<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26176
ECHOSTAR COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0336997
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
90 INVERNESS CIRCLE EAST
ENGLEWOOD, COLORADO 80112
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 799-8222
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT 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 HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES X NO
--- ---
ON AUGUST 9, 1996, REGISTRANT'S OUTSTANDING VOTING COMMON STOCK CONSISTED OF
10,751,374 SHARES OF CLASS A COMMON STOCK, 29,804,401 SHARES OF CLASS B COMMON
STOCK AND 1,616,681 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK, EACH $0.01
PAR VALUE.
===============================================================================
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Consolidated Financial Statements:
Balance Sheets as of December 31, 1995
and June 30, 1996 (Unaudited). . . . . . . . . . . . . . 1
Statements of Income for the three months and six months
ended June 30, 1995 and 1996 (Unaudited) . . . . . . . . 2
Statements of Cash Flows for the six months
ended June 30, 1995 and 1996 (Unaudited) . . . . . . . . 3
Condensed Notes to Financial Statements (Unaudited) . . . . . 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 25
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 21,754 $ 78,425
Marketable investment securities. . . . . . . . . . . . . . 15,670 44,991
Trade accounts receivable, net. . . . . . . . . . . . . . . 9,179 19,568
Inventories, net. . . . . . . . . . . . . . . . . . . . . . 38,769 48,386
Income tax receivable . . . . . . . . . . . . . . . . . . . 3,554 7,446
Deferred tax assets . . . . . . . . . . . . . . . . . . . . 1,779 1,789
Other current assets. . . . . . . . . . . . . . . . . . . . 13,037 25,168
-------- --------
Total current assets. . . . . . . . . . . . . . . . . 103,742 225,773
RESTRICTED CASH AND MARKETABLE SECURITIES:
1994 Notes escrow . . . . . . . . . . . . . . . . . . . . . 73,291 22,928
1996 Notes escrow . . . . . . . . . . . . . . . . . . . . . -- 160,389
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,400 36,200
PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . . . . . 354,000 426,781
OTHER NONCURRENT ASSETS. . . . . . . . . . . . . . . . . . . 65,658 124,694
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . $623,091 $996,765
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable. . . . . . . . . . . . . . . . . . . $ 19,063 $ 22,235
Deferred programming revenue - DISH Network-SM- . . . . . . -- 13,188
Deferred programming revenue - C-band . . . . . . . . . . . 5,563 5,037
Accrued expenses and other current liabilities. . . . . . . 21,335 13,308
Notes payable and current portion of long-term debt . . . . 4,782 4,782
-------- --------
Total current liabilities. . . . . . . . . . . . . . . 50,743 58,550
LONG-TERM DEFERRED PROGRAMMING REVENUE - DISH Network-SM-. . -- 4,163
1994 NOTES, net. . . . . . . . . . . . . . . . . . . . . . . 382,218 408,449
1996 NOTES, net. . . . . . . . . . . . . . . . . . . . . . . -- 361,742
LONG-TERM MORTGAGE DEBT AND NOTE PAYABLE,
excluding current portion . . . . . . . . . . . . . . . . . 33,444 36,337
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . 466,405 869,241
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred Stock, 20,000,000 shares authorized,
1,616,681 shares of Series A Cumulative Preferred
Stock issued and outstanding, including accrued
dividends of $2,143,000 and $2,745,000, respectively . . . 17,195 17,797
Class A Common Stock, $.01 par value, 200,000,000
shares authorized, 10,535,003 and 10,750,667 shares
issued and outstanding, respectively . . . . . . . . . . . 105 108
Class B Common Stock, $.01 par value, 100,000,000
shares authorized, 29,804,401 shares issued and outstanding 298 298
Common Stock Purchase Warrants. . . . . . . . . . . . . . . 714 20
Class C Common Stock, 100,000,000 shares authorized,
none outstanding . . . . . . . . . . . . . . . . . . . . . -- --
Additional paid-in capital. . . . . . . . . . . . . . . . . 151,674 153,095
Unrealized holding gains on available-for-sale
securities, net of deferred taxes. . . . . . . . . . . . . 239 122
Retained earnings (deficit) . . . . . . . . . . . . . . . . (13,539) (43,916)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . 156,686 127,524
-------- --------
Total liabilities and stockholders' equity . . . . . . $623,091 $996,765
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
1
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1995 1996 1995 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE:
DTH products and technical services . . . . . . . . . . . . $ 34,865 $ 60,458 $ 71,142 $ 97,199
Programming revenue - DISH Network-SM- . . . . . . . . . . -- 5,582 -- 6,046
Programming revenue - C-band. . . . . . . . . . . . . . . . 3,817 3,194 7,688 6,643
Loan origination and participation income . . . . . . . . . 570 4,290 835 5,103
-------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . . . . . 39,252 73,524 79,665 114,991
-------- -------- -------- --------
EXPENSES:
DTH products and technical services . . . . . . . . . . . . 27,371 57,528 56,816 90,278
Programming - DISH Network-SM- . . . . . . . . . . . . . . -- 1,664 -- 1,769
Programming - C-band. . . . . . . . . . . . . . . . . . . . 3,392 2,880 6,824 6,058
Selling, general and administrative . . . . . . . . . . . . 7,315 19,083 15,186 29,816
Depreciation and amortization . . . . . . . . . . . . . . . 406 6,426 769 9,756
-------- -------- -------- --------
Total expenses . . . . . . . . . . . . . . . . . . . . 38,484 87,581 79,595 137,677
-------- -------- -------- --------
OPERATING INCOME (LOSS). . . . . . . . . . . . . . . . . . . 768 (14,057) 70 (22,686)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . . . . . . . 3,005 6,706 6,643 9,383
Interest expense, net of amounts capitalized. . . . . . . . (6,327) (27,141) (12,890) (33,184)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . (68) (117) (40) (134)
-------- -------- -------- --------
Total other income (expense) . . . . . . . . . . . . . (3,390) (20,552) (6,287) (23,935)
-------- -------- -------- --------
NET LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . (2,622) (34,609) (6,217) (46,621)
BENEFIT FOR INCOME TAXES . . . . . . . . . . . . . . . . . . 835 12,055 2,190 16,846
-------- -------- -------- --------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,787) $(22,554) $ (4,027) $(29,775)
-------- -------- -------- --------
-------- -------- -------- --------
NET LOSS ATTRIBUTABLE TO COMMON SHARES . . . . . . . . . . . $ (2,088) $(22,855) $ (4,629) $(30,377)
-------- -------- -------- --------
-------- -------- -------- --------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . 33,988 40,432 33,655 40,404
-------- -------- -------- --------
-------- -------- -------- --------
LOSS PER COMMON AND COMMON EQUIVALENT SHARE. . . . . . . . . $ (.06) $ (.57) $ (.14) $ (.75)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
2
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1995 1996
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4,027) $(29,775)
Adjustments to reconcile net loss to net cash flows from operating activities--
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769 9,756
Provision for doubtful accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 66
Benefit for deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,624) (11,534)
Amortization of deferred debt issuance costs on 1994 and 1996 Notes. . . . . . . . . . 630 1,038
Amortization of discount on 1994 and 1996 Notes, net of amounts capitalized. . . . . . 12,030 23,492
Equity in (earnings) losses of joint venture . . . . . . . . . . . . . . . . . . . . . (23) 86
Change in reserve for excess and obsolete inventory. . . . . . . . . . . . . . . . . . 383 634
Change in long-term deferred programming revenue . . . . . . . . . . . . . . . . . . . -- 4,163
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (417) (752)
Changes in working capital items --
Trade accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,405 (10,455)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,799) (10,251)
Income tax receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,892)
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 (12,131)
Liability under cash management program. . . . . . . . . . . . . . . . . . . . . . . (57) --
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,879) 3,172
Deferred programming revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 12,662
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . 615 6,973
-------- ---------
Net cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . (5,729) (16,748)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities. . . . . . . . . . . . . . . . . . . . . . (80,051) (44,782)
Sales of marketable investment securities. . . . . . . . . . . . . . . . . . . . . . . . 40,679 15,479
Purchases of restricted marketable securities. . . . . . . . . . . . . . . . . . . . . . (15,000) (15,500)
Funds released from restricted cash and marketable securities - other. . . . . . . . . . -- 5,700
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,170) (7,537)
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . 27 --
Offering proceeds and investment earnings placed in escrow . . . . . . . . . . . . . . . (4,967) (186,278)
Funds released from escrow accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 29,760 76,045
Investment in SSET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (284) --
Investment in convertible subordinated debentures from DBSI. . . . . . . . . . . . . . . -- (3,000)
Long-term notes receivable from DBSC . . . . . . . . . . . . . . . . . . . . . . . . . . -- (12,500)
Expenditures for satellite systems under construction. . . . . . . . . . . . . . . . . . (30,310) (73,932)
Subscriber acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,307)
Deposit on FCC authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (10,459)
Expenditures for FCC authorizations. . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,193)
-------- ---------
Net cash flows from investing activities. . . . . . . . . . . . . . . . . . . . . (61,316) (263,264)
-------- ---------
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
3
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1995 1996
-------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of mortgage indebtedness and note payable. . . . . . . . . . . . . . . . . . . $ (91) $ (1,082)
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 722
Net proceeds from issuance of Class A Common Stock. . . . . . . . . . . . . . . . . . . . 62,933 --
Net proceeds from issuance of 1996 Notes. . . . . . . . . . . . . . . . . . . . . . . . . -- 337,043
------- --------
Net cash flows from financing activities . . . . . . . . . . . . . . . . . . . . . . . 62,842 336,683
------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . (4,203) 56,671
CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . . . . . . . . . . . . . . . 17,506 21,754
------- --------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . . . . . . . . . . . . . . . $13,303 $ 78,425
------- --------
------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized. . . . . . . . . . . . . . . . . . . . $ 233 $ 7,953
Cash paid for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658 --
Cumulative Series A Preferred Stock dividends . . . . . . . . . . . . . . . . . . . . . . 602 602
Satellite launch payment for EchoStar II applied to EchoStar I launch . . . . . . . . . . -- 15,000
Increase in note payable for deferred satellite construction payments . . . . . . . . . . -- 3,167
Employee incentives funded by issuance of Class A Common Stock. . . . . . . . . . . . . . -- 8
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
4
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996
(1) ORGANIZATION AND PRESENTATION OF FINANCIAL STATEMENTS
EchoStar Communications Corporation and subsidiaries ("EchoStar")
successfully launched its first direct broadcast satellite ("DBS"), EchoStar
I, in December 1995 and, on March 4, 1996, began broadcasting its DBS
programming (the "DISH Network-SM-") to the entire continental United States.
As of August 1, 1996, EchoStar had over 100,000 subscribers to DISH
Network-SM- programming. The DISH Network-SM- currently includes over 100
channels of high quality digital video and audio programming and will expand
to approximately 200 digital video and audio channels following the
successful launch of a second DBS satellite, DirectSat I ("EchoStar II"),
currently scheduled in September 1996.
In addition to its DBS business, EchoStar is engaged in the design,
manufacture, distribution and installation of satellite direct to home
("DTH") products, domestic distribution of DTH programming and consumer
financing of EchoStar's domestic DTH products and services.
In January 1996, EchoStar formed a wholly owned subsidiary, EchoStar
Satellite Broadcasting Corporation ("ESB"), for the purpose of completing a
private offering (the "1996 Notes Offering"), pursuant to Rule 144A of the
Securities Act of 1933, as amended (the "Securities Act"), of 13 1/8% Senior
Secured Discount Notes due 2004 (the "1996 Notes"), resulting in net proceeds
of approximately $337.0 million. The 1996 Notes Offering was consummated in
March 1996. Proceeds from the 1996 Notes Offering will be used for: (i)
continued development, marketing and distribution of the DISH Network-SM-;
(ii) EchoStar's purchase of DBS frequencies at 148 DEG. WL; (iii) partial
funding of the construction, launch and insurance of DBSC I ("EchoStar III")
and EchoStar IV; (iv) additional launch costs of EchoStar II;
and (v) other general corporate purposes. The additional frequencies were
acquired by EchoStar at a public auction held by the Federal Communications
Commission ("FCC") in January 1996 (the "FCC Auction"). In connection with the
1996 Notes Offering, EchoStar contributed all of the outstanding capital stock
of its wholly owned subsidiary, Dish, Ltd., to ESB. This transaction has been
accounted for as a reorganization of entities under common control whereby
Dish, Ltd. has been treated as the predecessor to ESB. ESB is subject to all,
and EchoStar is subject to certain of, the terms and conditions of the
Indenture related to the 1996 Notes (the "1996 Notes Indenture"). On April 24,
1996, ESB filed a Registration Statement on Form S-1 under the Securities
Act to exchange the 1996 Notes for publicly registered notes. The
Registration Statement was declared effective by the Securities and Exchange
Commission on June 28, 1996. As of August 1, 1996, all of the outstanding
privately placed notes had been exchanged for the new publicly registered
notes. Unless otherwise stated herein, or the context otherwise requires,
references herein to the 1996 Notes shall include the original privately
placed notes and the publicly registered notes that were exchanged for the
privately placed notes.
In June 1995, EchoStar completed an offering of its Class A Common Stock,
resulting in net proceeds of approximately $63.0 million (the "Equity
Offering"). Dish, Ltd. owns the majority of EchoStar's operating subsidiaries.
In June 1994, Dish, Ltd. completed an offering of 12 7/8% Senior Secured
Discount Notes due 2004 (the "1994 Notes") and Warrants (collectively, the "1994
Notes Offering"), resulting in net proceeds of approximately $323.3 million. As
of June 30, 1996, substantially all of the Warrants issued in connection with
the 1994 Notes Offering had been exercised. Dish, Ltd. and most of its
subsidiaries are subject to the terms and conditions of the Indenture related to
the 1994 Notes (the "1994 Notes Indenture").
Unless otherwise stated herein, or the context otherwise requires,
references herein to EchoStar shall include EchoStar and all of its direct and
indirect wholly owned subsidiaries.
The accompanying unaudited condensed Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
1996 are not necessarily indicative of the results that may
5
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
be expected for the year ended December 31, 1996. For further information,
refer to the Combined and Consolidated Financial Statements and footnotes
thereto included in EchoStar Communications Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995. Certain prior year amounts
have been reclassified to conform with the current year presentation.
SIGNIFICANT RISKS AND UNCERTAINTIES
Execution of EchoStar's business strategy to launch and operate DBS
satellites has dramatically changed its operating results and financial
position when compared to its historical results. As of June 30, 1996,
EchoStar expects to invest in the future approximately an additional $500
million to build, launch and support EchoStar I, II, III and IV (Note 6),
assuming receipt of all required FCC licenses and permits. EchoStar
consummated the 1994 Notes Offering, the 1996 Notes Offering and the
Equity Offering to partially satisfy these capital requirements. Annual
interest expense on the 1994 and 1996 Notes and depreciation of the
investment in the satellites and related assets is of a magnitude that
exceeds historical levels of income before taxes. Consequently, beginning in
1995 EchoStar reported significant net losses and expects net losses to
continue through at least 1997. EchoStar's plans also include the
construction and launch of two fixed service satellites, additional DBS,
Ku-band and KuX-band satellites, and marketing to promote its DBS products
and services. The investment in these satellites and the related
depreciation, combined with the expenses incurred in connection with the DISH
Network-SM-, will continue to erode EchoStar's net worth.
Beginning in June 1996, EchoStar began marketing a special promotion in
a limited number of markets pursuant to which consumers were able to purchase
a discounted EchoStar Receiver System under the condition the consumer commits
to subscribe and prepay for DISH Network-SM- programming service for a
minimum of one year. The primary purposes of the promotion were to expand
retail distribution, build awareness of the DISH Network-SM- brand and rapidly
build a subscriber base. Due to positive retailer and consumer results, among
other factors, effective August 1, 1996, EchoStar began a nationwide rollout
of the promotion. While this promotion will significantly increase EchoStar's
investment in its subscriber base, EchoStar believes that the increase in
subscribers to its DISH Network-SM- and the corresponding increase in
DBS programming revenue in future periods, resulting from this promotion, will
be more than sufficient to recover the investment in subscriber acquisition
costs.
EchoStar expects net losses to continue as it builds its subscription
television business, and therefore, absent additional capital, EchoStar expects
negative stockholders' equity to result before December 31, 1997. EchoStar's
expected net losses will result primarily from: (i) the amortization of the
original issue discount on the 1994 and 1996 Notes; (ii) increases in
depreciation expense on the satellites and other fixed assets; (iii)
amortization expense of the subscriber acquisition costs (Note 2); and (iv)
increases in selling, general and administrative expenses to support the DISH
Network-SM-. Although the negative equity position has significant implications,
including, but not limited to, non-compliance with NASDAQ listing criteria,
which could result in delisting, EchoStar believes this event will not
materially affect the implementation and execution of its business strategy.
While EchoStar believes it will be able to obtain a waiver from NASDAQ and
remain listed, no assurance can be given NASDAQ will grant a waiver. Delisting
would result in a decline in EchoStar's common stock trading market which could
potentially depress stock and bond prices, among other things.
As a result of the factors discussed above, EchoStar will need to raise
additional funds to complete its full complement of satellites. There can be
no assurance that necessary funds will be available or, if available, that they
will be available on terms favorable to EchoStar. Management believes, however,
but can give no assurance, that demand for its DBS products and DISH Network-SM-
programming and EchoStar's ability to satisfy this demand will result in
sufficient cash flow which, together with other sources of capital, will be
sufficient to satisfy future planned expenditures. Significant delays or launch
failures may have significant adverse consequences to EchoStar's operating
results and financial condition.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management 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 revenue and expenses for each reporting
period. Actual results could differ from those estimates.
6
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
This Form 10-Q of EchoStar contains statements which constitute forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended. Those statements
appear in a number of places in the Form 10-Q and include statements regarding
the intent, belief or current expectations of EchoStar with respect to, among
other things: (i) EchoStar's financing plans; (ii) trends affecting EchoStar's
financial conditions or results of operations; (iii) EchoStar's growth strategy;
(iv) EchoStar's anticipated results of future operations; and (v) regulatory
matters affecting EchoStar. Prospective investors are cautioned that any such
forward looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward looking statements as a result of various
factors.
(2) SUPPLEMENTAL ANALYSIS
CASH AND CASH EQUIVALENTS
EchoStar considers all investments purchased with an original maturity of
ninety days or less to be cash equivalents. Cash equivalents as of December 31,
1995, and June 30, 1996 consist of money market funds, corporate notes and
commercial paper stated at cost which equates to market value.
RESTRICTED CASH AND MARKETABLE SECURITIES
EchoStar classifies all marketable investment securities as available-for-
sale. Accordingly, these investments are reflected at market value based on
quoted market prices. Related unrealized gains and losses are reported as a
separate component of stockholders' equity, net of related deferred income
taxes. The specific identification method is used to determine cost in computing
realized gains and losses.
Restricted Cash and Marketable Securities in Escrow Accounts as reflected
on the accompanying balance sheets represent the remaining net proceeds received
from the 1994 Notes Offerings, and a portion of the proceeds from the 1996 Notes
Offering, plus interest earned, less amounts expended to date in connection with
the development, construction and launch of the DISH Network-SM-. These proceeds
are held in separate escrow accounts (the "1994 Escrow Account" and the "1996
Escrow Account", respectively) for the benefit of the holders of the 1994 and
1996 Notes and are invested in certain debt and other marketable securities, as
permitted by the respective Indentures, until disbursed for the express purposes
identified in the 1994 Notes Offering Prospectus and the 1996 Notes Offering
Prospectus, as the case may be.
Other Restricted Cash includes $11.4 million and $5.7 million at December
31, 1995 and June 30, 1996, respectively, to satisfy certain covenants regarding
launch insurance required by the 1994 Notes Indenture. EchoStar is required to
maintain launch insurance and Restricted Cash totaling $225.0 million for
EchoStar II. EchoStar has obtained $219.3 million of launch insurance for
EchoStar II, and, together with the cash segregated and reserved on the
accompanying balance sheet as of June 30, 1996, has satisfied its launch
insurance obligations under the 1994 Notes Indenture. In addition, as of June
30, 1996, $15.0 million was in an escrow account established pursuant to a DBS
satellite receiver manufacturing contract for payment to the manufacturer as
certain milestones are reached and $15.5 million was in an escrow account for
the purpose of cash collateralizing certain standby letters of credit (Note 4).
The major components of Restricted Cash and Marketable Securities are as follows
(in thousands).
<TABLE>
DECEMBER 31, 1995 JUNE 30, 1996
------------------------------ ------------------------------
UNREALIZED
UNREALIZED HOLDING
AMORTIZED HOLDING MARKET AMORTIZED GAIN MARKET
COST GAIN VALUE COST (LOSS) VALUE
------- --------- ------ --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Commercial paper . . . . $66,214 $ -- $66,214 $111,705 $ -- $111,705
Government bonds . . . . 32,904 420 33,324 97,138 229 97,367
Corporate notes. . . . . -- -- -- 9,108 (25) 9,083
Accrued interest . . . . 153 -- 153 1,362 -- 1,362
------- ------ ------- -------- ------ --------
$99,271 $420 $99,691 $219,313 $204 $219,517
------- ------ ------- -------- ------ --------
------- ------ ------- -------- ------ --------
</TABLE>
7
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out ("FIFO") method. Proprietary products
are manufactured by outside suppliers to EchoStar's specifications. EchoStar
also distributes non-proprietary products purchased from other manufacturers.
Manufactured inventories include materials, labor 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. The major components of inventory were as follows (in thousands):
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
DISH Network-SM- DBS Receivers . . . . . . . $ -- $19,911
DBS receiver components. . . . . . . . . . . 9,615 12,844
Consigned DBS receiver components. . . . . . -- 8,784
Finished goods - C-band. . . . . . . . . . . 11,161 3,819
Finished goods - International . . . . . . . 9,297 4,234
Competitor DBS Receivers . . . . . . . . . . 9,404 --
Spare parts. . . . . . . . . . . . . . . . . 2,089 2,225
Reserve for excess and obsolete inventory. . (2,797) (3,431)
-------- --------
$38,769 $48,386
-------- --------
-------- --------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Cost includes interest capitalized on the EchoStar DBS System during
construction at EchoStar's effective borrowing rate. The major components of
property and equipment were as follows (in thousands):
ESTIMATED
USEFUL LIFE DECEMBER 31, JUNE 30,
(IN YEARS) 1995 1996
----------- ------------ --------
Construction in progress . . . . . . . . -- $303,174 $162,803
EchoStar I satellite . . . . . . . . . . 12 -- 201,672
Furniture, fixtures and equipment. . . . 2-12 35,127 51,901
Buildings and improvements . . . . . . . 7-40 21,006 22,779
Tooling and other. . . . . . . . . . . . 2 2,039 3,913
Land . . . . . . . . . . . . . . . . . . -- 1,613 2,294
Vehicles . . . . . . . . . . . . . . . . 7 1,310 1,325
--------- ---------
Total property and equipment . . . . . 364,269 446,687
Less-Accumulated depreciation. . . . . (10,269) (19,906)
--------- ---------
Net property and equipment . . . . . . $354,000 $426,781
--------- ---------
--------- ---------
8
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Construction in progress includes capitalized costs related to the
construction and launch of EchoStar II and EchoStar IV, which are currently
scheduled for launch in September 1996 and prior to the end of 1998,
respectively. Construction in progress for EchoStar III includes costs
related to that launch, which is scheduled prior to the end of 1997.
Construction in progress consisted of the following (in thousands):
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
Progress amounts for satellite
construction, launch, launch insurance,
capitalized interest, launch and in-orbit
tracking, telemetry and control services:
EchoStar I . . . . . . . . . . . . . . . . . $193,629 $ --
EchoStar II. . . . . . . . . . . . . . . . . 88,634 126,541
EchoStar III . . . . . . . . . . . . . . . . 20,801 8,672
EchoStar IV. . . . . . . . . . . . . . . . . -- 25,693
Other . . . . . . . . . . . . . . . . . . . . . 110 1,897
-------- ---------
$303,174 $162,803
-------- ---------
-------- ---------
OTHER NONCURRENT ASSETS
The major components of other noncurrent assets were as follows (in thousands):
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
Long-term notes receivable from DBSC . . . . . . . . . . . . $16,000 $ 28,500
Deferred tax assets, net . . . . . . . . . . . . . . . . . . 12,109 23,714
FCC authorizations, net of amortization. . . . . . . . . . . 11,309 15,528
1996 Notes deferred debt issuance costs, net of
amortization. . . . . . . . . . . . . . . . . . . . . . . . -- 12,597
1994 Notes deferred debt issuance costs, net of
amortization. . . . . . . . . . . . . . . . . . . . . . . . 10,622 9,991
Deposit on FCC authorization . . . . . . . . . . . . . . . . -- 11,071
SSET convertible subordinated debentures and accrued
interest . . . . . . . . . . . . . . . . . .. . . . . . . . 9,610 9,919
Investment in DBSC . . . . . . . . . . . . . . . . . . . . . 4,111 4,025
DBSI convertible subordinated debentures. . . . . . . . . . 1,000 4,000
Subscriber acquisition costs, net of amortization. . . . . . -- 3,215
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 897 2,134
------- --------
$65,658 $124,694
------- --------
------- --------
EchoStar presently owns approximately 40% of the outstanding common stock
of Direct Broadcasting Satellite Corporation ("DBSC"). DBSC's principal assets
include an FCC conditional satellite construction permit and specific orbital
slot assignments for eleven DBS frequencies at 61.5 DEG. WL and eleven DBS
frequencies at 175 DEG. WL (the "DBS Rights"). EchoStar intends to merge DBSC
with Direct Broadcasting Satellite Corporation ("New DBSC"), a wholly owned
subsidiary of EchoStar (the "DBSC Merger"). The DBSC Merger has been approved by
DBSC shareholders but will not be consummated until the FCC has approved the
DBSC Merger. Although no assurances can be given, EchoStar expects the FCC to
issue an order with respect to the DBSC Merger in the near future. Assuming FCC
approval of the DBSC Merger, EchoStar will hold, through New DBSC, DBSC's DBS
Rights. On July 11, 1996, EchoStar filed Amendment No. 1 to a Registration
Statement on Form S-4 under the Securities Act covering 658,000 shares of
EchoStar Class A Common Stock that are intended to be issued in connection with
the DBSC Merger.
FCC AUTHORIZATIONS
FCC authorizations are recorded at cost and are amortized using the
straight-line method. Amortization periods for FCC authorization costs are
determined at the time the services related to the applicable FCC authorization
commences, or capitalized costs are written off at the time efforts to provide
services are abandoned. FCC authorization costs are expected to have a useful
life of approximately 12 years. The deposit on FCC authorization represents a
9
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
deposit paid by EchoStar to the FCC in January 1996, for 24 frequencies at
148 DEG. WL. The balance due the FCC for the purchase of the frequencies of
$41.8 million will be drawn from the 1996 Escrow Account, and is payable to the
FCC five days after EchoStar receives FCC approval for use of the orbital slot.
SUBSCRIBER ACQUISITION COSTS
For the purpose of attracting subscribers to the DISH Network-SM-,
EchoStar has sponsored certain sales promotions through independent consumer
electronics and satellite retailers. EchoStar effectively sells its
proprietary DBS reception equipment to these retailers at less than cost
under the condition consumers commit to subscribe and prepay for DISH
Network-SM- programming service for a minimum of one year. The subscriber
acquisition costs recorded represent the difference between the direct costs
of the hardware and the revenue generated from the sales of the hardware.
These costs have been deferred and are being amortized over the expected
minimum life of the subscriber, currently estimated to be three years. Any
unamortized investment with respect to subscribers who discontinue DISH
Network-SM- service after one year but before the end of three years, will be
fully amortized to expense at that time. EchoStar believes subscriber
acquisition costs will be recovered through future revenue generated from
sales of DISH Network-SM- programming. Amortization expense of subscriber
acquisition costs for the three and six months ended June 30, 1996 was
approximately $92,000.
DEFERRED PROGRAMMING REVENUE
Deferred programming revenue consists of advance payments received from
programming providers and subscribers for satellite television programming to be
provided in future periods. The revenue is recognized on a straight-line basis
over the period the programming is provided.
INTEREST EXPENSE
Interest expense, net of amounts capitalized, on the accompanying income
statements includes: (i) amortization of original issue discount on the 1994
Notes and the 1996 Notes; (ii) interest expense on contractor financing of
EchoStar I; (iii) interest expense on corporate mortgage debt; and (iv)
discounts on accounts receivable for EchoStar Receiver Systems and DISH
Network-SM- programming which have been factored without credit recourse to
third party financing groups.
EARNINGS PER SHARE
Earnings per share have been calculated based on the weighted average
number of shares of common stock issued and outstanding and, if dilutive, common
stock equivalents (warrants and employee stock options) during the three and six
months ended June 30, 1995 and 1996. Net loss has been adjusted for cumulative
dividends on the 8% Series A Cumulative Preferred Stock.
