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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ECHOSTAR COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 88-0336997
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5701 South Santa Fe Drive
Littleton, Colorado 80120
(303) 723-1000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
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David K. Moskowitz, Esq.
Senior Vice President, General Counsel and Secretary
EchoStar Communications Corporation
5701 South Santa Fe Drive
Littleton, Colorado 80120
(303) 723-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE PRICE PER AGGREGATE REGISTRATION
REGISTERED REGISTERED SHARE (1) OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Class A Common Stock, $.01 par value 61,200 $41.563 $2,543,656 $672
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</TABLE>
(1) Estimated solely for the purpose of determining the Registration Fee
pursuant to Rule 457 (c).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
(ii)
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SUBJECT TO COMPLETION, DATED NOVEMBER 1, 2000
ECHOSTAR COMMUNICATIONS CORPORATION
61,200 SHARES OF CLASS A COMMON STOCK
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This prospectus relates to the proposed sale from time to time of up to
61,200 shares of our Class A common stock by a selling shareholder. The selling
shareholder acquired her shares when we acquired Kelly Broadcasting Systems,
Inc. in February 2000.
The selling shareholder may sell all or any portion of her shares of
Class A common stock in one or more transactions on the Nasdaq National Market
or in private, negotiated transactions. We will not receive any of the proceeds
from the sale of the shares by the selling shareholder. The selling shareholder
will pay all registration and selling expenses, including any brokerage
commissions.
Our common stock is traded on the Nasdaq National Market under the
symbol "DISH." On October 31, 2000 the last reported sale price of our common
stock on the Nasdaq National Market was $45.25 per share.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read this entire prospectus
and any amendments or supplements carefully before you make your investment
decision.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN RISKS YOU SHOULD CONSIDER
BEFORE YOU PURCHASE ANY SHARES OF CLASS A COMMON STOCK.
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Neither the SEC nor any state securities commission has approved or determined
whether this prospectus is truthful or complete. Nor have they made, nor will
they make, any determination as to whether anyone should buy these securities.
Any representation to the contrary is a criminal offense.
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Prospectus Dated, November 1, 2000
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Where you can find more information...........................................3
Forward-looking statements....................................................3
Risk factors..................................................................6
Description of our capital stock.............................................21
Use of proceeds..............................................................24
Selling shareholder..........................................................24
Plan of distribution.........................................................24
Legal Matters................................................................26
Experts......................................................................26
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. NO
ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION.
THE SHARES OF CLASS A COMMON STOCK ARE NOT BEING OFFERED IN ANY
JURISDICTION WHERE THE OFFER IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THOSE DOCUMENTS.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document that we file
with the SEC at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to you free of
charge at the SEC's web site at http://www.sec.gov.
Our common stock is traded as "National Market Securities" on the
Nasdaq National Market. Material filed by us can be inspected at the offices of
the National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede previously filed
information, including information contained in this document.
We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until this offering has been completed:
o Our Annual Report on Form 10-K for the year ended December 31,
1999.
o Our Quarterly Report on Form 10-Q for the quarter ended March
31, 2000.
o Our Quarterly Report on Form 10-Q for the quarter ended June
30, 2000.
o Our Current Reports on Form 8-K filed February 28, 2000,
September 12, 2000 and September 25, 2000.
o The description of our common stock set forth in our
Registration Statement on Form 8-A filed on May 30, 1995.
You may request free copies of these filings by writing or telephoning
us at our principal offices, which are located at the following address:
EchoStar Communications Corporation
5701 South Santa Fe Drive
Littleton, Colorado 80120
Attention: David K. Moskowitz, Esq.
(303) 723-1000
FORWARD-LOOKING STATEMENTS
All statements contained in this prospectus, as well as statements made
in press releases and oral statements that may be made by us or by officers,
directors or employees acting on our behalf, that are not statements of
historical fact constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known or unknown risks, uncertainties and other factors that
could cause our actual results to be materially different from historical
results or from any future results expressed or implied by such forward-looking
statements. The "Risk factors" section of this prospectus, commencing on page 5,
summarizes certain of the material risks and uncertainties that could cause our
actual results to differ materially. In addition to statements that explicitly
describe such risks and uncertainties, readers are urged to consider statements
that include the terms "believes," "belief," "expects," "plans," "anticipates,"
"intends" or the like to be uncertain and forward-looking. All cautionary
statements made herein should be read as being applicable to all forward-looking
statements wherever they appear. In this connection, investors should consider
the risks described herein and should not place undue reliance on any
forward-looking statements.
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ECHOSTAR COMMUNICATIONS CORPORATION
We are a leading provider of direct broadcast satellite, or DBS,
television services in the United States through our DISH Network business unit.
We are also an international supplier of digital satellite receiver systems and
a provider of other satellite services.
THE DISH NETWORK
We started offering subscription television services on the DISH
Network in March 1996. As of June 30, 2000, more than 4.3 million households
subscribed to DISH Network programming services. From January 1, 1999 to June
30, 2000, our market share of net new DBS customers was 55%. We now have six DBS
satellites in orbit which enable us to provide over 500 video and audio
channels, together with data services and high definition and interactive TV
services, to consumers across the continental United States through the use of
one small satellite dish. We believe that the DISH Network offers programming
packages that have a better "price-to-value" relationship than packages
currently offered by most other subscription television providers. As of June
30, 2000, approximately 14.5 million United States households subscribed to
direct broadcast satellite and other direct-to-home satellite services. We
believe that there continues to be significant unsatisfied demand for high
quality, reasonably priced television programming services.
In addition, we are developing a wide range of interactive, Internet
and high-speed data services. During 1999, we began offering to consumers our
first of its kind DISHPlayer, which combines a satellite receiver, digital VCR,
gaming and Internet access capabilities all in one box. Customers using our
current DISHPlayer receivers have the capability to store up to 12 hours of
programming on the receiver's hard drive. We have made strategic investments in
OpenTV and Wink Communications, two leading enablers of interactive technology.
We have also made strategic investments in StarBand Communications (formerly
Gilat-To-Home) and Wildblue Communications (formerly iSky, Inc.), both of which
intend to offer two-way "always-on" broadband Internet access across the
continental U.S. We expect to offer this access to existing and new DISH Network
customers along with our television services through a convenient single dish
solution beginning in late 2000.
ECHOSTAR TECHNOLOGIES CORPORATION
In addition to supplying EchoStar satellite receiver systems for the
DISH Network, our EchoStar Technologies Corporation subsidiary supplies similar
digital satellite receivers to international satellite TV service operators. Our
two major customers are Via Digital, a subsidiary of Telefonica, Spain's
national telephone company, and Bell ExpressVu, a subsidiary of Bell Canada,
Canada's national telephone company.
SATELLITE SERVICES
Our Satellite Services business unit primarily leases capacity on our
satellites to customers, including international services that broadcast foreign
language programming to our subscribers, and Fortune 1000 companies that use our
business television service to communicate with employees, customers,
distributors, and suppliers located around the United States.
BUSINESS STRATEGY
Our primary objective is to continue to expand our DISH Network
subscriber base and to develop as an integrated, full-service satellite company.
To achieve this objective, we plan to:
o Leverage our significant share of the DBS spectrum to offer
more channels than any other video provider in the United
States, and by offering unique programming services that will
differentiate us from our competition. These services include
satellite-delivered local signals and niche and foreign
language services;
o Offer marketing promotions that will enhance our position as a
leading provider of value-oriented programming services and
receiver systems;
o Utilize our orbital assets and strategic relationships to
provide interactive and high speed Internet access to DISH
Network customers via a convenient single dish solution;
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o Expand and improve DISH Network distribution channels;
o Develop our EchoStar Technologies Corporation and Satellite
Services businesses; and
o Emphasize one-stop shopping for DBS services and equipment and
superior customer service.
RECENT DEVELOPMENTS
EchoStar VI
On October 13, 2000, we announced that EchoStar VI, our sixth direct
broadcast satellite which launched successfully on July 14, 2000, from Cape
Canaveral, Florida, has reached its final orbital location at 119 degree West
Longitude as assigned under a special temporary authority by the FCC. EchoStar
VI was launched to the 148 degree orbital location for testing and was later
relocated to the 119 degree orbital location where it now is broadcasting
satellite TV channels to over 4.3 million DISH Network customers nationwide,
including Alaska and Hawaii. To date, all systems on the satellite are operating
normally.
10 3/8% Senior Notes due 2007
On September 25, 2000, our wholly-owned subsidiary, EchoStar Broadband
Corporation ("EBC"), closed on the sale of $1 billion of 10 3/8% Senior Notes
due 2007 (the "EBC Notes"). The proceeds of the EBC Notes will be used primarily
by our subsidiaries for the construction and launch of additional satellites,
strategic acquisitions and other general working capital purposes. Under the
terms of the indenture governing the EBC Notes (the "EBC Indenture"), EBC has
agreed to cause its subsidiary, EchoStar DBS Corporation ("EDBS") to make an
offer to exchange (the "EDBS Exchange Offer") all of the outstanding EBC Notes
for a new class of notes issued by EDBS as soon as practical following the first
date (as reflected in EDBS' most recent quarterly or annual financial
statements) on which EDBS is permitted to incur indebtedness in an amount equal
to the outstanding principal balance of the EBC Notes under the "Indebtedness to
Cash Flow Ratio" test contained the indentures (the "EDBS Indentures") governing
the EDBS 9 1/4% Senior Notes due 2006 and 9 3/8% Senior Notes due 2009
(collectively the "EDBS Notes"), and such incurrence of indebtedness would not
otherwise cause any breach or violation of, or result in a default under, the
terms of the EDBS Indentures.
On October 25, 2000, as contemplated by the terms of the EBC Indenture,
EDBS amended the terms of the EDBS Indentures to provide that the recording of
some or all of the indebtedness represented by the EBC Notes on the EDBS balance
sheet as a result of the application of generally accepted accounting principles
and related rules prior to the completion of the EDBS Exchange Offer would not
be deemed to constitute an incurrence of indebtedness for certain purposes under
the EDBS Indentures. These amendments were approved by more than a majority in
principal amount of each issue of the EDBS Notes. The cost of obtaining these
consents was immaterial to EchoStar.
Starsight
In October of 2000, Starsight Telecast, Inc., a subsidiary of Gemstar
- TV Guide, filed a suit for patent infringement against us and certain of our
subsidiaries in the United States District Court for the Western District of
North Carolina, Asheville Division. The suit alleges infringement of United
States Patent No. 4,706,121. We have examined this patent and have obtained an
opinion from patent counsel that it is not infringed by any of our products or
services. We intend to vigorously defend against this action and to assert a
variety of counterclaims.
