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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________.
Commission file number: 0-26176
ECHOSTAR COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0336997
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
90 INVERNESS CIRCLE EAST
ENGLEWOOD, COLORADO 80112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 799-8222
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $0.01 par value
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
As of March 17, 1997, the aggregate market value of Class A Common Stock
held by non-affiliates* of the Registrant approximated $147.0 million based upon
the closing price of the Class A Common Stock as reported on the Nasdaq National
Market as of the close of business on that date.
As of March 17, 1997, the Registrant's outstanding voting stock consisted
of 11,768,276 shares of Class A Common Stock, 29,804,401 shares of Class B
Common Stock, and 1,616,681 shares of 8% Series A Cumulative Preferred Stock,
each $0.01 par value.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Form 10-K by reference:
None.
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* Without acknowledging that any individual director or executive officer of the
Company is an affiliate, the shares over which they have voting control have
been included as owned by affiliates solely for purposes of this computation.
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TABLE OF CONTENTS
Pursuant to Rule 12b-32 of the Securities Exchange Act of 1934, as amended,
information not contained herein is incorporated by reference to the
Company's Annual Report on Form 10-K, as amended for the fiscal year ended
December 31, 1996 filed on March 31, 1997.
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . *
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . *
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . *
Item 4. Submission of Matters to a Vote of Security Holders. . *
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . *
Item 6. Selected Financial Data . . . . . . . . . . . . . . . *
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . *
Item 8. Financial Statements and Supplementary Data . . . . . *
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . *
PART III
Item 10. Directors and Executive Officers of the Registrant . . 1
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 3
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . 9
Item 13. Certain Relationships and Related Transactions . . . . 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . .E-1
(a) (1) Financial Statements . . . . . . . . . . . . . . . . . *
(a) (2) Financial Statement Schedules . . . . . . . . . . . . *
(a) (3) Exhibits.
See the Index to Exhibits on page E-1 for a listing of the
exhibits that are filed as part of this amendment to the
Annual Report.
(b) Reports on Form 8-K . . . . . . . . . . . . . . . . . . *
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* Not amended.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth, as of April 30, 1997, the name, age and
offices with EchoStar of each director and executive officer of EchoStar, the
period during which each director has served as such, and each director's and
executive officer's business experience during the past five years.
Name Age Position with the Corporation
- ------------------- --- ------------------------------------------------------
Charles W. Ergen 44 Chairman of the Board of Directors and Chief Executive
Officer
James DeFranco 44 Director and Executive Vice President
R. Scott Zimmer 40 Vice Chairman, Director and Vice President
Alan M. Angelich 53 Director
Raymond L. Friedlob 52 Director
Steven B. Schaver 43 Chief Operating and Financial Officer
David K. Moskowitz 39 Senior Vice President, General Counsel and Secretary
The following sets forth the business experience of each of the directors
over the last five years:
CHARLES W. ERGEN. Mr. Ergen has been Chairman of the Board of Directors
and Chief Executive Officer of the Corporation since its formation and,
during the past five years, has held various positions with the Corporation's
subsidiaries including President of EchoStar Communications Corporation
("EchoStar"), President and Chief Executive Officer of Echosphere Corporation
("Echosphere"), Echonet Business Network, Inc. ("EBN") and EchoStar Satellite
Corporation ("ESC"), and Director of Echosphere, Houston Tracker Systems,
Inc. ("HTS"), EchoStar International Corporation ("EIC"), ESC and EBN. Mr.
Ergen, along with his spouse and James DeFranco, was a co-founder of
Echosphere in 1980. Commencing in March 1995, Mr. Ergen also became a
Director of SSE Telecom, Inc. ("SSET"), a public company principally engaged
in the manufacture and sale of satellite telecommunications equipment.
JAMES DEFRANCO. Mr. DeFranco is an Executive Vice President of EchoStar
and has been a Vice President and a Director of EchoStar since its formation
and, during the past five years, has held various positions with the
Corporation's subsidiaries, including President of HTS, Echo Acceptance
Corporation ("EAC") and HT Ventures, Inc. ("HTV"), Executive Vice President
of ESC, Senior Vice President of Echosphere and EBN, and Director of
Satellite Source Inc., Echosphere, HTS, EAC, EBN and HTV. Mr. DeFranco,
along with Mr. Ergen and Mr. Ergen's spouse, was a co-founder of Echosphere
in 1980.
R. SCOTT ZIMMER. Mr. Zimmer has been a Vice Chairman of EchoStar since
November 1996 and has been a Vice President and a Director of EchoStar since
its formation. For more than the past five years, Mr. Zimmer has managed the
international operations of EchoStar and its subsidiaries.
ALAN M. ANGELICH. Mr. Angelich has been a Director of EchoStar and a
member of its Audit and Executive Compensation Committees since October 1995.
Mr. Angelich is presently a principal of Janco Partners, Inc., an investment
banking firm specializing in the telecommunications industry. From May 1982
to October 1993, Mr. Angelich served in various executive capacities with
Jones Intercable, Inc., including Vice Chairman of its Board of Directors
from December 1988 to October 1993. From August 1990 to October 1993, Mr.
Angelich was also the Chief Executive Officer of Jones Capital Markets, Inc.
RAYMOND L. FRIEDLOB. Mr. Friedlob has been a Director of EchoStar and a
member of its Audit and Executive Compensation Committees since October 1995.
Mr. Friedlob is presently a member of the law firm of Friedlob Sanderson
Raskin Paulson & Tourttillott, LLC. Prior to 1995, Mr. Friedlob was a partner
of Raskin & Friedlob, P.C. where he had practiced since 1970. Mr. Friedlob
specializes in federal securities law, corporate law, leveraged acquisitions,
mergers and taxation.
