Term Sheet Service Duration Energy for Broadband Equipment Purchase of electrical power from DTAG required for the operation of part of ish’s network equipment. 184 Approximate annual cost Termination rights Unlimited €6.9 million for the year This Term Sheet may 2004. The prices were be terminated by ish fixed until December and DTAG to the same 31, 2004; after an extent as Term Sheet 4 adjustment on the basis with respect to indoor of a mutual review of installations and partial the energy installations terminations under actually in use, there is Term Sheet 4 are no longer a fixed fee, deemed as partial but rather remuneration terminations of Term equal to the payments Sheet 5. With respect to made by DTAG to its outdoor installations, supplier plus a handling ish is entitled to fee of 5%. terminate this Term Sheet in whole or, with respect to individual installations, to the end of each calendar month with a notice period of 6 months. Outdoor installations can be terminated by DTAG with a notice period of 12 months. As part of the BRN-ish agreements, DTAG agreed to early termination of energy supplies. Under the SLAs, ish leased analog fiber links and also operated AMTV radio links and for this operation leased some space and purchased energy from DTAG under the SLAs. Since 2004, ish has undertaken an AMTV and analog fiber optic replacement project. Through this project, analog fiber links as well as microwave, satellite and radio transmission capacity are being replaced by optical fiber links of managed bandwidth. In this respect, ish and DTAG entered into the BRN-ish agreements (main agreement concluded in 2004 and amended in 2005 by an additional agreement), under which DTAG installs, makes available and operates a fixed-line broadband and broadcasting distribution network in the 574 MHz spectrum. Pursuant to the BRN-ish agreements existing analog fiber links and AMTV radio links will be replaced by new optical fiber links. Since the BRN-ish agreements substitute some of the services rendered under the SLAs, they provide for the termination of such services. The BRN-ish agreements may be terminated, without payment of a termination fee, for the main agreement on or after December 31, 2013 and for the amendment agreement on or after June 30, 2015 with a notice period of 18 months, respectively. Any earlier termination of the main agreement or the amendment requires the payment of a termination fee. The remuneration for the new network amounts to approximately €7.2 million for the main agreement and €2.0 million for the amendment per year. Interconnection with DTAG To deliver telephony services to ish customers, ish has voice interconnection with DTAG in place. Though the interconnection agreement with DTAG was terminated as of June 30, 2003, RegTP subsequently ordered the continuation of the interconnection on the basis of the standard DTAG interconnection agreement with certain changes for an indefinite period after DTAG failed to reach a new interconnection agreement with ish. This interconnection agreement with DTAG is a standard agreement as the interconnection regime is heavily regulated.
Other Significant Supply Agreements MSG MSG has entered into a service agreement with ish under which MSG provides digital playout services for a part of ish’s premium cable television offering, such as reception, decoding, multiplexing, encryption, conditional access management and uplinking, as well as contract management for analog carriage agreements. Term Sheet 1 relates to the installation and operation of MSG’s digital playout facility and the allocation of costs and revenues for the distribution of the programs over this facility. Term Sheet 1 has been partially terminated but remains in place with respect to several channels, including the five channels granted to MSG (S27-31) through which ish has enabled MSG the provision of feed-in services in ish’s network to Premiere. Term Sheet 1 generally expires on February 1, 2009 and, with respect to services related to the distribution of Premiere, on December 31, 2007. The parties further agreed to renegotiate this Term Sheet in good faith by December 31, 2005. Term Sheet 4, relates to contract management for the analog nationwide feed-in agreements. Term Sheet 4 has an indefinite term. It can be terminated by either party at the end of each year with six months’ notice. DTAG has recently terminated several nationwide carriage agreements administered by MSG under Term Sheet 4 with effect from December 31, 2005 and has announced its intention to terminate several others by the end of 2006. As a consequence of such termination, these agreements would no longer be administered by MSG under Term Sheet 4 and the scope of services rendered under this Term Sheet would therefore be largely reduced. Furthermore, ish, MSG and all other Level 3 operators have entered into an agreement under which MSG renders certain services related to the distribution of ish’s foreign-language programming packages in addition to the services provided under Term Sheet 1. This agreement expired on December 31, 2004 but has been prolonged for the purpose of the currently ongoing renegotiations of the digital platform services related to the foreign-language package. ish expects to be technically able to carry out such services in its NOC by the end of 2005. But see “Risk factors—We rely on MSG, a subsidiary of KDG, for the provision of certain digital playout services and because of changes in our relationship with MSG, our premium cable television services could be disrupted or may lead to higher costs. Existing contracts of MSG with third parties, especially Premiere, as well as our current agreements with MSG could adversely affect the development of our digital strategy.” In addition, ish and MSG entered into an agreement with respect to the transitional provision of certain additional conditional access services for existing MSG smart cards, especially the use of an “ish zone” on MSG smart cards which allows the individual activation and deactivation of ish’s digital offering. Unless the parties agree otherwise, this agreement will expire on July 31, 2005 and the “ish zone” will be removed from the MSG smart cards. ish expects to be technically able to carry out such services for ish or other adequate smart cards in its NOC by the end of 2005. But see “Risk factors—We rely on MSG, a subsidiary of KDG, for the provision of certain digital playout services and because of changes in our relationship with MSG, our premium cable television services could be disrupted or may lead to higher costs. Existing contracts of MSG with third parties, especially Premiere, as well as our current agreements with MSG could adversely affect the development of our digital strategy.” Nagra ish entered into a conditional access system agreement with Nagravision S.A. (“Nagra”) on March 17, 2004 under which Nagra agreed to sell and install parts of ish’s conditional access system, including hardware equipment; to grant licenses for the respective intellectual property rights for the conditional access system; and to provide maintenance, support and security services to ish. Under the agreement, ish was also granted an option to purchase smart cards from Nagra, which ish exercised in early March 2005 through an initial order of 50,000 smart cards. Both Nagra and ish may terminate the agreement for cause upon written notice. Subject to certain notice requirements, Nagra may terminate the maintenance and support agreement if it becomes unable to maintain and support the conditional access system under certain conditions. Betacrypt agreements On April 21, 2005, ish concluded the Betacrypt agreements with Premiere SCAS Satellite Services GmbH, Nagra and BetaResearch. These agreements were modified by an addendum dated June 14, 2005 (“Betacrypt agreements”). Subject to certain restrictions, the Betacrypt agreements grant ish different software licenses required to operate conditional access systems in North Rhine-Westphalia using combined BetaResearch/Nagra technology. This conditional access technology has also been licensed to MSG for the distribution of Premiere. 185