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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 2000
REGISTRATION NO. 333-31894
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO 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)
----------------
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)
With copies to:
Raymond L. Friedlob, Esq.
John W. Kellogg, Esq.
Friedlob Sanderson Paulson & Tourtillott, LLC
1400 Glenarm Place, Third Floor
Denver, Colorado 80202
(303) 571-1400
----------------
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
====================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING PRICE REGISTRATION
REGISTERED REGISTERED NOTE (1) FEE (4)
-------------------------------------------- ------------------ ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
4 7/8% Convertible Subordinated Notes
due 2007 $1,000,000,000 100% $1,000,000,000 $264,000
Class A Common Stock, $.01 par value (2)(3) 22,007,042 -- -- --
====================================================================================================================
</TABLE>
(1) Equals the aggregate principal amount of the securities being registered
pursuant to Rule 457(9).
(2) Represents the number of shares of Class A Common Stock that are issuable
upon conversion of the convertible notes. Pursuant to Rule 416, the
Registrant is also registering such indeterminate number of shares of Class
A Common Stock as may be issuable upon conversion of the convertible notes
as a result of the antidilution provisions of the convertible notes.
(3) Pursuant to Rule 457(i), no registration fee is required for these shares.
(4) Previously Paid
---------------
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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ECHOSTAR COMMUNICATIONS CORPORATION
$1,000,000,000
4 7/8% CONVERTIBLE SUBORDINATED NOTES DUE 2007
--------------------------------------------------------------------------------
This prospectus relates to the offer and sale from time to time by
certain selling securityholders of our 4 7/8% Convertible Subordinated Notes due
2007 and the shares of our class A common stock into which the convertible notes
are convertible. The convertible notes and shares will be sold at market prices
prevailing at the time of sale or at privately negotiated prices. EchoStar will
not receive any of the proceeds from the sale of the convertible notes or the
shares into which they are convertible.
THE CONVERTIBLE NOTES:
- Maturity: January 1, 2007.
- Interest: The convertible notes will accrue interest as of the issue
date which will be payable semiannually in cash on July 1 and January
1, commencing on July 1, 2000.
- Conversion: The convertible notes are convertible into shares of our
class A common stock at any time at a conversion price of $45.44,
subject to adjustment in certain events.
- Redemption: We can redeem the convertible notes on or after January 1,
2003. Holders of the convertible notes may also require us to redeem
all or part of their convertible notes upon a change of control event.
- Ranking: The convertible notes are general unsecured obligations
ranking junior to all of our existing and future Senior Debt. The
convertible notes also will effectively rank junior to all of our
secured debts and to all of the existing and future debts and other
liabilities of our subsidiaries. As of March 31, 2000, the convertible
notes effectively rank junior to $3.05 billion of indebtedness and $954
million of other liabilities of our subsidiaries.
TRADING FORMAT:
- The convertible notes are eligible for trading in the PORTAL market of
the National Association of Securities Dealers, Inc. The convertible
notes are not expected to remain eligible for trading on the PORTAL
system and a trading market may not develop for the notes. EchoStar
does not intend to apply for listing of the convertible notes on any
securities exchange or for quotation through any automated quotation
system.
- Our common stock is traded on the Nasdaq National Market under the
symbol "DISH." On June 29, 2000 the last reported sale price of our
common stock on the Nasdaq National Market was $33.56 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 7 FOR CERTAIN RISKS YOU SHOULD CONSIDER
BEFORE YOU PURCHASE ANY CONVERTIBLE NOTES OR SHARES OF CLASS A COMMON STOCK.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
Prospectus dated June 30, 2000
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Where you can find more information..............................................................................3
Forward-looking statements.......................................................................................3
Risk factors.....................................................................................................7
Ratio of earnings to fixed changes..............................................................................23
Description of convertible notes................................................................................24
Registration rights.............................................................................................39
Description of our capital stock................................................................................41
Summary of certain federal income tax considerations............................................................44
Selling securityholders.........................................................................................50
Plan of distribution............................................................................................59
Legal Matters...................................................................................................60
Experts.........................................................................................................60
</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 CONVERTIBLE NOTES AND SHARES OF CLASS A COMMON STOCK INTO WHICH
THEY ARE CONVERTIBLE 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:
- Our Annual Report on Form 10-K for the year ended December 31,
1999.
- Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000.
- Our Current Report on Form 8-K filed February 28, 2000.
- 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 7,
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 March 31, 2000, more than 3.9 million households
subscribed to DISH Network programming services. We now have five 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, particularly cable TV operators. As of
March 31, 2000, approximately 13.8 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.
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 Express Vu, 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 and
suppliers located around the United States. In addition, we are developing a
wide range of Internet and high-speed data services. During 1999, we began
offering to consumers our first of its kind DISHPlayer, which combines satellite
receiver, digital VCR, gaming and Internet access capabilities all in one box.
When a consumer subscribes to the WebTV service we offer in partnership with
Microsoft, in addition to all of the video and audio channels we offer, the
DISHPlayer receiver gives consumers e-mail and unlimited Internet access on
their television.
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:
- 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;
- Offer marketing promotions that will enhance our position as a
leading provider of value-oriented programming services and
receiver systems;
- Continue to expand DISH Network distribution channels;
- Develop our EchoStar Technologies Corporation and Satellite
Services businesses; and
- Emphasize one-stop shopping for DBS services and equipment and
superior customer service.
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RECENT DEVELOPMENTS
On June 12, 2000, we announced that EchoStar VI is tentatively
scheduled to be launched July 14, 2000 on a Lockheed Martin Atlas ILAS rocket.
EchoStar VI will be tested at 148 degrees West Longitude before moving to its
final orbital location. Subject to FCC approval, EchoStar VI will operate at 119
degrees West Longitude, rather than the originally planned 110 degree orbital
location, and EchoStar I will be moved from the 119 degree orbital location to
the 148 degree orbital location. As EchoStar VI is the most powerful DBS
satellite manufactured to date, this move would allow us to enhance our primary
DBS service at the 119 degree orbital location, as well as increase the number
of channels offered to residents of Alaska and Hawaii.
On May 30, 2000, we filed complaints with the Federal Communications
Commission against three broadcasters, Clear Channel Communications,
Incorporated, Landmark Communications, Incorporated, and Chris-Craft
Broadcasting, Incorporated. The complaints allege that each of these
broadcasters breached its obligation to negotiate in good faith an agreement
with us for retransmission of the local signals of stations they own and
operate, as required by the Satellite Home Viewer Improvement Act of 1999. We
are seeking an order from the FCC directing these broadcasters to negotiate in
good faith. There can be no assurance as to when and how the FCC will rule on
these complaints. On June 1, 2000, we reached a settlement agreement with one of
the three defendants, Clear Channel, and have resumed retransmission of Clear
Channel's Fox affiliate in Minneapolis.
On April 10, 2000, we announced a $50 million investment in Gilat
Satellite Networks, Ltd., with plans to provide consumer, two-way satellite,
broadband internet service in late 2000. We previously announced an agreement
with Gilat to jointly offer consumers two-way, Ku-Band highspeed satellite
internet access along with satellite television programming. Under the terms of
our investment in Gilat, we will distribute the Gilat-To-Home broadband
satellite internet service along with our DBS Services through our retail
distribution network. As a result of our investment, we will hold approximately
17.6% of Gilat.
On March 27, 2000, we announced a $50 million investment in iSKY, Inc.,
who will launch a two-way wireless broadband Internet service via satellite in
late 2001. Under the terms of the agreement, we will distribute the iSKY
services along with our DISH network services through a dual location satellite
dish that will simultaneously "see" iSKY and our satellites. Initially we will
own approximately 11.03% of iSKY and will receive warrants that may, upon
satisfaction of certain performance conditions, enable us to own up to 19.26% of
iSKY for an additional investment of approximately $52 million.
On March 16, 2000 we announced the acquisition of Kelly Broadcasting
Systems, Inc., a provider of international foreign-language programming. Under
the terms of the agreement, we issued approximately 510,000 shares of our class
A common stock and made a cash payment of $3.5 million to acquire all of the
outstanding Kelly Broadcasting Systems shares.
On February 28, 2000, we announced a two-for-one stock split of our
outstanding class A and class B common stock effective March 22, 2000 to
shareholders of record as of the close of business on March 10, 2000. All
references to shares included in this Prospectus retroactively give effect to
the March 22, 2000 stock split.
On February 23, 2000, we announced the construction of three new
satellites. EchoStar VII and VIII are advanced, high-powered DBS satellites with
spot-beam technology allowing us to offer local channels in 60 or more markets
across the United States. EchoStar IX is a hybrid Ku/Ka-band satellite that may
provide new opportunities for us to pursue business-to-business customers and to
provide our subscribers with expanded internet, data and two-way wireless
communications services. Delivery of EchoStar VII and VIII is expected in
December 2001 and delivery EchoStar IX is anticipated to occur during 2002. We
are currently in discussions with launch vehicle providers for these satellites.
On February 23, 2000 we announced a joint venture with OpenTV Corp. to
offer our subscribers and other video platforms a low-cost, interactive digital
receiver with a built-in hard disk drive that will permit viewers to record
programs without video tape. Under the terms of the joint venture, OpenTV and
EchoStar contributed certain intellectual property rights and we were issued
2,252,252 shares of OpenTV common stock. The shares of OpenTV common stock are
subject to forfeiture if we fail to activate the OpenTV system in at least
500,000 set top boxes on or before February 23, 2003.
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During February 2000 we filed suit against DirecTV and Thomson Consumer
Electronics/RCA in the Federal District Court of Colorado. The suit alleges that
DirecTV has utilized improper conduct in order to fend off competition from the
DISH Network. According to the complaint, DirecTV has demanded that certain
retailers stop displaying our merchandise and has threatened to cause economic
damage to retailers if they continue to offer both product lines in head-to-head
competition. The suit alleges, among other things, that DirecTV has acted in
violation of federal and state anti-trust laws in order to protect DirecTV's
market share. We are seeking injunctive relief and monetary damages. It is too
early in the litigation to make an assessment of the probable outcome.
The DirecTV defendants filed a counterclaim against us. DirecTV alleges
that we tortuously interfered with a contract that DirecTV allegedly had with
Kelly Broadcasting Systems, Inc. (KBS). DirecTV alleges that we "merged" with
KBS, in contravention of DirecTV's contract with KBS. DirecTV also alleges that
we have falsely advertised to consumers about our right to offer network
programming. DirecTV further alleges that we improperly used certain marks owned
by PrimeStar, now owned by DirecTV. Finally, DirecTV alleges that we have been
marketing National Football League games in a misleading manner. The amount of
damages DirecTV is seeking is as yet unquantified. We intend to vigorously
defend against these claims. The case is currently in discovery.
