UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 31, 2017
ECHOSTAR CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA | 001-33807 | 26-1232727 | ||
(State or other jurisdiction of | (Commission File Number) | (IRS Employer | ||
incorporation) | Identification No.) | |||
100 INVERNESS TERRACE E. | ||
ENGLEWOOD, COLORADO | 80112 | |
(Address of principal executive offices) | (Zip Code) | |
(303) 706-4000
(Registrant’s telephone number, including area code)
HUGHES SATELLITE SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO | 333-179121 | 45-0897865 | ||
(State or other jurisdiction of | (Commission File Number) | (IRS Employer | ||
incorporation) | Identification No.) | |||
100 INVERNESS TERRACE E. | ||
ENGLEWOOD, COLORADO | 80112 | |
(Address of principal executive offices) | (Zip Code) | |
(303) 706-4000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Item 1.01 Entry into a Material Definitive Agreement.
On January 31, 2017, EchoStar Corporation (“EchoStar”) and certain subsidiaries of EchoStar entered into a Share Exchange Agreement (the “Share Exchange Agreement”) among DISH Network Corporation (“DISH”), DISH Network L.L.C., an indirect wholly owned subsidiary of DISH (“DNLLC”), DISH Operating L.L.C., a direct wholly owned subsidiary of DNLLC (“DOLLC” and, collectively with DISH and DNLLC, the “DISH Parties”), EchoStar, EchoStar Broadcasting Holding Parent L.L.C., a direct wholly owned subsidiary of EchoStar’s subsidiary Hughes Satellite Systems Corporation (“EB LLC”), EchoStar Broadcasting Holding Corporation, a direct wholly owned subsidiary of EB LLC (“EB Corp”), EchoStar Technologies Holding Corporation, a direct wholly owned subsidiary of EchoStar (“ET Corp”), and EchoStar Technologies L.L.C., a direct wholly owned subsidiary of EchoStar.
Pursuant to the Share Exchange Agreement, among other things: (i) EchoStar will receive all of the shares of EchoStar Tracking Stock (defined below) owned by DNLLC in exchange for 100% of the equity interests of ET Corp, which will hold that portion of the EchoStar Technologies business segment of EchoStar that (a) designs, develops and distributes secure end-to-end video technology solutions including digital set-top boxes and related products and technology, primarily for satellite TV service providers and telecommunication companies, (b) provides TV Anywhere technology through Slingbox® units directly to consumers via retail outlets and online, as well as to the pay-TV operator market, and (c) includes Move Networks, an over-the-top, Streaming Video on Demand platform business, which includes assets acquired from Sling TV Holding L.L.C. (formerly DISH Digital Holding L.L.C.) and primarily provides support services to DISH’s Sling TV™ operations, and (ii) EB LLC will receive all of the shares of HSS Tracking Stock (defined below) owned by DOLLC in exchange for 100% of the equity interests of EB Corp, which will hold EchoStar’s business of providing online video delivery and satellite video delivery for broadcasters and pay-TV operators, including satellite uplinking/downlinking, transmission services, signal processing, conditional access management and other services ((i) and (ii) collectively, the "Share Exchange"). The Share Exchange has been structured in a manner to be a tax-free exchange for each of EchoStar and DISH.
In March 2014, EchoStar and its subsidiary Hughes Satellite Systems Corporation (“HSS”) each issued shares of preferred stock (the “EchoStar Tracking Stock” and “HSS Tracking Stock,” respectively, and together, the “Tracking Stock”) to DNLLC and DOLLC, respectively. The Tracking Stock tracks the economic performance of the residential retail satellite broadband business of our Hughes segment, including certain operations, assets and liabilities attributed to such business (collectively, the “Hughes Retail Group” or “HRG”), and represents in the aggregate an 80.0% economic interest in the Hughes Retail Group (the EchoStar Tracking Stock representing a 51.89% and the HSS Tracking Stock representing a 28.11% economic interest in the Hughes Retail Group, respectively). For more information regarding the Tracking Stock, see Note 4 to the consolidated financial statements in our most recent Quarterly Report on Form 10-Q and Note 4 to the consolidated financial statements in our most recent Annual Report on Form 10-K.
Following the closing of the Share Exchange, the Tracking Stock will be retired and all agreements, arrangements and policy statements with respect to the Tracking Stock will terminate and be of no further effect. The Share Exchange is expected to be consummated three business days after the satisfaction or waiver of all of the closing conditions to the transaction (other than conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction of those conditions at such time), but no earlier than February 28, 2017. The Share Exchange Agreement provides for customary termination rights of EchoStar and DISH, including the right of either party to terminate the Share Exchange Agreement if the Share Exchange has not closed by March 31, 2017. No assurance can be given that the Share Exchange will be consummated on the terms or within the time frame disclosed, or at all.
