AGREEMENT AND PLAN OF MERGER

 

TABLE OF CONTENTS

ARTICLE 1 THE MERGER				1
SECTION 1.1		The Merger.		1
SECTION 1.2		Effective Time; Closing Date.		1
SECTION 1.3		Effect of the Merger.		2
SECTION 1.4		Certificate of Incorporation; By-laws.		2
SECTION 1.5		Board of Directors and Officers.		2
SECTION 1.6		Further Assurances.		2
ARTICLE 2 EFFECTS OF THE MERGER; CONSIDERATION				3
SECTION 2.1		Conversion of Shares.		3
SECTION 2.2		Exchange Procedures.		4
SECTION 2.3		Dissenting Shares.		6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY				6
SECTION 3.1		Organizational Matters.		7
SECTION 3.2		Authority; Approvals.		7
SECTION 3.3		Capitalization; Equity Interests.		8
SECTION 3.4		Conflicts; Consents.		9
SECTION 3.5		Financial Information and SEC Reports; Undisclosed Liabilities.		10
SECTION 3.6		Financial Information; Undisclosed Liabilities.		10
SECTION 3.7		Absence of Changes.		11
SECTION 3.8		Assets and Properties; Network Facility and Network Facility Agreements.		12
SECTION 3.9		Material Contracts.		12
SECTION 3.10		Environmental Matters.		14
SECTION 3.11		Litigation.		15
SECTION 3.12		Compliance; Licenses and Permits.		15
SECTION 3.13		Intellectual Property.		16
SECTION 3.14		Tax Matters.		17
SECTION 3.15		Employees; Benefit Plans.		18
SECTION 3.16		Proxy Statement.		21
SECTION 3.17		Brokers.		21
SECTION 3.18		Insurance.		22
SECTION 3.19		Suppliers; Customers.		22
SECTION 3.20		Takeover Statutes.		23
SECTION 3.21		Opinion of Financial Advisor.		23
SECTION 3.22		Compliance with TRRO.		23
SECTION 3.23		Transactions with Related Parties.		23

 

 

 

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB				23
SECTION 4.1		Organization; Standing and Power.		23
SECTION 4.2		Authority; Approvals.
SECTION 4.3		Conflicts; Consents.		24
SECTION 4.4		Proxy Statement.		25
SECTION 4.5		Brokers.		25
SECTION 4.6		Litigation.		25
SECTION 4.7		Operations of Merger Sub.		25
SECTION 4.8		Financing.		25
ARTICLE 5 CERTAIN COVENANTS				26
SECTION 5.1		Conduct of Business.		26
SECTION 5.2		Access and Information; Confidentiality.		30
SECTION 5.3		Proxy Statement.		30
SECTION 5.4		Company Stockholders’ Meeting.		31
SECTION 5.5		Acquisition Proposals.		31
SECTION 5.6		Reasonable Efforts; Further Assurances.		34
SECTION 5.7		Communications.		35
SECTION 5.8		Indemnification of Directors and Officers.		36
SECTION 5.9		Fees and Expenses.		37
SECTION 5.10		Section 16 Compliance.		37
SECTION 5.11		Supplemental Information.		37
SECTION 5.12		United Communications Acquisition.		37
SECTION 5.13		State Takeover Statutes.		37
SECTION 5.14		Employee Benefits Matters.		38
SECTION 5.15		Financing.		40
SECTION 5.16		Resignations.		41
SECTION 5.17		Environmental Investigation.		41
ARTICLE 6 CONDITIONS PRECEDENT				41
SECTION 6.1		Conditions Precedent to Obligations of Each Party.		41
SECTION 6.2		Conditions Precedent to Obligations of Parent and Merger Sub.		42
SECTION 6.3		Conditions Precedent to Obligations of the Company.		43
ARTICLE 7 TERMINATION				44
SECTION 7.1		Termination.		44
SECTION 7.2		Effect of Termination and Abandonment.		46
SECTION 7.3		Termination Fees.		46
ARTICLE 8 MISCELLANEOUS				48
SECTION 8.1		Entire Agreement.		48
SECTION 8.2		Assignment and Binding Effect; Third Party Beneficiaries.		48
SECTION 8.3		Notices.		48
SECTION 8.4		Amendment and Modification; Waiver.		49
SECTION 8.5		Governing Law; Consent to Jurisdiction.		50
SECTION 8.6		Waiver of Jury Trial.		50

 

 

 

SECTION 8.7		Severability.		50
SECTION 8.8		Counterparts.		50
SECTION 8.9		Enforcement.		50
SECTION 8.10		Non-Survival of Representations and Warranties.		51
SECTION 8.11		Damages.		51
SECTION 8.12		Disclosure Schedule.		51
ARTICLE 9 DEFINED TERMS; INTERPRETATION				52
SECTION 9.1		Defined Terms.		52
SECTION 9.2		Terms Defined Elsewhere.		58
SECTION 9.3		Interpretation.		60

 

 

 

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), dated as of March 19, 2007, is by and among INTEGRA TELECOM HOLDINGS, INC., an Oregon corporation (“ Parent ”), ITH ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of Parent (“ Merger Sub ”), and ESCHELON TELECOM, INC., a Delaware corporation (the “ Company ”).

INTRODUCTION

A.            The respective boards of directors of Parent, Merger Sub and the Company have approved, and have determined that it is in the best interests of their respective shareholders to consummate, the acquisition of the Company by Parent and Merger Sub upon the terms and subject to the conditions set forth herein.

B.            As a condition and an inducement to the willingness of Parent and Merger Sub to enter into this Agreement, certain stockholders of the Company have concurrently herewith entered into certain Voting Agreements with Parent in the form attached hereto as Exhibit A (the “ Voting Agreements ”).

AGREEMENT

In consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE 1
THE MERGER

SECTION 1.1                                              The Merger.

Subject to the terms and conditions of this Agreement and in accordance with the Delaware General Corporation Law (the “ DGCL ”), at the Effective Time, the Company and Merger Sub shall consummate a merger (the “ Merger ”) pursuant to which (i) Merger Sub shall merge with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease, (ii) the Company shall be the surviving corporation (the Company, as the surviving corporation in the Merger is sometimes referred to herein as the “ Surviving Corporation ”) in the Merger and (iii) the separate corporate existence of the Company shall continue unaffected by the Merger.

SECTION 1.2                                              Effective Time; Closing Date.

(a)           Parent, Merger Sub and the Company shall cause a certificate of merger (the “ Certificate of Merger ”) to be delivered on the Closing Date (or on such other date as Parent and the Company may agree in writing) to the Secretary of State of the State of Delaware for filing as provided in the DGCL, and shall make all other deliveries, filings or recordings required by the DGCL in connection with the Merger.  The Merger shall become effective on the date on which the Certificate of Merger is duly filed in accordance with the provisions of Section 251 of the DGCL, or on such other later date as is agreed upon by the parties and specified in the Certificate

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of Merger, and at the time specified in the Certificate of Merger or, if not specified therein, by the DGCL, and such time on such date of effectiveness is hereinafter referred to as the “ Effective Time .”

(b)           The closing of the Merger (the “ Closing ”) will take place at 10:00 A.M., Pacific Time, on a date to be specified by the parties, which shall be no later than  two (2) Business Days after satisfaction or waiver of all of the conditions set forth in Article VI (other than conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), at the offices of Perkins Coie LLP, 1120 NW Couch Street, 10th Floor, Portland, Oregon, unless another time, date or place is agreed to in writing by the parties hereto (such date on which the Closing is to take place being the “ Closing Date ”).

