NEULION, INC. (Exact name of registrant as specified in its charter)

Transcription

1 or UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to. Commission File Number: NEULION, INC. (Exact name of registrant as specified in its charter) Canada (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1600 Old Country Road, Plainview, New York (Address of Principal Executive Offices) (Zip Code) Registrant s telephone number, including area code: (516) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered None Securities registered pursuant to Section 12(g) of the Act: Common Shares (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Large Accelerated filer o Accelerated filer Non-accelerated filer (Do not check if a smaller Reporting company) o Smaller reporting company x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x. State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant s most recently completed second fiscal quarter: $50,149,594. There were 116,744,404 shares of the registrant s common shares issued and outstanding as of March 10, DOCUMENTS INCORPORATED BY REFERENCE Our definitive Proxy Statement relating to our Annual and Special Meeting of Shareholders to be held on June 15, 2010 (the Proxy Statement ), to be filed with the Securities and Exchange Commission (the SEC ) pursuant to Regulation 14A under the Securities Act of 1934, is incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.

3 NeuLion, Inc. Part I Index to Form 10-K Item 1. Business 1 Page Item 1A. Risk Factors 7 Item 1B. Unresolved Staff Comments 17 Item 2. Properties 17 Item 3. Legal Proceedings 17 Item 4. [Removed and Reserved] 17 Part II Item 5. Market for Registrant s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. 18 Item 6. Selected Financial Data 22 Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 52 Item 8. Financial Statements and Supplemental Data 52 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 52 Item 9A(T). Controls and Procedures 52 Item 9B. Other Information 52 Part III Item 10. Directors, Executive Officers and Corporate Governance 53 Item 11. Executive Compensation 53 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 53 Item 13. Certain Relationships and Related Transactions, and Directors Independence 53 Item 14. Principal Accountant Fees and Services 53 Part IV Item 15. Exhibits and Financial Statement Schedules 54 SIGNATURES 57

4 PART I Item 1. Business Overview NeuLion, Inc. ( NeuLion, the Company, our, or we and similar phrases), a corporation incorporated on January 14, 2000 under the Canada Business Corporations Act ( CBCA ) whose common shares (the Shares ) are listed on the Toronto Stock Exchange, is a leading Internet Protocol ( IP ) television company, providing end-to-end IPTV services. IPTV refers to the distribution over an IP network of streamed audio, video and other multimedia content, similar to television programming content, using industry-standard streaming protocols. We build and manage private networks for content owners and aggregators (our content partners) that are used to stream content to multiple platforms through browser-based devices. That content includes live and on-demand sports and international and variety programming, which we then deliver to subscribers and pay-per-view customers for viewing on Internet-connected browser-based devices such as personal computers, laptops and mobile devices and on standard television sets through Internet-connected set top boxes ( STBs ). NeuLion s main business objective is to enter into agreements with companies seeking their own private networks to reach target audiences and to provide complete IPTV services to these companies. We also acquire the rights to certain sports and international content from television broadcasters (our channel partners), which we then stream to end users through our own private networks. Our business model has evolved from a professional IT services and international programming provider to an end-to-end provider of IPTV services. By end-to-end provider of IPTV services, we mean that we provide the following services: content management encoding of various digital and analog TV and video formats; subscriber management managing subscriber access and control of subscriber accounts; digital rights management preserving the integrity of the content and protecting it from unauthorized access; billing services enabling customers to view subscription accounts, providing pay-per-view transactional billing and payment processing; delivery delivering streamed audio, video and other multimedia content anywhere, anytime through the Company s IPTV service and infrastructure; and advertising insertion. Customer Relationships We have two types of relationships: business-to-business ( B2B ) and business-to-consumer ( B2C ). B2B relationships have been our primary focus in the past and are expected to be the focus in the future. A B2B relationship is focused on providing an end-to-end solution to a customer to enable that customer to provide its content, by way of an IPTV platform built for that customer, to its end users. B2B customers typically aggregate the content, negotiate the licensing rights and directly market the availability of the content. This customer avails itself of the full services of the Company in delivery to its end users. This type of relationship is typical in the professional and college sports properties and in our agreements with international and broad-based content providers. Our B2C relationships are individual consumer oriented. We have signed distribution agreements with our channel partners and content providers in exchange for revenue share or royalty payments to such providers. We then market the content on one (or more) of the proprietary targeted websites that we have developed which are focused on a specific diaspora community, as well as on the general Company website for purchase by an end user. We often aggregate the content into bundles or packages of similar interest (e.g. Talfazat for the Middle East community; TV-Desi for the South Asian community). We incur marketing expenses in promoting the availability of such content. The United States and Canada are the principal markets in which our sales occur. 1

5 Products and Services Sports Programming Through our comprehensive end-to-end IPTV solution, we provide our sports programming content partners with the ability to deliver live and on-demand content. We maintain distribution and technology services agreements with leading professional and collegiate sports properties as well as with the sports network ESPN. Amongst professional sports leagues, NeuLion counts the National Football League (NFL), the National Hockey League (NHL) and the American Hockey League (AHL). Through our recent acquisition of Interactive Netcasting Systems Inc. ( INSINC ), a provider of sports, government and entertainment webcasting services, we expanded our portfolio of sports content partners to include the Western Hockey League (WHL), the Ontario Hockey League (OHL), the Central Hockey League (CHL), the British Columbia Hockey League (BCHL), the Central Canadian Hockey League (CCHL), the Alberta Junior Hockey League (AJHL), the Central Junior Hockey League (CJHL) and the Canadian Football League (CFL). We also operate our own portfolio of sports-oriented websites, including Cycling.tv, CollegeSportsDirect.com and selected World Cup soccer properties. On the collegiate level, we are the premier partner for National Collegiate Athletic Association (NCAA) colleges and universities, with agreements in place with approximately 170 colleges, universities or related sites. Ethnic/International and Specialty Programming The Company also offers what is referred to in the industry as ethnic television, which the Company defines as programming directed at a specific diaspora community, as determined by a shared nationality, language or culture, and generally excluding communities for which English is the primary language. We have license agreements directly with channel partners representing approximately 185 channels in 55 countries that give NeuLion rights to stream, predominantly on an exclusive world-wide basis, the channel partners live linear television feeds over the public Internet using our proprietary private networks such as Talfazat and TV-Desi. Our subsidiary, INSINC, also distributes government and entertainment content. Its clients in those industries include Business News Network (BNN), CTV News Channel, Rogers Sportsnet, TVG Networks, The Canadian Press, the Canadian Ministry of Justice, the BC Ministry of Education, and the Legislative Assemblies of British Columbia and Newfoundland and Labrador, among others. Services We also have relationships with other specialty programming customers such as Sky Angel U.S. LLC, which streams faith-based programming. Our suite of technology and other services is directed at the entire spectrum of content aggregation and delivery. Our services include: content ingestion; website design and hosting; live and on-demand streaming of content on multiple platforms; billing services; facilitating online merchandise sales; mobile features (streaming highlights, alerts, wallpaper and ring tones); online ticketing; auction engine (jerseys, tickets); social networking; customer and fan support; and marketing and advertising sales. 2

6 Distribution Methods We distribute content through two primary methods: Both of our distribution methods take advantage of an open IPTV network, the public Internet. As a result, content delivered by NeuLion is available globally and is potentially unlimited in breadth. Revenue We earn revenue in two broad categories: services revenue and equipment revenue. Services revenue includes subscriber revenue, ecommerce revenue and technology services revenue. Equipment revenue includes the sale and shipping of STBs. Our revenue streams are described in detail in Item 7 Management s Discussion & Analysis under the caption OPERATIONS. Competition Internet-connected browser-based devices such as personal computers, laptops and mobile devices; and standard television sets through use of our Internet-connected STBs. New technologies and entrants could have a material adverse effect on the demand for NeuLion s IPTV offerings. For example, fixed line telecommunications and mobile telephony companies who offer or plan to offer video services may be competitors of NeuLion. Together with other industry observers, we have witnessed and expect to continue to witness the launch of various closed network IPTV services around the world. As they strive to maintain and grow their customer bases, fixed line telecommunications companies will likely see closed network IPTV as a central element of a triple-play strategy that will package telephone, television and Internet services in a single offering. Moreover, certain IPTV service providers have an internal IP distribution strategy whereby they make their live linear feeds, as well as repurposed content, available through their own websites on a paid basis or free advertisement-supported basis. We also face competition from other online content providers who offer sports, entertainment, and/or international programming. In addition, there are multiple operators of pirated video content who stream content for which they have not received consent from the legal and beneficial owners of such content. Furthermore, there are multiple front-end providers that provide a menu of links to streaming video content via websites on the Internet. These bootleggers and front-end providers have varying menus of ethnic content and offer such content at varying degrees of streaming quality. We may also be placed at a competitive disadvantage to the extent that other video providers are able to offer programming of higher technical quality than we can. While we expect to continue to improve the technical quality of our products and services and offer our video content at increasingly higher streaming speeds, we cannot assure you that we will be able to compete effectively with other video providers. To distinguish our product line from our competitors offerings, we seek to be a one-stop shopping source for our customers. Our suite of technology and other services, discussed above, is directed at the entire spectrum of content aggregation and delivery. Many companies in our markets offer far narrower choices of services than we offer. For example, some content providers deliver only their own content, while we offer the content of multiple providers. Or, an agency may provide only online ticketing services, while we also provide related online shopping and fan networking. We also provide the STBs used to view our content on a television set. We strive to meet every customer s needs at every level and partner with them across product lines and extensions. Supplier Dependence We depend significantly upon TransVideo International, Ltd. ( TransVideo ), a related party, and Tatung Technology Incorporated ( Tatung Technology ) to provide the STBs used by our customers. 3

7 Customer Dependence For the year ended December 31, 2009, no customer accounted for more than 10% of NeuLion s revenues. For the year ended December 31, 2008, three customers accounted for 54% of revenue, as follows: 32%, 12% and 10%. For the year ended December 31, 2007, two customers accounted for 85% of revenue, as follows: 68% and 17%. Seasonality Regulation Our sports content business is subject to fluctuation because demand for our sports programming corresponds to the seasons of the sports for which we stream content. Governments and regulatory authorities in some jurisdictions in which our subscribers reside or NeuLion content originates may impose rules and regulations requiring licensing for distribution of IPTV content over the Internet. Regulatory schemes can vary significantly from country to country. We may be subject to broadcasting or other regulations in countries in which we have subscribers or from which our channel partners distribute their live linear feeds to us, and we may not be aware of those regulations or their application to us. Further, governments and regulatory authorities in many jurisdictions regularly review their broadcasting rules and policies, including the application of those rules and policies to new and emerging media. Traditional over-the-air and cable television broadcasting businesses are generally subject to extensive government regulation and significant regulatory oversight in most jurisdictions, including many of the countries from which NeuLion s channels originate and many of the countries into which NeuLion distributes its content to subscribers. Regulations typically govern the issuance, amendment, renewal, transfer and ownership of over-the-air broadcast licenses, cable franchise licenses, competition and cross ownership and sometimes also govern the timing and content of programming, the timing, content and amount of commercial advertising and the amount of foreign versus domestically produced programming. In many jurisdictions, including Canada and the United States, there are also significant restrictions on the ability of foreign entities to own or control traditional over-the-air television broadcasting businesses. We are not aware of any regulations in any of the jurisdictions in which our subscribers reside that would require us to be licensed to distribute content over the public Internet. Governments and regulatory authorities in some jurisdictions in which our subscribers reside may impose rules and regulations affecting the content distributed over IPTV: In the United States, we may fall within the statutory definition of a multichannel video program distributor ( MVPD ), making us subject to the provisions of the Communications Act of 1934, as amended, and Federal Communications Commission ( FCC ) regulations applicable to MVPDs. In August 2008, the FCC sought comments regarding whether regulatory fees should be imposed on IPTV service. The FCC, however, has not ruled whether providers of IPTV content over the public Internet are MVPDs, and as such, we do not consider that the statutory and regulatory requirements of MVPDs apply to NeuLion. If we were found to be an MVPD, we would be required to scramble any sexually explicit programming we distributed, close caption programs we offered subscribers, comply with certain FCC advertising regulations and be subject to the FCC s equal employment opportunity rules, but we would not be subject to licensing or rate regulation or be required to secure approval to deliver IPTV content over the public Internet to subscribers residing in the United States. A European Union directive, entitled the Audiovisual and Media Services Directive (the Directive ), was adopted on December 19, This Directive could subject IPTV service providers and content, including subscription-based IPTV content that is distributed over the public Internet in the United Kingdom and to other European Union member states, to regulatory requirements. European Union member states had until December 19, 2009 to implement this Directive. A streamed IPTV service could be subject to regulation as a broadcast service in certain situations. For example, the United Kingdom, as part of its implementation of the Directive, amended its definition of what constitutes a television licensable content service (i.e., a broadcast service) to include Internet-delivered television services. The service will be regulated if it is an on-demand service which contains primarily programs. Under the Directive, whether a broadcast or on-demand service, it will be regulated in the member state in which the service provider is established (for example, where it has its head office and editorial control is exercised), but the service will be able to be received freely throughout the other European Union member states. 4

8 In March 2010, the United Kingdom will implement the regulations dealing with on-demand services. It will adopt a co-regulatory structure with The Association for Television On-Demand ( ATVOD ) having primary responsibility over content issues and the Advertising Standards Association would regulate advertising on voice-on-demand services; The Office of Communications ( Ofcom ) will have backstop powers to regulate both content and advertising on such services; Ofcom has issued guidance on what on-demand services fall within its regulatory scope. Service providers caught by the new regulatory regime for on-demand service will have to register their service with ATVOD by April 30, 2010 and pay a license fee. If NeuLion merely provides access but does not exercise editorial control over the content of a voice-on-demand service, it will not be regulated. Further, as we believe that NeuLion is not currently established in the United Kingdom or any other European Union member state for the purposes of the Directive, we do not consider that either our streamed or ondemand video services are regulated within the European Union. In Canada, our activities fall under the jurisdiction of the Broadcasting Act, which is applied by the Canadian Radio-television and Telecommunications Commission ( CRTC ). In October 2009 the CRTC issued Broadcasting Order CRTC , committing the regulator to a New Media Exemption Order under which the CRTC will continue to refrain from regulating most aspects of audiovisual content made available and delivered over the Internet, or delivered using other point-to-point technology and received by way of mobile devices. This exemption includes refraining from requiring Canadian ownership and control or the licensing of undertakings engaged in such activities. There are two exceptions to the scope of this exemption: an Internet anti-discrimination rule; and an increased role in monitoring the development of markets in audiovisual content on the Internet, possibly making us subject to CRTC reporting requirements whose scope is currently being considered by the CRTC (Broadcasting Notice of Consultation CRTC ). Our operations in Canada are also affected by CRTC rules preventing Internet access providers from discriminating against traffic transmitted to and from our users under the Internet Traffic Management Practice ( ITMP ) regulatory framework issued in Telecom Regulatory Policy CRTC and, depending on a Federal Court of Appeal reference case initiated by Broadcasting Order CRTC , possibly under the New Media Exemption Order. The ITMP framework regulates how Internet access providers handle traffic on the public Internet. The ITMP framework: prohibits content-blocking; requires detailed prior public notice, followed by a 30-day warning period, before any retail traffic-shaping measures are implemented; and prohibits traffic-shaping which does not address a justifiable purpose in a manner that is narrowly tailored, minimizes harm, and could not have been reasonably avoided through network investment or economic approaches. An ongoing proceeding initiated by Telecom Notice CRTC , in which the CRTC is considering how wholesale Internet access requirements affect broadband providers ability to allocate bandwidth to their IPTV operations, may also affect our ongoing operations in Canada. Except as otherwise described, while we are not aware of any proposed regulatory initiatives regulating IPTV content in any of the jurisdictions in which our subscribers reside, we cannot assure you that regulations or orders will not be amended in the future in a manner that requires us to modify or block content in particular jurisdictions in order to continue distributing our IPTV services to subscribers in those jurisdictions or that otherwise affects our operations in a materially adverse manner. 5

9 Our business may be adversely affected by foreign import, export and currency regulations and global economic conditions. Our current and future development opportunities partly relate to geographical areas outside of the United States and Canada. There are a number of risks inherent in international business activities, including government policies concerning the import and export of goods and services, costs of localizing products and subcontractors in foreign countries, costs associated with the use of foreign agents, potentially adverse tax consequences, limits on repatriation of earnings, the burdens of complying with a wide variety of foreign laws, nationalization and possible social, labor, political and economic instability. We cannot assure you that such risks will not adversely affect our business, financial condition and results of operations. Furthermore, a portion of our expenditures and revenues will be in currencies other than the U.S. dollar. Our foreign exchange exposure may vary over time with changes in the geographic mix of our business activities. Foreign currencies may be unfavorably impacted by global developments, country specific events and many other factors. As a result, our future results may be adversely affected by significant foreign exchange fluctuations. Employees As of March 10, 2010, we had 224 total employees, all of whom were full-time employees. Executive Officers The following sets forth the executive officers of the Company. There are no family relationships among the executive officers. The term of each officer is for one year or until a successor is elected. Officers are normally elected annually. Name and Age Office Officer Since Nancy Li, 52 Chief Executive Officer 2008 G. Scott Paterson, 46 Vice Chairman 2008 Arthur J. McCarthy, 53 Chief Financial Officer 2008 Roy E. Reichbach, 47 General Counsel and Corporate Secretary 2008 Horngwei (Michael) Her, 46 Executive Vice President of Research and Development 2008 Ronald Nunn, 57 Executive Vice President of Operations 2008 J. Christopher Wagner, 50 Executive Vice President of Sales 2008 Nancy Li has been the Chief Executive Officer of NeuLion since October She is the founder of NeuLion USA, Inc. ( NeuLion USA ), a wholly-owned subsidiary of NeuLion, and has been its Chief Executive Officer since its inception in From 2001 to 2003 Ms. Li established and ran ican SP, a provider of end-to-end service management software for information technology operations and a wholly owned subsidiary of CA Inc., which was formerly known as Computer Associates International, Inc. ( Computer Associates ). From 1990 to 2001 Ms. Li was Executive Vice President and Chief Technology Officer for Computer Associates, and prior to that held a variety of management positions covering virtually every facet of Computer Associates business from a development and engineering perspective. Ms. Li holds a Bachelor of Science degree from New York University. Ms. Li is married to Charles B. Wang, Chairman of the Board of Directors of the Company. G. Scott Paterson has been the Vice Chairman of NeuLion since October Prior to his current position, Mr. Paterson was Chairman of the Company from January 2002 until October 2008 and Chief Executive Officer from May 2005 until October 2007 and again from June 2008 until October Mr. Paterson is a Director, Chairman of the Audit Committee and a member of the Strategic Committee of Lions Gate Entertainment (NYSE:LGF). Mr. Paterson is also Chairman of Automated Benefits Corp. (TSXV:AUT) and a Director of Run of River Power Inc (TSXV:ROR). He is also the Chairman of the Merry Go Round Children s Foundation and a Governor of Ridley College. From October 1998 until December 2001, Mr. Paterson was Chairman and CEO of Yorkton Securities Inc., which under his leadership became Canada's leading technology investment bank. Mr. Paterson has served as the past Chairman of the Canadian Venture Stock Exchange and as a former Vice Chairman of the TSX. Mr. Paterson is a graduate of Ridley College and earned a Bachelor of Arts (Economics) degree from the University of Western Ontario. In 2009, Mr. Paterson obtained the ICD.D designation by graduating from the Rotman Institute of Corporate Directors at the University of Toronto. 6

10 In December 2001, Mr. Paterson entered into a settlement agreement with the Ontario Securities Commission (the Commission ) in connection with conduct that was, in the view of the Commission, contrary to the public interest in connection with certain corporate finance and trading activities engaged in by Mr. Paterson and the investment dealer with which he was associated. Mr. Paterson has fulfilled the terms of the settlement agreement, which provided that he could not be registered under the Ontario Securities Act until December 19, 2003, that he make a voluntary payment to the Commission of one million Canadian dollars and that he temporarily cease trading for a six-month period. There were no allegations of securities rule or law breaches. Arthur J. McCarthy has been the Chief Financial Officer of NeuLion since November Mr. McCarthy is an Alternate Governor of the New York Islanders on the NHL Board of Governors. From 1985 until 2008 he was the Senior Vice President and Chief Financial Officer for the New York Islanders and was responsible for the New York Islanders financial affairs and its affiliated companies, including the Lighthouse Development Group, LLC. From 1977 to 1985, Mr. McCarthy was a member of the Audit Practice of KPMG Peat Marwick, reaching the position of Senior Manager. Mr. McCarthy was licensed in the State of New York as a Certified Public Accountant in 1980 and holds a Bachelor of Science degree from Long Island University C.W. Post College. Roy E. Reichbach has been the General Counsel and Corporate Secretary of NeuLion since October 2008 and has been the General Counsel and Corporate Secretary of NeuLion USA since Mr. Reichbach is an Alternate Governor of the New York Islanders on the NHL Board of Governors. From 2000 until October 2008 he was also the General Counsel of the New York Islanders and was responsible for the legal affairs of its affiliated real estate companies, including Lighthouse Development Group, LLC. From 1994 until 2000 Mr. Reichbach was Vice President Legal at Computer Associates. Prior to that, he was a trial lawyer in private practice. Mr. Reichbach holds a Bachelor of Arts degree from Fordham University and a Juris Doctorate degree from Fordham Law School. He has been admitted to practice law since Horngwei (Michael) Her has been the Executive Vice President of Research and Development of NeuLion since October 2008 and the Executive Vice President of Research and Development of NeuLion USA since its inception in From 2000 to 2003 Mr. Her ran the development team for ican SP. Prior to that, Mr. Her served as Senior Vice President for Research & Development at Computer Associates. He is also the co-inventor of several computer systems patents. Mr. Her holds a college degree from Taipei Teaching College and a Master of Science degree from the New York Institute of Technology. Ronald Nunn has been the Executive Vice President of Business Operations of NeuLion since October 2008 and the Executive Vice President of Business Operations of NeuLion USA since January From 2000 to 2003 Mr. Nunn was in charge of business operations at ican SP. Between 1987 and 2000, Mr. Nunn held a number of senior management positions at Computer Associates. From 1982 to 1987 Mr. Nunn directed certain research and development and operating projects with UCCEL (formerly University Computing Company). J. Christopher Wagner has been the Executive Vice President of Sales of NeuLion since October 2008 and the Executive Vice President of Marketplace Strategy of NeuLion USA since its inception in From 1984 to 2000 Mr. Wagner held several positions at Computer Associates, culminating in his becoming Executive Vice President and General Manager of Services, responsible for building that company s Government Partner Program and Global Consulting Business. From 2000 to 2003 Mr. Wagner worked as the Chief Executive Officer and member of the Board of Directors of several private equity and venture capital firms, including Metiom, MetaMatrix, Exchange Applications and Digital Harbor. Mr. Wagner received a Bachelor of Arts degree from Delaware University. Item 1A. Risk Factors An investment in our Shares is highly speculative and involves a high degree of risk. The following are specific and general risks that could affect us. If any of the circumstances described in these risk factors actually occur, or if additional risks and uncertainties not presently known to us or that we do not currently believe to be material in fact occur, our business, financial condition or results of operations could be materially adversely affected. In that event, the trading price of our Shares could decline, and you may lose part or all of your investment. In addition to carefully considering the risks described below, together with the other information contained in this annual report on Form 10- K, you should also consider the risks described under the caption Regulation in Item 1 hereof, which risk factors are incorporated by reference into this Item 1A. In addition, these factors represent risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements contained in this annual report on Form 10-K. 7

11 We may need additional capital to fund continued growth, which may not be available on acceptable terms or at all. Our ability to increase revenue will depend in part on our ability to continue growing the business by developing IPTV platforms for new customers as well as maintaining and increasing our private networks subscriber bases, which may require significant additional capital that may not be available to us. We may need additional financing due to future developments, changes in our business plan or failure of our current business plan to succeed, which could result from increased marketing, distribution or programming costs. Our actual funding requirements could vary materially from our current estimates. If additional financing is needed, we may not be able to raise sufficient funds on favorable terms or at all. Recent developments in the financial markets such as the scarcity of capital have made it more difficult for early stage companies such as NeuLion to access capital markets on acceptable terms or at all. If we issue Shares in the future, such issuance will result in the then-existing shareholders sustaining dilution to their relative proportion of our outstanding equity. If we fail to obtain any necessary financing on a timely basis, then our ability to execute the current business plan may be limited, and our business could be adversely affected. The global economic crisis could result in decreases in customer traffic and otherwise adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources. The global economy, including the U.S. economy, is experiencing a severe recession. As a business that is dependent upon consumer discretionary spending, NeuLion faces a challenging fiscal 2010 because our IPTV platform customers subscribers and our private network subscribers may have less money for discretionary spending as a result of job losses, foreclosures, bankruptcies, reduced access to credit and sharply falling home prices. Any resulting decreases in customer traffic and revenue will negatively impact our financial performance because reduced revenue results in smaller profit margins. Additionally, many of the long-term effects and consequences of the economic recession are currently unknown; any one or all of them could potentially have a material adverse effect on our liquidity and capital resources, including our ability to raise additional capital if needed, or otherwise negatively impact our business and financial results. We are an early-stage enterprise with a short operating history, which makes it difficult to evaluate our prospects. We are still in the early stage of building out our business. Many of the expenses, problems and delays encountered by an enterprise in its early stage may be beyond our control. As an early-stage enterprise, we expend significant funds on: marketing; programming and website development; maintaining adequate video-streaming and database software; building subscriber management systems; pursuing and maintaining distribution agreements with our content partners and channel partners; and acquiring and maintaining Internet distribution rights to our content. From our inception, we have incurred substantial net losses, and we expect to continue operating at a loss in the near future. If we are ultimately unable to generate sufficient revenue to become profitable and have sustainable positive cash flows, our investors could lose their investment. 8

12 We may also encounter certain problems or delays in building our business, including those related to: regulatory policies and compliance; marketing; consumer acceptance of Internet-based television; unsuccessful commercial launches of new programming content; costs and expenses that exceed current estimates; financing needs; and the construction, integration, testing or upgrading of the NeuLion distribution infrastructure and other systems. Delays in the timely design, construction, deployment and commercial operation of our business, and consequently the achievement of positive cash flow, could result from a variety of causes, many of which are beyond our control. Substantial delays in any of these matters could delay or prevent us from achieving profitable operations. Demand for IPTV may be insufficient for us to achieve and sustain profitability. IPTV is an emerging service. Potential NeuLion IPTV platform customers may be slow to adopt the Internet as a medium through which they distribute their own content, and their and our subscribers may be slow or refuse to adopt IPTV as a preferred method of viewing content. We cannot estimate with any certainty the potential demand for our services or our ability to satisfy that demand. Among other things, acceptance of our services will depend upon: our ability to develop and introduce new services that offer enhanced performance and functionality, in a timely manner, in response to changing market conditions, customer and subscriber requirements or our competitors technological advances; the cost and availability of technology, such as computer hardware and high-speed Internet connections, that are required to utilize our service; the marketing and pricing strategies that we employ relative to those of our competitors; the acceptance of our subscriber management systems; whether we acquire, market and distribute high-quality programming consistent with subscribers tastes; and the willingness of subscribers to pay pay-per-view or subscription fees to obtain our service. Our results of operations will depend in part upon our ability and that of our IPTV platform customers to increase our respective subscriber bases while maintaining our preferred pricing structures, managing costs and controlling subscriber churn rates. If demand does not develop as expected, then we may not be able to generate enough revenue to generate positive cash flow or achieve and sustain profitability. One of our objectives is to acquire and maintain programming that sustains loyal audiences in or across various demographic groups. The attractiveness of our content offerings and our ability to retain and grow the audiences for our programs will be an important factor in our ability to sell subscriptions and advertising. Our content offerings may not attract or retain the number of subscribers that we anticipate and some content may offend or alienate subscribers that are outside of the target audience for that content. There can be no assurance that our content offerings will enable us to retain our various audiences. If we lose the rights to distribute any specific programming or channels and fail to attract comparable programming with similar audience loyalty, the attractiveness of our service to subscribers or advertisers could decline and our business could be adversely affected. 9

13 We may have difficulty and incur substantial costs in scaling and adapting our existing systems architecture to accommodate increased traffic, technology advances or customer requirements. Our future success will depend on our ability to adapt to rapidly changing technologies, to adapt our services to evolving industry standards and to improve the performance and reliability of our services. The IPTV industry and the Internet and the video entertainment industries in general are characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations and evolving industry standards. There is no assurance that one or more of the technologies utilized by NeuLion will not become obsolete or that our services will be in demand at the time they are offered. If we or our suppliers are unable to keep pace with technological and industry changes, our business may be unsuccessful. In the future, we may be required to make changes to our systems architecture or move to a completely new architecture. To the extent that demand for our services, content and other media offerings increases, we will need to expand our infrastructure, including the capacity of our hardware servers and the sophistication of our software. If we are required to switch architectures, we may incur substantial costs and experience delays or interruptions in our service. These delays or interruptions in our service may cause users and customers to become dissatisfied and move to competing providers of IPTV services. An unanticipated loss of traffic, increased costs, inefficiencies or failures to adapt to new technologies or user requirements and the associated adjustments to our systems architecture could harm our operating results and financial condition. We depend on third parties to develop technologies used in key elements of our IPTV services. More advanced technologies that we may wish to use may not be available to us on reasonable terms or in a timely manner. Further, our competitors may have access to technologies not available to us, which may enable these competitors to offer entertainment products of greater interest to consumers or at more competitive costs. We could suffer failures or damage due to events that are beyond our control, which could adversely affect our brand and operating results. Our success as a business depends, in part, on our ability to provide consistently high-quality video streams to our customers and to our own subscribers via the NeuLion distribution infrastructure and IPTV technology on a consistent basis. Our distribution infrastructure is susceptible to natural or man-made disasters such as earthquakes, floods, fires, power loss and sabotage, as well as interruptions from technology malfunctions, computer viruses and hacker attacks. Other potential service interruptions may result from unanticipated demands on network infrastructure, increased traffic or problems in customer service. Our ability to control technical and customer service issues is further limited by our dependence on our channel partners for technical integration of the NeuLion distribution infrastructure. Significant disruptions in the NeuLion distribution infrastructure would likely affect the quality and continuity of our service, could harm our goodwill and the NeuLion brand and ultimately could significantly and negatively impact the amount of revenue we may earn from our service. We may not carry sufficient business interruption insurance to compensate for losses that could occur as a result of an interruption in our services. We depend upon third parties for: the provision of programming in connection with our service, including our channel partners and other third-party content providers; and the availability and performance of STBs, all of which we purchase from TransVideo and Tatung Technology. Any failure by third parties to provide these services could significantly harm our ability to conduct our business. Furthermore, financial difficulties experienced by our third-party providers such as bankruptcy, insolvency, liquidation or winding up of daily operations for any reason whatsoever could also have negative consequences on our business. 10

14 We operate in competitive and evolving markets. We operate in competitive and evolving markets locally, nationally and globally. These markets are subject to rapid technological change and changes in customer preferences and demand. In seeking market acceptance, we will encounter competition for both subscribers and advertising revenue from many sources, including other IPTV services, direct broadcast satellite television services and digital and traditional cable systems that carry sports and ethnic programming. Traditional cable and satellite television already has a wellestablished and dominant market presence for its services, and Internet portals, video file-sharing service providers and other third-party providers of video content over the Internet may distribute ethnic video content. Many of these competitors have substantially greater financial, marketing and other resources than we do. As the IPTV market grows (resulting from higher bandwidths, faster modems and wider programming selections), an increasing number of Internet-based video program offerings will be available to our current and potential customers. In addition, our competitors, in both the traditional satellite and cable television broadcasting and IPTV markets, could exclusively contract with sports and ethnic content providers that are not under contract with us, creating significant competition in both the sports and ethnic programming and IPTV markets. Our revenue could be materially adversely affected if we are unable to compete successfully with traditional and other emerging providers of video programming services. We do not have exclusive Internet distribution rights to all of our content and the cost of renewing such rights or obtaining such rights for new content may be higher than expected. Many of NeuLion s content and channel partner agreements give us the exclusive Internet distribution rights to the related content and channels. If this content or these channels are offered elsewhere on the Internet on more attractive terms, we could lose these subscribers, which would have an adverse effect on its results of operations. We must negotiate with potential partners to acquire the Internet distribution rights for our programming. In addition, we will need to renew our agreements with existing partners. We anticipate that, as the IPTV market grows, license fees relating to Internet distribution rights for programming (including sports and ethnic programming), or for the rights to substitute advertising into the live video streamers of the content, will increase. License fees payable under the partner agreements may be significantly more costly to renew than anticipated. In addition, some of the existing partner agreements that give NeuLion exclusive Internet distribution rights have renewal mechanisms that are tied to our ability to generate specified revenue share amounts or specified subscriber numbers in respect of particular channels. If we are unable to meet these targets, then we may have to renegotiate the agreements when they come up for renewal or may lose one or more of our exclusive licenses. Renegotiated license fees may be more expensive than anticipated. We may be unable to obtain our programming consistently at a cost that is reasonable or appealing to our customers, which may adversely affect our marketing efforts, reputation, brand and revenue. There is uncertainty relating to our ability to enforce our rights under our channel and content partner agreements. Many of our channel and content partner agreements for ethnic programming are with foreign entities and are governed by the laws of foreign jurisdictions. If a partner breaches an agreement with us, then we will incur the additional costs of determining our rights and obligations under the agreement under applicable foreign laws and enforcing the agreement in a foreign jurisdiction. Many of the jurisdictions to which our partner agreements are subject do not have sophisticated and/or impartial legal systems and we may face practical difficulties in enforcing any of our rights in such jurisdictions. We may not be able to enforce such rights or may determine that it would be too costly to enforce such rights. In addition, many of our partner agreements contain arbitration provisions that govern disputes under the agreements and there is uncertainty with respect to the enforceability of such arbitration provisions under the laws of related foreign jurisdictions. If a dispute were to arise under an agreement and the related arbitration provision was not effective, then we would be exposed to the additional costs of settling the dispute through traditional legal avenues rather than through an arbitration process. 11

15 Our business may be impaired by third-party intellectual property rights in the programming content of our channel and content partners. We rely on our channel and content partners to secure the primary rights to redistribute programming and other content over the Internet. There is no assurance that our partners have successfully licensed all relevant programming components that are necessary for Internet redistribution. Other parties may claim certain intellectual property rights in the content that we license from our partners. For example, our partners may not have sufficient rights in the underlying content to license distribution rights to their content to us, or a given partner may not identify programming that we are not permitted to distribute in time for us to stop distribution of the offending programming. In addition, as the IPTV market grows, advertisers may begin to attempt to enforce intellectual property rights in advertisements included in our partners programming, and we may inadvertently infringe the intellectual property rights of such advertisers by distributing such advertisements over the Internet or by inserting our own advertising in replacement of such advertisements. In the event that our partners are in breach of the distribution rights related to specific programming and other content, we may be required to cease distributing or marketing the relevant content to prevent any infringement of related rights, and may be subject to claims of damages for infringement of such rights. We may also be required to file a claim against a given partner if the distribution rights related to specific programming are breached, and there is no assurance that we would be successful in any such claim. We may be subject to other third-party intellectual property rights claims. Companies in the Internet, technology and media industries often own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As NeuLion faces increasing competition, the possibility of intellectual property rights claims against us grows. Our technologies may not be able to withstand third-party claims or rights against their use. Intellectual property claims, whether having merit or otherwise, could be time consuming and expensive to litigate or settle and could divert management resources and attention. In addition, many of our agreements with network service providers require us to indemnify these providers for third-party intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require that we pay the network service providers damages if there were an adverse ruling in any such claims. If litigation is successfully brought by a third party against us in respect of intellectual property, we may be required to cease distributing or marketing certain products or services, obtain licenses from the holders of the intellectual property at material cost, redesign affected products in such a way as to avoid infringing intellectual property rights or seek alternative licenses from other third parties which may offer inferior programming, any or all of which could materially adversely affect NeuLion s business, financial condition and results of operations. If those intellectual property rights are held by a competitor, we may be unable to obtain the intellectual property at any price, which could also adversely affect our competitive position. An adverse determination could also prevent us from offering its services and could require that we procure substitute products or services. Any of these results could harm our business, financial condition and results of operations. We rely on our channel and content partners to ensure intellectual property rights compliance globally. We are exposed to liability risk in respect of the content that we redistribute over the Internet, relating to both infringement of third-party rights to the content and infringement of the laws of various jurisdictions governing the type and/or nature of the content. We rely in large part on our channel and content partners obligations under our partner agreements to advise NeuLion of any potential or actual infringement so that we may take appropriate action if such content is not intellectual property rights-compliant or is otherwise obscene, defamatory or indecent. There is a risk that our partners will not advise us in time, or at all, in respect of such content, and expose us to liability for our redistribution of such content over the Internet. Any alleged liability could harm our business by damaging our reputation, requiring us to incur legal costs in defense of any such claim, exposing us to significant awards of damages and costs and diverting management s attention, any of which could have an adverse effect on our business, results of operations and financial condition. 12

16 We rely on our partners for our content. The success of our B2C business depends significantly on our relationships with our channel and content partners. We enter into partner agreements to acquire the Internet distribution rights to sports, ethnic and other content. Our success as a business depends on the cooperation, good faith, programming and overall success of our partners in providing marketable programming. Because of our dependency on our partners, should a partner s business suffer as a result of increased competition, increased costs of programming, technological problems, regulatory changes, adverse effects of litigation or other factors, our business may suffer as well. Furthermore, a failure by one of our partners to perform its obligations under its agreement could have detrimental financial consequences for our business. The agreements are for various terms and have varying provisions regarding renewal or extension. If we are unable to renew or extend these agreements at the conclusion of their respective terms, we may not be able to obtain substitute programming, or substitute programming may not be comparable in quality or cost to the existing programming, which could materially adversely affect our business, financial condition and results of operations. We depend on key personnel and relationships, and the loss of their services or the inability to attract and retain them may negatively impact our business. We are dependent on key members of our senior management, including Nancy Li and G. Scott Paterson. We have not obtained key-man insurance for any member of senior management other than Mr. Paterson. In addition, innovation is important to our success, and we depend on the continued efforts of our executive officers and key employees, who have specialized technical knowledge regarding the NeuLion distribution infrastructure and information technology systems and significant business knowledge regarding the IPTV industry and subscription services. The market for the services of qualified personnel is competitive and we may not be able to attract and retain key employees. If we lose the services of one or more of our executive officers or key employees, or fail to attract qualified replacement personnel, then our business and future prospects could be materially adversely affected. Increased subscriber turnover could adversely affect our financial performance. Customer subscriber churn has a significant financial impact on our results of operations, and we cannot reliably predict the amount of churn that we will experience over the long term. Given the increasingly competitive nature of the IPTV industry, we may not be able to reduce churn without significantly increasing our spending on customer acquisition and retention incentives, which would have a negative effect on our earnings and free cash flow. There can be no assurance that an increase in competition from other IPTV providers, new technology entrants, programming theft and other factors will not contribute to a relatively higher churn than we have experienced historically. To the extent that our churn is greater than currently anticipated, it may be more costly for us to acquire a sufficient customer base to generate revenue. Current economic conditions have led certain consumers to reduce their spending on non-essential items. A reduction in consumer discretionary spending or an inability to pay for subscribed services could result in a decrease in or loss of subscribers, which would reduce our future revenue and negatively impact the Company's business, financial condition and results of operations. Increased subscriber acquisition costs could adversely affect our financial performance. We anticipate spending substantial funds on advertising and other marketing to attract new subscribers and maintain our subscriber base. Our ability to achieve break-even cash flows depends in part on our ability to achieve and maintain lower subscriber acquisition costs over time. Our subscriber acquisition costs, both in the aggregate and on a pernew-subscriber basis, may materially increase in the future to the extent that we introduce new promotions, whether in response to competition or otherwise. Any material increase in subscriber acquisition or retention costs from current levels could have a material adverse effect on our business, financial condition and results of operations. 13

17 We may not be successful in developing a version of our service that will gain widespread adoption by users of alternate devices to access the Internet. In the coming years, the number of individuals who access the Internet through devices other than a personal computer, such as personal digital assistants, mobile telephones and television set top devices, is expected to increase dramatically. Our services are designed for rich, graphical environments such as those available on personal and laptop computers. The lower resolution, functionality and memory associated with alternative devices may make the distribution of content through such devices difficult, and we may be unsuccessful in our efforts to provide a compelling service for users of alternative devices. If we are unable to attract and retain a substantial number of alternative device users to its services, we will fail to capture a sufficient share of an increasingly important portion of the market for online media. In addition, we intend to introduce new services and/or functionalities to increase our customers and our own subscriber bases and long-term profitability, such as targeted advertising insertion and personal video recording. These services are dependent on successful integration of new technologies into the NeuLion distribution infrastructure, negotiations with third-party content and network system providers, subscriber acceptance and the maintenance of future technologies to support these services. If we are unsuccessful in implementing such services, or the economic attractiveness of these services is lower than anticipated, then our business and operating results could be adversely affected. Acquisitions and strategic investments could adversely affect our operations and result in unanticipated liabilities. We may in the future acquire or make strategic investments in a number of companies, including through joint ventures. Such transactions may result in dilutive issuances of equity securities, use of cash resources, incurrence of debt and amortization of expenses related to intangible assets. Any such acquisitions and strategic investments would be accompanied by a number of risks, including: the difficulty of assimilating operations and personnel of acquired companies into our operations; the potential disruption of ongoing business and distraction of management; additional operating losses and expenses of the businesses acquired or in which we invest; the difficulty of integrating acquired technology and rights into our services and unanticipated expenses related to such integration; the potential for patent and trademark infringement claims against the acquired company; the impairment of relationships with customers and partners of the companies we acquired or with our customers and partners as a result of the integration of acquired operations; the impairment of relationships with employees of the acquired companies or our employees as a result of integration of new management personnel; the difficulty of integrating the acquired company s accounting, management information, human resources and other administrative systems; in the case of foreign acquisitions, uncertainty regarding foreign laws and regulations and difficulty integrating operations and systems as a result of cultural, systems and operational differences; and the impact of known potential liabilities or unknown liabilities associated with the companies we acquire or in which we invest. Our failure to address or mitigate such risks in connection with future acquisitions and strategic investments could prevent us from realizing the anticipated benefits of such acquisitions or investments, causing us to incur unanticipated liabilities and harming our business generally. 14

