Document:

Exhibit
10.3

 

SUPPLY
CHAIN SERVICES AGREEMENT

 

By and
Between

 

Hawaiian
Telcom Communications, Inc.

 

And

 

KGP
Logistics, Inc.

 

December 7,
2009

 

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SUPPLY CHAIN SERVICES AGREEMENT

 

THIS SUPPLY CHAIN SERVICES AGREEMENT (the “Agreement”),
dated as of the Effective Date, is between HAWAIIAN TELCOM
COMMUNICATIONS, INC., a Delaware corporation (“Hawaiian
Telcom”), and KGP LOGISTICS, INC. , an Ohio corporation (“Supplier”).

 

RECITALS

 

WHEREAS, Supplier desires to provide to Hawaiian Telcom, and
Hawaiian Telcom desires to obtain from Supplier, the supply chain services and
related services described in this Agreement on the terms and conditions set
forth herein;

 

WHEREAS, Hawaiian Telcom and Supplier have engaged in extensive
negotiations and discussions that have culminated in the formation of the
relationship described in this Agreement.

 

NOW, THEREFORE, in consideration of the obligations set forth below,
Hawaiian Telcom and Supplier agree as follows:

 

1.                                      DEFINITIONS AND CONSTRUCTION

 

1.1                               Definitions. 
The terms used in this Agreement with initial capital letters have the
meanings set forth in Exhibit 1 unless expressly defined in the
body of this Agreement.

 

1.2                               Interpretation.

 

(a)                         The Exhibits
attached to this Agreement are hereby incorporated into and deemed part of this
Agreement.  All references to “Agreement”
herein include the Exhibits to this Agreement. 
All references to “Exhibits” herein include the attachments to such
Exhibits.

 

(b)                         The headings
preceding the text of Articles, Sections and the headings to Exhibits, the
table of contents and the table of Exhibits included in or attached to this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

(c)                         Any reference
to an Exhibit, Section or Article shall be to such Exhibit, Section or
Article of this Agreement, unless otherwise expressly specified.

 

(d)                         The use of the
terms “including,” “include” or “includes” shall in all cases herein mean “including
without limitation,” “include without limitation” or “includes without
limitation,” respectively.

 

(e)                         The Parties acknowledge and agree that
they have mutually negotiated the terms and conditions of this Agreement and
that any provision contained herein with respect to which an issue of
interpretation or construction arises shall not be construed to the detriment
of the 

 

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drafter on the basis that
such Party or its professional advisor was the drafter, but shall be construed
according to the intent of the Parties as evidenced by the entire Agreement.

 

1.3                               Order of Precedence;
Other Terms. Except
as otherwise expressly specified in the body of this Agreement or in an
Exhibit, in the event of a conflict, ambiguity or inconsistency between the
provisions in the body of this Agreement and any Exhibit, the provisions in the
body of this Agreement shall prevail to the extent of such conflict, ambiguity
or inconsistency.  The provisions in the
body of this Agreement and its Exhibits shall govern all transactions between
the Parties regarding the Products and the Services.  No terms on any purchase orders or similar
communications between the Parties shall govern any transaction between the
Parties relating to the Products or the Services, except for terms on such
communications specifying the quantity and type of Products ordered, special
packing or shipping instructions, delivery date (without limiting Supplier’s
Service Level obligations), and the destination point for ordered Products.

 

2.                                      TERM

 

2.1                               Initial Term. The initial term of this Agreement shall
commence on the Effective Date and continue for two (2) years thereafter,
and for any renewal or extension period agreed by the Parties, or until this
Agreement is terminated in accordance with its terms (“Term”).

 

2.2                               Renewal Terms. 
Hawaiian Telcom may, at its sole discretion and election, extend the
Agreement for up to three (3) renewal terms, each renewal term being for
one (1) year, by giving Supplier written notice at least sixty (60) days
prior to the expiration of the initial Term or any extended Term.  If no notice is given by Hawaiian Telcom, the
Agreement will be extended for a one (1) year renewal period, such
Agreement extension(s) would not exceed in total the three (3) one (1) year
renewal terms as stated in this Article 2.2.   All terms, conditions and pricing from the
original Agreement shall remain in effect through the extension.

 

3.                                      SERVICES

 

3.1                               Services Defined. 
The Services include the functions and responsibilities described in
this Agreement, which are routinely performed by Supplier, and including those
not specifically described, but which are required for the proper performance
and provision of Supplier’s responsibilities.

 

3.2                               Product Listing Updates. 
The Parties may update and modify the Product Listing set forth on Exhibit 2,
Attachment A.  Any Products added to
such listing will be procured by Supplier for Hawaiian Telcom according to the
terms of this Agreement.  For Products
identified as Stocked, any Service Levels will start to apply six (6) weeks
following the addition to the Product Listing. 
Hawaiian Telcom agrees to provide approval for Suppliers’ methodology
and criteria for determining the Stocking Strategy for all products in the
Product Listing.  For Products identified
as Cross-Dock or Drop Ship, any Service Levels will start to apply as soon as
the Product is added to the Product Listing. 
Unit prices for Products will be in accordance with Article 10.10.

 

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3.3                               Authorized Users; Cooperation. 
Supplier shall provide the Services to Hawaiian Telcom and, upon
Hawaiian Telcom’s request, to any Hawaiian Telcom subsidiary or Affiliate,
under the terms and conditions of this Agreement, subject to such subsidiary or
Affiliate meeting Supplier’s standard creditworthiness criteria; provided that
if such entity fails to meet such criteria and Hawaiian Telcom guarantees
payment by such entity, Supplier shall perform the Services for the entity
regardless of the entity’s credit status. 
In addition, upon request by Hawaiian Telcom and consent of Supplier,
such consent not to be unreasonably withheld, Supplier shall provide reasonable
cooperation and assistance to any Third Party vendors or customers of Hawaiian
Telcom or its Affiliates as necessary to facilitate Hawaiian Telcom’s business
relationship with such Third Parties.

 

3.4                               Technology. 
Supplier shall support all of the technologies identified in the
Agreement or employed by Hawaiian Telcom and related to the Services as of the
Effective Date, and will provide reasonable support for new technologies
implemented by Hawaiian Telcom.  Supplier
shall be proactive in identifying and offering to Hawaiian Telcom opportunities
to implement new technologies that will improve Supplier’s service and support
at a reduced cost.

 

3.5                               Non-Exclusivity.  Nothing in this Agreement shall be construed as a
requirements contract, and notwithstanding anything to the contrary contained
herein, this Agreement shall not be interpreted to prevent Hawaiian Telcom from
obtaining from Third Parties, or providing to itself, any or all of the
Services or services similar thereto.  At
the same time, Supplier shall not reach out to any Third Party vendors or
original equipment manufacturers in an attempt to obtain exclusivity in
providing any or all of the Services outlined in this agreement to Hawaiian
Telcom.

 

3.6                               Resources. 
Except as expressly provided otherwise in this Agreement, Supplier shall
provide at its cost and expense all facilities, assets, and resources
(including personnel, equipment, software, travel and other expenses, etc.)
necessary to perform the Services and otherwise meet its obligations under this
Agreement.

 

3.7                               Reporting.  Supplier shall provide to Hawaiian Telcom the
operational reports as set forth in Exhibit 3.

 

3.8                               Training Credits. 
Supplier shall pass through to Hawaiian Telcom any vendor training
credits offered by the OEM for all applicable items Hawaiian Telcom purchased
through Supplier.

 

3.9                               Refurbished Items. 
Supplier shall provide the same Services for refurbished items as are
applicable under this Agreement to “Cross-Dock” products.

 

4.                                      ACQUISITIONS AND DIVESTITURES;
COOPERATION

 

4.1                               Acquisitions.  If Hawaiian Telcom acquires a business unit, Supplier
shall, upon Hawaiian Telcom’s request, provide acquisition support (including
assessments, transition planning and migration support) and subsequently
provide any or all of the Services, as specified by Hawaiian Telcom, for the
acquired entity under the terms and conditions (including pricing) of this
Agreement.

 

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4.2                               Divestitures. 
If Hawaiian Telcom divests a business unit, Supplier shall, upon
Hawaiian Telcom’s request, provide any or all of the Services, as specified by
Hawaiian Telcom, to such divested entity for up to twelve (12) months after
such divestiture under the terms and conditions (including pricing) of this
Agreement, subject to such entity meeting Supplier’s standard creditworthiness
criteria; provided that if such entity fails to meet such criteria and Hawaiian
Telcom guarantees payment by such entity, Supplier shall perform the Services
for the entity regardless of the entity’s credit status.  In addition, the Supplier will provide
transition support services to Hawaiian Telcom and the acquiring entity similar
to those described above for acquired entities.

 

5.                                      NEW SERVICES

 

5.1                               New Service Requests. 
If Hawaiian Telcom requests a New Service, Supplier shall promptly provide
a proposal with respect to such request that identifies: (i) the services,
functions and responsibilities Supplier anticipates performing in connection
with the New Service; (ii) a mobilization plan with respect to the New
Service; (iii) Supplier’s fees for such New Service, including a detailed
breakdown of such fees; (iv) if applicable, a list of any additional
equipment and service locations to be used in connection with such New Service;
(v) any necessary alterations or additions to the terms of this Agreement;
(vi) proposed service levels for the New Services; and (v) any other
information requested by Hawaiian Telcom.

 

5.2                               Performance. Supplier shall not begin performing any
New Service until Hawaiian Telcom and Supplier have agreed upon the terms for
such New Service and Hawaiian Telcom has provided Supplier with written
authorization by executing the New Service Proposal with respect to the New
Service.  Any New Service performed by
Supplier without such advance agreement to terms and authorization shall be
deemed part of the Services without incremental charge.

 

5.3                               Charges for New Services.  Supplier’s
charges and fees specified in any New Service Proposal shall be no more than
the charges and fees for such services that Supplier provides to other Supplier
customers (excluding Affiliates of Supplier) that are acquiring services of
similar type, in similar volumes, and on similar terms as Hawaiian Telcom.

 

6.                                      SERVICE LEVELS.

 

6.1                               Service Levels. 
Supplier shall perform the Services that have corresponding  Service Levels in accordance with Exhibit 3.  Both Parties agree Service Levels are
contingent upon mutually agreed upon Stocking Strategies and inventory
disposition parameters as stated in Article 12.4.   Supplier shall perform all Services that do
not have defined Service Levels in a manner consistent with industry standards
and shall use all commercially reasonable efforts to perform such Services at
levels that equal or exceed the level of service being provided by Hawaiian
Telcom prior to the Effective Date. 
Hawaiian Telcom may add, delete and adjust the Service Levels as
mutually agreed to by the Parties in accordance with Exhibit 3.

 

6.2                               Root-Cause Analysis. After each Supplier failure to provide
Services in accordance with the applicable Service Levels, Supplier shall, as
soon as reasonably practicable but no later than twenty (20) business days
after the end of the month in which 

 

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such failure occurred, (i) perform a root-cause analysis to
identify the cause of such failure, (ii) provide Hawaiian Telcom with a
summary detailing the cause of, and procedure for correcting, such failure, and
(iii) upon Hawaiian Telcom’s approval of such corrective procedure,
implement such procedure.

 

6.3                               Measurement and Monitoring Tools. Supplier shall implement the
measurement and monitoring tools and procedures required to measure and report
Supplier’s performance against the Service Levels. Such measurement and
monitoring Tools and procedures are set forth in Exhibit 3 and
shall as of the Effective Date (i) permit reporting at a level of detail
sufficient to verify compliance with the Service Levels and (ii) be
subject to audit by Hawaiian Telcom or its designee.  Supplier shall provide Hawaiian Telcom and its
designees with information and access to such measurement and monitoring tools
and procedures upon request for inspection and verification purposes.  Supplier shall provide to Hawaiian Telcom
monthly Service Level reports that demonstrate Supplier’s performance against
the Service Levels.  Such reports shall
be in a form and format approved by Hawaiian Telcom.

 

6.4                               SERVICE LEVEL REPORTING.  Supplier shall provide to Hawaiian Telcom the Service
Level metrics and reports as set forth in Exhibit 3.