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RISK FACTORS
You should carefully consider all of the information contained in this
prospectus before deciding whether to invest in our class A common stock and, in
particular, the following factors:
RISKS PRIMARILY RELATED TO OUR BUSINESS
INCREASED SUBSCRIBER TURNOVER COULD AFFECT OUR FINANCIAL PERFORMANCE
Our churn, which is the rate at which subscribers turn over, increased
during 1999, but did not further increase during the six months ended June 30,
2000. Our maturing subscriber base, together with the effects of rapid growth,
were primarily responsible for the increase in churn during 1999. Rapid growth
resulted in customer installation delays, and the effectiveness of our customer
service was also impacted. We are rapidly expanding our customer service and
installation capabilities in response to our increased business, but churn may
increase until we have completed the upgrades to our infrastructure. Further,
our litigation with the networks in Miami, and other factors, could cause us to
terminate delivery of distant network channels to a material portion of our
subscriber base, which could cause many of those customers to cancel their
subscription to our other services. Any such terminations could result in a
small reduction in average monthly revenue per subscriber and could result in
increased churn. There can be no assurance that we will be able to maintain
churn below satellite industry averages during the remainder of 2000 or
thereafter.
INCREASED SUBSCRIBER ACQUISITION COSTS COULD AFFECT OUR FINANCIAL PERFORMANCE
We subsidize the purchase and installation of EchoStar receiver systems
in order to attract new DISH Network subscribers. Consequently, our subscriber
acquisition costs are significant. Our average subscriber acquisition cost was
$437 during the six months ended June 30, 2000. Our Digital Dynamite promotion
allows us to capitalize and depreciate over 4 years certain costs that would
otherwise be expensed at the time of sale but also results in increased capital
expenditures. Capital expenditures under our Digital Dynamite promotion totaled
approximately $4 million for the six months ended June 30, 2000. As a result of
continuing competition and our plans to attempt to continue to drive rapid
subscriber growth, we expect our per subscriber acquisition costs for 2000 may
average as much as $450 or more for the full year. Our subscriber acquisition
costs, both in the aggregate and on a per new subscriber activation basis, may
materially increase to the extent that we continue or expand our bounty program,
our "free system/free installation" program, the DISH Network One-Rate Plan, or
other more aggressive promotions if we determine that they are necessary to
respond to competition, or for other reasons.
Most of our core programming is broadcast from our satellites at the
119 degree orbital location, and almost all of our subscribers have EchoStar
receiver systems that can view programming from that location. With the
commencement of additional services from the 110 degree orbital location
following the successful launch of EchoStar V, our existing subscribers who have
not already done so, will need to upgrade their dish and receiver systems in
order to take advantage of the additional services we now offer. To encourage
existing subscribers to upgrade their systems and remain subscribers, we are
currently subsidizing upgrades to our DISH 500 system customers, which receives
programming from both the 110 degree and 119 degree orbital locations. The cost
to us of this program could be significant if a large number of our existing
subscribers participate, though upgrades may also result in increased revenue
per subscriber.
Any material increase in subscriber acquisition costs from current
levels could have a material adverse effect on our business and results of
operations.
WE MAY BE UNABLE TO MANAGE RAPIDLY EXPANDING OPERATIONS
If we are unable to manage our growth effectively, it could materially
adversely affect our business and results of operations. To manage our growth
effectively, we must continue to develop our internal and external sales forces,
installation capability, customer service operations and information systems,
and maintain our relationships
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with third party vendors. We also need to continue to expand, train and manage
our employee base, and our management personnel must assume even greater levels
of responsibility.
Significant increases in the number of new subscribers resulted in
customer service and installation delays and an increase in our subscriber churn
during the beginning of the second quarter of 2000. If we are unable to continue
to develop our installation capability and customer service operations in a
timely manner to effectively manage this growth, we may experience a decrease in
subscriber growth and an increase in subscriber churn which could have a
material adverse effect on our business and results of operations.
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE, IN ORDER TO CONTINUE
GROWING AND INCREASE EARNINGS
Our ability to increase earnings, and the market value and liquidity of
our common stock will depend, in part, on our ability to continue growing our
business by maintaining and increasing our subscriber base. This may require
significant additional capital that we cannot be certain will be available to
us.
Currently the funds necessary to meet subscriber acquisition costs and
upgrades of existing subscribers to DISH 500 systems will be satisfied from
existing cash and investment balances to the extent available. We may, however,
be required to raise additional capital in the future to meet these
requirements. We cannot assure you that additional financing will be available
on acceptable terms, or at all, if needed in the future.
In addition, we have conditional licenses or applications pending with
the FCC for a two satellite Ku-band system, a two satellite Ka-band system, a
two satellite extended Ku-band system and (through a partly owned subsidiary) a
six satellite low earth orbit satellite system. We may need to raise additional
funds to fully develop these systems. Further, a number of factors, some of
which are beyond our control or ability to predict, could require us to raise
additional capital. These factors include, among other things, higher than
expected subscriber acquisition costs or a defect in or the loss of any
satellite. We cannot assure you that we will be able to raise additional capital
at the time necessary or on satisfactory terms. The inability to raise
sufficient capital would have a material adverse effect on our business.
IMPEDIMENTS TO RETRANSMISSION OF LOCAL AND DISTANT BROADCAST SIGNALS; OUR LOCAL
AND DISTANT PROGRAMMING STRATEGY FACES UNCERTAINTY
The Copyright Act, as amended by the Satellite Home Viewer Improvement
Act of 1999, permits satellite retransmission of distant network channels only
to "unserved households." Whether a household qualifies as "unserved" for the
purpose of eligibility to receive a distant network channel depends, in part, on
whether that household can receive a signal of "Grade B intensity" as defined by
the FCC. In February 1999, the FCC released a report and order on these matters.
Although the FCC declined to change the values of Grade B intensity, it adopted
a method for measuring it at particular households. The FCC also endorsed a
method for predicting Grade B intensity at particular households. Later in 1999,
the FCC denied in part and granted in part our petition for reconsideration,
allowing us some additional flexibility in the method for measuring Grade B
intensity but denying our requests on other matters. We cannot be sure whether
these methods are favorable to us or what weight, if any, the courts will give
to the FCC's decision. In addition, the Satellite Home Viewer Improvement Act,
enacted in November 1999, instructed the FCC to establish a predictive model
based on the model it had endorsed in February 1999 and also directed the FCC to
ensure that its predictive model takes account of terrain, building structures
and other land cover variations. The FCC recently issued a report and order that
does not adjust the model to reflect such variations for any VHF stations.
Failure to account for these variations could hamper our ability to retransmit
distant network and superstation signals. The broadcast interests and we have
filed petitions for reconsideration of the FCC's action. We cannot be sure that
the FCC's action on reconsideration will not be even more unfavorable to us.
The Satellite Home Viewer Improvement Act of 1999 has also established
a process whereby consumers predicted to be served by a local station may
request that this station waive the unserved household limitation so that the
requesting consumer may receive distant signals by satellite. If the waiver
request is denied, the Satellite Home Viewer Improvement Act of 1999 entitles
the consumer to request an actual test, with the cost to be borne by either us
or the broadcast station depending on the results. The FCC staff has informally
raised questions about our
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implementation of that process. We can provide no assurance that the FCC will
find that our implementation of the process is in compliance with these rules.
Furthermore, the FCC has recently identified a third party organization to
examine and propose tester qualification and other standards for testing. We
cannot be sure that this decision will not have an adverse effect on our ability
to test whether a consumer is eligible for distant signals.
In addition, the Satellite Home Viewer Improvement Act of 1999 could
adversely affect us in several other respects. The legislation prohibits us from
carrying more than two distant signals for each broadcasting network and leaves
the FCC's Grade B intensity standard unchanged without future legislation. While
the Satellite Home Viewer Improvement Act of 1999 reduces the royalty rate that
we currently pay for superstation and distant network signals, it directs the
FCC to require us (within one year from November 29, 1999) to delete substantial
programming (including sports programming) from these signals. These
requirements may significantly hamper our ability to retransmit distant network
and superstation signals, and may require us to stop retransmitting many or all
superstation signals.
In connection with implementation of the Satellite Home Viewer
Improvement Act of 1999 and other factors, we believe hundreds of thousands of
consumers have lost or could lose access to network channels by satellite. In
anticipation of passage of the legislation, and for other reasons, we have
ceased providing distant network channels to tens of thousands of customers.
These turn offs, together with others, could result in a temporary material
increase in churn and a small reduction in revenue per subscriber. Further,
under the law, broadcasters could seek a permanent injunction on our sales of
both distant and local network channels, which would have a material adverse
effect on our churn, revenue, ability to attract new subscribers, and our
business operations generally.
The Satellite Home Viewer Improvement Act of 1999 generally gives
satellite companies a statutory copyright license to retransmit local-into-local
network programming, subject to obtaining the retransmission consent of the
local network station. Where the retransmission consent or short-term extensions
were not obtained from a particular local network station on or before May 29,
2000 (the six month anniversary of the act), we were required to cease
retransmission of the station's signals. Retransmission consent agreements are
important to us because a failure to reach such agreements with broadcasters
could have an adverse effect on our strategy to compete with cable and other
satellite companies, which provide local signals. The Satellite Home Viewer
Improvement Act of 1999 requires broadcasters to negotiate retransmission
consent agreements in good faith. In accordance with the requirements of the
Satellite Home Viewer Improvement Act of 1999, the FCC has promulgated rules
governing broadcasters' good faith negotiation obligation. These rules allow
satellite providers to file complaints with the FCC against broadcasters for
violating the duty to negotiate retransmission consent agreements in good faith.
Currently, the degree to which the rules will be of practical benefit to us in
our efforts to obtain all necessary retransmission consent agreements remains
unclear. While we have been able to reach retransmission consent agreements with
each of the local network stations we currently carry, our planned roll-out of
local channels in more cities will require additional agreements, and we cannot
be sure that we will secure these agreements, or that we will secure new
agreements upon the expiration of our current retransmission consent agreements,
some of which are short term.
Many other provisions of the Satellite Home Viewer Improvement Act of
1999 could adversely affect us. Among other things, the law includes the
imposition of "must carry" requirements on DBS providers. The "must carry" rules
generally would require that commencing in January 2002 satellite distributors
carry all the local broadcast stations in areas they choose to offer local
programming, not just the four major networks. Since we have limited capacity,
the number of markets in which we can offer local programming would be reduced
by the "must carry" requirement to carry large numbers of stations in each
market we serve. The legislation also includes provisions which could expose us
to material monetary penalties, and permanent prohibitions on the sale of all
local and distant network channels, based on what could be considered even
inadvertent violations of the legislation, prior law, or the FCC rules, some of
which have not yet been finalized and which could adversely impact our ability
to comply with "must carry". Imposition of these penalties would have a material
adverse effect on our churn, revenue, ability to attract new subscribers, and
our business operations generally. Consistent with the requirements of the
Satellite Home Viewer Improvement Act of 1999, the FCC has commenced rulemakings
on, among other things, (i) the requirements for satellite carriers to delete
(blackout) programming from certain broadcast signals, and (ii)
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"must carry" rules. The blackout rules must be effective by November 29, 2000.