STEVEN B. SCHAVER. Mr. Schaver was named the Chief Financial Officer of
EchoStar in February 1996 and Chief Operating Officer in November 1996. From
November 1993 to February 1996, Mr. Schaver was the Vice President of
EchoStar's European and African operations. From July 1992 to November 1993,
Mr. Schaver was the
1
Director of Sales and Marketing for EchoStar's largest Spanish customer,
Internacional de Telecomunicaciones, S.A. in Madrid, Spain. Prior to July
1992 and since joining EchoStar in 1984, Mr. Schaver has held various
positions with subsidiaries of EchoStar, including Vice President of European
operations. Prior to joining EchoStar, Mr. Schaver was a banking officer with
Continental Illinois National Bank.
DAVID K. MOSKOWITZ. Mr. Moskowitz is the Senior Vice President, Secretary
and General Counsel of EchoStar. Mr. Moskowitz joined EchoStar in March 1990.
Mr. Moskowitz is responsible for all legal affairs of EchoStar and its
subsidiaries.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's Executive Officers, Directors and persons who own more than ten
percent of a registered class of the Corporation's equity securities
(collectively, "Reporting Persons") to file with the Securities and Exchange
Commission ("SEC") initial reports of ownership and reports of changes in
ownership of Class A Shares and other equity securities of the Corporation.
Reporting Persons are required by SEC regulation to furnish the Corporation
with copies of all Section 16(a) forms that are filed with the SEC. Based
solely on a review of the copies of such forms furnished to the Corporation
and written representations that no other reports were required, with the
exception of Mr. Angelich, all Reporting Persons made all required filings.
Mr. Angelich filed two Late Form 4 reports with the SEC.
2
ITEM 11. EXECUTIVE COMPENSATION
Executive Officers are compensated by certain subsidiaries of the
Corporation. The following table sets forth the cash and non-cash
compensation for the fiscal years ended December 31, 1996, 1995 and 1994
for the Named Executive Officers.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) (#) COMPENSATION (2)
- -------------------------------------------------------------------------------------------------
Charles W. Ergen 1996 $190,000 $ -- $ -- 17,030 $140,680
CHAIRMAN AND CHIEF EXECUTIVE 1995 190,000 -- -- 14,705 15,158
OFFICER 1994 177,578 -- -- 53,568 888
Carl E. Vogel (3) 1996 $166,923 $ -- $ -- -- $ 12,798
PRESIDENT 1995 150,000 -- -- 21,641 11,346
1994 107,308 -- -- 375,776 500
R. Scott Zimmer 1996 $160,000 $ -- $36,265 -- $ 22,461
VICE CHAIRMAN AND VICE 1995 160,000 -- 88,229 14,705 32,390
PRESIDENT 1994 148,006 -- 74,396 42,855 18,990
James De Franco 1996 $160,000 $ -- $ -- -- $ 48,990
EXECUTIVE VICE PRESIDENT AND 1995 156,923 -- -- 11,764 15,158
DIRECTOR 1994 154,461 -- -- 42,855 1,000
Steven B. Schaver 1996 $142,498 $11,787 $14,340 -- $ 12,516
CHIEF OPERATING OFFICER 1995 116,755 21,012 4,777 23,240 10,597
AND CHIEF FINANCIAL OFFICER 1994 85,602 -- -- 10,713 --
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(1) With respect to Mr. Zimmer and Mr. Schaver, "Other Annual Compensation"
includes housing and car allowances related to their overseas
assignments. While each Named Executive Officer enjoys certain other
perquisites, such perquisites do not exceed the lesser of $50,000 or 10%
of each Officer's salary and bonus.
(2) "All Other Compensation" includes amounts contributed to the
Corporation's 401(k) plan and health insurance premiums paid on behalf
of the Named Executive Officers. With respect to Mr. Ergen, Mr.
DeFranco and Mr. Zimmer, "All Other Compensation" also includes payments
made in connection with a tax indemnification agreement between the
Corporation and such individuals. With respect to Mr. Zimmer, "All Other
Compensation" also includes home leave and education allowances related
to his overseas assignment.
(3) Mr. Vogel tendered his resignation in March 1997.
3
The following table provides information concerning grants of
options to purchase Class A Shares of the Corporation made in 1996 to
the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE PER
OPTIONS EMPLOYEES IN SHARE GRANT DATE
NAME GRANTED (#) 1996 ($/SH) EXPIRATION DATE PRESENT VALUE
- ----------------------------------------------------------------------------------------
Charles W. Ergen 17,030 (1) 12.3% $29.36 August 1, 2006 $280,804 (2)
(1) In August 1996, the Corporation granted options to Mr. Ergen and other
executive officers and key employees to purchase Class A Shares. The
options vest 20% on August 1, 1997, and 20% thereafter on August 1,
1998, 1999, 2000 and 2001. See "-- Stock Incentive Plan." The options
expire five years from the date on which each portion of the option
first becomes exercisable, subject to early termination in certain
circumstances.
(2) Option values reflect Black-Scholes model output for options. The
assumptions used in the model were expected volatility of 62%, risk free
rate of return of 6.8%, dividend yield of 0%, and time to exercise of
six years.
