Exhibit 99.1
Term Sheet
by and among
National Rural Telecommunications Cooperative ("NRTC"),
North Central Communications and Iowa Lakes Electric Cooperative, on behalf of
the Class certified in the United States District Court for the Central
District of California, Case No. CV 00-2117 (the "Class"), and
Xxxxxx Communications Galaxy, Inc. and DIRECTV, Inc. ("DIRECTV")
Dated as of August 5, 2003
This Term Sheet ("Term Sheet"), which will be effective as of August 5,
2003 ("Effective Date"), shall govern the resolution and settlement of all
claims and issues currently pending in the litigation between NRTC, the Class,
and DIRECTV in the United States District Court for the Central District of
California, Case Nos. CV 99-5666, CV 99-8672, CV 00-2117, CV 01-0993, and CV
01-8121 ("the Consolidated Cases"). NRTC, DIRECTV, and the Class may hereinafter
be referred to collectively as the "Parties." In consideration of the mutual
covenants set forth below, which the Parties acknowledge as good and sufficient
consideration, the Parties agree as follows:
I. Stipulated Dismissal Of All Claims: The Parties agree to dismiss with
prejudice all their respective claims against each other in the
Consolidated Cases pursuant to the settlement outlined in this Term Sheet.
The Class shall dismiss with prejudice all of its claims through a Judgment
of Dismissal based upon the Parties' settlement, subject to Court approval.
Settlement of NRTC's claims and DIRECTV's counterclaims is contingent upon
settlement of the Class's claims and Court approval of the Class
settlement, and a Judgment of Dismissal shall be entered only thereafter.
II. Amendment of the DBS Distribution Agreement: NRTC and DIRECTV agree to
amend the existing DBS Distribution Agreement (as defined below) as
follows:
(a) The Successor ROFR provision (Section 15), the definition of
"Satellite" (Section 2.01), and the last three words of the first
sentence, and all of the remainder, of Section 4.06(a) Service
Term shall be deleted.
(b) The last three words of the first sentence of Section 4.06(a)
shall be replaced with "Termination Date". The subsequent portion
of Section 4.06(a) shall be replaced with a provision that states
that unless the Existing DBS Distribution Agreement (as amended
hereby) is terminated, is canceled, or expires earlier pursuant
to other provisions of the Existing DBS Distribution Agreement
(as amended hereby), the term shall continue until the date of
termination of the Existing DBS Distribution Agreement, as
amended hereby ("Termination Date"), which Termination Date shall
be the later to occur of (x) the date on which (i) the remaining
fuel on board DBS-1 is less than 6% of the initial fuel mass
prior to launch, including reasonable provision for uncertainty
in estimation of fuel, or (ii) there are fewer than eight (8)
Transponders on DBS-1 capable of meeting the transponder
performance specifications of the respective Users or capable of
providing Transponder Capacity that meets the Minimum
Requirements; or (y) June 30, 2008.
(c) The substitution provision in paragraph 1 of the 1994 Amendment
to the Existing DBS Distribution Agreement concerning HBO,
Cinemax, Showtime and the Movie Channel, will be deleted.
(d) DIRECTV agrees that if, at any time during the terms of the
Existing DBS Distribution Agreement, as amended hereby, or the
New DBS Distribution Agreement (as defined below), DIRECTV
relocates any of the specific single NTSC-source programming
channels listed on Exhibit Z attached hereto (the "Exhibit Z
Channels") to a DBS frequency or orbital location other than the
27 HCG Frequencies, the revenue share (including responsibility
for programming costs) shall continue to be covered by those
terms of the Existing DBS Distribution Agreement and New DBS
Distribution Agreement applicable to services transmitted on the
HCG Frequencies in NRTC Territories for such Exhibit Z Channels,
despite such relocation.
