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Pathways Creative Media, Inc.

Introduction In January, 1980, Charles Perry and Louise Jenkins cofounded Pathways Creative Media, Inc. in Columbus, Ohio. Perry’s passion for filmmaking and production was the force behind the company’s evolution into one of America’s largest independent production companies. Jenkins’ rich background in theatre, news production, and expansive experience in business communications, has allowed the company to become a nationwide leader in media and graphics design, as well as strategic planning of corporate meetings and special events. The company has won writing and production awards. Pathways is the largest independent production company in Ohio. It is incorporated as an S corporation and is an Employee Stock Ownership Plan (ESOP) company under Ohio law. The 140 full-time and part-time employees at Pathways have a vast array of talent and experience in television, video, interactive and Web-based media, theater, audiovisual media, and live event staging industries. The company has a rare and unique combination of talent and technology that can produce plenty of creative media for great results, fusing imagination, wizardry, and passion to tell a powerful story for each client. Pathways Services Vision Statement At Pathways, we are dedicated to the art and science of modern storytelling. We are honest, fair, and considerate in our relationships with our clients and with one another. We promote a stimulating environment where talent, passion, innovation, and craft are recognized and rewarded, and associates are encouraged to be creative and to have fun. We believe in the power of ideas to produce results, and we are committed to bringing imagination, value, and unsurpassed service to every client project. Web and Interactive Media From large exhibition spaces to more intimate, desktop applications, Pathways has created award-winning work in a variety of Web and interactive mediums. Key areas of expertise include interactive kiosks, Web sites (intranets, extranets, portals, and complete redesign services), content management systems, gaming applications for education and business, eLearning, and Flash development. Interactive media specialists at Pathways build Web sites from the ground up, including robust content management systems and comprehensive site redesign. The company’s primary focus is on providing scalable solutions that keep each client in charge of the Web content while delivering the information in an easy to access manner.

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In eLearning, Pathways creates stand-alone courses as well as fully integrates e-learning activities and components hosted in an enterprise learning management system. Its staff creates content for courses hosted on Blackboard, eCollege, Moodle, Socrates, Lectora, and proprietary learning management systems. Pathways creates interactive games to educate, entertain, and market. Individualized game design and interactive stand-alone kiosks created by Pathways deliver content in an informative, interactive manner. When creating museum and exhibition displays, Pathways works hand-in-hand with the exhibition designers and museum curators to ensure that the visitor experience is engaging, informative, entertaining, and memorable. The company has created exhibits for numerous nationally prominent museums and exhibition displays for private galleries. Teleproduction As one of the largest independent production companies, the teleproduction center at Pathways is a vast complex of soundstages, audio studios, editing and visual effects suites, and engineering and control facilities. Pathways offers an unmatched array of creative media services in a state-of-the-art environment that fosters innovation and imagination. Pathways offers high-definition (HD) field production supported by an award-winning staff of directors of photography, videographers, gaffers, audio engineers, grips, and production coordinators, using the most modern tools of the trade. Pathways in-house-HD shoot packages include models such as the Sony HDCAM F-900, XDCAM 700, and EX-3 camera systems, as well as Canon 5D Digital SLR camera packages. All these are backed with a comprehensive inventory of grip trucks and gear; tungsten, florescent, LED, and HMI lighting packages; and location audio and camera support equipment. Pathways HD production complex offers sound stages, with studio shells, HD equipment packages, and all the amenities for efficient studio production environments. The HD multi- camera control center produces infomercials, video conferences, game shows, news feeds, and other live or live-to-disc television productions. The audio production and custom music production services include voice-over recording, editing, and mix down; mix-to-pix, soundscaping, and audio sweetening; broadcast production and radio spots; audio for Internet, podcasting, and interactive applications; multilingual international audio; digital sessions via ISDN or IP with MusicCam and ATP systems; and music and effects libraries. Broadcast Production Pathways has a staff with extensive experience in news, sports, entertainment programming, and commercial spot production. For advertising agencies, marketing firms, PR firms, and in-house ad departments, Pathways is a leading resource for HD studio and location production, audio, visual effects, and creative editorial services. Its commercial productions include commercial TV spots, radio spots, public service announcements, online media, and digital signage and displays. Entertainment Programming Over the last two decades, the entertainment business model has changed, adapting to today’s lifestyles and technologies. With hundreds of cable channels, DVDs, and broadband video, there have never been so many new opportunities for innovative programming. Pathways produces