The following table provides information as of December 31, 1996,
concerning unexercised options to purchase Class A Shares:
FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1996(#) DECEMBER 31, 1996 ($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------
Charles W. Ergen -- $ -- 24,367 60,936 $268,108 $465,963
R. Scott Zimmer 17,000 300,589 3,082 37,478 16,499 384,532
Carl E. Vogel 322,208 8,566,272 25,753 49,456 286,619 468,031
James DeFranco -- -- 19,494 35,125 228,898 372,767
Steven B. Schaver -- -- 8,931 25,022 76,524 170,486
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(1) The dollar value of each exercisable and unexercisable option was
calculated by multiplying the number of Class A Shares underlying the
option by the difference between the exercise price of the option and
the closing price (as quoted in the Nasdaq National Market) of a Class A
Share on December 31, 1996.
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Prior to October 1995, the Corporation did not have an Executive Compensation
Committee, and its Board of Directors determined all matters concerning
executive compensation.
DIRECTOR COMPENSATION. Directors of the Corporation who are not also
Executive Officers of the Corporation receive $500 for each meeting of the
Board of Directors attended and are reimbursed for reasonable travel expenses
related to attendance at Board meetings. Directors of the Corporation are
elected annually by the stockholders of the Corporation. Directors of the
Corporation are not compensated for their services as Directors. Directors
who are not also employees of the Corporation are granted options under the
1995 Nonemployee Director Stock Option Plan (the "Director Plan") to acquire
1,000 Class A Shares of the Corporation upon election to the Board. Each of
Messrs. Angelich and Friedlob was granted options to acquire 1,000 Class A
Shares of the
4
Corporation on December 22, 1995 pursuant to the Director Plan. These options
were 100% vested upon issuance and have an exercise price of $20.25 per share
and a term of five years. Additionally, in February 1997, each of Messrs.
Angelich and Friedlob was granted options to acquire 5,000 Class A Shares of
the Corporation. These options were 100% vested upon issuance and have an
exercise price of $17.00 and a term of five years.
STOCK INCENTIVE PLAN. The Corporation adopted the Incentive Plan to
provide incentives to attract and retain Executive Officers and other key
employees. The Corporation's Executive Compensation Committee administers
the Incentive Plan. Key employees are eligible to receive awards under the
Incentive Plan, in the Committee's discretion.
Awards available under the Incentive Plan include: (i) common stock
purchase options; (ii) stock appreciation rights; (iii) restricted stock and
restricted stock units; (iv) performance awards; (v) dividend equivalents;
and (vi) other stock-based awards. The Corporation has reserved up to 10.0
million Class A Shares for granting awards under the Incentive Plan. Under
the terms of the Incentive Plan, the Executive Compensation Committee retains
discretion, subject to plan limits, to modify the terms of outstanding awards
and to reprice awards.
Pursuant to the Incentive Plan, the Corporation has granted options to
its Executive Officers and other key employees for the purchase of a total of
1,303,147 Class A Shares. These options generally vest at the rate of 20% per
year, commencing one year from the date of grant and 20% thereafter on each
anniversary of the date of grant. The exercise prices of these options range
between $9.33 and $29.36 per Class A Share.
LAUNCH BONUS PLAN. Effective September 9, 1996, the Corporation granted
a performance award of ten shares of Class A Shares to all full-time
employees with more than 90 days of service. The total number of shares
granted relative to the performance award approximated 7,390 shares.
401(K) PLAN. In 1983, the Corporation adopted a defined-contribution
tax-qualified 401(k) plan. The Corporation's employees become eligible for
participation in the 401(k) plan upon completing six months of service with
the Corporation and reaching age 21. 401(k) plan participants may contribute
an amount equal to not less than 1% and not more than 15% of their
compensation in each contribution period. The Corporation may make a 50%
matching contribution up to a maximum of $1,000 per participant per calendar
year. The Corporation may also make an annual discretionary profit sharing
or employer stock contribution to the 401(k) plan with the approval of the
Board of Directors.
401(k) plan participants are immediately vested in their voluntary
contributions, plus actual earnings thereon. The balance of the vesting in
401(k) plan participants' accounts is based on years of service. A
participant becomes 10% vested after one year of service, 20% vested after
two years of service, 30% vested after three years of service, 40% vested
after four years of service, 60% vested after five years of service, 80%
vested after six years of service, and 100% vested after seven years of
service.
In March 1997, the Corporation contributed an additional 55,000 Class A
Shares to the 401(k) plan as a discretionary employer stock contribution. A
total of 60,000 Class A Shares (including 5,000 Class A Shares which were
contributed for plan year 1995 but not allocated) were allocated to
individual participant 401(k) accounts in proportion to their 1996 eligible
compensation. These shares are subject to the seven-year vesting schedule
previously described. Class A Shares allocated to the 401(k) accounts of the
Named Executive Officers pursuant to the 1996 discretionary employer stock
contribution were as follows: (i) Charles W. Ergen, 677 shares; (ii) Carl E.
Vogel; 677 shares (iii) R. Scott Zimmer, 677 shares; (iv) James DeFranco 677
shares; (v) Steven B. Schaver 676 shares ; and (vi) all Officers and
Directors as a group, 4,736 shares.