It is understood that the intent of this provision is to provide
NRTC with assurance regarding its share of the revenues received
from distribution of the Exhibit Z Channels on the DIRECTV DBS
platform to the extent such distribution occurs, but in no event
shall this provision be interpreted to require DIRECTV to
continue distribution of any of the Exhibit Z Channels.
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(e) The DBS Distribution Agreement, as amended to date, including by
the 1994 Amendment (as so amended, the "Existing DBS Distribution
Agreement"), shall be amended to state specifically that, with
respect to new programming launched on the platform after the
date this Term Sheet is signed by all Parties, DIRECTV will
provide NRTC with a pro rata share of (i) unconstrained launch
support payments (i.e. cash payments or cancellation of
indebtedness DIRECTV actually receives from a programmer in
conjunction with the launch of the programmer's service with no
restrictions on DIRECTV's use of the funds), with no restrictions
on NRTC's use of the funds and (ii) constrained launch support
payments (i.e., cash payments or cancellation of indebtedness
which must be applied to promote such new services locally (as
contrasted with national promotions)), which NRTC or its DBS
participants must use in the manner prescribed by the provider of
such programming services. If receipt of any such payments would
require NRTC or its DBS participants to incur obligations beyond
the amount distributed to them, they shall have a right to elect
not to receive such payment. NRTC's pro rata share shall be
determined based upon the method used in the programming
agreement to calculate the launch fee payments. For example, if
the programming agreement provides a fixed launch fee amount,
NRTC's pro rata share shall be based on the percentage of NRTC
households divided by total households in the United States. If
the programming agreement provides a per subscriber launch fee
payment based on actual subscribers to the programmer's service,
NRTC's pro rata share shall be based on the actual number of NRTC
subscribers divided by the total number of subscribers to that
particular service. NRTC agrees not to argue that it is entitled
to any other types of payments DIRECTV receives from programmers
(as contrasted to its right to be assured that DIRECTV is billing
NRTC for DIRECTV's actual cost of Programming Services or
Standard Services net of all applicable discounts, rebates, price
breaks or similar provisions of programming agreements), under
any other provision of the Existing DBS Distribution Agreement,
as amended, including but not limited to Sections 3.03, 3.05,
5.02, and 5.03 of the 1992 DBS Distribution Agreement and
Paragraphs 3(I)(b), 3(III)(c), and 3(III)(f) of the 1994
Amendment. Advertising revenue will be shared as provided in
Section 5.04 based on the 22 Programming Services identified in
the attachment to the 1994 Amendment (as may be substituted from
time to time in accordance with paragraph 1 of the 1994
Amendment, as amended hereby).
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III. New DBS Distribution Agreement: In place of Section 15 and the Successor
ROFR, the NRTC and DIRECTV will enter into a new DBS distribution agreement
(the "New DBS Distribution Agreement"), on the same economic and other
terms as the Existing DBS Distribution Agreement, except as modified by
this Term Sheet, which will provide for the following:
(a) The term of the New DBS Distribution Agreement shall commence on
the end of the term of the Existing DBS Distribution Agreement,
as amended hereby, and shall end on June 30, 2011,
(b) DIRECTV shall have no further obligation to NRTC after June 30,
2011, other than any obligations that accrue prior to such date
or survive termination, including the provisions set forth in
this Section III,
(c) NRTC will work to assure that subscribers in NRTC territories are
transferred to DIRECTV effective as of June 30, 2011,
(d) The New DBS Distribution Agreement will include terms covering a
transition process to assure the transfer of subscribers to
DIRECTV at the end of the term of the New DBS Distribution
Agreement. NRTC will be obligated to cooperate with this
transition process and will agree not to sell or market to any of
the subscribers services which such subscribers have received
pursuant to the New DBS Distribution Agreement or sell or share
