

THE LOMBARDI FAMILY WILL CONTINUE TO CONTROL US AND MAY MAKE DECISIONS ADVERSE
TO YOUR INTERESTS.

Upon completion of this offering, The Louis A. Lombardi 1996 Family Limited
Partnership, The Patrick C. Lombardi 1996 Family Limited Partnership and Louis
A. Lombardi, Jr. will own, in the aggregate, approximately % of our
outstanding common stock. Accordingly, these stockholders collectively will be
able to control our management policy, decide all fundamental corporate actions,
including mergers, substantial acquisitions and dispositions and elect our board
of directors. These stockholders may ultimately make decisions that are adverse
to your interests as minority stockholders. This concentration of ownership may
also have the effect of delaying or preventing a change in control of our
company on terms you might find attractive, which could negatively affect our
stock price.

OUR SUCCESS DEPENDS ON A LIMITED NUMBER OF KEY PERSONNEL WHO WOULD BE DIFFICULT
TO REPLACE.

We depend on a limited number of key management, sales, marketing and
development personnel to manage and operate our business, most notably Louis A.
Lombardi, Sr. and Louis A. Lombardi, Jr. We believe that our success depends to
a significant degree upon our ability to attract and retain highly skilled
personnel, including our engineering and technical staff. If we are unable to
attract and retain our key employees, the value of your investment could suffer.
The competition for qualified personnel in the telecommunications industry is
intense. For this reason, we cannot assure you that we will be able to hire or
retain necessary personnel in the future.

Risks Related to this Offering

UPON COMPLETION OF THIS OFFERING, YOU WILL EXPERIENCE IMMEDIATE SUBSTANTIAL
DILUTION.

The initial public offering price is substantially higher than the book
value of our common stock. At the initial offering price of $ per share, the
book value of the common stock after the offering will be $ per share. This
represents an immediate and substantial dilution per share of the common stock.
The dilution per share represents the difference between the amount per share
paid by the purchasers of shares of common stock in this offering and the net
tangible book value per share of common stock immediately after the completion
of this offering. In addition, to the extent outstanding options are exercised,
there will be further dilution to new investors.

18
<PAGE> 22

WE EXPECT ABOUT SHARES OF COMMON STOCK TO BECOME AVAILABLE FOR SALE 180
DAYS FROM THE DATE OF THIS PROSPECTUS, AND SALES OF THESE SHARES MAY DEPRESS OUR
SHARE PRICE.

After this offering, we will have outstanding shares of common
stock. Sales of a substantial number of our shares of common stock in the public
market following this offering -- or the expectation of such sales -- could
cause the market price of our common stock to drop. All shares sold in
this offering will be freely tradable. The remaining shares outstanding
after this offering will be available for sale in the public markets 180 days
after the date of this prospectus, subject to limitations on the number of
shares that can be sold in any three-month period.

In addition, we intend to file a registration statement to register all
3,540,000 shares of common stock that we may issue under our 2000 Stock Plan and
the 30,000 shares of common stock issuable and underlying outstanding non-plan
options. After this registration statement is effective, shares issued upon
exercise of stock options will be eligible for resale in the public market
without restriction. Upon the consummation of this offering, we will have
options to purchase an aggregate of 1,059,047 shares of common stock issued and
outstanding.

WE WILL RETAIN BROAD DISCRETION IN USING THE NET PROCEEDS TO US FROM THIS
OFFERING AND MAY SPEND A SUBSTANTIAL PORTION IN WAYS IN WHICH YOU DO NOT AGREE.

We will retain a significant amount of discretion over the application of
the net proceeds to us from this offering as well as over the timing of our
expenditures. Because of the number and variability of factors that may
determine our use of the net proceeds to us from the offering, we may apply the
net proceeds to us from this offering in ways with which you disagree.

ABSENCE OF DIVIDENDS.

We have never paid, and do not anticipate paying in the foreseeable future,
any dividends on our common stock.

Risks Regarding Forward-Looking Statements

FORWARD-LOOKING STATEMENTS MAY PROVE TO BE INACCURATE.

Some of the statements contained in this prospectus are forward-looking.
The words "believe," "expect," "intend," "anticipate," "estimate," "plan,"
"future," and other similar expressions generally identify forward-looking
statements. They include statements concerning:

- liquidity and capital expenditures;

- growth strategy;

- acquisitions activities;

- regulatory matters affecting the telecommunications industry;

- competitive conditions in the telecommunications industry;

- projected growth of the telecommunications industry;

- general economic conditions; and

- Year 2000 issues.

Actual results may differ materially from those suggested by the
forward-looking statements for various reasons, including those discussed in
this section.

19
<PAGE> 23

USE OF PROCEEDS

We estimate that we will receive net proceeds from the sale of our common
stock offered by this prospectus of approximately $ million, assuming an
initial offering price of $ per share. This estimate includes the deduction
of the underwriting discount and estimated offering expenses payable by us. We
will not receive any proceeds from the sale of the shares being offered by the
selling stockholder.

We intend to use a portion of the net proceeds to us from the offering as
follows:

- capital expenditures in connection with our planned roll-out of DSL
service and planned expansion of our network, including the purchase and
installation of DSL equipment in central offices, the purchase of DSL
modems for use at customer premises and the purchase of ATM switches;

- the acquisition of rights for collocation of our equipment with Bell
Atlantic and other service providers;

- the enhancement of our network to enable us to provide additional
value-added services rather than reselling services of other companies;

- the hiring of additional direct sales, operations and support personnel;

- the expansion of our marketing efforts; and

- the improvement of our network management, billing and other back office
systems to facilitate our planned growth.

We will also use a portion of the net proceeds to us from this offering to
fund working capital requirements and for other general corporate purposes. This
may include using a portion of the net proceeds to finance acquisitions of
businesses or technologies that complement our business. Although we have
discussions in the ordinary course of our business with potential acquisition
targets, we currently do not have any commitments or agreements with respect to
any acquisitions.

We currently intend to allocate substantial proceeds among the foregoing
uses. The precise allocation of funds among these uses will depend on future
commercial, technological, regulatory or other developments in or affecting our
business, the competitive climate in which we operate and the emergence of
future opportunities. Because of the number and variability of factors that
determine our use of the net proceeds to us from this offering, we cannot assure
you that our application of the net proceeds will not vary substantially from
our current intentions. Pending application of the net proceeds for the purposes
described above, we intend to invest such funds in short-term, investment-grade,
interest-bearing securities.

DIVIDEND POLICY

We have never paid any cash dividends on our common stock and do not
anticipate declaring or paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings, if any, to fund the development and
growth of our business. Declaration or payment of future dividends, if any, will
be at the discretion of our board of directors after taking into account various
factors, including our financial condition, operating results, current and
anticipated cash needs and plans for expansion.

Because Eastern Computer Services, L.L.C. operated as a limited liability
company from its formation in 1995 until the reorganization of Eastern Computer
Services, L.L.C. and Cooperative Communications, Inc. as our subsidiaries in
March 2000, the net income of Eastern Computer Services, L.L.C. in past years
has been distributed to its members. Distributions were made through May 31,
1999 and no additional distributions were made after that date or will be made
in subsequent periods.

20
<PAGE> 24

CAPITALIZATION

The following table sets forth our pro forma capitalization as of November
30, 1999:

- on a pro forma basis giving effect to the reorganization of Cooperative
Communications, Inc. and Eastern Computer Services, L.L.C. as our
wholly-owned subsidiaries; and

- on an as adjusted basis to give effect to the sale by us of
shares of common stock offered hereby, assuming an initial public
offering price of $ per share, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us
and the application of the estimated net proceeds therefrom.

You should read this table in conjunction with "Selected Combined Financial
Data," our historical combined financial statements, including the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" which appear elsewhere in this prospectus.

<TABLE>
<CAPTION>
NOVEMBER 30, 1999
--------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 2,327 $
=======
Long term obligations....................................... $ 6,640 $
-------
Stockholders' equity (deficit):
Preferred stock: $0.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding...........
Common stock: $0.01 par value, 60,000,000 shares
authorized; shares issued and outstanding,
proforma; shares issued and outstanding as
adjusted...............................................
Accumulated deficit.......................................
------- -------
Total stockholders' equity (deficit)...................
------- -------
Total capitalization................................... $ $
======= =======
</TABLE>

The number of shares of capital stock excludes:

- any shares of common stock to be issued pursuant to the over-allotment
option;

- 3,540,000 shares of common stock authorized for issuance under our 2000
Stock Plan under which 1,029,047 options will be outstanding upon the
consummation of this offering at exercise prices equal to the initial
public offering price; and

- 30,000 shares of common stock issuable upon the exercise of an
outstanding non-plan option as of the date of this prospectus at an
exercise price of $0.01 per share.

21
<PAGE> 25

DILUTION

Our pro forma net tangible book value as of November 30, 1999, was $
million, or $ per share of common stock. Pro forma net tangible book
value per share is determined by dividing our tangible net worth, tangible
assets less liabilities, by the number of shares of common stock outstanding
before the offering.

After giving effect to the sale of the shares of common stock offered by
us, at an assumed initial public offering price of $ per share, and
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by us, our pro forma net tangible book value as of
November 30, 1999 was $ per share of common stock. This represents an
immediate increase in such net tangible book value of $ per share to
our existing investors and immediate dilution of $ per share to new investors
purchasing shares in this offering. The following table illustrates the per
share dilution.

<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value as of November 30,
1999...................................................... $
Increase per share attributable to this offering............
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>

The following table shows the difference between existing stockholders and
new investors with respect to the number of shares purchased from us, the total
consideration paid and the average price paid per share at an assumed initial
public offering price of $ per share. Underwriting discounts and commissions
and offering expenses have not been deducted.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing investors...................... % $ % $
New investors...........................
--------- ----- -------- -----
Total.............................. 100.0% $ 100.0%
========= ===== ======== =====
</TABLE>

The calculations above exclude from the number of outstanding shares of
common stock:

- 3,540,000 shares of common stock issuable upon the exercise of options
reserved for grant under our 2000 Stock Plan of which no shares were
issuable upon the exercise of outstanding plan options as of November
30, 1999, but under which 1,029,047 options will be outstanding upon the
consummation of this offering at exercise prices equal to the initial
public offering price; and

- 30,000 shares of common stock issuable upon the exercise of an
outstanding non-plan option with an exercise price of $0.01 per share as
of November 30, 1999.

If all of the options outstanding as of November 30, 1999 had been
exercised at that date, there would be additional dilution to new investors.

22
<PAGE> 26

SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The selected combined financial data as of May 31, 1997, 1998 and 1999 and
for each of the years ended May 31, 1997, 1998 and 1999, are derived from our
audited combined financial statements, including the notes thereto, which are
included elsewhere in this prospectus. The selected combined financial data as
of May 31, 1995 and 1996 and for each of the two years ended May 31, 1995 and
1996 and as of November 30, 1998 and 1999 and for the six month periods ended
November 30, 1998 and 1999 have been derived from our unaudited combined
financial statements. The unaudited financial data include all adjustments
(consisting only of normal, recurring adjustments) that we consider necessary
for fair presentation of the combined financial position and results of
operations for these periods. The results of the six month period ended November
30, 1999 are not necessarily indicative of the results for any future period.
You should read the selected combined financial data together with our combined
financial statements, including the notes thereto, and the sections of this
prospectus entitled "Capitalization" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1998 1999
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenue......................... $12,573 $20,474 $28,718 $37,200 $40,598 $20,441 $19,827
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Costs of revenue (excluding
depreciation and
amortization)............... 9,383 16,314 22,468 29,073 31,725 16,418 16,382
Selling, general and
administrative expenses..... 2,869 4,736 5,957 7,286 8,222 3,956 3,853
Depreciation and
amortization................ 46 194 333 455 780 356 389
Stock based compensation...... -- -- 840 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses...... 12,298 21,244 29,598 36,814 40,727 20,730 20,624
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations.................. 275 (770) (880) 386 (129) (289) (797)
Other income (expense), net..... (27) (78) (61) 92 109 38 (269)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
tax expense (benefit)....... 248 (848) (941) 478 (20) (251) (1,066)
Income tax expense
(benefit)................... 100 (215) 128 195 98 98 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)(1).......... $ 148 $ (633) $(1,069) $ 283 $ (118) $ (349) $(1,066)
======= ======= ======= ======= ======= ======= =======
PRO FORMA INFORMATION:
Historical loss before income
tax expense (benefit)......... $ (20) $(1,066)
Pro forma income tax expense
(benefit) (unaudited)(2).... 200 (350)
------- -------
Pro forma net loss
(unaudited)................. $ (220) $ (716)
======= =======
Pro forma net loss per common
share (unaudited)(3):
Basic....................... $ $
Diluted..................... $ $
======= =======
Pro forma weighted average
common shares outstanding
(unaudited)(4):
Basic.......................
Diluted.....................
======= =======
</TABLE>

23
<PAGE> 27

- ---------------
(1) Since Eastern Computer Services, L.L.C., or Eastern, was operated as a
limited liability company which was taxed as a partnership for federal, state
and local income tax purposes until March 2000, each member of Eastern had been
individually responsible for reporting the member's share of Eastern's net
income or loss. Accordingly, we have not provided for income taxes in our
combined financial statements related to Eastern's income. Cash distributions
were made to Eastern's members of $360, $700 and $540 in the years ended May 31,
1997, 1998 and 1999. No additional distributions were made after May 31, 1999 or
will be made in subsequent periods.

(2) Pro forma income tax expense (benefit) gives effect to the change of Eastern
from a limited liability company to a tax paying entity as though this event
occurred as of June 1, 1998.

24
<PAGE> 28

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and
results of operations in conjunction with the combined financial statements and
notes thereto included elsewhere in this prospectus. The results shown in this
prospectus are not necessarily indicative of the results we will achieve in any
future periods. This discussion contains forward-looking statements based upon
our current expectations which involve risks and uncertainties. Our actual
results could differ materially from those described in the forward-looking
statements due to a number of factors, including those set forth in the section
entitled "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

We are an innovative provider of integrated telecommunications services,
including local and long distance service and our recently launched DSL service.
Our customer base consists of over 7,500 small and medium-sized businesses. The
majority of our customers are located in New Jersey, and we plan to aggressively
expand our services to Pennsylvania, New York, Massachusetts and portions of
Connecticut. As of December 31, 1999, we had over 35,000 local access lines
providing local and long distance services and approximately 28,000 equal access
lines providing local toll and/or long distance services. Approximately 60% of
this traffic historically has originated and terminated on our network and we
expect this to increase as we roll out our DSL service. We began reselling long
distance services in 1990 and providing local service in 1993. We offer our
customers telecommunications services consisting of outbound local and long
distance services, inbound toll free service, data services, calling cards,
paging services, Internet services and our recently introduced DSL service. In
the years ended May 31, 1998 and 1999 and the six month period ended November
30, 1999, local service represented 45.9%, 51.4% and 51.2%, respectively, of our
revenue; outbound service, or long distance and inter-local access and transport
area calls, represented 28.6%, 20.3% and 18.9%, respectively, of our revenue;
toll free calls represented 13.1%, 13.4% and 12.6%, respectively, of our
revenue; monthly fees represented 8.3%, 10.9% and 14.0%, respectively, of our
revenue; and other services represented 4.1%, 4.0% and 3.3%, respectively, of
our revenue.

In 1998, we hired four key employees from Westinghouse Communications, now
owned by RSL Communications, to lead our efforts to pursue new technologies such
as DSL. These executives have over 85 years of combined experience in the
telecommunications industry. We expect that a significant portion of our future
revenue will be generated from the sale of DSL services. Our strategy is to
offer DSL service as a comprehensive telecommunications solution to offer cost
efficiency, flexibility, high quality and reliability for video, voice and data
telecommunications.

Our "smart build" strategy, whereby we locate equipment in or near an
incumbent local exchange carrier's central offices, is central to the success of
our DSL roll-out. By collocating, we have the ability to lease local loop and
other network elements owned by the incumbent local exchange carrier. This
enables us to reach a wide range of customers without having to build network
connections to each one of them. The availability of space in central offices
and the timing and cost of obtaining that space varies by location. Based on our
experience to date, we estimate that it will cost between $285,000 and $310,000
to lease space, purchase and install equipment in each central office we enter
and, where space is available in a desired central office, we believe the time
to obtain the required local approvals and deploy our equipment in that space
will typically range from three to nine months. Where collocation space is not
available, we will install equipment in nearby leased facilities which we will
connect to the central office. Where it is not economically feasible to deploy
such facilities, we intend to continue to resell services of other providers. As
a collocation becomes operational, we will migrate our local and DSL customers
onto our network facilities.

In March 2000, we entered into a two-year interconnection agreement with
Bell Atlantic to provide us with collocation rights to Bell Atlantic's central
offices in New Jersey. The agreement will contain an

25
<PAGE> 29

implementation schedule for collocation under which we can collocate in various
Bell Atlantic central offices throughout New Jersey. The agreement also
includes:

- access to unbundled network elements;

- the switching and routing of service;

- reciprocal compensation for the transport and termination of local calls
over the terminating carrier's switch;

- network maintenance and management;

- number portability; and

- directory services, such as listing information and directory assistance.

As we expand into new geographic markets and roll out our DSL service, we
expect to incur significant additional capital expenditures and selling and
marketing expenses. Capital expenditures will primarily consist of the purchase
of switching equipment, DSL equipment, customer site equipment, central office
equipment and network management equipment. We will incur other costs and
expenses, including costs related to the development and maintenance of our
network, administrative overhead and premises leases. We expect that a
significant amount of these costs and expenses will be incurred before we
generate revenue from such activities in a particular market. However, we
believe these expenses will become a smaller percentage of our revenue as we
increase our customer base, roll out our DSL service and migrate customers onto
our network.

Telecommunications services provided by Bell Atlantic constitute the
majority of our costs of revenue. Services provided by Bell Atlantic totaled
$9.0 million, $15.4 million and $20.6 million in the years ended May 31, 1997,
1998 and 1999, respectively, and $10.7 million in the six month period ended
November 30, 1999. As we intend to expand in the Bell Atlantic footprint, we
anticipate that telecommunications services provided by Bell Atlantic will
continue to comprise a significant portion of our costs of revenue.

FACTORS AFFECTING OPERATIONS

Revenue. To date, our revenue has been derived from monthly recurring
charges, usage charges and initial non-recurring charges in connection with
providing local and long distance service. Monthly recurring charges include the
fees paid by customers for lines in service and additional features on those
lines. Usage charges consist of fees paid by our customers for local, outbound,
toll-free and calling card services. Initial non-recurring charges are paid by
customers, if applicable, for the initiation of our service. Monthly fees
include both monthly recurring charges and initial non-recurring charges. In the
future, we expect that a significant portion of our revenue will be derived from
the sale of DSL services. Reciprocal compensation payable by incumbent local
exchange carriers historically has not constituted a significant portion of our
revenue. We do not expect that reciprocal compensation payable by Bell Atlantic
under the recently executed interconnection agreement will represent a
significant portion of our revenue in the foreseeable future.

Costs of Revenue. Our costs of revenue are comprised primarily of
transport expenses, expenses for local services, long distance expenses, access
charges, line installation expenses and engineering costs. Such costs do not
include amortization or depreciation costs. The transport expenses are payments
incurred by us for transmission facilities used to connect our customers to our
switches and to connect to the incumbent local exchange carrier and other
competitive local exchange carrier networks. Our interconnection agreement with
Bell Atlantic provides for reciprocal compensation related to calls that
originate with a customer of ours and terminate on Bell Atlantic's network. We
do not anticipate that reciprocal compensation will represent a significant
portion of our costs of revenue in the foreseeable future. Other fees under this
interconnection agreement include charges for unbundled loops, cross connection
fees, installation charges and rental costs of space in central offices.
Although it has recently increased slightly due to a decrease in revenue, over
time, we expect our aggregate costs of revenues to decline as a percentage of
revenue due to the up front costs we incur when we initially enter a new
geographic market.
26
<PAGE> 30

In fiscal 1999, approximately 60% of our costs of revenue were usage
sensitive costs, such as transport expenses, local and long distance expenses
and access charges.

We believe the cost of securing long distance service capacity will
increase as our customers' long distance calling volume increases. We expect
that these costs will be a significant portion of our cost of long distances
services. We have entered into resale agreements with several long distance
carriers to provide us with the ability to provide our customers with long
distance service. Our existing resale agreements contain minimum volume
commitments. We expect to enter into resale agreements for long distance service
with other carriers in the future. Such agreements typically provide for the
resale of long distance services on a per-minute basis and also may contain
minimum and maximum line restrictions. If we fail to meet minimum volume
commitments, we may be obligated to pay underutilization charges. In the past,
we have met our minimum volume commitments. If we underestimate our need for
transmission capacity and exceed our maximum volume limits and are unable to
negotiate agreements with telecommunications carriers, we may be required to
obtain capacity through more expensive means. In the past, we have had to obtain
additional lines under tariffs which were more expensive than the rates under
our agreements. We expect that we will exceed our maximum line limits until we
have migrated a sufficient number of customers to our DSL service.

Under our network build-out strategy, we have leased from Bell Atlantic and
other carriers the local fiber trunking capacity required to connect our switch
to particular central offices of Bell Atlantic. We intend to continue obtaining
the capacity we need by leasing it from other carriers. In the future, however,
we may seek to replace this leased trunk capacity with our own fiber if
warranted by traffic volume growth. We cannot assure you that all required
trunking capacity will be available to us on a timely basis or on favorable
terms. The failure to obtain leased fiber could delay our ability to penetrate
some of our markets or require us to make additional unexpected up-front capital
expenditures to install our own fiber and could have a material adverse effect
on our business prospects, financial condition and results of operations.

We offset contributions to the federal universal service subsidy by passing
on our cost of the contribution to our customers as permitted by FCC
regulations.

Selling, General and Administrative Expenses. Our recurring selling,
general and administrative expenses include sales and marketing, customer
service, corporate administration, personnel and billing. Currently, our sales
and marketing efforts are directed through a network of 85 commission-based
independent agents and a direct sales force of seven professionals primarily
focused on cultivating new accounts and maintaining and expanding existing
accounts. As we expand our service offerings, we believe that a direct sales
force is more effective to capitalize on cross-selling opportunities. Therefore,
we intend to increase our direct sales force to 35 professionals by December 31,
2000. We plan to accomplish this, in part, by recruiting from the most effective
of our 85 independent representatives. By the end of 2001, we plan to have a
sales force equally divided between direct sales people and independent agents.
We do not expect an increase in our selling expenses as a result of our planned
increase in sales professionals as the related salaries will be offset by
decreased sales commissions to commission-based independent agents.

Depreciation and amortization expense. Depreciation and amortization
expense includes depreciation on switching equipment as well as general property
and equipment. This expense includes:

- depreciation of network and operations equipment;

- depreciation of computer hardware and information systems; and

- amortization and depreciation of building, property and equipment under
capital leases.

We expect depreciation and amortization expense to increase significantly
as we increase capital expenditures in our expansion efforts.

Stock-based compensation. During fiscal 1997, we granted options to an
employee to purchase 30,000 shares of common stock at a nominal exercise price.
Such grant resulted in non-cash employee compensation expense which has been
recorded to account for the difference, on the date of the grant, between the
fair market value and the exercise price of stock options granted to the
employee. The
27
<PAGE> 31

resulting employee compensation of $840,000 was recognized in the combined
statement of operations in 1997 as such options vested immediately.

Income taxes. From its inception in May 1995 until the contribution of all
of the ownership interests in Eastern Computer Services, L.L.C., or Eastern, by
its members to us in March 2000, Eastern operated as a limited liability company
which was taxed as a partnership for federal and state tax purposes.
Accordingly, the earnings of Eastern were included in the taxable income of the
members of Eastern for federal and state income tax purposes. In connection with
this offering and due to the contribution, Eastern is now taxed as a C
Corporation. As a result, we will record future tax expense and benefits using
the asset and liability method pursuant to the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Income
tax expense recorded in the historical combined financial statements principally
reflects income taxes currently payable to federal and state taxing authorities
based on the results of the operations of Cooperative Communications, Inc., and
its subsidiaries, or Cooperative, during the respective periods. No income tax
benefit has been provided on the losses realized by Cooperative as we believe it
is more likely than not that Cooperative will not realize such benefits.

Assuming the contribution of Eastern had occurred on June 1, 1998, our
pro-forma effective tax rate for fiscal 1999 and the six month period ended
November 30, 1999 would have been different from the combined federal and state
statutory tax rate of approximately 40% since we believe it is more likely than
not that deferred tax benefits will not be realized. The effect of taxes on our
results of operations is not discussed below because the historic taxation of
our operations does not provide a meaningful comparison with respect to periods
following the contribution of Eastern to us.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain financial
data as a percentage of revenue:

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-------------------------------------------------------------------------------
SIX MONTH PERIODS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
--------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1998 1999
----------- ----------- ------ ----- ------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............................. 100% 100% 100% 100% 100% 100% 100%
----- ------ ------ ----- ------ ------ ------
Operating expenses:
Cost of revenue (excluding
depreciation and
amortization)................... 74.63 79.68 78.24 78.15 78.15 80.32 82.63
Selling, general and
administrative expenses......... 22.82 23.13 20.74 19.59 20.25 19.35 19.43
Depreciation and amortization..... 0.37 0.95 1.16 1.22 1.92 1.74 1.96
Stock based compensation.......... -- -- 2.92 -- -- -- --
----- ------ ------ ----- ------ ------ ------
Total operating expenses........ 97.82 103.76 103.06 98.96 100.32 101.41 104.02
----- ------ ------ ----- ------ ------ ------
Income (loss) from operations... 2.18 (3.76) (3.06) 1.04 (0.32) (1.41) (4.02)
Other income (expense), net......... (0.20) (0.38) (0.21) 0.25 0.27 0.18 (1.36)
----- ------ ------ ----- ------ ------ ------
Income (loss) before income tax
expense (benefit)................. 1.98 (4.14) (3.27) 1.29 (0.05) (1.23) (5.38)
Income tax expense (benefit)...... 0.80 (1.05) 0.45 0.52 0.24 0.48 --
----- ------ ------ ----- ------ ------ ------
Net income (loss)................. 1.18 (3.09) (3.72) 0.77 (0.29) (1.71) (5.38)
===== ====== ====== ===== ====== ====== ======
</TABLE>

Six Months Ended November 30, 1999 compared to Six Months Ended November 30,
1998

Revenue. Our revenue for the six month period ended November 30, 1999 was
$19.8 million, as compared to $20.4 million in the six month period ended
November 30, 1998, a decrease of $614,000, or 3.0%. This decrease resulted
primarily from a decrease in usage charges, offset in part by an increase in

28
<PAGE> 32

monthly recurring charges. Competitive pricing pressure continued to lower the
average price we charged for calling minutes. In the six month period ended
November 30, 1999, our average price per minute of domestic retail traffic
decreased approximately 11.1% as compared to the 1998 period. We expect that our
pricing for the foreseeable future will continue to be subject to competitive
pricing pressure. During the past several years, market prices for many
telecommunications services have been declining, a trend we believe will likely
continue.

Costs of revenue. Our costs of revenue for the six month period ended
November 30, 1999 decreased nominally to $16.4 million from $16.4 million for
the six month period ended November 30, 1998. This decrease was primarily due to
a decrease in access charges, offset in part by increased costs associated with
purchasing additional Centrex lines at tariff prices after we exceeded our
contractual limit. As a percentage of revenue, costs of revenue increased
slightly from 80.3% in the 1998 period to 82.6% in the 1999 period primarily as
a result of the decrease in revenue.

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the six month period ended November 30, 1999
decreased $103,000, or 2.6%, to $3.9 million from $4.0 million for the six month
period ended November 30, 1998. This decrease was primarily due to a reduction
of employee expenses related to the realignment of our direct sales force which
we began in July 1999, as well as the termination of one of our telemarketing
programs. This decrease was also due to a reduction of rent expense associated
with the capitalization of our lease on the Belleville, New Jersey facility in
December 1998. Selling, general and administrative expenses as a percentage of
revenue represented 19.4% for each of the six month periods ended November 30,
1999 and 1998. Salaries and related employee expenses were the largest
components of selling, general and administrative expenses for the six month
periods ended November 30, 1999 and 1998.

Depreciation and amortization expense. Our depreciation and amortization
expense for the six month period ended November 30, 1999 increased $33,000, or
9.3%, to $389,000 from $356,000 for the six month period ended November 30,
1998. This increase was primarily due to the acquisition of telecommunications
equipment, including our Class 4/5 switch in August 1999, and, to a lesser
extent, the capitalization of the lease on our Belleville, New Jersey facility.

Interest income (expense). Our interest income for the six months ended
November 30, 1999 decreased $19,000, or 10.2%, to $168,000 from $187,000 for the
six month period ended November 30, 1998. This decrease was primarily due to
increased available cash in the fiscal 1998 period because of payments we
withheld from a major supplier pending settlement of a dispute. Our interest
expense for the six month period ended November 30, 1999 increased $288,000, or
184.6%, to $444,000 from $156,000 for the six month period ended November 30,
1998. This increase was primarily due to interest associated with the settlement
of this dispute and additional acquisitions of property and equipment under
capital leases.

Year Ended May 31, 1999 Compared to Year Ended May 31, 1998

Revenue. Our revenue for the year ended May 31, 1999 was $40.6 million, as
compared to $37.2 million in the year ended May 31, 1998, an increase of $3.4
million, or 9.1%. This increase was primarily due to an increase in usage
charges and monthly recurring charges, offset in part by a decrease in sales of
long distance telecommunications services. The number of calling minutes
increased 6.9% as a result of additional customers and additional calling
minutes sold. However, due to competitive pressures, our average price per
minute of domestic retail traffic decreased approximately 9.1% in fiscal 1999 as
compared to fiscal 1998.

Costs of revenue. Our costs of revenue for the year ended May 31, 1999
increased $2.7 million, or 9.3%, to $31.7 million from $29.1 million in the year
ended May 31, 1998. Such increase was primarily due to the increase in transport
costs and local service costs associated with higher calling minutes. As a
percentage of revenue, costs of revenue remained constant at 78.2% in fiscal
1999 and fiscal 1998.

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<PAGE> 33

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the year ended May 31, 1999 increased $936,000, or
12.8%, to $8.2 million from $7.3 million in the year ended May 31, 1998. Such
increase was primarily due to higher salaries as a result of our expanding
business and the hiring of several key employees from Westinghouse
Communications in connection with our DSL roll-out and, to a lesser extent, bad
debt expense. Selling, general and administrative expenses as a percentage of
revenue represented 20.3% and 19.6% in fiscal 1999 and fiscal 1998,
respectively. Salaries and related employee expenses were the largest components
of selling, general and administrative expenses in fiscal 1999 and fiscal 1998.
DSL research and roll-out expenses represented $490,000, or 6.0%, of selling,
general and administrative expenses in fiscal 1999. DSL-related expenses were
minimal in fiscal 1998.

Depreciation and amortization expense. Our depreciation and amortization
expense for the year ended May 31, 1999 increased $325,000, or 71.4%, to
$780,000 from $455,000 in the year ended May 31, 1998. This increase was
primarily due to our acquisition of telecommunications equipment directly and
under capital leases in the second half of fiscal 1998, as well as additional
equipment in 1999 and the capitalization of the lease on our Belleville, New
Jersey facility. This increase also reflected an amortization charge for a
customer list acquired in May 1998.

Interest income (expense). Our interest income for the year ended May 31,
1999 increased $148,000, or 64.3%, to $378,000 from $230,000 in the year ended
May 31, 1998. This increase was due primarily to interest earned on funds we
withheld from a major supplier in connection with a dispute. Our interest
expense for the year ended May 31, 1999 increased $166,000, or 109.2%, to
$318,000 from $152,000 in the year ended May 31, 1998. This increase was
primarily due to additional acquisitions of property and equipment under capital
leases.

Year Ended May 31, 1998 Compared to Year Ended May 31, 1997

Revenue. Our revenue for the year ended May 31, 1998 was $37.2 million, as
compared to $28.7 million in the year ended May 31, 1997, an increase of $8.5
million, or 29.6%. This increase was primarily due to an increase in usage
charges, and, to a lesser extent, an increase in monthly recurring charges. The
number of calling minutes increased 22% as a result of additional customers and
additional calling minutes sold. Our average price for a minute of domestic
retail traffic decreased approximately 12.5% in fiscal 1998 due to competitive
pressures.

Costs of revenue. Our costs of revenue for the year ended May 31, 1998
increased $6.6 million, or 29.3%, to $29.1 million from $22.5 million in the
year ended May 31, 1997. This increase was primarily due to the increase in
transport costs and local service costs associated with higher calling minutes.
As a percentage of revenue, costs of revenue remained constant at 78.2% in
fiscal 1998 and fiscal 1997.

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the year ended May 31, 1998 increased $1.3 million,
or 21.7%, to $7.3 million from $6.0 million in the year ended May 31, 1997. This
increase was primarily due to higher commissions associated with higher levels
of sales. Commissions, as a percentage of revenue, remained relatively
consistent from fiscal 1997 to fiscal 1998. To a lesser extent, such increase
was due to the hiring of additional telemarketing personnel. Selling, general
and administrative expenses as a percentage of revenue represented 19.6% and
20.7% in fiscal 1998 and fiscal 1997, respectively. Salaries and related
employment expenses were the largest components of selling, general and
administrative expenses in fiscal 1998 and fiscal 1997.

Depreciation and amortization expense. Our depreciation and amortization
expense for the year ended May 31, 1998 increased $122,000, or 36.6%, to
$455,000 from $333,000 in the year ended May 31, 1997. This increase was due
primarily to the acquisition of additional telecommunications equipment in the
second half of fiscal 1997 and fiscal 1998.

Interest income (expense). Our interest income for the year ended May 31,
1998 increased $162,000, or 238.2%, to $230,000 from $68,000 in the year ended
May 31, 1997. This increase was primarily due to interest earned on funds we
withheld from a major supplier in connection with a dispute.

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<PAGE> 34

Our interest expense for the year ended May 31, 1998 increased $12,000, or 8.6%,
to $152,000 from $140,000 in the year ended May 31, 1998. Such increase was due
primarily to acquisitions of equipment under capital leases.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations through operating cash flow
supplemented by funds from equipment financing. Cash provided by operating
activities was $8.3 million and $692,000 for the years ended May 31, 1998 and
1999. Cash used in operating activities was $4.6 million for the six month
period ended November 30, 1999. The decrease in cash from operating activities
in the 1999 periods resulted primarily from the payment of amounts owed to a
major supplier and a decrease in net income, offset in part by changes in assets
and liabilities, principally trade accounts receivable.

Our working capital was $6.4 million and $470,000 as of May 31, 1998 and
1999. Working capital as of May 31, 1999 included $7.2 million in cash and cash
equivalents. As of November 30, 1999, we had negative working capital of $1.5
million, which included $2.3 million in cash and cash equivalents.

Net cash used in investing activities was $610,000, $106,000 and $77,000
for the years ended May 31, 1998 and 1999 and the six month period ended
November 30, 1999. Cash used in investing activities during the 1998 and 1999
periods principally represents the purchase of computer equipment for use by
office personnel and a customer list in 1998.

Net cash used in financing activities was $1.1 million, $2.0 million and
$162,000 for the years ended May 31, 1998 and 1999 and the six month period
ended November 30, 1999. In the six month period ended November 30, 1999, cash
used in financing activities was primarily for payments under capital leases. In
fiscal 1998, cash used in financing activities was primarily for payments under
capital leases and distributions to members. In fiscal 1999, cash used in
financing activities was primarily for payments under capital leases,
distributions to members and a loan to stockholders. In the three years ended
May 31, 1999, Eastern made total aggregate distributions to its members of $1.6
million. With the conversion of Eastern to a C Corporation for tax purposes, we
will not be obligated to make such member distributions.

In June 1998, we informally settled an ongoing dispute with one of our
major suppliers. The settlement was formalized by written agreement in June
1999. Under this settlement, we agreed to pay a total of $10.5 million as
follows: approximately $1.0 million was paid in June 1998, $3.0 million was paid
in June 1999 and $181,000 per month is payable for 36 months thereafter. The
settlement did not have a significant impact on our results of operations as the
settlement approximated the net amount of the supplier's invoices that we
accrued. We expect to be able to satisfy the future obligations associated with
the settlement through cash provided by operations or borrowings under credit
facilities.

We have a credit facility with a bank that allows us to borrow up to $1.5
million. This credit facility is subject to renewal at three month intervals and
expires on May 2, 2000. Amounts outstanding under this facility bear interest at
the bank's prime lending rate which was 9.0% per annum as of March 31, 2000.
This loan is secured by our trade accounts receivable. No amounts were
outstanding under this facility as of March 31, 2000. We intend to renew this
credit facility upon its expiration. We have not historically relied on
borrowings under credit facilities to finance our operations. If cash from
operations is not sufficient to meet our financing requirements, we will pursue
additional bank credit facilities to finance our operations.

We expect to lease additional office space in New Jersey in the next six
months to accommodate the growth of our administrative staff and sales and
marketing personnel. Recently, we entered into equipment leases aggregating
approximately $3.5 million for equipment relating to our DSL roll-out payable
over five years.

We believe that our existing available cash, the proceeds from this
offering, credit facilities and the cash flow expected to be generated from
operations will be adequate to satisfy our current and planned operations for at
least the next 12 months. No assurance can be given, however, that this will be
the case. Depending upon our rate of growth and profitability, particularly if
we pursue any significant acquisitions,
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we may require additional equity or debt financing to meet our working capital
requirements or capital equipment needs. We intend to make significant capital
expenditures in connection with the roll-out of our DSL services and our
expansion into new markets. We expect to fund these expenditures through
existing resources, internally generated funds, and equity and debt financings.
If we are unable to raise sufficient funds, we may have to delay or abandon some
of our expenditures or plans for future expansion. There can be no assurance
that additional financing will be available when required or, if available, will
be on terms satisfactory to us. Our failure to raise additional financing, if
needed, could impair our ability to achieve profitability or positive cash flow,
which could have a material adverse effect on our business prospects, financial
condition and results of operations.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts and for hedging
activities. SFAS No. 133 (as amended by SFAS No. 137) is effective for all of
our fiscal quarters beginning June 1, 2001. This statement is not expected to
affect us as we currently do not have derivative instruments or engage in
hedging activities.

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position, or SOP, 98-5, "Reporting on the Costs of Start-Up
Activities," which requires the costs of start-up activities to be expensed as
incurred. SOP 98-5 is effective for us beginning in fiscal 2000. We do not
believe that adoption of this SOP will have a material effect on our financial
statements as start-up costs have historically been expensed as incurred.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have limited exposure to financial market risks, including changes in
interest rates. At March 31, 2000, all of our available excess funds are cash or
cash equivalents whose value is not subject to changes in interest rates. We
currently hold no derivative instruments and do not earn foreign-source income.
We expect to invest our cash only in debt obligations issued by the United
States government or its agencies with maturities of less than one year.

YEAR 2000 COMPUTER ISSUES

We did not experience any significant computer or systems problems relating
to the Year 2000. Upon review of our internal and external systems during 1999,
we determined that we did not have any material exposure to such computer
problems and that the software and systems required to operate our business and
provide our services were Year 2000 compliant. As a result, we did not incur,
and do not expect to incur, any material expenditures relating to Year 2000
systems remediation.

We are not aware of any material problems resulting from Year 2000 issues
associated with products and services of third party providers. We will continue
to monitor our mission critical computer applications and those of our suppliers
and vendors throughout the Year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.

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BUSINESS

OUR COMPANY

Our DSL service offers high-speed data, voice, Internet and video
connectivity. We began offering QuikSpeed on a limited basis in September 1999
and are preparing to broadly introduce the service in April 2000. As of March
15, 2000, we had 137 orders for DSL service and we had installed the necessary
DSL equipment for 100 of these orders.

- our ability to offer one-stop services for voice, including local and
long distance, and data, all on a single bill;

- our ten years of providing superior customer service to small and
medium-sized businesses, as evidenced by our low customer turnover or
churn rate which has averaged 4.7% over the last three years;

- our in-depth knowledge of our geographic market, including our long-term
relationship with our customers;

- our ability to offer VPN functionality for voice and data transmission;

- our QuikSpeed DSL service permits voice over DSL, creating a lower cost
solution to our customers, and does not require our customers to have
their own ISP;

- our interconnection agreement with Bell Atlantic for New Jersey.

Our Centrex voice service network currently interfaces with 70 Bell
Atlantic central offices in New Jersey. In March 2000, we entered into an
interconnection agreement with Bell Atlantic which allows us to collocate our
networking equipment in Bell Atlantic central offices in each local area in
which we operate in New Jersey, providing a direct connection between us and our
customers. We expect to have approximately 20 collocations operational by
December 31, 2000. This agreement further enables us to provide fully
operational local and toll service. Where we do not have collocation facilities,
we will install DSLAMs, ATM switches and test equipment in leased facilities
which we will connect to the central office. We believe that pursuing a
"smart-build" strategy, whereby we own more of the network elements, while
continuing to lease transmission lines, will allow us to eventually generate
higher operating margins, obtain origination and termination fees from other
carriers and maintain greater control over our network operations and service
quality.

telecommunications services and our QuikSpeed DSL services all on a single bill.
Many of our target customers want customized solutions but do not have the
internal expertise to design, purchase and maintain these kinds of systems and
services themselves.

- implementing a rapid DSL roll-out;

- offering our customers one-stop shopping;

- maximizing speed to market through our smart-build strategy;

- focusing on the small and medium-sized business market;

- building market share by focusing on direct sales; and

- providing superior customer service.

INDUSTRY BACKGROUND

Market Trends

According to data published by the FCC, the United States local and long
distance telecommunications market had revenues of approximately $210 billion in
1998, $65.6 billion of which were generated within the Bell Atlantic footprint.
The Bell Atlantic footprint consists of portions of Connecticut, New York,
Maine, Massachusetts, New Hampshire, Rhode Island, Vermont, New Jersey,
Pennsylvania, Virginia, West Virginia, Maryland, Delaware and Washington, D.C.
In addition, industry sources have projected the United States small business
market for DSL will reach $2.3 billion by 2003. The small business market is
defined as businesses with fewer than 100 employees.

We believe that a number of important trends are reshaping the United
States telecommunications industry, creating substantial market opportunity.
These trends include:

- rapid opening of telecommunications networks to competition;

- increasing demand, particularly from small and medium-sized businesses,
for

- high-speed data services, such as DSL;

- Internet access and transport;

- personal computer-based applications;

- telecommuting solutions;

- integrated and customized solutions; and

- emergence of electronic commerce in the marketplace.

We believe that the primary determinants of a competitive local exchange
carrier's ability to take advantage of these opportunities will be:

- the ability to provide one-stop shopping on a single bill;

- speed to market;

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- availability of scalable service offerings;

- customized solutions;

- superior customer service;

- building a direct sales force; and

- the ability to provide competitively priced services.

By leveraging existing customer relationships and bundling service
offerings, competitive local exchange carriers have begun to exploit a variety
of opportunities, including high-speed Internet access and transport, DSL,
local-area and wide-area network connectivity, managed network services, virtual
private networks, remote access and electronic commerce services. We believe
that new entrants have an excellent opportunity to establish themselves as
leading providers of such value-added services.

DSL Service

DSL technology has emerged as a commercially viable, cost-effective means
of providing high-speed data transmission using an existing telecommunications
network. DSL technology enables the transmission of packets of voice and data
over existing copper telephone wires, which allows multiple users to
simultaneously transmit and receive voice and data over a single connection. DSL
equipment, when deployed at each end of a standard copper telephone line,
increases the data carrying capacity of the line speeds depending on the type of
DSL service, distance between the user and the central office and the quality of
the copper telephone line. There currently are five types of commercially
available DSL service. The following table lists the types of DSL and their
respective speeds. Speed is measured in kilobits per second, or kb/s, or
megabits per second, or mb/s.

<TABLE>
<CAPTION>
MAXIMUM SPEED MAXIMUM SPEED
TO CUSTOMER FROM CUSTOMER
TYPE OF DSL SERVICE (DOWNSTREAM) (UPSTREAM)
- ------------------- ------------- -------------
<S> <C> <C>
IDSL 160 kb/s 160 kb/s
SDSL 1.54 mb/s 1.54 mb/s
HDSL 2.048 mb/s 2.048 mb/s
ADSL 9 mb/s 648 kb/s
VDSL 27 mb/s 1.1 mb/s
</TABLE>

In order for DSL service to operate at its maximum speed, the provider's
DSL equipment must be located in or near an incumbent local exchange carrier's
central office no more than 12,000 feet to 15,000 feet away from the customer's
site.

By using existing facilities and copper telephone lines, DSL avoids the
considerable up-front fixed costs necessary to deploy alternative high-speed
digital telecommunications technologies, such as fiber, cable, wireless and
satellite networks. As a result, a significant portion of the investment in a
DSL network is incurred only as customers order the service. In addition, we
anticipate that continued advances in DSL technologies and transmission speeds,
as well as advances in DSL equipment manufacturing efficiencies, will further
reduce the cost of deploying DSL services.

Small and Medium-Sized Businesses

Small and medium-sized businesses are increasingly using high-speed
telecommunications connections to access the Internet in order to compete more
effectively with larger organizations. High-speed data services and Internet
connectivity are becoming increasingly important due to the dramatic increase in
Internet usage and the proliferation of personal computer and Internet
Protocol-based applications. The popularity of the Internet with consumers has
also driven the rapid growth in exploiting the Internet as a commercial medium,
as businesses establish websites, corporate intranets and extranets and
implement electronic commerce applications to expand their customer reach and
improve their telecommunications efficiency. International Data Corporation, or
IDC, predicts that as of December 31, 2000, 51% of small to

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medium-sized businesses will have Internet access. To remain competitive, we
believe companies will require high-speed connections to maintain complex
Internet websites, to access critical information and business applications, and
to communicate more efficiently with employees, customers and suppliers. We
believe DSL service is particularly attractive to small and medium-sized
businesses who seek to obtain these high-speed data services at affordable
prices. IDC also forecasts that, in the United States, small business DSL lines
will increase from 60,000 in 1999 to 2.5 million in 2003, representing 20% of
all DSL lines. DSL service provides a lower cost alternative to T-1 lines, which
are typically used by larger businesses. A T-1 line costs, on average, from $400
to $600 per month. In addition, because small and medium-sized businesses
typically have no telecommunications manager, their ability to navigate through
the various choices of local and long distance services, data services, Internet
access, paging and other customized services is limited. We believe small and
medium-sized business customers prefer to use one telecommunications service
provider that will provide them with a scalable package of services on a single
bill.

