STOCK PURCHASE AGREEMENT

Exhibit 2.2

 

STOCK PURCHASE AGREEMENT

among

JOURNAL COMMUNICATIONS, INC.,

NORLIGHT TELECOMMUNICATIONS, INC.

and

Q-COMM CORPORATION

dated as of

November 13, 2006

 

TABLE OF CONTENTS

 

 

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STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT, dated as of November 13, 2006 (the “ Agreement ”), by and among JOURNAL COMMUNICATIONS, INC., a Wisconsin corporation (“ Parent ”), NORLIGHT TELECOMMUNICATIONS, INC., a Wisconsin corporation and a wholly owned indirect subsidiary of Parent (“ Company ”), and Q-COMM CORPORATION, a Nevada corporation (“ Buyer ”).

W I T N E S S E T H:

WHEREAS, Parent, indirectly through its wholly owned subsidiary The Journal Company, a Wisconsin corporation (“ Shareholder ”), owns all of the issued and outstanding shares of capital stock of Company (the “ Shares ”); and

WHEREAS, Buyer desires to purchase the Shares and Parent desires to sell the Shares to Buyer, upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Buyer and Company hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF SHARES

Subject to the terms and conditions of this Agreement, on the Closing Date, Parent shall cause Shareholder to sell to Buyer and Buyer shall purchase all the Shares.

ARTICLE II

PURCHASE PRICE - DEPOSIT

Section 2.01. Purchase Price . The aggregate amount to be paid by Buyer for the purchase of the Shares shall be $185,000,000 (the “ Initial Purchase Price ”). The Initial Purchase Price shall be subject to adjustment as provided in Section 2.02 .

Section 2.02. Working Capital and Long Term Liabilities .

(a) Not less than four (4) Business Days prior to the expected Closing Date, Parent shall deliver to Buyer a consolidated unaudited balance sheet of Company as of the last period end prior to the Closing Date, giving effect to the assets to be transferred and the various liabilities to be retained or transferred pursuant to Section 6.06 and Section 6.09 (the “ Prior Period Balance Sheet ”) and containing (i) the Working Capital Amount as of such period end (the “ Prior Period Working Capital Amount ”), and (ii) the Long Term Liabilities Amount as of such period end (the “ Prior Period Long Term Liabilities Amount ”), together with reasonably detailed supporting documentation. The Prior Period Balance Sheet shall be prepared, and the Prior Period Working Capital Amount and Prior Period Long Term Liabilities Amount shall be determined, in accordance with the same accounting methods, policies, practices and procedures, with consistent adjustments, classifications, judgments and estimation methodology, as were used in preparation of the unaudited consolidated balance sheet of the telecommunications business of the Company as of September 24, 2006 attached hereto as Schedule 2.02 , giving effect to the assets to be transferred and the various

 

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liabilities to be retained or transferred pursuant to Section 6.06 and Section 6.09 , and shall not include any changes in assets or liabilities as a result of purchase accounting adjustments arising from or resulting as a consequence of the purchase and sale of the Shares as contemplated by this Agreement. Schedule 2.02 includes an example calculation of the Prior Period Working Capital Amount and the Prior Period Long Term Liabilities Amount as of September 24, 2006.

(b) The “ Estimated Adjustment Amount ,” which may be positive or negative, means the Prior Period Working Capital Amount minus the Prior Period Long Term Liabilities Amount. For purposes of the Closing (and the payments to be made pursuant to Section 3.02(a) at the Closing), if the Estimated Adjustment Amount is a positive number, then the Initial Purchase Price will be increased by the absolute value of the Estimated Adjustment Amount, or if the Estimated Adjustment Amount is a negative number, the Initial Purchase Price will be decreased by the absolute value of the Estimated Adjustment Amount.

(c) Within thirty-five (35) calendar days after the Closing Date, Buyer shall deliver to Parent a certificate executed on behalf of Buyer by an authorized officer thereof, dated the date of its delivery, setting forth Buyer’s good faith determination of the Working Capital Amount as of the Closing Date (“ Buyer’s Working Capital Amount ”) and the Long Term Liabilities Amount as of the Closing Date (“ Buyer’s Long Term Liabilities Amount ”), together with reasonably detailed supporting documentation for such determinations (the “ Closing Statement ”). The Closing Statement shall be prepared in accordance with the same accounting methods, policies, practices and procedures, with consistent adjustments, classifications, judgments and estimation methodology, as were used in preparation of the Prior Period Balance Sheet, giving effect to the assets to be transferred and the various liabilities to be retained or transferred pursuant to Section 6.06 and Section 6.09 , and shall not include any changes in assets or liabilities as a result of purchase accounting adjustments arising from or resulting as a consequence of the purchase and sale of the Shares as contemplated by this Agreement.