We cannot be sure that these proceedings will result in rules that are favorable
to us, and we believe that some of the resulting rules will adversely affect us.
TV NETWORKS OPPOSE OUR STRATEGY OF DELIVERING DISTANT NETWORK SIGNALS
Until July 1998, we obtained distant broadcast network channels (ABC,
NBC, CBS and FOX) for distribution to our customers through PrimeTime 24. In
December 1998, the United States District Court for the Southern District of
Florida entered a nationwide permanent injunction requiring PrimeTime 24 to shut
off distant network channels to many of its customers, and henceforth to sell
those channels to consumers in accordance with certain stipulations in the
injunction.
In October 1998, we filed a declaratory judgment action against ABC,
NBC, CBS and FOX in Denver Federal Court. We asked the court to enter a judgment
declaring that our method of providing distant network programming did not
violate the Satellite Home Viewer Act and hence did not infringe the networks'
copyrights. In November 1998, the networks and their affiliate groups filed a
complaint against us in Miami Federal Court alleging, among other things,
copyright infringement. The court combined the case that we filed in Colorado
with the case in Miami and transferred it to the Miami court. The case remains
pending in Miami. While the networks have not sought monetary damages, they have
sought to recover attorney fees if they prevail.
In February 1999, the networks filed a "Motion for Temporary
Restraining Order, Preliminary Injunction and Contempt Finding" against DirecTV,
Inc. in Miami related to the delivery of distant network channels to DirecTV
customers by satellite. DirecTV settled this lawsuit with the networks. Under
the terms of the settlement between DirecTV and the networks, some DirecTV
customers were scheduled to lose access to their satellite- provided distant
network channels by July 31, 1999, while other DirecTV customers were to be
disconnected by December 31, 1999. Subsequently, PrimeTime 24 and substantially
all providers of satellite-delivered network programming other than us agreed to
this cut-off schedule, although we do not know if they adhered to this schedule.
In December 1998, the networks filed a Motion for Preliminary
Injunction against us in the Miami court , and asked the court to enjoin us from
providing network programming except under limited circumstances. A preliminary
injunction hearing was held on September 21, 1999. The court took the issues
under advisement to consider the networks' request for an injunction, whether to
hear live testimony before ruling upon the request, and whether to hear argument
on why the Satellite Home Viewer Act may be unconstitutional, among other
things.
In March 2000, the networks filed an emergency motion again asking the
court to issue an injunction requiring us to turn off network programming to
certain of our customers. At that time, the networks also argued that our
compliance procedures violate the Satellite Home Viewer Improvement Act. We
opposed the networks' motion and again asked the court to hear live testimony
before ruling upon the networks' injunction request.
On September 29, 2000, the Court granted the Networks' motion for
preliminary injunction, denied the Network's emergency motion and denied our
request to present live testimony and evidence. The Court's original order
required EchoStar to terminate network programming to certain subscribers "no
later than February 15, 1999", and contained other dates which would be
physically impossible to comply with. The order imposes restrictions on our past
and future sale of distant ABC, NBC, CBS and Fox channels similar to those
imposed on PrimeTime 24 (and, we believe, on DirecTV and others). Some of those
restrictions go beyond the statutory requirements imposed by the Satellite Home
Viewer Act and the Satellite Home Viewer Improvement Act. For these and other
reasons we believe the Court's order is, among other things, fundamentally
flawed, unconstitutional and should be overturned. However, it is very unusual
for a Court of Appeals to overturn a lower court's order and there can be no
assurance whatsoever that it will be overturned.
On October 3, 2000, and again on October 25, 2000, the Court amended
its original preliminary injunction order in an effort to fix some of the errors
in the original order. The twice amended preliminary injunction order requires
us to shut off, by February 15, 2001, all subscribers who are ineligible to
receive distant network programming under the court's order. We have appealed
the September 29, 2000 preliminary injunction order and
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the October 3, 2000 amended preliminary injunction order. We have also asked the
United States Court of Appeals for the Eleventh Circuit to stay the preliminary
injunction orders pending the appeal. The Eleventh Circuit has ordered the
networks to file a brief with the Court of Appeals by November 6, 2000, and that
we respond to that brief by November 9, 2000. Additional briefing schedules and
rulings from the Miami Court and from the Court of Appeals could occur at any
time. Our effort to seek a stay of the preliminary injunction may not be
successful and we may be required to comply with the dates provided in the
Court's preliminary injunction order. The preliminary injunction could force us
to terminate delivery of distant network channels to a substantial portion of
our distant network subscriber base, which could also cause many of these
subscribers to cancel their subscription to our other services. Such
terminations would result in a small reduction in our reported average monthly
revenue per subscriber' and could result in a temporary increase in churn.
WE DEPEND ON THE CABLE ACT FOR ACCESS TO OTHERS' PROGRAMMING
Any change in the Cable Consumer Protection and Competition Act of
1992, which we refer to as the Cable Act, and the FCC's rules that permit the
cable industry or cable-affiliated programmers to discriminate against competing
businesses, such as ours, in the sale of programming could adversely affect our
ability to acquire programming at all or to acquire programming on a
cost-effective basis. Under the Cable Act and the FCC's rules, cable-affiliated
programmers generally must offer programming they have developed to all multi-
channel video programming distributors on non-discriminatory terms and
conditions. The Cable Act and the FCC's rules also prohibit some types of
exclusive programming contracts. We purchase a substantial percentage of our
programming from cable-affiliated programmers. Some of these restrictions on
cable-affiliated programmers will expire in 2002 unless the FCC extends the
rules. While we have filed several complaints with the FCC alleging
discrimination, exclusivity, or refusals to deal, we have had limited success in
convincing the FCC to grant us relief. The FCC has denied or dismissed many of
our complaints, and we believe has generally not shown a willingness to enforce
the program access rules stringently. As a result, we may be limited in our
ability to obtain access (or non- discriminatory access) to cable-affiliated
programming. In addition, the FCC recently modified certain of its attribution
rules that determine whether a programmer is affiliated with a cable operator
and therefore subject to the program access obligations. We do not yet know the
implications or impact of these modified rules.
WE EXPECT OPERATING LOSSES THROUGH AT LEAST 2000 AND CANNOT BE CERTAIN THAT WE
WILL ACHIEVE OR SUSTAIN OPERATING PROFITABILITY OR POSITIVE CASH FLOW FROM
OPERATING ACTIVITIES
Due to the substantial expenditures necessary to complete construction,
launch and deployment of our direct broadcast satellite system and introduction
of our DISH Network service to consumers, we have sustained significant losses.
If we do not have sufficient income or another source of cash, it could
eventually affect our ability to service our debt and pay our other obligations.
Our operating losses were $224 million, $123 million and $347 million for the
years ended December 31, 1997, 1998 and 1999, respectively, and $107 million and
$228 million for the six months ended June 30, 1999 and 2000. We had net losses
of $313 million, $261 million and $793 million for the years ended December 31,
1997, 1998 and 1999, respectively, and $448 million and $318 million for the six
months ended June 30, 1999 and 2000. Improvements in our results of operations
depend largely upon our ability to increase our customer base while maintaining
our price structure, effectively managing our costs and controlling churn. We
cannot assure you that we will be effective with regard to these matters. In
addition, we incur significant acquisition costs to obtain DISH Network
subscribers. These costs, which may continue to increase, magnify the negative
effects of churn. We anticipate that we will continue to experience operating
losses through 2000. These operating losses may continue beyond 2000.
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WE COMPETE WITH CABLE TELEVISION AND OTHER LAND-BASED SYSTEMS, WHICH COULD
AFFECT OUR ABILITY TO GROW AND INCREASE EARNINGS
We encounter substantial competition in the subscription television
market from cable television and other land-based systems. Cable television
operators have a large, established customer base, and many cable operators have
significant investments in, and access to, programming. Cable television service
is currently available to more than 90% of the approximately 100 million U.S.
television households, and approximately 68% of total U.S. households currently
subscribe to cable. Cable television operators currently have an advantage
relative to us by providing service to multiple television sets within the same
household at no additional cost. Cable operators may also obtain a competitive
advantage through bundling their analog video service with expanded digital
video services delivered terrestrially or via satellite, efficient 2-way high
speed data transmission, improving their digital cable products, and telephone
service on upgraded cable systems. For example, some cable companies now offer
high speed Internet access over their upgraded fiber optic systems, and AT&T has
announced that it is seeking to provide telephone service over Time Warner's
cable system. As a result of these and other factors, we may not be able to
continue to expand our subscriber base or compete effectively against cable
television operators.
When fully deployed, new technologies could have a material adverse
effect on the demand for our direct broadcast satellite services. For example,
new and advanced local multi-point distribution services are still in the
development stage. In addition, entities such as regional telephone companies,
which are likely to have greater resources than we have, are implementing and
supporting digital video compression over existing telephone lines and digital
"wireless cable." Moreover, mergers, joint ventures, and alliances among
franchise, wireless or private cable television operators, regional Bell
operating companies and others may result in providers capable of offering
bundled cable television and telecommunications services in competition with us.
For instance, AT&T has acquired cable operators TCI and MediaOne. We may not be
able to compete successfully with existing competitors or new entrants in the
market for subscription television services.
WE FACE INTENSE COMPETITION FROM DIRECT BROADCAST SATELLITE AND OTHER SATELLITE
SYSTEM OPERATORS, WHICH COULD AFFECT OUR ABILITY TO GROW AND INCREASE EARNINGS
Our ability to increase earnings will partly depend on our ability to
compete in the highly competitive subscription television industry. We compete
with companies offering video, audio and data programming and entertainment
services, including cable operators and other satellite operators. Many of these
competitors have substantially greater financial, marketing and other resources
than we have.
One competitor, DirecTV, has launched five high powered direct
broadcast satellites and has 46 direct broadcast satellite frequencies that are
capable of full coverage of the continental United States. DirecTV currently
offers more than 300 channels of combined video and audio programming and, as of
September 30, 2000, had over 9 million subscribers. DirecTV is, and will be for
the foreseeable future, in an advantageous position with regard to market entry,
programming, such as DirecTV's exclusive sports programming and, possibly,
volume discounts for programming offers.
In addition, other companies in the U.S., including a subsidiary of
Loral Space and Communications Limited and BellSouth have conditional permits or
have leased transponders for a comparatively small number of direct broadcast
satellite assignments that can be used to provide service to portions of the
United States.
