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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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
incorporation or organization) Identification No.)
5701 S. SANTA FE DRIVE
LITTLETON, COLORADO 80120
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 723-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Class A
Common Stock, $0.01 par value Act:
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. [X]
As of February 25, 2002, the aggregate market value of Class A Common
Stock held by non-affiliates* of the Registrant approximated $5.2 billion 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 February 25, 2002, the Registrant's outstanding Common stock
consisted of 241,282,817 shares of Class A Common Stock and 238,435,208 shares
of Class B Common Stock, each $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Form 10-K by
reference:
Portions of the Registrant's definitive Proxy Statement to be filed in
connection with the Annual Meeting of Shareholders of Registrant to be held May
6, 2002 are incorporated by reference in Part III herein.
* 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
PART I
Disclosure regarding forward-looking statements ............................... 1
Item 1. Business ............................................................ 2
Item 2. Properties .......................................................... 28
Item 3. Legal Proceedings ................................................... 29
Item 4. Submission of Matters to a Vote of Security Holders ................. 35
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ................................................. 36
Item 6. Selected Financial Data ............................................. 37
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......... 56
Item 8. Financial Statements and Supplementary Data ......................... 57
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................ 57
PART III
Item 10. Directors and Executive Officers of the Registrant .................. 58
Item 11. Executive Compensation .............................................. 58
Item 12. Security Ownership of Certain Beneficial Owners and Management ...... 58
Item 13. Certain Relationships and Related Transactions ...................... 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ..... 59
Signatures ........................................................ 65
Index to Financial Statements .....................................F-1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 throughout this document. Whenever you
read a statement that is not simply a statement of historical fact (such as when
we describe what we "believe," "expect" or "anticipate" will occur, and other
similar statements), you must remember that our expectations may not be correct,
even though we believe they are reasonable. We do not guarantee that the
transactions and events described in this document will happen as described or
that they will happen at all. You should read this document completely and with
the understanding that actual future results may be materially different from
what we expect. Whether actual results will conform with our expectations and
predictions is subject to a number of risks and uncertainties. The risks and
uncertainties include, but are not limited to: our proposed merger with Hughes
Electronics Corporation may not occur as a result of: (1) the failure to obtain
necessary Internal Revenue Service, which is referred to as the IRS, tax
rulings, antitrust clearance, Federal Communications Commission, or FCC,
approval or the requisite approval from General Motors' stockholders, (2)
shareholder litigation challenging the merger, or (3) the failure to satisfy
other conditions; while we need substantial additional financing, we are highly
leveraged and subject to numerous constraints on our ability to raise additional
debt; we may incur unanticipated costs in connection with the Hughes merger
financing or any refinancings we must undertake or consents we must obtain to
enable us to consummate the Hughes merger; regulatory authorities may impose
burdensome terms on us as a condition of granting their approval of the Hughes
merger or the acquisition of Hughes' interest in PanAmSat, and legislative and
regulatory developments may create unexpected challenges for us; we may not
realize the benefits and synergies we expect from, and may incur unanticipated
costs with respect to, the Hughes merger due to delays, burdensome conditions
imposed by regulatory authorities, difficulties in integrating the businesses or
disruptions in relationships with employees, customers or suppliers; we are
party to various lawsuits which, if adversely decided, could have a significant
adverse impact on our business; we may be unable to obtain patent licenses from
holders of intellectual property or redesign our products to avoid patent
infringement; we may be unable to obtain needed retransmission consents, FCC
authorizations or export licenses; the regulations governing our industry may
change; our satellite launches may be delayed or fail, our satellites may fail
prematurely in orbit, we currently do not have traditional commercial insurance
covering losses incurred from the failure of launches and/or satellites; and we
may be unable to settle outstanding claims with insurers; weakness in the global
economy may harm our business generally, and adverse local political or economic
developments may occur in some of our markets; service interruptions arising
from technical anomalies on some satellites, or caused by war, terrorist
activities or natural disasters, may cause customer cancellations or otherwise
harm our business; we face intense and increasing competition from the cable
television industry, new competitors may enter the subscription television
business, and new technologies may increase competition; DISH Network subscriber
growth may decrease; subscriber turnover may increase; and subscriber
acquisition costs may increase; sales of digital equipment and related services
to international direct-to-home service providers may decrease; future
acquisitions, business combinations, strategic partnerships and divestitures may
involve additional uncertainties; the September 11, 2001 terrorist attacks and
changes in international political conditions as a result of these events may
continue to affect the U.S. and the global economy and may increase other risks;
and we may face other risks described from time to time in periodic reports we
file with the Securities and Exchange Commission. All cautionary statements made
herein should be read as being applicable to all forward-looking statements
wherever they appear. In this connection, investors should consider the risks
described herein and should not place undue reliance on any forward-looking
statements.
PART I
In this document, the words "we," "our," and "us" refer to EchoStar
Communications Corporation and its subsidiaries, unless the context otherwise
requires. "EDBS" refers to EchoStar DBS Corporation and its subsidiaries and
"EBC" refers to EchoStar Broadband Corporation and its subsidiaries. "General
Motors" or "GM" refers to General Motors Corporation, "Hughes" refers to Hughes
Electronics Corporation, or a holding company that is expected to be formed to
hold all of the stock of Hughes, and "PanAmSat" refers to PanAmSat Corporation,
in each case including their respective subsidiaries, unless the context
otherwise requires.
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ITEM 1. BUSINESS
OVERVIEW
Our common stock is publicly traded on the Nasdaq National Market under
the symbol "DISH". We conduct substantially all of our operations through our
subsidiaries. We operate two business units:
o The DISH Network -- a direct broadcast satellite subscription
television service, which we refer to as DBS, in the United
States. As of December 31, 2001, we had approximately 6.83 million
DISH Network subscribers; and
o EchoStar Technologies Corporation -- engaged in the design,
development, distribution and sale of DBS set-top boxes, antennae
and other digital equipment for the DISH Network, which we refer
to as EchoStar receiver systems, and the design, development and
distribution of similar equipment for international satellite
service providers, which we refer to as DTH.
RECENT DEVELOPMENTS
THE PROPOSED MERGER WITH HUGHES
On October 28, 2001, we signed definitive agreements with Hughes and
General Motors, which is Hughes' parent corporation, relating to our merger with
Hughes in a stock-for-stock transaction. Hughes, through its DIRECTV subsidiary,
is a provider of satellite-based entertainment information and communications
services for the home and business markets, including video, data, voice,
multimedia and Internet service, including DBS Services. Hughes also owns an
approximately 81% equity interest in PanAmSat, a global provider of video and
data broadcasting services through 21 satellites it owns and operates.
The following description of the Hughes merger and related transactions
and the PanAmSat acquisition summarizes the terms of a series of detailed
agreements. We filed copies of these agreements with the Securities and Exchange
Commission on October 31, 2001 on a Current Report on Form 8-K. A more detailed
description of the Hughes merger and related transactions and the PanAmSat
acquisition will be contained within an information statement on Schedule 14C of
us, which we refer to as the EchoStar information statement and which is
expected to be filed by us with the SEC in the middle of March 2002. We expect
to distribute the information statement to our common stockholders this summer.
You may read and copy any document that we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to you free of charge at the SEC's website at
http://www.sec.gov.
The surviving corporation in the merger will carry the EchoStar name
and will provide DBS services in the United States and Latin America, primarily
under the DIRECTV brand name. It will also provide global fixed satellite
services and other broadband communication services. The merger is subject to
the prior separation of Hughes from GM by way of a recapitalization of Hughes
and split-off of Hughes from GM. As a result of these transactions, the Hughes
holding company would become an independent, publicly owned company, separate
from GM. This is a condition to our obligation to complete the merger.
Immediately following the Hughes split-off, the businesses of Hughes and
EchoStar would be combined in the merger. Pursuant to the merger, we would merge
with and into the Hughes holding company to form New EchoStar.
The board of directors of New EchoStar will consist of eleven members,
as mutually agreed by Hughes and EchoStar, eight of whom are current directors
and/or officers of EchoStar and three of whom are current directors and/or
officers of Hughes. Charles W. Ergen will be the Chairman of the Board and Chief
Executive Officer of New EchoStar.
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Three classes of New EchoStar common stock would be outstanding
immediately after the merger:
o Class A common stock, which would be distributed to holders of
our class A common stock in the merger. Holders of our class A
common stock would receive 1/0.73, or about 1.3699, shares of New
EchoStar class A common stock in exchange for each share of our
class A common stock they own at the time of the merger;
o Class B common stock, which would be distributed to holders of
our class B common stock in the merger. A trust controlled by Mr.
Ergen owns all of the outstanding shares of our class B common
stock. Holders of our class B common stock would receive 1/0.73,
or about 1.3699, shares of New EchoStar class B common stock in
exchange for each share of our class B common stock they own at
the time of the merger; and
o Class C common stock, which would be distributed to holders of GM
class H common stock in the Hughes split-off. Holders of GM class
H common stock would receive one share of New EchoStar class C
common for each share of GM class H common stock they own at the
time of the Hughes split-off.
Immediately after the completion of the Hughes merger, based on certain
assumptions about a number of variables, the New EchoStar class A common stock
is expected to represent approximately 25.6% of the outstanding common stock of
New EchoStar (representing approximately 6.0% of the voting power of New
EchoStar), the New EchoStar class B common stock is expected to represent
approximately 16.4% of the outstanding common stock of New EchoStar
(representing approximately 38.7% of the voting power of New EchoStar), and the
New EchoStar class C common stock is expected to represent approximately 58.0%
of the outstanding common stock of New EchoStar (representing approximately
55.3% of the voting power of New EchoStar). The actual outstanding shares and
voting power percentages immediately after the completion of the merger could
vary materially from the estimated amounts due to changes in the outcomes of
various assumptions.
The recapitalization and split-off of Hughes is subject to the approval
of the common stockholders of General Motors. GM common stockholders will be
asked to approve the recapitalization and split-off by a stockholder consent
solicitation statement included in a registration statement on Form S-4 of the
Hughes holding company, which will also include the related prospectus and our
information statement. The merger with Hughes has already received all required
stockholder approvals, including approval by GM, as the sole stockholder of
Hughes, and approval by a trust controlled by Mr. Ergen, the holder of our
common stock representing approximately 90% of the voting power of us.
The proposed transactions also are subject to anti-trust clearance and
approval by the Federal Communications Commission. In addition, the transactions
are contingent upon the receipt of a favorable ruling from the IRS that the
separation of Hughes from GM will be tax-free to GM and its stockholders for
U.S. federal income tax purposes and are subject to various other conditions.
While there can be no assurance, the transactions are currently expected to
close in the second half of 2002.
Consummation of the Hughes merger and related transactions will require
at least $7.025 billion of cash. At the time of signing of the merger agreement,
we had approximately $1.5 billion of available cash on hand, and obtained $5.525
billion in bridge financing commitments for the Hughes merger and related
transactions. These commitments have been reduced to $3.325 billion as a result
of the sale of $700 million of 9 1/8% senior notes by EDBS and $1.5 billion of
our series D preferred stock to Vivendi. Any other financings we complete prior
to closing of the Hughes merger will generally further reduce the bridge
financing commitments dollar-for-dollar. The remaining approximately $3.325
billion of required cash, is expected to come from new cash raised by us, Hughes
or a subsidiary of Hughes on or prior to the closing of the merger through
public or private debt or equity offerings, bank debt or a combination thereof.
The amount of such cash that could be raised by us prior to completion of the
Hughes merger is severely restricted. Our agreements with GM and Hughes prohibit
us from raising any additional equity capital beyond the $1.5 billion Vivendi
investment. The prohibition will likely continue for two years following
completion of the Hughes merger, absent possible favorable IRS rulings or
termination of the Hughes merger. Further, our agreements with GM and Hughes
place substantial restrictions on our ability to raise additional debt prior to
the closing of the Hughes merger.
If Hughes cannot complete the merger with us, we may be required to
purchase Hughes' interest in PanAmSat, merge with PanAmSat or make a tender
offer for all of PanAmSat's shares and may also be required to pay a $600
million termination fee to Hughes. If we purchase the Hughes interest in
PanAmSat rather than undertaking the merger or the tender offer, we must make
offers for all PanAmSat shares that remain outstanding. We expect that our
acquisition of Hughes' interest in PanAmSat, which would be at a price of $22.47
per share, together with our assumed purchase of the remaining outstanding
PanAmSat shares and our payment of the termination fee to GM would require at
least $3.4 billion of cash and approximately $600 million of our class A common
stock. We
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expect that we would meet this cash requirement by utilizing a portion of cash
on hand.
Our Reasons for the Merger
Our primary objective is to continue to provide a leading multi-channel
subscription television service, to expand our DBS subscriber base, and to
further develop as an integrated full service satellite company. Our planned
merger with Hughes will help facilitate this objective. We plan to:
Integrate DIRECTV and our networks: We intend to integrate DIRECTV and
our networks to realize economies of scale and to offer enhanced services by:
o eliminating duplicative programming and utilizing reclaimed
broadcast spectrum to deliver more program and service offerings;
o standardizing DIRECTV and our set-top boxes to offer a common
service platform to customers and reduce the cost of set-top
boxes;
o combining and improving the two distribution networks; and
o consolidating satellite uplink, customer service and other
facilities and infrastructure.
Generating substantial cost and revenue synergies: We believe the
combined companies can generate cost synergies by:
o reducing subscriber acquisition costs by, among other things,
standardizing and reducing the cost of set-top boxes;
o reducing churn through better control of piracy, by offering
increased services and creating increased customer loyalty;
o reducing programming costs as a result of our larger combined
subscriber base; and
o eliminating duplicative overhead.
We also believe the combined companies can generate revenue synergies
by:
o introducing local-to-local service in all markets;
o expanding two-way high-speed satellite Internet consumer and
business offerings by providing broadband Internet services at
more attractive pricing;
o expanding new high definition television, video-on-demand,
pay-per-view, educational programming and other programming
offerings; and
o generating new sources of local and national advertising revenue.
Expand two-way high-speed satellite Internet access offerings: We plan
to expand "always-on" two-way high-speed Internet access to consumers and
businesses. Our broadband offering could play an important role in spanning the
"digital divide" between urban and suburban customers who have multiple choices
for high-speed Internet access, and rural customers who have few or no choices
for high-speed Internet access. We also believe this service could be successful
in urban and suburban markets.
Improve the operating performance of PanAmSat: We intend to increase
PanAmSat's profitability by:
o increasing satellite capacity utilization;
o creating comprehensive service packages including encryption,
customer care and other services
o exploring new markets; and
o implementing cost savings.
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Leverage Hughes' and our combined research and developments efforts: We
plan to leverage the engineering capabilities of the combined companies to
expand the features and functionality of their satellite receiver systems. These
features will include a wide variety of innovative interactive television
services and applications. In addition, we will continue to enhance our
satellite-based broadband communications platform.
STRATEGIC ALLIANCE WITH VIVENDI UNIVERSAL AND SALE OF SERIES D CONVERTIBLE
PREFERRED STOCK
On January 22, 2002, a subsidiary of Vivendi acquired 5,760,479 shares
of our series D convertible preferred stock for $1.5 billion, or approximately
$260.40 per share. Each share of the series D preferred stock has the same
economic (other than liquidation) and voting rights as ten shares of our class A
common stock into which it is convertible and has a liquidation preference equal
to approximately $260.40 per share. Immediately prior to consummation of the
Hughes merger, or as described in our agreement with Vivendi if the Hughes
merger is not consummated, the series D preferred stock will convert into shares
of our class A common stock, which will then be exchanged for shares of class A
common stock of the surviving corporation in the Hughes merger. The series D
preferred stock is also convertible into shares of our class A common stock at
any time at the option of the holder and automatically upon the occurrence of
certain other specified events.
In connection with the purchase of the series D convertible preferred
stock, Vivendi also received contingent value rights, intended to provide
protection against any downward price movements in the class A common stock to
be issued upon conversion of the series D convertible preferred stock. The
maximum payment under the rights is $225 million if the Hughes merger is
completed and the price of our class A common stock falls below $26.04 per
share on the date specified below, or $525 million if the Hughes merger is not
completed and the price of our class A common stock falls below $26.04 per share
on the date specified below. Any amount owing under these rights would be
settled three years after completion of the Hughes merger, except in certain
limited circumstances. In addition, if the Hughes merger is not consummated,
these rights will be settled 30 months after the acquisition of Hughes' 81%
interest in PanAmSat or the termination of the merger agreement and the PanAmSat
stock purchase agreement.
We filed copies or forms of certain of the definitive agreements
relating to the Vivendi investment with the Securities and Exchange Commission
on December 21, 2001 on a Current Report on Form 8-K. You may read and copy any
of these agreements that we filed at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. These
agreements are also available to you free of charge at the SEC's website at
http://www.sec.gov.
In addition, Vivendi and we announced an eight-year strategic alliance
in which Vivendi will develop and provide our DISH Network customers in the U.S.
a variety of programming and interactive television services.
As part of this alliance, Vivendi plans to offer our DISH Network
customers five new non-exclusive channels of basic and niche programming
content. Vivendi will also offer expanded pay-per-view and video-on-demand
movies. These services are expected to begin to launch in the fall of 2002.
Customary fees per subscriber will be paid by us. Vivendi and we also intend to
work together on a programming initiative to develop new non-exclusive
satellite-delivered broadband channels featuring interactive games, movies,
sports, education, and music to be launched within a three-year period following
consummation of the agreement.
Also as part of the alliance, we will integrate Vivendi's advanced,
interactive middleware technology, MediaHighway, a Canal+Technology, as a
non-exclusive middleware solution that will provide DISH Network customers using
personal video recorders unique interactive television services, such as movies
from Vivendi and music from Universal Music Group.
As part of this alliance, Jean-Marie Messier, Chairman and CEO of
Vivendi, has become a member of our Board of Directors, and he will continue as
a director following our proposed Hughes merger.
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ECHOSTAR VII
EchoStar VII was launched on February 21, 2002 from Cape Canaveral,
Florida. EchoStar VII will be tested at the 129 degree orbital location and will
then be moved to the 119 degree orbital location for commercial service.
Assuming successful completion of in-orbit testing, EchoStar VII is expected to
commence commercial service at the 119 degree orbital location during the second
quarter of 2002. EchoStar VII is planned to replace the capacity of the EchoStar
IV satellite, which has experienced a series of anomalies materially impacting
its functionality. Operating from the 119 degree orbital location, EchoStar VII,
assuming successful completion of in-orbit testing, will also provide local
channels by satellite to consumers in Alaska and Hawaii. EchoStar VII, together
with EchoStar VIII which is expected to launch this summer, will also improve
spectrum efficiency, enhance the quality of video channels for all DISH Network
customers, provide a broader array of programming choices to consumers in Alaska
and Hawaii, and increase in-orbit backup capacity.
DISH NETWORK
We started offering subscription television services on the DISH
Network in March 1996. As of December 31, 2001, the DISH Network had
approximately 6.83 million subscribers. We now have seven DBS satellites in
orbit that enable us to offer over 500 video and audio channels, together with
limited data services and high definition and interactive TV services, to
consumers across the contiguous United States. We believe that the DISH Network
offers programming packages that have a better "price-to-value" relationship
than packages currently offered by most other subscription television providers.
As of December 31, 2001, there were approximately 18.4 million subscribers to
DBS and other direct-to-home satellite services in the United States. We believe
that there are more than 88 million total pay television subscribers in the
United States, and that there continues to be significant unsatisfied demand for
high quality, reasonably priced television programming services.
COMPONENTS OF A DBS SYSTEM
In order to provide programming services to DISH Network subscribers,
we have entered into agreements with video, audio and data programmers, who
deliver their programming content to our digital broadcast operations centers in
Cheyenne, Wyoming and Gilbert, Arizona, via commercial satellites, fiber optics
or microwave transmissions. We monitor those signals for quality, and can add
promotional messages, public service programming or other information. Equipment
at our digital broadcast operations centers then digitizes, compresses, encrypts
and combines the signal with other necessary data, such as conditional access
information. We then "uplink" or transmit the signals to one or more of our DBS
satellites which we then broadcast directly to DISH Network subscribers.
In order to receive DISH Network programming, a subscriber needs:
o a satellite antenna, which people sometimes refer to as a "dish,"
and related components;
o an integrated receiver/decoder, which people sometimes refer to as
a "satellite receiver" or "set-top box"; and
o a television set.
Set-top boxes communicate with our authorization center through
telephone lines to, among other things, report the purchase of pay-per-view
movies and other events.
Conditional Access System. We use conditional access technology to
encrypt the programming so only those who pay can receive the programming. We
use microchips embedded in credit card-sized access cards, or "smart cards" to
control access to authorized programming content. We own 50% of NagraStar LLC, a
joint venture that provides us with smart cards. Nagra USA owns the other 50% of
NagraStar. NagraStar purchases these smart cards from Nagra Plus SA, a Swiss
company. These smart cards, which we can update or replace periodically, are a
key element in preserving the security of our conditional access system. When a
consumer orders a particular channel, we send a message by satellite that
instructs the smart card to permit decryption of the programming for viewing by
that consumer. The set-top box then decompresses the programming and sends it to
the consumer's television.
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The delivery of subscription programming requires the use of encryption
technology to assure that only those who pay can receive the programming. It is
illegal to create, sell or otherwise distribute mechanisms or devices to
circumvent that encryption. Theft of subscription television programming has
been widely reported and our signal encryption has been pirated and could be
further compromised in the future. Theft of our programming reduces future
potential revenue and increases our net subscriber acquisition costs. We
continue to respond to compromises of our encryption system with measures
intended to make signal theft of our programming commercially uneconomical. We
utilize a variety of tools to continue to accomplish this goal. If we cannot
promptly correct a compromise in our encryption technology, it would adversely
affect our ability to contract for video and audio services provided by
programmers.
Programming. We use a "value-based" strategy in structuring the content
and pricing of programming packages available from the DISH Network. For
example, we currently sell our entry-level "America's Top 50" programming
package, which includes 50 of the most popular video channels, to consumers in
digital format for $22.99 per month. We estimate cable operators charge over $30
per month, on average, for their entry-level expanded basic service that
typically consists of approximately 55 analog channels. We believe that our
"America's Top 100 CD" programming package, which we currently sell for $31.99
per month, also compares favorably to similar cable television programming. We
believe that our America's Top 100 CD package is similar to an expanded basic
cable package plus a digital music service. Based on cable industry statistics,
we estimate that cable operators would typically charge in excess of $40 per
month for a similar package. In addition to the above mentioned programming
packages, we also offer our "America's Top 150" programming package for $40.99
per month and our America's "Everything" Pak, which combines our America's Top
150 programming package and all four premium movie packages for $72.99 per
month.
For an additional $5.99 per month, we can add satellite-delivered local
channels to any of the above packages for consumers in 36 of the largest markets
in the continental United States. The use of spot-beam technology on EchoStar
VII, in conjunction with the operation of EchoStar VIII, which is expected to
launch this summer, would enable us to increase the number of markets where we
provide local channels by satellite, but will reduce the number of channels that
could otherwise be offered ubiquitously across the United States.
We currently offer four premium movie packages which include up to ten
movie channels per package. Currently consumers can subscribe to a single
premium movie package including ten movie channels for only $11.99 per month. We
believe we offer more premium movie channels than cable typically offers at a
comparable price.
Currently, we offer more than 50 foreign-language channels including
Spanish, Arabic, French, Hindi, Russian, Greek and others. We also offer
foreign-language programming packages. For example, we believe that our "DISH
Latino" package, which includes more than 20 Spanish-language programming
channels for $20.99 per month, is the most complete Spanish-language package
available in the United States. We also offer "DISH Latino Dos", our bilingual
programming package, which includes more than 20 English and more than 20
Spanish-language programming channels for $31.99 per month. In addition, during
January 2002, we introduced "DISH Latino Max", which includes more than 60
English and more than 20 Spanish-language programming channels for $39.99 per
month. We believe we deliver the most popular foreign-language programming to
customers in the United States at the best value. We also believe
foreign-language programming is a valuable niche product that attracts a number
of new subscribers who are unable to get similar programming elsewhere.
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EchoStar Receiver Systems. EchoStar receiver systems include a small
satellite dish, a digital satellite receiver that unscrambles signals for
television viewing, a remote control, and other related components. We offer a
number of set-top box models. Our standard system comes with an infrared
universal remote control, an on-screen interactive program guide and V-chip type
technology for parental control. Our premium model includes a hard disk drive
enabling additional features such as personal video recording of up to 35 hours
of programming, an infrared, UHF universal remote, and an expansion port for
future upgradeability. We also offer a variety of specialized products such as
HDTV receivers. DISH Network reception equipment is incompatible with
competitors' systems in the United States.
Although we internally design and engineer our receiver systems, we
outsource manufacturing to high-volume contract electronics manufacturers.
Sanmina-SCI Corporation (formerly known as SCI Systems, Inc.), a high-volume
contract electronics manufacturer, is the primary manufacturer of our receiver
systems. JVC also manufactures some of our receiver systems. In addition, during
January 2002, we signed an agreement with Thomson Multimedia, S.A., a French
company, to manufacture DISH Network compatible satellite TV receiver under the
RCA brand name. Thomson anticipates commencing production by mid-year 2002.
Installation. While many consumers have the skills necessary to install
our equipment in their homes, we believe that most installations are best
performed by professionals, and that on time, quality installations are
important to our success. Consequently, we are continuing to expand our
installation business, conducted through our DISH Network Service Corporation
subsidiary. In addition to expanding our internal installation capability, we
also utilize independent installation providers. Independent installers are held
to DISH Network Service Corporation service standards to attempt to ensure each
DISH Network customer receives the same quality
8
installation and service. Our offices and independent installers are
strategically located throughout the continental United States, in order to
enable us to provide service to a greater number of DISH Network customers
throughout the country. Although there can be no assurance, we believe the
continued expansion of our installation business will help continue to improve
quality control, decrease wait time on service calls and new installations and
help us to better accommodate anticipated subscriber growth.
Customer Service Centers. We currently own and operate customer service
centers in Thornton, Colorado, Littleton, Colorado, McKeesport, Pennsylvania, El
Paso, Texas, Christiansburg, Virginia and Bluefield, West Virginia. These
centers field all of our customer service calls. Potential and existing
subscribers can call a single telephone number to receive assistance for
hardware, programming, installation and technical support. We continue to work
to automate simple phone responses and to increase internet-based customer
assistance, in order to better manage customer service costs.
Digital Broadcast Operations Centers. Our principal digital broadcast
operations center is located in Cheyenne, Wyoming. In 1999, we acquired a second
digital broadcast operations center in Gilbert, Arizona. During 2000, we
completed the first phase of the "build-out" of the Gilbert facility for use as
a back up for our main digital broadcast operations center in Cheyenne. In order
to comply with "must-carry" rules, effective January 1, 2002 (see "-Government
Regulation"), we began utilizing the Gilbert facility as an additional digital
broadcast operations center. Upon commercial operation of EchoStar VII and
EchoStar VIII, we plan on expanding the role of the Gilbert facility. Almost all
of the functions necessary to provide satellite-delivered services occur at the
digital broadcast operations centers. The digital broadcast operations centers
use fiber optic lines and downlink antennas to receive programming and other
data. The digital broadcast operations centers uplink programming content to our
DBS satellites via large uplink antennas. The digital broadcast operations
centers also maintain a number of large uplink antennas and other equipment
necessary to modulate and demodulate the programming and data signals. Equipment
at our digital broadcast operations centers perform substantially all
compression and all encryption of the DISH Network's programming signals.
Subscriber Management. We presently use, and are dependent on, CSG
Systems Incorporated's software system, for all DISH Network subscriber
management and billing functions.
Sales and Marketing. Independent dealers and distributors, retailers
and consumer electronics stores currently sell EchoStar receiver systems and
DISH Network programming services. While we also sell receiver systems and
programming directly, independent dealers are responsible for most of our sales.
These independent dealers are primarily local retailers who specialize in TV and
home entertainment systems. In addition, beginning in 2002, RadioShack
Corporation will sell EchoStar receiver systems and DISH Network programming
services through its more than 5,000 stores and dealers nationwide.
We intend to enhance consumer awareness of our products by continuing
to form alliances with nationally recognized distributors of other consumer
electronics products. We currently have an agreement with JVC to distribute our
receiver systems under its label through certain of its nationwide retailers.
We offer our distributors and retailers a competitive residual
commission program. The program pays qualified distributors and retailers an
activation bonus, and pays active retailers a fixed monthly residual commission
dependent on continued consumer subscription to programming.
We use regional and national broadcast and print advertising to promote
the DISH Network. We also offer point-of-sale literature, product displays,
demonstration kiosks and signage for retail outlets. We provide guides to our
dealers and distributors at nationwide educational seminars and directly by
mail, that describe DISH Network products and services. Our mobile sales and
marketing team visits retail outlets regularly to reinforce training and ensure
that these outlets quickly fulfill point-of-sale needs. Additionally, we
dedicate one DISH Network channel and provide a retailer specific website to
provide information about special services and promotions that we offer from
time to time.
9
Our future success in the subscription television industry depends on
our ability to acquire and retain DISH Network subscribers, among other factors.
Beginning in 1996, to stimulate subscriber growth, expand retail distribution of
our products and build consumer awareness of the DISH Network brand, we reduced
the retail price charged to consumers for EchoStar receiver systems.
Accordingly, since August 1996, we have provided varying levels of subsidies and
incentives to attract customers, including free or subsidized receiver systems,
installations, antenna, programming and other items. The amount of the subsidy
varies depending on many factors. This marketing strategy emphasizes our
long-term business strategy of maximizing future revenue by selling DISH Network
programming to the largest possible subscriber base and rapidly increasing the
size of that subscriber base. Since we subsidize certain consumer up-front
costs, we incur significant costs each time we acquire a new subscriber.
Although there can be no assurance, we believe that we will be able to fully
recoup the up-front costs of subscriber acquisition from future subscription
television services revenue.
During July 2000, we began offering our DISH Network subscribers the
option to lease receiver systems under our Digital Home Plan promotion. The
Digital Home Plan offers consumers the ability to lease from one to four
receiver systems with a one-year commitment to one of several qualifying
programming packages. With each plan, consumers receive in-home service and pay
a one-time set-up fee. We expect this marketing strategy will reduce the cost of
acquiring future subscribers by maintaining ownership of the receiver systems.
Upon termination of the Digital Home Plan, subscribers are required to return
the receiver to us. While we do not recover all of the equipment upon
termination of service, receivers that are recovered after deactivation are
refurbished and re-deployed at a much lower cost to us.
Internet and Interactive Services. We are continuing to expand our
offerings to include interactive and two-way high-speed Internet access. During
2001, we began offering DISH Network customers an interactive digital receiver
with a built-in hard disk drive that permits viewers to pause and record live
programs without the need for videotape. We now offer receivers capable of
storing up to 35 hours of programming, and expect to increase storage capacity
on future models to over 100 hours. We also are offering set-top boxes that can
provide a wide variety of innovative interactive television services and
applications.
Through our strategic investment in StarBand Communications, we offer
consumers two-way, high-speed satellite Internet access along with DISH Network
satellite television programming via a single dish. We believe this technology
is particularly well-suited for areas without cable or DSL infrastructure.
Two-way satellite Internet service offers significant benefits for consumers,
including an "always on" connection that saves time over dial-up methods and
eliminates the need for a second phone line. DISH Network customers need an
oblong dish, approximately 24 inches by 36 inches, and other equipment to take
advantage of two-way satellite Internet service. We currently offer consumers a
complete hardware and services solution for broadband Internet access combined
with DISH Network programming. For new customers who subscribe to a qualifying
DISH Network programming package and commit to one year of StarBand Internet
service, the StarBand hardware is currently offered for $549 and a standard
professional installation starts at $199. We currently offer a bundled price of
$100.99 per month for customers who subscribe to both DISH Network's America's
Top 150 programming package and the StarBand Internet service. See "- Liquidity
and Capital Resources."
We have also invested in Ka-band spot beam technology. While Ka-band
spot beam technology is currently in its infancy, and the technology might not
develop to the point where it is viable, we believe that spot beam Ka-band
satellites could become a cost effective way to offer consumers high-speed
two-way Internet access in the future. If Ka-band satellites prove to be viable,
they will be able to serve rural and other areas where high speed DSL and cable
modem service is not available. Thus, Ka-band technology might play an important
role in spanning the digital divide between urban and rural consumers. We
believe the service might also be successfully offered in urban and suburban
areas as well.
In an effort to continue to position ourselves to exploit this
potential opportunity, during November 2000, one of our wholly owned
subsidiaries purchased a 49.9% interest in VisionStar, Inc. VisionStar holds an
FCC license, and is constructing a Ka-band satellite, to launch into the 113
degree orbital location. In February 2002, we increased our ownership of
VisionStar to 90%, for a total purchase price of approximately $2.8 million. In
addition, we have made loans to VisionStar totaling approximately $4.6 million
as of December 31, 2001. In October 2001, upon approving the acquisition of
VisionStar by us, the FCC conditioned the license transfer on our completion of
construction of the satellite by April 2002, launching the satellite by May
2002, and reporting any change in the status of the spacecraft contract. We will
not complete construction or launch of the satellite by those dates and will
have to ask the FCC for an extension. Failure to meet any of these conditions or
receive an extension, of which there can be no assurance, could result in the
revocation of the Ka-band license at the 113 degree orbital location and could
materially impact our ability to recover our VisionStar investments. See "-
Government Regulation".
We are also seeking additional ways to expand our two-way high-speed
Internet access and high-speed data services that may include, but are not
limited to, partnerships with third parties who have particular expertise in the
high speed transmission of digital information. Although there can be no
assurance, we believe we will be able to increase our subscriber base and our
average revenue per subscriber by offering these and other similar services.
Satellites. We presently have six DBS satellites in geostationary orbit
approximately 22,300 miles above the equator and a seventh recently launched DBS
satellite that is currently undergoing transfer-orbit and test operations.
Satellites are located in orbital positions, or slots, that are designated by
their longitude. An orbital position describes both a physical location and an
assignment of spectrum in the applicable frequency band. The FCC has divided
each orbital position into 32 DBS frequency channels. Each transponder on our
satellites can exploit one frequency channel. Through digital compression
technology, we can currently transmit between eight and ten digital video
channels from each transponder, on average. The FCC licensed us to operate 96
DBS frequencies at various orbital positions including:
o 21 frequencies at the 119 degree orbital location and 29
frequencies at the 110 degree orbital location, both capable of
providing service to the entire continental United States;
o 11 frequencies at the 61.5 degree orbital location, capable of
providing service to the Eastern and Central United States;
o 24 frequencies at the 148 degree orbital location, capable of
providing service to the Western United States;
o 22 frequencies at the 175 degree orbital location, capable of
providing service to only the most western portion of the United
States. See "-- Government regulation;" and
o 11 additional as yet unassigned frequencies, likely to be made
available at the 175 degree orbital location, but only if certain
regulatory hurdles are met. See "-- Government regulation."
EchoStar I and EchoStar II each have 16 transponders that operate at
130 watts of power. Subject to the anomalies described below, EchoStar III and
EchoStar IV each have 32 transponders that operate at approximately 120 watts
per channel, switchable to 16 transponders operating at over 230 watts per
channel. EchoStar V has 32 transponders that operate at approximately 110 watts
per channel, switchable to 16 transponders operating at approximately 220 watts
per channel. EchoStar VI has 32 transponders that operate at approximately 120
watts per channel, switchable to 16 transponders operating at approximately 240
watts per channel. EchoStar VII should be capable of operating 32 DBS
transponders at 120 watts each, switchable to 16 DBS transponders operating at
240 watts each and includes spot-beam technology. In conjunction with the
operation of EchoStar VIII, the use of spot-beams would enable us to increase
the number of markets where we provide local channels by satellite, but will
reduce the number of video channels that could otherwise be offered ubiquitously
across the United States. Each transponder
10
can transmit multiple digital video, audio and data channels. Each of our
satellites has a minimum design life of 12 years.
Most of our core programming is broadcast from the 119 degree orbital
location. We currently are utilizing the 110 degree orbital location, where
EchoStar V is located, to enhance revenue opportunities with new value added
services for our current and future subscribers.
EchoStar VII was launched on February 21, 2002 from Cape Canaveral,
Florida. EchoStar VII will be tested at the 129 degree orbital location and will
then be moved to the 119 degree orbital location for commercial service.
Assuming successful completion of in-orbit testing, EchoStar VII is expected to
commence commercial service at the 119 degree orbital location during the second
quarter of 2002. EchoStar VII is planned to replace the capacity of the EchoStar
IV satellite, which has experienced a series of anomalies materially impacting
its functionality. Operating from the 119 degree orbital location, EchoStar VII,
assuming successful completion of in-orbit testing, will also provide local
channels by satellite to consumers in Alaska and Hawaii. EchoStar VII, together
with EchoStar VIII which is expected to launch this summer, will also improve
spectrum efficiency, enhance the quality of video channels for all DISH Network
customers, provide a broader array of programming choices to consumers in Alaska
and Hawaii, and increase in-orbit backup capacity.
As a result of the failure of EchoStar IV solar arrays to fully deploy
and the failure of 30 transponders to date, a maximum of approximately 14 of the
44 transponders on EchoStar IV are available for use at this time. In addition
to the transponder and solar array failures, EchoStar IV has experienced
anomalies affecting its thermal systems and propulsion system. Consequently, the
total remaining useful life of EchoStar IV is currently approximately two years.
There can be no assurance that further material degradation, or total loss of
use, of EchoStar IV will not occur in the immediate future.
During January 2002, a transponder pair on EchoStar III failed,
resulting in a temporary interruption of service. The operation of the satellite
was quickly restored. Including the five transponders pairs that malfunctioned
in prior years, these anomalies have resulted in the failure of a total of
twelve transponders on the satellite to date. While a maximum of 32 transponders
can be operated at any time, the satellite was equipped with a total of 44
transponders to provide redundancy. In addition, we are only licensed by the FCC
to operate 11 transponders at the 61.5 degree orbital location (together with an
additional six leased transponders). We will continue to evaluate the
performance of EchoStar III.
EchoStar V is equipped with a total of three momentum wheels, including
one spare. During July 2001, EchoStar V experienced an anomaly resulting in the
loss of one momentum wheel. The satellite was quickly restored to normal
operations mode. An investigation conducted by the spacecraft manufacturer
concluded that a failure within the momentum wheel electronics caused the loss.
The manufacturer also believes that the failure was isolated to this particular
unit. While no further momentum wheel losses are expected, there can be no
assurance future anomalies will not cause further losses which could impact
commercial operation of the satellite. At our request, the manufacturer has
developed contingency plans which include modifications to the spacecraft's
on-board software that will allow continued operation in the event of additional
momentum wheel failures, with limited effect on spacecraft life. During August
2001, one of the thrusters on EchoStar V experienced an anomalous event
resulting in a temporary interruption of service. The satellite was quickly
restored to normal operations mode. An investigation by the manufacturer has
determined that the engine remains functional but with a reduction in rated
thrust. The satellite is equipped with a substantial number of backup thrusters.
EchoStar V is also equipped with a total of 48 traveling-wave-tube amplifiers
("TWTAs"), including 16 spares. A total of two TWTAs were taken out of service
and replaced by spares between the launch of the satellite and June 30, 2001.
During the third quarter 2001, EchoStar V experienced anomalous telemetry
readings on two additional TWTAs. As a precaution, during September 2001 we
substituted one of those TWTA's with a spare. To the extent that EchoStar V
experiences anomalous telemetry readings on additional TWTAs it may be necessary
to utilize additional spare TWTAs. EchoStar V has also experienced anomalies
resulting in the loss of one solar array string. The satellite has a total of
approximately 96 solar array strings and approximately 92 are required to assure
full power availability for the 12-year design life of the satellite. An
investigation of the solar array anomalies, none of which have impacted
commercial operation of the satellite to date, is continuing. Until the root
cause of these
11
anomalies is finally determined, there can be no assurance future anomalies will
not cause further losses which could impact commercial operation of the
satellite.
EchoStar VI is equipped with a total of 48 transponders, including 16
spares. During April 2001, EchoStar VI experienced a series of anomalous events
resulting in a temporary interruption of service. The satellite was quickly
restored to normal operations mode. As a result of the anomaly, an investigation
conducted by the spacecraft manufacturer concluded that one stationkeeping
thruster and a pair of TWTA are unusable. The satellite is equipped with a
substantial number of backup transponders and thrusters. The satellite
manufacturer, Space Systems Loral ("SS/L"), has advised us that it believes that
the thruster anomaly was isolated to one stationkeeping thruster, and that while
further failures are possible, SS/L does not believe it is likely that
additional thrusters will be impacted. EchoStar VI has also experienced
anomalies resulting in the loss of two solar array strings. The satellite has a
total of approximately 112 solar array strings and approximately 106 are
required to assure full power availability for the 12-year design life of the
satellite. An investigation of the solar array anomalies, none of which have
impacted commercial operation of the satellite to date, is continuing. Until the
root cause of these anomalies is finally determined, there can be no assurance
future anomalies will not cause further losses which could impact commercial
operation of the satellite.
Meteoroid events pose a potential threat to all in orbit geosynchronous
satellites including EchoStar's DBS satellites. While the probability that
EchoStar's satellites will be damaged by meteoroids is very small, that
probability increases significantly when the Earth passes through the
particulate stream left behind by various comets.
Occasionally, increased solar activity poses a potential threat to all
in-orbit geosynchronous satellites including EchoStar's DBS satellites. The
probability that the effects from this activity will damage our satellites or
cause service interruptions is generally very small.
Some decommissioned spacecraft are in uncontrolled orbits which pass
through the geostationary belt at various points, and present hazards to
operational spacecraft including EchoStar's DBS satellites. The locations of
these hazards are generally well known and may require EchoStar to perform
maneuvers to avoid collisions.
Satellites under Construction. EchoStar VIII, which is expected to
operate at the 110 degree orbital location, and EchoStar IX, which is expected
to operate at the 121 degree orbital location, are being manufactured by SS/L.
EchoStar VIII will be capable of operating 32 DBS transponders at 120 watts
each, switchable to 16 DBS transponders operating at 240 watts each and includes
spot-beam technology. EchoStar IX will be capable of operating 32 Ku-band
transponders at 110 watts each, in addition to a Ka-band payload. EchoStar IX is
currently expected to be used for expanded DISH Network service such as video,
Internet, and other data services. The portion of the satellite expected to be
used for Internet and other data services, as opposed to video channels, has not
yet been finally determined.
Satellite Launches. During February 2001, we announced an agreement
with Lockheed Martin's International Launch Services division to provide launch
services for the EchoStar VII and EchoStar VIII satellites, which also includes
options for launch services for additional satellites.
EchoStar VII was launched on February 21, 2002 from Cape Canaveral,
Florida. EchoStar VII will be tested at 129 degree orbital location and will
then be moved to the 119 degree orbital location for commercial service. While
the launch appears to have been a complete success, until on-orbit testing is
complete we cannot be sure the satellite will be capable of full operations.
EchoStar VIII is expected to launch this summer on a Russian Proton K
launch vehicle from the Baikonur Cosmodrome in Kazakhstan.
12
Satellite Insurance. In September 1998, we filed a $219.3 million
insurance claim for a constructive total loss under the launch insurance
policies covering EchoStar IV. The satellite insurance consists of separate
substantially identical policies with different carriers for varying amounts
that, in combination, create a total insured amount of $219.3 million. Our
insurance carriers offered us a total of approximately $88 million, or 40% of
the total policy amount, in settlement of the EchoStar IV insurance claim. The
insurers offered to pay only part of the $219.3 million claim because they
allege we did not abide by the exact terms of the insurance policy. The insurers
also assert that EchoStar IV was not a constructive total loss, as that term is
defined in the policy. We strongly disagree and filed an arbitration claim
against the insurers for breach of contract, failure to pay a valid insurance
claim and bad faith denial of a valid claim, among other things. There can be no
assurance that we will receive the amount claimed or, if we do, that we will
retain title to EchoStar IV with its reduced capacity. Based on the carriers'
failure to pay the amount we believe is owed under the policy and their improper
attempts to force us to settle for less than the full amount of our claim, we
have added causes of action in our EchoStar IV demand for arbitration for breach
of the duty of good faith and fair dealing, and unfair claim practices.
Additionally, we filed a lawsuit against the insurance carriers in the U.S.
District Court for the District of Colorado asserting causes of action for
violation of Federal and State antitrust laws. During March 2001, we voluntarily
dismissed our antitrust lawsuit without prejudice. We have the right to re-file
an antitrust action against the insurers in the future. With respect to our
arbitration claims, we are hopeful they will be resolved, and we believe it is
probable that we will receive a substantial portion of the benefits due.
At the time we filed our claim in 1998, we recognized an impairment
loss of $106 million to write-down the carrying value of the satellite and
related costs, and simultaneously recorded an insurance claim receivable for the
same amount. We will have to reduce the amount of the receivable if a final
settlement is reached for less than this amount.
The indentures related to certain of EchoStar DBS Corporation's
("EDBS") senior notes contain restrictive covenants that require us to maintain
satellite insurance with respect to at least half of the satellites we own or
lease. In addition, the indenture related to EchoStar Broadband Corporation's
("EBC") senior notes requires us to maintain satellite insurance on the lesser
of half of our satellites or three of our satellites. EchoStar I through
EchoStar IX are owned by a direct subsidiary of EBC. Insurance coverage is
therefore required for at least three of our seven satellites currently in
orbit. The launch and/or in-orbit insurance policies for EchoStar I through
EchoStar VII have expired. To date we have been unable to obtain insurance on
any of these satellites on terms acceptable to us. As a result, we are currently
self-insuring these satellites. To satisfy insurance covenants related to EDBS'
and EBC's senior notes, we have reclassified an amount equal to the depreciated
cost of three of our satellites from cash and cash equivalents to cash reserved
for satellite insurance on our balance sheet. As of December 31, 2001, cash
reserved for satellite insurance totaled approximately $122 million. The
reclassifications will continue until such time, if ever, as we can again insure
our satellites on acceptable terms and for acceptable amounts. If we lease or
transfer ownership of EchoStar VII, EchoStar VIII or EchoStar IX to EDBS, which
we are currently considering, we would need to reserve additional cash for the
depreciated cost of additional satellites. We believe we have in-orbit satellite
capacity sufficient to expeditiously recover transmission of most programming in
the event one of our in-orbit satellites fails. However, the cash reserved for
satellite insurance is not adequate to fund the construction, launch and
insurance for a replacement satellite in the event of a complete loss of a
satellite. Programming continuity cannot be assured in the event of multiple
satellite losses.
We may not be able to obtain commercial insurance covering the launch
and/or in-orbit operation of EchoStar VIII at rates acceptable to us and for the
full amount necessary to construct, launch and insure a replacement satellite.
In that event, we will be forced to self-insure all or a portion of the launch
and/or in-orbit operation of EchoStar VIII. The manufacturer of EchoStar VIII is
contractually obligated to use its reasonable best efforts to obtain commercial
insurance for the launch and in-orbit operation of EchoStar VIII for a period of
in-orbit operation to be determined and in an amount up to $225 million. There
is no guarantee that they or we will be able to obtain commercial insurance for
the launch and in-orbit operation of EchoStar VIII at reasonable rates and for
the full replacement cost of the satellite.
13
COMPETITION FOR OUR DISH NETWORK BUSINESS
We compete in the highly competitive subscription television service
industry against cable television and other land-based and satellite-based
system operators offering video, audio and data programming and entertainment
services. Many of these competitors have substantially greater financial,
marketing and other resources than we have. Our ability to increase earnings
depends, in part, on our ability to compete with these operators.
Cable television operators have a large, established customer base, and
many cable operators have significant investments in, and access to,
programming. Of the 97% of United States television households in which cable
television service is currently available, approximately 67% currently subscribe
to cable. Cable television operators have advantages relative to us by, among
other things, providing service to multiple television sets within the same
household at a lesser incremental cost to the consumer, by being able to provide
local and other programming in a larger number of geographic areas, and through
bundling their analog video service with expanded digital video services
delivered terrestrially or via satellite, two-way high speed Internet access,
and telephone service on upgraded cable systems. As a result of these and other
factors, we may not be able to continue to expand our subscriber base or compete
effectively against cable television operators.
New technologies could have a material adverse effect on the demand for
our DBS services. For example, new and advanced local multi-point distribution
services are currently being implemented. In addition, entities such as regional
telephone companies, which are likely to have greater resources than we have,
are implementing and supporting digital video compression over existing
telephone lines and digital "wireless cable." Moreover, mergers, joint ventures,
and alliances among franchise, wireless or private cable television operators,
regional Bell operating companies and others may result in providers capable of
offering bundled cable television and telecommunications services in competition
with us. We may not be able to compete successfully with existing competitors or
new entrants in the market for subscription television services.
DIRECTV has launched six high powered DBS satellites and has 46 DBS
frequencies that are capable of full coverage of the continental United States.
DIRECTV currently offers more than 300 channels of combined video and audio
programming and, as of December 31, 2001, had approximately 10.7 million
subscribers. If the merger with DIRECTV's parent is not completed, we believe
DIRECTV would continue to be in an advantageous position relative to our company
with regard to programming packages, provision of local programming and,
possibly, volume discounts for programming offers. In addition, the National
Rural Telecommunications Cooperative, through its members and affiliates,
competes with us in DIRECTV's territories.
DIRECTV's satellite receivers are sold in a significantly greater
number of consumer electronics stores than ours. Moreover, we do not have
manufacturing agreements or arrangements with consumer products manufacturers
other than JVC and Thomson. As a result, among other things of these factors,
and since we typically do not advertise nationally, our receivers and
programming services are less well known to consumers than those of DIRECTV. Due
to this relative lack of consumer awareness and other factors, we are at a
competitive marketing disadvantage compared to DIRECTV.
In addition, other companies in the United States have conditional
permits or have leased transponders for DBS assignments that can be used to
provide service to portions of the United States. The FCC has proposed to
allocate additional expansion spectrum for DBS services, which could create
significant additional competition in the market for subscription television
services. Moreover, as evidenced by a recent application filed at the FCC, DBS
service providers may seek and receive authority to serve the U.S. market from
full-CONUS slots allocated to other nations, particularly where such nations
have entered bilateral agreements with the U.S. Also, C-Band satellite providers
and overlay services compete with us, particularly in rural areas.
Most areas of the United States can receive traditional terrestrial
VHF/ UHF television broadcasts of between three and ten channels. These
broadcasters are often low to medium power operators with a limited coverage
area and provide local, network and syndicated programming. The local content
nature of the programming may be important to the consumer, and VHF/UHF
programming is typically provided free of charge. The FCC has allocated
additional digital spectrum to licensed broadcasters. At least during a
transition period, each existing television station will be able to retain its
present analog frequencies and also transmit programming on a digital channel
that may permit multiple programming services per channel.
14
ECHOSTAR TECHNOLOGIES CORPORATION
EchoStar Technologies Corporation ("ETC"), one of our wholly-owned
subsidiaries, internally designs and develops EchoStar receiver systems. Our
satellite receivers have won numerous awards from the Consumer Electronics
Manufacturers Association, dealers, retailers, and industry trade publications.
We outsource the manufacture of EchoStar receiver systems to third parties who
manufacture the receivers in accordance with our specifications.
We created our ETC division in connection with the development of the
DISH Network. We believe that we have an opportunity to grow this business
further in the future. The same employees who design EchoStar receiver systems
for the DISH Network are also involved in designing set-top boxes sold to
international TV customers. Our satellite receivers are designed around the
Digital Video Broadcasting standard, which is widely used in Europe and Asia.
Consequently, international ETC projects may result in improvements in design
and economies of scale in the production of EchoStar receiver systems for the
DISH Network.
In addition to supplying EchoStar receiver systems for the DISH
Network, ETC sells similar digital satellite receivers internationally. Our
satellite receivers are sold internationally either directly to television
service operators or to our independent distributors worldwide. We believe that
direct-to-home satellite service is particularly well-suited for countries
without extensive cable infrastructure. We are actively soliciting new business
for ETC, but we cannot provide any assurance in that regard.
Through 2001, our two major international customers were Via Digital, a
subsidiary of Telefonica, Spain's largest telephone company, and Bell ExpressVu,
a subsidiary of Bell Canada, Canada's largest telephone company. For 2002, we
have binding purchase orders from Bell ExpressVu and we are actively trying to
secure new orders from Via Digital for deliveries starting in the third quarter
of 2002. However, we cannot guarantee at this time that those negotiations will
be successful. Our future revenue in this area depends largely on the success of
these operators, which in turn, depends on other factors, such as the level of
consumer acceptance of direct-to-home satellite TV products and the intensity of
competition for international subscription television subscribers.
ETC's business also includes our Atlanta-based EchoStar Data Networks
Corporation and our UK-based Eldon Technology Limited subsidiaries. EchoStar
Data Networks is a supplier of technology for distributing Internet and other
content over satellite networks. Eldon Technology designs and tests various
software and other technology used in digital televisions and set-top boxes,
strengthening our product design capabilities for satellite receivers and
integrated televisions in both the international and United States markets.
COMPETITION FOR OUR ETC BUSINESS
We compete with a substantial number of foreign and domestic companies,
many of which have significantly greater resources, financial or otherwise, than
we have. We expect new competitors to enter this market because of rapidly
changing technology. Our ability to anticipate these technological changes and
introduce enhanced products expeditiously will be a significant factor in our
ability to remain competitive. Existing competitors' actions and new entrants
may have a material adverse impact on our revenues. We do not know if we will be
able to successfully introduce new products and technologies on a timely basis
in order to remain competitive.
15
GOVERNMENT REGULATION
The following summary of regulatory developments and legislation is not
intended to describe all present and proposed government regulation and
legislation affecting the video programming distribution industry. Government
regulations that are currently the subject of judicial or administrative
proceedings, legislative hearings or administrative proposals could change our
industry, in varying degrees. We cannot predict either the outcome of these
proceedings or any potential impact they might have on the industry or on our
operations. This section sets forth a brief summary of regulatory issues
pertaining to our operations.
We are required to obtain authorizations and permits from the FCC and
other similar foreign regulatory agencies to construct, launch and operate our
satellites and other components of our DBS system. Additionally, as a private
operator of a United States satellite system, we are subject to the regulatory
authority of the FCC and the Radio Regulations promulgated by the International
Telecommunication Union. We also have to obtain import and general destination
export licenses from the United States Department of Commerce to receive and
deliver certain components of direct-to-home satellite TV systems. In addition,
the delivery of satellites and related technical information for the purpose of
launch by foreign launch services providers is subject to strict export control
and prior approval requirements.
FCC PERMITS AND LICENSES
The FCC has jurisdiction and review power over the following general
areas:
o assigning frequencies and authorizations;
o ensuring compliance with the terms and conditions of such
assignments and authorizations, including required timetables for
construction and operation of satellites and other due diligence
requirements;
o authorizing individual satellites and earth stations;
o avoiding interference with other radio frequency emitters; and
o ensuring compliance with applicable provisions of the
Communications Act of 1934.
All of our FCC authorizations are subject to conditions imposed by the
FCC in addition to the FCC's authority to modify, cancel or revoke them. In
addition, all of our authorizations for satellite systems that are not yet
operational are subject to construction and progress obligations, milestones,
reporting and other requirements. We have not filed, or not timely filed, some
of the required reports. The FCC has indicated that it may revoke, terminate,
condition or decline to extend or renew such authorizations if we fail to comply
with applicable Communications Act requirements. We have received conditional
licenses from the FCC to operate satellites in the Ka-band and Ku-band and have
an application pending for a system that would use extended Ku-band frequencies
(although that application has remained pending for years). Use of those
licenses and conditional authorizations are subject to certain technical and due
diligence requirements, including the requirement to construct and launch
satellites. The granting of those licenses has been challenged by parties with
interests that are adverse to ours. Among other things, our conditional license
for a Ku-band satellite system is subject to pending petitions for
reconsideration and cancellation. The construction, completion and launch
milestones for both Ku-band satellites have expired. We have filed a timely
request for the extension of these milestones for our Ku-band system. With
respect to our license for the Ka-band system, the FCC recently authorized our
operation of inter-satellite links for the system and assigned milestone
requirements for the construction, launch and operation of the satellite system.
If we fail to file adequate reports or to demonstrate progress in the
construction of our satellite systems, the FCC has stated that it may cancel our
authorizations for those systems. Consistent with our initial application, our
application for our Ka-band system license allows us to use only 500 MHz of
Ka-band spectrum in each direction, while many other licensees have been
authorized to use 1,000 MHz in each direction. The FCC recently denied our
modification application to use additional spectrum and granted certain Ka-band
licenses that would preclude such expanded capacity for us.
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The FCC issues DBS licenses for ten year periods, which is less than
the useful life of a healthy DBS satellite. Upon expiration of the initial
license term, the FCC has the option to renew a satellite operator's license or
authorize an operator to operate for a period of time on special temporary
authority, or decline to renew the license. If the FCC declined to renew the
operator's license, the operator would be required to cease operations and the
frequencies would revert to the FCC. The FCC usually grants special temporary
authorizations for periods of up to 180 days. These authorizations are usually
subject to several other conditions. We also must obtain FCC authorization to
operate our earth stations, including the earth stations necessary to uplink
programming to our satellites.
We have licenses to use 21 frequencies at the 119 degree orbital
location, which expire in 2006; a license to operate 11 frequencies at the 61.5
degree orbital location, which expires in 2008; and licenses to operate 29
frequencies at the 110 degree orbital location, which we believe expire in 2009.
Our authorization at the 148 degree orbital location requires us to utilize all
of our FCC-allocated frequencies at that location by December 20, 2002, or risk
losing those frequencies that we are not using. We believe we have fulfilled
this requirement but the FCC has not confirmed its agreement. At the 61.5 degree
orbital location we sublease six transponders (corresponding to six frequencies)
from licensee Dominion in addition to our 11 licensed frequencies. For another
13 frequencies at the 61.5 degree orbital location we have special temporary
authority, which the FCC may refuse to renew, and which is subject to several
restrictive conditions. The FCC recently extended the permit of another company
to construct and launch a satellite that would use most of these additional
channels. If our special temporary authority to use the channels assigned to
that other company does not expire sooner, it will be terminated if that company
does actually construct and launch a satellite to the 61.5 degree orbital
location. Third parties have opposed, and we expect them to continue to oppose,
some of our authorizations or pending and future requests to the FCC for
extensions, modifications, waivers and approvals. We applied for and received
authorization to test EchoStar VII at the 129 degree orbital location and to
place EchoStar VII in commercial operation at the 119 degree orbital location.
Generally, all of our licenses are subject to expiration unless renewed by the
FCC, and our special temporary authorizations are granted for periods of 180
days or less, subject again to possible renewal by the FCC.
In early 2000, we moved EchoStar IV to the 119 degree orbital location.
The move allowed us to transition some of the programming previously on EchoStar
I and EchoStar II to EchoStar IV, which can provide service to Alaska and
Hawaii. In connection with that plan, among other things, we have also
petitioned the FCC to declare that we have met our due diligence obligations for
the 148 degree orbital location. The State of Hawaii has opposed that request
and there is no assurance that it will be granted by the FCC. If our request is
not granted by the FCC, our license for the 148 degree orbital location may be
revoked or canceled for any frequencies at the 148 degree orbital location that
may not be used by the December 2002 operation milestone.
We have received FCC authorization to operate EchoStar IV and EchoStar
VI at the 119 degree orbital location. We have also moved EchoStar I from the
119 degree orbital location to the 148 degree orbital location. EchoStar VI
commenced commercial service during October 2000. Given past launch delays for
EchoStar VII, we asked for and received special temporary authority from the FCC
to operate EchoStar II, which previously was located at the 119 degree orbital
location, at the 148 degree orbital location, in order to help comply with our
January 1, 2002 "must carry" obligations. This renewable authority is for 30
days beginning on December 28, 2001. This special temporary authority has been
opposed by Pegasus Development Corporation. While we have timely requested the
renewal of the special temporary authority within the 30-day period, there can
be no assurance that the FCC will not reconsider that temporary authorization
and revoke it or refuse to extend it. While we have also applied to the FCC for
modification authority to operate EchoStar II at the 148 degree orbital location
on a more permanent basis, this application remains pending and there can be no
assurances that it will be granted by the FCC.
In general, our plans involve the relocation of satellites either
within or slightly outside the "cluster" of a particular orbital location, or
from one orbital location to another where we have various types of
authorizations. These changes require FCC approval, and we cannot be sure that
we will receive all needed approvals for our current and future plans.
Furthermore, the states of Alaska and Hawaii requested that the FCC impose
conditions on the license for EchoStar VI, relating to certain aspects of our
service such as prices and equipment. While the FCC denied these requests for
conditions, it cautioned that it may impose similar requirements as a result of
a pending rulemaking. Such requirements could be very onerous for us. In
general, the states of Alaska and Hawaii have expressed views that our service
to these states from various orbital locations does not comply with our
FCC-imposed obligations to serve those states, and we cannot be sure that the
FCC will not accept these views. Such actions would have a material adverse
effect on our business. Moreover, because we cannot meet the geographic
17
service requirements from the 148 degree orbital location, we had to request and
obtain a conditional waiver of these requirements to allow operation of EchoStar
I at that location. As a result, our current authorization to operate EchoStar I
at the 148 degree orbital location is subject to several conditions that may be
onerous. Furthermore, we have requested an extension of that waiver to also
allow operation of EchoStar II at the same location, and we cannot be sure the
FCC will grant that request.
We have substantially completed the construction of one additional DBS
satellite, EchoStar VIII. We presently plan to operate this satellite at the 110
degree orbital location, but the launch and operation of this satellite requires
prior FCC approval. We have not yet applied for authorization to launch EchoStar
VIII and we cannot be sure that this request will be timely granted or that it
will be granted at all by the FCC.
On February 25, 2000, we acquired Kelly Broadcasting Systems, Inc. We
recently discovered that Kelly Broadcasting Systems and us inadvertently failed
to file with the FCC the necessary application to transfer control over certain
earth stations licensed to Kelly Broadcasting Systems. We have recently filed
the necessary application for a transfer of control over these earth stations,
and have requested special temporary authority from the FCC to continue to
operate these earth stations while the application to transfer control is being
processed by the FCC. We cannot be sure that the FCC will not deny either or
both of these requests or that it will not commence an enforcement proceeding
for the failure to file a timely transfer of control application, possibly
resulting in fines or revocation of the licenses in question. Any such action
that might prevent Kelly Broadcasting Systems from operating these earth
stations would impair our ability to receive certain types of programming and
deliver it to customers.
Instead of constructing separate Ka-band and Ku-band satellites for
which we have a license at the 121 degree orbital location, we are in the
process of constructing a "hybrid" Ku/Ka-band satellite. Launch and operation of
this satellite requires prior FCC approval, which we have requested. We cannot
be sure that this request will be granted. That satellite does not currently
incorporate inter-satellite links, and one company has argued to the FCC that
this makes us subject to more expedited milestones for our system, some of which
have lapsed. We have objected to this argument, but cannot be sure what action
the FCC will take.
During November 2000, one of our subsidiaries purchased a 49.9%
interest in VisionStar, Inc. VisionStar holds an FCC license, and is
constructing a Ka-band satellite, to launch into the 113 degree orbital
location. In February 2002, we increased our ownership of VisionStar to 90%, for
a total purchase price of approximately $2.8 million. In addition, we have made
loans to VisionStar totaling approximately $4.6 million as of December 31, 2001.
Pegasus Development Corporation filed a petition for reconsideration of the
FCC's approval of that transaction. There can be no assurance that the FCC will
not reconsider its approval or otherwise revoke VisionStar's license, rendering
our investment worthless. Furthermore, VisionStar's FCC license currently
requires construction of the satellite to be completed by April 30, 2002 and the
satellite to be operational by May 31, 2002. Failure to meet the milestones will
make the license invalid unless the milestones are extended by the FCC. In May
2001, the FCC already denied an earlier request by VisionStar to extend its
milestones. In October 2001, upon granting the acquisition of VisionStar by us,
the FCC conditioned the license transfer on our completion of construction of
the satellite by April 2002, launching the satellite by May 2002, and reporting
any change in the status of the spacecraft contract. We will not complete
construction or launch of the satellite by those dates and will have to ask the
FCC for an extension. Failure to meet any of these conditions or receive an
extension, of which there can be no assurance, could result in the revocation of
the Ka-band license at the 113 degree orbital location and could materially
impact our ability to recover our VisionStar investments.
Our projects to construct and launch additional Ku-band, extended
Ku-band and Ka-band satellites are in the early stages of development and are
currently being challenged by several companies with interests adverse to ours.
There can be no assurance that the FCC will sustain these licenses, or grant the
pending applications, or that we will be able to successfully capitalize on any
resulting business opportunities.
18
In general, many of our authorizations and pending applications are
subject to petitions and oppositions filed against us by several companies, and
we cannot be sure that our authorizations will not be cancelled, revoked or
modified or that our applications will not be denied.
IN-ORBIT AUTHORIZATIONS
The telemetry, tracking and control operations of EchoStar I are in an
area of the spectrum called the "C-band." Although the FCC granted us
conditional authority to use these frequencies for telemetry, tracking and
control, in January 1996 a foreign government raised an objection to EchoStar
I's use of these frequencies. We cannot be certain whether that objection will
subsequently require us to relinquish the use of such C-band frequencies for
telemetry, tracking and control purposes. Further, EchoStar II's telemetry,
tracking and control operations are in the "extended" C-band. Our authorization
to use these frequencies expired on January 1, 1999. Although we have timely
applied for extension of that authorization to November 2006, we cannot be sure
that the FCC will grant our request. If we lose the ability to use these
frequencies for controlling either satellite, we would lose the satellite.
Recently, the FCC released a ruling that will allow commercial terrestrial
services and hamper future satellite operations in the "extended" C-band
frequencies. This ruling might have negative implications for us. Also, our
request to operate EchoStar II at the 148 degree orbital location includes a
request to use the extended C-band for Telemetry Tracking and Control ("TT&C")
at that orbital location. We cannot be sure that the FCC will grant that
request.
INTERNATIONAL TELECOMMUNICATION UNION STANDARDS
Our DBS system also must conform to the International Telecommunication
Union ("ITU") broadcasting satellite service plan. If any of our operations are
not consistent with this plan, the ITU will only provide authorization on a
non-interference basis pending successful modification of the plan or the
agreement of all affected administrations to the non-conforming operations.
Accordingly, unless and until the ITU modifies its broadcasting satellite
service plan to include the technical parameters of DBS applicants' operations,
our satellites, along with those of other DBS operators, must not cause harmful
electrical interference with other assignments that are in conformance with the
plan. Further, DBS satellites are not presently entitled to any protection from
other satellites that are in conformance with the plan. We believe the United
States government has filed modification requests with the ITU for EchoStar I,
EchoStar II and EchoStar III. The ITU has requested certain technical
information in order to process the requested modifications. We have cooperated,
and continue to cooperate, with the FCC in the preparation of its responses to
the ITU requests. We cannot predict when the ITU will act upon these requests
for modification or if they will be granted.
DBS AUTHORIZATIONS AND FREQUENCIES THAT WE COULD LOSE
We also have conditional authorizations for several other DBS and fixed
service satellites that are not operational. One permit for 11 unspecified
western frequencies was set to expire on August 15, 1995. Although we filed a
timely extension request, the FCC has deferred a decision on that request
pending the FCC's analysis of our due diligence for that permit. The FCC has not
yet assigned the frequencies related to that permit because in 1992 it held that
we had not completed contracting for these western assignments - the first prong
of the required diligence - and asked us to submit amended contract
documentation. Although we submitted such documentation, the FCC has not yet
ruled on this matter, and we cannot be sure that the FCC will rule in our favor.
We also have a conditional permit for a total of 11 western frequencies
at the 175 degree orbital location that expired on August 15, 1999. That
expiration date is pursuant to an extension granted by the FCC's International
Bureau in 1996. That extension was subject to the condition that we make
significant progress toward construction and operation of a DBS system
substantially in compliance with, or ahead of, the most recent timetable that we
submitted to the FCC. The FCC's International Bureau also urged us to expedite
construction and launch of additional satellites for our DBS system at these
frequencies. PrimeStar, a DBS provider that DirecTV acquired in 1999, filed a
request with the FCC that is still pending requesting that the FCC reverse the
International Bureau's grant of an extension.
19
We also have a conditional permit for 11 additional frequencies at the
175 degree orbital location, which was set to expire on November 30, 1998. That
expiration date was pursuant to an extension granted by the FCC's International
Bureau in 1995. When it granted the extension, the FCC reserved the right to
cancel the permit if we failed to progress toward operation of the DBS system in
accordance with the timetable that we submitted to the FCC. That extension also
is subject to a still pending challenge by PrimeStar.
While we have timely filed requests for extension of all the western
permits, we cannot be sure how the FCC will act with respect to these requests.
REGULATIONS
DBS Rules. Once the FCC grants a conditional construction permit, the
permittee must proceed with due diligence in constructing the system. The FCC
has adopted specific milestones that must be met in order to retain the permit,
unless the FCC determines that an extension or waiver is appropriate. Permittees
must file semi-annual reports on the status of their due diligence efforts. The
due diligence milestones require holders of conditional permits to complete
contracting for construction of their systems within one year of grant of the
permit. Additionally, the satellites must be operational within six years of
grant. For permits issued after January 19, 1996, permittees must complete
construction of the first satellite in their system within four years of grant
of the permit. The FCC also may impose other conditions on the grant of the
permit. The holders of new DBS authorizations issued on or after January 19,
1996 must also provide DBS service to Alaska and Hawaii from at least one of
their DBS satellites or they will have to relinquish their western assignments.
We are presently not able to satisfy this requirement from the 148 degree
orbital location. With respect to the EchoStar I satellite, we have received a
waiver of that requirement subject to several onerous conditions. We have also
requested other waivers of that requirement, including a waiver to allow
EchoStar II operation at the 148 degree orbital location. The state of Hawaii
has generally requested many conditions to such waivers. In addition, we are
required to serve Alaska and Hawaii from the 110 degree orbital location. While
we believe that our current plan, which involves the use of our capacity at that
location for local-into-local broadcast as well as other programming, is in
compliance with that requirement, there can be no assurance that the FCC will
consider this plan as complying with the rule. In general, the states of Alaska
and Hawaii have expressed views that our service to these states from various
orbital locations does not comply with our FCC-imposed obligations to serve
those states, and we cannot be sure that the FCC will not accept these views.
Subject to applicable regulations governing non-DBS operations, a
licensee may make unrestricted use of its assigned frequencies for non-DBS
purposes during the first five years of the ten-year license term. After the
first five years, the licensee may continue to provide non-DBS service as long
as at it dedicates at least one-half of its total capacity at a given orbital
location to providing DBS service. Further, the FCC indicated its desire to
streamline and revise its rules governing DBS satellites. We cannot be sure
about the content and effect any new DBS rules might have on our business.
Certain Other Communications Act Provisions. As a distributor of
television programming, we are also affected by numerous laws and regulations,
including the Communications Act.
The FCC imposes different rules for "subscription" and "broadcast"
services. We believe that because we offer a subscription programming service,
we are not subject to many of the regulatory obligations imposed upon broadcast
licensees. However, we cannot be certain whether the FCC will find in the future
that we should comply with regulatory obligations as a broadcast licensee with
respect to our current and future operations, and certain parties have requested
that we be treated as a broadcaster. If the FCC determined that we are a
broadcast licensee, it could require us to comply with all regulatory
obligations imposed upon broadcast licensees, which are generally subject to
more burdensome regulation than subscription service providers like us.
Under a requirement of the Cable Act, the FCC imposed public interest
requirements on DBS licensees, such as us, to set aside four percent of channel
capacity exclusively for noncommercial programming for which we must charge
programmers below-cost rates and for which we may not impose additional charges
on subscribers. This could displace programming for which we could earn
commercial rates and could adversely affect our financial results. The FCC has
not reviewed our methodology for computing the channel capacity we must set
aside or for determining the rates that we charge public interest programmers,
and we cannot be sure that, if the FCC were to review these methodologies, it
would find them in compliance with the public interest requirements.
20
Under a requirement of the Telecommunications Act of 1996, the FCC
recently imposed upon broadcasters and certain multichannel video programming
distributors, including us, the responsibility of providing video description
for visually impaired persons. Video description involves the insertion into a
television program of narrated descriptions of settings and actions that are not
otherwise reflected in the dialogue, and is typically provided through the
Secondary Audio Programming ("SAP") channel. Commencing April 12, 2002, we will
be required to provide video description for a minimum of 50 hours per calendar
quarter (roughly four hours per week) of prime time and/or children's
programming on each of any of the top five national non-broadcast networks we
carry. In addition, we will be required to "pass through" any video description
we receive from a broadcast station or non-broadcast network if we have the
technical capability necessary to do so associated with the channel on which we
distribute the programming with video description. While the FCC acknowledged
that programming networks, and not multichannel video programming distributors,
may actually describe the programming, it declared that for ease of enforcement
and monitoring compliance it would hold distributors responsible for compliance.
These requirements may impose a material burden on us.
The FCC has also commenced an inquiry into distribution of high-speed
Internet access services and a rulemaking concerning interactive television
services. In these proceedings, the FCC is considering whether to impose on
distributors, including satellite distributors like us, various types of "open
access" obligations (such as required carriage of independent content
providers). We cannot be sure that the FCC will not ultimately impose such
obligations, which could be very onerous, and could create a significant strain
on our capacity and ability to provide other services.
The FCC has commenced a rulemaking which seeks to streamline and revise
its rules governing DBS operators. This rulemaking involves many proposed DBS
rules. There can be no assurance about the content and effect of any new DBS
rules passed by the FCC, and the rules may include expanded geographic service
requirements for Alaska, Hawaii and Puerto Rico. The FCC has also released a
notice of proposed rulemaking regarding the current restrictions on the
flexibility of DBS operators to provide services other than DBS, and may change
these restrictions.
Foreign Ownership Restrictions. The Communications Act and the FCC's
implementing regulations provide that when subsidiaries of a holding company
hold certain types of FCC licenses, foreign nationals or their representatives
may not own or vote more than 25% of the total equity of the holding company,
except upon an FCC public interest determination. There is some ambiguity
regarding the extent to which this foreign ownership prohibition applies to DBS
services. The FCC has ruled that these foreign ownership limitations in the
Communications Act do not apply to providers of subscription DBS services like
us. On the other hand, the FCC has left open the question of whether the FCC's
own rules impose on DBS services that foreign ownership limit. Furthermore, the
World Trade Organization agreement facilitating certain foreign investments in
telecommunications services does not extend to DBS services, and the standards
for waiving the DBS services foreign ownership limit to the extent applicable
are therefore unclear. While the FCC has granted us in the past a waiver to the
extent required to allow an investment from a foreign company, we cannot be sure
that the FCC will similarly grant such waiver requests, to the extent required
to allow other foreign investments that may implicate the alien ownership limits
in the future. The foreign ownership limitations clearly will apply to our
licenses for fixed satellite service if we hold ourselves out as a common
carrier or if the FCC decides to treat us as such a carrier. The FCC has noted
that we have proposed to operate one of its authorized fixed satellite service
systems on a common carrier as well as a non-common carrier basis. We have
recently informed the FCC that we have no common carrier plans with respect to
that system. If the FCC decides to treat us as a common carrier for any of its
operations or if we operate as one, we cannot be sure that the FCC will grant
any request for a public interest determination that may be needed to allow any
indirect foreign investment in excess of 25%.
On January 22, 2002, Vivendi acquired shares of our series D
convertible preferred stock which are currently convertible into approximately
10.7% of our total outstanding common stock, representing approximately 2% of
the total fully-diluted voting rights of us today. In addition, a subsidiary of
The News Corporation Limited, a South Australia corporation, owns approximately
2.2% of our total common stock outstanding stock, having less than 1% of our
total voting power. In connection with the MCI WorldCom authorization that we
received in connection with its transactions with The News Corporation Limited,
the FCC decided to waive any foreign ownership limitations to the extent
applicable. While we believe that the current levels of foreign ownership are
below any applicable limit, in light of any subsequent FCC decisions, policy
changes or additional foreign ownership in us, we may in the future need a
separate FCC determination that foreign ownership
21
in excess of any applicable limits is consistent with the public interest in
order to avoid a violation of the Communications Act or the FCC's rules.