SECTION 1.3                                              Effect of the Merger.

At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL.  Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers, franchises and assets of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations and duties of the Company and Merger Sub shall become the debts, liabilities, obligations and duties of the Surviving Corporation.

SECTION 1.4                                              Certificate of Incorporation; By-laws.

(a)           The certificate of incorporation of the Company, as in effect immediately prior to the Effective Time, shall at the Effective Time be amended and restated in full so as to read in its entirety in the form of the certificate of incorporation of the Surviving Corporation, except as to the name set forth therein, which shall be “Eschelon Telecom, Inc.”, until thereafter amended as provided by Law and such certificate of incorporation.

(b)           The bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation, except as to the name of the Surviving Corporation, which shall be “Eschelon Telecom, Inc.”, until thereafter amended as provided by Law and such by-laws.

SECTION 1.5                                              Board of Directors and Officers.

The board of directors and the officers of Merger Sub immediately prior to the Effective Time shall, from and after the Effective Time, be the board of directors and officers, respectively, of the Surviving Corporation, each to hold office until his or her respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and by-laws of the Surviving Corporation.

SECTION 1.6                                              Further Assurances.

If at any time after the Effective Time the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in the

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Surviving Corporation, its right, title or interest in, to or under any of the properties, rights, privileges, powers, franchises or assets of either the Company or Merger Sub or (b) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of the Company or Merger Sub, all such deeds, bills of sale, assignments and assurances and do, in the name and on behalf of the Company or Merger Sub, all such other acts and things necessary, desirable or proper to vest, perfect or confirm its right, title or interest in, to or under any of the properties, rights, privileges, powers, franchises or assets of the Company or Merger Sub, as applicable, and otherwise to carry out the purposes of this Agreement.

ARTICLE 2
EFFECTS OF THE MERGER; CONSIDERATION

SECTION 2.1                                              Conversion of Shares.

(a)           At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than shares of Common Stock to be cancelled pursuant to Section 2.1(c) and Dissenting Shares) shall be converted into the right to receive $30.00 in cash (the “ Merger Consideration ”) without any interest thereon.

(b)           At the Effective Time, by virtue of the Merger and without any action on the part of Parent, each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and nonassessable share of the common stock of the Surviving Corporation.

(c)           At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Merger Sub, Parent or the holder thereof, each share of Common Stock that is owned by (i) the Company as treasury stock, (ii) Parent, (iii) Merger Sub, (iv) any other wholly owned Subsidiary of Parent or (v) any wholly owned Subsidiary of the Company, shall be canceled without any conversion thereof and no payment or distribution shall be made with respect thereto.

(d)           All shares of Common Stock converted into the right to receive the Merger Consideration pursuant to Section 2.1(a) shall cease to be outstanding, and shall be cancelled and retired and shall cease to exist, and each holder of a certificate which immediately prior to the Effective Time represented shares of Common Stock shall thereafter cease to have any rights with respect to such shares, except the right to receive the Merger Consideration to be issued in consideration therefor upon the surrender of such certificate.

(e)           Each Option issued and outstanding immediately prior to the Effective Time, whether or not then exercisable, shall be converted into the right to receive, at the Effective Time, a sum in cash equal to such Option’s Option Cancellation Payment, without interest, and all such Options shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each former Option Holder shall cease to have any rights with respect thereto, other than the right to receive the consideration set forth herein.  Notwithstanding anything to the contrary contained in this Agreement, if the exercise price per share of Common Stock of any

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Option is equal to or greater than the Merger Consideration, such Option shall be cancelled without any cash payment being made in respect thereof.  The Company shall use its commercially reasonable efforts to take all actions necessary to effectuate the foregoing.  Any payments made pursuant to this Section 2.1(e) shall be net of all applicable withholding taxes, which shall be properly and timely remitted to the appropriate Governmental Entity.  As of the Effective Time, the Option Plan shall terminate and all rights under any provision of any other plan, program or arrangement of the Company or any Subsidiary of the Company providing for the issuance or grant of any other interest in respect of the capital stock of the Company or any Subsidiary of the Company shall be cancelled.

(f)            The restrictions on each share of Restricted Stock shall lapse immediately prior to, and effective upon the occurrence of, the Effective Time, and each share of Restricted Stock shall be fully vested in each holder thereof at such time, and each such share of Restricted Stock will be treated at the Effective Time the same as, and have the same rights and be subject to the same conditions (including the conditions set forth in Section 2.2) hereunder as, each share of Common Stock not subject to any restrictions as provided in Section 2.1.

SECTION 2.2                                              Exchange Procedures.

(a)           Prior to the Effective Time, Parent shall appoint the Paying Agent to act as agent for the holders of shares of Common Stock in connection with the Merger and to receive the funds to which such holders shall become entitled pursuant to this Article II. At or prior to the Closing, Parent shall deliver, in trust, to the Paying Agent, for the benefit of the holders of shares of Common Stock at the Effective Time, sufficient funds for timely payment of the aggregate Merger Consideration to be paid pursuant to Section 2.1(a).

(b)           Promptly following the Effective Time, the Surviving Corporation shall cause to be mailed, or otherwise make available, to each holder of record of Certificates entitled to receive consideration pursuant to Section 2.1 the form of Letter of Transmittal.  After the Effective Time, each holder of certificates or other instruments formerly evidencing shares of Common Stock (the “ Certificates ”), upon surrender of such Certificates to the Paying Agent, together with a properly completed Letter of Transmittal and such other documents as may be reasonably required by the Paying Agent, shall be entitled to receive from the Paying Agent, in exchange therefor, the aggregate consideration for such shares of Common Stock, in cash as contemplated by this Agreement, and the Certificates so surrendered shall be cancelled.  The Surviving Corporation, the Paying Agent and Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Common Stock, such amounts as the Surviving Corporation, the Paying Agent or Parent is required to deduct and withhold with respect to the making of such payment under any provision of applicable Tax Law.  To the extent that amounts are so withheld by the Surviving Corporation, the Paying Agent or Parent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Common Stock, in respect of which such deduction and withholding was made by the Surviving Corporation, the Paying Agent or Parent, as the case may be, and the Surviving Corporation, the Paying Agent or Parent, as applicable, shall properly and timely remit any such withheld amounts to the appropriate Governmental Entity.  Until surrendered as contemplated by this Section 2.2 (other than Certificates representing Dissenting Shares), each Certificate shall be deemed at any time after

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the Effective Time to represent only the right to receive the aggregate consideration for such shares of Common Stock, in cash as contemplated by this Agreement, without interest thereon.  All cash consideration delivered upon the surrender of Certificates in accordance with the terms of this Section 2.2 shall be deemed to have been paid in full satisfaction of all rights pertaining to shares of Common Stock theretofore represented by such Certificates.  At and after the Effective Time, there shall be no transfers on the stock transfer books of the Company of the shares of Common Stock that were outstanding immediately prior to the Effective Time.

(c)           If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to such lost, stolen or destroyed and, if required by the Parent, the posting by such Person of a bond or other surety in such amount as the Parent may reasonably direct as indemnity against any claim that may be made with respect to such Certificate and subject to such other reasonable conditions as the Parent may impose, the Paying Agent shall deliver in exchange for such Certificate the consideration into which shares of Common Stock theretofore represented by such Certificate shall have been converted pursuant to this Article II.

(d)           If any payment under this Article II is to be made to a Person other than the Person in whose name any Certificate surrendered in exchange therefor is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the Person requesting such payment shall pay any transfer or other similar Taxes required by reason of the payment to a Person other than the registered holder of the Certificate surrendered or such Person shall establish to the satisfaction of the Surviving Corporation that such Taxes have been paid or are not applicable.