The FCC has proposed to allocate additional expansion spectrum for
direct broadcast satellite services, which could create significant additional
competition in the market for subscription television services.
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OUR BUSINESS RELIES ON THE INTELLECTUAL PROPERTY OF OTHERS AND WE MAY
INADVERTENTLY INFRINGE THEIR PATENTS AND PROPRIETARY RIGHTS
Many entities, including some of our competitors, now have and may in
the future obtain patents and other intellectual property rights that cover or
affect products or services directly or indirectly related to those that we
offer. In general, if a court determines that one or more of our products
infringes on intellectual property held by others, we would be required to cease
developing or marketing those products, to obtain licenses to develop and market
those products from the holders of the intellectual property, or to redesign
those products in such a way as to avoid infringing the patent claims. If a
competitor holds intellectual property rights, the entity might be predisposed
to exercise its right to prohibit our use of its intellectual property in our
products and services at any price, thus impacting our competitive position.
We cannot assure you that we are aware of all patents and other
intellectual property rights that our products may potentially infringe. In
addition, patent applications in the United States are confidential until the
Patent and Trademark Office issues a patent and, accordingly, we cannot evaluate
the extent to which our products may infringe claims contained in pending patent
applications. Further, it is often not possible to determine definitively
whether a claim of infringement is valid, absent protracted litigation.
We cannot estimate the extent to which we may be required in the future
to obtain licenses with respect to patents held by others and the availability
and cost of any such licenses. Those costs, and their impact on net income,
could be material. Damages in patent infringement cases can also include a
tripling of actual damages in certain cases. To the extent that we are required
to pay royalties to third parties to whom we are not currently making payments,
these increased costs of doing business could negatively affect our liquidity
and operating results. Various parties have asserted patent and other
intellectual property rights with respect to components within our direct
broadcast satellite system. We cannot be certain that these persons do not own
the rights they claim, that our products do not infringe on these rights, that
we would be able to obtain licenses from these persons on commercially
reasonable terms or, if we were unable to obtain such licenses, that we would be
able to redesign our products to avoid infringement. During October 2000,
Starsight Telecast, Inc., a subsidiary of Gemstar - TV Guide, filed a suit for
patent infringement against us and certain of our subsidiaries in the United
States District Court for the Western District of North Carolina, Asheville
Division. The suit alleges infringement of United States Patent No. 4,706,121.
We have examined this patent and have obtained an opinion from patent counsel
that it is not infringed by any of our products or service. We intend to
vigorously defend against this action and to assert a variety of counterclaims.
While Starsight has a history of widely licensing its patents, the fees proposed
by Starsight to license the patent at issue in this case is substantial. In the
event that we are ultimately determined to infringe on the patent an injunction
that would prevent us from providing customers with a consumer friendly on
screen programming guide, and substantial damages, could result.
SATELLITE PROGRAMMING SIGNALS HAVE BEEN PIRATED, WHICH COULD CAUSE US TO LOSE
SUBSCRIBERS AND REVENUE
The delivery of subscription programming requires the use of encryption
technology to assure only those who pay can receive the programming. It is
illegal to create, sell or otherwise distribute mechanisms or devices to
circumvent that encryption. Theft of cable and satellite programming has been
widely reported and our signal encryption has been pirated and could be further
compromised in the future. We continue to respond to compromises of our
encryption system with measures intended to make signal theft of our programming
commercially uneconomical. We utilize a variety of tools to continue to
accomplish this goal. Ultimately, if other measures are not successful, it could
be necessary to replace the credit card size card that controls the security of
each consumer set-top box at a material cost to us. If we can not promptly
correct a compromise in our encryption technology, it would adversely affect our
revenue and our ability to contract for video and audio services provided by
programmers.
THE REGULATORY REGIME WE OPERATE UNDER COULD CHANGE ADVERSELY
The FCC imposes different rules for "subscription" and "broadcast"
services. We believe that because we offer a subscription programming service,
we are not subject to many of the regulatory obligations imposed upon broadcast
licensees. However, we cannot be certain whether the FCC will find in the future
that we should comply
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with regulatory obligations as a broadcast licensee with respect to our current
and future operations, and certain parties have requested that we be treated as
a broadcaster. If the FCC determined that we are a broadcast licensee, the FCC
may require us to comply with all regulatory obligations imposed upon broadcast
licensees, which are generally subject to more burdensome regulation than
subscription service providers.
Under a requirement of the Cable Act, the FCC imposed public interest
requirements on direct broadcast satellite licensees, such as us, to set aside
four percent of channel capacity exclusively for noncommercial programming for
which we must charge programmers below-cost rates and for which we may not
impose additional charges on subscribers. This could also displace programming
for which we could earn commercial rates and could adversely affect our
financial results. The FCC has not reviewed our methodology for computing the
channel capacity we must set aside or for determining the rates that we charge
public interest programmers, and we cannot be sure that if the FCC were to
review these methodologies, it would find them in compliance with the public
interest requirements.
Under a requirement of the Telecommunications Act of 1996, the FCC
recently imposed upon broadcasters and certain multichannel video programming
distributors, including us, the responsibility of providing video description
for visually impaired persons. Video description involves the insertion into a
television program of narrated descriptions of settings and actions that are not
otherwise reflected in the dialogue, and is typically provided through the
Secondary Audio Programming (SAP) channel. Commencing April 12, 2002, affected
multichannel video programming distributors like us will be required to provide
video description for a minimum of 50 hours per calendar quarter (roughly four
hours per week) of prime time and/or children's programming on each of any of
the top five national non-broadcast networks they carry. In addition,
distributors will be required to "pass through" any video description they
receive from a broadcast station or non-broadcast network if the multichannel
video programming distributor has the technical capability necessary to do so
associated with the channel on which it distributes the programming with video
description. While the FCC acknowledged that programming networks, and not
multichannel video programming distributors, may actually describe the
programming, it declared that for ease of enforcement and monitoring compliance
it would hold distributors responsible for compliance. We cannot be sure that
these requirements will not impose an excessive burden on us.
The FCC has commenced a rulemaking which seeks to streamline and revise
its rules governing direct broadcast satellite operators. This rulemaking
concerns many new possible direct broadcast satellite rules. There can be no
assurance about the content and effect of any new direct broadcast satellite
rules passed by the FCC.
The FCC has proposed allowing non-geostationary orbit fixed satellite
services to operate on a co-primary basis in the same frequency as DBS and
Ku-based FSS services. If the proposal is adopted, these satellite operations
could provide global high-speed data services. This would, among other things,
create additional competition for satellite and other services. The FCC has also
requested comment on a request that would allow a terrestrial service proposed
by Northpoint Communications, Inc. to retransmit local television or other video
and data services to DBS subscribers or others in the same DBS spectrum that we
use throughout the United States. Furthermore, the Satellite Home Viewer
Improvement Act of 1999 requires the FCC to make a determination by November 29,
2000 regarding licenses for facilities that will retransmit broadcast signals to
underserved markets by using spectrum otherwise allocated to commercial use,
possibly including our DBS spectrum. Northpoint has been allowed by the FCC to
conduct experimental operations in Texas and Washington, D.C. We have sent a
joint letter with DirecTV to the FCC expressing concern over the Northpoint
request, which in our view, may cause potential harmful and substantial
interference to the service provided to DBS customers. DirecTV and we have also
jointly conducted tests of Northpoint's proposed technology and have presented
our test results, which in our view show harmful interference from Northpoint's
proposed service, and Northpoint has opposed this joint submission. Furthermore,
on April 18, 2000, PDC Broadband Corporation filed an application similar to the
one filed by Northpoint. If Northpoint, PDC Broadband Corporation or other
entities become authorized to use our spectrum, they could cause harmful and
substantial interference into our service.
OUR BUSINESS DEPENDS SUBSTANTIALLY ON FCC LICENSES THAT CAN EXPIRE OR BE REVOKED
OR MODIFIED
We have licenses to operate EchoStar I and EchoStar II at the 119
degree orbital location, which both expire in 2006, a license to operate 11
frequencies on EchoStar III at the 61.5 degree orbital location, which expires
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in 2008 and an authorization to launch and operate for 10 years EchoStar V and
EchoStar VI at the 110 degree orbital location. Our authorization at the 148
degree orbital location requires us to construct a satellite by December 20,
2000 and to utilize all of our FCC-allocated frequencies at that location by
December 20, 2002, or risk losing those frequencies that we are not using. At
the 61.5 degree orbital location we utilize certain channels beyond our licensed
11 channels, under special temporary authority, which the FCC may refuse to
renew, and which is subject to several restrictive conditions. Third parties
have opposed, and we expect them to continue to oppose, some of our
authorizations or pending and future requests to the FCC for extensions,
modifications, waivers and approvals.
In conjunction with our plan to provide local-into-local broadcast
service as well as cable programming from the 110 degree orbital location, we
moved EchoStar IV to the 119 degree orbital location in early 2000 pursuant to
special temporary authority granted by the FCC which will expire on February 10,
2001. We have an authorization from the FCC to operate that satellite over
certain frequencies at that location, and we have received special temporary
authority to operate the satellite over additional frequencies. Pursuant to that
same special temporary authority, we have moved EchoStar II to the 119.35 degree
orbital location. The moves have allowed us to transition some of the
programming now on EchoStar I and EchoStar II to EchoStar IV, which can provide
service to Alaska and Hawaii from the orbital location. In connection with that
plan, we have also petitioned the FCC to declare that we have met our due
diligence obligations for the 148 degree orbital location, or alternatively to
extend the December 20, 2000 milestone for that location. The State of Hawaii
has opposed that request and there is no assurance that it will be granted by
the FCC. If our request is not granted by the FCC, our license for the 148
degree orbital location may be revoked or canceled. EchoStar VI, which launched
successfully during July 2000, has reached its final orbital location at 119
degree West Longitude as assigned under a special temporary authority by the FCC
which will expire on February 10, 2001. EchoStar VI was launched to the 148
degree orbital location for testing and was later relocated to the 119 degree
orbital location where it now is broadcasting satellite TV channels to over 4.3
million DISH Network customers nationwide, including Alaska and Hawaii. To date,
all systems on the satellite are operating normally. We also intend to move
EchoStar I from the 119 degree orbital location to the 148 degree orbital
location. EchoStar VI commenced commercial service during October 2000. The
operation of EchoStar II and EchoStar IV at the orbital locations described
above requires FCC approval, and we have filed an application for permanent
authorization to operate EchoStar VI at the 119 degree orbital location which is
pending. In general, our plans have involved and still involve the relocation of
satellites either within or slightly outside the "cluster" of a particular
orbital location, or from one orbital location to another where we have various
types of authorizations. These changes require FCC approval, and we cannot be
sure that we will receive all needed approvals for our current and future plans.