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original entertainment programs that include a long-running weekly public television series, television specials, game shows, documentaries, and Internet video. Meetings and Events Pathways creates engaging experiences that motivate, inform, persuade, unite, and delight audiences of all types. Its array of creative design and technical execution services, ranging from theme development and scenic and lighting design to video production and comprehensive staging support, has earned it top honors across the nation. Its events’ teams have staged functions at the most popular venues in top destination cities throughout the United States. Typical events staged by Pathways include employee meetings, sales conferences, brand launches, recognition ceremonies, management road shows, fashion presentations, fundraising galas, and annual meetings. Contracts Pathways frequently needs intellectual property lawyers to file copyrights, patents, and trademarks for the corporation. The law firm also handles all its executive compensation contracts. Pathways must comply with all Ohio and federal laws in regard to employment. It seeks to comply with the ethics codes of national associations of which they are members, particularly the codes related to the various production functions of the corporation. There have been no legal problems to date. In an ESOP corporation, when employees sue the company, they sue themselves. Employees realize they lose by suing the company. If there is an employment issue, all contracts contain a mediation agreement that is handled by the retained law firm. Pathways enters into contracts or agreements to develop a range of materials for clients. As in any business, the contracts set down the terms of work to be done, timelines, payments, and other details. In the creative field, intellectual property matters also feature in the contract. Pathways is expected to create original content or obtain permission to use content under contract to any third party. The customer retains all intellectual property rights to the materials created by Pathways. Beginning on page 11 of this document is a draft of a contract agreement that details the terms and conditions for developing a Web site for a client. Intellectual Property Almost all the work at Pathways involves intellectual property. The materials the company creates for its clients are original creative products. Typically, the client holds the copyright. In some cases, Pathways obtains the copyright and licenses the material to the client. This way, Pathways retains control of the creative product and generates more revenue from it. Pathways is a regional leader in the development of Web sites, gaming applications for educational usage, eLearning, and museum and exhibition media. Employees at Pathways create Web sites from start to finish. Clients often want to provide content for inclusion on their Web site. In this process, one of the problems frequently encountered by Pathways is the verification of

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ownership of images and videos clients often want to include in their Web sites. Pathways verifies the ownership of these images and videos before using them on the new Web site in order to avoid copyright infringement issues. Any trademarks or logos provided by the client are also checked against the United States Patent and Trademark’s database for authenticity. At times, the clients approach Pathways to update their existing Web sites created by another firm. In cases like this, before work can begin, it is important to make sure none of the content was created under a license agreement with the original Web design firm. Clients all too often do not realize that the material on their Web site could be owned by the Web design firm, depending on how the contract was structured. If the original design firm simply licensed Flash components to the client for use on the Web site during a contract time frame, and if the client wants to maintain those portions of the Web site, then the issue of licensing must be addressed. In the last decade, Pathways began providing eLearning solutions, developing proprietary software to host online learning ranging from corporate training courses to creating and maintaining entire distance learning programs for colleges and universities. Since the software is proprietary, Pathways licenses its software to various entities. The scope of the license is negotiated with each client based on the length of license, number of users, customization of the software, and maintenance of the eLearning platforms. Another service Pathways offers is course- and program-specific video tutorials. For instance, Pathways may enter into contract with a medical school to create interactive online programs that allow medical students to test themselves on key concepts and to interact with the software in 3D format simulating actual medical procedures. Under a work-for-hire agreement, Pathways also creates interactive kiosks, museum exhibits, and media exhibits for tradeshows. In this instance, Pathways maintains no rights to any of the intellectual property rights and everything created by Pathways’ employees becomes the property of the client. An example of this type of media would be an interactive exhibit at the Center of Science and Industry in Columbus, where museum visitors can engage in simulations with various exhibits hosted by the museum. Pathways has contracts with all national media outlets including CNN, NBC, ABC, CBS, and FOX for remote production of interviews and commentary segments used in national news programs. Each aspect of the production is controlled by the specific terms of the contract where all rights to the content are retained by the media outlet. Pathways is paid per contract depending on the services required and personnel involved and whether it is on-site or remote broadcasting. Torts In recent years, the graphic industry has run into legal issues most prominently related to cyber defamation. Cyber defamation encompasses cyber libel and cyber slander. Hosting Web site content opens the potential for a libel suit which is why Pathways’ attorneys include indemnification clauses in all Web hosting agreements. If a client has a blog on their site and posts defamatory statements about an individual, the indemnification clause protects Pathways from third party lawsuits. Though the potential for a lawsuit always exists, using indemnification clauses and well-drafted contracts are the best means of protection for Pathways. When a company like Pathways is involved in news media production, defamation charges are always a consideration. The creation of commercials for companies or political parties is another area where problems can occur in regard to slander. During national elections, Pathways creates

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many of the political ads that air on national television. There is a fine line between challenging a political opponent’s judgments and making defamatory statements that would provide the grounds for a lawsuit against the company. A recent case involving defamation that will have a tremendous impact on how courts address Internet defamation was recently decided in Ohio. In June 2010, the Ohio Supreme Court ruled that Ohio courts have jurisdiction over nonresident defendants in a defamation case involving Internet postings. In Kauffman Racing Equip. L.L.C. v. Roberts, the defendant was alleged to have posted disparaging statements on the public forum areas of several Internet sites with the intention of damaging an Ohio-based company's business and personal reputation. Justice Pfeiffer writing for the court stated the following:

“Roberts contends that Ohio's long-arm statute does not confer personal jurisdiction because he did not direct the alleged tortious statements to Ohio or publish them here. Despite the fact that Roberts's publication of his comments did not emanate from Ohio, those comments were received in Ohio. ... Roberts posted his allegedly defamatory statements on the Internet, ostensibly for the entire world to see. How much of the world saw the comments is unknown; but we do know that at least five Ohioans saw Roberts's statements. The comments were thus published in Ohio.”