18 We may be unable to manage rapidly expanding operations. We are continuing to grow and diversify our business both domestically and internationally. As a result, we will need to expand and adapt our operational infrastructure. If we are unable to manage our growth effectively, it could have a material adverse effect on our business, financial condition and results of operations. To manage growth effectively, we must, among other things, continue to develop our internal and external sales forces, the NeuLion distribution infrastructure capability, our customer service operations and our information systems, maintain our relationships with content and channel partners, effectively enter new areas of the sports and ethnic programming markets and effectively manage the demands of day-to-day operations in new areas while attempting to execute our business strategy and realize the projected growth and revenue targets developed by our management. We will also need to continue to expand, train and manage our employee base, and our management must assume even greater levels of responsibility. If we are unable to manage growth effectively, we may experience a decrease in subscriber growth and an increase in subscriber churn, which could have a material adverse effect on our financial condition, profitability and cash flows. Internet transmissions may be subject to theft and malicious attacks, which could cause us to lose subscribers and revenue. Like all Internet transmissions, our streaming content may be subject to interception and malicious attack. Pirates may be able to obtain or redistribute our programs without paying fees to us. The NeuLion distribution infrastructure is exposed to spam, viruses, worms, spyware, denial of service or other attacks by hackers and other acts of malice. Theft of our content or attacks on the NeuLion distribution infrastructure would reduce future potential revenue and increase our net subscriber acquisition costs. If our security technology is compromised, it could adversely affect our ability to contract for licenses to distribute programming over the Internet. We use security measures intended to make theft of our content more difficult. However, if we are required to upgrade or replace existing security technology, the cost of such security upgrades or replacements could have a material adverse effect on our financial condition, profitability and cash flows. In addition, other illegal methods that compromise Internet transmissions may be developed in the future. If we cannot control compromises of our channels, then our revenue, net subscriber acquisition costs, churn and ability to contract for licenses to distribute programming over the Internet could be materially adversely affected. There is no assurance that the current costs of Internet connections and network access will not rise with increasing popularity of IPTV services, which would adversely affect our business. We rely on Internet service providers for our principal connections and network access and to stream audio and video content to subscribers. As demand for IPTV services increases, there can be no assurance that Internet service providers will continue to price their network access services on reasonable terms. The distribution of streaming media requires distribution of large content files and providers of network access may change their business model and increase their prices significantly, which could slow the widespread acceptance of such services. In order for our media content services to be successful, there must be a reasonable price model in place to allow for the continuous distribution of large streaming media files. We have limited or no control over the extent to which any of these circumstances may occur, and if network access prices rise significantly, then our business and operating results would likely be adversely affected. Our business depends on the continued growth and maintenance of the Internet infrastructure. The success and the availability of Internet-based products and services depends in part upon the continued growth and maintenance of the Internet infrastructure itself, including its protocols, architecture, network backbone, data capacity and security. Spam, viruses, worms, spyware, denial of service or other attacks by hackers and other acts of malice may affect not only the Internet s speed, reliability and availability but also its continued desirability as a vehicle for commerce, information and user engagement. If the Internet proves unable to meet the new threats and increased demands placed upon it, our business plans, user and advertiser relationships, site traffic and revenues could be adversely affected. 15

19 Privacy concerns relating to elements of our service could damage our reputation and deter current and potential users from using our products and services. From time to time, concerns may be expressed about whether our products and services compromise the privacy of users and others. Concerns about our collection, use or sharing of personal information or other privacy-related matters, even if unfounded, could damage our reputation and result in a loss of user confidence and ultimately in a loss of users, partners or advertisers, which could adversely affect our business and operating results. We may have exposure to greater than anticipated tax liabilities. We are subject to income taxes and non-income taxes in a variety of jurisdictions, and our tax structure is subject to review by both domestic and foreign taxation authorities. The determination of our world-wide provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of its business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded on our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made. We are subject to foreign business, political and economic disruption risks. We contract with various entities from around the world, including in respect of the acquisition of the Internet distribution rights to the content. As a result, we are exposed to foreign business, political and economic risks, which could adversely affect our financial position and results of operations, including: difficulties in managing partner relationships from outside of a given partner s jurisdiction; political and economic instability; less developed infrastructures in newly industrializing countries; susceptibility to interruption of channel feeds in foreign areas due to war, terrorist attacks, medical epidemics, changes in political regimes and general interest rate and currency instability; exposure to possible litigation or claims in foreign jurisdictions; and competition from foreign-based IPTV providers and the existence of protectionist laws and business practices that favor such providers. We rely on a limited number of key suppliers, and the inability of those key suppliers to meet our needs could have a material adverse effect on our business. We have contracted with TransVideo and Tatung Technology to provide STBs, a key product of our operations. Our dependence on these suppliers makes our operations vulnerable to such third parties' failure to perform adequately. If these suppliers are unable to meet our needs, our business, financial position and results of operations may be adversely affected. Our inability to develop alternative sources quickly and on a cost-effective basis could materially impair our ability to timely deliver our products to our subscribers or operate our business. Furthermore, our suppliers may request changes in pricing, payment terms or other contractual obligations which could cause us to make substantial additional investments. We may have potential conflicts of interest with TransVideo due to common ownership and management. We have entered into a commercial agreement with TransVideo, a company indirectly owned and controlled by Charles B. Wang, Chairman of the Board of Directors of the Company and the spouse of Nancy Li, our CEO and the founder and CEO of NeuLion USA, pursuant to which TransVideo is, among other things, obligated to sell to us STBs and related equipment at specified prices. The ownership interests could create actual, apparent or potential conflicts of interest when those individuals are faced with decisions that could have different implications for the Company and TransVideo. Conflicts could arise between us and TransVideo in the interpretation of or any extension or renegotiation of the existing agreement. Furthermore, we may not be able to resolve any potential conflicts, and, even if we do so, the resolutions may be less favorable to us than if we were dealing with an unaffiliated party. We do not have any agreement with TransVideo that restricts us from purchasing our products from competitors of TransVideo. 16

20 Item 1B. Unresolved Staff Comments As a smaller reporting company, we are not required to include this information in our annual report on Form 10-K. Item 2. Properties Description Location Expiration of Lease Use of Property Lease Toronto, Ontario, Canada Month-to-month Business office Lease Shanghai, China May 2011 Business office Lease Sanford, Florida November 2010 Business office Lease New York, New York August 2012 Business office Lease Plainview, New York December 2013 Business office Lease London, England Month-to-month Business office Lease Centennial, Colorado Month-to-month Business office Lease Burnaby, British Columbia, Canada Month-to-month Business office Item 3. Legal Proceedings There is no litigation currently pending or threatened against us or any of our directors in their capacity as such. Item 4. Submission of Matters to a Vote of Security Holders [Removed and Reserved.] 17

21 PART II Item 5. Market for Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Price Information There is no established public trading market for the Shares in the United States. The principal established foreign public trading market for the Shares is the Toronto Stock Exchange. The table below sets forth, for the periods indicated, the high and low sales prices of the Shares on the Toronto Stock Exchange, in Canadian dollars, for each full quarterly period within the Company's two most recent fiscal years, as reported by the Toronto Stock Exchange. Shareholders Dividends Two Most Recent Full Financial Years High Low 2009 First Quarter $0.64 $0.28 Second Quarter $0.84 $0.42 Third Quarter $1.30 $0.67 Fourth Quarter $1.00 $ First Quarter $2.33 $0.52 Second Quarter $0.99 $0.49 Third Quarter $1.28 $0.45 Fourth Quarter $0.83 $0.22 As of March 10, 2010, there were approximately 171 holders of record of Shares. We have paid no dividends on the Shares since our inception. At the present time, we intend to retain earnings, if any, to finance the expansion of our business. The payment of dividends in the future will depend on our earnings and financial condition and on such other factors as the Board of Directors may consider appropriate. The CBCA sets out specific tests that a company must meet in order to declare or pay dividends. Under Section 42 of the CBCA, a company shall not declare or pay a dividend if there are reasonable grounds for believing that: the company is, or would after the payment be, unable to pay its liabilities as they become due; or the realizable value of the company s assets would thereby be less than the aggregate of its liabilities and the stated capital of all classes. 18

22 Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2009 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance: Equity Compensation Plan Information Number of securities Number of securities remaining available for to be issued upon Weighted-average future issuance under exercise of exercise price of equity compensation plans outstanding options, outstanding options, (excluding securities Plan Category warrants and rights warrants and rights reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders Second Amended and Restated Stock Option Plan 8,657,897 (1) $ 0.98 (1) 5,933,577 Restricted Share Plan 6,724 N/A Stock Appreciation Rights Plan 1,675,000 (2) $ 2.63 (2) 4,161,589 Directors Compensation Plan NIL (3) N/A (3) 42,063 Amended and Restated Retention Warrants Plan 847,892 $ ,652,108 Employee Share Purchase Plan NIL (4) N/A N/A Equity compensation plans not approved by security holders None N/A N/A N/A Total 11,187,513 $ ,789,337 (1) The maximum number of Shares issuable upon exercise of options granted pursuant to the Stock Option Plan shall be equal to the greater of (i) 4,000,000 Shares and (ii) 12.5% of the number of issued and outstanding Shares from time to time. As a result, any increase in the issued and outstanding shares will result in an increase in the available number of Shares issuable under the Stock Option Plan, and any exercises of options will make new grants available under the Stock Option Plan. (2) The maximum number of Shares which may be issued pursuant to the SARs Plan is the greater of 4,150,000 or 5% of the issued and outstanding Shares. The Shares reserved for issuance upon the exercise of SARs that terminate, expire unexercised or are cancelled shall be available for subsequent grants of SARs under the SARs Plan. (3) Shares are issued directly under the Directors Compensation Plan without exercise of any option, warrant or right. (4) We have not implemented the ESPP since its approval by shareholders. Certain warrants were issued by NeuLion independently of a plan. As of December 31, 2009, these warrants could be exercised for 17,697,500 Shares at a weighted average exercise price of $1.07. These warrants are discussed in more detail in the section titled SECURITIES AUTHORIZED FOR ISSUANCE UNDER THE EQUITY COMPENSATION PLANS Warrants of the Proxy Statement. Canadian Exchange Controls and Other Limitations on Security Holders To our knowledge, there are no governmental laws, decrees, regulations or other legislation in Canada which may affect the import or export of capital by us, or, except as described below, the remittance of dividends, interest or other payments to a non-resident holder of our securities. We are a corporation existing under the federal corporate laws of Canada; such laws restrict corporations from declaring or paying dividends on any class of its shares where there are reasonable grounds for believing that the corporation is, or would be after the payment, unable to pay its liabilities as they become due, or the realizable value of the corporation s assets would thereby be less than the aggregate of its liabilities and stated capital of all classes of shares. There is no limitation imposed by Canadian law or by our charter or other constating documents on the right of a non-canadian to hold or vote Shares, other than in the possible application of the Investment Canada Act (Canada) to the extent that a non-canadian acquires control of us. 19

23 Certain Canadian Federal Income Tax Consequences The following is a brief description of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) (the Canadian Tax Act ), as of the date hereof, generally applicable to a holder of Shares in respect of holding and disposing of its Shares (other than a disposition to us) where, at all relevant times for purposes of the Canadian Tax Act and any applicable income tax treaty or convention, such holder (i) holds its Shares as capital property, (ii) deals at arm s length and is not affiliated with us, (iii) is not resident, nor deemed to be resident, in Canada, and (iv) does not use or hold and is not deemed to use or hold Shares in connection with carrying on a business in Canada (a Non- Canadian Shareholder ). Special rules, which are not discussed in this summary, may apply to a Non-Canadian Shareholder that is an insurer carrying on business in Canada and elsewhere or an authorized foreign bank. Such holders should consult their own tax advisors. This summary does not apply in respect of a disposition of Shares to us and assumes that, at all relevant times, NeuLion will be a resident of Canada for purposes of the Canadian Tax Act and the Shares will be listed on the Toronto Stock Exchange. This summary is based on the provisions of the Canadian Tax Act and the regulations thereunder (the Regulations ) in force on the date hereof and the current administrative policies and practices of the Canada Revenue Agency ( CRA ) published in writing by the CRA prior to the date hereof. This summary takes into account all specific proposals to amend the Canadian Tax Act and the Regulations which have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the Proposed Amendments ) and assumes that all such Proposed Amendments will be enacted in their present form. No assurance can be given that the Proposed Amendments will be enacted in the form proposed, if at all. This summary does not otherwise take into account or anticipate any changes in law, whether by judicial, governmental or legislative decision or action, or changes in the administrative policies and practices of the CRA. This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice or representations to any particular Non-Canadian Shareholder. This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to a Non-Canadian Shareholder in respect of its Shares. The income or other tax consequences will vary depending on a Non-Canadian Shareholder s particular circumstances, including the country or other jurisdiction in which such holder resides or carries on business. This summary does not take into account provincial, territorial or foreign income tax legislation or considerations which may differ materially from those described herein. Non-Canadian Shareholders should consult their own legal and tax advisors with respect to the tax consequences to them based on their particular circumstances. Dividends on the Shares Dividends paid or credited, or deemed to be paid or credited, on the Shares to a Non-Canadian Shareholder will be subject to withholding tax under the Canadian Tax Act at a rate of 25%, subject to reduction under the provisions of an applicable tax treaty or convention. For example, under the Canada-United States Income Tax Convention, as amended (the U.S. Convention ) the withholding tax rate is generally reduced to 15% in respect of a dividend paid to a person who is the beneficial owner of the dividend and who is resident in the United States for purposes of the U.S. Convention. Where a Non-Canadian Shareholder is a fiscally transparent entity within the meaning of the U.S. Convention (for example, a U.S. limited liability company that is disregarded for U.S. tax purposes) a reduced rate of withholding tax may be available based on a look-through approach described under the U.S. Convention. Subject to certain detailed rules in the U.S. Convention, the benefits of the U.S. Convention (such as reduced rates of withholding tax) are only available to qualifying persons (the LOB constraints ), as defined in the U.S. Convention. A qualifying person for this purpose generally includes a person which is a resident of the United States for purposes of the U.S. Convention which is a natural person or a company whose principal and other classes of shares are listed and primarily and regularly traded on a recognized stock exchange. Non-Canadian Shareholders seeking to rely on the U.S. Convention should consult their tax advisors concerning the applicability of tax treaty benefits and the LOB constraints, having regard to their particular circumstances. 20

24 Under the U.S. Convention, a dividend paid to certain tax-exempt entities that are resident in the United States may be exempt from Canadian withholding tax levied in respect of dividends paid on the Shares. Such tax-exempt entities should consult their own tax advisors. A Non-Canadian Shareholder should consult its own tax advisors regarding its ability to claim foreign tax credits with respect to any Canadian withholding tax. Dispositions of Shares A Non-Canadian Shareholder will not be subject to tax under the Canadian Tax Act in respect of any capital gain realized on the disposition of its Shares, unless the Shares constitute or are deemed to constitute taxable Canadian property (as defined in the Canadian Tax Act) to the Shareholder and the Non-Canadian Shareholder is not otherwise entitled to relief under the terms of any applicable tax treaty. In general, provided the Shares are listed on a designated stock exchange (which currently includes the Toronto Stock Exchange), the Shares will not constitute taxable Canadian property of a Non-Canadian Shareholder so long as: (i) such Non-Canadian Shareholder has not, either alone or in combination with persons with whom the holder does not deal at arm s length, owned (or had an option to acquire) 25% or more of the issued shares of any class or series of the capital stock of NeuLion at any time within the 60-month period preceding the disposition, and (ii) more than 50% of the fair market value of the common share was derived directly or indirectly from one or any combination of (A) real or immovable property situated in Canada, (B) Canadian resource properties, (C) timber resource properties, and (D) options in respect of, or interests in, or for civil law rights in, property described in any of subparagraphs (ii)(a) to (C), whether or not the property exists. In addition, in certain circumstances the Shares may be deemed to be taxable Canadian property under the Canadian Tax Act. Subject to an exemption pursuant to an applicable tax treaty or convention, a Non-Canadian Shareholder will be subject to tax under the Canadian Tax Act in respect of a capital gain realized on the disposition of the Shares where the Shares are taxable Canadian property. Such Non-Canadian Shareholder will realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition for such Shares, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of such Shares to the Non- Canadian Shareholder. A Non-Canadian Shareholder will be required to include one-half of the amount of any resulting capital gain (a taxable capital gain ) in income, and will be required to deduct one-half of the amount of any resulting capital loss (an allowable capital loss ) against taxable capital gains realized in the year of disposition. Allowable capital losses not deducted in the taxation year in which they are realized may be carried back and deducted in any of the three preceding years, or carried forward and deducted in any following year, against taxable capital gains realized in such years, to the extent and under the circumstances specified in the Canadian Tax Act. Under the U.S. Convention, a person who is resident in the United States for purposes of the U.S. Convention who realizes a capital gain on a disposition of shares which do not derive their value principally from real property situated in Canada is generally exempt from tax in respect of the capital gain under the Canadian Tax Act. These provisions are subject to the LOB constraints (described above). Non-Canadian Shareholders to whom the Shares constitute taxable Canadian property should consult their own tax advisors. Other Limitations on Security Holders Canadian law imposes regulatory requirements when a non-canadian acquires control of a Canadian business that depends on the dollar amount of the transaction and the nature of the acquired business. Pursuant to the Investment Canada Act, a non-canadian acquiring control of a Canadian business must deliver a notification of such investment to the applicable minister (the Notification ), unless the acquisition is subject to review and approval. The investment is generally reviewable and subject to approval if the total asset value of the Canadian business, control of which is being acquired, is greater than $312 million (as of the date hereof) or greater than $5 million if the Canadian business is a cultural business, within the meaning of the Investment Canada Act. To the extent that an acquisition of control of a Canadian business that carries on certain cultural business activities is not reviewable, the Minister of Canadian Heritage may, nonetheless, within 21 days of the receipt of a Notification, seek an order requiring the investor to apply for review and seek approval of the acquisition. An acquisition of control is approved under the Investment Canada Act if the applicable minister is satisfied (or is deemed to be satisfied) that the acquisition is likely to be of net benefit to Canada. 21

25 Repurchases of Equity Securities None. Recent Sales of Unregistered Securities The following sets forth information regarding securities sold by us but not registered under the Securities Act during the fiscal year ended December 31, 2009, and that were not reported in our quarterly reports on Form 10-Q or current reports on Form 8-K filed with the SEC during that period: 1. On August 17, 2009, the Company granted to an employee residing in the United States, 40,000 stock options to purchase 40,000 Shares under the Company's Second Amended and Restated Stock Option Plan, as amended, with an exercise price of $0.88 per share. The stock options vest in equal increments over 48 months beginning with the month after August 17, The Company offered and sold the stock options in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended (the Securities Act ). 2. On November 1, 2009, the Company granted to an employee of the Company residing outside the United States 500,000 stock options to purchase 500,000 Shares pursuant to the Company's Second Amended and Restated Stock Option Plan, as amended, with an exercise price of $0.67 per share. The stock options vest in equal increments over 48 months beginning with the month after November 1, The Company offered and sold the stock options in reliance on the exemption from registration set forth in Section 4(2) of the Securities. 3. On November 2, 2009, a former employee of the Company residing within the United States exercised 6,875 stock options to purchase 6,875 Shares, with an exercise price of $0.60 per share and 6,250 stock options to purchase 6,250 Shares with an exercise price of $0.47 per share, for aggregate gross proceeds to the Company of $7,063. The Company offered and sold the Shares in reliance on the exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated thereunder. 4. On December 16, 2009, a consultant of the Company residing within the United States exercised 7,500 stock options to purchase 7,500 Shares, with an exercise price of $0.60 per share and 6,500 stock options to purchase 6,500 Shares with an exercise price of $0.47 per share, for aggregate gross proceeds to the Company of $7,555. The Company offered and sold the Shares in reliance on the exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated thereunder. 5. On December 21, 2009, the Company issued Shares, without registration under the Securities Act to non-management directors in payment pursuant to the Company s Directors Compensation Plan of their semi-annual directors fees for the six-month period ended December 31, 2009 in the following aggregate amounts: The aggregate value of the 156,778 Shares issued to Dr. Kenny and Messrs. Anderson, Battista, Kronfeld and Wang was $92,499 on the date of issuance. The Company sold these Shares pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder. This issuance qualified for exemption from registration under the Securities Act because (i) each of the directors was an accredited investor at the time of the sale, (ii) the Company did not engage in any general solicitation or advertising in connection with the sale, and (iii) each of the directors received restricted securities. 6. Between October 1, 2009 and December 31, 2009, the Company issued 9,996 Shares to two former employees and one former consultant as restricted share units vested pursuant to the Company s Restricted Share Plan. Under the Restricted Share Plan, the restricted share units vest in equal monthly increments on the last day of each month and are valued on the date of issuance. The aggregate value attributable to the Shares issued during that period was $6,992. The Company issued the Shares to the two former employees residing outside the United States in reliance on Regulation S adopted under the Securities Act. The Company issued the Shares to the one former consultant residing within the United States in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act for transactions not involving any public offering. Information regarding other securities sold by us but not registered under the Securities Act during the fiscal year ended December 31, 2009 has been previously included in our quarterly reports on Form 10-Q for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009 and in current reports on Form 8-K filed with the SEC on October 6, 2009 and November 2, Item 6. Selected Financial Data John R. Anderson 39,830 Gabriel A. Battista 15,254 Shirley Strum Kenny 30,508 David Kronfeld 33,898 Charles B. Wang 37,288 Total 156,778 As a smaller reporting company, we are not required to include this information in our annual report on Form 10-K. 22

26 Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations On June 4, 2009, the company then known as NeuLion, Inc. changed its name to NeuLion USA, Inc. ( NeuLion USA ). On July 13, 2009, JumpTV Inc. changed its name to NeuLion, Inc. (the Company or NeuLion ). In conjunction with the name change, NeuLion s stock symbol on the Toronto Stock Exchange was changed from JTV to NLN. This Item 7 reflects these name changes. The following Management's Discussion & Analysis ( MD&A ) of NeuLion s financial condition and results of operations, prepared as of March 16, 2010, should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes for the years ended December 31, 2009 and 2008, which have been prepared in accordance with United States generally accepted accounting principles ( U.S. GAAP ). All dollar amounts are in U.S. dollars ( US$ or $ ) unless stated otherwise. As at March 10, 2010, the Bank of Canada noon rate for conversion of United States dollar to Canadian dollars was US$1 to CDN$ Effective October 20, 2008, NeuLion completed a merger (the Merger ) with NeuLion USA, a Delaware corporation, that was accounted for as a reverse takeover. NeuLion USA is an Internet Protocol television company that provides a comprehensive suite of technology and services to content owners and aggregators. As a result of the Merger, NeuLion USA became the legal subsidiary of NeuLion, and NeuLion was required to register its common shares in the United States under Section 12 of the Securities Exchange Act of 1934, as amended. On June 8, 2009, NeuLion s Registration Statement on Form 10 became effective. The common shares of NeuLion are referred to herein as Shares, or each individually as a Share. Effective October 31, 2009, NeuLion consummated the acquisition of 100% of the outstanding securities of Interactive Netcasting Systems Inc. ("INSINC"), a corporation organized under the federal laws of Canada that is a provider of sports, government and entertainment webcasting services. Under the terms of the acquisition, shareholders of INSINC received consideration consisting of 6,000,012 Shares of the Company, CDN$2.5 million in cash, 1 million Share purchase warrants to acquire Shares at US$1.35 per Share and 500,000 Share purchase warrants to acquire Shares at US$1.80 per Share. Both series of warrants are exercisable for a period of 2 years. Our MD&A is intended to enable readers to gain an understanding of NeuLion's current results and financial position. To do so, we provide information and analysis comparing the results of operations and financial position for the current year to those of the preceding comparable year. We also provide analysis and commentary that we believe is required to assess the Company's future prospects. Accordingly, certain sections of this report contain forward-looking statements that are based on current plans and expectations. These forward-looking statements are affected by risks and uncertainties that are discussed in NeuLion s annual report on Form 10-K (the 10-K ), and below in the section titled Cautions Regarding Forward-Looking Statements, and could have a material impact on future prospects. Readers are cautioned that actual results could vary from those forecasted in this MD&A. Cautions Regarding Forward-Looking Statements This MD&A contains certain forward-looking statements, which reflect management s expectations regarding the Company s growth, results of operations, performance and business prospects and opportunities. Statements about the Company s future plans and intentions, results, levels of activity, performance, goals or achievements or other future events constitute forward-looking statements. Wherever possible, words such as "may," "will," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," or "potential" or the negative or other variations of these words, or similar words or phrases, have been used to identify these forward-looking statements. These statements reflect management s current beliefs and are based on information currently available to management as at the date hereof. 23

27 Forward-looking statements involve significant risk, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and readers should not place undue reliance on the forwardlooking statements. Although the forward-looking statements contained in this MD&A are based upon what management believes to be reasonable assumptions, the Company cannot assure readers that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this MD&A, and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including: general economic and market segment conditions; competitor activity; product performance; capability and acceptance; international risk and currency exchange rates; and technology changes. More detailed assessment of the risks that could cause actual results to materially differ from current expectations is contained herein and in the "Risk Factors" section of the 10-K. MERGER AND REVERSE TAKE-OVER On October 20, 2008, the Company completed the Merger with NeuLion USA. Under the terms of the Merger, NeuLion issued 49,577,427 Shares directly, as well as 1,840,097 Shares subject to a performance escrow relating to a prior acquisition, which represented approximately the entire issued and outstanding Shares of NeuLion prior to closing, to the securityholders of NeuLion USA in exchange for their NeuLion USA securities. The escrow Shares were subsequently cancelled in September Pursuant to the Merger, the Company also issued 5,000,000 warrants to purchase Shares, fully vested and exercisable for two years at US$0.63 per Share, and 2,700,000 employee stock options to purchase Shares, vesting in equal monthly amounts over 48 months and exercisable for five years at US$0.60 per Share, to employees of NeuLion USA who became employees of the Company. On October 20, 2008, AvantaLion LLC, an entity controlled by Charles B. Wang, the Chairman of the Board of Directors of the Company and the spouse of Nancy Li, our CEO and the founder and CEO of NeuLion USA, purchased 10,000,000 units from NeuLion's treasury at a price of CDN$1.00 per unit. Each unit (a "Unit") consists of one Share, one-half of one Series A Share purchase warrant and one-half of one Series B Share purchase warrant. Each whole Series A Share purchase warrant is exercisable at CDN$1.25, and each whole Series B Share purchase warrant is exercisable at CDN$1.50, in each case for a period of two years from the date of grant. G. Scott Paterson, our Vice Chairman, also purchased 1,000,000 Units on the same terms. The aggregate gross proceeds from the sale of Units were Cdn$11.0 million or US$9.2 million. In accordance with Accounting Standards Codification Topic 805 ( ASC 805 ), Business Combinations the Company has determined that NeuLion USA was the accounting acquirer and accordingly has accounted for the Merger as a reverse takeover. Therefore, the financial statements and this MD&A for the years ended December 31, 2009 and 2008 reflect the assets, liabilities and results of operations of NeuLion USA, the accounting acquirer, and only include the assets, liabilities and results of operations of NeuLion, the legal acquirer, subsequent to the reverse takeover on October 20, 2008 (the Acquired Business ). This MD&A is issued under the name of the legal acquirer (NeuLion), but is deemed to be a continuation of the accounting acquirer (NeuLion USA). ACQUISITION OF INSINC Effective October 31, 2009, the Company completed the acquisition of INSINC. INSINC is based in Burnaby, British Columbia, Canada, and has 20 employees. INSINC offers a range of software tools for streaming video content over the Internet. Its largest clients are in the area of sports, including the Western Hockey League ( WHL ), Ontario Hockey League ( OHL ), Central Hockey League ( CHL ), British Columbia Hockey League ( BCHL ), Central Canadian Hockey League ( CCHL ), Alberta Junior Hockey League ( AJHL ), the Central Junior Hockey League ( CJHL ) and the Canadian Football League ( CFL ). INSINC also provides services within the government and entertainment broadcasting sectors with clients including Business News Network ( BNN ), CTV News Channel, Rogers Sportsnet, TVG Networks, The Canadian Press, the Canadian Ministry of Justice, the BC Ministry of Education, and the Legislative Assemblies of British Columbia and Newfoundland and Labrador, among others. Under the terms of the acquisition, shareholders of INSINC received consideration consisting of 6,000,012 Shares of the Company, CDN $2.5 million in cash, 1 million Share purchase warrants to acquire Shares at USD $1.35 per Share and 500,000 Share purchase warrants to acquire Shares at USD $1.80 per Share. Both series of warrants are exercisable for a period of 2 years. 24

28 The aggregate purchase price of $6,694,293 represents the fair value of 6,000,012 Shares issued of $4,035,043 (determined using the market price of the Shares at the time of issuance), cash in the amount of $2,320,500 and the fair value of the Share purchase warrants in the amount of $338,750 (determined using the Black-Scholes-Merton model). The preliminary fair values of the assets acquired are as follows: Balance Sheet Data: October 31, 2009 $ Cash 344,371 Accounts receivable 306,551 Prepaid expenses and deposits 92,351 Other receivables 338,504 Fixed assets 739,690 Accounts payable and accrued liabilities (1,171,884) Long-term liabilities (120,000) Deferred revenue (125,815) Intangible assets - contractual agreements 5,180,000 Intangible assets - tradename 95,000 Goodwill 1,015,525 Total 6,694,293 As noted above, the purchase price allocation of the tangible and intangible assets is preliminary and may be adjusted as a result of obtaining additional information regarding preliminary estimates of fair values made at the date of purchase. INSINC recorded revenues of CDN $5.6 million, EBITDA of CDN$0.4 million and net income of CDN$0.3 million for the year ended December 31, The results of operations for INSINC for fiscal 2009 have been included in the Company s consolidated statements of operations from the October 31, 2009 effective date of the acquisition to December 31, 2009 and are summarized below. Income Statement Data: Year ended 31-Dec-09 $ Total revenue 575,347 Total cost of revenue (238,309) Total selling, general and adminstrative costs (264,816) Depreciation and amortization (8,965) Loss on foreign exchange (6,169) Net income 57,088 25

29 OVERVIEW The Company is a leading Internet Protocol ( IP ) television company, providing end-to-end IPTV services. IPTV refers to the distribution over an IP network of streamed audio, video and other multimedia content, similar to television programming content, using industry-standard streaming protocols. We build and manage private networks for content owners and aggregators (our content partners) that are used to stream content to multiple platforms through browser-based devices. That content includes live and on-demand sports and international and variety programming, which we then deliver to subscribers and pay-per-view customers for viewing on Internet-connected browser-based devices such as personal computers, laptops and mobile devices and on standard television sets through Internet-connected set top boxes ( STBs ). NeuLion s main business objective is to enter into agreements with companies seeking their own private networks to reach target audiences and to provide complete IPTV services to these companies. We also acquire the rights to certain sports and international content from television broadcasters (our channel partners), which we then stream to end users through our own private networks. Our business model has evolved from a professional IT services and international programming provider to an end-to-end provider of the following IPTV services. By end-toend provider of IPTV services, we mean that we provide the following services: content management - encoding of various digital and analog TV and video formats; subscriber management - managing subscriber access and control of subscriber accounts; digital rights management preserving the integrity of the content and protecting it from unauthorized access; billing services - enabling customers to view subscription accounts, providing pay-per-view transactional billing and payment processing; delivery - delivering streamed audio, video and other multimedia content anywhere, anytime through the Company s IPTV service and infrastructure; and advertising insertion. On January 7, 2010, the Company announced that it had signed a multi-year partnership to distribute certain DISH Network L.L.C. ( DISH Network ) international channels using NeuLion's IPTV platform. The partnership with NeuLion enhances DISH Network's international programming offerings by providing consumers without access to satellite TV the ability to enjoy select DISH Network international channels through IPTV. Customer Relationships We have two types of relationships: business-to-business ( B2B ) and business-to-consumer ( B2C ). B2B relationships have been our primary focus in the past and are expected to be the focus in the future. A B2B relationship is focused on providing an end-to-end solution to a customer to enable that customer to provide its content, by way of an IPTV platform built for that customer, to its end users. B2B customers typically aggregate the content, negotiate the licensing rights and directly market the availability of the content. This customer avails itself of the full services of the Company in delivery to its end users. This type of relationship is typical in the professional and college sports properties and in our agreements with international and broad-based content providers. Our B2C relationships are individual consumer oriented. We have signed distribution agreements with our channel partners and content providers in exchange for revenue share or royalty payments to such providers. We then market the content on one (or more) of the proprietary targeted websites that we have developed which are focused on a specific diaspora community, as well as on the general Company website for purchase by an end user. We often aggregate the content into bundles or packages of similar interest (e.g. Talfazat for the Middle East community; TV-Desi for the South Asian community). We incur marketing expenses in promoting the availability of such content. The United States and Canada are the principal markets in which our sales occur. 26

30 Products and Services Sports programming Through our comprehensive end-to-end IPTV solution, we provide our sports programming content partners with the ability to deliver live and on-demand content. We maintain distribution and technology services agreements with leading professional and collegiate sports properties as well as with the sports network ESPN. Amongst professional sports leagues, NeuLion counts the National Football League (NFL), the National Hockey League (NHL) and the American Hockey League (AHL). Through our recent acquisition of Interactive Netcasting Systems Inc. ( INSINC ), a provider of sports, government and entertainment webcasting services, we expanded our portfolio of sports content partners to include the Western Hockey League (WHL), the Ontario Hockey League (OHL), the Central Hockey League (CHL), the British Columbia Hockey League (BCHL), the Central Canadian Hockey League (CCHL), the Alberta Junior Hockey League (AJHL), the Central Junior Hockey League (CJHL) and the Canadian Football League (CFL). We also operate our own portfolio of sports-oriented websites, including Cycling.tv, CollegeSportsDirect.com and selected World Cup soccer properties. On the collegiate level, we are the premier partner for National Collegiate Athletic Association (NCAA) colleges and universities, with agreements in place with approximately 170 colleges, universities or related sites. Ethnic/international and specialty programming The Company also offers what is referred to in the industry as ethnic television, which the Company defines as programming directed at a specific diaspora community, as determined by a shared nationality, language or culture, and generally excluding communities for which English is the primary language. We have license agreements directly with channel partners representing approximately 185 channels in 55 countries that give NeuLion rights to stream, predominantly on an exclusive world-wide basis, the channel partners live linear television feeds over the public Internet using our proprietary private networks such as Talfazat and TV-Desi. Our subsidiary, INSINC, also distributes government and entertainment content. Its clients in those industries include Business News Network (BNN), CTV News Channel, Rogers Sportsnet, TVG Networks, The Canadian Press, the Canadian Ministry of Justice, the BC Ministry of Education, and the Legislative Assemblies of British Columbia and Newfoundland and Labrador, among others. Services We also have relationships with other specialty programming customers such as Sky Angel U.S. LLC, which streams faith-based programming. Our suite of technology and other services is directed at the entire spectrum of content aggregation and delivery. Our services include: content ingestion; web site design and hosting; live and on-demand streaming of content on multiple platforms; billing services; facilitating online merchandise sales; mobile features (streaming highlights, alerts, wallpaper and ring tones); online ticketing; auction engine (jerseys, tickets); social networking; 27

31 Distribution Methods We distribute content through two primary methods: Both of our distribution methods take advantage of an open IPTV network, the public Internet. As a result, content delivered by NeuLion is available globally and is potentially unlimited in breadth. Revenue We earn revenue in two broad categories: services revenue and equipment revenue. Services revenue includes subscriber revenue, ecommerce revenue and technology services revenue. Equipment revenue includes the sale and shipping of STBs. Our revenue streams are described in detail in Item 7- Management s Discussion & Analysis under the caption OPERATIONS. Competition customer and fan support; and marketing and advertising sales. Internet-connected browser-based devices such as personal computers, laptops and mobile devices; and standard television sets through use of our Internet-connected STBs. New technologies and entrants could have a material adverse effect on the demand for NeuLion s IPTV offerings. For example, fixed line telecommunications and mobile telephony companies who offer or plan to offer video services may be competitors of NeuLion. Together with other industry observers, we have witnessed and expect to continue to witness the launch of various closed network IPTV services around the world. As they strive to maintain and grow their customer bases, fixed line telecommunications companies will likely see closed network IPTV as a central element of a triple-play strategy that will package telephone, television and Internet services in a single offering. Moreover, certain IPTV service providers have an internal IP distribution strategy whereby they make their live linear feeds, as well as repurposed content, available through their own websites on a paid basis or free advertisement-supported basis. We also face competition from other online content providers who offer sports, entertainment, and/or international programming. In addition, there are multiple operators of pirated video content who stream content for which they have not received consent from the legal and beneficial owners of such content. Furthermore, there are multiple front-end providers that provide a menu of links to streaming video content via websites on the Internet. These bootleggers and front-end providers have varying menus of ethnic content and offer such content at varying degrees of streaming quality. We may also be placed at a competitive disadvantage to the extent that other video providers are able to offer programming of higher technical quality than we can. While we expect to continue to improve the technical quality of our products and services and offer our video content at increasingly higher streaming speeds, we cannot assure you that we will be able to compete effectively with other video providers. To distinguish our product line from our competitors offerings, we seek to be a one-stop shopping source for our customers. Our suite of technology and other services, discussed above, is directed at the entire spectrum of content aggregation and delivery. Many companies in our markets offer far narrower choices of services than we offer. For example, some content providers deliver only their own content, while we offer the content of multiple providers. Or, an agency may provide only online ticketing services, while we also provide related online shopping and fan networking. We also provide the STBs used to view our content on a television set. We strive to meet every customer s needs at every level and partner with them across product lines and extensions. 28

32 Overall Performance - Overview The Company uses the term organic to refer to the period-over-period changes in its revenues and expenses, excluding the revenues and expenses of the Acquired Business and INSINC. This permits readers to better compare current year and prior year revenues and expenses, and to understand changes that have occurred, without regard to the effect of the Merger or the acquisition of INSINC. Year ended December 31, 2009 Revenue for fiscal 2009 was $28.1 million, up 110% from $13.4 million in fiscal The revenue growth of $14.7 million was due to an increase in services revenue of $16.9 million, offset by a decrease in our equipment revenue of $2.2 million. The revenue growth was due to the following: organic growth of $3.3 million; increase in revenue from the Acquired Business of $10.8 million (2008 revenue was from the date of the Merger on October 20, 2008 to December 31, 2008); and revenue from INSINC of $0.6 million (revenue included in 2009 was from the October 31, 2009 effective date of the acquisition to December 31, 2009). The organic increase in services revenue is consistent with the increasing scope of operations. As the number of subscribers increases, there is a cumulative effect of increasing subscriber revenue on a quarter over quarter basis. The decrease in equipment revenue is a result of the uneven nature of this revenue stream customers often place large single orders made to meet minimum order requirements, to manage the lead time between ordering and shipping and to minimize the related shipping costs. The lead time on new orders is approximately 12 weeks from placing an order to receipt of goods. The purchase by customers of STBs is a leading indicator of future subscriptions. Our net loss for fiscal 2009 was $19.6 million, or a loss of $0.18 per basic and diluted Share, compared with a net loss of $11.6 million, or a loss of $0.21 per basic and diluted Share, in fiscal The increase in net loss of $8.0 million was due to the following: Increase in organic loss of $2.6 million (excluding non-operating expenses); Increase in loss in the Acquired Business of $4.8 million, excluding non-operating expenses (2008 loss was from the date of the Merger on October 20, 2008 to December 31, 2008); and Increase in non-operating expenses of $0.6 million (detailed below in the Net Loss to EBITDA reconciliation). On a pro forma basis (excluding INSINC), as if the Merger had occurred on January 1, 2008, revenue increased from $25.7 million to $27.5 million. Our net loss for fiscal 2008 (excluding INSINC) was $92.5 million or a loss of $0.90 per basic and diluted Share. The improvement in net loss of $72.9 million on a pro forma basis was due to the following: Increase in organic loss of $2.6 million (excluding non-operating expenses); Reduction in net loss in the Acquired Business of $20.4 million due to cost reductions in most areas of the business (excluding non-operating expenses); and Reduction in non-operating expenses of $55.1 million (detailed below in the Net Loss to EBITDA reconciliation). Our non-gaap Adjusted EBITDA loss was $13.9 million in fiscal 2009 compared with a non-gaap Adjusted EBITDA loss of $6.6 million in fiscal The increase in non- GAAP Adjusted EBITDA loss is due to the cash impact of the items noted above. On a pro forma basis, our non-gaap Adjusted EBITDA loss decreased from a loss of $31.6 million in fiscal 2008 to a loss of $13.9 million in fiscal This decrease is due to cost reductions in most areas of the Acquired Business offset by the increased organic costs. 29