Furthermore, the states of Alaska and Hawaii have requested the FCC to impose
conditions on permanent authorization; the conditions sought by Alaska and
Hawaii relate to certain aspects of our service such as prices and equipment.
There can be no assurance as to when and how the FCC will rule on our request
for permanent authorization. It is possible that the FCC could deny our request
or impose onerous conditions upon the authorization. In general, the states of
Alaska and Hawaii have expressed views that our service to these states from
various orbital locations does not comply with our FCC-imposed obligations to
serve those states, and we cannot be sure that the FCC will not accept these
views. Such actions would have a material adverse affect on our business.
Moreover, because ECC cannot meet the geographic service requirements from the
148 degree orbital location, we had to request and obtain a conditional waiver
of these requirements to allow operation of EchoStar I at that location. As a
result, our current authorization to operate EchoStar I at the 148 degree
orbital location is subject to several conditions that may be onerous or that we
may be unable to rectify.
The telemetry, tracking and control operations of EchoStar I are in an
area of the spectrum called the "C-band." Although the FCC granted us
conditional authority to use these frequencies for telemetry, tracking and
control, in January 1996 a foreign government raised an objection to EchoStar
I's use of these frequencies. We cannot be certain whether that objection will
subsequently require us to relinquish the use of such C-band frequencies for
telemetry, tracking and control purposes. Further, EchoStar II's telemetry,
tracking and control operations are in the "extended" C-band. Our authorization
to use these frequencies expired on January 1, 1999. Although we have timely
applied for extension of that authorization to November 2006, we cannot be sure
that the FCC will grant our request. If we lose the ability to use these
frequencies for controlling either satellite, we would lose the satellite.
Recently, the FCC released a notice of proposed rulemaking that may prohibit
future satellite operations in the "extended" C-band frequencies. The FCC also
is no longer accepting earth station applications in that band. These recent
developments might have negative implications for us.
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All of our FCC authorizations are subject to conditions as well as to
the FCC's authority to modify, cancel or revoke them. In addition, all of our
authorizations for satellite systems that are not yet operational, are subject
to construction and progress obligations, milestones, reporting and other
requirements. The FCC has indicated that it may revoke, terminate, condition or
decline to extend or renew such authorizations if we fail to comply with
applicable Communications Act requirements. Our conditional license for a
Ku-band satellite system is subject to still pending petitions for
reconsideration and cancellation. With respect to our license for the Ka-band
system, the FCC staff sent us a letter in late 1999 stating that we had not
submitted information to the FCC relating to the inter- satellite links of our
system and required us to submit certain information or become subject to more
expedited construction requirements. While we have submitted information in
response to that request, we cannot be sure that the FCC will view our
submission as sufficient or will not act to expedite our milestones. If we fail
to file adequate reports or to demonstrate progress in the construction of our
satellite systems, the FCC has stated that it may cancel our authorizations for
those systems. Our license for our Ka-band system allows us to use only 500 MHz
of Ka-band spectrum in each direction, while other licensees have been
authorized to use 1,000 MHz in each direction. We have recently filed a
modification application to allow us to use additional spectrum, but we cannot
be sure that the FCC will not deny or otherwise fail to grant that application.
We have not filed, or timely filed, all required reports or other filings, and
some of our construction permits have expired, in connection with our authorized
systems with the FCC. We cannot be certain whether or not the FCC would cancel
our authorizations. While we have filed with the FCC pending requests for
extensions of authorizations that have expired, we cannot be sure how the FCC
will rule on these requests.
RESTRICTIVE COVENANTS UNDER OUR INDEBTEDNESS MAY LIMIT OUR ABILITY TO OPERATE
OUR BUSINESS
The indentures relating to the senior notes of our EBC and EchoStar DBS
Corporation subsidiaries and our other long-term indebtedness contain
restrictive covenants that may inhibit our ability to manage our business,
engage in certain transactions that we believe to be beneficial to holders of
our common stock and to react to changing market conditions. These restrictions,
among other things, limit the ability of our subsidiaries to:
o incur additional indebtedness;
o issue preferred stock;
o sell assets;
o create, incur or assume liens;
o merge, consolidate or sell assets;
o enter into transactions with affiliates; and
o pay dividends and make other distributions.
WE DEPEND ON OTHERS TO PRODUCE PROGRAMMING
We depend on third parties to provide us with programming services. Our
programming agreements have remaining terms ranging from one to ten years and
contain various renewal and cancellation provisions. We may not be able to renew
these agreements on favorable terms or at all, or these agreements may be
canceled prior to expiration of their original term. If we are unable to renew
any of these agreements or the other parties cancel the agreements, we cannot
assure you that we would be able to obtain substitute programming, or that such
substitute programming would be comparable in quality or cost to our existing
programming. In particular, the cost of sports programming has been rising
rapidly. Our competitors currently offer much of the same programming that we
do. Our ability to compete successfully will depend on our ability to continue
to obtain desirable programming and offer it attractively to our customers at
competitive prices.
OUR SATELLITES ARE SUBJECT TO RISKS DURING AND AFTER LAUNCH
Satellite launches are subject to significant risks, including launch
failure, which may result in incorrect orbital placement or improper commercial
operation. Approximately 15% of all commercial geostationary satellite
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launches have resulted in a total or constructive total loss. The failure rate
varies by launch vehicle and satellite manufacturer. The loss, damage or
destruction of any of our satellites as a result of electrostatic storm or
collision with space debris would have a material adverse effect on our
business.
In November 1998 and 1999, certain meteoroid events occurred as the
Earth's orbit passed through the particulate trail of Comet 55P (Tempel-Tuttle).
Similar meteoroid events are expected to occur again in November 2000. These
meteoroid events pose a potential threat to all in orbit geosynchronous
satellites including our DBS satellites. While the probability that our
satellites will be damaged by space debris is very small, that probability will
increase by several orders of magnitude during these meteoroid events.
Due to the current peak in the 11-year solar cycle, increased solar
activity is likely for the next 1 1/2 years. Some of these solar storms pose a
potential threat to all in-orbit geosynchronous satellites including our DBS
satellites. While the probability that the effects from the storms will damage
our satellites or cause service interruptions is generally very small, that
probability will increase by several orders of magnitude during this solar cycle
peak.
OUR SATELLITES HAVE MINIMUM DESIGN LIVES OF 12 YEARS, BUT COULD FAIL BEFORE THEN
Our ability to earn revenue wholly depends on the usefulness of our
satellites. Each of our satellites has a limited useful life. A number of
factors affect the useful lives of the satellites, including the quality of
their construction, the durability of their component parts, the ability to
continue to maintain proper orbit and the efficiency of the launch vehicle used.
The minimum design life of each of EchoStar I, EchoStar II, EchoStar III,
EchoStar IV, EchoStar V and EchoStar VI is 12 years. We can provide no
assurance, however, as to the useful lives of the satellites. Anomalies EchoStar
IV has experienced have reduced its remaining useful life to approximately 4
years. However, there can be no assurance that a total loss of use of this
satellite will not occur in the more immediate future. Our operating results
would be adversely affected if the useful life of any of our other satellites
were significantly shorter than 12 years. The satellite construction contracts
for our satellites contain no warranties if EchoStar I, EchoStar II, EchoStar
III, EchoStar IV, EchoStar V or EchoStar VI fails following launch. The
satellite construction contracts for the satellites under construction contain
no warranties if EchoStar VII, EchoStar VIII, or EchoStar IX fails following
launch, except in the event that the relevant failure is caused by the gross
negligence or wilful misconduct of the manufacturer. Additionally, moving any of
these satellites, either temporarily or permanently, to another orbital
location, decreases the orbital life of the satellite by up to six months per
movement.
In the event of a failure or loss of any of our satellites, we may
relocate another satellite and use it as a replacement for the failed or lost
satellite. Such a relocation would require prior FCC approval and, among other
things, a showing to the FCC that the replacement satellite would not cause
additional interference compared to the failed or lost satellite. If we choose
to use a satellite in this manner, we cannot assure you that this use would not
adversely affect our ability to meet the operation deadlines associated with our
permits. Failure to meet those deadlines could result in the loss of such
permits which would have an adverse effect on our operations.
INSURANCE COVERAGE OF OUR SATELLITES IS LIMITED AND WE MAY BE UNABLE TO SETTLE
OUTSTANDING CLAIMS WITH INSURERS
As a result of the failure of EchoStar IV solar arrays to fully deploy
and the failure of 26 transponders to date, a maximum of approximately 16 of the
44 transponders on EchoStar IV are available for use at this time. Due to the
normal degradation of the solar arrays, the number of available transponders
will further decrease over time. In addition to the transponder and solar array
failures, EchoStar IV experienced anomalies affecting its thermal systems and
propulsion system during 1999. There can be no assurance that further material
degradation, or total loss of use, of EchoStar IV will not occur in the
immediate future.
In September 1998, we filed a $219.3 million insurance claim for a
constructive total loss under the launch insurance policies covering EchoStar
IV. The satellite insurance consists of separate identical policies with
different carriers for varying amounts which, in combination, create a total
insured amount of $219.3 million.
The insurance carriers offered us a total of approximately $88 million,
or 40% of the total policy amount, in settlement of the EchoStar IV insurance
claim. The insurers allege that all other impairment to the satellite occurred
after
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expiration of the policy period and is not covered. We strongly disagree with
the position of the insurers and we have filed an arbitration claim against them
for breach of contract, failure to pay a valid insurance claim and bad faith
denial of a valid claim, among other things. There can be no assurance that we
will receive the amount claimed or, if we do, that we will retain title to
EchoStar IV with its reduced capacity.
At the time we filed our claim in 1998, we recognized an impairment
loss of $106 million to write-down the carrying value of the satellite and
related costs, and simultaneously recorded an insurance claim receivable for the
same amount. We continue to believe we will ultimately recover at least the
amount originally recorded and do not intend to adjust the amount of the
receivable until there is greater certainty with respect to the amount of the
final settlement.
As a result of the 1999 thermal and propulsion system anomalies, we
reduced the estimated remaining useful life of EchoStar IV to approximately 4
years during January 2000. This change will increase depreciation expense to be
recognized by us during the year ending December 31, 2000 by approximately $9.6
million. We will continue to evaluate the performance of EchoStar IV and may
modify our loss assessment as new events or circumstances develop.
The in-orbit insurance policies for EchoStar I, EchoStar II, and
EchoStar III expired July 25, 2000. The insurers have to date refused to renew
insurance on EchoStar I, EchoStar II and EchoStar III on reasonable terms. Based
on, among other things, the insurance carriers' unanimous refusal to negotiate
reasonable renewal insurance coverage, we believe that the carriers colluded and
conspired to boycott us unless we accept their offer to settle the EchoStar IV
claim for $88 million.