5
PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return
(assuming reinvestment of dividends) to the Corporation's shareholders during
the period from June 21, 1995 to December 31, 1996. The graph appearing
below assumes the investment on June 21, 1995 (the date of the Corporation's
initial public offering) of $100 in Class A Shares of the Corporation, the
Nasdaq Stock Market Index, and two industry peer groups. The peer group used
in the Company's 1995 Proxy Statement consisted of Adelphia Communications
Corporation, American Telecasting, Inc., Century Communications Corporation,
Falcon Cable Systems Company, People's Choice TV Corporation and Tee-Comm
Electronics, Inc. ("Old Industry Peer Group"). Stock price performance data
for the Old Industry Peer Group for 1996 is presented below for comparative
purposes. In 1996, the Company broadened its industry peer group to include,
in addition to the companies included in the Old Industry Peer Group,
additional subscription television service companies. Such additional
companies include Cablevision Systems Corporation, CAI Wireless Systems,
Inc., Heartland Wireless Communications, Inc., Jones Intercable, Inc.,
Tele-Communications, Inc., US WEST Media Group, United States Satellite
Broadcasting Company, Inc., Wireless Cable of Atlanta, Inc., and Wireless
One, Inc. ("New Industry Peer Group"). Falcon Cable Systems Company is not
included in the New Industry Peer Group as that entity was delisted during
1996. Although the companies included in the industry peer groups were
selected because of similar industry characteristics, they are not entirely
representative of the Corporation's business.
STOCK PRICE PERFORMANCE
[CHART]
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TOTAL RETURN ANALYSIS 6/21/95 12/29/95 6/28/96 12/31/96
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EchoStar Communications Corporation $100.00 $142.65 $166.18 $129.41
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Old Industry Peer Group 100.00 95.69 97.55 56.63
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New Industry Peer Group 100.00 86.62 86.27 65.37
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Nasdaq Composite (US) 100.00 113.63 128.19 139.80
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6
REPORT ON EXECUTIVE COMPENSATION
GENERAL. The foundation of the Corporation's compensation policy is to
offer compensation packages to attract, retain and motivate Executive
Officers over the long term. Prior to 1996, the compensation of Executive
Officers was reviewed and approved annually by the Chief Executive Officer of
the Corporation, Charles W. Ergen. Beginning in 1996, executive compensation
is reviewed by the Executive Compensation Committee (the "Committee"). The
two general elements in the Corporation's executive compensation program
consist of base salary and long-term incentive compensation in the form of
stock options and other awards offered under the Corporation's Incentive Plan.
BASE SALARIES. Annual base salaries paid to the Corporation's Executive
Officers have historically been fixed at levels below amounts paid to
Executive Officers with comparable experience and responsibilities at other
companies engaged in the same or similar business as the Corporation and with
other companies of similar size. Changes in annual base salaries paid to
Executive Officers are reviewed annually by the Committee and determined
based on recommendations from the Chief Executive Officer. Prior to
formation of the Committee in October 1995, changes in the base salaries of
Executive Officers were reviewed by Mr. Ergen annually. Factors considered
by Mr. Ergen are typically based on his perception of the individuals
performance, success in achieving personal and company goals, and planned
changes in responsibilities. Changes in the profitability of the Corporation
and the market value of its securities are typically not considered in
setting Executive Officer base compensation; however, an individual's
extraordinary efforts resulting in tangible increases in corporate, division
or department profitability are considered by Mr. Ergen in determining
increases in base salary.
STOCK OPTION AWARDS. Stock option grants under the Incentive Plan are
designed to provide an additional incentive to attract and retain Executive
Officers. In addition, stock options provide an incentive to Executive
Officers to increase shareholder value on a sustained basis. Management
believes that Executive Officers and other key employees, who are in a
position to make a substantial contribution to the long-term success of the
Corporation and to build shareholder value, should have a stake in the
Corporation's ongoing success. This focuses attention on managing the
Corporation as an owner with an equity position in the Corporation's business
and seeks to align the key employee's interest with the long-term interests
of shareholders. Stock options represent an important part of the
Corporation's compensation program for Executive Officers, and, similar to
other growing technology companies, represents a significant component of
overall compensation.
Awards under the Incentive Plan follow a review of the individual
employee's performance, tenure and position in the Corporation, and long-term
potential contribution to the Corporation. Generally, the number of options
granted to an employee is based on a dollar value divided by the fair market
value per Class A Share as reported in the Nasdaq's National Market System on
the date of grant. For example, a key employee may be granted $25,000 worth
of stock options, which at $20.00 per Class A Share results in the grant of
stock options to purchase 1,250 Class A Shares.
The dollar value awarded to key employees has typically ranged from
$25,000 to $500,000 and is generally determined based on the key employee's
level of responsibility, position in the Corporation, potential to contribute
to the long-term success of the Corporation or otherwise achieve significant
corporate goals and the number of options previously granted to the employee.
Neither Management nor the Board assign specific weights to these factors,
although the employee's position and a subjective evaluation of his
performance are considered most important. Awards are generally made to
Director level and above employees, although in certain circumstances grants
are made to certain other employees based on length of service or
contribution to the Corporation.
To encourage key employees to remain in the employ of the Corporation or
its subsidiaries, options granted under the Incentive Plan to date generally
vest and become exercisable over a five-year period. Options granted under
the Incentive Plan generally are not exercisable until one year after the
date of grant.
Stock options were awarded under the Incentive Plan to key employees on
August 1, 1996. In connection with these grants, the Corporation's Chief
Executive Officer, in consultation with members of the Board of Directors,
determined the recipients of stock options taking into account the respective
scope of accountability, strategic and operational goals and contribution of
each recipient.
7
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The compensation payable to
Charles W. Ergen, the Corporation's Chief Executive Officer, is generally
fixed at a level which the Committee believes is substantially below amounts
paid to Chief Executive Officers at other companies engaged in the same or
similar business as the Corporation.