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RISK FACTORS
You should carefully consider all of the information contained in this
prospectus before deciding whether to invest in the convertible notes or the
shares of class A common stock issued upon their conversion and, in particular,
the following factors:
RISKS PRIMARILY RELATED TO OUR BUSINESS
INCREASED SUBSCRIBER TURNOVER COULD AFFECT OUR FINANCIAL PERFORMANCE
Our churn increased during 1999, but did not further increase during
the three months ended March 31, 2000. We believe that our average churn
continues to be lower than satellite industry averages. Our maturing subscriber
base, together with the effects of rapid growth, were responsible for the
increase in churn during 1999. Rapid growth resulted in customer installation
delays, and the effectiveness of our customer service has also been 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 require us to terminate delivery of
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. While there can be no
assurance, notwithstanding the issues discussed above we expect to be able to
continue to manage churn to a level at or below satellite industry averages
during 2000.
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
$467 during the first quarter of 2000. While there can be no assurance, we
expect that our per subscriber acquisition costs for the remainder of 2000 will
be less than during the first quarter unless competition, the desire to drive
stronger subscriber growth or other factors require relatively more costly
promotions than those presently planned, or result in the extension of our free
installation program beyond the currently scheduled July 30, 2000 expiration.
In connection with our plans to encourage as many new subscribers as
possible to be ready for the additional services that will become available at
the 110 degree orbital location, and as a result of continuing competition and
our plans to attempt to continue to drive rapid subscriber growth, we expect our
average per subscriber acquisition costs for all of 2000 may be as much as $450.
Our subscriber acquisition costs, both in the aggregate and on a per new
subscriber activation basis, may materially increase further to the extent that
we continue to expand our bounty programs, our "free system/free installation"
program, or the DISH Network One-Rate Plan, or if we determine that more
aggressive promotions are necessary to respond to competition, or for other
reasons.
Any material increase in subscriber acquisition costs from these
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 force,
installation capability, customer service operations and information systems,
and maintain our relationships 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
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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 partly depend 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.
In connection with the launch of EchoStar V in September 1999 and we
utilize the 110 degree orbital location to enhance revenue opportunities with
new value added services for our current and future subscribers, and maintain
our primary DBS service at the 119 degree orbital location. Our existing
subscribers will need to upgrade their dish and receiver systems in order to
take advantage of all of the services we offer. To encourage existing
subscribers to upgrade their systems and remain subscribers, we are subsidizing
upgrades by existing subscribers to our DISH 500 system. The cost of this
program could be significant if utilized by a large number of our existing
subscribers.
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. If we were required to raise capital today a variety of debt and
equity funding sources would likely be available to us. However, there can be no
assurance that additional financing will be available on acceptable terms, or at
all, if needed in the future.
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 for the foregoing purposes. 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, 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. The FCC
recently 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 of
1999 could adversely affect us in several 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 to delete substantial programming (including
sports programming) from these signals. These requirements may significantly
hamper our ability to retransmit distant network and superstation signals. In
addition, while the Satellite Home Viewer Improvement Act instructed 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.
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For existing customers the new legislation also would permit hundreds
of thousands of consumers to continue to receive distant network channels who
would otherwise be required to be disconnected. The new law generally would not,
however, permit consumers predicted to receive a signal of "Grade A" intensity
to continue receiving distant network channels. As a result, we believe hundreds
of thousands of consumers have or could lose access to network channels by
satellite. In anticipation of passage of the legislation, and for other reasons,
we recently 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 subscriber turnover and a small reduction in revenue per
subscriber. Further, broadcasters could seek a permanent injunction on our sales
of local and distant network channels, which would have a material adverse
effect on our subscriber turnover, revenue, ability to attract new subscribers,
and our business operations generally. The law also instructs the FCC to enact
rules that would require us to delete substantial programming from distant
signals, including sports programming.
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 is not
clear. We have successfully reached agreements for retransmission consent, or
obtained extensions of the May 29, 2000 deadline while continuing to negotiate,
with a substantial majority of broadcasters. We were unable to reach agreements
or extensions with only three broadcast companies affecting four stations (in
the New York City, Minneapolis, Nashville and Salt Lake City markets) and on May
30, 2000 filed retransmission complaints against these companies: Clear Channel
Communications, Incorporated, Landmark Communications, Incorporated and
Chris-Craft Broadcasting, Incorporated. We believe each of these broadcasters
violated its good faith obligations. In addition, each of these broadcasters
refused to grant us an acceptable short term extension of the May 29, 2000
deadline, forcing us to turn off our subscribers' access to these stations.
After the retransmission complaints were filed, we reached a settlement
agreement with Clear Channel enabling us to resume retransmission of the
broadcasts of Clear Channel's Fox affiliate in Minneapolis. With respect to the
remaining broadcaster-defendants, we are seeking an order from the FCC directing
these broadcasters to negotiate in good faith. Chris-Craft Broadcasting and
Landmark Communications have vigorously opposed this request. There can be no
assurance as to when and how the FCC will rule on these complaints.
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 serve, 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. Imposition of these penalties would
have a material adverse effect on our subscriber turnover, 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 requirement that
broadcasters negotiate in good faith regarding retransmission consents, (ii) the
requirements for satellite carriers to delete programming from certain broadcast
signals, and (iii) must carry rules. We cannot be sure that these proceedings
will result in rules that are favorable to us.
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TV NETWORKS OPPOSE OUR STRATEGY OF DELIVERING DISTANT NETWORK SIGNALS
The national networks and local affiliate stations successfully
challenged, based upon copyright infringement, PrimeTime 24's methods of selling
network programming to consumers. Until July 1998, we obtained distant broadcast
network channels for distribution to our customers through PrimeTime 24. In
December the United States District Court for the Southern District of Florida
entered a nationwide permanent injunction preventing PrimeTime 24 from selling
its programming to consumers unless the programming was sold in accordance with
certain stipulations in the injunction. The national networks in the Florida
litigation have admitted that the permanent injunction does not apply to us. A
federal district court in North Carolina also issued an injunction against
PrimeTime 24 prohibiting certain distant signal retransmissions in the Raleigh
area. The Fourth Circuit Court of Appeals recently affirmed the North Carolina
Court's decision. We have implemented Satellite Home Viewer Act compliance
procedures which materially restrict the market for the sale of network channels
by us and the rulemaking on the predictive model for determining whether a
household is unserved has resulted in no changes to the model for VHF stations,
an unfavorable development.
In October 1998, we filed a declaratory judgment action in the United
States District Court for the District of Colorado against the four major
networks. We asked the court to enter a judgment declaring that our method of
providing distant network programming does not violate the Satellite Home Viewer
Act and hence does not infringe the networks' copyrights. In November 1998, the
four major broadcast networks and their affiliate groups filed a complaint
against us in federal court in Miami 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.
In February 1999, CBS, NBC, Fox and ABC 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. Under the terms of a settlement between DirecTV and the
networks, some DirecTV customers were scheduled to lose access to their
satellite-provided 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.
The networks are pursuing a Motion for Preliminary Injunction in the
Miami Court, asking the court to enjoin us from providing network programming
except under very limited circumstances. In general, the networks want us to
turn off programming to our customers whom the networks claim are improperly
receiving distant network programming.
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. The Court did not say when a decision will
be made, or whether an additional hearing will be necessary prior to ruling upon
the networks' preliminary injunction motion. The court has not yet ruled upon
the networks' request for an injunction or indicated whether any additional
hearing will be necessary.
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 have
opposed the networks' recent motion and again asked the court to hear live
testimony before ruling upon the networks' injunction request. The judge has not
ruled upon the networks' recent motion and has not indicated whether live
testimony will be heard before the networks' most recent motion is ruled upon.
If this case is decided against us, or a preliminary injunction is
issued, significant material restrictions on the sale of distant ABC, NBC, CBS
and Fox channels by us could result, including potentially a nationwide
permanent prohibition on our broadcast of ABC, NBC, CBS and Fox network channels
by satellite. The litigation and the new legislation discussed above, among
other things, could also require us to terminate delivery of network signals to
a material portion of our subscriber base, which could cause many of these
subscribers to cancel their subscription to our other services. While the
networks have not sought monetary damages, they have sought to
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recover attorney fees if they prevail. We have sent letters to some of our
subscribers warning that their access to distant broadcast network channels
might be terminated soon and have terminated ABC, NBC, CBS and Fox programming
to many customers. Such terminations will result in a small reduction in average
monthly revenue per subscriber and could result in increased subscriber
turnover. Any injunction that may be entered should not have any impact upon our
ability to provide local network programming to subscribers who are eligible to
receive such program.
WE DEPEND ON THE CABLE ACT FOR ACCESS TO OTHERS' PROGRAMMING
Any change in the Cable Consumer Protection and Competition Act of 1992
("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
Our financial performance will affect the market value of our common
stock and convertible notes. 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 in recent periods. 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 $56 million and $142 million for the three
months ended March 31, 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 $372 million and $185 million for the three months ended March
31, 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 subscriber turnover, which is the
rate at which subscribers terminate service. 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
continue to increase, magnify the negative effects of subscriber turnover. We
anticipate that we will continue to experience operating losses through at least
2000. These operating losses may continue beyond 2000.
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, 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, Inc., 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
March 31, 2000, had approximately 8.4 million subscribers. DirecTV is, and will
be for the foreseeable future, in an advantageous
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position with regard to market entry, programming, such as DirecTV's exclusive
sports programming and, possibly, volume discounts for programming offers.
In addition, two other satellite companies in the U.S., including a
subsidiary of Loral Space and Communications Limited, have conditional permits
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.
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 potentially 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.
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 99 million U.S.
television households, and approximately 66% of total U.S. households currently
subscribe to cable. Cable television operators currently have an advantage
relative to us by providing local programming and service to multiple television
sets within the same household. 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, 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.
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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 operator TCI and has entered into a
definitive agreement to acquire MediaOne. We may not be able to compete
successfully with existing competitors or new entrants in the market for
subscription television services.
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 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 like us.
Under a requirement of the 1992 Cable Act, the FCC recently imposed
public interest requirements on direct broadcast satellite licenses, 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. In addition, the American Distance Education Consortium,
or ADEC, recently filed an informal complaint claiming that our requested rates
for carrying non-commercial programming are higher than allowed by the rules,
and a petition asking the FCC to declare that we may not use our EchoStar III
satellite at the 61.5 degree orbital location to carry ADEC's programming, but
must instead use one of our satellites at the 119 degree orbital location. The
FCC released its Order in that proceeding on November 24, 1999. The FCC ruled
that we may not use only EchoStar III at the 61.5 degree orbital location for
all of the public interest programming that we must carry. Rather, we must, at a
minimum, reserve 4% of our channels at each of our full-CONUS orbital locations
exclusively for public interest programming. The FCC also deferred decision on
the reasonableness of our proposed fees pending additional submission by the
parties (which have been made) and ruled that we have the right to use a third
party to aid in the administration of our set-aside obligations. The FCC's
determinations may further restrict our flexibility and require us to devote
additional valuable full-CONUS capacity for public interest programming. In
addition, the FCC, on December 17, 1999, denied our request for waiver of the
public interest rules to extend the December 15, 1999 deadline by which we had
to reserve capacity for noncommercial programming. While the FCC ruled that it
would not initiate enforcement proceedings for violation of the requirement for
the period December 16, 1999 to January 7, 2000, it also stated that it would
investigate and possibly initiate enforcement proceedings for violations
occurring on December 15, 1999 or after January 7, 2000. The FCC referred the
matter to the Enforcement Bureau, which subsequently requested additional
information. On March 22, 2000, the Enforcement Bureau released an order which
concluded that we had not been
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in compliance with the Communications Act and the FCC's rule concerning
noncommercial programming because we had not reserved four percent of our
channel capacity for noncommercial programming on December 15, 1999. As a
penalty for this noncompliance, the Enforcement Bureau found us liable for a
forfeiture in the amount of $11,000, which we have paid.