33 The Company reports non-gaap Adjusted EBITDA loss because it is a key measure used by management to evaluate the results of the Company and make strategic decisions about the Company. Non-GAAP Adjusted EBITDA loss represents net loss before interest, income taxes, depreciation and amortization, stock-based compensation, impairment of long-lived assets, unrealized loss on derivatives, equity in loss of affiliate, investment income and foreign exchange gain. This measure does not have any standardized meaning prescribed by generally accepted accounting principles ( GAAP ) and therefore is unlikely to be comparable to the calculation of similar measures used by other companies, and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with GAAP. The reconciliation from net loss to non-gaap Adjusted EBITDA loss is as follows: Years ended, Pro forma (excl. INSINC) $ $ $ Net loss (19,640,921) (11,637,260) (92,459,364) Add back: Impairment of goodwill ,882,317 Impairment of long-lived assets - 1,036,993 5,982,030 Depreciation and amortization 4,141,117 1,572,492 3,602,169 Stock-based compensation 1,167,789 1,848,906 3,374,767 Unrealized loss on derivative 801, Equity in loss of affiliate - 1,006,386 1,006,386 Investment income and foreign exchange gain (362,070) (395,768) (998,753) Non-GAAP Adjusted EBITDA loss (13,892,735) (6,568,251) (31,610,448) OPERATIONS Revenue The Company earns revenue in two broad categories: (i) Services revenue, which includes: Subscriber revenue, which is recognized over the period of service or usage; ecommerce revenue, which is recognized as the service is performed; and Technology revenue, which consists of the set up and transcoder revenue and is recognized over the life of the contract. (ii) Equipment revenue, which is recognized when title of the STB passes to the customer. While our revenues have increased due to the organic growth in our existing business, the Merger and the acquisition of INSINC, we are currently uncertain as to the longterm impact of the downturn in the global economy on our business. 30

34 Cost and Expenses Cost of services revenue Cost of services revenue primarily consists of: Cost of subscriber revenue, which consists of : royalty payments network operating costs bandwidth usage fees colocation fees Cost of ecommerce revenue, which consists of: merchandising, donor and ticket sales, which has no associated cost revenue is booked on a net basis cost of advertising revenue is subject to revenue shares with the content provider Cost of technology services revenue, which consists of: third party transcoder software purchased maintenance costs for transcoders Cost of equipment revenue Equipment revenue consists of the sale of STBs to content partners and/or end users to enable the end user to receive the content over the Internet and display the signal on a television. Cost of equipment revenue primarily consists of purchases from TransVideo International, Ltd. ( Transvideo ) and Tatung Technology Incorporation of the products and parts for resale to customers. Shipping revenue and costs are included in equipment revenue and cost of equipment revenue, respectively. Selling, general and administrative expenses, including stock-based compensation Selling, general and administrative ( SG&A ) costs, including stock-based compensation, include: Wages and benefits represents compensation for the Company's full-time and part-time employees as well as fees for consultants who are used by the Company from time to time; Stock-based compensation we estimate the fair value of our options, warrants and stock appreciation rights ( Convertible Securities ) for financial accounting purposes using the Black-Scholes-Merton model, which requires a number of subjective assumptions, including the expected life of the Convertible Securities, risk-free interest rate, dividend rate, forfeiture rate and future volatility of the price of our Shares. We expense the estimated fair value over the vesting period of the Convertible Securities. The vesting period is normally over a four-year period, vesting in an equal amount each month; however, the Board of Directors has the discretion to grant options with different vesting periods; Marketing represents expenses for both global and local marketing programs that focus on various target sports properties and ethnic communities. These initiatives include both on-line and off-line marketing expenditures. These expenditures also include search engine marketing and search engine optimization; Professional fees represents legal, accounting and recruiting fees; and Other SG&A expenses represents travel expenses, rent, office supplies, corporate IT services, credit card processing fees and other general operating expenses. 31

35 Equity in loss of affiliate From January 1, 2008 through December 31, 2009, the Company's equity interest in KyLinTV was 17.1%. KyLinTV is a company that is controlled by the Chairman of the Board of Directors of the Company. The Company also provides and charges KyLinTV for administrative and general corporate support. Management has determined that as a result of the 17.1% equity interest combined with the services that the Company provides KyLinTV, the Company continues to have significant influence on the operating activities of KyLinTV; therefore the Company continues to account for KyLinTV using the equity method of accounting for investment. The Company s proportionate share of the equity loss from KyLinTV has been accounted for as a charge on the Company's consolidated statements of operations and comprehensive loss. Due to KyLinTV s accumulated losses, the investment had been reduced to zero as at December 31, No further charges will be recorded as the Company has no obligation to fund the losses of KyLinTV. On February 26, 2010, a group of investors invested $10.0 million in KyLinTV for 15.1% of its equity, which reduced the Company s equity interest in KyLinTV to 12.2%. Of the total $10.0 million investment, $1.0 million was invested by AvantaLion LLC, a company controlled by the Chairman of the Board of Directors of the Company. 32

36 SELECTED ANNUAL INFORMATION The selected consolidated financial information set out below for the three years ended December 31, 2009, 2008 and 2007 and as at December 31, 2009, 2008 and 2007 has been derived from the Company s audited consolidated financial statements and accompanying notes posted on and at Readers should read the following information in conjunction with those statements and related notes. December 31, 2009 Years ended, December 31, 2008 December 31, 2007 $ $ $ Consolidated Statement of Operations Data: Revenue 28,093,677 13,443,339 7,810,711 Cost of sales (14,387,152) (7,639,149) (5,504,254) Selling, general and administrative expenses, including stock based compensation (28,767,049) (14,221,347) (4,210,357) Net loss for the year (19,640,921) (11,637,260) (4,515,759) Basic and diluted loss per share (0.18) (0.21) (0.11) December 31, 2009 As at, December 31, 2008 December 31, 2007 $ $ $ Consolidated Balance Sheet Data: Cash and cash equivalents 12,957,679 27,323, ,464 Total assets 40,269,163 53,737,682 7,211,951 Non-current liabilities 1,197,521 1,514, ,199 Total liabilities 17,998,829 16,724,104 3,965,018 Share capital 11,260,415 6,762,097 68,871 Total shareholders' equity 22,270,334 37,013,578 3,246,933 The Company s business model has evolved from a professional IT services and international programming provider to fiscal 2007, where it began to pursue the objective of being an end-to-end provider of IPTV services. Fiscal 2007 revenue increased to $7.8 million, which included $1.3 million in services revenue and $6.5 million in equipment revenue. Fiscal 2007 included the sale of $6.4 million in equipment revenue to two customers as these customers launched their IPTV strategies. These two customers accounted for 85% of total revenue. Cost of sales increased by $5.0 million, primarily for cost of equipment revenue, which is a lower margin component of the Company s business. The increase in loss was due to expanding operations and continued investment in research and development. Losses were funded by our CEO. Fiscal 2008 included the acquisition of the Acquired Business, described above. In fiscal 2008 revenue increased to $13.4 million, which included $9.5 million in services revenue and $3.9 million in equipment revenue. Of the $13.4 million, the Merger described above contributed $3.3 million in revenue. The balance of the revenue growth ( organic growth ) was growth in services revenue, offset by a decline in equipment revenue. Services revenue is primarily recurring revenue; subscriber growth provides a baseline of revenue that continues to grow month over month, albeit with some seasonality impact depending on the sports season. The continuous trend over the past three years has been increasing services revenue from operating as an end-to-end IPTV service provider. In fiscal 2008 costs continued to scale with the growth in the existing business, and then were accelerated through the Merger (for example, the Company experienced increased wages due to the increased headcount and increased travel expenses due to having multiple offices). Net loss increased to $11.6 million due to growth in operations, the additional operating costs acquired in the Merger, and costs related to non-cash stock-based compensation. Losses prior to the Merger were funded by a capital contribution in 2008 of $2.6 million by our CEO. Included in the Merger was cash from the Acquired Business of $22.9 million, which increased the Company s cash balance to $27.3 million at December 31,

37 In fiscal 2009 revenue increased to $28.1 million, which included $26.5 million in services revenue and $1.6 million in equipment revenue. Of the total revenue growth of $14.7 million, the Acquired Business contributed $10.8 million in revenue, while INSINC contributed $0.6 million in revenue. The balance of the organic growth occurred in services revenue, offset by a decline in equipment revenue. Net loss increased from $11.6 million in 2008 to $19.4 million in 2009, primarily due to the inclusion of the Acquired Business for 12 months in 2009 as opposed to 2 months in The Company is currently reviewing its operating structure to maximize revenue opportunities, further reduce costs and achieve profitability. 34

38 RESULTS OF OPERATIONS Comparison of Fiscal Year Ended December 31, 2009 to Fiscal Year Ended December 31, 2008 Our consolidated financial statements for our fiscal years ended December 31, 2009 and 2008 have been prepared in accordance with U.S. GAAP. Included in note 17 of the financial statements is the reconciliation between our consolidated financial statements prepared in accordance with U.S. GAAP and Canadian GAAP. Revenue Change $ $ % Revenue Services revenue 26,464,400 9,542, % Equipment revenue 1,629,277 3,900,650-58% Total Revenue 28,093,677 13,443, % Costs and expenses Cost of services revenue, exclusive of depreciation and amortization shown separately below 12,850,002 4,519, % Cost of equipment revenue 1,537,150 3,120,087-51% Selling, general and administrative, including stock-based compensation 28,767,049 14,221, % Depreciation and amortization 4,141,117 1,572, % Impairment of long-lived assets - 1,036,993-47,295,318 24,469,981 93% Operating loss (19,201,641) (11,026,642) 74% Other income (expense) Unrealized loss on derivative (801,350) - - Gain on foreign exchange 68, ,720-74% Investment income 293, , % Equity in loss of affiliate - (1,006,386) - (439,280) (610,618) -28% Net and comprehensive loss for the year (19,640,921) (11,637,260) 69% Services revenue Services revenue includes revenue from subscribers, ecommerce and technology services. Services revenue increased from $9.5 million for the year ended December 31, 2008 to $26.5 million for the year ended December 31, The increase was due to the organic growth in services revenue, the effect of the Merger on October 20, 2008 and the acquisition of INSINC effective October 31, The organic growth in our services revenue was $5.6 million. The growth in the Acquired Business comprised $10.8 million, and INSINC comprised $0.6 million, of total services revenue. Subscriber revenue increased from $7.0 million for the year ended December 31, 2008 to $18.5 million for the year ended December 31, The increase was due to the growth in subscribers, the effect of the Merger on October 20, 2008 and the acquisition of INSINC effective October 31, The organic growth in our subscriber revenue was $4.5 million resulting from $4.0 million in revenue growth from our existing customers coupled with $0.5 million in revenue generated from 15 new customers. The growth in the Acquired Business was $6.7 million and INSINC comprised $0.3 million of total subscriber revenue for the year. 35

39 ecommerce revenue increased from $0.9 million for the year ended December 31, 2008 to $3.9 million for the year ended December 31, The Acquired Business comprised all of ecommerce revenue for the year. Technology services revenue increased from $1.6 million for the year ended December 31, 2008 to $4.1 million for the year ended December 31, The increase was due to organic growth in technology services revenue, the effect of the Merger on October 20, 2008, and the October 31, 2009 effective date of the acquisition of INSINC. As new customers begin streaming video or develop their user interface, we earn technology services revenue. This revenue is recognized over the life of the contractual relationship. The organic growth in our technology services revenue was $1.0 million. The growth in the Acquired Business was $1.2 million. INSINC comprised $0.3 million of total technology services revenue for the year. Equipment revenue Equipment revenue decreased from $3.9 million for the year ended December 31, 2008 to $1.6 million for the year ended December 31, The decrease in equipment revenue is a result of the uneven nature of the revenue stream; customers often place large single orders to meet minimum order requirements to manage the lead time between ordering and shipping and to minimize the related shipping costs. The lead time on new orders is approximately 12 weeks from order to receipt. The timing of specific orders is not consistent period over period. We sell our STBs to customers, who in turn sell or give them to new users, and we sell directly to users. The demand for STBs is driven by new subscribers and the level of inventory carried by our customers. Our customers do not have the right of return on purchased STBs. Initial orders by new customers and new users will impact the trend of STB revenues. The Company expects STB revenue to have a much slower growth rate than services revenue. Services revenue is recurring revenue whereas STB revenue is earned on new customers and/or new subscribers. Costs and Expenses Cost of services revenue Cost of services revenue increased from $4.5 million, or 47%, of services revenue for the year ended December 31, 2008 to $12.8 million or 49% of services revenue for the year ended December 31, This increase was due to the costs associated with increased revenue, the effect of the Merger on October 20, 2008 and the acquisition of INSINC effective October 31, Cost of services revenue for the Acquired Business increased by $5.9 million. INSINC comprised $0.3 million of total costs of services revenue for the year. Organic cost of services revenue increased from $2.5 million or 39.7% of services revenue for the year ended December 31, 2008 to $4.6 million or 39.0% of services revenue for the year ended December 31, The $2.1 million increase was a result of additional costs relating to co-location and network fees in support of increased revenue. The 0.7% improvement (as a percentage of services revenue) primarily relates to negotiated lower rates on bandwidth costs. Cost of equipment revenue Cost of equipment revenue decreased from $3.1 million for the year ended December 31, 2008 to $1.5 million for the year ended December 31, 2009 on lower revenue. Cost of equipment revenue is directly variable with changes in equipment revenue. Cost of equipment revenue as a percentage of equipment revenue increased from 80% for the year ended December 31, 2008 to 94% for the year ended December 31, 2009 due to increased shipping costs related to TV-Desi and Talfazat rental STBs that generate no equipment revenue. 36

40 Selling, general and administrative, including stock-based compensation Selling, general and administrative, including stock-based compensation, increased from $14.2 million for the year ended December 31, 2008 to $28.8 million for the year ended December 31, The Acquired Business accounted for $9.1 million of the total increase, INSINC accounted for $0.3 million and the remaining increase of $5.2 million relates to the organic increase. The individual variances are due to the following: Wages and benefits increased from $8.8 million for the year ended December 31, 2008 to $20.0 million for the year ended December 31, The Acquired Business accounted for $6.5 million of the total increase of $11.2 million in wages and benefits for the year. The organic increase of $4.5 million was primarily related to the increase in employees to support the increased revenue and the Merger with the Acquired Business. In conjunction with the Merger, the Company added senior management and provided market level compensation for the CEO. INSINC comprised $0.2 million of total wages and benefits for the year. Stock-based compensation expense decreased from $1.8 million for the year ended December 31, 2008 to $1.2 million for the year ended December 31, This decrease was the result of 5 million fully vested warrants being issued in the prior year. Marketing expenses increased from a $0.4 million for the year ended December 31, 2008 to $1.1 million for the year ended December 31, The Acquired Business accounted for $0.5 million of the total increase of $0.7 million in marketing expenses for the year. The Acquired Business is more of a business-to-consumer focused business and incurs higher marketing expenses including search engine marketing and search engine optimization on the Internet. Professional fees increased from $1.2 million for the year ended December 31, 2008 to $1.7 million for the year ended December 31, The increase was primarily related to professional fees incurred in connection with the acquisition of INSINC. Other SG&A expenses increased from $2.0 million for the year ended December 31, 2008 to $4.8 million for the year ended December 31, The Acquired Business accounted for $2.3 million of the total increase of $2.8 million for the year. The organic increase of $0.5 million was primarily related to increases in bank and processing fees and corporate systems costs of $0.4 million. Equity in loss of affiliate Equity in loss of our affiliate, KyLinTV, decreased from $1.0 million for the year ended December 31, 2008 to zero for the year ended December 31, The decrease is as a result of the cumulative losses exceeding the full value of the Company s investment in Due to KyLinTV s accumulated losses, the investment had been reduced to zero at December 31, The Company still owns its equity position in the affiliate; however, the Company is not required to fund any additional losses, and as such no further charges will be incurred. Depreciation and amortization Depreciation and amortization increased from $1.5 million for the year ended December 31, 2008 to $4.1 million for the year ended December 31, The increase was due to amortization on assets acquired in the Merger ($1.9 million) and amortization of the intangible assets acquired in the acquisition of INSINC. Unrealized loss on derivative Unrealized loss on derivative increased from zero for the year ended December 31, 2008 to $0.8 million for the year ended December 31, The increase was due to the adoption of ASC , effective January 1, 2009, which required the Company to record at fair value all convertible securities denominated in a currency other than the Company s functional currency. On January 1, 2009, the grant date fair value of warrants denominated in Canadian dollars of $2.5 million was reallocated from additional paid-in capital and a derivative liability was recorded in the amount of $0.6 million with an adjustment to opening accumulated deficit of $1.9 million. The difference between the fair value at January 1, 2009 of $0.6 million and the fair value at December 31, 2009 of $1.4 million resulted in an unrealized loss on derivative of $0.8 million. 37

41 These warrants have been recorded at their relative fair values at issuance, determined using the Black-Scholes-Merton model, and will continue to be recorded at fair value at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as other income (expense). These warrants will continue to be reported as a liability until such time as they are exercised or expire. Impairment of long-lived assets Long-lived assets must be tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. For the Company, long-lived assets include intangible and capital assets. Ongoing negative developments in the general economic climate would be considered an event that would be a possible indicator of impairment. An impairment loss is recognized as the difference between fair value and carrying amount when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The fair value of the intangible assets acquired in the Merger was determined on October 20, 2008; therefore, management believed the fair value of the assets acquired in the Merger is consistent with the carrying amount at December 31, The Company tested the fair value of the non-merger long-lived assets as at December 31, 2008 and determined that the carrying value of such capital assets exceeded their fair value by $1.0 million. Accordingly, the Company recorded a non-cash impairment charge of $1.0 million during No such charges were recorded in SELECTED UNAUDITED QUARTERLY FINANCIAL INFORMATION AND REVIEW OF FOURTH QUARTER PERFORMANCE The following tables set out selected consolidated unaudited financial information for each of the last eight quarters with the last one being the most recent quarter ended December 31, In the opinion of management, this information has been prepared on the same basis as the audited consolidated financial statements as filed on and and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and the notes to those statements. The operating results for any quarter should not be relied upon as any indication of any future period. GAAP. Included in Note 17 of the financial statements is the reconciliation between our consolidated financial statements prepared in accordance with U.S. GAAP and Canadian Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 $ $ $ $ $ $ $ $ Income Statement Data: Revenue 8,995,911 6,061,302 6,462,438 6,574,026 5,807,550 2,699,041 2,987,128 1,949,620 Cost of revenue 4,024,35 3,224,838 3,293,481 3,844,483 3,205,272 1,534,807 1,753,689 1,145,381 Net loss for the period (1,454,962) (7,463,951) (4,928,130) (5,793,878) (7,223,468) (1,377,667) (1,549,979) (1,486,146) Basic and diluted loss per share (0.01) (0.07) (0.04) (0.05) (0.13) (0.03) (0.04) (0.03) 38

42 Comparison of Three Months Ended December 31, 2009 to Three Months Ended December 31, 2008 Revenue Services revenue Services revenue includes revenue from subscribers, ecommerce and technology services. Services revenue increased from $5.6 million for the three months ended December 31, 2008 to $8.7 million for the three months ended December 31, The increase is a combination of the organic growth in services revenue and the effect of the Merger on October 20, The organic growth in our services revenue was $1.5 million. The growth in the Acquired Business was $1.0 million. INSINC comprised $0.6 million of total services revenue for the period. Subscriber revenue increased from $4.0 million for the three months ended December 31, 2008 to $6.0 million for the three months ended December 31, The increase is a combination of the growth in subscribers, the effect of the Merger on October 20, 2008 and the acquisition of INSINC effective October 31, The organic growth in our subscriber revenue was $1.4 million resulting from $1.2 in revenue from existing customers and $0.2 million in revenue generated from 14 new customers. The growth in the Acquired Business was $0.3 million. INSINC comprised $0.3 million of total subscriber revenue for the period. ecommerce revenue increased from $0.8 million for the three months ended December 31, 2008 to $1.4 million for the three months ended December 31, The Acquired Business comprised all of ecommerce revenue for the period. Technology services revenue increased from $0.8 million for the three months ended December 31, 2008 to $1.3 million for the three months ended December 31, The increase is a combination of the organic growth in technology services revenue, the effect of the Merger on October 20, 2008 and the effect of the acquisition of INSINC effective October 31, As new customers begin streaming video or develop their user interface, we earn technology services revenue. This revenue is recognized over the life of the contractual relationship. The organic growth in our technology services revenue was $0.1 million. The growth in the Acquired Business was $0.1 million. INSINC comprised $0.3 million of total technology services revenue for the period. Equipment revenue Equipment revenue increased from $0.2 million for the three months ended December 31, 2008 to $0.3 million for the three months ended December 31, The increase in equipment revenue is a result of the uneven nature of the revenue stream. Costs and Expenses Cost of services revenue Cost of services revenue increased from $3.0 million or 54% of services revenue for the three months ended December 31, 2008 to $3.7 million or 43% of services revenue for the three months ended December 31, This increase was a combination of the costs associated with increased revenue and the acquisition of INSINC effective October 31, INSINC comprised $0.3 million of the total cost of services revenue for the period. Organic cost of services revenue increased from $1.0 million or 42% for the three months ended December 31, 2008 to $1.4 million or 36% for the three months ended December 31, The $0.4 million increase was a result of additional costs relating to colocation and network fees in support of increased revenue. The 6% improvement (as a percentage of services revenue) primarily relates to negotiated lower rates on bandwidth costs. Cost of equipment revenue Cost of equipment revenue increased from $0.2 million for the three months ended December 31, 2008 to $0.3 million for the three months ended December 31, 2009 on increased revenue. Cost of equipment revenue is directly variable with changes in equipment revenue. 39

43 Selling, general and administrative, including stock-based compensation Selling, general and administrative, including stock-based compensation, decreased from $8.3 million for the three months ended December 31, 2008 to $7.6 million for the three months ended December 31, The individual variances are due to the following: Wages and benefits increased from $4.3 million for the three months ended December 31, 2008 to $5.3 million for the three months ended December 31, The organic increase of $0.8 million was primarily related to the increase in employees to support the increased revenue and the Merger with the Acquired Business. In conjunction with the Merger, the Company added senior management and provided market level compensation for the CEO. INSINC comprised $0.2 million of total wages and benefits for the period. Stock-based compensation expense decreased from $1.8 million for the three months ended December 31, 2008 to $0.2 million for the three months ended December 31, This decrease was the result of 5 million fully vested warrants being issued in the prior period. Marketing expenses were $0.3 million for the three months ended December 31, 2008 and Professional fees decreased from $0.6 million for the three months ended December 31, 2008 to $0.5 million for the three months ended December 31, Other SG&A expenses were $1.3 million for the three months ended December 31, 2008 and Depreciation and amortization Depreciation and amortization increased from $0.9 million for the three months ended December 31, 2008 to $1.1 million for the three months ended December 31, The increase was due to amortization of the intangible assets acquired in the acquisition of INSINC. Unrealized gain on derivative Unrealized gain on derivative increased from zero for the three months ended December 31, 2008 to $2.2 million for the three months ended December 31, The increase was due to the adoption of ASC The difference between the fair value at September 30, 2009 of $3.6 million and the fair value at December 31, 2009 of $1.4 million resulted in an unrealized gain on derivative of $2.2 million. Impairment of long-lived assets As described above, the Company recorded a non-cash long-lived asset impairment charge of $1.0 million during the three months ended December 31, There were no such comparable amounts recorded in the current period. 40

44 LIQUIDITY AND CAPITAL RESOURCES During the year ended December 31, 2009, the Company s cash position decreased by $14.4 million. The Company used $11.7 million to fund operations, which included working capital changes of $1.8 million, $1.2 million to purchase fixed assets and $1.6 million to acquire INSINC. As of December 31, 2009, our principal sources of liquidity included cash and cash equivalents of $13.0 million and trade accounts receivable of $1.8 million. We do not have a credit facility. At December 31, 2009, approximately 79% of our cash and cash equivalents were held in interest bearing bank accounts with a U.S. bank that received an A- rating by Standard and Poors and an A2 rating by Moody s and 7% of our cash and cash equivalents were held in bank accounts with two of the top five Canadian commercial banks. The Company believes that these U.S. and Canadian financial institutions are secure notwithstanding the current global economy and that we will be able to access the remaining balance of bank deposits as these deposits are with large reputable banks. Our investment policy is to invest in low-risk short-term investments which are primarily term deposits. We have not had a history of any defaults on these term deposits, nor do we expect any in the future given the short term to maturity of these investments. The Company s business is still in the early stages, with only a few years of operating history. From the Company s inception, it has incurred substantial net losses and has an accumulated deficit of $43.8 million; management expects these losses to continue in the short term. The Company continues to review its operating structure to maximize revenue opportunity, further reduce costs and achieve profitability. Based on our current business plan and internal forecasts, and considering the risks that are present in the current global economy, we believe that our cash on hand will be sufficient to meet our working capital and operating cash requirements for the next twelve months, which will include expenditures of significant funds for marketing, building its subscriber management systems, programming and website development, maintaining adequate video streaming and database software, pursuing and maintaining channel distribution agreements with its channel partners, fees relating to acquiring and maintaining Internet streaming rights to its content and the construction and maintenance of the Company s delivery infrastructure and office facilities. Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the risks detailed herein or incorporated by reference in our 10-K in the section titled Risk Factors. If our actual cash needs are greater than forecasted and if cash on hand is insufficient to meet our working capital and cash requirements for the next twelve months, we will require outside capital in addition to cash flow from operations in order to fund our business. Our short operating history, our current lack of profitability and the prolonged upheaval in the capital markets could each or all be factors that might negatively impact our ability to obtain outside capital on reasonable terms, or at all. If we were ever unable to obtain needed capital, we would reevaluate and reprioritize our planned capital expenditures and operating activities. We cannot assure you, however, that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to become profitable and have sustainable cash flows. Working Capital Requirements The net working capital at December 31, 2009 was $1.3 million, a decrease of $16.8 million from the December 31, 2008 net working capital of $18.1 million. The decreased working capital is primarily due to funding operations of $11.7 million and the fair value of the derivative liability of $1.4 million on December 31, 2009 (which is a non-cash liability). Current assets at December 31, 2009 were $17.8 million, a decrease of $15.5 million from the December 31, 2008 balance of $33.3 million. The change is primarily due to a decrease in our cash and cash equivalents of $14.4 million. Current liabilities at December 31, 2009 were $16.8 million, an increase of $1.6 million from the December 31, 2008 balance of $15.2 million. The change is primarily due to the fair value of the derivative liability of $1.4 million (which is a non-cash liability). 41

45 Cash Flows Summary Balance Sheet Data: December 31, $ $ Current Assets Cash and cash equivalents 12,957,679 27,323,021 Accounts receivable, net 1,809,147 2,284,242 Taxes receivable 35, ,253 Other receivables 821, ,711 Inventory 928, ,600 Prepaid expenses and deposits 966,101 1,830,260 Due from related parties 246, ,059 Total current assets 17,765,679 33,320,146 Current Liabilities Accounts payable 5,383,518 4,465,388 Accrued liabilities 5,822,385 7,595,116 Derivative liability 1,389,300 - Due to related parties 298,595 56,826 Deferred revenue 3,907,510 3,091,993 Total current liabilities 16,801,308 15,209,323 Working capital ratio Comparative Summarized Cash Flows Year Ended December 31, $ $ Cash used in operating activities (11,692,709) (5,614,501) Cash (used in) provided by investing activities (2,760,337) 20,294,983 Cash provided by financing activities 87,704 12,034,075 Operating activities Cash used in operating activities for the year ended December 31, 2009 was $11.7 million. Changes in net cash used in operating activities reflect the net loss of $19.6 million for the year, less: non-cash items in the amount of $6.1 million, which relates to stock-based compensation, depreciation and amortization and unrealized loss on derivative; and changes in operating assets and liabilities of $1.8 million. 42

46 Investing activities Cash used in investing activities for the year ended December 31, 2009 was $2.8 million. These funds were used to acquire INSINC ($1.6 million) and to purchase fixed assets ($1.2 million). Financing activities Cash provided by financing activities was $0.1 million for the year ended December 31, The funds were received from stock option and retention warrant exercises. Off-Balance Sheet Arrangements The Company did not have any off-balance sheet arrangements as of December 31, Contractual Obligations and Commitments The following table summarizes the Company s contractual commitments as at December 31, 2009, and the effect those commitments are expected to have on liquidity and cash flow in future periods: Financial Instruments The Company's financial instruments are comprised of cash and cash equivalents, accounts receivable, other receivables, taxes receivable, deposits, accounts payable, accrued liabilities, amounts due to/from related parties, and deferred revenue. Fair value of financial instruments Fair value of a financial instrument is defined as the amount for which the instrument could be exchanged in a current transaction between willing parties. The estimated fair value of our financial instruments approximates their carrying value due to the short maturity term of these financial instruments. Risks associated with financial instruments [i] Foreign exchange risk Total Thereafter $ $ $ $ $ $ $ Operating leases 8,004,585 1,702,605 1,190,740 1,151,882 1,128, ,076 2,041,030 Operating lease recovery (1) (5,243,520) (667,177) (667,177) (682,518) (703,996) (703,996) (1,818,656) Minimum guarantees (2) 4,042,389 1,911, , , , Capital lease obligations 125, ,408 9, Long-term liabilties 244, ,194 63, ,253 (1) The Company has signed a sublease for its Toronto office which offsets the operating lease commitment. (2) Minimum guarantees of payments to content providers for licensing of content and/or minimum performance payments. 7,174,182 3,185,943 1,506,912 1,304, ,256 86, ,627 The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency of the United States dollar. The majority of the Company s revenues are transacted in U.S. dollars, whereas a portion of its expenses are transacted in U.S. or Canadian dollars. The Company does not use derivative instruments to hedge against foreign exchange risk. 43

47 [ii] Interest rate risk The Company is exposed to interest rate risk on its invested cash and cash equivalents and its short-term investments. The interest rates on these instruments are based on the bank's rate and therefore are subject to change with the market. The Company does not use derivative financial instruments to reduce its interest rate risk. [iii] Credit risk The Company sells its services to a variety of customers under various payment terms and therefore is exposed to credit risk. The Company has adopted policies and procedures designed to limit this risk. The maximum exposure to credit risk at the reporting date is the carrying value of receivables. The Company establishes an allowance for doubtful accounts that represents its estimate of incurred losses in respect of accounts receivable. RELATED PARTY TRANSACTIONS TransVideo The Company has entered into certain transactions and agreements in the normal course of operations with related parties. Significant related party transactions are as follows: TransVideo is a company that is controlled by the Chairman of the Board of Directors of the Company that designs and sells equipment and technology for IPTV content delivery. STB purchases amounted to $1,029,136 and $2,745,000 and transcoder licensing fees amounted to $8,000 and $125,000 for the years ended December 31, 2009 and 2008, respectively. Included in cost of equipment revenue is the cost of STBs sold of $937,204 and $2,816,490 for the years ended December 31, 2009 and 2008, respectively. KyLinTV KyLinTV is an IPTV company that is controlled by the Chairman of the Board of Directors of the Company. On June 1, 2008, the Company entered into an agreement with KyLinTV to build and deliver the setup and back office operation of an IPTV service. The Company also provides and charges KyLinTV for administrative and general corporate support. For each of the periods presented, the amounts received for these services provided by the Company for the years ended December 31, 2009 and 2008 were $645,722 and $1,233,353, respectively. During the year ended December 31, 2008, the Company purchased computer equipment from KyLinTV in the amount of $620,000. New York Islanders Hockey Club, L.P. ( New York Islanders ) The Company provides IT-related professional services to the New York Islanders, a professional hockey club that is owned by the Chairman of the Board of Directors of the Company. Renaissance Property Associates, LLC ( Renaissance ) Renaissance is a real estate management company owned by the Chairman of the Board of Directors of the Company. In June 2009, the Company signed a sublease agreement with Renaissance for office space in Plainview, New York. Rent expense paid by the Company to Renaissance of $388,975 and zero, inclusive of taxes and utilities, is included in selling, general and administrative expense for the years ended December 31, 2009 and 2008, respectively. Patstar, Inc. ( Patstar ) Patstar, an investment holding company, is controlled by the Vice Chairman of the Board of Directors of the Company. Rent expense paid to the Company by Patstar of $3,649 and $2,596 is included as a recovery in selling, general and administrative expense for the years ended December 31, 2009 and 2008, respectively. 44

48 Hawaii IPTV, LLC ( Hawaii ) The Company had an IPTV customer, Hawaii, an IPTV company, whose principals are family members of the Chairman of the Board of Directors of the Company. Hawaii ceased operations during the third quarter of The Smile Train, Inc. ( Smile Train ) The Company provides IT-related professional services to Smile Train, a public charity whose founder and significant benefactor is the Chairman of the Board of Directors of the Company. The Company recognized revenue from related parties for the years ended December 31 as follows: December 31, December 31, $ $ New York Islanders 395, ,451 Renaissance 140, ,000 Smile Train 108, ,000 Hawaii 41,789 57,577 KyLinTV 1,755, ,550 2,442,035 1,514,578 As at December 31, 2009 and 2008, the amounts due from (to) related parties are as follows: Investment in Affiliate KyLinTV The Company records its investment in KyLinTV using the equity method. December 31, December 31, $ $ New York Islanders (304) 29,189 Renaissance (1,146) Smile Train 27,000 Hawaii 17,527 TransVideo (298,291) (55,680) KyLinTV 246, ,343 (51,603) 267,233 From January 1, 2008 through December 31, 2009, the Company's equity interest in the affiliate was 17.1%. As previously discussed, the Company also provides and charges KyLinTV for administrative and general corporate support. Management has determined that as a result of the 17.1% equity interest combined with the services that the Company provides KyLinTV, the Company continues to have significant influence on the operating activities of KyLinTV; therefore, the Company continues to account for its investment in KyLinTV using the equity method of accounting for investment. The Company s proportionate share of the equity loss from KyLinTV has been accounted for as a charge on the Company's consolidated statements of operations and comprehensive loss. Due to KyLinTV s accumulated losses, the investment had been reduced to zero as at December 31, No further charges will be recorded as the Company has no obligation to fund the losses of KyLinTV. 45

49 The results of operations and financial position of the Company's equity basis investment in KyLinTV are summarized below for the years ended December 31: On February 26, 2010, a group of investors invested $10.0 million in KyLinTV for 15.1% of its equity, which reduced the Company s equity interest in KyLinTV to 12.2%. Of the total $10.0 million investment, $1.0 million was invested by AvantaLion LLC, a company controlled by the Chairman of the Board of Directors of the Company. CRITICAL ACCOUNTING ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States consistently applied throughout all periods. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to inventory allowances, bad debts, long-lived assets, goodwill, income taxes, contingencies and litigation, the determination of the useful lives of long-lived assets, allocation of the purchase price for acquisitions and the assumptions used in determining the fair value of stock options and warrants. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: Business Combinations Year ended, Year ended, December 31, December 31, $ $ Condensed income statement information: Net sales 8,127,760 6,568,101 Net loss (5,604,118) (8,148,974) December 31, December 31, $ $ Condensed balance sheet information: Current assets 1,924, ,427 Non-current assets 913,977 2,411,319 Total assets 2,838,868 3,338,746 Current liabilities 15,168,149 10,063,909 Non-current liabilities Equity (deficiency) (12,329,281) (6,725,163) Total liabilities and equity 2,838,868 3,338,746 We allocate the purchase price to tangible assets, intangible assets, and liabilities based on fair values, with the excess of purchase price being allocated to goodwill. In 2009, our acquisition of INSINC resulted in the allocation of a portion of the purchase price to acquired intangible assets. In order to determine the fair value of these intangible assets, we make estimates and judgments based on assumptions about the future expected cash flows. We also make estimates about the useful life of those acquired intangible assets. Should different conditions prevail, we could record write-downs of intangible assets or changes in the estimate of useful life of those intangible assets, which would result in changes to amortization expense. 46

50 Acquired definite lived intangible assets are initially recorded at fair value based on the present value of the estimated cash flows of the assets acquired and are amortized over the future income producing period, which we consider to be the useful life, on a straight-line basis, which approximates the pattern in which we expect to generate economic benefits from the asset. Goodwill Goodwill is subject to an annual impairment test or on a more frequent basis if necessary. Goodwill is tested for impairment at the beginning of the fourth quarter of each fiscal year. We also test for impairment more frequently if events or circumstances warrant. The Company as a whole is considered one reporting unit. If we determine that our carrying value exceeds our fair value, we compare the implied fair value of the goodwill (determined as the excess fair value over the fair value assigned to our other assets and liabilities) to the carrying amount of goodwill. If the carrying value of goodwill were to exceed the implied fair value of goodwill, an impairment loss would be recognized. At October 1, 2009, we determined that there had been no impairment of goodwill. At December 31, 2009 we determined that no event existed between October 1, 2009 and December 31, 2009 such that goodwill needed to be tested further. Long-Lived Assets We amortize our long-lived assets over the estimated useful life of the asset. We evaluate all of our long-lived assets, excluding goodwill, periodically for impairment when events or changes in facts and circumstances indicate that their carrying value may not be recoverable. Events or changes in facts and circumstances can include a significant adverse change in the business climate, strategic change in business direction, decline or discontinuance of a product line or service, a reduction in our customer base or a restructuring. If one of these events or circumstances indicates that the carrying value of an asset may not be recoverable, or that our estimated amortization period was not appropriate, we would record an impairment charge against our long lived assets. The amount of impairment would be measured as the difference between the carrying value and the fair value of the impaired asset as calculated using a net realizable value methodology. An impairment charge would be recorded as an operating expense in the period of the impairment and as a reduction in the carrying value of that asset. At December 31, 2009, we determined that no events or changes in facts existed such that a further analysis for impairment was required. Stock-based Compensation and Other Stock-Based Payments We estimate the fair value of our options, warrants, restricted share units and stock appreciation rights for financial accounting purposes using the Black-Scholes-Merton model, which requires a number of subjective assumptions, including the expected life of the Convertible Securities, risk-free interest rate, dividend rate, forfeiture rate, future volatility of the price of our Shares and vesting period. The use of subjective assumptions could materially affect the fair value estimate. For a period of time prior to our initial public offering ( IPO ) in August 2006, there was no active market for our Shares. Since we have been public for less than the vesting period of our Convertible Securities, we do not consider the volatility of our Share price to be representative of the estimated future volatility when computing the fair value of options granted. Accordingly, until such time that a representative volatility can be determined based on our Share price, we will use a blended rate of our own Share price volatility for the period we have been public and the average of three similar companies for the pre-ipo period. We estimate the risk-free interest rate based on the Federal Reserve Rate. Since we do not have a sufficient history relating to options granted and exercised subsequent to our IPO, we base our estimate of the expected life of the Convertible Security using the simplified method based on the period for which our Convertible Securities vest or four years. Our Convertible Securities vest on a monthly basis; therefore we have estimated our forfeiture rate at zero, as actual forfeitures are known and recorded on a timely basis. 47

51 The fair values of the Convertible Securities issued are being recognized as compensation expense over the applicable vesting period, which for the majority of Convertible Securities is four years. We determine the fair value of our restricted share units based on our Share price on the date the Shares are issued. Restricted share units give the holder the right to Share for each vested restricted share unit. These awards vest on a monthly basis over the vesting period, which is four years. Stock-based compensation expense related to restricted share units is recorded based on the market value of the Shares when the Shares are issued, which generally coincides with the vesting period of these awards. Stock appreciation rights give the holder the right to elect either to receive cash in an amount equal to the excess of the quoted market price over the stock appreciation right price or to receive Shares equal to the fair value of the Shares less the exercise price divided by the market value of the Shares from treasury or receive Shares by making a cash payment equal to the exercise price. The Board of Directors has discretionary authority to accept or reject a cash payment request in whole or in part. Stock-based compensation expense is calculated as the fair value of all vested stock appreciation rights on each reporting date, and is classified as a current liability on the consolidated balance sheets. If the holder elects to purchase Shares, the liability is credited to additional paid in capital. Stock-based compensation expense is reported in our Consolidated Statements of Operations and Comprehensive Loss within Selling, General and Administrative Expenses. Accounts Receivable Accounts receivable are carried at original invoice amount. The Company maintains a provision for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness; past transaction history with the customer; current economic industry trends; and changes in customer payment terms. If the financial conditions of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Inventory Inventory consists of STBs and is recorded at the lower of cost and net realizable value and consists of finished goods. Cost is accounted for on a first-in, first-out basis. The Company evaluates its ending inventories for estimated excess quantities and obsolescence. This evaluation includes analyses of sales levels and projections of future demand within specific time horizons. Inventories in excess of future demand are reserved. In addition, the Company assesses the impact of changing technology and market conditions on its inventory-on-hand and writes off inventories that are considered obsolete. Amortization Policies and Useful Lives The Company amortizes the cost of property, plant and equipment and intangible assets over the estimated useful service lives of these items. The determinations of estimated useful lives of these long-lived assets involve considerable judgment. In determining these estimates, the Company takes into account industry trends and company specific factors including changing technologies and expectations for the in-service period of these assets. On an annual basis, the Company reassesses its existing estimates of useful lives to ensure they match the anticipated life of the technology from a revenue producing perspective. If technological change happens more quickly than anticipated, the Company might have to shorten its estimate of the useful life of certain equipment which could result in higher amortization expense in future periods or an impairment charge to write down the value of this equipment. Taxes We have tax loss carryforwards available to offset future taxable income of $93.4 million as of December 31, 2009 that expire between the tax years 2010 and 2029, and have not been fully audited by relevant authorities. We have not recorded a financial statement benefit for these attributes as we have no history of profitability. To the extent we use tax loss carryforwards subsequent to 2009, we expect to record the benefit as a reduction in income tax expense. 48