(3) LONG-TERM DEBT
1994 NOTES
On June 7, 1994, Dish, Ltd. completed the 1994 Notes Offering of 624,000
units consisting of $624.0 million aggregate principal amount of the 1994 Notes
and 3,744,000 Warrants. The 1994 Notes Offering resulted in net proceeds to
Dish, Ltd. of approximately $323.3 million. As of June 30, 1996, substantially
all of the Warrants issued in connection with the 1994 Notes Offering had been
exercised. Interest on the 1994 Notes currently is not payable in cash but
accrues through June 1, 1999, with the 1994 Notes accreting to $624.0 million by
that date. Thereafter, interest on the 1994 Notes will be payable in cash semi-
annually on June 1 and December 1 of each year, commencing December 1, 1999. At
June 30, 1996, the 1994 Notes were reflected in the accompanying financial
statements at $408.4 million, net of unamortized discount of $215.6 million.
10
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1996 NOTES
On March 25, 1996, ESB completed the 1996 Notes Offering consisting of
$580.0 million aggregate principal amount of the 1996 Notes. The 1996 Notes
Offering resulted in net proceeds to ESB of approximately $337.0 million.
Interest on the 1996 Notes currently is not payable in cash but accrues through
March 15, 2000, with the 1996 Notes accreting to $580.0 million by that date.
Thereafter, interest on the 1996 Notes will be payable in cash semi-annually on
March 15 and September 15 of each year, commencing September 15, 2000. At June
30, 1996, the 1996 Notes were reflected in the accompanying financial statements
at $361.7 million, net of unamortized discount of $218.3 million.
(4) BANK CREDIT FACILITY AND LETTERS OF CREDIT
From May 1994 to May 1996, the principal subsidiaries of EchoStar, except
EchoStar Satellite Corporation ("ESC") (the "Borrowers"), were parties to an
agreement with Bank of America Illinois, which provided a revolving credit
facility (the "Credit Facility") for working capital advances and for letters of
credit necessary for inventory purchases and satellite construction payments.
The Credit Facility expired in May 1996 and EchoStar does not currently intend
to arrange a replacement credit facility. Instead, EchoStar is using available
cash to collateralize its letter of credit obligations, which historically was
the only significant use of the Credit Facility. At June 30, 1996, EchoStar had
cash collateralized $15.5 million of certain standby letters of credit for trade
purchases which is included in restricted cash and marketable securities in the
accompanying financial statements (Note 2).
(5) INCOME TAXES
The components of the benefit for income taxes were as follows (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1995 1996 1995 1996
---- ---- ---- ----
Current (provision) benefit
Federal . . . . . . . . . . $ (845) $ 1,264 $(1,612) $ 4,466
State . . . . . . . . . . . (177) 626 (371) 966
Foreign . . . . . . . . . . (274) 2 (451) (120)
-------- ------- -------- --------
(1,296) 1,892 (2,434) 5,312
-------- ------- -------- --------
Deferred benefit
Federal . . . . . . . . . . 1,766 9,820 3,816 11,101
State . . . . . . . . . . . 365 343 808 433
-------- ------- -------- --------
2,131 10,163 4,624 11,534
-------- ------- -------- --------
Total benefit . . . . . . $ 835 $12,055 $ 2,190 $16,846
-------- ------- -------- --------
-------- ------- -------- --------
EchoStar's deferred tax assets (approximately $25.5 million at June 30,
1996) relate principally to temporary differences for amortization of original
issue discount on the 1994 and 1996 Notes, net operating loss carryforwards and
various accrued expenses which are not deductible until paid. No valuation
allowance has been provided because EchoStar currently believes it is more
likely than not that these deferred assets will ultimately be realized. If
future operating results differ materially and adversely from EchoStar's current
expectations, its judgment regarding the need for a valuation allowance may
change.
(6) OTHER COMMITMENTS AND CONTINGENCIES
SATELLITE CONTRACTS
EchoStar has contracted with Lockheed Martin Corporation ("Martin") for the
construction and delivery of high powered DBS satellites and for related
services. Martin has completed construction of both EchoStar I and EchoStar II
and is in the construction phase on EchoStar III and EchoStar IV. The
construction contract for EchoStar III contains a provision whereby, beginning
August 1, 1997, a PER DIEM penalty of $3,333, to a maximum of $100,000, is
11
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
payable if EchoStar III is not delivered by July 31, 1997. Beginning September
1, 1997, additional delays in the delivery of EchoStar III would result in
additional PER DIEM penalties of $33,333, up to a maximum of $5.0 million in the
aggregate.
EchoStar has entered into a contract with Martin to begin the construction
phase of EchoStar's fourth DBS satellite ("EchoStar IV"). This contract contains
an option provision which allows EchoStar to instruct Martin to begin the
construction phase of a fifth DBS satellite ("EchoStar V"). The contract for
EchoStar IV also contains a provision whereby, beginning February 16, 1998, a
PER DIEM penalty of $50,000, to a maximum of $5.0 million in the aggregate, is
payable if EchoStar IV is not delivered by February 15, 1998. The contract also
contains a provision whereby Martin is entitled to an early delivery incentive
payment of $50,000 for each day before February 15, 1998 the satellite is
delivered to the launch site of Baikonur, Kazakhstan, up to a maximum of $5.0
million in the aggregate.
Contractor financing of $28.0 million will be used for EchoStar II.
Contractor financing of $15.0 million will be used for both EchoStar III and IV.
Interest on the contractor financing will range between 7.75% and 8.25% and
principal payments are payable in equal monthly installments over five years
following the launch of the respective satellite.
EchoStar has entered into a contract with Arianespace, Inc. ("Arianespace")
to launch EchoStar II from Korou, French Guiana (the "Arianespace Contract").
The launch is currently scheduled for September 1996 on a dedicated Ariane 42P
launch vehicle. The Arianespace Contract contains provisions entitling either
party to delay the launch in limited circumstances, subject to the payment of
penalties in some cases. As of June 30, 1996, EchoStar has paid Arianespace
approximately $43.4 million pursuant to the Arianespace Contract. All remaining
payments are payable monthly and will be due prior to the launch. Subsequent to
June 30, 1996, an additional payment relating to the launch totaling $17.4
million was made to Arianespace.
EchoStar has entered into a contract for launch services with Lockheed
Martin Commercial Launch Services, Inc. ("Lockheed") for the launch of EchoStar
III from Cape Canaveral Air Station, Florida during the fall of 1997, subject to
delay or acceleration in certain circumstances (the "Lockheed Contract"). The
Lockheed Contract provides for launch of the satellite utilizing an Atlas IIAS
launch vehicle. EchoStar has made an initial payment to Lockheed of $5.0 million
and the remaining cost is payable in installments in accordance with the payment
schedule set forth in the Lockheed Contract, which requires that substantially
all payments be made to Lockheed prior to the launch.
Subsequent to June 30, 1996, EchoStar and Martin amended the contracts for
the construction of EchoStar I and EchoStar II. As collateral security for
contractor financing of EchoStar I and EchoStar II, EchoStar was required to
provide a letter of credit prior to the launch of EchoStar II in the amount of
$10 million (increasing to more than $40 million by 1999) and the principal
stockholder of EchoStar pledged all of his Preferred Stock to Martin ("Preferred
Stock Guarantee"). Under the amended agreements, EchoStar will issue a corporate
guarantee covering all obligations to Martin with respect to the contractor
financing for EchoStar I and EchoStar II. In consideration for the receipt of
the corporate guarantee by EchoStar, Martin has agreed to eliminate the letter
of credit requirements, and to release the Preferred Stock Guarantee in
accordance with a specified formula based on the then outstanding contractor
financing debt and the market value of EchoStar's Class A Common Stock. This
transaction has been approved by EchoStar's board of directors with EchoStar's
principal stockholder abstaining from the vote. Additionally, EchoStar will
issue a corporate guarantee covering all obligations to Martin with respect to
the contractor financing for EchoStar III and EchoStar IV.
EchoStar has contracted with Lockheed-Khrunichev-Energia-International,
Inc. ("LKE") for the launch of EchoStar IV during 1998 from the Kazakh Republic,
a territory of the former Soviet Union, utilizing a Proton launch vehicle (the
"LKE Contract"). Either party may request a delay in the relevant launch period,
subject to the payment of penalties based on the length of the delay and the
proximity of the request to the launch date. EchoStar has paid LKE $20.0 million
pursuant to the LKE Contract. No additional payments are currently required to
be made to LKE until 1997.
12
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
PURCHASE COMMITMENTS
EchoStar has entered into agreements with various manufacturers to purchase
DBS satellite receivers and related components manufactured based on EchoStar's
supplied specifications. As of June 30, 1996 the remaining commitments total
approximately $402.4 million. At June 30, 1996, the total of all outstanding
purchase order commitments with domestic and foreign suppliers was approximately
$419.2 million. All but approximately $189.2 million of the purchases related to
these commitments are expected to be made during 1996 and the remainder is
expected to be made during 1997. EchoStar expects to finance these purchases
from available cash, marketable investment securities and sales of its DISH
Network-SM- programming.
OTHER RISKS AND CONTINGENCIES
EchoStar is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of EchoStar.
(7) SUMMARY FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
The 1994 Notes are fully, unconditionally and jointly and severally
guaranteed by all subsidiaries of Dish, Ltd. (collectively, the "1994 Notes
Guarantors"), except for certain de minimis domestic and foreign subsidiaries.
The 1996 Notes are initially guaranteed by EchoStar on a subordinated
basis. On and after the Dish Guarantee Date (as defined in the 1996 Notes
Indenture), the 1996 Notes will be guaranteed by Dish, Ltd., which guarantee
will rank PARI PASSU with all senior unsecured indebtedness of Dish, Ltd. On and
after the date upon which the DBSC Merger is consummated, the 1996 Notes will be
guaranteed by New DBSC, which guarantee will rank PARI PASSU with all senior
unsecured indebtedness of New DBSC. If the DBSC Merger is not consummated, New
DBSC will not be required to guarantee the 1996 Notes. There can be no assurance
that the DBSC Merger will be approved by the FCC or that it will be consummated
(Note 2).
The consolidated net assets of Dish, Ltd., including the non-guarantors,
exceeded the consolidated net assets of the 1994 Notes Guarantors by
approximately $277,000 and $180,000 as of December 31, 1995 and June 30, 1996,
respectively. Summarized consolidated financial information for Dish, Ltd. is as
follows (in thousands):
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income Statement Data --
Revenue. . . . . . . . . . . . $39,252 $ 69,354 $79,665 $110,380
Expenses . . . . . . . . . . . 38,484 87,007 79,595 136,941
------- -------- ------- --------
Operating income (loss). . . . 768 (17,653) 70 (26,561)
Other income (expense), net. . (3,432) (8,642) (6,329) (11,876)
------- -------- ------- --------
Net loss before income taxes . (2,664) (26,295) (6,259) (38,437)
Benefit for income taxes . . . 851 9,097 2,206 13,949
------- -------- ------- --------
Net loss . . . . . . . . . . $(1,813) $(17,198) $(4,053) $(24,488)
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
13
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
Balance Sheet Data --
Current assets. . . . . . . . . . . . . . . . . $ 81,858 $ 92,162
Property and equipment, net . . . . . . . . . . 333,199 390,358
Other noncurrent assets . . . . . . . . . . . . 144,238 116,398
--------- ---------
Total assets. . . . . . . . . . . . . . . . . $ 559,295 $ 598,918
--------- ---------
--------- ---------
Current liabilities . . . . . . . . . . . . . . $ 50,743 $ 81,723
Long-term liabilities . . . . . . . . . . . . . 415,662 448,949
Stockholder's equity. . . . . . . . . . . . . . 92,890 68,246
--------- ---------
Total liabilities and stockholder's equity. . $559,295 $598,918
--------- ---------
--------- ---------
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
EchoStar currently operates four related businesses: (i) operation of
the DISH Network-SM- and continued development of the EchoStar DBS System;
(ii) design, manufacture, marketing, installation and distribution of DTH
products worldwide; (iii) domestic distribution of DTH programming; and (iv)
consumer financing of EchoStar's domestic products and services. The growth
of DBS service and equipment sales has had and will continue to have a
material negative impact on EchoStar's domestic sales of C-band DTH products;
however this negative impact has been more than offset for the six months
ended June 30, 1996 by sales of EchoStar Receiver Systems. During March 1996
EchoStar began broadcasting and selling programming packages available from
the DISH Network-SM-. EchoStar expects to derive its revenue principally from
monthly fees from subscribers to DISH Network-SM- programming and, to a
lesser extent, from the sale of EchoStar Receiver Systems. As sales of
EchoStar DBS programming and receivers increase, EchoStar expects the decline
in its sales of domestic C-band DTH products to continue at an accelerated
rate.
EchoStar generally bills for DISH Network-SM- programming periodically
in advance and recognizes revenue as service is provided. Revenue is a
function of the number of subscribers, the mix of programming packages
selected and the rates charged, and transaction fees for ancillary
programming activities and satellite usage time agreements. DBS programming
costs will generally be based upon the number of subscribers to each
programming offering. From time to time EchoStar may engage in promotional
activities that include discounted rates for limited periods, which will
result in lower average revenue per subscriber for the applicable periods.
Beginning in June 1996, EchoStar began marketing a special promotion in a
limited number of markets pursuant to which consumers were able to purchase a
discounted EchoStar Receiver System under the condition the consumer commits
to subscribe and prepay for DISH Network-SM- programming service for a
minimum of one year. Under this promotion the consumer is able to purchase
the discounted EchoStar Receiver System and prepay the annual programming
package for as low as $499. The primary purpose of the promotion was to
expand retail distribution, build awareness of the DISH Network-SM- brand and
rapidly build a subscriber base. Due to positive retailer and consumer
results, among other factors, effective August 1, 1996, EchoStar began a
nationwide rollout of the promotion. While this promotion will significantly
increase EchoStar's investment in its subscriber base, EchoStar believes that
the increase in subscribers to its DISH Network-SM- and the corresponding
increase in DBS programming revenue in future periods, resulting from this
promotion, will be more than sufficient to recover the investment in
subscriber acquisition costs.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE AND SIX MONTHS
ENDED JUNE 30, 1995
REVENUE. Total revenue for the three and six months ended June 30, 1996
was $73.5 million and $115.0 million, respectively, an increase of $34.2
million, or 87%, and $35.3 million, or 44%, respectively, as compared to
total revenue for the three and six months ended June 30, 1995 of $39.3
million and $79.7 million, respectively. Revenue from domestic sales of DTH
products for the three and six months ended June 30, 1996 was $50.9 million
and $74.9 million, respectively, an increase of $31.5 million, or 163%, and
$35.0 million, or 88%, respectively, as compared to the same periods in 1995.
The increase in domestic revenue was primarily due to $43.5 million and $51.7
million in revenue from the sale of EchoStar Receiver Systems during the
three and six months ended June 30, 1996, respectively. There were no
EchoStar Receiver System sales during the comparable periods in 1995. The
increases in domestic revenue were principally offset by a decrease of $4.7
million, or 50%, and $9.6 million, or 50%, in revenue from sales of C-band
satellite receivers and related accessories, during the three and six months
ended June 30, 1996, respectively, as compared to the same periods in 1995.
Additionally, domestic revenue generated from satellite receivers sold for a
competitor's DBS system ("Competitor DBS Receivers") decreased approximately
$5.8 million, or 98%, and $4.8 million, or 37%, for the three and six months
ended June 30, 1996, respectively, compared to the same periods in 1995.
Revenue from Competitor DBS Receiver sales was $114,000 and $8.0 million for
the three and six
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months ended June 30, 1996, respectively, as compared to $5.9 million and
$12.8 million for the same periods in 1995. The increases in domestic revenue
were also partially offset by a decrease of $2.4 million, or 61%, and $3.6
million, or 53%, in revenue from sales of non-proprietary descrambler
modules, during the three and six months ended June 30, 1996, as compared to
the same periods in 1995. The domestic market for C-band DTH products
continued to decline during the three and six months ended June 30, 1996, and
this decline will continue with the growth of DBS service and equipment
sales. Consistent with the increases in revenue noted above, EchoStar has
experienced a corresponding increase in trade accounts receivable at June 30,
1996, and expects this trend to continue with the nationwide rollout of the
promotion discussed above.
Domestically, EchoStar sold approximately 110,000 and 155,000 satellite
receivers in the three and six months ended June 30, 1996, respectively, an
increase of 323% and 193%, respectively as compared to approximately 26,000
and 53,000 satellite receivers, respectively, for the same periods in 1995.
Although there was an increase in the number of satellite receivers sold in
1996 as compared to 1995, overall revenue did not increase proportionately as
a result of a substantial shift in product mix to lower priced DBS receivers
and related accessories, and an approximate 15% reduction in the average
selling price of C-band satellite receivers. Included in the number of
satellite receivers sold for the three and six months ended June 30, 1996 are
approximately 103,000 and 120,000, respectively, EchoStar Receiver Systems.
EchoStar Receiver System revenue represented approximately 59% and 45%,
respectively, of total revenue for the three and six months ended June 30,
1996.
Also included in the number of satellite receivers sold for the three
and six months ended June 30, 1996 are approximately 300 and 19,000,
respectively, Competitor DBS Receivers as compared to 10,000 and 21,000,
respectively, for the same periods in 1995. During the six months ended June
30, 1996, the Competitor DBS Receivers were sold at an approximate 28%
reduction in the average selling price as compared to the six months ended
June 30, 1995. Competitor DBS Receiver revenue represented less than 1% and
approximately 7% of total revenue for the three and six months ended June 30,
1996, respectively. EchoStar's agreement to distribute Competitor DBS
Receiver systems terminated on December 31, 1995 and during the first half of
1996, EchoStar sold all of its existing inventory of Competitor DBS
Receivers. The elimination of Competitor DBS Receiver inventory has been more
than offset by a substantial increase in inventory of EchoStar Receiver
Systems and related components, the sale of which has more than offset the
elimination of revenue derived from the sale of Competitor DBS Receivers.
In future periods, domestic DTH product revenue will be primarily
generated from the sale of EchoStar Receiver Systems and, to a lesser extent,
sales of C-band DTH products and related accessories. Beginning in June 1996,
EchoStar began marketing a special promotion in a limited number of markets
pursuant to which consumers were able to purchase a discounted EchoStar
Receiver System under the condition the consumer commits to subscribe and
prepay for DISH Network-SM- programming service for a minimum of one year.
The primary purpose of the promotion was to expand retail distribution, build
awareness of the DISH Network-SM- brand and rapidly build a subscriber base.
Due to positive retailer and consumer results, among other factors, effective
August 1, 1996, EchoStar began a nationwide rollout of the promotion. During
the promotional period, EchoStar will not recognize any DTH product revenue
or expense related to EchoStar Receiver Systems sold pursuant to this
promotion. Instead, EchoStar will capitalize the difference between the
direct costs of the EchoStar Receiver System and the related revenue
generated from these sales. This difference will be deferred and will be
amortized over the expected minimum life of the subscriber. EchoStar believes
that the revenue generated from sales of DISH Network-SM- programming in
future periods, resulting from this promotion, will more than offset the
investment in subscriber acquisition costs.
DISH Network-SM- programming revenue was $5.6 million and $6.0 million
for the three and six months ended June 30, 1996, respectively. Since
EchoStar did not begin broadcasting and selling programming packages
available on the DISH Network-SM- service until March 1996, there was no DISH
Network-SM- programming revenue generated during the comparable periods in
1995. As of August 1, 1996, EchoStar had over 100,000 subscribers to DISH
Network-SM- programming.
C-band programming revenue was $3.2 million and $6.6 million for the
three and six months ended June 30, 1996, respectively, a decrease of
$623,000, or 16%, and $1.0 million, or 14%, compared to the same periods in
1995. The decrease is attributable to the industry-wide decline in domestic
C-band equipment sales and the related decline in C-band DTH programming
revenue. This decline in C-Band equipment sales and the related programming
revenue is expected to continue for the foreseeable future. The expected
decline in C-band DTH programming revenue in 1996 has been more than offset
by sales of DISH Network-SM- programming.
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Loan origination and participation income for the three and six months
ended June 30, 1996 was $4.3 million and $5.1 million, respectively, an increase
of $3.7 million, or 653%, and $4.3 million, or 511%, respectively, compared to
the same periods in 1995. The increase in loan origination and participation
income for the three and six months ended June 30, 1996 was primarily due to
increased finance volume, including the financing of EchoStar Receiver Systems
and the availability of more comprehensive financing terms to EchoStar
subscribers.
Revenue from international sales of DTH products for the three and six
months ended June 30, 1996 was $9.5 million and $22.3 million, respectively, a
decrease of $6.0 million, or 39%, and $8.9 million, or 29%, respectively, as
compared to the same periods in 1995. The decrease is directly attributable to a
decrease in the number of analog satellite receivers sold combined with
decreasing margins on products sold. Internationally, EchoStar sold
approximately 51,000 and 126,000 analog satellite receivers during the three and
six months ended June 30, 1996, a decrease of 46% and 30%, respectively,
compared to approximately 94,000 and 181,000 units sold during the same periods
in 1995. Overall, EchoStar's international markets for analog DTH products
declined during the three and six months ended June 30, 1996 as anticipation for
new international digital services continues to increase. This international
decline in demand for analog satellite receivers is similar to the decline which
has occurred in the United States and was expected by EchoStar. To offset this
anticipated decline in demand for analog satellite receivers, EchoStar has been
negotiating with digital service providers to distribute their proprietary
receivers in EchoStar's international markets. While EchoStar is actively
pursuing these distribution opportunities, no assurance can be given that such
negotiations will be successful.
OPERATING EXPENSES. Costs of DTH products sold were $57.5 million and $90.3
million for the three and six months ended June 30, 1996, respectively, an
increase of $30.2 million, or 110%, and $33.5 million, or 59%, respectively, as
compared to the same periods in 1995. The increase in DTH operating expenses
for 1996 resulted primarily from the increase in sales of DTH products.
Operating expenses for DTH products as a percentage of DTH product revenue were
95% and 93% for the three and six months ended June 30, 1996, respectively,
compared to 79% and 80% for the same periods in 1995, respectively. The increase
in operating expenses as a percent of revenue was principally the result of
declining sales prices of C-band DTH products and Competitor DBS Receivers as
described above, during the three and six months ended June 30, 1996 as compared
to the same periods in 1995.
In future periods, the costs of domestic DTH product sold will be
primarily related to the sale of EchoStar Receiver Systems and, to a lesser
extent, sales of C-band DTH products and related accessories. Beginning in
June 1996, EchoStar began marketing a special promotion in a limited number
of markets pursuant to which consumers were able to purchase a discounted
EchoStar Receiver System under the condition the consumer commits to
subscribe and prepay for DISH Network-SM- programming service for a minimum
of one year. The primary purpose of the promotion was to expand retail
distribution, build awareness of the DISH Network-SM- brand and rapidly build
a subscriber base. Due to positive retailer and consumer results, among other
factors, effective August 1, 1996, EchoStar began a nationwide rollout of the
promotion. During the promotional period, EchoStar will not recognize any DTH
revenue or expense related to EchoStar Receiver Systems sold pursuant to this
promotion. Instead, EchoStar will capitalize the difference between the
direct costs of the EchoStar Receiver System and the related revenue
generated from these sales. This difference will be deferred and will be
amortized over the expected minimum life of the subscriber.
The costs of DISH Network-SM- programming were $1.7 million and $1.8
million for the three and six months ended June 30, 1996, respectively. Since
EchoStar did not begin broadcasting and selling programming packages
available on the DISH Network-SM- service until March 4, 1996, there were no
DISH Network-SM- programming expenses incurred during the comparable periods
in 1995. DISH Network-SM- programming costs as a percentage of DISH
Network-SM- programming revenue were 30% and 29% for the three and six months
ended June 30, 1996, respectively.
The costs of C-band programming were $2.9 million and $6.1 million for
the three and six months ended June 30, 1996, respectively, a decrease of
$512,000, or 15%, and $766,000, or 11%, respectively, as compared to the same
periods in 1995. This decrease is mainly attributable to the decrease in
C-band programming revenue. C-band programming expenses as a percentage of
C-band programming revenue for the three and six months ended June 30,
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1996 were 90% and 91%, respectively, as compared to 89%, for each of the same
periods in 1995. The increase in C-band programming expenses as a percentage
of C-band programming revenue was principally the result of declining sales
prices of C-band programming. As previously discussed, the domestic market
for C-band DTH products has continued to decline with the growth of DBS
service and equipment sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $19.1 million and $29.8 million for the three
and six months ended June 30, 1996, respectively, an increase of $11.8
million, or 161%, and $14.6 million, or 96%, respectively, as compared to the
same periods in 1995. Selling, general and administrative expenses as a
percentage of total revenue increased to 26% for each of the three and six
months ended June 30, 1996, as compared to 19% for each of the same periods
in 1995. This increase was principally due to: (i) marketing and advertising
prior to and in conjunction with the introduction of DISH Network-SM-
service; (ii) increased personnel in all areas of the organization to support
the DISH Network-SM-; (iii) costs related to the Digital Broadcast Center,
which commenced operations in the third quarter of 1995; and (iv) costs
associated with operating the DISH Network-SM- Call Center and related
services which have been outsourced. In future periods, EchoStar believes
that although selling, general and administrative expenses will continue to
increase, such increase as a percentage of future revenue will decrease as
subscribers are added and additional revenue from sales of DISH Network-SM-
programming is generated.
Research and development costs totaled $1.4 million and $2.6 million for
the three and six months ended June 30, 1996, respectively, as compared to
$1.2 million and $2.5 million for the same periods in 1995. The increase was
principally due to increased research and development costs necessary to
provide digital DBS satellite receivers to domestic and international
markets, principally offset by a reduction research necessary to provide
C-band receivers to domestic and international markets.
EBITDA. As expected, EchoStar incurred operating losses for the three
and six months ended June 30, 1996. EBITDA for the three and six months ended
June 30, 1996 was a negative $7.6 million and a negative $12.9 million,
respectively, a decrease of $8.8 million and $13.8 million, respectively,
compared to the same periods in 1995. The decrease resulted from the factors
affecting revenue and expenses discussed above. EBITDA represents earnings
before interest income, interest expense net of other income, income taxes,
depreciation and amortization. EBITDA is commonly used in the
telecommunications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
EchoStar expects to continue to report operating losses in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation for the three and six months
ended June 30, 1996 was $6.4 million and $9.8 million, respectively, an
increase of $6.0 million and $9.0 million, respectively, as compared to
$406,000 and $769,000 for the three and six months ended June 30, 1995. The
overall increase primarily resulted from depreciation on the Digital
Broadcast Center and EchoStar I which were placed in service during the
fourth quarter of 1995 and the first quarter of 1996, respectively, and the
amortization of subscriber acquisition costs discussed below.
Also included within depreciation and amortization is amortization of
subscriber acquisition costs. For the purpose of attracting subscribers to the
DISH Network-SM-, EchoStar has sponsored certain sales promotions through
independent consumer electronics and satellite retailers. EchoStar effectively
sells its proprietary DBS reception equipment to these retailers at less than
cost under the condition consumers commit to subscribe and prepay for DISH
Network-SM- programming service for a minimum of one year. The subscriber
acquisition costs recorded represent the difference between the direct costs of
the hardware and the revenue generated from the sales of the hardware. These
costs have been deferred and are being amortized over the expected minimum life
of the subscriber, currently estimated to be three years. Any unamortized
investment with respect to subscribers who discontinue DISH Network-SM- service
after one year but before the end of three years, will be fully amortized to
expense at that time. EchoStar believes subscriber acquisition costs will be
recovered through future revenue generated from sales of DISH Network-SM-
programming. Amortization expense of subscriber acquisition costs for the three
and six months ended June 30, 1996 was approximately $92,000. In future periods,
with the nationwide rollout of this promotion, amortization expense is expected
to be of a magnitude which significantly exceeds historical levels, even if the
promotional period is terminated in the near future.
OTHER INCOME AND EXPENSE. Other expense for the three and six months ended
June 30, 1996 was $20.6 million and $23.9 million, respectively, an increase of
$17.2 million, or 506%, and $17.6 million, or 281%,
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respectively, as compared to the same periods in 1995. The increase in other
expense for the three and six month periods ending June 30, 1996 resulted
primarily from an increase in interest expense resulting from the issuance of
the 1996 Notes combined with an increase in discounts on accounts receivable
for EchoStar Receiver Systems and DISH Network-SM- programming which have
been factored without credit recourse to third party financing groups. The
increase was partially offset by an increase in interest income attributable
to an increase in the balance of the escrow, cash and marketable securities
account as a result of proceeds received from the issuance of the 1996 Notes.