OUR GROWTH STRATEGY

Our objective is to become a leading provider of integrated
telecommunications services, including voice, DSL, data and Internet to small
and medium-sized businesses in New Jersey, Pennsylvania, New York, Massachusetts
and portions of Connecticut. By offering a comprehensive package of high-speed
telecommunications services, together with traditional local and long distance
services, we believe that we can accelerate our ability to establish new
customer accounts and cross-sell our existing scalable telecommunications
services. Our strategy to meet this objective is to:

Implement a rapid DSL roll-out. We intend to leverage our existing
customer base to build a significant customer base for our QuikSpeed DSL service
of high-speed voice, data, Internet and video connectivity. This service seeks
to capitalize on the growing demand for high-speed digital telecommunications by
small and medium-sized businesses who are seeking lower cost alternatives to T-1
lines. In April 2000, we introduced our QuikSpeed DSL service on a broad basis.
As of March 15, 2000, we had 137 orders for DSL service and we had installed the
necessary DSL equipment for 100 of these orders.

We expect to have approximately 20 collocations operational by December 31,
2000.

Offer our customers one-stop shopping. We offer our customers one-stop
shopping for telecommunications services by offering them the ability to
purchase from a single provider on a single bill a comprehensive package of
telecommunications services, including local and long distance services, DSL
data and voice services, Internet services and local area network
interconnections. We believe that our ability to provide one-stop shopping for
telecommunications services, all conveniently invoiced in a single bill, will
enable us to better meet the needs of our customers, penetrate our target
markets, capture a larger portion of our customers' total expenditures on
telecommunications services.

Maximize speed to market through our smart-build strategy. We believe our
switched-based, leased-transport, or "smart-build," strategy enables us to
roll-out our complete suite of telecommunications services and generate revenue
more rapidly than if we first constructed our own transmission lines. Under this
strategy, we plan to:

- deploy our QuikSpeed DSL service using existing copper telephone lines as
our solution to the growing demand for integrated voice, high-speed data
and Internet services;

- locate our equipment in or near the central office facilities of Bell
Atlantic as indicated by customer demand; and

- lease unbundled network elements from other carriers until growth
justifies acquiring additional network assets.

We believe that this flexible deployment strategy has the additional
advantage of reducing initial capital requirements in each market, allowing us
to focus our capital resources on equipping central offices where customer
demand for DSL services justifies such capital outlay. Once we install our DSL

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<PAGE> 40

equipment in a central office, our subsequent capital investments to expand
service from that location are directly related to the number of customers who
order our DSL service. This reduces our overall capital expenditures until
additional paying customers have ordered our service. Where we cannot collocate
in a central office, we plan to install DSL equipment in nearby leased
facilities and connect such equipment to the central office.

We believe our relationship with Bell Atlantic is a key facilitator of our
strategy. In March 2000, we executed an interconnection agreement with Bell
Atlantic which allows us to collocate in multiple Bell Atlantic central offices
in areas in which we operate in New Jersey. We will need to enter into
interconnection agreements with Bell Atlantic in each of the other States in our
target market over the next two years. Our existing interconnection agreement
will contain an implementation schedule for collocation for business and
residential services in New Jersey. The agreement also includes:

- access to unbundled network elements;

- the switching and routing of service;

- reciprocal compensation for the transport and termination of local calls
over the terminating carrier's switch;

- network maintenance and management;

- number portability; and

- directory services, such as listing information and directory
assistance.

Focus on the small and medium-sized business market. We believe that small
and medium-sized businesses have significant and increasing needs for advanced
telecommunications services. We believe that incumbent local exchange carriers
have generally neglected to target these small and medium-sized businesses. Our
strategy is to meet these needs by offering customized solutions, integrated
telecommunications services and our QuikSpeed DSL services all on a single bill.
Many of our target customers want customized solutions but do not have the
internal expertise to design, purchase and maintain these kinds of systems and
services themselves. We believe that these target customers are not adequately
served by incumbent local exchange carriers who typically offer customized
solutions only to large customers. Our scalable service offerings allow us to
offer customized solutions to all customers. We believe our QuikSpeed DSL
service will be attractive to small and medium-sized businesses because it
provides voice and high-speed data services without the high costs associated
with a T-1 line.

Build market share by focusing on direct sales. We intend to sell directly
to customers and provide them personalized customer care through a single point
of contact. We often act as a consultant to our small and medium-sized business
customers who typically do not have an in-house telecommunications manager. We
believe that employing a direct sales force with extensive local market and
telecommunications sales experience, rather than independent representatives who
tend to be less technologically proficient, enhances the likelihood of success.
We intend to expand our direct sales force by adding approximately 28 in-house
sales professionals during 2000 to service our existing customer base as well as
to implement our rapid QuikSpeed DSL deployment plan. We believe that a larger
direct sales force will enable us to learn additional information from our
customers about their needs and preferences and help us expand our service
offerings to include additional value-added services based on customer demand.

Provide Superior Customer Service. We believe that superior customer
service is critical to attracting and retaining customers. We continually seek
to enhance our service approach, which utilizes a highly trained team of
customer sales and service representatives to coordinate customer installation,
billing and service. Our information systems provide integrated functionability
for all aspects of our business. Our experienced customer care representatives
provide 24x7 customer support. Our superior customer service is evidenced by our
low annual churn rate which has averaged 4.7% over the last three years.

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OUR NETWORK STRATEGY

Overview. We intend to pursue a "smart-build" network deployment strategy
that involves owning and operating our own switches while leasing transmission
lines on an incremental basis as customer demand dictates. Our strategy has been
to build a geographic concentration of customers before building, acquiring or
extending our network to serve those customers. Once this geographic
concentration exists and network economics justify deployment, we plan to expand
our switching transport capacity and migrate existing customers onto our
network. Currently, we have identified certain capital expenditures related to
the enhancement of our network to provide DSL and various value-added services.
We intend to use a portion of the proceeds of this offering to fund such capital
expenditures.

We believe that expanding control over certain components of our network,
rather than relying solely on the telecommunications facilities of third
parties, will enable us to have more flexibility in meeting customer needs for
new services. We believe expansion of our network will allow us to generate
higher operating margins, obtain origination and termination fees from other
carriers and maintain greater control over our network operations and service
quality. Where expected market penetration does not economically justify the
deployment of our own network elements, we will continue to utilize the networks
of alternative carriers. For customers outside of our target markets, we can
provide services through the resale of other carriers' services.

Our QuikSpeed DSL service will permit voice as well as data transmission.
We believe that by combining voice and data transmissions over one line, we will
substantially lower our aggregate costs for providing DSL service.

To roll-out our QuikSpeed DSL service, we intend to install DSLAM equipment
in or near strategically located Bell Atlantic central offices where we expect
customer demand to be greatest. We estimate that it will cost between $285,000
to $310,000 to lease space, purchase and install our equipment in each central
office we enter. We will also acquire DSL modems to lease to our customers at
their locations to interface with our network.

As of December 31, 1999, we had over 35,000 local access lines providing
local and long distance services and approximately 28,000 equal access lines
providing local toll and long distance services. Approximately 60% of this
traffic historically has originated and terminated on our network.

Integrated network architecture. We provide services to our customers over
a single integrated network that supports local, long distance and high-speed
data and Internet services. We believe that the integrated design of our local,
long distance and data networks significantly reduces our cost of providing a
bundled service offering. Our integrated network architecture includes customer
premise equipment, unbundled network elements, collocations, switches and an ATM
network which utilizes synchronous optical network, or SONET, fiber rings.

Unbundled network elements. To reach our customers, we lease simple copper
loops, or, if customer traffic justifies, T-1 lines, as unbundled network
elements, or UNEs, from the incumbent local exchange carrier. By utilizing UNEs,
we obtain access and termination revenues as if we owned the copper loop and are
able to rapidly connect the customer directly to our network. We are also able
to avoid the cost and delay associated with deploying our own fiber lines to our
customers' premises. We are not burdened by the operating and financing expenses
associated with owning a fiber optic transport network. To support our planned
high-speed DSL service, we plan to provide our customer with a DSL modem that we
connect digitally to a copper loop that we will lease as a UNE.

Collocation facilities. Our Centrex voice service network currently
interfaces with 70 Bell Atlantic central offices in New Jersey. In March 2000,
we entered into an interconnection agreement with Bell Atlantic which allows us
to collocate in Bell Atlantic central offices in any local area in which we
operate in New Jersey. With this ability to collocate, each UNE we deploy,
whether for local service or high-speed DSL service, will be a direct connection
from our customer to a collocation facility. Within each collocation facility,
we plan to deploy digital access nodes to support switched voice services, and

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DSLAMs to support our high-speed DSL service offering. This approach is designed
to be scalable in order to support emerging applications as customer
requirements dictate.

Where we do not have collocation facilities, we will install DSLAMs in
nearby leased facilities which we will connect to the central office. Where it
is not economically feasible to deploy such facilities, we intend to resell DSL
services of other providers. As a collocation becomes operational, we will
migrate local and DSL customers onto our own network facilities.

DSL modems and on-site connections. We will purchase DSL modems and lease
them to our customers as part of the DSL service contract. We will configure the
DSL modem and arrange for the installation of the modem and on-site wiring
needed to connect the modem to the copper telephone line that we lease. We plan
to contract with independent field service organizations to perform these
services, in addition to using a small internal staff.

Copper telephone lines. We will lease a copper telephone line running to
each customer from our equipment in the incumbent local exchange carrier's
central office under terms specified in our interconnection agreements with such
carriers. Each copper line must be specifically conditioned by the incumbent
local exchange carrier to carry digital signals, typically for an additional
charge.

Switching platforms. In 1995, we began operating our first switch, a
Siemens/Stromberg Carlson DCO (CS) Class 4 switch. In November 1999, we began
operating a Siemens EWSD Class 4/5 switch which is capable of handling DSL
traffic. We are in the process of migrating traffic from the Class 4 switch to
the Class 4/5 switch. After this migration, we plan to discontinue use of the
Class 4 switch. We also lease DS-3s which integrate hundreds of T-1's from Bell
Atlantic Centrex dedicated customers into our switching system.

All of our local and long distance switched services use Signaling System
7, or SS7, services for enhanced network efficiencies and increased customer
satisfaction. The SS7 signaling system reduces connect time delays, thereby
enhancing overall network efficiencies.

Transmission capacity. We currently lease our transmission lines from
interexchange carriers, incumbent local exchange carriers and other competitive
local exchange carriers. We currently lease transmission lines from Bell
Atlantic, Sprint, Qwest, RSL Communications, CNE Communications (formerly
Fonorola) and Cable and Wireless. We generally seek to lease fiber optic
transmission lines in each of our current and target markets and work with
carriers to ensure connections to SONETs wherever possible. This increases
network transmission capacity and improves service restoration following a fiber
optic cable failure on the core network.

Interconnection. We have an interconnection agreement with Bell Atlantic
covering New Jersey. As we expand our network into other portions of the Bell
Atlantic footprint, we will need to enter into additional interconnection
agreements with Bell Atlantic covering certain new states we enter. Each
interconnection agreement we enter into with Bell Atlantic is subject to
approval of the relevant state utility commission. Under the terms of the
Telecom Act, each incumbent local exchange carrier is required to negotiate
interconnection agreements with competitive local exchange carriers. Where an
interconnection agreement cannot be reached on terms and conditions satisfactory
to us, we may pursue arbitration of any disputes before the state utility
commissions as provided under the Telecom Act. In states where collocation is
available through tariffs, we plan on collocating pursuant to available tariffs.

Information systems. Our current information system supports the following
applications:

- a customer billing retrieval system supporting six years of prior
invoicing;

- a tracking system covering all customer records, order entry, trouble
tickets and sales information;

- call detail record rating and billing operations;

- a complete scanning and retrieval system;

- Internet and e-mail connectivity; and

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- an on-line Internet retrieval system supporting both sales professionals
and customer billing and reporting.

We plan to tailor and upgrade our information systems and procedures to satisfy
changing customer requirements.

Orders are received through the United States mail, fax, or the Internet
and scanned electronically into various databases. Credit is checked via on-line
connectivity with various credit reporting agencies and the orders are processed
with multiple local exchange carriers and underlying carriers. The individual
process varies from electronic data entry to handwritten orders. Call detail
from our two switches and underlying carriers are rated on a daily basis. We
provide consolidated billing with our proprietary billing system. Billing
reports and invoicing are produced on a single cycle at the end of the month.

SERVICES

We have tailored our scalable voice, data and Internet service offerings to
meet the specific needs of small and medium-sized businesses. Through our direct
sales force, we are able to further customize service offerings to meet our
customer's needs.

Local services. We provide local telephone services including local toll
service, via Centrex. Centrex is a business voice service offered by a local
telephone company from a local central office. Centrex offers features similar
to those of a PBX, or a private branch exchange. Through Centrex service, small
and medium-sized businesses are able to avoid the costs of locating expensive
equipment at their own premises. Some of the Centrex features include intercom,
call forwarding, call transfer, toll restriction, least cost routing and call
hold.

Long distance services. We provide domestic and international long
distance services. Long distance calls which do not terminate on our network are
passed to long distance carriers which route the remaining portion of the call.
As our customers grow geographically, we can service their branch offices across
the United States by providing the long distance services of other carriers. Our
ability to integrate local and long distance services allows us to aggregate a
customer's monthly recurring, local usage and long distance in bound and out
bound charges on a single, consolidated bill.

QuikSpeed DSL services. We are preparing to broadly introduce DSL service
in April 2000 under the name "QuikSpeed." We began offering QuikSpeed DSL
service in September 1999 on a limited basis. As of March 15, 2000 we had 137
customers for QuikSpeed service. DSL technology is a cost-effective means of
providing high-speed data transmission using existing copper telephone lines.
Our QuikSpeed DSL service will permit voice as well as data transmission. We
believe that by combining voice and data transmissions over one line, we will
substantially lower our aggregate cost for providing DSL service.

We currently offer Symmetrical DSL, or SDSL service, which provides up to
1.54 megabits per second of speed to and from the customer. The speed and
effectiveness of the DSL connection varies based on a number of factors,
including the distance of the customer from the central office and the condition
of the copper line that connects the customer to the central office.

VPN services. Virtual private networks, or VPNs, are generally used to
connect the separate locations of a single business beyond the local calling
area. Our VPN services include a dedicated, non-switchable link from one or more
customer-specified locations to other customer-specified locations. We provide
these services by leasing required network facilities.

Switched digital services. Switched digital services provide the
capability to transmit voice, video or data. These services allow a customer to
transmit at full duplex, digital synchronous 56/64 kilobits per second or
higher.

Frame relay. Our frame relay services are designed for customers requiring
the flexibility of serving single or multiple locations from one originating
location. These services can be used to facilitate multi-media networking
between high-speed devices such as work stations, super computers, routers and
bridges. We currently have nationwide availability.
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Enhanced Internet services. We offer dedicated and dial-up high-speed
Internet access services. Dedicated access services are telecommunications lines
dedicated or reserved for use by particular customers. Our Internet services
also include e-mail, web hosting, website design and dial-up services for our
customers' employees.

VDSL. When network demand is light, we intend to offer VDSL to our
customers to take advantage of excess capacity. VDSL allows customers to access
video data such as movies and video games over their personal computers.

Value-Added services. In addition to these services, we offer additional
value-added services to compliment our core local and long distance services,
including:

- Audioconferencing. This service allows up to 1,000 toll callers and up
to 60 local callers to communicate at the same time.

- Audio 2000 and Directory Live. This service allows customized telephone
commercials and Internet advertising for our customers and also allows
them to establish a customer website.

- Calling Cards. These traditional calling cards allow the user to place
calls from anywhere in the United States or Canada. We offer features
such as conference calling, international origination, speed dialing and
messaging.

- Cellular Service. We provide economical outbound long distance and
international calling and equipment for cellular telephone service.

- Videoconferencing. We provide video and audio telecommunication between
two or more people via a videocodec at either end and linked by digital
circuits.

- Integrated Billing On-Line. We provide our customers with a single bill
for all of their telecommunications services. These integrated billings,
which are also available on-line or on CD-ROM, permit our customers to
better analyze their telecommunications expenditures. Our billing
on-line service allows customers to access in a second environment and
manipulate the data within the bill in conducting their customized
analysis.

Unified messaging. We are currently testing a unified messaging service
which will enable customers to direct, retrieve, deliver, compile and manage
their voice telecommunications through a single telephone number.

Services under development. We are currently developing the following
service offerings:

- data-only Asymmetrical DSL, or ADSL, which we plan on deploying by the
end of this year, which will provide up to nine megabits per second; and

- application oriented services such as the ability to block telemarketing
calls.

SALES AND MARKETING

Sales. Currently, our sales and marketing efforts are directed through a
network of commission-based independent agents and a direct sales force of
professionals primarily focused on cultivating new accounts and maintaining and
expanding existing accounts. As we expand our service offerings, we believe that
a direct sales force is more effective to capitalize on cross-selling
opportunities. Therefore, we intend to increase our direct sales force from
seven to 35 professionals, by December 31, 2000. We plan to accomplish this, in
part, by recruiting from the most effective of our 85 independent
representatives. By the end of 2001, we plan to have a sales force equally
divided between direct sales people and independent agents. Unlike large
businesses, our small to medium-sized business customers typically have no
in-house telecommunications manager and generally can make decisions concerning
telecommunications services in a relatively short time frame. Our experienced
sales professionals work closely with the decision maker in such businesses to
analyze their telecommunications needs and provide responsive solutions in a
short period of time.

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All new sales representatives receive formal training to give them a
thorough knowledge of our services. We train our sales force with a
customer-focused program that promotes increased sales through both customer
attraction and customer retention.

We will continue to seek salespeople with strong sales backgrounds in our
existing and target markets, including salespeople from long distance companies,
telecommunications equipment manufacturers, network systems integrators and
incumbent local exchange carriers. We plan to continue to attract and retain
highly qualified salespeople by offering them an opportunity to work with an
experienced management team in an entrepreneurial environment and to participate
in the potential economic rewards made available through a results-oriented
compensation program that emphasizes commissions based upon continuing sales
with a customer. We believe this gives us a competitive advantage in attracting
and retaining sales personnel.

Our sales force compensation strategy is designed to provide significant
incentives for customer retention. We compensate all sales personnel with both a
salary and a commission structure based on signing new customers and retaining
existing customers. We believe that our compensation structure motivates each
sales person to remain actively involved with customers and participate in the
customer support process. We believe this approach provides us with competitive
advantages that increase customer retention and cross-selling opportunities and
reduce the costs of customer support.

Marketing. In our existing markets, we position ourselves as a high
quality alternative to the incumbent local exchange carrier by offering a
complete package of customized voice, data and Internet services conveniently on
a single bill. This is designed to allow us to capture the total
telecommunications expenditures of any single customer. Through our QuikSpeed
DSL roll-out, we also plan to market new customers who may become customers for
our other services. We offer network reliability and superior customer support
at competitive prices. We intend to build our reputation and brand identity by
working closely with our customers to develop services tailored to their
particular needs and by implementing targeted advertising and promotional
efforts, such as print ads, cable advertising and direct mail. Marketing
personnel identify potential business customers by several methods, including
customer referral, market research and telemarketing.

CUSTOMERS

Our 7,500 small and medium-sized business customers for voice service
include regional banks, alarm companies, universities, healthcare providers,
real estate agencies, law firms, telemarketers and transportation companies. The
majority of our customers are located in New Jersey, and we plan to aggressively
expand our services to Pennsylvania, New York, Massachusetts and portions of
Connecticut. We have targeted potential large volume users of our services such
as businesses who have intranets and extranets or who make significant use of
the Internet. Our target customers are businesses with fewer than 100 employees
with telecommunications service costs ranging from $400 to $5,000 per month.

Our target customers, particularly for DSL services, include our existing
base of 7,500 small and medium-sized business customers as well as the
following:

- businesses currently using other high-speed data telecommunications
services, such as T-1, ISDN, or Integrated Services Digital Network, and
frame relay services, or low-speed dial-up Internet access;

- professional or service-based firms that have multiple ISP accounts and
phone lines;

- branch offices that require transmission of large files between
locations;

- businesses with a substantial amount of revenue from mail order or
Internet sales from customers outside their immediate geographic
territory; and

- businesses that use data-intensive applications, such as financial
services, technology, and publishing.

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None of our customers accounted for more than 5% of our total revenues in
either fiscal 1999 or the first six months of fiscal 2000. Our customer churn
rate has averaged 4.7% over the last three years.

CUSTOMER SERVICE

We believe that superior customer service is critical to attracting and
retaining customers. We continually seek to enhance our service approach, which
utilizes a highly trained team of customer sales and service representatives to
coordinate customer installation, billing and service. Our information systems
are designed to provide integrated functionality for all aspects of our
business, including order provisioning and monitoring, customer care and
billing.

We provide 24x7 customer support primarily through our Network Operations
Control Center, or NOCC, located in Belleville, New Jersey. Experienced customer
care representatives answer all customer calls. Many of our customer care
representatives are cross-trained in sales, allowing customers to work with a
single representative.

The NOCC is a single point of interface for monitoring all of the networks
and provisioning services and systems necessary to operate the network. The NOCC
is designed to accommodate our anticipated growth. The NOCC is utilized for a
variety of network management and control functions, such as trouble resolution,
trouble ticket status and carrier interface. The NOCC is located with the
provisioning, testing and business office functions. In addition, the NOCC
maintains a database of circuits and network availability. Highly trained
technicians monitor our network 24 hours a day, to ensure the highest quality
transmissions. We conduct monthly or quarterly meetings with each of our
telecommunications service providers to assess service levels, order status,
trouble ticket resolution and commitment levels.

Our customer support department currently receives approximately 320
support calls per day. We believe that our level of customer service will
provide us with a competitive advantage selling local and DSL services. As of
December 31, 1999, we employed 20 people in customer support provisioning. We
anticipate that we will continue to hire additional customer support personnel
as the size of our customer base increases.

COMPETITION

The telecommunications industry is highly competitive. We believe that the
principal competitive factors affecting our business will be pricing, network
reliability, broad service offerings, customer service and accurate billing. Our
ability to compete effectively will depend upon our continued ability to
maintain high quality, market driven services at prices generally equal to or
below those charged by our competitors. To maintain our competitive posture, we
believe that we must be in a position to reduce our prices in order to meet
reductions in rates, if any, by others. Any such reductions could adversely
affect us. Many of our current and potential competitors have financial,
personnel, and other resources, including brand name recognition, substantially
greater than ours as well as other competitive advantages over us.

Incumbent Local Exchange Carriers. In each of the markets we have
targeted, we will compete principally with Bell Atlantic, the incumbent local
exchange carrier servicing New Jersey, New York, Pennsylvania, Massachusetts and
portions of Connecticut. Bell Atlantic is now able to offer long distance
services to its local telephone customers in New York. Bell Atlantic and the
other regional Bell operating companies are actively seeking removal of federal
regulatory restrictions that prevent them from entering the long distance market
in other states. Many experts expect the regional Bell operating companies to be
successful in entering the long distance market in other states within the next
two years. We believe the regional Bell operating companies expect to offset
market share losses in their local markets by capturing a significant percentage
of the long distance market.

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The regional Bell operating companies and other local telephone companies
have the following competitive advantages:

- long-standing relationships with their customers;

- substantially greater financial, technical and marketing resources;

- ability to subsidize competitive services with revenues from a variety
of businesses;

- long-standing relationships with regulatory authorities at the federal
and state levels; and

- certain existing regulations that favor the incumbent local exchange
carriers over us in certain respects.

While recent regulatory initiatives, which allow competitive local exchange
carriers such as ourselves to interconnect with incumbent local exchange carrier
facilities, provide us with increased business opportunities, such
interconnection opportunities have been, and likely will continue to be,
accompanied by increased pricing flexibility for and relaxation of regulatory
oversight of the incumbent local exchange carriers.

The FCC recently adopted an order that provides for increased incumbent
local exchange carrier pricing flexibility and deregulation of some access
services and provides a framework of increased pricing flexibility of other
services based on a showing by the incumbent local exchange carrier that there
exists facilities-based competition in specified geographic areas. After meeting
these requirements, incumbent local exchange carriers will be allowed to offer
discounts to large customers through contract arrangements. The order also
permits incumbent local exchange carriers to offer new access services by filing
tariffs without prior approval and dispensing with the requirement that they
provide cost supports for their pricing. The FCC also issued a Notice of
Proposed Rulemaking that would permit added pricing flexibility for local
exchange carriers for additional services conditioned on to be determined
competitive criteria and initiates an inquiry into whether competitive local
exchange carrier access rates should be regulated. Implementation of the FCC's
order could have a material adverse effect on us. As purchasers of access
services, we may see increased competition for those services which could lower
prices we have to pay for such services.

Competitive Access Carriers/Competitive Local Exchange Carriers/Other
Market Entrants. We also face, and expect to continue to face, competition from
other current and potential market entrants, including:

- long distance carriers seeking to enter, re-enter or expand entry into
the local exchange market such as AT&T, MCI Worldcom, and Sprint;

- other competitive local exchange carriers;

- out-of-region incumbent local exchange carriers;

- resellers of local exchange services;

- cable television companies;

- electric utilities;

- microwave carriers;

- wireless telephone system operators; and

- private networks built by large end-users.

In addition, a continuing trend toward mergers, acquisitions and strategic
alliances in the telecommunications industry could also increase the level of
competition we face. Consolidation is also occurring in the incumbent local
exchange carrier industry, such as the proposed plans for mergers between SBC
and Ameritech, and between Bell Atlantic and GTE. These types of consolidations
and alliances could put us at a further competitive disadvantage.
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The Telecom Act imposes certain regulatory requirements on all local
exchange carriers, including competitors such as ourselves, while granting the
FCC expanded authority to reduce the level of regulation applicable to any or
all telecommunications carriers. The manner in which these provisions of the
Telecom Act are implemented and enforced could have a material adverse effect on
our ability to successfully compete against incumbent local exchange carriers
and other telecommunications service providers.

The changes in the Telecom Act radically altered the market opportunity for
traditional competitive local exchange carriers. Because many existing
competitive local exchange carriers initially entered the market providing
dedicated access in the pre-1996 era, they had to build a fiber infrastructure
before offering services. Since 1996, switches were added by most competitive
local exchange carriers to take advantage of the opening of the local market.
With the Telecom Act requiring unbundling of the incumbent local exchange
carrier networks, competitive local exchange carriers are now able to enter the
market more rapidly by installing switches and leasing fiber transport capacity
until traffic volume justifies building facilities. New competitive local
exchange carriers will not have to replicate existing facilities and can be more
opportunistic in designing and implementing networks.

Competition for Provision of Long Distance Services. The long distance
telecommunications industry has numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. We believe that business customers have a lower
average churn rate. Prices in the long distance market have declined
significantly in recent years and are expected to continue to decline.

Data/Internet Service Providers. The competition for ISP customers in the
telecommunications industry is high and we expect that competition will
intensify. In addition, alternative competing technologies regarding this
service may emerge. Our competitors in this market include other
telecommunications companies, including integrated on-line services providers
with their own telecommunications networks. Many of these competitors have
greater financial, technological, marketing, personnel and other resources than
ours.

Cable Modem Service Providers. Cable modem service providers, such as
Excite@Home and its cable partners, are offering or preparing to offer
high-speed Internet access over cable networks to consumers and businesses.
Where deployed, these networks provide high-speed local access services, in some
cases at speeds higher than DSL service.

Wireless and Satellite Data Service Providers. Several new companies,
including Advanced Radio Telecom, Teligent and WinStar Communications, are
emerging as wireless data service providers. In addition, other companies,
including Motorola Satellite Systems and Hughes Communications, are emerging as
satellite-based data service providers. These companies use a variety of new and
emerging technologies to provide high-speed data services.

Competition from International Telecommunications Providers. Under the
recent World Trade Organization agreement on basic telecommunications services,
the United States and 68 other members of the World Trade Organization committed
themselves to opening their respective telecommunications markets to foreign
ownership and/or to adopting regulatory measures to protect competitors against
anticompetitive behavior by dominant telecommunications companies, effective in
some cases as early as January 1998. Although we believe that the World Trade
Organization agreement could provide us with significant opportunities to
compete in markets that were not previously accessible and to provide more
reliable services at lower costs than we could have provided prior to
implementation of the World Trade Organization agreement, it could also provide
similar opportunities to our competitors. There can be no assurance that the
pro-competitive effects of the World Trade Organization agreement will not have
a material adverse effect on our business prospects, financial condition and
results of operations or that members of the World Trade Organization will
implement the terms of the World Trade Organization agreement.

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REGULATION

Our telecommunications and information services business is subject to
varying degrees of federal, state and local regulation.

FEDERAL REGULATION

Overview. The FCC regulates interstate and international
telecommunications services. The FCC imposes extensive regulation on common
carriers such as incumbent local exchange carriers that have some degree of
market power. The FCC imposes less regulation on common carriers without market
power, such as us. The FCC permits nondominant carriers to provide domestic
interstate services (including long distance and local access services) without
prior authorization; but it requires carriers to receive an authorization to
operate facilities, or resell telecommunications services between the United
States and international points. We have obtained FCC authorization to provide
international services and have filed tariffs for our interstate and
international long distance services with the FCC. We are also required
periodically to pay federal regulatory fees and to file reports regarding our
international traffic and revenues. Failure to comply with these requirements
could subject us to fines and penalties. We are in compliance with most of these
requirements and have undertaken to achieve full compliance.

Telecommunications Act of 1996 and Implementing Regulations. We are also a
competitive local exchange carrier competing with incumbent local exchange
carriers such as the regional Bell operating companies subject to the provisions
of the Telecom Act. The Telecom Act is intended to increase competition by
permitting any entity, including cable television companies, and utilities, to
enter any telecommunications market, subject to reasonable state regulation of
safety, quality and consumer protection. Because implementation of the Telecom
Act is subject to numerous federal and state policy rulemaking proceedings and
judicial review, there is still uncertainty as to what impact it will have on
us.

The Telecom Act opens the local services market by requiring incumbent
local exchange carriers to permit interconnection to their networks and
establishing incumbent local exchange carriers' obligations with respect to:

- Reciprocal Compensation. Requires all incumbent local exchange carriers
and competitive local exchange carrier to complete calls originated by
competing carriers under reciprocal arrangements at prices based on a
reasonable approximation of incremental cost or through mutual exchange
of traffic without explicit payment.

- Resale. Requires all incumbent local exchange carriers and competitive
local exchange carriers to permit resale of their telecommunications
services without unreasonable restrictions or conditions. In addition,
incumbent local exchange carriers are required to offer wholesale
versions of all retail services to other telecommunications carriers for
resale at discounted rates, based on the costs avoided by the incumbent
local exchange carrier in the wholesale offering.

- Interconnection. Requires all incumbent local exchange carriers and
competitive local exchange carriers to permit their competitors to
interconnect with their facilities. Requires all incumbent local exchange
carriers to permit interconnection at any technically feasible point
within their networks, on nondiscriminatory terms and at prices based on
cost (which may include a reasonable profit). At the option of the
carrier seeking interconnection, collocation of the requesting carrier's
equipment in an incumbent local exchange carrier's premises must be
offered, except where the incumbent local exchange carrier can
demonstrate space limitations or other technical impediments to
collocation.

- Unbundled Access. Requires all incumbent local exchange carriers to
provide nondiscriminatory access to specified unbundled network elements
(including certain network facilities, equipment, features, functions,
and capabilities) at any technically feasible point within their
networks, on nondiscriminatory terms and at prices based on cost (which
may include a reasonable profit).

- Number Portability. Requires all incumbent local exchange carriers and
competitive local exchange carriers to permit, to the extent technically
feasible, users of telecommunications services

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to retain existing telephone numbers without impairment of quality,
reliability or convenience when switching from one telecommunications
carrier to another.

- Dialing Parity. Requires all incumbent local exchange carriers and
competitive local exchange carriers to provide "l+" equal access to
competing providers of telephone exchange service and toll service, and
to provide nondiscriminatory access to telephone numbers, operator
services, directory assistance, and directory listing, with no
unreasonable dialing delays.

Access to Rights-of-Way. Requires all incumbent local exchange carriers
and competitive local exchange carriers to permit competing carriers access to
poles, ducts, conduits and rights-of-way at regulated prices.

Incumbent local exchange carriers are required to negotiate in good faith
with carriers requesting any or all of the above arrangements. If the
negotiating carriers cannot reach agreement within a prescribed time, either
carrier may request binding arbitration of the disputed issues by the state
regulatory commission. We recently executed an interconnection agreement with
Bell Atlantic.

The FCC established the rules implementing the above requirements and
provided guidelines for review of interconnection agreements by state public
utility commissions in its August 1996 Interconnection Decision. The specific
terms and scope of the interconnection rules has been shaped by subsequent
litigation in the federal courts, including the Supreme Court. The FCC recently
released an order largely retaining its list of unbundled network elements but
eliminating the requirement that incumbent local exchange carriers provide
unbundled access to local switching for customers with four or more lines in the
densest portion of the top 50 Metropolitan Statistical Areas, operator services
and directory assistance.

These federal court decisions continue to cause uncertainty about the rules
governing the pricing, terms and conditions of interconnection agreements.
Although state public utilities commissions have continued to conduct
arbitrations, and to implement and enforce interconnection agreements during the
pendency of the United States Court of Appeals for the Eighth Circuit
proceedings, the Supreme Court's recent ruling and further proceedings on remand
may affect the scope of state commissions' authority to conduct such proceedings
or to implement or enforce interconnection agreements. Given the general
uncertainty surrounding the effect of these decisions, we may not be able to
continue to obtain or enforce interconnection terms that are acceptable to us or
that are consistent with our business plans.

Regional Bell Operating Companies' Authority to Offer In-Region Long
Distance Service. The Telecom Act permits a regional Bell operating company to
enter the long distance market in its traditional service area if it satisfies
several procedural and substantive requirements, including obtaining FCC
approval upon a showing that 1) the regional Bell operating company has entered
into interconnection agreements, 2) under some circumstances, the regional Bell
operating company has offered to enter into such agreements in those states in
which it seeks long distance relief, 3) the interconnection agreements satisfy a
14-point checklist of competitive requirements, and 4) the FCC is satisfied that
the regional Bell operating company's entry into long distance markets is in the
public interest. The Telecom Act permitted the regional Bell operating company
to enter the out-of-region long distance market immediately upon its enactment.
Recently, the FCC approved Bell Atlantic's petition to offer long distance in
New York. The FCC's decision has been appealed to the United States Court of
Appeals for the District of Columbia Circuit, or the D.C. Circuit, which, on
January 27, 2000, declined to stay the FCC's decision pending appeal. Bell
Atlantic therefore has begun to provide long distance service in New York, one
of our target markets for providing services including long distance services.
Bell Atlantic is also in the process of applying for, and may obtain, authority
to offer in-region long distance services in other states within our target
geographic region.

Tariffs. The FCC has attempted to eliminate, in an October 1996 order, the
requirement that non-dominant carriers such as us maintain tariffs on file with
the FCC for domestic interstate services. The order does not apply to regional
Bell operating companies, such as Bell Atlantic, or other local exchange
providers. That order has been stayed by the D.C. Circuit pending its review of
the order on the merits.

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If the stay is lifted and the FCC order becomes effective,
telecommunications carriers such as us will no longer be able to rely on the
filing of tariffs with the FCC as a means of providing notice to customers of
prices, terms and conditions on which they offer their interstate services.

Access Charges. Our cost of providing long distance services, as well as
our revenues from providing local services, are affected by changes in the
access charge rates imposed by incumbent local exchange carriers on long
distance carriers for origination and termination of calls over local
facilities. The FCC has made major changes in the interstate access charge
structure, including recent changes granting price cap local exchange carriers
additional pricing flexibility. If this increased pricing flexibility is not
effectively monitored by federal regulators, it could have a material adverse
effect on our ability to price our interstate access services competitively. A
recent FCC order also initiated a rulemaking to determine whether the FCC should
regulate the access charges of competitive local exchange carriers.

Reciprocal Compensation for ISP Traffic. Several FCC and state public
utility commission rulings may affect our ability to recover reciprocal
compensation for ISP traffic. Beginning in June 1997, regional Bell operating
companies such as Bell Atlantic advised competitive local exchange carrier that
they did not consider calls in the same local calling area from their customers
to competitive local exchange carriers customers, who are ISPs, to be local
calls under the interconnection agreements between the regional Bell operating
companies and the competitive local exchange carriers. The regional Bell
operating companies claim that these calls are exchange access calls for which
exchange access charges would be owed. The regional Bell operating companies
claimed, however, that the FCC exempted these calls from access charges so that
no compensation is owed to the competitive local exchange carrier for
transporting and terminating such calls. As a result, the regional Bell
operating companies threatened to withhold, and in many cases did withhold,
reciprocal compensation for the transport and termination of such calls.

On February 25, 1999, the FCC adopted a Declaratory Ruling on reciprocal
compensation for local exchange traffic to ISPs. The FCC determined that traffic
to Internet service providers is largely interstate, which would relieve the
carrier originating such traffic of the obligation to pay reciprocal
compensation. On appeal the D.C. Circuit recently vacated the FCC's decision and
required the FCC to provide better support for its determination. Separately,
the FCC has initiated a proceeding to determine an alternative compensation
scheme for Internet traffic. We currently do not receive reciprocal compensation
for ISP traffic under our interconnection agreement with Bell Atlantic in New
Jersey, and we may never be able to obtain such compensation in New Jersey or
any other state.

Regulation of Internet Services. The FCC has to date treated ISPs as
enhanced service providers, exempt from federal and state regulations governing
common carriers, including the obligation to pay access charges and contribute
to the universal service fund. Nevertheless, regulations governing disclosure of
confidential communications, copyright excise tax, and other requirements may
apply to our provision of Internet access services. We cannot predict the
likelihood that state, federal or foreign governments will impose additional
regulation on our Internet business, nor can we predict the impact that future
regulation will have on our operations.

Universal Service. The FCC has established a significantly expanded
federal universal service subsidy regime. In a May 1997 order, the FCC
established new universal service funds to support telecommunications and
information services provided to qualifying schools and libraries and to rural
health care providers. The FCC also expanded the federal subsidies for local
exchange telephone services provided to low-income consumers. Providers of
interstate telecommunications service, such as us, as well as certain other
entities, must pay for these programs. Our contribution to these universal
service funds is based on our telecommunications service end-user revenues.
Currently, the FCC assesses such payments on the basis of a provider's revenue
for the previous year. We are currently unable to quantify the amount of future
subsidy payments that we will be required to make and the effect that these
required payments will have on our financial condition because of uncertainties
concerning the size of the universal fund and uncertainties concerning the
classification of ours services. The FCC has also announced that it will revise
its rules for subsidizing service provided to consumers in high cost areas,
which may result in further

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<PAGE> 52

substantial increases in the overall cost of the subsidy program. The FCC's
universal service program may also be altered as a result of the agency's
reconsideration of its policies, or by future Congressional action.

Collocation. In March 1999, the FCC adopted rules designed to make it
easier and less expensive for competitive local exchange carrier such as us to
collocate our equipment at the central offices of incumbent local exchange
carriers such as Bell Atlantic. The rules, among other things, restricted the
incumbent local exchange carrier's ability to prevent certain types of equipment
from being collocated and required incumbent local exchange carriers to offer
alternative collocation arrangements which will be less costly. The D.C. Circuit
recently overturned portions of those rules, holding that they allow competitive
local exchange carriers too much leeway to collocate multifunctional equipment,
connect with other competitive local exchange carriers, and decide, over
incumbent local exchange carrier objections, where to place equipment in
incumbent local exchange carrier premises. The Court directed the FCC to
redefine the terms that the court considered over broad in further proceedings.

Digital Wiretapping. The Communications Assistance to Law Enforcement Act,
or CALEA, enacted in 1994, requires telecommunications carriers to make
available certain telecommunications capabilities to United States law
enforcement officials to permit those authorities to continue to intercept
communications involving advanced technologies such as digital and wireless
transmission communications. As a telecommunications carrier, we are obligated
to ensure that our equipment, facilities, and services will meet capability and
capacity requirements in order to enable law enforcement agencies to intercept
wireline and wireless transmission communications transmitted over our network.
Courts may impose fines of up to $10,000 per day on telecommunications carriers
that fail to meet the required capability functions, as determined by industry
standards. We are also required to meet a CALEA capacity requirement mandating
that, by March 12, 2001, carriers enable a specific number of simultaneous
interceptions determined on a geographic basis. We cannot predict the nature and
extent of the impact that the CALEA requirements will have on us in general.

Regulation That Particularly Affects DSL Services. To provide DSL services
we will lease necessary network elements from incumbent local exchange carriers
such as Bell Atlantic or resell the DSL services that they offer to their retail
customers. The FCC has adopted and is considering several regulations that
particularly affect the rates, terms and conditions upon which we can obtain
these elements and services and our ability to compete in the DSL market.

- Advanced Services Orders. In August 1998, the FCC adopted requirements
for incumbent local exchange carriers such as Bell Atlantic to offer to
competitive local exchange carriers such as us the necessary unbundled
network elements to provide advanced data transmission services. The FCC
concluded that DSL services are telecommunications services and,
therefore, incumbent local exchange carriers are required (a) to allow
interconnection of their facilities and equipment used to provide data
transport functionality, such as unbundled local telecommunications
lines, and (b) to offer for resale DSL services. This decision has been
the subject of appeals and further litigation.

In a separate context, the FCC recently reaffirmed its conclusion that
incumbent local exchange carriers must offer their retail DSL services
at a discount to competitive local exchange carriers for resale. The FCC
clarified, however, that DSL services provided to ISPs would not be
subject to resale at a discount. Accordingly, incumbent local exchange
carriers may enter into volume and term discounts for the provisioning
of DSL services for ISPs without having to make such arrangements
available to other requesting competitive local exchange carriers at
discounted rates. The FCC has thus allowed Bell Atlantic to sell its DSL
services at a discounted price to ISPs who commit to buying Bell
Atlantic's DSL service in bulk over a multi-year period for resale to
consumers. This FCC decision could adversely affect us if it gives ISPs,
particularly large ISPs such as America Online, an economic incentive to
use Bell Atlantic to meet all of their DSL needs in order to qualify for
the bulk discount pricing that Bell Atlantic now offers

- Line Sharing. The FCC recently ruled that incumbent local exchange
carriers are required to provide line sharing, which will allow
competitive local exchange carriers such as us to offer data
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<PAGE> 53

services over the same copper line the consumer uses for voice services
without the competitive local exchange carrier being required to offer
the voice services. The FCC's December 1999 ruling provides for state
PUCs to establish the prices that incumbent local exchange carriers may
charge to competitive local exchange carrier for such services. While
the rates for line sharing have not yet been determined, the FCC's order
is expected to result in lower costs for competitive local exchange
carrier to obtain copper telephone lines to provide some types of DSL
services. The FCC's order has been appealed to the D.C. Circuit. Even if
the FCC's order is upheld, further arbitration proceedings at the state
level may be required to enforce the FCC requirements. The line sharing
requirements are also subject to technical restrictions to prevent
disruptions in any services that the incumbent local exchange carrier
may provide on the same line. It is uncertain whether we will be able to
benefit from the FCC's line sharing decision.

- Separate DSL Affiliate Requirements. In various proceedings, the FCC
has considered whether incumbent local exchange carriers such as Bell
Atlantic may or should provide advanced data services through a separate
affiliate. In the proceeding in which the FCC recently granted Bell
Atlantic authority to provide long distance services in New York, Bell
Atlantic agreed to provide DSL services in New York through a separate
affiliate. At present it is not clear how Bell Atlantic's use of a
separate affiliate to provide DSL services will ultimately affect
competing DSL providers such as us. On the one hand, the establishment
of a separate DSL affiliate could benefit Bell Atlantic by allowing it
to offer advanced services to the public on a largely unregulated basis.
On the other hand, the establishment of a separate DSL affiliate could
benefit competitors like us by enabling us to obtain interconnection,
unbundled network elements and other wholesale services under the same
rates, terms and conditions as those offered by Bell Atlantic to its
affiliate. We cannot determine the affect of separate DSL affiliate
requirements until those requirements have been further implemented and
enforced.

Cellular Service. The package of telecommunications services that we
provide includes cellular services of Bell Atlantic Mobile, or BAM, that we
resell to our customers. Under Section 20.12 of the FCC's rules, BAM must permit
unrestricted resale of its cellular services. The resale requirement under
Section 20.12 of the FCC's rules expires in November of 2002.

Our resale of cellular service is generally unregulated, except for fees
and assessments such as universal service fund contributions. Our underlying
provider, BAM, must be licensed by the FCC to provide cellular services. If BAM
fails to comply with FCC regulations, then the FCC could take enforcement action
such as revoking or declining to renew a BAM license. BAM could also terminate
its cellular service at any time because of insolvency or other reasons beyond
our control. If we were unable to resell BAM's cellular services for any reason,
we may be unable to obtain replacement services on acceptable terms or at all.
Any change in the underlying cellular service provider could require changes in
customer equipment at significant expense and inconvenience to our customers.

Slamming. A user may change service providers at any time, but the FCC
regulates the process. Specific client-instituted procedures must be followed,
and when they are not, particularly if the change is unauthorized or fraudulent,
the process is known as slamming. The FCC recently decided to apply its slamming
rules, which originally covered only long distance, to local service. The FCC
has levied significant fines for certain slamming cases. The risk of financial
damage and harm to business reputation from slamming offenses can be
significant. Several complaints alleging slamming have been filed at the FCC
over the past five years, but none has resulted in adverse FCC action.

STATE REGULATION

The states' regulation of competitive local exchange carrier varies in
intensity. The majority of states require that companies seeking to provide
local exchange and other intrastate services apply for and obtain the requisite
authorization from the state public utility commission. The resale of services
provided by other carriers is sometimes exempt from such requirements. The
authorization process generally requires the carrier to demonstrate that it has
sufficient financial, technical and managerial capability and that

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<PAGE> 54

granting the authorization will serve the public interest. We currently provide
resold competitive local exchange services and intrastate long distance services
in New Jersey and Massachusetts, which do not require specific authorization by
the state public utility commission for these services. In New York, North
Carolina and Pennsylvania, we provide resold intrastate long distances services
under authorizations issued by the state public utility commissions as required
in those states. We intend to file in the near future applications for authority
in additional states or to expand the authority we have already obtained in the
above states. There can be no assurance that such state authorizations will be
granted on a timely basis, or at all.

In the states in which we operate, we are, and will continue to be, subject
to regulatory directives. Most states require that competitive local exchange
carriers charge just and reasonable rates and not discriminate among similarly
situated customers. Other state requirements include the filing of periodic
reports, the payment of various regulatory fees and surcharges, and compliance
with service standards and consumer protection rules. In most states, intrastate
tariffs are required for various intrastate services, although non-dominant
carriers like us are not typically subject to price or rate of return regulation
for tariffed intrastate services.