 

7.                                      BENCHMARKING.

 

7.1                               Benchmarking Overview. Hawaiian Telcom, in its sole
discretion, may direct Supplier to initiate benchmarking processes, no more
than annually, as to Product Pricing, Air Shipment Rates, and/or Container
Rates in accordance with this section. 
The Benchmarking Process shall be conducted at a time and with regard to
the portion of the Services specified by Hawaiian Telcom by a Benchmarker
designated by mutual agreement of the Parties. If the Parties do not agree
within fifteen (15) days on a Benchmarker, Hawaiian Telcom shall designate the
Benchmarker in its sole discretion, provided that such Benchmarker may not be a
competitor of Supplier.  Supplier shall
at its expense cooperate with and assist the Benchmarker and any other third
parties involved in the Benchmarking Process, including providing information
relating to the provision of the Services (subject to reasonable
confidentiality restrictions), as requested by Hawaiian Telcom or the
Benchmarker.

 

7.2                               Benchmark Results Review and
Adjustments.
Hawaiian Telcom and Supplier shall review the Benchmark Results during a
Benchmark Review Period.  If any Charges
paid by Hawaiian Telcom to Supplier are higher than the applicable fees for
similar type customers with similar services, operations, terms and conditions
contained in the Benchmark Results, Supplier shall then reduce the Charges in a
manner that eliminates such variance thereafter.  In addition, if any Service Levels are lower
than the applicable service levels for similar type customers contained in the
Benchmark Results, Supplier shall either increase the Service Levels to match
the applicable service levels contained in the Benchmark Results, or reduce its
Charges proportionately to adjust for the difference between the Service Levels
and the applicable service levels contained in the Benchmark Results. In no
event will Supplier increase the Charges as a result of any benchmarking.

 

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7.3                               Product Pricing. 
At Hawaiian Telcom’s request, Supplier shall perform comprehensive
benchmarking exercises of Product Pricing for Critical Items and Product(s), no
more than one (1) time per calendar year. 
Supplier will determine the appropriate manufacturer(s) based on
Hawaiian Telcom’s purchasing patterns. 
Full  results shall be provided to
Hawaiian Telcom within fifteen (15) business days upon completing the
benchmarking exercise, including documented findings and action plans to
optimize pricing and capture savings on behalf of Hawaiian Telcom.  In addition to comprehensive benchmarking,
Hawaiian Telcom may also request ad hoc, one-off benchmarking initiatives by
presenting to Supplier evidence of more advantageous cost available elsewhere
in the market for any Product(s) Hawaiian Telcom purchases from
Supplier.   Supplier will work with the vendor
to negotiate the lower cost identified by Hawaiian Telcom to be available to
Supplier for purchasing, and will request vendor credits the difference between
the original cost and the negotiated cost for the inventory available at
Supplier’s locations.  After successful
negotiations with vendor in (i) obtaining lower cost for purchases and (ii) receiving
credit on inventory at Supplier’s location(s), Supplier will immediately reduce
Hawaiian Telcom’s price on the Product, and change open Orders to reflect the
new price.

 

7.4                               Air Shipment Rates. 
Upon conducting a formal benchmarking exercise of each Party’s
contracted carrier rates, the Party with the higher of the two rates may be
mandated to use the other Party’s contracted rates for all air shipments
between the Parties’ list of acceptable origins and destinations, dependent
upon such carrier’s agreement to allow contracted freight rates to be assigned.
Should there be operational constraints that prevent Supplier from using
Hawaiian Telcom’s designated rates (e.g. requiring Supplier to set up with
another carrier), Supplier shall use its commercially reasonable efforts to
match its rates to Hawaiian Telcom’s. 
Under a third-party billing scenario, with like coverage for loss and
damage (full value of Product) and service failures including UPS service
failures, shipments shall remain FOB destination subject to freight mark-up.

 

7.5                               Container Rates. 
If upon conducting a formal benchmarking exercise of Supplier’s
container rates against competitive market container rates with similar terms,
conditions and loss coverages, the incumbent carrier is not selected, Supplier
may be required to adopt the carrier of Hawaiian Telcom’s choice and manage the
transition of its account to the new carrier within a mutually agreed upon
transition period.

 

8.                                      SERVICE LOCATIONS; HAWAIIAN
TELCOM SYSTEMS.

 

8.1                               Service Locations. The Supplier will maintain and enforce,
at the facilities from which the Services are provided, safety and physical
security procedures that are at least equal to industry standards for locations
similar to the Supplier’s locations.

 

8.2                               New Service Locations. 
If Supplier intends to provide Services from locations other than the
locations from which Supplier provides the Services as of the Effective Date,
Supplier shall provide written notice of such new service location to Hawaiian
Telcom, which notice shall include a description of any effect the change in
location, or additional location, will have on the Services or on Hawaiian
Telcom.  In no event shall any change in
service locations or additional service locations result in an increase in the
Charges or a reduction in Service Levels or cause Hawaiian Telcom to incur any
additional expense. Supplier shall be 

 

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responsible for any incremental Hawaiian Telcom cost or expense related
to any change in, or additional, supplier locations, including any additional
taxes that result from Supplier’s relocating or rerouting the delivery of
Products or Services to, from, or through a new location.

 

9.                                      SUPPLIER STAFF.

 

9.1                               Supplier Account Manager. Supplier shall appoint an
individual (the “Supplier Account Manager”) who
from the date of this Agreement shall serve as Hawaiian Telcom’s single point
of contact with respect to the Services. 
The Supplier Account Manager shall (i) have overall responsibility
for managing and coordinating the performance of Supplier’s obligations under
this Agreement and (ii) be authorized to act for and on behalf of Supplier
with respect to all matters relating to this Agreement, including promptly
escalating issues to the appropriate level of management and reporting back to
Hawaiian Telcom with resolutions to such issues.

 

9.2                               Single
Points of Contact.  Supplier
shall designate individuals to be single points of contact for each Product.

 

9.3                               Key Supplier Personnel.

 

(a)                         Collectively,
the Supplier Account Manager and the single points of contact for each Product
are “Key Supplier Personnel.”

 

(b)                         Supplier will introduce any Key Supplier
Personnel individuals to Hawaiian Telcom representatives upon assignment.

 

(c)                         If Hawaiian Telcom in good faith desires
to have any Key Supplier Personnel removed from Hawaiian Telcom’s account,
Hawaiian Telcom shall notify Supplier of such fact and Supplier shall
investigate Hawaiian Telcom’s stated reasons for the removal and present its
findings to Hawaiian Telcom within ten (10) business days after Hawaiian
Telcom’s notification.  The Parties shall
review the findings within five (5) business days after they are presented
to Hawaiian Telcom, or such other time designated by Hawaiian Telcom.  With respect to Key Personnel that are single
points of contact, if after such review the Parties cannot agree on the removal
of such personnel, the Parties shall follow the expedited dispute process set
forth in Exhibit 5.  With
respect to the Supplier Account Manager, after such review Supplier shall
remove such personnel if requested by Hawaiian Telcom.

 

(d)                         Supplier shall make the Key Supplier
Personnel available for meetings with Hawaiian Telcom personnel in accordance
with Exhibit 5 and otherwise upon Hawaiian Telcom’s request.

 

9.4                               Subcontractors

 

(a)                         Supplier shall not subcontract or
delegate any of its material obligations under this Agreement without the prior
written approval of Hawaiian Telcom. If Supplier intends to subcontract any
material obligation under this Agreement, Supplier shall notify Hawaiian Telcom
of the proposed subcontract and shall obtain Hawaiian Telcom’s approval of such
subcontract.

 

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(b)                         Supplier shall include in all of its
subcontracts where applicable provisions equivalent to those in this Agreement
with respect to use of facilities, confidentiality, audit rights, and
warranties.

 

(c)                         Supplier shall cause Supplier Agents to
adhere to any applicable standards, policies and procedures of Supplier and
Hawaiian Telcom.  The Supplier shall not
disclose Confidential Information of Hawaiian Telcom to any Supplier Agent
until such agent has executed a nondisclosure agreement with protections at
least as protective of Confidential Information as those protections set forth
in this Agreement.

 

(d)                         No subcontracting shall release Supplier
from its responsibilities and obligations under this Agreement. Supplier shall
act as the liaison between Supplier Agents and Hawaiian Telcom and be
responsible for the work and activities of each of the Supplier Agents,
including compliance with the terms of this Agreement. Supplier shall be
responsible for all payments to its Supplier Agents.

 

(e)                         Should Hawaiian Telcom determine that any
subcontractor’s services or products are unacceptable under the terms of this
Agreement, Hawaiian Telcom reserves the right to request that Supplier source
an alternate subcontractor; otherwise, Hawaiian Telcom may terminate business
with the subcontractor and obtain its products and services elsewhere.

 

10.                               PAYMENTS

 

10.1                        Volume Incentive Discount. 
The Parties agree that a pricing mechanism pursuant to which Supplier
would discount the Charges based Hawaiian Telcom’s purchase of certain volumes
of Products would create an incentive for Hawaiian Telcom to purchase more
products from Supplier and for Supplier to provide its best service and pricing
to Hawaiian Telcom.  Based on a rolling
two (2) year history of the stock/non-stock product mix, and agreement
between Hawaiian Telcom and Supplier on implementing an inventory Stocking
Strategy and an Inventory Burn Off Strategy, should Hawaiian Telcom’s annual
spend for contributory services increase the following pricing matrix would be
applicable; $13M - $15M product mark up would be 9.73%, $15M - $17M product
mark up would be 9.36%, $17M - $20M product mark up would be 9.15%.  Premier products, f/k/a “SPG” products,
remain independently priced and would not be included in such product mark-up
charges.  In addition cable products will
be independently priced and would not be included in such product mark-up
charges.  If Hawaiian Telcom’s annual
spend decreases by thirty percent (30%) or more, both Supplier and Hawaiian
Telcom agree to review the existing product mark-up and make mutually agreed
upon necessary adjustments to the product mark-up.  Contributory services shall include all
amounts paid to Supplier, including freight mark up and miscellaneous
fees.  The reduced mark-up shall remain
in effect for at least one (1) year from the effective date.

 

Supplier commits
if pricing concessions are received from its vendors due to volume tiered
pricing, the pricing benefits will be passed on to Hawaiian Telcom.  Accordingly, the Parties agree to use
commercially reasonable efforts to agree upon and implement, via an amendment
to the Agreement, such volume tiered pricing promptly after the Effective Date.

 

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10.2                        Charges. 
Hawaiian Telcom shall pay the Charges as specified in Exhibit 4
and this Article 10.  Supplier shall not charge Hawaiian
Telcom for any service or adjust its pricing in any manner except as expressly
permitted under Exhibit 4. Hawaiian Telcom may withhold invoiced
amounts that Hawaiian Telcom disputes in good faith.  Hawaiian Telcom shall notify Supplier of all
such disputes in writing by the date payment under such invoice would otherwise
be due. If Hawaiian Telcom disputes a charge on the invoice, it may withhold
payment of that charge so long as Hawaiian Telcom (a) makes full payment
of all undisputed charges, and (b) provides Supplier with a written
explanation of the reasons for Hawaiian Telcom’s dispute of the charge.  Hawaiian Telcom will cooperate with Supplier
to resolve any disputed charge as soon as possible.  If Supplier determines that the disputed
charge is valid, Supplier will notify Hawaiian Telcom and, within five (5) business
days of receiving such notice, Hawaiian Telcom will either pay the charge,
under protest if desired, or continue to withhold payment.  Either Party may take appropriate legal
action to recover amounts it believes it is due and if it is determined that
any amount is due to the other, the Party will pay that amount, plus interest
on the amount due, calculated per the preceding Subsection from the date of
Hawaiian Telcom’s payment or Supplier’s notification, as applicable.  If Hawaiian Telcom fails to dispute any
charge within twelve (12) months of the date the charge is first invoiced, the
charge will be deemed accurate and Hawaiian Telcom may not dispute it.

 

10.3                        Monthly Invoices.

 

(a)                         Supplier shall render, in a form and
format approved by Hawaiian Telcom, a single consolidated invoice for the
Transportation Charges and the charge for Direct Product order management
incurred by Hawaiian Telcom in each calendar month.

