-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DHsntRo96N+hfTuwN4mbiR5lgg8kCy63tNE/uijpRvU09IsbQWcaLUxVHHBXrmhk 2iu5HQ7jDf72c3SjlyCnpw== 0001038838-04-001188.txt : 20041221 0001038838-04-001188.hdr.sgml : 20041221 20041221170013 ACCESSION NUMBER: 0001038838-04-001188 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041221 DATE AS OF CHANGE: 20041221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMENET CORP CENTRAL INDEX KEY: 0000910639 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 330565710 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22236 FILM NUMBER: 041218065 BUSINESS ADDRESS: STREET 1: 175 SOUTH MAIN STREET STREET 2: SUITE 1240 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 BUSINESS PHONE: 801-502-6100 MAIL ADDRESS: STREET 1: 175 SOUTH MAIN STREET STREET 2: SUITE 1240 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 FORMER COMPANY: FORMER CONFORMED NAME: FARADAY FINANCIAL INC DATE OF NAME CHANGE: 19930816 10QSB 1 q093004.txt 10-QSB ENDED SEPTEMBER 30, 2004 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2004 Commission File Number 000-22236 HOMENET CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 33-0565710 ------------------------------ --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 5252 North Edgewood Drive, Suite 310 (Address of principal executive offices) Provo, UT, 84604 ---------------------------------------- (City, State, Zip Code) (801) 502-6100 --------------------------------------------------- (Registrant's telephone number, including area code) FARADAY FINANCIAL, INC. 175 South Main, Suite 1240, SLC, UT 84111 -------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of November 22, 2004 ------------ ----------------------------------- Common Stock 5,877,849 Transitional Small Business Disclosure Format (Check one): Yes |X| No [ ] PART I -- FINANCIAL INFORMATION Item 1. Financial Statements
HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Consolidated Balance Sheet (Unaudited) ASSETS September 30, 2004 ------------------ CURRENT ASSETS Cash in bank $ 474,869 Cash in escrow 60,000 Accounts receivable - trade 94,078 Accounts receivable - related 19,587 Prepaid expenses 1,075 ------------------ Total Current Assets 649,609 ------------------ PROPERTY AND EQUIPMENT Computer Equipment 288,907 Office Equipment 31,146 Software 53,323 Less - accumulated depreciation (202,631) ------------------ Total Property and Equipment 170,745 ------------------ TOTAL ASSETS 820,354 ================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 97,837 Accrued liabilities 342,263 Note payable - related - current portion (Note 4) 237,022 Note payable - current portion (Note 4) 408,936 Convertible debt - related parties (Note 4) 675,000 Convertible debt (Note 4) 873,000 ------------------ Total Current Liabilities 2,634,058 ------------------ LONG TERM LIABILITIES Note payable (Note 4) 101,837 ------------------ Total Liabilities 2,735,895 ------------------ STOCKHOLDERS' DEFICIT Common stock, $0.001 par value, 20,000,000 shares Authorized 5,877,849 issued and outstanding 5,877 Capital in excess of par value 1,918,224 Deferred compensation (119,978) Treasury stock (59,375) Accumulated deficit (3,660,289) ------------------ Total Stockholders' Deficit (1,915,541) ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 820,354 ================== The accompanying notes are an integral part of these consolidated financial statements. 2
HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Consolidated Statements of Operations (Unaudited) For the For the Three Months Ended Six Months Ended September 30, September 30, ------------------------------- ---------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- REVENUES $ 715,609 $ 289,129 $ 993,720 $ 548,721 -------------- -------------- -------------- -------------- COST OF SALES Subscriber-related expenses 365,529 149,789 577,612 168,981 -------------- -------------- -------------- -------------- Total Cost of Sales 365,529 149,789 577,612 168,981 -------------- -------------- -------------- -------------- GROSS MARGIN 350,080 139,340 416,108 379,740 OPERATING EXPENSES General and administrative 753,593 295,535 1,054,097 803,431 Stock-based compensation 20,124 - 153,648 - Depreciation and amortization 78,752 19,205 112,184 38,410 -------------- -------------- -------------- -------------- Total Expenses 852,469 314,740 1,319,929 841,841 -------------- -------------- -------------- -------------- LOSS FROM OPERATIONS (502,389) (175,400) (903,821) (461,101) OTHER EXPENSE Interest expense (73,584) (2,635) (89,225) (281,845) -------------- -------------- -------------- -------------- NET LOSS $ (575,973) $ (178,035) $ (993,046) $ (743,946) ============== ============== ============== ============== BASIC LOSS PER SHARE $ (0.25) $ (0.06) $ (0.43) $ (0.25) ============== ============== ============== ============== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,318,000 3,000,000 2,318,000 3,000,000 ============== ============== ============== ============== The accompanying notes are an integral part of these consolidated financial statements. 3
HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended September 30, ------------------------------------- 2004 2003 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (993,046) $ (743,946) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation & amortization expense 112,184 38,410 Common stock issued for services 153,868 - Amortization of debt discount - 250,000 Changes in operating assets and liabilities: Increase in cash in escrow (60,000) - (Increase) decrease in accounts receivable (21,931) 41,056 Increase in accounts receivable - related (19,587) - (Increase) decrease in other assets 5,689 (1,663) Increase (decrease) in accounts payable 36,463 (69,877) Increase (decrease) in current liabilities and accrued interest 259,893 (79,993) -------------- -------------- Net Cash Used by Operating Activities (526,467) (566,013) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (54,065) (23,828) -------------- -------------- Net Cash Used by Investing Activities (54,065) (23,828) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Change in cash overdraft (12,319) (25,628) Common stock issued for cash 16,000 135,750 Purchase of treasury shares (59,375) - Proceeds from notes payable 603,936 85,000 Proceeds from notes payable - related 116,022 - Proceeds from convertible debt 517,750 411,479 Proceeds from convertible debt - related 675,000 - Principal payments on capital leases (16,771) - Principal payments on notes payable (784,842) - -------------- -------------- Net Cash Provided by Financing Activities 1,055,401 606,601 -------------- -------------- NET INCREASE IN CASH 474,869 16,760 CASH AT BEGINNING OF PERIOD - - -------------- -------------- CASH AT END OF PERIOD $ 474,869 $ 16,760 ============== ============== The accompanying notes are an integral part of these consolidated financial statements. 4
HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Consolidated Statements of Cash Flows (Continued) (Unaudited) For the Six Months Ended September 30, ------------------------------------- 2004 2003 -------------- -------------- SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for debt paid on behalf of the Company $ 299,297 $ - Distribution of equity in merger $ 455,686 $ - Common stock issued for services $ 153,868 $ - Assets purchased with capital lease $ - $ 36,708 Common stock issued for assets $ - $ 100,000 CASH PAID FOR: Interest $ 355 $ - Taxes $ - $ - The accompanying notes are an integral part of these consolidated financial statements. 5
HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the interim consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. a.Organization and Business Activities HomeNet Corporation and Subsidiaries, (the "Company") was incorporated under the laws of the State of Delaware on June 11, 1992. The Company provides fiber optic cable television broadcast subscription services. In addition to its television services, the Company also provides high-speed internet service as well as voice over internet protocol through its fiber optic network. The Company's principal business strategy is to continue developing their service line in the United States and elsewhere to provide consumers with a fully competitive alternative to cable television, internet and voice services. b. Accounting Method The Company's consolidated financial statements are prepared using the accrual method of accounting. The Company has elected to change its accounting year-end from March 31 to December 31, effective with the year 2004 to coincide with the year-end of its subsidiary, HomeNet Communications, Inc. Because of the difference in year-ends between the companies, these financial statements reflect the financial position and results of operations and cash flow of the companies for 2004 as follows: HomeNet Corporation - financial position as of September 30, 2004, results of operations and cash flow for the periods ended September 30, 2004. HomeNet Communications, Inc. - financial position as of June 30, 2004, results of operations and cash flow for the periods ended June 30, 2004. Operating results for the six months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. c. Basic Loss Per Share The computation of basic loss per share of common stock is based on the weighted average number of shares outstanding during the period. For the Six Months Ended September 30, 2004 2003 -------------- -------------- Loss (numerator) $ (993,046) $ (743,946) Shares (denominator) 2,318,000 3,000,000 Per share amount $ (0.43) $ (0.25) For the six months ended September 30, 2004 and 2003 the Company has excluded 2,021,190 common stock equivalents, respectively, from the basic net loss per share calculation as they are anti-dilutive. 6 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION (Continued) d. Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. e. Revenue Recognition Subscription Television Services and Other Subscriber-Related Revenue Subscription television service revenues are derived principally from monthly fees paid by subscribers. In addition to recurring subscriber revenues, the Company also derives revenues from the sales of pay-per-view movies and events, and from installation charges. The Company recognizes cable television, high-speed data, telephony and programming revenues as services are provided to subscribers. Subscriber fees for multiple receivers and equipment rental are recognized as revenue monthly as earned. Revenues derived from other sources are recognized when services are provided or events occur. Software Revenue The Company applies the provisions of Statement of Position 97-2, "Software Revenue Recognition " in conjunction with the applicable provisions of Staff Accounting Bulletin No. 104, " Revenue Recognition." Accordingly, the Company recognizes revenue for software when there is (1) persuasive evidence that an arrangement exists, which is generally a customer purchase order, (2) the software is delivered, (3) the selling price is fixed and determinable and (4) collectibility of the customer receivable is deemed probable. The Company has yet to complete the development of its software developed for sale and has not yet recognized any revenue from the sale of software developed for sale. f. Cost of Sales Subscriber-related expenses Subscriber-related expenses consist primarily of monthly fees to the National Cable Television Cooperative and other programming providers and are generally based on the average number of subscribers to each program. The cost of television programming and distribution rights is generally incurred on a per subscriber basis and is recognized when the related programming is distributed to subscribers. Transmission expenses Transmission expenses consist primarily of transport cost and network access fees specifically associated with subscription services. g. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense for the six months ended September 30, 2004 and 2003 was $3,545 and $8,652, respectively. 7 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION (Continued) h. Newly Adopted Accounting Pronouncements FASB Interpretation No. 46 -- In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities." FIN 46 provides guidance on the identification of entities for which control is achieved through means other than through voting rights, variable interest entities, and how to determine when and which business enterprises should consolidate variable interest entities. This interpretation applies immediately to variable interest entities created after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have a material impact on the Company's consolidated financial statements. During the six months ended September 30, 2004, the Company adopted the following Emerging Issues Task Force Consensuses which did not have a material impact on the Company's financial statements: EITF Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables", EITF Issue No. 01 -8 " Determining Whether an Arrangement Contains a Lease", EITF Issue No. 02-3 "Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities", EITF Issue No. 02-9 "Accounting by a Reseller for Certain Consideration Received from a Vendor", EITF Issue No. 02-17, "Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination", EITF Issue No. 02-18 "Accounting for Subsequent Investments in an Investee after Suspension of Equity Method Loss Recognition", EITF Issue No. 03-1, "The Meaning of Other Than Temporary and its Application to Certain Instruments", EITF Issue No. 03-5, "Applicability of AICPA Statement of Position 97-02, `Software Revenue Recognition' to Non-Software Deliverables in an Arrangement Containing More Than Incidental Software", EITF Issue No. 03-7, "Accounting for the Settlement of the Equity Settled Portion of a Convertible Debt Instrument That Permits or Requires the Conversion Spread to be Settled in Stock", EITF Issue No. 03-10, "Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers. i. Concentrations of Credit Risk The Company maintains several accounts with financial institutions. The accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company's balances occasionally exceed that amount. Credit losses, if any, have been provided for in the financial statements and are based on management's expectations. The Company's accounts receivable are subject to potential concentrations of credit risk. The Company does not believe that it is subject to any unusual risks, or significant risks in the normal course of its business. The Company has no customers who account for greater than 10% of the accounts receivable balance at September 30, 2004 or who account for greater than 10% of total sales for the six months ended September 30, 2004. The Company is dependent on municipalities to provide the necessary transport facilities and to cable television content providers for content. 8 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION (Continued) j. Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. k. NCTC Patronage Capital Distributions The Company is a member of the National Cable Television Cooperative ("NCTC"), which is a not-for-profit, member-operated purchasing organization. The NCTC is a cooperative organization whose members and affiliates are engaged in the business of providing television reception or service to the public, primarily by means of a cable television system consistent with the definition of a "cable television system" in section 602 of the 1984 Cable Act. The NCTC negotiates and administers master affiliation agreements with cable television programming networks, cable hardware and equipment manufacturers and other service providers on behalf of its member companies. More than 1,000 NCTC member companies currently serve more than 13 million cable TV subscribers throughout the United States. NCTC membership includes a one-time, non-refundable initiation fee of $1.50 per subscriber. Should the Company acquire other cable systems in the future, the fees are covered under the original initiation fee. However, if the member has no active subscribers at the time of application, the one-time, non-refundable initiation fee is $1.00 per home in that member's franchise area. The minimum fee is $1,000 and the maximum fee is $50,000. The Company made payments, net of rebates, of $65,782 during the six months ended September 30, 2004. l. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, HomeNet Communications, Inc., Home Marketing Group and Digital Media Solutions, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. m. Internal Use Software The Company accounts for costs incurred to develop internal use software applications in accordance with the American Institute of Certified Public Accountants Statement of Position No. 98-1 (SOP 98-1), "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that entities capitalize certain internal use software costs, which includes software design, coding, installation, configuration and testing, once technical feasibility of the developed software is attained. Costs incurred in the process of attaining technological feasibility, which includes the conceptual formulation and evaluation of the software alternatives, and costs to upgrade and enhance software once developed are expensed as incurred. Under SOP 98-1, overhead, general and administration costs, support costs and training costs are not capitalized. The Company capitalized no additional internal use software development costs for the six months ended September 30, 2004. Capitalized internal use software costs are being depreciated on a straight-line basis over the estimated useful life of the application of two years. The Company recognized $4,292 in amortization expense for the six months ended September 30, 2004. The above-mentioned software was originally developed for internal use. During 2003, a single copy of the software was sold to a municipality for $150,000. In accordance with SOP 98-1, the proceeds from the sale were applied against the carrying amount of the software until the carrying value of the software reached zero. The additional proceeds of $55,578 were recognized as other income as earned. 9 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION (Continued) n. Software Developed for Sale The Company plans to sell or lease certain development software and have accounted for the costs to develop this software in accordance with SFAS No. 86 , "Accounting for Computer Software to be Sold, Leased, or Otherwise Marketed." Computer software development costs are charged to research and development expense until technological feasibility or a detail design document of the software is established, after which remaining significant software production costs are capitalized. Once capitalized software cost products are made available for sale or when the related product is put into use, the costs will be amortized on a straight-line basis over the estimated economic life of the software. The Company will make ongoing assessments of recoverability of capitalized software projects by comparing the amount capitalized for each product to the estimated net realizable value ("NRV") of the product. If the NRV is less than the amount capitalized, a write-down of the amount capitalized is recorded. The Company did not capitalize any additional software development for sale costs for the six months ended September 30, 2004. Costs capitalized in previous periods which have yet to placed into service are classified in other assets in the accompanying consolidated balance sheet. o. Stock-based Compensation As permitted by FASB Statement 148 "Accounting for Stock Based Compensation-Transition and Disclosure" (SFAS No. 148), the Company elected to measure and record compensation cost relative to employee stock option costs in accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees", and related interpretations and make proforma disclosures of net income and earning per share as if the fair value method of valuing stock options had been applied. Under APB opinion 25, compensation cost is recognized stock options granted to employees when the option price is less than the market price of the underlying common stock on the date of grant. NOTE 2 - MERGER TRANSACTION During September 2004 the Company ("HC"), HomeNet Communications, Inc. ("HNC") (Formerly Video Internet Broadcasting Corporation) and HomeNet, Utah, Inc., ("HNU") a wholly owned subsidiary of the Company, entered into a Merger Agreement whereby HNU was merged into HNC ("Merger") with HNC the surviving corporation. The separate existence of HNU ceased once the Merger became effective. In addition, as part of the Merger, VIB's name was changed to HomeNet Communications, Inc. Upon closing of the Merger Agreement, each share of HNC capital stock that was issued and outstanding immediately prior to the closing was converted into 1.0903 shares of the Company's common stock and all previously outstanding shares of HNC capital stock is no longer outstanding and was automatically canceled and ceased to exist. All other securities convertible into or exercisable for shares of HNC capital stock, including but not limited to stock options, convertible debt and warrants and issued by the Company prior to the effective date of the Merger became convertible into or exercisable for the number of shares of Company common stock determined by using the 1.0903 conversion factor. HNC had 2,184,939 shares of common stock outstanding, 350,550 shares of preferred stock outstanding, options exercisable for an additional 618,520 shares of stock and other convertible securities that are convertible under terms that are in dispute. The Company issued approximately 2,764,449 shares of its common stock on a fully diluted basis in connection with the Merger. In addition, there is a possibility that the Company may create a class of preferred stock that would be issued to some of the holders of HNC securities that were convertible into HNC preferred stock. The merger was accounted for as a recapitalization of HNC because the 10 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 2 - MERGER TRANSACTION (Continued) shareholders of HNC controlled HC after the merger. HNC was treated as the surviving entity for accounting purposes and HC was the surviving entity for legal purposes. There was no adjustment to the carrying value of the assets or liabilities or HNC. NOTE 3 - RELATED PARTY TRANSACTIONS Development Costs The Company has employed certain family members of management on a contract basis for the development of software. The Company paid a total of $30,000 to these individuals for six months ended September 30, 2004. Accounts Payable The Company has $10,577 in payables to related parties at September 30, 2004. The amount is included in accounts payable. Common Stock The Company issued 100,000 shares of common stock to a related party in February 2003 to purchase $100,000 of multimedia equipment. The equipment was valued at predecessor's cost. In December of 2003 the Company issued 138,846 shares of its common stock to an employee in payment of consulting services valued at $138,846. During 2002, the Company issued 94,500 shares of its common stock to board members and directors of the Company for cash of $94,500. Also during 2002, the Company issued 43,788 shares of its common stock to two board members and directors of the Company in payment of debt of $43,788. After inception on March 23, 2001, the Company issued 470,000 shares to founders of the Company for services provided. The stock was valued at $0.001 per share, par value. During 2001, the Company issued 2,000 shares of common stock to a director of the Company for $10,000 in cash. Lease Guarantees The Company's Chief Executive Officer has personally guaranteed several equipment leases and the Company's current office space lease. NOTE 4 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES In connection with the merger between HomeNet Corporation and HomeNet Communications, the parties entered into a loan agreement, pursuant to which HomeNet Corporation has lent HNC a principal amount of $670,000 as of September 30, 2004. All inter-company debt has been eliminated in the consolidation. To obtain the financing needed for the loan agreement between HC and HNC, HC entered into loan agreements with several investors. During March 2004, the Company issued convertible debentures to finance its loan to HNC. The debentures accrue interest at 12% per annum and are due six months from the original date of the notes. Principal and interest not paid when due shall bear interest at the rate of 18% per 11 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 4 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (Continued) annum. The notes are convertible at any time at the option of the holder into shares of the Company's common stock at the rate of one share of common stock for every $1.00 in principal and accrued interest that is converted. In addition, the notes have attached common stock purchase warrants to acquire 100 shares of common stock at an exercise price of $1.50 per share for every one thousand dollars in principal lent by the lender. In determining whether an instrument includes a beneficial conversion option, the Emerging Issues Task Force reached a consensus that the effective conversion price based on the proceeds received for or allocated to the convertible instrument should be used to compute the intrinsic value, if any, of the embedded conversion option. As a result of this consensus, an issuer should first allocate the proceeds received in a financing transaction that includes a convertible instrument to the convertible instrument and any other detachable instruments included in the exchange (such as detachable warrants) on a relative fair value basis. Then, the Issue 98-5 model should be applied to the amount allocated to the convertible instrument, and an effective conversion price should be calculated and used to measure the intrinsic value, if any, of the embedded conversion option. During the six months ended September 30, 2004 HC issued $1,275,000 of convertible debt with a par amount of $1,275,000 and 127,500 warrants. The convertible debt is convertible at a conversion price of $1 per share (holder would receive 1 share of stock for each dollar of debt or 1,275,000 shares of the Company's common stock). Using the Black-Scholes model, the 127,500 warrants have no value. The Company has recorded accrued interest of $83,272 associated with the convertible debentures. The Company has determined that the embedded conversion option within the debt instrument is not beneficial (has no intrinsic value) to the holder. Notes payable, convertible debentures and notes payable - related parties consist of the following as of September 30, 2004: Unsecured notes payable to shareholders of the Company due on demand, payable through the issuance of or proceeds from the sale of shares of NutraCea common stock Interest is computed at a rate of 12% per annum. $ 153,436 Note payable bearing interest at 8% per annum, unsecured, annual payments of $51,375 plus interest due on May 30 each year until paid in full. 205,500 Note payable bearing interest at 2.5% per annum, unsecured, due by April 1, 2007, monthly payments of $3,000 151,837 Less current portion (408,936) ---------- Total Notes Payable $ 101,837 ========== 12 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 4 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (Continued) Unsecured notes payable to shareholders of the Company due on demand, payable through the issuance of or proceeds from the sale of shares of NutraCea common stock Interest is computed at a rate of 12% per annum. $ 17,022 Note payable bearing interest at 12% per annum, unsecured, payable on demand 50,000 Note payable bearing interest at 12% per annum, unsecured, payable on demand 170,000 ---------- Total Notes Payable - Related 237,022 ========== Unsecured convertible notes payable to shareholders of the Company due September 2004, convertible at the holder's option to common stock of the Company at a ratio of one share per each dollar of outstanding principal and interest. Interest is computed at at a rate of 12% per annum. $1,275,000 Convertible note payable, bearing interest at 8% per annum, convertible to Series B preferred stock at a rate of two shares for each dollar loaned, conversion price of $1.00 per share, note also carries warrants to purchase Series B preferred at the rate of 25% of the total shares the note is convertible to and are exercisable at $1.00 per share 273,000 Less related party portion (675,000) ---------- Total Convertible Debt $ 873,000 ========== Interest expense on the above debt amounted to $89,225 for the six months ended September 30, 2004. Accrued interest was $298,871 at September 30, 2004. During the year December 31, 2003, the Company raised $444,250 of operating capital in the form of convertible debentures ($89,000 from related parties, $355,250 from other investors). The debentures have varying terms of 1 to 2 years and accrue interest at 8% to 10% per annum. All convertible debentures are convertible at the option of the holder. Upon issuance of the debentures, the Company recognized a debt discount related to the beneficial conversion feature of the debentures totaling $444,246. This beneficial conversion feature was expensed during the year ended December 31, 2003 pursuant to the EITF 96-18 and has been included in interest expense in the accompanying consolidated statement of operations. 13 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 5 - COMMON STOCK The Company has authorized 30,000,000 shares of common stock with a par value of $0.001 per share. During the year ended December 31, 2003 the Company issued 150,750 shares of its common stock to various investors for cash of $271,250. During February 2003, the Company issued 100,000 shares of its common stock to purchase multimedia equipment valued at $100,000. Also during 2003 the Company issued 189,994 shares of its common stock for services valued at $220,624. During the year ended December 31, 2002, the Company issued 185,000 shares of its common stock for cash of $189,000. In June 2002 the Company issued 63,788 shares of its common stock in payment of debt of $63,788. Also in 2002, the Company issued 35,700 shares of its common stock for services valued at $35,700. During the year ended December 31, 2001, the Company issued 198,000 shares of its common stock for cash of $90,180. In June 2001, the Company issued 470,000 shares of its common stock to founders of the Company in payment of services valued at $470. NOTE 6 - COMMITMENTS AND CONTINGENCIES Operating Leases On August 30, 2001, the Company entered into a seven-year lease agreement for office space in Ephrata, Washington. The monthly rental payment is currently $1,321 per month. The payment is adjusted on each anniversary to reflect the change in the Consumer Price Index from the previous twelve months. Future minimum lease payments under this non-cancelable operating lease, subject to CPI adjustments, are as follows: Years Ending March 31, ------------ 2005 $ 15,852 2006 15,852 2007 15,852 2008 7,926 ------------- $ 71,334 ============= Litigation As of December 31, 2003, a Summary Judgment had been entered against the Company in the amount $26,395 arising from a dispute with a vendor and has been accrued by the Company in notes payable and accrued interest in the consolidated balance sheet. The balance was paid in full in March 2004 and the judgment was dismissed. The Company has been contacted by an attorney for its investment banker regarding a claim for fees owed. Management can not reasonably estimate any settlement amount. NOTE 7 - OUTSTANDING STOCK PURCHASE WARRANTS The Company has elected to follow the intrinsic value method of accounting under Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees," ("APB 25") and related interpretations in accounting for their stock-based compensation plans. Under APB 25, the Company 14 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 7 - OUTSTANDING STOCK PURCHASE WARRANTS (Continued) generally does not recognize compensation expense on the grant of options under their Stock Incentive Plan because typically the option terms are fixed and the exercise price equals or exceeds the market price of the underlying stock on the date of the grant. The Company applies the disclosure only provisions of Statement of Financial Accounting Standards No. 148, "Accounting and Disclosure of Stock-Based Compensation," ("FAS 148"). Pro forma information regarding net income and earnings per share is required by FAS 148 and has been determined as if the Company had accounted for its stock-based compensation plans using the fair market value method prescribed by that statement. For purposes of pro forma disclosures, the estimated fair market value of the options is amortized to expense over the options' vesting period on a straight-line basis. All options are initially assumed to vest. Compensation previously recognized is reversed to the extent applicable to forfeitures of unvested options. Under FASB Statement 148, the Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for grants: dividend yields of 0%; expected volatility of 172%; risk-free interest rates of between 1.33% and 1.65% and expected lives of between1and4years. A summary of the status of the Company's stock options and warrants as of September 30, 2004 and changes during the six months ended September 30, 2004 is presented below: Weighted Weighted Options Average Average and Exercise Grant Date Warrants Price Fair Value -------- -------- ---------- Outstanding, March 31, 2003 - $ - $ - Granted 71,000 1.50 - Expired/Canceled - - - Exercised - - - --------- ---------- ---------- Outstanding, March 31, 2004 71,000 $ 1.50 $ - Granted 2,336,932 1.50 - Expired - - - Exercised - - - --------- ---------- ---------- Outstanding, September 30, 2004 2,407,932 1.50 - Exercisable, September 30, 2004 2,096,423 $ 1.50 $ - ========= ========== ========== During 2003, the Company's board of directors approved the "2003 Stock Option Plan," (2003 Plan). Under the terms of this Plan, the Company registered 350,000 shares of its $0.001 par value common stock at a proposed offering price per share of $1.50. During the year ended December 31, 2003 the Company granted 349,000 stock options to employees under the 2003 Plan. During September 2003, the Company issued 62,500 options to purchase common stock to various consultants for services. The options had an exercise price of $3.00 per share and a term of three years. The Company recognized a total of $16,784 in expense associated with the issuance of these options. During 2003, the Company issued warrants to purchase common stock with convertible debt (discussed in Note 3 to the financial statements). At December 31, 2003 a total of 572,131 warrants to purchase common stock were outstanding. 15 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 7 - OUTSTANDING STOCK PURCHASE WARRANTS (Continued) Also during 2003, the Company issued warrants to purchase common stock with convertible debt (see Note 3). At December 31, 2003 a total of 55,219 warrants to purchase common stock were outstanding. Had compensation cost for the Company's stock options granted to directors and employees been based on the fair value as determined by the Black-Scholes option pricing model at the grant date under the accounting provisions of SFAS No. 123, the Company would have recorded additional expense of $45,469and $12,783 for the six months ended September 30, 2004 and 2003, respectively. Also under these same provisions, the Company's net loss would have been changed by the pro forma amounts indicated below: For the Six Months Ended September 30, --------------------------------- 2004 2003 ------------- -------------- Net loss: As reported $ (993,046) $ (743,946) Pro forma $ (1,038,515) $ (756,729) Basic loss per share: As reported $ (0.43) $ (0.25) Pro forma $ (0.45) $ (0.25) NOTE 8 - DISPUTED CLAIMS The Company is indebted to certain persons in what it believes to be the aggregate principal amount of $273,000, as evidenced by fourteen (14) separate promissory notes ("Convertible Notes"). These notes are convertible into Series B Preferred Stock. The holders of these notes also received warrants to purchase an aggregate of 121,565 shares of Series B Preferred Stock at an exercise price of $1.00 per share. The holders of four (4) of these notes claim to be owed Series B Preferred stock in addition to the principal in an amount equal to the amount of the Notes actually loaned to the Company ("Disputed Notes"). The individual who negotiated and signed the Disputed Notes on the Company's behalf was the Company's Interim Chief Financial Officer, and was also employed by the firm acting as the placement agent for the Convertible Notes ("Placement Agent"). This individual executed the Disputed Notes without the prior knowledge or authorization of the Company's Board of Directors. Moreover, certain of the Disputed Notes are held by affiliates of the Placement Agent/Chief Financial Officer. The Company is in negotiations to resolve disagreements over the amounts owed and to eliminate this debt. The amount of repayment and or number shares and warrants to be issued cannot be determined at this time. However, the original principal amount of the notes and the stated number of warrants are included in these financial statements. All of the above mentioned amounts have been accrued in the financial statements. NOTE 9 - GOING CONCERN The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate 16 HOMENET CORPORATION AND SUBSIDIARIES (FORMERLY FARADAY FINANCIAL, INC. AND SUBSIDIARIES) Notes to the Consolidated Financial Statements For the Six Months Ended September 30, 2004 and 2003 NOTE 9 - GOING CONCERN (Continued) capital, it could be forced to cease operations. In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management's plans to continue as a going concern include raising additional capital through sales of common stock and or issuance of corporate debt. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The Company is involved in a highly competitive industry and has encountered difficulty in raising capital in the past. Management estimates that $5,000,000 of additional capital will be required to fund the Company's operations for the next twelve months. NOTE 10 - SUBSEQUENT EVENT On or about November 30, 2004, the Company entered into secured loan arrangement whereby three accredited lenders provided the Company with loans in the aggregate principal amount of $600,000. These loans bear interest at the rate of 12% per annum and have a default interest rate of 18% per annum. In connection with the loans, the lenders received warrants exercisable for 50,000 shares of common stock at the price of $1.50 per share. The loans are secured by the general intangibles of Homenet Communications, Inc., subject to certain prior rights of Zions National Bank. 17 Item 2. Management's Discussion and Analysis or Plan of Operation. The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. Overview This report represents the initial reporting period to reflect the consolidated activities of the Company and its recently acquired wholly owned subsidiary, HomeNet Communications, Inc., ("HNC") (formerly Video Internet Broadcasting Corporation). Information relating to 2003 is for HNC. In furtherance of the Company's plan of operation, the Company, HNC and HNU, a wholly owned subsidiary of the Company, completed a Plan of Merger whereby HNU was merged HNC ("Merger") with HNC being the surviving corporation. Upon closing of the Merger, each share of HNC capital stock that was issued and outstanding immediately prior to the closing was converted into 1.0903 shares of the Company's common stock and all previously outstanding shares of HNC capital stock are no longer outstanding and were automatically canceled and ceased to exist. All other securities convertible into or exercisable for shares of HNC capital stock, including but not limited to stock options, convertible debt and warrants and issued by HNC prior to the effective date of the Merger were converted into or exercisable for the number of shares of HNC common stock determined by using the 1.0903 conversion factor. On the date of the Merger HNC had 2,184,939 shares of common stock outstanding, 350,550 shares of preferred stock outstanding, options exercisable for an additional 618,520 shares of stock and other convertible securities that are convertible under terms that are in dispute. See footnote 2 to the attached financial statements. The Company issued approximately 2,764,449 shares of its common stock on a fully diluted basis to consummate the Merger. In addition, there is a possibility that the Company may create a class of preferred stock that would be issued to some of the holders of HNC securities that were convertible into HNC preferred stock immediately prior to the Merger. However, the exact number of shares and the number and form of the convertible securities to be issued is still subject to agreement. The merger was accounted for as a recapitalization of HNC because the shareholders of HNC controlled HC after the merger. HNC was treated as the surviving entity for accounting purposes and HC was the surviving entity for legal purposes. There was no adjustment to the carrying value of the assets or liabilities or HNC. As a result of the Merger, we are now involved in providing deployed Internet Protocol (IP) television services. We have approximately 4,000 paying video and data or data only subscribers in Utah and Washington State. We are a service provider for the delivery of video, data, and voice services ("triple play") to the municipal and government consumer markets. We provide these services over fiber optic systems designed and built by municipal and governmental entities. We have partnered with technology providers and well-capitalized Public Utility Districts (PUDs) and cities to deploy our services in the initial targeted areas. In each case, the city or the utility deploys the fiber infrastructure to businesses and residences in their respective service areas. We lease this end-to-end fiber infrastructure from the utilities, on a per subscriber basis, thereby, we believe, minimizing our capital expenditures. Results of operations consist of: The traditional cable and "Triple Play" (voice, video and data) IP service providing business of HNC: 18 We signed an "Initial Provider Network Access And Use Agreement" with the City of Provo, Utah (Provo) on July 8, 2004. This contract designates us as the initial service provider for Provo to deliver video, data, and telephony to its population of 30,000 households and 3,000 businesses. It is anticipated that other providers will have the opportunity to "co-locate" on this system in the future; although we have a period of exclusivity while the system is being built out. In February 2004, in contemplation of the awarding of our contract with Provo, we acquired the customers of and the right to operate Provo Cable Company (PCC), a traditional, analog delivery cable system. We plan to continue to operate this system until the fiber infrastructure reaches these customers, at which time we will convert them to the IP delivery system. The results of those operations are included in the analysis below. The service and product fulfillment business of HMG: HMG commenced operations in March 2004. Its results are included in the analysis below. Three and Six Months Ended September 30, 2004 Revenues Revenues for the three month period ended September 30, 2004 increased 148% to $715,609 from $289,129 for the three month period ended September 30, 2003. Revenue in the 2004 period included $217,775 and $82,145 from HMG and PCC, respectively. Revenue for the six month period ended September 30, 2004 increased 81% to $993,720 from $548,721 for the six month period ended September 30, 2004. Revenue in the 2004 period included $332,568 and $280,711 from HMG and PCC, respectively. Additionally, revenue in the 2003 period included a one-time sale of software in the amount of $150,000. Gross Margin Gross margin for the three month period ended September 30, 2004 increased 151% to $350,080 from $139,340 for the three month period ended September 30, 2003. Gross margin in the 2004 period included $100,887 and $74,670 from HMG and PCC, respectively. Gross margin for the six month period ended September 30, 2004 increased 9.6% to $ 416,108 from $379,740 for the six month period ended September 30, 2004. Gross margin in the 2004 period included $167,185 and $237,460 from HMG and PCC, respectively. Additionally, gross margin in the 2003 period included margin from a one-time sale of software in the amount of $150,000. Operating Expenses Operating expenses for the three months ended September 30, 2004 increased 170% to $852,469 from $314,740 for the three months ended September 30, 2003. Operating expenses increased, primarily, as a result of increased staffing and administrative infrastructure to support the HMG and PCC operations. Operating expenses for the six months ended September 30, 2004 increased 56% to $1,319,929 from $841,841 for the six months ended September 30, 2003. Operating expenses increased, primarily, as a result of increased staffing and administrative infrastructure to support the HMG and PCC operations. 19 Interest Expense Interest expense for the three month period ended September 30, 2004 increased to $73,584 from $2,636 for the three months ended September 30, 2003. Interest expense for the six month period ended September 30, 2004 decreased to $89,225 from $281,845 for the six months ended September 30, 2003. During 2004 and prior to September 30, 2004, we issued $1,275,000 in Convertible Notes. We also established a line of credit with a national bank in the amount of $1,500,000. At the date of this filing we have not borrowed against the line of credit. Interest on these instruments was responsible for the increase in interest over the prior period. Net Loss Net losses for the three month periods ended September 30, 2004 and 2003 were $575,973 and $178,035, respectively Net losses for the six month periods ended September 30, 2004 and 2003 were $993,046 and $743,946, respectively. In each case, current year net losses were higher as a result of assembling a staff and building processes to support the Provo launch as well as future projects. Continuing development of our proprietary set top box software and the cost of expanding our market share were also contributing factors. Liquidity and Capital Resources To date, we have financed our operations principally through private placements of equity and debt securities and revenues from operations. We used net cash for operating activities of $526,467during the six months ended September 30, 2004, a decrease of $39,546 as compared to the $566,013 used during the same period in 2003. The reason for the decrease in cash needed to fund operations was due to a beneficial conversion feature adjustment which was included in the 2003 results. During the six months ended September 30, 2004, net cash of $54,065 was used in investing activities, involving purchase of fixed assets, compared with $23,828 for the same period in 2003. Cash proceeds of $1,192,750 were realized from the issuance of convertible notes and $16,000 in common stock, cash of $16,771 was used to pay capital lease and note payable obligations and cash of $784,842 was used in other financing activities. As of September 30, 2004, our current liabilities totaled $2,634,058 and we had a working capital deficit of $1,984,449. Our working capital requirements for the foreseeable future will vary based upon a number of factors, including the acquisition of, and the costs associated with launching, new projects, the acceptance of our product and market penetration along with other factors that may not be foreseeable at this time. We believe that we will need at least $5,000,000 in funding by the end of January 2005 to fund operations for the next twelve months. We have no commitments to provide additional funding and there can be no assurance that we will be able to obtain additional funding on satisfactory terms, or at all. If we do not receive the needed funding, we will not be able to execute our business plan and will be required to significantly curtail and perhaps cease operations. The Company had no significant non-cancelable operating lease obligations as of September 30, 2004. Notes payable, convertible debentures and notes payable - related parties consist of the following as of September 30, 2004: 20 Unsecured notes payable to shareholders of the Company due on demand, payable through the issuance of or proceeds from the sale of shares of NutraCea common stock Interest is computed at a rate of 12% per annum. $ 153,436 Note payable bearing interest at 8% per annum, unsecured, annual payments of $51,375 plus interest due on May 30 each year until paid in full. 205,500 Note payable bearing interest at 2.5% per annum, unsecured, due by April 1, 2007, monthly payments of $3,000 151,837 Less current portion (408,936) ---------- Total Notes Payable $ 101,837 ========== Unsecured notes payable to shareholders of the Company due on demand, payable through the issuance of or proceeds from the sale of shares of NutraCea common stock Interest is computed at a rate of 12% per annum. $ 17,022 Note payable bearing interest at 12% per annum, unsecured, payable on demand 50,000 Note payable bearing interest at 12% per annum, unsecured, payable on demand 170,000 ---------- Total Notes Payable - Related 237,022 ========== Unsecured convertible notes payable to shareholders of the Company due September 2004, convertible at the holder's option to common stock of the Company at a ratio of one share per each dollar of outstanding principal and interest. Interest is computed at at a rate of 12% per annum. $1,275,000 Convertible note payable, bearing interest at 8% per annum, convertible to Series B preferred stock at a rate of two shares for each dollar loaned, conversion price of $1.00 per share, note also carries warrants to purchase Series B preferred at the rate of 25% of the total shares the note is convertible to and are exercisable at $1.00 per share 273,000 Less related party portion (675,000) ---------- Total Convertible Debt $ 873,000 ========== On or about November 30, 2004, the Company entered into secured loan arrangement whereby three accredited lenders provided the Company with loans in the aggregate principal amount of $600,000. These loans bear interest at the rate of 12% per annum and have a default interest rate of 18% per annum. In connection with the loans, the lenders received warrants exercisable for 50,000 shares of common stock at the price of $1.50 per share. The loans are secured by the general intangibles of Homenet Communications, Inc., subject to certain prior rights of Zions National Bank. 21 Off Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Recent Accounting Pronouncements The Company has not adopted any new accounting policies that would have a material impact on the Company's financial condition, changes in financial conditions or results of operations. Critical Accounting Policies Revenue Recognition Subscription Television Services and Other Subscriber-Related Revenue Subscription television service revenues are derived principally from monthly fees paid by subscribers. In addition to recurring subscriber revenues, the Company also derives revenues from the sales of pay-per-view movies and events, and from installation charges. The Company recognizes cable television, high-speed data, telephony and programming revenues as services are provided to subscribers. Subscriber fees for multiple receivers and equipment rental are recognized as revenue monthly as earned. Revenues derived from other sources are recognized when services are provided or events occur. Software Revenue The Company applies the provisions of Statement of Position 97-2, "Software Revenue Recognition " in conjunction with the applicable provisions of Staff Accounting Bulletin No. 104, " Revenue Recognition." Accordingly, the Company recognizes revenue for software when there is (1) persuasive evidence that an arrangement exists, which is generally a customer purchase order, (2) the software is delivered, (3) the selling price is fixed and determinable and (4) collectibility of the customer receivable is deemed probable. The Company has yet to complete the development of its software developed for sale and has not yet recognized any revenue from the sale of software developed for sale. Forward Looking Statements When used in this Form 10-QSB or other filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized officer of the Company's executive officers, the words or phrases "would be", "will allow", "intends to", "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements specifically include, but are not limited to, project launch dates; successfully commercialization of our projects; expectations regarding the ability of our products and services to compete with the products and services of our competitors; acceptance of our products and services by the marketplace as cost effective; sufficiency and timing of available resources to fund operations; plans regarding the raising of capital; the size of the market for our products and services; plans regarding sales and marketing; and strategic business initiatives. 22 We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, are based on certain assumptions and expectations which may or may not be valid or actually occur, and which involve various risks and uncertainties, including but not limited to risk of a lack of demand or low demand for our products and services, the inability to successfully implement our projects, competitive products, services and pricing, delays in introduction of products and services, commercialization and technology, changes in the regulation or service provider selection and other risks. See "Risk Factors." Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement. Risk Factors We have a limited operating history upon which you may evaluate us and may never become profitable. The Company has been operating a subscriber-based service offering since March 2001. We have a limited operating history upon which you may evaluate our business and prospects. We have incurred net losses since inception. Currently, we have approximately 4,000 paying customers, limited revenues, and are not yet profitable. Though we have a limited amount of revenue generating business, the success of our business model will depend on our ability to continue to finance the growth of the business and execute the operating model. There is no assurance that we will become profitable in the future. We do not have sufficient funds to execute our business plan. The Report of Independent Public Accountants relating to the Company's audited financial statements contains a "going concern" explanatory paragraph. We estimate that we will need at least $5,000,000 in financing to fund operations and pay for required capital expenditures during the next twelve months. We may fail to raise needed capital for the following reasons, among others: (i) continued low valuations of service and technology companies in the capital markets; (ii) lack of acceptance of our business model by potential investors and or lending institutions; (iii) a failure to agree on the terms of an investment or debt line; and (iv) competition from other companies with similar business models which are willing to accept lower valuations or more onerous terms. If we are unable to raise needed additional capital on favorable terms, we will not be able to implement our business model. We are highly dependent on emerging markets. Our ability to generate revenue is dependent on the development of new opportunities for video, data, and voice services in the municipal and government markets, and on the receptiveness of those markets to the Company's services and products. Specifically, market acceptance of the Company's services and products is highly dependent upon commercial and residential deployment programs by municipal and governmental entities. There can be no assurance that the deployment of the network infrastructure by these operators, required to deploy our services and products, will go on as anticipated or that the Company will be able to gain significant market share while providing services and products over these networks. Our business is dependent upon variable transport costs which may change. Our business model is predicated on the build out of infrastructure by third parties and the wholesale leasing of that infrastructure on a per subscriber basis. These rates are subject to change among the various government and municipal entities we work with. If these rates were increased to the extent that we were not able to maintain our competitive market margins, our business would be materially adversely affected. 23 Our business model is unproven at scale. Our strategy is based upon a relatively unproven business model. Our business model of delivering a range of services to residential and business customers in a purely digital media over fiber optic cable has been done in limited quantity with limited customers. We intend to take advantage of large infrastructure investments in fiber optic infrastructure systems by public utilities and government entities to serve their customers and thereby increase the Company's competitive advantage. However, to our knowledge, no other existing companies have done this successfully. If the utilities or government entities slow their build out of the infrastructure, the Company's growth would be slowed as well. If consumers do not adopt the technology solution and service at our forecasted rates, our success will be limited as well. We may shift our focus or redefine our business model or strategy in the future. There can be no assurance that the Company will be able to devise a long-term business strategy that will result in commercially exploitable products or services or generate future profits. Increased subscriber turnover could affect our financial performance. Historically, we have had significant levels of subscriber turnover (churn). Any development, which among other things, increases costs to our existing customers or materially adversely affects the quality of service, will increase the desirability of a competing product. A number of risks described in this memorandum as potentially having a material adverse affect on cost or quality could also result in an increase in churn which would harm our financial performance. Churn can also increase due to factors beyond our control, including a slowing economy, significant signal compromise, a maturing subscriber base, and competitive service offerings. There can be no assurance that we will be able to manage our churn rates to achieve profitability. We may be unable to manage rapidly expanding operations. If we are unable to manage our growth effectively, our business and results of operations could be materially adversely affected. To manage our growth effectively, we must continue to: o Develop expanded internal and external sales forces; o Develop expanded installation capabilities; o Develop expanded customer service operations and information systems; o Maintain our relationships with third party vendors and strategic partners; and o Expand, train, and manage our employee base. Furthermore, our management personnel must assume even greater levels of responsibility. If we are unable to effectively manage our growth, we may experience a decrease in subscriber growth, an increase in churn, an increase in expenses or other adverse results, any one of which could have a material adverse affect on our business. We depend on others to produce programming. We depend on third parties to provide us with programming services. Our programming agreements have remaining terms ranging from less than two to up to six years and contain various renewal and cancellation provisions. We may not be able to renew or modify these agreements on favorable terms, or at all, or these agreements may be canceled prior to expiration of their original term. If we are unable to renew or modify any of these agreements or the other parties cancel the agreements, there can be no assurance that we would be able to obtain substitute programming, or that such substitute programming would be comparable in quality or cost to our existing programming or that of our competitors. In addition, programming costs are anticipated to continue to increase. We may be unable to pass programming costs on to our customers which could have a material adverse impact on our business, cash flows, and operating margins. 24 The Company's industry is highly competitive. We expect to face intense competition in the development, production, and sale of our services and products. The opportunities created by the convergence of the information, telecom, and entertainment industries over fiber and telecommunication networks is likely to attract numerous service suppliers competing for these markets, including consumer electronics, computer, network infrastructure and traditional cable and satellite equipment manufacturers. The Company will also be subject to competitive pressure from consumer grade cable and satellite providers in the service territories in which we are focused. The Company's potential competitors have substantially greater resources than the Company. In addition, a number of the Company's competitors may have a broader array of product offerings, with greater scale and ability to provide such products at lower cost, which could provide prospective customers a greater number of options. There can be no assurance that alternative and superior technologies or services may not become available, or that the Company will be able to compete successfully with larger, more established companies. We are highly dependent on our suppliers and partners. Many of our prospective customers want access to a "turnkey" solution that they can obtain from a single provider. To this end, we have entered into strategic partnerships and supplier relationships to bundle such a turnkey solution. We believe we possess considerable industry experience and know-how, and a robust software and operating system solution. Our suppliers and partners provide necessary infrastructure, including backbone, servers, front-end and content. Such supplier relationships and partnerships include Cisco, Sigma Designs, National Semi Conductor, Intel Corporation, Vbrick, Optical Solutions Inc,, Ncube, Kasenna and others. This listing is not intended to be inclusive of all supplier and partner and relationships the Company currently maintains To the extent our suppliers and partners enter into similar arrangements with our competitors or fail to meet service level requirements, our business could be materially adversely affected. Our business depends upon the performance of our partner and supplier companies, which is uncertain. Economic, governmental, industry, and other factors outside our control will affect the Company. If our partner and supplier companies do not succeed, the value of our assets could decline. Many of our partner and supplier companies will be in the early stages of their development and may be under-performing. Our business and prospects must be considered in light of the risk, expense and difficulties frequently encountered by companies in early stages of development, particularly companies in still new and rapidly evolving markets. The material risks relating to our partner companies will include, among others: (i) lack of the widespread commercial use of the technologies to which their businesses relate; (ii) intense competition among providers of the products and services our partner companies offer, which could lead to the failure of some of our partner companies; (iii) inadequate market demand for the products or services of our partner companies; and (iv) poor implementation of the business plans of our respective partner companies. If we are unable to effectively mitigate the risks associated with our partner companies, our business operating results and financial condition may be adversely affected and we may be unable to execute our strategy. 25 Our business may be disrupted if we are unable to upgrade our systems to meet increased demand. Capacity limits on some of our technology (and that of certain of our partners and suppliers), transaction processing systems and network hardware and software may be difficult to project and we may not be able to expand and upgrade our systems to meet increased use. As traffic on our systems increases, we and our partners will be required to expand and upgrade our technology, transaction processing systems and network hardware and software. We may be unable to accurately project these rates of increase. In addition, we may not be able to expand and upgrade our systems and network hardware and software capabilities to accommodate increased use of our products and services. If we are unable to appropriately upgrade our systems and network hardware and software, our operations and processes may be disrupted or we may lose potential customers. We may be unable to protect our proprietary rights and may infringe on the proprietary rights of others. We will likely be entering or even creating new markets for goods and services. In support of this innovation, we may develop proprietary techniques, trademarks, processes, hardware, and software. Although reasonable efforts will be taken to protect the rights to this intellectual property, the complexity of international trade secret, copyright, trademark, and patent law, coupled with the limited resources of young companies and the demands of quick delivery of products and services to market, create risks that our efforts will prove inadequate. Further, the nature of the technology industry demands that considerable detail about innovative processes and techniques be exposed to competitors for a variety of reasons, including partnering relationships, fostering compatibility, and the ease of reverse engineering. We may also license content from third parties and it is possible that we could become subject to infringement actions based upon the content licensed from those third parties. Any claims against our proprietary rights, with or without merit, could subject us to costly litigation and the diversion of our technical and management personnel. If we incur costly litigation and our personnel are not effectively deployed, the expenses and losses incurred by us will increase and their profits, if any, will decrease. Rapid technological changes may prevent us from remaining current with our technical resources and maintaining competitive product and service offerings. The markets in which we will operate are characterized by rapid technological change, frequent new product and service introductions and evolving industry standards. Significant technological changes could render our existing technologies or other products and services obsolete. If we are unable to successfully respond to these developments or do not respond in a cost-effective way, our business, financial condition and operating results will be adversely affected. To be successful, we will be required to adapt to our rapidly changing markets by continually improving the responsiveness, services and features of our products and services and by developing new features to meet the needs of our customers. Our success will depend, in part, on our partner companies' ability to license leading technologies useful in their businesses (and to pass the benefit of such technologies through to us), enhance their existing products and services and develop new offerings and technology that address the needs of their and our customers. New or changed government regulation could significantly reduce demand for our services and products. We are subject not only to regulations applicable to businesses generally, but also laws and regulations directly applicable to the Internet, telephone, cable and satellite television networks, and other telecommunications content and services. State, federal, and foreign governments may adopt additional laws and regulations that adversely affect the Company or its markets in any of the following areas: user privacy, open access rights, copyrights, consumer protection, taxation of e-commerce, the online distribution of content, and the characteristics and quality of online products and services. In particular, government laws or regulations restricting, burdening and taxing telephony or the exchange of personally identifiable information could delay the implementation of interactive services or create liability for us that facilitates information exchange. Also, if the Company has to re-design its products and services to comply with new or changed government laws or regulations, the Company could face additional expense and delay in delivering its services and products to its customers. 26 Our success is dependent on our key personnel. We believe that our success will depend on continued employment by us of senior management and key technical personnel. If one or more members of our senior management were unable or unwilling to continue in their present positions, our business and operations could be disrupted. Our efficiency may be limited while our current employees and future employees are being integrated into our operations. In addition, we may be unable to find and hire additional qualified management and professional personnel to help lead our company. There is considerable competition for qualified personnel in the area of the Company's activities, and there can be no assurance that the Company will be able to attract and retain qualified personnel necessary for the development of the business. We expect to experience losses in the foreseeable future. We expect to incur operating losses for the foreseeable future and, if we ever have profits, we may not be able to sustain them. Our expenses will increase as we build an infrastructure to implement our business model. For example, we expect to hire additional employees, expand information technology systems, and lease space for retail visibility in new geographic areas. In addition, we plan to significantly increase our operating expenses to: o Broaden our geographic presence by deploying the services in other counties and states o Explore other corporate and commercial applications for the technology and service in combination with corporate partners, and o Explore and respond to new business opportunities in this industry. If any of these and other expenses are not accompanied by increased revenue, our losses will be greater than we anticipate. We will, eventually, have competition on the iProvo Network Our contract with the City of Provo, Utah, provides for a limited period of exclusivity. Once that period has expired, there could be additional providers on the network which could effect our penetration rates and revenue stream. We may be subject to liability as a result of our failure to file the required reports with the Securities and Exchange Commission 27 Our common stock is registered pursuant to section 12(g) of the Securities Exchange Act of 1934 (the "1934 Act") and we are thereby obligated to file annual reports on Form 10-K or 10-KSB, quarterly reports on Form 10-Q or 10-QSB, Current Reports on Form 8-K, other reports and information as described in the 1934 Act and related rules and to otherwise comply with various provisions of the 1934 Act and related rules. From 1996 until 2004 we failed to comply with substantially all of the obligations imposed upon it by the 1934 Act (the "1934 Act Violations"). As a result, we could be subject to substantial civil and criminal penalties due to such non-compliance. There can be no assurance that substantial civil and criminal penalties will not be imposed. No assurance of a liquid public market for our common stock The is no market for our securities and there can be no assurance that a market will develop. If a market develops, there can be no assurance as to the depth or liquidity of any market for our securities or the prices at which holders may be able to sell their securities. As a result, an investment in our securities may not be liquid, and investors may not be able to liquidate their investment readily or at all when they need or desire to sell. Applicability of low priced stock risk disclosure requirements may adversely affect the prices at which our common stock trades Our common stock may be considered a low priced security under rules promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"). Under these rules, broker-dealers participating in transactions in low priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer's duties, the customer's rights and remedies, and certain market and other information, and make a suitability determination approving the customer for low priced stock transactions based on the customer's financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent of the customer, and provide monthly account statements to the customer. With these restrictions, the likely effect of designation as a low priced stock will be to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and to increase the transaction cost of sales and purchases of such stock compared to other securities. Item 3. Controls and Procedures The Company has evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures as of September 30, 2004 pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic SEC filings. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation. PART II -- OTHER INFORMATION Item 1. Legal Proceedings. HNC is indebted to certain persons in what HNC management believes to be the aggregate principal amount of $273,000; as evidenced by fourteen (14) separate promissory notes (the "Convertible Notes"). The Convertible Notes were convertible into HNC Series B Preferred Stock prior to the Merger. The holders of the Convertible Notes also received warrants to purchase an aggregate of 121,565 shares of HNC Series B Preferred Stock at an exercise price of $1.00 per share. The holders of four (4) of the Convertible Notes claim to be entitled to receive shares of HNC Series B Preferred Stock in addition to being paid the principal and accrued interest on their Convertible Notes ("Disputed Notes"). 28 Immediately prior to the close of the Merger, HNC had no shares of Series B Preferred Stock outstanding and the Series B Preferred had not been authorized by the HNC board of directors. The individual who negotiated and signed the Disputed Notes on HNC's behalf was HNC's Interim Chief Financial Officer and was also employed by the firm acting as the placement agent for the Convertible Notes ("Placement Agent"). The Disputed Notes were executed on terms not known to, or authorized by HNC's board of directors. Moreover, certain of the Disputed Notes are held by affiliates of the Placement Agent/Chief Financial Officer. HNC is engaged in negotiations with the holders of the Convertible Notes. Under the terms of the Merger Agreement, the Convertible Notes were to convert into Common Stock at the conversion ratio of 1.0903. However, the Company may create a class of preferred stock that would be issued to the holders of Convertible Notes or the Disputed Notes upon conversion of such notes instead of issuing common stock to the holders of such notes. The exact number of shares of common or preferred stock issuable upon exercise of the notes and the rights, preferences and designations of the preferred stock if preferred stock is authorized for issuance is still subject to negotiation. The Placement Agent also claims that it is owed additional placement fees as a result of its agreement with the HNC. If HNC is able to reach agreement with the holders of the Convertible Notes, it intends to request that the Company, in connection with the settlement of the claim, issue up to any additional 109,030 shares of Common Stock in order to settle the disputed claim over fees allegedly payable pursuant to a finder's fee agreement ("Finder's Fee Resolution"). However, there can be no assurance that the Finder's Fee Resolution will be settled on the stated terms or at all. To date and to the knowledge of the Company, no legal proceedings have been filed to date with respect to these matters. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. On or about August 2, 2004, the Company, HNC and Homenet Utah, Inc. ("Homenet"), a wholly owned subsidiary of the Company, entered into a Merger Agreement whereby Homenet would be merged into HNC with HNC to be the surviving corporation. The separate existence of Homenet would cease if the Merger became effective. Consummation of the Merger was subject to a number of contingencies. On August 23, 2004, the shareholders of HNC approved the Merger and on September 8, 2004, the Merger was consummated. As part of the Merger each share of HNC capital stock that was issued and outstanding immediately prior to the closing was converted into 1.0903 shares of the Company's common stock and all previously outstanding shares of HNC capital stock is no longer outstanding and was automatically canceled. All other securities convertible into or exercisable for shares of HNC capital stock, including but not limited to stock options, convertible debt and warrants issued by HNC prior to the effective date of the Merger, became, without further action, convertible into or exercisable for the number of shares of Company common stock determined by using the 1.0903 conversion factor. HNC had 2,184,939 shares of common stock outstanding, 350,550 shares of preferred stock outstanding, options exercisable for an additional 618,520 shares of stock and other convertible securities that are convertible under terms that are in dispute. The Company issued approximately 2,764,449 shares of its common stock on a fully diluted basis in connection with the Merger. In addition, there is a possibility that the Company may create a class of preferred stock that would be issued to some of the holders of HNC securities that were convertible into HNC preferred stock. The issuance of Company securities to the former HNC security holders was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 as promulgated thereunder. All of the securities issued in connection with the Merger were restricted securities. The Company did not use an underwriter in connection with the Merger. 29 During 2004 the Company issued common stock valued at $299,297 for debt paid on behalf of the Company. In addition, in 2004 the Company issued common stock valued at $158,868 for services rendered. These security issuances were exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 as promulgated thereunder. All of the securities issued in these transactions were restricted securities and no underwriters was used. Item 3. Defaults Upon Senior Securities. The Company is also in default on the Convertible Notes described under Part II, Item 1, above. Item 5. Other Information. In connection with the Merger, the Company changed its name to HomeNet Corporation. Item 6. Exhibits and Reports on Form 8-K. (a) Index to Exhibits EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 Agreement and Plan of Merger (Incorporated by reference to Exhibit 10.11 of the Company's Form 10-QSB, dated June 30, 2004) 3(i).1 Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 of the Company's Form 10-SB, File No. 0-22236) 3(i).2 Amendment to the Certificate of Incorporation of the Company 3(i).3 Amended and Restated Articles of Incorporation of HomeNet Communications, Inc. 3(i).4 Articles of Amendment to Articles of Incorporation of HomeNet Communications, Inc. 3(ii).1 Bylaws of the Company (Incorporated by reference to Exhibit 3.2 of the Company's Form 10-QSB, File No. 0-22236) 3(ii).2 Bylaws of HomeNet Communications, Inc. 10.1 Settlement Agreement by and between the Company and NutraCea, dated December 10, 2002 (Incorporated by reference to Exhibit 10.1 of the Company's Form 10-KSB, dated March 31, 2004). 10.2 Loan Agreement by and between the Company and Video Internet Broadcasting Corporation, dated February 18, 2004 (Incorporated by reference to Exhibit 10.2 of the Company's Form 10-KSB, dated March 31, 2004). 30 10.3 Security Agreement by and between the Company and Video Internet Broadcasting Corporation, dated March 12, 2004 (Incorporated by reference to Exhibit 10.3 of the Company's Form 10-KSB, dated March 31, 2004). 10.4 Intellectual Property Security Agreement by and between the Company and Video Internet Broadcasting Corporation, dated March 12, 2004 (Incorporated by reference to Exhibit 10.4 of the Company's Form 10-KSB, dated March 31, 2004). 10.5 Amendment Number One to the Agreements by and between the Company and Video Internet Broadcasting Corporation, dated April 21, 2004 (Incorporated by reference to Exhibit 10.5 of the Company's Form 10-KSB, dated March 31, 2004). 10.6 Amendment Number Two to the Agreements by and between the Company and Video Internet Broadcasting Corporation, dated May 1, 2004 (Incorporated by reference to Exhibit 10.6 of the Company's Form 10-KSB, dated March 31, 2004). 10.7 Form of Loan Agreement by and between the Company and Lenders whereby the Company borrowed the principal amount of $765,000 (Incorporated by reference to Exhibit 10.7 of the Company's Form 10-KSB, dated March 31, 2004). 10.8 Form of Loan Agreement by and between the Company and Lenders whereby the Company borrowed the principal amount of $445,000 (Incorporated by reference to Exhibit 10.8 of the Company's Form 10-KSB, dated March 31, 2004). 10.9 Employment Agreement with Frank J. Gillen (Incorporated by reference to Exhibit 10.9 of the Company's Form 10-KSB, dated March 31, 2004). 10.10 Employment Agreement with Shauna Badger (Incorporated by reference to Exhibit 10.10 of the Company's Form 10-KSB, dated March 31, 2004). 10.11 Form of Loan Agreement by and between the Company and Lenders whereby the Company borrowed the principal amount of $500,000 10.12 Founders Stock Option Plan (Incorporated by reference to Appendix A of the Company's Definitive Proxy Statement, filed on October 10, 2004). 10.13 HomeNet Corporation 2004 Stock Option Plan (Incorporated by reference to Appendix A of the Company's Definitive Proxy Statement, filed on October 10, 2004). 10.14 Secured Business Loan Agreement (including Promissory Note, Guarantee, Assignment of Deposit Account, with Zions First National Bank, dated July 1, 2004. 10.15 Lease by and between the Company and The Canopy Group (including Promissory Note and Security Agreement), dated September 16, 2004. 10.16 Lease by and between HomeNet Communications, Inc. and Moore Furniture, Inc., dated August 30, 2001. 10.17 Initial Provider Network Access And Use Agreement by and between the Company and the City of Provo, Utah. 31 10.18 Master Service Agreement by and between HomeNet Communications, Inc. and Level 3 Communications, LLC (certain portions of the agreement were omitted from the exhibit pursuant to a request for confidential treatment). 10.19 Addendum to the Master Service Agreement by and between HomeNet Communications, Inc. and Level 3 Communications, LLC (certain portions of the agreement were omitted from the exhibit pursuant to a request for confidential treatment). 31.1 Certification of W. Kelly Ryan pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Michael W. Devine pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of W. Kelly Ryan pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Michael W. Devine pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: The Company filed a current report on Form 8-K on September 13, 2004, reporting under Items 2.01, 3.02 and 5.01 the Merger and related events. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOMENET CORPORATION (Registrant) Date: December 13, 2004 By /s/ W. Kelly Ryan ----------------------------- W. Kelly Ryan Chief Executive Officer 32 EX-3.(I).2 2 ex3i2q093004.txt AMENDED CERTIFICATE OF INCORPORATION Exhibit 3(i).2 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF FARADAY FINANCIAL, INC. Faraday Financial, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: 1. Pursuant to a unanimous written consent of the Board of Directors of the Corporation effective September 13, 2004, the Board of Directors of the Corporation duly adopted a resolution amending Article FIRST of the Certificate of Incorporation of the Corporation to read in its entirety as follows: FIRST: The name of this corporation is HomeNet Corporation. 2. Thereafter, pursuant to a resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. 5. That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Frank G. Gillen, its President, to be effective this 20th day of October, 2004. HOMENET CORPORATION By /s/ Frank Gillen ---------------------- Frank Gillen President EX-3.(I).3 3 ex3i3q093004.txt AMENDED ARTICLES OF INCORPORATION FOR VIB Exhibit 3(i).3 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF VIDEO INTERNET BROADCASTING CORPORATION ARTICLE I. NAME; REGISTERED OFFICE AND AGENT The name of this corporation shall be Video Internet Broadcasting Corporation (the "Corporation"). The registered office of the Corporation shall be at 19110 66th Avenue South, #G-105, Kent, Washington 98032, and its registered agent at such address is W. Kelly Ryan. ARTICLE II PURPOSE The Corporation shall have the power to engage in and carry on any lawful business or trade and exercise all powers granted to a corporation formed under the Washington Business Corporation Act, Title 23B of the Revised Code of Washington (the "Washington Act"), including any amendments thereto or successor statute that may hereinafter be enacted. ARTICLE III. SHARES Section 3.1. AUTHORIZED CAPITAL The Corporation is authorized to issue two classes of capital stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares of capital stock that the Corporation shall have authority to issue is fifty million (50,000,000), consisting of thirty million (30,000,000) shares of Common Stock, $0.001 par value per share, and twenty million (20,000,000) shares of Preferred Stock, $0.001 par value per share. The first series of Preferred Stock shall be designated "Series A Preferred Stock" and shall consist of three hundred one thousand (301,000) shares. Section 3.2. ISSUANCE OF PREFERRED STOCK IN SERIES The undesignated Preferred Stock may be issued from time to time in one or more series in any manner permitted by law and the provisions of these Amended and Restated Articles of Incorporation (the "Articles of Incorporation"), as determined from time to time by the Board of Directors of the Corporation (the "Board of Directors") and stated in the resolution or resolutions providing for the issuance thereof, prior to the issuance of any shares thereof. The Board of Directors shall have the authority to fix and determine and to amend, subject to these provisions, the designation, preferences, limitations, and relative rights of the shares of any series that is wholly unissued or to be established. Unless otherwise specifically provided in the resolution establishing any series, the Board of Directors shall further have the authority, after the issuance of shares of a series whose number it has designated, to amend the resolution establishing such series to decrease the number of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. EX-3.(I).4 4 ex3i4q093004.txt AMENDED ARTICLES OF INCORPORATION Exhibit 3(i).4 ARTICLE IV. RIGHTS, PREFERENCES, AND RESTRICTIONS ON SHARES The terms and provisions of the Common Stock and Preferred Stock are as follows: Section 4.1. DEFINITIONS For purposes of this Article IV, the following definitions shall apply: (a) "Conversion Price" shall mean one dollar ($1.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein). (b) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities (other than shares of Series A Preferred Stock) convertible into or exchangeable for Common Stock. (c) "Distribution" shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise, payable other than in Common Stock, or the purchase or redemption of shares of the Corporation for cash or property other than: (i) repurchases of Common Stock issued to or held by employees, officers, directors, or consultants of the Company or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase; (ii) repurchases of Common Stock issued to or held by employees, officers, directors, or consultants of the Company or its subsidiaries pursuant to rights of first refusal contained in agreements providing for such right; (iii) repurchase of capital stock of the Company in connection with the settlement of disputes with any shareholder; and (iv) any other repurchase or redemption of capital stock of the Company approved by the holders of the Common and Preferred Stock of the Company voting as separate classes. (d) "Liquidation Preference" shall mean one dollar ($1.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein). (e) "Options" shall mean rights, options, or warrants to subscribe for, purchase, or otherwise acquire Common Stock or Convertible Securities. (f) "Original Issue Price" shall mean one dollar ($1.00) per share for the Series A Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein). (g) "Preferred Stock" shall mean the Series .A Preferred Stock. (h) "Recapitalization" shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification, or other similar event. Section 4.2. DIVIDENDS (a) Preferred Stock. The holders of outstanding shares of Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors, out of any assets at the time legally available therefor, payable in preference and priority to any declaration or payment of any Distribution on Common Stock of the Corporation, other than a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock ("Common Stock Dividend"). No Distributions shall be made with respect to the Common Stock, other than a Common Stock Dividend, until all declared dividends on the Preferred Stock have been paid or set aside for payment to the Preferred Stock holders. No Distributions shall be made with respect to the Common Stock, other than a Common Stock Dividend, unless an equal or greater Dividend has been paid or set aside for payment to the Preferred Stock holders. Payment of any dividends to the holders of the Preferred Stock shall be on a pro-rata, pari pasu basis, The right to receive dividends on shares of Preferred Stock shall not be cumulative, and no right to such dividends shall accrue to holders of Preferred Stock by reason of the fact that dividends on said shares are not declared or paid in any year. (b) Common Stock. Dividends may be paid on the Common Stock as and when declared by the Board of Directors, subject to the prior dividend rights of the Preferred Stock and to Section 4.6 below. (c) Non-Cash Distributions. Whenever a Distribution provided for in this Section 4.2 shall be payable in property other than cash, the value of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of Directors. Section 4.3. LIQUIDATION RIGHTS (a) Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of Preferred Stock and (ii) all declared but unpaid dividends (if any) on such share of Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 4.3(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and m rata among the holders of the Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 4.3(a). (b) Remaining Assets. After the payment or setting aside for payment to the holders of Preferred Stock of the full amounts specified in Section 4.3(a) above, the entire remaining assets of the Corporation legally available for distribution shall be distributed pro rata to holders of the Common Stock of the Corporation in proportion to the number of shares of Common Stock held by them. (c) Shares not Treated as Both Preferred Stock and Common Stock in anv Distribution. Shares of Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any Distribution, or series of Distributions, as shares of Common Stock, without first foregoing participation in the Distribution, or series of Distributions, as shares of Preferred Stock. (d) Reorganization. For purposes of this Section 4.3, a liquidation, dissolution, or winding up of the Corporation shall be deemed to be occasioned by, or to include, (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any stock acquisition, reorganization, merger, or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of shares in the Corporation held by such holders prior to such transaction, at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease, or other conveyance of all or substantially all of the assets of the Corporation; or (c) any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary. (e) Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any publicly-traded securities to be distributed to shareholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows: (i) If the securities are then traded on a national securities exchange or the Nasdaq Stock Market (or a similar national quotation system), then the value of the securities shall be deemed to be to the average of the closing prices of the securities on such exchange or system over the ten (10) trading day period ending five (5) trading days prior to the Distribution; (ii) If the securities are actively traded over-the-counter, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the Distribution. In the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the date such transaction closes. For the purposes of this subsection 3(e), "trading day" shall mean any day which the exchange or system on which the securities to be distributed are traded is open and "closing prices" or "closing bid prices" shall be deemed to be: (i) for securities traded primarily on the New York Stock Exchange, the American Stock Exchange, or Nasdaq, the last reported trade price or salt price, as the case may be, at 4:00 p.m., New York time, on that day and (ii) for securities listed or traded on other exchanges, markets, and systems, the market price as of the end of the "regular hours" trading period that is generally accepted as such for such exchange, market, or system. If, after the date hereof, the benchmark times generally accepted in the securities industry for determining the market price of a stock as of a given trading day shall change from those set forth above, the fair market value shall be determined as of such other generally accepted benchmark times. Section 4.4. CONVERSION The holders of the Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Original Issue Price for the relevant series by the Conversion Price for such series. (The number of shares of Common Stock into which each share of Preferred Stock of a series may be converted is hereinafter referred to as the "Conversion Rate" for each such series.) Upon any decrease or increase in the Conversion Price for any series of Preferred Stock, as described in this Section 4.4, the Conversion Rate for such series shall be appropriately increased or decreased. (b) Automatic Conversion. Each share of Preferred Stock shall automatically be converted into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share (i) immediately prior to the closing of a firm commitment underwritten initial public offering filed under the Securities Act of 1933, as amended (the "Securities Act"), covering the offer and sale of the Corporation's Common Stock, provided that the aggregate gross proceeds to the Corporation are not less than ten million dollars ($10,000,000) (a "Qualified IPO"), or (ii) upon the receipt by the Corporation of a written request for such conversion from the holders of a majority of the Preferred Stock then outstanding, or, if later, the effective date for conversion specified in such requests (each of the events referred to in (i) and (ii) are referred to herein as an "Automatic Conversion Event"). (c) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors in good faith. For such purpose, all shares of Preferred Stock held by each holder of Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however, that on the date of an Automatic Conversion Event, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Automatic Conversion Event unless either the certificates evidencing such shares of Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of an Automatic Conversion Event, each holder of record of shares of Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder. The Corporation shall, as soon as practicable after such delivery, or after such agreement and indemnification, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock, plus any declared and unpaid dividends on the convened Preferred Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be convened, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on-such date; provided, however, that if the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing of the sale of securities pursuant to such offering, in which event the person, or persons, entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of the sale of such securities. (d) Adjustments to Conversion Price for Diluting Issues. (i) Special Definition. For purposes of this Section 4.4(d), "Additional Shares of Common" shall mean all shares of Common Stock issued (or, pursuant to Section 4.4(d)(iii), deemed to be issued) by the Corporation after the filing of these Articles of Incorporation, other than: (1) shares of Common Stock issued or issuable upon conversion of shares of Preferred Stock; (2) shares of Common Stock issued or issuable to officers, directors, and employees of, or consultants to, the Corporation pursuant to stock grants, option plans, purchase plans, or other employee stock incentive programs or arrangements approved by the Board of Directors, or upon exercise of options or warrants granted to such parties pursuant to any such plan or arrangement; (3) shares of Common Stock issued upon the exercise, exchange, adjustment, or conversion of Options or Convertible Securities outstanding as of the date of the filing of these Articles of Incorporation; (4) shares of Common Stock issued or issuable as a dividend or distribution on Preferred Stock or pursuant to any event for which adjustment is made pursuant to Section 4.4(e). Section 4.4(f), or Section 4.4(g) hereof; (5) shares of Common Stock issued in a registered public offering under the Securities Act pursuant to which all outstanding shares of Preferred Stock are automatically converted into Common Stock pursuant to an Automatic Conversion Event; (6) shares of Common Stock issued or issuable pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets, or other reorganization or to a joint venture agreement, provided, that such issuances are approved by the Board of Directors; (7) shares of Common Stock issued or issuable to banks, equipment lessors, or other financial institutions pursuant to a commercial leasing or debt financing transaction approved by the Board of Directors; (8) shares of Conunon Stock issued or issuable in connection with sponsored research, collaboration, technology license, development, OEM, marketing, or other similar agreements or strategic partnerships approved by the Board of Directors; and (9) shares of Common Stock issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors, (ii) No Adjustment of Conversion Price. No adjustment in the Conversion Price of a particular series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share (as determined pursuant to Section 4.4(d)(v)) for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such series of Preferred Stock. (iii) Deemed Issue of Additional Shares of Common. In the event the Corporation at any time or from time to time after the date of the filing of these Articles of Incorporation shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities, the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of the underlying securities, shall be deemed to have been issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which shares are deemed to be issued: (1) no further adjustment in the Conversion Price of the Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock in connection with the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion, or exchange thereof, the Conversion Price of the Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (3) no readjustment pursuant to clause (2) above shall have the effect of increasing the Conversion Price of the Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price of the Preferred Stock on the original adjustment date, or (ii) the Conversion Price of the Preferred Stock that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date; (4) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if: (a) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of such exercised Options plus the consideration actually received by the Corporation upon such exercise or for the issue of all such Convertible Securities which were actually convened or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (b) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received by the Corporation for the issue of such exercised Options, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section 4.4(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and (c) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective On such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 4.4(d)(iii) as of the actual date of their issuance. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common. In the event this Corporation shall issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to Section 4.4(d)(iii)) without consideration or for a consideration per share less than the applicable Conversion Price of a series of Preferred Stock in effect on the date of and immediately prior to such issue, then, the Conversion Price of the affected series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shams of Common so issued. Notwithstanding the foregoing, the Conversion Price shall not be reduced at such time if the amount of such reduction would be less than $0.01, but any such amount shall be carried forward, and a reduction will be made with respect to such amount at the time of, and together with, any subsequent reduction which, together with such amount and any other amounts so carried forward, equal $0.01 or more in the aggregate. For the purposes of this Section 4.4(d)(iv), all shares of Common Stock issuable upon exercise of outstanding Options or the conversion of outstanding Convertible Securities and shares of Preferred Stock, and all Additional Shares of Common deemed issued pursuant to Section 4.4(d)(iii) hereof, shall be deemed to be outstanding. (v) Determination of Consideration. For purposes of this subsection 4(d), the consideration received by the Corporation for the issue (or deemed issue) of any Additional Shares of Common shall be computed as follows: (1)Cash and Property. Such consideration shall: (a) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (b) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (c) in the event Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for consideration which conversion both, be the proportion of such consideration so received, computed as provided in clauses (a) and (b) above, as reasonably determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common deemed to have been issued pursuant to Section 4.4(d)(iii) shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (e) Adjustments for Subdivisions or Combinations of Common Stock. In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend, or otherwise), into a greater number of shares of Common Stock, the Conversion Price of each series-of Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased. (f) Adjustments for Subdivisions or Combinations of Preferred Stock. In the event the outstanding shares of Preferred Stock or a series of Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend, or otherwise), into a greater number of shares of Preferred Stock, the Original Issuer Price, and Liquidation Preference of the affected series of Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Preferred Stock or a series of Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of 'referred Stock, the Original Issue Price, and Liquidation Preference of the affected series of Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased. (g) Adjustments for Reclassification, Exchange and Substitution. Subject to Section 4.3 above ("Liquidation Rights"), if the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Preferred Stock shall have the right thereafter to convert such shares of Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such series of Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares. (h) No Impairment. The Corporation will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 4.4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment. Notwithstanding the foregoing, nothing in this Section 4.4(h) shall prohibit the Corporation from amending its Articles of Incorporation with the requisite consent of its shareholders and the Board of Directors. (i) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4.4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock. (j) Waiver of Adjustment of Conversion Price. Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price of any series of Preferred Stock may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of the majority of the outstanding shares of such series, Any such waiver shall bind all future holders of shares of such series of Preferred Stock. (k) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Section 4.5, VOTING (a) Restricted Class Voting. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes. (b) No Series Voting. Other than as provided herein or required by law, there shall be no series voting. (c) Preferred Stock. Each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted as of the record date. The holders of shares of the Preferred Stock shall be entitled to vote on all matters on which the Common Stock shall be entitled to vote. Holders of Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted), shall be disregarded. (d) Election of Directors. The Board of Directors shall consist of seven (7) members. As long as at least two hundred thousand (200,000) shares (as adjusted for Recapitalizations) of Preferred Stock remain outstanding, or until the closing of a Qualified IPO, the holders of Preferred Stock, voting as a separate class, shall be entitled to elect three (3) members of the Corporation's Board of Directors at each annual or special election of directors or pursuant to each consent of the Corporation's shareholders for the election of directors; provide4, however, that, for a period of one hundred twenty (120) days after the filing of these Articles of incorporation, the holders of Preferred Stock shall be entitled to elect three (3) directors as long as at least fifty thousand (50,000) shares of Preferred Stock remain outstanding. The holders of Common Stock, voting as a separate class, shall be entitled to elect four (4) members of the Corporation's Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors or pursuant to each consent of the Corporation's shareholders for the election of directors. Any additional members of the Corporation's Board of Directors shall be elected by the holders of Common Stock and Preferred Stock, voting together as a single class. If a vacancy on the Board of Directors is to be filled by the Board of Directors, only directors elected by the same class or classes of shareholders as those who would be entitled to vote to fill such vacancy shall vote to fill such vacancy. (e) Two-Thirds Majority Vote of Directors Required. As long as at least two hundred thousand (200,000) shares (as adjusted for Recapitalizations) of Preferred Stock remain outstanding, or until the closing of a Qualified IPO, Major Actions shall require approval by a two-thirds majority of the members of the Board of Directors. "Major Actions" consist of: (i) the issuance by the Corporation of Additional Shares of Common: (ii) the merger of the Corporation into another corporation or the merger of one or more other corporations into the Corporation; (iii) the acquisition by another corporation of all of the outstanding shares of capital stock of the Corporation; (iv) the sale, lease, exchange, or other disposition by the Corporation of all, or substantially all, of its property other than in the usual and regular course of business; (v) an acquisition by the Corporation of an interest in any other business for a consideration (including assumption of liabilities) in excess of $100,000, or of any other material expenditures in excess of $100,000 per annum not included in the annual operating budget or outside the ordinary course of business; (vi) the dissolution of the Corporation; (vii) changes in accounting methods or policies and any change in the Corporation's outside auditors; (viii) the incurrence of indebtedness, or grant of any mortgages, security interests, or other liens by the Corporation pursuant to agreements not in effect as of the date hereof (other than such of the foregoing as is included in the annual operating budget for the Company and up to $100,000 per annum of indebtedness, mortgages, security interests, or liens not included in the annual operating budget); (ix) any material transactions by the Corporation with an affiliate of the Corporation; and (x) material changes to this definition of "Major Actions." (f) Common Stock. Each holder of shares of Common Stock shall be entitled to one vote for each share thereof held. Section 4.6. AMENDMENTS AND CHANGES As long as fifty thousand (50,000) shares (as adjusted for Recapitalization) of the Preferred Stock shall be issued and outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent as provided by law) of the holders of more than fifty percent (50%) of the outstanding shares of the Preferred Stock: (a) amend, alter, or repeal any provision of these Articles of Incorporation if such action would adversely alter the rights, preferences, privileges, or powers of, or restrictions provided for, the benefit of the Preferred Stock; (b) increase or decrease (other than for decreases resulting from conversion of the Preferred Stock) the authorized number of shares of the Preferred Stock or any series thereof; (c) amend this Section 4.6. Section 4.7. NOTICES Any notice required by the provisions of this Article IV to be given to the holders of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, or transmitted by private carrier, personal delivery, telegraph, teletype, or communications equipment that transmits a facsimile of the notice, and addressed to each holder of record at such holder's address or number appearing on the books of the Corporation. The right to cumulate votes in the election of directors shall not exist with respect to shares ARTICLE V. PREEMPTIVE RIGHTS Except as otherwise provided in these Articles of Incorporation, or by agreement in which the Corporation so provides, no preemptive rights to acquire additional securities issued by the Corporation shall exist with respect to shares of stock, or securities convertible into shares of stock. ARTICLE VI. CUMULATIVE VOTING The right to cumulate votes in the election of directors shall not exist with respect to shares of capital stock of the Corporation. ARTICLE VII. DIRECTORS Except as otherwise provided in these Articles of Incorporation, the number of directors of the Corporation shall be determined in the manner provided by the Bylaws and may be increased or decreased from time to time in the manner provided therein. ARTICLE VIII. AMENDMENTS TO ARTICLES OF INCORPORATION The Corporation reserves the right to amend or repeal any of the provisions contained in these Articles of Incorporation in any manner now or hereafter permitted by the Washington Act and these Articles of Incorporation, and the rights of shareholders of the Corporation are granted subject to this reservation: ARTICLE IX. SHAREHOLDER ACTION WITHOUT A MEETING BY LESS THAN UNANIMOUS CONSENT Any action required or permitted to be taken at a shareholders' meeting may be taken without a meeting or a vote if either (i) the action is taken by written consent of all shareholders entitled to vote on the action; or (ii) for so long as the Corporation is not a public company, the action is taken by written consent of shareholders holding of record, or otherwise entitled to vote, in the aggregate not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on the action were present and voted. To the extent that the Washington Act requires prior notice of any such action to be given to nonconsenting or nonvoting shareholders, such notice shall be given prior to the date on which the action becomes effective, as required by the Washington Act. The form of notice shall be sufficient to apprise the nonconsenting or nonvoting shareholder of the nature of the action to be effected in a To the extent that the Washington Act requires prior notice of any such action to be given to nonconsenting or nonvoting shareholders, such notice shall be given prior to the date on which the action becomes effective, as required by the Washington Act. The form of notice shall be sufficient to apprise the nonconsenting or nonvoting shareholder of the nature of the action to be effected in a manner approved by the Board of Directors or by the committee or officers to whom the Board of Directors has delegated that responsibility. ARTICLE XI. LIMITATION ON LIABILITY OF DIRECTORS To the full extent that the Washington Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors, a director of the Corporation shall not be liable to the Corporation or its shareholders for monetary damages for conduct as a director. Any amendments to or repeal of this Article XI shall not adversely affect any right or protection of a director of this Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. ARTICLE XII. SHAREHOLDER APPROVAL Unless these Articles of Incorporation provide for a greater voting requirement for any voting group of shareholders, the affirmative vote or written consent of a majority of all of the votes entitled to be cast by a voting group shall be sufficient, valid, and effective to approve and authorize any acts of the Corporation that, under the Washington Act, would otherwise require the approval of two thirds of all of the votes entitled to he cast, including, without limitation: (i) an amendment to these Articles of Incorporation; (ii) the merger of the Corporation into another corporation or the merger of one or more other corporations into the Corporation; (iii) the acquisition by another corporation of all of the outstanding shares of one or more classes or series of capital stock of the Corporation; (iv) the sale, lease, exchange, or other disposition by the Corporation of all or substantially all of its property otherwise than in the usual and regular course of business; or (v) the dissolution of the Corporation. DATED: March 22, 2001. VIDEO INTERNET BROADCASTING CORPORATION a Washington corporation By: /s/ Kelly J. Pointer --------------------------------- Kelly J. Pointer, Incorporator AMENDMENT TO ARTICLES OF INCORPORATION NAME OF CORPORATION (As currently recorded with the Office of the Secretary of State) VIDEO INTERNET BROADCASTING CORPORATION AMENDMENTS TO ARTICLES OF UBI NUMBER CORPORATION NUMBER (if known) INCORPORATION WERE ADOPTED ON 602 107 653 Date: August 23, 2004 - -------------------------------------------------------------------------------- EFFECTIVE DATE (Specified effective dale may be up to 30 days AFTER receipt OF ARTICLES OF of the document by the Secretary of State) - -------------------------------------------------------------------------------- AMENDMENT o Specific Date: [x] Upon filing by the Secretary of State - -------------------------------------------------------------------------------- ARTICLES OF AMENDMENT WERE ADOPTED BY (Please check ONE of the following) - -------------------------------------------------------------------------------- Incorporators. Shareholders action was not required Board of Directors. Shareholders action was not required - -------------------------------------------------------------------------------- Duly approved shareholder action in accordance with Chapter 238.10 RCW - -------------------------------------------------------------------------------- INFORMATION AND ASSISTANCE - 360t753-7115 (TDD - 3601753-1485) IMPORTANT+ Person to contact about this filing Lawrence M. Hecker, Esq. Daytime Phone Number (with area code)(520) 798-3803 AMENDMENTS TO THE ARTICLES OF INCORPORATION ARE AS FOLLOWS If amendment provides. for an exchange. reclassification, or cancellation of issued shares, provisions forimplementing the amendment must be included. if necessary, attach additional amendments or information. ARTICLE I NAME; REGISTERED OFFICE AND AGENT The Articles of Incorporation are hereby amended to delete Article IV, Section 4.5(d) in its entirety. The Articles of Incorporation shall remain in full force and effect and shall remain unaltered, except for the amendment and the deletion of Article IV, Section 4.5(d) as described above. SIGNATURE OF OFFICER This document is here by executed under penalties of perjury, and is, to the best of my knowledge, true and correct EX-3.(II).2 5 ex3ii2q093004.txt BYLAW OF VIB EXHIBIT 3(ii).2 BYLAWS OF VIDEO INTERNET BROADCASTING CORPORATION TABLE OF CONTENTS Page ARTICLE I - CORPORATE OFFICES.................................................1 I.1 REGISTERED OFFICE ................................................1 1.2 OTHER OFFICES.....................................................1 ARTICLE II - MEETINGS OF SHAREHOLDERS.........................................1 2.1 DATE, TIME AND PLACE OF MEETINGS..................................1 2.2 ANNUAL MEETING....................................................1 2.3 POSTPONEMENT OF ANNUAL MEETING....................................1 2.4 SPECIAL MEETING...................................................2 2.5 NOTICE OF SHAREHOLDERS' MEETINGS..................................2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................2 2.7 QUORUM............................................................3 2.8 ADJOURNED MEETING; NOTICE.........................................3 2.9 VOTING; NO CUMULATIVE VOTING......................................3 2.10 WAIVER OF NOTICE.................................................3 2.11 ACTION BY SHAREHOLDERS WITHOUT A MEETING.........................4 2.12 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS......4 2.13 PROXIES..........................................................5 2.14 LIST OF SHAREHOLDERS ENTITLED TO VOTE............................5 2.15 ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS........................5 2.16 ADVANCE NOTICE OF SHAREHOLDER BUSINESS...........................6 ARTICLE III - DIRECTORS.......................................................7 3.1 POWERS............................................................7 3.2 NUMBER OF DIRECTORS...............................................7 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS...........7 3.4 RESIGNATION; REMOVAL; VACANCIES...................................7 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..........................8 3.6 ANNUAL AND REGULAR MEETINGS.......................................8 3.7 SPECIAL MEETINGS; NOTICE..........................................8 3.8 ADJOURNED MEETING; NOTICE.........................................9 3.9 WAIVER OF NOTICE..................................................9 3.10 QUORUM...........................................................9 3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING..................9 3.12 EXECUTIVE AND OTHER COMMITTEES; AUTHORITY; MINUTES..............10 3.13 APPROVAL OF LOANS TO OFFICERS...................................10 i TABLE OF CONTENTS (continued) Page 3.14 FEES AND COMPENSATION OF DIRECTORS..............................10 3.15 PRESUMPTION OF ASSENT...........................................11 ARTICLE IV - OFFICERS........................................................11 4.1 OFFICERS ........................................................11 4.2 ELECTION OF OFFICERS.............................................11 4.3 SUBORDINATE OFFICERS.............................................11 4.4 CONTRACT RIGHT OF OFFICERS.......................................12 4.5 REMOVAL AND RESIGNATION OF OFFICERS .............................12 4.6 VACANCIES IN OFFICES.............................................12 4.7 CHAIRMAN OF THE BOARD............................................12 4.8 PRESIDENT........................................................12 4.9 VICE PRESIDENT...................................................12 4.10 SECRETARY.......................................................13 4.11 TREASURER.......................................................13 4.12 ASSISTANT SECRETARY.............................................14 4.13 ASSISTANT TREASURER.............................................14 4.14 AUTHORITY AND DUTIES OF OFFICERS................................14 4.15 SALARIES........................................................14 ARTICLE V - INDEMNITY .......................................................14 5.1 RIGHT TO INDEMNIFICATION.........................................14 5.2 RESTRICTIONS ON INDEMNIFICATION..................................15 5.3 ADVANCEMENT OF EXPENSES..........................................15 5.4 RIGHT OF INDEMNITY TO BRING SUIT.................................15 5.5 PROCEDURES EXCLUSIVE.............................................16 5.6 NONEXCLUSIVITY OF RIGHTS.........................................16 5.7 INSURANCE........................................................16 5.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.......16 5.9 PERSONS SERVING OTHER ENTITIES...................................17 5.10 REPORT TO SHAREHOLDERS..........................................17 ARTICLE VI - RECORDS AND REPORTS............................................17 6.1 MAINTENANCE AND INSPECTION OF RECORDS............................17 6.2 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................18 ARTICLE VII - GENERAL MATTERS ..............................................18 7.1 CHECKS...........................................................18 7.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.................18 7.3 LOANS TO THE CORPORATION.........................................18 7.4 STOCK CERTIFICATES; PARTLY PAID SHARES...........................19 7.5 SUBSCRIPTIONS....................................................19 ii TABLE OF CONTENTS (continued) Page 7.6 SPECIAL DESIGNATION ON CERTIFICATES .............................19 7.7 LOST, STOLEN OR DESTROYED CERTIFICATES ..........................20 7.8 CONSTRUCTION; DEFINITIONS........................................20 7.9 DIVIDENDS........................................................20 7.10 FISCAL YEAR.....................................................20 7.11 SEAL............................................................21 7.12 TRANSFER OF STOCK; RESTRICTIONS ON TRANSFER.....................21 7.13 STOCK TRANSFER AGREEMENTS.......................................21 7.14 REGISTERED SHAREHOLDERS.........................................21 ARTICLE VIII - AMENDMENTS.............................. .....................22 iii BYLAWS OF VIDEO INTERNET BROADCASTING CORPORATION ARTICLE I - CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of Video Internet Broadcasting Corporation (the Corporation) shall at all times be located in the State of Washington. The name of the registered agent of the Corporation at such location is the agent named in the Articles of Incorporation until changed by the Board of Directors of the Corporation (the "Board"). 1.2 OTHER OFFICES The Board may at any time establish other offices at any place or places where the Corporation is qualified to do business. ARTICLE II - MEETINGS OF SHAREHOLDERS 2.1 DATE, TIME. AND PLACE OF MEETINGS Meetings, annual or special, of the shareholders shall be held at such place as shall be designated by the Board, or in the absence of such a designation, at the principal office of the Corporation. Shareholders may participate in any meeting of shareholders by any means of communication by which all persons participating in the meeting can hear each other during such meeting. Participation by such means shall constitute presence in person at such meeting. 2.2 ANNUAL MEETING The annual meeting of the shareholders (the "Annual Meeting") of the Corporation shall be held each year on a date and time designated by the Board. If such day fails on a legal holiday, the meeting shall be held on the next succeeding full business day. At the Annual Meeting, directors shall be elected and any other proper business may be transacted. 21 POSTPONEMENT OF ANNUAL MEETING In case of incomplete financial or other information, unavailability of shareholders, officers, Directors or other persons whose attendance at the Annual Meeting would be desirable, or other similar circumstances, the President in his discretion may postpone the Annual Meeting. If the Annual Meeting is postponed, or if the election of Directors shall not be held on the day designated herein for the Annual Meeting, or at any adjournment thereof, a Special Meeting shall be held as soon as may be convenient as determined by the President, either in lieu of the Annual Meeting if such meeting was postponed or for the election of Directors if the election was not held at the Annual Meeting or at any adjournment thereof. 1 2.4 SPECIAL MEETING A special meeting of the shareholders (a "Special Meeting") may be called, at any time for any purpose, or purposes, for which such a meeting may lawfully be called, by (i) the Chairman of the Board, (ii) a majority of the Board; or (iii) the President. Further, a Special Meeting shall be held if the holders of not less than 25% of all the votes entitled to be cast on any issue proposed to be considered at such Special Meeting have dated, signed, and delivered to the Secretary one or more written demands for such meeting, describing the purpose or purposes for which it is to be held. 2.5 NOTICE OF SHAREHOLDERS' MEETINGS All notices of meetings of shareholders shall be given by or at the direction of the Board, the Chairman of the Board, the President, or the Secretary and shall be in writing and sent or otherwise given in accordance with Section 2.6 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each shareholder entitled to vote at such meeting; provided, however, that notice of a meeting to act on an amendment to the Articles of Incorporation, a plan of merger or share exchange, the sale, lease, exchange or other disposition of all or substantially all of thc Corporation's assets other than in the regular course of business, or the dissolution of the Corporation shall be given not less than 20 nor more than 60 days before such meeting. All notices of meetings shall specify the place, date, and hour of the meeting, and, in the case of a Special Meeting, the purpose or purposes for which the meeting is called. In computing the notice period, the day of mailing shall be excluded, and the day of the meeting and shall be included. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of shareholders may be transmitted by mail, private carrier, personal delivery, telegraph, teletype or communications equipment that transmits a facsimile of the notice. Notice, if mailed, shall be deemed effective when deposited in the United States mail, postage prepaid, directed to the shareholder at his address as it appears on the current records of the Corporation. Notice given in any manner other than by mail, shall be deemed effective when dispatched to the shareholder's address, telephone number or other number appearing on the current records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM The holders of a majority of the issued and outstanding shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders for the transaction of business, except as otherwise provided by the Washington Business Corporation Act, Title 2313 of the Revised Code of Washington, as amended (the "Act"), or by the Articles of Incorporation. If, however, a quorum is not present or represented at any meeting of shareholders , the chairman of the meeting or the holders of a majority of the shares present, either in person or by proxy, shall have the power to adjourn the meeting to such time and place as may be decided upon by the chairman of the meeting or the holders of the majority of the shares present, without notice other than announcement at the meeting, until a quorum is present or represented. Any business that might have been transacted at the meeting as originally noticed may be transacted at a reconvened meeting, provided that a quorum is present or represented at such meeting. Once a share is represented for any purpose at a meeting, other than solely to object to holding the meeting or transacting business, it is deemed present for quorum purposes for the remainder of such meeting and any adjournment (unless a new record date is or must be set for the adjourned meeting), notwithstanding the withdrawal of enough shareholders to leave less than a quorum. 2 2.8 ADJOURNED MEETING: NOTICE If a meeting of shareholders is adjourned to a different date, time, or place, unless these Bylaws otherwise require, no notice of the new date, time, or place shall be required if they are announced at the meeting before adjournment. At the adjourned meeting, the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 120 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to notice of or to vote as of the new record date. 2.9 VOTING; NO CUMULATIVE VOTING The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws. Except as may be otherwise provided in the Articles of Incorporation, each shareholder shall be entitled to one vote for each share of capital stock held by such shareholder. Shareholders of the Corporation are not entitled to cumulate their votes for directors. 2.10 WAIVER OF NOTICE Whenever notice is required to be given to any shareholder under the provisions of these Bylaws, the Articles of Incorporation or the Act, a waiver in writing, signed by the person or persons entitled to such notice and delivered to the Corporation, whether before or after the date and time of the meeting or before or after the action to be taken by consent is effective, shall be deemed equivalent to the giving of such notice. Further, notice of the time, place, and purpose of any meeting will be deemed to be waived by any shareholder by attendance in person or by proxy at the meeting, unless such shareholder, at the beginning of the meeting, objects to holding the meeting or transacting business at the meeting. A shareholder waives objection to consideration of a particular matter at a meeting that is not within the purpose, or purposes, described in the meeting notice, unless the shareholder objects to considering the matter when the matter is presented, Neither the business to be transacted at, nor the purpose of, any regular or Special Meeting need be specified in any written waiver of notice unless so required by the Articles of Incorporation or these Bylaws. 2.11 ACTION BY SHAREHOLDERS WITHOUT A MEETING Unless otherwise provided in the Articles of Incorporation, any action required or permitted by these Bylaws, the Articles of Incorporation, or the Act, to be taken at any meeting, annual or special, of shareholders may be taken without a meeting by unanimous consent if one or more written consents setting forth the action so taken shall be signed by all the shareholders entitled to vote with respect to the matter. Action may be taken by less than unanimous consent. Action by less than unanimous consent may be taken if one or more written consents describing the action taken shall be signed by shareholders holding of record or otherwise entitled to vote in the aggregate not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on the action were present and voted. If not otherwise fixed by the Board, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder consent is signed. A shareholder may withdraw a consent only by delivering a written notice of withdrawal to the Secretary prior to the time that consents sufficient to authorize taking the action have been delivered to the Corporation. Every written consent shall bear the date of signature of each shareholder who signs the consent. A written consent is not effective to take the action referred to in the consent unless, within 60 days of the earliest dated consent delivered to the Corporation, written consents signed by a sufficient number of shareholders to take action are delivered to the Corporation. Unless the consent specifies a later effective date, actions taken by written consent of the shareholders are effective when (a) consents sufficient to authorize taking the action are in possession of the Corporation and (b) the period of advance notice required by the Articles of Incorporation to be given to any nonconsenting or nonvoting shareholders has been satisfied. If the action requires the filing of a certificate under any section of the Act, the certificate so filed shall state, in lieu of any statement required by such section concerning any vote of shareholders, that written notice and consent has been obtained in accordance with Section 238.070.040(5). My such consent shall be inserted in the minute book as if it were the minutes of a meeting of the shareholders. 2.12 RECORD DATE FOR SHAREHOLDER NOTICE: VOTING: GIVING CONSENTS In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to express consent to corporate action 3 in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the Board may fix a future date as the record date, which shall not be more than 70, and, in case of a meeting of shareholders, not less than 10 days, prior to the date on which the particular action requiring such determination is to be taken. If the Board does not so fix a record date. the record date shall be the day immediately preceding the date on which notice of' the meeting is first given to shareholders, or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. Such determination shall apply to any adjournment of the meeting unless the Board fixes a new record date, which the Board shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The record date for determining shareholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is signed. The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, 2.13 PROXIES Each shareholder entitled to vote at a meeting of shareholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for him or her by a written proxy, signed by the shareholder and filed with the Secretary or other officer or agent of the Corporation authorized to tabulate votes. A proxy shall become invalid 11 months after the date of its execution, unless a longer period is expressly provided in the proxy. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or his attorney-infact or agent. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 2313.07.220 of the Act. 2.14 LIST OF SHAREHOLDERS ENTITLED TO VOTE At least 10 days before every meeting of shareholders, a complete list of the shareholders entitled to notice of such meeting shall be made. The list shall be arranged in alphabetical order and show the address of each shareholder and the number of shares registered in the name of each shareholder (arranged by voting group and by each class or series of shares). The list shall be available for inspection by any shareholder, beginning 10 days prior to the meeting and continuing through the meeting, at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder is entitled to inspect the list, during regular business hours and at the shareholders' expense, during the period it is available for inspection. 2.15 ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS Nominations of persons for election to the Board may be made at a meeting of shareholders by or at the direction of the Board or by any shareholder of the Corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.15. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 20 days nor more than 60 days prior to the meeting; provided, however, that in the event less than 30 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person, if any, whom the shareholder proposes to nominate for election or re-election as a director: (i) the name, age, business address, and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required by law to be disclosed in solicitations of proxies for election of directors, and (v) such person's written consent to being named as a nominee and to serving as a director if elected; and (b) as to the shareholder giving the notice: (i) the name and address, as they appear on the Corporation's books, of such shareholder, (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder, and (iii) a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) relating to the nomination. At the request of the Board, any person nominated by the Board for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in the 4 shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.15. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he or she should so determine, he or she shall so declare at the meeting, and the defective nomination shall be disregarded. 2.16 ADVANCE NOTICE OF SHAREHOLDER BUSINESS At the Annual Meeting, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an Annual Meeting, business must be: (a) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a shareholder. Business to be brought before the meeting by a shareholder shall not be considered properly brought if the shareholder has not given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 20 nor more than 60 days prior to the meeting; provided, however, that in the event that less than 30 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the Annual Meeting: (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and address of the shareholder proposing such business, (iii) the class and number of shares of the Corporation that are beneficially owned by the shareholder, (iv) any material interest of the shareholder in such business, and (v) any other information that is required by law to be provided by the shareholder in his capacity as proponent of a shareholder proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any Annual Meeting except in accordance with the procedures set forth in this Section 2.16. The chairman of the Annual Meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 2,16, and, if he or she should so determine, he or she shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. ARTICLE III - DIRECTORS 3.1 POWERS All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board, except as may be otherwise provided in these Bylaws, the Articles of Incorporation, or the Act. 3.2 NUMBER OF DIRECTORS The authorized number of directors shall be fixed from time to time by resolution of a majority of the Board. No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires. 3.3 ELECTION. QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these Bylaws, directors shall be elected at the Annual Meeting to hold office until the next Annual Meeting. Directors need not be shareholders of the Corporation or residents of the State of Washington, unless so required by the these Bylaws or the Articles of Incorporation, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. In the event of a failure to hold or a postponement of the Annual Meeting as herein provided, succeeding directors may be elected at any time 5 thereafter at a Special Meeting called for that purpose. Each director shall be elected to serve for a term of one year and until his or her successor shall have been elected, unless removed as hereinafter provided. 