Many states require prior approvals or notifications for certain transfers
of assets, customers, or ownership, including reorganizations, of certificated
carriers, and for the issuance of stock, debt and related transactions. Our
holding company structure will reduce the impact of many of these requirements.
We have not received approval for our reorganization into a holding company
structure. We are filing the necessary papers at the relevant public utility
commissions seeking approval, retroactively as necessary, of the reorganization
and arguing that approval of the transaction is in the public interest. Although
we believe that our applications will be approved in due course, it is possible
that the state commissions will deny the applications and/or impose fines,
license conditions, commence revocation proceedings or otherwise exercise their
authority to address violations of statutes and regulations.

State public utility commissions have a substantial role in setting rates
for unbundled elements and wholesale services that we need to purchase from
incumbent local exchange carriers to provide service to our customers. The
results of state rate-setting proceedings have determined, and will continue to
determine, the price we pay for, and whether it is economically attractive for
us to use, these network elements and services. State public utility commissions
also have broad authority to review and approve, reject, or set the terms of our
interconnection agreements with incumbent local exchange carriers.

LOCAL REGULATION

We may be required to obtain various permits and authorizations from cities
or counties in which we operate our own facilities. The extent to which such
actions by local governments pose barriers to entry for competitive
telecommunications companies that may be preempted by the FCC is the subject of
litigation. Although our network consists primarily of unbundled network
elements leased from Bell Atlantic, in certain instances we may deploy our own
facilities and therefore may need to obtain certain municipal permits or other
authorizations. The actions of local governments in imposing conditions on the
grant of permits or other authorizations or their failure to act in granting
such permits or other authorizations could have a material adverse effect on our
business prospects, operating results and financial condition.

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<PAGE> 55

FACILITIES

We are headquartered in Belleville, New Jersey and lease, pursuant to oral
and written lease agreements, offices and space in a number of locations
primarily for sales and marketing offices and network equipment deployment. As
of November 30, 1999, we leased offices and space at three locations. The table
below lists our material facilities:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION USE LEASE EXPIRATION SQUARE FOOTAGE
- -------- --- ---------------- --------------
<S> <C> <C> <C>
Belleville, NJ corporate headquarters and December 2028 12,120
switching facility
Monroeville, PA sales and marketing office April 2000 2,573
Rutherford, NJ equipment deployment Month-to-month 294
</TABLE>

We expect to lease additional office space in New Jersey in the next six
months to accommodate the growth of our administrative staff and sales and
marketing personnel. After obtaining such new leased facilities, we believe that
our leased facilities will be adequate to meet our current needs in the markets
in which we have begun to offer services, and that additional facilities are
available to meet our development and expansion needs in existing and projected
target markets for the foreseeable future.

EMPLOYEES

As of March 15, 2000, we had a total of 78 full-time employees consisting
of 20 in customer support/provisioning, 16 in sales and marketing, 13 in finance
and MIS, 11 in management and administration, 9 in Operations, 5 in network
engineering, and 4 in switching. None of our employees are covered by a
collective bargaining agreement. We believe that our relations with our
employees are good.

LEGAL PROCEEDINGS

We are not currently subject to any material legal proceedings. However, we
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.

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<PAGE> 56

MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

Our executive officers, key employees and directors are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
EXECUTIVE OFFICERS:
Louis A. Lombardi, Sr. ........... 61 President and Chief Executive Officer and Chairman of the
Board
Louis A. Lombardi, Jr. ........... 37 Chief Operating Officer and Director
Jay M. Brzezanski................. 53 Chief Financial Officer and Secretary
Michael Lombardi.................. 35 Vice President of Finance, Treasurer and Director
Daniel L. Hradesky................ 59 Vice President of Business Development and Strategic
Planning and Director
Keith T. Fallon................... 37 Vice President of Sales

KEY EMPLOYEES:
Dawn B. Androsky.................. 39 Vice President of Marketing
Karen McDine...................... 48 Vice President of Network Engineering
Richard A. Snyder................. 53 Vice President of Technology

NON-EMPLOYEE DIRECTORS:
Ronald O. Brown, Ph.D.(1)(2)...... 58 Director
Myron Feldman(1)(2)............... 76 Director
John H. Trzaka(1)(2).............. 67 Director
</TABLE>

- ---------------
(1) Member of Compensation Committee.

(2) Member of Audit Committee.

Louis A. Lombardi, Sr. is the father of Louis A. Lombardi, Jr. and Michael
Lombardi.

The executive officers and key employees listed above have held their
respective positions with Cooperative Holdings, Inc. since inception with the
exception of Mr. Hradesky who has been a director since April 6, 2000. Prior to
that, with the exception of Mr. Hradesky, such persons held similar positions
with Cooperative Communications, Inc. The present principal occupations and
recent employment history of each of our executive officers, key employees and
directors listed above are set forth below.

All directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. All executive officers
are elected annually by the board of directors and serve at the discretion of
the board of directors and until their successors are elected and qualified.

Louis A. Lombardi, Sr. founded Cooperative and all related entities and has
served as our President and Chief Executive Officer and as a director since our
inception. Mr. Lombardi has more than twenty years of experience in the
telecommunications industry. From 1965 to 1980, Mr. Lombardi was President of
Eastern Computer Systems, Inc., a computer billing and services company
primarily serving the telecommunications industry.

Louis A. Lombardi, Jr., joined Cooperative in 1990 and has served in
various executive capacities, most recently as Chief Operating Officer. In this
capacity, he directs the day-to-day operations including sales and marketing,
customer services, operations and engineering, administration and management
information systems. Mr. Lombardi was elected to our board of directors in
December 1999. From 1981 to 1991, he served in various capacities with Eastern
Computer Services, Inc. His most recent position was as Operations Manager, in
which capacity he was primarily responsible for the day-to-day operations of the
business.

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<PAGE> 57

Jay M. Brzezanski has served as our Chief Financial Officer since January
2000. Mr. Brzezanski has over twenty-eight years of experience in senior
financial positions, including experience with telecommunications and computer
conversions. Mr. Brzezanski was employed as the Senior Vice President -- Finance
and Chief Information Officer of Sleepy's Inc. and affiliates from 1997 to 2000
and as the Senior Vice President and Chief Financial Officer of Rockaway
Bedding, Inc. and affiliates from 1994 to 1997. Mr. Brzezanski is a Certified
Management Accountant and a Certified Internal Auditor. Mr. Brzezanski is a
Colonel in the United States Army Reserves.

Michael Lombardi has served as our Vice President of Finance and Treasurer
since 1994 and was and continues to be, together with the Chief Financial
Officer, responsible for accounting and finance functions. Mr. Lombardi was
elected to our board of directors in December 1999. Before joining us, Mr.
Lombardi was the Vice President and Controller of Atlantic Express, Inc. Mr.
Lombardi held such positions from 1989 to 1994 and his responsibilities included
monitoring cash flow, acting as the liaison with external auditors and banks and
developing and implementing financial policies and procedural manuals.

Daniel L. Hradesky has served as our Vice President of Business Development
and Strategic Planning since 1998. Mr. Hradesky was elected to our board of
directors in April 2000. Between 1969 and 1998, Mr. Hradesky held various
positions with Westinghouse Communications, now owned by RSL Communications
(Westinghouse), including Director -- Sales, Director -- Network Services and
Manager -- Network Operations. During his tenure with Westinghouse, he was named
a "Top 100 Manager." Most recently, Mr. Hradesky was responsible for providing
support, maintenance and proposal development services to major customers as
well as supervising product development and field sales.

Keith T. Fallon has served as our Vice President of Sales since 1993. Prior
to joining us, Mr. Fallon was employed by MCI Telecommunications from 1985 to
1993 where, immediately prior to his departure, he served as National Account
Manager -- Carrier Services. In that capacity, Mr. Fallon was responsible for
sales to interexchange carriers, competitive local exchange carriers and
independent telephone companies.

Dawn B. Androsky has served as our Vice President of Marketing since 1998.
As Vice President of Marketing, Ms. Androsky is responsible for all of our
marketing efforts, including development and maintenance of our website and
sales intranet, product launches and private label programs. Ms. Androsky has
over sixteen years of supervisory experience in all facets of the
telecommunications industry. From 1994 to 1998, Ms. Androsky served as both the
Director -- Marketing and Director -- Sales Engineering for Westinghouse. Prior
to her employment with Westinghouse, Ms. Androsky served as the Manager, Access
Services with Sprint. Ms. Androsky is also a Major in the United States Air
Force Reserves, having served in the United States Air Force on active duty from
1983 to 1988.

Karen McDine has served as our Vice President of Network Engineering since
1995. In that capacity, Ms. McDine is responsible for the design and engineering
of our network for local, long distance and international services. From 1970 to
1995, Ms. McDine held various network design and sales engineering positions
with Westinghouse. From 1994 to 1995, she was Director -- Sales Engineering and
from 1990 to 1994, she was Manager -- Network Design.

Richard A. Snyder has served as our Vice President of Technology since
1998. Prior to joining us, Mr. Snyder was employed with Westinghouse for over
twenty-five years where he held several senior level project management and
customer service positions, most recently as Director -- Customer Service.

Ronald O. Brown, Ph.D. was elected to our board of directors in February
2000. Dr. Brown is currently the President and a director of Ronald O. Brown
Consulting, Inc., an independent information technology and enterprise network
management consulting firm, founded by Dr. Brown in 1996. In that capacity, Dr.
Brown provides consulting services to corporations, governments, vendors and
carriers on all aspects of data, voice, multimedia, and image
telecommunications, strategic planning, systems engineering and design, market
development, operations and management, and information systems management and
implementation. Dr. Brown is also an occasional lecturer at Ball State
University where he teaches a telecommunications class. Formerly, Dr. Brown was
the National Director of Telecommunications and

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<PAGE> 58

Office Information Systems Consulting for Coopers & Lybrand. Dr. Brown is a
Registered Professional Engineer and a member of the board of directors of the
Maine Telecommunications Users Group.

Myron Feldman was elected to our board of directors in February 2000. Mr.
Feldman currently serves as the Vice Chairman of the board of directors of
Allied Beverage Group, a position he has held since 1996. Prior to joining
Allied Beverage Group, Mr. Feldman held various positions during a 50 year
career with F&A Distributing Company, a New Jersey based wine and spirits
distributor, culminating with the position of President and Chief Executive
Officer.

John H. Trzaka was elected to our board of directors in February 2000. Mr.
Trzaka is a retired financial management executive. From 1986 until his
retirement in 1993, Mr. Trzaka served as the Director -- Financial Division of
the New Jersey Casino Control Commission. In that capacity, Mr. Trzaka was
responsible for the operation and management of the financial valuation,
auditing and collection units. From 1966 to 1985, Mr. Trzaka served in various
positions with McGraw Hill, Inc., including Vice President -- Finance and
Administration for its broadcasting company. Mr. Trzaka is a Certified Public
Accountant who has participated as a task force member for the Financial
Accounting Standards Board.

CLASSES OF THE BOARD

We currently have seven directors. Following the closing of this offering,
our board of directors will be divided into three classes of directors, with
each class serving staggered three-year terms. Class A, initially comprised of
Ronald O. Brown, Ph.D., Michael Lombardi and Daniel L. Hradesky will serve until
our annual meeting of stockholders in 2000. Class B, initially comprised of
Louis A. Lombardi, Jr. and Myron Feldman will serve until our annual meeting of
stockholders in 2001. Class C, initially comprised of Louis A. Lombardi, Sr. and
John H. Trzaka will serve until our annual meeting of stockholders in 2002.

Our Bylaws permit the board of directors to increase or decrease the size
of the board. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the total number of
directors. This classification of the board of directors may have the effect of
delaying or preventing changes in control or management of Cooperative.

COMPENSATION COMMITTEE

Our board of directors has a compensation committee, which approves
salaries and incentive compensation for our executive officers and administers
our stock plan. The compensation committee currently consists of Ronald O.
Brown, Ph.D., Myron Feldman and John H. Trzaka.

AUDIT COMMITTEE

Our board of directors has an audit committee, which reviews the results
and scope of the audit and other services provided by our independent
accountants. The audit committee currently consists of Ronald O. Brown, Ph.D.,
Myron Feldman and John H. Trzaka.

DIRECTOR COMPENSATION

Directors who are employed by us, including Louis A. Lombardi, Sr., Louis
A. Lombardi, Jr., Michael Lombardi and Daniel L. Hradesky, are not currently
entitled to receive any compensation for serving on our board of directors. Our
outside directors, Ronald O. Brown, Ph.D., Myron Feldman and John H. Trzaka
receive $500 per meeting as compensation for serving on our board of directors.
In addition, each outside director shall receive, upon the consummation of the
offering, options to purchase 20,000 shares of our common stock at exercise
prices equal to the initial public offering price. The stock options will vest
over a three-year period with one-third vesting at the end of each year. We pay
for the reasonable out-of-pocket expenses incurred by each director in
connection with attending board and committee meetings.

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<PAGE> 59

EXECUTIVE COMPENSATION

The following table summarizes the compensation we paid to our named
executive officers, consisting of our chief executive officer and four most
highly compensated executive officers for the fiscal year ended May 31, 1999.
None of the perquisites and other benefits paid to each named executive officer
exceeded the lesser of $50,000 or 10% of the total annual salary and bonus
received by that officer.

FISCAL 1999 SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
ALL OTHER
NAME AND PRINCIPAL ANNUAL ALL OTHER
POSITION(S) SALARY COMPENSATION COMPENSATION
- ------------------ -------- ------------ ------------
<S> <C> <C> <C>
Louis A. Lombardi, Sr.
President and Chief Executive Officer................ $118,800 $125,430(1)(2) $128,700(5)
Louis A. Lombardi, Jr.
Chief Operating Officer.............................. $132,712 $ 30,560(1)(2) $ 13,600(5)
Michael Lombardi
Executive Vice President and Treasurer............... $109,038 $ 11,325(3) --
Keith T. Fallon
Vice President of Sales.............................. $ 93,769 $ 76,077(4) --
</TABLE>

- ---------------
(1) Represents automobile allowance.

(2) Represents amounts paid as commissions on certain sales and distributions to
members of Eastern Computer Services, L.L.C., including payments to fund tax
liabilities.

(3) Represents an automobile allowance and amounts paid as commissions on
certain sales.

(4) Includes an automobile allowance and amounts paid as commissions on sales.

(5) Represents amounts paid to members of Eastern Computer Services, L.L.C. in
excess of payments to fund tax liabilities.

OPTION GRANTS IN LAST FISCAL YEAR

No options were granted to or exercised by the Named Executive Officers
during the fiscal year ended May 31, 1999. There were no options exercised
during the fiscal year ended May 31, 1999. Upon the consummation of this
offering, there will be 1,029,047 options outstanding under the 2000 Stock Plan,
100,000 of which will be issued to Louis A. Lombardi, Jr., 100,000 of which will
be issued to Michael Lombardi and 50,000 of which will be issued to Keith T.
Fallon, each at an exercise price equal to the initial public offering price.
Mr. Fallon also holds a non-plan option to purchase 30,000 shares of common
stock which was issued in fiscal 1997 at an exercise price of $0.01 per share.

2000 STOCK PLAN

The 2000 Stock Plan was adopted by the board of directors on February 11,
2000 and approved by our stockholders on March 21, 2000. The 2000 Stock Plan was
effective as of March 21, 2000 and shall remain in effect until terminated by
the board of directors. The total number of shares of Common Stock with respect
to which options may be granted under the Plan shall not exceed 15% of the
shares of Common Stock outstanding at any time during the term of the Plan,
calculated on a fully diluted basis, provided that no more than 3,540,000 shares
shall be cumulatively available for the grant of Incentive Stock Options under
the Plan. Those eligible to receive stock option grants under the 2000 Stock
Plan include employees, non-employee directors and consultants. The 2000 Stock
Plan is administered by the compensation committee of our board of directors.

Subject to the provisions of the 2000 Stock Plan, the administrator of the
2000 Stock Plan has the discretion to determine the optionees and/or grantees,
the type of options to be granted, the vesting

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<PAGE> 60

provisions, the terms of the grants and other related provisions as are
consistent with the 2000 Stock Plan. The exercise price of an incentive stock
option may not be less than the fair market value per share of the common stock
on the date of grant or, in the case of an optionee who beneficially owns 10% or
more of the voting power of all classes of our capital stock, not less than 110%
of the fair market value per share on the date of grant. The exercise price of a
non-qualified stock option may not be less than 85% of the fair market value per
share of the common stock on the date of grant. Fair market value is determined
by the board of directors in good faith. We anticipate that following
consummation of this offering, fair market value shall be determined in
accordance with the closing sale price of our common stock as quoted on the
Nasdaq National Market. In addition, the 2000 Stock Plan allows for the grant of
stock purchase rights.

Incentive stock options terminate not more than ten years from the date of
grant, subject to earlier termination upon or after a fixed period following the
optionee's death, disability or termination of employment with us. The term of
any options granted to a holder of more than 10% of the capital stock may be no
longer than five years. Options granted under the 2000 Stock Plan to our
employees will vest in the manner determined by the board of directors. Options
are not assignable or otherwise transferable except by will or as per the laws
of descent and distribution. In the event of a merger or consolidation of us
with or into another corporation or the sale of all or substantially all our
assets in which the successor corporation does not assume outstanding options or
issue equivalent options, our board of directors is required to provide
accelerated vesting of outstanding options.

NON-PLAN OPTIONS ISSUED TO EMPLOYEES

In June 1996, Cooperative issued to Keith T. Fallon a non-plan option to
purchase 30,000 shares of our common stock at an exercise price of $0.01. In
March 2000, this option was exchanged for an identical option in Cooperative
Holdings, Inc. in connection with our reorganization. The option is fully vested
and may be exercised until the expiration of two years after Mr. Fallon's
termination of employment.

QUALIFIED 401(k) AND PROFIT SHARING PLAN

We maintain a tax-qualified 401(k) plan. Employees who are 18 years of age
may elect to participate in the plan after completing six months of service with
us. We match 33% of employee contributions up to 6% of compensation deferred.
Our matching contributions vest at a rate 20% per year starting with the
employee's first year of service. Although we have not historically done so, we
may also make discretionary profit-sharing contributions to all employees who
satisfy plan participation requirements.

EMPLOYMENT AGREEMENTS, NON-COMPETITION, NON-DISCLOSURE AND INVENTION ASSIGNMENT
AGREEMENTS

Louis A. Lombardi, Sr. is a party to an agreement with us effective March
20, 2000 under which he serves as our President and Chief Executive Officer at
an initial annual base salary of $225,000, subject to annual adjustment. Louis
A. Lombardi, Jr. is a party to an agreement with us effective March 20, 2000
under which he serves as our Chief Operating Office at an initial annual base
salary of $165,000, subject to annual adjustment. The Compensation Committee may
award either or both of these individuals additional bonus payments or incentive
compensation in its discretion. The initial term of each such agreement is for
three years and is automatically extended for successive one-year periods unless
terminated by either party upon written notice four months before the employment
would otherwise end. Each of the employment agreements may be terminated earlier
by us or the respective executive under certain conditions.

If the employment period is terminated by us without cause, by the
executive for good reason (as defined in the respective employment agreements),
because the executive is not reelected to office, or as a result of the
executive's death or disability, then the executive and/or his estate or
beneficiaries will be entitled to receive benefits under our employee benefit
programs as in effect on the date of such termination to the extent permitted
under such programs. In addition, the beneficiary will be entitled to

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<PAGE> 61

receive an amount equal to that executive's base salary for a period of time
ending on the later to occur of (i) the date which is twelve months after the
date of termination, or (ii) the date the employment agreement would have
otherwise expired.

In addition to the amounts payable pursuant to the preceding sentence, if,
during the six month period immediately preceding or following a change of
control (as defined in the respective employment agreement), Mr. Lombardi, Sr.
or Mr. Lombardi, Jr. is terminated other than for cause by us, upon death,
disability or without cause by Mr. Lombardi, Sr. or Mr. Lombardi, Jr., then the
terminated party shall receive a lump sum payment equal to his annual salary as
in effect immediately prior to his termination.

If we terminate the employment period for cause or if the executive resigns
without good reason, then the executive will be entitled to receive his base
salary through the date of termination and we will have no further liability
whatsoever to the executive.

In addition, each of Mr. Lombardi, Sr. and Mr. Lombardi, Jr. also is the
beneficiary of a term life insurance policy in his respective name, in the face
amount of $50,000 and $10,000, respectively, for which we pay the premiums. Each
employment agreement also contains certain non-competition, non-solicitation and
confidentiality provisions.

In addition to the foregoing agreements, we have executed agreements with
each of our employees, whereby each employee agrees to maintain the
confidentiality of our information and to assign inventions to us.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the year ended May 31, 1999, the compensation of our executive
officers was determined by the board of directors. The compensation committee
was established by the board of directors in February 2000. The compensation
committee consists of Ronald O. Brown, Ph.D., Myron Feldman and John H. Trzaka.
There are no compensation committee interlocks.

KEY PERSON INSURANCE

We intend to obtain, prior to the consummation of this offering, key man
life insurance policies on the lives of Louis A. Lombardi, Sr. and Louis A.
Lombardi, Jr. The face amount of each such policy is intended to be $1,000,000.
We do not intend to maintain key person life insurance on any of our other
executive officers or key personnel.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:

- any breach of their duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- unlawful payments of dividends or unlawful stock repurchases or
redemption; or

- any transaction from which the director derived an improper personal
benefit.

This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or recession.

Our Bylaws provide that we shall indemnify our directors and executive
officers, employees and our agents to the fullest extent permitted by law. We
believe that indemnification under our Bylaws covers at least negligence and
gross negligence on the part of indemnified parties. Our Bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of

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<PAGE> 62

his or her actions in that capacity, regardless of whether the Bylaws would
permit indemnification. We intend to obtain, prior to the consummation of this
offering, director and officer liability insurance that covers matters,
including matters arising under the Securities Act.

We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for judgments, fines, settlement amounts and expenses,
including attorneys' fees, incurred by any of these persons in any action or
proceeding, including any action by or in the right of Cooperative, arising out
of that person's services as a director, executive officer, employee, agent,
contractor, of ours, any subsidiary of ours or any other company or enterprise
to which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.

There is no pending litigation or proceeding involving any director,
officer, employee or agent of Cooperative where indemnification will be required
or permitted. We are not aware of any pending or threatened litigation or
proceeding that might result in a claim for such indemnification.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In November 1998, we loaned $1,000,000 to Louis A. Lombardi, Sr. and
Patrick C. Lombardi evidenced by a promissory note. The note is a 20 year note
with interest at a rate of 9.5% per year. The promissory note is secured by our
facility in Belleville, New Jersey, which is owned by Louis A. Lombardi, Sr. and
the estate of Patrick C. Lombardi.

In December 1998, we entered into a 20 year net lease agreement with Louis
A. Lombardi, Sr. and the estate of Patrick C. Lombardi for the Belleville, New
Jersey facility. The lease agreement requires monthly payments of approximately
$17,000 per month. The terms of the lease require us to pay for essentially all
costs of operating and maintaining the Belleville facility, including taxes,
utilities, insurance and maintenance. The lease also provides for increased
rental payments due to increases in the Consumer Price Index for Northern New
Jersey.

We sublease a portion of the Belleville facility to Cooperative Industries,
L.L.C. and Eastern Computer Systems, Inc. each of which are owned by Louis A.
Lombardi, Sr. and the estate of Patrick C. Lombardi pursuant to a five year
lease expiring in fiscal 2004. The entities are engaged in business operations
different from those in which we engage. The lease arrangements provide for
rental payments in the amount of $1,000 per month.

In connection with the lease on the Belleville facility, we and Louis A.
Lombardi, Sr. and the estate of Patrick C. Lombardi entered into an Offset
Agreement which provides for a legal right of full and complete offset of the
lease obligation in the event that Louis A. Lombardi, Sr. and the estate of
Patrick C. Lombardi fail to make payment when due under the $1,000,000
promissory note.

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<PAGE> 63

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth as of February 29, 2000 and as adjusted to
give effect to the sale of common stock offered hereby, certain information
regarding beneficial ownership of our common stock by:

- each person we expect to be the beneficial owner of more than 5% of the
outstanding shares of common stock;

- each director and any named executive officer;

- and all directors and named executive officers as a group; and

- each selling stockholder.

The address for each officer is c/o Cooperative Holdings, Inc., 412-420
Washington Avenue, Belleville, New Jersey 07109.

<TABLE>
<CAPTION>
PERCENTAGE(2)
SHARES TO BE SOLD -----------------------------------
NAME NUMBER(1) BY SELLING STOCKHOLDER PRIOR TO OFFERING AFTER OFFERING
- ---- --------- ---------------------- ----------------- --------------
<S> <C> <C> <C> <C>
The Louis A. Lombardi 1996 Family
Limited Partnership,
420 Washington Avenue
Belleville, NJ 07109...........
The Patrick C. Lombardi 1996
Family
Limited Partnership,
420 Washington Avenue
Belleville, NJ 07109...........
Louis A. Lombardi, Sr.(3)........
Daniel L. Hradesky(4)............
Louis A. Lombardi, Jr.(4) .......
Michael Lombardi(4)..............
Keith T. Fallon(5)...............
Ronald O. Brown, Ph.D.(6) .......
Myron Feldman(6).................
John H. Trzaka(6)................
Directors and named executive
officers as a group (eight
persons)(7)....................
</TABLE>

- ---------------
Less than 1%.

(1) Beneficial ownership includes any shares as to which the individual or
entity has sole or shared voting power or investment power and also any
shares which the individual or entity has a right to acquire within 60 days
after this offering through the exercise of any stock options. The inclusion
herein of such shares, however, does not constitute an admission that the
named stockholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power with respect to all shares of capital
stock listed as owned by such person or entity.

(2) Applicable percentage of ownership is based on an aggregate of
shares of common stock outstanding on February 29, 2000 and an aggregate
of shares of common stock outstanding after the completion of this
offering.

(3) Includes shares of common stock held by The Louis A. Lombardi 1996
Family Limited Partnership of which Louis A. Lombardi, Sr. is a general
partner. Mr. Lombardi has voting and dispositive power with respect to such
shares.

(4) Excludes 100,000 shares of common stock issuable pursuant to options granted
under the 2000 Stock Plan, none of which are exercisable within 60 days of
the date hereof.

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<PAGE> 64

(5) Represents options to purchase 30,000 shares of common stock exercisable on
the date hereof. Excludes 50,000 shares of common stock issuable pursuant to
options granted under the 2000 Stock Plan, none of which are exercisable
within 60 days of the date hereof.

(6) Excludes 20,000 shares of common stock issuable pursuant to options granted
under the 2000 Stock Plan, none of which are exercisable within 60 days of
the date hereof.

(7) Excludes 410,000 shares of common stock issuable pursuant to options granted
under the 2000 Stock Plan, none of which are exercisable within 60 days of
the date hereof.

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<PAGE> 65

DESCRIPTION OF CAPITAL STOCK

GENERAL MATTERS

Cooperative Communications, Inc. was incorporated in New Jersey in 1990. In
February 2000, Cooperative Holdings, Inc. was incorporated in Delaware and the
stockholders of Cooperative Communications, Inc. exchanged all of their
outstanding shares of common stock of that company for newly issued shares of
Cooperative Holdings, Inc. with equivalent rights and preferences. As a result,
Cooperative Communications, Inc. became a wholly-owned subsidiary of Cooperative
Holdings, Inc. In addition, each outstanding option to purchase shares of common
stock of Cooperative Communications, Inc. is now exercisable for shares of
common stock of Cooperative Holdings, Inc.

Upon consummation of this offering, our authorized capital stock will
consist of 60,000,000 shares of common stock, par value $0.01 per share, and
5,000,000 shares of undesignated preferred stock, par value $0.01 per share.
After completion of this offering, there will be shares of common stock
issued and outstanding based upon the shares outstanding as of
, 2000 and the shares being issued by us in this offering.
The following statements are brief summaries of certain provisions with respect
to our capital stock contained in our Certificate of Incorporation and Bylaws,
copies of which have been filed as exhibits to our registration statement. See
"Where You Can Find More Information." The following summary is qualified in its
entirety by reference thereto.

COMMON STOCK

The holders of our common stock are entitled to one vote for each share
held of record upon such matters and in such manner as may be provided by law.
There are no cumulative voting rights with respect to the election of directors.
Subject to preferences applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably dividends, if any,
as may be declared by the board of directors out of funds legally available for
dividend payments. In the event we liquidate, dissolve or wind up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares of
the preferred stock. Holders of common stock have no preemptive rights or rights
to convert their common stock into any other securities. There are no redemption
or sinking fund provisions applicable to the common stock. All outstanding
shares of common stock are fully paid and nonassessable.

PREFERRED STOCK

The preferred stock is issuable from time to time in one or more series and
with such designations, preferences and other rights for each series as shall be
stated in the resolutions providing for the designation and issue of each such
series adopted by our board of directors. The board of directors is authorized
by our Certificate of Incorporation to determine, among other things, the
voting, dividend, redemption, conversion, exchange and liquidation powers,
rights and preferences and the limitations thereon pertaining to such series.
The board of directors, without stockholder approval, may issue preferred stock
with voting and other rights that could adversely affect the voting power of the
holders of the common stock and that could have certain anti-takeover effects.
We have no present plans to issue any shares of preferred stock. The ability of
the board of directors to issue preferred stock without stockholder approval
could have the effect of delaying, deferring or preventing a change in control
of us or the removal of existing management.

CERTAIN ANTI-TAKEOVER PROVISIONS

General

Provisions of Delaware law and our Certificate of Incorporation and Bylaws
could make it difficult for a third party to acquire us and to remove our
incumbent officers and directors. These provisions, summarized below, are
expected to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of us to negotiate first
with our board of directors. We

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<PAGE> 66

believe that the benefits of increased protection of our ability to negotiate
with the proponent of an unfriendly or unsolicited acquisition proposal outweigh
the disadvantages of discouraging such proposals because, among other things,
negotiation could result in an improvement of the terms of the proposal.

Delaware Statute

We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a business combination with
an interested stockholder for a period of three years following the date the
person became an interested stockholder, unless:

- the board of directors approved the business combination or the
transaction in which such stockholder became an interested stockholder
prior to the date the interested stockholder attained such status;

- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or

- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
corporation's voting stock not owned by the interested stockholder.

A business combination generally includes a merger, sale of assets or
stock, or other transaction resulting in a financial benefit to the interested
stockholder. In general, an interested stockholder is a person who, together
with affiliates and associates, owns, or within three years prior the
determination of interested stockholder status did own, 15% or more of a
corporation's outstanding voting stock.

Board of Directors

Our Bylaws provide that the number of our directors shall be fixed from
time to time by resolutions adopted by the affirmative vote of either a majority
of the board of directors or the stockholders. However, there shall not be less
than one director. In addition, the Bylaws provide that any vacancies may be
filled by the affirmative vote of:

- a majority of the remaining directors, even if less than a quorum;

- a sole remaining director; or

- a majority of the stockholders.

Generally, directors may be removed from office by the affirmative vote of
the holders of a majority of our voting power.

Our Certificate of Incorporation and Bylaws provide that, effective upon
the closing of this offering, the terms of office of the members of the board of
directors will be divided into three classes: Class A, whose term will expire at
the annual meeting of stockholders to be held in 2000, Class B, whose term will
expire at the annual meeting of stockholders to be held in 2001 and Class C,
whose term will expire at the annual meeting of stockholders to be held in 2002.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. Our Bylaws permit the board of directors to increase or
decrease the size of the board of directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the total number of directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of our company.

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<PAGE> 67

Advance Notice Procedures

Our Bylaws provide for an advance notice procedure for the nomination, by
stockholders, of candidates for election as directors, and other stockholder
proposals to be considered at annual meetings of stockholders. In general,
notice of intent to nominate a director or raise matters at such meetings must:

- be received in writing by us at least 150 days prior to the anniversary
of the previous year's annual meeting of stockholders or, for any
special meeting, no later than ten days after notice of such meeting is
first given to stockholders;

- contain certain information concerning the person to be nominated or the
matters to be brought before the meeting; and

- contain certain information concerning the stockholder submitting the
proposal.

Special Meetings and Action by Written Consent

Our Bylaws provide that, effective upon the closing of this offering,
special meetings of stockholders may be called only by the President, the
Chairman of the Board, or by order of a majority of the board of directors. In
addition, our Certificate of Incorporation provides that, upon closing of this
offering, our stockholders may not act by written consent in lieu of a meeting
of stockholders.

Amendment

Amendment of the foregoing provisions requires approval by holders of at
least 66 2/3% of all of the outstanding shares of our capital stock entitled to
vote in the election of directors, voting together as a single class. The super
majority voting requirement is 80% of all outstanding shares for any amendment
of the provisions of our Certificate of Incorporation and Bylaws with respect to
limitations on directors' liability, the staggered board of directors and
indemnification of directors and officers. Our Bylaws may also be amended by
action of the board of directors.

REGISTRATION RIGHTS

In connection with our reorganization in March 2000, we issued an option to
purchase 30,000 shares of our common stock in exchange for an identical option
of Cooperative issued in June 1996. The shares under this option have piggyback
registration rights on our registration of shares under option plans.

LIMITATIONS ON DIRECTORS' LIABILITY

Our Certificate of Incorporation provides that none of our directors shall
be liable to us or our stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability:

- for any breach of the director's duty of loyalty to us or our
stockholders;

- for acts or omissions not in good faith or involving a knowing violation
of law;

- in respect of certain unlawful dividend payments or stock redemptions or
repurchases;

- for any transaction from which the director derived an improper personal
benefit.

The effect of these provisions will be to eliminate our right and the right of
our stockholders to recover monetary damages against a director for breach of
fiduciary duty as a director, including breaches resulting from grossly
negligent behavior, except in the situations described above. Our Bylaws mandate
that we indemnify our directors to the fullest extent authorized under Delaware
law. We have entered into indemnification agreements with each of our directors
providing for indemnification of such directors to the fullest extent permitted
by applicable law.

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<PAGE> 68

LISTING

We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "CCII."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company. The transfer agent's address and telephone number is
40 Wall Street, New York, New York 10005, (212) 936-5100.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have shares of common
stock outstanding. Of these shares, the shares sold in the offering,
plus any additional shares sold upon exercise of the underwriters'
over-allotment option, will be freely transferable by persons other than our
affiliates without restriction or further registration under the Securities Act.
The remaining outstanding shares will be restricted securities
within the meaning of Rule 144 under the Securities Act and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, such as the exemption afforded by Rule 144.

LOCK-UP AGREEMENTS

Our officers and directors, and each of our stockholders each have entered
into lock-up agreements with representatives of the underwriters, providing
that, subject to certain exceptions, they will not offer, sell or otherwise
dispose of any shares of common stock, or securities convertible into or
exchangeable for common stock, or enter into any agreement to sell, for a period
of 180 days after the date of this prospectus without the prior written consent
of Pennsylvania Merchant Group, acting as the representative of the
underwriters. Pennsylvania Merchant Group may release any of such shares in its
sole discretion at any time and without prior notice. Immediately following
expiration of the lock-up period, all of the Restricted Shares will become
eligible for sale pursuant to Rule 144, subject to certain limitations described
below.

RULE 144

In general, under Rule 144 of the Securities Act, a person, or persons
whose shares are aggregated, who has beneficially owned restricted securities
for at least one year, including a person who may be deemed an affiliate, is
entitled to sell within any three month period a number of our shares of common
stock that does not exceed the greater of:

- 1% of the then-outstanding shares of our common stock; or

- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange
Commission.

Sales under Rule 144 are subject to restrictions relating to manner of
sale, notice and availability of current public information about us. A person
who is not our affiliate at any time during the 90 days preceding a sale and who
has beneficially owned shares for at least two years would be entitled to sell
shares following this offering under Rule 144(k) without regard to the volume
limitations, manner of sale provisions or notice requirements of Rule 144.

RULE 701

Our employees, directors, officers or consultants who purchased our shares
in connection with a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to
sell their Rule 701 of the Securities Act shares without having to comply with
the public information, holding period, volume limitation or notice provisions
of Rule 144. Affiliates may sell their Rule 701 shares without having to comply
with Rule 144's holding period restrictions. In each of these cases, Rule 701
allows the stockholders to sell 90 days after the date of this prospectus.

Upon the consummation of this offering, there will be outstanding options
to purchase an aggregate of 1,059,047 shares of common stock. Giving effect to
vesting provisions limiting the exercisability of all the outstanding options
and the lock-up period applicable to certain option holders, none of these
shares will become available for sale in the public market pursuant to Rules 144
and 701 under the Securities Act until at least 180 days after completion of
this offering. After the expiration of the lock-up period shares will
become available for resale.
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REGISTRATION STATEMENT ON FORM S-8

Following this offering, we intend to file a registration statement on Form
S-8 under the Securities Act to register the shares of common stock reserved for
issuance under our 2000 Stock Plan as well as non-plan options. The stock
registered under that registration statement will thereafter be available for
sale in the public market, subject to the resale limitations of Rule 144
applicable to our affiliates.

Since there has been no public market for shares of the Common Stock prior
to this offering, we are unable to predict the effect that sales made pursuant
to Rules 144 or 701 under the Securities Act, or otherwise, may have on the
prevailing market price of the shares of the common stock. Sales of a
substantial amount of the common stock in the public market, or the perception
that such sales could occur, could adversely affect the market prices of our
stock.

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<PAGE> 71

UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each of the underwriters named below has severally agreed
to purchase, and we and the selling stockholder have agreed to sell to such
underwriters, the number of shares set forth opposite the name of such
underwriter.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Pennsylvania Merchant Group.................................
Roth Capital Partners, Inc. ................................
---------
Total.............................................
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.

The underwriters, for whom Pennsylvania Merchant Group and Roth Capital
Partners, Inc. are acting as representatives, propose to offer some of the
shares directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the shares to certain dealers at the
public offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share on sales to certain other dealers. If all of the shares are
not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised us and the selling stockholder that the underwriters do not intend to
confirm any sales to any accounts over which they exercise discretionary
authority.

The selling stockholder has granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price less the
underwriting discount. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent such option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares
approximately proportionate to such underwriter's initial purchase commitment.

We, our officers and directors, and all of our stockholders have agreed
that, for a period of 180 days from the date of this prospectus, we and they
will not, without the prior written consent of Pennsylvania Merchant Group
dispose of or hedge any shares of common stock of Cooperative or any securities
convertible into or exchangeable for common stock. Pennsylvania Merchant Group
in its sole discretion may release any of the securities subject to those
lock-up agreements at any time without notice.

Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations between us, the selling stockholder and the
representatives. Among the factors considered in determining the initial public
offering price were our record of operations, our current financial condition,
our future prospects, our markets, the economic conditions in and future
prospects for the industry in which we compete, our management, and currently
prevailing general conditions in the equity securities markets, including
current market valuations of publicly traded companies considered comparable to
us. There can be no assurance, however, that the prices at which the shares will
sell in the public market after this offering will not be lower than the price
at which they are sold by the underwriters or that an active trading market in
the common stock will develop and continue after this offering.

We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "CCII." We cannot assure you, however,
that an active or orderly trading market will develop for the common stock or
that our common stock will trade in the public markets subsequent to the
offering at or above the initial offering price.

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<PAGE> 72

In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock during and after the offering. Specifically, the underwriters may
over-allot or otherwise create a short position in the common stock for their
own account by selling more shares of common stock than we have actually sold to
them. The underwriters may elect to cover any short position by purchasing
shares of common stock in the open market or by exercising the over-allotment
option granted to the underwriters. In addition, the underwriters may stabilize
or maintain the price of the common stock by bidding for or purchasing shares of
common stock in the open market and may impose penalty bids, under which selling
concessions allowed to syndicate members or other broker-dealers participating
in the offering are reclaimed if shares of common stock previously distributed
in the offering are repurchased in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price at a level above that which might otherwise prevail in the open
market and these transactions may be discontinued at any time. The imposition of
a penalty bid may also affect the price of the common stock to the extent that
it discourages resales.

The underwriters may, from time to time, engage in transactions with, and
perform services for, us in the ordinary course of their business.

The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us and the selling stockholder in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.

<TABLE>
<CAPTION>
PAID BY COOPERATIVE PAID BY SELLING STOCKHOLDER
---------------------------- ----------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share........................ $ $ $ $
Total............................ $ $ $ $
</TABLE>

In connection with the offering, Pennsylvania Merchant Group and Roth
Capital Partners, Inc., on behalf of the underwriters, may purchase and sell
shares of common stock in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of common stock in excess of the number
of shares to be purchased by the underwriters in the offering, which creates a
syndicate short position. Syndicate covering transactions involve purchases of
the common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Stabilizing transactions consist of
certain bids or purchases of common stock made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Pennsylvania Merchant Group or Roth Capital Partners, Inc., in covering
syndicate short positions or making stabilizing purchases, repurchases shares
originally sold by that syndicate member.

Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.

We and the selling stockholder have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.

69
<PAGE> 73

LEGAL MATTERS

The validity of the shares of the common stock offered hereby will be
passed upon by Buchanan Ingersoll Professional Corporation. Certain legal
matters in connection with the offering will be passed upon for the Company by
Swidler Berlin Shereff Friedman, LLP, special FCC counsel, and for the
underwriters by Pepper Hamilton LLP.

EXPERTS

The combined financial statements and financial statement schedule of
Cooperative Communications, Inc. and subsidiaries and Eastern Computer Services,
L.L.C. as of May 31, 1998 and 1999, and for each of the years in the three-year
period ended May 31, 1999, have been included herein and in the prospectus in
reliance upon the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
Common Stock offered hereby. This prospectus does not contain all the
information which is in the registration statement. We refer you to the
registration statement and to the exhibits and schedules filed with the
registration statement for further information with respect to us and the shares
of common stock offered in this prospectus. Statements contained in this
Prospectus as to the content of any contract or other document are necessarily
summaries. However, we refer you to the copy of such contract or other document
filed as an exhibit to the registration statement, and each such statement is
qualified in its entirety by such reference.

The registration statement and the exhibits and schedules attached thereto
may be inspected without charge at the Public Reference Room of the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of the registration statement
may be obtained from the Public Reference Room of the Commission at prescribed
rates. This material also may be obtained on the Commission's website at
www.sec.gov. Information regarding the operation of the Public Reference Room
may be obtained by calling the Commission at (800) SEC-0330.

We intend to furnish our stockholders with annual reports containing
financial statements certified by our independent accountants and make available
quarterly reports containing unaudited financial information for the first three
quarters of each year.

70
<PAGE> 74

COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Financial Statements:
Independent Auditors' Report.............................. F-2
Combined Balance Sheets as of May 31, 1998 and 1999 and
November 30, 1999 (unaudited).......................... F-3
Combined Statements of Operations for the Years ended May
31, 1997, 1998 and 1999 and for the six month periods
ended November 30, 1998 and 1999 (unaudited)........... F-4
Combined Statements of Stockholders' and Members' Deficit
for the Years ended May 31, 1997, 1998 and 1999 and for
the six month period ended November 30, 1999
(unaudited)............................................ F-5
Combined Statements of Cash Flows for the Years ended May
31, 1997, 1998 and 1999 and for the six month periods
ended November 30, 1998 and 1999 (unaudited)........... F-6
Notes to Combined Financial Statements.................... F-7
</TABLE>

F-1
<PAGE> 75

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Members
Cooperative Communications, Inc. and
Eastern Computer Services, L.L.C.:

We have audited the accompanying combined balance sheets of Cooperative
Communications, Inc. and subsidiaries and Eastern Computer Services, L.L.C., as
of May 31, 1998 and 1999, and the related combined statements of operations,
stockholders' and members' deficit, and cash flows for each of the years in the
three-year period ended May 31, 1999. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Cooperative
Communications, Inc. and subsidiaries and Eastern Computer Services, L.L.C. as
of May 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the years in the three-year period ended May 31, 1999 in
conformity with generally accepted accounting principles.