52 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2009, the FASB issued guidance now codified as ASC Topic 105, Generally Accepted Accounting Principles ( ASC 105 ) as the single source of authoritative nongovernmental U.S. GAAP. ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place (the Codification ). On the effective date of ASC 105, the Codification superseded all then-existing non-sec accounting and reporting standards, and all other non-grandfathered non-sec accounting literature not included in the Codification became non-authoritative. The provisions of ASC 105 are effective for interim and annual periods ending after September 15, The Company adopted ASC 105 in the third quarter of This pronouncement had no effect on our consolidated financial position, results of operations or cash flows, but impacted the financial reporting process by replacing all references to pre-codification standards with references to the applicable Codification topic. Effective January 1, 2009, the Company adopted ASC Topic , Business Combinations ( ASC 805 ). ASC 805 requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and requires the acquirer to disclose certain information related to the nature and financial effect of the business combination. ASC 805 also establishes principles and requirements for how an acquirer recognizes any non-controlling interest in the acquiree and the goodwill acquired in a business combination. In October 2009, the FASB issued ASU , Multiple-Deliverable Revenue Arrangements ( ASU ). ASU amends guidance included within ASC Topic to require an entity to use an estimated selling price when vendor-specific objective evidence or acceptable third party evidence does not exist for any products or services included in a multiple element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. ASU also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying this guidance. ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, Early adoption and retrospective application are also permitted. The Company is currently evaluating the impact of adopting the provisions of ASU Effective January 1, 2009, the Company adopted ASC Topic , Derivatives and Hedging ( ASC ). One of the conclusions reached under ASC was that an equity-linked financial instrument would not be considered indexed to the entity s own stock if the strike price is denominated in a currency other than the issuer s functional currency. The conclusion reached under ASC clarified the accounting treatment for these and certain other financial instruments. ASC specifies that a contract would not be treated as a derivative if it met the following conditions: (a) indexed to the Company s own stock; and (b) classified in shareholders equity in the Company s statement of financial position. The Company s outstanding warrants denominated in Canadian dollars as detailed in note 17 are not considered to be indexed to its own stock because the exercise price is denominated in Canadian dollars and the Company s functional currency is United States dollars. Therefore, these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability. All other outstanding convertible securities are considered to be indexed to the Company s stock, because their exercise price is denominated in the same currency as the Company s functional currency, and are included in shareholders equity. In February 2008, the Canadian Institute of Chartered Accountants ( CICA ) issued new Handbook Section 3064, Goodwill and Intangible Assets, which replaces Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The new standard addresses when an internally developed intangible asset meets the criteria for recognition as an asset. The section also issued amendments to Section 1000, Financial Statement Concepts. These changes were effective for fiscal years beginning on or after October 1, 2008, with earlier adoption permitted, and have been adopted by the Company effective January 1, The objectives of the changes are to reinforce a principles-based approach to the recognition of costs as assets and to clarify the application of the concept of matching revenues and expenses in Section Collectively, these changes bring Canadian practice closer to International Financial Reporting Standards ( IFRS ) by eliminating the practice of recognizing as assets a variety of start-up, pre-production and similar costs that do not meet the definition and recognition criteria of an asset. There was no material effect on the Company s consolidated financial statements as a result of adopting CICA Handbook Section

53 In February 2008, the CICA Accounting Standards Board confirmed that the changeover to IFRS from Canadian GAAP will be required for publicly accountable enterprises, effective for the interim and annual financial statements relating to fiscal years beginning on or after January 1, The Company became an SEC issuer effective June 8, 2009 and expects to continue to use U.S. GAAP until the date that IFRS is implemented in the United States, which is currently estimated to occur no sooner than Effective January 1, 2009 the Company adopted CICA Handbook Section 1582 Business Combinations which replaces Section This standard establishes the principles and requirements of the acquisition method for business combination and related disclosures and applies prospectively to business combinations for which the acquisition date. Effective January 1, 2009, the Company adopted CICA Handbook Section 1601 Consolidated Financial Statements and section 1602 Non-controlling Interest which replace Section Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a noncontrolling interest in a subsidiary in consolidated financial statements subsequent to a business combination. The adoption of Sections 1582, 1601, and 1602 did not materially impact the Company's consolidated financial statements as the provisions of these standards are substantially similar to the Company's accounting in accordance with U.S. GAAP. OUTSTANDING SHARE DATA The Company had total Shares outstanding as at March 10, 2010 of 116,744,404. In addition, as at such date the Company had 28,617,125 outstanding options, SARs, restricted share units, warrants and retention warrants, which are each exchangeable for one Share upon exercise. DISCLOSURE CONTROLS AND CONTROLS OVER FINANCIAL REPORTING Evaluation of Disclosure Controls and Procedures: The Company maintains appropriate disclosure controls and procedures and internal controls over financial reporting (each as defined in National Instrument , Certification of Disclosure in Issuers' Annual and Interim Filings ( NI ) of the Canadian Securities Administrators) to ensure that information disclosed externally is complete, reliable and timely. The Company's Chief Executive Officer and Chief Financial Officer evaluated, or caused an evaluation under their direct supervision of, the design and operating effectiveness of the Company's disclosure controls and procedures ( DC&P ) and internal controls over financial reporting ( ICFR ) as at December 31, 2009, and have concluded that such DC&P and ICFR were appropriately designed and were operating effectively, except as outlined below. See Limitation on scope of design below. 50

54 Limitation on Scope of Design: We have limited the scope of design of our internal controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures of INSINC, which was acquired effective October 31, The chart below presents the summary financial information of INSINC. Balance Sheet Data: Income Statement Data: December 31 Year ended Dec-09 $ $ Current assets 503,564 Total revenue 575,347 Long-term assets 186,133 Total cost of revenue 238,309 Current liabilities 653,657 Net income for the year 57,088 Long-term liabilities 120,000 The scope limitation is in accordance with section 3.3(1)(b) of NI to which this MD&A relates, which allows an issuer to limit its design of DC&P and ICFR to exclude controls, policies and procedures of a business that the issuer acquired not more than 365 days prior to the end of the fiscal period. 51

55 Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we are not required to include this information in our annual report on Form 10-K. Item 8. Financial Statements and Supplementary Data Financial statements are attached hereto beginning with page F-1. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Ernst & Young LLP (Canada) served as auditors of NeuLion from October 2005 to May At the Annual and Special Meeting of Shareholders held in May 2009, our shareholders appointed Ernst & Young (US) as our auditors for the fiscal year 2009 and authorized the Board to fix the remuneration of the auditors. Item 9A(T). Controls and Procedures Disclosure Controls and Procedures Our principal executive officer and principal financial officer, with the assistance of other members of our management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report on Form 10-K. Based upon such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this annual report on Form 10-K. Management s Report on Internal Control Over Financial Reporting This annual report on Form 10-K does not include a report of management s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. Item 9B. Other Information None. 52

56 PART III Item 10. Directors, Executive Officers, and Corporate Governance The information required by this item is incorporated herein by reference to the section titled PARTICULAR OF MATTERS TO BE ACTED UPON Election of Directors of the Proxy Statement for the 2010 Annual and Special Meeting of the Shareholders. The information required by this item regarding executive officers is incorporated herein by reference to the section titled BUSINESS-Executive Officers under Item 1 hereof. Definitive proxy materials will be filed with the SEC pursuant to Regulation 14A no later than April 30, Item 11. Executive Compensation The information required by this item is incorporated herein by reference to the section titled STATEMENT OF EXECUTIVE COMPENSATION of the Proxy Statement for the 2010 Annual and Special Meeting of the Shareholders. Definitive proxy materials will be filed with the SEC pursuant to Regulation 14A no later than April 30, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item related to securities authorized for issuance under our equity compensation plans is incorporated herein by reference to the section titled SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS under Item 5 of this annual report on Form 10-K. The information required by this item related to security ownership of certain beneficial owners is incorporated herein by reference to the section titled SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT of the Proxy Statement for the 2010 Annual and Special Meeting of the Shareholders. Definitive proxy materials will be filed with the SEC pursuant to Regulation 14A no later than April 30, Item 13. Certain Relationships and Related Transactions, and Directors Independence The information required by this item is incorporated herein by reference to the sections titled INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS and BOARD OF DIRECTORS Independence of Directors of the Proxy Statement for the 2010 Annual and Special Meeting of the Shareholders. Definitive proxy materials will be filed with the SEC pursuant to Regulation 14A no later than April 30, Item 14. Principal Accountant Fees and Services The information required by this item is incorporated herein by reference to the section titled AUDIT COMMITTEE MATTERS Services Performed by the Independent Registered Public Accountants of the Proxy Statement for the 2010 Annual and Special Meeting of the Shareholders. Definitive proxy materials will be filed with the SEC pursuant to Regulation 14A no later than April 30,

57 PART IV Item 15. Exhibits and Financial Statement Schedules (a) (1) Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Shareholders Equity Consolidated Statements of Cash Flows (2) Financial Statement Schedules None. (b) Exhibits The following Exhibits are filed as part of this report Exhibit No. Description 2.1 Acquisition Agreement, dated as of October 5, 2009, by and among NeuLion, Inc., Interactive Netcasting Systems Inc. and Hugh Dobbie, Jr. (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to the Company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009) 3.1(i) Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1(i) to the Company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009) 3.1(ii) Amended By-law No. 1 (incorporated by reference to Exhibit 3.1(ii) to the Company s Registration Statement on Form 10, Filed April 9, 2009) 4 Form of stock specimen (incorporated by reference to Exhibit 4 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 9.1 Voting Trust Agreement, dated as of October 20, 2008, among Charles B. Wang, Nancy Li, AvantaLion LLC, Jianbing Duan, Computershare Trust Company of Canada and JumpTV Inc. (incorporated by reference to Exhibit 9 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 9.2 Voting Support Agreement, dated as of October 5, 2009, by and among NeuLion, Inc., Hugh Dobbie, Jr. and Dowco Computer Systems Ltd. (incorporated by reference to Exhibit 10.2 to the Company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009) 10.1 # Employment Agreement, dated as of June 1, 2006, between JumpTV Inc. and G. Scott Paterson (incorporated by reference to Exhibit 10.1 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 10.2 # Employment Agreement, dated as of February 11, 2008, between JumpTV Inc. and Blair Baxter (incorporated by reference to Exhibit 10.2 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 10.3 # Amendment, dated March 31, 2008, to Employment Agreement between JumpTV Inc. and Blair Baxter (incorporated by reference to Exhibit 10.3 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 54

58 Exhibit Description No # Termination Letter, dated September 9, 2008, between JumpTV Inc. and Blair Baxter (incorporated by reference to Exhibit 10.4 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 10.5 # Agreement for Services, dated February 23, 2009, between JumpTV Inc. and Blair Baxter (incorporated by reference to Exhibit 10.5 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 10.6 # Termination Letter, dated as of June 27, 2008, between JumpTV Inc. and Jordan Banks (incorporated by reference to Exhibit 10.7 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 10.7 # Termination Letter, dated October 14, 2008, between JumpTV Inc. and Nadezda Usina (incorporated by reference to Exhibit 10.9 to the Company s Registration Statement on Form 10, Filed April 9, 2009) 10.8 # Termination Fact Sheet/Separation Agreement, dated September 23, 2008, between JumpTV Inc. and William Stephen (incorporated by reference to Exhibit to the Company s Registration Statement on Form 10, Filed April 9, 2009) 10.9 # Second Amended and Restated Stock Option Plan, as amended, and form of option agreement (incorporated by reference to Exhibit to Amendment No. 1 to the Company s Registration Statement on Form 10, Filed June 2, 2009) # 2006 Stock Appreciation Rights Plan, as amended (incorporated by reference to Exhibit to Amendment No. 1 to the Company s Registration Statement on Form 10, Filed June 2, 2009) # Amended and Restated Retention Warrants Plan, as amended, and form of retention warrant agreement (incorporated by reference to Exhibit to Amendment No. 1 to the Company s Registration Statement on Form 10, Filed June 2, 2009) # Restricted Share Plan and form of award agreement (incorporated by reference to Exhibit to the Company s Registration Statement on Form 10, Filed April 9, 2009) # Amended and Restated Directors Compensation Plan, as amended (incorporated by reference to Exhibit to Amendment No. 1 to the Company s Registration Statement on Form 10, Filed June 2, 2009) # Employee Share Purchase Plan (incorporated by reference to Exhibit to the Company s Registration Statement on Form 10, Filed April 9, 2009) # Form of Rights Agreement under the 2006 Stock Appreciation Rights Plan (incorporated by reference to Exhibit to the Company s Registration Statement on Form 10, Filed April 9, 2009) Contract for Services, dated as of June 1, 2008, between KyLinTV, Inc. and NeuLion, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) (incorporated by reference to Exhibit to Amendment No. 3 to the Company s Registration Statement on Form 10, Filed June 23, 2009) Software License and Product Distribution Agreement, dated as of September 29, 2006, between NeuLion, Inc. and TransVideo International Ltd. (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) (incorporated by reference to Exhibit to Amendment No. 3 to the Company s Registration Statement on Form 10, Filed June 23, 2009) 55

59 Exhibit Description No Amendment, dated as of July 1, 2008, to Software and Product Distribution Agreement between NeuLion, Inc. and TransVideo International Ltd. (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) (incorporated by reference to Exhibit to the Company s Registration Statement on Form 10, Filed April 9, 2009) License Agreement, dated as of June 1, 2006, between NeuLion, Inc. and ABS-CBN Global Limited (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) (incorporated by reference to Exhibit to Amendment No. 3 to the Company s Registration Statement on Form 10, Filed June 23, 2009) Contract for Services, dated as of June 22, 2007, between Sky Angel U.S., LLC and NeuLion, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) (incorporated by reference to Exhibit to the Company s Registration Statement on Form 10, Filed June 23, 2009) Contract for Services, dated as of June 25, 2007, between NHL Interactive CyberEnterprises, LLC and NeuLion, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) (incorporated by reference to Exhibit to Amendment No. 3 to the Company s Registration Statement on Form 10, Filed June 23, 2009) Amendment to Contract for Services Agreement, dated as of August 1, 2008, between NHL Interactive CyberEnterprises, LLC and NeuLion, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) (incorporated by reference to Exhibit to the Company s Registration Statement on Form 10, Filed April 9, 2009) 10.23* Contract for Products and Services, dated January 4, 2010, between NeuLion, Inc., NeuLion USA, Inc. and DISH Network L.L.C. (portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission) 21* Subsidiaries 31.1* Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended 31.2* Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended 32* Certification of the Chief Executive Officers pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Filed herewith # Management contract or compensatory plan or arrangements 56

60 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEULION, INC. March 17, 2010 By: /s/ Nancy Li Name: Nancy Li Title: Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ Charles B. Wang Chairman of the Board March 17, 2010 Charles B. Wang and Director /s/ Nancy Li Chief Executive Officer March 17, 2010 Nancy Li and Director (Principal Executive Officer) /s/ G. Scott Paterson Vice Chairman of the Board March 17, 2010 G. Scott Paterson and Director /s/ Arthur J. McCarthy Chief Financial Officer March 17, 2010 Arthur J. McCarthy (Principal Financial Officer) /s/ Roy E. Reichbach General Counsel, Corporate March 17, 2010 Roy E. Reichbach Secretary and Director /s/ John R. Anderson Director March 17, 2010 John R. Anderson Gabriel A. Battista Director /s/ Shirley Strum Kenny Director March 17, 2010 Shirley Strum Kenny /s/ David Kronfeld Director March 17, 2010 David Kronfeld 57

61 NeuLion, Inc. INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Financial Statements: Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statement of Shareholders Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Financial Statements F-7 F-1

62 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders NeuLion, Inc. We have audited the accompanying consolidated balance sheets of NeuLion, Inc. (the Company ) as of December 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive loss, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NeuLion, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company adopted the guidance issued in Financial Accounting Standards Board ( FASB ) Statement No. 141(R), Business Combinations (codified in FASB Accounting Standards Codification ( ASC ) Topic 805, Business Combinations ) and Emerging Issues Task Force 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock (codified in FASB ASC Topic ) on January 1, /s/ Ernst & Young LLP Jericho, New York March 17, 2010 F-2

63 NEULION, INC. CONSOLIDATED BALANCE SHEETS [Expressed in U.S. dollars, unless otherwise noted] See accompanying notes As at December 31, $ $ ASSETS Current Cash and cash equivalents 12,957,679 27,323,021 Accounts receivable, net of allowance for doubtful accounts of $129,550 and $290,538, respectively [note 2] 1,809,147 2,284,242 Taxes receivable 35, ,253 Other receivables 821, ,711 Inventory 928, ,600 Prepaid expenses and deposits 966,101 1,830,260 Due from related party [note 7] 246, ,059 Total current assets 17,765,679 33,320,146 Property, plant and equipment, net [note 5] 5,754,255 6,474,989 Intangible assets, net [notes 3 and 6] 9,542,071 5,749,332 Goodwill [notes 3 and 6] 6,757,194 6,846,183 Other assets 449,964 1,347,032 Total assets 40,269,163 53,737,682 LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable 5,383,518 4,465,388 Accrued liabilities 5,822,385 7,595,116 Derivative liability [note 16] 1,389,300 Due to related parties [note 7] 298,595 56,826 Deferred revenue 3,907,510 3,091,993 Total current liabilities 16,801,308 15,209,323 Long-term deferred revenue 469, ,510 Other long-term liabilities 728, ,271 Total liabilities 17,998,829 16,724,104 Shareholders' equity Share capital [note 9] 11,260,415 6,762,097 Common shares (par value: none; authorized: unlimited; issued and outstanding: 116,731,794 and 110,084,044, respectively) Additional paid-in capital 55,023,567 56,500,258 Promissory notes receivable (209,250) (209,250) Accumulated deficit (43,804,398) (26,039,527) Total shareholders' equity 22,270,334 37,013,578 Total liabilities and shareholders' equity 40,269,163 53,737,682 F-3

64 NEULION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS [Expressed in U.S. dollars, unless otherwise noted] Years ended December 31, $ $ Revenue Services revenue 26,464,400 9,542,689 Equipment revenue 1,629,277 3,900,650 28,093,677 13,443,339 Costs and Expenses Cost of services revenue, exclusive of depreciation and 12,850,002 4,519,062 amortization shown separately below Cost of equipment revenue 1,537,150 3,120,087 Selling, general and administrative, including stock-based compensation [note 10] 28,767,049 14,221,347 Depreciation and amortization 4,141,117 1,572,492 Impairment of long-lived assets 1,036,993 47,295,318 24,469,981 Operating loss (19,201,641) (11,026,642) Other income (expense) Unrealized loss on derivative [note 16] (801,350) Gain on foreign exchange 68, ,720 Investment income 293, ,048 Equity in loss of affiliate (1,006,386) (439,280) (610,618) Net and comprehensive loss for the year (19,640,921) (11,637,260) Net loss per weighted average number of shares outstanding - basic and diluted [note 11] $(0.18 ) $(0.21 ) Weighted average number of shares outstanding - basic and diluted [note 11] 111,314,653 55,995,297 See accompanying notes F-4

65 NEULION, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY [Expressed in U.S. dollars, unless otherwise noted] Total Additional Promissory Accumulated shareholders' Common shares paid-in capital Notes deficit equity # $ $ $ $ $ Balance, December 31, ,018,383 68,871 17,580,329 (14,402,267) 3,246,933 Capital contribution 2,600,000 2,600,000 Exercise of stock options 5,559,044 8, ,927 (209,250) 219,375 49,577,427 77,569 20,600,256 (209,250) (14,402,267) 6,066,308 Issuance of shares in connection with merger 49,490,372 (77,569) 31,615,091 31,537,522 Private placement 11,000,000 6,750,700 2,464,000 9,214,700 Issuance of common shares for RSUs 16,245 6,518 6,518 Release of common shares from 4,879 4,879 escrow for services Stock-based compensation 1,820,911 1,820,911 Net loss (11,637,260) (11,637,260) Balance, December 31, ,084,044 6,762,097 56,500,258 (209,250) (26,039,527) 37,013,578 Cumulative effect of change in accounting principle [notes 2 and 16] (2,464,000) 1,876,050 (587,950) Exercise of stock options for common shares 187, ,831 (28,127) 87,704 Issuance of common shares on acquisition of Interactive Netcasting Systems Inc. ( INSINC ) [note 3[i]] 6,000,012 4,048, ,351 4,373,793 Stock-based compensation: Issuance of common shares on vesting of restricted share units 52,498 31,631 31,631 Release of common shares from escrow for services 51,757 51,757 Issuance of common shares under Directors Compensation Plan 407, , ,657 Stock options and warrants 690, ,085 Net loss (19,640,921) (19,640,921) Balance, December 31, ,731,794 11,260,415 55,023,567 (209,250) (43,804,398) 22,270,334 See accompanying notes F-5

66 NEULION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS [Expressed in U.S. dollars, unless otherwise noted] See accompanying notes Years ended December 31, $ $ OPERATING ACTIVITIES Net loss (19,640,921) (11,637,260) Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization [notes 5 and 6] 4,141,117 1,572,492 Equity in loss of affiliate 1,006,386 Stock-based compensation [note 10] 1,167,789 1,848,906 Unrealized loss on derivative [notes 2 and 16] 801,350 Impairment of long-lived assets 1,036,993 Changes in operating assets and liabilities Accounts receivable 848,375 1,943,307 Inventory (580,992) (24,100) Prepaid expenses, deposits and other assets 1,832, ,621 Other receivables (701,145) 4,441 Taxes receivable 966,367 37,398 Due from related parties 77,067 (135,204) Accounts payable 275,907 (306,999) Accrued liabilities (1,364,330) 604,465 Deferred revenue 510, ,846 Long-term liabilities (267,941) 41,833 Due to related parties 241,769 (2,043,626) Cash used in operating activities (11,692,709) (5,614,501) INVESTING ACTIVITIES Purchase of property, plant and equipment (1,198,432) (1,443,438) Acquisition of INSINC, net of cash of $344,371 [note 3[i]] (1,561,905) Acquisition of NeuLion, Inc. 21,738,421 Cash (used in) provided by investing activities (2,760,337) 20,294,983 FINANCING ACTIVITIES Capital contributions 2,600,000 Private placement 9,214,700 Proceeds from exercise of stock options 87, ,375 Cash provided by financing activities 87,704 12,034,075 Net (decrease) increase in cash and cash equivalents during the year (14,365,342) 26,714,557 Cash and cash equivalents, beginning of year 27,323, ,464 Cash and cash equivalents, end of year 12,957,679 27,323,021 F-6

67 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, Nature of Operations On October 20, 2008, the company now known as NeuLion USA, Inc. ( NeuLion USA ) completed a merger (the Merger ) with the company then known as NeuLion, Inc. ( NeuLion or the Company ) that was accounted for as a reverse takeover. As a result of the Merger, NeuLion USA became the legal subsidiary of NeuLion, and NeuLion was required to register its common shares (the Shares ) in the United States under the Securities and Exchange Act of 1934, as amended. On June 8, 2009, NeuLion s Registration Statement on Form 10 became effective. On June 4, 2009, the company now known as NeuLion, Inc., a Delaware corporation and wholly-owned subsidiary of the company then known as JumpTV Inc., a Canadian corporation, changed its name to NeuLion USA. On July 13, 2009, JumpTV Inc. changed its name to NeuLion. In conjunction with the name change, NeuLion s stock symbol was changed from JTV to NLN on the Toronto Stock Exchange. This Annual Report on Form 10-K reflects these name changes. These consolidated financial statements for the years ended December 31, 2009 and 2008, and as at December 31, 2009 and 2008 are issued under the name of the legal acquirer in the Merger (NeuLion) but are deemed to be a continuation of the accounting acquirer (NeuLion USA). These financial statements reflect the assets, liabilities and results of operations of NeuLion USA, the accounting acquirer, and only include the assets, liabilities and results of operations of NeuLion, the legal acquirer, subsequent to the reverse takeover on October 20, 2008 (the Acquired Business ). The Company s primary business is to build and manage private networks for content owners and aggregators (the Company s content partners) that are used to stream content to multiple platforms through browser-based devices. That content includes live and on-demand sports and international and variety programming, which the Company then delivers to subscribers and pay-per-view customers for viewing on Internet-connected browser-based devices such as personal computers, laptops and mobile devices and on standard television sets through Internet-connected set top boxes ( STBs ). The Company also acquires the rights to certain sports and international content from television broadcasters (our channel partners), which the Company then streams to end users through the Company's own private networks. 2. Basis of Presentation and Significant Accounting Policies The accompanying consolidated financial statements include all of our wholly-owned subsidiaries and have been prepared in accordance with United States generally accepted accounting principles ( U.S. GAAP ). See Note 17 for reconciliation of U.S. GAAP to Canadian generally accepted accounting principles ( Canadian GAAP ). The Company also has an investment in KyLinTV, Inc. ("KyLinTV") in which, as at December 31, 2009, it had a 17.1% equity interest ( %). KyLinTV is accounted for using the equity method of accounting. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates made by management include the determination of the useful lives of long-lived assets, impairment of intangible assets and goodwill, inventory obsolescence, assumptions used in stock-based compensation and the allowance for doubtful accounts. On an ongoing basis, management reviews its estimates to ensure they appropriately reflect changes in the Company's business and new information as it becomes available. If historical experience and other factors used by management to make these estimates do not reasonably reflect future actual results, the Company's consolidated financial position and results of operations could be materially impacted. F-7

68 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Revenue recognition Revenue is recognized when persuasive evidence of an arrangement exists, prices are determinable, collectability is reasonably assured and the goods or services have been delivered. If any of these criteria are not met, revenue is deferred until such time as all of the criteria are met. For arrangements with multiple elements, the Company allocates revenue to each element using the residual method; this allocation is based on vendor specific objective evidence ("VSOE") of fair value of the undelivered items. VSOE is based on the price that the Company charges for the undelivered element based on the sales price of each element when sold on a standalone basis. In addition, the Company defers the portion of the arrangement fee equal to the fair value of the undelivered elements until they are delivered. The Company, at the request of one customer, has entered into a "bill and hold" arrangement. The Company accounts for its bill and hold revenue arrangement consistent with the provisions of Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) Topic 605, Revenue Recognition, and recognizes revenue when the risk of ownership has passed to the customer and a fixed commitment to purchase the goods is received. The Company does not retain any specific performance obligations such that the earning process is not complete and ordered goods are segregated from the Company's inventory and not subject to fulfilling other orders. Inventory consists of finished goods. For the years ended December 31, 2009 and 2008, the Company recognized zero and $2,500,000 in revenue associated with this arrangement, respectively. The Company earns revenue as follows: [i] Services Revenue: Subscriber revenue Subscriber revenue consists of recurring revenue based on subscriber usage, bandwidth usage fees for the Company infrastructure and/or technology usage fees based on the number of subscribers. The subscriber revenue is typically generated on a monthly, quarterly or annual basis and can be either a fixed fee per user or a variable fee measured by bandwidth use or as a percentage of end user pricing. Revenue is recognized over the term of the subscription. The Company defers the appropriate portion of cash received for which services have not yet been rendered and recognizes the revenue over the term of the subscription, which is generally between thirty days and one year. Pay-per-view revenues are deferred and recognized in the period when the content is viewed. ecommerce revenue ecommerce revenue consists of the Company s services provided to its content providers which include software applications for merchandising (i.e. sale of merchandise), ticketing for a content provider s events and management of a content provider s donor efforts. Included in ecommerce revenue is advertising revenue earned through the insertion of advertising impressions on websites and in streaming video at a cost per thousand impressions. Advertising revenue is recognized based on the number of impressions displayed ( served ) during the period. Deferred revenue for ecommerce represents the timing difference between collection of advertising revenue and when the advertisements are served which is typically between thirty and ninety days. Technology revenue Technology revenue consists of the setup and maintenance services the Company provides such as website (Internet) or console (STB) design, user interface optimization and streaming configuration. Included in technology revenue is the licensing of the technology required to convert, compress and transmit video signals to the Company s content distribution network and ultimately to end users. Revenue is recognized as the service is performed. Deferred revenue on technology fees is as follows: F-8

69 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 [a] Setup fees are deferred at the beginning of the service period and recognized over the term of the arrangement, which is generally three to five years. [b] Maintenance fees are deferred at the beginning of the maintenance period and are recognized in revenue over the term of the maintenance service, which is generally one year. [c] Licensing fees for software are deferred at the beginning of the service period and recognized over the term of the arrangement, which is generally three to five years. [ii] Equipment revenue Equipment revenue consists of the sale of STBs to content partners and/or end users to enable the end user to receive the content over the internet and display the signal on a standard television. Shipping charges are included in total equipment revenue. Revenue is recognized generally upon shipment to the customer. The customer does not have any right of return on STBs. Cash and cash equivalents Cash and cash equivalents consist of cash and short-term investments, such as money market funds, that have maturities of less than three months. Accounts receivable Accounts receivable are carried at original invoice amount. The Company maintains a provision for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. If the financial conditions of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. As of December 31, 2009 and 2008, the allowance for doubtful accounts was $129,550 and $290,538, respectively. Inventory Inventory consists of STBs, which are finished goods and are recorded at the lower of cost and net realizable value. Cost is accounted for on a first-in, first-out basis. The Company evaluates its ending inventories for estimated excess quantities and obsolescence. This evaluation includes analyses of sales levels and projections of future demand within specific time horizons. Inventories in excess of future demand are reserved. In addition, the Company assesses the impact of changing technology and market conditions on its inventory-onhand and writes off inventories that are considered obsolete. As at December 31, 2009 and 2008, the Company s inventory reserves were zero and $9,700, respectively. Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized. The cost of assets sold, retired or otherwise disposed of, and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized. F-9

70 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows: Computer hardware Computer software Furniture and fixtures Leasehold improvements 5 years 3 years 7 years Shorter of useful life and lease term The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If these future undiscounted cash flows are less than the carrying value of the asset, then the carrying amount of the asset is written down to its fair value, based on the related estimated discounted future cash flows. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property, plant and equipment is used and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, there was an impairment loss of zero and $1,036,993 for the years ended December 31, 2009 and 2008, respectively. Intangible Assets Intangible assets are recorded at cost less amortization. Cost for intangible assets acquired through business combinations represents their fair market value at the date of acquisition. Amortization is calculated using the straight-line method over the estimated useful lives of the intangible assets which are as follows: Customer relationships Trademarks 5 years 1 year The Company reviews the carrying value of its definite lived intangible assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If these future undiscounted cash flows are less than the carrying value of the asset, then the carrying amount of the asset is written down to its fair value, based on the related estimated discounted future cash flows. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the intangible assets are used and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment was recorded for the years ended December 31, 2009 and Goodwill Goodwill represents the excess, at the date of acquisition, of the cost of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed. Goodwill is not amortized but is subject to an annual impairment test at the reporting unit level and between annual tests if changes in circumstances indicate a potential impairment. The Company performs an annual goodwill impairment test as of October 1 of each calendar year. Goodwill impairment is assessed based on a comparison of the fair value of each reporting unit to the underlying carrying value of the reporting unit's net assets, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to determine the amount of the impairment loss. The second step of the impairment test involves comparing the implied fair value of the reporting unit's goodwill with its carrying amount to measure the amount of impairment loss, if any. The Company's impairment test was based on its single operating segment and reporting unit structure. For the years ended December 31, 2009 and 2008, there was no impairment loss. F-10

71 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Investment in affiliate Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee's board of directors and voting rights. Under the equity method of accounting, an investee's accounts are not reflected within the Company's consolidated balance sheets and statements of operations and comprehensive loss; however, the Company's share of the losses of the investee company is reflected in the caption "Equity in loss of affiliate" in the consolidated statements of operations and comprehensive loss. Due to KyLinTV s accumulated losses, the investment had been reduced to zero at December 31, No further charges will be recorded as the Company has no obligation to fund the losses of KyLinTV. Deferred transcoder costs Deferred transcoder costs represent the unamortized costs of licensing fees incurred related to the setup of new channels for NeuLion's customers. These costs are being recognized as a charge to the consolidated statements of operations and comprehensive loss consistent with the related revenue over the remaining initial contractual term between NeuLion and its customers, which typically ranges from three to five years. Deferred transcoder costs are included in other assets on the consolidated balance sheet. Income taxes Income taxes are accounted for under the provisions on ASC Topic 740, Income Taxes Recognition ( ASC 740 ). ASC 740 requires that income tax accounts be computed using the liability method. Deferred taxes are determined based upon the estimated future tax effects of differences between the financial reporting and tax reporting bases of assets and liabilities given the provisions of currently enacted tax laws. ASC 740 requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is recognized at the largest amount of the benefit that has greater than a fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance for classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 requires that a liability created for unrecognized tax benefits be presented as a separate liability and not combined with deferred tax liabilities or assets. The Company operates in a number of countries worldwide. The income tax liability is therefore a consolidation of the tax liabilities in various locations. The tax rate is affected by the profitability of operations in various locations, tax rates and taxation systems of the countries in which the Company operates its tax policies and the impact of certain tax planning strategies which have been implemented. To determine the worldwide tax liability the Company makes estimates of possible tax liabilities. Tax filings, positions and strategies are subject to review under local or international tax audit and the outcomes of such reviews are uncertain. In addition, these audits generally take place years after the period in which the tax provision in question was provided and it may take a substantial amount of time before the final outcome of any audit is known. Future tax audits could differ materially from the amounts recorded in our financial statements. F-11

72 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company has recorded substantial tax losses over the years, therefore a full valuation allowance has been recorded against all net deferred tax assets. Foreign currency translation The functional currency of the Company is the U.S. dollar. Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet dates, and non-monetary assets and liabilities in foreign currencies are translated at exchange rates in effect on the date of the transaction. These transactional foreign exchange gains or losses are included in the consolidated statements of operations and comprehensive loss. Financial instruments The Company's financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, due from/to related parties, accounts payable and accrued liabilities which are primarily denominated in U.S. dollars. The carrying amount of such instruments approximates their fair values principally due to the short term nature of these items. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest rate, currency or credit risk arising from these financial instruments. The Company is exposed to credit risk with respect to accounts receivable arising from the potential for counterparties to default on their contractual obligations to the Company. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs credit evaluations on its customers, but generally does not require collateral to support accounts receivable. The Company establishes an allowance for doubtful accounts that corresponds with the specific credit risk of its customers, historical trends and economic circumstances. Advertising Advertising costs are expensed as incurred and totaled $1,138,400 and $366,756 for the years ended December 31, 2009 and 2008, respectively. Stock-based compensation and other stock-based payments The Company accounts for all stock options and warrants using a fair value-based method. The fair value of each stock option and warrant granted is estimated on the date of the grant using the Black-Scholes-Merton option pricing model and the related stock-based compensation expense is recognized over the vesting period. The fair value of stock options, retention warrants and warrants granted to employees is measured at the date of the grant. The fair value of the warrants granted to non-employees is measured as the warrants vest. The offsetting entry is an increase to additional paid-in capital for an amount equal to the stock-based compensation expense related to the issuance of stock options. Upon exercise, the proceeds of the options and warrants together with the fair value recorded in additional paid-in capital are reclassified to share capital. Stock appreciation rights give the holder the right to elect to either receive cash in an amount equal to the excess of the quoted market price over the stock appreciation right price or to receive Shares equal to the fair value of the Shares less the exercise price divided by the market value of the Shares from treasury or receive Shares by making a cash payment equal to the exercise price. The Board of Directors has discretionary authority to accept or reject a cash payment request in whole or in part. Stock-based compensation expense is calculated as the fair value of the vested portion of the stock appreciation rights outstanding, with ongoing measurement of the outstanding liability at each reporting date. The liability is classified as a current liability on the consolidated balance sheets. If the holder elects to purchase Shares, the liability is credited to additional paid-in capital. F-12

73 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Restricted share units give the holder the right to one Share for each vested restricted share plan unit. These awards vest on a monthly basis over the vesting period which is four years. Stock-based compensation expense related to restricted share units is recorded based on the market value of the shares when the shares are issued, which generally coincides with the vesting period of these awards. Recently issued accounting standards In June 2009, the FASB issued guidance now codified as ASC Topic 105, Generally Accepted Accounting Principles ( ASC 105 ) as the single source of authoritative nongovernmental U.S. GAAP. ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place (the Codification ). On the effective date of ASC 105, the Codification superseded all then-existing non-sec accounting and reporting standards, and all other non-grandfathered non-sec accounting literature not included in the Codification became non-authoritative. The provisions of ASC 105 are effective for interim and annual periods ending after September 15, The Company adopted ASC 105 in the third quarter of This pronouncement had no effect on our consolidated financial position, results of operations or cash flows, but impacted the financial reporting process by replacing all references to pre-codification standards with references to the applicable Codification topic. Effective January 1, 2009, the Company adopted ASC Topic , Business Combinations ( ASC 805 ). ASC 805 requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and requires the acquirer to disclose certain information related to the nature and financial effect of the business combination. ASC 805 also establishes principles and requirements for how an acquirer recognizes any non-controlling interest in the acquiree and the goodwill acquired in a business combination. In October 2009, the FASB issued ASU , Multiple-Deliverable Revenue Arrangements ( ASU ). ASU amends guidance included within ASC Topic to require an entity to use an estimated selling price when vendor specific objective evidence or acceptable third party evidence does not exist for any products or services included in a multiple element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. ASU also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying this guidance. ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, Early adoption and retrospective application are also permitted. The Company is currently evaluating the impact of adopting the provisions of ASU Effective January 1, 2009, the Company adopted ASC Topic , Derivatives and Hedging ( ASC ). One of the conclusions reached under ASC was that an equitylinked financial instrument would not be considered indexed to the entity s own stock if the strike price is denominated in a currency other than the issuer s functional currency. The conclusion reached under ASC clarified the accounting treatment for these and certain other financial instruments. ASC specifies that a contract would not be treated as a derivative if it met the following conditions: (a) indexed to the Company s own stock; and (b) classified in shareholders equity in the Company s statement of financial position. The Company s outstanding warrants denominated in Canadian dollars as detailed in note 16 are not considered to be indexed to its own stock because the exercise price is denominated in Canadian dollars and the Company s functional currency is United States dollars. Therefore, these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability. All other outstanding convertible instruments are considered to be indexed to the Company s stock, because their exercise price is denominated in the same currency as the Company s functional currency, and are included in shareholders equity. F-13

74 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Comparative Information We have reclassified certain prior year information to conform with the current year s presentation. 3. Business Combinations [i] Interactive Netcasting Systems Inc. ( INSINC ) On October 31, 2009, the Company consummated the acquisition of 100% of the outstanding securities of INSINC. Under the terms of the acquisition agreement, shareholders of INSINC received consideration consisting of 6,000,012 Shares of the Company, CDN$2.5 million in cash, 1,000,000 Share purchase warrants to acquire Shares at US$1.35 per share and 500,000 Share purchase warrants to acquire Shares at US$1.80 per share. Both series of warrants are exercisable for a period of 2 years. In addition, the Company incurred approximately $515,000 of direct transaction costs. INSINC's core business is to provide live and archived video sports, government and entertainment content to audiences online with integrated pay-per-view and commerce transaction processing. The purchase price of $6,694,293 represents the fair value of 6,000,012 of Shares issued of $4,035,043, cash in the amount of $2,320,500 and the fair value of the Share purchase warrants in the amount of $338,750. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The Company is obtaining third party valuations of certain intangible assets and evaluating certain liabilities and assets, thus the allocation of the purchase price is preliminary. As at October 31, 2009 Cash $ 344,371 Other current assets 737,406 Property, plant and equipment 739,690 Intangible assets 5,275,000 Goodwill 1,015,525 Total assets 8,111,992 Current liabilities (1,297,699) Long-term liabilities (120,000) Net assets acquired, net of cash $ 6,694,293 Of the $5,275,000 of acquired intangible assets, $95,000 was assigned to the INSINC brand, and $5,180,000 was assigned to customer relationships. None of the intangible assets are expected to be deductible for tax purposes. All of the $1,015,525 of goodwill was assigned to the Company as a whole as the company operates in one segment. The goodwill is not expected to be deductible for tax purposes. As noted above, the purchase price allocation of the tangible and intangible assets is preliminary and may be adjusted as a result of obtaining additional information regarding preliminary estimates of fair values made at the date of purchase. F-14