 

(b)                         Supplier shall provide a monthly report
showing such details as reasonably specified by Hawaiian Telcom, including: (i) identification
of all Charges for the month to which the report corresponds, which Charges
shall be broken down by Service Charge, Transportation Charge, and Product
cost; (ii) identification of all Products ordered during that month,
including purchase order number, item quantity, item description, unit of
measure, purchase order line item and total line item dollar amount; (iii) identification
of the amounts and types of any taxes the Supplier is collecting from Hawaiian
Telcom; (iv) the calculations used to establish the Charges; (v) any
information necessary to satisfy Hawaiian Telcom’s internal accounting, tax,
audit and charge back requirements; and (vi) any other information  requested by Hawaiian Telcom if available.  Transportation Charges shall provide a
breakdown of all components that constitute the totality of freight charges,
including but not limited to fuel surcharges, taxes, additional delivery
requirements, additional transaction fees, pick-up fees, hazmat, etc.  This monthly Transportation Charges report
requirement shall not alter daily invoicing procedures.

 

10.4                        Product Invoices. 
Supplier shall invoice Hawaiian Telcom for the cost of Products ordered
by Hawaiian Telcom, and the associated Service Charge, based on the following:
standard freight shipments, thirteen (13) days after shipment; second day air
shipments, three (3) days after shipment; and for next day air shipments,
two (2) days after shipment.    Such
invoices shall not include any Transportation Charges or other charges.

 

10.5                        Time of Payment. 
Hawaiian Telcom shall pay undisputed Supplier invoices within fifteen
(15) days after Hawaiian Telcom’s receipt thereof (“Due Date”).  Undisputed

 

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invoices will be
discounted by 0.125% off product mark up if paid five (5) days or more in
advance of Due Date, as established based on Hawaiian Telcom’s receipt of
invoice. Supplier shall not invoice Hawaiian Telcom, and Hawaiian Telcom shall
not be obligated to pay, any Charges or Pass-Through Expenses that are not
invoiced within 4 months after the end of the month in which such charges or
expenses were incurred.  All invoices not
subject of a bona fide dispute that are not paid when due, are subject interest
on those charges equal to the lesser of 11⁄2% per month or the maximum rate
allowed by law.  Overdue and delinquent
account balances are subject to placement for collection, and Hawaiian Telcom
will pay any expenses incurred by Supplier for such collection activities.

 

10.6        Taxes.  Hawaiian
Telcom shall be responsible for sales, use and services taxes imposed on the
sale of the Products or provision of the Services.  For clarity, Hawaiian Telcom is not responsible
for taxes on Supplier’s income or on the cost of Supplier’s acquisition or use
of goods and services used to provide the Services.  Hawaiian Telcom and Supplier shall cooperate
to determine a Party’s tax liability and to minimize such liability to the
extent legally permissible. Each Party shall provide and make available to the
other Party any resale certificates, information regarding out-of-state sales
or use of equipment, materials or services, and any other exemption
certificates or information requested by a Party.

 

10.7        No Adjustments or Other Charges. 
Supplier’s performance of any and all of the Services is included within
the Charges.  Hawaiian Telcom shall not
be obligated to pay, or reimburse Supplier for, any costs, fees, expenses or
charges other than those costs, fees, expenses and charges expressly designated
in this Agreement as Hawaiian Telcom’s responsibility.  Supplier shall make no adjustments to any
Charges except as expressly permitted under Exhibit 4.

 

10.8        Due Diligence.  Hawaiian Telcom has delivered or made
available to Supplier all information and documents Supplier has deemed
necessary for Supplier to commit to its obligations under this Agreement in
accordance with its terms.  Supplier
shall not be relieved of any of its obligations under this Agreement, or alter,
increase or add any fees or charges related to this Agreement, as a result of
its failure to review the foregoing information and documents or any documents
referred to therein or its failure to request any information or documents from
Hawaiian Telcom.

 

10.9        Most Favored Customer. 
Supplier agrees that Hawaiian Telcom shall be treated as a most favored
customer of Supplier.  Supplier shall
provide to Hawaiian Telcom Supplier’s best pricing for the Products and
Services that Supplier provides to its other customers (excluding Supplier
Affiliates) purchasing similar products and services in similar volumes.  Supplier shall notify Hawaiian Telcom in a
timely manner in the event Supplier provides better pricing for products or
services to another customer (excluding a Supplier Affiliate) purchasing
similar products and services in similar volumes under similar terms and
conditions and shall in such notice offer to Hawaiian Telcom a reduction in
Charges to match the charges in any such transaction.  Upon request, no more than once per contract
year, Supplier shall provide Hawaiian Telcom with a comparison of Hawaiian
Telcom and its other top accounts, using a scorecard of key contract terms to
be agreed upon by both Parties.

 

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10.10      Miscellaneous New Pricing Terms.  Retroactive pricing credits shall be awarded to
Hawaiian Telcom at 9.92% Service Charge (compared to the current Agreement’s
11.25% mark-up) and applied retroactively to all purchases made within the one-hundred
fifty (150) days prior to the date of contract signing.  Credits shall be disbursed within thirty (30)
days of contract execution.

 

11.                               GOVERNANCE AND CONTROL

 

11.1        Governance. 
Hawaiian Telcom and Supplier shall implement a governance structure as
described in Exhibit 5 that includes the content and purpose of
various governance committees, the roles and responsibilities of governance
committee members, the type, content and frequency of governance meetings, and
the Change Control Procedures.  All
governance meetings will be hosted at a time and location acceptable to
Hawaiian Telcom.  Either Party may
replace or reassign its governance committee members upon notice to the other.

 

11.2        Change Control. 
Supplier’s performance of the Services shall be in accordance with
Change Control Procedures set forth in Exhibit 5, which procedures
shall specify at minimum the following:

 

(a)        No Change shall be implemented without Hawaiian Telcom’s
approval, except as may be necessary on a temporary basis to maintain the
continuity of the Services.

 

(b)        With respect to all Changes, Supplier shall: (i) other
than those Changes made on a temporary basis to maintain the continuity of the
Services, schedule Changes so as not to unreasonably interrupt Hawaiian Telcom’s
business operations; (ii) provide Hawaiian Telcom thirty (30) days notice
of any planned Changes; and (iii) monitor and report on the status of all
Changes.

 

(c)        With respect to any Change made on a temporary basis
to maintain the continuity of the Services, Supplier shall document and provide
to Hawaiian Telcom notification of the Change no later than the next business
day after the Change is made.

 

12.                               ORDERING; OWNERSHIP

 

12.1        Ordering.

 

(a)        Hawaiian Telcom may place orders for Products from
Supplier from time to time as described in Exhibit 2.  Supplier shall provide to Hawaiian Telcom on
or before the Commencement Date current contact information for each method of
ordering (e.g., phone, fax, EDI) described in Exhibit 2 or
otherwise agreed by the Parties.

 

(b)        Supplier shall acknowledge receipt of each Hawaiian
Telcom order as soon as reasonably practicable after Supplier’s receipt of such
order, which notification shall be within two (2) hours after receipt with
respect to Expedited Orders. Each order acknowledgement will confirm the type
and quantity of Products ordered, the applicable prices, delivery dates, and
special shipping instructions (if any). For purposes of this Agreement “receipt”
means the time that Hawaiian Telcom’s order arrives at Supplier’s physical
address, email address, or EDI system, as applicable. Supplier shall accept all
orders placed by Hawaiian Telcom that are 

 

12

 

consistent with this
Agreement.  Hawaiian Telcom may cancel an
Order for Stocked Products up to ten (10) calendar days prior to shipment
by Supplier, with no penalty or charges. 
If Hawaiian Telcom cancels an Order after that time, Hawaiian Telcom
must pay any actual costs incurred by Supplier including a restock fee and
related shipping.  Drop ship or
Cross-Dock Orders may be cancelled according to the vendor’s policies and
cancellation and/or restock fees may be assessed.

 

(c)        Supplier shall ship all Products FOB Destination as
described in Article 7.4. 
Title and risk of loss for each Product shall pass from Supplier to
Hawaiian Telcom upon Hawaiian Telcom’s physical receipt of such Product.

 

(d)        For purchases that are made directly by Hawaiian
Telcom with one of its Third Party vendors or OEM’s, the Third Party vendor
shall have the option to send such purchases to Supplier for consolidation onto
containers headed to one of Hawaiian Telcom’s warehouse locations.   Supplier shall provide to Hawaiian
Telcom the cross-docking services with the associated service charges set forth
in Exhibit 4.

 

12.2        Notice
of Discontinued Products.  Supplier shall notify Hawaiian
Telcom promptly after it becomes aware that any Product on the Product Listing
has been discontinued by the manufacturer or discontinued from the Supplier’s
product portfolio, and shall suggest a substitute product for the discontinued
Product.  In the case of any Product
recalls, Supplier shall notify Hawaiian Telcom as soon as Supplier becomes
aware of such recall announced by the manufacturer (if Hawaiian Telcom did not
first notify Supplier) and facilitate any returns of such Product to the
manufacturer for reimbursement from manufacturer to Hawaiian Telcom for the
totality of product costs including any mark-ups already paid.]  For a pre-determined list of retail/CPE
phones (listed in Exhibit 6), Supplier will endeavor to receive
advance notification from its manufacturers should a Product be discontinued or
planned for discontinuation.  Upon
notification from manufacturer, Supplier will promptly notify the appropriate
Hawaiian Telcom contact.

 

12.3        Returns.  Hawaiian
Telcom shall return Products to Supplier in accordance with the applicable
procedures set forth in Exhibit 2. 
Hawaiian Telcom may cancel without payment or penalty of any kind any
order that has not arrived at its designated shipping point more than 10 days
after it is due in accordance with this Agreement, and Supplier shall pay
return shipping for any such Products returned by Hawaiian Telcom.

 

12.4        Inventory. 
Hawaiian Telcom shall have financial responsibility for Unique Products
identified in Unique Products Listing, Exhibit 1, Attachment 1, as amended
and exchanged periodically between the parties. Unique Products shall have been
purchased by Supplier on Hawaiian Telcom’s behalf and in no event will Supplier’s
inventory of Unique Product exceed Hawaiian Telcom’s established credit limit.
Hawaiian Telcom may from time to time request that additional product(s) be
added to the Unique Product Listing.  If
such additional product(s) is determined to be Unique, the product shall
be added by Supplier to a monthly updated Unique Product Listing to be
transmitted to Hawaiian Telcom.  The
updated Unique Product Listing shall be deemed accepted by Hawaiian Telcom and
effective as of the date of transmission unless any objection or correction is
identified by Hawaiian Telcom within five (5) business days of
transmission, and remain effective until the next update.  In the event of an objection or correction by
Hawaiian Telcom to a proposed update to the Unique 

 

13

 

Product Listing, the parties shall discuss in good faith the
appropriate changes to be made to the update until such time as mutual
agreement is achieved and the updated Unique Product Listing becomes effective
upon re-transmission by KGP to Hawaiian Telcom. 
Supplier will notify Hawaiian Telcom of any Unique Products remaining in
Supplier’s inventory in excess of one hundred eighty (180) days with inventory
turns of less than three (3), after Supplier has pursued Vendor returns.  At such time, Supplier will work with
Hawaiian Telcom to pursue other reasonable disposition methods as agreed by the
Parties.  If Supplier is unable to
dispose of the Unique Products after using commercially reasonable efforts to
do so then, within thirty (30) days of Hawaiian Telcom’s receipt of notice from
Supplier, Supplier will assess a monthly carrying charge of 1.25% on the
inventory value to Hawaiian Telcom. Hawaiian Telcom has the option to purchase,
on a quarterly basis, all Unique Products remaining in Supplier’s inventory
with inventory turns of less than three (3). 
Unique Products will only remain in Supplier’s inventory for a maximum
of twelve (12) months, at such time Hawaiian Telcom agrees to purchase all Unique
Products remaining in Supplier’s inventory with inventory turns of less than
three (3).  Upon purchase by Hawaiian
Telcom, Supplier will at Hawaiian Telcom’s direction either; (i) ship
Unique Products to Hawaiian Telcom, at Hawaiian Telcom’s expense, or (ii) put
Unique Products into a 3PL solution.  3PL
fees will include a monthly storage fee of 1.5% of the average inventory for
the preceding month, and a transaction fee of $16.00 per line shipped.  Freight for shipment will be paid by Hawaiian
Telcom.  Further, within sixty (60) days
following any termination or expiration of this Agreement, Hawaiian Telcom will
purchase any Unique Products in Supplier’s inventory or that are on order to
Vendor (if such order is not cancelable).