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. ("Northpoint") 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. Northpoint has been allowed
by the FCC to conduct experimental operations in Texas and Washington, D.C.
Furthermore, the Satellite Home Viewer Improvement Act of 1999 requires the FCC
to make a determination regarding licenses for facilities that will broadcast
signals to underserved markets by using spectrum otherwise allocated to
commercial use, possibly including our DBS spectrum. We have sent a joint letter
with DirecTV to the FCC expressing concern over the Northpoint request, citing
among other items, concerns regarding potential harmful and substantial
interference to the service provided to DBS customers. 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
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 authorization, 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, waivers
and approvals.
Until recently, we operated EchoStar IV at the 148 degree orbital
location under a special temporary authorization. During June 1999, we received
another special temporary authorization from the FCC to temporarily move our
EchoStar IV satellite to the 110 degree orbital location and operate it pending
the launch and successful in-orbit testing and initial operation of EchoStar V.
This authorization was subject to several conditions and expired by its own
terms when EchoStar V commenced commercial operation during November 1999.
In conjunction with our plan to provide local-into-local broadcast
service as well as cable programming from the 110 degree orbital location, we
recently moved EchoStar IV to the 119.2 degree orbital location. We have an
authorization from the FCC to operate that satellite over certain frequencies at
that location, and we recently received special temporary authorization to
operate the satellite over additional frequencies and at the 119.35 degree
orbital location (instead of the authorized 119.2 degree orbital location). The
move has allowed us to transition some of the programming now on EchoStar I and
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. We have recently applied for
authority to operate EchoStar VI, which is scheduled to be launched on July 14,
2000, at the 119 degree orbital location instead of the 110 degree orbital
location. That filing also describes our plans to move EchoStar I to 148 degrees
West Longitude. The state of Hawaii has requested the imposition of many
conditions to the requested authorization, and we cannot be sure that the FCC
will
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grant the authorization, grant it on a timely basis or impose onerous
conditions. We also have filed a request for special temporary authority to test
EchoStar VI at the 148 degree orbital location.
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.
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, including the
license that we received from MCI WorldCom, 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. 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. 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 our 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
common stock and the convertible notes and to react to changing market
conditions. These restrictions, among other things, limit the ability of our
subsidiaries to:
- incur additional indebtedness;
- issue preferred stock;
- sell assets;
- create, incur or assume liens;
- merge, consolidate or sell assets;
- enter into transactions with affiliates; and
- 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.
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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 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.
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 longevity of
their station-keeping on orbit and the efficiency of the launch vehicle used.
The minimum design life of each of EchoStar I, EchoStar II, EchoStar III,
EchoStar IV and EchoStar V 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. 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 or EchoStar V fails following launch. 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. Earlier this year, we temporarily moved our EchoStar IV
satellite to the 110 degree orbital location, see "-- Our business depends
substantially on FCC licenses that can expire or be revoked or modified."
In the event of a failure or loss of any of EchoStar I, EchoStar II or
EchoStar III, we may relocate EchoStar IV and use the satellite 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 EchoStar IV would
not cause additional interference compared to EchoStar I, EchoStar II or
EchoStar III. If we choose to use EchoStar IV 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
We renewed in-orbit insurance for EchoStar I, EchoStar II and EchoStar
III through July 24, 2000. The insurance policy with respect to in-orbit
operation contains standard commercial satellite insurance provisions, including
a material change in underwriting information clause requiring us to notify our
insurers of any material change in the written underwriting information provided
to the insurers or any change in any material fact or circumstance concerning
our satellites insured under the policy. That notification could permit insurers
to renegotiate the terms and conditions if the result is a material change in
risk of loss or insurable interest. A change in the operating status of an
insured satellite or any loss occurring during the policy period does not
entitle the insurers to renegotiate the policy terms. Currently, our satellite
insurance contains customary exclusions and does not apply to loss or damage
caused by acts of war or civil insurrection, anti-satellite devices, nuclear
radiation or radioactive contamination or certain willful or intentional acts
designed to cause loss or failure of a satellite. There may be circumstances in
which insurance will not fully reimburse us for any loss. For example, as a
result of the failure over the past two years of three transponders on EchoStar
III, resulting in the loss of use of six transponders on EchoStar III, our
current insurance policy for EchoStar III contains a deductible of three or six
transponders,
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depending on the power mode that we operate in. As a result of this deductible,
we are currently insured for approximately 81% of our total transponders on
EchoStar III.
The EchoStar IV launch insurance policy provided for insurance of
$219.3 million covering the period from launch of the satellite on May 8, 1998
through May 8, 1999. Due to anomalies experienced by EchoStar IV during that
period and the resulting pending claim for a total constructive loss, we did not
obtain in-orbit insurance on EchoStar IV. Consequently, if we are unable to
resolve our pending insurance claim to our satisfaction, EchoStar IV will not be
insured if further losses occur in the future. In addition, insurance will not
reimburse us for business interruption, loss of business, profit opportunity and
similar losses that might arise from delay in the launch of any EchoStar
satellite.
We have procured normal and customary launch insurance for EchoStar V
and EchoStar VI. The launch insurance policy provides for insurance of $225.0
million covering the one-year period from launch of the satellite. Before either
policy expires, we expect to procure normal and customary in-orbit insurance but
might not be able to procure that insurance at reasonable rates, or at all, if
either EchoStar V or EchoStar VI experiences any anomalies before that time.
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 24 transponders to date, a maximum of approximately 16 of the
44 transponders on EchoStar IV are currently available for use at this time. Due
to the normal degradation of the solar arrays, the number of available
transponders may further decrease over time. Based on the current data from
Lockeed Martin, we expect that at least 10 transponders or 5 high power
transponders will probably be available over the remaining useful life of the
satellite, absent significant additional transponder problems or other failures.
In addition to transponder failures, EchoStar IV experienced anomalies
affecting its heating systems and fuel system during 1999. As a result of the
heating system and fuel system anomalies, the estimated remaining useful life of
EchoStar IV has been reduced to approximately 4 years. The change increased
EchoStar's net loss for the three months ended March 31, 2000 by approximately
$2.4 million.
During September 1998, EchoStar recorded a $106 million provision for
loss in connection with the partial failure of EchoStar IV solar arrays to
deploy. During December 1999, EchoStar recorded an additional $13.7 million
provision for loss. The aggregate loss provision of $119.7 million represented
EchoStar's estimate, at December 31, 1999, of the asset impairment attributable
to lost transmission capacity on EchoStar IV resulting from the solar array
anomaly described above. EchoStar also recorded a $106 million gain, during
September 1998, attributable to an anticipated insurance claim receivable that
it believes is probable of receipt. While there can be no assurance as to the
amount of the final insurance settlement, EchoStar believes that it will receive
insurance proceeds at least equal to the $106 million receivable recorded. To
the extent that it appears probable that EchoStar will receive insurance
proceeds in excess of the $106 million currently recorded and that no further
provision for loss is necessary, a gain will be recognized for the incremental
amount in the period that the amount of the final settlement can be reasonably
estimated.
In September 1998, EchoStar filed a $219.3 million insurance claim for
a constructive total loss under the launch insurance policy related to EchoStar
IV. However, if the Company receives $219.3 million for a constructive total
loss on the satellite, the insurers would obtain the sole right to the benefits
of salvage from EchoStar IV under the terms of the launch insurance policy.
Although we believe we have suffered a total loss of EchoStar IV under that
definition in the launch insurance policy, we intend to negotiate a settlement
with the insurers to compensate us for the reduced satellite transmission
capacity and allow us to retain title to the asset.
The satellite insurance policy for EchoStar IV consists of separate
identical policies with different carriers for varying amounts which, in
combination, create a total insured amount of $219.3 million. Two of the
participants in EchoStar's insurance line have notified EchoStar they believe
that its alleged delay in providing required insurance claim information may
reduce their obligation to pay any settlement related to the claim.
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<PAGE> 20
During April 2000, the insurance carriers offered EchoStar a total of
approximately $88 million, or 40% of the total policy amount, in settlement of
the EchoStar IV insurance claim. The insurers allege that all other impairment
to the satellite occurred after expiration of the policy period and is not
covered by the policy. EchoStar strongly disagrees with the position of the
insurers. As a result, EchoStar filed for arbitration to resolve its insurance
claim for constructive total loss with respect to the EchoStar IV satellite.
There can be no assurance that EchoStar will receive the amount claimed or, if
it does, that EchoStar will retain title to EchoStar IV with its reduced
capacity.
While there can be no assurance, we do not currently expect a material
adverse impact on short term satellite operations. We will continue to evaluate
the performance of EchoStar IV and may modify our loss assessment as new events
or circumstances develop.
WE MAY BECOME LIABLE IN A PENDING FEE DISPUTE
In connection with the News Corporation litigation that arose in 1997,
we have a contingent fee arrangement with the attorneys who represented us in
that litigation which provides for the attorneys to be paid a percentage of any
net recovery obtained 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
District Court, Arapahoe County, Colorado, arguing that the fee arrangement is
void and unenforceable. In December 1999, the attorneys initiated an arbitration
proceeding before the American Arbitration Association. In February 2000, the
attorneys moved to dismiss the lawsuit and to compel us to participate in the
arbitration. On June 15, 2000, a hearing was held on this motion. At the
hearing, the judge granted the attorneys' motion and ordered us to participate
in the arbitration. The judge also stayed the lawsuit while the arbitration was
ongoing. A two week arbitration hearing has been set for January 2001. It is too
early to determine the outcome of negotiations, arbitration or litigation
regarding this fee dispute.
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.
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<PAGE> 21
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 satellite broadcast
competitor, DirecTV. As alleged in the litigation we commenced against DirecTV
on February 1, 2000, see "Recent Developments", we believe that the improper
conduct of DirecTV has resulted in fewer retail outlets that carry our receiver
systems for sale compared to outlets that carry the DirecTV system.
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, other
than executive officers, 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 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 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 EchoStar 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 7% 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
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<PAGE> 22
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 THE CONVERTIBLE NOTES AND 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 that have no obligation to pay any amounts due under the convertible
notes. Our subsidiaries do not guarantee the payment of the convertible notes.