Assets and Liabilities
Pursuant to the Share Exchange Agreement, EchoStar will transfer the assets used, contemplated for use or held for use, in each case, primarily in the ownership, operation or conduct of, or relating primarily to, the transferring businesses as well as certain investments in joint ventures, spectrum licenses and certain real estate properties (collectively, the “Transferred Assets”). From and after the closing, DISH generally will assume all liabilities to the extent primarily arising from or resulting from the operation of the transferring businesses or the ownership of Transferred Assets as a result of acts or omissions occurring prior to, on or after the closing date, including third-party product liabilities for products manufactured, sold or distributed prior to, on or after the closing date, as well as certain liabilities expressly agreed to by the parties (collectively, the “Assumed Liabilities”) regardless of when or where such Assumed Liabilities arise. EchoStar generally will retain all assets that are not Transferred Assets (the “Retained Assets”) and generally will be responsible for a limited set of liabilities comprising (i) certain pre-closing indebtedness primarily relating to the transferring businesses, (ii) certain employee related liabilities, (iii) liabilities incurred by EchoStar in connection with the Share Exchange, and (iv) certain liabilities expressly agreed to by the parties (together, the “Excluded Liabilities”).
Representations and Warranties; Covenants
The Share Exchange Agreement contains customary representations and warranties by the parties, including representations by EchoStar related to the Transferred Assets and Assumed Liabilities and the financial condition of the transferring businesses. Prior to closing, EchoStar and its subsidiaries have agreed to conduct the transferring businesses in the ordinary course and not to undertake specified actions without the written consent of DISH. The parties will cooperate and each use commercially reasonable efforts to make certain Federal Communications Commission (the “FCC”) filings, notifications and submissions in order to obtain necessary regulatory approvals.
Closing Conditions
The parties’ obligations to close the Share Exchange are subject to mutual conditions, including, among other things: (a) the receipt of consents for applicable FCC authorizations; (b) the absence of any governmental action or proceeding (i) challenging or prohibiting the Share Exchange Agreement or the transactions contemplated thereby or (ii) directly involving the transferring entities or the DISH Parties that would materially impair the DISH Parties’ ability to own or operate the transferring businesses; (c) the completion by EchoStar of the steps necessary for the Transferred Assets and Assumed Liabilities to be owned by the transferring entities and their respective subsidiaries; (d) the absence of any governmental order prohibiting the consummation of the Share Exchange Agreement or the transactions contemplated thereby; and (e) the receipt of certain documents delivered at closing, including receipt of tax opinions from EchoStar's and DISH's respective counsel regarding the tax treatment of the Share Exchange.
DISH’s obligations to close the Share Exchange are subject to the fulfillment of certain conditions, including, among other things: (a) the accuracy as of signing and as of the closing of EchoStar’s representations and warranties; (b) the repayment of outstanding indebtedness of the transferring entities and their respective subsidiaries; and (d) receipt of certain historical financial information for the transferring businesses.
EchoStar’s obligations to close the Share Exchange are subject to the fulfillment of certain conditions, including, among other things: (a) the accuracy as of signing and as of the closing date of DISH’s representations and warranties; and (b) the satisfactory completion of certain testing on the operations of EchoStar’s recently launched EchoStar XIX satellite.
Indemnification
EchoStar and DISH have agreed to customary indemnification provisions whereby each party indemnifies the other against certain losses with respect to breaches of representations, warranties or covenants. In addition, EchoStar has agreed to indemnify DISH against certain losses with respect to the Excluded Liabilities and DISH has agreed to indemnify EchoStar against certain losses with respect to the Assumed Liabilities. Each of DISH and
EchoStar has agreed to indemnify the other if certain actions undertaken by it causes the transaction to be taxable to the other party after closing. Certain indemnification obligations of the parties are subject to customary limitations and the indemnification obligations for breaches of representations and warranties generally survive until March 31, 2018.
Other Related Agreements
In connection with the Share Exchange, EchoStar and DISH and certain of their subsidiaries will, at the closing of the Share Exchange, enter into certain customary related agreements covering, among other things, matters such as taxes, employee matters, intellectual property matters and the provision of transitional services.
A substantial majority of the voting power of EchoStar and DISH is owned by Charles W. Ergen, EchoStar’s Chairman, and by certain trusts established by Mr. Ergen for the benefit of his family. In addition, EchoStar and DISH and their subsidiaries are parties to certain agreements pursuant to which they obtain certain products, services and rights from each other. For more information, see Note 16 to the consolidated financial statements in our most recent Quarterly Report on Form 10-Q.
The foregoing description of the Share Exchange Agreement does not purport to be complete and is qualified in its entirety by the terms of the Share Exchange Agreement. A copy of the Share Exchange Agreement will be filed by the Corporation as an exhibit its Quarterly Report on Form 10-Q for the quarter ending March 31, 2017.
