EXHIBIT 10.3
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                     EMPLOYMENT AND NONCOMPETITION AGREEMENT
                                 (Seth R. Davis)

         THIS EMPLOYMENT AND  NONCOMPETITION AGREEMENT ("Agreement")  is entered
into to be effective January 17, 2000 ("Effective Date"), between USOL HOLDINGS,
INC., an Oregon corporation (the "Company"), and Seth R. Davis ("Employee").

         WHEREAS,  the Company has requested  Employee to serve as, and Employee
has agreed to serve as, the Senior Vice President  ("Senior Vice  President") of
the Company; and

         WHEREAS,  the Company and Employee  desire to enter into this Agreement
to formally  set forth the terms and  conditions  under which  Employee  will be
employed by the Company.

         NOW, THEREFORE,  in consideration of the mutual covenants,  agreements,
representations   and   warranties   contained   herein   and   other   valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Employee agree as follows:

1.       Duties and Responsibilities.
         ------ --- ----------------

         a. Position.  The Company and Employee agree that, subject to the terms
and conditions of this Agreement,  the Company will employ Employee and Employee
will serve as the Company's Senior Vice President. Employee also agrees to serve
as the Senior Vice President of USOL, Inc., an Oregon corporation  ("USOL").  In
the sole  discretion of the Board of  Directors,  Employee may be elected to the
board of,  and/or be  appointed  as an  executive  officer  of,  affiliates  and
subsidiaries   of  the  Company,   without  the   necessity  for  an  amendment,
modification to or additional compensation under this Agreement.

         b. Duties.  Employee shall perform the following duties, and shall have
the following  authority,  and such other executive  duties and authority as may
from time to time be assigned to him by the Board of Directors of the Company in
its reasonable discretion.

                  i. Corporate  Development.  Employee will be  responsible  for
assisting the Chief Executive Officer ("CEO"),  Chief Operating Officer ("COO"),
President,  and Chief  Financial  Officer  ("CFO") of the  Company and USOL with
acquisition  and merger  opportunities  consistent with the Company's and USOL's
business plans.

                  ii.  Developing  the  Company's  and  USOL's   Infrastructure.
Employee will be  responsible  for assisting the CEO, COO,  President and CFO of
the Company and USOL in streamlining and  strengthening the Company's and USOL's
systems and  procedures,  including  systems and  procedures  for  processing of
information,  completing  organizational charts and job descriptions,  and human
resource procedures.

                  iii. Finance. Employee will be responsible  for  assisting the
CEO, COO, President and CFO of the Company and USOL in identifying and procuring
sources of capital and credit.

                  iv.  Development of General Managers.  Employee  will be  res-
ponsible for assisting the CEO, COO, President of the Company and USOL and other
Company/USOL  officers/managers  in hiring,  managing,  training and  developing
General Managers for the Company's/USOL's affiliates, markets or divisions.

                  v.  Sales/Marketing.  Employee  will be  responsible  for: (a)
assisting  the Vice  President of Sales of the Company and USOL in meeting sales
quotas; (b) assisting the CEO, COO, President and Vice President of Sales of the
Company  and USOL in  drafting  and  implementing  strategy;  (c)  drafting  and
implementing  budgets of the Company and USOL;  (d)  assisting  in locating  and
executing key strategic alliances and ventures for the Company's/USOL's products
and services;  and (e) assisting the Vice  President of Sales of the Company and
USOL with  development  of new products and services for the  Company's/  USOL's
customers.

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                  vi. Customer Service Bureau.  Employee will be responsible for
assisting the CEO, COO, President, CFO and Manager of Operations and the Manager
of the Customer  Service Bureau ("CSB") of the Company and USOL in continuing to
improve CSB  operations  and with the  development  of CTM,  billing  platforms,
training programs, and overall systems and procedures.

                  vii. Other Duties. Employee's initial responsibilities will be
focused on the  telecommunications  portion of the Company's and USOL's business
(including without limitation engineering,  technical,  field, overall strategic
planning,  overall  strategic  planning with respect to this  business  segment,
specific  strategic  direction  relating to  telecommunications  and convergence
technology  (Internet,  voice,  video),  comprehensive  operations  planning  to
achieve  performance  targets of this segment relative to the corporate business
plan, network  architecture and economics,  switch  engineering,  organizational
planning and staffing,  financial  planning for this  segment,  cost and metrics
analysis,  revenue assurance, IXC and LEC billing reconciliation and resolution,
IXC and LEC contract negotiations, P&L and budgeting responsibility for business
segment,    federal,    state   and   local   regulatory    matters    affecting
telecommunications.   In  the  sole  discretion  of  the  Company  and/or  USOL,
Employee's  responsibilities  may be expanded to additionally focus on the cable
and video, internet, and other portions of the Company's and/or USOL's business.