75 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Pro forma The results of operations for NeuLion and INSINC have been included in the Company s consolidated statements of operations since the effectiveness of the acquisition on October 31, The following unaudited pro forma financial information presents the combined results of the Company and the acquisition as if the acquisition had occurred at the beginning of 2008: Unaudited Pro Forma December 31, December 31, $ $ Total revenue 31,429,239 18,668,330 Total cost of services revenue, exclusive of depreciation and amortization shown separately below (14,712,545) (7,705,373) Total cost of equipment revenue (1,537,150) (3,120,087) Total sales, general and administrative (28,971,112) (13,695,033) Stock-based compensation (1,167,789) (1,848,906) Impairment of long-lived assets (1,036,993) Depreciation and amortization (5,315,560) (3,130,535) Operating loss (20,274,917) (11,868,597) Net loss (20,714,197) (12,479,215) Net loss per weighted average number of shares outstanding basic and diluted (0.18) (0.20) In determining the pro forma amounts above, the Company made adjustments to depreciation and amortization as a result of the revised fair values of tangible and intangible assets performed as a result of the acquisition. [ii] NeuLion On October 20, 2008, NeuLion completed the Merger with NeuLion USA. Under the terms of the Merger, NeuLion issued 49,577,427 Shares, which represented approximately the entire issued and outstanding shares of NeuLion prior to closing, to the securityholders of NeuLion USA, in exchange for their NeuLion USA securities. In accordance with ASC Topic 805, Business Combinations ( ASC 805 ), the Company determined that NeuLion USA was the accounting acquirer and accordingly has accounted for the Merger as a reverse take-over. The purchase price of $33,186,247 represents the fair value of 49,577,427 Shares issued ($31,656,119), the fair value of vested equity instruments ($515,364) and direct transaction costs ($1,014,764). F-15

76 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 The following table summarizes the final fair values of the assets acquired and liabilities assumed at the date of acquisition. Of the $6,000,000 of acquired intangible assets, $100,000 was assigned to the JumpTV brand, and $5,900,000 was assigned to customer relationships. None of the intangible assets are expected to be deductible for tax purposes All of the $5,741,669 of goodwill was assigned to the Company as a whole as the company operates in one segment. The goodwill is not expected to be deductible for tax purposes. Pro forma As at October 20, 2008 Cash $ 22,884,683 Current assets 5,038,462 Property, plant and equipment 5,046,405 Other long-term assets 1,040,516 Intangible assets 6,000,000 Goodwill 5,741,669 Total assets 45,751,735 Current liabilities (11,731,050) Other long-term liabilities (834,438) Net assets acquired $ 33,186,247 The results of operations for NeuLion and NeuLion USA (the accounting acquirer) have been included in the Company s consolidated statements of operations since the completion of the Merger on October 20, The following unaudited pro forma financial information presents the combined results of the Company and the Merger as if the Merger had occurred at the beginning of 2008: Unaudited Pro Forma December 31, December 31, $ $ [actual] [pro forma] Total revenue 28,093,677 25,708,760 Total cost of services revenue, exclusive of depreciation and amortization shown separately below (12,850,002) (15,716,125) Total cost of equipment revenue (1,537,150) (3,120,087) Total sales, general and administrative (27,599,260) (38,482,996) Stock-based compensation [a] (1,167,789) (3,374,767) Impairment of goodwill [b] (47,882,317) Impairment of long-lived assets [c] (5,982,030) Depreciation and amortization [d] (4,141,117) (3,602,169) Operating loss (19,201,641) (92,451,731) Net loss (19,640,921) (92,459,364) Net loss per weighted average number of shares outstanding basic and diluted (0.18) (0.90) [a] In accordance with ASC 718, these amounts represent stock-based compensation for the Company s stock options, restricted share units, stock appreciation rights, warrants and retention warrants. F-16

77 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 [b] As at March 31, 2008, the Company's market capitalization decreased below the carrying value of the Company. Management considered this to be an indicator of impairment, and accordingly, performed a goodwill impairment test and recorded a non-cash goodwill impairment charge of $47,882,317. [c] As at December 31, 2008, the Company determined that the business climate had changed such that the carrying value of the Company s long-lived assets may not be fully recoverable. Accordingly, the Company recorded non-cash impairment charges of $4,945,037 prior to the Merger and $1,036,993 subsequent to the Merger. [d] In determining the pro forma amounts above, the Company made adjustments to depreciation and amortization as a result of the revised fair values of tangible and intangible assets performed as a result of the acquisition. 4. Economic Dependence and Concentration of Credit Risk For the year ended December 31, 2008, three customers accounted for 54% of revenue as follows: 32%, 12% and 10%. As at December 31, 2008, one customer accounted for 25% of the accounts receivable. There were no comparable amounts recorded in Property, Plant and Equipment The details of property and equipment and the related accumulated depreciation are set forth below: December 31, 2009 Accumulated Non-cash Net book Cost amortization Impairment value $ $ $ $ Computer hardware 6,752,515 2,428, ,720 3,345,317 Computer software 4,649,297 2,319,488 2,329,809 Furniture and fixtures 186,617 49,215 58,273 79,129 Leasehold improvements 6,471 6,471 11,594,900 4,803,652 1,036,993 5,754,255 December 31, 2008 Accumulated Non-cash Net book Cost amortization Impairment value $ $ $ $ Computer hardware 5,655,658 1,101, ,720 3,575,061 Computer software 3,812,944 1,003,139 2,809,805 Furniture and fixtures 184,062 35,666 58,273 90,123 Leasehold improvements 6,471 6,471 9,659,135 2,147,153 1,036,993 6,474,989 F-17

78 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 ASC Topic 360, Property, Plant and Equipment ( ASC 360 ), requires that a long-lived asset be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss is recognized as the difference between fair value and carrying amount when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The Company determined that during the year ended December 31, 2008 the business climate had changed such that the carrying value of the Company s property, plant and equipment may not be fully recoverable. Accordingly, the Company recorded a non-cash impairment charge of $1,036,993 for the year ended December 31, There were no such comparable amounts in the current year. Depreciation expense for the years ended December 31, 2009 and 2008 was $2,658,856 and $1,321,824, respectively. 6. Goodwill and Intangible Assets The change in the net carrying amount of goodwill is set forth below: Balance December 31, 2007 Acquisition of NeuLion 6,846,183 Balance December 31, ,846,183 Acquisition of INSINC 1,015,525 Final purchase price adjustment for NeuLion (1,104,514) Balance December 31, ,757,194 The details of intangible assets and the related accumulated amortization are set forth below: December 31, 2009 Accumulated Net book Cost amortization value $ $ $ Customer relationships 11,080,000 1,617,096 9,462,904 Trademarks 195, ,833 79,167 11,275,000 1,732,929 9,542,071 $ Amortization expense for the years ended December 31, 2009 and 2008 was $1,482,261 and $250,668, respectively. December 31, 2008 Accumulated Net book Cost amortization value $ $ $ Customer relationships 5,900, ,084 5,668,916 Trademarks 100,000 19,584 80,416 6,000, ,668 5,749,332 F-18

79 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Based on the amount of intangible assets subject to amortization, the Company's estimated amortization expense over the next five years is as follows: ,328, ,216, ,216, ,984, , Related Party Transactions The Company has entered into certain transactions and agreements in the normal course of operations with related parties. Significant related party transactions are as follows: TransVideo International, Ltd. ( TransVideo ) TransVideo is a company controlled by the Chairman of the Board of Directors of the Company that designs and sells equipment and technology for IPTV content delivery. STB purchases amounted to $1,029,136 and $2,745,000 and transcoder licensing fees amounted to $78,000 and $125,000 for the years ended December 31, 2009 and 2008, respectively. Included in cost of equipment revenue is the cost of STBs sold of $937,204 and $2,816,490 for the years ended December 31, 2009 and 2008, respectively. KyLinTV KyLinTV is an IPTV company that is controlled by the Chairman of the Board of Directors of the Company. On June 1, 2008, the Company entered into an agreement with KyLinTV to build and deliver the setup and back office operation of an IPTV service. The Company also provides and charges KyLinTV for administrative and general corporate support. For each of the periods presented, the amounts received for these services provided by the Company for the years ended December 31, 2009 and 2008 were $645,722 and $1,233,353, respectively. During the year ended December 31, 2008, the Company purchased computer equipment from KyLinTV in the amount of $620,000. New York Islanders Hockey Club, LP ( New York Islanders ) The Company provides IT related professional services to the New York Islanders, a professional hockey club that is owned by the Chairman of the Board of Directors of the Company. Renaissance Property Associates, LLC ( Renaissance ) Renaissance is a real estate management company owned by the Chairman of the Board of Directors of the Company. In June 2009, the Company signed a sublease agreement with Renaissance for office space in Plainview, New York. Rent expense paid by the Company to Renaissance of $388,975 and zero, inclusive of taxes and utilities, is included in selling, general and administrative expense for the years ended December 31, 2009 and 2008, respectively. $ F-19

80 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Patstar, Inc. ( Patstar ) Patstar, an investment holding company, is controlled by the Vice Chairman of the Board of Directors of the Company. Rent expense paid to the Company by Patstar of $3,649 and $2,596 is included as a recovery in selling, general and administrative expense for the years ended December 31, 2009 and 2008, respectively. Hawaii IPTV, LLC ( Hawaii ) The Company had an IPTV customer, Hawaii, an IPTV company, whose principals are family members of the Chairman of the Board of Directors of the Company. Hawaii ceased operations during the third quarter of The Smile Train, Inc. ( Smile Train ) The Company provides IT related professional services to Smile Train, a public charity whose founder and significant benefactor is the Chairman of the Board of Directors of the Company. The Company recognized revenue from related parties for the years ended December 31 as follows: As at December 31, 2009 and 2008, the amounts due from (to) related parties are as follows: December 31, December 31, $ $ New York Islanders 395, ,451 Renaissance 140, ,000 Smile Train 108, ,000 Hawaii 41,789 57,577 KyLinTV 1,755, ,550 2,442,035 1,514,578 December 31, December 31, $ $ New York Islanders (304) 29,189 Renaissance (1,146) Smile Train 27,000 Hawaii 17,527 TransVideo (298,291) (55,680) KyLinTV 246, ,343 (51,603) 267,233 F-20

81 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Investment in affiliate KyLinTV The Company records its investment in KyLinTV using the equity method. From January 1, 2008 through December 31, 2009, the Company's equity interest in the affiliate was 17.1%. As previously discussed, the Company also provides and charges KyLinTV for administrative and general corporate support. Management has determined that as a result of the 17.1% equity interest combined with the services that the Company provides KyLinTV, the Company continues to have significant influence on the operating activities of KyLinTV; therefore, the Company continues to account for its investment in KyLinTV using the equity method of accounting for investment. The Company s proportionate share of the equity loss from KyLinTV has been accounted for as a charge on the Company's consolidated statements of operations and comprehensive loss. Due to KyLinTV s accumulated losses, the investment had been reduced to zero as at December 31, No further charges will be recorded as the Company has no obligation to fund the losses of KyLinTV. The results of operations and financial position of the Company's equity basis investment in KyLinTV are summarized below for the years ended December 31: Year ended, Year ended, December 31, December 31, $ $ Condensed income statement information: Net sales 8,127,760 6,568,101 Net loss (5,604,118) (8,148,974) December 31, December 31, $ $ Condensed balance sheet information: Current assets 1,924, ,427 Non-current assets 913,977 2,411,319 Total assets 2,838,868 3,338,746 Current liabilities 15,168,149 10,063,909 Non-current liabilities Equity (deficiency) (12,329,281) (6,725,163) Total liabilities and equity 2,838,868 3,338,746 On February 26, 2010, a group of investors invested $10.0 million in KyLinTV for 15.1% of its equity, which reduced the Company s equity interest in KyLinTV to 12.2%. Of the total $10.0 million investment, $1.0 million was invested by AvantaLion LLC, a company controlled by the Chairman of the Board of Directors of the Company. F-21

82 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, (K) Profit Sharing Plan The Company sponsors a 401(k) Profit Sharing Plan to provide retirement and incidental benefits for its eligible employees. Employees may contribute a percentage of their annual compensation through salary reduction, subject to certain qualifications and Internal Revenue Code limitations. The Company provides for voluntary matching contributions up to certain limits. Matching contributions vest over five years. For the years ended December 31, 2009 and 2008, the Company made aggregate net matching contributions of $436,716 and $113,000, respectively. 9. Share Capital Share capital consists of the following: During the year ended December 31, 2009, the Company completed the following issuances: December 31, December 31, $ $ Authorized Unlimited common shares, voting, no par value, discretionary noncumulative dividend Unlimited Class 1 preference shares, non-voting, no par value, discretionary partly cumulative or non-cumulative dividends Unlimited Class 2 preference shares, non-voting, no par value, discretionary partly cumulative or non-cumulative dividends Issued and outstanding Common shares December 31, 2009: Issued and outstanding: 116,731,794 (December 31, 2008: Issued and outstanding: 110,084,044) 11,260,415 6,762,097 Date # $ Balance December 31, ,084,044 6,762,097 Exercise of stock options and retention warrants 187, ,831 Issuance of Shares in connection with acquisition [note 3[i]] 6,000,012 4,048,442 Issuance of restricted share units 52,498 31,631 Issuance of Shares pursuant to Directors Compensation Plan 407, ,657 Release of Shares from escrow for services 51,757 Balance December 31, ,731,794 11,260,415 F-22

83 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, Stock Option and Stock-Based Compensation Plans [i] Amended and Restated Stock Option Plan [the Plan ] The Plan applies to all grants of options to directors, officers, employees and consultants of the Company or any entity controlled by the Company. The exercise price for any new option granted under the Plan is determined by the closing price of the Company s Shares prior to the grant date. If the option is granted on a pre-determined basis the exercise price is determined using the five-day volume weighted average price of the Company's Shares prior to the date of grant. In all cases the exercise price is not less than fair market value. Options are exercisable during a period established at the time of their grant provided that such period will expire no later than five years after the date of grant, subject to early termination of the option in the event the holder of the option dies or ceases to be a director, officer or employee of the Company or ceases to provide ongoing management or consulting services to the Company or entity controlled by the Company. The maximum number of Shares issuable upon exercise of options granted pursuant to the Plan is equal to the greater of [i] 4,000,000 Shares; and [ii] 12.5% of the number of issued and outstanding Shares. A summary of stock option activity under the Plan is as follows: Weighted average exercise price # $ Outstanding, December 31, ,298, Granted 790, Exercised (180,354) 0.46 Forfeited (2,250,456) 1.86 Outstanding, December 31, ,657, The following table summarizes stock option information of the Plan as at December 31, 2009: Weighted average Aggregate Exercise Number remaining Number intrinsic price outstanding contractual life exercisable value $ # [years] # $ ,428, ,238, , , ,000 4, ,646, ,160 57, , , , , , , , , , , , , , , , , , , , , , ,915 8,657, ,851, ,100 F-23

84 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the company s closing stock price on the last trading day of fiscal 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, The amount changes based on the fair market value of the Company s Shares. For the year ended December 31, 2009 and 2008, $638,442 and $127,243, respectively, were recorded for total stock-based compensation expense related to stock options under the Plan. The weighted average exercise price of options exercisable as at December 31, 2009 was $1.42. The Company estimates the fair value of stock options granted using a Black-Scholes-Merton option pricing model. The assumptions used in determining the fair value of stock options granted are as follows: Years ended December 31, Weighted average Exercise price of stock options granted $0.46 $0.51 Fair value of stock options granted $0.32 $0.34 Expected volatility 98% 79% Risk-free interest rate 1.97% 2.26% Expected life [years] 4 4 Dividend yield 0% 0% The exercise price of stock options is calculated using the five day volume weighted average price of the Company s Shares on the Toronto Stock Exchange preceding the grant date. The Company estimates volatility based on a blended rate between the Company s historical volatility and the volatility of comparable companies. The Company estimates the risk-free rate based on the federal reserve rate. The Company estimates the expected life of stock options to be four years for all option grants. As at December 31, 2009, there was $2,304,070 of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period of 2.68 years. [ii] Restricted Share Plan Restricted share units give the holder the right to one Share for each vested restricted share unit. These awards vest on a monthly basis over a 48-month period. The maximum number of restricted shares issuable shall be no greater than the equivalent of 1,000,000 Shares. A summary of restricted share activity under the restricted share plan is as follows: # Outstanding, December 31, ,222 Vested and issued for Shares (52,498) Outstanding, December 31, ,724 During the years ended December 31, 2009 and 2008, the Company recognized stock-based compensation expense of $31,631 and $6,518, respectively, related to its restricted share plan. F-24

85 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 [iii] Warrants The Company granted to a channel partner 7,500 warrants with an expiry of five years from the date of issuance at an exercise price of $6.00 per warrant. For the years ended December 31, 2009 and 2008, no compensation expense was recognized related to these warrants as the total fair value of these warrants were previously recorded as part of the purchase price of a previous acquisition. These warrants expire on April 27, The Company granted, as part of an acquisition, 10,000 warrants at an exercise price of $6.00 per warrant. Each warrant is exercisable into one Share, vest immediately and expires on May 31, The fair value of these warrants, in the amount of $229, was included in the purchase price of the Acquired Business. In connection with the Company obtaining broadcast rights from a channel partner, the Company granted 100,000 warrants with an exercise price of $6.23 to purchase Shares of the Company. For the years ended December 31, 2009 and 2008, the Company expensed $920 and $182, respectively. These warrants expire on November 30, The Company granted 50,000 warrants to a television manufacturer. The exercise price of these warrants will be determined based on meeting certain milestones. As at December 31, 2009, these milestones have not been met, therefore the measurement date has not occurred. Accordingly, for the years ended December 31, 2009 and 2008, no compensation expense was recognized related to these warrants. Each warrant is exercisable into one cshare of the Company, vests over four years and expires on August 3, The Company issued 30,000 warrants to a sports media broadcaster at an exercise price of $2.20 per warrant. Each warrant is exercisable into one Share of the Company, vests immediately and expires on November 5, The fair value of these warrants in the amount of $7,341 was included as part of the purchase price of the Acquired Business. On October 20, 2008, AvantaLion LLC, an entity controlled by Charles B. Wang, the Chairman of the Company, purchased 10,000,000 units from the Company s treasury at a price of Cdn$1.00 per unit. Each unit (a "Unit") consists of one (1) Share and one-half of one Series A Share purchase warrant and one-half of one Series B Share purchase warrant. Each whole Series A Share purchase warrant is exercisable at Cdn$1.25, and each whole Series B Share purchase warrant is exercisable at Cdn$1.50, in each case for a period of two years from the date of grant. G. Scott Paterson, Vice Chairman of the Company, also purchased 1,000,000 Units on the same terms. The aggregate gross proceeds from the sale of Units were Cdn$11 million. Refer to Note 16 for further information. On October 20, 2008, the Company granted 5,000,000 fully-vested warrants with an exercise price of $0.63 exercisable for two years to employees of the Company in connection with the Merger. On October 31, 2009, the Company granted 1,000,000 Share purchase warrants to acquire Shares at $1.35 per share and 500,000 Share purchase warrants to acquire Shares at $1.80 per share in conjunction with the acquisition of INSINC. Both series of warrants are exercisable for a period of 2 years. The fair value of these warrants, in the amount of $338,750, has been included in the purchase price of INSINC. The total stock-based compensation expense related to warrants during the years ended December 31, 2009 and 2008 was $920 and $1,678,896, respectively. F-25

86 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 A summary of the warrant activity is as follows: Weighted average exercise price # $ Outstanding, December 31, ,538, Granted 1,500, Forfeited (341,300) 4.04 Outstanding, December 31, ,697, The fair value of warrants was determined using the Black-Scholes-Merton option pricing model. The following table summarizes the warrant information as at December 31, 2009: Weighted average Aggregate Exercise Number remaining Number intrinsic Price outstanding contractual life exercisable value $ # [years] # $ ,000, ,000, , ,500, ,500, ,000, ,000, ,500, ,500, , , , , , , , ,139 n/a 50,000 17,697, ,624, ,000 The weighted fair value of warrants granted during the years ended December 31, 2009 and 2008 was, based on the following assumptions: Years ended December 31, Weighted average Exercise price of stock options granted $1.50 $0.99 Expected volatility 100% 85% Risk-free interest rate 2.28% 1.84% Expected life [years] 2 2 Dividend yield 0% 0% As at December 31, 2009, there was $843 of total unrecognized compensation cost related to non-vested warrants which is expected to be recognized over a weighted-average period of 0.9 years. F-26

87 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 [iv] Retention Warrant Plan ["Warrant Plan"] The Company s retention warrant plan [the "Warrant Plan"] applies to all grants of retention warrants to employees and consultants of the Company or any entity controlled by the Company. The exercise price for any retention warrant granted under the Warrant Plan will be determined by the five-day average closing price of the Company's Shares prior to the date of grant but cannot be less than such a price. Retention warrants are exercisable during a period established at the time of their grant provided that such period will expire no later than five years after the date of grant, subject to early termination of the retention warrant in the event the holder of the retention warrant dies or ceases to be an employee or consultant of the Company or ceases to provide ongoing management or consulting services to the Company or entity controlled by the Company. The maximum number of Shares issuable upon exercise of retention warrants granted pursuant to the Warrant Plan is equal to 2,500,000 Shares. A summary of the retention warrant activity during the year ended December 31, 2009 is as follows: Weighted average exercise price # $ Outstanding, December 31, ,350, Exercised (7,063) 0.65 Forfeited (495,485) 2.72 Outstanding, December 31, , The following table summarizes the retention warrant information as at December 31, 2009: Weighted average Aggregate Exercise Number remaining Number intrinsic price outstanding contractual life exercisable value $ # [years] $ $ , ,869 2, , , , , , , , ,708 2,726 There were no retention warrants granted during the years ended December 31, 2009 and As at December 31, 2009, there was $65,943 of total unrecognized compensation cost related to non-vested retention warrants which is expected to be recognized over a weightedaverage period of 1.9 years. [v] Stock Appreciation Rights Plan ["SARS"] The maximum number of units that can be granted under the SARS Plan is equivalent to the greater of 4,150,000 or 5% of the aggregate number of issued and outstanding Shares. The exercise price shall be determined by the Board of Directors at the time of grant but in no event shall the exercise price be lower than the market price of the Shares at the time of the grant. Each unit granted under the SARS Plan has a maximum life of five years from the date of the grant. The SARS Plan provides the unitholder the right to settle the award as follows: F-27

88 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 [1] Receive cash compensation less the exercise price or to purchase or receive an equivalent number of Shares, less the exercise price; [2] In lieu of receiving a cash settlement, the unitholder can elect to receive a number of Shares equal to the fair value of the Shares less the exercise price divided by the market value of the Shares from treasury; or [3] Elect to pay the Company the exercise price and receive Shares equal to the number of units granted under the SARS Plan from treasury. The Board of Directors has discretionary authority to accept or reject a cash payment request in whole or in part. A summary of the SARS activity during the year ended December 31, 2009 is as follows: Weighted average exercise price # $ Outstanding, December 31, ,947, Forfeited (272,177) 5.03 Outstanding, December 31, ,675, The following table summarizes the SARS information as at December 31, 2009: Weighted average Aggregate Exercise Number remaining Number intrinsic price outstanding contractual life exercisable value $ # [years] # $ , ,077 9, , ,474 2, ,000, ,000,000 1,675, ,229,551 12,569 The weighted fair value of stock appreciation rights granted during the year ended December 31, 2008 was $0.05 based on the following assumptions: Years ended December Weighted average Exercise price of stock options granted n/a $0.60 Expected volatility n/a 79% Risk-free interest rate n/a 2.41 Expected life [years] n/a 4 Dividend yield n/a 0% F-28

89 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 [vi] Directors Compensation Plan [ Directors Plan ] Non-management directors of the Company receive a minimum 50% of their retainers and fees in the form of Shares and may elect to receive a greater portion of their retainers and fees in Shares. The number of Shares to be issued to non-management directors is determined by dividing the dollar value of the retainers and fees by the closing price of the Shares on the relevant payment date. The maximum number of Shares available to be issued by the Company under the Directors Plan is 500,000. During the year ended December 31, 2009, the Company issued 407,823 Shares with a fair value of $250,657 in regards to fees and retainers to non-management directors. There were no comparable amounts in the prior year. 11. Loss per Share Basic loss per share is computed by dividing net loss for the period by the weighted average number of Shares outstanding for the period. Diluted loss per share is computed by dividing net loss for the year by the weighted average number of Shares outstanding, and excludes the effect of dilutive potential Shares, as their inclusion would be anti-dilutive due to the losses recorded by the Company. The following table summarizes the potential Shares that were outstanding as at December 31, 2009 and 2008 but were not included in the computation of diluted loss per share as their effect would have been anti-dilutive. See note 10 for additional details. 12. Supplemental Cash Flow Information For each of the years presented, the Company did not pay any cash income taxes or cash interest expense. 13. Commitments and Contingencies Commitments # # Stock options 8,657,897 10,298,707 Restricted share units 6,724 59,222 Stock appreciation rights 1,675,000 1,947,177 Warrants 17,697,500 16,538,800 Retention warrants 847,892 1,350,440 Contingent performance consideration 3,680,194 The Company has operating lease commitments for its premises in the United States (Plainview, New York; New York, New York; and Sanford, Florida), Canada (Toronto, Ontario and Vancouver, British Columbia) and England (London). In addition, the Company has operating leases for certain computer hardware and infrastructure equipment. Furthermore, the Company has marketing and content license fee commitments to channel partners. Future minimum annual payments over the next five years and thereafter (exclusive of taxes, insurance and maintenance costs) under these commitments are as follows: F-29

90 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, ,185, ,506, ,304, , ,080 Thereafter 281,627 7,174,182 Rent expense for the years ended December 31, 2009 and 2008 was $955,420 and $448,854, respectively. The Company has signed a sublease for its Toronto office, which is expected to create a total recovery of $5,243,517. Contingencies During the ordinary course of business activities, the Company may be contingently liable for litigation and a party to claims. Management believes that adequate provisions have been made in the accounts where required. Although the extent of potential costs and losses, if any is uncertain, management believes that the ultimate resolution of such contingencies will not have an adverse effect on the consolidated financial position or results of operations of the Company. 14. Segmented Information The Company operates, as one reportable segment, to provide end-to-end enterprise-level IPTV and other professional services. Substantially all of Company s revenues and longlived assets are in the United States. 15. Income Taxes The reconciliation of income taxes computed at the Canadian statutory tax rate to the Company s effective income tax rate for the years ended December 31, 2009 and 2008 is as follows: $ $ Combined basic federal and provincial rates 33.0% 33.5% Income tax benefit based on statutory income tax rate (6,481,504) (3,898,482) Increase in income taxes resulting from: Non-deductible expenses and foreign rate differential 409, ,824 Income while Company was an S Corp. and not subject to tax 1,597,396 Increase in valuation allowance 6,071,805 1,669,262 Income tax expense The increase in valuation allowance consists of the creation of additional tax losses which have not been recognized for accounting purposes. $ F-30

91 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Deferred income taxes result principally from temporary differences in the recognition of loss carry forwards and expense items for financial and income tax reporting purposes. Significant components of the Company s deferred tax assets as of December 31, 2009 and 2008 were as follows: The Company has approximately $93,368,139 in non-capital tax losses available to be applied against future years' income, which expire as follows: Due to the losses incurred since inception and expected future operating results, a 100% valuation allowance has been recorded against the Company's net deferred tax assets as it is more likely than not that the future tax asset resulting from the tax losses available for carry-forward will not be realized through the reduction of future income tax payments. The Company does not have any uncertain tax provisions under ASC Derivative Instruments December 31, December 31, $ $ Deferred revenue 1,722,245 1,129,610 Property, plant and equipment 2,423,828 1,177,388 Intangible assets (291,668) 426,542 Share issue costs 1,754,781 3,143,219 Net operating losses 29,540,867 22,155,774 35,150,053 28,032,533 Valuation allowance (35,150,053) (28,032,533) Total deferred tax assets , ,263, ,544, ,851, ,510,759 93,368,139 The Company s only derivative instruments are 11,000,000 warrants, the exercise price for which are denominated in a currency other than the Company s functional currency, as follows: 5,500,000 Series A warrants exercisable at Cdn$1.25 that expire on October 20, ,500,000 Series B warrants exercisable at Cdn$1.50 that expire on October 20, These warrants have been recorded at their relative fair values at issuance and will continue to be recorded at fair value at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as other income (expense). These warrants will continue to be reported as a liability until such time as they are exercised or expire. The fair value of these warrants is estimated using the Black-Scholes-Merton option-pricing model. $ F-31

92 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 As of January 1, 2009, the grant date fair value of these warrants in the amount of $2,464,000 was reallocated from additional paid-in-capital and a derivative liability was recorded in the amount of $587,950, being the fair value of the warrants on January 1, 2009 offset by an adjustment to accumulated deficit of $1,876,050. As of December 31, 2009, the fair value of the warrants was determined to be $1,389,300; accordingly, the Company recorded $801,350 in other expense for the year ended December 31, 2009, respectively, related to the change in the fair value of these warrants. There is no cash flow impact for these derivatives until the warrants are exercised. If these warrants are exercised, the Company will receive the proceeds from the exercise at the current exchange rate at the time of exercise. 17. Reconciliation of U.S. GAAP to Canadian GAAP The consolidated financial statements of the Company are prepared in U.S. dollars in accordance with U.S. GAAP. The following adjustments and disclosures would be required in order to present these consolidated financial statements in accordance with Canadian GAAP: Reconciliation to Canadian GAAP Income Statements Items using Canadian GAAP $ $ NET LOSS USING UNITED STATES GAAP (19,640,921) (11,637,260) Add (deduct) adjustments for: Adjustment for stock based compensation on SARS[i] 131,343 16,599 Adjustment for unrealized loss on derivative [ii] 801,350 NET LOSS USING CANADIAN GAAP (18,708,228) (11,620,661) NET AND COMPREHENSIVE LOSS PER SHARE USING CANADIAN GAAP - basic and diluted $(0.17 ) $(0.21 ) Balance Sheet Items using Canadian GAAP U.S. Canadian U.S. Canadian GAAP GAAP GAAP GAAP $ $ $ $ Accrued liabilities [i] 5,822,385 5,662,128 7,595,116 7,578,517 Derivative liability [ii] 1,389,300 Total current liabilities [i] 16,801,308 15,251,751 15,209,323 15,192,724 Total liabilities [i] 17,998,829 16,449,272 16,724,104 16,707,505 Accumulated deficit [i] (43,804,398) (44,731,156) (26,039,527) (26,022,928) Total shareholders equity [i] 22,270,334 23,807,576 37,013,578 37,030,177 F-32

93 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Cash Flows Items using Canadian GAAP Areas of material difference between Canadian GAAP and U.S. GAAP and their impact on the consolidated financial statements are as follows: [i] SARs [ii] Derivative Liability U.S. Canadian U.S. Canadian GAAP GAAP GAAP GAAP $ $ $ $ Net loss [ii] (19,640,921) (18,708,228) (11,637,260) (11,620,661) Stock-based compensation [ii] 1,167,789 1,036,446 1,848,906 1,832,307 Under U.S. GAAP, the Company recognizes a liability and compensation expense for the fair value of the SARs on each reporting date. Under Canadian GAAP, the Company recognizes a liability and compensation expense for the in the money value of the SARs on each reporting date. Canadian Institute of Chartered Accountants ( CICA ) Handbook Section 3861, Financial Instruments Disclosure and Presentation, establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them. The revisions change the accounting for certain financial instruments that have liability and equity characteristics. Under U.S. GAAP, the Company recognizes a derivative liability on the consolidated balance sheets for the fair value of all convertible instruments with an exercise price denominated in a currency other than the Company s functional currency. The Company fair values this liability on each reporting date with the corresponding entry to unrealized gain (loss) on derivative on the consolidated statement of operations. Under Canadian GAAP, the Company records these convertible instruments at fair value on the grant date and includes them within additional paid in capital on the consolidated balance sheets. The Company does not recognize any changes in fair value. F-33

94 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 CICA Handbook Section 1535 Capital Disclosures The Company manages the following accounts in regards to capital management: (the figures in the table above are in accordance with U.S. GAAP) The Company s outstanding share capital is comprised of Shares. At December 31, 2009, an unlimited number of Shares were authorized and 116,731,794 (December ,084,044) Shares were issued and outstanding. Approximately 57% of the Shares are held by insiders, and the remaining shares are widely held. Further information on the Company s outstanding share capital is provided in note 9 of these consolidated financial statements. At December 31, 2009, a total of 8,657,897 stock options were outstanding, 6,724 restricted share units, 17,697,500 warrants, 847,892 retention warrants and 1,675,000 SARs, which convertible securities cumulatively represented 25% of the Company s issued and outstanding share capital. Pursuant to guidelines set by the Company s respective equity plans, stock option grants are limited to the greater of 12.5% of the issued and outstanding Shares outstanding and 4,000,000, restricted share unit grants have been fully granted, retention warrants are limited to 2,500,000 and SARs grants are limited to the greater of 5% of the issued and outstanding Shares and 4,150,000. The Company is currently in compliance with these guidelines. The Company s objective in managing capital is to ensure a sufficient liquidity position to finance its revenue growth, general and administrative expenses, working capital and capital expenditures. In order to maintain or adjust its capital structure, the Company may issue new shares and/or purchase shares for cancellation pursuant to normal course issuer bids. To finance its activities, the Company has relied on revenue growth and issuance of common equity. Since inception, the Company has financed its activities primarily through public offerings of Shares. The Company s policy is to maintain a minimal level of debt. At this time the Company has not utilized debt facilities as part of its capital management program nor has it paid dividends to its shareholders. The capital management objectives for the period ended December 31, 2009 remained the same as those of the previous fiscal year. The Company is not subject to any externally imposed capital requirements. December 31, December 31, $ $ Shareholders' equity Share capital 11,260,415 6,762,097 Additional paid in capital 55,023,567 56,500,258 Promissory note receivable (209,250) (209,250) Accumulated deficit (43,804,398) (26,039,527) 22,270,334 37,013,578 F-34

95 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 CICA Handbook Sections 3862 and 3863 Financial Instruments Disclosures and Presentation The Company's financial instruments are comprised of cash and cash equivalents, short-term investments, accounts receivable, interest receivable, other receivables, accounts payable, other accrued liabilities, amounts due to/from related party, notes payable and obligations under capital lease. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair value of assets and liabilities were as follows: All fair values denoted above approximate their carrying values due to their short term nature and/or variable interest rates. Risk management is primarily the responsibility of the Company s corporate finance function. Significant risks are regularly monitored and actions are taken, when appropriate, according to the Company s approved policies, established for that purpose. In addition, as required, these risks are reviewed with the Company s Board of Directors. Foreign Exchange Risk The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency of the United States dollar. The majority of the Company s revenues are transacted in U.S. dollars, whereas a portion of its expenses are transacted in U.S. or Canadian dollars. The Company does not use derivative instruments to hedge against foreign exchange risk. Interest Rate Risk December 31, December 31, $ $ Financial Assets Held-for-Trading Cash and cash equivalents 12,957,679 27,323,021 Loans and Receivables Accounts receivable 1,809,147 2,284,242 Other receivables 821, ,711 Due from related parties 246, ,059 Financial Liabilities Other Financial Liabilities Accounts payable 5,383,518 4,465,388 Accrued liabilities 5,822,385 7,595,116 Due to related parties 298,595 56,826 The Company is exposed to interest rate risk on its invested cash and cash equivalents. The interest rates on these instruments are based on the banks applicable rate and therefore are subject to change with the market. The Company does not use derivative financial instruments to reduce its interest rate risk. F-35

96 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 Credit Risk The Company sells its services to a variety of customers under various payment terms and therefore is exposed to credit risk. The Company has adopted policies and procedures designed to limit this risk. The maximum exposure to credit risk at the reporting date is the carrying value of receivables. The Company establishes an allowance for doubtful accounts that represents its estimate of incurred losses in respect of accounts receivable. The Company believes that the concentration of credit risk is limited due to the Company s primary source of revenues to date being subscription revenues, for which monies are received in advance principally through credit cards. There is no significant credit risk related to the Company's cash and cash equivalents. Credit risk is managed through conducting financial and other assessments of these investments on an ongoing basis. The following table sets out details of the age of accounts receivable that are outstanding and related allowance for doubtful accounts: The carrying amount of accounts receivable is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statements of operations and comprehensive loss. When a receivable balance is considered uncollectible, it is written off against the allowance for accounts receivable. Subsequent recoveries of amounts previously written off are credited against operating expenses in the consolidated statements of operations and comprehensive loss. In addition, recent Canadian GAAP accounting pronouncements that may impact the Company's financial position and results of operations and disclosure requirements are as follows: Recent Accounting Pronouncements December 31, December 31, $ $ Current 938,298 1,697, days 409, , days 262, ,525 Over 90 days 327, ,914 Less: Allowance for doubtful accounts (129,550) (290,538) Total accounts receivable, net 1,809,147 2,284,242 In February 2008, the CICA issued new Handbook Section 3064, Goodwill and Intangible Assets, which replaces Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The new standard addresses when an internally developed intangible asset meets the criteria for recognition as an asset. The section also issued amendments to Section 1000, Financial Statement Concepts. These changes are effective for fiscal years beginning on or after October 1, 2008, with earlier adoption permitted, and have been adopted by the Company effective January 1, The objectives of the changes are to reinforce a principle-based approach to the recognition of costs as assets and to clarify the application of the concept of matching revenues and expenses in Section Collectively, these changes bring Canadian practice closer to International Financial Reporting Standards ( IFRS ) by eliminating the practice of recognizing as assets a variety of start-up, pre-production and similar costs that do not meet the definition and recognition criteria of an asset. There was no material effect on the Company s consolidated financial statements as a result of adopting CICA Handbook Section F-36

97 NEULION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in U.S. dollars, unless otherwise noted] December 31, 2009 In February 2008, the CICA Accounting Standards Board confirmed that the changeover to IFRS from Canadian GAAP will be required for publicly accountable enterprises, effective for the interim and annual financial statements relating to fiscal years beginning on or after January 1, The Company became an SEC issuer effective June 8, 2009 and expects to continue to use U.S. GAAP until the date that IFRS is implemented in the United States, which is currently estimated to occur no sooner than Effective January 1, 2009 the Company adopted CICA Handbook Section 1582 Business Combinations which replaces Section This standard establishes the principles and requirements of the acquisition method for business combination and related disclosures and applies prospectively to business combinations for which the acquisition date. Effective January 1, 2009, the Company adopted CICA Handbook Section 1601 Consolidated Financial Statements and section 1602 Non-controlling Interest which replace Section Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. The adoption of Sections 1582, 1601, and 1602 did not materially impact the Company's consolidated financial statements as the provisions of these standards are substantially similar to the Company's accounting in accordance with U.S. GAAP. F-37

98 Exhibit CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED IS OMITTED AND MARKED WITH **. AN UNREDACTED VERSION OF THIS DOCUMENT HAS ALSO BEEN PROVIDED TO THE SECURITIES AND EXCHANGE COMMISSION. CONTRACT FOR PRODUCTS AND SERVICES THIS AGREEMENT, dated as of January 4, 2010 ( Effective Date ) (together with the schedules, appendices, attachments and exhibits attached hereto and hereby incorporated herein in their entirety by reference) ( Agreement ), by and among DISH Network L.L.C., a Colorado company having its principal office at 9601 S. Meridian Blvd., Englewood, Colorado ( Company ), NeuLion USA, Inc., a Delaware corporation having its principal place of business at 1600 Old Country Road, Plainview, New York ( NeuLion ) and solely for purposes of Section 34 of this Agreement, NeuLion, Inc., an Ontario corporation having its principal place of business at 463 King Street West, 3rd Floor, Toronto, Ontario, Canada M5V 1K4 ( Parent ), each of Company and NeuLion being a Party, and together, the Parties. For purposes of this Agreement, Affiliate shall mean any person or entity directly or indirectly controlling, controlled by or under common control with another person or entity, which for NeuLion currently include, without limitation, the entities that directly or indirectly control the IPTV services known as Talfazat, TV-Desi and KyLinTV. For clarity (and without limitation of the foregoing), a division or department of NeuLion shall be an Affiliate of NeuLion for purposes of this Agreement. W I T N E S S E T H: WHEREAS, Company desires to hire NeuLion to provide certain services on a non-exclusive basis in connection with Company s offering of a subscription-based, Companybranded, pay internet protocol television ( IPTV ) service to consumers and other potential customers in the United States, its territories and possessions, and such other locations as the Parties agree to offer the Service (as defined in Section 2 below) (the Territory ), as further described in this Agreement; WHEREAS, on a non-exclusive basis and as further described in this Agreement, NeuLion desires to provide such services to Company, including without limitation, the provisioning and support of a customizable, end-to-end IPTV service utilizing NeuLion s IPTV-related software, systems and personnel (collectively, NeuLion s IPTV Platform ), for which IPTV service Company will provide the Content (as defined in Section 2 below); and WHEREAS, subject to the terms and conditions of this Agreement, in connection with the foregoing, Company desires to purchase from NeuLion, and NeuLion desires to supply to Company, on a non-exclusive basis, set-top boxes manufactured under license of NeuLion ( Set-Top Boxes or STBs ) and bearing the brand name of Company (or such other brand name(s) as may be designated by Company in accordance with this Agreement) for sale, lease or other transfer to third parties (including without limitation, through any of Company s Affiliates and/or through Company s or any of its Affiliate s retailers or distributors); 1 Proprietary & Confidential