Kauffman Racing Equip., L.L.C. v. Roberts, Slip Opinion No. 2010-Ohio-2551. Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2010/2010-Ohio-2551.pdf

Employment Pathways, as an equal opportunity employer, provides equal employment opportunity to all qualified individuals without regard to their race, color, religion, national origin, age, sex, disability, military status, citizenship, or any other legally protected status in accordance with applicable local, state, and federal law. Employees at Pathways are very experienced and skilled in various multimedia arenas, such as television, video, interactive and Web-based media, theater, the audiovisual media, and live event staging industries. Pathways also engages numerous freelancers on a contract basis. As part of its effort to train college seniors preparing to enter the creative field, Pathways offers the Pre-Professional Program (Pre-Pro Program), an intensive training program for college graduates and for people who have trained at specialized schools for careers in the creative media production industry. The Pre-Pro Program attracts applicants with varied talents, backgrounds, experiences, and education. A good Pre-Pro experience can provide participants with valuable industry experience and contacts. Pathways employs individuals in the following areas for the Pre-Pro Program: audiovisual rentals, meetings, events and presentations, field and studio production, graphic design and animation, post-production services, and Web and interactive media design. Pathways also offers unpaid internships to qualified candidates in the fields listed in the Pre-Pro Program. Pathways also recruits freelancers for multimedia development, applications development, Web project management, and media design. On occasion, the company also hires freelancers for field and production services, post-production services, and event planning.

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All full-time employees are employed under a contract for specific services as stated in the employment agreement. Part-time employees are paid an hourly wage depending on the position. Freelance employees are paid per contract and after the submission of an invoice. Pathways employs a culturally diverse workforce with an age range of 18–67. The male-female ratio is 55:45. All employees have a minimum of an undergraduate college degree due to the high technical requirements of the industry. Louise Jenkins and Charles Perry, 45 and 46 years old, respectively, are partners in Pathways. Both hold degrees in media production as well as have MBAs. As partners they hold equal rank in decision making. They both are Caucasians. Suzanne Hawk, 32, is the director of the Web and interactive media division. She is a graduate of the Ohio State University and holds a Bachelor’s degree in interactive media design and an MBA in strategic planning. Hawk’s ethnic background is American-Indian. Hawk’s ability to run a profitable division is a result of her “can do” attitude and leadership ability. She has demonstrated excellent team building, as well as people and leadership skills. Lillian Rush, 40, and of Hispanic descent, is head of Web project management. Rush holds a degree in interactive media design from the Art Institute Online. Currently, she is working on an MBA at Otterbein College. Rush handles the creation and implementation of Web projects. She is in charge of working with clients to define their content, structural, and design needs. She then delegates the design work to team members while overseeing all production within the Web design area. Gene Miller, 28, and biracial, is an application developer. Miller holds a degree in interactive Web design from MIT. Miller’s job responsibilities include all phases of development, including analysis, functionality, testing, and deployment. Creighton Semones, 22, holds a Bachelor’s degree in public relations. After having served as an intern for Pathways while completing his degree at Dennison University, Semones now serves as the main receptionist with hopes of moving into a Public Relations (PR) position when one becomes available. Semones is from France and is currently in the United States on a work visa. Charlotte Helfenbein, 62, is a veteran news professional. She is in charge of Pathways’ on-air segments that are produced for national affiliates broadcasting from Columbus, Ohio. Helfenbein earned her undergraduate degree from Marietta College and her Master’s degree in television production from Miami University, Oxford, Ohio. Helfenbein, a female Caucasian, broke into television news broadcasting during a time when it was a male-dominated profession. Pathways uses an intellectual property law firm, hired on a retainer basis, to handle all intellectual property issues, contracts, and employment law issues. The firm of Patton, Trust, and Wright has handled all of Pathways’ legal work since the company was started. Patton, Trust, and Wright also administers the company’s ESOP. All accounting functions are handled in-house by the accounting department. The human resource department handles all hiring for Pathways. Consumer Protection Pathways is Ohio’s most comprehensive creative media company and one of the largest independent production firms in the nation. It offers clients 360-degree creative media solutions