PROVISION FOR INCOME TAXES. Income tax benefit for the three and six months
ended June 30, 1996 was $12.1 million and $16.8 million, respectively, compared
to income tax benefit of $835,000 and $2.2 million during the same periods in
1995. This increase is principally the result of changes in components of income
and expenses discussed above during the three and six months ended June 30,
1996. EchoStar's deferred tax assets (approximately $25.5 million at June 30,
1996) relate principally to temporary differences for amortization of original
issue discount on the 1994 and 1996 Notes, net operating loss carryforwards and
various accrued expenses which are not deductible until paid. No valuation
allowance has been provided because EchoStar currently believes it is more
likely than not that these deferred assets will ultimately be realized. If
future operating results differ materially and adversely from EchoStar's current
expectations, its judgment regarding the need for a valuation allowance may
change.
LIQUIDITY AND CAPITAL RESOURCES
EchoStar used approximately $16.7 million to maintain its operations for
the six months ended June 30, 1996, as compared to $5.7 million used by
operations for the same period in 1995. The cash required for operations for
the six months ended June 30, 1996 was mainly a result of: (i) increases in
trade accounts receivable related to increased sales of EchoStar Receiver
Systems; (ii) increases in DBS receiver inventory; and (iii) increases in
other current assets including prepaid in-orbit insurance on EchoStar I and
amounts due from a consumer financing source, all partially offset by
increases in deferred programming revenue. As EchoStar builds its DISH
Network-SM-subscriber base, negative operating cash flow should be offset by
an increase in revenue attributable to DISH Network-SM- programming. In the
event subscriptions to DISH Network-SM- programming do not meet anticipated
levels or the investment in subscriber acquisition costs continues to
increase beyond planned levels, negative operating cash flow may continue for
a longer period of time and could increase.
From May 1994 to May 1996, the principal subsidiaries of EchoStar, except
EchoStar Satellite Corporation ("ESC") (the "Borrowers"), were parties to an
agreement with Bank of America Illinois, which provided a revolving credit
facility (the "Credit Facility") for working capital advances and for letters of
credit necessary for inventory purchases and satellite construction payments.
EchoStar does not currently intend to arrange a replacement credit facility.
Instead, EchoStar is using available cash to collateralize its letter of credit
obligations, which historically was the only significant use of the Credit
Facility. At June 30, 1996, EchoStar had cash collateralized $15.5 million of
certain standby letters of credit for trade purchases which is included in
restricted cash and marketable securities in the accompanying financial
statements.
During June 1994, EchoStar issued 624,000 units consisting of $624.0
million principal amount of the 1994 Notes and 3,744,000 Warrants
(representing 2,808,000 shares of EchoStar Class A Common Stock) for
aggregate net proceeds of approximately $323.3 million, which were placed in
the 1994 Escrow Account. As of June 30, 1996, substantially all of the
Warrants issued in connection with the 1994 Notes Offering had been
exercised. Through June 30, 1996, $322.9 million had been withdrawn from the
1994 Escrow Account. At June 30, 1996, approximately $298.0 million of these
proceeds had been applied to development and construction of the EchoStar DBS
System and approximately $24.9 million had been applied to other permitted
uses. As of June 30, 1996, approximately $22.9 million remained in the 1994
Escrow Account, which included investment earnings, and was withdrawn on
August 12, 1996 to partially fund insurance costs related to the launch of
EchoStar II.
In March 1996, ESB consummated a private placement of the 1996 Notes. On
April 24, 1996, ESB filed a Registration Statement on Form S-1 under the
Securities Act to exchange the 1996 Notes for publicly registered notes which
was declared effective by the Securities and Exchange Commission on June 28,
1996. As of August 1, 1996, all of the outstanding privately placed notes had
been exchanged for the new publicly registered notes. ESB was formed in
January 1996 for the purpose of the 1996 Notes Offering. EchoStar has
contributed all of the outstanding capital stock of its wholly owned
subsidiary, Dish, Ltd., to ESB. ESB issued 580,000 notes consisting of $580.0
million
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principal amount of the 1996 Notes for aggregate net proceeds of
approximately $337.0 million of which $177.3 million was placed in the 1996
Escrow Account and the remaining $159.7 million is either included in cash
and cash equivalents or marketable investment securities in the accompanying
balance sheet at June 30, 1996, or has been expended for purposes described
in the 1996 Notes Offering Prospectus. Through June 30, 1996, $19.3 million
had been withdrawn from the 1996 Escrow Account for development and
construction of EchoStar III and IV. As of June 30, 1996, approximately
$160.4 million remained in the 1996 Escrow Account, which included investment
earnings. Subsequent to June 30, 1996, an additional $5.0 million has been
withdrawn from the 1996 Notes Escrow Account. Total cash on hand and
marketable investment securities at June 30, 1996 were approximately $123.4
million. EchoStar guarantees the 1996 Notes on a subordinated basis.
EchoStar's Equity Offering resulted in net proceeds of approximately
$63.0 million. EchoStar's assets at June 30, 1996 included assets purchased
with those proceeds. Substantially all of the proceeds from the Equity
Offering were used: (i) to secure launches for a third and fourth satellite;
(ii) to support, through loans to DBSC, construction of a third satellite;
(iii) to purchase, for $4.0 million, convertible subordinated secured
debentures from DBS Industries, Inc.; and (iv) for general corporate
purposes, including the down payment for DBS frequencies purchased at 148
DEG. WL at the FCC Auction in January 1996, which will be reimbursed with
the proceeds of the 1996 Notes Offering at the time the final payment for the
frequencies is made to the FCC.
EchoStar anticipates expending an additional $60 million in working
capital during the second half of 1996, including the investment in
subscriber acquisition costs. This cash requirement could increase if any of
the following occur, among other things: (i) subscriptions to DISH
Network-SM- programming do not meet anticipated levels; (ii) actual expenses
exceed present estimates; or (iii) investment in subscriber acquisition costs
continues to increase beyond planned levels. In addition to the working
capital requirements discussed above, during the second half of 1996,
EchoStar expects to expend: (i) approximately $43.4 million in connection
with the launch of EchoStar II; (ii) approximately $30.7 million for launch
insurance on EchoStar II (which was partially funded with the remaining
balance of the 1994 Escrow Account subsequent to June 30, 1996); (iii)
approximately $8.3 million for in-orbit payments to Martin on EchoStar I and
EchoStar II; (iv) approximately $38.0 million in connection with the launch
of EchoStar III; (v) approximately $45.0 million for construction of EchoStar
III and EchoStar IV; and (vi) approximately $41.8 million for the purchase of
DBS frequencies at 148 DEG. WL, which is due to the FCC five days after
EchoStar receives FCC approval for use of these frequencies. Funds for these
expenditures are expected to come from the 1996 Notes Escrow Account and
available cash and marketable investment securities. Beyond 1997, EchoStar
will expend approximately $68.1 million on contractor financing debt related
to EchoStar I and EchoStar II. Additionally, EchoStar has committed to expend
approximately $225 million to build, launch and support EchoStar III and
EchoStar IV in 1997 and beyond. In order to continue to build, launch and
support EchoStar III and EchoStar IV beyond the first quarter of 1997,
EchoStar will need additional capital. Even if EchoStar terminates the
construction contracts with Martin for the construction of EchoStar III and
EchoStar IV, EchoStar will need additional capital as a result of termination
penalties contained in the contracts. There can be no assurances that
additional capital will be available, or, if available, that it will be
available on terms favorable to EchoStar.
EchoStar expects net losses to continue as it builds its subscription
television business, and therefore, absent additional capital, EchoStar expects
negative stockholders' equity to result before December 31, 1997. Although the
negative equity position has significant implications, including, but not
limited to, non-compliance with NASDAQ listing criteria, which could result in
delisting, EchoStar believes this event will not materially affect the
implementation and execution of its business strategy. While EchoStar believes
it will be able to obtain a waiver from NASDAQ and remain listed, no assurance
can be given NASDAQ will grant a waiver. Delisting would result in a decline in
EchoStar's common stock trading market which could potentially depress stock and
bond prices, among other things.
EchoStar has entered into a contract with Martin to begin the construction
phase of EchoStar's fourth DBS satellite ("EchoStar IV"). This contract also
contains an option provision which allows EchoStar to instruct Martin to begin
the construction phase of a fifth DBS satellite ("EchoStar V"). Contractor
financing of $15.0 million will be used for construction of EchoStar IV.
Concurrent with execution of this contract, EchoStar waived all penalties due
from Martin for the late delivery of EchoStar I and EchoStar II.
Subsequent to June 30, 1996, EchoStar and Martin amended the contracts for
the construction of EchoStar I and EchoStar II. As collateral security for
contractor financing of EchoStar I and EchoStar II, EchoStar was required to
provide a letter of credit prior to the launch of EchoStar II in the amount of
$10 million (increasing to more than $40 million by 1999) and the principal
stockholder of EchoStar pledged all of his Preferred Stock to Martin ("Preferred
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Stock Guarantee"). Under the amended agreements, EchoStar will issue a corporate
guarantee covering all obligations to Martin with respect to the contractor
financing for EchoStar I and EchoStar II. In consideration for the receipt of
the corporate guarantee by EchoStar, Martin has agreed to eliminate the letter
of credit requirements, and to release the Preferred Stock Guarantee in
accordance with a specified formula based on the then outstanding contractor
financing debt and the market value of EchoStar's Class A Common Stock. This
transaction has been approved by EchoStar's board of directors with EchoStar's
principal stockholder abstaining from the vote. Additionally, EchoStar will
issue a corporate guarantee covering all obligations to Martin with respect to
the contractor financing for EchoStar III and EchoStar IV.
In addition to the commitments described above, EchoStar has entered into
agreements to purchase DBS satellite receivers and related components for the
EchoStar DBS System. As of June 30, 1996 those purchase order commitments
totaled approximately $402.4 million. At June 30, 1996, the total of all
outstanding purchase order commitments with domestic and foreign suppliers was
approximately $419.2 million. All but approximately $189.2 million of the
purchases related to these commitments are expected to be made during 1996 and
the remainder is expected to be made during 1997. EchoStar expects to finance
these commitments from available cash, marketable investment securities and
sales of its DISH Network-SM- programming.
EchoStar had outstanding $415.7 million and $806.5 million of long-term
debt (including the 1994 and 1996 Notes, deferred satellite contract payments on
EchoStar I and mortgage debt) as of December 31, 1995 and June 30, 1996,
respectively. In addition, because interest on the 1994 Notes is not payable
currently in cash but accrues through June 1, 1999, the 1994 Notes will accrete
by $215.6 million through that date. Similarly, because interest on the 1996
Notes is not payable in cash but accrues through March 15, 2000, the 1996 Notes
will accrete by $218.3 million through that date. Contractor financing of $28.0
million will be used for EchoStar II. Contractor financing of $15.0 million will
be used for both EchoStar III and IV. Interest on the contractor financing will
range between 7.75% and 8.25% and principal payments are payable in equal
monthly installments over five years following the launch of the respective
satellite.
AVAILABILITY OF OPERATING CASH FLOW TO ECHOSTAR
The 1994 and 1996 Notes Indentures impose various restrictions on the
transfer of funds among EchoStar and its subsidiaries. Although the 1996 Notes
are collateralized by the stock of Dish, Ltd., various assets expected to form
an integral part of the EchoStar DBS System (and not otherwise encumbered by the
1994 Notes Indenture), and guarantees of EchoStar and certain of its other
subsidiaries, ESB's ability to fund interest and principal payments on the 1996
Notes will depend on successful operation and the acquisition of an adequate
number of subscribers to the DISH Network-SM- and ESB having access to available
cash flows generated by the DISH Network-SM-. If cash available to ESB is not
sufficient to service the 1996 Notes, EchoStar would be required to obtain cash
from other sources such as issuance of equity securities, new borrowings or
asset sales. There can be no assurance that those alternative sources would be
available, or available on favorable terms, or sufficient to meet debt service
requirements on the 1996 Notes.
OTHER
1994 AND 1996 NOTES
EchoStar I was successfully launched by Great Wall in December 1995. In the
event of a launch failure of EchoStar II, Dish, Ltd. would first be required
under the 1994 Notes Indenture to make an offer to repurchase one-half of the
then accreted value of the 1994 Notes. In the event that EchoStar does not have
the right to use orbital slot authorizations granted by the FCC covering a
minimum of 21 transponders at a single full CONUS orbital slot, ESB and Dish,
Ltd. will be required to make an offer to repurchase all or a portion of the
outstanding 1996 Notes and 1994 Notes, respectively. Additionally, in the event
that EchoStar DBS Corporation, a wholly owned subsidiary of EchoStar, fails to
obtain authorization from the FCC for frequencies purchased at the FCC Auction
in January 1996, or in the event that such authorization is revoked or
rescinded, ESB will be required under the 1996 Notes Indenture to repurchase the
maximum principal amount of the 1996 Notes that may be purchased with the
proceeds of any refund received from the FCC up to $52.3 million.
If the DBSC Merger or similar transaction does not occur on or before March
1, 1997, ESB will be required to repurchase at least $83.0 million principal
amount of the 1996 Notes. Further, in the event that EchoStar incurs more
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<PAGE>
than $7.8 million in expenses (as defined in the 1996 Notes Indenture) in
connection with the DBSC Merger, ESB will be required to apply an amount
equal to such expenses minus $7.8 million to an offer to repurchase the
maximum principal amount of the 1996 Notes that may be purchased out of such
proceeds.
If any of the above described events were to occur, EchoStar's plan of
operations, including its liquidity, would be adversely affected and its current
business plan could not be fully implemented. Further, EchoStar's short-term
liquidity would be adversely affected in the event of: (i) significant delay in
the delivery of certain products and equipment necessary for operation of the
EchoStar DBS System; (ii) shortfalls in estimated levels of future operating
cash flows; or (iii) unanticipated expenses in connection with development of
the EchoStar DBS System.
RECEIVER MANUFACTURERS
EchoStar has agreements with two manufacturers to supply DBS receivers for
EchoStar. To date, only one of the manufacturers has produced a receiver
acceptable to EchoStar. No assurances can be given that EchoStar's other
manufacturer will be able to produce an acceptable receiver in the future. Until
the other manufacturer produces a receiver acceptable to EchoStar, EchoStar is
dependent on one manufacturing source for its receivers. To date, EchoStar has
paid the non-performing manufacturer $10.0 million and has an additional $15.0
million in an escrow account as security for EchoStar's payment obligations
under that contract. If that manufacturer does not produce an acceptable
receiver in the near future, EchoStar may terminate that contract, which would
cause longer term dependence on a single manufacturing source. If EchoStar's
sole manufacturer is unable for any reason to produce receivers in a quantity
sufficient to meet demand, EchoStar's liquidity and results of operations may be
adversely affected. If the contract with EchoStar's other manufacturer is
terminated, there can be no assurance EchoStar would be able to recover all
amounts paid the manufacturer or otherwise held in escrow.
FORWARD LOOKING STATEMENTS
This Form 10-Q of EchoStar contains statements which constitute forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended. Those statements
appear in a number of places in the Form 10-Q and include statements regarding
the intent, belief or current expectations of EchoStar with respect to, among
other things: (i) EchoStar's financing plans; (ii) trends affecting EchoStar's
financial conditions or results of operations; (iii) EchoStar's growth strategy;
(iv) EchoStar's anticipated results of future operations; and (v) regulatory
matters affecting EchoStar. Prospective investors are cautioned that any such
forward looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward looking statements as a result of various
factors.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment Of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). EchoStar
adopted SFAS No. 121 in the first quarter of 1996 and its adoption has not had a
material impact on EchoStar's financial position, results of operations or cash
flows.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("SFAS No. 123"), issued by FASB in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), but requires
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. EchoStar intends to continue to
measure compensation cost under APB No. 25 and to comply with the pro forma
disclosure requirements. Therefore, this statement has had no impact on
EchoStar's results of operations.
22
<PAGE>
IMPACT OF INFLATION; BACKLOG
Inflation has not materially affected EchoStar's operations during the
past three years. EchoStar believes that its ability to increase charges for
products and services in future periods will depend primarily on competitive
pressures. EchoStar does not have any material backlog of its products.
23
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
EchoStar is a party to certain legal proceedings arising in the ordinary
course of its business. EchoStar does not believe that any of these
proceedings will have a material adverse affect on EchoStar's financial
position or results of operations.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1* Amended and Restated Agreement for Exchange of Stock and Merger,
dated as of May 31, 1995, by and among EchoStar Communications
Corporation, a Nevada corporation formed in April 1995
("EchoStar"), Charles W. Ergen and EchoStar (incorporated herein
by reference to Exhibit 2.2 to the Registration Statement
Form S-1, Registration No. 33-91276).
2.2* Agreement regarding purchase of debentures between Dish, Ltd.
(formerly EchoStar Communications Corporation, a Nevada corporation
formed in December 1993 ("Dish")), SSE Telecom, Inc. ("SSET"),
dated March 14, 1994, including Plan and Agreement of Merger, by
and among Dish, DirectSat Merger Corporation, DirectSat Corporation
and SSET (incorporated herein by reference to Exhibit 2.2 to the
Registration Statement on Form S-1, Registration No. 33-76450).
3.1(a)* Amended and Restated Articles of Incorporation of EchoStar
(incorporated herein by reference to Exhibit 3.1(a) to the
Registration Statement on Form S-1, Registration No. 33-91276).
3.1(b)* Bylaws of EchoStar (incorporated herein by reference to Exhibit
3.1(b) to the Registration Statement on Form S-1, Registration No.
33-91276).
4.1* Indenture of Trust between Dish and First Trust National
Association ("First Trust"), as Trustee (incorporated herein by
reference to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
4.2* Warrant Agreement between EchoStar and First Trust, as Warrant
Agent (incorporated herein by reference to the Registration
Statement on Form S-1 of Dish, Registration No. 33-76450).
4.3* Security Agreement in favor of First Trust, as Trustee under the
Indenture filed as Exhibit 4.1 (incorporated herein by reference to
the Registration Statement on Form S-1 of Dish, Registration No.
33-76450).
4.4* Escrow and Disbursement Agreement between Dish and First Trust
(incorporated herein by reference to the Registration Statement on
Form S-1 of Dish, Registration No. 33-76450).
4.5* Pledge Agreement in favor of First Trust, as Trustee under the
Indenture filed as Exhibit 4.1 herein (incorporated herein by
reference to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
4.6* Intercreditor Agreement among First Trust, Continental Bank, N.A.
and Martin Marietta Corporation (Martin Marietta) (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).
4.7* Series A Preferred Stock Certificate of Designation of EchoStar
(incorporated herein by reference to Exhibit 4.7 to the
Registration Statement on Form S-1 of EchoStar, Registration No.
33-91276).
4.8* Registration Rights Agreement by and between EchoStar and Charles
W. Ergen (incorporated herein by reference to Exhibit 4.8 to the
Registration Statement on Form S-1 of EchoStar, Registration No.
33-91276).
4.9* Indenture of Trust between ESB and First Trust, as Trustee
(incorporated herein by reference to Exhibit 4.9 to the Annual
Report on Form 10-K of EchoStar, Commission File No. 0-26176).
25
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.10* Security Agreement of ESB in favor of First Trust, as Trustee under
the Indenture filed as Exhibit 4.9 (incorporated herein by
reference to Exhibit 4.10 to the Annual Report on Form 10-K of
Echostar. Commission File No. 0-26176).
4.11* Escrow and Disbursement Agreement between ESB and First Trust
(incorporated herein by reference to Exhibit 4.11 to the Annual
Report on Form 10-K of EchoStar. Commission File No. 0-26176).
4.12* Pledge Agreement of ESB in favor of First Trust, as Trustee under
the Indenture filed as Exhibit 4.9 (incorporated herein by
reference to Exhibit 4.12 to the Annual Report on Form 10-K of
EchoStar, Commission File No. 0-26176).
4.13* Pledge Agreement of EchoStar in favor of First Trust, as Trustee
under the Indenture filed as Exhibit 4.9 (incorporated herein by
reference to Exhibit 4.13 to the Annual Report on Form 10-K of
EchoStar, Commission File No. 0-26176).
4.14* Registration Rights Agreement by and between the Issuer, EchoStar,
Dish, New DBSC and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated herein by reference to Exhibit 4.14 to
the Annual Report on Form 10-K of EchoStar, Commission File
No. 0-26176).
10.1(a)* Satellite Construction Contract, dated as of February 6, 1990,
between EchoStar Satellite Corporation ("ESC") and Martin Marietta
Corporation as successor to General Electric EchoStar, Astro-Space
Division ("General Electric") (incorporated herein by reference to
the Registration Statement on Form S-1 of Dish, Registration No.
33-76450).
10.1(b)* First Amendment to the Satellite Construction Contract, dated as of
October 2, 1992, between ESC and Martin Marietta as successor to
General Electric (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration No.
33-76450).
10.1(c)* Second Amendment to the Satellite Construction Contract, dated as
of October 30, 1992, between ESC and Martin Marietta as successor
to General Electric (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration No.
33-76450).
10.1(d)* Third Amendment to the Satellite Construction Contract, dated as of
April 1, 1993, between ESC and Martin Marietta (incorporated herein
by reference to the Registration Statement on Form S-1 of Dish,
Ltd. Registration No. 33-76450).
10.1(e)* Fourth Amendment to the Satellite Construction Contract, dated as
of August 19, 1993, between ESC and Martin Marietta (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Ltd. Registration No. 33-76450).
10.1(f)* Form of Fifth Amendment to the Satellite Construction Contract,
between ESC and Martin Marietta (incorporated herein by reference
to the Registration Statement on Form S-8 of EchoStar, Registration
No. 33-81234).
10.1(g)* Sixth Amendment to the Satellite Construction Contract, dated as of
June 7, 1994, between ESC and Martin Marietta (incorporated herein
by reference to the Registration Statement on Form S-8 of EchoStar,
Registration No. 33-81234).
10.1(h) Eighth Amendment to the Satellite Construction Contract, dated as
of July 18, 1996, between ESC and Martin Marietta.
10.2* Satellite Launch Contract, dated as of September 27, 1993, between
ESC and the China Great Wall Industry Corporation (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Ltd. Registration No. 33-76450).
26
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.3* Distributor Agreement, dated as of July 30, 1993, between
Echosphere Corporation ("Echosphere") and Thomson Consumer
Electronics, Inc. (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration No.
33-76450).
10.4* Master Purchase and License Agreement, dated as of August 12, 1986,
between Houston Tracker Systems, Inc. ("HTS") and Cable/Home
Communications Corp. (a subsidiary of General Instruments
Corporation) (incorporated herein by reference to the Registration
Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450).
10.5* Master Purchase and License Agreement, dated as of June 18, 1986,
between Echosphere and Cable/Home Communications Corp. (a
subsidiary of General Instruments Corporation) (incorporated herein
by reference to the Registration Statement on Form S-1 of Dish,
Ltd. Registration No. 33-76450).
10.6* Merchandising Financing Agreement, dated as of June 29, 1989,
between Echo Acceptance Corporation ("EAC") and Household Retail
Services, Inc. (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration No.
33-76450).
10.7* Key Employee Bonus Plan, dated as of January 1, 1994 (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Ltd. Registration No. 33-76450).
10.8* Consulting Agreement, dated as of February 17, 1994, between ESC
and Telesat Canada (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration No.
33-76450).
10.9* Form of Satellite Launch Insurance Declarations (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Ltd. Registration No. 33-76450).
10.10* Dish, Ltd. 1994 Stock Incentive Plan (incorporated herein by
reference to the Registration Statement on Form S-1 of Dish, Ltd.,
Registration No. 33-76450).
10.11* Form of Tracking, Telemetry and Control Contract between AT&T Corp.
and ESC (incorporated herein by reference to the Registration
Statement on Form S-8 of EchoStar, Registration No. 33-81234).
10.12* Manufacturing Agreement, dated as of March 22, 1995, between HTS
and SCI Technology (incorporated herein by reference to Exhibit
10.12 to the Registration Statement as Form S-1 of Dish, Ltd.,
Commission File No. 33-81234).
10.13* Manufacturing Agreement dated as of April 14, 1995 by and between
ESC and Sagem Group (incorporated herein by reference to Exhibit
10.13 to the Registration Statement on Form S-1 of EchoStar,
Registration No. 33-91276).
10.14* Statement of Work, dated January 31, 1995 from EchoStar Satellite
Corporation Inc. to Divicom Inc. (incorporated herein by reference
to Exhibit 10.14 to the Registration Statement on Form S-1,
Registration No. 33-91276).
10.15* Launch Services Contract, dated as of June 2, 1995, by and between
EchoStar Satellite Corporation and Lockheed-Khrunichev-Energia
International, Inc. (incorporated herein by reference to Exhibit
10.15 to the Registration Statement on Form S-1, Registration No.
33-91276).
10.16* EchoStar 1995 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.16 to the Registration Statement on Form
S-1, Registration No. 33-91276).
27
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.17(a) Eighth Amendment to Satellite Construction Contract, dated as of
February 1, 1994, between DirectSat Corporation and Martin Marietta
Corporation.
10.17(b) Tenth Amendment to Satellite Construction Contract, dated as of
July 18, 1996, between DirectSat Corporation and Martin Marietta
Corporation.
10.18 Satellite Construction Contract, dated as of July 18, 1996, between
EchoStar DBS Corporation and Lockheed Martin Corporation.
11 Computation of Earnings Per Share for the three and six months
ended June 30, 1996.
27 Financial Data Schedule
______________
* Incorporated by reference pursuant to Rule 12D-32 under the Securities and
Exchange Act of 1934, as amended.
(b) REPORTS ON FORM 8-K.
No current reports on Form 8-K were filed by EchoStar during the period
covered by this Quarterly Report on Form 10-Q.
28
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EchoStar Communications Corporation
Date: August 12, 1996 /s/ STEVEN B. SCHAVER
------------------------------------------
Steven B. Schaver
Vice President and Chief Financial Officer
/s/ STEVEN B. SCHAVER
------------------------------------------
Steven B. Schaver
Principal Financial Officer
29
<PAGE>
AMENDMENT NO. 8
TO THE CONTRACT
BETWEEN
ECHOSTAR SATELLITE CORPORATION
AND
MARTIN MARIETTA CORPORATION
This Amendment, is effective the 18th day of July 1996.
WITNESS THAT:
WHEREAS, EchoStar Satellite Corporation ("Buyer") and Martin Marietta
Corporation ("Contractor"), mutually agree to amend the subject Contract to:
- - revise ARTICLE 4 PAYMENT;
- - revise ARTICLE 4A SPACECRAFT IN-ORBIT PAYMENT SECURITY;
- - revise ARTICLE 20 ASSIGNMENT.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Buyer and Contractor agree to modify the Contract as
follows:
<PAGE>
ARTICLE 4 PAYMENT
Delete paragraph F.6 in its entirety and replace with the following:
F.6 The In-Orbit payments, including the interest thereon, will be secured
by a written corporate guarantee provided by EchoStar Communications
Corporation (ECC). The security will be provided no later than
thirty (30) days after the signing of this amendment.
ARTICLE 4A. SPACECRAFT IN-ORBIT PAYMENT SECURITY
A.1 Delete in its entirety.
A.3 Add subparagraphs a and b as follows:
a. Effective December 31, 1996, and on each June 30th and December 31st
thereafter (each a "Review Date"), provided that Buyer is not delinquent
in any of its In-Orbit payments, Contractor shall perform the following
calculation in order to determine the number of shares of preferred
stock (if any), which shall be released free and clear from the Escrow.
The formula shall be:
"A - ((B x 1.5)/C) = D",
Where:
"A" is equal to the number of preferred shares in the Escrow on the
applicable Review Date;
"B" is equal to the total outstanding In-Orbit payments, plus interest,
due to Contractor on the applicable Review Date for the First Two Flights,
less $30 million;
"C" is equal to the average of the closing price of a share of ECC Class A
Common Stock as quoted on the NASDAQ (or such other national securities
exchange on which ECC's Class A Common Stock is traded on the applicable
Review Date) for the thirty business day period immediately preceding the
applicable Review Date; and
"D" is equal to the number of preferred shares to be released from
Escrow.
b. In the event that "D" is equal to or less than zero, no shares shall be
returned. In the event that "D" is greater than zero, Contractor shall
cause the appropriate number of preferred shares to be released from
escrow and returned within thirty (30) business days of the applicable
Review Date.
<PAGE>
ARTICLE 20 ASSIGNMENT
Add new paragraph C as follows:
C. Buyer consents to the assignment of this contract from Martin Marietta
Corporation to Lockheed Martin Corporation effective as of January 29,
1996.
IN WITNESS WHEREOF, the parties hereto have executed this Contract Amendment.
ECHOSTAR SATELLITE CORPORATION MARTIN MARIETTA CORPORATION
By: /s/ David K. Moskowitz By: /s/ Peter H. Wiggett
--------------------------- ---------------------------
Senior Vice President Director Contracts
Astrospace Commercial
Agreed as to the guarantee.