 

Supplier and Hawaiian Telcom mutually agree to review
and assess in good faith the Unique Inventory process after one year from the
effective date to reevaluate whether carrying charge is warranted.

 

Hawaiian Telcom’s Unique Inventory liability will be
applicable on the previous eighteen (18) months of Supplier’s purchases of
Unique Product(s), such timeframe to be calculated from Article 10.10
retroactive pricing credits’ effective date. 
For the Product(s) Supplier purchased on Hawaiian Telcom’s behalf
that fall outside the Unique Inventory liability timeframe, Hawaiian Telcom
will use commercially reasonable efforts to assist Supplier with inventory burn
down, by means of substituting such Product for future demand requirements, or
assisting in negotiating with Supplier’s OEM for return authorizations, in an
attempt to reduce Supplier’s inventory exposure due to Hawaiian Telcom’s
obsolescence of such Product.  The
implementation of this Article 12.4 will go into effect twelve (12)
months following the retroactive pricing credits’ effective date.

 

12.5        Ownership and License. 
The
ownership and use rights applicable to any software Products and software
contained within the Products shall be as specified in the license agreement
associated with such Products.

 

12.6        Version
Updates.  Upon notice from manufacturer , Supplier shall
notify Hawaiian Telcom of the latest version release.  Supplier shall be able to provide details
around the Product’s backward and forward compatibility.  Hawaiian Telcom shall provide confirmation on
which version release it chooses to purchase and shall have the right to modify
Orders to receive the latest version release, in accordance to Article 12.1(b).  If the 

 

14

 

latest version is not backward and forward capable, Hawaiian Telcom
will deplete Supplier’s inventory prior to switching to the latest
version.  Supplier and Hawaiian Telcom
will determine the appropriate Stocking Strategy for the latest version
release, and for Product not backward and forward compatible, Supplier will
continue to supply those version releases that remain on Hawaiian Telcom’s
Product Listing until such time Product is not available from the manufacturer.

 

12.7        New
Products Introduced by Supplier. For new products that Supplier either encourages
Hawaiian Telcom to adopt or substitutes for an existing product on Hawaiian
Telcom’s Product Listing, Supplier shall be required to furnish adequate
testing results and customer references, at a minimum, so that Hawaiian Telcom
may obtain unbiased feedback on these new products.  Supplier shall use its commercially
reasonable efforts to validate new product performance with supporting
documentation and customer feedback.  At
Hawaiian Telcom’s request, Supplier will request from the manufacturer at no
cost, samples of new or substitute Products to be provided to Hawaiian Telcom
other than the associated freight charges. 
Any ongoing customer feedback (e.g. unsatisfactory product reports or
common product issues logs) shall be provided to Hawaiian Telcom on a monthly
basis, or as it happens for critical items. For the introduction of new
retail/CPE phones (listed in Exhibit 6), upon request by Hawaiian
Telcom, Supplier will use commercially reasonable efforts to furnish
professional graphics, as available from its manufacturers, to support Hawaiian
Telcom’s advertising efforts.

 

13.                               CONTINUED PROVISION OF SERVICES

 

13.1        Disaster
Recovery Plan.  Supplier will review its Disaster Recovery
Plan (“DRP”) with Hawaiian Telcom on a periodic basis.  Supplier may revise its DRP as required, in
Supplier’s sole discretion.  Supplier
will immediately notify Hawaiian Telcom of any disaster involving Supplier’s
facilities. Supplier and Hawaiian Telcom have reviewed the Product Listing,
identified those Critical Items required by Hawaiian Telcom in the event of a
disaster in Hawaii, and developed a plan to supply those items.  Without limiting Supplier’s other obligations
under this Agreement, if Supplier is unable to deliver Critical Items to
Hawaiian Telcom within forty-eight (48) hours due to a disaster involving
Supplier’s main facility serving Hawaiian Telcom, then Hawaiian Telcom may
cancel orders from Supplier without penalty, and secure the Critical Items from
another source.  Supplier may not
increase the Charges or impose additional fees, costs or expenses due to a
disaster unless these are pass through costs from manufacturers.]

 

13.2        Force
Majeure. If and
to the extent a Party’s performance of any of its obligations pursuant to this
Agreement is prevented, hindered or delayed by fire, flood, earthquake, acts of
God, acts of war, riots, rebellions or revolutions, labor strikes, or failure
of vendor to provide Product(s) to Supplier within stated manufacturer’s
lead time, or actions of Third Party Hawaiian Telcom designated vendors which
impact Supplier’s ability to perform, or any other similar cause beyond the
reasonable control of such Party (but excluding failures of Supplier Agents)
(each, a “Force Majeure Event”), and such was
not caused by, and could not have been prevented by reasonable precautions
undertaken by, the Party claiming a Force Majeure Event, then such Party shall
be excused for such non-performance, hindrance or delay of those obligations
affected by the Force Majeure Event for as long as such Force Majeure 

 

15

 

Event continues and such Party continues to use its commercially
reasonable efforts to recommence performance whenever and to whatever extent
possible, including through the use of alternate locations or vendors,
workaround plans and other means. The Party whose performance is prevented,
hindered or delayed by a Force Majeure Event shall immediately notify the other
Party of the occurrence of the Force Majeure Event and describe in reasonable
detail the nature of the Force Majeure Event. The occurrence of a Force Majeure
Event does not excuse, limit or otherwise affect Supplier’s obligation to
implement the Disaster Recovery Plan. Supplier shall not increase the Charges
or impose on Hawaiian Telcom any additional fees, costs or expenses with
respect to the occurrence of a Force Majeure Event.

 

13.3        Allocation
of Resources. If
a Force Majeure Event or a disaster causes Supplier to allocate limited
resources among its customers, Supplier will ship Products in the order in
which they were ordered.

 

14.                               COMPLIANCE ASSISTANCE; AUDITS

 

14.1        Regulatory
Compliance.

 

(a)        Hawaiian Telcom Laws. 
Supplier shall provide any support required for Hawaiian Telcom to
comply with Hawaiian Telcom Laws related to the Services.  If any change in a Hawaiian Telcom Law
requires changes to the Services, Supplier shall promptly propose to Hawaiian
Telcom a plan to implement such changes and, upon Hawaiian Telcom’s approval,
implement such changes; provided that if such implementation will result in a
material cost to Supplier, Supplier shall propose a one-time charge or
adjustments to the applicable Charges associated with such changes and shall
not implement such changes until Hawaiian Telcom has approved such charges.

 

(b)        Supplier Laws. 
With respect to changes in Laws to which Supplier is required to submit
or voluntarily submits, Supplier shall implement in a timely manner, at its own
cost and expense, any changes in the Services required to comply with such changes;
provided, that if such changes have a material effect on the provision or
receipt of the Services, Supplier shall obtain Hawaiian Telcom’s consent before
implementing such changes.

 

14.2        Audits

 

(a)        Supplier shall retain complete and accurate written
records of its financial and non-financial activities related to this
Agreement. Supplier shall provide to Hawaiian Telcom, its auditors, inspectors,
and regulators access to personnel, information and records relating to the
Services for the purpose of performing audits and inspections for any
reasonable business purpose, including (i) verifying the accuracy of the
Charges and invoices; (ii) verifying Supplier’s Product costs, including
with respect to any Supplier-proposed adjustment in Product prices; (iii) supporting
audits and examinations by Governmental Authorities; and (iv) complying
with Sarbanes-Oxley Act requirements and other Hawaiian Telcom Laws.  Hawaiian Telcom shall provide Supplier
reasonable advance notice of any audit to be conducted pursuant to this Article 14.2,
and Supplier shall provide access to its facilities as necessary to conduct the
audit during normal business hours.

 

16

 

(b)        Supplier and Hawaiian Telcom shall meet to review the
results of any audit performed by Hawaiian Telcom or its agents in connection
with this Agreement and, if appropriate, agree upon a plan to address any
deficiencies identified and changes suggested by such audit report.  If an audit reveals an overcharge by
Supplier, the Supplier shall promptly refund the amount of such overcharge
together with reasonable interest on such amount.

 

(c)        Supplier will make available promptly to Hawaiian
Telcom the results of any reviews or audits conducted by or on behalf of Supplier
relating to the Supplier’s operating practices and procedures to the extent
relevant to the Services and to the extent Supplier makes such reviews or
audits available to any other Supplier customer (excluding Supplier
Affiliates).

 

14.3        Records
Retention.
Supplier shall retain and provide Hawaiian Telcom access to records and
supporting documentation (i) sufficient to satisfy the requirements set
forth in this Article 14; (ii) as necessary to establish the
basis for, and verify the accuracy of, the Charges paid or payable by Hawaiian
Telcom under this Agreement, including adjustments thereto; (iii) as
required by Law; (iv) as necessary to enable Hawaiian Telcom to comply
with Laws that require access to Supplier’s records and documentation, including
the Sarbanes-Oxley Act; and (v) otherwise in accordance with Hawaiian
Telcom’s retention policies and procedures. Supplier shall maintain all such
records for at least 5 years after the termination or expiration of this
Agreement, or longer if required by Law.

 

15.                               CONFIDENTIALITY

 

15.1        General
Obligations.
Except as expressly provided herein, neither Party shall disclose to third
parties, or use other than to exercise its rights or perform its obligations
hereunder, Confidential Information of the other Party without the other Party’s
prior written consent.  Each Party shall
protect the other Party’s Confidential Information to the same extent and in at
least the same manner as such Party protects its own confidential information
of a similar nature (and in no event with less than reasonable care).  Neither Party shall use the Confidential
Information of the other Party except as necessary to provide, receive or use
the Services. Each Party may disclose relevant aspects of the other Party’s
Confidential Information to its officers, directors, agents, professional
advisors, contractors (including the Benchmarker), subcontractors and employees
and to the officers, directors, agents, professional advisors, contractors,
subcontractors and employees of its Affiliates, to the extent that such
disclosure is reasonably necessary for the performance of its duties and
obligations or the determination, preservation or exercise of its rights and
remedies under this Agreement; provided, in each case, the recipient of Confidential
Information is under a duty of confidentiality with respect to the Confidential
Information substantially similar to the duty of confidentiality set forth in
this Agreement. The obligations in this Section shall not restrict any
disclosure as required by any Law (provided that the recipient shall give
prompt notice to the disclosing Party of such requirement).

 

15.2        Unauthorized
Acts. Without
limiting either Party’s rights with respect to a breach of this Article 15,
each Party shall:

 

(a)        promptly notify the other Party of any unauthorized
use or disclosure of the other Party’s Confidential Information of which such
Party becomes aware;

 

17

 

(b)        promptly furnish to the other Party details of such
unauthorized use or disclosure; and

 

(c)        use commercially reasonable efforts to prevent a
recurrence of any such unauthorized use or disclosure of Confidential
Information.

 

15.3        Injunctive
Relief. The
Parties acknowledge and agree that monetary damages may be inadequate to
compensate for a breach of the provisions contained in this Article 15.  In the event of such breach, the injured
Party may be entitled to seek injunctive relief and any and all other remedies
available at law or in equity.

 

15.4        Return. 
Upon a Party’s request, and upon the termination or expiration of this
Agreement,  each Party shall return or
destroy any confidential information (or the portion requested) of the other
Party still in its possession.