(e)           None of Parent, Merger Sub or the Surviving Corporation shall be liable to any Person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.  At any time following the expiration of one (1) year after the Effective Time, the Surviving Corporation shall, in its sole discretion, be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) that had been made available to the Paying Agent and that has not been disbursed to holders of Certificates, and such funds shall thereafter become the property of the Surviving Corporation.  Such funds may be commingled with the general funds of the Surviving Corporation and shall be free and clear of any claims or interests of any Person.  Thereafter, such holders shall be entitled to look to the Surviving Corporation (subject to any applicable abandoned property, escheat or similar Law) only as general creditors thereof with respect to the applicable consideration payable as contemplated by this Agreement (net of any amounts that would be subject to withholding) upon due surrender of their Certificates, without any interest thereon.

(f)            At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfer in the stock transfer books of the Surviving Corporation of the shares of Common Stock that were outstanding immediately prior to the Effective Time.  If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be canceled and exchanged as provided in this Section 2.2.

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(g)           Promptly following the Effective Time, but in no event later than ten (10) days following the Effective Time, the Surviving Corporation shall, in exchange for the Options that became entitled to receive the consideration specified in Section 2.1, make the Option Cancellation Payment in respect of each such Option to each Option Holder.  The Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any Option Holder such amounts as the Surviving Corporation or Parent is required to deduct and withhold with respect to the making of such payment under any provision of applicable Tax Law or with respect to the making of other payments hereunder in connection with other equity interests in the Company held by such Option Holder (provided that such amounts have not been previously deducted and withheld).  To the extent that amounts are so withheld by the Surviving Corporation or Parent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Option Holder in respect of which such deduction and withholding was made by the Surviving Corporation or Parent, as the case may be, and the Surviving Corporation or Parent, as applicable, shall properly and timely remit any such withheld amounts to the appropriate Governmental Entity.

SECTION 2.3                                              Dissenting Shares.

(a)           Notwithstanding any provision of this Agreement to the contrary, shares of the Company’s capital stock that are outstanding immediately prior to the Effective Time and which are held by holders who shall not have voted in favor of the Merger or consented thereto in writing and who shall be entitled to and have demanded properly in writing appraisal for such shares in accordance with Section 262 of the DGCL (collectively, the “ Dissenting Shares ”) shall not be converted into or represent the right to receive the consideration set forth in Section 2.1.  Such holders shall be entitled to receive such consideration as is determined to be due with respect to such Dissenting Shares in accordance with the provisions of Section 262 of the DGCL, except that all Dissenting Shares held by holders not entitled by Section 262 of the DGCL, or who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares under Section 262 of the DGCL shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the consideration specified in Section 2.1, without any interest thereon, upon surrender, in the manner provided in Section 2.2, of the certificate or certificates that formerly evidenced such Dissenting Shares.

(b)           The Company shall give Parent (i) prompt written notice of any demands for appraisal received by the Company, withdrawals of such demands and any other instruments served pursuant to the DGCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL.  The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the disclosure schedule delivered by the Company to the Parent and Merger Sub on the date hereof (the “ Disclosure Schedule ”), which Disclosure Schedule identifies

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the section and subsection numbers of this Article 3 to which the disclosures pertain, the Company hereby represents and warrants to the Parent and Merger Sub as follows:

SECTION 3.1                                              Organizational Matters.

(a)           Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted.  Each of the Company and its Subsidiaries is duly licensed or qualified to do business and is in good standing in each jurisdiction in which such qualification or licensing is necessary because of the property and assets owned, leased or operated by it or because of the nature of its business as now being conducted, except for any failure to so qualify or be licensed or in good standing which, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

(b)           Section 3.1 of the Disclosure Schedule lists (i) the jurisdictions of incorporation, (ii) foreign qualifications and (iii) officers and directors of the Company and each of its Subsidiaries.

(c)           The Company has made available to Parent true, complete and correct copies of the constitutive documents of each of the Company and its Subsidiaries, in each case as amended to the date of this Agreement, and has made available to Parent each such entity’s minute books and stock records.  Neither the Company nor any of its Subsidiaries is in violation of any provision of its respective certificate of incorporation, by-laws or similar constitutive document.

SECTION 3.2                                              Authority; Approvals.

(a)           The Company has the requisite corporate power and authority to execute and deliver this Agreement and, subject to obtaining the approval of its shareholders, to consummate the transactions contemplated hereby.  The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly authorized by its board of directors, and no other corporate action on the part of the Company is necessary to authorize the execution and delivery by the Company of this Agreement and, except for shareholder approval, the consummation by it of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by the Company and is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except that such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and by the application of general principles of equity.

(b)           The Board of Directors of the Company (the “ Company Board ”) has unanimously (i) determined that this Agreement and the Merger are fair to, and in the best interests of, the Company and its stockholders, (ii) resolved that the Merger is fair to, and in the bests interests of, the Company and its stockholders and declared this Agreement and the Merger to be advisable, (iii) approved this Agreement and (iv) recommended that this Agreement be presented to the Company’s stockholders for approval and that the Company’s stockholders adopt this

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Agreement (the “ Company Recommendation ”), and, as of the date hereof, none of the aforesaid actions by the Company Board has been amended, rescinded or modified.

SECTION 3.3                                              Capitalization; Equity Interests.

(a)           The authorized capital stock of the Company consists of 200,000,000 shares of Common Stock and 125,000,000 shares of preferred stock, par value $0.01 per share (the “ Preferred Stock ”).  As of the date of this Agreement, (i) 18,065,141 shares of Common Stock were issued and outstanding (of which 582,255 are shares of Restricted Stock), (ii) no shares of Common Stock are held in the treasury of the Company, (iii) no shares of Common Stock are held by Subsidiaries of the Company and (iv) no shares of Preferred Stock are outstanding.

(b)           Section 3.3(b) of the Disclosure Schedule sets forth a true and correct list of all of the Company’s Subsidiaries, together with their respective authorized capital stock, number of shares issued and outstanding and record ownership of such shares.  The Company does not have any Subsidiaries or own or hold, directly or indirectly, any equity or other security interest, or has made any investment, in any other Person.  All issued and outstanding shares of capital stock of the Company’s Subsidiaries have been duly authorized, were validly issued, are fully paid and nonassessable and subject to no preemptive rights and are directly or indirectly owned beneficially and of record by the Company, free and clear of all Encumbrances, and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock).

(c)           Except for (i) issued and outstanding Common Stock referenced in Section 3.3(a)(i) , and (ii) 798,068 shares of Common Stock reserved for issuance upon exercise of Options granted and outstanding under the Option Plan, as described in Section 3.3(d) of the Disclosure Schedule , at the time of execution of this Agreement and at Closing, no shares of capital stock or other voting securities of the Company or any of its Subsidiaries (whether or not vested) are issued, reserved for issuance or outstanding.  All outstanding shares of capital stock of the Company have been duly authorized, were validly issued, are fully paid and nonassessable and subject to no preemptive rights.  Except for the Common Stock, there are no bonds, debentures, notes or other indebtedness or securities of the Company or any of its Subsidiaries having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company or such Subsidiary may vote.  Except for the Options and the Restricted Stock, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its Subsidiaries is a party relating to the issued or unissued capital stock of the Company or any Subsidiary.  Except for the Options and the Restricted Stock, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its Subsidiaries is a party or by which any such Person is bound obligating such Person to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or any of its Subsidiaries or obligating such Person to issue, grant, extend or enter into any such security, option, warrant, call right, commitment, agreement, arrangement or undertaking.  Except for the Restricted Stock or as set forth in Section 3.3(c) of the Disclosure Schedule , there are no outstanding rights, commitments, agreements, arrangements or undertakings of any kind obligating the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire

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any shares of capital stock or other voting securities of the Company or any of its Subsidiaries or any securities of the type described in this Section 3.3(c).