any related information about these subscribers to any third
party other than DIRECTV and to make such information available
to DIRECTV. At the end of the term of the New DBS Distribution
Agreement, DIRECTV agrees to pay $150 for each subscriber
successfully transferred to DIRECTV at such time, provided that
the subscribers transferred meet a reasonable aging period of no
greater than 45 days past due, and are subject to a charge-back
if any of these subscribers, acquired in the prior 6 months,
churn within 90 days after transfer to DIRECTV,
(e) The New DBS Distribution Agreement will provide that NRTC may
(and NRTC agrees that it shall) offer to each member of the
Class, and each other DBS participant which accepts the
settlement, a new
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Member Agreement ("New Member Agreement") in a form materially
consistent with the existing Member Agreement (except as provided
herein). The New Member Agreement must be approved by DIRECTV,
which approval shall not be unreasonably withheld, and will
include: (i) a term commencing at the end of the term of its
existing Member Agreement and ending on June 30, 2011, on the
terms and other provisions set forth in its Member Agreement, as
amended by the provisions of this section, provided such Class
member or other DBS participant is in good standing with NRTC at
the end of the term of its existing Member Agreement(s); (ii) the
releases provided for in Section VII below, to be effective upon
execution of the New Member Agreement; (iii) such DBS
participant's agreement to indemnify and hold NRTC, its officers
and directors, harmless from and against any and all damages,
liabilities, costs and expenses, including attorneys' fees and
expenses, which any of them may incur or be obligated to pay or
indemnify on account of any claim asserted, or suit brought by,
such DBS participant or any of its affiliates, against DIRECTV or
any of its affiliates, which does or could give rise to an
indemnification obligation of NRTC to DIRECTV under the Existing
DBS Distribution Agreement, as amended hereby, or under the New
DBS Distribution Agreement, which indemnification provision shall
be effective upon the execution of the New Member Agreement; and
(iv) the Member or Affiliate will work to assure that subscribers
in its territories are transferred to DIRECTV effective as of
June 30, 2011, including (a) cooperating in the transition
process negotiated by NRTC and DIRECTV pursuant to Section III(d)
above; (b) making information regarding its subscribers available
to DIRECTV; (c) not sharing any information related to its
subscribers to any third party other than DIRECTV; and (d)
agreeing not to sell or market to any of its subscribers any
services which its subscribers have received pursuant to the New
DBS Distribution Agreement. The New DBS Distribution Agreement
will also provide that NRTC may itself serve, or offer to other
members or affiliates of NRTC New Member Agreements for, the
territories of any non-accepting DBS participants (or accepting
DBS participants who do not execute a New Member Agreement within
30 days after approval of this settlement and Term Sheet by the
Court) for the period comprising the term of the New Distribution
Agreement, on the same terms as the New Member Agreements.
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IV. Amendment of the Seamless Consumer Agreement: NRTC and DIRECTV agree to
amend the Seamless Consumer Agreement between NRTC and DIRECTV (dated
October 3, 2001, as amended through the date hereof) such that the term of
the Seamless Consumer Agreement extends through June 30, 2011, and to
delete the provisions of sections D1(c) and D1(d) of the Seamless Consumer
Agreement. The Revenue Share from sales of services covered by the Seamless
Consumer Agreement (except Non-Select Sports Programming) shall be adjusted
to a flat 15% (without incentive increases), calculated in the same manner
currently used in the Seamless Consumer Agreement. The Seamless Consumer
Agreement will also cover TiVo and Para Todos at the 15% revenue share
noted above. NRTC will no longer have an obligation to pay DIRECTV for
programming costs for Para Todos. If Xxxxxxx agrees to the terms of this
settlement, the Pegasus/DIRECTV Seamless Consumer Agreement shall be
amended in accordance with this paragraph; otherwise it will remain
unchanged.