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integrated across multiple communication media platforms. The company’s services are offered on a project basis or under multi-year strategic agreements set up through the law firm of Patton, Trust, and Wright. Its customers range from small businesses requiring Web site creation and development to national broadcasting companies requiring local news segments. Customers include institutions of higher education, small businesses, large corporations, sole proprietorships, museums, art galleries, and broadcast networks. There is always the potential of a personal injury when filming for television or video productions, although it is rare. Personal injury claims are resolved through the insurance company, which includes representation for the firm on any claims. As the vast majority of the work is done at the company’s facility, there is little chance any property could be damaged. An example of possible damage could be the breaking of a Ming vase during a production of a show for valuable antiques. However, unless the vase was being handled by an employee of Pathways, there would be a clause in the contract waiving liability for Pathways. In a small company like Pathways, owners deal directly with customers. As of now, Pathways does not have many complaints from customers. All terms are spelled out in the production contract or contract for creation of digital media by the law firm. There is little scope for misunderstanding, and any emerging issues are quickly resolved. Organizational Forms and Law Pathways is incorporated as a privately held S corporation under Ohio law and subject to internal revenue service (IRS) provision for taxation of income. S corporations elect to pass corporate income, losses, deductions, and credit to their shareholders for federal tax purposes. Shareholders of S corporations report the flow of income and losses on their personal tax returns and are assessed at individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive incomes. To qualify for S-corporation status, the corporation must meet the following requirements:

• Be a domestic corporation • Have only allowable shareholders, which includes individuals, certain trusts, and estates,

but not partnerships, corporations, or nonresident alien shareholders • Have no more than 100 shareholders • Have one class of stock • Not be an ineligible corporation, such as certain financial institutions, insurance

companies, and domestic international sales corporations ESOP, which Pathways follows, is a tax-qualified retirement plan that enables a corporation to reward and motivate employees with ownership in the corporation. Available only to corporations, ESOPs provide a number of benefits, including significant tax advantages. Pathways allocates its ESOP contributions to individual employees in proportion to their compensation. The contributions go into a trust account and employees become entitled to an increasing percentage of their accounts over time. Pathways employees’ ESOPs vest at five years of continued full-time employment. An ESOP employee who reaches the age of fifty-five and who has at least ten years of participation in the plan, has the option of diversifying his/her

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ESOP account up to twenty-five percent of the value. This option continues until age sixty, at which time the employee has a one-time option to diversify up to fifty percent of his/her account. The form of distribution of a privately held firm such as Pathways is governed by the corporate by-laws. Pathways makes the distribution in stock, giving the employees a “put option” on the stock for sixty days after the distribution. If the employee chooses not to sell at that time, the company must offer another put option for a second 60-day period starting one year after the distribution date. After this period the company has no further obligation to repurchase the shares. Employees receive the vested portion of their accounts at termination, disability, death, or retirement. These distributions may be made in a lump sum or in installments over a period of years. If employees become disabled or die, they or their beneficiaries receive the vested portion of their ESOP accounts right away. If at the time of receiving their accounts there is no public market, the company must purchase the employee’s shares at their present valuation. The corporation is generally given the option of paying for the shares in a lump sum or in installments over a period of years. As an S Corporation, Pathways is a corporation that elected to be taxed under Subchapter S of the Internal Revenue Code and received Internal Revenue Service (IRS) approval of its request for Subchapter S status. As a legal entity, the S Corporation is separate and distinct from the corporation's owners, who are the stockholders. Pathways gains several advantages from its S Corporation status. These advantages are

• As an S Corporation, the continuation and sustainability of the company is ensured because it cannot be impacted by the death of one or more stockholders.

• Distributing stock shares through the ESOP allows restructuring of corporate ownership without interruption of business operations.

• The Pathways S Corporation pays no income taxes and corporation income or loss is passed to stockholders.

• To the extent the corporate shield is maintained and other investments and savings of the stockholders are not at risk, the personal life of stockholders is simplified.

• Depending on the corporation's business record and the policies and practices of prospective lenders, access to credit and the ability to secure needed resources is improved.

• Earnings representing return on investment (interest, rental payments, etc.) are not subject to self-employment tax as long as stockholder-employees receive adequate compensation for labor and management of the business.

The S Corporation status also has some disadvantages:

• Lenders may require personal guarantees from corporate officers as a condition of credit which negates to some extent the limits of liability.

• Disagreements among employee stockholders could impede the decision-making process of Pathways.

• The appreciated assets owned by Pathways could become significant income tax liabilities to shareholder-employees if the corporation is dissolved.

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• Employment benefits such as life insurance, health insurance, and housing costs are taxable income to Pathways’ stockholder-employees with two percent or more stock ownership.