Based on the carriers' actions, we have added causes of action in our
EchoStar IV demand for arbitration for breach of the duty of good faith and fair
dealing, and unfair claim practices. Additionally, we have filed a lawsuit
against the insurance carriers in the United States District Court for the
District of Colorado asserting causes of action for violation of Federal and
State Antitrust laws. While we believe we are entitled to the full amount
claimed under the EchoStar IV insurance policy and believe the insurance
carriers are in violation of Antitrust laws and have committed further acts of
bad faith in connection with their refusal to negotiate reasonable insurance
coverage on our other satellites, there can be no assurance as to the outcome of
these proceedings.
The indentures related to the outstanding senior notes of our EchoStar
DBS Corporation subsidiary contain restrictive covenants that require us to
maintain satellite insurance with respect to at least half of the satellites we
own. Insurance coverage is therefore required for at least three of our six
satellites currently in orbit. We have procured normal and customary launch
insurance for EchoStar VI. This launch insurance policy provides for insurance
of $225.0 million. The EchoStar VI launch insurance policy expires in July 2001.
We are currently self- insuring EchoStar I, EchoStar II, EchoStar III, EchoStar
IV and EchoStar V. To satisfy insurance covenants related to the outstanding
EchoStar DBS senior notes, on July 25, 2000, EchoStar DBS reclassified
approximately $60 million from cash and cash equivalents to restricted cash and
marketable investment securities on its balance sheet. In addition, EchoStar DBS
reclassified an amount equal to approximately $30 million, the depreciated cost
of an additional satellite, on September 23, 2000 after the expiration of the
initial period of coverage for EchoStar V. The reclassifications will continue
until such time, if ever, as the insurers are again willing to insure our
satellites on commercially reasonable terms.
WE MAY BECOME LIABLE IN A PENDING FEE DISPUTE
We had a contingent fee arrangement with the attorneys who represented
us in the litigation with News Corporation. The contingent fee arrangement
provides for the attorneys to be paid a percentage of any net recovery obtained
by us in the News Corporation litigation. The attorneys have asserted that they
may be entitled to receive payments totaling hundreds of millions of dollars
under this fee arrangement. We are vigorously contesting the attorneys'
interpretation of the fee arrangement, which we believe significantly overstates
the magnitude of our liability.
During mid-1999, we initiated litigation against the attorneys in the
Arapahoe County, Colorado, District Court arguing that the fee arrangement is
void and unenforceable. In December 1999, the attorneys initiated an arbitration
proceeding before the American Arbitration Association. The litigation has been
stayed while the arbitration is ongoing. A two week arbitration hearing has been
set to begin in late February 2001. It is too early to
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<PAGE> 20
determine the outcome of negotiations, arbitration or litigation regarding this
fee dispute. If the attorneys who represented us receive a substantial award in
such arbitration, it might impair our ability to downstream funds to its
subsidiaries to help us make payments of interest on or principal of outstanding
long-term debt.
WE USE ONLY ONE DIGITAL BROADCAST CENTER
We rely upon a single digital broadcast center located in Cheyenne,
Wyoming, for key operations for programming signals, such as reception,
encryption and compression. Although we recently acquired a digital broadcast
center located in Gilbert, Arizona, this digital broadcast center will require
significant time and expenditures to become fully operational. If a natural or
other disaster damaged the digital broadcast center in Cheyenne, Wyoming, we
cannot assure you that we would be able to continue to provide programming
services to our customers.
COMPLEX TECHNOLOGY USED IN OUR BUSINESS COULD FAIL OR BECOME OBSOLETE
New applications and adaptations of existing and new technology,
including compression, conditional access, on screen guides and other matters,
and significant software development, are integral to our direct broadcast
satellite system and may, at times, not function as we expect. Technology in the
satellite television industry is in a rapid and continuing state of change as
new technologies develop. We cannot assure you that we and our suppliers will be
able to keep pace with technological developments. In addition, delays in the
delivery of components or other unforeseen problems in our direct broadcast
satellite system may occur that could adversely affect performance or operation
of our direct broadcast satellite system and could have an adverse effect on our
business. Further, if a competitive satellite receiver technology becomes
commonly accepted as the standard for satellite receivers in the United States,
we would be at a significant technological disadvantage.
WE DEPEND PRIMARILY ON A SINGLE RECEIVER MANUFACTURER
SCI Technology, Inc., a high-volume contract electronics manufacturer,
is the primary manufacturer of EchoStar receiver systems. JVC and VTech also
manufacture some EchoStar receiver systems for use by us and other customers of
EchoStar Technologies Corporation. JVC also manufactures other consumer
electronics products incorporating our receiver systems. If any of these vendors
are unable for any reason to produce receivers in a quantity sufficient to meet
our requirements, it would impair our ability to add additional DISH Network
subscribers and grow our technology business unit. Likewise, it would adversely
affect our results of operations.
WE HAVE FEWER DISTRIBUTION CHANNELS THAN OUR LARGEST DIRECT BROADCAST SATELLITE
COMPETITOR
We do not have manufacturing agreements or arrangements with consumer
products manufacturers other than JVC, VTech and Philips, and only JVC currently
manufactures consumer electronics equipment incorporating our receivers. As a
result, our receivers, and consequently our programming services, are less well
known to consumers than those of our largest direct broadcast satellite
competitor, DirecTV. Our largest competitor's direct broadcast satellite systems
are sold in significantly more consumer electronics retailers than our receiver
systems, which, among other things, results in us having a competitive marketing
disadvantage compared to DirecTV.
WE RELY ON KEY PERSONNEL
We believe that our future success will depend to a significant extent
upon the performance of Charles W. Ergen, Chairman, Chief Executive Officer and
President. The loss of Mr. Ergen could have an adverse effect on our business.
We do not maintain "key man" insurance. Although all of our executives have
executed agreements limiting their ability to work for or consult with
competitors if they leave us, we do not have any employment agreements with any
of our executive officers.
WE ARE CONTROLLED BY ONE PRINCIPAL STOCKHOLDER
Charles W. Ergen, our Chairman, Chief Executive Officer and President,
currently beneficially owns approximately 51% of our total equity securities,
assuming exercise of vested employee stock options, and possesses approximately
91% of the total voting power. Thus, Mr. Ergen has the ability to elect a
majority of our directors and to control all other matters requiring the
approval of our stockholders. In addition, pursuant to a voting
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<PAGE> 21
agreement among Mr. Ergen, News Corporation and MCI WorldCom, News Corporation
and MCI WorldCom have agreed to vote their shares in accordance with the
recommendation of our Board of Directors for five years. For Mr. Ergen's total
voting power to be reduced to below 51%, his percentage ownership of the equity
securities of ECC would have to be reduced to below 10%.
FOREIGN OWNERSHIP RESTRICTIONS COULD AFFECT OUR BUSINESS PLAN
The Communications Act, and the FCC's implementing regulations, provide
that when subsidiaries of a holding company hold certain types of FCC licenses,
foreign nationals or their representatives may not own or vote more than 25% of
the total equity of the holding company, except upon an FCC public interest
determination. Although the FCC's International Bureau has ruled that these
limitations do not apply to providers of subscription direct broadcast satellite
service like us, the ruling is under challenge. Furthermore, the limitations
will apply to our licenses for fixed satellite service if we hold ourselves out
as a common carrier or if the FCC decides to treat us as such a carrier. The FCC
has noted that we have proposed to operate one of our authorized fixed satellite
service systems on a common carrier as well as a non-common carrier basis. We
have recently informed the FCC that we have no common carrier plans with respect
to that system.
Currently, a subsidiary of News Corporation, an Australian corporation,
owns approximately 5.5% of our total outstanding stock, having 1% of our total
voting power. This ownership has increased the possibility that foreign
ownership of our stock may exceed the foreign ownership limitations if they
apply. In connection with the MCI WorldCom authorization that we received in
connection with our transactions with News Corporation, the FCC has decided to
waive any foreign ownership limitations to the extent applicable. Nevertheless,
we cannot foreclose the possibility that, in light of any subsequent FCC
decisions or policy changes, we may in the future need a separate FCC
determination that foreign ownership in excess of any applicable limits is
consistent with the public interest in order to avoid a violation of the
Communications Act or the FCC's rules.
RISKS PRIMARILY RELATED TO OUR COMMON STOCK
WE HAVE SUBSTANTIAL INDEBTEDNESS AND ARE DEPENDENT ON OUR SUBSIDIARIES' EARNINGS
TO MAKE PAYMENTS ON OUR INDEBTEDNESS
We have substantial debt service requirements which make us vulnerable
to changes in general economic conditions. The indentures governing our
subsidiaries' debt restrict their ability to incur additional debt. Thus it is,
and will continue to be, difficult for our subsidiaries to obtain additional
debt if required or desired in order to implement our business strategy. Since
we conduct substantially all of our operations through our subsidiaries, our
ability to service our debt obligations is dependent upon the earnings of our
subsidiaries and the payment of funds by our subsidiaries to us in the form of
loans, dividends or other payments. We have few assets of significance other
than the capital stock of our subsidiaries. Our subsidiaries are separate legal
entities. Furthermore, our subsidiaries are not obligated to make funds
available to us, and creditors of our subsidiaries will have a superior claim to
our subsidiaries' assets. In addition, our subsidiaries' ability to make any
payments to us will depend on their earnings, the terms of their indebtedness,
business and tax considerations and legal restrictions. The outstanding senior
notes of our EBC and EchoStar DBS Corporation subsidiaries, intermediate holding
companies through which we conduct substantially all of our business, currently
prohibit them from paying any dividends to us. We cannot assure you that any of
our other subsidiaries will be able to pay dividends or otherwise distribute
funds to us in an amount sufficient to pay the principal of or interest on the
indebtedness owed by us or by our subsidiaries. As of June 30, 2000, our
subsidiaries had outstanding long-term debt (including both the current and
long-term portion) of approximately $2.04 billion and also had $1.5 million of
other liabilities. On September 25, 2000, our wholly-owned subsidiary, EBC, sold
$1 billion principal amount of 10 3/8% Senior Notes due 2007. Our subsidiaries
may incur significant indebtedness in the future.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
Sales of a substantial number of our shares of class A common stock in
the public market in connection with this offering, or other offerings by us,
could cause the market price of our class A common stock to decline. During
October 1999, we filed a registration statement registering for sale up to
68,824,928 shares of our class A
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common stock by News America Incorporated and MCI WorldCom Network Services,
Inc. On December 2, 1999, News America Incorporated and MCI WorldCom Network
Services, Inc. sold 27.6 million of these shares pursuant to an underwritten
offering. On September 6, 2000, News America Incorporated sold an additional 7
million of these shares on the open market, pursuant to SEC Rule 144. Any sale
of shares by News America Incorporated and MCI WorldCom Network Services, Inc.
subsequent to the date of this registration statement may affect the market
price of our class A common stock.
