NRTC Settlement Hammers Pegasus

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In an action that ended up pummeling Pegasus Communications Corp. shares
Monday, DirecTV Inc. and the National Rural Telecommunications Cooperative
dismissed claims against each other in a federal court in California.

They agreed to settle without paying each other monetary damages, and the
NRTC’s agreement to distribute DirecTV programming ends when the DBS-1 satellite
ends its useful life, or June 2008, whichever is later.

The NRTC and member companies that join the settlement will be guaranteed a
successor agreement through June 30, 2011. After that, customers revert to
DirecTV, which agreed to pay current service providers $150 for each customer
transitioned.

This doesn’t resolve related litigation between DirecTV and Pegasus, which
resells DirecTV service in NRTC territories.

After watching its stock plunge Monday, Pegasus said in a statement that it
would "evaluate the proposed settlement and all other alternatives."

The terms -- particularly the $150-per-subscriber price tag -- prompted
analyst downgrades of Pegasus, and in 4 p.m. EST trading on the NASDAQ exchange,
the company lost 37% off its share price, falling to $23.10, down $13.80.

DirecTV would retain the right to sell premium services in NRTC territories.
The NRTC would bill and collect for these services and collect a share of
10%-15% of the revenue through June 2011.

The settlement won’t be final until after the U.S. District Court for the
Central District of California reviews it for fairness within the next 45-60
days.

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