Certain Other Rulemakings. The FCC recently proposed to allocate
additional "expansion" spectrum for DBS operators starting in 2007. DirecTV has
filed an application for a satellite system using those expansion frequencies.
Foreign satellite systems also are potential providers of DBS service
within the United States. In May 1996, in its DISCO II proceeding, the FCC
proposed permitting foreign satellite systems to serve the United States if the
home country of the foreign-licensed satellite offers open "effective
competitive opportunities" in the same type of satellite service to United
States licensed satellites. In the February 1997 World Trade Organization
Agreement, the United States offer contained an exemption from market opening
commitments for, among other things, DBS and direct-to-home satellite services.
In November 1997, the FCC released new rules that maintained the effective
competitive opportunities test with respect to foreign-licensed satellites
seeking to provide DBS and direct-to-home satellite services in the United
States. The FCC also established a strong presumption in favor of authorizing
foreign-licensed satellites to provide services other than DBS and
direct-to-home satellite in the United States. The FCC has also reached
bilateral protocols allowing the provision of DBS service by satellites licensed
by Mexico and Argentina.
The FCC has adopted a proposal to allow non-geostationary orbit fixed
satellite services to operate on a co-primary basis in the same frequency as DBS
and Ku-based FSS services, and is currently finalizing rules to govern these
services. These satellite operations could provide global high-speed data
services. In addition to possible interference concerns, this would, among other
things, create additional competition for satellite and other services. In the
same rulemaking, the FCC has been considering a terrestrial service originally
proposed by Northpoint Technology, Ltd. that would retransmit local television
or other video and data services to DBS subscribers or others in the same DBS
spectrum that we use throughout the United States.
We have submitted numerous pleadings jointly with DIRECTV to the FCC
objecting to the Northpoint request, which in our view may cause harmful and
substantial interference to the service provided to DBS customers. Furthermore,
other entities have now filed applications similar to the one filed by
Northpoint, and at least one other entity has also obtained a license from the
FCC to conduct experimental operations. If Northpoint or other entities become
authorized to use our spectrum, they could cause harmful and substantial
interference with our service.
Furthermore, the Satellite Home Viewer Improvement Act required the FCC
to make a determination by November 29, 2000 regarding licenses for facilities
that will retransmit broadcast signals to underserved markets by using spectrum
otherwise allocated to commercial use, possibly including DBS spectrum.
Northpoint had already been allowed by the FCC to conduct experimental
operations in Texas and Washington, D.C. On December 8, 2000, the FCC released a
Report and Order and Further Notice of Proposed Rulemaking in this proceeding
that concluded that a terrestrial "point-to-multipoint" service can share the
spectrum with DBS on a no interference basis -- a conclusion that may have a
significant adverse impact on our operations. At the same time, the FCC
initiated a further notice of proposed rulemaking to determine the appropriate
interference standards and technical rules with which such a terrestrial service
must comply. The FCC also requested proposals on how to process applications for
licenses for the new service, and tentatively proposed excluding satellite
companies from such licenses. We have filed a petition for reconsideration of
the FCC's conclusion and comments on its proposals.
In addition, recent appropriations legislation required independent
testing of the Northpoint technology, and created a rural loan guarantee program
for providers of certain types of services. The tests mandated by that law have
been completed. MITRE, the independent testing entity, concluded that the new
terrestrial service "poses a significant interference threat to DBS operation in
many realistic operational situations"; "a wide variety of mitigation techniques
exist that . . . can greatly reduce, or eliminate, the geographical extent of
the regions of potential . . . interference into DBS"; and that "bandsharing
appears feasible if and only if suitable mitigation measures are applied." The
independent study left open the question of whether the potential costs of such
mitigation measures together with the impact of residual interference outweighed
the benefit of allowing the new terrestrial service in the band used by DBS. We
and DIRECTV have asserted to the FCC that MITRE's findings constitute additional
grounds for reconsidering the FCC's conclusion on sharing, while Northpoint has
argued that
22
MITRE confirms Northpoint's ability to share with DBS. We cannot be sure whether
and when these processes will result in the licensing of Northpoint and/or
companies proposing a similar service to operate in the spectrum licensed to us,
what the interference standards will be, and how significant the interference
into our operations will be. On December 3, 2001, we and DIRECTV filed with the
FCC a request that it assign spectrum to these new proposed terrestrial systems
other than that currently allocated for use by DBS. We cannot be sure whether
the FCC will take any action on this request, or whether the request will be
granted.
Distant and Local Broadcast Signals. We believe that our ability to
deliver local programming via satellite into the markets from which the
programming originates helps us attract subscribers who would not otherwise be
willing to purchase satellite systems. Although we have commenced providing
local network service to eligible subscribers in various metropolitan centers,
subject to certain conditions, our ability to provide such a service is limited
as discussed below.
Satellite Home Viewer Improvement Act and Retransmission Consent. The
Copyright Act, as amended by the Satellite Home Viewer Improvement Act of 1999,
or SHVIA, permits satellite retransmission of distant network channels only to
"unserved households." Whether a household qualifies as "unserved" for the
purpose of eligibility to receive a distant network channel depends, in part, on
whether that household can receive a signal of "Grade B intensity" as defined by
the FCC. In February 1999, the FCC released a report and order on these matters.
Although the FCC declined to change the values of Grade B intensity, it adopted
a method for measuring it at particular households. The FCC also endorsed a
method for predicting Grade B intensity at particular households. In addition,
SHVIA instructed the FCC to establish a predictive model based on the model it
had endorsed in February 1999, and also directed the FCC to ensure that its
predictive model takes account of terrain, building structures and other land
cover variations. The FCC issued a report and order that does not adjust the
model to reflect such variations for any VHF stations. Failure to account for
these variations could hamper our ability to retransmit distant network
channels.
SHVIA has also established a process whereby consumers predicted to be
served by a local station may request that this station waive the unserved
household limitation so that the requesting consumer may receive distant signals
by satellite. If the waiver request is denied, SHVIA entitles the consumer to
request an actual test, with the cost to be borne by either the satellite
carrier, such as us, or the broadcast station depending on the results. The
testing process required by the statute can be very costly. The FCC staff has
informally raised questions about how we implement that process. We can provide
no assurance that the FCC will not find that our implementation of the process
is not in compliance with these requirements. Furthermore, the FCC has
identified a third party organization to examine and propose tester
qualification and other standards for testing. We cannot be sure that this
decision will not have an adverse effect on our ability to test whether a
consumer is eligible for distant signals.
In addition, SHVIA could adversely affect us in several other respects.
SHVIA prohibits us from providing individual customers with more than two
distant signals for each broadcasting network and leaves the FCC's Grade B
intensity standard unchanged without future legislation. The FCC released a
report recommending that only minor changes be made to the Grade B standard, a
recommendation that is unfavorable to us. While SHVIA reduces the royalty rate
that we currently pay for superstation and distant network signals, it directed
the FCC to issue rules by November 29, 2000 requiring us to delete substantial
programming (including sports programming) from these signals in certain
circumstances. The FCC has released rules implementing that directive, which
have become effective. Although we have implemented certain measures in our
effort to comply with these rules, these requirements have hampered, and may
further hamper, our ability to retransmit distant network and superstation
signals, and the burdens from the rules upon us may become so onerous that we
may be required to substantially alter, or stop retransmitting, many or all
superstation signals. In addition, the FCC's sports blackout requirements, which
apply to all distant network signals, may require costly upgrades to our system.
We asked the FCC to reconsider several aspects of these rules to make the rules
less burdensome, but we cannot predict whether the FCC will take any favorable
action with respect to the request, and other parties have asked for
reconsideration to the rules which would be adverse to our business. On
reconsideration, the FCC may resolve certain outstanding issues unfavorably to
us. Any changes to, or adverse interpretations of, the existing regulations may
create additional burdens for us.
SHVIA generally gives satellite companies a statutory copyright license
to retransmit local broadcast channels, subject to obtaining the retransmission
consent of the local station. Retransmission consent agreements are important to
us because a failure to reach such agreements with broadcasters who elect
retransmission consents instead of mandatory "must carry" carriage means we
cannot carry these broadcasters'
23
signals, and could have an adverse effect on our strategy to compete with cable
and other satellite companies, which provide local channels. SHVIA requires
broadcasters to negotiate retransmission consent agreements in good faith. The
FCC has promulgated rules governing broadcasters' good faith negotiation
obligation. These rules allow satellite providers to file complaints with the
FCC against broadcasters for violating the duty to negotiate retransmission
consent agreements in good faith. While we have been able to reach
retransmission consent agreements with most of the local network stations we
currently carry, any additional roll-out of local channels in more cities will
require more agreements, and we cannot be sure that we will secure these
agreements or that we will secure new agreements upon the expiration of our
current retransmission consent agreements, some of which are short term. We were
unable to conclude long-term retransmission consent agreements with the NBC
station in San Francisco or the ABC station in Nashville and discontinued
transmission of those channels as a result. On March 1, 2001, we filed a
retransmission consent complaint with the FCC against the owner of these
stations, Young Broadcasting, Inc., asserting that Young has failed to negotiate
in good faith. The FCC's Cable Services Bureau ruled against us in this
proceeding and also determined that we "failed in [our] duty of candor" to the
FCC and abused the FCC's processes because we disclosed to the public some
information subject to a pending request for confidential treatment that we had
filed and did not immediately notify the FCC of this disclosure. While we
believe that this determination by the FCC was factually and legally wrong
because the FCC did not, and could not, make the underlying findings necessary
to support such a determination, we have not formally appealed that order and
have only informally expressed our views in a letter to the Cable Services
Bureau. We cannot be sure that the FCC will agree with these views. In certain
circumstances, lack of candor can bear on the FCC's evaluation of a company's
fitness to be an FCC licensee. Since that time, Young has lost its NBC
affiliation, and we have reached an agreement with the new NBC affiliate in San
Jose to serve the San Francisco Bay area.
Many other provisions of SHVIA could adversely affect us. Among other
things, the law includes the imposition of "must carry" requirements on DBS
providers. The FCC has implemented that requirement and adopted detailed and
onerous "must carry" rules covering both commercial and non-commercial broadcast
stations. These rules require that commencing January 1, 2002 satellite
distributors carry all the local broadcast stations requesting carriage in a
timely and appropriate manner in areas they choose to offer any local
programming. Since we have limited capacity, the number of markets in which we
can offer local programming is reduced by the "must carry" requirement to carry
large numbers of stations in each market we serve. The legislation also includes
provisions which could expose us to material monetary penalties, and permanent
prohibitions on the sale of all local and distant network channels, based on
inadvertent violations of the legislation, prior law, or the FCC rules.
Imposition of these penalties would have a material adverse effect on our
business operations generally. Several "must carry" complaints by broadcasters
against us are pending at the FCC. We cannot be sure that the FCC will not rule
against us in those proceedings, resulting in carriage of many additional
stations in the markets where we offer local stations. In addition, we cannot be
sure that the FCC will not interpret or implement its rules in such a manner as
to inhibit our current plan for compliance with the "must carry" requirements.
The National Association of Broadcasters and Association of Local Television
Stations filed an emergency petition on January 4, 2002 asking the FCC to modify
or clarify its rules to prohibit or hamper our compliance plan. On January 8,
2002, the FCC placed the petition on public notice and stated that it may be
able to resolve the issue by means of a declaratory ruling without the need for
a rulemaking. Many companies have filed comments and reply comments in response
to the petition opposing our compliance plan on various grounds. Any FCC action
modifying or clarifying the rules in accordance with the broadcasters' request
could result in a decrease in the number of local areas where we offer local
network programming. We are also exposed to court actions and damage claims if
we are found by any court to have violated the "must carry" requirements.
On December 7, 2001, the U.S. 4th Circuit Court of Appeals rejected the
satellite industry's constitutional challenge to the "must carry" provisions of
SHVIA and our appeal of the FCC's "must carry" rules, leaving in place the
requirement that, beginning January 1, 2002, we carry all local stations in any
market where we carry a single local broadcast station. While we believe that we
technologically meet this mandate in the markets we currently serve, there can
be no assurance that the FCC's interpretation of its "must carry" rules will not
result in a future decrease in the number of local markets where we offer local
network programming. In addition, while the FCC has decided for now not to
impose dual digital/analog carriage obligations -- i.e., additional requirements
in connection with the carriage of digital television stations that go beyond
carriage of one signal (whether analog or digital) for each station - the FCC
has also issued a further notice of proposed rulemaking on this matter. We
cannot be sure that this rulemaking will not result in further, even more
onerous, digital carriage requirements.
24
Opposition to Our Delivery of Distant Signals. Until July 1998, we
obtained distant broadcast network channels (ABC, NBC, CBS and FOX) for
distribution to our customers through PrimeTime 24. In December 1998, the U.S.
District Court for the Southern District of Florida entered a nationwide
permanent injunction requiring PrimeTime 24 to shut off distant network channels
to many of its customers, and henceforth to sell those channels to consumers in
accordance with certain stipulations in the injunction.
In December 1998, the networks filed a motion for preliminary
injunction directly against us. In September 2000, the District Court granted
this motion and made several amendments to it. The injunction required us to
terminate distant network programming to certain of our subscribers. The U.S.
Court of Appeals for the Eleventh Circuit stayed the injunction pending our
appeal. In September 2001, the U.S. Court of Appeals for the Eleventh Circuit
vacated the District Court's injunction, finding, among other things, that it
was too broad and remanded the case back to the District Court for an
evidentiary hearing. If after the trial or an evidentiary hearing the injunction
is reinstated, it could force us to terminate delivery of distant network
channels to a substantial portion of our distant network subscriber base, which
could also cause many of these subscribers to cancel their subscription to our
other services. Such terminations would result in a small reduction in our
reported average monthly revenue per subscriber and could result in a temporary
increase in churn. If we lose the case at trial, the judge could, among other
remedies, prohibit all future sales of distant network programming by us, which
would have a material adverse effect on our business. In order, among other
things, to plan for the potential re-implementation of the injunction, we may
terminate the delivery of distant network channels to certain subscribers.
Dependence on Cable Act for Program Access. We purchase a substantial
percentage of our programming from cable-affiliated programmers. Any change in
the Cable Act and the FCC's rules that permit the cable industry or
cable-affiliated programmers to discriminate against competing businesses, such
as ours, in the sale of programming could adversely affect our ability to
acquire programming at all or to acquire programming on a cost-effective basis.
Under the Cable Act and the FCC's rules, cable-affiliated programmers generally
must offer programming they have developed to all multi-channel video
programming distributors on non-discriminatory terms and conditions. The Cable
Act and the FCC's rules also prohibit some types of exclusive programming
contracts involving cable affiliated programming. This prohibition on
exclusivity will sunset in October 2002 unless the FCC acts to extend it. The
FCC has commenced a proceeding to determine whether to extend it. We cannot be
sure that the FCC will not allow the prohibition to sunset, which would mean
that many popular programs may become unavailable to us. While we have filed
several complaints with the FCC alleging discrimination, exclusivity, or
refusals to deal, we have only had limited success in convincing the FCC to
grant us relief. The FCC has denied or dismissed many of our complaints, and we
believe has generally not shown a willingness to enforce the program access
rules strictly. As a result, we may be limited in our ability to obtain access
(or non-discriminatory access) to cable-affiliated programming. In January 2001,
we appealed the FCC denial of our complaint regarding certain cable-affiliated
sports programming in the Philadelphia area to the U.S. Court of Appeals for the
District of Columbia Circuit. Our appeal was opposed by the FCC. Comcast
Corporation, which controls the programming at issue, intervened on the side of
the FCC opposing our appeal. Oral argument regarding our appeal was held on
February 5, 2002. We cannot predict the outcome of this appeal, or how the
outcome may affect our ability to obtain access to cable affiliated programming.
PATENTS AND TRADEMARKS
Many entities, including some of our competitors, have or may in the
future obtain patents and other intellectual property rights that cover or
affect products or services related to those that we offer. In general, if a
court determines that one or more of our products infringes on intellectual
property held by others, we may be required to cease developing or marketing
those products, to obtain licenses from the holders of the intellectual
property, or to redesign those products in such a way as to avoid infringing the
patent claims. If a competitor holds intellectual property rights, it may not
allow us to use its intellectual property at any price, which could adversely
affect our competitive position.
We cannot assure you that we are aware of all intellectual property
rights that our products may potentially infringe. In addition, patent
applications in the United States are confidential until the Patent and
Trademark Office issues a patent and, accordingly, we cannot evaluate the extent
to which our products may infringe claims contained in pending patent
applications. Further, it is often not possible to determine definitively
whether a claim of infringement is valid, absent protracted litigation.
25
We cannot estimate the extent to which we may be required in the future
to obtain intellectual property licenses or the availability and cost of any
such licenses. Those costs, and their impact on net income, could be material.
Damages in patent infringement cases may also include treble damages in certain
circumstances. To the extent that we are required to pay royalties to third
parties to whom we are not currently making payments, these increased costs of
doing business could negatively affect our liquidity and operating results. We
are currently being sued in patent infringement actions, including, among other,
suits by the following entities: Starsight Telecast, Inc.; Gemstar; Superguide
Corp.; IPPV Enterprises, LLC; and MAAST, Inc. We cannot be certain the courts
will conclude these entities do not own the rights they claim, that our products
do not infringe on these rights, that we would be able to obtain licenses from
these persons on commercially reasonable terms or, if we were unable to obtain
such licenses, that we would be able to redesign our products to avoid
infringement.
Certain Gemstar patents are currently being reviewed by the
International Trade Commission. An adverse decision could temporarily halt the
import of our receivers and could require us to materially modify certain
user-friendly electronic programming guides and related features we currently
offer to consumers. See "- Legal Proceedings."
EMPLOYEES
We had approximately 11,000 employees at December 31, 2001, most of
whom are located in the United States. We generally consider relations with our
employees to be good.
Although a total of approximately 75 employees in two of our field
offices have voted to unionize, we are not currently a party to any collective
bargaining agreements. However, we are currently negotiating collective
bargaining agreements at these offices.
26
EXECUTIVE OFFICERS OF THE REGISTRANT
(FURNISHED IN ACCORDANCE WITH ITEM 401 (b) OF REGULATION S-K, PURSUANT TO
GENERAL INSTRUCTION G(3) OF FORM 10-K)
The following table sets forth the name, age and offices with EchoStar
of each of our executive officers, the period during which each executive
officer has served as such, and each executive officer's business experience
during the past five years:
NAME AGE POSITION
- ---- --- --------
Charles W. Ergen.................. 48 Chairman, Chief Executive Officer and Director
Michael T. Dugan.................. 53 President and Chief Operating Officer
James DeFranco.................... 49 Executive Vice President and Director
Steven B. Schaver................. 47 President of EchoStar International Corporation
David K. Moskowitz................ 43 Senior Vice President, General Counsel, Secretary and
Director
Soraya Hesabi-Cartwright.......... 41 Executive Vice President of DISH Network
Mark W. Jackson................... 41 Senior Vice President of EchoStar Technologies Corporation
Michael R. McDonnell.............. 38 Senior Vice President and Chief Financial Officer
Michael Kelly..................... 40 Senior Vice President of DISH Network Service Corporation
Charles W. Ergen. Mr. Ergen has been Chairman of the Board of Directors and
Chief Executive Officer of EchoStar since its formation and, during the past
five years, has held various executive officer and director positions with
EchoStar's subsidiaries. Mr. Ergen, along with his spouse and James DeFranco,
was a co-founder of EchoStar in 1980.
Michael T. Dugan. Mr. Dugan is the President and Chief Operating Officer of
EchoStar. In that capacity, Mr. Dugan is responsible for, among other things,
all operations at EchoStar. Until April 2000, he was President of EchoStar
Technologies Corporation. Previously he was the Senior Vice President of the
Consumer Products Division of ECC. Mr. Dugan has been with EchoStar since 1990.
James DeFranco. Mr. DeFranco, currently the Executive Vice President of
EchoStar, has been a Vice President and a Director of EchoStar since its
formation and, during the past five years, has held various executive officer
positions with EchoStar's subsidiaries. Mr. DeFranco, along with Mr. Ergen and
Mr. Ergen's spouse, was a co-founder of EchoStar in 1980.
Steven B. Schaver. Mr. Schaver was named President of EchoStar International
Corporation in April 2000. Mr. Schaver also served as EchoStar's Chief Financial
Officer from February 1996 through August 2000, and served as EchoStar's Chief
Operating Officer from November 1996 until April 2000. From November 1993 to
February 1996, Mr. Schaver was the Vice President of EchoStar's European and
African operations.
David K. Moskowitz. Mr. Moskowitz is the Senior Vice President, Secretary
and General Counsel of EchoStar. Mr. Moskowitz joined EchoStar in March 1990. He
was elected to EchoStar's Board of Directors during 1998. Mr. Moskowitz is
responsible for all legal affairs and certain business functions for EchoStar
and its subsidiaries.
Soraya Hesabi-Cartwright. Ms. Hesabi-Cartwright was named Executive Vice
President of DISH Network in April 2000. Ms. Hesabi-Cartwright served as Senior
Vice President of Human Resources and Customer Service from November 1998 until
April 2000. Ms. Hesabi-Cartwright joined EchoStar in 1994 as Director of Human
Resources and was promoted to Vice President of Human Resources in 1996. During
1996, Ms. Hesabi-Cartwright transferred to EchoStar's Customer Service Center as
Vice President of Customer Service, where she served until her promotion in
1998.
27
Mark W. Jackson. Mr. Jackson was named Senior Vice President of EchoStar
Technologies Corporation in April 2000. Mr. Jackson served as Senior Vice
President of Satellite Services from December 1997 until April 2000. From April
1993 until December 1997 Mr. Jackson served as Vice President of Engineering at
EchoStar.
Michael R. McDonnell. Mr. McDonnell joined EchoStar in August 2000 as Senior
Vice President and Chief Financial Officer. Mr. McDonnell is responsible for all
accounting and finance functions of the Company. Prior to joining EchoStar, Mr.
McDonnell was a Partner with PricewaterhouseCoopers LLP, serving on engagements
for companies in the technology and information communications industries.
Michael Kelly. Mr. Kelly joined EchoStar in March 2000 as Senior Vice
President of International Programming upon consummation of EchoStar's
acquisition of Kelly Broadcasting Systems, Inc. From January 1991 until March
2000, Mr. Kelly served as President of Kelly Broadcasting Systems, Inc. where he
was responsible for all components of the business, including operations,
finance, and international and domestic business development.
There are no arrangements or understandings between any executive
officer and any other person pursuant to which any executive officer was
selected as such. Pursuant to the Bylaws of EchoStar, executive officers serve
at the discretion of the Board of Directors. Cantey Ergen, Charlie Ergen's
spouse, and Peter Dea were elected to the Board of Directors during 2001.
Jean-Marie Messier, Chairman and CEO of Vivendi, was added to the Board of
Directors in January 2002.
ITEM 2. PROPERTIES
The following table sets forth certain information concerning our
material properties:
SEGMENT(s) USING APPROXIMATE OWNED OR
DESCRIPTION/USE/LOCATION PROPERTY SQUARE FOOTAGE LEASED
- ------------------------ ---------------- -------------- --------
Corporate headquarters and customer service center,
Littleton, Colorado ..................................... All 156,000 Owned
EchoStar Technologies Corporation office and
distribution center, Englewood, Colorado ................ ETC 155,000 Owned
EchoStar Technologies Corporation engineering
offices, Englewood, Colorado ............................ ETC 57,200 Owned
Digital broadcast operations center, Cheyenne,
Wyoming ................................................. DISH Network 144,000 Owned
Digital broadcast operations center, Gilbert, Arizona ...... DISH Network 120,000 Owned
Customer service center, McKeesport, Pennsylvania .......... DISH Network 100,000 Leased
Customer service center, El Paso, Texas .................... DISH Network 100,000 Owned
Customer service center, Christiansburg, Virginia .......... DISH Network 100,000 Owned
Customer service center, Thornton, Colorado ................ DISH Network 55,000 Owned
Customer service center, Bluefield, West Virginia .......... DISH Network 51,000 Owned
Warehouse and distribution center, Atlanta, Georgia ........ ETC 160,000 Leased
Warehouse and distribution center, Denver, Colorado ........ ETC 132,800 Leased
Warehouse and distribution center, Sacramento,
California .............................................. ETC 78,500 Owned
European headquarters and warehouse, Almelo, The
Netherlands ............................................. ETC and Other 53,800 Owned
28
ITEM 3. LEGAL PROCEEDINGS
Fee Dispute
We had a contingent fee arrangement with the attorneys who represented
us in prior litigation with The News Corporation, Ltd. The contingent fee
arrangement provides for the attorneys to be paid a percentage of any net
recovery obtained by us in the News Corporation litigation. The attorneys
asserted that they might be entitled to receive payments totaling hundreds of
millions of dollars under this fee arrangement. We consistently maintained that
the demand significantly overstated the amount to which the attorneys might
reasonably be entitled.
During mid-1999, we initiated litigation against the attorneys in the
Arapahoe County, Colorado, District Court arguing that the fee arrangement was
void and unenforceable. In December 1999, the attorneys initiated an arbitration
proceeding before the American Arbitration Association. The litigation was
stayed while the arbitration proceeded. The arbitration hearing concluded on
October 11, 2001. During the four week arbitration hearing, the attorneys
presented a damage model for $56 million. We asserted even that amount
significantly overstated the amount to which the attorneys might reasonably be
entitled. During closing arguments, the attorneys presented a separate damage
calculation for $111 million to the arbitration panel.
On November 7, 2001, the arbitration panel awarded the attorneys
approximately $40 million for its contingency fee under the fee agreement. In
the award, the arbitration panel also dismissed our claims against the attorneys
that we had initiated in the Arapahoe County, Colorado, District Court. Pursuant
to the award, approximately $8 million was to be paid within 30 days of the
award with the balance to be paid in equal quarterly principal installments over
four years, commencing February 1, 2002. Interest is to be paid at the prime
rate (calculated as the average amount for each relevant year as published daily
in the Wall Street Journal), compounded annually.
On November 30, 2001, we filed a motion to vacate the award on the
following grounds: (1) the award as issued violates public policy and cannot be
enforced; and (2) the Panel exceeded its authority under Colorado Revised
Statutes Section 13-22-214(1)(a)(III). Alternatively, we requested that the
Arapahoe County District Court modify the award to correct a calculation error.
The attorneys have opposed our motion to vacate. The motion remains pending
before the District Court in Arapahoe County, Colorado. There can be no
assurance that we will succeed in our effort to vacate or modify the arbitration
award.
WIC Premium Television Ltd.
During July 1998, a lawsuit was filed by WIC Premium Television Ltd.,
an Alberta corporation, in the Federal Court of Canada Trial Division, against
General Instrument Corporation, HBO, Warner Communications, Inc., John Doe,
Showtime, United States Satellite Broadcasting Company, Inc., us, and two of our
wholly-owned subsidiaries, Echosphere Corporation and Dish, Ltd. EchoStar
Satellite Corporation, EDBS, ETC, and EchoStar Satellite Broadcasting
Corporation were subsequently added as defendants. The lawsuit seeks, among
other things, interim and permanent injunctions prohibiting the defendants from
activating receivers in Canada and from infringing any copyrights held by WIC.
During September 1998, WIC filed another lawsuit in the Court of
Queen's Bench of Alberta Judicial District of Edmonton against certain
defendants, including us. WIC is a company authorized to broadcast certain
copyrighted work, such as movies and concerts, to residents of Canada. WIC
alleges that the defendants engaged in, promoted, and/or allowed satellite dish
equipment from the United States to be sold in Canada and to Canadian residents
and that some of the defendants allowed and profited from Canadian residents
purchasing and viewing subscription television programming that is only
authorized for viewing in the United States. The lawsuit seeks, among other
things, interim and permanent injunctions prohibiting the defendants from
importing hardware into Canada and from activating receivers in Canada, together
with damages in excess of $175 million.
29
The Court in the Alberta action recently denied our Motion to Dismiss,
and our appeal of such decision. The Court in the Federal action has stayed that
case pending the outcome of the Alberta action. The case is now currently in
discovery. We intend to vigorously defend the suit. It is too early to make an
assessment of the probable outcome of the litigation or to determine the extent
of any potential liability or damages.
Broadcast network programming
Until July 1998, we obtained distant broadcast network channels (ABC,
NBC, CBS and FOX) for distribution to our customers through PrimeTime 24. In
December 1998, the United States District Court for the Southern District of
Florida entered a nationwide permanent injunction requiring PrimeTime 24 to shut
off distant network channels to many of its customers, and henceforth to sell
those channels to consumers in accordance with certain stipulations in the
injunction.
In October 1998, we filed a declaratory judgment action against ABC,
NBC, CBS and FOX in the U.S. District Court for the District of Colorado. We
asked the court to enter a judgment declaring that our method of providing
distant network programming did not violate the Satellite Home Viewer Act
("SHVA") and hence did not infringe the networks' copyrights. In November 1998,
the networks and their affiliate groups filed a complaint against us in Miami
Federal Court alleging, among other things, copyright infringement. The court
combined the case that we filed in Colorado with the case in Miami and
transferred it to the Miami court. The case remains pending in Miami. While the
networks have not sought monetary damages, they have sought to recover attorney
fees if they prevail.
In February 1999, the networks filed a "Motion for Temporary
Restraining Order, Preliminary Injunction and Contempt Finding" against DirecTV,
Inc. in Miami related to the delivery of distant network channels to DirecTV
customers by satellite. DirecTV settled this lawsuit with the networks. Under
the terms of the settlement between DirecTV and the networks, some DirecTV
customers were scheduled to lose access to their satellite-provided distant
network channels by July 31, 1999, while other DirecTV customers were to be
disconnected by December 31, 1999. Subsequently, PrimeTime 24 and substantially
all providers of satellite-delivered network programming other than EchoStar
agreed to this cut-off schedule, although we do not know if they adhered to this
schedule.
In December 1998, the networks filed a Motion for Preliminary
Injunction against us in the Miami court, and asked the court to enjoin us from
providing network programming except under limited circumstances. A preliminary
injunction hearing was held on September 21, 1999. In March 2000, the networks
filed an emergency motion again asking the court to issue an injunction
requiring us to turn off network programming to certain of our customers. At
that time, the networks also argued that our compliance procedures violate the
Satellite Home Viewer Improvement Act ("SHVIA"). We opposed the networks' motion
and again asked the court to hear live testimony before ruling upon the
networks' injunction request.
During September 2000, the Court granted the Networks' motion for
preliminary injunction, denied the Network's emergency motion and denied our
request to present live testimony and evidence. The Court's original order
required us to terminate network programming to certain subscribers "no later
than February 15, 1999," and contained other dates with which it would be
physically impossible to comply. The order imposes restrictions on our past and
future sale of distant ABC, NBC, CBS and Fox channels similar to those imposed
on PrimeTime 24 (and, we believe, on DirecTV and others). Some of those
restrictions go beyond the statutory requirements imposed by the SHVA and the
SHVIA. For these and other reasons we believe the Court's order is, among other
things, fundamentally flawed, unconstitutional and should be overturned.
However, it is very unusual for a Court of Appeals to overturn a lower court's
order and there can be no assurance whatsoever that it will be overturned.
On October 3, 2000, and again on October 25, 2000, the Court amended
its original preliminary injunction order in an effort to fix some of the errors
in the original order. The twice amended preliminary injunction order required
us to shut off, by February 15, 2001, all subscribers who are ineligible to
receive distant network
30
programming under the court's order. We appealed the September 2000 preliminary
injunction order and the October 3, 2000 amended preliminary injunction order.
On November 22, 2000, the United States Court of Appeals for the Eleventh
Circuit stayed the Florida Court's preliminary injunction order pending our
appeal. At that time, the Eleventh Circuit also expedited its consideration of
our appeal.
Oral argument before the Eleventh Circuit was held on May 24, 2001. On
September 17, 2001, the Eleventh Circuit vacated the District Court's nationwide
preliminary injunction, which the Eleventh Circuit had stayed in November 2000.
The Eleventh Circuit also rejected our First Amendment challenge to the SHVA.
However, the Eleventh Circuit found that the District Court had made factual
findings that were clearly erroneous and not supported by the evidence, and that
the District Court had misinterpreted and misapplied the law. The Eleventh
Circuit also found that the District Court came to the wrong legal conclusion
concerning the grandfathering provision found in 17 U.S.C. Section 119(d); the
Eleventh Circuit reversed the District Court's legal conclusion and instead
found that this grandfathering provision allows subscribers who switch satellite
carriers to continue to receive the distant network programming that they had
been receiving. The Eleventh Circuit's order indicated that the matter was to be
remanded to the District Court for an evidentiary hearing. On December 28, 2001,
the Eleventh Circuit denied our request for rehearing. The Eleventh Circuit
issued its mandate on January 29, 2002, remanding the case to the Florida
District Court. We cannot predict when an evidentiary hearing will be set before
the District Court or when a trial will be set before the District Court if the
Networks withdraw their request for a preliminary injunction as they have
indicated they will do when the case was remanded to the District Court.
We are considering an appeal to the United States Supreme Court. If we
decide to appeal, there is no guarantee that the United States Supreme Court
will agree to hear any petition filed or that our appeal will be heard before
any evidentiary hearing or trial in the District Court.
If, after an evidentiary hearing or trial, the District Court enters an
injunction against us, the injunction could force us to terminate delivery of
distant network channels to a substantial portion of our distant network
subscriber base, which could also cause many of these subscribers to cancel
their subscription to our other services. Management has determined that such
terminations would result in a small reduction in our reported average monthly
revenue per subscriber and could result in a temporary increase in churn. If we
lose the case at trial, the judge could, as one of many possible remedies,
prohibit all future sales of distant network programming by us, which would have
a material adverse affect on our business.
31
Gemstar
During October 2000, Starsight Telecast, Inc., a subsidiary of
Gemstar-TV Guide International, Inc., filed a suit for patent infringement
against us and certain of our subsidiaries in the United States District Court
for the Western District of North Carolina, Asheville Division. The suit alleges
infringement of United States Patent No. 4,706,121 (the "121 Patent") which
relates to certain electronic program guide functions. We have examined this
patent and believe that it is not infringed by any of our products or services.
We will vigorously defend against this suit. On March 30, 2001, the court stayed
the action pending resolution of the International Trade Commission matter
discussed below.
In December 2000, we filed suit against Gemstar - TV Guide (and certain
of its subsidiaries) in the United States District Court for the District of
Colorado alleging violations by Gemstar of various federal and state anti-trust
laws and laws governing unfair competition. The lawsuit seeks an injunction and
monetary damages. Gemstar filed counterclaims alleging infringement of United
States Patent Nos. 5,923,362 and 5,684,525 that relate to certain electronic
program guide functions. We examined these patents and believe they are not
infringed by any of our products or services. In August 2001, the Federal
Multi-District Litigation panel combined this suit, for discovery purposes, with
other lawsuits asserting antitrust claims against Gemstar, which had previously
been filed by other plaintiffs. In January 2002, Gemstar dropped the
counterclaims of patent infringement.
In February 2001, Gemstar filed patent infringement actions against us
in District Court in Atlanta, Georgia and in the International Trade Commission
("ITC"). These suits allege infringement of United States Patent Nos. 5,252,066,
5,479,268 and 5,809,204 all of which relate to certain electronic program guide
functions. In addition, the ITC action alleges infringement of the 121 Patent
which is asserted in the North Carolina case. In the Atlanta District Court
case, Gemstar seeks damages and an injunction. The North Carolina and Atlanta
cases have been stayed pending resolution of the ITC action. ITC actions
typically proceed according to an expedited schedule. In December 2001, the ITC
held a 15-day hearing before an administrative judge. Prior to the hearing,
Gemstar dropped its allegations regarding United States Patent No. 5,252,066
with respect to which we had asserted substantial allegations of inequitable
conduct. The hearing addressed, among other things, Gemstar's allegations of
patent infringement and respondents' (SCI, Scientific Atlanta, Pioneer and us)
allegations of patent misuse. A decision by the judge is expected by March 21,
2002 and a ruling by the full ITC is expected 60 days later. While the ITC
cannot award damages, an adverse decision in this case could temporarily halt
the import of our receivers and could require us to materially modify certain
user-friendly electronic programming guides and related features we currently
offer to consumers. We have examined the patents in dispute and believe they are
not infringed by any of our products or services. We will vigorously contest the
ITC, North Carolina and Atlanta allegations of infringement and will, among
other things, challenge both the validity and enforceability of the asserted
patents. We are providing a defense and indemnification to SCI in the ITC and
Atlanta cases pursuant to the terms of their contract.
During 2000, Superguide Corp. also filed suit against us, DirecTV and
others in the United States District Court for the Western District of North
Carolina, Asheville Division, alleging infringement of United States Patent Nos.
5,038,211, 5,293,357 and 4,751,578 which relate to certain electronic program
guide functions, including the use of electronic program guides to control VCRs.
Superguide seeks injunctive and declaratory relief and damages in an unspecified
amount. It is our understanding that these patents may be licensed by Superguide
to Gemstar. Gemstar has been added as a party to this case and is now asserting
these patents against us. We have examined these patents and believe that they
are not infringed by any of our products or services. A Markman ruling was
issued by the Court and in response to that ruling we have filed motions for
summary judgment of non-infringement for each of the asserted patents. Gemstar
has filed a motion for summary judgment of infringement with respect to one of
the patents. We intend to vigorously defend this case and to press our patent
misuse defenses.
In the event it is ultimately determined that we infringe on any of the
aforementioned patents we may be subject to substantial damages, including the
potential for treble damages, and/or an injunction that could require us to
materially modify certain user friendly electronic programming guide and related
features we currently offer to consumers. It is too early to make an assessment
of the probable outcome of the suits.
32
IPPV Enterprises
IPPV Enterprises, LLC and MAAST, Inc. filed a patent infringement suit
against us, and our conditional access vendor Nagra, in the United States
District Court for the District of Delaware. The suit alleged infringement of
five patents. One patent claim was subsequently dropped by plaintiffs. Three of
the remaining patents disclose various systems for the implementation of
features such as impulse-pay-per view, parental control and category lock-out.
The fourth remaining patent relates to an encryption technique. The Court
entered summary judgment in our favor on the encryption patent. Plaintiffs had
claimed $80 million in damages with respect to the encryption patent. On July
13, 2001, a jury found that the remaining three patents were infringed and
awarded damages of $15 million. The jury also found that one of the patents was
willfully infringed which means that the judge is entitled to increase the award
of damages. The parties have completed briefing and oral argument of post-trial
motions. We intend to appeal any adverse decision and plaintiffs have indicated
they may appeal as well. Any final award of damages would be split between us
and Nagra in percentages to be agreed upon between us and Nagra.
California Actions
A purported class action was filed against us in the California State
Superior Court for Alameda County during May 2001 by Andrew A. Werby. The
complaint, relating to late fees, alleges unlawful, unfair and fraudulent
business practices in violation of California Business and Professions Code
Section 17200 et seq., false and misleading advertising in violation of
California Business and Professions Code Section 17500, and violation of the
California Consumer Legal Remedies Act. On September 24, 2001, we filed an
answer denying all material allegations of the Complaint. On September 27, 2001,
the Court entered an Order Pursuant to Stipulation for a provisional
certification of the class, for an orderly exchange of information and for
mediation. The provisional Order specifies that the class shall be de-certified
upon notice in the event mediation does not resolve the dispute. It is too early
in the litigation to make an assessment of the probable outcome of the
litigation or to determine the extent of any potential liability or damages. We
intend to deny all liability and to vigorously defend the lawsuit.
A purported class action relating to the use of terms such as "crystal
clear digital video," "CD-quality audio," and "on-screen program guide", and
with respect to the number of channels available in various programming
packages, has also been filed against us in the California State Superior Court
for Los Angeles County by David Pritikin and by Consumer Advocates, a nonprofit
unincorporated association. The complaint alleges breach of express warranty and
violation of the California Consumer Legal Remedies Act, Civil Code Sections
1750, et. seq., and the California Business & Professions Code Sections 17500,
17200. We have filed an answer and the case is currently in discovery.
Plaintiffs filed their Motion for Class Certification on January 21, 2002. Our
response is due on March 7, 2002, and the Court will conduct a hearing on class
certification in early May 2002. It is too early in the litigation to make an
assessment of the probable outcome of the litigation or to determine the extent
of any potential liability or damages. We deny all liability and intend to
vigorously defend the lawsuit.
Retailer Class Actions
We have been sued by retailers in three separate purported class
actions. In two separate lawsuits filed in the District Court, Arapahoe County,
State of Colorado and the United States District Court for the District of
Colorado, respectively, Air Communication & Satellite, Inc. and John DeJong, et.
al. filed lawsuits on October 6, 2000 on behalf of themselves and a class of
persons similarly situated. The plaintiffs are attempting to certify nationwide
classes allegedly brought on behalf of persons, primarily retail dealers, who
were alleged signatories to certain retailer agreements with EchoStar Satellite
Corporation. The plaintiffs are requesting the Courts to declare certain
provisions of the alleged agreements invalid and unenforceable, to declare that
certain changes to the agreements are invalid and unenforceable, and to award
damages for lost commissions and payments, charge backs, and other compensation.
We intend to vigorously defend against the suits and to assert a variety of
counterclaims. It is too early to make an assessment of the probable outcome of
the litigation or to determine the extent of any potential liability or damages.
33
Satellite Dealers Supply, Inc. filed a lawsuit in the United States
District Court for the Eastern District of Texas on September 25, 2000, on
behalf of itself and a class of persons similarly situated. The plaintiff is
attempting to certify a nationwide class on behalf of sellers, installers, and
servicers of satellite equipment who contract with us and claim the alleged
class has been "subject to improper chargebacks." The plaintiff alleges that we:
(1) charged back certain fees paid by members of the class to professional
installers in violation of contractual terms; (2) manipulated the accounts of
subscribers to deny payments to class members; and (3) misrepresented to class
members who own certain equipment related to the provision of satellite
television service. On September 18, 2001, the Court granted our Motion to
Dismiss for lack of personal jurisdiction. Plaintiff Satellite Dealers Supply
has moved for reconsideration of the Court's order dismissing the case.
PrimeTime 24 Joint Venture
PrimeTime 24 Joint Venture filed suit against us during September, 1998
alleging breach of contract, wrongful termination of contract, interference with
contractual relations, trademark infringement and unfair competition. Our motion
for summary judgment was granted with respect to PrimeTime 24's claim of
interference with contractual relations and unfair competition. Plaintiff's
motion for summary judgment was granted with respect to its approximate $10
million breach of contract claim for fees during the period from May 1998
through July 19, 1998. It is too early to make an assessment of the probable
outcome of the remainder of the litigation or to determine the extent of any
additional potential liability or damages.
Satellite Insurance
In September 1998, we filed a $219.3 million insurance claim for a
constructive total loss under the launch insurance policies covering EchoStar
IV. The satellite insurance consists of separate substantially identical
policies with different carriers for varying amounts that, in combination,
create a total insured amount of $219.3 million. Our
34
insurance carriers offered us a total of approximately $88 million, or 40% of
the total policy amount, in settlement of the EchoStar IV insurance claim. The
insurers offered to pay only part of the $219.3 million claim because they
allege we did not abide by the exact terms of the insurance policy. The insurers
also assert that EchoStar IV was not a constructive total loss, as that term is
defined in the policy. We strongly disagree and filed an arbitration claim
against the insurers for breach of contract, failure to pay a valid insurance
claim and bad faith denial of a valid claim, among other things. There can be no
assurance that we will receive the amount claimed or, if we do, that we will
retain title to EchoStar IV with its reduced capacity. Based on the carriers'
failure to pay the amount we believe is owed under the policy and their improper
attempts to force us to settle for less than the full amount of our claim, we
have added causes of action in our EchoStar IV demand for arbitration for breach
of the duty of good faith and fair dealing, and unfair claim practices.
Additionally, we filed a lawsuit against the insurance carriers in the U.S.
District Court for the District of Colorado asserting causes of action for
violation of Federal and State antitrust laws. During March 2001, we voluntarily
dismissed our antitrust lawsuit without prejudice. We have the right to re-file
an antitrust action against the insurers in the future. With respect to our
arbitration claims, we are hopeful they will be resolved, and we believe it is
probable that we will receive a substantial portion of the benefits due.
In addition to the above actions, we are subject to various other legal
proceedings and claims which arise in the ordinary course of business. In the
opinion of management, the amount of ultimate liability with respect to those
actions will not materially affect our financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 27, 2001, our Board of Directors unanimously determined that
the proposed merger of Hughes with us and the related transactions were
advisable, fair to and in the best interest of us and our stockholders. Our
Board of Directors unanimously approved the merger agreement and unanimously
recommended that our stockholders approve the merger agreement.
On October 28, 2001, the Samburu Warrior Revocable Trust, a family
trust controlled by Mr. Charles W. Ergen, executed a written consent approving
the merger agreement. The Samburu Warrior Revocable Trust was beneficial owner
of 238,435,208 shares of our class B common stock, par value of $0.01, which are
100% of the outstanding shares of our class B common stock and which represented
approximately 90.8% of the combined voting power of all of our outstanding
common stock as of October 28, 2001.
35
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our class A common stock is quoted on the Nasdaq Stock Market under the
symbol "DISH." The sale prices reflect inter-dealer quotations and do not
include retail markups, markdowns, or commissions. The high and low closing sale
prices of the class A common stock during 2000 and 2001 on the Nasdaq Stock
Market (as reported by Nasdaq) are set forth below. On March 22, 2000 we
completed a two-for-one split of our outstanding common stock. All references to
share and per share amounts included below retroactively give effect to the
stock split completed in March 2000.
2000 High Low
- ---- --------- ---------
First Quarter .................................. $ 79.000 $ 40.719
Second Quarter ................................. 74.188 31.188
Third Quarter .................................. 53.422 31.625
Fourth Quarter ................................. 54.125 22.750
2001
- ----
First Quarter .................................. $ 34.000 $ 21.813
Second Quarter ................................. 38.510 25.813
Third Quarter .................................. 30.440 20.470
Fourth Quarter ................................. 27.470 22.130
As of February 25, 2002, there were approximately 6,068 holders of
record of our class A common stock, not including stockholders who beneficially
own class A common stock held in nominee or street name. As of February 25,
2002, all 238,435,208 outstanding shares of our class B common stock were held
by Charles W. Ergen, our Chairman and Chief Executive Officer. There is
currently no trading market for our class B common stock.
We have never declared or paid any cash dividends on any class of our
common stock and do not expect to declare dividends on our common stock in the
foreseeable future. Payment of any future dividends will depend upon our
earnings and capital requirements, restrictions in our debt facilities, and
other factors the Board of Directors considers appropriate. We currently intend
to retain our earnings, if any, to support future growth and expansion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
36
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data as of and for each of the five
years ended December 31, 2001 have been derived from, and are qualified by
reference to our Consolidated Financial Statements which have been audited by
Arthur Andersen LLP, independent public accountants. This data should be read in
conjunction with our Consolidated Financial Statements and related Notes thereto
for the three years ended December 31, 2001, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this report.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
STATEMENTS OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE:
DISH Network .............................. $ 344,250 $ 683,032 $ 1,352,603 $ 2,352,237 $ 3,605,724
DTH equipment sales and integration
services .................................. 91,637 256,193 184,041 259,830 271,242
Other ..................................... 41,531 43,441 66,197 103,153 124,172
----------- ----------- ----------- ----------- -----------
Total revenue ............................... 477,418 982,666 1,602,841 2,715,220 4,001,138
COSTS AND EXPENSES:
DISH Network operating expenses ........... 193,274 395,411 732,675 1,265,445 1,757,750
Cost of sales - DTH equipment and
integration services .................... 61,992 173,388 148,427 194,963 188,039
Cost of sales - other ..................... 23,909 16,496 17,084 32,992 81,974
Marketing expenses ........................ 179,923 320,521 727,061 1,158,640 1,084,375
General and administrative ................ 69,315 97,105 150,397 250,425 377,873
Non-cash, stock-based compensation ........ -- -- 61,060 51,465 20,173
Depreciation and amortization ............. 173,276 102,636 113,228 185,356 278,652
----------- ----------- ----------- ----------- -----------
Total costs and expenses .................... 701,689 1,105,557 1,949,932 3,139,286 3,788,836
----------- ----------- ----------- ----------- -----------
Operating income (loss) ..................... (224,271) (122,891) (347,091) (424,066) 212,302
Extraordinary charge for early
retirement of debt, net of tax .......... -- -- (268,999) -- --
=========== =========== =========== =========== ===========
Net loss .................................... $ (312,825) $ (260,882) $ (792,847) $ (650,326) $ (215,498)
=========== =========== =========== =========== ===========
Net loss attributable to common shares ...... $ (321,267) $ (296,097) $ (800,100) $ (651,472) $ (215,835)
=========== =========== =========== =========== ===========
Weighted-average common shares outstanding .. 335,344 359,856 416,476 471,023 477,172
=========== =========== =========== =========== ===========
Basic and diluted loss per share(1) ......... $ (0.96) $ (0.82) $ (1.92) $ (1.38) $ (0.45)
=========== =========== =========== =========== ===========
AS OF DECEMBER 31,
-------------------------------------------------------------------------
1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
BALANCE SHEETS DATA
Cash, cash equivalents and marketable investment
securities ........................................ $ 420,514 $ 324,100 $ 1,254,175 $ 1,464,175 $ 2,828,297
Cash reserved for satellite insurance ............... -- -- -- 82,393 122,068
Restricted cash and marketable investment
securities ........................................ 187,762 77,657 3,000 3,000 1,288
Total assets ........................................ 1,805,646 1,806,852 3,898,189 4,636,835 6,519,686
Long-term obligations (less current portion):
1994 Notes ........................................ 499,863 571,674 1,503 -- --
1996 Notes ........................................ 438,512 497,955 1,097 -- --
1997 Notes ........................................ 375,000 375,000 15 -- --
9 1/4% Seven Year Notes ........................... -- -- 375,000 375,000 375,000
9 3/8% Ten Year Notes ............................. -- -- 1,625,000 1,625,000 1,625,000
10 3/8% Seven Year Notes .......................... -- -- -- 1,000,000 1,000,000
9 1/8% Seven Year Notes ........................... -- -- -- -- 700,000
4 7/8% Convertible Notes .......................... -- -- 1,000,000 1,000,000 1,000,000
5 3/4% Convertible Notes .......................... -- -- -- -- 1,000,000
Mortgages and other notes payable, net of
current portion ................................... 51,846 43,450 27,990 14,812 6,480
Series B Preferred Stock ............................ 199,164 226,038 -- -- --
Total stockholders' equity (deficit) ................ (88,961) (371,540) (48,418) (657,383) (777,772)
37
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SUBSCRIBERS AND PER SUBSCRIBER DATA)
OTHER DATA
DISH Network subscribers ........................... 1,040,000 1,940,000 3,410,000 5,260,000 6,830,000
Average monthly revenue per subscriber ............. $ 38.50 $ 39.25 $ 42.71 $ 45.33 $ 49.32
EBITDA(2) .......................................... (50,995) (20,255) (172,803) (187,245) 511,127
Less amortization of subscriber acquisition costs .. (121,735) (18,869) -- -- --
---------- ---------- ---------- ---------- ----------
EBITDA, as adjusted to exclude amortization of ..... (172,730) (39,124) (172,803) (187,245) 511,127
subscriber acquisition costs
Net cash flows from:
Operating activities ............................. 43 (16,890) (58,513) (118,677) 489,483
Investing activities ............................. (597,249) (8,048) (62,826) (911,957) (1,279,119)
Financing activities ............................. 703,182 (13,722) 920,091 982,153 1,610,707
- ----------
(1) The loss per share amount in 1999 of $(1.92) includes $(1.28) per share
relating to basic and diluted loss per share before extraordinary charges
and $(0.64) per share relating to the extraordinary charge for early
retirement of debt, net of tax.
(2) We believe it is common practice in the telecommunications industry for
investment bankers and others to use various multiples of current or
projected EBITDA (operating income (loss) plus depreciation and
amortization, and non-cash, stock-based compensation) for purposes of
estimating current or prospective enterprise value and as one of many
measures of operating performance. Conceptually, EBITDA measures the amount
of income generated each period that could be used to service debt, because
EBITDA is independent of the actual leverage employed by the business; but
EBITDA ignores funds needed for capital expenditures and expansion. Some
investment analysts track the relationship of EBITDA to total debt as one
measure of financial strength. However, EBITDA does not purport to represent
cash provided or used by operating activities and should not be considered
in isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
EBITDA differs significantly from cash flows from operating activities
reflected in the consolidated statement of cash flows. Cash flows from
operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash (vs. accrual)
basis, exclusive of non-cash items of income and expenses such as
depreciation and amortization. In contrast, EBITDA is derived from accrual
basis income and is not reduced for cash invested in working capital.
Consequently, EBITDA is not affected by the timing of receivable collections
or when accrued expenses are paid. We are not aware of any uniform standards
for determining EBITDA and believe presentations of EBITDA may not be
calculated consistently by different entities in the same or similar
businesses. EBITDA is shown before and after amortization of subscriber
acquisition costs, which were deferred through September 1997 and amortized
over one year. EBITDA for 1999, 2000 and 2001 also excludes approximately
$61 million, $51 million and $20 million in non-cash, stock-based
compensation expense resulting from significant post-grant appreciation of
stock options granted to employees, respectively. In addition, EBITDA does
not include the impact of amounts capitalized under our Digital Home Plan of
approximately $65.4 million and $338 million during 2000 and 2001,
respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We expect that consummation of the Hughes merger and related
transactions and consummation of the PanAmSat acquisition described in
"Business -- Recent Developments -- The Proposed Merger with Hughes" would have
material effects on our results of operations and liquidity and capital
resources. Our historical financial information contained in this document does
not give effect to either of these transactions, on a pro forma or any other
basis, and our liquidity and capital resources discussions do not take that
transaction into account. The EchoStar information statement, which we expect to
file with the Securities and Exchange Commission in mid-March and distribute to
our common stockholders this summer, will include pro forma financial
information of the combined company as if the Hughes merger was consummated and
for us as if the PanAmSat acquisition was consummated, each in accordance with
the rules and regulations of the Securities and Exchange Commission. Please see
"Business -- Recent Developments -- The Proposed Merger with Hughes" for a
description of how you can obtain a copy of the EchoStar information statement
once we file it with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000.
Revenue. Total revenue for the year ended December 31, 2001 was $4.001
billion, an increase of $1.286 billion compared to total revenue for the year
ended December 31, 2000 of $2.715 billion. The increase in total revenue was
primarily attributable to continued DISH Network subscriber growth and higher
average revenue per subscriber. Assuming a continued slow economy, we expect
that our revenues will increase 20% to 25% in 2002 as the number of DISH Network
subscribers increases.
DISH Network subscription television services revenue totaled $3.588
billion for the year ended December 31, 2001, an increase of $1.241 billion
compared to the same period in 2000. DISH Network subscription television
services revenue principally consists of revenue from basic, premium and
pay-per-view subscription television services. This increase was directly
attributable to continued DISH Network subscriber growth and higher average
revenue per subscriber. DISH Network added approximately 1.57 million net new
subscribers for the year ended December 31, 2001 compared to approximately 1.85
million net new subscriber additions during the same period in 2000. We believe
the reduction in net new subscribers for the year ended December 31, 2001
primarily resulted from the slowing economy, and increased churn. As of December
31, 2001, we had approximately 6.83 million DISH Network subscribers compared to
approximately 5.26 million at December 31, 2000, an increase of approximately
30%. DISH Network subscription television services
38
revenue will continue to increase to the extent we are successful in increasing
the number of DISH Network subscribers and maintaining or increasing revenue per
subscriber. While there can be no assurance, notwithstanding our expectation of
a continued slow U.S. economy, we expect to end 2002 with more than 8 million
DISH Network subscribers.
Monthly average revenue per subscriber was approximately $49.32 during
the year ended December 31, 2001 and approximately $45.33 during the same period
in 2000. The increase in monthly average revenue per subscriber is primarily
attributable to $1.00 price increases in both May 2000 and February 2001, the
increased availability of local channels by satellite, the introduction of our
high-end America's Top 150 basic programming package during April 2000, together
with an increase in subscriber penetration in our higher priced Digital Home
Plans. This increase is also attributable to a change in marketing promotions
from 2000 to 2001. From August 2000 to January 31, 2001, we marketed a promotion
offering consumers free premium movie channels. Under this promotion, all new
subscribers who ordered certain qualifying programming packages and any or all
of our four premium movie packages between August 1, 2000 and January 31, 2001,
received those premium movie packages free for three months. This promotion had
a negative impact on monthly average revenue per subscriber during 2000 since no
premium movie package revenue was received from participating subscribers for
the term of each participating subscriber's free service. The increase from
discontinuing our free premium movie channel promotion was partially offset by
the introduction of our I Like 9 promotion, discussed below, during August 2001.
While there can be no assurance, we expect a modest increase in monthly average
revenue per subscriber during 2002.
Impacts from our litigation with the networks in Florida, new FCC rules
governing the delivery of superstations and other factors could cause us to
terminate delivery of distant network channels and superstations to a material
portion of our subscriber base, which could cause many of those customers to
cancel their subscription to our other services. Any such terminations could
result in a small reduction in average monthly revenue per subscriber and could
result in an increase in our percentage churn.
Commencing January 1, 2002, we were required to comply with the
statutory requirement to carry all qualified over the air television stations by
satellite in any market where we carry any local network channels by satellite.
Any reduction in the number of markets we serve in order to comply with "must
carry" requirements for other markets would adversely affect our operations and
could result in a temporary increase in churn. While we believe we meet
statutory "must carry" requirements, the FCC could interpret or implement its
"must carry" rules in ways that may require us to reduce the number of markets
where we provide local service. In combination, these resulting subscriber
terminations would result in a small reduction in average monthly revenue per
subscriber and could increase our percentage churn.
For the year ended December 31, 2001, DTH equipment sales and
integration services revenue totaled $271 million, an increase of $11 million
compared to the same period during 2000. DTH equipment sales consist of sales of
digital set-top boxes and other digital satellite broadcasting equipment to
international DTH service operators, sales of StarBand equipment and sales of
DBS accessories, including equipment upgrades. This increase in DTH equipment
sales and integration services revenue was primarily attributable to an increase
in sales of StarBand equipment and DBS accessories. This increase was partially
offset by a decrease in demand for digital set-top boxes from our two primary
international DTH customers.
A significant portion of DTH equipment sales and integration services
revenues through 2001 resulted from sales to two international DTH providers,
Via Digital in Spain and Bell ExpressVu in Canada. For 2002, we have binding
purchase orders from Bell ExpressVu and we are actively trying to secure new
orders from Via Digital for delivery starting in the third quarter of 2002.
However, we cannot guarantee at this time that those negotiations will be
successful. In addition, our future revenue from the sale of DTH equipment and
integration services in international markets depends largely on the success of
these DTH operators and continued demand for our digital set-top boxes. As a
result of these factors, we expect total DTH equipment sales and integration
services revenue to decrease in 2002 compared to 2001. Although we continue to
actively pursue additional distribution and integration service opportunities
internationally, no assurance can be given that any such efforts will be
successful.
39
DISH Network Operating Expenses. DISH Network operating expenses
totaled $1.758 billion during the year ended December 31, 2001, an increase of
$493 million or 39% compared to the same period in 2000. DISH Network operating
expenses represented 49% and 54% of subscription television services revenue
during the years ended December 31, 2001 and 2000, respectively. The increase in
DISH Network operating expenses in total was consistent with, and primarily
attributable to, the increase in the number of DISH Network subscribers. We
expect to continue to control costs and create operating efficiencies. While
there can be no assurance, we expect operating expenses as a percentage of
subscription television services revenue to remain near current levels during
2002. If we are successful in obtaining commercial launch and in-orbit
insurance, this expense to revenue ratio could increase.
Subscriber-related expenses totaled $1.433 billion during the year
ended December 31, 2001, an increase of $463 million compared to the same period
in 2000. The increase in total subscriber-related expenses is primarily
attributable to the increase in DISH Network subscribers. Such expenses, which
include programming expenses, copyright royalties, residuals currently payable
to retailers and distributors, and billing, lockbox and other variable
subscriber expenses, represented 40% and 41% of subscription television services
revenues during the years ended December 31, 2001 and 2000, respectively. The
decrease in subscriber-related expenses as a percentage of subscription
television services revenue primarily resulted from our programming package
price increases during 2001. While there can be no assurance, we expect
subscriber-related expenses as a percentage of subscription television services
revenue to remain near current levels during 2002.
Customer service center and other expenses principally consist of costs
incurred in the operation of our DISH Network customer service centers, such as
personnel and telephone expenses, as well as other operating expenses related to
our service and installation business. Customer service center and other
expenses totaled $285 million during the year ended December 31, 2001, an
increase of $34 million as compared to the same period in 2000. The increase in
customer service center and other expenses primarily resulted from increased
personnel and telephone expenses to support the growth of the DISH Network and
from operating expenses related to the expansion of our installation and service
business. Customer service center and other expenses totaled 8% of subscription
television services revenue during the year ended December 31, 2001, as compared
to 11% during the same period in 2000. The decrease in this expense to revenue
ratio primarily resulted from the on-going construction and start-up costs of
our fifth customer service center in Virginia and our sixth customer service
center in West Virginia during 2000, as well as increased operating efficiencies
during 2001. While there can be no assurance, we expect these expenses in total,
and as a percentage of subscription television services revenue, to remain near
current levels during 2002. These expenses and percentages could temporarily
increase in the future as additional infrastructure is added to meet future
growth. We continue to work to automate simple telephone responses, and intend
to increase Internet-based customer assistance in the future, in order to better
manage customer service costs.
Satellite and transmission expenses include expenses associated with
the operation of our digital broadcast centers, contracted satellite telemetry,
tracking and control services, and commercial satellite launch and in-orbit
insurance premiums. Satellite and transmission expenses totaled $40 million
during the year ended December 31, 2001, a $4 million decrease compared to the
same period in 2000. Satellite and transmission expenses totaled 1% and 2% of
subscription television services revenue during the year ended December 31, 2001
and 2000, respectively. We expect satellite and transmission expenses in total
and as a percentage of subscription television services revenue to increase in
the future as additional satellites or digital broadcast centers are placed in
service and to the extent we successfully obtain commercial launch and in-orbit
insurance.
Cost of sales - DTH equipment and Integration Services. Cost of sales -
DTH equipment and integration services totaled $188 million during the year
ended December 31, 2001, a decrease of $7 million compared to the same period in
2000. Cost of sales - DTH equipment and integration services principally
includes costs associated with digital set-top boxes and related components sold
to international DTH operators and DBS accessories. The decrease in cost of
sales - DTH equipment and integration services principally resulted from a
decrease in sales of digital set-top boxes to our two primary international DTH
customers. Cost of sales - DTH equipment and integration services represented
69% and 75% of DTH equipment revenue, during the year ended December 31, 2001
and 2000, respectively. The decrease in this expense to revenue ratio primarily
resulted from an increase in sales of higher-margin DBS accessories during 2001.
40
Marketing Expenses. Generally, under most promotions, we subsidize the
cost and installation of EchoStar receiver systems in order to attract new DISH
Network subscribers. Marketing expenses totaled $1.084 billion during the year
ended December 31, 2001 compared to $1.159 billion for the same period in 2000.
This decrease primarily resulted from a decrease in Subscriber promotion
subsidies - cost of sales as a result of higher penetration of our Digital Home
Plan promotion, pursuant to which certain equipment costs are capitalized, as
discussed below. This decrease was partially offset by an increase in subscriber
promotion subsidies - other due to increases in installation subsidies for
multiple receivers under the Digital Home Plan promotion and an increase in
advertising expense related to our 2001 marketing promotions, primarily our I
Like 9 promotion. Subscriber promotion subsidies - cost of sales includes the
cost related to EchoStar receiver systems distributed to retailers and other
distributors of our equipment. Subscriber promotion subsidies - other includes
net costs related to our free installation promotion and other promotional
incentives. Advertising and other expenses totaled $147 million and $139 million
during the year ended December 31, 2001 and 2000, respectively.
During the year ended December 31, 2001, our marketing promotions
included our DISH Network One-Rate Plan, Bounty Programs, Free Now, I Like 9,
free installation program, and Digital Home Plan, which are described below.
DISH Network One-Rate Plan, Bounty Programs, Free Now Promotion and I
Like 9. Under the DISH Network One-Rate Plan, consumers were eligible to receive
a rebate of up to $199 on the purchase of certain EchoStar receiver systems. To
be eligible for this rebate, we required a one-year commitment to our America's
Top 150 programming or our America's Top 100 CD programming package plus one
premium movie package (or equivalent additional programming). This promotion
expired on January 31, 2001.
Under the Bounty Programs, qualified customers were eligible to receive
a free base-level EchoStar receiver system and free installation. To be eligible
for this program, a subscriber must have made a one-year commitment to subscribe
to a qualified programming package. Certain of these promotions expired on
January 31, 2001.
From February through July 2001, we offered new subscribers a free
base-level EchoStar receiver system and free installation under our Free Now
promotion. To be eligible, a subscriber had to provide a valid major credit card
and make a one-year commitment to subscribe to either our America's Top 150
programming package or our America's Top 100 CD or DISH Latino Dos programming
package plus additional programming totaling at least $39.98 per month.
Subscriber acquisition costs were materially higher under this plan compared to
historical promotions.
During August 2001, we commenced our I Like 9 promotion. Under this
promotion, subscribers who purchased an EchoStar receiver system for $199 or
higher, receive free installation and either our America's Top 100 CD or our
DISH Latino Dos programming package for $9 a month for the first year.
Subscriber acquisition costs are materially lower under this plan compared to
historical promotions. This promotion expired January 31, 2002.
Our direct sales to consumers pursuant to our DISH Network One-Rate
Plan, Bounty Programs, Free Now promotion and I Like 9 fall under the scope of
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives" ("EITF 00-14").
In accordance with EITF 00-14, we account for the rebate (substantively
equivalent to the return of a customer deposit) under our DISH Network One-Rate
Plan by establishing a liability equal to the amount of the rebate to be paid to
the customer upon receipt of the upfront payment from the subscriber and do not
recognize revenue for that amount. The return of the upfront payment received
from the customer is charged against such liability account when such amount is
paid back to the customer. We do not receive any up-front proceeds from
subscribers under Bounty Programs or the Free Now promotion. Programming revenue
under the I Like 9 promotion is recorded at the substantially discounted monthly
rate charged to the subscriber.
Our dealer sales under our DISH Network One-Rate Plan, the Bounty
Programs, Free Now promotion and I Like 9 fall under the scope of EITF Issue No.
00-25, "Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products" ("EITF 00-25"). In accordance with the
consensus guidance for Issue 2 of EITF 00-25, "buydowns" should be characterized
as a reduction of revenue. As such, certain commissions paid to dealers are
recorded as a reduction of the net proceeds received by us from the dealers.
also charge the equipment reimbursements paid under the Bounty Programs and the
Free Now promotion against the proceeds from the dealer.
41
The rebate paid under the One Rate Plan is treated similarly as a reduction of
proceeds from the dealer by analogy to lease inducements, which are also
generally recognized as a reduction of revenue.
Free Installation. Under our free installation program all customers
who purchase an EchoStar receiver system from January 2000 through April 2000,
from May 24, 2000 to July 31, 2000 and from September 15, 2000 to the present,
are eligible to receive a free professional installation.
Digital Home Plan. Our Digital Home Plan promotion, introduced during
July 2000, offers several choices to consumers, ranging from the use of one
EchoStar receiver system and our America's Top 100 CD or DISH Latino Dos
programming package for $36.99 per month, to providing consumers two or more
EchoStar receiver systems and our America's Top 150 programming package for
$50.99 to $60.99 per month. With each plan, consumers receive in-home service,
must agree to a one-year commitment and incur a one-time set-up fee of $49.99,
which through December 31, 2001, included the first month's programming payment.
For consumers who choose the Digital Home Plan with Dish PVR, which includes the
use of one or more EchoStar receiver systems, one of which includes a built-in
hard drive that allows viewers to pause and record live programming without the
need for videotape, the consumer will incur a one-time set-up fee of $148.99.
Since we retain ownership of equipment issued pursuant to the Digital Home Plan
promotion, equipment costs are capitalized and depreciated over a period of four
years. Although there can be no assurance as to the ultimate duration of the
Digital Home Plan promotion, we intend to continue it through at least April 30,
2002.
Generally, under most promotions, we subsidize the cost and
installation of EchoStar receiver systems in order to attract new DISH Network
subscribers. There is no clear industry standard used in the calculation of
subscriber acquisition costs. Our subscriber acquisition costs include
subscriber promotion subsidies - cost of sales, subscriber promotion subsidies -
other and DISH Network acquisition marketing expenses. During the year ended
December 31, 2001, our subscriber acquisition costs totaled approximately $1.074
billion, or approximately $395 per new subscriber activation. Since we retain
ownership of the equipment, amounts capitalized under our Digital Home Plan are
not included in our calculation of these subscriber acquisition costs, which
would be materially higher if we expensed rather than capitalized Digital Home
Plan equipment costs. Comparatively, our subscriber acquisition costs during the
year ended December 31, 2000 totaled $1.155 billion, or approximately $452 per
new subscriber activation. The decrease in our per new subscriber acquisition
cost primarily resulted from an increase in penetration of our Digital Home
Plans, the introduction of our I Like 9 promotion and an increase in direct
sales. Capital expenditures under our Digital Home Plan promotion totaled
approximately $338 million and $65.4 million for the years ended December 31,
2001 and 2000, respectively. While there can be no assurance, we expect per
subscriber acquisition costs for the year ended December 31, 2002 to be
consistent with per subscriber acquisition costs for the year ended December 31,
2001.
Our subscriber acquisition costs, both in the aggregate and on a per
new subscriber activation basis, may materially increase to the extent that we
introduce other more aggressive promotions if we determine that they are
necessary to respond to competition, or for other reasons.
General and Administrative Expenses. General and administrative
expenses totaled $378 million during the year ended December 31, 2001, an
increase of $128 million as compared to the same period in 2000. The increase in
G&A expenses was principally attributable to increased legal fees and personnel
expenses to support the growth of the DISH Network. G&A expenses represented 9%
of total revenue during the years ended December 31, 2001 and 2000. While there
can be no assurance, we expect G&A expenses as a percentage of total revenue to
remain near current levels in future periods.
Non-cash, Stock-based Compensation. During 1999, we adopted an
incentive plan which provided certain key employees with incentives including
stock options. The payment of these incentives was contingent upon our
achievement of certain financial and other goals. We met certain of these goals
during 1999. Accordingly, during 1999 we recorded approximately $179 million of
deferred compensation related to post-grant appreciation of stock options
granted pursuant to the 1999 incentive plan. The related deferred compensation
will be recognized over the five-year vesting period. Accordingly, during the
years ended December 31, 2001 and 2000 we recognized $20 million and $51
million, respectively, under this performance-based plan. The remaining deferred
compensation of $25 million, which will be reduced by future forfeitures, if
any, will be recognized over the remaining vesting period.
42
We report all non-cash compensation based on stock option appreciation
as a single expense category in our accompanying statements of operations. The
following table represents the other expense categories in our statements of
operations that would be affected if non-cash, stock-based compensation was
allocated to the same expense categories as the base compensation for key
employees who participate in the 1999 incentive plan:
DECEMBER 31,
2000 2001
------- -------
(in thousands)
Customer service center and other .................. $ 1,744 $ 1,767
Satellite and transmission ......................... 3,061 1,115
General and administrative ......................... 46,660 17,291
------- -------
Total non-cash, stock-based compensation ........ $51,465 $20,173
======= =======
Options to purchase an additional 9.7 million shares are outstanding as
of December 31, 2001 and were granted at fair market value during 1999, 2000 and
2001 pursuant to a Long Term Incentive Plan. The weighted-average exercise price
of these options is $9.04. Vesting of these options is contingent on meeting
certain longer-term goals, which may be met upon the consummation of the
proposed merger with Hughes. However, as the achievement of these goals cannot
be reasonably predicted as of December 31, 2001, no compensation was recorded
during 1999, 2000 and 2001 related to these long-term options. We will continue
to evaluate the likelihood of achieving these long-term goals and will record
the related compensation at the time achievement of these goals becomes
probable. Such compensation, if recorded, could result in material non-cash
stock-based compensation expense in our statements of operations.
Pre-Marketing Cash Flow. Pre-marketing cash flow is comprised of
EBITDA, as defined below, plus total marketing expenses. Pre-marketing cash flow
was $1.596 billion during the year ended December 31, 2001, an increase of $625
million or 64% compared to the same period in 2000. Pre-marketing cash flow in
2001 was adversely effected by a $30 million fourth quarter charge resulting
from our News Corp. attorney fee arbitration. Our pre-marketing cash flow as a
percentage of total revenue was approximately 40% during the year ended December
31, 2001 compared to 36% during the same period in 2000. We believe that
pre-marketing cash flow can be a helpful measure of operating efficiency for
companies in the DBS industry. While there can be no assurance, we expect
pre-marketing cash flow as a percentage of total revenue to remain at
approximately 40% during 2002.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA
is defined as operating income (loss) plus depreciation and amortization, and
non-cash, stock-based compensation. EBITDA was $511 million during the year
ended December 31, 2001, compared to negative $187 million during the same
period in 2000. This improvement in EBITDA was directly attributable to the
increase in the number of DISH Network subscribers and higher average revenue
per subscriber, resulting in recurring revenue which was large enough to support
the cost of new and existing subscribers, together with the introduction of our
Digital Home Plan in July 2000. Our calculation of EBITDA for the years ended
December 31, 2001 and 2000 does not include approximately $20 million and $51
million, respectively, of non-cash compensation expense resulting from
post-grant appreciation of employee stock options. In addition, EBITDA does not
include the impact of amounts capitalized under our Digital Home Plan of
approximately $65.4 million and $338 million during 2000 and 2001, respectively.
While there can be no assurance, we expect EBITDA to increase approximately 80%
to 100% in 2002 compared to 2001. As previously discussed, to the extent we
introduce new marketing promotions and our subscriber acquisition costs
materially increase, our EBITDA results will be negatively impacted because
subscriber acquisition costs are generally expensed as incurred.
It is important to note that EBITDA and pre-marketing cash flow do not
represent cash provided or used by operating activities. EBITDA and
pre-marketing cash flow should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles. See "Selected Financial Data - Note 2."
Depreciation and Amortization. Depreciation and amortization expenses
aggregated $279 million during the year ended December 31, 2001, a $94 million
increase compared to the same period in 2000. The increase in depreciation and
amortization expenses principally resulted from an increase in depreciation
related to the commencement of operation of EchoStar VI in October 2000 and
other depreciable assets, including Digital Home Plan equipment, placed in
service during late 2000 and 2001.
43
Other Income and Expense. Other expense, net, totaled $426 million
during the year ended December 31, 2001, an increase of $200 million compared to
the same period in 2000. This increase primarily resulted from an increase in
interest expense as a result of the issuance of our 10 3/8% Senior Notes in
September 2000 and the issuance of our 5 3/4% Convertible Subordinated Notes in
May 2001 and from net losses on marketable and non-marketable investment
securities of approximately $110 million. This increase in interest expense was
partially offset by an increase in interest income and capitalized interest
during 2001.
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999.
Revenue. Total revenue for the year ended December 31, 2000 was $2.715
billion, an increase of $1.112 billion compared to total revenue for the year
ended December 31, 1999 of $1.603 billion. The increase in total revenue was
primarily attributable to DISH Network subscriber growth.
DISH Network subscription television services revenue totaled $2.347
billion for the year ended December 31, 2000, an increase of $1.003 billion
compared to the same period in 1999. This increase was directly attributable to
the increase in the number of DISH Network subscribers and higher average
revenue per subscriber. DISH Network added approximately 1.85 million net new
subscribers for the year ended December 31, 2000, an increase of approximately
26% compared to approximately 1.47 million net subscriber additions during 1999.
