EXHIBIT 10.14
Confidential Information
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This document is the subject of a confidentiality agreement. Do not disclose any
of the contents without ascertaining that disclosure is in full compliance with
▇▇▇▇▇▇ obligations.
February 14, 1994
Mr. B.R. ▇▇▇▇▇▇▇▇ III
National Rural Telecommunications Cooperative
Woodland Park
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Reference: DBS Distribution Agreement dated April 10, 1992 between ▇▇▇▇▇▇
Communications Galaxy, Inc. ("HCG") and the National Rural Telecommunications
Cooperative ("NRTC"), as amended (the "Agreement")
Dear ▇▇▇:
The following sets forth the terms and conditions of the revised business
relationship between NRTC and HCG. Capitalized terms not defined herein have
the meanings given them in the Agreement.
1. Programming Services. The Programming Services defined in Section 2.07 of
the Agreement shall become the twenty-two (22) channels of programming services
listed on Exhibit A hereto, and all obligations and requirements with respect to
Acceptance of the Programming Services are deemed satisfied. If HCG acquires
the rights, in its sole discretion, to distribute HBO, Showtime, The Movie
Channel or Cinemax, NRTC shall have the option, in its sole discretion, to
substitute such programming for any one of the services listed on Exhibit A on a
service by service basis. In the event any of the Programming Agreements
terminate, expire, or are canceled, then the provisions of Section 4.06(b) of
the Agreement regarding programming renewal shall apply, except that in the
event any of the Programming Services are not renewed, NRTC may substitute
similar (i.e., cable for cable) Available Programming Services for such non-
renewed Programming Services, as mutually agreed upon by HCG and NRTC; provided,
however, that such substitution shall not require more channel capacity than
required for the non-renewed Programming Service. "Available Programming
Services" are defined as then existing NRTC Programming Services or programming
services for which NRTC is able to obtain distribution rights. Once
substituted, such Available Programming Services shall be deemed to be
Programming Services.
2. Exclusive Distributor.
(a) NRTC shall become the exclusive direct-to-home distributor (or agent
if distribution rights are not available or in the case of Non-Select Services)
to the Committed Member Residences of, and shall retain all subscriber revenues
("NRTC Revenues") from: All
video, audio, data packages, "a la carte" programming services and other
services which are transmitted over the HCG Frequencies for which HCG has the
distribution and/or transmittal rights in non-NRTC Territories and to Non-
Committed Member Residences ("HCG Programming Services"), excluding the Non-
Select Services defined in Section 3II (b) of this letter, and to the extent HCG
has such rights to distribute and/or transmit to Committed Member Residences
(collectively "NRTC Programming Services"). In addition, to the extent HCG has
obtained such rights, NRTC shall have the right to provide and retain as NRTC
Revenues all revenues from the provision of the NRTC Programming Services to
commercial establishments in NRTC Territories (such as hotels and bars but
excluding other distributors such as cable system operators), provided, however,
that such commercial establishments are receiving NRTC Programming Services from
locations within counties or zip codes for which Committed Members have
exercised Member Contract Options ▇-▇, ▇-▇, ▇-▇, ▇-▇, or C-9 ("NRTC Commercial
Establishments"). HCG shall determine, in its sole discretion, the services and
packages which constitute the HCG Programming Services, subject to the
provisions of Section 2(b) of this letter. NRTC Revenues shall not include TT&C
Fees, Ground Services Fees, Security Services Fees, or taxes imposed on NRTC's
provision of any service, or authorization fees, late fees, or other similar
fees not attributable to the NRTC Programming Services, but shall include
revenues from intra NRTC/Member load control services and inter NRTC/Member data
services which are directly attributable to Committed Member Residences and NRTC
Commercial Establishments. NRTC Revenues shall also include revenue paid to HCG
by "secondary distributors" (e.g., cable system operators), provided that such
secondary distributor is utilizing the DSS system in its subscriber residences
and HCG is utilizing the CAMC to authorize and deauthorize subscribers located
in such secondary distributor's system.
(b) NRTC shall market the NRTC Programming Services to Committed Member
Residences, provided that NRTC shall also have the right to establish, market,
distribute and price smaller package(s) of basic programming similar to the 17
channel Best of Cable package, consisting of the Programming Services;
specifically subject to any and all Programming Agreement restrictions and
obligations, including those restrictions and obligations applicable in NRTC and
non-NRTC Territories. The number and content of such package(s) shall be
determined by NRTC and reasonably approved by HCG. NRTC shall establish the
suggested retail price of such package(s) with input from HCG. NRTC shall
reasonably consult with HCG prior to implementing any material changes in
pricing or packaging related to such similar package(s).