3.4 RESIGNATION; REMOVAL; VACANCIES Any director may resign from the Board or any committee of the Board at any time by delivering written notice to the Chairman of the Board, the President, the Secretary, or the Board. Any such resignation is effective upon delivery thereof, unless the notice of resignation specifies a later effective date and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. At a meeting of shareholders called expressly for that purpose, one or more members of the Board, including the entire Board, may be removed with or without cause by the holders of the shares entitled to elect the director, or directors, whose removal is sought if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director. Unless the Articles of Incorporation provide otherwise, any vacancy occurring on the Board may be filled by the shareholders, by the Board or, if the directors in office constitute fewer than a quorum, by the affirmative vote of a majority of the remaining directors. Any vacant office to be held by a director elected by holders of one or more authorized classes or series of shares entitled to vote and be counted collectively thereon shall be filled only by the vote of the holders of such classes or series of shares. A vacancy that will occur at a specific later date, by reason of a resignation effective at a later date or otherwise, may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs. A director elected to fill a vacancy shall serve only until the next election of directors by the shareholders. During the existence of any vacancy the remaining directors shall possess and may exercise all powers vested in the Board. 3.5 PLACE OF MEETINGS: MEETINGS BY TELEPHONE The Board may hold meetings, both regular and special, either within or outside the State of Washington. Members of the Board, or of any committee thereof, may participate in a meeting of the Board, or committee, by, or conduct the meeting through the use of, any means of communication by which all directors who are participating in the meeting can hear each other during the meeting. Participation by such means shall constitute presence in person at the meeting. 3.6 ANNUAL AND REGULAR MEETINGS An annual Board meeting shall be held without notice immediately after and at the same place as the Annual Meeting. By resolution, the Board, or any committee thereof, may specify the date, time, and place for holding regular meetings without notice other than such resolution. 3.7 SPECIAL MEETINGS: NOTICE Special meetings of the Board, or of any committee thereof, may be called by or at the request of the Chairman of the Board, the President, the Secretary or, in the case of special Board meetings, any two directors and, in the case of any special meeting of any committee of the Board, by its Chairman. The person or persons authorized to call special meetings may fix any place for holding any special Board or committee meeting called by them. Notice of a special Board or committee meeting stating the data, time, and place of the meeting shall be delivered personally or by telephone to each director or sent by first class mail or telegram, charges prepaid, addressed to each director at his address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least one day before the meeting. Any oral notice given personally or by telephone 6 may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation. 3.8 ADJOURNED MEETING: NOTICE If a quorum is not present at any meeting of the Board, or of any committee thereof, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.9 WAIVER OF NOTICE Whenever notice is required to be given to any director under any provisions of these Bylaws, the Articles of Incorporation, or the Act, a written waiver thereof, signed by the person entitled to notice and delivered to the Corporation, whether before or after the date and time of the meeting, shall be deemed equivalent to the giving of such notice. A director's attendance at or participation in a meeting of the Board, or of any committee thereof, shall constitute a waiver of notice of such meeting, unless the director at the beginning of the meeting, or promptly upon his arrival, objects to holding the meeting or transacting business at such meeting and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board, or of any committee thereof, need be specified in any written waiver of notice unless so required by these Bylaws or the Articles of Incorporation. 3.10 QUORUM At all meetings of the Board, or of any committee thereof, a majority of the authorized number of directors shall constitute a quorum for the transaction of business, and the act of majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, or of the committee thereof, except as the Articles of Incorporation or the Act may otherwise specifically provide. If a quorum is not present at any meeting of the Board, or of the committee thereof, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if one or more written consents setting forth the action so taken are signed by each of the directors or by each committee member, either before or after the action is taken, and delivered to the Corporation. Action taken by written consent of directors without a meeting is effective when the last director signs the consent, unless the consent specifies a later effective date. Any such consent shall be filed with the minutes of proceedings of the Board or committee meeting. 3.12 EXECUTIVE AND OTHER COMMITTEES; AUTHORITY; MINUTES The Board, by resolution adopted by the greater of (a) a majority of the directors then in office and (b) the number of directors required to take action in accordance with these Bylaws, may create standing or temporary committees, including an Executive Committee, and appoint members from its own number and invest such committees with such powers as it may see fit, subject to such conditions as may be prescribed by the Board, these Bylaws, the Articles of Incorporation, and applicable law. Each committee must have two or more members, who shall serve at the pleasure of' the Board. The Board may remove any member of any committee elected or appointed by the Board but only by the affirmative vote of the greater of (x) a majority of the directors then in office and (y) the number of directors required to take action in accordance with these Bylaws. Each committee shall have and may exercise all the authority of the Board to the extent provided in the resolution of the Board creating the committee and any subsequent resolutions adopted in like manner, except that no such committee shall have the authority to (i) authorize 7 or approve a distribution except according to a general formula or method prescribed by the Board, (ii) approve or propose to shareholders actions or proposals required by the Act to be approved by shareholders, (iii) fill vacancies on the Board or any committee thereof, (iv) amend the Articles of Incorporation pursuant to Section 23B.10.020 of the Act, (v) adopt, amend, or repeal Bylaws, (vi) approve a plan of merger not requiring shareholder approval, or (vii) authorize or approve the issuance or sale of contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the Board may authorize a committee or a senior executive officer of the Corporation to do so within limits specifically prescribed by the Board. All committees shall keep regular minutes of their meetings and shall cause them to be recorded in books kept for that purpose. 3.13 APPROVAL OF LOANS TO OFFICERS Unless these Bylaws, the Articles of Incorporation, or the Act otherwise specifically provide, the Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation, or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty, or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing contained in this Section 3.13 shall be deemed to deny, limit, or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. 3.14 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by these Bylaws or the Articles of Incorporation, the Board shall have the authority to fix the compensation of directors and committee members. By resolution, directors and committee members may be paid their expenses, if any, of attendance at each Board or committee meeting, or a fixed sum for attendance at each Board or committee meeting, or a stated salary as director or a committee member, or a combination of any of the foregoing. No such payment shall preclude any director or committee member from serving the Corporation in any other capacity and receiving compensation therefore. 3.15 PRESUMPTION OF ASSENT A director of the Corporation who is present at a Board or committee meeting at which any action is taken shall be deemed to have assented to the action taken unless (a) the director objects at the beginning of the meeting, or promptly upon the director's arrival, to holding the meeting or transacting any business at such meeting; (b) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice of the director's dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action. ARTICLE IV - OFFICERS 4.1 OFFICERS The officers of the Corporation shall consist of such officers and assistant officers as may be designated by resolution of the Board. The officers may include a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, and a Treasurer. The Corporation may also have, at the discretion of the Board, one or more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 4.3 of these Bylaws. Unless otherwise directed by the Board, the President may appoint any assistant officer, the Secretary may appoint one or more assistant Secretaries, and the Treasurer may appoint one or more Assistant Treasurers; provided that any such appointment shall be recorded in writing in the corporate records. Any number of offices may be held by the same person. 8 4.2 ELECTION OF OFFICERS The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 4.3 or 4.6 of these Bylaws, shall be chosen by the Board, subject to the rights, if any, of an officer under any contract of employment. Each officer shall hold office for the term of one year and until his or her successor shall be elected, except where expressly provided to the contrary in a contract authorized by the Board. 4.3 SUBORDINATE OFFICERS The Board may appoint, or empower the President to appoint, such other officers and agents as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board may from time to time determine. 4.4 CONTRACT RIGHT OF OFFICERS The appointment of an officer does not, by itself, create contract rights. 4.5 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. 4.6 VACANCIES IN OFFICE Any vacancy occurring in any office of the Corporation shall be filled by the Board. 4.7 CHAIRMAN OF THE BOARD The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board and exercise and perform such other powers and duties as may from time to time be assigned to him or her by the Board or as may be prescribed by these Bylaws. If there is no President, then the Chairman of the Board shall also be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Section 4.8 of these Bylaws. 4.8 PRESIDENT Subject to such supervisory powers, if any, as may be given by the Board to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the Corporation and shall, subject to the control of the Board, have general supervision, direction, and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the shareholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board.. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board or these Bylaws. 9 4.9 VICE PRESIDENT In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board or, if not ranked, a Vice President designated by the Board, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board, these Bylaws, the President, or the Chairman of the Board. 4.10 SECRETARY The Secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the Board may direct, a book of minutes of all meetings and actions of the Board, committees of the Board, and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those persons present at Board meetings or committee meetings, the number of shares present or represented at meetings of shareholders, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal offices of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board required to be given by law or by these Bylaws. He or she shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board or by these Bylaws. He or she is authorized to sign with the President or Vice President in the name of the Corporation all deeds, notes, mortgages, and contracts including those in any way affecting real property or interests therein and shall affix the seal of the Corporation thereto when required in the regular course of business. He or she shall submit such reports to the Board of Directors as may be requested by them from time to time. 4.11 TREASURER The Treasurer shall keep and maintain, or cause to by kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The Treasurer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board. He or she shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President and directors, whenever they request it, an account of all of his or her transactions as Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. 4.12 ASSISTANT SECRETARY The Assistant Secretary, or, if there is more than one, the Assistant Secretaries in the order determined by the shareholders or Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board, President, Secretary, or shareholders may from time to time prescribe. 10 4.13 ASSISTANT TREASURER The Assistant Treasurer, or, if there is more than one, the Assistant Treasurers, in the order determined by the shareholders or Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board, President, Secretary, Treasurer, or the shareholders may from time to time prescribe. 4.14 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board or the shareholders. 4.15 SALARIES The salaries of the officers shall be fixed from time to time by the Board or by any person or persons to whom the Board has delegated such authority. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation. ARTICLE V - INDEMNITY 5.1 RIGHT TO INDEMNIFICATION Each person who was, is, or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any threatened, pending, or completed action, suit, claim, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal (a "Proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or, that being or having been such a director or officer or an employee of the Corporation, he or she is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise (an "Indemnitee"), whether the basis of a Proceeding is alleged action in an official capacity or in any other capacity while serving as a director, officer, partner, trustee, employee, or agent, shall be indemnified and held harmless by the Corporation against all loses, claims, damages (compensatory, exemplary, punitive, or otherwise), liabilities, and expenses (including attorneys' fees, costs, judgments, fines, ERISA excise taxes or penalties, amounts to be paid in settlement, and any other expenses) actually and reasonably incurred or suffered by such Indemnitee in connection therewith and such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer of the Corporation or a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust,employee benefit plan, or other enterprise shall inure to the benefit of the Indemnitee's heirs, executors, and administrators. Except as provided in Section 5.4 with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such Indemnitee in a connection with a Proceeding (or part thereof) initiated by such Indemnitee only if a Proceeding (or part thereof) was authorized or ratified by the Board. The right to indemnification conferred in this Article 5 shall be a contract right. 5.2 RESTRICTIONS ON INDEMNIFICATION No indemnification shall be provided to any such Indemnitee for acts or omissions of the Indemnitee finally judged to be intentional misconduct or a knowing violation of law, for conduct of the Indemnitee finally adjudged to be in violation of Section 23B.08.310 of the Act, for any transaction with respect to which it was finally adjudged that such Indemnitee personally received a benefit in money, property, or services to which the Indemnitee was not legally entitled or if the Corporation is otherwise prohibited by applicable law from paying such indemnification. Notwithstanding the foregoing, if Section 23B.08.560 or any successor provision of the Act is hereafter amended, the restrictions on indemnification set forth in this Section 5.2 shall be set forth in such amended statutory provision. 5.3 ADVANCEMENT OF EXPENSES The right to indemnification conferred in this Article 5 shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition (an "Advancement of Expenses"). An Advancement of Expenses shall be made 11 upon delivery to the Corporation of an undertaking (an "Undertaking"), by or on behalf of such Indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such Indemnitee is not entitled to be indemnified. The Undertaking may be unsecured and may be accepted without reference to financial ability to make repayment. The Undertaking shall include an affirmation by the director if his or her good faith belief that his or her actions met the standard level of conduct described in Section 23B.08.510 of the Act, or any successor provision thereto. 5.4 RIGHT OF INDEMNITEE TO BRING SUIT If a claim under Section 5.1 or 5.3 of these Bylaws is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an Advancement of Expenses, in which case the applicable period shall be 20 days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any suit, or in a suit brought by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee shall be entitled to be paid also the expense of litigating the suit. The Indemnitee shall be presumed to be entitled to indemnification under this Article 5 upon submission of a written claim (and, in an action brought to enforce a claim for an Advancement of Expenses, when the required Undertaking has been tendered to the Corporation) and thereafter the Corporation shall have the burden of proof to overcome the presumption that the Indemnitee is so entitled. 5.5 PROCEDURES EXCLUSIVE Pursuant to Section 23B.08.560(2) or any successor provision of the Act, the procedures for indemnification and the Advancement of Expenses set forth in this Article 5 are in lieu of the procedures required by Section 23B.08.550 of any successor provision of the Act. 5.6 NONEXCLUSIVITY OF RIGHTS Except as set forth in Section 5.5, the right to indemnification and the Advancement of Expenses conferred in this Article 5 shall not be exclusive of any other right that any person may have or hereafter acquire under and statute, provision of the Articles of Incorporation or these Bylaws, general or specific action of the Board or shareholders, contract, or otherwise. 5.7 INSURANCE The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or who, while a director, officer, employee, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the Act. the Corporation may enter into contracts with any director, officer, partner, trustee, employee or agent of the Corporation in furtherance of the provisions of this Article 5 and may create a trust fund, grant a security interest, or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article 5. 5.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION In addition to the rights of indemnification set forth in Section 5.1, the Corporation may, by action of the Board, grant rights to indemnification and the Advancement of Expenses to employees and agents or any class or group of employees and agents of the Corporation (a) with the same scope and effect as the provisions of this Article 5 with respect to indemnification and the Advancement of Expenses of directors and officers of the Corporation; (b) pursuant to rights granted or provided by the Act; or (c) as are otherwise consistent with law. 5.9 PERSONS SERVING OTHER ENTITIES Any person who, while a director, officer, or employee of the Corporation, is or was serving (a) as a director, officer, employee, or agent of another corporation of which a majority of the shares entitled to vote in the election of its directors is held by the Corporation or 12 (b) as a partner, trustee, or otherwise in an executive or management capacity in a partnership, joint venture, trust, employee benefit plan, or other enterprise of which the Corporation or a wholly or majority owned subsidiary of the Corporation is a general partner or has a majority ownership shall conclusively be deemed to be so serving at the request of the Corporation and entitled to indemnification and the Advancement of Expenses under Sections 5.1 and 5.3. 5.10 REPORT TO SHAREHOLDERS If the Corporation indemnifies or provides Advancement of Expenses to a director, the Corporation must report the indemnification or Advancement of Expenses to the shareholders before or with the notice of the next shareholders meeting. ARTICLE VI - RECORDS AND REPORTS 6.1 MAINTENANCE AND INSPECTION OF RECORDS The Corporation shall, either at its principal office or at such place or places as designated by the Board: (a) Keep as permanent records, minutes of all meetings of the Board and shareholders, a record of all actions taken by the Board or shareholders without a meeting, and a record of all actions taken by a committee of the Board exercising the authority of the Board on behalf of the Corporation; (b) Maintain appropriate accounting records (c) Maintain a record of its shareholders, in a form that permits preparation of a list of names and addresses of all shareholders, in alphabetical order, by class of shares, and showing the number and class of shares held by each shareholder; and (d) Keep a copy of the following records at its principal office: (i) The Articles of Incorporation and all amendments thereto as currently in effect; (ii) These Bylaws and all amendments thereto as currently in effect; (iii) The minutes of all meetings of shareholders and records of all action taken by shareholders without a meeting, for the past three years; (iv) The financial statements described in Section 23B.16.200(1) of the Act, for the past three years; (v) All written communications to shareholders generally within the past three years; (vi) A list of the names and business addresses of the current directors and officers; and (vii) The most recent annual report delivered to the Secretary of State of the State of Washington. 13 6.2 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The Chairman of the Board, the President, any Vice President, the Treasurer, the Secretary, or Assistant Secretary of this Corporation, or any other person authorized by the Board or the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VII - GENERAL MATTERS 7.1 CHECKS From time to time, the Board shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes, or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments. 7.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 7.3 LOAN. TO THE CORPORATION No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board. Such authority may be general or confined to specific instances. 7.4 STOCK CERTIFICATES: PARTLY PAID SHARES The shares of a Corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman of the Board, or the President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue. If the shares of the Corporation are represented by certificates, then the form of the certificates shall include: (i) the name of the Corporation and an indication of organization in Washington State; (ii) the name of the holder to whom the shares were issued; (iii) the number, class, and series the certificate represents; and (iv) signatures (either manual or facsimile) of two officers. The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount 14 paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon, 7.5 SUBSCRIPTIONS Subscriptions for shares of stock of the Corporation shall be paid in full at such time, or in such installments and at such times, as the Board may determine. In case of default in the payment of any installment or call when such payment is due, the Board of Directors may declare the shares and all previous payments thereon forfeited for the use of the Corporation, in the manner prescribed by the Act. 7.6 SPECIAL DESIGNATION ON CERTIFICATES If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 23B.06.270 of the Act, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights. 7.7 LOST. STOLEN OR DESTROYED CERTIFICATES Except as provided in this Section 7.7, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertified shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Corporation may require the owner of the lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. If the stock is registered under a street name of a brokerage house or other nominee, the Corporation may require proof of ownership of the requesting person. 7.8 CONSTRUCTION: DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Act shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular," and the term "person" includes both an individual and an entity, as those terms are defined in the Act. 7.9 DIVIDENDS The Board, subject to any restrictions contained in the Articles of Incorporation, may declare and paydividends upon the shares of its capital stock pursuant to the Act. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. The Board may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies. 7.10 FISCAL YEAR The fiscal year of the Corporation shall be fixed by resolution of the Board and may be changed by the Board. 15 7.11 SEAL The Board may provide for a corporate seal that shall consist of the name of the Corporation, the state of its incorporation, and the year of its incorporation. 7.12 TRANSFER OF STOCK; RESTRICTIONS ON TRANSFER Upon surrender to the Corporation or its transfer agent of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be owner thereof for all purposes. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board may prescribe. Except to the extent that the Corporation has obtained an opinion of counsel acceptable to the Corporation that transfer restrictions are not required under applicable federal and state securities laws, all certificates representing shares of the Corporation shall bear a legend on the face of the certificate, or on the reverse of the certificate if a reference to the legend is contained on the face thereof, which reads substantially as follows: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT'), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT AND ANY STATE SECURITIES LAWS." 7.13 STOCK TRANSFER AGREEMENTS The Corporation shall have power to enter into and perform any agreement with any number of shareholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Act. 7.14 REGISTERED SHAREHOLDERS The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share, or shares, on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Washington. ARTICLE Vlll - AMENDMENTS These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board, except that the Board may not amend or repeal any Bylaw that the shareholders have expressly provided, in amending or repealing such Bylaw, may not be amended or repealed by the Board. The shareholders may also alter, amend, and repeal these Bylaws or adopt new Bylaws. All Bylaws made and adopted by the Board may be amended, repealed, altered, or modified by the shareholders. 16 CERTIFICATE OF ADOPTION OF BYLAWS OF VIDEO INTERNET BROADCASTING CORPORATION The undersigned hereby certifies that he or she is the duly elected, qualified, and acting Secretary of Video Internet Broadcasting Corporation (the "Corporation") and that the foregoing Bylaws, comprising 22 pages, were adopted as the Bylaws of the Corporation on June 8, 2001 by resolution of the sole incorporator and ratified by the Board of Directors of the Corporation on June 11, 2001. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Adoption on June 11, 2001. Nancy Ryan - ------------------ Secretary EX-10.11 6 ex1011q093004.txt SECURED LOAN AGREEMENT Exhibit 10.11 SECURED LOAN AGREEMENT This Loan Agreement ("Agreement") is entered into by and between HomeNet Corporation, a Delaware corporation (the "Company"), HomeNet Communications, Inc. ("HomeNet") and ____________("Lender") to be effective as of the __ day of November, 2004. WITNESSETH: WHEREAS, the Company is in need of immediate capital to fund its planned operations. WHEREAS, Lender is willing to make a loan to the Company in the total aggregate principal amount of ___________________Dollars ($__________ USD) upon the terms and conditions set forth herein and the Company is willing to borrow the stated amount upon such terms. NOW, THEREFORE, IT IS AGREED AS FOLLOWS: The Loan. Lender hereby agrees to loan the Company (the "Loan") the aggregate principal amount of ___________________Dollars ($_____________ USD) which funds are being provided to the Company contemporaneously with the execution of this Agreement by the parties hereto. The amounts lent hereunder shall be evidenced by a convertible promissory note in substantially the same form as attached hereto as Exhibit "A" (the "Note"). Borrower shall deliver to Lender a Note in the principal amount of funds lent at the same time that the Company receives the Loan proceeds. The Company shall use the net proceeds of the Note for working capital and other purposes. Security. As collateral security for the prompt satisfaction of all of the Company's obligations hereunder, including payment of the indebtedness evidenced by the Note, HomeNet hereby grants to Lender, subject to the terms and conditions of the Security Agreement (defined below), a security interest in all the Collateral (as defined in the Security Agreement). This provision and the Security Agreement are effective to create in favor of the Collateral Agent (as defined in the Security Agreement) a legal, valid and enforceable security interest in all right, title and interest of the Company in the Collateral, subject to the prior lien of Zions First National Bank. Finance Charges. All outstanding principal shall bear interest at the rate of Twelve percent (12%) per annum. Principal and interest not paid when due shall bear interest at the rate of eighteen percent (18%) per annum. Interest will be computed on the basis on a 360-day year for actual days elapsed. Lender shall receive common stock purchase warrants to acquire 100 shares of common stock at an exercise price of One Dollar Fifty Cents ($1.50) per share (the "Warrant") for every ONE THOUSDAND DOLLARS in principal lent by Lender to the Company hereunder. The Warrant shall be in substantially the same form as attached hereto as Exhibit "B." Payments. Principal and interest shall be due and payable in a single balloon payment on the six month anniversary of the Note. The Company may, from time to time, in the Company's discretion, make one or more periodic payments to Lender. Such payments shall be credited to the Company's account on the date that such payment is received by Lender. Such payments shall be applied first to late charges and collection costs, if any, then to accrued interest to the date of payment, and then to the principal outstanding. Deliveries. Contemporaneously with the execution of this Agreement, the parties shall deliver to each other properly executed copies of the following agreements: (a) The Note of even date herewith by and between Lender and the Company. (b) The Warrant of even date herewith by and between Lender and the Company. (c) The Security Agreement of even date herewith by and between the Secured Lenders (defined below) and HomeNet in substantially the same for as attached hereto as Exhibit "C." (d) The Loan proceeds. Representations of Lender. 5.1 Lender's representations in this Agreement are complete and accurate to the best of Lender's knowledge, and the Company may rely upon them. 5.2 Lender is able to bear the economic risk of an investment in the Note, Warrant and the underlying securities (individually and collectively, the "Securities") can afford the loss of the entire investment in the Securities, and will, after making an investment in the Securities, have sufficient means of providing for Lender's current needs and possible future contingencies. 5.3 The Securities will not be sold by Lender without registration under applicable securities acts or a proper exemption from such registration. 5.4 The Securities subscribed for herein is being acquired for Lender's own account and risk, for investment purposes, and not on behalf of any other person or with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act of 1933. Lender is aware that there are substantial restrictions on the transferability of the Securities. 5.5 Lender has had access to any and all information concerning the Company that Lender and its financial, tax and legal advisors required or considered necessary to make a proper evaluation of this investment. Specifically, Lender has had the opportunity to review Company's annual report on Form 10-KSB for the fiscal year ended March 31, 2004, quarterly report on Form 10-QSB for the quarterly period ended June 30, 2004 and the current report on Form 8-K filed by the Company during 2004 (collectively, the "Securities Filings"). Lender understands that the Company does not have sufficient working capital to execute its business plan, the Company has substantial debt obligations, the Company has not filed its 10-QSB for the quarterly period ended September 30, 2004 so the information in the Securities Filings is not current and that the Company has no agreements assuring the Company that it will obtain additional funding based on any specific valuation or at all. In making the decision to acquire the Securities, the Lender and its advisers have relied solely upon the Securities Filings and their own independent investigations, and fully understand that there are no guarantees, assurances or promises in connection with any investment hereunder and understand that the particular tax consequences arising from this investment in the Company will depend upon its individual circumstances. Lender further understands that no opinion is being given as to any securities or tax matters involving the offering. 5.6 Lender also understands and agrees that stop transfer instructions relating to the Securities will be placed in the Company's transfer ledger, and that the Securities will bear a legend in substantially the following form: THIS SECURITIES REPREENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT. 5.7 Lender knows that the Securities are offered and sold pursuant to exemptions from registration under the Securities Act of 1933, and state securities law based, in part, on these warranties and representations, which are the very essence of this Agreement, and constitute a material part of the bargained-for consideration without which this Agreement would not have been executed. In making an investment decision, Lender is not relying on any information from the Company or its officers, agents or directors, except as set forth in the Securities Filings and as contained herein. 5.8 Lender has the capacity to protect Lender's own interest in connection with this transaction or has a pre-existing personal or business relationship with the Company or one or more of its officers, directors or controlling persons consisting of personal or business contacts of a nature and duration such as would enable a reasonably prudent purchaser to be aware of the character, business acumen and general business and financial circumstances of such person with whom such relationship exists. 5.9 This Agreement when fully executed and delivered by the Company will constitute a valid and legally binding obligation of Lender, enforceable in accordance with its terms. Lender was not formed or organized for the specific purpose of acquiring the Securities. In the event Lender is an entity, the purchase of the Securities by Lender is a permissible investment in accordance with Lender's Articles of Incorporation or other similar charter document, and has been duly approved by all requisite action by the entity's owners, directors, officers or other authorized managers. The person signing this document and all documents necessary to consummate the purchase of the Securities has all requisite authority to sign such documents on behalf of Lender. 5.10 Lender represents that Lender is a sophisticated and an "accredited investor" as defined under Rule 501 of Regulation D. Representations of the Company. The Company is a duly organized and validly existing corporation in good standing under the laws of Delaware. The Company has taken all necessary corporate power and authority to enter into and perform this Agreement. The execution and delivery of this Agreement, the performance by the Company of its obligations under this Agreement, and the consummation of the transactions provided for in this Agreement have been duly and validly authorized by all necessary corporate action on the part of the Company. This Agreement will, as of the effective date, be duly executed and delivered by the Company and will constitute the valid and binding agreement of the Company enforceable against the Company in accordance with its respective terms, subject to applicable bankruptcy, insolvency and other similar laws affecting the enforceability of creditors' rights generally, general equitable principles and the discretion of courts in granting equitable remedies. The execution and delivery by the Company of this Agreement, the performance by the Company of its obligations hereunder, and the consummation of the transactions contemplated hereby, do not and will not (a) violate or conflict with or result in a breach of any provision of the Certificate of Incorporation or Bylaws of the Company; (b) require any consent, approval or notice under, or registration under or payment on account of, or conflict with, or result in a violation or breach of, or constitute (with or without the giving of notice or the lapse of time or both) a default (or give rise to any right of termination, modification (including, in the case of leases, any change in the amount or nature of the rent), cancellation or acceleration or result in the creation or imposition of any lien upon the property of the Company) under, any of the terms, conditions or provisions of any (i) note, bond, mortgage, indenture, license, lease, agreement or other instrument or obligation to which the Company is a party or by which any portion of its properties or assets may be bound, or (ii) permit, license, approval, franchise or other governmental or regulatory authorization held or used by or binding on the Company; (c) violate or contravene any law, statute, rule or regulation, or any order, writ, judgment, injunction, decree or award of any governmental authority binding on the Company; or (d) require any action, consent, approval or authorization of, or review by, or declaration, registration or filing with, or notice to, any governmental authority, except such filings as may be required in connection with applicable securities laws. The Company shall not declare any distribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights prior to the date the Loan is repaid in full. Miscellaneous. This Agreement, including any attached exhibits or schedules, constitutes the entire agreement between the parties pertaining to the subject matter contained in this Agreement. All prior and contemporaneous agreements, representations and understandings of the parties, oral or written, are superseded by and merged in this Agreement. No supplement, modification or amendment of this Agreement shall be binding unless in writing and executed by the Company and Lender. The provisions of this Agreement shall be binding upon the Company, its legal representatives, successors or assigns, and shall be for the benefit of Lender and its respective successors and assigns. The headings of this Agreement are for purposes of reference only and shall not limit or define the meaning of any provision of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of Washington. The Company is not obligated to pay any broker's fee, finder's fee, investment banker's fee or other similar transaction fee in connection with the transactions contemplated hereby. Covenants. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the rights (charter and statutory) and franchises of the Company. The Company will comply with all applicable statutes, regulations, orders and restrictions of the United States, any state, municipality or other governmental division thereof, and agencies and instrumentalities of the foregoing, in respect of the conduct of its business and the ownership of its property, except where such non-compliance will not have a material adverse effect on the Company or its business. The Company will file, when due, all federal, state and local tax and information returns that it is required to file. The Company will pay when due all taxes, interest and penalties, if any, reflected in such tax returns or otherwise due and payable by it. Which shall constitute one and the same instrument. If any action is brought by any party in respect to its rights under this Agreement, or to obtain an interpretation thereof, the prevailing party shall be entitled to reasonable attorneys' fees and court costs as determined by the court. No waiver of any of the provisions of this Agreement shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver be a continuing waiver. Except as expressly provided in this Agreement, no waiver shall be binding unless executed in writing by the party making the waiver. Either party may waive any provision of this Agreement intended for its benefit; provided, however, such waiver shall in no way excuse the other party from the performance of any of its other obligations under this Agreement. The representations, warranties, acknowledgments and agreements made by Lender shall survive the closing of the transaction described herein and run in favor of, and for the benefit of, the Company. The representations, warranties, acknowledgments and agreements made by the Company shall survive the closing of the transaction described herein and run in favor of, and for the benefit of, Lender. The obligations of the parties hereto shall not be delegated or assigned to any other party without the prior written consent of the other party. This Agreement shall be governed by the laws of the State of Utah. Any notices required or permitted hereunder shall be furnished in writing to each party at such party's address appearing on the signature page below or as such party may otherwise direct in writing actually received by the other party. The Company shall do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers and assurances as Lender may reasonably require to effectuate the purposes of this Agreement. This Loan is one of a series of loans that are being made to the Company by various lenders (the "Secured Lenders"), which loans shall be in an aggregate principal amount of not more than TWO MILLION DOLLARS ($2,000,000). IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the date first written above. HOMENET CORPORATION LENDER EIN 33-0565710 EIN (if any) By By - ----------------------------------- -------------------------------- Its: President Its: Address: Address: HomeNet Corporation Attn: President 175 South Main Street, #1240 Salt Lake City, Utah 84111 Phone: (801) Phone: (801) 746-3311 Fax: (801) Fax: (801) 746-3312 HOMENET COMMUNICATIONS, INC. By - ----------------------------------- Its CEO Address: 5252 North Edgewood Drive, Suite 310 Provo, Utah 84603 Phone: (801) 746-3311 Fax: (801) 746-3312 SCHEDULE OF EXHIBITS EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- A Form of Convertible Promissory Note B Form of Common Stock Purchase Warrants C Form of Security Agreement EXHIBIT A THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT, UNLESS THE COMPANY HAS RECEIVED THE WRITTEN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH SALE, ASSIGNMENT OR TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING REGISTRATION OF THE ACT. CONVERTIBLE PROMISSORY NOTE No. ___ _____________________________ $ Salt Lake City, Utah FOR VALUE RECEIVED, HomeNet Corporation, a Delaware corporation (the "Borrower" or "HomeNet"), hereby promises to pay to the order _______ (the "Lender," "Noteholder" or "holder") with a principal business address at or such other place as the holder hereof shall designate, the principal amount of _____________________ Dollars ($___________ USD) or such lesser amount as may be outstanding from time to time, in lawful money of the United States in immediately available funds with accrued interest on the unpaid principal hereof from the date hereof at the rate of twelve percent (12%) per annum. Principal plus interest accrued thereon shall be due and payable in a single installment upon the earlier of (i) the six month anniversary of this Note or (ii) the occurrence of an Event of Default as defined in Section 7 hereof. In the event that any amount owing hereunder is not paid when due, then interest shall accrue from and after the date of such demand at the lower of (i) eighteen percent (18%) per annum or (ii) the highest interest rate acceptable under applicable usury laws, compounded monthly (the "Default Rate"). Interest shall be calculated on the basis of actual days elapsed and a 360-day year. This Loan is one of a series of loans that are being made to the Company by various lenders which loans shall be in an aggregate principal amount of not more than Two Million Dollars ($2,000,000 USD). The following is a statement of the rights of the holder of this Note and the conditions to which this Note is subject, and to which the holder hereof, by the acceptance of this Note, agrees: 1. Definitions. The following definitions shall apply for all purposes of this Note: 1.1 "Change of Control Transaction" shall mean a merger, acquisition, or other business combination in which fifty percent (50%) or more of HomeNet's outstanding voting stock is transferred to different holders in a single transaction or a series of related transactions. 1.2 "Conversion Date" shall mean the date on which, pursuant to Sections 2 and 3 hereof, the Noteholder exercises its right to convert this Note into the Conversion Stock at the Note Conversion Price. 1.3 "Conversion Stock" shall mean either of the following at the election of Noteholder (i) if HomeNet has issued any capital stock (the "Capital Stock") in a Next Equity Financing on or before the Maturity Date, then the shares of such series of Capital Stock or (ii) shares of HomeNet's Common Stock, or such other series of HomeNet's capital stock acceptable to the parties. The number and character of shares of Conversion Stock are subject to adjustment as provided herein and the term "Conversion Stock" shall include shares and other securities and property at any time receivable or issuable upon conversion of this Note in accordance with its terms. 1.4 "Next Equity Financing" shall mean any preferred stock equity financing or financings which occur after the date hereof and on or prior to the Maturity Date in which the gross proceeds received by HomeNet meet or exceed $1,000,000. 1.5 "Note Conversion Price" shall equal (i) eight percent (80%) of the price per share paid by investors in a Next Equity Financing or (ii) if no Next Equity Financing has taken place, $1.00 per share. 2. Conversion. 2.1 (a) Conversion of Note. At any time prior to payment in full of the outstanding principal balance of this Note, plus accrued interest hereunder, Noteholder shall have the right, at the holder's option, to convert the outstanding principal and accrued interest on this Note, in whole or in part, into Conversion Stock at the Note Conversion Price. Conversion under this Section 2 shall occur only upon surrender of this Note for conversion at the principal offices of HomeNet. (b) Prepayment of Note. This Note may be prepaid in full or in part at any time without penalty upon fifteen (15) days written notice to Noteholder; provided, however, Noteholder shall have no obligation to accept any payment less than the entire principal balance, plus accrued interest. 2.2 Certain Transactions. HomeNet shall give written notice to the Noteholder of any Change of Control Transaction at least fifteen (15) business days prior to the date on which such Change of Control Transaction shall become effective ("Transaction Effective Date"). Prior to or contemporaneous with the closing of such Change of Control Transaction, HomeNet shall, at Noteholder's election either (i) repay all unpaid principal and interest under this Note, or (ii) convert this Note into Conversion Stock at the Note Conversion Price; provided Noteholder delivers notice to HomeNet of its election under subclause (i) or (ii), above, not less than three (3) business days prior to the Transaction Effective Date. 3. Issuance of Conversion Stock. As soon as practicable after conversion of this Note, HomeNet will (i) at its expense, cause to be issued in the name of and delivered to the holder of this Note, a certificate or certificates for the number of shares of Conversion Stock to which the holder shall be entitled upon such conversion (bearing such legends as may be required by applicable state and federal securities laws in the opinion of legal counsel of HomeNet and as may be provided for in any applicable contracts between the Holder and HomeNet), together with any other securities and property to which the holder is entitled upon such conversion under the terms of this Note; and (ii) execute and deliver to Noteholder a stock purchase agreement, in a form mutually acceptable to Noteholder and HomeNet. Such conversion shall be deemed to have been made (A) under Section 2 above and (B) immediately prior to the close of business on the date that the Note shall have been surrendered for conversion. No fractional shares will be issued upon conversion of this Note. If upon any conversion of this Note a fraction of a share would otherwise result, then, in lieu of such fractional share, HomeNet will pay the cash value of that fractional share, calculated on the basis of the applicable Note Conversion Price. 4. Adjustments and Reservation of Shares. The number and character of shares of Conversion Stock issuable upon conversion of this Note (or any shares of stock or other securities or property at the time receivable or issuable upon conversion of this Note) are subject to adjustment upon the occurrence of any of the following events: 4.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations, etc. In the event that HomeNet shall fix a record date for the determination of holders of securities affected by any stock split, stock dividend, reclassification, recapitalization or other similar event that will, in the future, affect the number of outstanding shares of HomeNet's capital stock, then, and in each such case, the Noteholder, upon conversion of this Note at any time after HomeNet shall fix the record date for such event, shall receive, in addition to the shares of Conversion Stock issuable upon conversion on the Conversion Date, the right to receive the securities of HomeNet to which such holder would have been entitled if such holder had converted this Note immediately prior to such record date (all subject to further adjustment as provided in this Note). 4.2 Adjustment for Dividends and Distributions. In the event that HomeNet shall make or issue, or shall fix a record date for the determination of eligible holders of securities entitled to receive, a dividend or other distribution payable with respect to the Conversion Stock (or any shares of stock or other securities at the time issuable upon conversion of this Note) that is payable in (a) securities of HomeNet other than capital stock or (b) any other assets, then, and in each such case, the Noteholder, upon conversion of this Note at any time after the consummation, effective date or record date of such event, shall receive, in addition to the shares of Conversion Stock (or such other stock or securities) issuable upon such conversion prior to such date, the securities or such other assets of HomeNet to which such holder would have been entitled upon such date if such holder had converted this Note immediately prior thereto (all subject to further adjustment as provided in this Note). 4.3 Adjustment for Reorganization, Consolidation, Merger. In the event of any reorganization not considered a Change of Control Transaction of HomeNet (or any other corporation the stock or other securities of which are at the time receivable upon the conversion of this Note) after the date of this Note, or in the event, after such date, HomeNet (or any such corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation where such transaction is not considered a Change of Control Transaction, then, and in each such case, the Noteholder, upon the conversion of this Note (as provided in Section 2) at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the conversion of this Note prior to such consummation, the stock or other securities or property to which such Noteholder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if such holder had converted this Note immediately prior thereto, all subject to further adjustment as provided in this Section 4, and the successor or purchasing corporation in such reorganization, consolidation, merger or conveyance (if other than HomeNet) shall duly execute and deliver to the Noteholder a supplement hereto acknowledging such corporation's obligations under this Note. In each such case, the terms of the Note shall be applicable to the shares of stock or other securities or property receivable upon the conversion of this Note after the consummation of such reorganization, consolidation, merger or conveyance. 4.4 Conversion of Stock. In the event that all of the authorized Conversion Stock of HomeNet is converted, pursuant to HomeNet's Certificate of Incorporation, into other capital stock or securities or property, or the Conversion Stock otherwise ceases to exist, then the Noteholder, upon conversion of this Note at any time after the date on which the Conversion Stock is so converted or ceases to exist (the "Termination Date"), shall receive, in lieu of the number of shares of Conversion Stock that would have been issuable upon such conversion immediately prior to the Termination Date (the "Former Number of Shares of Conversion Stock"), the stock and other securities and property to which such Noteholder would have been entitled to receive upon the Termination Date if such holder had converted this Note with respect to the Former Number of Shares of Conversion Stock immediately prior to the Termination Date (all subject to further adjustment as provided in this Note). 4.5 Notice of Adjustments. HomeNet shall promptly give written notice of each adjustment or readjustment of the number of shares of Conversion Stock or other securities issuable upon conversion of this Note, by first class mail, postage prepaid, to the registered holder of this Note at the holder's address as shown on HomeNet's books. The notice shall describe the adjustment or readjustment and show in reasonable detail the facts on which the adjustment or readjustment is based. 4.6 No Change Necessary. The form of this Note need not be changed because of any adjustment in the number of shares of Conversion Stock issuable upon its conversion. 4.7 Reservation of Stock. HomeNet will, as soon as practicable, but in any event within fifteen (15) days of the date of this Note, take all necessary corporate action and obtain all necessary government consents and approvals to authorize the issuance of this Note and, prior to the conversion hereof, the shares of Conversion Stock issuable upon conversion of this Note. If at any time the number of authorized but unissued Conversion Stock or other securities shall not be sufficient to effect the conversion of this Note, then HomeNet will take such corporate action as may, in the opinion of its legal counsel, be necessary to increase its authorized but unissued Conversion Stock or other securities to such number of shares of Conversion Stock or other securities as shall be sufficient for such purpose. 5. Fully Paid Shares. All shares of Conversion Stock issued upon the conversion of this Note shall be validly issued, fully paid and non-assessable. 6. No Rights or Liabilities as Stockholder. This Note does not by itself entitle the Noteholder to any voting rights or other rights as a stockholder of HomeNet. In the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of the holder, shall cause such holder to be a stockholder of HomeNet for any purpose 7. Events of Default. The entire outstanding principal amount of, and all accrued unpaid interest on, this Note shall become forthwith due and payable, without presentment, demand, protest, or notice of any kind, upon the happening of any of the following events (each, an "Event of Default"): (a) The failure by the Borrower to make a payment of any principal or interest due on this Note within five days after the date such payment was due and payable. (b) The entry of any decree or order by a court having jurisdiction adjudging the Borrower a debtor or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Borrower under the United States Bankruptcy Code or any other applicable federal or state law, the appointment of a receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Borrower, or of any substantial part of the property of the Borrower, and the continuance of any such decree or order unstayed, undischarged, or undismissed and in effect for more than ninety (90) consecutive days. (C) Institution by the Borrower of proceedings, under the Bankruptcy Code or any other applicable federal or state law, seeking an order for relief, or the consent of the Borrower to the institution of bankruptcy or insolvency proceedings against the Borrower, or the consent by the Borrower to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or other similar official of or for the Borrower or any substantial part of the property of the Borrower, or the making by the Borrower of any assignment for the benefit of creditors, or the admission by the Borrower of the Borrower's inability to pay its debts generally as they become due, or the taking of any action by the Borrower in furtherance of any such action. Upon the occurrence of any Event of Default, the Lender may take all actions available to it, at law or in equity, to collect and otherwise enforce this Note. 8. Costs and Expenses of Enforcement and Collection. Upon receipt of written evidence reasonably satisfactory to Borrower, the Borrower agrees to pay on demand all reasonable costs and expenses, including reasonable attorneys' fees, incurred or paid by the Lender in enforcing or collecting any of the obligations of the Borrower hereunder. 9. Miscellaneous. (a) The Borrower (i) waives presentment, demand, notice of demand, protest, notice of protest, and notice of nonpayment and any other notice required to be given under the law to the Borrower, in connection with the delivery, acceptance, performance, default or enforcement of this Note, except for notice and presentment upon conversion or at maturity of this Note and notice or proposed transfer of this Note in accordance with the terms hereof; and (ii) agrees that any failure to act or failure to exercise any right or remedy on the part of the registered owner shall not in any way affect or impair the obligations of the Borrower or be construed as a waiver by the owner of, or otherwise affect, any of its rights under this Note. (b) No act, omission or delay by the Lender or course of dealing between the Lender and the Borrower shall constitute a waiver of the rights and remedies of the Lender hereunder. No single or partial waiver by the Lender of any default or right or remedy which it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion. (c) No provision hereof shall be modified, altered or limited except by a written instrument expressly referring to this Note and to such provision, and executed by the Borrower and the Lender. (d) This Note shall be governed by and construed in accordance with the laws of the State of Utah, without giving effect to the choice or conflict of laws principles of that or any other jurisdiction. 5. Any notice or demand which is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand or by telecopy, e-mail or other method of electronic transmission (provided such transmission generates evidence of delivery), or five days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two days after being sent by overnight delivery providing receipt of delivery, to the following addresses: if to the Borrower: HomeNet Corporation Attn: President 175 South Main Street, #1240 Salt Lake City, Utah 84111 Phone: (801) 746-3311 Fax: (801) 746-3312 E-mail: fgillen@gohomenet.net if to the Lender: Phone: Fax: (801) E-mail: (f) In the event that any court of competent jurisdiction shall determine that any provision, or any portion thereof, contained in this Note shall be unreasonable or unenforceable in any respect, then such provision shall be deemed limited to the extent that such court deems it reasonable and enforceable, and as so limited shall remain in full force and effect. In the event that such court shall deem any such provision, or portion thereof, wholly unenforceable, the remaining provisions of this Note shall nevertheless remain in full force and effect. (g) This Note and all obligations evidenced hereby shall be binding upon the successors and assigns of the Borrower and shall, together with the rights and remedies of the Lender hereunder, inure to the benefit of the Lender, its successors, permitted endorsees and assigns. 5. This Note is secured by, and entitled to the benefits of, the Security Agreement effective as of November 30, 2004, as amended and in effect from time to time, among the Borrower, the Lender, HomeNet Communications, Inc. and certain other lenders and the collateral agent party thereto. IN WITNESS WHEREOF, this Note has been duly executed and delivered by the Borrower as of the date first written above. BORROWER: HOMENET CORPORATION By: /s/ Frank Gillen --------------------- Its: President AGREED AND APPROVED: By: - ------------------------------------ Its: EXHIBIT B THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT, UNLESS THE COMPANY HAS RECEIVED THE WRITTEN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH SALE, ASSIGNMENT OR TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING REGISTRATION OF THE ACT. COMMON STOCK PURCHASE WARRANTS HOMENET CORPORATION Incorporated Under the Laws of the State of Delaware No. - ________ ______Common Stock Purchase Warrants CERTIFICATE FOR COMMON STOCK PURCHASE WARRANTS HOMENET CORPORATION, a Delaware corporation (the "Company"), for value received, hereby certifies that ______, or registered assigns (the "Holder"), is the registered owner of the above indicated number of Warrants. One (1) Warrant entitles the Holder to purchase one (1) share of the Company's common stock, $.001 par value (the "Common Stock"). The Common Stock issuable upon an exercise of this Warrant is sometimes herein referred to as the "Warrant Stock." 1. Purchase Price. The purchase price (the "Exercise Price") per share for the Warrant Stock shall be $1.50 per share tendered to the Company in good United States funds. 2. Rights to Exercise. The Holder shall have the right (but not the obligation) to exercise the Warrant to receive the Warrant Stock (subject to adjustment as hereinafter provided) at any time on or before August 30, 2006. 3. Manner of Exercise. In order to exercise this Warrant, the Holder shall surrender this Warrant certificate at the office of the Company, as set forth below, or at such other address within the State of Utah as the Company shall designate in writing, together with a duly executed exercise form in the form attached hereto and simultaneous payment in full (in cash or by certified or official bank or bank cashier's check payable to the order of the Company or by offset of obligations then owed by the Company to the Holder) of the purchase price for the Warrant Stock. Upon surrender of this Warrant certificate in conformity with the foregoing provisions, the Company shall promptly deliver to or upon the written order of the Holder a stock certificate or certificates representing the Warrant Stock. 4. Adjustments upon Certain Events. 4.1 Stock Splits, Stock Combinations and Certain Stock Dividends. If the Company shall at any time subdivide or combine its outstanding Common Stock, or declare a dividend in Common Stock or other securities of the Company convertible into or exchangeable for Common Stock, a Warrant shall, after such subdivision or combination or after the record date for such dividend, be exercisable for that number of shares of Common Stock and other securities of the Company that the Holder would have owned immediately after such event with respect to the Common Stock and other securities for which a Warrant may have been exercised immediately before such event had the Warrant been exercised immediately before such event. Any adjustment under this Section 4.1 shall become effective at the close of business on the date the subdivision, combination or dividend becomes effective. 4.2 Adjustment for Reorganization, Consolidation, Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable upon exercise of a Warrant) or in case the Company (or any such other corporation) shall merge into or with or consolidate with another corporation or convey all or substantially all of its assets to another corporation or enter into a business combination of any form as a result of which the Common Stock or other securities receivable upon exercise of a Warrant are converted into other stock or securities of the same or another corporation, then and in each such case, the Holder of a Warrant, upon exercise of the purchase right at any time after the consummation of such reorganization, consolidation, merger, conveyance or combination, shall be entitled to receive, in lieu of the shares of Common Stock or other securities to which such Holder would have been entitled had he exercised the purchase right immediately prior thereto, such stock and securities which such Holder would have owned immediately after such event with respect to the shares Common Stock and other securities for which a Warrant may have been exercised immediately before such event had the Warrant been exercised immediately prior to such event. 4.3 Notice. In each case of an adjustment in the Common Stock or other securities receivable upon the exercise of a Warrant, the Company shall promptly notify the Holder of such adjustment. Such notice shall set forth the facts upon which such adjustment is based. 5. Loss, Theft, Destruction, or Mutilation. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft, or destruction) of indemnity satisfactory to it (in the exercise of its reasonable discretion), and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver, in lieu thereof, a new Warrant in the same form and tenor. 6. Reservation of Shares Issuable on Exercise of Warrant. The Company will at all times reserve and keep available out of its authorized shares, solely for issuance upon the exercise of the Warrant, such shares of its Common Stock and other securities as from time to time shall be issuable upon the exercise of the Warrant. 7. Miscellaneous. 7.1 Governing Law. This Warrant shall be construed in accordance with, and governed by the substantive laws of, the State of Utah. 7.2 Assignment. The benefit of this Warrant and of the Warrant Stock represented hereby may be assigned and transferred by the Holder and its assigns in accordance with any applicable securities laws and regulations; however, the obligations of the Company and its successors may not be delegated without the prior written consent of the Holder hereof. Subject to the foregoing, this Warrant shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors, agents, heirs and assigns. 7.3 Enforcement. In the event of a dispute between the parties arising under this Warrant, the party prevailing in such dispute shall be entitled to collect such party's costs and expenses from the other party, including without limitation court costs and reasonable attorneys' fees. Notices. Any notice or demand which is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand or by telecopy, e-mail or other method of electronic transmission (provided such transmission generates evidence of delivery), or five days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two days after being sent by overnight delivery providing receipt of delivery, to the following addresses: if to the Borrower: HomeNet Corporation Attn: President 175 South Main, #1240 Salt Lake City, Utah 84111 Fax: (801) 746-3311 E-mail: fgillen@gohomenet.net if to the Lender: ___________________________________ ___________________________________ Fax: (801) E-mail: Restrictive Legend. Each Warrant Certificate and each certificate representing Common Stock issued upon exercise of a Warrant, unless such Common Stock is then registered under the Securities Act of 1933, as amended (the "Act"), shall bear a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE. 7.6 Payment of Taxes. The Holder shall pay all documentary, stamp or similar taxes and other government charges that may be imposed with respect to the issuance, transfer or delivery of any Warrant Stock on exercise of the Warrants. In the event the Warrant Stock are to be delivered in a name other than the name of the Holder of the Warrant Certificate, no such delivery shall be made unless the person requesting the same has paid the amount of any such taxes or charges incident thereto. Reduction in Exercise Price at Company's Option. The Company's Board of Directors may, at its sole discretion, reduce the Exercise Price of the Warrants in effect at any time either for the life of the Warrants or any shorter period of time determined by the Company's Board of Directors. The Company shall promptly notify the Registered Holders of any such reduction in the Exercise Price. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed as of the __th day of November, 2004. HOMENET CORPORATION, a Delaware corporation By: /s/ Frank Gillen -------------------------- Its: President HOMENET CORPORATION The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JR TEN - as joint tenants with right of survivorship and not as tenants in common UNIF TRANS MIN ACT - ____________ (Custodian for Minor) as custodian for __________ (name of minor) under the Uniform Transfers to Minors Act Additional abbreviations may also be used though not in the above list. FORM OF ASSIGNMENT (To be Executed by the Registered Holder if He or She Desires to Assign Warrants Evidenced by the Within Warrant Certificate) FOR VALUE RECEIVED ___________________________ hereby sells, assigns and transfers unto _____________________________ _________________________ (_______) Warrants, evidenced by the within Warrant Certificate, and does hereby irrevocably constitute and appoint _______________________________________ Attorney to transfer the said Warrants evidenced by the within Warrant Certificates on the books of the Company, with full power of substitution. Dated:____________________ ___________________________ Signature Notice: The above signature must correspond with the name as written upon the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. Signature Guaranteed: __________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. FORM OF ELECTION TO PURCHASE (To be Executed by the Holder if Holder Desires to Exercise Warrants Evidenced by the Warrant Certificate) To HOMENET CORPORATION The undersigned hereby irrevocably elects to exercise ___________________________ (______) Warrants, evidenced by the within Warrant Certificate for, and to purchase thereunder, ____________________________ (______) full shares of Common Stock issuable upon exercise of said Warrants and delivery of $_________ and any applicable taxes. The undersigned requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- If said number of Warrants shall not be all the Warrants evidenced by the within Warrant Certificate, the undersigned requests that a new Warrant Certificate evidencing the Warrants not so exercised be issued in the name of and delivered to: - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- Dated: _____________________ Signature:__________________________ NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the within Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. Signature Guaranteed: ___________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. EXHIBIT C SECURITY AGREEMENT This Agreement, effective as of November __, 2004, is among HomeNet Communications, Inc., a Washington corporation (the "Company"), _________, as collateral agent (the "Collateral Agent"), and the other parties listed on the signature pages below (the "Secured Parties"). The parties agree as follows: 1. Security Interest. Collateral. As security for the payment and performance of the Company's obligations to the Collateral Agent under the Promissory Notes dated on or about _____, 2004 issued by the Company to the Secured Parties in the aggregate principal amount of up to $2,000,000 (the "Secured Obligations"), the Company hereby creates a security interest in favor of the Collateral Agent for the benefit of the Secured Parties in all of the Company's right, title and interest in and to (but none of its obligations or liabilities with respect to) the following (subject, however to clause (o)), whether now owned or hereafter acquired, all of which shall be included in the term "Collateral": General intangibles of HomeNet, including all contracts and agreements between HomeNet and third parties for the provision of telecommunications, Internet, video, voice and related services, and HomeNet's customer base and customer list, now existing and hereafter arising, together with all proceeds and products thereof, but excluding accounts receivable pledged to Zions First National Bank. Notwithstanding the forgoing, the payment and performance of the Secured Obligations shall not be secured by: (i) any contract, license, permit or franchise that validly prohibits the assignment by the Company of rights under, or the creation by the Company of a security interest in, such contract, license, permit or franchise (or in any rights or property obtained by the Company under such contract, license, permit or franchise); provided, however, that the provisions of this paragraph shall not prohibit the security interests created by this Agreement from extending to the proceeds of such contract, license, permit or franchise (or such rights or property) or to the monetary value of the good will and other general intangibles of the Company relating thereto; or (ii) any rights or property to the extent that any valid and enforceable law or regulation applicable to such rights or property prohibits the creation of a security interest therein; provided, however, that the provisions of this paragraph shall not prohibit the security interests created by this Agreement from extending to the proceeds of such rights or property or to the monetary value of the good will and other general intangibles of the Company relating thereto. 1.2 Perfection of Collateral. Upon the Collateral Agent's reasonable request from time to time, the Company will execute and deliver, and file and record in the proper filing and recording places, all such instruments, including, without limitation, Uniform Commercial Code financing statements, and will take all such other action, as the Collateral Agent deems reasonably necessary for perfecting or otherwise confirming to it the security interest granted by the Company to the Collateral Agent in the Collateral pursuant to this Agreement. 1.3 Liens or Dispositions. The Collateral is subject to a prior and superior security interest that is held by Zions First National Bank securing a line of credit for the benefit of the Company. 2. Right to Realize upon Collateral. Except to the extent prohibited by applicable law that cannot be waived and subject to the rights of superior lien holders, this Section 2 shall govern the Collateral Agent's rights to realize upon the Collateral if any default by the Company in respect of the Secured Obligations shall have occurred and be continuing (a "Default"). The provisions of this Section 2 are in addition to any rights and remedies available at law or in equity. 2.1 Assembly of Collateral; Receiver. The Company shall, upon the Collateral Agent's written request, assemble the Collateral and otherwise make it available to the Collateral Agent. The Collateral Agent may have a receiver appointed for all or any portion of the Company's assets or business which constitutes the Collateral in order to manage, protect, preserve, sell and otherwise dispose of all or any portion of the Collateral. 2.2 Waiver. To the extent it may lawfully do so, the Company waives and relinquishes the benefit and advantage of, and covenants not to assert against the Collateral Agent, any valuation, stay, appraisement, extension, redemption or similar laws now or hereafter existing which, but for this Section 2.2, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Agreement, or otherwise. 2.3 Foreclosure Sale. All or any part of the Collateral may be sold for cash or other value in any number of lots at public or private sale, without demand, advertisement or notice; provided, however, that unless the Collateral to be sold threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Collateral Agent shall give the Company 10 days' prior written notice of the time and place of any public sale, or the time after which a private sale may be made, which notice each of the Company and the Collateral Agent agrees to be reasonable. At any sale or sales of Collateral, the Collateral Agent or any of its assigns may bid for and purchase all or any part of the property and rights so sold and may use all or any portion of the Secured Obligations owed to the Collateral Agent as payment for the property or rights so purchased, and upon compliance with the terms of such sale may hold and dispose of such property and rights without further accountability to the Company, except for the proceeds of such sale or sales pursuant to Section 2.4. 2.4 Application of Proceeds. The proceeds of all sales and collections in respect of any Collateral or other assets of the Company, all funds collected from the Company and any cash contained in the Collateral, the application of which is not otherwise specifically provided for herein, shall be applied as follows: (a) first, to the payment of the costs and expenses of such sales and collections, the reasonable expenses of the Collateral Agent and the reasonable fees and expenses of its counsel; (b) second, any surplus then remaining to the payment of the Secured Obligations in such order and manner as the Collateral Agent may in its reasonable discretion determine, provided, however, that any such payment shall be pro rata in accordance with the relative amounts due to the Secured Parties with respect to the Promissory Notes; and (C) third, any surplus then remaining shall be paid to the Company, subject, however, to any rights of the holder of any then existing lien who has duly presented to the Collateral Agent an authenticated demand for proceeds before the Collateral Agent's distribution of the proceeds is completed. 3. Custody of Collateral. Except as provided by applicable law that cannot be waived, the Collateral Agent will have no duty as to the custody and protection of the Collateral, the collection of any part thereof or of any income thereon or the preservation or exercise of any rights pertaining thereto, including, without limitation, rights against prior parties, except for the use of reasonable care in the custody and physical preservation of any Collateral in its possession. The Collateral Agent will not be liable or responsible for any loss or damage to any Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent selected by the Collateral Agent acting in good faith. 4. Collateral Agent. 4.1 Appointment of Collateral Agent. Each of the Secured Parties hereby appoints and authorizes the Collateral Agent to act for the Secured Parties as their collateral agent in connection with the transactions contemplated by this Agreement on the terms set forth herein, and hereby agrees that all actions in connection with the Collateral and the enforcement or exercise of any remedies in respect of the Secured Obligations shall be taken solely by the Collateral Agent pursuant to this Agreement. Collateral Agent may take any action with respect to the Collateral which Collateral Agent, in its sole discretion, deems necessary or advisable to preserve its rights in the Collateral. 4.2 Action by the Collateral Agent. The Collateral Agent shall not take any action under this Agreement, including in connection with Collateral and the enforcement or exercise of any remedies in respect of the Secured Obligations, and shall not be obligated to take any such action, except to the extent expressly specified in a written notice received by the Collateral Agent signed by other Secured Parties holding not less than a majority of the outstanding amount of the Secured Obligations. All actions taken by the Collateral Agent in accordance with this Section 4.2, shall be binding upon all Secured Parties; provided, however, that the foregoing shall not be deemed a waiver of any rights of the Secured Parties against any other party hereto with respect to the taking of such action. 4.3 Action in Good Faith, etc. In the exercise of its rights, powers and duties hereunder, the Collateral Agent shall act in a commercially reasonable manner. The Collateral Agent and its officers, directors, employees and agents shall be under no duty to act except as expressly set forth in Section 4.2 and shall have no liability to the Secured Parties for any action or failure to act taken or suffered without willful misconduct or gross negligence. The Collateral Agent shall in all cases be entitled to rely, and shall not be liable to the Secured Parties for any action taken in reliance, on instructions given to the Collateral Agent in accordance with Section 4.2. 4.4 No Implied Duties, etc. The Collateral Agent shall have and may exercise such powers as are specifically delegated to the Collateral Agent under this Agreement together with all other powers as may be incidental thereto. The Collateral Agent shall have no implied duties to any Person or any obligation to take any action under this Agreement except for any action specifically provided for in this Agreement to be taken by the Collateral Agent. 4.5 Validity, etc. The Collateral Agent shall not be responsible to any Secured Party (a) for the legality, validity, enforceability or effectiveness of this Agreement, (b) for any recitals, reports, representations, warranties or statements contained in or made in connection with this Agreement, (c) for the existence or value of any assets included in the Collateral, (d) for the effectiveness of any lien purported to be included in the Collateral or (e) for the specification or failure to specify any particular assets to be included in the Collateral. 4.6 Compliance. The Collateral Agent shall not be obligated to ascertain or inquire as to the performance or observance of any of the terms of this Agreement or any Security Document, including the occurrence of any event of default. 4.7 Reliance on Documents and Counsel. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any affidavit, certificate, cablegram, consent, instrument, letter, notice, order, document, statement, telecopy, telegram, telex or teletype message or writing believed in good faith by the Collateral Agent to be genuine and correct and to have been signed, sent or made by the Person in question, including without limitation any telephonic or oral statement made by such Person and, with respect to legal matters, upon the opinion of counsel selected by the Collateral Agent. 4.8 Collateral Agent's Reimbursement. Each of the Secured Parties jointly and severally agrees to reimburse the Collateral Agent for any expenses not reimbursed by the Company within 30 days (without limiting their obligations to make such reimbursement): (a) for which the Collateral Agent is entitled to reimbursement by the Company under this Agreement, and (b) after the occurrence of an event of default, for any other expenses incurred by the Collateral Agent on their behalf in connection with the enforcement of their rights under this Agreement. 4.9 Indemnity. The Secured Parties hereby, jointly and severally, indemnify and hold harmless the Collateral Agent and its directors, officers, employees, agents, professional advisers and representatives from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time be imposed on, incurred by or asserted against the Collateral Agent and its directors, officers, employees, agents, professional advisers and representatives relating to or arising out of this Agreement, the Collateral, the transactions contemplated hereby or thereby, or any action taken or omitted by the Collateral Agent in connection with any of the foregoing, provided, however, that the foregoing shall not extend to actions or omissions which are taken by the Collateral Agent with gross negligence or willful misconduct. The foregoing indemnity shall survive the expiration of this Agreement or any of the agreements evidencing the Secured Obligations. 4.10 Collateral Agent's Resignation or Removal. The Collateral Agent may resign at any time by giving at least 60 days' prior written notice of its intention to do so to each of the Secured Parties and to the Company and upon the appointment by such Secured Parties as hold at least a majority or more of the Secured Obligations of a successor Collateral Agent reasonably satisfactory to the Company. Upon the appointment of a new Collateral Agent hereunder, the term "Collateral Agent" shall for all purposes of this Agreement thereafter mean such successor. After any retiring Collateral Agent's resignation hereunder as Collateral Agent, or the removal hereunder of any Collateral Agent, the provisions of this Agreement shall continue to inure to the benefit of such Collateral Agent as to any actions taken or omitted to be taken by it while it was Collateral Agent under this Agreement. 4.11 Proceeds Received in Contravention of Agreement. All payments or distributions made to a Secured Party in connection with a Secured Obligation or with respect to the Collateral which are received by any Secured Party contrary to the provisions of this Agreement shall be received in trust for the benefit of the Secured Party entitled to the benefit of such payment or distribution which shall be segregated from other funds and property held by such Secured Party in respect of any such payments or distributions and shall be forthwith paid over to the Secured Party entitled to receive the same, in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to or held as collateral (in the case of non-cash property or securities) for the payment or prepayment of such claim. 5. General. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign its rights or obligations hereunder without the prior written consent of the Collateral Agent. Notices shall be furnished in writing to each party at such party's address appearing on the signature page hereof or as such party may otherwise direct in writing actually received by the other party. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision hereof, and any invalid or unenforceable provision shall be modified so as to be enforceable to the maximum extent of its validity or enforceability. The headings in this Agreement are for convenience of reference only and shall not limit, alter or otherwise affect the meaning hereof. This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior and current understandings and agreements, whether written or oral, with respect to such subject matter. This Agreement may be executed in any number of counterparts, which together shall constitute one instrument. This Agreement shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the State of Delaware, except as may be required by the Uniform Commercial Code of other jurisdictions with respect to matters involving the perfection of the Collateral Agent's lien on the Collateral located in such other jurisdictions. Each of the undersigned has caused this Security Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first written above. COMPANY: HOMENET COMMUNICATIONS, INC. By ---------------------------- Its: President COLLATERAL AGENT: _______________________________ SECURED PARTIES: _______________________________ EX-10.14 7 ex1014q093004.txt BUSINESS LOAN AGREEMENT Exhibit 10.14 *000000000000009001095507012004 BUSINESS LOAN AGREEMENT (ASSET BASED) - -------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call/Coll Account Officer Ititials $1,500,000.00 07 01-2004 06/11/2005 9001 2 7350 9372834 34705 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing has been omitted due to text length limitations. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Borrower: VIDEO INTERNET BROADCASTING Lender: ZIONS FIRST NATIONAL BANK CORPORATION PROVO REGION 175 SOUTH MAIN STREET, STE 1210 111 NORTH 200 WEST SALT LAKE CITY, UT 84111 PROVO, UT 84601 THIS BUSINESS LOAN AGREEMENT (ASSET BASED} dated July 1, 2004, is made and executed between VIDEO INTERNET BROADCASTING CORPORATION ("Borrower") and ZIONS FIRST NATIONAL BANK ("Lender") on the following terns and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement ("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement- TERM. This Agreement shall be effective as of July 1, 2004, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing-to terminate this Agreement. ADVANCE AUTHORITY - The following person currently is authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of his or her authority: W. KELLY RYAN, President of VIDEO INTERNET BROADCASTING CORPORATION. LINE OF CREDIT - Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows: Conditions Precedent to Each Advance. Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender: (1) Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender. (2) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request. (3) The security interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force and effect. (4) All guaranties required by Lender for the credit facility(ies) shall have been executed by each Guarantor, delivered to Lender, and be in full force and effect. (5) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower's Accounts, books, records, and operations, and Lender shall be satisfied as to their condition. (6) Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Rebated Documents as are then due and payable. (7) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below tilled "Compliance Certificate." Making Loan Advances. Advances under this credit facility, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by authorized persons. Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower (1) when credited to any deposit account of Borrower maintained with Lender or {21 when advanced in accordance with the instructions of an authorized person. Lender, at its option, may set a cutoff time, after which all requests for Advances will be treated as having been requested on the next succeeding Business Day. Mandatory Loan Repayments. If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid. Loan Account. Lender shall) maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility. Lender shelf provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect. COLLATERAL. To secure payment of the Primary Credit Facility and performance of all other Loan, obligations and duties owed by Borrower to Lender, Borrower (and others, if required) shall grant to Lender Security Interests in such property and assets as Lender may require. Lender's Security Interests in the Collateral shall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender: Perfection of Security Interests. Borrower agrees to execute all documents perfecting Lender's Security Interest and to take whatever actions are requested ay Lender to perfect and continue Lender's Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Borrower will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law, and Lender will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest. Lender may at any time, and without further authorization from Borrower, the a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest in the Collateral. Borrower promptly will notify Lender before any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender before any change in Borrower's Social Security Number or Employer Identification Number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or consolidate with any other entity. Collateral Records. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand ' for inspection and copying at any reasonable time. With respect to the Accounts, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Accounts and Account balances and agings. Records related to Accounts (Receivables) are or will be located at 135 BASIN STREET SOUTHWEST, EPHRATA, WA 98823. The above is an accurate and complete list of all locations at which Borrower keeps or maintains business records concerning Borrower's collateral. Collateral Schedules. Concurrently with the execution and delivery of this Agreement, Borrower shall execute and deliver to Lender schedules of Accounts and schedules of Eligible Accounts in form and substance satisfactory to the Lender. Thereafter supplemental schedules shall be delivered according to the following schedule: With respect to Eligible Accounts, schedules shall be delivered Every 30 days. Representations and Warranties Concerning Accounts. With respect to the Accounts, Borrower represents and warrants to Lender: (1) Each Account represented by Borrower to be an Eligible Account for purposes of this Agreement conforms to the requirements of the definition of an Eligible Account; (2) All Account information listed on schedules delivered to Lender will be true and correct, subject to immaterial variance; and (3) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect, examine, and audit Borrower's records and to confirm with Account Debtors the accuracy of such Accounts. Remittance Account. Borrower agrees that Lender may at any time require Borrower to institute procedures whereby the payments and other proceeds of the Accounts shall be paid by the Account Debtors under a remittance account or lock box arrangement with Lender, or Lender's agent, or with one or more financial institutions designated by Lender. Borrower further agrees that, if no Event of Default exists under this Agreement, any and all of such funds received under such a remittance account or lock box arrangement shall, at Lender's sole election and discretion, either be (1) paid or turned over to Borrower; (2) deposited into one or more accounts for the benefit of Borrower (which deposit accounts shall be subject to a security assignment in favor of Lender); (3) deposited into one or more accounts for the joint benefit of Borrower and Lender (which deposit accounts shall likewise be subject to a security assignment in favor of Lender); (4) paid or turned over to Lender to be applied to the Indebtedness in such order and priority as Lender may determine within its sole discretion; or (5) any combination of the foregoing as Lender shall determine from time to time. Borrower further agrees that, should one or more Events of Default exist, any and all funds received under such a remittance account or lock box arrangement shall be paid or turned over to Lender to be applied to the Indebtedness, again in such order and priority as Lender may determine within its sole discretion. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel. Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require. Fees and Expenses Under This Agreement. Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable. Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Washington. Borrower is duly authorized to transact business in the State of Utah and all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 135 BASIN STREET SW, EPHRATA, WA 98823. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and affect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities. Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. Financial information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five l5) years. Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of Borrower's Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims, fosses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the hest of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business an for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements {if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, an are legally enforceable in accordance with their respective terms. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will: Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. Financial Statements. Furnish Lender with the following: Annual Statements. As soon as available, but in no event later than 45 days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, prepared by Borrower. Tax Returns. As soon as available after the applicable filing date for the tax reporting period ended, Federal and other governmental tax returns, prepared by Borrower. All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis and certified by Borrower as being true and correct. Additional Information. Furnish such additional information and statements, as Lender may request from time to time. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without [imitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantors named below, on Lender's forms, and in the amounts and under the conditions set forth in those guaranties. Names of Guarantors Amounts ------------------- ------- ROBERT B. JONES and CAROL L. JONES, Trustees of THE JONES FAMILY TRUST, DATED MAY 22, 2000 Unlimited HOMENET UTAH, INC Unlimited FRANK GILLEN, Individually Unlimited MICHAEL W. DEVINE, Individually Unlimited R. BRUCE JONES, Individually Unlimited BRION W. POTTER, Individually Unlimited LARRY D. JONES, Individually Unlimited KEVIN R. DOHERTY, Individually Unlimited LEROY W. JACKSON, Individually Unlimited RODNEY S BADGER, Individually Unlimited SHAUNA BADGER, Individually Unlimited Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner. Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower. Compliance with Governmental Requirements, Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any lime hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records} in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in' compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (A) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (B) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (C) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may but shall not he obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option, will {A} be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or {C) be treated as a balloon payment which will be due and payable at the Note's maturity. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended}, Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business. Agreements. Borrower will not enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: {A} Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (El Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. DEFAULT, Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Borrower fails to make any payment when due under the Loan. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien} at any time and for any reason. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. In the event of a death, Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure arty Event of Default. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired. Insecurity. Lender in goad faith believes itself insecure. Right to Cure, if any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (1} cure the default within fifteen {15} days; or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the Insolvency subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. AUTHORIZATION TO VERIFY ACCOUNTS RECEIVABLE. Borrower hereby authorizes Lender to verify its accounts receivable through written and/or verbal verification methods at the discretion of the Lender. WAIVER OF CLAIMS. BORROWER (i) _REPRESENTS THAN THEY HAVE NO DEFENSES TO OR SETOFFS AGAINST ANY indebtedness OR OTHER OBLIGATIONS OWING TO LENDER OR ITS AFFILIATES (THE OBLIGATIONS NOR CLAIMS AGAINST LENDER OR ITS AFFILILIATES FOR ANY MATTER WHATSOEVER, RELATED OR UNRELATED TO THE OBLIGATIONS, AND (iii RELEASE LENDER AND ITS AFFILIATES FROM ALL CLAIMS, CAUSES OF ACTION, AND COSTS, IN LAW OR EQUITY, EXISTING AS OF THE DATE OF THIS AGREEMENT WHICH BORROWER HAS OR MAY HAVE BY REASON OF ANY MATTER OF ANY CONCEIVABLE KIND OR CHARACTER WHATSOEVER, RELATED OR UNRELATED TO THE OBLIGATIONS, INCLUDING THE SUBJECT MATTER OF THIS AGREEMENT. THIS PROVISION SHALL NOT APPLY TO CLAIMS FOR PERFORMANCE OF EXPRESS CONTRACTUAL OBLIGATIONS OWING TO BORROWER BY LENDER OR ITS AFFILIATES. BORROWING BASE CERTIFICATE. Upon Borrower's request for an initial advance under the Line of Credit, and at any time that the Line of Credit has $500,000.00 balance or greater, and Borrower requests an advance, Borrower shall furnish to Lender a Borrowing Base Certificate. In addition, during such times as there is an outstanding balance owing on the Line of Credit, Borrower shall furnish to Lender the following: Borrowing Base Certificate. Borrower shall furnish to Lender a Borrowing Base Certificate certified by an authorized officer/employee of Borrower, within 30 days of each month end in form acceptable to Lender. DEFINITION OF NOTE. Note as referenced herein is hereby deleted in its entirety and replaced with the following: Note: The word "Note" means and includes without (imitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. TIME OUT OF DEBT. For a period of at least thirty (30) days each calendar year, 30 days of which must be consecutive, Borrower shelf not have an outstanding balance under the Promissory Note in the amount of $1,500,000.00. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by The alteration or amendment. Arbitration Disclosures 1. ARBITRATION IS FINAL AND BINDING ON THE PARTIES AND SUBJECT TO ONLY VERY LIMITED REVIEW BY A COURT. 2. IN ARBITRATION THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN COURT, INCLUDING THEIR RIGHT TO A JURY TRIAL. 3. DISCOVERY IN ARBITRATION IS MORE LIMITED THAN DISCOVERY IN COURT. 4. ARBITRATORS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING IN THEIR AWARDS. THE RIGHT TO APPEAL OR SEEK MODIFICATION OF ARBITRATORS' RULINGS IS VERY LIMITED. 5. A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR WAS AFFILIATED WITH THE BANKING INDUSTRY. 5. ARBITRATION WILL APPLY TO ALL DISPUTES BETWEEN THE PARTIES, NOT JUST THOSE CONCERNING THE AGREEMENT. 7. IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY OR THE AMERICAN ARBITRATION ASSOCIATION. (a) Any claim or controversy ("Dispute") between or among the parties and their employees, agents, affiliates and assigns, including, but not limited to, Disputes arising out of or relating to this agreement, this arbitration provision ("arbitration clause"), or any related agreements or instruments relating hereto or delivered in connection herewith ("Related Agreements and including, but not limited to, a Dispute based on or arising from an alleged tort, shall at the request of any party be resolved by binding arbitration in accordance with the applicable arbitration rules of the American Arbitration Association {the "Administrator"). The provisions of this arbitration clause shall survive any termination, amendment, or expiration of this agreement or Related Agreements. The provisions of this arbitration clause shall supersede any prior arbitration agreement between or among the parties. (b) The arbitration proceedings shall be conducted in a city mutually agreed by the parties. Absent such an agreement, arbitration will be conducted in Salt Lake City, Utah or such other place as may be determined by the Administrator. The Administrator and the arbitrator(s) snail have the authority to the extent practicable to take any action to require the arbitration proceeding to be completed and the arbitrator(s)' award issued within 150 days of the tiling of the Dispute- with the Administrator. The arbitrator. (c) shall have the authority to impose sanctions on any party that fails to comply with time periods imposed by the Administrator or the arbitrator{s}, including the sanction of summarily dismissing any Dispute or defense with prejudice. The arbitrator(s) shall have the authority to resolve any Dispute regarding the terms of this agreement, this arbitration clause, or Related Agreements, including any claim or controversy regarding the arbitrability of any Dispute. All [imitations periods applicable to any Dispute or defense, whether by statute or agreement, shall apply to any arbitration proceeding hereunder and the arbitrator(s) shall have the authority to decide whether any Dispute or defense is barred by a limitations period and, if so, to summarily enter an award dismissing any Dispute or defense on that basis. The doctrines of compulsory counterclaim, res judiceta, and collateral estoppel shall apply to any arbitration proceeding hereunder so that a party must state as a counterclaim in the arbitration proceeding any claim or controversy which arises out of the transaction or occurrence that is the subject matter of the Dispute. The arbitrators} may in the arbitrator(s)' discretion and at the request of any party: (1} consolidate in a single arbitration proceeding any other claim arising out of the same transaction involving another party to that transaction that is bound by an arbitration clause with Lender, such as borrowers, guarantors, sureties, and owners of collateral; and (2) consolidate or administer multiple arbitration claims or controversies as a class action in accordance with Rule 23 of the Federal Rules of Civil Procedure, {c} The arbitrators shall be selected in accordance with the rules of the Administrator from panels maintained by the Administrator. A single arbitrator shall have expertise in the subject matter of the Dispute. Where three arbitrators conduct an arbitration proceeding, the Dispute shall be decided by a majority vote of the three arbitrators, at least one of whom must have expertise in the subject matter of the Dispute and at least one of whom must be a practicing attorney. The arbitrator(s) shall award to the prevailing party recovery of all costs and fees (including attorneys' fees and costs, arbitration administration fees and costs, and arbitrator{s}' fees). The arbitrator(s), either during the pendency of the arbitration proceeding or as part of the arbitration award, also may grant provisional or ancillary remedies including but not limited to an award of injunctive relief, foreclosure, sequestration, attachment, replevin, garnishment, or the appointment of a receiver. (d) Judgment upon an arbitration award may be entered in any court having jurisdiction, subject to the following limitation: the arbitration award is binding upon the parties only if the amount does not exceed Four Million Dollars {54,000,000.00}; if the award exceeds that limit, either party may demand the right to a court trial. Such a demand must be filed with the Administrator within thirty (30} days following the date of the arbitration award; if such a demand is not made with that time period, the amount of the arbitration award shall be binding. The computation of the total amount of an arbitration award shall include amounts awarded for attorneys' fees and costs, arbitration administration fees and costs, and arbitrator(s)' fees. {e) No provision of this arbitration clause, nor the exercise of any rights hereunder, shall limit the right of any party to: {1} judicially or_ non-judicially foreclose against any real or personal property collateral or other security; (2) exercise self-help remedies, including but not limited to repossession and setoff rights; or (3) obtain from a court having jurisdiction thereover any provisional or ancillary remedies including but not limited to injunctive relief, foreclosure, sequestration, attachment, replevin, garnishment, or the appointment of a receiver. Such rights can be exercised at any time, before or after initiation of an arbitration proceeding, except to the extent such action is contrary to the arbitration award. The exercise of such rights shall not constitute a waiver of the right to submit any Dispute to arbitration, and any claim or controversy related to the exercise of such rights shall be a Dispute to be resolved under the provisions of this arbitration clause. Any party may initiate arbitration with the Administrator. If any party desires to arbitrate a Dispute asserted against such party in a complaint, counterclaim, cross-claim, or third-party complaint thereto, or in an answer or other reply to any such pleading, such party must make an appropriate motion to the trial court seeking to compel arbitration, which motion must be filed with the court within 45 days of service of the pleading, or amendment thereto, setting forth such Dispute. if arbitration is compelled after commencement of litigation of a Dispute, the party obtaining an order compelling arbitration shall commence arbitration and pay the Administrator's filing fees and costs within 45 days of entry of such order. Failure to do so shall constitute an agreement to proceed with litigation and waiver of the right to arbitrate. In any arbitration commenced by a consumer regarding a consumer Dispute, Lender shall pay one half of the Administrator's filing fee, up to $250. (f) Notwithstanding the applicability of any other law to this agreement, the arbitration clause, or Related Agreements between or among the parties, the Federal Arbitration Act, 9 U.S.C. Section 1 et seq., shall apply to the construction and interpretation of this arbitration clause. If any provision of this arbitration clause should be determined to be unenforceable, all other provisions of this arbitration clause shall remain in full force and effect. Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shell pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not Lender's salaried employee and whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Governing Law. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Utah. This Agreement has been accepted by Lender in the State of Utah. Choice of Venue, if there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of SALT LAKE County, State of Utah. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any ether right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices. Unless otherwise provided by applicable law, any notice required to be given under this Agreement or required by law shall be given in writing, and shall be effective when actually delivered in accordance with the law or with this Agreement, when actually received by telefacsimiie (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving format written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided by applicable law, if there is more than one Borrower, any notice given by Lander to any Borrower is deemed to be notice given to all Borrowers. Severability. if a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. if the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no. circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates. Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. Time is of the Essence. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement: Account. The word "Account" means a trade account, account receivable, other receivable, or other right to payment for goods sold or services rendered owing to Borrower (or to a third party grantor acceptable to Lender). Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf under the terms and conditions of this Agreement. Agreement. The word "Agreement" means this Business Loan Agreement {Asset Based), as this Business Loan Agreement (Asset Based) may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement (Asset Based) from time to time. Borrower. The word "Borrower" means VIDEO INTERNET BROADCASTING CORPORATION and includes all co-signers and co-makers signing the Note. Borrowing Base. The words "Borrowing Base" mean as determined by Lender from time to time, the lesser of {1) $1,500,000.00 or (2) the sum of 65.00% of the aggregate amount of Eligible Accounts plus 1,500,000.00 of the Eligible Time Certificate Deposit. Business Day_ The words "Business Day" mean a day on which commercial banks are open in the State of Utah. Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by raw, contract, or otherwise. The word Collateral also includes without limitation all collateral described in the Collateral section of this Agreement. Eligible Accounts. The words 'Eligible Accounts" mean at any time, all of Borrower's Accounts which contain selling terms and conditions acceptable to Lender. The net amount of. any Eligible Account against which Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by Lender in writing, eligible Accounts do not include: (1} Accounts with respect to which the Account Debtor is employee or agent of Borrower. (2) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with Borrower or its shareholders, officers, or directors. (3i Accounts with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional. (41 Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower. (51 Accounts which are subject to dispute, counterclaim, or setoff. (6) Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor. (7) Accounts with respect to which Lender, in its sole discretion, deems the creditworthiness or financial 'condition of the Account Debtor to be unsatisfactory. {8} Accounts of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts including its payrolls) as such debts become due. (9) Accounts with respect to which the Account Debtor is the United States government or any department or agency of the United States. (10) Accounts which have not been paid in full within 60 days from due date or 90 days from the invoice date. The entire balance of any Account of any single Account Debtor will be ineligible whenever the portion of the Account which has not been paid within 60 days from due data or 90 days from the invoice date is in excess of 20.000% of the total amount outstanding on the Account. (11) That portion of the Accounts of any single Account Debtor which exceeds 10.000% of all of Borrower's Accounts. (12) Accounts with respect to which the Account Debtor is not a resident of the United States or one of the following Canadian Provinces: British Columbia, Alberta, Saskatchewan, Manitoba, or Ontario, except to the extent such Accounts are supported by insurance, bonds, or other assurances satisfactory to Lender, Accounts which Lender in its sole discretion reasonably deems ineligible Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without [imitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 IJ,S:C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. Expiration Date. The words "Expiration Date" mean the date of termination of Lender's commitment to lend under this Agreement. GAAP. The word "GAAP" means generally accepted accounting principles. Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation ail Borrowers granting such a Security Interest. Guarantor The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan. Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. Indebtedness. The word "indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such indebtedness may be or hereafter may become otherwise unenforceable. Lender. The word "Lender" means ZIONS FIRST NATIONAL BANK, its successors and assigns. Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means the Note executed by VIDEO INTERNET BROADCASTING CORPORATION in the principal amount of $1,500,000.00 dated July 1, 2004, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of material men, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4} purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and liens"; 15i liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. Primary Credit Facility. The words "Primary Credit Facility" mean the credit facility described in the Line of Credit section of this Agreement. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan. Security Agreement. The wards "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest, Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise. FINAL AGREEMENT. Borrower understands that this Agreement and the related loan documents are the final expression of the agreement between Lender and Borrower and may not be contradicted by evidence of any alleged oral agreement. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT (ASSET BASED} AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT (ASSET BASED) IS DATED JULY 1, 2004, BORROWER: LENDER: ZIONS FIRST NATIONAL BANK ________________________________________ By: /s/ Melissa Combs Authorized Signer W. KELLY RYAN, President VIDEO INTERNET BROADCASTING CORPORA ION Borrower: VIDEO INTERNET BROADCASTING CORPORATION 175 SOUTH MAIN STREET, STE 1210 SALT LAKE CITY, UT 84111 ZIONS FIRST NATIONAL BANK PROVO REGION 111 NORTH 200 WEST PROVO, UT 84601 Principal Amount: S1,500,000.00 Initial Rate: 6.250% Date of Note: July 1, 2004 PROMISE TO PAY. VIDEO INTERNET BROADCASTING CORPORATION ("Borrower") promises to pay to ZIONS FIRST NATIONAL BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of One Million Five Hundred Thousand & 001100 Dollars 01,500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on June 11, 2005. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning July 11, 2004, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest: then to principal: and then to any unpaid collection costs. The annual interest rate for this Note is computed on a 3651360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Prime Rate. Prime Rate is to be strictly interpreted and is not intended to serve any purpose other than providing an index to determine the variable interest rate used herein. It is not the lowest rate at which Zions First National Bank may make loans to any of its customers, either now or in the future. Prime Rate means an index which is determined daily by the published commercial loan variable rate index held by any two of the following banks: J.P. Morgan Chase & Co., Wells Fargo Bank N.A., and Bank of America N.A. In the event no two of the above banks have the same published rate, the bank having the median rate will establish the Prime Rate (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable' during the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each Day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 4.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 2.000 percentage points over the Index, resulting in an initial rate of 6.250% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Zions First National Bank, P.O. Box 25822 Salt Lake City, UT 84125-0822. INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, Lender, at its option, may, if permitted under applicable law, increase the variable interest rate on this Note to 5.000 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law. DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Joan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding end if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note. In the event of a death, Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default. Change In Ownership, Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. Insecurity. Lender in good faith believes itself insecure. Cure Provisions. If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after receiving written notice from Lender demanding cure of such default: f1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including without limitation all reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of Utah. This Note has been accepted by Lender in the State of Utah. CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of SALT LAKE County, State of Utah. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following person currently is authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of his or her authority: W. KELLY RYAN, President of VIDEO INTERNET BROADCASTING CORPORATION. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (BI credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure. ARBITRATION DISCLOSURES. 1. ARBITRATION IS FINAL AND BINDING ON THE PARTIES AND SUBJECT TO ONLY VERY LIMITED REVIEW BY A COURT. 2. IN ARBITRATION THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN COURT, INCLUDING THEIR RIGHT TO A JURY TRIAL. 3. DISCOVERY IN ARBITRATION IS MORE LIMITED THAN DISCOVERY IN COURT. 4. ARBITRATORS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING IN THEIR AWARDS. THE RIGHT TO APPEAL OR SEEK MODIFICATION OF ARBITRATORS' RULINGS IS VERY LIMITED. 5. A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR WAS AFFILIATED WITH THE BANKING INDUSTRY. 6. ARBITRATION WILL APPLY TO ALL DISPUTES BETWEEN THE PARTIES, NOT JU.ST THOSE CONCERNING THE AGREEMENT. 7. IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY OR THE AMERICAN ARBITRATION ASSOCIATION. la) Any claim or controversy ("Dispute") between or among the parties and their employees, agents, affiliates, and assigns, including, but not limited to, Disputes arising out of or relating to this agreement, this arbitration provision ("arbitration clause'), or any related agreements or instruments relating hereto or delivered in connection herewith ("Related Agreements"), and including, but not limited to, a Dispute based on or arising from an alleged tort, shall at the request of any party be resolved by binding arbitration in accordance with the applicable arbitration rules of the American Arbitration Association (the 'Administrator"). The provisions of this arbitration clause shall survive any termination, amendment, or expiration of this agreement or Related Agreements. The provisions of this arbitration clause shall supersede any prior arbitration agreement between or among the parties. (b) The arbitration proceedings shall be conducted in a city mutually agreed by the parties. Absent such an agreement, arbitration will be conducted in Salt Lake City, Utah or such other place as may be determined by the Administrator. The Administrator and the arbitrator{s) shall have the authority to the extent practicable to take any action to require the arbitration proceeding to be completed and the arbitrator(s)' award issued within 150 days of the filing of the Dispute with the Administrator. The arbitrator(s) shall have the authority to impose sanctions on any party that fails to comply with time periods imposed by the Administrator or the arbitrator(s), including the sanction of summarily dismissing any Dispute or defense with prejudice. The arbitrator(s) shall have the authority to resolve any Dispute regarding the terms of this agreement, this arbitration clause, or Related Agreements, including any claim or controversy regarding the arbitrability of any Dispute. All limitations periods applicable to any Dispute or defense, whether by statute or agreement, shall apply to any arbitration proceeding hereunder and the arbitrator(s) shall have the authority to decide whether any Dispute or defense is barred by a limitations period and, if so, to summarily enter an award dismissing any Dispute or defense on that basis. The doctrines of compulsory counterclaim, res judicata, and collateral estoppel shall apply to any arbitration proceeding hereunder so that a party must state as a counterclaim in the arbitration proceeding any claim or controversy which arises out of the transaction or occurrence that is the subject matter of the Dispute. The arbitrator(s) may in the arbitrator(s)' discretion and at the request of any party: (1) consolidate in a single arbitration proceeding any other claim arising out of the same transaction involving another party to that transaction that is bound by an arbitration clause with Lender, such as borrowers, guarantors, sureties, and owners of collateral; and (2) consolidate or administer multiple arbitration claims or controversies as a class action in accordance with Rule 23 of the Federal Rules of Civil Procedure. (C) The arbitrator(s) shall be selected in accordance with the rules of the Administrator from panels maintained by the Administrator. A single arbitrator shall have expertise in the subject matter of the Dispute. Where three arbitrators conduct an arbitration proceeding, the Dispute shall be decided by a majority vote of the three arbitrators, at least one of whom must have expertise in the subject matter of the Dispute and at least one of whom must be a practicing attorney. The arbitrators) shall award to the prevailing party recovery of all costs and fees {including attorneys' fees and costs, arbitration administration fees and costs, and arbitrator(s)' fees). The arbitrator{s), either during the pendency of the arbitration proceeding or as part of the arbitration award, also may grant provisional or ancillary remedies including but not limited to an award of injunctive relief, foreclosure, sequestration, attachment, replevin, garnishment, or the appointment of a receiver. (d) Judgment upon an arbitration award may be entered in any court having jurisdiction, subject to the following limitation: the arbitration award is binding upon the parties only if the amount does not exceed Four Million Dollars ($4,000,000.00); if the award exceeds that limit, either party may demand the right to a court trial. Such a demand must be filed with the Administrator within thirty (30) days following the date of the arbitration award; if such a demand is not made with that time period, the amount of the arbitration award shall be binding. The computation of the total amount of an arbitration award shall include amounts awarded for attorneys' fees and costs, arbitration administration fees and costs, and arbitrator(s)' fees. (a) No provision of this arbitration clause, nor the exercise of any rights hereunder, shall limit the right of any party to: (1) judicially or non-judicially foreclose against any real or personal property collateral or other security; (2) exercise self-help remedies, including but not limited to repossession and setoff rights; or (3) obtain from a court having jurisdiction thereover any provisional or ancillary remedies including but not limited to injunctive relief, foreclosure, sequestration, attachment, replevin, garnishment, or the appointment of a receiver. Such rights can be exercised at any time, before or after initiation of an arbitration proceeding, except to the extent such action is contrary to the arbitration award. The exercise of such rights shall not constitute a waiver of the right to submit any Dispute to arbitration, and any claim or controversy related to the exercise of such rights shall be a Dispute to be resolved under the provisions of this arbitration clause. Any party may initiate arbitration with the Administrator. If any party desires to arbitrate a Dispute asserted against such party in a complaint, counterclaim, cross-claim, or third-party complaint thereto, or in an answer or other reply to any such pleading, such party must make an appropriate motion to the trial court seeking to compel arbitration, which motion must be filed with the court within 45 days of service of the pleading, or amendment thereto, setting forth such Dispute. If arbitration is compelled after commencement of litigation of a Dispute, the party obtaining an order compelling arbitration shall commence arbitration and pay the Administrator's filing fees and costs within 45 days of entry of such order. Failure to do so shall constitute an agreement to proceed with litigation and waiver of the right to arbitrate. In any arbitration commenced by a consumer regarding a consumer Dispute, Lender shall pay one half of the Administrator's filing fee, up to $250. (f) Notwithstanding the applicability of any other law to this agreement, the arbitration clause, or Related Agreements between or among the parties, the Federal Arbitration Act, 9 U.S.C. Section 1 et seq., shall apply to the construction and interpretation of this arbitration clause. If any provision of this arbitration clause should be determined to be unenforceable, all other provisions of this arbitration clause shall remain in full force and effect. SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. BORROWER: VIDEO INTERN BROADCASTING CORPORATION By: /s/W.KellyRyan - ----------------------- W. KELLY RYAN, President of VIDEO INTERNET BROADCASTING CORPORATION EX-10.15 8 ex1015q093004.txt SECURED CONVERTIBLE PROMISSORY NOTE Exhibit 10.15 THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THEY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. $25,920 SECURED CONVERTIBLE PROMISSORY NOTE OF FARADAY FINANCIAL, INC. AND VIDEO INTERNET BROADCASTING CORPORATION Up to $25,920 Dated as of September 16, 2004 Lindon, Utah Faraday Financial, Inc., a Delaware corporation ("Faraday") and Video Internet Broadcasting Corporation, a Washington corporation ("VIBC" and, together with Faraday, the "Companies"), for value received, hereby jointly and severally promise to pay to the order of The Canopy Group, Inc., a Utah corporation (the "Noteholder"), at 333 South 520 West, Suite 300, Lindon, Utah 84042, or its assigns, the sum of Twenty-Five Thousand Nine Hundred and Twent Dollars ($25,920), or such other greater or lesser amount as may be outstanding, plus interest accrued on outstanding principal, compounded annually, and calculated from the date of this secured convertible promissory note (this "Note") at a rate of nine percent (9%) per annum until the principal amount hereof and all interest accrued thereon is paid (or converted, as provided in Section 2 hereof); provided, however, that in the event of an Event of Default pursuant to Section 8, below, interest shall accrue at a rate of eighteen percent (18%) per annum or, if such rate is prohibited by applicable law, the highest interest rate permitted by applicable law. The outstanding principal amount of this Note, and all interest accrued thereon, shall be payable at the principal offices of Noteholder or by mail to the registered address of the holder of this Note (unless this Note shall have been previously converted pursuant to Section 2 hereof or as provided otherwise in this Note) on the earliest to occur of (i) August 2005 (the "Maturity Date"), (ii) an uncured default under this Note in accordance with Section 8 below, (iii) an Event of Default as that term is defined in the Security Agreement (as defined in Section 9 below) executed herewith or (iv) the date that Faraday closes a Next Equity Financing (as defined in Section 1.5 below), unless this Note shall have been previously converted pursuant to Section 2 hereof or as provided otherwise in this Note. The following is a statement of the rights of the holder of this Note and the conditions to which this Note is subject, and to which the holder hereof, by the acceptance of this Note, agrees: 1. Definitions. The following definitions shall apply for all purposes of this Note: 1.1 "Faraday" shall mean Faraday as defined above and includes any corporation which shall succeed to or assume the obligations of Faraday under this Note. 1.2 "Change of Control Transaction" shall mean a merger, acquisition, or other business combination in which fifty percent (50%) or more of Faraday's outstanding voting stock is transferred to different holders in a single transaction or a series of related transactions. 1.3 "Conversion Date" shall mean the date on which, pursuant to Sections 2 and 3 hereof, the Noteholder exercises its right to convert this Note into the Conversion Stock at the Note Conversion Price. 1.4 "Conversion Stock" shall mean either of the following at the election of Noteholder (i) if Faraday has issued any capital stock (the "Capital Stock") in a Next Equity Financing on or before the Maturity Date, then the shares of such series of Capital Stock or (ii) shares of Faraday's Common Stock, or such other series of Faraday's capital stock acceptable to Noteholder. The number and character of shares of Conversion Stock are subject to adjustment as provided herein and the term "Conversion Stock" shall include shares and other securities and property at any time receivable or issuable upon conversion of this Note in accordance with its terms. 1.5 "Next Equity Financing" shall mean any preferred stock equity financing or financings which occur after the date hereof and on or prior to the Maturity Date in which the gross proceeds received by Faraday meet or exceed $1,000,000. 1.6 "Note Conversion Price" shall equal (i) the price per share paid by investors in a Next Equity Financing or (ii) if no Next Equity Financing has taken place, the lowest exercise price for any options granted to employees before the Maturity Date. 1.7 "Noteholder," "holder," or similar terms, when the context refers to a holder of this Note, shall mean any person who shall at the time be the registered holder of this Note. 2. Conversion. 2.1 (a) Conversion of Note. At any time prior to payment in full of the outstanding principal balance of this Note, plus accrued interest hereunder, Noteholder shall have the right, at the holder's option, to convert the outstanding principal and accrued interest on this Note, in whole or in part, into Conversion Stock at the Note Conversion Price. Conversion under this Section 2 shall occur only upon surrender of this Note for conversion at the principal offices of Faraday. (b) Prepayment of Note. This Note may be prepaid in full or in part at any time without penalty upon fifteen (15) days written notice to Noteholder; provided, however, Noteholder shall have no obligation to accept any payment less than the entire principal balance, plus accrued interest. 2.2 Certain Transactions. Faraday shall give written notice to the Noteholder of any Change of Control Transaction at least fifteen (15) business days prior to the date on which such Change of Control Transaction shall become effective ("Transaction Effective Date"). Prior to or contemporaneous with the closing of such Change of Control Transaction, Faraday shall, at Noteholder's election either (i) repay all unpaid principal and interest under this Note, or (ii) convert this Note into Conversion Stock at the Note Conversion Price; provided Noteholder delivers notice to Faraday of its election under subclause (i) or (ii), above, not less than three (3) business days prior to the Transaction Effective Date. 3. Issuance of Conversion Stock. As soon as practicable after conversion of this Note, Faraday will (i) at its expense, cause to be issued in the name of and delivered to the holder of this Note, a certificate or certificates for the number of shares of Conversion Stock to which the holder shall be entitled upon such conversion (bearing such legends as may be required by applicable state and federal securities laws in the opinion of legal counsel of Faraday and as may be provided for in any applicable contracts between the Holder and Faraday), together with any other securities and property to which the holder is entitled upon such conversion under the terms of this Note; and (ii) execute and deliver to Noteholder a stock purchase agreement, in a form mutually acceptable to Noteholder and Faraday. Such conversion shall be deemed to have been made (A) under Section 2 above and (B) immediately prior to the close of business on the date that the Note shall have been surrendered for conversion. No fractional shares will be issued upon conversion of this Note. If upon any conversion of this Note a fraction of a share would otherwise result, then, in lieu of such fractional share, Faraday will pay the cash value of that fractional share, calculated on the basis of the applicable Note Conversion Price. 4. Adjustments and Reservation of Shares. The number and character of shares of Conversion Stock issuable upon conversion of this Note (or any shares of stock or other securities or property at the time receivable or issuable upon conversion of this Note) are subject to adjustment upon the occurrence of any of the following events: 4.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations, etc. In the event that Faraday shall fix a record date for the determination of holders of securities affected by any stock split, stock dividend, reclassification, recapitalization or other similar event that will, in the future, affect the number of outstanding shares of Faraday's capital stock, then, and in each such case, the Noteholder, upon conversion of this Note at any time after Faraday shall fix the record date for such event, shall receive, in addition to the shares of Conversion Stock issuable upon conversion on the Conversion Date, the right to receive the securities of Faraday to which such holder would have been entitled if such holder had converted this Note immediately prior to such record date (all subject to further adjustment as provided in this Note). 