As of December 31, 2000, we had approximately 5.26 million DISH Network
subscribers compared to approximately 3.4 million at December 31, 1999, an
increase of 54%. Monthly average revenue per subscriber was approximately $45.33
during the year ended December 31, 2000 and approximately $42.71 during the same
period in 1999. The increase in monthly average revenue per subscriber is
primarily attributable to a $1.00 price increase in America's Top 100 CD, our
most popular programming package, during May 2000, the increased availability of
local channels by satellite together with the earlier successful introduction of
our America's Top 150 programming package.
For the year ended December 31, 2000, DTH equipment sales and
integration services totaled $260 million, an increase of $76 million compared
to the same period during 1999. DTH equipment sales consist of sales of digital
set-top boxes and other digital satellite broadcasting equipment to
international DTH service operators and sales of DBS accessories. This increase
in DTH equipment sales and integration services revenue was primarily
attributable to an increase in international demand for digital set-top boxes as
compared to the same period during 1999.
DISH Network Operating Expenses. DISH Network operating expenses
totaled $1.265 billion during the year ended December 31, 2000, an increase of
$532 million or 73% compared to the same period in 1999. DISH Network operating
expenses represented 54% and 55% of subscription television services revenue
during the years ended December 31, 2000 and 1999, respectively. The increase in
DISH Network operating expenses in total was consistent with, and primarily
attributable to, the increase in the number of DISH Network subscribers.
Subscriber-related expenses totaled $970 million during the year ended
December 31, 2000, an increase of $395 million compared to the same period in
1999. Such expenses represented 41% and 43% of subscription television services
revenues during the years ended December 31, 2000 and 1999, respectively.
Customer service center and other expenses totaled $251 million during
the year ended December 31, 2000, an increase of $134 million as compared to the
same period in 1999. The increase in customer service center and other expenses
primarily resulted from increased personnel and telephone expenses to support
the growth of the DISH Network and from operating expenses related to the
expansion of our installation and service business. Customer service center and
other expenses totaled 11% of subscription television services revenue during
the year ended December 31, 2000, as compared to 9% during the same period in
1999. The increase in this expense to revenue ratio primarily resulted from the
on-going construction and start-up costs of our fifth customer service center in
Virginia, our sixth customer service center in West Virginia, and the continued
build-out of our installation offices nationwide.
Satellite and transmission expenses include expenses associated with
the operation of our digital broadcast center, contracted satellite telemetry,
tracking and control services, and satellite in-orbit insurance. Satellite and
transmission expenses totaled $44 million during the year ended December 31,
2000, a $3 million increase compared to the same period in 1999. This increase
resulted from higher satellite and other digital broadcast center operating
expenses due to an increase in the number of operational satellites. Satellite
and transmission expenses totaled 2% and 3% of subscription television services
revenue during the years ended December 31, 2000 and 1999, respectively.
44
Cost of sales - DTH equipment and Integration Services. Cost of sales -
DTH equipment and integration services totaled $195 million during the year
ended December 31, 2000, an increase of $47 million compared to the same period
in 1999. This increase in cost of sales - DTH equipment and integration services
is consistent with the increase in DTH equipment sales and integration services
revenue. Cost of sales - DTH equipment and integration services represented 75%
and 81% of DTH equipment revenue, during the years ended December 31, 2000 and
1999, respectively. The higher margin was principally attributable to a $16.6
million loss provision recorded during 1999 primarily for component parts and
purchase commitments related to our first generation model 7100 set-top boxes,
for which production was suspended in favor of our second generation model 7200
set-top boxes.
Marketing Expenses. Marketing expenses totaled $1.159 billion during
the year ended December 31, 2000, an increase of $432 million compared to the
same period in 1999. The increase in marketing expenses was primarily
attributable to an increase in subscriber promotion subsidies. Subscriber
promotion subsidies - cost of sales includes the cost related to EchoStar
receiver systems distributed to retailers and other distributors of our
equipment. Subscriber promotion subsidies - other includes net costs related to
our free installation promotion and other promotional incentives. Advertising
and other expenses totaled $139 million and $65 million during the years ended
December 31, 2000 and 1999, respectively.
General and Administrative Expenses. General and administrative
expenses totaled $250 million during the year ended December 31, 2000, an
increase of $100 million as compared to the same period in 1999. The increase in
G&A expenses was principally attributable to increased personnel expenses to
support the growth of the DISH Network. G&A expenses represented 9% of total
revenue during the years ended December 31, 2000 and 1999.
Non-cash, Stock-based Compensation. As a result of substantial
post-grant appreciation of stock options, during the years ended December 31,
2000 and 1999 we recognized $51 million and $61 million, respectively, of the
total remaining deferred stock-based compensation under the 1999 incentive plan.
The remainder will be recognized over the remaining vesting period.
We report all non-cash compensation based on stock option appreciation
as a single expense category in our accompanying statements of operations. The
following table represents the other expense categories in our statements of
operations that would be affected if non-cash, stock-based compensation was
allocated to the same expense categories as the base compensation for key
employees who participate in the 1999 incentive plan:
DECEMBER 31,
1999 2000
------- -------
(in thousands)
Customer service center and other .................. $ 4,328 $ 1,744
Satellite and transmission ......................... 2,308 3,061
General and administrative ......................... 54,424 46,660
------- -------
Total non-cash, stock-based compensation ........ $61,060 $51,465
======= =======
Pre-Marketing Cash Flow. Pre-marketing cash flow is comprised of EBITDA
plus total marketing expenses. Pre-marketing cash flow was $971 million during
the year ended December 31, 2000, an increase of 75% compared to the same period
in 1999. Our pre-marketing cash flow as a percentage of total revenue was 36% in
2000 compared to 35% in 1999. We believe that pre-marketing cash flow can be a
useful measure of operating efficiency for companies in the DBS industry.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA
is defined as operating income (loss) plus depreciation and amortization, and
non-cash, stock-based compensation. EBITDA was negative $187 million during the
year ended December 31, 2000 compared to negative $173 million during the same
period in 1999. This decline in EBITDA principally resulted from an increase in
DISH Network marketing expenses primarily resulting from increased subscriber
additions. Our calculation of EBITDA for the years ended December 31, 2000 and
1999 does not include approximately $51 million and $61 million, respectively,
of non-cash compensation expense resulting from post-grant appreciation of
employee stock options. In addition, EBITDA does not include the impact of
amounts capitalized under our Digital Home Plan of approximately $65.4 million
during 2000.
45
It is important to note that EBITDA and pre-marketing cash flow do not
represent cash provided or used by operating activities. EBITDA and
pre-marketing cash flow should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles. See "Selected Financial Data - Note 2."
Depreciation and Amortization. Depreciation and amortization expenses
aggregated $185 million during the year ended December 31, 2000, a $72 million
increase compared to the same period in 1999. The increase in depreciation and
amortization expenses principally resulted from an increase in depreciation
related to the commencement of operation of EchoStar V in November 1999 and
EchoStar VI in October 2000 and other depreciable assets placed in service
during 2000 and late 1999.
Other Income and Expense. Other expense, net, totaled $226 million
during the year ended December 31, 2000, an increase of $49 million compared to
the same period in 1999. This increase resulted from our equity in the loss of
affiliates, as well as an increase in interest expense as a result of the
issuance of our 10 3/8% Senior Notes due 2007 in September 2000. This increase
in interest expense was partially offset by an increase in interest income.
LIQUIDITY AND CAPITAL RESOURCES
Cash Sources
Since inception, we have financed the development of our EchoStar DBS
system, and the related commercial introduction of the DISH Network service,
primarily through the sale of equity and debt securities and cash from
operations. From May 1994 through December 31, 2001, we have raised total gross
cash proceeds of approximately $249 million from the sale of our equity
securities and as of December 31, 2001, we had approximately $5.7 billion of
outstanding long-term debt (including current portion).
As of December 31, 2001, our cash, cash equivalents and marketable
investment securities totaled $2.952 billion, including $122 million of cash
reserved for satellite insurance and approximately $1 million of restricted
cash, compared to $1.550 billion, including $82 million of cash reserved for
satellite insurance and $3 million of restricted cash, as of December 31, 2000.
For the year ended December 31, 2001 and 2000, we reported net cash flows from
operating activities of $489 million and negative $119 million, respectively.
The $608 million increase in net cash flow from operating activities reflects,
among other things, an increase in the number of DISH Network subscribers,
increased penetration of our Digital Home Plan promotions, changes in working
capital and higher average revenue per subscriber, resulting in recurring
revenue which is large enough to support the cost of new and existing
subscribers, though not yet adequate to fully support interest payments and
other non-operating costs.
Except with respect to the Hughes merger, if completed, we expect that
our future working capital, capital expenditure and debt service requirements
will be satisfied primarily from existing cash and investment balances and cash
generated from operations. We may, however, be required to raise additional
capital in the future to meet these requirements. However, there can be no
assurance that additional financing will be available on acceptable terms, or at
all, if needed in the future. Our ability to generate positive future operating
and net cash flows is dependent upon our ability to continue to expand our DISH
Network subscriber base, retain existing DISH Network subscribers, and our
ability to grow our ETC business. There can be no assurance that we will be
successful in achieving our goals. The amount of capital required to fund our
2002 working capital and capital expenditure needs will vary, depending, among
other things, on the rate at which we acquire new subscribers and the cost of
subscriber acquisition, including capitalized costs associated with our Digital
Home Plan. Our working capital and capital expenditure requirements could
increase materially in the event of increased competition for subscription
television customers, significant satellite failures, or in the event of
continued general economic downturn, among other factors. These factors could
require that we raise additional capital in the future.
From time to time we evaluate opportunities for strategic investments
or acquisitions that would complement our current services and products, enhance
our technical capabilities or otherwise offer growth opportunities. As a result,
acquisition discussions and offers, and in some cases, negotiations may take
place and future material investments or acquisitions involving cash, debt or
equity securities or a combination thereof may result.
46
Investment Securities
We currently classify all marketable investment securities as
available-for-sale. In accordance with generally accepted accounting principles,
we adjust the carrying value of our available-for-sale marketable investment
securities to fair market value and report the related temporary unrealized
gains and losses as a separate component of stockholders' deficit. Declines in
the fair market value of a marketable investment security which are estimated to
be "other than temporary" must be recognized in the statement of operations,
thus establishing a new cost basis for such investment. We evaluate our
marketable investment securities portfolio on a quarterly basis to determine
whether declines in the market value of these securities are other than
temporary. This quarterly evaluation consists of reviewing, among other things,
the fair value of our marketable investment securities compared to the carrying
value of these securities, the historical volatility of the price of each
security and any market and company specific factors related to each security.
Generally, absent specific factors to the contrary, declines in the fair value
of investments below cost basis for a period of less than six months are
considered to be temporary. Declines in the fair value of investments for a
period of six to nine months are evaluated on a case by case basis to determine
whether any company or market-specific factors exist which would indicate that
such declines are other than temporary. Declines in the fair value of
investments below cost basis for greater than nine months are considered other
than temporary and are recorded as charges to earnings, absent specific factors
to the contrary.
As of December 31, 2001, we recorded unrealized gains of approximately
$4 million as a separate component of stockholders' deficit. During the year
ended December 31, 2001, we also recorded an aggregate charge to earnings for
other than temporary declines in the fair market value of certain of our
marketable investment securities of approximately $70 million, and established a
new cost basis for these securities This amount does not include realized gains
of approximately $22 million on the sales of marketable investment securities.
If the fair market value of our marketable securities portfolio does not remain
at or above cost basis or if we become aware of any market or company specific
factors that indicate that the carrying value of certain of our securities is
impaired, we may be required to record additional charges to earnings in future
periods equal to the amount of the decline in fair value.
We have made strategic equity investments in certain non-marketable
investment securities, which we also evaluate on a quarterly basis to determine
whether the carrying value of each investment is impaired. The securities of
these companies are not publicly traded. As such, this quarterly evaluation
consists of reviewing, among other things, company business plans and current
financial statements, if available, for factors which may indicate an impairment
in our investment. Such factors may include, but are not limited to, cash flow
concerns, material litigation, violations of debt covenants and changes in
business strategy. Certain of the companies in which we have investments
cancelled their planned initial public offerings and have minimal cash on hand.
The ability of certain of these entities to raise additional capital in the
future is currently uncertain, and attempts to date have been unsuccessful. As a
result of these and other factors, during the twelve months ended December 31,
2001, we have recorded cumulative charges to earnings of approximately $62
million to reduce the carrying values of certain of our non-marketable
investment securities to their estimated fair values. If we become aware of any
factors that indicate that the carrying value of certain of our non-marketable
investment securities is impaired, we may be required to record an additional
charge to earnings in future periods.
Deferred Tax Assets
Net deferred tax assets of approximately $69 million and $67 million as
of December 31, 2001 and 2000, respectively, have remained substantially
unchanged on our balance sheet since 1996. Additional deferred tax assets of
approximately $844 million generated since 1996 have been substantially offset
by adjustments to our valuation allowance. We expect to generate taxable income
in the future, but the timing and amount of that taxable income is uncertain and
we do not believe the criteria for recognition of additional tax benefits are
presently satisfied. We need to generate future taxable income of approximately
$190 million to realize the benefit of the net deferred tax assets recognized
and we continue to believe it is more likely than not that the assets we have
recorded will be realized. We expect to adjust the valuation allowance in the
future when the timing and amount of additional future taxable income becomes
more certain. If it is determined at some point in the future that any or all of
previously reserved deferred tax assets are more likely than not realizable,
significant deferred income tax benefits will need to be recorded and such
benefits may be material.
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Internal Revenue Service Proposed Adjustment
During 2001, the Internal Revenue Service conducted an audit of our
consolidated federal income tax returns for the years 1997, 1998, and 1999. As a
result of this review, the IRS' position is that certain subscriber acquisition
costs deducted by us in those years should instead be capitalized and amortized
over a period of five years. We do not agree with this proposed adjustment and
have initiated an appeal of the agent's position. At this time, the ultimate
resolution of this dispute is uncertain. If our arguments for deductibility are
unsuccessful and we are required to capitalize and amortize these costs over
five years, the federal net operating losses ("NOLs") available to us at
December 31, 2001 could be reduced by as much as $1.7 billion. Such an outcome
would not materially alter our ultimate tax obligations but could significantly
accelerate the timing of when we would be required to begin making material
current income tax payments. We would also incur a cumulative alternative
minimum tax liability for the years 1998, 2000, and 2001 totaling approximately
$7 million. Any reduction in NOLs and the resulting alternative minimum tax
liability would be offset by corresponding deferred tax assets related to the
unamortized capitalized cost and the future credit for the alternative minimum
taxes paid which may be carried forward indefinitely. We intend to vigorously
defend our position that we will be able to continue our current policy of
deducting subscriber acquisition costs as incurred for tax purposes. However, as
of December 31, 2001, the outcome is uncertain.
Subscriber Turnover
Our percentage churn for the year ended December 31, 2001 increased
compared to the same period during 2000. We believe that the increase resulted
from the slowing economy, significant piracy of our competitor's products,
stronger competition from digital cable and cable modems, bounty programs
offered by competitors, our maturing subscriber base, and other factors. While
there can be no assurance, we currently expect that our percentage churn during
2002 will be consistent with our percentage churn during 2001. We also expect
that our churn will continue to be lower than satellite and cable industry
averages. In addition, impacts from our litigation with the networks in Florida,
new FCC rules governing the delivery of superstations and other factors could
cause us to terminate delivery of distant network channels and superstations to
a material portion of our subscriber base, which could cause many of those
customers to cancel their subscription to our other services. Any such
terminations could result in a small reduction in average monthly revenue per
subscriber and could result in an increase in our percentage churn.
Commencing January 1, 2002, we were required to comply with the
statutory requirement to carry all qualified over the air television stations by
satellite in any market where we carry any local network channels by satellite.
Any reduction in the number of markets we serve in order to comply with "must
carry" requirements for other markets would adversely affect our operations and
could result in a temporary increase in churn. While we currently believe we
meet statutory "must carry" requirements, the FCC could interpret or implement
its "must carry" rules in ways that may require us to decrease the number of
markets where we provide local channels. In combination, these resulting
subscriber terminations would result in a small reduction in average monthly
revenue per subscriber and could increase our percentage churn.
Subscriber Acquisition Costs
As previously described, we generally subsidize the cost and
installation of EchoStar receiver systems in order to attract new DISH Network
subscribers. Our average subscriber acquisition costs were approximately $395
per new subscriber activation during the year ended December 31, 2001. Since we
retain ownership of the equipment, amounts capitalized under our Digital Home
Plan, totaling approximately $338 million in 2001, are not included in our
calculation of these subscriber acquisition costs, which would be materially
higher if we expensed rather than capitalized Digital Home Plan equipment costs.
While there can be no assurance, we currently expect our per subscriber
acquisition costs for the year ended December 31, 2002 to be consistent with per
subscriber acquisition costs for the year ended December 31, 2001. Our
subscriber acquisition costs, both in the aggregate and on a per new subscriber
activation basis, may materially increase to the extent that we introduce other
more aggressive promotions if we determine that they are necessary to respond to
competition, or for other reasons.
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Funds necessary to meet subscriber acquisition costs will be satisfied
from existing cash and investment balances to the extent available. We may,
however, be required to raise additional capital in the future to meet these
requirements. If we were required to raise capital today, a variety of debt and
equity funding sources would likely be available to us. However, there can be no
assurance that additional financing will be available on acceptable terms, or at
all, if needed in the future.
Digital Home Plan
Our Digital Home Plan promotion, introduced during July 2000, offers
several choices to consumers, ranging from the use of one EchoStar receiver
system and our America's Top 100 CD or DISH Latino Dos programming package for
$36.99 per month, to providing consumers two or more EchoStar receiver systems
and our America's Top 150 programming package for $50.99 to $60.99 per month.
With each plan, consumers receive in-home service, must agree to a one-year
commitment and incur a one-time set-up fee of $49.99, which through December 31,
2001, included the first months programming payment. For consumers who choose
the Digital Home Plan with Dish PVR, which includes the use of one or more
EchoStar receiver systems, one of which includes a built-in hard drive that
allows viewers to pause and record live programming without the need for
videotape, the consumer will incur a one-time set-up fee of $148.99. Our Digital
Home Plan promotion requires us to capitalize and depreciate over four years
equipment costs that would otherwise be expensed at the time of sale, but also
results in increased capital expenditures. Capital expenditures under our
Digital Home Plan promotion totaled approximately $338 million and $65.4 million
for the years ended December 31, 2001 and 2000, respectively.
Conditional Access System
The access control system is central to the security network that
prevents unauthorized viewing of programming. Theft of cable and satellite
programming has been widely reported and our signal encryption has been pirated
and could be further compromised in the future. Theft of our programming reduces
future potential revenue and increases our net subscriber acquisition costs. If
other measures are not successful, it could be necessary to replace the credit
card size smart card that controls the security of each consumer set top box at
a material cost to us. In order to combat piracy and to generate additional
future revenue opportunities, we may decide to replace smart cards at any time
in the future. The cost of replacing these smart cards will not have a material
adverse effect on our results of operations.
Intellectual Property
Many entities, including some of our competitors, now have and may in
the future obtain patents and other intellectual property rights that cover or
affect products or services directly or indirectly related to those that we
offer. In general, if a court determines that one or more of our products
infringes on intellectual property held by others, we would be required to cease
developing or marketing those products, to obtain licenses to develop and market
those products from the holders of the intellectual property, or to redesign
those products in such a way as to avoid infringing the patent claims. Material
damage awards, including the potential for triple damages under patent laws,
could also result. Various parties have asserted patent and other intellectual
property rights with respect to components within our direct broadcast satellite
system. Certain of these parties have filed suit against us, including Gemstar,
Starsight and Superguide, as previously described. We cannot be certain that
these persons do not own the rights they claim, that our products do not
infringe on these rights, that we would be able to obtain licenses from these
persons on commercially reasonable terms or, if we were unable to obtain such
licenses, that we would be able to redesign our products to avoid infringement.
Certain Gemstar patents are currently being reviewed by the
International Trade Commission. An adverse decision could temporarily halt the
import of our receivers and could require us to materially modify certain
user-friendly electronic programming guides and related features we currently
offer to consumers.
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Merger Obligations
Consummation of the Hughes merger and related transactions will require at least
$7.025 billion of cash. At the time of signing of the merger agreement, we had
approximately $1.5 billion of available cash on hand, and obtained $5.525
billion in bridge financing commitments for the Hughes merger and related
transactions. These commitments have been reduced to $3.325 billion as a result
of the sale of $700 million of 9 1/8% senior notes by EDBS and $1.5 billion of
our series D preferred stock to Vivendi. Any other financings we complete prior
to closing of the Hughes merger will generally further reduce the bridge
financing commitments dollar-for-dollar. The remaining approximately $3.325
billion of required cash, is expected to come from new cash raised by us, Hughes
or a subsidiary of Hughes on or prior to the closing of the merger through
public or private debt or equity offerings, bank debt or a combination thereof.
The amount of such cash that could be raised by us prior to completion of the
Hughes merger is severely restricted. Our agreements with GM and Hughes prohibit
us from raising any additional equity capital beyond the $1.5 billion Vivendi
investment. The prohibition will likely continue for two years following
completion of the Hughes merger, absent possible favorable IRS rulings or
termination of the Hughes merger. Further, our agreements with GM and Hughes
place substantial restrictions on our ability to raise additional debt prior to
the closing of the Hughes merger.
The Hughes merger agreement requires that we use commercially
reasonable efforts to: 1) amend the indentures relating to certain of our debt
instruments so that the Hughes merger and related transactions would not
constitute a change of control requiring us to make an offer to repurchase those
notes, 2) obtain additional committed financing, on terms reasonably
satisfactory to Hughes, sufficient to refinance the notes outstanding under the
indentures which we are unable to amend, or 3) present to Hughes a plan, taking
into account prevailing market conditions for the relevant notes, designed so
that at and after the effective time of the Hughes merger, the surviving
corporation and its subsidiaries would not be in breach of their obligations
under those indentures. These consent fees could be material, and our financing
costs may increase significantly as a result of obtaining these consents or
refinancing these notes.
In consideration for the bridge financing commitments discussed above,
we are obligated to the lenders for the following non-refundable fees whether or
not the Hughes merger or PanAmSat acquisition are ever consummated:
o Commitment Fees of 1% of the aggregate bridge financing
commitments were paid by us to the lenders upon execution of the
agreements relating to the Commitments. These fees, totaling
approximately $55 million, were deferred and are being charged to
interest expense as the bridge commitments are reduced.
Approximately $7.4 million of deferred commitment fees were
expensed upon issuance of the 9 1/8% Seven Year Notes by EDBS
during December 2001. If the Hughes merger is not consummated,
total remaining commitment fees will be written off. In the event
that the bridge commitment is drawn, any commitment fees not
previously expensed will be charged to interest expense in future
periods.
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o Ticking fees of .50% per year on the aggregate remaining bridge
financing commitments are payable quarterly, in arrears, until the
closing of either the Hughes merger or the PanAmSat acquisition,
or the termination or expiration of the agreements relating to the
bridge commitments. These ticking fees will be expensed as
incurred. As of December 31, 2001, we had expensed approximately
$4.9 million in ticking fees.
Vivendi Equity Investment
On January 22, 2002, a subsidiary of Vivendi acquired 5,760,479 shares
of our series D convertible preferred stock for $1.5 billion, or approximately
$260.40 per share. Each share of the series D preferred stock has the same
economic (other than liquidation) and voting rights as ten shares of our class A
common stock into which it is convertible and has a liquidation preference equal
to approximately $260.40 per share. Immediately prior to consummation of the
Hughes merger, or as described in our agreement with Vivendi if the Hughes
merger is not consummated, the series D preferred stock will convert into shares
of our class A common stock, which will then be exchanged for shares of class A
common stock of the surviving corporation in the Hughes merger. The series D
preferred stock is also convertible into shares of our class A common stock at
any time at the option of the holder and automatically upon the occurrence of
certain other specified events.
In connection with the purchase of the series D convertible preferred
stock, Vivendi also received contingent value rights, intended to provide
protection against any downward price movements in our class A common stock to
be issued upon conversion of the series D convertible preferred stock. The
maximum payment under the rights is $225 million if the Hughes merger is
completed and the price of our class A common stock falls below $26.04 per share
on the date specified below, or $525 million if the Hughes merger is not
completed and the price of our class A common stock falls below $26.04 per share
on the date specified below. Any amount owing under these rights would be
settled three years after completion of the Hughes merger, except in certain
limited circumstances. In addition, if the Hughes merger is not consummated,
these rights will be settled 30 months after the acquisition of Hughes' 81%
interest in PanAmSat or the termination of the merger agreement and the PanAmSat
stock purchase agreement. The contingent value rights will be recorded as of the
date of consummation of the investment and will be periodically adjusted to the
current settlement amount of the contingent value rights, based on the current
price of the class A common stock, through a charge to retained earnings. Future
non-cash charges or credits to retained earnings related to adjustments to the
contingent value rights will impact our net income (loss) available to common
shareholders.
In addition, the conversion price for the series D convertible
preferred stock was set at $26.04 upon execution of the investment agreement on
December 14, 2001. However, the investment was not consummated until January 22,
2002, when the price of our class A common stock was $26.58. Since the price as
of the date of consummation of the investment was above the set conversion price
and since consummation of the investment was contingent on regulatory approval,
the series D preferred stock was issued with a beneficial conversion feature.
This feature requires the difference between the conversion price and the price
as of the date of consummation to be recorded as a discount on the series D
preferred stock. This discount of $0.54 per share will be charged to retained
earnings as of the date of issuance of the series D preferred stock. Future
non-cash charges to retained earnings related to the amortization of the series
D preferred stock discount will have a negative impact on our net income (loss)
available to common shareholders.
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The issuance costs related to the series D preferred stock will be
recorded as a reduction of the carrying value of the series D preferred stock
and corresponding contingent value rights and will be immediately charged to
retained earnings upon issuance of the series D preferred common stock, which
will have a negative impact on our net income (loss) available to common
shareholders.
Obligations and Future Capital Requirements
We have semi-annual cash debt service obligations for all of our
outstanding long-term debt securities, as follows:
SEMI-ANNUAL PAYMENT SEMI-ANNUAL DEBT
DATES SERVICE REQUIREMENTS
----------------------- --------------------
9 1/4% Senior Notes due 2006 ........................ February 1 and August 1 $17,343,750
9 3/8% Senior Notes due 2009 ........................ February 1 and August 1 76,171,875
10 3/8% Senior Notes due 2007 ........................ April 1 and October 1 51,875,000
9 1/8% Senior Notes due 2009 ........................ January 15 and July 15 31,937,500
4 7/8% Convertible Subordinated Notes due 2007 ..... January 1 and July 1 24,375,000
5 3/4% Convertible Subordinated Notes due 2008 ..... May 15 and November 15 28,750,000
Semi-annual debt service requirements related to our 5 3/4% Convertible
Subordinated Notes due 2008 commenced on November 15, 2001. Semi-annual debt
service requirements related to our 9 1/8% Senior Notes due 2009 will commence
on July 15, 2002. There are no scheduled principal payment or sinking fund
requirements prior to maturity of any of these notes.
Future maturities of our outstanding long-term debt and operating lease
obligations are summarized as follows (in thousands):
DECEMBER 31,
--------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL
-------- -------- -------- -------- ---------- ------------ ------------
9 1/4% Seven Year Notes ..... $ -- $ -- $ -- $ -- $ 375,000 $ $ 375,000
9 3/8% Ten Year Notes ....... -- -- -- -- -- 1,625,000 1,625,000
10 3/8% Seven Year Notes .... -- -- -- -- -- 1,000,000 1,000,000
9 1/8% Seven Year Notes ..... -- -- -- -- -- 700,000 700,000
4 7/8% Convertible Notes .... -- -- -- -- -- 1,000,000 1,000,000
5 3/4% Convertible Notes .... -- -- -- -- -- 1,000,000 1,000,000
Mortgages and Other Notes
Payable .................. 14,782 1,992 723 753 798 2,214 21,262
Operating leases ............ 11,918 11,486 9,551 5,262 1,623 3,444 43,284
-------- -------- -------- -------- ---------- ------------ ------------
Total ....................... $ 26,700 $ 13,478 $ 10,274 $ 6,015 $ 377,421 $ 5,330,658 $ 5,764,546
======== ======== ======== ======== ========== ============ ============
In the event of a change of control, as defined in each of the
indentures related to our long-term debt, we will be required to make an offer
to repurchase all or any part of each of the outstanding notes at a purchase
price equal to 101% of the aggregate principal amount thereof, together with
accrued and unpaid interest thereon, to the date of repurchase.
The indentures related to certain of EDBS' senior notes contain
restrictive covenants that require us to maintain satellite insurance with
respect to at least half of the satellites we own or lease. In addition, the
indenture related to EBC senior notes requires us to maintain satellite
insurance on the lesser of half of our satellites or three of our satellites.
EchoStar I through EchoStar IX are owned by a direct subsidiary of EBC.
Insurance coverage is therefore required for at least three of our seven
satellites currently in orbit. The launch and/or in-orbit insurance policies for
EchoStar I, EchoStar II, EchoStar III, EchoStar V, EchoStar VI and EchoStar VII
have expired. To date we have been unable to obtain insurance on any of these
satellites on terms acceptable to us. As a result, we are currently
self-insuring these satellites. To satisfy insurance covenants related to EDBS'
and EBC's senior notes, we have reclassified an amount equal to the depreciated
cost of three of our satellites from cash and cash equivalents to cash reserved
for satellite insurance on our balance sheet. As of December 31, 2001, cash
reserved for satellite insurance totaled approximately $122 million. The
reclassifications will continue until such time, if ever, as we can again insure
our satellites on acceptable terms and for acceptable amounts. If we lease or
transfer ownership of EchoStar VII, EchoStar VIII or EchoStar IX to EDBS, which
we are currently considering, we would need to
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reserve additional cash for the depreciated cost of additional satellites. The
reserve would increase by approximately $60 million if one or two satellites are
so leased or transferred, and by an additional material amount if a third
satellite is leased or transferred. We believe we have in-orbit satellite
capacity sufficient to expeditiously recover transmission of most programming in
the event one of our in-orbit satellites fails. However, the cash reserved for
satellite insurance is not adequate to fund the construction, launch and
insurance for a replacement satellite in the event of a complete loss of a
satellite. Programming continuity cannot be assured in the event of multiple
satellite losses.
We may not be able to obtain commercial insurance covering the launch
and/or in-orbit operation of EchoStar VIII at rates acceptable to us and for the
full amount necessary to construct, launch and insure a replacement satellite.
In that event, we will be forced to self-insure all or a portion of the launch
and/or in-orbit operation of EchoStar VIII. The manufacturer of EchoStar VIII is
contractually obligated to use their reasonable best efforts to obtain
commercial insurance for the launch and in-orbit operation of EchoStar VIII for
a period of in-orbit operation to be determined and in an amount of up to $225
million. There is no guarantee that they or we will be able to obtain commercial
insurance for the launch and in-orbit operation of EchoStar VIII at reasonable
rates and for the full replacement cost of the satellite.
We utilized $91 million of satellite vendor financing for our first
four satellites. As of December 31, 2001, approximately $14 million of that
satellite vendor financing remained outstanding. The satellite vendor financing
bears interest at 8 1/4% and is payable in equal monthly installments over five
years following launch of the satellite to which it relates. A portion of the
contract price with respect to EchoStar VII is payable over a period of 13 years
following launch with interest at 8%, and a portion of the contract price with
respect to EchoStar VIII and EchoStar IX is payable following launch with
interest at 8%. Those in orbit payments are contingent on the continued health
of the satellites. The satellite vendor financings for both EchoStar III,
EchoStar IV and EchoStar VII are secured by an ECC corporate guarantee.
During 2002, we anticipate total capital expenditures of between
$500-$750 million depending upon the strength of the economy and other factors.
We expect approximately 25% of that amount to be utilized for satellite
construction and approximately 75% for EchoStar receiver systems in connection
with our Digital Home Plan and for general corporate expansion. These
percentages, as well as the overall expenditures, could change depending on a
variety of factors including Digital Home Plan penetration and the extent we
contract for the construction of additional satellites.
In addition to our DBS business plan, we have licenses, or applications
pending with the FCC, for a two satellite FSS Ku-band satellite system and a two
satellite FSS Ka-band satellite system. We will need to raise additional capital
to complete construction of these satellites. We are currently funding the
construction phase for two satellites. One of these satellites, EchoStar VIII,
will be an advanced, high-powered DBS satellite. The second satellite, EchoStar
IX, will be a hybrid Ku/Ka-band satellite.
During November 2000, one of our wholly owned subsidiaries purchased a
49.9% interest in VisionStar, Inc. VisionStar holds an FCC license, and is
constructing a Ka-band satellite, to launch into the 113 degree orbital
location. In February 2002, we increased our ownership of VisionStar to 90%, for
a total purchase price of approximately $2.8 million. In addition, we have made
loans to VisionStar totaling approximately $4.6 million as of December 31, 2001.
Pegasus Development Corporation filed a petition for reconsideration of the
FCC's approval of that transaction. There can be no assurance that the FCC will
not reconsider its approval or otherwise revoke VisionStar's license, rendering
our investment worthless. Furthermore, VisionStar's FCC license currently
requires construction of the satellite to be completed by April 30, 2002 and the
satellite to be operational by May 31, 2002. We will not complete construction
or launch of the satellite by those dates and will have to ask for an extension.
Failure to meet the milestones or receive an extension, of which there can be no
assurance, will make the license invalid unless the milestones are extended by
the FCC. In May 2001, the FCC already denied an earlier request by VisionStar to
extend its milestones. In October 2001, upon granting the
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acquisition of VisionStar by us, the FCC conditioned the license transfer on our
completion of construction of the satellite by April 2002, launching the
satellite by May 2002, and reporting any change in the status of the spacecraft
contract. In the future we may fund construction, launch and insurance of the
satellite through cash from operations, public or private debt or equity
financing, joint ventures with others, or from other sources, although there is
no assurance that such funding will be available.
In the future we may fund construction, launch and insurance of
additional satellites through cash from operations, public or private debt or
equity financing, joint ventures with others, or from other sources, although
there is no assurance that such funding will be available. See " - Merger
Obligations."
From time to time we evaluate opportunities for strategic investments
or acquisitions that would complement our current services and products, enhance
our technical capabilities or otherwise offer growth opportunities. As a result,
acquisition discussions and offers, and in some cases, negotiations may take
place and future material investments or acquisitions involving cash, debt or
equity securities or a combination thereof may result.
We expect that our future working capital, capital expenditure and debt
service requirements will be satisfied from existing cash and investment
balances, and cash generated from operations. Our ability to generate positive
future operating and net cash flows is dependent, among other things, upon our
ability to retain existing DISH Network subscribers, our ability to manage the
growth of our subscriber base, and our ability to grow our ETC business. To the
extent future subscriber growth exceeds our expectations, it may be necessary
for us to raise additional capital to fund increased working capital
requirements. There may be a number of other factors, some of which are beyond
our control or ability to predict, that could require us to raise additional
capital. These factors include unexpected increases in operating costs and
expenses, a defect in or the loss of any satellite, or an increase in the cost
of acquiring subscribers due to additional competition, among other things. If
cash generated from our operations is not sufficient to meet our debt service
requirements or other obligations, we would be required to obtain cash from
other financing sources. However, there can be no assurance that such financing
would be available on terms acceptable to us, or if available, that the proceeds
of such financing would be sufficient to enable us to meet all of our
obligations.
SECURITY RATINGS
Our current credit ratings are B1 and B to B+ on our long-term senior
notes, and Caa1 and B- with respect to our convertible subordinated notes, as
rated by Moody's Investor Services and Standard and Poor's Rating Services,
respectively. Debt ratings by the various rating agencies reflect each agency's
opinion of the ability of issuers to repay debt obligations as they come due.
With respect to Moody's, the B1 rating for senior debt indicates that the
assurance of interest and principal payment and principal security over any long
period of time is small. For S&P, the B ratings indicates the issuer is
vulnerable to nonpayment of interest and principal obligations, but the issuer
has the capacity to meet its financial commitments on the obligations. With
respect to Moody's, the Caa1 rating for the convertible subordinated debt
indicates that the security presents elements of significant risk with respect
to principal or interest. In general, lower ratings result in higher borrowing
costs. A security rating is not a recommendation to buy, sell, or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each rating should be evaluated independently of
any other rating.
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. For a detailed
discussion on the application of these and other significant accounting
policies, see Note 2 in the Notes to the Consolidated Financial Statements in
Item 14 of this Annual Report on Form 10-K, beginning on page F-10. Note that
our preparation of this Annual Report on Form 10-K requires us to make estimates
and assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of our financial
statements, and the reported amounts of revenue and expenses during the
reporting period. There can be no assurance that actual results will not differ
from those estimates.
o Subscriber Acquisition Costs. We generally expense as incurred the net cost
of acquiring subscribers, other than costs capitalized under our Digital
Home Plan promotion.
o Capitalized satellite receivers. Since we retain ownership of equipment
issued pursuant to the Digital Home Plan promotion, we are required to
capitalize and depreciate equipment costs that would otherwise be expensed
at the
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time of sale. Such capitalized costs are depreciated over a period of four
years. If a Digital Home Plan subscriber disconnects from the service, the
subscriber is required to return the leased equipment to us or be charged
for the equipment. While we do not recover all of the equipment upon
termination of service, EchoStar receivers that are recovered after
de-activation of a Digital Home Plan subscriber are refurbished and
re-deployed.
o Marketable and Non-Marketable Securities. See previous discussion of
"Investment Securities."
o Asset Impairment. We review our long-lived assets and identifiable
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. For
assets which are held and used in operations, the asset would be impaired if
the book value of the asset exceeded the undiscounted future net cash flows
related to the asset. For those assets which are to be disposed of, the
assets would be impaired to the extent the fair value does not exceed the
book value. We consider relevant cash flow, estimated future operating
results, trends and other available information including the fair value of
frequency rights owned, in assessing whether the carrying value of assets
are recoverable.
o Income taxes. Our income tax policy records the estimated future tax effects
of temporary differences between the tax bases of assets and liabilities and
amounts reported in the accompanying consolidated balance sheets, as well as
operating loss and tax credit carryforwards. We follow very specific and
detailed guidelines regarding the recoverability of any tax assets recorded
on the balance sheet and provide any necessary allowances as required.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations," ("FAS 141"),
which is required to be adopted July 1, 2001. FAS 141 requires the purchase
method of accounting for all business combinations initiated after June 30,
2001. The application of FAS 141 has not had a material impact on our financial
position or results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("FAS 142"), which requires goodwill and intangible assets with
indefinite useful lives to no longer be amortized but to be tested for
impairment at least annually. Intangible assets that have finite lives will
continue to be amortized over their estimated useful lives. The amortization and
non-amortization provisions of FAS 142 will be applied to all goodwill and
intangible assets acquired after June 30, 2001. Effective January 1, 2002, we
are required to apply all other provisions of FAS 142. We are currently
evaluating the potential impact, if any, the adoption of FAS 142 will have on
our financial position and results of operations.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"), which is effective for
fiscal periods beginning after December 15, 2001 and interim periods within
those fiscal years. FAS 144 establishes an accounting model for impairment or
disposal of long-lived assets to be disposed. We are currently evaluating the
potential impact, if any, the adoption of FAS 144 will have on our financial
position and results of operation.
SEASONALITY
Our revenues vary throughout the year. As is typical in the
subscription television service industry, our first six months generally produce
fewer new subscribers than the second half of the year. Our operating results in
any period may be affected by the incurrence of advertising and promotion
expenses that do not necessarily produce commensurate revenues in the short-term
until the impact of such advertising and promotion is realized in future
periods.
INFLATION
Inflation has not materially affected our operations during the past
three years. We believe that our ability to increase the prices charged for our
products and services in future periods will depend primarily on competitive
pressures. We do not have any material backlog of our products.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
As of December 31, 2001, our unrestricted cash, cash equivalents and
marketable investment securities had a fair value of approximately $2.8 billion.
Of that amount, a total of approximately $2.7 billion was invested in: (a) cash;
(b) debt instruments of the U.S. Government and its agencies; (c) commercial
paper with an average maturity of less than one year and rated in one of the
four highest rating categories by at least two nationally recognized statistical
rating organizations; and (d) instruments with similar risk characteristics to
the commercial paper described above. The primary purpose of these investing
activities has been to preserve principal until the cash is required to fund
operations. Consequently, the size of this portfolio fluctuates significantly as
cash is raised and used in our business.
The value of certain of the investments in this portfolio can be
impacted by, among other things, the risk of adverse changes in securities and
economic markets generally, as well as the risks related to the performance of
the companies whose commercial paper and other instruments we hold. However, the
high quality of these investments (as assessed by independent rating agencies),
reduces these risks. The value of these investments can also be impacted by
interest rate fluctuations. At December 31, 2001, all of our investments in this
category were in fixed rate instruments or money market type accounts. While an
increase in interest rates would ordinarily adversely impact the fair value of
fixed rate investments, we normally hold these investments to maturity.
Consequently, neither interest rate fluctuations nor other market risks
typically result in significant gains or losses to this portfolio. A decrease in
interest rates has the effect of reducing our future annual interest income from
this portfolio, since funds would be re-invested at lower rates as the
instruments mature. Over time, any net percentage decrease in interest rates
could be reflected in a corresponding net percentage decrease in our interest
income. As of December 31, 2001 our marketable securities portfolio balance was
approximately $2.8 billion with an average annual interest rate of approximately
3.2%. A hypothetical 10% decrease in interest rates would result in a decrease
of approximately $9 million in annual interest income.
We also invest in debt and equity of public and private companies for
strategic and financial purposes. As of December 31, 2001, we held strategic and
financial debt and equity investments of public companies with a fair value of
approximately $133 million. We acquired stock in one of those companies, OpenTV,
in connection with establishment of a strategic relationship which did not
involve the investment of cash by us. None of these investments accounted for
more than 40% of the total fair value of the portfolio. We may make additional
strategic and financial investments in other debt and equity securities in the
future.
The fair value of our strategic debt investments can be impacted by
interest rate fluctuations. Absent the effect of other factors, a hypothetical
10% increase in LIBOR would result in a decrease in the fair value of our
investments in these debt instruments of approximately $6.3 million. The fair
value of our strategic debt and equity investments can also be significantly
impacted by the risk of adverse changes in securities markets generally, as well
as risks related to the performance of the companies whose securities we have
invested in, risks associated with specific industries, and other factors. These
investments are subject to significant fluctuations in fair market value due to
the volatility of the securities markets and of the underlying businesses. A
hypothetical 10% adverse change in the price of our public strategic debt and
equity investments would result in approximately a $13.3 million decrease in the
fair value of that portfolio.
In accordance with generally accepted accounting principles, declines
in the fair market value of a marketable investment security which are estimated
to be "other than temporary" must be recognized in the statement of operations,
thus establishing a new cost basis for such investment. We evaluate our
marketable investment securities portfolio on a quarterly basis to determine
whether declines in the market value of these securities are other than
temporary. This quarterly evaluation consists of reviewing, among other things,
the fair value of our marketable investment securities compared to the carrying
value of these securities and any market and company specific factors related to
each security. Generally, absent specific factors to the contrary, declines in
the fair value of investments below cost basis for a period of less than six
months are considered to be temporary. Declines in the fair value of investments
for a period of six to nine months are evaluated on a case by case basis to
determine whether any company or market-specific factors exist which would
indicate that such declines are other than temporary. Declines in the fair value
of investments below cost basis for greater than nine months are considered
other than temporary and are recorded as charges to earnings, absent specific
factors to the contrary.
56
During the year ended December 31, 2001, we recorded an aggregate charge to
earnings for other than temporary declines in the fair market value of certain
of our marketable investment securities of approximately $70 million, and
established a new cost basis for these securities. This amount does not include
realized gains of approximately $22 million on the sales of marketable
investment securities. In addition, we have recorded unrealized gains totaling
approximately $4 million as of December 31, 2001. If the fair market value of
our marketable securities portfolio does not remain at or above cost basis or if
we become aware of any market or company specific factors that indicate that the
carrying value of certain of our securities is impaired, we may be required to
record an additional charge to earnings in future periods equal to the amount of
the decline in fair value.
In addition to the $2.8 billion, we also have made strategic equity
investments in certain non-marketable investment securities within the broadband
industry including Wildblue Communications, StarBand Communications and
VisionStar, Inc. Through December 31, 2001, we invested approximately $156
million in these non-marketable investment securities, including loans to
VisionStar of approximately $4.6 million. The securities of these companies are
not publicly traded. Our ability to create realizable value for our strategic
investments in companies that are not public is dependent on the success of
their business and ability to obtain sufficient capital to execute their
business plans. Since private markets are not as liquid as public markets, there
is also increased risk that we will not be able to sell these investments, or
that when we desire to sell them that we will not be able to obtain full value
for them. StarBand and Wildblue have cancelled their planned initial public
stock offerings and have minimal cash on hand. StarBand has reduced its
operations and Wildblue has suspended most of its operations. The ability of
both of these entities to raise additional capital in the future is currently
uncertain, and attempts to date have been unsuccessful. In addition, StarBand
has significant vendor and bank obligations and their independent public
accountants have expressed uncertainty as to their ability to continue as a
going concern in the 2001 StarBand audit opinion. As a result of these factors,
we have recorded cumulative impairment and equity-method charges of
approximately $114 million to reduce the carrying values of these non-marketable
investment securities to their estimated net realizable values, aggregating
approximately $42 million as of December 31, 2001. Of the $114 million,
approximately $64 million was recorded related to our equity in losses of
StarBand ($29 million and $35 million during the years ended December 31, 2000
and 2001, respectively). The remaining $50 million represents impairment charges
recorded during 2001 to reduce the carrying value of Wildblue to zero. If we
become aware of any factors that indicate that the carrying values of any of our
non-marketable investment securities are impaired, we will be required to record
additional charges to earnings in future periods to reduce some or all of the
remaining investment balances to their estimated net realizable values.
As of December 31, 2001, we estimated the fair value of our fixed-rate
debt and mortgages and other notes payable to be approximately $5.6 billion
using quoted market prices where available, or discounted cash flow analyses.
The interest rates assumed in such discounted cash flow analyses reflect
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The fair value of our fixed rate debt and mortgages
is affected by fluctuations in interest rates. A hypothetical 10% decrease in
assumed interest rates would increase the fair value of our debt by
approximately $233 million. To the extent interest rates increase, our costs of
financing would increase at such time as we are required to refinance our debt.
As of December 31, 2001, a hypothetical 10% increase in assumed interest rates
would increase our annual interest expense by approximately $46 million.
We have not used derivative financial instruments for speculative
purposes. We have not hedged or otherwise protected against the risks associated
with any of our investing or financing activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements are included in this report
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
57
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to the identity and
business experience of our directors will be set forth in our Proxy Statement
for the Annual Meeting of Shareholders to be held on May 6, 2002, under the
caption "Election of Directors," which information is hereby incorporated herein
by reference.
The information required by this Item with respect to the identity and
business experience of our executive officers is set forth on page 26 of this
report under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in our Proxy
Statement for the Annual Meeting of Shareholders to be held on May 6, 2002,
under the caption "Executive Compensation and Other Information," which
information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth in our Proxy
Statement for the Annual Meeting of Shareholders to be held on May 6, 2002,
under the captions "Election of Directors" and "Equity Security Ownership,"
which information is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth in our Proxy
Statement for the Annual Meeting of Shareholders to be held on May 6, 2002,
under the caption "Certain Relationships and Related Transactions," which
information is hereby incorporated herein by reference.
58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements PAGE
----
Report of Arthur Andersen LLP, Independent Public Accountants .................. F-2
Report of Ernst & Young LLP, Independent Public Accountants .................... F-3
Consolidated Balance Sheets at December 31, 2000 and 2001 ...................... F-4
Consolidated Statements of Operations and Comprehensive Loss for the
years ended December 31, 1999, 2000 and 2001 ................................. F-5
Consolidated Statements of Changes in Stockholders' Deficit for the
years ended December 31, 1999, 2000 and 2001 ................................. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001 ............................................. F-7
Notes to Consolidated Financial Statements ..................................... F-8
(2) Financial Statement Schedules
None. All schedules have been included in the Consolidated Financial
Statements or Notes thereto.
(3) Exhibits
3.1(a)+ Amended and Restated Articles of Incorporation of EchoStar.
3.1(b)* Amended and Restated Bylaws of EchoStar (incorporated by
reference to Exhibit 3(ii) to the Current Report on Form 8-K,
dated January 23, 2002, of EchoStar, Commission File No.
0-26176).
3.2(a)* Articles of Incorporation of EchoStar Broadband Corporation
("EBC") (incorporated by reference to Exhibit 3.1(a) to the
Registration Statement on Form S-4 of EBC, Registration No.
333-52756).
3.2(b)* Bylaws of EBC (incorporated by reference to Exhibit 3.1(b) to the
Registration Statement on Form S-4 of EBC, Registration No.
333-52756).
3.3(a)* Articles of Incorporation of EchoStar DBS Corporation ("DBS
Corp.") (incorporated by reference to Exhibit 3.4(a) to the
Registration Statement on Form S-4 of DBS Corp., Registration No.
333-31929).
3.3(b)* Bylaws of DBS Corp. (incorporated by reference to Exhibit 3.4(b)
to the Registration Statement on Form S-4 of DBS Corp.,
Registration No. 333-31929).
4.1* 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).
4.2* Security Agreement in favor of First Trust, as trustee under the
Indenture filed as Exhibit 4.1 hereto (incorporated by reference
to Exhibit 4.3 to the Registration Statement on Form S-1 of Dish
Ltd., Registration No. 33-76450).
4.3* 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, Registration No.
33-76450).
4.4* Pledge Agreement in favor of First Trust, as trustee under the
Indenture filed as Exhibit 4.1 hereto (incorporated by reference
to Exhibit 4.5 to the Registration Statement on Form S-1 of Dish
Ltd., Registration No. 33-76450).
59
4.5* 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, Registration No. 33-76450).
4.6* 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).
4.7* Indenture of Trust, relating to DBS Corp.'s 9 1/4% Senior Notes
due 2006 ("Seven Year Notes"), dated as of January 25, 1999,
among DBS Corp., the Guarantors (as defined therein) and U.S.
Bank Trust National Association ("U.S. Bank"), as trustee
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 of DBS Corp., Registration No. 333-71345).
4.8* Indenture of Trust, relating to DBS Corp.'s 9 3/8% Senior Notes
due 2009 ("Ten Year Notes"), dated as of January 25, 1999, among
DBS Corp., the Guarantors (as defined therein) and U.S. Bank, as
trustee (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-4 of DBS Corp., Registration No.
333-71345).
4.9* Registration Rights Agreement, relating to the Seven Year Notes,
dated as of January 25, 1999, by and among DBS Corp., the
Guarantors and the Initial Purchasers (as defined therein)
(incorporated by reference to Exhibit 4.5 to the Registration
Statement on Form S-4 of DBS Corp., Registration No. 333-71345).
4.10* Registration Rights Agreement, relating to the Ten Year Notes,
dated as of January 25, 1999, by and among DBS Corp., the
Guarantors and the Initial Purchasers (as defined therein)
(incorporated by reference to Exhibit 4.6 to the Registration
Statement on Form S-4 of DBS Corp., Registration No. 333-71345).
4.11* Indenture relating to 4 7/8% Convertible Subordinated Notes due
2007, dated as of December 8, 1999, between EchoStar
Communications Corporation and U.S. Bank Trust National
Association, as trustee, (incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-3 of EchoStar
Communications Corporation, Registration No. 333-31894).
4.12* Registration Rights Agreement, relating to the 47/8 % Convertible
Subordinated Notes Due 2007, dated as of December 8, 1999, by and
among EchoStar Communications Corporation and the initial
purchasers (incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-3 of EchoStar Communications
Corporation, Registration No. 333-31894).
4.13* Indenture relating to 10 3/8% Senior Notes due 2007, dated as of
September 25, 2000, between EchoStar Broadband Corporation and
U.S. Bank Trust National Association, as trustee (incorporated by
reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of
EchoStar for the quarter ended September 30, 2000, Commission
File No.0-26176).
4.14* Registration Rights Agreement dated as of September 25, 2000, by
and among EchoStar Broadband Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation, Banc of America Securities LLC,
Credit Suisse First Boston Corporation and ING Barings LLC
(incorporated by reference to Exhibit 4.2 to the Quarterly Report
on Form 10-Q of EchoStar for the quarter ended September 30,
2000, Commission File No.0-26176).
4.15* Indenture, relating to the 5 3/4% Convertible Subordinated Notes
Due 2008, dated as of May 31, 2001 between EchoStar
Communications Corporation and U.S. Bank Trust National
Association, as Trustee (incorporated by reference to Exhibit 4.1
to the Quarterly Report on Form 10-Q of EchoStar for the quarter
ended June 30, 2001, Commission File No.0-26176).
60
4.16* Registration Rights Agreement, relating to the 5 3/4% Convertible
Subordinated Notes Due 2008, dated as of May 31, 2001, by and
between EchoStar Communications Corporation and UBS Warburg LLC
(incorporated by reference to Exhibit 4.2 to the Quarterly Report
on Form 10-Q of EchoStar for the quarter ended June 30, 2001,
Commission File No.0-26176).
4.17+ Indenture, relating to the 9 1/8% Senior Notes Due 2009, dated as
of December 28, 2001 between EchoStar DBS Corporation and U.S.
Bank Trust National Association, as Trustee.
4.18+ Registration Rights Agreement, relating to the 9 1/8% Senior
Notes Due 2009, dated as of December 28, 2001, by and among
EchoStar DBS Corporation and Deutsche Banc Alex. Brown, Inc.,
Credit Suisse First Boston Corporation, Lehman Brothers Inc. and
UBS Warburg LLC.
4.19+ Certificate of Withdrawal Withdrawing the Series A, Series B and
Series C Preferred Stock Designations of EchoStar.
4.20+ Series D Mandatorily Convertible Participating Preferred Stock
Certificate of Designation of EchoStar.
10.1* 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, Registration No. 33-76450)**
10.2* 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, Registration No.
33-76450).
10.3* Form of Satellite Launch Insurance Declarations (incorporated by
reference to Exhibit 10.10 to the Registration Statement on Form
S-1 of Dish, Registration No. 33-81234).
10.4* Dish 1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).**
10.5* 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, Registration No.
33-81234).
10.6* Manufacturing Agreement, dated as of March 22, 1995, between HTS
and SCI Technology, Inc. (incorporated by reference to Exhibit
10.12 to the Registration Statement on Form S-1 of Dish,
Commission File No. 33-81234).
10.7* Statement of Work, dated January 31, 1995 from ESC to DiviCom,
Inc. (incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 of EchoStar, Registration No.
33-91276).
10.8* EchoStar 1995 Stock Incentive Plan (incorporated by reference to
Exhibit 10.16 to the Registration Statement on Form S-1 of
EchoStar, Registration No. 33-91276)**
10.9* Satellite Construction Contract, dated as of July 18, 1996,
between EDBS and Lockheed Martin Corporation (incorporated by
reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q
of EchoStar for the quarter ended June 30, 1996, Commission File
No. 0-26176).
10.10* Confidential Amendment to Satellite Construction Contract between
DBSC and Martin Marietta, dated as of May 31, 1995 (incorporated
by reference to Exhibit 10.14 to the Registration Statement of
Form S-4 of EchoStar, Registration No. 333-03584).
10.11* Agreement between HTS, ESC and ExpressVu Inc., dated January 8,
1997, as amended (incorporated by reference to Exhibit 10.18 to
the Annual Report on Form 10-K of EchoStar for the year ended
December 31, 1996, as amended, Commission File No. 0-26176).
61
10.12* Amendment No. 9 to Satellite Construction Contract, effective as
of July 18, 1996, between Direct Satellite Broadcasting
Corporation, a Delaware corporation ("DBSC") and Martin Marrieta
Corporation (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of EchoStar for the quarterly
period ended June 30, 1997, Commission File No. 0-26176).
10.13* Amendment No. 10 to Satellite Construction Contract, effective as
of May 31, 1996, between DBSC and Lockheed Martin Corporation
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q of EchoStar for the quarterly period ended
June 30, 1997, Commission File No. 0-26176).
10.14* Purchase Agreement, dated November 30, 1998, by and among
American Sky Broadcasting, LLC ("ASkyB"), The News Corporation
Limited ("News Corporation"), MCI Telecommunications Corporation
and EchoStar (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed by EchoStar on December 1, 1998,
Commission File No. 0-26176).
10.15* Voting Agreement, dated November 30, 1998, among EchoStar, AskyB,
News Corporation and MCI Telecommunications Corporation
(incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K of EchoStar, filed as of December 1, 1998, Commission
File No. 0-26176).
10.16* Agreement to Form NagraStar LLC, dated as of June 23, 1998, by
and between Kudelski S.A., EchoStar and ESC (incorporated by
reference to Exhibit 10.28 to the Annual Report on Form 10-K of
EchoStar for the year ended December 31, 1998, Commission File
No. 0-26176).
10.17* First Amendment, dated June 23, 1999, to the Purchase Agreement
dated November 30, 1998, by and among American Sky Broadcasting,
LLC, The News Corporation Limited, MCI Telecommunications
Corporation, and EchoStar Communications Corporation
(incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K of EchoStar, filed as of July 2, 1999, Commission
File No. 0-26176).
10.18* Registration Rights Agreement, dated June 24, 1999, by and among
EchoStar Communications Corporation, MCI Telecommunications
Corporation, American Sky Broadcasting, LLC, and News America
Incorporated (incorporated by reference to Exhibit 10.4 to the
Current Report on Form 8-K of EchoStar, filed as of July 2, 1999,
Commission File No. 0-26176).
10.19* Satellite Construction Contract dated as of January 27, 2000,
between EchoStar Orbital Corporation and Lockheed Martin
Corporation (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended
March 31, 2000, Commission File No.0-26176).
10.20* Satellite Construction Contract dated as of February 4, 2000,
between EchoStar Orbital Corporation and Space Systems/Loral Inc.
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended March 31,
2000, Commission File No.0-26176).
10.21* Satellite Construction Contract dated as of February 22, 2000,
between EchoStar Orbital Corporation and Space Systems/Loral Inc.
(incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended March 31,
2000, Commission File No.0-26176).
10.22* Agreement dated as of February 22, 2000, between EchoStar Orbital
Corporation and Loral Skynet, a division of Loral SpaceCom
Corporation (incorporated by reference to Exhibit 10.4 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended
March 31, 2000, Commission File No.0-26176).
10.23* Contract for Launch Services, dated January 31, 2001, between
Lockheed Martin's International Launch Services and EchoStar
Orbital Corporation (incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q of EchoStar for the quarter
ended March 31, 2001, Commission File No.0-26176).
62
10.24* Modification Nos. 1-7 to the Satellite Contract (EchoStar VII -
119 degree West Longitude) dated January 27, 2000, between
Lockheed Martin Corporation and EchoStar Orbital Corporation
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended June 30,
2001, Commission File No.0-26176).
10.25* Amended and Restated Contract dated February 1, 2001, between
EchoStar Orbital Corporation and Space Systems/Loral, Inc.,
EchoStar VIII Satellite Program (110 degree West Longitude)
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended June 30,
2001, Commission File No.0-26176).
10.26* Amendment No. 1 to the Contract dated February 22, 2000, between
EchoStar Orbital Corporation and Space Systems/Loral Inc.,
EchoStar IX Satellite Program (121 degree West Longitude)
(incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended June 30,
2001, Commission File No.0-26176).
10.27* Agreement and Plan of Merger, dated October 28, 2001, by and
between EchoStar and Hughes Electronics Corporation (incorporated
by reference to Exhibit 99.1 to the Current Report on Form 8-K of
EchoStar, filed as of October 31, 2001, Commission File No.
0-26176).
10.28* Implementation Agreement, dated October 28, 2001, by and among
General Motors Corporation, Hughes Electronics Corporation and
EchoStar (incorporated by reference to Exhibit 99.2 to the
Current Report on Form 8-K of EchoStar, filed as of October 31,
2001, Commission File No. 0-26176).
10.29* Stock Purchase Agreement, dated October 28, 2001, among EchoStar,
Hughes Electronics Corporation, Hughes Communications Galaxy,
Inc., Hughes Communications Satellite Services, Inc. and Hughes
Communications Inc. (incorporated by reference to Exhibit 99.3 to
the Current Report on Form 8-K of EchoStar, filed as of October
31, 2001, Commission File No. 0-26176).
10.30* Separation Agreement, dated October 28, 2001, by and between
General Motors Corporation and Hughes Electronics Corporation
(incorporated by reference to Exhibit 99.4 to the Current Report
on Form 8-K of EchoStar, filed as of October 31, 2001, Commission
File No. 0-26176).
10.31* Investment Agreement, dated December 14, 2001, between EchoStar
and Vivendi Universal, S.A., and exhibits (incorporated by
reference to Exhibit 99.1 to the Current Report on Form 8-K of
EchoStar, filed as of December 20, 2001, Commission File No.
0-26176).
10.32* Stockholder Voting Agreement, dated December 14, 2001, by and
among Charles W. Ergen, The Samburu Warrior Revocable Trust and
Vivendi Universal, S.A. (incorporated by reference to Exhibit
99.2 to the Current Report on Form 8-K of EchoStar, filed as of
December 20, 2001, Commission File No. 0-26176).
10.33+ Modification No. 8 to the Satellite Contract (EchoStar VII - 119
degree West Longitude) dated October 12, 2001, between Lockheed
Martin Corporation and EchoStar Orbital Corporation.
10.34+ Modification No. 9 to the Satellite Contract (EchoStar VII - 119
degree West Longitude) dated October 16, 2001, between Lockheed
Martin Corporation and EchoStar Orbital Corporation.
10.35+ Contract amendment No.1 to the EchoStar VIII contract between
EchoStar Orbital Corporation and Space Systems/Loral, Inc., dated
October 19, 2001.
10.36+ Modification No. 10 to the Satellite Contract (EchoStar VII - 119
degree West Longitude) dated December 12, 2001, between Lockheed
Martin Corporation and EchoStar Orbital Corporation.
21+ Subsidiaries of EchoStar Communications Corporation.
63
23.1+ Consent of Arthur Andersen LLP, Independent Public Accountants
23.2+ Consent of Ernst & Young LLP, Independent Public Accountants
24.1+ Powers of Attorney authorizing signature of Cantey Ergen, Raymond
L. Friedlob, O. Nolan Daines, Peter A. Dea and Jean-Marie
Messier.
- ----------
* Incorporated by reference.
** Constitutes a management contract or compensatory plan or arrangement.
+ Filed herewith.
(b) Reports on Form 8-K
On October 29, 2001, we filed a Current Report on Form 8-K to report
that on October 28, 2001, General Motors Corporation and its subsidiary Hughes
Electronics, together with us, announced the signing of definitive agreements
that provide for the spin-off of Hughes from GM and the merger of Hughes with
us.
On October 31, 2001, we filed a Current Report on Form 8-K to file our
amended and restated Bylaws and certain definitive agreements entered into in
connection with the announcement of the merger of Hughes with us.
On November 13, 2001, we filed a current report on Form 8-K to report
that: 1) at least $5.525 billion of total financing is expected to be required
in connection with the merger of Hughes with EchoStar, which we intend to fund
in the capital markets through equity offerings, debt offerings, bank debt or a
combination thereof and through privately negotiated transactions; 2) we have
obtained $2.7625 billion bridge commitments from each of Deutsche Bank and
Credit Suisse First Boston, which in certain circumstances may be drawn down in
the event we are unable to raise the full $5.525 billion in the capital markets;
and 3) we have paid, as compensation for extension of the bridge commitments, a
total of approximately $55 million to Deutsche Bank and Credit Suisse First
Boston.
On December 14, 2001, we filed a Current Report on Form 8-K to
announce: 1) a proposed $1.5 billion investment by Vivendi Universal and the
formation of a strategic alliance to offer new programming and interactive
television services to consumers; 2) that our EDBS subsidiary offered $700
million aggregate principal amount of Senior Notes due 2009, in accordance with
Securities and Exchange Commission Rule 144A; 3) the expected offer to exchange
approximately $1 billion of EBC 10 3/8% Senior Notes due 2007 for substantially
identical notes of EDBS, and 3) that the earliest scheduled launch of EchoStar
VII was the first quarter of 2002 (subject to FCC approval).
On December 20, 2001, we filed a Current Report on Form 8-K: 1) to
report that on December 14, 2001, Vivendi Universal, S.A., us and certain of our
stockholders entered into definitive agreements in connection with the
announcement of a proposed $1.5 billion investment by Vivendi Universal in us
and the formation of a strategic alliance with us to offer new programming and
interactive television services to consumers; and 2) to file certain definitive
agreements entered into in connection with the announcement of the Vivendi
Universal investment and formation of a strategic alliance with EchoStar.
64
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/ Michael R. McDonnell
----------------------------------------------------
Michael R. McDonnell
Senior Vice President and Chief Financial Officer
Date: February 28, 2002
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
- --------- ----- ----
/s/ Charles W. Ergen Chief Executive Officer and Chairman February 28, 2002
- ------------------------ (Principal Executive Officer)
Charles W. Ergen
/s/ Michael R. McDonnell Senior Vice President and Chief Financial Officer February 28, 2002
- ------------------------ (Principal Financial Officer)
Michael R. McDonnell
/s/ James DeFranco Director February 28, 2002
- ------------------------
James DeFranco
/s/ David K. Moskowitz Director February 28, 2002
- ------------------------
David K. Moskowitz
* Director February 28, 2002
- ------------------------
Cantey Ergen
* Director February 28, 2002
- ------------------------
Raymond L. Friedlob
* Director February 28, 2002
- ------------------------
O. Nolan Daines
* Director February 28, 2002
- ------------------------
Peter A. Dea
* Director February 28, 2002
- ------------------------
Jean-Marie Messier
* By: /s/ David K. Moskowitz
-----------------------
David K. Moskowitz
Attorney-in-Fact
65
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Arthur Andersen LLP, Independent Public Accountants....................... F-2
Report of Ernst & Young LLP, Independent Public Accountants......................... F-3
Consolidated Balance Sheets at December 31, 2000 and 2001........................... F-4
Consolidated Statements of Operations and Comprehensive Loss for the
years ended December 31, 1999, 2000 and 2001..................................... F-5
Consolidated Statements of Changes in Stockholders' Deficit for the
years ended December 31, 1999, 2000 and 2001..................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001................................................. F-7
Notes to Consolidated Financial Statements.......................................... F-8
F-1
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To EchoStar Communications Corporation:
We have audited the accompanying consolidated balance sheets of
EchoStar Communications Corporation (a Nevada corporation) and subsidiaries as
of December 31, 2000 and 2001, and the related consolidated statements of
operations and comprehensive loss, changes in stockholders' deficit and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of StarBand Communications
Inc., the investment in which is reflected in the accompanying consolidated
financial statements as of and for the year ended December 31, 2001 using the
equity method of accounting. The investment in StarBand Communications Inc.
represents approximately 0.6% percent of total assets as of December 31, 2001,
and the equity in its net losses represents approximately 16.7% percent of net
loss for the year ended December 31, 2001. The financial statements of StarBand
Communications Inc. were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to the amounts included
for StarBand Communications Inc., is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of EchoStar Communications
Corporation and subsidiaries as of December 31, 2000 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 27, 2002.
F-2
REPORT OF ERNST & YOUNG LLP, INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
StarBand Communications Inc.
We have audited the balance sheet of StarBand Communications Inc. (the
Company), as of December 31, 2001, and the related statements of operations,
stockholders' deficit, mandatorily redeemable convertible preferred stock, and
cash flows for the year ended December 31, 2001 (not presented separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of StarBand
Communications Inc., at December 31, 2001, and the results of its operations and
its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred operating losses of $205.6 million and net cash used in
operating activities of $98.6 million during the year ended December 31, 2001.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
McLean, Virginia
February 7, 2002
F-3
ECHOSTAR COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31,
------------------------------
2000 2001
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 856,818 $ 1,677,889
Marketable investment securities .............................. 607,357 1,150,408
Trade accounts receivable, net of allowance for uncollectible
accounts of $31,241 and $22,770, respectively ............... 278,614 318,128
Insurance receivable .......................................... 106,000 106,000
Inventories ................................................... 161,161 190,747
Other current assets .......................................... 50,656 68,795
----------- -----------
Total current assets ............................................. 2,060,606 3,511,967
Restricted cash .................................................. 3,000 1,288
Cash reserved for satellite insurance (Note 3) ................... 82,393 122,068
Property and equipment, net ...................................... 1,511,303 1,904,012
FCC authorizations, net .......................................... 709,984 696,409
Other noncurrent assets .......................................... 269,549 283,942
----------- -----------
Total assets ................................................ $ 4,636,835 $ 6,519,686
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Trade accounts payable ........................................ $ 226,568 $ 254,868
Deferred revenue .............................................. 283,895 359,424
Accrued expenses .............................................. 691,482 859,293
Current portion of long-term debt ............................. 21,132 14,782
----------- -----------
Total current liabilities ........................................ 1,223,077 1,488,367
Long-term obligations, net of current portion:
9 1/4% Seven Year Notes ....................................... 375,000 375,000
9 3/8% Ten Year Notes ......................................... 1,625,000 1,625,000
10 3/8% Seven Year Notes ...................................... 1,000,000 1,000,000
9 1/8% Seven Year Notes ....................................... -- 700,000
4 7/8% Convertible Notes ..................................... 1,000,000 1,000,000
5 3/4% Convertible Notes ...................................... -- 1,000,000
Mortgages and other notes payable, net of current portion ..... 14,812 6,480
Long-term deferred distribution and carriage revenue and other
long-term liabilities ....................................... 56,329 102,611
----------- -----------
Total long-term obligations, net of current portion .............. 4,071,141 5,809,091
----------- -----------
Total liabilities ........................................... 5,294,218 7,297,458
Commitments and Contingencies (Note 9)
Stockholders' Deficit:
6 3/4% Series C Cumulative Convertible Preferred Stock, 218,951
and 0 shares issued and outstanding, respectively ........... 10,948 --
Class A Common Stock, $.01 par value, 1,600,000,000 shares
authorized, 235,749,557 and 241,015,004 shares issued and
outstanding, respectively ................................... 2,357 2,410
Class B Common Stock, $.01 par value, 800,000,000 shares
authorized, 238,435,208 shares issued and outstanding ....... 2,384 2,384
Class C Common Stock, $.01 par value, 800,000,000 shares
authorized, none outstanding ................................ -- --
Additional paid-in capital .................................... 1,700,367 1,709,797
Deferred stock-based compensation ............................. (58,193) (25,456)
Accumulated other comprehensive income (loss) ................. (60,580) 3,594
Accumulated deficit ........................................... (2,254,666) (2,470,501)
----------- -----------
Total stockholders' deficit ...................................... (657,383) (777,772)
----------- -----------
Total liabilities and stockholders' deficit ................. $ 4,636,835 $ 6,519,686
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
F-4
ECHOSTAR COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1999 2000 2001
----------- ----------- -----------
REVENUE:
DISH Network:
Subscription television services ....................... $ 1,344,136 $ 2,346,700 $ 3,588,441
Other .................................................. 8,467 5,537 17,283
----------- ----------- -----------
Total DISH Network ....................................... 1,352,603 2,352,237 3,605,724
DTH equipment sales and integration services ............. 184,041 259,830 271,242
Other .................................................... 66,197 103,153 124,172
----------- ----------- -----------
Total revenue ............................................... 1,602,841 2,715,220 4,001,138
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses ............................ 574,828 970,374 1,433,245
Customer service center and other ...................... 117,249 250,704 284,868
Satellite and transmission ............................. 40,598 44,367 39,637
----------- ----------- -----------
Total DISH Network operating expenses .................... 732,675 1,265,445 1,757,750
Cost of sales - DTH equipment and integration services ... 148,427 194,963 188,039
Cost of sales - other .................................... 17,084 32,992 81,974
Marketing:
Subscriber promotion subsidies - cost of sales
(exclusive of depreciation included below) ............ 478,122 747,020 459,909
Subscriber promotion subsidies - other ................. 184,238 273,080 477,903
Advertising and other .................................. 64,701 138,540 146,563
----------- ----------- -----------
Total marketing expenses ................................. 727,061 1,158,640 1,084,375
General and administrative ............................... 150,397 250,425 377,873
Non-cash, stock-based compensation ....................... 61,060 51,465 20,173
Depreciation and amortization ............................ 113,228 185,356 278,652
----------- ----------- -----------
Total costs and expenses .................................... 1,949,932 3,139,286 3,788,836
----------- ----------- -----------
Operating income (loss) ..................................... (347,091) (424,066) 212,302
Other income (Expense):
Interest income .......................................... 26,179 79,733 97,671
Interest expense, net of amounts capitalized ............. (201,613) (267,990) (371,365)
Other .................................................... (1,169) (37,448) (152,652)
----------- ----------- -----------
Total other income (expense) ................................ (176,603) (225,705) (426,346)
----------- ----------- -----------
Loss before income taxes .................................... (523,694) (649,771) (214,044)
Income tax provision, net ................................... (154) (555) (1,454)
----------- ----------- -----------
Loss before extraordinary charges ........................... (523,848) (650,326) (215,498)
Extraordinary charge for early retirement of debt, net of tax (268,999) -- --
----------- ----------- -----------
Net loss .................................................... $ (792,847) $ (650,326) $ (215,498)
=========== =========== ===========
Change in unrealized loss on available-for-sale securities,
net of tax ............................................... -- (60,580) (5,697)
Reclassification adjustment for impairment losses on
available-for-sale securities included in net loss ....... -- -- 69,871
----------- ----------- -----------
Comprehensive loss .......................................... $ (792,847) $ (710,906) $ (151,324)
=========== =========== ===========
Net loss attributable to common shareholders (Note 2) ....... $ (800,100) $ (651,472) $ (215,835)
=========== =========== ===========
Weighted-average common shares outstanding .................. 416,476 471,023 477,172
=========== =========== ===========
Basic and diluted loss per common share ..................... $ (1.92) $ (1.38) $ (0.45)
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
F-5
ECHOSTAR COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(In thousands, except per share amounts)
DEFERRED
STOCK-
COMMON STOCK SERIES A SERIES C BASED
------------------------ PREFERRED PREFERRED COMPEN-
SHARES AMT. STOCK STOCK SATION
------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ................... 360,976 $ 3,609 $ 20,807 $ 108,666 $ --
Series A Preferred Stock dividends (at
$0.75 per share) ........................ -- -- 124 -- --
Retirement of Series A Preferred Stock .... -- -- (20,931) -- --
Series B Preferred Stock dividends payable
in-kind ................................. -- -- -- -- --
Accretion of Series C Preferred Stock ..... -- -- -- 6,335 --
Series C Preferred Stock dividends (at
$0.84375 per share, per quarter) ........ -- -- -- -- --
Conversion of Series C Preferred Stock .... 22,832 228 -- (69,567) --
Proceeds from Series C Preferred Stock
deposit account ......................... 46 -- -- -- --
Issuance of Class A Common Stock:
Acquisition of Media(4) ................. 1,376 14 -- -- --
News Corporation and MCI transaction .... 68,824 688 -- -- --
Exercise of stock options ............... 3,868 39 -- -- --
Employee benefits ....................... 556 6 -- -- --
Employee Stock Purchase Plan ............ 44 -- -- -- --
Deferred stock-based compensation ......... -- -- -- -- (178,840)
Deferred stock-based compensation
recognized .............................. -- -- -- -- 61,060
Net loss .................................. -- -- -- -- --
------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ................... 458,522 4,584 -- 45,434 (117,780)
Series C Preferred Stock dividends (at
$0.84375 per share, per quarter) ........ -- -- -- -- --
Conversion of Series C Preferred Stock .... 11,320 113 -- (34,486) --
Issuance of Class A Common Stock:
Acquisition of Kelly Broadcasting Systems 510 5 -- -- --
Exercise of stock options ............... 3,593 36 -- -- --
Employee benefits ....................... 182 2 -- -- --
Employee Stock Purchase Plan ............ 58 1 -- -- --
Forfeitures of deferred non-cash,
stock-based compensation ................ -- -- -- -- 6,730
Deferred stock-based compensation
recognized .............................. -- -- -- -- 52,857
Unrealized holding losses on
available-for-sale securities, net ...... -- -- -- -- --
Net loss .................................. -- -- -- -- --
------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 ................... 474,185 4,741 -- 10,948 (58,193)
Series C Preferred Stock dividends (at
$0.84375 per share, per quarter) ........ -- -- -- -- --
Conversion and redemption of Series C
Preferred Stock ......................... 3,592 36 -- (10,948) --
Issuance of Class A Common Stock: ......... --
Exercise of stock options ............... 1,555 16 -- -- --
Employee benefits ....................... 39 -- -- -- --
Employee Stock Purchase Plan ............ 80 1 -- -- --
Forfeitures of deferred non-cash,
stock-based compensation ................ -- -- -- -- 5,143
Deferred stock-based compensation
recognized .............................. -- -- -- -- 27,594
Change in unrealized holding gains
(losses) on available-for-sale
securities, net ......................... -- -- -- -- --
Net loss .................................. -- -- -- -- --
------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 ................... 479,451 $ 4,794 $ -- $ -- $ (25,456)
======= =========== =========== =========== ===========
ACCUMULATED
DEFICIT AND
ADDITIONAL UNREALIZED
PAID-IN HOLDING GAINS
CAPITAL (LOSSES) TOTAL
----------- ------------- -----------
Balance, December 31, 1998 ................... $ 228,471 $ (733,093) $ (371,540)
Series A Preferred Stock dividends (at
$0.75 per share) ........................ -- (124) --
Retirement of Series A Preferred Stock .... -- (70,003) (90,934)
Series B Preferred Stock dividends payable
in-kind ................................. -- (241) (241)
Accretion of Series C Preferred Stock ..... -- (6,335) --
Series C Preferred Stock dividends (at
$0.84375 per share, per quarter) ........ -- (553) (553)
Conversion of Series C Preferred Stock .... 69,339 -- --
Proceeds from Series C Preferred Stock
deposit account ......................... 953 2 955
Issuance of Class A Common Stock:
Acquisition of Media(4) ................. 9,593 -- 9,607
News Corporation and MCI transaction .... 1,123,632 -- 1,124,320
Exercise of stock options ............... 7,125 -- 7,164
Employee benefits ....................... 3,789 -- 3,795
Employee Stock Purchase Plan ............ 796 -- 796
Deferred stock-based compensation ......... 178,840 -- --
Deferred stock-based compensation
recognized .............................. -- -- 61,060
Net loss .................................. -- (792,847) (792,847)
----------- ----------- -----------
Balance, December 31, 1999 ................... 1,622,538 (1,603,194) (48,418)
Series C Preferred Stock dividends (at
$0.84375 per share, per quarter) ........ -- (1,146) (1,146)
Conversion of Series C Preferred Stock .... 34,373 -- --
Issuance of Class A Common Stock:
Acquisition of Kelly Broadcasting Systems 31,551 -- 31,556
Exercise of stock options ............... 10,973 -- 11,009
Employee benefits ....................... 7,282 -- 7,284
Employee Stock Purchase Plan ............ 1,722 -- 1,723
Forfeitures of deferred non-cash,
stock-based compensation ................ (8,072) -- (1,342)
Deferred stock-based compensation
recognized .............................. -- -- 52,857
Unrealized holding losses on
available-for-sale securities, net ...... -- (60,580) (60,580)
Net loss .................................. -- (650,326) (650,326)
----------- ----------- -----------
Balance, December 31, 2000 ................... 1,700,367 (2,315,246) (657,383)
Series C Preferred Stock dividends (at
$0.84375 per share, per quarter) ........ -- (337) (337)
Conversion and redemption of Series C
Preferred Stock ......................... 10,909 -- (3)
Issuance of Class A Common Stock: .........