Antitrust Pathways is an S corporation as well as an ESOP operating in a regional market but produces content for the Internet and for national television affiliates. As a result of Pathways being an independent production firm, there are no specific measures in regard to market performance. If Pathways was a publicly traded company, there would be published market shares. Fair and unfair competition would be monitored, in most cases, by the Federal Trade Commission (FTC). Pathways does bid on contracts, however in most cases, the customer approaches Pathways and asks for a quote on the work he or she needs Pathways to do. A thorough proposal is prepared and assigned a time limitation for acceptance. Digital Media: Ethics, IPR Depending on customer requirements, Pathways uses its in-house graphic designers to create original content for Web sites, commercial productions, and videography. The type of licensing depends on the particular contract. For example, Pathways might agree to design a Web site using some content furnished by the customer as well as some content created or owned by Pathways. In such a case, there may be a licensing agreement that deals with royalties. Another example is creation of commercial jingles, which is done by in-house musicians. Typically, Pathways would obtain copyright to these and then license them to the client in order to obtain the maximum profit. Pathways is a member of numerous professional societies including American Institute of Graphics Arts (AIGA), Association of Entertainment Professional (AEP), Public Relations Society of America (PRSA), NATAS Ohio Valley Chapter, and Columbus American Marketing Association (AMA). Each professional organization has a code of conduct specified for members that Pathways adheres to as part of the membership requirement. Due to the diversity of Pathways’ enterprises, multiple professional memberships are required. Pathways developed its code of ethics, considering any inconsistencies it found in the codes of various professional organizations it was a member of. If in the future Pathways chooses to become a publicly traded company, it will have had to comply with Securities and Exchange Commission regulations as well as conform to the mandates of laws such as the Sarbanes-Oxley Act. Given the nature of Pathways’ business, there is a very real possibility that international property laws should be considered. For instance, if Pathways was to create copyright and license software for a client’s Web site, there is a possibility that a company or individual on the other side of the world might hack into the Web site and steal the coding language in order to sell it and profit from it. In such a case, if Pathways wanted to prosecute a copyright violation, it would then need to involve the World Intellectual Property Organization (WIPO). By violating the Internet Treaties and the Berne Convention, the scope of the problem rises to an international level. Since many of the business activities Pathways is involved with are international in scope, an understanding of international intellectual property laws is required. Employees at Pathways who administer projects with an international scope such as Web site design, should be familiar with international property laws and the international conventions and treaties that apply to a given project. Knowing whether federal registration is sufficient to protect

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the intellectual property created by Pathways or whether registration under an international convention or treaty through the WIPO is required is essential when conducting business on an international scale. Business Models, and Distribution and Delivery Pathways’ Web site advertises its services and provides examples of work done for clients. Salespersons employed by Pathways check industry Web sites daily for opportunities to bid on projects. An online payment option is available for services offered on a continuing basis such as Web hosting. E-mail is one of the primary forms of communication as the company operates on a national basis with geographically dispersed customers. The laws governing a company’s operations are based on the ownership and operating structure chosen by the founders of the company. When Perry and Jenkins originally decided on a business model for their company, they considered models that would provide them with the most flexibility and would allow them to maximize profits. Under a general partnership, Perry and Jenkins would have maintained complete control over all operations at Pathways, but they would have been personally liable for any damages resulting from a lawsuit against the company. They also considered a limited liability partnership (LLP), but since they were funding the company with their own money for start-up purposes, there would have been no advantage to operating as an LLP. After eliminating partnership options, Perry and Jenkins explored the idea of incorporating the business either as a C corporation or an S corporation under Ohio law. However, when they realized that a C corporation would be taxed at two levels, the better option was to incorporate as an S corporation which also allowed them to operate under an ESOP. Moreover, because Perry and Jenkins felt strongly about their employees having proportional ownership through the ESOP structure, Pathways was incorporated as an S Corporation under Ohio law.

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Web Site Development Agreement

This Web Site Development Agreement is made by and between Pathways Creative Media, Inc. ("Web Designer"), with its principal place of business in Columbus, Ohio and _______________________ ("Customer") with its principal place of business at _________________________________________________.

WHEREAS, Customer desires to retain Web Designer to develop the World Wide Web site (the "Web Site") for Customer as described in the Work Plan (as defined in Exhibit A below);

WHEREAS, Web Designer desires to undertake the development of the Web Site and agrees to do so under the terms and conditions set forth in this Agreement;

NOW, THEREFORE, for good and valuable consideration, the parties agree as follows:

Section 1. Work Plan. Web Designer has prepared a Work Plan for the Web Site, which includes the following:

(a) The specifications for the Web Site which comply with the requirements of the Customer's Request For Proposal;

(b) A listing of all items to be delivered to Customer (the "Deliverables");

(d) A schedule setting forth the amount and timing of Web Designer's compensation, including provisions for payment of Web Designer's reasonable travel and other out-of pocket expenses.

Web Designer shall deliver the Work Plan to Customer with this Agreement. Customer shall have five (5) days to review and comment upon the Work Plan. Upon approval of the Work Plan by Customer, it will be attached as Exhibit "A" and will become a part of this Agreement. Web Designer shall immediately commence development of the Web Site in conformity to the Work Plan.