(d)           The names of the optionee of each Option, the date of grant of each Option, the number of shares subject to each such Option, the expiration date of each such Option, and the price at which each such Option may be exercised under the Option Plan are set forth in Section 3.3(d) of the Disclosure Schedule .

(e)           The name of each holder of Restricted Stock, the date of issuance, the number of shares of Restricted Stock and the vesting schedule are set forth in Section 3.3(e) of the Disclosure Schedule .

SECTION 3.4                                              Conflicts; Consents.

(a)           The execution and delivery of this Agreement by the Company do not, and the performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby will not, (i) violate any provision of the articles of incorporation or bylaws or other organizational documents of the Company or any of its Subsidiaries, (ii) materially conflict with, result in a material violation or breach of, or constitute (with or without due notice or lapse of time or both) a material default (or give rise to any right of termination, modification, cancellation, right of redemption or repurchase or acceleration), under any material Permit or Material Contract to which any of the Company or its Subsidiaries is a party, or by which any such Person or its properties or assets are bound, (iii) assuming that all consents, approvals, authorizations and other actions described in Section 3.4(b) have been obtained and all filings and obligations described in Section 3.4(b) have been made, violate any Law applicable to the Company, any of its Subsidiaries or any of their properties or assets or (iv) result in the creation or imposition of any Encumbrance upon any property or assets used or held by the Company or any of its Subsidiaries except, with respect to clauses (iii) and (iv), such triggering of payments, Liens, Encumbrances, filings, notices, permits, authorizations, consents, approvals, violations, conflicts, breaches or defaults which would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(b)           Except for (1) the filing of a premerger notification and report form under the HSR Act and the expiration or early termination of the applicable waiting period thereunder, (2) any filings as may be required under the DGCL or the Exchange Act or Nasdaq regulations in connection with the Merger, (3) any consent or approval of or registration or filing with the Federal Communications Commission (“ FCC ”), any state public service or public utilities commission, or similar state regulatory agency or body that regulates the business of the Company or any of its Subsidiaries (each, a “ State PUC ”) as is listed in Section 3.4(b) of the Disclosure Schedule , and (4) any municipal franchising authority (each, a “ Municipal Franchising Authority ”) having regulatory authority over the business of the Company and its Subsidiaries as conducted in any given jurisdiction and that is listed in Section 3.4(b) of the Disclosure Schedule , no consent or approval by, or notification of or registration or filing with, any Governmental Entity is required in connection with the execution, delivery and performance by the Company of this Agreement or the consummation of the transactions contemplated hereby, where the failure to obtain such consents, approvals, authorizations or permits, or to

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make such filings or notifications would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(c)           The affirmative vote of the holders of a majority of outstanding shares of Common Stock (the “ Required Company Stockholders ”) is the only vote of the holders of any class or series of the Company’s capital stock necessary to approve the Merger.

SECTION 3.5                                              Financial Information and SEC Reports; Undisclosed Liabilities.

(a)           The Company and its Subsidiaries have timely filed with the Securities and Exchange Commission (the “ SEC ”) and made available to Parent all forms, reports, schedules, statements and other documents required to be filed by it on or since March 31, 2005 (together with all exhibits and schedules thereto and all information incorporated therein by reference, the “ Company SEC Reports ”).  The Company SEC Reports, as of the date filed with the SEC (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively, and, in the case of any Company SEC Report amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing), (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) complied in all material respects with the applicable requirements of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder.  To the Company’s knowledge, as of the date hereof, none of the Company SEC Reports is the subject of ongoing SEC review.

(b)           The Company and each of its officers and directors are in compliance with, and have complied, in all material respects with (i) the applicable provisions of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated under such Act (the “ Sarbanes-Oxley Act ”) or the Exchange Act and (ii) the applicable listing and corporate governance rules and regulations of Nasdaq.

(c)           The Company has disclosed, based on prior evaluations of such disclosure controls and procedures prior to the date hereof, to Parent and the Company’s auditors and the audit committee of the Company Board (i) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that could adversely affect in any material respect the Company’s ability to record, process, summarize and report financial information, and (ii) any fraud, whether or not material, known to the Company that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

SECTION 3.6                                              Financial Information; Undisclosed Liabilities.

(a)           The consolidated financial statements of the Company included or incorporated by reference in the Company SEC Reports, as of the date filed with the SEC (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively, and, in the case of any Company SEC Reports amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding

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filing), complied with published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods indicated (except as may otherwise be indicated in a note thereto), and fairly presented, in all material respects (subject, in the case of the unaudited statements, to normal, recurring audit adjustments not material in amount), the consolidated financial position of the Company and its consolidated Subsidiaries as of the date of such financial statements and the consolidated results of their operations and cash flows for each of the periods then ended.  The books and records of the Company and its Subsidiaries have been, and are being, maintained in accordance with GAAP.

(b)           Except as reflected in the consolidated balance sheet of the Company and its Subsidiaries at December 31, 2006, which balance sheet was filed with the SEC by the Company in its Annual Report on Form 10-K on March 12, 2007 (the “ 2007 10-K ”), the Company and its Subsidiaries do not have, and as a result of the transactions contemplated by this Agreement, will not have, any liabilities or obligations (whether absolute, accrued, contingent or otherwise, and whether due or to become due), except for liabilities and obligations incurred in the ordinary course of business consistent with past practice since December 31, 2006, which, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

(c)           Except as reflected in the consolidated balance sheet of the Company and its Subsidiaries at December 31, 2006, neither the Company nor any of its Subsidiaries has any (i) obligation for borrowed money or for the deferred purchase price of property or services, including capital leases (other than trade payables on ordinary trade terms incurred in the ordinary course of business), (ii) obligation in respect of letters of credit or payment or performance bonds or other credit support of any obligations, (iii) interest rate or currency protection agreements or (iv) guarantees issued by it in respect of the foregoing obligations or otherwise for the obligations of any Person.

(d)           Section 3.6(d) of the Disclosure Schedule sets forth the prepayment penalties or redemption fees associated with the Company’s or its Subsidiaries outstanding debt.

(e)           The Company has accounted for its stock options in accordance with GAAP and does not have any program or practice in place to (i) time stock option grants to employees or directors with the release of material non-public information in a manner intended to improperly favor employees or directors or (ii) set the exercise prices in coordination with such release in a manner intended to improperly favor employees or directors.

SECTION 3.7                                              Absence of Changes.

Except as set forth in Section 3.7 of the Disclosure Schedule , since December 31, 2006, the Company and its Subsidiaries have been operated in the ordinary course consistent with past practice and there has not been (i) any Company Material Adverse Effect or (ii) any action taken by the Company or its Subsidiaries not in the ordinary course of business, consistent with past practice, that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a breach of Section 5.1(b) .

 

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SECTION 3.8                                              Assets and Properties; Network Facility and Network Facility Agreements.

(a)           Neither the Company nor any of its Subsidiaries owns any real property.  Section 3.8(a) of the Disclosure Schedule sets forth a true and complete list of all real property leased by the Company or any of its Subsidiaries, including all collocation agreements to which the Company or any of its Subsidiaries is a party, where the Company’s executive offices are located or where any material Network Facility is located, except for lease and collocation agreements, the failure to hold, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.  The Company has provided Parent with correct and complete copies of all leases set forth in Section 3.8(a) of the Disclosure Schedule and all other material leases.