Exercise of stock options ............... 8,040 -- 8,056
Employee benefits ....................... 1,173 -- 1,173
Employee Stock Purchase Plan ............ 1,872 -- 1,873
Forfeitures of deferred non-cash,
stock-based compensation ................ (12,564) -- (7,421)
Deferred stock-based compensation
recognized .............................. -- -- 27,594
Change in unrealized holding gains
(losses) on available-for-sale
securities, net ......................... -- 64,174 64,174
Net loss .................................. -- (215,498) (215,498)
----------- ----------- -----------
Balance, December 31, 2001 ................... $ 1,709,797 $(2,466,907) $ (777,772)
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
F-6
ECHOSTAR COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 2000 2001
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................... $ (792,847) $ (650,326) $ (215,498)
Adjustments to reconcile net loss to net cash flows from operating activities:
Extraordinary charge for early retirement of debt ......................... 268,999 -- --
Equity in losses of affiliates ............................................ -- 29,115 34,908
Loss on impairment of satellite (Note 3) .................................. 13,741 -- --
Realized and unrealized loss (gain) on investments ........................ (24,439) 3,039 110,458
Deferred stock-based compensation recognized .............................. 61,060 51,465 20,173
Depreciation and amortization ............................................. 113,228 185,356 278,652
Amortization of debt discount and deferred financing costs ................ 13,678 6,506 9,189
Change in long-term deferred satellite services revenue and other long-term
liabilities ............................................................ 10,173 37,236 46,282
Other, net ................................................................ 447 17,819 36,179
Changes in current assets and current liabilities:
Trade accounts receivable, net .......................................... (52,452) (111,898) (39,514)
Inventories ............................................................. (45,688) (41,851) (25,247)
Other current assets .................................................... (4,091) (8,296) (8,316)
Trade accounts payable .................................................. 103,400 27,250 28,233
Deferred revenue ........................................................ 48,549 100,776 75,529
Accrued expenses ........................................................ 227,729 235,132 138,455
----------- ----------- -----------
Net cash flows from operating activities ..................................... (58,513) (118,677) 489,483
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities ................................ (541,401) (1,363,884) (2,549,179)
Sales of marketable investment securities .................................... 434,517 1,041,784 2,023,268
Cash reserved for satellite insurance (Note 3) ............................... -- (82,393) (59,488)
Change in cash reserved for satellite insurance due to depreciation on related
satellites (Note 3) .................................................... -- -- 19,813
Funds released from escrow and restricted cash and marketable investment
securities ............................................................. 80,585 -- 1,712
Purchases of property and equipment .......................................... (91,152) (331,401) (637,457)
Advances and payments under in-orbit satellite contract ...................... 67,804 (48,894) (8,441)
Capitalized merger-related costs ............................................. -- -- (17,830)
Investment in Wildblue Communications ........................................ -- (50,000) --
Investment in SONICblue (fka Replay TV) ...................................... -- (10,000) --
Investment in StarBand Communications ........................................ -- (50,045) (50,000)
Other ........................................................................ (13,179) (17,124) (1,517)
----------- ----------- -----------
Net cash flows from investing activities ..................................... (62,826) (911,957) (1,279,119)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 9 1/4% Seven Year Notes ............................ 375,000 -- --
Proceeds from issuance of 9 3/8% Ten Year Notes .............................. 1,625,000 -- --
Proceeds from issuance of 10 3/8% Seven Year Notes ........................... -- 1,000,000 --
Proceeds from issuance of 9 1/8% Seven Year Notes ............................ -- -- 700,000
Proceeds from issuance of 4 7/8% Convertible Notes ........................... 1,000,000 -- --
Proceeds from issuance of 5 3/4% Convertible Notes ........................... -- -- 1,000,000
Debt issuance costs and prepayment premiums .................................. (293,987) (9,645) (29,450)
Deferred bridge loan financing costs ......................................... -- -- (55,250)
Retirement of 1994 Notes ..................................................... (575,674) -- --
Retirement of 1996 Notes ..................................................... (501,350) -- --
Retirement of 1997 Notes ..................................................... (378,110) -- --
Retirement of Senior Exchange Notes .......................................... (228,528) -- --
Redemption of Series A Preferred Stock ....................................... (90,934) -- --
Repayments of mortgage indebtedness and other notes payable .................. (22,201) (17,668) (14,182)
Net proceeds from Class A Common Stock options exercised and Class A Common
Stock issued for Employee Stock Purchase Plan ............................. 7,960 12,732 9,929
Other ........................................................................ 2,915 (3,266) (340)
----------- ----------- -----------
Net cash flows from financing activities ..................................... 920,091 982,153 1,610,707
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ......................... 798,752 (48,481) 821,071
Cash and cash equivalents, beginning of year ................................. 106,547 905,299 856,818
----------- ----------- -----------
Cash and cash equivalents, end of year ....................................... $ 905,299 $ 856,818 $ 1,677,889
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
F-7
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITIES
Principal Business
The operations of EchoStar Communications Corporation ("ECC," and together
with its subsidiaries, or referring to particular subsidiaries in certain
circumstances, "EchoStar" or the "Company") include two interrelated business
units:
o The DISH Network - a direct broadcast satellite ("DBS") subscription
television service in the United States. and
o EchoStar Technologies Corporation ("ETC") - engaged in the design,
development, distribution and sale of DBS set-top boxes, antennae and
other digital equipment for the DISH Network ("EchoStar receiver
systems") and the design, development and distribution of similar
equipment for international satellite service providers.
Since 1994, EchoStar has deployed substantial resources to develop the
"EchoStar DBS System." The EchoStar DBS System consists of EchoStar's
FCC-allocated DBS spectrum, seven DBS satellites ("EchoStar I" through "EchoStar
VII"), EchoStar receiver systems, digital broadcast operations centers, customer
service facilities, and other assets utilized in its operations. EchoStar's
principal business strategy is to continue developing its subscription
television service in the United States to provide consumers with a fully
competitive alternative to cable television service.
Recent Developments
On October 28, 2001, EchoStar signed definitive agreements with Hughes
Electronics Corporation ("Hughes"), and General Motors ("GM"), which is Hughes'
parent corporation, relating to EchoStar's merger with Hughes in a
stock-for-stock transaction.
The surviving corporation in the merger will carry EchoStar's name and
will provide DBS services in the United States and Latin America, primarily
under the DIRECTV brand name, global fixed satellite services and other
broadband communication services. The merger is subject to the prior separation
of Hughes from GM by way of a recapitalization of Hughes and split-off of Hughes
from GM and other conditions and risks.
Consummation of the Hughes merger and related transactions will require
at least $7.025 billion of cash. At the time of signing of the merger agreement,
EchoStar had approximately $1.5 billion of available cash on hand, and obtained
$5.525 billion in bridge financing commitments for Hughes merger and related
transactions. These commitments have been reduced to $3.325 billion as a result
of the sale of $700 million of 9 1/8% senior notes by EDBS and $1.5 billion of
our series D preferred stock to Vivendi. Any other financings EchoStar completes
prior to closing of the Hughes merger will generally further reduce the bridge
financing commitments dollar-for-dollar. The remaining approximately $3.325
billion of required cash, is expected to come from new cash raised by EchoStar,
Hughes or a subsidiary of Hughes on or prior to the closing of the merger
through public or private debt or equity offerings, bank debt or a combination
thereof. The amount of such cash that could be raised by EchoStar prior to
completion of the Hughes merger is severely restricted. EchoStar's agreements
with GM and Hughes prohibit it from raising any additional equity capital beyond
the $1.5 billion Vivendi investment. The prohibition will likely continue for
two years following completion of the Hughes merger, absent possible favorable
IRS rulings or terminations of the Hughes merger. Further, EchoStar's agreements
with GM and Hughes place substantial restrictions on EchoStar's ability to raise
additional debt prior to the closing of the Hughes merger.
If Hughes cannot complete the merger with EchoStar, EchoStar may be
required to purchase Hughes' 81% interest in PanAmSat, merge with PanAmSat or
make a tender offer for all of PanAmSat's shares and may also be required to pay
a $600 million termination fee to Hughes. If EchoStar purchases the Hughes
interest in PanAmSat rather than undertaking the merger or the tender offer,
EchoStar must make offers for all PanAmSat shares that remain outstanding.
EchoStar expects that its acquisition of Hughes' interest in PanAmSat, which is
at a price of $22.47 per share, together with its assumed purchase of the
remaining outstanding PanAmSat shares and payment of the termination fee to
Hughes would require at least $3.4 billion of cash and approximately $600
million of EchoStar's class A common stock. EchoStar expects that it would meet
this cash requirement by utilizing a portion of cash on hand.
F-8
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Organization and Legal Structure
In December 1995, ECC merged Dish, Ltd. with another wholly-owned
subsidiary of ECC. During 1999, EchoStar placed ownership of all of its direct
broadcast satellites and related FCC licenses into subsidiaries of EchoStar DBS
Corporation. Dish, Ltd. and EchoStar Satellite Broadcasting Company were merged
into EchoStar DBS Corporation. EchoStar IV and the related FCC licenses were
transferred to ESC. During September 2000, EchoStar Broadband Corporation was
formed for the purposes of issuing new debt. Contracts for the construction and
launch of EchoStar VII, EchoStar VIII and EchoStar IX are held in EchoStar
Orbital Corporation. Substantially all of EchoStar's operations are conducted by
subsidiaries of EDBS.
The following table summarizes the organizational structure of EchoStar
and its principal subsidiaries as of December 31, 2001:
REFERRED TO
LEGAL ENTITY HEREIN AS PARENT
- ------------ ----------- ------
EchoStar Communications Corporation ECC Publicly owned
EchoStar Broadband Corporation EBC ECC
EchoStar DBS Corporation EDBS EBC
EchoStar Orbital Corporation EOC EBC
EchoStar Satellite Corporation ESC EDBS
Echosphere Corporation Echosphere EDBS
EchoStar Technologies Corporation ETC EDBS
Significant Risks and Uncertainties
Substantial Leverage. EchoStar is highly leveraged, which makes it
vulnerable to changes in general economic conditions. As of December 31, 2001,
EchoStar had outstanding long-term debt (including both the current and
long-term portions) totaling approximately $5.7 billion. EchoStar has
semi-annual cash debt service obligations for all of its outstanding long-term
debt securities, as follows:
SEMI-ANNUAL PAYMENT SEMI-ANNUAL DEBT
DATES SERVICE REQUIREMENTS
------------------------- --------------------
9 1/4% Senior Notes due 2006 ("9 1/4% Seven Year Notes") ..... February 1 and August 1 $17,343,750
9 3/8% Senior Notes due 2009 ("9 3/8% Ten Year Notes") ........ February 1 and August 1 76,171,875
10 3/8% Senior Notes due 2007 ("10 3/8% Seven Year Notes") .... April 1 and October 1 51,875,000
9 1/8% Senior Notes due 2009 ("9 1/8% Seven Year Notes") ..... January 15 and July 15 31,937,500
4 7/8% Convertible Subordinated Notes due 2007 ("4 7/8%
Convertible Notes") ......................................... January 1 and July 1 24,375,000
5 3/4% Convertible Subordinated Notes due 2008 ("5 3/4%
Convertible Notes") ......................................... May 15 and November 15 28,750,000
F-9
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Semi-annual debt service requirements related to EchoStar's 5 3/4%
Convertible Subordinated Notes due 2008 commenced on November 15, 2001.
Semi-annual debt service requirements related to EchoStar's 9 1/8% Senior Notes
due 2009 will commence on July 15, 2002. There are no scheduled principal
payment or sinking fund requirements prior to maturity of any of these notes.
EchoStar's ability to meet its debt service obligations will depend on, among
other factors, the successful execution of its business strategy, which is
subject to uncertainties and contingencies beyond EchoStar's control.
Expected Operating Losses. Since 1996, EchoStar has reported
significant operating and net losses. Improvements in EchoStar's future results
of operations are largely dependent upon its ability to increase its customer
base while maintaining its overall cost structure, controlling subscriber
turnover and effectively managing its subscriber acquisition costs. No assurance
can be given that EchoStar will be effective with regard to these matters. In
addition, generally EchoStar incurs significant acquisition costs to obtain DISH
Network subscribers. The high cost of obtaining new subscribers magnifies the
negative effects of subscriber turnover.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of EchoStar and all of its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. EchoStar accounts
for investments in 50% or less owned entities using the equity or cost method,
except for its investments in marketable equity securities, which are carried at
fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each reporting
period. Actual results could differ from those estimates.
Stock Splits
On each of July 19, 1999, October 25, 1999 and March 22, 2000, EchoStar
completed a two-for-one split of its outstanding class A and class B common
stock. An amount equal to the par value of the common shares issued for the
July, October and March stock splits was transferred from additional paid-in
capital to class A common stock and class B common stock. All references to
shares and per share amounts included herein retroactively give effect to the
stock splits completed in July 1999, October 1999 and March 2000.
Foreign Currency Transaction Gains and Losses
The functional currency of EchoStar's foreign subsidiaries is the U.S.
dollar because their sales and purchases are predominantly denominated in that
currency. Transactions denominated in currencies other than U.S. dollars are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translation) or realized
(upon settlement of the transaction). Net transaction gains (losses) during
1999, 2000 and 2001 were not material to EchoStar's results of operations.
F-10
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Statements of Cash Flows Data
The following presents EchoStar's supplemental cash flow statement
disclosure (in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 2000 2001
---------- ---------- ----------
Cash paid for interest, net of amounts capitalized ................................ $ 128,553 $ 211,064 $ 377,038
Cash paid for income taxes ........................................................ 119 641 1,832
Capitalized interest .............................................................. -- 5,343 25,647
8% Series A Cumulative Preferred Stock dividends .................................. 124 -- --
12 1/8% Series B Senior Redeemable Exchangeable Preferred Stock dividends
payable in-kind ................................................................ 241 -- --
Accretion of 6 3/4% Series C Cumulative Convertible Preferred Stock ............... 6,335 -- --
6 3/4% Series C Cumulative Convertible Preferred Stock dividends .................. 553 1,146 337
Assets acquired from News Corporation and MCI:
FCC licenses and other ......................................................... 626,120 -- --
Satellites ..................................................................... 451,200 -- --
Digital broadcast operations center ............................................ 47,000 -- --
Common Stock issued to News Corporation and MCI ................................... 1,124,320 -- --
Class A common stock issued related to acquisition of Kelly Broadcasting -- 31,556 --
Systems ......................................................................
Conversion of 6 3/4% Series C Cumulative Convertible Preferred Stock to Class
A common stock ................................................................. -- 34,373 10,948
Forfeitures of deferred non-cash, stock-based compensation ........................ -- 8,072 12,564
Cash and Cash Equivalents
EchoStar considers all liquid investments purchased with an original
maturity of 90 days or less to be cash equivalents. Cash equivalents as of
December 31, 2000 and 2001 consist of money market funds, corporate notes and
commercial paper; such balances are stated at fair market value.
Marketable and Non-Marketable Investment Securities and Restricted Cash
EchoStar currently classifies all marketable investment securities as
available-for-sale. The fair market value of marketable investment securities
approximates the carrying value and represents the quoted market prices at the
balance sheet dates. Related unrealized gains and losses are reported as a
separate component of stockholders' deficit, net of related deferred income
taxes, if applicable. The specific identification method is used to determine
cost in computing realized gains and losses. Such unrealized gains totaled
approximately $4 million as of December 31, 2001.
In accordance with generally accepted accounting principles, declines
in the fair market value of a marketable investment security which are estimated
to be "other than temporary" must be recognized in the statement of operations,
thus establishing a new cost basis for such investment. EchoStar evaluates its
marketable investment securities portfolio on a quarterly basis to determine
whether declines in the market value of these securities are other than
temporary. This quarterly evaluation consists of reviewing, among other things,
the fair value of our marketable investment securities compared to the carrying
value of these securities, the historical volatility of the price of each
security and any market and company specific factors related to each security.
Generally, absent specific factors to the contrary, declines in the fair value
of investments below cost basis for a period of less than six months are
considered to be temporary. Declines in the fair value of investments for a
period of six to nine months are evaluated on a case by case basis to determine
whether any company or market-specific factors exist which would indicate that
such declines are other than temporary. Declines in the fair value of
investments below cost basis for greater than nine months are considered other
than temporary and are recorded as charges to earnings, absent specific factors
to the contrary. As a result of EchoStar's quarterly evaluations, during the
year ended December 31, 2001 EchoStar recorded an aggregate charge to earnings
for other than temporary declines in the fair market value of its marketable
investment securities of approximately $70 million. This amount does not include
realized gains of approximately $22 million on the sales of marketable
investment
F-11
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
securities. If the fair market value of EchoStar's marketable securities
portfolio does not remain at or above cost basis or if EchoStar becomes aware of
any market or company specific factors that indicate that the carrying value of
certain of its securities is impaired, EchoStar may be required to record an
additional charge to earnings in future periods equal to the amount of the
decline in fair value.
EchoStar also has made strategic equity investments in certain
non-marketable investment securities within the broadband industry including
Wildblue Communications, StarBand Communications and VisionStar, Inc. Through
December 31, 2001, EchoStar invested approximately $156 million in these
non-marketable investment securities, including loans to VisionStar of
approximately $4.6 million. The securities of these companies are not publicly
traded. EchoStar's ability to create realizable value for its strategic
investments in companies that are not public is dependent on the success of
their business and ability to obtain sufficient capital to execute their
business plans. Since private markets are not as liquid as public markets, there
is also increased risk that EchoStar will not be able to sell these investments,
or that when EchoStar desires to sell them that it will not be able to obtain
full value for them. StarBand and Wildblue have cancelled their planned initial
public stock offerings and have minimal cash on hand. StarBand has reduced its
operations and Wildblue has suspended most of its operations. The ability of
both of these entities to raise additional capital in the future is currently
uncertain, and attempts to date have been unsuccessful. In addition, StarBand
has significant vendor and bank obligations and their independent public
accountants have expressed uncertainty as to their ability to continue as a
going concern in the 2001 StarBand audit opinion. As a result of these factors,
EchoStar has recorded cumulative impairment and equity-method charges of
approximately $114 million to reduce the carrying values of these non-marketable
investment securities to their estimated net realizable values, aggregating
approximately $42 million as of December 31, 2001. Of the $114 million,
approximately $64 million was recorded related to EchoStar's equity in losses of
StarBand ($29 million and $35 million during the years ended December 31, 2000
and 2001, respectively). The remaining $50 million represents impairment charges
recorded during 2001 to reduce the carrying value of Wildblue to zero. If
EchoStar becomes aware of any factors that indicate that the carrying values of
any of its non-marketable investment securities are impaired, EchoStar will be
required to record additional charges to earnings in future periods to reduce
some or all of the remaining investment balances to their estimated net
realizable values.
Restricted cash and marketable investment securities, as reflected in
the accompanying consolidated balance sheets, include restricted cash placed in
trust for the purpose of repaying a note payable as of December 31, 2000 and
2001.
The major components of marketable investment securities and restricted
cash are as follow (in thousands):
MARKETABLE INVESTMENT SECURITIES RESTRICTED CASH
DECEMBER 31, DECEMBER 31,
-------------------------------- ---------------------------
2000 2001 2000 2001
------------ ---------- ---------- ----------
Commercial paper .................. $ 327,250 $ 515,752 $ -- $ --
Corporate notes and bonds ......... 206,556 550,364 -- --
Corporate equity securities ....... 53,936 40,633 -- --
Government bonds .................. 19,615 43,659 -- --
Restricted cash ................... -- -- 3,000 1,288
------------ ---------- ---------- ----------
$ 607,357 $1,150,408 $ 3,000 $ 1,288
============ ========== ========== ==========
As of December 31, 2001, marketable investment securities and
restricted cash include debt securities of $947 million with contractual
maturities of one year or less, $157 million with contractual maturities between
one and five years and $6 million with contractual maturities greater than five
years. Actual maturities may differ from contractual maturities as a result of
EchoStar's ability to sell these securities prior to maturity.
F-12
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fair Value of Financial Instruments
Fair values for EchoStar's high-yield debt are based on quoted market
prices. The fair values of EchoStar's mortgages and other notes payable are
estimated using discounted cash flow analyses. The interest rates assumed in
such discounted cash flow analyses reflect interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
The following table summarizes the book and fair values of EchoStar's
debt facilities at December 31, 2000 and 2001 (in thousands):
DECEMBER 31, 2000 DECEMBER 31, 2001
--------------------------- ---------------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
9 1/4% Seven Year Notes ................ $ 375,000 $ 365,625 $ 375,000 $ 382,500
9 3/8% Ten Year Notes .................. 1,625,000 1,584,375 1,625,000 1,673,750
10 3/8% Seven Year Notes ............... 1,000,000 985,000 1,000,000 1,040,000
9 1/8% Seven Year Notes ................ -- -- 700,000 701,750
4 7/8% Convertible Notes ............... 1,000,000 750,000 1,000,000 891,300
5 3/4% Convertible Notes ............... -- -- 1,000,000 896,300
Mortgages and other notes payable ...... 35,944 35,495 21,262 21,262
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method. Proprietary products are
manufactured by outside suppliers to EchoStar's specifications. Manufactured
inventories include materials, labor, freight-in, royalties and manufacturing
overhead. Cost of other inventories includes parts, contract manufacturers'
delivered price, assembly and testing labor, and related overhead, including
handling and storage costs. Inventories consist of the following (in thousands):
DECEMBER 31,
--------------------------
2000 2001
--------- ---------
Finished goods - DBS ......................... $ 96,362 $ 127,186
Raw materials ................................ 40,247 45,725
Finished goods - reconditioned and other ..... 23,101 19,548
Work-in-process .............................. 8,879 7,924
Consignment .................................. 2,478 3,611
Reserve for excess and obsolete inventory .... (9,906) (13,247)
--------- ---------
$ 161,161 $ 190,747
========= =========
Property and Equipment
Property and equipment are stated at cost. Cost includes interest
capitalized of approximately $5 million and $26 million during the years ended
December 31, 2000 and 2001, respectively. No interest was capitalized during
1999. The costs of satellites under construction are capitalized during the
construction phase, assuming the eventual successful launch and in-orbit
operation of the satellite. If a satellite were to fail during launch or while
in-orbit, the resultant loss would be charged to expense in the period such loss
was incurred. The amount of any such loss would be reduced to the extent of
insurance proceeds received, if any, as a result of the launch or in-orbit
failure. Depreciation is recorded on a straight-line basis for financial
reporting purposes. Repair and maintenance costs are charged to expense when
incurred. Renewals and betterments are capitalized.
EchoStar reviews its long-lived assets and identifiable intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. For assets which are
F-13
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
held and used in operations, the asset would be impaired if the book value of
the asset exceeded the undiscounted future net cash flows related to the asset.
For those assets which are to be disposed of, the assets would be impaired to
the extent the fair value does not exceed the book value. EchoStar considers
relevant cash flow, estimated future operating results, trends and other
available information including the fair value of frequency rights owned, in
assessing whether the carrying value of assets are recoverable.
FCC Authorizations
FCC authorizations are recorded at cost and amortized using the
straight-line method over a period of 40 years. Such amortization commences at
the time the related satellite becomes operational; capitalized costs are
written off at the time efforts to provide services are abandoned. Accumulated
amortization related to FCC authorizations totaled approximately $28 million and
$47 million as of December 31, 2000 and 2001, respectively.
Effective January 1, 2002, EchoStar will be required to adopt Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("FAS 142"), which requires goodwill and intangible assets with
indefinite useful lives to no longer be amortized but to be tested for
impairment at least annually. Intangible assets that have finite lives will
continue to be amortized over their estimated useful lives. The amortization and
non-amortization provisions of FAS 142 will be applied to all goodwill and
intangible assets acquired after June 30, 2001. EchoStar is currently evaluating
the potential impact, if any, the adoption of FAS 142 will have on our financial
position and results of operations.
Revenue Recognition
Revenue from the provision of DISH Network subscription television
services and other satellite services is recognized as revenue in the period
such services are provided. Revenue from international sales of digital set-top
boxes and related accessories is recognized upon shipment to customers. Specific
revenue and subscriber acquisition cost recognition policies relating to the
marketing promotions for the periods presented are discussed below.
During the year ended December 31, 2001, our marketing promotions
included the DISH Network One-Rate Plan, Bounty Programs, Free Now, I Like 9,
and Digital Home Plan, which are described below.
DISH Network One-Rate Plan, Bounty Programs, Free Now Promotion and I
Like 9. Under the DISH Network One-Rate Plan, consumers were eligible to receive
a rebate of up to $199 on the purchase of certain EchoStar receiver systems. To
be eligible for this rebate, a subscriber must have made a one-year commitment
to subscribe to EchoStar's America's Top 150 programming or EchoStar's America's
Top 100 CD programming package plus one premium movie package (or equivalent
additional programming). This promotion expired on January 31, 2001.
Under the Bounty Programs, qualified customers were eligible to receive
a free base-level EchoStar receiver system and free installation. To be eligible
for this program, a subscriber must have made a one-year commitment to subscribe
to a qualified programming package. Certain of these promotions expired on
January 31, 2001.
From February through July 2001, EchoStar offered new subscribers a
free base-level EchoStar receiver system and free installation under its Free
Now promotion. To be eligible, a subscriber had to provide a valid major credit
card and make a one-year commitment to subscribe to either EchoStar's America's
Top 150 programming package or EchoStar's America's Top 100 CD or DISH Latino
Dos programming package plus additional programming totaling at least $39.98 per
month.
F-14
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During August 2001, EchoStar commenced its I Like 9 promotion. Under
this promotion, subscribers who purchased an EchoStar receiver system for $199
or higher, received free installation and either EchoStar's America's Top 100 CD
or EchoStar's DISH Latino Dos programming package for $9 a month for the first
year. This promotion expired January 31, 2002.
EchoStar's direct sales to consumers pursuant to its DISH Network
One-Rate Plan, Bounty Programs, Free Now promotion and I Like 9 fall under the
scope of EITF Issue No. 00-14, "Accounting for Certain Sales Incentives" ("EITF
00-14"). In accordance with EITF 00-14, EchoStar accounts for the rebate
(substantively equivalent to the return of a customer deposit) under its DISH
Network One-Rate Plan by establishing a liability equal to the amount of the
rebate to be paid to the customer upon receipt of the upfront payment from the
subscriber and does not recognize revenue for that amount. The return of the
upfront payment received from the customer is charged against such liability
account when such amount is paid back to the customer. EchoStar does not receive
any up-front proceeds from subscribers under Bounty Programs or the Free Now
promotion. Programming revenue under the I Like 9 promotion is recorded at the
substantially discounted monthly rate charged to the subscriber. See Subscriber
Promotions Subsidies and Subscriber Acquisition Costs below for discussion
regarding the accounting for costs under these promotions.
EchoStar's dealer sales under its DISH Network One-Rate Plan, the
Bounty Programs, Free Now promotion and I Like 9 fall under the scope of EITF
Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid
to a Reseller of the Vendor's Products" ("EITF 00-25"). In accordance with the
consensus guidance for Issue 2 of EITF 00-25, "buydowns" should be characterized
as a reduction of revenue. As such, certain commissions paid to dealers are
recorded as a reduction of the net proceeds received by EchoStar from the
dealers. EchoStar also charges the equipment reimbursements paid under the
Bounty Programs and the Free Now promotion against the proceeds from the dealer.
The rebate paid under the One Rate Plan is treated similarly as a reduction of
proceeds from the dealer by analogy to lease inducements, which are also
generally recognized as a reduction of revenue. See additional discussion under
Subscriber Promotions Subsidies and Subscriber Acquisition Costs below
Digital Home Plan. EchoStar's Digital Home Plan promotion, introduced
during July 2000, offers several choices to consumers, ranging from the use of
one EchoStar receiver system and our America's Top 100 CD or DISH Latino Dos
programming package for $36.99 per month, to providing consumers two or more
EchoStar receiver systems and our America's Top 150 programming package for
$50.99 to $60.99 per month. With each plan, consumers receive in-home service,
must agree to a one-year commitment and incur a one-time set-up fee of $49.99,
which through December 31, 2001, included the first month's programming payment.
For consumers who choose the Digital Home Plan with Dish PVR, which includes the
use of one or more EchoStar receiver systems, one of which includes a built-in
hard drive that allows viewers to pause and record live programming without the
need for videotape, the consumer will incur a one-time set-up fee of $148.99.
Since EchoStar retains ownership of equipment issued pursuant to the Digital
Home Plan promotion, equipment costs are capitalized and depreciated over a
period of four years.
StarBand. Prior to September 27, 2001, EchoStar accounted for the sale
of StarBand equipment as a third-party distributor of the equipment. In
accordance with EITF 99-19, EchoStar recorded revenue and cost of sales related
to the sale of StarBand hardware on a gross basis upon shipment to its
retailers, as the Company assumed the risk associated with the inventory if the
equipment was not sold to its retailers. EchoStar also recorded revenue and cost
of sales related to StarBand installations performed by the Company on a gross
basis upon installation. EchoStar did not enter into a multiple element
arrangement with its independent retailers or the end users of StarBand's
service as EchoStar was only a distributor of StarBand's equipment. Once the
equipment was purchased from an EchoStar retailer and installed in the StarBand
subscriber's home, EchoStar was not responsible for actual StarBand subscriber
activations or the provision of Internet services. Additionally, all StarBand
subscriber Internet service payments collected by EchoStar in connection with a
bundled billing are remitted directly to StarBand. If such bundled service
revenue for StarBand Internet services is not collected by EchoStar as
StarBand's billing agent, EchoStar has no remittance obligation to StarBand
whatsoever.
Effective September 27, 2001, in connection with EchoStar's increased
equity interest in StarBand, EchoStar began subsidizing the cost of equipment to
the subscriber by offering discounted equipment through its independent
F-15
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
dealers. As such, beginning September 27, 2001, EchoStar accounts for the sale
of StarBand equipment similar to the accounting for its DISH Network One-Rate
Plan, Bounty Programs, and Free Now promotion, as discussed in subscriber
promotion subsidies below.
EchoStar offers a bundled price of $100.99 for EchoStar's America's Top
150 ("AT 150") programming and the Starband Internet service. For StarBand
customers activated prior to September 27, 2001, in accordance with EITF Issue
No. 99-19, EchoStar recognizes $35.99 for the video portion of the revenue and
records a liability to Starband for the $65.00 related to the Internet service.
The $10.00 discount from the total standard price of EchoStar's AT 150
($40.99/mo.) and the Starband Internet service ($70.00/mo.) is shared 50/50
between EchoStar and Starband. In the event EchoStar does not collect the
monthly programming and Internet payments from a subscriber, EchoStar is not
obligated to remit payment to Starband for Internet services rendered to the
subscriber.
For StarBand customers activated after September 27, 2001, as a
retailer of the StarBand service, EchoStar recognizes the entire $100.99 of
revenue for the video and Internet service and records costs equal to the
monthly payment made by EchoStar to Starband for providing the service. In the
event EchoStar does not collect the monthly programming and Internet payments
from a subscriber, EchoStar is still obligated to remit payment to Starband for
the cost of providing the Internet service to the customer.
Subscriber Promotion Subsidies and Subscriber Acquisition Costs
Subscriber promotion subsidies - cost of sales includes the cost of
Echostar receiver systems distributed to retailers and other distributors of
EchoStar's equipment and receiver systems sold directly by EchoStar to
subscribers. Subscriber promotion subsidies - other includes net costs related
to various installation promotions and other promotional incentives. EchoStar
makes payments to its independent dealers as consideration for equipment
installation services and for equipment buydowns (commissions and rebates).
EchoStar expenses payments for equipment installation services as Subscriber
promotion subsidies - other. EchoStar's payments for equipment buydowns
represent a partial or complete return of the dealer's purchase price and are,
therefore, netted against the proceeds received from the dealer. EchoStar
reports the net proceeds or cost from its various sales promotions through its
independent dealer network as a component of Subscriber promotion subsidies -
other. No net proceeds or cost from the sale of subscriber related equipment is
recognized as revenue. Accordingly, subscriber acquisition costs are generally
expensed as incurred except for under EchoStar's Digital Home Plan which was
initiated during 2000 wherein the Company retains title to the receiver system
and certain ancillary equipment resulting in the capitalization and depreciation
of such equipment cost over its estimated useful life.
Deferred Debt Issuance Costs and Debt Discount
Costs of issuing debt are generally deferred and amortized to interest
expense over the terms of the respective notes (see Note 4).
Deferred Revenue
Deferred revenue principally consists of prepayments received from
subscribers for DISH Network programming. Such amounts are recognized as revenue
in the period the programming is provided to the subscriber.
F-16
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Long-Term Deferred Distribution and Carriage Revenue
Long-term deferred distribution and carriage revenue consists of
advance payments from certain content providers for carriage of their signal on
the DISH Network. Such amounts are deferred and recognized as revenue on a
straight-line basis over the related contract terms (up to ten years).
Accrued Expenses
Accrued expenses consist of the following (in thousands):
DECEMBER 31,
-----------------------
2000 2001
-------- --------
Programming ...................................... $176,566 $250,795
Royalties and copyright fees ..................... 111,228 145,140
Interest ......................................... 131,999 142,789
Marketing ........................................ 86,861 53,279
Other ............................................ 184,828 267,290
-------- --------
$691,482 $859,293
======== ========
Research and Development Costs
Research and development costs are expensed as incurred. Research and
development costs totaled $10 million, $17 million and $19 million for the years
ended December 31, 1999, 2000, and 2001, respectively.
Comprehensive Loss
The change in unrealized gain (loss) on available-for-sale securities
is the only component of EchoStar's other comprehensive loss. Accumulated other
comprehensive income (loss) presented on the accompanying consolidated balance
sheets consists of the accumulated net unrealized income (loss) on
available-for-sale securities, net of deferred taxes.
Basic and Diluted Loss Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("FAS No. 128") requires entities to present both basic earnings per
share ("EPS") and diluted EPS. Basic EPS excludes dilution and is computed by
dividing income (loss) available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if stock options or warrants were exercised
or convertible securities were converted to common stock, resulting in the
issuance of common stock that then would share in any earnings of the Company.
EchoStar had net losses for the years ending December 31, 1999, 2000 and 2001.
Therefore, the effect of the common stock equivalents and convertible securities
is excluded from the computation of diluted earnings (loss) per share since the
effect is anti-dilutive.
F-17
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Earnings per share amounts for all periods are presented below in
accordance with the requirements of FAS No. 128.
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 2000 2001
--------- --------- ---------
(In thousands, except per share data)
Numerator:
Net loss ..................................................... $(792,847) $(650,326) $(215,498)
8% Series A Cumulative Preferred Stock dividends ............. (124) -- --
12 1/8% Series B Senior Redeemable Exchangeable Preferred
Stock dividends payable in-kind ............................ (241) -- --
Accretion of 6 3/4% Series C Cumulative Convertible
Preferred Stock ............................................ (6,335) -- --
6 3/4% Series C Cumulative Convertible Preferred Stock
dividends .................................................. (553) (1,146) (337)
--------- --------- ---------
Numerator for basic and diluted loss per share - loss
attributable to common shareholders ........................ $(800,100) $(651,472) $(215,835)
========= ========= =========
Denominator:
Denominator for basic and diluted loss per share -
weighted-average common shares outstanding ................. 416,476 471,023 477,172
========= ========= =========
Net loss per common share:
Basic and diluted loss per share before extraordinary charge .... $ (1.28) $ (1.38) $ (0.45)
Extraordinary charge for the early retirement of debt ........... (0.64) -- --
--------- --------- ---------
Basic and diluted loss per share ................................ $ (1.92) $ (1.38) $ (0.45)
========= ========= =========
Shares of Class A Common Stock issuable upon conversion of:
6 3/4% Series C Cumulative Convertible Preferred Stock ....... 14,912 3,593 --
4 7/8% Convertible Subordinated Notes ........................ 22,007 22,007 22,007
5 3/4% Convertible Subordinated Notes ........................ -- -- 23,100
As of December 31, 1999, 2000 and 2001, options to purchase
approximately 27,844,000, 25,118,000 and 22,748,000 shares of class A common
stock were outstanding, respectively.
Reclassifications
Certain prior year balances in the consolidated financial statements
and accompanying notes to consolidated financial statements have been
reclassified to conform with the 2001 presentation.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations," ("FAS 141"),
which is required to be adopted July 1, 2001. FAS 141 requires the purchase
method of accounting for all business combinations initiated after June 30,
2001. The application of FAS 141 has not had a material impact on EchoStar's
financial position or results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("FAS 142"), which requires goodwill and intangible assets with
indefinite useful lives to no longer be amortized but to be tested for
impairment at least annually. Intangible assets that have finite lives will
continue to be amortized over their estimated useful lives. The amortization and
non-amortization provisions of FAS 142 will be applied to all goodwill and
intangible assets acquired after June 30, 2001. Effective January 1, 2002,
EchoStar is required to apply all other provisions of FAS 142. EchoStar is
currently evaluating the potential impact, if any, the adoption of FAS 142 will
have on our financial position and results of operations.
F-18
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"), which is effective for
fiscal periods beginning after December 15, 2001 and interim periods within
those fiscal years. FAS 144 establishes an accounting model for impairment or
disposal of long-lived assets to be disposed of by sale. EchoStar is currently
evaluating the potential impact, if any, the adoption of FAS 144 will have on
its financial position and results of operation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
DECEMBER 31,
LIFE ------------------------------
(IN YEARS) 2000 2001
---------- ----------- -----------
EchoStar I ............................. 12 $ 201,607 $ 201,607
EchoStar II ............................ 12 228,694 228,694
EchoStar III ........................... 12 234,083 234,083
EchoStar IV ............................ 4 89,505 89,505
EchoStar V ............................. 12 208,548 210,446
EchoStar VI ............................ 12 243,789 246,022
Furniture, fixtures and equipment ...... 2-12 331,069 409,523
Buildings and improvements ............. 7-40 83,922 94,325
Digital Home Plan equipment ............ 4 62,726 353,567
Tooling and other ...................... 2 5,211 6,041
Land ................................... -- 10,083 12,699
Vehicles ............................... 7 968 1,595
Construction in progress ............... -- 226,454 462,365
----------- -----------
Total property and equipment ....... 1,926,659 2,550,472
Accumulated depreciation ............... (415,356) (646,460)
----------- -----------
Property and equipment, net ........ $ 1,511,303 $ 1,904,012
=========== ===========
Construction in progress consists of the following (in thousands):
DECEMBER 31,
-----------------------
2000 2001
-------- --------
Progress amounts for satellite construction, launch, and launch
insurance:
EchoStar VII ............................................. 76,382 159,577
EchoStar VIII ............................................ 46,487 128,535
EchoStar IX .............................................. 22,215 74,189
Digital broadcast operations center ........................... 39,797 56,347
Other ......................................................... 41,573 43,717
-------- --------
$226,454 $462,365
======== ========
F-19
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EchoStar V
EchoStar V is equipped with a total of three momentum wheels, including
one spare. During July 2001, EchoStar V experienced an anomaly resulting in the
loss of one momentum wheel. The satellite was quickly restored to normal
operations mode. An investigation conducted by the spacecraft manufacturer
concluded that a failure within the momentum wheel electronics caused the loss.
The manufacturer also believes that the failure was isolated to this particular
unit. While no further momentum wheel losses are expected, there can be no
assurance future anomalies will not cause further losses which could impact
commercial operation of the satellite. At EchoStar's request, the manufacturer
has developed contingency plans which include modification to the spacecraft's
on-board software that will allow continued operation in the event of additional
momentum wheel failures, with limited effect on spacecraft life. During August
2001, one of the thrusters on EchoStar V experienced an anomalous event
resulting in a temporary interruption of service. The satellite was quickly
restored to normal operations mode. An investigation by the manufacturer has
determined that the engine remains functional but with a reduction in rated
thrust. The satellite is equipped with a substantial number of backup thrusters.
EchoStar V is also equipped with a total of 48 traveling-wave-tube amplifiers
("TWTAs"), including 16 spares. A total of two TWTAs were taken out of service
and replaced by spares between the launch of the satellite and June 30, 2001.
During the third quarter 2001, EchoStar V experienced anomalous telemetry
readings on two additional TWTAs. As a precaution, during September 2001
EchoStar substituted one of those TWTA's with a spare. To the extent that
EchoStar V experiences anomalous telemetry readings on additional TWTAs it may
be necessary to utilize additional spare TWTAs. EchoStar V has also experienced
anomalies resulting in the loss of one solar array string. The satellite has a
total of approximately 96 solar array strings and approximately 92 are required
to assure full power availability for the 12-year design life of the satellite.
An investigation of the solar array anomalies, none of which have impacted
commercial operation of the satellite to date, is continuing. Until the root
cause of these anomalies is finally determined, there can be no assurance future
anomalies will not cause further losses which could impact commercial operation
of the satellite.
EchoStar VI
EchoStar VI is equipped with a total of 48 transponders, including 16
spares. During April 2001, EchoStar VI experienced a series of anomalous events
resulting in a temporary interruption of service. The satellite was quickly
restored to normal operations mode. As a result of the anomaly, an investigation
conducted by the spacecraft manufacturer concluded that one stationkeeping
thruster and a pair of TWTA are unusable. The satellite is equipped with a
substantial number of backup transponders and thrusters. The satellite
manufacturer, Space Systems Loral ("SS/L"), has advised EchoStar that it
believes that the thruster anomaly was isolated to one stationkeeping thruster,
and that while further failures are possible, SS/L does not believe it is likely
that additional thrusters will be impacted. EchoStar VI has also experienced
anomalies resulting in the loss of two solar array strings. The satellite has a
total of approximately 112 solar array strings and approximately 106 are
required to assure full power availability for the 12-year design life of the
satellite. An investigation of the solar array anomalies, none of which have
impacted commercial operation of the satellite to date, is continuing. Until the
root cause of these anomalies is finally determined, there can be no assurance
future anomalies will not cause further losses which could impact commercial
operation of the satellite.
Satellite Insurance
As a result of the failure of EchoStar IV solar arrays to fully deploy
and the failure of 30 transponders to date, a maximum of approximately 14 of the
44 transponders on EchoStar IV are available for use at this time. In addition
to the transponder and solar array failures, EchoStar IV experienced anomalies
affecting its thermal systems and propulsion system. There can be no assurance
that further material degradation, or total loss of use, of EchoStar IV will not
occur in the immediate future.
In September 1998, EchoStar filed a $219.3 million insurance claim for
a constructive total loss under the launch insurance policies covering EchoStar
IV. The satellite insurance consists of separate substantially identical
F-20
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
policies with different carriers for varying amounts that, in combination,
create a total insured amount of $219.3 million. EchoStar's insurance carriers
offered EchoStar a total of approximately $88 million, or 40% of the total
policy amount, in settlement of the EchoStar IV insurance claim. The insurers
offered to pay only part of the $219.3 million claim because they allege we did
not abide by the exact terms of the insurance policy. The insurers also assert
that EchoStar IV was not a constructive total loss, as that term is defined in
the policy. EchoStar strongly disagrees and filed an arbitration claim against
the insurers for breach of contract, failure to pay a valid insurance claim and
bad faith denial of a valid claim, among other things. There can be no assurance
that EchoStar will receive the amount claimed or, if EchoStar does, that
EchoStar will retain title to EchoStar IV with its reduced capacity. Based on
the carriers' failure to pay the amount EchoStar believes is owed under the
policy and their improper attempts to force EchoStar to settle for less than the
full amount of its claim, EchoStar has added causes of action in its EchoStar IV
demand for arbitration for breach of the duty of good faith and fair dealing,
and unfair claim practices. Additionally, EchoStar filed a lawsuit against the
insurance carriers in the U.S. District Court for the District of Colorado
asserting causes of action for violation of Federal and State antitrust laws.
During March 2001, EchoStar voluntarily dismissed its antitrust lawsuit without
prejudice. EchoStar has the right to re-file an antitrust action against the
insurers in the future.
At the time EchoStar filed its claim in 1998, EchoStar recognized an
impairment loss of $106 million to write-down the carrying value of the
satellite and related costs, and simultaneously recorded an insurance claim
receivable for the same amount. EchoStar will have to reduce the amount of the
receivable if a final settlement is reached for less than this amount.
As a result of the thermal and propulsion system anomalies, EchoStar
reduced the estimated remaining useful life of EchoStar IV to approximately 4
years during January 2000. EchoStar will continue to evaluate the performance of
EchoStar IV and may modify its loss assessment as new events or circumstances
develop.
The indentures related to certain of EDBS' senior notes contain
restrictive covenants that require EchoStar to maintain satellite insurance with
respect to at least half of the satellites it owns or leases. In addition, the
indenture related to EBC's senior notes requires EchoStar to maintain satellite
insurance on the lesser of half of its satellites or three of its satellites.
EchoStar I through EchoStar IX are owned by a direct subsidiary of EBC.
Insurance coverage is therefore required for at least three of EchoStar's seven
satellites currently in-orbit. The launch and/or in-orbit insurance policies for
EchoStar I through EchoStar VII have expired. To date EchoStar has been unable
to obtain insurance on any of these satellites on terms acceptable to EchoStar.
As a result, EchoStar is currently self-insuring these satellites. To satisfy
insurance covenants related to EDBS' and EBC's senior notes, EchoStar has
reclassified an amount equal to the depreciated cost of three of its satellites
from cash and cash equivalents to cash reserved for satellite insurance on its
balance sheet. As of December 31, 2001, cash reserved for satellite insurance
totaled approximately $122 million. If EchoStar leases or transfers ownership of
EchoStar VII, EchoStar VIII or EchoStar IX to EDBS, which it is currently
considering, EchoStar would need to reserve additional cash for the depreciated
cost of additional satellites. The reserve would increase by approximately $60
million if one or two satellites are so leased or transferred, and by an
additional material amount if a third satellite is leased or transferred. The
reclassifications will continue until such time, if ever, as EchoStar can again
insure its satellites on acceptable terms and for acceptable amounts.
F-21
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. LONG-TERM DEBT
9 1/4% Seven Year and 9 3/8% Ten Year Notes
On January 25, 1999, EDBS sold $375 million principal amount of the 9
1/4% Seven Year Notes and $1.625 billion principal amount of the 9 3/8% Ten Year
Notes. Interest accrues at annual rates of 9 1/4% and 9 3/8%, respectively and
is payable semi-annually in cash in arrears on February 1 and August 1 of each
year, commencing August 1, 1999.
Concurrently with the closing of the 9 1/4% Seven Year Notes and 9 3/8%
Ten Year Notes offering, EchoStar used approximately $1.658 billion of net
proceeds received from the sale of the 9 1/4% Seven Year and 9 3/8% Ten Year
Notes to complete tender offers for its then outstanding senior notes issued in
1994, 1996 and 1997. In February 1999, EchoStar used approximately $268 million
of net proceeds received from the sale of the 9 1/4% Seven Year and 9 3/8% Ten
Year Notes to complete the tender offers related to the 12 1/8% Senior Exchange
Notes due 2004, issued on January 4, 1999, in exchange for all issued and
outstanding 12 1/8% Series B Senior Redeemable Exchangeable Preferred Stock.
With the exception of certain de minimis domestic and foreign
subsidiaries, the 9 1/4% Seven Year and 9 3/8% Ten Year Notes are fully,
unconditionally and jointly and severally guaranteed by all subsidiaries of
EDBS. The 9 1/4% Seven Year and 9 3/8% Ten Year Notes are general senior
unsecured obligations which:
o rank pari passu in right of payment to each other and to all
existing and future senior unsecured obligations;
o rank senior to all existing and future junior obligations; and
o are effectively junior to secured obligations to the extent of the
collateral securing such obligations, including any borrowings under
future secured credit facilities.
Except under certain circumstances requiring prepayment premiums, and
in other limited circumstances, the 9 1/4% Seven Year and 9 3/8% Ten Year Notes
are not redeemable at EDBS's option prior to February 1, 2003 and February 1,
2004, respectively. Thereafter, the 9 1/4% Seven Year Notes will be subject to
redemption, at the option of EDBS, in whole or in part, at redemption prices
decreasing from 104.625% during the year commencing February 1, 2003 to 100% on
or after February 1, 2005, together with accrued and unpaid interest thereon to
the redemption date. The 9 3/8% Ten Year Notes will be subject to redemption, at
the option of EDBS, in whole or in part, at redemption prices decreasing from
104.688% during the year commencing February 1, 2004 to 100% on or after
February 1, 2008, together with accrued and unpaid interest thereon to the
redemption date.
The indentures related to the 9 1/4% Seven Year and 9 3/8% Ten Year
Notes (the "Seven and Ten Year Notes Indentures") contain restrictive covenants
that, among other things, impose limitations on the ability of EDBS to:
o incur additional indebtedness;
o apply the proceeds of certain asset sales;
o create, incur or assume liens;
o create dividend and other payment restrictions with respect to
EDBS's subsidiaries;
o merge, consolidate or sell assets; and
o enter into transactions with affiliates.
In addition, EDBS may pay dividends on its equity securities only if no
default shall have occurred or is continuing under the Seven and Ten Year Notes
Indentures; and after giving effect to such dividend and the incurrence of any
indebtedness (the proceeds of which are used to finance the dividend), EDBS'
ratio of total indebtedness to cash flow (calculated in accordance with the
Indentures) would not exceed 8.0 to 1.0. Moreover, the aggregate amount of such
dividends generally may not exceed the sum of the difference of cumulative
consolidated cash flow (calculated in accordance with
F-22
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
the Indentures) minus 120% of consolidated interest expense of EDBS (calculated
in accordance with the Indentures), in each case from April 1, 1999 plus an
amount equal to 100% of the aggregate net cash proceeds received by EDBS and its
subsidiaries from the issuance or sale of certain equity interests of EDBS or
EchoStar.
In the event of a change of control, as defined in the Seven and Ten
Year Notes Indentures, EDBS will be required to make an offer to repurchase all
of the 9 1/4% Seven Year and 9 3/8% Ten Year Notes at a purchase price equal to
101% of the aggregate principal amount thereof, together with accrued and unpaid
interest thereon, to the date of repurchase.
10 3/8% Seven Year Notes
On September 25, 2000, our wholly-owned subsidiary, EBC, sold $1
billion principal amount of the 10 3/8% Seven Year Notes. Interest accrues at an
annual rate of 10 3/8% and is payable semi-annually in cash, in arrears on April
1 and October 1 of each year. The proceeds of the 10 3/8% Seven Year Notes will
be used primarily by EchoStar's subsidiaries for the construction and launch of
additional satellites, strategic acquisitions and other general working capital
purposes.
The indenture related to the 10 3/8% Seven Year Notes (the "10 3/8%
Seven Year Notes Indenture") contains certain restrictive covenants that
generally do not impose material limitations on EchoStar. Subject to certain
limitations, the 10 3/8% Seven Year Notes Indenture permits EBC to incur
additional indebtedness, including secured and unsecured indebtedness that ranks
on parity with the 10 3/8% Seven Year Notes. Any secured indebtedness will, as
to the collateral securing such indebtedness, be effectively senior to the 10
3/8% Seven Year Notes to the extent of such collateral.
The 10 3/8% Seven Year Notes are:
o general unsecured obligations of EBC;
o ranked equally in right of payment with all of EBC's existing and
future senior debt;
o ranked senior in right of payment to all of EBC's other existing
and future subordinated debt; and
o ranked effectively junior to (i) all liabilities (including trade
payables) of EBC's subsidiaries and (ii) all of EBC's secured
obligations, to the extent of the collateral securing such
obligations, including any borrowings under any of EBC's future
secured credit facilities, if any.
Except under certain circumstances requiring prepayment premiums, and
in other limited circumstances, the 10 3/8% Seven Year Notes are not redeemable
at EchoStar's option prior to October 1, 2004. Thereafter, the 10 3/8% Seven
Year Notes will be subject to redemption, at EchoStar's option, in whole or in
part, at redemption prices decreasing from 105.188% during the year commencing
October 1, 2004 to 100% on or after October 1, 2006, together with accrued and
unpaid interest thereon to the redemption date.
In the event of a change of control, as defined in the 10 3/8% Seven
Year Notes Indenture, EBC will be required to make an offer to repurchase all or
any part of a holder's 10 3/8% Seven Year Notes at a purchase price equal to
101% of the aggregate principal amount thereof, together with accrued and unpaid
interest thereon, to the date of repurchase.
Under the terms of the 10 3/8% Seven Year Notes Indenture, EBC has
agreed to cause its subsidiary, EDBS to make an offer to exchange (the "EDBS
Exchange Offer") all of the outstanding 10 3/8% Seven Year Notes for a new class
of notes issued by EDBS as soon as practical following the first date (as
reflected in EDBS' most recent quarterly or annual financial statements) on
which EDBS is permitted to incur indebtedness in an amount equal to the
outstanding principal balance of the 10 3/8% Seven Year Notes under the
"Indebtedness to Cash Flow Ratio" test contained in the indentures (the "EDBS
Indentures") governing the EDBS 9 1/4% Seven Year Notes and 9 3/8% Ten Year
Notes, and such incurrence of indebtedness would not otherwise cause any breach
or violation of, or result in a default under, the terms of the EDBS Indentures.
Pursuant to the terms of the EDBS indentures, the actual EDBS Exchange offer
will be effected during the first quarter of 2002.
F-23
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9 1/8% Seven Year Notes
On December 28, 2001, EDBS sold $700 million principal amount of the 9
1/8% Seven Year Notes. Interest accrues at an annual rate of 9 1/8% and is
payable semi-annually in cash, in arrears on January 15 and July 15 of each
year, commencing July 15, 2002. The proceeds of the 9 1/8% Seven Year Notes are
intended to be used for one or more of the following: 1) to provide a portion of
the financing for the proposed merger of EchoStar with Hughes Electronics
Corporation, 2) if EchoStar does not consummate the merger, to provide a portion
of the financing for the acquisition by EchoStar of Hughes' approximately 81%
interest in PanAmSat Corporation, and 3) the construction, launch and insurance
of additional satellites, strategic acquisitions and other general corporate
purposes.
The 9 1/8% Seven Year Notes are guaranteed by substantially all
subsidiaries of EDBS on a senior basis. The 9 1/8% Seven Year Notes are general
unsecured senior obligations which:
o rank senior with all of EDBS' future subordinated debt; and
o rank junior to any of EDBS' secured debt to the extent of the value
of the assets securing such debt.
Except under certain circumstances requiring prepayment premiums, and
in other limited circumstances, the 9 1/8% Seven Year Notes are not redeemable
at EDBS' option prior to January 15, 2006. Thereafter, the 9 1/8% Seven Year
Notes will be subject to redemption, at EDBS' option, in whole or in part, at
redemption prices decreasing from 104.563% during the year commencing January
15, 2006 to 100% on or after January 15, 2008, together with accrued and unpaid
interest thereon to the redemption date.
The indenture related to the 9 1/8% Seven Year Notes (the "9 1/8% Seven
Year Notes Indenture") contains restrictive covenants that, among other things,
impose limitations on the ability of EDBS and its restricted subsidiaries to:
o incur additional indebtedness or enter into sale and leaseback
transactions;
o pay dividends or make distribution on EDBS' capital stock or
repurchase EDBS' capital stock;
o make certain investments;
o create liens;
o enter into transactions with affiliates;
o merge or consolidate with another company; and
o transfer and sell assets
In the event of a change of control, as defined in the 9 1/8% Seven
Year Notes Indenture, EDBS will be required to make an offer to repurchase all
or any part of a holder's 9 1/8% Seven Year Notes at a purchase price equal to
101% of the aggregate principal amount thereof, together with accrued and unpaid
interest thereon, to the date of repurchase.
4 7/8% Convertible Notes
On December 2, 1999, EchoStar sold $1 billion principal amount of the 4
7/8% Convertible Notes. Interest accrues at an annual rate of 4 7/8% and is
payable semi-annually in cash, in arrears on January 1 and July 1 of each year,
commencing July 1, 2000.
The 4 7/8% Convertible Notes are general unsecured obligations, which
rank junior in right of payment to:
o all existing and future senior obligations;
o all of EchoStar's secured debts to the extent of the value of the
assets securing those debts; and
o all existing and future debts and other liabilities or EchoStar's
subsidiaries.
F-24
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Except under certain circumstances requiring prepayment premiums, and
in other limited circumstances, the 4 7/8% Convertible Notes are not redeemable
at EchoStar's option prior to January 1, 2003. Thereafter, the 4 7/8%
Convertible Notes will be subject to redemption, at the option of the Company,
in whole or in part, at redemption prices decreasing from 102.786% during the
year commencing January 1, 2003 to 100% on or after January 1, 2007, together
with accrued and unpaid interest thereon to the redemption date.
The 4 7/8% Convertible Notes, unless previously redeemed, are
convertible at the option of the holder any time after 90 days following the
date of their original issuance and prior to maturity into shares of our class A
common stock at a conversion price of $45.44 per share.
The indenture related to the 4 7/8% Convertible Notes (the "4 7/8%
Convertible Notes Indenture") contain certain restrictive covenants that do not
impose material limitations on EchoStar.
In the event of a change of control, as defined in the 4 7/8%
Convertible Notes Indenture, EchoStar will be required to make an offer to
repurchase all or any part of the holder's 4 7/8% Convertible Notes at a
purchase price equal to 101% of the aggregate principal amount thereof, together
with accrued and unpaid interest thereon, to the date of repurchase.
5 3/4% Convertible Notes
On May 24, 2001, EchoStar sold $1 billion principal amount of the 5
3/4% Convertible Notes. Interest accrues at an annual rate of 5 3/4% and is
payable semi-annually in cash, in arrears on May 15 and November 15 of each
year, commencing November 15, 2001.
The 5 3/4% Convertible Notes are general unsecured obligations, which
rank equal to EchoStar's 4 7/8% Convertible Notes and junior in right of payment
to:
o all existing and future senior obligations;
o all of EchoStar's secured debts to the extent of the value of the
assets securing those debts; and
o all existing and future debts and other liabilities or EchoStar's
subsidiaries.
Except under certain circumstances requiring prepayment premiums, and
in other limited circumstances, the 5 3/4% Convertible Notes are not redeemable
at EchoStar's option prior to May 15, 2004. Thereafter, the 5 3/4% Convertible
Notes will be subject to redemption, at the option of the Company, in whole or
in part, at redemption prices decreasing from 103.286% during the year
commencing May 15, 2004 to 100% on or after May 15, 2008, together with accrued
and unpaid interest thereon to the redemption date.
The 5 3/4% Convertible Notes, unless previously redeemed, are
convertible at the option of the holder any time after 90 days following the
date of their original issuance and prior to maturity into shares of EchoStar's
class A common stock at a conversion price of $43.29 per share.
The indenture related to the 5 3/4% Convertible Notes (the "5 3/4%
Convertible Notes Indenture") contains certain restrictive covenants that do not
impose material limitations on EchoStar.
In the event of a change of control, as defined in the 5 3/4%
Convertible Notes Indenture, EchoStar will be required to make an offer to
repurchase all or any part of the holder's 5 3/4% Convertible Notes at a
purchase price equal to 101% of the aggregate principal amount thereof, together
with accrued and unpaid interest thereon, to the date of repurchase.
Certain Debt Indentures
The Hughes merger agreement requires that EchoStar use commercially
reasonable efforts to: 1) amend the indentures relating to certain of its debt
instruments so that the Hughes merger and related transactions would not
constitute a change of control requiring it to make an offer to repurchase those
notes, 2) obtain additional committed financing, on terms reasonably
satisfactory to Hughes, sufficient to refinance the notes outstanding under the
indentures which EchoStar is unable to amend, or 3) present to Hughes a plan,
taking into account prevailing market
F-25
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
conditions for the relevant notes, designed so that at and after the effective
time of the Hughes merger, the surviving corporation and its subsidiaries would
not be in breach of their obligations under those indentures.
Mortgages and Other Notes Payable
Mortgages and other notes payable consists of the following (in
thousands):
DECEMBER 31,
------------------------
2000 2001
-------- --------
8.25% note payable for satellite vendor financing for EchoStar I due in equal monthly
installments of $772, including interest, through February 2001 ...................... $ 2,137 $ --
8.25% note payable for satellite vendor financing for EchoStar II due in equal
monthly installments of $562, including interest, through November 2001 .............. 5,930 --
8.25% note payable for satellite vendor financing for EchoStar III due in
equal monthly installments of $294, including interest, through October 2002 ......... 5,978 2,829
8.25% note payable for satellite vendor financing for EchoStar IV due upon
resolution of satellite insurance claim (Note 3) ..................................... 11,327 11,327
Mortgages and other unsecured notes payable due in installments through August
2020 with interest rates ranging from 2% to 10% ...................................... 10,572 7,106
-------- --------
Total .................................................................................. 35,944 21,262
Less current portion ................................................................... (21,132) (14,782)
-------- --------
Mortgages and other notes payable, net of current portion .............................. $ 14,812 $ 6,480
======== ========
Future maturities of EchoStar's outstanding long-term debt are
summarized as follows (in thousands):
DECEMBER 31,
-------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
9 1/4% Seven Year Notes ...... $ -- $ -- $ -- $ -- $ 375,000 $ -- $ 375,000
9 3/8% Ten Year Notes ........ -- -- -- -- -- 1,625,000 1,625,000
10 3/8% Seven Year Notes ..... -- -- -- -- -- 1,000,000 1,000,000
9 1/8% Seven Year Notes ...... -- -- -- -- -- 700,000 700,000
4 7/8% Convertible Notes ..... -- -- -- -- -- 1,000,000 1,000,000
5 3/4% Convertible Notes ..... -- -- -- -- -- 1,000,000 1,000,000
Mortgages and Other Notes
Payable ................... 14,782 1,992 723 753 798 2,214 21,262
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total ........................ $ 14,782 $ 1,992 $ 723 $ 753 $ 375,798 $5,327,214 $5,721,262
========== ========== ========== ========== ========== ========== ==========
Satellite Vendor Financing
The purchase price for satellites is required to be paid in progress
payments, some of which are non-contingent payments that are deferred until
after the respective satellites are in orbit (satellite vendor financing).
EchoStar utilized $36 million, $28 million, $14 million and $13 million of
satellite vendor financing for EchoStar I, EchoStar II, EchoStar III and
EchoStar IV, respectively. The satellite vendor financings for both EchoStar
III, EchoStar IV and EchoStar VII are secured by an ECC corporate guarantee.
Bridge Financing Commitments
As previously discussed, EchoStar and Hughes have obtained $5.525
billion in bridge financing commitments for the Hughes merger and related
transactions. This commitment has been reduced to $3.325 billion as a result of
the sale the 9 1/8% Senior Notes due 2009 by EDBS on December 28, 2001 and the
closing of the $1.5 billion equity investment in EchoStar as part of EchoStar's
strategic alliance with Vivendi on January 22, 2002.
In consideration for the bridge financing commitments, EchoStar is
obligated to the lenders for the following non-refundable fees whether or not
the Hughes merger or PanAmSat acquisition are ever consummated:
F-26
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
o Commitment Fees of 1% of the aggregate bridge financing
commitments were paid by EchoStar to the lenders upon execution of
the agreements relating to the commitments. These fees, totaling
approximately $55 million, were deferred and are being charged to
interest expense as the bridge commitments are reduced.
Approximately $7.4 million of these commitment fees were expensed
upon issuance of the 9 1/8% Seven Year Notes by EDBS during
December 2001. If the Hughes merger is not consummated, total
remaining commitment fees will be written off. In the event that
the bridge commitment is drawn, any commitment fees not previously
expensed will be charged to interest expense in future periods.
o Ticking fees of .50% per year on the aggregate remaining bridge
financing commitments are payable quarterly, in arrears, until the
closing of either the Hughes merger or the PanAmSat acquisition,
or the termination or expiration of the agreements relating to the
bridge commitments. These ticking fees will be expensed as
incurred. As of December 31, 2001, we had expensed approximately
$4.9 million in ticking fees.
5. INCOME TAXES
As of December 31, 2001, EchoStar had net operating loss carryforwards
("NOLs") for Federal income tax purposes of approximately $2.112 billion. The
NOLs will begin to expire in the year 2012. The use of the NOLs is subject to
statutory and regulatory limitations regarding changes in ownership. Statement
of Financial Accounting Standard No. 109, "Accounting for Income Taxes," ("FAS
No. 109") requires that the potential future tax benefit of NOLs be recorded as
an asset. FAS No. 109 also requires that deferred tax assets and liabilities be
recorded for the estimated future tax effects of temporary differences between
the tax basis and book value of assets and liabilities. Deferred tax assets are
offset by a valuation allowance to the extent it is considered more likely than
not that the benefits of such assets will not be realized.
In 2001, EchoStar increased its valuation allowance sufficient to
offset net deferred tax assets arising during the year except for the tax
deferred asset related to federal alternative minimum income tax, which has an
indefinite life. Realization of net deferred tax assets is not assured and is
principally dependent on generating future taxable income prior to expiration of
the NOLs. Management believes existing net deferred tax assets in excess of the
valuation allowance will, more likely than not, be realized. EchoStar
continuously reviews the adequacy of its valuation allowance. Future decreases
to the valuation allowance will be made only as changed circumstances indicate
that it is more likely than not that the additional benefits will be realized.
Any future adjustments to the valuation allowance will be recognized in
EchoStar's provision for income taxes.
F-27
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The actual tax (provision) benefit for 1999, 2000 and 2001 are
reconciled to the amounts computed by applying the statutory Federal tax rate to
income before taxes as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1999 2000 2001
----- ----- -----
Statutory rate .................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit ...... 2.3 2.9 1.4
Employee stock option exercise and sale ......... -- 3.2 1.5
Cumulative effect of change in tax rate resulting
from a revision of apportionment of
state income.................................. -- -- (11.9)
Non-deductible interest expense ................. (0.3) -- --
Other ........................................... 1.3 1.4 (2.8)
Increase in valuation allowance ................. (38.3) (42.5) (22.5)
----- ----- -----
Total benefit from income taxes .............. --% --% 0.7%
===== ===== =====
The temporary differences, which give rise to deferred tax assets and
liabilities as of December 31, 2000 and 2001, are as follows (in thousands):
DECEMBER 31,
--------- ---------
2000 2001
--------- ---------
Current deferred tax assets:
Accrued expenses ................................................... $ 77,110 $ 95,431
Inventory reserves and cost methods ................................ 3,974 5,369
Allowance for doubtful accounts .................................... 12,533 8,896
Other .............................................................. 79 243
--------- ---------
Total current deferred tax assets .................................... 93,696 109,939
Current deferred tax liabilities:
Other .............................................................. (40) (39)
--------- ---------
Total current deferred tax liabilities ............................... (40) (39)
--------- ---------
Gross current deferred tax assets .................................... 93,656 109,900
Valuation allowance .................................................. (79,194) (89,115)
--------- ---------
Net current deferred tax assets ...................................... 14,462 20,785
Noncurrent deferred tax assets:
General business, foreign tax, alternative minimum tax credits ..... 2,504 3,904
Net operating loss carryforwards ................................... 771,748 771,162
Incentive plan stock compensation .................................. 38,841 44,715
Unrealized loss on investments ..................................... -- 48,159
Loss on equity method investments .................................. 10,961 24,219
Other .............................................................. 23,802 39,200
--------- ---------
Total noncurrent deferred tax assets ................................. 847,856 931,359
Noncurrent deferred tax liabilities:
Depreciation ....................................................... (77,452) (115,589)
Other .............................................................. (1,108) (13,072)
--------- ---------
Total noncurrent deferred tax liabilities ............................ (78,560) (128,661)
--------- ---------
Gross deferred tax assets ............................................ 769,296 802,698
--------- ---------
Valuation allowance .................................................. (716,623) (754,948)
--------- ---------
Net noncurrent deferred tax assets ................................... 52,673 47,750
--------- ---------
Net deferred tax assets .............................................. $ 67,135 $ 68,535
========= =========
F-28
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The components of the (provision for) benefit from income taxes are as
follows (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 2000 2001
--------- --------- ---------
Current (provision) benefit:
Federal .............................. $ -- $ -- $ (1,400)
State ................................ (45) (80) (860)
Foreign .............................. (108) (475) (593)
--------- --------- ---------
(153) (555) (2,853)
Deferred (provision) benefit:
Federal .............................. 286,195 247,519 44,910
State ................................ 27,748 28,809 4,736
Increase in valuation allowance ...... (313,943) (276,328) (48,246)
--------- --------- ---------
-- -- 1,400
--------- --------- ---------
Total (provision) benefit ......... $ (153) $ (555) $ (1,453)
========= ========= =========
Deferred Tax Assets
Net deferred tax assets of approximately $69 million and $67 million as
of December 31, 2001 and 2000, respectively, have remained substantially
unchanged on EchoStar's balance sheet since 1996. Additional deferred tax assets
of approximately $844 million generated since 1996 have been substantially
offset by adjustments to EchoStar's valuation allowance. EchoStar expects to
generate taxable income in the future, but the timing and amount of that taxable
income is uncertain and EchoStar does not believe the criteria for recognition
of additional tax benefits are presently satisfied. EchoStar needs to generate
future taxable income of approximately $190 million to realize the benefit of
the net deferred tax assets recognized and EchoStar continues to believe it is
more likely than not that the assets it has recorded will be realized. EchoStar
expects to adjust the valuation allowance in the future when the timing and
amount of additional future taxable income becomes more certain. If it is
determined at some point in the future that any or all of previously reserved
deferred tax assets are more likely than not realizable, significant deferred
income tax benefits will need to be recorded and such benefits may be material.
Internal Revenue Service Proposed Adjustment
During 2001, the Internal Revenue Service conducted an audit of
EchoStar's consolidated federal income tax returns for the years 1997, 1998, and
1999. As a result of this review, the IRS' position is that certain subscriber
acquisition costs deducted by EchoStar in those years should instead be
capitalized and amortized over a period of five years. EchoStar does not agree
with this proposed adjustment and has initiated an appeal of the agent's
position. At this time, the ultimate resolution of this dispute is uncertain. If
EchoStar's arguments for deductibility are unsuccessful and EchoStar is required
to capitalize and amortize these costs over five years, the federal net
operating losses ("NOLs") available to EchoStar at December 31, 2001 could be
reduced by as much as $1.7 billion. Such an outcome would not materially alter
EchoStar's ultimate tax obligations but could significantly accelerate the
timing of when it would be required to begin making material current income tax
payments. EchoStar would also incur a cumulative alternative minimum tax
liability for the years 1998, 2000, and 2001 totaling approximately $7 million.
Any reduction in NOLs and the resulting alternative minimum tax liability would
be offset by corresponding deferred tax assets related to the unamortized
capitalized cost and the future credit for the alternative minimum taxes paid
which may be carried forward indefinitely. EchoStar intends to vigorously defend
its position that EchoStar will be able to continue its current policy of
deducting subscriber acquisition costs as incurred for tax purposes. However, as
of December 31, 2001, the outcome is uncertain.
F-29
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
The class A, class B and class C common stock are equivalent in all
respects except voting rights. Holders of class A and class C common stock are
entitled to one vote per share and holders of class B common stock are entitled
to ten votes per share. Each share of class B and class C common stock is
convertible, at the option of the holder, into one share of class A common
stock. Upon a change in control of ECC, each holder of outstanding shares of
class C common stock is entitled to ten votes for each share of class C common
stock held. ECC's principal stockholder owns all outstanding class B common
stock and all other stockholders own class A common stock. There are no shares
of class C common stock outstanding.
7. STOCK COMPENSATION PLANS
Stock Incentive Plan
In April 1994, EchoStar adopted a stock incentive plan to provide
incentive to attract and retain officers, directors and key employees. EchoStar
currently has reserved up to 80 million shares of its class A common stock for
granting awards under its 1995 Stock Incentive Plan and an additional 80 million
shares of its class A common stock for granting awards under its 1999 Stock
Incentive Plan. In general, stock options granted through December 31, 2001 have
included exercise prices not less than the fair market value of EchoStar's class
A common stock at the date of grant, and vest, as determined by EchoStar's Board
of Directors, generally at the rate of 20% per year.
During 1999, EchoStar adopted the 1999 Incentive Plan which provided
certain key employees a contingent incentive including stock options and cash.
The payment of these incentives was contingent upon the achievement of certain
financial and other goals of EchoStar. EchoStar met certain of these goals
during 1999. Accordingly, in 1999, EchoStar recorded approximately $179 million
of deferred compensation related to post-grant appreciation of options to
purchase approximately 4.2 million shares, granted pursuant to the 1999
Incentive Plan. The related deferred compensation will be recognized over the
five-year vesting period. During the year ended December 31, 1999, 2000 and
2001, EchoStar recognized expense of $61 million, $51 million and $20 million,
respectively, under the 1999 Incentive Plan. The remaining deferred compensation
of $25 million, which will be reduced by future forfeitures, if any, will be
recognized over the remaining vesting period.