 

16.                               REPRESENTATIONS AND WARRANTIES

 

16.1        By
Hawaiian Telcom.
Hawaiian Telcom represents and warrants that:

 

(a)        Hawaiian Telcom is a corporation duly incorporated,
validly existing and in good standing under the Laws of the State of Delaware;

 

(b)        Hawaiian Telcom has all requisite corporate  power and authority to execute, deliver and perform its
obligations under this Agreement;

 

16.2        By
Supplier.
Supplier represents and warrants that:

 

(a)        Supplier is a corporation duly incorporated, validly
existing and in good standing under the Laws of the State of Ohio;

 

(b)        Supplier has all requisite corporate  power and authority to execute, deliver and perform its
obligations under this Agreement;

 

(c)        the execution, delivery and performance of this
Agreement by Supplier (i) has been duly authorized by Supplier and (ii) shall
not conflict with, result in a breach of, or constitute a default under any
other agreement to which Supplier is a party or by which Supplier is bound;

 

(d)        Supplier is duly licensed, authorized or qualified to
do business and is in good standing in every jurisdiction in which a license,
authorization or qualification is required to perform the Services, except
where the failure to be so licensed, authorized or qualified would not have a
material adverse effect on Supplier’s ability to fulfill its obligations under
this Agreement;

 

(e)        Supplier is in compliance with all Laws applicable to
Supplier’s obligations under this Agreement and has obtained all applicable
Governmental Approvals and any licenses, approvals, permits, certificates,
inspections, consents and authorizations required of Supplier by third parties
in connection with its obligations under this Agreement;

 

18

 

(f)         there is no outstanding litigation, arbitrated matter
or other dispute to which Supplier is a party which, if decided unfavorably to
Supplier, would reasonably be expected to have a material adverse effect on
Supplier’s ability to fulfill its obligations under this Agreement;

 

(g)        Supplier has not violated any Hawaiian Telcom policies
of which the Supplier has been given notice regarding the offering of unlawful
inducements in connection with the Agreement.

 

16.3        Disclaimer. EXCEPT AS SPECIFIED IN ARTICLE 16.1
AND ARTICLE 16.2, NEITHER HAWAIIAN TELCOM NOR SUPPLIER MAKES ANY
WARRANTIES UNDER THIS AGREEMENT AND EACH EXPRESSLY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

 

17.                               SUPPLIER COVENANTS.

 

17.1        Supplier shall provide the Services with
promptness, diligence and in a professional manner, in accordance with the
practices and professional standards used in well-managed operations performing
services similar to the Services, and Supplier shall use adequate numbers of
qualified individuals with suitable training, education, experience and skill
to perform the Services; for clarity, nothing in this section diminishes
Supplier’s obligations with respect to Service Levels;

 

17.2        Supplier will use commercially reasonable
efforts to use efficiently the resources or services necessary to provide the
Services, and to perform the Services in the most cost efficient manner
consistent with the required level of quality and performance;

 

17.3        Supplier shall comply with all Laws in
its performance of the Services as well as obtain and keep current all
Governmental Approvals and any necessary licenses, approvals, permits,
certificates, inspections, consents and authorizations required by or from
third parties to perform the Services.

 

17.4        Supplier shall not violate any Hawaiian
Telcom policies of which the Supplier has been given notice regarding the
offering of unlawful inducements in connection with the Agreement;

 

17.5        neither Supplier nor any Supplier Agents
shall make any unauthorized representations on Hawaiian Telcom’s behalf or
about Hawaiian Telcom, nor commit or bind Hawaiian Telcom other than as
specifically authorized in writing;

 

17.6        none of the Services, Supplier
deliverables or other materials provided to Hawaiian Telcom by Supplier
(excluding Products) will infringe, violate, or misappropriate the proprietary
rights of any third party, and Supplier shall promptly notify Hawaiian Telcom
if Supplier becomes aware of any claim, pending or threatened, or any fact upon
which a claim could be made, that the Services, Supplier deliverables or other
materials provided to Hawaiian Telcom by Supplier may infringe upon the
proprietary rights of any third party;

 

17.7        any deliverables provided to Hawaiian
Telcom by Supplier (excluding Products) shall be free from defects in
materials, design, and workmanship, and in 

 

19

 

conformance with any applicable documentation, manuals, specifications
or requirements and shall be free and clear of any liens, claims, charges,
debts or other encumbrances, and Supplier shall promptly take commercially
reasonable actions necessary to cause any deliverables comply with the
foregoing in the event such deliverables do not so comply when delivered to
Hawaiian Telcom;

 

17.8        the Products will be free of all liens or
other encumbrances and Supplier shall transfer title to such products to
Hawaiian Telcom free of any liens or other encumbrances; should any lien or
encumbrance be asserted with respect to any Product delivered to Hawaiian
Telcom hereunder for any reason, Hawaiian Telcom may (i) require the
Supplier to obtain a properly executed release of such lien or encumbrance
satisfactory to Hawaiian Telcom, and, if Supplier fails to obtain such release
in a timely manner, (ii) pay the amount necessary to satisfy such lien or
encumbrance and deduct such amounts from payments due to the Supplier;

 

17.9        Supplier shall ensure that Hawaiian
Telcom shall be able to obtain the full benefit of the Product manufacturer’s
warranty applicable to each Product. If Products are defective, on request of
Hawaiian Telcom, Supplier shall handle the return of Products to the
manufacturer and will replace the defective product in accordance with the
return process specified in Exhibit 2; and

 

17.10      Supplier shall pack, label, mark and ship
all Products to the destination specified in the applicable Hawaiian Telcom
order and shall use industry-standard methods to pack and ship all Products in
a manner such that they will not be damaged during shipment, unless more
specific packing methods are specified by Hawaiian Telcom in its order;
Supplier will be responsible for any loss or damage to Products caused by
Supplier’s failure to pack, mark, ship or handle Products in accordance with
the applicable order or otherwise in an industry-standard manner.

 

18.                               TERMINATION.

 

18.1        Termination
for Convenience.  Either Party may terminate this Agreement, in
whole or in part, for convenience effective as of any time after the Effective
Date by giving the other Party written notice of the termination at least
one-hundred eighty (180) days prior to the termination date specified in the
notice.

 

18.2        Termination for Cause

 

(a)        If Supplier fails to perform any of its obligations
under this Agreement in any material respect or repeatedly fails to perform any
of its obligations under this Agreement and the cumulative effect thereof could
reasonably be considered material, and does not cure such breach within thirty
(30) days after receipt of a notice of breach from Hawaiian Telcom, then
Hawaiian Telcom may, without limiting Hawaiian Telcom’s other rights or
remedies under this Agreement, by giving notice to Supplier, terminate this
Agreement, in whole or in part, as of the termination date specified in the
notice and without payment of any amounts that would otherwise be due upon
termination in accordance with Article 18.4(b).

 

(b)        If Hawaiian Telcom fails to make undisputed payments
due to Supplier and does not cure such default within thirty (30) days after
receipt of a notice of default from Supplier,

 

20

 

then Supplier may, by
giving notice to Hawaiian Telcom, terminate this Agreement in whole, as of the
termination date specified in the notice of default.

 

18.3         Extension of Termination Effective Date. 
Hawaiian Telcom may extend the effective date of any termination
pursuant to this Article 18 one or more times by notifying Supplier
in writing of such extension, provided that the total of all such extensions
shall not exceed one-hundred eighty (180) days following the original effective
date of termination.

 

18.4        Removal;
Unique Products.

 

(a)        Removal. If Hawaiian Telcom intends to remove any Product
from the Product Listing during the Term, Hawaiian Telcom shall use reasonable
efforts to provide Supplier with sixty (60) days notice prior to such removal
and shall thereafter use reasonable efforts to enable Supplier to deplete the
inventory of the Product removed from the Product Listing.

 

(b)        Unique Products. Within thirty (30) days following any
termination or expiration of this Agreement, Hawaiian Telcom will purchase any
Unique Products in Supplier’s inventory or that are on order to Vendor (if such
order is not cancelable). Freight for shipment will be paid by Hawaiian Telcom.
Hawaiian Telcom will pay its standard mark-up for the Unique Products and their
shipment.

 

19.                               TERMINATION ASSISTANCE

 

19.1        Termination
Assistance.
Except in the event of termination by Supplier for Hawaiian Telcom’s
non-payment per Article 18.2(b), upon Hawaiian Telcom’s request
during the Termination Assistance Period, Supplier shall provide the
Termination Assistance Services to facilitate the orderly transfer of the
Services to Hawaiian Telcom or its designee (collectively, the “Successor”) regardless of the reason for
expiration or cessation of Services. The quality and level of performance of
the Services during the Termination Assistance Period shall be consistent with
the quality and level of performance of the Services during the Term.  If Hawaiian Telcom provides notice of
termination to Supplier, all Service Levels and Stocking Strategies during the
termination period will be reset and mutually agreed upon by the Parties.

 

19.2        Payment. 
The Service and Product Charges include all Termination Assistance
Services provided by Supplier during the Term, and Supplier will not charge
Hawaiian Telcom any additional variable or other fees for such services,
outside the normal Service and Product Charges. 
For Termination Assistance Services provided by Supplier after the last
day of the Term, Supplier shall provide such services (i) in the case of
Termination Assistance Services that are Services, at the rates in effect for
such Services immediately prior to termination or expiration of the Agreement
and (ii) for Termination Assistance Services for which no rates exist
immediately prior to such termination or expiration at Supplier’s most
favorable commercial rates for similarly situated customers (excluding Supplier
Affiliates). Termination Assistance Services provided after the last day of the
Term shall be subject to the provisions of the Agreement as such provisions
would have been applicable to the Services prior to the effective date of
termination or expiration. If Hawaiian Telcom requests Termination 

 

21

 

Assistance Services after this Agreement has been terminated pursuant
to Article 18.2(b), Supplier may require Hawaiian Telcom to pay for
such services in advance.

 

20.                               INDEMNITIES.

 

(a)        Indemnity by Hawaiian Telcom. Hawaiian Telcom shall indemnify
Supplier from, and defend and hold Supplier, its officers, directors,
employees, and assigns harmless from and against any Losses incurred by
Supplier, or to which the foregoing parties become subject, arising out of or
relating to: (i) any inaccuracy or untruthfulness, or breach of any
warranty set forth in Article 16.1; (ii) any third party claim
of infringement of any patent, trade secret, copyright or other proprietary
right, alleged to have occurred because of systems or other resources provided
by Hawaiian Telcom to Supplier; (iii) any amounts, including taxes,
interest and penalties, assessed against Supplier that are the obligation of
Hawaiian Telcom pursuant to this Agreement; and (iv) personal injury
(including death) or property loss or damage resulting from Hawaiian Telcom’s
acts or omissions.  Hawaiian Telcom shall
indemnify Supplier from any costs and expenses incurred in connection with the
enforcement of this Article 20(a).

 

(b)        Indemnity by Supplier. Supplier shall indemnify Hawaiian
Telcom from, and defend and hold Hawaiian Telcom, its officers, directors,
employees, and assigns harmless from and against any Losses incurred by
Hawaiian Telcom, or to which the foregoing parties become subject, arising out
of or relating to: (i) any inaccuracy or untruthfulness, or breach of any
warranty set forth in Article 16.2; (ii) any breach of Article 17.3,
17.4, or 17.5; (iii) Supplier’s violation of Hawaiian Telcom’s
agreements relating to the purchase of Direct Products; (iv) any claims
arising out of or related to occurrences Supplier is required to insure against
under this Agreement; (v) any third party claim of infringement of any
patent, trade secret, copyright or other proprietary right, alleged to have
occurred because of systems or other resources provided by Supplier to Hawaiian
Telcom (excluding Products), or based upon performance of the Services by the
Supplier; (vi) claims between the Supplier and any of its employees,
partners, agents or subcontractors; (vii) personal injury (including
death) or property loss or damage resulting from Supplier’s or Supplier Agents’
acts or omissions; and (viii) any amounts, including taxes, interest and
penalties, assessed against Hawaiian Telcom that are the obligation of Supplier
under this Agreement.  Supplier shall
indemnify Hawaiian Telcom from any costs and expenses incurred in connection
with the enforcement of this Article 20(b).