(b)           Except in any such case as would not be material to the operation of the Company and its Subsidiaries in the ordinary course of business, the Company and its Subsidiaries owns and had good title to, or have a valid right to use, all material items of personal property used in the conduct of their business.  To the knowledge of the Company, the personal property materially necessary to operate the business, including the structural elements, are in good operating condition and repair, ordinary wear and tear excepted, and, the knowledge of the Company, are free of any material defect and have been properly maintained in all material respects.

SECTION 3.9                                              Material Contracts.

(a)           As of the date hereof and other than as filed as an exhibit (including exhibits incorporated by reference) to the 2007 10-K or as set forth in Section 3.9(a) of the Disclosure Schedule , the Company is not a party to or bound by any note, bond, mortgage, indenture, lease, license, contract, agreement or other obligation (including any amendment, modification, waiver or extension) that:

(i)            is required to be filed by the Company or any Subsidiary in accordance with Item 601(b)(1), (2), (4) or (10) of Regulation S-K under the Securities Act;

(ii)           materially restricts the conduct of any line of business by the Company or any of its Subsidiaries, or the ability of any such Person to operate in any geographic area or industry or grants exclusive rights to a third Person;

(iii)          relates to the borrowing of money or any guarantee, reimbursement or indemnity in respect of any indebtedness in excess of $100,000 of any Person (other than any guarantee made by the Company in respect of any obligation of any Subsidiary);

(iv)          extends “most favored nations” or similar pricing to the counterparty to such contract;

(v)           is with an officer, director, consultant who is a natural person, employee receiving compensation from the Company in excess of $100,000 or a stockholder beneficially owning 5% or more of the Common Stock;

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(vi)          creates an obligation on the part of the Company or any of its Subsidiaries to pay another Person an amount in excess of $500,000;

(vii)         creates an obligation on the part of another Person to pay the Company or a Subsidiary an amount in excess of $500,000;

(viii)        relates to partnerships or joint ventures;

(ix)           relates to any irrefutable or indefeasible right to use or similar agreement (“ IRU ”) or peering arrangement;

(x)            has resulted in any prepaid revenues in excess of $100,000;

(xi)           is an interconnection agreement, E911 agreement or material carrier agreement to which the Company or any of its Subsidiaries is a party (“ Interconnection or Carrier Agreement ”);

(xii)          has “take or pay,” minimum order or purchase or similar commitments;

(xiii)         relates to an acquisition or sale of a business or material amount of assets that has any material continuing or contingent obligations by the Company or its Subsidiaries or by any other Person;

(xiv)        relates to the provisions by a third Persons of Network Facilities, including leases, collocations, licensings and Right-of-Way Agreements (each, a “ Network Facility Agreement ”); or

(xv)         prevents or materially delays the ability of the Company or any of its Subsidiaries to consummate the transactions contemplated hereby on a timely basis.

Each contract, agreement, commitment or lease of the type described in this Section 3.9(a), whether or not set forth in Section 3.9(a) of the Disclosure Schedule , is referred to herein as a “ Material Contract .” True, correct and complete copies of all Material Contracts (including any amendments or supplements thereto) have previously been made available to Parent.

(b)           Each Material Contract is a valid and binding obligation of the Company or its applicable Subsidiary, enforceable against the Company or the applicable Subsidiary in accordance with its terms and, to the Company’s knowledge, each other party thereto, and is in full force and effect, and the Company or the applicable Subsidiary.  To the knowledge of the Company, no other party is in material breach or violation of, or material default under, any Company Material Contract.  Neither the Company nor any of its Subsidiaries has received notice, or has knowledge, of any material violation of or default of any material obligation under (or any condition which with the passage of time or the giving of notice would cause such a violation of or default under) any Material Contract to which it is a party or by which it or any of its properties or assets is bound.

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(c)           Section 3.9(c) of the Disclosure Schedule sets forth each Interconnection and Carrier Agreement that, as of the date of this Agreement, is month-to-month or pursuant to which the Company or one of its Subsidiaries is receiving services on an “evergreen” basis.

SECTION 3.10                                       Environmental Matters.

(a)           Each of the Company and its Subsidiaries is in possession of all material permits and other governmental authorizations required for their operations under applicable Environmental Laws, and compliance with the terms and conditions thereof.  None of the Company or any of its Subsidiaries is or has been in violation of, or received any notice or assertion of being in violation of, or, to the knowledge of the Company, under investigation with respect to a possible violation of, any requirements of any Environmental Laws in connection with the conduct of its business or in connection with the use, maintenance or operation of any real property owned or leased by the Company or any of its Subsidiaries, except for violations which, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.  To the Company’s knowledge, there are no conditions relating to the Company or any of its Subsidiaries or the operation of their businesses, or relating to any real property used, leased or formerly owned, used or leased by the Company or any of its Subsidiaries that in any such case would reasonably be expected to lead to any material liability of the Company or any of its Subsidiaries under any Environmental Law.  To the Company’s knowledge, all batteries are in sound condition and not leaking, and no underground and/or above ground storage tanks exist on any real property leased by the Company or any of its Subsidiaries.

(b)           Except as would not reasonably be expected to have a Company Material Adverse Effect, the Company and its Subsidiaries have not caused, and the Company is not aware of, any Release of Hazardous Substances, or that any Hazardous Substances had been Released, at any property currently or formerly owned, used or operated by the Company, and, except in compliance with Environmental Laws, the Company has not caused or arranged for any Release of Hazardous Substances at any off-site disposal location in connection with the current or past operations of Company.  To the Company’s knowledge, no property owned, leased or used by the Company or its Subsidiaries contains or had contained asbestos in any form, lead paint, urea-formaldehyde foam insulation or any polychlorinated biphenyls (including transformers, capacitors, ballasts or other equipment which contain dielectric fluid containing polychlorinated biphenyls).

(c)           The Company and its Subsidiaries have furnished to Parent copies of all environmental audits and other material documents in their possession or under their control that relate to the environmental condition of any real property currently or formerly owned, operated or leased by the Company or any of its Subsidiaries or compliance by the Company or any of its Subsidiaries with Environmental Laws.

(d)           Notwithstanding any other provision of this Agreement, this Section 3.9 sets forth the Company’s sole and exclusive representations and warranties with respect to Hazardous Substances, Environmental Laws or other environmental matters.

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SECTION 3.11                                       Litigation.

Except as set forth in Section 3.11 of the Disclosure Schedule , there are no actions, suits, complaints, investigations, proceedings, arbitrations, claims or disputes pending or, to the knowledge of the Company, threatened by any Person or before any court, arbitration tribunal or other Governmental Entity against the Company or any of its Subsidiaries, and that (a) bring into question the validity of this Agreement, (b) would prevent or materially delay consummation of the Merger or (c) would reasonably be expected to have a Company Material Adverse Effect.  Except as would not reasonably be expected to have a Company Material Adverse Effect, no injunction, writ, temporary restraining order, decree or any order of any nature has been issued by any court or other Governmental Entity relating to the Company or any of its Subsidiaries or seeking or purporting to enjoin or restrain the execution, delivery and performance by the Company of this Agreement or the consummation by the Company of the transactions contemplated hereby.  Neither the Company nor any of its Subsidiaries has received any written notice of any condemnation or eminent domain proceeding affecting any owned or leased real property, and, to the knowledge of the Company, no such action or proceeding has been threatened.