Options to purchase an additional 9.7 million shares are outstanding as
of December 31, 2001 and were granted at fair market value during 1999, 2000 and
2001 pursuant to a Long Term Incentive Plan. The weighted-average exercise price
of these options is $9.04. Vesting of these options is contingent on meeting
certain longer-term goals, which may be met upon the consummation of the
proposed merger with Hughes. However, as the achievement of these goals cannot
be reasonably predicted through December 31, 2001, no compensation was recorded
during 1999, 2000 and 2001 related to these long-term options. EchoStar will
continue to evaluate the likelihood of achieving these long-term goals and will
record the related compensation at the time achievement of these goals becomes
probable. Such compensation, if recorded, could result in material non-cash
stock-based compensation expense in EchoStar's statements of operations.
F-30
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A summary of EchoStar's incentive stock option activity for the years
ended December 31, 1999, 2000 and 2001 is as follows:
1999 2000 2001
--------------------------- --------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----------- ----------- ----------- ----------- -----------
Options outstanding, beginning of
year .............................. 11,576,120 $ 2.04 27,843,640 $ 6.26 25,117,893 $ 10.81
Granted .............................. 20,847,712 7.71 2,942,000 51.56 867,500 37.30
Exercised ............................ (3,808,114) 1.84 (3,591,209) 3.05 (1,579,324) 5.17
Forfeited ............................ (772,078) 4.92 (2,076,538) 20.78 (1,658,476) 10.86
----------- ----------- ----------- ----------- ----------- -----------
Options outstanding, end of year ..... 27,843,640 $ 6.26 25,117,893 $ 10.81 22,747,593 $ 13.18
=========== =========== =========== =========== =========== ===========
Exercisable at end of year ........... 2,755,432 $ 1.86 2,911,256 $ 5.49 4,701,357 $ 10.77
=========== =========== =========== =========== =========== ===========
Exercise prices for options outstanding as of December 31, 2001 are as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------------------------------------
RANGE OF NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE EXERCISABLE
AS OF REMAINING WEIGHTED- AS OF WEIGHTED-
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 2001 LIFE EXERCISE PRICE 2001 EXERCISE PRICE
- ------------------- ------------ ----------- -------------- ------------- --------------
$ 1.167 - $ 2.750 3,294,790 4.48 $ 2.21 2,174,862 $ 2.14
3.000 - 3.434 148,904 5.69 3.01 35,704 3.05
5.486 - 6.600 12,221,723 7.08 6.01 1,216,399 6.02
10.203 - 19.180 3,060,976 6.81 13.75 570,392 12.33
22.703 - 27.688 608,200 8.41 23.42 91,400 22.71
32.420 - 39.500 1,818,000 7.32 35.50 272,000 34.30
48.750 - 52.750 442,000 8.11 49.31 126,000 48.94
60.125 - 79.000 1,153,000 8.42 65.90 214,600 64.93
- ------------------- ---------- ---- -------- --------- --------
$ 1.1667 - $ 79.000 22,747,593* 6.80 $ 13.18 4,701,357 $ 10.77
=================== ========== ==== ======== ========= ========
* This amount includes 9.7 million shares outstanding pursuant to the
Long Term Incentive Plan.
Accounting for Stock-Based Compensation
EchoStar has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its stock-based compensation plans. Under APB
25, EchoStar generally does not recognize compensation expense on the issuance
of stock under its Stock Incentive Plan because the option terms are typically
fixed and typically the exercise price equals or exceeds the market price of the
underlying stock on the date of grant. In October 1995, the Financial Accounting
Standards Board issued Financial Accounting Standard No. 123, "Accounting and
Disclosure of Stock-Based Compensation," ("FAS No. 123") which established an
alternative method of expense recognition for stock-based compensation awards to
employees based on fair values. EchoStar elected to not adopt FAS No. 123 for
expense recognition purposes.
F-31
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Pro forma information regarding net income and earnings per share is
required by FAS No. 123 and has been determined as if EchoStar had accounted for
its stock-based compensation plans using the fair value method prescribed by
that statement. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period. All
options are initially assumed to vest. Compensation previously recognized is
reversed to the extent applicable to forfeitures of unvested options. EchoStar's
pro forma net loss attributable to common shares and pro forma basic and diluted
loss per common share were as follows (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 2000 2001
------------ ------------ ------------
Net loss attributable to common shares ...... $ (749,836) $ (622,925) $ (224,229)
============ ============ ============
Basic and diluted loss per share ............ $ (1.80) $ (1.32) $ (0.47)
============ ============ ============
The pro forma net loss for 1999 and 2000 is less than the loss reported
in the statement of operations because of the $61 million and $51 million
charge, respectively, for the post-grant appreciation of stock-based
compensation, determined under APB 25 and reported by EchoStar, is greater than
the amount of stock-based compensation that would have been reported by EchoStar
under the provisions of FAS No. 123.
The fair value of each option grant was estimated at the date of the
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 2000 2001
--------- ---------- ----------
Risk-free interest rate .......................... 5.38% 6.19% 4.94%
Volatility factor ................................ 76% 98% 64%
Dividend yield ................................... 0.00% 0.00% 0.00%
Expected term of options ......................... 6 years 6 years 6 years
Weighted-average fair value of options granted ... $ 7.14 $ 30.41 $ 15.75
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based compensation awards.
8. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
During 1997, the Board of Directors and shareholders approved an
employee stock purchase plan (the "ESPP"), effective beginning October 1, 1997.
Under the ESPP, EchoStar is authorized to issue a total of 800,000 shares of
class A common stock. Substantially all full-time employees who have been
employed by EchoStar for at least one calendar quarter are eligible to
participate in the ESPP. Employee stock purchases are made through payroll
deductions. Under the terms of the ESPP, employees may not deduct an amount
which would permit such employee to purchase capital stock of EchoStar under all
stock purchase plans of EchoStar at a rate which would exceed $25,000 in fair
market value of capital stock in any one year. The purchase price of the stock
is 85% of the closing price of the class A common stock on the last business day
of each calendar quarter in which such shares of class A common stock are deemed
sold to an employee under the ESPP. The ESPP shall terminate upon the first to
occur of (i) October 1, 2007 or (ii) the date on which the ESPP is terminated by
the Board of Directors. During
F-32
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1999, 2000 and 2001, employees purchased approximately 44,000, 58,000 and 80,000
shares of class A common stock through the ESPP, respectively.
401(k) Employee Savings Plan
EchoStar sponsors a 401(k) Employee Savings Plan (the "401(k) Plan")
for eligible employees. Voluntary employee contributions to the 401(k) Plan may
be matched 50% by EchoStar, subject to a maximum annual contribution by EchoStar
of $1,000 per employee. EchoStar also may make an annual discretionary
contribution to the plan with approval by EchoStar's Board of Directors, subject
to the maximum deductible limit provided by the Internal Revenue Code of 1986,
as amended. EchoStar's cash contributions to the 401(k) Plan for matching
contributions totaled $314,000 in 1999, $1.6 million in 2000 and $429,000 in
2001. Additionally, during 1999, EchoStar 520,000 shares of its class A common
stock (fair value of approximately $3 million) to the 401(k) Plan related to its
1998 discretionary contribution. During 2000, EchoStar contributed 120,000
shares of its class A common stock (fair value of approximately $6 million) to
the 401(k) Plan related to its 1999 discretionary contribution. During 2001,
EchoStar contributed approximately $2 million in cash to the 401 (k) Plan
related to its 2000 discretionary contribution and accrued approximately $6.7
million related to its 2002 discretionary contribution.
9. OTHER COMMITMENTS AND CONTINGENCIES
Leases
Future minimum lease payments under noncancelable operating leases as
of December 31, 2001, are as follows (in thousands):
YEAR ENDING DECEMBER 31,
2002 ............................................... $11,918
2003 ............................................... 11,486
2004 ............................................... 9,551
2005 ............................................... 5,262
2006 ............................................... 1,623
Thereafter ......................................... 3,444
-------
Total minimum lease payments .................... $43,284
=======
Total rental expense for operating leases approximated $4 million, $9
million and $14 million in 1999, 2000 and 2001, respectively.
Purchase Commitments
As of December 31, 2001, EchoStar's purchase commitments totaled
approximately $79 million. The majority of these commitments relate to EchoStar
receiver systems and related components. All of the purchases related to these
commitments are expected to be made during 2002. EchoStar expects to finance
these purchases from existing unrestricted cash balances and future cash flows
generated from operations.
Patents and Intellectual Property
Many entities, including some of EchoStar's competitors, now have and
may in the future obtain patents and other intellectual property rights that
cover or affect products or services directly or indirectly related to those
that EchoStar offers. EchoStar may not be aware of all patents and other
intellectual property rights that its products may potentially infringe. Damages
in patent infringement cases can include a tripling of actual damages in certain
cases. Further, EchoStar cannot estimate the extent to which it may be required
in the future to obtain licenses with respect to patents held by others and the
availability and cost of any such licenses. Various parties have asserted patent
and other
F-33
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
intellectual property rights with respect to components within EchoStar's direct
broadcast satellite system. EchoStar cannot be certain that these persons do not
own the rights they claim, that its products do not infringe on these rights,
that it would be able to obtain licenses from these persons on commercially
reasonable terms or, if it was unable to obtain such licenses, that it would be
able to redesign its products to avoid infringement.
Fee Dispute
EchoStar had a contingent fee arrangement with attorneys who
represented EchoStar in prior litigation with The News Corporation, Ltd. The
contingent fee arrangement provides for the attorneys to be paid a percentage of
any net recovery obtained by EchoStar in the News Corporation litigation. The
attorneys asserted that they might be entitled to receive payments totaling
hundreds of millions of dollars under this fee arrangement. EchoStar
consistently maintained that the demand significantly overstated the amount to
which the attorneys might reasonably be entitled.
During mid-1999, EchoStar initiated litigation against the attorneys in
the Arapahoe County, Colorado, District Court arguing that the fee arrangement
was void and unenforceable. In December 1999, the attorneys initiated an
arbitration proceeding before the American Arbitration Association. The
litigation was stayed while the arbitration proceeded. The arbitration hearing
concluded on October 11, 2001. During the four week arbitration hearing, the
attorneys presented a damage model for $56 million. EchoStar asserted even that
amount significantly overstated the amount to which the attorneys might
reasonably be entitled. During closing arguments, the attorneys presented a
separate damage calculation for $111 million to the arbitration panel.
On November 7, 2001, the arbitration panel awarded the attorneys
approximately $40 million for its contingency fee under the fee agreement. In
the award, the arbitration panel also dismissed EchoStar's claims against the
attorneys that EchoStar had initiated in the Arapahoe County, Colorado, District
Court. Pursuant to the award, approximately $8 million was to be paid within 30
days of the award with the balance to be paid in equal quarterly principal
installments over four years, commencing February 1, 2002. Interest is to be
paid at the prime rate (calculated as the average amount for each relevant year
as published daily in the Wall Street Journal), compounded annually. As a result
of this award, EchoStar recorded a charge of approximately $30 million during
2001.
On November 30, 2001, Echostar filed a motion to vacate the award on
the following grounds: (1) the award as issued violates public policy and cannot
be enforced; and (2) the Panel exceeded its authority under Colorado Revised
Statutes Section 13-22-214(1)(a)(III). Alternatively, EchoStar requested that
the Arapahoe County District Court modify the award to correct a calculation
error. The attorneys have opposed EchoStar's motion to vacate. The motion
remains pending before the District Court in Arapahoe County, Colorado. There
can be no assurance that EchoStar will succeed in its effort to vacate or modify
the arbitration award.
F-34
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
WIC Premium Television Ltd.
During July 1998, a lawsuit was filed by WIC Premium Television Ltd.,
an Alberta corporation, in the Federal Court of Canada Trial Division, against
General Instrument Corporation, HBO, Warner Communications, Inc., John Doe,
Showtime, United States Satellite Broadcasting Company, Inc., EchoStar, and two
of EchoStar's wholly-owned subsidiaries, Echosphere Corporation and Dish, Ltd.
EchoStar Satellite Corporation, EchoStar DBS Corporation, EchoStar Technologies
Corporation, and EchoStar Satellite Broadcast Corporation were subsequently
added as defendants. The lawsuit seeks, among other things, interim and
permanent injunctions prohibiting the defendants from activating receivers in
Canada and from infringing any copyrights held by WIC.
During September 1998, WIC filed another lawsuit in the Court of
Queen's Bench of Alberta Judicial District of Edmonton against certain
defendants, including EchoStar. WIC is a company authorized to broadcast certain
copyrighted work, such as movies and concerts, to residents of Canada. WIC
alleges that the defendants engaged in, promoted, and/or allowed satellite dish
equipment from the United States to be sold in Canada and to Canadian residents
and that some of the defendants allowed and profited from Canadian residents
purchasing and viewing subscription television programming that is only
authorized for viewing in the United States. The lawsuit seeks, among other
things, interim and permanent injunctions prohibiting the defendants from
importing hardware into Canada and from activating receivers in Canada, together
with damages in excess of $175 million.
The Court in the Alberta action recently denied EchoStar's Motion to
Dismiss, and EchoStar's appeal of such decision. The Court in the Federal action
has stayed that case pending the outcome of the Alberta action. The case is now
currently in discovery. EchoStar intends to vigorously defend the suit. It is
too early to make an assessment of the probable outcome of the litigation or to
determine the extent of any potential liability or damages.
Broadcast network programming
Until July 1998, EchoStar obtained distant broadcast network channels
(ABC, NBC, CBS and FOX) for distribution to its customers through PrimeTime 24.
In December 1998, the United States District Court for the Southern District of
Florida entered a nationwide permanent injunction requiring PrimeTime 24 to shut
off distant network channels to many of its customers, and henceforth to sell
those channels to consumers in accordance with certain stipulations in the
injunction.
In October 1998, EchoStar filed a declaratory judgment action against
ABC, NBC, CBS and FOX in the U.S. District Court for the District of Colorado.
EchoStar asked the court to enter a judgment declaring that its method of
providing distant network programming did not violate the Satellite Home Viewer
Act ("SHVA") and hence did not infringe the networks' copyrights. In November
1998, the networks and their affiliate groups filed a complaint against EchoStar
in Miami Federal Court alleging, among other things, copyright infringement. The
court combined the case that EchoStar filed in Colorado with the case in Miami
and transferred it to the Miami court. The case remains pending in Miami. While
the networks have not sought monetary damages, they have sought to recover
attorney fees if they prevail.
In February 1999, the networks filed a "Motion for Temporary
Restraining Order, Preliminary Injunction and Contempt Finding" against DirecTV,
Inc. in Miami related to the delivery of distant network channels to DirecTV
customers by satellite. DirecTV settled this lawsuit with the networks. Under
the terms of the settlement between DirecTV and the networks, some DirecTV
customers were scheduled to lose access to their satellite-provided distant
network channels by July 31, 1999, while other DirecTV customers were to be
disconnected by December 31, 1999. Subsequently, PrimeTime 24 and substantially
all providers of satellite-delivered network programming other than EchoStar
agreed to this cut-off schedule, although EchoStar does not know if they adhered
to this schedule.
In December 1998, the networks filed a Motion for Preliminary
Injunction against EchoStar in the Miami court, and asked the court to enjoin
EchoStar from providing network programming except under limited
F-35
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
circumstances. A preliminary injunction hearing was held on September 21, 1999.
In March 2000, the networks filed an emergency motion again asking the court to
issue an injunction requiring EchoStar to turn off network programming to
certain of its customers. At that time, the networks also argued that EchoStar's
compliance procedures violate the Satellite Home Viewer Improvement Act
("SHVIA"). EchoStar opposed the networks' motion and again asked the court to
hear live testimony before ruling upon the networks' injunction request.
During September 2000, the Court granted the Networks' motion for
preliminary injunction, denied the Network's emergency motion and denied
EchoStar's request to present live testimony and evidence. The Court's original
order required EchoStar to terminate network programming to certain subscribers
"no later than February 15, 1999," and contained other dates with which it would
be physically impossible to comply. The order imposes restrictions on EchoStar's
past and future sale of distant ABC, NBC, CBS and Fox channels similar to those
imposed on PrimeTime 24 (and, EchoStar believes, on DirecTV and others). Some of
those restrictions go beyond the statutory requirements imposed by the SHVA and
the SHVIA. For these and other reasons EchoStar believes the Court's order is,
among other things, fundamentally flawed, unconstitutional and should be
overturned. However, it is very unusual for a Court of Appeals to overturn a
lower court's order and there can be no assurance whatsoever that it will be
overturned.
On October 3, 2000, and again on October 25, 2000, the Court amended
its original preliminary injunction order in an effort to fix some of the errors
in the original order. The twice amended preliminary injunction order required
EchoStar to shut off, by February 15, 2001, all subscribers who are ineligible
to receive distant network programming under the court's order. EchoStar
appealed the September 2000 preliminary injunction order and the October 3, 2000
amended preliminary injunction order. On November 22, 2000, the United States
Court of Appeals for the Eleventh Circuit stayed the Florida Court's preliminary
injunction order pending EchoStar's appeal. At that time, the Eleventh Circuit
also expedited its consideration of EchoStar's appeal.
Oral argument before the Eleventh Circuit was held on May 24, 2001. On
September 17, 2001, the Eleventh Circuit vacated the District Court's nationwide
preliminary injunction, which the Eleventh Circuit had stayed in November 2000.
The Eleventh Circuit also rejected EchoStar's First Amendment challenge to the
SHVA. However, the Eleventh Circuit found that the District Court had made
factual findings that were clearly erroneous and not supported by the evidence,
and that the District Court had misinterpreted and misapplied the law. The
Eleventh Circuit also found that the District Court came to the wrong legal
conclusion concerning the grandfathering provision found in 17 U.S.C. Section
119(d); the Eleventh Circuit reversed the District Court's legal conclusion and
instead found that this grandfathering provision allows subscribers who switch
satellite carriers to continue to receive the distant network programming that
they had been receiving. The Eleventh Circuit's order indicated that the matter
was to be remanded to the District Court for an evidentiary hearing. On December
28, 2001, the Eleventh Circuit denied EchoStar's request for rehearing. The
Eleventh Circuit issued its mandate on January 29, 2002, remanding the case to
the Florida District Court. Echostar cannot predict when an evidentiary hearing
will be set before the District Court or when a trial will be set before the
District Court if the Networks withdraw their request for a preliminary
injunction as they have indicated they will do when the case was remanded to the
District Court.
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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EchoStar is considering an appeal to the United States Supreme Court.
If EchoStar decides to appeal, there is no guarantee that the United States
Supreme Court will agree to hear any petition filed or that EchoStar's appeal
will be heard before any evidentiary hearing or trial in the District Court.
If, after an evidentiary hearing or trial, the District Court enters an
injunction against EchoStar, the injunction could force EchoStar to terminate
delivery of distant network channels to a substantial portion of its distant
network subscriber base, which could also cause many of these subscribers to
cancel their subscription to its other services. Management has determined that
such terminations would result in a small reduction in EchoStar's reported
average monthly revenue per subscriber and could result in a temporary increase
in churn. If EchoStar loses the case at trial, the judge could, as one of many
possible remedies, prohibit all future sales of distant network programming by
EchoStar, which would have a material adverse affect on EchoStar's business.
Gemstar
During October 2000, Starsight Telecast, Inc., a subsidiary of
Gemstar-TV Guide International, Inc., filed a suit for patent infringement
against EchoStar and certain of its subsidiaries in the United States District
Court for the Western District of North Carolina, Asheville Division. The suit
alleges infringement of United States Patent No. 4,706,121 (the "121 Patent")
which relates to certain electronic program guide functions. EchoStar has
examined this patent and believes that it is not infringed by any of its
products or services. EchoStar will vigorously defend against this suit. On
March 30, 2001, the Court stayed the action pending resolution of the
International Trade Commission matter discussed below.
In December 2000, EchoStar filed suit against Gemstar - TV Guide (and
certain of its subsidiaries) in the United States District Court for the
District of Colorado alleging violations by Gemstar of various federal and state
anti-trust laws and laws governing unfair competition. The lawsuit seeks an
injunction and monetary damages. Gemstar filed counterclaims alleging
infringement of United States Patent Nos. 5,923,362 and 5,684,525 that relate to
certain electronic program guide functions. EchoStar examined these patents and
believes they are not infringed by any of EchoStar's products or services. In
August 2001, the Federal Multi-District Litigation panel combined this suit, for
discovery purposes, with other lawsuits asserting antitrust claims against
Gemstar, which had previously been filed by other plaintiffs. In January 2002,
Gemstar dropped the counterclaims of patent infringement.
In February 2001, Gemstar filed patent infringement actions against us
in District Court in Atlanta, Georgia and in the International Trade Commission
("ITC"). These suits allege infringement of United States Patent Nos. 5,252,066,
5,479,268 and 5,809,204 all of which relate to certain electronic program guide
functions. In addition, the ITC action alleges infringement of the 121 Patent
which is asserted in the North Carolina case. In the Atlanta District Court
case, Gemstar seeks damages and an injunction. The North Carolina and
Atlanta cases have been stayed pending resolution of the ITC action. ITC actions
typically proceed according to an expedited schedule. In December 2001, the ITC
held a 15-day hearing before an administrative judge. Prior to the hearing,
Gemstar dropped its allegations regarding Unites States Patent No. 5,252,066
with respect to which EchoStar had asserted substantial allegations of
inequitable conduct. The hearing addressed, among other things, Gemstar's
allegations of patent infringement and respondents' (EchoStar, SCI, Scientific
Atlanta and Pioneer) allegations of patent misuse. A decision by the judge is
expected by March 21, 2002 and a ruling by the full ITC is expected 60 days
later. While the ITC cannot award damages, an adverse decision in this case
could temporarily halt the import of EchoStar receivers and could require
EchoStar to
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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
materially modify certain user-friendly electronic programming guides and
related features EchoStar currently offers to consumers. EchoStar has examined
the patents in dispute and believes they are not infringed by any of its
products or services. EchoStar will vigorously contest the ITC, North Carolina
and Atlanta allegations of infringement and will, among other things, challenge
both the validity and enforceability of the asserted patents. EchoStar is
providing a defense and indemnification to SCI in the ITC and Atlanta cases
pursuant to the terms of their contract.
During 2000, Superguide Corp. also filed suit against EchoStar, DirecTV
and others in the United States District Court for the Western District of North
Carolina, Asheville Division, alleging infringement of United States Patent Nos.
5,038,211, 5,293,357 and 4,751,578 which relate to certain electronic program
guide functions, including the use of electronic program guides to control VCRs.
Superguide seeks injunctive and declaratory relief and damages in an unspecified
amount. It is EchoStar's understanding that these patents may be licensed by
Superguide to Gemstar. Gemstar has been added as a party to this case and is now
asserting these patents against EchoStar. EchoStar has examined these patents
and believes that they are not infringed by any of its products or services. A
Markman ruling was issued by the Court and in response to that ruling EchoStar
has filed motions for summary judgment of non-infringement for each of the
asserted patents. Gemstar has filed a motion for summary judgment of
infringement with respect to the patents. EchoStar intends to vigorously defend
this case and to press its patent misuse defenses.
In the event it is ultimately determined that EchoStar infringes on any
of the aforementioned patents EchoStar may be subject to substantial damages,
including the potential for treble damages, and/or an injunction that could
require EchoStar to materially modify certain user friendly electronic
programming guide and related features it currently offers to consumers. It is
too early to make an assessment of the probable outcome of the suits.
IPPV Enterprises
IPPV Enterprises, LLC and MAAST, Inc. filed a patent infringement suit
against EchoStar, and its conditional access vendor Nagra, in the United States
District Court for the District of Delaware. The suit alleged infringement of
five patents. One patent claim was subsequently dropped by plaintiffs. Three of
the remaining patents disclose various systems for the implementation of
features such as impulse-pay-per view, parental control and category lock-out.
The fourth remaining patent relates to an encryption technique. The Court
entered summary judgment in our favor on the encryption patent. Plaintiffs had
claimed $80 million in damages with respect to the encryption patent. On July
13, 2001, a jury found that the remaining three patents were infringed and
awarded damages of $15 million. The jury also found that one of the patents was
willfully infringed which means that the judge is entitled to increase the award
of damages. The parties have completed briefing and oral argument of post-trial
motions. EchoStar intends to appeal any adverse decision and plaintiffs have
indicated they may appeal as well. Any final award of damages would be split
between EchoStar and Nagra in percentages to be agreed upon between EchoStar and
Nagra.
California Actions
A purported class action was filed against EchoStar in the California
State Superior Court for Alameda County during May 2001 by Andrew A. Werby. The
complaint, relating to late fees, alleges unlawful, unfair and fraudulent
business practices in violation of California Business and Professions Code
Section 17200 et seq., false and misleading advertising in violation of
California Business and Professions Code Section 17500, and violation of the
California Consumer Legal Remedies Act. On September 24, 2001, EchoStar filed an
answer denying all material allegations of the Complaint. On September 27, 2001,
the Court entered an Order Pursuant to Stipulation for a provisional
certification of the class, for an orderly exchange of information and for
mediation. The provisional Order specifies that the class shall be de-certified
upon notice in the event mediation does not resolve the dispute. It is too early
in the litigation to make an assessment of the probable outcome of the
litigation or to determine the extent of any potential liability or damages.
EchoStar intends to deny all liability and to vigorously defend the lawsuit.
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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A purported class action relating to the use of terms such as "crystal
clear digital video," "CD-quality audio," and "on-screen program guide", and
with respect to the number of channels available in various programming
packages, has also been filed against EchoStar in the California State Superior
Court for Los Angeles County by David Pritikin and by Consumer Advocates, a
nonprofit unincorporated association. The complaint alleges breach of express
warranty and violation of the California Consumer Legal Remedies Act, Civil Code
Sections 1750, et. seq., and the California Business & Professions Code Sections
17500, 17200. EchoStar has filed an answer and the case is currently in
discovery. Plaintiffs filed their Motion for Class Certification on January 21,
2002. EchoStar's response is due on March 7, 2002, and the Court will conduct a
hearing on class certification in early May 2002. It is too early in the
litigation to make an assessment of the probable outcome of the litigation or to
determine the extent of any potential liability or damages. EchoStar denies all
liability and intends to vigorously defend the lawsuit.
Retailer Class Actions
EchoStar has been sued by retailers in three separate purported class
actions. In two separate lawsuits filed in the District Court, Arapahoe County,
State of Colorado and the United States District Court for the District of
Colorado, respectively, Air Communication & Satellite, Inc. and John DeJong, et.
al. filed lawsuits on October 6, 2000 on behalf of themselves and a class of
persons similarly situated. The plaintiffs are attempting to certify nationwide
classes allegedly brought on behalf of persons, primarily retail dealers, who
were alleged signatories to certain retailer agreements with EchoStar Satellite
Corporation. The plaintiffs are requesting the Courts to declare certain
provisions of the alleged agreements invalid and unenforceable, to declare that
certain changes to the agreements are invalid and unenforceable, and to award
damages for lost commissions and payments, charge backs, and other compensation.
EchoStar intends to vigorously defend against the suits and to assert a variety
of counterclaims. It is too early to make an assessment of the probable outcome
of the litigation or to determine the extent of any potential liability or
damages.
Satellite Dealers Supply, Inc. filed a lawsuit in the United States
District Court for the Eastern District of Texas on September 25, 2000, on
behalf of itself and a class of persons similarly situated. The plaintiff is
attempting to certify a nationwide class on behalf of sellers, installers, and
servicers of satellite equipment who contract with EchoStar and claims the
alleged class has been "subject to improper chargebacks." The plaintiff alleges
that EchoStar: (1) charged back certain fees paid by members of the class to
professional installers in violation of contractual terms; (2) manipulated the
accounts of subscribers to deny payments to class members; and (3)
misrepresented to class members who own certain equipment related to the
provision of satellite television service. On September 18, 2001, the Court
granted EchoStar's Motion to Dismiss for lack of personal jurisdiction.
Plaintiff Satellite Dealers Supply has moved for reconsideration of the Court's
order dismissing the case.
F-39
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PrimeTime 24 Joint Venture
PrimeTime 24 Joint Venture filed suit against EchoStar during
September, 1998 alleging breach of contract, wrongful termination of contract,
interference with contractual relations, trademark infringement and unfair
competition. EchoStar's motion for summary judgment was granted with respect to
PrimeTime 24's claim of interference with contractual relations and unfair
competition. Plaintiff's motion for summary judgment was granted with respect to
its approximate $10 million breach of contract claim for fees during the period
from May 1998 through July 19, 1998. It is too early to make an assessment of
the probable outcome of the remainder of the litigation or to determine the
extent of any additional potential liability or damages.
EchoStar is subject to various other legal proceedings and claims which
arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability with respect to those actions will not materially
affect EchoStar's financial position or results of operations.
Meteoroid Events
Meteoroid events pose a potential threat to all in orbit geosynchronous
satellites including EchoStar's DBS satellites. While the probability that
EchoStar's satellites will be damaged by meteoroids is very small, that
probability increases significantly when the Earth passes through the
particulate stream left behind by various comets.
Occasionally, increased solar activity poses a potential threat to all
in-orbit geosynchronous satellites including EchoStar's DBS satellites. The
probability that the effects from this activity will damage our satellites or
cause service interruptions is generally very small.
Some decommissioned spacecraft are in uncontrolled orbits which pass
through the geostationary belt at various points, and present hazards to
operational spacecraft including EchoStar's DBS satellites. The locations of
these hazards are generally well known and may require EchoStar to perform
maneuvers to avoid collisions.
F-40
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. SEGMENT REPORTING
Financial Data by Business Unit (in thousands)
Statement of Financial Accounting Standard No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("FAS No. 131") establishes
standards for reporting information about operating segments in annual financial
statements of public business enterprises and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. Operating segments are components of an
enterprise about which separate financial information is available and regularly
evaluated by the chief operating decision maker(s) of an enterprise. During
2000, under this definition, we were operating as three separate business units.
However, beginning 2001, it was determined that EchoStar's chief operating
decision maker regularly evaluates only the following two separate business
units. In addition, as previously stated, EchoStar has retroactively applied the
equity method of accounting to its StarBand investment. All prior year amounts
have been adjusted to conform to the current year presentation. The All Other
column consists of revenue and expenses from other operating segments for which
the disclosure requirements of FAS No. 131 do not apply.
ECHOSTAR
DISH TECHNOLOGIES CONSOLIDATED
NETWORK CORPORATION ALL OTHER ELIMINATIONS TOTAL
----------- ------------ ----------- ------------ ------------
YEAR ENDED DECEMBER 31, 1999
Revenue ............................. $ 1,390,074 $ 160,276 $ 53,876 $ (1,385) $ 1,602,841
Depreciation and amortization ....... 97,150 4,434 11,648 (4) 113,228
Total expenses ...................... 1,634,251 165,238 155,440 (4,997) 1,949,932
EBITDA .............................. (147,026) (528) (28,857) 3,608 (172,803)
Interest income ..................... 26,506 1 143 (471) 26,179
Interest expense, net of interest
capitalized ...................... (201,356) (253) (475) 471 (201,613)
Income tax benefit (provision), net . -- (46) (108) -- (154)
Net income (loss) ................... (765,925) (31,883) 4,961 -- (792,847)
YEAR ENDED DECEMBER 31, 2000
Revenue ............................. $ 2,417,533 $ 207,945 $ 93,183 $ (3,441) $ 2,715,220
Depreciation and amortization ....... 160,910 5,338 19,108 -- 185,356
Total expenses ...................... 2,755,965 197,073 194,363 (8,115) 3,139,286
EBITDA .............................. (177,522) 16,210 (30,607) 4,674 (187,245)
Interest income ..................... 79,724 -- 340 (331) 79,733
Interest expense, net of interest
capitalized ...................... (267,650) (233) (438) 331 (267,990)
Income tax benefit (provision), net . (48) (32) (475) -- (555)
Net income (loss) ................... (703,229) (155) 53,267 (209) (650,326)
YEAR ENDED DECEMBER 31, 2001
Revenue ............................. $ 3,683,156 $ 189,150 $ 133,426 $ (4,594) $ 4,001,138
Depreciation and amortization ....... 243,810 6,682 28,160 -- 278,652
Total expenses ...................... 3,273,670 188,699 331,061 (4,594) 3,788,836
EBITDA .............................. 653,296 7,134 (149,303) -- 511,127
Interest income ..................... 96,372 -- 1,571 (272) 97,671
Interest expense, net of interest
capitalized ...................... (370,331) (211) (1,095) 272 (371,365)
Income tax benefit (provision), net . (51) -- (1,403) -- (1,454)
Net income (loss) ................... (231,053) (7,478) 23,033 -- (215,498)
F-41
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Geographic Information (in thousands) and Transaction with Major
Customers
UNITED STATES EUROPE TOTAL
------------- ---------- ----------
1999
Total revenue .................. $1,579,992 $ 22,849 $1,602,841
Long-lived assets .............. 2,059,242 3,099 2,062,341
2000
Total revenue .................. $2,667,133 $ 48,087 $2,715,220
Long-lived assets .............. 2,217,741 3,546 2,221,287
2001
Total revenue .................. $3,903,607 $ 97,531 $4,001,138
Long-lived assets .............. 2,595,542 4,879 2,600,421
Revenues are attributed to geographic regions based upon the location
from which the sale originated. United States revenue includes transactions made
to both United States and International customers. Europe revenue includes
transactions made customers in Europe, Africa and the Middle East. During the
years ended December 31, 1999, 2000 and 2001, United States revenue included
export sales to two international customers which totaled $126 million, $187
million and $176 million, respectively. These international sales accounted for
approximately 8%, 7% and 4% of EchoStar's total revenue during each of the three
years ended December 31, 2001, respectively. Revenues from these customers are
included within the EchoStar Technologies Corporation business unit.
11. SUMMARY FINANCIAL INFORMATION OF EQUITY METHOD INVESTEE
EchoStar originally invested $50 million in StarBand Communications
Inc. in April 2000. Effective September 27, 2001, EchoStar invested an
additional $50 million in StarBand, increasing its equity interest from
approximately 19% to approximately 32%. As a result of the increased equity
stake, this investment is now accounted for using the equity method of
accounting. As required by APB Opinion No. 18, the equity method accounting was
retroactively applied back to April 2000, the date of EchoStar's original
investment in StarBand.
Summarized financial information for StarBand has been derived from
StarBand's audited financial statements as of and for the years ended December
31, 2000 and 2001, which were audited by other auditors (whose reports expressed
substantial doubt regarding StarBand's ability to continue as a going concern)
and is as follows (in thousands):
PERIOD FROM
JANUARY 11, 2000
(INCEPTION)
THROUGH DECEMBER 31, AS OF DECEMBER 31,
2000 2001
-------------------- ------------------
BALANCE SHEET DATA:
Current assets .......................................... $104,251 $ 35,738
Noncurrent assets ....................................... 113,327 33,567
Current liabilities ..................................... 82,230 114,869
Noncurrent liabilities .................................. 142,165 109,482
Mandatorily redeemable convertible preferred stock ...... 153,426 238,394
YEAR ENDED DECEMBER 31,
--------------------------
2000 2001
--------- ---------
STATEMENT OF OPERATIONS DATA:
Total revenues ............................ $ 394 $ 36,630
Total operating expenses .................. 140,019 231,486
Net loss .................................. (139,531) (205,553)
F-42
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. VALUATION AND QUALIFYING ACCOUNTS
EchoStar's valuation and qualifying accounts as of December 31, 1999,
2000 and 2001 are as follows (in thousands):
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES DEDUCTIONS END OF YEAR
------------ ---------- ---------- -----------
YEAR ENDED DECEMBER 31, 1999:
Assets:
Allowance for doubtful accounts .............. $ 2,996 $ 23,481 $(13,368) $ 13,109
Loan loss reserve ............................ 2,011 100 (272) 1,839
Reserve for inventory ........................ 5,181 1,785 (3,019) 3,947
Liabilities:
Reserve for warranty costs and other ......... 275 -- (65) 210
YEAR ENDED DECEMBER 31, 2000:
Assets:
Allowance for doubtful accounts .............. $ 13,109 $ 45,985 $(27,853) $ 31,241
Loan loss reserve ............................ 1,839 66 (346) 1,559
Reserve for inventory ........................ 3,947 6,357 (398) 9,906
Liabilities:
Reserve for warranty costs and other ......... 210 -- -- 210
YEAR ENDED DECEMBER 31, 2001:
Assets:
Allowance for doubtful accounts .............. $ 31,241 $ 59,725 $(68,196) $ 22,770
Loan loss reserve ............................ 1,559 67 (35) 1,591
Reserve for inventory ........................ 9,906 12,204 (8,863) 13,247
Liabilities:
Reserve for warranty costs and other ......... 210 773 (316) 667
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
EchoStar's quarterly unaudited results of operations are summarized as
follows (in thousands, except per share amounts):
THREE MONTHS ENDED
--------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
(Unaudited)
Year Ended December 31, 2000:
Total revenue ........................ $ 565,721 $ 646,129 $ 697,972 $ 805,398
Operating loss ....................... (142,017) (86,231) (82,082) (113,736)
Net loss ............................. (185,130) (138,963) (142,049) (184,184)
Basic and diluted loss per share ..... $ (0.40) $ (0.30) $ (0.30) $ (0.39)
Year Ended December 31, 2001:
Total revenue ........................ $ 861,930 $ 966,272 $ 1,022,506 $ 1,150,430
Operating income (loss) .............. (15,183) 63,913 75,472 88,100
Net income (loss) .................... (169,867) (5,855) 3,095 (42,871)
Basic and diluted income (loss)
per share ......................... $ (0.36) $ (0.01) $ 0.01 $ (0.09)
F-43
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. SUBSEQUENT EVENTS
Strategic Alliance with Vivendi Universal and Sale of Series D Convertible
Preferred Stock
On January 22, 2002, a subsidiary of Vivendi Universal acquired
5,760,479 shares of EchoStar series D convertible preferred stock for $1.5
billion, or approximately $260.40 per share. Each share of the series D
preferred stock has the same economic (other than liquidation) and voting rights
as ten shares of EchoStar class A common stock into which it is convertible and
has a liquidation preference equal to approximately $260.40 per share.
Immediately prior to the consummation of the Hughes merger, the series D
preferred stock will convert into shares of EchoStar class A common stock, which
will then be exchanged for shares of class A common stock of the surviving
corporation in the Hughes merger. The series D preferred stock is also
convertible into shares of EchoStar's class A common stock at any time at the
option of the holder and automatically upon the occurrence of certain other
specified events. EchoStar currently expects that the series D preferred stock
and related features, discussed below, will be classified as temporary equity on
its balance sheets.
In connection with the purchase of the series D convertible preferred
stock, Vivendi Universal also received contingent value rights, intended to
provide protection against any downward price movements in the class A common
stock to be issued upon conversion of the series D convertible preferred stock.
The maximum payment under the rights is $225 million if the Hughes merger is
completed and the price of our class A common stock falls below $26.04 per share
on the date specified below , or $525 million if the Hughes merger is not
completed and the price of our class A common stock falls below $26.04 per share
on the date specified below. Any amount owing under these rights would be
settled three years after completion of the Hughes merger, except in certain
limited circumstances. In addition, if the Hughes merger is not consummated,
these rights will be settled 30 months after the acquisition of Hughes' 81%
interest in PanAmSat or the termination of the merger agreement and the PanAmSat
stock purchase agreement. The contingent value rights will be recorded as of the
date of consummation of the investment and will be periodically adjusted to the
current settlement amount of the contingent value rights, based on the current
price of the class A common stock, through a charge to retained earnings. Future
non-cash charges or credits to retained earnings related to adjustments to the
contingent value rights will impact EchoStar's net income (loss) available to
common shareholders.
In addition, the conversion price for the series D convertible
preferred stock was set at $26.04 upon execution of the investment agreement on
December 14, 2001. However, the investment was not consummated until January 22,
2002, when the price of EchoStar's class A common stock was $26.58. Since the
price as of the date of consummation of the investment was above the set
conversion price and since consummation of the investment was contingent on
regulatory approval, the series D preferred stock was issued with a beneficial
conversion feature. This feature requires the difference between the conversion
price and the price as of the date of consummation to be recorded as a discount
on the series D preferred stock. This discount of $0.54 per share will be
charged to retained earnings as of the date of issuance of the series D
preferred stock. Future non-cash charges to retained earnings related to the
amortization of the series D preferred stock discount will have a negative
impact on Echostar's net income (loss) available to common shareholders.
The issuance costs related to the series D preferred stock will be
recorded as a reduction of the carrying value of the series D preferred stock
and corresponding contingent value rights and will be immediately charged to
retained earnings upon issuance of the series D preferred stock, which will have
a negative impact on EchoStar's net income (loss) available to common
shareholders.
In addition, Vivendi Universal and EchoStar announced an eight-year
strategic alliance in which Vivendi Universal will develop and provide
EchoStar's DISH Network customers in the U.S. a variety of programming and
interactive television services.
As part of this alliance, Vivendi Universal plans to offer EchoStar's
DISH Network customers five new non-exclusive channels of basic and niche
programming content. Vivendi Universal will also offer expanded pay-per-view and
video-on-demand movies. These services are expected to begin to launch in the
fall of 2002. Customary fees per subscriber will be paid by EchoStar. Vivendi
Universal and EchoStar will also work together on a new programming initiative
F-44
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
to develop new non-exclusive satellite-delivered broadband channels featuring
interactive games, movies, sports, education, and music to be launched within a
three-year period following consummation of the agreement.
Also as part of the alliance, EchoStar will integrate Vivendi
Universal's advanced, interactive middleware technology, MediaHighway, a
Canal+Technology, as a non-exclusive middleware solution that will provide DISH
Network customers using personal video records unique interactive television
services, such as movies from Vivendi Universal and music from Universal Music
Group.
EchoStar III
During January 2002, a transponder pair on EchoStar III failed,
resulting in a temporary interruption of service. The operation of the satellite
was quickly restored. Including the five transponders pairs that malfunctioned
in prior years, these anomalies have resulted in the failure of a total of
twelve transponders on the satellite to date. While a maximum of 32 transponders
can be operated at any time, the satellite was equipped with a total of 44
transponders to provide redundancy. In addition, EchoStar is only licensed by
the FCC to operate 11 transponders at the 61.5 degree orbital location (together
with an additional six leased transponders).
EchoStar VII
EchoStar VII was launched on February 21, 2002 from Cape Canaveral,
Florida. EchoStar VII will be tested at the 129 degree orbital location and will
then be moved to the 119 degree orbital location for commercial service.
Assuming successful completion of in-orbit testing, EchoStar VII is expected to
commence commercial service at the 119 degree orbital location during the second
quarter of 2002. EchoStar VII is planned to replace the capacity of the EchoStar
IV satellite, which has experienced a series of anomalies materially impacting
its functionality. Operating from the 119 degree orbital location, EchoStar VII,
assuming successful completion of in-orbit testing, will also provide local
channels by satellite to consumers in Alaska and Hawaii. EchoStar VII, together
with EchoStar VIII which is expected to launch this summer, will also improve
spectrum efficiency, enhance the quality of video channels for all DISH Network
customers, provide a broader array of programming choices to consumers in Alaska
and Hawaii, and increase in-orbit backup capacity.
F-45
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1(a)+ Amended and Restated Articles of Incorporation of EchoStar.
3.1(b)* Amended and Restated Bylaws of EchoStar (incorporated by
reference to Exhibit 3(ii) to the Current Report on Form 8-K,
dated January 23, 2002, of EchoStar, Commission File No.
0-26176).
3.2(a)* Articles of Incorporation of EchoStar Broadband Corporation
("EBC") (incorporated by reference to Exhibit 3.1(a) to the
Registration Statement on Form S-4 of EBC, Registration No.
333-52756).
3.2(b)* Bylaws of EBC (incorporated by reference to Exhibit 3.1(b) to
the Registration Statement on Form S-4 of EBC, Registration
No. 333-52756).
3.3(a)* Articles of Incorporation of EchoStar DBS Corporation ("DBS
Corp.") (incorporated by reference to Exhibit 3.4(a) to the
Registration Statement on Form S-4 of DBS Corp., Registration
No. 333-31929).
3.3(b)* Bylaws of DBS Corp. (incorporated by reference to Exhibit
3.4(b) to the Registration Statement on Form S-4 of DBS Corp.,
Registration No. 333-31929).
4.1* 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).
4.2* Security Agreement in favor of First Trust, as trustee under
the Indenture filed as Exhibit 4.1 hereto (incorporated by
reference to Exhibit 4.3 to the Registration Statement on Form
S-1 of Dish Ltd., Registration No. 33-76450).
4.3* 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, Registration No.
33-76450).
4.4* Pledge Agreement in favor of First Trust, as trustee under the
Indenture filed as Exhibit 4.1 hereto (incorporated by
reference to Exhibit 4.5 to the Registration Statement on Form
S-1 of Dish Ltd., Registration No. 33-76450).
4.5* 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, Registration No. 33-76450).
4.6* 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).
4.7* Indenture of Trust, relating to DBS Corp.'s 9 1/4% Senior
Notes due 2006 ("Seven Year Notes"), dated as of January 25,
1999, among DBS Corp., the Guarantors (as defined therein) and
U.S. Bank Trust National Association ("U.S. Bank"), as trustee
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 of DBS Corp., Registration No.
333-71345).
4.8* Indenture of Trust, relating to DBS Corp.'s 9 3/8% Senior
Notes due 2009 ("Ten Year Notes"), dated as of January 25,
1999, among DBS Corp., the Guarantors (as defined therein) and
U.S. Bank, as trustee (incorporated by reference to Exhibit
4.3 to the Registration Statement on Form S-4 of DBS Corp.,
Registration No. 333-71345).
4.9* Registration Rights Agreement, relating to the Seven Year
Notes, dated as of January 25, 1999, by and among DBS Corp.,
the Guarantors and the Initial Purchasers (as defined therein)
(incorporated by reference to Exhibit 4.5 to the Registration
Statement on Form S-4 of DBS Corp., Registration No.
333-71345).
4.10* Registration Rights Agreement, relating to the Ten Year Notes,
dated as of January 25, 1999, by and among DBS Corp., the
Guarantors and the Initial Purchasers (as defined therein)
(incorporated by reference to Exhibit 4.6 to the Registration
Statement on Form S-4 of DBS Corp., Registration No.
333-71345).
4.11* Indenture relating to 4 7/8% Convertible Subordinated Notes
due 2007, dated as of December 8, 1999, between EchoStar
Communications Corporation and U.S. Bank Trust National
Association, as trustee, (incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-3 of EchoStar
Communications Corporation, Registration No. 333-31894).
4.12* Registration Rights Agreement, relating to the 47/8 %
Convertible Subordinated Notes Due 2007, dated as of December
8, 1999, by and among EchoStar Communications Corporation and
the initial purchasers (incorporated by reference to Exhibit
4.2 to the Registration Statement on Form S-3 of EchoStar
Communications Corporation, Registration No. 333-31894).
4.13* Indenture relating to 10 3/8% Senior Notes due 2007, dated as
of September 25, 2000, between EchoStar Broadband Corporation
and U.S. Bank Trust National Association, as trustee
(incorporated by reference to Exhibit 4.1 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2000, Commission File No.0-26176).
4.14* Registration Rights Agreement dated as of September 25, 2000,
by and among EchoStar Broadband Corporation, Donaldson, Lufkin
& Jenrette Securities Corporation, Banc of America Securities
LLC, Credit Suisse First Boston Corporation and ING Barings
LLC (incorporated by reference to Exhibit 4.2 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2000, Commission File No.0-26176).
4.15* Indenture, relating to the 5 3/4% Convertible Subordinated
Notes Due 2008, dated as of May 31, 2001 between EchoStar
Communications Corporation and U.S. Bank Trust National
Association, as Trustee (incorporated by reference to Exhibit
4.1 to the Quarterly Report on Form 10-Q of EchoStar for the
quarter ended June 30, 2001, Commission File No.0-26176).
4.16* Registration Rights Agreement, relating to the 5 3/4%
Convertible Subordinated Notes Due 2008, dated as of May 31,
2001, by and between EchoStar Communications Corporation and
UBS Warburg LLC (incorporated by reference to Exhibit 4.2 to
the Quarterly Report on Form 10-Q of EchoStar for the quarter
ended June 30, 2001, Commission File No.0-26176).
4.17+ Indenture, relating to the 9 1/8% Senior Notes Due 2009, dated
as of December 28, 2001 between EchoStar DBS Corporation and
U.S. Bank Trust National Association, as Trustee.
4.18+ Registration Rights Agreement, relating to the 9 1/8% Senior
Notes Due 2009, dated as of December 28, 2001, by and among
EchoStar DBS Corporation and Deutsche Banc Alex. Brown, Inc.,
Credit Suisse First Boston Corporation, Lehman Brothers Inc.
and UBS Warburg LLC.
4.19+ Certificate of Withdrawal Withdrawing the Series A, Series B
and Series C Preferred Stock Designations of EchoStar.
4.20+ Series D Mandatorily Convertible Participating Preferred Stock
Certificate of Designation of EchoStar.
10.1* 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, Registration No. 33-76450)**
10.2* 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,
Registration No. 33-76450).
10.3* Form of Satellite Launch Insurance Declarations (incorporated
by reference to Exhibit 10.10 to the Registration Statement on
Form S-1 of Dish, Registration No. 33-81234).
10.4* Dish 1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).**
10.5* 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, Registration
No. 33-81234).
10.6* Manufacturing Agreement, dated as of March 22, 1995, between
HTS and SCI Technology, Inc. (incorporated by reference to
Exhibit 10.12 to the Registration Statement on Form S-1 of
Dish, Commission File No. 33-81234).
10.7* Statement of Work, dated January 31, 1995 from ESC to DiviCom,
Inc. (incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 of EchoStar, Registration
No. 33-91276).
10.8* EchoStar 1995 Stock Incentive Plan (incorporated by reference
to Exhibit 10.16 to the Registration Statement on Form S-1 of
EchoStar, Registration No. 33-91276)**
10.9* Satellite Construction Contract, dated as of July 18, 1996,
between EDBS and Lockheed Martin Corporation (incorporated by
reference to Exhibit 10.18 to the Quarterly Report on Form
10-Q of EchoStar for the quarter ended June 30, 1996,
Commission File No. 0-26176).
10.10* Confidential Amendment to Satellite Construction Contract
between DBSC and Martin Marietta, dated as of May 31, 1995
(incorporated by reference to Exhibit 10.14 to the
Registration Statement of Form S-4 of EchoStar, Registration
No. 333-03584).
10.11* Agreement between HTS, ESC and ExpressVu Inc., dated January
8, 1997, as amended (incorporated by reference to Exhibit
10.18 to the Annual Report on Form 10-K of EchoStar for the
year ended December 31, 1996, as amended, Commission File No.
0-26176).
10.12* Amendment No. 9 to Satellite Construction Contract, effective
as of July 18, 1996, between Direct Satellite Broadcasting
Corporation, a Delaware corporation ("DBSC") and Martin
Marrieta Corporation (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of EchoStar for the
quarterly period ended June 30, 1997, Commission File No.
0-26176).
10.13* Amendment No. 10 to Satellite Construction Contract, effective
as of May 31, 1996, between DBSC and Lockheed Martin
Corporation (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of EchoStar for the quarterly
period ended June 30, 1997, Commission File No. 0-26176).
10.14* Purchase Agreement, dated November 30, 1998, by and among
American Sky Broadcasting, LLC ("ASkyB"), The News Corporation
Limited ("News Corporation"), MCI Telecommunications
Corporation and EchoStar (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K filed by EchoStar on
December 1, 1998, Commission File No. 0-26176).
10.15* Voting Agreement, dated November 30, 1998, among EchoStar,
AskyB, News Corporation and MCI Telecommunications Corporation
(incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K of EchoStar, filed as of December 1, 1998,
Commission File No. 0-26176).
10.16* Agreement to Form NagraStar LLC, dated as of June 23, 1998, by
and between Kudelski S.A., EchoStar and ESC (incorporated by
reference to Exhibit 10.28 to the Annual Report on Form 10-K
of EchoStar for the year ended December 31, 1998, Commission
File No. 0-26176).
10.17* First Amendment, dated June 23, 1999, to the Purchase
Agreement dated November 30, 1998, by and among American Sky
Broadcasting, LLC, The News Corporation Limited, MCI
Telecommunications Corporation, and EchoStar Communications
Corporation (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K of EchoStar, filed as of July 2,
1999, Commission File No. 0-26176).
10.18* Registration Rights Agreement, dated June 24, 1999, by and
among EchoStar Communications Corporation, MCI
Telecommunications Corporation, American Sky Broadcasting,
LLC, and News America Incorporated (incorporated by reference
to Exhibit 10.4 to the Current Report on Form 8-K of EchoStar,
filed as of July 2, 1999, Commission File No. 0-26176).
10.19* Satellite Construction Contract dated as of January 27, 2000,
between EchoStar Orbital Corporation and Lockheed Martin
Corporation (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter
ended March 31, 2000, Commission File No.0-26176).
10.20* Satellite Construction Contract dated as of February 4, 2000,
between EchoStar Orbital Corporation and Space Systems/Loral
Inc. (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter
ended March 31, 2000, Commission File No.0-26176).
10.21* Satellite Construction Contract dated as of February 22, 2000,
between EchoStar Orbital Corporation and Space Systems/Loral
Inc. (incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter
ended March 31, 2000, Commission File No.0-26176).
10.22* Agreement dated as of February 22, 2000, between EchoStar
Orbital Corporation and Loral Skynet, a division of Loral
SpaceCom Corporation (incorporated by reference to Exhibit
10.4 to the Quarterly Report on Form 10-Q of EchoStar for the
quarter ended March 31, 2000, Commission File No.0-26176).
10.23* Contract for Launch Services, dated January 31, 2001, between
Lockheed Martin's International Launch Services and EchoStar
Orbital Corporation (incorporated by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q of EchoStar for the
quarter ended March 31, 2001, Commission File No.0-26176).
10.24* Modification Nos. 1-7 to the Satellite Contract (EchoStar VII
- 119 degree West Longitude) dated January 27, 2000, between
Lockheed Martin Corporation and EchoStar Orbital Corporation
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended June 30,
2001, Commission File No.0-26176).
10.25* Amended and Restated Contract dated February 1, 2001, between
EchoStar Orbital Corporation and Space Systems/Loral, Inc.,
EchoStar VIII Satellite Program (110 degree West Longitude)
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended June 30,
2001, Commission File No.0-26176).
10.26* Amendment No. 1 to the Contract dated February 22, 2000,
between EchoStar Orbital Corporation and Space Systems/Loral
Inc., EchoStar IX Satellite Program (121 degree West
Longitude) (incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter
ended June 30, 2001, Commission File No.0-26176).
10.27* Agreement and Plan of Merger, dated October 28, 2001, by and
between EchoStar and Hughes Electronics Corporation
(incorporated by reference to Exhibit 99.1 to the Current
Report on Form 8-K of EchoStar, filed as of October 31, 2001,
Commission File No. 0-26176).
10.28* Implementation Agreement, dated October 28, 2001, by and among
General Motors Corporation, Hughes Electronics Corporation and
EchoStar (incorporated by reference to Exhibit 99.2 to the
Current Report on Form 8-K of EchoStar, filed as of October
31, 2001, Commission File No. 0-26176).
10.29* Stock Purchase Agreement, dated October 28, 2001, among
EchoStar, Hughes Electronics Corporation, Hughes
Communications Galaxy, Inc., Hughes Communications Satellite
Services, Inc. and Hughes Communications Inc. (incorporated by
reference to Exhibit 99.3 to the Current Report on Form 8-K of
EchoStar, filed as of October 31, 2001, Commission File No.
0-26176).
10.30* Separation Agreement, dated October 28, 2001, by and between
General Motors Corporation and Hughes Electronics Corporation
(incorporated by reference to Exhibit 99.4 to the Current
Report on Form 8-K of EchoStar, filed as of October 31, 2001,
Commission File No. 0-26176).
10.31* Investment Agreement, dated December 14, 2001, between
EchoStar and Vivendi Universal, S.A., and exhibits
(incorporated by reference to Exhibit 99.1 to the Current
Report on Form 8-K of EchoStar, filed as of December 20, 2001,
Commission File No. 0-26176).
10.32* Stockholder Voting Agreement, dated December 14, 2001, by and
among Charles W. Ergen, The Samburu Warrior Revocable Trust
and Vivendi Universal, S.A. (incorporated by reference to
Exhibit 99.2 to the Current Report on Form 8-K of EchoStar,
filed as of December 20, 2001, Commission File No. 0-26176).
10.33+ Modification No. 8 to the Satellite Contract (EchoStar VII -
119 degree West Longitude) dated October 12, 2001, between
Lockheed Martin Corporation and EchoStar Orbital Corporation.
10.34+ Modification No. 9 to the Satellite Contract (EchoStar VII -
119 degree West Longitude) dated October 16, 2001, between
Lockheed Martin Corporation and EchoStar Orbital Corporation.
10.35+ Contract amendment No.1 to the EchoStar VIII contract between
EchoStar Orbital Corporation and Space Systems/Loral, Inc.,
dated October 19, 2001.
10.36+ Modification No. 10 to the Satellite Contract (EchoStar VII -
119 degree West Longitude) dated December 12, 2001, between
Lockheed Martin Corporation and EchoStar Orbital Corporation.
21+ Subsidiaries of EchoStar Communications Corporation.
23.1+ Consent of Arthur Andersen LLP, Independent Public Accountants
23.2+ Consent of Ernst & Young LLP, Independent Public Accountants
24.1+ Powers of Attorney authorizing signature of Cantey Ergen,
Raymond L. Friedlob, O. Nolan Daines, Peter A. Dea and
Jean-Marie Messier.
- ----------
* Incorporated by reference.
** Constitutes a management contract or compensatory plan or arrangement.
+ Filed herewith.
EXHIBIT 3.1(a)
ARTICLES OF INCORPORATION OF
ECHOSTAR COMMUNICATIONS CORPORATION
(incorporating all amendments and reflecting two separate two-for-one stock
splits in 1999, and one two-for-one stock split in March 2000)
ARTICLE I
Name
The name of the corporation shall be ECHOSTAR COMMUNICATIONS CORPORATION
(the "Corporation").
ARTICLE II
Period of Duration
The Corporation shall exist in perpetuity, from and after the date of
filing of its original Articles of Incorporation with the Secretary of State of
the State of Nevada unless dissolved according to law.
ARTICLE III
Purposes
The purpose for which this Corporation is organized is to engage in any
lawful acts and activities for which corporations may be organized under the
laws of the State of Nevada and to exercise any powers permitted to corporations
under the laws of the State of Nevada.
ARTICLE IV
Capital
1. Authorized Capital Stock. The total number of shares of capital stock
which the Corporation is authorized to issue shall be 3,220,000,000 shares,
consisting of 3,200,000,000 shares of common stock, par value $0.01 per share
("Common Stock"), and 20,000,000 shares of preferred stock, par value $0.01 per
share ("Preferred Stock").
2. Common Stock. (a) Of the 3,200,000,000 shares of authorized Common
Stock, 1,600,000,000 shares shall be designated Class A Common Stock ("Class A
Common Stock"), 800,000,000 shares shall be designated Class B Common Stock
("Class B Common Stock"), and 800,000,000 shares shall be designated Class C
Common Stock ("Class C Common Stock").
3. Preferred Stock. The Board of Directors of the Corporation is hereby
authorized to provide, by resolution or resolutions adopted by such Board, for
the issuance of Preferred Stock from time to time in one or more classes and/or
series, to establish the number of shares of each such class or series, and to
fix the powers, designations, preferences and relative, participating, optional
or other rights, if any, and the qualifications, limitations or restrictions
thereof, of any of the shares of each such class or series, all to the full
extent permitted by the Nevada General Corporation Law, or any successor law(s)
of the State of Nevada. Without limiting the generality of the foregoing, the
Board of Directors is authorized to provide that shares of a class or series of
Preferred Stock:
(1) are entitled to cumulative, partially cumulative or noncumulative
dividends or other distributions payable in cash, capital stock or
indebtedness of the Corporation or other property, at such times and in
such amounts as are set forth in the Board resolutions establishing such
class or series or as are determined in a manner specified in such
resolutions;
(2) are entitled to a preference with respect to payment of dividends
over one or more other classes and/or series of capital stock of the
Corporation;
(3) are entitled to a preference with respect to any distribution of
assets of the Corporation its liquidation, dissolution or winding up over
one or more other classes and/or series of capital stock of the Corporation
in such amount as is set forth in the Board resolutions establishing such
class or series or as is determined in a manner specified in such
resolutions;
(4) are redeemable or exchangeable at the option of the Corporation
and/or on a mandatory basis for cash, capital stock or indebtedness of the
Corporation or other property, at such times or upon the occurrence of such
events, and at such prices, as are set forth in the Board resolutions
establishing such class or series or as are determined in a manner
specified in such resolutions;
(5) are entitled to the benefits of such sinking fund, if any, as is
required to be established by the Corporation for the redemption and/or
purchase of such shares by the Board resolutions establishing such class or
series;
(6) are convertible at the option of the holders thereof into shares
of any other class or series of capital stock of the Corporation, at such
times or upon the occurrence of such events, and upon such terms, as are
set forth in the Board resolutions establishing such class or series or as
are determined in a manner specified in such resolutions;
(7) are exchangeable at the option of the holders thereof for cash,
capital stock or indebtedness of the Corporation or other property, at such
times or upon the occurrence of such events, and at such prices, as are set
forth in the Board
resolutions establishing such class or series or as are determined in a
manner specified in such resolutions;
(8) are entitled to such voting rights, if any, as are specified in
the Board resolutions establishing such class or series (including, without
limiting the generality of the foregoing, the right to elect one or more
directors voting alone as a single class or series or together with one or
more other classes and/or series of Preferred Stock, if so specified by
such Board resolutions) at all times or upon the occurrence of specified
events; and
(9) are subject to restrictions on the issuance of additional shares
of Preferred Stock of such class or series or of any other class or series,
or on the reissuance of shares of Preferred Stock of such class or series
or of any other class or series, or on increases or decreases in the number
of authorized shares of Preferred Stock of such class or series or of any
other class or series.
Without limiting the generality of the foregoing authorizations, any of the
voting powers, designations, preferences, rights and qualifications, limitations
or restrictions of a class or series of Preferred Stock may be made dependent
upon facts ascertainable outside the Board resolutions establishing such class
or series, all to the full extent permitted by the Nevada General Corporation
Law. Unless otherwise specified in the Board resolutions establishing a class or
series of Preferred Stock, holders of a class or series of Preferred Stock shall
not be entitled to cumulate their votes in any election of directors in which
they are entitled to vote and shall not be entitled to any preemptive rights to
acquire shares of any class or series of capital stock of the Corporation.
ARTICLE V
Voting and Conversion Rights
1. Voting Rights.
(a) Except as otherwise required by law or, in any Preferred Stock
Statement and Certificate of Designations, Preferences and Rights ("Certificate
of Designations"), with respect to all matters upon which stockholders are
entitled to vote or to which stockholders are entitled to give consent, the
holders of any outstanding shares of Class A Common Stock, Class B Common Stock,
Class C Common Stock and Preferred Stock shall vote together without regard to
class, and every holder of any outstanding shares of the Class A Common Stock
and Class C Common Stock held by such holder; every holder of any outstanding
shares of Class B Common Stock shall be entitled to cast ten votes in person or
by proxy for each share of Class B Common Stock held by such holder; and every
holder of any outstanding shares of Preferred Stock shall be entitled to cast,
in person or by proxy for each share of Preferred Stock held by such holder, the
number of votes specified in the applicable Certificate of Designations;
provided however, in the event of a "Change in Control" of the Corporation, the
holders
of any outstanding shares of Class C Common Stock shall be entitled to cast ten
votes in person or by proxy for each share of Class C Common Stock held by such
holder. As used herein, a "Change of Control" of the Corporation means: (i) any
transaction or series of transactions, the result of which is that the
Principals and their Related Parties (as such terms are hereinafter defined), or
an entity controlled by the Principals and their Related Parties, cease to be
the "beneficial owners" (as defined in Rule 13(d) (3) under the Securities
Exchange Act of 1934) of at least 30% of the total equity interests of the
Corporation and to have the voting power to elect at least a majority of the
Board of Directors of the Corporation; or (ii) the first day on which a majority
of the members of the Board of Directors of the Corporation are not continuing
directors. "Principals" means Charles W. Ergen, James DeFranco, and David K.
Moskowitz. "Related Parties" means, with respect to any Principal: (y) the
spouse and each immediate family member of such Principal; and (z) each trust,
corporation, partnership or other entity of which such Principal beneficially
holds an 80% or more controlling interest.
(b) A quorum for the purpose of shareholder meeting shall consist of a
majority of the voting power of EchoStar. If a quorum is present, the effective
vote of a majority of the voting power represented at the meeting and entitled
to vote on the subject matter shall be the act of the shareholders, unless the
vote of a greater proportion or number is required by any provisions contained
in the NGCL. Notwithstanding any provisions contained in the NGCL requiring the
vote of shares possessing two-thirds of the voting power of EchoStar to take
action, absent a provision herein to the contrary, in the case of such
provisions the affirmative vote of a majority of the voting power shall be the
act of the shareholders.
(c) Holders of Common Stock shall not be entitled to cumulate their
votes in the election of directors and shall not be entitled to any preemptive
rights to acquire shares of any class or series of capital stock of the
Corporation. Subject to any preferential rights of holders of Preferred Stock,
holders of Common Stock shall be entitled to receive their pro rata shares,
based upon the number of shares of Common Stock held by them, of such dividends
or other distributions as may be declared by the Board of Directors from time to
time and of any distribution of the assets of the Corporation upon its
liquidation, dissolution or winding up, whether voluntary or involuntary.
2. Conversion Rights.
(a) Each share of Class B Common Stock and Class C Common Stock Shall
be convertible at the option of the holder thereof into Class A Common Stock of
the Corporation in accordance with this Article V. In order to exercise the
conversion privilege, a holder of Class B Common Stock or Class C Common Stock
shall surrender the certificate evidencing such Class B Common Stock or Class C
Common Stock to the Corporation at its principal office, duly endorsed to the
Corporation and accompanied by written notice to the Corporation that the holder
thereof elects to convert a specified portion or all of such shares. Class B
Common Stock or Class C Common Stock
converted at the option of the holder shall be deemed to have been converted on
the day of surrender of the certificate representing such shares for conversion
in accordance with the foregoing provisions, and at such time the rights of the
holder of such Class B Common Stock or Class C Common Stock, as such holder,
shall cease and such holder shall be treated for all purposes as the record
holder of Class A Common Stock issuable upon conversion. As promptly as
practicable on or after the conversion date, the Corporation shall issue and
mail or deliver to such holder a certificate or certificates for the number of
Class A Common Stock issuable upon conversion, computed to the nearest one
hundredth of a full share, and a certificate or certificates for the balance of
Class B Common Stock or Class C Common Stock surrendered, if any, not so
converted into Class A Common Stock.
(b) The Class B Common Stock and Class C Common Stock shall be
convertible into one share of Class A Common Stock for each share of Class B
Common Stock or Class C Common Stock so converted (the "Conversion Rate"). In
the event the Corporation shall at any time subdivide or split its outstanding
Class A Common Stock, into a greater number of shares or declare any dividend
payable in Class A Common Stock, the Conversion Rate in effect immediately prior
to such subdivision, split or dividend shall be proportionately increased, and
conversely, in case the outstanding Class A Common Stock of the Corporation
shall be combined into a smaller number of shares, the Conversion Rate in effect
immediately prior to such combination shall be proportionately decreased.
(c) Upon any adjustment of the Conversion Rate then and in each such
case the Corporation shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the registered holders of Class B Common Stock and
Class C Common Stock at the addresses of such holders as shown on the books of
the Corporation, which notice shall state the Conversion Rate resulting from
such adjustment and the increase or decrease, if any, in the number of shares
receivable at such price upon the conversion of Class B Common Stock or Class C
Common Stock, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
(d) The holders of Class B Common Stock and Class C Common Stock shall
have the following rights to certain properties received by the holders of Class
A Common Stock:
(i) In case the Corporation shall declare a dividend or
distribution upon Class A Common Stock payable other than in cash out of
earnings or surplus or other than in Class A Common Stock, then thereafter
each holder of Class B Common Stock or Class C Common Stock upon the
conversion thereof will be entitled to receive the number of shares of
Class A Common Stock into which such Class B Common Stock or Class C Common
Stock shall be converted, and, in addition and without payment therefor,
the property which such holder would have received as a dividend if
continuously since the record date for any such dividend or distribution
such holder: (A) had been the record holder of the number of Class A
Common Stock then received; and (B) had retained all dividends or
distributions originating directly or indirectly from such Class A Common
Stock.
(ii) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the
Corporation with another corporation, or the sale of all or substantially
all of its assets to another corporation shall be effected in such a way
that holders of Class A Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for a Class A Common,
then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holders of Class B Common Stock and Class C Common Stock shall
thereafter have the right to receive, in lieu of Class A Common Stock of
the Corporation immediately theretofore receivable upon the conversion of
such Class B Common Stock and Class C Common Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding Class A Common Stock equal to the
number of Class A Common Stock immediately theretofore receivable upon the
conversion or such Class B Common Stock and Class C Common Stock had such
reorganization, reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the holders of the Class B Common
Stock and Class C Common Stock to the end that the provisions hereof
(including without limitation provisions for adjustments of the Conversion
Rate and of the number of shares receivable upon the conversion of such
Class B Common Stock and Class C Common Stock) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter receivable upon the conversion of such
Class B Common Stock and Class C Common Stock. The Corporation shall not
effect any such reorganization, reclassification, consolidation, merger or
sale, unless prior to the consummation thereof the surviving corporation
(if other than the Corporation), the corporation resulting from such
consolidation or the corporation purchasing such assets shall assume by
written instrument executed and mailed to the registered holders of the
Class B Common Stock and Class C Common Stock at the last address of such
holders appearing on the books of the Corporation, the obligation to
deliver to such holders such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holders may be entitled to
receive.
(e) In case at any time:
(iii) the Corporation shall pay any dividend payable in stock
upon Class A Common Stock or make any distribution (other than regular cash
dividends to the holders of Class A Common Stock); or
(iv) the Corporation shall offer for subscription pro rata to the
holders of Class A Common Stock any additional shares of stock of any class
or other rights; or
(v) there shall be any capital reorganization, reclassification
of the capital stock of the Corporation, or consolidation or merger of the
Corporation with, or sale of all or substantially all of its assets, to
another corporation (provided however, that this provision shall not be
applicable to the merger or consolidation of the Corporation with or into
another corporation if, following such merger or consolidation, the
shareholders of the Corporation immediately prior to such merger or
consolidation own at least 80% of the equity of the combined entity); or
(vi) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of the aforesaid cases, the Corporation shall give
written notice, by first-class mail, postage prepaid, addressed to the holders
of Class B Common Stock and Class C Common Stock at the addresses of such
holders as shown on the books of the Corporation, of the date on which: (A) the
books of the Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights; or (B) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Class A Common Stock of record shall
participate in such dividend, distribution, or subscription rights, or shall be
entitled to exchange their Class A Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least 20 days prior to the action in question and not
less than 20 days prior to the record date or the date on which the
Corporation's transfer books are closed in respect thereto.
ARTICLE VI
Board of Directors
The name and addresses of the first board of directors, which shall be
three (3) in number, are as follows:
NAME ADDRESS
---- -------
Charles W. Ergen 5701 S. Santa Fe Drive
Littleton, CO 80102
James DeFranco 5701 S. Santa Fe Drive
Littleton, CO 80120
R. Scott Zimmer 5701 S. Santa Fe Drive
Littleton, CO 80120
The number of directors shall be increased or decreased as prescribed by
the Bylaws of the Corporation.
ARTICLE VII
Right of Directors to Contract with Corporation
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and the same are in
furtherance of and not in limitation of the powers conferred by law.
1. No contract or other transaction between this Corporation and one or
more of its directors or any other corporation, firm, association, or entity in
which one or more of its directors are directors or officers or are financially
interested shall be either void or voidable solely because of such relationship
or interest or solely because such directors are present at the meeting of the
Board of Directors or a committee thereof which authorizes, approves or ratifies
such contract or transaction or solely because their votes are counted for such
purpose if:
(a) The material facts as to such relationship or interest and as
to the contract or transaction are disclosed or are otherwise known to
the Board of Directors or committee and the Board or committee
authorizes, approves, or ratifies such contract or transaction by the
affirmative vote of a majority of the disinterested directors, even
though such directors are less than a quorum; or
(b) The material facts of such relationship or interest and as to
the contract or transaction are disclosed or are otherwise known to
the shareholders entitled to vote thereon and they authorize, approve
or ratify such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the
Corporation.
2. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
ARTICLE VIII
Corporate Opportunity
The officers, directors and other members of management of this Corporation
shall be subject to the doctrine of "corporate opportunities" only insofar as it
applies to business opportunities in which this Corporation has expressed an
interest as determined from time to time by this Corporation's Board of
Directors as evidenced by resolutions appearing in
the Corporation's minutes. Once such areas of interest are delineated, all such
business opportunities within such areas of interest which come to the attention
of the officers, directors and other members of management of this Corporation
shall be offered first to the Corporation. In the event the Corporation declines
to pursue any or all such business opportunities, the officers, directors and
other members of management of this Corporation shall be free to engage in such
areas of interest on their own and this doctrine shall not limit the right of
any officer, director or other member of management of this Corporation to
continue a business existing prior to the time that such area of interest is
designated by the Corporation. This provision shall not be construed to release
any employee of this Corporation (other than an officer, director or member of
management) from any duties which he may have to this Corporation.
ARTICLE IX
Indemnification of Officers, Directors and Others
1. To the full extent permitted by the NGCL, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit in proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee, fiduciary or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgements, fines an amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he conducted himself in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, The termination of any
action, suit or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
2. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, fiduciary or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests
of the Corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
3. To the extent that a director, officer, employee, fiduciary or agent of
a corporation has been wholly successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in paragraphs 1 and 2 of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys fees) actually and reasonably
incurred by him in connection therewith.
4. Any indemnification under paragraphs 1 and 2 of this Article IX (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee, fiduciary or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in paragraphs 1 and 2. Such
determination shall be made: (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding; or (2) if such quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion; or (3) by the shareholders.
5. Expenses (including attorneys fees) incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized in the
manner provided in paragraph 4 of this Article IX upon receipt of an undertaking
by or on behalf of the director, officer, employee, fiduciary or agent to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation.
6. The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, fiduciary
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article IX.
7. In addition to the forgoing, the Corporation shall have the power to
indemnify current or former directors, officer, employees and agents to the
fullest extent provided by law.
ARTICLE X
Director Liability
To the fullest extent permitted by the Nevada General Corporation Law, as the
same exists or may hereafter be amended, a director of this Corporation shall
not be liable to the Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director.
ARTICLE XI
Incorporator
The name and address of the sole incorporator of the Corporation is as follows:
Gregory S. Brown, and his address is 303 East 17th Avenue, Suite 1100, Denver,
Colorado 80203.
ARTICLE XII
Registered Office and Registered Agent
The address of the registered office of the Corporation is One East First
Street, Reno, Nevada 89501. The name of the Corporation's resident agent at that
address is The Corporation Trust Company of Nevada. Either the registered office
or the registered agent may be changed in the manner permitted by law.
EXHIBIT 4.17
ECHOSTAR DBS CORPORATION
9-1/8% SENIOR NOTES DUE 2009
INDENTURE
Dated as of December 28, 2001
U.S. Bank National Association
Trustee
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1)................................................................................ 7.10
(a)(2)................................................................................ 7.10
(a)(3)................................................................................ N.A.
(a)(4)................................................................................ N.A.
(b)................................................................................... 7.10
(c)................................................................................... N.A.
311(a)................................................................................... 7.11
(b)................................................................................... 7.11
(c)................................................................................... N.A.