(d) If Parent disagrees with Buyer’s Working Capital Amount and/or Buyer’s Long Term Liabilities Amount, then within fifteen (15) calendar days after its receipt of the Closing Statement, it shall notify Buyer of such disagreement in writing (the “ Notice of Disagreement ”), setting forth in reasonable detail the particulars of such disagreement. In the event that Parent does not provide a Notice of Disagreement within such fifteen (15) calendar day period, Parent shall be deemed to have accepted in full the Closing Statement and the Buyer’s Working Capital Amount and/or Buyer’s Long Term Liabilities Amount, which shall be final, binding and conclusive for all purposes hereunder. To the extent Parent provides a Notice of Disagreement within such fifteen (15) calendar day period, Buyer and Parent shall use commercially reasonable efforts for a period of fifteen (15) calendar days (or such longer period as they may mutually agree) to resolve such disagreements. If, at the end of such period, they are unable to resolve such disagreements, then KPMG LLP or, failing KPMG LLP’s willingness to so serve, such other independent accounting firm of recognized national standing as may be mutually selected by Buyer and Parent (the “ Auditor ”), shall resolve any remaining disagreements. The Auditor shall determine as promptly as practicable, whether the Closing Statement and the Buyer’s Working Capital Amount and/or Buyer’s Long Term Liabilities Amount were prepared or determined, as applicable, in accordance with the standards set forth in Section 2.02(c) and whether and to what extent (if any) the Closing Statement and the Buyer’s Working Capital Amount and/or Buyer’s Long Term Liabilities requires adjustment. The determination of the Auditor shall be final, conclusive and binding on the parties. The date on which Working Capital Amount and/or Long Term Liabilities Amount are finally determined in accordance with this Section 2.02(d) is hereinafter referred as to the “ Determination Date .” The fees and expenses of the Auditor shall be paid one-half by Buyer and one-half by the Parent.

 

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(e) Through the Determination Date, (i) Parent and its representatives, including, without limitation, Parent’s accountants, shall be permitted to review any supporting schedules, analyses, records, work papers and other documentation of Buyer and Buyer’s accountants reasonably necessary for Parent’s review of the Closing Statement, and shall be given reasonable access to all personnel of Buyer used in the preparation of the Closing Statement and its books and records, and (ii) Buyer and its representatives, including, without limitation, Buyer’s accountants, shall be permitted to review any supporting schedules, analyses, records, work papers and other documentation of Parent and Parent’s accountants reasonably necessary for Buyer’s review of the Notice of Disagreement and Parent’s basis therefor, and shall be given reasonable access to all personnel of Parent used in the preparation of the Notice of Disagreement and Parent’s basis therefor.

(f) The “ Final Adjustment Amount ,” which may be positive or negative, shall mean the remainder of (i) the Working Capital Amount as of the Closing Date, minus the Long Term Liabilities Amount as of the Closing Date, both as finally determined pursuant to Section 2.02(d) , minus (ii) the Estimated Adjustment Amount. If the Final Adjustment Amount is a positive number, then Buyer shall pay the Final Adjustment Amount to Parent, plus the interest contemplated by the last sentence of this Section 2.02(f) . If the Final Adjustment Amount is a negative number, then Parent shall pay the Final Adjustment Amount to Buyer, plus the interest contemplated by the penultimate sentence of this Section 2.02(f) . All payments shall be due and paid within thirty (30) days of the Determination Date. All payments made under this Section 2.02(f) shall be made in U.S. Dollars and by wire transfer of immediately available funds to such account or accounts as the party entitled to payment may specify by notice to the party making such payment. Any amount determined to be payable pursuant to this Section 2.02(f) shall include interest at a rate equal to LIBOR calculated on a 365-day basis and such interest shall accrue from the Closing Date to the day immediately preceding the actual date of such payment. The Initial Purchase Price, as finally adjusted pursuant to this Section 2.02 , is hereinafter referred to as the “ Purchase Price .”

Section 2.03. Deposit . Within one (1) Business Day of the date of this Agreement, Buyer shall make a cash earnest money deposit of $9,000,000 in immediately available funds (the “ Deposit ,” and together with any interest earned thereon, the “ Escrow Fund ”) with SunTrust Bank (the “ Escrow Agent ”) pursuant to the Escrow Agreement of even date herewith among Parent, Buyer and the Escrow Agent (the “ Escrow Agreement ”). At Closing, the Deposit shall be disbursed to Parent and applied to the Initial Purchase Price, and any interest thereon shall be disbursed to Buyer. If this Agreement is terminated by Parent pursuant to Section 8.01(c) , the Escrow Fund shall be disbursed to Parent and credited as partial payment of liquidated damages under Section 8.04 . If this Agreement is terminated for any other reason, the Escrow Fund shall be disbursed to Buyer. Pursuant to the terms of the Escrow Agreement, the parties shall instruct the Escrow Agent to disburse the Deposit and all interest thereon to the party entitled thereto and shall not, by any act or omission, delay or prevent any such disbursement. Any failure by Buyer to make the Deposit within one (1) Business Day after the date hereof shall be deemed to give rise to the failure of the condition set forth in Section 7.02(b) and the Cure Period under Section 8.01(c) will not apply, entitling Parent to immediately terminate this Agreement pursuant to Section 8.01(c) .

 

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ARTICLE III

CLOSING

The closing of this transaction (the “ Closing ”) shall take place (i) at the offices of Foley & Lardner LLP, 777 East Wisconsin Avenue, Milwaukee, Wisconsin at 3:00 P.M. on the third Business Day after the date on which the last to be satisfied or waived of the conditions set forth in Article VII shall be satisfied or waived in accordance with this Agreement (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), or (ii) at such other place and time and/or on such other date as Parent and Buyer may otherwise agree in writing. Such date is referred to in this Agreement as the “ Closing Date .”

Section 3.01. Deliveries by Parent and Company .

At the Closing, Parent and Company shall deliver to Buyer the following, in each case duly executed or otherwise in proper form:

(a) A stock certificate or certificates representing the Shares, duly endorsed for transfer or with duly executed stock powers attached, free and clear of all Liens.

(b) A certificate signed by an executive officer of Parent certifying that (i) each of the representations and warranties made by Parent in this Agreement is true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Buyer, and except that the accuracy of representations and warranties that by their terms speak as of a specific date will be determined as of such specified date), other than for such failures to be true and correct that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect (with the representations and warranties of Parent being deemed not qualified by any references therein to materiality generally or to a Material Adverse Effect or qualifiers similar to the foregoing for purposes of determining the satisfaction of this condition), and (ii) Company and Parent have performed and complied in all material respects with all of Company’s and Parent’s obligations under this Agreement which are to be performed or complied with on or prior to the Closing Date.