 

20.2           Indemnification
Procedures. If
any third party claim is commenced against a person or entity entitled to
indemnification under this Article 20 (the “Indemnified
Party”), notice thereof shall be given to the Party that is
obligated to provide indemnification (the “Indemnifying Party”)
as promptly as practicable.  If, after
such notice, the Indemnifying Party acknowledges that this Agreement applies with
respect to such claim, then the Indemnifying Party may elect, in a notice
promptly delivered to the Indemnified Party, but in no event less than 15 days
prior to the date on which a response to such claim is due, to immediately take
control of the defense and investigation of such claim and to employ and engage
attorneys reasonably acceptable to the Indemnified Party to handle and defend
the same, at the Indemnifying Party’s sole cost and expense. The Indemnified
Party shall cooperate, at the cost of the Indemnifying Party, in all reasonable
respects with the Indemnifying Party and its attorneys in the investigation,
trial and defense of such claim and any appeal arising therefrom; provided,
however, that the Indemnified Party may, at its own 

 

22

 

cost and expense, participate, through its attorneys or otherwise, in
such investigation, trial and defense of such claim and any appeal arising
therefrom. No settlement of a claim that involves a remedy other than the
payment of money by the Indemnifying Party shall be entered into without the
consent of the Indemnified Party. After notice by the Indemnifying Party to the
Indemnified Party of its election to assume full control of the defense of any
such claim, the Indemnifying Party shall not be liable to the Indemnified Party
for any legal expenses incurred thereafter by the Indemnified Party in
connection with the defense of that claim. If the Indemnifying Party does not
assume full control over the defense of a claim as provided in this Section,
the Indemnifying Party may participate in such defense, at its sole cost and
expense, and the Indemnified Party shall have the right to defend the claim in
such manner as it may deem appropriate, at the cost and expense of the
Indemnifying Party.

 

21.          DAMAGES. Direct Damages. Each Party’s maximum liability for
damages caused by its failure(s) to perform its obligations under the
Agreement is limited to: (A) proven direct damages for claims arising out
of personal injury or death, or damage to real or personal property, caused by
the negligent or willful misconduct of the other Party; (B) proven direct
damages for all other claims arising out of the Agreement, not to exceed an
amount equal to Hawaiian Telcom’s total net payments for the affected Products
and Services in the twelve months preceding the month in which the injury
occurred.  Hawaiian Telcom’s payment
obligations, liability for early termination charges, and the parties’
indemnification obligations under this Agreement are excluded from this
provision.  Consequential Damages.
NEITHER PARTY WILL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, OR INDIRECT
DAMAGES FOR ANY CAUSE OF ACTION, WHETHER IN CONTRACT OR TORT. CONSEQUENTIAL,
INCIDENTAL, AND INDIRECT DAMAGES INCLUDE, BUT ARE NOT LIMITED TO, LOST PROFITS,
LOST REVENUES, AND LOSS OF BUSINESS OPPORTUNITY, WHETHER OR NOT THE OTHER PARTY
WAS AWARE OR SHOULD HAVE BEEN AWARE OF THE POSSIBILITY OF THESE DAMAGES.]  The foregoing limitation of liability shall
not apply to: (i) the Parties indemnification obligations under Article 20;
(ii) any inaccuracy, untruthfulness, or breach of any warranty set forth
in Article 16; (iii) Supplier’s breach of Article 17.3,
17.4, or 17.5; (iv) breaches of Article 15;  (v) damages to a Party caused by the other Party’s
failure to comply with a Law; or (vi) liability resulting from the fraud,
gross negligence, recklessness, or intentional or willful misconduct of a
Party.

 

22.                               INSURANCE.

 

22.1        Documentation. 
Supplier shall provide to Hawaiian Telcom upon request during the Term
evidence of all insurance required under this Article 22.  Supplier shall provide evidence of any “claims
made” policies to Hawaiian Telcom upon request at any time up to three (3) years
after the Term.  The insurance companies
providing such insurance must have an A.M. Best rating of A minus-/VII or
better and be licensed or authorized to conduct business in all states in which
Hawaiian Telcom does business.  The
provisions of this Article 22 shall in no way limit the liability
of Supplier.  Failure of Hawaiian Telcom
to request certificates of insurance or insurance policies shall not constitute
a waiver of Supplier’s obligations and requirements to maintain the minimal
coverages specified.  Supplier shall
maintain, in its files, evidence of all subcontractors’ insurance coverage.

 

23

 

22.2        Types
and Amounts.
During the Term Supplier shall at its cost and expense obtain and maintain the
following insurance coverage:

 

	
  (a)

  	
  Worker’s
  Compensation: to statutory liability limits.

  
	
   

  	
   

  
	
  (b)

  	
  Employer’s
  Liability:  $500,000

  
	
   

  	
   

  
	
  (c)

  	
  Commercial
  General Liability: $2 million per occurrence, $5 million aggregate

  
	
   

  	
   

  
	
  (d)

  	
  All Risk
  Property Insurance: $10 million or greater

  
	
   

  	
   

  
	
  (e)

  	
  Business Automobile
  Liability:  $1 million per accident

  
	
   

  	
   

  
	
  (f)

  	
  Umbrella or
  Excess Liability: $10 million or greater

  
	
   

  	
   

  
	
  (g)

  	
  Employee Dishonesty and Computer Fraud: $10 million
  or greater

  

 

 

22.3        Claims
Made Policies.  If Supplier purchases “claims made”
insurance, all acts and omissions of Supplier and its representatives and
agents, shall be, during the Term and the Termination Assistance Period, “continually
covered” notwithstanding the termination of this Agreement or the provisions of
this Agreement allowing Supplier to purchase “claims made” insurance
coverage.  In order for the acts and
omissions of Supplier and its representatives and agents to be “continually
covered” there must be insurance coverage for the entire period commencing on
the Effective Date of this Agreement and ending on the date that is at a
minimum three (3) years after the Term, and such insurance must satisfy
the liability coverage requirements provided for in this Agreement.

 

22.4        Policy
Requirements.  Hawaiian Telcom shall be listed on all such
insurance policies (except workers’ compensation insurance, for which Supplier
shall obtain a waiver of subrogation for Hawaiian Telcom from Supplier’s
insurer, Employer’s Liability, All Risk Property Liability, and Employee
Dishonesty and Computer Fraud) obtained by Supplier as “Additional Insureds” up
to the amount required of Supplier under this Agreement.  If a “claims made” policy is purchased, then
Supplier shall also purchase adequate “tail coverage” for claims made against
Hawaiian Telcom after such policy has lapsed or been canceled or this Agreement
is no longer in effect.  Hawaiian Telcom
shall not materially reduce the amounts or types of coverages specified in this
Article 22 without Hawaiian Telcom’s prior approval.

 

23.                               Miscellaneous Provisions.

 

23.1        Assignment.  Neither Party will, without the consent of
the other Party, assign this Agreement, except that either Party may assign
this Agreement, in whole or in part, 
without the other Party’s consent (i) a subsidiary, an Affiliate of
such party, or a successor entity of a Party, (ii) with respect to
Hawaiian Telcom, an entity that acquires a business unit that receives
Services, or (iii) a Change of Control as described hereinafter.  “Change of Control” means and will be deemed
to have occurred when one or more third parties acquire 

 

24

 

the Controlling Interest in Hawaiian Telcom,
through a sale or merger or reorganization, and shall constitute a permitted
assignment for purposes of this Agreement. 
“Controlling Interest” means ownership interests representing at least a
majority of the voting power. 
Notwithstanding the foregoing, Supplier will not assign this Agreement
to Time Warner, Inc. without Hawaiian Telcom’s consent.  Upon assignment of this Agreement, the
assigning Party will be released from any obligation or liability under this
Agreement accruing from and after the date of the permitted assignment.  This Agreement will be binding on the Parties
and their respective successors and permitted assigns.  Any assignment in contravention of this
subsection shall be null and void.

 

23.2        Notices.
Except as otherwise specified in this
Agreement, all notices, requests, consents, approvals, agreements,
authorizations, acknowledgements, waivers and other communications required or
permitted under this Agreement must be in writing in order to be
effective.  Wherever under this Agreement
one Party is required to give notice to the other, such notice shall be deemed
effective: (i) three (3) calendar days after deposit in the United
States Mail, postage prepaid, certified or registered mail, return receipt
requested; (ii) two (2) business days after deposit with a national
overnight courier for overnight delivery; (c) if given by facsimile, that
day such facsimile is sent, provided confirmation of such notice is also sent
by national overnight courier or delivered in person; or (d) upon delivery
if delivered in person or by messenger, in each case, addressed to the
following addresses (or such other address as either Party may be notified of
as described above):

 

	
  To Hawaiian
  Telcom:

  	
  Hawaiian Telcom
  Communications, Inc.

  
	
   

  	
  Attn: Contract
  Administration

  
	
   

  	
  1177 Bishop
  Street

  
	
   

  	
  Honolulu, HI
  96813

  

 

	
  To Supplier:

  	
  KGP
  Logistics, Inc.

  
	
   

  	
  600 New Century
  Parkway

  
	
   

  	
  New Century, KS
  66031-8000

  
	
   

  	
  Attention:
  Contract Management

  
	
   

  	
  MS: KSNCAA0274

  
	
   

  	
  Fax:
  913-791-7645

  

 

 

Either Party may
change its address or fax number for notification purposes by giving the other
Party ten (10) days notice of the new address or fax number and the date
upon which it shall become effective.

 

23.3        Relationship. The Parties intend to create an
independent contractor relationship and nothing contained in this Agreement
shall be construed to make either Hawaiian Telcom or Supplier partners, joint
ventures, principals, agents or employees of the other.  No officer, director, employee, agent,
affiliate or contractor retained by Supplier to perform work on Hawaiian Telcom’s
behalf under this Agreement shall be deemed to be an 

 

25

 

employee, agent or contractor of Hawaiian Telcom. Neither Party shall
have any right, power or authority, express or implied, to bind the other.

 

23.4        Continuity
of Services.  In the event of a good faith dispute, the
Parties agree to continue to perform their obligations under this Agreement
during the resolution of such dispute unless and until this Agreement is
terminated in accordance with the provisions hereof.

 

23.5        Severability. If any provision of this Agreement is
held by a court of competent jurisdiction to be contrary to Law, then the
remaining provisions of this Agreement, if capable of substantial performance,
shall remain in full force and effect.

 

23.6        Waivers. No delay or omission by either Party to
exercise any right or power it has under this Agreement shall impair or be
construed as a waiver of such right or power. A waiver by any Party of any
breach or covenant shall not be construed to be a waiver of any succeeding
breach or any other covenant. All waivers must be signed by the Party waiving
its rights.

 

23.7        Timing
and Cumulative Remedies.  Supplier acknowledges and
agrees that time is of the essence with respect to its performance of its
obligations under this Agreement.  No
right or remedy herein conferred upon or reserved to either Party is exclusive
of any other right or remedy, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy under this Agreement or
under applicable Law.

 

23.8        Survival. The terms of Articles  14.2(a), 14.3, 15, 19, 20, 21, 23 and Section 11 of
Addendum One shall survive the expiration or termination of this Agreement.

 

23.9        Third
Party Beneficiaries.  Except with respect to the Hawaiian Telcom
Affiliates, each Party intends that this Agreement shall not benefit, or create
any right or cause of action in or on behalf of, any person or entity other
than the Parties.

 

23.10      Governing
Law and Venue.  The
rights and obligations of the Parties under this Agreement shall be governed in
all respects by the laws of the United States and the State of New York,
without regard to conflicts of laws principles that would require the
application of the laws of any other jurisdiction.  The Parties mutually, expressly,
irrevocably and unconditionally waive trial by jury and any right to proceed in
a class action or other representative capacity for any proceedings arising out
of or relating to this Agreement or an Order. 
Any dispute arising out of or
relating to the Agreement or Order may, at the option of the parties, be
finally settled by arbitration. If, however, waiver of jury trial is held to be
unenforceable by a court, then arbitration is mandatory. Any arbitration must
be held in accordance with the rules of the American Arbitration
Association.  All arbitration proceedings
for disputes relating to domestic Products or Services will be held in  New York, NY. If the dispute relates to
Supplier’s provision of non-domestic Products or Services, all arbitration
proceedings will be conducted in the English language pursuant to the Rules of
Conciliation and Arbitration of the International Chamber of Commerce (“ICC”).
The place of arbitration for disputes related to non-domestic Products or
Services is New York, NY, USA. Any such arbitration proceeding will not include
class action arbitration.