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 EchoStar DBS Corporation subsidiary, an intermediate holding
company through which we conduct substantially all of our business, currently
prohibit it 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
convertible notes. As of March 31, 2000, our subsidiaries had outstanding
long-term debt (including both the current and long-term portion) of
approximately $3.05 billion and also had $954 million of other liabilities. Our
subsidiaries may incur significant indebtedness in the future. If indebtedness
is issued by a subsidiary, the claims of creditors of that subsidiary would
effectively rank senior to the claims of holders of the convertible notes with
respect to such subsidiary's assets. Accordingly, there might be insufficient
assets available to satisfy your claims as a holder of the convertible notes
upon an acceleration of the maturity of the convertible notes. Our ability to
meet our payment obligations will depend on the success of our business
strategy, which is subject to uncertainties and contingencies beyond our
control.
THE CONVERTIBLE NOTES ARE SUBORDINATED TO OTHER DEBT AND NOT SECURED BY ANY OF
OUR ASSETS
The convertible notes are general unsecured obligations ranking junior
to all our existing and future "Senior Debt," as that term is defined in the
indenture. See "Description of convertible notes -- Definitions." In addition,
the convertible notes are effectively junior to all our existing and future
secured indebtedness to the extent of the value of the assets securing that
indebtedness. As a result of such subordination, in the event of our bankruptcy,
liquidation or reorganization or certain other events, our assets will be
available to pay obligations on the convertible notes only after all of our
Senior Debt and all of our secured debt, to the extent of the value of the
assets securing that debt, has been paid in full. Consequently, there may not be
sufficient assets remaining to pay amounts due on any or all of the convertible
notes then outstanding. In addition, to the extent our assets cannot satisfy in
full the secured indebtedness, the holders of the secured indebtedness would
have a claim for any shortfall that would rank senior in right of payment with
respect to the convertible notes, if such secured debt were "Senior Debt," or
would rank equally in right of payment with the convertible notes if such
secured debt were not so classified. The indenture governing the convertible
notes does not prohibit or limit our or our subsidiaries' incurrence of
additional debt, including Senior Debt or secured debt, and the incurrence of
any such additional indebtedness could adversely affect our ability to pay our
obligations on the convertible notes. As of March 31, 2000, our subsidiaries had
outstanding long-term debt (including both the current and long-term portion) of
approximately $3.05 billion and also had $954 million of other liabilities, all
of which are structurally senior to the convertible notes.
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<PAGE> 23
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
34,412,464 shares of our class A 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 13.8 million of these
shares pursuant to an underwritten offering. In connection with that offering,
News America Incorporated and MCI WorldCom Network Services, Inc. have committed
not to sell any shares of class A common stock, other than those included in
that offering, for a period of six months and, thereafter, only as provided in
the prospectus. The sale of these shares may affect the market price of our
class A common stock.
WE MAY BE UNABLE TO REPAY OR REPURCHASE THE CONVERTIBLE NOTES UPON A CHANGE OF
CONTROL
There is no sinking fund with respect to the convertible notes, and the
entire outstanding principal amount of the convertible notes will become due and
payable at maturity. If we experience a change in control, as defined, you may
require us to repurchase all or a portion of your convertible notes prior to
maturity. See "Description of convertible notes -- Repurchase at the option of
holders." We may not have sufficient funds or be able to arrange for additional
financing to repay the convertible notes at maturity or to repurchase
convertible notes tendered to us following a change in control.
Borrowing arrangements or agreements relating to other indebtedness to
which we may become a party may contain restrictions on or prohibitions against
our repurchase of the convertible notes. If we were prohibited from repurchasing
the convertible notes under such financing arrangements and could not obtain the
necessary waivers or refinance the applicable borrowings, we would be unable to
repurchase the convertible notes. Our failure to repurchase any tendered
convertible notes or convertible notes due upon maturity would constitute an
event of default of the convertible notes.
THERE MAY BE NO PUBLIC MARKET FOR THE CONVERTIBLE NOTES
We cannot assure you that any market for the convertible notes will
develop or, if it does develop, that it will be maintained. If a trading market
is established, various factors could have a material adverse effect on the
trading of the convertible notes, including fluctuations in the prevailing
interest rates, changes in the market for convertible securities and changes in
the market price of our common stock. The convertible notes are eligible for
trading in the PORTAL Market. We do not intend to apply for a listing of any of
the convertible notes on any security exchange or for quotation through the
Nasdaq National Market.
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.
THE SHARES OF COMMON STOCK RECEIVED UPON CONVERSION OF THE CONVERTIBLE NOTES
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, which is the class issuable upon conversion of
the convertible notes, 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% of our total common and preferred shares outstanding, it
represents only 9% of our total voting power. Holders of common stock received
upon conversion of the
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convertible notes will therefore not be able to meaningfully participate in our
affairs absent a restructuring of our capital stock or the conversion of the
outstanding class B common stock into class A common stock.
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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RATIO OF EARNINGS TO FIXED CHANGES
<TABLE>
<CAPTION>
Year Ended December 31, Three Months
--------------------------------------------------------------------- Ended
1995 1996 1997 1998 1999 March 31, 2000
---------- ----------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges....... 0.13 (0.99) (1.34) (0.42) (1.54) (1.99)
========== ========== ========= ========= ========= =========
Deficiency of
available earnings
to fixed charges.... $(44,198) $(188,701) $(364,290) $(317,731) $(530,947) $(185,568)
========= ========== ========== ========== ========== ==========
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, and
the deficiency of earnings to fixed charges, earnings consist of earnings from
continuing operations before income taxes, plus fixed charges. Fixed charges
consist of interest incurred on all indebtedness and the imputed interest
component of rental expense under non-cancelable operating leases. For the years
ended December 31, 1995, 1996, 1997 1998 and 1999, and the three months ended
March 31, 2000, earnings were insufficient to cover the fixed charges.
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DESCRIPTION OF CONVERTIBLE NOTES
GENERAL
The convertible notes are issued under an indenture, dated as of
December 8, 1999, to which we and U.S. Bank Trust National Association, as
trustee, are parties. The following description is a summary of the material
provisions of the indenture. It does not restate the indenture in its entirety.
We urge you to read the indenture and the registration rights agreement because
they, and not this description, define your rights as a holder of the
convertible notes. Copies of the indenture and the registration rights agreement
are available to you upon request.
You can find the definitions of certain terms used in this description
under the subheading "Definitions." In this section of the Prospectus entitled
"Description of convertible notes" when we use the terms "we," "us," "our" or
similar terms, we are referring only to EchoStar Communications Corporation, the
issuer of the convertible notes, and not to any of its subsidiaries.
The convertible notes will be general unsecured obligations of ours,
subordinated in right and priority of payment to all of our existing and future
Senior Debt as described under "-- Subordination of convertible notes" and
convertible into our class A common stock as described under "-- Conversion."
The indenture does not contain any financial covenants or restrictions on the
payment of dividends, the incurrence of Senior Debt or issuance or repurchase of
our securities. The indenture contains no covenants or other provisions to
afford protection to holders of the convertible notes in the event of a highly
leveraged transaction, except to the extent described under "-- Repurchase at
the option of holders." The convertible notes will not be guaranteed by any of
our subsidiaries.
We conduct substantially all of our operations through our
subsidiaries. We are dependent upon the cash flow of our subsidiaries to meet
our obligations, including our obligations under the convertible notes. As a
result, the convertible notes will be effectively subordinated to all existing
and future indebtedness and other liabilities and commitments of our
subsidiaries with respect to the cash flow and assets of those subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
We issued $1 billion in aggregate principal amount of convertible
notes. The convertible notes will mature on January 1, 2007. Interest on the
convertible notes accrues at a rate of 4 7/8% per annum from the date of
original issuance and is be payable semiannually on July 1 and January 1,
commencing on July 1, 2000. We will make each interest payment to the holders of
record of the convertible notes on the immediately preceding June 15 and
December 15. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months. All references herein to a payment of principal shall
include any premium that may be payable.
We are required to pay special interest on the convertible notes under
certain circumstances, all as further described under the caption "Registration
rights." All references herein to interest on the convertible notes shall
include any such special interest that may be payable and all references to a
payment of principal shall include any premium that may be payable.
The convertible notes are payable both as to principal and interest on
presentation of such convertible notes if in certificated form at our offices or
agencies maintained for such purpose or, at our option, payment of interest may
be made by check mailed to the holders of the convertible notes at their
respective addresses listed in the register of holders of convertible notes or,
if a holder who holds an aggregate principal amount of at least $5.0 million of
convertible notes so requests, by wire transfer of immediately available funds
to an account previously specified in writing by such holder to us and the
trustee. Until we designate otherwise, our office or agency will be the offices
of the trustee maintained for this purpose. The convertible notes are issued in
registered form, without coupons, and in denominations of $1,000 and integral
multiples of $1,000.
CONVERSION
The holder of any convertible note has the right, exercisable at any
time after March 2, 2000 and prior to maturity, to convert the principal amount
thereof (or any portion thereof that is an integral multiple of $1,000) into
shares of our class A common stock at a conversion price of $45.44 per share,
subject to adjustment as described
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below (the "Conversion Price"), except that if a convertible note is called for
redemption, the conversion right will terminate at the close of business on the
business day immediately preceding the date fixed for redemption.
If any convertible notes are converted during the period after any
record date but before the next interest payment date, interest on such
convertible notes will be paid on the next interest payment date,
notwithstanding such conversion, to the holder of record on the record date of
those convertible notes. Any convertible notes that are, however, delivered to
us for conversion after any record date but before the next interest payment
date must, except as described in the next sentence, be accompanied by a payment
equal to the interest payable on such interest payment date on the principal
amount of convertible notes being converted. We will not require the payment to
us described in the preceding sentence if, during that period between a record
date and the next interest payment date, a conversion occurs on or after the
date that we have issued a redemption notice and prior to the date of
redemption. If any convertible notes are converted after an interest payment
date but on or before the next record date, no interest will be paid on those
notes. No fractional shares will be issued upon conversion, but a cash
adjustment will be made for any fractional shares.