OUR STOCK PRICE MAY BE VOLATILE
The price at which our common stock trades may be volatile and may
fluctuate substantially due to competition and changes in the subscription
television industry, regulatory changes, launch and satellite failures,
operating results below expectations and other factors. In addition, price and
volume fluctuations in the stock market may affect market prices for our common
stock for reasons unrelated to our operating performance.
YOUR SHARES WILL HAVE LIMITED VOTING RIGHTS
Our equity securities consist of common stock and preferred stock. Our
common stock has been divided into three classes with different voting rights.
Holders of class A common stock and holders of class C common stock are entitled
to one vote per share on all matters submitted to a vote of stockholders.
Holders of class B common stock are entitled to ten votes per share. Holders of
series C preferred stock have no voting rights except as provided by law or
unless dividends are in arrears. No class C common stock or other series of
preferred stock is currently outstanding. However, upon a "change in control" of
EchoStar, any holder of class C common stock would be entitled to ten votes per
share. Holders of common stock generally vote together as single class on
matters submitted to stockholders. Although the class A common stock represents
approximately 49.5% of our total common and preferred shares outstanding, it
represents only 9% of our total voting power.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE
We have never declared or paid any cash dividends on any class of our
common stock and we do not expect to declare dividends on our common stock in
the foreseeable future. Payment of any future dividends will depend upon our
earnings and capital requirements, restrictions in our debt facilities and other
factors our Board of Directors considers appropriate. We currently intend to
retain our earnings, if any, to support future growth and expansion.
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DESCRIPTION OF OUR CAPITAL STOCK
GENERAL
Our authorized capital stock currently consists of:
o 3,200,000,000 shares of common stock, of which 1,600,000,000
shares are designated class A common stock, 800,000,000 shares are
designated class B common stock and 800,000,000 shares are designated
class C common stock; and
o 20,000,000 shares of preferred stock, including 2,300,000
shares of 6 3/4% Series C cumulative convertible preferred stock.
As of October 30, 2000, 234,945,654 shares of class A common stock were
issued and outstanding and held of record by 3,784 stockholders, 238,435,208
shares of class B common stock were issued and outstanding and held of record by
Charles W. Ergen, our Chairman, Chief Executive Officer and President, and no
shares of class C common stock were issued and outstanding. As of October 30,
2000, 243,076 shares of Series C preferred stock were issued and outstanding.
All outstanding shares of the class A common stock and class B common stock are
fully paid and nonassessable. A summary of the powers, preferences and rights of
the shares of each class of common stock and each series of preferred stock is
described below.
The transfer agent for our capital stock, including the class A common
stock, is Computershare Investor Services, formerly American Securities Transfer
& Trust, Inc.
CLASS A COMMON STOCK
Each holder of class A common stock is entitled to one vote for each
share owned of record on all matters submitted to a vote of stockholders. Except
as otherwise required by law, the class A common stock votes together with the
class B common stock and the class C common stock on all matters submitted to a
vote of stockholders. Subject to the preferential rights of any outstanding
series of preferred stock and to any restrictions on the payment of dividends
imposed under the terms of our indebtedness, the holders of class A common stock
are entitled to such dividends as may be declared from time to time by our Board
of Directors from legally available funds and, together with the holders of the
class B common stock, are entitled, after payment of all prior claims, to
receive pro rata all of our assets upon a liquidation. Holders of class A common
stock have no redemption, conversion or preemptive rights.
CLASS B COMMON STOCK
Each holder of class B common stock is entitled to ten votes for each
share of class B common stock on all matters submitted to a vote of
stockholders. Except as otherwise required by law, the class B common stock
votes together with the class A common stock and the class C common stock on all
matters submitted to a vote of the stockholders. Each share of class B common
stock is convertible, at the option of the holder, into one share of class A
common stock. The conversion ratio is subject to adjustment from time to time
upon the occurrence of certain events, including: (i) dividends or distributions
on class A common stock payable in class A common stock or certain other capital
stock; (ii) subdivisions, combinations or certain reclassifications of class A
common stock; and (iii) issuances of rights, warrants or options to purchase
class A common stock at a price per share less than the fair market value of the
class A common stock. Each share of class B common stock is entitled to receive
dividends and distributions upon liquidation on a basis equivalent to that of
the class A common stock and class C common stock.
CLASS C COMMON STOCK
Each holder of class C common stock is entitled to one vote for each
share of class C common stock on all matters submitted to a vote of
stockholders. Except as otherwise required by law, the class C common stock
votes together with class A common stock and the class B common stock on all
matters submitted to a vote of stockholders. Each share of class C common stock
is convertible into class A common stock on the same terms as the class B common
stock. Each share of class C common stock is entitled to receive dividends and
distributions
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upon liquidation on a basis equivalent to that of the class A common stock and
class B common stock. Upon a change of control of our company, each holder of
outstanding shares of class C common stock is entitled to cast ten votes for
each share of class C common stock held by such holder. We do not currently
intend to issue any shares of class C common stock. Under current National
Association of Securities Dealers rules, we are not able to issue class C common
stock so long as the class A common stock is quoted on the Nasdaq National
Market.
PREFERRED STOCK
Our Board of Directors is authorized to divide the preferred stock into
series and, with respect to each series, to determine the preferences and rights
and the qualifications, limitations or restrictions of the series, including the
dividend rights, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions, the number of shares
constituting the series and the designation of such series. Our Board of
Directors may, without stockholder approval, issue additional preferred stock of
existing or new series with voting and other rights that could adversely affect
the voting power of the holders of common stock and could have certain
anti-takeover effects.
SERIES C PREFERRED STOCK
As of October 30, 2000, holders of an aggregate of approximately 2.06
million shares of the Company's 6 3/4% Series C cumulative convertible preferred
stock had converted their shares into approximately 34 million shares of class A
common stock.
Holders of the Series C preferred stock were entitled to a quarterly
cash payment of $0.844 per share through November 1, 1999, which was funded from
a deposit account created when the Series C preferred stock was issued.
Dividends began to accrue on the Series C preferred stock on November 2, 1999,
and holders of the Series C preferred stock are entitled to receive cumulative
dividends at an annual rate of 6 3/4% of the liquidation preference, payable
quarterly in arrears, commencing February 1, 2000. Dividends may, at our option,
be paid in cash or by delivery of shares of class A common stock. The Series C
preferred stock is redeemable at any time on or after November 1, 2000, in whole
or in part, at our option, in cash or by delivery of class A common stock at
specified redemption premiums.
Upon any change of control, if the market value of our class A common
stock is less than the conversion price, holders of Series C preferred stock
would have a one time option to convert all of their outstanding shares into
shares of class A common stock at an adjusted conversion price equal to the
greater of the market value as of the change of control date and 66.67% of the
market value as of the date of the initial offering of the Series C preferred
stock. In lieu of issuing the shares of class A common stock issuable upon
conversion in the event of a change of control, we may, at our option, make a
cash payment equal to the market value of such class A common stock otherwise
issuable.
The Series C preferred stock is convertible at any time, unless
previously redeemed, at the option of the holder thereof, into that number of
whole shares of class A common stock as is equal to the liquidation preference
divided by a conversion price of $3 3/64 subject to adjustment under certain
circumstances.
The Series C preferred stock ranks senior to the class A common stock
and senior or pari passu with other existing and future offerings of preferred
stock in right of payment. Holders of the Series C preferred stock have no
voting rights with respect to general corporate matters except as provided by
law or upon certain dividend arrearages. The affirmative vote or consent of
holders of at least 66 2/3% of the outstanding Series C preferred stock is
required for the issuance of any class or series of our stock (or security
convertible into our stock) ranking senior to or pari passu with the Series C
preferred stock as to dividends or liquidation rights (other than additional
shares of Series B preferred stock or certain pari passu securities with an
aggregate liquidation preference not to exceed $100 million) and for amendments
to our articles of incorporation that would affect adversely the rights of
holders of the Series C preferred stock.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our articles of incorporation provide that our directors are not
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as a director, except in certain cases where liability is
mandated by Nevada corporate law. The provision has no effect on any
non-monetary remedies that may be available to us or our stockholders and does
not relieve us or our directors from complying with federal or state securities
laws. Our articles of incorporation and by-laws provide for indemnification, to
the fullest extent permitted by Nevada corporate law, of any person who is or
was involved in any manner in any investigation, claim or other proceeding by
reason of the fact that such person is or was a director or officer of our
company, or is or was serving at our request as a director or officer of another
corporation, against all expenses and liabilities actually and reasonably
incurred by such person in connection with the investigation, claim or other
proceeding. However, no indemnification may be made for any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of such person's duty to us.
NEVADA LAW AND LIMITATIONS ON CHANGES IN CONTROL
The Nevada Revised Statutes prevent an "interested stockholders"
defined generally as a person owning 10% or more of a corporation's outstanding
voting stock, from engaging in a "combination" with a publicly-held Nevada
corporation for three years following the date such person became an interested
stockholder unless, before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approves the
combination.
The provisions authorizing our Board of Directors to issue preferred
stock without stockholder approval and the provisions of the Nevada Revised
Statutes relating to combinations with interested stockholders could have the
effect of delaying, deferring or preventing a change in our control or the
removal of our existing management. Each of the indentures relating to the
senior notes of EchoStar DBS Corporation (one of our wholly-owned subsidiaries)
also contains provisions with respect to a change of control. The series C
preferred stock certificate of designation also contains certain change of
control provisions.
Charles W. Ergen, our Chairman, President and Chief Executive Officer,
owns 238,435,208 shares of class B common stock, which constitute all of the
outstanding class B shares. These shares are transferable to other persons,
subject to securities laws limitations. If Mr. Ergen transferred a substantial
portion of his shares of class B common stock, a change in control of EchoStar
would result and Mr. Ergen would receive any premium paid for control of our
company. In addition, any such change in control would result in an obligation
on the part of EchoStar DBS Corporation, our wholly-owned subsidiary, to offer
to purchase at a premium all of its outstanding senior notes.
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USE OF PROCEEDS
All of the common stock covered by this prospectus is being sold by the
selling shareholders. We will not receive any of the proceeds from those sales.
SELLING SHAREHOLDER
The selling shareholder is a former shareholder of Kelly Broadcasting
Systems, Inc., a supplier of broadband satellite programming. We issued the
shares offered by the selling shareholder in connection with our acquisition of
Kelly Broadcasting Systems, Inc. on February 25, 2000. Under the terms of the
acquisition, we agreed to register the Class A common stock received by the
selling shareholder and to keep the related registration statement effective for
one year following the closing date of the acquisition of Kelly Broadcasting
Systems, Inc. on February 25, 2000, or such shorter period which will terminate
when all of the common stock covered by this prospectus has been sold and
complies with the provisions of the Securities Act. Prior to the acquisition,
Michael Kelly was the owner and CEO of Kelly Broadcasting Systems, Inc. Mary
Kelly, the selling shareholder, is the mother of Michael Kelly and was a
part-owner of Kelly Broadcasting Systems, Inc.