4.2 Adjustment for Dividends and Distributions. In the event that Faraday shall make or issue, or shall fix a record date for the determination of eligible holders of securities entitled to receive, a dividend or other distribution payable with respect to the Conversion Stock (or any shares of stock or other securities at the time issuable upon conversion of this Note) that is payable in (a) securities of Faraday other than capital stock or (b) any other assets, then, and in each such case, the Noteholder, upon conversion of this Note at any time after the consummation, effective date or record date of such event, shall receive, in addition to the shares of Conversion Stock (or such other stock or securities) issuable upon such conversion prior to such date, the securities or such other assets of Faraday to which such holder would have been entitled upon such date if such holder had converted this Note immediately prior thereto (all subject to further adjustment as provided in this Note). 4.3 Adjustment for Reorganization, Consolidation, Merger. In the event of any reorganization not considered a Change of Control Transaction of Faraday (or any other corporation the stock or other securities of which are at the time receivable upon the conversion of this Note) after the date of this Note, or in the event, after such date, Faraday (or any such corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation where such transaction is not considered a Change of Control Transaction, then, and in each such case, the Noteholder, upon the conversion of this Note (as provided in Section 2) at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the conversion of this Note prior to such consummation, the stock or other securities or property to which such Noteholder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if such holder had converted this Note immediately prior thereto, all subject to further adjustment as provided in this Section 4, and the successor or purchasing corporation in such reorganization, consolidation, merger or conveyance (if other than Faraday) shall duly execute and deliver to the Noteholder a supplement hereto acknowledging such corporation's obligations under this Note. In each such case, the terms of the Note shall be applicable to the shares of stock or other securities or property receivable upon the conversion of this Note after the consummation of such reorganization, consolidation, merger or conveyance. 4.4 Conversion of Stock. In the event that all of the authorized Conversion Stock of Faraday is converted, pursuant to Faraday's Certificate of Incorporation, into other capital stock or securities or property, or the Conversion Stock otherwise ceases to exist, then the Noteholder, upon conversion of this Note at any time after the date on which the Conversion Stock is so converted or ceases to exist (the "Termination Date"), shall receive, in lieu of the number of shares of Conversion Stock that would have been issuable upon such conversion immediately prior to the Termination Date (the "Former Number of Shares of Conversion Stock"), the stock and other securities and property to which such Noteholder would have been entitled to receive upon the Termination Date if such holder had converted this Note with respect to the Former Number of Shares of Conversion Stock immediately prior to the Termination Date (all subject to further adjustment as provided in this Note). 4.5 Notice of Adjustments. Faraday shall promptly give written notice of each adjustment or readjustment of the number of shares of Conversion Stock or other securities issuable upon conversion of this Note, by first class mail, postage prepaid, to the registered holder of this Note at the holder's address as shown on Faraday's books. The notice shall describe the adjustment or readjustment and show in reasonable detail the facts on which the adjustment or readjustment is based. 4.6 No Change Necessary. The form of this Note need not be changed because of any adjustment in the number of shares of Conversion Stock issuable upon its conversion. 4.7 Reservation of Stock. Faraday will, as soon as practicable, but in any event within fifteen (15) days of the date of this Note, take all necessary corporate action and obtain all necessary government consents and approvals to authorize the issuance of this Note and, prior to the conversion hereof, the shares of Conversion Stock issuable upon conversion of this Note. If at any time the number of authorized but unissued Conversion Stock or other securities shall not be sufficient to effect the conversion of this Note, then Faraday will take such corporate action as may, in the opinion of its legal counsel, be necessary to increase its authorized but unissued Conversion Stock or other securities to such number of shares of Conversion Stock or other securities as shall be sufficient for such purpose. 5. Fully Paid Shares. All shares of Conversion Stock issued upon the conversion of this Note shall be validly issued, fully paid and non-assessable. 6. No Rights or Liabilities as Stockholder. This Note does not by itself entitle the Noteholder to any voting rights or other rights as a stockholder of Faraday. In the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of the holder, shall cause such holder to be a stockholder of Faraday for any purpose. 7. Corporate Action; No Impairment. Neither of the Companies will, by amendment of its Certificate of Incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, repurchase of securities, sale of assets or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Noteholder under this Note against wrongful impairment. Neither of the Companies shall, without the prior written consent of the Noteholder, amend its Certificate of Incorporation or issue any capital stock or options to purchase any capital stock of either of the Companies; provided, however, that each of the Companies may, without prior consent of Noteholder, (i) issue capital stock and options to employees, directors, officers, and consultants pursuant to the terms of such Company's employee incentive or other stock option plan as approved by the Board of Directors of such Company, and (ii) issue capital stock under currently outstanding options, warrants and convertible instruments. 8. Default. Five (5) days after written notice from Noteholder to the Companies for monetary defaults and ten (10) days after written notice from Noteholder to the Companies for non-monetary defaults, if such defaults are not cured within such five (5) day or ten day (10) periods, respectively, each of the following shall constitute an event of default ("Event of Default") under this Agreement: a. Default in Payment. If Faraday and VIBC fail to make any payment due and payable under the terms of this Note, the Security Agreement (referred to in Section 9, below) or any other document executed in connection therewith. b. Representations and Warranties. If any of the representations and warranties made by Faraday or VIBC under this Note, the Security Agreement or any other document executed in connection therewith shall be false or misleading in any material respect when made. c. Covenants. If Faraday or VIBC shall be in material default under any of the material terms, covenants, conditions, or obligations under this Note, the Security Agreement or any other document executed in connection therewith. d. Dissolution. If Faraday or VIBC is dissolved, suspends its normal business operations or otherwise fails to continue to operate its business in the ordinary course. e. Receiver. If a receiver, trustee, or custodian is appointed for any part of the Collateral (as that term is defined in the Security Agreement), or any part of the Collateral is assigned for the benefit of creditors. f. Impairment to Lien. If at any time the Security Agreement or any other document executed in connection therewith creating a lien on any of the Collateral may be impaired by any material lien, encumbrance or other defect other than the Permitted Liens (as that term is defined in the Security Agreement). g. Inconsistent Transfer. If at any time Faraday transfers an interest in any of the Collateral contrary to the provisions of the Security Agreement without the prior written consent of Noteholder, other than in the ordinary course of business. h. Bankruptcy; Insolvency. If a petition in bankruptcy is filed against Faraday or VIBC, and such petition is not dismissed within sixty (60) days of filing, a petition in bankruptcy is filed by Faraday or VIBC or a receiver, trustee or custodian of any part of the Collateral is appointed; or if Faraday or VIBC files a petition for reorganization under any of the provisions of the Bankruptcy Act or any law, State or Federal; or if Faraday or VIBC makes an assignment for the benefit of creditors or is adjudged insolvent by any State or Federal Court of competent jurisdiction; or if Faraday or VIBC is unable to pay its debts as they become due. i. Default Under Other Agreements. Notwithstanding the five-day and ten-day cure periods provided for above, if Faraday or VIBC is in breach under the terms of any other agreement with the Noteholder that has not been cured in accordance with the terms of such agreement, such breach shall constitute an Event of Default under this Note five (5) days after the date allowed for cure, if any, of such breach under such other agreement. In the event of an Event of Default under this Section 8, Noteholder shall, in addition to any other remedies allowed by law, by written notice to the Companies, be entitled to accelerate all unpaid principal and interest under this Note. Waiver of any Event of Default will not constitute a waiver of any other or subsequent Event of Default. 9. Security Agreement. This Note is secured by a security interest in certain collateral, which security interest was granted by Faraday to the original holder of the Note pursuant to the terms of a certain security agreement dated as of an even date herewith, (the "Security Agreement"), among the original holder of the Note and Faraday. 10. Waiver and Amendment. ANY PROVISION OF THIS NOTE MAY BE AMENDED, WAIVED, MODIFIED, DISCHARGED OR TERMINATED ONLY WITH THE WRITTEN CONSENT OF FARADAY, VIBC AND THE NOTEHOLDER. 11. Assignment; Binding upon Successors and Assigns. Neither of the Companies may assign any of its obligations hereunder without the prior written consent of Noteholder. The terms and conditions of this Note shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties. 12. Waiver of Notice; Attorneys' Fees. Each of the Companies and all endorsers of this Note hereby waive notice, demand, notice of nonpayment, presentment, protest and notice of dishonor. If any action at law or in equity is necessary to enforce this Note or to collect payment under this Note, the Noteholder shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which it may be entitled. Noteholder will be entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. 13. Construction of Note. The terms of this Note have been negotiated by the Companies, the original holder of this Note and their respective attorneys and the language hereof will not be construed for or against either of the Companies or Noteholder. Unless otherwise explicitly set forth, a reference to a Section will mean a Section in this Note. The titles and headings herein are for reference purposes only and will not in any manner limit the construction of this Note which will be considered as a whole. 14. Notices. Any notice or other communication required or permitted to be given under this Note shall be in writing, shall be delivered by hand or overnight courier service, by certified mail, postage prepaid, or by facsimile, and will be deemed given upon delivery, if delivered personally, one business day after deposit with a national courier service for overnight delivery, or one business day after transmission by facsimile with confirmation of receipt, and three days after deposit in the mails, if mailed, to the following addresses: (i) If to the Noteholder: The Canopy Group, Inc. 333 South 520 West, Suite 300 Lindon, Utah 84042 Attention: President (ii) If to Companies: ______________________ ______________________ ______________________ Attention: __________ or to such other address as may have been furnished to the other party in writing pursuant to this Section 14, except that notices of change of address shall only be effective upon receipt. 15. Governing Law. This Note shall be governed by and construed under the internal laws of the United States and the State of Utah as applied to agreements among Utah residents entered into and to be performed entirely within Utah, without reference to principles of conflict of laws or choice of laws. 16. Line of Credit. This Note evidences a line of credit. Advances under this Note may be requested orally by any officer or other authorized person of VIBC. Noteholder may, but need not, require that all oral requests be confirmed in writing. Upon VIBC's request for an advance, Noteholder shall deliver such requested amount. Each of the Companies agree to be jointly and severally liable for all sums advanced in accordance with the instructions of VIBC's officers or authorized persons. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this note, or by a Schedule attached to this note. Notwithstanding anything to the contrary contained in this Note, in no event shall the total amount of principal outstanding under this Note exceed $25,920 at any given time. Notwithstanding anything to the contrary contained in this note, Noteholder may, for any reason or no reason, refuse to make additional advances under this Note. 17. Use of Proceeds. Advances under this Note shall be used by the Companies to pay VIBC's lease payments under that certain Lease Agreement by and between Canopy Properties, Inc. and VIBC dated September 16, 2004 (the "Lease Agreement"). Faraday acknowledges that, as the parent company of VIBC, it directly benefits from the extension of credit under this Note to VIBC for the purpose of making such lease payments. 18. Fees. The Companies shall pay to Noteholder Two Hundred Fifty Dollars ($250) to reimburse Noteholder for any legal fees and expenses incurred by Noteholder in connection with negotiating, documenting or consummating this Note and the Security Agreement and any other documents related thereto. Noteholder may withhold such amount out of the proceeds that give rise to this Note. [Signature Page Follows] IN WITNESS WHEREOF, each of the Companies has caused this Note to be signed in its name as of the date first above written. FARADAY FINANCIAL, INC. By: /s/ Frank Gillen Name: Frank Gillen Its: President VIDEO INTERNET BROADCASTING CORPORATION By: /s/ W Kelly Ryan Name: W Kelly Ryan Its: CEO SECURITY AGREEMENT THIS SECURITY AGREEMENT (the "Security Agreement") is entered into as of August ___, 2004, by and between Faraday Financial, Inc., a Delaware corporation ("Company"), and The Canopy Group, Inc., a Utah corporation ("Secured Party") RECITALS A. Company has co-issued a Secured Convertible Promissory Note in favor of Secured Party dated as of an even date herewith (the "Note"), pursuant to which Secured Party has agreed to advance funds in accordance with the Note. B. The proceeds of the Note will be used to make lease payments under the Lease Agreement (as that term is defined in the Note) for the benefit of Video Internet Broadcasting Corporation ("VIBC"), a wholly-owned subsidiary of Company. C. Secured Party, as a condition to accepting the issuance of the Note and advancing funds under the Note, has required that Company grant a security interest in all of its assets to Secured Party. D. As security for its repayment obligations under the Note and in consideration of Secured Party making the Note available to the Company and VIBC, Company has agreed to grant Secured Party a security interest in the Collateral described below. E. This Security Agreement together with the Note shall collectively be referred to herein as the "Loan Documents." NOW, THEREFORE, to that end and in consideration of the premises, covenants and agreements set forth below, and the mutual benefits to be derived from this Security Agreement, and other good and valuable consideration, the parties hereto agree as follows: Security Interest. To secure the "Obligations" (as defined below), Company hereby transfers, conveys, assigns, and grants to Secured Party a security interest in all right, title and interest of Company in and to all of Company's assets as of the date of this Security Agreement, and all proceeds, and products therefrom and improvements and accessions thereto, including without limiting the generality of the foregoing, the following items (hereinafter, collectively, the "Collateral"): a. General Intangibles. All of Company's General Intangibles, now existing or hereafter arising or acquired, together with the proceeds therefrom. As used herein, the term "General Intangibles" means any "general intangibles," as such term is defined in the UCC, including all personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments, and money, and includes, but is not limited to, business records, deposit accounts, inventions, intellectual property, designs, patents, patent applications, trademarks, trademark applications, trademark registrations, service marks, service mark applications, service mark registrations, trade names, goodwill, technology, know-how, confidential information, trade secrets, customer lists, supplier lists, copyrights, copyright applications, copyright registrations, licenses, permits, franchises, tax refund claims, and any letters of credit, guarantee claims, security interests, or other security held by Company to secure any "Accounts" (as hereinafter defined). b. Accounts (including Accounts Receivable). All of Company's Accounts, whether now existing or hereafter arising or acquired, together with the proceeds therefrom. As used herein, the term "Accounts" means any "account" and any "right to payment" as such terms are defined in the UCC, and any right of Company to receive payment from another person or entity, including payment for goods sold or leased, or for services rendered, no matter how evidenced or arising, and regardless of whether yet earned by performance. It includes, but is not limited to, accounts, accounts receivable, contract rights, contracts receivable, purchase orders, notes, drafts, acceptances, all rights to payment earned or unearned under any contract and all rights incident to the contract, and other forms of obligations and receivables. c. Inventory. All of Company's Inventory, whether now owned or hereafter acquired, together with the products and proceeds therefrom and all packaging, manuals, and instructions related thereto. As used herein, the term "Inventory" means any "inventory," as such term is defined in the UCC, including all goods, merchandise, and personal property held for sale or leased or furnished or to be furnished under contracts of service, and all raw materials, work in process, or materials used or consumed in Company's business, wherever located and whether in the possession of Company, a warehouseman, a bailee, or any other person. d. Equipment. All of Company's Equipment, now owned or hereafter acquired, together with the products and proceeds therefrom, and all substitutes and replacements therefor. As used herein, the term "Equipment" means any "equipment" as such term is defined in the UCC, and includes all equipment, machinery, tools, office equipment, supplies, furnishings, furniture, or other items used or useful, directly or indirectly, in Company's business, all accessions, attachments, and other additions thereto, all parts used in connection therewith, all packaging, manuals, and instructions related thereto, and all leasehold or equitable interests therein. e. Goods. All of Company's Goods (other than Inventory and Equipment), now owned or hereafter acquired, together with the products and proceeds therefrom, and all substitutes and replacements therefor. "Goods" means any "goods," as such term is defined in the UCC. f. Fixtures. All of Company's interest in and to all fixtures and furnishings, now owned or hereafter acquired, together with the products and proceeds therefrom, all substitutes and replacements therefor, all accessories, attachments, and other additions thereto, all tools, parts, and supplies used in connection therewith, and all packaging, manuals, and instructions related thereto, located on or attached to Company's business premises. g. Chattel Paper, Documents and Instruments. All of Company's right, title, and interest in any chattel paper, deposit accounts, investment property, documents, or instruments, as such terms are defined in the UCC, now owned or hereafter acquired or arising, or now or hereafter coming into the possession, control, or custody of Company or Secured Party, together with all proceeds therefrom. h. Records. All of Company's computer programs, software, hardware, source codes and data processing information, all written documents, books, invoices, ledger sheets, financial information and statements, and all other writings concerning the Collateral. Obligation. The security interest granted hereunder is given as security for the payment and performance of all indebtedness and obligations owed by Company to Secured Party, whether now existing or hereafter incurred, under or in connection with or evidenced by the Note, this Security Agreement, and/or any other instrument evidencing indebtedness to Noteholder together with all extensions, modifications, or renewals of any of the foregoing, including, without limitation, all unpaid principal amounts, all interest accrued thereon, all fees and all other amounts payable by Company to Secured Party thereunder or in connection therewith (hereinafter referred to, collectively, as the "Obligations"). Proceeds; UCC Terms. As used in this Security Agreement, the term "proceeds" means all products of the Collateral and all additions and accessions to, replacements of, insurance or condemnation proceeds of, and documents covering any of the Collateral, all property received wholly or partly in trade or exchange for any of the Collateral, all leases of any of the Collateral, and all rents, revenues, issues, profits, and proceeds arising from the sale, lease, license, encumbrance, collection, or any other temporary or permanent disposition, of any of the Collateral or any interest therein. As used in this Agreement, "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Utah; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, the security interests of Secured Party on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Utah, the term "UCC" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. Unless otherwise defined herein, terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC. Title; Filing. Company warrants that, (i) Company is the owner of the Collateral free and clear of all liens, claims, and encumbrances except for Permitted Liens ("Permitted Liens") set forth on Exhibit A or, (ii) in the case of after-acquired Collateral, at the time Company acquires rights in the Collateral, will be the owner thereof, free and clear of all liens, claims and encumbrances except for Permitted Liens. Company covenants that so long as any portion of the Obligation remains unpaid, Company will not execute or file a financing statement or security agreement covering the Collateral to anyone other than Secured Party, except with respect to Permitted Liens or as unanimously approved by Company's board of directors. Company agrees to sign and deliver one or more financing statements or supplements thereto or other instruments as Secured Party may from time to time require to comply with the Uniform Commercial Code or other applicable law to preserve, protect and enforce the security interest of Secured Party and to pay all costs of filing such statements or instruments. In connection with the foregoing, Company authorizes Secured Party to prepare and file any financing statements describing the Collateral without otherwise obtaining Company's signature or consent with respect to the filing of such financing statements. Company will cooperate with Secured Party in obtaining control (as defined in the UCC) of Collateral consisting of deposit accounts, investment property, letter of credit rights and electronic chatter paper, and will join with Secured Party in notifying any third party who has possession of any Collateral of Secured Party's security interest therein and obtaining an acknowledgment from the third party that it is holding the Collateral for the benefit of Secured Party. Company will not create any chattel paper without placing a legend on the chattel paper acceptable to Secured Party indicating that Secured Party has a security interest in the chattel paper. Care of Collateral. Company will keep in effect all material licenses, permits and franchises required by law or contract relating to Company's business (if applicable), property, or the Collateral; maintain insurance on the Collateral; keep the Collateral in good repair and be responsible for any loss or damage to it; at all times warrant and defend Company's ownership and possession of the Collateral; keep the Collateral free from all liens, claims, encumbrances and security interests, other than Permitted Liens; pay when due all taxes, license fees, and other charges upon the Collateral or upon Company's business, property or the income therefrom; not enter into any agreement (including any license or royalty agreement) pertaining to any of its intellectual property, including patents, copyrights, trademarks, service marks and trade names, except for non-exclusive licenses in the ordinary course of business; not enter into any agreement to transfer any of the Collateral except for transfers in the ordinary course of business for fair value; immediately notify Secured Party if Company holds or acquires (i) any commercial tort claims, (ii) any chattel paper, including any interest in any electronic chattel paper, or (iii) any letter-of-credit rights; and not misuse, conceal or in any way use or dispose of the Collateral unlawfully or contrary to the provisions of this Security Agreement or of any insurance coverage in any material respect. Loss of, damage to, or uncollectability of the Collateral or any part thereof will not release Company from any of its obligations hereunder. Default. Five (5) days after written notice from Secured Party to Company for monetary defaults and ten (10) days after written notice from Secured Party to Company for non-monetary defaults, if such defaults are not cured within such five (5) day or ten day (10) periods, respectively, each of the following shall constitute an event of default ("Event of Default") under this Agreement: a. Default in Payment. If Company fails to make any payment due and payable under the terms of the Note, this Security Agreement or any other document executed in connection therewith. b. Representations and Warranties. If any of the representations and warranties made by Company shall be false or misleading in any material respect when made. c. Covenants. If Company shall be in material default under any of the material terms, covenants, conditions, or obligations under the Note, this Security Agreement or any other document executed in connection therewith. d. Dissolution. If Company is dissolved, suspends its normal business operations or otherwise fails to continue to operate its business in the ordinary course. e. Receiver. If a receiver, trustee, or custodian is appointed for any part of the Collateral, or any part of the Collateral is assigned for the benefit of creditors. f. Impairment to Lien. If at any time this Security Agreement or any other document executed in connection herewith creating a lien on any of the Collateral may be impaired by any material lien, encumbrance or other defect other than the Permitted Liens. g. Inconsistent Transfer. If at any time Company transfers an interest in any of the Collateral contrary to the provisions of this Security Agreement without the prior written consent of Secured Party other than in the ordinary course of business. h. Bankruptcy; Insolvency. If a petition in bankruptcy is filed against Company, and such petition is not dismissed within sixty (60) days of filing, a petition in bankruptcy is filed by Company or a receiver, trustee or custodian of any part of the Collateral is appointed; or if Company files a petition for reorganization under any of the provisions of the Bankruptcy Act or any law, State or Federal; or if Company makes an assignment for the benefit of creditors or is adjudged insolvent by any State or Federal Court of competent jurisdiction; or if Company is unable to pay its debts as they become due. i. Default Under Other Agreements. Notwithstanding the five-day and ten-day cure periods provided for above, if Company is in breach under the terms of any agreement with Secured Party that has not been cured in accordance with the terms of such agreement, such breach shall constitute an Event of Default under this Security Agreement five (5) days after the date of such breach. Waiver of any Event of Default will not constitute a waiver of any other or subsequent Event of Default. Remedies. Upon the occurrence of an Event of Default and during the continuance of any such default at any time thereafter, Secured Party shall, by written notice to Company, be entitled to accelerate all unpaid Obligations. Secured Party will have the remedies of a secured party under the UCC or other applicable law. Secured Party shall give Debtor such notice of any private or public sales as may be required by the UCC or other applicable law. Secured Party shall have the right upon any such public sale, and, to the extent permitted by law, upon any such private sale, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption, which right or equity of redemption Debtor hereby releases, to the extent permitted by law. For the purpose of enabling Secured Party to exercise its rights and remedies under this Section 7 or otherwise in connection with this Agreement, Company hereby grants to Secured Party an irrevocable, non-exclusive and assignable license (exercisable without payment or royalty or other compensation to Company) to use, license or sublicense any intellectual property Collateral after an Event of Default. Costs and Expenses. Company agrees to pay on demand all reasonable costs and expenses of Secured Party, and the reasonable fees and disbursements of counsel, in connection with the enforcement of any rights or interests under this Agreement, including in any out-of-court workout or other refinancing or restructuring or in any bankruptcy case, and the protection, sale or collection of, or other realization upon, any of the Collateral, including all expenses of taking, collecting, holding, sorting, handling, preparing for sale, selling, or the like, and other such expenses of sales and collections of Collateral. Any amounts payable to Secured Party under this Section 8 or otherwise under this Agreement if not paid upon demand shall bear interest from the date of such demand until paid in full, at the default rate of interest set forth in the Note. General. The waiver by Secured Party of any breach of any provision of this Security Agreement or warranty or representation herein set forth will not be construed as a waiver of any subsequent breach. The failure to exercise any right hereunder by Secured Party will not operate as a waiver of such right. All rights and remedies herein provided are cumulative. Company may not assign its rights or delegate its duties hereunder without Secured Party's written consent. This Security Agreement may not be altered or amended except by a writing signed by all the parties hereto. This Security Agreement shall be governed by, and construed in accordance with, the law of the State of Utah, except as required by mandatory provisions of law and to the extent the validity or perfection of the security interests hereunder, or the remedies hereunder, in respect of any Collateral are governed by the law of a jurisdiction other than Utah. Any provision hereof found to be invalid will not invalidate the remainder. All words used herein will be construed to be of such gender and number as the circumstances require. This Security Agreement binds Company and its successors and assigns, and inures to the benefit of Secured Party and its successors and assigns. This Security Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Notices. All notices or other communications hereunder shall be in writing (including by facsimile transmission or by email) and mailed, sent or delivered to the respective parties hereto at or to their respective addresses, facsimile numbers or email addresses set forth below their names on the signature pages hereof, or at or to such other address, facsimile number or email address as shall be designated by any party in a written notice to the other parties hereto. All such notices and other communications shall be deemed to be delivered when a record (within the meaning of the UCC) has been (i) delivered by hand; (ii) sent by mail upon the earlier of the date of receipt or five business days after deposit in the mail, first class (or air mail as to communications sent to or from the United States); (iii) sent by facsimile transmission; or (iv) sent by email. [Signature page follows] IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the date first written above. COMPANY: FARADAY FINANCIAL, INC. a Delaware corporation By: /s/ Frank Gillen Name Frank Gillen Its: President Address: ___________________ ___________________ Attn: ______________ SECURED PARTY: THE CANOPY GROUP, INC. a Utah corporation By: /s/ Kevin Flanagan Name: Kevin Flanagan Its: Manager Address: 333 South 520 West Suite 300 Lindon, Utah 84042 EXHIBIT A PERMITTED LIENS g. statutory liens for taxes to the extent that the payment thereof is not in arrears or otherwise due; h. encumbrances in the nature of zoning restrictions, easements, rights or restrictions on the use of property if the same do not impair its use in the conduct of the business of the Company and its subsidiaries as currently conducted and as currently proposed to be conducted; i. statutory or common law liens to secure landlords, lessors or renters under leases or rental agreements confined to the premises rented to the extent that no payment or performance under any such lease or rental agreement is in arrears or is otherwise due; j. deposits or pledges made in connection with, or to secure payment of, worker's compensation, unemployment insurance, old age pension programs mandated under applicable Legal Requirements or other social security; k. statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen, statutory or common law liens to secure claims for labor, materials, equipment or supplies and other like liens, which secure obligations to the extent that payment thereof is not in arrears or otherwise due; l. liens incurred in connection with surety bonds, bids, performance bonds and similar obligations for sums not overdue or being contested in good faith by appropriate proceedings; m. liens arising in connection with capital leases (and attaching only to the property being leased), liens existing on property at the time of the acquisition thereof by the Company (and not created in contemplation of such acquisition) and liens that constitute purchase money security interests on any property securing debt incurred for the purpose of financing all or any part of the cost of acquiring such property, provided that any such lien attaches to such property within 60 days of the acquisition thereof and attaches solely to the property so acquired; and n. attachments, appeal bonds, judgments and other similar liens arising in connection with court proceedings, provided the execution or other enforcement of such liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings. o. Liens securing indebtedness held by a creditor that has agreed to subordinate its (i) right to repayment, (ii) priority of liens securing such indebtedness, and (iii) right to enforce remedies against Company following default to the liens of Secured Party and the prior payment of the Obligations to Secured Party pursuant to a written subordination agreement approved by Secured Party, which approval shall not be unreasonably withheld. p. Liens in favor of Secured Party. EX-10.16 9 ex1016q093004.txt COMMERCIAL SUBLEASE Exhibit 10.16 Commercial Sublease Page 1 of 6 COMMERCIAL SUBLEASE Sublease made 08/30, 2001, between Video Internet Broadcasting Corporation, a Washington Corporation, herein referred to as Sublessee, and Public Utility District No. 2 of Grant County, Washington, herein referred to as Lessee, and Moore Furniture Incorporated, herein referred to as Lessor. RECITALS Lessee has leased the premises from Lessor under a separate lease agreement between Lessor and Lessee, herein referred to as the Basic Lease, attached hereto as Exhibit "A". Sublessee desires to sublease a portion of the Premises from Lessee. In consideration of the mutual covenants contained herein, the parties agree as follows: 1. Description of Premises. Sublessee leases from Lessee a portion of the Premises leased to Lessee by Lessor. The portion subleased is described in Exhibit 13 attached hereto. 2. Term. The term of this Commercial Sublease shall be co-extensive with that of the Basic Lease and subject to all termination and cancellation provisions provided therein as well as those contained in this Commercial Sublease. 3. Basic Lease. Sublessee shall be bound by and fully perform and comply with each and every covenant and condition contained in the Basic Lease (except the provision to pay rent to the Lessor) and this Commercial Sublease is hereby expressly made subject to all of' the terms, conditions and Iimitations contained in the Basic Lease. Rent. Sublessee shall make monthly rental payments to Lessee in amount which is equal to seventy-two and six tenths percent (72.6%) of the amount of the rent which Lessee is required to pay Lessor for such month pursuant to the terms of the Basic Lease. Rent shall be paid on the first day of each calendar month and rent for any partial month shall be prorated. 5. Utilities. Sublessee shall pay Lessee on a monthly basis, seventy-two and six tenths percent (72.6%) of the monthly charges for utilities supplied to the Premises including, without limitation, water, electricity, sewer, waste disposal and security during the term of the Commercial Sublease. Payment shall be made to Lessee within 10 days after Sublessee is notified of the billing amount. 6. Indemnity. Sublessee agrees to defend, indemnify and hold Lessee and Lessor and their respective employees, officers and agents harmless from any and all claims arising from Sublessee's use of the Premises, from the conduct of Sublessee's business, or from any activity, work or things done or permitted to be done by Sublessee on the Premises or elsewhere. Sublessee further agrees to indemnify and hold Lessee and Lessor and their respective employees, officers and agents harmless from any and all claims arising from, Commercial Sublease Page 2 of 6 in connection with, or related to any default by Sublessee in the performance of its obligations under this Commercial Sublease, or any act, omission or neglect of Sublessee, its agents or invitees. Sublessee further agrees to indemnify and hold Lessee and Lessor and their respective employees, officers and agents from all costs (including but not limited to attorneys fees) incurred by them in connection with the defense against any claims made against any of them as to which Sublessee is required to provide indemnification pursuant to this provision. Sublessee shall give prompt notice to Lessee and Lessor of any casualty or accident in the Premises. Upon notice by Lessee or Lessor. Sublessee at Sublessee's expense, shall defend Lessee and Lessor and their respective employees, officers and agents, in any action or proceeding brought against any of them by reason of any such claim. 7. Restrictions on Use. Sublessees use of the Premises shall be subject to all restrictions and limitations contained in the Basic Lease. 8. Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Commercial Sublease by Sublessee. a) The vacating or abandonment of the Premises by Sublessee prior to the termination of the Commercial Sublease. b) The failure by Sublessee to make when due any payment of rent or any other payment required to be made by Sublessee under this Sublease, where such failure shall continue for a period of three (3) days after written notice of default from Lessee to Sublessee. In the event that Lessee serves Sublessee with a notice to pay rent or vacate pursuant to applicable unlawful detainer status, such notice to pay rent or vacate shall also constitute the notice required by this provision. b) The failure by Sublessee to observe or perform any of the covenants, conditions or provisions of this Commercial Sublease to be observed or performed by Sublessee. other than those described above, for a period of thirty (30) days after written notice of such default from Lessee to Sublessee; provided, however, that if the nature of Sublessee default is such that more than thirty (30) days are reasonably required for its cure, then Sublessee shall not be deemed to be in default if Sublessee commences a cure within that thirty (30) day period and thereafter diligently prosecutes the cure to completion. c) Sublessee becomes a debtor as defined in the Bankruptcy Code, 11 USC Section 101, or any successor statute, or if trustee or a received is appointed to take possession of substantially all of the Sublessee's assets located at the Premises or a Sublessee's interest in this Commercial Lease. d) Any other occurrence, which constitutes a material default under other provisions of this Commercial Lease. Commercial Sublease Page 3 of 6 9. Remedies. In the event of a material default or breach by Sublessee, Lessee may at any time thereafter, with or without notice or demand and without limiting Lessee. in the exercise of any right or remedy which Lessee may have by reason of such default or breach: a) Terminate Sublessee's right to possession of its subleased portion of the Premises by any lawful means, in which case this Commercial Sublease shall terminate and Sublessee shall immediately surrender possession of the Premises to Lessee. In this event, Lessee shall be entitled to recover from Sublessee all damages incurred by Lessee by reason of Sublessee default including, but not limited to: the cost of recovering possession of the Premises; expenses of relating (including necessary renovation and alteration of the Premises); reasonable attorney's fees and costs and any real estate commission actually paid; the amount of any unpaid rent or other charges owed by Sublease to Lessee which had been earned at the time of termination; the amount by which the unpaid rent or other charges for the balance of the term after the time of such award exceeds the amount of such rental or other loss for the same period that Sublessee proves could reasonably be avoided; and that portion of the leasing commission paid by Lessee according to this Commercial Sublease applicable to the unexpired term of this Commercial Lease. b) Pursue any other remedy now or afterwards available to Lessee under the laws or judicial decisions of the state where the Premises are located. 10. Late Charges. Sublessee acknowledges that late payment by Sublessee to Lessee of rent and other sums due under this Commercial Sublease will cause Lessee to incur costs not contemplated by this Commercial Sublease, the exact amount of which will be extremely difficult to ascertain. These costs include but are not limited to, processing and accounting charges and late charges, which may be imposed on Lessee. Accordingly, if any installment of rent or other sums due from Sublessee shall not be received by Lessee within ten (10) days after the amount shall be clue or if any rent check should be returned for non-sufficient funds, then without any requirement of notice to Sublessee, Sublessee shall pay to Lessee a late charge of $75.00 for each month of delinquency. If rent is unpaid at end of initial month of delinquency, an additional interest charge of l c/a monthly on the unpaid balance will be made. The parties agree that this late charge plus interest represents fair and reasonable estimate of the cost Lessee will incur by reason of late payment by Sublessee. Acceptance of the late charge by Sublessee shall in no event constitute a waiver of Sublessee's default with respect to the overdue amount, no prevent Lessee from exercising any of the other rights or remedies granted to Lessee under this Commercial Lease, or at law or equity. 11. Corporate Authority. The individual executing this Commercial Sublease on behalf of Sublessee represents and warrants that he or she is duly authorized to execute and deliver this Commercial Sublease on behalf of said Corporation, in accordance with a duly adopted resolution of the board of directors of said corporation authorizing and consenting to this Commercial Lease; specifically authorizing the designated officers signing this Commercial Sublease to execute, acknowledge and deliver the same. Commercial Sublease Page 4 of 6 12. Exhibits and Addendums. Any exhibits and addendums attached to this Commercial Sublease are a part hereof and are fully incorporated in this Commercial Sublease by this reference. 13. Non-Waiver of Default. Neither Lessee's nor Sublessee's waiver of any term, covenant or condition of this Commercial Sublease shall be deemed to he a waiver of any other term, covenant or condition or any subsequent default under the same or any other term, covenant or condition. 14. Time. Time is of the essence of this Commercial Sublease. 15. Successors and Assigns. The covenants and condition of this Commercial Sublease apply to and bind the heirs, successors, executors, administration and assigns of all parties of this Commercial Sublease. 16. Recordation. A short form memorandum may be recorded at the request of either party, and at the requesting party's expense. 17. Prior Agreements. This Commercial Sublease contains the full agreement of the parties with respect to any matter covered or mentioned in this Commercial Sublease. No prior agreements or understanding pertaining to any such matters shall be effective for any purpose. This Commercial Sublease may be amended or supplemented only by an agreement in writing sighed by the parties or their respective successors in interest. 18. Severability. Any provision of this Commercial Sublease which shall rove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision, and all other provisions shall remain in full force and effect. 19. Cumulative Remedies. No remedy or election under this Commercial Sublease shall be deemed to be exclusive but shall, whenever possible, be cumulative with all other remedies at law or in equity. 20. Choice of Law. The laws of the State of Washington shall govcrn this Commercial Sublease. 21. Attorney's Fees. In the event any action or proceeding is brought by either party against the other arising out of or in connection with this Commercial Sublease the prevailing party shall be entitled to recover its costs, including, but not limited to, reasonable attorneys and accountant's fee, incurred in such action or proceedings, including any appeal. 22. Notices. Al! notices or demands which are required or permitted to be given by either party to the other under this Commercial Sublease shall be in writing. Except as otherwise provided in any addendum, all notices and demands to the Sublessee shall be either personally delivered or sent by US Mail, registered or certified, postage prepaid, Commercial Sublease Page 5 of 6 addressed to the Sublessee at the Premises, or at the address set forth below, or to such other place as Sublessee may from time to time designate in a notice to the Lessee. Except as provided in any addendum, all notices and demands to the Lessee shall be either personally delivered or sent by US Mail, registered or certified, postage prepaid, addressed to the Lessee at the address set forth below, or to such other person or place as the Landlord may from time to time designate in a notice to the Sublessee. Any notices sent by US Mail as provided above shall be deemed to have been received three (3) days after deposit into the mail. Sublessee Address: Lessee AddressGrant County PUD PO Box 878 Ephrata, WA 98823 23. Legal Document. Sublessee understands that this is a legally binding contract. Sublessee has carefully read each of is provisions, and prior to execution of the Commercial Lease, represents and warrants that Sublessee has discussed the legal effect of the Commercial Sublease with Sublessee's legal counsel. IN WITNESS WHEREOF, the parties have executed this instrument as of the day and year first above written: Sublessee Lessee By: /s/ W. Kelly Ryan By: /s/ H.E. Williams Name: W. Kelly Ryan Name:H. E. Williams Title: CEO Title: Customer Service Director Date: 8/30/01 Date: 8/30/01 Consent of Lessor The undersigned, the authorized agent of the Lessor of the Premises of held by Lessee under the Basic Lease, does hereby consent for and on behalf of the Lessor to the above Commercial Sublease. Lessor: By: /s/ W Kelly Ryan Name: W Kelly Ryan Title: President Date:09/05/01 Commercial Sublease Page 6 of 6 LESSOR STATE OF WASHINGTON COUNTY OF GRANT CORPORATE ACKNOWLEDGEMENT On this day personally appeared before me to me Kelly Moore known to be the Individual who executed the within and foregoing instrument as duly appointed _______ and acknowledges that he/she signed the same as his/her free and voluntary act and deed and on oath stating that his/her powers authorizing the execution of this instrument have not been revoked. GIVEN under my hand and official seal the 5th day of September, 2001. STATE OF WASHINGTON COUNTY OF GRANT CORPORATE ACKNOWLEDGEMENT On this day personally appeared before me to me H.E. Williams known to be the individual who executed the within and foregoing instrument as duly appointed Customer Service and acknowledges that he/she signed the same as his/her free and voluntary act and deed and on oath stating that his/her powers authorizing the execution of this instrument have not been revoked. ;v'e?,he execution of this instrument have not been revoked. GIVEN under my hand and official seal the 30th day of August, 2001. SUBLESSEE STATE OF WASHINGTON COUNTY OF GRANT CORPORATE ACKNOWLEDGEMENT On this day personally appeared before me to meW Kelly Ryan known to be the individual who executed the within and foregoing instrui seat as duly appointed__________ CEO , and acknowledges that he/she signed the same as his/her free and voluntary act and deed and on oath stating that his/her powers authorizing the execution of this instrument have not been revoked. GIVEN under my hand and official seal the 30th day of August, 2001. EX-10.17 10 ex1017q093004.txt INITIAL PROVIDER NETWORK ACCESS AND USE AGREEMENT Exhibit 10.17 INITIAL PROVIDER NETWORK ACCESS AND USE AGREEMENT Between PROVO CITY, UTAH and VIDEO INTERNET BROADCASTING CORPORATION d.b.a. HOMENET COMMUNICATIONS OF UTAH Dated effective as of July ____2004 IPROVO NETWORK PROJECT HOMENET & PROVO AGREEMENT TABLE OF CONTENTS Recitals ......................................................................1 Article I Definitions..........................................................2 Article II Description, Term of Agreement .....................................6 Article III Network ...........................................................7 Article IV Pricing and Payments................................................8 Article V Network Operations .................................................10 Article VI Marketing .........................................................13 Article VII Customer Service..................................................15 Article VIII Representations and Warranties...................................16 Article IX Covenants..........................................................18 Article X Assignment and Security Interests ..................................21 Article XI Liability and Indemnification .....................................21 Article XII Force Majeure.....................................................24 Article XIII Breach and Termination ..........................................26 Article XIV Miscellaneous ....................................................28 List of Exhibits & Appendix: Exhibit A - Retail Services Exhibit B - Initial Service Provider User Period Exhibit C - Minimum Market Penetration Standards Exhibit D - Network Build Schedule Exhibit E - Network Lease Pricing Schedule(s) Exhibit F - Service Level Agreements Exhibit G - Disaster Recovery Plan Exhibit H - IP Video Middleware and Set Top Boxes Exhibit I - iProvo Asset Purchase Agreement Exhibit J - Provo Cable Asset Purchase Agreement Exhibit K - IP Video Middleware Software License Agreement Exhibit L - IP Video Set Top Box Usage Agreement Appendix A - IP Video Middleware Software License Agreement Exhibit M - Reports Exhibit N - Marketing Program Exhibit O - Customer Service Program Exhibit P - In-Home Wiring Standards Exhibit Q - Standard Portal Configuration Exhibit R - Bandwidth Purchase Agreement Exhibit S - Telephony Services Purchase Agreement Exhibit T - OSS/BSS Interface Process and Procedure Exhibit U - Financial Security Arrangement Agreement INITIAL PROVIDER NETWORK ACCESS AND USE AGREEMENT THIS INITIAL PROVIDER NETWORK ACCESS AND USE AGREEMENT ("Agreement"), is made and entered into effective as of the ____ day of _________, 2004 by and between Provo City, a municipal corporation of the State of Utah. ("Provo") and Video Internet Broadcasting Corporation d.b.a. HomeNet Communications of Utah, a Washington Corporation, on behalf of itself and its affiliates ("Service Provider"). R E C I T A L S: Provo desires that residents and businesses within its municipal boundaries have convenient, quality and competitively priced access to high speed, broadband fiber optic services, including voice, video and high speed data transmission and Internet access. Provo will construct, operate and maintain a managed open access fiber optic Ethernet network that is capable of supporting multiple private service providers in offering a variety of competitive high-speed broadband services to the residences and businesses located in the boundaries of Provo City. The Provo Network is more particularly defined and described herein. The Provo Network is a new advanced citywide fiber optic network that is currently being constructed. The Provo Network will increase competitive access to consumers of media services by building high performance fiber optic connections between service provider interconnections and the homes and businesses of Provo residents. Provo, through a competitive RFP process, has selected Service Provider to be the Initial Service Provider on the Provo Network. While Service Provider is solely responsible for providing Retail Services to Subscribers on the network, Service Provider recognizes that it is an operational partner that is vital to Provo's ability to successfully fund, operate, and maintain a true Fiber-to-the-Home (FTTH) network. This Agreement memorializes the terms and conditions set forth in the RFP, Service Provider's response to the RFP, and negotiations between Provo and Service Provider and establishes a long term relationship wherein Service Provider will actively market to potential Subscribers and provide high quality Retail Services. Service Provider, who is currently in the process of changing its corporate name to HomeNet Communications of Utah, desires to enter into this Agreement to use the Provo Network to provide Retail Services, on a non-exclusive basis, within the boundaries of Provo. Provo, on the terms, covenants and conditions contained in this Agreement, is willing to grant Service Provider the non-exclusive right to use the Network, as it is completed, to provide Retail Services to potential Subscribers. In order to promote the success of Service Provider's business, to provide for stability on the Provo Network, and to remedy technical issues that will arise during the implementation of the Provo Network, this Agreement grants Service Provider a maximum rolling six month initial service provider use period as defined below. All of the proposals received by Provo as a result of the RFP process requested exclusive service periods, the shortest of which was three years. Provo has determined that a rolling six-month-per-node initial service provider period best balances the goals of allowing Service Provider a reasonable opportunity to market, promote, and implement its business plan in order to generate a return on its investment, provides sufficient time to resolve technical issues that will arise, and enables Provo to provide an open access Network. Service Provider is solely responsible for their business model and Subscriber penetration. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained in this Agreement, Provo and Service Provider mutually agree as follows: DEFINITIONS Unless the context clearly indicates otherwise, certain terms used in this Agreement shall have the meanings set forth below: "Agreement" means this Agreement and incorporates any Exhibits, Appendices, or other attachments referenced herein. "Business Subscriber" means any Subscriber, which uses the service in, at or for their place of business. "Commercial Insertion" means the insertion of commercials on video channels from the headend or Node huts on video channels via Provo City owned equipment. "Content Services" shall mean any and all content or services delivered over the Network to Subscribers. Including, but not limited to, video services, voice services and data services. "Customer Premise Equipment" or "CPE" shall mean any and all equipment located at Subscriber's premises owned by Provo City and/or the Service Provider. "Disaster Recovery Plan" means a disaster of catastrophic magnitude such as an earthquake or tornado, which disrupts or destroys major Network elements. "Effective Date" means the date of execution of this Agreement by Provo and Service Provider. "Enhanced Service Provider" shall mean an entity providing Information Services via a data connection in IP format. "Ethernet Network Entry Point" shall mean point of transmission ingress or egress to the Internet. "Gateway" or "Portal" shall mean the device location which serves as the demarcation point at a residence or business at which the Provo Network ends and the Service Provider assumes control for purposes of providing Content Services. Typically, the Gateway will be a World Wide Packets device similar to an LE-46 in a residence or business, or a similar device such as an LE-211 in an MDU or business. "GRAMA" means the Government Records Access and Management Act, Provo City Code ss. 3.13.010 et seq., as amended, together with any amendments that occur after the Effective Date. "General Availability" means when a Node is released and available for any and all services providers on the Network. "Home Passed" means any residential home, multi-dwelling unit, or business which is passed by the fiber or able to receive service by the installation of a fiber drop and associated equipment. Multi-Dwelling Units shall count each apartment or living unit as a separate Home Passed. No home will be counted as a Home Passed that cannot actually be served by the Network. "Information Service" shall mean the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service. "Initial Service Provider Use Period" shall mean the initial period of time which allows for the technical glitches, bugs, and issues to be resolved, to ensure that the Network is stable for commercial operation, and to allow Service provider a reasonable opportunity to market, promote, and implement its business plan in order to generate a return on its investment. "Market Penetration" shall mean the number, represented by a percentage of homes passed of Subscribers paying for at least one service offering from the Service Provider. "MDU" shall mean multi-dwelling unit. "MDU Subscribers" shall mean a Subscriber that is paying for Content Services with the intent that such Content Services will be made available to persons living in a multi-dwelling unit such as an apartment complex. In general, but not always, MDU's will be characterized by two or more of the following characteristics: conforming to a single billing entity for multiple Subscribers, consisting of four (4) or more Subscriber units, and having historical status as an MDU with incumbent Cable Television Service Providers. "Network" or "Provo Network" means and includes, without limitation, all cables, collocation space, conduits, inner ducts, inside wiring, manholes, Nodes, optical fiber strands, patch panels, splices, switches, transmitters, junctions, terminals, internal power sources, access Portals, battery backups, fault alarm systems, structures, shelters, poles or pole line attachments, similar equipment, business and operations support systems, and all articles of personal property owned, leased or used by Provo, directly or indirectly, for use in connection with its telecommunications system that is used to provide the Network Services, as any or all of the same may be updated, supplemented, replaced or expanded, from time to time. Demarcation on the Network shall be defined as the Service Provider facing port on the router (Ethernet Network Entry Point) and the Subscriber facing ports on the Portal installed at the Subscriber premises. "Network Services" shall mean the content or services provided by Provo City to service providers on the Network. "Node" or "Segment" means a logical or geographic area of the Network serving a sub set of the homes or businesses in the entire Network as consistent with the phased construction approach. "OSS/BSS" shall mean the Operational Support Systems and Business Support Systems which include, but are not limited to, customer management, billing, customer provisioning, etc. "Other Service Provider(s)" shall mean those companies and firms that have been authorized by Provo to provide Content Services to their Subscribers by another contract on the Provo Network after the termination of the Initial Service Provider Use Period and according to the process established by Provo for bringing subsequent service providers onto the Network. "Network Service Specifications" means the Networks ability to deliver voice, video, and data services and elements of the Network Lease pricing schedule(s) detailed on Exhibit "E" and the Service Level Agreements detailed on Exhibit "F" attached to and incorporated in this Agreement by reference. "Primary Dial Tone Service" shall mean standard telephone service including standard E-911 service which routes to the Provo City dispatch center and delivers data including address. "Provo" or "Provo City" shall mean the municipal corporation, a political subdivision of the State of Utah that is The City of Provo, Utah. "Provo Telecommunications Manager" shall mean the person appointed by Provo to represent Provo in the Agreement. "PSTN" means Public Switched Telephone Network. "Retail Services" means the services that Service Provider offers to its Subscribers over the Network, described on Exhibit "A" attached to and incorporated by reference. "Residential Subscriber" shall mean a Subscriber who is residing in a single-family residence. In general, but not always, Residential Subscribers will be characterized by one or more of the following characteristics: (1) conforming to a single discrete Subscriber entity, (2) conforming to a single bill for corresponding discrete Subscriber, or (3) being subject to standard published retail rates. "Service Credit" shall mean a credit that may be applied to payments made by the Service Provider for use of the Networks for failure of the Network performance to meet standards set forth in the Service Level Agreement. "Service Level Agreement" shall mean the Agreement Provo unilaterally issues outlining the level of service Provo strives to deliver on the Network. "Service Metric" shall mean the unit or measure of performance of the service level of the Network. "Service Readiness Date" means the date that the Service Readiness Test is completed. "Service Readiness Test" means the controlled introduction period prior to the Service Readiness Date where Provo, with the involvement of Service Provider, conducts a series of activities to test the readiness of the Provo Network, as well as designated business and operations processes. Service Readiness Test is considered completed when Provo notifies Service Provider in writing that an area or Node is fully tested and ready for activation of customers. "Service Provider" or "Initial Service Provider" shall mean Video Internet Broadcasting d.b.a. HomeNet Communications of Utah. "Soft-Switch" shall mean a device or software program that provides services similar to a Class 5 Telephony switch and has the ability to deliver Information Services, including telephony like services on a data Network in IP format. "Subscriber" shall mean a Business Subscriber, Institutional Subscriber, MDU Subscriber, Residential Subscriber, or any other Subscriber that pays Service Provider a fee in order to receive one or more Content Services. "Substantially Complete Network" shall mean that the construction of the Network is complete and the Service Readiness Tests have been successfully completed and accepted and the Network is ready for operation. "Substantially Complete Node" shall mean that the construction of the Node is complete and that Service Readiness Tests have been completed and the Node has been activated for Content Services. "Set Top Box" or "STB" shall mean the device used to convert video signals from one format to another or act as a tuner to provide a television set or monitor with a viewable signal. It is typically a device that converts IP video to analog video for viewing on a television receiver. "Transport Fees" shall mean the amounts payable by the Service Provider for use of the Provo Network or Network components (headend, telephony switch, etc.) as prescribed herein. DESCRIPTION AND TERM OF AGREEMENT Network Development. Provo anticipates deploying a citywide Network in multiple construction phases. The development, design and installation of the Network shall be the sole responsibility of Provo. Any undertaking to install additional phases of the Network shall be at the sole discretion of Provo. Service Provider Retail Services. Following the Service Readiness Date, Service Provider shall use the Network to provide any or all Retail Services to Subscribers to the extent the Network is available to such Subscribers, provided said service is included in Exhibit "A", the Retail Services and Exhibit "E", the Network Lease Pricing Schedule and a lease rate has been set by Provo, subject to Section 4.3. Nothing in this Agreement shall require Service Provider to use the Provo Network exclusively. Provo retains the right to provide connectivity and services to governmental agencies, public schools, Brigham Young University (BYU), Utah Valley State College (UVSC), and any entity providing services that terminate outside the Provo City limits. Initial Service Provider Responsibilities. During the initial construction, testing, and activation of the Nodes, there are expected to be technical glitches, bugs, and interoperability issues on the Network. Through a competitive RFP process, Provo selected the Initial Service Provider to provide Content Services on the Network during the Initial Service Provider Use Period as described in Exhibit "B". Market Penetration. In Exhibit "C" of this agreement, the Service Provider shall meet the requirements of the minimum Market Penetration standards. Failure by the Service Provider to meet the minimum Market Penetration standard, as defined in Exhibit "C", may result in other Service Providers being added on the Network. Term of Agreement. Unless sooner terminated as provided in Article XII of this Agreement, this Agreement shall have an initial term of four (4) years, with two (2) additional three-year terms that will each commence automatically unless either party at its sole discretion elects not to renew this Agreement in accordance with the following. The initial term ("Initial Term") begins on the Effective Date and terminates on the fourth (4th) anniversary of the Effective Date. On expiration of the Initial Term of this Agreement, this Agreement will automatically renew for an additional period of three (3) years (the "Second Term") from the fourth (4th) anniversary of the Effective Date unless, at least one hundred eighty (180) days prior to the expiration of the Initial Term, either Provo or Service Provider gives written notice to the other of its intention not to renew this Agreement for a Second Term. On expiration of the Second Term of this Agreement, this Agreement will automatically renew for an additional period of three (3) years (the "Third Term") from the seventh (7th) anniversary of the Effective Date unless, at least one hundred eighty (180) days prior to the expiration date, either Provo or Service Provider gives written notice to the other of its intention not to renew this Agreement for a Third Term. NETWORK Network Design. Provo, at its cost and expense, shall be solely responsible for the design of the Network. The Network shall be designed to deliver Content Services according to the Network Service Specifications. Provo will provide one or more Ethernet Network Entry Points. Service Provider may, at its sole discretion, select one or redundant entry points to connect into the Provo Network. Service Provider may offer consultation to Provo on Network design regarding quality and reliability measures, but Provo remains solely responsible for the Network design regardless of any such Service Provider consultation. Service Provider shall be responsible for all of Service Provider's related costs to meet such entry points including, but not limited to, interconnect costs, collocation space, rack rental, power, and other interfacing costs. Installation of Network. Provo, at its cost and expense, shall be solely responsible for the installation of the Network, including, without limitation, the procurement of any necessary rights-of-ways or easements, and the purchase and installation of all facilities and equipment required to activate and operate the Network. Provo has already commenced installation of the first phase of the Network in the Grandview neighborhood and other areas. Within thirty (30) days of the Effective Date of this Agreement, Provo will provide a summary of the Network Build-out Schedule for the Network. The Network Build-out Schedule is to be attached to and incorporated by reference in this Agreement as Exhibit "D". On a monthly basis, Provo will provide an update of the Network Build-out Schedule. Provo may take into consideration recommendations which the Service Provider may provide on deployment or construction plans that could improve operational efficiencies or enhance Network revenues. However, Provo remains solely responsible for the Network installation regardless of any such Service Provider recommendations. Network Testing. Provo, at its cost and expense, shall test each Segment of the Network following its installation to assure operation of the Network in conformity with the Network Service Specifications. If requested by Service Provider, Provo shall provide a copy of the testing results to Service Provider. Following satisfactory testing of a completed Segment of the Network demonstrating that the Network meets Network Service Specifications, Provo shall send Service Provider written notice. Disaster Recovery Plan. Provo will submit to Service Provider a Disaster Recovery Plan that is reasonably acceptable to Service Provider. Upon Service Provider's review and approval, which shall not be unreasonably withheld, the Disaster Recovery Plan shall become Exhibit "G" and shall be binding upon the Parties as part of this Agreement. Ownership of Network. Provo shall own all structures, improvements, and components of the Network. This Agreement shall not confer on Service Provider any ownership or possessor interest in the Network, or any of its related facilities, equipment, easements or rights-of-way, or any other property of Provo. Intellectual Property. In designing, installing, and operating the Provo Network, Provo represents that it shall not use intellectual property of any third party, except under appropriate license from that third party. In no event shall Service Provider be responsible for obtaining any intellectual property license or right from a third party to facilitate the design, installation or operation of the Provo Network. Notwithstanding the foregoing, Service Provider shall be responsible for obtaining all intellectual property licenses and rights with respect to Service Provider's own equipment, software, and the like used in connection with the Provo Network. Interoperability Requirements. Service Provider understands the importance of ensuring its products and services support the delivery of Content Services to Subscribers. To this end, the Service Provider agrees that during the term of the Initial Agreement, its hardware, products, services, middleware, and software will function and interoperate with the Network. Service Provider will remain interoperable with the Network, and will cooperate and use its best efforts to resolve interoperability issues resulting from third party issues. Service Provider agrees that prior to the deliver of new releases, software patches, remedies, or fixes, Service Provider shall conduct tests and interoperability scenarios within its lab and engineering facility. Provo shall implement a pre-production Network test environment and will test all vendors' new releases and updates prior to deployment in the production network. When Service Provider adds new equipment or changes equipment to interface or integrate with the Network, Service Provider will be responsible for any interoperability issues with third party equipment vendors and Provo on the Network. Service Provider agrees to a) make its products and/or software available for testing in third party vendor/manufacturers SQA labs at no charge, and b) use its best efforts to modify applicable Service Provider products/software to achieve interoperability with third party products and software. 3.8 IP Video Middleware and Set Top Box. Provo will determine the standard IP video middleware and set top boxes to be used on the Network. Any deviation from Provo's standard middleware and set top boxes by the Service Provider must be approved as per Exhibit "H". Should the Service Provider no longer operate on the system, and they are using nonstandard middleware, the middleware will be licensed to Provo as outlined in Exhibit "K". PRICING AND PAYMENTS Network Services. In consideration of Provo's provision of the Network to be used by Service Provider for Content Services, Service Provider shall pay to Provo the prices and fees identified on the Network Lease Pricing Schedule(s) attached to and incorporated by reference in this Agreement as Exhibit "E." Service Provider will provide a detailed activity report, by Subscriber, to Provo, by the 5th of each month, for Content Services provided to customers in the previous month. Provo will respond to Service Provider with any corrections by the 10th of said month. Service Provider will make payment of Transport Fees to Provo by 15th of said month. If Service Provider fails to make any payments for undisputed charges when due, Provo may collect interest on unpaid amounts at the rate of one percent (1%) per month until Service Provider is current on all payments for undisputed charges. Within 60 days of the Effective Date of this Agreement, Provo and Service Provider will agree upon a financial arrangement whereby payment from Subscribers will be secure for both parties. This process will be added to this Agreement as Exhibit "U". Disputed Charges: In the event Service Provider disputes the amount of Transport Fees to be paid to Provo, Service Provider will (i) pay all charges not disputed, and (ii) within thirty (30) days notify Provo of the dispute in writing, providing the billing identification, and an explanation of the issue in dispute. Provo shall respond in writing within thirty (30) days of receipt, whereupon Service Provider shall have an additional fifteen (15) days to respond to any corrections or explanation. Payment will not prejudice Service Provider's right to dispute charges, so long as they are disputed in the manner and within the time specified in this Section. The parties will cooperate in good faith to resolve any such disputes within sixty (60) days from Provo's receipt of notice of dispute. If the parties cannot resolve the dispute within sixty (60) days, either party may request an independent audit. If a disputed amount is determined to be a valid charge, Service Provider will pay the cost of the audit and the disputed amount, plus interest at an annual rate of 12%, within ten (10) calendar days of such determination. If the disputed amount is determined to be invalid, Provo shall pay the cost of the audit and if Service Provider has paid the disputed amount, Provo shall return the disputed amount, plus interest at an annual rate of 12%, within ten (10) calendar days of such determination. Network Lease Rates: Provo shall not increase prices listed on Exhibit "E" for a period of one year from the Service Readiness Date of this Agreement unless the Service Provider increases retail rates. In the event that retail rates are increased by the Service Provider, Provo shall not increase the lease rate by more than five percent (5%). Provo and Service Provider may annually thereafter negotiate in good faith to change the prices and terms listed on Exhibit "E" at least sixty (60) days prior to the end of the then current annual period. Such good faith negotiation shall take into account the pricing charged by Provo to its Other Service Provider(s) (taking into account volumes of services purchased, discounts, or credits) that are more than or less than the then applicable charges for the corresponding services used by Service Provider under this Agreement. If mutually agreed to, such negotiated prices will remain in effect for a minimum of twelve (12) months, subject to the following condition. If at any time during this Agreement Provo offers Network Services or Customer Premises Equipment ("CPE") to Provo's Other Service Provider(s) for charges (taking into account volumes of services purchased, discounts, or credits) that are less than the applicable charges for the Retail Services and CPE offered by Provo under this Agreement, then the Parties shall agree to an appropriate reduction of the prices for the corresponding Retail Service or CPE under this Agreement such that Provo's prices offered to Service Provider are no less favorable than those offered by Provo to such Other Service Provider(s). Service Provider's obligation to pay Provo is not contingent on whether Service Provider actually received payment for the services it provided to Subscribers. Service Provider is responsible for its own collection of accounts receivable, the non-collection of which shall not impute any liability to Provo, nor relieve Service Provider of its obligations under this Agreement. 4.4 Local Fees. Service Provider shall be responsible for and pay the correct local tax rates, franchise fees, taxes, and charges on Subscribers. 4.5 Other Taxes and Fees. Service Provider shall be solely responsible for the collection and remittance of all applicable federal, state and local taxes, including, without limitation, income taxes, sales taxes, privilege taxes, or universal service fees as applicable. 4.6 Discount Pricing for Multi-year Subscribers. Service Provider may request long-term discount pricing for multi-year Subscriber contracts. Within thirty (30) days of Service Provider entering into each such long-term Subscriber contract, Service Provider shall provide Provo written verification of each such contract. 4.7 Purchase of iProvo Customer Assets. The Service Provider shall purchase from Provo the iProvo Customer Assets as described in Exhibit "I", iProvo Asset Purchase Agreement attached to and incorporated in this Agreement. 4.8 Purchase of Provo Cable Customer Assets. The Service Provider shall purchase from Provo the Provo Cable Customer Assets as described in Exhibit "J", Provo Cable Asset Purchase Agreement attached to and incorporated in this Agreement. 4.9 Letter of Credit. As surety to Provo for payment by the Service Provider of all transport fees and other charges set forth in this Agreement, Service Provider shall provide for the benefit of Provo an irrevocable Letter of Credit. The term of the Letter of Credit shall be the term of this Agreement, including any renewal period. The Letter of Credit shall be issued by a bank and contain terms and conditions acceptable to Provo. Prior to seeking recovery under this Letter of Credit, Provo shall notify Service Provider in writing of the default giving rise to Provo's claim for recovery under this section. Service Provider shall have thirty (30) days to cure the default. Upon Service Provider's failure to cure, Provo may immediately draw on the Letter of Credit and in addition pursue any other remedy available under Article XIII. The Letter of Credit shall be similar to the form contained in Exhibit "U", in an amount agreed to by the parties and shall be attached to and made part of this Agreement. NETWORK OPERATIONS Network Control. Provo shall have sole control over the day-to-day operation of the Network, including managing the telecommunications platform and the functionalities available over the Network. Provo shall provide primary management and control for the Network from its Network operations center. Service Provider and Provo shall cooperate with each other to coordinate service turn-ups and Retail Service deployment. The Provo Network shall meet the Service Level Agreements specified in Exhibit "F." If the Service Metrics for Retail Services specified in Exhibit "F" are not met, a Service Credit will apply as specified. Maintenance Responsibilities. During the term of this Agreement, and any extension thereof, Provo, at its cost and expense, shall be responsible for maintenance of the Network. Provo shall at all times maintain the Network in good working order and repair in a safe condition, and in conformity with the Network Service Specifications and all applicable laws and regulations. Troubleshooting. Provo shall respond to Network issues in accordance with the Provo responsibilities set forth in Sections 5.4 and 5.5 of this Agreement. Customer Service. Provo shall maintain a call center or network operations center accepting calls from the Service Provider to resolve customer service inquiries involving repair, maintenance or other contact with the Network. Provo shall establish procedures for tracking trouble reports and escalating resolution of inquiries as provided in Section 5.5 of this Agreement. Repair Timing. Provo shall restore damaged or malfunctioning portions of the Network in accordance with the Service Level Agreements specified in Exhibit "F," attached to and incorporated in this Agreement by reference. Provo acknowledges the importance of uninterrupted operation of the Network and shall arrive at repair sites with necessary personnel, equipment, and materials and restore Network services in accordance with Exhibit "F." To the extent repairs are required to the Network to fix damage caused by Service Provider, Service Provider shall pay the repair costs. To the extent the damage is caused by any other Subscriber, whether for Retail Services or Network services, Provo shall recover the expense of the repair from the Subscriber, and if the Subscriber is Service Provider's Subscriber, Service Provider will assist Provo by directly billing the Subscriber for such expenses. Service Provider is not liable for such damages if the Subscriber fails to cover the expenses. Provo may also directly bill Service Provider's Subscribers for any such damages. Subscriber Connection to Network. Provo shall provide Network services to enable Service Provider to connect its Subscribers to the Network. To the extent that Service Provider relies on the Provo Network, the Service Provider's connection service order and/or other Subscriber agreement with Subscriber shall contain in writing the following highlighted covenants: Property Access License. "Subscriber understands that Service Provider's delivery of services requires Provo to connect its Network to Subscriber's premises. Subscriber grants Provo an irrevocable, non-exclusive license to access Subscriber's property to install and maintain fiber optic cable(s), an electronic access Portal, and any other equipment, to Subscriber's premises. Unless otherwise provided by law, the fiber optic line, electronic access Portal, and any other equipment shall remain Provo's property. For the purposes of this provision, Provo is a third party beneficiary under this agreement. This provision shall survive the termination of this agreement." Damage Covenant. "Subscriber shall not damage the Provo Network, including, but not limited to, fiber optic cable(s), electronic access Portal(s), and any other equipment. Subscriber shall be liable to Provo directly, and Provo may obtain reimbursement directly from Subscriber, for such damages, including enforcement and court costs, and attorney fees. Service Provider shall directly bill Subscriber for any such damages and transfer any funds recovered to Provo. Provo may also directly bill Service Provider's Subscribers for any such damages. For the purposes of this provision, Provo is a third party beneficiary under this agreement. This provision shall survive the termination of this agreement." Resale Prohibited. "Unless expressly permitted in writing by Provo City, Subscriber shall not resell any service, product, or bandwidth provided via the Network. For the purposes of this provision, Provo is a third party beneficiary under this agreement. Provo City may require Service Provider to limit or discontinue service to any customer in violation of this agreement.' Transmitting or Sharing Prohibited. "Subscriber shall not transmit, re-distribute, or share in any manner bandwidth, Internet access, products, or services. Secure wireless transmission of a Subscribers bandwidth or content on the premises of a Subscriber solely for the use of that Subscriber is permitted as long as no unauthorized connection to the bandwidth or use of content can be made by unauthorized users. For the purposes of this provision, Provo is a third party beneficiary under this agreement. Provo City may require Service Provider to limit or discontinue service to any customer in violation of this agreement." Copyrighted Material. "Subscriber agrees not to violate copyright law. Posting or receiving copyrighted material via email, list servers, ftp transfer, or any other electronic or digital means without permission of the copyright owner is prohibited. For the purposes of this provision, Provo is a third party beneficiary under this agreement. Provo City may require Service Provider to limit or discontinue service to any customer in violation of this agreement. Subscriber shall be liable to Provo directly, and Provo may obtain reimbursement directly from Subscriber, for damages for violation of this covenant, including enforcement and court costs, and attorney fees." Subscriber Agreement Availability. Upon request, Service Provider shall provide a copy of any and all Subscriber connection service orders and/or Subscriber agreements to Provo. In-Home Wiring: The Parties may mutually enter into a separate agreement for in-home wiring to provide a more convenient installation experience for the Subscriber. For the purpose of this Agreement, a minimum standard and guideline for all in-home wiring done by the Service Provider or its agent or contractor shall be developed as Exhibit "P", "In-Home Wiring Standards", within sixty (60) days of the Effective Date. This standard will apply to all service providers on the Network and take into consideration both the cost and time required for installations while focusing on a high level of craftsmanship, customer care, and technical quality. Portal Configuration. All Portals deployed by Provo in the Network will have a standard Portal configuration as shown in Exhibit "Q", Standard Portal Configuration. Provo shall have the right at its sole discretion to change Portal make, model, and type as long as the new Portals deliver substantially the same services and quality as the existing Portals and conform to industry standards. Portal configuration may change to reflect the structure of the new Portals as needed. Bandwidth Purchase Agreement. Provo may elect to purchase Internet bandwidth in large blocks and make this bandwidth available to Service Providers. Should Service Provider agree to use this bandwidth it will be covered by the terms found in Exhibit "R", Bandwidth Purchase Agreement. Telephony Services Purchase Agreement: Service Provider will purchase a Soft-Switch under the terms and conditions stated in Exhibit "S", Telephony Services Purchase Agreement. OSS/BSS Interface: The Service Provider and Provo will both make best efforts to ensure that the interface and passing of data required for the smooth operation of the Network be completed within sixty (60) days of the Effective Date. The OSS/BSS process and procedures shall be made a part of this Agreement as Exhibit "T", OSS/BSS Interface Process and Procedures. MARKETING Service Provider Marketing Efforts. Service Provider shall use its best efforts to aggressively market its Services and the Network to acquire Subscribers, and maintain good business relationships with Subscribers. Service Provider shall develop a Marketing Program to be included as Exhibit "M" that takes into account marketing costs, expected Retail Services margins, and other factors that are typically considered suitable in good faith to acquire and retain customers. The Marketing Program shall be reviewed and approved by Provo which approval shall not be reasonably withheld. The first year Marketing Program will be submitted to Provo within thirty (30) days of the Effective Date, and will be incorporated into and made a part of this Agreement as Exhibit "M". Each quarter, the Service Provider shall submit an updated Marketing Program to represent a rolling one (1) year Marketing Program. Marketing Program. The Service Provider's Marketing Program shall have, as a minimum, the following details, duties, requirements, and activities. Any deviation from the minimum requirements must be approved in writing by Provo. The total budget by fiscal quarter per home passed. Development of an identifiable local brand. A web site with sales and customer service elements including, but not limited to, the following elements: Product information. Product pricing. A map showing areas in which service is currently available. Local programming and /or community content currently available on the Network. New Customer Information Packets (converter usage info, VOD ordering, etc.). Front office hand-outs (channel line-up, rate card, etc.). "Incentives-to-Switch" programs. Incentive programs may include, but are not limited to, the following elements: Free installation. Free month of service for referral. Give-aways. Discounts or savings on rates. A marketing campaign which targets college students. Neighborhood campaigns including, but not limited to, open houses, block parties, and coordination with neighborhood chair-persons, where possible. Community Wide Visibility. The community at large needs to know that the Service Provider is a telecommunications provider in Provo. Activities could include, but are not limited to, billboards, advertisements in local newspapers, and participation in community events. At least one element from each category below is to be used each quarter: (1) Door hangers (2) Telemarketing (as allowed by law) (3) Direct mail (4) Door to door sales Network Service Claims. Service Provider shall not make any representations or statements regarding the Provo Network that are inconsistent with representations or statements made in this Agreement. Service Provider's Use of the Provo Network Brand Name and/or Logo. Service Provider may use the Provo Network brand name (currently iProvo) and/or logo in Service Provider's advertisements and/or press releases; only as provided by Provo, and in accordance with Provo's brand use guidelines. Provo shall provide the guidelines to Service Provider from time to time. Any press releases using The Provo Network brand name and/or logo must be mutually reviewed by the Parties prior to any publication. Such consent shall be timely and not unreasonably withheld. Corporate Citizenship. Service Provider agrees to participate in the local community through reasonable corporate donations of time, money, or other resources to foster good local community relations. Interaction with Provo's Telecommunications Manager. At least monthly, or as often as mutually agreed, during the first year after the Effective Date, a Service Provider corporate executive will meet in person with Provo's Telecommunications Manager and accompanying staff (including interested City Administration, Telecom Advisory Board, and Municipal Council members). The Service Provider may from time to time be required to give an accounting of their services to other boards or councils as needed. As defined in Exhibit "M", Service Provider shall be required to submit performance reports. Provo Marketing Efforts and Mutually Acceptable Press Releases. During the term of this Agreement, Provo shall have the right to advertise the existence of the Network, and to use Service Provider's company names in advertisements solely to disclose that Service Provider offers Retail Services on the Network. The Parties must mutually review any press releases using Service Provider's company name prior to publication. Such consent shall be timely and not unreasonably withheld. Service Offerings. Where the Network is available, Service Provider shall offer its Retail Services to all potential Subscribers consistent with Service Provider's marketing and acquisition plan. Internet Content Filtering. The Service Provider shall include at least one content filter of Service Provider's choice that a Subscriber may elect to use at no additional charge. The Subscriber will be solely responsible for the use of the content filter. Service Provider shall not be required to provide support or service for such content filter. Service Provider shall not be liable for any express or implied warranties or failure of the filter to screen any particular content. CUSTOMER SERVICE Customer Service Program. Throughout the term of the Agreement and any extensions thereof, Service Provider shall have customer service requirements that ensure the highest level of customer service. The Service Provider shall develop a "Customer Service Program" to be included as "Exhibit "N" that takes into account costs, services offered by other companies providing similar services, and other factors that are typically considered in good faith to provide a high level of customer service. The Customer Service Program will be submitted to Provo within thirty (30) days of the Effective Date of this Agreement. The Customer Service Program shall be reviewed and approved by Provo, which approval shall not be reasonably withheld. Minimum Requirements for the Customer Service Program. The Customer Service Program shall address and have, as a minimum, the following details, duties, requirements, and activities. These requirements are in addition to those required by Provo City Ordinance and/or by franchise agreement with Provo City. If there are any conflicts among these requirements, the Service Provider will be required to adhere to the more stringent requirement. Any deviation from these minimum requirements shall be approved in writing by Provo. Complaint resolution process. Demonstrate the method and process to handle and escalate customer issues and problems. Subscribers with complaints will be contacted within two (2) working days from giving notice. Call response time. Ninety percent (90%) of the calls will be answered in less than thirty (30) seconds. Less than three percent (3%) of the calls will receive a busy signal. Scheduling of Subscriber service. Within seven (7) days of the Subscriber's request for service, ninety-five percent (95%) of all installations shall be completed subject to the availability of Network access at the Subscriber's premise. Local office hours. Office hours shall be printed on each Subscriber's bill as well as posted on the Service Provider's website. Company identification and uniform policy. All employees representing the Service Provider in the field shall be identified both by uniform (ie. shirt with company logo) and shall carry with them a company photo identification card. Use of protective footwear. Service Provider's employees entering a Subscribers place of residence or business shall be required to wear protective footwear. Emergency Response Time. Within the Service Provider's control, ninety-five percent (95%) of service interruptions shall be corrected within twenty-four (24) hours. Ninety-five percent (95%) of all other service problems shall be corrected within thirty-six (36) hours. Local Office. The Service Provider shall maintain a Provo office with a call center to field all front-line Subscriber service inquiries from Service Provider's Subscribers. Service Provider shall be responsible for and have personnel and resources available to address and rectify Subscriber service inquiries that do not involve the Network. Truth in Bandwidth. The Service Provider will ensure that the Internet connection data rate is a reasonable approximation of the data rates it is advertising and selling to Subscriber. To help ensure that Subscriber will typically see the expected (based upon advertising and package they subscribe to) data rate, Service Provider will not over Subscriber Internet bandwidth at a rate that exceeds fifty (50) users (on a 1.5 Mb) connection per 1.5 Mb connection to the Internet. If 50 customers were sold a 10 Mb internet connection, Service Provider must have a 10 Mb internet connection. REPRESENTATIONS AND WARRANTIES Representations and Warranties of Provo. Provo represents and warrants to Service Provider as follows: Authority. Provo is a municipal corporation of the State of Utah, and possesses all requisite power and authority to enter into and to perform in accordance with the terms, covenants, and conditions contained in this Agreement. Restrictions. The execution and delivery of this Agreement, any instrument or document required by this Agreement, and the consummation of the transactions contemplated by this Agreement will not violate any restriction contained in Provo's organizational documents, or any statute, ordinance, law, order, ruling, certificate or license, regulation, bond, judgment or demand of any court, regulatory agency, or other tribunal to which Provo is subject. Binding Obligation. This Agreement, when duly executed by Provo, shall constitute a valid, legal, and binding obligation of Provo, and shall be enforceable in accordance with its terms. The individual executing this Agreement on behalf of Provo has been duly authorized to sign this Agreement. Compliance with Government Requirements. To the best of its knowledge, Provo has not violated any rule, order, or regulation issued by any government authority with respect to any license, permit, or franchise which may materially and adversely affect Provo's right or ability to execute, and perform in accordance with the terms of, this Agreement. Proceedings. No litigation or government proceeding is pending or threatened which might adversely affect this Agreement, the transactions contemplated by this Agreement, or Provo's rights under, or ability to perform pursuant to the terms of, this Agreement. Financing Restrictions. This Agreement does not violate any terms, covenants, conditions, or restrictions in any mortgages, bonds, and other indentures of Provo. Resources and Capacity. Provo possesses or will possess, before and continuing at all times after Service Provider begins using the Network, sufficient financial, managerial, and technical capacity and resources to perform its obligations under the terms of this Agreement. Representations and Warranties of Service Provider. Service Provider represents and warrants to Provo as follows: Authority. Service Provider is a corporation, duly organized, validly existing and in good standing under the laws of the State of Washington, and possesses all requisite power and authority to enter into and to perform in accordance with the terms, covenants, and conditions contained in this Agreement. Restrictions. The execution and delivery of this Agreement, any instrument or document required by this Agreement, and the consummation of the transactions contemplated by this Agreement will not violate any restriction contained in Service Provider's organizational document, or any statute, ordinance, law, order, ruling, certificate or license, regulation, judgment or demand of any court, regulatory agency or other tribunal to which Service Provider is subject. Binding Obligation. This Agreement, when duly executed by Service Provider, shall constitute a valid, legal, and binding obligation of Service Provider, and shall be enforceable in accordance with its terms. The individual executing this Agreement on behalf of Service Provider has been duly authorized to sign this Agreement. Resources and Capacity. Service Provider possesses and shall at all times maintain sufficient financial, managerial, and technical capacity and resources to perform its obligations under the terms of this Agreement. Compliance with Government Requirements. To the best of its knowledge, Service Provider has not violated any rule, order, or regulation issued by any government authority with respect to any license, permit, or franchise which may materially and adversely affect Service Provider's right or ability to execute, and perform in accordance with the terms of, this Agreement. Service Provider agrees that they will obtain all necessary and required federal, state, and local permits, licenses, and franchises. Proceedings. No litigation or government proceeding is pending or threatened which might adversely affect this Agreement, the transactions contemplated by this Agreement, or Service Provider's rights under, or ability to perform pursuant to the terms of, this Agreement. Financing Restrictions. This Agreement does not violate any terms, covenants, conditions, or restrictions in any mortgages, bonds or other indentures of Service Provider. Disclaimer of Warranties. Except as expressly stated in this Agreement, Provo makes no warranties regarding the Network, express or implied, including, but not limited to, any implied warranties of merchantability or fitness for a particular purpose, or that the Network will operate error-free or without interruption. COVENANTS Conduct of Business. Provo will install and support the Network in accordance with the Network Service Specifications required by this Agreement, will safely operate the Network, and will use its best efforts to comply in all material respects with applicable laws, regulations, and government orders applicable to the Network and its operation. Service Provider will use its best efforts to comply in all material respects with applicable laws, regulations, and government orders applicable to Service Provider's use of the Network to provide Retail Services. GRAMA Compliance. Provo is subject to the disclosure requirements of GRAMA. Except as otherwise provided in this Agreement, and specifically excluding the material listed in Subsections 9.2(a) and (b), Provo generally considers agreements, including this Agreement, contract documents, and all accompanying material to be public and subject to disclosure. A written claim of confidentiality and a concise written statement of reasons supporting the claim must accompany any material considered by Service Provider to be proprietary. Blanket claims that this entire Agreement or entire contracts are confidential will be denied by Provo. Provo cannot guarantee that any information will be held confidential. In addition to the business confidentiality determination described in Section 9.2 of this Agreement, under Section 3.13.110 of GRAMA, Service Provider may make a claim that other records are subject to the business confidentiality provisions. Upon receipt of a request, Provo will determine whether the material should be classified as public or protected, and will notify Service Provider of such determination. Provo agrees to hold all information classified as "protected" in confidence and to protect it from public disclosure to the greatest extent permitted by Utah law. Provo may disclose such information to the extent required by law, however, Provo shall provide Service Provider prompt notice of a request for disclosure of such protected information and shall cooperate with Service Provider in seeking the issuance of a protective order, at Service Provider's sole expense. Upon receipt by either Party of a request to release the other party's "protected" information, the Party receiving such request shall promptly notify the other party of the request, whereupon the other Party shall be solely responsible for opposing the release of the "protected" information. The holder of the "protected" information will assist in such opposition at the other party's expense. Service Provider is entitled under GRAMA to appeal an adverse determination regarding the classification of information. Provo is not required to notify Service Provider of a request for non-protected information, and will not consider a claim of business confidentiality unless Service Provider's claim of business confidentiality is made on a timely basis and in accordance with GRAMA. Provo Confidentiality. Provo believes that all information pertaining to the Network, the Agreement, and Network information subsequently submitted to Service Provider by Provo constitute trade secrets, are otherwise commercially sensitive, or relate to general security or public safety information. Disclosure of such information can be reasonably expected to result in unfair injury to Provo. Service Provider shall not disclose any information pertaining to the Network, Network operations, Network Service Specifications, the terms, covenants and conditions of the Agreement, without Provo's prior written authorization. Use of Network. Provo shall only use the Network to provide Network Services. Privacy of Customer Information. Service Provider and Provo shall comply with all applicable federal, state, and local laws, regulations and ordinances regarding the protection and use of customer information. Electronic Surveillance in Support of Law Enforcement. The parties acknowledge that Service Provider and Provo from time to time may be required to provide a Law Enforcement Agency (LEA) with the capability to conduct electronic surveillances on the Subscribers. Where Provo is providing the underlying Network facilities for on-net local voice calls between Service Provider's customers on The Provo Network, Provo agrees to provide Service Provider access to any necessary elements of its Network required to comply with federal, state and local electronic surveillance requirements; provided, however, that the implementation and provision of any such electronic surveillance with respect to the Subscribers shall be Service Provider's sole responsibility and implemented by Service Provider's employees or agents, unless otherwise required by law or to fulfill Service Provider's compliance with such law. The Parties further agree no later than one hundred and eighty (180) days after the Effective Date to document a method & procedure that fully sets forth the roles, responsibilities, methods, and procedures of the Parties for handling security and electronic surveillance issues related to the Subscribers. On those occasions when Service Provider receives a court order that requires the assistance of Provo to capture or monitor on-net activity, and recognizing the non-disclosure obligations that may be contained therein, Service Provider shall advise the issuing authority that Provo's assistance is required and the issuing authority shall direct and serve the court order upon Provo. If either Provo or Service Provider receives an initial inquiry from the LEA, prior to the issuance of a court order, which will require the assistance of the other party to capture or monitor on-net activity, that Party shall request the LEA to name and serve both Provo and Service Provider. Quality of Service Standards. In addition to requirements in this Agreement, Service Provider shall comply with all applicable federal, state, and local laws, regulations and ordinances regarding quality of service standards for all of its Retail Services. Damage or Destruction. In the event any Segment of the Network is damaged or destroyed, Provo or Service Provider shall give immediate notice to the other party of the occurrence of the damage or destruction. Provo and Service Provider shall cooperate with each other to reroute or substitute services delivered by means of the affected portion of the Network to allow for continued and uninterrupted service to customers. To the extent that the disruption or damage is to the Network or facilities that Provo controls, Provo shall have the sole obligation to repair and shall use its best efforts to restore or reroute service as quickly as possible so that the disruption to the Network is minimal. Service provider shall be responsible for making timely repairs to all system components that it owns or controls. Service Provider Government Approvals. Service Provider has, or will have prior to providing Retail Services by means of the Network, all necessary government approvals to enter into and perform its obligations under this Agreement, and, if applicable, shall comply with all rules and regulations of the Utah Public Service Commission and the Federal Communications Commission. Service Provider shall furnish copies of all such approvals upon request of Provo. Provo Government Approvals. Provo has, or will have prior to providing Network Services by means of the Network, all necessary government approvals to enter into and perform its obligations under this Agreement, and, if applicable, shall comply with all rules and regulations of the Federal Communications Commission as well as any other applicable federal and state authorities. Provo shall furnish copies of all such approvals upon request of Service Provider. Insurance. During the term of this Agreement, Service Provider and Provo shall at all times, at their own cost and expense, procure and maintain insurance or some other type of comparable security as necessary to cover their respective duties assumed under this Agreement, including workers compensation, commercial general liability and property damage insurance, as well as such other insurance as may be required by law. Provo and Service Provider shall require their respective contractors, subcontractors and agents to maintain adequate insurance coverage to respond to the types and degree of risk posed by the work performed by such parties. The Parties shall have the right to self-insure. Service Provider shall furnish to Provo Certificates of Insurance verifying that such insurance has been obtained. Such certificates will provide that Provo will receive at least thirty (30) days prior written notice of any material change in, cancellation of, or non-renewal of such insurance. Regulatory Reporting Requirements. Provo will provide Service Provider all information and documents, within Provo's control, as necessary to permit Service Provider to comply with regulatory reporting requirements. ASSIGNMENT AND SECURITY INTERESTS Assignment by Service Provider. Service Provider shall not have the right to assign its interest in this Agreement unless the transferee is an entity: (a) that purchases all or substantially all of Service Provider's assets required for material performance under the terms of this Agreement and that assumes all of Service Provider's obligations under this Agreement; or (b) that is Service Provider's successor by merger, restructure or recapitalization or an affiliate of Service Provider (including, without limitation, all equity holders of Service Provider). Any such assignment shall require the prior written consent of Provo, which shall not be unreasonably withheld. LIABILITY AND INDEMNIFICATION Provo Indemnity. To the extend permitted by Utah law, Provo shall indemnify, defend and hold harmless Service Provider, its officers, agents and employees of and from any claim, demand, lawsuit, or action of any kind for injury to or death of persons, including, but not limited to, Subscribers, employees of Provo or Service Provider, and damage or destruction of property, including, but not limited to, property of Subscribers, Provo or Service Provider, arising out of: (a) negligent or willful acts or omissions of Provo, its agents, officers, directors, employees or contractors; (b) the exercise by Provo of the privileges or rights given herein; and (c) the performance by Provo of any of its obligations under this Agreement. The obligation to indemnify shall extend to and encompass all costs incurred by Service Provider in defending such claims, demands, lawsuits or actions, including, but not limited to, attorney, witness and expert witness fees, and any other litigation related expenses. Provo shall pay any cost that may be incurred by Service Provider in enforcing this indemnity, including reasonable attorney fees. Provo's obligations pursuant to this Section 10.1 shall not extend to claims, demands, lawsuits or actions for liability attributable to the negligence or willful action of Service Provider, its directors, officers, employees, contractors, successors or assigns. Service Provider Indemnity. Service Provider shall indemnify, defend and hold harmless Provo, its officers, agents and employees of and from any claim, demand, lawsuit, or action of any kind for injury to or death of persons, including, but not limited to, Subscribers, employees of Service Provider or Provo, and damage or destruction of property, including, but not limited to, property of Subscribers, Service Provider or Provo, arising out of: (a) negligent or willful acts or omissions of Service Provider, its agents, officers, directors, employees or contractors; (b) the exercise by Service Provider of the privileges or rights given herein; and (c) the performance or failure to perform by Service Provider of any of its obligations under this Agreement. The obligation to indemnify shall extend to and encompass all costs incurred by Provo in defending such claims, demands, lawsuits or actions, including, but not limited to, attorney, witness and expert witness fees, and any other litigation related expenses. Service Provider shall pay any cost that may be incurred by Provo in enforcing this indemnity, including reasonable attorney fees. Service Provider's obligations pursuant to this Section 10.2 shall not extend to claims, demands, lawsuits or actions for liability attributable to the negligence or willful action of Provo, its directors, officers, employees, contractors, successors or assigns. Intellectual Property Indemnity by Provo. Provo shall indemnify, defend, and hold harmless Service Provider from and against any loss, cost, expense or liability arising out of a claim that Provo's use, pursuant to the terms of this Agreement, of The Provo Network infringes, misappropriates or otherwise violates the intellectual property rights of any third party. Provo will promptly inform Service Provider of any pending or threatened intellectual property claims relating to the Network of which Provo is aware, and will provide Service Provider periodic and timely updates of such notification so that Service Provider receives maximum notice of any intellectual property risks that it may want to address. This indemnification shall only apply to intellectual property third party claims solely related to the Provo Network and not related to intellectual property third party claims covering a combination of the Provo Network with Service Provider's equipment, software and the like. Intellectual Property Indemnity by Service Provider. Service Provider shall indemnify, defend, and hold harmless Provo from and against any loss, cost, expense or liability arising out of a claim that Service Provider's use of its own equipment, software, and the like used by Service Provider in connection with the Provo Network, infringes, misappropriates or otherwise violates the intellectual property rights of any third party. Service Provider will promptly inform Provo of any pending or threatened intellectual property claims relating to Service Provider's use of its own equipment, software and the like used by Service Provider in connection with the Provo Network, of which Service Provider is aware, and will provide Provo periodic and timely updates of such notification so that Provo receives maximum notice of any intellectual property risks that it may want to address. This indemnification shall only apply to intellectual property third party claims solely related to Service Provider's equipment, software and the like and not related to intellectual property third party claims covering a combination of Service Provider's equipment, software and the like with the Provo Network. No Consequential Damages; Direct Damages. Notwithstanding any provision in this Agreement to the contrary, neither Provo, Service Provider nor their respective agents, employees, contractors or subcontractors shall be liable to the other for incidental, consequential, reliance, special, punitive or indirect damages arising out of this transaction whether by reason of contract, indemnity, strict liability, negligence, breach of warranty or from breach of this Agreement, and regardless of whether the Parties knew of the possibility that such damages could result, each Party hereby releases the other Party of such claims. NOTHING CONTAINED IN THIS SECTION 10.5 SHALL LIMIT PROVO'S OR SERVICE PROVIDER'S LIABILITY TO THE OTHER FOR (i) WILLFUL OR INTENTIONAL MISCONDUCT (INCLUDING GROSS NEGLIGENCE) OR (ii) BODILY INJURY, DEATH OR DAMAGE TO TANGIBLE REAL OR TANGIBLE PERSONAL PROPERTY PROXIMATELY CAUSED BY PROVO'S OR SERVICE PROVIDER'S NEGLIGENT ACT OR OMISSION OR THAT OF THEIR RESPECTIVE AGENTS, EMPLOYEES, CONTRACTORS OR SUBCONTRACTORS, NOR SHALL ANYTHING CONTAINED IN THIS SECTION 10.5 LIMIT THE PARTIES' INDEMNIFICATION OBLIGATIONS, AS SPECIFIED IN THIS AGREEMENT. FOR PURPOSES OF THIS SECTION, AMOUNTS DUE AND OWING TO SERVICE PROVIDER PURSUANT TO THE ATTACHED SERVICE LEVEL AGREEMENTS IN EXHIBIT "E" (SERVICE CREDITS AND SERVICE METRICS) AND DUE AND OWING TO PROVO PURSUANT TO ARTICLE IV OR THE LIQUIDATED DAMAGES PROVISIONS OF EXHIBIT "A" SHALL NOT BE CONSIDERED TO BE INDIRECT, INCIDENTAL, CONSEQUENTIAL, RELIANCE, PUNITIVE OR SPECIAL DAMAGES. THIS LIMITATION ON DAMAGES SHALL APPLY TO ALL SUBSCRIBERS AND A HIGHLIGHTED COPY OF THIS LIMITATION ON DAMAGES SHALL BE PRINTED IN EVERY SERVICE PROVIDER'S CONNECTION SERVICE ORDER AND/OR OTHER SUBSCRIBER AGREEMENT WITH SUBSCRIBER. SERVICE TO THE SUBSCRIBER IS CONDITIONED UPON SUBSCRIBER'S AGREEMENT TO THIS LIMITATION ON DAMAGES. In the event of a breach of this Agreement that is not otherwise cured pursuant to Section 12.2, and subject to the indemnification obligations in this Agreement, the Parties shall be liable to each other only for any direct damages. Service Provider and Provo, respectively, shall be entitled to all monies due and owing to pursuant to Exhibit "E" and Article IV, without limitation. In all other events a Party's aggregate liability for direct damages shall be limited to the lesser of (i) actual proven damages; or (ii) the average monthly Network Services billing to Service Provider for the twelve (12) months preceding the Party's breach of this Agreement. Waiver of Subrogation. Each of Provo and Service Provider hereby releases and waives all right of recovery against the other or anyone claiming through or under each of them by way of subrogation or otherwise with respect to the property insurance policies required by Section 8.12 of this Agreement. The foregoing release and waiver shall not apply to losses actually paid under such policies if the releasing party's insurance policies do not contain provisions acknowledging such release and waiver. Each of Provo and Service Provider shall use its best efforts to secure such provisions in its policies. If either party self-insures losses to its property, the waiver of subrogation shall apply as if the party maintained an insurance policy covering loss or damage to its property. Defense of Claims. Either Provo or Service Provider as the indemnifying party hereunder shall have the right to defend the other by counsel of the indemnifying party's selection reasonably satisfactory to the indemnified party, with respect to any claims within the indemnification obligations of this Article XI. Provo and Service Provider shall give each other prompt notice of any asserted claims or actions indemnified against, shall cooperate with each other in the defense of any such claims or actions, and shall not settle any such claims or actions without the prior written consent of the other. Third Party Claims. Except as set forth in Sections 10.1 and 10.2, nothing in this Agreement shall be construed to create rights in, or duties or liabilities to, or any standard of care with reference to, or to grant remedies to, any person or entity not a party to this Agreement. Nor shall Service Provider's franchise obligations or Subscriber contracts vest any third-party with rights against Provo except as specified in this Agreement. Provo and Service Provider by entering into this Agreement do not hold themselves out as furnishing like or similar services to any other person or entity. Survival. The obligations of the respective parties under this Article X shall survive the expiration or earlier termination of this Agreement. Limitation of Provo Liability. Service Provider shall have sole responsibility for the provision of Retail Services to its Subscribers. Provo shall in no way be deemed to guarantee the adequacy of Service Provider's Retail Services for such Subscribers' needs or requirements; subject, however, to Provo meeting the quality and reliability specifications for the Provo Network as specifically set forth in Exhibit "F." Applicability of Liability Limitations. The waivers and disclaimers of liability, releases from liability, exclusive remedy provisions, and (except as expressly stated to the contrary therein) indemnity and hold harmless provisions expressed throughout this Agreement shall apply even in the event of the fault, negligence (in whole or in part), strict liability, or breach of contract of the party released or whose liability is waived, disclaimed, limited, apportioned or fixed by such exclusive remedy provision, or who is indemnified or held harmless, and shall extend to their respective affiliates and its and their respective partners, directors, officers, employees and agents. Such provisions shall continue in full force and effect notwithstanding the completion, termination, suspension, cancellation or rescission of this Agreement, or termination of the rights and privileges granted by this Agreement. No officer, director, employee, agent or other individual representative of either Provo or Service Provider shall be personally responsible for any liability arising under this Agreement. Transmission of Any Obscene Matter Prohibited. Service Provider shall not permit any matter which is obscene under federal and state law to be transmitted on the Network via the headend. Service Provider shall pay to Provo a civil penalty of _____ Dollars if any obscene matter is transmitted on the Network via the headend once during the term of this Agreement, __ Dollars if any obscene matter is transmitted via the headend on two separate dates during the term of this Agreement, and Service Provider shall be in breach of this Agreement and this Agreement may be terminated by Provo if any obscene matter is transmitted via the headend on three separate dates during the term of this Agreement. The determination of whether Service Provider has permitted any obscene matter to be transmitted on the Network during the term of this Agreement shall be undertaken pursuant to Utah Code ss.78-33-1 et seq., Declaratory Judgments, on a complaint initiated by Provo or by one or more of Service Provider's Subscribers. FORCE MAJEURE Excuse of Performance. Notwithstanding anything in this Agreement to the contrary, neither Provo nor Service Provider shall be liable or responsible for a delay or failure in performing or carrying out any of its obligations (other than obligations to make payments for Network Service already provided) under this Agreement caused by Force Majeure (as defined below). Definition. The term "Force Majeure" as used in this Agreement shall mean any cause beyond the reasonable control of Provo or Service Provider, as applicable, or beyond the reasonable control of any of their respective contractors, subcontractors, suppliers or vendors, including without limitation: Acts of God. Acts of God, including, but not necessarily limited to, lightning, earthquakes, adverse weather of greater duration or intensity than normally expected for the job area and time of year, fires, explosions, floods, other natural catastrophes, sabotage, utility outages, terrorist acts, acts of a public enemy, acts of government or regulatory agencies, wars, blockades, embargoes, insurrections, riots or civil disturbances; Labor Disputes. Labor disputes, including, but not necessarily limited to, strikes, work slowdowns, work stoppages or labor disruptions, labor or material shortages, or delays or disruptions of transportation; Court Orders. Orders and judgments of any federal, state or local court, administrative agency or governmental body; Change in Law. The adoption of or change in any federal, state or local laws, rules, regulations, ordinances, permits or licenses, or changes in the interpretation of such laws, rules, regulations, ordinances, permits or licenses, by a court or public agency having appropriate jurisdiction after the Effective Date; or Government Approvals. Any suspension, termination, interruption, denial or failure to issue or renew by any government authority or other party having approval rights of any approval required or necessary hereunder for the construction, installation or operation of the Network or for either party to perform its obligations hereunder, except when such suspension, termination, interruption, denial or failure to issue or renew results from the negligence or failure to act of the party claiming the occurrence of an event of Force Majeure. Continuance after Force Majeure Event. If either Provo or Service Provider cannot fulfill any of its obligations under this Agreement by reason of Force Majeure, such party shall promptly notify the other and shall exercise due diligence to remove such inability with all reasonable dispatch; provided, that nothing contained in this Section 12.3 shall be construed as requiring Provo or Service Provider to settle any strike, work stoppage or other labor dispute in which it may be involved, or to accept any permit, certificate, license or other approval on terms deemed unacceptable to such party, or to enter into any contract or other undertaking on terms which the party deems to be unduly burdensome or costly. In the event that the nature or duration of the Force Majeure event is such that either party is irreparably harmed to the extent that both parties agree that the affected party is unable to perform its obligations under this Agreement, then the affected party shall be held harmless and have the right to terminate this Agreement in accordance with paragraphs 12.2 and 12.3, above. BREACH AND TERMINATION Termination Events. The occurrence and continuance of the following events may result in the termination of this Agreement, at the sole discretion of the terminating party, subject to the provisions of this Article XIII: Breach or Default. A material breach or a material default under the terms, covenants and conditions of this Agreement by either Provo or Service Provider, including, without limitation, the failure of Service Provider to make any undisputed payments under the terms of this Agreement when due, the failure of Service Provider to comply with Section 6.1, or the failure of Provo (or Provo's successor or successor in interest), to complete its installation responsibilities with respect to the Network or any Segment of the Network by its scheduled completion date. Change in Law. A change in any federal, state or local law, regulation or rule, or the issuance of an Order by the Federal Communication Commission, that materially impacts Provo's ownership or operation of the Network, or Service Provider's use, or the terms for Service Provider's use, of the Network. Upon a Party's notice of termination under this Section 13.1(b), each Party's sole liability in such case is limited to meeting their respective obligations set forth in Section 13.3, as applicable, and as permitted under such change in law. Pricing. Notwithstanding good faith negotiations, in the event the Parties are unable to reach agreement on Exhibit "E" prices and terms as set forth under Section 4.1. Upon a Party's notice of termination under this Section 13.1(c), each Party's sole liability in such case is limited to meeting their respective obligations set forth in Section 13.3, and the prices and terms that applied on the date of notice of termination will continue to apply during the termination period specified in Section 13.3. Right to Cure. If the termination event is a breach or default described in Section 13.1(a), the non-defaulting party shall give written notice of such occurrence to the defaulting party. The defaulting party shall be given a reasonable time to cure any breach or default as follows: In the case of a monetary default for undisputed charges, the defaulting party shall have thirty (30) days after receipt of the written notice in which to affect a cure. In the case of a nonmonetary default, the defaulting party shall have sixty (60) days after receipt of the written notice in which to effect a cure. If the nonmonetary default cannot be corrected within such sixty (60) day period, the defaulting party shall have an additional reasonable time in which to effect a cure, provided the defaulting party commences corrective action within the original sixty (60) day period and thereafter diligently prosecutes the corrective action to completion. If the defaulting party does not timely cure the breach or default within the time periods specified above, the non-defaulting party may elect to terminate this Agreement by providing written notice of such election to the defaulting party. Rights Upon Formal Termination. Upon the formal termination of this Agreement by notice, except as otherwise limited by this Section 13.3, Provo and Service Provider shall continue to abide by the terms of the Agreement, including the payment obligations set forth in Article IV. The termination period shall last a maximum period of twelve (12) months following the effective date of termination. Service Provider shall have the right to use the Network to deliver Retail Services during the termination period only as necessary to continue service to existing Subscribers until such Subscribers are migrated to any alternative service provider. Each Party agrees to cooperate in good faith to effect an orderly and efficient transition of the Subscribers to another service provider using the Network, if available. After commencement of a termination period, Provo shall have the right, in its sole discretion, to seek alternative service providers of the Retail Services for Subscribers on the Provo Network. Provo may directly contact Service Provider's Subscribers to inform them of alternative service providers for such Retail Services, and Provo may take such other reasonable actions that may be necessary to prevent service disruptions to Subscribers as a result of the termination of this Agreement; provided that Provo first informs Service Provider of such other actions. Continuity of Service upon Service Provider's Failure to Provide Service. Provo and Service Provider agree that continuity of service to Subscribers is vital to Provo's ability to fund the construction and maintenance of the Network. Provo and Service Provider further agree that failure to provide the reliable service contemplated by this Agreement would not only jeopardize both parties' ability to satisfactorily perform their obligations under this Agreement, but would also be detrimental to the health, safety and welfare of Subscribers. Therefore, both parties agree to use their best efforts to avoid any lengthy disruption and/or the termination of service to Subscribers. If then for any reason, Service Provider cannot or does not continue to provide the services contemplated by this Agreement, the parties agree to work together to ensure that continuity of service can be provided by an alternate service provider. Therefore further, notwithstanding anything to the contrary herein, if Service Provider, whether voluntarily or involuntarily, is unable or unwilling to provide the service contemplated by this Agreement, Provo shall have the right to immediately designate an alternate service provider and to allow the alternate service provider to begin providing service to Subscribers. Provo's right to provide for continuity of services shall be at its discretion, but shall only be exercised when Service Provider's inability to provide the services contemplated by this Agreement is material and likely to continue for a substantial duration, and not for minor temporary service interruptions not contemplated by the parties to be a breach of this Agreement. An event described under Article Twelve shall not by itself constitute sufficient grounds for Provo to pursue its rights under this Section 13.4 but could constitute grounds for Provo to make provision for an alternate service provider to provide service if Service Provider does not diligently use its best efforts to restore service following an event described under Article Twelve. During construction of the network, Provo may contract with a third party to act as the alternate service provider in the event it is necessary to invoke this Section 13.4. In addition, Provo may require Service Provider to forfeit any bonds held to guarantee performance, directly contact subscribers, and take such other reasonable actions as may be necessary to prevent and minimize service disruptions to Subscribers as a result of the Service Provider's failure to provide service. MISCELLANEOUS Amendments. Neither this Agreement nor any provisions hereof may be changed, waived, discharged or terminated orally and may only be modified or amended by an instrument in writing, signed by both Provo and Service Provider. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of Provo, Service Provider and their respective successors and assigns. Waivers. The failure by Provo or Service Provider at any time or times hereafter to require strict performance by the other of any of the undertakings, agreements or covenants contained in this Agreement shall not waive, affect or diminish any right of Provo or Service Provider hereunder to demand strict compliance and performance therewith. None of the undertakings, agreements or covenants of Provo and Service Provider under this Agreement shall be deemed to have been waived unless such waiver is evidenced by an instrument in writing signed by the party to be charged specifying such waiver. Notices. Unless otherwise specifically provided in this Agreement, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by courier or United States certified mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex, or five (5) days after deposit in the United States mail, with postage prepaid and properly addressed, as follows: If to Provo, to: Paul Venturella Provo Telecommunications Manager 251 West 800 North Provo, Utah 84603 Facsimile No. (801) 852-6947 Telephone (801) 852-7900 With a copy to: Robert West Provo City Attorney 351 West Center Street Provo, Utah 84601 Facsimile No. (801) 852-xxxx Telephone (801) 852-xxxx If to Service Provider, to: Michael W Devine 8031 N Tuscany Drive Tucson, AZ 85742 520.742.7373 Facsimile No. xxx-xxx-xxxx With copies to: HomeNet Communications of Utah 135 Basin Street SW Ephrata, WA. 98823 Such addresses may be changed by notice to the other party given in the same manner as above provided. Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. Interpretation. Whenever the context shall require, the plural shall include the singular, the whole shall include any part thereof, and any gender shall include both other genders. The article, section and paragraph headings contained in this Agreement are for purposes of reference only and shall not limit, expand or otherwise affect the construction of any provisions hereof. All references in this Agreement to articles, sections and paragraphs, unless expressly noted otherwise, are to articles, sections and paragraphs contained in this Agreement. Unless the context requires otherwise, references in this Agreement to "Party" shall be to either Provo or Service Provider, as applicable, and references to "Parties" shall be to both Provo and Service Provider. Independent Contractor Status. Provo and Service Provider reserve no control whatsoever over the employment, discharge, compensation of or services rendered by the employees or contractors of each other. Nothing in this Agreement shall be construed as inconsistent with the foregoing independent status and relationship or as creating or implying a partnership or joint venture between Provo and Service Provider. Governing Law and Choice of Forum. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of Utah. Jurisdiction for any disputes arising out of this Agreement and any litigation relating thereto shall be brought exclusively in the United States District Court for the District of Utah, subject to the Court accepting jurisdiction of such actions. In the event the United States District Court for the District of Utah does not accept jurisdiction in any such action, the District Courts of the State of Utah shall have exclusive jurisdiction for such action, unless otherwise mutually agreed to by the Parties in writing. The Parties agree to waive their right to jury trial with respect to actions brought under this Agreement. Commissions. No brokerage, finders, or other fee, commission or compensation shall be paid by Provo or Service Provider in connection with the transaction contemplated by this Agreement. Provo and Service Provider shall indemnify and hold each other harmless (including attorney fees and costs) from and against any and all claims for brokerage and finder's fees or commissions which may be asserted against the other based on the actions or omissions of the indemnifying party. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered, shall be deemed an original, but all such counterparts taken together shall constitute only one instrument. Costs. Except as otherwise set forth in this Agreement, Provo and Service Provider shall each be responsible for its own costs, including legal fees, incurred in negotiating and finalizing this Agreement. Entire Agreement. This Agreement contains the only agreement between the Parties. There are no other agreements, verbal or written, between the Parties. Franchise Requirements. Any terms and conditions in this Agreement are intended to be compatible or in addition to the requirements in the Franchise Agreement and/or Provo City ordinance and any other applicable federal, state, or local requirement. If there are any conflicts among these requirements, the more stringent requirements are to be applied to the Service Provider. (Signature page to follow) DATED effective as of the date first above written. Provo City By: /s/ Lewis K. Billings Mayor Lewis K. Billings ATTEST: __________________________________________ Provo City Recorder APPROVED AS TO FORM: /s/ Robert West Provo City Attorney Video Internet Broadcasting Corporation d.b.a. HomeNet Communications of Utah By: /s/ Michael W. Devine Michael W. Devine (President) ATTEST BY: /s/ W Kelly Ryan Name: W. Kelly Ryan Title: CEO Exhibit A Retail Services The Initial Service Provider's retail service offerings shall include the following services until such time as there is at least one (1) Other Service Provider on the Network offering competitive service in each service category listed below: Voice Services must include: A. Primary dial tone Service (as defined in this Agreement) B. Standard features which include: 1. Caller ID 2. Call waiting 3. Three-way calling (conference calling) 4. Voice mail C. Local number portability D. Seven digit dialing E. Long distance service/international service (select provider) F. E-911 emergency service G. 411 (or 555-1212) information service H. Directory listing (white/yellow pages) within next printing cycle or as soon as is reasonable possible. Data Services must include: A. Internet access (filtered and unfiltered) at a range of speeds. B. E-mail services C. Web hosting (available) D. Point to Point data services (available) E. Public IP addresses (available) Video Services must include: A. 200+ channels (competitive channel offering: ESPN, CNN, etc.) B. Premium services (movie channels: HBO, etc.) C. Video On Demand (movies and local content) D. PPV / VOD Live Events F. "Barker" Channel for PPV/VOD G. Local Provo channels (city channel/government access (Hello Provo), Provo School District Channel, UVSC Channel, BYU Channel, and a channel set aside for local programming and events only). Exhibit B Initial Service Provider Use Period In order to promote the success of Service Provider's business, to provide for stability on the Provo Network, and to remedy technical issues that will arise during the implementation of the Provo Network, Service Provider will have a six month Initial Service Provider Use Period for each Substantially Complete Node. Provo has determined that a this period best balances the goals of allowing Service Provider a reasonable opportunity to market, promote, and implement its business plan in order to generate a return on its investment, provides sufficient time to resolve technical issues that will arise, and still allows Provo to maintain an open access Network by bringing Other Service Providers onto the Network in a reasonable and orderly manner. The Initial Service Provider Use Period will commence on the date a node is determined to be a Substantially Complete Node by Provo and terminate on the earlier of: (A) Six (6) months from the date each Node is determined to be a Substantially Complete Node; or (B) Service Provider's failure to cooperate on Node activation testing and debugging; or (C) Service Provider's failure to meet Minimum Market Penetration Standards as per Exhibit "C" Exhibit C Minimum Market Penetration Standards For the duration of the Initial Service Provider Use Period, the Initial Service Provider will be required to meet the minimum Market Penetration Standards as set forth in Table 1 below. Market Penetration will be measured monthly and calculated based on the following formula: Monthly Active Subscribers (total number of current Subscribers plus pending installations, minus any pending disconnects) at the end of the month divided by total number of Homes Passed. Subscriber accounts sixty 60 days or more passed due are not to be counted. If the Initial Service Provider fails to meet the Minimum Market Penetration Standards for three (3) consecutive months or for any four (4) months in any consecutive six (6) month period, then the Initial Service Provider Use Period, at Provo's sole discretion, may be terminated. Table 1. - -------------------- ------------------ ------------------- -------------------- End of Month Penetration % End of Month Penetration % - -------------------- ------------------ ------------------- -------------------- 1 30% 13 32% 2 30% 14 32% 3 30% 15 32% 4 30% 16 32% 5 30% 17 32% 6 30% 18 32% 7 30% 19 32% 8 30% 20 32% 9 30% 21 32% 10 30% 22 32% 11 30% 23 32% 12 30% 24 32% - -------------------- ------------------ ------------------- -------------------- Corollary for Table 1. Measurement periods for the minimum standard achievement will commence thirty (30) days, rounded to the beginning of the nearest month, after the date each Node is determined to be a Substantially Completed Node. For example, a Node completed on July 13th will have a measurement commencement date of July 1st.. Each successive Node will be added to the preceding Nodes for measurement purposes. Once the measurement periods have commenced, they will occur monthly starting on the first day of each month and ending on the last day of the same month. Achievement of minimum Market Penetration standards will be reported to Provo by the Service Provider no later than thirty (30) days after the conclusion of the month to be measured. Achievement results will be based upon all Substantially Completed Nodes. Exhibit D Network Build Schedule This Exhibit "D" was prepared from the construction schedule submitted by Provo's contractor and will be updated from time to time to reflect current conditions of the Network. The following table represents the proposed construction schedule as of July 2004: ===================== ========================================================== Node Number Construction Schedule ===================== ========================================================== Date Start Date Complete ===================== ============================== =========================== 1 July 2004 December 2004 2 August 2004 December 2004 3 September 2004 January 2005 4 September 2004 February 2005 5 October 2004 March 2005 6 November 2004 April 2005 7 November 2004 April 2005 8 December 2004 May 2005 9 January 2005 May 2005 10 January 2005 June 2005 11 February 2005 July 2005 12 March 2005 July 2005 13 March 2005 August 2005 14 April 2005 September 2005 15 May 2005 September 2005 16 May 2005 October 2005 17 June 2005 November 2005 18 July 2005 November 2005 19 July 2005 December 2005 20 August 2005 December 2005 21 September 2005 January 2006 22 September 2005 February 2006 23 October 2005 March 2006 24 November 2005 March 2006 - --------------------- ------------------------------ --------------------------- Exhibit E Network Lease Pricing Schedule