312(a)................................................................................... 2.05
(b)................................................................................... 11.03
(c)................................................................................... 11.03
313(a)................................................................................... 7.06
(b)(1)................................................................................ 7.06
(b)(2)................................................................................ 7.07
(c)................................................................................... 7.06; 11.02
(d)................................................................................... 7.06
314(a)................................................................................... 4.03(a); 11.05
(4)................................................................................... 4.04
(b)................................................................................... N.A.
(c)(1)................................................................................ 11.04
(c)(2)................................................................................ 11.04
(c)(3)................................................................................ N.A.
(d)................................................................................... N.A.
(e)................................................................................... 11.05
(f)................................................................................... N.A.
315(a)................................................................................... 7.01(b)
(b)................................................................................... 7.05; 11.02
(c)................................................................................... 7.01(a)
(d)................................................................................... 7.01
(e)................................................................................... 6.11
316(a) (last sentence)................................................................... 2.09
(a)(1)(A)............................................................................. 6.05
(a)(1)(B)............................................................................. 6.04
(a)(2)................................................................................ N.A.
(b)................................................................................... 6.07
(c)................................................................................... 2.12
317(a)(1)................................................................................ 6.08
(a)(2)................................................................................ 6.09
(b)................................................................................... 2.04
318(a)................................................................................... 11.01
(c)................................................................................... 11.01
- ----------
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purposes, be deemed to be
part of this Indenture.
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions...............................................................................1
SECTION 1.02. Other Definitions........................................................................16
SECTION 1.03. Incorporation by Reference of Trust Indenture Act........................................16
SECTION 1.04. Rules of Construction....................................................................17
ARTICLE 2
THE NOTES
SECTION 2.01. Form and Dating..........................................................................17
SECTION 2.02. Form of Execution and Authentication.....................................................19
SECTION 2.03. Registrar and Paying Agent...............................................................19
SECTION 2.04. Paying Agent To Hold Money in Trust......................................................20
SECTION 2.05. Lists of Holders of the Notes............................................................20
SECTION 2.06. Transfer and Exchange....................................................................20
SECTION 2.07. Replacement Notes........................................................................29
SECTION 2.08. Outstanding Notes........................................................................29
SECTION 2.09. Treasury Notes...........................................................................30
SECTION 2.10. Temporary Notes..........................................................................30
SECTION 2.11. Cancellation.............................................................................30
SECTION 2.12. Defaulted Interest.......................................................................30
SECTION 2.13. Record Date..............................................................................30
SECTION 2.14. CUSIP Number.............................................................................31
ARTICLE 3
REDEMPTION
SECTION 3.01. Notices to Trustee.......................................................................31
SECTION 3.02. Selection of Notes To Be Redeemed........................................................31
SECTION 3.03. Notice of Redemption.....................................................................31
SECTION 3.04. Effect of Notice of Redemption...........................................................32
SECTION 3.05. Deposit of Redemption Price..............................................................32
SECTION 3.06. Notes Redeemed in Part...................................................................33
SECTION 3.07. Optional Redemption......................................................................33
SECTION 3.08. Offer To Purchase by Application of Excess Proceeds......................................33
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Notes.........................................................................35
-i-
SECTION 4.02. Maintenance of Office or Agency..........................................................35
SECTION 4.03. Reports..................................................................................36
SECTION 4.04. Compliance Certificate...................................................................36
SECTION 4.05. Taxes....................................................................................36
SECTION 4.06. Stay, Extension and Usury Laws...........................................................37
SECTION 4.07. Limitation on Restricted Payments........................................................37
SECTION 4.08. Limitations on Dividend and Other Payment Restrictions Affecting
Subsidiaries.........................................................................41
SECTION 4.09. Limitation on Incurrence of Indebtedness.................................................41
SECTION 4.10. Asset Sales..............................................................................43
SECTION 4.11. Limitation on Transactions with Affiliates...............................................46
SECTION 4.12. Limitation on Liens......................................................................47
SECTION 4.13. Additional Subsidiary Guarantees.........................................................47
SECTION 4.14. Corporate Existence......................................................................48
SECTION 4.15. Offer To Purchase Upon Change of Control.................................................48
SECTION 4.16. Limitation on Activities of the Company..................................................49
SECTION 4.17. Intentionally Omitted....................................................................50
SECTION 4.18. Accounts Receivable Subsidiary...........................................................50
SECTION 4.19. Dispositions of ETC and Non-Core Assets..................................................52
SECTION 4.20. Payments For Consent.....................................................................55
ARTICLE 5
SUCCESSORS
SECTION 5.01. Merger, Consolidation, or Sale of Assets of the Company..................................55
SECTION 5.02. Successor Corporation Substituted........................................................56
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default........................................................................56
SECTION 6.02. Acceleration.............................................................................57
SECTION 6.03. Other Remedies...........................................................................58
SECTION 6.04. Waiver of Past Defaults..................................................................58
SECTION 6.05. Control by Majority......................................................................58
SECTION 6.06. Limitation on Suits......................................................................58
SECTION 6.07. Rights of Holders of Notes To Receive Payment............................................59
SECTION 6.08. Collection Suit by Trustee...............................................................59
SECTION 6.09. Trustee May File Proofs of Claim.........................................................59
SECTION 6.10. Priorities...............................................................................60
SECTION 6.11. Undertaking for Costs....................................................................60
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee........................................................................60
SECTION 7.02. Rights of Trustee........................................................................61
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SECTION 7.03. Individual Rights of Trustee.............................................................62
SECTION 7.04. Trustee's Disclaimer.....................................................................62
SECTION 7.05. Notice of Defaults.......................................................................62
SECTION 7.06. Reports by Trustee to Holders of the Notes...............................................62
SECTION 7.07. Compensation and Indemnity...............................................................63
SECTION 7.08. Replacement of Trustee...................................................................63
SECTION 7.09. Successor Trustee by Merger, Etc.........................................................64
SECTION 7.10. Eligibility; Disqualification............................................................64
SECTION 7.11. Preferential Collection of Claims Against Company........................................64
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. Option To Effect Legal Defeasance or Covenant Defeasance.................................65
SECTION 8.02. Legal Defeasance and Discharge...........................................................65
SECTION 8.03. Covenant Defeasance......................................................................65
SECTION 8.04. Conditions to Legal or Covenant Defeasance...............................................65
SECTION 8.05. Deposited Money and Government Securities To Be Held in Trust; Other
Miscellaneous Provisions.............................................................67
SECTION 8.06. Repayment to Company.....................................................................67
SECTION 8.07. Reinstatement............................................................................67
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. Without Consent of Holders of Notes......................................................68
SECTION 9.02. With Consent of Holders of Notes.........................................................68
SECTION 9.03. Compliance with Trust Indenture Act......................................................69
SECTION 9.04. Revocation and Effect of Consents........................................................69
SECTION 9.05. Notation on or Exchange of Notes.........................................................70
SECTION 9.06. Trustee To Sign Amendments, Etc..........................................................70
ARTICLE 10
GUARANTEES
SECTION 10.01. Guarantee................................................................................70
SECTION 10.02. Execution and Delivery of Guarantees.....................................................71
SECTION 10.03. Merger, Consolidation or Sale of Assets of Guarantors....................................72
SECTION 10.04. Successor Corporation Substituted........................................................72
SECTION 10.05. Releases from Guarantees.................................................................73
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.............................................................73
-iii-
SECTION 11.02. Notices..................................................................................73
SECTION 11.03. Communication by Holders of Notes with Other Holders of Notes............................74
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.......................................74
SECTION 11.05. Statements Required in Certificate or Opinion............................................75
SECTION 11.06. Rules by Trustee and Agents..............................................................75
SECTION 11.07. No Personal Liability of Directors, Officers, Employees, Incorporators and
Stockholders.........................................................................75
SECTION 11.08. Governing Law............................................................................75
SECTION 11.09. No Adverse Interpretation of Other Agreements............................................76
SECTION 11.10. Successors...............................................................................76
SECTION 11.11. Severability.............................................................................76
SECTION 11.12. Counterpart Originals....................................................................76
SECTION 11.13. Table of Contents, Headings, Etc.........................................................76
EXHIBITS
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF GUARANTEE
EXHIBIT C FORM OF CERTIFICATE OF TRANSFER
EXHIBIT D FORM OF CERTIFICATE OF EXCHANGE
-iv-
INDENTURE dated as of December 28, 2001 by and between EchoStar DBS
Corporation (the "Company"), a Colorado corporation, the Guarantors (as
hereinafter defined) and U.S. Bank National Association, as trustee (the
"Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the Company's 9-1/8% Senior Notes due 2009.
RECITALS
The Company and the Guarantors have duly authorized the execution and
delivery of this Indenture to provide for the issuance of the Notes and the
Guarantees.
All things necessary (i) to make the Notes, when executed by the
Company and authenticated and delivered hereunder and duly issued by the Company
and delivered hereunder, the valid obligations of the Company, (ii) to make the
Guarantees when executed by the Guarantors and delivered hereunder the valid
obligations of the Guarantors, and (iii) to make this Indenture a valid
agreement of the Company and the Guarantors, all in accordance with their
respective terms, have been done.
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually agreed as follows for the equal and
ratable benefit of the Holders of the Notes.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"144A Global Note" means a global note substantially in the form of
Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend
and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.
"Accounts Receivable Subsidiary" means one Unrestricted Subsidiary of
the Company specifically designated as an Accounts Receivable Subsidiary for the
purpose of financing the Company's accounts receivable and provided that any
such designation shall not be deemed to prohibit the Company from financing
accounts receivable through any other entity, including, without limitation, any
other Unrestricted Subsidiary.
"Accounts Receivable Subsidiary Notes" means the notes to be issued by
the Accounts Receivable Subsidiary for the purchase of accounts receivable.
"Acquired Debt" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, or Indebtedness
incurred by such Person in connection with the acquisition of assets, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person or
the acquisition of such assets, as the case may be.
"Acquired Subscriber" means a subscriber to a telecommunications
service provided by a telecommunications service provider that is not an
Affiliate of the Company at the time the Company or one of its Restricted
Subsidiaries purchases the right to provide telecommunications services to such
subscriber from such telecommunications service provider, whether directly or
through the acquisition of the entity providing telecommunications services or
assets used or to be used to provide telecommunications service to such
subscriber.
"Acquired Subscriber Debt" means (i) Indebtedness, the proceeds of
which are used to pay the purchase price for Acquired Subscribers or to acquire
the entity which has the right to provide telecommunications services to such
Acquired Subscribers or to acquire from such entity or an Affiliate of such
entity assets used or to be used in connection with such telecommunications
business; provided that such Indebtedness is incurred within three years after
the date of the acquisition of such Acquired Subscriber and (ii) Acquired Debt
of any such entity being acquired; provided that in no event shall the amount of
such Indebtedness and Acquired Debt for any Acquired Subscriber exceed the sum
of the actual purchase price (inclusive of such Acquired Debt) for such Acquired
Subscriber, such entity and such assets plus the cost of converting such
Acquired Subscriber to usage of a delivery format for telecommunications
services made available by the Company or any of its Restricted Subsidiaries.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control; provided further that no individual, other than a
director of EchoStar or the Company or an officer of EchoStar or the Company
with a policy making function, shall be deemed an Affiliate of the Company or
any of its Subsidiaries solely by reason of such individual's employment,
position or responsibilities by or with respect to EchoStar, the Company or any
of their respective Subsidiaries.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Note, the rules and procedures of
the Depositary, Euroclear and Clearstream that apply to such transfer or
exchange.
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at the time any determination thereof is to be
made shall be the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents, however designated, of corporate stock or
partnership or membership interests, whether common or preferred.
"Cash Equivalents" means: (a) United States dollars; (b) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition; (c) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding
-2-
one year and overnight bank deposits, in each case with any domestic commercial
bank having capital and surplus in excess of $500 million; (d) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (b) and (c) entered into with any financial
institution meeting the qualifications specified in clause (c) above; (e)
commercial paper rated P-1 or better, A-1 or better or the equivalent thereof by
Moody's or S&P, respectively, and in each case maturing within six months after
the date of acquisition; and (f) money market funds offered by any domestic
commercial or investment bank having capital and surplus in excess of $500
million at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (a) through (e) of this definition.
"Change of Control" means: (a) any transaction or series of
transactions (including, without limitation, a tender offer, merger or
consolidation) the result of which is that the Principal and his Related Parties
or an entity controlled by the Principal and his Related Parties (and not
controlled by any Person other than the Principal or his Related Parties) sell,
transfer or otherwise dispose of more than 50% of the total Equity Interests in
EchoStar beneficially owned (as defined in Rule 13(d)(3) under the Exchange Act
but without including any Equity Interests which may be deemed to be owned
solely by reason of the existence of any voting arrangements), by such persons
on the date of this Indenture (as adjusted for stock splits and dividends and
other distributions payable in Equity Interests); (b) the first day on which a
majority of the members of the Board of Directors of EchoStar are not Continuing
Directors; or (c) any time that EchoStar shall cease to beneficially own 100% of
the Equity Interests of the Company. Neither the Hughes Merger nor the PanAmSat
Acquisition will constitute a Change of Control.
"Clearstream" means Clearstream Banking, societe anonyme.
"Communications Act" means the Communications Act of 1934, as amended.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period, plus, to the
extent deducted in computing Consolidated Net Income: (a) provision for taxes
based on income or profits; (b) Consolidated Interest Expense; (c) depreciation
and amortization (including amortization of goodwill and other intangibles) of
such Person for such period; and (d) any extraordinary loss and any net loss
realized in connection with any Asset Sale, in each case, on a consolidated
basis determined in accordance with GAAP; provided that Consolidated Cash Flow
shall not include interest income derived from the net proceeds of the Offering.
"Consolidated Interest Expense" means, with respect to any Person for
any period, consolidated interest expense of such Person for such period,
whether paid or accrued, including amortization of original issue discount and
deferred financing costs, non-cash interest payments and the interest component
of Capital Lease Obligations, on a consolidated basis determined in accordance
with GAAP; provided, however, that with respect to the calculation of the
consolidated interest expense of the Company, the interest expense of
Unrestricted Subsidiaries shall be excluded.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries or,
if such Person is the Company, of the Company and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that: (a) the Net Income of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person, in the case of a gain, or to the extent of any
contributions or other payments by the referent Person, in the case of a loss;
(b) the Net Income of any Person that is a Subsidiary that is not a Wholly Owned
Subsidiary shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person; (c) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded; (d) the Net Income of any
Subsidiary of such Person shall be excluded
-3-
to the extent that the declaration or payment of dividends or similar
distributions is not at the time permitted by operation of the terms of its
charter or bylaws or any other agreement, instrument, judgment, decree, order,
statute, rule or government regulation to which it is subject; and (e) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person, the sum of:
(a) the stockholders' equity of such Person; plus (b) the amount reported on
such Person's most recent balance sheet with respect to any series of preferred
stock (other than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment, but only to
the extent of any cash received by such Person upon issuance of such preferred
stock, less: (i) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the date of this Indenture in the book value of any asset owned by
such Person or a consolidated Subsidiary of such Person; and (ii) all
unamortized debt discount and expense and unamortized deferred charges, all of
the foregoing determined on a consolidated basis in accordance with GAAP.
"Continuing Director" means, as of any date of determination, any
member of the Board of Directors of EchoStar who: (a) was a member of such Board
of Directors on the date of this Indenture; or (b) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election or was nominated for election or elected by the Principal
and his Related Parties.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 or such other address as to which the Trustee
may give notice to the Company.
"DBS" means direct broadcast satellite.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Deferred Payments" means Indebtedness owed to satellite construction
or launch contractors incurred after the date of this Indenture in connection
with the construction or launch of one or more satellites of the Company or its
Restricted Subsidiaries used by the Company and/or them in the businesses
described in Section 4.16 in an aggregate principal amount not to exceed $200
million at any one time outstanding.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 of this Indenture,
substantially in the form of Exhibit A hereto except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.
"Depositary" means the Depository Trust Company and any and all
successors thereto appointed as depositary hereunder and having become such
pursuant to an applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to date on
which the Notes mature; provided, however, that any such Capital Stock may
require the issuer of such Capital Stock to make an offer to purchase such
Capital Stock upon the occurrence of certain events if the terms of such Capital
Stock provide that such an offer may not be satisfied
-4-
and the purchase of such Capital Stock may not be consummated until the 91st day
after the Notes have been paid in full.
"DNCC" means Dish Network Credit Corporation, a Colorado corporation.
"EBC" means EchoStar Broadband Corporation, a Colorado corporation.
"EBC Notes" means the $1,000 million aggregate principal amount of
10-3/8% Senior Notes due 2007 issued by EBC.
"EBC Notes Indenture" means the indenture dated September 25, 2000
among EBC and U.S. Bank Trust National Association, as Trustee, as the same may
be amended, modified or supplemented from time to time.
"EchoStar" means EchoStar Communications Corporation, a Nevada
corporation, together with each Wholly Owned Subsidiary of EchoStar that
beneficially owns 100% of the Equity Interests of the Company, but only so long
as EchoStar beneficially owns 100% of the Equity Interests of such Subsidiary.
"EchoStar Dish Network" means the DBS service of the Company and its
Subsidiaries.
"EchoStar I" means the Company's high-powered direct broadcast
satellite designated as EchoStar I in the Offering Memorandum.
"EchoStar II" means the Company's high-powered direct broadcast
satellite designated as EchoStar II in the Offering Memorandum.
"EchoStar III" means the high-powered direct broadcast satellite
designated as EchoStar III in the Offering Memorandum.
"EchoStar IV" means the high-powered direct broadcast satellite
designated as EchoStar IV in the Offering Memorandum.
"EDBS Exchange Indenture" means the Indenture, by and between the
Company and U.S. Bank National Association, to be entered into upon the
completion of the EDBS Exchange Offer governing the EDBS Exchange Notes in
accordance with Section 4.13 of the EBC Notes Indenture as in effect on the
Issue Date.
"EDBS Exchange Notes" means the notes to be issued by the Company upon
the completion of the EDBS Exchange Offer.
"EDBS Exchange Notes Guarantees" shall have the meaning set forth in
Section 4.13 of the EBC Notes Indenture as in effect on the Issue Date.
"EDBS Exchange Offer" means the offer by the Company to exchange the
EDBS Exchange Notes for the EBC Notes as provided in the EBC Notes Indenture as
in effect on the Issue Date.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated Investment Grade at the time as of which
any investment or rollover therein is made.
-5-
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ESC" means EchoStar Satellite Corporation, a Colorado corporation.
"ETC" means EchoStar Technologies Corporation, a Texas corporation.
"Euroclear" means Euroclear Bank S.A./N.V., as operator of the
Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) or pursuant to a registered exchange offer for Notes with a
Private Placement Legend issued after the Issue Date.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
"Existing Indebtedness" means the Notes and any other Indebtedness of
the Company and its Subsidiaries in existence on the date of this Indenture
until such amounts are repaid.
"FCC" means Federal Communications Commission.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the U.S., which are applicable as of the date of
determination; provided that, except as otherwise specifically provided, all
calculations made for purposes of determining compliance with the terms of the
provisions of this Indenture shall utilize GAAP as in effect on the date of this
Indenture.
"Global Note Legend" means the legend set forth in Section 2.01, which
is required to be placed on all Global Notes issued under this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, substantially in the
form of Exhibit A hereto issued in accordance with Section 2.01 or 2.06 of this
Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantee" means a guarantee of the Notes by a Guarantor.
-6-
"Guarantor" means any entity that executes a Guarantee of the
obligations of the Company under the Notes, and their respective successors and
assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person pursuant to any arrangement with any other Person,
whereby, directly or indirectly, such Person is entitled to receive from time to
time periodic payments calculated by applying either floating or a fixed rate of
interest on a stated notional amount in exchange for periodic payments made by
such other Person calculated by applying a fixed or a floating rate of interest
on the same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements designed to protect such
Person against fluctuations in interest rates.
"Holder" means a Person in whose name a Note is registered.
"Hughes" means Hughes Electronics Corporation, a Delaware corporation.
"Hughes Merger" means the merger of EchoStar with and into Hughes (or a
holding company that is expected to be formed to hold all of the stock of
Hughes) and related transactions substantially in accordance with the Agreement
and Plan of Merger by and between EchoStar and Hughes dated as of October 28,
2001 or on such other terms as would not have a material adverse effect on the
Holders of the Notes.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases) or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing (other than Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
and also includes, to the extent not otherwise included, the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of such
Person, the liquidation preference with respect to, any Preferred Equity
Interests (but excluding, in each case, any accrued dividends) as well as the
guarantee of items that would be included within this definition.
Notwithstanding the foregoing, the recording of some or all of the Indebtedness
represented by the EBC Notes on the balance sheet of the Company prior to the
completion of the EDBS Exchange Offer in accordance with GAAP and related rules
and regulations promulgated by the SEC (including "push down" accounting) shall
not be deemed to constitute Indebtedness for purposes of Section 4.09 or
included as Indebtedness for purposes of calculating the Indebtedness to Cash
Flow Ratio of the Company.
"Indebtedness to Cash Flow Ratio" means, with respect to any Person,
the ratio of: (a) the Indebtedness of such Person and its Subsidiaries (or, if
such Person is the Company, of the Company and its Restricted Subsidiaries) as
of the end of the most recently ended fiscal quarter, plus the amount of any
Indebtedness incurred subsequent to the end of such fiscal quarter; to (b) such
Person's Consolidated Cash Flow for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such event for which such calculation is being made
shall occur (the "Measurement Period"); provided, however; that: (i) in making
such computation, Indebtedness shall include the total amount of funds
outstanding and available under any revolving credit facilities; and (ii) if
such Person or any of its Subsidiaries (or, if such Person is the Company, any
of its Restricted Subsidiaries) consummates a material acquisition or an Asset
Sale or other disposition of assets subsequent to the commencement of the
Measurement Period but prior to the event for which the calculation of the
Indebtedness to Cash Flow Ratio is made, then the Indebtedness to Cash Flow
Ratio shall be calculated giving pro forma effect to such material acquisition
or Asset Sale or other disposition of assets, as if the same had occurred at the
beginning of the applicable period.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
-7-
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Initial Notes" means the $700 million aggregate principal amount
9-1/8% Senior Notes due 2009 of the Company issued under this Indenture on the
Issue Date.
"Initial Purchasers" means, with respect to the Notes, Deutsche Banc
Alex. Brown Inc., Credit Suisse First Boston Corporation, Lehman Brothers Inc.
and UBS Warburg LLC.
"Investment Grade" means, with respect to a security, that such
security is rated, by at least two nationally recognized statistical rating
organizations, in one of each such organization's four highest generic rating
categories.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans
(including guarantees), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Issue Date" means December 28, 2001, the date of original issuance of
the Initial Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statute) of any jurisdiction).
"Marketable Securities" means: (a) Government Securities; (b) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution; (c)
commercial paper maturing not more than 365 days after the date of acquisition
issued by a corporation (other than an Affiliate of the Company) with an
Investment Grade rating, at the time as of which any investment therein is made,
issued or offered by an Eligible Institution; (d) any bankers' acceptances or
money market deposit accounts issued or offered by an Eligible Institution; and
(e) any fund investing exclusively in investments of the types described in
clauses (a) through (d) above.
"Maximum Secured Amount" means (a) at any time other than as provided
in clause (b), $500 million plus, if the Company at such time has a rating or
has received in writing an indicative rating on the Notes of both "Ba3" or
better from Moody's and "BB-" or better from S&P, an amount equal to the product
of 1.25 times the Trailing Cash Flow Amount, and (b) substantially concurrently
with or at any time after the completion of the Subscriber Contribution, $2,700
million plus either (i) $500 million, or (ii) if the Company at such time has a
rating or has received in writing an indicative rating on the Notes of both
"Ba3" or better from Moody's and
-8-
"BB-" or better from S&P, an amount equal to the greater of (x) the product of
1.25 times Trailing Cash Flow Amount and (y) $500 million.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, any gain
(but not loss), together with any related provision for taxes on such gain (but
not loss), realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss) and excluding any
unusual gain (but not loss) relating to recovery of insurance proceeds on
satellites, together with any related provision for taxes on such extraordinary
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries, as the case may be, in respect of
any Asset Sale, net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the repayment of Indebtedness secured by a Lien on the asset or
assets that are the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets. Net Proceeds shall exclude
any non-cash proceeds received from any Asset Sale, but shall include such
proceeds when and as converted by the Company or any Restricted Subsidiary to
cash.
"1999 EDBS Notes" means (i) the $375 million aggregate principal amount
of 9-1/4% Senior Notes due 2006 issued by the Company and (ii) the $1,625
million aggregate principal amount of 9-3/8% Senior Notes due 2009 issued by the
Company.
"1999 EDBS Notes Indentures" means each of the indentures dated January
25, 1999 among the Company, the guarantors of the 1999 EDBS Notes named therein
and U.S. Bank Trust National Association, as Trustee, as the same may be
amended, modified or supplemented from time to time.
"Non-Core Assets" means: (1) all intangible authorizations, rights,
interests and other intangible assets related to all "western" DBS orbital
locations other than the 148 degree orbital slot (as the term "western" is used
by the FCC) held by the Company and/or any of its Subsidiaries at any time,
including without limitation the authorizations for 22 DBS frequencies at 175
degree orbital location and ESC's permit for 11 unspecified western assignments;
(2) all intangible authorizations, rights, interests and other intangible assets
related to the FSS in the Ku-band, Ka-band and C-band held by the Company and/or
any of its Subsidiaries at any time, including without limitation the license of
ESC for a two satellite Ku-band system at 83 degree and 121 degree orbital
location, the license of ESC for a two satellite Ka-band system at 83 degree and
121 degree orbital location, and the application of ESC to add C-band
capabilities to a Ku-band satellite authorized at 83 degree orbital location;
(3) all intangible authorizations, rights, interests and other intangible assets
related to the Mobile-Satellite Service held by the Company and/or any of its
Subsidiaries at any time, including without limitation the license of E-SAT,
Inc. for a low-earth orbit MSS system; (4) all intangible authorizations,
rights, interests and other intangible assets related to local multi-point
distribution service; and (5) any Subsidiary of the Company the assets of which
consist solely of (i) any combination of the foregoing and (ii) other assets to
the extent permitted under the provision described under the second paragraph of
Section 4.19.
"Non-Recourse Indebtedness" of any Person means Indebtedness of such
Person that: (i) is not guaranteed by any other Person (except a Wholly Owned
Subsidiary of the referent Person); (ii) is not recourse to and does not
obligate any other Person (except a Wholly Owned Subsidiary of the referent
Person) in any way; (iii)
-9-
does not subject any property or assets of any other Person (except a Wholly
Owned Subsidiary of the referent Person), directly or indirectly, contingently
or otherwise, to the satisfaction thereof, and (iv) is not required by GAAP to
be reflected on the financial statements of any other Person (other than a
Subsidiary of the referent Person) prepared in accordance with GAAP.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" means the Initial Notes, the Exchange Notes and any other notes
issued after the Issue Date in accordance with the fourth paragraph of Section
2.02 of this Indenture treated as a single class of securities.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes pursuant to the Offering
Memorandum.
"Offering Memorandum" means the Offering Memorandum dated December 20,
2001 relating to and used in connection with the initial offering of the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, Controller,
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, principal financial officer, treasurer or principal
accounting officer of the Company.
"Opinion of Counsel" means an opinion from legal counsel, who may be an
employee of or counsel to the Company, any Subsidiary of the Company or the
Trustee.
"PanAmSat Acquisition" means the acquisition by EchoStar of PanAmSat
Corporation and related transactions substantially in accordance with the Stock
Purchase Agreement by and among EchoStar, Hughes and certain subsidiaries of
Hughes dated as of October 28, 2001 or on such other terms as would not have a
material adverse effect on the holders of the Notes.
"Participant" means, with respect to the Depositary, Euroclear or
Clearstream, a Person who has an account with the Depositary, Euroclear or
Clearstream, respectively (and, with respect to DTC, shall include Euroclear and
Clearstream).
"Permitted Investments" means: (a) Investments in the Company or in a
Wholly Owned Restricted Subsidiary that is a Guarantor; (b) Investments in Cash
Equivalents and Marketable Securities; and (c) Investments by the Company or any
of its Subsidiaries in a Person if, as a result of such Investment: (i) such
Person becomes a Wholly Owned Restricted Subsidiary and becomes a Guarantor, or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary that is a Guarantor;
provided that if at any time a Restricted Subsidiary of the Company shall cease
to be a Subsidiary of the Company, the Company shall be deemed to have made a
Restricted Investment in the amount of its remaining investment, if any, in such
former Subsidiary.
"Permitted Liens" means:
(a) Liens securing the Notes and Liens securing any Guarantee;
-10-
(b) Liens securing the Deferred Payments;
(c) Liens securing any Indebtedness permitted under Section 4.09 of
this Indenture; provided that such Liens under this clause (c) shall not secure
Indebtedness in an amount exceeding the Maximum Secured Amount at the time that
such Lien is incurred;
(d) Liens securing Purchase Money Indebtedness; provided that such
Indebtedness was permitted to be incurred by the terms of this Indenture and
such Liens do not extend to any assets of the Company or its Restricted
Subsidiaries other than the assets so acquired;
(e) Liens securing Indebtedness the proceeds of which are used to
develop, construct, launch or insure any satellites other than EchoStar I,
EchoStar II, EchoStar III, EchoStar IV; provided that such Indebtedness was
permitted to be incurred by the terms of this Indenture and such Liens do not
extend to any assets of the Company or its Restricted Subsidiaries other than
such satellites being developed, constructed, launched or insured, and to the
related licenses, permits and construction, launch and TT&C contracts;
(f) Liens on orbital slots, licenses and other assets and rights of the
Company, provided that such orbital slots, licenses and other assets and rights
relate solely to the satellites referred to in clause (e) of this definition;
(g) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries, provided that such Liens were not incurred in connection with, or
in contemplation of, such merger or consolidation, other than in the ordinary
course of business;
(h) Liens on property of an Unrestricted Subsidiary at the time that it
is designated as a Restricted Subsidiary pursuant to the definition of
"Unrestricted Subsidiary;" provided that such Liens were not incurred in
connection with, or contemplation of, such designation;
(i) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company; provided that such
Liens were not incurred in connection with, or in contemplation of, such
acquisition and do not extend to any assets of the Company or any of its
Restricted Subsidiaries other than the property so acquired;
(j) Liens to secure the performance of statutory obligations, surety or
appeal bonds or performance bonds, or landlords', carriers', warehousemen's,
mechanics', suppliers', materialmen's or other like Liens, in any case incurred
in the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate process of law, if a
reserve or other appropriate provision, if any, as is required by GAAP shall
have been made therefor;
(k) Liens existing on the Issue Date;
(l) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor;
(m) Liens incurred in the ordinary course of business of the Company or
any of its Restricted Subsidiaries (including, without limitation, Liens
securing Purchase Money Indebtedness) with respect to obligations that do not
exceed $50 million in principal amount in the aggregate at any one time
outstanding;
-11-
(n) Liens securing Indebtedness in an amount not to exceed $50 million
incurred pursuant to clause (xi) of the second paragraph of Section 4.09 of this
Indenture;
(o) Liens on any asset of the Company or any of its Restricted
Subsidiaries securing Indebtedness in an amount not to exceed $25 million;
(p) Liens securing Indebtedness permitted under clause (12) of the
second paragraph of Section 4.09 of this Indenture; provided that such Liens
shall not extend to assets other than the assets that secure such Indebtedness
being refinanced;
(q) any interest or title of a lessor under any Capital Lease
Obligations; provided that such Capital Lease Obligation is permitted under the
other provisions of this Indenture;
(r) Liens permitted to be incurred under the 1999 EDBS Notes Indentures
or the EBC Notes Indenture, in each case as in effect on the Issue Date, and
Liens permitted to be incurred under the EDBS Exchange Indenture;
(s) Liens not provided for in clauses (a) through (r) above, securing
Indebtedness incurred in compliance with the terms of this Indenture provided
that the Notes are secured by the assets subject to such Liens on an equal and
ratable basis or on a basis prior to such Liens; provided that to the extent
that such Lien secured Indebtedness that is subordinated to the Notes, such Lien
shall be subordinated to and be later in priority than the Notes on the same
basis; and
(t) extensions, renewals or refundings of any Liens referred to in
clauses (a) through (q) above; provided that (i) any such extension, renewal or
refunding does not extend to any assets or secure any Indebtedness not securing
or secured by the Liens being extended, renewed or refinanced and (ii) any
extension, renewal or refunding of a Lien originally incurred pursuant to clause
(c) above shall not secure Indebtedness in an amount greater than the Maximum
Secured Amount at the time of such extension, renewal or refunding.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust or
unincorporated organization (including any subdivision or ongoing business of
any such entity or substantially all of the assets of any such entity,
subdivision or business).
"Preferred Equity Interest," in any Person, means an Equity Interest of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Principal" means Charles W. Ergen.
"Private Placement Legend" means the legend set forth in Section 2.01
to be placed on all Notes issued under this Indenture except where otherwise
permitted by the provisions of this Indenture.
"Purchase Money Indebtedness" means (i) Indebtedness of the Company, or
any Guarantor incurred (within 365 days of such purchase) to finance the
purchase of any assets (including the purchase of Equity Interests of Persons
that are not Affiliates of the Company or the Guarantors): (a) to the extent the
amount of Indebtedness thereunder does not exceed 100% of the purchase cost of
such assets; and (b) to the extent that no more than $50 million of such
Indebtedness at any one time outstanding is recourse to the Company or any of
its Restricted Subsidiaries or any of their respective assets, other than the
assets so purchased; or (ii) Indebtedness of
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the Company or any Guarantor which refinances Indebtedness referred to in clause
(i) of this definition, provided that such refinancing satisfies subclauses (a)
and (b) of such clause (i).
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Receivables Trust" means a trust organized solely for the purpose of
securitizing the accounts receivable held by the Accounts Receivable Subsidiary
that (a) shall not engage in any business other than (i) the purchase of
accounts receivable or participation interests therein from the Accounts
Receivable Subsidiary and the servicing thereof, (ii) the issuance of and
distribution of payments with respect to the securities permitted to be issued
under clause (b) below and (iii) other activities incidental to the foregoing,
(b) shall not at any time incur Indebtedness or issue any securities, except (i)
certificates representing undivided interests in the trust issued to the
Accounts Receivable Subsidiary and (ii) debt securities issued in an arm's
length transaction for consideration solely in the form of cash and Cash
Equivalents, all of which (net of any issuance fees and expenses) shall promptly
be paid to the Accounts Receivable Subsidiary, and (c) shall distribute to the
Accounts Receivable Subsidiary as a distribution on the Accounts Receivable
Subsidiary's beneficial interest in the trust no less frequently than once every
six months all available cash and Cash Equivalents held by it, to the extent not
required for reasonable operating expenses or reserves therefor or to service
any securities issued pursuant to clause (b) above that are not held by the
Accounts Receivable Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
for the Notes, dated as of December 28, 2001, by and among the Company, the
Guarantors, the Initial Purchasers and any other parties named on the signature
pages thereof, as such agreement may be amended, modified or supplemented from
time to time.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a global Note bearing the Private
Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.
"Related Party" means, with respect to the Principal, (a) the spouse
and each immediate family member of the Principal and (b) each trust,
corporation, partnership or other entity of which the Principal beneficially
holds an 80% or more controlling interest.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than Permitted
Investments.
"Restricted Period" means the 40-day distribution compliance period as
defined in Regulation S.
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"Restricted Subsidiary" or "Restricted Subsidiaries" means any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
the Company or one or more Subsidiaries of the Company or a combination thereof,
other than Unrestricted Subsidiaries.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated under the Securities Act.
"S&P" means Standard & Poor's Rating Services.
"Satellite Receiver" means any satellite receiver capable of receiving
programming from the EchoStar Dish Network.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date.
"Subscriber Contribution" means the completion of the Hughes Merger and
the contribution or other transfer to us or purchase by us of substantially all
of the Subscribers owned and operated by the surviving corporation and its
subsidiaries following the Hughes Merger and not already owned by the Company.
For purposes of this definition, "Subscriber" means an owned and operated U.S.
subscriber to DBS service.
"Subsidiary" or "Subsidiaries" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of such Person or a
combination thereof.
"TIA" means the Trust Indenture Act of 1939 as in effect on the date of
this Indenture.
"Trailing Cash Flow Amount" means the Consolidated Cash Flow of the
Company during the most recent four fiscal quarters of the Company for which
financial statements are available.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"TT&C" means telemetry, tracking and control.
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"U.S. Person" means a U.S. Person as defined in Rule 902(k) under the
Securities Act.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note substantially
in the form of Exhibit A attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing Notes that do not bear the Private Placement
Legend.
"Unrestricted Subsidiary" means: (A) E-Sat, Inc., EchoStar Real Estate
Corporation, EchoStar International (Mauritius) Ltd., EchoStar Manufacturing and
Distribution Pvt. Ltd. and Satrec Mauritius Ltd.; and (B) any Subsidiary of the
Company designated as an Unrestricted Subsidiary in a resolution of the Board of
Directors:
(a) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of which, immediately after such designation:
(i) is guaranteed by the Company or any other Subsidiary of the Company
(other than another Unrestricted Subsidiary); (ii) is recourse to or
obligates the Company or any other Subsidiary of the Company (other
than another Unrestricted Subsidiary) in any way; or (iii) subjects any
property or asset of the Company or any other Subsidiary of the Company
(other than another Unrestricted Subsidiary), directly or indirectly,
contingently or otherwise, to satisfaction thereof;
(b) with which neither the Company nor any other Subsidiary of
the Company (other than another Unrestricted Subsidiary) has any
contract, agreement, arrangement, understanding or is subject to an
obligation of any kind, written or oral, other than on terms no less
favorable to the Company or such other Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of the
Company; and
(c) with which neither the Company nor any other Subsidiary of
the Company (other than another Unrestricted Subsidiary) has any
obligation: (i) to subscribe for additional shares of Capital Stock or
other equity interests therein; or (ii) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results;
provided, however, that neither ESC nor Echosphere Corporation may be designated
as an Unrestricted Subsidiary. If at any time after the date of this Indenture
the Company designates an additional Subsidiary (other than ETC or a Subsidiary
that constitutes a Non-Core Asset) as an Unrestricted Subsidiary, the Company
will be deemed to have made a Restricted Investment in an amount equal to the
fair market value (as determined in good faith by the Board of Directors of the
Company evidenced by a resolution of the Board of Directors of the Company and
set forth in an Officers' Certificate delivered to the Trustee no later than ten
business days following a request from the Trustee, which certificate shall
cover the six months preceding the date of the request) of such Subsidiary. An
Unrestricted Subsidiary may be designated as a Restricted Subsidiary of the
Company if, at the time of such designation after giving pro forma effect
thereto, no Default or Event of Default shall have occurred or be continuing.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.
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"Wholly Owned Restricted Subsidiary" means a Wholly Owned Subsidiary of
the Company that is a Restricted Subsidiary.
"Wholly Owned Subsidiary" means, with respect to any Person, any
Subsidiary all of the outstanding voting stock (other than directors' qualifying
shares) of which is owned by such Person, directly or indirectly.
SECTION 1.02. Other Definitions.
Defined
Term in Section
"Affiliate Transaction".......................................... 4.11
"Asset Sale"..................................................... 4.10
"Change of Control Offer"........................................ 4.15
"Change of Control Payment"...................................... 4.15
"Change of Control Payment Date"................................. 4.15
"Company"........................................................ Preamble
"Covenant Defeasance"............................................ 8.03
"DTC"............................................................ 2.01
"ETC Amount Due.................................................. 4.19
"Event of Default"............................................... 6.01
"Excess Proceeds"................................................ 4.10
"Excess Proceeds Offer".......................................... 3.08
"incur".......................................................... 4.09
"Legal Defeasance"............................................... 8.02
"Non-Core Asset Amount Due"...................................... 4.19
"Offer Amount"................................................... 3.08
"Offer Period"................................................... 3.08
"Paying Agent"................................................... 2.03
"Payment Default"................................................ 6.01(f)
"Payout"......................................................... 4.19
"Permitted Refinancing".......................................... 4.09
"Private Placement Legend"....................................... 2.01
"Purchase Date".................................................. 3.08
"Refinancing Indebtedness"....................................... 4.09
"Registrar"...................................................... 2.03
"Restricted Payments"............................................ 4.07
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
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"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means each of the Company and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE NOTES
SECTION 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have notations,
legends or endorsements approved as to form by the Company, and required by law,
stock exchange rule, agreements to which the Company is subject or usage. Each
Note shall be dated the date of its authentication. The Notes shall be issuable
only in denominations of $1,000 and integral multiples thereof.
The Notes shall initially be issued in the form of one or more Global
Notes and the Depository Trust Company ("DTC"), its nominees, and their
respective successors, shall act as the Depositary with respect thereto. Each
Global Note shall (i) be registered in the name of the Depositary for such
Global Note or the nominee of such Depositary, (ii) shall be delivered by the
Trustee to such Depositary or pursuant to such Depositary's instructions, and
(iii) shall bear a legend (the "Global Note Legend") substantially to the
following effect:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.
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THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS
NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE
(OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
Except as permitted by Section 2.06(g), any Note not registered under
the Securities Act shall bear the following legend (the "Private Placement
Legend") on the face thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"),
(2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER
THE ORIGINAL ISSUANCE OF THIS SECURITY, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
-18-
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
The Trustee must refuse to register any transfer of a Note bearing the Private
Placement Legend that would violate the restrictions described in such legend.
SECTION 2.02. Form of Execution and Authentication.
Two Officers of the Company shall sign the Notes for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Notes.
If an Officer whose signature is on a Note no longer holds that office
at the time the Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature of the Trustee shall be conclusive evidence that
the Note has been authenticated under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue on
the Issue Date in an aggregate principal amount of $700 million, (ii) pursuant
to the Exchange Offer, Exchange Notes from time to time for issue only in
exchange for a like principal amount of Initial Notes and (iii) subject to
compliance with Section 4.09, one or more series of Notes for original issue
after the Issue Date (such Notes to be substantially in the form of Exhibit A)
in an unlimited amount (and if issued with a Private Placement Legend, the same
principal amount of Exchange Notes in exchange therefor upon consummation of a
registered exchange offer) in each case upon written orders of the Company in
the form of an Officers' Certificate, which Officers' Certificate shall, in the
case of any issuance pursuant to clause (iii) above, certify that such issuance
is in compliance with Section 4.09. In addition, each such Officers' Certificate
shall specify the amount of Notes to be authenticated, the date on which the
Notes are to be authenticated, whether the Securities are to be Initial Notes,
Exchange Notes or Notes issued under clause (iii) of the preceding sentence and
the aggregate principal amount of Notes outstanding on the date of
authentication, and shall further specify the amount of such Notes to be issued
as a Global Note or Definitive Notes. Such Notes shall initially be in the form
of one or more Global Notes, which (i) shall represent, and shall be denominated
in an amount equal to the aggregate principal amount of, the Notes to be issued,
(ii) shall be registered in the name of the Depositary for such Global Note or
Notes or its nominee and (iii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instruction. All Notes issued under
this Indenture shall vote and consent together on all matters as one class and
no series of Notes will have the right to vote or consent as a separate class on
any matter.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such appointment,
an authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or any Affiliate of the Company.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange (including any
co-registrar, the "Registrar") and (ii) an office or agency where Notes may be
presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Notes and of their
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transfer and exchange. The Company may appoint one or more co-registrars and one
or more additional paying agents. The term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent, Registrar or
co-registrar without prior notice to any Holder of a Note. The Company shall
notify the Trustee and the Trustee shall notify the Holders of the Notes of the
name and address of any Agent not a party to this Indenture. The Company may act
as Paying Agent, Registrar or co-registrar. The Company shall enter into an
appropriate agency agreement with any Agent not a party to this Indenture, which
shall incorporate the provisions of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any such Agent. If the Company fails to
maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the
Trustee shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Notes.
SECTION 2.04. Paying Agent To Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
the Holders of the Notes or the Trustee all money held by the Paying Agent for
the payment of principal of, premium, if any, and interest on the Notes, and
shall notify the Trustee of any Default by the Company in making any such
payment. While any such Default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company) shall have no
further liability for the money delivered to the Trustee. If the Company acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders of the Notes all money held by it as Paying Agent.
SECTION 2.05. Lists of Holders of the Notes.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders of the Notes and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times as
the Trustee may request in writing a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of Holders of the
Notes, including the aggregate principal amount of the Notes held by each
thereof, and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged by
the Company for Definitive Notes if (i) the Company delivers to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary and a successor Depositary is not appointed by the Company within 90
days after the date of such notice from the Depositary, (ii) the Depositary has
ceased to be a clearing agency registered under the Exchange Act, (iii) the
Company in its sole discretion determines that the Global Notes (in whole but
not in part) should be exchanged for Definitive Notes and delivers a written
notice to such effect to the Trustee or (iv) there shall have occurred and be
continuing a Default or an Event of Default under this Indenture. In any such
case, the Company will notify the Trustee in writing that, upon surrender by the
Direct Participants and Indirect Participants of their interest in such Global
Note, Certificated Notes will be issued to each Person that such Direct
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Participants and Indirect Participants and DTC identify as being the beneficial
owner of the related Notes. Global Notes also may be exchanged or replaced, in
whole or in part, as provided in Sections 2.07 and 2.10 of this Indenture. Every
Note authenticated and delivered in exchange for, or in lieu of, a Global Note
or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 of
this Indenture, shall be authenticated and delivered in the form of, and shall
be, a Global Note. A Global Note may not be exchanged for another Note other
than as provided in this Section 2.06. However, beneficial interests in a Global
Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f)
of this Indenture.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth in this Indenture to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted
Period, no transfer of beneficial interests in the Regulation S Global
Note may be made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser) unless permitted by
applicable law and made in compliance with subparagraphs (ii) and (iii)
below. Beneficial interests in any Unrestricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note. No written orders
or instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.06(b)(i) unless
specifically stated above.
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the
Registrar either (A) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or, (B) (1) if Definitive Notes are at such time
permitted to be issued pursuant to this Indenture, a written order from
a Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to
cause to be issued a Definitive Note in an amount equal to the
beneficial interest to be transferred or exchanged and (2) instructions
given by the Depositary to the Registrar containing information
regarding the Person in whose name such Definitive Note shall be
registered to effect the transfer or exchange referred to in (1) above.
Upon consummation of an Exchange Offer by the Company in accordance
with Section 2.06(f), the requirements of this Section 2.06(b)(ii)
shall be deemed to have been satisfied upon receipt by the Registrar of
the instructions contained in the Letter of Transmittal delivered by
the Holder of such beneficial interests in the Restricted Global Notes.
Upon satisfaction of all of the requirements for transfer or exchange
of beneficial interests in Global Notes contained in this Indenture and
the Notes or otherwise applicable under the Securities Act, the Trustee
shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.06(h).
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(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form
of a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit C
hereto, including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form
of a beneficial interest in the Regulation S Global Note, then
the transferor must deliver a certificate in the form of
Exhibit C hereto, including the certifications in item (2)
thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in an Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any Holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3)
a Person who is an "affiliate" (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to a Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Broker-Dealer
pursuant to an Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(y) if the Holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit D
hereto, including the certifications in item (1)(a)
thereof, or
(z) if the Holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained in this Indenture and in
the Private Placement Legend are no longer required in order
to maintain compliance with the Securities Act.
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If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02, the Trustee shall authenticate, one or more Unrestricted
Global Notes in an aggregate principal amount equal to the aggregate principal
amount of beneficial interests transferred pursuant to subparagraph (B) or (D)
above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any Holder of a beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Restricted Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Restricted Definitive Note, then, upon receipt by the
Registrar of the following documentation:
(A) if the Holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such Holder in the form
of Exhibit D hereto, including the certifications in item (2)(a)
thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit C hereto, including the certifications
in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit C hereto, including the certifications in item (2)
thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the Securities
Act in accordance with Rule 144 under the Securities Act, a certificate
to the effect set forth in Exhibit C hereto, including the
certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit C hereto, including the certifications in item (3)(b)
thereof; or
(F) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit C hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(h), and the Company
shall execute and the Trustee shall authenticate and deliver to the Person
designated in the instructions a Restricted Definitive Note in the appropriate
principal amount. Any Restricted Definitive Note issued in exchange for a
beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)
shall be registered in such name or names and in such authorized denomination or
denominations as the Holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Restricted Definitive Notes
to the Persons in whose names such Notes are so registered. Any Restricted
Definitive Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement
Legend and shall be subject to all restrictions on transfer contained therein.
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(ii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A Holder of a beneficial interest in a Restricted Global Note
may exchange such beneficial interest for an Unrestricted Definitive Note or may
transfer such beneficial interest to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with the Registration Rights Agreement and
the Holder of such beneficial interest, in the case of an exchange, or
the transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a Person
who is an "affiliate" (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to a Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(y) if the Holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such Holder in the form
of Exhibit D hereto, including the certifications in item
(1)(b) thereof; or
(z) if the Holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a Definitive Note that does not bear the Private
Placement Legend, a certificate from such Holder in the form
of Exhibit C hereto, including the certifications in item (4)
thereof,
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained in this
Indenture and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the aggregate principal
amount of beneficial interests transferred pursuant to subparagraph (B) or (D)
above.
(iii) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any Holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive Note
or to transfer such beneficial interest to a Person who takes delivery thereof
in the form of a Definitive Note, then, upon satisfaction of the conditions set
forth in Section 2.06(b)(ii), the Trustee shall cause the aggregate principal
amount of the applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h), and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive Note issued
in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii)
shall be registered in such name or names and in such authorized denomination or
denominations as the Holder of such beneficial interest shall instruct the
Registrar
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through instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the Persons in
whose names such Notes are so registered. Any Definitive Note issued in exchange
for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear
the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange
such Note for a beneficial interest in a Restricted Global Note or to transfer
such Restricted Definitive Notes to a Person who takes delivery thereof in the
form of a beneficial interest in a Restricted Global Note, then, upon receipt by
the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted Global
Note, a certificate from such Holder in the form of Exhibit D hereto,
including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit C hereto, including the
certifications in item (1) thereof; or
(C) if such Restricted Definitive Note is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the effect
set forth in Exhibit C hereto, including the certifications in item (2)
thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A) above,
the appropriate Restricted Global Note, in the case of clause (B) above, the
144A Global Note, and in the case of clause (C) above, the Regulation S Global
Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange
such Note for a beneficial interest in an Unrestricted Global Note or transfer
such Restricted Definitive Note to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and
the Holder, in the case of an exchange, or the transferee, in the case
of a transfer, certifies in the applicable Letter of Transmittal that
it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
"affiliate" (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to a Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
an Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(y) if the Holder of such Definitive Notes proposes
to exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in
the form of Exhibit D hereto, including the certifications in
item (1)(c) thereof; or
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(z) if the Holder of such Definitive Notes proposes
to transfer such Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in
the form of Exhibit C hereto, including the certifications in
item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained in this
Indenture and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase
or cause to be increased the aggregate principal amount of the Unrestricted
Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note or
transfer such Unrestricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global Note at
any time. Upon receipt of a request for such an exchange or transfer, the
Trustee shall cancel the applicable Unrestricted Definitive Note and increase or
cause to be increased the aggregate principal amount of one of the Unrestricted
Global Notes.
If any such exchange or transfer from an Unrestricted Definitive Note
or a Restricted Definitive Note, as the case may be, to a beneficial interest is
effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time
when an Unrestricted Global Note has not yet been issued, the Company shall
issue and, upon receipt of an Authentication Order in accordance with Section
2.02 of this Indenture, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount of
Unrestricted Definitive Notes or Restricted Definitive Notes, as the case may
be, so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive
Notes. Any Restricted Definitive Note may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit C hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903
or Rule 904, then the transferor must deliver a certificate in
the form of Exhibit C hereto, including the certifications in
item (2) thereof; and
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(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate
in the form of Exhibit C hereto, including, if the Registrar
so requests, a certification or Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act.
(ii) Restricted Definitive Notes to Unrestricted Definitive
Notes. Any Restricted Definitive Note may be exchanged by the Holder
thereof for an Unrestricted Definitive Note or transferred to a Person
or Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:
(A) such exchange or transfer is effected pursuant to
an Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an "affiliate"
(as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to a Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) any such transfer is effected by a Broker-Dealer
pursuant to an Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(y) if the Holder of such Restricted
Definitive Notes proposes to exchange such Notes for
an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit D hereto,
including the certifications in item (1)(d) thereof;
or
(z) if the Holder of such Restricted
Definitive Notes proposes to transfer such Notes to a
Person who shall take delivery thereof in the form of
an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit C hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests, an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such
exchange or transfer is in compliance with the Securities Act
and that the restrictions on transfer contained in this
Indenture and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted
Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of an Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the Exchange
Notes and (z) they are not "affiliates" (as defined in
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Rule 144) of the Company, and accepted for exchange in an Exchange Offer and
(ii) Definitive Notes in an aggregate principal amount equal to the principal
amount of the Restricted Definitive Notes accepted for exchange in an Exchange
Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the
aggregate principal amount of the applicable Restricted Global Notes to be
reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Restricted
Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate
principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note (other than an Unrestricted Global Note) and each Definitive Note
(and all Notes issued in exchange therefor or substitution thereof)
shall bear the Private Placement Legend.
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section
2.06 (and all Notes issued in exchange therefor or substitution
thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear the
Global Note Legend.
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11. At any
time prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note or for Definitive Notes,
the principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note by the Trustee
or by the Depositary at the direction of the Trustee to reflect such reduction;
and if the beneficial interest is being exchanged for or transferred to a Person
who will take delivery thereof in the form of a beneficial interest in another
Global Note, such other Global Note shall be increased accordingly and an
endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes
and Definitive Notes upon the Company's order or at the Registrar's
request.
(ii) No service charge shall be made to a Holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 3.08 and 9.05).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
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(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits of this Indenture, as the
Global Notes or Definitive Notes surrendered upon such registration of
transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business on a Business Day 15 days before
the day of any selection of Notes for redemption under Section 3.02 of
this Indenture and ending at the close of business on the day of
selection or (B) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02 of
this Indenture.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
SECTION 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Company and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements for replacements of Notes are
met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent or any authenticating
agent from any loss which any of them may suffer if a Note is replaced. Each of
the Company and the Trustee may charge for its expenses in replacing a Note.
Every replacement Note is an obligation of the Company.
SECTION 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a protected purchaser.
If the principal amount of any Note is considered paid under Section
4.01, it shall cease to be outstanding and interest on it shall cease to accrue.
Subject to Section 2.09, a Note does not cease to be outstanding
because the Company, a Subsidiary of the Company or an Affiliate of the Company
holds the Note.
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SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any Subsidiary of the Company or any Affiliate of the Company shall be
considered as though not outstanding, except that for purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Responsible Officer knows to be so owned shall be
so considered. Notwithstanding the foregoing, Notes that are to be acquired by
the Company, any Subsidiary of the Company or an Affiliate of the Company
pursuant to an exchange offer, tender offer or other agreement shall not be
deemed to be owned by the Company, a Subsidiary of the Company or an Affiliate
of the Company until legal title to such Notes passes to the Company, such
Subsidiary or such Affiliate, as the case may be.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company and the Trustee consider appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee, upon receipt of
the written order of the Company signed by two Officers of the Company, shall
authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, temporary Notes shall be entitled to the same rights, benefits and
privileges as definitive Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall destroy canceled Notes
(subject to the record retention requirement of the Exchange Act), unless the
Company directs canceled Notes to be returned to it. The Company may not issue
new Notes to replace Notes that it has redeemed or paid or that have been
delivered to the Trustee for cancellation. All canceled Notes held by the
Trustee shall be destroyed and certification of their destruction delivered to
the Company, unless by a written order, signed by two Officers of the Company,
the Company shall direct that canceled Notes be returned to it.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders of
the Notes on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior to
the payment date, in each case at the rate provided in the Notes. The Company
shall, with the consent of the Trustee, fix or cause to be fixed each such
special record date and payment date. At least 15 days before the special record
date, the Company (or the Trustee, in the name of and at the expense of the
Company) shall mail to Holders of the Notes a notice that states the special
record date, the related payment date and the amount of such interest to be
paid.
SECTION 2.13. Record Date.
The record date for purposes of determining the identity of Holders of
the Notes entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in TIA Section 316(c).
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SECTION 2.14. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number and, if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company will
promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07, it shall furnish to the Trustee, at least
35 days (unless a shorter period is acceptable to the Trustee) but not more than
60 days before a redemption date, an Officers' Certificate setting forth (i) the
redemption date, (ii) the principal amount of Notes to be redeemed and (iii) the
redemption price. If the Company is required to make the redemption pursuant to
Section 3.08, it shall furnish the Trustee, at least one but not more than 10
Business Days before a redemption date, an Officers' Certificate setting forth
(i) the redemption date and (ii) the redemption price.
SECTION 3.02. Selection of Notes To Be Redeemed.
If less than all of the Notes are to be redeemed at any time, the
selection of Notes for redemption will be made by the Trustee in compliance with
the requirements of the principal national securities exchange, if any, on which
the Notes are listed, or if the Notes are not so listed on a pro rata basis, by
lot or in accordance with any other method the Trustee deems fair and
appropriate, provided that no Notes with a principal amount of $1,000 or less
shall be redeemed in part. In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
them selected shall be in amounts of $1,000 or whole multiples of $1,000; except
that if all of the Notes of a Holder are to be redeemed, the entire outstanding
amount of Notes held by such Holder, even if not a multiple of $1,000, shall be
redeemed. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption.
SECTION 3.03. Notice of Redemption.
Subject to the provisions of Sections 3.08, at least 30 days but not
more than 60 days before a redemption date, the Company shall mail or cause to
be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(i) the redemption date;
(ii) the redemption price;
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(iii) if any Note is being redeemed in part only, the portion
of the principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued in the
name of the Holder thereof upon cancellation of the original Note;
(iv) the name and address of the Paying Agent;
(v) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(vi) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date;
(vii) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being
redeemed; and
(viii) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided that the Company
shall have delivered to the Trustee, at least 35 days (unless a shorter period
is acceptable to the Trustee) prior to the redemption date, an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Notes called for redemption become due and payable on the redemption date at the
redemption price.
SECTION 3.05. Deposit of Redemption Price.
On or prior to any redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price of
and accrued interest on all Notes to be redeemed on that date. The Trustee or
the Paying Agent shall promptly return to the Company any money deposited with
the Trustee or the Paying Agent by the Company in excess of the amounts
necessary to pay the redemption price of, and accrued interest on, all Notes to
be redeemed.
On and after the redemption date, if the Company does not default in
the payment of the redemption price, interest shall cease to accrue on the Notes
or the portions of Notes called for redemption. If a Note is redeemed on or
after an interest record date but on or prior to the related interest payment
date, then any accrued and unpaid interest shall be paid to the Person in whose
name such Note was registered at the close of business on such record date. If
any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes.
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SECTION 3.06. Notes Redeemed in Part.
Upon surrender and cancellation of a Note that is redeemed in part, the
Company shall issue and the Trustee shall authenticate for the Holder of the
Notes at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
SECTION 3.07. Optional Redemption.
Except as provided in the next paragraph, the Notes will not be
redeemable at the Company's option prior to January 15, 2006. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, together
with accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the 12-month period beginning on January 15 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2006........................................................................ 104.563%
2007........................................................................ 102.281%
2008........................................................................ 100.000%
Notwithstanding the foregoing, at any time prior to January 15, 2005,
the Company may redeem up to 35% of the aggregate principal amount of the Notes
outstanding at a redemption price equal to 109.125% of the principal amount
thereof on the repurchase date, together with accrued and unpaid interest to
such repurchase date, with the net cash proceeds of one or more public or
private sales (including sales to EchoStar, regardless of whether EchoStar
obtained such funds from an offering of Equity Interests or Indebtedness of
EchoStar or otherwise) of Equity Interests (other than Disqualified Stock) of
the Company (other than proceeds from a sale to any Subsidiary of the Company or
any employee benefit plan in which the Company or any of its Subsidiaries
participates); provided that: (a) at least 65% in aggregate principal amount of
the Notes originally issued remain outstanding immediately after the occurrence
of such redemption; and (b) the sale of such Equity Interests is made in
compliance with the terms of this Indenture.
SECTION 3.08. Offer To Purchase by Application of Excess Proceeds.
When the cumulative amount of Excess Proceeds that have not been
applied in accordance with Section 4.10 or this Section 3.08 exceeds $50.0
million, the Company shall be obligated to make an offer to all Holders of the
Notes (an "Excess Proceeds Offer") to purchase the maximum principal amount of
Notes that may be purchased out of such Excess Proceeds at an offer price in
cash in an amount equal to 101% of the principal amount thereof, together with
accrued and unpaid interest to the date fixed for the closing of such offer in
accordance with the procedures set forth in this Indenture. To the extent the
Company or a Restricted Subsidiary is required under the terms of Indebtedness
of the Company or such Restricted Subsidiary which is ranked equally with the
Notes with any proceeds which constitute Excess Proceeds under this Indenture,
the Company shall make a pro rata offer to the holders of all other pari passu
Indebtedness (including the Notes) with such proceeds. If the aggregate
principal amount of Notes and other pari passu Indebtedness surrendered by
holders thereof exceeds the amount of such Excess Proceeds, the Trustee shall
select the Notes and other pari passu Indebtedness to be purchased on a pro rata
basis.
The Excess Proceeds Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the maximum principal amount of Notes that
may be purchased with such Excess Pro-
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ceeds (which maximum principal amount of Notes shall be the "Offer Amount") or,
if less than the Offer Amount has been tendered, all Notes tendered in response
to the Excess Proceeds Offer.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued interest shall be paid to
the Person in whose name a Note is registered at the close of business on such
record date, and no additional interest shall be payable to Holders who tender
Notes pursuant to the Excess Proceeds Offer.
Upon the commencement of any Excess Proceeds Offer, the Company shall
send, by first class mail, a notice to each of the Holders of the Notes, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Excess Proceeds
Offer. The notice, which shall govern the terms of the Excess Proceeds Offer,
shall state:
(i) that the Excess Proceeds Offer is being made pursuant to
this Section 3.08 and the length of time the Excess Proceeds Offer
shall remain open;
(ii) the Offer Amount, the purchase price and the Purchase
Date;
(iii) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(iv) that any Note accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest after the Purchase Date;
(v) that Holders electing to have a Note purchased pursuant to
any Excess Proceeds Offer shall be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice
at least three business days before the Purchase Date;
(vi) that Holders shall be entitled to withdraw their election
if the Company, depositary or Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is withdrawing
his election to have the Note purchased;
(vii) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the Company shall
select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Notes in denominations of $1,000, or integral multiples thereof, shall
be purchased); and
(viii) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered.
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Excess
Proceeds Offer, or if less than the Offer Amount has been tendered, all Notes or
portion thereof tendered, and deliver to the Trustee an Officers' Certificate
stating that such Notes or portions thereof were accepted for payment by the
Company in accordance with the terms of this Section 3.08. The Company,
Depositary or Paying Agent, as the case may be, shall promptly (but in any case
not later than five days after the Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Note tendered by
such Holder and accepted by the Company for purchase, and the Company shall
promptly issue a new Note, and the Trustee
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shall authenticate and mail or deliver such new Note, to such Holder equal in
principal amount to any unpurchased portion of the Note surrendered. Any Note
not so accepted shall be promptly mailed or delivered by the Company to the
Holder thereof. The Company shall publicly announce the results of the Excess
Proceeds Offer on the Purchase Date. To the extent that the aggregate principal
amount of Notes tendered pursuant to an Excess Proceeds Offer is less than the
amount of such Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. Upon completion of an Excess Proceeds
Offer, the amount of Excess Proceeds shall be reset at zero.
Other than as specifically provided in this Section 3.08, any purchase
pursuant to this Section 3.08 shall be made pursuant to the provisions of
Sections 3.01 through 3.06.
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m.
Eastern Time on the due date money deposited by or on behalf of the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
the then applicable interest rate on the Notes to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain an office or agency (which may be an office
of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where
Notes may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03.
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SECTION 4.03. Reports.
(a) Whether or not required by the rules and regulations of the SEC, so
long as any of the Notes remain outstanding, the Company shall cause copies of
all quarterly and annual financial reports and of the information, documents,
and other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) which the Company is required to file
with the SEC on Forms 10-Q and 10-K to be filed with the SEC and the Trustee and
mailed to the Holders at their addresses appearing in the register of Notes
maintained by the Registrar, in each case, within 15 days of filing with the
SEC. If the Company is not required to file reports on Form 10-Q and 10-K, the
Company shall nevertheless continue to cause the annual and quarterly financial
statements, including any notes thereto (and, with respect to annual reports, an
auditors' report by an accounting firm of established national reputation) and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," comparable to that which would have been required to appear in
Forms 10-Q and 10-K, to be so filed with the SEC for public availability (to the
extent permitted by the SEC) and the Trustee and mailed to the Holders within
120 days after the end of the Company's fiscal years and within 60 days after
the end of each of the first three quarters of each such fiscal year. The
Company shall also comply with the provisions of TIA Section 314(a).
(b) The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information that the Trustee may
be required to deliver to the Holders of the Notes under this Section 4.03.
SECTION 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge each entity
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture including, without
limitation, a default in the performance or breach of Section 4.07, Section
4.09, Section 4.10 or Section 4.15 (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action each is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action each is taking or
proposes to take with respect thereto.
(b) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of (i) any
Default or Event of Default, or (ii) any default under any Indebtedness referred
to in Section 6.01(f) or (g) of this Indenture, an Officers' Certificate
specifying such Default, Event of Default or default and what action the Company
or any of its Affiliates is taking or proposes to take with respect thereto.
SECTION 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings or where the
failure to effect such payment is not adverse in any material respect to the
Holders of the Notes.
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SECTION 4.06. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.07. Limitation on Restricted Payments.
Neither the Company nor any of its Restricted Subsidiaries may,
directly or indirectly:
(a) declare or pay any dividend or make any distribution on
account of any Equity Interests of the Company other than dividends or
distributions payable in Equity Interests (other than Disqualified
Stock) of the Company;
(b) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of EchoStar, the Company or any of their
respective Subsidiaries or Affiliates, other than any such Equity
Interests owned by the Company or by any Wholly Owned Restricted
Subsidiary;
(c) purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness that is expressly subordinated in right of
payment to the Notes or the Guarantees, except in accordance with the
scheduled mandatory redemption, sinking fund or repayment provisions
set forth in the original documentation governing such Indebtedness;
(d) declare or pay any dividend or make any distribution on
account of any Equity Interests of any Restricted Subsidiary, other
than:
(i) to the Company or any Wholly Owned Restricted
Subsidiary; or
(ii) to all holders of any class or series of Equity
Interests of such Restricted Subsidiary on a pro rata basis;
provided that in the case of this clause (ii), such dividends
or distributions may not be in the form of Indebtedness or
Disqualified Stock; or
(e) make any Restricted Investment
(all such prohibited payments and other actions set forth in clauses (a) through
(e) being collectively referred to as "Restricted Payments"), unless, at the
time of such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) after giving effect to such Restricted Payment and the
incurrence of any Indebtedness the net proceeds of which are used to
finance such Restricted Payment, the Indebtedness to Cash Flow Ratio of
the Company would not have exceeded 8.0 to 1; and
(iii) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company after the date of
this Indenture, is less than the sum of:
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(A) the difference of
(x) cumulative Consolidated Cash Flow of the
Company determined at the time of such Restricted
Payment (or, in case such Consolidated Cash Flow
shall be a deficit, minus 100% of such deficit);
minus
(y) 120% of Consolidated Interest Expense of
the Company,
each as determined for the period (taken as one accounting
period) from January 1, 2002 to the end of the Company's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted
Payment; plus
(B) an amount equal to 100% of the aggregate net cash
proceeds and, in the case of proceeds consisting of assets
used in or constituting a business permitted under Section
4.16 of this Indenture, 100% of the fair market value of the
aggregate net proceeds other than cash received by the Company
either from capital contributions from EchoStar, or from the
issue or sale (including an issue or sale to EchoStar) of
Equity Interests (other than Disqualified Stock) of the
Company (other than Equity Interests sold to any Subsidiary of
the Company), since the Issue Date, but, in the case of any
net cash proceeds, only to the extent such net cash proceeds
are not used to redeem Notes pursuant to the second paragraph
of Section 3.07 of this Indenture; plus
(C) if any Unrestricted Subsidiary is designated by
the Company as a Restricted Subsidiary, an amount equal to the
fair market value of the net Investment by the Company or a
Restricted Subsidiary in such Subsidiary at the time of such
designation; provided, however, that the foregoing sum shall
not exceed the amount of the Investments made by the Company
or any Restricted Subsidiary in any such Unrestricted
Subsidiary since the Issue Date; plus
(D) 100% of any cash dividends and other cash
distributions received by the Company and its Wholly Owned
Restricted Subsidiaries from an Unrestricted Subsidiary since
the Issue Date to the extent not included in cumulative
Consolidated Cash Flow of the Company; plus
(E) to the extent not included in clauses (A) through
(D) above, an amount equal to the net reduction in Investments
of the Company and its Restricted Subsidiaries since the Issue
Date resulting from payments in cash of interest on
Indebtedness, dividends, or repayment of loans or advances, or
other transfers of property, in each case, to the Company or
to a Wholly Owned Restricted Subsidiary or from the net cash
proceeds from the sale, conveyance or other disposition of any
such Investment; provided, however, that the foregoing amount
shall not exceed, with respect to any Person in whom such
Investment was made, the amount of Investments previously made
by the Company or any Restricted Subsidiary in such Person
which were included in computations made pursuant to this
clause (iii).
The foregoing provisions will not prohibit the following (provided that
with respect to clauses (2), (3), (5), (6), (7), (8), (9), (11), and (12) below,
no Default or Event of Default shall have occurred and be continuing):
(1) the payment of any dividend within 60 days after the date
of declaration thereof, if at such date of declaration such payment
would have complied with the provisions of this Indenture;
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(2) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or
out of the net proceeds of the substantially concurrent capital
contribution from EchoStar or from the substantially concurrent issue
or sale (including to EchoStar) of Equity Interests (other than
Disqualified Stock) of the Company (other than Equity Interests issued
or sold to any Subsidiary of the Company);
(3) Investments in an aggregate amount not to exceed $250
million plus, to the extent not included in Consolidated Cash Flow, an
amount equal to the net reduction in such Investments resulting from
payments in cash of interest on Indebtedness, dividends or repayment of
loans or advances, or other transfers of property, in each case, to the
Company or to a Wholly Owned Restricted Subsidiary or from the net cash
proceeds from the sale, conveyance or other disposition of any such
Investment; provided, however, that the foregoing amount shall not
exceed, with respect to any Person in whom such Investment was made,
the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Person pursuant to this clause (3);
(4) Investments to fund the financing activity of DNCC in the
ordinary course of its business in an amount not to exceed, as of the
date of determination, the sum of (A) $50 million plus (B) 50% of the
aggregate cost to DNCC for each Satellite Receiver purchased by DNCC
and leased by DNCC to a retail consumer in excess of 100,000 units;
(5) cash dividends or distributions to EchoStar to the extent
required for the purchase of employee stock options to purchase Capital
Stock of EchoStar, or Capital Stock of EchoStar issued pursuant to the
exercise of employee stock options to purchase Capital Stock of
EchoStar, in an aggregate amount not to exceed $2 million in any
calendar year and in an aggregate amount not to exceed $10 million
since the Issue Date;
(6) a Permitted Refinancing (as defined in Section 4.09);
(7) Investments in an amount equal to 100% of the aggregate
net proceeds (whether or not in cash) received by the Company or any
Wholly Owned Restricted Subsidiary from capital contributions from
EchoStar or from the issue and sale (including a sale to EchoStar) of
Equity Interests (other than Disqualified Stock) of the Company (other
than Equity Interests issued or sold to a Subsidiary of EchoStar), on
or after the Issue Date; plus, to the extent not included in
Consolidated Cash Flow, an amount equal to the net reduction in such
Investments resulting from payments in cash of interest on
Indebtedness, dividends, or repayment of loans or advances, or other
transfers of property, in each case, to the Company or to a Wholly
Owned Restricted Subsidiary or from the net cash proceeds from the
sale, conveyance, or other disposition of any such Investment;
provided, that the foregoing amount shall not exceed, with respect to
any Person in whom such Investment was made, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such
Person pursuant to this clause (7) in each case, provided that such
Investments are in businesses of the type described under Section 4.16
of this Indenture;
(8) Investments in any Restricted Subsidiary which is not a
Wholly Owned Restricted Subsidiary, but which is a Guarantor;
(9) Investments in businesses strategically related to
businesses described in Section 4.16 of this Indenture in an aggregate
amount not to exceed $100 million;
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(10) cash dividends or distributions to EchoStar to the extent
required for the purchase of odd-lots of Equity Interests of EchoStar,
in an aggregate amount not to exceed $10 million since the Issue Date;
(11) the making of any Restricted Payment (including the
receipt of any Investment) permitted under or resulting from any
transaction permitted under Section 4.19 of this Indenture; provided
that all conditions to any such Restricted Payment set forth in such
Section 4.19 are satisfied;
(12) Investments made as a result of the receipt of non-cash
proceeds from Asset Sales made in compliance with Section 4.10 of this
Indenture;
(13) any Restricted Payment permitted under the 1999 EDBS
Notes Indentures and the EBC Notes Indenture, in each case as in effect
on the Issue Date, and the EDBS Exchange Indenture;
(14) Investments which are used to pay for the construction,
launch, operation or insurance of a satellite owned by any Subsidiaries
of the Company in an amount not to exceed $200 million; and
(15) Investments in a foreign direct-to-home satellite
provider in an amount not to exceed $100 million; provided that the
Investments are made through the supply of satellite receivers and
related equipment to the provider, or the proceeds from the Investments
are used to purchase satellite receivers and related equipment from
EchoStar or a Subsidiary of EchoStar.
Restricted Payments made pursuant to clauses (1), (2), (4) and (7) (but
only to the extent that net proceeds received by the Company as set forth in
such clause (2) or (7) were included in the computations made in clause (iii)(B)
of the first paragraph of this Section 4.07), (10) and (13) (but only to the
extent such Restricted Payment is included as a Restricted Payment in any
computation made pursuant to clause (iii) of the first paragraph of Section 4.07
of the 1999 EDBS Notes Indentures and the EBC Notes Indenture, in each case as
in effect on the Issue Date, or the EDBS Exchange Indenture), shall be included
as Restricted Payments in any computation made pursuant to clause (iii) of this
Section 4.07.
Restricted Payments made pursuant to clauses (3), (5), (6), (7) (but
only to the extent that net proceeds received by the Company as set forth in
such clause (7) were not included in the computations made in clause (iii)(B) of
the first paragraph of this Section 4.07), (8), (9), (11), (12), (13) (but only
to the extent such Restricted Payment is not included as a Restricted Payment in
any computation made pursuant to clause (iii) of the first paragraph of Section
4.07 of the 1999 EDBS Notes Indentures and the EBC Notes Indenture, in each case
as in effect on the Issue Date, or the EDBS Exchange Indenture), (14) and (15)
shall not be included as Restricted Payments in any computation made pursuant
clause (iii) of the first paragraph of this Section 4.07.
If the Company or any Restricted Subsidiary makes an Investment which
was included in computations made pursuant to this Section 4.07 and the Person
in which such Investment was made subsequently becomes a Restricted Subsidiary
that is a Guarantor, to the extent such Investment resulted in a reduction in
the amounts calculated under clause (iii) of the first paragraph of or under any
other provision of this Section 4.07, then such amount shall be increased by the
amount of such reduction.
Not later than ten Business Days following a request from the Trustee,
the Company shall deliver to the Trustee an Officers' Certificate stating that
each Restricted Payment made in the six months preceding the date the request
was permitted and setting forth the basis upon which the calculations required
by this Section 4.07 were computed, which calculations shall be based upon the
Company's latest available financial statements.