KPMG LLP

Short Hills, New Jersey
March 29, 2000

F-2
<PAGE> 76

COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NOVEMBER 30
----------------------------
MAY 31 PRO FORMA
----------------- STOCKHOLDERS'
1998 1999 ACTUAL DEFICIT
------- ------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,590 $ 7,180 $ 2,327
Trade accounts receivable, less allowance for doubtful
accounts and billing adjustments of $700 and $835 at May
31, 1998 and 1999, respectively, and $885 at November
30, 1999 (note 4)....................................... 7,138 8,058 6,995
Due from affiliates (note 9).............................. -- 53 89
Prepaid line costs, current............................... 257 127 99
Prepaid expenses and other current assets................. 15 141 50
------- ------- -------
Total current assets............................... 16,000 15,559 9,560
Property and equipment, net (note 5)........................ 1,542 3,181 5,241
Due from affiliates (note 9)................................ 24 -- --
Prepaid line costs, excluding current portion............... 84 43 38
Intangible asset -- customer list (note 6).................. 475 317 238
Other assets................................................ 63 31 28
------- ------- -------
Total assets....................................... $18,188 $19,131 $15,105
======= ======= =======
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' DEFICIT
Current liabilities:
Current installments of obligations under capital leases
(note 10)............................................... $ 474 $ 642 $ 614
Current installments of obligations under capital
lease -- affiliate (note 9)............................. -- 15 15
Accounts payable and accrued expenses (note 8)............ 8,524 14,112 10,180
Income taxes payable...................................... 80 60 60
Deferred revenue, current................................. 491 260 207
------- ------- -------
Total current liabilities.......................... 9,569 15,089 11,076
Obligations under capital leases, excluding current
installments (note 10).................................... 773 526 2,692
Obligations under capital lease -- affiliate, excluding
current installments (note 9)............................. -- 766 759
Deferred revenue, excluding current portion................. 157 103 85
Accrued telecommunications costs, excluding current portion
(note 14)................................................. 8,661 4,277 3,189
------- ------- -------
Total liabilities.................................. 19,160 20,761 17,801
------- ------- -------
Stockholders' and members' deficit: (notes 3 and 11)
Preferred stock $.01 par value. Authorized 5,000,000
shares; no shares issued and outstanding -- pro forma... -- -- --
Common stock $.01 par value. Authorized 60,000,000 shares;
18,600,000 shares issued and outstanding -- pro forma... -- -- -- $ 186
Common stock, no par value. Authorized -- 20,000,000
shares, issued and outstanding 5,400,000 shares......... 1 1 1 --
Additional paid-in capital................................ 840 840 840 713
Accumulated deficit....................................... (2,067) (2,497) (3,595) (3,595)
Members' equity........................................... 254 26 58 --
------- ------- ------- -------
Total stockholders' and members' deficit........... (972) (1,630) (2,696) (2,696)
Commitments and contingencies (notes 9, 10, 14 and 16)......
------- ------- ------- -------
Total liabilities and stockholders' and members'
deficit.......................................... $18,188 $19,131 $15,105 $(2,696)
======= ======= ======= =======
</TABLE>

See accompanying notes to combined financial statements.
F-3
<PAGE> 77

COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTH PERIODS
ENDED
YEARS ENDED MAY 31 NOVEMBER 30
--------------------------- -------------------------
1997 1998 1999 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................................ $28,718 $37,200 $40,598 $20,441 $19,827
------- ------- ------- ------- -------
Operating expenses:
Costs of revenue (excluding depreciation and
amortization) (notes 1 and 16)............ 22,468 29,073 31,725 16,418 16,382
Selling, general and administrative expenses
(notes 9 and 15).......................... 5,957 7,286 8,222 3,956 3,853
Depreciation and amortization (notes 5 and
6)........................................ 333 455 780 356 389
Stock based compensation (note 12)........... 840 -- -- -- --
------- ------- ------- ------- -------
Total operating expenses............. 29,598 36,814 40,727 20,730 20,624
------- ------- ------- ------- -------
Income (loss) from operations........ (880) 386 (129) (289) (797)
------- ------- ------- ------- -------
Other income (expense):
Interest income -- affiliate (note 9)........ -- -- 47 -- 47
Interest income.............................. 68 230 331 187 121
Interest expense -- affiliate (note 9)....... -- -- (72) -- (85)
Interest expense............................. (140) (152) (246) (156) (359)
Other income -- affiliate (note 9)........... 11 14 14 7 7
Other income, net............................ -- -- 35 -- --
------- ------- ------- ------- -------
Other income (expense), net.......... (61) 92 109 38 (269)
------- ------- ------- ------- -------
Income (loss) before income tax
expense............................ (941) 478 (20) (251) (1,066)
Income tax expense (note 13)................... 128 195 98 98 --
------- ------- ------- ------- -------
Net income (loss).................... $(1,069) $ 283 $ (118) $ (349) $(1,066)
======= ======= ======= ======= =======
Pro forma information (note 3):
Historical loss before income tax expense
(benefit)................................. $ (20) $(1,066)
Pro forma income tax expense (benefit)
(unaudited)............................... 200 (350)
------- -------
Pro forma net loss (unaudited)............... $ (220) $ (716)
======= =======
Pro forma net loss per common share
(unaudited):
Basic..................................... $ (0.01) $ (0.04)
Diluted................................... $ (0.01) $ (0.04)
======= =======
Pro forma weighted average common shares
outstanding (unaudited):
Basic..................................... 18,600 18,600
Diluted................................... 18,630 18,630
======= =======
</TABLE>

See accompanying notes to combined financial statements.
F-4
<PAGE> 78

COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

COMBINED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' DEFICIT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL ACCUMULATED MEMBERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY TOTAL
--------- ------ --------------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 1,
1996................. 5,400,000 $ 1 -- $ 18 $ 15 $ 34
Net income (loss)...... -- -- -- (1,816) 747 (1,069)
Stock based
compensation (note
12).................. -- -- $ 840 -- -- 840
Distributions to
members.............. -- -- -- -- (360) (360)
--------- --- ----- ------- ------- -------
Balance at May 31,
1997................. 5,400,000 1 840 (1,798) 402 (555)
Net income............. -- -- -- (269) 552 283
Distributions to
members.............. -- -- -- -- (700) (700)
--------- --- ----- ------- ------- -------
Balance at May 31,
1998................. 5,400,000 1 840 (2,067) 254 (972)
Net income (loss)...... -- -- -- (430) 312 (118)
Distributions to
members.............. -- -- -- -- (540) (540)
--------- --- ----- ------- ------- -------
Balance at May 31,
1999................. 5,400,000 1 840 (2,497) 26 (1,630)
Net income (loss)...... -- -- -- (1,098) 32 (1,066)
--------- --- ----- ------- ------- -------
Balance at November 30,
1999 (unaudited)..... 5,400,000 $ 1 $ 840 $(3,595) $ 58 $(2,696)
========= === ===== ======= ======= =======
</TABLE>

See accompanying notes to combined financial statements.
F-5
<PAGE> 79

COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
YEARS ENDED MAY 31 NOVEMBER 30
--------------------------- -------------------------
1997 1998 1999 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $(1,069) $ 283 $ (118) $ (349) $(1,066)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Loss on disposal of fixed assets.......... -- -- 3 -- --
Stock based compensation.................. 840 -- -- -- --
Depreciation and amortization............. 333 455 780 356 389
Allowance for doubtful accounts........... 100 100 135 151 50
Changes in assets and liabilities:
Trade accounts receivable............... (2,424) (853) (1,055) (1,430) 1,013
Due from affiliates..................... (27) (14) (29) (7) (36)
Prepaid line costs...................... (195) 124 171 80 33
Prepaid expenses and other current
assets............................... 12 (15) (126) (155) 91
Other assets............................ -- (60) 32 36 3
Accounts payable and accrued expenses... 3,024 8,401 1,204 1,631 (5,019)
Income taxes payable.................... 3 77 (20) 37 --
Deferred revenue........................ 435 (211) (285) (129) (72)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities............... 1,032 8,287 692 221 (4,614)
------- ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures......................... (123) (135) (106) (65) (77)
Acquisition of customer lists................ -- (475) -- -- --
------- ------- ------- ------- -------
Net cash used in investing
activities......................... (123) (610) (106) (65) (77)
------- ------- ------- ------- -------
Cash flows from financing activities:
Payments under capital leases................ (211) (380) (456) (253) (171)
Distributions to members..................... (360) (700) (540) (50) --
Loans to/repayments from stockholders........ -- -- (1,000) (1,000) 9
------- ------- ------- ------- -------
Net cash used in financing
activities......................... (571) (1,080) (1,996) (1,303) (162)
------- ------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents................... 338 6,597 (1,410) (1,147) (4,853)
Cash and cash equivalents at beginning of
period....................................... 1,655 1,993 8,590 8,590 7,180
------- ------- ------- ------- -------
Cash and cash equivalents at end of period..... $ 1,993 $ 8,590 $ 7,180 $ 7,443 $ 2,327
======= ======= ======= ======= =======
Supplemental disclosure of cash paid for:
Interest..................................... $ 139 $ 142 $ 291 $ 144 $ 434
======= ======= ======= ======= =======
Income taxes................................. $ 125 $ 118 $ 118 -- --
======= ======= ======= ======= =======
Supplemental disclosure of noncash financing
and investing activities:
Stock based compensation..................... $ 840 -- -- -- --
Capital lease of equipment................... $ 18 $ 551 $ 2,165 $ 333 $ 2,982
Exchange of equipment under capital lease.... -- -- -- -- $ (690)
======= ======= ======= ======= =======
</TABLE>

See accompanying notes to combined financial statements.
F-6
<PAGE> 80

COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 31, 1998 AND 1999 AND NOVEMBER 30, 1999
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS
ENDED NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(1) DESCRIPTION OF COMPANY BUSINESS

Cooperative Communications, Inc. and subsidiaries (Cooperative) and Eastern
Computer Services, LLC (Eastern) (collectively, the Company) provide integrated
voice and data communication services to small and medium-sized businesses. The
Company offers its customers a single point of contact for a comprehensive
package of communication services, including local, long distance, Internet,
cellular and other enhanced voice and data services. The Company has
approximately 8,000 customers and is authorized to provide services in five
states with the majority of its customers being located in New Jersey. No single
customer accounted for more than 5% of revenues during each of the periods
presented.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The accompanying combined financial statements include the accounts of
Cooperative Communications, Inc. and subsidiaries and Eastern Computer Services,
L.L.C., a Delaware Limited Liability Company. All of the issued and outstanding
capital stock of Cooperative Communications, Inc. was owned by three
shareholders. The same three shareholders owned the members interests in Eastern
Computer Services, L.L.C. On March 20, 2000, the entities were reorganized
through the formation of Cooperative Holdings, Inc. (note 3). The combined
financial statements are intended to present the financial position and results
of operations of the entities with common ownership and business purpose. All
significant intercompany balances and transactions have been eliminated in
combination and consolidation.

(b) Unaudited Interim Financial Information

The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of only normal recurring
adjustments, considered necessary for a fair presentation have been included.
Operating results for the six month period ended November 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending May 31, 2000.

The Company currently leases its transport capacity from a limited number
of suppliers and is dependent upon the availability of collocation space and
fiber optic transmission facilities owned by the suppliers. The Company is
currently vulnerable to the risk of renewing favorable supplier contracts,
timeliness of the supplier in processing the Company's orders for customers and
is at risk to regulatory agreements that govern the rates to be charged to the
Company.

(d) Use of Estimates

The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amount of revenues and expenses during the
reporting

F-7
<PAGE> 81
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

period. Such estimates include the levels of valuation allowances for billing
adjustments and doubtful accounts receivable and deferred tax assets. Actual
results could differ from those estimates. The markets for the Company's
services are characterized by intense competition, rapid technological
development, regulatory changes, and frequent new product introductions, all of
which could impact the future value of the Company's assets.

(e) Cash Equivalents

Cash equivalents of $6,991, $5,260 and $2,327 at May 31, 1998, 1999 and
November 30, 1999, respectively, consist of U.S. Treasury bills with an initial
term of less than three months. For purposes of the combined statements of cash
flows, the Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.

(f) Property and Equipment

Property and equipment are stated at cost. Equipment under capital leases
are stated at the present value of minimum lease payments.

Depreciation of property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Property and equipment
held under capital leases and leasehold improvements are amortized straight-line
over the lease term or estimated useful life of the asset.

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS
------------
<S> <C>
Building.................................................... 20
Equipment................................................... 5
Computer equipment.......................................... 5
Telecommunications equipment................................ 5-10
Furniture and fixtures...................................... 10
Leasehold improvements...................................... 20
</TABLE>

Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.

(g) Income Taxes

Eastern has been organized and operated under a limited liability company
agreement structured in a manner that is intended to result in the
classification of Eastern as a partnership for federal and state income tax
purposes. Consequently, the results of operations of Eastern are subject to
corporate federal and state income tax but pass directly through to the
individual members of Eastern in proportion to their respective ownership
interests. Upon contribution of Eastern to Cooperative Holdings, Inc., Eastern
will be taxed as a C Corporation (note 3).

Income taxes for Cooperative are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

F-8
<PAGE> 82
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(h) Revenue Recognition

The Company recognizes revenues from telecommunications services in the
period the related services are provided.

Deferred revenue principally represents payment received related to
installation and activation fees charged customers to initiate service.
Installation and activation fees are initially deferred and subsequently
recognized in revenue over the estimated subscriber life which approximates
three years.

Costs incurred in connection with activation of customer services are
initially deferred and recognized as costs of telecommunications services over
the estimated subscriber life. Such costs are included in prepaid line costs in
the accompanying balance sheet.

(i) Accounting for Stock Options

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25 "Accounting for
Stock Issued to Employees", and related interpretations, in accounting for its
fixed plan employee stock options. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. For disclosure purposes, pro forma net loss
and pro forma net loss per common share information included in note 12 are
provided in accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" as if the fair-value-based method had
been applied.

(j) Fair Value of Financial Instruments

The fair value of financial instruments is determined by reference to
market data and other valuation techniques as appropriate. The Company believes
the fair value of its financial instruments, principally cash and cash
equivalents, trade accounts receivable, accounts payable and accrued expenses,
obligations under capital leases and other long term obligations approximates
their recorded values due to the short-term nature of the instruments or
interest rates, which are comparable with current rates.

(k) Impairment of Long-lived Assets and Long-lived Assets to be Disposed of

Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

(l) Segment Information

The Company is managed and operated as one business. The entire business is
managed by a single management team that reports to the chief executive officer.
The Company does not operate separate lines of business or product lines.
Accordingly, the Company does not prepare discrete financial information with
respect to separate product areas and does not have separately reportable
segments as defined by Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information."

F-9
<PAGE> 83
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(m) Impact of Recent Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS No. 133), which establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts and for hedging activities. SFAS No. 133 (as amended
by SFAS No. 137) is effective for all of the Company's fiscal quarters beginning
June 1, 2001. This statement is not expected to affect the Company as it
currently does not have derivative instruments or engage in hedging activities.

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up
Activities", which requires the costs of start-up activities and organization
costs be expensed as incurred. SOP 98-5 is effective for the Company beginning
in fiscal 2000. Management of the Company does not believe that adoption of this
SOP will have a material effect on its combined financial statements as start-up
costs have historically been expensed as incurred.

(3) RECAPITALIZATION, PROFORMA INFORMATION AND PROFORMA NET LOSS PER COMMON
SHARE

Recapitalization

In January 2000, the Company's Board of Directors authorized the filing of
a Registration Statement on Form S-1 to sell shares of common stock through an
initial public offering (IPO). In connection with the contemplated IPO, the
Board of Directors, stockholders and members of the Company approved the
formation of Cooperative Holdings, Inc. (Holdings) through the filing of a
certificate of incorporation on February 9, 2000. Holdings is authorized to
issue up to 60,000,000 shares of common stock with a par value of $.01 per share
and up to 5,000,000 shares of undesignated preferred stock with a par value of
$.01 share. Accordingly, the total number of shares of all classes of capital
stock Holdings is authorized to issue is 65,000,000. Holders of common stock are
entitled to one vote for each share held, receive dividends ratably, if any, as
may be declared by the Board of Directors and share ratably in all assets
remaining after payment of liabilities and liquidation preferences of any
outstanding shares of preferred stock. The preferred stock is issuable from time
to time in one or more series and with such designations, preferences and other
rights as determined by the Board of Directors. The Board of Directors is
authorized to determine, among other things, the voting, dividend, redemption,
conversion, exchange and liquidation powers, rights and preferences and the
limitations thereon pertaining to such series.

On March 20, 2000, Cooperative, its stockholders and Holdings entered into
a plan of reorganization and exchange agreement (the Reorganization). Pursuant
to the Reorganization, the stockholders of Cooperative exchanged all of their
issued and outstanding shares of no par value common stock for shares of $.01
par value common stock of Holdings at which time Cooperative became a
wholly-owned subsidiary of Holdings. The stockholders of Cooperative received
3.444 shares of Holdings common stock for each share of Cooperative common stock
held. Also on March 20, 2000, the members of Eastern entered into a contribution
agreement with Holdings (the Contribution) pursuant to which the members
contributed their equity ownership interests to Holdings and Eastern became a
wholly-owned subsidiary of Holdings. Outstanding options to purchase 30,000
shares of common stock of Cooperative were exchanged for an equal number of
options to purchase shares of common stock of Holdings (note 12). The exchanged
options in Holdings have been issued outside of the Cooperative Holdings, Inc.
2000 Stock Plan described in note 12 and with terms and conditions substantially
the same as the terms and conditions of the options prior to the exchange.
Subsequent to the Reorganization and Contribution, a total of 18,600,000 shares
of Holdings common stock are issued and outstanding. There are no issued and
outstanding shares of preferred stock. The Reorganization and Contribution are
intended to qualify as a non-taxable reorganization pursuant to Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. The

F-10
<PAGE> 84
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Reorganization and Contribution were accounted for using carryover basis.
Accordingly, no gain or loss was reorganized on the transactions.

Pro Forma Information -- Unaudited

The accompanying combined financial statements include unaudited pro forma
information which gives effect to the following:

Stockholders' Deficit Information

(a) The formation of Holdings and the exchange of each of the issued and
outstanding shares of no par value common stock of Cooperative for
3.444 shares of $.01 par value common stock of Holdings.

(b) The reclassification of the undistributed earnings in Eastern to
additional paid-in capital assuming a distribution to the members
followed by a contribution to the capital of Holdings.

Income Tax Expense (Benefit) and Net Loss Per Common Share

(a) The organization of Eastern as a tax paying entity. As discussed in
note 2, prior to the Contribution, Eastern was not subject to income
taxes and, therefore, no provision for income taxes is included in the
historical combined financial statements. Pro forma income tax expense
(benefit) was computed in accordance with the asset and liability
method and assumes Eastern was organized as a tax paying entity at the
beginning of the periods presented.

(b) The formation of Holdings and the exchange of each of the issued and
outstanding shares of no par value common stock of Cooperative for
3.444 shares of $.01 par value common stock of Holdings.

Pro Forma Net Loss Per Common Share

Pro forma basic net loss per common share is computed by dividing pro forma
net loss by the pro forma weighted average number of common shares outstanding
assuming the formation of Holdings had occurred at the beginning of the periods
presented.

Pro forma diluted net loss per common share was calculated in a manner
consistent with pro forma basic net loss per common share except that pro forma
diluted net loss per common share also includes the dilutive effect of 30,000
options issued in 1997 to acquire an equivalent number of shares of common stock
for nominal consideration (note 12). There were no additional potential common
shares outstanding other than the options described above.

All share and per share data have been retroactively adjusted to reflect
the effects of the stock split (see note 11).

F-11
<PAGE> 85
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(4) TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable, consist of the following:

<TABLE>
<CAPTION>
MAY 31
----------------
1998 1999
------ ------
<S> <C> <C>
Billed...................................................... $7,629 $8,727
Unbilled.................................................... 209 166
------ ------
7,838 8,893
Less allowance for doubtful accounts and billing
adjustments............................................... 700 835
------ ------
$7,138 $8,058
====== ======
</TABLE>

Unbilled receivables represents telecommunication services rendered as of
the balance sheet date for which a bill has not been issued to the customer.
Unbilled receivables are generally billed to customers in the immediately
succeeding month.

Increases to the allowance for billing adjustments have been recorded with
a corresponding reduction in revenues in the accompanying combined statements of
operations.

(5) PROPERTY AND EQUIPMENT

Property and equipment, including equipment under capital leases, consists
of the following:

<TABLE>
<CAPTION>
MAY 31
---------------- NOVEMBER 30
1998 1999 1999
------ ------ -----------
<S> <C> <C> <C>
Building.............................................. $ -- $1,788 $1,788
Equipment............................................. 110 140 140
Computer equipment.................................... 580 879 940
Telecommunications equipment.......................... 1,509 1,603 2,895
Furniture and fixtures................................ 291 328 353
Leasehold improvements................................ 108 115 117
------ ------ ------
2,598 4,853 6,233
Less accumulated depreciation and amortization........ 1,056 1,672 992
------ ------ ------
$1,542 $3,181 $5,241
====== ====== ======
</TABLE>

Depreciation and amortization expense related to property and equipment
(including capital leases) amounted to $333, $455 and $622 for the years ended
May 31, 1997, 1998 and 1999, respectively, and $277 and $310 for the six-month
periods ended November 30, 1998 and 1999, respectively. During the six-month
period ended November 30, 1999, the Company exchanged telecommunications
equipment under capital lease with a net book value of $690 for similar
equipment having a capitalized value of $2,808 (see note 10).

(6) INTANGIBLE ASSET -- CUSTOMER LIST

Commencing in 1994, the Company had a sales agent agreement with a
third-party for the purposes of selling telecommunications services. The sales
agent agreement required the Company to pay a commission based on the type of
service to be rendered. In May 1998, the Company reached a settlement agreement
(the Agreement) with the third-party for the termination of the sales agent
agreement. The Agreement required the Company to pay all then outstanding and
unpaid commissions due amounting to

F-12
<PAGE> 86
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

$25 plus $475 payable in four equal installments with the first installment due
at signing. The remaining three installments were paid during fiscal 1999. In
return, the third party transferred ownership of the customer lists and any
relationships therewith to the Company. In addition, the third party agreed not
to directly or indirectly participate in the solicitation, sale or provision of
telecommunications services to any specified customer for a period of three
years.

The Company has reflected the settlement payment of $475 as an intangible
asset and is amortizing the asset to operations over the duration of the
Agreement which is three years. During the year ended May 31, 1999, the Company
recorded amortization expenses of $158.

(7) CREDIT FACILITY

The Company has a credit facility with a bank which provides for borrowings
of up to $1,500 secured by trade accounts receivable. The credit facility is
subject to renewal at three-month intervals and is currently set to expire
(subject to further renewal) on May 2, 2000. Outstanding borrowings under the
credit facility bear interest at the bank's prime lending rate of 7.75% at May
31, 1999. The Company had no outstanding borrowings under the credit facility at
May 31, 1998 and 1999 and November 30, 1999.

(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
MAY 31
-----------------
1998 1999
------ -------
<S> <C> <C>
Accounts payable............................................ $1,042 $ 921
Accrued telecommunications costs............................ 4,271 9,576
Sales taxes payable......................................... 2,075 823
Universal service taxes payable............................. 808 2,497
Accrued commissions......................................... 328 295
------ -------
$8,524 $14,112
====== =======
</TABLE>

Included in accrued telecommunications costs is $979 and $4,389 at May 31,
1998 and 1999 respectively, related to the current portion of amounts due to a
supplier pursuant to a settlement arrangement (see note 14).

(9) RELATED PARTY TRANSACTIONS

In November 1998, the Company advanced two shareholders/executive officers
$1,000 evidenced by a promissory note. The advance was used to repay in full the
then outstanding mortgage obligation on the Company's headquarters and
operations facility (the Facility) located in Belleville, New Jersey. The
promissory note is repayable by the shareholders/executives to the Company over
a period of 20 years in equal monthly installments of approximately $9 including
interest at a rate of 9.5% per annum. Principal payments to be received by the
Company over the next five fiscal years are as follows: 2000 -- $18;
2001 -- $20; 2002 -- $22; 2003 -- $25; and; 2004 -- $27. The promissory note is
secured by the Facility.

In December 1998, the Company entered into a lease agreement (the Lease
Agreement) with the same two shareholders/executive officers for a lease of the
Facility. The lease agreement requires monthly payments of approximately $17 per
month ($200 per annum) for a period of 20 years. Principal payments to be made
by the Company over the next five fiscal years are as follows: 2000 -- $33;
2001 -- $36; 2002 -- $40; 2003 -- $44; and; 2004 -- $48. Monthly lease payments
are subject to escalation to reflect

F-13
<PAGE> 87
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

any increases in the Consumer Price Index for northern New Jersey. The lease is
a "Triple Net Lease" requiring the Company to pay for essentially all costs of
operating and maintaining the Facility including taxes, utilities, insurance,
maintenance and reports.

The lease has been accounted for as a capital lease in accordance with the
provisions of Statement of Financial Accounting Standards No. 13, "Accounting
for Leases." Accordingly, the Company capitalized the Facility at the
commencement of the lease in the amount of $1,788 representing the present value
of the future minimum lease payments discounted at the Company's incremental
borrowing rate estimated at 9.5%. The amount capitalized approximated the fair
value of the Facility. The Company is amortizing the building on a straight-line
basis over a period of 20 years.

In connection with the execution of the lease, the Company and the
shareholders/executives entered into a legal right of full and complete offset
of the lease obligation and aforementioned note receivable. Accordingly, the
Company has reflected the initial net obligation in the amount of $781 as
subsequently reduced through net principal payments as a capital lease
obligation-affiliate in the accompanying combined balance sheets at May 31,
1999.

Prior to entering into the Lease Agreement, the Company leased the Facility
from the same two shareholders/executive officers under an informal
month-to-month arrangement which included essentially the same cost structure as
the Lease Agreement except that real estate taxes were not paid by the Company.

Rent expense charged to operations under the aforementioned month-to-month
lease arrangement amounted to $205, $205, and $103 for the years ended May 31,
1997, 1998, 1999, respectively.

The Company subleases a portion of its headquarters and operations facility
to two entities owned by the same shareholders as the Company. The entities are
engaged in business operations different from that of the Company. The lease
arrangements provide for rental payments in the amount of $1 per month, plus a
pro-rata share of the utilities, taxes, insurance, maintenance and repairs for a
period of five years expiring in 2004. Sublease rental income to be recognized
by the Company over the next five fiscal years will be approximately $14 per
year.

For the years ended May 31, 1997, 1998 and 1999, the Company recognized
rental income in the amount of $11, $14 and $14, respectively. Such amounts are
included in other income-affiliate in the accompanying combined statements of
operations. Amounts due from these entities under the aforementioned lease
arrangements amounted to $24 and $37 at May 31, 1998 and 1999, respectively, and
are included in due from affiliates in the accompanying combined balance sheets.

(10) LEASES

The Company is obligated under various equipment and building capital
leases that expire at various dates during the next 2 to 20 years. The gross
amount of equipment and buildings and related accumulated amortization recorded
under capital leases consists of the following:

<TABLE>
<CAPTION>
MAY 31
---------------- NOVEMBER 30
1998 1999 1999
------ ------ -----------
<S> <C> <C> <C>
Building.............................................. $ -- $1,788 $1,788
Equipment............................................. 1,969 2,330 3,659
------ ------ ------
1,969 4,118 5,447
Less accumulated amortization....................... 823 1,346 495
------ ------ ------
$1,146 $2,772 $4,952
====== ====== ======
</TABLE>

F-14
<PAGE> 88
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

In August 1999, the Company exchanged telecommunications equipment under a
capital lease with a net book value of $690 for similar equipment with increased
capacity having a capitalized value of $2,808. The new lease is for a period of
five years (see note 5).

In March 2000, the Company entered into several lease agreements for
telecommunications equipment aggregating approximately $3,500. The lease
agreements require yearly payments in varying amounts ranging from $209 to
$1,149 over a five year period commencing when the Company takes possession of
the equipment.

The Company also has several noncancelable operating leases, primarily for
telecommunications equipment and office space, that expire over the next three
years. Rental expense for operating leases, including the informal
month-to-month headquarters and operations facility lease (see note 9), was
$228, $227, and $151 in the years ended May 31, 1997, 1998, and 1999,
respectively.

Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments, excluding the headquarters and operations
facility capital lease, as of May 31, 1999 and the twelve month period ending
November 30, 1999 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending May 31:
2000...................................................... $ 756 $ 59
2001...................................................... 370 48
2002...................................................... 141 16
2003...................................................... 70 --
2004...................................................... 1 --
------ ----
Total minimum lease payments...................... 1,338 $123
====
Less amount representing interest (at rates ranging from
7.0% to 22.5%)............................................ 170
------
Present value of net minimum capital lease payments....... 1,168
Less current installments of obligations under capital
leases.................................................... 642
------
Obligations under capital leases, excluding current
installments........................................... $ 526
======
</TABLE>

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Twelve month period ending November 30:
2000...................................................... $ 991 $51
2001...................................................... 1,032 16
2002...................................................... 981 --
2003...................................................... 902 --
2004...................................................... 362 --
------ ---
Total minimum lease payments...................... 4,268 $67
===
Less amount representing interest (at rates ranging from
7.0% to 22.5%)............................................ 962
------
Present value of net minimum capital lease payments....... 3,306
Less current installments of obligations under capital
leases.................................................... 614
------
Obligations under capital leases.......................... $2,692
======
</TABLE>

F-15
<PAGE> 89
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(11) STOCKHOLDER'S AND MEMBERS' EQUITY

Stockholder's Equity

In October 1996, the Board of Directors of Cooperative Authorized a 6 for 1
stock split increasing the number of authorized shares of no par value common
stock from 1,000,000 shares to 6,000,000 shares and the number of issued and
outstanding shares from 900,000 to 5,400,000 shares. All share and per share
data in the accompanying combined financial statements have been retroactively
adjusted to reflect the effect of the stock split. In June 1997, the Board of
Directors approved an increase in the number of authorized shares of no par
value common stock from 6,000,000 to 20,000,000.

Members' Equity

Eastern has one class of members. All equity members vote in proportion to
their respective equity ownership interests in Eastern. Net profits and losses
of Eastern are allocated to the capital accounts of the members as described in
the Eastern operating agreement, generally in proportion to their respective
ownership interests. No members are liable for any obligation of the Eastern or
are required to contribute any additional capital related to deficits incurred.
Distributions to members in the accompanying combined statements of
stockholder's and member's deficit represent payments made to such members in
proportion to their respective ownership interests.

(12) STOCK OPTIONS

In June 1996, Cooperative granted 30,000 options to acquire an equivalent
number of shares of common stock at an exercise price of $.01 per share to a
certain member of senior management. The options vested immediately upon grant
and may be exercised at any time on or before two years after the recipient is
no longer employed by Cooperative. The options are not subject to the effect of
stock split described in note 11. The fair market value of Cooperative's common
stock on the date of grant, as determined by the Company's Board of Directors,
was approximately $28 per share. Accordingly, the Company recognized
compensation expense of $840 in the combined statement of operations for the
year ended May 31, 1997.

Effective June 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). This statement defines a fair value method of
accounting for an employee stock option or similar equity instrument. However,
it allows an entity to continue to measure compensation cost for those
instruments using the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" provided it discloses the effect of SFAS 123 in footnotes to the
financial statements. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method.

Had the Company elected to recognize compensation cost based on the fair
value of the stock options at the date of grant under SFAS 123, net loss the
year ended May 31, 1997, would not have been materially different due to the
issuance of the aforementioned options with a nominal exercise price.

On February 11, 2000, the Board of Directors of Holdings approved the
adoption of an employee equity incentive plan. The Cooperative Holdings, Inc.
2000 Stock Plan (the Plan) authorizes the grant of incentive stock options
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended, and non-qualified stock options for the purchase of an aggregate of up
to 3,540,000 shares (subject to adjustment for stock splits and similar capital
changes) of common stock to employees and, in the case of non-qualified stock
options, to consultants and directors of Holdings as defined in the Plan. In

F-16
<PAGE> 90
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

addition, the Plan provides for the granting of restricted stock awards and
other stock awards at the discretion of the Board of Directors.

(13) INCOME TAXES

Income tax expense attributable to income (loss) from operations consists
of the following:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................... $ 99 $151 $76
State and local........................................... 29 44 22
---- ---- ---
128 195 98
---- ---- ---
Deferred:
Federal................................................... -- -- --
State and local........................................... -- -- --
-- -- --
---- ---- ---
Total income tax expense.......................... $128 $195 $98
==== ==== ===
</TABLE>

The actual income tax expense differs from the expected income tax expense
(benefit) (computed by applying the U.S. Corporate income tax rate of 34% to
income (loss) before income tax expense) as follows:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Computed "expected" federal income tax expense (benefit)... $(320) $ 163 $ (7)
Change in valuation allowance for deferred tax assets
allocated to income tax expense.......................... 763 187 188
State income taxes, net of federal income tax benefit...... 19 36 15
Income taxed directly to members........................... (254) (188) (106)
Other, net................................................. (80) (3) 8
----- ----- -----
$ 128 $ 195 $ 98
===== ===== =====
</TABLE>

F-17
<PAGE> 91
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
MAY 31
----------------
1998 1999
------ ------
<S> <C> <C>
Deferred tax assets:
Trade accounts receivable allowances...................... $ 280 $ 334
Prepaid line costs........................................ 327 300
Deferred revenue.......................................... 122 77
Deferred stock-based compensation......................... 335 335
Other..................................................... 156 241
------ ------
Total gross deferred tax assets................... 1,220 1,287
Less valuation allowance.................................. 1,076 1,264
------ ------
Net deferred tax assets........................... 144 23
------ ------
Deferred tax liabilities:
Depreciation.............................................. (27) (23)
Section 481 adjustment, cash to accrual conversion........ (117) --
------ ------
Total gross deferred tax liabilities.............. (144) (23)
------ ------
Net deferred tax asset............................ $ -- $ --
====== ======
</TABLE>

The valuation allowance for deferred tax assets as of June 1, 1997 and 1998
was $889 and $1,076, respectively. The net change in the valuation allowance for
the years ended May 31, 1997, 1998 and 1999 was an increase of $763, $187 and
$188, respectively.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences net of the existing
valuation allowance at May 31, 1999.

(14) TRANSMISSION COST SETTLEMENT

The Company is routinely involved in various disputes with its suppliers of
telecommunications services arising in the normal course of business, as is
common in the industry. The Company's policy is to record supplier invoices at
the full value and recognize any cost reduction upon written notification from
the vendor that a credit will be issued. Alternatively, if the amount of credit
can be estimated with reasonable accuracy, the Company will record the net
amount due.

Commencing in 1993, the Company had an ongoing dispute with one of its
major suppliers. A settlement of the dispute was verbally agreed to by the
parties in June 1998 and formalized in June 1999. Pursuant to the settlement,
the Company agreed to pay a total of $10,500, including interest, payable as
follows: $1,044 in June 1998, $2,957 in June 1999 and $181 per month for 36
months thereafter. The results of the settlement did not have a significant
impact on the Company's combined financial position

F-18
<PAGE> 92
COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

and results of operations as the settlement approximated the net amount of
supplier invoices accrued by the Company.

The Company has recorded the present value of the settlement, using a
discount rate of 8%, of $9,640 and $8,661 in the accompanying combined balance
sheets at May 31, 1998 and 1999, respectively. The current portion of the
obligation of $979 and $4,389 at May 31, 1998 and 1999, respectively, has been
included in accrued telecommunications costs in accounts payable and accrued
expenses in the accompanying combined balance sheets (see note 8).

(15) EMPLOYEE BENEFIT PLANS

The Company adopted a 401(k) and profit sharing plan during fiscal 1999,
covering substantially all of its employees. Under the plan, employees may elect
to contribute a portion of their compensation to the 401(k) plan, subject to
certain limitations. Company matching contributions are made at a rate of 33% of
the first 6% of participant compensation contributed to the plan. In addition,
the Company may make discretionary profit sharing contributions to the plan.
Company contributions vest over a period of 5 years. Total contributions made by
the Company to the plan amounted to $1 for the year ended May 31, 1999.

(16) COMMITMENTS AND CONTINGENCIES

The Company has a resale agreement with an incumbent local exchange carrier
which expires in fiscal 2004. Per the agreement, the Company is obligated to pay
fees for a certain number of minimum lines and a surcharge in the event the
Company exceeds the maximum number of lines contracted. The Company has exceeded
this minimum amount stipulated in the agreement during each of the years in the
three year period ended May 31, 1999. The Company is dependent on the
cooperation of the incumbent local exchange carrier to provide access service
for the origination and termination of its local and long distance traffic.
Historically, these access charges can make up a significant percentage of the
overall cost of providing these services. To the extent the access services of
the local exchange carrier are used, the Company and its customers are subject
to the quality of service, equipment failures and service interruptions of the
local exchange carrier.

On March 24, 2000, the Company entered into a two-year interconnection
agreement with the same local exchange carrier. The agreement provides the
Company and the carrier with network interconnection or collocation and allows
for the formalization of a schedule for collocation for services in New Jersey.
The agreement also provides for access to unbundled network elements, switching
and routing of service, reciprocal compensation for the transport and
termination of local calls over the terminating carrier switch and various other
services. Fees for services provided are payable monthly at rates specified in
the agreement.

The Company has long distance telecommunications service agreements with
several interexchange carriers. The terms of these agreements range from month
to month to up to 24 months and generally require the Company to meet certain
minimum usage levels. Failure to meet the minimum usage levels would have an
adverse affect on the Company's pricing arrangements. The Company generally
meets the minimum usage requirements in the ordinary course of business.

The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.

F-19
<PAGE> 93

------------------------------------------------------
------------------------------------------------------

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL
INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE
THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED
BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT
COVER OF THIS PROSPECTUS.

------------------------

TABLE OF CONTENTS
------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Combined Financial Data...... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 33
Management............................ 53
Certain Relationships and Related
Transactions........................ 59
Principal and Selling Stockholders.... 60
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 66
Underwriting.......................... 68
Legal Matters......................... 70
Experts............................... 70
Where You Can Find More Information... 70
Index to Combined Financial
Statements.......................... F-1
</TABLE>

UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------

COMMON STOCK

[COOPERATIVE HOLDINGS, INC. LOGO]
--------------------
PROSPECTUS
, 2000
--------------------
PENNSYLVANIA MERCHANT
GROUP

ROTH CAPITAL PARTNERS, INC.
------------------------------------------------------
------------------------------------------------------
<PAGE> 94

PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee and the NASD
filing fee. All the expenses below will be paid by us.

<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
Securities and Exchange Commission Registration fee......... $ 21,859
NASD filing fee............................................. 8,780
Nasdaq National Market listing (entry) fee.................. *
Blue Sky fees and expenses.................................. *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent and Registrar fees........................... *
Miscellaneous............................................... *
--------
Total....................................................... $ *
========
</TABLE>

-----------------------
* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law permits each Delaware
business corporation to indemnify its directors, officers, employees and agents
against expenses and liabilities in connection with any proceeding involving
such persons by reason of his serving or having served in such capacities or for
each such person's acts taken in his capacity as a director, officer, employee
or agent of the corporation if such actions were taken in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal proceeding, if he
had no reasonable cause to believe his conduct was unlawful, provided that any
such proceeding is not by or in the right of the corporation.

Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation in its certificate of incorporation to limit the liability of
directors of the corporation to the corporation or its stockholders.
Specifically, a certificate of incorporation may provide that directors of the
corporation will not be personally liable for money damages for breach of a duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve a knowing violation of law, (iii) with respect to
unlawful payment of dividends or other unlawful purchase or redemption of shares
of the corporation, or (iv) for any transaction from which the director derived
an improper personal benefit.

Our Certificate of Incorporation limits the liability of our directors as
authorized by Section 102(b)(7).

Article XI of our Bylaws specifies that we shall indemnify our directors,
officers, employees and agents to the extent such party is a party to any action
because he was a director, officer, employee or agent of ours. We have agreed to
indemnify such parties for their actual and reasonable expenses. This provision
of the Bylaws is deemed to be a contract between us and each director and
officer who serves in such capacity at any time while such provision and the
relevant provisions of the Delaware General Corporation Law are in effect, and
any repeal or modification thereof shall not offset any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts.

II-1
<PAGE> 95

We have executed indemnification agreements with each of our officers and
directors pursuant to which we have agreed to indemnify such parties to the full
extent permitted by law, subject to certain exceptions, if such party becomes
subject to an action because such party is a director, officer, employee, agent
of fiduciary of ours.

We intend to obtain liability insurance for the benefit of our directors
and officers which will provide coverage for losses of directors and officers
for liabilities arising out of claims against such persons acting as directors
or officers of the registrant (or any subsidiary thereof) due to any breach of
duty, neglect, error, misstatement, misleading statement, omission or act done
by such directors and officers, except as prohibited by law.

At present, there is no pending litigation or proceeding involving a
director or officer of ours as to which indemnification is being sought nor are
we aware of any threatened litigation that may result in claims for
indemnification by any director or officer.

Reference is made to Section 6 of the Underwriting Agreement, the proposed
form of which is filed as Exhibit No. 1.1, in which the underwriters agree to
indemnify our directors and officers and certain other persons, against civil
liabilities, including certain liabilities under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Prior to this offering, we issued the following securities:

In March 2000, we issued shares of our common stock to the holders of all
of the issued and outstanding shares of capital stock of Cooperative
Communications, Inc. As a result, Cooperative Communications, Inc. became a
wholly-owned subsidiary of ours. Prior to such issuance, we had no stockholders.
We also issued an option to purchase 30,000 shares of our common stock at an
exercise price of $0.01 per share in exchange for an option to purchase 30,000
shares of common stock of Cooperative Communications, Inc. In addition, all of
the members of Eastern Computer Services, L.L.C., who had constituted all of the
stockholders of Cooperative Communications, Inc., contributed to us all of their
membership interests in Eastern. As a result, Eastern Computer Services, L.L.C.
became a wholly-owned subsidiary of ours.

In April 2000, our board of directors approved the issuance, upon the
consummation of this offering, of options to purchase 1,029,047 shares of common
stock under our 2000 Stock Plan to employees, officers and consultants at
exercise prices equal to the initial public offering price.

We believe that the foregoing issuances of securities, if they constitute
sales, are exempt from registration under the Securities Act by virtue of the
exemption provided by Section 4(2) thereof for transactions not involving a
public offering or Rule 701 under the Securities Act as transactions made
pursuant to a written compensatory plan or pursuant to a written contract
relating to compensation. The sales of securities were made without the use of
an underwriter and the certificates evidencing the shares bear a restrictive
legend permitting their transfer only upon registration of the shares or an
exemption under the Securities Act. We believe that all recipients had adequate
access to information about us.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Cooperative Holdings, Inc.
3.2 Bylaws of Cooperative Holdings, Inc.
5* Form of Opinion of Buchanan Ingersoll Professional
Corporation.
10.1 Contribution Agreement dated March 20, 2000 among
Cooperative Holdings, Inc. and the members of Eastern
Computer Services, L.L.C.
</TABLE>

II-2
<PAGE> 96

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.2+ Plan of Reorganization and Exchange Agreement dated March
20, 2000 among Cooperative Holdings, Inc., Cooperative
Communications, Inc. and the shareholders and optionholders
of Cooperative Communications, Inc.
10.3 Form of Indemnification Agreement by and between Cooperative
Holdings, Inc. and each of its directors and executive
officers.
10.4 Employment Agreement by and between Cooperative Holdings,
Inc. and Louis A. Lombardi, Sr., dated as of March 20, 2000.
10.5 Employment Agreement by and between Cooperative Holdings,
Inc. and Louis A. Lombardi, Jr., dated as of March 20, 2000.
10.6 2000 Stock Plan.
21 List of subsidiaries of Cooperative Holdings, Inc.
23.1 Independent Auditors' Report and Consent of KPMG LLP.
23.2* Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5 to the
Registration Statement).
23.3* Consent of Swidler Berlin Shereff Friedman LLP.
24 Powers of Attorney of certain officers and directors of
Cooperative Holdings, Inc. (contained on the signature page
of this Registration Statement).
27 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by Amendment.

+ The schedules or exhibits to this document are not being filed herewith
because we believe that the information contained therein should not be
considered material to an investment decision in us or such information is
otherwise adequately disclosed in this Registration Statement on Form S-1. We
agree to furnish supplementally a copy of any schedule or exhibit to the
Commission upon request.

(b) Financial Statement Schedules

Schedule II -- Valuation and Qualifying Accounts

II-3
<PAGE> 97

SCHEDULE II

COOPERATIVE COMMUNICATIONS, INC. AND SUBSIDIARIES
AND EASTERN COMPUTER SERVICES, L.L.C.

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 31, 1997, 1998 AND 1999
AND SIX MONTH PERIOD ENDED NOVEMBER 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS BEGINNING OF
DESCRIPTION PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD
- ----------- ------------ ---------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and
billing adjustments:
Period Ending:
May 31, 1997................... $500 $1,042 $ (942) $600
May 31, 1998................... 600 1,067 (967) 700
May 31, 1999................... 700 1,390 (1,255) 835
November 30, 1999
(unaudited).................. 835 580 (530) 885
</TABLE>

Deductions include amounts charged to the allowance for doubtful accounts and
billing adjustments during the respective periods.

II-4
<PAGE> 98

ITEM 17. UNDERTAKINGS

We hereby undertake that:

(1) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted as to directors, officers and controlling
persons pursuant to the provisions described in Item 14, or otherwise, we
have been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of ours in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we
will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus as filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by Cooperative pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(4) At the closing, as specified in the underwriting agreement, we
shall provide the underwriters certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.

II-5
<PAGE> 99

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Belleville, State of New
Jersey, on the 7th day of April, 2000.

COOPERATIVE HOLDINGS, INC.

By: /s/ LOUIS A. LOMBARDI, SR.
------------------------------------
Louis A. Lombardi, Sr.
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW BY ALL PERSONS, that each person whose signature appears below
constitutes and appoints Louis A. Lombardi, Sr. and Louis A. Lombardi, Jr., and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462 promulgated
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Louis A. Lombardi, Sr. President and Chief Executive April 7, 2000
- --------------------------------------------------- Officer and Director
Louis A. Lombardi, Sr. (Principal Executive Officer)

/s/ Louis A. Lombardi, Jr. Chief Operating Officer and Director April 7, 2000
- ---------------------------------------------------
Louis A. Lombardi, Jr.

/s/ Jay Brzezanski Chief Financial Officer and April 7, 2000
- --------------------------------------------------- Secretary (Principal Financial and
Jay Brzezanski Accounting Officer)

/s/ Michael Lombardi Executive Vice President and April 7, 2000
- --------------------------------------------------- Treasurer and Director
Michael Lombardi

/s/ Daniel L. Hradesky Vice President of Business April 7, 2000
- --------------------------------------------------- Development and Strategic Planning
Daniel L. Hradesky and Director

/s/ Ronald O. Brown, Ph.D. Director April 7, 2000
- ---------------------------------------------------
Ronald O. Brown, Ph.D.

/s/ Myron Feldman Director April 7, 2000
- ---------------------------------------------------
Myron Feldman

/s/ John Trzaka Director April 7, 2000
- ---------------------------------------------------
John Trzaka
</TABLE>

II-6
<PAGE> 100

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

EXHIBITS

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

------------------------

COOPERATIVE HOLDINGS, INC.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 101

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Cooperative Holdings, Inc.
3.2 Bylaws of Cooperative Holdings, Inc.
5* Form of Opinion of Buchanan Ingersoll Professional
Corporation.
10.1 Contribution Agreement dated as of March 20, 2000 among
Cooperative Holdings, Inc. and the members of Eastern
Computer Services, L.L.C.
10.2+ Plan of Reorganization and Exchange Agreement dated as of
March 20, 2000 among Cooperative Holdings, Inc., Cooperative
Communications, Inc. and the shareholders and optionholders
of Cooperative Communications, Inc.
10.3 Form of Indemnification Agreement by and between Cooperative
Holdings, Inc. and each of its directors and executive
officers.
10.4 Employment Agreement by and between Cooperative Holdings,
Inc. and Louis A. Lombardi, Sr., dated as of March 20, 2000.
10.5 Employment Agreement by and between Cooperative Holdings,
Inc. and Louis A. Lombardi, Jr., dated as of March 20, 2000.
10.6 2000 Stock Plan.
21 List of subsidiaries of Cooperative Holdings, Inc.
23.1 Independent Auditors' Report and Consent of KPMG LLP.
23.2* Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5 to the
Registration Statement).
23.3* Consent of Swidler Berlin Shereff Friedman LLP.
24 Powers of Attorney of certain officers and directors of
Cooperative Holdings, Inc. (contained on the signature page
of this Registration Statement).
27 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by Amendment. All other exhibits are filed herewith.

+ The schedules or exhibits to this document are not being filed herewith
because we believe that the information contained therein should not be
considered material to an investment decision in Cooperative or such
information is otherwise adequately disclosed in this Registration Statement
on Form S-1. We agree to furnish supplementally a copy of any schedule or
exhibit to the Commission upon request.