(c) Certified copies of the resolutions of the Board of Directors of Company, Shareholder and Parent, authorizing and approving this Agreement and the consummation of the transactions contemplated by this Agreement.

(d) A copy of the By-Laws of Company certified by the Secretary of Company, and a copy of the Articles of Incorporation of Company certified by the Wisconsin Department of Financial Institutions as of a date within fifteen (15) days of Closing.

(e) Incumbency certificates relating to each person executing any document executed and delivered to Buyer by Parent or Company pursuant to the terms hereof.

(f) The resignations of certain officers to be identified by Buyer after the date hereof, and all directors of the Entities, effective as of the Closing Date.

 

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(g) All other documents, instruments or writings required to be delivered to Buyer at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as Buyer may reasonably request, including, without limitation, certified status certificates of the Entities dated within ten (10) days of the Closing Date.

Section 3.02. Deliveries by Buyer .

At the Closing, Buyer shall deliver to Parent the following, in each case duly executed or otherwise in proper form:

(a) The Initial Purchase Price, by wire transfer of immediately available funds.

(b) A certificate signed by an executive officer of Buyer that (i) each of the representations and warranties made by Buyer in this Agreement is true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Parent, and except that the accuracy of representations and warranties that by their terms speak as of a specific date will be determined as of such specified date), and (ii) Buyer has performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with on or prior to the Closing Date.

(c) A certified copy of the resolutions of the Board of Directors of Buyer authorizing and approving this Agreement and the consummation of the transactions contemplated by this Agreement.

(d) Incumbency certificates relating to each person executing any document executed and delivered to Parent or Company by Buyer pursuant to the terms hereof.

(e) All other documents, instruments or writings required to be delivered to Parent or Company at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as Parent or Company may reasonably request.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT

Except as set forth in the schedules to this Agreement, Parent hereby represents and warrants to Buyer as set forth in this Article IV . Each item disclosed in the schedules to this Agreement shall constitute an exception to the representations and warranties to which it makes reference and shall be deemed to be disclosed with respect to each schedule to this Agreement to which it relates and/or representation and warranty herein given, without the necessity of repetitive disclosure or cross-reference, so long as such item is fairly described with reasonable particularity and detail and such description provides a reasonable indication that the item applies to another schedule contained in the schedules to this Agreement. The disclosure schedules may include items or information which Parent and Company are not required to disclose under this Agreement. Disclosure of such items or information shall not affect, directly or indirectly, the interpretation of this Agreement or the scope of the disclosure obligations of Parent and Company under this Agreement, and inclusion of information in the disclosure schedules shall not be construed as an admission that such information is material. To the extent information is indicated in this Article IV as having been made available to Buyer, all of such information has been posted prior to the date hereof and will remain posted to Company’s electronic data room to which Buyer has been given access for as long as such electronic data room remains operational.

 

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Section 4.01. Corporate .

(a) Each of Parent, Company and each Subsidiary of Company is a corporation validly existing and in good standing (which means that such corporation has filed its most recent required annual report and has not filed articles of dissolution) under the Laws of the State of Wisconsin. Each of Parent, Company and each Subsidiary of Company has the requisite corporate power and authority and any necessary governmental authority and approvals to own, operate or lease the properties that it purports to own, operate or lease and to carry on its business as it is now being conducted, and is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification or licensing necessary.

(b) A true and complete list of all the Subsidiaries of Company, together with the jurisdiction of incorporation or organization of each such Subsidiary and the percentage of each Subsidiary’s outstanding capital stock or equity interests owned by Company or another Subsidiary of Company, is set forth in Schedule 4.01(b) . Other than Company’s interest in the Subsidiaries listed on Schedule 4.01(b) , Company does not own any other equity interests in any Person.

(c) The authorized capital stock of Company consists entirely of 9,000 shares of common stock, $1.00 par value per share (“ Common Stock ”), of which 1,000 shares of Common Stock are issued and outstanding, all of which are owned of record and beneficially by Shareholder and are duly authorized, validly issued, fully paid and nonassessable (subject to the personal liability which may be imposed on shareholders by former Section 180.0622(2)(b) of the Wisconsin Business Corporation Law, as judicially interpreted, for debts incurred prior to June 14, 2006 (for debts incurred on or after such date, Section 180.0622(2)(b) has been repealed) owing to employees for services performed, but not exceeding six months service in any one case) and free and clear of Liens. There are no (i) securities or rights convertible into or exchangeable for any capital stock or other securities of Company, (ii) options, warrants or other rights (preemptive or otherwise) to purchase or subscribe to capital stock or other securities of Company or securities or rights that are convertible into or exchangeable for capital stock or other securities of Company, or (iii) Contracts of any kind relating to the issuance, voting, sale or transfer of any capital stock or other securities of Company, any such convertible or exchangeable securities or any such options, warrants or other rights.

Section 4.02. Authority . Parent and Company each possess the necessary corporate power and authority to enter into this Agreement and the other documents and instruments to be executed and delivered by them pursuant hereto and to carry out their respective obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Parent or Company pursuant hereto and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by all necessary corporate action on the part of Parent and Company, and no other corporate proceeding is necessary for the execution and delivery of this Agreement or the other documents and instruments to be executed and delivered by Parent or Company pursuant hereto, the performance by Parent and Company of their respective obligations hereunder and thereunder and the consummation by Parent and Company of the transactions contemplated hereby and thereby. This Agreement constitutes, and, when executed

 

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and delivered, the other documents and instruments to be executed and delivered by Parent or Company pursuant hereto will constitute, valid and binding agreements of Parent or Company, as applicable, enforceable in accordance with their respective terms, except as such may be limited by bankruptcy, insolvency, reorganization or other Laws affecting creditors’ rights generally, and by general equitable principles.