The conversion price is subject to adjustment upon the occurrence of
certain events, including:
(1) the issuance of shares of common stock as a dividend or
distribution on our common stock;
(2) the subdivision or combination of our outstanding common stock;
(3) the issuance to substantially all holders of our common stock of
rights or warrants to subscribe for or purchase common stock (or
securities convertible into class A common stock) at a price per
share less than the then current market price per share, as
defined;
(4) the distribution of shares of our capital stock (other than common
stock), evidences of indebtedness or other assets (excluding
dividends in cash, except as described in paragraph 5 below) to
all holders of our common stock;
(5) the distribution, by dividend or otherwise, of cash to all holders
of our common stock in an aggregate amount that, together with the
aggregate of any other distributions of cash that did not trigger
a Conversion Price adjustment to all holders of our common stock
within the 12 months preceding the date fixed for determining the
stockholders entitled to such distribution and all Excess Payments
in respect of each tender offer or other negotiated transaction by
us or any of our subsidiaries for our common stock concluded
within the preceding 12 months not triggering a Conversion Price
adjustment, exceeds 15% of the product of the current market price
per share (determined as set forth below) on the date fixed for
the determination of stockholders entitled to receive such
distribution times the number of shares of our common stock
outstanding on that date;
(6) payment of an Excess Payment in respect of a tender offer or other
negotiated transaction by us or any of our subsidiaries for our
common stock, if the aggregate amount of such Excess Payment,
together with the aggregate amount of cash distributions made
within the preceding 12 months not triggering a Conversion Price
adjustment and all Excess Payments in respect of each tender offer
or other negotiated transaction by us or any of our subsidiaries
for our common stock concluded within the preceding 12 months not
triggering a Conversion Price adjustment, exceeds 15% of the
product of the current market price per share on the expiration of
such tender offer or the consummation of such other negotiated
transaction, as the case may be, times the number of shares of our
common stock outstanding on that date; and
(7) the distribution to substantially all holders of our common stock
of rights or warrants to subscribe for securities (other than
those referred to in paragraph 3 above). In the event of a
distribution to substantially all holders of our common stock of
rights to subscribe for additional shares of our capital stock
(other than those referred to in paragraph 3 above), we may,
instead of making any adjustment in the Conversion Price, make
proper provision so that each holder of a convertible note who
converts that convertible note after the record date for such
distribution and prior to
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the expiration or redemption of such rights will be entitled to
receive upon such conversion, in addition to shares of common
stock, an appropriate number of such rights. No adjustment of the
Conversion Price will be made until cumulative adjustments amount
to one percent or more of the Conversion Price as last adjusted.
If we reclassify or change our outstanding common stock, or consolidate
with or merge into or transfer or lease all or substantially all of our assets
to any person, or are a party to a merger that reclassifies or changes our
outstanding common stock, the convertible notes will become convertible into the
kind and amount of securities, cash or other assets which the holders of the
convertible notes would have owned immediately after the transaction if the
holders had converted their convertible notes immediately before the effective
date of the transaction.
The indenture also provides that if rights, warrants or options expire
unexercised, the Conversion Price shall be readjusted to take into account the
actual number of such warrants, rights or options, which were exercised.
In the indenture, the "current market price" per share of common stock
on any date means the average of the daily market prices for the shorter of (i)
ten consecutive business days ending on the last full trading day on the
exchange or market referred to in determining such daily market prices prior to
the time of determination (as defined in the indenture) or (ii) the period
commencing on the date next succeeding the first public announcement of the
issuance of such rights or warrants or such distribution through such last full
trading day prior to the time of determination.
We are permitted to make such reductions in the Conversion Price as we,
in our discretion, determine to be advisable in order that any stock dividend,
subdivision of shares, distribution of rights to purchase stock or securities or
distribution of securities convertible into or exchangeable for stock which we
make to our stockholders will not be taxable to the recipients.
SUBORDINATION OF CONVERTIBLE NOTES
The convertible notes are subordinate in right and priority of payment
to all of our existing and future Senior Debt. The indenture does not restrict
the amount of Senior Debt or other indebtedness that we or any of our
subsidiaries may incur. As of March 31, 2000, the convertible notes effectively
rank junior to $3.05 billion of indebtedness and $954 million of other
liabilities of our subsidiaries. Currently, We do not have any debt outstanding
other than indebtedness of our subsidiaries, trade debt and the indebtedness
represented by the convertible notes.
The payment of the principal of, interest on or any other amounts due
on the convertible notes is subordinated in right and priority of payment to the
prior payment in full of all of our Senior Debt. No payment on account of
principal of, redemption of, interest on or any other amounts due on the
convertible notes, including, without limitation, any payments on the Change of
Control Offer, and no redemption, purchase or other acquisition of the
convertible notes may be made unless (i) full payment of amounts then due on all
Senior Debt have been made or duly provided for under the terms of the
instrument governing such Senior Debt, and (ii) at the time for, or immediately
after giving effect to, any such payment, redemption, purchase or other
acquisition, there shall not exist under any Senior Debt or any agreement
pursuant to which any Senior Debt has been issued, any default which shall not
have been cured or waived and which shall have resulted in the full amount of
such Senior Debt being declared due and payable. In addition, the indenture will
provide that if we and the trustee are notified by any of the holders of any
issue of Senior Debt (the "Payment Blockage Notice") that a default has occurred
giving the holders of such Senior Debt the right to accelerate the maturity
thereof, no payment on account of principal, redemption, interest, special
interest, if any, or any other amounts due on the convertible notes and no
purchase, redemption or other acquisition of the convertible notes will be made
for the period (the "Payment Blockage Period") commencing on the date notice is
received and ending on the earlier of (A) the date on which such event of
default shall have been cured or waived or (B) 180 days from the date notice is
received. Notwithstanding the foregoing, only one Payment Blockage Notice with
respect to the same event of default or any other events of default existing and
unknown to the person giving such notice at the time of such notice on the same
issue of Senior Debt may be given during any period of 360 consecutive days
unless such event of default or such other events of default have been cured or
waived for a period of not less than 90 consecutive days. No new Payment
Blockage Period may be commenced by
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the holders of Senior Debt during any period of 360 consecutive days unless all
events of default which triggered the preceding Payment Blockage Period have
been cured or waived.
Upon any distribution of our assets in connection with any dissolution,
winding-up, liquidation or reorganization or acceleration of the principal
amount due on the convertible notes because of any event of default, all Senior
Debt must be paid in full before the holders of the convertible notes are
entitled to any payments whatsoever.
As a result of these subordination provisions, in the event of our
insolvency, holders of the convertible notes may recover ratably less than our
general creditors.
If the payment of the convertible notes is accelerated because of an
event of default, we or the trustee shall promptly notify the holders of Senior
Debt or the trustee(s) for such Senior Debt of the acceleration. We may not pay
the convertible notes until five days after such holders or trustee(s) of Senior
Debt receive notice of such acceleration and, thereafter, may pay the
convertible notes only if the subordination provisions of the indenture
otherwise permit payment at that time.
If the trustee or any holder of convertible notes receives any payment
or distribution of our assets of any kind in contravention of any of the terms
of the indenture, whether in cash, property or securities, including, without
limitation by way of set-off or otherwise, in respect of the convertible notes
before all Senior Debt is paid in full, then such payment or distribution will
be held by the recipient in trust for the benefit of holders of Senior Debt, and
will be immediately paid over or delivered to the holders of Senior Debt or
their representative or representatives to the extent necessary to make payment
in full of all Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holder
of Senior Debt.
We are the exclusive obligors on the convertible notes. Since our
operations are conducted substantially through our subsidiaries, our ability to
service debt, including the convertible notes, is dependent upon the earnings of
our subsidiaries and the distribution of those earnings to, or upon loans or
other payments of funds by those subsidiaries to, us. The payment of dividends
to us and the making of loans and advances to us by our subsidiaries may be
subject to statutory or contractual restrictions, will be dependent upon the
earnings of those subsidiaries and may be subject to various business
considerations. The outstanding senior notes of our EchoStar DBS Corporation
subsidiary, an intermediate holding company through which we conduct
substantially all of our business, currently prohibit it from paying any
dividends to us.
Any right that we have to receive assets of any of our subsidiaries
upon their liquidation or reorganization (and the consequent right of the
holders of the convertible notes to participate in those assets) will be
effectively subordinated to the claims of that subsidiary's creditors (including
trade creditors), except to the extent that we ourselves are recognized as a
creditor of such subsidiary, in which case our claims would still be subordinate
to any security interests in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by us.
The indenture will not limit the amount of additional indebtedness,
including Senior Debt, which we can create, incur, assume or guarantee, nor will
the indenture limit the amount of indebtedness and other liabilities which any
subsidiary can create, incur, assume or guarantee.
OPTIONAL REDEMPTION
We may not redeem the convertible notes prior to January 1, 2003.
Thereafter, the convertible notes are subject to redemption at our option, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices set forth below, expressed as percentages of principal amount
plus accrued and unpaid interest thereon, in each case, to the applicable
redemption date, if redeemed during the twelve-month period beginning on January
1 of the years indicated below:
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<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003 102.786%
2004 102.089
2005 101.393
2006 100.696
2007 100.000
</TABLE>
MANDATORY REDEMPTION AND REPURCHASE
We are not required to make mandatory redemption or sinking fund
payments with respect to the convertible notes. We are, however, required to
make a Change of Control Offer with respect to a repurchase of the convertible
notes under the circumstances described under the caption "Repurchase at the
option of holders."
REPURCHASE AT THE OPTION OF HOLDERS
If a Change of Control occurs, each holder of convertible notes will
have the right to require us to repurchase all or any part of that holder's
convertible notes equal to $1,000 or an integral multiple of $1,000, pursuant to
the Change of Control Offer at a purchase price equal to 101% of the principal
amount, plus accrued and unpaid interest, if any, as of the date of purchase.
The payment will be referred to as the Change of Control Payment. Within 40 days
following any Change of Control, we will mail a notice to each holder, stating:
(1) that the Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control" and that all convertible
notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 40 days from the date such
notice is mailed. This date is referred to as the Change of
Control Payment Date;
(3) that interest will continue to accrue on any convertible notes not
tendered, as provided in the convertible notes;
(4) that, unless we default in the payment of the Change of Control
Payment, with respect to all convertible notes accepted for
payment pursuant to the Change of Control Offer, interest will
cease to accrue after the Change of Control Payment Date;
(5) that holders electing to have any convertible notes purchased
pursuant to a Change of Control Offer will be required to
surrender the convertible notes, with the form entitled Option of
Holder to Elect Purchase on the reverse of the convertible notes
completed, to the paying agent at the address specified in the
notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date,
a telegram, telex, facsimile transmission or letter stating the
name of the holder, the principal amount of convertible notes
delivered for purchase, and a statement that the holder is
withdrawing the election to have such convertible notes purchased;
and
(7) that holders whose convertible notes are being purchased only in
part will be issued new convertible notes equal in principal
amount to the unpurchased portion of the convertible notes
surrendered, which unpurchased portion must be equal to $1,000 in
principal amount.
We will comply with the requirements of Rules 13e-4 and 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the convertible notes in connection with a Change of Control.
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On the Change of Control Payment Date, we will, to the extent lawful,
(1) accept for payment convertible notes or portions of convertible
notes tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all convertible notes or portions of
convertible notes so tendered; and
(3) deliver or cause to be delivered to the trustee the convertible
notes so accepted together with an Officers' Certificate stating
the convertible notes or portions of convertible notes that have
been tendered.