         c.       Extent of Services.
                  ------------------

                  i. Except as provided in this Agreement or otherwise permitted
by the Board of Directors of the Company,  Employee  shall devote his full time,
attention  and  energies  to the  business  of the  Company  and USOL and to the
performance of his duties as described  above.  Employee will use his full time,
attention  and energies to promote the  interests and welfare of the Company and
USOL.  Notwithstanding the preceding two sentences,  the Company understands and
agrees that during the first 120 days of this  Agreement  Employee will continue
to  have  other  outside   responsibilities  in  transitioning  from  his  prior
activities;  during this 120 day period, Employee will not be able to devote his
full time to the Company and the Company  agrees that  Employee's  completion of
his prior  responsibilities  and other  transition  tasks will not  constitute a
breach  of this  Agreement;  provided,  Employee  will  devote  such time to the
Company during this 120-day period that is acceptable to the Company in its sole
discretion.

ii. Employee may participate in other businesses as a passive investor, provided
that Employee  shall not,  without the prior approval of a majority of the Board
of  Directors  of  the  Company  (other  than  Employee  if he is  serving  as a
director):  (a) actively  participate  in the  operation or  management  of such
businesses;  or (b) make or maintain any investment in any entity with which the
Company has a commercial  relationship  of any kind,  including  that of lessor,
partner,  investor,  vendor,  supplier,  consultant or otherwise, or which is in
competition with the Company. The following exceptions apply to the restrictions
on Employee's  activities in the preceding sentence:  Employee may invest in the
securities of any publicly traded  companies so long as such  investments do not
constitute more than five percent (5%) of the outstanding  voting  securities of
any such company.

2.       Term of Employment.
         ----------------

         a.       Definitions. For the purposes of this Agreement the  following
terms shall have the following meanings:

                  i.  "Termination  For Cause" shall mean termination by Company
of Employee's  employment with Company because of (A) Employee's material breach
of this  Agreement,  and such breach is not cured within  thirty (30) days after
written notice of such breach from Company to Employee;  (B) a consistent course
of  Employee's  conduct  which would hold  Company or any of its  affiliates  in
disrepute  or scandal,  as  determined  by  Company's  Board of Directors in its
reasonable  discretion;  (C) failure to follow  lawful  directions in conformity
with this  Agreement of Company's  Board of Directors or its designee;  and such
failure  is not cured  within  thirty  (30) days  after  written  notice of such
failure from Company to Employee; (D)

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any material breach by Employee of his fiduciary  duties to Company or USOL; (E)
gross  neglect by Employee of his duties under this  Agreement as  determined by
Company's Board of Directors in its reasonable discretion;  (F) any act of theft
or  dishonesty  by  Employee--this  clause is intended to apply to Employee acts
that would cause the Company's  board of directors in its reasonable  discretion
to lose  trust in  Employee  to such an  extent  that it would no  longer  trust
Employee to fulfill his duties under this Agreement;  (G) Employee's  disability
pursuant to Section 2.e of this Agreement;  or (H) Employee's  death pursuant to
Section 2.f of this Agreement.

                  ii.  "Termination Other Than For Cause""shall mean termination
by Company of Employee's  employment  with Company  (other than in a Termination
for Cause) and shall include constructive  termination of Employee's  employment
resulting from material  breach of this Agreement by Company;  such  termination
shall only be  effective  if Company  has  failed to cure such  material  breach
within  thirty  (30) days after  written  notice  from  Employee to Company of a
material breach.

                  iii.   "Voluntary   Termination"  shall  mean  termination  by
Employee  of  Employee's  employment  by  Company  other  than (a)  constructive
termination as described in Section 2.a.ii,  (b)  "Termination  Upon a Change in
Control," and (c)  termination  by reason of  Employee's  death or disability as
described in Sections 2.e and 2.f.

                  iv.  "Termination  Upon a  Change  in  Control"  shall  mean a
termination  by Employee of Employee's  employment  with Company within 120 days
following a "Change in Control."

                  v.  "Change in Control"  shall mean (A) the time that  Company
first  determines  that any person and all other persons who  constitute a group
(within the meaning of Section  13(d)(3) of the Securities  Exchange Act of 1934
("Exchange Act")) have acquired direct or indirect beneficial  ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of forty percent (40%) or more
of the outstanding securities of the Company or of USOL, or (B) a sale of all or
substantially all of the assets of the Company or USOL.