(c) The Programming Services shall be deemed Restricted Services for
purposes of Section 7.07 of the Agreement, and the Use Restriction shall only
apply to such Programming Services, as then defined at the time of such sale or
lease.
(d) HCG shall use its best reasonable efforts to provide NRTC, subject to
confidentiality and other applicable restrictions, with copies of all applicable
agreements executed prior to the effective date of this letter, or redacted
copies if necessary, between HCG and any service or rights provider of NRTC
Programming Services. With respect to those agreements executed after the
effective date of this letter, HCG shall provide NRTC with copies of such
agreements or redacted copies, if such redactions are necessary due to their
inapplicability to the provision and cost of NRTC Programming Services, between
HCG and any service or rights provider of NRTC Programming Services. NRTC shall
treat such agreements
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
as Confidential Information, and shall not disclose such information to any
other party, including Committed Members. NRTC shall execute non-disclosure and
other related agreements when and as required by the service or rights provider.
(e) HCG shall reasonably consult with NRTC prior to implementing any
material changes in pricing or packaging affecting NRTC Programming Services.
3. NRTC Programming Services Cost.
I. Standard Services.
(a) "Standard Services" shall mean HCG Programming Services other than
those services in which the service or rights provider requires a minimum
subscriber guarantee, advance payments to acquire such rights, or other such
similar commitments. NRTC Members have the right to set the retail price of such
services to Committed Member Residences and NRTC Commercial Establishments
subject to any and all programming agreement restrictions and obligations,
provided, that HCG will establish the national suggested retail price of such
services, and subject to the applicable programming agreements.
(b) With respect to the Standard Services, NRTC shall also be entitled to
retain as NRTC Revenue its proportionate share of other revenue directly
attributable to Committed Member Residences or NRTC Commercial Establishments,
as applicable (i.e., based upon the number of Committed Member Residences or
purchases by Committed Member Residences).
(c) With respect to the Standard Services, NRTC shall pay to HCG, the NRTC
Revenue Fee described in Section 3.06 of this Agreement, provided that the NRTC
Revenue Fee shall (1) be increased from [**] (2) become payable, monthly,
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beginning at the Service Commencement Date, and (3) be calculated on billed NRTC
Revenues.
II. Non Standard Services.
(a) "Non Standard Services" shall mean HCG Programming Services in which
the serv11144r rights provider requires a minimum subscriber guarantee, advance
payments to acquire such rights, or other such similar commitments.
(b) Upon procurement of any rights to Non Standard Services by HCG, NRTC
and HCG shall negotiate in good faith NRTC's pro rata payment share for such
services (whereas, NRTC's pro rata share of revenue from Non Standard Services
shall be based upon NRTC's pro rata share of any subscriber guarantees, advance
payments or other similar commitments). If the parties agree to NRTC's payment
of such share, then such Non Standard Services shall become NRTC Programming
Services and the NRTC Revenue Fee shall be payable to HCG in accordance with
Section 3.I(c) of this letter. If the parties are unable to reach agreement on
NRTC's payment of such share, then HCG shall become the exclusive distributor of
such Non Standard Services ("Non Select Services") to Committed Member
Residences and NRTC Commercial Establishments. NRTC shall ▇▇▇▇ Committed Member
Residences and NRTC Commercial Establishments for Non Select Services and pay to
HCG the collected amounts. NRTC shall be entitled to [**] of the gross revenue
collected for the Non Select Services.
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Information below, marked with [**], has been omitted pursuant to a request for
confidential treatment. A complete copy of this document has been supplied to
the Securities and Exchange Commission under separate cover.
III. General Cost Matters.
(a) HCG shall not be required to pay (1) the [**] DirecTv Fee specified in
Section 5.02(b) of the Agreement, or (2) the shared cost of security fees,
authorization fees, billing fees and remittance processing fees. The Joint
Billing Agreement shall be either terminated or amended, in the context of this
letter, as reasonably agreed to by the parties.
(b) The use of the centralized billing and authorization system for retail
billing shall become mandatory for all Committed Members to the extent such use
is provided for in the Direct Broadcast Service Billing System Management,
Development and Services Agreement dated April 16, 1993 between NRTC and HCG.