SECTION 3.12                                       Compliance; Licenses and Permits.

(a)           Except as would not reasonably be expected to have a Company Material Adverse Effect, each of the Company and its Subsidiaries is in compliance with all Laws applicable to the Company, any of its Subsidiaries or their respective businesses (including (i) the Communications Act of 1934, as amended, and the communications-related statutes of each state in which the Company or any of its Subsidiaries operates; (ii) the rules, regulations, orders, and policies of the FCC and State PUCs and requirements of their FCC and State PUC licenses, permits and authorizations, (iii) any and all Universal Service Fund obligations and (iv) the Communications Assistance for Law Enforcement Act).

(b)           Each of the Company and its Subsidiaries holds all approvals, authorizations, certificates, filings, franchises, licenses, notices, permits and rights required by Governmental Entities and other third Persons (collectively, “ Permits ,” a true, correct and complete list of which is contained in Section 3.12(b) of the Disclosure Schedule ) that are necessary or required to conduct their respective businesses as presently being conducted, except for such Permits the failure to hold would not reasonably be expected to have a Company Material Adverse Effect.  Except as would not reasonably be expected to have a Company Material Adverse Effect; (i) such Permits are in full force and effect, (ii) no violations are or have been alleged in respect of any thereof, (iii) no proceeding is pending or, to the knowledge of the Company, threatened, against the Company or any of its Subsidiaries in connection with the right to operate under the Permits.  Provided that the consents set forth in Section 3.4(b) are obtained, the consummation of the transactions contemplated herein will not violate or impair the Communications Licenses.

(c)           The Company and its Subsidiaries are the authorized legal holders or otherwise have rights to all Permits issued by the FCC, State PUCs, Municipal Franchising Authorities (permits issued by the FCC, State PUCs, and Municipal Franchising Authorities referred to as “ Material Communications Licenses ” or any other Governmental Entity that regulates telecommunications in each applicable jurisdiction held by the Company or its Subsidiaries

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(collectively, “ Communications Licenses ,” a true, correct and complete list of which is contained in Section 3.12(c) of the Disclosure Schedule ), and the Communications Licenses constitute all of the licenses from the FCC, the State PUCs, Municipal Franchising Authorities or any other Governmental Entity that regulates telecommunications in each applicable jurisdiction that are necessary or required for the operation of the businesses of the Company and its Subsidiaries as now conducted other than any such licenses (other than Material Communications Licenses), the absence of which would not reasonably be expected to have a Company Material Adverse Effect.  All the Communications Licenses are valid and in full force and effect, unimpaired by any material condition, except those conditions that may be contained within the terms of such Communications Licenses.  No action by or before the FCC, any State PUC or any other Governmental Entity that regulates telecommunications in each applicable jurisdiction is pending or, to the knowledge of the Company, threatened in which the requested remedy is (i) the revocation, suspension, cancellation, rescission or material modification or refusal to renew any of the Communications Licenses, or (ii) material fines and/or forfeitures.  The Universal Service Administration Company has not initiated any inquiries, audits or other proceedings against the Company or its Subsidiaries and, to the knowledge of the Company, no such actions are threatened which, in each case, would reasonably be expected to have a Company Material Adverse Effect, if not cured or otherwise responded to in the ordinary course of business.

SECTION 3.13                                       Intellectual Property.

(a)           Section 3.13(a) of the Disclosure Schedule sets forth a true and complete list of all Intellectual Property registrations and applications for registration owned by the Company or its Subsidiaries (such Intellectual Property, “ Company Registered IP ”). All Company Registered IP is valid, enforceable, in full force and effect and has not been abandoned or canceled, and no claims are pending or, to the knowledge of the Company, have been threatened challenging the validity of Company Registered IP or the Company’s and its Subsidiaries’ ownership thereof.

(b)           Section 3.13(b) of the Disclosure Schedule sets forth a complete and accurate list of all material agreements granting to the Company or any of its Subsidiaries any material right under or with respect to any Intellectual Property owned by a third party that is used in connection with the business of the Company or any such Subsidiary (other than commercially available standard software applications used in the Company’s or any such Subsidiary’s operations not material to the operation of Network Facilities), indicating for each the title and the parties thereto. Each material agreement granting to the Company or any of its Subsidiaries any material right under or with respect to any Intellectual Property owned by a third party that is used in connection with the business of the Company or any such Subsidiary is either paid-up in full or all right-to-use fees have been paid and are current.  The consummation of the transactions contemplated by this Agreement will not result in (i) the loss or impairment of the right of the Company or any of its Subsidiaries to own or use any Intellectual Property material to the operation of the business by the Company and its Subsidiaries or (ii) the payment of any material amounts with respect to the right of the Company or any of its Subsidiaries to own or use any Intellectual Property.

(c)           Either the Company or a Subsidiary owns, licenses or otherwise possesses legally enforceable rights to use, all Intellectual Property used in their respective businesses as currently conducted (collectively, the “ Company Intellectual Property ”), other than as would not be material to the operation of the business in the ordinary course.  Except as would not have, individually or in the aggregate, a Material Adverse Effect on the Company, (a) there are no pending or, to the knowledge of the Company, threatened claims by any person alleging

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infringement of any material Intellectual Property rights of any person by the Company or any Subsidiaries for their use of the Company Intellectual Property, (b) to the knowledge of the Company, the conduct of the business of the Company and the Subsidiaries does not infringe any Intellectual Property rights of any person, (c) neither the Company nor any Subsidiary has made any claim of a violation or infringement by others of its rights to or in connection with the Company Intellectual Property, and (d) to the knowledge of the Company, no person is infringing any Company Intellectual Property.

SECTION 3.14                                       Tax Matters.

Except as set forth in Section 3.14 of the Disclosure Schedule :

(a)           Each of the Company and its Subsidiaries has timely filed (taking into account applicable extensions) all Tax Returns required to be filed by it and paid all Taxes (whether or not shown to be due on such Tax Returns) required to be paid by it except to the extent such Taxes are being contested in good faith and for which the Company or the appropriate Subsidiary has set aside adequate reserves in accordance with GAAP.  As of the time of filing, all such Tax Returns are true, correct and complete in all material respects.  The Company and each of its Subsidiaries has made adequate provision (or adequate provision has been made on its behalf), in accordance with GAAP, for all accrued Taxes not yet due and payable.

(b)           The Company and its Subsidiaries have withheld and paid over all material Taxes required to have been withheld and paid over, and complied in all material respects with the rules and regulations relating to the withholding or remittance of Taxes.

(c)           There are no outstanding waivers, extensions or comparable consents that have been given by the Company or any of its Subsidiaries regarding the application of any statute of limitations with respect to any Taxes or Tax Returns of the Company or any such Subsidiary (other than pursuant to extensions of time to file Tax Returns obtained in the ordinary course).  There are no audits, written claims, deficiencies, administrative proceedings or court proceedings relating to material Taxes or Tax Returns of the Company or any Subsidiary currently pending, or, to the knowledge of the Company, threatened or asserted against the Company or any of its Subsidiaries.  There are no Liens on any assets of the Company or any Subsidiary with respect to Taxes, other than Liens for Taxes not yet due and payable or for Taxes being contested in good faith.  To the knowledge of the Company, no written claim is pending by a Governmental Entity in a jurisdiction where the Company or any of its Subsidiaries does not file a Tax Return that the Company or such Subsidiary is required to file a Tax Return in such jurisdiction.