 

26

 

23.11      Covenant
of Further Assurances. Hawaiian Telcom and Supplier covenant and agree that, subsequent to
the execution and delivery of this Agreement and, without any additional
consideration, each of Hawaiian Telcom and Supplier shall execute and deliver
any further legal instruments and perform any acts that are or may become
necessary to effectuate the purposes of this Agreement.

 

23.12      Publicity. Each Party shall (i) submit to the
other all advertising, written sales promotions, press releases and other
publicity matters relating to this Agreement in which the other Party’s trade
name or trademark is mentioned or which contains language from which the
connection of said name or mark may be inferred or implied, and (ii) not
publish or use such advertising, sales promotions, press releases or publicity
matters without the other Party’s consent.

 

23.13      Consents,
Approvals and Requests. Except as specifically set forth in this Agreement, all consents and
approvals to be given by either Party under this Agreement shall not be
unreasonably withheld or delayed and each Party shall make only reasonable
requests under this Agreement.

 

23.14      Good
Faith and Fair Dealing.  Hawaiian Telcom and Supplier
each acknowledge and agree that all aspects of the relationship and dealings
between Hawaiian Telcom and Supplier contemplated by this Agreement shall be
governed by the fundamental principle of good faith and fair dealing except as
otherwise expressly provided herein.

 

23.15      Non-Assumption. 
This Agreement does not constitute an assumption (as that term is used
under applicable bankruptcy law) of the agreement between the Parties dated December 10,
2004.  Each Party reserves all rights and
remedies under title 11 of the United States Code (the “Bankruptcy Code”),
including without limitation, Hawaiian Telcom’s right to assume or reject the
aforementioned agreement under section 365(a) of the Bankruptcy Code.  Supplier hereby waives its
cure for payment of any products or services arising out of the aforementioned
agreement on or before December 1, 2008, with the exception of (i) Supplier’s
previously filed proof of claim and reclamation claim; (ii) Supplier’s to
be filed claim under Section 503(b)(9) of the Bankruptcy Code with
respect to which Hawaiian Telcom hereby waives any objection; and (iii) any obligation
to cure arising out of Hawaiian Telecom’s subsequent election to assume the
aforementioned agreement.

 

23.16      Entire
Agreement. This
Agreement, including the Exhibits hereto, represent the entire agreement
between the Parties with respect to its subject matter, and there are no other
oral or written representations, understandings or agreements between the
Parties relative to such subject matter.  No amendment
to, or change, waiver or discharge of any provision of this Agreement shall be
valid unless in writing and signed by both Parties.

 

23.17      Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one single agreement between the Parties.

 

27

 

IN WITNESS WHEREOF, each of Hawaiian Telcom and Supplier has caused this
Agreement to be signed and delivered by its duly authorized representative.

 

 

	
  HAWAIIAN TELCOM COMMUNICATIONS, INC.  

  	
   

  	
  KGP LOGISTICS, INC.  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ Eric K. Yeaman 

  	
   

  	
  By: 

  	
  /s/ Trevor A. Putrah 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name: Eric K. Yeaman 

  	
   

  	
  Name: Trevor A. Putrah 

  
	
   

  	
   

  	
   

  
	
  Title: CEO & President 

  	
   

  	
  Title: COO 

  
	
   

  	
   

  	
   

  
	
  Date: December 3, 2009

  	
   

  	
  Date: December 14, 2009

  

 

TABLE OF
EXHIBITS

 

	
  Exhibit 1

  	
  Definitions

  
	
  Exhibit 1 Attachment 1

  	
  Unique Inventory List

  
	
  Exhibit 2

  	
  Statement of Work

  
	
  Exhibit 3

  	
  Service Level/Reporting

  
	
  Exhibit 4

  	
  Pricing

  
	
  Exhibit 5

  	
  Governance

  
	
  Exhibit 6

  	
  Retail Store Procedures

  
	
  Addendum One

  	
  Consigned Cable

  

 

28Exhibit
10.9

 

SERVICES
AGREEMENT

 

This SERVICES AGREEMENT
(the “Agreement”) dated as of December 1, 2008, is made by and between
Hawaiian Telcom Communications, Inc., a Delaware corporation, on behalf of
itself and its subsidiaries (collectively, “HT” or the “Debtors”) Zolfo Cooper
Management, LLC (“ZC”) a New Jersey limited liability corporation and Kevin
Nystrom (“Nystrom”), relating to Hawaiian Telcom and its subsidiaries.

 

Recitals:

 

WHEREAS, the parties
hereto desire to enter into this Agreement to set forth the basis on which ZC
will perform management services for the Debtors, all as set forth more fully
in this Agreement.

 

NOW, THEREFORE, in
consideration of the premises and covenants set forth herein, and intending to
be legally bound hereby, the parties to this Agreement hereby agree as follows:

 

1.             Engagement. 
The Debtors hereby engage ZC and Nystrom as an independent contractor to
the Debtors, and ZC and Nystrom hereby accepts such engagement, on the terms
and conditions set forth in this Agreement. 
The Debtors are hereby acquiring from ZC the services of Nystrom, and
additional individuals (the “Associate Directors”) as set forth below.  All compensation for the services and actions
of ZC, Nystrom and Associate Directors under this Agreement will be paid to ZC.

 

2.             Duties.

 

(a)           Subject to satisfaction of the
condition precedent set forth in Section 3 hereof, ZC will assign Nystrom
as the COO and Associate Directors to perform other services required of ZC
hereunder.

 

(b)           Nystrom will lead the restructuring
efforts as directed by the Board, the Executive Committee and Special
Committee, as may be appropriate and shall be authorized to make decisions with
respect to all aspects of the management and operation of the Debtors’
business, including without limitation organization and human resources,
marketing and sales, logistics, finance and administration and such other areas
as he may identify, in such manner as he deems necessary or appropriate in his
sole discretion in a manner consistent with the business judgment rule and
the provisions of local law and the United States Bankruptcy Code applicable to
the obligations of persons acting on behalf of corporations, subject only to
appropriate governance by the Board in accordance with the Debtors’ charters,
Bylaws, other governing documents (if any) (collectively the “Constitutive
Documents”) and applicable state law. 
ZC, Nystrom and Associate Directors (individually, a “Representative”
and collectively, the “Representatives”) shall not have any authority to make
decisions with respect to hiring or terminating officers, executing
transactions or otherwise committing the Debtors or its resources other than in
the ordinary course of business unless otherwise approved by the Board and, if
required, the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy

 

1

 

Court”).  All
decisions of Nystrom shall be discussed to the extent Nystrom deems reasonably
appropriate with the member or members of the Debtors’ management that Nystrom,
in the exercise of his sole discretion, determines to be appropriate prior to
the implementation of such decisions and shall be implemented by the management
of the Debtors (other than ZC or the Representatives), and any dispute between
such management and Nystrom regarding the implementation of such decisions
shall be resolved definitively by the Board.

 

(c)           In undertaking to provide the
services set forth herein, ZC and Nystrom do not guarantee or otherwise provide
any assurances that it will succeed in restoring the Debtors’ operational and
financial health and stability and, except for the amount referenced in Section 4(b) hereof,
the Debtors’ obligation to provide the compensation specified under Section 4
hereof shall not be conditioned upon any particular results being obtained by
ZC and Nystrom.

 

(d)           Each Representative shall be
entitled, in performing his duties hereunder on behalf of ZC and Nystrom, to
rely on information disclosed or supplied to them without verification or
warranty of accuracy or validity.

 

(e)           ZC and Nystrom shall keep the Board,
the Debtors’ CEO, the Executive Committee and Special Committee, as applicable,
fully apprised of their findings, plans and activities, as appropriate.

 

(f)            The Debtors are hereby acquiring
from ZC approximately 75% of the working time and efforts of Nystrom.

 

3.             Term. 
The term of ZC’s and Nystrom’s engagement hereunder shall commence on
the date hereof and shall continue on a month to month basis until terminated
by either party at the end of any such month upon written notice to the other
party given at least ten days prior to the end of such month.

 

4.             Compensation.  ZC’s, Nystrom’s and Associate Directors’ compensation
hereunder shall consist of the following:

 

(a)           a monthly fee of $225,000 cash
payable to ZC in immediately available funds upon execution of this Agreement
and on the first day of each month thereafter throughout the term hereof
commencing on December 1, 2008;

 

(b)           In addition, the Debtors shall pay ZC
a restructuring fee (“Restructuring Fee”) of two million dollars ($2,000,000)
which shall be payable (i) fifty percent (50%), as definitive agreements
with respect to a restructuring plan are executed with binding consents to such
a plan by a sufficient number of creditors and/or bondholders to the plan and (ii) fifty
percent (50%), as the restructuring is consummated.  The Restructuring Fee will be reduced by
monthly fees incurred after January 1, 2009.

 

(c)           reimbursement of ZC’s, Nystrom’s and
Associate Directors’ reasonable out-of-pocket expenses including, but not
limited to, costs of travel, reproduction, legal counsel (including legal
counsel retained to draft and enforce this Agreement), any applicable state
sales or excise tax and other direct expenses.

 

2

 

The Debtors shall
pay to ZC the compensation set forth in Sections 4(a) and 4(c) hereof
based upon the submission of monthly invoices by ZC setting forth the number of
hours each day expended by Representatives on behalf of the Debtors and a
detailed listing of the expenses sought to be reimbursed.  The compensation provided for in this
Agreement shall constitute full payment for the services to be rendered by ZC,
Nystrom and Associate Directors to the Debtors hereunder.

 

The Debtors
acknowledge and agree that the hours worked, the results achieved and the
ultimate benefit to the Debtors of the work performed in connection with this
engagement may be variable and that the Debtors and ZC and Nystrom have taken
this into account in setting the fees hereunder.  No fee payable to any other person or entity
by the Debtors or any other party shall affect any fee payable to ZC hereunder.

 

5.                                      Confidentiality.

 

(a)           The Debtors, including the Board,
shall treat any information received from Representatives as confidential and,
except as specified in this Section 5(a), will not publish, distribute or
otherwise disclose in any manner any information developed by or received from
Representatives without ZC and Nystrom’s or such Representative’s prior written
approval.  Such approval shall not be
required if either (i) the information sought is required to be disclosed
by an order binding on ZC and Nystrom or a Representative and issued by a court
having competent jurisdiction over ZC and Nystrom and such Representative and
such information is disclosed only pursuant to the terms of such order, (ii) disclosure
of such information is otherwise required by federal or state securities law, (iii) the
information is otherwise publicly available other than through disclosure by a
party in breach of a confidentiality obligation with respect thereto, or (iv) the
information was furnished pursuant to this engagement.

 

(b)           ZC, Nystrom, and each Representative
agrees to treat any information received from the Debtors or its
representatives with utmost confidentiality, and except as provided in this
letter, will not publish, distribute or disclose in any manner any information
developed by or received from the Debtors or its representatives without the
Debtors’ prior approval.  Such approval
shall not be unreasonably withheld.  The
Debtors’ approval is not needed if either (i) the information sought is
required to be disclosed by an order binding on ZC and Nystrom, issued by a court
having competent jurisdiction over ZC and Nystrom (unless such order specifies
that the information to be disclosed is to be placed under seal) and such
information is disclosed only pursuant to the terms of such order, or (ii) such
information is otherwise publicly available other than through disclosure by a
party in breach of a confidentiality obligation with respect thereto.

 

6.             Representations and Warranties.

 

As an inducement to ZC
and Nystrom to enter into this Agreement, the Debtors represents and warrants
to ZC and Nystrom as follows:

 

(a)           The Debtors are either corporations
or limited liability companies duly organized and validly existing under the
laws of the jurisdiction in which it was organized and has all requisite
corporate power to enter into this Agreement.

 

3

 

(b)           Subject to receipt of the approval by
the Bankruptcy Court of the execution by the Debtors of this Agreement, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated herein or therein nor compliance by the Debtors with
any of the provisions hereof or thereof will: (i) violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to it or (ii) require
the consent, approval, permission or other authorization of, or qualification
or notice to, any court, arbitrator or other tribunal or any governmental,
administrative, regulatory or self-regulatory agency or any other third party.