Section 4.03. No Violation .

(a) The execution and delivery of this Agreement by Parent and Company do not, and the performance of this Agreement by Parent and Company will not, (i) assuming all notices, reports or other filings described in clauses (i) through (vi)  of Section 4.03(b) have been given or made, conflict with or violate any Law or Order of any Governmental Entity applicable to Parent, Shareholder or Entity or by which any of their respective properties are bound or affected, (ii) violate or conflict with the Organizational Documents of Parent, Shareholder or Entity, or (iii) result in any violation or breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the property or assets of Parent, Shareholder or Entity pursuant to, any note, bond, mortgage, indenture, agreement, instrument, permit, license, franchise or other Contract to which Parent, Shareholder or Entity is a party or by which Parent, Shareholder or Entity or their respective properties are bound or affected, except for, in the case of clause (iii) , conflicts, violations, breaches or defaults which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or prevent the consummation of the transactions contemplated hereby.

(b) Except for necessary notices, reports, filings, consents, registrations, approvals, permits or authorizations (i) pursuant to applicable requirements of the Exchange Act, (ii) pursuant to applicable requirements of the HSR Act, (iii) pursuant to applicable requirements of any state takeover or “blue sky” Laws; (iv) pursuant to applicable requirements of the FCC pursuant to the Communications Act (which notices, reports, filings, consents, registrations, approvals, permits or authorizations are set forth on Schedule 4.03(b) ), (v) with or to any PUC and the local and state Governmental Entities pursuant to the Utilities Laws (which notices, reports, filings, consents, registrations, approvals, permits or authorizations are set forth on Schedule 4.03(b) ) or authorizations to occupy rights-of-way over public property, and (vi) which would not prevent or materially delay the consummation of the transactions contemplated hereby, none of Parent, Shareholder, Company or any Subsidiary of Company is required to submit any notice, report or other filing with any Governmental Entity in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. No waiver, consent, approval or authorization of any Governmental Entity is required to be obtained or made by Parent, Shareholder, Company or any Subsidiary of Company in connection with its execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby, except (A) where the failure to obtain such waivers, consents, approvals or authorizations would not prevent or materially delay the performance by Parent and Company of their respective obligations under this Agreement, or (B) in connection with any of the matters described in clauses (i) through (vi)  of this Section 4.03(b) .

Section 4.04. Financial Statements; Absence of Liabilities . Included as Schedule 4.04 are true and complete copies of the consolidated financial statements of the telecommunications business of the Company consisting of (i) audited consolidated balance sheets of the telecommunications business of the Company as of December 25, 2005 and December 26, 2004, and

 

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the related statements of income and cash flows for the years then ended (including the notes contained therein or annexed thereto), which financial statements have been reported on, and are accompanied by, the signed, unqualified opinions of Ernst & Young LLP, independent auditors for Company for such years, and (ii) an unaudited consolidated balance sheet of the telecommunications business of the Company as of September 24, 2006 (the “ Recent Balance Sheet ”), and the related unaudited consolidated statements of income and cash flows for the nine months then ended and for the corresponding period of the prior year (collectively, the “ Company Financials ”). With respect to the financial statements of the Company that are contemplated in clause (i) of this Section 4.04 , the parties hereby agree that such financial statements have been prepared by Company solely for purposes of filing a registration statement on Form 10 with the Securities and Exchange Commission and do not necessarily represent the assets and liabilities that will remain with the Company following consummation of the transactions contemplated hereby. All of such financial statements (including all notes and schedules contained therein or annexed thereto) are true, complete and accurate, have been prepared in accordance with GAAP (except, in the case of unaudited statements, for the absence of footnote disclosure) applied on a consistent basis, have been prepared in accordance with the books and records of Company, and fairly present, in accordance with GAAP, the assets, liabilities and financial position, the results of operations and cash flows of Company as of the dates and for the years and periods indicated. Except as reflected in the Company Financials, none of the Entities has any material Liabilities that would be required by GAAP to be disclosed on a consolidated balance sheet of Company, other than (i) Liabilities disclosed on the schedules to this Agreement; and (ii) Liabilities incurred in the Ordinary Course of Business since the date of the Recent Balance Sheet.

Section 4.05. Tax Matters .

(a) All Tax Returns required to be filed by or on behalf of Company have been timely filed. True, correct and complete copies of all Tax Returns filed by Company for each of the three most recent fiscal years have been made available to Buyer. No Entity is currently the beneficiary of any extension of time within which to file any Tax Return.

(b) Each Entity has duly withheld and paid all Taxes that it is required to withhold and pay in connection with amounts paid or owing to any employee, independent contractor, creditor or other third party.

(c) The Tax Returns of Company that are under audit or have been audited by the Internal Revenue Service (“ IRS ”) or other applicable Tax authorities since January 1, 2004 are set forth in Schedule 4.05(c) . Company has not received from the IRS or any other applicable Tax authorities any written notice of underpayment or assessment of Taxes or other deficiency that has not been paid or any objection to any Tax Return filed by Company. There are no outstanding Contracts or waivers extending the statutory period of limitations applicable to any Tax Return.