<PAGE> 1
Exhibit 1

UNDERWRITING AGREEMENT

COOPERATIVE HOLDINGS, INC.
(a Delaware corporation)

[______________] Shares of Common Stock

(Par Value $.01 Per Share)

[ ], 2000

PENNSYLVANIA MERCHANT GROUP
ROTH CAPITAL PARTNERS, INC.
as Representatives of the several Underwriters
named in Schedule A attached hereto

c/o Pennsylvania Merchant Group
Four Falls Corporate Center
West Conshohocken, Pennsylvania 19428

Ladies and Gentlemen:

Cooperative Holdings, Inc, a Delaware corporation (the "Company"), and
the stockholder listed in Schedule B hereto (the "Selling Stockholder"), confirm
their respective agreements with Pennsylvania Merchant Group ("PMG"), Roth
Capital Partners, Inc. and each of the other Underwriters named in Schedule A
hereto (collectively, the "Underwriters", which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), for whom
PMG and Roth Capital Partners, Inc. are acting as representatives (in such
capacity, the "Representatives"), with respect to (i) the issue and sale by the
Company and the Selling Stockholder, acting severally and not jointly, and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $.0l per share, of the
Company ("Common Stock") set forth in Schedules A and B hereto and (ii) the
grant by the Company to the Underwriters of the option described in Section 2(b)
hereof to purchase all or any part of additional shares of Common Stock to cover
over-allotments, if any. The aforesaid shares of Common Stock (the "Initial
Securities") to be purchased by the Underwriters and all or any part of the
shares of Common Stock subject to the option described in Section 2(b) hereof
(the "Option Securities") are hereinafter called, collectively, the
"Securities".

The Company and the Selling Stockholder understand that the
Underwriters propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
<PAGE> 2
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333- ) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated _______, 2000 together with the Term
Sheet and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. For purposes of this Agreement, all references
to the Registration Statement, any preliminary prospectus, the Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").

SECTION 1. Representation and Warranties.

(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:

(i) Compliance with Registration Requirements. Each
of the Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for

-2-
<PAGE> 3
that purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of the
Commission for additional information has been complied with.

At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto complied and
will comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. The Prospectus, any
preliminary prospectus and any supplement thereto or prospectus wrapper prepared
in connection therewith, at their respective times of issuance and at the
Closing Time, complied and will comply in all material respects with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
and such preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of Reserved Securities.
Neither the Prospectus, any preliminary prospectus, nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectus, any preliminary prospectus, or any such amendment or supplement was
issued and at the Closing Time (and, if any Option Securities are purchased, at
the Date of Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. If Rule 434 is used, the Company will
comply with the requirements of Rule 434 and the Prospectus shall not be
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to statements
in or omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing by
any Underwriter through PMG expressly for use in the Registration Statement or
Prospectus.

Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the 1933 Act Regulations and each preliminary prospectus
and the Prospectus delivered to the Underwriters for use in connection with this
offering was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

(ii) Independent Accountants. The accountants who
certified the financial statement and supporting schedules included in the
Registration Statement are independent public accountants as required by the
1933 Act and the 1933 Act Regulations.

(iii) Financial Statements. The financial statements
included in the Registration Statement and the Prospectus, together with the
related schedules and notes, present

-3-
<PAGE> 4
fairly the financial position of the Company and its consolidated subsidiaries
at the dates indicated and the statements of operations, stockholders' equity
and cash flows of the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The selected financial data
and the summary financial information included in the Registration Statement and
the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus. All financial
statements required to be included in the Registration Statement and the
Prospectus pursuant to the 1933 Act, the 1933 Act Regulations and Regulation S-X
have been included in the Registration Statement and the Prospectus.

(iv) No Material Adverse Change in Business. Since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A) there has
been no material adverse change in the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have been
no transactions entered into by the Company or any of its subsidiaries, other
than those in the ordinary course of business, which are material with respect
to the Company and its subsidiaries considered as one enterprise, and (C) there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.

(v) Good Standing of the Company. The Company has
been duly organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.

(vi) Subsidiaries.

(A) Each subsidiary of the Company and other
entity in which the Company owns a controlling interest (each a "Subsidiary"
and, collectively, the "Subsidiaries") has been duly organized and is validly
existing as a corporation, or a limited liability company, as the case may be,
in good standing under the laws of the jurisdiction of its incorporation or
formation, as the case may be, has power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation or entity to transact business and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or

-4-
<PAGE> 5
the conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.

(B) All of the issued and outstanding
capital stock or membership interests, as the case may be, of each such
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; none of the outstanding shares of capital stock or membership
interests, as the case may be, of any Subsidiary was issued in violation of any
preemptive or other rights of any securityholder of such Subsidiary.

(C) Other than the entities listed on
Exhibit 21 to the Registration Statement, the Company does not own an equity
interest in any other entity.

(vii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Prospectus in
the column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the Prospectus
or pursuant to the exercise of convertible securities or options referred to in
the Prospectus). The shares of issued and outstanding capital stock of the
Company, including the Securities to be purchased by the Underwriters from the
Selling Stockholder, have been duly authorized and validly issued and are fully
paid and nonassessable; none of the outstanding shares of capital stock of the
Company, including the Securities to be purchased by the Underwriters from the
Selling Stockholder, was issued in violation of any preemptive or other right of
any securityholder of the Company.

(viii) Authorization.

(A) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms.

(B) The Plan of Reorganization and Exchange
Agreement dated as of March 20, 2000 (the "Plan of Reorganization and Exchange
Agreement") between the Company, Cooperative Communications, Inc. ("CCI") and
the stockholders and optionholders of CCI and the Contribution Agreement dated
as of March 20, 2000 (the "Contribution Agreement") between the Company and each
of the members of Eastern Computer Services, LLC ("ECS") were each duly
authorized, executed and delivered by the Company and each of the other parties
thereto and each constitutes the valid and binding agreement of the Company and
the other parties thereto enforceable against the Company and the other parties
thereto in accordance with their respective terms.

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<PAGE> 6
(C) As a result of the Plan of
Reorganization and Exchange Agreement and the Contribution Agreement, the
Company owns all of the outstanding equity interests of CCI and ECS free and
clear of all mortgages, pledges, liens, security interests, claims, restrictions
or encumbrances of any kind.

(ix) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set forth
herein, will be validly issued and fully paid and non-assessable, the Common
Stock conforms to all statements relating thereto contained in the Prospectus
and such description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to personal
liability by reason of being such a holder; and the issuance of the Securities
is not subject to any preemptive or other right of any securityholder of the
Company.

(x) Absence of Defaults and Conflicts. Neither the
Company nor any of its Subsidiaries is (a) in violation of its charter or
by-laws or (b) in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any of its Subsidiaries is subject (collectively, "Agreements
and Instruments") except, in the case of clause (b), for such defaults that
would not result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein and in the Registration Statement (including the issuance
and sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use of Proceeds")
and in the Plan of Reorganization and Exchange Agreement and compliance by the
Company with its obligations hereunder and thereunder have been duly authorized
by all necessary corporate action and do not and will not, whether with or,
without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined below) under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of its Subsidiaries pursuant to,
the Agreements and Instruments, nor will such action result in any violation of
the provisions of the charter, by-laws or other organization documents of the
Company or any of its Subsidiaries or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its Subsidiaries or any of their assets, properties or
operations. As used herein, a "Repayment Event" means any event or condition
which gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such indebtedness by
the Company or any of its Subsidiaries.

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<PAGE> 7
(xi) Absence of Labor Disputes. No labor dispute with
the employees of the Company or any of its Subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or any of
its Subsidiaries' principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect. The Company is in compliance with all applicable federal, state
and local laws relating to the payment of wages to employees (including, without
limitation, the Fair Labor Standards Act, as amended).

(xii) Absence of Proceedings. There is no action,
suit, proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any of
its Subsidiaries, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the properties or assets thereof or
the consummation of the transactions contemplated in this Agreement or the
performance by the Company of its obligations hereunder or which questions the
validity of the Plan of Reorganization and Exchange Agreement or the
Contribution Agreement or any actions taken or to be taken pursuant thereto; the
aggregate of all pending legal or governmental proceedings to which the Company
or any of its Subsidiaries is a party or of which any of their respective
properties or assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the business,
could not reasonably be expected to result in a Material Adverse Effect.

(xiii) Accuracy of Exhibits. There are no contracts
or documents which are required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.

(xiv) Possession of Intellectual Property. The
Company and its Subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
logos, characters, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now operated by
them, and neither the Company nor any of its Subsidiaries has received any
notice or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or inadequate
to protect the interest of the Company or any of its Subsidiaries therein, and
which infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
would result in a Material Adverse Effect. All of the agreements pursuant to
which the Company or any of its Subsidiaries license Intellectual Property from
third parties (the "License Agreements") have been duly authorized, executed and
delivered by the Company or such Subsidiary and (assuming due authorization,
execution and delivery by the other parties

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<PAGE> 8
thereto) constitute valid and binding agreements of the Company or such
Subsidiary, enforceable against the Company or such Subsidiary in accordance
with their terms. Neither the Company nor any of its Subsidiaries is in
violation or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any such License Agreement, nor
has the Company or any of its Subsidiaries received notice from any third party
that the Company or any of its Subsidiaries is in violation or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any such License Agreement, except for any violation or default
which, singly or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect.

(xv) Absence of Further Requirements. No filing with,
or authorization, approval, consent, license, order, registration, qualification
or decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities hereunder or
the consummation of the transactions contemplated by this Agreement, except (i)
such as have been already obtained or as may be required under the 1933 Act or
the 1933 Act Regulations or state securities laws and (ii) such as have been
obtained under the laws and regulations of jurisdictions outside the United
States in which the Reserved Securities are offered.

(xvi) Possession of Licenses and Permits.

(A) The Company and each of the Subsidiaries
(i) have all necessary licenses, consents, authorizations, approvals, orders,
certificates and permits of and from, and have made all declarations and filings
with, all federal, state, local and other governmental, administrative and
regulatory authorities, all self-regulatory organizations and all courts and
other tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Prospectus, except to the
extent that the failure to obtain such licenses, consents, authorizations,
approvals, orders, certificates and permits or make such declarations and
filings would not have a Material Adverse Effect and (ii) have not received any
notice of proceedings relating to revocation or modification of any such
license, consent, authorization, approval, order, certificate or permit which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would reasonably be expected to have a Material Adverse Effect.

(B) Without limiting the foregoing, each of
the Company and its Subsidiaries have in effect all the telecommunications
regulatory licenses, permits, certificates, authorizations, consents, approvals
and orders ("Telecommunications Licenses") necessary or required to be obtained
from the Federal Communications Commission ("FCC") or the regulatory authority
of any state ("PUC") or local jurisdiction for the Company and its Subsidiaries
to conduct their respective businesses as presently conducted or as proposed to
be conducted and as described in the Registration Statement. The
Telecommunications Licenses obtained by the Company or its Subsidiaries have
been duly and validly issued and are in full

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<PAGE> 9
force and effect and are not subject to any conditions outside the ordinary
course, all express conditions in the Telecommunications Licenses have been
satisfied, and no proceedings to revoke, restrict or modify such
Telecommunications Licenses are pending or, to the best of the Company's
knowledge, threatened. All fees due and payable to governmental authorities
pursuant to the rules governing Telecommunications Licenses have been paid and
no event has occurred with respect to the Telecommunications Licenses held by
the Company and/or its Subsidiaries which, with the giving of notice or the
lapse of time or both, would constitute grounds for revocation thereof. Each of
the Company and its Subsidiaries is in compliance in all material respects with
the terms of the Telecommunications Licenses, as applicable, and there is no
condition, event or occurrence existing, nor is there any proceeding being
conducted of which the Company has received notice, nor, to the Company's
knowledge, is there any proceeding threatened, by any governmental authority,
which would cause the termination, suspension, cancellation or nonrenewal of any
of the Telecommunications Licenses, or the imposition of any penalty or fine by
any regulatory authority.

(C) No registrations, filings, applications,
notices, transfers, consents, approvals, audits, qualifications, waivers or
other action of any kind is required by virtue of the execution and delivery of
this Agreement, the Power of Attorney and Custody Agreement or of the
consummation of the transactions contemplated hereby or thereby, (a) to avoid
the loss of any such Telecommunications License or any asset, property or right
pursuant to the terms thereof, or the violation or breach of any applicable law
thereto or (b) to enable the Company or any of its Subsidiaries to hold and
enjoy the same after the Closing Date (as defined herein) in the conduct of its
business as conducted prior to the Closing Date.

(xvii) Compliance with Laws. The Company is
conducting its business in compliance with all applicable laws, rules and
regulations, of the jurisdictions in which it is conducting business including;
without limitation, all applicable local, state and Federal laws and
regulations, except where the failure to so comply would not have a Material
Adverse Effect.

(xviii) Title to Property. The Company and its
Subsidiaries have good and marketable title to all real property owned by the
Company and its Subsidiaries and good title to all personal and other properties
or assets owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any kind
except such as (a) are described in the Prospectus or (b) do not, singly or in
the aggregate, materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any
of its Subsidiaries; all of the leases and subleases material to the business of
the Company and its Subsidiaries, considered as one enterprise, and under which
the Company or any of its Subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the Company nor any of its
Subsidiaries has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any of its
Subsidiaries under any of the leases or subleases mentioned above, or affecting
or questioning the rights of the Company or such Subsidiary to the continued
possession of the leased or subleased premises under any such lease or sublease;
and the

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<PAGE> 10
Company and the Subsidiaries own or possess valid leasehold interests to all
property or assets necessary to carry on the business now operated by them as
described in the Prospectus.

(xix) Investment Company Act. The Company is not, and
upon the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus will
not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the " 1940 Act").

(xx) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
Subsidiaries is in violation of any federal, state, local or foreign statute,
law, rule, regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating to the
release or threatened release of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and
its Subsidiaries have all permits, authorizations and approvals required under
any applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of its Subsidiaries and (D) there
are no events or circumstances that might reasonably be expected to form, the
basis of an order for clean-up or remediation, or an action, suit or proceeding
by any private party or governmental body or agency, against or affecting the
Company or any of its Subsidiaries relating to Hazardous Materials or any
Environmental Laws.

(xxi) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the Company
under the 1933 Act.

(xxii) Stabilization or Manipulation. Neither the
Company nor any of its officers, directors or controlling persons has taken, nor
will it take, directly or indirectly, any action which is designed to cause or
to result in, or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities.

(xxiii) Accounting Controls. The Company and its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurances that (A)

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<PAGE> 11
transactions are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain accountability
for assets; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

(xxiv) Tax Returns. The Company and its Subsidiaries
have filed all federal, state, local and foreign tax returns that are required
to have been filed by them pursuant to applicable foreign, federal, state, local
or other law or have duly requested extensions thereof, except insofar as the
failure to file such returns or request such extensions would not reasonably be
expected to result in a Material Adverse Effect, and has paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Company
and its Subsidiaries, except for such taxes or assessments, if any, as are being
contested in good faith and as to which adequate reserves have been provided or
where the failure to pay would not reasonably be expected to result in a
Material Adverse Effect. The charges, accruals and reserves on the books of the
Company in respect of any income and corporation tax liability of the Company
and its Subsidiaries for any years not finally determined are adequate to meet
any assessments or reassessments for additional income tax for any years not
finally determined, except to the extent of any inadequacy that would not
reasonably be expected to result in a Material Adverse Effect.

(xxv) Year 2000 and Euro Disclosures. All disclosure
regarding year 2000 compliance and the Euro conversion that is required to be
described under the 1933 Act and the 1933 Act Regulations (including disclosures
required by Staff Legal Bulletin No. 6, SEC Release No. 33-7558 (July 29, 1998)
and SEC Release No. 33-7609 (November 9, 1998)) has been included in the
Prospectus. Neither the Company nor any its Subsidiaries has incurred or will
incur significant operating expenses or costs to ensure that its information
systems will be year 2000 compliant or to adjust its operating and information
systems to the conversion to a single currency in Europe, other than as
disclosed in the Prospectus.

(xxvi) Related Party Transactions. No relationship,
direct or indirect, exists between or among any of the Company or any affiliate
of the Company, on the one hand, and any director, officer, stockholder,
customer or supplier of any of them, on the other hand, which is required by the
1933 Act or by the 1933 Act Regulations to be described in the Registration
Statement of the Prospectus which is not so described as required.

(b) Representations and Warranties by the Selling Stockholder.
The Selling Stockholder represents and warrants to each Underwriter as of the
date hereof, as of the Closing Time, and, if the Selling Stockholder is selling
Option Securities on a Date of Delivery, as of each such Date of Delivery, and
agrees with each Underwriter, as follows:

(i) Accurate Disclosure. To the best knowledge of the
Selling Stockholder, the representations and warranties of the Company contained
in Section l(a) hereof

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<PAGE> 12
are true and correct; such Selling Stockholder has reviewed and is familiar with
the Registration Statement and the Prospectus and neither the Prospectus nor any
Amendments or supplements thereto (including any prospectus wrapper) includes
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; such Selling
Stockholder is not prompted to sell the Securities to be sold by such Selling
Stockholder hereunder by any information concerning the Company or any
Subsidiary of the Company which is not set forth in the Prospectus. The
representations and warranties in this subsection shall not apply to statements
in or omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing by
any Underwriter through PMG expressly for use in the Registration Statement or
Prospectus.

(ii) Authorization of Agreements. The Selling
Stockholder has the full right, power and authority to enter into this Agreement
and the Power of Attorney and Custody Agreement (the "Power of Attorney and
Custody Agreement") and to sell, transfer and deliver the Securities to be sold
thereby hereunder. The execution and delivery of this Agreement and the Power of
Attorney and Custody Agreement and the sale and delivery of the Securities to be
sold by the Selling Stockholder and the consummation of the transactions
contemplated herein and compliance by such Selling Stockholder with its
obligations hereunder have been duly authorized by such Selling Stockholder and
do not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any tax, lien, charge or encumbrance
upon the Securities to be sold by such Selling Stockholder or any property or
assets of such Selling Stockholder pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, license, lease or other
agreement or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder may be bound, or to which any of the property or assets
of such Selling Stockholder is subject, nor will such action result in any
violation of the provisions of the charter or by-laws or other organizational
instrument of such Selling Stockholder, if applicable, or any applicable treaty,
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over such Selling Stockholder or any of its properties.

(iii) Good and Marketable Title. The Selling
Stockholder has and will at the Closing Time and, if any Option Securities are
purchased, on the Date of Delivery have good and marketable title to the
Securities to be sold thereby hereunder, free and clear of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any
kind, other than pursuant to this Agreement; and upon delivery of such
Securities and payment of the purchase price therefor as herein contemplated,
each of the Underwriters will receive good and marketable title to the
Securities purchased by it from such Selling Stockholder, free and clear of any
security interest, mortgage, pledge, lien, charge, claim, equity or encumbrance
of any kind.

(iv) Due Execution of Power of Attorney and Custody
Agreement. The Selling Stockholder has duly executed and delivered, in the form
heretofore furnished to the

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<PAGE> 13
Representatives, the Power of Attorney and Custody Agreement with William J.
Thomas as attorney-in-fact (the "Attorney-in-Fact"), and William J. Thomas, as
custodian (the "Custodian"); the Custodian is authorized to deliver the
Securities to be sold by the Selling Stockholder hereunder and to accept payment
therefor; and each Attorney-in-Fact is authorized to execute and deliver this
Agreement and the certificate referred to in Section 5(f) or that may be
required pursuant to Sections 5(l) and 5(m) on behalf of the Selling
Stockholder, to sell, assign and transfer to the Underwriters the Securities to
be sold by the Selling Stockholder hereunder, to determine the purchase price to
be paid by the Underwriters to the Selling Stockholder, as provided in Section
2(a) hereof, to authorize the delivery of the Securities to be sold by the
Selling Stockholder hereunder, to accept payment therefor, and otherwise to act
on behalf of the Selling Stockholder in connection with this Agreement.

(v) Absence of Manipulation. The Selling Stockholder
has not taken, and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities.

(vi) Absence of Further Requirements. No filing with,
or consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental authority or agency, domestic or foreign,
is necessary or required for the performance by the Selling Stockholder of its
obligations hereunder or in the Power of Attorney and Custody Agreement, or in
connection with the sale and delivery of the Securities hereunder or the
consummation of the transactions contemplated by this Agreement, except such as
may have previously been made or obtained or as may be required under the 1933
Act or the 1933 Act Regulations or state securities laws.

(vii) Restriction on Sale of Securities. During a
period of 180 days from the date of the Prospectus, the Selling Stockholder will
not, without the prior written consent of PMG, (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any share of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
file or cause the Company to file any registration statement under the 1933 Act
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to the Securities to be sold
hereunder.

(viii) Certificates Suitable for Transfer.
Certificates for all of the Securities to be sold by the Selling Stockholder
pursuant to this Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in blank with
signatures guaranteed, have been placed in custody with the Custodian with

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<PAGE> 14
irrevocable conditional instructions to deliver such Securities to the
Underwriters pursuant to this Agreement.

(ix) No Association with NASD. Neither the Selling
Stockholder nor any of his/her/its affiliates directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, or has any other association with (within the meaning of Article
1, Section 1(m) of the By-laws of the NASD), any member firm of the NASD.

(c) Officers Certificates. Any certificate signed by any
officer of the Company or any of its Subsidiaries delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby; and any certificate signed by or on behalf of the Selling
Stockholder as such and delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Selling
Stockholder to each Underwriter as to the matters covered thereby.

SECTION 2. Sale and Delivery to Underwriters' Closing.

(a) Initial Securities. On the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company and the Selling Stockholder, severally and not jointly,
agree to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company and
the Selling Stockholder, at the price per share set forth in Schedule C, that
proportion of the number of Initial Securities set forth in Schedule B opposite
the name of the Company or the Selling Stockholder, as the case may be, which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof, bears to the total number of Initial Securities, subject, in
each case, to such adjustments among the Underwriters as the Representatives in
their sole discretion shall make to eliminate any sales or purchases of
fractional securities.

(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional
[____________] shares of Common Stock, as set forth in Schedule B, at the price
per share set forth in Schedule C, less an amount per share equal to any
dividends or distributions declared by the Company and payable on the Initial
Securities but not payable on the Option Securities. The option hereby granted
will expire 30 days after the date hereof and may be exercised in whole or in
part from time to time on one or more occasions only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by PMG to the Company setting
forth the number of Option Securities as to which the several Underwriters are
then exercising the option and the time and

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<PAGE> 15
date of payment and delivery for such Option Securities. Any such time and date
of delivery (a "Date of Delivery") shall be determined by PMG, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
bears to the total number of Initial Securities, subject in each case to such
adjustments as PMG in its discretion shall make to eliminate any sales or
purchases of fractional shares.

(c) Payment. Payment of the purchase price for, and delivery
of certificates for, the Initial Securities shall be made at the offices of
Pepper Hamilton LLP, 3000 Two Logan Square, Eighteenth and Arch Streets,
Philadelphia, Pennsylvania, 19103-2799, or at such other place as shall be
agreed upon by PMG and the Company and the Selling Stockholder, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern Time on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by PMG
and the Company and the Selling Stockholder (such time and date of payment and
delivery being herein called "Closing Time").

In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by PMG and the Company
on each Date of Delivery as specified in the notice from PMG to the Company.

Payment shall be made to the Company and to the Selling Stockholder by
wire transfer of immediately available funds to bank accounts designated by, in
the case of the Company, the Company and, in the case of the Selling
Stockholder, the Custodian pursuant to the Selling Stockholder's Power of
Attorney and Custody Agreement, in each case, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Securities to be purchased by them. It is understood that each
Underwriter has authorized the Representatives, for its account, to accept
delivery of receipt for, and make payment of the purchase price for, the Initial
Securities and the Option Securities, if any, which it has agreed to purchase.
PMG, individually and not as representative of the Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Initial
Securities or the Option Securities, if any, to be purchased by any Underwriter
whose funds have not been received by Closing Time or the relevant Date of
Delivery, as the case may be, but such payment shall not relieve such
Underwriter from its obligations hereunder.

(d) Denominations, Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before Closing Time or the

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<PAGE> 16
relevant Date of Delivery, as the case may be. The certificates for the Initial
Securities and the Option Securities, if any, will be made available for
examination and packaging by the Representatives in the City of New York not
later than 10:00 A.M. (Eastern time) on the business day prior to Closing Time
or the relevant Date of Delivery, as the case may be.

SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:

(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the
Representatives immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become effective,
or any supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information and (iv)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or of any order preventing or suspending the use
of any preliminary prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Company will
promptly effect the filings necessary pursuant to Rule 424(b) and will take such
steps as it deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.

(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term Sheet
or any amendment, supplement or revision to either the prospectus included in
the Registration Statement at the time it became effective or to the Prospectus,
will furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall object.

(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration Statement
as originally filed and of each amendment thereto (without exhibits) for each of
the Underwriters. The copies of the Registration Statement and each amendment
thereto furnished to the Underwriters will be identical to the electronically

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<PAGE> 17
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.

(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is necessary,
in the opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of the 1933
Act or the 1933 Act Regulations, the Company will promptly prepare and file with
the Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Company will
furnish to the Underwriters such number of copies of such amendment or
supplement as the Underwriters may reasonably request.

(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Representatives may designate and to
maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement, provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in

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<PAGE> 18
effect for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.

(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.

(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".

(i) Listing. The Company will use its best efforts to effect
and maintain the quotation of the Common Stock (including the Securities) on the
NASDAQ National Market and will file with the NASDAQ National Market all
documents and notices required by the NASDAQ National Market of companies that
have securities that are traded in the over-the-counter market and quotations
for which are reported by the NASDAQ National Market.

(j) Restriction on Sale of Securities. During a period of 180
days from the date of the Prospectus, the Company will not, without the prior
written consent of PMG, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus, or
(C) any shares of Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the Company referred to
in the Prospectus.

(k) Reporting Requirements. The Company, during the period
when the Prospectus is required to be delivered under the 1933) Act or the 1934
Act, will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the rules
and regulations of the Commission thereunder.

(l) Compliance with NASD Rules. The Company hereby agrees that
it will ensure that the Reserved Securities will be restricted as required by
the NASD or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of this Agreement.
The Underwriters will notify the Company as to which persons will need to be so
restricted. At the request of the Underwriters, the Company will direct the
transfer

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<PAGE> 19
agent to place a stop transfer restriction upon such securities for such period
of time. Should the Company release, or seek to release, from such restrictions
any of the Reserved Securities, the Company agrees to reimburse the Underwriters
for any reasonable expenses (including, without limitation, legal expenses) they
incur in connection with such release.

(m) Compliance with Rule 463. The Company will file with the
Commission such information as may be required pursuant to Rule 463 of the 1933
Act Regulations.

SECTION 4. Payment of Expenses.

(a) Expenses. The Company will pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the NASD of the
terms of the sale of the Securities, and (x) the fees and expenses incurred in
connection with the inclusion of the Securities in the Nasdaq National Market.

(b) Expenses of the Selling Stockholder. The Selling
Stockholder will pay all expenses incident to the performance of its respective
obligations under and the consummation of the transactions contemplated by this
Agreement, including (i) any stamp duties, capital duties and stock transfer
taxes, if any, payable upon the sale of the Securities to the Underwriters, and
their transfer between the Underwriters pursuant to an agreement between such
Underwriters, and (ii) the fees and disbursements of their respective counsel
and accountants.

(c) Termination of Agreement. If this Agreement is terminated
by PMG in accordance with the provisions of Section 5, Section 9(a)(i) or
Section 11 hereof, the Company and the Selling Stockholder shall reimburse the
Underwriters for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Underwriters.

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<PAGE> 20

(d) Allocation of Expenses. The provisions of this Section
shall not affect any agreement that the Company and the Selling Stockholder may
make for the sharing of such costs.

SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholder
contained in Section 1 hereof or in certificates of any officer of the Company
or any Subsidiary of the Company or on behalf of the Selling Stockholder
delivered pursuant to the provisions hereof, to the performance by the Company
and the Selling Stockholder of their respective covenants and other obligations
hereunder, and to the following further conditions:

(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A Prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).

(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Buchanan Ingersol Professional Corporation, counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters), together with signed
or reproduced copies of such letter for each of the other Underwriters, to the
effect that:

(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware.

(ii) The Company has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under this
Agreement.

(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect.

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<PAGE> 21
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization"; the shares of issued and
outstanding capital stock of the Company, including the Securities to be
purchased by the Underwriters from the Selling Stockholder, have been duly
authorized and validly issued and are fully paid and non-assessable; and none of
the outstanding shares of capital stock of the Company was issued in violation
of any preemptive or other right of any securityholder of the Company.

(v) The Securities have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement against payment
of the consideration set forth herein, will be validly issued and fully paid and
non-assessable and no holder of the Securities is or will be subject to personal
liability by reason of being such a holder.

(vi) The issuance and sale of the Securities by the
Company and the sale of the Securities by the Selling Stockholder is not subject
to preemptive or other similar rights of any securityholder of the Company.

(vii) Each Subsidiary has been duly incorporated and is
validly existing as a corporation or limited liability company in good standing
under the laws of the jurisdiction of its incorporation or formation, has power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect;
except as otherwise disclosed in the Registration Statement, all of the issued
and outstanding capital stock or membership interests of each Subsidiary has
been duly authorized and validly issued, is fully paid and non-assessable and,
to the best of our knowledge, is owned by the Company, directly or through
Subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares of capital stock of
any Subsidiary was issued in violation of any preemptive or other right of any
securityholder of such Subsidiary.

(viii) (A) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms except as such enforceability may be limited by bankruptcy or other
equitable principles.

(B) Each of the Plan of Reorganization and
Exchange Agreement and the Contribution Agreement were duly authorized, executed
and delivered by the Company and each of the other parties thereto and
constitutes the valid and binding agreement of the Company and the other parties
thereto enforceable against the Company and the other parties

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<PAGE> 22
thereto in accordance with their respective terms except as such enforceability
may be limited by bankruptcy or other equitable principles.

(ix) The Registration Statement, including, any Rule
462(b) Registration Statement, has been declared effective under the 1933 Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and, to the best
of our knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.

(x) The Registration Statement, including any Rule
462(b) Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus, and each amendment or supplement to
the Registration Statement and Prospectus, as of their respective effective or
issue dates (other than the financial statements and supporting schedules,
included therein or omitted therefrom, as to which we need express no opinion)
complied as to form in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations.

(xi) If Rule 434 has been relied upon, the Prospectus
was not materially different, as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective.

(xii) The form of certificate used to evidence the
Common Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and by-laws of the
Company and the requirements of the Nasdaq National Market.

(xiii) There is not pending or, to the best of our
knowledge, threatened any action, suit, proceeding, inquiry or investigation, to
which the Company or any of its Subsidiaries is a party, or to which the
property of the Company or any of its Subsidiaries is subject, before or brought
by any court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder.

(xiv) The information in the Prospectus under "Risk
Factors," "Business -- Competition," "Business--Regulation,"
"Business--Facilities," "Business--Legal Proceedings," "Description of Capital
Stock--Shares Eligible for Future Sale," and in the Registration Statement under
Item 14, to the extent that such information constitutes matters of law,
summaries of legal matters, the Company's charter and bylaws or legal
proceedings, or legal conclusions, has been reviewed by us and is correct in all
material respects.

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<PAGE> 23
(xv) To the best of our knowledge, there are no
statutes or regulations that are required to be described in the Prospectus that
are not described as required.

(xvi) All descriptions in the Registration Statement of
contracts and other documents to which the Company or any of its Subsidiaries
are a party are accurate in all material respects; to the best of our knowledge,
there are no franchises, contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated by reference as
exhibits thereto, and the descriptions thereof or references thereto are correct
in all material respects.

(xvii) Neither the Company nor any of its Subsidiaries
is in violation of its charter or by-laws and, to the best of our knowledge, no
default by the Company or any of its Subsidiaries exists in the due performance
or observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by reference
as an exhibit to the Registration Statement.

(xviii) No filing with, or authorization, approval,
consent, license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under the 1933
Act and the 1933 Act Regulations, which have been obtained, or as may be
required under the securities or blue sky laws of the various states, as to
which we need express no opinion) is necessary or required in connection with
the due authorization, execution and delivery of this Agreement or for the
offering, issuance, sale or delivery of the Securities.

(xix) The execution, delivery and performance of this
Agreement, the Plan of Reorganization and Exchange Agreement and the
Contribution Agreement and the consummation of the transactions contemplated
herein and therein and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use Of Proceeds")
and compliance by the Company with its obligations hereunder and thereunder do
not and will not, whether with or without the giving of notice or lapse of time
or both, conflict with or constitute a breach of, or default or Repayment Event
(as defined in Section 1(a)(x) of this Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its Subsidiaries pursuant to any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any
other agreement or instrument, known to us, to which the Company or any of its
Subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any of its Subsidiaries is
subject (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company or any of its Subsidiaries, or any applicable

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<PAGE> 24
law, statute rule, regulation, judgment, order, writ or decree, known to us, of
any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its Subsidiaries or any of their
respective properties, assets or operations.

(xx) To the best of our knowledge, there are no persons
with registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered by the
Company under the 1933 Act.

(xxi) The Company is not an "investment company" or an
entity "controlled" by an "investment company," as such terms are defined in the
1940 Act.

In rendering such opinion, such counsel may rely as to matters of
fact upon certificates of officers of the Company, and as to matters governed by
the laws of states other than New Jersey, Pennsylvania, Delaware or Federal laws
on local counsel in such jurisdictions provided that in each case such counsel
shall state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel which leads them to believe that (i) the
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except that such counsel need express
no view as to financial information, including the financial statements,
schedules and statistical information therein).

(c) Opinion of Special Regulatory Counsel for Company. At Closing
Time, the Representatives shall have received the favorable opinion, dated as of
Closing Time, of Swidler Berlin Shereff Friedman, LLP, special regulatory
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters), together with signed or reproduced copies of such letter for each
of the Representatives, to the effect that:

(i) Each of the Company and the Subsidiaries has made
all reports and filings, and paid all fees, required by the FCC and each PUC,
and has all certificates, orders, permits, licenses, authorizations, consents,
and approvals of and from, and has made all filings and registrations, with the
FCC and each PUC necessary to own, lease, license and use its properties and
assets and to conduct its business of providing foreign, interstate and local
telecommunications services within the United States in the manner described in
the Prospectus (collectively, the "Licenses").

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<PAGE> 25
(ii) Neither the Company nor any of the Subsidiaries is
subject to any pending or, to our knowledge, threatened complaint, investigation
or proceeding before the FCC or any PUC based on any alleged violation by the
Company or any Subsidiary in connection with its provision of or failure to
provide telecommunications service and neither the Company nor any of the
Subsidiaries has received any notice of proceedings relating to the violation,
revocation or modification of any of the licenses, or the qualification or
rejection of any such filing or registration, the effect of which, singly or in
the aggregate, would have a Material Adverse Effect.

(iii) To our knowledge, (i) the Licenses are validly
issued; (ii) the Licenses are in full force and effect and are not subject to
conditions outside the ordinary course; and (iii) all express conditions in the
Licenses have been satisfied.

(iv) The statements in the Registration Statement and
Prospectus under the heading of "Risk Factors - Risks Relating to Government
Regulations," "Business Competition" and "Business - Regulation" insofar as such
statements constitute a summary of the legal matters, documents or proceedings
of the FCC with respect to telecommunications matters referred to therein, are
accurate in all material respects, and fairly summarize the matter therein
described.

(v) All regulatory tariffs applicable to the Company's
and the Subsidiaries' interexchange, exchange access, and international
operations, (the "FCC Tariffs") and local exchange and intrastate operations
(the "PUC Tariffs") are in full force and effect in accordance with their terms,
and to our knowledge, there is no outstanding notice of suspension, cancellation
or termination or any threatened suspension, cancellation or termination with
respect to any of the FCC Tariffs or PUC Tariffs. Neither the Company nor any of
the Subsidiaries is subject to any restrictions or conditions applicable to its
FCC Tariffs or PUC Tariffs that limit or would limit the operations of the
Company or the Subsidiaries (other than restrictions or conditions generally
applicable to tariffs of that type). Each such FCC Tariff and PUC Tariff has
been accepted by the FCC or the applicable PUC, as the case may be. To our
knowledge, the Company and the Subsidiaries are not in violation under any of
the terms and conditions of any of the FCC Tariffs or the PUC Tariffs.

(vi) (A) The execution and delivery of the Underwriting
Agreement and the Power of Attorney and Custody Agreements by the Company and
the consummation of the transactions contemplated thereby do not violate (i) any
Federal communications law applicable to the Company and/or Subsidiaries, (ii)
any State law applicable to the Company and/or Subsidiaries, and (iii) to the
best of our knowledge, any decree from any court; and (B) no authorization of
the FCC or any PUC that has not already been received from, or prior filing that
has not already been made with, such agency is necessary for the execution and
delivery of the Underwriting Agreement or the Power of Attorney and Custody
Agreements by the Company and the consummation of the transactions contemplated
thereby in accordance with the terms

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<PAGE> 26
thereof, except where the failure to obtain such authorization or make such
filing would not have a material adverse effect on the prospects, condition,
financial or otherwise, or on the earnings, business or operations of the
Company and its Subsidiaries, taken as a whole.

(vii) Based upon a review of public files of the FCC,
appropriate files of this firm and an inquiry of lawyers in this firm who have
substantial responsibility for the Company's and the Subsidiaries' legal matters
handled by this firm, we confirm that except as disclosed in the Underwriting
Agreement: (a) there is no unsatisfied adverse FCC order, decree or ruling
outstanding against the Company or any Subsidiary or any of the Licenses; (b)
none of the Company or any Subsidiary is a party to any complaint, action or
other proceeding at the FCC, including complaints against other licensees or
applicants; (c) Schedule B hereto includes all applications on behalf of the
Company or any Subsidiary or with respect to the Licenses that are now pending
before the FCC; and (d) the Company and the Subsidiaries have not been the
subject of any final adverse order, decree or ruling of the FCC or any PUC
(including any notice of forfeiture which has been paid).

(viii) To the best of our knowledge, neither the
Company nor any of its Subsidiaries is in violation of, or in default under, any
provision of Federal communications law or State communications law, the effect
of which, singly or in the aggregate, would have a Material Adverse Effect.

(ix) No facts have come to the attention of such
counsel to cause it to believe, and such counsel has no reason to believe, that
both as of the Effective Date and as of the Closing Date, the statements in the
Registration Statement and the Prospectus under the captions "Business -
____________," "Business - Competition," "Business - Regulation," and "Business
- - Legal Proceedings" that pertain to the Communications Act, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.

(d) Opinion of Counsel for the Selling Stockholder. At Closing Time,
the Representatives shall have received the favorable opinion, dated as of
Closing Time, of Buchanan Ingersol Professional Corporation, counsel for the
Selling Stockholder, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of such letter for each
of the Representatives, to the effect that:

(i) No filing with, or consent, approval,
authorization, license, order, registration, qualification or decree of, any
court or governmental authority or agency, domestic or foreign (other than the
issuance of the order of the Commission declaring, the Registration Statement
effective and such authorizations, approvals or consents as may be necessary
under state securities laws, as to which we need express no opinion) is
necessary or required to be obtained by the Selling Stockholder for the
performance by each Selling

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<PAGE> 27
Stockholder of its obligations under this Agreement or under the Power of
Attorney and Custody Agreement, or in connection with the offer, sale or
delivery of the Securities.

(ii) The Power of Attorney and Custody Agreement has
been duly executed and delivered by the Selling Stockholder and constitutes the
legal, valid and binding agreement of such Selling Stockholder enforceable
against the Selling Stockholder in accordance with its terms except as
enforceability may be handled by bankruptcy or equitable principles.

(iii) This Agreement has been duly authorized, executed
and delivered by or on behalf of the Selling Stockholder and constitutes the
legal, valid and binding agreement of such Selling Stockholder enforceable
against the Selling Stockholder in accordance with its terms except as
enforceability may be handled by bankruptcy or equitable principles.

(iv) The Attorney-in-Fact has been duly authorized by
the Selling Stockholder to deliver the Securities on behalf of the Selling
Stockholder in accordance with the terms of this Agreement.

(v) The execution, delivery and performance of this
Agreement and the Power of Attorney and Custody Agreement and the sale and
delivery of the Securities and the consummation of the transactions contemplated
in this Agreement and in the Registration Statement and compliance by the
Selling Stockholder with its obligations under this Agreement have been duly
authorized by all necessary action on the part of the Selling Stockholder and do
not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under or
result in the creation or imposition of any tax, lien, charge or encumbrance
upon the Securities or any property or assets of the Selling Stockholder
pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, license, lease or other instrument or agreement to which any
Selling Stockholder is a party or by which it may be bound, or to which any of
the property or assets of the Selling Stockholder may be subject nor all such
action result in any violation of the provisions of the charter, by-laws or
partnership agreement of the Selling Stockholder, if applicable, or any law,
administrative regulation, judgment or order of any governmental agency or body
or any administrative or court decree having jurisdiction over such Selling
Stockholder or any of its properties.

(vi) To the best of our knowledge, the Selling
Stockholder has valid and marketable title to the Securities to be sold by such
Selling Stockholder pursuant to this Agreement, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind, and
has full right, power and authority to sell, transfer and deliver such
Securities pursuant to this Agreement. By delivery of a certificate or
certificates therefor such Selling Stockholder will transfer to the Underwriters
who have purchased such Securities pursuant to this Agreement (without notice of
any defect in the title of such Selling Stockholder and who are otherwise bona
fide purchasers for purposes of the Uniform Commercial Code)

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<PAGE> 28
valid and marketable title to such Securities, free and clear of any pledge,
lien, security interest, charge, claim equity or encumbrance of any kind.

(e) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Pepper Hamilton LLP, counsel for the Underwriters, together with signed
or reproduced copies of such letter for each of the Representatives with respect
to the matters set forth in clauses (i), (ii), (v), (viii)(A), (ix), (x), (xii)
and the penultimate paragraph of Section 5(b). In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New Jersey, the Commonwealth of Pennsylvania, the
federal law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representatives. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and its Subsidiaries and certificates of public officials.

(f) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section l(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or are contemplated by the
Commission.

(g) Certificate of Selling Stockholder. At Closing Time, the
Representatives shall have received a certificate of an Attorney-in-Fact on
behalf of the Selling Stockholder, dated as of Closing Time, to the effect that
(i) the representations and warranties of the Selling Stockholder contained in
Section l(b) hereof are true and correct in all respects with the same force and
effect as though expressly made at and as of Closing Time and (ii) the Selling
Stockholder has complied in all material respects with all agreements and all
conditions on its part to be performed under this Agreement at or prior to
Closing Time.

(h) Accountant's Comfort Letters. At the time of the execution of
this Agreement, the Representatives shall have received from KPMG Peat Marwick
LLP a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letters for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with

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<PAGE> 29
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.

(i) Bring-down, Comfort Letter. At Closing Time, the Representatives
shall have received from KPMG Peat Marwick LLP a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (g) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to
Closing Time.

(j) Approval of Listing. At Closing Time, the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.

(k) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.

(l) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit A hereto signed by the persons listed on Schedule D hereto.

(m) Conditions to Purchase of Option Securities. In the event that
the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company and the Selling Stockholder contained herein and the
statements in any certificates furnished by the Company, any Subsidiary of the
Company and the Selling Stockholder hereunder shall be true and correct as of
each Date of Delivery and, at the relevant Date of Delivery, the Representatives
shall have received:

(i) Officers' Certificate. A certificate, dated such
Date of Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to Section 5(e) hereof
remains true and-correct as of such Date of Delivery.

(ii) Certificate of Selling Stockholder. A certificate,
dated such Date of Delivery, of an Attorney-in-Fact on behalf of the Selling
Stockholder confirming that the certificate delivered at Closing Time pursuant
to Section 5(f) remains true and correct as of such Date of Delivery.

(iii) Opinion of Counsel for Company. The favorable
opinion of Buchanan Ingersol Professional Corporation, counsel for the Company,
in form and substance satisfactory to counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion required by Section
5(b) hereof.

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<PAGE> 30
(iv) Opinion of Special Regulatory Counsel for Company
The favorable opinion of Swidler Berlin Shereff Friedman, LLP, special
regulatory counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.

(v) Opinion of Counsel for the Selling Stockholder. The
favorable opinion of Buchanan Ingersol Professional Corporation, counsel for the
Selling Stockholder, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option Securities to
be purchased on such Date of Delivery and otherwise to the same effect as the
opinion required by Section 5(d) hereof.

(vi) Opinion of Counsel for Underwriters. The favorable
opinion of Pepper Hamilton LLP, counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by Section
5(e) hereof

(vii) Bring-down Comfort Letter. A letter from KPMG
Peat Marwick LLP, in form and substance satisfactory to the Representatives and
dated such Date of Delivery, substantially in the same form and substance as the
letters furnished to the Representatives pursuant to Section 5(h) hereof, except
that the "specified date" in the letter furnished pursuant to this paragraph
shall be a date more than five days prior to such Date of Delivery.

(n) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company and the Selling Stockholder in connection with the issuance
and sale of the Securities as herein contemplated shall be satisfactory in form
and substance to the Representatives and counsel for the Underwriters.

(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by PMG by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party except as
provided in Section 4 and except that Sections 5, 6, 7 and 8 shall survive any
such termination and remain in full force and effect.

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<PAGE> 31
SECTION 6. Indemnification.

(a) Indemnification of Underwriters. (1) The Company and the Selling
Stockholder, jointly and severally agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of any untrue statement or
alleged untrue statement of a material fact included in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading;

(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of (A) the violation of any
applicable laws or regulations of foreign jurisdictions where Reserved
Securities have been offered and (B) any untrue statement or alleged untrue
statement of a material fact included in the supplement or prospectus wrapper
material distributed in connection with the reservation and sale of the Reserved
Securities to eligible employees of the Company or the omission or alleged
omission therefrom of a material fact necessary to make the statements therein,
when considered in conjunction with the Prospectus or preliminary prospectus,
not misleading;

(iii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or in connection
with any violation of the nature referred to in Section 6(a)(1)(ii)(A) hereof or
any such alleged untrue statement or omission, provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company and the Selling Stockholder; and

(iv) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by PMG),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission
or in connection with any violation of the nature referred to in (i), (ii) or
(iii) above, to the extent that any such expense is not paid under (i), (ii) or
(iii) above;

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<PAGE> 32
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through PMG expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto).

(b) Indemnification of Company, Directors and Officers and the
Selling Stockholder. Each Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and the
Selling Stockholder and each person, if any, who controls any Selling
Stockholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a)(1) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through PMG
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).

(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
6(a)(1) above, counsel to the indemnified parties shall be selected by PMG, and,
in the case of parties indemnified pursuant to Section 6(b) above, counsel to
the indemnified parties shall be selected by the Company. An indemnifying party
may participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which

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<PAGE> 33
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.