ECHOSTAR COMMUNICATIONS CORPORATION
By: /s/ David K. Moskowitz
---------------------------
Senior Vice President
<PAGE>
AMENDMENT NO. 8 TO CONTRACT
BETWEEN
DIRECTSAT CORPORATION
(HEREINAFTER "BUYER")
AND
MARTIN MARIETTA CORPORATION
(HEREINAFTER "CONTRACTOR")
This Amendment is effective as of the lst day of February 1994.
WITNESS THAT:
WHEREAS, DirectSat Corporation ("Buyer") and Martin Marietta Corporation
("Contractor"), mutually agree to amend the subject Contract to:
- - revise pricing for three Satellites (Spacecraft Flight #1, #2 and #3),
- - incorporate Long March launch vehicle compatibility for Spacecraft Flight
#1, #2 and #3,
- - establish a revised payment profile,
- - delete all of the previous terms and conditions of the Contract and
substitute the attached terms and conditions,
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Buyer and Contractor agree to modify the Contract as
follows:
Preamble-1
<PAGE>
TABLE OF CONTENTS
The Table of Contents is deleted and replaced with the following:
ARTICLE
1 Scope of Work
2 Equipment and Services to be Furnished and Prices Therefor
3 Delivery Schedule
4 Payment
5 Definitions
6 (Reserved)
7 Inspection and Final Acceptance
8 Title and Assumption of Risk
9 Access to Work
10 Progress Meetings, Presentations, and Documentation Deliverables
11 Rights in Data
12 Public Release of Information
13 Indemnification
14 Patent Indemnity
15 Indemnification for Taxes
16 Excusable Delays
17 Termination for Default
18 Termination for Convenience
19 Changes
20 Assignment
21 Warranty
22 Arbitration
Contents - 1
<PAGE>
TABLE OF CONTENTS
ARTICLE
23 Applicable Law
24 Entire Agreement
25 Disclosure and Use of Information by the Parties
26 Effective Date
27 Permits and Licenses
28 Limitation of Liability
29 Spacecraft Test and Handling Equipment
30 Liquidated Damages
31 Spacecraft Storage
32 Spacecraft Configuration
33 Release
34 Insurance
35 (Deleted)
36 (Deleted)
Contents - 1
<PAGE>
ARTICLE 1. SCOPE OF WORK
DELETE the text of this ARTICLE and replace it with:
The Contractor shall provide the necessary personnel, material, services, and
facilities to perform work in accordance with the provisions of this
Contract, including the EXHIBITS listed below, which are attached hereto and
made a part hereof (the preliminary design effort for Spacecraft Flights #2
and #3 is included as part of the services provided by Contractor for
Spacecraft Flight #1), and to make delivery to Buyer as set forth in ARTICLE
2 hereof in accordance with the delivery schedule specified in ARTICLE 3
hereof:
- - EXHIBIT A DirectSat Statement of Work (SOW) WS-02-20037400
- - EXHIBIT B1 DirectSat Spacecraft Performance Specification PS-02-20037400
- - EXHIBIT B2 DirectSat Spacecraft Performance Specification PS-02-20037400
- - EXHIBIT B3 DirectSat Spacecraft Performance Specification PS-02-20037400
- - EXHIBIT C DirectSat Comprehensive Test Plan PN-02-20037400
- - EXHIBIT D DirectSat Product Assurance Program Plan PA-02-20037400
In the event of any inconsistency among or between the parts of this Contract
set forth above, such inconsistency shall be resolved by giving precedence in
the order of the parts as set forth below:
1. Terms & Conditions, Satellite Contract Dated March 12, 1990, as amended
2. DirectSat Statement of Work, EXHIBIT A
3. DirectSat Spacecraft Performance Specification, EXHIBIT B1
4. DirectSat Spacecraft Performance Specification, EXHIBIT B2
5. DirectSat Spacecraft Performance Specification, EXHIBIT B3
6. DirectSat Comprehensive Test Plan, EXHIBIT C
7. Product Assurance Program Plan, EXHIBIT D
To the extent any references exist in the Contract to any of the previous
Exhibits, they are hereby conformed to reflect the revised Exhibit numbers.
<PAGE>
ARTICLE 2. PRICE
DELETE this ARTICLE in its entirety and replace it with:
ARTICLE 2. EQUIPMENT AND SERVICES TO BE FURNISHED AND PRICES THEREFOR
A. Upon the full, satisfactory and timely completion and delivery, as required,
of each item of work specified below, and acceptance by Buyer thereof in
accordance with the requirements of this Contract, Contractor shall be
entitled to payment by Buyer of the applicable fixed price specified below,
as such price may be adjusted in accordance with the provisions of the
Contract, except that the portion related to the In-Orbit payments, as
defined in ARTICLE 4, PAYMENT, paragraph B.2, C.2 and D.2, shall be paid as
set forth in ARTICLE 4. The prices stated below, which are inclusive of
In-Orbit payments provided in ARTICLE 4, PAYMENT, paragraphs B.2, C.2 and
D.2, include all transportation and related charges for delivery of
Spacecraft and associated equipment to destination. Except as otherwise
provided for herein, the prices stated below include all applicable taxes
and all copyright and patent rights necessary to effectuate this Contract.
Sales, use, income and personal property taxes will be the responsibility
of the Buyer.
ITEM QUANTITY DESCRIPTION TOTAL PRICE
1. 1 Spacecraft Flight #1 as defined $81,000,500*
in EXHIBIT B1
2. 1 Spacecraft Flight #2 as defined in 78,500,000**
EXHIBIT B2
3. 1 Spacecraft Flight #3 as defined in 80,500,000**
EXHIBIT B3
4. 1 Lot Incentive Payments, present value Included in Items 1,
as defined in ARTICLE 4, paragraphs B, 2 & 3
C, D and H ------------
TOTAL PRICE $240,000,500
*Total Price for Spacecraft Flight #1 is $82,812,500 including without
limitation Satellite Control Facility compatibility, and the cost of delivery of
Spacecraft Flight #1 to Kourou, French Guiana for an Ariane launch, minus
early payment discount of $1,812,000.
**The above prices for Spacecraft Flight #2 and Spacecraft Flight #3 are
effective and valid through July 1, 1995. The firm price for Spacecraft
Flights #2 and #3 will be the above prices plus the percentage increase or
decrease in the Bureau of Labor Statistics Indices SIC Code 3761 for Guided
Missiles and Space Vehicles, Average Hourly Earnings for the same period at
the time the construction phase of these satellites commence. The Payment
Plan applicable to Spacecraft Flights #2 and #3 in ARTICLE 4. PAYMENT will
be modified accordingly. Further adjustments may be necessitated by
non-availability of components in cases where suppliers cannot provide units
identical to those procured under the baseline contract.
2-1
<PAGE>
B. The Spacecraft will include some imported goods. In the event the
Spacecraft and its included imported goods are not exported in a timely
manner due to the actions or inactions of Buyer, any duties and penalties
arising therefrom will be the responsibility of Buyer. Contractor shall
pay such above duties and penalties as may be required by law to be so paid
and Buyer agrees to reimburse the Contractor for payments so made.
C. For purposes of Spacecraft Flights #2 and 3, in the event any Spacecraft
component must be redesigned because of non-availability of piece parts or
any of Contractor's component suppliers are either out of business or are
no longer offering for sale the required item, part, assembly, subsystem or
system and subsequent substitution results in a material cost increase or
schedule delay to Contractor, Contractor shall be entitled to a price
increase and/or extension of the delivery dates set forth herein.
2-2
<PAGE>
ARTICLE 3. DELIVERY SCHEDULE
DELETE the text of this ARTICLE in its entirety and replace it with:
A. Delivery of Spacecraft Flights #1, #2 and #3 shall be made at Contractor's
expense to either Kennedy Space Center, Florida, USA, or Kourou, French
Guiana. The term "Destination" as used herein shall refer to the
designated launch site set forth herein for the applicable spacecraft.
B. Delivery shall be as indicated below:
Item Description Delivery Date
---- ----------- -------------
1. Spacecraft Flight #1, as defined in 07/17/1996
EXHIBIT B1
2. Spacecraft Flight #2, as defined in 07/01/1999
EXHIBIT B2
3. Spacecraft Flight #3, as defined in 07/02/2000
EXHIBIT B3
4. Launch and Mission Operation Support 09/10/1996
Services Spacecraft Flight #1
5. Launch and Mission Operation Support 10/01/1999
Services Spacecraft Flight #2
6. Launch and Mission Operation Support 10/02/2000
Services Spacecraft Flight #3
3-1
<PAGE>
ARTICLE 4. PAYMENT
DELETE the text of this ARTICLE in its entirety and replace it with:
A. 1. The total price stipulated in ARTICLE 2, EQUIPMENT AND SERVICES TO BE
FURNISHED AND PRICES THEREFOR, shall be paid by Buyer to Contractor in
accordance with the payment arrangements specified in the following
Payment Plans. The amounts specified in the Payment Plans shall in
each case be paid by Buyer to Contractor on the dates indicated.
Contractor shall submit an invoice for each payment approximately
thirty (30) days in advance of the payment due date. Payment to
Contractor shall be made by either cable transfer to Citibank N.A.
ABA# 021000089, Lockheed Martin, Valley Forge Collection Center A/C
#40678043, or by check payable to Lockheed Martin Corporation sent by
registered mail to the address and attention of the Lockheed Martin
representative designated in ARTICLE 10, PROGRESS MEETING,
PRESENTATIONS AND DOCUMENTATION DELIVERABLES, paragraph C. In the event
Buyer elects to pay by other than certified check, Buyer's check must
be received by Contractor at least seven (7) working days before the
required payment date to insure that the funds are available to
Contractor on the payment date.
2. Contractor shall not begin construction until the initial construction
phase payment is received by the Contractor.
3. In the event that the commencement of construction phase payments are
delayed beyond July 1, 1996 for Spacecraft Flight #2. and July 1, 1997
for Spacecraft Flight #3, the Contractor will be entitled to an
equitable adjustment for price escalation and program extension costs
as well as delivery schedule for the respective Spacecraft Flights.
4-1
<PAGE>
B. Spacecraft Flight #1 PAYMENT PLAN
1. The construction payments applicable to Spacecraft Flight #1 shall be
made as follows:
PAYMENT PLAN
Payment Due Date Amount $ Cumulative
Number Amount $
*Through Design Definition Phase March 6, 1994 312,500
1 March 7, 1994 1,250,000 1,562,500
2 April 7, 1994 625,000 2,187,500
3 May 7, 1994 625,000 2,812,500
4 June 7, 1994 685,000 3,497,500
5 July 7, 1994 1,272,000 4,769,500
6 August 8, 1994 685,000 5,454,500
7 September 7, 1994 685,000 6,139,500
8 October 12, 1994 685,000 6,824,500
9 November 9, 1994 2,660,000 9,484,500
10 December 8, 1994 43,516,000 53,000,500
2. In addition to the construction payments required above, Buyer shall pay
Spacecraft In-Orbit payments in the amount of $28,000,000. The Spacecraft
In-Orbit payments shall be made in accordance with the requirements set
forth in paragraph H. of this ARTICLE.
3. All contractual amounts with respect to Spacecraft Flight #1 have been paid
in full other than the In-Orbit payments referenced in paragraph B.2 of this
ARTICLE. The preconstruction phase design work for Spacecraft Flights #2
and #3 is included in the price of Spacecraft Flight #1 except for effort
associated with unique orbital locations. Contractor shall not be required
to perform further design effort for Spacecraft Flights #2 and #3 unless
provided an appropriate equitable adjustment.
C. Spacecraft Flight #2 PAYMENT PLAN
1 . The construction phase payments applicable to Spacecraft Flight #2 shall
be made as follows:
4-2
<PAGE>
CONSTRUCTION PHASE PAYMENT PLAN
Construc- Due Date Amount $ Cumulative
tion Phase Amount $
Payment
Number
1 July 1, 1996 1,750,000
2 August 1, 1996 1,750,000 3,500,000
3 September 1, 1996 1,750,000 5,250,000
4 October 2, 1996 1,750,000 7,000,000
5 November 1, 1996 1,800,000 8,800,000
6 December 2, 1996 1,800,000 10,600,000
7 January 2, 1997 1,800,000 12,400,000
8 February 3, 1997 1,800,000 14,200,000
9 March 3, 1997 1,800,000 16,000,000
10 April 1, 1997 1,800,000 17,800,000
11 May 1, 1997 1,800,000 19,600,000
12 June 2, 1997 1,800,000 21,400,000
13 July 1, 1997 1,800,000 23,200,000
14 August 1, 1997 1,800,000 25,000,000
15 September 1, 1997 1,800,000 26,800,000
16 October 1, 1997 1,800,000 28,600,000
17 November 3, 1997 1,800,000 30,400,000
18 December 1, 1997 1,800,000 32,300,000
19 January 2, 1998 1,800,000 34,000,000
20 February 2, 1998 1,800,000 35,800,000
21 March 1, 1998 1,800,000 37,600,000
22 April 1, 1998 1,800,000 39,400,000
23 May 1, 1998 1,800,000 41,200,000
24 June 1, 1998 1,800,000 43,000,000
25 July 1, 1998 1,800,000 45,000,000
26 August 3, 1998 2,000,000 47,000,000
27 September 1, 1998 2,000,000 49,000,000
28 October 1, 1998 2,000,000 51,000,000
29 November 2, 1998 2,000,000 53,000,000
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<PAGE>
Construc- Due Date Amount $ Cumulative
tion Phase Amount $
Payment
Number
30 December 1, 1998 2,000,000 55,000,000
31 January 4, 1999 2,000,000 57,000,000
32 February 1, 1999 2,000,000 59,000,000
33 March 1, 1999 2,000,000 61,000,000
34 April 1, 1999 2,000,000 63,000,000
35 May 1, 1999 1,300,000 64,300,000
36 June 1, 1999 500,000 64,800,000
37 July 1, 1999 600,000 65,400,000
38 August 2, 1999 300,000 65,700,000
39 September 1, 1999 200,000 65,900,000
40 October 1, 1999 100,000 66,000,000
2. In addition to the construction payments required above, Buyer shall pay
Spacecraft In-Orbit payments in the amount of $12,500,000. The Spacecraft
In-Orbit payments shall be made in accordance with the requirements set
forth in paragraph H. of this ARTICLE.
D. Spacecraft Flight #3 PAYMENT PLAN
1. The construction phase payments applicable to Spacecraft Flight #3 shall be
made as follows:
CONSTRUCTION PHASE PAYMENT PLAN
Construc- Due Date Amount $ Cumulative
tion Phase Amount $
Payment
Number
1 July 1, 1997 1,750,000
2 August 1, 1997 1,750,000 3,500,000
3 September 1, 1997 1,750,000 5,250,000
4 October 1, 1997 1,750,000 7,000,000
5 November 1, 1997 1,900,000 8,900,000
6 December 1, 1997 1,900,000 10,800,000
7 January 1998 1,900,000 12,700,000
8 February 1, 1998 1,900,000 14,600,000
9 March 1, 1998 1,900,000 16,500,000
10 April 1, 1998 1,900,000 18,400,000
11 May 1, 1998 1,900,000 20,300,000
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12 June 1, 1998 1,900,000 22,200,000
13 July 1, 1998 1,900,000 24,100,000
14 August 1, 1998 1,900,000 26,000,000
15 September 1, 1998 1,900,000 27,900,000
16 October 1, 1998 1,900,000 29,800,000
17 November 1, 1998 1,900,000 31,700,000
18 December 1, 1998 1,900,000 33,600,000
19 January 1999 1,900,000 35,500,000
20 February 1, 1999 1,900,000 37,400,000
21 March 1, 1999 1,900,000 39,300,000
22 April 1, 1999 1,900,000 41,200,000
23 May 1, 1999 1,900,000 43,100,000
24 June 1, 1999 1,900,000 45,000,000
25 July 1, 1999 2,000,000 47,000,000
26 August 2, 1999 2,000,000 49,000,000
27 September 1, 1999 2,000,000 51,000,000
28 October 1, 1999 2,000,000 53,000,000
29 November 1, 1999 2,000,000 55,000,000
30 December 1, 1999 2,000,000 57,000,000
31 January 3, 2000 2,000,000 59,000,000
32 February 1, 2000 2,000,000 61,000,000
33 March 3, 2000 2,000,000 63,000,000
34 April 1, 2000 2,000,000 65,000,000
35 May 1, 2000 1,300,000 66,300,000
36 June 1, 2000 500,000 66,800,000
37 July 3, 2000 600,000 67,400,000
38 August 1, 2000 300,000 67,700,000
39 September 1, 2000 200,000 67,900,000
40 October 2, 2000 100,000 68,000,000
2. In addition to the construction payments required above, Buyer shall pay
Spacecraft In-Orbit payments in the amount of $12,500,000. The
Spacecraft In-Orbit payments shall be made in accordance with the
requirements set forth in paragraph H. of this ARTICLE.
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<PAGE>
E. SPACECRAFT IN-ORBIT PAYMENTS
1. The Spacecraft In-Orbit payments for Spacecraft Flight #1 shall be paid over
a period of five (5) years from launch. The Spacecraft In-Orbit payments
for Spacecraft Flights #2 and #3, shall be paid over a maximum of seven (7)
years from launch. The specific repayment period for Spacecraft Flights #2
and #3 shall be determined by Buyer ninety (90) days prior to launch.
2. The In-Orbit payments shall be paid on an equal monthly basis (principal
and interest) until full payment has been received by Contractor.
3. For Spacecraft Flight #1, the interest rate applicable to the monthly
In-Orbit payments shall fall between 7.75% and 8.25% per annum and shall
be fixed 90 days prior to the scheduled launch and shall be calculated
using the prime rate published in the WALL STREET JOURNAL on such date
as follows:
a. if the prime rate falls between 7.75% and 8.25%, then the In-Orbit
payments shall accrue interest at the prime rate.
b. if the prime rate is greater than 8.25%, then the In-Orbit payments
shall accrue interest at 8.25% per annum.
C. if the prime rate is less than 7.75%, then the In-Orbit payments shall
accrue interest at 7.75% per annum.
4. For Spacecraft Flights #2 through #3, the In-Orbit payments will accrue
interest at the WALL STREET JOURNAL prime rate from the date sixty (60)
days after launch until full payment has been received by Contractor.
For purposes of determining the WALL STREET JOURNAL prime rate,
Buyer shall elect ninety (90) days prior to the Scheduled Launch Date
whether to fix the rate at the rate published in the WALL STREET JOURNAL
on such date or to float the rate over the entire repayment period. In
the event Buyer elects to float the rate, the initial rate shall be the
rate published in the WALL STREET JOURNAL ninety (90) days prior to the
Scheduled Launch Date. Thereafter, the rate shall be adjusted on the
first business day of every sixth month thereafter.
5. The In-Orbit payments, including the interest thereon, will be secured
by an irrevocable letter of credit from a reputable financial institution
or by other adequate security that is reasonably acceptable to Contractor.
The security will be established and submitted to Contractor no later
than ninety (90) days prior to the Scheduled Launch Date.
6. The Parties are willing to enter into good faith negotiations to establish
an alternative to the schedule set out in E.1. above for the Spacecraft
In-Orbit payments for Spacecraft Flight #1.
7. The Buyer shall have the right to prepay In-Orbit payments at any time
without penalty for Spacecraft Flights #2 and #3.
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F. 1. During construction and prior to Launch, Buyer grants Contractor
a full security interest in all hardware, software and work in
process, including, without limitation, all parts, assemblies,
subsystems, systems and Spacecraft (collectively "Security").
In the event of Buyer's default pursuant to ARTICLE 17, TERMINATION
FOR DEFAULT, Contractor shall immediately assume ownership of
the entire Security. Contractor, on behalf of Buyer, may take
whatever steps are necessary to effectuate transfer of ownership.
Upon such transfer of ownership, Buyer shall have no further
interest in or rights to such Security.
2. Notwithstanding paragraph F.1 above, in the event Buyer has
assigned this Contract pursuant to ARTICLE 20 ASSIGNMENT, and
such assignee defaults under ARTICLE 17 TERMINATION FOR
DEFAULT, Contractor agrees that Buyer shall have the opportunity
to cure such default within thirty (30) days of the default by
the assignee. Buyer may cure with respect to any individual
spacecraft without an obligation to cure the default with regard
to all spacecraft. In the event Buyer properly cures such default,
Contractor agrees to resume construction of the work hereunder
without any additional cost to Buyer as a result of the default.
3. The Buyer represents and warrants that:
a. the Buyer is the owner of the Security and has authorized the grant
of a security interest in the Security to Contractor, and
b. no effective Uniform Commercial Code financing statement or other
instrument similar in effect covering all or any part of the Security
is on file in any recording office.
4. The Buyer covenants and warrants that unless compliance is waived by
Contractor in writing:
a. the Buyer shall not create, incur, assume or suffer to exist, directly
or indirectly, any mortgage, pledge, hypothecation, encumbrances,
assignment, lien (statutory or other) or preference or priority or
other security agreement of any kind or nature whatsoever ("Liens")
upon any of the Security, except the security interest created hereby
in favor of Contractor, without giving Contractor sixty (60) days
prior notice of the intended creation of such Liens;
b. Contractor shall have the right to file Uniform Commercial Code
financing statements at any time during the term of this Contract to
perfect the security interest granted under this Contract. In the
event Contractor exercises the right to file Uniform Commercial Code
financing statements, the Buyer agrees to execute any financing
statement, amended financing statements, continuation statements or
other documents from time to time which are deemed reasonably
necessary by Contractor to create, perfect, confirm or validate the
security interest granted under this Contract.
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<PAGE>
G. Failure to make any payments required hereunder, or to post the required
letter of credit or the taking of any action which restricts Contractor's
unencumbered right to the Security set forth in paragraph F.1 above
shall constitute a default by Buyer subject to the provisions
of ARTICLE 17, TERMINATION FOR DEFAULT, paragraph F.
H. 1. For the Spacecraft delivered by Contractor which, following Launch, does
not achieve Successful Injection, as defined in ARTICLE 5, DEFINITIONS,
Contractor shall be entitled to receive for:
Spacecraft Flight #1 $28,000,000
Spacecraft Flight #2 $12,500,000
Spacecraft Flight #3 $12,500,000
2. In the event Buyer is obligated to make payment to Contractor in
accordance with paragraph H.1 above, payment shall be due within ten (10)
days from Buyer's receipt of the insurance proceeds required by
ARTICLE 34, INSURANCE.
3. The above amounts shall be adjusted to reflect any changes in the
In-Orbit payment amounts set forth in paragraphs B.2, C.2 and D.2 of
this ARTICLE.
I. In the event the Spacecraft is not launched within one hundred eighty
(180) days after delivery and final acceptance, in accordance with
ARTICLE 7, INSPECTION AND FINAL ACCEPTANCE, Buyer shall commence
making In-Orbit payments in accordance with the above as though launch
of such Spacecraft had occurred.
J. 1. The Payment Plan set forth in paragraphs B., C. and D. of this ARTICLE
are based on Contractor's successful and timely achievement of each
milestone set forth below. In the event that Contractor does not achieve
any Milestone on or before the date set forth below, Buyer may suspend
construction payments until such time as the Milestones are completed.
Within five (5) days following Contractor's completion of any such
Milestone, Buyer shall pay Contractor for all payments that were
required to have been made but were not as a result of the suspension.
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<PAGE>
MILESTONE TABLE
MILESTONE DATE DESCRIPTION
- --------- ---- -----------
1. 6 Months Spacecraft Preliminary Design Review (SPDR)
2. 8 Months Long Lead Parts Shown on Attachment A Hereto
3. 12 Months Spacecraft Critical Design Review (SCDR)
4. 18 Months Completion of Propulsion Subsystem
5. 24 Months Delivery of All Traveling Wave Tube Amplifiers
(TWTA's) to Integration and Test (I&T)
6. 28 Months Begin Single Line Flow (As Shown in Figure 1-5
of the Comprehensive Test Plan)
7. 30 Months Thermal Vacuum Testing
2. The dates in the Milestone Table represent months from first construction
payment for each spacecraft.
3. The above Milestone Table shall be Buyer's sole measurement of whether
Contractor is making adequate progress toward completion of the Spacecraft
required hereunder.
K. With respect to Spacecraft Flight #1, in the event that a joint effort
on the part of the Buyer and Contractor cannot obtain a favorable TT&C
frequency plan from the FCC as noted in Statement of Work, paragraph 4.1,
Contractor shall, at Buyer's option, either spend a maximum of
$1.0 million to prepare ground TT&C stations for modification of Launch
and Mission Operation services to accommodate the frequency required by
the FCC or incorporate four command receivers all operating on the same
frequency or two on one frequency and the other two on a second frequency
at no cost. Buyer can choose between C-Band and K-Band for the
frequencies. If Contractor disagrees with Buyer's selection, it can
implement an alternative solution that is authorized by the Contract but
at no additional cost to the Buyer.
L. The first construction phase payment for any Spacecraft Flight shall be
due on the later of: (i) the date indicated in the Payment Plan; or
(ii) sixty (60) days following Buyer's receipt of Contractor's invoice,
followed by Buyer's written confirmation of receipt thereof. Additional
payments shall follow for each of the 39 months thereafter per the Payment
Plan.
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<PAGE>
ARTICLE 5. DEFINITIONS
DELETE the text in the ARTICLE in its entirety and replace it with:
A. SUCCESSFUL INJECTION
Injection of the Spacecraft shall be considered successful if:
1. No damage to the Spacecraft occurs which can be shown to have resulted
from a launch vehicle malfunction.
2. The elements of the transfer orbit established by the launch vehicle and
the spin axis orientation at time of separation are within the three
sigma limits of the launch vehicle established by the Launch Agency.
3. The Spacecraft has reached a Satisfactory Orbit and is deployed for
satisfactory operation.
B. SATISFACTORY ORBIT
The spacecraft is deemed to have achieved a Satisfactory Orbit if the
following conditions are satisfied:
1. The spacecraft is located in the operational geostationary orbit
longitude position designated by Buyer.
2. The spacecraft orbit parameters are specified as follows:
(a) Inclination tolerance is + or - 0.1 degrees
(b) Longitude tolerance is + or - 0.1 degrees
C. LAUNCH
For purposes of Spacecraft Flight #1 the term Launch means the
intentional ignition of launch vehicle propulsion systems causing upward
acceleration of the launch vehicle following the intentional removal
of all mechanical restraints, if any, designed to prevent such upward
acceleration.
For purposes of Spacecraft Flight's #2 and #3, the term Launch means:
1. For an Ariane, that point in time as indicated in the automatic
sequence control as the opening of the fuel and oxidizer valves
of the first stage engines of the launch vehicle.
2. For an Atlas, firing of the Atlas rocket engines at the designated
time during the launch countdown as observed by generation of the
"main engine complete" signal.
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<PAGE>
ARTICLE 6. INCENTIVE PAYMENTS
DELETE this ARTICLE in its entirety and replace it with new ARTICLE 6. to read:
ARTICLE 6. (RESERVE)
6-1
<PAGE>
ARTICLE 7. INSPECTION AND FINAL ACCEPTANCE
DELETE the text of the ARTICLE in its entirety and replace it with:
A. INSPECTION
Buyer, or its designated representative, shall have the right to witness
and review the results of the final acceptance testing at the system
level of the deliverable hardware at the facilities of Contractor. To
allow Buyer to most effectively schedule the monitoring stated above,
Contractor shall give Buyer timely notification of the acceptance
testing of the deliverable hardware.
B. Final Acceptance
Final acceptance of the items to be delivered hereunder shall be in
accordance with the requirements of this Contract, including the
EXHIBITS. Delivery and acceptance shall be as provided herein.
1. Each Spacecraft furnished under this Contract shall be tested by
Contractor, and in the case of Spacecraft to be delivered to
storage, shall be finally accepted by Buyer upon demonstration at
Contractor's facility, prior to delivery of Spacecraft to storage,
by means of test results obtained pursuant to the test
requirements set forth in EXHIBIT C, that the Spacecraft meets the
performance specifications set forth in EXHIBITS B1 and B2 for
Spacecraft Flights #1 and #2, respectively.
2. In the case of Spacecraft delivered for launch, upon arrival of
Spacecraft at the launch site, as required by EXHIBITS A1 and A2
for Spacecraft Flights #1 and #2, respectively, Contractor shall
promptly conduct an inspection and, if required, test the
Spacecraft, in accordance with the requirements of EXHIBIT C, in
the presence of Buyer. Buyer shall either finally accept the
Spacecraft in writing or notify Contractor in writing of those
particulars in which the Spacecraft to be delivered does not meet
the requirements of this Contract. Upon remedy of such
particulars to meet the requirements of this Contract, the
Spacecraft shall be deemed to have been delivered and finally
accepted.
