Espernet Folds Up ISP Roll-Up Tuesday notified its 43
Internet service provider partners that it was expediting their release
from any further contractual obligations to the ISP roll-up efforts.

Under a “no shop” provision, entered into a mutual release of
the ISPs. The move discharged each party of any further rights,
obligations, or liabilities to the other, under the terms and conditions of
contracting with filed its S-1 with the Securities and Exchange Commission in
September. At the time, the firm announced its intention to acquire 43
local and regional ISPs that had partnered with to build a
national integrated ISP network.

To finance the purchase of 43 Internet service providers,
planed to raise $122.5 million from its initial public offering. Only the
market did not agree with its valuations and several attempts to underwrite
the deal failed. concluded that it could not structure the stock offering to
produce the financing necessary to fulfill both its contractual obligations
with the ISPs and still reap a tidy profit for began negotiating a deal with an unnamed publicly-held company
in December in a final effort to finance the ISP roll-up.

Paul Hart, executive vice president, informed its ISP partners
Tuesday that the purchaser remains keenly interested in acquiring However, the firm would not meet the termination date
deadline to get the deal done.

“It is clear to management and to the management of the
purchaser that the deal cannot possibly be funded either in whole or in
part to meet the February 29 termination date,” Hart wrote. “Nor, is it
likely that the deal can be closed in the very near future.”

“I am very disappointed to tell you that is not in a position
to exercise its option under our contract. Accordingly, would like to take this opportunity to expedite your release
from our contract.” management reported to its ISP partners two weeks ago that it
had received an offer from a publicly-traded company for the purchase of and that it was in the process of negotiating a deal.’s ISP partners learned that should the transaction occur, would have been able to preserve the contracts with its ISP
partners, but rather than receiving stock for the purchase,
sellers would have received stock of the publicly-traded company for the deal.

Hart said that after a number of preliminary telephone calls were made, executives in New York met with the potential purchaser on
January 31 and that a final deal could not be produced after weeks of

“We remained in New York until February 9, as we negotiated the terms of
the purchase and conducted preliminary due diligence on the company,” Hart
said. “We continued to negotiate after their return home, and concluded by
Friday evening that, absent a change in conditions over the weekend, a deal
could not be done. We have determined today that the deal cannot be done.”

Hart said purchase price was never an issue.

“Funding, its source, and how quickly it could be accomplished was the
impediment to getting the deal signed, and in the end, proved to be its
downfall,” Hart wrote.

Steve Reichenbach of Internet
, an partner, said Internet Nebraska anticipated
the potential demise of in December and took action to grow
the ISP before broke ranks.

“Internet Nebraska has felt this coming for a while now, so we acquired an
ISP this month and are working on acquiring another provider soon,”
Reichenbach said.

“We’re looking to build upon our organic growth and acquisitions by
entering into a strategic partnership that would benefit the people we
serve,” Reichenbach added. “We’d like to become a facilities based CLEC
because it would serve Nebraska well.”

Internet Nebraska currently provides Internet access to more than 12,000
customers in Lincoln, Omaha and Hastings.

Not all partners received the news as favorably as Internet

Several ISP owners and operators refused to go on the record with their
comments concerning because they had not been officially
informed of the firm’s intent to sever all contractual obligations. Another ISP owner said the only thing he could comment on how not to do a successful roll-up.

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