(d) Settlement Without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

(e) Other Agreements with Respect to Indemnification. The provisions
of this Section shall not affect any agreement among the Company and the Selling
Stockholder with respect to indemnification.

SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (1) above but also the relative fault of the Company and the
Selling Stockholder on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions, or in connection with any violation
of the nature referred to in Section 6(a)(1)(ii)(A) hereof, which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.

The relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other hand in connection
with the offering of the Securities pursuant to this Agreement shall be deemed
to be in the same respective proportions as the total net proceeds from the
offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Stockholder and the total
underwriting discount received by the Underwriters, in each case as set forth on
the cover of the Prospectus,

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<PAGE> 34
or, if Rule 434 is used, the corresponding location on the Term Sheet bear to
the aggregate initial public offering price of the Securities as set forth on
such cover.

The relative fault of the Company and the Selling Stockholder on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Selling Stockholder or by the
Underwriters and the parties' relative intent, knowledge, access to, information
and opportunity to correct or prevent such statement or omission or any
violation of the nature referred to in Section 6(a)(1)(ii)(A) hereof.

The Company, the Selling Stockholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or the
Selling Stockholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company or
such Selling Stockholder, as the case may be. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the number of Initial Securities set forth opposite their respective names in
Schedule A hereto and not joint.

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<PAGE> 35
The provisions of this Section shall not affect any agreement
among the Company and the Selling Stockholder with respect to contribution.

SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement or in certificates of officers of the Company or any of its
Subsidiaries or the Selling Stockholder submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of the
Company or the Selling Stockholder, and shall survive delivery of the Securities
to the Underwriters.

SECTION 9. Termination of Agreement.

(a) Termination; General. PMG may terminate this Agreement, by
notice to the Company and the Selling Stockholder, at any time at or prior to
Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of PMG, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the Nasdaq National Market, or if the
Nasdaq National Market has been suspended or materially limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the NASD or any other governmental authority, or (iv) if a banking
moratorium has been declared by either Federal or New York authorities.

(b) Liabilities. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections it 5, 6, 7 and 8 shall survive such. termination and remain in full
force and effect.

SECTION 10. Default by One or More of the Underwriters. If one
or more of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representatives shall not
have completed such arrangements within such 24-hour period, then:

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<PAGE> 36
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or

(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the Underwriters to purchase and of the Selling Stockholder to
sell the Option Securities to be purchased and sold on such Date of Delivery
shall terminate without liability on the part of any non-defaulting Underwriter.

No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.

In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the obligation
of the Underwriters to purchase and the Selling Stockholder to sell the relevant
Option Securities, as the case may be, either the (i) Representatives or (ii)
the Company and any Selling Stockholder shall have the right to postpone Closing
Time or the relevant Date of Delivery, as the case may be, for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements. As used
herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.

SECTION 11. Default by the Selling Stockholder or the Company.
(a) If the Selling Stockholder shall fail at Closing Time or at a Date of
Delivery to sell and deliver the number of Securities which the Selling
Stockholder is obligated to sell hereunder, and the Company does not commit to
increase the number of Securities to be sold by it hereunder to the total number
to be sold by the Selling Stockholder as set forth in Schedule B hereto, then
the Underwriters may, at the option of the Representatives, by notice from the
Representatives to the Company, either (b) terminate this Agreement without any
liability on the fault of any non-defaulting party except that the provisions of
Sections 1, 4, 6, 7 and 8 shall remain in full force and effect or (b) elect to
purchase the Securities which the Company has agreed to sell hereunder. No
action taken pursuant to this Section 11 shall relieve the Selling Stockholder
so defaulting from liability, if any, in respect of such default.

In the event of a default by the Selling Stockholder as
referred to in this Section 11, each of the Representatives or the Company shall
have the right to postpone Closing Time or Date of Delivery for a period not
exceeding seven days in order to effect any required change in the Registration
Statement or Prospectus or in any other documents or arrangements.

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<PAGE> 37
(b) If the Company shall fail at Closing Time or at the Date
of Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any non-defaulting party; provided, however, that the provisions of Sections
1, 4, 6, 7 and 8 shall remain in full force and effect. No action taken pursuant
to this Section shall relieve the Company from liability, if any, in respect of
such default.

[SIGNATURE PAGE FOLLOWS]

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<PAGE> 38
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company and the Attorney-in-Fact
for the Selling Stockholder a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a binding agreement among the
Underwriters, the Company and the Selling Stockholder in accordance with its
terms.

Very truly yours,

COOPERATIVE HOLDINGS, INC.

By: _______________________________

Title:

William J. Thomas

By: _______________________________

Title:

As Attorney-in-Fact acting on behalf of
the Selling Stockholder named in
Schedule B hereto

CONFIRMED AND ACCEPTED,
as of the date first above written:

PENNSYLVANIA MERCHANT GROUP
ROTH CAPITAL PARTNERS, INC.

By: PENNSYLVANIA MERCHANT GROUP

By ____________________________________
Authorized Signatory

For themselves and as Representatives of the
other Underwriters named in Schedule A hereto.

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<PAGE> 39
SCHEDULE A

<TABLE>
<CAPTION>
Number of Initial
Name of Underwriter Securities

<S> <C>
Pennsylvania Merchant Group ...........................
Roth Capital Partners, Inc. .........................
[ ].............................
[ ].............................

Total .................................................. [___________]

</TABLE>

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<PAGE> 40
SCHEDULE B

Number of Initial Maximum Number of Option
Securities to be Sold Securities to Be Sold
<S> <C> <C>
COOPERATIVE [__________] [__________]
HOLDINGS, INC.
Patrick C. Lombardi [__________] __________
1996 Family Limited
Partnership

---------- ----------
Total ...................................... [__________] [__________]
</TABLE>

B-1
<PAGE> 41
SCHEDULE C

COOPERATIVE HOLDINGS, INC.

[ ] Shares of Common Stock

(Par Value S.01 Per Share)

1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $-.

2. The purchase price per share for the Securities to be paid
by the several Underwriters shall be $-, being an amount equal to the initial
public offering price set forth above less $- per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.

C-1
<PAGE> 42
SCHEDULE D

Louis A. Lombardi 1996 Family Limited Partnership,
420 Washington Avenue, Belleville, NJ 07109

Patrick C. Lombardi 1996 Family Limited Partnership,
420 Washington Avenue, Belleville, NJ 07109

Louis A. Lombardi, Sr.

Louis A. Lombardi, Jr.

Michael Lombardi

Dan Hradesky

Keith Fallon

Ronald O. Brown, Ph.D.

Myron Feldman

John Trzaka

Jay M. Brzezanski

D-1
<PAGE> 43
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(I)]

Exhibit A

___________, 2000

PENNSYLVANIA MERCHANT GROUP
ROTH CAPITAL PARTNERS, INC.
as Representatives of the several Underwriters
to be named in the within-mentioned Purchase Agreement

c/o Pennsylvania Merchant Group
Four Falls Corporate Center
West Conshohocken, Pennsylvania 19428

Re: Proposed Public Offering by Cooperative Holdings, Inc.

Dear Sirs:

The undersigned, a stockholder or an officer and/or director
of Cooperative Holdings, Inc., a Delaware corporation (the "Company"),
understands that Pennsylvania Merchant Group ("PMG"), and Roth Capital
Partners, Inc. propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with the Company and a certain selling stockholder
providing for the public offering of shares of the Company's common stock, par
value $.01 per share (the "Common Stock").

In recognition of the benefit that such an offering will
confer upon the undersigned and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Underwriting Agreement that, during a
period of 180 days from the date of the Underwriting Agreement, the undersigned
will not, without the prior written consent of PMG, directly or indirectly, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise transfer or dispose, directly or indirectly, of any
shares of the Common Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock, whether now owned or hereafter acquired
by the undersigned or with respect to which the undersigned has or hereafter
acquires the power of disposition, or file, or cause or request the Company to
file, any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common

Exhibit A-1
<PAGE> 44
Stock, whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or other securities, in cash
or otherwise.

Very truly yours,

------------------------
Signature

------------------------
Print Name

Exhibit A-2

<PAGE> 1
Exhibit 3.1

CERTIFICATE OF INCORPORATION

COOPERATIVE HOLDINGS, INC.

Pursuant to Section 101 of the Delaware General Corporation Law (the
"Law"), the undersigned Company hereby executes this Certificate of
Incorporation.

FIRST: The name of the company is Cooperative Holdings, Inc. (the
"Company").

SECOND: The Company's registered office in the State of Delaware is
located at Corporation Service Company, 1013 Centre Road, City of Wilmington,
County of New Castle, Delaware 19805. The name of its registered agent at such
address is Corporate Service Company.

THIRD: The purpose or purposes for which the Company is organized is to
engage in any lawful activity within the purposes for which corporations may be
organized under the Law.

FOURTH: The total number of shares of all classes of stock which the
Company shall have authority to issue is sixty-five million (65,000,000) shares.
The Company is authorized to issue two classes of stock designated "Common
Stock" and "Preferred Stock," respectively. The total number of shares of Common
Stock authorized to be issued by the Company is sixty million (60,000,000), each
such share of Common Stock having $0.01 par value. The total number of shares of
Preferred Stock authorized to be issued by the Company shall be five million
(5,000,000), each such share of Preferred Stock having $0.01 par value, all of
which is undesignated.

The undesignated Preferred Stock may be issued from time to time in one
or more series. The Board of Directors of the Company is hereby authorized, by
adopting a resolution or resolutions and filing a certificate or certificates
pursuant to the applicable provisions of the Law, to establish from time to time
the number of shares to be included in each such series of Preferred Stock, and
to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof,
including but not limited to the fixing or alteration of the dividend rights,
dividend rate or rates, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
and the liquidation preferences of any wholly unissued series of shares of
Preferred Stock, or any of them, and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of such series then outstanding. In the event the
number of shares of any series shall be so decreased, the shares removed from
such series by such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.

FIFTH: The name and mailing address of the sole incorporator is
Kristina K. Pappa, Esq. c/o Buchanan Ingersoll Professional Corporation, 650
College Road East, Princeton, New Jersey 08540.
<PAGE> 2
SIXTH: The following provisions are included for the management of the
business and the conduct of the affairs of the Company, and for further
definition, limitation and regulation of the powers of the Company and of its
Board of Directors and stockholders:

(i) The Board of Directors of the Company is expressly
authorized to adopt, amend or repeal the Bylaws of the Company, subject
to any limitation thereof contained in the Bylaws. The stockholders
also shall have the power to adopt, amend or repeal the Bylaws of the
Company; provided, however, that, except as set forth below in clause
(ii), in addition to any vote of the holders of any class or series of
stock of the Company required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all
of the then outstanding shares of the capital stock of the Company
entitled to vote generally in the election of Directors, voting
together as a single class, shall be required to adopt, amend or repeal
any provision of the Bylaws of the Company.

(ii) In addition to any vote of the holders of any class or
series of stock of the Company required by law or by this Certificate
of Incorporation, the affirmative vote of the holders of at least
eighty percent (80%) of the voting power of all of the then outstanding
shares of the capital stock of the Company entitled to vote generally
in the election of Directors, voting together as a single class, shall
be required to adopt, amend or repeal any provision of ARTICLE XI of
the Bylaws of the Company entitled "Indemnification and Insurance" or
ARTICLE III, Section 2(b) of the Bylaws, relating to the staggered
nature of the election of Directors.

(iii) Upon the consummation of an initial public offering of
securities of the Company under the Securities Act of 1933, as amended,
stockholders of the Company may not take any action by written consent
in lieu of a meeting.

(iv) Upon the consummation of an initial public offering of
securities of the Company under the Securities Act of 1933, as amended,
special meetings of stockholders may be called at any time only by the
President, the Chairman of the Board of Directors of the Company (if
any) or a majority of the Board of Directors of the Company. Business
transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes set forth in the notice of
such special meeting.

(v) The Board of Directors of the Company, when evaluating any
offer of another party (a) to make a tender or exchange offer for any
equity security of the Company, or (b) to effect a business
combination, merger, consolidation, or sale of all or substantially all
of the assets of the Company, shall, in connection with the exercise of
its judgment in determining what is in the best interests of the
Company as a whole, be authorized to give due consideration to any such
factors as the Board of Directors of the Company determines to be
relevant, including, without limitation:

2
<PAGE> 3
(1) the short term and long term interests of the
Company and the Company's stockholders, including the
possibility that these interests might be best served by the
continued independence of the Company;

(2) whether the proposed transaction might violate
federal or state laws;

(3) not only the consideration being offered in the
proposed transaction, in relation to the then current market
price for the outstanding capital stock of the Company, but
also to the market price for the capital stock of the Company
over a period of years, the estimated price that might be
achieved in a negotiated sale of the Company as a whole or in
part or through orderly liquidation, the premiums over market
price for the securities of other company's in similar
transactions, current political, economic and other factors
bearing on securities prices and the Company's financial
condition and future prospects; and

(4) the social, legal and economic effects upon
employees, suppliers, creditors, customers and others having
similar relationships with the Company, upon the communities
in which the Company operates its business and upon the
economy of the state, region and nation.

In connection with any such evaluation, the Board of Directors of the
Company is authorized to conduct such investigations and engage in such
legal proceedings as the Board of Directors of the Company may
determine.

(vi) In addition to any vote of the holders of any class or
series of stock of the Company required by law or by this Certificate
of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all
of the then outstanding shares of the capital stock of the Company
entitled to vote generally in the election of Directors, voting
together as a single class, shall be required to amend any provision of
this ARTICLE SIXTH of this Certificate of Incorporation (other than
clause (ii) of this Article SIXTH).

(vii) In addition to any vote of the holders of any class or
series of stock of the Company required by law or by this Certificate
of Incorporation, the affirmative vote of the holders of at least
eighty percent (80%) of the voting power of all of the then outstanding
shares of the capital stock of the Company entitled to vote generally
in the election of Directors, voting together as a single class, shall
be required to amend any provision of clause (ii) of this Article
SIXTH, ARTICLE SEVENTH or ARTICLE EIGHTH of this Certificate of
Incorporation.

SEVENTH: Upon the consummation of an initial public offering of the
securities of the Company under the Securities Act of 1933, as amended, the
initial Directors and the Directors thereafter elected by the holders of the
voting stock shall, in accordance with the

3
<PAGE> 4
Company's Bylaws, be classified in respect to the time for which they shall
severally serve on the Board of Directors by dividing them into three staggered
classes which shall be as nearly equal in number as possible. Each member of
each class shall serve for three-year terms. At each annual meeting of the
stockholders, the stockholders shall elect Directors of the class which term
then expires, to serve until the third succeeding annual meeting. Except as
otherwise provided in this Certificate of Incorporation, each Director shall
serve for the term for which elected and until his or her successor shall be
duly elected and qualified.

EIGHTH: A director of the Company shall not be personally liable either
to the Company or to any stockholder for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, or (ii) for acts or omissions
which are not in good faith or which involve intentional misconduct or knowing
violation of the law, or (iii) for any matter in respect of which such director
shall be liable under Section 174 of Title 8 of the Law or any amendment thereto
or successor provision thereto, or (iv) for any transaction from which the
director shall have derived an improper personal benefit. Neither amendment nor
repeal of this paragraph nor the adoption of any provision of the Certificate of
Incorporation inconsistent with this paragraph shall eliminate or reduce the
effect of this paragraph in respect of any matter occurring, or any cause of
action, suit or claim that, but for this paragraph of this Article eighth, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.

NINTH: The Company is to have perpetual existence.

TENTH: Election of directors need not be by written ballot.

***********************

4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Incorporation on behalf of the Company this 9th day of February, 2000.

COOPERATIVE HOLDINGS, INC.

By: /s/ Kristina K. Pappa
___________________________________
Kristina K. Pappa, Esq., Sole Incorporator

<PAGE> 1
Exhibit 3.2

BYLAWS

COOPERATIVE HOLDINGS, INC.

(a Delaware corporation)

ARTICLE I

Offices

SECTION 1. Registered Office. The registered office of the
Company shall be at 1013 Centre Road, Wilmington, Delaware 19805 and the
registered agent at such address shall be Corporation Service Company. The Board
of Directors may change the registered office from time to time.

Section 2. Other Offices. The Company may have such other
offices either within or without the State of Delaware as the Board of Directors
may designate or as the business of the Company may require from time to time.

ARTICLE II

Stockholders

SECTION 1. Annual Meetings. The annual meeting of stockholders
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held each year at such date and
time, within or without the State of Delaware, as the Board of Directors shall
determine.

SECTION 2. Special Meetings. (a) Special meetings of
stockholders for the transaction of such business as may properly come before
the meeting may be called by order of the Board of Directors or by stockholders
holding together at least a majority of all the shares of the Company entitled
to vote at the meeting.

(b) Notwithstanding the provisions of Section 2(a),
immediately following the consummation of a public offering by the Company of
any of its capital stock, special meetings of stockholders may be called only by
the President, the Chairman of the Board of Directors (if any) or by order of a
majority of the Board of Directors.

(c) Any such meeting held pursuant to this Section 2 shall be
held at such date and time, within or without the State of Delaware, as may be
specified by such order. Whenever the directors shall fail to fix such place,
the meeting shall be held at the principal executive office of the Company.
<PAGE> 2
SECTION 3. Notice of Meetings. Written notice of all meetings
of the stockholders, stating the place, date and hour of the meeting and the
place within the city or other municipality or community at which the list of
stockholders may be examined, shall be mailed or delivered to each stockholder
not less than 10 nor more than 60 days prior to the meeting. Notice of any
special meeting shall state in general terms the purpose or purposes for which
the meeting is to be held and the business transacted at any such meeting shall
be limited to matters relating to the purpose or purposes set forth in the
notice of meeting.

SECTION 4. Fixing Date for Determination of Stockholders of
Record. In order that the Company may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than 60 nor less
than 10 days before the date of such meeting; (2) in the case of determination
of stockholders entitled to express consent to corporate action in writing
without a meeting, shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and (3)
in the case of any other action, shall not be more than 60 days prior to such
other action. If no record date is fixed: (1) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (2) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Company in accordance with applicable law, or, if prior action by the Board of
Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.

SECTION 5. Stockholder Lists. The officer who has charge of
the stock ledger of the Company shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.

2
<PAGE> 3
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Company, or to vote in person or by proxy at any
meeting of stockholders.

SECTION 6. Quorum. Except as otherwise provided by law or the
Company's Certificate of Incorporation, a quorum for the transaction of business
at any meeting of stockholders shall consist of the holders of record of a
majority of the issued and outstanding shares of the capital stock of the
Company entitled to vote at the meeting, present in person or by proxy. At all
meetings of the stockholders at which a quorum is present, all matters, except
as otherwise provided by law or the Certificate of Incorporation, shall be
decided by the vote of the holders of a majority of the shares entitled to vote
thereat present in person or by proxy. If there be no such quorum, the holders
of a majority of such shares so present or represented may adjourn the meeting
from time to time, without further notice, until a quorum shall have been
obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.

SECTION 7. Organization. Meetings of stockholders shall be
presided over by the Chairman, if any, or if none or in the Chairman's absence
the Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the
President, if any, or if none or in the President's absence the Chief Operating
Officer, or, if none of the foregoing is present, by a chairman to be chosen by
the stockholders entitled to vote who are present in person or by proxy at the
meeting. The Secretary of the Company, or in the Secretary's absence an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present, the presiding officer of the
meeting shall appoint any person present to act as secretary of the meeting.

SECTION 8. Voting; Proxies; Required Vote. (a) At each meeting
of stockholders, every stockholder shall be entitled to vote in person or by
proxy appointed by instrument in writing, subscribed by such stockholder or by
such stockholder's duly authorized attorney-in-fact (but no such proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period), and, unless the Certificate of Incorporation provides
otherwise, shall have one vote for each share of stock entitled to vote
registered in the name of such stockholder on the books of the Company on the
applicable record date fixed pursuant to these Bylaws. At all elections of
directors the voting may but need not be by ballot and a plurality of the votes
cast there shall elect. Except as otherwise required by law or the Certificate
of Incorporation, any other action shall be authorized by a majority of the
votes cast.

(b) Any action required or permitted to be taken at any
meeting of stockholders may, except as otherwise required by law or the
Certificate of Incorporation, be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of record of the issued and outstanding capital
stock of the Company having a majority of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, and the writing or writings are filed with the
permanent records of the Company. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing. Notwithstanding the

3
<PAGE> 4
provisions of this Section 8(b), immediately following the consummation of a
public offering by the Company of any of its capital stock, stockholders of the
Company may not take any action by written consent in lieu of a meeting.

(c) Where a separate vote by a class or classes, present in
person or represented by proxy, shall constitute a quorum entitled to vote on
that matter, the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class, unless otherwise provided in the Company's Certificate of
Incorporation.

SECTION 9. Inspectors. Unless otherwise required by law, the
Board of Directors, in advance of any meeting, may, but need not, appoint one or
more inspectors of election to act at the meeting or any adjournment thereof. If
an inspector or inspectors are not so appointed, the person presiding at the
meeting may, but need not, appoint one or more inspectors. In case any person
who may be appointed as an inspector fails to appear or act, the vacancy may be
filled by appointment made by the directors in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, if any, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, and the
validity and effect of proxies, and shall receive votes, ballot or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting,
the inspector or inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by such inspector or inspectors and
execute a certificate of any fact found by such inspector or inspectors.

SECTION 10. Nominating and Proposal Procedures. Without
limiting any other notice requirements imposed by law, the Certificate of
Incorporation or these Bylaws, any nomination for election to the Board of
Directors or other proposal to be presented by any stockholder at a
stockholders' meeting (the "Proponent") will be properly presented only if
written notice of the Proponent's intent to make such nomination or proposal has
been personally delivered to and otherwise in fact received by the Secretary of
the Company not later than (a) for the annual meeting, at least 150 days prior
to the anniversary date of the prior year's annual meeting, or (b) for any
special meeting, the close of business on the tenth day after notice of such
meeting is first given to stockholders; provided, however, that nothing
contained herein shall limit or restrict the right of any stockholder to present
at a stockholders' meeting any proposal made by such stockholder in accordance
with Rule 14a-8 promulgated pursuant to the Securities Exchange Act of 1934, as
amended, as it may hereafter be amended, or any successor rule. Such notice by
the Proponent to the Company shall set forth in reasonable detail information
concerning the nominee (in the case of a nomination for election to the Board of
Directors) or the substance of the proposal (in the case of any other
stockholder proposal), and shall include: (i) the name and residence address and
business address of the stockholder who intends to present the nomination or
other proposal or of any person who participates or is

4
<PAGE> 5
expected to participate in making such nomination and of the person or persons,
if any, to be nominated and the principal occupation or employment and the name,
type of business and address of the business, corporation or other organization
in which such employment is carried on of each such stockholder, participant and
nominee; (ii) a representation that the Proponent is a holder of record of stock
of the Company entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to present the nomination or other proposal specified
in the notice; (iii) a description of all arrangements or understandings between
the Proponent and any other person or persons (naming such person or persons)
pursuant to which the nomination or other proposal is to be made by the
Proponent; (iv) such other information regarding each proposal and each nominee
as would have been required to be included in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission had the nomination
or other proposal been made by the Board of Directors; and (v) the consent of
each nominee, if any, to serve as a director of the Company if elected. Within
15 days following the receipt by the Secretary of a notice of nomination or
proposal pursuant hereto, the Secretary shall advise the Proponent in writing of
any deficiencies in the notice and of any additional information the Company is
requiring to determine the eligibility of the proposed nominee or the substance
of the proposal. A Proponent who has been notified of deficiencies in the notice
of nomination or proposal and/or of the need for additional information shall
cure such deficiencies and/or provide such additional information within 15 days
after receipt of the notice of such deficiencies and/or the need for additional
information. The presiding officer of a meeting of stockholders may, in his or
her sole discretion, refuse to acknowledge a nomination or other proposal
presented by any person that does not comply with the foregoing procedure and,
upon his or her instructions, all votes cast for such nominee or with respect to
such proposal may be disregarded.

ARTICLE III

Board of Directors

SECTION 1. General Powers. The business, property and affairs
of the Company shall be managed by, or under the direction of, the Board of
Directors.

SECTION 2. Qualification; Number; Term; Remuneration. (a) Each
director shall be at least 18 years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board of Directors
shall be such number as may be fixed from time to time by action of the
stockholders or Board of Directors, but in no event less than one, one of whom
may be selected by the Board of Directors to be its Chairman. The use of the
phrase "entire Board of Directors" herein refers to the total number of
directors which the Company would have if there were no vacancies.

(b) Directors who are elected at an annual meeting of
stockholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified or until
their earlier resignation or removal; provided, however, that, immediately
following the consummation of a public offering by the Company of any of its

5
<PAGE> 6
capital stock, the Board of Directors of the Company shall be divided into three
classes (as nearly equal in number as possible), which are hereby designated
Class A, Class B and Class C, respectively. The term of office of the initial
Class A directors shall expire at the first annual meeting of stockholders or
any special meeting in lieu thereof following such public offering, the term of
office of the initial Class B directors shall expire at the second annual
meeting of stockholders or any special meeting in lieu thereof following such
public offering, and the term of office of the initial Class C directors shall
expire at the third annual meeting of stockholders or any special meeting in
lieu thereof following such public offering. At each annual meeting of
stockholders or special meeting in lieu thereof after the initial classification
of directors, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders or special meeting in lieu thereof after their election
and until their successors are duly elected and qualified. Upon the addition of
any one or more new directors to the Board of Directors, which new director is
not a successor to any then current director, each such new director shall be
added in turn first to Class A, then to Class B, then to Class C, provided,
however, that the addition of any new director to one particular class may be
modified if such modification serves to more evenly distribute the number of
directors in all such classes.

(c) Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the Company
in any other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.

SECTION 3. Quorum and Manner of Voting. Except as otherwise
provided by law, a majority of the entire Board of Directors shall constitute a
quorum. A majority of the directors present, whether or not a quorum is present,
may adjourn a meeting from time to time to another time and place without
notice. The vote of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors.

SECTION 4. Places of Meetings. Meetings of the Board of
Directors may be held at any place within or without the State of Delaware, as
may from time to time be fixed by resolution of the Board of Directors, or as
may be specified in the notice of meeting.

SECTION 5. Annual Meeting. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.

SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine. Notice need not be given of regular
meetings of the Board of Directors held at times and places fixed by resolution
of the Board of Directors. Where appropriate communication facilities are
reasonably available, any or all directors shall have the right to participate
in all or any part of a meeting of the Board of Directors, or any committee
thereof, by

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means of conference telephone or any means of communication by which all persons
participating in the meeting are able to hear each other.

SECTION 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, President,
Vice-Chairman or by a majority of the directors then in office.

SECTION 8. Notice of Special Meetings. A notice of the place,
date and time and the purpose or purposes of each special meeting of the Board
of Directors shall be given to each director by mailing the same at least 2 days
before the special meeting, or by telegraphing or telephoning the same or by
delivering the same personally not later than the day before the day of the
meeting.

SECTION 9. Organization. At all meetings of the Board of
Directors, the Chairman, if any, or if none or in the Chairman's absence or
inability to act the Vice-Chairman, if any, or if none or in the Vice-Chairman's
absence or inability to act the President, if any, or if none or in the
President's absence or inability to act, the Chief Operating Officer, or if none
of the foregoing is present, a chairman chosen by the directors, shall preside.
The Secretary of the Company shall act as secretary at all meetings of the Board
of Directors when present, and, in the Secretary's absence, the presiding
officer may appoint any person to act as secretary.

SECTION 10. Resignation; Removal. Any director may resign at
any time upon written notice to the Company and such resignation shall take
effect upon receipt thereof by the President or Secretary, unless otherwise
specified in the resignation. Any or all of the directors may be removed, with
or without cause, by the holders of a majority of the shares of stock
outstanding and entitled to vote for the election of directors.

SECTION 11. Vacancies. Unless otherwise provided in these
Bylaws, vacancies on the Board of Directors, whether caused by resignation,
death, disqualification, removal, an increase in the authorized number of
directors or otherwise, may be filled by the affirmative vote of a majority of
the remaining directors, although less than a quorum, or by a sole remaining
director, or at a special meeting of the stockholders, by the holders of shares
entitled to vote for the election of directors.

SECTION 12. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.

ARTICLE IV

Committees

SECTION 1. Appointment. From time to time the Board of
Directors by a resolution adopted by a majority of the entire Board may appoint
any committee or committees

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<PAGE> 8
for any purpose or purposes, to the extent lawful, which shall have powers as
shall be determined and specified by the Board of Directors in the resolution of
appointment.

SECTION 2. Procedures, Quorum and Manner of Acting. Each
committee shall fix its own rules of procedure, and shall meet where and as
provided by such rules or by resolution of the Board of Directors. Except as
otherwise provided by law, the presence of a majority of the then appointed
members of a committee shall constitute a quorum for the transaction of business
by that committee, and in every case where a quorum is present the affirmative
vote of a majority of the members of the committee present shall be the act of
the committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.

SECTION 3. Action by Written Consent. Any action required or
permitted to be taken at any meeting of any committee of the Board of Directors
may be taken without a meeting if all the members of the committee consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.

SECTION 4. Term; Termination. In the event any person shall
cease to be a director of the Company, such person shall simultaneously
therewith cease to be a member of any committee appointed by the Board of
Directors.

ARTICLE V

Officers

SECTION 1. Officers. The Company shall have as officers, a
Chairman of the Board of Directors, a President, who shall also be the Chief
Executive Officer, a Chief Operating Officer, a Chief Financial Officer, a
Secretary and a Treasurer. The Company may also have, at the discretion of the
Board of Directors, one or more Vice Presidents, one or more assistant
secretaries, one or more assistant treasurers and such other officers as the
Board of Directors may from time to time deem proper. Any two or more offices
may be held by the same person except the offices of the President and
Secretary.

SECTION 2. Election of Officers. The officers of the Company
shall be chosen by the Board of Directors.

SECTION 3. Term of Office and Remuneration. The term of office
of all officers shall be one year and until their respective successors have
been elected and qualified, but any officer may be removed from office, either
with or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors. The remuneration of all officers of the Company
may be fixed by the Board of Directors or in such manner as the Board of
Directors shall provide.

SECTION 4. Resignation; Removal. Any officer may resign at any
time upon written notice to the Company and such resignation shall take effect
upon receipt thereof by the

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<PAGE> 9
President or Secretary, unless otherwise specified in the resignation. Any
officer shall be subject to removal, with or without cause, at any time by vote
of a majority of the entire Board of Directors.

SECTION 5. Chairman of the Board of Directors. The Chairman of
the Board of Directors of Directors shall preside at all meetings of the Board
of Directors and the stockholders at which he or she shall be present and shall
have such other powers and duties as may from time to time be assigned by the
Board of Directors.

SECTION 6. President and Chief Executive Officer. The
President and Chief Executive Officer shall have general management and
supervision of the property, business and affairs of the Company and over its
other officers; may appoint and remove assistant officers and other agents and
employees, other than officers referred to in Section 1 of this Article V; and
may execute and deliver in the name of the Company powers of attorney,
contracts, bonds and other obligations and instruments.

SECTION 7. Chief Operating Officer. The Chief Operating
Officer shall in general supervise and control all of the business and affairs
of the Company. He or she may execute any deed, mortgage, bond, contract or
other instrument and in general shall perform all duties incident to the office
of Chief Operating Officer and such other duties as may be prescribed from time
to time by the Board of Directors or as the President may from time to time
delegate.

SECTION 8. Vice-President. A Vice-President may execute and
deliver in the name of the Company contracts and other obligations and
instruments pertaining to the regular course of the duties of said office, and
shall have such other authority as from time to time may be assigned by the
Board of Directors or the President.

SECTION 9. Chief Financial Officer.

(a) The Chief Financial Officer shall keep, or cause to be
kept, the books and records of account of the Company.

(b) The Chief Financial Officer shall deposit all monies and
other valuables in the name and to the credit of the Company with such
depositories as may be designated from time to time by resolution of the Board
of Directors. He or she shall disburse the funds of the Company as may be
ordered by the Board of Directors, shall render to the President and the Board
of Directors, whenever they request it, an account of all of his transactions as
Chief Financial Officer and of the financial condition of the Company, and shall
have such other powers and perform such other duties as may be prescribed from
time to time by the Board of Directors or as the President may from time to time
delegate.

SECTION 10. Treasurer. The Treasurer shall in general have all
duties incident to the position of Treasurer and such other duties as may be
assigned by the Board of Directors or the President.

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<PAGE> 10
SECTION 11. Secretary. The Secretary shall in general have all
the duties incident to the office of Secretary and such other duties as may be
assigned by the Board of Directors or the President.

SECTION 12. Assistant Officers. Any assistant officer shall
perform the duties and have the powers and duties of the officer for whom he or
she shall assist in such officers absence and shall have such other duties as
may be assigned by the Board of Directors from time to time.

SECTION 13. Salaries. The salaries and other compensation of
the officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he or she is also a director.

ARTICLE VI

Books and Records

SECTION 1. Location. The books and records of the Company may
be kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in these Bylaws and by such officer or agent as shall be
designated by the Board of Directors.

SECTION 2. Addresses of stockholders. Notices of meetings and
all other corporate notices may be delivered personally or mailed to each
stockholder at the stockholder's address as it appears on the records of the
Company.

ARTICLE VII

Certificates Representing Stock

SECTION 1. Certificates; Signatures. The shares of the Company
shall be represented by certificates, provided that the Board of Directors of
the Company may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Company. Notwithstanding the adoption of such
a resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Company by the
Chairman or Vice-Chairman of the Board of Directors, or the President or Chief
Operating Officer, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Company, representing the number of
shares registered in certificate form. Any and all signatures on any such
certificate may be facsimiles. In case any

10
<PAGE> 11
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Company with the same effect as if he were such officer, transfer agent
or registrar at the date of issue. The name of the holder of record of the
shares represented thereby, with the number of such shares and the date of
issue, shall be entered on the books of the Company.

SECTION 2. Transfers of Stock. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Company only
by the holder of record thereof in person, or by duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares, properly
endorsed, and the payment of all taxes due thereon.

SECTION 3. Fractional Shares. The Company may, but shall not
be required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Company may pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Company or of its
agent, exchangeable as therein provided for full shares, but such scrip shall
not entitle the holder to any rights of a stockholder except as therein
provided.

The Board of Directors shall have power and authority to make
all such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the Company.

SECTION 4. Lost, Stolen or Destroyed Certificates. The Company
may issue a new certificate of stock in place of any certificate, theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Company a bond sufficient to indemnify the
Company against any claim that may be made against it on account of the alleged
loss, theft or destruction of any such certificate or the issuance of any such
new certificate.

ARTICLE VIII

Dividends

Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to stockholders; the division
of the whole or any part of such funds of the Company shall rest wholly within
the lawful discretion of the Board of Directors, and it shall not be required at
any time, against such discretion, to divide or pay any part of such funds among
or to the stockholders as dividends or otherwise; and before payment of any
dividend, there may be set aside out of any funds of the Company available for
dividends such sum or sums as the Board of Directors from time to time, in its
absolute discretion, thinks proper as a reserve or reserves to meet
contingencies, or for repairing or maintaining any property of the Company, or
for such

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<PAGE> 12
other purpose as the Board of Directors shall think conducive to the interest of
the Company, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.

ARTICLE IX

Ratification

Any transaction, questioned in any law suit on the ground of
lack of authority, defective or irregular execution, adverse interest of
director, officer or stockholder, non-disclosure, miscomputation, or the
application of improper principles of practices of accounting, may be ratified
before or after judgment, by the Board of Directors or by the stockholders, and
if so ratified shall have the same force and effect as if the questioned
transaction had been originally duly authorized. Such ratification shall be
binding upon the Company and its stockholders and shall constitute a bar to any
claim or execution of any judgment in respect of such questioned transaction.

ARTICLE X

Corporate Seal

The corporate seal shall have inscribed thereon the name of
the Company and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or affixing, or causing to be printed,
engraved, lithographed, stamped or otherwise made, placed or affixed, upon any
paper or document, by any process whatsoever, an impression, facsimile or other
reproduction of said corporate seal.

ARTICLE XI

Indemnification and Insurance

SECTION 1. Right to Indemnification. The Company shall
indemnify and hold harmless, to the fullest extent permitted by law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action or suit,
whether or not by or in the right of the Company, or proceeding, whether civil,
criminal, administrative or investigative (collectively, a "proceeding") by
reason of the fact that he, or a person for whom he is the legal representative,
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust, enterprise or
nonprofit entity, including service with respect to employee benefit plans,
against all liability and loss, including judgments, fines, ERISA excise taxes
or penalties and amounts paid

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<PAGE> 13
or to be paid in settlement, incurred, suffered or paid by or on behalf of such
person, and expenses (including attorneys' fees) reasonably incurred by such
person.

SECTION 2. Prepayment of Expenses. The Company shall pay the
expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this Article XI or otherwise.

SECTION 3. Claims. The right to indemnification and payment of
expenses under the Certificate of Incorporation, these Bylaws or otherwise shall
be a contract right. If a claim for indemnification or payment of expenses under
this Article XI is not paid in full within 60 days after a written claim
therefor has been received by the Company, the claimant may file suit to recover
the unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Company shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.

SECTION 4. Non-Exclusivity of Rights. The rights conferred on
any person by this Article XI shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.

SECTION 5. Other Indemnification. The Company's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.

SECTION 6. Insurance. The Board of Directors may cause the
Company to purchase and maintain insurance on behalf of any person who is or was
a director or officer of the Company or is or was serving at the request of the
Company as a director or officer of another corporation, or as a representative
in a partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the Company would have the power to indemnify such
person.

SECTION 7. Amendment or Repeal. Any repeal or modification of
the foregoing provisions of this Article XI shall not adversely affect any right
or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.

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ARTICLE XII

Fiscal Year

The fiscal year of the Company shall be that which is
determined by the Board of Directors, and is subject to change by the Board of
Directors.

ARTICLE XIII

Waiver of Notice

Whenever notice is required to be given by these Bylaws or by
the Certificate of Incorporation or by law, a written waiver thereof, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.

ARTICLE XIV

Bank Accounts, Drafts, Contracts, Etc.

SECTION 1. Bank Accounts and Drafts. In addition to such bank
accounts as may be authorized by the Board of Directors, the Treasurer or any
person designated by the Treasurer, whether or not an employee of the Company,
may authorize such bank accounts to be opened or maintained in the name and on
behalf of the Company as he or she may deem necessary or appropriate, payments
from such bank accounts to be made upon and according to the check of the
Company in accordance with the written instructions of the Treasurer, or other
person so designated by the Treasurer.

SECTION 2. Contracts. The Board of Directors may authorize any
person or persons, in the name and on behalf of the Company, to enter into or
execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.

SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Company in connection with the rights and
powers incident to the ownership of stock by the Company. The Chairman, the
President or any other person authorized by proxy or power of attorney executed
and delivered by either of them on behalf of the Company may attend and vote at
any meeting of stockholders of any company in which the Company may hold stock,
and may exercise on behalf of the Company any and all of the rights and powers
incident to the ownership of such stock at any such meeting, or otherwise as
specified in the proxy or power of attorney so authorizing any such person. The
Board of Directors, from time to time, may confer like powers upon any other
person.

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SECTION 4. Financial Reports. The Board of Directors may
appoint the Chief Financial Officer, Treasurer, or other fiscal officer and/or
the Secretary or any other officer to cause to be prepared and furnished to
stockholders entitled thereto any special financial notice and/or financial
statement, as the case may be, which may be required by any provision of law.

ARTICLE XV

Amendments

The Board of Directors of the Company is expressly authorized
to adopt, amend or repeal these Bylaws of the Company, subject, however, to any
limitation thereof contained in these Bylaws. Bylaws adopted by the Board of
Directors may be repealed or changed, and new Bylaws made, by the stockholders,
and the stockholders may prescribe that any Bylaw made by them shall not be
altered, amended or repealed by the Board of Directors. The stockholders also
shall have the power to adopt, amend or repeal the Bylaws of the Company;
provided, however, that, immediately following the consummation of a public
offering by the Company of any of its capital stock, (a) except as set forth
below in clause (b), in addition to any vote of the holders of any class or
series of stock of the Company required by law or by the Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the then outstanding
shares of the capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
adopt, amend or repeal any provision of these Bylaws of the Company; and (b) in
addition to any vote of the holders of any class or series of stock of the
Company required by law or by the Certificate of Incorporation, the affirmative
vote of the holders of at least eighty percent (80%) of the voting power of all
of the then outstanding shares of the capital stock of the Company entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to adopt, amend or repeal any provision of ARTICLE XI
"Indemnification and Insurance" or ARTICLE III Section 2(b) hereof.

-END OF BYLAWS-

<PAGE> 1
Exhibit 10.1

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of the 20th
day of March, 2000 by and among Cooperative Holdings, Inc., a Delaware
corporation ("Holdings"), and the Louis A. Lombardi 1996 Family Limited
Partnership, the Patrick C. Lombardi 1996 Family Limited Partnership and Louis
A. Lombardi, Jr. (collectively, the "Members").

BACKGROUND

WHEREAS, the Members own all of the issued and outstanding shares of
Common Stock of Holdings and all of the issued and outstanding membership
interests ("Membership Interests") of Eastern Computer Services, LLC
("Eastern"); and

WHEREAS, the Members desire to transfer, contribute and convey to
Holdings, and Holdings desires to accept and receive from the Members, all of
their membership interests in Eastern so that Eastern shall be a wholly-owned
subsidiary of Holdings;

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises and covenants contained in this Agreement, the parties hereto,
intending to be legally bound, hereby agree as follows:

1. Contribution of Membership Interests. Subject to the terms and
conditions contained herein, each Member hereby contributes, transfers and
conveys to Holdings, free and clear of all security interests, pledges, liens,
encumbrances, charges or claims of any kind, (collectively, "Liens"), all
rights, title and interest in its respective Membership Interests as set forth
on Schedule A attached hereto and made a part hereof (collectively, the
"Contributed Interests"). The Members each hereby acknowledge and agree that
they have transferred to Holdings all rights to their respective Contributed
Interests and hereby relinquish any claim to such interests. The Members each
acknowledge and agree that they have transferred to Holdings any and all rights
each has in that certain Operating Agreement, dated as of May 2, 1995, and
hereby relinquish any claim to any such rights or interests contained therein.

2. No Assumption of Liabilities. Holdings shall not assume any of the
liabilities of the Members and shall acquire the Contributed Interests free and
clear of all liens, mortgages, security interests, encumbrances and claims and
each of the Members, jointly and severally, represents, warrants and agrees that
Holdings shall not be or become liable for any claims, demands, liabilities or
obligations not expressly assumed in this Agreement of any kind whatsoever
arising out of or relating to the conduct of the Members or the Contributed
Interests prior to the date hereof and each Member shall hold Holdings harmless
for any such claims. Holdings shall not assume or agree to perform, pay or
discharge, and each of the Members shall remain unconditionally liable for, all
of their respective obligations, liabilities and commitments, fixed or
contingent.
<PAGE> 2
3. Representations and Warranties.

The Members, severally and not jointly, represent and warrant
to Holdings as follows:

(a) Requisite Power and Authority. Each of the Members has the
requisite power and authority to execute, deliver, and perform their respective
obligations under this Agreement and to contribute, transfer and convey to
Holdings their respective Contributed Interests. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action (corporate
or otherwise) on the part of each of the Members. This Agreement constitutes the
legal, valid and binding obligation of each of the Members, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally.

(b) Title to Contributed Interests. Each Member is in
possession of and has good, valid and marketable title to, all of the
Contributed Interests in which it has interest. Schedule A sets forth complete
and correct list of each of the members of Eastern and each of the Membership
Interests held by each such member. There are no other equity holders of Eastern
other than as set forth on Schedule A. All of the Contributed Interests are held
by the Members free and clear of all Liens.

(c) Further Covenants and Assurances. Each Member further
agrees that, at any time or from time to time after the effectuation of this
Contribution Agreement, they will, upon the request of Holdings, do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged or
delivered, all such further reasonable acts, assignments, transfers, powers of
attorney or assurances as may be required in order to further transfer, assign,
grant, assure and confirm to Holdings, of any of the Contributed Interests or to
vest in Holdings good and marketable title to the Contributed Interests.

(d) No Consents Required. No consent, approval, or
authorization of, or exemption by, or filing with, any governmental body or
other third party is required in connection with the execution, delivery and
performance of this Agreement, or the consummation of the transactions
contemplated hereby, as contemplated by the parties hereto.

(e) No Conflicts. The execution, delivery and performance of
this Contribution Agreement and the consummation of the transactions
contemplated hereby do not and will not, with or without the giving of notice or
the lapse of time or both, (i) violate any partnership agreement or other
organization document to which such holder is a party, (ii) violate any
provision of law of any judgment, order, writ or decree to which any Member is
subject, or (iii) result in the breach of or conflict with any term, covenant,
condition or provision of, result in the termination or modification of,
constitute a default under, or result in the creation of any Lien on any of the
Contributed Interests pursuant to, any contracts, rights, licenses, leases,
purchase or sale orders and any other agreements, arrangements, undertakings and
commitments to which any Member is a party or to which any of the Contributed
Interests is subject.

-2-
<PAGE> 3
(f) No Violation of Law. The Members' acquisition of the
Contributed Interests has not violated any federal, state, local or foreign law.
The Members have not received any notice of any violation of law concerning the
Contributed Interests nor to any of the Members' knowledge does any basis for
the allegation of any such violation exist.

(g) No Litigation. There is no claim, action, suit,
proceeding, arbitration, investigation or inquiry pending or adjudicated before
any federal, state, local or foreign court, or other governmental,
administrative or regulatory body, or any private arbitration tribunal or other
forum for private dispute resolution, or to the Members' knowledge threatened,
against, relating to or affecting the Contributed Interests, any right to use
the Contributed Interests, or the transactions contemplated by this Agreement,
nor to the Members' knowledge is there any basis therefor.

4. Miscellaneous.

(a) Successors and Assigns. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. This Contribution Agreement may not be
assigned by either party hereto to any other person without the consent of the
other party hereto.

(b) No Third-Party Beneficiaries. Nothing expressed or implied
in this Agreement shall be construed to give any person or entity other than the
parties hereto any legal or equitable rights hereunder.

(c) Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous, negotiations, commitments, agreements
and understandings, oral or written.

(d) Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.

(e) Severability. If any provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, such provision shall be deemed severable and all other provisions of
this Agreement shall nevertheless remain in full force and effect.

(f) Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.