Section 2. Payment. The total contract price for the Web Site shall be as set forth in the Work Plan and shall be payable in installations according to the payment schedule set forth therein. Each installment shall be payable upon completion of each project phase by Web Designer and acceptance by Customer.

Section 3. Changes in Project Scope. If at any time following acceptance of the Work Plan, Customer should desire to change the specifications or other elements of the Work Plan, Customer shall submit to Web Designer a written proposal specifying such changes. Web Designer shall evaluate each such proposal and shall submit to Customer a written response within five (5) working days following receipt thereof. Web Designer's response shall include a statement of the availability of personnel and resources, as well as the effect the proposed changes will have on the price, delivery dates, or warranty provisions of this Agreement.

Any changes to the Work Plan shall be evidenced by a "Work Plan Amendment." The Work Plan Amendment shall be signed by authorized representatives of Web Designer and Customer, and shall be deemed a part of this Agreement. If Web Designer does not approve the Work Plan Amendment, he shall not be obligated to perform any additional services hereunder.

Section 4. Delays. Web Designer recognizes and agrees that failure to deliver the Web Site according to the Work Plan's delivery schedule will result in expense and damage to Customer. Web Designer shall inform Customer immediately of any anticipated delays in the delivery schedule and of the actions being taken to assure completion of the Web Site within such schedule. If any delivery date is missed, Customer may, at its sole option, declare a default under this Agreement and may pursue all remedies set forth in Section 14; provided, however, that Customer shall provide Web Designer with thirty (30) days to cure the delay prior to declaring a

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default. Customer may not declare a default hereunder if such delay is caused by any action or failure to act of Customer.

The Web Designer cannot be held in default of this Agreement in case of delays on the part of the Customer. In such case, the Web Designer will provide the Customer with written notice that such a delay has occurred. Work on the Web Site shall not resume until the reason for the delay has been resolved by the Customer and notice of its resolution has been provided to the Web Designer.

Section 5. Acceptance Testing. Upon completion of the Web Site and the delivery of all items required to be provided under the Work Plan, Customer shall have thirty (30) days from such completion to inspect, test, and evaluate the Web Site to determine whether it satisfies the acceptance criteria set forth in the Work Plan.

If the Web Site does not satisfy the acceptance criteria, Customer shall give Web Designer written notice stating why the Web Site is unacceptable. Web Designer shall have ten (10) days from the receipt of such notice to correct the deficiencies. Customer shall then have ten (10) days to inspect, test, and reevaluate the Web Site. If the Web Site still does not satisfy the acceptance criteria, Customer shall have the option of either: (1) repeating the procedures set forth above, or (2) terminating this Agreement pursuant to Section 13.

If and when the acceptance tests establish that the Web Site complies with the acceptance criteria, Customer shall notify Web Designer that it accepts the Web Site. The date of such notification shall be the date on which Customer shall be obligated to make the final payment specified in the schedule set forth in the Work Plan.

Section 6. Authority. Web Designer and Customer each hereby represent and warrant that the execution, delivery, and performance of this Agreement has been duly authorized and that the Agreement is a legal, valid, and binding agreement of Web Designer and Customer, enforceable in accordance with its terms. Web Designer and Customer further represent that this Agreement does not breach or violate any agreement to which it is a party or to which it is bound.

Section 7. Rights to Work Product. Web Designer hereby acknowledges that the Deliverables and any other documentation, materials, or intellectual property hereunder (collectively, the "Work Product") are works which have been specially commissioned by Customer and are "work made for hire" for Customer and Customer shall own all rights, titles, and interest therein. Customer shall be considered the author of the Work Product for purposes of copyright and shall own all the rights in and to the copyright of the Work Product and, as between Customer and Web Designer, only Customer shall have the right to obtain a copyright registration on the same which Customer may do in its name, its trade name, or the name of its nominee(s). Accordingly, among other things, Customer is the author and owner of the Work Product and shall have the sole and exclusive rights to do and authorize any and all of the acts set forth in Section 106 of the Copyright Act with respect to the Work Product and any derivatives thereof, and to secure any and all renewals and extensions of such copyrights. To the extent Web Designer does not own such Work Product as a work made for hire, Web Designer hereby assigns, transfers, releases, and conveys to Customer all rights, title, and interest to such Work Product, including but not limited to all other patent rights, copyrights, and trade secret rights.

Section 8. Training. Web Designer shall provide no training in the use of the Web Site. Limited support via phone or e-mail will be available to Customer for 30 days following acceptance of the Web Site, as set forth in Section 5. "Limited support" shall include instructions to access, alter, and maintain the Web Site using software and/or technology purchased by Customer. Web Designer is not responsible for providing software and/or technology to Customer.

Section 9. Representations and Warranties.

(a) Warranty of Web Site Performance: Web Designer represents and warrants that, for thirty (30) days following acceptance of the Web Site by Customer, the Web Site will be free from programming errors and defects in workmanship and materials, and will conform to the specifications in the Work Plan. If programming errors or other defects are discovered

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during the warranty period, Web Designer shall promptly remedy them at Web Designer’s expense.