V. Business Continuity Provision: In the event that at any time prior to June
30, 2011, as a result of any "Liquidity Event" any then current subscribers
to DIRECTV service of any Member(s) or DBS participant(s) (who are parties
to a Member Agreement or a New Member Agreement) are successfully
transferred to or acquired by DIRECTV (including for these purposes any
parent, subsidiary, affiliate, successor or assign of DIRECTV), DIRECTV
agrees that it will pay to NRTC an amount per month for each month
thereafter through June 30, 2011, calculated by multiplying $2.70 by the
number of subscribers so transitioned to DIRECTV in or as a result of any
such Liquidity Event. As used herein, a "Liquidity Event" means and
includes any direct or indirect transfer of any subscribers of any
Member(s) or DBS participant(s) who are parties to a Member Agreement or a
New Member Agreement to DIRECTV (directly or indirectly through any parent,
subsidiary or other affiliated entity or successor or assign), whether by
acquisition of assets of any such Member(s) or DBS participant(s) or its
rights under any Member Agreement(s) or new Member Agreement(s), by
purchase of capital stock, in a merger or consolidation, by direct or
indirect acquisition of control of any such Member or DBS participant or
any direct or indirect parent thereof, in any bankruptcy or reorganization
proceeding, upon any default of any such Member or DBS participant under
section 3.10(b) of the Existing DBS Distribution Agreement, any
corresponding provision of the New DBS Distribution Agreement or otherwise.
Upon the occurrence of a Liquidity Event, territory with respect to which
the Liquidity Event has occurred shall cease to be NRTC territory and shall
become
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DIRECTV territory and no further obligations shall arise between the
parties under the New DBS Distribution Agreement or any Member Agreement or
New Member Agreement with respect to such territory. Upon the occurrence of
a Liquidity Event, NRTC will be obligated to cooperate in the transfer of
subscribers to DIRECTV and will agree not to sell or market to any of the
subscribers services which such subscribers have received pursuant to the
New DBS Distribution Agreement or sell or share any related information
about these subscribers to any third party other than DIRECTV.
VI. Approval: All the terms set forth in this Term Sheet are subject to
approval by the Class and approval of the settlement by the Court after
notice and a hearing. If the Class Representatives and Class counsel
approve this Term Sheet, then the Class Representatives, joined as
appropriate by NRTC and DIRECTV, will promptly request permission from the
Court to notify the Class members of the potential settlement of the Class
claims. If the Court approves such notice, the Class Representatives or
Class counsel, as appropriate, will promptly serve the required notice(s)
of the proposed settlement to the Class members and take all such other
actions necessary to arrange for the required fairness hearing.
VII. Mutual Releases: The Parties agree to execute appropriate settlement and
amendment agreements, consistent with the provisions of this Term Sheet,
and appropriate mutual releases, including a waiver of the benefits of
California Civil Code Section 1542, with respect to the claims referenced
above. The New Member Agreements will also include appropriate releases by
such DBS participant of DIRECTV (as a third-party beneficiary) and of NRTC,
its officers and directors (including with regard to the terms of this
settlement and all past claims, including known or unknown claims related
to dealings between such parties under the applicable Member Agreement(s)
through the date such DBS participant executes and delivers such New Member
Agreement), and including a waiver of the benefits of California Civil Code
Section 1542, or comparable provisions of the laws of any other
jurisdictions, with respect to the matters referenced above. The terms of
this settlement shall be deemed an accord and satisfaction with respect to
all amounts claimed as damages or restitution in the litigation.
VIII.Indemnity: Notwithstanding anything to the contrary in the indemnification
provisions of the Existing DBS Distribution Agreement:
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(a) NRTC and DIRECTV each will bear its own attorneys' fees and
related defense costs with respect to obtaining Court approval of
the settlement terms and defending against any claim, in any
court, relating to or arising out of the settlement. In addition,
NRTC agrees to indemnify DIRECTV with respect to any final
judgment entered against DIRECTV in favor of any current DBS
participant which challenges the settlement. Subject to the
previous sentence, NRTC will continue to pay DIRECTV's attorneys'
fees and associated defense costs with respect to the existing
claims of Pegasus Satellite Television (or any of its affiliates)
in its existing case against DIRECTV (case no. CV-00-0368 LGB)
and will indemnify DIRECTV against any judgment entered in it.