3. Final acceptance of non-Spacecraft items shall take place after
delivery by Contractor to the destination and, if required,
completion of installation and inspection. Buyer shall either
finally accept the item(s) in writing or notify Contractor in
writing of those particulars in which the items to be delivered do
not meet the requirements of this Contract. Upon remedy of such
particulars to meet the requirements of this Contract, the item
involved shall be deemed to have been delivered and finally
accepted.
7-1
<PAGE>
ARTICLE 8. TITLE AND ASSUMPTION OF RISK
DELETE the text of the ARTICLE in its entirety and replace it with:
A. Unless otherwise stated herein, the following shall apply:
1. Title and risk of loss or damage to a Spacecraft shall pass to
Buyer at Launch, except that title and risk of loss or damage to a
Spacecraft delivered to storage shall pass as set forth in ARTICLE
31, SPACECRAFT STORAGE.
2. Title and risk of loss or damage to non-Spacecraft items shall pass
to Buyer upon final acceptance.
B. Buyer agrees to cause its insurer(s) to waive all rights of subrogation
against Contractor and its officers, agents, servants, subsidiaries and
employees.
8-1
<PAGE>
ARTICLE 9. ACCESS TO WORK
DELETE the text of the ARTICLE in its entirety and replace it with:
A. For the purpose of observing the quality of Contractor's performance of
work, Contractor shall afford a limited number of Buyer's personnel
access to all work in process at Contractor's facility. Contractor
will request and attempt to obtain similar access to work related to
Buyer's Spacecraft that is being performed at Contractor's major
subcontractors.
B. Information disclosed to Buyer pursuant to this ARTICLE shall be
subject to the limitations set forth in ARTICLE 25, DISCLOSURE AND USE
OF INFORMATION BY THE PARTIES.
9-1
<PAGE>
ARTICLE 10. PROGRESS MEETINGS, PRESENTATIONS AND
DOCUMENTATION DELIVERABLES
DELETE the text of the ARTICLE in its entirety and replace it with:
A. MEETINGS AND PRESENTATIONS
In addition to any other meetings called for under the provisions of
this Contract and without limitation thereto, Contractor shall provide
the manpower, facilities, materials and support required to conduct the
following periodic meetings and presentations:
1. Informational Project Manager meetings.
2. Technical Review meetings as determined by Contractor's Project
Manager.
3. Quarterly Summary Executive Reviews.
Copies of view graphs or other documents utilized during these meetings
shall be furnished or be made available to Buyer. Buyer's management
personnel, as may be deemed appropriate by Buyer, shall be invited to
the Quarterly Summary Executive Reviews. Contractor shall be
represented by its Project Manager and such other personnel as are
specifically required to support the particular presentation. All
periodic meetings shall be held at Contractor's facility.
B. DISTRIBUTION OF REPORTS
All materials, reports and documentation furnished pursuant to this
ARTICLE shall be the property of Buyer subject to the limitations set
forth in ARTICLE 25, DISCLOSURE AND USE OF INFORMATION BY THE PARTIES,
except that, Contractor or its subcontractors may retain copies for
their own purposes, including the using of such materials and reports
in the performance of other contracts.
10-1
<PAGE>
C. CORRESPONDENCE
All correspondence, including notices, reports and documentation
deliverables, to be provided to Buyer or Contractor under this Contract
shall be sent to Buyer or Contractor as follows:
DirectSat Corporation Martin Marietta Corporation, Astro Space
Daniel Moore Division
P.O. Box 800
Princeton, NJ 08543-0800
Attention: Mr. L.J. Kiefer
Phone: 609-490-6228
Telecopy: 609-490-3395
D. The only representatives of Buyer and Contractor authorized to sign
contractual documents are:
BUYER CONTRACTOR
DirectSat Corporation Mr. R.T. McFall
Daniel Moore Mr. T.D. Sisley
Mr. L.J. Kiefer
Mr. P.H. Wiggett
Or others authorized by written Or others authorized by written
delegation of the DirectSat delegation of Mr. R.T. McFall
Board of Directors
10-2
<PAGE>
ARTICLE 11. RIGHTS IN DATA
DELETE the text of the ARTICLE in its entirety and replace it with:
A. Except as provided in paragraph B. below, Buyer shall have an unlimited
right to use, duplicate, and disclose the information contained in the
Programming and Control Handbook furnished pursuant to EXHIBITS A1 and A2
for Spacecraft Flights #1 and #2, respectively; however, if any written
material furnished as part of said document is copyrighted, Buyer shall
have an unlimited right to make copies of such copyrighted material
and to use such copies for any Buyer purpose without payment of
additional compensation to Contractor to the extent that Contractor has
the authority to grant such right. In the event Contractor does not
have such right, Contractor will exert its best efforts to obtain such
rights for Buyer.
B. All data that are or may be delivered or disclosed by either party to the
other shall be subject to ARTICLE 25, DISCLOSURE AND USE OF INFORMATION BY
THE PARTIES.
C. Notwithstanding any other provision hereof, the ownership and title to
copyrights and in computer programs and its related documentation
delivered to Buyer by Contractor in accordance with this Contract shall
remain in Contractor or its licensor. Contractor shall grant to Buyer a
paid up non-exclusive, non-transferable license to use (including "to
duplicate" and "to adapt") solely for the Buyer Program, the copies of
computer programs and its related documentation specified in the
Contract required for the operation of articles deliverable under this
Contract.
11-1
<PAGE>
ARTICLE 12. PUBLIC RELEASE OF INFORMATION
DELETE the text of the ARTICLE in its entirety and replace it with:
During the term of this Contract, neither party, its affiliates,
subcontractors, employees, agents and consultants shall release items of
publicity of any kind, including, without limitation, news releases,
articles, brochures, advertisements, prepared speeches, company reports or
other information releases, related to the work performed hereunder,
including the denial or confirmation thereof, without the other party's prior
written consent which consent shall not be unreasonably withheld.
12 - 1
<PAGE>
ARTICLE 13. INDEMNIFICATION
DELETE the text of the ARTICLE in its entirety and replace it with:
A. Each party shall indemnify and hold the other party and its officers,
agents, servants, subsidiaries and employees, or any of them harmless
from any loss, damage, liability or expense, resulting from damage to all
property, private or public, and injuries, including death, to persons
caused by any act or omission of the indemnifying Party and/or the
indemnifying Party's agents or representatives at any tier or any of
them, and at its expense shall defend any suits or other proceedings
brought against the indemnified Party and/or its officers, agents,
servants, subsidiaries and employees, or any of them, on account thereof,
and shall pay all expenses and satisfy all judgments which may be
incurred by or rendered against them, in connection therewith. Either
Party shall have the right to settle any claim or litigation against
which it indemnities hereunder. This ARTICLE is subject to ARTICLE 8,
TITLE AND ASSUMPTION OF RISK.
B. Further and notwithstanding any other provision hereof, Buyer shall
indemnify and hold harmless Contractor, its officers, agents,
subsidiaries, and employees from any liabilities, losses and damages
including costs, expenses and damages incurred by Contractor in
connection with any and all claims after passage of title thereto to
Buyer which shall occur in accordance with ARTICLE 8, TITLE AND
ASSUMPTION OF RISK, except any such liabilities, losses and damages that
are caused by the gross negligence or willful misconduct of Contractor.
Buyer shall procure and maintain comprehensive general liability
insurance in an amount with insurers acceptable to contractor, which
insurance shall name me Contractor and the other indemnities hereunder as
insured. Buyer shall furnish Contractor with a waiver of its insurance
carriers' rights of subrogation and with insurance obligations under this
ARTICLE. Such insurance shall also provide that the insurers shall give
thirty (30) days prior notice to Contractor prior to the effective date
of cancellation or termination of such insurance.
C. Contractor shall not be liable to Buyer, customers of Buyer or their
customers for any damages resulting: (i) any loss or destruction of the
Spacecraft or (ii) failure of the Spacecraft or its subsystems to operate
satisfactorily. Buyer agrees to enter into suitable agreements with its
customers to effect the foregoing limitation of Contractor's liability.
Buyer also agrees to cause insurers to waive all right of subrogation
against Contractor and its employees. The foregoing shall not relieve
Contractor of its obligations under ARTICLE 21, WARRANTY, of correction
or replacement during the warranty period set forth in such ARTICLE.
13 - 1
<PAGE>
ARTICLE 14. PATENT INDEMNITY
DELETE the text of the ARTICLE in its entirety and replace it with:
A. Contractor shall defend Buyer from and against all claims, actions, suits
and proceedings alleging that the manufacture of any Spacecraft,
delivered under this Contract or the use, lease, sale or other
disposition of any such Spacecraft infringes any U.S. patent, and shall
pay any final judgment or settlement, provided Contractor is given prompt
written notice of any such claim, action, suit or proceeding and full
authority to resist, defend and settle such claim. Buyer shall provide at
Contractor's request such assistance and information as may be required
by Contractor.
B. If an injunction or other order is obtained against the manufacture, use,
lease, sale or other disposition of any Spacecraft hereunder, Contractor
agrees to use its best efforts either to procure rights so that such
Spacecraft and the manufacture, use, lease, sale or other disposition
thereof is no longer infringing or to modify or replace such Spacecraft
so that it is no longer subject to such order. In the event that such
injunction or order becomes permanent and that neither of the foregoing
alternatives is suitably accomplished and Contractor is unable to
reasonably perform its obligations hereunder, Buyer may proceed under
ARTICLE 17, TERMINATION FOR DEFAULT.
C. While neither Party presently contemplates Buyer's providing Contractor
with any designs, specifications or instructions, in the event Buyer does
provide any designs, specifications or instructions, Buyer shall
indemnify and hold Contractor harmless against any expense, judgment or
loss for infringement of any U.S. patents or trademarks which result from
Contractor's compliance with such designs, specifications or instructions.
D. No sales or lease hereunder shall convey any license by implication,
estoppel or otherwise, under any proprietary or patent rights of Buyer,
to practice any process with such product or part, or for the combination
of such product or part with any other product or part.
E. Contractor shall not be liable for any costs or expenses incurred without
Contractor's written authorization and in no event shall Contractor's
total liability to Buyer under, or as a result of compliance with, the
provisions of this ARTICLE exceed the aggregate Spacecraft price for all
Spacecraft under construction or delivered. Contractor shall in no event
be liable for loss of use or for incidental, indirect, or consequential
damages, whether in contract or in tort. The foregoing states the entire
Warranty by Contractor and the exclusive remedy of Buyer, with respect to
any alleged patent infringement by such product or part.
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ARTICLE 15. INDEMNIFICATION FOR TAXES
DELETE the text of the ARTICLE in its entirety and replace it with:
Contractor shall assume responsibility, and shall save Buyer, its officers,
agents, employees, servants, subsidiaries and assignees, or any of them,
harmless from taxes, which may be required under present federal, state, or
local laws and which become due by reason of the performance of work under
this Contract, and shall execute and deliver such other and further
documents, and comply with such requirements of said laws, as may be
necessary thereunder to confirm and effectuate this Contract, including
making of payment of any interest or penalties related to or arising from
such taxes. It is Contractor's belief that no sales, use, income or
personal property taxes will be incurred under this Contract as presently
structured. In the event that Buyer directs changes which result in the
assessment of sales, use, income or personal property taxes which would not
be payable absent such direction, Buyer shall be responsible for such taxes.
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ARTICLE 16. EXCUSABLE DELAYS
DELETE the text of the ARTICLE in its entirety and replace it with:
Without limiting any other provision specifying what constitutes an excusable
delay under this Contract, acts of God or of the public enemy; acts of the
Government in its sovereign or contractual capacity, including Government
priorities, allocations, regulations or orders affecting materials,
facilities, or completed Spacecraft (including changes in the launch
specifications in effect on the Date of this Amendment); fires; floods;
snowstorms; earthquakes; epidemics; quarantine restrictions; strikes; wars;
freight embargoes; or any similar events which cause failure or delay to
perform hereunder, and in every case are beyond the reasonable control and
without fault or negligence of Contractor or its subcontractors hereunder
shall constitute an excusable delay, if notice thereof is given to Buyer as
soon as possible but in no event later than within thirty (30) days after
such event shall have occurred. In the event of a delay resulting from any
of the above causes, the delivery requirements shall be extended for the
period of the excusable delay.
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ARTICLE 17. TERMINATION FOR DEFAULT
A. Buyer may, by written Notice of Default sent by registered letter to
Contractor, terminate the whole or any part of this Contract in any
one of the following circumstances:
1. If Contractor fails to make delivery of the supplies or to perform the
services within the time specified herein.
2. If Contractor fails to perform any of the other provisions of this
Contract or so fails to make progress as to endanger performance of
this Contract in accordance with its terms, and in either of these two
circumstances does not act to correct such failure within a period of
thirty (30) days (or such longer period as Buyer may authorize in
writing) after receipt of notice from Buyer specifying such failure.
B. To the extent the Contract is terminated under this ARTICLE, Buyer
shall use all reasonable efforts to utilize all work in process
hereunder in order to mitigate any costs sustained by Buyer as a
result of Contractor's default. Contractor will pay to Buyer all
costs reasonably incurred by Buyer in obtaining all of the work
described in ARTICLE 2, EQUIPMENT AND SERVICES TO BE FURNISHED AND
PRICES THEREFORE, paragraph A., according to the schedule set forth in
ARTICLE 3, DELIVERY SCHEDULE, paragraph B., provided that Buyer enters
into a Contract for such work within twelve (12) months of
Contractor's default.
C. If this Contract is terminated as provided in this ARTICLE,
Contractor shall:
1. be paid the Contract price for items delivered.
2. be paid the cost plus reasonable profit for work in process, materials
in stock and services for which Buyer takes delivery.
3. protect and preserve property in the possession of Contractor in which
Buyer has an interest.
D. The remedies set forth in this ARTICLE shall be the sole recourse to
which Buyer is entitled in the event of Contractor's default, and
Contractor shall have no liability for special, indirect, incidental
or consequential damages for lost profits or lost revenues.
E. Subsequent to final acceptance of each of the Spacecraft pursuant to
paragraph B, of ARTICLE 7, INSPECTION AND FINAL ACCEPTANCE, the
provisions of this ARTICLE shall not affect payment of In-Orbit
payments under the terms of ARTICLE 4, PAYMENT, paragraphs B.2, C.2
and D.2 and ARTICLE 2,
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EQUIPMENT AND SERVICES TO BE FURNISHED AND PRICES THEREFORE.
F. In the event Buyer fails to perform any obligation which it is
required to perform pursuant to this Contract, Contractor may, if
such failure is not corrected within thirty (30) days after written
notice of such failure is given by Contractor, stop work on this
Contract and consider this entire Contract to be terminated due to the
default of Buyer. Contractor shall be entitled to compensation as set
forth in ARTICLE 18, TERMINATION FOR CONVENIENCE. Further, Contractor
shall also be entitled to all of the Security set forth in ARTICLE 4,
PAYMENT, paragraph F.1.
G. If, after notice of termination of the Contractor's right to proceed
under the provisions of this ARTICLE, it is determined for any reason
that the Contractor was not in default under the provisions of this
ARTICLE, or that the delay was excusable under the provisions of
ARTICLE 16, EXCUSABLE DELAYS, the rights and obligations of the
Parties shall be the same as if notice of termination had been issued
pursuant to ARTICLE 18, TERMINATION FOR CONVENIENCE.
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ARTICLE 18. TERMINATION FOR CONVENIENCE
DELETE the text of the ARTICLE in its entirety and replace it with:
A. Buyer, by written notice to Contractor, may terminate this Contract in
whole, or in part, for any reason or for Buyer's Convenience at any time
prior to final acceptance of all the work. In the event of termination by
the Buyer of any Spacecraft subsequent to the start of such Spacecraft's
construction, it is agreed that the termination charges shall be
negotiated but shall not exceed the total of the Total Price for the
Spacecraft so terminated as set forth in ARTICLE 2, EQUIPMENT AND
SERVICES TO BE FURNISHED AND PRICES THEREFORE, hereof. The termination
charges shall include the total costs, both direct and indirect,
reasonably incurred by Contractor with respect to termination and
settlement with all vendors and subcontractors, plus a profit of fifteen
(15) percent.
B. Direct and indirect costs shall be determined in accordance with
Contractor's standard accounting practice and shall be verified, at
Buyer's expense, by an independent Certified Public Accounting firm to be
mutually agreed upon by the Buyer and Contractor.
C. Buyer shall pay Contractor the aforesaid termination charges within
thirty (30) days following the submission of an invoice. Upon payment of
Contractor's invoice, Contractor shall deliver to Buyer all termination
inventory which has not been credited by Contractor against the
termination charges set forth in paragraph D.2 below. In the event
Contractor's invoice is not paid within thirty (30) days following
submission, Buyer shall be in default pursuant to ARTICLE 17, TERMINATION
FOR DEFAULT, paragraph F.
D. Final payment shall be in the amount of the total termination charges,
less the following:
1. Amounts previously paid by Buyer to Contractor with respect to the
terminated work pursuant to ARTICLE 4. PAYMENT. hereof; and
2. Amounts representing the total of Contractor's costs with respect to
the terminated work of segregable items of inventory not desired by
Buyer and which Contractor elects to retain for its use.
In the event the amount set forth in this paragraph D. above exceeds the
termination charges defined in paragraph A. of this ARTICLE, Contractor
shall promptly refund such excess to Buyer.
E. In no event shall the total amount paid to Contractor pursuant to this
Agreement, including termination charges paid pursuant to this ARTICLE,
exceed the total price stated in ARTICLE 2, EQUIPMENT AND SERVICES TO BE
FURNISHED AND PRICES THEREFORE, hereof.
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F. The provisions of this ARTICLE shall not affect the payment of In-Orbit
payments under the terms of ARTICLE 4, PAYMENT, paragraphs B.2, C.2
and D.2, with respect to any spacecraft.
G. Notwithstanding anything herein, Buyer's termination of any spacecraft,
pursuant to this ARTICLE, shall constitute a termination of all
subsequent spacecraft.
H. Contractor agrees to use all reasonable efforts to assist Buyer in
disposing/selling of the work in process upon termination pursuant to
this ARTICLE.
I. On or after January 1, 1998, Contractor, by written notice to Buyer,
may notify Buyer of its intention to terminate this Contract one year
following the date of such notice with respect to all Spacecraft
Flights for which Buyer has not made (and does not make) the first
construction phase payment prior to the expiration of such one year
period. Such termination shall be effective as of the date one year
following the date of notice.
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ARTICLE 19. CHANGES
Buyer may, from time to time between the effective date and completion
of this Contract, by written change order issued by Buyer, make changes
within the general scope of this Contract in drawings, designs,
specifications, method of shipment or packing, quantities of items to be
furnished, place of delivery, postpone delivery, require additional
work, or direct the omission of work. If any such change causes an
increase or decrease in costs of, or the time required for, the
performance of this Contract, an equitable adjustment shall be made in
the price, or delivery schedule, or both, and any other affected
provision, and this Contract shall be modified in writing accordingly.
Any claim by Contractor for adjustment under this paragraph shall be
deemed waived unless asserted in writing within thirty (30) days from
the date of receipt by Contractor of the change order. The amount of
the claim shall be stated when it is submitted, or at a later date, not
to exceed sixty (60) days from the date for assertion of the claim,
which later date shall be requested at the time of such submission. All
changes and equitable adjustments pursuant to this ARTICLE shall be
subject to negotiation between and approval by both Parties prior to the
implementation of any such change. Except for Excusable Delays pursuant
to ARTICLE 16, EXCUSABLE DELAYS, none of the Contract dates will change
unless authorized by Buyer.
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ARTICLE 20. ASSIGNMENT
DELETE the text of this ARTICLE in its entirety and replace it with:
A. Neither party shall assign or delegate this Contract or any of its
rights, duties, or obligations thereunder to any other person without the
prior express written approval of the other party, such approval shall
not be unreasonably denied. Nothing contained in this ARTICLE shall
restrict Contractor from subcontracting work or procuring
parts/materials or services in the ordinary course of performance of
this Contract.
B. Buyer may assign this Contract, provided Buyer can reasonably
demonstrate that any such proposed assignee is in at least as good
financial condition as the Buyer at the time of assignment and that the
Security set forth in ARTICLE 4, PAYMENT, paragraph F. will not be
impaired or degraded.
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ARTICLE 21. WARRANTY
DELETE the text of the ARTICLE in its entirety and replace it with:
A. Contractor warrants that the goods or services furnshed hereunder shall be
free from any defects in material or workmanship.
B. Buyer shall have the right at any time during the period of this warranty
and irrespective of prior inspections or acceptance to reject any goods or
services not conforming to the above warranty and require that Contractor at
its expense, correct or replace as promptly as is reasonably possible, at
Contractor's option, such goods or services with conforming goods or
services.
C. For the Spacecraft, this warranty shall run for a period of one (1) year
from the date of final acceptance by Buyer or until Intentional Ignition,
whichever is sooner.
D. Except for the Spacecraft, this warranty shall run for a period of one (1)
year from the date of final acceptance by Buyer.
E. Contractor shall pass on or assign to Buyer all warranties on goods or
services given by suppliers or manufacturers other than Contractor to the
extent to which Contractor is permitted by the terms of its purchase
contracts with such suppliers or manufacturers.
F. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER STATUTORY,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. CONTRACTOR SHALL
HAVE NO OTHER LIABILITY, WHETHER IN CONTRACT, TORT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY OR OTHERWISE, INCLUDING,
WITHOUT LIMITATION, ANY LIABILITY FOR SPECIAL, INCIDENTAL, INDIRECT,
OR CONSEQUENTIAL DAMAGES, OR FOR BUYER'S COST OF EFFECTING COVER, OR
FOR FAILURE OR NONPERFORMANCE OF PROPERTY OR FOR LOST PROFIT OR REVENUES.
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ARTICLE 22. ARBITRATION
DELETE the text of the ARTICLE in its entirety and replace it with:
A. Any dispute or disagreement arising between the Parties in connection with
any interpretation of any provision of this Contract, or the compliance or
noncompliance therewith, or the validity or enforceability thereof, or any
other dispute under any ARTICLE hereof which is not settled to the mutual
satisfaction of the Parties within thirty (30) days (or such longer period
as may be mutually agreed upon) from the date that either party informs the
other, in writing, that such dispute or disagreement exists, shall be
settled by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, in effect on the date that such
notice is given.
B. Either party which demands arbitration of the controversy shall, in
writing, specify the matter to be submitted to arbitration and, at the
same time, choose and nominate a competent person to act as an
arbitrator; thereupon, within fifteen (15) days after receipt of such
written notice, the other party to this agreement shall, in writing,
choose and nominate a competent arbitrator. The two arbitrators so
chosen shall meet and endeavor to resolve the question in dispute, and,
if they agree upon such determination, the determination so made shall be
in writing and signed by both arbitrators. If such two arbitrators fail
to agree, they shall forthwith select a third arbitrator, giving written
notice to both Parties of the choice so made and fixing a time and place at
which both Parties may appear and be heard with respect to such
controversy. In case the two arbitrators shall fail to agree upon a
third arbitrator within a period of seven (7) days, or if for any other
reason there shall be a lapse in the naming of an arbitrator or
arbitrators, or in the filling of a vacancy, or in the event of failure
or refusal of any arbitrator or arbitrators to attend or fulfill his or
their duties, then upon application by either Party to the controversy,
an arbitrator or arbitrators shall be named by the American Arbitration
Association.
C. The arbitration award made shall be final and binding upon the Parties and
judgment may be entered thereon, upon the application of either Party by any
court having jurisdiction. The relief that may be awarded by the
arbitrators under any arbitration arising from this Contract may not exceed
actual compensatory damages. In no event may the arbitrators award punitive
damages.
D. Each party shall bear the cost of preparing and presenting its case, and the
cost of arbitration, including the fees and expenses of the arbitrator or
arbitrators, will be shared equally by the Parties unless the award
otherwise provides.
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ARTICLE 23. APPLICABLE LAW
DELETE the text of the ARTICLE in its entirety and replace it with:
A. This Contract shall be interpreted and enforced in accordance with the
laws of the State of New York.
B. This Contract is subject to all applicable laws and regulations and each
Party agrees to comply with all such applicable laws and regulations.
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ARTICLE 24. DISCLOSURE AND USE OF INFORMATION BY THE PARTIES
DELETE this ARTICLE in its entirety and replace it with a new ARTICLE 24 as
follows:
ARTICLE 24. ENTIRE AGREEMENT
This Contract constitutes the entire agreement between the Parties and
supersedes all prior understandings, commitments, and representations with
respect to the subject matter. It may not be amended, modified, or
terminated (other than as specifically provided in the ARTICLES hereof), and
none of its provisions may be waived, except by a writing signed by an
authorized representative of the Party against which the amendment,
modification, termination or waiver is sought to be enforced. The paragraph
headings herein shall not be considered in interpreting the text of this
Contract.
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<PAGE>
ARTICLE 25. DISCLOSURE AND USE OF INFORMATION BY THE PARTIES
A. If documents supplied by one party to the other are marked with a
proprietary legend, the receiving party shall take all necessary steps
to ensure that the documents and contents of such documents are not
disclosed to any person other than a person employed or engaged by the
receiving party, whether under subcontract or otherwise, for the
performance of this Contract. Any such document supplied hereunder
shall be returned to the disclosing party together with any copies
thereof promptly upon written request of the disclosing party, except
for one copy to be retained for legal purposes. Whenever the receiving
party makes copies of such proprietary documents for performance of
work covered by this Contract, the receiving party shall mark each such
copy as proprietary to the disclosing party.
B. Any disclosure to any person permitted under paragraph A. of this
ARTICLE shall be made under the same conditions that apply to the
initial disclosure and shall extend only so far as may be necessary for
the purposes of this Contract. Any such disclosure to a person other
than an employee of the receiving party shall be made pursuant to a
written confidential disclosure agreement or with prior written approval
of the disclosing party.
C. Except with the written consent of the disclosing party, the receiving
party shall not make use of any document mentioned in paragraph A. of
this ARTICLE other than for the purposes of this Contract.
D. The obligations and restrictions imposed by this ARTICLE shall not apply
to the following:
1. Information that is or becomes available to the public from a source
other than the receiving party, before or after the effective date of
this Contract.
2. Information that is authorized for release in writing by the disclosing
party.
3. Information that is lawfully obtained by the receiving party from a
third party.
4. Information that is known by the receiving party prior to such
disclosure.
5. Information that is, at any time, developed by the receiving party
completely independently of any disclosure or disclosures from the
disclosing party.
6. Information that is reasonably necessary to support a patent
application, the subject matter of which belongs to the receiving
party and which the receiving
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party discloses to an appropriate Patent Agent or Patent Office and/or
Court of any country in pursuance thereof.
E. Neither party shall be liable for inadvertent or accidental disclosure
of such information marked as proprietary if such disclosure occurs
despite both Parties exercising reasonable efforts to preserve and
safeguard such information.
F. Neither party shall be liable for the disclosure of any technical
information of the other party pursuant to any legally enforceable
requirement of the U.S. Government, or any agency or department
thereof.
G. No license, under any patents, is granted or implied by merely
conveying data or information under this Contract.
H. Any proprietary disclosure to either party, if made orally, or visually,
shall be identified at the time of disclosure and shall be promptly
confirmed in writing by the disclosing party and identified as
proprietary information, if the disclosing party wishes to keep such
information proprietary under this Contract.
I. The obligations of this ARTICLE shall be effective for a period of
three (3) years from the date of termination or expiration of this
Contract.
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ARTICLE 26. EFFECTIVE DATE
The term Effective Date of the Contract (EDC), as used in this Contract,
shall mean the 12th day of March 1990.
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<PAGE>
ARTICLE 27. LIMITATION OF LIABILITY
DELETE this ARTICLE in its entirety and replace it with a new ARTICLE 27 as
follows:
ARTICLE 27. PERMITS AND LICENSES
A. This Contract is subject to all applicable U.S. laws and regulations
relating to the export of Spacecraft, technical data and other equipment and
services being furnished pursuant to, or to be utilized in connection with,
this Contract (hereinafter in this ARTICLE referred to as "Licensed Items")
and to all applicable laws and regulations of the country or countries to
which Spacecraft, technical data, and other equipment and services are
exported or are sought to be exported.
B. Contractor shall use its best efforts to obtain such U.S. Government
approvals and licenses for export of the "Licensed Items." Buyer shall not
be liable for any additional cost associated with Contractor processing any
export license application for delivery of any Spacecraft.
C. If, within a reasonable time, the U.S. Government fails to grant a required
approval or license to Contractor to export the "Licensed Items" or revokes
or suspends such an approval or license subsequent to its grant, or grants
such a license or approval subject to conditions, this Contract shall,
nevertheless, remain in full force and effect. In the event of such U.S.
Government action or inaction, deliveries and acceptance of all items to be
furnished by Contractor shall be made at locations within the continental
U.S. as agreed upon between the Parties. Such U.S. Government action or
inaction shall not otherwise modify in any way the rights and obligations
of the Parties under this Contract except to relieve Contractor of any
obligations which cannot be performed without such an approval or license
and to make the price and delivery schedule subject to equitable adjustment
in accordance with ARTICLE 19, CHANGES, to reflect the obligations of which
Contractor is relieved.