         b. Initial Term. The term of employment of Employee by Company shall be
for a period of three (3) years  beginning  with the  Effective  Date  ("Initial
Term"),  unless  terminated  earlier  pursuant to this Section 2. If  Employee's
employment by the Company  continues after the expiration of the Initial Term of
this   Agreement,   the  Agreement   shall   continue  to  govern  the  parties'
relationship,  except that Employee's employment may thereafter be terminated by
either  party at any time for any or no reason upon sixty (60) days prior notice
to the other party.  If Company and Employee do not enter into a new  employment
agreement within 30 months of the Effective Date,  during the last six months of
the Initial Term Employee may take off reasonable amounts of time to conduct job
interviews for future employment; Employee must request such time off in writing
and may take the time off only after  approval by the  Company,  which  approval
will not be unreasonably withheld, conditioned or delayed.

         c.  Termination  For Cause.  Termination  For Cause may be  effected by
Company at any time during the term of this Agreement after the occurrence of an
event which constitutes a Termination For Cause and shall be effected by written
notification to Employee.  Upon a Termination For Cause, Employee shall promptly
be paid all accrued  salary,  bonus  compensation  to the extent earned,  vested
deferred  compensation  (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable  plan),  any benefits under
any plans of the Company in which  Employee is a participant  to the full extent
of Employee's rights under such plans,  accrued vacation pay and any appropriate
business  expenses incurred by Employee in connection with his duties hereunder,
all to the  date of  termination,  but  Employee  shall  not be paid  any  other
compensation  or  reimbursement  of  any  kind,  including  without  limitation,
severance compensation.  If at the time of a Termination For Cause Employee owes
any amounts to Company, such amounts shall be offset against the amounts payable
to Employee under the preceding sentence.

         d.  Termination Other Than For Cause.  Notwithstanding anything else in
this  Agreement,  Company may effect a  Termination  Other Than For Cause at any
time  upon  giving  written  notice  to  Employee  of such  termination.  Upon a
Termination  Other  Than  For  Cause,  Employee  shall,  within  30 days of such
termination,

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be paid all accrued  salary,  bonus  compensation  to the extent earned,  vested
deferred  compensation  (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable  plan),  any benefits under
any plans of the Company in which  Employee is a participant  to the full extent
of  Employee's  rights under such plans  (including  accelerated  vesting of any
awards  granted to Employee  under any of the  Company's  or USOL's stock option
plans and stock award plans),  accrued vacation pay and any appropriate business
expenses  incurred by Employee in connection with his duties  hereunder,  all to
the date of termination, and all severance compensation provided in Section 4.a,
but no other  compensation or reimbursement of any kind. The bonus owed pursuant
to the preceding sentence includes only the fraction of any bonus earned through
the  date of  Termination  Other  Than For  Cause  for such  bonus  period;  the
numerator  of such  fraction  is the number of days of the bonus  period  during
which Employee was employed with Company,  and the  denominator of such fraction
is the  total  number of days in the bonus  period.  If the  amount of any bonus
compensation due Employee cannot be determined within 30 days of the Termination
Other Than For Cause, such amount will be paid to Employee within 30 days of the
date the amount of the bonus due is determined. Employee shall have the right to
review the Company's books and records  relating to the calculation of the bonus
owed under this Section 2(d); such right shall expire 6 months after Employee is
notified of the bonus  amount.  If at the time of a  Termination  Other Than For
Cause Employee owes any amounts to Company, such amounts shall be offset against
the amounts payable to Employee under the preceding sentence.

         e.  Termination  by Reason of  Disability.  If, during the term of this
Agreement,  Employee,  in the  reasonable  judgment of the Board of Directors of
Company,  has failed to perform his duties  under this  Agreement  on account of
illness  or  physical  or mental  incapacity,  and such  illness  or  incapacity
continues for a period of more than four (4) consecutive  months,  Company shall
(to the  extent  permitted  by  applicable  law)  have the  right  to  terminate
Employee's  employment hereunder by written notification to Employee and payment
to Employee of all accrued  salary,  bonus  compensation  to the extent  earned,
vested  deferred  compensation  (other than pension plan or profit  sharing plan
benefits  which  will be paid in  accordance  with  the  applicable  plan),  any
benefits  under any plans of the Company in which  Employee is a participant  to
the full extent of Employee's rights under such plans,  accrued vacation pay and
any appropriate  business  expenses  incurred by Employee in connection with his
duties hereunder, all to the date of termination,  with the exception of medical
and  dental  benefits  which  shall  continue  through  the  expiration  of this
Agreement,   but  Employee  shall  not  be  paid  any  other   compensation   or
reimbursement of any kind, including without limitation, severance compensation.
If at the time of a  Termination  By  Reason  of  Disability  Employee  owes any
amounts to Company,  such amounts shall be offset against the amounts payable to
Employee under the preceding sentence.