- ------------------------------ --------------------------------------------------- --------------------- ------------- Product or Service Product or Service Description Transport Fee or Maximum Network Usage Rate Allowable (per user, per Retail Rate month unless otherwise noted) - ------------------------------ --------------------------------------------------- --------------------- ------------- Network Connection Fee Base fee for any individually billed residential $10.00 user connected to the network. - ------------------------------ --------------------------------------------------- --------------------- ------------- Residential Services - ------------------------------ --------------------------------------------------- --------------------- ------------- Data Services - ------------------------------ --------------------------------------------------- --------------------- ------------- Data: Internet Access Internet Access and Network Data up to 256kB/sec. $21.36 $39.95 Data: Internet Access Internet Access and Network Data up to 5MB/sec. $28.46 $49.95 Data: Internet Access Internet Access and Network Data 5+ to 10MB/sec. $35.56 $59.95 Data: Internet Access Internet Access and Network Data 10+ to 25MB/sec. TBD TBD Data: Internet Access Internet Access and Network Data 25+ to 50MB/sec. TBD TBD Data: Internet Access Internet Access and Network Data 50+ to 100MB/sec. TBD TBD Data (Point to Point) Point to Point Data Connectivity.. TBD TBD - ------------------------------ --------------------------------------------------- --------------------- ------------- Video Services - ------------------------------ --------------------------------------------------- --------------------- ------------- Video to TV/Monitor Television like video services. (IP Video) $5.36 $39.95 - ------------------------------ --------------------------------------------------- --------------------- ------------- PPV / VOD Service Free Programming: Per incident or use TBD $0.00 PPV / VOD Service Less than $0.99: Per incident or use ..25 $0.99 PPV / VOD Service $1.00 - $3.99Per incident or use .50 $3.99 PPV / VOD Service $4.00 - $9.99Per incident or use .75 $9.99 PPV / VOD Service $10+ Per incident or use $2.00 N/A - ------------------------------ --------------------------------------------------- --------------------- ------------- Headend Services TBD - ------------------------------ --------------------------------------------------- --------------------- ------------- Set Top Box (rebate) For the 2nd and 3rd STB in each home. ($1 each -$1.00 TBD for customer requested, active STB.) - ------------------------------ --------------------------------------------------- --------------------- ------------- Voice Services - ------------------------------ --------------------------------------------------- --------------------- ------------- Using Provo City Switch - ------------------------------ --------------------------------------------------- --------------------- ------------- Primary Telephone Dial Tone + Long Distance + Features Included w/Provo $24.95 switch usage. - ------------------------------ --------------------------------------------------- --------------------- ------------- Secondary Telephone Additional line (including LD & features.) TBD TBD Voice via data connection Dial Tone, LD & Features via any data connection. TBD Long Distance Services TBD Call Feature Services Voice Mail & Web Access $2.10 $6.00 Switch Services Includes Dial Tone & Basic Feature Set + Expanded $20.29 N/A Calling Area to SLC. - ------------------------------ --------------------------------------------------- --------------------- ------------- Not Using Provo City Switch - ------------------------------ --------------------------------------------------- --------------------- ------------- Primary Telephone Transport Only $5.21 $24.95 Secondary Telephone Transport Only $5.21 $24.95 Voice via data connection Transport Only TBD Long Distance Services Call Feature Services Voice Mail & Web Access - ------------------------------ --------------------------------------------------- --------------------- ------------- Service Combinations - ------------------------------ --------------------------------------------------- --------------------- ------------- Data I+ Voice 256k Data and Basic Voice Service $18.47 $54.90 Data II+ Voice 5Mb Data and Basic Voice Service $25.57 $64.90 Data III+ Voice 10Mb Data and Basic Voice Service $32.67 $74.90 Data I+ Video 256k Data and Basic Video Service $28.62 $69.90 Data II+ Video 5 Mb Data and Basic Video Service $35.72 $79.90 Data III+ Video 10Mb Data and Basic Video Service $42.82 $89.90 Data I+ Video + Phone 256k Data and Basic Voice Service + Video $29.78 $89.85 Data II+ Video + Phone 5Mb Data and Basic Voice Service + Video $36.88 $99.85 Data III+ Video + Phone 10Mb Data and Basic Voice Service + Video $43.98 $109.85 - ------------------------------ --------------------------------------------------- --------------------- ------------- Business Services - ------------------------------ --------------------------------------------------- --------------------- ------------- Data Service Any business service with a retail rate of less $27.00 $100 than $100.00 Data Service Any business service with a retail rate of more 52% of retail rate N/A than $100.00 Telephony Service Any business service with a retail rate of less TBD than $100.00 Telephony Service Any business service with a retail rate of more 52% of retail rate than $100.00 Soft switch Services Includes Dial Tone & Basic Feature Set + Expanded TBD Calling Area to SLC. - ------------------------------ --------------------------------------------------- --------------------- ------------- MDU Service - ------------------------------ --------------------------------------------------- --------------------- ------------- Analog Video Per unit $5.50 $20.00 IP Video TBD Data 256k/sec. TBD Data 5 Mb/sec. Per unit $19.50 $24.95 Bulk Bandwidth TBD Telephone TBD Analog Video + Data $22.50 $40.00 - ------------------------------ --------------------------------------------------- --------------------- ------------- Existing iProvo Trial Customers - ------------------------------ --------------------------------------------------- --------------------- ------------- MDU's TBD Business TBD - ------------------------------ --------------------------------------------------- --------------------- -------------
Listed transport fees apply only when retail rates do not exceed maximum allowable retail rate shown. If retail rates exceed maximum allowable rate, transport fee increases by 75% of amount above maximum allowable rate. Maximum Allowable Rate does not include franchise fees or taxes. Exhibit F Broadband Data, Video, and Telephony Service Level Agreement Except as set forth herein, Provo makes no warranties regarding the availability, performance, or continuation of services on the Provo Network, and this Service Level Agreement ("SLA") and the credits described herein are the Service Provider's and Subscribers' sole and exclusive remedy. Provo considers this document as being fluid and expects to make periodic amendments based on demonstrated network performance. The definitions set forth below are meant to be supplemental to the definitions previously stated in the Agreement; they do not supercede or modify the previously stated definitions in any way. 1. Definitions Clearance for Subscriber Services Activation (CSSA): The date whereupon Provo releases the Subscriber for activation. Jitter: The relative variation in delay between consecutive serial packets. Samples are taken 500 milliseconds apart, and consecutive samples are compared for variation in delay. Monthly Recurring Transport Fee (MRTF): The amount paid on a recurring monthly basis by Service Provider for transport services via the Provo Network. Point of Presence (POP): Physical locations on the Network that include the Network electronic equipment. These are typically subscriber demarcation points (Gateway) but may also be neighborhood network nodes or the head-end. The following Service Delivery Standards will provide the basis for providing Telecom services on the Provo network: 2. Network Latency Standard The intent of the Provo Network Latency Standard is to limit the Latency Achievement Quotient (LAQ), as defined below, to 1.0 or less (the equivalent of average latency equaling 150 milliseconds or less) in a given month. Average Round-Trip Latency, with respect to a given month, is defined as the average time required for round-trip packet transfers between POP's on the Provo Network during such month, as measured by Provo. The measurement of the Latency Achievement Quotient is subject to Section 12 (Exceptions) of this SLA. Average Round-Trip Latency does not extend to Service Provider's connection into the Provo Network or to Service Provider's Customer Premise Equipment. LAQ will be measured by dividing the Average Round-Trip Latency on the Provo Network for a calendar month by the 150 milliseconds latency standard. LAQ Calculation: Actual Average Round-Trip Latency between POP's on the Provo Network for Month 150 Milliseconds (Example: 300 ms Actual Average Round-Trip Latency for Month = 300/150 or LAQ of 2) The Latency Achievement Quotient will be one of the factors in calculating any credits due the Retail ISP for the purpose of crediting their Subscribers. (See section 10.1) 2.1 Network Jitter Standard Both parties agree to consider adding mutually acceptable jitter standards for the Network at the initial six month review. 3. IP Data Packet Delivery Standard The Provo Network IP Packet Delivery Standard is to maintain the Packet Delivery Achievement Percentage, as defined below, to ninety-five percent (95%) or greater in a given month. Average Packet Loss, with respect to a given month, is defined as the average percentage of IP data packets transmitted from any given source to any given destination across the Provo Network during said month that are not successfully delivered as measured by Provo. The measurement of the Packet Delivery Achievement Percentage is subject to Section 12 (Exceptions) of this SLA. Packet Delivery Achievement Percentage calculation: 100% - Average Percentage of Packets Lost for any given source and destination for the month The Packet Delivery Achievement Percentage will be one of the factors in calculating any credits due to Service Provider for the purpose of crediting its Subscribers. (See section 10.2) 4. Service Availability Standard The goal of the Provo Network Service Availability (network up-time) is for all network circuits being available one hundred percent (100%) of the time. The Network Service Availability standard is ninety-nine point five percent (99.5%) of the total service time in a given month. Service Availability will be measured by tracking the number of minutes the Provo Network is not available and dividing by the total number of minutes in the given service month. The Service Availability Standard measurement is subject to Section 12 (Exceptions) of this SLA. Service Availability Achievement Percentage Calculation: 100% - Number of minutes the Provo Network is not available in Month for a Given Subscriber/Total number of service minutes in Month. The Service Availability Achievement Percentage will be one of the factors in calculating any credits due the Service Provider for the purpose of crediting their Subscribers (see Section 10). 5. Stated bandwidth Stated bandwidth(s) apply(ies) only to the bandwidth delivery on the Network between the Gateway and the Internet-edge router. No guarantee for end-to-end bandwidth including the Internet is implied. Both parties acknowledge that many factors on the Internet and destination website will impact measurable bandwidth, these include but are not limited to Subscriber hardware, computers, routers, switches, memory systems and configurations. 6. Claims of damage or business loss to subscribers Provo will not be responsible for any damages Service Providers, Subscribers and/or Subscribers' businesses suffer. Provo makes NO WARRANTEES OF ANY KIND, EXPRESSED OR IMPLIED, for services we provide except as set forth herein. Provo DISCLAIMS ANY WARRANTY OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. This includes loss of data resulting from delays, non-deliveries, wrong deliveries, and any and all service interruptions caused by Provo and its employees whether due to Provo's negligence or Service Provider's errors or omissions. Any and all information obtained via the Provo - data network services (public and or private) is at the Subscriber's or Service Provider's own risk. Any and all access to other networks via the Provo Network must be in compliance with all policies and rules of those networks. This applies to any other network to which Provo is attached. 7. Measurement Methodology of the SLA Provo will periodically (on average every 5 minutes) measure performance at selected points of presence (POP's) throughout the Provo Network using software and hardware components capable of measuring IP traffic and responses. Not every POP may be covered by such measurements and such components may not measure the exact condition on any path traversed by data packets. Such components provide measurements across the Provo Network, but not other networks to which Provo may connect. Provo reserves the right to periodically change the measurement points and methodologies it uses without notice. Measurements will be made available to Service Provider when monitoring systems are in place and data is available. Metrics measured will include packet throughput latency, availability, dropped packets, aberrant packets (errors, runts, etc.), and other appropriate statistics. Access to network metrics is considered confidential and is subject to non-disclosure agreements. 8. Terms The terms of this SLA will take effect for each subscriber upon the completion of a seven day "burn-in " period after connection to the Provo Network has been established. The general network measurements for these standards will be compiled and made available within five (5) days of the close of each month and will show each of the Achievement Calculations for the network in general. Provo will make available these measurements via a secure, real-time web display when this function becomes available. Any Exceptions affecting the Achievement Calculations will be clearly shown and properly documented with attendant explanations, as appropriate. As individual subscriber problems are escalated to the Provo Network Operations Center, more granular monitoring and testing procedures will be applied and made available to the Service Provider and the Subscriber when available Remedies will be determined pursuant to the procedures noted herein. 9. IP Data Only (Internet or other data service) Subscriber Credit If, as measured and reported by Provo, the Provo Network Service Availability Achievement Percentage (SAAP) falls below 99.5% within a given month for a given Subscriber (Approximately 3.72 hours of no network availability)), Service Provider will be entitled to a credit equal to five percent (5%) of the Monthly Recurring Transport Fee (MRTF) for the affected Subscriber(s), for the affected service's MRTF. The credit will be awarded to the Service Provider, who will then award the credit to the affected Subscriber. In no case shall the Service Provider use the credit for anything other than forwarding the credit to the affected Subscriber(s). In no case shall the credit per Service Provider's Subscriber be greater than 100% of said Subscriber's MRTF. Due to the fact that measurement will not take place universally throughout the Provo Network, reasonable, subjective analysis may be required to determine the Service Availability Achievement Percentage (SAAP) by subscriber. This may be due to, but not limited by, the following factors; unscheduled network maintenance or upgrade, unanticipated performance affecting changes to network configuration, problems with higher level IP network services such as IP multicast or IP quality of service, etc. Provo will provide good-faith analysis of any specific requests to determine the actual (or best estimate) Service Availability Achievement Percentage (SAAP) by subscriber. The credit applies after the SAAP has been violated. 10. Voice and/or Video Subscriber Credit If, as measured and reported by Provo, the Provo Network Service Availability Achievement Percentage (SAAP) falls below 99.5% within a given month for a given Subscriber (Approximately 3.72 hours of no network availability)), Service Provider will be entitled to a credit equal to five percent (5%) of the Monthly Recurring Transport Fee (MRTF) for the affected Subscriber(s), for the affected service's MRTF. The credit will be awarded to the Service Provider who will then award the credit to the affected Subscriber. In no case shall the Service Provider use the credit for anything other than forwarding the credit to the affected Subscriber(s). In no case shall the credit per Service Provider's Subscriber be greater than 100% of said Subscriber's MRTF It is recognized that due to the fact that measurement will not take place universally throughout the Provo Network, reasonable, subjective analysis may be required to determine the Service Availability Achievement Percentage by Subscriber. This may be due to, but not limited by, the following factors; unscheduled network maintenance or upgrade, unanticipated performance affecting changes to network configuration, and problems with higher level IP network services such as IP multicast or IP quality of service, etc. Provo will provide good-faith analysis of any specific requests to determine the actual, or reasonably best estimate of, Service Availability Achievement Percentage by Subscriber. Due to the unique requirements of video and voice services, the Provo Network will provide the following credits for any failures against SLA Standards for Service Availability, Latency, or Packet Delivery: The applicable credit for Subscribers who are affected beyond the acceptable standard are cumulative and will be distributed as follows: Voice Services: Credit Percentage = 5% Video Services Credit Percentage = 5% DATA Services Credit Percentage = 5% The maximum credit for any short-term outages for a Subscriber in any given month will be 15% of the MRTF. Short-term is any contiguous period within the measured month that is less than 4 hours. 10.1 Latency Credit If, as measured and reported by Provo, the Provo Network Latency Quotient exceeds 1.0 in any given Month, Service Provider will be entitled to a credit. The credit for Service Provider's video and/or voice Subscribers will equal 5% of MRTF. The credit will apply to any affected Subscribers served by the portion of the Provo Network experiencing the substandard LAQ for the given Month. The credit will be awarded to the Service Provider who will then award the credit to the affected Subscriber. In no case shall the Service Provider use the credit for anything other than forwarding the credit to the affected Subscriber(s). In no case shall the credit be greater than the MRTF. Credit for violation of the Network Latency Quotient will be subject to a Subscriber trouble ticket and supporting documentation. 10.2 Packet Delivery Credit If, as measured and reported by Provo, the Average Packet Delivery Achievement Percentage on the Provo Network fails to meet the Packet Delivery Standard (95%) in any given Month, Service Provider will be entitled to a credit. The credit for Service Provider's affected video and/or voice subscribers will equal five percent 5% of MRTF. The credit will be for any affected Subscribers served by the portion of the Provo Network experiencing the substandard Packet Delivery Achievement Percentage for the given Month. The credit will be awarded to the Service Provider who will then award the credit to the affected Subscriber. In no case shall the Service Provider use the credit for anything other than forwarding the credit to the affected Subscriber(s) In no case shall the credit per Retailer's Subscriber be greater than 100% of said Subscriber's MRTF. 10.3 Cumulative Loss of Service Credit If Subscribers have lost service for periods extending beyond the metric measurement periods, credits will be awarded on a prorated basis. This pro-rata amount will be calculated based on a simple pro-rata formula as follows: MRTF - ((Number of days Provo Network is not available in Month for a given subscriber/Total number of service days in Month) x MRTF) This credit is limited to a maximum of the MRTF for the given service being calculated. This calculation would be applied to each service that has had extended down time. The maximum of all credits combined will not exceed the total MRTF for the month. Credits will be awarded to the Service Provider for the purpose of crediting Subscribers who had service outages. Credits will only be awarded for Subscribers who have reported an outage, have a trouble ticket on file, and the outage is verified by network monitoring metrics. 11. Exclusive Remedy for Retailer ISP Partners The credits described in this SLA shall be the sole remedy available to Service Provider relating to any service performance issues on the Provo Network. Provo will in no way be responsible for any liquidated damages relating to lost business or other consequential damages accruing to Service Provider or Subscribers. Service Provider will petition Provo for a review of the MRTF and other possible remedies in the event of re-occurring lack of adherence to the established network standards. 12. Exceptions Credit will not be issued to any Service Provider on behalf of a specific Subscriber for more than six (6) months in any calendar year. Service Provider shall not receive any credits under this SLA in connection with any failure or deficiency of the Provo Network caused by or associated with: a) Circumstances beyond Provo's reasonable control, including, without limitation, acts of any governmental body, war, insurrection, sabotage, embargo, fire, flood, weather, solar disturbances, strike, or other labor disturbance, interruption of or delay in transportation, unavailability of or interruption or delay in telecommunications or third party services, failure of third party software or inability to obtain raw materials, supplies, or power used in or equipment needed for provision of the SLA; b) Scheduled Maintenance, defined as work performed by Provo staff on any of its equipment for which notification is sent to the Maintenance Mailing List no less than 48 hours before the work is to begin. c) Failure of access circuits to the Provo Network, unless such failure is caused solely by Provo; d) DNS (Domain Name Server) issues outside the direct control of Provo; e) Service Provider's or their Agent's acts or omissions including without limitation, any negligence, willful misconduct, or use of Provo Network or Provo services in breach of Provo's Acceptable Usage Agreement by Service Provider or others authorized by them. 13. Credit Request and Payment Procedures Subscriber credits will be calculated using the single highest award when compared to the various service level metrics. The awards are not cumulative for each category. Any credit issued to a Service Provider ISP must be supported by the appropriate trouble ticket and resolution documents that will be made available to Provo upon request. Provo will provide an electronic report detailing the performance of the Provo Network relative to the SLA Standards. This report will include all calculations outlined in this agreement, noting variances to the defined SLA Standards. All exceptions (as expressly stated in this SLA) that were used in making the calculations will be explicitly noted with attendant explanations, as appropriate. Credits due Service Provider, as calculated by Service Provider will be expressed in the consolidated monthly report delivered to Provo for confirmation. Provo will report any disputed claims back to the Service Provider no later than 10 days after receipt of the report. Reconciliation of any dispute between Provo and Service Provider must be resolved, in good faith, by the end of the following month. Once the credit has been agreed upon, it will be applied to Service Provider's transport fee bill for the following Month. In the event circumstances arise wherein the Provo Network performance, although meeting all quantitative metrics as established by this SLA, does not meet the levels intended by this SLA Provo will entertain special requests for credit by the Service Provider. Service Provider must present any special requests for credit to the applicable individual or department as designated by Provo. The designated individual or department must receive each request in connection with a network outage within ten (10) days of the close of the given month. Provo will review each special request and conduct good-faith analysis to determine its validity. Each valid request for credit will be assigned credit, mutually agreed to between Provo and Service Provider, and will be applied to a Service Provider invoice within two (2) billing cycles following Provo's granting of such request. Credits are exclusive of any applicable taxes charged to Service Provider or collected by Provo. Any credits granted to a Subscriber involving an SLA payment from the City shall be equal to the percentage SLA credit granted to Service Provider multiplied by the retail rate paid by said Subscriber. 14. Provo Response Provo will mobilize staff within a maximum of thirty (30) minutes of notification of any multiple customer outage that is due to a Network failure. Provo will maintain spares for any significant network equipment that may result in an outage if non-functioning. Provo will maintain 24X7 on-call staff for outage remediation. The on-call personnel will be proficient in trouble-shooting, diagnostics, and remediation of service-affecting Network problems. 15. General Provo reserves the right to change or modify this SLA and will post changes to a Web site designated by Provo and made available to Service Provider. Except as set forth in this SLA, Provo makes no claims regarding the availability or performance of the Provo Network. Both Provo and Service Provider acknowledge and agree to formally review this SLA within six (6) months of the execution of this Agreement. The review will be a good-faith review of the SLA to determine areas where it may be modified to provide the optimal operating environment for both parties. Specifically it is acknowledged by Provo and Service Provider that Network Jitter is a critical component that will be added to this SLA once a suitable standard and measurement methodology is established. Exhibit G Disaster Recovery Plan Definitions: 1. Disaster Response Management Team: This team will consist of the Energy Department Director, Telecom Division Manager, Telecom Network Administrator, Telecom Construction Project Manager, one representative from the Service Providers currently using the network, and others. The team will have management, communication and coordination responsibilities for disaster recovery efforts. A. Minor disasters related to events such as equipment failure or power loss. The network facilities design will make use of redundant equipment and data paths whenever practical. All network devices will be provided with a backup power source that will keep electronic devices powered in the event of a power loss. Portable generation equipment will be used to support facilities that see more long term power loss conditions. Equipment spares will play a role in minor disaster remediation. Provo staff will mobilize in order to remediate any multiple customer events upon notification. It is assumed that service level agreements will function normally during this type of event. B. Intermediate level disasters such as damage to fiber optic cables, destruction of a network node or loss of satellite related equipment will be responded to immediately. Crews will be dispatched to the disaster site upon notification of the problem. Work will continue to remediate the damaged facilities until they have been restored. The Disaster remediation crews will be directed by the iProvo Disaster Response Management Team. This team will make use of all available resources, both internal and external in order to bring the network restoration to a timely close. This team will have responsibility for all communications and status as well as coordination for restoration activities. It is assumed that service level agreements will function normally during this type of event. C. Major Disasters such as citywide catastrophic events that may result in the loss of a great amount of the fiber infrastructure or headend will require the iProvo Disaster Response Management Team to carefully analyze the situation and develop both a short term and a long term restoration effort. These plans will be provided to the Service Providers on the network as soon as possible. Provo will work diligently to repair and or replace the damaged facilities. The extent of the disaster will determine how quickly the restoration can be accomplished It is assumed that service level agreements and billing will be suspended for areas that will have a long term loss of service. D. Contractor Restoration Team. Provo will establish pre-event agreements with appropriate Telecom Contractors who will maintain a disaster response readiness. These companies will mobilize quickly to facilitate disaster remediation. E. Coordination with the City's Disaster Response Plan: Provo Telecom will work to coordinate the Disaster Response Plan with the City's Internal Disaster Plan. This will include a detailed plan that will establish priorities and alternate service plans. Exhibit H IP Video Middleware and Set Top Boxes Provo shall define which middleware will be the standard network middleware for the City Network. In the interest of ensuring a customer friendly end user experience related to video services middleware, Provo will have a final approval of any non-standard middleware, set top box, and related products and services. Should any Service Provider use a non-standard middleware and discontinue as a Service Provider on the network for any reason, they will allow Provo City use of the non-standard middleware without charge for ninety (90) days to allow for continuity of service to customers as per Exhibit "K" Middleware and Set Top Box Usage Agreement. After the initial ninety (90) day transition period, usage will be covered by Appendix A - IP Video Middleware Software License Agreement. Any and all increased costs in hardware, software, bandwidth on the Network, and/or Network personnel time required to allow the use of Service Provider non-standard middleware will be borne solely by the Service Provider requesting the use of the non-standard middleware. This includes all costs that are directly or indirectly related to and caused by the introduction of additional middleware. These costs will be billed on an "as incurred" basis at both the time of the introduction of the middleware and as the network grows and usage increases might require additional hardware, etc. Middleware/Set Top Box Evaluation and Testing Procedure Provo will review and evaluate any proposed non-standard middleware products and services (including a list of set top boxes the non-standard middleware has been ported to) and determine if the end user experience is substantially equivalent to similar products available in the market. An additional technology review will be done to determine if the use of said non-standard middleware will affect network performance. Should the non-standard middleware products or services be found not to be substantially equivalent to the standard middleware, or to negatively affect network performance, in the sole view of Provo, said non-standard middleware products and related services may not be deployed on the network. Approval for non-standard middleware will not be unreasonably withheld. Provo will review and evaluate any proposed set top box and related products and services and determine if the end user experience is substantially equivalent to similar products available in the market. No hardware will be connected to the Provo Network by the Service Provider or their agent (including set top boxes) without prior review and approval by Provo. All Set Top boxes deployed in the network must have the ability to implement a Digital Rights Management (DRM) and/or Conditional Access (CA) content security system. DRM/CS systems proposed must be generally accepted by content providers as sufficient to meet generally accepted standards. Should the products or services be found not to be substantially equivalent in the sole view of Provo, said set top box or other hardware products may not be deployed on the network. Approval for Set Top Boxes will not be unreasonably withheld. Provo will conduct testing of the proposed non-standard middleware/set top box system. The testing will include but not be limited to the following: Testing on the network using the Provo test video environment in a quantity that will simulate a deployment of 20-30 residences using no less than 100 Testing in a field deployment with 30-40 live production Subscribers receiving no less than 100 channels and miscellaneous VOD streams. Evidence of a successful deployment for at least 1500 Subscribers served by the non-standard middleware and set top boxes in question will be required before Provo will commit to support a long term, citywide deployment. EXHIBIT I iPROVO ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") dated as of ______________, 2004, is entered into by and PROVO CITY, a political subdivision of the State of Utah (hereinafter referred to as "Seller") and homenet utah, a Washington corporation registered to do business in Utah ("hereinafter referred to as "Buyer). RECITALS WHEREAS, the Seller is the owner, and Buyer as the retail service provider is the administrator, of certain assets that are part of a test project known as Phase II of the "iProvo" project (the "Test") pursuant to a memorandum of understanding between Seller and Buyer, (the "Memorandum of Understanding"); and WHEREAS, Buyer wishes to purchase from Seller, and Seller wishes to sell to Buyer, Seller's interest in these assets; NOW, THEREFORE, in consideration of the premises and the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto, each intending to be bound hereby, agree as follows: 1. PURCHASE AND SALE OF ASSETS. 1.1 Sale and Transfer of Assets. Subject to and in accordance with the terms and conditions of this Agreement, at the Closing (as defined below) on the Closing Date (as defined below) Seller shall sell, convey, transfer, deliver and assign to Buyer all of its interest in the assets and property listed on Schedule 1 (collectively, the "Assets") free and clear of all of any liens, security interests, pledges, assignments, restrictions and other encumbrance of any kind or nature, including without limitation: (1) Seller's rights and benefits in all accounts of current active subscribers as listed on Schedule 1 and defined below in Section 1.10, contracts set forth on Schedule 2, and the accounts receivable, set forth on Schedule 3. (2) Such "goodwill" as may be assigned that arises from or associated with the Test; (3) Seller's confidential and/or proprietary subscriber information, including subscriber lists and accounts, but with respect to accounts payable, only those that accrue after the date of this Agreement first set forth above; 1.2 Assumption of Assumed Contracts. Buyer hereby assumes and agrees to perform all of the obligations and commitments of Seller accruing after the Closing Date, under or with respect to each contract set forth on Schedule 2 (collectively the "Assumed Contracts" or individually an "Assumed Contract"), but not including any obligation or liability arising or occurring prior to the Closing Date. Buyer shall have no obligation with respect to any contract not constituting an Assumed Contract set forth in Schedule 2. 1.3 Excluded Liabilities. Except for the Assumed Contracts and regardless of any disclosure to Buyer, Buyer is not, as part of this agreement, assuming any other duties, responsibilities, obligations or liabilities of Seller or to which Seller or any of the Assets may be bound or affected, of whatever kind or nature, whether known, unknown, contingent or otherwise (and including without limitation taxes arising from the Test) (the "Excluded Liabilities"). However, the parties to this Agreement currently have other obligations to each other arising from the Memorandum of Understanding, and the parties contemplate entering into other necessary agreements after the sale of the Assets pursuant to this Agreement. These other agreements shall be governed by their own provisions and shall not be affected by this Subsection 1.3. 1.4 Single Family Residence (SFR) Asset Purchase Price. The total purchase price to be paid for the SFR Assets shall be the sum of the Marketing Offset and the In-home Wiring Offset ("Purchase Price"). The Marketing Offset shall be Two Hundred Twenty-five Dollars ($225.00) per current active subscriber. The In-home Wiring Offset shall be Forty-five Dollars ($45.00) for the first service drop and Forty Dollars ($40.00) for each additional service drop to each current active subscriber. Buyer and Seller agree that the In-home Wiring Offset will be calculated on the basis of 2.5 drops per current active subscriber established pursuant to Section 1.6 herein. The Purchase Price shall be payable to Seller as set forth in Section 1.6, herein. 1.5 Multi Dwelling Unit (MDU) Asset Purchase Price. The total purchase price to be paid for the MDU Assets shall be the Marketing Offset for each Equivalent Business Unit (EBU) as in section 1.12 of this document. The Marketing Offset shall be Two Hundred Twenty-five Dollars ($225.00) per current active subscriber (EBU). 1.6 Payment of Purchase Price. Payment of the SFR Purchase Price shall be made in three (3) equal monthly payments starting thirty days after the finalization of the Service Level Agreement, as referenced in Section 1.8 herein, in immediately available funds by, at Seller's option, check or wire transfer to the following account: Zion's Bank, 111 North 200 West, Provo, UT 84601, ABA#124000054, to Credit of Provo City, Account #32146581 (City Contact: John Borget, Finance Director, 801-852-6504, or Janice Larsen, Accounting Manager, 801-852-6526). Buyer will pay the Purchase Price for seventy percent (70%) of the SFR current active subscribers and one hundred percent (100%) of the MDU-EBU current active subscribers. The final count of SFR and MDU-EBUs will be established by mutual agreement as listed in Schedule 1 attached hereto. 1.7 Interest Payments. The outstanding principal balance hereof shall bear interest at the rate of six percent (6%) per annum from and after the Closing Date, until paid. Interest payable hereunder shall accrue daily and be calculated on the basis of a three hundred sixty five (365) day year and the actual number of days elapsed in any particular calendar month. 1.8 Service Level Agreement. The Seller will craft a Service Level Agreement (SLA) for the Network performance. If, prior to the finalization of the Service Level Agreement, any current active subscribers of the Test terminate service due primarily to the Network performance, Buyer and Seller will mutually make a determination as to how much of the purchase price may be forgiven. 1.9 Retained Title and Interest. Until the Purchase Price is paid in full at Closing, Seller shall retain title to the Assets set forth in Subsection 1.1, above. Buyer shall not have the right to sell, lease, sublease or in any way alienate Seller's interest or Buyer's own interest in the Assets set forth in subsection 1.1, above, nor to use said assets for the purpose of securing any debt, nor to create any right or interest in any third party. Although the physical possession and apparent interest in the Assets may be transferred to Buyer as of the date of this Agreement, until the purchase price is paid in full at Closing, Seller shall have the right to show itself as the owner of the Assets and/or as a secured party on any deed, UCC form or other public or private document or disclosure form. 1.10 Certain Taxes. Any taxes owed, if any, to any taxing entity in connection with or as a result of the transfer of the Assets under the terms of this Agreement and the transactions contemplated hereby, including, but not limited to, any and all sales, use, excise, transfer and conveyance taxes payable or assessable, shall be paid by Buyer. However, Buyer shall not be responsible for any business, occupation, income, withholding, possessory interest or similar tax or assessment or any other tax or fee of any kind relating to any period on or prior to the date of this Agreement with respect to Seller, the Assets, or the ownership, operation or management of the Test. 1.11 Prorations. Seller's and Buyer's responsibilities for rent, insurance premiums, personal property taxes, water, gas, electricity and other utilities, and other periodic ordinary and necessary operating costs payable with respect to the Assets to the effective date of this Agreement shall be governed by the Memorandum of Understanding until this Agreement is executed and becomes effective, whereupon the Memorandum of Understanding shall terminate. 1.12 Subscribers Defined. "Current active subscriber" shall be defined as follows: (1) An individual residential account paying the standard monthly rates for services; (2) All "bulk" accounts (apartment complexes, etc.) shall be converted to subscribers by using the following formula for Equivalent Billing Units: Total monthly payment divided by the standard monthly rate of Thirty-nine dollars and ninety-five cents ($39.95) = EBUs. Each EBU shall equate to one subscriber. (3) Commercial accounts will be converted to customers by using the same formula described in Section 1.12 (2). 2. SETTLEMENT AND CLOSING. 2.1 Time and Place of Closing. Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated herein (the "Closing") shall take place as soon as practical following the satisfaction of all the Conditions to Closing set forth in Section 3. The actual date of the closing is hereinafter referred to as the "Closing Date." The Closing or Settlement shall take place at the Provo City Attorneys Office located at 351 West Center, Provo, Utah. 3. CONDITIONS TO CLOSING. The consummation of the transactions contemplated by this Agreement is conditioned upon the following: 3.1 Approval of Initial Provider Network Access and Use Agreement and Franchise Agreement by the Provo City Municipal Council. As conditions precedent to the purchase of the Assets by Buyer is the approval by a majority vote of the Provo City Municipal Council during a regularly scheduled (or specially convened) Council meeting authorizing the Mayor to negotiate and execute this Asset Purchase Agreement, together with documents related thereto, and the Provo City Municipal Council approving a Network Lease and Maintenance Agreement and Franchise Agreement between the City of Provo, Utah, and Buyer allowing Buyer to operate a cable system in Provo City, Utah. 3.2 Television Services/Signal Provider Consents. If required, Seller hereby agrees to use its best efforts to obtain consents in writing from each television service/signal provider for transfer of Affiliate Agreements between Seller and such providers. However, in view of the fact that Buyer is negotiating its own agreements with the service/signal providers, failure by Seller to obtain consents from all providers shall not preclude the parties from Closing. 3.3 Facility Lease Consents. Buyer agrees to make lease payments in the amount of Five Dollars ($5.00) per month per set top box (STB) on a pro rata bases for Seller-owned STBs in current active subscriber premises until such time that the STB is returned to the Seller. 3.4 Delivery of Documents. Buyer and Seller shall have signed and delivered to each other all documents and other deliverables required by Section 6 of this Agreement. 3.5 All Other Consents. Buyer shall obtain all necessary consents, including all required Government Consents, if any, that may be required for Buyer to acquire and fully administer and/or operate the Assets. 3.6 No Material Adverse Change. Buyer shall be satisfied, in its sole discretion, that the Assets have experienced no material adverse changes. 3.7 Verification of Subscriber Accounts. Prior to the Closing Date, Buyer shall have the right to verify by inspection, audit or other means that such subscriber accounts are active and current as of the Closing Date. 4. REPRESENTATIONS AND WARRANTIES OF BOTH SELLER AND BUYER. Seller and Buyer, (i) represents and warrants that each of the following representations and warranties is true and complete as of the Date of this Agreement with respect to the Seller, Buyer, and the Assets, as the case may be, and (ii) agree that such representations and warranties shall survive the Closing. 4.1 Standing and Authority for Business. Seller and Buyer each have full power and authority to own the Assets. Seller and Buyer are each duly organized and validly existing under the laws of the State of Utah, have all requisite power and authority (corporate and other) to own its properties and conduct business as now being conducted, is duly qualified to do business in each jurisdiction in which the character of its properties owned or leased by it therein or in which the transaction of business makes such qualification necessary, except where the failure to so qualify would not have a material adverse effect on Seller or Buyer or their business, operations, properties, assets or condition (financial or otherwise), and is not transacting business, or operating any properties owned or leased by it, in violation of any provision of federal or state law or any rule or regulation promulgated there under, which violation would have a material adverse effect on Seller or Buyer or their business, operations, properties, assets or condition (financial or otherwise). 4.2 Authority for Agreement. The Seller and Buyer have the right, power and authority to enter into this Agreement and to perform its, his, her or their obligations hereunder. The execution and delivery of this Agreement by the Seller and Buyer have been duly authorized by the appropriate authorities and manages. This Agreement has been duly and validly executed and delivered by the parties and is enforceable against the parties in accordance with its terms. 4.3 Current Operation of the Assets by Buyer. Buyer is currently administering and/or operating the Assets as an independent contractor pursuant to a Memorandum of Understanding. As the current administrator/operator of the Assets, Buyer is familiar will all aspects of administration and operation of the Assets to be sold pursuant to this Agreement and set forth in Subsection 1.1, above, therefore Seller makes no warranties regarding the Assets, except as expressly set forth herein. 4.4 Brokers and Finders. No person has acted directly or indirectly as a broker, finder or financial advisor for Seller or the Buyer in connection with the transaction contemplated by this Agreement and no person is entitled to any broker's, finder's, financial advisory or similar fee or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of Seller or Buyer. 4.5 Fixed Assets, Vehicles and Tangible Personal Property Excluded. Except as expressly and specifically listed on Schedule 4, the fixed assets, vehicles and tangible personal property of the Test, including, but not limited to, operating equipment, electronic devices, trunk and distribution coaxial and optical fiber cable, amplifiers, power suppliers, conduit, vaults and pedestals, grounding and pole hardware, subscribers devices (including converters, encoders, transformers behind television sets and fittings), head-end hardware (including origination, earth stations, transmission and distribution systems), test equipment, video equipment, computers, tools, parts, accessories, and other tangible personal property necessary for the operation of the Test are not included as part of the assets sold and to be transferred as part of this Agreement. All such vehicles, operating equipment, electronic devices, trunk and distribution coaxial and optical fiber cable, amplifiers, power suppliers, conduit, vaults and pedestals, grounding and pole hardware, subscriber's devices (including converters, encoders, transformers behind television sets and fittings), head-end hardware (including origination, earth stations, transmission and distribution system), test equipment, video equipment, computers, tools, parts, accessories and other tangible personal property shall at all times remain the assets of Seller and in Seller's possession and Buyer's use of any of these assets shall be undertaken only pursuant to a separate Network Lease Agreement to be entered into between the parties simultaneous with execution of this Agreement. Where such assets are transferred pursuant to Schedule 4, Buyer acknowledges that when received by Buyer, such assets are substantially fit for the purposes for which they are utilized and are, to be the best of Buyer's and Seller's knowledge, free from defects which could cause them to fail, or are sold "as is." 4.6. Personnel. Buyer is not assuming any obligation or liability in respect to Seller's full-time or part-time employees, contractors or any other agent or personnel, and Buyer shall have no obligation, liability or responsibility to them. 4.7 Subscribers, Billings and Receivables. Until Closing, Buyer agrees to provide Seller with access to a monthly report regarding the Assets, including a complete list of: (1) The subscribers of the Test that Buyer serves on an ongoing basis, including name, address, location and current billing rate; and (2) An accurate and complete aging of all accounts and notes receivable from subscribers as of the last day of the month showing amounts due in thirty (30) day aging categories. 4.8 Compliance With Laws. Until Closing Seller agrees to operate the Assets in material compliance with all federal, state and local laws, ordinances, codes, rules, regulations, Governmental Permits, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to Seller relating to the Test (collectively "Laws"), including, but not limited to, Laws relating to the public health, safety or protection of the environment (collectively "Environmental Laws") and without limiting the applicability of the foregoing, Buyer agrees to immediately notify Seller of any violation of law or of any notice of any private, administrative or judicial action, or notice of any intended private, administrative or judicial action relating to its operation of the Test. 4.9 Patents, Trademarks, Trade Names, etc. With the exception of the name "iProvo," no patents, trade names, fictitious business names, trademarks, service marks, copyrights or other intellectual property is currently used in the operation of the Test or in connection with the Assets. 4.10 Suppliers and Subscribers. The relations between Buyer, Seller and the subscribers of the Test are good. Buyer and Seller have no knowledge of any fact (other than general economic and industry conditions) which indicates that any of the subscribers of the Test intends to terminate, limit or reduce its relationship with Seller or Buyer relating to the Test. 4.11 Absence of Certain Practices. Seller and Buyer have not directly or indirectly within the past year given or agreed to give any gift or similar benefit to any subscriber, supplier, governmental employee or other person who is or may be in a position to help or hinder the Test in connection with any actual or proposed transaction which (a) if not given in the past might have had an adverse effect on the financial condition, business or results of operations of the Test, or (b) if not continued in the future, might adversely affect the financial condition, business or operations of the Test or which might subject Buyer or Seller to a penalty in any private or governmental litigation or proceeding. 4.12 Disclosure Schedules. Any matter disclosed by Seller on any Schedule to this Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by cross reference so long as the nature of the matter disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 4.13 No Misleading Statements. The representations and warranties of Seller and Buyer contained in this Agreement, the Exhibits and Schedules hereto attached and all other documents and information furnished to Buyer and Seller and their representatives pursuant hereto are complete and accurate in all material respects and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that each of the following representations and warranties is true as of the Closing Date, and agrees that such representations and warranties shall survive the Closing: 5.1 No Contractual Restrictions. No provisions exist in any article, document or instrument to which Buyer is a party or by which Buyer is bound which would be violated by consummation of the transaction contemplated by the Agreement. 6. CLOSING DELIVERIES. At the Closing, the respective parties shall make the deliveries indicated: 6.1 Buyer's Deliveries. (1) Buyer shall deliver the cash portion of the Purchase Price required to be delivered on the Closing Date pursuant to Section 1.4 to Seller; 6.2 Seller's Deliveries. At Closing, Seller shall deliver to Buyer: (1) An executed Bill of Sale or Bills of Sale and other instruments of transfer and conveyance for the full and complete sale, transfer, conveyance, assignment and delivery of the Assets to Buyer free and clear of all Liens in a form acceptable to Buyer in its sole discretion; (2) An executed assignment or transfer of Assumed Contracts and Governmental Permits accompanied by all third party consents required with respect thereto, if any; (3) Releases and Uniform Commercial Code termination statements, executed by the appropriate secured party and in the form appropriate for recording or filing, as applicable, sufficient to release any lien against the Assets; (4) A copy of resolutions duly adopted by the Provo City Council authorizing the execution and delivery of this Agreement, the Bill of Sale, and any other agreement required to be executed and delivered by Seller in connection herewith; and (5) Seller shall execute and deliver such other documents and instruments as are reasonably requested by Buyer in order to consummate the transaction contemplated by this Agreement. 7. INDEMNIFICATION. 7.1 Mutual Indemnification. Subject to Section 7.2, Seller and Buyer each covenant and agree that they will indemnify and hold harmless the other party and their respective directors, officers, attorneys, representatives and agents and their respective successors and assigns (collectively the "Indemnitees"), from and after the date of this Agreement, against any and all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs, expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation), expenditures, including, without limitation, identified by an Indemnitee with respect to each of the following contingencies until the expiration of the applicable statute of limitations (all constitute the "Indemnity Events"): (1) Any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant pursuant to the terms of this Agreement or any misrepresentation in or omission from any Exhibit, Schedule, list, certificate, or other instrument pursuant to the terms of the Agreement, regardless of whether, in the case of a breach of a representation or a warranty, the other party relied on the truth of such representation or warranty or had any knowledge of any breach thereof. (2) The design, development, construction or operation of any "Environmental Site" as hereinafter defined, during any period on or prior to the Closing Date. As used in this Agreement, "Environmental Site" shall mean any facility, processing, treatment or disposal facility, and any other business site or any other real property owned, leased, controlled or operated by a party or by any predecessor thereof on or prior to the Closing Date and used in the Test, provided however, as to activities of such predecessors, only to the extent that a party had knowledge of such activities. As used in this Agreement, "Environmental Site Losses" shall mean any and all losses, damages (including exemplary damages and penalties), liabilities, claims, deficiencies, costs, expenses, and expenditures (including, without limitation, expenses in connection with site evaluations, risk assessments and feasibility studies) arising out of or required by an interim or final judicial or administrative decree, judgment, injunction, mandate, interim or final permit condition or restriction, cease and desist order, abatement order, compliance order, consent order, clean-up order, exhumation order, reclamation order or any other remedial action that is required to be undertaken under federal, state or local law in respect of operating activities on or affecting any facility or any other Environmental Site including, but not limited to (i) any actual or alleged violation of any law or regulation respecting the protection of the environmental, including, but not limited to, RCRA and CERCLA or any other law or regulation respecting the protection of the air, water and land and (ii) any remedies or violations, whether by a private or public action, alleged or sought to be assessed as a consequence, directly or indirectly, of any "Release" (as defined below) of pollutants (including odors) or Hazardous Substances from any facility or any other Environmental Site resulting from activities thereat, whether such release is into the air, water (including groundwater) or land and whether such Release arose before the Closing Date. The term "Release" as used herein means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the ambient environment. (3) All actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incident to any the foregoing. 7.2 Limitations on Seller's Indemnities. The maximum amount which the Buyer Indemnitees can recover from Seller as a result of one or more Indemnity Events pursuant to the provisions hereof for Claims shall not in the aggregate exceed the Purchase Price. 7.3 Notice of Indemnity Claim. (1) In the event that any claim ("Claim") is hereafter asserted against or arises with respect to any Indemnitee as to which such Indemnitee may be entitled to indemnification hereunder, Indemnitee shall notify the other party ( the "Indemnifying Party") in writing thereof (the "Claims Notice") within sixty (60) days after (i) receipt of written notice of commencement of any third party litigation against such Indemnitee, (ii) receipt by such Indemnitee of written notice of any third party claim pursuant to an invoice, notice of claim or assessment, against such Indemnitee, or (iii) such Indenmnitee becomes aware of the existence of any other event in respect of which indemnification may be sought from the Indemnifying Party (including, without limitation, any inaccuracy of any representation or warranty or breach of any covenant). The Claims Notice shall describe the Claim and the specific facts and circumstances in reasonable detail, and shall indicate the amount, if known, or an estimate, if possible, of the losses that have been or may be incurred or suffered by the Indemnitee. (2) The Indemnifying Party may elect to defend any Claim for money damages where the cumulative total of all Claims (including such Claims) does not exceed the limit set forth in Section 7.2 at the time the Claim is made, by the Indemnifying Party's own counsel; provided, however, the Indemnifying Party may assume and undertake the defense of such a third party Claim only upon written agreement by the Indemnifying Party that the Indemnifying Party is obligated to fully indemnify Indemnitee with respect to such action. Indemnitee may participate, at Indemnitee's own expense, in the defense of any Claim assumed by the Indemnifying Party. Without the written approval of Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying Party shall not agree to any compromise of a Claim defended by the Indemnifying Party. (3) If, within thirty (30) days of the Indemnifying Party's receipt of a Claims Notice, the Indemnifying Party shall not have provided the written agreement required by Section 7.3(2) and elected to defend the Claims, Indemnitee shall have the right to assume control of the defense and/or compromise of such Claim, and the costs and expenses of such defense, including reasonable attorneys' fees shall be added to the Claim. The Indemnifying Party shall promptly, and in any event within thirty (30) days reimburse Indemnitee for the costs of defending the Claim, including attorneys' fees and expenses. (4) The party assuming the defense of any Claim shall keep the other party reasonably informed at all times of the progress and development of its or their defense of and compromise efforts with respect to such Claim and shall furnish the other party with copies of all relevant pleadings, correspondence and other papers. In addition, the parties to this Agreement shall cooperate with each other and make available to each other and their representatives all available relevant records or other materials required by them for their use in defending, compromising or contesting any Claim. The failure to timely deliver a Claims Notice or otherwise notify the Indemnifying Party of the commencement of such actions in accordance with this Section 7.3 shall not relieve the Indemnifying Party from the obligation to indemnify hereunder but only to the extent that the Indemnifying Party establishes by competent evidence that is prejudiced thereby. (5) In the event both the Indemnitee and the Indemnifying Party are named as defendants in an action or proceeding initiated by a third party, they shall both be represented by the same counsel (on whom they shall agree), unless such counsel, the Indemnitee, or the Indemnifying Party shall determine that such counsel has a conflict of interest in representing both the Indemnitee and the Indemnifying Party in the same action or proceeding and the Indemnitee and the Indemnifying Party do not waive such conflict to the satisfaction of such counsel. 7.4 Survival of Representations, Warranties and Agreements. The representations and warranties of the parties contained in this Agreement and in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other writing delivered pursuant to the provisions of the Agreement (the "Representations and Warranties") and the liability of the party making such Representations and Warranties for breaches thereof shall survive the consummation of the transactions contemplated hereby. The parties hereto in executing and delivering and in carrying out the provisions of the Agreement are relying solely on the representations, warranties, Schedules, Exhibits, agreements and covenants contained in this Agreement, or in any writing or document delivered pursuant to the provisions of this Agreement, and not upon any representation, warranty, agreement, promise or information, written or oral, made by any persons other than as specifically set forth herein or therein. 7.5 No Exhaustion of Remedies or Subrogation. The parties waive any right to require any Indemnitee to (i) proceed against any other person or (ii) pursue any other remedy whatsoever in the power of any Indemnitee. 7.6 Indemnity by Buyer. Buyer covenants and agrees that it will indemnify and hold harmless Seller and the Seller's directors, officers, trustees, partners, attorneys and agents and their respective successors and assigns, against all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expense of investigation) with respect to any act or omission of Buyer, its agents, servants or employees occurring from and after the Closing Date in connection with Buyer's termination of the Test and the conversion of Assets into Buyer's regular business operations. 8. OTHER POST-CLOSING COVENANTS. 8.1 Restrictive Covenants. Buyer acknowledges that Buyer is currently administering and/or operating the Assets as part of the Test and as an independent contractor pursuant to a Memorandum of Understanding and as the purchaser of the Assets (including the goodwill arising from the Test), (i) is and will be engaged in the business as contemplated by the Test; (ii) Buyer is intimately familiar with the Test and the operation of a retail telecommunications business; (iii) the Test is currently being conducted in the City of Provo, Utah; (iv) Buyer has had access to trade secrets of, and confidential information concerning, the Test; and (v) the agreements and covenants contained in this Section 8.1 are essential to protect the property value of the Assets and the goodwill created by the Test. Buyer and Seller covenant and agree as set forth in (1), (2), (3) and (4) below with respect to the termination of the Test and conversion of the Assets to Buyers retail telecommunications business: (1) Non-Compete. Except as contemplated by this Initial Provider Network Access And Use Agreement and the Exhibits thereto, including but not limited to the "open access" and "backup service" provisions of the Agreement, Seller shall not, within the City of Provo, Utah, engage in the operation of a cable television business in competition with Buyer while this Agreement is in effect, and except that nothing herein shall prevent Seller from exercising any of its rights under or arising from this Agreement. (2) Confidential Information. Subject to applicable law, at all times Buyer and Seller shall keep secret and retain in strictest confidence, all data and information relating to the Test("Confidential Information"), including without limitation, the existence of and terms of this Agreement, know-how, trade secrets, subscriber lists, supplier lists, details of contracts, pricing policies, operational methods, marketing plans or strategies, bidding practices and policies, product development techniques or plans, and technical processes; provided, however, that the term "Confidential Information" shall not include information that (i) is or becomes generally available to the public other than as a result of disclosure by Seller, or (ii) is general knowledge in the cable television and internet provider business and not specifically related to the Test. (3) Property of the Test. All memoranda, notes, lists, records and other documents or papers (and all copies thereof) relating to the Test, including such items stored in computer memories, on microfiche or by any other means, made or compiled by or on behalf of Seller, relating to the Test, but excluding any materials maintained by any attorneys for Seller, prior to the Closing, are and shall remain the property of the Seller until Closing but will be delivered or made available to the Buyer at the Closing. (4) Non-Solicitation. Without the consent of the Seller, which may be granted or withheld by the Seller in its discretion, Buyer shall not solicit any employees of the Seller to leave the employ of the Seller or its Affiliates and join Buyer in any business endeavor owned or pursued by Buyer. (5) No Disparagement. Neither the Seller nor the Buyer shall, in any way to any person, denigrate or derogate the Test, whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which are learned by the Buyer. A statement shall be deemed denigrating or derogatory to any person if it is not true and adversely affects the regard or esteem in which such person or entity is held by such person. Without limiting the generality of the foregoing, neither the Seller nor the Buyer shall, directly or indirectly in any way in respect of any such company or any such directors or officers, communicate with, or take any discretionary action which is adverse to the position of any such company with any person. This paragraph does not apply to the extent that testimony is required by legal process, provided that the party has received not less than five (5) days' prior written notice of such proposed testimony. 8.2 Rights and Remedies Upon Breach. If Seller or Buyer threaten to commit a breach of, any of the provisions of Section 8.1(1), (2), (3), (4) or (5) herein (the "Restrictive Covenants"), the Buyer shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to the Buyer at law or in equity: (1) Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Buyer and that money damages would not provide an adequate remedy to the Buyer. Accordingly, in addition to any other rights or remedies, the Buyer shall be entitled to injunctive relief to enforce the terms of the Restrictive Covenants and to restrain Seller from any violation thereof. (2) Accounting. The right and remedy to require the other party to account for and pay over to all compensation, profits, monies, accruals, increments or other benefits derived or received as the result of any transaction constituting a breach of the Restrictive Covenants. (3) Severability of Covenants. The parties acknowledge and agree that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, if invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be a given full effect, without regard to the invalid portions. (4) Covenant Adjustment. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall reduce the duration or scope of such provision, as the case may be, to the extent necessary to render it enforceable and, in its reduced form, such provision shall then be enforced. (5) Enforceability in Jurisdiction. The parties intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of the Restrictive Covenants. 9. TERMINATION OF AGREEMENT. 9.1 Termination. This Agreement may be terminated at any time prior to the Closing Date upon ninety (90) days prior written notice to the other party: (1) By the Buyer, by written notice to the Seller if the representations and warranties of the Seller shall not have been true and correct in all respects as of the date when made; or (2) by the Buyer or by the Seller, if the required consents have not been granted, and specifically if the approval of the purchase by the Provo City Council has not been given or has been revoked; or (3) by the Seller if the representations and warranties of the Buyer shall not have been true and correct in all respects as of the date when made, or if the franchise to operate a cable system granted to Buyer by Provo City is for any reason declared invalid or void, or is suspended or revoked; or (4) as provided in Subsection 1.5(3) or by the mutual written consent of Buyer and Seller. (5) Whenever this Agreement is terminated pursuant to this Section, Buyer and Seller agree that Buyer's Network Lease and Maintenance Agreement and Franchise Agreement shall automatically terminate as of the date of the termination of this Agreement without further action by either party. 9.2 Notice and Effect of Termination. On termination of this Agreement, the transaction contemplated herein shall forthwith be abandoned and all continuing obligations and liabilities of the parties under or in connection with this Agreement shall be terminated and of no further force or effect; provided, however, that nothing herein shall relieve any party from liability for any misrepresentation, breach of warranty or breach of covenant contained in this Agreement prior to such termination. 10. GENERAL. 10.1 Additional Conveyances. Following the parties each delivers or causes to be delivered at such times and places as shall be reasonably agreed upon such additional instruments as Buyer or Seller may reasonably request for the purpose of carrying out this Agreement. The parties will cooperate on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings or disputes of any nature with respect to matters pertaining to all periods prior to the date of this Agreement. 10.2 Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, the successors or assigns of Buyer and the Seller and their respective heirs, legal representatives or assigns; provided, however, that any such assignment shall be subject to the terms of this Agreement and shall not relieve the assignor of its or his responsibilities under this Agreement. 10.3 Willing Buyer and Seller and Coordination of Public Announcements. Buyer and Seller warrant and agree that they are entering into this agreement willingly and without duress or undue influence, economic or otherwise. Seller and Buyer agree to coordinate the timing of all public statements and announcements and to cooperate in explaining this Agreement to the public. 10.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 10.5 Notices. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given if in writing and either delivered personally, or mailed by postage prepaid registered or certified U.S. mail, return receipt requested, to the addresses designated below or such other addresses as may be designated in writing by notice given hereunder, and shall be effective upon personal delivery thereof or upon delivery by registered or certified U.S. mail. If to Buyer: Chief Operations Officer Attn.: Robert Murtagh Video Internet Broadcasting Corporation 135 Basin Street SW Ephrata, Washington 98823 If to Seller: Provo City Attorney Attn: Robert West Provo City Attorney's Office 351 West Center Street P.O. Box 1849 Provo, Utah 84603 10.6 Attorneys' Fees. In the event of any dispute or controversy between Buyer and Seller relating to the interpretation of this Agreement or to the transaction contemplated hereby, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees and expenses incurred by the prevailing party. Such award shall include post-judgment attorney's fees and costs. 10.7 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah without regard to its conflict of laws provisions. 10.8 Payment of Fees and Expenses. Whether or not the transactions herein contemplated shall be consummated, each party hereto will pay its own fees, expenses and disbursements incurred in connection herewith and all other costs and expenses incurred in the performance and compliance with all conditions to be performed hereunder. 10.9 Incorporation by Reference. All Schedules and Exhibits attached hereto are incorporated herein by reference as though fully set forth at each point referred to in this Agreement. 10.10 Captions. The captions in this Agreement are for convenience only and shall not be considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 10.11 Number and Gender of Words. Whenever the singular number is used herein, the same shall include the plural where appropriate, and shall apply to all of such number, and to each of them, jointly and severally, and words of any gender shall include each other gender where appropriate. Without limiting the generality of the foregoing, any reference to "Partners" shall apply to each individual "Partner." 10.12 Entire Agreement. This Agreement (including the Schedules and Exhibits hereto) and the other documents delivered pursuant hereto constitute the entire Agreement and understanding between Seller and the Buyer and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by the Seller and the Buyer. 10.13 Waiver. No waiver by any party hereto at any time of any breach of, or compliance with, any condition or provision of this Agreement to be performed by any other party hereto may be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. 10.14 Construction. The language in all parts of this Agreement must be in all cases construed simply according to its fair meaning and not strictly for or against any party. Unless expressly set forth otherwise, all references herein to a "day" are deemed to be a reference to a calendar day. All references to "business day" mean any day of the year other than a Saturday, Sunday or a public or bank holiday in Utah. Unless expressly stated otherwise, cross-references herein refer to provisions within this Agreement and are not references to the overall transaction or to any other document. Signature Page to Follow DATED effective as of the date first above written. Provo City By: ______________________________________ Mayor Lewis K. Billings ATTEST: __________________________________________ Provo City Recorder APPROVED AS TO FORM: __________________________________________ Provo City Attorney Video Internet Broadcasting Corporation, d.b.a. HomeNet Communications of Utah. By: ______________________________________ Michael W. Devine (President) ATTEST BY: ______________________________________________ Name: Title: SCHEDULE 1 Assets 1. All subscribers accounts including: a. 252 Residential subscriber accounts b. 258 EBUs for bulk subscriber accounts c. 52 EBUs for commercial accounts. 2. Residential Subscriber accounts will be revisited thirty (30) days from the execution of this Agreement to determine if the seventeen (17) bad-debt accounts have a change in status. Any accounts having become current or missed payment plans will be appropriately disposed in the final total. 3. The goodwill associated with iProvo. 4. All proprietary subscriber information contained in computer records, including subscriber lists and accounts. SCHEDULE 2 Assumed Contracts All bulk accounts (MDU) Contracts. All Commercial Accounts Contracts. SCHEDULE 3 Subscribers SCHEDULE 4 Fixed Assets, Vehicles And Tangible Personal Property Transferred None EXHIBIT J PROVO CABLE ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") dated as of ______________, 2004, is entered into by PROVO CITY, a political subdivision of the State of Utah (hereinafter referred to as "Seller") and homenet utah, a Washington corporation registered to do business in Utah (hereinafter referred to as "Buyer"). RECITALS WHEREAS, the Seller is the owner of certain assets used in the business of providing cable television and related services to the residents of the City of Provo, Utah, previously referred to as "Provo Cable" (the "Business") and currently being operated by Buyer pursuant to a memorandum of understanding between Seller and Buyer, (the "Memorandum of Understanding"); and WHEREAS, Buyer wishes to purchase from Seller, and Seller wishes to sell to Buyer, certain assets of the Business; NOW, THEREFORE, in consideration of the premises and the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto, each intending to be bound hereby, agree as follows: 1. PURCHASE AND SALE OF ASSETS. 1.1 Sale and Transfer of Assets. Subject to and in accordance with the terms and conditions of this Agreement, at the Closing (as defined below) on the Closing Date (as defined below) Seller shall sell, convey, transfer, deliver and assign to Buyer all of the assets, property and businesses listed on Schedule 1 (collectively, the "Assets") free and clear of all of any liens, security interests, pledges, assignments, restrictions and other encumbrance of any kind or nature, including without limitation: (1) Seller's rights and benefits in all accounts of current active customers as listed on Schedule 1 and defined below in Section 1.10, and contracts, and all accounts receivable. (2) The "goodwill" associated with the Provo Cable Company, Inc.; (3) Seller's confidential and/or proprietary customer information, including customer lists and accounts, but with respect to accounts payable, only those that accrue after the date of this Agreement first set forth above; 1.2 Assumption of Assumed Contracts. Buyer hereby assumes and agrees to perform all of the obligations and commitments of Seller accruing after the Closing Date, under or with respect to each contract set forth on Schedule 2 (collectively the "Assumed Contracts" or individually an "Assumed Contract"), but not including any obligation or liability arising or occurring prior to the Closing Date. Buyer shall have no obligation with respect to any contract not constituting an Assumed Contract set forth in Schedule 2. 1.3 Excluded Liabilities. Except for the Assumed Contracts and regardless of any disclosure to Buyer, Buyer is not, as part of this agreement, assuming any other duties, responsibilities, obligations or liabilities of Seller or to which Seller or any of the Assets or the Business may be bound or affected, of whatever kind or nature, whether known, unknown, contingent or otherwise (and including without limitation taxes arising from the operation of the Business) (the "Excluded Liabilities"). However, the parties to this Agreement currently have other obligations to each other arising from the Memorandum of Understanding, thereof, and the parties contemplate entering into other necessary agreements for the continued operation of the Business after the sale of the Assets pursuant to this Agreement. These other agreements shall be governed by their own provisions and shall not be affected by this Subsection 1.3. 1.4 Purchase Price. The total purchase price to be paid for the Assets shall be Two Hundred Seventy-five Dollars ($275.00) per adjusted current active customer as defined in section 1.10, herein (the "Purchase Price"), and shall be payable to Seller as set forth in Section 1.5, herein. The count representing the total adjusted current active customers will be made using the following calculation as the basis for the minimum number of customers to be purchase with the actual number purchased to be determined as actual customers are converted to iProvo customers as tracked and agreed upon by the parties: Total Single Family Resident current active customers * 40% = Adjusted SFR current active customers Total MDU EBU current active customers * 90% = Adjusted MDU current active customers Total business EBUs and other active customer EBUs * 100% = Adjusted business and other active customers Adjusted SFR + Adjusted MDU + Adjusted business and other active customers = Total Adjusted current active customers 1.5 Payment of Purchase Price. (1) Buyer shall make to Seller, in immediately available funds, equal monthly payments on the principal balance of the Purchase Price for a term not to exceed two (2) years from the Closing Date. (2) The outstanding principal balance hereof shall bear interest at the rate of six percent (6%) per annum from and after the Closing Date, until paid. Interest payable hereunder shall accrue daily and be calculated on the basis of a three hundred sixty five (365) day year and the actual number of days elapsed in any particular calendar month. (3) Any and all payments shall be due on or before the first day of the month beginning the month following the Closing Date. (4) Any payments made during the time between the signing of the Memorandum of Understanding and the Closing Date set forth in this Agreement shall be applied to the Purchase Price. 1.6 Retained Title and Interest. Until the purchase price is paid in full at Closing, Seller shall retain title to the Assets set forth in Subsection 1.1, above. Buyer shall not have the right to sell, lease, sublease or in any way alienate Seller's interest or Buyer's own interest in the Assets set forth in subsection 1.1, above, nor to use said assets for the purpose of securing any debt, nor to create any right or interest in any third party. Although the physical possession and apparent interest in the Assets may be transferred to Buyer as of the date of this Agreement, until the purchase price is paid in full at Closing, Seller shall have the right to show itself as the owner of the Assets and/or as a secured party on any deed, UCC form or other public or private document or disclosure form. 1.7 Certain Taxes. Any taxes owed, if any, to any taxing entity in connection with or as a result of the transfer of the Assets under the terms of this Agreement and the transactions contemplated hereby, including, but not limited to, any and all sales, use, excise, transfer and conveyance taxes payable or assessable, shall be paid by Buyer. However, Buyer shall not be responsible for any business, occupation, income, withholding, possessor interest or similar tax or assessment or any other tax or fee of any kind relating to any period on or prior to the date of this Agreement with respect to Seller, the Assets, or the ownership, operation or management of the Business. 1.8 Prorations. Seller's and Buyer's responsibilities for rent, insurance premiums, personal property taxes, water, gas, electricity and other utilities, and other periodic ordinary and necessary operating costs payable with respect to the Assets to the effective date of this Agreement shall be governed by the Memorandum of Understanding until this Agreement is executed and becomes effective, whereupon the Memorandum of Understanding, and any renewal thereof, shall terminate. 1.9 Customers Defined. "Current active customer" shall be defined according to the following: (1) An individual account paying the standard monthly rate for cable service; (2) An account that is current and in good standing as of the date of the Memorandum of Understanding (MOU) or becomes current within 45 days of the MOU. Buyer shall make all good faith efforts necessary to maximize the number of subscribers that qualify as active. (3) All "bulk" accounts (apartment complexes, etc.) as converted to customers by using the following formula for Equivalent Billing Units: Total monthly payment/ standard monthly rate ($25.95) = EBUs. Each EBU shall equate to one customer. (4) Total monthly payments from other sources (e.g. internet subscribers, premium service revenues, contract payments for fiber connection to BYU) shall beconverted to customers in the same manner as bulk accounts in Section 1.10 (3) above. (5) The count of "current active subscribers" will be adjusted by May 4, 2004 for subscribers that terminate service primarily due to the April 1st 2004 price increase for basic cable service from $25.95 to $29.95 per month. The customer support staff of the Buyer, to ensure that the reason for their termination is substantially known, will interview any subscribers that terminate service during this sixty (60) day period. 1.10 Network Lease. Buyer agrees to lease the Provo Cable network according to the terms and conditions of the Provo Cable Network Lease Agreement attached hereto as Appendix A. 2. SETTLEMENT AND CLOSING. 2.1 Time and Place of Closing. Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated herein (the "Closing") shall take place as soon as practical following the satisfaction of all the Conditions to Closing set forth in Section 3. The actual date of the closing is hereinafter referred to as the "Closing Date." The Closing or Settlement shall take place at the Provo City Attorneys Office located at 351 West Center, Provo, Utah. 3. CONDITIONS TO CLOSING. The consummation of the transactions contemplated by this Agreement is conditioned upon the following: 3.1 Approval of This Agreement, Network Lease Agreement and Franchise Agreement by the Provo City Municipal Council. As conditions precedent to the purchase of the Assets by Buyer is the approval by a majority vote of the Provo City Municipal Council during a regularly scheduled (or specially convened) Council meeting authorizing the Mayor to negotiate and execute this Asset Purchase Agreement, together with documents related thereto, and the Provo City Municipal Council approving a Network Lease and Maintenance Agreement and Franchise Agreement between the City of Provo, Utah, and Buyer allowing Buyer to operate a cable system in Provo City, Utah. 3.2 Television Services/Signal Provider Consents. If required, Seller hereby agrees to use its best efforts to obtain consents in writing from each television service/signal provider for transfer of Affiliate Agreements between Seller and such providers. However, in view of the fact that Buyer is negotiating its own agreements with the service/signal providers, failure by Seller to obtain consents from all providers shall not preclude the parties from Closing. 3.3 Facility Lease Consents. Buyer shall have the option of leasing one customer service representative station and one additional desk at Seller's current office space located at 251 West 800 North Provo, Utah 84603 at the rate of $250.00 per month, including data and local phone connection, for a maximum of twelve (12) months unless otherwise agreed upon by the parties. Buyer's telephone expenses during the period of office space lease from Seller shall be paid by Buyer. 3.4 Delivery of Documents. Buyer and Seller shall have signed and delivered to each other all documents and other deliverables required by Section 6 of this Agreement. 3.5 All Other Consents. Buyer shall obtain all necessary consents, including all required Government Consents, if any, that may be required for Buyer to acquire and fully operate the Assets and the Business. 3.6 No Material Adverse Change. Buyer shall be satisfied, in its sole discretion, that the Assets and the Business have experienced no material adverse changes. 3.7 Verification of Customer Accounts. Prior to the Closing Date, Buyer shall have the right to verify by inspection, audit or other means that such customer accounts are active and current as of the Closing Date. 4. REPRESENTATIONS AND WARRANTIES OF BOTH SELLER AND BUYER. Seller and Buyer, (i) represents and warrants that each of the following representations and warranties is true and complete as of the Date of this Agreement with respect to the Seller, Buyer, the Assets and the Business, as the case may be, and (ii) agree that such representations and warranties shall survive the Closing. 4.1 Standing and Authority for Business. Seller and Buyer each have full power and authority to own the Assets and to operate the Business. Seller and Buyer are each duly organized and validly existing under the laws of the State of Utah, have all requisite power and authority (corporate and other) to own its properties and conduct business as now being conducted, is duly qualified to do business in each jurisdiction in which the character of its properties owned or leased by it therein or in which the transaction of business makes such qualification necessary, except where the failure to so qualify would not have a material adverse effect on Seller or Buyer or their business, operations, properties, assets or condition (financial or otherwise), and is not transacting business, or operating any properties owned or leased by it, in violation of any provision of federal or state law or any rule or regulation promulgated thereunder, which violation would have a material adverse effect on Seller or Buyer or their business, operations, properties, assets or condition (financial or otherwise). 4.2 Authority for Agreement. The Seller and Buyer have the right, power and authority to enter into this Agreement and to perform its, his, her or their obligations hereunder. The execution and delivery of this Agreement by the Seller and Buyer have been duly authorized by the appropriate authorities and manages. This Agreement has been duly and validly executed and delivered by the parties and is enforceable against the parties in accordance with its terms. 4.3 Current Operation of Business by Buyer. Buyer is currently operating the Business as an independent contractor pursuant to a Memorandum of Understanding. As the current operator of the Business, Buyer is familiar will all aspects of the Business and the Assets to be sold pursuant to this Agreement and set forth in Subsection 1.1, above, therefore Seller makes no warranties regarding the business or assets, except as expressly set forth herein. 4.4 Brokers and Finders. No person has acted directly or indirectly as a broker, finder or financial advisor for Seller or the Buyer in connection with the transaction contemplated by this Agreement and no person is entitled to any broker's, finder's, financial advisory or similar fee or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of Seller or Buyer. 4.5 Fixed Assets, Vehicles and Tangible Personal Property Excluded. Except as expressly and specifically listed on Schedule 3, the fixed assets, vehicles and tangible personal property of the Business, including, but not limited to, operating equipment, electronic devices, trunk and distribution coaxial and optical fiber cable, amplifiers, power suppliers, conduit, vaults and pedestals, grounding and pole hardware, subscribers devices (including converters, encoders, transformers behind television sets and fittings), head-end hardware (including origination, earth stations, transmission and distribution systems), test equipment, video equipment, computers, tools, parts, accessories and other tangible personal property necessary for the operation of the Business are not included as part of the assets sold and to be transferred as part of this Agreement. All such vehicles, operating equipment, electronic devices, trunk and distribution coaxial and optical fiber cable, amplifiers, power suppliers, conduit, vaults and pedestals, grounding and pole hardware, subscriber's devices (including converters, encoders, transformers behind television sets and fittings), head-end hardware (including origination, earth stations, transmission and distribution system), test equipment, video equipment, computers, tools, parts, accessories and other tangible personal property shall at all times remain the assets of Seller and in Seller's possession and Buyer's use of any of these assets shall be undertaken only pursuant to a separate Network Lease Agreement to be entered into between the parties simultaneous with execution of this Agreement. Where such assets are transferred pursuant to Schedule 3, Buyer acknowledges that when received by Buyer, such assets are substantially fit for the purposes for which they are utilized and are, to be the best of Buyer's and Seller's knowledge, free from defects which could cause them to fail, or are sold "as is." 4.6. Personnel. Buyer is not assuming any obligation or liability in respect to Seller's full-time or part-time employees, contractors or any other agent or personnel, and Buyer shall have no obligation, liability or responsibility to them. 4.7 Customers, Billings and Receivables. Until Closing, Buyer agrees to provide Seller with access to a monthly report regarding the Business, including a complete list of: (1) The customers of the Business that Buyer serves on an ongoing basis, including name, address, location and current billing rate; and (2) An accurate and complete aging of all accounts and notes receivable from customers as of the last day of the month showing amounts due in thirty (30) day aging categories. 4.8 Compliance With Laws. Until Closing or Settlement Seller agrees to operate the Business in material compliance with all federal, state and local laws, ordinances, codes, rules, regulations, Governmental Permits, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to Seller relating to the Business (collectively "Laws"), including, but not limited to, Laws relating to the public health, safety or protection of the environment (collectively "Environmental Laws") and without limiting the applicability of the foregoing, Buyer agrees to immediately notify Seller of any violation of law or of any notice of any private, administrative or judicial action, or notice of any intended private, administrative or judicial action relating to its operation of the Business. 4.9 Patents, Trademarks, Trade Names, etc. With the exception of the name "Provo Cable," no patents, trade names, fictitious business names, trademarks, service marks, copyrights or other intellectual property is currently used in the operation of the Business or in connection with the Assets. 4.10 Suppliers and Customers. The relations between Buyer, Seller and the customers of the Business are good. Buyer and Seller have no knowledge of any fact (other than general economic and industry conditions) which indicates that any of the customers of the Business intends to terminate, limit or reduce its business relations with Seller or Buyer relating to the Business. 4.11 Absence of Certain Business Practices. Seller and Buyer have not directly or indirectly within the past year given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the Business in connection with any actual or proposed transaction which (a) if not given in the past might have had an adverse effect on the financial condition, business or results of operations of the Business, or (b) if not continued in the future, might adversely affect the financial condition, business or operations of the Business or which might subject Buyer or Seller to a penalty in any private or governmental litigation or proceeding. 4.12 Disclosure Schedules. Any matter disclosed by Seller on any Schedule to this Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by cross reference so long as the nature of the matter disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 4.13 No Misleading Statements. The representations and warranties of Seller and Buyer contained in this Agreement, the Exhibits and Schedules hereto attached and all other documents and information furnished to Buyer and Seller and their representatives pursuant hereto are complete and accurate in all material respects and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that each of the following representations and warranties is true as of the Closing Date, and agrees that such representations and warranties shall survive the Closing: 5.1 No Contractual Restrictions. No provisions exist in any article, document or instrument to which Buyer is a party or by which Buyer is bound which would be violated by consummation of the transaction contemplated by the Agreement. 6. CLOSING DELIVERIES. At the Closing, the respective parties shall make the deliveries indicated: 6.1 Buyer's Deliveries. (1) Buyer shall deliver the cash portion of the Purchase Price required to be delivered on the Closing Date pursuant to Section 1.4 to Seller; 6.2 Seller's Deliveries. At Closing, Seller shall deliver to Buyer: (1) An executed Bill of Sale or Bills of Sale and other instruments of transfer and conveyance for the full and complete sell, transfer, conveyance, assignment and delivery of the Assets to Buyer free and clear of all Liens in a form acceptable to Buyer in its sole discretion; (2) An executed assignment or transfer of Assumed Contracts and Governmental Permits accompanied by all third party consents required with respect thereto, if any; (3) Releases and Uniform Commercial Code termination statements, executed by the appropriate secured party and in the form appropriate for recording or filing, as applicable, sufficient to release any lien against the Assets; (4) A copy of resolutions duly adopted by the Provo City Council authorizing the execution and delivery of this Agreement, the Bill of Sale, and any other agreement required to be executed and delivered by Seller in connection herewith; and (5) Seller shall execute and deliver such other documents and instruments as are reasonably requested by Buyer in order to consummate the transaction contemplated by this Agreement. 7. INDEMNIFICATION. 7.1 Mutual Indemnification. Subject to Section 7.2, Seller and Buyer each covenant and agree that they will indemnify and hold harmless the other party and their respective directors, officers, attorneys, representatives and agents and their respective successors and assigns (collectively the "Indemnitees"), from and after the date of this Agreement, against any and all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs, expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation), expenditures, including, without limitation, identified by an Indemnitee with respect to each of the following contingencies until the expiration of the applicable statute of limitations (all constitute the "Indemnity Events"): (1) Any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant pursuant to the terms of this Agreement or any misrepresentation in or omission from any Exhibit, Schedule, list, certificate, or other instrument pursuant to the terms of the Agreement, regardless of whether, in the case of a breach of a representation or a warranty, the other party relied on the truth of such representation or warranty or had any knowledge of any breach thereof. (2) The design, development, construction or operation of any "Environmental Site" as hereinafter defined, during any period on or prior to the Closing Date. As used in this Agreement, "Environmental Site" shall mean any facility, processing, treatment or disposal facility, and any other business site or any other real property owned, leased, controlled or operated by a party or by any predecessor thereof on or prior to the Closing Date and used in the Business, provided however, as to activities of such predecessors, only to the extent that a party had knowledge of such activities. As used in this Agreement, "Environmental Site Losses" shall mean any and all losses, damages (including exemplary damages and penalties), liabilities, claims, deficiencies, costs, expenses, and expenditures (including, without limitation, expenses in connection with site evaluations, risk assessments and feasibility studies) arising out of or required by an interim or final judicial or administrative decree, judgment, injunction, mandate, interim or final permit condition or restriction, cease and desist order, abatement order, compliance order, consent order, clean-up order, exhumation order, reclamation order or any other remedial action that is required to be undertaken under federal, state or local law in respect of operating activities on or affecting any facility or any other Environmental Site including, but not limited to (i) any actual or alleged violation of any law or regulation respecting the protection of the environmental, including, but not limited to, RCRA and CERCLA or any other law or regulation respecting the protection of the air, water and land and (ii) any remedies or violations, whether by a private or public action, alleged or sought to be assessed as a consequence, directly or indirectly, of any "Release" (as defined below) of pollutants (including odors) or Hazardous Substances from any facility or any other Environmental Site resulting from activities thereat, whether such release is into the air, water (including groundwater) or land and whether such Release arose before the Closing Date. The term "Release" as used herein means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the ambient environment. (3) All actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incident to any the foregoing. 7.2 Limitations on Seller's Indemnities. The maximum amount which the Buyer Indemnitees can recover from Seller as a result of one or more Indemnity Events pursuant to the provisions hereof for Claims shall not in the aggregate exceed the Purchase Price. 7.3 Notice of Indemnity Claim. (1) In the event that any claim ("Claim") is hereafter asserted against or arises with respect to any Indemnitee as to which such Indemnitee may be entitled to indemnification hereunder, Indemnitee shall notify the other party ( the "Indemnifying Party") in writing thereof (the "Claims Notice") within sixty (60) days after (i) receipt of written notice of commencement of any third party litigation against such Indemnitee, (ii) receipt by such Indemnitee of written notice of any third party claim pursuant to an invoice, notice of claim or assessment, against such Indemnitee, or (iii) such Indenmnitee becomes aware of the existence of any other event in respect of which indemnification may be sought from the Indemnifying Party (including, without limitation, any inaccuracy of any representation or warranty or breach of any covenant). The Claims Notice shall describe the Claim and the specific facts and circumstances in reasonable detail, and shall indicate the amount, if known, or an estimate, if possible, of the losses that have been or may be incurred or suffered by the Indemnitee. (2) The Indemnifying Party may elect to defend any Claim for money damages where the cumulative total of all Claims (including such Claims) does not exceed the limit set forth in Section 7.2 at the time the Claim is made, by the Indemnifying Party's own counsel; provided, however, the Indemnifying Party may assume and undertake the defense of such a third party Claim only upon written agreement by the Indemnifying Party that the Indemnifying Party is obligated to fully indemnify Indemnitee with respect to such action. Indemnitee may participate, at Indemnitee's own expense, in the defense of any Claim assumed by the Indemnifying Party. Without the written approval of Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying Party shall not agree to any compromise of a Claim defended by the Indemnifying Party. (3) If, within thirty (30) days of the Indemnifying Party's receipt of a Claims Notice, the Indemnifying Party shall not have provided the written agreement required by Section 7.3(2) and elected to defend the Claims, Indemnitee shall have the right to assume control of the defense and/or compromise of such Claim, and the costs and expenses of such defense, including reasonable attorneys' fees shall be added to the Claim. The Indemnifying Party shall promptly, and in any event within thirty (30) days reimburse Indemnitee for the costs of defending the Claim, including attorneys' fees and expenses. (4) The party assuming the defense of any Claim shall keep the other party reasonably informed at all times of the progress and development of its or their defense of and compromise efforts with respect to such Claim and shall furnish the other party with copies of all relevant pleadings, correspondence and other papers. In addition, the parties to this Agreement shall cooperate with each other and make available to each other and their representatives all available relevant records or other materials required by them for their use in defending, compromising or contesting any Claim. The failure to timely deliver a Claims Notice or otherwise notify the Indemnifying Party of the commencement of such actions in accordance with this Section 7.3 shall not relieve the Indemnifying Party from the obligation to indemnify hereunder but only to the extent that the Indemnifying Party establishes by competent evidence that is prejudiced thereby. (5) In the event both the Indemnitee and the Indemnifying Party are named as defendants in an action or proceeding initiated by a third party, they shall both be represented by the same counsel (on whom they shall agree), unless such counsel, the Indemnitee, or the Indemnifying Party shall determine that such counsel has a conflict of interest in representing both the Indemnitee and the Indemnifying Party in the same action or proceeding and the Indemnitee and the Indemnifying Party do not waive such conflict to the satisfaction of such counsel. 7.4 Survival of Representations, Warranties and Agreements. The representations and warranties of the parties contained in this Agreement and in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other writing delivered pursuant to the provisions of the Agreement (the "Representations and Warranties") and the liability of the party making such Representations and Warranties for breaches thereof shall survive the consummation of the transactions contemplated hereby. The parties hereto in executing and delivering and in carrying out the provisions of the Agreement are relying solely on the representations, warranties, Schedules, Exhibits, agreements and covenants contained in this Agreement, or in any writing or document delivered pursuant to the provisions of this Agreement, and not upon any representation, warranty, agreement, promise or information, written or oral, made by any persons other than as specifically set forth herein or therein. 7.5 No Exhaustion of Remedies or Subrogation. The parties waive any right to require any Indemnitee to (i) proceed against any other person or (ii) pursue any other remedy whatsoever in the power of any Indemnitee. 7.6 Indemnity by Buyer. Buyer covenants and agrees that it will indemnify and hold harmless Seller and the Seller's directors, officers, trustees, partners, attorneys and agents and their respective successors and assigns, against all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expense of investigation) with respect to any act or omission of Buyer, its agents, servants or employees occurring from and after the Closing Date in connection with Buyer's operations of the Business and the Assets. 8. OTHER POST-CLOSING COVENANTS. 8.1 Restrictive Covenants. Buyer acknowledges that Buyer is currently operating the Business as an independent contractor pursuant to a Service Agreement and renewals thereof and as the purchaser of the Assets (including the goodwill of the Business), (i) is and will be engaged in the same business as the Business; (ii) Buyer is intimately familiar with the Business; (iii) the Business is currently conducted in the City of Provo, Utah; (iv) Buyer has had access to trade secrets of, and confidential information concerning, the Business; and (v) the agreements and covenants contained in this Section 8.1 are essential to protect the Business and the goodwill of the Business. Buyer and Seller covenant and agree as set forth in (1), (2), (3) and (4) below with respect to the Business: (1) Non-Compete. Except as contemplated by this Initial Provider Network Access And Use Agreement and the Exhibits thereto, including but not limited to the "open access" and "backup service" provisions of the Agreement, Seller shall not, within the City of Provo, Utah, engage in the operation of a cable television business in competition with Buyer while this Agreement is in effect, and except that nothing herein shall prevent Seller from exercising any of its rights under or arising from this Agreement. (2) Confidential Information. Subject to applicable law, at all times Buyer and Seller shall keep secret and retain in strictest confidence, all data and information relating to the Business ("Confidential Information"), including without limitation, the existence of and terms of this Agreement, know-how, trade secrets, customer lists, supplier lists, details of contracts, pricing policies, operational methods, marketing plans or strategies, bidding practices and policies, product development techniques or plans, and technical processes; provided, however, that the term "Confidential Information" shall not include information that (i) is or becomes generally available to the public other than as a result of disclosure by Seller, or (ii) is general knowledge in the cable television and internet provider business and not specifically related to the Business. (3) Property of the Business. All memoranda, notes, lists, records and other documents or papers (and all copies thereof) relating to the Business, including such items stored in computer memories, on microfiche or by any other means, made or compiled by or on behalf of Seller, relating to the Business, but excluding any materials maintained by any attorneys for Seller, prior to the Closing, are and shall remain the property of the Seller until Closing but will be delivered or made available to the Buyer at the Closing. (4) Non-Solicitation. Without the consent of the Seller, which may be granted or withheld by the Seller in its discretion, Buyer shall not solicit any employees of the Seller to leave the employ of the Seller or its Affiliates and join Buyer in any business endeavor owned or pursued by Buyer. (5) No Disparagement. Neither the Seller nor the Buyer shall, in any way to any customer or employee of the Business, denigrate or derogate the Business, whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which are learned by the Buyer. A statement shall be deemed denigrating or derogatory to any person if it adversely affects the regard or esteem in which such person or entity is held by such person. Without limiting the generality of the foregoing, neither the Seller nor the Buyer shall, directly or indirectly in any way in respect of any such company or any such directors or officers, communicate with, or take any action which is adverse to the position of any such company with any customer or employee of the Business. This paragraph does not apply to the extent that testimony is required by legal process, provided that the party has received not less than five (5) days' prior written notice of such proposed testimony. 8.2 Rights and Remedies Upon Breach. If Seller or Buyer threaten to commit a breach of, any of the provisions of Section 8.1(1), (2), (3), (4) or (5) herein (the "Restrictive Covenants"), the Buyer shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to the Buyer at law or in equity: (1) Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Buyer and that money damages would not provide an adequate remedy to the Buyer. Accordingly, in addition to any other rights or remedies, the Buyer shall be entitled to injunctive relief to enforce the terms of the Restrictive Covenants and to restrain Seller from any violation thereof. (2) Accounting. The right and remedy to require the other party to account for and pay over to all compensation, profits, monies, accruals, increments or other benefits derived or received as the result of any transaction constituting a breach of the Restrictive Covenants. (3) Severability of Covenants. The parties acknowledge and agree that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, if invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be a given full effect, without regard to the invalid portions. (4) Covenant Adjustment. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall reduce the duration or scope of such provision, as the case may be, to the extent necessary to render it enforceable and, in its reduced form, such provision shall then be enforced. (5) Enforceability in Jurisdiction. The parties intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of the Restrictive Covenants. 9. TERMINATION OF AGREEMENT. 9.1 Termination. This Agreement may be terminated at any time prior to the Closing Date upon ninety (90) days prior written notice to the other party: (1) By the Buyer, by written notice to the Seller if the representations and warranties of the Seller shall not have been true and correct in all respects as of the date when made; or (2) by the Buyer or by the Seller, if the required consents have not been granted, and specifically if the approval of the purchase by the Provo City Council has not been given or has been revoked; or (3) by the Seller if the representations and warranties of the Buyer shall not have been true and correct in all respects as of the date when made, or if the franchise to operate a cable system granted to Buyer by Provo City is for any reason declared invalid or void, or is suspended or revoked; or (4) as provided in Subsection 1.5(3) or by the mutual written consent of Buyer and Seller. (5) Whenever this Agreement is terminated pursuant to this Section, Buyer and Seller agree that Buyer's Network Lease and Maintenance Agreement and Franchise Agreement shall automatically terminate as of the date of the termination of this Agreement without further action by either party. 9.2 Notice and Effect of Termination. On termination of this Agreement, the transaction contemplated herein shall forthwith be abandoned and all continuing obligations and liabilities of the parties under or in connection with this Agreement shall be terminated and of no further force or effect; provided, however, that nothing herein shall relieve any party from liability for any misrepresentation, breach of warranty or breach of covenant contained in this Agreement prior to such termination. 10. GENERAL. 10.1 Additional Conveyances. Following the parties each delivers or causes to be delivered at such times and places as shall be reasonably agreed upon such additional instruments as Buyer or Seller may reasonably request for the purpose of carrying out this Agreement. The parties will cooperate on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings or disputes of any nature with respect to matters pertaining to all periods prior to the date of this Agreement. 10.2 Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, the successors or assigns of Buyer and the Seller and their respective heirs, legal representatives or assigns; provided, however, that any such assignment shall be subject to the terms of this Agreement and shall not relieve the assignor of its or his responsibilities under this Agreement. 10.3 Willing Buyer and Seller and Coordination of Public Announcements. Buyer and Seller warrant and agree that they are entering into this agreement willingly and without duress or undue influence, economic or otherwise. Seller and Buyer agree to coordinate the timing of all public statements and announcements and to cooperate in explaining this Agreement to the public. 10.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 10.5 Notices. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given if in writing and either delivered personally, or mailed by postage prepaid registered or certified U.S. mail, return receipt requested, to the addresses designated below or such other addresses as may be designated in writing by notice given hereunder, and shall be effective upon personal delivery thereof or upon delivery by registered or certified U.S. mail. If to Buyer: Chief Operations Officer Attn: Robert Murtagh Video Internet Broadcasting Corporation 135 Basin Street SW Ephrata, Washington 98823 If to Seller: Provo City Attorney Attn: Robert West Provo City Attorney's Office 351 West Center Street P.O. Box 1849 Provo, Utah 84603 10.6 Attorneys' Fees. In the event of any dispute or controversy between Buyer and Seller relating to the interpretation of this Agreement or to the transaction contemplated hereby, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees and expenses incurred by the prevailing party. Such award shall include post-judgment attorney's fees and costs. 10.7 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah without regard to its conflict of laws provisions. 10.8 Payment of Fees and Expenses. Whether or not the transactions herein contemplated shall be consummated, each party hereto will pay its own fees, expenses and disbursements incurred in connection herewith and all other costs and expenses incurred in the performance and compliance with all conditions to be performed hereunder. 10.9 Incorporation by Reference. All Schedules and Exhibits attached hereto are incorporated herein by reference as though fully set forth at each point referred to in this Agreement. 10.10 Captions. The captions in this Agreement are for convenience only and shall not be considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 10.11 Number and Gender of Words. Whenever the singular number is used herein, the same shall include the plural where appropriate, and shall apply to all of such number, and to each of them, jointly and severally, and words of any gender shall include each other gender where appropriate. Without limiting the generality of the foregoing, any reference to "Partners" shall apply to each individual "Partner." 10.12 Entire Agreement. This Agreement (including the Schedules and Exhibits hereto) and the other documents delivered pursuant hereto constitute the entire Agreement and understanding between Seller and the Buyer and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by the Seller and the Buyer. 10.13 Waiver. No waiver by any party hereto at any time of any breach of, or compliance with, any condition or provision of this Agreement to be performed by any other party hereto may be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. 10.14 Construction. The language in all parts of this Agreement must be in all cases construed simply according to its fair meaning and not strictly for or against any party. Unless expressly set forth otherwise, all references herein to a "day" are deemed to be a reference to a calendar day. All references to "business day" mean any day of the year other than a Saturday, Sunday or a public or bank holiday in Utah. Unless expressly stated otherwise, cross-references herein refer to provisions within this Agreement and are not references to the overall transaction or to any other document. Signature Page to Follow DATED effective as of the date first above written. Provo City By: ______________________________________ Mayor Lewis K. Billings ATTEST: __________________________________________ Provo City Recorder APPROVED AS TO FORM: __________________________________________ Provo City Attorney Video Internet Broadcasting Corporation, d.b.a. HomeNet Communications of Utah. By: ______________________________________ Michael W. Devine (President) ATTEST BY: ______________________________________________ Name: Title: SCHEDULE 1 Assets All subscribers/customer accounts including: * Residential * Commercial (includes existing fiber lease to BYU) * Bulk The goodwill associated with Provo Cable. All proprietary customer information contained in the Azar computer records, including customer lists and accounts. SCHEDULE 2 Assumed Contracts All bulk accounts (MDU) Contracts. All Commercial Accounts Contracts. All Programming Contracts. Azar Computer Software Contract SCHEDULE 3 Fixed Assets, Vehicles And Tangible Personal Property Transferred None APPENDIX A PROVO CABLE NETWORK LEASE AGREEMENT This Network Lease Agreement ("Agreement"), is entered into as of ______________________ (the "Effective Date"), by and between Provo City, a municipal corporation of the State of Utah (hereinafter "Provo"), and HomeNet Communications of Utah, a Washington corporation registered to do business in Utah (hereinafter "HomeNet"). WHEREAS, Provo owns certain telecommunications facilities including poles, conduit, fiber and wires and uses a portion of those telecommunications facilities described on the attached "Schedule 1" and by this reference incorporated herein and made a part hereof (hereinafter the "Network") to provide cable television service as to the public; and WHEREAS, concurrent with the parties entering into an Asset Purchase Agreement for the Provo Cable business, Provo desires to lease the Network to HomeNet and HomeNet desires to lease the Network from Provo; NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES OF PARTIES CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS: 1. Provo agrees to lease to HomeNet and HomeNet agrees to rent from Provo the Network described on Schedule 1. 2. The term of this Agreement is for one (1) year, beginning the Effective Date of this Agreement, subject to the early termination provisions of this Agreement. The Agreement shall be automatically renewed for up to two (2) one (1) year terms unless a party gives the other party written notice at least ninety (90) days prior to the anniversary date(s) of this Agreement of its intention not to renew the Agreement. 3. HomeNet agrees to pay to Provo the rent set forth on the attached "Schedule 2" (by this reference incorporated herein and made a part hereof), payable as set forth on Schedule 2. HomeNet shall pay a late charge of five percent (5%) for each payment that is more than 10 days past due. 4. Concurrent with entering into this Agreement, HomeNet is entering into an Asset Purchase Agreement for the Provo Cable business with Provo City. Failure to timely comply with all the terms of this Agreement, shall permit to Provo to terminate this Agreement and the Asset Purchase Agreement on the terms set forth in the Asset Purchase Agreement. If HomeNet completes the purchase of the Provo Cable Business purchase pursuant to the Asset Purchase Agreement, but thereafter fails to timely comply with all the terms of this Agreement, Provo shall have the right to terminate this agreement only after ninety (90) days written notice to HomeNet from Provo of HomeNet's default. 5. Provo authorizes only HomeNet to lease the Network and no sub-leasing, assignment, or other use of the Network is allowed without the express written consent of Provo. 6. HomeNet shall use the Network only to provide cable television service pursuant to its Franchise Agreement with Provo. 7. If for any reason Provo terminates the Asset Purchase Agreement, or terminates, suspends or revokes HomeNet's franchise, Provo may terminate this Agreement and require HomeNet to return to Provo any Network property in HomeNet's possession. 8. Subject to the Network Maintenance Agreement, HomeNet agrees to maintain the property throughout the term of this Agreement in as good condition as it received it at the start of this Lease, except for ordinary wear and tear. During the term of this Agreement HomeNet shall pay for all repairs, replacements, and damages caused by the act or neglect of HomeNet, its employees and customers. HomeNet shall have a reasonable amount of time to make repairs. HomeNet will remove all of HomeNet's own separate property that may be attached to the Network at the end of this Agreement. Any of HomeNet's property that is not removed shall be considered abandoned and shall become the property of Provo and either retained by Provo, sold or discarded. 9. All maintenance and repairs to the Network during the term of this Agreement shall be the responsibility of HomeNet, except if the network is damaged by an act of nature, such as flood, earthquake or other natural disaster. If such a natural disaster occurs, Provo shall, in its own discretion, have the right to determine if shall rebuild the Network and a reasonable amount of time to do so, during which time period this lease shall remain in effect. If Provo decides not to rebuild the Network this Agreement shall terminate and neither party shall have any further cause of action against the other party. During any period in which the Network is not useable as the result of a natural disaster, HomeNet will not have to pay the rental fee set forth on Schedule 2 until the Network is rebuilt. If the Network is destroyed as part of a natural disaster, HomeNet shall pay the fee set forth on Schedule 2 up to the date of destruction. 10. As HomeNet is leasing and maintaining the Network, Provo shall not responsible for any inconvenience or interruption of services on the Network due to repairs, improvements, or for any other reason beyond Provo's control. 11. HomeNet shall get Provo's prior written consent before altering, improving, adding to or otherwise changing the existing Network. 12. During the term of this Agreement HomeNet shall comply with laws, orders, rules, and requirements of governmental authorities. 13. Provo shall not give up or waive any of its rights by accepting any payments or partial payments or by failing to enforce any terms of this Agreement. 14. Provo may at any time examine the Network and its facilities or equipment to provide services, inspect, repair, improve, or show it to others. HomeNet shall notify Provo if for any reason HomeNet decides not to use the Network or to temporarily or permanently discontinue providing cable television service using the Network. Such notice to Provo shall be given as soon as possible. In case of an emergency shut down of the Network or a suspension of regular cable television service to the public, HomeNet shall notify Provo within two (2) hours of such a shut down or suspension of service. If the shut down or suspension of service is not corrected within twenty-four hours, Provo shall have the right to retake possession of the Network and associated facilities and to use them to provide cable television service to the public. 15. HomeNet is entitled to use the Network without interference subject to the terms of this Agreement. 16. This Agreement and HomeNet's rights are subject and subordinate to the Asset Purchase Agreement, HomeNet's franchise agreement and to Provo's rights to terminate those agreements for the purposes set forth therein. 17. In leasing and maintaining the Network HomeNet will comply with all laws and regulations, including the National Electric Safety Code and all other applicable safety codes and regulations and will not permit the Network to pose a danger or hazard to any person or the public. 18. HomeNet will be responsible for any injury or damage caused by the act or neglect of the HomeNet, its employees and agents, and will indemnify, defend and hold Provo harmless for any claim or cause of action arising out of HomeNet's lease and maintenance of the Network. Provo shall not be responsible for any injury or damage unless due to the negligence or improper conduct of Provo. 