(d)           Neither the Company nor any of its Subsidiaries has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company); has any liability for the Taxes of any Person (other than a member of the Company Group) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law) or as a transferee or successor by contract or agreement; or currently is a party to any Tax indemnification, allocation, sharing or similar agreement (other than an obligation in any customary agreement with customers, vendors, lessors or the like entered into in the ordinary course of business, an obligation in a credit agreement, or an

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obligation in any lease of leased property or an obligation in any agreement between the Company and any of its Subsidiaries).

(e)           None of the Company or any of its Subsidiaries has engaged in a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2).  Neither the Company nor any Subsidiary will be required to include any item of income in taxable income as result of any (i) adjustment pursuant to Section 481 of the Code (or any similar provision of state, local or foreign law), (ii) “closing agreement” as defined in Section 7121 of the Code (or any similar provision of state, local or foreign law) executed on or prior to the Closing, or (iii) installment sale or open transaction disposition made on or prior to the Closing. Neither the Company nor any Subsidiary has been a “distributing corporation” or a “controlled corporation” in a distribution intended to qualify under Section 355(e) of the Code within the past 2 years.

SECTION 3.15                                       Employees; Benefit Plans.

(a)           To the knowledge of the Company: (i) the Company is in compliance in all material respects with all applicable Laws respecting employment and employment practices, terms and conditions of employment, wages, hours or work and occupational safety and health, and is not engaged in any act or practice which constitutes or would reasonably be expected to constitute an unfair labor practice as defined in the National Labor Relations Act, (ii) there is no unfair labor practice charge or complaint against the Company pending or threatened in writing before the National Labor Relations Board or any similar state or foreign agency, (iii) there is no material labor strike, dispute, slowdown, stoppage or lockout pending, affecting or threatened in writing against the Company, (iv) except as set forth in Section 3.15(a) of the Disclosure Schedule , the Company is not a party to or bound by any collective bargaining or similar agreement and (v) there are no union organizing activities among the employees of the Company.

(b)           Section 3.15(b) of the Disclosure Schedule contains a complete and accurate list of all Employee Benefit Plans.  None of the Company, any of its Subsidiaries or any ERISA Affiliate has any agreement, arrangement, commitment or obligation, whether formal or informal, whether written or unwritten and whether legally binding or not, to create, enter into or contribute to any additional Employee Benefit Plan, or to modify or amend any existing Employee Benefit Plan, other than as required by applicable Law.  There has been no amendment, interpretation or other announcement (written or oral) by the Company, any of its Subsidiaries or any other Person relating to, or change in participation or coverage under, any Employee Benefit Plan that, either alone or in the aggregate, could materially increase the expense of maintaining such Employee Benefit Plan (or the Employee Benefit Plans taken as a whole) above the level of expense incurred with respect thereto for the most recent fiscal year included in the Company Financials.  Under the terms of each Employee Benefit Plan, the Surviving Corporation will be able to amend or terminate such Employee Benefit Plan at any time and in any way (subject to applicable Law) after the Effective Time without material liability or expense (other than for benefits accrued as of the time of termination).

(c)           The Company has delivered or made available to Parent with respect to each Employee Benefit Plan (to the extent applicable thereto) true, correct and complete copies of (i) such Employee Benefit Plan (including all material amendments thereto) or, if such Employee

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Benefit Plan is not in writing, a written description of such Employee Benefit Plan, (ii) the last annual report (Form 5500 series and all schedules and financial statements attached thereto) filed with respect to such Employee Benefit Plan; (iii) the most recent summary plan description, and all summaries of material modifications related thereto, distributed with respect to such Employee Benefit Plan; (iv) the most recent employee handbook distributed to Employees; (v) all material contracts and agreements (and any material amendments thereto) relating to such Employee Benefit Plan, including, without limitation, all trust agreements, investment management agreements, annuity contracts, insurance contracts, bonds, indemnification agreements and service provider agreements; (vi) the most recent determination letter issued by the IRS with respect to such Employee Benefit Plan; (vii) the most recent annual actuarial valuation prepared for such Employee Benefit Plan; (viii) all written communications to Employees, or to any other individuals, to the extent that the provisions of such Employee Benefit Plan as described therein differ materially from such provisions as set forth or described in the other information or materials furnished under this subsection (c); and (ix) all material correspondence to or from any Governmental Entity, within the past three years, relating to such Employee Benefit Plan.

(d)           Except as would not reasonably be expected to have a Company Material Adverse Effect, with respect to each Employee Benefit Plan:  (i) such Employee Benefit Plan was properly and legally established; (ii) such Employee Benefit Plan is, and at all times since inception has been, maintained, administered, operated and funded in all material respects in accordance with its terms and in compliance with all applicable Laws, including, without limitation, ERISA and the Code; (iii) the Company, each of its Subsidiaries, each ERISA Affiliate and, to the Company’s knowledge, all other Persons (including, without limitation, all fiduciaries) have, at all times and in all respects, properly performed all of their duties and obligations (whether arising by operation of Law, by contract or otherwise) under or with respect to such Employee Benefit Plan, including, without limitation, all reporting, disclosure and notification obligations; (iv) all returns, reports (including, without limitation, all Form 5500 series annual reports, together with all schedules and audit reports required with respect thereto), notices, statements and other disclosures relating to such Employee Benefit Plan required to be filed with any Governmental Entity or distributed to any participant therein have been properly prepared and duly filed or distributed in a timely manner; (v) none of the Company, any of its Subsidiaries, any ERISA Affiliate or, to the Company’s knowledge, any other fiduciary of such Employee Benefit Plan has engaged in any transaction or acted in a manner that violates, or failed to act if such failure would violate the fiduciary requirements of ERISA or any other applicable Law; (vi) none of the Company, any of its Subsidiaries, any ERISA Affiliate or, to the Company’s knowledge, any other Person has engaged or is about to engage in a transaction that constitutes (or could constitute) a prohibited transaction under Section 406 or 407 of ERISA or under Section 4975 of the Code for which an exemption is not available; and (vii) neither the Company nor any of its Subsidiaries has incurred, and there exists no condition or set of circumstances in connection with which the Company, any of its Subsidiaries, Merger Sub, the Surviving Corporation or Parent could incur, directly or indirectly, any liability or expense (except for routine contributions, benefit payments and administrative expenses) under ERISA, the Code or any other applicable Law with respect to such Employee Benefit Plan.

(e)           Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code (i) is the subject of an unrevoked favorable determination letter from the IRS with

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respect to such Employee Benefit Plan’s qualified status under the Code, as amended by that legislation commonly referred to as “GUST” and “EGTRRA” and all subsequent legislation, (ii) has remaining a period of time under the Code or applicable Treasury regulations or IRS pronouncements in which to request, and make any amendments necessary to obtain, such a letter from the IRS, or (iii) is a prototype or volume submitter plan entitled, under applicable IRS guidance, to rely on the favorable opinion or advisory letter issued by the IRS to the sponsor of such prototype or volume submitter plan.  Nothing has occurred, or is reasonably expected by the Company, any of its Subsidiaries or any ERISA Affiliate to occur, that could reasonably be expected to adversely affect the qualification or exemption of any such Employee Benefit Plan or its related trust or group annuity contract.

(f)            Since 2000, all contributions, premiums and other payments due or required to be paid to (or with respect to) each Employee Benefit Plan have been timely paid, or, if not yet due, have been accrued, in all material respects, as a liability on the Company Financials.