         f.  Death.  In the event of  Employee's  death  during the term of this
Agreement,  Employee's  employment  shall be deemed to have terminated as of the
last day of the month during which his death occurs and Company  shall  promptly
pay to his  estate  or such  beneficiaries  as  Employee  may from  time to time
designate all accrued salary,  bonus  compensation to the extent earned,  vested
deferred  compensation  (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable  plan),  any benefits under
any plans of the Company in which  Employee is a participant  to the full extent
of Employee's rights under such plans,  accrued vacation pay and any appropriate
business  expenses incurred by Employee in connection with his duties hereunder,
all to the date of  termination,  but  Employee's  estate  shall not be paid any
other compensation or reimbursement of any kind,  including without  limitation,
severance  compensation.  If at the time of Employee's  Death  Employee owes any
amounts to Company,  such amounts shall be offset against the amounts payable to
Employee under the preceding sentence.

         g.  Voluntary  Termination.  In the event of a  Voluntary  Termination,
Company shall promptly pay all accrued salary,  bonus compensation to the extent
earned,  vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance  with the applicable  plan),  any
benefits  under any plans of the Company in which  Employee is a participant  to
the full extent of Employee's rights under such plans,  accrued vacation pay and
any appropriate  business  expenses  incurred by Employee in connection with his
duties hereunder,  all to the date of termination,  but no other compensation or
reimbursement of any kind, including without limitation, severance compensation.
If at the time of a Voluntary  Termination Employee owes any amounts to Company,
such amounts shall be offset  against the amounts  payable to Employee under the
preceding sentence.

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         h. Termination Upon a Change in Control.  In the event of a Termination
Upon a Change in Control, Employee shall immediately be paid all accrued salary,
bonus  compensation to the extent earned,  vested deferred  compensation  (other
than  pension  plan  or  profit  sharing  plan  benefits  which  will be paid in
accordance  with the  applicable  plan),  any  benefits  under  any plans of the
Company in which  Employee is a  participant  to the full  extent of  Employee's
rights under such plans (including  accelerated vesting of any awards granted to
Employee under any of the Company's or USOL's stock option plans and stock award
plans),  accrued vacation pay and any appropriate  business expenses incurred by
Employee  in  connection  with  his  duties  hereunder,   all  to  the  date  of
termination,  and all  severance  compensation  provided in Section  4.a, but no
other compensation or reimbursement of any kind. If at the time of a Termination
Upon A Change In Control  Employee  owes any  amounts to Company,  such  amounts
shall be offset  against the amounts  payable to  Employee  under the  preceding
sentence.

         i. Notice of Termination.  Other than a Termination For Cause,  Company
may effect a termination of Employee's  employment pursuant to the provisions of
this Section 2 upon giving  thirty (30) days written  notice to Employee of such
termination.  Company may effect a Termination For Cause immediately without any
prior notice other than the notice and cure period as provided in Section 2.a.i.
Employee  may effect a  termination  of  Employee's  employment  pursuant to the
provisions  of this  Section 2 upon giving  thirty (30) days  written  notice to
Company of such termination.

3.       Salary, Benefits and Bonus Compensation.  As compensation  for services
to be rendered by Employee under this  Agreement,  the Company shall  compensate
Employee as follows:

         a.  Base Salary. As payment for the services to be rendered by Employee
as provided in Section 1 and subject to the terms and  conditions  of Section 2,
Company  agrees to pay to Employee a "Base  Salary" for the twelve (12) calendar
months beginning the Effective Date equal to the following:

                  i.       $142,500.00 per annum (prorated for any partial year)
with health insurance under the Company's group health insurance plan and dental
plan for Employee and Employee's dependents paid for 100% by the Company.

