Dish Network 2012 Annual Report Download - page 91

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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previously sold and in the future may sell to us. The fees for the services provided under the product support
agreement are calculated at cost plus a fixed margin, which varies depending on the nature of the services provided.
The term of the product support agreement is the economic life of such receivers and related accessories, unless
terminated earlier. We may terminate the product support agreement for any reason upon at least 60 days notice. In
the event of an early termination of this agreement, we are entitled to a refund of any unearned fees paid to EchoStar
for the services.
Real Estate Lease Agreements. We have entered into lease agreements pursuant to which we lease certain real
estate from EchoStar. The rent on a per square foot basis for each of the leases is comparable to per square foot
rental rates of similar commercial property in the same geographic area, and EchoStar is responsible for its portion
of the taxes, insurance, utilities and maintenance of the premises. The term of each of the leases is set forth below:
x Inverness Lease Agreement. The lease for certain space at 90 Inverness Circle East in Englewood,
Colorado is for a period ending on December 31, 2016. This agreement can be terminated by either party
upon six months prior notice.
x Meridian Lease Agreement. The lease for all of 9601 S. Meridian Blvd. in Englewood, Colorado is for a
period ending on December 31, 2016.
x Santa Fe Lease Agreement. The lease for all of 5701 S. Santa Fe Dr. in Littleton, Colorado is for a period
ending on December 31, 2016 with a renewal option for one additional year.
x EchoStar Data Networks Sublease Agreement. The sublease for certain space at 211 Perimeter Center in
Atlanta, Georgia is for a period ending on October 31, 2016.
x Gilbert Lease Agreement. The lease for certain space at 801 N. DISH Dr. in Gilbert, Arizona is a month-
to-month lease and can be terminated by either party upon 30 days prior notice.
x Cheyenne Lease Agreement. The lease for certain space at 530 EchoStar Drive in Cheyenne, Wyoming is
for a period ending on December 31, 2031.
DISHOnline.com Services Agreement. Effective January 1, 2010, we entered into a two-year agreement with
EchoStar pursuant to which we will receive certain services associated with an online video portal. The fees for the
services provided under this services agreement depend, among other things, upon the cost to develop and operate
such services. We have the option to renew this agreement for three successive one year terms and the agreement
may be terminated for any reason upon at least 120 days notice to EchoStar. In November 2012, we exercised our
right to renew this agreement for a one-year period ending on December 31, 2013.
DISH Remote Access Services Agreement. Effective February 23, 2010, we entered into an agreement with
EchoStar pursuant to which we will receive, among other things, certain remote DVR management services. The
fees for the services provided under this services agreement depend, among other things, upon the cost to develop
and operate such services. This agreement has a term of five years with automatic renewal for successive one year
terms and may be terminated for any reason upon at least 120 days notice to EchoStar.
SlingService Services Agreement. Effective February 23, 2010, we entered into an agreement with EchoStar
pursuant to which we will receive certain place-shifting services. The fees for the services provided under this
services agreement depend, among other things, upon the cost to develop and operate such services. This
agreement has a term of five years with automatic renewal for successive one year terms and may be terminated for
any reason upon at least 120 days notice to EchoStar.
Blockbuster. On April 26, 2011, we completed the Blockbuster Acquisition. During the second quarter 2011,
EchoStar acquired Hughes. Blockbuster purchased certain broadband products and services from Hughes pursuant
to an agreement that was entered into prior to the Blockbuster Acquisition and EchoStar’s acquisition of Hughes.
Subsequent to these transactions, Blockbuster entered into a new agreement with Hughes which extends for a period
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through October 31, 2014, pursuant to which Blockbuster may continue to purchase certain broadband products and
services from Hughes. Blockbuster has the option to renew the agreement for an additional one-year period.
DISH Digital Holding L.L.C. Effective July 1, 2012, we and EchoStar formed DISH Digital Holding L.L.C.
(“DISH Digital”), which is owned two-thirds by DISH and one-third by EchoStar and is consolidated into our
financial statements beginning July 1, 2012. DISH Digital was formed to develop and commercialize certain
advanced technologies. We, EchoStar and DISH Digital entered into the following agreements with respect to
DISH Digital: (i) a contribution agreement pursuant to which we and EchoStar contributed certain assets in
exchange for our respective ownership interests in DISH Digital; (ii) a limited liability company operating
agreement, which provides for the governance of DISH Digital; and (iii) a commercial agreement pursuant to
which, among other things, DISH Digital has: (a) certain rights and corresponding obligations with respect to DISH
Digital’s business; and (b) the right, but not the obligation, to receive certain services from us and EchoStar,
respectively. Since a substantial majority of the voting power of the shares of both us and EchoStar is owned
beneficially by Charles W. Ergen, our Chairman and EchoStar’s Chairman, or by certain trusts established by Mr.
Ergen for the benefit of his family, this is a formation of an entity under common control and a step up in basis is
not allowed; therefore each party’s contributions were recorded at historical book value for accounting purposes.
We consolidated DISH Digital with EchoStar’s ownership position recorded as non-controlling interest.
Other Agreements – EchoStar
Tax Sharing Agreement. In connection with the Spin-off, we entered into a tax sharing agreement with EchoStar
which governs our respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the
periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as
a result of restructuring activities undertaken to implement the Spin-off, are borne by us, and we will indemnify
EchoStar for such taxes. However, we are not liable for and will not indemnify EchoStar for any taxes that are
incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant
to any provision of Section 355 or Section 361 of the Internal Revenue Code of 1986, as amended (the “Code”)
because of: (i) a direct or indirect acquisition of any of EchoStar’s stock, stock options or assets; (ii) any action that
EchoStar takes or fails to take; or (iii) any action that EchoStar takes that is inconsistent with the information and
representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in
connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions.
In such case, EchoStar is solely liable for, and will indemnify us for, any resulting taxes, as well as any losses,
claims and expenses. The tax sharing agreement will only terminate after the later of the full period of all applicable
statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.
RUS Implementation Agreement. In September 2010, DISH Broadband L.L.C. (“DISH Broadband”), our wholly-
owned subsidiary, was selected by the Rural Utilities Service (“RUS”) of the United States Department of
Agriculture to receive up to approximately $14 million in broadband stimulus grant funds (the “Grant Funds”).
Effective November 2011, DISH Broadband and Hughes entered into a RUS Implementation Agreement (the “RUS
Agreement”) pursuant to which Hughes provides certain portions of the equipment and broadband service used to
implement our RUS program. The initial term of the RUS Agreement shall continue until the earlier of: (i)
September 24, 2013; or (ii) the date that the Grant Funds have been exhausted. In addition, DISH Broadband may
terminate the RUS Agreement for convenience upon 45 days’ prior written notice to Hughes. During the year
ended December 31, 2012, we expensed $7 million under this agreement which is included in “Cost of sales –
equipment, merchandise, services, rental and other” on our Consolidated Statement of Operations and
Comprehensive Income (Loss). During the year ended December 31, 2011, we did not record any expense under
this agreement.
TiVo. On April 29, 2011, we and EchoStar entered into a settlement agreement with TiVo Inc. (“TiVo”). The
settlement resolved all pending litigation between us and EchoStar, on the one hand, and TiVo, on the other hand,
including litigation relating to alleged patent infringement involving certain DISH digital video recorders, or DVRs.
Under the settlement agreement, all pending litigation was dismissed with prejudice and all injunctions that
permanently restrain, enjoin or compel any action by us or EchoStar were dissolved. We and EchoStar are jointly
responsible for making payments to TiVo in the aggregate amount of $500 million, including an initial payment of