The paying agent shall promptly mail to each holder of convertible
notes so accepted, or, if a holder requests, wire transfer immediately available
funds to an account previously specified in writing by the holder to us and the
paying agent, payment in an amount equal to the purchase price for such
convertible notes. The trustee shall promptly authenticate and mail to each
holder a new convertible note equal in principal amount to any unpurchased
portion of the convertible notes surrendered, if any; provided that each new
convertible note shall be in a principal amount of $1,000 or an integral
multiple of $1,000. We will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
Except as described above with respect to a Change of Control, the
indenture does not contain any other provision that permits the holders of the
convertible notes to require that we repurchase or redeem the convertible notes
in the event of a takeover, recapitalization or similar restructuring. The
Change of Control Offer requirement of the convertible notes may, in certain
circumstances, make more difficult or discourage a takeover, and, thus, the
removal of incumbent management. Management has not entered into any agreement
or plan involving a Change of Control, although it is possible that we could
decide to do so in the future. Subject to the limitations discussed below, we
could, in the future, enter into various transactions including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect our capital structure or credit
ratings.
Our ability to pay cash to the holders of convertible notes pursuant to
a Change of Control Offer may be limited by our then existing financial
resources. See "Risk factors." Any future credit facilities or other agreements
relating to our or our subsidiaries' indebtedness may contain prohibitions or
restrictions on our ability to effect a Change of Control Payment or may also
require a similar offer to which we or our subsidiaries may be required to
allocate resources, such as with EchoStar DBS Corporation's outstanding senior
notes. If a Change of Control occurs at a time when such prohibitions or
restrictions are in effect, we could seek the consent of our lenders to the
purchase of convertible notes and other indebtedness containing change of
control provisions or could attempt to refinance the borrowings that contain
such prohibitions or restrictions. If we do not obtain such consents or repay
such borrowings, we will be effectively prohibited from purchasing the
convertible notes. In such case, our failure to purchase tendered convertible
notes would constitute an event of default under the indenture. Moreover, the
events that constitute a Change of Control under the indenture may constitute
events of default under our future debt instruments or credit agreements of us
or our subsidiaries. Such events of default may permit the lenders under those
debt instruments or credit agreements to accelerate the debt and, if the debt is
not paid or repurchased, to enforce their security interests in what may be all
or substantially all of the assets of our subsidiaries. Therefore, our ability
to raise cash to repay or repurchase the convertible notes may be limited.
"Change of Control" means
(a) any transaction or series of transactions (including, without
limitation, a tender offer, merger or consolidation) the result of
which is that the Principal and his Related Parties or an entity
controlled by the Principal and his Related Parties (and not
controlled by any person other than the Principal or his Related
Parties) (i) sell, transfer or otherwise dispose of more than 50%
of the total Equity Interests in us beneficially owned (as defined
in Rule 13(d)(3) under the Exchange Act, but without including any
Equity Interests which may be deemed to be owned solely by reason
of the existence of any voting arrangements), by such persons on
the date of the indenture (as adjusted for stock splits and
dividends and other distributions payable in Equity Interests) or
(ii) do not have the voting power to elect at least a majority of
our Board of Directors;
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(b) the first day on which a majority of the members of our Board of
Directors are not Continuing Directors; or
(c) the sale, lease or transfer of all or substantially all of our
assets to any "Person" or "group," within the meaning of Section
13(d)(3) and 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing, including any group acting
for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
other than the Principal and his Related Parties.
"Principal" means Charles W. Ergen.
"Related Party" means, with respect to the Principal, (a) the spouse
and each immediate family member of the Principal and (b) each trust,
corporation, partnership or other entity of which the Principal beneficially
holds an 80% or more controlling interest.
SELECTION AND NOTICE
If less than all of the convertible notes are to be redeemed at any
time, selection of convertible notes for redemption will be made by the trustee
in compliance with the requirements of any securities exchange on which the
convertible notes are listed. In the absence of any requirements of any
securities exchange or if the convertible notes are not listed, selection of the
convertible note to be redeemed will be made on a pro rata basis, provided that
no convertible notes of $1,000 or less may be redeemed in part. Notice of
redemption will be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of convertible notes to be
redeemed at its registered address. If any convertible note is to be redeemed in
part only, the notice of redemption that relates to that convertible note shall
state the portion of the principal amount thereof to be redeemed. A new
convertible note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the holder thereof upon cancellation of the
original convertible note. On and after the redemption date, interest ceases to
accrue on convertible notes or portions of them called for redemption.
COVENANTS
SALE OF ASSETS
The indenture provides that we may not sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of our properties or
assets in any one or more related transactions to another corporation, person or
entity unless:
- The entity or person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia;
- The entity or person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all
obligations pursuant to a supplemental indenture, in a form reasonably
satisfactory to the trustee, under the convertible notes and the
indenture; and
- Immediately after such transaction no default or event of
default exists.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The indenture provides that we will not, and will not permit any
subsidiary to, conduct our or its business in a fashion that would cause us to
be required to register as an "investment company" (as that term is defined in
the Investment Company Act of 1940, as amended).
REPORTS
Whether or not required by the rules and regulations of the SEC, so
long as any convertible notes are outstanding, we will file with the SEC and
furnish to the holders of convertible notes all quarterly and annual financial
information required to be contained in a filing with the SEC on Forms 10-Q and
10-K, including a
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<PAGE> 33
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report by our
certified independent accountants, in each case, as required by the rules and
regulations of the SEC as in effect on the issuance date.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an event
of default:
(1) default for 30 days in the payment when due of interest on the
convertible notes;
(2) a default in the payment of principal of any convertible note when
due at its stated maturity, upon optional redemption, in
connection with a Repurchase Offer, upon declaration, or
otherwise;
(3) our failure to comply for 30 days after notice with any of our
obligations under the covenants described under "Repurchase at the
option of holders" and "Sale of assets" (in each case, other than
a failure to purchase convertible notes in connection with a
Repurchase Offer);
(4) our failure for 60 days after notice to comply with certain other
covenants and agreements contained in the indenture or the
convertible notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by us or any of our
subsidiaries that is a "significant subsidiary" or any group of
two or more subsidiaries that, taken as a whole, would constitute
a significant subsidiary, or the payment of which is guaranteed by
us or any of our subsidiaries that is a significant subsidiary or
any group of two or more subsidiaries that, taken as a whole,
would constitute a significant subsidiary, whether such
Indebtedness or guarantee now exists, or is created after the
issuance date, which default
(1) is caused by a failure to pay when due principal or interest
on such Indebtedness within the grace period provided in such
Indebtedness, which payment default continues beyond any
applicable grace period; or
(2) results in the acceleration of such Indebtedness prior to its
express maturity; and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a
payment default or the maturity of which has been so
accelerated, aggregates $50.0 million or more;
(6) failure by us or any subsidiary of ours that is a significant
subsidiary or any group of two or more subsidiaries that, taken as
a whole, would constitute a significant subsidiary to pay final
judgments for the payment of money (other than any judgment as to
which a reputable insurance company has accepted liability subject
to customary terms) aggregating in excess of $50.0 million, which
judgments are not paid, wired, discharged or stayed within 60 days
after their entry;
(7) certain events of bankruptcy or insolvency with respect to us or
any subsidiary of ours that is a significant subsidiary or any
group of two or more subsidiaries that, taken as a whole, would
constitute a significant subsidiary; and
(8) the approval by our shareholders of any merger, amalgamation or
consolidation by us (whether or not we are the surviving
corporation) and whether or not such merger, amalgamation or
consolidation is in one or more related transactions if, (i) the
successor corporation, person or entity (A) does not assume all
the obligations, pursuant to a supplemental indenture in a form
reasonably satisfactory to the trustee, under the convertible
notes and the indenture (to the extent any such supplemental
indenture may be necessary, in the opinion of the trustee, to
evidence our continuing obligations under the indenture) and (B)
is not a corporation, person or entity organized or existing under
the laws of the United States, any state thereof or the District
of Columbia or (ii) immediately after the transaction, any default
or event of default exists.
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<PAGE> 34
If any event of default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding convertible
notes may declare all the convertible notes to be due and payable immediately,
subject to the provisions limiting payment described in "-- Subordination."
Notwithstanding the foregoing, if a default occurs from (i) the events described
in paragraph 8 above regarding merger, amalgamation or consolidation or (ii)
certain events of bankruptcy or insolvency, with respect to us or any
significant subsidiary, all outstanding convertible notes will become due and
payable without further action or notice. Holders of the convertible notes may
not enforce the indenture or the convertible notes except as provided in the
indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding convertible notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
convertible notes notice of any continuing default or event of default, except a
default or event of default relating to the payment of principal or interest, if
it determines that withholding notice is in their interest.
If the convertible notes are accelerated because an event of default
has occurred and is continuing as a result of the acceleration of any
Indebtedness described in paragraph 5 above, the acceleration shall be
automatically annulled if:
- the holders of any, Indebtedness described in such paragraph 5,
above, have rescinded the declaration of acceleration in respect of
such Indebtedness within 30 days after the date of such declaration;
- the annulment of the acceleration of the convertible notes would
not conflict with any judgment or decree of a court of competent
jurisdiction; and
- all existing events of default, except for nonpayment of
principal of or interest on the convertible notes that became due
solely because of the acceleration of the convertible notes, have been
cured or waived.
The holders of a majority in aggregate principal amount of the then
outstanding convertible notes by notice to the trustee may on behalf of all of
the holders waive any existing default or event of default and its consequences
under the indenture except a continuing default or event of default in the
payment of interest on or the principal of the convertible notes.
We are required to deliver to the trustee annually a statement
regarding compliance with the indenture, and we are required, upon becoming
aware of any default or event of default, to deliver to the trustee a statement
specifying that default or event of default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of ours, as
such, shall have any liability for any of our obligations under the convertible
notes or the indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of the convertible notes by
accepting a convertible note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the convertible notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the SEC that a waiver of such liabilities
is against public policy.
UNCLAIMED MONEY; PRESCRIPTION
If money deposited with the trustee or paying agent for the payment of
principal or interest remains unclaimed for two years, the trustee and the
paying agent shall pay the money back to us at our written request. After that,
holders of convertible notes entitled to the money must look to us for payment
unless an abandoned property law designates another person and all liability of
the trustee and the paying agent shall cease. Other than as described in this
paragraph, the indenture does not provide for any prescription period for the
payment of interest and principal on the convertible notes.
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BOOK-ENTRY, DELIVERY AND FORM
The convertible notes were sold to qualified institutional buyers in
reliance on Rule 144A ("Rule 144A Notes"). Convertible notes were also sold to a
limited number of accredited investors in transactions exempt from registration
under the Securities Act ("Accredited Investor Notes"). Except as set forth
below, convertible notes were issued in registered, global form in minimum
denominations of $1,000 (subject to a minimum initial purchase amount of
$100,000 in the case of Accredited Investor Notes) and integral multiples of
$1,000 in excess thereof.
Rule 144A Notes initially will be represented by one or more
convertible notes in registered global form without interest coupons
(collectively, the "Global Notes"). The Global Notes will be deposited upon
issuance with the trustee as custodian for The Depository Trust Company ("DTC"),
in New York, New York, and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect participant in DTC as
described below.