(b) NRTC and DIRECTV agree that NRTC shall not be required to pay any
further defense costs, including attorneys' fees, associated with
the Delaware patent case. NRTC agrees not to seek reimbursement
for any defense costs paid by NRTC to date with respect to the
Delaware patent case. NRTC will not be required to indemnify
DIRECTV with respect to any judgment entered in the Delaware
patent case unless and until a court has entered a final judgment
that NRTC has such an obligation. NRTC's failure to indemnify
DIRECTV concerning a judgment in the Delaware patent case, prior
to a final judgment that it has such an obligation, will not be
an NRTC Event of Default under the Existing DBS Distribution
Agreement or the New DBS Distribution Agreement or otherwise
provide DIRECTV with any power or right to terminate or cancel
either agreement. NRTC and DIRECTV agree that the dismissal, with
prejudice, of CV01-8121 will not preclude NRTC from disputing it
has the obligation to indemnify DIRECTV against any judgment in
the Delaware patent case or DIRECTV from arguing that NRTC does
have the obligation to indemnify DIRECTV against such judgment.
(c) If DIRECTV or any affiliate(s) or successor(s) in interest
acquires (directly or indirectly) all or substantially all of the
subscribers being serviced by Pegasus Satellite Television and
its affiliates (or control of Pegasus and/or any of its
affiliates serving all or substantially all of the subscribers
being serviced by Pegasus and its affiliates) as a result of any
Liquidity Event or other act or event, then any indemnification
obligation of NRTC relating to Pegasus Satellite Television or
any of its affiliates shall terminate, except for obligations
already incurred.
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IX. Authority/Agreement To Be Bound: Each of the Parties executing this Term
Sheet represents that: i) it has full power and authority to enter into
this settlement; ii) the settlement terms do not violate any charter
provisions, by-law, contractual provision or other term by which it is
bound; iii) with the exception of the Class, the approval of which must be
obtained in accordance with Section VI above, it has obtained the necessary
approvals to enter into this settlement; and, iv) the person executing the
Term Sheet on its behalf is duly authorized to do so. Upon execution, this
Term Sheet shall be binding upon all Parties, subject to Court approval and
Class approval. The Parties agree to negotiate the agreements, and
amendments described above in good faith to reflect the above stated terms,
including to make any conforming changes to any other applicable provisions
of the Existing DBS Distribution Agreement and to correct any inadvertent
and unintended changes to other provisions of the Existing DBS Distribution
Agreement. If, however, a formal settlement agreement is not reached, this
Term Sheet (and the terms recited herein shall be (as appropriate in each
instance) incorporated into the Member Agreements, the Existing DBS
Distribution Agreement, and the Consumer Seamless Agreement) shall remain
binding upon all Parties and have the effect of amendments thereto. This
Term Sheet may be executed in several counterparts, each of which shall be
deemed an original. All parties agree that facsimile signatures by any
other party shall be acceptable.
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NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE
By: _________________________
Name: _______________________
Title: ________________________
Date: ________________________
NORTH CENTRAL COMMUNICATIONS
By: _________________________
Name: _______________________
Title: ________________________
Date: ________________________
IOWA LAKES ELECTRIC COOPERATIVE
By: _________________________
Name: _______________________
Title: ________________________
Date: ________________________
DIRECTV, INC.
By: _________________________
Name: _______________________
Title: ________________________
Date: ________________________
XXXXXX COMMUNICATIONS GALAXY, INC.
By: _________________________
Name: _______________________
Title: ________________________
Date: ________________________
EXHIBIT Z
STARZ! East
STARZ! West
STARZ! Theater East
BLACK STARZ!
A Taste of Spice (Adult)
PLAYBOY TV (Adult)
Spice Platinum (Adult)
The Hot Network (Adult)
The Hot Zone (Adult)