(d) Schedule 4.05(d) contains a true, correct and complete list for Company of every year that Company was a member of an affiliated group of corporations that filed a consolidated Tax Return on which the statute of limitations does not bar a federal Tax assessment and each corporation that has been a part of such group. No affiliated group of corporations of which Company has been a member has discontinued filing consolidated returns during the past five (5) years.

(e) There are no Liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company.

 

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Section 4.06. Absence of Certain Changes . Except as expressly contemplated or permitted by this Agreement, since June 25, 2006 through the date of this Agreement, (a) the business of Company has been conducted in the ordinary course consistent with past practice; (b) the Company has not sold, leased, transferred, assigned or subjected to any Lien (other than Permitted Liens) any material asset, including without limitation, Company intangible assets, other than in the Ordinary Course of Business; (c) there has not been any material damage, destruction or loss (whether or not covered by insurance) with respect to any of the assets of Company; (d) Company has not engaged in any material transaction or entered into any material agreement or commitments outside the Ordinary Course of Business (for the limited purpose of this Section 4.06 and no other, renegotiations, amendments or modifications of Material Contracts with customers are expressly agreed to be within the Ordinary Course of Business); (e) Entity has not created, incurred, assumed, or guaranteed more than $500,000 in aggregate indebtedness; (f) Entity has not made any express or deemed election or settled or compromised any Liability with respect to Taxes of Entity; (g) Entity has not entered into any Contracts for the sale of goods or services by Entity (i) that involve more than $100,000 and (ii) in which where there is either no monthly residual revenue or the customer prepayment is greater than $50,000; and (h) Entity has not committed to do or is otherwise bound to do any of the foregoing.

Section 4.07. No Litigation . There is no Litigation pending or, to Company’s Knowledge, threatened against Company, any Subsidiary of Company, the directors or officers of Company or any Subsidiary of Company (in such capacity) or its business or assets. Neither Company nor any Subsidiary of Company nor any of their respective businesses or assets is subject to any Order. The foregoing includes, without limitation, Litigation pending or, to Company’s Knowledge, threatened, involving (i) the prior employment of any of the employees of Company or any Subsidiary of Company or (ii) the use of any information or techniques allegedly proprietary to any of such employee’s former employers in connection with the business of Company.

Section 4.08. Compliance with Laws and Orders; Permits and Licenses .

(a) Company is in material compliance with all applicable Laws and Orders. Company has not received any written notice of any violation or alleged violation of any Laws or Orders. All reports, filings and returns required to be filed by or on behalf of Company with any Governmental Entity have been filed.

(b) Company has all material licenses, permits, approvals, certifications, consents and listings of all Governmental Entities and all certification organizations required, and all exemptions from requirements to obtain or apply for any of the foregoing, for the conduct of its business as currently conducted and the operation of its facilities. All such material licenses, permits, approvals, certifications, consents and listings are set forth in Schedule 4.08(b) and are in full force and effect. Company is in material compliance with all such licenses, permits, approvals, certifications, consents and listings.

(c) Except as set forth in the Company Financials, (i) Company is in material compliance with all applicable Environmental Laws; (ii) Company has all material permits, licenses and other authorizations required under any Environmental Law (“ Environmental Permits ”) and such Environmental Permits are in full force and effect in accordance with their terms; (iii) Company is in material compliance with its Environmental Permits; and (iv) there are no pending or, to Company’s Knowledge, threatened claims against Company relating to any Environmental Law or Hazardous Substance; (v) Parent has made available to Buyer true and complete copies of any

 

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reports, studies, assessments, audits or other comparable documents within the possession of Parent concerning or relating to the environmental condition of the Owned Real Property and Leased Real Property or any matter concerning the actual or potential past, present or future liability of Entity, the Owned Real Property or the Leased Real Property, as well as with regard to any parcels of real property owned by Entity within the last seven years, under any Environmental Law; and (vi) there are no underground storage tanks or asbestos containing materials located on the Owned Real Property and, to Company’s Knowledge, there are no underground storage tanks or asbestos containing materials located on the Leased Real Property.

(d) Schedule 4.08(d) sets forth a true and complete list as of the date of this Agreement of (i) all licenses issued or granted to Company or any of its Subsidiaries by the FCC (“ FCC Licenses” ), (ii) all licenses issued or granted to Company or any of its Subsidiaries by PUCs (“ State Licenses ”), (iii) all licenses issued or granted to Company or any of its Subsidiaries by any local government regulating telecommunications businesses or services or authorizing Company or any of its Subsidiaries to place facilities within the boundary of such local government (“ Local Licenses ,” and, collectively with FCC Licenses and State Licenses, “ Company Licenses ”), and (iv) all pending applications for such licenses that would be Company Licenses if issued or granted. Each of Company and its Subsidiaries is in material compliance with (A) its obligations under each of the Company Licenses and (B) the rules and regulations of the Governmental Entity issuing such Company Licenses. Each of the Company Licenses is in full force and effect and is binding upon the Entity that is the recipient thereof in accordance with its terms. There is not pending or, to Company’s Knowledge, threatened before the FCC any other Governmental Entity any material proceeding, notice of violation, order of forfeiture or complaint or investigation against the Company or any of its Subsidiaries relating to any of the Company Licenses.

Section 4.09. Properties .

(a) Company has good, valid and marketable title to, or in the case of leased properties and assets, valid leasehold interests in, all the material assets and properties that it owns or uses and that are reflected on the Recent Balance Sheet or that were thereafter acquired (except for assets and properties sold, consumed or otherwise disposed of in the Ordinary Course of Business since such date), and such assets and properties are owned free and clear of all Liens, except Permitted Liens.