19. All notices provided by this Agreement must be written and delivered personally or by certified mail, return receipt requested to the addresses of the parties specified in the Asset Purchase Agreement. Schedule 1 Provo Cable Network Non-exclusive use of the network currently used to deliver cable TV service to those customers known, and hereinafter referred to, as the "Provo Cable Customers". Includes approximately 66 miles of coaxial plant, 3.2 miles of fiber optic cable and associated equipment purchased from the Nicol family and any extensions completed since purchase that are used to deliver cable TV to Provo Cable Customers. Includes lines (coax or fiber) currently used as back haul for services delivered on the network known, and hereinafter referred to, as the "Provo Cable Network." (i.e.: Return lines from City Hall to Cable Headend for delivery of Channel 17) Includes all Satellite dishes, headend signal processing equipment, amplifiers, splitter, taps, customer premise equipment, etc. Any and all lines, equipment and attachments used in the Provo Cable Network. Provo City will insure that no other use of this equipment or network will interfere in with the continued delivery of cable TV services to Provo Cable customers on the Provo Cable Network. This agreement does not include the use of any upstream frequencies. Should HomeNet or Provo City wish to activate any upstream RF frequencies they will complete a separate agreement (or amend this agreement) to include those frequencies and the additional cost of maintenance if any. Schedule 2 Services, Payments and Fees Network Lease Payments Buyer shall lease the Provo Cable Network for an amount equal to a rate of $3.00 per subscriber per month transferred to Buyer pursuant to the Asset Purchase Agreement. After the first month, Buyer shall provide a monthly report, to be agreed to by the Seller, of customer counts and EBU calculations, which will be the basis for the monthly lease payment until the termination of this Agreement. Seller shall have the right to audit all customer accounts in order to verify the customer counts and EBU calculations. Payments shall be in arrears with the first lease payment due and payable on first day of the month following the date of the execution of the Initial Provider Network Access and Use Agreement on a pro rata basis. Thereafter all lease payments shall be due and payable on or before the first of each month. Exhibit K IP Video Middleware Software License Agreement SOFTWARE LICENSE AGREEMENT THIS AGREEMENT is by and between the City of Provo, Utah (Provo) (hereinafter referred to as "Licensee" or "City") And Video Internet Broadcasting Corporation, now doing business as HomeNet Communications of Utah, a Washington Corporation located in Ephrata, Washington, and registered to do business in Utah (hereinafter referred to as "Licensor") Effectively dated __________, 2004 (the "Effective Date"). R e c i t a l s: The City desires to purchase copies of certain software from Licensor and license its use under the terms and conditions of this Agreement for the purpose of providing wholesale telecommunications facilities which will be used by third party service providers. Licensor is willing to provide such software on the terms and conditions contained herein; NOW, THEREFORE, in consideration of the mutual promises, covenants, warranties and performance herein provided, the parties agree as follows: 1. Definitions "City Network" means the IProvo fiber optic network owned and operated by the City. IProvo fiber optic network includes associated plant, wiring, fiber, required patch panels, telephony blocks, etc. "City Network Service Area" means areas inside the City limits served by the City Network. "Documentation" refers to manuals, handbooks, maintenance libraries, and other publications supplied with Licensor Software or Licensor Equipment. The term "Documentation" does not include Software Product Descriptions, Service Descriptions, Licensor Software, or third-party software. "End User" means the end users of products and services enabled by the Licensor Equipment and Licensor Software, which may include among other products and services digital television, digital video transmission and Internet access. "Force Majeure" means events beyond the reasonable control of either Party, including, but not limited to, wars, fires, floods, earthquakes, tornadoes, explosions, strikes, labor unrest, riots, serious accidents, acts of God, failures of or delays by common carriers or suppliers, government intervention, epidemics, quarantine restrictions, failure to obtain governmental approval notwithstanding reasonable efforts, loss of government licenses or non-renewals notwithstanding reasonable efforts, or any cause if it is beyond such party's reasonable control and not occasioned by such party's fault. "Licensor Software" means any computer software, documentation, related materials, trade secrets or Confidential Information associated therewith identified in Appendix "A" of this Agreement between City and Licensor. "Licensor Product Features" means those features of the Licensor Software identified in the Software License Agreement between City and Licensor. "Software" refers to software products listed in the scope of services and are supplied with Equipment, or otherwise supplied or developed by Licensor including packaged application software and software supplied in connection with Services. The term "Software" applies to all parts of Software, and to new releases, updates, and modifications of Software, including source code and third party Software. "Services" refers to Licensor software services, support and maintenance, equipment services support and maintenance, and educational services as described herein. "Set-top Box" means the multicast receiver attached to the fiber gateway on the End User's premises. "Third Party Service Provider" means a video service provider authorized by the City to provide video services on the City's fiber optics network and who has been approved by Licensor via written notification to the City for the use of Licensor Software. "Third-party software" means products including databases, licensed directly to City by a third party and identified as such. "Upgrade" or "Upgrades" means any generally available release including updates for non-conformities and fixes to maintain current functionality of the Licensor Software, excluding any new features or new product modules that are separately priced and licensed by Licensor. "Vendor Equipment" means any hardware other than Licensor Equipment 2. Software License Licensor shall, on or before _____________, 20___, deliver to the City, Licensor Software subject to the terms and conditions of this agreement. a. Licensor Ownership Licensor represents and warrants that it owns and shall continue to own all right, title and interest in and to the Licensor Software, and any and all current and hereafter, existing revisions, derivative works or modifications thereto. Licensee hereby expressly acknowledges and affirms Licensor's ownership in the Software and Licensee shall not at any time, directly or indirectly, oppose the grant of, dispute the validity of or cooperate in any suit or proceeding which challenges or disputes any proprietary rights of Licensor in the Licensor Software. b. License Licensor hereby grants to Licensee a non-exclusive license to use the Licensor Software in the City Network Service Area as part of the City's wholesale telecommunications system and for its own internal business purposes within City offices. It is expressly understood and agreed that with the City's permission Licensor Software may be used within the City Network Service Area by Third Party Service providers for the purpose of providing video and related services to End Users without any further licensing requirements or fees paid to Licensor. It is also understood that the City may charge Third Party Service providers who use the City's Licensor Software. The City reserves the right to change or enhance the Licensor Software. C. Restrictions. Neither Licensee nor Third Party Service Providers shall distribute, to any other party, a copy of Licensor's Software, in any form, and may not allow access to Licensor Software, except to a duly authorized representative of Licensor. D. No Right To Sublicense The rights granted to Licensee and Third Party Service Providers by Licensor under this Section 2 are nontransferable and may not be sublicensed by Licensee or Third party Service Providers, except to End Users as an embedded product in the Set-top Box. E. Third Party License Licensor shall pass-through to City all third-party licenses Licensor has acquired which relate to Licensor Software. 3. Fees and Payment Terms The City shall pay Licensor a license fee of $3.45 per Subscriber per month. These fees are inclusive for all Licensor Software and are payable monthly for as long as the software remains deployed in the City Network. City shall pay by check. All payments to Licensor shall be made in U.S. Dollars and delivered via U.S. mail to the following address: HomeNet Communications of Utah 135 Basin Street SW Ephrata, WA 98823 4. Installation Upon the signing of this agreement, Licensor shall install the Licensor Software ready for use. City agrees to notify Licensor of the City's readiness fifteen (15) days before any installation and to prepare a safe and suitable site in accordance with Licensor's standard specifications. Installation testing shall include all modules and access to all multicast receivers using the respective modules. The testing procedures and diagnostics shall be Licensor's diagnostics for the software and the manufacturer's standard diagnostics for the equipment. The Licensor Software shall be considered ready for use ("Accepted," "Acceptance") when the City provides Licensor with written Acceptance of the following: (a) Documentation of a successful system audit utilizing Licensor's diagnostic routines, which demonstrates that the Licensor Software meets minimum design capabilities. (b) Demonstration of the Licensor Software branded with the iProvo logo displaying video on 10 set-top boxes Upon Acceptance by the City, Licensor shall: (a) Provide City with the Licensor software described in Appendix A (b) Provide City with a copy of all software, custom scripts etc listed in Appendix A. (c) Provide a copy of the source code for all Licensor software (d) Provide generally available software updates for a period of 12 months from acceptance. Any Licensor Software supplied pursuant to this Agreement after its Effective Date shall be subject to all the terms and conditions of this Agreement. 5. Indemnity Licensor shall defend, indemnify and hold harmless the City and its representatives (which shall be deemed to include the City's directors, officers, employees and agents) from and against any and all liabilities, claims, losses, damages or expenses of any type or kind, including reasonable attorneys fees, and expert witness fees, which may be incurred or sustained by the City or its representatives by reason of any act, omission, misconduct, negligence, or default on the part of Licensor or arising in connection with the supplies, material or equipment to be furnished pursuant to these Contract Documents. Licensor indemnification obligation shall not apply to liability for damages for bodily injury to person or damage to property caused by the negligence of the City and not solely related to any act or omission on the part of Licensor. Licensor acknowledges that by entering into a contract with the City, they have mutually negotiated the above indemnity provisions with the City. Licensor indemnity and defense obligations shall survive the termination or completion of the contract and remain in full force and effect until satisfied in full. City shall defend, indemnify and hold harmless Licensor and its representatives (which shall be deemed to include Licensor directors, officers, employees and agents) from and against any and all liabilities, claims, losses, damages or expenses of any type or kind, including reasonable attorneys fees, and expert witness fees, which may be incurred or sustained by Licensor or its representatives by reason of any act, omission, misconduct, negligence, or default on the part of the City or arising in connection with the supplies, material or equipment furnished to the City by a third-party or under the control of the City. City's indemnification obligation shall not apply to liability for damages for bodily injury to person or damage to property caused by the negligence of Licensor and not solely related to any act or omission on the part of the City. City acknowledges that by entering into a contract with Licensor, it has mutually negotiated the above indemnity provisions with Licensor. City's indemnity and defense obligations shall survive the termination or completion of the contract and remain in full force and effect until satisfied in full. 6. Limitation of Liability Notwithstanding Section 5, Indemnity, Licensor shall not be liable in contract, in tort (including negligence and strict liability), in warranty or otherwise for loss of profits or revenue, loss of equipment or power system, cost of capital, or damage or loss of property or equipment. The remedies of the City set forth therein are exclusive, and the total liability of Licensor and its subcontractors and suppliers of any tier to the City with respect to these terms and conditions, or anything done in connection therewith such as the performance or breach thereof, or from the manufacture, sale, delivery, resale, installation or technical field assistance for installation, maintenance or technical field assistance for maintenance, repair or use of any equipment covered by or furnished under the contract whether in contract, in tort (including negligence and strict liability) or otherwise shall not exceed the contract price. 7. Warranties and Maintenance (a) Licensor will provide City with all generally available software upgrades for a period of 12 months from the end of the warranty period. (b) Without limiting the foregoing, Licensor warrants that it has title to the Software and documentation and the authority to grant licenses to use the third party software. 8. Disclaimer of Warranty: Except as expressly provided for in this section, Licensor software is provided "as is" and "as available" and Licensor expressly does not warrant that licensor software hereunder, or any error corrections, updates, repairs or maintenance thereto, will be error free, will operate without interruption or will be compatible with any software or hardware other than those supplied or approved by Licensor. The express limited warranties set forth in this agreement are the sole and exclusive warranties granted by Licensor under this agreement, and are in lieu of all other warranties, express, implied or statutory, with respect to the software, and Licensor expressly disclaims any implied warranties, including without limitation, warranties of merchantability, fitness for a particular purpose, and non-infringement. 9. Documentation Licensor will provide software documentation, within thirty (30) days after execution of this agreement or as otherwise mutually agreed, in the form of two (2) sets of software documentation adequate for use of software ordered under the provisions of this Agreement. Licensor grants to the City, and Third Party Service Providers, the right to copy or otherwise reproduce manuals and documentation furnished pursuant to this provision, for use within the scope of this Agreement for use by City employees only, and only to the extent necessary to fulfill their jobs descriptions, at no additional charge. 10. Confidentiality and Nondisclosure The parties acknowledge that certain material and information in connection with this Agreement or its performance, consists of confidential and proprietary data. Except as required by law, both parties, therefore, agree to use reasonable care to maintain such Confidential Information in confidence, not to make the use thereof other than for the performance of this Agreement, to release it only to authorized employees requiring such information, and not to release or disclose to any other party except as otherwise provided by law or by this Agreement. "Confidential Information" means information such as, trade secrets, proprietary information and similar information including formulas, patterns, compilations, reports, programs, devices, methods, techniques or processes, as well as technical specifications, software codes, training materials or software conversion tools that: (a) have independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its (their) disclosure or use; and (b) is (are) the subject of efforts that are reasonable under the circumstances to maintain its (their) secrecy. "Confidential Information" also includes any information concerning the names or addresses of, or credit or billing information about City customers. Confidential Information shall not include information that: (1) is now or subsequently becomes generally available to the public through no fault or breach of the Receiving Party; (2) the Receiving Party can demonstrate to have had rightfully in its possession prior to disclosure by the Disclosing Party; (3) is independently developed by the Receiving Party without the use of any Confidential Information; or (4) the Receiving Party rightfully obtains from a third party who has the right to transfer or disclose it. 11. Notices Any notice or other communication under this Contract given by either party shall be mailed, properly addressed and stamped with the required postage, to the intended recipient at the address and to the attention of the person specified below and shall be deemed served when received and no mailed. Either party may from time to time change such address by giving the other party notice of such changes. In the event of an emergency or when using the US mail will cause unreasonable delay, the parties may use reliable overnight mail or telefax service. City VIB Paul Venturella Michael W Devine Provo Telecommunications Manager 8031 N Tuscany Drive 51 West 800 North Tucson, AZ 85742 Provo, Utah 84603 Telephone (520)742-7373 Telephone (801) 852-7900 For purposes of technical communications and work coordination only, the City designates Paul Venturella as its representative. Said individual shall have no authority to authorize any activity which will result in any change in the amount payable to Licensor. Such changes, if any, must be by written change order issued in accordance with Section 4 to be valid and binding on the City. 12. Patent and Copyright Indemnification Licensor will at its expense defend, indemnify and hold harmless the City against any claim, liability, costs and damages of every type that Licensor Software supplied hereunder and each subsequent release, modification or enhancement supplied by Licensor infringes a legally enforceable patent or copyright provided that: (a) City promptly notifies Licensor in writing of the claim. (b) Licensor has sole control of the defense and all related settlement negotiations. If such claim has occurred or, in addition to the obligations set forth above, in Licensor's opinion, is likely to occur, Licensor shall immediately procure for the City the right to continue using the Software or to replace or modify the same so that they become non infringing and functionally equivalent. Licensor has no liability for any claim based upon the combination, operation, or use of any software not supplied by Licensor or with any program other than or in addition to programming supplied by Licensor. Licensor has no liability for any claim based upon alteration of modification of any programming supplied hereunder, if such claim would have been avoided by the absence of such alteration or modification. The foregoing states the entire obligation of Licensor with respect to infringement of patents and copyrights. 13. Termination for Cause City may terminate this Agreement, by written notice, if Licensor neglects or fails to perform or observe any material obligation to City under these terms and conditions, and such condition is not remedied within sixty (60) days after written notice has been given to Licensor. 14. Effect of Termination Termination shall apply to all versions of the Licensor Software hereunder. Before any termination by City becomes effective, and in the event of any termination by Licensor, City shall (i) return to Licensor any license certificate furnished by Licensor; (ii) destroy all copies of all versions of the software in City's possession, (iii) remove all portions of all versions of the software from any adaptations made by City and destroy such portion, and (iv) certify in writing that all copies, including all those included in City's adaptations, have been destroyed in accordance with Licensor's standard destruction of software certification. 15. Applicable Law and Venue The Parties agree that the laws of the State of Utah shall govern this Contract. 16. Waiver Waiver of any breach of any term or condition of this Contract shall not be deemed a waiver of any prior or subsequent breach. No term or condition of this Contract shall be held to be waived, modified or deleted except by a written instrument signed by the parties hereto. 17. Assignment Neither party may assign this Agreement or any interest in or part thereof, or monies due or to become due hereunder without the prior written approval of the other party, except that either party may assign this Agreement to a wholly-owned entity or parent company of the party. 18. Entire Agreement This Contract, including the attached Exhibit which are incorporated by reference, sets forth the entire Agreement between the parties with respect to the subject matter hereof. Any other understandings, whether verbal or in writing shall not be binding on either party. Except as provided herein, no alteration of any of the terms, conditions, delivery, price, quality, or specifications of this Contract will be effective without the written consent of both parties. The section titles are for convenience only and shall not be determinative in the interpretation of this Agreement. 19. Approval WHEREFORE, the undersigned represents that he/she has read the foregoing Contract including all attachments hereto, agrees to be bound to its terms and has authority to execute the foregoing Contract on behalf of the respective party hereto. DATED effective as of the date first above written. Provo City By: ______________________________________ Mayor Lewis K. Billings ATTEST: __________________________________________ Provo City Recorder APPROVED AS TO FORM: __________________________________________ Provo City Attorney Video Internet Broadcasting Corporation, d.b.a. HomeNet Communications of Utah. By: ______________________________________ Michael W. Devine (President) ATTEST BY: ______________________________________________ Name: Title: APPENDIX A "HomeNet Software" Definition HomeNet software includes software which allows the City to provide video to end users on the City Network. HomeNet Software consists of the following: Set Top Application A HTML page that displays the channel numbers and options for viewing. This page is what the customers see on their TV and what they control with their remote. The application will be branded with the "iProvo" logo and name. Database Schema The "template" for the database that the Set Top Application and Administration tools use. This notes what information is in the database and how it is stored. Administration Tools These HTML based tools provide read and write access to the database. The two main applications are Content Management where you set the packages of channels viewable by the subs and Household management where you control the details of each sub including what channels they can watch and the MAC addresses for the set top boxes on their account. Other programs and scripts that are part of the package are: Boot P This loads the kernel on the set top boxes when they boot up. DHCP This program hands out IP addresses to the set top boxes after they receive the kernel from the Boot P program. MySQL (Database application) This is an open source database program. It manages the database that stores all the customer information, content information and various miscellaneous pieces of data used in the system. Web Server Apache Web Server. Documentation System documentation detailing setup, maintenance, and operation of HomeNet software. Exhibit L IP Video Set Top Box Usage Agreement VIDEO INTERNET BROADCASTING CORPORATION PROVO CITY MIDDLEWARE AND SET TOP BOX LICENSING RIGHTS In the event that the Initial Provider Network Access and Use Agreement between Provo City (Provo) and Video Internet Broadcasting Corporation d.b.a. HomeNet Communications of Utah (HomeNet) is terminated for any reason and no replacement agreement is executed with HomeNet as a retail services provider on the Provo Network, Provo shall have certain rights set forth in this Exhibit L relating to the licensing and/or purchase of the HomeNet IP Video Middleware (Middleware) and the compatible and deployed version of Set Top Box (STB). Middleware: Upon termination of the Retail Services Provider Agreement and in the absence of a replacement agreement executed with HomeNet as a retail services provider on the Provo Network, Provo will have the right to lease the HomeNet Middleware under the terms described in Exhibit K, Appendix A to this document. Set Top Box Upon termination of the Retail Services Provider Agreement and in the absence of a replacement agreement established with HomeNet actively providing retail services on the Provo Network, Provo will have the right to lease HomeNet set top boxes under the following terms: Price - Provo may elect to purchase all deployed set top boxes plus available inventory at a price of $135 per unit. Alternatively, Provo also has the right to lease the STBs from HomeNet for the sum of $5 per month per set top box. The lease will terminate upon return of the STB to HomeNet. Maintenance - HomeNet makes no express or implied warranty for the STBs either deployed or new (in inventory). If available, HomeNet will transfer any warranty coverage provided by the STB manufacturing partner to Provo. HomeNet will not provide any replacement or repair service on the STBs leased or purchased by Provo. HomeNet will provide first level technical support on the STBs if Provo is both licensing the Middleware and leasing (or has purchased) the STB from HomeNet. Exhibit M Reports The following reports will be provided by the Service Provider to Provo on a monthly basis thirty (30) days from the end of the reporting month. Service Provider will develop a reporting format which is mutually acceptable to Service Provider and Provo City. o Monthly Subscriber Recap: This report will report the overall activity of subscribers on the network in a total format. It will include the number of accounts connected, disconnected, change of services, service calls as well as a breakdown of subscriber totals by service types and levels. o Monthly Service Call Report. This report will include the number of service calls responded to by address, and which calls were resolved during the reporting period. This report will also include the average time service calls remained open and the longest open time on every category of service call during the reporting period. o Marketing Activity Report: This report will include the various marketing activities during the reporting period, the amount of money spent on each activity, and a brief analysis of the outcomes of the marketing efforts. Additional reports which are reasonable and do not require any significant expense to the Service Provider may be requested by Provo. These additional reports will be either for one time accounting of information or to be added as a part of the ongoing reports. Provo will allow at least thirty (30) days for the service provider to prepare a new report. Exhibit N Marketing Program HomeNet Communications Provo Marketing Launch Plan 1) Pre-Launch: One month prior to launch of retail HomeNet service a) Website links go live - June 1st b) Email mail server - August 1st c) Open HomeNet Store - (Now at 363 University) d) Retail Signage - May 15th e) Brochures on hand (1st draft version) - July 15th f) Sign-ups accepted - Business Customers May 15th, Residential June 15th g) Record all contacts in HomeNet database for future contact - May 15th h) Provo Cable MDU conversion incentive - April 15th i) Establish Provo Power referral program - September 1st 2) Local Press Release Campaign - Manage Expectations a) General Overview of HomeNet -June (1) Announce Opening of Local Office (2) Locally funded (3) Key Differentiators b) The Herald c) The Tribune d) The Deseret News 3) Print Advertisements a) Provo-specific advertisements (TBD) b) White Paper style advertisements - August 4) Grandview HomeNet Pilot May 1st - July 31st (HomeNet will conduct a pilot rollout of services that will be used to gather product feedback, tweak service package design, prove operational procedures, etc.) a) Direct marketing to pilot participants Introduction - May 1st - June 30th b) Manage expectations of pilot participants - Ongoing c) Package May 15th - August 1st (1) Welcome Letter (a) Explain that adjustments will be made (b) `This is a introductory phase" (c) "Could experience the following..." (d) Anticipated outages (2) Timeline (3) Contact information FAQ (4) Control Questionnaire (5) Postage paid return envelope (6) Web interface feedback form (7) Bill d) Throughout the remainder of the pilot (1) Updates to the pilot participants (2) Develop pilot customer "wish list" in AMS (3) Continue high-touch from telemarketers for feedback 5) Production Launch (fully live) - September 1st a) Local Office production ready (1) Convenient Payment Drop Boxes (2) Fully staffed (3) Demo "living room" for triple play experience (4) Weekly user interface tutorials Scheduled attendance / introduction at local organizations (June - Ongoing) (1) Rotary, Lions, Kiwanis (2) Chamber of Commerce (member) (3) Youth Sports Organizations (4) Others?? 6) Node Specific Marketing a) Neighborhood Chairs (1) Summit Meeting - September (2) Neighborhood Incentive Program (depending on AEG build plan) (a) Neighborhood Sign-up parties (i) Kid's games, wienie roast, etc. (ii) Sign-up incentives (iii) School Principal Content Demos (iv) Multi-player game demos (v) Local Sports Content Demos (b) Lawn Stakes "Another Grandview Home on HomeNet!" b) Neighborhood Leader Extension Program (July - Ongoing) (1) Each Chair identifies 5 -10 key players in their neighborhood (2) Incentives for participation of key individuals... TBD c) School programs (July - Ongoing) (1) Principals summit (2) Darwin Server Content Creation Program (a) Provide Equipment? (b) Provide content creation / management training and support (c) City-HomeNet partnership (d) Get other manufacturers to subsidize? (e) Top-five-ideas competition amongst school kids (f) Seed some content for neighborhood sales pitches d) "Got Fiber?" Campaign (September - Ongoing) (a) Scrip for schools to redeem in content creation program (b) Competition between schools - post results on web (c) Attend Rallies or events at schools (d) Attend PTA meetings (e) Provo Power to back and support (f) Prominent "Got Fiber" banners at each school e) City Council VOD - September (1) Get VOD of City Council available for view right away (2) Leverage Council to market to their constituents f) Youth Sports VOD - September (1) Get Local Youth Sports Organizations to back the HomeNet iProvo push (a) Provide Equipment? (b) Provide content creation / management training and support (c) Get Provo to subsidize? (d) Get other manufacturers to subsidize? (e) Seed some games neighborhood-specific content (youth games) for neighborhood sales pitches g) Neighborhood BYU/Teen Sales Program August - Ongoing (1) Sign up local neighborhood teens for agency program (a) Each individual gets territory based on where they live (b) Commissions per new account (c) Accelerators for high penetration (d) Competition between Neighborhood "Teams" with results posted on web site - prizes 7) HomeNet Pricing Strategy a) Simple product ordering menu (1) Data Only (2) Video Only (3) Double Play (a) Video + Data (b) Video + Phone (c) Data + Phone (4) Triple Play b) "Customize your offering with help of CSR" 8) MDU Specific Marketing a) Provo Cable MDUs (1) Complete List of MDUs + Contact information - Done (2) Physical Map of all Provo Cable MDUs - Done (3) Lock in all Provo Cable MDUs to 5 year extensions - September 1st iProvo MDUs locked into 5 year extensions at new rates - September 1st c) New MDU business (1) Build database to include status of all current competitively held MDU Contracts (Comcast, Qwest, etc.) - September 1st (2) Prioritize those coming off current contracts in next 6 months (3) Build detailed knowledge of rules, restrictions, and provisos of current competitive contracts by MDU account - June 30th (4) Provide offering to include turnkey service for terminating the existing competitive MDU contracts - June 30th (5) Letter of intent to switch services to HomeNet is required for all termination and consulting services - August 1st (6) Create commercial quality marketing piece describing the benefits and process of switching to HomeNet from incumbent provider for use in direct sales activities - August 1st (7) Direct professional sales program to communicate value to the MDU decision makers and close contract sales - Ongoing 9) Business Customer Specific Marketing a) Build Initial Business Product Offering - June 15th (1) Basic Data Connection (2) Tiered High Speed Data Connection (3) Transparent LAN Service (Private Peer to Peer Connectivity) (4) Business Voice Offerings (a) Basic (b) PBX Services (c) Advanced Features (5) Business (Commercial) Video Offerings (6) Bundles b) Sign Up Initial Subscribers - May 15th (done) 10) Budget (Twelve months from signing of contract) Annualized Marketing Budget Newspaper Advertising $15,000 Signage $10,000 Radio Advertising $12,000 Door to door campaign $10,000 Door hangers $2,000 Billboards $6,000 Phone books $500 Demo sites $2,000 Brochures $5,000 Direct mailers $5,000 Total $67,500 (Anticipate spending $30k - $35k in 2004) Exhibit O Customer Service Program Plan Service Provider will at all times be required to meet or exceed the specific Customer Service standards set forth in the body of this contract and its Franchise Agreement. Measurement and reporting of all Customer Service metrics will be as prescribed in this contract and the Service Provider's Franchise Agreement. In addition, Service Provider shall provide the City the following reports demonstrating the level of Customer Satisfaction of its subscribers. Customer Satisfaction will be measured using the following scale: Customer Satisfaction will be measured using the following methodology: 1. Subscribers will be asked to fill out a brief questionnaire regarding the level of service and resultant satisfaction they've experienced after each field service call and closed trouble-ticket. 2. In addition a random sample equaling 10% of Service Provider's subscriber base will be provided the Customer Satisfaction questionnaire via mail, once a calendar quarter, occurring in the third month of said quarter. These replies will be returned by said customers directly to Provo City for compilation. 3. The average of all Customer Satisfaction Questionnaire results will used to produce the overall Service Provider Customer Satisfaction Average that will be made available to the City within 30 days of the close of each calendar quarter. 4. The first measurement will be made and reported after the first complete calendar quarter served by the Service Provider. The measurement periods will be the following calendar quarters: o Quarter 1 - January February, March o Quarter 2 - April, May, June o Quarter 3 - July, August, September o Quarter 4 - October, November, December All Customer Satisfaction Average Reporting will be strictly confidential information for the City's internal use only. The Customer Satisfaction Average Reports may not be shared with any outside party, for any reason, without the express written consent of the Service Provider. Exhibit P In-Home Wiring Standards A. In-Home Wiring shall mean: The installation of in-home telecommunication cabling, specifically Cat5e Ethernet for transmission of video and Internet services and Cat3 for transmission of voice services. Cabling will connect from a telecommunications portal located on the inside or outside of residential homes within close proximity to the utility power meter. Installation practices should meet industry standards for in-wall type "fishing" of cables utilizing a "wall plate" style connection at the in-home demarcation point which should be located no more than three feet from end point device, unless otherwise specified by subscriber. B. Video Service Wiring Standards: All video services wiring shall meet or exceed the following standard specifications. a. Wiring Standard: Category 5e Ethernet Cabling b. In-Home Demarcation: i. In-Wall outlet comparable to: 1. Leviton 41080-2WP 2. Leviton 5G108-RW5 c. Entertainment System: i. Technicians shall be knowledgeable with the current products available in residential entertainment systems. ii. Technicians shall be proficient in residential entertainment systems design, layout and structure. 1. RF connections 2. RCA connections 3. High Definition connections 4. AC 3 audio connections 5. Recording device connections d. Tutorial and Training: i. Technicians shall provide complete instructions on usage of the video interface, remote control and general layout of the system through literature provided by VIB.TV and through clear oral instructions. ii. Successful bidder should expect regular subscriber audits regarding quality of customer service, professional appearance and training. C. Internet Services Wiring: a. Wiring Standard: Category 5e Ethernet Cabling b. In-Home Demarcation: i. In-Wall outlet comparable to: 1. Leviton 41080-2WP 2. Leviton 5G108-RW5 c. Personal Computers: i. Technicians shall be proficient in the installation and configuration of NIC and USB adapters. ii. Technicians shall be proficient with general customer PC services. D. Voice Service: a. Wiring Standard: Category 3 Telephony Cabling b. Existing Voice Demarcation: i. Connection from Fiber demarcation to customer premise existing voice system outside demarcation point. ii. Final testing for dial tone connectivity c. Additional Voice System Connections: i. In-Wall outlet comparable to: Leviton 40249-W ii. Final testing for dial tone connectivity E. Material Standards: All materials shall meet or exceed general industry standards. The list below is not and should not be regarded as a comprehensive list of minimum requirements. a. General Standards: i. UL verification for the given application ii. If exposed to the exterior elements shall be UV rated iii. Internal, 10/100, full Duplex NIC (network interface card) Exhibit Q Standard Portal Configuration Exhibit R Bandwidth Purchasing Requirement As part of the Agreement, Service Provider agrees to an initial commitment to purchase Internet bandwidth from the City for the period commencing at the execution of this Agreement and terminating on June 1st of 2005. Service Provider will purchase no less than the requisite amount of bandwidth required to adequately serve its subscribers as specified in Section 6.12 (Truth in Bandwidth) from the City at the following terms: Service Provider will specify in writing (within 30 days of signing of this agreement) the starting amount of bandwidth they require. o Internet bandwidth will be purchased at a price of $150.00 per one (1) Megabyte (MB) per month. o Internet bandwidth will be purchased in increments of one (1) MB. o Service Provider will use best efforts to notify City thirty (30) days in advance of the month in which the bandwidth will be required of any increases or decreases in purchased amount. o Bandwidth purchases will be paid the month following its usage on terms of Net 15. If the City elects not to sell bandwidth to Service Provider during the period specified in this Exhibit (Exhibit "R"), Service Provider will be free to procure any additional bandwidth from any source it so chooses. Upon termination of the period specified in this Exhibit (Exhibit "R"), the City and Service Provider will be free to enter into an extension of this agreement, create a new bandwidth purchase agreement, or terminate any Bandwidth purchasing relationship at the mutual discretion of both parties. Exhibit S Soft Switch Telephony Services 1. HomeNet to purchase, own, maintain and operate the VoIP phone Softswitch to be used in providing voice services to its subscribers on the Provo Network. The purchase of the sofswitch and all necessary hardware, up to and including connection to the PSTN, must be made by August 15, 2004. HomeNet must be ready to deliver full "telephony services" by September 15, 2004. 2. HomeNet and Provo come to mutually acceptable rate of transport for voice services on the Provo Network. 3. HomeNet will locate the Softswitch and related equipment in Provo (headend) if unable to provide good and reliable service with the Softswitch outside of Provo. 4. HomeNet may make its VoIP Softswitch system available to other service providers at rates it deems appropriate in its sole discretion and authority. 5. HomeNet must provide a partitioned duplicate and backup Softswitch and system (including all licenses and maintenance requirements) to be located in Provo and title of ownership transferred for the amount of $1.00 to Provo by sales agreement. This is for business continuity. Said sales agreement shall provide for a period of thirty (30) months, from the execution of this Agreement, HomeNet shall have an indefeasible right to use of the Softswitch and system, and will have sole operational and management control. Futhermore, at the end of said thirty (30) month period, and as long as HomeNet has remained a Service Provider on the Provo Network, HomeNet has an indefeasible right to repurchase the backup Softswitch and system from Provo for the amount of $1.00 by sales agreement. 6. HomeNet and its Softswitch vendor shall fully coordinate and cooperate with Provo in resolving technical issues surrounding the Softswitch and the Provo Network. 7. HomeNet will enter into the required agreements for processes and services with a PSTN Provider and satisfy all legal and regulatory requirements for telephony services in Provo. Where legally possible and viable, HomeNet shall take over any existing Provo contracts with Electric Lightwave Inc. for the local and SLC PRI's and any other obligations. Such assumption of said contracts shall not be unreasonably withheld. 8. HomeNet will only use a VoIP Softswitch systems certified as interoperable with World Wide Packets Ethernet Switching equipment by the manufacturer. Proof of interoperable will be required by contract with WWP. 9. If HomeNet selects and plans to purchase a VocalData Softswtich, then HomeNet must obtain a proposal on the backup plan and steps to complete the work and share the information with Provo. 10. If HomeNet selects and plans to purchase a NetCentrex Softswitch, then HomeNet will provide the following: o A copy of the letter of agreement between WWP and NetCentrex on the plan for interoperability within a week of the execution of this Agreement. Provo shall make best effort to engage World Wide Packets and request its full cooperation and desire to have NetCentrex certified as interoperable. o Within one (1) week of the execution of this Agreement HomeNet will set up a limited, of no more than ten (10) users, field trial using the NetCentrex Softswitch as a demonstration. o Within two (2) weeks of the execution of this Agreement, Service Provider is to provide the City with a continuation of the telephony services plan. Weekly updates of progress will be made to Provo. o The Softswitch must be certified as interoperable no later than August 15, 2004 prior to the required purchase date. o Provo is to provide support equivalent to current levels for the operations of the existing VocalData Softswitch through August 15, 2004. 11. Provo staff shall be availed training in the use of, and access to, the iProvo production partition on whatever switch is purchased. The purpose of this access is emergency provisioning and business continuity. At no cost, Provo will be invited to attend vendor-provided training purchased by Service Provider. 12. Service Provider and Provo shall share the financial responsibility for the current VocalData Softswitch costs incurred through August 1, 2005. Such financial responsibility is not to exceed $7,500 for each party. The percentage split of financial liability will be determined in final negotiations with VocalData. Exhibit T OSS/BSS Interface Process and Procedures OSS (Operational Support System) and BSS (Business Support System) inter-working between the Provo and Service Provider will be required for the overall success of the Provo Network. OSS/BSS processes and procedures, by their very nature, are dynamic and fluid. For purposes of this contract, the OSS/BSS Process and Procedure is established as an operational framework. Service Provider and City commit to create and document the specific process flows, supporting systems, and specific points of inter-working between entities that will create the foundation for the four main OSS/BSS categories (detailed below), which will be titled "OSS/BSS Process and Procedure Foundation". The first edition of the "OSS/BSS Process and Procedure Foundation" will be finalized and agreed to no later than 60 days from the execution of this contract. Ongoing, both Service Provider and City commit to make adjustments and changes to OSS/BSS Process and Procedure as required by business conditions and subscriber requirements. At all times OSS/BSS Process and Procedure will subjugate to the standards relating to matters covered herein as set forth by other relevant sections of this contract. Service Provider and Provo will establish and continue to refine all requisite processes, procedures, systems, and reporting ensuring the success of the Provo Network. The four main OSS/BSS operations categories, in which specific processes, procedures, systems, and reporting will be created and documented in operational agreements, are as follows: 1. Provisioning Operations - Provisioning Operations represents all OSS/BSS process and procedure required for accurate and efficient initiation, modification, and/or termination of subscriber services. This includes but is not limited to: provisioning of new subscribers, activation of service for new subscribers, moves/adds/changes for subscribers, creation and modification of services catalogue, disconnection of subscribers, and deactivation of subscribers. 2. Network Systems Operations - Systems Operations represents all OSS/BSS process and procedure required for accurate and efficient network systems performance maintenance. This includes but is not limited to: network monitoring, network diagnostics, troubleshooting of identified problems, system upgrades, equipment and software maintenance, network predictive and planning capabilities, and network reporting. 3. Billing Systems Operations - Billing Systems Operations represents all OSS/BSS process and procedure required for accurate and efficient billing for wholesale and retail services. This includes but is not limited to: accounting, subscriber billing, service provider billing, long-distance telephony billing, VOD/PPV billing, broadcast video content billing mediation, billing for dynamic data services, general billing mediation, reporting, billing reconciliation, and billing dispute resolution. 4. Customer Support Operations - Customer Support Operations represents all OSS/BSS process and procedure required for accurate and efficient subscriber support services. This includes but is not limited to: technical support, after hours customer support, emergency system support, trouble ticketing and tracking capability, emergency escalation procedure, call center systems, customer and technical support reporting, and customer satisfaction measurement and reporting. Exhibit U Financial Security Arrangement Agreement In demonstrating evidence of Video Internet Broadcasting's (VIB) ability to financially perform all responsibilities contemplated by the Agreement, Provo requires VIB to provide evidence of an irrevocable Line of Credit for $1.5 million with a nationally chartered bank. This Line of Credit should be for the period of one year and be in the name of VIB and be designated for the iProvo project. Each successive year VIB will be required to provide evidence that a Line of Credit is in place for the same amount required of other service providers providing similar services on the network. In the event that VIB is the only service provider on the network, iProvo will designate the amount of the line of credit required, in no year will it exceed 1.5 million dollars. As surety of VIB's operational performance and protection from material breach of its obligations, Provo requires (in addition to the $1.5 million line of credit) an irrevocable Letter of Credit in the amount of $50,000 or 50 percent of the monthly transport fees due the City, whichever is greater. After the first year following the execution of the Agreement, the amount of the letter of credit will then adjust to a percentage of monthly transport fees equivalent to the requirements set for other service providers. In the event that VIB is the only service provider on the network, iProvo will designate the percentage of monthly transport fees to be used in the calculation of the amount of the letter of credit, in no year will it exceed 50 percent of monthly transport fees. The term of the Letter of Credit shall be the term of the Agreement, including any renewal period. The Letter of Credit shall be issued by a nationally chartered bank and contain terms and conditions acceptable to Provo. Prior to seeking recovery under this Letter of Credit, Provo shall notify Service Provider in writing of the default giving rise to Provo's claim for recovery under this section. Service Provider shall have thirty (30) days to cure the default. Upon Service Provider's failure to cure, Provo may immediately draw on the Letter of Credit and in addition pursue any other remedy available under Article XIII. VIB shall provide to the City on an annual basis, by a date no later than ninety (90) days after the close of their fiscal year, financial statements which shall include a Balance Sheet, Income Statement, and Statement of Cash Flows with accompanying Notes for the fiscal year just completed. A report verifying that they have been reviewed by a Certified Public Accountant shall accompany the financial statements. In the event that VIB completes its corporate name change to HomeNet Communications of Utah, both the Line of Credit and the Letter of Credit shall be immediately updated to reflect the change. EX-10.18 11 ex1018q093004.txt MASTER SERVICE AGREEMENT Exhibit 10.18 Master Service Agreement This Master Service Agreement (this "Agreement") is entered into this 14th day of July, 2004 ("Effective Date") by and between LEVEL 3 COMMUNICATIONS, LLC ("Level 3") and Video Internet Broadcasting Corp. dba HomeNet-USA ("Customer"). ARTICLE 1. DEFINITIONS 1.1 "Affiliate" shall mean an entity that now or in the future, directly or indirectly controls, is controlled by, or is under common control with, a party to this Agreement. For purposes of the foregoing, "control" shall mean the ownership of (i) greater than fifty percent (50%) of the voting power to elect the directors of the company, or (ii) greater than fifty percent (50%) of the ownership interest in the company. 1.2 "Connection Notice" shall mean a written notice from Level 3 that the Service ordered has been installed by Level 3 pursuant to the Customer Order, and has been tested and is functioning properly. 1.3 "Customer Commit Date" shall mean the date that Service will be available to Customer, as set forth in the Customer Welcome Letter or such other written notice from Level 3 to Customer. Notwithstanding anything in this Agreement or any Customer Order to the contrary, no Customer requested date for delivery of Service will be effective unless and until confirmed in writing by Level 3 through the delivery to Customer of the Customer Commit Date. 1.4 "Customer Order" shall mean a request for Service submitted by Customer in the form designated by Level 3. 1.5 "Customer Premises" shall mean the location or locations occupied by Customer or its end users to which Service is delivered. 1.6 "Customer Welcome Letter" shall mean a written communication from Level 3 to Customer informing Customer of Level 3's acceptance of the Customer Order. 1.7 "Excused Outage" shall mean any outage, unavailability, delay or other degradation of Service related to, associated with or caused by scheduled maintenance (as described in Section 2.7 hereof), actions or inactions of Customer or its end users, Customer provided power or equipment or an event of force majeure as defined in Section 7.1. 1.8 "Facilities" shall mean any property owned, licensed or leased by Level 3 or any of its Affiliates and used to deliver Service, including terminal and other equipment, conduit, fiber optic cable, optronics, wires, lines, ports, routers, switches, channel service units, data service units, cabinets, racks, private rooms and the like. 1.9 "Gateway" shall mean data center space owned or leased by Level 3 or any of its Affiliates for the purpose of, among other things, locating and colocating communications equipment. 1.10 "Local Loop" shall mean the connection between Customer Premises and a Level 3 Gateway or other Facility. 1.11 "Megabit per second" or "Mbps" shall mean a unit of data rate equal to 1 million bits per second. 1.12 "Off-Net" shall mean Service that originates from or terminates to any location that is not on the Level 3 network. 1.13 "On-Net" shall mean Service that originates from and terminates to a location that is on the Level 3 network. 1.14 "Service" shall mean any Level 3 service described in a Service Schedule and identified on a particular line item of a Customer Order. 1.15 "Service Commencement Date" shall mean the first to occur of (i) the date set forth in any Connection Notice, unless Customer notifies Level 3 that the Service is not functioning properly as provided in Section 3.1 (or, if two or more Services are designated as "bundled" or as having a "sibling relationship" in any Customer Order, the date set forth in the Connection Notice for all such Services); and (ii) the date Customer begins using the Service. 1.16 "Service Levels" shall mean the specific remedies Level 3 provides regarding installation and performance of Service as set forth in the particular Service Schedule respecting the applicable Service. 1.17 "Service Schedule" shall mean a schedule attached hereto, or signed between the parties from time to time and expressly incorporated into this Agreement, setting forth terms and conditions specific to a particular Service, Facilities or other tools made available by Level 3. "Service Term" shall mean the duration of time (measured starting on the Service Commencement Date) for which Service is ordered, as specified in the Customer Order. The Service Term shall continue on a month-to-month basis after expiration of the stated Service Term, until terminated by either party upon thirty (30) days' written notice to the other. ARTICLE 2. DELIVERY OF SERVICE 2.1 Submission of Customer Order(s). To order any Service, Customer may submit to Level 3 a Customer Order requesting Service. The Customer Order and its backup detail must include a description of the Service, the non-recurring charges and monthly recurring charges for Service and the applicable Service Term. 2.2 Acceptance by Level 3. Upon receipt of a Customer Order, if Level 3 determines to accept the Customer Order, Level 3 will deliver a Customer Welcome Letter for the requested Service. Level 3 will become obligated to deliver any ordered Service only if Level 3 has delivered a Customer Welcome Letter for the particular Service. 2.3 Credit Approval and Deposits. Customer will provide Level 3 with credit information as requested, and delivery of Service is subject to credit approval. Level 3 may require Customer to make a deposit or deliver another form of security as a condition to (a) Level 3's acceptance of any Customer Order; (b) Level 3's continuation of any usage-based Service; and/or (c) Level 3's continuation of any non usage-based Service only in the event that (i) Customer fails to make payment to Level 3 of any undisputed amount when due, or (ii) Customer has a material, negative change in financial condition (as determined by Level 3 in its reasonable discretion). Any deposit will be limited to two (2) months' estimated charges for Service and will be due upon Level 3's written request. Any deposit will be held by Level 3 as security for payment of Customer's charges. When Service to Customer is terminated, the amount of the deposit will be credited to Customer's account and any remaining credit balance will be refunded. Any deposit paid by Customer pursuant to this Section 2.3 will be held by Level 3 in accordance with the applicable law governing such deposit. 2.4 Customer Premises. Customer shall allow Level 3 access to the Customer Premises to the extent reasonably determined by Level 3 for the installation, inspection and scheduled or emergency maintenance of Facilities relating to the Service. Level 3 shall notify Customer at least two (2) business days in advance of any regularly scheduled maintenance that will require access to the Customer Premises. Customer will be responsible for providing and maintaining, at its own expense, the level of power, heating and air conditioning necessary to maintain the proper environment for the Facilities on the Customer Premises. In the event Customer fails to do so, Customer shall reimburse Level 3 for the actual and reasonable cost of repairing or replacing any Facilities damaged or destroyed as a result of Customer's failure. Customer will provide a safe place to work and comply with all laws and regulations regarding the working conditions on the Customer Premises. 2.5 Level 3 Facilities. Except as otherwise agreed, title to all Facilities shall remain with Level 3. Level 3 will provide and maintain the Facilities in good working order. Customer shall not, and shall not permit others to, rearrange, disconnect, remove, attempt to repair, or otherwise tamper with any Facilities, without the prior written consent of Level 3. The Facilities shall not be used for any purpose other than that for which Level 3 provides them. Customer shall not take any action that causes the imposition of any lien or encumbrance on the Facilities. In no event will Level 3 be liable to Customer or any other person for interruption of Service or for any other loss, cost or damage caused by or related to improper use or maintenance of the Facilities by Customer or any third party gaining access to the Facilities through Customer in violation of this Agreement, and Customer shall reimburse Level 3 for any damages incurred as a result thereof. Customer agrees (which agreement shall survive the expiration, termination or cancellation of any Customer Order) to allow Level 3 to remove the Facilities from the Customer Premises: (A) after termination, expiration or cancellation of the Service Term of any Service in connection with which the Facilities were used; or (B) for repair, replacement or otherwise as Level 3 may determine is necessary or desirable, but Level 3 will use reasonable efforts to minimize disruptions to the Service caused thereby. 2.6 Customer-Provided Equipment. Level 3 may install certain Customer-provided communications equipment upon installation of Service, but Level 3 shall not be responsible for the operation or maintenance of any Customer-provided communication equipment. Level 3 undertakes no obligations and accepts no liability for the configuration, management, performance or any other issue relating to any Customer-provided equipment used for access to or the exchange of traffic in connection with the Service. 2.7 Scheduled Maintenance. Scheduled maintenance of the Level 3 network will not normally result in Service interruption or outage. However, in the event scheduled maintenance should require a Service interruption or outage, Level 3 will exercise commercially reasonable efforts to (i) provide Customer with seven (7) days' prior written notice of such scheduled maintenance, (ii) work with Customer in good faith to attempt to minimize any disruption in Customer's services that may be caused by such scheduled maintenance, and (iii) to perform such schedule maintenance during the non-peak hours of 12:00 a.m. (midnight) until 6:00 a.m. local time. ARTICLE 3. BILLING AND PAYMENT 3.1 Commencement of Billing. Upon installation and testing of the Service ordered in any Customer Order, Level 3 will deliver to Customer a Connection Notice. Upon receipt of the Connection Notice, Customer shall have a period of seventy two (72) hours to confirm that the Service has been installed and is properly functioning. Unless Customer delivers written notice to Level 3 within such seventy two (72) hour period that the Service is not installed in accordance with the Customer Order and functioning properly, billing shall commence on the applicable Service Commencement Date, regardless of whether Customer has procured services from other carriers needed to operate the Service, and regardless of whether Customer is otherwise prepared to accept delivery of ordered Service. In the event that Customer notifies Level 3 within the time period stated above that the Service is not installed and functioning properly, then Level 3 shall correct any deficiencies in the Service and deliver a new Connection Notice to Customer, after which the process stated herein shall be repeated. 3.2 Charges. The Customer Order will set forth the applicable non-recurring charges and recurring charges for the Service. Unless otherwise expressly specified in the Customer Order, any non-recurring charges shall be invoiced by Level 3 to Customer upon the Service Commencement Date. However, in the event such Service requires Level 3 to install or construct additional Facilities in the provision of the Service, such Customer Order may specify non-recurring charges that are payable by Customer in advance of the Service Commencement Date, as mutually agreed between the parties and specified in the Customer Order. If Customer requests and Level 3 approves (in its sole discretion) any changes to the Customer Order or Service after acceptance by Level 3, including, without limitation, the Customer requested date for delivery of Service or Service Commencement Date, additional non-recurring charges and/or monthly recurring charges not otherwise set forth in the Customer Order may apply. 3.3 Payment of Invoices. Invoices are delivered monthly. Level 3 bills in advance for Service to be provided during the upcoming month, except for charges that are dependent upon usage of Service, which are billed in arrears. Billing for partial months is prorated based on a calendar month. All invoices are due thirty (30) days after the date of invoice. Unless otherwise specified on the particular invoice, all payments shall be due and payable in U.S. Dollars. Past due amounts bear interest at a rate of 1.5% per month (or the highest rate allowed by law, whichever is less) beginning from the date first due until paid in full. 3.4 Taxes and Fees. All charges for Service are exclusive of Applicable Taxes (as defined below). Except for taxes based on Level 3's net income, Customer will be responsible for all applicable taxes that arise in any jurisdiction, including, without limitation, value added, consumption, sales, use, gross receipts, excise, access, bypass, franchise or other taxes, fees, duties, charges or surcharges, however designated, imposed on, incident to, or based upon the provision, sale or use of the Service (collectively "Applicable Taxes"). If Customer is entitled to an exemption from any Applicable Taxes for a particular Service, Customer is responsible for presenting Level 3 with a valid exemption certificate (in a form reasonably acceptable to Level 3). Level 3 will give effect to any such exemption certificate on a prospective basis from and after Level 3's receipt of such exemption certificate. 3.5 Regulatory and Legal Changes. In the event of any change in applicable law, regulation, decision, rule or order that materially increases the costs or other terms of delivery of Service, Level 3 and Customer will negotiate regarding the rates to be charged to Customer to reflect such increase in cost and, in the event that the parties are unable to reach agreement respecting new rates within thirty (30) days after Level 3's delivery of written notice requesting renegotiation, then (a) Level 3 may pass such increased costs through to Customer, and (b) if Level 3 elects to pass such increased costs through to Customer, Customer may terminate the affected Service without termination liability by delivering written notice of termination no later than thirty (30) days after the effective date of the rate increase. 3.6 Disputed Invoices. If Customer reasonably disputes any portion of a Level 3 invoice, Customer must pay the undisputed portion of the invoice and submit written notice of the claim (with sufficient detail of the nature of the claim, the amount and invoices in dispute and information necessary to identify the affected Service(s)) for the disputed amount. All claims must be submitted to Level 3 in writing within ninety (90) days from the date of the invoice for those Services. Customer waives the right to dispute any charges not disputed within such ninety (90) day period. In the event that the dispute is resolved against Customer, Customer shall pay such amounts plus interest at the rate referenced in Section 3.3. 3.7 Termination Charges. (A) Customer may cancel a Service following Level 3's acceptance of the applicable Customer Order and prior to the Customer Commit Date upon prior written notice to Level 3 (with sufficient detail necessary to identify the affected Service). In the event that Customer does so, or in the event that the delivery of such Service is terminated by Level 3 as the result of an uncured default by Customer pursuant to Section 4.2 of this Agreement, Customer shall pay Level 3 a cancellation charge equal to the sum of: (i) any third party cancellation/termination charges related to the installation and/or cancellation of any Off-Net Service; (ii) Level 3's out of pocket costs (if any) incurred in constructing Facilities in or to the Customer Premises necessary for Service delivery; (iii) the non-recurring charges for any cancelled Service; and (iv) one (1) month's monthly recurring charges for any cancelled On-Net Service. Customer's right to cancel any particular Service under this Section 3.7(A) shall automatically expire and shall no longer apply upon Level 3's delivery to Customer of a Connection Notice for such Service. (B) In addition to Customer's right of cancellation under Section 3.7(A) above, Customer may terminate Service prior to the end of the Service Term upon thirty (30) days' prior written notice to Level 3 (with sufficient detail necessary to identify the affected Service). In the event that, after either the original Customer Commit Date (if Customer requests and Level 3 agrees to a delay in delivery of a particular Service) or Customer's receipt of the Connection Notice for a particular Service (whichever occurs first) and prior to the end of the Service Term, Customer terminates Service or in the event that the delivery of Service is terminated by Level 3 as the result of an uncured default by Customer pursuant to Section 4.2 of this Agreement, Customer shall pay Level 3 a termination charge equal to the sum of: (i) all unpaid amounts for Service provided through the date of termination; (ii) any third party cancellation/termination charges related to the installation and/or termination of any Off-Net Service; (iii) the non-recurring charges for any cancelled Service, if not already paid; (iv) for any On-Net Service, the percentage of the monthly recurring charges for the terminated On-net Service calculated from the effective date of termination as (a) 100% of the remaining monthly recurring charges that would have been incurred for the On-Net Service for months 1-12 of the Service Term, plus (b) 50% of the remaining monthly recurring charges that would have been incurred for the On-Net Service for months 13 through the end of the Service Term. (C) The parties acknowledge that the cancellation or termination charges set forth in this Section 3.7 are a genuine estimate of the actual damages that Level 3 will suffer and are not a penalty. 3.8 Fraudulent Use of Services. Customer is responsible for all charges attributable to Customer incurred respecting the Service. In the case of usage-based Services, Customer is responsible for all usage charges even if incurred as the result of fraudulent or unauthorized use of Service; except that Customer shall not be responsible for fraudulent or unauthorized use by Level 3 or its employees. ARTICLE 4. TERM AND TERMINATION 4.1 Term. (A) This Agreement shall become effective on the Effective Date and shall continue for a period of two (2) years thereafter ("Agreement Term"), unless earlier terminated as provided herein. At the end of the initial Agreement Term, the Agreement Term shall automatically renew on a month-to-month basis until terminated by either party upon thirty (30) days' prior written notice to the other party. (B) Except as otherwise set forth herein, Level 3 shall deliver the Service for the entire duration of the Service Term, and Customer shall pay all charges for delivery thereof through the end of the Service Term. To the extent that the Service Term for any Service extends beyond the Agreement Term, then this Agreement shall remain in full force and effect for such Service until the expiration or termination of such Service Term. 4.2 Default By Customer. If (i) Customer makes a general assignment for the benefit of its creditors, files a voluntary petition in bankruptcy or any petition or answer seeking, consenting to, or acquiescing in reorganization, arrangement, adjustment, composition, liquidation, dissolution or similar relief; (ii) an involuntary petition in bankruptcy or other insolvency protection against Customer is filed and not dismissed within sixty (60) days; (iii) Customer fails to make any payment required hereunder when due, and such failure continues for a period of five (5) business days after written notice from Level 3, or (iv) Customer fails to observe and perform any material term of this Agreement (other than payment terms) and such failure continues for a period of thirty (30) days after written notice from Level 3; then Level 3 may: (A) terminate this Agreement and any Customer Order, in whole or in part, in which event Level 3 shall have no further duties or obligations thereunder, and/or (B) subject to Section 5.1, pursue any remedies Level 3 may have under this Agreement, at law or in equity. 4.3 Default By Level 3. If (i) Level 3 makes a general assignment for the benefit of its creditors, files a voluntary petition in bankruptcy or any petition or answer seeking, consenting to, or acquiescing in reorganization, arrangement, adjustment, composition, liquidation, dissolution or similar relief; (ii) an involuntary petition in bankruptcy or other insolvency protection against Level 3 is filed and not dismissed within sixty (60) days; or (iii) Level 3 fails to observe and perform any material term of this Agreement (other than as provided in Section 4.4 and Article 6) and such failure continues for a period of thirty (30) days after written notice from Customer; then Customer may: (A) terminate this Agreement and/or any Customer Order, in whole or in part, in which event Customer shall have no further duties or obligations thereunder, and/or (B) subject to Section 5.1, pursue any remedies Customer may have under this Agreement, at law or in equity. 4.4 Right of Termination for Installation Delay. In lieu of any Service Level credits for installation delays, if Level 3's installation of Service is delayed for more than thirty (30) business days beyond the Customer Commit Date for reasons other than an Excused Outage, Customer may terminate and discontinue the affected Service upon written notice to Level 3 and without payment of any applicable termination charge; provided such written notice is delivered prior to Level 3 delivering to Customer the Connection Notice for the affected Service. This Section 4.4shall not apply to any Service where Level 3 (or a third party contractor engaged by Level 3) is constructing Facilities in or to the Customer Premises necessary for delivery of such Service. ARTICLE 5. LIABILITIES AND INDEMNIFICATION 5.1 No Special Damages. Notwithstanding any other provision hereof, neither party shall be liable for any damages for loss of profits, loss of revenues, loss of goodwill, loss of anticipated savings, loss of data or cost of purchasing replacement services, or any indirect, incidental, special, consequential, exemplary or punitive damages arising out of the performance or failure to perform under this Agreement or any Customer Order. 5.2 Personal Injury and Death. Nothing in this Agreement shall be construed as limiting the liability of either party for personal injury or death resulting from the negligence of a party or its employees. 5.3 Disclaimer of Warranties. LEVEL 3 MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE, EXCEPT THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY APPLICABLE SERVICE SCHEDULE. 5.4 Indemnification. Each party shall indemnify the other from any claims by third parties and expenses (including legal fees and court costs) respecting damage to tangible property, personal injury or death caused by such party's negligence or willful misconduct arising in connection with this Agreement. ARTICLE 6. SERVICE LEVELS 6.1 Service Interruptions and Delivery. To report issues related to Service performance, Customer may contact Level 3 Customer Service by calling toll free in the U.S. 1-877-4LEVEL3 (1-877-453-8353) or such other numbers for Level 3 Customer Service in other countries as published on www.level3.com. In order for Level 3 to investigate any reported issues, Customer agrees to provide Level 3 with supporting information as reasonably requested by Level 3, which may include (as applicable), without limitation, circuit ID, circuit end-point(s), IP address(es), originating phone number and terminating phone number. In the event of any damages arising out of Level 3's furnishing or failure to furnish Services under this Agreement, Customer's sole remedies are contained in (a) the Service Levels applicable (if any) to the affected Service, (b) the chronic outage provision (if any) set forth in the Service Schedule applicable to the affected Service, and (c) Section 4.4 above. 6.2 Service Level Credits. In the event Level 3 does not achieve a particular Service Level in a particular month, Level 3 will issue a credit to Customer as set forth in the applicable Service Schedule upon Customer's request. Level 3's maintenance log and trouble ticketing systems will be used for calculating any Service Level events. To request a credit, Customer must contact Level 3 Customer Service or deliver a written request (with sufficient detail necessary to identify the affected Service) pursuant to Section 7.4 within sixty (60) days of the end of the month for which a credit is requested. Level 3 Customer Service may be contacted by calling toll free in the U.S. 1-877-4LEVEL3 (1-877-453-8353) or such other numbers for Level 3 Customer Service in other countries as published on www.level3.com. In no event shall the total amount of credits issued to Customer per month exceed the non-recurring charges and monthly recurring charges invoiced to Customer for the affected Service for that month. ARTICLE 7. GENERAL TERMS 7.1 Force Majeure. Neither party shall be liable, nor shall any credit allowance or other remedy be extended, for any failure of performance or equipment due to causes beyond such party's reasonable control ("force majeure event"). In the event Level 3 is unable to deliver Service as a result of a force majeure event, Customer shall not be obligated to pay Level 3 for the affected Service for so long as Level 3 is unable to deliver the affected Service. 7.2 Assignment and Resale. Customer may not assign its rights and obligations under this Agreement or any Customer Order without the express prior written consent of Level 3, which will not be unreasonably withheld. This Agreement shall apply to any permitted transferees or assignees. Notwithstanding any assignment by Customer, Customer shall remain liable for the payment of all charges due under each Customer Order. Customer may resell the Service to third party "end users"; provided that Customer agrees to indemnify, defend and hold Level 3 harmless from claims made against Level 3 by such end users. 7.3 Affiliates. (A) Service may be provided to Customer pursuant to this Agreement by an Affiliate of Level 3, including, without limitation, an Affiliate authorized to provide Service in a country other than the country within which this Agreement has been executed. If a Customer Order requires the delivery of Service in a jurisdiction where, in order for such Customer Order to be enforceable against the parties, additional terms must be added, then the parties shall incorporate such terms into the Customer Order (preserving, to the fullest extent possible, the terms of this Agreement). Notwithstanding any provision of Service to Customer pursuant to this Agreement by an Affiliate of Level 3, Level 3 shall remain responsible to Customer for the delivery and performance of the Service in accordance with the terms and conditions of this Agreement. (B) The parties acknowledge and agree that Customer's Affiliates may purchase Service under this Agreement; provided, however, any such Customer Affiliate purchasing Service hereunder agrees that such Service is provided pursuant to and governed by the terms and conditions of this Agreement. Customer shall be jointly and severally liable for all claims and liabilities arising under this Agreement related to Service ordered by any Customer Affiliate, and any event of default under this Agreement by any Customer Affiliate shall also be deemed an event of default by Customer. Any reference to Customer in this Agreement with respect to Service ordered by a Customer Affiliate shall also be deemed a reference to the applicable Customer Affiliate. (C) Notwithstanding anything in this Agreement to the contrary, either party may provide a copy of this Agreement to its Affiliate or such other party's Affiliate for purposes of this Section 7.3, without notice to, or consent of, the other party. 7.4 Notices. Notices hereunder shall be in writing and sufficient and received if delivered in person, or when sent via facsimile, pre-paid overnight courier, electronic mail (if an e-mail address is provided below) or sent by U.S. Postal Service (or First Class International Post (as applicable)), addressed as follows: IF TO LEVEL 3: For billing inquiries/disputes, requests for Service Level credits and/or requests for disconnection of Service (for other than default): Level 3 Communications, LLC 1025 Eldorado Blvd. Broomfield, Colorado 80021 Attn: Director, Billing Facsimile: (877) 460-9867 E-mail: billing@level3.com For all other notices: Level 3 Communications, LLC 1025 Eldorado Blvd. Broomfield, Colorado 80021 Attn: General Counsel Facsimile: (720) 888-5128 IF TO CUSTOMER: Video Internet Broadcasting Corp. dba HomeNet-USA 135 Basin Street Ephrata, Washington 98823 Attn: Jon Moore Facsimile: 509-754-1399 or at such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. All such notices shall be deemed to have been given on (i) the date delivered if delivered personally, (ii) the business day after dispatch if sent by overnight courier, (iii) the third business day after posting if sent by U.S. Postal Service (or other applicable postal delivery service), or (iv) the date of transmission if delivered by facsimile or electronic mail (or the business day after transmission if transmitted on a weekend or legal holiday). Notwithstanding the foregoing, any notices delivered by Level 3 to Customer in the normal course of provisioning of Service hereunder shall be deemed properly given if delivered via any of the methods described above or via electronic mail to the address listed on any Customer Order. 7.5 Acceptable Use Policy. Customer's use of Service shall comply with Level 3's Acceptable Use Policy and Privacy Policy, as communicated in writing to Customer from time to time and which are also available through Level 3's web site at www.level3.com. Level 3 will notify Customer of complaints received by Level 3 regarding each incident of alleged violation of Level 3's Acceptable Use Policy by Customer or third parties that have gained access to the Service through Customer. Customer agrees that it will promptly investigate all such complaints and take all necessary actions to remedy any actual violations of Level 3's Acceptable Use Policy. Level 3 may identify to the complainant that Customer, or a third party that gained access to the Service through Customer, is investigating the complaint and may provide the complainant with the necessary information to contact Customer directly to resolve the complaint. Customer shall identify a representative for the purposes of receiving such communications. 7.6 Data Protection. During the performance of this Agreement, it may be necessary for Level 3 to transfer, process and store billing and utilization data and other data necessary for Level 3's operation of its network and for the performance of its obligations under this Agreement. The transfer, processing and storing of such data may be to or from the United States. Customer hereby consents that Level 3 may (i) transfer, store and process such data in the United States; and (ii) use such data for its own internal purposes and as allowed by law. This data will not be disclosed to third parties. 7.7 Contents of Communications. Level 3 shall have no liability or responsibility for the content of any communications transmitted via the Service (except for content solely created by Level 3), and Customer shall defend, indemnify and hold Level 3 harmless from any and all claims (including claims by governmental entities seeking to impose penal sanctions) related to such content or for claims by third parties relating to Customer's use of Service. Level 3 provides only access to the Internet; Level 3 does not operate or control the information, services, opinions or other content of the Internet. Customer agrees that it shall make no claim whatsoever against Level 3 relating to the content of the Internet or respecting any information, product, service or software ordered through or provided by virtue of the Internet 7.8 Marks and Publicity. (A) Neither party shall have the right to use the other party's or its Affiliates' trademarks, service marks or trade names without the prior written consent of the other party. The marks used in this Agreement are either registered service marks or service marks of Level 3 Communications, Inc., its Affiliates or third parties in the United States and/or other countries. (B) Neither party shall issue any press release relating to any contractual relationship between Level 3 and Customer, except as may be required by law or agreed between the parties in writing. 7.9 Non-Disclosure. Any information or documentation disclosed between the parties during the performance of this Agreement shall be subject to the terms and conditions of the applicable non-disclosure agreement then in effect between the parties. 7.10 Disclosure of Customer Information. Level 3 reserves the right to provide any customer or potential customer bound by a nondisclosure agreement access to a list of Level 3's customers and a description of Service purchased by such customers. Customer consents to such disclosure, including the listing of Customer's name and Service purchased by Customer (financial terms relating to the purchase shall not be disclosed). 7.11 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Colorado, U.S.A., without regard to its choice of law rules. 7.12 Entire Agreement. This Agreement, including any Service Schedule(s) and Customer Order(s) executed hereunder, constitutes the entire and final agreement and understanding between the parties with respect to the Service and supersedes all prior agreements relating to the Service, which are of no further force or effect. The Service Schedules attached hereto are listed below: Service Schedule- (3)Link(R) Private Line Service Service Schedule- (3)Center(R) Colocation Service Schedule- (3)Link(R) Cross Connect Service and Mondo Condo Fiber Link Service Service Schedule- Online Customer Service Center Service Schedule-- (3)LinkSM Private Line Service - IRU Service Schedule-- (3)Link Wavelength - Lease Service Schedule-- (3)Link Global Wavelength - IRU Service Schedule- (3)CrossRoads(R) Service Service Schedule- (3)FlexSM Service Service Schedule- (3)Connect(R) Modem Service Service Schedule-- Internet AdvantageSM Connection Service Service Schedule-- Site Patrol Service Schedule-- VPN Advantage Service Schedule- (3)Voice(R) Termination Service Service Schedule- (3)VoIP Local InboundSM Service Service Schedule- (3)VoIP Toll FreeSM Service Service Schedule- (3)VoIP Enhanced Local Service Service Schedule - (3)ToneSM Service Service Schedule - (3)Link Dark Fiber - Lease Service Schedule - (3)Link Dark Fiber - IRU Service Schedule - Fiber Termination (CPF) All Service Schedules, whether attached hereto or executed between the parties after the Effective Date, are integral parts hereof and are hereby made a part of this Agreement. 7.13 Amendment. This Agreement, and any Service Schedule or Customer Order, may only be modified or supplemented by an instrument in writing executed by a duly authorized representative of each party. Without limiting the generality of the foregoing, any handwritten changes to a Customer Order or any terms and conditions included in any Customer-provided purchase order shall be void unless acknowledged and approved in writing by a duly authorized representative of each party. 7.14 Order of Precedence. In the event of any conflict between this Agreement and the terms and conditions of any Service Schedule and/or Customer Order, the order of precedence is as follows: (1) the Service Schedule, (2) this Agreement, and (3) the Customer Order. 7.15 Survival. The provisions of this Article 7 and Articles 3, 5 and 6 and any other provisions of this Agreement that by their nature are meant to survive the expiration or termination of this Agreement shall survive the expiration or termination of this Agreement. 7.16 Relationship of the Parties. The relationship between Customer and Level 3 shall not be that of partners, agents, or joint venturers for one another, and nothing contained in this Agreement shall be deemed to constitute a partnership or agency agreement between them for any purposes, including, without limitation, for federal income tax purposes. 7.17 No Waiver. No failure by either party to enforce any right(s) hereunder shall constitute a waiver of such right(s). 7.18 Severability. If any provision of this Agreement shall be declared invalid or unenforceable under applicable law, said provision shall be ineffective only to the extent of such declaration and such declaration shall not affect the remaining provisions of this Agreement. In the event that a material and fundamental provision of this Agreement is declared invalid or unenforceable under applicable law, the parties shall negotiate in good faith respecting an amendment hereto that would preserve, to the fullest extent possible, the respective rights and obligations imposed on each party under this Agreement as originally executed. 7.19 Joint Product. The parties acknowledge that this Agreement is the joint work product of the parties. Accordingly, in the event of ambiguities in this Agreement, no inferences shall be drawn against either party on the basis of authorship of this Agreement. 7.20 Third Party Beneficiaries. This Agreement shall be binding upon, inure solely to the benefit of and be enforceable by each party hereto and their respective successors and assigns hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any thirty party any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 7.21 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. Facsimile signatures shall be sufficient to bind the parties to this Agreement. IN WITNESS WHEREOF, the parties have entered into this Agreement as of the Effective Date written above. LEVEL 3 COMMUNICATIONS, LLC ("Level 3") Video Internet Broadcasting Corp. dba HomeNet-USA ("Customer") By /s/ S Trimble By /s/ Jonathan A. Moore Name S Trimble Name Jonathan A. Moore Title VP Legal Title Chief Technical Officer SERVICE SCHEDULE (3)LINK(R) PRIVATE LINE SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)Link(R) Private Line Service. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Protected" shall mean any Service that includes a protection scheme that allows traffic to be re-routed in the event of a fiber cut or equipment failure. (B) "Submarine" shall mean any Service that transits any portion of Level 3's trans-oceanic network. (C) "Terrestrial" shall mean any Service that generally transits Level 3's land-based network (with limited water crossings, including, without limitation, bay and channel crossings) and does not in any way transit Level 3's trans-oceanic network. (D) "Unprotected" shall mean any Service that does not include a protection scheme that would allow traffic to be re-routed in the event of a fiber cut or equipment failure. 3. Service Description. (3)Link(R) Private Line Service is a dedicated, non-switched, point to point circuit between two (2) specified locations. 4. Services from Others. Where necessary for the interconnection of (3)Link(R) Private Line Service with services provided by others, Customer will provide Level 3 with circuit facility assignment information, firm order commitment information and the design layout records necessary to enable Level 3 to make the necessary cross-connection between the (3)Link(R) Private Line Service and Customer's designated carrier. Any delay by Customer in providing such information to Level 3 may delay Level 3's provision of the necessary cross-connection. Notwithstanding any such delay in the provision of the cross-connection, billing for the (3)Link(R) Private Line Service shall commence on the Service Commencement Date. Level 3 may charge Customer non-recurring and monthly recurring cross-connect fees to make such connection. 5. Connection to Customer Premises. (A) Where (3)Link(R) Private Line Service is being terminated Off-Net at the Customer Premises through an Off-Net Local Loop to be provisioned by Level 3 on behalf of Customer, the charges set forth in the Customer Order for such (3)Link(R) Private Line (Off-Net) Service assumes that such (3)Link(R) Private Line (Off-Net) Service will be terminated at a pre-established demarcation point or minimum point of entry (MPOE) in the building within which the Customer Premises is located, as determined by the local access provider. Level 3 may charge Customer additional non-recurring charges and/or monthly recurring charges not otherwise set forth in the Customer Order for such (3)Link(R)Private Line (Off-Net) Service where the local access provider determines that it is necessary to extend the demarcation point or MPOE through the provision of additional infrastructure, cabling, electronics or other materials necessary to reach the Customer Premises. Level 3 will notify Customer of any additional non-recurring charges and/or monthly recurring charges as soon as practicable after Level 3 is notified by the local access provider of the amount of such charges. (B) In addition, where (3)Link(R) Private Line Service is being terminated Off-Net at the Customer Premises through an Off-Net Local Loop to be provisioned by Level 3 on behalf of the Customer, the charges and the Service Term set forth in the Customer Order for such (3)Link(R) Private Line (Off-Net) Service assumes that such (3)Link(R) Private Line (Off-Net) Service can be provisioned by Level 3 through the local access provider selected by Level 3 (and/or Customer) for the stated Service Term. In the event Level 3 is unable to provision such (3)Link(R) Private Line (Off-Net) Service through the selected local access provider or the selected local access provider requires a longer Service Term than that set forth in the Customer Order, Level 3 reserves the right, regardless of whether Level 3 has accepted the Customer Order, to suspend provisioning of such (3)Link(R) Private Line (Off-Net) Service and notify Customer in writing of any additional non-recurring charges, monthly recurring charges and/or Service Term that may apply. Upon receipt of such notice, Customer will have five (5) business days to accept or reject such changes. If Customer does not respond to Level 3 within the five (5) business day period, such changes will be deemed rejected by Customer. In the event Customer rejects the changes (whether affirmatively or through the expiration of the five (5) business day period), the affected (3)Link(R) Private Line (Off-Net) Service will be cancelled without cancellation or termination liability of either party. 6. (3)HubSM Private Line Service. (A) (3)Link(R) Private Line Service is also available configured as (3)HubSM Private Line Service. (3)HubSM Private Line Service is comprised of (i) a single (3)Link(R) Private Line Service between two (2) locations (such single (3)Link(R) Private Line Service is sometimes referred to as the (3)HubSM Private Line Facility); and (ii) one or more individual (3)Link(R) Private Line Service(s) within the (3)HubSM Private Line Facility (such individual (3)Link(R) Private Line Services are each sometimes referred to as a (3)HubSM Private Line Circuit). (3)HubSM Private Line Circuits will have equal or less capacity than the (3)HubSM Private Line Facility. The (3)Link(R) Private Line Service(s) comprising any (3)HubSM Private Line Service shall be configured as specified in the applicable Customer Order. (B) Notwithstanding any terms and conditions in the Agreement or this Service Schedule to the contrary, Customer may not terminate a (3)HubSM Private Line Facility regardless of cause without either (i) terminating all (3)HubSM Private Line Circuit(s) within such (3)HubSM Private Line Facility and paying all applicable termination charges related thereto; and/or (ii) converting all (3)HubSM Private Line Circuits comprising such (3)HubSM Private Line Facility into stand-alone (3)Link(R) Private Line Service(s) (without changing the end-point locations) at Level 3's then standard charges for the remainder the applicable Service Term. 7. Service Levels. (A) Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)Link(R) Private Line Service on or before the Customer Commit Date specified for the particular (3)Link(R) Private Line Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer or Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)Link(R) Private Line Service for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the non-recurring charges ("NRC") and/or monthly recurring charges ("MRC") for the affected (3)Link(R) Private Line Service as set forth in the following table: For any (3)Link(R) Private Line (On-Net) Service: - --------------------------------- ------------------------- Installation Delay Beyond Service Level Credit Customer Commit Date - --------------------------------- ------------------------- 1 - 5 business days Amount of NRC - --------------------------------- ------------------------- 6 - 20 business days Amount of NRC plus charges for one (1) day of the MRC for each day of delay - --------------------------------- ------------------------- 21 business days or greater Amount of NRC plus one (1) months' MRC - --------------------------------- ------------------------- For any (3)Link(R) Private Line (Off-Net) Service: - --------------------------------- ------------------------- Installation Delay Beyond Service Level Credit Customer Commit Date - --------------------------------- ------------------------- 1 - 15 business days No Credit - --------------------------------- ------------------------- 16 - 30 business days Amount of NRC - --------------------------------- ------------------------- 31 business days or greater Amount of NRC plus one (1) months' MRC - --------------------------------- ------------------------- (B) Availability Service Level for Protected (3)Link(R) Private Line Service. The Availability Service Level for Protected (3)Link(R) Private Line Service is 99.99% for Protected Terrestrial (3)Link(R) Private Line (On-Net) Service, 99.9% for Protected Submarine (3)Link(R) Private Line (On-Net) Service, and 99.9% for Protected Terrestrial (3)Link(R) Private Line (Off-Net) Service. In the event that any Protected (3)Link(R) Private Line Service becomes unavailable (as defined below) for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the MRC for the affected Protected (3)Link(R) Private Line Service based on the cumulative unavailability of the affected Protected (3)Link(R) Private Line Service in a given calendar month as set forth in the following table. For any Protected (3)Link(R) Private Line (On-Net) Service: - ------------------------------------ -------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - ------------------------------------ -------------------------- 00:00:01 - 00:05:00 No Credit 00:05:01- 00:45:00 5% 00:45:01- 04:00:00 10% 04:00:01 - 08:00:00 20% 08:00:01 -12:00:00 30% 12:00:01 -16:00:00 40% 16:00:01 - 24:00:00 50% 24:00:01 or greater 100% - ------------------------------------ -------------------------- For any Protected Terrestrial (3)Link(R) Private Line (Off-Net) Service: - ------------------------------------ -------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - ------------------------------------ -------------------------- 00:00:01- 00:45:00 No Credit 00:45:01- 04:00:00 5% 04:00:01 - 08:00:00 10% 08:00:01 -12:00:00 20% 12:00:01 -16:00:00 30% 16:00:01 - 24:00:00 40% 24:00:01 or greater 100% - ------------------------------------ -------------------------- For purposes of this Section 7(B) and Section 7(C) below, "unavailable" or "unavailability" means the duration of a break in transmission measured from the first of ten (10) consecutive severely erred seconds ("SESs") on the affected (3)Link(R)Private Line Service until the first of ten (10) consecutive non-SESs. An SES is a second with a bit error ratio of greater than or equal to 1 in 1000. (C) Availability Service Level for Unprotected (3)Link(R) Private Line Service. In the event that any Unprotected (3)Link(R) Private Line Service becomes unavailable (as defined in Section 7(B) above) for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the MRC for the affected Unprotected (3)Link(R) Private Line Service based on the cumulative unavailability for the affected Unprotected (3)Link(R) Private Line Service in a given calendar month as set forth in the following table: For any Unprotected (3)Link(R) Private Line (On-Net) Service: - --------------------------------- --------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - --------------------------------- --------------------------- 0:00:01 - 6:00:00 No Credit 6:00:01 - 8:00:00 5% 8:00:01 - 10:00:00 10% 10:00:01 - 12:00:00 15% 12:00:01 or greater 20% - --------------------------------- --------------------------- For any Unprotected Terrestrial (3)Link(R)Private Line (Off-Net) Service: - --------------------------------- --------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - --------------------------------- --------------------------- 0:00:01 - 30:00:00 No Credit 30:00:01 - 36:00:00 2.5% 36:00:01 - 42:00:00 5% 42:00:01 or greater 7.5% - --------------------------------- --------------------------- (D) Off-Net Service Limitations. The Service Levels set forth in this Section 7 and the rights of termination pursuant to Section 4.4 of the Agreement respecting (3)Link(R) Private Line (Off-Net) Service shall only apply to Terrestrial (3)Link(R) Private Line (Off-Net) Service with end point locations in the United States and/or the European Union. For any other Off-Net Local Loop Service or (3)Link(R) Private Line (Off-Net) Service provisioned by Level 3 through a third party carrier for the benefit of Customer and not otherwise covered by this Section 7, Level 3 will pass-through to Customer any service levels and associated credits (or other express remedies) (if applicable) provided to Level 3 by the applicable third party carrier. 8. Chronic Outage. Customer may elect to terminate an affected On-Net (3)Link(R) Private Line Service prior to the end of the Service Term without termination liability if, for reasons other than an Excused Outage, (1) For Protected On-Net (3)Link(R) Private Line Service, such Protected On-Net (3)Link(R) Private Line Service is unavailable (as defined in Section 7(B) above) for four (4) or more separate occasions of more than two (2) hours each OR for more than twenty four (24) hours in the aggregate in any calendar month; or (2) For Unprotected On-Net (3)Link(R) Private Line Service, such Unprotected On-Net (3)Link(R) Private Line Service is unavailable (as defined in Section 7(B) above) for three (3) or more separate occasions of more than twelve (12) hours each OR for more than forty two (42) hours in the aggregate in any calendar month. Customer may only terminate such On-Net (3)Link(R) Private Line Service that is unavailable as described above, and must exercise its right to terminate the affected On-Net (3)Link(R) Private Line Service under this Section, in writing, within thirty (30) days after the event giving rise to a right of termination hereunder, which termination will be effective as set forth by Customer in such notice of termination. Except for any credits that have accrued pursuant to Section 7, this Section 8 sets forth the sole remedy of Customer for chronic outages or interruptions of any (3)Link(R) Private Line Service. SERVICE SCHEDULE (3)CENTER(R) COLOCATION 1. Applicability. This Service Schedule is applicable only where Customer orders Colocation Space and associated services (i.e., power and (3)TechSM Service). 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Colocation Area" shall mean the location within a Gateway in which Colocation Space ordered by Customer is located. (B) "Colocation Space" shall mean the location(s) within the Colocation Area of a Level 3 Gateway where Customer is permitted to colocate communications equipment pursuant to a Customer Order accepted by Level 3. (C) "(3)TechSM Service" shall mean Level 3 technician services, which may include, without limitation, (i) basic on-site, on demand first-line maintenance and support, including power cycling equipment, and (ii) scheduled support, maintenance, installation and removal of equipment, cabling and other related support services, consistent with Level 3's then current written (3)TechSM Service Description, as amended by Level 3 from time to time, a copy of which shall be made available to Customer upon request. (3)TechSM Service was sometimes previously referred to as Remote Hands, Scheduled Support and Installation and/or Field Technical Services (FTS). 3. Service Description. (3)Center(R) Colocation is Colocation Space within a Gateway licensed to Customer for purpose of colocating communications equipment. 4. Grant of License. Customer is granted the right to occupy the Colocation Space identified in a Customer Order during the Service Term, except as otherwise provided in the Agreement and this Service Schedule. Level 3 retains the right to access any Colocation Space for any legitimate business purpose at any time. 5. Use of Colocation Space. Customer shall be permitted to use the Colocation Space only for placement and maintenance of communications equipment. Customer may access the Colocation Space (and the Gateway and Colocation Area for the sole purpose of accessing the Colocation Space) twenty four (24) hours per day, seven (7) days per week, subject to any and all rules, regulations and access requirements imposed by Level 3 governing such access. 6. Level 3 Maintenance. Level 3 shall perform janitorial services, environmental systems maintenance, power plant maintenance and other actions as are reasonably required to maintain the Colocation Area in which the Colocation Space is located in a condition that is suitable for the placement of communications equipment. Level 3 shall maintain the Colocation Area in which the Colocation Space is located (but shall not be obligated to maintain the Colocation Space itself) with a relative humidity in the range of 50% ( + or - 10%) and a maximum ambient air temperature of 78 degrees Fahrenheit (26 degrees Celsius). Customer shall maintain the Colocation Space in an orderly and safe condition, and shall return the Colocation Space to Level 3 at the conclusion of the Service Term set forth in the Customer Order in the same condition (reasonable wear and tear excepted) as when such Colocation Space was delivered to Customer. EXCEPT AS EXPRESSLY STATED HEREIN OR IN ANY CUSTOMER ORDER, THE COLOCATION SPACE SHALL BE DELIVERED AND ACCEPTED "AS IS" BY CUSTOMER, AND NO REPRESENTATION HAS BEEN MADE BY LEVEL 3 AS TO THE FITNESS OF THE COLOCATION SPACE FOR CUSTOMER'S INTENDED PURPOSE. 7. Release of Landlord. If and to the extent that Level 3's underlying leases so require (but only if they so require) Customer hereby agrees to release Level 3's landlord (and its agents, subcontractors and employees) from all liability relating to Customer's access to the Gateway and the Colocation Area and Customer's use and/or occupancy of the Colocation Space. 8. Security. Level 3 will provide and maintain in working condition card reader(s), scanner(s) and/or other access device(s) as selected by Level 3 for access to the Colocation Area of a Gateway. Customer shall under no circumstances "prop open" any door to, or otherwise bypass the security measures Level 3 has imposed for access to, the Colocation Area. Level 3 will provide a locking device on Customer's Colocation Space, which Customer shall be solely responsible for locking and/or activating such device. In the event that unauthorized parties gain access to the Gateway, Colocation Area and/or the Colocation Space through access cards, keys or other access devices provided to Customer, Customer shall be responsible for any damages caused by such parties. Customer shall be responsible for the cost of replacing any security devices lost or stolen after delivery thereof to Customer. In the event Customer has reason to believe that an unauthorized party has gained access to the Colocation Space, Level 3 will, at Customer's request, make video surveillance records of the Colocation Area reasonably available to Customer for viewing by Customer in the presence of a Level 3 employee. In addition, Level 3 will provide Customer with a copy of the access logs for the Colocation Area and/or the Gateway, as applicable, upon Customer's prior written request. 9. Prohibited Activities. Customer shall abide by any posted or otherwise communicated rules relating to use of, access to, or security measures respecting the Gateway, Colocation Area and/or the Colocation Space. Customer's rights of access and use will be immediately terminated in the event Customer or any of its agents or employees are in Level 3's Gateway with any firearms, illegal drugs, alcohol or are engaging in any criminal activity, eavesdropping or foreign intelligence. Persons found engaging in any such activity or in possession of the aforementioned prohibited items will be immediately escorted from the Gateway. 10. Termination of Use. Level 3 shall have the right to terminate Customer's use of the Colocation Space or the Service delivered therein in the event that: (a) Level 3's rights to use the Gateway terminates or expires for any reason; (b) Customer is in default hereof; (c) Customer makes any material alterations to the Colocation Space without first obtaining the written consent of Level 3; or (d) Customer allows personnel or contractors to enter the Gateway, Colocation Area and/or the Colocation Space who have not been approved by Level 3 in advance. With respect to items (b), (c) and (d), unless (in Level 3's opinion) Customer's actions interfere or have the potential to interfere with other Level 3 customers, Level 3 shall provide Customer a written notice and a ten (10) day opportunity to cure before terminating Customer's rights to the Colocation Space. 11. Removal of Equipment. Within two (2) days following the expiration or termination of the Service Term for any Colocation Space, Customer shall remove all Customer equipment from the Colocation Space. In the event Customer fails to remove the equipment within such two (2) day period, Level 3 may disconnect, remove and dispose of Customer's equipment without prior notice. Customer shall be responsible for any costs and expenses incurred by Level 3, or its agent, representative or contractor, resulting from disconnection, removal, disposal and storage of Customer's equipment, for which Customer agrees to pay such costs and expenses and all other charges due and owing by Customer to Level 3 under the Agreement prior to Level 3 returning any Customer equipment still in Level 3's possession. Level 3 shall not be liable for any loss or damage incurred by Customer arising out of Level 3's disconnection, removal, storage or disposal of Customer's equipment. 12. Sublicenses. Customer may sublicense the use of Colocation Space under the following conditions: (a) all proposed sublicensees must be approved in writing by Level 3 in Level 3's sole discretion, except Customer may sublicense the use of the Colocation Space to an Affiliate of Customer upon prior written notice to Level 3; (b) Customer hereby guarantees that all such parties shall abide by the terms of the Agreement, this Service Schedule and the applicable Customer Order; (c) Customer shall indemnify, defend and hold Level 3 harmless from all claims brought against Level 3 arising from any act or omission of any sublicensee or its agents; and (d) any such party shall be considered Customer's agent and all of such party's acts and omissions shall be attributable to Customer for the purposes of the Agreement and this Service Schedule. In the event Customer sublicenses use of the Colocation Space without Level 3's prior written approval, Level 3 may upon ten (10) days' prior written notice reclaim the sublicensed portion of the Colocation Space. Customer shall surrender such reclaimed Colocation Space and shall be subject to termination charges associated with the reclaimed Colocation Space as provided in Section 3.7 of the Agreement. No refunds shall be made to Customer regarding reclaimed Colocation Space. 13. Changes. (A) Level 3 reserves the right to change (at Level 3's cost) the location or configuration of the Colocation Space licensed to Customer within the Level 3 Gateway; provided that Level 3 shall not arbitrarily require such changes. Level 3 and Customer shall work in good faith to minimize any disruption in Customer's services that may be caused by such changes in location or configuration of the Colocation Space. (B) Notwithstanding anything in Section 3.1 of the Agreement to the contrary and unless otherwise agreed in writing by the parties, in the event any Customer Order for Colocation Space is altered (including, without limitation, any changes in the configuration or build-out of the Colocation Space) at Customer's request after Customer's submission and Level 3's acceptance of such Customer Order that results in a delay of Level 3's delivery of such Colocation Space to Customer, billing for such Colocation Space shall commence no later than the original Customer Commit Date. 14. Insurance. Prior to storage of equipment or occupancy by Customer of any Colocation Space and during the Service Term, Customer shall procure and maintain the following minimum insurance coverage: (a) Workers' Compensation in compliance with all applicable statutes of appropriate jurisdiction (including Employer's Liability with limits of $500,000 each accident); (b) Commercial General Liability with combined single limits of $1,000,000 each occurrence; and (c) "All Risk" Property insurance covering all of Customer's personal property located in the Gateway. Customer acknowledges that it retains the risk of loss for, loss of (including, without limitation, loss of use), or damage to, Customer equipment and other personal property located in the Level 3 Gateway. Customer further acknowledges that Level 3's insurance policies do not provide coverage for Customer's personal property located in the Level 3 Gateway. Customer shall, at its option, maintain a program of property insurance or self-insurance covering loss of or damage to its equipment and other personal property located in the Level 3 Gateway. Customer's Commercial General Liability policy shall be endorsed to show Level 3 (and any underlying property owner, as requested by Level 3) as an additional insured. Customer shall waive and/or cause its insurance carriers to waive all rights of subrogation against Level 3, which will include, without limitation, an express waiver in all insurance policies. Customer shall furnish Level 3 with certificates of insurance demonstrating that Customer has obtained the required insurance coverages prior to use of the Colocation Space or the storage of equipment in the Gateway. Such certificates shall contain a statement that the insurance coverage shall not be materially changed or cancelled without at least thirty (30) days' prior written notice to Level 3. Customer shall require any contractor, customer or other third party entering the Gateway on Customer's behalf to procure and maintain the same types, amounts and coverage extensions as required of Customer above. 15. (3)TechSM Service. (A) Level 3 may provide (3)TechSM Service on Customer's equipment within the Colocation Space from time to time as mutually agreed between the parties. Customer may order (3)TechSM Service by contacting Level 3 Customer Service or such other means as Level 3 may make available from time to time. For (3)TechSM Service that is scheduled support beyond the basic on-site, on-demand first-line maintenance and support, Level 3 shall not be obligated to perform such (3)TechSM Service until a scope of such (3)TechSM Service to be provided has been mutually agreed by the parties in writing. Upon Level 3's acceptance of such order (and the parties' execution of a scope document, if required), Level 3 will perform the (3)TechSM Service in accordance with Customer's directions. Unless otherwise agreed between the parties, pricing for (3)TechSM Service shall be at Level 3's then current rates. (B) ANY (3)TECHSM SERVICE IS PROVIDED ON AN `AS-IS' BASIS AND LEVEL 3 MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE. (C) As part of any (3)TechSM Service, under no circumstances will Level 3 be responsible for performing any warranty-affecting work, and Level 3 shall not be liable to Customer or any third party to the extent any work performed violates and/or voids, in whole or in part, any equipment, software and/or manufacturer's warranty. Notwithstanding any provision in this Service Schedule or the Agreement to the contrary but subject to Section 19(C) below, Level 3's cumulative liability for damages arising out of or related to Level 3's performance or failure to perform any (3)TechSM Service will be limited to direct damages in an amount not to exceed the total fees paid by Customer to Level 3 for the particular (3)TechSM Service giving rise to the liability. 16. Storage of Customer Equipment. Level 3 may, at its option, agree to store equipment that Customer intends to colocate in Customer's Colocation Space for not more than forty five (45) days prior to the applicable Customer Commit Date. Storage of such equipment is purely incidental to the Service ordered by Customer and Level 3 will not charge Customer a fee for such storage. No document delivered as part of such storage shall be deemed a warehouse receipt. Absent Level 3's gross negligence or intentional misconduct, Level 3 shall have no liability to Customer or any third party arising from such storage. In the event Customer stores equipment for longer than forty five (45) days, Level 3 may, but shall not be obligated to, return Customer's equipment to Customer without liability, at Customer's sole cost and expense. 17. Promotional Signage. Customer may display a single promotional sign with Customer's name and/or logo on the outside of any Customer Colocation Space; provided such signage does not exceed 8 inches by 11 inches. All other promotional signage is prohibited. 18. Power. (A) Unless otherwise agreed between the parties, the pricing for power shall be on a breakered amp load basis. (B) The standard available power in any Colocation Space is 180 watts/square foot (1800 watts/square meter) of breakered power. Any additional power required by Customer is subject to prior written approval by Level 3. (C) In the event the power utility increases the price paid by Level 3 for power provided to any Colocation Space, Level 3 may pass-through to Customer such price increase upon prior written notice to Customer. 19. Service Levels. (A) Installation Service Level. This Installation Service Level applies to cabinet and private suite Colocation Space ordered in a Gateway. Level 3 will exercise commercially reasonable efforts to install any Colocation Space on or before the Customer Commit Date specified for such Colocation Space. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer, Customer Orders that are altered at Customer's request after submission and acceptance by Level 3, or Customer Orders that require Level 3 to configure Colocation Space to specifications other than Level 3's standard specifications for Colocation Space (such standard specifications shall be made available to Customer upon request). In the event Level 3 does not meet this Installation Service Level for a particular Colocation Space for reasons other than an Excused Outage, Customer will be entitled to a service credit equal to the charges for one (1) day of the monthly recurring charges ("MRC") for the affected Colocation Space for each day of delay, up to a monthly maximum credit of four (4) days. (B) Power Service Level. In the event of any outage of Level 3 provided power to the Colocation Space for reasons other than Customer actions or omissions, Customer will be entitled to receive a service credit equal to the charges for one (1) day of the MRC for the affected Colocation Space (with a maximum of a one (1) day credit for all outages in any twenty four (24) hour period). (C) (3)TechSM Service Response Time Service Level. The Response Time Service Level for (3)TechSM Service for basic on-site, on-demand first-line maintenance and support is as set forth below. This Response Time Service Level shall not apply to any (3)TechSM Service that is for scheduled support, maintenance, installation or removal. This Response Time Service Level is measured from the time Level 3 Customer Service receives and logs Customer's (3)TechSM Service request with all of the necessary information requested by Level 3 Customer Service, until a Level 3 technician is dispatched in response to the particular request. In the event Level 3 does not meet the following Response Time Service Level for reasons other than an Excused Outage, Customer will be entitled to a service credit equal to the charges for one (1) day of the MRC for the affected Colocation Space (with a maximum of a one (1) day credit for all instances of delay in any twenty four (24) hour period, with a total monthly maximum credit of seven (7) days): - ------------------------------------ Service Level - ---------------------- ------------- Hours of Operation Response Time - ---------------------- ------------- Normal Level 3 30 minutes business hours of operation (M-F) for the particular Gateway - ---------------------- ------------- Off-hours, holidays 2 hours & weekends - ---------------------- ------------- SERVICE SCHEDULE (3)LINK(R) CROSS CONNECT SERVICE and MONDO CONDO FIBER LINK SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)Link(R) Cross Connect Service and/or Mondo Condo Fiber Link Service. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. 3. Service Description. (3)Link(R) Cross Connect Service is copper or fiber optic cabling cross-connected between Level 3 provided (3)Center(R) Colocation (cabinets and/or suites), other Level 3 provided Service or Facilities and/or third party provided services or facilities that terminate within the Level 3 Gateway. Mondo Condo Fiber Link Service is fiber optic cabling that provides connectivity between the Level 3 Mondo Condo facility and the Level 3 Gateway in the same metropolitan area. Mondo Condo Fiber Link Service can provide connectivity between Level 3 provided (3)Center(R) Colocation (cabinets and/or suites) within a Level 3 Mondo Condo facility and the Level 3 Gateway, Level 3 provided dark fiber and/or third party provided services or facilities that terminate within a Level 3 Gateway. 4. Interconnection. Unless otherwise agreed between the parties, any (3)Link(R) Cross Connect Service or Mondo Condo Fiber Link Service will be interconnected to a Level 3 provided panel within the Level 3 Gateway (and not directly to Customer provided equipment or facilities). Upon request of Customer at the time of submission of the applicable Customer Order, Level 3 will interconnect such (3)Link(R) Cross Connect Service or Mondo Condo Fiber Link Service directly to Customer provided equipment or facilities within the Level 3 Gateway; provided, however, Level 3 shall not be liable to Customer or any third party for any loss or damage to such Customer provided equipment or facilities arising out of such direct interconnection. 5. Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)Link(R) Cross Connect Service and any Mondo Condo Fiber Link Service on or before the Customer Commit Date specified for the particular (3)Link(R) Cross Connect Service or Mondo Condo Fiber Link Service (as the case may be). This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer or Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)Link(R) Cross Connect Service or Mondo Condo Fiber Link Service (as the case may be) for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the non-recurring charges ("NRC") and/or monthly recurring charges ("MRC") for the affected (3)Link(R) Cross Connect Service or Mondo Condo Fiber Link Service (as the case may be) as set forth in the following tables: For (3)Link(R) Cross Connect Service: - --------------------------------- ------------------------- Installation Delay Beyond Service Level Credit Customer Commit Date - --------------------------------- ------------------------- 1 - 5 business days Amount of NRC - --------------------------------- ------------------------- 6 - 20 business days Amount of NRC plus charges for one (1) day of the MRC for each day of delay - --------------------------------- ------------------------- 21 + business days Amount of NRC plus one (1) months' MRC - --------------------------------- ------------------------- For Mondo Condo Fiber Link Service: - --------------------------------- ------------------------- Installation Delay Beyond Service Level Credit Customer Commit Date - --------------------------------- ------------------------- 15 - 30 business days Amount of NRC - --------------------------------- ------------------------- 31 + business days Amount of NRC plus one (1) months' MRC - --------------------------------- ------------------------- SERVICE SCHEDULE ONLINE CUSTOMER SERVICE CENTER 1. Applicability. This Service Schedule is applicable only to Customer's access to and use of Level 3's Online Customer Service Center (the "Online CSC System"). 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. 3. Description. The Online CSC System is an online Customer Service Center that provides Customer with reporting, pricing, availability, and other order information (specific to Customer) for Service ordered under the Agreement. 4. Authorized Users. (A) Customer may enroll for access to the Online CSC System by signing and returning a completed Authorized User Access Form as designated by Level 3, a copy of which is available from Level 3 upon request, for each individual who is authorized to access and use the Online CSC System on behalf of Customer (each an "Authorized User"). Customer shall have the right to add or delete Authorized Users or change the access rights and authority of any Authorized User from time to time at Customer's discretion by submission to Level 3 of the appropriate form(s) designated by Level 3 and available upon request. Level 3 will send written confirmation (via e-mail) of its receipt of such written request, and will implement such additions, deletions or changes by close of business on the second (2nd) business day after receipt of such written request. (B) Customer agrees that the person using the Online CSC System username and password is the Authorized User assigned to that username and password, and has the access rights and authority to bind Customer consistent with the access rights and authority assigned by Customer to that Authorized User in the applicable Authorized User Access Form. (C) Customer shall be responsible for the confidentiality and use of all Online CSC System user name(s), password(s) and other security data, methods and devices provided by Level 3 to Customer for use by Authorized Users. Customer shall be responsible for the cost of replacing any security devices lost or stolen after delivery by Level 3 to Customer. Customer shall immediately notify Level 3 if there is any unauthorized use of Customer's username(s), password(s) and other security data, methods or devices. 5. Additional Terms and Conditions. Customer agrees to be bound by any additional terms and conditions displayed on the Online CSC System and agreed (or accepted) by Customer that may be applicable to any Service or Customer Order submitted via the Online CSC System. 6. Changes, Suspension or Termination of the Online CSC System. Level 3 may, at any time and without notice, change, modify and/or alter the Online CSC System, including, without limitation, the functionality of the Online CSC System and the Service available for ordering by Customer therein; provided, however, that Level 3 shall use commercially reasonable efforts to notify Customer of such changes, additions or deletions. In addition, Level 3 may, without cause, suspend or terminate Customer's access to the Online CSC System or otherwise discontinue the Online CSC System, in whole or in part, upon written notice to Customer. 7. Proprietary Rights. Customer agrees that Level 3's Online CSC System is the property of Level 3. Customer agrees not to use Level 3's Online CSC System other than for its intended use and, in no event, shall Customer provide access to the Online CSC System to any person other than an Authorized User. 8. Ordering Service Through the Online CSC System. This Section 8 shall be applicable to Customer's submission of Customer Orders and/or reservations for Service to Level 3 via the Online CSC System. (A) Without limiting the generality of Section 4(B) above, Customer acknowledges and agrees that any Customer Order for Service submitted via the Online CSC System by an Authorized User with Customer Order submission authority shall constitute a valid and binding Customer Order of Customer (subject to the same terms and conditions for all Customer Orders under the Agreement), and Customer shall be responsible for any and all charges associated with such Customer Order. (B) Level 3 shall confirm the submission of a Customer Order by forwarding to Customer via e-mail a "Confirmation" or "Rejection" of the Customer Order within one (1) business day of receipt of the Customer Order via the Online CSC System. In the event Customer does not receive either a Confirmation or Rejection within such time frame, Customer should contact its Level 3 account representative. Notwithstanding the terms of Section 2.2 of the Agreement, Level 3's delivery of the Confirmation shall constitute Level 3's acceptance of any Customer Order submitted via the Online CSC System, and shall create a binding obligation on the part of the parties respecting the Service referenced in the Confirmation. If the Confirmation incorrectly states any of the terms that Customer believes are applicable to its Customer Order, Customer shall deliver written notice of its objection to the Confirmation within two (2) business days following Level 3's delivery of the Confirmation. In the event that an objection to a Confirmation is delivered to Level 3 within such two (2) business day period, then the parties shall confer in an effort to resolve such objection. (C) Both Customer and Level 3 agree that the electronic order process (as more particularly described in this Section 8) within the Online CSC System creates a valid and binding Customer Order between Level 3 and Customer. (D) In the event that Customer determines through the Online CSC System that certain Service is then available but Customer does not desire to submit a Customer Order for such Service, Customer may be permitted to reserve such Service for a period of time in accordance with the reservation terms and conditions displayed on the Online CSC System. SERVICE SCHEDULE (3)LINKSM PRIVATE LINE SERVICE - IRU 1. Applicability. This Service Schedule is applicable only where Customer orders (3)LinkSM Private Line Service on an IRU basis. This Service Schedule does not apply to any Off-Net Local Loop provisioned by Level 3 through a third party provider for the benefit of Customer; such Off-Net Local Loop would subject to the (3)LinkSM Private Line Service Schedule executed between the parties (or if none, the then current standard version of Level 3's (3)LinkSM Private Line Service Schedule shall apply). 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Deposit" shall mean an amount equal to twenty-five percent (25%) of the non-recurring IRU charge for any (3)LinkSM Private Line Service purchased hereunder. (B) "IRU" shall mean an indefeasible (except as otherwise provided herein) right to use (3)LinkSM Private Line Service purchased under this Service Schedule. (C) "Protected" shall mean any Service that includes a protection scheme that allows traffic to be re-routed in the event of a fiber cut or equipment failure. (D)"Submarine" shall mean any Service that transits any portion of Level 3's trans-oceanic network. (E) "Terrestrial" shall mean any Service that generally transits Level 3's land-based network (with limited water crossings, including, without limitation, bay and channel crossings) and does not in any way transit Level 3's trans-oceanic network. (F) "Unprotected" shall mean any Service that does not include a protection scheme that would allow traffic to be re-routed in the event of a fiber cut or equipment failure. 3. Service Description. (3)LinkSM Private Line Service is a dedicated, non-switched, point to point circuit between two (2) specified locations. 4. IRU Grant. (A) Commencing with the Service Commencement Date and continuing through the end of the Service Term, Level 3 will grant to Customer an indefeasible right of use pursuant to the terms and conditions of the Agreement and this Service Schedule in any (3)LinkSM Private Line Service provided on an IRU basis as identified in a Customer Order submitted by Customer and accepted by Level 3. (B) Upon the expiration of the initial Service Term respecting any (3)LinkSM Private Line Service provided on an IRU basis, the IRU for the particular (3)LinkSM Private Line Service shall revert to a month-to-month lease subject to the (3)LinkSM Private Line Service Schedule executed between the parties (or if none, the then current standard version of Level 3's (3)LinkSM Private Line Service Schedule shall apply), and the Service Term shall continue until terminated by either party upon thirty (30) days' prior written notice to the other party. The monthly recurring charges for the (3)LinkSM Private Line Service under the month-to-month lease shall be based on Level 3's then current monthly recurring charges for (3)LinkSM Private Line Service leases. Upon termination, all rights to the use of the (3)LinkSM Private Line Service therein shall revert to Level 3 without reimbursement of any of the non-recurring IRU charge or other sums, costs, fees or expenses previously paid with respect thereto, and from and after such time Customer shall have no further rights or obligations hereunder with respect thereto unless such rights or obligations are specifically provided herein to survive the Service Term. 5. Charges. (A) The charges for each (3)LinkSM Private Line Service consist of three (3) components: (1) a non-recurring installation charge payable pursuant to Section 5(B); (2) a non-recurring IRU charge payable pursuant to Section 5(C); and (3) an annual recurring O&M charge payable pursuant to Section 5(D). (B) For each (3)LinkSM Private Line Service provided on an IRU basis, Customer agrees to pay to Level 3 the non-recurring installation charge set forth in the Customer Order applicable to such (3)LinkSM Private Line Service. Such non-recurring installation charge shall be due (regardless of whether Level 3 issues an invoice) within five (5) days of Customer's receipt of the Customer Welcome Letter respecting such (3)LinkSM Private Line Service. (C) For each (3)LinkSM Private Line Service provided on an IRU basis, Customer agrees to pay to Level 3 the non-recurring IRU charge set forth in the Customer Order applicable to such (3)LinkSM Private Line Service. The Deposit for any purchase of (3)LinkSM Private Line Service shall be due (regardless of whether Level 3 issues an invoice) within five (5) days of Customer's receipt of the Customer Welcome Letter; the balance of the non-recurring IRU charge shall be invoiced by Level 3 at the time that the Connection Notice for such (3)LinkSM Private Line Service is delivered. (D) (1) For each (3)LinkSM Private Line Service provided on an IRU basis, Customer agrees to pay to Level 3, commencing with the applicable Service Commencement Date and continuing until the expiration of the applicable Service Term, an annual recurring O&M charge as set forth in the Customer Order ("O&M Charge"). The O&M Charge is intended to cover the expenses of supplying power, operations and maintenance services necessary to continue effective availability of the (3)LinkSM Private Line Service for the Service Term. (2) The O&M Charge shall be increased on each anniversary of the Service Commencement Date by the increase, if any, in the Consumer Price Index, All Urban Consumers (CPI-U), U.S. City Average, published by the United States Department of Labor, Bureau of Labor Statistics (1982-84 = 100), for the preceding twelve (12) month period. In the event such index shall cease to be computed or published, Level 3 may, in its reasonable discretion, designate a successor index to be used in determining any increase to the O&M Charge. (3) The O&M Charge shall be invoiced annually (commencing on the Service Commencement Date and each year thereafter during the Service Term). 6. Interconnection. (A) The demarcation point for any (3)LinkSM Private Line (intercity) Service shall be the Level 3 OSX or fiber termination panel in the applicable Gateway(s). The demarcation point for any (3)LinkSM Private Line (metropolitan) Service shall be as set forth in the applicable Customer Order. (B) With respect to construction of Facilities to the Customer Premises and installation, maintenance and repair of Facilities within the Customer Premises, Customer shall provide Level 3 with access to and the use of Customer's entrance facilities and inside wiring, and/or shall procure rights for Level 3 allowing the placement of Facilities necessary for installation and delivery of the (3)LinkSM Private Line Service to the Customer Premises. All costs associated with procuring and maintaining rights needed to obtain entry to the building (and the real property on which the building is located) within which the Customer Premises are located, and costs to procure and maintain rights within such building to the Customer Premises, shall be borne by Customer. (C) Where necessary for the interconnection of (3)LinkSM Private Line Service with services provided by others, Customer will provide Level 3 with circuit facility assignment information, firm order commitment information and the design layout records necessary to enable Level 3 to make the necessary cross-connection between the (3)LinkSM Private Line Service and Customer's designated carrier. Any delay by Customer in providing such information to Level 3 may delay Level 3's provision of the necessary cross-connection. Notwithstanding any such delay in the provision of the cross-connection, billing for the (3)LinkSM Private Line Service shall commence on the Service Commencement Date. Level 3 may charge Customer non-recurring and monthly recurring cross-connect fees to make such connection. 7. Route Portability. (A) In the event that Customer purchases (3)LinkSM Private Line Service under an IRU with an initial Service Term of five (5) years or longer, Customer may, upon at least ninety (90) days' prior written notice to Level 3, terminate its use of such (3)LinkSM Private Line Service after the Service Commencement Date but prior to the end of the initial Service Term. Upon the effective date of such termination and following Customer's payment of all charges due under Section 5, Customer shall be entitled to a credit (the "Portability Credit") calculated as a percentage of the non-recurring IRU charge paid for such (3)LinkSM Private Line Service based on the number of months following the Service Commencement Date as set forth in the following table: - ------------ ------------- ---------- ------------ # of % Applied # of % Applied Months as Credit Months as Credit - ------------ ------------- ---------- ------------ 1 80% 16 53.3% 2 78.2% 17 51.7% 3 76.4% 18 50% 4 74.5% 19 48.3% 5 72.7% 20 46.7% 6 70.9% 21 45% 7 69.1% 22 43.3% 8 67.3% 23 41.7% 9 65.5% 24 40% 10 63.6% 25 38.3% 11 61.8% 26 36.7% 12 60% 27 35% 13 58.3% 28 33.3% 14 56.7% 29 31.7% 15 55% 30 30% - ------------ ------------- ---------- ------------ - ------------ ------------- ---------- ------------ # of % Applied # of % Applied Months as Credit Months as Credit - ------------ ------------- ---------- ------------ 31 28.3% 46 7.5% 32 26.7% 47 6.3% 33 25% 48 5% 34 23.3% 49 5% 35 21.7% 50 5% 36 20% 51 5% 37 18.8% 52 5% 38 17.5% 53 5% 39 16.3% 54 5% 40 15% 55 0% 41 13.8% 56 0% 42 12.5% 57 0% 43 11.3% 58 0% 44 10% 59 0% 45 8.8% 60 0% - ------------ ------------- ---------- ------------ The Portability Credit shall be calculated based only on the non-recurring IRU charge paid for such (3)LinkSM Private Line Service and no portion of the non-recurring installation charge or the annual recurring O&M charge paid by Customer shall be refunded, rebated or credited. The Portability Credit shall be made available to Customer upon the effective date of termination of the applicable (3)LinkSM Private Line Service. Customer may thereafter use the Portability Credit as a credit against the non-recurring IRU charge otherwise applicable to Customer's purchases of additional (3)LinkSM Private Line Service under this Service Schedule for a minimum five (5) year IRU Service Term; provided, however, that (i) a maximum of fifty percent (50%) of the non-recurring IRU charge (including any Deposits, if due) for additional (3)LinkSM Private Line Service may be paid by application of any Portability Credit and a minimum of fifty percent (50%) of the non-recurring IRU charge (or any Deposits, if due) for such (3)LinkSM Private Line Service must be paid in cash; and (ii) the Portability Credit must be used within two (2) years after termination of the (3)LinkSM Private Line Service for which the Portability Credit was granted. Any Portability Credit that is not applied against purchases of additional (3)LinkSM Private Line Service within such period shall be forfeited. (B) This Section 7 sets forth Customer's sole right to terminate for convenience any (3)LinkSM Private Line Service. As such, the parties acknowledge and agree that Section 3.7 of the Agreement shall not apply to any (3)LinkSM Private Line Service provided on an IRU basis pursuant to this Service Schedule. 