(b) Warranty of Title: Web Designer represents and warrants that Web Designer owns and has the complete right to license, convey title without any encumbrances to the Web Site, and Deliverables covered by this Agreement. Web Designer further represents and warrants that Web Designer has obtained all required registrations, permissions, and consents from all third parties necessary to deliver the Web Site, Background Technology, and Deliverables. Web Designer shall not grant any rights or licenses to any intellectual property or technology that would conflict with his obligations or Web Designer's rights under this Agreement.

(c) Warranty Against Disablement: Web Designer expressly represents and warrants that no portion of the Web Site contains or will contain any protection feature designed to prevent its use. This includes, without limitation, any computer virus, worm, software lock, drop dead device, Trojan horse routine, trap door, time bomb, or any other codes or instructions that may be used to access, modify, delete, damage, or disable the Web Site or computer system.

(d) Warranty of Compatibility: Web Designer represents and warrants that the Web Site shall be compatible with Customer's hardware and software as set forth in the specifications in the Work Plan.

(e) Warranty Against Intellectual Property Infringement: Web Designer represents and warrants that the Web Site and Deliverables shall not infringe on the trademark, copyright, patent, trade secrets, or any other rights of any third party. To the extent the Web Site or the Deliverables infringe upon the rights of any third party, Web Designer shall obtain a license or consent from such third party permitting the use of the Web Site and Deliverables.

Section 10. Indemnity.

(a) Indemnification Against Liability for Infringement: Web Designer shall indemnify Customer and any of its officers, directors, employees, or agents against all claims, liabilities, costs, damages, fees, and expenses (including reasonable attorney fees) arising from any breach or alleged breach of warranty under this Agreement or any claim or suit alleging infringement by the Web Site, Background Technology, or Deliverables of any patent, copyright, trade secret, trademark rights, or any other rights of any third party. Customer shall promptly notify Web Designer in writing of any third party claim or suit and Web Designer shall have sole control of the defense of any such action and all negotiations for its settlement or compromise. Customer may participate at its own expense in the defense of any such action at its sole discretion.

(b) Indemnity by Customer: Customer shall indemnify Web Designer and any of its employees or agents against all claims, liabilities, costs, damages, fees, and expenses (including reasonable attorney's fees) arising from any action based upon any content on the Web Site that is solely provided by Customer.

Section 11. Confidentiality.

(a) Confidential Information: For the purposes of this Agreement, the term "Confidential Information" means all information that is not generally known by the public and that: (i) is obtained by Web Designer from Customer, or that is learned, discovered, developed, conceived, originated, or prepared by Web Designer during the process of performing this Agreement, and (ii) relates directly to the business or assets of Customer. The term "Confidential Information" shall include, but shall not be limited to: inventions, discoveries, trade secrets, and know how; computer software code, designs, routines, algorithms, and structures; product information; research and development information; lists of clients and other information relating thereto; financial data and information; business plans and

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processes; and any other information of Customer that Customer informs Web Designer, or that Web Designer should know by virtue of its position, and is to be kept confidential.

(b) Obligation of Confidentiality: During the term of this Agreement, and at all times thereafter, Web Designer agrees that he will not disclose to others, use for his own benefit or for the benefit of anyone other than Customer, or otherwise appropriate or copy any Confidential Information, whether or not developed by Web Designer, except as required in the performance of its obligations to Customer hereunder. The obligations of Web Designer under this paragraph shall not apply to any information that becomes public knowledge through no fault of Web Designer.

Section 12. Term of Agreement. This Agreement commences on the date it is executed and shall continue until full performance by both parties, or until earlier terminated by one party under the terms of this Agreement.

Section 13. Termination of Agreement. This Agreement may be terminated by Customer at its sole election upon thirty (30) days’ prior written notice to Web Designer. Upon such termination, all amounts owed to Web Designer under this Agreement for completed work in accordance with the Work Plan shall become due and payable. At such time, Web Designer shall deliver all completed work to Customer.

If this Agreement is terminated by Customer because of Web Designer's default of his obligations hereunder, Customer may, after thirty (30) days’ written notice to Web Designer and a reasonable opportunity to cure:

(a) Require Web Designer to immediately deliver to Customer all Work Product developed by Web Designer under this Agreement and pay Web Designer all amounts owed for the work performed under this Agreement and accepted by Customer, whereupon Customer shall have complete right, title, and interest in such work and all rights, permissions, and licenses granted to Customer by Web Designer under this Agreement shall continue, in perpetuity as royalty-free and fully-paid rights; or

(b) Pursue all legal and equitable remedies against Web Designer.