(b) Schedule 4.09(b) sets forth a list of all real property owned, used or occupied by Company. Company has good and marketable fee simple title to the Owned Real Property, subject only to Permitted Liens. Company has a valid and subsisting leasehold estate in, and enjoys peaceful and undisturbed possession in all material respects of, the Leased Real Property and all other real properties used by Entity, subject only to any Permitted Liens. Each of the Real Property Leases listed on Schedule 4.09(b) is the legal, valid and binding obligation of Company and, to Company’s Knowledge, of the other parties thereto, enforceable in accordance with their respective terms, except as such may be limited by bankruptcy, insolvency, reorganization or other Laws affecting creditors’ rights generally, and by general equitable principles. True and complete copies of the Real Property Leases previously have been made available to Buyer. Neither Company nor, to Company’s Knowledge, any other party thereto, is in material breach of or default under any of the Real Property Leases. With respect to each parcel of Owned Real Property and each parcel of Leased Real Property, (i) there is no condemnation proceeding or lawsuit pending or, to Company’s Knowledge, threatened, regarding such parcel, and (ii) Company has valid and enforceable rights to vehicular access to such parcel that are the same as those currently used by Company.

 

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Section 4.10. Insurance . Schedule 4.10 sets forth a true and complete list of all insurance policies carried by, or covering Entity with respect to its businesses, assets and properties, together with, in respect of each such policy, the name of the insurer, the policy number, the type of policy, the amount of coverage, the deductible and in each case whether such insurance is carried by Parent or Entity. All such policies are in full force and effect, Entity is not in breach thereof, and no notice of cancellation has been received by Entity with respect to any such policy. The insurance coverage provided by such policies is customary for the industry in which Company operates.

Section 4.11. Material Contracts .

(a) Schedule 4.11(a) lists all Contracts to which Company or any Subsidiary of Company is a party and which fall within any of the following categories (each a “ Material Contract” ): (i) material Contracts not entered into in the Ordinary Course of Business; (ii) joint venture, partnership and like agreements; (iii) agreements with unaffiliated third party sales representatives; (iv) collective bargaining agreements; (v) Contracts relating to any outstanding commitment for capital expenditures that have remaining payments in excess of $250,000; (vi) indentures, mortgages, promissory notes, loan agreements, guarantees, letter of credit or other agreements or instruments of Company or any Subsidiary of Company or commitments for the borrowing or the lending by Company or any Subsidiary of Company of amounts in excess of $250,000 or providing for the creation of any charge, security interest, encumbrance or lien upon any of the assets of Company; (vii) executory Contracts for the sale or lease by Entity to any Person of any material amount of its assets, other than in the Ordinary Course of Business; (viii) employment, severance or retention agreements providing for severance payments or other benefits by the Company in the event of a sale or change of control of Entity; (ix) any non-competition or non-solicitation agreement or any other agreement or obligation that purports to limit in any respect the manner in which, or the localities in which, the business of Company or any Subsidiary of Company may be conducted; (x) Contracts pursuant to which Entity leases Dark Fiber from or to any other Person; (xi) Contracts with customers which produced more than $2,000,000 of revenues in fiscal 2005 or expected to produce more than $750,000 of revenues in fiscal 2006 (provided that the names of the contracting parties have been redacted); (xii) any Contract that would prohibit or materially delay the consummation of the transactions contemplated by this Agreement; and (xiii) any Contract with any Affiliate or any officer, director or employee of Company or any of its Subsidiaries.

(b) Schedule 4.11(b) lists all Contracts (except as otherwise disclosed in Section 4.11(a)) to which Company or any Subsidiary of Company is a party and which fall within any of the following categories: (i) agreements requiring the payment by Company of more than $2,000,000 in any 12 month period for services or the lease of any machinery or equipment; (ii) agreements creating an exclusive broker, distributor, supplier or agent arrangement with Company or any Subsidiary of Company; (iii) interconnection agreements; (iv) Contracts entered into in the context of an acquisition or sale of assets or capital stock where Company or any Subsidiary of Company either continues to have a right to be indemnified by a Person or has an obligation to indemnify a Person; and (v) Right-of-Way Agreements.

(c) The Material Contracts and the Contracts listed on Schedule 4.11(b) , (i) are valid, binding, in full force and effect against Company or the Subsidiary of Company party thereto, as applicable, and enforceable against such Company or the Subsidiary of Company party thereto, as applicable, in accordance with their respective terms, except as such enforceability may be limited by applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally and applicable equitable principles (whether considered in a proceeding at

 

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law or in equity). Neither Company nor any Subsidiary of Company has defaulted under or materially breached any Material Contract and, to Company’s Knowledge, there has been no breach or cancellation by the other parties to any Material Contract. As of the date hereof, Entity has not received any written notice that any party to a Material Contract has breached, cancelled or accelerated its rights under, or intends to breach, cancel or accelerate its rights under, or has threatened to breach, cancel or accelerate its rights under, any such Material Contract. True and complete copies of the Material Contracts have been made available to Buyer (except for Contracts described in Section 4.11(a)(xi) , with respect to which true and complete copies have been made available to Buyer’s lender, Bank of America).

Section 4.12. Labor Matters .

(a) Parent has made available to Buyer a true and complete copy of the Collective Bargaining Agreement.

(b) There is no labor strike or similar dispute, slowdown or stoppage pending or, to Company’s Knowledge, threatened against Company. There is no unfair labor practice complaint against the Company pending or, to Company’s Knowledge, threatened before the National Labor Relations Board.