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SECTION 4.08. Limitations on Dividend and Other Payment Restrictions Affecting
Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(a) pay dividends or make any other distribution to the
Company or any of its Restricted Subsidiaries on its Capital Stock or
with respect to any other interest or participation in, or measured by,
its profits, or pay any Indebtedness owed to the Company or any of its
Subsidiaries;
(b) make loans or advances to the Company or any of its
Subsidiaries; or
(c) transfer any of its properties or assets to the Company or
any of its Subsidiaries;
except for such encumbrances or restrictions existing under or by
reasons of:
(i) Existing Indebtedness and existing agreements as
in effect on the Issue Date;
(ii) applicable law or regulation;
(iii) any instrument governing Acquired Debt as in
effect at the time of acquisition (except to the extent such
Indebtedness was incurred in connection with, or in
contemplation of, such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that
the Consolidated Cash Flow of such Person shall not be taken
into account in determining whether such acquisition was
permitted by the terms of this Indenture, except to the extent
that dividends or other distributions are permitted
notwithstanding such encumbrance or restriction and could have
been distributed;
(iv) by reason of customary non-assignment provisions
in leases entered into in the ordinary course of business and
consistent with past practices;
(v) Refinancing Indebtedness (as defined in Section
4.09 of this Indenture); provided that the restrictions
contained in the agreements governing such Refinancing
Indebtedness are no more restrictive than those contained in
the agreements governing the Indebtedness being refinanced;
(vi) this Indenture and the Notes;
(vii) Permitted Liens; or
(viii) any agreement for the sale of any Subsidiary
or its assets that restricts distributions by that Subsidiary
pending its sale; provided that during the entire period in
which such encumbrance or restriction is effective, such sale
(together with any other sales pending) would be permitted
under the terms of this Indenture.
SECTION 4.09. Limitation on Incurrence of Indebtedness.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to (collec-
-41-
tively, "incur") any Indebtedness (including Acquired Debt); provided, however,
that, notwithstanding the foregoing the Company and any Guarantor may incur
Indebtedness (including Acquired Debt), if, after giving effect to the
incurrence of such Indebtedness and the application of the net proceeds thereof
on a pro forma basis, the Indebtedness to Cash Flow Ratio of the Company would
not have exceeded 8.0 to 1.
The foregoing limitation will not apply to any of the following
incurrences of Indebtedness:
(1) Indebtedness represented by Notes, the Guarantees thereof
and this Indenture in an aggregate principal amount of $700 million;
(2) the incurrence by the Company or any Guarantor of Acquired
Subscriber Debt not to exceed $1,750 per Acquired Subscriber;
(3) the incurrence by the Company or any Guarantor of Deferred
Payments and letters of credit with respect thereto;
(4) Indebtedness of the Company or any Guarantor in an
aggregate principal amount not to exceed $1,050,000,000 at any one time
outstanding, which Indebtedness may be secured to the extent permitted
under Section 4.12 of this Indenture;
(5) Indebtedness between and among the Company and any
Guarantor;
(6) Acquired Debt of a Person incurred prior to the date upon
which such Person was acquired by the Company or any Guarantor
(excluding Indebtedness incurred by such entity other than in the
ordinary course of its business in connection with, or in contemplation
of, such entity being so acquired) in an amount not to exceed (A) $50
million in the aggregate for all such Persons other than those
described in the immediately following clause (B); and (B) Acquired
Debt owed to the Company or any of its Restricted Subsidiaries;
(7) Existing Indebtedness;
(8) the incurrence of Purchase Money Indebtedness by the
Company or any Guarantor in an amount not to exceed the cost of
construction, acquisition or improvement of assets used in any business
permitted under Section 4.16 of this Indenture, as well as any launch
costs and insurance premiums related to such assets;
(9) Hedging Obligations of the Company or any of its
Restricted Subsidiaries covering Indebtedness of the Company or such
Restricted Subsidiary to the extent the notional principal amount of
such Hedging Obligation does not exceed the principal amount of the
Indebtedness to which such Hedging Obligation relates; provided,
however, that such Hedging Obligations are entered into to protect the
Company and its Restricted Subsidiaries from fluctuation in interest
rates on Indebtedness incurred in accordance with this Indenture;
(10) Indebtedness of the Company or any Restricted Subsidiary
in respect of performance bonds or letters of credit of the Company or
any Restricted Subsidiary or surety bonds provided by the Company or
any Restricted Subsidiary incurred in the ordinary course of business
and on ordinary business terms in connection with the businesses
permitted under Section 4.16 of this Indenture;
(11) Indebtedness of the Company or any Guarantor the proceeds
of which are used solely to finance the construction and development of
call centers owned by the Company or any of its Re-
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stricted Subsidiaries or any refinancing thereof; provided that the
aggregate of all Indebtedness incurred pursuant to this clause (xi)
shall in no event exceed $25 million at any one time outstanding;
(12) the incurrence by the Company or any Guarantor of
Indebtedness issued in exchange for, or the proceeds of which are used
to extend, refinance, renew, replace, substitute or refund in whole or
in part Indebtedness referred to in the first paragraph of this Section
4.09 or in clauses (1), (2), (3), (6), (7) or (8) above ("Refinancing
Indebtedness"); provided, however, that:
(A) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount and accrued
interest of the Indebtedness so exchanged, extended,
refinanced, renewed, replaced, substituted or refunded and any
premiums payable and reasonable fees, expenses, commissions
and costs in connection therewith;
(B) the Refinancing Indebtedness shall have a final
maturity equal to or later than, and a Weighted Average Life
to Maturity equal to or greater than, the final maturity and
Weighted Average Life to Maturity, respectively, of the
Indebtedness being exchanged, extended, refinanced, renewed,
replaced, substituted or refunded; and
(C) the Refinancing Indebtedness shall be
subordinated in right of payment to the Notes and the
Guarantees, if at all, on terms at least as favorable to the
holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded (a "Permitted
Refinancing");
(13) the guarantee by the Company or any Guarantor of
Indebtedness of the Company or a Restricted Subsidiary that was
permitted to be incurred by another provision of this Section 4.09;
(14) Indebtedness under Capital Lease Obligations of the
Company or any Guarantor with respect to no more than five direct
broadcast satellites at any time; and
(15) Indebtedness represented by the EDBS Exchange Notes, the
EDBS Exchange Notes Guarantees and the EDBS Exchange Indenture.
For purposes of determining compliance with this Section 4.09, if an
item of Indebtedness meets the criteria of more than one of the categories
described in clauses (1) through (15) above or is permitted to be incurred
pursuant to the first paragraph of this Section 4.09 and also meets the criteria
of one or more of the categories described in clauses (1) through (15) above,
the Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this Section 4.09 and may from time to time
reclassify such item of Indebtedness in any manner in which such item could be
incurred at the time of such reclassification. Accrual of interest and the
accretion of accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this Section 4.09.
SECTION 4.10. Asset Sales.
If the Company or any Restricted Subsidiary, in a single transaction or
a series of related transactions:
(a) sells, leases (in a manner that has the effect of a
disposition), conveys or otherwise disposes of any of its assets
(including by way of a sale-and-leaseback transaction), other than:
(1) sales or other dispositions of inventory in the
ordinary course of business;
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(2) sales or other dispositions to the Company or a
Wholly Owned Restricted Subsidiary of the Company by the
Company or any Restricted Subsidiary;
(3) sales or other dispositions of accounts
receivable to DNCC for cash in an amount at least equal to the
fair market value of such accounts receivable;
(4) sales or other dispositions of rights to
construct or launch satellites; and
(5) sales or other dispositions permitted under
Section 4.19 of this Indenture (provided that the sale, lease,
conveyance or other disposition of all or substantially all of
the assets of the Company shall be governed by the provisions
of Article 5 of this Indenture); or
(b) issues or sells Equity Interests of any Restricted
Subsidiary (other than any issue or sale of Equity Interests of ETC or
a Subsidiary which constitutes a Non-Core Asset permitted under Section
4.19 of this Indenture);
in either case, which assets or Equity Interests: (1) have a fair market value
in excess of $50 million (as determined in good faith by the Board of Directors
evidenced by a resolution of the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee); or (2) are sold or otherwise disposed of
for net proceeds in excess of $50 million (each of the foregoing, an "Asset
Sale"), then:
(A) the Company or such Restricted Subsidiary, as the
case may be, must receive consideration at the time of such
Asset Sale at least equal to the fair market value (as
determined in good faith by the Board of Directors evidenced
by a resolution of the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee not later than
ten Business Days following a request from the Trustee, which
certificate shall cover each Asset Sale made in the six months
preceding the date of request, as the case may be) of the
assets sold or otherwise disposed of; and
(B) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary, as the
case may be, must be in the form of:
(x) cash, Cash Equivalents or Marketable
Securities;
(y) any asset which is promptly (and in no
event later than 90 days after the date of transfer
to the Company or a Restricted Subsidiary) converted
into cash; provided that to the extent that such
conversion is at a price that is less than the fair
market value (as determined above) of such asset at
the time of the Asset Sale in which such asset was
acquired, the Company shall be deemed to have made a
Restricted Payment in the amount by which such fair
market value exceeds the cash received upon
conversion; and/or
(z) properties and capital assets (including
Capital Stock of an entity owning such property or
assets so long as the receipt of such Capital Stock
otherwise complies with Section 4.07 (other than
clause (12) of the second paragraph thereof) to be
used by the Company or any of its Restricted
Subsidiaries in a business permitted under Section
4.16 of this Indenture;
provided, however, that up to $40 million of assets in
addition to assets specified in clauses (x), (y) or (z) above
at any one time may be considered to be cash for purposes of
this clause (B),
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so long as the provisions of the next paragraph are complied
with as such non-cash assets are converted to cash. The amount
of any liabilities of the Company or any Restricted Subsidiary
that are assumed by or on behalf of the transferee in
connection with an Asset Sale (and from which the Company or
such Restricted Subsidiary are unconditionally released) shall
be deemed to be cash for the purpose of this clause (B).
The Net Proceeds from such Asset Sale shall be used only: to
acquire assets used in, or stock or other ownership interests in a
Person that upon the consummation of such Asset Sale, becomes a
Restricted Subsidiary and will be engaged primarily in the business of
the Company as described in Section 4.16 of this Indenture, to
repurchase Notes, 1999 EDBS Notes or EDBS Exchange Notes, or if the
Company sells any of its satellites after launch such that the Company
or its Restricted Subsidiaries own fewer than three in-orbit
satellites, only to purchase a replacement satellite. Any Net Proceeds
from any Asset Sale that are not applied or invested as provided in the
preceding sentence within 365 days after such Asset Sale shall
constitute "Excess Proceeds" and shall be applied to an offer to
purchase Notes and other senior Indebtedness of the Company if and when
required under Section 3.08 of this Indenture.
Clause (B) of the second preceding paragraph shall not apply
to all or such portion of the consideration:
(1) as is properly designated by the Company in an
Asset Sale as being subject to this paragraph; and
(2) with respect to which the aggregate fair market
value at the time of receipt of all consideration received by
the Company or any Restricted Subsidiary in all such Asset
Sales so designated does not exceed the amount that the
Company and its Subsidiaries are permitted to designate as a
result of the cash contributions made to the Company by
EchoStar pursuant to the 1999 EDBS Notes Indentures and the
EBC Notes Indenture, in each case as in effect on the Issue
Date, and the EDBS Exchange Indenture, plus, to the extent any
such consideration did not satisfy clause (B)(x) or (B)(z)
above, upon the exchange or repayment of such consideration
for or with assets which satisfy either or both such clauses,
an amount equal to the fair market value of such consideration
(evidenced by a resolution of the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee as
set forth in clause (A) above).
In addition, clause (B) above shall not apply to any Asset
Sale:
(x) where assets not essential to the direct
broadcast satellite business are contributed to a joint
venture between the Company or one of its Restricted
Subsidiaries and a third party that is not an Affiliate of
EchoStar or any of its Subsidiaries; provided that following
the sale, lease, conveyance or other disposition the Company
or one of its Wholly Owned Restricted Subsidiaries owns at
least 50% of the voting and equity interest in such joint
venture;
(y) to the extent the consideration therefor received
by the Company or any of its Restricted Subsidiaries would
constitute Indebtedness or Equity Interests of a Person that
is not an Affiliate of EchoStar, the Company or one of their
respective Subsidiaries; provided that the acquisition of such
Indebtedness or Equity Interests is permitted under the
provisions of Section 4.07 of this Indenture; and
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(z) where the assets sold are satellites, uplink
centers or call centers; provided that, in the case of this
clause (z), the Company and its Restricted Subsidiaries
continue to own at least three satellites, one uplink center
and one call center.
(c) Transactions described under clause (vii) of Section 4.11
of this Indenture shall not be subject to the requirements of this
Section 4.10.
SECTION 4.11. Limitation on Transactions with Affiliates.
The Company shall not and shall not permit any Restricted Subsidiary
to, sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (including any Unrestricted Subsidiary) (each of the
foregoing, an "Affiliate Transaction"), unless:
(a) such Affiliate Transaction is on terms that are no less
favorable to the Company or its Restricted Subsidiaries than those that
would have been obtained in a comparable transaction by the Company or
such Subsidiaries with an unrelated Person; and
(b) if such Affiliate Transaction involves aggregate payments
in excess of $50 million, such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors,
and the Company delivers to the Trustee no later than ten Business Days
following a request from the Trustee a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction has been so approved and complies with clause (a)
above;
provided, however, that
(i) the payment of compensation to directors and
management of EchoStar and its Subsidiaries;
(ii) transactions between or among the Company and
its Wholly Owned Subsidiaries (other than Unrestricted
Subsidiaries of the Company);
(iii) any dividend, distribution, sale, conveyance or
other disposition of any assets of, or Equity Interests in,
any Non-Core Assets or ETC or the proceeds of a sale,
conveyance or other disposition thereof, in accordance with
the provisions of this Indenture;
(iv) transactions permitted by the provisions of this
Indenture described under clauses (1), (2), (4), (5), (6),
(8), (9), (10), (11), (14) and (15) of the second paragraph of
Section 4.07 of this Indenture;
(v) so long as it complies with clause (a) above, the
provision of backhaul, uplink, transmission, billing, customer
service, programming acquisition and other ordinary course
services by the Company or any of its Restricted Subsidiaries
to Satellite Communications Operating Corporation and to
Transponder Encryption Services Corporation on a basis
consistent with past practice;
(vi) the provision of services to EchoStar and its
Affiliates by the Company or any of its Restricted
Subsidiaries so long as no cash or other assets are
transferred by the Company or its Restricted Subsidiaries in
connection with such transactions (other than up to $10
million in cash in any fiscal year and other than nonmaterial
assets used in the operations of the
-46-
business in the ordinary course pursuant to the agreement
governing the provision of the services), and so long as such
transaction or agreement is determined by a majority of the
members of the Board of Directors to be fair to the Company
and its Restricted Subsidiaries when taken together with all
other such transactions and agreements entered into with
EchoStar and its Affiliates;
(vii) the disposition of assets of the Company and its
Restricted Subsidiaries in exchange for assets of EchoStar and
its Affiliates so long as (i) the value to the Company in its
business of the assets the Company receives is determined by a
majority of the members of the Board of Directors to be
substantially equivalent or greater than the value to the
Company in its business of the assets disposed of, and (ii)
the assets acquired by the Company and its Restricted
Subsidiaries constitute properties and capital assets
(including Capital Stock of an entity owning such property or
assets so long as the receipt of such Capital Stock otherwise
complies with Section 4.07 of this Indenture (other than
clause (12) of the second paragraph thereof)) to be used by
the Company or any of its Restricted Subsidiaries in a
business permitted as described under Section 4.16 of this
Indenture;
(viii) substantially concurrently with or at any time
after the completion of the Subscriber Contribution, the
issuance by the Company of a guarantee of Indebtedness of
EchoStar or any of its Affiliates in an amount not to exceed
$2,700 million and a grant of a security interest therefor up
to the Maximum Secured Amount; and
(ix) any transactions between the Company or any
Restricted Subsidiary of the Company and any Affiliate of the
Company the Equity Interests of which Affiliate are owned
solely by the Company or one of its Restricted Subsidiaries,
on the one hand, and by Persons who are not Affiliates of the
Company or Restricted Subsidiaries of the Company, on the
other hand,
shall, in each case, not be deemed Affiliate Transactions.
SECTION 4.12. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired, or on any income or profits therefrom
or assign or convey any right to receive income therefrom, except Permitted
Liens.
SECTION 4.13. Additional Subsidiary Guarantees.
If the Company or any Guarantor transfers or causes to be transferred,
in one transaction or a series of related transactions, property or assets
(including, without limitation, businesses, divisions, real property, assets or
equipment) having a fair market value (as determined in good faith by the Board
of Directors evidenced by a resolution of the Board of Directors and set forth
in an Officers' Certificate delivered to the Trustee no later than five Business
Days following January 1 and July 1 of each year or ten days following a request
from the Trustee, which Officers' Certificate shall cover the six months
preceding January 1, July 1 or the date of request, as the case may be)
exceeding the sum of $50 million in the aggregate for all such transfers after
the Issue Date minus the fair market value of Restricted Subsidiaries acquired
or created after the Issue Date that are not Guarantors (fair market value being
determined as of the time of such acquisition) to Restricted Subsidiaries that
are not Guarantors, the Company shall, or shall cause each of such Subsidiaries
to which any amount exceeding such $50 million (less such fair market value) is
transferred to:
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(i) execute and deliver to the Trustee a supplemental
indenture in form and substance reasonably satisfactory to the Trustee
pursuant to which such Subsidiary shall unconditionally guarantee all
of the Company's obligations under the Notes on the terms set forth in
this Indenture; and
(ii) deliver to the Trustee an Opinion of Counsel reasonably
satisfactory to the Trustee that such supplemental indenture and
Guarantee have been duly authorized, executed and delivered by and are
valid and binding obligations of such Subsidiary or such owner, as the
case may be;
provided, however, that the foregoing provisions shall not apply to transfers of
property or assets (other than cash) by the Company or any Guarantor in exchange
for cash, Cash Equivalents or Marketable Securities in an amount equal to the
fair market value (as determined in good faith by the Board of Directors
evidenced by a resolution of the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee no later than five Business Days
following January 1 and July 1 of each year or ten days following a request from
the Trustee, which Officers' Certificate shall cover the six months preceding
January 1, July 1 or the date of request, as the case may be) of such property
or assets. In addition, if (i) the Company or any of its Restricted Subsidiaries
acquires or creates another Restricted Subsidiary or (ii) an Unrestricted
Subsidiary of the Company is redesignated as a Restricted Subsidiary or
otherwise ceases to be an Unrestricted Subsidiary, such Subsidiary shall execute
a supplemental indenture and deliver an opinion of counsel, each as required in
the preceding sentence; provided that no supplemental indenture or opinion shall
be required if the fair market value (as determined in good faith by the Board
of Directors and set forth in an Officers' Certificate delivered to the Trustee
no later than five Business Days following January 1 and July 1 of each year or
ten days following a request from the Trustee, which certificate shall cover the
six months preceding such January 1, July 1 or the date of request, as the case
may be) of all such Restricted Subsidiaries created, acquired or designated
since the Issue Date (fair market value being determined as of the time of
creation, acquisition or designation) does not exceed the sum of $50 million in
the aggregate minus the fair market value of the assets transferred to any
Subsidiaries of the Company which do not execute supplemental indentures
pursuant to the preceding sentences; provided further that to the extent a
Restricted Subsidiary is subject to the terms of any instrument governing
Acquired Debt, as in effect at the time of acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition) which instrument or restriction prohibits such Restricted
Subsidiary from issuing a Guarantee, such Restricted Subsidiary shall not be
required to execute such a supplemental indenture until it is permitted to issue
such Guarantee pursuant to the terms of such Acquired Debt.
SECTION 4.14. Corporate Existence.
Subject to Article 5 of this Indenture and the next succeeding
paragraph of this Section 4.14, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its existence
as a corporation, and subject to Sections 4.10 and 4.19, the corporate,
partnership or other existence of any Restricted Subsidiary, in accordance with
the respective organizational documents (as the same may be amended from time to
time) of the Company or any Restricted Subsidiary and (ii) subject to Section
4.10 and 4.19, the rights (charter and statutory), licenses and franchises of
the Company and its Restricted Subsidiaries; provided, however, that the Company
shall not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any Restricted Subsidiary if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Notes.
SECTION 4.15. Offer To Purchase Upon Change of Control.
Upon the occurrence of a Change of Control, the Company will be
required to make an offer (a "Change of Control Offer") to each Holder of Notes
to repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of such Holder's Notes at a purchase price equal to 101% of the aggregate
principal amount thereof,
-48-
together with accrued and unpaid interest thereon to the date of repurchase (in
either case, the "Change of Control Payment"). Within 15 days following any
Change of Control, the Company shall mail a notice to each Holder stating:
(a) that the Change of Control Offer is being made pursuant to
the covenant entitled "Section 4.15 - Offer to Purchase Upon Change of
Control";
(b) the purchase price and the purchase date, which shall be
no earlier than 30 days nor later than 40 days after the date such
notice is mailed (the "Change of Control Payment Date");
(c) that any Notes not tendered will continue to accrue
interest in accordance with the terms of this Indenture;
(d) that, unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(e) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Notes delivered for
purchase, and a statement that such Holder is withdrawing his election
to have such Notes purchased;
(f) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof;
and
(g) any other information material to such Holder's decision
to tender Notes.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes required in the event of a Change of Control.
SECTION 4.16. Limitation on Activities of the Company.
Neither the Company nor any of its Restricted Subsidiaries may engage
in any business other than developing, owning, engaging in and dealing with all
or any part of the business of domestic and international media, entertainment,
electronics or communications, and reasonably related extensions thereof,
including but not limited to the purchase, ownership, operation, leasing and
selling of, and generally dealing in or with, one or more communications
satellites and the transponders thereon, and communications uplink centers, the
acquisition, transmission, broadcast, production and other provision of
programming relating thereto and the manufacturing, distribution and financing
of equipment (including consumer electronic equipment) relating thereto.
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SECTION 4.17. Intentionally Omitted.
SECTION 4.18. Accounts Receivable Subsidiary.
The Company:
(a) may, and may permit any of its Subsidiaries to,
notwithstanding the provisions of Section 4.07 of this Indenture, make
Investments in an Accounts Receivable Subsidiary:
(i) the proceeds of which are applied within five
Business Days of the making thereof solely to finance:
(A) the purchase of accounts receivable of
the Company and its Subsidiaries; or
(B) payments required in connection with the
termination of all then existing arrangements
relating to the sale of accounts receivable or
participation interests therein by an Accounts
Receivable Subsidiary (provided that the Accounts
Receivable Subsidiary shall receive cash, Cash
Equivalents and accounts receivable having an
aggregate fair market value not less than the amount
of such payments in exchange therefor); and
(ii) in the form of Accounts Receivable Subsidiary
Notes to the extent permitted by clause (b) below;
(b) shall not, and shall not permit any of its Subsidiaries
to, sell accounts receivable to an Accounts Receivable Subsidiary
except for consideration in an amount not less than that which would be
obtained in an arm's length transaction and solely in the form of cash
or Cash Equivalents; provided that an Accounts Receivable Subsidiary
may pay the purchase price for any such accounts receivable in the form
of Accounts Receivable Subsidiary Notes so long as, after giving effect
to the issuance of any such Accounts Receivable Subsidiary Notes, the
aggregate principal amount of all Accounts Receivable Subsidiary Notes
outstanding shall not exceed 20% of the aggregate purchase price paid
for all outstanding accounts receivable purchased by an Accounts
Receivable Subsidiary since the Issue Date (and not written off or
required to be written off in accordance with the normal business
practice of an Accounts Receivable Subsidiary);
(c) shall not permit an Accounts Receivable Subsidiary to sell
any accounts receivable purchased from the Company or its Subsidiaries
or participation interests therein to any other Person except on an
arm's length basis and solely for consideration in the form of cash or
Cash Equivalents or certificates representing undivided interests of a
Receivables Trust; provided an Accounts Receivable Subsidiary may not
sell such certificates to any other Person except on an arm's length
basis and solely for consideration in the form of cash or Cash
Equivalents;
(d) shall not, and shall not permit any of its Subsidiaries
to, enter into any guarantee, subject any of their respective
properties or assets (other than the accounts receivable sold by them
to an Accounts Receivable Subsidiary) to the satisfaction of any
liability or obligation or otherwise incur any liability or obligation
(contingent or otherwise), in each case, on behalf of an Accounts
Receivable Subsidiary or in connection with any sale of accounts
receivable or participation interests therein by or to an Accounts
Receivable Subsidiary, other than obligations relating to breaches of
representations, warranties, covenants and other agreements of the
Company or any of its Subsidiaries with respect to the ac-
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counts receivable sold by the Company or any of its Subsidiaries to an
Accounts Receivable Subsidiary or with respect to the servicing
thereof; provided that neither the Company nor any of its Subsidiaries
shall at any time guarantee or be otherwise liable for the
collectibility of accounts receivable sold by them;
(e) shall not permit an Accounts Receivable Subsidiary to
engage in any business or transaction other than the purchase and sale
of accounts receivable or participation interests therein of the
Company and its Subsidiaries and activities incidental thereto;
(f) shall not permit an Accounts Receivable Subsidiary to
incur any Indebtedness other than the Accounts Receivable Subsidiary
Notes, Indebtedness owed to the Company and Non-Recourse Indebtedness;
provided that the aggregate principal amount of all such Indebtedness
of an Accounts Receivable Subsidiary shall not exceed the book value of
its total assets as determined in accordance with GAAP;
(g) shall cause any Accounts Receivable Subsidiary to remit to
the Company or a Restricted Subsidiary of the Company on a monthly
basis as a distribution all available cash and Cash Equivalents not
held in a collection account pledged to acquirers of accounts
receivable or participation interests therein, to the extent not
applied to:
(i) pay interest or principal on the Accounts
Receivable Subsidiary Notes or any Indebtedness of such
Accounts Receivable Subsidiary owed to the Company;
(ii) pay or maintain reserves for reasonable
operating expenses of such Accounts Receivable Subsidiary or
to satisfy reasonable minimum operating capital requirements;
or
(iii) to finance the purchase of additional accounts
receivable of the Company and its Subsidiaries; and
(h) shall not, and shall not permit any of its Subsidiaries
to, sell accounts receivable to, or enter into any other transaction
with or for the benefit of, an Accounts Receivable Subsidiary:
(i) if such Accounts Receivable Subsidiary pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for
relief against it in an involuntary case;
(C) consents to the appointment of a
custodian of it or for all or substantially all of
its property;
(D) makes a general assignment for the
benefit of its creditors; or
(E) generally is not paying its debts as
they become due, or
(ii) if a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that
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(A) is for relief against such Accounts
Receivable Subsidiary in an involuntary case;
(B) appoints a Custodian of such Accounts
Receivable Subsidiary or for all or substantially all
of the property of such Accounts Receivable
Subsidiary; or
(C) orders the liquidation of such Accounts
Receivable Subsidiary, and, with respect to clause
(ii) hereof, the order or decree remains unstayed and
in effect for 60 consecutive days.
SECTION 4.19. Dispositions of ETC and Non-Core Assets.
Notwithstanding the provisions of Section 4.07 and Section 4.10 of this
Indenture, in the event that the Indebtedness to Cash Flow Ratio of the Company
would not have exceeded 6.0 to 1 on a pro forma basis after giving effect to the
sale of all of the Equity Interests in or assets of ETC owned by the Company and
its Subsidiaries, then:
(1) the payment of any dividend or distribution consisting of
Equity Interests in or assets of ETC, or the proceeds of a sale,
conveyance or other disposition of such Equity Interests or assets or
the sale, conveyance or other disposition of Equity Interests in or
assets of ETC or the proceeds of a sale, conveyance or other
disposition of such Equity Interests or assets shall not constitute a
Restricted Payment;
(2) the sale, conveyance or other disposition of the Equity
Interests in or assets of ETC or the proceeds of a sale, conveyance or
other disposition of such Equity Interests or assets shall not
constitute an Asset Sale; and
(3) upon delivery of an Officers' Certificate to the Trustee
evidencing satisfaction of the conditions to such release and a written
request to the Trustee requesting such release, ETC shall be discharged
and released from its Guarantee and, so long as the Company designates
ETC as an Unrestricted Subsidiary, ETC shall be discharged and released
from all covenants and restrictions contained in this Indenture;
provided that no such payment, dividend, distribution, sale, conveyance or other
disposition of any kind (collectively, a "Payout") described in clauses (1) and
(2) above shall be permitted if at the time of such Payout:
(a) after giving pro forma effect to such Payout, the Company
would not have been permitted under Section 4.07 of this Indenture to
make a Restricted Payment in an amount equal to the total (the "ETC
Amount Due") of:
(i) the amount of all Investments (other than the
contribution of:
(x) title to the headquarters building of
ETC in Inverness, Colorado and the tangible assets
therein to the extent used by ETC as of the date of
this Indenture; and
(y) patents, trademarks and copyrights
applied for or granted as of the date of this
Indenture to the extent used by ETC or resulting from
the business of ETC, in each case, to ETC)
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made in ETC by the Company or its Restricted Subsidiaries
since the date of this Indenture (which, in the case of
Investments in exchange for assets, shall be valued at the
fair market value of each such asset at the time each such
Investment was made); minus
(ii) the amount of the after-tax value of all cash
returns on such Investments paid to the Company or its Wholly
Owned Restricted Subsidiaries (or, in the case of a non-Wholly
Owned Restricted Subsidiary, the pro rata portion thereof
attributable to the Company); minus
(iii) $50 million; and
(b) any contract, agreement or understanding between ETC and
the Company or any Restricted Subsidiary of the Company and any loan or
advance to or guarantee with, or for the benefit of, ETC issued or made
by the Company or one of its Restricted Subsidiaries, is on terms that
are less favorable to the Company or its Restricted Subsidiaries than
those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiaries with an unrelated Person, all
as evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, within ten Business
Days of a request by the Trustee certifying that each such contract,
agreement, understanding, loan, advance and guarantee has been approved
by a majority of the members of the Board of Directors.
If at the time of such Payout, the condition set forth in clause (a) of
the proviso of the preceding sentence cannot be satisfied, ETC may seek to have
a Person other than the Company or one of its Restricted Subsidiaries pay in
cash an amount to the Company or its Restricted Subsidiaries such that after
taxes, such amount is greater than or equal to the ETC Amount Due or the portion
of the ETC Amount Due which would not have been permitted to be made as a
Restricted Payment by the Company; provided that such payment shall be treated
for purposes of this Section 4.19 as a cash return on the Investments made in
ETC; and provided further that for all purposes under this Indenture, such
payment shall not be included in any calculation under clauses (iii)(A) through
(iii)(E) of the first paragraph of Section 4.07 of this Indenture. To the extent
that the ETC Amount Due or any portion thereof would have been permitted to be
made as a Restricted Payment by the Company and was not paid by another Person
as permitted by the preceding sentence, the Company shall be deemed to have made
a Restricted Payment in the amount of such ETC Amount Due or portion thereof, as
the case may be.
Notwithstanding the provisions of Section 4.07 and Section 4.10 of this
Indenture:
(1) the payment of any dividend or distribution consisting of
Equity Interests in or assets of any Non-Core Asset or the proceeds of
a sale, conveyance or other disposition of such Equity Interests or
assets or the sale, conveyance or other disposition of Equity Interests
in or assets of any Non-Core Asset or the proceeds of a sale,
conveyance or other disposition of such Equity Interests or assets
shall not constitute a Restricted Payment; and
(2) the sale, conveyance or other disposition of the Equity
Interests in or assets of any Non-Core Asset or the proceeds of a sale,
conveyance or other disposition of such Equity Interests or assets
shall not constitute an Asset Sale; and
(3) upon delivery of an Officers' Certificate to the Trustee
evidencing satisfaction of the conditions to such release and a written
request to the Trustee requesting such release, any such Non-Core Asset
that is a Guarantor shall be discharged and released from its Guarantee
and, so long as the Company designates such Non-Core Asset as an
Unrestricted Subsidiary, such Non-Core Asset shall be released from all
covenants and restrictions contained in this Indenture;
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provided that no Payout of any Non-Core Asset shall be permitted such as
described in clauses (1) and (2) above if at the time of such Payout:
(a) after giving pro forma effect to such Payout, the Company
would not have been permitted under Section 4.07 of this Indenture to
make a Restricted Payment in an amount equal to the total (the
"Non-Core Asset Amount Due") of:
(i) the amount of all Investments made in such
Non-Core Asset by the Company or its Restricted Subsidiaries
since the Issue Date (which, in the case of Investments in
exchange for assets, shall be valued at the fair market value
of each such asset at the time each such Investment was made);
minus
(ii) the amount of the after-tax value of all cash
returns on such Investments paid to the Company or its Wholly
Owned Restricted Subsidiaries (or, in the case of a non-Wholly
Owned Restricted Subsidiary, the pro rata portion thereof
attributable to the Company); minus
(iii) $50 million in the aggregate for all such
Payouts and $10 million for any single such Payout; and
(b) any contract, agreement or understanding between or
relating to a Non-Core Asset and the Company or a Restricted Subsidiary
of the Company and any loan or advance to or guarantee with, or for the
benefit of, a Restricted Subsidiary which is a Non-Core Asset issued or
made by the Company or one of its Restricted Subsidiaries, is on terms
that are less favorable to the Company or its Restricted Subsidiaries
than those that would have been obtained in a comparable transaction by
the Company or such Restricted Subsidiaries with an unrelated Person,
all as evidenced by a resolution of the Board of Directors as set forth
in an Officers' Certificate delivered to the Trustee, within ten
Business Days of a request by the same, certifying that each such
contract, agreement, understanding, loan, advance and guarantee has
been approved by a majority of the Board of Directors.
If at the time of such Payout, the condition set forth in clause (a) of
the proviso of the preceding sentence cannot be satisfied, such Restricted
Subsidiary which is a Non-Core Asset may seek to have a Person other than the
Company or one of its Restricted Subsidiaries pay in cash an amount to the
Company such that, after taxes, such amount is greater than or equal to the
Non-Core Asset Amount Due or the portion of the Non-Core Asset Amount Due which
would not have been permitted to be made as a Restricted Payment by the Company;
provided that such payment shall be treated for purposes of this Section 4.19 as
a cash return on the Investments made in a Non-Core Asset and provided further
that for all purposes under this Indenture, such payment shall not be included
in any calculation under clauses (iii)(A) through (iii)(E) of the first
paragraph of Section 4.07 of this Indenture. To the extent that the Non-Core
Asset Amount Due or any portion thereof would have been permitted to be made as
a Restricted Payment by the Company and was not paid by another Person as
permitted by the preceding sentence, the Company shall be deemed to have made a
Restricted Payment in the amount of such Non-Core Asset Amount Due or portion
thereof, as the case may be.
Promptly after any Payout pursuant to the terms of this Section 4.19,
within ten Business Days of a request by the Trustee, the Company shall deliver
an Officers' Certificate to the Trustee setting forth the Investments made by
the Company or its Restricted Subsidiaries in ETC or a Non-Core Asset, as the
case may be, and certifying that the requirements of this Section 4.19 have been
satisfied in connection with the making of such Payout.
Notwithstanding anything contained in this Section 4.19 to the
contrary, any disposition of ETC or Non-Core Assets permitted pursuant to the
1999 EDBS Notes Indentures and the EBC Notes Indenture, in each case
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as in effect on the Issue Date, and permitted pursuant to the EDBS Exchange
Indenture shall also be permitted pursuant to this Indenture and shall not be
considered a "Restricted Payment" or "Asset Sale" for purposes of this
Indenture.
SECTION 4.20. Payments For Consent.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of a Note for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or agreed to be paid to all holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
ARTICLE 5
SUCCESSORS
SECTION 5.01. Merger, Consolidation, or Sale of Assets of the Company.
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving entity), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to, another Person unless:
(a) the Company is the surviving Person or the Person formed
by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(b) the Person formed by or surviving any such consolidation
or merger (if other than the Company) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee,
under the Notes and this Indenture;
(c) immediately after such transaction no Default or Event of
Default exists; and
(d) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will
have been made
(i) will have Consolidated Net Worth immediately
after the transaction (but prior to any purchase accounting
adjustments or accrual of deferred tax liabilities resulting
from the transaction) not less than the Consolidated Net Worth
of the Company immediately preceding the transaction; and
(ii) would, at the time of such transaction after
giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Indebtedness to Cash Flow Ratio
test set forth in the first paragraph of Section 4.09.
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Notwithstanding the foregoing, the Company may merge with another
Person if
(a) the Company is the surviving Person;
(b) the consideration issued or paid by the Company in such
merger consists solely of Equity Interests (other than Disqualified
Stock) of the Company or Equity Interests of EchoStar; and
(c) immediately after giving effect to such merger, the
Company's Indebtedness to Cash Flow Ratio does not exceed the Company's
Indebtedness to Cash Flow Ratio immediately prior to such merger.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the Company shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company, herein.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest on
the Notes;
(b) default in the payment when due of principal of the Notes
at maturity, upon repurchase, redemption or otherwise;
(c) failure to comply with the provisions of Section 4.10,
Section 4.11 or Section 4.15;
(d) default under Section 4.07 or Section 4.09, which default
remains uncured for 30 days, or the breach of any representation or
warranty, or the making of any untrue statement, in any certificate
delivered by the Company pursuant to this Indenture;
(e) failure by the Company for 60 days after notice from the
Trustee or the Holders of at least 25% in principal amount then
outstanding of the Notes to comply with any of its other agreements in
this Indenture or the Notes;
(f) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company and any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the
Company and any of its Restricted Subsidiaries), which default is
caused by a failure to pay when due principal or interest on such
Indebtedness within the grace period provided in such Indebtedness (a
"Payment Default"), and
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the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has
been a Payment Default, aggregates $100 million or more;
(g) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company and any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries), which default results
in the acceleration of such Indebtedness prior to its express maturity
and the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so
accelerated, aggregates $100 million or more; provided that any
acceleration (other than an acceleration which is the result of a
Payment Default under clause (f) above) of Indebtedness under the
Outstanding Deferred Payments in aggregate principal amount not to
exceed $150 million shall be deemed not to constitute an acceleration
pursuant to this clause (g);
(h) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments (other than any judgment as to
which a reputable insurance company has accepted full liability)
aggregating in excess of $100 million, which judgments are not stayed
within 60 days after their entry;
(i) EchoStar, EBC, the Company or any Significant Subsidiary
of the Company pursuant to or within the meaning of Bankruptcy Law: (i)
commences a voluntary case; (ii) consents to the entry of an order for
relief against it in an involuntary case; (iii) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; or (iv) makes a general assignment for the benefit of its
creditors;
(j) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (i) is for relief against
EchoStar, EBC, the Company or any Significant Subsidiary of the Company
in an involuntary case; (ii) appoints a custodian of EchoStar, EBC, the
Company or any Significant Subsidiary of the Company or for all or
substantially all of the property of EchoStar, EBC, the Company or any
Significant Subsidiary of the Company; or (iii) orders the liquidation
of EchoStar or any Significant Subsidiary of the Company, and the order
or decree remains unstayed and in effect for 60 consecutive days; and
(k) any Guarantee shall be held in a judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect, or any Guarantor, or any person acting on behalf of
any Guarantor, shall deny or disaffirm its obligations under its
Guarantee.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (i) or (j) of Section 6.01) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes by written notice to the Company and the
Trustee, may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default specified in
clause (i) or (j) of Section 6.01 with respect to the Company or any Guarantor,
all outstanding Notes shall become and be immediately due and payable without
further action or notice. Holders of the Notes may not enforce this Indenture or
the Notes except as provided in this Indenture. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in such Holders' interest.
The Holders of a majority in aggregate principal amount of the then outstanding
Notes by written notice to the Trustee may on behalf of all of the Holders
rescind an acceleration and its consequences if the rescission would not
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conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of the acceleration) have been cured or waived.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company or its
Subsidiaries with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Notes pursuant to Section 3.07, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law.
All powers of the Trustee under this Indenture will be subject to
applicable provisions of the Communications Act, including without limitation,
the requirements of prior approval for de facto or de jure transfer of control
or assignment of Title III licenses.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes and this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of
Notes then outstanding, by notice to the Trustee, may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences under this Indenture, except a continuing Default or Event of
Default in the payment of the principal of, premium, if any, or interest on, the
Notes. Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with the law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Notes or that may involve
the Trustee in personal liability.
SECTION 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue
the remedy;
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(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee
a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. Rights of Holders of Notes To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder of
the Note.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), the Company's creditors or the Company's
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder of
a Note to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders of the
Notes, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties which the Holders of the Notes may be entitled to receive
in such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder of a Note any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder of a Note thereof,
or to authorize the Trustee to vote in respect of the claim of any Holder of a
Note in any such proceeding.
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SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium, if any and interest,
respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent Person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
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(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to the Trustee against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
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(g) Except with respect to Section 4.01, the Trustee shall have no duty
to inquire as to the performance of the Company's covenants in Article 4. In
addition, the Trustee shall not be deemed to have knowledge of any Default or
Event of Default except (i) any Event of Default occurring pursuant to Sections
4.01, 6.01(a) and 6.01(b) or (ii) any Default or Event of Default of which the
Trustee shall have received written notification or obtained actual knowledge.
(h) Delivery of reports, information and documents to the Trustee under
Section 4.03 is for informational purposes only and the Trustee's receipt of the
foregoing shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as Trustee (if any of the Notes are registered pursuant
to the Securities Act), or resign. Any Agent may do the same with like rights
and duties. The Trustee is also subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest on any Note, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders
of the Notes.
SECTION 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall mail to the Holders of the Notes a
brief report dated as of such reporting date that complies with TIA Section
313(a) (but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA Section 313(b). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which any Notes are listed. The Company shall promptly notify the
Trustee when any Notes are listed on any stock exchange.
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SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, except any such
loss, liability or expense as may be attributable to the gross negligence,
willful misconduct or bad faith of the Trustee. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(i) or (j) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company and obtaining the prior
written approval of the FCC, if so required by the Communications Act, including
Section 310(d) and the rules and regulations promulgated thereunder. The Holders
of at least a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee (subject to the prior written approval of the
FCC, if required by the Communications Act, including Section 310(d), and the
rules and regulations promulgated thereunder) if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) the Trustee is no longer in compliance with the foreign
ownership provisions of Section 310 of the Communications Act and the
rules and regulations promulgated thereunder.
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(d) a Custodian or public officer takes charge of the Trustee
or its property; or
(e) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder of a Note who has
been a Holder of a Note for at least six months fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by federal or
state authority and shall have a combined capital and surplus of at least $25
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. Option To Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, with respect to
the Notes, elect to have either Section 8.02 or 8.03 be applied to all
outstanding Notes upon compliance with the conditions set forth below in this
Article 8.
SECTION 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 of the option applicable
to this Section 8.02, the Company shall be deemed to have been discharged from
its obligations with respect to all outstanding Notes on the date the conditions
set forth below are satisfied (hereinafter, "Legal Defeasance"). For this
purpose, such Legal Defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all its other obligations under such
Notes and this Indenture (and the Trustee, on demand of and at the expense of
the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due, or on the redemption date, as the case may be, (b) the
Company's obligations with respect to such Notes under Sections 2.05, 2.07,
2.08, 2.10, 2.11 and 4.02, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article 8. Subject to compliance with this Article 8, the Company
may exercise its option under this Section 8.02 notwithstanding the prior
exercise of its option under Section 8.03 with respect to the Notes.
SECTION 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 of the option applicable
to this Section 8.03, the Company shall be released from its obligations under
the covenants contained in Sections 3.08, 4.03, 4.04, 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16, 4.18, 4.19 and 5.01 with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for GAAP). For this purpose, such Covenant Defeasance
means that, with respect to the outstanding Notes, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.01(c), but, except as specified above, the remainder
of this Indenture and such Notes shall be unaffected thereby. In addition, upon
the Company's exercise under Section 8.01 of the option applicable to this
Section 8.03, Sections 6.01(c) through 6.01(h) and Section 6.01(k) shall not
constitute Events of Default.
SECTION 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or Section 8.03 to the outstanding Notes:
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(a) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 who shall agree to comply with the
provisions of this Article 8 applicable to it) as trust funds in trust
for the purpose of making the following payments, specifically pledged
as security for, and dedicated solely to, the benefit of the Holders of
such Notes, (i) cash in U.S. Dollars, (ii) non-callable Government
Securities which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment,
cash in U.S. Dollars, or (iii) a combination thereof, in such amounts,
as will be sufficient in each case, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge (A) the principal of, premium,
if any, and interest on the outstanding Notes on the stated maturity or
on the applicable redemption date, as the case may be, of such
principal or installment of principal, premium, if any, or interest and
(B) any mandatory sinking fund payments or analogous payments
applicable to the outstanding Notes on the day on which such payments
are due and payable in accordance with the terms of this Indenture and
of such Notes; provided that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such non-callable
Government Securities to said payments with respect to the Notes;
(b) In the case of an election under Section 8.02, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably satisfactory to the Trustee confirming that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (ii) since the Issue Date, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the
Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(c) In the case of an election under Section 8.03, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee to the effect that the
Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) No Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit or,
in so far as Section 6.01(i) or 6.01(j) is concerned, at any time in
the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied
until the expiration of such period);
(e) Such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound;
(f) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit made by the Company
pursuant to its election under Section 8.02 or 8.03 was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and
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(g) The Company shall have delivered to the Trustee an
Officers' Certificate stating that all conditions precedent provided
for relating to either the Legal Defeasance under Section 8.02 or the
Covenant Defeasance under Section 8.03 (as the case may be) have been
complied with as contemplated by this Section 8.04.
SECTION 8.05. Deposited Money and Government Securities To Be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06, all money and Government Securities (including
the proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 8.05, the "Trustee") pursuant to
Section 8.04 in respect of the outstanding Notes shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Notes of all sums due and to become due thereon in respect
of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or Government Securities held by it as provided in Section
8.04 which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a)), are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustees thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
Dollars or Government Notes in accordance with Section 8.02 or 8.03, as the case
may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Notes shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.02 or
8.03 until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.02 or 8.03, as the case may be;
provided, however, that, if the Company makes any
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payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture, the Notes and
the Guarantees without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes or Guarantees in
addition to or in place of certificated Notes or Guarantees;
(c) to provide for the assumption of the Company's and the
Guarantors' obligations to the Holders of the Notes in the case of a
merger or consolidation pursuant to Article 5 or Article 10;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights hereunder of any Holder of the Notes;
or
(e) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company and a resolution of the board of directors of
each Guarantor and upon receipt by the Trustee of the documents described in
Section 11.04, the Trustee shall join with the Company and the Guarantors in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture which affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. With Consent of Holders of Notes.
The Company, the Guarantors and the Trustee may amend or supplement
this Indenture, the Notes or the Guarantees or any amended or supplemental
Indenture with the written consent of the Holders of Notes of at least a
majority in aggregate principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes), and any existing Default and its consequences or compliance with any
provision of this Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes). Notwithstanding the foregoing, (a) Sections 3.08, 4.10 and 4.15
of this Indenture (including, in each case, the related definitions) may not be
amended or waived without the written consent of at least 66-2/3% in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for the Notes) and (b) without the consent
of each Holder affected, an amendment or waiver may not (with respect to any
Notes held by a non-consenting Holder of Notes):
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(a) reduce the aggregate principal amount of Notes whose
Holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any Note or alter the provisions with respect to the redemption of the
Notes;
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes
and a waiver of the payment default that resulted from such
acceleration);
(e) make any Note payable in money other than that stated in
the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or interest on the Notes;
(g) waive a redemption payment or mandatory redemption with
respect to any Note; or
(h) make any change in the foregoing amendment and waiver
provisions.
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company and a resolution of the board of directors of
each Guarantor, and upon the filing with the Trustee of evidence satisfactory to
the Trustee of the consent of the Holders of Notes as aforesaid, and upon
receipt by the Trustee of the documents described in Section 11.04, the Trustee
shall join with the Company and the Guarantors in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture and the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evi-
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dences the same debt as the consenting Holder's Note, even if notation of the
consent is not made on any Note. However, any such Holder of a Note or
subsequent Holder of a Note may revoke the consent as to its Note if the Trustee
receives written notice of revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every Holder of a
Note.
The Company may fix a record date for determining which Holders of the
Notes must consent to such amendment, supplement or waiver. If the Company fixes
a record date, the record date shall be fixed at (i) the later of 30 days prior
to the first solicitation of such consent or the date of the most recent list of
Holders of Notes furnished to the Trustee prior to such solicitation pursuant to
Section 2.05 or (ii) such other date as the Company shall designate.
SECTION 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. Neither the
Company nor any Guarantor may sign any amended or supplemental Indenture until
its board of directors approves it.
ARTICLE 10
GUARANTEES
SECTION 10.01. Guarantee.
Each of the Guarantors, jointly and severally, hereby unconditionally
guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of this Indenture, the Notes or the Obligations of the
Company hereunder or thereunder, that:
(a) the principal of and interest on the Notes will be
promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and
interest on the Notes, if any, if lawful, and all other obligations of
the Company to the Holders or the Trustee hereunder or thereunder will
be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and
(b) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that same will be promptly
paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, each of the Guarantors,
jointly and severally, will be obligated to pay the same immediately.
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Each of the Guarantors, jointly and severally, hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor.
Each of the Guarantors, jointly and severally, hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice (except that the Trustee shall provide at
least ten days' prior written notice to the Company on behalf of the Guarantors
before taking any action for which the Communications Act and/or the FCC rules
require such notice and which right to notice is not waivable by any Guarantor)
and all demands whatsoever and covenant that this Guarantee will not be
discharged except by complete performance of the Obligations guaranteed hereby.
If any Holder or the Trustee is required by any court or otherwise to return to
the Company or any Guarantor, or any Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or any Guarantor, any
amount paid by either to the Trustee or such Holder, this Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each of the Guarantors, jointly and severally, agrees that it shall not
be entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby. Each of the Guarantors, jointly and
severally, further agrees that, as between such Guarantor, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article 6 for
the purposes of this Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6, such obligations (whether or not due
and payable) shall forthwith become due and payable by each Guarantor for the
purpose of this Guarantee. Notwithstanding the foregoing, in the event that any
Guarantee would constitute or result in a violation of any applicable fraudulent
conveyance or similar law of any relevant jurisdiction, the liability of the
applicable Guarantor under its Guarantee shall be reduced to the maximum amount
permissible under such fraudulent conveyance or similar law.
The Guarantors hereby agree as among themselves that each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
pro rata contribution from each other Guarantor hereunder based on the net
assets of each other Guarantor. The preceding sentence shall in no way affect
the rights of the Holders of Notes to the benefits of this Indenture, the Notes
or the Guarantees.
Nothing in this Section 10.01 shall apply to claims of, or payments to,
the Trustee under or pursuant to the provisions of Section 7.07. Nothing
contained in this Section 10.01 or elsewhere in this Indenture, the Notes or the
Guarantees shall impair, as between any Guarantor and the Holder of any Note,
the obligation of such Guarantor, which is unconditional and absolute, to pay to
the Holder thereof the principal of, premium, if any, and interest on the Notes
in accordance with their terms and the terms of the Guarantee and this
Indenture, nor shall anything herein or therein prevent the Trustee or the
Holder of any Note from exercising all remedies otherwise permitted by
applicable law or hereunder or thereunder upon the occurrence of an Event of
Default.
SECTION 10.02. Execution and Delivery of Guarantees.
To evidence its Guarantee set forth in Section 10.01, each Guarantor
hereby agrees that a notation of such Guarantee substantially in the form of
Exhibit B shall be endorsed by an officer of such Guarantor on each Note
authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of such Guarantor by its President or one of its Vice
Presidents and attested to by an Officer. Each of the Guarantors, jointly and
severally, hereby agrees that its Guarantee set forth in Section 10.01 shall
remain in full force and effect notwithstanding any failure to endorse on each
Note a notation of such Guarantee. If an officer or Officer whose
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signature is on this Indenture or on the Guarantee of a Guarantor no longer
holds that office at the time the Trustee authenticates the Note on which the
Guarantee of such Guarantor is endorsed, the Guarantee of such Guarantor shall
be valid nevertheless. The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Guarantees set forth in this Indenture on behalf of the Guarantors.
SECTION 10.03. Merger, Consolidation or Sale of Assets of Guarantors.
Subject to Section 10.05, a Guarantor may not, and the Company will not
cause or permit any Guarantor to, consolidate or merge with or into (whether or
not such Guarantor is the surviving entity), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another Person other than the
Company or another Guarantor unless:
(a) such Guarantor is the surviving Person or the Person
formed by or surviving any such consolidation or merger (if other than
such Guarantor) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(b) the Person formed by or surviving any such consolidation
or merger (if other than such Guarantor) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of such Guarantor
pursuant to a supplemental indenture in form reasonably satisfactory to
the Trustee, under the Notes and this Indenture;
(c) immediately after such transaction no Default or Event of
Default exists; and
(d) the Company will have Consolidated Net Worth immediately
after the transaction (after any purchase accounting adjustments or
accrual of deferred tax liabilities resulting from the transaction) not
less than the Consolidated Net Worth of the Company immediately
preceding the transaction.
Nothing contained in this Indenture shall prevent any consolidation or
merger of a Guarantor with or into the Company or another Guarantor that is a
Wholly Owned Restricted Subsidiary of the Company or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor that is a Wholly Owned Restricted
Subsidiary of the Company. Except as set forth in Articles 4 and 5, nothing
contained in this Indenture shall prevent any consolidation or merger of a
Guarantor with or into the Company or another Guarantor that is a Restricted
Subsidiary of the Company or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety to the
Company or another Guarantor that is a Restricted Subsidiary of the Company.
SECTION 10.04. Successor Corporation Substituted.
Upon any consolidation, merger, sale or conveyance described in clauses
(a) through (d) of Section 10.04, and upon the assumption by the successor
corporation, by supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of any Guarantee previously signed by
the Guarantor and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Guarantor, such successor
corporation shall succeed to and be substituted for the Guarantor with the same
effect as if it had been named herein as a Guarantor. Such successor corporation
thereupon may cause to be signed any or all of the Guarantees to be issuable
hereunder by such Guarantor and delivered to the Trustee. All the Guarantees so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Guarantees theretofore and thereafter issued in accordance with
the terms of this Indenture as though all of such Guarantees had been issued at
the date of the execution of such Guarantee by such Guarantor.
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SECTION 10.05. Releases from Guarantees.
If pursuant to any direct or indirect sale of assets (including, if
applicable, all of the capital stock of any Guarantor) or other disposition by
way of merger, consolidation or otherwise the assets sold include all or
substantially all of the assets of any Guarantor or all of the capital stock of
any such Guarantor, then such Guarantor or the Person acquiring the property (in
the event of a sale or other disposition of all or substantially all of the
assets of such a Guarantor) shall be released and relieved of its obligations
under its Guarantee or Section 10.03 and Section 10.04, as the case may be;
provided that in the event of an Asset Sale, the Net Proceeds from such sale or
other disposition are applied in accordance with the provisions of Section 4.10.
In addition, a Guarantor shall be released and relieved of its obligations under
its Guarantee or Section 10.03 and Section 10.04, as the case may be (1) if such
Guarantor is dissolved or liquidated in accordance with the provisions of this
Indenture; (2) if the Company designates any such Guarantor as an Unrestricted
Subsidiary in compliance with the terms of this Indenture; or (3) without
limiting the generality of the foregoing, in the case of ETC or any Guarantor
which constitutes a Non-Core Asset, upon the sale or other disposition of any
Equity Interest of ETC or such Guarantor which constitutes a Non-Core Asset,
respectively. Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the provisions of this
Indenture, including without limitation Section 4.10 or 4.20 if applicable, the
Trustee shall execute any documents reasonably required in order to evidence the
release of any such Guarantor from its obligations under its Guarantee. Any such
Guarantor not released from its obligations under its Guarantee shall remain
liable for the full amount of principal of and interest on the Notes and for the
other obligations of such Guarantor under this Indenture as provided in this
Article 10.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 11.02. Notices.
Any notice or communication by the Company, any Guarantor or the
Trustee to the other is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the other's address:
If to the Company or any Guarantor:
EchoStar DBS Corporation
5701 South Santa Fe Drive
Littleton, Colorado 80120
Telecopier No.: (303) 723-1699
Attention: David K. Moskowitz, Esq.
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With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004-2498
Telecopier No.: (212) 558-3388
Attention: Donald Walkovik, Esq.
If to the Trustee:
U.S. Bank National Association
180 East Fifth Street
Saint Paul, Minnesota 55101
Telecopier No: (651) 244-0711
Attention: Corporate Trust Administration
The Company, any Guarantor or the Trustee, by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders of
Notes) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder of a Note shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent required by
the TIA. Failure to mail a notice or communication to a Holder of a Note or any
defect in it shall not affect its sufficiency with respect to other Holders of
Notes.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders of Notes, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. Communication by Holders of Notes with Other Holders of Notes.
Holders of the Notes may communicate pursuant to TIA Section 312(b)
with other Holders of Notes with respect to their rights under this Indenture or
the Notes. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
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(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent and covenants, if any, provided for
in this Indenture relating to the proposed action have been satisfied;
and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
satisfied.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Notes. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 11.07. No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company, the Guarantors or any of their Affiliates, as such, shall have any
liability for any obligations of the Company, the Guarantors and any of their
Affiliates under the Notes, or this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
the Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the SEC that such waiver is against public policy.
SECTION 11.08. Governing Law.
The internal law of the State of New York shall govern and be used to
construe this Indenture, the Notes and the Guarantees.
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SECTION 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of EchoStar, the Company or any of their respective Subsidiaries.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.10. Successors.
All agreements of the Company and the Guarantors in this Indenture and
the Notes and the Guarantees shall bind the successors of the Company and the
Guarantors, respectively. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13. Table of Contents, Headings, Etc.
The Table of Contents and Headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part of this Indenture and shall in no way modify or restrict any
of the terms or provisions hereof.
[Signatures on following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
ECHOSTAR DBS CORPORATION,
a Colorado corporation
By:
----------------------------------------
Name: David K. Moskowitz
Title: Senior Vice President, General
Counsel and Secretary
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
----------------------------------------
Name:
Title: Assistant Vice President
ECHOSTAR SATELLITE CORPORATION
ECHOSTAR TECHNOLOGIES CORPORATION
ECHO ACCEPTANCE CORPORATION
ECHOSPHERE CORPORATION
DISH NETWORK SERVICE CORPORATION
ECHOSTAR INTERNATIONAL CORPORATION
ECHOSTAR NORTH AMERICA CORPORATION
ECHOSTAR INDONESIA, INC.
ECHOSTAR SPACE CORPORATION
ECHOSTAR 110 CORPORATION
as Guarantors
By:
----------------------------------------
Name: David K. Moskowitz
Title: Senior Vice President, General
Counsel and Secretary
S-1
EXHIBIT A
[Face of Note]
- --------------------------------------------------------------------------------
9-1/8% Senior Note due 2009
Cert. No.
CUSIP No. [ ]
EchoStar DBS Corporation
promises to pay to
or its registered assigns
the principal sum of
--------------------
Dollars on January 15, 2009
Interest Payment Dates: January 15 and July 15, commencing July 15, 2002
Record Dates: January 1 and July 1 (whether or not a Business Day).
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed.
Dated: December 28, 2001
ECHOSTAR DBS CORPORATION
By:
------------------------------
Title:
By:
------------------------------
Title:
(SEAL)
This is one of the Notes referred to in
the within-mentioned Indenture:
U.S. Bank National Association, as Trustee
By:
-------------------------------------------
Authorized Signatory
Dated:
------------------
A-1
(Back of Note)
Capitalized terms used herein have the meanings assigned to them in the
Indenture (as defined below) unless otherwise indicated.
(1) Interest. EchoStar DBS Corporation, a Colorado corporation (the
"Company") promises to pay interest on the principal amount of this Note at the
rate and in the manner specified below. Interest will accrue at 9-1/8% per annum
and will be payable semi-annually in cash on each January 15 and July 15,
commencing July 15, 2002, or if any such day is not a Business Day on the next
succeeding Business Day (each an "Interest Payment Date") to Holders of record
of the Notes at the close of business on the immediately preceding January 1 and
July 1, whether or not a Business Day. Interest will be computed on the basis of
a 360-day year consisting of twelve 30-day months. Interest shall accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from December 28, 2001. To the extent lawful, the Company shall pay
interest on overdue principal at the rate of the then applicable interest rate
on the Notes; it shall pay interest on overdue installments of interest (without
regard to any applicable grace periods) at the same rate to the extent lawful.
In addition, Holders may be entitled to the benefits of certain provisions of
the Registration Rights Agreement.
(2) Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the record date next preceding the Interest Payment
Date, even if such Notes are canceled after such record date and on or before
such Interest Payment Date. The Holder hereof must surrender this Note to a
Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Notes will be payable both
as to principal and interest at the office or agency of the Company maintained
for such purpose or, at the option of the Company, payment of interest may be
made by check mailed to the Holders of Notes at their respective addresses set
forth in the register of Holders of Notes. Unless otherwise designated by the
Company, the Company's office or agency will be the office of the Trustee
maintained for such purpose.
(3) Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Holder of a Note. The Company may
act in any such capacity.
(4) Indenture. The Company issued the Notes under an Indenture, dated
as of December 28, 2001 (the "Indenture"), among the Company, the Guarantors and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date
of the Indenture. The Notes are subject to all such terms, and Holders of Notes
are referred to the Indenture and such act for a statement of such terms. The
terms of the Indenture shall govern any inconsistencies between the Indenture
and the Notes. The Notes are unsecured obligations of the Company.
(5) Optional Redemption. Except as provided in the next paragraph, the
Notes will not be redeemable at the Company's option prior to January 15, 2006.
Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below, together with accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the 12-month period beginning on
January 15 of the years indicated below:
A-2
YEAR PERCENTAGE
---- ----------
2006........................................ 104.563%
2007........................................ 102.281%
2008........................................ 100.000%
Notwithstanding the foregoing, at any time prior to January 15, 2005, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
outstanding at a redemption price equal to 109.125% of the principal amount
thereof on the repurchase date, together with accrued and unpaid interest to
such repurchase date, with the net cash proceeds of one or more public or
private sales (including sales to EchoStar, regardless of whether EchoStar
obtained such funds from an offering of Equity Interests or Indebtedness of
EchoStar or otherwise) of Equity Interests (other than Disqualified Stock) of
the Company (other than proceeds from a sale to any Subsidiary of the Company or
any employee benefit plan in which the Company or any of its Subsidiaries
participates); provided that: (a) at least 65% in aggregate principal amount of
the Notes originally issued remain outstanding immediately after the occurrence
of such redemption; and (b) the sale of such Equity Interests is made in
compliance with the terms of the Indenture.
(6) Repurchase at Option of Holder. Upon the occurrence of a Change of
Control, the Company will be required to offer to purchase on the Change of
Control Payment Date all outstanding Notes at a purchase price equal to 101% of
the aggregate principal amount thereof, together with accrued and unpaid
interest thereon to the date of purchase. Holders of Notes that are subject to
an offer to purchase will receive a Change of Control Offer from the Company
prior to any related Change of Control Payment Date and may elect to have such
Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" appearing below.
When the cumulative amount of Excess Proceeds that have not been
applied in accordance with Section 4.10 (Asset Sales) or Section 3.08 (Offer to
Purchase By Application of Excess Proceeds) of the Indenture, exceeds $50
million, the Company will be required to offer to purchase the maximum principal
amount of Notes that may be purchased out of such Excess Proceeds at an offer
price in cash equal to 101% of the principal amount thereof, together with
accrued and unpaid interest thereon to the date of purchase. To the extent the
Company or a Restricted Subsidiary is required under the terms of Indebtedness
of the Company or such Restricted Subsidiary which is ranked equally with the
Notes with any proceeds which constitute Excess Proceeds under the Indenture,
the Company shall make a pro rata offer to the holders of all other pari passu
Indebtedness (including the Notes) with such proceeds. To the extent that the
principal amount of Notes and other pari passu Indebtedness surrendered by
holders thereof exceeds the amount of such Excess Proceeds, the Trustee shall
select the Notes and other pari passu Indebtedness to be purchased on a pro rata
basis. Holders of Notes that are subject to an offer to purchase will receive a
Excess Proceeds Offer from the Company prior to any related Purchase Payment
Date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" appearing below.
(7) Notice of Redemption. Notice of redemption shall be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes may be redeemed
in part but only in whole multiples of $1,000, unless all of the Notes held by a
Holder of Notes are to be redeemed. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption unless the
Company fails to redeem such Notes or such portions thereof.
(8) Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder of a Note,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not exchange or register the transfer of any
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Note or portion of a Note selected for redemption. Also, it need not exchange or
register the transfer of any Notes for a period of 15 days before a selection of
Notes to be redeemed.
(9) Persons Deemed Owners. Prior to due presentment to the Trustee for
registration of the transfer of this Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Note and for all other purposes
whatsoever, whether or not this Note is overdue, and neither the Trustee, any
Agent nor the Company shall be affected by notice to the contrary. The
registered Holder of a Note shall be treated as its owner for all purposes.
(10) Amendments, Supplement and Waivers. Subject to certain exceptions,
the Indenture or Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Notwithstanding the foregoing, (a) Sections 3.08 (Offer to Purchase by
Application of Excess Proceeds), 4.10 (Asset Sales) and 4.15 (Offer to
Repurchase Upon Change in Control) of the Indenture (including, in each case,
the related definitions) may not be amended or waived without the written
consent of at least 66 2/3% in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Notes) and (b) without the consent of each Holder affected, an amendment
or waiver may not (with respect to any Notes held by a non-consenting Holder of
Notes) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver; reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes; reduce the rate of or change the time for payment of interest on any
Note; waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal amount
of the then outstanding Notes and a waiver of the payment default that resulted
from such acceleration); make any Note payable in money other than that stated
in the Notes; make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest on the Notes; waive a redemption payment or
mandatory redemption with respect to any Note; or make any change in the
foregoing amendment and waiver provisions. Notwithstanding the foregoing,
without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency; to
provide for uncertificated Notes or Guarantees in addition to or in place of
certificated Notes or Guarantees; to provide for the assumption of the Company's
or any Guarantor's obligations to the Holders of the Notes in case of a merger
or consolidation; to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder; or to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
(11) Defaults and Remedies. Each of the following constitutes an Event
of Default:
(a) default for 30 days in the payment when due of interest on
the Notes;
(b) default in payment when due of principal of the Notes at
maturity, upon repurchase, redemption or otherwise;
(c) failure to comply with the provisions described under
Section 4.15 (Offer to Purchase Upon Change in Control), Section 4.11
(Limitation on Transactions with Affiliates), or Section 4.10 (Asset
Sales) of the Indenture;
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(d) default under the provisions described under Section 4.07
(Limitation on Restricted Payments) or Section 4.09 (Incurrence of
Indebtedness) of the Indenture which default remains uncured for 30
days, or the breach of any representation or warranty, or the making of
any untrue statement, in any certificate delivered by the Company
pursuant to the Indenture;
(e) failure by the Company for 60 days after notice from the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Notes to comply with any of its other agreements in the
Indenture or the Notes;
(f) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company and any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the
Company and any of its Restricted Subsidiaries), which default is
caused by a failure to pay when due principal or interest on such
Indebtedness within the grace period provided in such Indebtedness (a
"Payment Default"), and the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default, aggregates $100 million or
more;
(g) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company and any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries), which default results
in the acceleration of such Indebtedness prior to its express maturity
and the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so
accelerated, aggregates $100 million or more; provided that any
acceleration (other than an acceleration which is the result of a
Payment Default under clause (f) above) of Indebtedness under the
Outstanding Deferred Payments in aggregate principal amount not to
exceed $150 million shall be deemed not to constitute an acceleration
pursuant to this clause (g);
(h) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments (other than any judgment as to
which a reputable insurance company has accepted full liability)
aggregating in excess of $100 million, which judgments are not stayed
within 60 days after their entry;
(i) certain events of bankruptcy or insolvency with respect to
EchoStar, the Company or certain of the Company's Subsidiaries
(including the filing of a voluntary case, the consent to an order of
relief in an involuntary case, the consent to the appointment of a
custodian, a general assignment for the benefit of creditors or an
order of a court for relief in an involuntary case, appointing a
custodian or ordering liquidation, which order remains unstayed for 60
days); and
(j) any Guarantee shall be held in a judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect, or any Guarantor, or any person acting on behalf of
any Guarantor, shall deny or disaffirm its obligations under its
Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately (plus, in the case of an
Event of Default that is the result of an action by the Company or any of its
Subsidiaries intended to avoid restrictions on or premiums related to
redemptions of the Notes contained in the Indenture or the Notes, an amount of
premium that would have been applicable pursuant to the Notes or as set forth in
the Indenture). Notwithstanding the foregoing, in the case of an Event of
Default arising from the events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries described in (i) above, all outstanding Notes
will become due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes
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except as provided in the Indenture. Subject to certain limitations, holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in such holders' interest.
The holders of a majority in aggregate principal amount of the then
outstanding Notes, by notice to the Trustee, may on behalf of the holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or premium on, or principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
All powers of the Trustee under the Indenture will be subject to
applicable provisions of the Communications Act, including without limitation,
the requirements of prior approval for de facto or de jure transfer of control
or assignment of Title III licenses.
(12) Trustee Dealings with Company. The Trustee under the Indenture, in
its individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not Trustee; however, if the
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the SEC for permission to continue as Trustee or resign.
(13) No Personal Liabilities of Directors, Officers, Employees,
Incorporators and Stockholders. No director, officer, employee, incorporator or
stockholder of the Company or any of its Affiliates, as such, shall have any
liability for any obligations of the Company or any of its Affiliates under this
Note or the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of the Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
(14) Guarantees. Payment of principal and interest (including interest
on overdue principal and overdue interest, if lawful) is unconditionally
guaranteed, jointly and severally, by each of the Guarantors.
(15) Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
(16) Abbreviations. Customary abbreviations may be used in the name of
a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (5 Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
(17) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Note Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Holders of Notes. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
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The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture. Request may be made to:
EchoStar DBS Corporation
5701 South Santa Fe Drive
Littleton, Colorado 80120
Attention: David K. Moskowitz, Esq.
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's Soc. Sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________ agent to transfer this Note on the books
of the Company. The agent may substitute another to act for him.
Date:
---------------
Your Signature:
-----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee.
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by
the Company pursuant to Section 3.08 or Section 4.15 of the Indenture check the
appropriate box:
[ ] Section 3.08 [ ] Section 4.15
If you want to have only part of the Note purchased by the Company
pursuant to Section 3.08 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$
Date:
---------------
Your Signature:
-----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee.
A-9
[ATTACHMENT FOR GLOBAL NOTES]
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
AMOUNT OF PRINCIPAL AMOUNT SIGNATURE OF
DECREASE IN AMOUNT OF INCREASE OF THIS GLOBAL NOTE AUTHORIZED OFFICER
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT FOLLOWING SUCH OF TRUSTEE OR
DATE OF EXCHANGE THIS GLOBAL NOTE OF THE GLOBAL NOTE DECREASE (OR INCREASE) NOTE CUSTODIAN
---------------- ------------------- ------------------ ---------------------- ------------------
A-10
EXHIBIT B
FORM OF GUARANTEE
[Name of Guarantor] and its successors under the Indenture, jointly and
severally with any other Guarantors, hereby irrevocably and unconditionally
guarantees (i) the due and punctual payment of the principal of, premium, if
any, and interest on the Notes, whether at maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue principal of
and interest, if any, on the Notes, to the extent lawful, and the due and
punctual performance of all other obligations of EchoStar DBS Corporation (the
"Company") to the Holders or the Trustee all in accordance with the terms set
forth in Article 10 of the Indenture, (ii) in case of any extension of time of
payment or renewal of any Notes or any of such other obligations, that the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, whether at stated maturity, by acceleration or
otherwise and (iii) has agreed to pay any and all costs and expenses (including
reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing
any rights under this Guarantee. Capitalized terms used herein have the meanings
assigned to them in the Indenture unless otherwise indicated.
No stockholder, officer, director or incorporator, as such, past,
present or future, of [name of Guarantor] shall have any personal liability
under this Guarantee by reason of his or its status as such stockholder,
officer, director or incorporator. This Guarantee shall be binding upon [name of
Guarantor] and its successors and assigns and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof.
This Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Note upon which this Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
THE TERMS OF ARTICLE 10 OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York.
[NAME OF GUARANTOR]
By:
-------------------------
Name:
Title:
B-1
EXHIBIT C
FORM OF CERTIFICATE OF TRANSFER
EchoStar DBS Corporation
5701 South Santa Fe Drive
Littleton, Colorado 80120
U.S. Bank National Association
180 East 5th Street
St. Paul, MN 55101
Re: 9-1/8% Senior Notes due 2009
Reference is hereby made to the Indenture, dated as of December 28,
2001 (the "Indenture"), between EchoStar DBS Corporation, as issuer (the
"Company"), the Guarantors named therein and U.S. Bank National Association, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
________________ (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $____ in such Note[s] or interests (the "Transfer"), to
__________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT
TO RULE 144A. The Transfer is being effected pursuant to and
in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies that
the beneficial interest or Definitive Note is being
transferred to a Person that the Transferor reasonably
believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more
accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account
is a "qualified institutional buyer" within the meaning of
Rule 144A in a transaction meeting the requirements of Rule
144A and such Transfer is in compliance with any applicable
blue sky securities laws of any state of the United States.
Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement
Legend printed on the 144A Global Note and/or the Definitive
Note and in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE
PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and, accordingly, the Transferor hereby
further certifies that (i) the Transfer is not being made to a
Person in the United States and (x) at the time the buy order
was originated, the Transferee was outside the United States
or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed
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in, on or through the facilities of a designated offshore
securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act, (iii) the transaction is not part of
a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made
prior to the expiration of the Restricted Period, the transfer
is not being made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser).
Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement
Legend printed on the Regulation S Global Note and/or the
Definitive Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A
BENEFICIAL INTEREST IN A DEFINITIVE NOTE PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR
REGULATION S. The Transfer is being effected in compliance
with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive
Notes and pursuant to and in accordance with the Securities
Act and any applicable blue sky securities laws of any state
of the United States, and accordingly the Transferor hereby
further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to
and in accordance with Rule 144 under the
Securities Act;
or
(b) [ ] or such Transfer is being effected to the
Company or a subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant
to an effective registration statement under
the Securities Act and in compliance with
the prospectus delivery requirements of the
Securities Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED
DEFINITIVE NOTE.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144.
(i) The Transfer is being effected pursuant
to and in accordance with Rule 144 under the
Securities Act and in compliance with the
transfer restrictions contained in the
Indenture and any applicable blue sky
securities laws of any state of the United
States and (ii) the restrictions on transfer
contained in the Indenture and the Private
Placement Legend are not required in order
to maintain compliance with the Securities
Act. Upon consummation of the proposed
Transfer in accordance with the terms of the
Indenture, the transferred beneficial
interest or Definitive Note will no longer
be subject to the restrictions on transfer
enumerated in the Private Placement Legend
printed on the Restricted Global Notes, on
Restricted Definitive Notes and in the
Indenture.