(c) NRTC shall receive its proportional share of all reduced costs caused
by payment for common use services by USSB or other users of the Satellite
capacity as reasonably determined by HCG.
(d) Neither the Standard Services nor the Non Standard Services will
require any additional Committed Member Payment or other similar investment by
NRTC, unless required in order to secure Non Standard Services rights pursuant
to Section 3.II.(b) of this letter.
(e) NRTC shall incur no additional charges should HCG exercise the High
Power Option described in Exhibit 19, Section 20 of this Agreement.
(f) HCG shall provide NRTC with its proportional share of any and all
discounts and volume price breaks directly attributable to Committed Member
Residences or NRTC Commercial Establishments, as applicable, contained in the
NRTC Programming Services agreements, subject to any and all programming
agreement restrictions and obligations, as reasonably determined by HCG.
(g) NRTC shall be responsible for all programming costs directly
attributable to Committed Member Residences or NRTC Commercial Establishments,
as applicable, excluding those directly related to the Non Select Services, as
reasonably determined by HCG.
4. Sale of Satellite Capacity.
(a) NRTC shall be entitled to receive [**] of the net proceeds from any
sale or lease by HCG of any Satellite channel or Transponder on either of the
initial two DBS Satellites, in which HCG and NRTC no longer retain the
distribution rights to the programming services transmitted over the capacity in
question ("HCG Sale"), which shall specifically exclude any proceeds from sale-
leasebacks (or the like), public offerings or stock offerings or inter-Affiliate
transfers or restructures. Net proceeds shall be net of all expenses associated
with such sale or lease.
(b) In connection with a HCG Sale, HCG shall (1) provide notice to and
consult with NRTC prior to completion of an HCG Sale which shall be completed in
HCG's sole discretion and (2) provide or cause to be provided continuation of
the Programming Services to NRTC.
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5. Support Services. To the extent technically feasible and to the extent HCG
can reasonably obtain access to NRTC's billing system database, HCG shall
provide backup telephone customer service support seven days a week during the
hours of 4:30 p.m. to 8:00 a.m. in each applicable time zone ("Backup") to NRTC
Committed Members which will include subscriber authorizations, deauthorizations
and subscriber service changes; provided that NRTC and as applicable, the
Committed Members are providing a primary telephone customer service to
Committed Member Residences which shall forward calls from Committed Member
Residences to an HCG provided phone number only during the Backup hours set
forth above (NRTC shall be responsible for all costs related to calls from
Committed Member Residences during non-Backup hours). Such backup support shall
include order ahead pay per view at a charge of $1.00 (or the actual cost for
such service, if such cost can be reasonably and accurately determined) for each
such placed order, but shall not include service of billing related issues. HCG
shall provide the Backup support through the end of 1994, at which time HCG and
NRTC shall negotiate in good faith the terms and conditions upon which HCG shall
continue to provide such Backup support. In no event shall NRTC and the
Committed Members promote the use of a DirecTv phone number (including "l-800-
DirecTv") without the prior written approval of HCG. HCG makes no warranties and
shall have no liability regarding the performance of such Backup support.
6. Member Execution. On or before March 31, 1994, NRTC must execute amendments
(representative of this new relationship) to the Member Contract with NRTC
Committed Members which represent ninety-five percent (95%) or more of the total
Committed Member Payments. If NRTC is successful in reaching this 95% goal or if
HCG is willing to accept less than 95%, then the NRTC Committed Members who did
not execute such amendments shall be refunded their respective Committed Member
Payments. If NRTC is unsuccessful in reaching this 95% goal, and if HCG is not
willing to accept less than 95%, then this letter shall be null and void in its
entirety, and the Agreement shall continue in full force and effect unmodified
by the terms and conditions of this letter.
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The terms and conditions contained in this letter shall be subsequently
formalized in an amendment to the Agreement. Such amendment may include other
changes, to be negotiated in good faith, not addressed by this letter, but which
are necessary due to the terms and conditions agreed upon in this letter.
Please acknowledge by signing below and returning this letter to me by Tuesday,
February 15, 1994.
Regards,
▇▇▇▇▇ ▇. ▇▇▇▇
HCG
Acknowledged and Agreed To:
B. R. ▇▇▇▇▇▇▇▇ III
NRTC
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