The table below shows certain information about the shares covered by
this prospectus and other shares of common stock beneficially owned by the
selling shareholder on the date of this prospectus. Our registration of these
shares does not necessarily mean that the selling shareholder will sell all or
any of her shares of Class A common stock. This table assumes that all shares
covered by this prospectus will be sold by the selling shareholder and that no
additional shares of Class A common stock are bought or sold by the selling
shareholder.
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percentage of Shares
Number of Shares Offered by this to be Held After to be Held After
Selling Shareholder Beneficially Owned Prospectus Offering Offering
------------------- ------------------ ---------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Mary Kelly 61,200 61,200 0 *
</TABLE>
----------
* Less than one percent
PLAN OF DISTRIBUTION
The selling shareholder has not had any material relationship with
EchoStar or our affiliates within the past three years. Information concerning
the selling shareholder may change from time to time and any such changed
information will be set forth in supplements to this prospectus if and when
necessary.
We are registering the Class A common stock covered by this prospectus
for the selling shareholder. These shares may be sold or distributed from time
to time by the selling shareholder, by her donees or transferees or by her other
successors in interest. We have agreed to keep the registration statement (of
which this prospectus is a part) effective for one year following the closing
date of the acquisition of Kelly Broadcasting Systems, Inc. on February 25,
2000, or such shorter period which will terminate when all of the common stock
covered by this prospectus has been sold and complies with the provisions of the
Securities Act. The selling shareholder has agreed to discontinue sales of Class
A common stock under this prospectus following such one-year period unless we
provide her with notice of our intention to continue the effectiveness of the
registration. Michael Kelly, the selling shareholder's son, will pay the fees
and expenses of registering the Class A common stock, as well as any commissions
or transfer taxes relating to the sale of the Class A common stock; provided
however, that if the registration expenses exceed $15,000, then we will pay the
amount of such excess. We have agreed to indemnify the selling shareholder
against certain liabilities relating to resale of the common stock under the
Securities Act of 1933.
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The selling shareholder may sell these shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
selling shareholder reserves the right to accept or reject, in whole or in part,
any proposed purchase of these shares, whether the purchase is to be made
directly or through agents.
The selling shareholder may offer these shares at various times in one
or more of the following transactions:
- in ordinary brokers' transactions and transactions in which
the broker solicits purchasers;
- in transactions involving cross or block trades or otherwise
on the Nasdaq National Market;
- in transactions in which brokers, dealers or underwriters
purchase the shares as principal and resell the shares for
their own accounts pursuant to this prospectus;
- in transactions "at the market" to or through market makers of
EchoStar common stock or into an existing market for the
common stock;
- in other ways not involving market makers or established
trading markets, including direct sales of the shares to
purchasers or sales of the shares effected through agents;
- through transactions in options, swaps or other derivatives
which may or may not be listed on an exchange;
- in privately negotiated transactions;
- in transactions to cover short sales; and
- in a combination of any of the foregoing transactions.
The selling shareholder also may sell these shares in accordance with
Rule 144 under the Securities Act.
From time to time, the selling shareholder may pledge or grant a
security interest in some or all of these shares. If the selling shareholder
defaults in performance of the obligations secured by these shares, the pledgees
or secured parties may offer and sell the shares from time to time by this
prospectus. The selling shareholder also may transfer and donate these shares in
other circumstances. The number of shares beneficially owned by the selling
shareholder will decrease as and when the selling shareholder transfers or
donates these shares or defaults in performing obligations secured by these
shares. The plan of distribution for shares offered and sold under this
prospectus will otherwise remain unchanged, except that the transferees, donees,
pledgees, other secured parties or other successors in interest will be the
selling shareholder for purposes of this prospectus.
The selling shareholder may sell short her Class A common stock. The
selling shareholder may deliver this prospectus in connection with such short
sales and use the shares offered by this prospectus to cover such short sales.
The selling shareholder may enter into hedging transactions with
broker-dealers. The broker-dealers may engage in short sales of Class A common
stock in the course of hedging the positions they assume with the selling
shareholder, including positions assumed in connection with distributions of
these shares by such broker- dealers. The selling shareholder also may enter
into options or other transactions with broker-dealers that involve the delivery
of these shares to the broker-dealers, who may then resell or otherwise transfer
such shares. In addition, the selling shareholder may loan or pledge these
shares to a broker-dealer, which may sell the loaned shares or, upon a default
by the selling shareholder of the secured obligation, may sell or otherwise
transfer the pledged shares.
The selling shareholder may use brokers, dealers, underwriters or
agents to sell these shares. The persons acting as agents may receive
compensation in the form of commissions, discounts or concessions. This
compensation may be paid by the selling shareholder or the purchasers of the
shares for whom such persons may act as agent, or to whom they may sell as
principal, or both. The compensation as to a particular person may be less
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than or in excess of customary commissions. The selling shareholder and any
agents or broker-dealers that participate with the selling shareholder in the
offer and sale of these shares may be deemed to be "underwriters" within the
meaning of the Securities Act. Any commissions they receive and any profit they
realize on the resale of these shares by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
We have advised the selling shareholder that during such time as she
may be engaged in a distribution of these shares, she is required to comply with
Regulation M under the Securities Exchange Act of 1934. With certain exceptions,
Regulation M prohibits the selling shareholder, any affiliated purchasers and
other persons who participate in such a distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase, any
security which is the subject of the distribution until the entire distribution
is complete.
It is possible that a significant number of these shares could be sold
at the same time. Such sales, or the perception that such sales could occur, may
adversely affect prevailing market prices for the Class A common stock.
LEGAL MATTERS
David K. Moskowitz, Littleton, Colorado, will pass on the validity of
the class A common stock offered by this Prospectus. Mr. Moskowitz, Senior Vice
President, Secretary, and General Counsel, is also a member of our Board of
Directors. As a member of our senior management team, Mr. Moskowitz should not
be considered an independent legal advisor. David K. Moskowitz will rely on an
opinion of Hale Lane Peek Dennison Howard and Anderson, Reno, Nevada, as to
matters of Nevada law.
EXPERTS
The audited financial statements incorporated by reference in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and are included
herein in reliance upon the authority of such firm as experts in giving said
report.
26
<PAGE> 29
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27
<PAGE> 30
================================================================================
November 1, 2000
ECHOSTAR COMMUNICATIONS CORPORATION
61,200 shares
Class A Common Stock
-----------------------------------------
PROSPECTUS
-----------------------------------------
--------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
--------------------------------------------------------------------------------
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than any
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee $ 672
NASDAQ Fee --
Legal fees and expenses 3,000
Accounting fees and expenses 3,000
Printing fees 500
Transfer agent fees 50
Miscellaneous 300
-----------
Total $ 7,522
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 78.7502(1) of the Nevada Revised Statutes allows EchoStar to
indemnify any person made or threatened to be made a party to any action (except
an action by or in the right of EchoStar, a "derivative action"), by reason of
the fact that he is or was a director, officer, employee or agent of EchoStar,
or is or was serving at the request of EchoStar as a director, officer, employee
or agent of another corporation, against expenses including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he acted in a good
faith manner which he reasonably believed to be in or not opposed to the best
interests of EchoStar and, with respect to any criminal proceeding, had no
reasonable cause to believe that his conduct was unlawful. Under chapter
78.7502(2), a similar standard of care applies to derivative actions, except
that indemnification is limited solely to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of the action and court
approval of the indemnification is required where the person seeking
indemnification has been found liable to EchoStar. In addition, Chapter
78.751(2) allows EchoStar to advance payment of indemnifiable expenses prior to
final disposition of the proceeding in question. Decisions as to the payment of
indemnification are made by a majority of the Board of Directors at a meeting at
which a quorum of disinterested directors is present, or by written opinion of
special legal counsel, or by the stockholders.
Provisions relating to liability and indemnification of officers and
directors of EchoStar for acts by such officers and directors are contained in
Article IX of the Amended and Restated Articles of Incorporation of EchoStar and
Article IX of EchoStar's by-laws. These provisions state, among other things,
that, consistent with and to the extent allowable under Nevada law, and upon the
decision of a disinterested majority of EchoStar's Board of Directors, or a
written opinion of outside legal counsel, or EchoStar's stockholders: (1)
EchoStar shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether formal or
informal (other than an action by or in the right of EchoStar) by reason of the
fact that he is or was a director, officer, employee, fiduciary or agent of
EchoStar, or is or was serving at the request of EchoStar as director, officer,
employee, fiduciary or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
if he conducted himself in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of EchoStar, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful; and (2) EchoStar shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of EchoStar to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee, fiduciary
or agent of EchoStar, or is or was serving at the request of EchoStar as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably
II-1
<PAGE> 32
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of EchoStar, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to EchoStar unless and only to the extent that the court
in which such action or suit was brought shall determine upon application that
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
ITEM 16. EXHIBITS
5.1 Opinion of Hale Lane Peek Dennison Howard and Anderson
5.2 Opinion of David K. Moskowitz
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hale Lane Peek Dennison Howard and Anderson (included in
Exhibit 5.1)
24.1 Power of Attorney (included on page II-4 of this registration
statement)
-----------
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-2
<PAGE> 33
(4) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Littleton, State of Colorado on November 1, 2000.
ECHOSTAR COMMUNICATIONS CORPORATION
By: /s/ Michael R. McDonnell
----------------------------------------
Michael R. McDonnell
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles W. Ergen Chief Executive Officer, and Director November 1, 2000
-------------------- (Principal Executive Officer)
Charles W. Ergen
/s/ Michael R McDonnell Chief Financial Officer November 1, 2000
----------------------- (Principal Financial Officer)
Michael R. McDonnell
/s/ James DeFranco Director November 1, 2000
------------------
James DeFranco
/s/ David K. Moskowitz Director November 1, 2000
----------------------
David K. Moskowitz
/s/ Raymond L. Friedlob Director November 1, 2000
-----------------------
Raymond L. Friedlob
/s/ O. Nolan Daines Director November 1, 2000
-------------------
O. Nolan Daines
</TABLE>
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
5.1 Opinion of Hale Lane Peek Dennison Howard and Anderson
5.2 Opinion of David K. Moskowitz
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hale Lane Peek Dennison Howard and Anderson (included in
Exhibit 5.1)
24.1 Power of Attorney (included on page II-4 of this registration
statement)
</TABLE>