99 NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 1. Term. This Agreement shall commence on the Effective Date and expire on May 15, 2013 (the Initial Term ), unless earlier terminated as otherwise provided for herein. In the event that there are ******* Subscribers (as defined in Section 2 below) in the aggregate across all languages offered (the Renewal Minimum ) as of the date that is sixty (60) days prior to the last day of the Initial Term, Company shall have the option (but not the obligation), in its sole discretion for any reason or no reason, to extend this Agreement for an additional three (3) year period (the Renewal Term ). If Company elects to exercise its option to extend this Agreement for the Renewal Term, Company shall provide NeuLion with written notice of such election no later than sixty (60) days prior to the last day of the Initial Term of this Agreement. Except as otherwise expressly provided for herein, such renewal shall be on the same terms and conditions as provided for during the Initial Term (inclusive of, without limitation, the fees set forth in Exhibit C hereto). If the number of Subscribers has not reached the Renewal Minimum as of the date that is sixty (60) days prior to the last day of the Initial Term, Company may nonetheless exercise its option to renew as described in this Section 1, provided that during the Renewal Term, the Operations Fees payable by Company to NeuLion as set forth in Section B.1. of Exhibit C hereto shall be calculated using *******. As used herein, Term shall mean the Initial Term and the Renewal Term, if any. 2. NeuLion Services. As more fully described in Exhibit A hereto, the services to be provided to Company by NeuLion under this Agreement (the NeuLion Services ) shall consist of the setup and operation of an end-to-end standard definition, white-labeled IPTV service to be branded and made available by Company to consumers and other customers (as determined by Company at any time and from time to time in its sole discretion for any reason or no reason) in the Territory (the Service ), in addition to any other services and deliverables as may be set forth in this Agreement, including without limitation the provisioning of STBs by NeuLion to Company for resale, lease or other transfer in Company s sole discretion to Subscribers (as defined below) so that Subscribers may receive and view the Service. For clarity (and without limitation of any of the foregoing), the Service is separate and apart from the NeuLion Services and is the product resulting from the combination of, among other things as hereinafter set forth, the NeuLion Services on the one hand, and the audio, video, data and other content for the Service that is provided to NeuLion by Company and/or its Affiliates at any time and from time to time during the Term and the Wind Down Period in their sole discretion for the Service ( Content ), on the other hand. To the extent Company elects in its sole discretion for any reason or no reason to do so, Company shall be responsible for all advertising and marketing of the Service. In addition to (and without limitation of any of the foregoing or any other provision of this Agreement), NeuLion shall be solely and exclusively responsible for ensuring that the NeuLion Services and all components of the Service other than the Content comply with applicable Laws (as defined in Section 6 below). For further clarity, the Service is intended to be delivered to Subscribers through a STB for viewing on a monitor or television set and is not intended to be delivered directly to Subscribers through a personal computer or mobile device 2 Proprietary & Confidential

100 (other than a STB) for viewing thereon. Except as provided for in Exhibit C, Section B (4), the Parties acknowledge and agree that no minimum number of customers or subscribers to the Service (collectively, Subscribers ), whether calculated on a cumulative, per Reporting Period (as defined in Section I.2 of Exhibit A hereto) or other basis, to the Service shall be required for NeuLion to perform its obligations hereunder and that Company has made no guarantees or assurances as to any minimum number of Subscribers. Notwithstanding anything set forth to the contrary herein, NeuLion shall not in any way, directly or indirectly: (a) use the Service, the packaging in which STBs are shipped to Subscribers (including without limitation the literature and documentation accompanying such STBs), or any of the STB Components, to market, promote, solicit orders for or sell any product or service other than the Service itself or such other product(s) and/or service(s) as may be expressly authorized by Company in a writing signed by a Senior Vice President or an Executive Vice President of Company (or his/her designee); or (b) use the STBs for any purpose other than the provisioning of the Service, or in connection with their resale as provided for in Section 3 hereof. The provisions of the immediately preceding sentence shall survive expiration or termination of this Agreement for any reason indefinitely. 3. Set Top Boxes. Subject to the terms and conditions of this Agreement (including without limitation those set forth in the exhibits attached hereto), NeuLion agrees to sell to Company certain STBs for re-sale, lease or other transfer by Company (including without limitation through one or more Company Affiliates, or through Company s or any of its Affiliate s retailers or distributors) to enable Subscribers to use the Service, including without limitation to receive and view the Content contained in the channels or programming package(s) ordered by the applicable Subscriber, as determined at any time and from time to time by Company in its sole discretion. The Parties acknowledge that STBs are integral to the Service. All STBs and STB Components (as defined below) shall meet the specifications set forth in Exhibit B and/or such other specifications as may be mutually agreed upon by the Parties in writing from time to time during the Term of this Agreement. For clarity, all STBs sold to Company by NeuLion shall come standard with an STB-compatible IR remote control, power cable, CAT 5 or other compatible Ethernet cable and written English-language instruction manual that includes the limited warranty referenced in Section 3(d) (the STB Components ). NeuLion shall ensure that all STBs and STB Components sold to Company are, and continue to be, manufactured in accordance with such Company-approved specifications. NeuLion shall not sell to Company, or ship to any Subscriber, any STB or STB Components meeting specifications that Company has not approved in writing or that deviate in any way from the version(s) of the STB or applicable STB Component that Company approved. NeuLion agrees to sell individual STB Components to Company throughout the Term at the prices set forth in Exhibit C hereto. NeuLion shall be solely and exclusively responsible for payment of any and all license or other royalties required for the manufacture, sale or use of the STBs and STB Components by Subscribers and other STB users. In addition to (and without limitation of) the foregoing or any other provision of this Agreement, NeuLion shall be solely and exclusively responsible for ensuring that all STBs and STB Components are properly labeled for consumers (including without limitation Subscribers) in accordance with applicable Laws and that such STBs and STB Components comply with all applicable Laws. Notwithstanding anything set forth to the contrary in this Agreement, Company shall have the right to re-sell, lease or otherwise transfer Company-purchased STBs (including without limitation with the software installed thereon) and STB Components to third parties other than Subscribers during any Migration (as defined in Section 13 below) or following expiration or termination of this Agreement for any reason. In addition to (and without limitation of) the other licenses granted to Company by NeuLion hereunder, NeuLion hereby grants to Company any and all licenses necessary in order for Company to re-sell, lease or otherwise transfer Company-purchased STBs (including without limitation the software therein) during any Migration or following the expiration or termination of this Agreement (the STB Sales Licenses ). NeuLion acknowledges and agrees that the STB Sales Licenses are being granted to Company on a perpetual, irrevocable, royalty-free, worldwide basis; provided, however, that NeuLion shall have no further obligations with respect to any such resold STBs except to negotiate in good faith with the buyer(s) thereof with respect to buyer use of, and NeuLion support of, such resold STBs in connection with all of such buyers or any of their affiliates offering of an IPTV service that utilizes NeuLion s IPTV Platform. For clarity, the STB Sales Licenses and the provisions of the immediately preceding sentence shall survive expiration or termination of this Agreement for any reason indefinitely. 3

101 (a) Purchase Orders. (i) STBs may be ordered by Company at any time during the Term of this Agreement by the issuance of written purchase orders consistent with the terms of this Agreement. NeuLion shall provide Company with all STBs subject to and in accordance with the terms and conditions of such purchase orders including without limitation the model selected by Company; provided that NeuLion shall ensure that all shipments of STBs are delivered to the location(s) specified in the applicable purchase order not more than twelve (12) weeks following the date of such purchase order (the Maximum Delivery Time ). Without prejudice to any other rights or remedies available to Company, if any shipment is not delivered to the delivery location specified in the applicable purchase order within ******* weeks following the date of such purchase order, the total amount payable to NeuLion by Company thereunder shall be reduced by *******, and further, if any shipment is not delivered to the delivery location specified in the applicable purchase order within ******* weeks following the date of such purchase order, the total amount payable to NeuLion by Company thereunder shall be reduced by *******. STB pricing is set forth in Exhibit C attached hereto. (ii) In addition to (and without limitation of) any of the foregoing, Company may (but shall not be obligated to) cancel any purchase order, either in whole or in part, if delivery of the product ordered is delayed by ninety (90) days or more in excess of the date that is: (a) ten (10) weeks from the date of a purchase order if such purchase order specifies shipping by air; or (b) twelve (12) weeks from the date of a purchase order if such purchase order specifies shipping by sea. Any and all amounts paid in advance by Company with respect to a cancelled purchase order shall be refunded in full to Company by NeuLion within thirty (30) days following the date on which Company provides NeuLion with notice of cancellation. Except as otherwise provided in Exhibit C, Section C (7) with regard to Company s ******* aggregate STB purchase commitment during the first full twelve (12) calendar months of the Term, Company s obligation to purchase any item from NeuLion (including without limitation STBs) shall in no case exceed the quantities specified on a purchase order sent to NeuLion by Company. 4 Proprietary & Confidential

102 (iii) Notwithstanding anything set forth to the contrary in this Agreement, with respect to any particular purchase order submitted by Company to NeuLion, NeuLion shall use the manufacturer specified by Company to manufacture the applicable STBs and/or STB Components described therein. Any such manufacturer shall be selected by Company from: (1) among those manufacturers then used by NeuLion to supply any other NeuLion Customer with IPTV set top boxes or related equipment (NeuLion currently uses Beijing Transvideo Digital Technology Co., Ltd. and Tatung Company) or then used by an Affiliate if ordered directly from the manufacturer by such Affiliate; and (2) such other manufacturer(s), if any, as may be recommended by NeuLion. NeuLion shall provide Company with a list of manufacturers meeting the criteria set forth in clauses (1) and (2) of this Section 3(a)(iii) within not more than three (3) days following a request by Company. (b) Market Rights. (i) It is expressly understood and agreed that this Agreement does not grant to NeuLion an exclusive right or privilege to sell to Company or any of its Affiliates any STB, STB Component or other product or service. It is therefore understood that Company and/or any of its Affiliates may contract with other manufacturers and suppliers for the procurement of comparable products and/or services, including any other NeuLion Customer (as defined in Section 17). (ii) NeuLion agrees that purchases by Company under this Agreement shall neither restrict the right of Company to cease purchasing nor require Company to continue any level of such purchases. (iii) Except as specifically set forth in Exhibit C, Section C (7), Company shall have no obligation to make any purchases from NeuLion hereunder, and has made no assurances or guarantees to NeuLion that it will do so. The Parties agree that under no circumstances shall NeuLion, or anyone claiming through NeuLion, its successors or assigns, have any claim against Company and/or any of its Affiliates, and neither Company nor any of its Affiliates shall have any liability to NeuLion, or anyone claiming through NeuLion, its successors or assigns, if such claim arises out of or is brought in connection with a failure by Company to purchase STBs or any other product in any quantity, even if it results in: (1) termination of this Agreement; (2) loss of profits or opportunity; (3) employee actions; or (4) the expenditure of sums in preparation or anticipation of future orders. (c) Conditional Access and Geoblocking. Unless otherwise authorized by Company in advance and in writing, NeuLion shall not provide the Service, any portion thereof, or any STB, to anyone that it reasonably knows, or should have known, resides or is situated outside of the United States, its territories or possessions, or intends to receive the Service or an STB outside of the United States, its territories or possessions. With respect to the STBs, NeuLion shall at all times during the Term and the Wind Down Period implement and employ: (i) conditional access software, techniques and measures that meet or exceed prevailing industry standards, are reasonably acceptable to Company, and that restrict access to the Service (including without limitation the Content) to only those Subscribers that have paid in full for the Service and are authorized by Company to receive the same ( Conditional Access Measures ); 5 Proprietary & Confidential

103 and (ii) geofiltering and geoblocking software, techniques and measures that are reasonably acceptable to Company and meet or exceed prevailing industry standards, to restrict access to the Service (including without limitation the Content) to only those Subscribers with an internet protocol address physically located in the United States, its territories or possessions ( Geoblocking/Geofiltering Measures ). For clarity (and without limitation of any of the foregoing), all Content must be encrypted at all times so as to prevent access, viewing and use by individuals or entities that do not have Company s authorization to do so. In connection with its geofiltering and geoblocking obligations under this Section 3(c), NeuLion shall use a current and complete database of IP addresses within the United States its territories and possessions that is obtained from, and updated by, a reliable source of such information customarily used by other video service providers in accordance with prevailing industry standards. NeuLion shall cause such database of IP addresses located within the United States, its territories and possessions to be regularly updated on no less than a monthly basis during the Term and the Wind Down Period to ensure the effectiveness and accuracy of its geofiltering and geoblocking obligations. A description of the Conditional Access Measures and Geoblocking/Geofiltering Measures implemented and employed by NeuLion as of the Effective Date are set forth in STB specifications attached hereto as Exhibit B. (d) Limited Warranty and Warranty Services. NeuLion shall provide Company and Subscribers with the warranty and warranty services set forth in Exhibit E hereto. For clarity (and without limitation of the foregoing) Company shall receive such warranty and warranty services under the same terms and conditions applicable to Subscribers hereunder (including without limitation as set forth in Exhibit E hereto). (e) Quality Assurance. (i) With respect to the STBs and STB Components, throughout the Term, NeuLion shall implement and maintain a quality assurance plan that meets or exceeds prevailing industry standards. NeuLion shall provide Company with a written copy of such plan within ninety (90) days following the Effective Date and thereafter within twenty (20) days of a written request by Company therefor from time to time during the Term. (ii) NeuLion is solely responsible for the quality of the STBs purchased by Company from NeuLion pursuant to this Agreement, and the quality levels of such STBs must not include any requirement for Company inspection and therefore must approach zero critical and major defects. Company may (but shall not be obligated to) carry out an acceptance test at NeuLion s offices in Plainview, New York, for STBs that have been delivered to NeuLion from NeuLion s manufacturer, but have not yet been shipped to any Subscriber; provided, however, that the carrying out of an acceptance test by Company shall in no way be deemed to diminish or reduce any of NeuLion s warranty and other obligations hereunder. NeuLion shall provide Company with the facilities at NeuLion s offices in Plainview, New York and all other materials requested by Company as are reasonably necessary to carry out acceptance testing. At the request of Company, NeuLion shall promptly inform Company when any shipment of STBs has been delivered to NeuLion and is ready to be shipped to Subscribers and/or other customers of Company. If any acceptance tests fail, which shall mean a failure rate ******* of STBs tested, NeuLion shall have thirty (30) days to cure the problem and present the batch again for acceptance; provided, however, that any such batch shall not be considered delivered for purposes of Section 3(a) until such time as the problem is cured and the batch is accepted by Company. In addition to (and without limitation of) NeuLion s other indemnification obligations under this Agreement, and subject to the provisions of Section 18(b) of this Agreement, NeuLion shall indemnify, defend and hold Company and its Affiliates and any employee, officer, director, customer or shareholder of any of the foregoing harmless against all actions, claims, costs (including without limitation reasonable attorney s fees), expenses, losses, damages and other liability arising from or related to any products liability allegation, claim, suit or action with respect to the STBs or any STB Component. 6 Proprietary & Confidential

104 4. NeuLion Service Fees. Company shall pay to NeuLion the applicable fees set forth in Exhibit C hereto. Unless otherwise mutually agreed upon by the Parties in writing, the fees set forth in Exhibit C hereto are the sole amounts payable by Company to NeuLion under this Agreement (including without limitation for the STBs, STB Components, the NeuLion Services and any other products or services provided to Company by NeuLion hereunder). 5. Independent Contractor. NeuLion is an independent contractor of Company. Accordingly, no Party shall, nor shall any officer, director, employee, servant, agent or independent contractor of either Party: (a) be deemed an employee of the other Party; (b) commit the other Party to any obligation; or (c) hold itself, himself, or herself out as an employee of the other Party or as a Person with the authority to commit the other Party to any obligation. As used in this Section 5, the word Person means any individual person, entity (including partnerships, corporations and limited liability companies), and government or political subdivision thereof (including agencies, bureaus, offices and departments thereof). 6. Compliance with Laws *******. (a) Compliance with Laws. Both Company and NeuLion shall comply with any and all applicable governmental statutes, laws, rules, regulations, ordinances, codes, directives and orders (whether federal, state, municipal or otherwise) and all amendments thereto, now enacted or hereafter promulgated ( Laws ) in connection with their respective performance under this Agreement. Each Party shall be solely responsible for its compliance with all Laws that apply to its obligations under this Agreement. (b) *******. NeuLion shall not, and shall ensure that none of its Affiliates, take any action which *******. For purposes of the preceding sentence, NeuLion products shall include, without limitation, set top boxes (including without limitation the STBs) manufactured and/or sold by or on behalf of NeuLion. This Section 6(b) is not intended to negate or limit any obligations either Party may have under any applicable Laws. The obligations set forth in this Section 6(b) shall not apply to NeuLion following completion of an acquisition of at least a fifty percent (50%) ownership interest in the Company by an entity (other than a Company Affiliate) that offers services that directly compete with the NeuLion Services provided to Company hereunder. 7 Proprietary & Confidential

105 7. Intellectual Property Rights and Deliverables. (a) The Parties acknowledge and agree that each Party owns its respective intellectual property rights, including without limitation all known and hereafter existing rights, including without limitation, U.S. and foreign copyrights, trademarks, service marks, trade dress, inventions, patents, patent applications, software, know-how and other similar intellectual property and proprietary rights ( Intellectual Property Rights ). All uses of the Intellectual Property Rights shall inure to the sole benefit of and be on behalf of the Party that owns such rights. The Parties acknowledge and agree that each Party s Intellectual Property Rights, and the goodwill associated therewith, are valuable properties belonging to each Party, and that all rights thereto are and shall remain the sole and exclusive property of the Party that owns such rights. The Parties acknowledge and agree that Company and/or its Affiliates may, in their sole and absolute discretion, develop, create, market, promote, sell and provide, directly or indirectly, products or services utilizing intellectual property similar to or competitive with the NeuLion IP (defined in Section 7(b)) or other property rights owned or controlled by NeuLion or its Affiliates, including without limitation, intellectual property based on the same or similar open source software upon which any NeuLion IP may be based. Notwithstanding anything set forth in this Agreement to the contrary, nothing herein shall confer upon either Party, any of its respective Affiliates or any other third party any right of ownership in any of the other Party s Intellectual Property Rights. The provisions of this Section 7(a) shall survive expiration or termination of this Agreement (for any reason) indefinitely. (b) NeuLion IP. Company understands and agrees that NeuLion shall utilize its (and/or its Affiliates ) proprietary intellectual property in the performance of the NeuLion Services, which intellectual property consists of the Transcoder Licensed Programs (as defined in Section 7(c)(i) below), NeuLion s proprietary customer management, support and billing software, NeuLion s proprietary STBs (and all software installed thereon), NeuLion s standard electronic programming guide, NeuLion Marks (as defined below), and all patents, trademarks, service marks and tradenames owned by NeuLion or on which any license or other right granted to Company or Subscribers by NeuLion hereunder is based (either in whole or in part) (collectively, NeuLion IP ). With the exception of the Content, the Subscriber Information, and the look and feel of the Company EPG (as defined in Section C of Exhibit A) (including without limitation, customizations to NeuLion s standard electronic programming guide to create such look and feel) and any all Intellectual Property Rights owned by Company or any of its Affiliates, NeuLion shall be the owner of the Service and all Intellectual Property Rights therein contained. For clarity, Company shall at all times during the Term and thereafter own the look and feel of the Company EPG, and the NeuLion IP shall specifically exclude Subscriber Information, the Content, the look and feel of the Company EPG, any materials provided by Company or any of its Affiliates to NeuLion in connection with this Agreement in which Company or any of its Affiliates has any Intellectual Property Rights (including without limitation any Marks or logos of Company or any of its Affiliates) and any Intellectual Property Rights owned by Company or any of its Affiliates. For further clarity, and with the exception of the customization and look and feel of the Company EPG, the Parties hereto agree that none of the deliverables provided by NeuLion to Company under this Agreement, or any improvements, modifications or additions that may be made thereto, shall be deemed to be works made for hire under the federal copyright laws and that NeuLion shall be the owner/author for all, and Company will not contend to the contrary. Notwithstanding anything set forth to the contrary in this Agreement, nothing set forth in this Agreement shall prohibit either Party from using general knowledge or know-how gained in connection with its performance hereunder or otherwise during the Term of this Agreement or thereafter. With respect to the NeuLion IP, the Parties agree that, absent written authorization from NeuLion, Company and its Affiliates will not take any action in contravention of any intellectual property Laws. Company s violation of the provisions of the immediately preceding sentence shall be a material breach of this Agreement. 8 Proprietary & Confidential

106 (c) Content. (i) General. To the extent necessary for NeuLion to fulfill its obligations under this Agreement, Company grants to NeuLion a limited right to use, store encode/transcode (using NeuLion s proprietary video encoding/transcoding software, the Transcoder Licensed Programs ), and distribute the Content solely for the purpose of providing the NeuLion Services to Company and delivering the Service to Subscribers during the Term and the Wind Down Period subject to and in accordance with this Agreement; provided, however, that at the written request of Company, NeuLion shall immediately cease any or all of the foregoing activities with respect to all or any portion of the Content as may be specified by Company. For clarification and not by way of limitation, NeuLion shall have no right to distribute Content, in its original form or in any encoded, transcoded or other format to anyone other than Subscribers during the Term of this Agreement and the Wind Down Period unless otherwise approved in advance in writing by Company. Notwithstanding anything set forth herein to the contrary, under no circumstance shall NeuLion use the: (A) Service to broadcast any content other than the Content; or (B) the feed of any Content provided by Company (whether fiber or otherwise) for any purpose other than to provide the NeuLion Services to Company and to deliver the Service to Subscribers during the Term and the Wind Down Period subject to and in accordance with this Agreement. At no time shall Company or any of its Affiliates be under any obligation whatsoever to provide any minimum amount or specific type of Content to or through NeuLion in connection with the Service. Company shall have the right at any time and from time to time in its sole and absolute discretion for any reason or no reason to: (1) select the Content to be provided via the Service; and (2) modify, substitute, replace or discontinue any such Content or portion thereof. (ii) Company Requirements. Company acknowledges that in order for the Service to be available to Subscribers during the Term and the Wind Down Period, Company must: (A) acquire and aggregate the Content on a daily basis; (B) deliver, at Company s expense, the Content to NeuLion at the cross connect panel at any mutually agreed upon NeuLion data center facility located in the continental United States (currently NeuLion s data center located in Palo Alto, California) in a mutually agreed upon format and timeframe as required for daily broadcast to Subscribers and at a quality level reasonably sufficient for such broadcast (for clarity, and without limitation, NeuLion shall be solely and exclusively responsible for any and all cross connect fees incurred as a result of Company s delivery of the Content); and (C) create and deliver to NeuLion Content meta data (to include, without limitation, Content title and description, Content promotional images (if any) and broadcast Content programming schedules) in a format and pursuant to timelines to be mutually agreed upon from time to time during the Term and the Wind Down Period by the Parties, acting reasonably. Neither NeuLion nor any of its Affiliates shall be entitled to any amounts from Company or any third party in connection with Company s sale of advertising, if any, using or in connection with the Service. 9 Proprietary & Confidential

107 (d) Trademarks. Company and NeuLion (either Party, a TM Licensor ) each hereby grants to the other ( TM Licensee ), during the Term and the Wind Down Period, and subject to the terms of this Agreement, a limited, non-exclusive, non-revocable, royalty-free, non-transferable and non-sublicensable license to display and distribute their respective service marks and trademarks ( Marks ), throughout the Territory, in or on promotional material, provided such use is reasonably necessary to perform as contemplated by this Agreement and is approved in advance in writing, by the applicable TM Licensor. If the applicable TM Licensor does not approve in writing of any such proposed use within five (5) days of a written request from TM Licensee, such request shall be deemed to have been denied by TM Licensor. TM Licensee agrees to comply with TM Licensor s written trademark usage policies as provided to TM Licensee by TM Licensor. Title to and ownership of the TM Licensor s Marks shall remain with TM Licensor at all times. The license granted by TM Licensor does not include any ownership interest in the respective Mark(s) and does not include the right to modify or alter any of such Mark(s) in any way. TM Licensee shall not take any action inconsistent with TM Licensor s ownership of its respective Marks and any benefits accruing from use of such Marks shall automatically vest in TM Licensor. TM Licensee shall not create any combination marks with the TM Licensor s Marks. This license expressly does not include any use of the Marks for domain or subdomain names. If TM Licensee s use of the licensed Marks does not conform to TM Licensor s quality standards in TM Licensor s commercially reasonable opinion, TM Licensor shall, in writing, notify TM Licensee of such nonconformance. If TM Licensee does not cure such nonconformance within forty-eight (48) hours of such notice, TM Licensor may terminate the license granted TM Licensee hereunder. If TM Licensee does not cure such nonconformance within fifteen (15) days of such notice, TM Licensor may immediately terminate this Agreement upon written notice to TM Licensee. (e) NeuLion License. NeuLion hereby grants the following limited licenses for the Term of this Agreement and the Wind Down Period: (i) to Company a limited, non-exclusive, nontransferable license to install and use the NeuLion Transcoder Licensed Programs on hardware owned or operated by Company (or its Affiliates or third party vendors), within the U.S. or outside the U.S., for the purpose of encoding/transcoding Content for transmission to NeuLion for distribution to Subscribers and to make backup copies as reasonably necessary; (ii) to Company a limited and non-exclusive license to market, distribute, and sublicense the Service, STBs (including without limitation any and all software installed on such STBs) and STB Components to Subscribers; (iii) to Subscribers a limited license to receive and use the Service for purpose of subscribing, ordering, and viewing the Content. 10 Proprietary & Confidential

108 For clarity, the licenses granted in this Section 7(e) that reference the Service pertain only to those portions of the Service in which NeuLion owns Intellectual Property Rights and expressly excludes any and all Content. 8. Company Branding Rights. Company shall have, as further provided for herein, private label branding rights on the Service and STBs with the name, logo and/or other identifying information as may be specified by Company at any time and from time during the Term in its sole discretion for any reason or no reason. Except as may otherwise be required by applicable Laws, neither Company nor any of its Affiliates shall have any obligation to include information identifying NeuLion as the creator, source, distributor, manufacturer or provider of the Service or any other similar or related services or products, including without limitation, the STBs; provided, however, that the STB initial startup page shall be branded by Company with Company s logo and in smaller, yet clearly identifiable typeface, the phrase Powered by NeuLion in the manner depicted in Exhibit H hereto, which Exhibit H may be changed at any time and from time to time by Company acting reasonably (e.g., if Company elects to change its logo), provided that Powered by NeuLion is included in any such replacement STB initial startup page in the same font size and style as shown in the Exhibit H attached hereto as of the Effective Date. Additionally, the manufacturer of the STB may be identified by means of a small imprint or sticker on the bottom of the STB. For clarity (and without limitation of the foregoing), except as may otherwise be required by applicable Laws and as expressly set forth in this Section 8, no component of the Service (including without limitation any deliverable to be provided to Company by NeuLion hereunder, STB or STB Component) shall be labeled, branded or otherwise marked with any Mark, name, logo or other marking of NeuLion, its Affiliates, or any third party other than Company, unless expressly agreed to in writing by Company. 9. Customer and Subscriber Pricing and Business Rules. Company shall have the right, in its sole discretion for any reason or no reason, to determine: (a) the pricing and packages (if any) applicable to the Content or any portion thereof (including without limitation any required buy-throughs, a la carte channels and any and all combination(s) of channels offered to Subscribers as part of the Service) and the type and pricing of any and all equipment provided to Subscribers in connection with the Service (including without limitation STBs and STB Components); (b) the fees charged to Subscribers in connection with the Service (if any) (including without limitation with respect to specific a la carte channels and programming packages); (c) the Business Rules; and (d) any and all terms and conditions (including without limitation the form and substance of any and all agreements by and between Company and Subscribers) applicable to Subscribers receipt of the Service. Company shall have the right to modify, change, delete or replace any of the foregoing at any time and from time to time in its sole discretion for any reason or no reason. NeuLion shall implement any changes referenced in this Section 9 as soon as commercially reasonably practicable following a request by Company, consistent with NeuLion s practices for implementing similar changes for other NeuLion Customers (NeuLion s current practice is to implement ordinary course changes within five (5) business days). For the avoidance of doubt (and without limitation of any of the foregoing), with respect to NeuLion and its Affiliates, the relationship between Subscribers and Company (whether contractual or otherwise) shall be for the sole benefit of Company. For purposes of this Agreement, Business Rules shall mean any term, requirement, condition, process or procedure associated with Company s customization of the Service (including without limitation, 11 Proprietary & Confidential

109 with respect to billing, packaging, retail pricing, promotions and equipment returns) that are provided by Company to NeuLion for implementation. By way of example only (and not in limitation), Business Rules may address any of the following: (i) policies regarding shipping of STBs; (ii) Content packaging design, naming and retail pricing; (iii) required buy throughs for certain Service subscriptions; (iv) amount of taxes charged on shipping and handling of STBs; (v) the number of days before service is disconnected for non-payment by a Subscriber; (vi) use of remanufactured STBs; (vii) out-of-warranty STB exchanges; and (viii) STB lease and purchase programs. In addition to (and without limitation of NeuLion s obligation to implement changes described in this Section 9 as soon as commercially reasonably practicable following a request by Company, consistent with NeuLion s practices for implementing similar changes for other NeuLion Customers), NeuLion agrees to, in any event, once per calendar quarter, implement changes to the Business Rules in item (ii) above no later than thirty (30) days following receipt of such changes in writing from Company. 10. Representations and Warranties. (a) NeuLion. NeuLion hereby warrants and represents that: (i) it has the right, power and authority to enter into this Agreement and to fully perform its obligations under this Agreement; (ii) entering into this Agreement does not violate any existing agreement between NeuLion and any third party; (iii) it has and will maintain for the Term and the Wind Down Period (as defined in Section 13 below) all the necessary rights, title and ownership in and to the NeuLion IP to perform its obligations hereunder and to grant the licenses contained in Section 7(e) of this Agreement; (iv) none of the NeuLion IP, STBs, STB Components, NeuLion Services nor any of the deliverables to be provided to Company by NeuLion hereunder, either in whole or in part, infringe upon or constitute a misappropriation (or at any time during the Term and the Wind Down Period will infringe upon or constitute a misappropriation) of any Intellectual Property Rights of any third party; (v) the use in the Territory of the STBs, STB Components and the Service by Subscribers and others is not prohibited or restricted by any Laws, industry or governmental standards or regulations which may apply to the manufacture or sale of STBs or the provision of the Service; (vi) as of the Effective Date and at all times during the Term and the Wind Down Period, the ******* channel limit described in Exhibit C, paragraph B(1) for purposes of the Monthly Operations Fee is no more restrictive than the same or similar channel limit imposed on any other NeuLion Customer for purposes of charging the same or a similar fee to such other NeuLion Customer; (vii) as of the Effective Date and at all times during the Term, the performance standards and provisions applicable thereto set forth in Exhibit G are and will be as favorable or more favorable than any performance standards and the provisions applicable thereto provided by NeuLion to any other NeuLion Customer; and (viii) as of the Effective date, when compared on a net-effective basis, the fees, charges and other amounts payable by Company hereunder are each as favorable or more favorable than the same or similar fees, charges and other amounts charged by NeuLion to any NeuLion Customer except for NeuLion Affiliates. (b) Company. Company hereby warrants and represents that: (i) it has the right, power and authority to enter into this Agreement and to fully perform its obligations under this Agreement; (ii) entering into this Agreement does not violate any existing agreement between Company and any third party; and (iii) it has and will maintain for the Term and the Wind Down Period all the necessary license, rights, title and/or ownership in and to the Content, and to the Marks that it will provide to NeuLion for NeuLion s use in connection with this Agreement; and (iv) it has no knowledge or reasonable basis to believe that the Content and the Company-provided Marks infringe upon, violate or constitute a misappropriation of any Intellectual Property Rights of any third party; 12 Proprietary & Confidential

110 11. Performance Standards. NeuLion shall at all times perform hereunder in accordance with the Performance Standards set forth in Exhibit F and Exhibit G. For clarity (and without limitation of any of the foregoing), DISH s right to receive any amounts from NeuLion pursuant to Exhibit G as a result of NeuLion s failure to meet any Performance Standard is without prejudice to DISH s right to terminate this Agreement in accordance with the terms and conditions set forth herein (including without limitation Section 12(c)(ii)). 12. Termination. This Agreement may be terminated: (a) by either Party (i) in the event of a breach of any of the other Party s obligations or any representation or warranty set forth in this Agreement that has not been cured (if curable) within thirty (30) days following such other Party s receipt of written notice of such breach from the terminating Party; (ii) immediately upon the insolvency of or the filing of a petition of bankruptcy by a Party; or (iii) in accordance with any other provisions of this Agreement expressly addressing termination; (b) upon mutual written Agreement of the Parties; (c) immediately by Company: (i) upon a change of control in the ownership of NeuLion whereby a competitor of Company or any of its Affiliates directly or indirectly controls NeuLion; (ii) upon NeuLion s failure to meet any Performance Standard for a cumulative period of *******; or (iii) if bandwidth limitations imposed by internet service providers (ISP s) limit the ability of Subscribers to use the Service in a manner that materially adversely affects the expected economic benefits of Company hereunder; (d) by Company, after the Year Two Period (as defined in Section B.4 of Exhibit C hereto) and on at least sixty (60) days written notice, in the event that: (i) Company has ******* Subscribers; and (ii) for a period of time equal to the period of time remaining in the Initial Term as of the date of termination, Company ceases offering the Content then on the Service as of the date of termination via an IPTV service that utilizes an IPTV-dedicated set top box; or (e) by either Party forty-five (45) days after the conclusion of a Migration of all Subscribers. 13 Proprietary & Confidential

111 13. Migration. In addition to (and without limitation of) Company s right to effect a Migration during the Year Two Period (as defined and further described in Section B.4 of Exhibit C hereto), at any time and from time to time on or following the date that is ******* after the Effective Date, and for forty-five (45) days following expiration or termination of this Agreement for any reason (such forty-five (45) day period, the Wind Down Period ), upon thirty (30) days prior written notice to NeuLion, Company may, in its sole discretion for any reason or no reason and without liability to NeuLion, effect a Migration. As used herein, a Migration means the transfer of all or any portion of the Subscribers from the Service to a different IPTV or other video service designated by Company (including without limitation, an IPTV or other video service owned and/or operated by Company or any of its Affiliates (an Other Video Service )) as a result of Company requiring such Subscribers to change from the Service to such Other Video Service. A Migration may occur in phases and Content language by Content language, as determined by Company at any time and from time to time in its sole discretion for any reason or no reason. In the event of a Migration, NeuLion agrees to cooperate with Company in effecting a smooth transition of the applicable Subscribers to the applicable Other Video Service. The Parties shall continue to perform their respective obligations hereunder (including without limitation NeuLion s provision of all Subscriber billing-related services provided as part of the NeuLion Services) during any Migration. In this regard, the Parties agree as follows with regard to any Migration process: (a) Company shall be entitled to replace Subscribers STBs with set top boxes of its choosing supplied by Company or one or more third parties (the Migration STBs ). As the Migration STBs are provisioned, such Subscriber shall be converted to the applicable Other Video Service and no longer be considered a Subscriber under this Agreement for any reason (a Migrated Subscriber ). (b) With respect to any Subscriber, NeuLion shall immediately cease providing any and all billing and collection services for such Subscriber upon notice from Company that such Subscriber has become a Migrated Subscriber, which notice may be provided to NeuLion by Company via NeuLion s web-based support request tracking system identified in Exhibit F, or by formal notice in accordance with Section 27. For clarity (and without limitation of the foregoing), NeuLion shall continue performing billing and collection services for each Subscriber until the date on which such Subscriber becomes a Migrated Subscriber. With respect to Subscribers that become Migrated Subscribers during any Reporting Period, NeuLion shall prorate the Operations Fee (as defined in Section B.1 of Exhibit C hereto) payable by Company to NeuLion for the applicable Reporting Period based on the number of days during such Reporting Period that each such Migrated Subscriber remained active and received the Service prior to the date on which such Subscriber became a Migrated Subscriber. (c) Except as otherwise expressly set forth in this Section 13(c), upon NeuLion s cessation of billing and collection services for a Migrated Subscriber as set forth in Section 13(b) or 13(f) of this Agreement, NeuLion shall, at Company s direction in its sole discretion for any reason or no reason, promptly return or destroy any and all Confidential Information in its possession (including but not limited to all copies of any Confidential Information) with respect to such Migrated Subscriber (including without limitation Subscriber Information) and certify such destruction in writing to Company. If Company fails to direct NeuLion with respect to the disposition of any such Confidential Information related to a Migrated Subscriber (including without limitation Subscriber Information), NeuLion shall send all such Confidential Information to Company s designated contact person, and if no such contact person has been designated by Company after NeuLion s written request to Company therefor, to the notice address provided in this Agreement within five (5) days following the date on which such Subscriber became a Migrated Subscriber. The provisions set forth herein are in addition to (and without limitation of) any other obligations of the Parties and their respective Affiliates set forth herein with respect to the treatment of Confidential Information (including without limitation Subscriber 14 Proprietary & Confidential

112 Information). For clarity, except for Subscriber Information, and any copies thereof, with respect to a Subscriber that has either formally contested a bill for the Service (with respect to which amounts payable thereunder are outstanding as of the date on which such Subscriber becomes a Migrated Subscriber) or otherwise has unpaid amounts due and owing for the Service as of the date on which such Subscriber becomes a Migrated Subscriber (collectively, the Contested Bill Subscriber Information ), NeuLion shall not retain any Subscriber Information following the date that is five (5) days after the date on which the applicable Subscriber became a Migrated Subscriber. Upon retaining any Contested Bill Subscriber Information, NeuLion shall notify Company of the name and address of the corresponding Subscriber. Following resolution of any such contested bill or payment of amounts due and owing for the Service (such period of time not to exceed sixty (60) days following the applicable Migration), NeuLion shall immediately send all Contested Bill Subscriber Information for the applicable Subscriber to Company at the notice address provided herein. (d) NeuLion shall invoice Company at a rate of ******* for services provided to Company by NeuLion personnel at Company s written request to assist Company in any Migration process (the Migration Services ). Migration Services shall include, without limitation, dismantling and returning to Company all Company-owned equipment located at NeuLion data centers and other such services as Company may request in writing that NeuLion perform: (1) in connection with a Migration; and (2) that are in excess of NeuLion s obligations hereunder (i.e., in excess of the NeuLion Services and deliverables to be provided to Company by NeuLion in the ordinary course of this Agreement). (e) At any time during the Term of this Agreement, Company shall have the option (but not the obligation), in its sole discretion for any reason or no reason, to transfer Subscriber billing and/or shipping and provisioning services provided by NeuLion as part of the NeuLion Services to its own or a third-party billing and/or shipping and provisioning system (in which event NeuLion shall otherwise continue to perform its obligations hereunder). The parties agree to negotiate in good faith the terms and conditions of any such transfer, with the understanding that the fees set forth in this Agreement shall not change as the result of a transfer of any such billing and/or shipping and provisioning services. (f) If Company elects to effect a Migration of all Subscribers during the Renewal Term (if any), Company shall complete such Migration within one hundred eighty (180) days of providing notice thereof to NeuLion in accordance with this Section 13. (g) Each Party acknowledges and agrees that it is not hereby granting any exclusive rights to the other Party or to any of the other Party s Affiliates. Accordingly, nothing set forth in this Agreement shall restrict Company or any of its Affiliates from directly or indirectly operating or offering (including without limitation to Migrated Subscribers) any other video service, including without limitation any other IPTV service, or any other product or service whatsoever (including without limitation any other video service that includes content that is the same or similar to all or any part of the Content, or that contains programming packages that are the same or similar to the programming packages offered via the Service) at any time and from time to time during the Term, the Wind Down Period or thereafter. With the exception of Section 13(g), the provisions of this Section 13 shall survive expiration or termination of this Agreement for any reason for a period of forty-five (45) days. The provisions of Section 13(g) shall survive expiration or termination of this Agreement for any reason indefinitely. 15 Proprietary & Confidential