Mr. Ergen's base salary for each of fiscal 1996 and fiscal 1995 was
$190,000. Changes in Mr. Ergen's base salary have historically been
determined by Mr. Ergen in consultation with members of the Board of
Directors, taking into consideration subjective factors generally unrelated
to the Corporation's level of profitability or the market value of the
Corporation's securities. Beginning in 1996, changes in the base salary of
Mr. Ergen are reviewed annually by the Committee based on recommendations
from the Board of Directors.
Mr. Ergen was granted stock options to purchase 17,030 Class A Shares in
August 1996, representing approximately 39.4% of the total options granted to
Executive Officers on that occasion, and approximately 12.3% of the total
stock options granted to key employees during all of fiscal 1996. The number
of options granted to Mr. Ergen in 1996 reflected his length of service and
contribution to the Corporation, among other factors.
Respectfully submitted,
The Committee
Alan M. Angelich
Raymond L. Friedlob
8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
EQUITY SECURITY OWNERSHIP
The following table sets forth, to the best knowledge of the Corporation,
the beneficial ownership of the Corporation's equity securities as of March
31, 1997 by: (i) each person known by the Corporation to be the beneficial
owner of more than five percent of any class of the Corporation's capital
stock; (ii) each Director or nominee of the Corporation; (iii) each executive
officer named in the Summary Compensation Table (collectively, the "Named
Executive Officers"); and (iv) all Directors and Executive Officers as a
group. Unless otherwise indicated, each person listed in the following table
(alone or with family members) has sole voting and dispositive power over the
shares listed opposite such person's name.
NUMBER OF PERCENTAGE OF
NAME(1) SHARES CLASS
- -------------------------------------------------- --------- -------------
8% SERIES A CUMULATIVE PREFERRED STOCK:
Charles W. Ergen (2)................................ 1,535,847 95.0%
James DeFranco ..................................... 80,834 5.0%
All Directors and Executive Officers as a Group
(nine persons)...................................... 1,616,681 100.0%
CLASS A COMMON STOCK:
Charles W. Ergen (3), (4), (5)......................31,381,273 72.0%
James DeFranco (6), (4)............................. 1,522,968 3.5%
FMR Corp. (7)....................................... 1,444,457 3.3%
R. Scott Zimmer (8), (4)............................ 816,897 1.9%
T. Rowe Price Associates, Inc. (9).................. 755,000 1.7%
SSE Telecom, Inc. (10).............................. 709,780 1.6%
Chancellor LGT Asset Management, Inc. (11).......... 609,200 1.4%
Carl E. Vogel (12), (4)............................. 278,944 *
Steven B. Schaver (13), (4)......................... 12,781 *
All Directors and Executive Officers as a Group
(nine persons) (4), (14)...........................34,090,618 78.2%
CLASS B COMMON STOCK:
Charles W. Ergen....................................29,804,401 100.0%
All Directors and Executive Officers as a Group
(nine persons).....................................29,804,401 100.0%
- -------------------
* Less than 1%.
(1) Except as otherwise noted, the address of each such person is 90
Inverness Circle East, Englewood, Colorado 80112-5300.
(2) Includes 1,125,000 Preferred Shares held in trust for the benefit of Mr.
Ergen's minor children and other members of his family. Mr. Ergen's spouse
is the trustee for that trust.
(3) Includes: (i) the right to acquire 35,081 Class A Shares within 60
days upon the exercise of employee stock options; (ii) 29,804,401 Class
A Shares issuable upon conversion of Mr. Ergen's Class B Shares; (iii)
410,847 Class A Shares issuable upon conversion of Mr. Ergen's Preferred
Shares; and (iv) 1,125,000 Class A Shares issuable upon conversion of
Preferred Shares held in trust for the benefit of Mr. Ergen's minor
children and other members of his family.
(4) Beneficial ownership percentage was calculated assuming exercise or
conversion of all Class B Shares, Preferred Shares, Warrants and
employee stock options exercisable within 60 days (collectively, the
"Derivative Securities") into Class A Shares by all holders of such
Derivative Securities. Assuming exercise or conversion of Derivative
Securities by such person, and only by such person, the beneficial
ownership of Class A Shares would be as follows: Mr. Ergen, 72.7%; Mr.
DeFranco, 12.8%, Mr. Zimmer, 6.9%; Mr. Vogel 2.4%, Mr. Schaver, less
than one percent, and all Officers and Directors as a group, 78.6%.
(5) The percentage of total voting power held by Mr. Ergen is 95.8%,
after giving effect to the exercise of the Warrants and employee stock
options.
9
(6) Includes: (i) the right to acquire 28,065 Class A Shares within 60
days upon the exercise of employee stock options; (ii) 80,834 Class A
Shares issuable upon conversion of Mr. DeFranco's Preferred Shares;
(iii) 751 Class A Shares held as custodian for his minor children; and
(iv) 375,000 Class A Shares controlled by Mr. DeFranco as general
partner of a partnership.
(7) Based on information available to the Corporation, FMR Corp. owned 12.3%
of the Class A Shares. The address of FMR Corp. is 82 Devonshire Street,
Boston, Massachusetts 02109.
(8) Includes: (i) the right to acquire 11,654 Class A Shares within 60
days upon the exercise of employee stock options; (ii) 700 Class A
Shares owned jointly with members of his family; and (iii) 100,000 Class
A Shares held in trust for the benefit of Mr. Zimmer's children and
other members of his family. Mr. Zimmer's spouse is the trustee for
that trust.
(9) Based on information available to the Corporation, T. Rowe Price
Associates, Inc. owned 6.4% of the Class A Shares. The address of
T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore,
Maryland 21202.