(c) Since January 1, 2004, Company has not experienced any material labor difficulty, labor strike, slowdown, work stoppage, or any secondary boycott with respect to any products or services of Company. There is no lockout of any employees by Company, and no such action is currently contemplated by the Company.

(d) There are no pending or, to Company’s Knowledge, threatened grievances or arbitration proceedings against Company arising out of or under collective bargaining agreements.

(e) Entity is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice.

(f) Entity has no Equal Employment Opportunity Commission charges or other claims of employment discrimination pending or, to Company’s Knowledge, threatened against it.

(g) No wage and hour department investigation by the United States Department of Labor or comparable state agency has been made of Entity.

(h) There are no occupational health and safety claims against Entity and there have been no such filed or threatened claims.

(i) Company has not effectuated either (i) a “plant closing” (as defined in WARN) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of Company or (ii) a “mass layoff” (as defined in WARN) affecting any site of employment or facility of Company or any of its Subsidiaries. Company has not been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar Law and none of the employees of Company has suffered an “employment loss” (as defined in WARN) during the six months prior to the date hereof.

 

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(j) Entity is in material compliance with the terms and provisions of the Immigration Reform and Control Act of 1996, as amended, and all related regulations promulgated thereunder.

Section 4.13. Employee Benefit Plans .

(a) Schedule 4.13(a) sets forth a list of all “employee benefit plans,” as defined in Section 4(3) of ERISA, and all other employee benefit or executive compensation arrangements, perquisite programs or payroll practices, including any such arrangements or payroll practices providing severance pay, retention, change in control, employment, consulting, sick leave, vacation pay, salary continuation for disability, retirement benefits, deferred compensation, bonus pay, incentive pay, stock options (including those held by directors, employees, and consultants), hospitalization insurance, medical insurance, life insurance, fringe benefit, scholarships or tuition reimbursements, that are maintained by Company, any Subsidiary or any entity within the same “controlled group” as Company or Subsidiary, within the meaning of Section 4001(a)(14) of ERISA (an “ ERISA Affiliate ”), or to which Company, any Subsidiary or ERISA Affiliate is obligated to contribute thereunder for current or former employees or directors of Company, any of its Subsidiaries or ERISA Affiliates, but only in all cases to the extent Entity employees are covered thereunder (the “ Employee Benefit Plans ”).

(b) Company has delivered or made available to Buyer true, correct and complete copies of the following documents, with respect to each of the Employee Benefit Plans: (i) all plan and related trust documents, and amendments thereto; (ii) the most recent Forms 5500, if any; (iii) current summary plan descriptions, if any; and (iv) the most recent determination letter from the IRS, if any.

(c) There are no pending actions, governmental audits, claims or lawsuits which have been asserted, instituted or, to Company’s Knowledge, threatened, against the Employee Benefit Plans, the assets of any of the trusts in their capacity as such under such plans or the plan sponsor or the plan administrator, or against any fiduciary of the Employee Benefit Plans with respect to the operation of such plans (other than routine benefit claims and other than as would not reasonably be expected to subject Entity to any Liability), and to Company’s Knowledge no facts or circumstances exist that could reasonably be expected to give rise to any such audits, actions, claims or lawsuits.

(d) All Employee Benefit Plans subject to ERISA or the Code have been maintained and administered, in all material respects, in accordance with their terms and with all provisions of ERISA and the Code, respectively (including rules and regulations thereunder), and other applicable federal and state laws and regulations. No event has occurred and no condition exists with respect to any Employee Benefit Plans that would reasonably be expected to subject Entity to any material Tax, fine, Lien, penalty or other Liability imposed by ERISA, the Code or other applicable Laws.

(e) No liability under Title IV of ERISA has been incurred by Entity (other than liability for premiums due to the Pension Benefit Guaranty Corporation) unless such liability has been, or prior to the Closing Date will be, satisfied in full and no amendment has occurred which has required or could require Entity or Buyer to provide security to any such plan.

(f) None of the Employee Benefit Plans is a “ multiemployer plan ” within the meaning of Section 3(37) or 4001(a)(3) of ERISA and no Entity has maintained, contributed to, been required to contribute to, or been required to pay any amount with respect to a “ multiemployer plan ” at any time in the past six (6) years.

 

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(g) No Entity is a party to any contract or agreement, plan, or arrangement, including, without limitation, the execution of this Agreement, the consummation of the transactions or other events contemplated by this Agreement, concerning any person that, individually or collectively with other similar agreements, and taking into account any transactions or payments contemplated by this Agreement, could reasonably be expected to give rise to the payment of any amount that would not be deductible by Entity by reason of Section 280G of the Code. No Entity has any obligation to make any reimbursement or other payment to any such person with respect to any Tax imposed under Section 4999 of the Code.

(h) Schedule 4.13(h) identifies each nonqualified deferred compensation plan, within the meaning of Section 409A(d)(1) of the Code and associated Treasury Department guidance, including IRS Notice 2005-1 and Proposed Treasury Regulations at 70 Fed. Reg. 57930 (October 4, 2005) in connection with the Entities may have any liability with respect to current or former employees and directors (each a “ NQDC Plan ”). With respect to each NQDC Plan, it either (i) has been operated in good faith compliance with Code Section 409A since January 1, 2005, or (ii) does not provide for the payment of any benefits that have or will be deferred or vested after December 31, 2004 and since October 3, 2004, it has not been “materially modified” within the meaning of Section 409A of the Code and associated Treasury Department guidance, including IRS Notice 2005-1, Q&A 18 and the proposed regulations at 70 Fed. Reg. 57930 (October 4, 2005). No NQDC Plan has assets set aside directly or indirectly in the manner described in Section 409A(b)(1) of the Code or contains a provision that would be subject to Section 409A(b)(2) of the Code.