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(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION
S. (i) The Transfer is being effected
pursuant to and in accordance with Rule 903
or Rule 904 under the Securities Act and in
compliance with the transfer restrictions
contained in the Indenture and any
applicable blue sky securities laws of any
state of the United States and (ii) the
restrictions on transfer contained in the
Indenture and the Private Placement Legend
are not required in order to maintain
compliance with the Securities Act. Upon
consummation of the proposed Transfer in
accordance with the terms of the Indenture,
the transferred beneficial interest or
Definitive Note will no longer be subject to
the restrictions on transfer enumerated in
the Private Placement Legend printed on the
Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER
EXEMPTION. (i) The Transfer is being
effected pursuant to and in compliance with
an exemption from the registration
requirements of the Securities Act other
than Rule 144, Rule 903 or Rule 904 and in
compliance with the transfer restrictions
contained in the Indenture and any
applicable blue sky securities laws of any
State of the United States and (ii) the
restrictions on transfer contained in the
Indenture and the Private Placement Legend
are not required in order to maintain
compliance with the Securities Act. Upon
consummation of the proposed Transfer in
accordance with the terms of the Indenture,
the transferred beneficial interest or
Definitive Note will not be subject to the
restrictions on transfer enumerated in the
Private Placement Legend printed on the
Restricted Global Notes or Restricted
Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
----------------------------------------
[Insert Name of Transferor]
By:
------------------------------------
Name:
Title:
Dated:
-------------------
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ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP 27876G AH 1), or
(ii) [ ] Regulation S Global (CUSIP U27794 AC 7), or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP 27876G AH 1), or
(ii) [ ] Regulation S Global Note (CUSIP U27794 AC 7), or
(iii) [ ] Unrestricted Global Note CUSIP [ ], or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
C-4
EXHIBIT D
FORM OF CERTIFICATE OF EXCHANGE
EchoStar DBS Corporation
5701 South Santa Fe Drive
Littleton, Colorado 80120
U.S. Bank National Association
180 East 5th Street
St. Paul, MN 55101
Re: 9-1/8% Senior Notes due 2009
(CUSIP [ ])
Reference is hereby made to the Indenture, dated as of December 28,
2001 (collectively, the "Indenture"), between EchoStar DBS Corporation, as
issuer (the "Company"), the Guarantors named therein and U.S. Bank National
Association, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
_______________ (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$________ in such Note[s] or interests (the "Exchange"). In connection with the
Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE.
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
D-1
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES.
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] _ 144A Global Note, _ Regulation S Global Note with an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
-----------------------------
[Insert Name of Transferor]
By:
-------------------------
Name:
Title:
Dated:
--------------------
D-2
EXHIBIT 4.18
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of December 28, 2001, by and among EchoStar DBS Corporation, a Colorado
corporation (the "COMPANY"), the Guarantors named in the Purchase Agreement (as
defined below) (the "GUARANTORS"), and Deutsche Banc Alex. Brown, Inc., Credit
Suisse First Boston Corporation, Lehman Brothers Inc. and UBS Warburg LLC (each,
an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each of
whom has agreed to purchase an aggregate of $700,000,000 in principal amount of
9-1/8% Senior Notes due 2009 (the "NOTES"), of the Company, pursuant to the
Purchase Agreement.
This Agreement is made pursuant to the Purchase Agreement, dated December
20, 2001 (the "PURCHASE AGREEMENT"), by and among the Company, the Guarantors
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 7 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in the Indenture, dated December 28,
2001, among the Company, the Guarantors and U.S. Bank National Association, as
Trustee, relating to the Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes of
this Agreement upon the occurrence of (i) the filing and effectiveness under the
Act of the Exchange Offer Registration Statement relating to the Exchange Notes
to be issued in the Exchange Offer, (ii) the maintenance of such Exchange Offer
continuously effective and the keeping of the Exchange Offer open for a period
not less than the period required pursuant to Section 3(b) hereof, and (iii) the
delivery by the Company to the Registrar under the In-
-2-
denture of Exchange Notes in the same aggregate principal amount as the
aggregate principal amount of Notes that were tendered by Holders thereof
pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE NOTES: The Company's 9-1/8% Senior Notes due 2009, guaranteed by
the Guarantors to the same extent as the Notes, to be issued pursuant to the
Indenture: (i) in the Exchange Offer or (ii) as contemplated by Section 6
hereof.
EXCHANGE OFFER: The exchange and issuance by the Company of a principal
amount of Exchange Notes (which shall be registered, pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of Notes
that are tendered by such Holders in connection with such exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
NASD: National Association of Securities Dealers, Inc.
PROSPECTUS: The prospectus included in a Registration Statement at the same
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company relating
to (a) an offering of Exchange Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) that is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
-3-
REGULATION S: Regulation S promulgated under the Act.
RULE 144: Rule 144 promulgated under the Act.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in
effect on the date of the Indenture.
UNDERWRITTEN REGISTRATION: or UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to occur of
(a) the date on which such Note is exchanged in the Exchange Offer for an
Exchange Note which is entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Act, (b) the
date on which such Note has been disposed of in accordance with a Shelf
Registration Statement, (c) the date on which such Note may be distributed to
the public pursuant to Rule 144(k) under the Act or (d) each Exchange Note until
the date on which such Exchange Note is disposed of by a Broker-Dealer pursuant
to the "Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including the delivery of the Prospectus contained therein).
SECTION 2. HOLDERS
A person is deemed to be a holder of Transfer Restricted Securities (each,
a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 180 days after
the Closing Date (such 180th day being the "FILING DEADLINE"), (ii) use its best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 270 days after the
Closing Date (such 270th day being the "EFFECTIVENESS Deadline"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act, and
(C)
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cause all necessary filings, if any, in connection with the registration and
qualification of the Exchange Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement, use
its best efforts to commence and Consummate the Exchange Offer such that the
Exchange Offer is Consummated not later than the 295th day after the Closing
Date. The Exchange Offer shall be on the appropriate form permitting (i)
registration of the Exchange Notes to be offered in exchange for the Notes that
are Transfer Restricted Securities and (ii) resales of Exchange Notes by
Broker-Dealers that tendered the Exchange Notes that such Broker-Dealer acquired
for its own account as a result of market making activities or other trading
activities (other than Notes acquired directly from the Company or any of its
Affiliates) as contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be less than 20
business days. The Company shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Exchange Notes shall be included in the Exchange Offer Registration Statement.
The Company shall use its best efforts to cause the Exchange Offer to be
Consummated not later than the 295th day after the Closing Date (such 295th day
being the "CONSUMMATION DEADLINE").
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted Securities
that were acquired for the account of such Broker-Dealer as a result of
market-making activities or other trading activities (other than Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement.
Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with any initial sale of any Exchange
Notes received by such Broker-Dealer in the Exchange Offer, the Company shall
permit the use of the prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such Prospectus delivery requirement.
To the extent necessary to ensure that the prospectus contained in the Ex-
-5-
change Offer Registration Statement is available for sales of Exchange Notes by
Brokers-Dealers, the Company shall use its best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented, amended and
current as required by and subject to the provisions of Sections 6(a) and 6(c)
hereof and in conformity with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the date on which the Exchange Offer is
Consummated or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been sold
pursuant thereto. The Company shall provide sufficient copies of the latest
version of such Prospectus to such Broker-Dealers, promptly upon request, and in
no event later than one day after such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not
permitted by applicable law or Commission policy (after the Company has complied
with the procedures set forth in Section 6(a) below) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 business days
following the date on which the Exchange Offer is Consummated that (A) such
Holder was prohibited by applicable law or Commission policy from participating
in the Exchange Offer, or (B) such Holder may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and that the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder, or
(C) that such Holder is a Broker-Dealer and holds Notes acquired directly from
the Company or any of its Affiliates, then the Company shall:
(x) cause to be filed a shelf registration statement pursuant to Rule
415 under the Act (which may be an amendment to the Exchange Offer
Registration Statement) (the "SHELF REGISTRATION STATEMENT"), relating to
all Transfer Restricted Securities, on or prior to the later of (1) 30 days
after the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above,
(2) 30 days after the date on which the Company receives notice specified
in clause (a)(ii) above, and (3) the 120th day after the Closing Date (such
later date, the "FILING DEADLINE"); and
(y) shall use its best efforts to cause such Shelf Registration
Statement to become effective on or prior to the 180th day, after the
Filing Deadline (such 180th day, the "EFFECTIVENESS DEADLINE").
To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a)
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and other securities required to be registered therein pursuant to Section
6(b)(ii) hereof, the Company shall use its best efforts to keep such Shelf
Registration Statement required by this Section 4(a) continuousgly effective,
supplemented, amended and current as required by and subject to the provisions
of Sections 6(b) and (c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years (as extended
pursuant to Section 6(d) hereof) following the Closing Date or such shorter
period as will terminate where all Transfer Restricted Securities covered by
such Shelf Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in connection
with the Shelf Registration Statement. No Holder of Transfer Restricted
Securities may include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 20 days after receipt of a request
therefor, (i) the information specified in Item 507 or 508 of Regulation S-K, as
applicable, of the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein and (ii) the
undertaking specified in Section 8(b) hereof. No Holder of Transfer Restricted
Securities shall be entitled to liquidated damages pursuant to Section 5 hereof
unless and until such Holder shall have used its best efforts to provide all
such information. Each Selling Holder agrees to furnish promptly to the Company
all information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter (and before the second anniversary of
the initial sale) cease to be effective or fail to be usable in connection with
resales of the Transfer Restricted Securities without being succeeded
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself immediately declared effective, and only
for such time of non-effectiveness or non-usability (each such event referred to
in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company hereby
agrees to pay (and the Guarantors agree to guarantee such payments) liquidated
damages to each Holder of Transfer Restricted Securities affected thereby for
the first 90-day period immediately following the occurrence of such
Registration Default, in an amount equal to $0.05 per week per $1,000 in
principal amount of Transfer Restricted Securities held by such Holder for each
week or portion thereof that the Registration Default continues. The amount of
the liq-
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uidated damages shall increase by an additional $0.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, the
Transfer Restricted Securities become freely tradable without registration under
the Act or no Transfer Restricted Securities are outstanding, up to a maximum
amount of liquidated damages of $0.30 per week per $1,000 in principal amount of
Transfer Restricted Securities; provided that the Company shall in no event be
required to pay liquidated damages for more than one Registration Default at any
given time. All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest, on each Interest
Payment Date, as more fully set forth in the Indenture and the Notes.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, the liquidated damages
payable with respect to the Transfer Restricted Securities as a result of such
clause (i), (ii), (iii) or (iv), as applicable, shall cease.
Notwithstanding the fact that any securities for which liquidated
damages are due cease to be Transfer Restricted Securities, all obligations of
the Company to pay liquidated damages with respect to securities shall survive
until such time as such obligations with respect to such securities shall have
been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall (x) comply with all of the provisions of
Section 6(c) below, (y) use its best efforts to effect such exchange and to
permit the resale of Exchange Notes by Broker-Dealers that tendered in the
Exchange Offer Notes that such Broker-Dealer acquired for its own account as a
result of its market making activities as other trading activities (other than
Notes acquired directly from the Company or any of its Affiliates) being sold in
accordance with the intended method or methods of distribution thereof, and (z)
comply with all of the following provisions:
(i) If, following the date hereof there has been announced a change in
Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company hereby agrees to seek a no-action
letter or other favorable decision from the Commission allowing the Company
to Consummate an Exchange Offer for such Transfer Restricted Securi-
-8-
ties. The Company agrees to pursue the issuance of such a decision to the
Commission staff level. In connection with the foregoing, the Company
agrees, to take all such other actions as may be requested by the
Commission or otherwise required in connection with the issuance of such
decision, including without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases,
if any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursuing a resolution (which need
not be favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker-Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring
the Exchange Notes in its ordinary course of business. Each Holder using
the Exchange Offer to participate in a distribution of the Exchange Notes
shall acknowledge and agree that, if the resales are of Exchange Notes
obtained by such Holder in exchange for Notes acquired by such Holder
directly from the Company or an Affiliate thereof, it (1) could not, under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action
letter obtained pursuant to clause (i) above, (B) including a
representation that neither the Company nor any Guarantor has entered into
any arrangement or understanding with any Person to distribute the Exchange
Notes to be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the Exchange
Offer is acquiring the Exchange Notes in its ordinary course of business
and has no arrangement or under-
-9-
standing with any Person to participate in the distribution of the Exchange
Notes received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall: (i) comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof and (ii) issue, upon the request of any Holder or
purchaser of Notes covered by any Shelf Registration Statement contemplated by
this Agreement, Exchange Notes having an aggregate principal amount equal to the
aggregate principal amount of Notes sold pursuant to the Shelf Registration
Statement and surrendered to the Company for cancellation; the Company shall
register Exchange Notes on the Shelf Registration Statement for this purpose and
issue the Exchange Notes to the purchasers of securities subject to the Shelf
Registration Statement in the names as such purchasers shall designate.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company
shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain an untrue
statement of material fact or omit to state any material fact necessary to
make the statements therein not misleading or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Company shall file promptly an appropriate
amendment to such Registration Statement, curing such defect, and if
Commission review is required, use its best efforts to cause such amendment
to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary
to keep such Registra-
-10-
tion Statement effective for the applicable period set forth in Section 3
or 4 hereof, as the case may be; cause the Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Act, and to comply fully with the applicable
provisions of Rules 424 and 430A under the Act in a timely manner; and
comply with the provisions of the Act with respect to the disposition of
all securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by
the sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise the underwriters, if any, and each selling Holder
promptly and, if requested by such Holder, confirm such advice in writing,
(A) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any Registration Statement
or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, and (D) of the existence
of any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes
in the Registration Statement or the Prospectus in order to make the
statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws, the
Company shall use its best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(iv) furnish to each selling Holder and each of the underwriters, if
any, in connection with such exchange or sale, if any, before filing with
the Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such Registration
Statement or Prospectus (including all documents incorporated by reference
after the initial filing of such Registration Statement), which documents
will be subject to the review and comment of such Holders and
un-
-11-
derwriter(s), if any, in connection with such sale, if any, for a period of
at least five business days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to any
such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which such Holders or the underwriters, if
any, shall reasonably object within five business days after the receipt
thereof. A Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains an untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein not misleading
or fails to comply with the applicable requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each selling Holder and to the
underwriters, if any, in connection with such exchange or sale, if any,
make the Company's representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such Holders or
underwriters, if any, reasonably may request;
(vi) make available, at reasonable times, for inspection by each
selling Holder, any underwriter, if any, participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant
retained by such Holders or any of the underwriters, all financial and
other records, pertinent corporate documents and properties of the Company
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter, attorney
or accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and prior
to its effectiveness;
(vii) if requested by any Holders or the underwriters, if any, in
connection with such exchange or sale, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such Holders and underwriters,
if any, may reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of the
Transfer Restricted Securities; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as practicable
after the Company is notified of the matters to be included in such
Prospectus supplement or post-effective amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies, if
so requested by the Holders of a majority in aggregate principal amount of
Notes covered thereby or the underwriters, if any;
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(ix) furnish to each selling Holder (and upon request, any Holder) and
each of the underwriter(s), if any, in connection with such exchange or
sale, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including
all documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each Holder and each of the underwriters, if any,
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company hereby consents to the use (in
accordance with applicable law) of the Prospectus and any amendment or
supplement thereto by each selling Holder and each underwriter, if any, in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(xi) upon the request of any selling Holder, enter into such
agreements (including underwriting agreements), and make, such
representations and warranties, and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any Registration Statement
contemplated by this Agreement, as may be requested by any Initial
Purchaser or by any selling Holder in connection with any sale or resale
pursuant to any Registration Statement. In such connection, the Company
shall:
(A) upon request of any Holder, furnish to each Initial
Purchaser, each selling Holder and each underwriter, if any, in such
substance and scope as they may request and as are customarily made by
issuers to underwriters in primary underwritten offerings, upon the
Consummation of the Exchange Offer or upon, the effectiveness of the
Shelf Registration Statement, as the case may be:
(1) a certificate, dated such date signed on behalf of the
Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
Sections 2(ee) and 2(ff) and confirming that the representations
and warranties (other than 2(a), (gg), (hh), (ii), (kk), (ll),
(mm), (nn) and (oo)) of the Company contained in any such
underwriting agreement (which shall be of the same tenor as the
representations and warranties contained in the Purchase
Agreement) are true and correct as of the date hereof, and
confirming such other matters as such parties may reasonably
request;
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(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company, covering the matters similar to those set forth in Annex
I and Annex II of the Purchase Agreement and such other matters
as such parties may reasonably request, and in any event
including a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company, the Initial
Purchasers' representatives and the Initial Purchasers' counsel
in connection with the preparation of such Registration Statement
and the related Prospectus and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that
such counsel advises that, on the basis of the foregoing (relying
as to materiality to the extent such counsel deems appropriate
upon the statements of officers and other representatives of the
Company and without independent check or verification), no facts
came to such counsel's attention that caused such counsel to
believe that the applicable Registration Statement, at the time
such Registration Statement or any post-effective amendment
thereto became effective, and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation of the
Exchange Offer, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration Statement as
of its date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the
related Prospectus; and
-14-
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
primary underwritten offerings, and affirming the matters set
forth in the comfort letters of Arthur Andersen LLP delivered
pursuant to the Purchase Agreement, without exception; and
(B) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with the
matters covered in clause (A) above and with any customary conditions
contained in any agreement or other agreement entered into by the
Company pursuant to this clause (xi), if any.
If at any time the representations and warranties of the Company
contemplated in clause (A)(1) above cease to be true and correct, the
Company shall so advise the Initial Purchasers and the underwriter(s), if
any, and each selling Holder promptly and, if requested by such Persons,
shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with, the selling Holders, the underwriters, if any, and their
respective counsel in connection with the registration and qualification of
the Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders or underwriters may request and
do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; provided, however, that
the Company shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation, other
than as to matters and transactions relating to the Registration Statement,
in any jurisdiction where it is not now so subject;
(xiii) shall issue, upon the request of any Holder of Notes covered by
the Shelf Registration Statement, Exchange Notes, having an aggregate
principal amount equal to the aggregate principal amount of Notes
surrendered to the Company by such Holder in exchange therefor or being
sold by such Holder; such Exchange Notes to be registered in the name of
such Holder or in the name of the purchaser(s) of such Notes or Exchange
Notes, as the case may be; in return, the Notes held by such Holder shall
be surrendered to the Company for cancellation;
-15-
(xiv) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders and the underwriters, if any, to
facilitate the timely preparation and delivery of certificates representing
Transfer Restricted Securities to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Securities in such
denominations and in such names as the selling Holders or the underwriters,
if any, may request at least two business days prior to any such sale of
Transfer Restricted Securities;
(xv) use its best efforts to cause the disposition of the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriters, if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;
(xvi) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities which are
in a form eligible for deposit with the Depositary Trust Company;
(xviii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities;
(xix) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to
its security holders with regard to any Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the requirements of
Rule 158 (which need not be audited) covering
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a twelve-month period, beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of rule
158 under the Act);
(xx) cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement required by this
Agreement, and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute, and use its best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by
the Holders of a majority in aggregate principal amount of Notes or the
managing underwriters, if any; and
(xxii) provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of the notice referenced to in
Section 6(c)(iii)(D) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xvi) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses, or (ii) will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such Suspension Notice.
The time period regarding the effectiveness of such Registration Statement set
forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of
days equal to the number of days in the period from and including the date of
delivery of the Suspension Notice to the date of the Recommencement Date.
-17-
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses (including
filings made by any Initial Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter" and
its counsel that may be required by the rules and regulations of the NASD));
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Exchange Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Company and, subject to Section
7(b), the Holders of Transfer Restricted Securities; (v) all application and
filing fees in connection with listing Exchange Notes on a national securities
exchange automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incidental to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by
this Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities who are
tendering Notes in the Exchange Offer and/or selling or reselling Notes or
Exchange Notes pursuant to the "Plan of Distribution" contained in the Exchange
Offer Registration Statement or the Shelf Registration Statement, as applicable,
for the reasonable fees and disbursements of not more than one counsel, who
shall be Cahill Gordon & Reindel, unless another firm shall be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree to indemnify and hold
harmless (i) each Holder and (ii) each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
any Holder (any of the persons referred to in this clause (ii) being hereinafter
referred to as a "controlling person") and (iii) the respective officers,
directors, partners, employees, representatives and agents of any Holder or any
controlling person, from and against any and all losses, claims, damages,
-18-
liabilities, judgments, actions and expenses (including, without limitation, any
legal or other expenses incurred in connection with, investigating, preparing,
pursuing or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) directly or indirectly caused by, related to, based upon, arising out
of or in connection with any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto), provided by the Company to
any Holder or any prospective purchaser of Exchange Notes or registered Notes or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities,
judgments, actions or expenses are caused by an untrue statement or omission or
alleged untrue statement or omission that is based upon information relating to
such Holder furnished in writing to the Company by such Holder.
(b) The Company may require, as a condition to including any
Transfer Restricted Securities held by any Holder in a Registration Statement,
that the Company shall have received an undertaking reasonably satisfactory to
it from such Holder that such Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company and the Guarantors, and their respective
directors and officers, and each person, if any, who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company
or the Guarantors, as the case may be, to the same extent as the foregoing
indemnity from the Company set forth in Section 8(a) above, but only with
reference to information relating to such Holder furnished in writing to the
Company by such Holder expressly for use in any Registration Statement. In no
event shall any Holder, its directors, officers, or any person who controls such
Holder be liable or responsible for any amount in excess of the amount by which
the entire amount received by such Holder with respect to its sale of the
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages that such Holder, its directors, officers or any
Person who controls such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such ac-
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tion pursuant to this Section 8(c), but may employ separate counsel and
participate in the defense thereof, but the fees and expenses of such counsel,
except as provided below, shall be at the expense of the Holder). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 8(a), and by
the Company, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities, judgments and
expenses by reason of any settlement of any action (i) effected with its written
consent or (ii) effected without its written consent if the settlement is
entered into more than twenty business days after the indemnifying party shall
have received a request from the indemnified party for reimbursement for the
fees and expenses of counsel (in any case where such fees and expenses are at
the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party under Section 8(a) or Section
8(b) hereof in respect of any losses, claims, damages, liabilities, judgements
or expenses referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute
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to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities, judgments or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Holders, on the other hand, from their sale of
Transfer Restricted Securities or (ii) if the allocation provided by clause
8(d)(i) is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of the Company, on the one hand, and of the Holder,
on the other hand, in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities, judgments or expenses, as well as
any other relevant equitable considerations. The relative fault of the Company,
on the one hand, and of the Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by such
Holder, on the other hand, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities, judgments or expenses referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any such action
or claim including any action that could have given rise to such losses, claims,
damages, liabilities, judgments or expenses. Notwithstanding the provisions of
this Section 8, no Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total received by such Holder with
respect to the sale of Transfer Restricted Securities pursuant to a Registration
Statement exceeds (i) the amount paid by such Holder for such Transfer
Restricted Securities and (ii) the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(d) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each Holder hereunder and not joint.
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SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder, to such Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of the
Exchange Act, to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and
agree that any failure by the Company to comply with its obligations under
Sections 3 and 4 hereof may result in material irreparable injury to the Initial
Purchasers or Holders for which there is no adequate remedy at law, that it will
not be possible to measure damages for such injuries precisely and that, in the
event of any such failure, the Initial Purchasers or any Holder may obtain such
relief as may be required to specifically enforce the Company's obligations
under Sections 3 and 4 hereof. The Company and the Guarantors further agree to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
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(b) No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes or Exchange Notes. The
Company will not take any action, or permit any change to occur, with respect to
the Notes or the Exchange Notes that would materially and adversely affect the
ability of the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case of
Section 5 hereof and this Section 12(d)(i), the Company has obtained the written
consent of Holders of all outstanding Transfer Restricted Securities and (ii) in
the case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer and that does not affect directly or indirectly the rights of
other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer may be given by the Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities subject to such
Exchange Offer.
(e) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(f) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
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EchoStar DBS Corporation
5701 South Sante Fe Drive
Littleton, Colorado 80120
Telecopier No.: (303) 723-1699
Attention: David K. Moskowitz, Esq.
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004-2498
Telecopier No.: (212) 558-3388
Attention: Donald Walkovik, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Securities such
Person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Person shall be entitled to receive the benefits hereof.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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(i) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(k) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(l) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
S-1
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ECHOSTAR DBS CORPORATION
By:
------------------------------------
Name: David K. Moskowitz
Title: Senior Vice President,
General Counsel and Secretary
S-2
ECHOSTAR SATELLITE CORPORATION
ECHOSTAR TECHNOLOGIES
CORPORATION
ECHO ACCEPTANCE CORPORATION
ECHOSPHERE CORPORATION
DISH NETWORK SERVICE CORPORATION
ECHOSTAR INTERNATIONAL
CORPORATION
ECHOSTAR NORTH AMERICA
CORPORATION
ECH0STAR INDONESIA, INC.
ECHOSTAR SPACE CORPORATION
ECHOSTAR 110 CORPORATION
as Guarantors
By:
---------------------------------------------
Name: David K. Moskowitz
Title: Senior Vice President, General Counsel
and Secretary
S-3
DEUTSCHE BANC ALEX. BROWN INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
LEHMAN BROTHERS INC.
UBS WARBURG LLC
By: DEUTSCHE BANC ALEX. BROWN INC.
By:
------------------------------
Name:
Title:
EXHIBIT 4.19
ECHOSTAR COMMUNICATIONS CORPORATION
CERTIFICATE OF WITHDRAWAL
WITHDRAWING THE
SERIES A, SERIES B, AND SERIES C PREFERRED STOCK DESIGNATIONS
PURSUANT TO SECTION 78.1955 OF THE NEVADA REVISED STATUTES
I, David K. Moskowitz, the Senior Vice President, General Counsel and
Secretary of EchoStar Communications Corporation, a corporation organized and
existing under the laws of the State of Nevada (the "Corporation"), do hereby
certify that no shares of Series A, Series B, or Series C Preferred Stock are
outstanding and that pursuant to the authority conferred upon the Board of
Directors of the Corporation by its Amended and Restated Articles of
Incorporation and Section 78.1955 of the Nevada Revised Statutes, the
Corporation's Board of Directors, on December 12, 2001, adopted the following
resolution authorizing the withdrawal of the Corporation's previously filed
certificates of designation establishing Series A, Series B, and Series C
Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Amended and Restated Articles of Incorporation,
the Board of Directors does hereby authorize the filing of a Certificate of
Withdrawal with the Nevada Secretary of State's office ("Secretary")
withdrawing the following Certificates of Designation previously filed with
the Secretary relating to the Corporation's Series A, Series B, and Series
C stock:
1. Series A Certificate of Designation filed June 20, 1995;
2. Series B Certificate of Designation filed October 1, 1997, as amended
in the Certificate of Correction filed October 16, 1997; and
3. Series C Certificate of Designation filed October 30, 1997."
IN WITNESS WHEREOF, EchoStar Communications Corporation has caused this
Certificate of Withdrawal to be signed by David K. Moskowitz, its Senior Vice
President, General Counsel and Secretary, this 17th day of January, 2002.
/s/ David K. Moskowitz
------------------------------------------
David K. Moskowitz
Senior Vice President, General Counsel and
Secretary
EXHIBIT 4.20
ECHOSTAR COMMUNICATIONS CORPORATION
CERTIFICATE OF DESIGNATIONS
ESTABLISHING THE
VOTING POWERS, DESIGNATIONS, PREFERENCES, LIMITATIONS,
RESTRICTIONS, AND RELATIVE RIGHTS OF
SERIES D MANDATORILY CONVERTIBLE PARTICIPATING PREFERRED
STOCK
PURSUANT TO SECTION 78.1955 OF THE
Nevada Revised Statutes
I, David K. Moskowitz, the Senior Vice President, General Counsel and
Secretary of EchoStar Communications Corporation (the "Issuer"), a corporation
organized and existing under the laws of the State of Nevada, do hereby certify
that pursuant to authority conferred upon the Board of Directors of the Issuer
by its Amended and Restated Articles of Incorporation and pursuant to the
provisions of Section 78.1955 of the Nevada Revised Statutes, the Issuer's Board
of Directors, on December 12, 2001, adopted the following resolution
establishing the Issuer's Series D Mandatorily Convertible Participating
Preferred Stock, which resolution remains in full force and effect. Certain
capitalized terms used herein are defined in Article 11.
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Amended and Restated Articles of
Incorporation, the Board of Directors does hereby provide for the issue
of a series of Preferred Stock, $0.01 par value, of the Corporation, to
be designated "Series D Mandatorily Convertible Participating Preferred
Stock" (referred to herein as the "Series D Preferred Stock"), having
the number of shares and, to the extent that the designations, powers,
preferences and relative and other special rights and the
qualifications, limitations and restrictions of such Series D Preferred
Stock are not stated and expressed in the Amended and Restated Articles
of Incorporation, the powers, preferences and relative and other
special rights and the qualifications, limitations and restrictions
thereof, as follows:
ARTICLE 1 DESIGNATION AND NUMBER OF SHARES
SECTION 1.1 The series will be known as the "Series D Mandatorily
Convertible Participating Preferred Stock".
SECTION 1.2 The Series D Preferred Stock will be a series consisting of
5,760,479 shares of the authorized but unissued preferred stock of the Issuer.
ARTICLE 2 DIVIDENDS AND DISTRIBUTIONS
SECTION 2.1 The Holders of shares of Series D Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, but only
out of funds legally available therefor, dividends or distributions on each date
that dividends or other distributions (including any distributions of Capital
Stock, evidences of indebtedness, other securities or any other assets) are
payable or distributable on or in respect of Class A Common Stock of the Issuer,
in an amount per whole share of Series D Preferred Stock equal to the aggregate
amount (in cash, securities or other property) of dividends or other
distributions that would be payable on such date to a Holder of that number of
shares of Common Stock into which one share of Series D Preferred Stock shall be
convertible at the Conversion Rate (defined below). Each such dividend or
distribution shall be paid to each Holder of record of shares of Series D
Preferred Stock on the record date, not exceeding sixty days preceding such
payment date, fixed for the purpose by the Board of Directors in advance of
payment of each particular dividend or distribution (which record date shall be
the same date as the record date for the corresponding payment of dividends or
distributions on the Class A Common Stock). Any share of Series D Preferred
Stock originally issued after a dividend or distribution record date and on or
prior to the dividend or distribution payment date to which such record date
relates shall not be entitled to receive the dividend or distribution payable on
such dividend or distribution payment date or any amount in respect of the
period from the date of such issuance to such dividend or distribution payment
date. Holders of shares of Series D Preferred Stock shall not be entitled to any
dividends or distributions, whether payable or distributable in cash, property
or stock, in excess of full dividends or distributions as herein provided.
SECTION 2.2 So long as any shares of Series D Preferred Stock shall be
outstanding, no dividend shall be declared or paid or set aside for payment or
other distribution declared or made upon the Common Stock or upon any other
stock ranking junior to the Series D Preferred Stock as to dividends or
distribution of assets upon Liquidation, nor shall any Common Stock nor any
other stock of the Issuer ranking junior to or on a parity with the Series D
Preferred Stock as to dividends or distribution of assets upon Liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any monies
be paid to, set aside or made available for a sinking fund for the redemption of
any shares of any such stock) by the Issuer (except by conversion into or
exchange for stock of the Issuer ranking junior to the Series D Preferred Stock
as to distribution of assets upon Liquidation), unless, in each case, the full
dividends (including the dividend to be due upon payment of such dividend,
distribution, redemption, purchase or other acquisition) on all outstanding
shares of Series D Preferred Stock shall have been, or shall then be, paid.
ARTICLE 3 RANKING
The preferences of each share of Series D Preferred Stock as to
distribution of assets upon Liquidation shall be in every respect on a parity
with the preferences of every
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other share of capital stock of the Issuer which is not specifically made senior
or junior to the Series D Preferred Stock as to distribution of assets upon
Liquidation. The rights of the Common Stock will be junior to the Series D
Preferred stock as to distributions upon Liquidation to the extent herein
provided.
ARTICLE 4 OPTIONAL CONVERSION AND CONVERSION PROCEDURES
SECTION 4.1 (a) Each Holder of Series D Preferred Stock shall have the
right, at its option, at any time and from time to time to convert, subject to
the terms and provisions of this Article 4, any or all of such Holder's shares
of Series D Preferred Stock. In such case, each whole share of Series D
Preferred Stock shall be converted into ten (10) fully paid and nonassessable
shares of Class A Common Stock (the "Conversion Rate").
(b) The conversion right of a Holder of Series D Preferred
Stock shall be exercised by the Holder by the surrender of the certificates
representing shares to be converted to the Issuer or to the Transfer Agent
accompanied by the Conversion Notice.
(i) Immediately prior to the close of business on the
Conversion Date, each converting Holder of Series D Preferred Stock
shall be deemed to be the Holder of record of Class A Common Stock
issuable upon conversion of such Holder's Series D Preferred Stock
notwithstanding that the share register of the Issuer shall then be
closed or that certificates representing such Class A Common Stock
shall not then be actually delivered to such Person.
(ii) Upon notice from the Issuer, each Holder of Series D
Preferred Stock so converted shall promptly surrender to the Issuer or
the Transfer Agent certificates representing the shares so converted
(if not previously delivered), duly endorsed in blank or accompanied by
proper instruments of transfer.
(iii) On any Conversion Date, all rights with respect to the
shares of Series D Preferred Stock so converted, including the rights,
if any, to receive notices, will terminate, except the rights of
Holders thereof to: (1) receive certificates for the number of shares
of Class A Common Stock into which such shares of Series D Preferred
Stock have been converted; (2) the payment in cash or shares of Class A
Common Stock of any declared and unpaid dividends and distributions
accrued thereon pursuant to Section 4.2 hereof; and (3) exercise the
rights to which they are entitled as Holders of Class A Common Stock.
(c) If the Conversion Date shall not be a Business Day, then
such conversion right shall be deemed exercised on the next Business Day.
SECTION 4.2 (a) When shares of Series D Preferred Stock are converted
pursuant to this Article 4, any declared and unpaid dividends and distributions
on the Series D Preferred
3
Stock so converted to which the Holder of such Series D Preferred Stock is
entitled in accordance with Section 2.1 hereof, to (but not including) the
Conversion Date, shall be due and payable, at the Issuer's option,
(i) in cash;
(ii) in a number of fully paid and nonassessable shares of
Class A Common Stock equal to the quotient obtained by dividing (A) the
amount of declared and unpaid dividends payable to the Holder of Series
D Preferred Stock so converted by (B) 95% of the current market price,
determined in accordance with subsection (b) below, on the Conversion
Date; or
(iii) a combination thereof.
(b) The current market price per share of Class A Common Stock
on any date shall be deemed to be the average of the Daily Market Prices for the
ten (10) consecutive trading days ending on the last full trading day on the
exchange or market referred to in determining such Daily Market Prices prior to
the time of determination.
(c) No payment or adjustment shall be made by the Issuer upon
any conversion of Series D Preferred Stock on account of any dividends or
distributions on the Class A Common Stock or other securities issued upon
conversion.
SECTION 4.3 (a) In case the Issuer shall (i) subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock or (ii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, the Issuer shall effect the same subdivision, combination or
similar change with respect to the Series D Preferred Stock of the Issuer as is
made with respect to the Common Stock such that the Holder of any share of
Series D Preferred Stock thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock which such Holder would have
owned immediately following such action had such shares of Series D Preferred
Stock been converted immediately prior thereto. Any adjustment made pursuant to
this subsection (a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(b) Except as permitted in Article 6 with respect to a Change
of Control Transaction, in case of any consolidation of the Issuer with, or
merger of the Issuer into, any other Person, or any merger of another Person
into the Issuer, or any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Issuer), or any sale, conveyance or transfer of all
or substantially all of the assets of the Issuer (in each case other than any
such consolidation, merger, statutory exchange, sale, conveyance or transfer
that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock), appropriate provision shall
be made in the agreement governing any such consolidation, merger, statutory
exchange, sale, conveyance or transfer so that the holder of each share of
Series D Preferred Stock
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outstanding immediately prior to the consummation of such consolidation, merger,
statutory exchange, sale, conveyance or transfer shall have the right thereafter
to convert such share into the kind and amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale,
conveyance or transfer by a Holder of the number of shares of Class A Common
Stock into which such share of Series D Preferred Stock might have been
converted immediately prior to such consolidation, merger or statutory exchange,
assuming such Holder of Class A Common Stock failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale, conveyance
or transfer (provided that if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale,
conveyance or transfer is not the same for each share of Class A Common Stock in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this subsection (b) the kind and
amount of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale, conveyance or transfer for each non-electing
share shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). Thereafter, the holders of the Series D
Preferred Stock shall be entitled to appropriate adjustments with respect to
their conversion rights to the end that the provisions set forth in this Section
4.3 shall correspondingly be made applicable, as nearly equivalent as
practicable, in relation to any shares of stock or other securities or other
property thereafter deliverable on the conversion of the Series D Preferred
Stock. The provisions of this subsection (b) shall similarly apply to successive
consolidations, mergers or statutory exchanges. The provisions of this
subsection (b) shall not apply to the Merger or any of the other transactions or
actions provided for by the Transaction Agreements (as such term is defined in
the Implementation Agreement).
SECTION 4.4 The Issuer shall at all times reserve and keep available
for issuance upon the conversion of the Series D Preferred Stock, such number of
its authorized but unissued shares of Class A Common Stock as will from time to
time be sufficient to permit the conversion of all outstanding shares of Series
D Preferred Stock, and shall take all action required to increase the authorized
number of shares of Class A Common Stock if at any time there shall be
insufficient authorized but unissued shares of Class A Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
D Preferred Stock.
SECTION 4.5 The issuance or delivery of certificates for Class A Common
Stock upon the conversion of shares of Series D Preferred Stock shall be made
without charge to the converting Holder of shares of Series D Preferred Stock
for such certificates or for any tax in respect of the issuance or delivery of
such certificates or the securities represented thereby, and such certificates
shall be issued or delivered in the respective names of, or in such names as may
be directed by, the Holders of the shares of Series D Preferred Stock converted;
provided, however, that the Issuer shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of the Holder of the shares of
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Series D Preferred Stock converted, and the Issuer shall not be required to
issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Issuer the
amount of such tax or shall have established to the reasonable satisfaction of
the Issuer that such tax has been paid or is not payable.
ARTICLE 5 MANDATORY CONVERSION
SECTION 5.1 (a) Subject to Section 5.1(b), each share of Series D
Preferred Stock shall be automatically converted into ten (10) fully paid and
nonassessable shares of Class A Common Stock, upon the occurrence of any of the
following events or dates (each, a "Conversion Trigger Event"), without any
action on the part of any Holder:
(i) the effective time of the Merger provided for in Article I
of the Merger Agreement;
(ii) on the first date that the sum of (A) the number of
shares of Class A Common Stock into which the shares of Series D
Preferred Stock then held of record and beneficially by the Initial
Holder are convertible on such date and (B) the number of shares of
Class A Common Stock, if any, theretofore received by the Initial
Holder upon conversion of shares of Series D Preferred Stock, for which
shares of Class A Common Stock the Initial Holder shall continue to be
the record and beneficial owner as of the date of any determination
under this clause (ii), shall cease to constitute 51% or more of the
aggregate number of shares of Class A Common Stock into which the
shares of Series D Preferred Stock issued to the Initial Holder on the
Issuance Date were convertible into on such date (as such aggregate
number may be adjusted from time to time as necessary to reflect
appropriately any stock splits, subdivisions, combinations and similar
changes to the Capital Stock of the Issuer);
(iii) the purported sale, assignment, transfer or other
disposition of a share of Series D Preferred Stock or beneficial
ownership thereof by the Initial Holder to any Person other than a
Permitted Transferee; or
(iv) January 22, 2007;
unless such share of Series D Preferred Stock shall have earlier have been
converted in accordance with Article 4 hereof or this Article 5. For purposes of
this Section 5.1 and Section 13.2, the terms "beneficial owner" and
"beneficially" shall be construed in accordance with Rule 13d-3 under the
Exchange Act.
(b) Any such conversion pursuant to Section 5.1(a) shall be
effected (i) in the case of the Conversion Trigger Event in clause (i) of
Section 5.1(a), immediately prior to the effective time of the Merger; (ii) in
the case of the Conversion Trigger Event in clause (ii) or (iv) thereof, on the
date specified therein, and (iii) in the case of the Conversion Trigger Event in
clause (iii) thereof, immediately prior to such sale, transfer or other
disposition. Any conversion effected pursuant to clause (iii) of Section 5.1(a)
shall apply only to such share or shares of Series D Preferred Stock as are so
sold, transferred or otherwise disposed of. Any conversion pursuant to clause
(ii) or (iii) of
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Section 5.1(a) shall become effective notwithstanding any failure by the Initial
Holder to notify the Issuer of any change in ownership pursuant to Section 13.2
hereof.
(c) For purposes of this Section 5.1, the "Initial Holder"
shall be deemed to include any Permitted Transferee of the Initial Holder which
is then a Holder of any shares of Series D Preferred Stock.
SECTION 5.2 (a) Upon notice from the Issuer, each Holder of Series D
Preferred Stock converted in accordance with Section 5.1 hereof shall promptly
surrender to the Issuer or the Transfer Agent certificates representing the
shares so converted (if not previously delivered), duly endorsed in blank or
accompanied by proper instruments of transfer.
(b) Upon any conversion of shares of Series D Preferred Stock
in accordance with Section 5.1 hereof, all rights with respect to the shares of
Series D Preferred Stock so converted, including the rights of a Holder, if any,
to receive notices, will terminate, except the rights of Holders thereof to: (i)
receive certificates for the number of shares of Class A Common Stock into which
such shares of Series D Preferred Stock have been converted; (ii) the payment in
cash or shares of Class A Common Stock of any declared and unpaid dividends and
distributions accrued thereon to (but not including) the date of such conversion
pursuant to Section 4.2 hereof; and (iii) exercise the rights to which they are
entitled as Holders of Class A Common Stock.
ARTICLE 6 CHANGE OF CONTROL
SECTION 6.1 (a) Without limiting the rights of Holders of shares of
Series D Preferred Stock pursuant to Article 4, in the event that a Change of
Control Transaction shall occur, the Holders shall be entitled to be paid in
full, to the extent of funds legally available therefor, an amount in cash per
share of Series D Preferred Stock equal to the Liquidation Preference, plus any
declared and unpaid dividends accrued thereon to (but not including) the Change
in Control Date (as defined in Section 6.1(d)).
(b) If the Surviving Corporation, if any, resulting from any
Change of Control Transaction shall be a Person other than the Issuer, the
Surviving Corporation shall execute and deliver an agreement for the benefit of
the Holders of the Series D Preferred Stock providing that each Holder of
outstanding shares of Series D Preferred Stock immediately prior to the Change
of Control Transaction shall thereafter have the right to demand payment from
the Surviving Corporation of the amounts payable to such Holder pursuant to
Section 6.1(a), with respect to such Holder's shares of Series D Preferred
Stock.
(c) Immediately prior to the consummation of a Change in
Control Transaction, all shares of Series D Preferred Stock shall cease to be
outstanding, the Holders thereof shall cease to be stockholders with respect to
such shares and all rights
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with respect to such shares of Series D Preferred Stock, including the rights of
a Holder, if any, to convert such shares and to receive notices, will terminate,
except the rights of a Holder thereof to receive payment of the amount due to
such Holder pursuant to Section 6.1(a) with respect to such Holder's shares of
Series D Preferred Stock.
(d) Upon notice from the Issuer (or the Surviving Corporation,
if applicable) of the occurrence of a Change in Control Transaction, which
notice shall include the date on which the Change in Control Transaction
occurred (the "Change of Control Date") and the amount per share of Series D
Preferred Stock outstanding immediately prior to such Change in Control
Transaction payable pursuant to Section 6.1(a), each Holder of Series D
Preferred Stock shall promptly surrender to the Issuer or the Transfer Agent the
certificates formerly representing such Series D Preferred Stock (if not
previously delivered), duly endorsed in blank or accompanied by proper
instruments of transfer, and the Issuer or the Surviving Corporation, as the
case may be, shall pay to the surrendering Holder promptly after such surrender
all amounts payable in respect of the shares of Series D Preferred Stock
represented by such surrendered certificate.
ARTICLE 7 LIQUIDATION
SECTION 7.1 In the event of any Liquidation the Holders of shares of
Series D Preferred Stock shall be entitled, before any distribution or payment
is made on any date to the Holders of the Common Stock or any other stock of the
Issuer ranking junior to the Series D Preferred Stock as to distribution of
assets upon Liquidation, to be paid in full the greater of (i) an amount per
share of Series D Preferred Stock equal to the Liquidation Preference, plus any
declared and unpaid dividends thereon from the date fixed for payment of such
dividends to the date fixed for Liquidation and (ii) an amount per share of
Common Stock to which such Holders of shares of Series D Preferred Stock would
have been entitled upon Liquidation if such Holders had converted such shares of
Series D Preferred Stock into Class A Common Stock immediately prior to the date
fixed for Liquidation. If such payment shall have been made in full to all
Holders of shares of Series D Preferred Stock, then the Holders of shares of
Series D Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Issuer.
SECTION 7.2 If the assets of the Issuer available for distribution to
the Holders of shares of Series D Preferred Stock upon any Liquidation shall be
insufficient to pay in full all amounts to which such Holders shall be entitled
pursuant to Section 7.1, no such distribution shall be made on account of any
shares of any other class or series of Preferred Stock ranking on a parity with
the Series D Preferred Stock as to distribution of assets upon Liquidation
unless proportionate distributive amounts shall be paid on account of all
outstanding shares of Series D Preferred Stock, ratably in proportion to the
full distributable amounts for which Holders of all such parity shares are
respectively entitled upon such Liquidation.
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ARTICLE 8 VOTING RIGHTS
SECTION 8.1 Except as otherwise provided by law and the articles of
incorporation of the Issuer, the Holders of Series D Preferred Stock shall have
no voting rights other than such voting rights as are expressly provided in
Sections 8.2, 8.3 and 8.4.
SECTION 8.2 A Holder of Series D Preferred Stock shall be entitled to
vote on any matter on which the Holders of Class A Common Stock are entitled to
vote. With respect to any such matter, each Holder of Series D Preferred Stock
shall be entitled to one vote for each whole share of Class A Common Stock that
would be issuable to such Holder upon the conversion of all the shares of Series
D Preferred Stock held by such Holder on the record date for the determination
of stockholders entitled to vote and, subject to Sections 8.3 and 8.4, the
Holders of Series D Preferred Stock shall vote together as a single class with
the Holders of Class A Common Stock and any other class of Common Stock voting
as a single class with the Class A Common Stock with respect to such matter in
accordance with the Nevada Revised Statutes or the articles of incorporation of
the Issuer.
SECTION 8.3 Subject to Section 8.4, the vote or consent of the Holders
of at least a majority in aggregate Liquidation Preference of the shares of
Series D Preferred Stock at the time outstanding, voting separately as a single
class, given in person or by proxy, either in writing without a meeting or by
vote at any meeting called for the purpose, shall be necessary for effecting or
validating:
(a) the issuance of any shares of Series D Preferred Stock in
excess of the number of shares of such stock authorized in this Certificate of
Designations or a decrease in the number of authorized shares of Series D
Preferred Stock below the number of shares of Series D Preferred Stock then
outstanding; provided, however, that adjustments to the number of outstanding
shares of Series D Preferred Stock may be made by the Issuer pursuant to, and in
accordance with, Section 4.3 hereof without the vote or consent of the Holders
of Series D Preferred Stock; and
(b) any amendment, alteration or repeal of any provision of
the articles of incorporation, this Certificate of Designations or the by-laws
of the Issuer (including any such alteration, amendment or repeal accomplished
by merger, consolidation or otherwise) that would alter or change, or abolish,
the voting powers, preferences or special rights of the Series D Preferred Stock
in any manner adverse to the Holders thereof, including without limitation any
change that is in any manner adverse to the par value, liquidation preference or
dividend rights, place or currency of payment, enforcement rights or conversion
rights; provided, however, that the vote or consent of the Holders of Series D
Preferred Stock voting separately as a class shall not be necessary for
effecting or validating (i) any amendment of the articles of incorporation so as
to authorize or create, or to increase or decrease the authorized amount of, or
to issue any shares of Capital Stock of the Issuer other than Series D Preferred
Stock, (ii) any amendment or supplement to the Certificate of Designations
permitted by Article 10
9
hereof or (iii) any consolidation of the Issuer with, or merger of the Issuer
into, any other Person or any merger of another Person into the Issuer, provided
that, (x) if the Issuer is the Surviving Corporation, the Series D Preferred
Stock shall remain outstanding without any amendment to this Certificate of
Designations that would adversely affect the preferences, rights or powers of
the Series D Preferred Stock and (y) if the Issuer is not the Surviving
Corporation, (1) the Surviving Corporation is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia and (2) the shares of Series D Preferred Stock are
converted into or exchanged for and become shares of preferred or preference
stock of the Surviving Corporation, having the same powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations and restrictions as provided for the Series D Preferred Stock in
this Certificate of Designations as in effect immediately prior to such
transaction.
In all such cases contemplated by this Section 8.3, each share of Series D
Preferred Stock shall be entitled to one vote.
SECTION 8.4 Notwithstanding anything to the contrary in this
Certificate of Designations, the Holders of Series D Preferred Stock shall not
be entitled to any vote, nor shall their consent be required, with respect to
the Merger or any of the other transactions or actions provided for by the
Transaction Agreements (as such term is defined in the Implementation
Agreement), including any amendment to the Merger Agreement or any other
Transaction Agreement.
ARTICLE 9 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS
AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Issuer or any of its Affiliates, as such, shall have any liability for any
obligations of the Issuer and any of its Affiliates under the Series D Preferred
Stock or the Certificate of Designations or for any claim based on, in respect
of, or by reason of, such obligations or their creation, except as otherwise
provided under the laws of the State of Nevada. Each Holder of the Series D
Preferred Stock waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Series D Preferred Stock.
ARTICLE 10 AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 10.1 Without the consent of any Holder of the Series D
Preferred Stock, the Issuer may amend or supplement this Certificate of
Designations to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Series D Preferred Stock in addition to or in place of
certificated Series D Preferred Stock, to provide for the assumption of the
Issuer's obligations to Holders of the Series D Preferred Stock in the case of a
merger or consolidation (subject to the requirements set forth in Section
8.3(b), if applicable), to make any change that would provide any additional
rights or benefits to
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the Holders of the Series D Preferred Stock or that does not adversely affect
the legal rights under this Certificate of Designations of any such Holder.
SECTION 10.2 Except as otherwise provided herein (including, without
limitation, Section 8.3 hereof, if applicable), the Issuer is entitled to amend
its articles of incorporation to authorize one or more additional series of
preferred stock, file certificates of designations, and issue without
restriction, from time to time, any stock or other securities ranking junior to,
senior to or on a parity with the Series D Preferred Stock as to distributions
of assets upon Liquidation.
ARTICLE 11 CERTAIN DEFINITIONS
Set forth below are certain defined terms used in this Certificate of
Designations.
SECTION 11.1 "AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities, by agreement or otherwise;
provided, however, that beneficial ownership of 10% or more of the voting
securities of a person shall be deemed to be control.
SECTION 11.2 "BUSINESS DAY" means any day other than a Legal Holiday.
SECTION 11.3 "CAPITAL STOCK" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock or partnership or membership interests, whether common or preferred.
SECTION 11.4 "CHANGE OF CONTROL" means
(a) any transaction or series of related transactions
(including a tender offer, merger or consolidation) the result of which is that
holders of outstanding voting Capital Stock of the Issuer immediately prior to
such transaction or series of related transactions hold, directly or indirectly,
Capital Stock of the surviving Person, in such transaction or series of related
transactions (or any ultimate parent thereof) representing less than 50% of the
voting power in the election of members of the board of directors (or comparable
governing body) of all outstanding Capital Stock of such surviving Person (or
such ultimate parent) immediately after such transaction or series of related
transactions; or
(b) the sale, lease or transfer of all or substantially all of
the Issuer's assets to any "person" or "group", within the meaning of Section
13(d)(3) and 14(d)(2) of the Exchange Act, or any successor provision to either
of the foregoing, including any group acting for the purpose of acquiring,
holding or disposing of securities within the
11
meaning of Rule 13d-5(b)(1) under the Exchange Act, other than any Subsidiary or
Subsidiaries of the Company.
SECTION 11.5 "CHANGE OF CONTROL TRANSACTION" means any merger,
consolidation, tender offer, statutory share exchange or sale, lease or transfer
of all or substantially all of the Issuer's assets or similar transaction or
group of related transactions, in each case to which the Issuer is a party (or,
in the case of a tender offer, in which Capital Stock of the Issuer is the
subject security), the consummation of which results in a Change of Control;
provided that (a) neither the Merger nor any of the transactions provided for by
the Merger Agreement or the other Transaction Agreements (as such term is
defined in the Implementation Agreement), shall constitute a Change of Control
Transaction; and (b) the consummation of the transactions contemplated by the
PanAmSat Stock Purchase Agreement, including any issuance of shares of Class A
Common Stock in connection therewith, shall not constitute a Change of Control
Transaction.
SECTION 11.6 "CLASS A COMMON STOCK" means the Issuer's authorized $.01
par value Class A common stock.
SECTION 11.7 "CLASS B COMMON STOCK" means the Issuer's authorized $.01
par value Class B common stock.
SECTION 11.8 "COMMON STOCK" means the Class A Common Stock and the
Class B Common Stock as constituted on the date of filing of this Certificate of
Designations, and shall also include any Capital Stock of any class of the
Issuer thereafter authorized that shall not be limited to a fixed sum in respect
of the rights of the Holders thereof to participate in dividends or in the
distribution of assets upon the Liquidation of the Issuer.
SECTION 11.9 The "CONVERSION DATE" shall be the date the Issuer or the
Transfer Agent receives the Conversion Notice.
SECTION 11.10 "CONVERSION NOTICE" is written notice from the Holder to
the Issuer stating that the Holder elects to convert all or a portion of the
shares of Series D Preferred Stock represented by certificates delivered to the
Issuer or the Transfer Agent contemporaneously. The Conversion Notice will
specify or include:
(i) The number of shares of Series D Preferred Stock being
converted by the Holder,
(ii) The name or names (with address and taxpayer
identification number) in which a certificate or certificates for
shares of Class A Common Stock are to be issued,
12
(iii) A written instrument or instruments of transfer in form
reasonably satisfactory to the Issuer or the Transfer Agent duly
executed by the Holder or its duly authorized legal representative, and
(iv) Transfer tax stamps or funds therefor, if required
pursuant to Section 4.5.
SECTION 11.11 "DAILY MARKET PRICE" means the price of a share of Class
A Common Stock on the relevant date, determined (a) on the basis of the last
reported sale price regular way of the Class A Common Stock as reported on the
Nasdaq National Market (the "NNM"), or if the Class A Common Stock is not then
listed on the NNM, as reported on such national securities exchange upon which
the Class A Common Stock is listed, or (b) if there is no such reported sale on
the day in question, on the basis of the average of the closing bid and asked
quotations regular way as so reported, or (c) if the Class A Common Stock is not
listed on the NNM or on any national securities exchange, on the basis of the
average of the high bid and low asked quotations regular way on the day in
question in the over-the-counter market as reported by the National Association
of Securities Dealers Automated Quotation System, or if not so quoted, as
reported by National Quotation Bureau, Incorporated, or a similar organization.
SECTION 11.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
SECTION 11.13 "HOLDER" means a Person in whose name a share or shares
of Capital Stock are registered.
SECTION 11.14 "HSR ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder.
SECTION 11.15 "HUGHES" means Hughes Electronics Corporation, a Delaware
corporation.
SECTION 11.16 "IMPLEMENTATION AGREEMENT" means the Implementation
Agreement, dated as of October 28, 2001, among the Issuer, General Motors and
Hughes, as it may be amended from time to time.
SECTION 11.17 "INITIAL HOLDER" means the Investor or any direct or
indirect, wholly-owned Subsidiary of the Investor designated by the Investor to
purchase the Series D Preferred Stock pursuant to Section 7.01(a) of the
Investment Agreement.
SECTION 11.18 "INVESTMENT AGREEMENT" means the Investment Agreement,
dated December 14, 2001, between the Issuer and the Investor named therein (the
"Investor"), as it may be amended from time to time.
SECTION 11.19 "ISSUANCE DATE" means the date on which the Series D
Preferred Stock is originally issued under this Certificate of Designations.
13
SECTION 11.20 "ISSUER" means EchoStar Communications Corporation, a
Nevada corporation.
SECTION 11.21 "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on
which banking institutions in the City of New York or at a place payment is to
be received are authorized by law, regulation or executive order to remain
closed. If a payment date is a Legal Holiday at a place of payment, payment may
be made at that place on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period.
SECTION 11.22 "LIQUIDATION" means any liquidation, dissolution or
winding-up of the affairs of the Issuer, whether voluntary or involuntary;
provided that for purposes of Article 7, a consolidation or merger of, or share
exchange by, the Issuer with any other Person shall not constitute a
Liquidation.
SECTION 11.23 "LIQUIDATION PREFERENCE" means $260.395 per share of
Series D Preferred Stock.
SECTION 11.24 "MERGER" means the merger provided for in Article 1 of
the Merger Agreement.
SECTION 11.25 "MERGER AGREEMENT" means the Agreement and Plan of
Merger, dated as of October 28, 2001, by and between the Issuer and Hughes, as
it may be amended from time to time.
SECTION 11.26 "PANAMSAT STOCK PURCHASE AGREEMENT" means the Stock
Purchase Agreement, dated as of October 28, 2001, among the Issuer, Hughes,
Hughes Communications Galaxy, Inc., Hughes Communications Satellite Services,
Inc. and Hughes Communications, Inc., as it may be amended from time to time.
SECTION 11.27 "PERMITTED TRANSFEREE" means the Investor or any direct
or indirect, wholly-owned Subsidiary of the Investor, as the case may be.
SECTION 11.28 "PERSON" means any individual, corporation, partnership,
joint venture, association, joint-stock issuer, trust or unincorporated
organization (including any subdivision or ongoing business of any such entity
or substantially all of the assets of any such entity, subdivision or business).
SECTION 11.29 "SEC" means the Securities and Exchange Commission.
SECTION 11.30 "SECURITIES ACT" means the Securities Act of 1933, as
amended.
SECTION 11.31 "SERIES D PREFERRED STOCK" means the Series D Preferred
Stock authorized in this Certificate of Designations.
14
SECTION 11.32 "SUBSIDIARY" means, with respect to any person, any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such person or one or more of the other Subsidiaries of such person or a
combination thereof.
SECTION 11.33 "SURVIVING CORPORATION" means, in the case of any merger
or consolidation to which the Issuer is a party, the Person surviving such
merger or resulting from such consolidation, as the case may be.
SECTION 11.34 The "TRANSFER AGENT" shall be as established pursuant to
Article 12 hereof.
ARTICLE 12 TRANSFER AGENT AND REGISTRAR
The Issuer may, but shall not be required to, appoint a transfer agent
and registrar for the Series D Preferred Stock and shall give notice to the
holders of any such appointment. The Issuer may, in its sole discretion, remove
the Transfer Agent in accordance with the agreement between the Issuer and the
Transfer Agent; provided that the Issuer shall appoint a successor transfer
agent who shall accept such appointment prior to the effectiveness of such
removal.
ARTICLE 13 OTHER PROVISIONS
SECTION 13.1 With respect to any notice to a Holder of shares of Series
D Preferred Stock required to be provided hereunder, neither failure to mail
such notice, nor any defect therein or in the mailing thereof, to any particular
Holder shall affect the sufficiency of the notice or the validity of the
proceedings referred to in such notice with respect to the other Holders or
affect the legality or validity of any distribution, rights, warrant,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any such action. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the Holder receives the notice.
SECTION 13.2 With respect to any purported sale, assignment, transfer
or other disposition of any shares of Series D Preferred Stock or beneficial
ownership thereof (including any sales, assignments, transfers or dispositions
to a Permitted Transferee), the Holder thereof shall provide at least three (3)
Business Days' written notice to the Secretary of the Issuer of the intended
date of such sale, assignment, transfer or disposition of the Series D Preferred
Stock and the identity of such purported transferee or transferees.
SECTION 13.3 All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or sent
by facsimile or sent, postage prepaid, by registered, certified or express mail
or overnight courier service
15
and shall be deemed given when so delivered by hand or facsimile, or if mailed,
three days after mailing (one business day in the case of express mail or
overnight courier service), as follows:
(a) if to the Issuer:
5701 South Santa Fe Drive
Littleton, Colorado 80120
Attention: David K. Moskowitz, Senior Vice President,
General Counsel and Secretary
Telecopy No.: (303) 723-1699
(b) if to a Holder: at the address of such Holder as the same
appears on the stock ledger of the Issuer, provided that each such Holder may
designate in writing another address for notices or other communications
required or permitted to be given hereunder.
SECTION 13.4 Shares of Series D Preferred Stock issued and reacquired
by the Issuer will be retired and canceled promptly after reacquisition thereof
and, upon compliance with the applicable requirements of Nevada law, have the
status of authorized but unissued shares of preferred stock of the Issuer
undesignated as to series and may with any and all other authorized but unissued
shares of preferred stock of the Issuer be designated or redesignated and issued
or reissued, as the case may be, as part of any series of preferred stock of the
Issuer.
SECTION 13.5 No fractional shares of Class A Common Stock or securities
representing fractional shares of Class A Common Stock will be issued upon
conversion or as dividends payable on the Series D Preferred Stock. Any
fractional interest in a share of Class A Common Stock resulting from conversion
or dividend payment will be paid in cash based on the last reported sale price
of the Class A Common Stock on the Nasdaq National Market (or any national
securities exchange or authorized quotation system on which the Class A Common
Stock is then listed) at the close of business on the trading day next preceding
the date of conversion or dividend payment date, as the case may be, or on the
trading day next preceding such later time as the Issuer is legally and
contractually able to pay for such fractional shares. For purposes of
determining whether a Person would receive a fractional share of Class A Common
Stock upon conversion or as dividends payable on the Series D Preferred Stock,
all shares of Class A Common Stock that such Holder of shares of Series D
Preferred Stock would otherwise be entitled to receive as a result of such
conversion or dividends shall be aggregated.
SECTION 13.6 No Holder of shares of Series D Preferred Stock shall be
entitled to the rights set forth in Section 92A.300 et. seq. of the Nevada
Revised Statutes. Without limiting the generality of the foregoing, no Holder of
shares of Series D Preferred Stock shall have any rights to dissent from, or
obtain payment of the fair value of such Holder's shares of Series D Preferred
Stock in the event of, any of the corporate
16
actions set forth in Section 92A.380 of the Nevada Revised Statutes, including,
without limitation, the consummation of a plan of merger with respect to which
the approval of the Holders of any Capital Stock of the Issuer is required. Each
Holder of shares of Series D Preferred Stock shall have no right to (i) receive
notice pursuant to Section 92A.410 of the Nevada Revised Statutes from the
Issuer or (ii) deliver to the Issuer notice of intent to demand payment for such
Holder's shares of Series D Preferred Stock pursuant to Section 92A.420 of the
Nevada Revised Statutes.
SECTION 13.7 All notice periods referred to herein shall commence on
the date of the mailing of the applicable notice.
17
IN WITNESS WHEREOF, EchoStar Communications Corporation has caused this
Certificate of Designations to be signed by David K. Moskowitz, its Senior Vice
President, General Counsel and Secretary, this ___ day of January, 2002.
ECHOSTAR COMMUNICATIONS
CORPORATION
---------------------------------------------------
David K. Moskowitz
Senior Vice President, General Counsel and
Secretary
18
EXHIBIT 10.33
MODIFICATION NO. 8
TO THE SATELLITE CONTRACT
(ECHOSTAR VII - 119 (DEGREE) WEST LONGITUDE)
BETWEEN
LOCKHEED MARTIN CORPORATION
AND
ECHOSTAR ORBITAL CORPORATION
DATED JANUARY 27, 2000
This Modification is effective the 12th day of October 2001.
WITNESS THAT:
WHEREAS, EchoStar Orbital Corporation ("Buyer") and Lockheed Martin Corporation
("Contractor"), mutually agree to modify the subject Contract to:
o Modify EXHIBIT B THE ECHOSTAR VII SPACECRAFT PERFORMANCE SPECIFICATION
DOC#8575921 REV. D. This modification incorporates mutually agreed upon
changes as identified in the attached Change Control Board (CCB) Item
No. 367, dated June 26, 2001.
NOW THEREFORE, in consideration of the mutual covenants and conditions contained
herein, Buyer and Contractor agree to modify the Contract as follows:
1. EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE SPECIFICATION DOC#8575921
a. Delete EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE
SPECIFICATION DOC#8575921 REV. D in its entirety and replace
with EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE
SPECIFICATION DOC#8575921 REV. E.
IN WITNESS WHEREOF, the parties hereto have executed this Contract Amendment.
ECHOSTAR ORBITAL LOCKHEED MARTIN
CORPORATION CORPORATION
By: By:
-------------------------------- --------------------------
David K. Moskowitz Sandra McMahan
Senior Vice President and Contracts Manager
General Counsel
EchoStar Communications Corporation hereby guarantees all of the obligations and
duties of EchoStar Orbital Corporation under the Contract to which this
guarantee is attached.
ECHOSTAR COMMUNICATIONS
CORPORATION
By:
-------------------------------
David K. Moskowitz
Senior Vice President and
General Counsel
EXHIBIT 10.34
MODIFICATION NO. 9
TO THE SATELLITE CONTRACT
(ECHOSTAR VII - 119 (DEGREE) WEST LONGITUDE)
BETWEEN
LOCKHEED MARTIN CORPORATION
AND
ECHOSTAR ORBITAL CORPORATION
DATED JANUARY 27, 2000
This Modification is effective the 16th day of October 2001.
WITNESS THAT:
WHEREAS, EchoStar Orbital Corporation ("Buyer") and Lockheed Martin Corporation
("Contractor"), mutually agree to modify the subject Contract to:
o Modify EXHIBIT B THE ECHOSTAR VII SPACECRAFT PERFORMANCE SPECIFICATION
DOC#8575921 REV. E. This modification incorporates mutually agreed upon
changes as identified in the attached Change Control Board (CCB) Item
No. 378, dated October 16, 2001.
NOW THEREFORE, in consideration of the mutual covenants and conditions contained
herein, Buyer and Contractor agree to modify the Contract as follows:
1. EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE SPECIFICATION DOC#8575921
a. Delete EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE
SPECIFICATION DOC#8575921 REV. E in its entirety and replace
with EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE
SPECIFICATION DOC#8575921 REV. F.
IN WITNESS WHEREOF, the parties hereto have executed this Contract Amendment.
ECHOSTAR ORBITAL LOCKHEED MARTIN
CORPORATION CORPORATION
By: By:
---------------------------- ----------------------------
David K. Moskowitz Sandra McMahan
Senior Vice President and Contracts Manager
General Counsel
EchoStar Communications Corporation hereby guarantees all of the obligations and
duties of EchoStar Orbital Corporation under the Contract to which this
guarantee is attached.
ECHOSTAR COMMUNICATIONS
CORPORATION
By:
--------------------------
David K. Moskowitz
Senior Vice President and
General Counsel
EXHIBIT 10.35
CONTRACT AMENDMENT NO. 1
TO
THE ECHOSTAR VIII CONTRACT
CONTRACT NO. TP99022
BETWEEN
ECHOSTAR ORBITAL CORPORATION
AND
SPACE SYSTEMS/LORAL, INC.
THIS CONTRACT AMENDMENT NO. 1 (the "Amendment") is entered into effective as of
the 19th day of October 2001, between ECHOSTAR ORBITAL CORPORATION (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TP99022 (the
"Contract") entered into as of February 4, 2000 and amended and restated as of
February 1, 2001,
WHEREAS, Contractor and Purchaser desire to amend the Contract to recognize
Purchaser's exercise of an option TO[CONFIDENTIAL INFORMATION OMITTED],
WHEREAS, Contractor and Purchaser desire to amend Attachment A to the Contract;
NOW, THEREFORE, in consideration of the mutual covenants and conditions in this
Amendment and in the Contract and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A: Description of Changes:
1. The Table of Contents is changed as follows:
FROM:
"ARTICLE 4 - PRICE...........................................................11"
TO:
"ARTICLE 4 - PRICE (AMENDMENT 1).............................................11"
AMENDMENT 1: DATED 19 OCTOBER 2001
CONFIDENTIAL AND PROPRIETARY
2. Article 4 - Price
FROM: "4.1 [CONFIDENTIAL INFORMATION OMITTED]
TO: "4.1 [CONFIDENTIAL INFORMATION OMITTED]
3. Change Article 42 - Attachments to reflect update of Payment Plan as
follows:
FROM: "ATTACHMENT A: Payment Plan"
TO: "ATTACHMENT A: Payment Plan (Amendment 1)"
REMOVE: Current Milestone Payment Plan
REPLACE WITH: Revised Milestone Payment Plan
B. CHANGE PAGES
Remove the pages of the Amended and Restated Contract and Replace with those of
this Amendment 1 as identified in Appendix 1:
Defined Terms: All capitalized terms in this Amendment, not otherwise defined
herein, shall have the same meaning as ascribed to them in the Contract.
Ratification and Affirmation: The Contract, as modified by the express terms of
this Amendment, is hereby ratified and affirmed by Purchaser and Contractor, and
shall remain in full force and effect.
Counterparts: This Amendment may be executed in one or more counterparts, all of
which taken together shall constitute the Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the
date first written above:
CONTRACTOR: PURCHASER:
SPACE SYSTEMS/LORAL, INC. ECHOSTAR ORBITAL CORPORATION
By: By:
---------------------------- ------------------------------
Name: Name:
--------------------------- ----------------------------
Title: Title:
-------------------------- -------------------------
AMENDMENT 1: DATED 19 OCTOBER 2001
CONFIDENTIAL AND PROPRIETARY
APPENDIX 1
Remove the pages in the Amended and Restated Contract and substitute them with
the replacement pages of Amendment 1:
FROM AMENDED AND RESTATED CONTRACT FROM AMENDMENT 1
REMOVE REPLACE
Page 1 Page 1
Page 11 Page 11
Page 98 Page 98
Attachment A Attachment A
EXHIBIT 10.36
MODIFICATION NO. 10
TO THE SATELLITE CONTRACT
(ECHOSTAR VII - 119 (DEGREE) WEST LONGITUDE)
BETWEEN
LOCKHEED MARTIN CORPORATION
AND
ECHOSTAR ORBITAL CORPORATION
DATED JANUARY 27, 2000
This Modification is effective the 12th day of December 2001.
WITNESS THAT:
WHEREAS, EchoStar Orbital Corporation ("Buyer") and Lockheed Martin Corporation
("Contractor"), mutually agree to modify the subject Contract to:
o Modify EXHIBIT B THE ECHOSTAR VII SPACECRAFT PERFORMANCE SPECIFICATION
DOC#8575921 REV. F. This modification incorporates mutually agreed upon
changes as identified in the attached Change Control Board (CCB) Item
No. 385, dated November 5, 2001.
NOW THEREFORE, in consideration of the mutual covenants and conditions contained
herein, Buyer and Contractor agree to modify the Contract as follows:
1. EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE SPECIFICATION
DOC#8575921,
Delete EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE
SPECIFICATIONDOC#8575921 REV. F in its entirety and replace with
EXHIBIT B ECHOSTAR VII SPACECRAFT PERFORMANCE SPECIFICATION DOC#8575921
REV. G.
IN WITNESS WHEREOF, the parties hereto have executed this Contract Amendment.
ECHOSTAR ORBITAL LOCKHEED MARTIN
CORPORATION CORPORATION
By: By:
--------------------------------- --------------------------
David K. Moskowitz Sandra McMahan
Senior Vice President and Contracts Manager
General Counsel
EchoStar Communications Corporation hereby guarantees all of the obligations and
duties of EchoStar Orbital Corporation under the Contract to which this
guarantee is attached.
ECHOSTAR COMMUNICATIONS
CORPORATION
By:
---------------------------------
David K. Moskowitz
Senior Vice President and
General Counsel
EXHIBIT 21
ECHOSTAR COMMUNICATIONS CORPORATIONS AND SUBSIDIARIES
LIST OF SUBSIDIARIES
As of December 31, 2001
State or
Country of
Subsidiary Incorporation % of Ownership Name Doing Business As
---------- ------------- -------------- ----------------------
Dish Entertainment Corporation Colorado 100% Dish Entertainment
Dish Network Credit Corporation Colorado 100% DNCC
EchoStar Broadband Corporation Colorado 100% EchoStar Broadband
EchoStar Orbital Corporation Colorado 100% (1) EchoStar Orbital
EchoStar DBS Corporation Colorado 100% (1) EchoStar DBS
EchoStar Engineering Corporation Colorado 100% EchoStar Engineering
EchoStar KuX Corporation Colorado 100% KuX
EchoStar 110 Corporation Colorado 100% (2) EchoStar 110
EchoStar PAC Corporation Colorado 100% EchoStar PAC
EchoStar Real Estate Corporation II Colorado 100% EREC II
EchoStar Real Estate Corporation III Colorado 100% EREC III
Kelly Broadcasting, Inc. New Jersey 100% KBS
OpenStar Corporation Colorado 50% OpenStar
EchoStar VisionStar Corporation Colorado 100% EchoStar VisionStar
Echo Acceptance Corporation Colorado 100% (2) EAC
Dish Network Service Corporation Colorado 100% (2) DNSC
f/k/a Dish Installation Network Corporation
Echosphere Corporation Colorado 100% (2) Echosphere
EchoStar International Corporation Colorado 100% (2) EchoStar International or
EIC
EchoStar North America Corporation Colorado 100% (2) EchoStar North America
f/k/a EchoStar Licensee Corporation
EchoStar Real Estate Corporation Colorado 100% (2) EREC
EchoStar Satellite Corporation Colorado 100% (2) ESC
EchoStar Technologies Corporation Texas 100% (2) EchoStar Technologies or
f/k/a Houston Tracker Systems, Inc. ETC
EchoStar Data Networks Corporation Colorado 100% EchoStar Data Networks or
f/k/a Media4, Inc. EDN
NagraStar LLC Colorado 50% NagraStar
Satellite Communications Operating Corporation Colorado 100% SCOC
Transponder Encryption Services Corporation Colorado 100% TESC
EchoStar Space Corporation Colorado 100% (2) Space
EchoBand Colorado 100% EchoBand
EchoStar UK Holdings Foreign 100% UK Holdings
Eldon Technology Limited Foreign 100% Eldon
EIC Spain, Inc. Foreign 100% EIC Spain
(1) This is a subsidiary of EchoStar Broadband Corporation.
(2) This is a subsidiary of EchoStar DBS Corporation.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Annual Report on Form 10-K, into the
Company's previously filed Registration Statements, File Nos. 333-68618,
333-88755, 333-37683, 333-66490, 333-59148, 333-31890, 333-95099, 333-74779,
333-51259, 333-48895, 333-36791, 333-36749, 333-22971, 333-11597 and 333-05575.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 27, 2002
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated February 7, 2002, in the Form
10-K of EchoStar Communications Corporation for the year ended December 31,
2001, with respect to the financial statements of StarBand Communications Inc.,
for the year ended December 31, 2001 (not presented separately therein), and to
the incorporation by reference of such report in the following previously filed
registration statements of EchoStar Communication Corporation:
Form S-3 and Form S-3A Nos. 333-68618, Form S-3 and Form S-3A No.
333-88755, Form S-3 and Form S-3A No. 333-37683, Form S-8 No. 333-66490, Form
S-8 No. 333-59148, Form S-8 No. 333-31890, Form S-8 No. 333-95099, Form S-8 No.
333-74779, Form S-8 No. 333-51259, Form S-8 No. 333-48895, Form S-8 No.
333-36791, Form S-8 No. 333-36749, Form S-8 No. 333-22971, Form S-8 No.
333-11597 and Form S-8 No. 333-05575.
ERNST & YOUNG LLP
McLean, Virginia
February 25, 2002
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David K. Moskowitz as the true and lawful
attorney-in-fact and agent of the undersigned, with full power of substitution
and resubstitution, for and in the name, place and stead of the undersigned, in
any and all capacities, to sign the Annual Report on Form 10-K of EchoStar
Communications Corporation, a Nevada corporation formed in April 1995, for the
year ended December 31, 2001, and any and all amendments thereto and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the United States Securities and Exchange Commission, and hereby grants to
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully as to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power Attorney has been signed by the following persons in the capacities and on
the date indicated.
Signature Title Date
--------- ----- ----
/s/ Peter A. Dea Director February 28, 2002
- -----------------------------------
Peter A. Dea
/s/ O. Nolan Daines Director February 28, 2002
- -----------------------------------
O. Nolan Daines
/s/ Cantey Ergen Director February 28, 2002
- -----------------------------------
Cantey Ergen
/s/ Raymond L. Frielob Director February 28, 2002
- -----------------------------------
Raymond L. Friedlob
/s/ Jean-Marie Messier Director February 28, 2002
- -----------------------------------
Jean-Marie Messier