On January 31, 2017, EchoStar issued a press release announcing the execution of the Share Exchange Agreement. A copy of the press release is furnished as Exhibit 99.1 hereto and incorporated by reference herein.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This document may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this report, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plans,” and similar expressions and the use of future dates are intended to identify forward looking statements. Although management believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to certain risks, uncertainties, and assumptions. See “Risk Factors” in EchoStar’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed with the Securities and Exchange Commission (the “SEC”) and in the other documents EchoStar file with the SEC from time to time. The forward-looking statements speak only as of the date made, and EchoStar expressly disclaims any obligation to update these forward-looking statements.
Item 2.02. Results of Operations and Financial Condition.
EchoStar is furnishing certain information for the year ended December 31, 2016 as set forth on Exhibit 99.2 hereto, which is incorporated by reference herein.
The information contained in this Item 2.02 is being furnished and shall not be deemed “filed” with the SEC or otherwise incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 7.01. Regulation FD Disclosure.
EchoStar will host a conference call to discuss the transaction on February 1, 2017 at 9:00 a.m. Eastern Time. A presentation is currently available for download and viewing during the call on EchoStar’s website at http://sats.client.shareholder.com/events.cfm.
The information contained in this Item 7.01 is being furnished and shall not be deemed “filed” with the SEC or otherwise incorporated by reference into any registration statement or other document filed pursuant to the Securities Act or the Exchange Act.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. | Description | |
Exhibit 99.1 | Press release dated January 31, 2017 issued by EchoStar Corporation | |
Exhibit 99.2 | Certain Information Regarding EchoStar Corporation | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ECHOSTAR CORPORATION | ||
HUGHES SATELLITE SYSTEMS CORPORATION | ||
Date: January 31, 2017 | By: | /s/ Dean A. Manson |
Dean A. Manson | ||
Executive Vice President, General Counsel and Secretary | ||
EXHIBIT INDEX
Exhibit No. Exhibit
Exhibit 99.1 Press release dated January 31, 2017 issued by EchoStar Corporation
Exhibit 99.2 Certain Information Regarding EchoStar Corporation
Exhibit 99.1
EchoStar Announces Exchange Agreement for Tracking Stock
Englewood, CO, January 31, 2017 – EchoStar Corporation (NASDAQ:SATS) announced today that it executed an agreement with DISH Network Corporation (NASDAQ:DISH) to exchange its EchoStar Technologies businesses for the Hughes Retail Group (HRG) tracking stock.
The HRG tracking stock was issued to subsidiaries of DISH in March 2014. It represents an 80% interest of the economic performance of the consumer retail satellite broadband business of EchoStar’s Hughes segment. The Hughes satellite broadband business is the largest in the North America, and the recent launch of the EchoStar19 satellite will provide additional capacity for growth starting in the 2nd quarter of 2017.
The EchoStar Technologies businesses consist of the business segment of EchoStar that designs, develops and distributes digital set-top boxes, provides satellite uplinking and broadcast services and develops and supports streaming video technology, with DISH being the largest customer of these services. The transaction will include certain other EchoStar investments in joint ventures, spectrum licenses and certain real estate properties.
The transaction will take the form of an exchange by EchoStar of two companies that will own the EchoStar Technologies businesses and other assets to be transferred for the HRG tracking stock, and is structured in a manner to be a tax-free exchange. It is expected to close during the first quarter of 2017, subject to customary conditions. Following the closing, the HRG tracking stock will be retired.
“I am delighted that we have been able to sign this transaction” said Mike Dugan, President and CEO of EchoStar. “It will result in EchoStar owning 100% of the economics of the growing HRG business and divesting the less strategic set-top box business. It will focus EchoStar’s mission on its core satellite and broadband services and eliminate the complexity associated with the tracking stock. The clearer business focus and simplified ownership structure will provide an improved platform to pursue strategic opportunities.”
EchoStar will host a conference call to discuss the transaction on February 1, 2017 at 9:00 a.m. Eastern Time. The dial-in information for the call is 1-877-815-1625 (U.S.), 1-716-247-5178 (international), conference Id 64143820. A presentation is currently available for download and viewing during the call on EchoStar’s website at http://sats.client.shareholder.com/events.cfm.
- More -
EchoStar also is furnishing certain information for the quarter and year ended December 31, 2016 in a Current Report on Form 8-K filed today with the Securities and Exchange Commission.
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About EchoStar
EchoStar Corporation (NASDAQ: SATS) is a premier global provider of satellite and video delivery solutions. Headquartered in Englewood, Colo., and conducting business around the globe, EchoStar is a pioneer in secure communications technologies through its EchoStar Satellite Services, EchoStar Technologies and Hughes Network Systems business segments.