 

(c)           Subject to receipt of the approval by
the Bankruptcy Court of the execution by the Debtors of this Agreement, this
Agreement has been duly authorized, executed and delivered by the Debtors and
constitutes the legal, valid and binding agreement of the Debtors, enforceable
in accordance with its terms.

 

7.             Indemnification.

 

(a)           The Debtors shall indemnify and hold
harmless Nystrom and Associate Directors, ZC and its principals, , and other ZC employees, representatives or agents
(including counsel) (collectively, the “ZC Indemnitees”) from and against any
and all losses, claims, damages, liabilities, penalties, judgments, awards,
costs, fees, expenses and disbursements, including without limitation, the
reasonable costs, fees, expenses and disbursements, as and when incurred, of
investigating, preparing or defending any action, suit, proceeding or
investigation (whether or not in connection with proceedings or litigation in
which any ZC Indemnitee is a party)(any such amount being hereinafter sometimes
referred to as an “Indemnifiable Loss”), directly or indirectly caused by,
relating to, based upon, arising out of or in connection with this engagement
of ZC and Nystrom’s by the Debtors or the performance by Representatives of any
services rendered pursuant to such engagement, unless there is a final
non-appealable order of a Court of competent jurisdiction, at the trial level,
finding ZC Indemnitees directly liable for gross negligence or willful
misconduct.

 

(b)           If any ZC Indemnitee is required to
testify, prepare for and appear at a deposition or produce documents, at any
time after the expiration or termination of this Agreement at any
administrative or judicial proceeding relating to any services provided by ZC
and Nystrom hereunder, then ZC Indemnitees shall be entitled to be compensated
by the Debtors for ZC Indemnitee’s associated time charges at the regular
hourly rates in effect at the time and to be reimbursed for reasonable
out-of-pocket expenses, including counsel fees.

 

(c)           The Debtors have
furnished to ZC and Nystrom a true, correct and complete copy of the Fiduciary
Liability Insurance issued by Federal Insurance Company, Policy No. 6802-6242,
Directors and Officers and Employment Practices Liability Insurance issued by
National Union Insurance, Policy No. 4792639, Excess Directors and
Officers and Employment Practices Liability Insurance issued by 1) XL
Insurance, Policy No. ELU104555-08 and 2) Federal Insurance Company,
Policy No. 6802-6479, and Classic Side A issued by XL Specialty Insurance
Co. Policy No. ELU104553-08 (collectively the “Policies” and the “Insurers”).  The Debtors represent that the Policies are
in full force and effect and that no event has occurred that constitutes or,
with the passage of time or notice would constitute, an event of default
thereunder or that would otherwise give the Insurers any right to cancel such
Policies.  Promptly and in any

 

4

 

event within two
business days of the Debtors approving this Agreement, the Debtors shall notify
the Insurers of the election of Nystrom as Chief Operating Officer  and of the appointment of any Associate Directors who
become an officer of the Debtors.  The
Debtors shall cause their insurance broker to send copies of all documentation
and other communications regarding the Policies, including without limitation
any renewal or cancellation thereof, to the attention of ZC and Nystrom, in the
manner set forth herein, and Nystrom and any Associate Directors who become
officers of the Debtors shall have all indemnities available to the officers of
the Debtors pursuant to the Debtors’ Constitutive Documents.  As long as the same can be done at a
commercially reasonable cost, the Debtors shall maintain directors and officers
liability insurance coverage, employment practices insurance coverage and
fiduciary liability insurance coverage comparable as to terms (including
without limitation the provisions or any similar provision regarding extension
of the discovery period thereunder) and amounts as that provided under the
Policies during the term of this Agreement, with any such replacement coverage
being obtained from an insurer with a rating from a nationally recognized
rating agency not lower than that of the Insurers.  Upon any cancellation or nonrenewal of the
Policies by the Insurer, as long as the same can be done at a commercially
reasonable cost, the Debtors shall exercise their rights under the applicable
clause of the Policies to extend the claim period for a one-year “discovery
period” and shall exercise such rights and pay the premium required thereunder
within the 30-day period specified therein. 
The Debtors shall use commercially reasonable efforts, in connection
with the next renewal of the Policies, to negotiate to extend the discovery
period set forth in the Policies from one to three years as long as the same
can be obtained at a commercially reasonable cost.

 

8.             Limitations
on Liability.  The Debtors
agree that Nystrom, Associate
Directors, and ZC and its personnel will not be liable to the Debtors for any
claims, liabilities, or expenses relating to this engagement in excess of the
fees paid by them to ZC pursuant to this agreement, unless there is a final
non-appealable order of a court of competent jurisdiction, at the trial level,
finding ZC Indemnities directly
liable for gross negligence or willful misconduct.  In no event will the Debtors, ZC and Nystrom
or their personnel be liable for special, punitive or exemplary loss, damages
or expenses relating to this engagement. 
These limitations on liability provisions extend to the employees,
representatives, agents and counsel of ZC and Nystrom.

 

The limitation on liability and indemnification provisions contained in
this agreement shall survive the completion or termination of this agreement.

 

9.             Independent Contractor.  The parties intend that ZC, Nystrom and
Associate Directors shall render services hereunder as independent contractors,
and nothing herein shall be construed to be inconsistent with this relationship
or status.  Representatives shall not be
entitled to any benefits paid by the Debtors to its employees.  ZC shall be solely responsible for any tax
consequences applicable to Representatives by reason of this Agreement and the
relationship established hereunder, and the Debtors shall not be responsible
for the payment of any federal, state or local taxes or contributions imposed
under any employment insurance, social security, income tax or other tax law or
regulation with respect to Representatives’ performance of management services
hereunder.  The parties agree that,
subject to the terms and provisions of this Agreement, ZC and Nystrom may
perform any duties hereunder and set Representatives’ own work schedule without
day-to-day supervision by the Debtors.

 

10.          Offer of Employment. 
The Debtors agree to promptly notify ZC and Nystrom if they extends (or
solicits the possible interest in receiving) an offer of employment to an
employee 

 

5

 

or principal of ZC and
agrees that it will pay ZC a cash fee, upon hiring, equal to 150% of the
aggregate first year’s annualized compensation, including any guaranteed or
target bonus, to be paid to ZC’s former principal or employee that the Debtors
hire at any time up to one year subsequent to the date of the final invoice
rendered by ZC and Nystrom with respect to this Agreement.

 

11.          Trial. 
Each party
agrees that neither it nor any of its assignees or successors shall (a) seek
a jury trial in any lawsuit, proceeding, counterclaim or any other action based
upon, or arising out of or in connection with the engagement of ZC and Nystrom
by the Debtors or any services rendered pursuant to such engagement, or (b) seek
to consolidate any such action with any other action in which a jury trial
cannot be or has not been waived.  The
provisions of this paragraph have been fully discussed by the Debtors, ZC and
Nystrom and these provisions shall be subject to no exceptions.  Neither party has agreed with or represented
to the other that the provisions of this section will not be fully enforced in
all instances.

 

12.          Jurisdiction.  Each party hereby irrevocably and unconditionally (a) submits
for itself and its property in any legal action or proceeding relating to the
engagement of ZC and Nystrom by the Debtors or any services rendered pursuant
to such engagement, to the non-exclusive general jurisdiction of the Bankruptcy
Courts of United States of America for the District of Delaware, and appellate
courts from any thereof; (b) consents that any such action or proceeding
may be brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any such court
or that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same; (c) agrees that service of process
in any such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the respective party at their address set forth below or at
such other address of which ZC and Nystrom and the other parties shall have
been notified pursuant thereto; (d) agrees that nothing herein shall
affect the right to effect service of process in any other manner permitted by
law or shall limit the right to sue in any other jurisdiction; and (e) waives,
to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this subsection any
special, exemplary or punitive damages.

 

13.          Survival of Agreement. 
Except as provided in this Agreement, the obligations set forth under
the above captioned Confidentiality, Indemnification, Limitation on Liability,
Compensation, Offer of Employment, Trial, and Jurisdiction sections shall
survive the expiration, termination, or supersession of this agreement.

 

14.          Conflicts.  ZC and Nystrom confirms that no employee of ZC and Nystrom has any
financial interest or business connection with the Debtors.  However, in the case of public companies, ZC
and Nystrom employees may own publicly traded shares and bonds.  Additionally, we have run an initial conflict
check through ZC’s relationship database, which is an Access computer database
containing names of individuals and entities that are present or recent former
clients of ZC (the “Database”).  ZC then reviewed those results,
which review was completed under the supervision of the in-house General
Counsel of ZC.  A summary of such
relationships is et forth in Schedule1 to the Affidavit.  Based upon the information presently
available, we are aware of no conflicts in connection with this
engagement.  It is understood and agreed that ZC and
Nystrom may accept the representation of other persons whose general business
interest may compete with Debtors’ interests or be adverse to Debtors’
interest, so long 

 

6

 

as
there is no actual or direct conflict of interest.  The Debtors understand and agree that their
name will be added to ZC Database.

 

15.          Amendments. 
Any amendment to this Agreement shall be made in writing and signed by
the parties hereto.

 

16.          Enforceability. 
If any provision of this Agreement shall be invalid or unenforceable, in
whole or in part, then such provision shall be deemed to be modified or
restricted to the extent and in the manner necessary to render the same valid
and enforceable, or shall be deemed excised from this Agreement, as the case
may require, and this Agreement shall be construed and enforced to the maximum
extent permitted by law as if such provision had been originally incorporated
herein as so modified or restricted or as if such provision had not been
originally incorporated herein, as the case may be.

 

17.          Construction. 
This Agreement shall be construed and interpreted in accordance with the
internal laws of the State of New York.

 

18.        Notices.  All notices,
requests, consents and other communications hereunder to any party shall be
deemed to be sufficient if contained in a written instrument delivered in person
or duly sent by certified mail, postage prepaid; by an overnight delivery
service, charges prepaid; or by confirmed telecopy; addressed to such party at
the address set forth below or such other address as may hereafter be
designated in writing by the addressee to the addressor:

 

If to the Debtors:

 

Hawaiian Telcom
Communications, Inc.

c/o The Carlyle Group

520 Madison Avenue

New York, NY  10022

 

and

 

Hawaiian Telcom
Communications, Inc.

1177 Bishop Street

Honolulu, HI  96813

Attention:  President and Chief Executive Officer

 

If to ZC:

 

Zolfo Cooper Management, LLC

101 Eisenhower Parkway, 3rd Floor

Roseland, NJ 
07068

Attention:  Elizabeth S. Kardos

 

7

 

If to Nystrom:

 

Zolfo Cooper Management, LLC

101 Eisenhower Parkway, 3rd Floor

Roseland, NJ 
07068

Attention:  Elizabeth S. Kardos

 

Any party may from
time to time change its address for the purpose of notices to that party by a
similar notice specifying a new address, but no such change shall be deemed to
have been given until it is actually received by the party sought to be charged
with its contents.

 

19.        Waivers.  No claim or
right arising out of a breach or default under this Agreement shall be
discharged in whole or in part by a waiver of that claim or right unless the
waiver is supported by consideration and is in writing and executed by the
aggrieved party hereto or his or its duly authorized agent.  A waiver by any party hereto of a breach or
default by the other party hereto of any provision of this Agreement shall not
be deemed a waiver of future compliance therewith, and such provisions shall
remain in full force and effect.

 

20.          Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
together constitute one and the same instrument.

 

21.          Entire Agreement. This Agreement and the
other documents delivered pursuant hereto, if any, constitute the full and
entire understanding and agreement among the parties hereto with regard to the
subjects hereof and thereof and no party shall be liable or bound to any other
in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.

 

[remainder of page intentionally left blank]

 

8

 

IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first above written.

 

	
   

  	
  HAWAIIAN TELCOM
  COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Eric K. Yeaman

  
	
   

  	
   

  	
  Title:CEO & President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZOLFO COOPER
  MANAGEMENT, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elizabeth S. Kardos

  
	
   

  	
   

  	
  Title:Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KEVIN NYSTROM

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Kevin Nystrom

  
	
   

  	
   

  	
  Kevin Nystrom

  
	
   

  	
   

  	
  Title: Senior Director

  

 

9

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