D. If, within a reasonable time, any foreign country or countries to which such
"Licensed Items" are sought to be exported fails to grant a required
approval or license or suspends or revokes a required approval or license
subsequent to its grant, or grants a license subject to conditions,
or if any foreign country or countries to which such "Licensed Items" are
exported fails to grant an approval or licenses to utilize the "Licensed
Items" for the purpose for which exported, this Contract shall,
nevertheless, remain in full force and effect. In the event of such
foreign country or countries action or inaction, deliveries and acceptance
of all items to be furnished by Contractor shall be made at locations within
the continental U.S. as agreed upon between the Parties. Such foreign
government action or inaction shall not otherwise modify in any way the
rights and obligations of the Parties under this Contract except to relieve
Contractor of any obligations which cannot be performed without such an
approval or license and to make the price and delivery schedule subject
to equitable adjustment in accordance with ARTICLE 19, CHANGES, to
reflect the obligations of which Contractor is relieved.
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ARTICLE 28. SPACECRAFT TEST AND HANDLING EQUIPMENT
DELETE this ARTICLE in its entirety and replace it with a new ARTICLE 28 as
follows:
ARTICLE 28. LIMITATION OF LIABILITY
In no event shall Contractor be liable, whether in contract, tort or
otherwise, for special, incidental, indirect or consequential damages,
including, without limitation, failure or non-performance of property or
for lost profit or revenues.
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ARTICLE 29. SECONDARY MARKET
DELETE this ARTICLE in its entirety and replace it with a new ARTICLE 29 as
follows:
ARTICLE 29. SPACECRAFT TEST AND HANDLING EQUIPMENT
Contractor shall provide Spacecraft unique test and handling equipment
at the Launch Site, during the period between delivery of the Spacecraft
to the Launch Site, and final acceptance for use in connection with the
inspection and final acceptance of the Spacecraft pursuant to ARTICLE 7,
INSPECTION AND FINAL ACCEPTANCE. Title to such equipment shall remain
with Contractor.
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<PAGE>
ARTICLE 30. SPACECRAFT STORAGE
DELETE this ARTICLE in its entirety and replace it with:
ARTICLE 30. LIQUIDATED DAMAGES
A. Contractor acknowledges that its failure to deliver Spacecraft Flight #1
to the launch site on or before the delivery dates set forth in ARTICLE 3,
DELIVERY SCHEDULE, may cause serious damage to Buyer, the amount of
which may be difficult or impossible to prove. The amount of such
Liquidated Damages applicable to Spacecraft Flight #1 shall be $33,333
per day and shall not exceed a total of $5,000,000. Contractor and
Buyer agree that such liquidated damages, without further proof of same,
shall be deemed to represent the damages actually sustained by reason of
such delay.
B. The liquidated damages are intended to be compensatory and do not
constitute a penalty.
C. These amounts are firm, fixed and not subject to adjustment due to
changes in economic conditions. The Contractor's total liability for
late delivery of Spacecraft Flight #1 shall not exceed the specified
liquidated damages.
D. Any interval of excusable delays as defined in ARTICLE 16, EXCUSABLE
DELAYS, shall be excluded from the period for which liquidated damages
accrue. However, such time period shall continue at the conclusion of
the excluded interval as if no such interruption had occurred.
E. In the event Contractor is required to pay Buyer Liquidated Damages as
provided in this ARTICLE, the amount of any such payment shall be
applied against (reduce) the In-Orbit payments associated with the
applicable Spacecraft as set forth in ARTICLE 4, PAYMENT, paragraphs
B.2, C.2 and D.2.
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<PAGE>
ARTICLE 31. SPACECRAFT STORAGE
A. If as a result of a delay or failure to launch, through no fault of
Contractor, Buyer requests Contractor to store the Spacecraft within
sixty (60) days of completion of in-plant acceptance testing, the
Contractor shall store, at a site designated by Buyer and such site
shall be subject to the approval of Contractor, or if no site is
designated by Buyer, at a site designated by Contractor, one or more of
the Spacecraft delivered under this Contract. Title and risk of loss to
the Spacecraft to be stored shall pass to Buyer after the first six (6)
months of storage and storage shall commence on that date on a
month-to-month basis. The cost for the first six (6) months of storage
shall be the responsibility of Contractor. Should the Spacecraft remain
in storage beyond the six (6) month period, the provisions of ARTICLE 8
"TITLE AND ASSUMPTION OF RISK" shall apply, and the Buyer shall be
responsible for all storage costs (in excess of six (6) months). Buyer
shall be responsible, except in the event of negligence or willful
misconduct by the Contractor, for all transportation cost and insurance
to cover the risk and expense of loss or damage of the Spacecraft in
transit, (i) from Contractor's facility to storage, (ii) from its
facility to the storage site, (iii) from the storage site to the launch
site or (iv) if necessary, from the storage site to the refurbishment
site and then to the launch site.
B. Upon the request of Buyer, the Contractor shall provide periodic
testing, necessary equipment, and environmental maintenance suitable for
prevention of deterioration to the Spacecraft during the period of
storage. The cost for such service shall be subject to ARTICLE 19,
CHANGES, and shall be negotiated upon the request of such services by
Buyer. Any deterioration to a Spacecraft while in storage shall be at
Buyer's risk and shall be corrected at Buyer's expense, unless such
deterioration is to be corrected by the Contractor under ARTICLE 21,
WARRANTY.
C. If at any time after storage begins, Buyer elects to launch the stored
Spacecraft, the Contractor shall inspect, test and refurbish as
necessary such Spacecraft to a launch-ready condition and arrange for
transit to the launch site as directed by Buyer. The cost for such
services shall be subject to ARTICLE 19, CHANGES, and shall be
negotiated in good faith by the Contractor and Buyer at the time such
services are required. Notwithstanding anything in this ARTICLE,
Contractor will be responsible for transportation from Contractor's
facility or any other Contractor selected facility to the launch site as
set forth in ARTICLE 3, DELIVERY SCHEDULE, paragraph A., provided that
such transportation occurs within six (6) months of successful
completion of in-plant acceptance testing.
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D. In the event a Spacecraft is placed into storage as a result of
paragraph A. above, Contractor shall be entitled to commencement of the
In-Orbit payments associated with such Spacecraft in accordance with the
provisions of ARTICLE 4, PAYMENT. Notwithstanding the foregoing, in the
event that Contractor's late delivery of the Spacecraft is the sole
cause of the Spacecraft having to be placed into storage, the In-Orbit
payments shall commence at the earlier of sixty (60) days after
Spacecraft launch or twenty-four (24) months from the placement of the
Satellite into storage.
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<PAGE>
ARTICLE 32. ENTIRE AGREEMENT
DELETE this ARTICLE in its entirety and replace it with a new ARTICLE 32 as
follows:
ARTICLE 32. SPACECRAFT CONFIGURATION
Buyer and Contractor recognize that Contractor may elect to phase out
construction of Series 7000 configuration spacecraft prior to the
commencement of construction of the Series 7000 spacecraft identified as
Spacecraft Flights #2 and #3. Accordingly, and at Contractor's sole option,
upon Contractor's receipt of Buyer's initial construction payment for each
such Spacecraft, Contractor may elect to substitute a comparable Series A2100
spacecraft for each Series 7000 spacecraft. Contractor shall be entitled to
an equitable adjustment if Contractor substitutes a comparable Series A2100
spacecraft for each Series 7000 spacecraft.
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ARTICLE 33. OPTIONS
DELETE this ARTICLE in its entirety:
ARTICLE 33. RELEASE
Both Parties hereto agree to waive and release each other from any and all
claims or associated liabilities either Party may have against the other
Party arising prior to the execution of this Amendment.
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ARTICLE 34. SATELLITE CONTROL NETWORK
DELETE this ARTICLE in its entirety and replace it with a new ARTICLE 34 as
follows:
ARTICLE 34. INSURANCE
A. In order to protect against financial losses associated with the risks
between Launch and continuing for five (5) years thereafter, Buyer, as
the representative party insured, shall enter into an insurance contract,
naming the Contractor as a party insured and covering the In-Orbit
payments specified in ARTICLE 4, PAYMENT, paragraphs B.2, C.2 and D.2.
Buyer shall bear all responsibility for payment of insurance premiums
associated with the aforementioned insurance policy.
B. The details of the insurance Contract referred to in the preceding
paragraph shall be reasonably acceptable to Contractor.
C. When the Buyer applies for insurance regarding risks relating to the
launching of the Spacecraft, the Contractor shall furnish Buyer with such
information regarding the Spacecraft as is requested by the insurers.
D. When, after taking delivery of the Spacecraft, the Buyer applies for
insurance regarding risks of the Spacecraft's malfunctioning or
nonperformance during the life span specified for it in the Performance
Specifications, Contractor shall furnish the Buyer with such information
regarding the Spacecraft as is requested by the insurers.
E. When Buyer obtains such insurance, Buyer agrees to cause its insurer(s)
to waive all rights of subrogation against Contractor and its officer,
agents, servants, subsidiaries and employees.
34 - 1
<PAGE>
ARTICLE 35. LONG LEAD PARTS PROCUREMENT (LLPP)
DELETE this ARTICLE in its entirety.
35 - 1
<PAGE>
ARTICLE 36. LAUNCH VEHICLE SERVICES OPTION
DELETE this ARTICLE in its entirety.
Notwithstanding anything to the contrary in this AMENDMENT NUMBER EIGHT,
including the Exhibits attached hereto, the Buyer and Contractor agree that,
while Contractor is proceeding to include C-Band command receivers for
Spacecraft Flight #1, Buyer's right to direct Contractor to incorporate
K-Band command receivers for any satellite, including Spacecraft Flight #1,
pursuant to Article 4, paragraph K, or any other applicable Contract
provision, and any related rights of Buyer, and obligations of Contractor
with respect to command and control are not intended to and are not modified
hereby in any respect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 8 to
the Contract.
DIRECTSAT CORPORATION MARTIN MARIETTA CORPORATION
By: /s/ David K. Moskowitz By: /s/ Peter H. Wigget
----------------------- ----------------------
Director Concepts
Title: Senior Vice President Title: Astrospace Commercial
----------------------- ----------------------
36 - 1
<PAGE>
AMENDMENT NO. 10 TO CONTRACT
BETWEEN
DIRECTSAT CORPORATION
(HEREINAFTER "BUYER")
and
MARTIN MARIETTA CORPORATION
(HEREINAFTER "CONTRACTOR")
This Amendment is effective as of the 18th day of July 1996.
WITNESS THAT:
WHEREAS, DirectSat Corporation ("Buyer") and Martin Marietta Corporation
("Contractor"), mutually agree to amend the subject Contract to:
- - revise ARTICLE 4 PAYMENT;
- - revise ARTICLE 4A SPACECRAFT IN-ORBIT PAYMENT SECURITY;
- - revise ARTICLE 20 ASSIGNMENT;
- - revise the signature block.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Buyer and Contractor agree to modify the Contract as
follows:
<PAGE>
ARTICLE 4 PAYMENT
Delete paragraph F-5 in its entirety and replace with the following:
F.5 The In-Orbit payments, including the interest thereon, will be secured
by a written corporate guarantee provided by EchoStar Communications
Corporation (ECC). The security will be provided no later than thirty
(30) days after the signing of this amendment.
ARTICLE 4A. SPACECRAFT IN-ORBIT PAYMENT SECURITY
A.1 Delete in its entirety.
A.3 Add subparagraphs a and b as follows:
a. Effective December 31, 1996, and on each June 30th and December 31st
thereafter (each a "Review Date"), provided that Buyer is not delinquent
in any of its In-Orbit payments, Contractor shall perform the following
calculation in order to determine the number of shares of preferred
stock (if any), which shall be released free and clear from the Escrow.
The formula shall be:
"A - ((B x 1.5)/C) = D",
Where:
"A" is equal to the number of preferred shares in the Escrow on the
applicable Review Date;
"B" is equal to the total outstanding In-Orbit payments, plus interest, due
to Contractor on the applicable Review Date for the First Two Flights,
less $30 million;
"C" is equal to the average of the closing price of a share of ECC Class A
Common Stock as quoted on the NASDAQ (or such other national securities
exchange on which ECC's Class A Common Stock is traded on the applicable
Review Date) for the thirty business day period immediately preceding
the applicable Review Date; and
"D" is equal to the number of preferred shares to be released from Escrow.
b. In the event that "D" is equal to or less than zero, no shares shall be
returned. In the event that "D" is greater than zero, Contractor shall
cause the appropriate number of preferred shares to be released from
escrow and returned within thirty (30) business days of the applicable
Review Date.
<PAGE>
ARTICLE 20 ASSIGNMENT
Add new paragraph C as follows:
C. Buyer consents to the assignment of this contract from Martin Marietta
Corporation to Lockheed Martin Corporation effective as of January 29,
1996.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Contract.
DIRECTSAT CORPORATION MARTIN MARIETTA CORPORATION
By: /s/ David K. Moskowitz By: /s/ Peter H. Wiggett
----------------------- ----------------------
Director Contracts
Title: Senior Vice President Title: Astrospace Commercial
----------------------- ----------------------
Agreed as to the guarantee.
ECHOSTAR COMMUNICATIONS
CORPORATION
By: /s/ David K. Moskowitz
-----------------------
Title: Senior Vice President
-----------------------
<PAGE>
SATELLITE CONTRACT
between
LOCKHEED MARTIN CORPORATION
and
ECHOSTAR DBS CORPORATION
JULY 18, 1996
<PAGE>
THIS CONTRACT dated as of the 18th day of July 1996, made between the
Lockheed Martin Corporation (hereinafter referred to as "Contractor"), a
corporation organized under the laws of the State of Maryland, having its
principle place of business in East Windsor, New Jersey, and EchoStar DBS
Corporation (hereinafter referred to as "Buyer" or "E-DBS"), a corporation
organized under the laws of the State of Colorado, having its principle place
of business at 90 Inverness Circle East, Englewood, Colorado.
WHEREAS, Buyer desires to purchase and Contractor desires to provide Direct
Broadcasting Satellites and services as hereinafter specified, and Buyer and
Contractor (hereinafter referred to as "Parties") desire to define the terms
and conditions under which the same shall be furnished;
NOW THEREFORE, the Parties hereto, in consideration of the mutual covenants
herein expressed, agree as follows:
Preamble
<PAGE>
TABLE OF CONTENTS
ARTICLE
1 Scope of Work
2 Equipment and Services to be Furnished and Prices Therefore
3 Delivery Schedule
4 Payment
5 Definitions
6 (Reserved)
7 Inspection and Final Acceptance
8 Title and Assumption of Risk
9 Access to Work
10 Progress Meetings, Presentations, and Documentation Deliverables
11 Rights in Data
12 Public Release of Information
13 Indemnification
14 Patent Indemnity
15 Indemnification for Taxes
16 Excusable Delays
17 Termination for Default
18 Termination for Convenience
19 Changes
20 Assignment
21 Warranty
22 Arbitration
23 Applicable Law
24 Entire Agreement
25 Disclosure and Use of Information by the Parties
26 Effective Date
27 Permits and Licenses
28 Limitation of Liability
29 Spacecraft Test and Handling Equipment
30 Liquidated Damages
31 Spacecraft Storage
32 Reserved
33 Insurance
i
<PAGE>
ARTICLE 1. SCOPE OF WORK
A. The Contractor shall provide the necessary personnel, material,
services, and facilities to perform work in accordance with the
provisions of this Contract, including the EXHIBITS listed below, which
are attached hereto and made a part hereof (the preliminary design
effort for Spacecraft Flight #2 is included as part of the services
provided by Contractor for Spacecraft Flight #1), and to make delivery
to Buyer as set forth in ARTICLE 2 hereof in accordance with the
delivery schedule specified in ARTICLE 3 hereof:
- EXHIBIT A1: E-DBS Statement of Work (SOW) WS-20055200 REV A
- EXHIBIT A2: E-DBS Statement of Work (SOW) WS-20055200 REV A
- EXHIBIT B1: E-DBS Spacecraft Performance Specification PS-20055200 REV A
- EXHIBIT B2: E-DBS Spacecraft Performance Specification PS-20055200 REV A
- EXHIBIT C: E-DBS Comprehensive Test Plan PN-CTP20055200
- EXHIBIT D: E-DBS Product Assurance Program Plan PA-20055200
In the event of any inconsistency among or between the parts of this
Contract set forth above, such inconsistency shall be resolved by giving
precedence in the order of the parts as set forth below:
1. Terms & Conditions, Satellite Contract Dated July 14, 1996
2. E-DBS Statement of Work, EXHIBITS Al and A2
3. E-DBS Spacecraft Performance Specification, EXHIBITS B1 and B2
4. E-DBS Comprehensive Test Plan, EXHIBIT C
5. E-DBS Product Assurance Program Plan, EXHIBIT D
B. While this Contract provides that both Spacecraft Flight #1 and
Spacecraft Flight #2 shall be DBS satellites, the parties agree that
subject to the provisions of ARTICLE 19, CHANGES, Buyer shall be
permitted to specify a payload other than DBS.
C. While this Contract provides that both Spacecraft Flight #1 and
Spacecraft Flight #2 shall be base lined at 120 watts of power per
transponder in the non-boost mode, Contractor shall, as a goal, attempt
to increase the power per non-boosted transponder to 130 watts.
D. No later than November 1, 1996 with respect to Spacecraft Flight #1., and
no later than five months following the first construction phase payment
for Spacecraft Flight #2, Buyer shall advise Contractor of the specific
orbital location and business plan for the transponders on each
satellite, respectively, and Contractor agrees that the Spacecraft will be
optimized (wave guide routing only) for that orbital location and business
plan.
E. The following modifications to the Statement of Work shall promptly be
incorporated into the Statement of Work.
1 - 1
<PAGE>
1. General Changes
a. Specific references to spacecraft, orbital slots, facility locations,
launch vehicles, launch site locations, frequency tables, etc., shall
be changed to the appropriate designation.
b. References to the Astro Space East Windsor facility/plant shall be
changed to Lockheed Martin facility(ies).
2. Section 3.4: Buyer-Furnished Items for the Spacecraft (sheet 18)
a. Paragraph 6 shall be deleted (requirement to provide communications
and data lines).
b. Paragraph 9: Launch site security for a non-US launch.
Delete paragraph 9 in its entirety.
c. Add paragraph 10:
10. The Buyer shall provide the orbital slot and cities table (with
city priority identified) within 20 days following launch of
DirectSat Corporation's first DBS satellite, but in no event later
than October 1, 1996. The Buyer shall provide business plan
requirements relative to channelization/switchability within 105
days ASOC. EIRP & G/Ts from antenna optimization shall be
finalized at CDR.
3. Section 11.0: Launch Vehicle and Site Interfaces (sheet 39)
a. Delete 'x-ray special test facilities' from paragraph 3-g (sheet 40).
4. Section 12.0: Launch Operations and Support Services (sheet 41)
a. Change the third paragraph, letter j:
From: provide necessary test equipment, materials, pressurants, etc.,...
To: provide necessary test equipment. materials, pressurants,
propellants, etc.,...
5. Section 13.0: Transfer Orbit Mission Operation (sheet 41)
a. Change paragraph 13.1-d:
From: ... with all deployments completed.
To: ... with all deployments completed, and equipped with the necessary
hardware and software to perform paragraph 13.1-f below.
b. Change paragraph 13.1-f:
From: ... acquisition by the Contractor's SOC and TT&C site.
To: ... acquisition by the Contractor's SOC and TT&C site through all
spacecraft and payload testing.
F. The following modifications to the Performance Specification shall
promptly be incorporated into the Performance Specification.
1 - 2
<PAGE>
1. General Changes
a. Specific references to spacecraft, orbital slots, facility locations,
launch vehicles, launch site locations, frequency tables, etc.,
shall be changed to the appropriate designation.
b. References to the Astro Space East Windsor facility/plant shall be
changed to Lockheed Martin facility(ies).
2. Add new section titled: 4.2.1 TWTA Pairing Configuration (sheet 14)
a. Section 4.2. 1: TWTA Pairing Configuration
The TWTA channel pairing configuration for the north and south
transponder panels, for operation during power boost mode, shall be as
follows:
North Channels South Channels
1 & 2 3 & 4
S1 & S2 S3 & S4
5 & 6 7 & 8
9 & 10 11 & 12
S5 & S6 S7 & S8
13 & 14 15 & 16
17 & 26 19 & 28
S9 & S10 Sll & S12
21 & 30 23 & 32
25 & 18 27 & 20
29 & 22 31 & 24
3. Section 5.1: General (sheet 33)
a. Change the first paragraph, fourth sentence:
From: As a minimum 2 K-band beacon transmitters and 2 K-band
command receivers shall be provided.
To: As a minimum 2 K-band beacon transmitters and 3 K-band
command receivers shall be provided.
4. Section 5.2.2: Command Uplink Frequency (sheet 33)
a. Delete the following: The command transmission bandwidth shall be no
more than 1.5MHz. The command receiver 3dB bandwidth shall be at
least 1.5MHz.
5. Section 5.2.3: Command Antenna (sheet 33)
a. Change the first sentence:
1 - 3
<PAGE>
From: The command system shall use 2 antennas to feed its command
receivers.
To: The command system shall use a minimum of 2 antennas to feed its
command receivers.
6. Section 8.4. 1: Battery (sheet 45)
a. Change the first 3 sentences:
From: The energy storage device for supplying power to the satellite
during eclipse shall be Ni-H2 batteries. A minimum of two batteries
of approximately equal capacity is preferred. A single battery
maybe used if it can be shown that there are no single point
failures (SPFS) including open circuits.
To: The energy storage device for supplying power to the satellite
during eclipse shall be a minimum of two (2) Ni-H2 batteries of
approximately equal capacity.
7. Section 9.3. Subsystem Design Requirements (sheet 48)
a. Change paragraph 5, the last sentence:
From: If optical solar reflector surfaces are used for thermal
radiators, the temperature predictions shall account for an EOL
value in solar absorptance (alpha) equal to or greater than 0.23 at
the end of 15 years.
To: For optical solar reflector surfaces used as thermal radiators, the
temperature predictions shall account for an EOL value in solar
absorptance (alpha) equal to or greater than 0.23 at the end of 15
years.
1 - 4
<PAGE>
ARTICLE 2. EQUIPMENT AND SERVICES TO BE FURNISHED AND PRICES
THEREFORE
A. Upon the full, satisfactory and timely completion and delivery, as
required, of each item of work specified below, and acceptance by Buyer
thereof in accordance with the requirements of this Contract,
Contractor shall be entitled to payment by Buyer of the applicable
fixed price specified below, as such price may be adjusted in
accordance with the provisions of the Contract, except that the portion
related to the In-Orbit payments, as defined in ARTICLE 4, PAYMENT,
paragraph B.2 and C.2, shall be paid as set forth in ARTICLE 4. The
prices stated below, which are inclusive of In-Orbit payments provided
in ARTICLE 4, PAYMENT, paragraphs B.2 and C.2, include all
transportation and related charges for delivery of Spacecraft and
associated equipment to destination. Except as otherwise provided for
herein, the prices stated below include all applicable taxes and all
copyright and patent rights necessary to effectuate this Contract.
<TABLE>
Item Quantity Description Total Price
- ---- -------- ----------- -----------
<S> <C> <C> <C>
1. 1 Spacecraft Flight #1 as defined $80,500,000 (i)
in EXHIBIT B1
2. 1 Option Spacecraft Flight #2 as defined in $78,000,000 (ii), (iii)
EXHIBIT B2
3. 1 Lot Launch and mission support services for NSP
Spacecraft Flight #1
4. 1 Lot Option Launch and mission support NSP
services for Spacecraft Flight #2
5. 1 Lot Optional Extra Set of Transmit and $1,200,000
Receive Antennas
6. 1 Lot Optional Primary Site Satellite Control $3,615,000
Facility ("SCF") Equipment, Software,
Setup and Training as provided in the
proposal enclosed with transmittal letter
'96-Echostar-Con-062', dated May 22,
1996.
7. 1 Lot Optional Primary Site Command Ranging $843,966
and Telemetry Processing Equipment as
provided in CR&T Module/Static
Simulator Basis for Cost Estimate, 'gprd-
prop-010', dated July 16, 1996.
--------------
TOTAL PRICE $164,158,966
--------------
</TABLE>
(i) Total Price for Spacecraft Flight #1, including without limitation
the cost of delivery of Spacecraft Flight #1 to Baikonur,
Kazakhstan.
(ii) Total Price for Option Spacecraft Flight #2, including without
limitation the cost of delivery of Spacecraft Flight #2 per ARTICLE
3A.
(iii) The above price for Option Spacecraft Flight #2 is effective and
valid through December 31, 1996. The firm price for Spacecraft
Flight #2 will
2-1
<PAGE>
be the above price plus an increase of four percent (4%) per
year adjusted monthly from December 31, 1996 through June 30.
1997 if not exercised by December 31, 1996. Contractor
reserves the right to re-quote the price and schedule for
Spacecraft Flight #2 if the option has not been exercised and
the first construction phase payment is not received by
Contractor by June 30, 1997. The Payment Plan applicable to
Spacecraft Flight #2 in ARTICLE 4, PAYMENT will be modified
accordingly.
B. The Spacecraft will include some imported goods. In the event the
Spacecraft and its included imported goods are not exported in a timely
manner due to the actions or inactions of Buyer, any duties and
penalties arising therefrom will be the responsibility of Buyer.
Contractor shall pay such above duties and penalties as may be required
by law to be so paid and Buyer agrees to reimburse the Contractor for
payments so made.
C. Prices specified above do not include any costs for security services
for Spacecraft located at the designated launch site. Contractor agrees
to use its reasonable efforts to get a written quote from a security
services provider, promptly following execution of this Contract and
valid through early 1998, for the launch of Spacecraft Flight #1 launch
from Baikonur, Kazakhstan, and that the cost to Buyer for those services
shall be $375,000, plus actual out of pocket travel and living costs
(airfares, etc.), without markup. The above price assumes an eight week
launch campaign. If the actual campaign is shorter or longer, an
appropriate adjustment to price shall apply. Buyer shall also have the
right to source such security services independently until six months
prior to the anticipated shipment date for the Spacecraft.
D. Contractor shall be entitled to an early delivery incentive Payment for
each day Spacecraft Flight #1 is delivered to the launch site prior to
the required delivery schedule, i.e., February 15, 1998, by an amount
of $50,000 per day, up to a maximum of $5,000,000. In the event
Contractor is entitled to an early delivery incentive Payment in
accordance with this paragraph, the amount of any such incentive shall
be added to the In-Orbit payments set forth in ARTICLE 4, PAYMENT,
paragraph B.2. Notwithstanding the above, Contractor shall not be
entitled to an early delivery incentive Payment in the event Contractor
is the cause of a launch delay.
E. OPTION FOR EXTRA RECEIVE AND TRANSMIT ANTENNAS.
Buyer shall have the option, exercisable in its discretion by providing
written notice to Contractor, at any time until ten months prior to the
commencement of Single Line Flow (or later if Buyer agrees to an
equitable adjustment, or to the deletion of testing as necessary in
order to maintain schedule), to direct Contractor to commence
procurement of an extra set of transmit and receive antennas. If Buyer
exercises this option, Contractor shall commence each phase below only
following receipt of written notice from Buyer directing Contractor to
commence that phase (Buyer recognizes that if it fails to provide
written notice prior to the date shown in the schedule for each phase,
but subsequently elects to continue the extra
2-2
<PAGE>
antenna procurement effort, Contractor shall be entitled to an equitable
adjustment, unless Buyer agrees to the deletion of testing as necessary
in order to maintain schedule). Buyer shall make payment to Contractor
as shown in the schedule for each phase. If Buyer does not direct that
the procurement effort continue to the next phase, no further payments
shall be due. If the procurement results in completed procurement and
test of the extra set of antennas, then the total amount paid by Buyer
shall total $1.2 million, in which event Buyer may direct that either
set of antennas be placed on the Spacecraft.
MILESTONE AMOUNT DUE CUMULATIVE MONTHS AFTER
-------- ---------- ---------- OPTION
EXERCISE
--------
Turn on Material $440,000 $440,000 0
Procurement
Composite Material No Additional Charge
Received (NAC)
East Mold Complete NAC
West Mold Complete $100,000 $540,000 3
East Reflector Complete $ 60,000 $600,000 4
West Reflector Complete $100,000 $700,000 5
Ku Spot Assembly $100,000 $800,000 6
Complete
Start Antenna I&T $100,000 $900,000 7
Final Assembly Complete $100,000 $1,000,000 8
Complete Environmental $100,000 $1,100,000 9
& FAT
Deliver to Spacecraft $100,000 $1,200,000 10
F. OPTIONAL SATELLITE CONTROL FACILITY OR COMMAND RANGING AND TELEMETRY
PROCESSING EQUIPMENT.