Except as set forth below, the Global Notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Notes may not be exchanged
for convertible notes in certificated form except in the limited circumstances
described below. See "-- Exchange of global notes for certificated notes."
Except in the limited circumstances described below, owners of beneficial
interests in the Global Notes will not be entitled to receive physical delivery
of convertible notes in certificated form.
Accredited Investor Notes will be issued only in registered,
certificated (i.e., non-global) form without interest coupons. Accredited
Investor Notes may not be exchanged for beneficial interests in any Global Note
except in the limited circumstances described below. See "Exchange of
certificated notes for global notes."
Rule 144A Notes (including beneficial interests in the Global Notes)
and Accredited Investor Notes will be subject to certain restrictions on
transfer and will bear a restrictive legend as described under "Notice to
investors." In addition, transfers of beneficial interests in the Global Notes
will be subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them. We take no responsibility for these operations and
procedures and urge investors to contact the system or their participants
directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the initial purchasers with portions of
the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants
(with respect to other owners of beneficial interest in the Global
Notes).
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Investors in the Global Notes who are Participants in DTC's system may
hold their interests therein directly through DTC. Investors in the Global Notes
who are not Participants may hold their interests therein indirectly through
organizations which are Participants in such system. All interests in a Global
Note are subject to the procedures and requirements of DTC. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a person having beneficial interests in
a Global Note to pledge such interests to persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE CONVERTIBLE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF CONVERTIBLE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED
THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and interest, of, premium, and
special interest, if any, and interest on a Global Note registered in the name
of DTC or its nominee will be payable to DTC in its capacity as the registered
holder under the indenture. Under the terms of the indenture, we and the trustee
will treat the persons in whose names the convertible notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, neither we, the trustee, nor
any agent of ours or the trustee has or will have any responsibility or
liability for:
- any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
- any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any
payment in respect of securities such as the convertible notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date unless DTC has reason to believe it will
not receive payment on such payment date. Each relevant Participant is credited
with an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the Participants and the Indirect Participants to the beneficial
owners of convertible notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the trustee or
EchoStar. Neither we nor the trustee will be liable for any delay by DTC or any
of its Participants in identifying the beneficial owners of the convertible
notes, and we and the trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Subject to the transfer restrictions set forth under "Notice to
investors," transfers between Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken
by a holder of convertible notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global Notes
and only in respect of such portion of the aggregate principal amount of the
convertible notes as to which such Participant or Participants has or have given
such direction. However, if there is an event of default under the convertible
notes, DTC reserves the right to exchange the Global Notes for legended
convertible notes in certificated form, and to distribute such convertible notes
to its Participants.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive convertible notes in
registered certificated form ("Certificated Notes") if:
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(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the Global Notes and we fail to appoint a successor
depositary or (b) has ceased to be a clearing agency registered
under the Exchange Act;
(2) we, at our option, notify the trustee in writing that we elect to
cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a default or event of
default with respect to the convertible notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the restrictive legend referred to in "Notice to
investors," unless that legend is not required by applicable law.
EXCHANGE OF ACCREDITED INVESTOR NOTES FOR GLOBAL NOTES
Accredited Investor Notes, which will be issued in certificated form,
may not be exchanged for beneficial interests in a global note unless such
exchange occurs in connection with a transfer of such Accredited Investor Notes
and the transferor first delivers to the trustee a written certificate (in the
form provided in the indenture) to the effect that such transfer will comply
with the appropriate transfer restrictions applicable to such convertible notes.
See "Notice to investors."
SAME DAY SETTLEMENT AND PAYMENT
We will make payments in respect of the convertible notes represented
by the global notes (including principal, premium, if any, and interest and
special interest, if any) by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. We will make all payments of
principal, interest, premium and special interest, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified or
permitted to be specified, by mailing a check to each such Holder's registered
address. The convertible notes represented by the Global Notes are expected to
be eligible to trade in the PORTAL market and to trade in DTC's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
convertible notes will, therefore, be required by DTC to be settled in
immediately available funds. We expect that secondary trading in any
Certificated Notes will also be settled in immediately available funds.
TRANSFER AND EXCHANGE
A holder may transfer or exchange interests in the convertible notes in
accordance with procedures described in "Book-entry; delivery and form." The
registrar and the trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and we may require a holder to
pay any taxes and fees required by law or permitted by the indenture. We are not
required to transfer or exchange any convertible note selected for redemption.
Also, we are not required to transfer or exchange any convertible note for a
period of 15 days before a selection of convertible notes to be redeemed.
The registered holder of a convertible note will be treated as the
owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the indenture or
the convertible notes may be amended or supplemented with the consent of the
holders of at least a majority in aggregate principal amount of the then
outstanding convertible notes, as applicable, including consents obtained in
connection with a tender offer or exchange offer for the convertible notes, and
any existing default or compliance with any provision of the indenture or the
convertible notes may be waived with the consent of the holders of a majority in
aggregate principal amount
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of then outstanding convertible notes, including consents obtained in connection
with a tender offer or exchange offer for the convertible notes.
Without the consent of each holder affected, an amendment or waiver may
not:
- reduce the amount of convertible notes whose holders must
consent to an amendment, supplement or waiver;
- reduce the principal of or change the fixed maturity of any
convertible note or alter the provisions with respect to the redemption
of the convertible notes, except for repurchases of the convertible
notes pursuant to the covenant described above under the caption "--
Repurchase at the option of holders;"
- reduce the rate of or change the time for payment or accrual of
interest on any convertible note;
- waive a default in the payment of principal of or interest on
any convertible notes, except a rescission of acceleration of the
convertible notes by the holders of at least a majority in aggregate
principal amount of the convertible notes and a waiver of the payment
default that resulted from such acceleration;
- make any convertible note payable in money other than that
stated in the convertible notes;
- make any change in the provisions of the indenture relating to
waivers of past defaults or the rights of holders of convertible notes
to receive payments of principal of or interest on the convertible
notes;
- waive a redemption payment with respect to any convertible note;
- impair the right to convert the convertible notes into common
stock;
- modify the conversion or subordination provision of the
indenture in a manner adverse to the holders of the convertible notes;
or
- make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of
convertible notes, we and the trustee may amend or supplement the indenture or
the convertible notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated convertible notes in addition to or in place of certificated
convertible notes, to provide for the assumption of our obligations to holders
of the convertible notes in the case of a merger or consolidation or certain
transfers or leases, to make any change that would provide any additional rights
or benefits to the holders of the convertible notes or that does not adversely
affect the legal rights under the indenture of any such holder, or to comply
with requirements of the SEC in order to maintain the qualification of the
indenture under the Trust Indenture Act.
GOVERNING LAW AND JUDGMENTS
The convertible notes and the indenture will be governed exclusively by
and construed in accordance with the laws of the State of New York without
giving effect to applicable principles of conflicts of laws to the extent that
the application of the law of another jurisdiction would be required thereby.
We will submit to the jurisdiction of the United States federal and New
York state courts located in the borough of Manhattan, City and State of New
York for purposes of all legal actions and proceedings instituted in connection
with the convertible notes and indenture.
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CONCERNING THE TRUSTEE
The indenture contains limitations on the rights of the trustee, should
it become a creditor of ours, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as security
or otherwise. The trustee may engage in other transactions; however, if it
acquires any conflicting interest it must eliminate that conflict within 90
days, apply to the SEC for permission to continue or resign.
The holders of the majority in aggregate principal amount of the then
outstanding convertible notes have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
trustee under the indenture, subject to certain exceptions. The indenture
provides that in case an event of default shall occur, which shall not be cured
or waived, the trustee is required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the trustee is under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of convertible
notes, unless the holder shall have offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
DEFINITIONS
The following are selected defined terms used in the indenture.
Reference is made to the indenture for a full definition of all terms, as well
as certain other terms used in this description of the convertible notes for
which no definition is provided.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents, however designated, of corporate stock, including,
without limitation, partnership interests.
"Continuing Director" means, as of any date of determination, any
member of our Board of Directors who:
(a) was a member of such Board of Directors on the date of the
indenture; or
(b) was nominated for election or elected to such Board of Directors
with the affirmative vote of a majority of the Continuing
Directors who were members of such Board at the time of such
nomination or election or was nominated for election or elected by
the Principal and his Related Parties.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock, but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock.
"Excess Payment" means the excess of (A) the aggregate of the cash and
value of other consideration paid by us or any of our subsidiaries with respect
to shares of ours acquired in a tender offer or other negotiated transaction
over (B) the market value of such acquired shares after giving effect to the
completion of a tender offer or other negotiated transaction.
"Exchange Rate Contract" means, with respect to any Person, any
currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements exchange rate insurance and
other agreements or arrangements, or combination thereof, the principal purpose
of which is to provide protection against fluctuations in currency exchange
rates. An Exchange Rate Contract may also include an Interest Rate Agreement.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the issuance date and are applied on a consistent basis.
"Guarantee" means a guarantee, other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner, including, without limitation, letters of credit and
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
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"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit, of reimbursement agreements in respect thereof, or representing the
balance deferred and unpaid of the purchase price of any property (which
purchase price is due more than six months after the placing into service or
delivery of such property) including pursuant to capital leases and
sale-and-leaseback transactions, or representing any hedging obligations under
an Exchange Rate Contract or an Interest Rate Agreement, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing indebtedness, other than obligations under an Exchange Rate
Contract or an Interest Rate Agreement, would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, and also
includes, to the extent not otherwise included, the Guarantee of items which
would be included within this definition. The amount of any Indebtedness
outstanding as of any date shall be the accreted value thereof, in the case of
any Indebtedness issued with original issue discount. Indebtedness shall not
include liabilities for taxes of any kind.
"Interest Rate Agreement" means, with respect to any person, any
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement or other similar agreement the principal purpose of which is to
protect the Party indicated therein against fluctuations in interest rates.
"Issuance Date" means the date on which the convertible notes are first
authenticated and issued.
"Repurchase Offer" means a Change of Control Offer.
"Senior Debt" means the principal of, interest on and other amounts due
on (i) our Indebtedness, whether outstanding on the date of the indenture or
thereafter created incurred, assumed or guaranteed by us, for money borrowed
from banks or other financial institutions; (ii) our Indebtedness, whether
outstanding on the date of the indenture or thereafter created incurred, assumed
or guaranteed by us; (iii) our Indebtedness under interest rate swaps, caps or
similar hedging agreements and foreign exchange contracts, currency swaps or
similar agreements: unless, in the instrument creating or evidencing or pursuant
to which Indebtedness under (i) or (ii) is outstanding, it is expressly provided
that such Indebtedness is not senior in right of payment to the convertible
notes. Senior Debt includes, with respect to the obligations described in
clauses (i) and (ii) above, interest accruing, pursuant to the terms of such
Senior Debt, on or after the filing of any petition in bankruptcy or for
reorganization relating to us, whether or not post-filing interest is allowed in
such proceeding, at the rate specified in the instrument governing the relevant
obligation. Notwithstanding anything to the contrary in the foregoing, Senior
Debt shall not include: (a) Indebtedness of or amounts owed by us for
compensation to employees, or for goods or materials purchased in the ordinary
course of business, or for services; and (b) Indebtedness which we owe to any of
our subsidiaries.