(10) Based on information available to the Corporation, SSET owns 6.0% of the
Class A Shares. The address of SSET is 8230 Leesburg Pike, Suite 710,
Vienna, Virginia 22182.
(11) Based on information available to the Corporation, Chancellor LGT Asset
Management, Inc. owned 5.2% of the Class A Shares. The address of
Chancellor LGT Asset Management, Inc. is 1166 Avenue of the Americas,
New York, New York 10036.
(12) Includes (i) the right to acquire 36,468 Class A Shares within 60
days upon the exercise of employee stock options and (ii) 247 Class A
Shares owned jointly with Mr. Vogel's spouse.
(13) Includes the right to acquire 12,761 Class A Shares within 60 days
upon the exercise of employee stock options.
(14) Includes: (i) the right to acquire 194,137 Class A Shares within
60 days upon the exercise of employee stock options; (ii) 375,000 Class
A Shares held in a partnership; (iii) 1,616,681 Class A Shares issuable
upon conversion of Preferred Shares; (iv) 29,804,401 Class A Shares
issuable upon conversion of Class B Shares; (v) 101,023 Class A Shares
held in the name of, or in trust for, minor children and other family
members; and (vi) 3,947 Class A Shares owned by or jointly with family
members.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain subsidiaries of the Corporation have agreed to indemnify Charles
W. Ergen, Chairman and Chief Executive Officer of the Corporation, James
DeFranco, Executive Vice President of the Corporation, R. Scott Zimmer, Vice
Chairman and Vice President of the Corporation, and Cantey M. Ergen, a former
Director of HTS and the spouse of Charles W. Ergen, for any adjustments to
such individuals' federal, state or local income taxes resulting from
adjustments to the Corporation's subsidiaries' taxable income or loss, tax
credits or tax credit recapture for years during which such individuals were
shareholders of such subsidiaries and such subsidiaries elected to be taxed
as Subchapter S corporations. This indemnity agreement also covers interest,
penalties and additions to tax, as well as fees and expenses, including
attorneys' and accountants' fees, if any. This indemnity agreement resulted
in 1996 taxable income to Messrs. Ergen, Defranco and Zimmer of approximately
$128,000, $36,000 and $10,000, respectively. See Item 11 -- Executive
Compensation.
As of December 31, 1996, accrued dividends on the Preferred Shares of
the Corporation payable to Messrs. Ergen and DeFranco aggregated $3.1 million
and $167,000, respectively.
Since March 1995, Mr. Ergen has served on the Board of Directors of
SSET. In 1994, the Corporation purchased $8.75 million of SSET's seven-year,
6.5% subordinated convertible debentures. In December 1994, DirectSat
Corporation, a subsidiary of SSET, was merged with a wholly-owned subsidiary
of the Corporation. As a result of this merger, SSET acquired 800,780 Class
A Shares of the Corporation. On September 6, 1996, SSET repurchased $3.5
million of the outstanding convertible debentures and paid all outstanding
accrued interest through that date. As of December 31, 1996, the SSET
debentures, if converted, would have represented approximately 5% of SSET's
outstanding common stock. The total amount owed by SSET to the Corporation
as of December 31, 1996 related to the convertible debentures was
approximately $3.6 million, including accrued interest.
10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(3) INDEX TO EXHIBITS
2.1 Amended and Restated Agreement for Exchange of Stock and Merger,
dated as of May 31, 1995, by and among EchoStar Communications
Corporation, a Nevada corporation formed in April 1995
("EchoStar"), Charles W. Ergen and EchoStar (incorporated by
reference to Exhibit 2.2 to the Registration Statement on Form S-1,
Registration No. 33-91276).
2.2 Plan and Agreement of Merger made as of December 21, 1995 by and
among EchoStar, Direct Broadcasting Satellite Corporation, a
Colorado Corporation ("MergerCo") and Direct Broadcasting Satellite
Corporation, a Delaware Corporation ("DBSC") (incorporated by
reference to Exhibit 2.3 to the Registration Statement on Form S-4,
Registration No. 333-03584).
2.3 Merger Trigger Agreement entered into as of December 21, 1995 by
and among EchoStar, MergerCo and Direct Broadcasting Satellite
Corporation, a Delaware Corporation ("DBSC") (incorporated by
reference to Exhibit 2.3 to the Registration Statement on Form S-4,
Registration No. 333-03584).
3.1(a) Amended and Restated Articles of Incorporation of EchoStar
(incorporated by reference to Exhibit 3.1(a) to the Registration
Statement on Form S-1, Registration No. 33-91276).
3.1(b) Bylaws of EchoStar (incorporated by reference to Exhibit 3.1(b) to
the Registration Statement on Form S-1, Registration No. 33-91276).
4.1 Indenture of Trust between Dish, Ltd. and First Trust National
Association ("First Trust"), as Trustee (incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form S-1 of Dish,
Ltd., Registration No. 33-76450).
4.2 Warrant Agreement between EchoStar and First Trust, as Warrant
Agent (incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-1 of Dish, Ltd., Registration No. 33-76450).
4.3 Security Agreement in favor of First Trust, as Trustee under the
Indenture of Trust between Dish, Ltd. and First Trust, as Trustee
Exhibit 4.1 (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-1 of Dish, Ltd., Registration No.
33-76450).
4.4 Escrow and Disbursement Agreement between Dish, Ltd. and First
Trust (incorporated by reference to Exhibit 4.4 to the Registration
Statement on Form S-1 of Dish, Ltd., Registration No. 33-76450).