8. Use of Capacity. (A) Level 3 reserves the right (but shall not be obligated) to transfer any (3)LinkSM Private Line Service from one transmission system to another upon reasonable advance notice to Customer. Such transfer shall be effected in such a way as to minimize, to the extent reasonably possible, the extent and duration of any disruption in the operation of the (3)LinkSM Private Line Service. If any planned transfer of the (3)LinkSM Private Line Service from one transmission system to another will adversely affect Customer's schemes for system diversity along the (3)LinkSM Private Line Service between Gateways, Level 3 and Customer agree to work together so as to preserve, to the extent feasible, Customer's diversity requirements. (B) Customer acknowledges and agrees that its rights are limited to the use of the (3)LinkSM Private Line Service only, and that Customer shall keep the Level 3 network free from any liens, rights or claims of any third party attributable to Customer. (C)Customer shall not use the (3)LinkSM Private Line Service in a way which interferes in any way with or otherwise adversely affects the use of the Level 3 network by any other entity using the Level 3 network or capacity therein. 9. Service Levels. (A)Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)LinkSM Private Line Service on or before the Customer Commit Date specified for the particular (3)LinkSM Private Line Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer, Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)LinkSM Private Line Service for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the non-recurring IRU charge for the affected (3)LinkSM Private Line Service as set forth in the following table: - --------------------------------- ------------------------- Installation Delay Beyond Service Level Credit Customer Commit Date - --------------------------------- ------------------------- 1 - 10 business days 1% - --------------------------------- ------------------------- 11-30 business days 3% - --------------------------------- ------------------------- 31 business days or greater 5% - --------------------------------- ------------------------- (B)Availability Service Level for Protected (3)LinkSM Private Line Service. (1) The Availability Service Level for Protected (3)LinkSM Private Line Service delivered over Level 3's network is 99.99% for Protected Terrestrial (3)LinkSM Private Line Service and 99.9% for Protected Submarine (3)LinkSM Private Line Service. In the event that any Protected (3)LinkSM Private Line Service becomes unavailable (as defined below) for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the annual O&M Charge (as defined in Section 5(C)) for the affected Protected (3)LinkSM Private Line Service based on the cumulative unavailability of the affected Protected (3)LinkSM Private Line Service in a given calendar month as set forth in the following table: - ------------------------------------ -------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - ------------------------------------ -------------------------- 00:00:01 - 00:05:00 No Credit - ------------------------------------ -------------------------- 00:05:01- 00:45:00 5% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - ------------------------------------ -------------------------- 00:45:01- 04:00:00 15% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - ------------------------------------ -------------------------- 04:00:01 - 08:00:00 30% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - ------------------------------------ -------------------------- 08:00:01 -12:00:00 50% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - ------------------------------------ -------------------------- 12:00:01 -16:00:00 70% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - ------------------------------------ -------------------------- 16:00:01 - 24:00:00 85% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - ------------------------------------ -------------------------- 24:00:01 or greater 100% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - ------------------------------------ -------------------------- For purposes of this Section 9(B), "unavailable" or "unavailability" means the duration of a break in transmission measured from the first of ten (10) consecutive severely erred seconds ("SESs") on the affected (3)LinkSM Private Line Service until the first of ten (10) consecutive non-SESs. An SES is a second with a bit error ratio of greater than or equal to 1 in 1000. (2) Without prejudice to Customer's right to service credits pursuant to subsection (1) above, if the (3)LinkSM Private Line Service is provided in Germany, then the Availability Service Level for such (3)LinkSM Private Line (On-Net) Service is 99.9% (based on a calendar month). (C)Availability Service Level for Unprotected (3)LinkSM Private Line Service. (1) In the event that any Unprotected (3)LinkSM Private Line Service becomes unavailable (as defined in Section 9(B) above) for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the annual O&M Charge (as defined in Section 5(C)) for the affected Unprotected (3)LinkSM Private Line Service based on the cumulative unavailability of the affected Unprotected (3)LinkSM Private Line Service in a given calendar month as set forth in the following table: - --------------------------------- --------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - --------------------------------- --------------------------- 0:00:01 - 24:00:00 No Credit - --------------------------------- --------------------------- 24:00:01 - 30:00:00 2% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - --------------------------------- --------------------------- 30:00:01 - 36:00:00 4% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - --------------------------------- --------------------------- 36:00:01 - 42:00:00 6% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - --------------------------------- --------------------------- 42:00:01 or greater 10% of annual O&M Charge (applicable to the affected (3)LinkSM Private Line Service) - --------------------------------- --------------------------- (D) Limitation. The amount of credit granted under Sections 10(B) and (C) shall not exceed one hundred percent (100%) of the annual O&M Charge for the affected Protected (3)LinkSM Private Line Service and ten percent (10%) of the annual O&M Charge for the affected Unprotected (3)LinkSM Private Line Service during the applicable month. Credits provided under Sections 10(B) and (C) may be used against payment of the non-recurring IRU charge otherwise due for the purchase of any (3)LinkSM Private Line Service, or may be offset against the next following annual recurring O&M charge due hereunder. SERVICE SCHEDULE (3)LINK(R) WAVELENGTH SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)Link(R) Wavelength Service. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Terrestrial" shall mean any Service that generally transits Level 3's land-based network (with limited water crossings, including, without limitation, bay and channel crossings) and does not in any way transit Level 3's trans-oceanic network. (B) "Unprotected" shall mean any Service that does not include a protection scheme that would allow traffic to be re-routed in the event of a fiber cut or equipment failure. All (3)Link(R) Wavelength Service is Unprotected, unless specifically designated otherwise. (C) "Protected" shall mean any Service that includes a protection scheme that allows traffic to be re-routed in the event of a fiber cut. 3. Service Description. There are three types of Service within the (3)Link(R) Wavelength Service. All three Service types shall be referred to generically as (3)Link(R) Wavelength Service. Each Section of this Service Schedule shall apply to all types of (3)Link(R) Wavelength Service unless otherwise expressly set forth in the particular Section. (A) (3)Link(R) Global Wavelength Service is a 2.5Gb or 10Gb (or greater, as agreed by the parties) transparent, Unprotected virtual channel(s) (or wavelength(s)) on the Level 3 intercity network between two (2) termination nodes in different metropolitan areas. (3)Link(R) Global Wavelength Service provides full SONET section, line and path overhead transparency without altering any of the bytes included in the SONET overhead, except for the A1/A2, B1 and J0 overhead bytes for the 10Gb (3)Link(R) Global Wavelength Service and A1/A2, B1 and J0, H1, H2, H3, S1, Z1 and Z2 overhead bytes for 2.5Gb (3)Link(R) Global Wavelength Service. (B) (3)Link(R) Metro Wavelength Service is a 2.5Gb or 10Gb transparent virtual channel(s) (or wavelength(s)) on the Level 3 metro network between two (2) termination nodes in the same metropolitan area. (C) (3)Link(R) Metro Ethernet Service is a GigE or 10GigE transparent virtual channel(s) on the Level 3 metro network between two (2) termination nodes in the same metropolitan area. 4. Interconnection. (A) To use the (3)Link(R) Wavelength Service, Customer must provide to Level 3 at each termination node a SONET or SDH-framed 2.5Gb or 10Gb (or greater, as applicable) signal in the case of (3)Link(R) Global Wavelength Service , or an optical signal in the case of (3)Link Metro Wavelength and (3)Link Metro Ethernet Service, all as more particularly described in Level 3's standard Interconnection Specifications and Hand-off Requirements (available to Customer upon request) ("Traffic"), which Traffic will thereafter be delivered by Level 3, in like format, to the opposite and corresponding termination node. Each party is responsible for attenuating optical signals received at such party's equipment consistent with industry standards so that the applicable signal does not exceed the maximum receive capabilities of such party's equipment. Customer acknowledges that failure to properly attenuate the applicable signal received at its equipment could result in damage to such equipment. (B) The demarcation point for the (3)Link(R) Wavelength Service shall be the Level 3 OSX or fiber termination panel at the termination node. Customer shall be solely responsible for providing all interconnection equipment used both to deliver to, or to accept Traffic from, Level 3 in the formats described above and for any and all protection schemes Customer chooses to implement respecting the Traffic. For a termination node at a location other than a Level 3 Gateway, Customer shall provide Level 3 with space and power (at no charge to Level 3), as reasonably requested by Level 3, for placement and operation of an OSX, fiber termination panel or other equipment within the Customer Premises. (D) With respect to construction of Facilities to the Customer Premises and installation, maintenance and repair of Facilities within the Customer Premises, Customer shall provide Level 3 with access to and the use of Customer's entrance facilities and inside wiring, and/or shall procure rights for Level 3 allowing the placement of Facilities necessary for installation of Facilities to deliver the (3)Link(R) Wavelength Service to the Customer Premises. All costs associated with procuring and maintaining rights needed to obtain entry to the building (and the real property on which the building is located) within which the Customer Premises are located, and costs to procure and maintain rights within such building to the Customer Premises, shall be borne by Customer. 5. Transmission System. Level 3 reserves the right (but shall not be obligated) to transfer any (3)Link(R) Wavelength Service from one transmission system to another upon reasonable advance notice to Customer. Such transfer shall be effected in such a way as to minimize, to the extent reasonably possible, the extent and duration of any disruption in the operation of the (3)Link(R) Wavelength Service. If any planned transfer of the (3)Link(R) Wavelength Service from one transmission system to another will adversely affect Customer's schemes for system diversity along the particular route of the (3)Link(R) Wavelength Service between the termination nodes, Level 3 and Customer agree to work together so as to preserve, to the extent feasible, Customer's diversity requirements. 6. Lease to IRU Conversion. At any time during the Service Term, Customer shall have the right to convert any Terrestrial (3)Link(R) Wavelength Service provided on a monthly-recurring lease basis into an indefeasible right of use ("IRU") with a new Service Term of five (5) years (commencing on the date of conversion). Such conversion shall be effective on the first day after Customer's delivery to Level 3 of an appropriate Customer Order pursuant to Level 3's then current Service Schedule for (3)Link(R) Wavelength Service - IRU reflecting such conversion, which Customer Order must (in order to be effective to convert a lease into an IRU) be accompanied by payment in full of the then applicable five (5) year IRU charges for such (3)Link(R) Wavelength Service. The five (5) year Service Term for the IRU shall begin at the time of conversion. Upon conversion, Customer shall be released from all future monthly recurring charges under the original lease that would have otherwise accrued after the date of conversion, and the terms of Level 3's then current Service Schedule for (3)Link(R) Wavelength Service - IRU shall thereafter govern respecting delivery and use of the IRU. No portion of the charges already paid by Customer to Level 3 for such original lease shall be refunded, rebated or credited. 7. Service Levels. (A) Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)Link(R) Wavelength Service on or before the Customer Commit Date specified for the particular (3)Link(R) Wavelength Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer, or Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)Link(R) Wavelength Service for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the initial monthly recurring charge ("MRC") for the affected (3)Link(R) Wavelength Service as set forth in the following tables: - --------------------------------- ------------------------- Installation Delay Beyond Service Level Credit Customer Commit Date - --------------------------------- ------------------------- 1 - 5 business days 5% - --------------------------------- ------------------------- 6 - 20 business days 10% - --------------------------------- ------------------------- 21 business days or greater 15% - --------------------------------- ------------------------- (B) Availability Service Level for Unprotected (3)Link(R) Wavelength Service. In the event that any (3)Link(R) Wavelength Service becomes unavailable for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the MRC for the affected (3)Link(R) Wavelength Service based on the cumulative unavailability for the affected (3)Link(R) Wavelength Service in a given calendar month as set forth in the following table: - --------------------------------- --------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - --------------------------------- --------------------------- 0:00:01 - 6:00:00 No Credit 6:00:01 - 8:00:00 5% 8:00:01 - 10:00:00 10% 10:00:01 - 12:00:00 15% 12:00:01 or greater 20% - --------------------------------- --------------------------- For purposes of this Section 7(B) and Section 7(C) below, "unavailable" or "unavailability" means the duration of a break in transmission measured from the first of ten (10) consecutive severely erred seconds ("SESs") on the affected (3)Link(R) Wavelength Service until the first of ten (10) consecutive non-SESs. An SES is a second with a bit error ratio of greater than or equal to 1 in 1000. (C) Availability Service Level for Protected (3)Link(R) Metro Wavelength and Protected (3)Link(R) Metro Ethernet Service. In the event that any Protected (3)Link Metro Wavelength or Protected (3)Link(R) Metro Ethernet Service becomes unavailable for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the MRC for the affected (3)Link(R) Metro Wavelength or (3)Link(R) Metro Ethernet Service based on the cumulative unavailability for the affected (3)Link(R) Metro Wavelength or (3)Link(R) Metro Ethernet Service in a given calendar month as set forth in the following table: - --------------------------------- --------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - --------------------------------- --------------------------- 0:00:01 - 0:45:00 No Credit 0:45:01 - 4:00:00 5% 4:00:01 - 8:00:00 10% 8:00:01 - 12:00:00 15% 12:00:01 or greater 20% - --------------------------------- --------------------------- 8. Chronic Outage. Customer may elect to terminate an affected On-Net (3)Link(R) Wavelength Service prior to the end of the Service Term without termination liability if, for reasons other than an Excused Outage, (1) For Protected On-Net (3)Link(R) Wavelength Service, such Protected On-Net (3)Link(R) Wavelength Service is unavailable (as defined in Section 7(B) above) for three (3) or more separate occasions of more than six (6) hours each OR for more than thirty six (36) hours in the aggregate in any calendar month; or (2) For Unprotected On-Net (3)Link(R) Wavelength Service, such Unprotected On-Net (3)Link(R) Wavelength Service is unavailable (as defined in Section 7(B) above) for three (3) or more separate occasions of more than twelve (12) hours each OR for more than forty two (42) hours in the aggregate in any calendar month. Customer may only terminate such On-Net (3)Link(R) Wavelength Service that is unavailable as described above, and must exercise its right to terminate the affected On-Net (3)Link(R) Wavelength Service under this Section, in writing, within thirty (30) days after the event giving rise to a right of termination hereunder, which termination will be effective as set forth by Customer in such notice of termination. Except for any credits that have accrued pursuant to Section 7, this Section 8 sets forth the sole remedy of Customer for chronic outages or interruptions of any (3)Link(R) Wavelength Service. SERVICE SCHEDULE (3)LINKSM GLOBAL WAVELENGTH SERVICE - IRU 1. Applicability. This Service Schedule is applicable only where Customer orders (3)LinkSM Global Wavelength Service on an IRU basis. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Deposit" shall mean an amount equal to twenty-five percent (25%) of the non-recurring IRU charge for any (3)LinkSM Global Wavelength Service purchased hereunder. (B) "Direct Segment" shall mean each span between Termination Nodes on the Level 3 network along which the (3)LinkSM Global Wavelength Service will be delivered. The current Direct Segments are depicted in Exhibit "A" attached hereto. (C) "Express Segment" shall mean certain pre-determined spans (each of which contains more than one Direct Segment) between Termination Nodes on the Level 3 network along which the (3)LinkSM Global Wavelength Service may be delivered. The current Express Segments are depicted in Exhibit "B" attached hereto. (D) "IRU" shall mean an indefeasible (except as otherwise provided herein) right to use (3)LinkSM Global Wavelength Service purchased under this Service Schedule. (E) "Termination Node" shall mean the locations within Level 3's Facilities or within Customer Premises in each of the cities in which termination is available. Each (3)LinkSM Global Wavelength Service shall contain two (2) Termination Nodes, the exact location of which will be set forth in the Customer Order. Termination Nodes are classified in the following types: Type A: (3)LinkSM Global Wavelength Service is terminated to Customer provided fiber (CPF) within Level 3 facilities or to the colocation area of such Level 3 facilities. Termination of (3)LinkSM Global Wavelength Service to CPF is subject to additional terms and conditions to be mutually agreed between the parties. Type B: (3)LinkSM Global Wavelength Service is terminated to the Customer Premises that is On-Net to the Level 3 network and does not require the deployment of additional optronics or equipment. Type C: (3)LinkSM Global Wavelength Service is terminated to the Customer Premises that is On-Net to the Level 3 network, but requires the deployment of additional optronics or equipment. (F) "Unprotected" shall mean any Service that does not include a protection scheme that would allow traffic to be re-routed in the event of a fiber cut or equipment failure. All (3)LinkSM Global Wavelength Service is Unprotected. 3. Service Description. (3)LinkSM Global Wavelength Service is a 2.5GB or 10GB (or greater, as agreed by the parties) transparent, Unprotected virtual channel(s) (or wavelength(s)) on the Level 3 network between two (2) Termination Nodes. Each (3)LinkSM Global Wavelength Service shall be composed of one or more Direct Segments and/or Express Segments. 4. IRU Grant. (A) Commencing with the Service Commencement Date and continuing through the end of the Service Term, Level 3 will grant to Customer an indefeasible right of use pursuant to the terms and conditions of the Agreement and this Service Schedule in any (3)LinkSM Global Wavelength Service provided on an IRU basis as identified in a Customer Order submitted by Customer and accepted by Level 3. (B) Upon the expiration of the initial Service Term respecting any (3)LinkSM Global Wavelength Service provided on an IRU basis, the IRU for the particular (3)LinkSM Global Wavelength Service shall revert to a month-to-month lease subject to the (3)LinkSM Global Wavelength Service Schedule executed between the parties (or if none, the then current standard version of Level 3's (3)LinkSM Global Wavelength Service Schedule shall apply), and the Service Term shall continue until terminated by either party upon thirty (30) days' prior written notice to the other party. The monthly recurring charges for the (3)LinkSM Global Wavelength Service under the month-to-month lease shall be based on Level 3's then current monthly recurring charges for (3)LinkSM Global Wavelength Service leases. Upon termination, all rights to the use of the (3)LinkSM Global Wavelength Service therein shall revert to Level 3 without reimbursement of any of the non-recurring IRU charge or other sums, costs, fees or expenses previously paid with respect thereto, and from and after such time Customer shall have no further rights or obligations hereunder with respect thereto unless such rights or obligations are specifically provided herein to survive the Service Term. 5. Charges. (A) The charges for each (3)LinkSM Global Wavelength Service consist of three (3) components: (1) a non-recurring installation charge payable pursuant to Section 5(B); (2) a non-recurring IRU charge payable pursuant to Section 5(C); and (3) an annual recurring O&M charge payable pursuant to Section 5(D). (B) For each (3)LinkSM Global Wavelength Service provided on an IRU basis, Customer agrees to pay to Level 3 the non-recurring installation charge set forth in the Customer Order applicable to such (3)LinkSM Global Wavelength Service. Such non-recurring installation charge shall be due (regardless of whether Level 3 issues an invoice) within five (5) days of Customer's receipt of the Customer Welcome Letter respecting such (3)LinkSM Global Wavelength Service. (C) For each (3)LinkSM Global Wavelength Service provided on an IRU basis, Customer agrees to pay to Level 3 the non-recurring IRU charge set forth in the Customer Order applicable to such (3)LinkSM Global Wavelength Service. The Deposit for any purchase of (3)LinkSM Global Wavelength Service shall be due (regardless of whether Level 3 issues an invoice) within five (5) days of Customer's receipt of the Customer Welcome Letter; the balance of the non-recurring IRU charge shall be invoiced by Level 3 at the time that the Connection Notice for such (3)LinkSM Global Wavelength Service is delivered. (D) (1) For each (3)LinkSM Global Wavelength Service provided on an IRU basis, Customer agrees to pay to Level 3, commencing with the applicable Service Commencement Date and continuing until the expiration of the applicable Service Term, an annual recurring O&M charge set forth in the Customer Order applicable to such (3)LinkSM Global Wavelength Service ("O&M Charge"). The O&M Charge is intended to cover the expenses of supplying power, operations and maintenance services necessary to continue effective availability of the (3)LinkSM Global Wavelength Service for the Service Term. (2) The O&M Charge shall be increased on each anniversary of the Service Commencement Date by the increase, if any, in the Consumer Price Index, All Urban Consumers (CPI-U), U.S. City Average, published by the United States Department of Labor, Bureau of Labor Statistics (1982-84 = 100), for the preceding twelve (12) month period. In the event such index shall cease to be computed or published, Level 3 may, in its reasonable discretion, designate a successor index to be used in determining any increase to the O&M Charge. (3) The O&M Charge shall be invoiced annually (commencing on the Service Commencement Date and each year thereafter during the Service Term). 6. Interconnection. (A) To use the (3)LinkSM Global Wavelength Service, Customer must provide to Level 3, at each Termination Node, a SONET or SDH-framed 2.5Gb or 10Gb (or greater, as applicable) signal as more particularly described in Level 3's standard Interconnection Specifications and Hand-off Requirements (available to Customer upon request) ("Traffic"), which Traffic will thereafter be delivered by Level 3, in like format, to the opposite and corresponding Termination Node. The demarcation point for the (3)LinkSM Global Wavelength Service shall be the Level 3 OSX or fiber termination panel at the Termination Node. Customer shall be solely responsible for providing all interconnection equipment used both to deliver to, or to accept Traffic from, Level 3 in the formats described above and for any and all protection schemes Customer chooses to implement respecting the Traffic. For a Termination Node at a location other than a Level 3 Gateway, Customer shall provide Level 3 with space and power (at no charge to Level 3), as reasonably requested by Level 3, for placement and operation of an OSX, fiber termination panel or other equipment within the Customer Premises. (B) With respect to construction of Facilities to the Customer Premises and installation, maintenance and repair of Facilities within the Customer Premises, Customer shall provide Level 3 with access to and the use of Customer's entrance facilities and inside wiring, and/or shall procure rights for Level 3 allowing the placement of Facilities necessary for installation and delivery of the (3)LinkSM Global Wavelength Service to the Customer Premises. All costs associated with procuring and maintaining rights needed to obtain entry to the building (and the real property on which the building is located) within which the Customer Premises are located, and costs to procure and maintain rights within such building to the Customer Premises, shall be borne by Customer. 7. Route Portability. (A) In the event that Customer purchases (3)LinkSM Global Wavelength Service under an IRU with an initial Service Term of five (5) years or longer, Customer may, upon at least ninety (90) days' prior written notice to Level 3, terminate its use of such (3)LinkSM Global Wavelength Service after the Service Commencement Date but prior to the end of the initial Service Term. Upon the effective date of such termination and following Customer's payment of all charges due under Section 5, Customer shall be entitled to a credit (the "Portability Credit") calculated as a percentage of the non-recurring IRU charge paid for such (3)LinkSM Global Wavelength Service based on the number of months following the Service Commencement Date as set forth in the following table: - ------------ ------------- ---------- ------------ # of % Applied # of % Applied Months as Credit Months as Credit - ------------ ------------- ---------- ------------ 1 80% 16 53.3% 2 78.2% 17 51.7% 3 76.4% 18 50% 4 74.5% 19 48.3% 5 72.7% 20 46.7% 6 70.9% 21 45% 7 69.1% 22 43.3% 8 67.3% 23 41.7% 9 65.5% 24 40% 10 63.6% 25 38.3% 11 61.8% 26 36.7% 12 60% 27 35% 13 58.3% 28 33.3% 14 56.7% 29 31.7% 15 55% 30 30% - ------------ ------------- ---------- ------------ - ------------ ------------- ---------- ------------ # of % Applied # of % Applied Months as Credit Months as Credit - ------------ ------------- ---------- ------------ 31 28.3% 46 7.5% 32 26.7% 47 6.3% 33 25% 48 5% 34 23.3% 49 5% 35 21.7% 50 5% 36 20% 51 5% 37 18.8% 52 5% 38 17.5% 53 5% 39 16.3% 54 5% 40 15% 55 0% 41 13.8% 56 0% 42 12.5% 57 0% 43 11.3% 58 0% 44 10% 59 0% 45 8.8% 60 0% - ------------ ------------- ---------- ------------ The Portability Credit shall be calculated based only on the non-recurring IRU charge paid for such (3)LinkSM Global Wavelength Service and no portion of the non-recurring installation charge or the annual recurring O&M charge paid by Customer shall be refunded, rebated or credited. The Portability Credit shall be made available to Customer upon the effective date of termination of the applicable (3)LinkSM Global Wavelength Service. Customer may thereafter use the Portability Credit as a credit against the non-recurring IRU charge otherwise applicable to Customer's purchases of additional (3)LinkSM Global Wavelength Service under this Service Schedule for a minimum five (5) year IRU Service Term; provided, however, that (i) a maximum of fifty percent (50%) of the non-recurring IRU charge (including any Deposits, if due) for additional (3)LinkSM Global Wavelength Service may be paid by application of any Portability Credit and/or Reconfiguration Credit (as defined in Section 8) and a minimum of fifty percent (50%) of the non-recurring IRU charge (or any Deposits, if due) for such (3)LinkSM Global Wavelength Service must be paid in cash; and (ii) the Portability Credit must be used within two (2) years after termination of the (3)LinkSM Global Wavelength Service for which the Portability Credit was granted. Any Portability Credit that is not applied against purchases of additional (3)LinkSM Global Wavelength Service within such period shall be forfeited. (B) This Section 7 sets forth Customer's sole right to terminate for convenience any (3)LinkSM Global Wavelength Service. As such, the parties acknowledge and agree that Section 3.7 of the Agreement shall not apply to any (3)LinkSM Global Wavelength Service provided on an IRU basis pursuant to this Service Schedule. 8. Termination Node Portability. (A) In the event that Customer purchases (3)LinkSM Global Wavelength Service under an IRU with an initial Service Term of five (5) years or longer, any time after the Service Commencement Date but prior to the end of the initial Service Term for such (3)LinkSM Global Wavelength Service, Customer may either: (a) add a Termination Node at the end of any ordered Direct Segment or Express Segment comprising the (3)LinkSM Global Wavelength Service (effectively creating multiple (3)LinkSM Global Wavelength Services from a single (3)LinkSM Global Wavelength Service); or (b) remove a Termination Node at the end of any (3)LinkSM Global Wavelength Service to consolidate multiple (3)LinkSM Global Wavelength Services (effectively creating a single (3)LinkSM Global Wavelength Service out of two or more individual (3)LinkSM Global Wavelength Services). Termination Nodes that have been added may not thereafter be removed pursuant to this Section. Customer acknowledges that when adding or removing Termination Nodes, Customer must add or remove Termination Nodes in increments of two (2) in order to maintain a Termination Node at each end of the resulting (3)LinkSM Global Wavelength Service(s). Customer may not add a Termination Node within any Express Segment ordered by it under this Section, which may only be accomplished pursuant to Section 7. For example, if Customer ordered an Express Segment between Dallas and Denver, Customer may not thereafter add Termination Nodes in Stratford, TX, under this Section; rather, in order to convert such Express Segment into Direct Segments, Customer would (pursuant to Section 3.3) trade in such Express Segment and receive the Portability Credit to be applied to its purchase of two (2) Direct Segments between Dallas and Stratford and between Stratford and Denver. Upon Customer's request for addition or removal of any Termination Nodes pursuant to this Section, the parties shall mutually agree upon a time period for completion. (B) Customer agrees to pay, as compensation for the addition or removal of Termination Nodes, the then applicable non-recurring reconfiguration charge for each Termination Node added or removed along an existing (3)LinkSM Global Wavelength Service. (C) In addition to the applicable non-recurring reconfiguration charge, in the event Customer adds Termination Nodes, Customer agrees to pay a percentage of the then applicable non-recurring Termination Node charge for each additional Termination Node based on the number of months remaining in the applicable Service Term as set forth in the following table: - --------------- ------------- ------------ ------------- # of Months % of then # of % of then Remaining current Months current Termination Remaining Termination Node Price Node Price - --------------- ------------- ------------ ------------- 1 20.0% 16 46.7% 2 21.8% 17 48.3% 3 23.6% 18 50.0% 4 25.5% 19 51.7% 5 27.3% 20 53.3% 6 29.1% 21 55.0% 7 30.9% 22 56.7% 8 32.7% 23 58.3% 9 34.5% 24 60.0% 10 36.4% 25 61.7% 11 38.2% 26 63.3% 12 40.0% 27 65.0% 13 41.7% 28 66.7% 14 43.3% 29 68.3% 15 45.0% 30 70.0% - --------------- ------------- ------------ ------------- - --------------- ------------- ------------ ------------- # of Months % of then # of % of then Remaining current Months current Termination Remaining Termination Node Price Node Price - --------------- ------------- ------------ ------------- 31 71.7% 46 92.5% 32 73.3% 47 93.7% 33 75.0% 48 95.0% 34 76.7% 49 95.0% 35 78.3% 50 95.0% 36 80.0% 51 95.0% 37 81.2% 52 95.0% 38 82.5% 53 95.0% 39 83.7% 54 95.0% 40 85.0% 55 100.0% 41 86.2% 56 100.0% 42 87.5% 57 100.0% 43 88.7% 58 100.0% 44 90.0% 59 100.0% 45 91.2% 60 100.0% - --------------- ------------- ------------ ------------- Such incremental non-recurring Termination Node charge shall be immediately due and owing. (D) In the event Customer removes Termination Nodes from any (3)LinkSM Global Wavelength Service, Customer shall be entitled to a credit (the "Reconfiguration Credit") based on a percentage of the original Termination Node charge paid by Customer for such Termination Nodes being removed as part of the non-recurring IRU charge, the percentage for which shall be determined according to the table set forth in Section 7(A) above. The Reconfiguration Credit shall be calculated based only on the non-recurring Termination Node charge paid for such Termination Nodes and no other portion of the non-recurring IRU charge, non-recurring installation charge or Reconfiguration Price shall be refunded, rebated or credited. The Reconfiguration Credit shall be made available to Customer upon the effective date of removal of the applicable Termination Node. Customer may thereafter use the Reconfiguration Credit as a credit against the non-recurring IRU charge otherwise applicable to its purchases of additional (3)LinkSM Global Wavelength Service under this Service Schedule for a minimum five (5) year IRU Service Term; provided, however, that (i) a maximum of fifty percent (50%) of the non-recurring IRU charge (including any Deposits, if due) for additional (3)LinkSM Global Wavelength Service may be paid by application of any Reconfiguration Credit and/or Portability Credit (as defined in Section 7) and a minimum of fifty percent (50%) of the non-recurring IRU charge (or any Deposits, if due) for such (3)LinkSM Global Wavelength Service must be paid in cash; and (ii) the Reconfiguration Credit must be used within two (2) years after removal of the applicable Termination Node for which the Reconfiguration Credit was granted. Any Reconfiguration Credit that is not applied against purchases of (3)LinkSM Global Wavelength Service within such period shall be forfeited. 9. Use of Capacity. (A) Level 3 reserves the right (but shall not be obligated) to transfer any (3)LinkSM Global Wavelength Service from one transmission system to another upon reasonable advance notice to Customer. Such transfer shall be effected in such a way as to minimize, to the extent reasonably possible, the extent and duration of any disruption in the operation of the (3)LinkSM Global Wavelength Service. If any planned transfer of the (3)LinkSM Global Wavelength Service from one transmission system to another will adversely affect Customer's schemes for system diversity along the particular route of the (3)LinkSM Global Wavelength Service between the Termination Nodes, Level 3 and Customer agree to work together so as to preserve, to the extent feasible, Customer's diversity requirements. (B) Customer acknowledges and agrees that its rights are limited to the use of the (3)LinkSM Global Wavelength Service only, and that Customer shall keep the Level 3 network free from any liens, rights or claims of any third party attributable to Customer. (C)Customer shall not use the (3)LinkSM Global Wavelength Service in a way which interferes in any way with or otherwise adversely affects the use of the Level 3 network by any other entity using the Level 3 network or capacity therein. 10. Service Levels. (A)Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)LinkSM Global Wavelength Service on or before the Customer Commit Date specified for the particular (3)LinkSM Global Wavelength Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer, Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)LinkSM Global Wavelength Service for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the non-recurring IRU charge for the affected (3)LinkSM Global Wavelength Service as set forth in the following table: - --------------------------------- ------------------------- Installation Delay Beyond Service Level Credit Customer Commit Date - --------------------------------- ------------------------- 1 - 10 business days 1% - --------------------------------- ------------------------- 11-30 business days 3% - --------------------------------- ------------------------- 31 business days or greater 5% - --------------------------------- ------------------------- (B)Availability Service Level. In the event that any (3)LinkSM Global Wavelength Service becomes unavailable for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the annual O&M Charge (as defined in Section 5(C)) for the affected (3)LinkSM Global Wavelength Service based on the greater of: (1) the MTTR for the unavailability event(s) for the affected (3)LinkSM Global Wavelength Service in a calendar month: - ------------------ ------------------- --------------------- MTTR for Fiber MTTR for Other Service Level Credit Cuts Outages - ------------------ ------------------- --------------------- Less than 16 Less than 6 hours No Credit hours - ------------------ ------------------- --------------------- = 16 and < 18 = 6 and < 7 hours 2% of the annual hours O&M Charge (applicable to the affected (3)LinkSM Global Wavelength Service) - ------------------ ------------------- --------------------- = 18 and < 22 = 7 and < 8 hours 4% of the annual hours O&M Charge (applicable to the affected (3)LinkSM Global Wavelength Service) - ------------------ ------------------- --------------------- = 22 and < 24 = 8 and < 10 hours 6% of the annual hours O&M Charge (applicable to the affected (3)LinkSM Global Wavelength Service) - ------------------ ------------------- --------------------- Over 24 hours Over 10 hours 10% of the annual O&M Charge (applicable to the affected (3)LinkSM Global Wavelength Service) - ------------------ ------------------- --------------------- The "MTTR for Fiber Cuts" and the "MTTR for Other Outages" shall be calculated separately. Each MTTR will be calculated by taking the cumulative time to restore all applicable events of Unavailability on the affected (3)LinkSM Global Wavelength Service in a month divided by the total number of applicable events of unavailability on that (3)LinkSM Global Wavelength Service in the same month. As limited by this Section 10(B), Customer may be entitled to both "Fiber Cut" and "Other Outage" MTTR credits as set forth above; OR (2) the cumulative unavailability for the affected (3)LinkSM Global Wavelength Service in a calendar month: - ------------------------- ------------------------- Cumulative Service Level Credit Unavailability - ------------------------- ------------------------- Less than 24 hours No Credit - ------------------------- ------------------------- = 24 and < 30 hours 2% of the annual O&M Charge (applicable to the affected (3)LinkSM Global Wavelength Service) - ------------------------- ------------------------- = 30 and < 36 hours 4% of the annual O&M Charge (applicable to the affected (3)LinkSM Global Wavelength Service) - ------------------------- ------------------------- = 36 and < 42 hours 6% of the annual O&M Charge (applicable to the affected (3)LinkSM Global Wavelength Service) - ------------------------- ------------------------- Over 42 hours 10% of the annual O&M Charge (applicable to the affected (3)LinkSM Global Wavelength Service) - ------------------------- ------------------------- For purposes of this Section 10(B), "unavailable" or "unavailability" means the duration of a break in transmission measured from the first of ten (10) consecutive severely erred seconds ("SESs") on the affected (3)LinkSM Global Wavelength Service until the first of ten (10) consecutive non-SESs. An SES is a second with a bit error ratio of greater than or equal to 1 in 1000. The amount of credit granted under this Section 10(B) shall not exceed ten percent (10%) of the annual O&M Charge for the affected (3)LinkSM Global Wavelength Service during the applicable month. Credits provided under this Section 10(B) may be used against payment of the non-recurring IRU charge otherwise due for the purchase of any (3)LinkSM Global Wavelength Service, or may be offset against the next following annual recurring O&M charge due hereunder. Exhibit "A" Direct Routes For U.S.: For Europe: Exhibit "B" Express Routes SERVICE SCHEDULE (3)CROSSROADS(R) SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)CrossRoads(R) Service. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Back-Up Port" shall mean any (3)CrossRoads(R) Service port other than the Primary Port that is configured to send/receive traffic only in the event that the applicable Primary Port becomes unavailable to send or receive traffic. The Back-Up Port must be identified as such in the Customer Order and provisioned on a Level 3 router or switch (within the same Level 3 Facility) that is separate from the Primary Port. (B) "Committed Data Rate" shall mean the minimum data rate committed by Customer and set forth in the Customer Order (expressed in Megabits per second (Mbps)). (C) "IP Fiber Extension" shall mean a dark fiber local access solution for (3)CrossRoads(R) Service between the Level 3 Gateway and the Customer Premises (or such other point of interconnection) in which unprotected IP service is delivered using Level 3 Facilities and Customer facilities, as mutually agreed between the parties. Level 3 shall, in its sole discretion, determine whether Customer may utilize an IP Fiber Extension under this Service Schedule, or must obtain dark fiber pursuant to a separate dark fiber Service Schedule to be executed by the parties. (D) "Off-Net Send Traffic" shall mean Send Traffic that terminates to any location that is not on the Level 3 network. (E) "On-Net Intracity Send Traffic" shall mean On-Net Send Traffic that does not transit Level 3's long haul transmission facilities. (F) "On-Net Send Traffic" shall mean Send Traffic that terminates to a location that is on the Level 3 network. (G) "Primary Port" shall mean any (3)CrossRoads(R) Service port that is configured to send/receive Customer's (3)CrossRoads(R) Service traffic during normal network operations, as identified in the applicable Customer Order. (H) "Receive Traffic" shall mean traffic from any origination point that is received by Customer from the Level 3 network. (I) "Send Traffic" shall mean traffic from any origination point that is sent by Customer onto the Level 3 network. 3. Service Description. (3)CrossRoads(R) Service is an IP transit service (including dedicated IP access port(s)) providing access to the Level 3 IP network and the global Internet. (3)CrossRoads(R) Service is available through Serial/POS and Ethernet interfaces. (3)CrossRoads(R) Service is available in a "Standard" configuration or a "Protected" configuration. Standard (3)CrossRoads(R) Service is configured with a single Primary Port and no Backup Port. Protected (3)CrossRoads(R) Service is configured with both a Primary Port and a Backup Port. 4. Charges. Customer may elect to be billed based on a Committed Data Rate, through Destination Sensitive Billing, or at a Fixed Rate. The manner of billing selected will be set forth in each Customer Order. (A) Committed Data Rate charges for (3)CrossRoads(R) Service consist of four (4) components: (a) a non-recurring installation charge per port; (b) a monthly recurring port charge (if applicable); (c) a monthly recurring charge based on the Committed Data Rate; and (d) monthly usage charges to the extent usage in a particular month exceeds the Committed Data Rate. The Committed Data Rate shall apply to either a particular (3)CrossRoads(R) Service port or in the aggregate to all (3)CrossRoads(R) Service ports provided hereunder, as stated in the applicable Customer Order. The following shall apply (as applicable): (1) If the Committed Data Rate applies to a particular (3)CrossRoads(R) Service port, Customer's per port usage of (3)CrossRoads(R) Service (both Send Traffic and Receive Traffic) across such port will be sampled every five (5) minutes for the previous five (5) minute period. At the end of the month, the top five percent (5%) of Send Traffic and Receive Traffic samples for such port shall be discarded. The higher of the resulting ninety-fifth (95th) percentile value for Send Traffic or Receive Traffic for such port will be compared to the Committed Data Rate applicable to the port. If the ninety-fifth (95th) percentile of either Send Traffic or Receive Traffic is higher than the applicable Committed Data Rate, Customer will, in addition to being billed for the Committed Data Rate, be billed at this ninety-fifth (95th) percentile level for any usage in excess of such Committed Data Rate at the contracted-for price per Megabit. If Customer's selected (3)CrossRoads(R) Service port is a dedicated DS-3 or E-3 port, Customer may elect, subject to additional charges as mutually agreed between the parties, a rate limiting option (a "CDR Cap") in the applicable Customer Order. Upon such election, Level 3 will configure the port such that the maximum bandwidth allowed to be sent to or received from the port is capped at the CDR Cap. Level 3 will not accept Customer traffic in excess of the CDR Cap if such option is elected. Any subsequent change to such CDR Cap will be subject to additional charges as mutually agreed between the parties. (2) If the Committed Data Rate applies in the aggregate to all (3)CrossRoads(R) Service ports (an "Aggregate CDR"), Customer's usage of (3)CrossRoads(R) Service (both Send Traffic and Receive Traffic) will be sampled every five (5) minutes for the previous five (5) minute period for each port. At the end of the month, the top five percent (5%) of Send Traffic and Receive Traffic samples shall be discarded for each port. The higher of the resulting 95th percentile value for Send Traffic or Receive Traffic for each port will be added together to determine Customer's aggregate usage and such aggregate usage will be compared to the Aggregate CDR. If such aggregate usage is higher than the Aggregate CDR, Customer will, in addition to being billed for the Aggregate CDR, be billed for any aggregate usage in excess of the Aggregate CDR at the contracted-for price per Megabit. (B) Destination Sensitive Billing charges for (3)CrossRoads(R) Service consist of three (3) components: (a) a non-recurring installation charge per port; (b) a monthly recurring port charge; and (c) monthly usage charges. Customer's usage of (3)CrossRoads(R) Service (both Send Traffic and Receive Traffic) will be measured and recorded by Level 3 every five minutes. At the end of the month, the top five percent (5%) of the Send Traffic and Receive Traffic samples will be discarded. If the ninety-fifth (95th) percentile Receive Traffic sample shows (3)CrossRoads(R) Service usage greater than the usage shown in the ninety-fifth (95th) percentile Send Traffic sample, then Customer will be billed for the amount of (3)CrossRoads(R) Service usage shown in the ninety-fifth (95th) percentile sample for the Receive Traffic. If the ninety-fifth (95th) percentile sample for the Send Traffic shows (3)CrossRoads(R) Service usage greater than the usage shown in the ninety-fifth (95th) percentile Receive Traffic sample, then the total Send Traffic will be categorized as Off-Net Send Traffic, On-Net Send Traffic and On-Net Intracity Send Traffic, and Customer will be billed for the usage shown in the ninety-fifth (95th) percentile sample for each category. (C) Fixed Rate charges for (3)CrossRoads(R) Service consist of two (2) components: (a) a non-recurring installation charge per port; and (b) a monthly recurring port charge. 5. IP Addresses and Domain Names. In the event that Level 3 assigns to Customer an IP address as part of the provision of Service, such IP address shall (upon Level 3's request and to the extent permitted by law) revert to Level 3 after termination of the applicable Customer Order for any reason whatsoever, and Customer shall cease using such address. At any time after such termination, Level 3 may re-assign such address to another user. In the event that Level 3 obtains for Customer a domain name (which may be required in some European jurisdictions), Customer shall be the sole owner of such domain name. Customer shall be solely responsible for: (A) paying any fees (including renewal fees) relating thereto; (B) complying with any legal, technical, administrative, billing or other requirements imposed by the relevant domain name registration authority; (C) modifying such domain name in the event Customer changes service providers; and (D) all third party claims (including claims for intellectual property infringement) relating thereto, and Customer shall indemnify and hold Level 3 harmless from all such claims and expenses (including legal fees and court costs) related thereto. 6. IP Fiber Extensions. (A) Pursuant to a Customer Order submitted by Customer and accepted by Level 3, the parties may agree that Level 3 will provide Customer with an IP Fiber Extension as part of the local access solution for any (3)CrossRoads(R) Service provided hereunder. Level 3 will invoice Customer, and Customer agrees to pay Level 3, the charges associated with any such IP Fiber Extension as set forth in the applicable Customer Order. Unavailability or degradation of (3)CrossRoads(R) Service caused by or attributable to IP Fiber Extensions shall be considered Excused Outages. The foregoing notwithstanding, Level 3 will use commercially reasonable efforts to respond to any such unavailability or degradation (on Level 3 Facilities) associated with any IP Fiber Extension within four (4) hours after becoming aware of the same and shall use commercially reasonable efforts to repair traffic-affecting discontinuity within twelve (12) hours after Level 3's representatives arrive at the problem site and have the ability to begin uninterrupted repair activities. (B) Level 3 shall have the right to supervise and control in a reasonable manner all activities concerning any IP Fiber Extension provided hereunder, including, without limitation, all Level 3 manholes/handholes. Any work required by Customer respecting any IP Fiber Extension provided hereunder, including without limitation, (i) splicing the Customer fibers, and (ii) interconnection between the Customer network and the Level 3 network, shall be undertaken only by or (with Level 3's consent) under the supervision of Level 3. (C) Prior to delivery of any IP Fiber Extension, Level 3 shall test the dark fiber contained in such IP Fiber Extension in accordance with the then-current version of Level 3's interconnection policies and guidelines. 7. Service Levels. (A) Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)CrossRoads(R) Service on or before the Customer Commit Date specified for the particular (3)CrossRoads(R) Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer or Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)CrossRoads(R) Service for reasons other than an Excused Outage, Customer will be entitled to a service credit for each day of delay equal to either (i) for (3)CrossRoads(R) Service billed on an Aggregate CDR basis, the charges for one (1) day of the pro rata share of the monthly recurring charges ("MRC") associated with the Aggregate CDR for the affected (3)CrossRoads(R) Service port(s) (pro-rated based on the number of total ports that contribute to such Aggregate CDR) or (ii) for (3)CrossRoads(R) Service with any other manner of billing, the charges for one (1) day of the allocated port MRC for the affected (3)CrossRoads(R) Service port(s), in each case up to a monthly maximum credit of ten (10) days. (B)Availability Service Level. The Availability Service Level for (3)CrossRoads(R) Service is 99.98% for Standard (3)CrossRoads(R) Service and 99.99% for Protected (3)CrossRoads(R) Service. Standard (3)CrossRoads(R) Service is considered unavailable if the Primary Port is unable to send or receive traffic; Protected (3)CrossRoads(R) Service is considered unavailable if both the Primary Port and the Backup Port are unable to send or receive traffic. In the event that (3)CrossRoads(R) Service becomes unavailable for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the greater of (i) the port MRC (except for any (3)CrossRoads(R) Service billed on an Aggregate CDR basis) for the affected (3)CrossRoads(R) Service port (if applicable), and (ii) the actual usage charges, if any, (calculated on a Megabit basis at the contracted-for price per Megabit) associated with the affected (3)CrossRoads(R) Service port for the particular month. Service credits, in each case, are based on the cumulative unavailability of the affected (3)CrossRoads(R) Service port in a given calendar month as set forth in the following table: For Standard (3)CrossRoads(R) Service: - ------------------------------------ -------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - ----------------------------------- -------------------------- 00:00:01 - 00:10:00 No Credit 00:10:01- 00:45:00 5% 00:45:01- 04:00:00 10% 04:00:01 - 08:00:00 20% 08:00:01 -12:00:00 30% 12:00:01 -16:00:00 40% 16:00:01 - 24:00:00 50% 24:00:01 or greater 100% - ------------------------------------ -------------------------- For Protected (3)CrossRoads(R) Service: - ------------------------------------ -------------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - ------------------------------------ -------------------------- 00:00:01 - 00:05:00 No Credit 00:05:01- 00:45:00 15% 00:45:01- 04:00:00 35% 04:00:01 - 08:00:00 50% 08:00:01 -12:00:00 75% 12:00:01 or greater 100% - ------------------------------------ -------------------------- (C)Delay Service Level. The Delay Service Level for (3)CrossRoads(R) Service is as set forth in the following table: - ------------------------------ ---------------------- Route Delay Service Level - ------------------------------ ---------------------- Intra- U.S. 25 ms Intra-Europe 15 ms London to New York, NY 40 ms - ------------------------------ ---------------------- The Delay Service Level is measured as an average one-way delay over a calendar month for traffic on the Level 3 network between Gateways. Delay measurements may be obtained from the Level 3 website at www.level3.com. In the event of a delay in excess of the Service Levels set forth above for reasons other than an Excused Outage, Customer will be entitled to receive a service credit off of the greater of (i) the port MRC (except for any (3)CrossRoads(R) Service billed on an Aggregate CDR basis) for the affected (3)CrossRoads(R) Service port (if applicable), and (ii) the actual usage charges, if any, (calculated on a Megabit basis at the contracted-for price per Megabit) associated with the affected (3)CrossRoads(R) Service port for the particular month. Service credits, in each case, are as set forth in the following table: - ------------------------------ ---------------------- Amount of Delay in Excess of Service Level Credit Service Level - ------------------------------ ---------------------- 0.1 - 5 ms 10% 5.1 - 10 ms 20% 10.1 - 15 ms 30% 15.1 - 20 ms 40% 20.1 - 25 ms 50% 25.1 ms or greater 100% - ------------------------------ ---------------------- (D)Packet Delivery Service Level. The Packet Delivery Service Level for (3)CrossRoads(R) Service is 99.95% for On-Net traffic between Gateways. Packet Delivery is the average number of Internet Protocol ("IP") packets of information that transit the Level 3 network and are delivered by Level 3 to the intended On-Net destination in a calendar month. Packet Delivery measurements may be obtained from the Level 3 web site at www.level3.com. In the event Level 3 does not meet the Packet Delivery Service Level for reasons other than an Excused Outage or as a result of any Off-Net Local Loop (whether provisioned by Customer or Level 3), Customer will be entitled to receive a service credit off of the greater of (i) the port MRC (except for any (3)CrossRoads(R) Service billed on an Aggregate CDR basis) for the affected (3)CrossRoads(R) Service port (if applicable), and (ii) the actual usage charges, if any, (calculated on a Megabit basis at the contracted-for price per Megabit) associated with the affected (3)CrossRoads(R) Service port (if applicable) for the particular month. Service credits, in each case, are as set forth in the following table: - ------------------------------ ---------------------- Packet Delivery Service Level Credit - ------------------------------ ---------------------- 99.5 - 99.949% 10% 99 - 99.49% 20% 98 - 98.99% 30% 97 - 97.99% 40% 96 - 96.99% 50% 95.99% or less 100% - ------------------------------ ---------------------- 8. Chronic Outage. Customer may elect to terminate an affected (3)CrossRoads(R) Service prior to the end of the Service Term without termination liability if, for reasons other than an Excused Outage: (1) For Protected (3)CrossRoads(R) Service, such Protected (3)CrossRoads(R) Service is unavailable (as defined in Section 7(B) above) for four (4) or more separate occasions of more than two (2) hours each OR for more than twenty four (24) hours in the aggregate in any calendar month; or (2) For Standard (3)CrossRoads(R) Service, such Standard (3)CrossRoads(R) Service is unavailable (as defined in Section 7(B) above) for three (3) or more separate occasions of more than twelve (12) hours each OR for more than forty two (42) hours in the aggregate in any calendar month. Customer may only terminate such (3)CrossRoads(R) Service that is unavailable as described above, and must exercise its right to terminate the affected (3)CrossRoads(R) Service under this Section, in writing, within thirty (30) days after the event giving rise to a right of termination hereunder, which termination will be effective as set forth by Customer in such notice of termination. Except for any credits that have accrued pursuant to Section 7, this Section 8 sets forth the sole remedy of Customer for chronic outages or interruptions of any (3)CrossRoads(R) Service. SERVICE SCHEDULE (3)FLEXSM SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)FlexSM Service. (3)FlexSM Service is sometimes referred to as (3)PacketSM Service, including in Customer Orders and invoices. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Committed Data Rate" shall mean the minimum data rate committed by Customer for usage charges associated with (3)FlexSM Service across Level 3's inter-city network (billed in accordance with Section 5(A) below), as set forth in the Customer Order (and expressed in Mbps). (B) "Dual Connected" shall mean a Customer interconnection to (3)FlexSM Service via two (2) access ports, each provisioning the same, single virtual circuit. Customer is responsible for fail-over transition from the primary port to the secondary port for the Dual Connected ports. (C) "Single Connected" shall mean a Customer interconnection to (3)FlexSM Service via a single access port. (D) "Virtual Circuit Committed Rate" shall mean the minimum data rate committed to by Customer for usage charges associated with (3)FlexSM Service - Premium or (3)FlexSM Service - Optimized on a particular virtual circuit across Level 3's inter-city network (billed in accordance with Section 5(A) below). The Virtual Circuit Committed Rate shall be as set forth in the Customer Order, and expressed in Mbps. Virtual Circuit Committed Rates do not apply to (3)FlexSM Service - Enhanced. 3. Service Description. (3)FlexSM Service is a Multi-Protocol Label Switching (MPLS) based data transport service comprised of two (2) or more physical access ports with one (1) or more virtual circuits interconnecting the ports, configured as requested by Customer. The (3)FlexSM Service is available with either an ATM, Frame Relay or Ethernet interface. Each virtual circuit comprising the (3)FlexSM Service is available in the following classes of service: (3)FlexSM Service - Premium (for ATM interface only), (3)FlexSM Service - - Optimized and (3)FlexSM Service - Enhanced. The class of service applicable to the particular virtual circuit will be set forth in the Customer Order. 4. Burstability. (3)FlexSM Service - Premium and (3)FlexSM Service - Optimized each have limitations on the amount of usage allowed in excess of the applicable Virtual Circuit Committed Rate. Customer's usage of the (3)FlexSM Service for each class of service is limited as follows: (i) for (3)FlexSM Service - Premium, Customer's usage cannot burst above the Virtual Circuit Committed Rate; (ii) for (3)FlexSM Service - Optimized, Customer's usage cannot burst above two (2) times the Virtual Circuit Committed Rate, subject to the overall capacity available on the Level 3 network and the physical limitations of the Customer's port capacity; and (iii) for (3)FlexSM Service - Enhanced, there are no restrictions on Customer's usage bursting, subject to the overall capacity available on the Level 3 network and the physical limitations of the Customer's port capacity. 5. Charges. Charges for (3)FlexSM Service are invoiced separately for (3)FlexSM Service provided on the Level 3 inter-city network and for (3)FlexSM Service provided on a Level 3 intra-city network. (A) Inter-City Network Charges. (1) For (3)FlexSM Service on the Level 3 inter-city network, Level 3 will invoice Customer, and Customer agrees to pay Level 3, the following charges for all inter-city (3)FlexSM Service provided by Level 3 to Customer: (a) a non-recurring installation charge per port; (b) a monthly recurring port charge; (c) a non-recurring virtual circuit activation charge per virtual circuit; (d) usage charges (billed as described below) on each virtual circuit; (e) monthly recurring charges applicable to Customer's Virtual Circuit Committed Rate(s) and Committed Data Rate (if any); and (f) monthly usage charges for excess usage (if any) above the Virtual Circuit Committed Rate(s) and the Committed Data Rate (if any) billed as described below. (2) Customer's Send and Receive traffic attributable to usage of the inter-city (3)FlexSM Service will be sampled every five (5) minutes on each virtual circuit. At the end of the month, all usage measurements will be ranked highest to lowest and the top five percent (5%) of Send Traffic and Receive Traffic samples shall be discarded. (i) For each virtual circuit involving a Virtual Circuit Committed Rate (if any), the higher of the resulting ninety-fifth (95th) percentile for Send Traffic and Receive Traffic for such (3)FlexSM virtual circuit (determined in accordance with Sub-Section 5(A)(2) above) will be compared to the applicable Virtual Circuit Committed Rate. Customer will be billed by Level 3 for Customer's Virtual Circuit Committed Rate at the applicable price per megabit for the virtual circuit, and if Customer's usage of (3)FlexSM Service is higher than the Virtual Circuit Committed Rate (possible only for (3)FlexSM Service - Optimized) across the particular virtual circuit, such usage in excess of the Virtual Circuit Committed Rate will be billed in accordance with Section (ii) or (iii) below, as applicable. (ii) Where Customer has not made a Committed Data Rate to Level 3, for each virtual circuit which is not subject to a Virtual Circuit Committed Rate (if any), the higher of the resulting ninety-fifth (95th) percentile for Send Traffic and Receive Traffic (determined in accordance with Sub-Section 5(A)(2) above) for each such (3)FlexSM virtual circuit will be added together, and combined with any bursting usage of (3)FlexSM Service - Optimized (collectively referred to as the Aggregate Inter-City (3)FlexSM Usage). Such Aggregate Inter-City (3)FlexSM Usage will be billed at the applicable (3)FlexSM Service usage rate as set forth in the Customer Order (in addition to the charges stated in Section 5(A)(2)(i)(if any)). (iii) Where Customer has made a Committed Data Rate to Level 3, Level 3 will determine the Aggregate Inter-City (3)FlexSM Usage and add to it the total Virtual Circuit Committed Rates (expressed in Mbps) billed to Customer in accordance with Section 5(A)(2)(i) (collectively the Aggregate CDR Usage) for comparison to the Committed Data Rate. If such Aggregate CDR Usage is less than the Committed Data Rate, then Customer will be billed by Level 3, in addition to all applicable charges under Section 5(A)(2)(i) above (if any), for the difference between the Committed Data Rate and Customer's combined Virtual Circuit Committed Rates, such difference being billed at the applicable (3)FlexSM Service short fall usage rate as set forth in the Customer Order. If such Aggregate CDR Usage is equal to or greater than the Committed Data Rate, then Customer will be billed by Level 3, in addition to all applicable charges under Section 5(A)(2)(i) above (if any), for the difference between the Aggregate CRD Usage and Customer's combined Virtual Circuit Committed Rates, such difference being billed at the applicable (3)FlexSM Service usage rate as set forth in the Customer Order. (B) Intra-City Network Charges. (1) For (3)FlexSM Service on a Level 3 intra-city network, Level 3 will invoice Customer, and Customer agrees to pay Level 3, the following charges for all intra-city (3)FlexSM Service provided by Level 3 to Customer: (a) a non-recurring installation charge per port; (b) a monthly recurring port charge; (c) a non-recurring virtual circuit activation charge per virtual circuit; and (d) monthly usage charges for intra-city (3)Flex service (billed as described below). (2) Customer's Send traffic attributable to megabit usage of the inter-city (3)FlexSM Service will be sampled every five (5) minuteson each virtual circuit. At the end of the month, all usage measurements will be ranked highest to lowest and the top five percent (5%) of Send Traffic and Receive Traffic samples shall be discarded. The resulting ninety-fifth (95th) percentile for Send Traffic for each (3)FlexSM virtual circuit will be billed independently at the contracted rate. 6. Service Levels. (A)Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)FlexSM Service on or before the Customer Commit Date specified for the particular Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer or Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)FlexSM Service for reasons other than an Excused Outage, Customer will be entitled to a service credit equal to the charges for one (1) day of the monthly recurring port charges for the affected port and/or virtual circuit for each day of delay, up to a monthly maximum credit of ten (10) days. (B)Availability Service Level. The Availability Service Level for (3)FlexSM Service is 99.99% for Single Connected (3)FlexSM Service and 99.999% for Dual Connected (3)FlexSM Service. The (3)FlexSM Service is considered unavailable if port(s) and/or virtual circuit(s) are unable to send or receive traffic. In the event that any component of the (3)FlexSM Service becomes unavailable for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the monthly recurring port charge for the affected port and any monthly usage charges solely attributable to the affected virtual circuit based on the cumulative unavailability of the affected component of the (3)FlexSM Service in a given calendar month as set forth in the following tables (but Customer will not be entitled to a service credit associated with the Delay Service Level, Packet Delivery Service Level or Jitter Service Level for the affected port and virtual circuit to the extent any such failure arises out of or is related to the unavailability event): For Single Connected (3)FlexSM Service: - -------------------------------- ------------------------ Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - -------------------------------- ------------------------ 0:05:01- 00:45:00 5% 00:45:01- 04:00:00 10% 04:00:01 - 08:00:00 20% 08:00:01 - 12:00:00 30% 12:00:01 - 16:00:00 40% 16:00:01 - 24:00:00 50% 24:00:01 or greater 100% - -------------------------------- ------------------------ For Dual Connected (3)FlexSM Service*: - -------------------------------- ------------------------ Cumulative Unavailability Service Level Credit (in hrs:mins:secs) - -------------------------------- ------------------------ 00:00:01 - 00:45:00 5% 00:45:01- 04:00:00 10% 04:00:01 - 08:00:00 20% 08:00:01 - 12:00:00 30% 12:00:01 - 16:00:00 40% 16:00:01 - 24:00:00 50% 24:00:01 or greater 100% - -------------------------------- ------------------------ * For Dual Connected (3)FlexSM Service, if only one (1) of the two (2) Dual Connected ports becomes unavailable and the associated virtual circuit remains available, Customer will only be entitled to receive a service credit under this Availability Service Level off of the monthly recurring port charge if both ports become unavailable. (C)Delay Service Level. The following Delay Service Level is measured as an average one-way delay over a calendar month for traffic on the Level 3 network between Gateways based on actual fiber route miles between such Gateways as set forth in the following table: - ------------------------------------------ Route Fiber Miles Delay Service Level - ------------------------------------------ 0-500 5 ms 500.1-1500 15 ms 1500.1-2500 20 ms 2500.1-3500 25 ms 3500.1-4500 30 ms 4500.1-5500 35 ms 5500.1-6500 40 ms 6500.1-7500 45 ms 7500.1-8500 50 ms 8500.1-9500 55 ms 9500.1-15000 95 ms >15000 100 ms - ------------------------------------------ Delay is calculated by independently measuring and reporting for each virtual circuit between two (2) Level 3 Gateways. Delay measurements may be obtained from the Level 3 web site at www.Level3.com. Samples are taken every 500 milliseconds and summed every 5 minutes. In the event of a delay in excess of the Service Levels set forth above for reasons other than an Excused Outage, Customer will be entitled to receive a service credit off any monthly usage charges solely attributable to the affected virtual circuit as set forth in the following table: - ------------------------------ ---------------------- Amount of Delay in Excess of Service Level Credit Service Level - ------------------------------ ---------------------- 0.1 - 5 ms 10% 5.1 - 10 ms 20% 10.1 - 15 ms 30% 15.1 - 20 ms 40% 20.1 - 25 ms 50% 25.1 ms or greater 100% - ------------------------------ ---------------------- (D) Packet Delivery Service Level. The Packet Delivery Service Level for (3)FlexSM Service is 100% for (3)FlexSM Service - Premium, 100% for (3)FlexSM Service - Optimized for usage up to the applicable Virtual Circuit Committed Rate and 99.95% for all usage in excess of the applicable Virtual Circuit Committed Rate, and 99.95% for (3)FlexSM Service - Enhanced. Packet Delivery is the percentage of a Customer's data packets that transit the Level 3 network and are delivered by Level 3 to the intended destination in a calendar month. The Packet Delivery Service Level is measured independently between two (2) Level 3 Gateways and reported separately for each virtual circuit. Packet Delivery measurements may be obtained from the Level 3 web site at www.Level3.com. In the event Level 3 does not meet the Packet Delivery Service Level for reasons other than an Excused Outage or as a result of any third party local access circuit (whether provisioned by Customer or Level 3), Customer will be entitled to receive a service credit off of any monthly usage charges solely attributable to the affected virtual circuit as set forth in the following tables: For (3)FlexSM Service - Premium and (3)FlexSM Service - Optimized (up to the Virtual Circuit Committed Rate): - ----------------------------- ----------------------- Packet Delivery Service Level Credit - ----------------------------- ----------------------- 99.95 - 99.99% 10% 99.5 - 99.94% 20% 99 - 99.49% 30% 98 - 98.99% 40% 97 - 97.99% 50% 96.99% or less 100% - ----------------------------- ----------------------- For (3)FlexSM Service - Optimized (for usage in excess of the Virtual Circuit Committed Rate) and (3)FlexSM Service - Enhanced: - ------------------------------ ---------------------- Packet Delivery Service Level Credit - ------------------------------ ---------------------- 99.5 - 99.94% 10% 99 - 99.49% 20% 98 - 98.99% 30% 97 - 97.99% 40% 96 - 96.99% 50% 95.99% or less 100% - ------------------------------ ---------------------- (E) Jitter Service Level. The Jitter Service Level for (3)FlexSM Service is 2 milliseconds (ms) for (3)FlexSM Service - Premium and 10 milliseconds (ms) for (3)FlexSM Service - Optimized. The Jitter Service Level does not apply to (3)FlexSM Service - Enhanced. The Jitter Service Level is measured independently between two (2) Level 3 Gateways and reported separately for each virtual circuit. Jitter measurements may be obtained from the Level 3 web site at www.Level3.com. Jitter is defined as the relative variation in delay between consecutive packets. Samples are taken every 500 milliseconds, and consecutive samples are compared for variation in delay. Each variation value is compared with this Service Level. In the event of Jitter in excess of the this Service Level for reasons other than an Excused Outage, Customer will be entitled to receive a service credit off of the monthly usage charges solely attributable to the affected virtual circuit as set forth in the following table: - ----------------------------- ----------------------- Percentage of Measurements Service Level Credit within SLA - ----------------------------- ----------------------- - ----------------------------- ----------------------- 99.9951% - 99.999% 5% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 99.991% - 99.995% 10% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 99.951% - 99.99% 20% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 99.91% - 99.95% 30% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 99.1% - 99.9% 50% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 99% or less 100% - ----------------------------- ----------------------- SERVICE SCHEDULE (3)CONNECT(R) MODEM SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)Connect(R) Modem Service. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Average Hours" shall mean the average hours of usage of (3)Connect(R) Modem Service - Subscriber per Customer subscriber in a month, which is calculated as Customer's aggregate hours of usage of (3)Connect(R) Modem Service - Subscriber during any calendar month divided by the total number of individual Customer subscribers using the (3)Connect(R) Modem Service - Subscriber during such month. (B) "Customer Phonebook" shall mean a current listing of Markets, Rate Centers and associated Market tiers set forth in a Customer specific document located on the Level 3 File Transfer Protocol ("FTP") server at ftp.level3.net. The Customer Phonebook may be modified or supplemented by Level 3 (in its sole discretion) from time to time. (C) "International" means anywhere outside of the continental United States, including Alaska and Hawaii. (D) "Market" means any geographic area (as defined by Level 3) in which Level 3 provides (3)Connect(R) Modem Service to Customer. The current list of available Markets, Market tiers and Rate Centers are set forth in the Customer Phonebook. (E) "Maximum Average Subscriber Hours" means thirty six (36) Average Hours of usage of (3)Connect(R) Modem Service - Subscriber per individual Customer subscriber in a month. (F) "Minimum Tier 1 Percentage" shall mean a minimum of seventy percent (70%) of Customer's monthly aggregate hours (across all Customer subscribers) of usage of (3)Connect(R) Modem Service - Subscriber that must originate in Level 3 Tier 1 Markets. (G) "Rate Center" means the specific geographic point (associated with one or more specific NPA/NXX codes) being used for billing and measuring (3)Connect(R) Modem Service. The current list of available Markets, Market tiers and Rate Centers are set forth in the Customer Phonebook. (H) "Tier 1 Authentication" means the first stage authentication whereby Level 3 determines whether managed modem port capacity is available for Customer use in a particular Level 3 Market. (I) "Transit Service" means end user traffic that is delivered to a Level 3 Facility and then routed to its final destination by Level 3 via the Level 3 Internet Protocol ("IP") network. (J) "U.S. Domestic" means the continental United States. 3. Service Description. (3)Connect(R) Modem Service is a dial-access, Transit Service available on a fixed-port basis, usage basis, nationwide usage basis and subscriber basis. 4. (3)Connect(R) Modem Service - Fixed Port. The (3)Connect(R) Modem Service - Fixed Port is billed by Level 3 to Customer on a per port basis. The (3)Connect(R) Modem Service - Fixed Port charges consist of two (2) components: (a) a non-recurring installation charge per port; and (b) a monthly recurring port charge applicable to the particular Level 3 Market tier, which charges shall be as set forth in the Customer Order or as otherwise agreed between the parties in writing. 5. (3)Connect(R) Modem Service - Usage. (A) The (3)Connect(R) Modem Service - Usage is billed by Level 3 to Customer on a usage basis. The (3)Connect(R) Modem Service - Usage charges consist of two (2) components: (a) a non-recurring installation charge per Market; and (b) a per hour usage charge applicable to the particular Market tier, which charges shall be as set forth in the Customer Order or as otherwise agreed between the parties in writing. (B) Usage of the (3)Connect(R) Modem Service - Usage will be measured based on the total duration of all modem sessions in a particular month. Modem sessions will be measured in minutes starting immediately following Tier 1 Authentication and ending when the user disconnects from the Level 3 network. Level 3 radius accounting records will be used to determine the length in time of each call. At the end of each monthly billing period, the accounting records for such month will be summed to produce the total hours of usage of the (3)Connect(R) Modem Service - Usage for the month for each Level 3 Market (as applicable). (C) Customer will not have, nor shall it be entitled to, any stated number of dedicated ports with any (3)Connect(R) Modem Service - Usage. Customer shall make reasonable efforts to provide Level 3, on an ongoing quarterly basis, with a non-binding demand forecast setting forth Customer's estimated forecasted usage (on a total hours of use by Rate Center basis) of (3)Connect(R) Modem Service - Usage to facilitate Level 3's planning efforts in support of Customer. 6. (3)Connect(R) Modem Service - Toll Free. (A) The (3)Connect(R) Modem Service - Toll Free is billed by Level 3 to Customer on a usage basis. The (3)Connect(R) Modem Service - Toll Free charges consist of three (3) components: (a) a non-recurring installation charge of one thousand dollars ($1,000.00) for nationwide provisioning; (b) a monthly recurring charge of five dollars ($5.00) for each toll-free account number provided to Customer by Level 3, and (c) a per minute usage charge, as identified in sub-Sections (i) and (ii) below as applicable to Customer's usage of (3)Connect(R) Modem Service - - Toll Free in a particular month. (i) For U.S Domestic originating (3)Connect(R) Modem Service - Toll Free: ------------------------------- ------------------ Aggregate Monthly Usage Usage Rate Per Minutes for U.S. Domestic Minute ------------------------------- ------------------ ------------------------------- ------------------ 0 to 10,000,000 * * ------------------------------- ------------------ ------------------------------- ------------------ 10,000,001 to 20,000,000 ** ------------------------------- ------------------ ------------------------------- ------------------ 20,000,001 to 30,000,000 ** ------------------------------- ------------------ ------------------------------- ------------------ 30,000,001 to 40,000,000 ** ------------------------------- ------------------ ------------------------------- ------------------ 40,000,001 to 50,000,000 ** ------------------------------- ------------------ ------------------------------- ------------------ Greater than 50,000,000 ** ------------------------------- ------------------ (ii) For International originating (3)Connect(R) Modem Service - Toll Free: ------------------------------- ------------------ International Jurisdiction Usage Rate Per Minute ------------------------------- ------------------ ------------------------------- ------------------ Canada ** ------------------------------- ------------------ ------------------------------- ------------------ Hawaii ** ------------------------------- ------------------ ------------------------------- ------------------ Alaska ** ------------------------------- ------------------ ------------------------------- ------------------ Puerto Rico ** ------------------------------- ------------------ ------------------------------- ------------------ U.S. Virgin Islands ** ------------------------------- ------------------ ------------------------------- ------------------ CNMI (Commonwealth of the ** Northern Mariana Islands) ------------------------------- ------------------ ------------------------------- ------------------ Guam ** ------------------------------- ------------------ (B) Level 3 SS7 signaling records will be used to determine the length of time for each subscriber call. (3)Connect(R) Modem Service - Toll Free sessions will be measured starting when the call answer indication is passed to the Local Exchange Carrier and ending when the user disconnects from the Level 3 network. At the end of each monthly billing period, the SS7 signaling records for such month will be summed to produce the total minutes of usage of the (3)Connect(R) Modem Service - Toll Free in the month for each U.S. Domestic or International calling area (as applicable). (C) (3)Connect(R) Modem Service - Toll Free charges shall be invoiced based on the following billing increments. - ------------------------------ --------------- ----------------- Service Type/ Rate Element Initial Additional Billing Billing Increment Increments (seconds) (seconds) - ------------------------------ --------------- ----------------- - ------------------------------ --------------- ----------------- U.S. Domestic (3)Connect(R) 18 6 Modem Service - Toll Free - ------------------------------ --------------- ----------------- - ------------------------------ --------------- ----------------- International Originating 30 6 (3)Connect(R) Modem Service - Toll Free - ------------------------------ --------------- ----------------- Any partial billing increment shall be rounded-up to the next interval. (D) Level 3 shall pass through to Customer and Customer shall pay all payphone surcharges that may be imposed on Level 3. Such payphone surcharges are imposed pursuant to the rules and orders of the Federal Communications Commission (FCC) or other regulatory entity of competent jurisdiction and are subject to change at any time. (E) Customer will not have, nor shall it be entitled to, any stated number of dedicated ports with any Level 3 (3)Connect(R) Modem Service - Toll Free. Customer shall make reasonable efforts to provide Level 3, on an ongoing quarterly basis, with a non-binding demand forecast setting forth Customer's estimated forecasted usage (on a total minutes of use basis) of Level 3 (3)Connect(R) Modem Service - Toll Free to facilitate Level 3's planning efforts in support of Customer. 7. (3)Connect(R) Modem Service - Subscriber. (A) The (3)Connect(R) Modem Service - Subscriber is billed by Level 3 to Customer on a per subscriber basis. The (3)Connect(R) Modem Service - Subscriber charges consist of two components: (a) a non-recurring installation charge per Market; and (b) a per subscriber charge applicable to the particular Market tier, which charges shall be as set forth in the applicable Customer Order or as otherwise agreed between the parties in writing. In addition to the foregoing, Customer may be obligated to pay additional charges as more particularly described in Sections 7(C) and (D) below. (B) Usage of (3)Connect(R) Modem Service - Subscriber will be measured based on the total duration of all modem sessions initiated by Customer's subscribers in a particular month. Each of the individual Customer subscriber's modem sessions will be measured in minutes starting immediately following Tier 1 Authentication and ending when the individual Customer subscriber disconnects from the Level 3 network. Level 3 radius accounting records will be used to determine the total number of individual Customer subscribers, the identity of the individual Customer subscriber, the length of time of each subscriber modem session and the aggregate length of time of all subscriber modem sessions in the particular month. For billing purposes, fractional hours of the aggregate usage of all subscriber modem sessions in any month will be rounded up to the next whole hour. (C) If, in any month, Customer's actual Average Hours exceed the Maximum Average Subscriber Hours, in addition to all other amounts described in this Section 7, Customer will be subject to and obligated to pay Level 3 an additional charge (in the amount set forth in the applicable Customer Order or as otherwise agreed between the parties in writing) for every hour (or portion thereof) by which Customer's actual Average Hours exceeded such maximum number of Average Hours per individual Customer subscriber for that month. (D) If, in any month, the percentage of Customer's aggregate hours of usage of (3)Connect(R) Modem Service - - Subscriber that originate in Level 3 Tier 1 Markets is less than Customer's Minimum Tier 1 Percentage, in addition to all other amounts described in this Section 7, Customer will be subject to and obligated to pay Level 3 an additional charge of ten cents ($0.10) per individual Customer subscriber using the (3)Connect(R) Modem Service - Subscriber in the month for each one percent (1%), or portion thereof, that Customer is below the Minimum Tier 1 Percentage. The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. (A)Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)Connect(R) Modem Service - Fixed Port on or before the Customer Commit Date specified for the particular Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer or Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)Connect(R) Modem Service - Fixed Port for reasons other than an Excused Outage, Customer will be entitled to a service credit equal to fifty percent (50%) of the non-recurring charges for the affected (3)Connect(R) Modem Service - - Fixed Port. (B)Call Success Rate ("CSR") Service Level. The CSR Service Level for (3)Connect(R) Modem Service - Fixed Port is 90%*. The CSR is measured by Level 3 as a monthly average across the Level 3 modem network calculated based on the number of IP sessions established against the total sessions attempted. An IP session is established when the modem port is available to send, receive and authenticate traffic. In the event Level 3 does not meet the CSR Service Level for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the monthly recurring port charge for the affected (3)Connect(R) Modem Service - Fixed Port as set forth in the following table: - -------------------------- ----------------------- CSR Service Level Credit - -------------------------- ----------------------- - -------------------------- ----------------------- 88 - 89.99% 2.5% - -------------------------- ----------------------- - -------------------------- ----------------------- 85 - 87.99% 5% - -------------------------- ----------------------- - -------------------------- ----------------------- 80 - 84.99% 7.5% - -------------------------- ----------------------- - -------------------------- ----------------------- 79.99% or less 10% - -------------------------- ----------------------- * The CSR Service Level does not apply to ISDN Service (C) The Service Levels set forth in this Section 8 shall only apply to (i) (3)Connect(R) Modem Service - Fixed Port, and shall not apply to (3)Connect(R) Modem Service - Usage, (3)Connect(R) Modem Service - Toll Free or (3)Connect(R) Modem Service - Subscriber; and (ii) Rate Centers that have been made commercially available by Level 3 for sixty (60) days or more. SERVICE SCHEDULE INTERNET ADVANTAGESM CONNECTION SERVICE 1. Applicability. This Service Schedule is applicable only to Customer Orders for Internet AdvantageSM Connection Service, including Internet AdvantageSM International Service ("Internet Advantage Service," "Internet Advantage International Service" or "Service"). 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. "Committed Data Rate" shall mean the minimum data rate committed by Customer and set forth in the Customer Order (expressed in Mbps). "POP" means point of presence or Gateway. "SDP" is a Service Delivery Point. "CPE" is Customer Premises Equipment 3. Service Description. Level 3 Internet Advantage Service is a managed Internet connectivity service available at various connection speeds and pricing options (all as stated in the Customer Order). Customer may purchase any of four levels of Internet Advantage or Internet Advantage International Service: Gold, Silver, Bronze or Port-Only. Internet Advantage Gold Service is a comprehensive solution in which Internet access CPE is provided and managed by Level 3. Internet Advantage Silver Service requires Customer to own its Internet access CPE, but Customer assigns, and hereby does assign, operational management responsibility for such equipment to Level 3. Internet Advantage Bronze Service requires Customers to own and assume operational management responsibility for their Internet access CPE. Port-Only Customers (also known as Customer Provided Access (CPA)) own and assume operational management responsibility for their Internet access CPE and assume operational management responsibility for their Local Loop; in all other cases, Level 3 manages Customer's Local Loop (See Section 6 of this Service Schedule below). The demarcation point for Internet Advantage Gold and Silver Service is the LAN interface on the Internet access router at the Customer Premises. The demarcation point for Internet Advantage Bronze Service is the Local Loop interface at the Customer Premises (i.e., it does not include the Internet access premises equipment). For Port-Only Customers, the demarcation point is the Local Loop interface at Level 3's POP (i.e., it does not include either the Internet access premises equipment or the Local Loop). Upon the expiration or termination of the Service Term, Customer shall promptly return any Level 3 provided CPE to Level 3 in good working order (ordinary wear and tear excepted). In the event Customer fails to do so, Level 3 will bill Customer and Customer agrees to pay Level 3, as the case may be, the CPE's fair market value (if the same is not returned to Level 3 within thirty (30) days of the date of termination) or the cost to repair the CPE, if the same is returned to Level 3 other than in good working order (ordinary wear and tear excepted). Where Services are provided outside of the United States, Level 3 may pass title to certain Facilities to Customer (as specified in the Customer Order, or as otherwise agreed to in writing between the parties). In the event title is passed to Customer, Customer shall: i) be responsible for all required authorizations and licenses required respecting such Facilities; and ii) (a) re-convey title to and ship, at Customer's expense, such Facilities back to Level 3 at the conclusion of the Service Term in good working order, ordinary wear and tear excepted (and pay Level 3 the costs of repair or replacement if not so returned), or (b) destroy such Facilities, certify the same to Level 3 and pay Level 3 such Facilities' fair market value. Customer will be required to pay Duty and VAT for all CPE and Facilities provided with Internet Advantage International Service. 4. Charges. Level 3 presently offers fixed rate, usage-independent pricing for Fixed DS1, Multi-DS1, Backup Multi-DS1, Fixed DS3, Backup DS3, Fixed OC3, Fixed E1, Multi-E1, Fixed E3, and Fixed STM1 Services. Such port speeds are subject to change. Fixed Rate charges for Internet Advantage and Internet Advantage International Service consist of two (2) components: (a) a non-recurring installation charge per port and (b) a monthly recurring port charge. Level 3 also offers usage-based pricing for Flexible Multi-DS1, Multi-E1, Flexible Backup Multi-DS1, Flexible E3, Flexible DS3, Flexible Backup DS3, Flexible OC-3c, and Flexible STM1 access services as stated in the Customer Order. Such port speeds are subject to change. Usage based pricing options are designed for customers requiring variable, usage based Services. Charges for usage based services may be based on a Committed Data Rate as described below. Committed Data Rate billing for Internet AdvantageSM and Internet Advantage International Service consist of four (4) components: (a) a non-recurring installation charge per port; (b) a monthly recurring port charge; (c) a monthly recurring charge based on the Committed Data Rate and (d) monthly usage charges to the extent usage in a particular month exceeds the Committed Data Rate. Customer's usage of Internet AdvantageSM and Internet Advantage International Service (both Send Traffic and Receive Traffic) will be sampled every five (5) minutes for the previous five (5) minute period. At the end of the month, the top five percent (5%) of Send Traffic and Receive Traffic samples for such port shall be discarded. The higher of the resulting ninety-fifth (95th) percentile value for Send Traffic or Receive Traffic for such port will be compared to the Committed Data Rate applicable to such port. If the ninety-fifth (95th) percentile of either Send Traffic or Receive Traffic for such port is higher than the applicable Committed Data Rate, Customer will, in addition to being billed for the Committed Data Rate, be billed at this ninety-fifth (95th) percentile level for any usage in excess of such Committed Data Rate at the contracted-for price per Megabit. Level 3 may, in certain circumstance, be able to assign usage caps to Internet Advantage Services that are offered under the Committed Data Rate model only. 5. IP Addresses and Domain Names. In the event that Level 3 assigns to Customer an IP address as part of the provision of Internet Advantage Service, such IP address shall (upon Level 3's request and to the extent permitted by law) revert to Level 3 after termination of the applicable Customer Order for any reason whatsoever, and Customer shall cease using such address. At any time after such termination, Level 3 may re-assign such address to another user. In the event that Level 3 obtains for Customer a domain name (which may be required in some European jurisdictions), Customer shall be the sole owner of such domain name. Customer shall be solely responsible for: (a) paying any fees (including renewal fees) relating thereto; (b) complying with any legal, technical, administrative, billing or other requirements imposed by the relevant domain name registration authority; (c) modifying such domain name in the event Customer changes service providers; and (d) all third party claims (including claims for intellectual property infringement) relating thereto, and Customer shall indemnify and hold Level 3 harmless from all such claims and expenses (including legal fees and court costs) related thereto. 6. Local Loops. For Gold, Silver and Bronze Internet Advantage Service, unless otherwise agreed, Level 3 or its designated agent will order (on behalf of Customer) the Local Loop necessary for delivery of Service (or provide the same if Level 3 has On-Net services available). Subject to the provisions hereof, Level 3 (or its designated agent) will arrange for a third party provider to install an Off-Net Local Loop within close proximity of the planned location of the Customer Premises equipment. In the event Customer requests expedited delivery of a Local Loop, additional charges not stated in the Customer Order may apply; Level 3 cannot guarantee expedited delivery of Local Loops. Level 3 may charge Customer additional charges not otherwise set forth in the Customer Order where charges stated in a Customer Order do not reflect the actual charges for the Local Loops provided, or where the Local Loop provider determines that it is necessary to extend the demarcation point or MPOE through the provision of additional infrastructure, cabling, electronics or other materials necessary to reach the Customer Premises. Level 3 will notify Customer of any additional non-recurring charges and/or monthly recurring charges as soon as practicable after Level 3 is notified by the local access provider of the amount of such charges. In the event that the extended demarcation point cannot be provided by Level 3's vendor(s), Customer must organize the extension of the aforementioned demarcation point with its chosen inside wire vendor or directly with the telecommunications vendor servicing the building. Gold, Silver or Bronze Customers that wish to order, provision, and/or directly pay for the Local Loop must gain prior written approval from Level 3, and upon approval, must provide the approved Local Loop provider with a letter of agency (LOA) authorizing Level 3 to act on Customer's behalf as respects the delivery of the Internet Advantage Services. The letter of agency must include all relevant information concerning the Local Loop's demarcation point within the Customer Premises. A copy of this letter of agency must be forwarded to Level 3 for its records. Cross-connect and facility entrance fees associated with the POP to which the connection is attached may also apply if Customer provisions the Local Loop in this manner. A one-time surcharge will also apply. For Port-Only Internet Advantage Service, Customer is responsible for ordering and coordinating the provisioning of all Local Loop circuits between the Customer Premises and the Level 3-designated POP using a Level 3-approved local access provider. Specific line coding, framing and channelization requirements are required, as determined by Level 3, and will be provided by Level 3 upon request. Cross-connect and facility entrance fees associated with the POP to which the connection is attached may also apply if Customer provisions the Local Loop in this manner. A one-time surcharge will also apply. In all cases as necessary, Customer will provide Level 3 with required design layout records and other information necessary to cross connect between the Local Loop and the Level 3-designated POP. All Customer-initiated cancellation requests for Local Loops owned and administered by Customer must be accompanied by a cancellation confirmation from the third party provider. In the event that this information is not provided, the order for disconnection may not proceed and Customer will be responsible for any charges incurred as a result of the delay. 7. Advanced Services. Level 3 provides a variety of advanced services that are, depending on the selected service level, either included in the Service or which may be added for an additional fee. Advanced Services are: Domain Name Services, Network News Feed, Packet Filtering, Network Usage Reporting, and Routing Options. For more detail on these offers, please consult your account representative. 8. Service Levels. Level 3 offers Internet Advantage and Internet Advantage International Service via the Level 3's network in the United States and Europe (On-Net) and via 3rd party International network providers in Europe, Canada, Latin America, and Asia Pacific (Off-Net). a. Service Availability. The Service Availability for Internet Advantage and Internet Advantage International Service delivered On-Net is 99.97%. Internet Advantage Service is considered unavailable if the Customer router is unable to exchange IP packets with the Level 3 network. In the event that On-Net Internet Advantage and Internet Advantage International Service becomes unavailable (other than as the result of an Excused Outage) as a result of: (i) failure of any component on the Level 3 network (ii) failure of a Level 3 provided local access circuit, or (iii) failure of Customer premises hardware obtained from Level 3, Level 3 will issue a credit based on the length of the outage. A maximum of 15 days credit will be provided in any given calendar month as set forth below: o Any outage between 10 and 60 minutes = Credit of 1/30th of the monthly service charges, including Local Loop Fees. o Any outage greater than 60 minutes = Credit of 3/30th of the monthly service charges, including Local Loop Fees. b. Latency. The Latency for On-Net Internet Advantage Service and Internet Advantage International Service is based on the average "one-way" delay time measurement taken for an IP packet to traverse backbone Gateways on the Level 3 network. This data is compiled into a monthly average network latency measurement, with guarantees as shown in the following table: ----------------------- ------------------------------ Network Segment Latency Guarantee ----------------------- ------------------------------ ----------------------- ------------------------------ Within North America Average monthly network latency is guaranteed not to exceed 25ms one-way. ----------------------- ------------------------------ ----------------------- ------------------------------ Intra-Europe Average monthly network latency is guaranteed not to exceed 15ms one-way. ----------------------- ------------------------------ ----------------------- ------------------------------ Transatlantic Average monthly network latency is guaranteed not to exceed 40ms one-way. ----------------------- ------------------------------ In the event that the network latency metrics are not met during any one calendar-month period for reasons other than an Excused Outage, Level 3 will provide a credit equal to 1/30th of monthly service charges, including Local Loop fees. (c) Packet Loss. The Packet Loss for On-Net Internet Advantage and Internet Advantage International Service is based on the percentage of packets that are dropped between routers that are part of the Level 3 network. This monthly network average will not exceed 0.5% packet loss during any calendar month. In the event that the network packet loss metrics are not met during any one calendar-month period for reasons other than an Excused Outage, Level 3 will provide a credit equal to 1/30th of monthly service charges, including Local Loop fees. (d) Off-Net. The Service Availability, Latency and Packet Loss service level for Internet Advantage and Internet Advantage International Service delivered International Off-Net will be a direct pass through of the service levels, if any, received from Level 3's Off-Net service provider. 9. Chronic Outage. Customer may elect to terminate affected Internet Advantage Service and Internet Advantage International Service (On-Net), at affected sites only, prior to the end of the Service Term without termination liability if, for reasons other than an Excused Outage such Internet Advantage Service and Internet Advantage International Service (On-Net) is unavailable (as defined in Section 8(a) above) for three (3) or more separate occasions of more than twelve (12) hours each OR for more than forty two (42) hours in the aggregate in any calendar month. Customer must exercise its right to terminate the affected Service under this Section, in writing, within thirty (30) days after the event giving rise to a right of termination hereunder, which termination will be effective as set forth by Customer in such notice of termination. Except for any credits that have accrued pursuant to Section 8, this Section 9 sets forth the sole remedy of Customer for chronic outages or interruptions of any Internet Advantage Service and Internet Advantage International Service. SERVICE SCHEDULE SITE PATROLSM ENTERPRISE MANAGED SECURITY SERVICES 1. Applicability. This Service Schedule is applicable only where Customer orders Site PatrolSM Enterprise Managed Security Services ("Site Patrol Services") and its associated services. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. "Chronic Problem" shall mean any problem monitored by Level 3 in the course of delivering the Site Patrol service and which occurs three (3) times in a thirty (30) day period and which Level 3 identifies as having a root cause requiring a response by Customer. "Client" shall mean Software related to the Site Patrol Services that is installed on the Customer's remote access user's computer to enable the `remote access' model of Site Patrol Services. "CPE(s)" shall mean Facilities, with accompanying Software, which are located at the Customer Premises specifically for use of the Site Patrol Services. "Software" shall mean software owned or licensed by Level 3 or its Affiliates and used to deliver Service. 3. Service Description. Site Patrol Service integrates security Software capable of generating a virtual private network or firewall on a security platform which includes hardware managed, monitored and maintained by Level 3. Site Patrol Service enhances a Customer's ability to impede unauthorized access to a local network, as well as provides a highly secure means of communicating across a public IP network. In addition, Site Patrol Service assists in detecting potential security breaches and network irregularities; the Service does not, however, guarantee network security or eliminate the risk of unauthorized access. Customers may specify 25, 50, 100, 250, or Unlimited IP addresses for each CPE implementation in their solution. Level 3 may change components of the Site Patrol Service, in its discretion, if required for technological or security related reasons. Customer will at all times be governed by Level 3's then current version of this Service Schedule. All components of the Site Patrol Service may be billed as the same are installed and tested. 4. Service Models. Site Patrol Services presently offer five (5) levels of service including: Central Office; Regional Office; Enterprise Office; Branch Office; and Remote Office, each as stated in the Customer Order. Each level of service includes provisioning and installation; security policy change management; 24x7 security and performance monitoring; Security Incident Rapid ResponseSM emergency intervention; security patches/ software updates as determined by Level 3; and on-site field service presence for hardware replacement. There are a number of elective service, application and platform options available for each service model, each as stated in the Customer Order, including: priority provisioning; Site Patrol 24 x 7 / 4-Hour On-Site Response (where available); a high availability offering (providing virtual router redundancy protocol); authentication support using Check Point's LDAP technology, or customer provided authentication option; Site Patrol Advanced Services Time and Materials Support; remote access client with personal firewall capabilities for offsite employees; encryption acceleration cards; additional network interface cards; and memory upgrades. 5. Additional Customer Responsibilities. (A) Customer is responsible for timely and accurately specifying to Level 3 Customer's initial security policy and configuration options via a Technical Questionnaire or (TQ) and all subsequent changes thereto. Customer's security program may include Site Patrol in conjunction with other Internet access or security centric service providers. Customer must supply and maintain, at its own expense, an Internet connection compatible with Site Patrol Services, as determined by Level 3. (B) Customer is responsible for managing external authentication servers and modifications to the corresponding user databases such as RADIUS, TACACS, and LDAP. Customer is also responsible for managing any changes to PKI, shared key infrastructure, or certificate authority that are not included in the Level 3 provided Software or which reside outside of the security platform. (C) Customer must designate a minimum of two (2), English-speaking security contacts with one designated as "Primary." Only the Primary contact may change a secondary contact; the Primary contact may only be changed by formal written notice by Customer to Level 3. Current contact information, including alpha-numeric pager number, must be supplied and kept current for all security contacts. The security contacts are responsible for, among other things: (a) formulating and specifying initial security policies and ongoing changes; (b) scheduling major configuration changes at least two (2) business days in advance; (c) notifying Level 3 before and after, as applicable, planned outages or configuration changes to the Customer's web site architecture, internal network, or other network services, including, without limitation, Customer-managed web and application servers, e-mail, or DNS; (d) preparing an audit and recovery plan for Customer's gateway devices, web site, and networked assets after a security incident; (e) configuring, maintaining, and supporting the Client and restricting access to the Site Patrol gateway device and related service equipment provided by Level 3; (f) being the primary security contacts to perform basic on-site operations at the direction of Level 3 personnel, including but not limited to, plugging in the security equipment, turning power on or off, or providing "hands and eyes" access to CPEs. For multi-site implementations or communities, each community must identify one authorized contact to act for all sites. (D) Upon expiration, cancellation or termination of the applicable Site Patrol Services, Customer shall relinquish any IP addresses or address blocks assigned by Level 3. If Level 3 deems it necessary, Customer may be required to renumber the IP addresses assigned to it by Level 3. All fees associated with domain name registration and periodic maintenance of domain names are Customer's responsibility and will be billed directly to Customer by Level 3 or other applicable registration authority. In the event that Level 3 obtains for Customer a domain name (which may be required in some European jurisdictions), Customer shall be the sole owner of such domain name. Customer shall be solely responsible for: (A) paying any fees (including renewal fees) relating thereto; (B) complying with any legal, technical, administrative, billing or other requirements imposed by the relevant domain name registration authority; (C) modifying such domain name in the event Customer changes service providers; and (D) all third party claims (including claims for intellectual property infringement) relating thereto, and Customer shall indemnify and hold Level 3 harmless from all such claims and expenses (including legal fees and court costs) related thereto. (E) Site Patrol hardware and other Facilities may arrive at the Customer Premises prior to the scheduled date of installation by Level 3. Customer will safeguard such hardware and Facilities, in all cases using not less than a reasonable degree of care. Customer representatives must be available during scheduled installation of the Site Patrol Services for testing and coordination of the Site Patrol Services with Customer's network architecture. (F) Upon the expiration or termination of the Service Term, Customer shall promptly return any Level 3 provided CPE to Level 3 in good working order (ordinary wear and tear excepted). In the event Customer fails to do so, Level 3 will bill Customer, and Customer agrees to pay Level 3, as the case may be, the CPE's fair market value (if the same is not returned to Level 3 within thirty (30) days following the date of termination) or the cost to repair the CPE, if the same is returned to Level 3 other than in good working order (ordinary wear and tear excepted). (G) Notwithstanding any provision in the Agreement to the contrary, Site Patrol Services may not be resold to third party end users. (H) In the event Level 3 provides Software to Customer in connection with the Services, Level 3 grants Customer a personal, non-exclusive, non-transferable license, for the duration of the Service Term of the Service for which the Software is used, to use such Software, in object code form only, on the hardware on which it is installed for the sole purpose of enabling Customer to use the Services. Customer agrees not to (a) disclose or make available to third parties any portion of such Software without Level 3's advance written permission; (b) copy or duplicate such Software; (c) reverse engineer, decompile or disassemble such Software; or (d) modify or make derivative works of such Software. For certain Software, additional licensing terms may apply in case of client software, as included as a "shrink-wrap" license. LEVEL 3 AND LEVEL 3'S THIRD-PARTY SOFTWARE SUPPLIERS DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT, AS RESPECTS ANY SOFTWARE. (I) Where Services are provided outside of the United States, Level 3 may pass title to certain Facilities to Customer (as specified in the Customer Order, or as otherwise agreed to in writing between the parties). In the event title is passed to Customer, Customer shall: i) be responsible for all required authorizations and licenses required respecting such Facilities; and ii) (a) re-convey title to and ship, at Customer's expense, such Facilities back to Level 3 at the conclusion of the Service Term in good working order, ordinary wear and tear excepted (and pay Level 3 the costs of repair if not so returned), or (b) destroy such Facilities, certify the same to Level 3 and pay Level 3 such Facilities' fair market value. Customer will be required to pay Duty and VAT for all CPE and Facilities provided with Site Patrol Services. (J) The deployment of Services outside of the United States may be subject to restrictions. Level 3 will endeavor to obtain the necessary approvals for each location to which Service is ordered by Customer and Customer agrees to cooperate with Level 3 as may be reasonably necessary to satisfy the required approvals. Level 3's acceptance of a Customer Order for Services, and the obligation to provide Services, in any given location is expressly conditioned upon Level 3's ability to obtain the regulatory, legal, vendor, and import and export approvals (including but not limited to those required for encryption technology) as Level 3 deems necessary in its sole discretion. If Level 3 is unable to obtain such approvals for a given location, Level 3 may decline to accept or void the portion of the Customer Order related to that location without further obligation or liability. 6. Chronic Problem Resolution. Customer shall resolve any Chronic Problem by fixing the same; removing the relevant application (or requesting Level 3 to remove the same); notwithstanding the chronic problem, requesting Level 3 to continue monitoring the relevant application (in which case Level 3's standard response fee "per alert" shall apply for as long as the Chronic Problem remains); or requesting Level 3 to take any necessary action to prevent the alerts from being displayed (meaning Level 3 will not respond to future instances of such Chronic Problem). If Customer has not remedied the Chronic Problem within thirty (30) days, then Level 3 may continue to monitor the relevant component and charge the Customer a "per alert" response fee for as long as the Chronic Problem remains, or take any necessary action to prevent the monitoring alerts from being displayed. In all cases, isolating Chronic Problems may impact other elements of Service, and Level 3 activities respecting Chronic Problems may result in additional charges. Customer shall not be entitled to any rebate or reduction of fees for the affected component. 7. Service Levels The following Service Levels are applicable to the Site Patrol Services. (A) Management Service Level For change requests received and authenticated by Level 3 by 6 P.M. local time on a business day, Level 3 will use commercially reasonable efforts to affect the configuration or policy changes to be completed by the close of the following business day. All such change requests must be made through Level 3's Customer Service Online system or by dialing 1-800-NEARNET. This Service Level does not apply to service additions or deletions, any delay caused by an Excused Outage, configuration change requests requiring the addition or removal of security gateway services or any items that are considered the Customer's responsibility, including but not limited to user and group configurations. This Service Level does not apply until thirty (30) days after the Service Commencement Date. If Customer requests a change for supported services that are covered by this Service Level and the same is not completed by Level 3 within the time period provided above, Customer will be eligible for a credit of 1/30th of the monthly service fee for the policy in question, with a maximum of one credit per day. (B) Monitoring Service Level Level 3 will respond to Customer requests or network events not caused by an Excused Outage according to the following schedule: ------------------------- ------------------------------- Severity Level* Mean Time to Respond** ------------------------- ------------------------------- Severity 0 15 minutes ------------------------- ------------------------------- ------------------------- ------------------------------- Severity 1 1 hour ------------------------- ------------------------------- ------------------------- ------------------------------- Severity 2 1 business day ------------------------- ------------------------------- ------------------------- ------------------------------- Severity 3 4 business days ------------------------- ------------------------------- * Severity levels are determined by Level 3. Generally, Severity 0 results when multiple sites are completely down, Severity 1 results when a single site is completely down, or degradation is occurring at multiple sites, Severity 2 occurs when service is degraded at a single site and Severity 3 is all other situations. If a severity level changes, the response time restarts. ** Mean Time to Respond is defined as the arithmetic mean, and all occurrences for a severity level will be averaged over a calendar day. In the event the Mean Time to Respond is not met, Customer will be eligible for a credit of 1/30th of the monthly service fee for the affected Service, with a maximum of one credit per day. The Monitoring Service Level covers Mean Time to Respond only as defined herein and does not guarantee mean time to resolution nor mean time to repair metrics. (C) Response Time Service Level Site Patrol Service includes on-site response. Field technicians are dispatched in response to platform issues at the discretion of the Level 3 Network Operations Center. From the time of dispatch, a field technician will arrive on site the next-business-day, defined as the 24-hour period commencing at 6:01 P.M. and ending at 6:00 P.M. local time the next business day, Monday through Friday, excluding holidays. For sites with the Site Patrol 24 x 7 / 4-hour Response option (as stated in the Customer Order), the field technician will arrive on site within 4 hours from the time of dispatch. In the event that the dispatched field technician does not arrive on-site within the specified time period for a given calendar day for reasons other than an Excused Outage, the Customer will be eligible for a service credit equal to 1/30th of the monthly service fees for the affected site, with a maximum of one credit per day per site. Credits will be on a per site basis for the affected site only. The Response Time Service Level covers time to respond only as defined herein and does not guarantee mean time to resolution nor mean time to repair metrics. (D) Maintenance Service Level Customers are eligible for a Maintenance Service Level of 99% daily availability. For Site Patrol High Availability customers, daily availability of the covered CPEs is 100%. Availability is the ability of a security gateway to accept connections and pass traffic during a given calendar day. The functionality and connectivity of individual instances of the Client and end-users is not covered by this Service Level. Availability does not cover outages caused by Excused Outages, Customer-initiated changes to the network environment, architectures, or security policies. It also does not apply to intentional shutdowns due to emergency intervention initiated during security incidents or the failure of individual security gateway services (e.g. HTTP). Furthermore, network performance degradation or failure due to incorrect bandwidth or IP address selection by the Customer or failure of connectivity not managed by Level 3 does not constitute failure under this Service Level. Should Customer experience and report a complete CPE outage for a qualifying configuration in any given month, Level 3 will investigate the incident to determine if availability during the day in question dropped below the level stated above. If Level 3 determines that a Site Patrol Services system failure was responsible for the outage for reasons not excluded by this Section, Customer will receive a service credit equal to 1/30th of the monthly service fees for the failed device(s), with a maximum credit of one day per device. (E) The termination rights stated in Section 4.4 of the Agreement do not apply to this Service. SERVICE SCHEDULE VPN ADVANTAGESM Service 1. Applicability. This Service Schedule is applicable only where Customer orders VPN AdvantageSM Service ("VPNA Service") and its associated services. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. "Client" shall mean VPNA Services related Software that is installed on the Customer's remote access user's computer to enable the `Remote Access' model of the VPNA Services (described below). "CPE(s)" shall mean Facilities, with accompanying Software, which are located at the Customer Premises specifically for use of the VPNA Services. "Software" shall mean software owned or licensed by Level 3 or its Affiliates and used to deliver Service. "VNOC" shall mean the VPN Networking Operations Center. 3. Service Description. VPNA Services enable the creation of secure connections between Customer Premises connected to the Internet as well as encrypted communications with external organizations. VPNA Services also support secure remote access connectivity to corporate networks via the Internet. VPNA Facilities are integrated into Customer's internal Local Area Network ("LAN"): VPNA Services include VPNA Facilities and Software only; Internet connectivity must be separately provided, through Level 3 or otherwise. VPNA Service enhances a Customer's ability to create secure, over the Internet, connections; the Service does not, however, guarantee network security or eliminate the risk of unauthorized access. Level 3 may change components of the VPN Service, in its discretion, if required for technological or security related reasons. Customer will at all times be governed by Level 3's then current version of this Service Schedule. 4. Service Models. VPNA Services includes two service models, "Dedicated Site-to-Site" and "Remote Access", both of which offer the following with respect to the Level 3-managed CPE: remote, telephonic installation assistance, 24 x 7 management and monitoring of a limited number of specified CPEs, software upgrades (as determined necessary by Level 3), basic CPE maintenance, and CPE read-only account for usage reporting. "Dedicated Site-to-Site" VPNA Service enables the establishment of secure communications channels between geographically separated sites through the Internet using IPsec with 3DES encryption and digital certificate authentication of CPE. "Remote Access" VPNA Service enables the establishment of secure communications channels between Customer's remote access users and the CPE through dial up, Ethernet, DSL, cable modem or other connectivity to the Internet employing IPsec with DES or 3DES encryption, and either digital certificate or RADIUS authentication. Optional services (which are subject to additional charges), as stated in the Customer Order, are also available, and include: Onsite installation service (where available); Off-hours (as defined by Level 3) telephone installation assistance; Level 1 Help Desk support (to assist with deployment of, and individual support for, the Client); onsite cold spare CPEs; on-site field service and/or technical support (subject to geographic limitations); and configuration and support of extranet tunnels between CPEs and other devices. 5. Additional Customer Responsibilities. (A) Customer must supply and maintain, at its own expense, an Internet connection compatible with VPNA Services as determined by Level 3, and an appropriately configured router installed with a 10baseT or 100baseT port to the LAN. Customer is responsible for providing, configuring, installing, and maintaining the hardware/software on its internal networks and computing systems (hosts and/or servers). (B) Digital certificates are the standard authentication method for VPNA Services. Customer can use RADIUS authentication mechanisms for remote access client authentication, and if it does so, Customer must provide, maintain and manage the RADIUS authentication server. (C) Upon expiration, cancellation or termination of the applicable VPNA Services, Customer shall relinquish any IP addresses or address blocks assigned by Level 3. If Level 3 deems it necessary for technical reasons, Customer may be required to renumber the IP addresses assigned to it by Level 3. All fees associated with domain name registration and periodic maintenance of domain names are Customer's responsibility and will be billed directly to Customer by Level 3 or other applicable registration authority. In the event that Level 3 obtains for Customer a domain name (which may be required in some European jurisdictions), Customer shall be the sole owner of such domain name. Customer shall be solely responsible for: (i) paying any fees (including renewal fees) relating thereto; (ii) complying with any legal, technical, administrative, billing or other requirements imposed by the relevant domain name registration authority; (iii) modifying such domain name in the event Customer changes service providers; and (iv) all third party claims (including claims for intellectual property infringement) relating thereto, and Customer shall indemnify and hold Level 3 harmless from all such claims and expenses (including legal fees and court costs) related thereto. (D) Upon the expiration or termination of the Service Term, Customer shall promptly return any Level 3 provided CPE to Level 3 in good working order (ordinary wear and tear excepted). In the event Customer fails to do so, Level 3 will bill Customer, and Customer agrees to pay Level 3, as the case may be, the CPE's market value (if the same is not returned to Level 3 within thirty (30) days of the date of termination) or the cost to repair the CPE, if the same is returned to Level 3 other than in good working order (ordinary wear and tear excepted). (E) Notwithstanding any provision in the Agreement to the contrary, VPN Services may not be resold to third party end users. (F) In the event Level 3 provides Software to Customer in connection with the Services, Level 3 grants Customer a personal, non-exclusive, non-transferable license, for the duration of the Service Term of the Service for which the Software is used, to use such Software, in object code form only, on the hardware on which it is installed for the sole purpose of enabling Customer to use the Services. Customer agrees not to (a) disclose or make available to third parties any portion of such Software without Level 3's advance written permission; (b) copy or duplicate such Software; (c) reverse engineer, decompile or disassemble such Software; or (d) modify or make derivative works of such Software. For certain Software, additional licensing terms may apply in case of client software, as included as a "shrink-wrap" license. LEVEL 3 AND LEVEL 3'S THIRD-PARTY SOFTWARE SUPPLIERS DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT, AS RESPECTS ANY SOFTWARE. (G) Where Services are provided outside of the United States, Level 3 may pass title to certain Facilities to Customer (as specified in the Customer Order, or as otherwise agreed to in writing between the parties). In the event title is passed to Customer, Customer shall: i) be responsible for all required authorizations and licenses respecting such Facilities; and ii) (a) re-convey title to and ship, at Customer's expense, such Facilities back to Level 3 at the conclusion of the Service Term in good working order, ordinary wear and tear excepted (and pay Level 3 the costs of repair if not so returned), or (b) destroy the Facilities, certify the same to Level 3 and pay Level 3 the Facilities' fair market value. Customer will be required to pay Duty and VAT for all CPE and Facilities provided with VPNA Services. (H) The deployment of Services outside of the United States may be subject to restrictions. Level 3 will endeavor to obtain the necessary approvals for each location to which Service is ordered by Customer and Customer agrees to cooperate with Level 3 as may be reasonably necessary to satisfy the required approvals. Level 3's acceptance of a Customer Order for Services, and the obligation to provide Services, in any given location is expressly conditioned upon Level 3's ability to obtain the regulatory, legal, vendor, and import and export approvals (including but not limited to those required for encryption technology) as Level 3 deems necessary in its sole discretion. If Level 3 is unable to obtain such approvals for a given location, Level 3 may decline to accept or void the portion of the Customer Order related to that location without further obligation or liability. 6. Service Levels. The following Service Levels apply only to VPNA Services where Customer uses a Level 3 On-Net Internet connectivity service. These Service Levels do not apply to Customers who manage their own access routers or to Customers utilizing Internet access providers other than Level 3, including 3rd party providers contracted by Level 3 to deliver Internet connectivity service. It will not be deemed a failure to meet a Service Level, and no credit will be paid, if a Service Level is not met due to an Excused Outage. The VPNA Service Levels are independent of any other Service Levels provided by Level 3. The VPNA Service Levels provide credits for the VPNA Service fees only (and not for other Level 3 service fees). In any calendar month the Service Level credits that are available under the VPNA Service Levels are limited to a maximum of 50% of the total VPNA Service monthly service fees for that month for the affected Service (or element thereof). The service areas for VPNA Services are separated into multiple Service Level Zones ("Zones"). In each Zone, there is an associated Service Level. The Zone to which a specific geographic area belongs is listed herein. (A). Service Levels Associated with the VPNA Services. (1) Availability Service Level. This Service Level provides that the CPEs that comprise Customer's VPNA Service will be available for a set percentage (refer to the tables in section 6 (B) and (C)) of time, averaged across all CPEs within that Zone, and over the course of the billing month. This Service Level covers the CPE being up and ready for tunnel initiation and data transmission. This Service Level will be monitored using Level 3's standard monitoring methods. Should this Service Level not be met, Customer will be entitled to a credit equal to 1% of the monthly VPNA Service CPE Service fees for each 0.1% by which the Service Level is missed. (2) Latency Service Level. VPNA Service provides that the VPN devices that comprise a customer's VPN installation will provide an average round trip latency (measured in milliseconds ("ms")) dependent upon the Zone in which the CPEs are located (refer to the tables in Section 6 (B) and (C)), averaged over the course of the billing month. This latency will be measured between each CPE and the VNOC, and will be averaged over all of the CPEs in the specific Zone. Service Levels will be monitored using Level 3's standard monitoring methods. Should this Service Level not be met, Level 3 will issue the Customer a service credit equal to 1% of the monthly VPN Service CPE service fees for each 1 ms by which the service level is missed. (B) Service Areas and Service Level Zones. - ----------------- ------- -- --------------------- -------- Country Zone Country Zone - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Australia D6 Latvia D2 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Argentina D5 Luxembourg D8 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Austria D8 Malaysia D6 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Belgium D8 Mexico D5 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Brazil D5 Netherlands D8 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Canada D7 New Zealand D6 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Chile D5 Norway D8 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Columbia D5 Peru D5 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Czech Rep. D2 Poland D2 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Denmark D8 Portugal D8 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Finland D8 Puerto Rico D5 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- France D8 Singapore D6 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Germany D8 South Africa D4 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Greece D2 Spain D8 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Guam D3 Sweden D8 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Hong Kong D6 Switzerland D8 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Hungary D2 Taiwan D6 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Iceland D8 United Kingdom D7 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Ireland D8 United States D1 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Israel D4 Venezuela D5 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Italy D8 Virgin Islands (US) D5 - ----------------- ------- -- --------------------- -------- - ----------------- ------- -- --------------------- -------- Japan D3 - ----------------- ------- -- --------------------- -------- (C) Service Level Tables - ---------------------- -------------------- --------------------- Dedicated Access Zone Availability (%) CPE to VNOC Latency (ms) - ---------------------- -------------------- --------------------- - ---------------------- -------------------- --------------------- D1 99.9 125 - ---------------------- -------------------- --------------------- - ---------------------- -------------------- --------------------- D2 99.5 350 - ---------------------- -------------------- --------------------- - ---------------------- -------------------- --------------------- D3 99.5 400 - ---------------------- -------------------- --------------------- - ---------------------- -------------------- --------------------- D4 99.5 750 - ---------------------- -------------------- --------------------- - ---------------------- -------------------- --------------------- D5 99.5 500 - ---------------------- -------------------- --------------------- - ---------------------- -------------------- --------------------- D6 99.5 500 - ---------------------- -------------------- --------------------- - ---------------------- -------------------- --------------------- D7 99.5 150 - ---------------------- -------------------- --------------------- - ---------------------- -------------------- --------------------- D8 99.5 175 - ---------------------- -------------------- --------------------- (D) The termination rights stated in Section 4.4 of the Agreement do not apply to this Service. 7. VPN Branch Office Service. This Section 7 is applicable in lieu of Sections 1, 3 and 4 hereof where Customer orders VPN Branch Office Service ("VBOS") and its associated services. The balance of this Service Schedule also applies to VBOS Services. Sections 1, 3 and 4 hereof shall continue to apply to the underlying VPNA Service. VBOS is an add-on service to the VPNA Service, and is only available to Customers also purchasing VPNA Service. VBOS is designed to provide Customers with secure, global VPN connections between corporate headquarters or regional offices and branch offices through dedicated site-to-site VPN connectivity implemented in a "hub-to-spoke" topology. Generally, the Customer's headquarters would serve as the hub with each branch office serving as a spoke. At both hub and spoke locations, the LAN would be connected to a LAN interface on a CPE. The CPE would be connected to the Customer's Internet Access Router, which is connected via access circuit (dedicated point-to-point leased line or Frame Relay) to an ISP's point of presence ("POP"). Certain minimum system requirements and CPEs are required. VBOS includes 24 x 7 monitoring by the VNOC. Management of the CPEs is accomplished via secure management tunnels generated by a VPN device located at the VNOC. These secure management tunnels are configured to keep customer traffic and Level 3 management traffic separate. Level 3 retains management and operational control of the equipment (including equipment passwords). The VBOS service model deviates from the VPNA service model as follows: a) VBOS does not support the "Remote Access" service model; b) VBOS is a hub and spoke topology wherein the VBOS sites strictly tunnel all traffic to a single VPNA hub; c) Meshed and partial meshed topologies are not supported; and d) VBOS tunnels use IPsec with 3DES encryption and shared secret authentication. 