(g)           None of the Company, any of its Subsidiaries or any ERISA Affiliate sponsors, maintains or contributes to, or has, in the past six years, sponsored, maintained or contributed to (or been obligated to sponsor, maintain or contribute to), (i) a multiemployer plan, as defined in Section 3(37) or 4001(a)(3) of ERISA, (ii) a multiple employer plan within the meaning of Section 4063 or 4064 of ERISA or Section 413 of the Code, (iii) an employee benefit plan that is subject to Section 302 of ERISA, Title IV of ERISA or Section 412 of the Code, (iv) a multiple employer welfare arrangement as defined in Section 3(40) of ERISA, or (v) an Employee Benefit Plan covering or benefiting current or former officers, employees, directors, agents or independent contractors of the Company or any of its Subsidiaries who provide (or, at the relevant time, provided) services to the Company or any of its Subsidiaries outside of the United States.

(h)           None of the Company, any of its Subsidiaries, any ERISA Affiliate or any Employee Benefit Plan provides or has any obligation to provide (or contribute toward the cost of) severance or post-employment or post-termination welfare benefits, within the meaning of Section 3(1) of ERISA, of any kind (including, without limitation, health, medical, death or long-term disability benefits) to (or with respect to) any current or former officer, employee, agent, director or independent contractor of the Company or any of its Subsidiaries or to any other individual (other than continuation coverage mandated by COBRA or similar state statute, the premiums for which are paid exclusively by the individual receiving such coverage).

(i)            There are no actions, suits or claims (other than routine claims for benefits) pending or, to the knowledge of the Company, threatened with respect to (or against the assets of) any Employee Benefit Plan.  No Employee Benefit Plan is currently under investigation, audit or review, directly or indirectly, by any Governmental Entity, and, to the Company’s knowledge, no such action is contemplated or under consideration by any Governmental Entity.

(j)            Neither the Company nor any of its Subsidiaries has made any payment or payments, is obligated to make any payment or payments or is a party to (or a participating employer in) any agreement or Employee Benefit Plan that could obligate the Company, any of its Subsidiaries, the Surviving Corporation or Parent to make any payment or payments that would constitute an “excess parachute payment,” as defined in Section 280G of the Code (or any

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similar provision of state, local or foreign law) or that would otherwise not be deductible under Section 162 or Section 404 of the Code.

(k)           Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement (either alone or upon the occurrence of any additional or subsequent event(s)) will (i) entitle any individual to severance pay, unemployment compensation or any other payment from the Company, any of its Subsidiaries, any ERISA Affiliate, the Surviving Corporation, Parent or any Employee Benefit Plan, (ii) otherwise increase the amount of compensation due to any individual or forgive indebtedness owed by any individual, (iii) result in any benefit or right becoming established or increased, or accelerate the time of payment or vesting of any benefit (including, without limitation, with regard to Options), under any Employee Benefit Plan, or (iv) require the Company, any of its Subsidiaries, the Surviving Corporation or Parent to transfer or set aside any assets to fund or otherwise provide for any benefits for any individual.

(l)            Each “nonqualified deferred compensation plan” (within the meaning of Section 409A of the Code) sponsored, maintained or participated in by the Company or any of its Subsidiaries (or to which the Company or any of its Subsidiaries is (or was) a party) at any time since January 1, 2005 has been operated and administered since January 1, 2005, in all material respects, in good faith compliance with Section 409A of the Code and any guidance issued by the United States Treasury Department or the IRS thereunder (including, without limitation, IRS Notice 2005-1 and the proposed Treasury regulations issued on September 29, 2005), to the extent applicable to such plan.  No such plan has been “materially modified” (within the meaning of IRS Notice 2005-1 or Proposed Treasury Regulation Section 1.409A-6(a)(4)) at any time after October 3, 2004.

SECTION 3.16                                       Proxy Statement.

The Proxy Statement (including any amendments or supplements thereto) will not, at the date the Proxy Statement is filed with the SEC or first mailed to stockholders of the Company, or at the time immediately following any amendment or supplement to the Proxy Statement or at the time of the Company Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that the Company makes no representations regarding any information furnished in writing by Parent or Merger Sub specifically for inclusion in the Proxy Statement.

SECTION 3.17                                       Brokers.

No agent, broker, investment banker, Person or firm acting on behalf of the Company or any of its Subsidiaries or under the authority of the Company or any of its Subsidiaries, other than Jefferies & Company, Inc., the fees and expenses of which will be paid by the Company (as reflected in the agreements between such firms and the Company, copies of which have been delivered to Parent), is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee directly or indirectly from any of the parties hereto in connection with any of the transactions contemplated hereby.

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SECTION 3.18                                       Insurance.

Section 3.18 of the Disclosure Schedule contains a list of each material insurance policy maintained with respect to the business of the Company and its Subsidiaries.  Neither the Company nor any of its Subsidiaries is in material default with respect to its obligations under any material insurance policy maintained by them except for such default that would not reasonably be expected to have a Company Material Adverse Effect.  Neither the Company nor any of its Subsidiaries has received written notice of termination, exhaustion of limits, cancellation or non-renewal of any such insurance policies from any of its insurance brokers or carriers.

SECTION 3.19                                       Suppliers; Customers.

(a)           Neither the Company nor any of its Subsidiaries (i) has received any written notice of, or has any reason to believe that there are, any outstanding or threatened dispute with, or has received any request for audit, accounting or review from, any Person (including local and long distance carriers), which dispute could reasonably involve the payment by or to the Company or any Subsidiaries of an amount exceeding $100,000 individually or $250,000 in the aggregate, or (ii) has any reason to believe that there exist any reasonable grounds for any such dispute.  There are no material unresolved complaints, claims or disputes, or litigation or threatened litigation, between the Company or any of its Subsidiaries and any inter-exchange carrier, local exchange carrier, wireless carrier or Voice over Internet Protocol provider, including those challenging any access charges or other inter-carrier compensation billed, allegedly owed, or paid, by or to the Company or any of its Subsidiaries for the origination or termination of any interstate, intrastate, or local telecommunications traffic, including any traffic received from or delivered to any third-party carrier or provider or its end user(s) that would reasonably be expected to result in a Company Material Adverse Effect.

(b)           Neither (i) the Company nor any of its Subsidiaries has received notice from any customer, or group of customers that are under common ownership or control, that (x) accounted for at least $250,000 of the aggregate products and services furnished by the Company and its Subsidiaries in the fiscal year ended December 31, 2006 or (y) is expected, to the knowledge of the Company, to account for at least $250,000 of the aggregate products and services to be furnished by the Company and its Subsidiaries in the fiscal year ending December 31, 2007, in each case, that such customer (or such group of customers) has stopped or intends to stop purchasing, or has materially reduced or shall materially reduce purchases of, or has sought or is seeking to materially reduce the price it shall pay for, the products or services of the Company or its Subsidiaries, nor (ii) has the Company or any of its Subsidiary received notice from any supplier, or group of suppliers that are under common ownership or control, that (x) accounted for at least $500,000 of the aggregate goods and services purchased by the Company or any of its Subsidiary in the fiscal year ended December 31, 2006 or (y) is expected, to the knowledge of the Company, to account for at least $500,000 of the aggregate goods and services purchased by the Company and its Subsidiaries in the fiscal year ending December 31, 2007, in each case, that such supplier (or such group of suppliers) has stopped or intends to stop providing goods or services to the Company or any of its Subsidiary, or has materially reduced or will materially reduce the supply of, or has sought or is seeking to materially increase the price it charges for, goods or services supplied to the Company or any of its Subsidiaries. Section 3.19(b) of the

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Disclosure Schedule sets forth each agreement with a customer generating in excess of $250,000 in revenues in any 12 month period that is not currently in term.

(c)           Except as set forth in Section 3.19(c) of the Disclosure Schedule , neither the Compan