4.5 Pledge Agreement in favor of First Trust, as Trustee under the
Indenture of Trust between Dish, Ltd. and First Trust, as Trustee
(incorporated by reference to Exhibit 4.5 to the Registration
Statement on Form S-1 of Dish, Ltd., Registration No. 33-76450).
4.6 Intercreditor Agreement among First Trust, Continental Bank, N.A.
and Martin Marietta Corporation ("Martin Marietta") (incorporated
by reference to Exhibit 4.6 to the Registration Statement on Form
S-1 of Dish, Ltd., Registration No. 33-76450).
4.7 Series A Preferred Stock Certificate of Designation of EchoStar
(incorporated by reference to Exhibit 4.7 to the Registration
Statement on Form S-1 of EchoStar, Registration No. 33-91276).
4.8 Registration Rights Agreement by and between EchoStar and Charles
W. Ergen (incorporated by reference to Exhibit 4.8 to the
Registration Statement on Form S-1 of EchoStar, Registration No.
33-91276).
4.9 Indenture of Trust between ESBC and First Trust, as Trustee
(incorporated by reference to Exhibit 4.9 to the Annual Report on
Form 10-K of EchoStar for the year ended December 31, 1995,
Commission File No. 0-26176).
E-1
4.10 Security Agreement of ESBC in favor of First Trust, as Trustee
under the Indenture of Trust between ESBC and First Trust
(incorporated by reference to Exhibit 4.10 to the Annual Report on
Form 10-K of EchoStar for the year ended December 31, 1995,
Commission File No. 0-26176).
4.11 Escrow and Disbursement Agreement between ESBC and First Trust
(incorporated by reference to Exhibit 4.11 to the Annual Report on
Form 10-K of EchoStar for the year ended December 31, 1995,
Commission File No. 0-26176).
4.12 Pledge Agreement of ESBC in favor of First Trust, as Trustee under
the Indenture of Trust between ESBC and First Trust (incorporated
by reference to Exhibit 4.12 to the Annual Report on Form 10-K of
EchoStar for the year ended December 31, 1995, Commission File No.
0-26176).
4.13 Pledge Agreement of EchoStar in favor of First Trust, as Trustee
under the Indenture of Trust between ESBC and First Trust
(incorporated by reference to Exhibit 4.13 to the Annual Report on
Form 10-K of EchoStar for the year ended December 31, 1995,
Commission File No. 0-26176).
4.14 Registration Rights Agreement by and between the ESBC, EchoStar,
Dish, Ltd., New DBSC and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 4.14 to the
Annual Report on Form 10-K of EchoStar for the year ended December
31, 1995, Commission File No. 0-26176).
10.1(a) Satellite Construction Contract, dated as of February 6, 1990,
between EchoStar Satellite Corporation ("ESC") and Martin Marietta
Corporation as successor to General Electric EchoStar, Astro-Space
Division ("General Electric") (incorporated by reference to Exhibit
10.1(a) to the Registration Statement on Form S-1 of Dish, Ltd.,
Registration No. 33-76450).
10.1(b) First Amendment to the Satellite Construction Contract, dated as of
October 2, 1992, between ESC and Martin Marietta as successor to
General Electric (incorporated by reference to Exhibit 10.1(b) to
the Registration Statement on Form S-1 of Dish, Ltd., Registration
No. 33-76450).
10.1(c) Second Amendment to the Satellite Construction Contract, dated as
of October 30, 1992, between ESC and Martin Marietta as successor
to General Electric (incorporated by reference to Exhibit 10.1(c)
to the Registration Statement on Form S-1 of Dish, Ltd.,
Registration No. 33-76450).
10.1(d) Third Amendment to the Satellite Construction Contract, dated as of
April 1, 1993, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(d)to the Registration Statement on Form
S-1 of Dish, Ltd., Registration No. 33-76450).
10.1(e) Fourth Amendment to the Satellite Construction Contract, dated as
of August 19, 1993, between ESC and Martin Marietta (incorporated
by reference to Exhibit 10.1(e)to the Registration Statement on
Form S-1 of Dish, Ltd., Registration No. 33-76450).
10.1(f) Form of Fifth Amendment to the Satellite Construction Contract,
between ESC and Martin Marietta (incorporated by reference to
Exhibit 10.1(f) to the Registration Statement on Form S-1 of
EchoStar, Registration No. 33-81234).
10.1(g) Sixth Amendment to the Satellite Construction Contract, dated as of
June 7, 1994, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(g) to the Registration Statement on Form
S-1 of Dish, Ltd., Registration No. 33-81234).
10.1(h) Eighth Amendment to the Satellite Construction Contract, dated as
of July 18, 1996, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(h) to the Form 10-Q of EchoStar as of
June 30, 1996, Commission File No. 0-26176).
10.2 Master Purchase and License Agreement, dated as of August 12, 1986,
between Houston Tracker Systems, Inc. ("HTS") and Cable/Home
Communications Corp. (a subsidiary of General Instruments
Corporation) (incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-1 of Dish, Ltd., Registration No.
33-76450).
E-2
10.3 Master Purchase and License Agreement, dated as of June 18, 1986,
between Echosphere and Cable/Home Communications Corp. (a
subsidiary of General Instruments Corporation) (incorporated by
reference to Exhibit 10.5 to the Registration Statement on Form S-1
of Dish, Ltd., Registration No. 33-76450).
10.4 Merchandising Financing Agreement, dated as of June 29, 1989,
between Echo Acceptance Corporation ("EAC") and Household Retail
Services, Inc. (incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-1 of Dish, Ltd., Registration No.
33-76450).