If Web Designer terminates this Agreement because of Customer's default, after a thirty (30) day written notice to Customer and an opportunity to cure, Web Designer may require:

(a) Customer to pay all amounts then due to Web Designer under this Agreement for any work which has been completed and accepted by Customer, whereupon Customer shall have complete right, title, and interest in such work and all rights and licenses granted to Customer by Web Designer under this Agreement shall survive as royalty-free and fully paid up; and

(b) Pursue all legal and equitable remedies against Customer.

Section 14. Assignment. Neither party may assign or subcontract its rights or obligations under this Agreement without the prior written consent of the other party, which shall not be unreasonably withheld.

Section 15. Location of Web Site. Web Designer shall provide all HTML files and code to Customer or its assigns. Web Designer shall use his best good faith efforts to assist Customer in the installation of the Web Site to its final location in a timely and efficient manner. Web Designer shall also use his best good faith effort to assist the Customer in relocation of the Web Site if such relocation should occur within the Warranty period as defined in Section 9, paragraph (a).

Section 16. General Provisions.

(a) Complete Agreement: This Agreement together with all exhibits, appendices, or other attachments, is the sole and entire Agreement between the parties relating to the subject matter hereof. This Agreement supersedes all prior understandings, agreements, and documentation relating to such subject matter. In the event of a conflict between the

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provisions of the main body of this Agreement and any attached exhibits, appendices, or other materials, this Agreement shall take precedence.

(b) Modification to Agreement: Modifications and amendments to this Agreement shall be enforceable only if they are in writing and are signed by authorized representatives of both parties.

(c) Waive: No term or provision of this Agreement shall be deemed waived and no breach excused unless such waiver or consent is in writing and signed by the party claimed to have waived or consented.

(d) No Agency: Nothing contained herein will be construed as creating any agency, partnership, joint venture, or other form of joint enterprise between the parties.

(e) Independent Contractor: The parties acknowledge that Web Designer shall perform his obligations hereunder as an independent contractor. The manner and method of performing such obligations will be under Web Designer's sole control and discretion. Web Designer's sole interest is in the result of such services. It is also expressly understood that Web Designer's employees and agents, if any, are not Customer's employees or agents, and have no authority to bind Customer by contract or otherwise. Customer shall make no deduction from any payments due Web Designer hereunder for federal and state tax purposes. In the event that Customer is found liable for Social Security, withholding, insurance, or other such taxes, Customer shall have the right to immediately recover such amount from Web Designer.

(f) Notice: All notices and other communications required or permitted under this Agreement shall be in writing and shall be deemed given when delivered personally, or five (5) days after being deposited in the United States mail, postage prepaid and addressed as follows, or to such other address as each party may designate in writing:

Web Designer: _____________________

_____________________

Attn: ________________

Customer: _____________________

_____________________

Attn: ________________

(g) Reasonable Costs: In the event of any controversy concerning or related to this Agreement or the performance of this agreement, the prevailing party shall be entitled to recover its reasonable expenses (including reasonable attorneys' fees) incurred in resolving such controversy, in addition to any other relief that may be available.

(h) Applicable Law: This Agreement will be governed by the laws of the State of Texas. Any litigation or arbitration regarding this Agreement shall be brought exclusively in Austin, Texas.

(i) Severability: If any provision of this Agreement is held invalid, void, or unenforceable under any applicable statute or rule of law, it shall to that extent be deemed omitted, and the balance of this Agreement shall be enforceable in accordance with its terms.

(j) Time of the Essence: Time is of the essence in the performance of the covenants of the parties hereunder, including without limitation, delivery covenants to be performed by the Web Designer.

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(k) Bankruptcy: If either party hereto (i) shall be adjudicated a bankrupt or an order appointing a receiver of it or of the major part of its property shall be made, or an order shall be made approving a petition or answer seeking its reorganization under any applicable bankruptcy law, and in any such case shall not be stayed within 10 days, or (ii) shall institute proceedings for a voluntary bankruptcy or apply for or consent to the appointment of a receiver of itself or its property, or shall make an assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts generally as they become due, for the purpose of seeking a reorganization under the federal bankruptcy laws or otherwise, then in any one or more of such events listed in (i) or (ii) above, the other party may terminate this agreement by giving at least 10 days’ prior notice.

Each party represents and warrants that on this date they are duly authorized to bind their respective principals by their signatures below.

WEB DESIGNER: CUSTOMER:

_____________________________________ _____________________________________

By: __________________________________ By: __________________________________

Its: __________________________________ Its: __________________________________

EXHIBIT "A"

DESCRIPTION OF WORK PLAN

WORK PLAN

To be determined upon presentation of project by Customer.

PAYMENT PLAN

Once the Work Plan has been established and a reasonable quote for services rendered has been presented to the Customer, one half of the quoted amount shall be due to the Web Designer when the project described in the Work Plan is to begin. The second half of the amount shall be due when the Customer has accepted the Web Site as defined in Section 5.

Any changes to this Work Plan or Payment Plan shall conform to the terms set forth in Section 3.