113 14. Confidentiality. The provisions of this Section 14 shall survive expiration or termination of this Agreement for any reason indefinitely. (a) Confidential Information means and shall include: (i) the terms and conditions of this Agreement and all prices, rates and other financial information related to the Service; (ii) all information relating to Subscribers, prospective Subscribers and former Subscribers, including without limitation, such Subscribers, prospective Subscribers and former Subscribers names, addresses, addresses, internet protocol addresses, telephone numbers and credit/debit card and billing information (whether obtained directly or indirectly by NeuLion) (collectively Subscriber Information ); and (iii) all information one Party provides to the other which is clearly identified as confidential or proprietary, or which would logically be considered confidential or proprietary by virtue of its relation to the subject matter of this Agreement. In addition to (and without limitation of) the foregoing and any other provision of this Agreement addressing Confidential Information (including without limitation Subscriber Information), except as otherwise expressly provided herein with respect to NeuLion and as necessary for NeuLion to perform hereunder subject to and in accordance with this Agreement, NeuLion shall not directly or indirectly sell, transfer or use any Confidential Information, including without limitation any Subscriber Information. For clarity, any and all prospective Subscriber, Subscriber or former Subscriber credit/debit card information collected by or on behalf of NeuLion in connection with its performance hereunder shall constitute Subscriber Information. Neither Company nor any of its Affiliates shall sell, transfer or use any Confidential Information received from NeuLion except as necessary for Company to perform hereunder. Confidential Information (including without limitation Subscriber Information) disclosed by either Party to the other (and/or in the case of Subscriber Information, obtained directly or indirectly by NeuLion from prospective Subscribers, Subscribers and former Subscribers as a result of its performance hereunder) shall be held by the recipient in confidence and not be made available for third parties to use (except by Company to one or more of its Affiliates in connection with Company s performance hereunder and except by Company with respect to Subscriber Information (which Subscriber Information, for clarity, Company shall exclusively own and may, in its sole discretion for any reason or no reason, without limitation, use for any purpose whatsoever or sell, transfer or otherwise distribute to any person or entity whatsoever)). For clarity (and without limitation of the foregoing), at no time during the Term or thereafter shall NeuLion disclose any Confidential Information (including without limitation Subscriber Information) to any of its Affiliates or any other third party. Subject to the provisions of Section 14(b) with respect NeuLion, each Party will direct its employees, Affiliates (solely with respect to Company), contractors, consultants and representatives who have access to any Confidential Information to comply with all of the terms of this Section 14. Information shall not be Confidential Information if it is: (i) or becomes available to the public through no wrongful act of the receiving Party; (ii) already in the possession of the receiving Party and not subject to any agreement of confidence between the Parties; (iii) received from a third Party without restriction for the benefit of the disclosing Party and without breach of this Agreement; (iv) independently developed by the receiving Party; or (v) disclosed pursuant to a requirement of a duly empowered government agency or a court of competent jurisdiction after due notice 16 Proprietary & Confidential

114 and an adequate opportunity to intervene is given to the disclosing Party unless such notice is expressly prohibited by such government agency or court of competent jurisdiction. Except as otherwise expressly set forth herein, within five (5) days following the end of the Wind Down Period, each Party shall at the other Party s direction, either return or destroy all of the other Party s Confidential Information (including without limitation all Subscriber Information), and in the case of destruction, so certify to the other Party in writing; provided that in the event that either Party does not so direct the other Party, the receiving Party shall destroy the other Party s Confidential Information (including without limitation the return of all Subscriber Information by NeuLion to Company) and, at the other party s request certify such destruction to the other Party in writing. For clarity, except for Subscriber Information, and any copies thereof, with respect to a Subscriber that has either formally contested a bill (with respect to which amounts payable thereunder are outstanding as of the date that is five (5) days following the end of the Wind Down Period) or otherwise has unpaid amounts due and owing for the Service as of the date that is five (5) days following the end of the Wind Down Period (collectively, the Wind Down Contested Bill Subscriber Information ), NeuLion shall not retain any Subscriber Information following the date that is five (5) days after the last day of the Wind Down Period. Upon retaining any Wind Down Contested Bill Subscriber Information, NeuLion shall notify Company of the name and address of the corresponding Subscriber. Following resolution of any such contested bill or payment of amounts due and owing for the Service (such period of time not to exceed sixty (60) days following the last day of the Wind Down Period), NeuLion shall immediately send all Wind Down Contested Bill Subscriber Information for the applicable Subscriber to Company at the notice address provided herein. (b) In addition to (and without limitation of) the provisions of Section 14(a), NeuLion shall not make available any Company Confidential Information (including without limitation Subscriber Information) to any employee of NeuLion that works on any matter related or connected to the businesses of NeuLion s Affiliates or any entity or individual that currently or in the future operates or directs the business activities of any of such Affiliates, either in whole or in part. This Section 14(b) shall not apply to NeuLion s full-time management personnel at the vice president level or above, or NeuLion s accounting and technical personnel employed by NeuLion on a full-time basis, solely to the extent that: (1) such personnel have a need to know such Company Confidential Information and require access to the same in order for NeuLion to perform hereunder; and (2) the access to and use of such Company Confidential Information (including without limitation Subscriber Information) by such personnel does not otherwise violate any provision of this Agreement. At all times during the Term and thereafter, NeuLion shall use its best efforts to cooperate with Company to ensure NeuLion s compliance with the terms and conditions of this Section 14(b). 15. Records and Reporting. In addition to (and without limitation of) any other reporting obligations set forth in this Agreement, and except as provided in Exhibit G hereof, at all times during the Term and the Wind Down Period NeuLion shall provide Company with real time, web-based access to all order, billing, support and other customer and Subscriber records and documentation (including without limitation Subscriber Information) collected or maintained by or on behalf of NeuLion in connection with the Service. In addition to (and without limitation of) the foregoing, NeuLion shall provide Company with electronic copies of any such records and documents within twenty-four (24) hours of a request by Company. 17 Proprietary & Confidential

115 16. Subscriber Information; Targeting; PCI; Privacy Policy. (a) Subscriber Information. Subscribers shall be deemed customers of Company and shall be under the sole ownership of the Company and not NeuLion. NeuLion agrees that Subscriber Information is Company Confidential Information at all times during and after the Term, including for clarity, and without limitation, after expiration or termination of this Agreement for any reason and after any Migration or the Wind Down Period. NeuLion may use the Subscriber Information solely for the purpose of performing its obligations under this Agreement and for no other purpose whatsoever. Notwithstanding anything set forth to the contrary in this Agreement, any and all Subscriber Information shall at all times during the Term and thereafter be owned by, and remain the sole and exclusive property of, Company. NeuLion expressly acknowledges and agrees that under no circumstances shall it share any Subscriber Information with, or otherwise disclose any Subscriber Information to, any third party, including without limitation its Affiliates, any other service provider or any other NeuLion content providers. The provisions of this Section 16(a) shall survive expiration or termination of this Agreement for any reason indefinitely. (b) Targeting. During the Term and thereafter, NeuLion will not, and will ensure that NeuLion s Affiliates will not, in any way directly or indirectly target any Subscribers or former Subscribers for purposes of marketing, promoting, selling or soliciting orders for any product or service other than the Service through the direct or indirect use of any Subscriber Information or any list derived, including or compiled in any way therefrom. Subject to Section 6(b) of this Agreement, this Section 16(b) shall not prohibit NeuLion from using any information generally available in the marketplace for purposes of marketing, advertising or selling any services, or communicating with potential customers regarding such services generally, including without limitation through the use of radio, television, telephone, newspaper advertisements and mass mailings. The provisions of this Section 16(b) shall survive expiration or termination of this Agreement for any reason indefinitely. (c) PCI Data Security Standards. NeuLion will at all times protect the confidentiality and security of cardholder data of potential Subscribers, Subscribers and former Subscribers ( Cardholder Data ) in compliance with the Payment Card Industry Data Security Standards ( PCI Data Security Standards ) promulgated by the PCI Security Standards Council, LLC or any successor entity thereto, as may be amended from time to time, and which are available at: NeuLion acknowledges and agrees that Cardholder Data may only be used: (i) to the extent necessary to verify, store, process or transmit Cardholder Data to Company to complete a card transaction; (ii) for fraud control; (iii) as specifically agreed to by the applicable payment card company, provided that such use has also been approved in writing by Company, such approval not to be unreasonably withheld; or (iv) as required by applicable Laws. In the event of a breach or intrusion of or otherwise unauthorized access to Cardholder Data stored at or for NeuLion, NeuLion will immediately notify Company and the applicable payment card company, in the manner required in the PCI Data Security Standards, and provide Company and the applicable payment card company and their respective designees access to NeuLion s facilities and all pertinent records to conduct a review of NeuLion s compliance with the PCI Data Security Standards. NeuLion will fully cooperate with any review of their facilities and records provided for herein. NeuLion will maintain appropriate business continuity procedures and systems to ensure security of Cardholder Data in the event of a disruption, disaster or failure of NeuLion s data systems. NeuLion and its successors and assigns will comply with the PCI Data Security Standards after termination or expiration of this Agreement. 18 Proprietary & Confidential

116 (d) Privacy Policy. Company shall make available to NeuLion, and to each Subscriber to the Service, a clear written statement of its privacy policy relating to Subscribers personally identifiable information (the Privacy Policy ). NeuLion shall comply with the Privacy Policy at all times. Furthermore, NeuLion acknowledges and agrees that all Subscriber Information collected by, or provided to, NeuLion pursuant to and related to this Agreement, whether collected from, or provided by, Company or a Subscriber, shall be subject to, and used in accordance with, the terms and conditions of the Privacy Policy and all applicable Laws. 17. *******. (a) During the Term and the Wind Down Period, NeuLion agrees that the NeuLion Services provided to Company and the Service provided to Subscribers shall be ******* Company and Subscribers (including without limitation, the Service) under this Agreement (collectively, the NeuLion Customers, and each a NeuLion Customer ). In furtherance of the foregoing, NeuLion agrees that ******* for any other reason whatsoever. Accordingly, NeuLion will provide ******* NeuLion Customers from time to time during the Term. In addition to (and without limitation of) the foregoing, NeuLion shall offer Company ******* NeuLion Customers (other than NeuLion Affiliates). In addition to (and without limitation of) the foregoing, NeuLion will not: ******* 19 Proprietary & Confidential

117 ******* NeuLion Customer. Notwithstanding anything set forth to the contrary in this Section 17, this Section 17 shall not prohibit NeuLion from providing *******. (b) In addition to (and without limitation of) the foregoing, commencing on the date on which Company achieves ******* during the Term and the Wind Down Period, provided Company maintains *******, NeuLion agrees that the fees, charges and any and all amounts payable by Company to NeuLion pursuant to Sections A, B and C of Exhibit C, on an individual net- effective basis, shall be ******* the fees, charges or amounts payable *******. The obligations set forth in this Section 17(b) shall not apply to NeuLion following completion of an acquisition of at least a fifty percent (50%) ownership interest in the Company by an entity (other than a Company Affiliate) *******. 18. General Indemnification; Defense; Cooperation. (a) Except to the extent of the Indemnitee Group s (as hereinafter defined) negligence or misconduct, each Party (the Indemnitor ) shall indemnify, defend and hold harmless the other Party (and solely with respect to Company, its Affiliates), and its and their respective officers, directors, employees, agents and shareholders, and its and their respective assigns, heirs, successors and legal representatives (collectively, the Indemnitee Group ) from and against any and all costs, losses, liabilities, damages, lawsuits, judgments, claims, actions, penalties, fines and expenses, including without limitation, interest, penalties, reasonable attorneys fees, and all monies paid to one or more people or entities that are not the Parties or an Affiliate of Company, agents or representatives, in the investigation, defense or settlement of any or all of the foregoing ( Claims ), that are made by any third party to the extent that such Claims arise out of, or are incurred in connection with: (i) Indemnitor s performance or failure to perform under this Agreement; (ii) Indemnitor s breach of any of its obligations hereunder; (iii) Indemnitor s breach of any representation or warranty contained in this Agreement; or (iv) Indemnitor s failure to comply with any Law. 20 Proprietary & Confidential

118 (b) Indemnification Process. In the event that a Claim is asserted against the Indemnitee Group that would give rise to a claim for indemnification under this Section 18, the Indemnitee Group shall: (i) provide written notice to Indemnitor within ten (10) days after becoming aware of such Claim; provided that Indemnitor s obligation to defend shall only be reduced to the extent that its ability to provide a defense has been materially and adversely affected by any failure to so notify; and (ii) Indemnitor, at its sole cost and expense and upon written notice to the Indemnitee Group, may assume the defense of such Claim with counsel selected by Indemnitor in its sole and absolute discretion. The Indemnitee Group: (i) shall not compromise the Claim in any way or admit liability without Indemnitor s prior written consent; and (ii) shall cooperate with Indemnitor in defense of such Claim and accept any settlement recommended by Indemnitor so long as (1) the Indemnitee Group does not admit any fault or liability under such settlement; and (2) the entire amount of such settlement is paid by Indemnitor. (c) Indemnification Process for High-Risk Claims. Notwithstanding the foregoing provision and anything to the contrary contained herein, in the event of Claims relating to or arising from the Indemnitee Group s third-party contracts, the Indemnitee Group s or a third party s intellectual property rights pursuant to Section 19 of this Agreement, the Indemnitee Group shall have the right to select counsel in its sole and absolute discretion, at Indemnitor s sole but reasonable cost and expense, and shall have the right to the exclusive conduct of all negotiations, litigation, settlements and other proceedings arising from any such Claim; provided that Indemnitor shall have the right to approve any settlement that requires Indemnitor to indemnify the Indemnitee Group against a settlement payment. Indemnitor shall cooperate with the Indemnitee Group in connection with any such negotiation, litigation, settlement, defense or other proceeding and shall not compromise the Claim in any way or admit liability without the Indemnitee Group s prior written consent. (d) Survival. The provisions of this Section 18 shall survive the expiration or termination of this Agreement (for any reason) indefinitely. 19. IP Indemnification. (a) In addition to (and without limitation of) each Party s respective indemnification obligations set forth in Section 18 of this Agreement: (i) NeuLion will indemnify, defend and hold harmless Company and it Affiliates and its and their respective officers, directors, employees, agents and shareholders, and its and their respective assigns, heirs, successors and legal representatives (the Company Group ) from and against all third-party claims against, and any related damages, claims, expenses (including reasonable attorney s fees), judgments, liabilities and costs, which such party may suffer or incur relating to any claim or action alleging that the NeuLion IP, the STBs, the STB Components, the NeuLion Services, the Service (excluding the Content) (solely for purposes of this Section 19, collectively, the NeuLion IP Indemnification Items ) infringe any third-party Intellectual Property Rights; and (ii) Company will indemnify, defend and hold harmless NeuLion and its officers, directors, employees, agents and shareholders, and its and their respective assigns, heirs, successors and legal representatives (the NeuLion Group ) from and against all third-party claims against, and any related damages, claims, expenses (including reasonable attorney s fees), judgments, liabilities and costs, which such party may suffer or incur relating to any claim or action alleging that the Content infringes any third-party Intellectual Property Rights. 21 Proprietary & Confidential

119 (b) In the event of any third-party claim against a member of the Company Group in respect of any of the NeuLion IP Indemnification Items, or any portion thereof, NeuLion, at its option, may: (a) obtain the right to use such NeuLion Indemnification Items, or applicable portion thereof, without obligation on the part of Company to the owner of the allegedly infringed intellectual property; (b) modify the infringing portion of the NeuLion IP Indemnification Items without materially diminishing the functionality or performance, thereof, to become non-infringing at NeuLion s sole expense; or (c) discontinue the use of infringing NeuLion Indemnification Items, or the infringing portion thereof, to the extent that NeuLion continues to meet its obligations hereunder. In the event of any third-party claim against any member of the NeuLion Group in respect of the Content, Company, at its option, may: (i) obtain the right to use the Content without obligation on the part of NeuLion to the owner of the allegedly infringed intellectual property, or (ii) discontinue the use of infringing Content. The provisions of this Section 19 shall survive the expiration or termination of this Agreement (for any reason) indefinitely. 20. Limitation of Liability. THE PARTIES AGREE THAT, EXCEPT FOR BREACHES OF, OR CLAIMS UNDER, SECTIONS ******* OF THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, EXEMPLARY, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR OTHER INDIRECT DAMAGES OF WHATEVER NATURE, WHETHER FORESEEABLE OR NOT, INCLUDING WITHOUT LIMITATION, ANY PAYMENT FOR LOSS OF GOODWILLL WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 21. Assignment; Amendment; Waiver; Subcontracting. (a) Neither Party may assign this Agreement or any of its respective rights or obligations under this Agreement without the prior written consent of the other Party; provided, however, that Company may assign this Agreement to an Affiliate of Company in whole or in part at any time upon notice to NeuLion. Notwithstanding the foregoing, the public offering of a Party, a sale of a controlling interest in a Party, or a sale of substantially all of the assets of a Party shall not constitute an assignment for purposes of this Section. (b) This Agreement and the rights and obligations hereunder may not be in whole or part: (i) amended; (ii) waived; or (iii) subcontracted by either Party, without the prior written consent of the other Party. Any purported modification without such prior written consent shall be null and void. Notwithstanding anything set forth to the contrary in this Agreement, Company may subcontract its obligations, either in whole or in part, to any of its Affiliates at any time and from time to time in its sole discretion for any reason or no reason, provided that Company shall be responsible for the acts and omissions of its Affiliate(s). The failure of a Party to assert any of its rights under this Agreement, including without limitation the right to demand strict performance, shall not constitute a waiver of such rights. 22 Proprietary & Confidential

120 22. Audit. Subject to the confidentiality provisions of this Agreement, during the Term of this Agreement and for a period of two (2) years thereafter, NeuLion shall keep and maintain accurate and complete books and records of account in connection with its performance under this Agreement (including without limitation internet protocol addresses all data related to the STBs and the Service and all other items with respect to which NeuLion has any reporting obligations to Company hereunder). For clarity, with the exception of Contested Bill Subscriber Information (with respect to which amounts payable thereunder are outstanding as of the date that is five (5) days following the end of the Wind Down Period), all Subscribers, former Subscribers and Migrated Subscribers shall be identified in NeuLion s books and records by such Subscribers, former Subscribers and Migrated Subscribers corresponding STB MAC address(es), or by such other information as may be mutually agreed upon by the Parties in writing that uniquely identifies each such Subscriber, former Subscriber and Migrated Subscriber. For further clarity (and without limitation of any of the foregoing) this Section 22 shall not affect NeuLion s obligations to return and/or destroy Confidential Information (including without limitation Subscriber Information) in accordance with the terms and conditions of this Agreement. Company may audit the books and records of NeuLion relevant to this Agreement no more than twice each year. All such audits shall be performed at NeuLion s principal offices, in the United States, where such records are kept by an independent accounting firm chosen by Company. Except as otherwise provided in this Section 22, all audits shall be performed at the sole expense of the Company. All such audits will take place on reasonable notice and during NeuLion s normal business hours. Such audits will be conducted to determine that NeuLion is or has performed in accordance with the terms and conditions of this Agreement and all Business Rules (including without limitation, with respect to NeuLion s accounting, billing, cash collection and cash distribution obligations in connection with this Agreement). NeuLion shall cooperate with Company by making available all personnel and books and records relevant to this Agreement that are requested by the applicable independent accounting firm during any audit conducted hereunder. Any accounting discrepancies will be resolved within thirty (30) days from the last day of the audit, and in the event those discrepancies reveal an overcharge of, or underpayment to, Company by Neulion that is *******, NeuLion will pay the amount of such overpayment or underpayment together with the reasonable and actual costs of the audit incurred by Company within sixty (60) days of the completion of the applicable audit. The audited books and records as well as the results of any such audit shall be considered Confidential Information as set forth in this Agreement; provided, however, nothing in this provision shall be construed to preclude the use of such materials in the course of litigation between the Parties regarding this Agreement, if necessary. Company shall be entitled to conduct an audit regardless of the existence of any claim, dispute, controversy, litigation or other action between the Parties. The provisions of this Section 22 shall survive expiration or termination of this Agreement for any reason or no reason for a period of two (2) years. 23. No Third Party Beneficiaries. Except as otherwise set forth herein, this Agreement is entered solely by and between the Parties and shall not be deemed to create any rights in, or obligations to, any third parties. 24. Insurance. NeuLion shall, at its own expense, obtain and maintain the following insurance: (i) Commercial General Liability, with coverage including, without limitation, premises/operations, contractual, personal and advertising injury, and products/completed operations liabilities, with limits of at least five million dollars ($5,000,000) per occurrence for bodily injury and property damage combined. Company shall be named as an additional insured. 23 Proprietary & Confidential

121 (ii) Worker s Compensation insurance, including coverage for all costs, benefits, and liabilities under Worker s Compensation and similar laws which may accrue in favor of any person employed by NeuLion for all states in which the Services are rendered, and Employer s Liability insurance with limits of liability of at least two hundred fifty thousand dollars ($250,000) per accident or disease and seven hundred fifty thousand dollars ($750,000) aggregate by disease. Insurance shall be purchased from companies having a rating of A-VII or better in the current Best s Insurance Reports published by A.M. Best Company. Policies of insurance shall provide that they will not be canceled or materially changed without at least thirty (30) days prior written notice to Company. Certificates of insurance evidencing coverage shall be submitted in advance of or concurrent with the execution of this Agreement, and on each insurance policy renewal thereafter. NeuLion shall, at Company's request, provide copies of required insurance policies. If NeuLion does not provide Company with such certificates of insurance, or if in Company s sole opinion, such policies do not afford adequate protection for Company, Company will so advise NeuLion, and if NeuLion does not furnish evidence of acceptable coverage within fifteen (15) days, Company shall have the right, in its sole discretion for any reason or no reason, to immediately terminate this Agreement. Failure to obtain and maintain required insurance shall not relieve NeuLion of any obligation contained in this Agreement. Additionally, any approval by Company of any of NeuLion s insurance policies shall not relieve NeuLion of any obligation contained in this Agreement, including liability for claims in excess of described limits. 25. Force Majeure. Notwithstanding anything to the contrary set forth in this Agreement, neither Party shall be liable to the other for its failure to perform any of its obligations under this Agreement during the period of a Force Majeure Event to the extent that performance is prevented by such Force Majeure Event. The party that is prevented from fully performing its obligations under this Agreement due to such Force Majeure Event (the Affected Party ) shall promptly take and continue to take all reasonable actions to resume its performance as soon as possible. Force Majeure Event shall mean the following unforeseen and extraordinary events that are beyond the reasonable control of the Affected Party: (a) acts of God; (b) acts of a public enemy; (c) acts of a government in its sovereign capacity; (d) war; (e) catastrophic weather conditions such as hurricanes, tornadoes and typhoons; (f) fire, earthquakes, floods, epidemics, quarantine restrictions, sabotage, riot and embargoes; (g) transmission of Content through the last mile, or final leg of delivering connectivity from the Subscriber s local communications provider to the Subscriber s viewing location; and (h) failure of financial institutions or payment systems, which in every case listed in items (a) through (g) above are: (i) without fault or negligence of the Affected Party or its suppliers and subcontractors, and (ii) prevent the Affected Party from performing its obligations under this Agreement. The Affected Party shall provide notice to the other party of a Force Majeure Event within twenty four (24) hours following the commencement of the Force Majeure Event (or, if not possible due to such Force Majeure Event, as soon as possible thereafter). Such notice shall specify, at minimum, the date and time of commencement of the Force Majeure Event, the cause of the Force Majeure Event and the Affected Party s plan to resume its performance. Events for which such notice is not delivered shall not be deemed to be Force Majeure Events. In the event that a Force Majeure Event prevents the Affected Party from performing its obligations under this Agreement, in whole or in part, for a period of ten (10) or more days in excess of the applicable time period specified herein for such performance, if any, the other party shall have the right to terminate this Agreement immediately upon delivery of written notice to the Affected Party. For the avoidance of doubt, NeuLion s payments to Company hereunder shall not be excused during the period of any Force Majeure Event except to the extent that a Force Majeure Event listed in item (h) above prevents or delays such payments. 24 Proprietary & Confidential

122 26. Governing Law. The relationship between the Parties and their present and future Affiliates, including without limitation all disputes, controversies or claims, whether arising in contract, tort, under statute or otherwise, shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts to be made and performed entirely within the State of New York by residents of the State of New York, without giving any effect to any of its conflict of law or any other provisions that would require the application of the laws of any other jurisdiction. If Company chooses to file a lawsuit or pursue an action arising from or relating to this Agreement or the relationship between the Parties created hereby, such lawsuit or action shall be litigated solely and exclusively before the United States District Court for the Southern District of New York or the United States District Court for the Eastern District of New York, and if neither the United States District Court for the Southern District of New York nor the United States District Court for Eastern District of New York has subject matter jurisdiction over any such matter, then such matter shall be litigated solely and exclusively before the appropriate state court of competent jurisdiction located in the County of New York or the County of Nassau, New York. If NeuLion chooses to file a lawsuit or pursue an action arising from or relating to this Agreement or the relationship between the Parties created hereby, such lawsuit or action shall be litigated solely and exclusively before the United States District Court for the District of Colorado, and if the United States District Court for the District of Colorado does not have subject matter jurisdiction over any such matter, then such matter shall be litigated solely and exclusively before the appropriate state court of competent jurisdiction located in the City and County of Denver in the State of Colorado. The parties and their present and future Affiliates consent to the in personam jurisdiction of the United States District Court for the Southern District of New York and the United States District Courts for the Eastern District of New York, the United States District Court for the District of Colorado, and the appropriate state courts located in the County of New York and the County of Nassau in the State of New York and the City and County of Denver in the State of Colorado, and waive, fully and completely, any right to dismiss and/or transfer any action pursuant to Title 28 U.S.C. Section 1404 or 1406 (or any successor statute). 27. Notices. Any notice, request, demand or other communication required to be given or made in connection with this Agreement shall be: (a) in writing; (b) delivered or sent (i) by hand delivery, evidenced by a signed, dated receipt, (ii) postage prepaid via U.S. certified mail, return receipt requested, (iii) by overnight delivery via a nationally recognized courier service, charges prepaid, or (iv) via confirmed facsimile transmission; and (c) deemed given or made on the date of delivery (if by hand delivery, certified mail, or overnight courier service), or on the date of sending (if by facsimile transmission), if sent to the applicable Party at the addresses set forth below, or to such other persons or address(es) as either Party may designate from time to time by written notice to the other Party in accordance with this Section 27: [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 25 Proprietary & Confidential

123 If to NeuLion, to: NeuLion USA, Inc. Attn: President 1600 Old Country Road Plainview, New York Fax No.: (516) With a copy (which shall not constitute notice) to: NeuLion USA, Inc. Attn: General Counsel 1600 Old Country Road Plainview, New York Fax No.: (516) If to Company, to: DISH Network L.L.C. Attn: Executive V.P. of Sales, Marketing and Programming 9601 S. Meridian Blvd. Englewood, Colorado Fax No.: (303) With a copy (which shall not constitute notice) to: DISH Network L.L.C. Attn: General Counsel 9601 S. Meridian Blvd. Englewood, Colorado Fax No.: (303) All Legal Provisions Deemed Included; Severability; Supremacy. (a) Every provision required by Law to be inserted into or referenced by this Agreement is intended to be a part of this Agreement. If any such provision is not inserted or referenced or is not inserted or referenced in correct form then: (i) such provision shall be deemed inserted into or referenced by this Agreement for purposes of interpretation; and (ii) upon the application of either Party this Agreement shall be formally amended to comply strictly with the Law, without prejudice to the rights of either Party. 26 Proprietary & Confidential

124 (b) In the event that any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (c) Unless the application of this subsection will cause a provision required by Law to be excluded from this Agreement, in the event of an actual conflict between the terms and conditions set forth above the signature page to this Agreement and those contained in any schedule, exhibit, appendix, or attachment to this Agreement, the terms and conditions set forth above the signature page shall control. To the extent possible, all the terms of this Agreement should be read together as not conflicting. 29. Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 30. Entire Agreement. This Agreement represents the full and entire understanding and agreement between the Parties with regard to the subject matter hereof and supersedes all prior agreements (whether written or oral) of the Parties relating to the subject matter of this Agreement. 31. Remedies. In the event of any breach or threatened breach by a Party of any of the terms and provisions of this Agreement, the other Party, in addition to any other rights or remedies available to such Party, shall have the right to injunctive, declaratory and any other equitable relief that may be available to such Party as if no other remedies were provided herein for such breach. 32. Capitalized Terms in Exhibits. Capitalized terms used in any exhibit, schedule or attachment hereto that are not otherwise defined therein shall have the meaning ascribed to them in this Agreement. 33. Joint Press Release. On a date following execution of this Agreement to be mutually agreed upon in writing by the Parties, either Party may issue a press release which shall be in substantially the form of the draft press release attached hereto as Exhibit I, but which remains subject to being finalized by mutual written agreement of the Parties. Except as otherwise expressly provided in this Section 33, neither Party shall issue any press releases regarding this Agreement or the transactions contemplated hereby unless mutually agreed by the Parties in writing. 34. Parent Guaranty. By execution below, Parent hereby guarantees the performance of NeuLiuon s obligations under this Agreement and agrees to be jointly and severally liable therefor. 27 Proprietary & Confidential

125 35. Filing of Redacted Agreement. NeuLion shall provide Company with an opportunity to review and approve (such approval not to be unreasonably withheld) any redacted version of this Agreement prior to filing the same with any governmental agency, whether in the United States (including without limitation the U.S. Securities and Exchange Commission) or Canada, or any other third party. Such review and approval by Company shall take place within a commercially reasonable period of time taking into consideration any filing deadlines imposed by applicable Laws of which NeuLion makes Company aware. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 28 Proprietary & Confidential

126 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. NeuLionUSA, Inc. Company: DISH Network L.L.C. By: /s/ Roy E. Reichbach By: /s/ Thomas A. Cullen (Authorized Signature) (Authorized Signature) Roy E. Reichbach Type or Print Name of Person Signing Thomas A. Cullen Type or Print Name of Person Signing Secretary Title EVP Title Solely with respect to the guarantee contained in Section 34 of this Agreement, Parent has executed this Agreement by its duly authorized representatives as of the day and year first written above: NeuLion, Inc. By: /s/ Roy E. Reichbach Name: Roy E. Reichbach Title: Secretary [SIGNATURE PAGE TO CONTRACT FOR PRODUCTS AND SERVICES DATED AS OF JANUARY 4, 2010] 29 Proprietary & Confidential

127 EXHIBIT A NEULION PROVIDED SERVICES During the Term and the Wind Down Period, NeuLion shall provide the NeuLion Services and deliverables set forth in this Exhibit A for all functions required to provide the Service as set forth in, and subject to and in accordance with, this Agreement, except that it is agreed and understood that during the Wind Down Period, NeuLion shall not be required to provide any new functionality or modifications to the NeuLion Services; provided that NeuLion shall ensure that during the Wind Down Period the NeuLion Services and the Service are maintained at the same or at least the same level of quality, service and performance as provided by NeuLion to Company during the Term (including without limitation NeuLion s provision to Company of any and all software fixes and patches during the Wind Down Period under the same terms and conditions applicable to NeuLion s provision of such software fixes and patches during the Term). The NeuLion Services and such deliverables shall include, without limitation, a web-based order entry tool, set top box manufacturing and fulfillment, Content encoding and management, Content delivery, Subscriber activation, and all back office operations for the Service including without limitation the performance of billing and collection services for Company and Subscribers. In addition to (and without limitation of) NeuLion s other obligations set forth in this Agreement, NeuLion shall be responsible for obtaining any and all requisite legal and regulatory approvals for any locality where the Service is provided in the Territory. A. Order Entry and Billing System. 1. Order Entry System. NeuLion shall provide a web-based order entry system whereby new Subscribers, or an agent acting on behalf of a new Subscriber, may order the Service (including without limitation one or more STBs, as determined by Company at any time and from time to time in its sole discretion for any reason or no reason) from Company (the Order Entry System ). The Order Entry System shall support direct order entry capture from any one or more of Company s web sites ( Company Websites ) and, at Company s request, third-party websites that Company has authorized to promote the Service and provided NeuLion with written notice of such authorization ( Affiliate Websites ). The Company Websites shall be created, published and maintained at Company s sole expense and in Company s sole discretion to market and promote the Service, and shall direct potential orders for the Service to the Order Entry System via a graphical user interface (GUI) to be provided by Company. In accordance with applicable Business Rules, the Order Entry System shall be customized by NeuLion to be branded as directed by Company and shall be online and fully-functional not later than the Launch Date (as defined in Section K of this Exhibit A). In addition to such other functionality as may be mutually agreed upon by the Parties from time to time during the Term and the Wind Down Period, the Order Entry System shall include, at a minimum: (a) (b) the functionality to accept orders for the Service and STBs and to accept payments therefor; the following fields to be completed by each Subscriber when placing an order for the Service: 30 Proprietary & Confidential

128 First Name; Last Name; Service Address; Billing Address; Home Telephone Number; Work Telephone Number (optional); Mobile Telephone Number (optional); Address; Credit/Debit Card Type; Credit/Debit Card Number; Credit/Debit Card Expiration Date; and Any other fields reasonably requested by Company; (c) terms and conditions of service applicable to the Service, as specified by Company from time to time and at any time in its sole discretion for any reason or no reason (including without limitation as may be required by applicable Laws and/or to make such terms binding and enforceable on the Subscriber), and a traceable click through I agree or I accept of such terms and conditions prior to ordering service; (d) tracking and reporting of time and date each customer accepted such terms and conditions; and (e) functionality to allow third-party retailers/resellers, if any, authorized by Company at any time and from time to time in its sole discretion for any reason or no reason to place orders for STBs and the Service for prospective Subscribers and to track sales (including without limitation sales performed by such retailers/resellers via one or more websites) origination to the applicable retailer/reseller (for example, and without limitation, for purposes of allowing Company to identify retailers/resellers in order to pay such retailers/resellers commissions, incentives or other payments to the extent that Company elects to do so at any time and from time to time in its sole and absolute discretion for any reason or no reason). (f) functionality to allow tracking of sales origination for orders for STBs and the Service placed as a result of click-throughs from Affiliate Websites. 2. Billing and Management Systems. The Subscriber billing and account management systems used by NeuLion to support the Service (the Billing Systems ) will be fully accessible by Company and its customer service representatives via the web on a 24/7 basis during the Term and the Wind Down Period and shall provide such functionality as reasonably requested by Company, including without limitation, the ability for Company to, in real time: (a) apply payments, credits, discounts and refunds to any Subscriber account; (b) view all Subscriber and account information and other data that NeuLion will otherwise provide to Company pursuant to the NeuLion reporting requirements set forth in Section I of this Exhibit A and elsewhere in this Agreement; and (c) activate new Subscribers and deactivate existing Subscribers at any time and from time to time in Company s sole discretion for any reason or no reason. For clarity, Company and Company s customer service representatives shall at all times during the Term and the Wind Down Period, on a 24/7 basis, except as provided for in Exhibit G, have full access via the web to the Billing Systems so as to provide Company with visibility to all Subscriber billing and account records and information. NeuLion shall promptly provide Company with copies of any additional information related to Subscribers or to the Service as may be requested by Company at any time and from time to time during the Term and the Wind Down Period. 31 Proprietary & Confidential

129 B. Content Encoding and Management. 1. Transcoder Licensed Programs. NeuLion shall deliver, install, implement, support, maintain and provide remote management of the Transcoder Licensed Programs operating on Company supplied and owned server(s) meeting the minimum specifications set forth in Exhibit D ( Company Servers ), the use of which Transcoder Licensed Programs shall support the provision of the Service through all Company-authorized STBs provided to Company by NeuLion in accordance with this Agreement. Installation of the Transcoder Licensed Programs on the Company Servers shall be performed by NeuLion so that the same are fully operational for the provision of the Service no later than ten (10) days following the availability of Company supplied hardware and payment as set forth in Exhibit C. For clarity (and without limitation of any of the foregoing) the Transcoder Licensed Programs shall be compatible with Company s delivery of Content in serial digital interface (SDI) format. Notwithstanding anything set forth herein to the contrary, under no circumstances during the Term or at any time thereafter shall NeuLion or any of its Affiliates: (a) take any action which would cause any harm or damage to the Company Servers or any other systems or equipment owned or controlled by Company or any of its Affiliates; (b) access the Company Servers or any other systems or equipment owned or controlled by Company or any of its Affiliates, except as specifically contemplated hereunder with respect to NeuLion in order for NeuLion to perform its obligations as herein set forth with respect to the Service. 2. Content Encoding. Utilizing, among other things, the Transcoder Licensed Programs operating on Company Servers, NeuLion shall be responsible for encoding the Content into NeuLion s AVC (Advanced Video Compression) format at thirty (30) frames per second using NTSC standard to deliver full D1/VGA video and AAC audio with an encoding bit rate of 850 kbps, or lower as directed by Company, and at a screen display resolution of 720 x Content Storage. In addition to (and without limitation of) NeuLion s other storage, backup and maintenance obligations hereunder, on a rolling basis, NeuLion shall store, backup and maintain NeuLion AVC-encoded Content to support and allow Subscriber access to the most recent forty-eight (48) hours of broadcast Content per channel on demand by Subscriber and at no additional cost to the Subscriber. C. EPG Data Management. NeuLion shall upload all channel programming information and playout times and grids from Tribune or any other entity designated by Company and approved by NeuLion, such approval not to be unreasonably withheld. NeuLion shall accurately display all such information in an electronic programming guide for Company in a form modifying NeuLion s standard electronic programming guide ( Company EPG ) for each channel available to the applicable Subscriber depending upon the Service package(s) to which such Subscriber has subscribed or for all channels available via the Service, and in any case as set forth in applicable Business Rules. At Company s option, Company may provide all Company EPG data via Excel spreadsheet format. All Company EPG data, Company EPG interface and customization (including without limitation the look and feel of the Company EPG) shall be owned by Company. 32 Proprietary & Confidential

130 D. Content Delivery; Redundancy and Service Monitoring. 1. Content Delivery. NeuLion shall broadcast and deliver Content via the Service to Subscribers using the NeuLion IPTV Platform (including without limitation by providing all required processes, technology and ongoing personnel services in connection with such broadcast and delivery). In connection with the foregoing (and without limitation), NeuLion shall: (a) support Subscriber access control to Content packages for which Subscriber has paid in full (including without limitation by employing Conditional Access Measures and Geoblocking/Geofiltering Measures) and selection management of linear broadcast channel(s) comprising the Content; (b) stream linear broadcast channel(s) comprising the Content on a unicast transmission basis; and (c) provide and manage internet protocol (IP) network bandwidth resources as required to support delivery of Content via the Service consistent with the highest standards applicable to the IPTV industry. 2. Redundancy and Service Monitoring. At all times during the Term and the Wind Down Period, NeuLion shall employ and maintain in place on 24/7 basis: (a) redundant systems used by NeuLion to provide the Service and broadcast Content (the Redundancy Systems ); and (b) procedures and systems in place for monitoring, backup and recovery from disruptions to the Service (the Recovery Systems ). In addition to (and without limitation of any of the foregoing), prior to the Launch Date, the Parties shall work together to develop Business Rules regarding communications between them in the event of any service interruptions affecting the Service or the Content. At all times during the Term and the Wind Down Period, NeuLion shall utilize multiple, physically-separated data centers to provide the Redundancy Systems and Recovery Systems that adhere to the following minimum standards: (a) located in carrier-grade, commercial collocation facilities providing uninterrupted power and air; (b) utilizing multiple, tier 1 internet transit providers for inter-connection between data centers as well as outbound Content streaming supporting an aggregate bandwidth inbound and outbound of no less than two (2) Gigabits per second; (c) (d) equipped with redundant network and server hardware; monitored 24x7x365 by NeuLion s network operations personnel; and (f) secured for physical access 24x7x365 by collocation facilities personnel with electronic access secured by network firewall, anti-virus and intrusion prevention systems in accordance with industry standards. 33 Proprietary & Confidential

131 E. Support of Company Service Support Requests. NeuLion shall provide Company with second level (Tier II) customer service and technical support on a 24/7 basis as further described in Exhibit F (the Tier II Support ). NeuLion shall log and track all activity with respect to Tier II Support requests made by Company using NeuLion s computerized support tracking systems (including without limitation, NeuLion s proprietary IPTV Service Support program), all of which shall be accessible to Company and its customer service representatives via the web on a 24/7 basis. At Company s request, NeuLion shall provide Company with first level (Tier I) customer service and technical support (the Tier I Support ) in addition to Tier II Support. The terms and conditions applicable to NeuLion s provisioning of Tier I support to Company shall be mutually agreed upon and set forth in a separate written agreement to be entered into between the Parties and guaranteed by Parent. F. Training Support. 1. Training Materials. At no additional cost to Company, NeuLion shall provide Company with written manuals and training materials pertaining to the Service, the Billing Systems, the Order Entry System, the STBs, STB Components, and to such other items related to the Service as may be reasonably requested by Company prior to or during the Term, or during the Wind Down Period (the Manuals and Training Materials ). In the event of any change or modification to the NeuLion IPTV Platform (or portion thereof) or any other change affecting the Service (other than changes to the Content), including without limitation changes or modifications to the Billing Systems or the Order Entry System, that renders any of the Manuals and Training Materials, or portion thereof, outdated, obsolete, incomplete, incorrect or inaccurate (each a Change ), NeuLion shall provide the applicable updates to such Manuals and/or Training Materials within a commercially reasonable period of time following such change or modification; provided, however, that in the case of a material change affecting the Service, NeuLion shall use its commercially reasonable efforts to provide Company with the applicable update as far in advance of the change as is possible. 2. Training. In addition to (and without limitation of the foregoing), NeuLion shall provide, at its sole costs and expense, one (1) day of training to teach Company s employees how to use the Billing Systems (the Initial Training ). Such Initial Training will be provided at Company s principal offices in Englewood, Colorado, at a time and on a date to be mutually agreed upon by the Parties, which time and date shall be prior to the Launch Date (as defined in Section K of this Exhibit A). If requested by Company, NeuLion will provide additional training to Company from time to time during the Term at the principal offices of NeuLion or Company, or at such other location as may be mutually agreed upon from time to time by the Parties. Company shall pay for any such additional training at the rate of *******, payable on a net sixty (60) day basis from the date of Company s receipt of the applicable invoice from NeuLion. If such additional training is held at a location other than at NeuLion s Plainview, New York office, Company shall also reimburse NeuLion for its reasonable travel costs and other expenses incurred with respect to such additional training, which travel costs and other expenses shall be subject to Company s prior written approval and comply with Company s travel policy. G. Subscriber Provisioning. NeuLion shall provide the process, technology and ongoing personnel services to setup and provision new Subscribers, maintain existing Subscriber account information and perform monthly Subscriber billing. 34 Proprietary & Confidential