10.5 Key Employee Bonus Plan, dated as of January 1, 1994 (incorporated
by reference to Exhibit 10.7 to the Registration Statement on Form
S-1 of Dish, Ltd., Registration No. 33-76450).*
10.6 Consulting Agreement, dated as of February 17, 1994, between ESC
and Telesat Canada (incorporated by reference to Exhibit 10.8 to
the Registration Statement on Form S-1 of Dish, Ltd., Registration
No. 33-76450).
10.7 Form of Satellite Launch Insurance Declarations (incorporated by
reference to Exhibit 10.10 to the Registration Statement on Form
S-1 of Dish, Ltd., Registration No. 33-81234).
10.8 Dish, Ltd. 1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1 of Dish,
Ltd., Registration No. 33-76450).*
10.9 Form of Tracking, Telemetry and Control Contract between AT&T Corp.
and ESC (incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form S-1 of Dish, Ltd., Registration No.
33-81234).
10.10 Manufacturing Agreement, dated as of March 22, 1995, between HTS
and SCI Technology (incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-1 of Dish, Ltd., Commission
File No. 33-81234).
10.11 Manufacturing Agreement dated as of April 14, 1995 by and between
ESC and Sagem Group (incorporated by reference to Exhibit 10.13 to
the Registration Statement on Form S-1 of EchoStar, Registration
No. 33-91276).
10.12 Statement of Work, dated January 31, 1995 from EchoStar Satellite
Corporation Inc. to Divicom Inc. (incorporated by reference to
Exhibit 10.14 to the Registration Statement on Form S-1,
Registration No. 33-91276).
10.13 Launch Services Contract, dated as of June 2, 1995, by and between
EchoStar Satellite Corporation and Lockheed-Khrunichev-Energia
International, Inc. (incorporated by reference to Exhibit 10.15 to
the Registration Statement on Form S-1, Registration No. 33-91276).
10.14 EchoStar 1995 Stock Incentive Plan (incorporated by reference to
Exhibit 10.16 to the Registration Statement on Form S-1,
Registration No. 33-91276).*
10.15(a) Eighth Amendment to Satellite Construction Contract, dated as of
February 1, 1994, between DirectSat Corporation and Martin Marietta
Corporation (incorporated by reference to Exhibit 10.17(a) to the
Form 10-Q of EchoStar as of June 30, 1996, Commission File No.
0-26176).
10.15(b) Ninth Amendment to Satellite Construction Contract, dated as of
February 1, 1994, between DirectSat Corporation and Martin Marietta
Corporation (incorporated by reference to Exhibit 10.15 to the
Registration Statement of Form S-4, Registration No. 333-03584).
10.15(c)* Tenth Amendment to Satellite Construction Contract, dated
as of July 18, 1996, between DirectSat Corporation and Martin
Marietta Corporation (incorporated by reference to Exhibit 10.17(b)
to Form 10-Q of EchoStar as of June 30, 1996, Commission File No.
0-26176).
- -------------------
*Constitutes a management contract or compensatory plan or arrangement.
E-3
10.16 Satellite Construction Contract, dated as of July 18, 1996, between
EchoStar DBS Corporation and Lockheed Martin Corporation
(incorporated by reference to Exhibit 10.17(b) to Form 10-Q of
EchoStar as of June 30, 1996, Commission File No. 0-26176).
10.17 Confidential Amendment to Satellite Construction Contract between
DBSC and Martin Marietta Corporation, dated as of May 31, 1995
(incorporated by reference to Exhibit 10.15 to the Registration
Statement of Form S-4, Registration No. 333-03584).
10.18 Right and License Agreement by and among Houston Tracker Systems,
Inc. and Asia Broadcasting and Communications Network, Ltd., dated
December 19, 1996.**
10.19 Agreement between Houston Tracker Systems, Inc. and EchoStar
Satellite Corporation and ExpressVu Inc., dated January 8, 1997, as
amended.**
21 Subsidiaries of EchoStar Communications Corporation.**
23 Consent of Independent Public Accountants.
24 Powers of Attorney authorizing signature of Charles W. Ergen, R.
Scott Zimmer, James DeFranco, Alan M. Angelich and Raymond L.
Friedlob.**
27 Financial Data Schedule.**
- -------------------
**Previously filed.
E-4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, EchoStar has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ECHOSTAR COMMUNICATIONS CORPORATION
By: /s/ STEVEN B. SCHAVER
----------------------------------------------------
Steven B. Schaver
Chief Operating Officer and Chief Financial Officer
Date: April 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
EchoStar and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
* Chief Executive Officer and Director April 30, 1997
- -------------------------- (PRINCIPAL EXECUTIVE OFFICER)
Charles W. Ergen
/s/ STEVEN B. SCHAVER Chief Operating Officer and April 30, 1997
- -------------------------- Chief Financial Officer
Steven B. Schaver (PRINCIPAL FINANCIAL OFFICER)
/s/ JOHN R. HAGER Controller April 30, 1997
- -------------------------- (PRINCIPAL ACCOUNTING OFFICER)
John R. Hager
* Director April 30, 1997
- --------------------------
James DeFranco
* Director April 30, 1997
- --------------------------
R. Scott Zimmer
* Director April 30, 1997
- --------------------------
Alan M. Angelich
* Director April 30, 1997
- --------------------------
Raymond L. Friedlob
*By: /s/ STEVEN B. SCHAVER
--------------------------
Steven B. Schaver
Attorney-in-Fact
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-95292, 33-80527, 333-05575, 333-11597 and
333-22971.
ARTHUR ANDERSEN LLP
Denver, Colorado,
April 30, 1997