         The  Company  shall  pay  Employee's  Base  Salary in  installments  in
accordance  with the Company's  payroll policy for other  employees.  Employee's
Base Salary shall be reviewed annually by the Board of Directors to determine an
appropriate increase (if any).

         b.  Bonuses.  Employee  will be eligible  for an annual  bonus of up to
fifty  percent  (50%) of his then current base salary.  The amount of Employee's
bonus will be  determined  by the Board of  Directors,  based upon the Company's
performance  each year, and will be tied to both  qualitative  and  quantitative
performance  standards  to be  established  by the  Board  of  Directors  at the
beginning of the calendar  year.  The Board of  Directors  will provide  written
performance  standards to Employee each year during the term of this  Agreement,
not later than January 30 of the applicable year.  Notwithstanding the Company's
performance,  a  minimum  bonus of 5% of base  salary  will  apply for each year
Employee  is  employed  by Company  if:  (i)  exemplary  individual  performance
warrants it and (ii) the application would be consistent with the benchmarks and
eligibility  of the Company's CEO and President with respect to a bonus for this
purpose.

         The Company  shall pay  Employee a one time  initial  signing  bonus of
$12,000  within five business days of the execution of this Agreement . Employee
shall  immediately  repay a  portion  of such  $12,000  amount  (the  "Repayment
Amount") to the Company if his  employment  with the  Company is  terminated  by
reason of a Termination  For Cause or a Voluntary  Termination  during the first
year of this  Agreement.  The  Repayment  Amount  shall be equal to  product  of
$12,000  and a  fraction,  the  numerator  of which  shall be the number of days
remaining in the first year of this Agreement  following the termination  event,
and the denominator of which shall be 365.

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         c.  Additional Benefits.  During the term of this  Agreement,  Employee
shall be entitled to the following fringe benefits:

                  i.   Employee   Benefits.   Employee   shall  be  eligible  to
participate in such of Company's benefits and deferred compensation plans as are
now  available or later made  available  to  executive  officers of the Company,
including,  without  limitation,  Company's  stock option plans,  profit sharing
plans,  annual  physical  examinations,   dental  and  medical  plans,  personal
catastrophe and disability insurance,  financial planning,  retirement plans and
supplementary executive retirement plans, if any.

                  ii.  Vacation.  Employee shall be entitled  to three (3) weeks
of  vacation  during  each  year  during  the  term  of this  Agreement  and any
extensions thereof, prorated for partial years, in accordance with the Company's
vacation policy.

                  iii.  Reimbursement  for  Expenses.  During  the  term of this
Agreement,   Company  shall  reimburse  Employee  for  reasonable  out-of-pocket
business and/or  entertainment  expenses incurred by Employee in connection with
his duties  under this  Agreement  and  documented  in  accordance  with Company
policy.  The Company shall  reimburse (or pay  directly)  Employee's  reasonable
actual  out-of-pocket  expenses  directly  incurred in (i) moving  Employee  and
Employee's  immediate  family  to  Austin,  Texas,  not to  exceed  $  25,000.00
(Employee  will submit an estimate for approval  prior to the move),  (ii) up to
three  house  hunting  trips,  and  (iii)  approved   commuting  expenses  until
Employee's  family has moved to Austin,  Texas.  Employee and Employee's  family
shall complete their move to Austin no later than July 30,  2000).Company  shall
also  reimburse  Employee the lesser of the actual Direct Closing Costs incurred
in  connection  with the sale of  Employee's  home in Seattle or $  45,200.00  .
Direct Closing Costs for purposes of this Agreement shall be limited to brokers'
selling  commissions and the premium cost of the Seller's Title Policy.  Company
shall not reimburse any closing  costs  incurred by Employee in connection  with
the  purchase  of a home.  Company  shall  not be  obligated  to  reimburse  any
attorney's  fees  incurred by Employee in  connection  with the  completion  and
execution of this agreement. The Company will also loan Employee up to $150,000,
at a per annum interest rate of 6.5% (the "Funds"), secured by, at the Company's
sole option and discretion,  (i) Employee's equity in the Company, stock options
in the Company,  earned bonus with the Company,  any deferred  compensation with
the Company and any  severance  with the Company,  and (ii) a security  interest
and/or deed of trust lien and/or  mortgage  lien in either  Employee's  Seattle,
Washington  home or in the home this Agreement  contemplates  that Employee will
purchase in or in the vicinity of Austin, Texas, as determined by Company in its
sole  discretion  at the time the  Funds  are  advanced,  and  conditioned  upon
Company's  determination,  not to be  unreasonably  withheld,  that all loan and
security documents are satisfactory to Company. The Funds shall only be advanced
for the  purpose of  assisting  in  Employee's  purchase  of a home in or in the
vicinity of Austin,  Texas; in accordance  with this stated  purpose,  the Funds
shall only be released to the title company  closing such home purchase and only
at the actual time such home  purchase is made.  All interest and  principal for
this loan will be due and payable on the earlier of Employee's completion of the
sale of his current home in Seattle, Washington or October 31, 2000. The Company
will pay Employee a bonus  sufficient to cover the interest portion of such loan
and any Employee taxes  associated with such bonus. If the Company  requires the
Employee to relocate outside of the Austin,  Texas  metropolitan area during the
term of this Agreement,  the Company will pay Employee's  reasonable  relocation
expenses.