(g) Notices. All notices given in connection with this
Agreement shall be in writing. Service of such notices shall be deemed complete
(i) if hand delivered, on the date of delivery, (ii) if by mail, on the fourth
business day following the day of deposit in the United States mail, by
certified or registered mail, first-class postage prepaid, (iii) if sent for
overnight delivery by Federal Express or equivalent courier service, on the next
business day, or (iv) if by telecopier, upon receipt by the sender of written
confirmation of successful transmission. Such

-3-
<PAGE> 4
notices shall be addressed to the parties at the following addresses or at such
other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):

If to the Members:

To each Member at the address set forth on the
signature page attached hereto.

If to Holdings:

Louis A. Lombardi, Sr.
Cooperative Holdings, Inc.
412-420 Washington Avenue
Belleville, New Jersey 07109
Facsimile: (973) 759-8282

With a copy to:

Buchanan Ingersoll Professional Corporation
650 College Road East, 4th Floor
Princeton, NJ 08540
Attn.: David J. Sorin, Esq.
Facsimile: (609) 520-0360

(h) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New Jersey, without
giving effect to the principles of conflict of laws thereof.

(i) Consent to Jurisdiction. The parties hereto consent to the
exclusive jurisdiction, venue and forum of any state or federal court in the
State of New Jersey with respect to any action which, in whole or in part,
arises under or relates to this Agreement.

(j) Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute but one and the same instrument.

*******

-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties to this Contribution Agreement have
caused this Agreement to be duly executed as of the date first written above.

HOLDINGS:

COOPERATIVE HOLDINGS, INC.

By: /s/ Louis A. Lombardi, Sr.
-------------------------------------
Name: Louis A. Lombardi, Sr.
Title: President

MEMBERS:

LOUIS A. LOMBARDI 1996 FAMILY
LIMITED PARTNERSHIP

By: /s/ Louis A. Lombardi, Sr.
-------------------------------------
Name: Louis A. Lombardi, Sr.
Title: General Partner
Address:

THE PATRICK C. LOMBARDI 1996
FAMILY LIMITED PARTNERSHIP

By: /s/ Theresa M. Lombardi
-------------------------------------
Name: Theresa M. Lombardi
Title: Co-General Partner
Address: 899 Larue Rd.
Monroe, NY 10950

/s/ Louis A. Lombardi, Jr.
----------------------------------------
Louis A. Lombardi, Jr.
<PAGE> 6
SCHEDULE A
MEMBERSHIP INTEREST OF EASTERN
COMPUTER SERVICES, LLC

<TABLE>
<CAPTION>
Member Percentage of Ownership
- -------------------- -----------------------
<S> <C>
The Louis A. Lombardi 1996 47.5
Family Limited Partnership

The Patrick C. Lombardi 1996 47.5
Family Limited Partnership

Louis A. Lombardi, Jr. 5
</TABLE>

<PAGE> 1
Exhibit 10.2

PLAN OF REORGANIZATION AND EXCHANGE AGREEMENT

THIS AGREEMENT dated as of March 20, 2000 between Cooperative
Holdings, Inc., a Delaware corporation ("Cooperative Holdings"), Cooperative
Communications, Inc., a New Jersey corporation ("Cooperative Communications"),
The Louis A. Lombardi 1996 Family Limited Partnership, The Patrick C. Lombardi
1996 Family Limited Partnership and Louis A. Lombardi, Jr. (each a
"Stockholder", and collectively, the "Stockholders") and Keith Fallon (the
"Optionholder"). The Stockholders and the Optionholder are sometimes
collectively referred to herein as, the "Holders".

W I T N E S S E T H:

WHEREAS, the Holders seek to reorganize (the "Reorganization")
Cooperative Communications to facilitate an initial public offering under the
Securities Act of 1933, and in connection therewith, seek to exchange all of the
issued and outstanding securities of Cooperative Communications for the
securities of Cooperative Holdings, whereby Cooperative Communications will
become a wholly-owned subsidiary of Cooperative Holdings and Cooperative
Holdings will offer shares of its Common Stock, $0.01 par value, to the public
in such public offering; and

WHEREAS, in connection with the Reorganization, the Stockholders, who
together comprise all of the members of Eastern Computer Services, LLC ("Eastern
Computer") and hold all of the ownership interests of Eastern Computer
("Interests"), shall contribute to Cooperative Holdings all of their Interests
in Eastern Computer so that Eastern Computer shall become an entity wholly-owned
by Cooperative Holdings; and

WHEREAS, in connection with the Reorganization, Cooperative Holdings
will issue to each Stockholder who together comprise all of the stockholders of
Cooperative Communications and hold all of the issued and outstanding shares of
the capital stock of Cooperative Communications, 3.444 shares of Cooperative
Holdings' Common Stock (the "Parent Shares") in exchange for each share of
Cooperative Communications' Common Stock (the "Subsidiary Shares") held by each
Stockholder; and

WHEREAS, in connection with the Reorganization, Cooperative Holdings
will issue to the Optionholder an option (the "Parent Option") to purchase
30,000 shares of Cooperative Holdings' Common Stock, in exchange for the option
(the "Subsidiary Option") held by the Optionholder to purchase 30,000 shares of
Cooperative Communications' Common Stock, such exchange of options to be made on
a share-for-share basis (the Subsidiary Options and the Subsidiary Shares are
sometimes collectively referred to herein as, the "Subsidiary Securities").

NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
<PAGE> 2
' SECTION I

EXCHANGE OF SECURITIES

1.1 EXCHANGE OF SECURITIES. Subject to the terms and conditions of this
Agreement and on the basis of the representations, warranties, covenants and
agreements herein contained, Cooperative Holdings hereby agrees to issue, sell
and convey to each Holder, and each Holder subscribes for and agrees to
purchase, acquire and accept from Cooperative Holdings the Parent Shares or the
Parent Options, as applicable, in exchange for the Subsidiary Shares or
Subsidiary Options held by such Holder, as follows: (i) 3.444 Parent Shares in
exchange for each Subsidiary Share; and (ii) a Parent Option to purchase one (1)
share of Cooperative Holdings' Common Stock, in exchange for each Subsidiary
Option to purchase one (1) share of Cooperative Communications' Common Stock.

SECTION II

THE CLOSING

2.1 TIME AND PLACE OF THE CLOSING; ESCROW. The closing (the "Closing")
shall be held at the offices of Buchanan Ingersoll Professional Corporation
("Buchanan Ingersoll"), 650 College Road East, Princeton, New Jersey 08540 at
10:00 A.M., local time, on March 20, 2000 (the "Closing Date") or at such
other time, place and date as the Holders shall determine. Buchanan Ingersoll
shall serve as escrow agent in connection with the Closing and shall hold all
documentation and signatures for each of the Holders until such time as all
requisite signatures have been received, at which time Buchanan Ingersoll shall
be authorized, without further action, to consummate the Closing.

2.2 DELIVERY OF THE PARENT SHARES AND THE PARENT OPTION BY COOPERATIVE
HOLDINGS. On the Closing Date, Cooperative Holdings shall (i) deliver to each
Stockholder stock certificates representing the applicable Parent Shares, and
(ii) deliver to the Optionholder the Parent Option to purchase that number of
shares of Cooperative Holdings as set forth in the Subsidiary Options.

2.3 DELIVERY OF THE SUBSIDIARY SECURITIES BY THE HOLDERS. On the
Closing Date, each Stockholder shall deliver to Cooperative Holdings, the stock
certificates representing the Subsidiary Shares held by such Stockholder and any
other documents necessary to transfer to Cooperative Holdings good and
marketable title to all of the Subsidiary Shares held by such Stockholder, free
and clear of any Encumbrance (as defined in Section 4.1). On the Closing Date,
the Optionholder shall deliver to Cooperative Holdings the Subsidiary Option
held by the Optionholder, free and clear of any Encumbrance.

2
<PAGE> 3
SECTION III

REPRESENTATIONS, WARRANTIES AND COVENANTS OF COOPERATIVE HOLDINGS

Cooperative Holdings represents, warrants and covenants to the
Holders as follows:

3.1 ORGANIZATION; GOOD STANDING. Cooperative Holdings is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.

3.2 AUTHORITY. Cooperative Holdings has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, and no consent or approval of any other person or governmental
authority is required therefor. The execution and delivery of this Agreement by
Cooperative Holdings, the performance by Cooperative Holdings of its agreements
hereunder and the consummation by Cooperative Holdings of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and binding obligation of Cooperative
Holdings, enforceable against Cooperative Holdings in accordance with its terms.

3.3 NO CONFLICTS. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, violates any
provision of the Certificate of Incorporation or ByLaws of Cooperative Holdings
or any law, statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflicts with or results in any breach of any
of the terms of, or constitutes a default under or results in the termination of
or the creation of any lien or any other rights pursuant to the terms of any
contract or agreement to which Cooperative Holdings is a party or by which
Cooperative Holdings or any of its assets is bound.

3.4 DUE AUTHORIZATION; CAPITALIZATION. The Parent Shares and the Parent
Option being issued hereunder have been duly authorized and, in the case of the
Parent Shares, when issued to each Stockholder for the consideration herein
provided, shall be fully paid and nonassessable, and in the case of the Parent
Option, the shares of Cooperative Holdings' Common Stock underlying the Parent
Option when issued to the Optionholder as provided herein and upon exercise of
such Parent Option in accordance with the provisions of the applicable agreement
representing such Subsidiary Option shall be fully paid and nonassesable. Other
than the Parent Shares and the Parent Option being issued hereunder, as of the
Closing Date, there are no other equity securities of Cooperative Holdings
issued and outstanding.

SECTION IV

REPRESENTATIONS, WARRANTIES AND COVENANTS OF COOPERATIVE COMMUNICATIONS

Cooperative Communications represents, warrants and covenants to
the Holders as follows:

4.1 ORGANIZATION; GOOD STANDING. Cooperative Communications is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey.

3
<PAGE> 4
4.2 AUTHORITY. Cooperative Communications has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, and no consent or approval of any other person or governmental
authority is required therefor. The execution and delivery of this Agreement by
Cooperative Communications, the performance by Cooperative Communications of its
agreements hereunder and the consummation by Cooperative Communications of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes a valid and binding obligation of
Cooperative Communications, enforceable against Cooperative Communications in
accordance with its terms.

4.3 NO CONFLICTS. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, violates any
provision of the Certificate of Incorporation or ByLaws of Cooperative
Communications, as amended, or any law, statute, ordinance, regulation, order,
judgment or decree of any court or governmental agency, or conflicts with or
results in any breach of any of the terms of, or constitutes a default under or
results in the termination of or the creation of any lien or any other rights
pursuant to the terms of any contract or agreement to which Cooperative
Communications is a party or by which Cooperative Communications or any of its
assets is bound.

4.4 CAPITALIZATION.

The capital stock of Corporate Communications, as authorized by the
Certificate of Incorporation, as amended, consists of 20,000,000 shares of
Common Stock, no par value, of which 5,400,000 shares are issued and outstanding
and held of record, in the aggregate, by the Stockholders. The Company has also
reserved 30,000 shares of Common Stock, no par value, for issuance upon the
exercise by the Optionholder of the Subsidiary Options.

SECTION V

REPRESENTATIONS AND WARRANTIES OF THE HOLDERS

Each of the Holders severally, and not jointly, represents and warrants
to Cooperative Holdings and Cooperative Communications as follows:

5.1 OWNERSHIP. The Subsidiary Shares or the Subsidiary Option, as the
case may be, held by such Holder, as set forth on Schedule I hereto, is lawfully
owned of record and beneficially by such Holder, free and clear of any claim,
lien, pledge, option or other encumbrance (collectively, "Encumbrances"). Except
for the Subsidiary Securities: (i) the Holder does not own beneficially or of
record, any shares of the capital stock of Cooperative Communications; (ii) the
Holder does not own any subscription, warrant, option, convertible security, or
other right (contingent or otherwise) to purchase or otherwise acquire any
capital stock or other equity securities of Cooperative Communications from
Cooperative Communications or from any other person; and (iii) the Holder does
not claim any right (preemptive or otherwise) to receive any shares,
subscriptions, warrants, options, convertible securities, or other such rights
to be issued at any time by Cooperative Communications. Upon the exchange of the
Holder's Subsidiary Securities for the Parent Shares or the Parent Option, as
applicable, as provided for herein, Cooperative Holdings shall acquire good
title

4
<PAGE> 5
to such Subsidiary Securities, free and clear of all Encumbrances and
Cooperative Communications shall be entitled to cancel all of the outstanding
Subsidiary Securities held by such Holder, whether or not such Holder has
tendered such instruments thereto or to Cooperative Holdings. Each Holder
represents and agrees that such Holder does not claim any right (preemptive or
otherwise) to receive any shares, subscriptions, warrants, options, convertible
securities, or other such rights to receive any other security of Cooperative
Holdings other than as set forth herein.

5.2 AUTHORITY. The Holder has the full power and authority to execute
and deliver this Agreement and to perform the obligations hereunder, and no
consent or approval of any other person or governmental authority is required
therefor. The execution and delivery of this Agreement by the Holder, the
performance by the Holder of its agreements hereunder and the consummation by
the Holder of the transactions contemplated hereby have been duly authorized by
all necessary action.

5.3 NO CONFLICTS. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby (i) violates any
other organizational document to which such Holder is a party or subject to,
(ii) violates any law, statute, ordinance, regulation, order, judgment or decree
of any court or governmental agency, or (iii) conflicts with or results in any
breach of any terms of, or constitutes a default under or results in the
termination of or the creation of any lien or any other rights pursuant to the
terms of any contract or agreement to which such Holder is a party or by which
such Holder or any of its assets are bound.

5.4 RELEASE. The Holder knowingly and voluntarily releases and forever
discharges Cooperative Communications and Cooperative Holdings and/or all of its
stockholders, executors, assigns, past and present affiliates, subsidiaries,
officers, directors, employees and agents from any and all claims known and
unknown, which any such Holder may have, including, but not limited to, any
claim arising from Cooperative Communications' original issuance of the
Subsidiary Securities to such Holder and with respect to the Optionholder,
arising from that certain Option Agreement, dated as of June 12, 1996 by and
between Cooperative Communications and the Optionholder.

SECTION VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION

6.1 SURVIVAL OF REPRESENTATION AND WARRANTIES. All representations,
warranties, waivers and acknowledgements contained herein (including with
respect to the information contained on the Schedules hereto) shall survive the
execution and delivery hereof and the Closing hereunder and shall continue in
full force and effect thereafter; notwithstanding any investigation at any time
made by or on behalf of any party hereto.

6.2 INDEMNIFICATION. Each Holder shall jointly and severally indemnify
and hold harmless Cooperative Holdings and Cooperative Communications against
and from any losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon the breach, falsity or incorrectness as of
the Closing of any representation, warranty, waiver or acknowledgement of such
Holder contained herein. Notwithstanding the foregoing, each Holder expressly
agrees and acknowledges that the right of indemnification granted herein to
Cooperative Holdings and

5
<PAGE> 6
Cooperative Communications shall not be deemed to be the exclusive remedy
available to Cooperative Holdings and Cooperative Communications.

SECTION VII

ACTIONS OF PARENT AND SUBSIDIARY WITH RESPECT TO THE REORGANIZATION

7.1 BOOKS AND RECORDS. Each Holder hereby consents to the taking of all
actions necessary to effect the Reorganization and the transactions set forth in
this Agreement on the books and records of Cooperative Holdings and Cooperative
Communications, including, without limitations, the cancellation of all
outstanding Subsidiary Securities, whether or not such Subsidiary Securities are
surrendered for cancellation.

SECTION VIII

TAX FREE REORGANIZATION

8.1 TAX FREE REORGANIZATION. The Reorganization contemplated herein is
intended to qualify as a non-taxable reorganization pursuant to Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. Each Holder
further agrees to cooperate with Cooperative Holdings, Cooperative
Communications and each of the other Holders (including but not limited to,
consistent reporting and filing with each appropriate tax authority) in order
for the transactions to qualify as such a non-taxable reorganization.

SECTION IX

REVIEW BY ADVISORS

9.1 REVIEW BY ADVISORS. Each Holder acknowledges and agrees that such
Holder has had an adequate opportunity to review this Agreement. Each Holder
acknowledges that Cooperative Holdings and Cooperative Communications has
recommended that this Agreement be reviewed by such Holder's legal, financial
and accounting advisors. Each Holder acknowledges that it has had an opportunity
to review this Agreement with such Holder's legal, financial and accounting
advisors.

SECTION X

MISCELLANEOUS

10.1 NOTICES. All notices required or permitted under this Agreement
shall be in writing and delivered by any method providing for proof of delivery
to the address of the party or parties set forth on the signature page hereof.
Any notice shall be deemed to have been given on the date of receipt.

10.2 ASSIGNMENT. Other than as provided herein, this Agreement shall
not be assignable by any of the parties hereto except pursuant to a writing
executed by all of the parties hereto.

6
<PAGE> 7
10.3 INVALIDITY, ETC. If any provision of this Agreement, or the
application of any such provision to any person or circumstance, shall be held
invalid by a court of competent jurisdiction, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those as to which it is held invalid, shall not be affected thereby.

10.4 HEADINGS. The headings of this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.

10.5 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.

10.6 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable in the case of
agreements made and to be performed entirely within such State.

10.7 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.

* * * * * * *

7
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.

PARENT: STOCKHOLDERS:

COOPERATIVE HOLDINGS, INC. THE LOUIS A. LOMBARDI 1996
FAMILY LIMITED PARTNERSHIP

By: /s/ Louis A. Lombardi, Sr. By: /s/ Louis A. Lombardi, Sr
__________________________ ____________________________
Name: Louis A. Lombardi, Sr. Name: Louis A. Lombardi, Sr.
_______________________ __________________________
Title: President and Chief Title: General Partner
Executive Officer

Address: 412-420 Washington Avenue Address: 412-420 Washington Avenue
Belleville, New Jersey 07109 Belleville, New Jersey 07109
Facsimile: (973) 759-8282 Facsimile:

SUBSIDIARY:

COOPERATIVE COMMUNICATIONS, INC. THE PATRICK C. LOMBARDI 1996
FAMILY LIMITED PARTNERSHIP

By: /s/ Louis A. Lombardi, Sr. By: /s/ Theresa M. Lombardi
_______________________________ ___________________________
Name: Louis A. Lombardi, Sr. Name: Theresa M. Lombardi
Title: President Title: Co-General Partner
Address: 412-420 Washington Avenue Address: 899 Larue Road
Belleville, New Jersey 07109 Monroe, NY 10950
Facsimile: (973) 759-8282 Facsimile:_____________________

/s/ Louis A. Lombardi, Jr.
_______________________________
Louis A. Lombardi, Jr.

OPTIONHOLDER:

/s/ Keith Fallon
___________________________________
Keith Fallon

<PAGE> 1
Exhibit 10.3

COOPERATIVE HOLDINGS, INC.

INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is made as of March 20,
2000, by and between Cooperative Holdings, Inc., a Delaware corporation
(the "Company"), and _____________________________ ("Indemnitee").

WHEREAS, Indemnitee is an officer and/or director of the Company and
performs a valuable service in such capacity for the Company;

WHEREAS, the Company and Indemnitee recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance may be limited;

WHEREAS, the Company and Indemnitee further recognize the difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;

WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
and

WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company as an officer and/or director, the Company wishes to provide for the
indemnification and advancing of expenses to Indemnitee to the maximum extent
permitted by law.

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

1. Indemnification.

(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is
<PAGE> 2
or was a director, officer, employee, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Indemnitee while serving in such capacity
(hereinafter an "Indemnifiable Event") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement (collectively,
hereinafter "Expenses"), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses. Such payment
of Expenses shall be made by the Company as soon as practicable but in any event
no later than thirty (30) days after written demand by Indemnitee therefor is
presented to the Company.

(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section l(a) shall be subject to the condition
that the Reviewing Party (as defined in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel (as defined in Section 10(d) hereof) referred to in Section 1(c) hereof
is involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an advance
payment of Expenses to Indemnitee pursuant to Section 2(a) (an "Expense
Advance") shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). Indemnitee's obligation to reimburse the Company for any Expense
Advance shall be unsecured and no interest shall be charged thereon. If there
has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section l(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual

-2-
<PAGE> 3
bases therefor, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.

(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation, as amended from time to time (the
"Certificate of Incorporation") or Bylaws as now or hereafter in effect (the
"Bylaws"), the Company shall seek legal advice only from Independent Legal
Counsel selected by Indemnitee and approved by the Company (which approval shall
not be unreasonably withheld). Such counsel, among other things, shall render
its written opinion to the Company and Indemnitee as to whether and to what
extent Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.

(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 8 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.

2. Expenses; Indemnification Procedure.

(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five (5) days after written demand by Indemnitee therefor to the Company.

(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the President
of the Company at the address shown on the signature page of this Agreement (or
such other address as the Company shall designate in writing to Indemnitee). In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.

(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with

-3-
<PAGE> 4
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In addition,
neither the failure of the Reviewing Party to have made a determination as to
whether Indemnitee has met any particular standard of conduct or had any
particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief,
prior to the commencement of legal proceedings by Indemnitee to secure a
judicial determination that Indemnitee should be indemnified under applicable
law, shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief. In connection with any determination by the Reviewing Party
or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.

(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in such policy or policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.

(e) Assumption of Defense; Selection of Counsel. In the event
the Company shall be obligated hereunder to pay the Expenses of any action,
suit, proceeding, inquiry or investigation, the Company, if appropriate, shall
be entitled to assume the defense of such action, suit, proceeding, inquiry or
investigation with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld), upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same action, suit,
proceeding, inquiry or investigation; provided that, (i) Indemnitee shall have
the right to employ Indemnitee's counsel in any such action, suit, proceeding,
inquiry or investigation at Indemnitee's expense, and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company or (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense.
Notwithstanding the foregoing, in the event the Company shall not continue to
retain such counsel to defend such action, suit, proceeding, inquiry or
investigation, then the fees and expenses of Indemnitee's counsel shall be at
the expense of the Company.

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<PAGE> 5
3. Additional Indemnification Rights; Nonexclusivity.

(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its Board
of Directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder.

(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested directors, the General Business Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though Indemnitee may have ceased
to serve in such capacity.

4. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any action, suit,
proceeding, inquiry or investigation made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
Certificate of Incorporation, Bylaws or otherwise) of the amounts otherwise
indemnifiable hereunder.

5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses in the investigation, defense, appeal or settlement of any
civil or criminal action, suit, proceeding, inquiry or investigation, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.

6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.

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<PAGE> 6
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a Director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.

8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

(a) Excluded Action or Omissions. To indemnify Indemnitee for
acts, omissions or transactions from which Indemnitee may not be relieved of
liability under applicable law.

(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except (i) with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate of Incorporation or Bylaws now or hereafter
in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if
the Board of Directors has approved the initiation or bringing of such suit, or
(iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.

(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.

(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.

9. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two (2) years from the date of accrual
of such cause of action, and any claim or cause of action of the Company shall
be extinguished and deemed released unless asserted by the timely filing of a
legal action within such two (2) year period; provided, however, that if any
shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.

-6-
<PAGE> 7
10. Construction of Certain Phrases.

(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a Director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a Director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such Director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.

(c) For purposes of this Agreement a "Change in Control" shall
be deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, is or becomes the "beneficial owner" (as determined in
accordance with Rule 13d-3 under such Act), directly or indirectly, of
securities of the Company representing more than twenty percent (20%) of the
total voting power represented by the Company's then outstanding Voting
Securities (as defined in Section 10(e) hereof), (ii) during any period of two
(2) consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to

-7-
<PAGE> 8
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least eighty percent (80%) of the total
voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.

(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitee within the last three (3) years
(other than with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).

(e) For purposes of this Agreement, a "Reviewing Party" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.

(f) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.

11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.

12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a
director of the Company or of any other enterprise at the Company's request.

13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action the
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action were

-8-
<PAGE> 9
not made in good faith or were frivolous. In the event of an action instituted
by or in the name of the Company under this Agreement to enforce or interpret
any of the terms of this Agreement, Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee in defense of such action (including costs and
expenses incurred with respect to Indemnitee's counterclaims and cross-claims
made in such action), and shall be entitled to the advancement of Expenses with
respect to such action, unless as a part of such action the court having
jurisdiction over such action determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.

14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.

15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Superior
Court of Chancery of the State of Delaware in and for New Castle County, which
shall be the exclusive and only proper forum for adjudicating such a claim.

16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.

17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware without regard to the
conflict of laws principles thereof.

18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.

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<PAGE> 10
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.

20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.

21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.

**********

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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

COOPERATIVE HOLDINGS, INC.

By:
------------------------------------
Louis Lombardi, Sr., President and
Chief Executive Officer
412-420 Washington Avenue
Belleville, New Jersey 07109

AGREED TO AND ACCEPTED:

INDEMNITEE:

- ----------------------------------
(signature)

- ----------------------------------
(name of Indemnitee)

- ----------------------------------

- ----------------------------------
(address)

<PAGE> 1
Exhibit 10.4

EMPLOYMENT AGREEMENT

THIS AGREEMENT made effective as of the 20th day of March, 2000 (the
"Effective Date") by and between Cooperative Holdings, Inc., a Delaware
corporation with its principal place of business at 412-420 Washington
Avenue, Belleville, New Jersey 07109 (the "Company"), and Louis A. Lombardi,
Sr. (the "Employee").

WITNESSETH:

WHEREAS, the Company desires to secure the employment of the Employee
in accordance with the provisions of this Agreement; and

WHEREAS, the Employee desires and is willing to accept employment with
the Company in accordance herewith.

NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and intending to be legally bound hereby, the parties
hereto agree as follows:

1. Term. The Company hereby agrees to employ the Employee and the
Employee hereby agrees to serve the Company pursuant to the terms and
conditions of this Agreement as President and Chief Executive Officer of the
Company, or in a position at least commensurate therewith in all material
respects, for a term commencing on the Effective Date hereof and expiring on
the third anniversary thereof (the "Initial Term"), provided that the
Employee is elected to such office, or a comparable or higher office, at the
annual meeting of the Board of Directors of the Company (the "Board of
Directors") during the Initial Term or any Renewal Term (as hereinafter
defined) of this Agreement. If the Employee shall not be so elected at any
such annual meeting of the Board of Directors, the Employee's employment
hereunder shall forthwith terminate and the Company shall be obligated to
compensate the Employee in
<PAGE> 2
accordance with Section 6(a) of this Agreement. Upon the expiration of the
Initial Term, this Agreement will be renewed automatically for successive
one-year periods (each, a "Renewal Term"), unless sooner terminated in
accordance with the provisions of Section 5 or unless either party gives written
notice of non-renewal at least four (4) months prior to the date on which the
Employee's employment would otherwise end.

2. Positions and Duties.

The Employee's duties hereunder shall be those which shall be
prescribed from time to time by the Board of Directors in accordance with the
Bylaws of the Company and shall include such executive duties, powers and
responsibilities as customarily attend the offices of President and Chief
Executive Officer of a company comparable to the Company. The Employee will
hold, in addition to the offices of President and Chief Executive Officer of
the Company, such other executive offices in the Company and its subsidiaries
to which he may be elected, appointed or assigned by the Board of Directors
from time to time and will discharge such executive duties in connection
therewith. During the employment period, the Employee's position (including
status, offices and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned immediately
preceding the Effective Date. The Employee shall devote his full working
time, energy and skill (reasonable absences for vacations and illness
excepted), to the business of the Company as is necessary in order to perform
such duties faithfully, competently and diligently; provided, however, that
notwithstanding any provision in this Agreement to the contrary, the Employee
shall not be precluded from devoting reasonable periods of time required for
serving as a member of boards of companies or organizations which have been
approved by the Board of

2
<PAGE> 3
Directors so long as such memberships or activities do not interfere with the
performance of the Employee's duties hereunder.

3. Compensation. During the term of this Agreement, the Employee
shall receive, for all services rendered to the Company hereunder, the
following (hereinafter referred to as "Compensation"):

(a) Base Salary. For the term hereof, the Employee shall be
paid an annual base salary equal to Two Hundred Twenty-Five Thousand Dollars
($225,000). The Employee's annual base salary shall be payable in equal
installments in accordance with the Company's general salary payment policies
but no less frequently than monthly. Such base salary shall be reviewed, and
any increases in the amount thereof shall be determined, by the Board of
Directors or a compensation committee formed by the Board of Directors (the
"Compensation Committee") at the end of each calendar year during the term
hereof.

(b) Bonuses. The Employee shall be eligible for an annual
performance bonuses. The amount of such bonus, if any, shall be solely
within the discretion of the Board of Directors or, if formed, the
Compensation Committee thereof and shall be based upon the respective
performances of the Company and the Employee during such year. Such bonus,
if any, shall be paid within sixty (60) days after the end of each fiscal
year of the Company. The Employee shall be eligible for and may receive
other bonus compensation. The amount of such bonuses, if any, shall be
solely within the discretion of the Board of Directors or, if formed, the
Compensation Committee thereof.

(c) Incentive Compensation. The Employee shall be eligible for
awards from the Company's incentive compensation plans, including without
limitation any stock option

3
<PAGE> 4
plans, applicable to high level executive officers of the Company or to key
employees of the Company or its subsidiaries, in accordance with the terms
thereof and on a basis commensurate with his position and responsibilities.

(d) Benefits. The Employee and his "dependents," as that term
may be defined under the applicable benefit plan(s) of the Company, shall be
included, to the extent eligible thereunder, in any and all plans, programs
and policies which provide benefits for employees and their dependents. Such
plans, programs and policies may include health care insurance, long-term
disability plans, supplemental disability insurance, supplemental life
insurance, 401(k) plan, holidays and other similar or comparable benefits
made available to the Company's employees.

(e) Life Insurance. The Company shall provide the Employee
with Fifty Thousand ($50,000) of term life insurance coverage while employed
by the Company.

(f) Expenses. Subject to and in accordance with the Company's
policies and procedures, the Employee hereby is authorized to incur, and,
upon presentation of itemized accounts, shall be reimbursed by the Company
for, any and all reasonable and necessary business-related expenses, which
expenses are incurred by the Employee on behalf of the Company or any of its
subsidiaries.

4. Absences. The Employee shall be entitled to vacations, absences
because of illness or other incapacity, and such other absences, whether for
holiday, personal time, or for any other purpose, as set forth in the
Company's employment manual or current procedures and policies, as the case
may be, as same may be amended from time-to-time.

4
<PAGE> 5
5. Termination. In addition to the events of termination and
expiration of this Agreement provided for in Section 1 hereof, the Employee's
employment hereunder may be terminated only as follows:

(a) Without Cause. The Company may terminate the Employee's
employment hereunder without cause only upon action by the Board of
Directors, and upon no less than ninety (90) days prior written notice to the
Employee. The Employee may terminate employment hereunder without cause upon
no less than ninety (90) days prior written notice to the Company.

(b) For Cause, by the Company. The Company may terminate the
Employee's employment hereunder for cause immediately and with prompt notice
to the Employee, which cause shall be determined in good faith solely by the
Board of Directors. "Cause" for termination shall include, but is not
limited to, the following conduct of the Employee:

(1) Willful or prolonged absence from work by the
Employee (other than by reason of disability due to physical or mental
illness) or failure, neglect or refusal by the Employee to perform his duties
and responsibilities or to follow the reasonable directions of the Board of
Directors within ten (10) business days after receipt by the Employee of
written notice of such failure;

(2) Misconduct by the Employee in connection with his
employment, including but not limited to: misappropriating any funds or
property of the Company; attempting to willfully obtain any personal profit
from any transaction in which the Employee has an interest which is adverse
to the interests of the Company; or any other intentional act or omission
which substantially impairs the Company's ability to conduct its ordinary
business in its usual manner;

5
<PAGE> 6
(3) The Employee's conviction of, or plea of nolo
contendre to, any crime constituting a felony under the laws of the United
States or any State thereof, or any crime constituting a misdemeanor under
any such law involving moral turpitude;

(4) Breach by the Employee of any of the terms of or
covenants contained in this Agreement; or

(5) Any other act or omission which subjects the Company
or any of its subsidiaries to substantial public disrespect, scandal or
ridicule.

(c) For Good Reason by Employee. The Employee may terminate his
employment hereunder for good reason immediately and with prompt notice to
the Company. "Good reason" for termination by the Employee shall include,
but is not limited to, the following conduct of the Company:

(1) Material breach of any provision of this Agreement by
the Company, which breach shall not have been cured by the Company within
thirty (30) days of receipt of written notice of said breach;

(2) Failure to maintain the Employee in a position
commensurate with that referred to in Section 2 of this Agreement; or

(3) The assignment to the Employee of any duties
inconsistent with the Employee's position, authority, duties or
responsibilities as contemplated by Section 2 of this Agreement, or any other
action by the Company which results in a diminution of such position,
authority, duties or responsibilities, excluding for this purpose any
isolated action not taken in bad faith and which is promptly remedied by the
Company after receipt of notice thereof given by the Employee.

6
<PAGE> 7
It is understood and agreed that it shall not be "good reason" for
termination by the Employee if in the event of a Change in Control (as
hereinafter defined in Section 7) the Employee is offered a position
commensurate with his position with the Company immediately prior to the
Change in Control with the company, division, subsidiary or business unit
whose business is comprised of the former operations of the Company.

(d) Death. The period of active employment of the Employee
hereunder shall terminate automatically in the event of his death.

(e) Disability. In the event that the Employee shall be unable
to perform duties hereunder for a period of one hundred eighty (180)
consecutive calendar days or two hundred and seventy (270) work days within
any three hundred and sixty (360) consecutive calendar days by reason of
disability as a result of illness, accident or other physical or mental
incapacity or disability, the Company may, in its discretion, by giving
written notice to the Employee, terminate the Employee's employment hereunder
as long as the Employee is still disabled on the effective date of such
termination.

(f) Mutual Agreement. This Agreement may be terminated at any
time by mutual agreement of the Employee and the Company.

6. Compensation in the Event of Termination. In the event that the
Employee's employment pursuant to this Agreement terminates prior to the end
of the term of this Agreement because he is not reelected pursuant to Section
1 or for a reason provided in Section 5 hereof, the Company shall pay the
Employee compensation as set forth below:

(a) Employee not Elected by Board of Directors; By Employee for
Good Reason; By Company Without Cause; Death or Disability. In the event
that the Employee's

7
<PAGE> 8
employment hereunder is terminated: (i) because the Employee is not elected to
the offices of President and Chief Executive Officer of the Company, or in a
position at least commensurate therewith in all material respects, at any annual
meeting of the Company's Board of Directors during the term of this Agreement,
as contemplated by Section 1 hereof; (ii) by the Employee for good reason
pursuant to Section 5(c) hereof; (iii) by the Company without cause; (iv)
because of the death of the Employee; or (v) by the Company pursuant to Section
5(e) hereof, then the Company shall continue to pay or provide, as applicable,
the following compensation to the Employee:

(1) Monthly base salary as set forth in Section 3(a)
hereof; and

(2) Continuing coverage, but only to the extent required
by law, for the Employee and his eligible dependents under all of the
Company's benefit plans, programs and policies in effect as of the date of
termination.

Such compensation shall continue to be paid or provided, as
applicable, in the same manner as before termination, and for a period of
time ending on the later to occur of (A) the date which is twelve (12) months
after the date of termination or (B) the date upon which the term of this
Agreement would otherwise have expired in accordance with Section 1 hereof.

(b) By Company For Cause or By Employee Without Good Reason. In the event
that (i) the Company shall terminate the Employee's employment hereunder for
cause pursuant to Section 5(b) hereof or (ii) the Employee shall terminate
employment hereunder without "good reason" as provided in Section 5(c) hereof,
the Company shall not be obligated to pay the Employee any compensation except
for salary and other Compensation which may have been earned and are due and
payable but which have not been paid as of the date of termination.

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<PAGE> 9
7. Change of Control.

(a) The term "Change in Control" as used in this Agreement
shall mean the first to occur of any of the following:

(i) the effective date or date of consummation of any
transaction or series of transactions (other than a transaction to which only
the Company and one or more of its subsidiaries are parties) pursuant to
which the Company (1) becomes a subsidiary of another corporation or entity;
(2) is merged or consolidated with or into another corporation or entity; (3)
engages in an exchange of shares with another corporation or an exchange of
interests with another entity; or (4) transfers, sells or otherwise disposes
of all or substantially all of its assets to a single purchaser (other than
the Employee) or a group of purchasers (none of whom is the Employee);
provided, however, that this Subsection shall not be applicable to a
transaction or series of transactions in which a majority of the capital
stock of the other corporation, following such transaction or series of
transactions, is owned or controlled by the holders of a majority of the
Company's outstanding capital stock immediately before such sale, transfer or
disposition; or

(ii) The date upon which any person (other than the
Employee), group of associated persons acting in concert (none of whom is the
Employee), or corporation or other entity becomes a direct or indirect
beneficial owner of shares of stock of the Company representing an aggregate
of more than fifty percent (50%) of the votes then entitled to be cast at an
election of directors of the Company; or

(iii) The date upon which the persons who were members of
the Board of Directors of the Company as of the date hereof (the "Original
Directors") cease to constitute a majority of the Board of Directors;
provided, however, that any new director whose nomination or

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<PAGE> 10
selection has been approved by the affirmative vote of at least three of the
Original Directors then in office shall also be deemed an Original Director.

(b) If, during the six-month period either immediately
preceding or immediately following a Change in Control, the Employee's
employment with the Company is terminated for any reason other than pursuant
to Sections 5(b), (d) or (e) hereof or a termination without cause by the
Employee pursuant to Section 5(a), then, in addition to the amounts payable
under Section 6 hereof, the Company shall pay the Severance Amount
(hereinafter defined) within thirty (30) days of the occurrence of the Change
in Control, or, in the event such termination occurred during the six-month
period following the occurrence of the Change in Control, within thirty (30)
days after the effective date of the Employee's termination. For purposes of
this Agreement, Severance Amount shall mean an amount equal to twelve (12)
times the rate of the Employee's monthly regular compensation as in effect
immediately prior to the Employee's termination or immediately prior to the
Change in Control, as applicable.

8. Effect of Termination. In the event of expiration or early
termination of this Agreement as provided herein, neither the Company nor the
Employee shall have any remaining duties or obligations hereunder except that
the Company shall:

(a) Pay the Employee's accrued and unpaid salary and any
other accrued and unpaid benefits under Section 3 hereof;

(b) Reimburse the Employee for expenses already incurred
in accordance with Section 3(e) hereof;

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<PAGE> 11
(c) To the extent required by law, pay or otherwise
provide for any benefits, payments or continuation or conversion rights in
accordance with the provisions of any benefit plan of which the Employee or
any of his dependents is or was a participant; and

(d) Pay the Employee or his beneficiaries any
compensation due pursuant to Sections 6 and 7 hereof, if any.

9. Non-Competition. The Employee acknowledges that he has gained
and will gain extensive and valuable experience and knowledge in the business
conducted by the Company and has been and will have extensive contacts with
its customers. Accordingly, the Employee covenants and agrees that he shall
not compete directly or indirectly with the Company, either during the term
of his employment or during the twelve (12) month period immediately
thereafter and shall not during such period make public statements in
derogation of it. For the purposes of Sections 9, 10, 11, 12 and 13, the
word "Company" shall be deemed to include subsidiaries, parents and its
affiliates. Competing directly or indirectly shall mean engaging or having a
material interest, directly or indirectly, as owner, employee, officer,
director, partner, venturer, stockholder, capital investor, consultant,
agent, principal, advisor or otherwise, either alone or in association with
others, in the operation of an entity engaged in the business of providing
telecommunications services within thirty (30) miles of the Company's home
office or on an Internet Web Site. Competing directly or indirectly with the
Employer as used in this Agreement, shall be deemed not to include an
ownership interest as an inactive investor, which for purposes of this
Agreement shall mean the beneficial ownership of less than five percent (5%)
of the outstanding shares of any series or class of securities of any
competitor of the Company, which shares are publicly traded in the securities
markets.

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<PAGE> 12
10. Non-Solicitation. The Employee acknowledges that he has had and
will have extensive contacts with employees and customers of the Company.
Accordingly, the Employee covenants and agrees that during the term of his
employment and during the twelve (12) month period immediately thereafter he
will not (a) solicit any of the employees of the Company who were employed by
the Company during the time when the Employee was employed, to leave the
Company, (b) interfere with the relationship of the Company with any such
employees or (c) personally target or solicit customers of the Company.

11. Blue Pencil Provision. The Employee acknowledges that the time
periods and geographic area of restriction imposed by Sections 9 and 10 are
fair and reasonable and are reasonably required for the protection of the
Company. If any part or parts of Sections 9 or 10 shall be held to be
unenforceable or invalid, the remaining parts thereof shall nevertheless
continue to be valid and enforceable as though the invalid portion or
portions were not a part hereof. If any of the provisions of Sections 9 or
10 relating to the periods or geographic area of restriction shall be deemed
to exceed the maximum periods of time or area which a court of competent
jurisdiction would deem enforceable, the times and area shall, for the
purposes of Sections 9 and 10, be deemed to be the maximum time periods and
area which a court of competent jurisdiction would deem valid and enforceable
in any state in which such court of competent jurisdiction shall be convened.

12. Confidentiality. The Employee acknowledges that he has had and
will have access to certain information related to the business, operations,
future plans and customers of the Company, the disclosure or use of which
could cause it substantial losses and damages. Accordingly, the Employee
covenants that during the term of his employment with the Company

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<PAGE> 13
and thereafter he will keep confidential all information and documents furnished
to him by or on behalf of the Company and not use the same to his advantage,
except to the extent such information or documents are or thereafter become
lawfully obtainable from other sources or are in the public domain through no
fault on his part or is consented to in writing by the Company. Upon termination
of his employment, the Employee shall return to the Company all records, lists,
files and documents which are in his possession and which relate to the Company.

13. Right to Injunctive Relief. The Employee agrees and acknowledges
that a violation of the covenants contained in Sections 9, 10, 11 and 12 of
this Agreement will cause irreparable damage to the Company, and that it is
and will be impossible to estimate or determine the damage that will be
suffered by it in the event of a breach by the Employee of any such
covenant. Therefore, the Employee further agrees that in the event of any
violation or threatened violation of such covenants, the Company shall be
entitled as a matter of course to an injunction out of any court of competent
jurisdiction restraining such violation or threatened violation by the
Employee, such right to an injunction to be cumulative and in addition to
whatever other remedies the Company may have.

14. Representation by the Employee. The Employee hereby represents
and warrants that the execution of this Agreement and the performance of his
duties and obligations hereunder will not breach or be in conflict with any
other agreement to which he is a party or by which he is bound, and that he
is not now subject to any covenant against competition or similar covenant
which would affect the performance of his duties hereunder.

15. Resolution of Differences Over Breaches of Agreement. Except as
otherwise provided herein, any controversy or claim arising out of, or
relating to, this Agreement, or the

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<PAGE> 14
breach hereof, shall be reviewed in the first instance in accordance with the
Company's internal review procedures, if any, with recourse thereafter--for
temporary or preliminary injunctive relief only--to the courts having
jurisdiction thereof, and if any relief other than injunctive relief is sought,
then to arbitration in Essex County, New Jersey in accordance with the rules of
the American Arbitration Association under its National Rules for the Resolution
of Employment Disputes, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.

16. Waiver. The waiver by a party hereto of any breach by the other
party hereto of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by a party hereto.

17. Assignment. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Company, and the Company
shall be obligated to require any successor to expressly assume its
obligations hereunder. This Agreement shall inure to the benefit of and be
enforceable by the Employee or his legal representatives, executors,
administrators, successors, heirs, distributes, devisees and legatees. The
Employee may not assign any of his duties, responsibilities, obligations or
positions hereunder to any person and any such purported assignment by him
shall be void and of no force and effect.

18. Notices. Any notices required or permitted to be given under
this Agreement shall be sufficient if in writing, and if personally delivered
or when sent by first class certified or registered mail, postage prepaid,
return receipt requested--in the case of the Employee, to his residence
address as set forth below, and in the case of the Company, to the address of
its principal place of business as set forth below, in care of the Board of
Directors--or to such other

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<PAGE> 15
person or at such other address with respect to each party as such party shall
notify the other in writing.

19. Construction of Agreement.

(a) Governing Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the internal laws of the
State of New Jersey without reference to its principles regarding conflicts
of law.

(b) Severability. In the event that any one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

(c) Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience of reference only
and shall not constitute a part of this Agreement.

20. Entire Agreement. This Agreement contains the entire agreement
of the parties concerning the Employee's employment and all promises,
representations, understandings, arrangements and prior agreements, including
without limitation all offer letters and side letters, on such subject are
merged herein and superseded hereby. The provisions of this Agreement may
not be amended, modified, repealed, waived, extended or discharged except by
an agreement in writing signed by the party against whom enforcement of any
amendment, modification, repeal, waiver, extension or discharge is sought. No
person acting other than pursuant to a resolution of the Board of Directors
shall have authority on behalf of the Company to agree to amend, modify,
repeal, waive, extend or discharge any provision of this Agreement or
anything in reference

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<PAGE> 16
thereto or to exercise any of the Company's rights to terminate or to fail to
extend this Agreement.

21. Survival of Certain Provisions. Sections 6 and 7 hereof shall
survive termination of this Agreement and shall continue to be effective so
long as the Employee is employed by the Company in any capacity.

******************

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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and attested by its duly authorized officers, and the Employee has
set his hand, all as of the day and year first above written.

ATTEST: COOPERATIVE HOLDINGS, INC.

/s/ Jay Brzezanski By: /s/ Louis A. Lombardi, Jr.
__________________________ _____________________________
Jay Brzezanski, Secretary Louis A. Lombardi, Jr.
Chief Operating Officer

Address: 412-420 Washington Avenue
Belleville, New Jersey 07109

WITNESS: EMPLOYEE

/s/ Dawn Androsky /s/ Louis A. Lombardi, Sr.
__________________________ _______________________________
Louis A. Lombardi, Sr.

Address: 33 Crest Road
Middletown, New Jersey 07748

<PAGE> 1
Exhibit 10.5

EMPLOYMENT AGREEMENT

THIS AGREEMENT made effective as of the 20th day of March, 2000 (the
"Effective Date") by and between Cooperative Holdings, Inc., a Delaware
corporation with its principal place of business at 412-420 Washington Avenue,
Belleville, New Jersey 07109 (the "Company"), and Louis A. Lombardi, Jr. (the
"Employee").

WITNESSETH:

WHEREAS, the Company desires to secure the employment of the Employee
in accordance with the provisions of this Agreement; and

WHEREAS, the Employee desires and is willing to accept employment with the
Company in accordance herewith.

NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:

1. Term. The Company hereby agrees to employ the Employee and the Employee
hereby agrees to serve the Company pursuant to the terms and conditions of this
Agreement as Chief Operating Officer of the Company, or in a position at least
commensurate therewith in all material respects, for a term commencing on the
Effective Date hereof and expiring on the third anniversary thereof (the
"Initial Term"), provided that the Employee is elected to such office, or a
comparable or higher office, at the annual meeting of the Board of Directors of
the Company (the "Board of Directors") during the Initial Term or any Renewal
Term (as hereinafter defined) of this Agreement. If the Employee shall not be so
elected at any such annual meeting of the Board of Directors, the Employee's
employment hereunder shall forthwith terminate and the Company shall be
obligated to compensate the Employee in accordance with Section 6(a) of this
<PAGE> 2
Agreement. Upon the expiration of the Initial Term, this Agreement will be
renewed automatically for successive one-year periods (each, a "Renewal Term"),
unless sooner terminated in accordance with the provisions of Section 5 or
unless either party gives written notice of non-renewal at least four (4) months
prior to the date on which the Employee's employment would otherwise end.

2. Positions and Duties.

The Employee's duties hereunder shall be those which shall be prescribed
from time to time by the Board of Directors in accordance with the Bylaws of the
Company and shall include such executive duties, powers and responsibilities as
customarily attend the office of Chief Operating Officer of a company comparable
to the Company. The Employee will hold, in addition to the office of Chief
Operating Officer of the Company, such other executive offices in the Company
and its subsidiaries to which he may be elected, appointed or assigned by the
Board of Directors from time to time and will discharge such executive duties in
connection therewith. During the employment period, the Employee's position
(including status, offices and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned immediately preceding
the Effective Date. The Employee shall devote his full working time, energy and
skill (reasonable absences for vacations and illness excepted), to the business
of the Company as is necessary in order to perform such duties faithfully,
competently and diligently; provided, however, that notwithstanding any
provision in this Agreement to the contrary, the Employee shall not be precluded
from devoting reasonable periods of time required for serving as a member of
boards of companies or organizations which have been approved by the Board of
Directors so long

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<PAGE> 3
as such memberships or activities do not interfere with the performance of the
Employee's duties hereunder.

3. Compensation. During the term of this Agreement, the Employee shall
receive, for all services rendered to the Company hereunder, the following
(hereinafter referred to as "Compensation"):

(a) Base Salary. For the term hereof, the Employee shall be paid an
annual base salary equal to One Hundred Sixty-Five Thousand Dollars ($165,000).
The Employee's annual base salary shall be payable in equal installments in
accordance with the Company's general salary payment policies but no less
frequently than monthly. Such base salary shall be reviewed, and any increases
in the amount thereof shall be determined, by the Board of Directors or a
compensation committee formed by the Board of Directors (the "Compensation
Committee") at the end of each calendar year during the term hereof.

(b) Bonuses. The Employee shall be eligible for an annual
performance bonuses. The amount of such bonus, if any, shall be solely within
the discretion of the Board of Directors or, if formed, the Compensation
Committee thereof and shall be based upon the respective performances of the
Company and the Employee during such year. Such bonus, if any, shall be paid
within sixty (60) days after the end of each fiscal year of the Company. The
Employee shall be eligible for and may receive other bonus compensation. The
amount of such bonuses, if any, shall be solely within the discretion of the
Board of Directors or, if formed, the Compensation Committee thereof.

(c) Incentive Compensation. The Employee shall be eligible for
awards from the Company's incentive compensation plans, including without
limitation any stock option

(d) Benefits. The Employee and his "dependents," as that term may be
defined under the applicable benefit plan(s) of the Company, shall be included,
to the extent eligible thereunder, in any and all plans, programs and policies
which provide benefits for employees and their dependents. Such plans, programs
and policies may include health care insurance, long-term disability plans,
supplemental disability insurance, supplemental life insurance, 401(k) plan,
holidays and other similar or comparable benefits made available to the
Company's employees.

(e) Life Insurance. The Company shall provide the Employee with
Ten Thousand ($10,000) of term life insurance coverage while employed by the
Company.

(f) Expenses. Subject to and in accordance with the Company's
policies and procedures, the Employee hereby is authorized to incur, and, upon
presentation of itemized accounts, shall be reimbursed by the Company for, any
and all reasonable and necessary business-related expenses, which expenses are
incurred by the Employee on behalf of the Company or any of its subsidiaries.

4. Absences. The Employee shall be entitled to vacations, absences because
of illness or other incapacity, and such other absences, whether for holiday,
personal time, or for any other purpose, as set forth in the Company's
employment manual or current procedures and policies, as the case may be, as
same may be amended from time-to-time.

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<PAGE> 5
5. Termination. In addition to the events of termination and expiration of
this Agreement provided for in Section 1 hereof, the Employee's employment
hereunder may be terminated only as follows:

(a) Without Cause. The Company may terminate the Employee's
employment hereunder without cause only upon action by the Board of Directors,
and upon no less than ninety (90) days prior written notice to the Employee. The
Employee may terminate employment hereunder without cause upon no less than
ninety (90) days prior written notice to the Company.

(b) For Cause, by the Company. The Company may terminate the
Employee's employment hereunder for cause immediately and with prompt notice to
the Employee, which cause shall be determined in good faith solely by the Board
of Directors. "Cause" for termination shall include, but is not limited to, the
following conduct of the Employee:

(1) Willful or prolonged absence from work by the Employee
(other than by reason of disability due to physical or mental illness) or
failure, neglect or refusal by the Employee to perform his duties and
responsibilities or to follow the reasonable directions of the Board of
Directors within ten (10) business days after receipt by the Employee of written
notice of such failure;

(2) Misconduct by the Employee in connection with his
employment, including but not limited to: misappropriating any funds or property
of the Company; attempting to willfully obtain any personal profit from any
transaction in which the Employee has an interest which is adverse to the
interests of the Company; or any other intentional act or omission which
substantially impairs the Company's ability to conduct its ordinary business in
its usual manner;

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<PAGE> 6
(3) The Employee's conviction of, or plea of nolo contendre
to, any crime constituting a felony under the laws of the United States or any
State thereof, or any crime constituting a misdemeanor under any such law
involving moral turpitude;

(4) Breach by the Employee of any of the terms of or covenants
contained in this Agreement; or

(5) Any other act or omission which subjects the Company or
any of its subsidiaries to substantial public disrespect, scandal or ridicule.

(c) For Good Reason by Employee. The Employee may terminate his
employment hereunder for good reason immediately and with prompt notice to the
Company. "Good reason" for termination by the Employee shall include, but is not
limited to, the following conduct of the Company:

(1) Material breach of any provision of this Agreement by the
Company, which breach shall not have been cured by the Company within thirty
(30) days of receipt of written notice of said breach;

(2) Failure to maintain the Employee in a position
commensurate with that referred to in Section 2 of this Agreement; or

(3) The assignment to the Employee of any duties inconsistent
with the Employee's position, authority, duties or responsibilities as
contemplated by Section 2 of this Agreement, or any other action by the Company
which results in a diminution of such position, authority, duties or
responsibilities, excluding for this purpose any isolated action not taken in
bad faith and which is promptly remedied by the Company after receipt of notice
thereof given by the Employee.

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<PAGE> 7

It is understood and agreed that it shall not be "good reason" for
termination by the Employee if in the event of a Change in Control (as
hereinafter defined in Section 7) the Employee is offered a position
commensurate with his position with the Company immediately prior to the Change
in Control with the company, division, subsidiary or business unit whose
business is comprised of the former operations of the Company.

(d) Death. The period of active employment of the Employee hereunder
shall terminate automatically in the event of his death.

(e) Disability. In the event that the Employee shall be unable to
perform duties hereunder for a period of one hundred eighty (180) consecutive
calendar days or two hundred and seventy (270) work days within any three
hundred and sixty (360) consecutive calendar days by reason of disability as a
result of illness, accident or other physical or mental incapacity or
disability, the Company may, in its discretion, by giving written notice to the
Employee, terminate the Employee's employment hereunder as long as the Employee
is still disabled on the effective date of such termination.

(f) Mutual Agreement. This Agreement may be terminated at any time
by mutual agreement of the Employee and the Company.

6. Compensation in the Event of Termination. In the event that the
Employee's employment pursuant to this Agreement terminates prior to the end of
the term of this Agreement because he is not reelected pursuant to Section 1 or
for a reason provided in Section 5 hereof, the Company shall pay the Employee
compensation as set forth below:

(a) Employee not Elected by Board of Directors; By Employee for Good
Reason; By Company Without Cause; Death or Disability. In the event that the
Employee's

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<PAGE> 8
employment hereunder is terminated: (i) because the Employee is not elected to
the office of Chief Operating Officer of the Company, or in a position at least
commensurate therewith in all material respects, at any annual meeting of the
Company's Board of Directors during the term of this Agreement, as contemplated
by Section 1 hereof; (ii) by the Employee for good reason pursuant to Section
5(c) hereof; (iii) by the Company without cause; (iv) because of the death of
the Employee; or (v) by the Company pursuant to Section 5(e) hereof, then the
Company shall continue to pay or provide, as applicable, the following
compensation to the Employee:

(1) Monthly base salary as set forth in Section 3(a)
hereof; and

(2) Continuing coverage, but only to the extent required by
law, for the Employee and his eligible dependents under all of the Company's
benefit plans, programs and policies in effect as of the date of termination.

Such compensation shall continue to be paid or provided, as
applicable, in the same manner as before termination, and for a period of time
ending on the later to occur of (A) the date which is twelve (12) months after
the date of termination or (B) the date upon which the term of this Agreement
would otherwise have expired in accordance with Section 1 hereof.

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<PAGE> 9
7. Change of Control.

(a) The term "Change in Control" as used in this Agreement shall
mean the first to occur of any of the following:

(i) the effective date or date of consummation of any
transaction or series of transactions (other than a transaction to which only
the Company and one or more of its subsidiaries are parties) pursuant to which
the Company (1) becomes a subsidiary of another corporation or entity; (2) is
merged or consolidated with or into another corporation or entity; (3) engages
in an exchange of shares with another corporation or an exchange of interests
with another entity; or (4) transfers, sells or otherwise disposes of all or
substantially all of its assets to a single purchaser (other than the Employee)
or a group of purchasers (none of whom is the Employee); provided, however, that
this Subsection shall not be applicable to a transaction or series of
transactions in which a majority of the capital stock of the other corporation,
following such transaction or series of transactions, is owned or controlled by
the holders of a majority of the Company's outstanding capital stock immediately
before such sale, transfer or disposition; or

(ii) The date upon which any person (other than the Employee),
group of associated persons acting in concert (none of whom is the Employee), or
corporation or other entity becomes a direct or indirect beneficial owner of
shares of stock of the Company representing an aggregate of more than fifty
percent (50%) of the votes then entitled to be cast at an election of directors
of the Company; or

(iii) The date upon which the persons who were members of the
Board of Directors of the Company as of the date hereof (the "Original
Directors") cease to constitute a majority of the Board of Directors; provided,
however, that any new director whose nomination or

9
<PAGE> 10
selection has been approved by the affirmative vote of at least three of the
Original Directors then in office shall also be deemed an Original Director.

(b) If, during the six-month period either immediately preceding or
immediately following a Change in Control, the Employee's employment with the
Company is terminated for any reason other than pursuant to Sections 5(b), (d)
or (e) hereof or a termination without cause by the Employee pursuant to Section
5(a), then, in addition to the amounts payable under Section 6 hereof, the
Company shall pay the Severance Amount (hereinafter defined) within thirty (30)
days of the occurrence of the Change in Control, or, in the event such
termination occurred during the six-month period following the occurrence of the
Change in Control, within thirty (30) days after the effective date of the
Employee's termination. For purposes of this Agreement, Severance Amount shall
mean an amount equal to twelve (12) times the rate of the Employee's monthly
regular compensation as in effect immediately prior to the Employee's
termination or immediately prior to the Change in Control, as applicable.

8. Effect of Termination. In the event of expiration or early termination
of this Agreement as provided herein, neither the Company nor the Employee shall
have any remaining duties or obligations hereunder except that the Company
shall:

(a) Pay the Employee's accrued and unpaid salary and any other
accrued and unpaid benefits under Section 3 hereof;

(b) Reimburse the Employee for expenses already incurred in
accordance with Section 3(e) hereof;

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<PAGE> 11
(c) To the extent required by law, pay or otherwise provide
for any benefits, payments or continuation or conversion rights in accordance
with the provisions of any benefit plan of which the Employee or any of his
dependents is or was a participant; and

(d) Pay the Employee or his beneficiaries any compensation due
pursuant to Sections 6 and 7 hereof, if any.

9. Non-Competition. The Employee acknowledges that he has gained and will
gain extensive and valuable experience and knowledge in the business conducted
by the Company and has been and will have extensive contacts with its customers.
Accordingly, the Employee covenants and agrees that he shall not compete
directly or indirectly with the Company, either during the term of his
employment or during the twelve (12) month period immediately thereafter and
shall not during such period make public statements in derogation of it. For the
purposes of Sections 9, 10, 11, 12 and 13, the word "Company" shall be deemed to
include subsidiaries, parents and its affiliates. Competing directly or
indirectly shall mean engaging or having a material interest, directly or
indirectly, as owner, employee, officer, director, partner, venturer,
stockholder, capital investor, consultant, agent, principal, advisor or
otherwise, either alone or in association with others, in the operation of an
entity engaged in the business of providing telecommunications services within
thirty (30) miles of the Company's home office or on an Internet Web Site.
Competing directly or indirectly with the Company as used in this Agreement,
shall be deemed not to include an ownership interest as an inactive investor,
which for purposes of this Agreement shall mean the beneficial ownership of less
than five percent (5%) of the outstanding shares of any series or class of
securities of any competitor of the Company, which shares are publicly traded in
the securities markets.

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<PAGE> 12
10. Non-Solicitation. The Employee acknowledges that he has had and will
have extensive contacts with employees and customers of the Company.
Accordingly, the Employee covenants and agrees that during the term of his
employment and during the twelve (12) month period immediately thereafter he
will not (a) solicit any of the employees of the Company who were employed by
the Company during the time when the Employee was employed, to leave the
Company, (b) interfere with the relationship of the Company with any such
employees or (c) personally target or solicit customers of the Company.

11. Blue Pencil Provision. The Employee acknowledges that the time periods
and geographic area of restriction imposed by Sections 9 and 10 are fair and
reasonable and are reasonably required for the protection of the Company. If any
part or parts of Sections 9 or 10 shall be held to be unenforceable or invalid,
the remaining parts thereof shall nevertheless continue to be valid and
enforceable as though the invalid portion or portions were not a part hereof. If
any of the provisions of Sections 9 or 10 relating to the periods or geographic
area of restriction shall be deemed to exceed the maximum periods of time or
area which a court of competent jurisdiction would deem enforceable, the times
and area shall, for the purposes of Sections 9 and 10, be deemed to be the
maximum time periods and area which a court of competent jurisdiction would deem
valid and enforceable in any state in which such court of competent jurisdiction
shall be convened.

12. Confidentiality. The Employee acknowledges that he has had and will
have access to certain information related to the business, operations, future
plans and customers of the Company, the disclosure or use of which could cause
it substantial losses and damages. Accordingly, the Employee covenants that
during the term of his employment with the Company

13. Right to Injunctive Relief. The Employee agrees and acknowledges that
a violation of the covenants contained in Sections 9, 10, 11 and 12 of this
Agreement will cause irreparable damage to the Company, and that it is and will
be impossible to estimate or determine the damage that will be suffered by it in
the event of a breach by the Employee of any such covenant. Therefore, the
Employee further agrees that in the event of any violation or threatened
violation of such covenants, the Company shall be entitled as a matter of course
to an injunction out of any court of competent jurisdiction restraining such
violation or threatened violation by the Employee, such right to an injunction
to be cumulative and in addition to whatever other remedies the Company may
have.

14. Representation by the Employee. The Employee hereby represents and
warrants that the execution of this Agreement and the performance of his duties
and obligations hereunder will not breach or be in conflict with any other
agreement to which he is a party or by which he is bound, and that he is not now
subject to any covenant against competition or similar covenant which would
affect the performance of his duties hereunder.

15. Resolution of Differences Over Breaches of Agreement. Except as
otherwise provided herein, any controversy or claim arising out of, or relating
to, this Agreement, or the

16. Waiver. The waiver by a party hereto of any breach by the other party
hereto of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach by a party hereto.

17. Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company, and the Company shall be
obligated to require any successor to expressly assume its obligations
hereunder. This Agreement shall inure to the benefit of and be enforceable by
the Employee or his legal representatives, executors, administrators,
successors, heirs, distributes, devisees and legatees. The Employee may not
assign any of his duties, responsibilities, obligations or positions hereunder
to any person and any such purported assignment by him shall be void and of no
force and effect.

18. Notices. Any notices required or permitted to be given under this
Agreement shall be sufficient if in writing, and if personally delivered or when
sent by first class certified or registered mail, postage prepaid, return
receipt requested--in the case of the Employee, to his residence address as set
forth below, and in the case of the Company, to the address of its principal
place of business as set forth below, in care of the Board of Directors--or to
such other

14
<PAGE> 15
person or at such other address with respect to each party as such party shall
notify the other in writing.

19. Construction of Agreement.

(c) Headings. The descriptive headings of the several paragraphs of
this Agreement are inserted for convenience of reference only and shall not
constitute a part of this Agreement.

20. Entire Agreement. This Agreement contains the entire agreement of the
parties concerning the Employee's employment and all promises, representations,
understandings, arrangements and prior agreements, including without limitation
all offer letters and side letters, on such subject are merged herein and
superseded hereby. The provisions of this Agreement may not be amended,
modified, repealed, waived, extended or discharged except by an agreement in
writing signed by the party against whom enforcement of any amendment,
modification, repeal, waiver, extension or discharge is sought. No person acting
other than pursuant to a resolution of the Board of Directors shall have
authority on behalf of the Company to agree to amend, modify, repeal, waive,
extend or discharge any provision of this Agreement or anything in reference

15
<PAGE> 16
thereto or to exercise any of the Company's rights to terminate or to fail to
extend this Agreement.

21. Survival of Certain Provisions. Sections 6 and 7 hereof shall survive
termination of this Agreement and shall continue to be effective so long as the
Employee is employed by the Company in any capacity.

******************

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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and attested by its duly authorized officers, and the Employee has set his hand,
all as of the day and year first above written.

ATTEST: COOPERATIVE HOLDINGS, INC.

/s/ Jay Brzezanski By: /s/ Louis A. Lombardi, Sr.
__________________________ _____________________________
Jay Brzezanski, Secretary Louis A. Lombardi, Sr.
Chief Executive Officer and President

Address: 412-420 Washington Avenue
Belleville, New Jersey 07109

WITNESS: EMPLOYEE

/s/ Dawn Androsky /s/ Louis A. Lombardi, Jr.
__________________________ _______________________________
Louis A. Lombardi, Jr.

Address: 2 White Oak Ridge Road
Lincroft, New Jersey 07738

<PAGE> 1
Exhibit 10.6

COOPERATIVE HOLDINGS, INC.

2000 STOCK PLAN

1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Non-Employee
Directors (as hereinafter defined in Section 4(b) and Consultants (sometimes
referred to herein as "Participants") of the Company and its Parent and
Subsidiaries and to promote the success of the Company's business.

2. CERTAIN DEFINITIONS. As used herein, the following definitions shall
apply:

(a) "Award" or "Awards," except where referring to a particular
category of grant under the Plan, shall include Incentive Stock Options,
Nonstatutory Stock Options, Restricted Stock Awards and Stock Awards.

(b) "Board" means the Board of Directors of the Company.

(d) "Committee" means any Committee appointed by the Board of Directors
in accordance with Section 4 of the Plan.

(e) "Common Stock" means the Common Stock, $0.01 par value, of the
Company.

(f) "Company" means Cooperative Holdings, Inc., a Delaware corporation.

(g) "Consultant" means any person, including an advisor, who is engaged
by the Company or any Parent or Subsidiary to render services and is compensated
for such services, and any Non-Employee Director of the Company whether
compensated for such services or not.

(h) "Continuous Status as an Employee, Consultant or Director" means
the absence of any interruption or termination of the employment, consultant or
director relationship with the Company, its Parent or any Subsidiary. Continuous
Status as an Employee, Consultant or Director shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other
leave of absence approved by the Board, provided that such leave is for a period
of not more than ninety (90) days, unless reemployment or reengagement upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
transfers between locations of the Company or between the Company, its Parent,
Subsidiaries or its successor.

(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company.
<PAGE> 2
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

(k) "Fair Market Value" means: (i) if the Common Stock is admitted to
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), the Fair Market Value on any given date shall be the average
of the highest bid and lowest asked prices of the Common Stock reported for such
date or, if no bid and asked prices were reported for such date, for the last
day preceding such date for which such prices were reported; or (ii) if the
Common Stock is admitted to trading on a United States securities exchange or
the NASDAQ National Market System, the Fair Market Value on any date shall be
the closing price reported for the Common Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last day
preceding such date for which a sale was reported; (iii) notwithstanding the
foregoing, the Fair Market Value of the Common Stock on the effective date of
the Company's Initial Public Offering shall be the offering price to the public
of the Common Stock on such date; and (iv) in the absence of an established
market for the Common Stock, the Fair Market Value thereof shall be determined
in good faith by the Plan Administrator.

(l) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.

(m) "Initial Public Offering" means the first underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of the Common Stock to the
public.

(n) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.

(o) "Option" means a stock option granted pursuant to the Plan.

(p) "Optioned Stock" means the Common Stock subject to an Option.

(q) "Optionee" means an Employee, Consultant or Non-Employee Director
who receives an Option.

(r) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

(s) "Plan" means this 2000 Stock Plan.

(t) "Plan Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.

(u) "Restricted Stock" means shares of Common Stock acquired pursuant
to a Restricted Stock Award under Section 12 below.

(v) "Restricted Stock Award" means any Award granted pursuant to
Section 12 of the Plan.

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<PAGE> 3
(w) "Share" means a share of the Common Stock, as may be adjusted from
time to time in accordance with Section 15 of the Plan.

(x) "Stock Award" means any award granted pursuant to Section 13 of the
Plan.

(y) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

(z) "Termination for Cause" shall include, but not be limited to, a
finding by the Board of the Participant's: (i) performance of duties in an
incompetent manner; (ii) commission of any act of fraud, insubordination,
misappropriation or personal dishonesty relating to or involving the Company in
any material way; (iii) gross negligence; (iv) violation of any express
direction of the Company or any material violation of any rule, regulation,
policy or plan established by the Company from time to time regarding the
conduct of its employees or its business, if such violation is not remedied by
the Participant within thirty (30) days of receiving notice of such violation
from the Company; (v) violation of any obligation of Participant's relationship
or Continuous Status as an Employee, Consultant or Director with the Company
that is demonstrably willful and deliberate on the Participant's part and is not
remedied by the Participant within thirty (30) days after receiving notice of
such violation from the Company; (vi) disclosure or use of confidential
information of the Company, other than as required in the performance of the
Participant's duties; (vii) actions that are clearly contrary to the best
interest of the Company; (viii) conviction of a crime constituting a felony or
any other crime involving moral turpitude, or no conviction, but the substantial
weight of credible evidence indicates that the Participant has committed such a
crime; or (ix) the Participant's use of alcohol or any unlawful controlled
substance to an extent that it interferes with the performance of the
Participant's duties.

3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 15
of the Plan, the initial maximum number of shares of Common Stock that may be
issued under the Plan shall be 3,540,000; provided, however, that the maximum
number of shares available under the Plan shall automatically be increased to an
amount equal to fifteen percent (15%) of the shares of Common Stock outstanding
on any December 31, beginning on December 31, 2000; and provided, further, that
the foregoing formula shall never result in a decrease in the maximum number of
shares of Common Stock available for issuance under the Plan. For purposes of
the foregoing limitation, the shares of Common Stock underlying any Awards which
are forfeited, canceled, reacquired by the Company, satisfied without the
issuance of Common Stock or otherwise terminated (other than by exercise) shall
be added back to the number of shares of Common Stock available for issuance
under the Plan. Notwithstanding the foregoing: (a) no more than 3,540,000 shares
shall be available for the award of Incentive Stock Options; and (b) on and
after the date that the Plan is subject to Section 162(m) of the Code, Options
with respect to no more than 300,000 shares of Common Stock may be granted to
any one individual Participant during any one (1) calendar year period. Common
Stock to be issued under the Plan may be either authorized and unissued shares
or shares held in treasury by the Company.

4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by: (a)
the full Board; or (b) a committee of the Board comprised of two or more
"Non-Employee Directors" within the

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<PAGE> 4
meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act. Subject to the
provisions of the Plan, the Plan Administrator is authorized to:

(i) construe the Plan and any Award under the Plan;

(ii) select the directors, officers, Employees and
Consultants of the Company, its Parent and its
Subsidiaries to whom Awards may be granted;

(iii) determine the number of shares of Common Stock to be
covered by any Award;

(iv) determine and modify from time to time the terms and
conditions, including restrictions, of any Award and
to approve the form of written instrument evidencing
Awards;

(v) accelerate at any time the exercisability or vesting
of all or any portion of any Award and/or to include
provisions in Awards providing for such acceleration;

(vi) impose limitations on Awards, including limitations
on transfer and repurchase provisions;

(vii) extend the exercise period within which Options may
be exercised; and

(viii) determine at any time whether, to what extent, and
under what circumstances Common Stock and other
amounts payable with respect to an Award shall be
deferred either automatically or at the election of
the Participant and whether and to what extent the
Company shall pay or credit amounts constituting
interest (at rates determined by the Plan
Administrator) or dividends or deemed dividends on
such deferrals.

The determination of the Plan Administrator on any such matters shall
be conclusive.

5. DELEGATION OF AUTHORITY TO GRANT AWARDS. The Plan Administrator, in
its discretion, may delegate to the Chief Executive Officer of the Company all
or part of the Plan Administrator's authority and duties with respect to
granting Awards to individuals who are not subject to the reporting provisions
of Section 16 of the Act or "covered employees" within the meaning of Section
162(m) of the Code. The Plan Administrator may revoke or amend the terms of such
a delegation at any time, but such revocation shall not invalidate prior actions
of the Chief Executive Officer that were consistent with the terms of the Plan.

6. ELIGIBILITY.

(a) Directors, officers, Employees and Consultants of the
Company, its Parent or its Subsidiaries who, in the opinion of the Plan
Administrator, are mainly responsible for the continued growth and development
and future financial success of the business shall be eligible to participate in
the Plan.

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<PAGE> 5
(b) The Plan shall not confer upon any Participant any right
with respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.

7. STOCK OPTIONS.

(a) Options granted pursuant to the Plan may be either Options
which are Incentive Stock Options or Nonstatutory Stock Options. Incentive Stock
Options and Nonstatutory Stock Options shall be granted separately hereunder.
The Plan Administrator, shall determine whether and to what extent Options shall
be granted under the Plan and whether such Options granted shall be Incentive
Stock Options or Nonstatutory Stock Options; provided, however, that: (i)
Incentive Stock Options may be granted only to Employees of the Company, its
Parent or any Subsidiary; and (ii) no Incentive Stock Option may be granted
following the tenth (10th) anniversary of the effective date of the Plan. The
provisions of the Plan and any Option Agreement pursuant to which Incentive
Stock Options shall be issued shall be construed in a manner consistent with
Section 422 of the Code (or any successor provision) and rules and regulations
promulgated thereunder.

(b) To the extent that Options designated as Incentive Stock
Options (under all plans of the Company or any Parent or Subsidiary) become
exercisable by a Participant for the first time during any calendar year for
Common Stock having a Fair Market Value greater than One Hundred Thousand
Dollars ($100,000), the portion of such Options which exceeds such amount shall
be treated as Nonstatutory Stock Options. For purposes of this Section 7,
Options designated as Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of Common Stock
shall be determined as of the time the Option with respect to such Common Stock
is granted. If the Code is amended to provide for a different limitation from
that set forth in this Section 7, such different limitation shall be deemed
incorporated herein effective as of the amendment date and with respect to such
Options as required or permitted by such amendment to the Code. If an Option is
treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option
in part by reason of the limitation set forth in this Section 7, the Participant
may designate which portion of such Option the participant is exercising. In the
absence of such designation, the Participant shall be deemed to have exercised
the Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.

8. TERM OF PLAN. The Plan shall become effective on March 21, 2000,
provided the Plan has been previously adopted by the Board and approved by
the stockholders of the Company as described in Section 22 hereof. The Plan
shall remain in effect until terminated under Section 18 hereof.

9. TERM OF OPTIONS. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement. In the
case of an Option granted to an Optionee who, at the

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<PAGE> 6
time the Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.

10. OPTION EXERCISE PRICE AND CONSIDERATION.

(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:

(i) In the case of an Incentive Stock Option

A. granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the per Share exercise
price shall be no less than one hundred ten percent (110%) of the Fair
Market Value per Share on the date of grant.

B. granted to any Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option
granted to any person, the per Share exercise price shall be no less
than eighty-five percent (85%) of the Fair Market Value per Share on
the date of grant.

(b) The Option exercise price of each share purchased pursuant
to an Option shall be paid in full at the time of each exercise of the Option in
the discretion of the Plan Administrator, through any combination of the
foregoing methods of payment: (i) in cash; (ii) by check; (iii) by cash
equivalent; (iv) by delivering to the Company a notice of exercise with an
irrevocable direction to a broker-dealer registered under the Exchange Act to
sell a sufficient portion of the shares and deliver the sale proceeds directly
to the Company to pay the exercise price (provided any brokerage sales
commissions are paid by the Optionee); or (v) in the discretion of the Plan
Administrator, through the delivery to the Company of previously-owned shares of
Common Stock having an aggregate Fair Market Value equal to the Option exercise
price of the shares being purchased pursuant to the exercise of the Option;
provided, however, that shares of Common Stock delivered in payment of the
exercise price must have been held by the Participant for at least six (6)
months in order to be utilized to pay the exercise price.

11. EXERCISE OF OPTION.

(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Plan Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.

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<PAGE> 7
An Option may not be exercised for a fraction of a
Share.

An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company through a method of payment allowable under Section
10(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the Company)
of the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 15 of the Plan.

(b) Termination of Employment. Except as set forth below, in
the event of termination of an Optionee's Continuous Status as an Employee,
Consultant or Director with the Company (as the case may be), such Optionee may,
but only within ninety (90) days (or such other period of time as is determined
by the Board, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option and not exceeding ninety (90)
days) after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.

(c) Disability of Optionee. Notwithstanding the provisions of
Section 11(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee, Consultant or Director (as the case may be) as a result
of his or her total and permanent disability (as defined in Section 22(e)(3) of
the Code), Optionee may, but only within twelve (12) months from the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent the Optionee was otherwise entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall terminate.

(d) Death of Optionee.

(i) In the event of the death of an Optionee during
the term of Optionee's Continuous Status as an Employee, Consultant or Director
with the Company (as the case may be), the Option may be exercised, at any time
within twelve (12) months following the date of death (but in no event later
than the expiration date of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent the
Optionee was entitled to exercise the Option at the date of death. To the extent
that Optionee was not entitled to exercise the Option at the date of death, or
if the Option is not exercised by the Optionee's estate or by a

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<PAGE> 8
person who acquired the right to exercise the Option by bequest or inheritance
to the extent so entitled within the time specified herein, the Option shall
terminate.

(ii) In the event of the death of an Optionee within
thirty (30) days after the termination of Optionee's Continuous Status as an
Employee, Consultant or Director with the Company (as the case may be) pursuant
to Section 11(b) above, the Option may be exercised, at any time within six (6)
months following the date of death (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent the Optionee was entitled to
exercise the Option at the date of death. To the extent that Optionee was not
entitled to exercise the Option at the date of death, or if the Option is not
exercised by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance to the extent so entitled within
the time specified herein, the Option shall terminate.

(e) Termination for Cause or Post-Termination Relationship
with Competing Business. Notwithstanding the provisions of Section 11(b) above,
in the event of Termination for Cause of an Optionee's Continuous Status as an
Employee, Consultant or Director with the Company (as the case may be) or in the
event that such Optionee within the Option term becomes an employee, consultant
or director of a Competing Business (as defined herein), any Option held by the
Optionee, whether vested or unvested, shall forthwith terminate. In addition to
the immediate forfeiture of all Options upon the occurrence of the events
specified in the preceding sentence, Optionee shall automatically forfeit all
Shares underlying any exercised portion of an Option for which the Company has
not yet delivered the share certificates, upon refund by the Company of the
exercise price paid by the Optionee for such Shares. For purposes of this Plan,
the term "Competing Business" shall mean any person, corporation or other entity
engaged in the business of: (i) providing local and long distance
telecommunications services, calling cards, private line services, switched
digital services, digital subscriber line services, internet access,
audioconferencing, cellular service and videoconferencing; or (ii) selling or
attempting to sell any product or service which is the same as or similar to
products or services sold by the Company within the last year prior to
termination of such Participant's employment, consulting relationship or
director status, as the case may be, hereunder.

12. RESTRICTED STOCK AWARDS.

(a) The Plan Administrator may grant Restricted Stock Awards
to any officer, Employee or Consultant of the Company, its Parent and its
Subsidiaries. A Restricted Stock Award entitles the recipient to acquire shares
of Common Stock subject to such restrictions and conditions as the Plan
Administrator may determine at the time of grant. Conditions may be based on
continuing employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives.

(b) Upon execution of a written instrument setting forth the
Restricted Stock Award and paying any applicable purchase price, a Participant
shall have the rights of a stockholder with respect to the Common Stock subject
to the Restricted Stock Award, including, but not limited to, the right to vote
and receive dividends with respect thereto; provided,

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<PAGE> 9
however, that shares of Common Stock subject to Restricted Stock Awards that
have not vested shall be subject to the restrictions on transferability
described in Section 12(d) below. Unless the Plan Administrator shall otherwise
determine, certificates evidencing the Restricted Stock shall remain in the
possession of the Company until such Restricted Stock is vested as provided in
Section 12(c) below.

(c) The Plan Administrator at the time of grant shall specify
the date or dates and/or the attainment of pre-established performance goals,
objectives and other conditions on which Restricted Stock shall become vested,
subject to such further rights of the Company or its assigns as may be specified
in the instrument evidencing the Restricted Stock Award. If the grantee or the
Company, as the case may be, fails to achieve the designated goals or the
grantee's relationship with the Company is terminated prior to the expiration of
the vesting period, the grantee shall forfeit all shares of Common Stock subject
to the Restricted Stock Award which have not then vested.

(d) Unvested Restricted Stock may not be sold, assigned
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the
Restricted Stock Award.

13. STOCK AWARDS. The Plan Administrator may, in its sole discretion,
grant (or sell at a purchase price determined by the Plan Administrator) a Stock
Award to any officer, Employee or Consultant of the Company, its Parent or its
Subsidiaries, pursuant to which such individual may receive shares of Common
Stock free of any vesting restrictions (a "Stock Award") under the Plan. Stock
Awards may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration, or in lieu of any cash
compensation due to such individual.

14. WITHHOLDING TAX OBLIGATIONS.

(a) Whenever Shares are to be issued under the Plan, the
Company shall have the right to require the Participant to remit to the Company
an amount sufficient to satisfy applicable federal, state and local tax
withholding requirements prior to the delivery of any certificate for Shares;
provided, however, that in the case of a Participant who receives an Award of
Shares under the Plan which is not fully vested, the Participant shall remit
such amount on the first business day following the Tax Date. The "Tax Date" for
purposes of this Section 14 shall be the date on which the amount of tax to be
withheld is determined. If a Participant makes a disposition of shares acquired
upon the exercise of an Incentive Stock Option within either two (2) years after
the Option was granted or one (1) year after its exercise by the Participant,
the Participant shall promptly notify the Company and the Company shall have the
right to require the Participant to pay to the Company an amount sufficient to
satisfy federal, state and local tax withholding requirements.

(b) A Participant who is obligated to pay the Company an
amount required to be withheld under applicable tax withholding requirements may
pay such amount: (i) in cash; (ii) in the discretion of the Plan Administrator,
through the delivery to the Company of previously-owned shares of Common Stock
having an aggregate Fair Market Value on the Tax

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<PAGE> 10
Date equal to the tax obligation, provided that the previously owned shares
delivered in satisfaction of the withholding obligations must have been held by
the Participant for at least six (6) months; or (iii) in the discretion of the
Plan Administrator, through a combination of the procedures set forth in
subsections (i) and (ii) of this Section 14(b).

(c) A Participant who is obligated to pay to the Company an
amount required to be withheld under applicable tax withholding requirements in
connection with either the exercise of a Nonstatutory Stock Option, the receipt
of a Restricted Stock Award or Stock Award under the Plan may, in the discretion
of the Plan Administrator, elect to satisfy this withholding obligation, in
whole or in part, by requesting that the Company withhold shares of stock
otherwise issued to the Participant having a Fair Market Value on the Tax Date
equal to the amount of the tax required to be withheld; provided, however, that
shares may be withheld by the Company only if such withheld shares have vested.
Any fractional amount shall be paid to the Company by the Participant in cash or
shall be withheld from the Participant's next regular paycheck.

(d) An election by a Participant to have shares of stock
withheld to satisfy federal, state and local tax withholding requirements
pursuant to Section 14(c) must be in writing and delivered to the Company prior
to the Tax Date.

15. ADJUSTMENT OF NUMBER AND PRICE OF SHARES.

Any other provision of the Plan notwithstanding:

(a) If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, the outstanding shares of Common Stock are
increased or decreased or are exchanged for a different number or kind of shares
or other securities of the Company, or additional shares or new or different
shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, the
Plan Administrator shall make an appropriate or proportionate adjustment in: (i)
the number of Options that can be granted to any one individual Participant;
(ii) the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan; and (iii) the price for each share subject to
any then outstanding Options under the Plan, without changing the aggregate
exercise price (i.e., the exercise price multiplied by the number of shares) as
to which such Options remain exercisable; and (iv) the maximum number of shares
that may be issued under the Plan, the maximum number of shares that are
available for the award of Incentive Stock Options and the maximum number of
shares that may be granted to any one individual Participant during any one (1)
calendar year period, each as set forth in Section 3 hereof. The adjustment by
the Plan Administrator shall be final, binding and conclusive.

(b) In the event that, by reason of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall authorize the issuance or assumption of an Option
or Options in a transaction to which Section 424(a) of the Code applies, then,
notwithstanding any other provision of the Plan, the

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<PAGE> 11
Plan Administrator may grant an Option or Options upon such terms and conditions
as it may deem appropriate for the purpose of assumption of the old Option, or
substitution of a new Option for the old Option, in conformity with the
provisions of Code Section 424(a) and the rules and regulations thereunder, as
they may be amended from time to time.

(c) No adjustment or substitution provided for in this Section
15 shall require the Company to issue or to sell a fractional share under any
Option Agreement or share award agreement and the total adjustment or
substitution with respect to each Option and share award agreement shall be
limited accordingly.

(d) In the case of the dissolution or liquidation of the
Company, the Plan and all Awards granted hereunder shall terminate. In the event
of such proposed termination, each Participant shall be notified of such
termination and shall be permitted to exercise for a period of at least fifteen
(15) days prior to the date of such termination all Options held by such
Participant which are then exercisable.

(e) In the case of: (i) a merger, reorganization or
consolidation in which the Company is acquired by another person or entity
(other than a holding company formed by the Company); (ii) the sale of all or
substantially all of the assets of the Company to an unrelated person or entity
which is not an "affiliate" (as defined in Rule 144 of the Securities Act of
1933, as amended) of the Company; or (iii) the sale of all of the capital stock
of the Company to an unrelated person or entity which is not an "affiliate" of
the Company (in each case, a "Fundamental Transaction"), all Options shall be
assumed or equivalent options shall be substituted by such successor corporation
or a parent or subsidiary of such successor corporation. For the purposes of
this paragraph, the Options shall be considered assumed if, following the
Fundamental Transaction, the Options confer the right to purchase, for each
Share subject to the Options immediately prior to the Fundamental Transaction,
the consideration (whether stock, cash, or other securities or property)
received in the Fundamental Transaction by holders of Common Stock for each
Share held on the effective date of the Fundamental Transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the Fundamental Transaction was not solely common
stock of the successor corporation or its Parent, the Board may, with the
consent of the successor corporation and the Participant, provide for the
consideration to be received upon the exercise of the Options, for each Share
subject to the Options, to be solely common stock of the successor corporation
or its Parent equal in Fair Market Value to the per share consideration received
by holders of Common Stock in the Fundamental Transaction.

In the event that such successor corporation does not agree to
assume the Options or to substitute equivalent options, the Board shall provide
for each Optionee to have the right to exercise all Options then held by such
Optionee, including Options which would not otherwise be exercisable. In such
event, the Board shall notify each Optionee that such Options shall be fully
exercisable for a period of fifteen (15) days from the date of receipt of such
notice, and that such Options will terminate upon the expiration of such period.

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<PAGE> 12
Notwithstanding anything in the Plan to the contrary, the
acceleration of exercisability in this Section shall not occur in the event that
such acceleration would, in the opinion of the Company's independent auditors,
make the Fundamental Transaction ineligible for pooling of interests accounting
treatment and the Company intends to use such treatment with respect to such
transaction. The Board shall obtain a written statement from the Company's
independent auditors with respect to the effect of accelerated exercisability of
outstanding Options prior to providing any Optionee with the notice contemplated
by this Section.

(f) In the event that the Company shall be merged or
consolidated with another corporation or entity, other than with a corporation
or entity which is an "affiliate" of the Company, under the terms of which
holders of capital stock of the Company will receive upon consummation thereof a
cash payment for each share of capital stock of the Company surrendered pursuant
to such transaction (the "Cash Purchase Price"), the Board may provide that all
outstanding options shall terminate upon consummation of such transaction and
each Optionee shall receive, in exchange therefor, a cash payment equal to the
amount (if any) by which (i) the Cash Purchase Price multiplied by the number of
shares of Capital Stock of the Company subject to outstanding options held by
such optionee exceeds (ii) the aggregate exercise price of such options.

16. NONTRANSFERABILITY. A Participant's rights under the Plan,
including the right to any shares or amounts payable may not be assigned,
pledged, or otherwise transferred except, in the event of a Participant's death,
to the Participant's designated beneficiary or, in the absence of such a
designation, by will or by the laws of descent and distribution; provided,
however, that the Plan Administrator may, in its discretion, at the time of
grant of a Nonstatutory Stock Option or by amendment of an Option Agreement for
an Incentive Stock Option or a Nonstatutory Stock Option, provide that Options
granted to or held by a Participant may be transferred, in whole or in part, to
one or more transferees and exercised by any such transferee, provided further
that: (a) any such transfer must be without consideration; (b) each transferee
must be a member of such Participant's "immediate family" (as defined below) or
a trust, family limited partnership or other estate planning vehicle established
for the exclusive benefit of one or more members of the Participant's immediate
family; and (c) such transfer is specifically approved by the Plan Administrator
following the receipt of a written request for approval of the transfer; and
provided further that any Incentive Stock Option which is amended to permit
transfers during the lifetime of the Participant shall, upon the effectiveness
of such amendment, be treated thereafter as a Nonstatutory Stock Option. In the
event an Option is transferred as contemplated in this Section, such transfer
shall become effective when approved by the Plan Administrator and such Option
may not be subsequently transferred by the transferee other than by will or the
laws of descent and distribution. Any transferred Option shall continue to be
governed by and subject to the terms and conditions of this Plan and the
relevant Option Agreement, and the transferee shall be entitled to the same
rights as the Participant as if no transfer had taken place. As used in this
Section, "immediate family" shall mean, with respect to any person, any spouse,
child, stepchild or grandchild, and shall include relationships arising from
legal adoption.

17. TERMINATION - CERTAIN FORFEITURES. Notwithstanding any other
provision of the Plan to the contrary, a Participant shall have no right to
exercise any Option or vest or receive

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<PAGE> 13
payment of any Restricted Stock Award or Stock Award if: (a) the Participant is
Terminated for Cause; or (b) if following the Participant's termination from the
Company and prior to the Company's delivery of the shares of Common Stock
underlying an Award, the Participant becomes an officer or director of, a
consultant to or employed by a Competing Business. Furthermore, notwithstanding
any other provision of the Plan to the contrary, in the event that a Participant
receives or is entitled to the delivery or vesting of Common Stock pursuant to
an Award during the twelve (12) month period prior to the Participant's
termination from the Company or during the twelve (12) months following the
Participant's termination from the Company, the Company, in its sole discretion,
may require the Participant to return or forfeit the cash and/or Common Stock
received with respect to such award (or its economic value as of (i) the date of
the exercise of Options; (ii) the date immediately following the end of the
Restricted Period for Restricted Stock Awards; or (iii) the date of grant with
respect to Stock Awards, as the case may be) in the event that the Participant
becomes an officer or director of, a consultant to or employed by a Competing
Business within eighteen (18) months of such Participant's termination from the
Company. The Company's right to require forfeiture under this Section 17 must be
exercised within ninety (90) days after the discovery of an occurrence
triggering the Plan Administrator's right to require forfeiture but in no event
later than twenty-four (24) months after the Participant's termination from the
Company.

18. AMENDMENT AND TERMINATION OF THE PLAN.

(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.

(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.

19. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to any Award under the Plan unless the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.

The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of

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<PAGE> 14
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained. As a condition to the exercise of an Option, the
Company may require the person exercising such Option to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned relevant provisions of law.

20. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

21. AGREEMENTS. Options and Restricted Stock Awards shall be evidenced
by written agreements in such form as the Board shall approve from time to time.

22. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law.

23. INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all stockholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
to equivalent information.

24. GOVERNING LAW. This Plan and the Stock Option Agreements executed
pursuant hereto shall be governed by and construed in accordance with the laws
of the State of Delaware without regard to its choice of law provisions.

* * * * *

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<PAGE> 1
Exhibit 21

LIST OF SUBSIDIARIES

Cooperative Holdings, Inc.:

1. Cooperative Communications, Inc., a New Jersey corporation, d/b/a CPV
Communications, Inc., in certain other states.
2. Eastern Computer Services, L.L.C., a New Jersey limited liability company.

Cooperative Communications, Inc.:

1. KDR Communications, Inc., a Pennsylvania corporation.
2. CPV Communications, Inc., a New York corporation.

<PAGE> 1

EXHIBIT 23.1

INDEPENDENT AUDITORS' REPORT AND CONSENT

The Board of Directors and Members
Cooperative Communications, Inc. and
Eastern Computer Services, L.L.C.:

The audits referred to in our report dated March 29, 2000, included the related
schedule on valuation and qualifying accounts for each of the years in the
three-year period ended May 31, 1999, included in the registration statement.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic combined financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.

We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

KPMG LLP

Short Hills, New Jersey
April 7, 2000

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