1. Buyer shall have the option. exercisable at its discretion by
providing written notice to Contractor, to purchase the SCF and the
additional items set forth in the May 22, 1996 letter "96-EchoStar Con
062"at the prices and delivery schedules set forth therein.
2. Buyer shall have the option, exercisable at its discretion by
providing written notice to Contractor, to purchase the CRT Module and
the additional items set forth in the July 16, 1996 letter
"gprd-prop-010" at the prices and delivery schedules set forth therein.
The three day training course will be conducted at the primary
ground station site. Additionally a reasonable amount of primary
site and secondary site on-site integration and test support will be
provided. The term "EDC" as discussed in the letter shall mean "months
after option exercise". Thus, the schedule "EDC + 6 months" will equal
the date of the option exercise plus six months.
2-3
<PAGE>
ARTICLE 3. DELIVERY SCHEDULE
A. Delivery of Spacecraft Flight #1 shall be made at Contractor's expense
to Baikonur, Kazakhstan. Delivery of Spacecraft Flight #2 shall be
made at Contractor's expense to any of the following destinations:
Kennedy Space Center, Florida, USA; Kourou, French Guiana; Xichang,
China; or, Baikonur, Kazakhstan. The term "Destination" as used
herein shall refer to the designated launch site set forth herein for
the applicable spacecraft. Buyer shall advise Contractor of the
destination of Spacecraft Flight #2 within six (6) months of the first
construction phase payment for Spacecraft Flight #2. In the event
that Buyer changes the designated launch site for Spacecraft Flight #1
or Spacecraft Flight #2, there shall be an equitable adjustment to
both price and schedule for the Spacecraft with respect to which the
launch site is changed.
B. Delivery shall be as indicated below:
<TABLE>
ITEM DESCRIPTION DELIVERY DATE
- ---- ----------- -------------
<S> <C> <C>
1. Spacecraft Flight #1. as defined in EXHIBIT B1. 02/15/1998
2. Option Spacecraft Flight #2, as defined in EXHIBIT 09/30/1998
B2 (Assumes the option is exercised between October
1st and December 31, 1996).
3. Launch and Mission Operation Support Services Commencing on Delivery to
Spacecraft Flight #1 Launch Site and Continuing
Through On Orbit Check Out.
4. Launch and Mission Operation Support Services Commencing on Delivery to
Spacecraft Flight #2 (dependent upon Launch Site and Continuing
exercise of Item 2 above). Through On Orbit Check Out.
5. Extra Set of Transmit and Receive Antennas. As Provided in ARTICLE 2,
paragraph E.
6. Optional Satellite Control Facility. As Provided in ARTICLE 2,
paragraph F.
7. Optional Command Ranging and Telemetry As Provided in ARTICLE 2,
Processing Equipment. paragraph F.
</TABLE>
C. OPTION SPACECRAFT FLIGHT #2 EXERCISE AND DELIVERY.
Buyer shall have the option. exercisable in its discretion by
providing written notice to Contractor, to purchase Spacecraft
Flight #2. In the event that the option to purchase Spacecraft
Flight #2 is exercised prior to October 1, 1996, Contractor shall
be required to deliver the Spacecraft 24 months following the date
of the option exercise. If the option is exercised between October
1st and December 31, 1996, Contractor shall be required to
deliver the Spacecraft September 30, 1998. If the option is
exercised later than December 31, 1996, the Contractor shall be
entitled to a month for month delay in the delivery schedule.
3-1
<PAGE>
ARTICLE 4. PAYMENT
A. I. The total price stipulated in ARTICLE 2, EQUIPMENT AND SERVICES
TO BE FURNISHED AND PRICES THEREFOR, shall be paid by Buyer to
Contractor in accordance with the payment arrangements specified in
the following Payment Plans. The amounts specified in the Payment
Plans shall in each case be paid by Buyer to Contractor on the
dates indicated. Contractor shall submit an invoice for each
payment approximately thirty (30) days in advance of the payment
due date. Payment to Contractor shall be made by either cable
transfer to Citibank N.A. ABA# 021000089, Lockheed Martin, Valley
Forge Collection Center A/C #40678043, or by check payable to
Lockheed Martin Corporation sent by registered mail to the address
and attention of the Lockheed Martin representative designated in
ARTICLE 10, PROGRESS MEETING, PRESENTATIONS AND DOCUMENTATION
DELIVERABLES, paragraph C. In the event Buyer elects to pay by
other than certified check, Buyer's check must be received by
Contractor at least seven (7) working days before the required
payment date to insure that the funds are available to Contractor
on the payment date.
4-1
<PAGE>
B. SPACECRAFT FLIGHT #1 PAYMENT PLAN
1. The construction payments applicable to Spacecraft Flight #1 shall
be made as follows:
PAYMENT PLAN
- ------------------------------------------------------------
PAYMENT DUE DATE AMOUNT $ CUMULATIVE
NUMBER AMOUNT $
- ------------------------------------------------------------
1 July 31, 1996 $ 500,000 $ 500,000
2 September 30, 1996 $17,000,000 $17,500,000
3 October 31, 1996 $ 3,500,000 $21,000,000
4 November 30, 1996 $ 3,500,000 $24,500,000
5 December 31, 1996 $ 3,000,000 $27,500,000
6 January 31, 1997 $ 3,000,000 $30,500,000
7 February 28, 1997 $ 3,000,000 $33,500,000
8 March 31, 1997 $ 2,500,000 $36,000,000
9 April 30, 1997 $ 2,500,000 $38,500,000
10 May 31, 1997 $ 2,500,000 $41,000,000
11 June 30, 1997 $ 2,500,000 $43,500,000
12 July 31, 1997 $ 2,500,000 $46,000,000
13 August 31, 1997 $ 2,500,000 $48,500,000
14 September 30, 1997 $ 2,500,000 $51,000,000
15 October 31, 1997 $ 2,500,000 $53,500,000
16 November 30, 1997 $ 3,000,000 $56,500,000
17 December 31, 1997 $ 3,000,000 $59,500,000
18 January 31, 1998 $ 3,000,000 $62,500,000
19 February 15, 1998 $ 3,000,000 $65,500,000
- ------------------------------------------------------------
2. In addition to the construction payments required above, Buyer
shall pay Spacecraft In-Orbit payments in the amount of
$15,000,000. The Spacecraft In-Orbit payments shall be made in
accordance with the requirements set forth in paragraph D. of
this ARTICLE.
C. OPTION SPACECRAFT FLIGHT #2 PAYMENT PLAN
1. The construction payments applicable to Spacecraft Flight #2 shall
be made at a rate of $2,750,000 per month for twenty-four (24)
months to be paid on the last day of the month commencing on
exercise of the option and continuing monthly thereafter. In the
event that the option is exercised subsequent to October, 1996,
then the payment plan shall be adjusted appropriately to take into
account the shortened construction schedule.
4-2
<PAGE>
2. In addition to the construction payments required above, Buyer
shall pay Spacecraft In-Orbit payments in the amount of
$12,000,000. The Spacecraft In-Orbit payments shall be made in
accordance with the requirements set forth in paragraph D. of this
ARTICLE.
D. SPACECRAFT IN-ORBIT PAYMENTS
1. The Spacecraft In-Orbit payments for Spacecraft Flights #1 and #2
shall be paid over a period of five (5) years from launch.
2. The In-Orbit payments shall be paid on an equal monthly basis
(principal and interest) until full payment has been received by
Contractor.
3. For Spacecraft Flights #1 and #2, the interest rate applicable to
the monthly In-Orbit payments shall fall between 7.75% and 8.25%
per annum and shall be fixed 90 days prior to the scheduled launch
and shall be calculated using the prime rate published in the WALL
STREET JOURNAL on such date as follows:
a. if the prime rate falls between 7.75% and 8.25%, then the
In-Orbit payments shall accrue interest at the prime rate.
b. if the prime rate is greater than 8.25%, then the In-Orbit
payments shall accrue interest at 8.25% per annum.
C. if the prime rate is less than 7.75%, then the In-Orbit
payments shall accrue interest at 7.75% per annum.
4. The In-Orbit payments, including the interest thereon,
will be secured by a written corporate guarantee provided
by EchoStar Communications Corporation (ECC). The
security will be provided to the Contractor no later than
ninety (90) days prior to the scheduled launch date.
5. The Parties are willing to enter into good faith negotiations to
establish an alternative to the schedule set out in D.1. above
for the Spacecraft In-Orbit payments.
E. Failure to make any payments required hereunder, shall constitute a
default by Buyer subject to the provisions of ARTICLE 17, TERMINATION
FOR DEFAULT, paragraph F.
F. 1. For the Spacecraft delivered by Contractor which, following Launch,
does not achieve Successful Injection, as defined in ARTICLE 5,
DEFINITIONS, Contractor shall be entitled to receive for:
4-3
<PAGE>
Spacecraft Flight #1: $15,000,000
Spacecraft Flight #2: $12,000,000
2. In the event Buyer is obligated to make payment to
Contractor in accordance with paragraph G.1 above,
payment shall be due within ten (10) days from Buyer's
receipt of the insurance proceeds required by ARTICLE
34, INSURANCE.
3. The above amounts shall be adjusted to reflect any
changes in the In-Orbit payment amounts set forth in
paragraphs B.2 and C.2 of this ARTICLE.
G. In the event the Spacecraft is not launched within one
hundred eighty (180) days after delivery and final
acceptance, in accordance with ARTICLE 7, INSPECTION AND
FINAL ACCEPTANCE, Buyer shall commence making In-Orbit
payments in accordance with the above as though launch of
such Spacecraft had occurred.
H. 1. The Payment Plan set forth in paragraphs B. and C. of
this ARTICLE are based on Contractor's successful and
timely achievement of each milestone set forth below. In
the event that Contractor does not achieve any Milestone
on or before the date set forth below, or provide a
work-around acceptable to Buyer, Buyer may suspend
construction payments until such time as the Milestones
are completed. Within five (5) days following Contractor's
completion of any such Milestone, Buyer shall pay
Contractor for all payments that were required to have
been made but were not as a result of the suspension.
4-4
<PAGE>
MILESTONE TABLE FOR SPACECRAFT FLIGHT #1
----------------------------------------
MILESTONE DESCRIPTION DATE MONTHS AFTER FCP*
- ------------------------------------------------------------------------------
1 First Construction Payment (FCP) 07/31/96 0
2 Long lead parts/subcontracts ordered** 10/31/96 3
3 Release reflector surface design 12/31/96 5
4 Delta CDR complete 12/31/96 5
5 Begin bus/propulsion subsystem 02/01/97 6
6 Begin board/box manufacturing 03/01/97 7
7 Begin antenna testing 04/01/97 8
8 Begin system module testing 06/01/97 10
9 Antenna testing complete 07/31/97 12
10 Board/box manufacturing complete 09/30/97 14
11 System module testing complete 09/30/97 14
12 Bus/propulsion subsystem complete 09/30/97 14
13 TWTA's received in I&T 09/30/97 14
14 Batteries received in I&T 09/30/97 14
15 Start single line flow 10/30/97 15
16 T/V testing complete 11/30/97 16
17 Vib testing complete 12/31/97 17
18 Range testing complete 01/31/98 18
19 Preshipment review complete 01/31/98 18
20 Deliver Spacecraft Flight #1 02/15/98 18.5
- ------------------------------------------------------------------------------
MILESTONE TABLE FOR SPACECRAFT FLIGHT #2
----------------------------------------
MILESTONE DESCRIPTION MONTHS AFTER FCP*
-----------------------------------------------------------------
1 First construction payment (FCP) 0
2 Long lead parts/subcontracts ordered** 3
3 Release reflector surface design 5
4 Delta CDR complete 5
5 Begin bus/propulsion subsystem 10
6 Begin board/box manufacturing 11
7 Begin antenna testing 12
8 Begin system module testing 14
9 Antenna testing complete 16
10 Board/box manufacturing complete 18
11 System module testing complete 18
12 Bus/propulsion subsystem complete 18
13 TWTA's received in I&T 18
14 Batteries received in I&T 18
15 Start single line flow 19
16 T/V testing complete 20
17 Vib testing complete 21
18 Range testing complete 22
19 Preshipment review complete 22
20 Deliver Spacecraft Flight #2 23
-----------------------------------------------------------------
*Work arounds that do not affect schedule will satisfy the milestone event.
4-5
<PAGE>
** Long Lead Parts List (see below)
Long Lead Parts List
----------------------------------------------------------------
Description Part # Quantity
----------------------------------------------------------------
Structure (core & panels) AOL20053900G1 1
----------------------------------------------------------------
Arcjets/PCU 20032538P1 4
20032538P2 1
20032538P4 4
----------------------------------------------------------------
Tanks 20037244P3 2
20053744P106 1
20053743P69 2
----------------------------------------------------------------
Output Muxes 20055073P1 2
20055073P2 2
20055073P3 44
20055073P4 2
20055073P5 2
----------------------------------------------------------------
Input Muxes 20055070P1 1
2005507OP2 1
2005507OP3 2
2005507OP4 1
2005507OP5 1
----------------------------------------------------------------
Command Receiver 2005288P1 2
----------------------------------------------------------------
Beacon Transmitter 20036633P2 1
20036633P3 1
20036633P6 1
----------------------------------------------------------------
SSPA 20066163P1 1
20066163P2 1
----------------------------------------------------------------
OBC 2003294OP101 1
----------------------------------------------------------------
LAE 200482202P3 1
----------------------------------------------------------------
REAs 20032536P1 6
20032537P1 12
----------------------------------------------------------------
Battery Cells 20032568P99 98
----------------------------------------------------------------
TWTA TBD 44
----------------------------------------------------------------
2. The above Milestone Tables shall be Buyer's sole measurement of whether
Contractor is making adequate progress toward completion of the Spacecraft
required hereunder.
4-6
<PAGE>
ARTICLE 5. DEFINITIONS
A. Successful Injection
Injection of the Spacecraft shall be considered successful if:
1. No damage to the Spacecraft occurs which can be shown to have
resulted from a launch vehicle malfunction.
2. The elements of the transfer orbit established by the launch
vehicle and the spin axis orientation at time of separation are
within the three sigma limits of the launch vehicle established by
the Launch Agency.
3. The Spacecraft has reached a Satisfactory Orbit and is deployed
for satisfactory operation.
B. SATISFACTORY ORBIT
The spacecraft is deemed to have achieved a Satisfactory Orbit if
the following conditions are satisfied:
1. The spacecraft is located in the operational geostationary orbit
longitude position designated by Buyer.
2. The spacecraft orbit parameters are specified as follows:
(a) Inclination tolerance is + or - 0.1 degrees
(b) Longitude tolerance is + or - 0.1 degrees
C. LAUNCH
For purposes of Spacecraft Flight #1, assuming a Proton launch, the
term Launch means the ignition of the first stage motors of the Launch
Vehicle that has been integrated with the payload with the intention to
complete the launch mission, followed by physical separation from all
the ground support equipment.
For purposes of Spacecraft Flight #2, or if Spacecraft Flight #1 is not
launched on a Proton launch vehicle, then the definition of Launch
shall be negotiated in good faith between Contractor and Buyer at the
time of designation of the launch vehicle.
5-1
<PAGE>
ARTICLE 6. (RESERVED)
6 - 1
<PAGE>
ARTICLE 7. INSPECTION AND FINAL ACCEPTANCE
A. INSPECTION
Buyer, or its designated representative, shall have the right to witness
and review the results of the final acceptance testing at the system
level of the deliverable hardware at the facilities of Contractor.
To allow Buyer to most effectively schedule the monitoring stated above,
Contractor shall give Buyer timely notification of the acceptance
testing of the deliverable hardware.
B. FINAL ACCEPTANCE
Final acceptance of the items to be delivered hereunder shall be in
accordance with the requirements of this Contract, including the
EXHIBITS. Delivery and acceptance shall be as provided herein.
1. Each Spacecraft furnished under this Contract shall be tested by
Contractor, and in the case of Spacecraft to be delivered to storage,
shall be finally accepted by Buyer upon demonstration at Contractor's
facility, prior to delivery of Spacecraft to storage, by means of
test results obtained pursuant to the test requirements set forth in
EXHIBIT C, that the Spacecraft meets the performance specifications
set forth in EXHIBIT B.
2. In the case of Spacecraft delivered for launch, upon arrival of
Spacecraft at the launch site, as required by EXHIBIT A, Contractor
shall promptly conduct an inspection and, if required, test the
Spacecraft, in accordance with the requirements of EXHIBIT C, in the
presence of Buyer. Buyer shall either finally accept the Spacecraft
in writing or notify Contractor in writing of those particulars in
which the Spacecraft to be delivered does not meet the requirements of
this Contract. Upon remedy of such particulars to meet the requirements
of this Contract, the Spacecraft shall be deemed to have been
delivered and finally accepted.
3. Final acceptance of non-Spacecraft items shall take place after delivery
by Contractor to the destination and, if required, completion of
installation and inspection. Buyer shall either finally accept the
item(s) in writing or notify Contractor in writing of those particulars
in which the items to be delivered do not meet the requirements of this
Contract. Upon remedy of such particulars to meet the requirements of
this Contract, the item involved shall be deemed to have been delivered
and finally accepted.
7 - 1
<PAGE>
ARTICLE 8. TITLE AND ASSUMPTION OF RISK
A. Unless otherwise stated herein, the following shall apply:
1. Title and risk of loss or damage to a Spacecraft shall pass to Buyer at
Launch, except that title and risk of loss or damage to a Spacecraft
delivered to storage shall pass as set forth in ARTICLE 31, SPACECRAFT
STORAGE.
2. Title and risk of loss or damage to non-Spacecraft items shall pass to
Buyer upon final acceptance.
B. Buyer agrees to cause its insurer(s) to waive all rights of subrogation
against Contractor and its officers, agents, servants, subsidiaries and
employees.
8 - 1
<PAGE>
ARTICLE 9. ACCESS TO WORK
A. For the purpose of observing the quality of Contractor's performance of
work, Contractor shall afford a limited number of Buyer's personnel
access to all work in process at Contractor's facility. Contractor will
request and attempt to obtain similar access to work related to Buyer's
Spacecraft that is being performed at Contractor's major subcontractors.
B. Information disclosed to Buyer pursuant to this ARTICLE shall be subject
to the limitations set forth in ARTICLE 25, DISCLOSURE AND USE OF
INFORMATION BY THE PARTIES.
9 - 1
<PAGE>
ARTICLE 10. PROGRESS MEETINGS, PRESENTATIONS AND
DOCUMENTATION DELIVERABLES
A. MEETINGS AND PRESENTATIONS
In addition to any other meetings called for under the provisions of this
Contract and without limitation thereto, Contractor shall provide the
manpower, facilities, materials and support required to conduct the
following periodic meetings and presentations:
1. Informal Project Manager meetings.
2. Technical Review meetings as determined by Contractor's Project Manager.
3. Quarterly Summary Executive Reviews.
Copies of view graphs or other documents utilized during these meetings
shall be furnished or be made available to Buyer. Buyer's management
personnel, as may be deemed appropriate by Buyer, shall be invited to the
Quarterly Summary Executive Reviews. Contractor shall be represented by
its Project Manager and such other personnel as are specifically required
to support the particular presentation. All periodic meetings shall be
held at Contractor's facility.
B. DISTRIBUTION OF REPORTS
All materials, reports and documentation furnished pursuant to this
ARTICLE shall be the property of Buyer subject to the limitations set
forth in ARTICLE 25, DISCLOSURE AND USE OF INFORMATION BY THE PARTIES,
except that, Contractor or its subcontractors may retain copies for their
own purposes, including the using of such materials and reports in the
performance of other contracts.
10-1
<PAGE>
C. CORRESPONDENCE
All correspondence, including notices, reports and documentation
deliverables, to be provided to Buyer or Contractor under this Contract
shall be sent to Buyer or Contractor as follows:
E-DBS Lockheed Martin Corporation
90 Inverness Circle East P.O. Box 800
Englewood, Colorado 80112 Princeton, NJ 08543-0800
Attention: Mr. C. Ergen Attention: Mr. L.J. Kiefer
Phone: 303-799-8222 Ex 4701 Phone: 609-490-6228
Telecopy: 303-799-0354 Telecopy: 609-490-3395
D. The only representatives of Buyer and Contractor authorized to sign
contractual documents are:
BUYER CONTRACTOR
Mr. C. Ergen Mr. R.T. McFall
Mr. D. Moskowitz Mr. T.D. Sisley
Mr. L.J. Kiefer
Mr. P.H. Wiggett
Or others authorized by written Or others authorized by written
delegation of the E-DBS Board of delegation of Mr. R.T. McFall
Directors
10-2
<PAGE>
ARTICLE 11. RIGHTS IN DATA
A. Except as provided in paragraph B. below, Buyer shall have an unlimited
right to use, duplicate, and disclose the information contained in the
Programming and Control Handbook furnished pursuant to EXHIBIT A;
however, if any written material furnished as part of said document is
copyrighted, Buyer shall have an unaudited right to make copies of such
copyrighted material and to use such copies for any Buyer purpose without
payment of additional compensation to Contractor to the extent that
Contractor has the authority to grant such right. In the event
Contractor does not have such right, Contractor will exert its best
efforts to obtain such rights for Buyer.
B. All data that are or may be delivered or disclosed by either party to the
other shall be subject to ARTICLE 25, DISCLOSURE AND USE OF INFORMATION
BY THE PARTIES.
C. Notwithstanding any other provision hereof, the ownership and title to
copyrights and in computer programs and its related documentation
delivered to Buyer by Contractor in accordance with this Contract shall
remain in Contractor or its licensor. Contractor shall grant to Buyer a
paid up non-exclusive, non-transferable license to use (including "to
duplicate" and "to adapt") solely for the Buyer Program, the copies of
computer programs and its related documentation specified in the Contract
required for the operation of articles deliverable under this Contract.
11-1
<PAGE>
ARTICLE 12. PUBLIC RELEASE OF INFORMATION
During the term of this Contract, neither party, its affiliates,
subcontractors, employees, agents and consultants shall release items of
publicity of any kind, including, without limitation, news releases, articles,
brochures, advertisements, prepared speeches, company reports or other
information releases, related to the work performed hereunder, including the
denial or confirmation thereof, without the other party's prior written
consent which consent shall not be unreasonably withheld.
12-1
<PAGE>
ARTICLE 13. INDEMNIFICATION
A. Each party shall indemnify and hold the other party and its officers,
agents, servants, subsidiaries and employees, or any of them harmless
from any loss, damage, liability or expense, resulting from damage to
all property, private or public, and injuries, including death, to
persons caused by any act or omission of the indemnifying Party
and/or the indemnifying Party's agents or representatives at any tier
or any of them, and at its expense shall defend any suits or other
proceedings brought against the indemnified Party and/or its
officers, agents, servants, subsidiaries and employees, or any of
them, on account thereof, and shall pay all expenses and satisfy all
judgments which may be incurred by or rendered against them, in
connection therewith. Either Party shall have the right to settle
any claim or litigation against which it indemnities hereunder. This
ARTICLE is subject to ARTICLE 8, TITLE AND ASSUMPTION OF RISK.
B. Further and notwithstanding any other provision hereof, Buyer shall
indemnify and hold harmless Contractor, its officers, agents,
subsidiaries, and employees from any liabilities, losses and damages
including costs, expenses and damages incurred by Contractor in
connection with any and all claims after passage of title thereto to
Buyer which shall occur in accordance with ARTICLE 8, TITLE AND
ASSUMPTION OF RISK, except any such liabilities, losses and damages
that are caused by the gross negligence or willful misconduct of
Contractor. Buyer shall procure and maintain comprehensive general
liability insurance in an amount with insurers acceptable to
contractor, which insurance shall name Contractor and the other
indemnities hereunder as insured. Buyer shall furnish Contractor
with a waiver of its insurance carriers' rights of subrogation and
with insurance obligations under this ARTICLE. Such insurance shall
also provide that the insurers shall give thirty (30) days prior
notice to Contractor prior to the effective date of cancellation or
termination of such insurance.
C. Contractor shall not be liable to Buyer, customers of Buyer or their
customers for any damages resulting: (i) any loss or destruction of
the Spacecraft or (ii) failure of the Spacecraft or its subsystems to
operate satisfactorily. Buyer agrees to enter into suitable
agreements with its customers to effect the foregoing limitation of
Contractor's liability. Buyer also agrees to cause insurers to waive
all right of subrogation against Contractor and its employees. The
foregoing shall not relieve Contractor of its obligations under
ARTICLE 21, WARRANTY, of correction or replacement during the
warranty period set forth in such ARTICLE.
13-1
<PAGE>
ARTICLE 14. PATENT INDEMNIFY
A. Contractor shall defend Buyer from and against all claims, actions,
suits and proceedings alleging that the manufacture of any
Spacecraft, delivered under this Contract or the use, lease, sale or
other disposition of any such Spacecraft infringes any U.S. patent,
and shall pay any final judgment or settlement, provided Contractor
is given prompt written notice of any such claim, action, suit or
proceeding and full authority to resist, defend and settle such claim.
Buyer shall provide at Contractor's request such assistance and
information as may be required by Contractor.
B. If an injunction or other order is obtained against the manufacture,
use, lease, sale or other disposition of any Spacecraft hereunder,
Contractor agrees to use its best efforts either to procure rights so
that such Spacecraft and the manufacture, use, lease, sale or other
disposition thereof is no longer infringing or to modify or replace
such Spacecraft so that it is no longer subject to such order. In
the event that such injunction or order becomes permanent and that
neither of the foregoing alternatives is suitably accomplished and
Contractor is unable to reasonably perform its obligations hereunder,
Buyer may proceed under ARTICLE 17, TERMINATION FOR DEFAULT.
C. While neither Party presently contemplates Buyer's providing
Contractor with any designs, specifications or instructions, in the
event Buyer does provide any designs, specifications or instructions,
Buyer shall indemnify and hold Contractor harmless against any
expense, judgment or loss for infringement of any U.S. patents or
trademarks which result from Contractor's compliance with such
designs, specifications or instructions.
D. No sales or lease hereunder shall convey any license by implication,
estoppel or otherwise, under any proprietary or patent rights of
Buyer, to practice any process with such product or part, or for the
combination of such product or part with any other product or part.
E. Contractor shall not be liable for any costs or expenses incurred
without Contractor's written authorization and in no event shall
Contractor's total liability to Buyer under, or as a result of
compliance with, the provisions of this ARTICLE exceed the aggregate
Spacecraft price for all Spacecraft under construction or delivered.
Contractor shall in no event be liable for loss of use or for
incidental, indirect, or consequential damages, whether in contract
or in tort. The foregoing states the entire Warranty by Contractor
and the exclusive remedy of Buyer, with respect to any alleged patent
infringement by such product or part.
14-1
<PAGE>
ARTICLE 15. INDEMNIFICATION FOR TAXES
Contractor shall assume responsibility, and shall save Buyer, its officers,
agents, employees, servants, subsidiaries and assignees, or any of them,
harmless from taxes (exclusive of sales, use, income and personal property
taxes), which may be required under present federal, state, or local laws and
which become due by reason of the performance of work under this Contract,
and shall execute and deliver such other and further documents, and comply
with such requirements of said laws, as may be necessary thereunder to
confirm and effectuate this Contract, including making of payment of any
interest or penalties related to or arising from such taxes.
15-1
<PAGE>
ARTICLE 16. EXCUSABLE DELAYS
Without limiting any other provision specifying what constitutes an excusable
delay under this Contract, acts of God or of the public enemy; acts of the
Government in its sovereign or contractual capacity, including Government
priorities, allocations, regulations or orders affecting materials,
facilities, or completed Spacecraft (including changes in the launch
specifications in effect on the Date of this Amendment); fires; floods;
snow storms; earthquakes; epidemics; quarantine restrictions; strikes; wars;
freight embargoes; or any other events which cause failure or delay to
perform hereunder, and in every case are beyond the reasonable control and
without fault or negligence of Contractor hereunder shall constitute an
excusable delay, if notice thereof is given to Buyer as soon as possible but
in no event later than within thirty (30) days after such event shall have
occurred. In the event of a delay resulting from any of the above causes,
the delivery requirements shall be extended for the period of the excusable
delay.
16-1
<PAGE>
ARTICLE 17. TERMINATION FOR DEFAULT
DELETE the text of the ARTICLE in its entirety and replace it with:
A. Buyer may, by written Notice of Default sent by registered letter to
Contractor, terminate the whole or any part of this Contract in any one
of the following circumstances:
1. If Contractor fails to make delivery of the supplies or to perform
the services within the time specified herein.
2. If Contractor fails to perform any of the other provisions of this
Contract or so fails to make progress as to endanger performance of
this Contract in accordance with its terms, and in either of these two
circumstances does not act to correct such failure within a period of
thirty (30) days (or such longer period as Buyer may authorize in
writing) after receipt of notice from Buyer specifying such failure.