4.       Severance Compensation.
         --------- ------------

         a. Severance  Compensation in the Event of a Termination  Upon a Change
in Control or in the Event of a Termination  Other Than for Cause.  In the event
Employee's employment is terminated in a Termination Upon a Change in Control or
in a  Termination  Other Than For  Cause,  Employee  shall be paid as  severance
compensation  his  Base  Salary  (at  the  rate  payable  at the  time  of  such
termination),  for a period of six (6) months from the date of such termination.
Employee is under no obligation to mitigate the amount owed Employee pursuant to
this  Section 4.a by seeking  other  employment  or  otherwise.  Notwithstanding
anything in this Section 4.a to the contrary,  Employee may in  Employee's  sole
discretion, by delivery of a notice to Company within thirty (30) days following
a Termination  Upon a Change in Control or a  Termination  Other Than For Cause,
elect to receive

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severance  compensation as a lump sum severance  payment by bank cashier's check
equal to the present value of the flow of cash payments that would  otherwise be
paid to Employee  pursuant to this  Section 4.a  discounted  at a rate of 8% per
annum. In the event Employee's  employment is terminated in a Termination Upon a
Change in Control or in a Termination Other Than For Cause,  Employee shall also
be entitled to an  accelerated  vesting of any awards  granted to Employee under
the  Company's  or USOL's  stock  option  plans and any other  equity  rights or
participation  plans under which  Employee is a  participant;  such  accelerated
vesting shall occur regardless of the terms and conditions contained in any such
plans.  Employee shall continue to accrue retirement benefits (if any) and shall
continue to enjoy any benefits  under any plans of the Company in which Employee
is a participant to the full extent of Employee's rights under such plans (as if
Employee was still an employee of Company),  including any perquisites  provided
under this Agreement, through the lesser of the remaining term of this Agreement
or six (6) months from the date of termination under this subsection;  provided,
however, that the benefits under any such plans of the Company in which Employee
is a participant, including any such perquisites, shall cease upon re-employment
by a new  employer  to the extent  such  benefits  are  provided by any such new
employer.

                  b. No Severance  Compensation  Upon Other Termination.  In the
event of a  Voluntary  Termination  or  Termination  For Cause,  Employee or his
estate shall not be paid any severance compensation.

5.  Indemnification.  The Company  shall  defend,  indemnify  and hold  Employee
harmless from any and all  liabilities,  obligations,  claims or expenses  which
arise in  connection  with or as a result of  Employee's  service as an officer,
manager,  director or employee of the Company to the fullest  extent  allowed by
the Company's organizational documents;  provided, that the Company shall not be
obligated to defend,  indemnify or hold Employee  harmless from any liabilities,
obligations,  claims or expenses  which  directly  result from or are related to
Employee having committed an act of dishonesty, obtained any benefit of money or
other  property  to  which  he was  not  entitled,  or  engaged  in any  willful
misconduct or engaged in behavior that is grossly negligent.

6.  Noncompetition and Confidentiality.
    ----------------------------------

         a.  Fiduciary Obligations.  During his employment  hereunder,  Employee
shall comply with his fiduciary  obligations as an officer and, if elected, as a
member of the Board of Directors of the Company.

         b. Noncompete and Nonsolicitation.  During his employment hereunder and
for a period of twelve (12) months  following the termination or other cessation
of his employment  hereunder,  Employee shall not, directly or indirectly,  as a
director, officer, employee, owner, partner, agent, consultant, lessor, creditor
or  otherwise,  for any person,  firm or entity,  in any of the  counties of the
states of the United States, engage in any of the following activities:

                  i.       solicit or attempt to  persuade  any person or entity
that was a  customer  of the  Company or any  affiliate  of the  Company  during
Employee's  employment  hereunder  to  terminate  or  rescind  its  business  or
contractual relationship with the Company or any affiliate of the Company;

                  ii.      solicit for  employment  any  employee of the Company
or any  affiliate  of the  Company  or attempt  to  persuade  or entice any such
employee to terminate his or her employment with the Company or any affiliate of
the Company; or

                  iii.     engage or participate in  the  business  of  selling,
installing  or servicing  telecommunications  or cable or  broadcast  television
products,  services  or  software,  or in any other  business  engaged in by the
Company or any affiliate of the Company at any time during Employee's employment
hereunder.