For more information, visit echostar.com. Follow @EchoStar on Twitter.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This press release may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this release, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plans,” and similar expressions and the use of future dates are intended to identify forward looking statements. Although management believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to certain risks, uncertainties, and assumptions. See “Risk Factors” in EchoStar’s and HSSC’s Annual Reports on Form 10-K for the year ended December 31, 2015 and Quarterly Reports on Form 10-Q for the quarterly period ended September 30, 2016 filed with the Securities and Exchange Commission and in the other documents EchoStar files with the Securities and Exchange Commission from time to time. The forward-looking statements speak only as of the date made, and EchoStar Corporation expressly disclaims any obligation to update these forward-looking statements.
Contacts:
EchoStar Investor Relations
Deepak Dutt
+1 (301) 428-1686
deepak.dutt@echostar.com
EchoStar Marketing Communications
Janet Gipson
+1 (303) 706-5555
janet.gipson@echostar.com
Exhibit 99.2
Certain Information Regarding EchoStar Corporation
Selected Full Year 2016 Estimated Results
Set forth below are preliminary estimates for financial results for the twelve months ended December 31, 2016 for (i) the economic performance of the residential retail satellite broadband business of the Hughes segment of EchoStar Corporation (“EchoStar”), including certain operations, assets and liabilities attributed to such business (collectively, “HRG”), and (ii) revenue and EBITDA for the EchoStar Technologies segment of EchoStar. Our actual results may differ materially from these estimates due to the completion of our financial closing procedures, final adjustments and other developments that may arise between now and the time the financial results for the twelve months are finalized.
For the twelve months ended December 31, 2016, we expect the HRG revenue to be in the range of approximately $626 million to $658 million and net loss to be in the range of approximately ($3 million) to ($4 million). For the twelve months ended December 31, 2016, we expect the HRG EBITDA to be in the range of approximately $121 million to $133 million.
For the twelve months ended December 31, 2016, we expect our EchoStar Technologies segment revenue to be in the range of approximately $1,218 million to $1,280 million. For the twelve months ended December 31, 2016, we expect our EchoStar Technologies segment EBITDA to be in the range of approximately $85 million to $94 million.
2016 | ||||
(in millions) | 2014 | 2015 | Low Estimate | High Estimate |
HRG | ||||
Revenue | 562 | 614 | 626 | 658 |
80% adjustment(1) | 450 | 491 | 500 | 526 |
Net loss | (23) | (20) | (3) | (4) |
Interest income and expense, net | - | - | - | - |
Income tax benefit | (15) | (13) | (2) | (2) |
Depreciation and amortization | 135 | 139 | 126 | 139 |
EBITDA(2) | 97 | 106 | 121 | 133 |
80% adjustment(1) | 78 | 85 | 97 | 106 |
EchoStar Technologies | ||||
Revenue | 1,627 | 1,298 | 1,218 | 1,280 |
EBITDA(3) | 155 | 107 | 85 | 94 |
(1) HRG numbers are adjusted to 80% to reflect the percentage of economic interest of HRG held by DISH.
(2) HRG EBITDA is defined as “Net loss” excluding “Interest income and expense, net” “Income tax benefit,” and “Depreciation and amortization.” EBITDA is not a measure determined in accordance with GAAP. EBITDA should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with GAAP. EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors. Management believes EBITDA provides meaningful supplemental information regarding the underlying operating performance of our business. Management
also believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties to evaluate the performance of companies in our industry.
(3) EchoStar Technologies EBITDA is defined as Net income excluding “Interest income and expense, net” “Income tax provision,” and “Depreciation and amortization.” EBITDA is the primary measure of segment profitability for our EchoStar Technologies segment as reported to our CODM as defined under ASC 280.
EchoStar XIX
In December 2016, we launched our EchoStar XIX satellite, a next-generation, high throughput geostationary satellite, which will provide significant capacity for continued subscriber growth and is expected to result in a material increase in subscriber additions beginning in the second quarter of 2017. The EchoStar XIX satellite employs a multi-spot beam, bent pipe Ka-band architecture and will provide additional capacity for the Hughes broadband services to our customers in North America and added capacity in Mexico, Brazil and certain other Latin American countries. The EchoStar XIX satellite will also add capability for aeronautical, enterprise and international broadband services. Capital expenditures associated with the construction and launch of the EchoStar XIX satellite have been incurred by EchoStar, which intends to contribute the satellite to its Hughes segment in February 2017.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This Exhibit 99.2 may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this release, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plans,” and similar expressions and the use of future dates are intended to identify forward looking statements. Although management believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to certain risks, uncertainties, and assumptions. See “Risk Factors” in EchoStar’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed with the Securities and Exchange Commission (the "SEC") and in the other documents EchoStar files with the SEC from time to time. The forward-looking statements speak only as of the date made, and EchoStar Corporation expressly disclaims any obligation to update these forward-looking statements.