Section 4.14. Trade Rights . Schedule 4.14 contains a true, correct and complete list of all Company Trade Rights (to the extent susceptible to listing). Schedule 4.14 also specifies which of Company Trade Rights are registered. All Company Trade Rights shown as registered in Schedule 4.14 have been properly registered in all jurisdictions where required, which jurisdictions are set forth in Schedule 4.14 . All pending registrations and applications have been properly made and filed, and all annuity, maintenance, renewal and other fees relating to registrations or applications are current. To conduct its business as it is currently conducted, Company does not require any Trade Rights that it does not already have. Company is not infringing, and since January 1, 2000 has not infringed, any Trade Rights of another and, to Company’s Knowledge, no Person is infringing and since January 1, 2000, no Person has infringed, any of Company Trade Rights. Company has not granted any license or made any assignment of any Company Trade Rights. Company does not pay any royalties or other consideration for the right to use any Trade Rights of others.

Section 4.15. Accounts Receivable . All accounts receivable reflected on the Recent Balance Sheet represent arm’s length sales made in the Ordinary Course of Business. None of such accounts receivable is subject to assignment, claim, Lien or security interest of any character or, to Company’s Knowledge, claim for credit, setoff, allowance, adjustment or counterclaim by the account debtor. Company has received no written notice of the bankruptcy or insolvency of the debtor of any such account receivable. None of such accounts receivable is evidenced by a judgment or chattel paper.

Section 4.16. Right-of-Way Agreements . Each material license, permit, franchise, Contract or other agreement or Law permitting or requiring Company or any of its Subsidiaries to lay, build, operate, maintain or place cable, wires, conduits or other equipment and facilities over land or underground (each, a “ Right-of-Way Agreement ”) is valid, legally binding, enforceable and in full force and effect, and none of Company or any of its Subsidiaries is in breach of or default

 

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under any Right-of-Way Agreement. No event has occurred which, with notice or lapse of time, would constitute a breach or default by any of Company or its Subsidiaries or permit termination, modification or acceleration by any third party thereunder, and no third party has repudiated or has the right to terminate or repudiate any Right-of-Way Agreement.

Section 4.17. Customers and Suppliers .

(a) Schedule 4.17(a) sets forth a list of the top fifteen (15) suppliers of Company by dollar amount paid during the nine-month period ended September 24, 2006, from whom Company has purchased goods and/or services (the “ Major Suppliers ”). No such supplier has expressed in writing, and, to Company’s Knowledge, no such supplier has expressed verbally, to Company its intention to cancel or otherwise terminate or materially reduce its relationship with Company.

(b) As of the date hereof, none of the top twenty (20) customers of Company to whom Company has sold goods and/or services (determined by reference to revenue received for the nine-month period ended September 24, 2006) has expressed in writing, and, to the Company’s Knowledge, no such customer has expressed verbally, to Company its intention to (i) cancel or otherwise terminate its relationship with Company or (ii) reduce its contracted monthly recurring revenue to the Company (determined by reference to revenue received for January 2006) by the greater of (x) ten percent (10%) and (y) $50,000. Schedule 4.17 sets forth an aging analysis of all underlying service orders for each of the top ten (10) customers (determined by reference to revenue received for the nine-month period ended September 24, 2006) broken down by percentage of orders expiring by the end of calendar years 2007, 2008 and 2009, and indicates the scheduled termination dates of each current master services agreement with any of such customers. Each master services agreement with each of the top ten (10) customers (determined by reference to revenue received for the nine-month period ended September 24, 2006) contains provisions which disclaim the Company’s responsibility for consequential damages.

Section 4.18. Network Operations . As of the date hereof, Company’s network, taken as a whole is in good working condition, reasonable wear and tear excepted, and is without any material defects for purposes of operating Company’s business, except with respect to temporary service outages not reasonably expected to exceed ten (10) hours in length.

Section 4.19. Brokers . Other than Morgan Stanley & Co. Incorporated and Robert W. Baird & Co. Incorporated, with respect to which any fees owing in connection with the transactions contemplated by this Agreement shall be paid by Parent or Shareholder, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent, Shareholder or Company.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER

Except as set forth in the schedules to this Agreement, Buyer hereby represents and warrants to Parent and Company as set forth in this Article V . Each item disclosed in the schedules to this Agreement shall constitute an exception to the representations and warranties to which it makes reference and shall be deemed to be disclosed with respect to each schedule to this Agreement to which it relates and/or representation and warranty herein given, without the necessity of repetitive disclosure or cross-reference, so long as such item is fairly described with reasonable particularity

 

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and detail and such description provides a reasonable indication that the item applies to another schedule contained in the schedules to this Agreement. The disclosure schedules may include items or information which Buyer is not required to disclose under this Agreement. Disclosure of such items or information shall not affect, directly or indirectly, the interpretation of this Agreement or the scope of the disclosure obligations of Buyer under this Agreement, and inclusion of information in the disclosure schedules shall not be construed as an admission that such information is material.

Section 5.01. Corporate . Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of Nevada. Buyer has the requisite corporate power and authority and any necessary governmental authority and approvals to own, operate or lease the properties that it purports to own, operate or lease and to carry on its business as it is now being conducted, and is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification or licensing necessary, except for any such failures that would not prevent or materially delay the consummation of the transactions contemplated hereby.

Section 5.02. Authority . Buyer possesses the necessary corporate power and authority to enter into this Agreement and the other documents and instruments to be executed and delivered by Buyer pursuant hereto and to carry out its obligations hereun