The restrictions contained in this Section 6.b shall not apply only in the event
the Company  materially  breaches  this  Agreement and fails to cure such breach
within thirty (30) days following receipt of written notice of such breach.  For
purposes of this Section 6, the term "affiliate"  means any person or entity (i)
which  directly or indirectly  controls,  is  controlled  by, or is under common
control with the Company,  or (ii) 10% of which entity's  equity rights are held
beneficially or of record by the Company.

                                       7

<PAGE>

         c. Confidentiality. Employee shall not, during his employment hereunder
or at any time  thereafter,  use for his own  purposes  or disclose to any other
person or entity any "Confidential  Information"  (defined below) concerning the
Company,  its affiliates or any of their business  operations,  except as may be
consistent  with his duties  hereunder or as may be required by order of a court
of competent  jurisdiction.  "Confidential  Information"  means any information,
formula,  pattern,  compilation,  program, device, method,  technique,  customer
list, or process  concerning the Company or its business or customers:  (i) that
derives  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 disclosure or use; or (ii)
the disclosure of which would be harmful to the interests of the Company.

         d. Proprietary Rights. Employee hereby assigns and transfers to Company
all of his  proprietary  interest  in any  device,  design,  machine,  practice,
process,  method,  product,  literary  composition,  algorithm,  or development,
innovation or improvement to existing  Confidential  Information  (collectively,
the  "Works")  that is  developed,  conceived  or created,  in whole or in part,
during the term of this  Agreement  regardless of whether the Work is developed,
created or conceived while at Company  facilities or another  location or during
or after normal business hours; provided, however, that for the purposes of this
Agreement,  Works shall only be deemed to include any of the foregoing  that (i)
in any way relate to the present or anticipated business, activities or research
and development work of the Company, (ii) result from or are related to any work
performed  for the  Company,  or (iii)  were  developed,  created  or  conceived
utilizing  the  Company's  time,  equipment,  supplies,  facilities,  materials,
software,  resources or other Confidential  Information.  Any Work that involves
the  creation of any  copyrightable  work shall be  considered  a "work made for
hire," to the maximum extent permitted by law. If any copyrightable  work is not
considered  a "work made for hire,"  Employee,  without  further  consideration,
hereby  assigns and  transfers all  copyrights in the Work to Company.  Employee
recognizes  that all  Works  shall be the  exclusive  property  of the  Company.
Employee  agrees to assist the Company in obtaining  any patents,  copyrights or
other form of proprietary  rights  protection on any Work, to sign all documents
and take other  actions as the  Company  may  reasonably  request to obtain such
protection  for Company,  and to assist  Company in protecting the Works against
infringement by other parties.  Employee appoints the executive  officers of the
Company to act as his agent and attorney-in-fact to perform any act necessary to
obtain any patents,  copyrights or other form of proprietary protection covering
the Works.  Employee  represents that there are no Works owned wholly or in part
by him that are to be excluded from the scope of this  Agreement.  Employee also
agrees to disclose to the Company,  in  confidence,  (A) all Works that Employee
develops,  conceives or creates while employed by the Company and (B) all patent
or  copyright   applications  filed  by  Employee  within  one  (1)  year  after
termination of employment with the Company.

         e. Damages.  Employee  agrees that the provisions of this Section 6 may
be enforced by  temporary  or  permanent  injunction;  the Company  shall not be
required  to post  any  bond or  security  in any such  temporary  or  permanent
injunction proceeding.  The right to such injunctive relief shall be in addition
to and not in  place  of any  further  remedies  to  which  the  Company  may be
entitled.

         f.  Enforcement.  Employee agrees that the provisions of this Section 6
are reasonable.  However, if any court of competent jurisdiction determines that
any provision within this Section 6 is unreasonable in any respect,  the parties
intend that this Section 6 should be enforced to the fullest  extent  allowed by
such court.

         g. Severable  Units.  Each county of each state covered by the covenant
not to compete  set forth in  Section  6.b,  each of such  states and each month
covered by this  covenant  not to compete  shall be deemed a severable  unit and
should any court  determine that the inclusion of all such  counties,  states or
months would  render such  undertaking  unreasonable  or  unenforceable  for any
reason,  those units which are  necessary,  in the judgment of the court,  to be
deleted in order to render such an undertaking  reasonable and enforceable shall
be deemed  free of such  noncompete  and  nonsolicitation  undertaking  but such
undertaking  shall  remain in full  force and  effect as to every  other unit of
territory and time.

          h. Survival.  This Section 6  will survive  the  termination  of  this
Agreement except as otherwise indicated in Section 6.b.