B. To the extent the Contract is terminated under this ARTICLE, Buyer shall
use all reasonable efforts to utilize all work in process hereunder in
order to mitigate any costs sustained by Buyer as a result of
Contractor's default. Contractor will pay to Buyer all costs reasonably
incurred by Buyer in obtaining all of the work described in ARTICLE 2,
EQUIPMENT AND SERVICES TO BE FURNISHED AND PRICES THEREFORE, paragraph
A., according to the schedule set forth in ARTICLE 3, DELIVERY SCHEDULE,
paragraph B., provided that Buyer enters into a Contract for such work
within twelve (12) months of Contractor's default.
C. If this Contract is terminated as provided in this ARTICLE, Contractor
shall:
1. be paid the Contract price for items delivered.
2. be paid the cost plus reasonable profit for work in process,
materials in stock and services for which Buyer takes delivery.
3. protect and preserve property in the possession of Contractor in
which Buyer has an interest.
D. The remedies set forth in this ARTICLE shall be the sole recourse to
which Buyer is entitled in the event of Contractor's default, and
Contractor shall have no liability for special, indirect, incidental or
consequential damages for lost profits or lost revenues.
E. Subsequent to final acceptance of each of the Spacecraft pursuant to
paragraph B. of ARTICLE 7, INSPECTION AND FINAL ACCEPTANCE, the
provisions of this ARTICLE shall not affect payment of In-Orbit payments
under the terms of ARTICLE 4, PAYMENT, paragraphs B.2 and C.2 and ARTICLE
2, EQUIPMENT AND SERVICES TO BE FURNISHED AND PRICES THEREFORE.
17 - 1
<PAGE>
EQUIPMENT AND SERVICES TO BE FURNISHED AND PRICES THEREFORE.
F. In the event Buyer fails to perform any obligation which it is
required to perform pursuant to this Contract, Contractor may, if
such failure is not corrected within thirty (30) days after written
notice of such failure is given by Contractor, stop work on this
Contract and consider this entire Contract to be terminated due to the
default of Buyer. Contractor shall be entitled to compensation as set
forth in ARTICLE 18, TERMINATION FOR CONVENIENCE. Further, Contractor
shall also be entitled to all of the Security set forth in ARTICLE 4,
PAYMENT, paragraph F.1.
G. If, after notice of termination of the Contractor's right to proceed
under the provisions of this ARTICLE, it is determined for any reason
that the Contractor was not in default under the provisions of this
ARTICLE, or that the delay was excusable under the provisions of
ARTICLE 16, EXCUSABLE DELAYS, the rights and obligations of the
Parties shall be the same as if notice of termination had been issued
pursuant to ARTICLE 18, TERMINATION FOR CONVENIENCE.
17-2
<PAGE>
ARTICLE 18. TERMINATION FOR CONVENIENCE
A. Buyer, by written notice to Contractor, may terminate this
Contract in whole, or in part, for any reason or for Buyer's
Convenience at any time prior to final acceptance of all the work. In
the event of termination by the Buyer of any spacecraft subsequent to
the start of such Spacecraft's construction, it is agreed that the
termination charges shall be negotiated but shall not exceed the total
of the Total Price for the Spacecraft so terminated as set forth in
ARTICLE 2, EQUIPMENT AND SERVICES TO BE FURNISHED AND PRICES
THEREFORE, hereof. The termination charges shall include the total
costs, both direct and indirect, reasonably incurred by Contractor
with respect to termination and settlement with all vendors and
subcontractors, plus a profit of fifteen (15) percent. Buyer shall
maintain the required Security set forth in ARTICLE 4, PAYMENT,
paragraph F., until all claims are satisfied.
B. Direct and indirect costs shall be determined in accordance with
Contractor's standard accounting practice and shall be verified, at
Buyer's expense, by an independent Certified Public Accounting firm to
be mutually agreed upon by the buyer and Contractor.
C. Buyer shall pay Contractor the aforesaid termination charges
within thirty (30) days following the submission of an invoice. Upon
payment of Contractor's invoice, Contractor shall deliver to Buyer all
termination inventory which has not been credited by Contractor
against the termination charges set forth in paragraph D.2 below. In
the event Contractor's invoice is not paid within thirty (30) days
following submission, Buyer shall be in default pursuant to ARTICLE
17, TERMINATION FOR DEFAULT, paragraph F.
D. Final payment shall be in the amount of the total termination
charges, less the following:
1. Amounts previously paid by Buyer to Contractor with respect to the
terminated work pursuant to ARTICLE 4, PAYMENT, hereof; and
2. Amounts representing the total of Contractor's costs with respect
to the terminated work of segregable items of inventory not desired by
Buyer and which Contractor elects to retain for its use.
In the event the amount set forth in this paragraph D. above
exceeds the termination charges defined in paragraph A. of this
ARTICLE, Contractor shall promptly refund such excess to Buyer.
E. In no event shall the total amount paid to Contractor pursuant to
this Agreement, including termination charges paid pursuant to this
ARTICLE, exceed the total price stated in ARTICLE 2, EQUIPMENT AND
SERVICES TO BE FURNISHED AND PRICES THEREFORE, hereof.
18-1
<PAGE>
F. Subject to the limitations in paragraph E above, the provisions of this
ARTICLE shall not affect the payment of In-Orbit payments under the terms
of ARTICLE 4, PAYMENT, paragraphs B.2 and C.2, with respect to any
spacecraft.
G. Notwithstanding anything herein, Buyer's termination of any spacecraft,
pursuant to this ARTICLE, shall constitute a termination of all
subsequent spacecraft.
H. Contractor agrees to use all reasonable efforts to assist Buyer in
disposing/selling of the work in process upon termination pursuant to this
ARTICLE.
18-2
<PAGE>
ARTICLE 19. CHANGES
DELETE the text of the ARTICLE in its entirety and replace it with:
Buyer may, from time to time between the effective date and completion of
this Contract, by written change order issued by Buyer, make changes within
the general scope of this Contract in drawings, designs, specifications,
method of shipment or packing, quantities of items to be furnished, place of
delivery, postpone delivery, require additional work, or direct the omission
of work. If any such change causes an increase or decrease in costs of, or
the time required for, the performance of this Contract, an equitable
adjustment shall be made in the price, or delivery schedule, or both, and any
other affected provision, and this Contract shall be modified in writing
accordingly. Any claim by Contractor for adjustment under this paragraph
shall be deemed waived unless asserted in writing within thirty (30) days
from the date of receipt by Contractor of the change order. The amount of
the claim shall be stated when it is submitted, or at a later date, not to
exceed sixty (60) days from the date for assertion of the claim, which later
date shall be requested at the time of such submission. All changes and
equitable adjustments pursuant to this ARTICLE shall be subject to negotiation
between and approval by both Parties prior to the implementation of any such
change. Except for Excusable Delays pursuant to ARTICLE 16, EXCUSABLE
DELAYS, none of the Contract dates will change unless authorized by C. Ergen
or D. Moskowitz.
19 - 1
<PAGE>
ARTICLE 20. ASSIGNMENT
A. Neither party ,shall assign or delegate this Contract or any of its rights,
duties, or obligations thereunder to any other person without the prior
express written approval of the other party, such approval shall
not be unreasonably denied. Nothing contained in this ARTTCLE shall
restrict Contractor from subcontracting work or procuring parts/materials
or services in the ordinary course of performance of this Contract.
B. Buyer may assign this Contract, provided Buyer can reasonably demonstrate
that any such proposed assignee is in at least as good financial condition
as the Buyer at the effective date of this Contract.
C. In the event that Buyer reasonably determines that it is prudent to transfer
construction of any Spacecraft hereunder to any other affiliate in order to
more appropriately fulfill its Federal Communications Commission ("FCC")
"due diligence" requirements at the 175 degree west, the 121 degree west or
other orbital location, and provided the affiliate assumes all rights and
obligations of Buyer with respect to that Spacecraft, then Buyer and
Contractor agree to divide this Contract into two separate contracts, and
that the 175 degree west (or the 121 degree west or other orbital location)
Spacecraft shall be purchased (completed) under a substantially identical
contract with that affiliate.
20 - 1
<PAGE>
ARTICLE 21. WARRANTY
A. Contractor warrants that the goods or services furnished hereunder shall
be free from any defects in material or workmanship.
B. Buyer shall have the right at any time during the period of this
warranty and irrespective of prior inspections or acceptance to reject
any goods or services not conforming to the above warranty and require
that Contractor at its expense, correct or replace as promptly as is
reasonably possible, at Contractor's option, such goods or services with
conforming goods or services.
C. For the Spacecraft, this warranty shall run for a period of one (1) year
from the date of final acceptance by Buyer or until Intentional Ignition,
whichever is sooner.
D. Except for the Spacecraft, this warranty shall run for a period of
one (1) year from the date of final acceptance by Buyer.
E. Contractor shall pass on or assign to Buyer all warranties on goods or
services given by suppliers or manufacturers other than Contractor to
the extent to which Contractor is permitted by the terms of its purchase
contracts with such suppliers or manufacturers.
F. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER STATUTORY,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. CONTRACTOR SHALL
HAVE NO OTHER LIABILITY, WHETHER IN CONTRACT, TORT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY OR OTHERWISE, INCLUDING,
WITHOUT LIMITATION, ANY LIABILITY FOR SPECIAL, INCIDENTAL, INDIRECT, OR
CONSEQUENTIAL DAMAGES, OR FOR BUYER'S COST OF EFFECTING COVER, OR FOR
FAILURE OR NONPERFORMANCE OF PROPERTY OR FOR LOST PROFIT OR REVENUES.
21 - 1
<PAGE>
ARTICLE 22. ARBITRATION
A. Any dispute or disagreement arising between the Parties in connection
with any interpretation of any provision of this Contract, or the
compliance or noncompliance therewith, or the validity or enforceability
thereof. or any other dispute under any ARTICLE hereof which is not
settled to the mutual satisfaction of the Parties within thirty (30)
days (or such longer period as may be mutually agreed upon) from the
date that either party informs the other, in writing, that such dispute
or disagreement exists, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association, in effect on the date that such notice is given.
B. Either party which demands arbitration of the controversy shall, in
writing, specify the matter to be submitted to arbitration and, at the
same time, choose and nominate a competent person to act as an
arbitrator, thereupon, within fifteen (15) days after receipt of such
written notice. the other party to this agreement shall, in writing,
choose and nominate a competent arbitrator. The two arbitrators so
chosen shall meet and endeavor to resolve the question in dispute, and,
if they agree upon such determination, the determination so made shall
be in writing and signed by both arbitrators. If such two arbitrators
fail to agree, they shall forthwith select a third arbitrator, giving
written notice to both Parties of the choice so made and fixing a time
and place at which both Parties may appear and be heard with respect to
such controversy. In case the two arbitrators shall fail to agree upon a
third arbitrator within a period of seven (7) days, or if for any other
reason there shall be a lapse in the naming of an arbitrator or
arbitrators, or in the filling of a vacancy, or in the event of failure or
refusal of any arbitrator or arbitrators to attend or fulfill his or their
duties, then upon application by either Party to the controversy, an
arbitrator or arbitrators shall be named by the American Arbitration
Association.
C. The arbitration award made shall be final and binding upon the Parties
and judgment may be entered thereon, upon the application of either
Party by any court having jurisdiction. The relief that may be awarded
by the arbitrators under any arbitration arising from this Contract may
not exceed actual compensatory damages. In no event may the arbitrators
award punitive damages.
D. Each party shall bear the cost of preparing and presenting its case, and
the cost of arbitration, including the fees and expenses of the
arbitrator or arbitrators, will be shared equally by the Parties unless
the award otherwise provides.
22 - 1
<PAGE>
ARTICLE 23. APPLICABLE LAW
A. This Contract shall be interpreted and enforced in accordance with the
laws of the State of New York.
B. This Contract is subject to all applicable laws and regulations and
each Party agrees to comply with all such applicable laws and
regulations.
23 - 1
<PAGE>
ARTICLE 24. ENTIRE AGREEMENT
This Contract constitutes the entire agreement between the Parties and
supersedes all prior understandings, commitments, and representations
with respect to the subject matter. It may not be amended, modified, or
terminated (other than as specifically provided in the ARTICLES hereof),
and none of its provisions may be waived, except by a writing signed by
an authorized representative of the Party against which the amendment,
modification, termination or waiver is sought to be enforced. The
paragraph headings herein shall not be considered in interpreting the
text of this Contract.
24 - 1
<PAGE>
ARTICLE 25. DISCLOSURE AND USE OF INFORMATION BY THE PARTIES
A. If documents supplied by one party to the other are marked with a
proprietary legend, the receiving party shall take all necessary steps
to ensure that the documents and contents of such documents are
not disclosed to any person other than a person employed or engaged by the
receiving party, whether under subcontract or otherwise, for the performance
of this Contract. Any such document supplied hereunder shall be returned to
the disclosing party together with any copies thereof promptly upon
written request of the disclosing party, except for one copy to be
retained for legal purposes. Whenever the receiving party makes copies of
such proprietary documents for performance of work covered by this Contract,
the receiving party shall mark each such copy as proprietary to the
disclosing party.
B. Any disclosure to any person permitted under paragraph A. of this ARTICLE
shall be made under the same conditions that apply to the initial disclosure
and shall extend only so far as may be necessary for the purposes of this
Contract. Any such disclosure to a person other than an employee of the
receiving party shall be made pursuant to a written confidential disclosure
agreement or with prior written approval of the disclosing party.
C. Except with the written consent of the disclosing party, the receiving party
shall not make use of any document mentioned in paragraph A. of this ARTICLE
other than for the purposes of this Contract.
D. The obligations and restrictions imposed by this ARTICLE shall not apply to
the following:
1. Information that is or becomes available to the public from a source
other than the receiving party, before or after the effective date of
this Contract.
2. Information that is authorized for release in writing by the disclosing
party.
3. Information that is lawfully obtained by the receiving party from a
third party.
4. Information that is known by the receiving party prior to such
disclosure.
5. Information that is, at any time, developed by the receiving party
completely independently of any disclosure or disclosures from the
disclosing party.
6. Information that is reasonably necessary to support a patent
application, the subject matter of which belongs to the receiving party
and which the receiving party discloses to an appropriate Patent Agent
or Patent Office and/or Court of any country in pursuance thereof.
E. Neither party shall be liable for inadvertent or accidental disclosure of
such information marked as proprietary if such disclosure occurs despite
both Parties exercising reasonable efforts to preserve and safeguard such
information.
25 - 1
<PAGE>
F. Neither party shall be liable for the disclosure of any technical
information of the other party pursuant to any legally enforceable
requirement of the U.S. Government, or any agency or department
thereof.
G. No license, under any patents, is granted or implied by merely conveying
data or information under this Contract.
H. Any proprietary disclosure to either party, if made orally, or visually,
shall be identified at the time of disclosure and shall be promptly
confirmed in writing by the disclosing party and identified as
proprietary information, if the disclosing party wishes to keep such
information proprietary under this Contract.
I. The obligations of this ARTICLE shall be effective for a period of three (3)
years from the date of termination or expiration of this Contract.
25 - 2
<PAGE>
ARTICLE 26. PERMITS AND LICENSES
DELETE this ARTICLE 26 in its entirety and replace it with a new ARTICLE 26
as follows:
ARTICLE 26. EFFECTIVE DATE
The term Effective Date of the Contract (EDC), as used in this
Contract, shall mean the 18th day of July 1996.
26 - 1
<PAGE>
ARTICLE 27. PERMITS AND LICENSES
A. This Contract is subject to all applicable U.S. laws and regulations
relating to the export of Spacecraft, technical data and other equipment
and services being furnished pursuant to, or to be utilized in connection
with, this Contract (hereinafter in this ARTICLE referred to as
"Licensed Items") and to all applicable laws and regulations of the
country or countries to which Spacecraft, technical data, and other
equipment and services are exported or are sought to be exported.
B. Contractor shall use its best efforts to obtain such U.S. Government
approvals and licenses for export of the "Licensed Items." Buyer shall
not be liable for any additional cost associated with Contractor
processing any export license application for delivery of any Spacecraft.
C. If, within a reasonable time, the U.S. Government fails to grant a
required approval or license to Contractor to export the "Licensed
Items" or revokes or suspends such an approval or license subsequent to
its grant, or grants such a license or approval subject to conditions,
this Contract shall, nevertheless, remain in full force and effect. In
the event of such U.S. Government action or inaction, deliveries and
acceptance of all items to be furnished by Contractor shall be made at
locations within the continental U.S. as agreed upon between the
Parties. Such U.S. Government action or inaction shall not otherwise
modify in any way the rights and obligations of the Parties under this
Contract except to relieve Contractor of any obligations which cannot be
performed without such an approval or license and to make the price and
delivery schedule subject to equitable adjustment in accordance with
ARTICLE 19, CHANGES, to reflect the obligations of which Contractor is
relieved.
D. If, within a reasonable time, any foreign country or countries to which
such "Licensed Items" are sought to be exported fails to grant a
required approval or license or suspends or revokes a required approval
or license subsequent to its grant, or grants a license subject to
conditions, or if any foreign country or countries to which such
"Licensed Items" are exported fails to grant an approval or licenses to
utilize the "Licensed Items" for the purpose for which exported, this
Contract shall, nevertheless, remain in full force and effect. In the
event of such foreign country or countries action or inaction.
deliveries and acceptance of all items to be furnished by Contractor
shall be made at locations within the continental U.S. as agreed upon
between the Parties. Such foreign government action or inaction shall
not otherwise modify in any way the rights and obligations of the
Parties under this Contract except to relieve Contractor of any
obligations which cannot be performed without such an approval or
license and to make the price and delivery schedule subject to equitable
adjustment in accordance with ARTICLE 19, CHANGES, to reflect the
obligations of which Contractor is relieved.
27 - 1
<PAGE>
ARTICLE 28. LIMITATION OF LIABILITY
In no event shall Contractor be liable, whether in contract, tort or
otherwise, for special, incidental, indirect or consequential damages,
including, without limitation, failure or non-performance of property or
for lost profit or revenues.
28 - 1
<PAGE>
ARTICLE 29. SPACECRAFT TEST AND HANDLING EQUIPMENT
Contractor shall provide Spacecraft unique test and handling equipment
at the Launch Site, during the period between delivery of the Spacecraft
to the Launch Site, and final acceptance for use in connection with the
inspection and final acceptance of the Spacecraft pursuant to ARTICLE 7,
INSPECTION AND FINAL ACCEPTANCE. Title to such equipment shall remain
with Contractor.
29 - 1
<PAGE>
ARTICLE 30. LIQUIDATED DAMAGES
A. Contractor acknowledges that its failure to deliver Spacecraft Flight #1 or
Spacecraft Flight #2 to the launch site on or before the delivery dates set
forth in ARTICLE 3, DELIVERY SCHEDULE, may cause serious damage to Buyer,
the amount of which may be difficult or impossible to prove.
1. The amount of Liquidated Damages applicable to Spacecraft Flight #1
shall be $50,000 per day and shall not exceed a total of $5,000,000.
2. The amount of Liquidated Damages applicable to Spacecraft Flight #2
shall be $33,333 per day and shall not exceed a total of $5,000,000.
B. Contractor and Buyer agree that such liquidated damages, without
further proof of same, shall be deemed to represent the damages
actually sustained by reason of such delay.
C. The liquidated damages are intended to be compensatory and do not
constitute a penalty.
D. These amounts are firm, fixed and not subject to adjustment due to changes
in economic conditions. The Contractor's total liability for late
delivery of Spacecraft Flight #1 and Spacecraft Flight #2 shall not
exceed the specified liquidated damages.
E. Any interval of excusable delays as defined in ARTICLE 16, EXCUSABLE
DELAYS, shall be excluded from the period for which liquidated damages
accrue. However, such time period shall continue at the conclusion of
the excluded interval as if no such interruption had occurred.
F. In the event Contractor is required to pay Buyer Liquidated Damages as
provided in this ARTICLE, the amount of any such payment shall be applied
against (reduce) the In-Orbit payments associated with the applicable
Spacecraft as set forth in ARTICLE 4, PAYMENT, paragraphs B.2 and C.2.
30 - 1
<PAGE>
ARTICLE 31. LIQUIDATED DAMAGES
DELETE this ARTICLE in is entirety and replace it with a new ARTICLE 31 as
follows:
ARTICLE 31. SPACECRAFT STORAGE
A. If as a result of a delay or failure to launch, through no fault of
Contractor, Buyer requests Contractor to store the Spacecraft within
sixty (60) days of completion of in-plant acceptance testing, the
Contractor shall store, at a site designated by Buyer and such site
shall be subject to the approval of Contractor, or if no site is
designated by Buyer, at a site designated by Contractor, one or more of
the Spacecraft delivered under this Contract. Title and risk of loss to
the Spacecraft to be stored shall pass to Buyer after the first six (6)
months of storage and storage shall commence on that date on a
month-to-month basis. The cost for the first six (6) months of storage
shall be the responsibility of Contractor. Should the Spacecraft remain
in storage beyond the six (6) month period, the provisions of ARTICLE 8
"TITLE AND ASSUMPTION OF RISK" shall apply, and the Buyer shall be
responsible for all storage costs (in excess of six (6) months). Buyer
shall be responsible, except in the event of negligence or willful
misconduct by the Contractor, for all transportation cost and insurance
to cover the risk and expense of loss or damage of the Spacecraft in
transit, (i) from Contractor's facility to storage, (ii) from its
facility to the storage site, (iii) from the storage site to the launch
site or (iv) if necessary, from the storage site to the refurbishment
site and then to the launch site.
B. Upon the request of Buyer, the Contractor shall provide periodic
testing, necessary equipment, and environmental maintenance suitable for
prevention of deterioration to the Spacecraft during the period of
storage. The cost for such service shall be subject to ARTICLE 19,
CHANGES, and shall be negotiated upon the request of such services by
Buyer. Any deterioration to a Spacecraft while in storage shall be at
Buyer's risk and shall be corrected at Buyer's expense, unless such
deterioration is to be corrected by the Contractor under ARTICLE 21,
WARRANTY.
C. If at any time after storage begins, Buyer elects to launch the stored
Spacecraft, the Contractor shall inspect, test and refurbish as
necessary such Spacecraft to a launch-ready condition and arrange for
transit to the launch site as directed by Buyer. The cost for such
services shall be subject to ARTICLE 19, CHANGES, and shall be
negotiated in good faith by the Contractor and Buyer at the time such
services are required. Notwithstanding anything in this ARTICLE,
Contractor will be responsible for transportation from Contractor's
facility or any other Contractor selected facility to the launch site as
set forth in ARTICLE 3, DELIVERY SCHEDULE, paragraph A., provided that
such transportation occurs within six (6) months of successful
completion of in-plant acceptance testing.
D. In the event a Spacecraft is placed into storage as a result of
paragraph A. above, Contractor shall be entitled to commencement of the
In-Orbit payments associated with such Spacecraft in accordance with the
provisions of ARTICLE 4, PAYMENT. Notwithstanding the foregoing, in the
event that Contractor's late delivery of the Spacecraft is the sole
cause of the Spacecraft having to be placed into storage, the In-Orbit
payments shall commence at the earlier of sixty (60) days after
Spacecraft launch or twenty-four (24) months from the placement of the
Satellite into storage.
31 - 1
<PAGE>
ARTICLE 32. (RESERVED)
32 - 1
<PAGE>
ARTICLE 33. INSURANCE
A. In order to protect against financial losses associated with the risks
between Launch and continuing for five (5) years thereafter, Buyer, as
the representative party insured, shall enter into an insurance
contract, naming the Contractor as a party insured and covering the
In-Orbit payments specified in ARTICLE 4, PAYMENT, paragraphs B.2 and
C.2. Buyer shall bear all responsibility for payment of insurance
premiums associated with the aforementioned insurance policy.
B. The details of the insurance Contract referred to in the preceding
paragraph shall be reasonably acceptable to Contractor.
C. When the Buyer applies for insurance regarding risks relating to the
launching of the Spacecraft, the Contractor shall furnish Buyer with
such information regarding the Spacecraft as is requested by the
insurers.
D. When, after taking delivery of the Spacecraft, the Buyer applies for
insurance regarding risks of the Spacecraft's malfunctioning or
non-performance during the life span specified for it in the Performance
Specifications, Contractor shall furnish the Buyer with such information
regarding the Spacecraft as is requested by the insurers.
E. When Buyer obtains such insurance, Buyer agrees to cause its insurer(s)
to waive all rights of subrogation against Contractor and its officer,
agents, servants, subsidiaries and employees.
IN WITNESS WHEREOF, the parties hereto have executed this Contract.
ECHOSTAR DBS CORPORATION LOCKHEED MARTIN CORPORATION
By: /s/ David K. Moskowitz By: /s/ Peter H. Wiggett
----------------------------- -------------------------------
Title: Senior Vice President Title: Director Contracts
Astro Space Commercial
Agree as to the guarantee.
ECHOSTAR COMMUNICATIONS
CORPORATION
By: /s/ David K. Moskowitz
----------------------------
Title: Senior Vice President
33-1
<PAGE>
EXHIBIT 11
PAGE 1 OF 2
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRIMARY EARNINGS PER SHARE CALCULATIONS
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME DATA :
Net loss ............................. $ (1,787) $ (22,554) $ (4,027) $ (29,775)
Preferred stock dividends ............ (301) (301) (602) (602)
--------- ---------- --------- ----------
Net loss applicable to common shares.. $ (2,088) $ (22,855) $ (4,629) $ (30,377)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common shares ....... 33,988 40,432 33,655 40,404
Equivalent common shares from
warrants ............................ --(a) --(a) --(a) --(a)
Equivalent common shares from stock
options ............................. --(a) --(a) --(a) --(a)
--------- ---------- --------- ----------
Common and common equivalent shares... 33,988 40,432 33,655 40,404
--------- ---------- --------- ----------
--------- ---------- --------- ----------
EARNINGS PER COMMON SHARE:
Net loss per common and common
equivalent shares ................... $ (.06) $ (.57) $ (.14) $ (.75)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
(a) Excludes common stock equivalents which are antidilutive.
<PAGE>
EXHIBIT 11
PAGE 2 OF 2
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FULLY DILUTED EARNINGS PER SHARE CALCULATIONS
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME DATA :
Net loss applicable to common shares .... $ (2,088) $(22,855) $ (4,629) $(30,377)
--------- --------- --------- ---------
--------- --------- --------- ---------
COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common shares .......... 33,988 40,432 33,766 40,404
Equivalent common shares from warrants... --(a) --(a) --(a) --(a)
Equivalent common shares from stock
options ................................ --(a) --(a) --(a) --(a)
Weighted average common shares from
conversion of preferred stock .......... --(a) --(a) --(a) --(a)
--------- --------- --------- ---------
Common and common equivalent shares ..... 33,988 40,432 33,766 40,404
--------- --------- --------- ---------
--------- --------- --------- ---------
EARNINGS PER COMMON SHARE:
Net loss per common and common
equivalent shares ...................... $ (.06) $ (.57) $ (.14) $ (.75)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(a) Excludes common stock equivalents and convertible preferred stock
which are antidilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED BALANCE SHEET OF ECHOSTAR COMMUNICATIONS CORPORATION
AND SUBSIDIARIES AS OF JUNE 30, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 78,425 78,425
<SECURITIES> 44,991 44,991
<RECEIVABLES> 20,416 20,416
<ALLOWANCES> (848) (848)
<INVENTORY> 48,386 48,386
<CURRENT-ASSETS> 225,773 225,773
<PP&E> 446,687 446,687
<DEPRECIATION> (19,906) (19,906)
<TOTAL-ASSETS> 996,765 996,765
<CURRENT-LIABILITIES> 58,550 58,550
<BONDS> 806,528 806,528
17,797 17,797
0 0
<COMMON> 406 406
<OTHER-SE> 109,321 109,321
<TOTAL-LIABILITY-AND-EQUITY> 996,765 996,765
<SALES> 69,234<F1> 109,888<F1>
<TOTAL-REVENUES> 73,524 114,991
<CGS> 62,072<F2> 98,105<F2>
<TOTAL-COSTS> 87,581 137,677
<OTHER-EXPENSES> 20,552 23,935
<LOSS-PROVISION> (555) 66
<INTEREST-EXPENSE> 27,141<F3> 33,184<F3>
<INCOME-PRETAX> (34,609) (46,621)
<INCOME-TAX> 12,055 16,846
<INCOME-CONTINUING> (22,554) (29,775)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (22,554) (29,775)
<EPS-PRIMARY> (0.57) (0.75)
<EPS-DILUTED> (0.57) (0.75)
<FN>
<F1>INCLUDES SALES OF PROGRAMMING.
<F2>INCLUDES THE COST OF PROVIDING PROGRAMMING.
<F3>NET OF AMOUNTS CAPITALIZED.
</FN>
</TABLE>