132 1. Self-Service Facility. At all times during the Term and the Wind Down Period, NeuLion shall make available to Subscribers a web-based self-service facility (the Self-Service Facility ) that will allow each Subscriber to, among other things, obtain and print such Subscriber s past and present Service billing statements and access and modify such Subscriber s Service account and payment information. 2. Ongoing Account Maintenance. NeuLion shall provide ongoing Subscriber account maintenance utilizing, among other things, the Billing Systems, including without limitation, by making applicable updates to such accounts, storing back-up copies of the information contained in such Subscriber accounts, and tracking and maintaining a record of all Media Access Control (MAC) addresses assigned to each STB activated with respect to all Subscriber accounts. 3. New Orders and STBs. NeuLion shall review the orders received through the Order Entry System on a rolling basis and shall ship new STBs to new Subscribers as per its normal one (1) day business practice but no later than three (3) business days after NeuLion s receipt of the corresponding new order. For clarity (and without limitation of any of the foregoing), such three (3) business day shipping timeframe may be extended in accordance with Section 25 of this Agreement as a result of the occurrence of a Force Majeure Event. All STBs shall be shipped to Subscribers hot, meaning that the STB is preactivated. 4. Packout Materials and STB User Guide. At no additional cost to Company, Neulion shall include all written and other packout materials reasonably requested by Company to be included in the STB shipping box sent to Subscribers; provided that such materials are provided to NeuLion by Company and: (a) do not increase NeuLion s cost of standard shipping applicable to shipment by NeuLion of STBs within the Territory generally (in the case that the applicable STBs are being shipped using NeuLion s Fed Ex, UPS or other shipping carrier account); or (b) fit within NeuLion s standard STB packaging, as further described herein (in the case that the applicable STBs are being shipped using Company s or any of its Affiliate s FedEx, UPS or other shipping carrier account). NeuLion agrees to provide Company with an electronic version of the Subscriber User Guide (and any and all other instruction manuals or other documents provided to Subscribers) to be modified and branded at Company s sole discretion. The Parties agree that during the Term and the Wind Down Period, Company may post an electronic version of the Subscriber User Guide on any one or more of the Company Websites. H. Maintenance and Monitoring. During the Term and the Wind Down Period, NeuLion will, at no additional cost to Company and promptly upon release of the same (and with concurrent notice to Company), install on the Company Servers or otherwise apply, as applicable, each bug fix, patch, minor enhancement, replacement or update of the software installed on the STBs, NeuLion Transcoder Licensed Programs, the Order Entry System and the Billing Systems (solely for purposes of this Section H, collectively, the Systems ) or any portion of any of the foregoing. In the event that Company in its reasonable discretion believes that installing any such updates, if applicable, will adversely affect the Service, the Company Servers or other systems and Company can provide reasonable evidence of such adverse affect to NeuLion, at Company s request NeuLion shall identify alternative solutions and provide Company assisted access to Company s engineering group to further explore solutions for remediation until such time as both Parties are able to find a solution for remediation. 35 Proprietary & Confidential

133 I. Billing and Reporting. 1. Billing. NeuLion shall perform ongoing monthly billing of Subscriber accounts, including without limitation by performing pre-approved, recurring Subscriber credit/debit card charge processing, monthly Subscriber billing statement creation, and billing statement posting for Subscriber access via the Subscriber Self-Service Facility. NeuLion shall be responsible, in consultation with and approval by Company, for the design and layout of all Subscriber billing statements, including without limitation, the inclusion of Company s designated name and logo on each billing statement and bill messaging of commercially reasonable length and size. Neither the NeuLion name nor any name other than those names approved in writing by Company shall appear on any Subscriber billing statement. A sample Subscriber statement format is attached hereto and incorporated herein as Schedule Monthly Reporting. In addition to (and without limitation of) NeuLion s other reporting obligations under this Agreement, NeuLion shall provide Company with a monthly written accounting of all monies collected in connection with the Service, as well as a detailed breakdown of any all amounts deducted therefrom prior to Company s receipt of payment from NeuLion, as set forth in Exhibit C. In addition to (and without limitation of) the foregoing, on a monthly basis during the Term and the Wind Down Period, NeuLion shall provide Company with such accurate and verifiable reporting as reasonably requested and in the form reasonably requested by Company (including without limitation in one or more.csv files) (collectively, the Monthly Reporting ). Unless otherwise specified by Company, Monthly Reporting shall be for the period beginning on the 22nd of each calendar month and ending on the 21st of the following calendar month (each, a Reporting Period ). NeuLion shall provide the Monthly Reporting to Company on or before the first day of the calendar month immediately following the applicable Reporting Period. The Monthly Reporting shall include, without limitation, the following data and information for the applicable Reporting Period: (a) (b) (c) (d) the number of STBs in inventory including listing by MAC address; the number of STBs deployed and activated during the prior thirty (30) day period by MAC address; all STBs exchanged under warranty listed by account name and number and MAC address; the total number of active Subscribers by programming package; (e) the full names and addresses of all Subscribers that activated and deactivated Service and the dates on which each of such Subscribers activated or deactivated Service (for clarity, unless otherwise set forth in applicable Business Rules, Subscriber account activation shall occur on the earlier of the date the Subscriber activates his/her STB or seven (7) calendar days after shipping of the STB); 36 Proprietary & Confidential

134 (f) revenue per Subscriber based on service dates and based on date the service was billed; (g) amounts billed for Service broken down by line item charges and line item amounts collected for each service/product (which for clarity also includes a separate line item amount billed for tax per Subscriber); (h) beginning balance of amounts due, amounts billed, adjustments to prior billings, amounts collected and ending balance of amounts due. (i) In addition to (and without limitation of) NeuLion s other reporting requirements hereunder, on or before the 1st of each month, NeuLion shall provide Company with a detailed transaction-level report on a per Subscriber basis that breaks down amounts collected by NeuLion in connection with the Service for the prior Reporting Period for: (a) programming (including all amounts collected for programming packages and a la carte purchases if and as applicable and as described in applicable Business Rules); (b) equipment (including without limitation STBs and replacement fees as described in Exhibit C, paragraph (C)(8)); (c) Shipping and Delivery Fees; (d) Handling and Activation Fees, (e) Taxes, and (e) and any other fees or charges imposed on a Subscriber. 3. Taxes. NeuLion shall configure its tax engine software from time to time during the Term and the Wind Down Period as reasonably requested by Company and within a commercially reasonable period of time following such request(s). NeuLion shall collect all sales taxes with regard to all Subscriber transactions in connection with the Service for all fifty (50) states and remit all such sales taxes to Company by no later than the 1st of each month. NeuLion shall be solely responsible for updating basic sales tax rates in the Billing Systems in accordance with applicable Laws; provided, however, that at any time and from time to time during the Term or the Wind Down Period, Company may in its sole discretion submit tax rate override requests to NeuLion. With respect to Subscribers, NeuLion shall use reasonable commercial efforts to implement any such tax rate override requests in the Billing Systems within three (3) business days of NeuLion s receipt thereof from Company. J. Warranty Exchange and Service. In addition to (and without limitation of) NeuLion s other reporting obligations hereunder, for each STB exchanged under warranty by a Subscriber, NeuLion shall provide to Company on a monthly basis (which will become weekly upon reaching ******* Subscribers), the applicable: (1) Subscriber name, address and account number; and (2) MAC address of returned STB and STB shipped as replacement. In addition to (and without limitation of the foregoing) all MAC address histories shall be entered by NeuLion into the applicable Subscriber s account notes within the Billing Systems. K. Service Launch Date. Provided that: (1) all fees described in Section A of Exhibit C are paid; (2) Company has paid ******* of the amount owed to NeuLion in connection with its initial purchase of ******* STBs; and (3) Company has fully performed the obligations listed below within the timeframes set forth below, NeuLion guarantees that the Service (inclusive of, among other things, the Initial Channels and the Company EPG) will launch no later than forty-five (45) days after the Effective Date, provided that the number of initial orders from new Subscribers does not exceed *******, but in no event later than: (a) sixty (60) days after the Effective Date if Company s initial STB order is shipped to NeuLion via air, or (b) ninety (90) days after the Effective Date if Company s initial STB purchase are shipped to NeuLion via sea ( Launch Date ). 37 Proprietary & Confidential

135 Company obligations (the Company Launch Tasks ) to be completed within thirty (30) days following the Effective Date are: Participation in and provide final approval of STB screen designs and flow; Definition of programming packages comprised of the Initial Channels; Provisioning of facilities, hardware and network connectivity for signal capture, implementation of NeuLion Transcoder Licensed Programs and backhaul of transcoded linear channels to one or more NeuLion content delivery data centers. Development and integration of a graphical user interface (GUI) for the integration of Company Web Site to the Order Entry System. NeuLion shall use its best efforts to support Company s completion of the Company Launch Tasks in a timely fashion. Notwithstanding anything set forth herein to the contrary, if Company does not complete the Company Launch Tasks within thirty (30) days following the Effective Date, such non-completion shall under no circumstances be considered a breach or default of this Agreement by Company and the Launch Date shall be extended to a date not later than fourteen (14) calendar days following completion of the Company Launch Tasks. As requested by Company, NeuLion shall implement all Business Rules with respect to the Initial Channels and the Service prior to the Launch Date. L. Addition of New Languages/Channels. 1. The Parties acknowledge that the initial launch of the Service will consist of ******* language groups consisting of up to a total of ******* linear broadcast channels (the Initial Channels ). The ******* language groups shall consist of any combination of linear broadcast channels and such linear broadcast channels may be packaged in any manner (including without limitation in multiple package combinations) and at such prices as Company determines in its sole discretion for any reason or no reason and as set forth in applicable Business Rules. NeuLion will bill Subscribers and collect for such channels and packages as directed by Company. 2. If Company elects at any time and from time to time during the Term in its sole discretion for any reason or reason to add additional language groups and/or linear broadcast channels in addition to the Initial Channels, it may do so at the rates set forth in Exhibit C with regard to the license fees applicable to the Transcoder Licensed Programs, but at no other cost to Company. For clarity, the Initial Channels and such additional channels, if any, shall be subject to the terms and conditions otherwise applicable to Content (including without limitation the applicability of Business Rules, retail pricing and any other terms and conditions applicable to the Service as set by Company in accordance with this Agreement). Any additional Company Servers to support linear broadcast channels in addition to the Initial Channels shall be provided by Company. For clarity, except as otherwise provided herein, channels offered by other NeuLion customers may be added to the Service by Company at the costs set forth in the last sentence of Exhibit C, Section A(2). 38 Proprietary & Confidential

136 3. NeuLion agrees to add additional language groups and/or broadcast linear channels in addition to the Initial Channels in accordance with the Business Rules applicable to such additional language groups and/or linear broadcast channels within thirty (30) days following Company s delivery to NeuLion of the applicable additional Content; provided that Company has obtained the necessary hardware with regard to such additional Content. M. STB Warehousing and Inventory Monitoring. At no additional cost to Company, during the Term and for a period of up to forty-five (45) days thereafter as directed by Company, NeuLion shall warehouse and store Company s inventory of STBs and STB Components (the Company Inventory ) at NeuLion s secure warehouse facilities suitable for such purpose in Plainview, New York (or at such other location(s) as may be mutually agreed upon by the Parties in writing from time to time during the Term or the Wind Down Period). NeuLion shall use commercially reasonable efforts to, within forty-eight (48) hours following a request from Company: (1) at Company s expense and shipping arrangement, ship the Company Inventory, or portion(s) thereof (if and as directed by Company), to Company or its designee(s) at such location(s) and using such carrier(s) as directed by Company in its sole discretion for any reason or no reason, provided that if the forty-eight hour notice period requires shipping on a weekend, NeuLion shall ship the Company Inventory to Company on the next business day; and/or (2) make the Company Inventory, or portion thereof, available for pickup by Company or its representatives during normal business hours. NeuLion assumes all risk of loss with respect to the Company Inventory at all times while in NeuLion s possession or control following delivery from manufacturer and shall indemnify Company in connection with any actual loss. For clarity, NeuLion s insurance obligations set forth in Section 24 of the main body of this Agreement shall be applicable to all STBs and STB Components warehoused by NeuLion pursuant to this Section M. In addition to (and without limitation of) NeuLion s other reporting obligations hereunder, NeuLion shall provide Company with detailed written weekly reports setting forth the number of STBs and the number of each of the STB components remaining in the Company Inventory N. Out of Warranty Service. Upon request from Company, NeuLion shall provide out of warranty testing and refurbishment of Subscriber returned STBs at a current fee of ******* per STB (subject to increase of ******* per calendar year during the Term), exclusive of the cost of replacement components. Certification testing and refurbishment shall include the following work performed by NeuLion: For STB units that pass certification testing - o Inspect box exterior either clean or replace top cover o Inspect remote controller either clean or replace o Repack STB with new accessories o Place STB MAC in available, refurbished STB inventory For units that fail certification testing - o Place STB MAC in unavailable status O. Return Authorization Process. The Return Authorization process utilized by NeuLion shall include the following: 39 Proprietary & Confidential

137 Subscriber support personnel opens a ticket to NeuLion support for return of an STB covered under warranty describing the nature of the STB defect; NeuLion assigns and activates a replacement STB MAC address to Subscriber s account; NeuLion creates a RMA record for Subscriber consisting of an RMA number and reason for return; NeuLion creates a return shipping label for Subscriber to use to return the defective STB; NeuLion ships the replacement Company branded STB and the return shipping label to Subscriber on an advanced exchange basis (NeuLion to use reasonable commercial efforts to have such shipment to take place within one (1) business day following return authorization by Company using NeuLion s web-based support request tracking system described in Exhibit F hereto) with instructions to return the defective STB in the same shipping container as the replacement STB; and Upon receipt of the defective STB, NeuLion updates the RMA record and deactivates the returned STB MAC address from the Subscriber s account. NeuLion shall perform all STB certification testing. For units that fail certification, NeuLion shall place the STB MAC in unavailable status and replaces the STB with a new or repaired STB (in either case that is Company branded) and corresponding MAC address. For units that pass certification, NeuLion performs out of warranty refurbishment and places STB MAC in available, refurbished STB inventory. NeuLion shall stock a sufficient number of Company branded STBs (at NeuLion s cost) to satisfy all of NeuLion s warranty and replacement obligations set forth herein. 40 Proprietary & Confidential

138 SCHEDULE 1 to EXHIBIT A Sample Subscriber Billing Statement 41 Proprietary & Confidential

139 EXHIBIT B STB SPECIFICATIONS A. STB Specifications (current model number is STB2300): Video Format MPEG-4 (H.264) BP@L3, MP@L4.0 Audio Format MPEG-4 AAC 2.0 Operating System Linux, supports remote firmware upgrade Unicast streaming: RTSP/RTP over IP/TCP Macrovision copy protection HDCP digital copy protection Interfaces RJ45 Ethernet 10/100 Base T, Auto Sensing, Full Duplex S-Video Out Composite Video Out RCA Stereo Audio Out (2 - Left/Right) HDMI A/V Out Input Device I/R Remote Control Power DC 12V/AC V Power Adapter Certification UL FCC B. STB Components: Chassis Assembly Top Cover Assembly Remote Controller 1.5V/AAA Batteries 2 CAT-5E LAN Cable 3000mm Composite Video and Audio Cable 1800mm DC 12V/AC V Power Adapter Power Cord 1800mm C. Conditional Access and Geoblocking/Geofiltering Measures: STB Access Control Stream Security Copy Protection Each STB is uniquely identified by its MAC address and is associated to a specific account upon provisioning. When an STB accesses the NeuLion media servers, the authentication process identifies and validates the account based on the STB MAC. Every request from the STB to the NeuLion media servers is secured by a 128-bit temporal cryptographic hash function. Encryption, authentication and stream integrity is ensured through the use of SRTP (Secure Real-Time Transport Protocol) utilizing the AES (Advanced Encryption Standard) 128 bit stream cipher. Copy protection for analog signal output is provided by Macrovision signal implantation. Digital content protection for HDMI is provided by HDCP encryption. 42 Proprietary & Confidential

140 Geo Access Control Upon access and authentication, each STB s IP address is converted into a country and city location based on a third party (currently MaxMind, Inc.) geographic/ip address translation database that is updated monthly. This location identification can be applied to business rules for locationbased content/subscription access control. 43 Proprietary & Confidential

141 EXHIBIT C NEULION SERVICE FEES A. Setup Fee and Transcoder License Fee. 1. Setup Fee. Upon execution of this Agreement, Company shall pay NeuLion ******* as a setup fee for the initial styling and content of the EPG; the setup of the look and feel of the user interface including without limitation, coloring, fonts and style, logo silkscreen for STBs; all setup of the Billing Systems and the Order Entry System customized for Company application; and the Initial Training described in Exhibit A. 2. Transcoder License Fees. Subject to the terms and conditions of this Agreement (and except as otherwise provided in this Section 2 with respect to the use of previously licensed Transcoder Licensed Programs during the Renewal Term), with respect to the Initial Channels and to each linear broadcast channel that is added to the Service during the Term at the request of Company, Company shall pay NeuLion a one-time software license fee for the Transcoder Licensed Programs as follows (each a Transcoder License Fee ): (a) (b) (c) ******* per linear broadcast channel if ******* licenses are ordered at a time; ******* per linear broadcast channel if ******* are ordered at a time; ******* per linear broadcast channel if ******* linear channels are ordered at a time. Transcoder License Fees payable hereunder by Company to NeuLion are inclusive of installation of the Transcoder Licensed Programs, usage, maintenance and support thereof (including without limitation all bug fixes and patches), and all updates and upgrades made to the Transcoder Licensed Programs during the Term. Transcoder License Fees payable to NeuLion by Company for the Initial Channels and any linear broadcast channels in addition to the Initial Channels shall be payable as follows: (i) Initial Channels - upon execution of this Agreement, and (ii) for all other channels - on a net sixty (60) day basis following successful installation of the Transcoder Licensed Program(s) for such channels. Except in the case that Company has achieved the Renewal Minimum (as defined and otherwise described in Section 1 of the main body of this Agreement) whereby no additional fees for Company s continued use of the Transcoder Licensed Programs during the Renewal Term shall be payable by Company to NeuLion, Company s continued use of the NeuLion Transcoder Licensed Programs during the Renewal Term shall require the one-time payment to NeuLion of an amount equal to ******* of the applicable Transcoder License Fee (as set forth in clauses (a)-(c) of this Section 2, which solely for purposes of calculating the Maintenance Fee (defined below) shall be subject to a maximum increase by NeuLion of ******* per calendar year during the Term) multiplied by the number of linear channels offered by Company via the Service as of the first day of the Renewal Term (the Maintenance Fee ). By way of example (and without limitation), if on the first day of the Renewal Term Company offers fifty (50) linear broadcast 44 Proprietary & Confidential

142 channels via the Service, the Maintenance Fee would be ******* (calculated as follows: 50 * *******; provided that, for clarity, factoring in the potential annual ******* increase of the Transcoder License Fee, the amount of the Maintenance Fee could reach a maximum amount equal to ******* (calculated as follows: 50 * *******. The Maintenance Fee, if any, shall be payable to NeuLion by Company within sixty (60) days of Company s receipt of an invoice therefor from NeuLion following the commencement of the Renewal Term. Company s license to use the Transcoder Licensed Programs shall terminate at the end of the Wind Down Period. Transcoder License Fees set forth in this Section 2 (excluding the Maintenance Fee, if any) must be paid to NeuLion by Company prior to delivery of Company s license by NeuLion to Company to use the Transcoder Licensed Programs with respect to the applicable linear broadcast channels. Notwithstanding the foregoing, in the event Company obtains a linear broadcast channel feed from another NeuLion customer for distribution to Subscribers, while other time and material charges for technical set-up such as cross connection may apply (which for clarity shall be *******), Company shall not be charged a Transcoder License Fee for such channel. B. Monthly Fees. 1. During the Term, Company shall pay to NeuLion an Operations Fee which shall be calculated each Reporting Period (as defined in Section I.2 of Exhibit A) in accordance with the following table: Number of Subscribers During Reporting Period Fee to Neulion Per Active Subscriber (non-cumulative) ******* Subscribers ******* ******* ******* Subscribers ******* ******* Subscribers ******* ******* Subscribers ******* For example, in a Reporting Period where there were 32,000 Subscribers (determined by adding the number of Subscribers on the 22nd of a month and the number of Subscribers on the 21st of the following month and dividing that result by two (2)), the Monthly Operations Fee would be ******* (calculated as follows: *******. The Parties agree that for purposes of calculating the Operations Fee above, Subscribers subscribing to ******* channels via the Service will count as ******* Subscriber for each subsequent grouping of ******* channels, or portion thereof, such Subscriber receives in excess of such Subscriber s ******* channels. For illustrative purposes only (and without limitation), if a Subscriber subscribes to ******* channels via the Service, such Subscriber would count as ******* Subscribers for purposes of calculating the applicable Operations Fee. Notwithstanding the foregoing, once Company reaches ******* Subscribers in the aggregate across all languages, Subscribers receiving ******* channels will count as ******* Subscriber ******* for purposes of calculating the Operations Fee. 45 Proprietary & Confidential

143 2. In addition to the Operations Fee, during the Term, Company shall pay to NeuLion a monthly credit/debit card processing fee in an amount equal to ******* of the total amounts collected from Subscribers for the Service during the applicable month ( Credit Card Processing Fee ). 3. The Monthly Operations Fee excludes in each case, (a) NeuLion s actual cost of shipping for delivery of STBs to Subscriber premises, ******* ( Shipping and Delivery Fees ) (in the case NeuLion does not use Company s Fed Ex, UPS or other shipping carrier account, as further described in this Section 3); (b) handling and activation charges (currently *******, with no greater an increase than ******* per calendar year during the Term) ( Handling and Activation Fees ); (c) amounts collected for sales or use taxes or duties ( Taxes ); and (d) refunds, credits and chargebacks for returned or canceled goods or services ( Refunds ). Company shall have the option at any time and from time during the Term and the Wind Down Period in its sole discretion for any reason or no reason to request that NeuLion use Company s and/or any of its Affiliates shipping account (including without limitation Company s or any of its Affiliate s FedEx accounts) in lieu of NeuLion s or any of its Affiliate s shipping accounts for shipment of STBs to Subscribers pursuant to this Agreement, whereby Company will be charged directly by the applicable carrier for such shipping and in such event no Shipping and Delivery Fees shall be assessed against Company. Upon receipt of any such shipping account information from Company, and unless otherwise directed by Company at any time and from time to time in Company s sole Discretion, NeuLion shall use solely Company s shipping account to perform shipping of STBs to pursuant to this Agreement. 4. If there are ******* Subscribers as of ******* (the First Twelve Month Measurement Date ), the Operations Fee payable to NeuLion by Company for each of the twelve (12) consecutive Reporting Periods following the First Twelve Month Measurement Date (the first of such Reporting Periods being the Reporting Period beginning on the First Twelve Month Measurement Date) (collectively, the Year Two Period ) shall be calculated as if there are ******* Subscribers unless during such Reporting Periods the number of Subscribers exceeds ******* (in which case the Operation Fee for the applicable Reporting Period(s) shall be calculated using the actual number of Subscribers during such Reporting Period) or this Agreement is earlier terminated. Subject to Company s right to terminate this Agreement as set forth in Section 12(d), if there are ******* Subscribers as of ******* (the Second Twelve Month Measurement Date ), the Operations Fee payable to NeuLion for each Reporting Period following the Second Twelve Month Measurement Date (the first of such Reporting Periods being the Reporting Period beginning on the Second Twelve Month Measurement Date) shall be calculated as if there are ******* Subscribers unless during any such Reporting Period the number of Subscribers exceeds ******* (in which case the Operation Fee for the applicable Reporting Period(s) shall be calculated using the actual number of Subscribers during such Reporting Period). Nothing set forth in this Section B.4 shall affect Company s rights or ability to effect a Migration pursuant to Section 13 of the main body of this Agreement. For clarity, Company shall not be deemed to be in breach or default of this Agreement if any of the Subscriber ******* set forth in this Section 4 are not met for any reason or no reason whatsoever. Notwithstanding anything set forth to the contrary in this Agreement, Company may (but shall not be obligated to) effect a Migration during the Year Two Period if: (i) there are ******* Subscribers as of the First Twelve Month Measurement Date; and (ii) Company, within thirty (30) days following the last day of the Wind Down Period, pays to NeuLion an amount equal to the Operations Fee calculated as if there were ******* Subscribers multiplied by the number of Reporting Periods, or portion thereof, remaining in the Year Two Period as of the date on which the last Subscriber becomes a Migrated Subscriber. For clarity, Company shall be obligated to continue paying NeuLion the applicable Operations Fee for each Reporting Period during the Migration for which there are Subscribers. 46 Proprietary & Confidential

144 5. During the Term and the Wind Down Period, NeuLion shall deduct the Operation Fee, the Credit Card Processing Fee, Shipping and Delivery Fees (if applicable) and Handling and Activation Fees as set forth in this Section B once per Reporting Period from all revenue collected from Subscribers during that Reporting Period; disbursement of the remaining amount of the Service s monthly collected revenue, including without limitation the amounts described in Section 3(c)-(d) above, shall be made by NeuLion to Company via check or EFT as requested by Company (pursuant to the EFT instructions provided to NeuLion at any time and from time to time by Company) within no more than thirty (30) days after the last day of the Reporting Period in which such amounts were collected. To the extent that Subscriber revenue collected with respect to a particular Reporting Period during the Term is less than the sum of the Operations Fee and the Credit Card Processing Fee for that month, such shortfall shall be billed to the Company and shall be payable within sixty (60) days after Company s receipt of an invoice therefor. Except as expressly set forth in this Section 5, NeuLion shall not set-off against, or otherwise deduct any amounts (including without limitation any all fees set forth in this Section B that are disputed in good faith by Company) from, the revenue collected from Subscribers. C. Set Top Box Acquisition Fee. 1. All orders shall be placed by written purchase order subject to and in accordance with the terms and conditions of this Agreement and in increments of ******* STBs. 2. The price per STB is as follows: Quantity of STBs Ordered Price per STB ******* ******* ******* ******* ******* ******* NeuLion agrees to use commercially reasonable efforts ******* for Company orders of ******* STBs. In the event NeuLion makes available wireless functionality for its STBs or STBs that are capable of functioning wirelessly, the pricing to Company for such wireless functionality or wireless STBs shall be *******. 47 Proprietary & Confidential

145 3. All prices exclude shipping, taxes, duties and import fees for delivery from the STB manufacturer to NeuLion s Distribution Center in Plainview, New York, the actual cost of which are payable to NeuLion by Company with the final payment for the applicable shipment. Unless otherwise mutually agreed by the Parties in writing, NeuLion will invoice Company for all such shipping, taxes, duties and import fees in an amount equal to NeuLion s actual shipping costs (which rates shall be the same or better than those NeuLion charges to any other NeuLion customer, including NeuLion Affiliates). NeuLion agrees to use commercially reasonable efforts to achieve the lowest possible shipping rates. With respect to STB purchase orders submitted to NeuLion by Company, ******* of the purchase order price will be payable at the time the purchase order is submitted; the remaining balance of each such purchase order and associated shipping will be paid within sixty (60) days following Company s receipt of an invoice from NeuLion (which invoice shall be issued by NeuLion no less than thirty (30) days prior to the scheduled delivery date of the complete applicable STB order to NeuLion in Plainview, New York, or such other delivery location designated by Company in the applicable purchase order); provided, however, in no event will Company be required to pay any such amounts prior to the date that is thirty (30) days following the actual date of delivery of the applicable STB order. Duties will be payable sixty (60) days following Company s receipt of an invoice therefore by NeuLion (which invoice shall be issued after payment of such duties by NeuLion). 4. All STBs will be shipped FOB point of delivery (as specified in the applicable purchase order). 5. STBs shall be shipped to each Subscriber by NeuLion out of Company Inventory no later the third business day after the corresponding order is received by NeuLion via the Order Entry System. For clarity (and without limitation of any of the foregoing), such third business day shipping timeframe may be extended in accordance with Section 25 of this Agreement as a result of the occurrence of a Force Majeure Event. The design of the STB packaging shall be determined by NeuLion and approved by Company; provided that neither NeuLion s nor any other third-party s name or brand is included, except as otherwise provided for herein. Notwithstanding the foregoing, Company may request that certain artwork be included on such packaging, provided that: (i) NeuLion has approved all such additional artwork, with such approval not to be unreasonably withheld or delayed; and (ii) such additional artwork will not require NeuLion to incur any additional costs (including labor) in excess of the cost of the initial design of the STB packaging approved by Company, or delays in producing such packaging. For clarity, any additional charges incurred by NeuLion to include such additional artwork on STB packaging at Company s request shall be borne by Company *******. 6. At no additional cost to Company, for Company s initial order of ******* STBs and for each subsequent order of ******* STBs, NeuLion shall silk screen the brand name and/or logo as directed by Company on the front of all STBs and STB remote controls ordered by Company. 7. Company agrees to commit to purchase an aggregate of ******* STBs during the first twelve (12) full calendar months of the Term. For clarity, Company shall be deemed to have purchased STBs for purposes of this Section C.7 if it has submitted a purchase order to Company for the same. 48 Proprietary & Confidential

146 8. The current replacement fees, exclusive of shipping to Subscribers, for STB Components are as follows: Chassis Assembly - ******* Top Cover Assembly - ******* Remote Controller - ******* Two 1.5V/AAA Batteries - ******* 3000mm CAT-5E LAN Cable - ******* 1800mm Composite Video and Audio Cable - ******* DC 12V/AC V Power Adapter - ******* Power Cord - ******* Shipping box and packing materials - ******* Such replacement fees shall not be increased by NeuLion by a percentage equal to more than the percentage increase in the purchase price NeuLion incurs (if any) from the manufacturers of such replacement items during the Term. NeuLion agrees that Subscribers or Company may order such components through phone orders and NeuLion will charge the applicable Subscriber in accordance with the above fee schedule. 9. NeuLion shall ensure that all STB manufacturers place a sticker of reasonable size on the bottom of each STB containing a legible serial number in the form, and following the alphanumeric sequence, as prescribed by Company (the Company Serial Number ). Company s written direction regarding the form and alphanumeric sequence of the Company Serial Numbers to be applied to Company s initial order of STBs shall accompany or precede Company s submission of its initial purchase order to NeuLion. With respect to any subsequent order of STBs by Company, the form and alphanumeric sequence of the Company Serial Numbers may be changed by Company in its sole discretion for any reason or no reason upon written direction to NeuLion at the time Company submits a purchase order to NeuLion for the corresponding order of STBs. Prior to the date of delivery of any shipment of STBs, NeuLion shall provide Company with a written list of Company Serial Numbers for each STB contained in such shipment. D. General Provisions. 1. All credit/debit card charges processed by NeuLion in connection with the Service shall appear on such Subscribers credit/debit card statement as a charge by the Company or its designated Affiliate, as prescribed at any time and from time to time by Company in its sole discretion for any reason or no reason. 49 Proprietary & Confidential

147 EXHIBIT D NEULION TRANSCODER SERVER SPECIFICATIONS Two dual core Intel 2.0 GHz or higher processors Two GB or more memory Sixty GB or larger hard drive One or more PCI-X and/or PCI-e slots (depending on video capture card used) Gigabit Ethernet network adapter Windows Server 2003 or Windows XP Pro SP3 operating system One or more Microsoft DirectShow compatible video capture card; examples are: o Osprey-300/Osprey-440 Analog cards (requires PCI-X slot) o Osprey 530 SDI card (requires PCI-X slot) 50 Proprietary & Confidential

148 EXHIBIT E NEULION S SET TOP BOX LIMITED WARRANTY 1. NeuLion warrants to Subscriber that the STBs will be free from defects in design, workmanship and materials and will allow Subscribers to receive the Content via the Service if installed in accordance with the instructions packaged with the STB and connected to an Internet connection meeting the specifications set forth in such instructions, under normal use and service, for one year following the date of sale by Company to the Subscriber. NeuLion s obligation under this warranty shall be, at NeuLion s sole option and expense, to: (i) repair the defective STB or part; or (ii) deliver to the affected Subscriber an equivalent Company branded STB or part. In both instances, NeuLion will pay for the shipment of the original and replacement STB or part to and from the Subscriber. All STBs and STB parts that are replaced under this warranty must be returned to NeuLion and will become the property of NeuLion. Failure to return such defective STB or part will result in the Subscriber s account being charged the cost of a new STB or STB part. Replacement STBs or parts may be new or reconditioned. NeuLion warrants any replaced or repaired STB or part for the greater of ninety (90) days following the date of replacement or one year following the date of original shipment of the STB to the Subscriber. 2. STBs returned to NeuLion by a Subscriber must be authorized by Company as set forth in applicable Business Rules. Return shipping from the affected Subscriber to NeuLion will be paid by NeuLion if such STB is found to be defective (using testing methods consistent with prevailing industry standards) through no fault of the Subscriber; in all other cases, NeuLion will charge Company for such return shipping. The repaired or replaced STB will be shipped to the Subscriber upon return authorization by Company as set forth in applicable Business Rules, at NeuLion s expense, and NeuLion will retain risk of loss or damage until the item is delivered to the Subscriber. NeuLion will use reasonable commercial efforts to advance ship replacement STBs within one (1) business day following return authorization by Company. 3. NeuLion will not be liable under this limited warranty if its testing and examination disclose that the alleged defect or malfunction in the STB does not exist or results from: (i) failure to follow NeuLion s installation, operation, or maintenance instructions; (ii) unauthorized product modification or alteration; (iii) abuse, misuse, negligent acts or omissions of the Subscriber or persons under the Subscriber s control; or (iv) acts of third parties, acts of God, accident, fire, lightning, power surges or outages, or other hazards. 4. IF A NEULION STB DOES NOT OPERATE AS WARRANTED ABOVE, SUBSCRIBER S SOLE REMEDY FOR BREACH OF THAT WARRANTY SHALL BE REPAIR OR REPLACEMENT AT NEULION S OPTION, OR UPON CONSENT OF COMPANY, REFUND OF THE PURCHASE PRICE PAID. TO THE FULL EXTENT ALLOWED BY LAW, THE FOREGOING WARRANTIES AND REMEDIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, TERMS, OR CONDITIONS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION WARRANTIES, TERMS, OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, SATISFACTORY QUALITY, CORRESPONDENCE WITH DESCRIPTION, AND NON-INFRINGEMENT, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. NEULION NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME FOR IT ANY OTHER LIABILITY IN CONNECTION WITH THE SALE, INSTALLATION, MAINTENANCE OR USE OF ITS PRODUCTS TO SUBSCRIBERS. 51

149 5. EXCEPT AS SET FORTH HEREIN AND IN THE AGREEMENT, NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILTY AND FITNESS FOR A PARTICULAR PURPOSE, ARE MADE TO SUBSCRIBERS BY NEULION. 52

150 EXHIBIT F NeuLion IPTV Service Support NeuLion s IPTV Service support provides for logging, categorization, analysis and creation of resolutions to all support requests made by Company. Request resolutions can consist, among other options, of answers to questions, creating of procedures to resolve and/or circumvent a problem, and changes to the Service to correct a problem. NeuLion s web-based support request tracking system allows Company to log requests, provide updates and review the status of the request logs, 24 hours per day, 7 days per week, and 365 days per year. For opened requests, there are two types of technical support performed by NeuLion. Primary Support Services address all requests opened on the support tracking system. Primary Support Services personnel will work on requests *******. Emergency Support Services are provided after Primary Support Services hours for high severity requests only. When a high severity request is opened outside of Primary Support Services hours, a NeuLion support technician will be automatically notified of the new request so that it can be addressed as quickly as possible. Within ******* of entering a high severity request a NeuLion support technician will update the request. Additionally, NeuLion has an Emergency Support Escalation telephone number, which is available 24 hours a day, 7 days a week, that can be used for *******. NeuLion provides web support services within the following timeframes. Request Severity Description Fix Plan Response High Severity Requests - A Service down or Service operations halted condition and a manual work around is not practical. ******* Medium-High Severity Requests - A suspected high impact condition associated with the Service causing significant problems. ******* Medium-Low Severity Requests - An intermittent or low-impact condition associated with the Service. ******* Low Severity Requests - Questions concerning performance or use of the Service. ******* NeuLion must use its best efforts to correct high severity requests, medium-high severity requests and medium-low severity requests by continually working with Company to provide a fix or work around that, respectively, eliminates a Service down condition, a high impact condition and/or an intermittent or low-impact condition. 53

151 EXHIBIT G Performance Standards In its performance of the Services hereunder, NeuLion shall meet or exceed the following Performance Standards: Availability. NeuLion shall ensure that the Service is Available ******* of the time during each consecutive thirty (30) day period during the Term (this provision shall be calculated on a per channel basis once Subscribers are *******). Available and Availability (as the context requires) shall mean that the Service is providing Content streaming in accordance with this Agreement; provided that the following shall be excluded from the calculation of Availability ( Permitted Downtime ): (i) Up to two (2) hours per month of scheduled maintenance, to be performed during off-peak times to be mutually agreed upon between the Parties and only upon three (3) days prior notice to Company; and (ii) Downtime caused by events outside of NeuLion s reasonable control, as measured by the highest standards of the hosting and video streaming industries (which, for clarity, require that NeuLion employ failover equipment, multiple streaming providers and other redundancies to mitigate the effects of any given equipment or provider outage). Availability shall be calculated as follows: Available time in minutes / (43,200 Permitted Downtime in minutes) Failure to meet Content streaming Service Availability of ******* shall result in a credit to Company on a pro-rata basis using the following formula: (*******- Availability) x per Subscriber Monthly Operations Fee x the number of Subscribers affected during the period of time Content streaming was unavailable excluding Permitted Downtime For illustration purposes: Assuming there was a 2 hour unscheduled outage during the month that affected 25,000 subscribers, the following would apply - Actual Availability = (43, ) / = 99.7% The SLA Availability Credit = (*******-99.7%) x ******* 54

152 Latency. For Subscribers with 850 or more kbps internet bandwidth, NeuLion shall ensure that the maximum latency for a linear broadcast channel to begin play is *******, provided that latency failures identified by NeuLion as being caused by a third-party, local Internet Service Provider are excluded from this Performance Standard. Packet Loss. The average percent of IP packets dropped between routers inside of NeuLion s network shall not exceed ******* during a calendar month. Video Quality. For Subscribers with 850 or more kbps internet bandwidth, NeuLion shall ensure full D1/VGA video and AAC audio play-out at ******* provided, that the Video Quality failures identified by NeuLion as being caused by a third-party, local Internet Service Provider are excluded from this Performance Standard. NeuLion shall verify compliance (or non-compliance) on a monthly basis with the Availability Standards set forth in this Exhibit G. 55

153 EXHIBIT H STB Initial Startup Screen 56

154 EXHIBIT I Draft Press Release DISH NETWORK PARTNERS WITH NEULION TO DISTRIBUTE LIVE INTERNATIONAL TV CHANNELS THROUGH IPTV PLATFORM Plainview, NY and Englewood, CO., Jan. xx, 2010 NeuLion, Inc. (TSX:NLN), an end-to-end IPTV service provider of live and on-demand international, sports and variety programming delivered via broadband, and DISH Network L.L.C., a subsidiary of DISH Network Corporation (NASDAQ: DISH), today announced a multi-year partnership to distribute certain DISH Network international channels using NeuLion s IPTV service. DISH Network currently provides more than 14 million satellite TV customers with the highest quality programming and technology at the best value. The partnership with NeuLion enhances DISH Network s current satellite distribution in the U.S. by providing consumers without access to DISH Network satellite TV the ability to access certain DISH Network international channels through IPTV. DISH Network offers more than 180 international channels in more than 28 languages more than any other pay-tv provider. DISH Network is the leading multichannel video provider for international channels in the U.S. Now DISH can provide nationwide distribution of international content via both satellite and IPTV, said Chris Kuelling, vice president of International Programming for DISH Network. Some of our ethnic customers prefer their content via satellite; others, may prefer broadband delivery. Either way, we can now provide the best quality digital signals directly to a television set without the need for a computer. As a leader in the IPTV space, NeuLion provides an end-to-end, multi-platform service, allowing the delivery of live and on-demand content to the TV, PC and Mobile devices offering a universal platform that connects viewers globally. Components of the service include: encoding, personalization, delivery, registration, monetization, support and reporting tools. We see distinct synergies between our respective television distribution services and believe that DISH Network customers will benefit from the further reach provided by a broadband offering, said Chris Wagner, EVP of NeuLion. We believe that the match of our technology with DISH Network s international programming rights will greatly benefit ethnic communities in the United States. DISH Network plans to launch its IPTV service in early