                                       8

<PAGE>

          i. Exception at End of Initial  Term of  Agreement.  If the  Agreement
expires   naturally  at  the  end  of  the  Initial  Term,  the  noncompete  and
nonsolicitation period in Section 6.b. above shall only last for six (6) months.

7.  Arbitration.  Any dispute arising out of or relating to this Agreement shall
be resolved by arbitration before a single, neutral arbitrator in Austin, Texas,
in  accordance  with the  Employment  Dispute  Resolution  Rules of the American
Arbitration Association;  provided, however, that nothing herein shall prevent a
party from seeking  injunctive relief to enforce  compliance with this Section 7
or Section 6, or to enforce  any ruling of the  arbitrator.  The  results of the
arbitration  shall  be  binding  on the  parties.  All  reasonable  costs of the
arbitration (or any litigation to the extent  litigation is otherwise  permitted
under  this  Agreement),  including  attorney's  fees,  shall  be  paid  by  the
non-prevailing party.

8. Notices. All notices, requests, consents and other communications required or
provided  for in this  Agreement  shall be in writing  and shall be deemed to be
given when:  (a) delivered in person;  (b) three days  following  deposit in the
U.S. mail for first class registered or certified mail with postage prepaid; (c)
delivered  by  overnight  receipted  courier  service;  or (d) sent by confirmed
facsimile  transmission.  Notices shall be addressed to the party at the address
set forth below,  or such other  addresses as may  hereafter  be  designated  in
writing by the party.

         If to the Company, to:
         USOL Holdings, Inc.
         Attn: President
         10300 Metric Blvd.
         Austin, Texas 78758

         With a copy to:
         Stahl, Martens & Bernal, L.L.P.
         Attn: Mr. Brent G. Stahl
         7320 N. MoPac, Suite 211
         Austin, Texas 78731

         If to Employee:
         Mr. Seth R. Davis
         4917 East Mercer Way
         Mercer Island, Washington  98040


9. Miscellaneous.
   -------------

   a. Waiver of Breach. The waiver by  a party of  a breach of any provision  of
this  Agreement  shall not operate or be construed as a waiver of any subsequent
breach

                                       9
<PAGE>

   b. Assignment.  Neither  party may assign its rights or  delegate  its duties
hereunder without the prior written consent of the other party.

   c. Entire  Agreement. This  Agreement  and   the  transaction  and  documents
referred to herein including (i) that one certain USOL Holdings,  Inc. Incentive
Stock Option Agreement between the Company and Employee, and (ii) to be executed
together with the documents  specified in section 3. c. iii..  Without  limiting
the generality of the foregoing,  Employee agrees that this Agreement supersedes
and replaces that one certain  letter dated July 26, 1999 between  USOL,  Inc. ,
and acknowledges and agrees such letter is null and void and of no further force
and effect.

    d. Binding Effect. This  Agreement  shall be  binding  upon and inure to the
benefit of the respective parties, and their legal representatives,  successors,
heirs, and permitted assigns.

    e. Governing Law.  This  Agreement  shall  be  governed  by,  construed  and
enforced  in  accordance  with the laws of the  State of Texas,  without  giving
effect to principles  and provisions  thereof  relating to conflict or choice of
laws and  irrespective  of the fact  that any one of the  parties  is now or may
become a resident of a different state.

    f. Validity.  If any term  of this  Agreement  shall  be  invalid,  illegal,
or unenforceable, in whole or in part, the validity of any of the other terms of
this Agreement shall not in an way be affected thereby.

    g. Survival of Terms.  The applicable provisions  of Sections 2, 4, 5, 6, 7,
8, and 9 shall survive any termination of this Agreement.


IN WITNESS WHEREOF,  the Company and Employee have executed this Agreement to be
effective as of the date first above written.

                                            COMPANY:
                                            USOL HOLDINGS, Inc.


                                            By: /s/ Donald E. Barlow
                                                --------------------------------
                                                Donald E. Barlow, President

                                            Date Signed: _______________________


                                            EMPLOYEE:


                                            /s/ Seth R. Davis
                                            ------------------------------------
                                            Seth R. Davis
                                            Date Signed: _______________________

                                       10