8. International Service. (A) VPNA Service at locations outside the United States is subject to availability based on United States Department of Commerce and other regulations, Level 3's export licensing, and field service availability. Customers receiving the VPNA Service at locations outside the United States must obtain any and all encryption technology importation and use licenses appropriate for the applicable country. (B) Subject to the other provisions of this Service Schedule, Level 3 will ship the CPE directly to the Customer's International location(s); Customer shall pay all applicable taxes associated with delivery of the CPE. (C) Installation of CPE outside the United States is performed on-site by Level 3's field service personnel or contract field service vendors. (D) International VPNA customers receive on-site, next business day maintenance support during local, normal business hours (as determined by Level 3) at no extra charge for installations located within 200 km of a Level 3 service center. For an extra fee, the Customer may purchase a 4-hour on-site service package, which will be provided 7 days a week, 24 hours a day, available for sites within 50 km of a qualified Level 3 service center. The 4-hour on-site service package requires the Customer purchase a cold-spare CPE with the Service. SERVICE SCHEDULE (3)VOICE(R) TERMINATION SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)Voice(R) Termination Service . 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Country Code 1" means anywhere within the North American dialing plan (including, without limitation, the United States, Canada and Puerto Rico). (B) "Hold Time" means situations in which Customer tests the (3)Voice(R) Termination Service for a time prior to acknowledging repair. (C) "International" means anywhere outside of the continental United States, including Alaska and Hawaii. (D)"No Access" shall mean the time when the (3)Voice(R) Termination Service or associated equipment listed on the trouble ticket is not accessible by Level 3 for testing/repair. (E) "U.S. Domestic" means the continental United States. 3. Service Description. (3)Voice(R) Termination Service provides Customer with a combined transport and termination rate for the purpose of delivering Customer voice traffic from the Customer Premises to the PSTN (Public Switched Telephone Network). (3)Voice(R) Termination Service allows Customer to bring voice traffic to Level 3, selecting from a wide range of connectivity options, in a Level 3 supported format (North American SS7). Traffic delivered by Customer in a format not supported by Level 3 will be blocked and will not be delivered by Level 3. Level 3 does not originate any traffic pursuant to (3)Voice(R) Termination Services and will not accept calls seeking operator services or directory assistance. Other examples of types of calls that are origination in nature, and thus likewise not supported on the Level 3 network, include: 976, 911, 900, 800, and 700 calls. 4. Billing and Rates. (A)Customer will be billed at Level 3's then current (3)Voice(R) Termination usage rates. Level 3 reserves the right to change the rates (i) for Service terminating at an International location upon five (5) business days' prior written notice to Customer and (ii) for all other Service, upon five (5) business days' prior written notice to Customer. (B)The current billing increments for (3)Voice(R) Termination Service are set forth in the following table: - ------------------------------- ---------------- ----------------- Terminating Destination Initial Additional Billing Billing Increment Increments (seconds) (seconds) - ------------------------------- ---------------- ----------------- - ------------------------------- ---------------- ----------------- U.S. Domestic, Alaska and 6 6 Hawaii - ------------------------------- ---------------- ----------------- - ------------------------------- ---------------- ----------------- International (excluding 30 6 Alaska, Hawaii and Mexico) - ------------------------------- ---------------- ----------------- - ------------------------------- ---------------- ----------------- Mexico 60 60 - ------------------------------- ---------------- ----------------- Any partial billing increment shall be rounded-up to the next interval. (B)For Customer voice traffic in which Level 3 is unable to reasonably determine the jurisdiction of such traffic (using ANI, CPN or any other information that Level 3 may deem sufficient to determine such traffic's proper jurisdiction), Level 3 will bill Customer for such traffic at Level 3's interstate rates in proportion to the percentage of interstate use set forth in the Customer Order ("PIU"). Customer hereby certifies that the PIU submitted to Level 3 is true and correct to the best of Customer's knowledge and has been determined in accordance with all applicable laws and regulations. Customer may modify the PIU from time to time upon thirty (30) days' prior written notice to Level 3 and Customer shall review the PIU as frequently as reasonable necessary to ensure its continuing accuracy. In the event Customer fails to submit a PIU to Level 3, Level 3 shall utilize a PIU of 0%, and may therefore treat Customer's traffic as 100% intrastate traffic. Upon Level 3's written request, Customer agrees to provide Level 3 with all reasonable information necessary to verify the accuracy of the PIU as compared to voice traffic delivered by Customer to Level 3. If Level 3 determines that the PIU is inaccurate, Level 3 reserves the right to bill Customer at the appropriate Level 3 rates based upon Level 3's determination of such traffic as interstate or intrastate. Customer agrees to indemnify, defend and hold Level 3 harmless for (i) any charges assessed against Level 3 by a third party (including , but not limited to, access charges for intrastate traffic) or (ii) other claims by third parties resulting from or arising out of Level 3's use of an inaccurate PIU. (C)The (3)Voice(R) Termination Service usage rates are net of any applicable origination charges by third party payphone providers. Customer will be responsible for (i) all such origination charges, and (ii) tracking any traffic associated with such origination charges in accordance with applicable law or regulation. (D) For Level 3 (3)Voice(R) Termination Service that terminates on the PSTN (Public Switched Telephone Network) only, Customer will be provided, in addition to its invoice, a summary report describing the total amount due from Customer to Level 3 and the total cost of Customer's recurring fees, non-recurring fees and total usage charges. Usage detail will be provided via FTP format on a daily basis. Customer will also be provided monthly telemanagement reports as follows: a Terminating LATA Summary Report; a Terminating LEC Report; and a Terminating County Summary Report. 5. Monthly Performance Meetings. On mutually agreeable dates and times, each of Level 3 and Customer agree to participate in monthly conference calls or physical meetings to review any performance issues relating to Customer's usage of (3)Voice(R) Termination Service. 6 Single Number/Single End User Complaints. In the event that Customer experiences a single number complaint or a single end user complaint and such complaint is referred to Level 3, Level 3 will perform reasonable efforts to isolate the given trouble. Level 3 by policy will not perform any alternate routing of egress trunks based upon on a single number or single end user complaint. However, Level 3 will attempt to correlate such a trouble across multiple customers in order to perform any necessary corrective actions. If Level 3 determines that a trouble ticket is related to a single number or single end user, Level 3 will change the status of the trouble ticket to "Service Restore" and pursue closure of the trouble ticket. 7. Responsibility to Control and Manage Traffic. (A) In addition to any other terms and conditions of this Service Schedule and the Agreement, Customer shall bear the following responsibilities in connection with Level 3's provision to Customer of (3)Voice(R) Termination Service: (i) Customer shall manage the integrity of the traffic egressing Customer's network; (ii) Customer shall screen and block calls destined to (i) invalid single numbers, (ii) unassigned NPA/NXX or (iii) numbers with invalid formats; and (iii) Customer shall manage and correct, as necessary, any fraudulent calling patterns or calling patterns perceived as fraudulent that may harm Level 3's network. (B) In the event that Customer fails to comply with the requirements described in (A) above, (1) Level 3 shall have the right (but not the obligation) to take protective action against Customer in order to protect Level 3's egress network which protective action may include, without limitation, the temporary blocking of Customer's traffic until the applicable problem is resolved (in Level 3's reasonable discretion) and (2) Level 3 shall not be obligated to meet any of the Service Levels set forth in Section 8 below. 8. Service Levels. (A) Availability Service Level. The Availability Service Level objective for (3)Voice(R) Termination Service is 99.00%. The (3)Voice(R) Termination Service is considered unavailable if it is unable to send traffic for reasons other than an Excused Outage. An unavailability event shall be measured beginning from the time Customer initiates the opening of a trouble ticket by Level 3 and continuing until the time such trouble ticket is cleared and the affected (3)Voice(R) Termination Service is restored by Level 3. The percentage availability will be calculated and measured for the affected (3)Voice(R) Termination Service as follows: P = (MM - OM) x 100 MM Where "MM" equals total minutes in the particular month (60 x 24 x number of days in the particular month); "OM" equals total minutes of unavailability in the particular month for the affected (3)Voice(R) Termination Service, and "P" is the resulting percentage Availability. (B) Post Dial Delay Service Level. The Post Dial Delay Service Level objective for (3)Voice(R) Termination Service is no more than three (3) seconds per call for U.S. Domestic traffic. Post Dial Delay is the average time from when the last digit is dialed to the moment the connection occurs at the receiving location in a particular month. The parties acknowledge that Post Dial Delay for International Direct Distance Dialing will vary depending upon call distribution and events in the far-end PSTN. (C) Answer Seizure Ratio Service Level. The Answer Seizure Service Level objective for (3)Voice(R) Termination Service for each destination is greater than 65%. Answer Seizure Ratio is measured for outbound terminal traffic for U.S. Domestic termination. Answer Seizure Ratio is defined as total answered calls (an answered call is a call successfully switched and terminated to its destination) in a particular month divided by the total calls seized in a particular month multiplied by 100. (D) Mean Time To Repair Service Level. The Mean Time to Repair Service Level objective for (3)Voice(R) Termination Service is less than or equal to 3 hours. Mean Time to Repair is the average time to restore (3)Voice(R) Termination Service in a particular month, and is measured beginning from the time Customer initiates the opening of a trouble ticket by Level 3 and continuing until the time such trouble ticket is cleared and the affected (3)Voice(R) Termination Service is restored by Level 3. No Access and Hold Times shall not be considered in the Mean Time to Repair calculation. (E) Remedy. Customer's sole and exclusive remedy for Level 3's failure to meet any Service Level set forth in this Section 8 shall be for Customer to discontinue use of the affected (3)Voice(R) Termination Service without termination liability. SERVICE SCHEDULE (3)VOIPSM LOCAL INBOUND SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)VoIPSM Local Inbound Service. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "(3)VoIPSM Local Inbound Enhanced Usage" means Customer's monthly aggregate usage of (3)VoIPSM Local Inbound Service. (B) "(3)VoIP Revenue Commitment" means a commitment (as specified in Exhibit A hereto) made by Customer obligating Customer to order and pay for a minimum volume of (3)VoIP Services each month during the (3)VoIP Pricing Term. (C) "(3)VoIP Pricing Term" means the duration of time (measured, unless otherwise agreed by the parties, starting on the Effective Date, if this Service Schedule is executed concurrently with the Agreement, or the Service Schedule Effective Date (as applicable) for which (x) Customer agrees to be bound by the (3)VoIP Revenue Commitment as specified in Exhibit A hereto and (y) the pricing and other commitments set forth in Exhibit A shall remain in effect for Customer Orders of (3)VoIPSM Local Inbound Service. The (3)VoIP Pricing Term shall continue on a month-to-month basis after expiration of the stated (3)VoIP Pricing Term, until terminated by either Level 3 or Customer upon thirty (30) days' prior written notice to the other. (D) "Customer VoIP Application" means the VoIP application developed and/or provided by Customer and used by Customer in connection with (3)VoIPSM Local Inbound Service. (E) "IP" means Internet Protocol. (F) "LCA" means the specific Local Calling Area within a geographic point (as determined by the particular Incumbent Local Exchange Carrier (ILEC)) and associated with one or more specific NPA/NXX codes) being used for billing and measuring (3)VoIPSM Local Inbound Service. (G) "Market" means any geographic area (as defined by Level 3) in which Level 3 provides (3)VoIPSM Local Inbound Service to Customer. The current list of available Markets and LCA's may be obtained from the Level 3 web site at www.level3.com, which list may be supplemented or modified by Level 3 (in its sole discretion) from time to time. (H) "Network Ready" means that (i) Customer has successfully completed Level 3's (3)Interop program (as described in Section 4 hereof) for the applicable Customer VoIP Application; (ii) Level 3 can support the call flows anticipated with such Customer VoIP Application (as reasonably determined by Level 3); and (iii) Level 3 determines (in its reasonable judgment) that the Customer VoIP Application will not put the Level 3 network (or any other Level 3 customer) at risk. (I) "PSTN" means the public switched telephone network. (J)"TN or DID" means a telephone number or Direct Inward Dialed number assigned by Level 3 to Customer or that Customer ports to Level 3 for the provision of (3)VoIPSM Local Inbound Service. (K)"SoftSwitch" means a server that controls calls across circuit-switched and packet-switched networks. (L) "VoIP" means voice over IP. 3. Service Description. (3)VoIPSM Local Inbound Service is an IP termination service for PSTN originated calls available in selected Level 3 Markets. Level 3 will provide Customer with local connectivity to the PSTN in the selected Markets, and will deliver voice traffic to Customer through a net protocol conversion to an IP format via Session Initiation Protocol ("SIP") signaling using G711 or G-729A voice encoding. (3)VoIPSM Local Inbound Service is intended for use as an inbound-only service, and does not support any outbound calling capability, including but not limited to calls to 9-1-1. Customer is strictly prohibited from using (or reconfiguring to support such use) either the Service or any TN's obtained through purchase of the Service in connection with any outbound calls placed by Customer or Customer's end users. (A) Telephone Numbers. Level 3 shall only provide Customer with the dedicated TN's or ports ordered by Customer and accepted by Level 3. Customer shall make reasonable efforts to provide Level 3, on an ongoing quarterly basis, with a non-binding demand forecast setting forth Customer's estimated forecasted usage (on a total minutes of use by Market or LCA basis) and telephone number quantities of (3)VoIPSM Local Inbound Service to facilitate Level 3's planning efforts in support of Customer. Customer shall deliver such quarterly forecasts to its Level 3 account team (or to such other address provided by Level 3 to Customer from time to time). Level 3 will exercise commercially reasonable efforts to gain access to telephone number quantities to support the Service as specified for each Level 3 Market by the Customer, but Level 3 does not guarantee telephone number availability to support the Service for each Market that (3)VoIPSM Local Inbound Service is available. Level 3 may, upon ten (10) days' prior written notice, reclaim any TN's provided by Level 3 to Customer hereunder that have not been used by Customer in connection with any (3)VoIPSM Local Inbound Enhanced Usage within the immediately preceding one hundred and twenty (120) day period. No refunds shall be made to Customer regarding reclaimed TN's. (B) Customer Premise Equipment ("CPE"). Customer is required to purchase, at its own expense, all hardware and software necessary for the particular Customer VoIP Application to interoperate with (3)VoIPSM Local Inbound Services and the Level 3 network, which hardware and software may include, without limitation, a SIP Proxy Server(s) or a SoftSwitch. Customer shall be responsible for obtaining and providing to Level 3, prior to installation of the particular (3)VoIPSM Local Inbound Service, the public IP address(es) for the SIP Proxy Server, SoftSwitch, and/or other hardware/software solution. (C) Dedicated Internet Connection. Customer is required to interconnect the Customer VoIP Application with (3)VoIPSM Local Inbound Services via (x) the public Internet through interconnection with a Tier 1 (as reasonably designated by Level 3) peering partner of Level 3 or (y) a Fixed Rate (3)CrossRoads(R) Service ordered separately from Level 3; provided, however, that, Customer shall have the right to terminate (without termination liability) any Fixed Rate (3)CrossRoads(R) Service that is solely used and dedicated to (3)VoIPSM Local Inbound Services or (3)VoIP TOLL FREESM Services upon the termination or expiration of the applicable (3)VoIP Pricing Term. 4. Service Assurance Program - (3)Interop. (A) Level 3's Service Assurance Program for (3)VoIPSM Local Inbound Service is called (3)Interop. The (3)Interop process requires extensive interoperability testing with the Customer VoIP Application(s) to ensure Customer's call flows can be supported by the Level 3 network. Level 3 and Customer shall mutually agree in writing on entrance and exit requirements for (3)Interop and Customer will be required to successfully complete (3)Interop for each Customer VoIP Application prior to Level 3 deeming any Customer VoIP Application Network Ready. (B) Customer is required to obtain re-certification via (3)Interop prior to implementing a software or call flow upgrade, enhancement or modification to any Customer VoIP Application on the Level 3 network. Level 3 reserves the right to cancel (without liability) any Customer Order(s) for (3)VoIPSM Local Inbound Service in instances where Customer has implemented a software or call flow upgrade, enhancement or modification without such successful re-certification under (3)Interop. During any re-certification process, Customer shall continue to use (3)VoIPSM Local Inbound Service under the previously certified Customer VoIP Application. (C) No (3)VoIPSM Local Inbound Service shall be ordered by Customer or provided by Level 3 under this Service Schedule until Customer's applicable VoIP Application has been deemed Network Ready. 5. Regulatory Matters. Customer recognizes that the (3)VoIPSM Local Inbound Service provides local inbound-only connectivity from the PSTN together with enhanced functionality, including but not limited to conversion and delivery to Customer in an IP-based format. For regulatory purposes Level 3 treats all (3)VoIPSM Local Inbound Service as local in nature although there is no guarantee that such interpretation will be accepted by the relevant regulatory authority. Any change in applicable law, regulation, decision, rule or order that finds that the connectivity associated with the (3)VoIPSM Local Inbound Service is not eligible for regulatory treatment as a local service shall be subject to the change process described in Section 3.5 of the Agreement. 6. Charges. (A) Level 3 will invoice Customer, and Customer agrees to pay Level 3, the following charges for all (3)VoIPSM Local Inbound Service provided by Level 3 to Customer: (a) a non-recurring charge per Market; (b) a monthly recurring charge per TN; and (c) monthly (3)VoIPSM Local Inbound Enhanced Usage charges; which charges shall be as set forth in the Customer Order, Exhibit A attached hereto, or as otherwise agreed between the parties in writing. In addition to the foregoing, Customer may be obligated to pay additional charges as more particularly described in Exhibit A hereto. (B) (3)VoIPSM Local Inbound Enhanced Usage Charges. (1) (3)VoIPSM Local Inbound Enhanced Usage will be measured based on Customer's total usage (in minutes) of all (3)VoIPSM Local Inbound Service in a particular month. (2) The current billing increments for (3)VoIPSM Local Inbound Service are (i) a 6 second initial billing increment and (ii) 6 seconds for any additional billing increments. Any partial billing increment shall be rounded-up to the next interval. (3) The (3)VoIPSM Local Inbound Service usage rates are net of any applicable origination charges by third party payphone providers. Level 3 will pass these surcharges through to Customer and Customer shall be responsible for payment of all such surcharges. 7. Porting. In the event Customer elects to port any TN (a "Porting Number") currently supported by (3)VoIPSM Local Inbound Service ordered by Customer under the terms of this Service Schedule, Customer agrees that until such time as the Porting Number is fully ported and no further traffic for such Porting Number traverses the Level 3 network, Customer shall remain bound by the terms of this Service Schedule and the Agreement (including, without limitation, Customer's obligation to pay for the applicable (3)VoIPSM Local Inbound Service) for any and all traffic which remains on the Porting Number. Porting by Customer of TNs pursuant to this Section 7 shall in no event relieve Customer of its obligations under the (3)VoIP Revenue Commitment (if any). 8. Service Levels. (A) Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)VoIPSM Local Inbound Service on or before the Customer Commit Date specified for the particular (3)VoIPSM Local Inbound Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer or Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)VoIPSM Local Inbound Service for reasons other than an Excused Outage, Customer will be entitled to a service credit equal to the charges for one (1) day of the monthly recurring charge per TN ("TN MRC") for the affected (3)VoIPSM Local Inbound Service for each day of delay, up to a monthly maximum credit of ten (10) days. (B) Service Availability Service Level. The Availability Service Level for (3)VoIPSM Local Inbound Service is 99.90%. The (3)VoIPSM Local Inbound is considered unavailable if such Service is unable to send and receive traffic for reasons other than an Excused Outage. In the event that the (3)VoIPSM Local Inbound Service becomes unavailable for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the TN MRC associated with the affected (3)VoIPSM Local Inbound Service based on the cumulative unavailability of the affected (3)VoIPSM Local Inbound Service in a given calendar month as set forth in the following table: -------------------------------- ----------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) -------------------------------- ----------------------- -------------------------------- ----------------------- 0:00:01 - 00:10:00 No Credit -------------------------------- ----------------------- -------------------------------- ----------------------- 00:10:01- 00:45:00 1% -------------------------------- ----------------------- -------------------------------- ----------------------- 00:45:01- 04:00:00 5% -------------------------------- ----------------------- -------------------------------- ----------------------- 04:00:01 - 08:00:00 10% -------------------------------- ----------------------- -------------------------------- ----------------------- 08:00:01 - 12:00:00 15% -------------------------------- ----------------------- -------------------------------- ----------------------- 12:00:01 - 16:00:00 20% -------------------------------- ----------------------- -------------------------------- ----------------------- 16:00:01 - 24:00:00 30% -------------------------------- ----------------------- -------------------------------- ----------------------- 24:00:01 or greater 45% -------------------------------- ----------------------- Customer will not be entitled to a Service Level credit associated with any other Service Level under this Section 8 to the extent any such failure arises out of or is related to the unavailability event giving rise to credits under this Availability Service Level. (C) Call Success Rate. The Call Success Rate ("CSR") for (3)VoIPSM Local Inbound Service is 99.90% . This CSR Service Level shall only be applicable in a month during which Customer's aggregate (3)VoIPSM Local Inbound Enhanced Usage for such month is at least 50,000 minutes. In the event Level 3 does not meet this CSR Service Level for a particular (3)VoIPSM Local Inbound Service for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the TN MRC associated with the affected (3)VoIPSM Local Inbound Service based on the CSR in excess of this Service Level for the affected (3)VoIPSM Local Inbound Service in a given calendar month as set forth in the following table: ---------------------------- ------------------------ CSR in Excess of Service Service Level Credit Level ---------------------------- ------------------------ ---------------------------- ------------------------ 1.00 - 5.99% 0% ---------------------------- ------------------------ ---------------------------- ------------------------ 6.00 - 9.99% 10% ---------------------------- ------------------------ ---------------------------- ------------------------ 10.00 -25.99% 20% ---------------------------- ------------------------ ---------------------------- ------------------------ 26.00 - 50.00% 30% ---------------------------- ------------------------ ---------------------------- ------------------------ 51.00 - 75.99% 40% ---------------------------- ------------------------ ---------------------------- ------------------------ 76.00 - 100% 50% ---------------------------- ------------------------ (D)Limitations. Notwithstanding the terms of this Section 8, Customer will not be entitled to a service credit associated with any network failure associated with an Off-Net Local Loop. EXHIBIT A TO SERVICE SCHEDULE (3)VoIPSM LOCAL INBOUND SERVICE Applicable Charges for (3)VoIPSM Local Inbound Service The initial (3)VoIP Pricing Term is twelve (12) months. In the event that any (3)VoIPSM Local Inbound Service is still effective following termination of the (3)VoIP Pricing Term hereunder, Level 3's then current month-to-month pricing for (3)VoIPSM Local Inbound Service shall apply. Notwithstanding any pricing set forth in any Customer Order for (3)VoIPSM Local Inbound Service to the contrary, Level 3 will invoice Customer, and Customer agrees to pay Level 3, the following charges for all (3)VoIPSM Local Inbound Service provided by Level 3 to Customer during the (3)VoIP Pricing Term: (A) Non-Recurring Charges: 1. Non-Recurring Electronic Billing Fee ** Optional NRC to be paid by Customer if Customer requests electronic billing. 2. Non-Recurring Routing Change Fee ** NRC to be paid by Customer in the event that Customer makes a proxy routing change to (3)VoIPSM Local Inbound Service following Level 3's acceptance of the applicable Customer Order. 3. Non-Recurring Market Install Fee ** NRC to be paid by Customer for each Market where Customer orders (3)VoIPSM Local Inbound Service. (B) Monthly Recurring Charges: 1. TN MRC ** MRC to be paid by Customer for each TN activated for Customer. 2. Electronic Billing Fee ** Optional MRC to be paid by Customer if Customer requests electronic billing. 3. CD-ROM Billing Fee ** Optional MRC to be paid by Customer if Customer requests CD-ROM invoices. (C) (3)VoIPSM Local Inbound Enhanced Usage Charges: Customer's (3)VoIPSM Local Inbound Enhanced Usage shall be priced based upon the following Fixed Rate Pricing. 1. Fixed Rate Pricing: (3)VoIPSM Local Inbound Enhanced Usage ** (D) (3)VoIP Revenue Commitment and Shortfall Fee. During the (3)VoIP Pricing Term, Customer agrees to a (3)VoIP Revenue Commitment of $100,000.00 per month. Notwithstanding the aggregate charges otherwise due and owing from Customer, if, in any month, the sum of the Aggregate VRC Charges (as hereinafter defined) are less than the (3)VoIP Revenue Commitment, Customer will (in addition to all other applicable charges) be obligated to pay a shortfall fee equal in amount to the difference between the (3)VoIP Revenue Commitment and the Aggregate VRC Charges. Customer agrees to an initial (3)VoIP Pricing Term of twelve (12) months. For the purposes hereof, the "Aggregate VCR Charges" shall only include (i) the non-recurring charges, monthly recurring charges and usage charges described in Section 6(A) of this Service Schedule that are paid by Customer to Level 3 for the applicable month, and (ii) the monthly recurring port charges paid by Customer to Level 3 for any (3)CrossRoads(R) Service billed on a Fixed Rate basis during the applicable month. The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. SERVICE SCHEDULE (3)VOIPSM TOLL FREE SERVICE 1. Applicability. This Service Schedule is applicable only where Customer orders (3)VoIPSM Toll Free Service. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "(3)VoIPSM Toll Free Enhanced Usage" means Customer's monthly aggregate usage of (3)VoIPSM Toll Free Service. (B) "(3)VoIP Revenue Commitment" means a commitment (as specified in Exhibit A hereto) made by Customer obligating Customer to order and pay for a minimum volume of (3)VoIP Services each month during the (3)VoIP Pricing Term. (C) "(3)VoIP Pricing Term" means the duration of time (measured, unless otherwise agreed by the parties, starting on the Effective Date, if this Service Schedule is executed concurrently with the Agreement, or the Service Schedule Effective Date, as applicable) for which (x) Customer agrees to be bound by the (3)VoIP Revenue Commitment as specified in Exhibit A hereto and (y) the pricing and other commitments set forth in Exhibit A shall remain in effect for Customer Orders of (3)VoIPSM Toll Free Service. The (3)VoIP Pricing Term shall continue on a month-to-month basis after expiration of the stated (3)VoIP Pricing Term, until terminated by either Level 3 or Customer upon thirty (30) days' prior written notice to the other. (D) "Customer VoIP Application" means the VoIP application developed and/or provided by Customer and used by Customer in connection with (3)VoIPSM Toll Free Service. (E) "IP" means Internet Protocol. (F) "LATA" means Local Area Transport Area. (G) "Market" means any geographic area (as defined by Level 3) in which Level 3 provides (3)VoIPSM Toll Free Service to Customer. Currently available Markets for (3)VoIPSM Toll Free Service include the following NADP geographic areas: Continental United States, Hawaii, Alaska, Canada, Guam, Commonwealth of the Northern Mariana Islands, Puerto Rico and United States Virgin Islands. Level 3 reserves the right to supplement or modify such available Markets by publishing a new or revised list of available Markets on the Level 3 web site at www.Level3.com. (H) "Network Ready" means that (i) Customer has successfully completed Level 3's (3)Interop program (as described in Section 4 hereof) for the applicable Customer VoIP Application; (ii) Level 3 can support the call flows anticipated with such Customer VoIP Application (as reasonably determined by Level 3); and (iii) Level 3 determines (in its reasonable judgment) that the Customer VoIP Application will not put the Level 3 network (or any other Level 3 customer) at risk. (I) "NADP" means the North American Dialing (or Numbering) Plan. (J) "PSTN" means the public switched telephone network. (K) "Responsible Organization" means the party hereto that is responsible for managing and administering the account records in the Toll-free Service Management System Data Base. Unless otherwise noted in this Service Schedule or Exhibit A hereto, Level 3 is hereby designated as the applicable Responsible Organization. (L)"Toll Free Number" or "TFN" means a telephone number assigned by Level 3 to Customer or that Customer ports to Level 3 for the provision of (3)VoIPSM Toll Free Service and that supports NADP. (M)"SoftSwitch" means a server that controls calls across circuit-switched and packet-switched networks (N) "VoIP" means voice over IP. 3. Service Description. (3)VoIPSM Toll Free Service is an IP termination service for PSTN originated calls available in selected Level 3 Markets supported by NADP. Level 3 will provide Customer with connectivity to such Markets, and will deliver voice traffic to Customer through a net protocol conversion to an IP format via Session Initiation Protocol ("SIP") signaling using G711 or G-729A voice encoding. (3)VoIPSM Toll Free Service is intended for use as an inbound-only service. Customer is strictly prohibited from using (or reconfiguring to support such use) either the Service or any Toll Free Number obtained through purchase of the Service in connection with any outbound calls placed by Customer or Customer's end users. (B) Toll Free Numbers. (3)VoIPSM Toll Free Service supports only Toll Free Numbers where Level 3 or Customer is the Responsible Organization. Customer shall make reasonable efforts to provide Level 3, on an ongoing quarterly basis, with a non-binding demand forecast setting forth Customer's estimated forecasted usage (on a total minutes of use basis) and Toll Free Number quantities of (3)VoIPSM Toll Free Service to facilitate Level 3's planning efforts in support of Customer. Customer shall deliver such quarterly forecasts to its Level 3 account team (or to such other address provided by Level 3 to Customer from time to time). Level 3 will exercise commercially reasonable efforts to gain access to Toll Free Number quantities to support the Service as specified for each Level 3 Market by the Customer, but Level 3 does not guarantee Toll Free Number availability to support the Service for each Market that (3)VoIPSM Toll Free Service is available. (B) Customer Premise Equipment ("CPE"). Customer is required to purchase, at its own expense, all hardware and software necessary for the particular Customer VoIP Application to interoperate with (3)VoIPSM Toll Free Services and the Level 3 network, which hardware and software may include, without limitation, a SIP Proxy Server(s) or a SoftSwitch. Customer shall be responsible for obtaining and providing to Level 3, prior to installation of the particular (3)VoIPSM Toll Free Service, the public IP address(es) for the SIP Proxy Server, SoftSwitch, and/or other hardware/software solution. (C) Dedicated Internet Connection. Customer is required to interconnect the Customer VoIP Application with (3)VoIP SM Toll Free Service via (x) the public Internet through interconnection with a Tier 1 (as reasonably designated by Level 3) peering partner of Level 3 or (y) a Fixed Rate (3)CrossRoads(R) Service ordered separately from Level 3; provided, however, that, Customer shall have the right to terminate (without termination liability) any Fixed Rate (3)CrossRoads(R) Service that is solely used and dedicated to (3)VoIPSM Toll Free Services or (3)VoIPSM Local Inbound Services upon the termination or expiration of the applicable (3)VoIP Pricing Term. 4. Service Assurance Program - (3)Interop. (A) Level 3's Service Assurance Program for (3)VoIP SM Toll Free Service is called (3)Interop. The (3)Interop process requires extensive interoperability testing with the Customer VoIP Application(s) to ensure Customer's call flows can be supported by the Level 3 network. Level 3 and Customer shall mutually agree in writing on entrance and exit requirements for (3)Interop and Customer will be required to successfully complete (3)Interop for each Customer VoIP Application prior to Level 3 deeming any Customer VoIP Application Network Ready. (B) Customer is required to obtain re-certification via (3)Interop prior to implementing a software or call flow upgrade, enhancement or modification to any Customer VoIP Application on the Level 3 network. Level 3 reserves the right to cancel (without liability) any Customer Order(s) for (3)VoIPSM Toll Free Service in instances where Customer has implemented a software or call flow upgrade, enhancement or modification without such successful re-certification under(3)Interop. During any re-certification process, Customer shall continue to use (3)VoIPSM Toll Free Service under the previously certified Customer VoIP Application. (C) No (3)VoIP SM Toll Free Service shall be ordered by Customer or provided by Level 3 under this Service Schedule until Customer's applicable VoIP Application has been deemed Network Ready. 5. Regulatory Matters. In the event that any calls placed to Customer via (3)VoIPSM Toll Free Service contain a privacy indicator imposed by the originating telephone subscriber, Level 3 will provide call detail information to Customer, notwithstanding the privacy indication, provided that Customer agrees (by its execution of this Service Schedule or the Agreement, as applicable) as follows: (A) Customer will use the telephone number and billing information for billing and collection, routing, screening, and completion of the originating telephone subscriber's call or transaction; (B) Customer is prohibited from reusing or selling the telephone number or billing information without first notifying the originating telephone subscriber, and obtaining affirmative written consent of such subscriber for such reuse or sale; and (C) Except as permitted in (1) or (2) above, Customer is prohibited from using any information derived from ANI, Called Party Number ("CPN") or the charge number service for any purpose other than (i) performing services or transactions that are the subject of the originating telephone subscriber's call, (ii) ensuring network performance, security and the effectiveness of call delivery; (iii) compiling, using, and disclosing aggregate information, and (iv) complying with applicable law or legal process. 6. Charges. (A) Level 3 will invoice Customer, and Customer agrees to pay Level 3, the following charges for all (3)VoIPSM Toll Free Service provided by Level 3 to Customer: (a) a non-recurring charge per Toll Free Number; (b) a monthly recurring charge per Toll Free Number; and (c) monthly (3)VoIPSM Toll Free Enhanced Usage charges, which charges shall be as set forth in the Customer Order, Exhibit A attached hereto, or as otherwise agreed between the parties in writing. In addition to the foregoing, Customer may be obligated to pay additional charges as more particularly described in Exhibit A hereto. (B) (3)VoIPSM Toll Free Enhanced Usage Charges. (1) (3)VoIPSM Toll Free Enhanced Usage will be measured based on Customer's total usage (in minutes) of all (3)VoIPSM Toll Free Service in a particular month. (2) The current billing increments for (3)VoIPSM Toll Free Service are set forth in the following table: - ------------------------------- ---------------- ----------------- Terminating Destination Initial Additional Billing Billing Increment Increments (seconds) (seconds) - ------------------------------- ---------------- ----------------- - ------------------------------- ---------------- ----------------- U.S. Domestic, Alaska, Hawaii 6 6 - ------------------------------- ---------------- ----------------- - ------------------------------- ---------------- ----------------- All others 30 6 - ------------------------------- ---------------- ----------------- Any partial billing increment shall be rounded-up to the next interval. (3) The (3)VoIPSM Toll Free Service usage rates are net of any applicable origination charges by third party payphone providers. Level 3 will pass these surcharges through to Customer and Customer shall be responsible for payment of all such surcharges. (C) Rate Adjustments. In the event that Level 3's costs are increased due to rate increases of any third party provider, Level 3 shall have the right, upon thirty (30) days' prior written notice to Customer, to increase any rate or charge applicable to (3)VoIPSM Toll Free Service ordered by Customer under this Service Schedule; provided, however, that Customer may terminate the affected (3)VoIPSM Toll Free Service without termination liability by delivering written notice of termination no later than thirty (30) days after the effective date of the rate increase. 7. Porting. In the event Customer elects to port any Toll Free Number (a "Porting Number") currently supported by (3)VoIPSM Toll Free Service ordered by Customer under the terms of this Service Schedule, Customer agrees that until such time as the Porting Number is fully ported and no further traffic for such Porting Number traverses the Level 3 network, Customer shall remain bound by the terms of this Service Schedule and the Agreement (including, without limitation, Customer's obligation to pay for the applicable (3)VoIPSM Toll Free Service) for any and all traffic which remains on the Porting Number. Porting by Customer of Toll Free Numbers pursuant to this Section 7 shall in no event relieve Customer of its obligations under the (3)VoIP Revenue Commitment (if any). 8. Service Levels. (D) Installation Service Level. Level 3 will exercise commercially reasonable efforts to install any (3)VoIPSM Toll Free Service on or before the Customer Commit Date specified for the particular (3)VoIPSM Toll Free Service. This Installation Service Level shall not apply to Customer Orders that contain incorrect information supplied by Customer or Customer Orders that are altered at Customer's request after submission and acceptance by Level 3. In the event Level 3 does not meet this Installation Service Level for a particular (3)VoIPSM Toll Free Service for reasons other than an Excused Outage, Customer will be entitled to a service credit equal to the charges for one (1) day of the monthly recurring charge per Toll Free Number ("TFN MRC") for the affected (3)VoIPSM Toll Free Service for each day of delay, up to a monthly maximum credit of ten (10) days. (E) Service Availability Service Level. The Availability Service Level for (3)VoIPSM Toll Free Service is 99.90%. The (3)VoIPSM Toll Free Service is considered unavailable if such Service is unable to send and receive traffic for reasons other than an Excused Outage. In the event that the (3)VoIPSM Toll Free Service becomes unavailable for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the TFN MRC associated with the affected (3)VoIPSM Toll Free Service based on the cumulative unavailability of the affected (3)VoIPSM Toll Free Service in a given calendar month as set forth in the following table: -------------------------------- ----------------------- Cumulative Unavailability Service Level Credit (in hrs:mins:secs) -------------------------------- ----------------------- -------------------------------- ----------------------- 0:00:01 - 00:10:00 No Credit -------------------------------- ----------------------- -------------------------------- ----------------------- 00:10:01- 00:45:00 1% -------------------------------- ----------------------- -------------------------------- ----------------------- 00:45:01- 04:00:00 5% -------------------------------- ----------------------- -------------------------------- ----------------------- 04:00:01 - 08:00:00 10% -------------------------------- ----------------------- -------------------------------- ----------------------- 08:00:01 - 12:00:00 15% -------------------------------- ----------------------- -------------------------------- ----------------------- 12:00:01 - 16:00:00 20% -------------------------------- ----------------------- -------------------------------- ----------------------- 16:00:01 - 24:00:00 30% -------------------------------- ----------------------- -------------------------------- ----------------------- 24:00:01 or greater 45% -------------------------------- ----------------------- Customer will not be entitled to a Service Level credit associated with any other Service Level under this Section 8 to the extent any such failure arises out of or is related to the unavailability event giving rise to credits under this Availability Service Level. (C) Call Success Rate. The Call Success Rate ("CSR") for (3)VoIPSM Toll Free Service is 99.90%. This CSR Service Level shall only be applicable in a month during which Customer's aggregate (3)VoIPSM Toll Free Enhanced Usage for such month is at least 50,000 minutes. In the event Level 3 does not meet this CSR Service Level for a particular (3)VoIPSM Toll Free Service for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the TFN MRC associated with the affected (3)VoIPSM Toll Free Service based on the CSR in excess of this Service Level for the affected (3)VoIPSM Toll Free Service in a given calendar month as set forth in the following table: ---------------------------- ------------------------ CSR in Excess of Service Service Level Credit Level ---------------------------- ------------------------ ---------------------------- ------------------------ 1.00 - 5.99% 0% ---------------------------- ------------------------ ---------------------------- ------------------------ 6.00 - 9.99% 10% ---------------------------- ------------------------ ---------------------------- ------------------------ 10.00 -25.99% 20% ---------------------------- ------------------------ ---------------------------- ------------------------ 26.00 - 50.00% 30% ---------------------------- ------------------------ ---------------------------- ------------------------ 51.00 - 75.99% 40% ---------------------------- ------------------------ ---------------------------- ------------------------ 76.00 - 100% 50% ---------------------------- ------------------------ (D)Limitations. Notwithstanding the terms of this Section 8, Customer will not be entitled to a service credit associated with any network failure associated with an Off-Net Local Loop. EXHIBIT A TO SERVICE SCHEDULE (3)VoIPSM TOLL FREE SERVICE Applicable Charges for (3)VoIPSM Toll Free Service The initial (3)VoIP Pricing Term is twelve (12) months. In the event that any (3)VoIPSM Toll Free Service is still effective following termination of the (3)VoIP Pricing Term hereunder, Level 3's then current month-to-month pricing for (3)VoIPSM Toll Free Service shall apply. Notwithstanding any pricing set forth in any Customer Order for (3)VoIPSM Toll Free Service to the contrary, Level 3 will invoice Customer, and Customer agrees to pay Level 3, the following charges for all (3)VoIPSM Toll Free Service provided by Level 3 to Customer during the (3)VoIP Pricing Term: (A) Non-Recurring Charges: 1. Non-Recurring Electronic Billing Fee ** Optional NRC to be paid by Customer if Customer requests electronic billing. 2. Non-Recurring Routing Change Fee ** NRC to be paid by Customer in the event that Customer makes a proxy routing change to (3)VoIPSM Toll Free Service following Level 3's acceptance of the applicable Customer Order. 3. Non-Recurring Toll Free Number Install Fee ** NRC to be paid by Customer for each Toll Free Number activated for Customer. (B) Monthly Recurring Charges: 1. TFN MRC ** MRC to be paid by Customer for each Toll Free Number activated for Customer. 2. Electronic Billing Fee ** Optional MRC to be paid by Customer if Customer requests electronic billing. 3. CD-ROM Billing Fee ** Optional MRC to be paid by Customer if Customer requests CD-ROM invoices. (C) (3)VoIPSM Toll Free Enhanced Usage Charges: Customer's (3)VoIPSM Toll Free Enhanced Usage shall be priced based upon the following Fixed Rate Pricing: 1. Fixed Rate Pricing: (3)VoIPSM Toll Free Enhanced Usage ** (D) Surcharges: 1. Non-RBOC traffic ** If more than thirty percent (30%) of the toll-free minutes that Customer transmits to Level 3 in any month via (3)VoIPSM Toll Free Service originate in access areas other than those operated by the following Local Exchange Carriers: Bell South, NYNEX (Verizon North), Bell Atlantic (Verizon South), Southwestern Bell Telephone, Ameritech, Qwest Communications, Cincinnati Bell Telephone, Southern New England Telephone (SNET) and Pacific Bell (collectively the "RBOCs"), Level 3 will add a $0.02 per call charge to f all non-RBOC calls of Customer in excess of the thirty percent (30%) threshold. Notwithstanding the foregoing, the surcharge in this Section (D)1 shall not apply in the event Customer does not order (3)VoIPSM Toll Free Services under a Fixed Rate pricing model. 2. Payphone Surcharges Pass-through of any actual surcharges incurred by Level 3 (the amount of such pass-through charge as of the Effective Date or Service Schedule Effective Date, as applicable, is $0.26 per call (E) (3)VoIP Revenue Commitment and Shortfall Fee. During the (3)VoIP Pricing Term, Customer agrees to a (3)VoIP Revenue Commitment of $100,000.00 per month. Notwithstanding the aggregate charges otherwise due and owing from Customer, if, in any month, the sum of the Aggregate VRC Charges (as hereinafter defined) are less than the (3)VoIP Revenue Commitment, Customer will (in addition to all other applicable charges) be obligated to pay a shortfall fee equal in amount to the difference between the (3)VoIP Revenue Commitment and the Aggregate VRC Charges. Customer agrees to an initial (3)VoIP Pricing Term of twelve (12) months. For the The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. "purposes hereof, the "Aggregate VCR Charges" shall only include (i) the non-recurring charges, monthly recurring charges and usage charges described in Section 6(A) of this Service Schedule that are paid by Customer to Level 3 for the applicable month, and (ii) the monthly recurring port charges paid by Customer to Level 3 for any (3)CrossRoads(R) Service billed on a Fixed Rate basis during the applicable month. SERVICE SCHEDULE (3)VoIP ENHANCED LOCAL SERVICE For Services ordered under this Service Schedule, when "Level 3" is referenced in the Agreement and/or this Service Schedule it shall be deemed to be Level 3 EnhancedSM Services LLC only. 1. Applicability. This Service Schedule is applicable only where Customer orders (3)VoIP EnhancedSM Local Service. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A)"911 Services" means functionality that allows end users to contact emergency services, including, without limitation, police, fire and hospital medical services. 911 Services may include Enhanced 911 Service, which has the ability to selectively route an emergency call to the primary 911 provider so that it reaches the correct emergency service located closest to the Subscriber and (subject to Customer's obligations under Section 8) provides the Subscriber's address and DID/DOD information. Enhanced 911Service may not be immediately available in all Markets. (B) "Average Number of Subscribers" means the sum of the total number of Subscribers per day during each day of the applicable month divided by the number of days in such month (or pro-rata for any partial month). (C) "Customer VoIP Application" means the Class 5 type Softswitch or similar voice over IP (VoIP) application developed and/or provided and used by Customer in connection with (3)VoIP EnhancedSM Local Service. (D) "DID/DOD" means an access line associated with a particular telephone number that allows for inbound and outbound voice calls (sometimes referred to as a Direct Inward Dial and Direct Outward Dial number) that is assigned by Level 3 to Customer or that Customer ports to Level 3 for the provision of (3)VoIP EnhancedSM Local Service. (E) "Directory Assistance Services" means live or automated listing information. (F) "Directory Listing Service" means the listing of a Subscriber's main billing telephone number in the directory(ies) published by the ILEC in the applicable Market. (G) "ILEC" means Incumbent Local Exchange Carrier. (H) "International" means anywhere outside of the continental United States, including Alaska and Hawaii. (I) "IP" means Internet Protocol. (J) "LCA" means the specific Local Calling Area within a geographic area (as determined by the applicable ILEC) comprised of one or more Rate Centers that is used for billing purposes to determine whether a call will be treated as local or long-distance. (K) "Market" means a geographic area (as defined by Level 3) comprised of one or more Rate Centers in which Level 3 provides (3)VoIP EnhancedSM Local Service to Customer. The current list of available Markets and LCA's may be obtained from the Level 3 web site at www.level3.com, which list may be supplemented or modified by Level 3 (in its sole discretion) from time to time. (L) "Network Ready" means that (i) Customer has successfully completed interoperability testing (as described in Section 6 hereof) for the applicable Customer VoIP Application; (ii) Level 3 can support the call flows anticipated with such Customer VoIP Application (as reasonably determined by Level 3); and (iii) Level 3 determines (in its reasonable judgment) that the Customer VoIP Application will not put the Level 3 network (or any other Level 3 customer) at risk. (M) "Operator Services" means live or automated operator assistance for the placement of Subscriber calls and/or related information. (N) "Pricing Term" means the duration of time (measured, unless otherwise agreed by the parties, starting on the Effective Date, if this Service Schedule is executed concurrently with the Agreement, or the Service Schedule Effective Date, as applicable) for which the pricing set forth in Exhibit A shall remain in effect for Customer Orders of (3)VoIP EnhancedSM Local Service. Unless otherwise agreed, the Pricing Term shall continue thereafter on a month-to-month basis until terminated by either party upon thirty (30) days' prior written notice to the other. (O) "PSTN" means the public switched telephone network. (P)"Rate Center" means a specific geographic area (as determined by the applicable ILEC) within a LCA or Market that is associated with one or more specific NPA/NXX codes and is used for billing and measuring (3)VoIP EnhancedSM Local Service. (Q)"Session Initiation Protocol" or "SIP" means the signaling protocol used between VoIP networks to establish, control and terminate voice calls. (R)"SoftSwitch" means a server that controls calls across circuit-switched and packet-switched networks. (S)"Subscriber" means a single, individual end-user or telephone device that has been assigned a DID/DOD by Customer as part of the (3)VoIP EnhancedSM Local Service provided under this Service Schedule. (T) "Telecommunications Relay Services (711)" means functionality that enables hearing and/or speech impaired end users using a Text Telephone ("TT") or other similar device to communicate third parties not using TTs. (U) "U.S. Domestic" means the continental United States. (V) "VoIP" means voice over IP. 3. Service Description. (3)VoIP EnhancedSM Local Service provides inbound and outbound local and long-distance IP based voice service via a local telephone number. (3)VoIP EnhancedSM Local Service allows for IP to IP hand-off or PSTN to IP (or vice-versa) hand-off using a net protocol conversion. Customer's equipment will be alerted to each incoming call via SIP signaling using G711, G729A and/or such other voice encoding formats as mutually agreed between the parties. Customer may also originate calls from Customer's network to the PSTN by routing the call to Level 3 via IP/SIP. Level 3 will route this call to the PSTN or another IP address to terminate to the Customer VoIP Application. (3)VoIP EnhancedSM Local Service includes Class 4 type voice communication routing features as mutually agreed between the parties, some of which may not be immediately available in all Markets. All Class 5 type voice communication end user features, including, without limitation, dial tone, call waiting and call forwarding functionality, are Customer's responsibility. Unless otherwise agreed between the parties, (3)VoIP EnhancedSM Local Service includes 911 Services, Telecommunications Relay Services (711), Operator Services, Directory Assistance Services and Directory Listing Services, which will be provided either by Level 3 or by a third party provider. The foregoing services may not be immediately available in all Markets. (3)VoIP EnhancedSM Local Service does not support and Level 3 will not accept the following call types: 976, 900, 1010xxx and such other call types as mutually agreed between the parties. 4. Customer Order Process. (A) Market Orders. To activate (3)VoIP EnhancedSM Local Service in a Market, Customer will submit a Customer Order for (3)VoIP EnhancedSM Local Service ("Market Order") to Level 3 in accordance with the process set forth in Article 2 of the Agreement. Customer will include with such Customer Order a non-binding DID/DOD forecast as required under Section 4(C) below. (B) Subscriber Orders. Following activation of (3)VoIP EnhancedSM Local Service in any Market, Customer may submit Customer Order(s) to activate Subscribers for use of (3)VoIP EnhancedSM Local Service within such Market ("Subscriber Order"). Subscriber Orders may be submitted by Customer through an online order entry system ("OE Portal") made available by Level 3. The OE Portal will allow Customer to (i) submit Subscriber Orders; (ii) maintain, update and validate Subscriber information; (iii) submit Subscriber related change orders; (iv) disconnect Subscribers; and (v) perform such other functionality as Level 3 makes available from time to time. Customer's use of the OE Portal shall be in accordance with the terms and conditions of the Service Schedule for Online Customer Service Center previously executed between the parties or, if such document has not been previously executed between the parties, then in accordance with Level 3's then standard form Service Schedule for Online Customer Service Center. Following Customer's submission of a Subscriber Order and subject to DID/DOD availability or completion of any DID/DOD porting pursuant to Section 9(A) (as applicable), Level 3 will provide Customer with an electronic confirmation that the Subscriber has been activated together with the assigned DID/DOD. This electronic confirmation shall be deemed to be both the Customer Welcome Letter and the Connection Notice for purposes of Articles 2 and 3 of the Agreement. (C) Forecasts. Contemporaneous with submission of any Market Order and on an ongoing calendar quarter basis thereafter, Customer shall make reasonable efforts to provide Level 3 with a non-binding demand forecast setting forth Customer's estimated forecasted usage and DID/DOD quantities for (3)VoIP EnhancedSM Local Service by Market or LCA to facilitate Level 3's planning efforts in support of Customer. Customer shall deliver such quarterly forecasts to the Level 3 account team assigned to Customer (or to such other address provided by Level 3 to Customer from time to time). Level 3 will exercise commercially reasonable efforts to gain access to DID/DOD quantities to support Customer's forecast, but Level 3 does not guarantee DID/DOD availability for each Market that (3)VoIP EnhancedSM Local Service is available. Level 3 may, upon ten (10) days' prior written notice, reclaim any DID/DODs provided by Level 3 to Customer hereunder that have not been used by Customer in connection with any (3)VoIP EnhancedSM Local Service within the immediately preceding one hundred twenty (120) day period. No refunds shall be made to Customer regarding reclaimed DID/DODs. 5. Charges. Customer may select the local and long-distance billing plan(s) applicable to (3)VoIP EnhancedSM Local Service in each Market. For local calling, the billing plans include the Local Unlimited Plan and the Local Usage Plan. For long-distance calling, the billing plans include the Local and Domestic Long-Distance Unlimited Plan and the Long-Distance Usage Plan. The billing plan selected by Customer shall be set forth in the Customer Order for the particular Market and shall apply to all Subscribers in such Market. All calls within a Subscriber's LCA shall be treated as local calls and billed in accordance with the applicable local billing plan. All calls outside of a Subscriber's LCA shall be treated as long-distance calls and billed in accordance with the applicable long-distance billing plan. All non-recurring and monthly recurring charges associated with Subscribers and/or DID/DODs shall apply regardless of whether the Subscriber is using a Level 3 provided DID/DOD or the Subscriber is using an existing DID/DOD that was ported to Level 3 pursuant to Section 9(A) below. (A) Local Unlimited Plan. The charges for the Local Unlimited Plan shall consist of the following components: (i) a non-recurring installation charge per Subscriber; (ii) a monthly recurring DID/DOD charge; and (iii) a monthly recurring Subscriber charge applicable to the particular Market. (B)Local Usage Plan. The charges for the Local Usage Plan shall consist of the following components: (i) a non-recurring installation charge per Subscriber; (ii) a monthly recurring DID/DOD charge; and (iii) a per minute usage charge (billed in six (6) second increments) associated with the particular Market. (C) Local and Domestic Long-Distance Unlimited Plan. The charges for the Local and Domestic Long-Distance Unlimited Plan shall consist of the following components: (i) a non-recurring installation charge per Subscriber; (ii) a monthly recurring DID/DOD charge; and (iii) a monthly recurring Subscriber charge applicable to the particular Market. This plan only applies to U.S. Domestic long-distance. Any long-distance calls to International destinations shall be billed in accordance with the Long-Distance Usage Plan as described in Section 5(D) below. This plan only applies to residential, non-business use of (3)VoIP EnhancedSM Local Service. In the event any Subscriber is using (3)VoIP EnhancedSM Local Service for business use (as reasonably determined by Level 3), Level 3 may elect to charge Customer for such Subscriber's long-distance usage of (3)VoIP EnhancedSM Local Service pursuant to the Long-Distance Usage Plan. The monthly recurring Subscriber charge assumes that Customer's average Domestic long-distance usage of (3)VoIP EnhancedSM Local Service across all Subscribers under this plan in any month will not exceed six hundred (600) minutes per Subscriber ("Maximum Average Usage"), which average Domestic long-distance usage is calculated as Customer's aggregate minutes of Domestic long-distance usage of (3)VoIP EnhancedSM Local Service during any calendar month divided by the Average Number of Subscribers under this plan for such month. In the event Customer's average Domestic long-distance usage in any month exceeds the Maximum Average Usage, then, in addition to all other amounts, Customer shall be subject to an additional per minute usage charge for every minute (or portion thereof) by which Customer's actual average Domestic long-distance usage exceeded the Maximum Average Usage per phone number for that month. (D)Long-Distance Usage Plan. The charges for the Long-Distance Usage Plan shall consist of the following component: a per minute usage charge. All long-distance calls to International destinations shall be billed in accordance with this plan (even if Customer has selected the Local and Domestic Long-Distance Unlimited Plan). Level 3 reserves the right to change the rates for this plan upon five (5) business days' prior written notice to Customer. The current billing increments under this plan are set forth in the following table: - ------------------------------- ---------------- ----------------- Called To Destination Initial Additional Billing Billing Increment Increments (seconds) (seconds) - ------------------------------- ---------------- ----------------- - ------------------------------- ---------------- ----------------- U.S. Domestic, Alaska and 6 6 Hawaii - ------------------------------- ---------------- ----------------- - ------------------------------- ---------------- ----------------- International (excluding 30 6 Alaska, Hawaii and Mexico) - ------------------------------- ---------------- ----------------- - ------------------------------- ---------------- ----------------- Mexico 60 60 - ------------------------------- ---------------- ----------------- (F) Rates. The rates associated with the billing plans described in this Section 5 and such other charges as may be applicable are set forth in Exhibit A, attached hereto and incorporated herein. 6. Interoperability Testing. (A) Level 3 and Customer shall jointly conduct interoperability testing of the (3)VoIP EnhancedSM Local Service with the Customer VoIP Application(s) to ensure Customer's call flows can be supported by the Level 3 network. Level 3 and Customer shall mutually agree in writing on entrance and exit requirements for such interoperability testing, and Customer will be required to successfully complete interoperability testing for each Customer VoIP Application prior to Level 3's certification of any such Customer VoIP Application as Network Ready. (B) Customer is required to obtain re-certification through additional interoperability testing prior to implementing a software or call flow upgrade, enhancement or modification to any Customer VoIP Application on the Level 3 network that was previously certified as Network Ready. Level 3 reserves the right to cancel (without liability) any Customer Order(s) for (3)VoIP EnhancedSM Local Service in instances where Customer has implemented a software or call flow upgrade, enhancement or modification without successfully completing additional interoperability testing. During any re-certification process, Customer shall continue to use (3)VoIP EnhancedSM Local Service under the previously certified Customer VoIP Application. 7. Customer Responsibilities. (A) In addition to all other Customer responsibilities as set forth in the Agreement and this Service Schedule, Customer shall be responsible for providing at its sole cost (through itself, third party providers or its end users) the following: (1) Customer VoIP Application; (2) SIP Proxy Server(s); (3) all equipment, software, facilities and/or IP connectivity necessary for the Customer VoIP Application and the Customer network to interoperate with the (3)VoIP EnhancedSM Local Service and the Level 3 network; (4) broadband Internet connectivity for each Subscriber; (5) all other equipment, software and other facilities to be installed at the Customer Premises, including without limitation, routers, IP enabled phones and/or an analog terminal adapters, (6) inputting, validating and maintaining Subscriber information in all applicable national databases, including, without limitation, Automatic Local Identification (ALI) Database, Line Information Database (LIDB) and Caller ID with NAMe Database (CNAM), using a Level 3 provided electronic tool and/or interface; (7) Tier 1 end user support; and (8) end user billing. (B) Customer shall be responsible for obtaining and providing to Level 3, prior to installation of the particular (3)VoIP EnhancedSM Local Service, the public IP address(es) for the SIP Proxy Server, the Customer VoIP Application and/or other hardware/software solution. (C) Customer shall provide Level 3 with Automatic Number Identification (ANI) for all calls using the (3)VoIP EnhancedSM Local Service. Customer shall not remove ANI or otherwise take any action that may affect the integrity of the call detail information that is passed to Level 3 as part of the (3)VoIP EnhancedSM Local Service. 8. Emergency 911 Service. (A) Level 3 shall provide 911 Services to Subscribers as part of the (3)VoIP EnhancedSM Local Service Customer shall be responsible for timely inputting, validating, maintaining and updating Subscriber information in the Automatic Local Identification (ALI) Database or such other national emergency service database as may be available from time to time in support of 911 Services. (B) Customer acknowledges and agrees that 911 Services shall only be available in the Rate Center associated with the particular DID/DOD assigned to a Subscriber. Customer further acknowledges and agrees that 911 Services will not be available to the particular Subscriber and Level 3 shall have no liability to Customer or any third party for failure to provide 911 Services to the particular Subscriber in the event of (i) assignment of a DID/DOD to a Subscriber located outside of the Rate Center associated with such DID/DOD; (ii) relocation of the telephone device to which a DID/DOD has been assigned to a location outside of the of the Rate Center associated with such DID/DOD; (iii) outage, degradation or other disruption of power at the Subscriber location; (iv) outage, degradation or other disruption of the Subscriber broadband Internet connection; (iv) Customer's failure or delay in maintaining and updating Subscriber information as required in Section 8(A) above.. Customer shall advise all Subscribers of such limitations, and shall obtain from all Subscribers a written acknowledgment of such limitations and a release of Customer and all underlying providers (including Level 3) for any and all claims arising out of the failure of 911 Services resulting from the foregoing events or conditions. 9. Local Number Portability. (A) Porting In. Upon submission of a Subscriber Order, Customer may elect to port an existing telephone number to Level 3 ("Port-In") for activation on behalf of the particular Subscriber for use of (3)VoIP EnhancedSM Local Service. Level 3 will support all valid requests and will cooperate with Customer to perform any Port-In in accordance with Customer's reasonable directions and Level 3's standard operating procedures. In order to accomplish any Port-In, Customer will be required to provide Level 3 with letter of agency on behalf of Customer and/or the particular Subscriber in form and substance as reasonably requested by Level 3. Level 3 will exercise commercially reasonable efforts to notify Customer in writing of the target date for completion of any Port-In within five (5) business days following Customer's request for such Port-In. Customer hereby represents and warrants to Level 3 that Customer has all necessary rights and authority necessary for any Port-In, and Customer hereby agrees to indemnify, defend and hold harmless Level 3, its Affiliates and their officers, directors, employees and agents from and against any third party claim related to or arising out of any Port-In (or request for Port-In). (B) Porting Out. Customer acknowledges and agrees that Level 3 may receive requests by Customer, Customer's end user or a third party provider acting as agent on behalf of Customer or such end user ("Requesting Party") to port a telephone number currently assigned to a Subscriber to a third party provider ("Port-Out"). The parties agree that Level 3 will support all such requests and will cooperate with the Requesting Party to perform any Port-Out in accordance with the Requesting Party's reasonable directions and Level 3's standard operating procedures. Upon completion of any Port-Out, the (3)VoIP EnhancedSM Local Service associated with the particular Subscriber shall be deemed disconnected and Customer shall be responsible for all charges (or the pro-rata share as applicable) that accrued through the date of completion. On a weekly basis, Level 3 will provide Customer with written notice of all Port-Outs that occurred during the prior week. 10. Legal and Regulatory Matters. (A) Level 3 shall comply with all applicable laws, rules and regulations relating to the responsibilities expressly assumed by Level 3 in the delivery of (3)VoIP EnhancedSM Local Service under this Service Schedule. Customer shall comply with all applicable laws, rules and regulations relating to the responsibilities expressly assumed by Customer under this Service Schedule and such other services and functionality that the Customer may include in the delivery and resale of (3)VoIP EnhancedSM Local Service to its end users. Each party ("indemnifying party") agrees to indemnify, defend and hold harmless the other party, its Affiliates and their officers, directors, employees and agents from and against any third party claim related to or arising out of the indemnifying party's breach of its obligation under this Section 10(A). (B) If any change in law, rule or regulation (or any interpretation of the same) impacts Customer's ability to offer (3)VoIP EnhancedSM Local Service to end users and/or bill or collect amounts from end users therefore, Customer's obligations to pay Level 3 for (3)VoIP EnhancedSM Local Service and otherwise to comply with the terms of the Agreement and this Service Schedule shall remain unaffected. (C) Customer recognizes that the (3)VoIP EnhancedSM Local Service provides local inbound and outbound connectivity from/to the PSTN together with enhanced functionality, including, without limitation, conversion and delivery to Customer in an IP-based format. For regulatory purposes, the parties acknowledge that Level 3 treats all calls within the Local Calling Area of the Subscriber as local in nature, although there is no guarantee that such interpretation will be accepted by the relevant regulatory authorities. Any change in applicable law, regulation, decision, rule or order that finds that the connectivity associated with the (3)VoIP EnhancedSM Local Service is not eligible for regulatory treatment as a local service shall be subject to the change process described in Section 3.5 of the Agreement. 11. Fraudulent Use of Service. (A) The parties shall jointly cooperate and work together in good faith to identify fraudulent use of any (3)VoIP EnhancedSM Local Service and to take all appropriate and necessary action in response to any such fraudulent use. (B) Customer acknowledges that only one (1) Subscriber may be assigned to each DID/DOD for use of (3)VoIP EnhancedSM Local Service. In the event multiple Subscribers are assigned or are otherwise using any single DID/DOD, Level 3 may elect to retroactively charge Customer for (i) all applicable Subscriber fees for each and every Subscriber assigned to such DID/DOD, and (ii) all long-distance usage of (3)VoIP EnhancedSM Local Service for all affected Subscribers pursuant to the Long-Distance Usage Plan. 12. Service Levels. (A) Call Success Rate ("CSR") Service Level. The CSR Service Level for (3)VoIP EnhancedSM Local Service is 99.95%. The CSR is measured by Level 3 as a monthly average across the Level 3 VoIP network calculated based on the number of VoIP sessions correctly processed (as reasonably determined by Level 3) against the total sessions offered. In the event Level 3 does not meet the CSR Service Level for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the monthly recurring charges associated with the affected (3)VoIP EnhancedSM Local Service in the particular month as set forth in the following table*: - -------------------------- ----------------------- CSR Service Level Credit - -------------------------- ----------------------- - -------------------------- ----------------------- 98 - 99.94% 5% - -------------------------- ----------------------- - -------------------------- ----------------------- 96 - 97.99% 10% - -------------------------- ----------------------- - -------------------------- ----------------------- 94 - 95.99% 15% - -------------------------- ----------------------- - -------------------------- ----------------------- 92 - 93.99% 25% - -------------------------- ----------------------- - -------------------------- ----------------------- 90 - 91.99% 50% - -------------------------- ----------------------- - -------------------------- ----------------------- 89.99% or less 100% - -------------------------- ----------------------- * Notwithstanding anything in this CSR Service Level to the contrary, the parties agree that during the ninety (90) day period following the effective date of this Service Schedule, service credits will not accrue under this CSR Service Level unless and until the CSR for the particular month is below 99%. (C)Delay Service Level. The Delay Service Level for (3)VoIP EnhancedSM Local Service within the United States is 40 milliseconds (ms). The Delay Service Level is measured as an average one-way delay over a calendar month for IP traffic on the Level 3 network between Gateways. Delay measurements may be obtained from the Level 3 website at www.level3.com. In the event of a delay in excess of the Service Levels set forth above for reasons other than an Excused Outage, Customer will be entitled to receive a service credit off of the monthly recurring charges associated with the affected (3)VoIP EnhancedSM Local Service for the particular month as set forth in the following table: - ------------------------------ ---------------------- Amount of Delay in Excess of Service Level Credit Service Level - ------------------------------ ---------------------- - ------------------------------ ---------------------- 0.1 - 5 ms 5% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 5.1 - 10 ms 10% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 10.1 - 15 ms 15% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 15.1 - 20 ms 25% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 20.1 - 25 ms 50% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 25.1 ms or greater 100% - ------------------------------ ---------------------- (D)Packet Delivery Service Level. The Packet Delivery Service Level for (3)VoIP EnhancedSM Local Service is 99.75% for VoIP traffic on the Level 3 network between Gateways. Packet Delivery is the average number of IP packets that transit the Level 3 network and are delivered by Level 3 to the intended On-Net destination in a calendar month. Packet Delivery measurements may be obtained from the Level 3 web site at www.level3.com. In the event Level 3 does not meet the Packet Delivery Service Level for reasons other than an Excused Outage or as a result of any Off-Net Local Loop (whether provisioned by Customer or Level 3), Customer will be entitled to receive a service credit off of the monthly recurring charges associated with the affected (3)VoIP EnhancedSM Local Service for the particular month as set forth in the following table: - ------------------------------ ---------------------- Packet Delivery Service Level Credit - ------------------------------ ---------------------- - ------------------------------ ---------------------- 99.5 - 99.74% 5% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 99 - 99.49% 10% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 98 - 98.99% 15% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 97 - 97.99% 25% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 96 - 96.99% 50% - ------------------------------ ---------------------- - ------------------------------ ---------------------- 95.99% or less 100% - ------------------------------ ---------------------- (E) Jitter Service Level. The Jitter Service Level for (3)VoIP EnhancedSM Local Service within the United States is 10 milliseconds (ms). The Jitter Service Level is measured independently between two (2) Level 3 Gateways. Jitter measurements may be obtained from the Level 3 web site at www.Level3.com. Jitter is defined as the relative variation in delay between consecutive IP packets. Samples are taken every 500 milliseconds, and consecutive samples are compared for variation in delay. Each variation value is compared with this Service Level. In the event of Jitter in excess of the this Service Level for reasons other than an Excused Outage, Customer will be entitled to receive a service credit off of the monthly recurring charges associated with the affected (3)VoIP EnhancedSM Local Service for the particular month as set forth in the following table: - ----------------------------- ----------------------- Percentage of Measurements Service Level Credit within SLA - ----------------------------- ----------------------- - ----------------------------- ----------------------- 99.5 - 99.99% 5% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 99 - 99.49% 10% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 98 - 98.99% 15% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 97 - 97.99% 25% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 96 - 96.99% 50% - ----------------------------- ----------------------- - ----------------------------- ----------------------- 95.99% or less 100% - ----------------------------- ----------------------- (D)Limitations. Notwithstanding anything in this Service Schedule to the contrary, the parties agree that the Service Levels set forth in this Section 12 shall not apply to International long-distance services. EXHIBIT A RATES FOR (3)VOIPSM ENHANCED LOCAL SERVICE Pricing Term: Twelve (12) months Non-Recurring Charges: 1. Non-Recurring Routing Change Charge: ** NRC to be paid by Customer in the event that Customer requests a proxy routing change (and such change is accepted by Level 3) to (3)VoIP EnhancedSM Local Service following Level 3's acceptance of the applicable Customer Order. 2. Non-Recurring Market Activation Charge: ** NRC to be paid by Customer for each Market activated. 3. Non-Recurring Market Order Change Charge: ** NRC to be paid by Customer in the event that Customer requests a Market related change (and such change is accepted by Level 3) to (3)VoIPSM Enhanced Local Service following Level 3's acceptance of the applicable Customer Order. 4. Non-Recurring Subscriber Activation Charge: ** NRC to be paid by Customer for each Subscriber activation. 5. Non-Recurring Subscriber Order Change Charge: ** change transaction ** transaction NRC to be paid by Customer in the event that Customer requests a Subscriber related change (and such change is accepted by Level 3) to (3)VoIP EnhancedSM Local Service following Level 3's acceptance of the applicable Customer Order. Certain Subscriber related changes may require Level 3 (or a third party on behalf of Level 3) to issue a Line Service Record (LSR) containing Subscriber information to a third party provider. Changes requiring LSR include, without limitation, porting of telephone numbers and directory listing changes. Changes not requiring LSR include, without limitation, Primary Interexchange Carrier (PIC) change. Monthly Recurring Charges: 1. Monthly Recurring DID/DOD Charge: ** MRC to be paid by Customer for each DID/DOD activated for Customer. 2. Monthly Recurring Subscriber Charge for Local Unlimited Plan: ** MRC per Subscriber to be paid by Customer for each Subscriber under the Local Unlimited Plan in a particular month (or pro-rata portion for Subscribers activated or disconnected during such month). 3. Monthly Recurring Subscriber Charge for Local and Domestic Long Distance Unlimited Plan: MRC per Subscriber to be paid by Customer for each Subscriber under the Local and Long-Distance Unlimited Plan in a particular month (or pro-rata portion for Subscribers activated or disconnected during such month). Usage Charges: Customer's (3)VoIP EnhancedSM Usage shall be priced based upon price schedule provided to the customer. 1. Usage Charge for Local Usage Plan: Usage charge to be paid by Customer for each minute of usage under the Local Usage Plan in a particular month. 2. Usage Charge for Long-Distance Usage Plan: Level 3's standard (3)Voice(R) Termination Service rates Usage charge to be paid by Customer for each minute of usage under the Long-Distance Usage Plan (including long-distance usage to International destinations under the Local and Domestic Long-Distance Unlimited Plan) in a particular month. The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 3. Usage Charge for Local and Domestic Long Distance Unlimited Plan: ** Usage charge to be paid by Customer for each minute of actual average Domestic long-distance usage in excess of the Maximum Average Usage under the Local and Domestic Long Distance Unlimited Plan. The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. Other Charges: 1. Directory Assistance: ** 2. Directory Assistance Call Completion: ** 3. Operator Assistance Operator Assisted Dialing (no third party billed service):** Collect calls ** Third party billed calls ** Person to person calls ** Revenue Commitment: Beginning three (3) months after the effective date of this Service Schedule or upon acceptance of first customer order, whichever is later, and continuing during each month thereafter during the Pricing Term, Customer hereby commits to pay Level 3 minimum Monthly Recurring Subscriber Charges and Usage Charges for all (3)VoIP EnhancedSM Local Services provided under this Service Schedule in the amount of ** per month ("Revenue Commitment"). The Revenue Commitment is a take-or-pay commitment; at the end of each calendar month, Level 3 will invoice Customer and Customer agrees to pay Level 3, in addition to all invoiced charges for (3)VoIP EnhancedSM Local Services then due and owing, for the shortfall (if any) between the aggregate Monthly Recurring Subscriber Charges and Usage Charges due for (3)VoIP EnhancedSM Local Services for the particular month and the Revenue Commitment. In the event Customer requests Level 3 to provide (3)VoIP EnhancedSM Local Service in a new Market or Rate Center in which Level 3 does not then currently offer (3)VoIP EnhancedSM Local Services, Level 3 may require Customer to make an additional revenue commitment on terms and conditions as mutually agreed between the parties as a condition to Level 3's delivery of (3)VoIP EnhancedSM Local Services in the particular Market or Rate Center. The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. SERVICE SCHEDULE (3)TONESM SERVICE This (3)ToneSM Service Schedule incorporates by reference the terms of that Master Services Agreement (the "Agreement") and the terms of the Level 3 EnabledSM Partner Addendum (the "Addendum") except as expressly modified herein. For Services ordered under this Service Schedule, when "Level 3" is referenced in the Agreement and/or Addendum it shall be deemed to be Level 3 Enhanced Services LLC only. ARTICLE 1. DEFINITIONS 1.1 "CPE Router" shall mean a Customer-provided router which enables access to (3)Tone Services and which will be located at the Customer Premises. 1.2 "Customer Provided Facilities" shall mean all facilities necessary to the delivery of (3)Tone Service which are not Level 3 ES Facilities, including but not limited to Level 3 ES recommended and approved IP telephone equipment, the CPE Router, inside wiring, desktop hardware and software, and internet access. 1.3 "(3)Tone Service" shall mean the enhanced service described in Section 2.1 of this Service Schedule and identified in a Customer Order. "(3)Tone" is a registered service mark. 1.4 "Seat" shall mean a telephone number provisioned in relation to the (3)Tone Service associated with a specific user or telephone device. 1.5 "Territory" shall mean the continental United States. ARTICLE 2. (3)TONESM SERVICE DESCRIPTION AND DELIVERY OF (3)TONESM SERVICE 2.1 (3)ToneSM Service Description. (3)Tone Service is a hosted wholesale Internet Protocol ("IP") based voice service which may bundle Class 5 communications features with other available features and/or services as selected by Customer and identified in the Customer Order. Customer may choose to supply its own Internet connectivity. Customer acknowledges that the quality of the Internet connectivity will affect the performance of the Service. To use the (3)Tone Service, Customer must supply all necessary Customer Provided Facilities. 2.2 Grant of License and Restrictions. (A) Level 3 ES hereby grants to Customer during the term of this Agreement: (i) a non-exclusive, non-transferable, non-sublicenseable right and license in the Territory to install, display, advertise, promote, market, resell, and distribute the (3)Tone Services to End Users who have signed an agreement that complies with the terms of this Agreement; and (ii) a non-exclusive, non-transferable, non-sublicenseable right and license in the Territory to use, reproduce and distribute any marketing materials and user manuals, specifications and other documentation detailing the (3)Tone Services (collectively, the "(3)Tone Service Specifications") provided by Level 3 ES hereunder directly related to Customer's exercise of the rights granted in Section 2.2(A)(i); provided, however, that Customer shall only be permitted to distribute the (3)Tone Service Specifications to End Users and potential End Users seeking (3)Tone Services from Customer. Customer shall remove all of Level 3 ES's trademarks, (3)Tone Service marks, trade names and logos from the (3)Tone Service Specifications prior to distributing them to third parties. Notwithstanding anything else in this Agreement, no right or license to use Level 3 ES's trademarks, "(3)Tone" service marks, trade names or logos is granted hereunder. Except as otherwise set forth in this Section, Customer shall not make any substantive modifications to the (3)Tone Service Specifications without Level 3 ES's prior written approval. (B) Customer may affix a label on the (3)Tone Service Specifications for the (3)Tone Services depicting Customer's logo, name and address and identifying Customer as the (3)Tone Service agent for the (3)Tone Services, if applicable. Notwithstanding the foregoing, Customer does not obtain a copyright in base content by removing Level 3 ES logos, (3)Tone Service marks and/or copyrights. (C) Level 3 ES shall retain all right, title and interest, including all intellectual property rights, in and to all (3)Tone Service Specifications provided by Level 3 ES. By way of clarification, any the works containing the modifications made by Customer to the (3)Tone Service Specifications shall be owned by Level 3 ES as a work made for hire. To the extent such modified (3)Tone Service Specifications may not be considered a work made for hire, Customer assigns to Level 3 ES all right, title and interest in the modified (3)Tone Service Specifications, and Level 3 ES hereby grants to Customer an exclusive, non-transferable, non-sublicenseable license to use such modified (3)Tone Service Specifications solely in the Territory in connection with its reselling activities under this Agreement. 2.3 Marketing and Distribution of (3)ToneSM Services. (A) Customer's marketing of the (3)Tone Services will be within Customer's sole discretion, provided that such marketing shall be in accordance with the terms and conditions of this Service Schedule, the Agreement and the Addendum. Customer may bill its End Users for (3)Tone Services at prices determined in Customer's sole discretion. (B) Customer shall require each End User to whom the (3)Tone Services are provided to execute an agreement in compliance with the terms of this Agreement. Customer shall be solely responsible for the enforcement and performance of its agreements with End Users. 2.4 Service Delivery and Billing Commencement. Upon provisioning of DID numbers ordered in a Customer Order, Level 3 ES will deliver a Connection Notice to the Customer. Billing in relation to the DID numbers shall commence at that time. Subject to Section 2.5 below, upon the sooner of (a) the assignment of Seats to the DID numbers; or (b) use of the DID number, Level 3 ES will commence billing for the monthly recurring seat charge and usage. Billing shall commence on the applicable Service Commencement Date, regardless of whether Customer or End User has procured other services from other carriers or Affiliates of Level 3 ES needed to operate the (3)Tone Service, and regardless of whether the End User is otherwise prepared to accept delivery of ordered (3)Tone Service. 2.5 Disputed Invoices. Notwithstanding anything to the contrary in the Agreement, all claims related to disputed invoices must be submitted to Level 3 ES in writing within thirty (30) days from the date of invoice of those Services. Customer waives the right to dispute any charges not disputed within such thirty (30) day period. 2.6 Termination Charges. Notwithstanding anything in the Agreement to the contrary, Customer may terminate or cancel (3)Tone Service under a Customer Order upon thirty (30) days' prior written notice to Level 3 ES (in a form reasonably requested by Level 3 ES). In the event that Customer terminates (3)Tone Service as set forth herein or in the event that the delivery of (3)Tone Service is terminated by Level 3 ES as the result of an uncured default by Customer pursuant to Section 4.2 of the Agreement, Customer shall pay Level 3 ES a termination charge equal to the sum of: (i) Level 3 ES's out of pocket costs incurred in delivering Level 3 ES Facilities in or to the Customer Premises necessary for (3)Tone Service delivery; (ii) all unpaid amounts for (3)Tone Service through the date of termination; (iii) any third party cancellation/termination charges related to the installation and/or termination of (3)Tone Service; and (iv) the non-recurring charges for the cancelled (3)Tone Service, if not already paid; and (v) the full amount of the monthly recurring charges for the terminated (3)Tone Service for the month of the effective termination (regardless of whether the termination date is mid-billing cycle). (B) The parties acknowledge that the cancellation or termination charges set forth are a genuine estimate of the actual damages that Level 3 ES will suffer and are not a penalty. 2.7 Service Term and Pricing. The Service Term shall be month-to-month. Pricing is subject to change in Level 3 ES' sole discretion. Level 3 ES will provide Customer with sixty (60) days notice in advance of pricing changes. Pricing changes will impact all (3)Tone Services provided to Customer. 2.8 Assignment of DID by Office Administrator. In the event that the DIDs provisioned to a Tenant have not been assigned by the Office Administrator within one hundred and twenty (120) days following the Connection Notice, Level 3 ES may revoke the non-assigned DIDs, in Level 3 ES' sole discretion. 2.9 Non-Standard Use. Level 3 ES may in Level 3 ES' discretion disconnect an Order or Orders and/or re-rate the service upon Customer's or its end user's improper usage patterns of the Service. Improper usage patterns may include but are not limited to calling patterns where the ratio of inbound or outbound call minutes exceeds 80% of the aggregate minutes of Customer and/or a Tenant, or if the aggregate minutes of usage per month per Seat in an Order exceeds 5000 minutes. Aggregate minutes are calculated by adding all inbound plus outbound minutes of Customer and/or a Tenant on a monthly basis. 2.10 Customer-Provided Equipment. Customer shall install Customer Provided Facilities using a vendor approved by Level 3 ES. 2.11 Customer Purchase Commitment. Customer will order, assign and pay for an average of at least one hundred (100) new Seats per month over a rolling ninety (90) day period. Customer shall have a grace period of one hundred and eighty (180) days from the Effective Date to comply with this provision. ARTICLE 3. SERVICE LEVELS 3.1 Service Level Credits. In no event shall the total amount of credits issued to Customer in any month exceed the non-recurring charges and monthly recurring charges invoiced to Customer for the affected Seat(s) for that month. Level 3 ES Service Levels do not apply to any failure or degradation in (3) Tone Service resulting from Off-Net local access circuits, Off-Net Local Loops and/or internet access or connectivity provided by any third-party supplier, Customer, or End User. Any Service Level Credit for services provided by a Level 3 ES Affiliate will be set forth in a separate Service Schedule. Notwithstanding anything in the Agreement to the contrary, to request a credit, Customer must contact Level 3 ES Customer Service or deliver a written request (with sufficient detail necessary to identify the affected Seats and Service) pursuant to Section 7.4 of the Agreement within fifteen (15) days of the end of the month for which a credit is requested. 3.2 Service Level Measurement Demarcation. Unless otherwise stated in a Service Level, Service Level measurements are made by Level 3 ES, and are taken between the ingress router of the Level 3 Communications-provided IP network and the egress router from the Level 3 Communications-provided IP network at the locations provided in the Service Levels below. No Service Levels apply to Internet connectivity provided by third parties although failure of the same to perform will affect the (3)Tone Service. 3.3 Availability Service Levels. (A) Network Availability. The Network Availability Service Level for Level 3 ES (3) Tone Service is 99.9% in a calendar month. The Level 3 ES network is considered unavailable if a Seat (or Seats) is unavailable such that Customer is unable to send and receive IP packets. In the event that Level 3 ES (3) Tone Service becomes unavailable as defined above for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the monthly recurring seat charge for the affected Seat, based on the cumulative unavailability of the same in a given calendar month as set forth in the chart below. The maximum credit which may be provided pursuant to this Service Level is 30 days per month per affected Seat. Customer will not be entitled to a service level credit associated with any other Service Level related to Level 3 ES (3) Tone Service to the extent any such failure arises out of or is related to the unavailability event giving rise to credits hereunder: - -------------------------------- ------------------------ Cumulative Unavailability per Service Level Credit event (in hrs:mins:secs) - -------------------------------- ------------------------ - -------------------------------- ------------------------ 0:00:01 - 00:10:00 No Credit - -------------------------------- ------------------------ - -------------------------------- ------------------------ 00:10:01- 00:60:00 1 day - -------------------------------- ------------------------ - -------------------------------- ------------------------ 00:60:01- or more 3 days - -------------------------------- ------------------------ (B) Managed Applications. The availability Service Level for the Level 3 ES Managed Applications is 99.9% in a calendar month. In the event that the Managed Applications are available less than 99.9% of the time during a month (as determined by Level 3 ES) for reasons other than an Excused Outage, Customer will be entitled to a service credit off of the monthly recurring Seat charge, based on the cumulative unavailability of the Managed Application in a given month as set forth in the following table. - -------------------------------- ------------------------ Cumulative Unavailability per Service Level Credit event (in hrs:mins:secs) - -------------------------------- ------------------------ - -------------------------------- ------------------------ 0:00:01 - 00:10:00 No Credit - -------------------------------- ------------------------ - -------------------------------- ------------------------ 00:10:01- 00:60:00 1 day - -------------------------------- ------------------------ - -------------------------------- ------------------------ 00:60:01- or more 3 days - -------------------------------- ------------------------ 3.4 Quality of Service - Service Levels. (A) Delay Service Level. The Delay Service Level for Level 3 ES (3) Tone Service is 55 milliseconds (ms) or less (on average) per month between Level 3 ES North American Gateways. The Delay Service Level will be measured by Level 3 ES as the average round trip delay over a calendar month for traffic on the Level 3 Communications-provided IP network between Gateways. In the event of average delay in excess of the Service Level set forth above for reasons other than an Excused Outage, Customer will be entitled to receive a service credit off the monthly recurring Seat charge for the affected Seat equal to one (1) day. (B) Packet Delivery Service Level. The Packet Delivery Service Level for Level 3 ES (3) Tone Service is less than 0.25% (on average) of total IP packets dropped per month. The Packet Delivery Service Level will be measured by Level 3 ES between two (2) Level 3 ES North American Gateways, and is defined as the percentage of IP packets dropped between such Gateways. In the event of average packet loss in excess of the Service Level set forth above for reasons other than an Excused Outage, Customer will be entitled to receive a service credit off the monthly recurring Seat charge for the affected Seat equal to one (1) day. (C) Jitter Service Level. The Jitter Service Level for Level 3 ES (3) Tone Service is 10 milliseconds (ms) or less (on average) per month between Level 3 ES North American Gateways. The Jitter Service Level will be measured by Level 3 ES independently between two (2) Level 3 ES Gateways and determined separately for each circuit. Jitter is defined as the relative variation in delay between consecutive packets. In the event of average jitter in excess of the Service Level set forth above for reasons other than an Excused Outage, Customer will be entitled to receive a service credit off the monthly recurring Seat charge for the affected Seat equal to one (1) day. 3.5 Total Service Credits. In no event will the cumulative total of the Service Credits for all Service Levels above exceed the MRC for the Seat(s) affected. For the avoidance of doubt, the MRC for the Seats does not include usage based charges . ARTICLE 4. EMERGENCY 911 SERVICE - CUSTOMER AND END USER RESPONSIBILITY 4.1 The (3)Tone Service currently may not support access to enhanced 911 emergency calling functionality ("E911") in all locations. A list of locations where e911 is available will be provided upon request. In all locations, 911 functionality (as opposed to e911) will be provided by Level 3 ES. In such locations, Customer shall disclose to and advise its End Users of the lack of e911 functionality. 4.2 Level 3 ES, through its telecommunications providers, will provide to Customer 911 emergency call functionality through (i) the use of Level 3 ES if such 911 functionality is available (the "Level 3 ES 911 Solution"), or (ii) the use of a third party (the "Third Party 911 Solution"). 4.3 Customer shall indemnify and hold harmless Level 3 ES, its officers, directors, employees, agents, parent, affiliated, and subsidiary companies for any and all losses, claims, costs or damages of whatever kind that result from Customer's or End User's (i) failure to obtain 911-functionality through Level 3 ES; (ii) procurement of 911-functionality through a third party; and/or (iii) failure to advise end users of the lack of e911. ARTICLE 5. GENERAL TERMS 5.1 Compliance with Law. Level 3 ES will comply with all applicable laws, rules and regulations relating to the delivery of the (3)Tone Service. Customer shall comply with all applicable laws, rules, licensing and certification requirements and regulations related to the provision and/or revocation of the (3)Tone Service to its End Users. Customer shall require its End Users to comply with all applicable laws, rules, licensing and certification requirements and regulations related to the use of the (3)Tone Service. If any change in law, rule, licensing requirement, certification requirement or regulation (or any interpretation of the same) impacts Customer's ability to offer the (3)Tone Service to End Users and/or bill or collect amounts from End Users therefore, Customer's obligations to pay Level 3 ES for the (3)Tone Service and otherwise to comply with the terms of this Agreement shall remain unaffected. 5.2 Limitation of Liability. EXCEPT FOR EACH PARTY'S INDEMNIFICATION OBLIGATIONS HEREIN AND EACH PARTY'S BREACH OF THE SECTION HEREIN ENTITLED "CONFIDENTIAL INFORMATION" AND SAVE FOR CUSTOMER'S PAYMENT OBLIGATIONS HEREUNDER AND ANY CLAIMS FOR TERMINATION LIABILITY, EACH PARTY'S MAXIMUM AGGREGATE LIABILITY TO THE OTHER RELATED TO OR IN CONNECTION WITH THIS AGREEMENT SHALL BE LIMITED TO AN AMOUNT EQUAL TO THE GREATER OF ONE MILLION U.S. DOLLARS ($1,000,000) OR ALL AMOUNTS PAID UNDER THIS AGREEMENT DURING THE PREVIOUS TWELVE (12)-MONTH PERIOD. 5.3 Level 3 ES-Provided Software. In the event Level 3 ES provides any software to Customer in connection with the Services, Level 3 ES grants Customer a personal, non-exclusive, non-transferable license, for the duration of the Service Term of the (3)Tone Service for which the software is used, to use such software, in object code form only, on the hardware on which it is installed for the sole purpose of enabling Customer or Customer's End Users to use the (3)Tone Services. Level 3 ES and/or its third-party suppliers retain all rights, title and interest (including all intellectual property and proprietary rights) in and to such software Customer acknowledges that the software and the content and design thereof are valuable copyrights, trade secrets and/or other intellectual property of Level 3 ES, its Affiliates, parents and/or its third party suppliers. Customer agrees not to (a) disclose or make available to third parties any portion of such software without Level 3 ES's advance written permission; (b) copy, modify (except as necessary to customize the "look and feel" of the web interface of the software) or create any derivative work of the software (or any portion thereof); (c) reverse engineer, decompile or disassemble such software or otherwise attempt to derive the source code, algorithms, structure or organization of the software; (d) assign, transfer, lease, time-share or redistribute the software; or (e) authorize or permit any End User or other third party to do any of the foregoing. Customer shall not, nor shall Customer permit its end users to remove, alter, cover or obfuscate any copyright, trademark, service mark or other proprietary rights notices placed or embedded by Level 3 ES or any of its third party software suppliers on or in any software. Customer shall not use or allow the use of the software after the applicable Service Term without obtaining a valid license from Level 3 ES or from the third-party supplier respecting such use. For certain software, additional licensing terms may be included as a "click-wrap" license with the software to which Customer and/or its End User must agree and abide. CUSTOMER ACKNOWLEDGES THAT LEVEL 3 ES AND LEVEL 3 ES'S THIRD-PARTY SOFTWARE SUPPLIERS DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, OR THOSE ARISING FROM A COURSE OF DEALING AND USAGE OF TRADE AS RESPECTS ANY SOFTWARE. 5.4 Affiliates. (A) Notwithstanding the foregoing, Level 3 ES shall remain responsible to Customer for the delivery and performance of the (3)Tone Service in accordance with the terms and conditions of this Agreement. If a Customer Order requires the delivery of (3)Tone Service in a jurisdiction where, in order for such Customer Order to be enforceable against the parties, additional terms must be added, then the parties shall incorporate such terms into the Customer Order (preserving, to the fullest extent possible, the terms of this Agreement). (B) The parties acknowledge and agree that Customer's Affiliates may purchase (3)Tone Service under this Agreement; provided, however, any such Customer Affiliate purchasing (3)Tone Service hereunder agrees that such (3)Tone Service is provided pursuant to and governed by the terms and conditions of this Agreement. Customer shall be jointly and severally liable for all claims and liabilities arising under this Agreement related to (3)Tone Service ordered by any Customer Affiliate, and any event of default under this Agreement by any Customer Affiliate shall also be deemed an event of default by Customer. Any reference to Customer in this Agreement with respect to (3)Tone Service ordered by a Customer Affiliate shall also be deemed a reference to the applicable Customer Affiliate. 5.4 Customer Default. In the event that Customer fails to pay amounts when due under the Agreement and/or defaults on a material term hereunder and fails to cure as set forth in the Agreement, Customer hereby agrees that Level 3 ES may (if Level 3 ES so desires in its sole and absolute discretion) contact, communicate with and solicit (or refer such end users to third parties for solicitation), any or all of Customer's end users to make appropriate arrangements for the discontinuance or continuation of services. Customer expressly agrees that Level 3 ES shall have no liability to Customer whatsoever for initiating or continuing such communication or solicitation. Notwithstanding the foregoing, (i) Customer and Level 3 ES each agree and acknowledge that Customer's end users are not and shall not be considered to be third-party beneficiaries of this Service Schedule, the Agreement, or the Addendum and (ii) Level 3 ES' actions in initiating or continuing communications with Customer's end users shall in no way affect Customer's contractual obligations to Level 3 under the Agreement or Addendum. 5.5 Notices. Certain notices hereunder may be delivered to Customer by Level 3 ES by sending them to an e-mail address identified in the Customer Order Form, including but not limited to pricing updates, the Customer Welcome Letter and Service Connection Notices. Notices so e-mailed shall fulfill the notice requirements under the Agreement. SERVICE SCHEDULE (3)LINKSM DARK FIBER SERVICE - LEASE (NORTH AMERICA) 1. Applicability. This Service Schedule is applicable only where Customer orders (3)LinkSM Dark Fiber Service on a lease basis in North America only. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Acceptance Date" shall mean the date when Customer delivers (or is deemed to have delivered) notice of acceptance of a Completion Notice with respect to a Segment in accordance with Section 9. (B) "Cable" shall mean the high fiber count fiber optic cable owned by Level 3. (C) "Costs" shall mean the actual direct costs paid or payable in accordance with the procedures generally used by Level 3 in billing third parties for reimbursable projects, including the following: (i) the direct costs and out of pocket expenses on a direct pass-through basis, plus (ii) thirty percent (30%) of the amount set forth in (i) above for project planning expenses and internal labor costs, including wages, salaries, benefits and overhead of Level 3's personnel. (D) "Customer Commit Date" or "CCD" shall mean the date that the (3)LinkSM Dark Fiber Service will be available to Customer as set forth in the Customer Welcome Letter, subject to Force Majeure Events. (E) "Customer Fibers" shall mean the number of fibers set forth in a Customer Order to be specifically identified in the Cable between the Segment End Points for a particular Segment. (F) "Dark Fiber" shall mean fiber provided without electronic and/or optronic equipment and which is not "lit" or activated. (G) "Force Majeure Event" is defined in Section 7.1 of the Agreement. (H) "Governmental Authority" shall mean any federal, state, regional, county, city, municipal, local, territorial, or tribal government, whether foreign or domestic, or any department, agency, bureau or other administrative or regulatory body obtaining authority from any of the foregoing, including without limitation, courts, public utilities and sewer authorities. (I) "Installation Fee" shall mean the non-recurring charge for the provisioning of the Customer Fibers for Customer's use. (J) "Lateral Segment" shall mean a Segment that connects the metropolitan backbone of the Level 3 System to a location where Level 3 has already completed construction at the time of request by Customer. (K) "Lease Fee" shall be the fee specified in a Customer Order. (L) "Level 3 System" shall mean Level 3's multi-conduit fiber optic communications system. (M) "Loop" shall mean a group of Segments as delineated in a Customer Order. (N) "Person" shall mean any natural person, corporation, partnership, limited liability company, business trust, joint venture, association, company or Governmental Authority. (O) "Riser Segment" shall mean a Segment that connects a Lateral Segment within a building to another location within the same building for which Level 3 has completed construction at the time of request by Customer. (P) "Segment End Point Facilities" shall mean such facilities (including gateways, synergy sites and terminal facilities but excluding regeneration facilities and opamp facilities) which are owned, leased or otherwise used by Level 3 to accommodate or house switch equipment, fiber optic transmission and/or associated ancillary equipment to serve as a switch terminal, transport concentrator, hub terminal or junction. 3. System Route. (A) For each Customer Order executed by the parties, the Level 3 System will connect the points identified on such Customer Order (each point identified in an Customer Order is called a Segment End Point, the route between the applicable Segment End Points is called a Segment). The Level 3 System will include the Lateral Segments and Riser Segments (each of which shall be considered a Segment for purposes hereof), if any, identified in each Customer Order. (B) Occupancy by Customer in any Segment End Point Facility shall be subject to the execution of a Customer Order pursuant to the (3)CenterSM Colocation Service Schedule of the Agreement. 4. Grant. As of the Lease Effective Date for each particular Segment of Customer Fiber delivered by Level 3 to Customer hereunder, Level 3 grants to Customer, and Customer acquires from Level 3 a lease ("Lease") to use, for the purposes described herein, the Customer Fibers as described in each Customer Order. 5. Fees. (A) Customer agrees to pay the Installation Fee set forth in a Customer Order within five (5) days of the execution of the Customer Order. (B) Customer agrees to pay the Lease Fee set forth in a Customer Order. The Lease Fee shall be due on the Acceptance Date for each Segment and monthly (in advance, on the first day of each month) thereafter during the Lease Term. In the event the Acceptance Date occurs other than the first day of the month, then the first and final payment of the Lease Fee shall be prorated. The Lease Fee shall be due and payable in full, and Customer shall have no right of offset or deduction with respect to any Lease Fee (or portion thereof) due hereunder. (C) Except for the Installation Fee, which shall be due and payable no later than five (5) days after the execution of a Customer Order, Level 3 will send Customer invoices for payments of the Lease Fee and all other sums, costs, fees and expenses owed by Customer to Level 3 hereunder, and Customer shall pay such invoiced amounts in accordance with Section 3.3 of the Agreement. 6. Term and Early Termination. (A) The term for the Lease with respect to each Segment shall commence on the first day when both (i) the Acceptance Date with respect to the Customer Fibers within a Segment has occurred and (ii) Level 3 has received payment of the Lease Fee for the first month (or portion thereof) with respect to such Segment then due to Level 3 hereunder (the "Lease Effective Date"), and shall expire on the date identified in the Customer Order (provided that the term of the Lease shall not exceed sixty (60) months for any Segment) (the "Lease Term"). Notwithstanding the shorter or longer Agreement Term set forth in Section 4.1(A) of the Agreement, the Agreement Term with respect to (3)LinkSM Dark Fiber Service only shall continue for the Lease Term. (B) Upon the expiration or termination of the Lease Term respecting a Segment as provided in this Service Schedule, all rights to the use of the Customer Fibers therein shall revert to Level 3 without reimbursement of any of the Lease Fee or other sums, costs, fees or expenses previously made with respect thereto. (C) This Service Schedule shall become effective on the Service Schedule Effective Date and shall terminate on the date when all the Lease of the Segments shall have expired or terminated (subject always to the earlier termination procedures of Section 4.2 of the Agreement), except that those provisions of this Service Schedule which are expressly provided herein to survive such termination shall remain binding on the parties hereto. (D) Customer may terminate the Lease for any Segment prior to the end of the Lease Term upon thirty (30) days' prior written notice to Level 3 (in a form reasonably requested by Level 3). In the event that Customer terminates the Lease or in the event that the delivery of the Customer Fibers in a Segment is terminated due to a failure of Customer to comply with the terms of this Service Schedule or any Customer Order, Customer shall pay Level 3 a termination charge equal to the sum of : (a) the Installation Fee for the cancelled Lease, if not already paid; and (b) the percentage of the monthly Lease Fees for the terminated Lease calculated from the effective date of termination as (i) 100% of the remaining monthly Lease Fees that would have been incurred for the Lease for months 1-12 of the Lease Term, plus (ii) 50% of the remaining monthly Lease Fees that would have been incurred for the Lease for months 13 through the end of the Lease Term. This Section 6(D) shall govern the termination by Customer of dark fiber ordered hereunder in lieu of any other provisions of the Agreement. 7. Required Rights. (A) Level 3 agrees to obtain and maintain in full force and effect for and during the Lease Term of each Segment all rights, licenses, permits, authorizations, franchises, rights-of-way, easements and other approvals (collectively, the "Required Rights") that are necessary for Level 3 to obtain in order to permit Level 3 to construct, install and keep installed, and maintain the Customer Fibers within such Segment in accordance with this Service Schedule and to convey the Lease in the Customer Fibers to Customer and all other rights under this Service Schedule pursuant to the Lease. Customer shall obtain and maintain in full force and effect for and during the Lease Term of each Segment all Required Rights that are necessary for Customer to obtain in order to use and operate the Customer Fibers. (B) To the extent Level 3 is required under the terms and provisions of any Required Right to indemnify the grantor or provider thereof from and against any and all claims, suits, judgments, liabilities, losses and expenses arising out of service interruption, cessation, unreliability of or damage to the Level 3 System, regardless of whether such claims, suits, judgments, liabilities, losses or expenses arise from the sole or partial negligence, willful misconduct or other action or inaction of such grantor or provider and its employees, servants, agents, contractors, subcontractors or other Persons using the property covered by such Required Right, Customer hereby releases such grantor or provider from, and hereby waives, all claims, suits, judgments, liabilities, losses and expenses arising out of service interruption, cessation, unreliability of or damage to the Level 3 System regardless of whether such claims, suits, judgments, liabilities, losses or expenses arise from the sole or partial negligence, willful misconduct or other action or inaction, of such grantor or provider or its employees, servants, agents, contractors, subcontractors or other Persons using the property covered by such Required Right. 8. Lateral and Riser Segments. (A) Each Lateral Segment shall be constructed from a point on the metropolitan backbone of the Level 3 System to a demarcation point as identified in a Customer Order. (B) Each Riser Segment shall be constructed from a Segment End Point within a facility to another demarcation point within the same facility as identified in each Customer Order. 9. Acceptance Testing and Completion. (A) Level 3 shall test the Customer Fibers in accordance with the procedures and standards specified in Exhibit "A" ("Acceptance Testing") and Level 3 shall provide Customer with a copy of such test results for each Loop, Segment, Lateral Segment or Riser Segment so that test results may be reviewed in a timely manner. Customer shall be responsible for the timely completion of any work or installation required in order for it to place the Customer Fibers into operation (and Customer's failure to complete such work shall not be grounds for rejection of a Connection Notice). (B) Upon the successful completion of Acceptance Testing respecting the Customer Fibers within a Segment, Lateral Segment or Riser Segment, Level 3 shall provide a Connection Notice to Customer. Customer shall, within three (3) days of receipt of the Completion Notice, either accept or reject the Connection Notice (Customer shall be permitted to reject only if Customer specifies a material failure of the Customer Fibers to satisfy the requirements of this Service Schedule) by delivery of written notice to Level 3. In the event Customer rejects the Connection Notice, Level 3 shall promptly, and at no cost of Customer, commence to remedy the defect or failure specified in Customer's notice. Thereafter Level 3 shall again conduct Acceptance Testing and (if successfully completed) provide Customer a Connection Notice with respect to such Segment, Lateral Segment or Riser Segment. The foregoing procedure shall apply again and successively thereafter until Level 3 has remedied all defects or failures specified by Customer. Any failure by Customer to timely accept or reject a Connection Notice, or any use of the Customer Fibers by Customer for any purpose other than testing, shall be deemed to constitute acceptance for purposes of this Service Schedule and Customer shall be deemed to have delivered a notice of acceptance upon such use or on the third (3rd) day after delivery of the Connection Notice. 10. Interconnection Points. (A) Customer shall have the right to request that Level 3 interconnect Customer's communications system with the Customer Fibers at the Segment End Points and such other points as are determined and designated by Level 3 in its sole discretion as described in this Section 10 ("Interconnection Points"). Notwithstanding the foregoing, there shall be no Interconnection Points in any portion of the Level 3 System which transits Canada unless such interconnection can be accomplished in a fashion which, in Level 3's judgment, will not cause either Level 3 or Customer to be in violation of applicable laws or regulations. (B) In the event that Customer desires to cross-connect the Customer Fibers with other fibers provided by Customer or another carrier within a Segment End Point Facility, Customer shall execute a separate cross-connection agreement as provided by Level 3. In the event that Customer desires to install other fibers provided by Customer in a Segment End Point Facility, Customer shall execute a separate fiber termination agreement. In the event that Customer desires to interconnect the Customer Fibers with other fibers provided by Customer or another carrier at a location other than a Segment End Point Facility, Customer shall comply with Level 3's then-current interconnection policies and guidelines. The fees associated with such interconnection and cross-connection shall be specified in the then-current cross-connection agreement, fiber connection agreement and/or interconnection policies and guidelines. (C) Any additional work respecting the Level 3 System or the Customer Fibers required by Customer and which is not otherwise set forth in the interconnection policies and guidelines or the fiber connection agreement, shall be undertaken only by Level 3 at Customer's request and shall be performed within a reasonable amount of time consistent with industry accepted practices; Customer shall reimburse Level 3 for all Costs incurred in connection with such additional work, plus a management fee equal to thirty percent (30%) of such Costs. (D) Customer shall have no right to perform work on or otherwise physically access the Customer Fibers or the Level 3 System, except with the express permission and supervision of Level 3. 11. Operations. (A) Customer acknowledges and agrees that Level 3 is not supplying nor is Level 3 obligated to supply to Customer any optronic or electronic equipment or related facilities, all of which are the sole responsibility of Customer, nor is Level 3 responsible for performing any work other than as specified in this Service Schedule. (B) Upon not less than one hundred twenty (120) days written notice from Level 3 to Customer, Level 3 may, at its option substitute for the "Operating Customer Fibers" (as defined below) within any Segment or Segments, or any portions thereof, an equal number of alternative fibers within such Segment or portion thereof, provided that in such event, such substitution (i) shall be effected at the sole cost of Level 3; (ii) shall incorporate fiber meeting or exceeding the specifications set forth in Exhibit "A", and be tested in accordance with the Acceptance Testing; (iii) shall not change any Segment End Points or other Interconnection Points; and (iv) Level 3 shall use all reasonable good faith efforts to minimize any interruption in the operation of the Operating Customer Fibers. Substitution of Customer Fibers shall not affect or extend the Lease Term with respect to the fibers so substituted. For purposes of the foregoing, "Operating Customer Fibers" shall mean Customer Fibers which have been jumpered to Customer's space or equipment at a Segment End Point Facility. Level 3 may substitute Customer Fibers which are not Operating Customer Fibers at any time during the Lease Term without notice to Customer (provided that, in the event Level 3 has substituted the Customer Fibers, then at the time such Customer requests that its fibers be jumpered to its space or equipment, the substituted Customer Fibers will be tested in accordance with the provisions of this Service Schedule). 12. Maintenance and Relocation. (A) From and after the Lease Effective Date with respect to each Segment, the maintenance of the Level 3 System within such Segment shall be provided in accordance with the maintenance requirements and procedures set forth in Exhibit "B" at Level 3's sole cost and expense. (B) If Level 3 is required to relocate any portion of the Level 3 System, then Level 3 shall have the right to reasonably determine the extent and timing of such relocation, and any such relocation shall incorporate fiber meeting or exceeding the specifications set forth in Exhibit "A" and be subject to Acceptance Testing. If and to the extent that a relocation is not the result of a failure by Customer to observe and perform its obligations under this Service Schedule, the costs of relocations of the Level 3 System are included in the Lease Fee. Customer shall reimburse Level 3 for Level 3's Costs (including, but not limited to Acceptance Test and including amounts paid to a relocating authority to avoid relocation) to the extent that such relocation is the result of a failure by Customer to observe and perform its obligations under this Service Schedule. 13. Taxes. All charges for Customer Fibers are net of Applicable Taxes (as defined below). Except for taxes based on Level 3's net income, Customer will be responsible for all applicable taxes that arise in any jurisdiction, including, without limitation, value added, consumption, sales, use, gross receipts, excise, access, bypass, franchise or other taxes, fees, duties, charges or surcharges, however designated, imposed on, incident to, or based upon the provision, sale or use of the Customer Fibers (collectively "Applicable Taxes"). If Customer is entitled to an exemption from any Applicable Taxes, Customer is responsible for presenting Level 3 with a valid exemption certificate (in a form reasonably acceptable to Level 3). Level 3 will give effect to any valid exemption certificate provided in accordance with the foregoing sentence to the extent it applies to any Service billed by Level 3 to Customer following Level 3's receipt of such exemption certificate. 14. Use of Level 3 System. (A) Customer represents and warrants that it will use the Customer Fibers and the Lease hereunder in compliance with all applicable government codes, ordinances, laws, rules and regulations. (B) Subject to the provisions of this Service Schedule, Customer may use the Customer Fibers and the Lease for any lawful purpose. Customer acknowledges and agrees that it has no right to use any fibers, other than the Customer Fibers, included or incorporated in the Level 3 System, and that Customer shall keep any and all of the Level 3 System free from any liens, rights or claims of any third party attributable to Customer. (C) Customer shall not use the Customer Fibers in a way which physically interferes in any way with or otherwise adversely affects the use of the fibers, cable or conduit of any other Person using the Level 3 System. (D) Notwithstanding anything to the contrary in the Agreement, Customer covenants and agrees that Customer shall not and that Customer shall have no right to assign, sell, lease, sublease, or transfer any right or interest in the Lease or the Customer Fibers. Customer agrees and understands that Level 3 may enjoin Customer from any attempt to violate the provisions of this Section 14(D) 15. Insurance. Throughout the Lease Term, Customer will maintain reasonable and customary types and amounts of insurance, meeting all state requirements, with insurance companies authorized to transact business in the applicable state(s) where the Customer Fiber is located. 16. Late Delivery. If, other than as caused by a Force Majeure Event, Level 3 has not delivered a Completion Notice (in good faith) respecting a Segment (or if a Segment is part of a Loop, then with respect to all Segments comprising such Loop), Lateral Segment or Riser Segment within sixty (60) days after the Customer Commit Date with respect thereto, then either party shall have the right to terminate the Customer Order with respect to such Segment and Level 3 shall, upon such termination, pay Customer a termination charge in the amount equal to the Installation Fee for that Segment. Notwithstanding any other provisions related to late delivery under the Agreement, this Section sets forth the sole and exclusive remedies of Customer respecting a failure of Level 3 to complete installation of the Customer Fibers within any Segment, Lateral Segment or Riser Segment on or before the Customer Commit Date. 17. Representations and Warranties. (A) Customer acknowledges and agrees that Customer's sole rights and remedies with respect to any defect in or failure of the Customer Fibers to perform in accordance with the specifications set forth in Exhibit "A" shall be limited to the particular vendor's or manufacturer's warranty. In the event any maintenance or repairs to the Level 3 System are required as a result of a breach of any warranty made by any manufacturers, contractors or vendors, Level 3 shall pursue all remedies against such manufacturers, contractors or vendors on behalf of Customer, and Level 3 shall reimburse Customer's costs for any maintenance Customer has incurred as a result of any such breach of warranty to the extent the manufacturer, contractor or vendor pays such costs. (B) EXCEPT AS SET FORTH IN THE FOREGOING SECTION 17(A), LEVEL 3 MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE CUSTOMER FIBERS OR THE LEVEL 3 SYSTEM, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. Exhibit "A" Metropolitan (Local Loop) Network Fiber Acceptance Testing Procedures and Standards After Level 3 has completed end-to-end connectivity on the fibers, bi-directional span testing will be performed. Loss measurements will be recorded using an industry-accepted laser source and a power meter. OTDR traces will be taken and splice loss measurements will be recorded and summarized on data sheets. Copies of all data sheets will be made available to Customer. o The power loss measurements shall be made at 1310 nm and 1550 nm, and performed bi-directionally. o OTDR traces shall be taken in both directions at 1310 nm and 1550 nm. o The end-to-end loss value as measured with an industry-accepted laser source and power meter should have an attenuation rating of less than or equal to the following: Optical Cable with Single Mode Fiber (1) At 1310nm: (0.40 dB/km x km of cable) + (number of connectors x 0.5 dB) + (0.10 dB x number of splices). (2) At 1550nm: (0.30 dB/km x km of cable) + (number of connectors x 0.5 dB) + (0.10 dB x number of splices). Optical Cable with Negative Dispersion Single Mode Fiber (1) At 1310nm: (0.50 dB/km x km of cable) + (number of connectors x 0.5 dB) + (0.40 dB x number of splices). (2) At 1550nm: (0.25 dB/km x km of cable) + (number of connectors x 0.5 dB) + (0.20 dB x number of splices). o Spans that do not include field splices will receive power meter testing only. o Spans of high distances will be tested at 1550 nm only; the cutoff distance where only 1550 nm tests will be performed is approximately 50-60 km (the actual cutoff distance will be dependent upon the actual loss characteristics of the span, which itself is based upon the attenuation of the fiber and the number of splice points). o In the event Customer places live traffic on the Customer Fibers prior to delivery (or Customer otherwise assumes control of the Customer Fibers), then the Customer Fibers shall be deemed acceptable without final testing and will require no testing or documentation for splices. o Events close in proximity to a launch (connectors or splices in a building) will not be identified as events within the testing documentation. Rather, such events will be accounted for in the end-to-end loss budgets as described above. o In addition, events based upon fiber-specific circumstances may cause fibers to be considered acceptable. In these instances, Level 3 will provide background regarding the circumstances for the anomalous fibers. Regarding fiber terminated at a Segment End Point Facility which is subsequently delivered to a Customer-owned optical termination panel in a colocation space, fiber testing shall be conducted at the Segment End Point. Exhibit "B" Maintenance Requirements and Procedures Maintenance Scheduled Maintenance. Routine maintenance and repair of the Customer Fibers ("Scheduled Maintenance") shall be performed by or under the direction of Level 3, at Level 3's reasonable discretion. Scheduled Maintenance shall commence with respect to each Segment upon the Lease Effective Date. Unscheduled Maintenance. Non-routine maintenance and repair of the Customer Fibers that is not included as Scheduled Maintenance ("Unscheduled Maintenance") shall be performed by or under the direction of Level 3. Unscheduled Maintenance shall commence with respect to each Segment upon the Lease Effective Date. Unscheduled Maintenance shall consist of: o "Emergency Unscheduled Maintenance" in response to an alarm identification by Level 3's Operations Center, notification by Customer or notification by any third party of any failure, interruption or impairment in the operation of fibers within the Level 3 System, or any event imminently likely to cause the failure, interruption or impairment in the operation of fibers within the Level 3 System. o "Non-Emergency Unscheduled Maintenance" in response to any potential service-affecting situation to prevent any failure, interruption or impairment in the operation of fibers within the Level 3 System not covered by Scheduled Maintenance. Customer shall immediately report the need for Unscheduled Maintenance to Level 3 in accordance with reasonable procedures promulgated by Level 3 from time to time. Level 3 will log the time of Customer's report, verify the problem and dispatch personnel immediately to take corrective action. Operations Center Level 3 shall operate and maintain an Operations Center ("OC") staffed twenty-four (24) hours a day, seven (7) days a week by trained and qualified personnel. Level 3's maintenance personnel shall be available for dispatch twenty-four (24) hours a day, seven (7) days a week. Level 3 will not be responsible for monitoring the performance or operation of the Customer Fibers; in the event that Customer detects a failure in the operation of the Customer Fibers which may indicate the need for Unscheduled Maintenance, Customer shall report same to Level 3's OC. Planned Service Work Period Scheduled Maintenance that is reasonably expected to produce any signal discontinuity must be coordinated between the parties. Generally, this work should be scheduled after midnight and before 6:00 a.m. local time. The intent is to avoid jeopardy work during high-traffic periods. Cooperation and Coordination o In performing its services hereunder, Level 3 shall take workmanlike care to prevent impairment to the signal continuity and performance of the Customer Fibers. The precautions to be taken by Level 3 shall include notifications to Customer. In addition, Level 3 shall reasonably cooperate with Customer in sharing information and analyzing the disturbances regarding the cable and/or fibers. In the event that any Scheduled or Unscheduled Maintenance hereunder requires a traffic roll or reconfiguration involving cable, fiber, electronic equipment, or regeneration or other facilities of the Customer, then Customer shall, at Level 3's reasonable request, make such personnel of Customer available as may be necessary in order to accomplish such maintenance, which personnel shall coordinate and cooperate with Level 3 in performing such maintenance as required of Level 3 hereunder. o Level 3 shall notify Customer at least seven (7) calendar days prior to the date in connection with any Planned Service Work Period ("PSWP") of any Scheduled Maintenance and as soon as possible after becoming aware of the need for Unscheduled Maintenance. Customer shall have the right to be present during the performance of any Scheduled Maintenance or Unscheduled Maintenance so long as this requirement does not interfere with Level 3's ability to perform its obligations under the Agreement. In the event that Scheduled Maintenance is canceled or delayed for whatever reason as previously notified, Level 3 shall notify Customer at Level 3's earliest opportunity, and will comply with the provisions of the previous sentence to reschedule any delayed activity. Cable/Fibers o Level 3 shall have its first maintenance personnel at the site requiring Emergency Unscheduled Maintenance activity within four (4) hours after the time Level 3 becomes aware of an event requiring Emergency Unscheduled Maintenance, unless delayed by Force Majeure Events. Level 3 shall maintain a toll-free telephone number to contact personnel at the OC. Level 3's OC personnel shall dispatch maintenance and repair personnel along the system to handle and repair problems detected in the Level 3 System: (i) through the Customer's remote surveillance equipment and/or upon notification by Customer to Level 3, or (ii) upon notification by a third party. o Level 3 shall maintain sufficient capability to teleconference with Customer during Emergency Unscheduled Maintenance in order to provide regular communications during the repair process. When correcting or repairing cable discontinuity or damage, including but not limited to in the event of Emergency Unscheduled Maintenance, Level 3 shall use reasonable efforts to repair traffic-affecting discontinuity within four (4) hours after Level 3's representatives arrival at the problem site. In order to accomplish such objective, it is acknowledged that the repairs so affected may be temporary in nature. In such event, within twenty-four (24) hours after completion of any such Emergency Unscheduled Maintenance, Level 3 shall commence its planning for permanent repair, and thereafter promptly shall notify Customer of such plans, and shall implement such permanent repair within an appropriate time thereafter. Restoration of open fibers on fiber strands not immediately required for service shall be completed on a mutually agreed-upon schedule. If the fiber is required for immediate service, the repair shall be scheduled for the next available PSWP. o Level 3's representatives that are responsible for initial restoration of a cut cable shall carry on their vehicles the typically appropriate equipment that would enable a temporary splice, with the objective of restoring operating capability in as little time as possible. Level 3 shall maintain and supply an inventory of spare cable in storage facilities supplied and maintained by Level 3 at strategic locations to facilitate timely restoration. Restoration o Level 3 shall respond to any event giving rise to the need for Unscheduled Maintenance (in any event, an "Outage") as quickly as possible (allowing for delays caused by Force Majeure Events) in accordance with the procedures set forth herein. o When restoring a cut cable in the Level 3 System, the parties agree to work together to restore all traffic as quickly as possible. Level 3, promptly upon arriving on the site of the cut, shall determine the course of action to be taken to restore the cable and shall begin restoration efforts. Level 3 shall splice fibers tube by tube or ribbon by ribbon or fiber buffer by fiber buffer, rotating between tubes, ribbons or buffers operated by the parties having an interest in the cable, including Customer and all future fiber users of the system (collectively, the "Interest Holders"); provided that, operating fibers (i.e., fibers which have been jumpered to Customer's or another party's space or equipment) in all buffer tubes or ribbons or fiber bundles shall have priority over any non-operating fibers in order to allow transmission systems to come back on line; and provided further that, Level 3 will continue such restoration efforts until all lit fibers in all buffer tubes or ribbons are spliced and all traffic restored. Notwithstanding the foregoing, Level 3 does not guarantee any specific rotational prioritization for Customer in light of the overriding requirement for expediency in restoration of services to all parties. Facilities Customer will be solely responsible for providing and paying for any and all maintenance of all electronic, optronic and other equipment, materials and facilities used by Customer in connection with the operation of the Customer Fibers, none of which is included in the maintenance services to be provided hereunder. Subcontracting Level 3 may subcontract any of the maintenance services hereunder; provided that Level 3 shall require the subcontractor(s) to perform in accordance with the requirements and procedures set forth herein. The use of any such subcontractor shall not relieve Level 3 of any of its obligations hereunder. SERVICE SCHEDULE (3)LINKSM DARK FIBER SERVICE - IRU (NORTH AMERICA) 1. Applicability. This Service Schedule is applicable only where Customer orders (3)LinkSM Dark Fiber Service on an IRU basis in North America only. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Acceptance Testing" shall have the meaning set forth in Section 11(A). (B) "Building Access Fee" shall be the recurring fee for building access associated with a Lateral Segment or Riser Segment as specified in each Customer Order. (C) "Cable" shall mean the high fiber count fiber optic cable owned by Level 3. (D) "Costs" shall mean the actual direct costs paid or payable in accordance with the procedures generally used by Level 3 in billing third parties for reimbursable projects, including the following: (i) the direct costs and out of pocket expenses on a direct pass-through basis, plus (ii) thirty percent (30%) of the amount set forth in (i) above for project planning expenses and internal labor costs, including wages, salaries, benefits and overhead of Level 3's personnel. (E) "Customer Commit Date" or "CCD" shall mean the date that the (3)LinkSM Dark Fiber Service will be available to customer as set forth in the Customer Welcome Letter, subject to Force Majeure Events. (F) "Customer Fibers" shall mean the number of fibers set forth in a Customer Order Form between the Segment End Points for a particular Segment. (G) "Customer Order" shall mean the order for (3)LinkSM Dark Fiber Services in the form attached hereto as Exhibit "A". (H) "Dark Fiber" shall mean fiber provided without electronic and/or optronic equipment and which is not "lit" or activated. (I) "Design, Planning and Engineering Fee" or "D,P&E Fee" shall be the fee for incremental design, planning and engineering of the Customer Fibers as set forth in a Customer Order. (J) "Force Majeure Event" is defined in Section 7.1 of the Agreement. (K) "Governmental Authority" shall mean any federal, state, regional, county, city, municipal, local, territorial, or tribal government, whether foreign or domestic, or any department, agency, bureau or other administrative or regulatory body obtaining authority from any of the foregoing, including without limitation, courts, public utilities and sewer authorities. (L) "Impositions" shall mean all franchise, license and permit fees arising out of the transactions contemplated by this Service Schedule and imposed upon the Level 3 System, or any part thereof, by any Governmental Authority and which may be attributable or apportionable to the Customer Fibers. (M) "Interconnection Points" shall have the meaning set forth in Section 12(A). (N) "IRU" shall have the meaning set forth in Section 5. (O) "IRU Effective Date" shall have the meaning set forth in Section 7(A). (P) "IRU Fee" shall be the fee for the use of the Customer Fibers in a Segment as specified in each Customer Order. (Q) "IRU Term" shall have the meaning set forth in Section 7(A). (R) "Lateral Segment" shall mean the On-Net Lateral Segments and/or Off-Net Lateral Segments of the Level 3 System identified as such in a Customer Order and each of which shall be owned by Level 3. (S) "Lateral Segment Customer Commit Date" shall mean, with respect to each Lateral Segment and subject to Force Majeure Events, the dates set forth in a Customer Welcome Letter. (T) "Lateral Segment End Point" shall have the meaning set forth in Section 9(B). (U) "Lateral Segment Fee" shall be the fee for the use of the Customer Fibers in a Lateral Segment as specified in a Customer Order. (V) "Lateral Segment Interconnection Point" shall have the meaning set forth in Section 9(B). (W) "Level 3 System" shall have the mean the multi-conduit fiber optic system owned by Level 3. (X) "Loop" shall mean a group of Segments as delineated in a Customer Order (for the avoidance of confusion the definition of "Local Loop" at Section 1.11 under the Agreement shall not apply to (3)LinkSM Dark Fiber Service). (Y) "Off-Net Lateral Segment" shall mean a Lateral Segment that connects the backbone of the Level 3 System to a location where Level 3 has not completed construction at the time of such request from Customer. (Z) "Off-Net Riser Segment" shall mean a Riser Segment for which Level 3 has not completed construction and/or for which Level 3 has not secured or reserved funding for construction at the time of request by Customer. (AA) "On-Net Lateral Segment" shall mean a Lateral Segment that connects the backbone of the Level 3 System to a location where Level 3 has already completed construction at the time of such request from Customer. (BB) "On-Net Riser Segment" shall mean a Riser Segment for which Level 3 has completed construction at the time of request by Customer. (CC) "Person" shall mean any natural person, corporation, partnership, limited liability company, business trust, joint venture, association, company or Governmental Authority. (DD) "Property Taxes" shall have the meaning set forth in Section 16(E). (EE) "Recurring Charge" shall have the meaning set forth in Section 15(B). (FF) "Relocating Authority" shall have the meaning set forth in Section 8(B). (GG) "Required Rights" shall have the meaning set forth in Section 8(A). (HH) "Riser Segment" shall mean the Segments (including On-Net Riser Segments and Off-Net Riser Segments) of the Level 3 System that connect a Lateral Segment within a building to another location within the same building identified in each Customer Order and each of which shall be owned by Level 3. (II) "Riser Segment Customer Commit Date Date" shall mean, with respect to each Riser Segment and subject to Force Majeure Events, the dates confirmed by each Customer Welcome Letter. (JJ) "Riser Segment End Point" shall have the meaning set forth in Section 10(B). (KK) "Riser Segment Fee" shall mean the fee for the use of the Customer Fibers in a Riser Segment as specified in each Customer Order. (LL) "Riser Segment Interconnection Point" shall have the meaning set forth in Section 10(B). (MM) "Route Miles" shall mean, for each Segment, the number of route miles identified in the Customer Order. (NN) "Running Line Facilities" shall mean such facilities located along intercity Segments (including regeneration facilities and opamp facilities but excluding Segment End Point Facilities) that are owned, leased or otherwise used by Level 3 to regenerate the signal of lit fibers in the Cable or optically amplify lit fibers in the Cable as more particularly described in Exhibit "B". (OO) "Segments" shall have the meaning set forth in Section 3(A). (PP) "Segment End Point" shall have the meaning set forth in Section 3(A). (QQ) "Segment End Point Facilities" shall mean such facilities (including gateways, synergy sites and terminal facilities but excluding Running Line Facilities) that are owned, leased or otherwise used by Level 3 to accommodate or house switch equipment, fiber optic transmission and/or associated ancillary equipment to serve as a switch terminal, transport concentrator, hub terminal or junction. (RR) "Service Commencement Date" shall mean the date when Customer accepts (or is deemed to accept) f a Connection Notice with respect to a Segment in accordance with Section 11(B) notwithstanding Section 1.15 of the Agreement. (SS) "System Route" shall have the meaning set forth in Section 3(A). (TT) "Targeted Completion Date" shall mean, with respect to each Segment and subject to Force Majeure Events, the dates set forth in a Customer Order. (UU) "Taxes" shall mean Property Taxes, Transaction Taxes and Withholding Taxes, collectively. (VV) "Transaction Taxes" shall have the meaning set forth in Section 16(D). (WW) "Withholding Taxes" shall have the meaning set forth in Section 16 (F). 3. System Route. (A) For each Customer Order executed by the parties, the Level 3 System will connect the points identified on such Customer Order (each point in a Customer Order is called a "Segment End Point", the route between the applicable Segment End Points is called a "Segment", and all of the Segments together are called the "System Route"). The Level 3 System will include the "Lateral Segments" and "Riser Segments" (each of which shall be considered a "Segment" for purposes hereof), if any, identified in a Customer Order. (B) Level 3 has constructed Running Line Facilities along the intercity Segments of the Level 3 System as described in Exhibit "B". Customer shall be provided with the use of space and power as specified in Exhibit "B", and shall pay the charges specified in Exhibit "B" in accordance with the terms hereof (C) Occupancy by Customer in any Segment End Point Facility shall be subject to the execution of a Customer Order pursuant to the (3)CenterSM Colocation Service Schedule of the Agreement. 4. Cancellation of Customer Orders. (A) Customer shall have the right (subject to payment of the cancellation charges set forth herein) to cancel any Customer Order executed by the parties upon written notice to Level 3 delivered on or before the earlier to occur of a) thirty (30) days following the issuance of the Customer Welcome Letter; or b) Level 3's delivery to Customer of a Connection Notice for any of the Customer Fibers ordered pursuant to such Customer Order. In the event Customer exercises its right to cancel the Customer Order as provided above, Customer shall pay a cancellation charge to Level 3 (as liquidated damages and not a penalty) equal to the greater of 1) the Design, Planning and Engineering Fee for the cancelled Customer Fibers in the Customer Order; or 2) Level 3's Costs (plus a thirty percent (30%) management fee) incurred to implement the Customer Order for Customer (including demobilization costs after Level 3's receipt of the cancellation notice from Customer). Level 3 may retain the Design, Planning and Engineering Fee, if already paid by Customer, to satisfy (in whole or in part) the cancellation charge. (B) This Section 4 sets forth Customer's sole right to terminate for convenience and (3)LinkSM Dark Fiber Service. As such, the parties acknowledge and agree that Section 3.7 of the Agreement shall not apply to any (3)LinkSM Dark Fiber Service provided on an IRU basis pursuant to this Service Schedule. 5. Grant of IRU. As of the IRU Effective Date for each particular Segment delivered by Level 3 to Customer hereunder, Level 3 hereby grants to Customer, and Customer hereby acquires from Level 3 (i) an exclusive indefeasible right of use in, for the purposes described herein, the Customer Fibers designated in the Customer Order; and (ii) an associated and non-exclusive license to use, for the purposes described herein, the designated space in the Running Line Facilities, all upon and subject to the terms and conditions set forth herein (collectively the "IRU"). 6. Fees. (A) Customer agrees to pay, as compensation for Level 3's performance of incremental design, planning and engineering of the Customer Fibers located within each Segment, Lateral Segment and Riser Segment, the Design, Planning and Engineering Fee set forth in each Customer Order. (B) Customer further agrees to pay, as compensation for the use of the Customer Fibers, the IRU Fee set forth in each Customer Order. (C) Customer further agrees to pay, as compensation for the construction and installation of Customer Fiber within the Lateral Segments and as compensation for the use thereof, the Lateral Segment Fee set forth in each Customer Order. (D) Customer further agrees to pay, as compensation for the construction and installation of Customer Fiber within the Riser Segments and as compensation for the use thereof, the Riser Segment Fee set forth in each Customer Order. (E) Customer further agrees to pay, as compensation for the recurring access charges for Lateral Segments and Riser Segments, the Building Access Fees set forth in each Customer Order. (F) In addition to the foregoing amounts, Customer shall pay directly or reimburse Level 3 for all other sums, costs, fees and expenses which are expressly provided to be paid by Customer under this Service Schedule. (G) Except for the D,P,&E Fee, which shall be due and payable no later than five (5) days after the execution of each Customer Order, Level 3 will send Customer invoices for payments of the all other sums, costs, fees and expenses owed by Customer to Level 3 hereunder (including, but not limited to, the IRU Fee, the Lateral Segment Fee and the Riser Segment Fee), and Customer shall pay such invoiced amounts in accordance with Section 3.3 of the Agreement. Notwithstanding the foregoing, in the event one or more Segments in a metropolitan area are part of a Loop, then the IRU Fee for all of the Segments in that Loop shall be due and payable within thirty (30) days after the Service Commencement Date of the last Segment comprising the Loop. 7. IRU Term. (A) The IRU with respect to each Segment shall become effective on the first day when both (i) the Service Commencement Date with respect to the Customer Fibers within a Segment has occurred and (ii) Level 3 has received payment of all of the IRU Fee, Lateral Segment Fee or Riser Segment Fee, as applicable, with respect to such Segment (the "IRU Effective Date"). Subject to the provisions of Section 4.2 of the Agreement, the IRU with respect to the Customer Fibers within each Segment shall terminate on the twentieth (20th) anniversary of the IRU Effective Date (or such shorter period as may be set forth in the Customer Order), and the IRU with respect to the Customer Fibers within each Riser Segment shall terminate on the fifth (5th) anniversary of the IRU Effective Date (the "IRU Term"). Notwithstanding the shorter Agreement Term set forth in Section 4.1(A) of the Agreement, the Agreement Term with respect to (3)LinkSM Dark Fiber Service only shall continue for the IRU Term. (B) Upon the expiration or termination of the IRU Term respecting a Segment as provided in this Service Schedule, all rights to the use of the Customer Fibers therein shall revert to Level 3 without reimbursement of any of the IRU Fee or other sums, costs, fees or expenses previously made with respect thereto, and from and after such time Customer shall have no further rights or obligations hereunder with respect thereto unless such rights or obligations are specifically provided herein to survive the IRU Term (nor shall this act to absolve Customer from payment obligations which arose prior to expiration of the Term). (C) This Service Schedule shall become effective on the Service Schedule Effective Date above and shall terminate on the date when all the IRU Terms of the Segments shall have expired or terminated (subject always to the earlier termination provisions of Section 4.2 of the Agreement), except that those provisions of this Service Schedule which are expressly provided herein to survive such termination shall remain binding on the parties hereto. 8. Required Rights. (A) Level 3 agrees to obtain and maintain in full force and effect for and during the IRU Term of each Segment all rights, licenses, permits, authorizations, franchises, rights-of-way, easements and other approvals (collectively, the "Required Rights") that are necessary for Level 3 to obtain in order to permit Level 3 to construct, install and keep installed, and maintain the Customer Fibers and, if applicable, the associated Running Line Facilities within such Segment in accordance with this Service Schedule and to convey the IRU in the Customer Fibers to Customer and all other rights under this Service Schedule pursuant to the IRU. Customer shall obtain and maintain in full force and effect for and during the IRU Term of each Segment all Required Rights are necessary for Customer to obtain in order to use and operate the Customer Fibers. (B) If, after the Service Commencement Date with respect to a Segment, Level 3 is required (i) by any Governmental Authority under the power of eminent domain or otherwise, (ii) by the grantor or provider of any Required Right, (iii) by any other Person having the authority to so require (each a "Relocating Authority"), or (iv) by the occurrence of any Force Majeure Event, to relocate the Level 3 System within such Segment or any portion thereof, Level 3 shall have the right to either proceed with such relocation, including, but not limited to, the right, in good faith, to reasonably determine the extent and timing of, and methods to be used for, such relocation, or to pay such amounts to the Relocating Authority as are necessary to avoid the need for such relocation. Customer shall be kept fully informed of determinations made by Level 3 in connection with such relocation, and any such relocation shall incorporate fiber meeting or exceeding the specifications set forth in Exhibit "C" and be subject to Acceptance Testing. If and to the extent that a relocation is not the result of a failure by Grantee to observe and perform its obligations under this Agreement, the costs of relocations of the Grantor System are included in the Recurring Charge. Grantee shall reimburse Grantor for Grantor's Costs (including but not limited to Acceptance Testing and including amounts paid to a Relocating Authority to avoid relocation) to the extent that such relocation is the result of a failure by Grantee to observe and perform its obligations under this Agreement. (C) Notwithstanding anything to the contrary contained in this Service Schedule or the Agreement, to the extent Level 3 is required under the terms and provisions of any Required Right to indemnify the grantor or provider thereof from and against any and all claims, suits, judgments, liabilities, losses and expenses arising out of service interruption, cessation, unreliability of or damage to the Level 3 System, regardless of whether such claims, suits, judgments, liabilities, losses or expenses arise from the sole or partial negligence, willful misconduct or other action or inaction of such grantor or provider and its employees, servants, agents, contractors, subcontractors or other Persons using the property covered by such Required Right, Customer hereby releases such grantor or provider from, and hereby waives, all claims, suits, judgments, liabilities, losses and expenses arising out of service interruption, cessation, unreliability of or damage to the Level 3 System regardless of whether such claims, suits, judgments, liabilities, losses or expenses arise from the sole or partial negligence, willful misconduct or other action or inaction, of such grantor or provider or its employees, servants, agents, contractors, subcontractors or other Persons using the property covered by such Required Right. 9. Lateral Segments. (A) In the event that Customer desires to have Level 3 provide Lateral Segments during the IRU Term, Customer may request (in writing) that Level 3 provide terms for procurement of the same. Upon receipt of such a request, Level 3 shall notify Customer whether such additional Lateral Segment is On-Net or Off-Net and will provide Customer with written notice of the price Upon receipt thereof, Customer shall advise Level 3 whether or not Customer elects to have Level 3 provide such Lateral Segment. If so, then the parties shall promptly execute a Customer Order and Customer Welcome Letter including the Lateral Segment. Unless agreed to by the parties in a Customer Order and Customer Welcome Letter, Level 3 shall be under no obligation to provide the Lateral Segments to Customer. (B) Each Lateral Segment shall be constructed from a point on the backbone of the Level 3 System (the "Lateral Segment Interconnection Point") to a building access point (the "Lateral Segment End Point"). The Lateral Segment Interconnection Point shall be determined by Level 3 and shall generally be located at a Level 3 manhole. The Lateral Segment End Point shall be determined by Level 3 and shall generally be located at a point within the building or a manhole outside the building, as further described in the Customer Order. (C) In the event that Customer requests the use of fibers in an On-Net Lateral Segment and Level 3 determines to grant the same, then (unless otherwise agreed to by the parties) the Lateral Segment Fee respecting each such On-Net Lateral Segment shall be a fixed price as agreed to by the parties. In the event that Customer requests construction of an Off-Net Lateral Segment and Level 3 determines to construct same, then (unless otherwise agreed by the parties) the Lateral Segment Fee respecting each such Off-Net Lateral Segment shall be equal to one hundred percent (100%) of the Cost incurred by Level 3 in connection with the construction and installation of such Off-Net Lateral Segment, plus any non-recurring charges associated with building access/risers and a management fee equal to thirty percent (30%) of such Costs. An estimate of the Lateral Segment Fee for the Off-Net Lateral Segment shall be included in the Customer Order, and Customer shall pay such estimated Lateral Segment Fee in full within thirty (30) days of receipt of an invoice therefore. In the event it is determined by Level 3 that the actual Cost to construct the Off-Net Lateral Segment was either higher or lower than the estimated Cost paid by Customer, then additional fees for the Lateral Segment will be invoiced or credits issued as appropriate. Level 3 shall use commercially reasonable efforts to determine whether such credits or additional payments are required within ninety (90) days of the Service Commencement Date for such Lateral Segment. The Lateral Segment Fee does not include any Building Access Fees that may be associated with building access and risers. (D) Level 3 shall use commercially reasonable efforts to deliver each Lateral Segment on or before the Lateral Segment Customer Commit Date. Level 3 shall keep Customer informed of the progress of work necessary to complete such delivery, but Customer shall not be entitled to any liquidated damages (as set forth in Section 19) related to the failure to complete delivery of an Off-Net Lateral Segment on or before the dates required by this Section. 10. Riser Segments. (A) In the event that Customer desires to have Level 3provide Riser Segments during the IRU Term, Customer may request (in writing) that Level 3 provide pricing terms and conditions for the same. Upon receipt of such a request, Level 3 shall notify Customer whether Level 3 has constructed or intends to construct such additional Riser Segment and, if so, Level 3 shall provide Customer with written notice of the price. Upon receipt thereof, Customer shall advise Level 3 whether or not Customer elects to have Level 3 provide such Riser Segment. If so, then the parties shall execute a Customer Order and Customer Welcome Letter including the Riser Segment. Unless agreed to by the parties in a Customer Order and Customer Welcome Letter, Level 3 shall be under no obligation to provide Riser Segments. (B) Each Riser Segment shall be constructed from a Segment End Point or a Lateral Segment End Point (as the case may be) within a facility (the "Riser Segment Interconnection Point") to another location within the same facility (the "Riser Segment End Point"). Both the Riser Segment Interconnection Point and the Riser Segment End Point shall be determined by Level 3. (C) In the event that Customer requests the use of fibers in an On-Net Riser Segment and Level 3 determines to grant the same, then (unless otherwise agreed to by the parties) the Riser Segment Fee respecting each such On-Net Riser Segment shall be a fixed price as agreed to by the parties. In the event that Customer requests construction of an Off-Net Riser Segment and Level 3 determines to construct same, then (unless otherwise agreed by the parties) the Riser Segment Fee respecting each such Off-Net Riser Segment shall be equal to one hundred percent (100%) of the Cost incurred by Level 3 in connection with the construction and installation of such Off-Net Riser Segment, plus any non-recurring charges associated with building access/risers and a management fee equal to thirty percent (30%) of such Costs. An estimate of the Riser Segment Fee for the Off-Net Riser Segment shall be included in the Customer Welcome Letter, and Customer shall pay such estimated Riser Segment Fee in full within thirty (30) days of receipt of an invoice therefore. In the event it is determined by Level 3 that the actual Cost to construct the Off-Net Riser Segment was either higher or lower than the estimated Cost paid by Customer, then additional fees for the Riser Segment will be invoiced or credits issued as appropriate. Level 3 shall use commercially reasonable efforts to determine whether such credits or additional payments are required within ninety (90) days of the Service Commencement Date for such Riser Segment. The Riser Segment Fee does not include any Building Access Fees that may be associated with building access and risers. (D) Level 3 shall use commercially reasonable efforts to deliver each Riser Segment on or before the Riser Segment Customer Commit Date. Level 3 shall keep Customer informed of the progress of work necessary to complete such delivery, but Customer shall not be entitled to any liquidated damages (as set forth in Section 19) related to the failure to deliver an Off-Net Riser Segment on or before the dates required by this Section. 11. Acceptance Testing and Completion. (A) Level 3 shall test the Customer Fibers in accordance with the procedures and standards specified in Exhibit "D" ("Acceptance Testing") and Level 3 shall provide Customer with a copy of such test results for each Segment so that the test results may be reviewed in a timely manner. Acceptance Testing is limited to testing of the Customer Fibers. Customer shall be responsible for the timely designation of its space and power requirements and completion of any work or installation required in order for it to place the Customer Fibers into operation (and Customer's failure to designate its space and power requirements or complete such work shall not be grounds for rejection of a Connection Notice). (B) Upon the successful completion of Acceptance Testing respecting the Customer Fibers within a Segment, Lateral Segment or Riser Segment and, if applicable, the completion of any build out required for the associated Running Line Facilities, Level 3 shall provide a Connection Notice to Customer. Level 3 shall contemporaneously deliver a copy of the results of the Acceptance Testing for the Segment, Lateral Segment or Riser Segment (if and to the extent that Level 3 has not previously delivered same) and Customer shall, within fifteen (15) days of receipt of the Connection Notice (notwithstanding the shorter acceptance period set forth in Section 3.1 of the Agreement), either accept or reject the Connection Notice (Customer shall be permitted to reject only if Customer specifies a material failure of the Customer Fibers to satisfy the requirements of this Service Schedule) by delivery of written notice to Level 3. In the event Customer rejects the Connection Notice, Level 3 shall promptly, and at no cost of Customer, commence to remedy the defect or failure specified in Customer's notice. Thereafter Level 3 shall again conduct Acceptance Testing and (if successfully completed) provide Customer a Connection Notice with respect to such Segment, Lateral Segment or Riser Segment. The foregoing procedure shall apply again and successively thereafter until Level 3 has remedied all defects or failures specified by Customer. Any failure by Customer to timely accept or reject a Connection Notice, or any use of the Customer Fibers or the space in the Running Line Facilities by Customer for any purpose other than testing of the Customer Fibers, shall be deemed to constitute acceptance for purposes of this Service Schedule and Customer shall be deemed to have delivered a notice of acceptance upon such use or on the fifteenth day after delivery of the Connection Notice. Notwithstanding the foregoing, Level 3 may send a separate Connection Notice for each Running Line Facility located along a Segment. 12. Interconnection Points. (A) Customer shall have the right to request that Level 3 interconnect Customer's communications system with the Customer Fibers at the Segment End Points and such other points as are determined and designated by Level 3 in its sole discretion as described in this Section 12 ("Interconnection Points"). Notwithstanding the foregoing, there shall be no Interconnection Points in any portion of the Level 3 System which transits Canada unless such interconnection can be accomplished in a fashion which, in Level 3's judgment, will not cause either Level 3 or Customer to be in violation of applicable laws or regulations. (B) Level 3 may route the Customer Fibers through Level 3's space in any Segment End Point Facilities or Running Line Facilities, in Level 3's sole discretion; provided such routing shall not materially adversely affect Customer's use of the Customer Fibers hereunder and Level 3 shall be responsible for all costs and expenses associated therewith. (C) In the event that Customer desires to cross-connect the Customer Fibers with other fibers provided by Customer or another carrier within a Segment End Point Facility, Customer shall execute a separate cross-connection agreement as provided by Level 3. In the event that customer desires to install other fibers provided by Customer in a Segment End Point Facility, Customer shall execute a separate fiber termination agreement. In the event that Customer desires to interconnect the Customer Fibers with other fibers provided by Customer or another carrier at a location other than a Segment End Point Facility, Customer shall comply with Level 3's then-current interconnection policies and guidelines. The fees associated with such interconnection and cross-connection shall be specified in the then-current cross-connection agreement, fiber termination agreement and/or interconnection policies and guidelines. (D) Any additional work respecting the Level 3 System or the Customer Fibers required by Customer and which is not otherwise set forth in the interconnection policies and guidelines or the fiber connection agreement, shall be undertaken only by Level 3 in Level 3's sole discretion at Customer's request and shall be performed within a reasonable amount of time consistent with industry accepted practices; Customer shall reimburse Level 3 for all Costs incurred in connection with such additional work, plus a management fee equal to thirty percent (30%) of such Costs. (E) Customer shall have no right to perform work on or otherwise physically access the Customer Fibers, the Level 3 System or the Interconnection Points, except with the express permission and supervision of Level 3. In the event Customer accesses a Level 3-owned manhole, hand hole or the Level 3 System without the express permission and supervision of Level 3, Customer shall pay to Level 3 a fee (as liquidated damages and not as a penalty) in the amount of ten thousand dollars ($10,000) for the first occurrence and twenty five thousand dollars ($25,000) for each occurrence thereafter. Notwithstanding the foregoing, this provision shall not limit Level 3's ability to pursue a claim for damages to the equipment or facilities as a result of such access by Customer and in no event shall this provision authorize Customer to access a Level 3-owned manhole, hand hole or the Level 3 System without the express permission and supervision of Level 3. 13. Operations. (A) Subject to the access restrictions set forth in Section 12, Customer shall (at its full cost and expense) have full and complete control and responsibility for determining any network and service configuration or designs, routing configurations, re-grooming, rearrangement or consolidation of channels or circuits and all related functions with regard to the use of the Customer Fibers; provided, such control and responsibility by Customer shall not adversely affect the use by any other Person of the Level 3 System and/or any electronic or optronic equipment used by such Person in connection therewith. (B) Customer acknowledges and agrees that except for the items included as part of the Running Line Facilities as described in Exhibit "B", Level 3 is not supplying nor is Level 3 obligated to supply to Customer any optronic or electronic equipment or related facilities, all of which are the sole responsibility of Customer, nor is Level 3 responsible for performing any work other than as specified in this Service Schedule. (C) Upon not less than one hundred twenty (120) days written notice from Level 3 to Customer, Level 3 may, at its option substitute for the "Operating Customer Fibers" (as defined below) within any Segment or Segments, or any portions thereof, an equal number of alternative fibers within such Segment or portion thereof, provided that in such event, such substitution (i) shall be effected at the sole cost of Level 3; (ii) shall incorporate fiber meeting or exceeding the specifications set forth in Exhibit "C", and be tested in accordance with the Acceptance Testing; (iii) shall not change any Segment End Points or other Interconnection Points; and (iv) Level 3 shall use all reasonable good faith efforts to minimize any interruption in the operation of the Operating Customer Fibers. Substitution of Customer Fibers shall not affect or extend the IRU Term with respect to the fibers so substituted. For purposes of the foregoing, "Operating Customer Fibers" shall mean Customer Fibers which have been jumpered to Customer's space or equipment at a Segment End Point Facility or a Running Line Facility. Level 3 may substitute Customer Fibers which are not Operating Customer Fibers at any time during the IRU Term without notice to Customer (provided that, in the event Level 3 has substituted the Customer Fibers, then at the time such Customer requests that its fibers be jumpered to its space or equipment, the substituted Customer Fibers will be tested in accordance with the provisions of this Service Schedule). 14. Maintenance and Repair of the Level 3 System. From and after the IRU Effective Date with respect to each Segment, the maintenance of the Level 3 System within such Segment shall be provided in accordance with the maintenance requirements and procedures set forth in Exhibit "E" attached hereto. The costs to the Customer of all Scheduled and Unscheduled Maintenance (as defined in Exhibit "E") of the Customer Fibers shall be paid by Customer as the Recurring Charge. 15. Recurring Charge. (A) Customer shall pay to Level 3 for Scheduled and Unscheduled Maintenance (including relocations) of the Level 3 System (as set forth in Exhibit "E") each year commencing with the Service Commencement Date of a Segment (or if a Segment is part of a Loop, then commencing on the Service Commencement Date of the last Segment of Customer Fiber comprising such Loop) and continuing until the expiration of the IRU Term with respect to such Segment shall have occurred (subject to the adjustment set forth in Section 15(D) below), as follows (the "Recurring Charge"): (i) for an intercity Segment, the product obtained when (a) the amount specified in the table below is multiplied by (b) the number of Route Miles in such Segment and (ii) for a metro Segment, the greater of seven thousand five hundred dollars ($7,500.00) per metropolitan statistical area (as defined by the United States Office of Management and Budget) or the product obtained when: (a) the amount set forth in the table below is multiplied by (b) the number of Route Miles in all Segments within such metropolitan statistical area. (iii) for a Lateral Segment, whether metro or intercity, a charge of two thousand four hundred ($2,400.00) per Lateral Segment. - ---------------------------------------- Number of Amount Per Route Mile Customer Fibers - ---------------------------------------- 2 Fibers ** - ---------------------------------------- - ---------------------------------------- 4 Fibers ** - ---------------------------------------- - ---------------------------------------- 6 Fibers ** - ---------------------------------------- - ---------------------------------------- 8 Fibers ** - ---------------------------------------- - ---------------------------------------- 10 Fibers ** - ---------------------------------------- - ---------------------------------------- 12 Fibers ** - ---------------------------------------- - ---------------------------------------- 14 or greater ** Fibers - ---------------------------------------- (C) In the event Level 3 is required to relocate all or a portion of a Segment in accordance with the procedures contained in Section 8(B), then the number of Route Miles used to calculate the Recurring Charge for the Segment shall be adjusted accordingly. (D) The Recurring Charge shall be increased on each anniversary of the Service Commencement Date of the first Segment in which Customer will receive the IRU by the increase, if any, in the Consumer Price Index, All Urban Consumers (CPI-U), U.S. City Average, published by the United States Department of Labor, Bureau of Labor Statistics (1982-84 = 100), for the preceding twelve (12) month period where Customer may have an IRU in Customer Fibers. In the event such index shall cease to be computed or published, Level 3 may, in its reasonable discretion, designate a successor index to be used in determining any increase to the Recurring Charge. (E) The Recurring Charge for the first Segment shall be due and payable on the Service Commencement Date of such Segment and on each anniversary thereof. The Recurring Charge for additional Segments shall also be due upon the applicable Service Commencement Date, but shall be pro-rated based upon the number of months from such Service Commencement Date until the next anniversary date for the first Segment. Thereafter, the Recurring Charge for any Segment shall be due on the anniversary date for the first Segment. 16. Impositions and Taxes. (A) Level 3 and Customer acknowledge and agree that it is their mutual objective and intent to minimize, to the extent feasible, all Impositions and Taxes and that they will cooperate with each other and coordinate their mutual efforts to achieve such objective in accordance with the provisions of this Article. In the event any Imposition or Tax is required to be paid by Customer to Level 3 hereunder, all invoice, payment and interest terms of Section 3.3(B) of the Agreement shall apply. (B) Following the Service Commencement Date for each Segment, Customer shall pay all Impositions separately imposed upon or with the respect to the Customer Fibers. (C) Following the Service Commencement Date, Level 3 shall timely pay any and all Impositions imposed upon or with respect to the Level 3 System to the extent such Impositions have not been separately assessed or imposed upon or against the respective interests of Level 3 and Customer in such Level 3 System. Upon receipt of a notice of any such Imposition, Level 3 shall promptly notify Customer of such Imposition and Customer shall pay or reimburse Level 3 for its proportionate share of such Imposition, which share shall be determined (i) to the extent possible, based upon the manner and methodology used by the particular Governmental Authority imposing such Imposition (e.g., on the cost of the relative property interests, historic or projected revenue derived therefrom, or any combination thereof); or (ii) if the same cannot be so determined, then based upon Customer's proportionate share of the total fiber count in the affected portion of the Level 3 System. The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. (D) Except for taxes based on Level 3's net income, Customer will be responsible for payment of all applicable taxes that arise in any jurisdiction as a result of the transactions contemplated herein, including without limitation all sales, use, value added, consumption, gross receipts (other than in lieu of net income tax), excise, stamp or transfer taxes (collectively, "Transaction Taxes"), however designated. If any taxing authority asserts that Level 3 should have collected any Transaction Tax from Customer which Level 3 did not collect, Customer hereby agrees to indemnify Level 3 for such Transaction Taxes and hold Level 3 harmless on an after-tax basis from and against any taxes, interest or penalties levied or asserted in connection therewith, and to bear a proportionate share of Level 3's contest expenses. (E) Level 3 shall be responsible for filing returns and paying all ad valorem property taxes (the "Property Taxes") imposed on, related to or assessed against the Customer Fibers. Customer shall compensate Level 3 for Property Taxes attributable to the Customer Fibers by payment of an annual fee (the "Property Tax Fee") billed to Customer for each year of the Term. Such payment shall be made in accordance with the provisions of Section 15(E). Level 3 shall calculate the Property Taxes attributable to the Customer Fibers (utilizing an apportionment methodology that compares the total fiber miles (or kilometers) in Customer Fibers to the total fiber miles (or kilometers) in the Grantor System and then applying that percentage to the then current annual accrual for total Property Tax (excluding Property Tax attributable to other than conduit and fiber) on the Level 3 System). The resultant annual Property Tax attributable to the Customer Fibers shall be billed to and paid by Customer for the Customer Fibers, and such Property Tax Fee shall be contained in each Customer Order. (F) All payments made by Customer hereunder shall be made without any deduction or withholding for or on account of any tax, duty or other charges of whatever nature imposed by any taxing or government authority (collectively, "Withholding Taxes"). If either Customer or Level 3 are or were required by law to make any deduction or withholding from any payment due hereunder to Level 3, then, notwithstanding anything to the contrary contained in this Service Schedule, the gross amount payable by Customer shall be increased so that, after any such deduction or withholding for Withholding Taxes, the net amount received by Level 3 will not be less than Level 3 would have received had no such deduction or withholding been required. 17. Use of Level 3 System. (A) Customer represents and warrants that it will use the Customer Fibers and the IRU hereunder in compliance with all applicable government codes, ordinances, laws, rules and regulations. (B) Subject to the provisions of this Service Schedule, Customer may use the Customer Fibers and the IRU for any lawful purpose. Customer acknowledges and agrees that it has no right to use any fibers, other than the Customer Fibers, included or incorporated in the Level 3 System, and that Customer shall keep any and all of the Level 3 System and the designated space in the Running Line Facilities free from any liens, rights or claims of any third party attributable to Customer. (C) Notwithstanding anything to the contrary contained in this Service Schedule, Customer covenants and agrees that Customer shall not and that Customer shall have no right to assign, sell, lease, sublease, transfer, grant an indefeasible right of use or similar right or interest in the IRU or the Customer Fibers to any Person. Customer shall not sublease or assign the right to use space in any Running Line Facility without the prior written consent of Level 3. Customer agrees and understands that Level 3 may enjoin Customer from any attempt to violate the provisions of this Section 17(C), (D) Customer shall not use the Customer Fibers in a way that physically interferes in any way with or otherwise adversely affects the use of the fibers, cable or conduit of any other Person using the Level 3 System. (E) Customer and Level 3 shall promptly notify each other of any matters pertaining to, or the occurrence (or impending occurrence) of, any event of which it is aware that could give rise to any damage or impending damage to or loss of the Level 3 System. (F) Customer and Level 3 agree to cooperate with and support each other in complying with any requirements applicable to their respective rights and obligations hereunder by any Governmental Authority. 17. Insurance. (A) During the IRU Term, each party shall obtain and maintain the following insurance: (i) Commercial General Liability including coverage for (a) premises/operations, (b) independent contractors, (c) products/completed operations, (d) personal injury, (e) contractual liability, and (f) explosion, collapse and underground hazards, with combined single limit of not less than $5,000,000.00 each occurrence or its equivalent; (ii) Worker's Compensation in amounts required by applicable law and Employer's Liability with a limit of at least $1,000,000.00 each accident; and (iii) Automobile Liability including coverage for owned/leased, non-owned or hired automobiles with combined single limit of not less than $1,000,000.00 each accident. (B) During the IRU Term, Customer shall obtain and maintain "all risk" property insurance in an amount equal to the replacement cost of all electronic, optronic and other equipment utilized by Customer in connection with the Customer Fibers. (C) Both parties expressly acknowledge that a party shall be deemed to be in compliance with the provisions of this Article if it maintains an approved self-insurance program providing for a retention of up to $1,000,000.00. If either party provides any of the foregoing coverage on a claims-made basis, such policy or policies shall be for at least a three (3) year extended reporting or discovery period. (D) Unless otherwise agreed, all insurance policies shall be obtained and maintained with qualified reputable insurers and each party shall, upon request, provide the other party with an insurance certificate confirming compliance with the requirements of this Article. (E) Customer and Level 3 shall each obtain from the insurance companies providing the coverage required by this Service Schedule, the permission of such insurers to allow such party to waive all rights of subrogation and such party does hereby waive all rights of said insurance companies to subrogation against the other party, its affiliates, subsidiaries, assignees, officers, directors and employees. (F) In the event either party fails to maintain the required insurance coverage and a claim is made or suffered, such party shall indemnify and hold harmless the other party from any and all claims for which the required insurance would have provided coverage. (G) Until the IRU Effective Date for a Segment, Level 3 shall bear all risk of loss of and damage or destruction to the Level 3 System within such Segment. Commencing as of the IRU Effective Date, any loss, damage or destruction of or to the Level 3 System not otherwise required to be insured hereunder shall be treated for all purposes as Unscheduled Maintenance (as defined in Exhibit "E"). 19. Late Delivery. If, other than as caused by a Force Majeure Event, Level 3 has not delivered a Connection Notice (in good faith) respecting a Segment (or if a Segment is part of a Loop, then with respect to all Segments comprising such Loop) within ninety (90) days after the Customer Commit Date with respect thereto, then, from and after such date and until the installation is completed, Customer shall receive a credit of one half percent (0.5%) off of the IRU Fee for such Segment (as liquidated damages and not as a penalty) for each month or partial month (prorated based on a thirty-day month) of delay thereafter; provided, however, that in no event shall the amount of the credit provided to Customer hereunder be greater than three percent (3%). If, other than as caused by a Force Majeure Event, Level 3 has not delivered a Connection Notice (in good faith) respecting such Segment (or if such Segment is part of a Loop, then with respect to all Segments comprising such Loop) within one hundred and eighty (180) days after the Customer Commit Date, then either party shall have the right to terminate the Customer Order with respect to such Segment and Level 3 shall, upon such termination, pay Customer a termination charge equal to the amount of any D,P &E Fees previously paid with respect to such Segment, together with interest thereon (from and after the date of payment of the Design, Planning and Engineering Fee due under Section 6(A)). This Section sets forth the sole and exclusive remedies of Customer respecting a failure of Level 3 to deliver the Customer Fibers and, if applicable, any space in the associated Running Line Facilities within any Segment on or before the Customer Commit Date. 20. Representations and Warranties. (A) Customer acknowledges and agrees that Customer's sole rights and remedies with respect to any defect in or failure of the Customer Fibers to perform in accordance with the specifications set forth in Exhibit "C" shall be limited to the particular vendor's or manufacturer's warranty. In the event any maintenance or repairs to the Level 3 System are required as a result of a breach of any warranty made by any manufacturers, contractors or vendors, Level 3 shall pursue all remedies against such manufacturers, contractors or vendors on behalf of Customer, and Level 3 shall reimburse Customer's costs for any maintenance Customer has incurred as a result of any such breach of warranty to the extent the manufacturer, contractor or vendor pays such costs. (B) EXCEPT AS SET FORTH IN THE FOREGOING SECTION 20(A), LEVEL 3 MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE CUSTOMER FIBERS OR THE LEVEL 3 SYSTEM, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. Exhibit "A" Customer Order Form for (3)LinkSM Dark Fiber Services
- ------------------------------------------------------- -------------------------------------------------------------- Order Date: [Insert Month, Day, and Year] - ------------------------------------------------------- -------------------------------------------------------------- Order #: [Insert Order # assigned by Level 3] - ------------------------------------------------------- -------------------------------------------------------------- Level 3: Level 3 Communications, LLC - ------------------------------------------------------- -------------------------------------------------------------- Customer: [Insert Customer Name] - ------------------------------------------------------- -------------------------------------------------------------- Service Schedule Effective Date of (3)LinkSM Dark [Insert Month, Day and Year] Fiber Service Schedule - IRU : - ------------------------------------------------------- --------------------------------------------------------------
This Customer Order Form incorporates the terms and provisions as set forth in the above-referenced (3)LinkSM Dark Fiber Service Schedule (the "Service Schedule") and that Master Services Agreement Agreement (the "Agreement") executed by Level 3 and Customer. Capitalized terms used but not defined herein shall have the meaning set forth in the Service Schedule and Agreement. 1. Order. Customer hereby orders an IRU for the following Customer Fibers and Level 3 hereby agrees to deliver an IRU in the following Customer Fibers, all pursuant to and in accordance with the terms of the Service Schedule and Agreement. Segment Descriptions
- --------------------- ------------ --------------- ------------------------ ------------------------ ---------------- Segment Fiber Count Segment End Point Segment End Point Targeted Route Miles Completion Date - --------------------- ------------ --------------- ------------------------ ------------------------ ---------------- - --------------------- ------------ --------------- ------------------------ ------------------------ ---------------- - --------------------- ------------ --------------- ------------------------ ------------------------ ---------------- - --------------------- ------------ --------------- ------------------------ ------------------------ ---------------- Lateral Segment Descriptions - ---------------------- --------- ---------------- ------------------- ---------------- ----------- --------------- ----------------- Lateral Segment Name Fiber Route Miles Lateral Segment Lateral Diverse Demarcation Lateral Segment (Type) Count Interconnection Segment End or Point Type* Completion Date Point Point Non-Diverse - ---------------------- --------- ---------------- ------------------- ---------------- ----------- --------------- ----------------- - ---------------------- --------- ---------------- ------------------- ---------------- ----------- --------------- ----------------- - ---------------------- --------- ---------------- ------------------- ---------------- ----------- --------------- ----------------- - ---------------------- --------- ---------------- ------------------- ---------------- ----------- --------------- ----------------- Riser Segment Descriptions - ---------------------- --------- ------------------- ----------------- ----------- --------------- ------------------- Riser Segment Name Fiber Riser Segment Riser Segment Diverse Demarcation Riser Segment (Type) Count Interconnection End Point or Point Type* Completion Date Point Non-Diverse - ---------------------- --------- ------------------- ----------------- ----------- --------------- ------------------- - ---------------------- --------- ------------------- ----------------- ----------- --------------- ------------------- - ---------------------- --------- ------------------- ----------------- ----------- --------------- ------------------- - ---------------------- --------- ------------------- ----------------- ----------- --------------- ------------------- - ---------------------- --------- ------------------- ----------------- ----------- --------------- -------------------
*The demarcation point at each Lateral Segment End Point and each Riser Segment End Point shall generally be one of the following types, as determined by Level 3: 1) a meet at the Level 3 backbone (for a Customer-built Lateral Segment); 2) a fiber meet in the building's zero or meet-me manhole; 3) a building minimum point of entry (where a splice patch panel is required); 4) a common demarcation point (e.g. a building common room or meet-me room); 5) the Level 3 distribution point of presence; or 6) an extended demarcation point in the Customer point of presence. 2. Fees. Customer agrees to pay, as compensation for Level 3s performance of incremental design, planning and engineering of the Customer Fibers the Design, Planning and Engineering Fees set forth in the tables below. Customer further agrees to pay, as compensation for the use of the Customer Fibers, the additional fees set forth in the tables below.
Segment Fees - ------------------------------------ ---------------------- -------------------------- ------------------------------- Segment Name D,P&E Fee IRU Fee Total Fees - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- Totals - ------------------------------------ ---------------------- -------------------------- ------------------------------- Lateral Segment Fees - ------------------------------------ ------------------------------------------------- ------------------------------- Lateral Segment Name Lateral Segment Fee - ------------------------------------ ---------------------- -------------------------- ------------------------------- D,P&E Fee Remaining Lateral Total Fees* Segment Fee - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- Totals - ------------------------------------ ---------------------- -------------------------- ------------------------------- Riser Segment Fees - ------------------------------------ ------------------------------------------------- ------------------------------- Riser Segment Name Riser Segment Fee - ------------------------------------ ---------------------- -------------------------- ------------------------------- D,P&E Fee Remaining Riser Segment Total Fees* Fee - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- - ------------------------------------ ---------------------- -------------------------- ------------------------------- Totals - ------------------------------------ ---------------------- -------------------------- ------------------------------- Building Access Fees - --------------------------------------- ---------------------------------- ---------------------------------- Building Building Access Fee** Frequency of Payment - --------------------------------------- ---------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- ---------------------------------- Property Tax Fees - ---------------------------------------------------- -------------------------------------------------------- Segment Annual Property Tax Fee - ---------------------------------------------------- -------------------------------------------------------- - ---------------------------------------------------- -------------------------------------------------------- - ---------------------------------------------------- -------------------------------------------------------- - ---------------------------------------------------- --------------------------------------------------------
Recurring Charges Recurring Charges shall be paid for the above listed Segments (except Riser Segments) as set forth in Section15 of the Service Schedule. *For Off-Net Lateral Segments and Off-Net Riser Segments, the total fees have been calculated as an estimate of construction costs. **The Building Access Fee has been calculated as of the execution date of this Customer Order Form. In the event the building owner increases the recurring access and/or riser fees, then Level 3 shall have the right, upon written notice to Customer, to increase the Building Access Fee on a direct pass-through basis. The D,P&E Fees set forth above shall be due and payable no later than five (5) days after execution of this Customer Order Form. The other fees set forth above shall be invoiced upon the Acceptance Date of such Segment, Lateral Segment, or Riser Segment and shall be due and payable in accordance with the Agreement. Upon execution by both parties, this Customer Order Form shall be a legally binding obligation of each party and is incorporated by reference into the Service Schedule and Agreement. Level 3 Communications, LLC [CUSTOMER] - ------------------------------------ By: By: - ------------------------------------ ---------------------------------- - ------------------------------------ ---------------------------------- Title: Title: - ------------------------------------ ---------------------------------- Exhibit "B" Running Line Facilities The following section delineates the space and power requirements for the Running Line Facilities forming a part of the Level 3 System. Level 3 will install structures approximately 80 - 130 kilometers apart, along the System Route, to house DC power plants and telecom infrastructure required to support the installation and operation of optical amplification, regeneration and other electronic equipment for the Level 3 System. The following are the general specifications of the Running Line Facilities and support equipment. Facilities will be equipped with redundant systems for controlling the temperature and humidity ("Environmental Systems"). The facility sites will be equipped with an external backup generator. Level 3 shall provide a level of - 48 volt DC power for the operation of Customer's equipment within each Running Line Facility. Level 3 will remotely monitor all perimeter intrusion sensors, power equipment and Environmental Systems for faults and alarms on a twenty-four hour basis. All colocation space will typically be segregated from common areas or other technical space by mesh caging or pre-fabricated gypsum board or steel stud walls. Such space may also take other forms depending on availability and customer requirements (i.e. colocation cabinets). Customer shall abide by any posted or communicated rules relating to use of, access to, or security measures respecting the facilities. Customer may request access to the colocation space in each facility for any of its personnel, contractors or technicians by contacting Level 3's Service Management Center (877-4-LEVEL3) who will authorize such individuals in the Customer profile based upon Level 3's then current access policies. In the event Customer or any of its agents or employees is found in the facilities with any firearms, drugs, alcohol or is found engaging in any criminal activity, eavesdropping, foreign intelligence, card selling or slamming, Level 3 shall have the right to require that such individuals immediately vacate the facilities and such individuals shall not be allowed to return. In the event that unauthorized parties gain access to the facilities through access cards, keys or other access devices provided to Customer, Customer shall be responsible for any damages incurred as a result thereof. Customer shall be responsible for the cost of replacing any security devices lost or stolen after delivery thereof to Customer. Customer will be responsible for monitoring its own equipment placed within the Running Line Facilities. Customer Space Requirements: In accordance with the table below, Customer shall provide Level 3 with written notice within thirty (30) days following execution of each Customer Order specifying the amount of space it wishes to utilize in each Running Line Facility within each Segment where Customer is receiving Customer Fibers. The parties will work together, subject to current availability, to determine the amount of space needed by Customer based on the fiber count and the network function to be performed at each facility. In the event that such notice is not received by Level 3 within such period, then Customer shall be deemed, subject to current availability, to have accepted for the IRU Term space in accordance with the table below which delineates the default space allotment based on the fiber count and the network function to be performed at each facility. - -------------------------------------------------------------------------------- Number of Fibers Number of Rack Spaces/ICCs -------------------------------------------------------------- -------------------------------------------------------------- Running Line Facility used for Running Line Facility used for Amplification (as determined by Regeneration (as determined by Level 3) Level 3) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 1 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 1 4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4 1 4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6 2 8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8 2 8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 10 3 12 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 12 3 12 - -------------------------------------------------------------------------------- The fee for space in the Running Line Facilities is as follows: Fee Space ** one-time payment Per rack space/ICC or** per month Per rack The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The fees set forth above shall be due and payable at the same times and in accordance with the same procedures as set forth in the Agreement and Service Schedule (so that the fee for each Running Line Facility located along a Segment shall be due and payable on the Service Commencement Date for such Segment). If the monthly payment option is selected, the fees for space shall be increased on each anniversary of the Service Commencement Date of the first Segment in which Customer will receive the IRU by the increase, if any, in the CPI-U, U.S. City Average, published by the United States Department of Labor, Bureau of Labor Statistics (1982-84 = 100), for the preceding twelve (12) month period. In the event such index shall cease to be computed or published, Level 3 may, in its reasonable discretion, designate a successor index to be used in determining any increase to the fees for space. In the event Customer determines that it will require more space for the Customer Fibers than previously requested by Customer or allocated by Level 3 pursuant hereto, Level 3 will, subject to availability and Level 3's own business needs and requirements, determined in Level 3's sole discretion, upon the request of Customer, provide Customer during the IRU Term with additional shared space sufficient for the placement of additional equipment. Customer shall pay Level 3 the then current rate for additional space. In addition to the fees set forth above, Customer shall also be responsible for payment of its allocable portion of the real property taxes associated with each Running Line Facility. Customer Power Requirements and Charges: Customer will be provided power based on the breaker size selected by Customer. Level 3's standard breaker sizes are 10, 20, 30, 50 and 60 amps. Customer will be charged for power based on the breaker size, not on the power draw. Customer shall pay the following charges for power needed to operate Customer's electronic and optronic equipment: $15 per amp per month for DC power up to a maximum of 60 amps per rack. Any power usage in excess of 60 amps per rack will be subject to additional pricing as determined by Level 3, and may not be available at certain facilities due to power limitations. If Level 3 incurs an increase in power charges for the consumption of power needed to operate Customer's electronic and optronic equipment at Running Line Facilities along the Level 3 System, Level 3 may increase the power charges specified under this Exhibit, however, said increase shall occur not more than quarterly. Customer shall notify Level 3 in writing of its initial power requirements within sixty (60) days following execution of each Customer Order and shall be responsible for paying power charges for that amount during the entire IRU Term. Customer may increase its power requirements during the Term upon written notice to and approval from Level 3, in which case Customer shall continue to pay to Level 3 the initial power charges plus any incremental charges for the increased power for the remainder of the IRU Term. Exhibit "C" On-Reel Cabled Fiber Specifications The intent of this Exhibit is to delineate the specifications for the Customer Fibers. Cabled Fiber Level 3 is installing non-zero dispersion-shifted optical fiber in the intercity segments (i.e., Segment End Point Facility to Segment End Point Facility) of the Level 3 System. In the metropolitan segments, single mode fiber or optical cable with negative dispersion single mode fiber will be used. In any case where the routes for Level 3's intercity and metropolitan networks converge, Level 3 shall have the right to elect to install any of the above-referenced types of fiber. Level 3 may substitute alternative fibers if and only if such alternative fibers have performance specifications which are at least equal to the specifications set forth below. The fiber optic cable shall generally be single-armored unless otherwise designated by Level 3 in its sole discretion. Optical Cable with Non-Zero Dispersion -Shifted Fiber o Attenuation at 1550 nm = 0.27 dB/km max o Total Dispersion = 2.0 - 6.0 ps/nm-km for 1530 nm to 1565nm 4.5 - 11.2 ps/nm-km for 1565nm to 1625nm Optical Cable with Single Mode Fiber o Attenuation at 1310 nm = 0.40 dB/km max o Attenuation at 1550 nm = 0.30 dB/km max o Zero Dispersion wavelength = 1300 to 1322nm o Dispersion slope =<.092 ps/nm2*km typical Optical Cable with Negative Dispersion Single Mode Fiber o Attenuation at 1550 nm = 0.27 dB/km max o Attenuation at 1310 nm = 0.50 dB/km max o Total Dispersion = -10.0 to -1.0 ps/(nm*km) for 1530 nm to 1605nm Exhibit "D" Acceptance Testing Procedures and Standards 1. Metropolitan Customer Fiber After Level 3 has completed end-to-end connectivity on the fibers, bi-directional span testing will be performed. Loss measurements will be recorded using an industry-accepted laser source and a power meter. OTDR traces will be taken and splice loss measurements will be recorded and summarized on data sheets. Copies of all data sheets will be made available to Customer. o The power loss measurements shall be made at 1310 nm and 1550 nm, and performed bi-directionally. o OTDR traces shall be taken in both directions at 1310 nm and 1550 nm. o The end-to-end loss value as measured with an industry-accepted laser source and power meter should have an attenuation rating of less than or equal to the following: Optical Cable with Single Mode Fiber (1) At 1310nm: (0.40 dB/km x km of cable) + (number of connectors x 0.5 dB) + (0.10 dB x number of splices). (2) At 1550nm: (0.30 dB/km x km of cable) + (number of connectors x 0.5 dB) + (0.10 dB x number of splices). MetroCor Optical Cable (1) At 1310nm: (0.50 dB/km x km of cable) + (number of connectors x 0.5 dB) + (0.40 dB x number of splices). (2) At 1550nm: (0.25 dB/km x km of cable) + (number of connectors x 0.5 dB) + (0.20 dB x number of splices). o OTDR testing only will be performed for bare fiber (unterminated fiber). o Power meter testing only will be provided for spans that do not include any field splices. o Spans of high distances will be tested at 1550 nm only; the cutoff distance where only 1550 nm tests will be performed is approximately 50-60 km (the actual cutoff distance will be dependent upon the actual loss characteristics of the span, which itself is based upon the attenuation of the fiber and the number of splice points). o In the event live traffic is placed on fibers prior to delivery, fibers shall be deemed acceptable without final testing and will require no testing or documentation for splices. o Events close in proximity to a launch (connectors or splices in a building) are not required in documentation. o In addition, events based upon fiber-specific circumstances may cause fibers to be considered acceptable. In these instances, Level 3 will provide background regarding the circumstances for the anomalous fibers. Regarding fiber terminated at a Segment End Point Facility which is subsequently delivered to a Customer-owned optical termination panel in a colocation space: o Fiber testing shall be conducted at the Segment End Point. o End-to-end connectivity testing shall include loss from fiber attenuation, splices and connectors at the Level 3-owned optical termination panel port (OSX). The data will not include the fiber/cable and connectors from the optical termination panel to the Customer colocation space. o The fibers shall be terminated at the Customer colocation space to the Level 3-designated optical termination panel with SC-PC to SC-PC connectors, unless another type of connector is agreed upon by both parties. o Pigtails and jumpers, when provided, shall be manufactured with standard single mode fiber or equivalent. Fibers shall be terminated in a fiber 1: port 1, fiber 2: port 2 arrangement unless otherwise specified by Level 3. Any testing beyond the Segment End Point shall be performed in a coordinated fashion, so that Customer shall connect and test the fiber owned by it in conjunction with Level 3's testing of the Customer Fibers. In the event that the entire tested portion does not satisfy the testing criteria set forth herein, Customer and Level 3 shall work together in good faith to pinpoint the cause of the problem and each party shall be responsible for the timely performance of such repairs on the fibers owned by it (so that Level 3 shall only be responsible for repairs needed to bring the Customer Fibers into compliance with this Exhibit). Level 3 may (in the event of a dispute respecting testing and acceptance of the Customer Fibers within any such Segment) arrange to have the Customer Fibers tested only to the Segment End Point and, if such Customer Fibers meet the testing criteria set forth herein, Customer shall accept such Customer Fibers. 2. Intercity Customer Fiber After Level 3 has completed end-to-end connectivity on the fibers, bi-directional span testing with an Optical Time Domain Reflectometer ("OTDR") will be done. Once the pigtails have been spliced, loss measurements will be recorded using an industry-accepted laser source and a power meter. OTDR traces will be taken and splice loss measurements will be recorded. Level 3 will store OTDR traces on data sheets. Copies of all data sheets will be available to Customer. The power loss measurements shall be made at 1550 nm, and performed bi-directionally. The end-to-end loss value as measured with an industry-accepted laser source and power meter should have an attenuation rating of less than or equal to the following: At 1550nm: (0.22 dB/km x km of cable) + (number of pigtails x 0.15 dB) + (number of connectors x 0.5 dB) + (0.08 dB x number of splices). OTDR traces shall be taken in both directions at 1550 nm. In addition, events based upon fiber-specific circumstances may cause fibers to be considered acceptable. In these instances, Level 3 will provide background regarding the circumstances for the anomalous fibers. The fibers shall be terminated to the Level 3-designated optical termination panel with SC-PC connectors, unless another type of connector is specified. Pigtails and jumpers shall be manufactured with standard single mode fiber or equivalent. Testing for Segments for which the Segment End Point is other than a Level 3 point of presence shall be performed in a coordinated fashion, so that Customer shall connect and test the fiber owned by it in conjunction with Level 3's testing of the Customer Fibers. In the event that the entire tested portion does not satisfy the testing criteria set forth herein, Customer and Level 3 shall work together in good faith to pinpoint the cause of the problem and each party shall be responsible for the timely performance of such repairs on the fibers owned by it (so that Level 3 shall only be responsible for repairs needed to bring the Customer Fibers into compliance with this Exhibit). Level 3 may (in the event of a dispute respecting testing and acceptance of the Customer Fibers within any such Segment) arrange to have the Customer Fibers tested only to the Segment End Point and, if such Customer Fibers meet the testing criteria set forth herein, Customer shall be obligated to accept and pay for such Customer Fibers (notwithstanding the fact that the fibers connected to Level 3's point of presence may not be functioning properly). Exhibit "E" Maintenance Requirements and Procedures Maintenance Scheduled Maintenance. Routine maintenance and repair of the Customer Fibers described in this section ("Scheduled Maintenance") shall be performed by or under the direction of Level 3, at Level 3's reasonable discretion. Scheduled Maintenance shall commence with respect to each Segment upon the IRU Effective Date. Scheduled Maintenance shall only include the following activities: o patrol of Level 3 System route on a regularly scheduled basis, which will not be less than monthly, unless hi-rail access is necessary, in which case, it will be quarterly; o maintenance of a "Call-Before-You-Dig" program and all required and related cable locates; o maintenance of sign posts along the Level 3 System right-of-way with the number of the local "Call-Before-You-Dig" organization and the "800" number for Level 3's "Call-Before-You-Dig" program; and o assignment of fiber maintenance technicians to locations along the route of the Level 3 System. Unscheduled Maintenance. Non-routine maintenance and repair of the Customer Fibers which is not included as Scheduled Maintenance ("Unscheduled Maintenance") shall be performed by or under the direction of Level 3. Unscheduled Maintenance shall commence with respect to each Segment upon the IRU Effective Date. Unscheduled Maintenance shall consist of: o "Emergency Unscheduled Maintenance" in response to an alarm identification by Level 3's Operations Center, notification by Customer or notification by any third party of any failure, interruption or impairment in the operation of fibers within the Level 3 System, or any event imminently likely to cause the failure, interruption or impairment in the operation of fibers within the Level 3 System. o "Non-Emergency Unscheduled Maintenance" in response to any potential service-affecting situation to prevent any failure, interruption or impairment in the operation of fibers within the Level 3 System not covered by Scheduled Maintenance. Customer shall immediately report the need for Unscheduled Maintenance to Level 3 in accordance with reasonable procedures promulgated by Level 3 from time to time. Level 3 will log the time of Customer's report, verify the problem and dispatch personnel immediately to take corrective action. Operations Center Level 3 shall operate and maintain an Operations Center ("OC") staffed twenty-four (24) hours a day, seven (7) days a week by trained and qualified personnel. Level 3's maintenance personnel shall be available for dispatch twenty-four (24) hours a day, seven (7) days a week. Level 3 shall have its first maintenance personnel at the site requiring Emergency Unscheduled Maintenance activity within four (4) hours after the time Level 3 becomes aware of an event requiring Emergency Unscheduled Maintenance, unless delayed by Force Majeure Events. Level 3 shall maintain a toll-free telephone number to contact personnel at the OC. Level 3's OC personnel shall dispatch maintenance and repair personnel along the system to handle and repair problems detected in the Level 3 System: (i) through the Customer's remote surveillance equipment and/or upon notification by Customer to Level 3, or (ii) upon notification by a third party. Level 3 will not be responsible for monitoring the performance or operation of the Customer Fibers; in the event that Customer detects a failure in the operation of the Customer Fibers which may indicate the need for Unscheduled Maintenance, Customer shall report same to Level 3's OC. Cooperation and Coordination o In performing its services hereunder, Level 3 shall take workmanlike care to prevent impairment to the signal continuity and performance of the Customer Fibers. The precautions to be taken by Level 3 shall include notifications to Customer. In addition, Level 3 shall reasonably cooperate with Customer in sharing information and analyzing the disturbances regarding the cable and/or fibers. In the event that any Scheduled or Unscheduled Maintenance hereunder requires a traffic roll or reconfiguration involving cable, fiber, electronic equipment, or regeneration or other facilities of the Customer, then Customer shall, at Level 3's reasonable request, make such personnel of Customer available as may be necessary in order to accomplish such maintenance, which personnel shall coordinate and cooperate with Level 3 in performing such maintenance as required of Level 3 hereunder. o Level 3 shall notify Customer at least seven (7) calendar days prior to the date in connection with any Planned Service Work Period ("PSWP") of any Scheduled Maintenance and as soon as possible after becoming aware of the need for Unscheduled Maintenance. Customer shall have the right to be present during the performance of any Scheduled Maintenance or Unscheduled Maintenance so long as this requirement does not interfere with Level 3's ability to perform its obligations under the Service Schedule. In the event that Scheduled Maintenance is canceled or delayed for whatever reason as previously notified, Level 3 shall notify Customer at Level 3's earliest opportunity, and will comply with the provisions of the previous sentence to reschedule any delayed activity. Facilities o Level 3 shall maintain the Level 3 System in a manner which will permit Customer's use, in accordance with the terms and conditions of the Service Schedule. o Customer will be solely responsible for providing and paying for any and all maintenance of all electronic, optronic and other equipment, materials and facilities used by Customer in connection with the operation of the Customer Fibers, none of which is included in the maintenance services to be provided hereunder. Cable/Fibers o Level 3 shall perform appropriate Scheduled Maintenance on the cables contained in the Level 3 System in accordance with Level 3's then current preventive maintenance procedures which shall not substantially deviate from standard industry practice. o Level 3 shall have qualified representatives on site any time Level 3 has reasonable advance knowledge that another person or entity is engaging in construction activities or otherwise digging within five (5) feet of any cable. o Level 3 shall maintain sufficient capability to teleconference with Customer during an Emergency Unscheduled Maintenance in order to provide regular communications during the repair process. When correcting or repairing cable discontinuity or damage, including but not limited to in the event of Emergency Unscheduled Maintenance, Level 3 shall use reasonable efforts to repair traffic-affecting discontinuity within twelve (12) hours after Level 3's representatives arrive at the problem site and have the ability to begin uninterrupted repair activities. The aforementioned twelve (12) hour time frame is merely an estimate, and repair times may increase depending upon such variables as fiber counts and the location of the problem site. For a more accurate estimate of how long the repairs will take for any given Emergency Unscheduled Maintenance, Customer should contact Level 3's Service Management Center (877-4-LEVEL3). In order to accomplish the above-referenced objectives, it is acknowledged that the repairs so effected may be temporary in nature. In such event, within twenty-four (24) hours after completion of any such Emergency Unscheduled Maintenance, Level 3 shall commence its planning for permanent repair, and thereafter promptly shall notify Customer of such plans, and shall implement such permanent repair within an appropriate time thereafter. Restoration of open fibers on fiber strands not immediately required for service shall be completed on a mutually agreed-upon schedule. If the fiber is required for immediate service, the repair shall be scheduled for the next available PSWP. o In performing repairs, Level 3 shall substantially comply with the splicing specifications as set forth in Exhibit "D". Level 3 shall provide to Customer any modifications to these specifications as may be necessary or appropriate in any particular instance. o Level 3's representatives that are responsible for initial restoration of a cut cable shall carry on their vehicles the typically appropriate equipment that would enable a temporary splice, with the objective of restoring operating capability in as little time as possible. Level 3 shall maintain and supply an inventory of spare cable in storage facilities supplied and maintained by Level 3 at strategic locations to facilitate timely restoration. Planned Service Work Period Scheduled Maintenance which is reasonably expected to produce any signal discontinuity must be coordinated between the parties. Generally, this work should be scheduled after midnight and before 6:00 a.m. local time. The intent is to avoid jeopardy work during high-traffic periods. Restoration o Level 3 shall respond to any event giving rise to the need for Unscheduled Maintenance (in any event, an "Outage") as quickly as possible (allowing for delays caused by Force Majeure Events) in accordance with the procedures set forth herein. o When restoring a cut cable in the Level 3 System, the parties agree to work together to restore all traffic as quickly as possible. Level 3, promptly upon arriving on the site of the cut, shall determine the course of action to be taken to restore the cable and shall begin restoration efforts. Level 3 shall splice fibers tube by tube or ribbon by ribbon or fiber buffer by fiber buffer, rotating between tubes, ribbons or buffers operated by the parties having an interest in the cable, including Customer and all future fiber users of the system (collectively, the "Interest Holders"); provided that, operating fibers (i.e., fibers which have been jumpered to Customer's or another party's space or equipment) in all buffer tubes or ribbons or fiber bundles shall have priority over any non-operating fibers in order to allow transmission systems to come back on line; and provided further that, Level 3 will continue such restoration efforts until all lit fibers in all buffer tubes or ribbons are spliced and all traffic restored. Notwithstanding the foregoing, Level 3 does not guarantee any specific rotational prioritization for Customer in light of the overriding requirement for expediency in restoration of service to all parties. o Subcontracting Level 3 may subcontract any of the maintenance services hereunder; provided that Level 3 shall require the subcontractor(s) to perform in accordance with the requirements and procedures set forth herein. The use of any such subcontractor shall not relieve Level 3 of any of its obligations hereunder. SERVICE SCHEDULE (3)LINKSM FIBER TERMINATION SERVICE (NORTH AMERICA) 1. Applicability. This Service Schedule is applicable only where Customer orders (3)LinkSM Fiber Termination Service in North America only. 2. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. (A) "Customer Owned Fibers" shall mean the fiber optic cable owned by Customer that Customer desires to terminate at a Level 3 Facility pursuant to this Service Schedule. For clarity, the parties recognize that the term "Customer Owned Fibers" does not include any fiber that Customer has obtained from Level 3 or any third party through an indefeasible right or use, lease, license, or similar grant, but only includes fee-owned fibers (unless otherwise agreed to by the parties in writing). Title to Customer Owned Fiber shall, at all times, remain with Customer. (B) "Interconnection" shall mean the connection of the Customer Owned Fiber to a fiber distribution panel ("FDP") owned or controlled by Level 3 in a Level 3 Facility. (C) "Level 3 Facility" shall mean a Gateway or any other facility owned or leased by Level 3 or any of its Affiliates for the purpose of, among other things, locating and colocating communications equipment (e.g. regeneration or opamp facilities), but excluding On-Net POPs. 3. Grant. (A) Level 3 hereby grants to Customer, and Customer hereby purchases from Level 3 (subject to the terms of this Service Schedule) a non-exclusive limited license (the "License") for the installation, operation and maintenance of Customer Fiber at or within those Level 3 Facilities identified in a validly accepted Customer Order for the purpose of cross connecting such Customer Owned Fiber with telecommunications equipment owned or controlled by Customer, Level 3 and/or Customers. Notwithstanding the foregoing, any such desired cross connections shall not be performed pursuant to this Service Schedule but instead shall be performed pursuant to the (3)LinkSM Cross Connect Service Schedule. (B) The License shall apply only to Interconnections within a particular Level 3 Facility as identified in a validly accepted Customer Order. (C) Customer shall be permitted access to the relevant Level 3 Facilities seven (7) days per week and twenty-four (24) hours per day, subject to any and all rules, regulations and access requirements reasonably imposed by Level 3 governing such access. Unless approved in advance and in writing by Level 3, Customer's access rights contained herein shall not include the right to access the Level 3 point-of-entry manhole or the risers and/or the horizontal/vertical shafts within which the Customer Owned Fiber is located. (D) Level 3 reserves the right, on no less than fifteen (15) days prior written notice (except in emergency situations), to change the location, configuration or method of each Interconnection at Level 3's sole cost and expense. Level 3 and Customer agree to work together in good faith to minimize any disruption of service in connection with such relocation, reconfiguration or changed Interconnection method. 4. Interconnections. (A) Unless otherwise stated in a Customer Order, the delivery of Customer Owned Fiber to the fiber distribution panel shall be accomplished by either (i) pulling the Customer Owned Fiber from the Level 3 point-of-entry manhole through existing conduit owned or controlled by Level 3, (ii) splicing the Customer Owned Fiber into a Level 3 house cable at the Level 3 point-of-entry manhole, or (iii) using an intra-building riser that terminates in Level 3's leased transport area of the Level 3 Facility. Following Level 3's receipt of all applicable non-recurring charges then due and owing as specified in the Customer Order, Level 3 shall, at its sole cost, promptly perform each Interconnection utilizing that Interconnection method set forth in the relevant Customer Order. Each Interconnection shall be performed in a good and workmanlike manner and in accordance with the reasonable standards and requirements of Level 3 and of the landlord of the building in which the Level 3 Facility is located. Customer shall, at its sole cost and expense, be required to (i) deliver the Customer Owned Fiber either to the manhole(s) designated by Level 3, in its sole discretion, or to Level 3's leased transport area in the Level 3 Facility, in accordance with the applicable Customer Order and (ii) provide excess or slack Customer Owned Fiber at the designated manhole location(s) or the applicable leased transport area in an amount necessary, as determined by Level 3, to complete each Interconnection. Unless otherwise agreed in a Customer Order, each Interconnection shall be diverse with entry points as designated by Level 3. (B) For each requested Interconnection, Customer shall be subject to those certain minimum, maximum and incremental fiber count requirements as may be promulgated by Level 3 from time to time on a location by location basis. 5. Acceptance Testing. Level 3 shall promptly notify Customer following completion of each Interconnection. Customer shall be responsible, at its sole cost, for conducting all necessary or desirable activation testing. All such testing shall be performed in compliance with the highest industry standards. In the event such testing demonstrates that the Interconnection is deficient for whatever reason, the Parties shall cooperate to promptly remedy or otherwise cure the deficiency. 6. Maintenance. (A) Level 3 agrees to perform such janitorial services, environmental systems maintenance, power plant maintenance and other actions as are reasonably required to maintain each Level 3 Facility which is subject to a Customer Order in a condition which is suitable for the placement of telecommunications equipment. EXCEPT AS EXPRESSLY STATED HEREIN, LEVEL 3 HAS MADE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO CUSTOMER AS TO THE SUITABILITY OR FITNESS OF ANY PARTICULAR LEVEL 3 FACILITY OR INTERCONNECTION FOR THE PURPOSES INTENDED BY CUSTOMER. (B) The demarcation point for each Interconnection shall be the Assigned Ports on the front of the FDP (the Assigned Ports and FDP are defined in each Customer Order). Such demarcation points establish the division of the responsibility of the Parties hereto for the design, engineering, testing, operation, maintenance, management and repair of each Party's respective telecommunications equipment and fiber optics. Customer understands and agrees that Level 3 has no obligation under this Service Schedule to conduct or maintain periodic or on-going monitoring of any transmissions across the Customer Owned Fiber or across any equipment owned or controlled by Level 3 which is connected to such Customer Owned Fiber. Such monitoring shall be conducted, if at all, by Customer and/or its customer. Customer understands and agrees that Level 3 has no obligation whatsoever to repair or maintain any Customer Owned Fiber. 7. Term. (A) Each Customer Order shall specify the Service Term for (3)LinkSM Fiber Termination Service at the Level 3 Facility(s) specified in that Customer Order. After expiration of the Service Term, the Service shall continue on a month-to-month basis until terminated by either Party upon thirty (30) days' prior written notice to the other. (B) This Service Schedule shall become effective on the Service Schedule Effective Date and shall terminate on the date when all the Service Terms shall have expired or terminated (subject always to the earlier termination procedures of Section 4.2 of the Agreement), except that those provided herein to survive such termination shall remain binding on the parties hereto. (C) Level 3 shall have the right to terminate, upon thirty (30) days' prior written notice or such shorter period of time as specified below (the "Termination Notice"), a specific Customer Order (but not this entire Service Schedule) in the event that: (1) Level 3's right to use the facility within which the applicable Level 3 Facility is located terminates or expires for any reason; (2) Customer ceases transmitting data or voice traffic across the applicable Customer Owned Fiber; (3) Customer has violated any material term of this Service Schedule as it applies to a specific Customer Order; (4) Customer uses the relevant Level 3 Facility for a purpose not permitted under this Service Schedule; or (5) Customer allows unescorted personnel to enter the specific Level 3 Facility, other than Customer's personnel, contractors or technicians who have been approved by Level 3 in accordance with Section 8(B). With respect to items (3), (4) and (5) immediately above, Level 3 shall have the right to immediately send a Termination Notice without any cure period if the same materially interferes or has the potential to materially interfere imminently with Level 3 or other customers. (D) If Level 3 terminates a Customer Order pursuant to clause (1) of the first sentence of Section 7(C) prior to the expiration of the Service Term for the Service ordered pursuant to that Customer Order, then Level 3 shall use commercially reasonable efforts to procure space in a new facility, and Customer shall have the right to locate Customer Owned Fiber within such new facility upon the same terms and conditions set forth herein; provided, Level 3 may increase the charges in order to reflect any additional costs and expenses resulting from such new facility. Level 3 shall use reasonable efforts to notify Customer of any events that may result in termination of the use of the Level 3 Facility. (E) Following the expiration or termination of a Customer Order or this Service Schedule, Level 3 shall, at its sole expense, disconnect all the effected Customer Owned Fibers and deliver the same to a location designated by Level 3; provided that Level 3 shall notify Customer a reasonable amount of time in advance of the location for such fiber delivery. Level 3 shall exercise commercially reasonable efforts to effect the disconnection and delivery described in the previous sentence within sixty (60) days of the expiration or termination of an individual Customer Order or within one hundred twenty (120) days of the expiration or termination of this Service Schedule. Notwithstanding the foregoing, Level 3 shall have no liability to Customer for damage or injury to the Customer Owned Fiber resulting from such disconnection, removal or delivery unless such damage was caused by the gross negligence or willful misconduct of Level 3, its employees or agents. 8. Use of Level 3 Facility. (A) Customer shall not use any Level 3 Facility for marketing, storage of any kind (including storage of excess or slack fiber) or other general office purposes. Customer shall place no signs or marking of any kind in the Level 3 Facility except with written permission of Level 3. (B) Customer shall abide by any posted or communicated rules relating to use of, access to, or security measures respecting each Level 3 Facility. Customer may request access to a Level 3 Facility which is subject to a Customer Order for any of its personnel, contractors or technicians by contacting Level 3's Customer Care Department (877-4-LEVEL 3) which is responsible for authorizing such individuals in the Customer profile ("Representative(s)"). In the event any of its authorized Representatives are found in a Level 3 Facility with any firearms, drugs, alcohol or is found engaging in any criminal activity, eavesdropping, foreign intelligence or card selling or slamming, Level 3 shall have the right to require that such Representatives immediately vacate the facilities and such Representatives shall not be allowed to return. In the event that unauthorized parties gain access to a Level 3 Facility through access cards, keys or other access devices (if any) provided to Customer or its Representatives, Customer shall be responsible for any damages incurred as a result thereof. Should Customer or its Representatives, for any reason, lose control of any security or access devices delivered by Level 3, Customer shall be solely responsible for the replacement of any such devices. (C) Notwithstanding any other provisions of the Agreement or this Service Schedule, neither Customer, its Representatives nor the Customer Owned Fiber (including the data or other communications being transmitted thereon) shall (a) impair or interfere with service provided or otherwise utilized by Level 3 or by any third party colocated within or having access to the relevant Level 3 Facility; (b) endanger or damage the facilities owned or controlled by Level 3 or any third party colocated or otherwise present in the Level 3 Facility; (c) compromise the privacy of any communications or any other transmissions carried in, from, or through the Level 3 Facility; or (d) create an unreasonable risk of injury or death to any individual or to the public. If Level 3 determines, in its reasonable discretion, that Customer, its Representatives or the Customer Owned Fiber violates any provision of this paragraph, Level 3 shall give written notice to Customer specifying such violations in detail, which notice shall direct Customer to cure the violation within twenty-four (24) hours or, if acceptable to Level 3, to commence curative measures within twenty-four (24) hours and to exercise reasonable diligence to complete such measures as soon as possible thereafter. If Customer fails to cure the violation or, if applicable, commence curative measures within such twenty-four (24) hour period or if the violation is of a character which poses an immediate and substantial threat of damage to property, injury or death to any person, or interference/impairment of the services provided by Level 3, its affiliates or other third parties colocated within or having access to the Level 3 Facility, then Level 3 may take such action as it deems appropriate to correct the violation, including without limitation, immediate termination or reconfiguration of the applicable Interconnection. Level 3 will, whenever reasonably possible, provide notice to Customer prior to taking such corrective action. Notwithstanding the foregoing, Level 3 shall not be liable to Customer or any third parties for damages, losses or expenses of any kind which arise from such termination, reconfiguration or other corrective action taken by Level 3. 9. Insurance. Customer shall, at its own expense, obtain and keep in full force and effect for the duration of this Service Schedule, with a carrier or carriers reasonably satisfactory to Level 3, insurance policies of the following kinds and in the following amounts: (a) Workers' Compensation Insurance in accordance with all applicable laws (including Employer's liability insurance with limits of $500,000 each accident); (b) Commercial General Liability with combined single limits of $5,000,000 each occurrence; and (c) "All Risk" Property insurance covering all of Customer's personal property located in the Level 3 Facilities. Customer acknowledges that it retains the risk of loss for, loss of (including, without limitation, loss of use), or damage to, Customer equipment and other personal property located in the Level 3 Facilities. Customer further acknowledges that Level 3's insurance policies do not provide coverage for Customer's personal property located in the Level 3 Facilities. Customer shall, at its option, maintain a program of property insurance or self-insurance covering loss of or damage to its equipment and other personal property located in the Level 3 Facilities. Customer's Commercial General Liability policy shall be endorsed to show Level 3 (and any underlying property owner, as requested by Level 3) as an additional insured. Customer shall waive and/or cause its insurers to waive all rights of subrogation against Level 3 which will include, without limitation, an express waiver in all insurance policies. Customer shall, within thirty (30) days of the Service Schedule Effective Date and from time to time upon request, furnish Level 3 with certificates of insurance demonstrating that Customer has obtained the required insurance coverage. Such certificates shall contain a statement that the insurance coverage shall not be materially changed or cancelled without at least thirty (30) days prior written notice to Level 3. Customer shall require any contractor entering a Level 3 Facility on its behalf to procure and maintain the same types, amounts and coverage extensions as required of Customer above. 10. Mechanic's Liens. No mechanic's lien or other liens shall be filed against property of Level 3, or any improvement therein, by reason of or arising out of any labor or materials furnished, alleged to have been furnished, or to be furnished to or for Customer or by reason of any change or addition to property made at the request or under the direction of Customer. If such a lien shall be filed, Customer shall, within thirty (30) days after receipt of written notice from Level 3, shall either pay such lien or cause the same to be bonded off Level 3's property in the manner provided by law. Customer shall indemnify, defend and hold Level 3 harmless from and against all damages, expenses (including reasonable attorneys' fees), losses, actions, suits or proceedings which may arise or be brought for the enforcement of such liens and Customer shall pay any damage and discharge any judgment entered thereon. 11. Subordination; Release of Landlord. (A) In the event a Level 3 Facility is leased by or otherwise provided to Level 3 pursuant to a written agreement, the terms and conditions of this Service Schedule and the Agreement shall be subordinate to the terms and conditions of said written agreement regarding the use and access of such Level 3 Facility. In no event shall Level 3 be required to provide Customer with any rights to the Level 3 Facility greater than those rights and obligations Level 3 holds. (B) If and to the extent that Level 3's underlying leases so require (but only if they so require) Customer hereby agrees to release the landlord (and its agents, subcontractors and employees) from all liability relating to Customer's access to a Level 3 Facility and Customer's use and/or occupancy of a Level 3 Facility. 12. Destruction of Level 3 Facility. In the event a Level 3 Facility is wholly or partially damaged by fire, windstorm, tornado, flood or by similar causes to such an extent as to be rendered wholly unsuitable for the permitted use hereunder, then either Party may elect within ten (10) days after such damage, to terminate the Customer Order for such Level 3 Facility by giving the other written notice of termination. If either Party shall so elect, both Parties shall be released from further liability for such Level 3 Facility under the terms hereof. However, if the Level 3 Facility shall suffer only minor damage and shall not be rendered wholly unsuitable for the permitted use, or is damaged and the option to terminate is not exercised by either Party, Level 3 covenants and agrees to proceed promptly, at Level 3's sole expense, to repair such damage except for damage to improvements or property not belonging to Level 3. Level 3 shall have a reasonable time within which to rebuild or make any repairs, and such rebuilding and repairing shall be subject to delays caused by Force Majeure Events. Level 3 may, in its sole discretion, create a temporary Interconnection while Level 3 rebuilds or makes necessary repairs. 13. Eminent Domain. Level 3 shall provide Customer with as much written notice as is reasonably possible after Level 3 has been informed that its rights to use the facility within which a particular Level 3 Facility is located will be taken by any public authority under the power of eminent domain. If the whole of a Level 3 Facility shall be taken by any public authority under the power of eminent domain, then Customer's right to interconnect at or within such Level 3 Facility shall terminate as of the day possession shall be taken by such public authority and recurring fees, if any, and other charges for the Level 3 Facility shall be paid up to that day with a proportionate refund by Level 3 of any recurring fees and charges (other than non-recurring fees) as may have been paid in advance for a period subsequent to the date of the taking. If any part of a Level 3 Facility shall be taken under eminent domain and such taking shall render the Level 3 Facility wholly unsuitable for the permitted use hereunder, Level 3 and Customer shall each have the right to terminate the Customer Order with respect to such Level 3 Facility and declare the same null and void, by written notice of such intention to the other Party within ten (10) days after such taking. With respect to any Level 3 Facility the use of which has been terminated in accordance with this section, both Parties shall be released from further liability for such Level 3 Facility under the terms hereof; provided however, that this Agreement shall continue in full force and effect until its expiration or earlier termination as set forth elsewhere herein. EX-10.19 12 ex1019q093004.txt LEVEL 3 ENABLEDSM PARTNER ADDENDUM Exhibit 10.19 Level 3 EnabledSM Partner Addendum This Level 3 Enabled Partner Addendum (the "Addendum") is entered into this 14th day of July, 2004, by and between Level 3 Communications, LLC ("Level 3") and Video Internet Broadcasting Corp. dba HomeNet-USA, ("Customer"). This Addendum modifies the following agreements: Master Service Agreement between Level 3 Communications, LLC and Video Internet Broadcasting Corp. dba HomeNet-USA dated July 14, 2004. (as amended and collectively, the "Agreement"). Capitalized terms used but not defined herein shall have the meanings set forth in the Agreement. Recitals Level 3 has developed and is in the process of implementing various programs pursuant to which certain selected parties will receive benefits in order to assist in the marketing and sale of services which utilize Level 3 Services (the "Program"); One component of the Program entails increased levels of discount for certain Services which are offered in exchange for various levels of purchases made by participants in the Program; Customer desires to participate in the Program, and Level 3 desires to have Customer as a participant in the Program. In consideration whereof, the parties hereby agree as follows: 1. Program Level. The Program Levels are based on monthly recurring charges for the Services. There are four (4) Program Levels: Authorized, Bronze, Silver and Gold. Customers in the Bronze, Silver or Gold levels may have access to special price discounts and other benefits. The Program Purchase Levels will be determined only through Customer Orders submitted and accepted by Level 3 after the date of this Addendum (Customer's existing commitments or purchases, if any, shall not be included in determining whether Customer qualifies for a specific the Program Level). Level 3's billing records will be used to determine Customer's Program Level. Upon execution of this Addendum, Customer shall be placed in the Bronze Program Level. (a) Maintaining the Bronze Program Level Status. In order to maintain its status in the Bronze Program Level, Customer must (in the one-year period following execution of this Addendum) achieve monthly recurring charges as set forth in the following table. In the event that Customer's qualifying monthly recurring charges are not at the level required in each of the months indicated, Customer shall be downgraded to the "Authorized" Program Level and may no longer have access to the price discounts and other benefits available to "Bronze" Program Level participants. - --------- ---------------- ----------------- ----------------- ----------------- 3rd through 5th 6th through 8th 9th through 11th 12th through last Month (MRC) Month (MRC) Month (MRC) Month (MRC) - --------- ---------------- ----------------- ----------------- ----------------- - --------- ---------------- ----------------- ----------------- ----------------- Bronze $ ** $ ** $ ** $ ** - --------- ---------------- ----------------- ------------------ ---------------- After twelve months following the execution of this Addendum, Bronze Program Level Customers must maintain the $__________ minimum qualifying monthly recurring charge. (b) Changes in Program Levels based on Qualifying MRC. If Customer's qualifying monthly recurring charges for Services exceed the Minimum Monthly Recurring Charge shown below, Customer will be upgraded to either the Silver or Gold Program Level in the next following calendar month: ------------------- -------------------------------------------- Program Level Program Purchase Level (Minimum Monthly Recurring Charge) ------------------- -------------------------------------------- Gold $ ** ------------------- -------------------------------------------- Silver $ ** ------------------- -------------------------------------------- Discounts and/or pricing for the new Program Level will apply to Customer's monthly recurring charges in the following month and thereafter for as long as Customer maintains the Minimum Monthly Recurring Charges for such Program Level. If Customer's monthly recurring charges fail to meet the Minimum Monthly Recurring Charges required for the Program Level in any given calendar month, Customer's Program Level may be reduced accordingly (and thereafter Customer shall be entitled to the pricing and other terms associated with such Program Level). 2. Term. The term of this Addendum (the "Program Service Term") shall commence upon execution hereof and end two (2) years thereafter. The Program Service Term shall be automatically extended on a month-to-month basis thereafter (which extended Program Service Term may be terminated by either party upon 30 days' written notice to the other party). 3. Training & Certification Commitment. Customer must meet the minimum certification level associated with its selected Program Level (the "Program Training & Certification Commitment") on or before the sixth month following execution hereof (or achievement of the Silver or Gold Program Levels), as set forth below: ------------------------------------------------------------- Minimum Training & Certification --------------- ------------------------------------------------------------- Program Level # of Sales # of Sales # of Order Certifications Engineering Administration Certifications Certifications --------------- ------------------- --------------------- ------------------- Gold 6 6 1 --------------- ------------------- --------------------- ------------------- Silver 3 3 1 --------------- ------------------- --------------------- ------------------- Bronze 1 1 1 --------------- ------------------- --------------------- ------------------- In the event that Customer has not met the minimum Program Training & Certification Commitment within the timeframe set forth above, Level 3 may (upon written notice to Customer), at Level 3's option, reduce Customer's Program Level appropriately. If Customer has failed to satisfy the Bronze Program Training and Certification Commitment within the timeframe set forth above, Level 3 may terminate this Addendum and/or the pricing contemplated hereby. 3. Funnel Reporting Commitment. Customer must provide timely and accurate information which describes Customer's expected purchases on a monthly basis ("Sales Funnel Reports"). The Sales Funnel Reports shall include all anticipated purchases, including purchases which are less than 100% probable. The Sales Funnel Reports will be provided in the form requested by Level 3, which may include verbal, written or electronic reporting. The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 5. Tier 1 Support Commitment. Customer must provide a customer support capability which will allow its own end-customers to contact Customer at any time (24-hours a day, 365 days a year) ("Tier 1 Support"). Tier 1 Support shall include: - Installation and service provisioning inquires, such as office administrator functions, user "moves, adds, changes & deletes", and password resets - Service management and service disruption inquires, including triaging of problems (between WAN, LAN or application problems) and escalating only the appropriate problems to Level 3 - Billing inquires - Network service performance inquiries - Project management responsibility for any on-site break/fix initiatives Customer may elect to provide Tier 1 Support directly or to contract with a third party. The cost of providing Tier 1 Support, whether provided directly or through a third party, shall be borne by Customer. 6. Pricing Discounts. During the Program Service Term, certain of Customer's monthly recurring charges shall be discounted as set forth in the "Pricing Sheets" attached hereto. Discounts may be stated as a percentage discount off of Level 3's wholesale list prices as set forth in each such Pricing Sheet. Level 3 reserves the right to modify the discount structure, or any Pricing Sheet, applicable to any Service at any time in its sole discretion. Level 3 may further supply additional Pricing Sheets for other Level 3 Services. All new Pricing Sheets or changes to existing Pricing Sheets may be communicated through the Partner Portal or otherwise, as determined by Level 3. Customer acknowledges that the Pricing Sheets and the information contained therein are confidential information and may not, under any circumstances, be shared with third parties (including Customer's end users or prospects). 7. Marketing Development Funds. At its discretion, Level 3 may make available Marketing Development Funds ("MDF") for use by Customer to promote Level 3's Services. These funds are provided by Level 3 in its sole and absolute discretion, and are subject to rules and procedures determined by Level 3 from time to time in its sole and absolute discretion. 8. Termination. (a) Level 3 retains the right to modify or discontinue the Program (or any component thereof) at its discretion at any time by providing 30 days' prior written notice to Customer. In the event that (1) Level 3 terminates Customer's participation in the Program or discontinues the Program, or (2) Customer reasonably determines that any modification, restriction or limitation of the Program or Customer's participation in the Program has materially and adversely impacted the value of Customer's continued participation in the Program, Customer may withdraw from the Program without penalty, at which time this Addendum shall be terminated. (b) In the event that Level 3 terminates Customer's participation in the Program because Customer has failed to abide by the terms of the Program and has not cured such failure within 30 days after written notice thereof from Level 3, or in the event that Customer breaches this Addendum and fails to cure such breach within the times set forth in the Agreement, then Level 3 may elect to (i) terminate this Addendum in its entirety, or (ii) discontinue offering the discounts that would otherwise be applicable to Customer Orders submitted hereunder. (c) Upon termination of this Addendum for any reason, (i) the discounted rates for Service shall cease to be applicable to new orders placed by Customer with Level 3; (ii) Customer shall cease use of any Marketing Materials; and (iii) any other rights or privileges granted to Customer hereunder shall immediately cease. Customer's rates for Service already ordered under the terms of this Addendum shall be governed by the rates for Service set at the time the Services were ordered for the remainder of the Service Term. (d) In the event of a failure by Customer to pay amounts due and owing under the Agreement, Customer hereby agrees that Level 3 may (if Level 3 so desires in its sole and absolute discretion) contact, communicate with and solicit (or refer such end users to third parties for solicitation), any or all of Customer's end users to make appropriate arrangements for the discontinuance or continuation of services. Customer expressly agrees that Level 3 shall have no liability to Customer whatsoever for initiating or continuing such communication or solicitation. Notwithstanding the foregoing, (i) Customer and Level 3 each agree and acknowledge that Customer's end users are not and shall not be considered to be third-party beneficiaries of this Addendum or the Agreement, and (ii) Level 3's actions in initiating or continuing communications with Customer's end users shall in no way affect Customer's contractual obligations to Level 3 under the Agreement or this Addendum. 9. License Grant. Level 3 hereby grants to Customer, during the term of this Agreement, a non-exclusive, non-transferable, non-sublicenseable right and license in the United States to use, reproduce and distribute any marketing materials ("Marketing Materials") and user manuals, specifications and other documentation detailing the Services offered by Level 3 (collectively, the "Service Specifications") provided by Level 3 hereunder in connection with its participation in the Program; provided, however, that Customer shall only be permitted to distribute the Service Specifications and Marketing Materials to end users and potential end users seeking services from Customer. Customer shall remove all of Level 3's trademarks, service marks, trade names and logos from the Marketing Materials and Service Specifications prior to distributing them to third parties. Except as otherwise set forth in this section, Customer shall not make any modifications to the Service Specifications without Level 3's prior written approval. Level 3 Communications, Inc. shall retain all right, title and interest, including all intellectual property rights, in and to all Marketing Materials and the Service Specifications provided by Level 3. By way of clarification, the works containing the modifications made by Customer to the Marketing Materials and Service Specifications shall be owned by Level 3 Communications, Inc. as a work made for hire. To the extent such modified Marketing Materials and Service Specifications may not be considered a work made for hire, Customer assigns to Level 3 Communications, Inc. all right, title and interest in the modified Marketing Materials and Service Specifications. 10. Partner Portal. The terms and conditions of this Section 10 shall only be applicable to Customer's access to and use of Level 3's online Partner Portal (the "Partner Portal"). The Partner Portal is an online web portal that provides Customer with access to reporting, pricing, and Marketing Materials and online ordering of certain Level 3 Services. (a) Authorized Users. (i) Customer may enroll for access to the Partner Portal by signing and returning a completed Authorized User Access Form as designated by Level 3, a copy of which is available from Level 3 upon request, for each individual who is authorized to access and use the Partner Portal on behalf of Customer. Customer shall have the right to add or delete Authorized Users from time to time at Customer's discretion by submission to Level 3 of the appropriate form(s) designated by Level 3 and available upon request. Level 3 will send written confirmation (via e-mail) of its receipt of such written request, and will implement such additions, deletions or changes by close of business on the second (2nd) business day after receipt of such written request. (ii) Customer agrees that the person using the Partner Portal username and password is the person assigned to that username and password and has the access rights and authority to bind Customer (the "Authorized User") consistent with the access rights and authority assigned by Customer to that Authorized User in the applicable Authorized User Access Form. (iii) Customer shall be responsible for the confidentiality and use of all Partner Portal user name(s), password(s) and other security data, methods and devices that may be provided by Level 3 to Customer from time to time for use by Authorized Users. Customer shall immediately notify Level 3 if there is any unauthorized use of Customer's username(s), password(s) and other security data, methods or devices. (b) Change, Suspension or Termination of the Partner Portal. Level 3 may, at any time and without notice, change, modify and/or alter the Partner Portal, including, without limitation, the functionality of the Partner Portal and the Service available for ordering by Customer therein; provided, however, that Level 3 shall use commercially reasonable efforts to notify Customer of such changes, additions or deletions. In addition, Level 3 may, without cause, suspend or terminate Customer's access to the Partner Portal or otherwise discontinue the Partner Portal, in whole or in part, upon written notice to Customer. (c) Proprietary Rights. Customer agrees that Level 3's Partner Portal is the property of Level 3. Customer agrees not to use Level 3's Partner Portal other than for its intended use and, in no event, shall Customer provide access to the Partner Portal to any person other than an Authorized User. (d) Ordering Service Through the Partner Portal. This Section 10(d) shall be applicable to Customer's submission of Customer Orders to Level 3 via the Partner Portal. (i) Without limiting the generality of Section 10(a)(ii) above, Customer acknowledges and agrees that any Customer Order for Service submitted via the Partner Portal by an Authorized User shall constitute a valid and binding Customer Order of Customer (subject to the same terms and conditions for all Customer Orders under the Agreement), and Customer shall be responsible for any and all charges associated with such Customer Order. (ii) Level 3 shall confirm the submission of a Customer Order by forwarding to Customer via e-mail a "Confirmation" of the Customer Order within one (1) business day of receipt of the Customer Order via the Partner Portal. In the event Customer does not receive a Confirmation within such time frame, Customer should contact its Level 3 account representative. If the Confirmation incorrectly states any of the terms that Customer believes are applicable to its Customer Order or refers to a Customer Order that is improper, incomplete or otherwise submitted in error, Customer shall deliver written notice of its objection to the Confirmation within two (2) business days following Level 3's delivery of the Confirmation. In the event that an objection to a Confirmation is delivered to Level 3 within such two (2) business day period, then (x) the Customer Order shall be deemed rescinded by Customer and (y) the parties shall confer in an effort to resolve, if applicable, any incorrect or incomplete term. If no objection to the Confirmation is received by Level 3 before the expiration of this two (2) day timeframe, the Customer Order shall be deemed correct and submitted by Customer to Level 3 for consideration. (iii) Both Customer and Level 3 agree that the electronic order process (as more particularly described in this Section 10(d)) within the Partner Portal creates a valid and binding Customer Order between Level 3 and Customer. 11. Remaining Terms Unaffected. Unless specifically modified hereby, the terms, conditions and provisions contained in the Agreement shall remain in full force and effect, and shall continue to be applicable to the Service purchased by Customer. Level 3 Communications, LLC Video Internet Broadcasting Corp. dba HomeNet-USA By: /s/ S Trimble By: /s/ Jonathan A. Moore Title: V P Legal Title: Chief Technical Officer PRICING SHEET - Internet AdvantageSM Services Effective date: February 17, 2004 Partners will receive preferential price discounts for Level 3's Internet Advantage services. - ---------------------------------------- -------------------------------------- Level 3 Enabled Partner Tier Discount Off of MRC for Qualifying Internet Advantage Products - ---------------------------------------- -------------------------------------- Bronze 5% - ---------------------------------------- -------------------------------------- Silver 10% - ---------------------------------------- -------------------------------------- Gold 15% - ---------------------------------------- -------------------------------------- The following Level 3 services are Qualifying Internet Advantage Products: o Fixed Price DS1 Service Monthly Recurring Charges o DS1 Backup Service Monthly Recurring Charges o Fixed Price Multi-DS1 Service Monthly Recurring Charges o Fixed Price Backup Multi-DS1 Service Monthly Recurring Charges o Fixed Price DS3 Service Monthly Recurring Charges o Committed Date Rate ("CDR") with Burst for DS3 Service Monthly Recurring Charges o CDR with Burst for backup DS3 Service Monthly Recurring Charges o Rate Limiting for DS3 Service Monthly Recurring Charges o Fixed Price OC3 Service Monthly Recurring Charges o CDR with Burst for OC3 Service Monthly Recurring Charges o Usage and Non-Usage Based OC12 and OC48 Service Monthly Recurring Charges o Usage and Non-Usage Based Fast Ethernet Service Monthly Recurring Charges o Usage and Non-Usage Based Gigabit Ethernet Service Monthly Recurring Charges o Frame Relay DS1 Handoff Service Monthly Recurring Charges o Frame Relay DS3 Handoff Service Monthly Recurring Charges The discount shall be provided only with respect to the charges listed above; the following charges (without limitation) shall not be discounted: o Activation fees or installation charges o Charges for Quality of Service (Congestion Priority Service) Feature o Charges for Customer Premise Equipment o Charges for Advanced Services, including Primary DNS 10-Pack, Secondary DNS 10-Pack, Usage Reporting, Network News Feed (initial), Packet Filtering, BGP4 Routing, Primary DNS 10-Pack (additional). Secondary DNS 10-Pack (additional), and Network News Feeds. Discounts are stated off of Level 3's wholesale list price, which is subject to change at any time at the sole discretion of Level 3. Discounts are available only on new orders and will not be applied retroactively or on existing spending with Level 3 (Level 3 does not "re-price the base"). PRICING SHEET - (3)Center(R) Colocation Services Effective date: April 5, 2004 Partners will receive preferential price discounts for Level 3's Colocation services. Note that pricing for cabinets does not include power. - --------------------------------------------------------------------- Monthly Recurring Charge List Prices MRC per - --------------------------------------------------------------------- Level 3 List Cab Pricing $** cab - --------------------------------------------------------------------- Level 3 List Suite Pricing $** square foot - --------------------------------------------------------------------- Level 3 List Power 120V AC $** amp - --------------------------------------------------------------------- Level 3 $** amp - --------------------------------------------------------------------- Level 3 List Power 48V DC $** amp - --------------------------------------------------------------------- - -------------------------------------------------------------------------------- Gold, Silver & Bronze Prices MRC per Discount - -------------------------------------------------------------------------------- See Table See Table Level 3 Partner Cab Pricing by City cab by City - -------------------------------------------------------------------------------- Level 3 Partner Suite Pricing ** square foot ** - -------------------------------------------------------------------------------- Level 3 Partner Power 120V AC $** amp ** - -------------------------------------------------------------------------------- Level 3 Partner Power 208V AC $** amp ** - -------------------------------------------------------------------------------- Level 3 Partner Power 48V DC $** amp ** - -------------------------------------------------------------------------------- - --------------------------------------------------------------------- Non-Recurring Charge List Prices NRC per - --------------------------------------------------------------------- Level 3 List Cab Pricing $** ____ cab - --------------------------------------------------------------------- Level 3 List Suite Pricing Custom square foot - --------------------------------------------------------------------- Level 3 List Power 120V AC $** ____ circuit - --------------------------------------------------------------------- Level 3 List Power 208V AC $** ___+ circuit - --------------------------------------------------------------------- Level 3 List Power 48V DC $** ____ circuit - --------------------------------------------------------------------- - -------------------------------------------------------------------------------- Gold, Silver & Bronze Prices NRC per Discount - -------------------------------------------------------------------------------- Level 3 Partner Cab Pricing $** cab ** - -------------------------------------------------------------------------------- Level 3 Partner Suite Pricing Custom square foot ** - -------------------------------------------------------------------------------- Level 3 Partner Power 120V AC $** circuit ** - -------------------------------------------------------------------------------- Level 3 $** Circuit ** - -------------------------------------------------------------------------------- Level 3 Partner Power 48V DC $** circuit ** - -------------------------------------------------------------------------------- The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
Cabinet Pricing Discount Table by City - ----------------------------------------------------------------------------------------------------------- Silver Cab Gold Cab Bronze Silver Facilities Bronze Cab MRC MRC Discount from Discount from Gold Discount MRC Pricing Pricing Pricing List List from List - ----------------------------------------------------------------------------------------------------------- Atlanta 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Baltimore 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Cambridge 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Chicago 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Cincinnati 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Dallas 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Denver 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Emeryville 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Garden City 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Houston 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Los Angeles 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- McLean 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Miami 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- New York 1 ** ** ** 41% 45% 49% - ----------------------------------------------------------------------------------------------------------- New York 5 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Newark 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Orlando 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Philadelphia 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Phoenix 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Reston 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- San Diego 1 ** ** ** 41% 45% 49% - ----------------------------------------------------------------------------------------------------------- San Francisco 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Seattle 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Southfield 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- St. Louis 1 ** ** ** 56% 60% 63% - ----------------------------------------------------------------------------------------------------------- Stamford 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Sunnyvale 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Sunnyvale 2 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Tampa 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Tustin 1 ** ** ** 49% 52% 56% - ----------------------------------------------------------------------------------------------------------- Weehawken 1 ** ** ** 56% 60% 63% - -----------------------------------------------------------------------------------------------------------
Level 3's wholesale list price is subject to change at any time at the sole discretion of Level 3. Discounts are available only on new orders and will not be applied retroactively or on existing spending with Level 3 (Level 3 does not "re-price the base"). PRICING SHEET - (3)ToneSM Effective date: March 11, 2004 Partners will receive preferential, discount prices for Level 3's (3)Tone Services as listed below (subject to change). [GRAPHIC OMITTED] Level 3's prices are subject to change at any time at the sole discretion of Level 3. Discount prices are available only on new orders and will not be applied retroactivity or on existing spending with Level 3 (Level 3 does not "re-price the base"). The "**" marks the location of information that has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. EX-31.1 13 ex311q093004.txt CEO CERTIFICATION REQUIRED UNDER SECTION 302 Exhibit 31.1 I, W. Kelly Ryan, as Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of HomeNet Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: December 13, 2004 /s/ W. Kelly Ryan --------------------------- W. Kelly Ryan, Chief Executive Officer EX-31.2 14 ex312q093004.txt CFO CERTIFICATION REQUIRED UNDER SECTION 302 Exhibit 31.2 I, Michael W. Devine, as Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of HomeNet Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: December 13, 2004 /s/ Michael W. Devine -------------------------- Michael W. Devine, Chief Financial Officer EX-32.1 15 ex321q093004.txt CEO CERTIFICATION REQUIRED UNDER SECTION 906 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of HomeNet Corporation (the "Company") on Form 10-QSB for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, W. Kelly Ryan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ W. Kelly Ryan W. Kelly Ryan Chief Executive Officer and Chief Financial Officer December 13, 2004 EX-32.2 16 ex322q093004.txt CFO CERTIFICATION REQUIRED UNDER SECTION 906 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of HomeNet Corporation (the "Company") on Form 10-QSB for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael W. Devine, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Michael W. Devine - -------------------------- Michael W. Devine Chief Financial Officer December 13, 2004 -----END PRIVACY-ENHANCED MESSAGE-----