"Significant Subsidiary" means any subsidiary of ours which is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act and the Exchange Act, as such Regulation is in effect on the date
of the indenture.
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REGISTRATION RIGHTS
The following summary of the registration rights provided in the
registration rights agreement and the convertible notes is not complete. You
should refer to the registration rights agreement and the convertible notes for
a full description of the registration rights that apply to the convertible
notes.
Pursuant to a registration rights agreement we have agreed for the
benefit of the holders of the convertible notes, that (i) we will, at our cost,
within 90 days after the closing of the sale of the convertible notes (the
"Closing"), file a shelf registration statement (the "Shelf Registration
Statement) with the SEC with respect to resales of the convertible notes and the
common stock issuable upon conversion thereof, (ii) we will use our best efforts
to cause such Shelf Registration Statement to be declared effective by the SEC
within 270 days after the Closing, and (iii) we will use our best efforts to
keep such Shelf Registration Statement continuously effective under the
Securities Act until, subject to certain exceptions specified in the
registration rights agreement, the second anniversary of the date of the
Closing. We will be permitted to suspend use of the prospectus that is part of
the Shelf Registration Statement during certain periods of time and in certain
circumstances relating to pending corporate developments and public filings with
the SEC and similar events. If (a) we fail to file the Shelf Registration
Statement required by the registration rights agreement on or before 90 days
after closing, (b) such Shelf Registration Statement is not declared effective
by the SEC on or prior to 270 days after closing (the "Effectiveness Target
Date") or (c) the Shelf Registration Statement is effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities (as defined below) during the periods specified in the
registration rights agreement (each such event referred to in clauses (a)
through (c) above a "Registration Default"), then we will pay special interest
to each holder of convertible notes, with respect to the first 90
consecutive-day period immediately following the occurrence of such Registration
Default, an amount equal to an increase in the annual interest on the
convertible notes of 0.25% and with respect to each subsequent 90
consecutive-day period, an amount equal to an increase in the annual interest
rate on the convertible notes of 0.25% until all Registration Defaults have been
cured up to a maximum increase in the annual rate of interest on the convertible
notes equal to 1.0%. All accrued special interest will be paid by us on each
subsequent interest payment date in cash. Such payment will be made to the
holder of the Global Notes by wire transfer of immediately available funds or by
federal funds check and to holders of Certificated Notes, if any, by wire
transfer to the accounts specified by them (to the extent permitted under the
indenture) or by mailing checks to their registered addresses if no such
accounts have been specified by them. Following the cure of all Registration
Defaults, the accrual of special interest will cease.
For purposes of the foregoing, "Transfer Restricted Securities" means
each convertible note and the common stock issuable upon conversion thereof
until (i) the date on which such convertible note or the common stock issuable
upon conversion thereof has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement, (ii) the
date on which such convertible note or the common stock issuable upon conversion
thereof is distributed to the public pursuant to Rule 144(k) under the
Securities Act (or any similar provision then in effect) or is saleable pursuant
to Rule 144(k) under the Act or (iii) the date on which such convertible note or
the common stock issuable upon the conversion thereof ceases to be outstanding.
If the Company expects to file and obtain the effectiveness of a Shelf
Registration Statement within 30 days of the effective date of the Registration
Rights Agreement (an "Expedited Filing"), it shall (x) mail, as promptly as
reasonably practicable after the effective date of the Registration Rights
Agreement to the holders of Transfer Restricted Securities, a Notice and
Questionnaire, in substantially the form attached hereto as Appendix A (a
"Notice and Questionnaire"), with a response deadline of 30 days from the date
of such notice (the "Expedited Filing Questionnaire Deadline"), and (y) as
promptly as practicable after the response deadline but in any event no later
than 30 days thereafter, prepare a prospectus supplement (and if required file
an amendment or a supplement to the Shelf Registration Statement) or take such
other measures, if any, as are necessary to include in the Shelf Registration
Statement the Transfer Restricted Securities of Electing Holders (as defined
below). If the Company does not intend to make an Expedited Filing, it shall
mail the Notice and Questionnaire to the holders of Transfer Restricted
Securities not less than 20 business days prior to the time the Company intends
in good faith to have the Shelf Registration Statement declared effective (the
"Effective Time"). No holder of Transfer Restricted Securities shall be entitled
to be named as a selling security holder in the Shelf Registration Statement as
of the effective time of such Shelf Registration Statement (or in the first
prospectus supplement filed thereafter in the case of the
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Expedited Filing), and no holder of Transfer Restricted Securities shall be
entitled to use the prospectus forming a part thereof for offers and resales of
Transfer Restricted Securities at any time, unless such Holder has returned a
completed and signed Notice and Questionnaire to the Company by the deadline for
response set forth therein.
The Company shall not be required to take any action to name such
holder as a selling securityholder in the Shelf Registration Statement until
such holder has returned a completed and signed Notice and Questionnaire to the
Company. Following its receipt of such Notice and Questionnaire, the Company
will as promptly as possible, but not prior to the next required amendment or
supplement to the Shelf Registration Statement, include the Transfer Restricted
Securities covered thereby in the Shelf Registration Statement (if not
previously included). The term "Electing Holder" shall mean any holder of
Transfer Restricted Securities that has returned a completed and signed Notice
and Questionnaire to the Company in accordance with the preceding two
paragraphs.
We will provide to each registered holder of convertible notes, or the
common stock issuable upon conversion of the convertible notes, who is named in
the prospectus and who so requests in writing, copies of the prospectus which
will be a part of such Shelf Registration Statement, notify each such holder
when such Shelf Registration Statement for the convertible notes or the common
stock issuable upon conversion of the convertible notes has become effective and
take certain other actions as required to permit unrestricted resales of the
convertible notes or the common stock issuable upon conversion of the
convertible notes. A holder of the convertible notes or the common stock
issuable upon conversion of the convertible notes that sells such securities
pursuant to a Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement which are
applicable to such holder, including certain indemnification and contribution
rights and obligations.
Upon the initial sale of convertible notes or common stock issuable
upon conversion of the convertible notes, each selling holder will be required
to deliver a notice of such sale to the trustee and us. The notice will, among
other things, identify the sale as a transfer pursuant to the Shelf Registration
Statement, certify that the prospectus delivery requirements, if any, of the
Securities Act have been complied with, and certify that the selling holder and
the aggregate principal amount of securities owned by such holder are identified
in the related prospectus in accordance with the applicable rules and
regulations under the Securities Act.
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DESCRIPTION OF OUR CAPITAL STOCK
GENERAL
Our authorized capital stock currently consists of:
- 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
- 20,000,000 shares of preferred stock, including 2,300,000 shares
of 6 :% Series C cumulative convertible preferred stock.
As of June 19, 2000, 234,244,845 shares of class A common stock were
issued and outstanding and held of record by 3,998 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 June 19, 2000,
251,093 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 American Securities Transfer & Trust, Inc.
On March 22, 2000, we completed a two-for-one split of our outstanding
class A and class B common stock.
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
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the class B common stock. Each share of class C 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 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 June 19, 2000, holders of an aggregate of approximately 2 million
shares of the Company's 6 :% Series C cumulative convertible preferred stock had
converted their shares into approximately 33 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 :% 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-% 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.
43
<PAGE> 46
SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain United States federal
income tax considerations that may be relevant to the purchase, ownership and
disposition of the convertible notes and the class A common stock into which the
convertible notes may be converted, but does not purport to be a complete
analysis of all the potential tax considerations relating thereto. This summary
deals only with holders that will hold convertible notes and class A common
stock as capital assets and does not address tax considerations applicable to
investors that may be subject to special tax rules such as dealers in
securities, financial institutions, insurance companies, tax-exempt entities,
persons holding the convertible notes as part of a hedging or conversion
transaction, a straddle or a constructive sale, persons whose functional
currency is not the United States dollar, and holders of convertible notes that
did not acquire the convertible notes in the initial distribution thereof at
their original issue price. In addition, this discussion does not consider the
effect of any estate, gift or other tax laws.
As used in this summary:
- A "United States Holder" means a beneficial owner of the
convertible notes or the class A common stock into which the
convertible notes may be converted, who or that:
- is a citizen or resident of the United States;
- is a corporation or other entity taxable as a corporation
created or organized in or under the laws of the United
States or political subdivision thereof;
- is an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
- is a trust if (a) a U.S. court is able to exercise
supervision over the administration of the trust and one or
more U.S. fiduciaries have authority to control all
substantial decisions of the trust, or (b) the trust has a
valid election in effect under applicable U.S. treasury
regulations to be treated as a United States Person;
- A "Foreign Holder" is a beneficial owner of convertible notes or
class A common stock that is not a United States Holder;
- "Code" means the U.S. Internal Revenue Code of 1986, as amended to
date;
- "IRS" means the U.S. Internal Revenue Service.
THE DISCUSSION OF THE UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
BELOW IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, THE APPLICABLE
TREASURY REGULATIONS PROMULGATED AND PROPOSED UNDER THE CODE, JUDICIAL DECISIONS
AND ADMINISTRATIVE INTERPRETATIONS, ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY
ON A RETROACTIVE BASIS. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER YOU ARE
STRONGLY URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO YOUR PARTICULAR TAX
SITUATION AND THE PARTICULAR TAX EFFECTS OF ANY STATE, LOCAL NON-UNITED STATES
OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
UNITED STATES HOLDER
CONVERTIBLE NOTES
Stated interest. A United States Holder will be required to include in
gross income the stated interest on a convertible note at the time that such
interest accrues or is received, in accordance with the United States Holder's
regular method of accounting for federal income tax purposes.
Sale, exchange or redemption of the convertible notes. A United States
Holder's tax basis in a convertible note will be its cost. A United States
Holder generally will recognize gain or loss on the sale, exchange or retirement
(including a redemption by us) of a convertible note in an amount equal to the
difference between the
44
<PAGE> 47
amount of cash plus the net fair market value of any property received, other
than any such amount received in respect to accrued interest (which will be
taxable as such if not previously included in income), and the United States
Holder's tax basis in the convertible note. Gain or loss recognized on the sale,
exchange or retirement of a convertible note generally will be a capital gain or
loss. In the case of a non-corporate United States Holder, the federal tax rate
applicable to capital gains will depend upon the United States Holder's holding
period for the convertible notes, with a preferential rate available for
convertible notes held for more than one year, and upon the United States
Holder's marginal tax rate for ordinary income. The deductibility of capital
losses is subject to limitations.
CONVERSION OF THE CONVERTIBLE NOTES
A United States Holder generally will not recognize any income, gain,
or loss upon conversion of a convertible note into class A common stock (except
with respect to cash received in lieu of a fractional share of class A common
stock). Such United States Holder's basis in the class A common stock received
on conversion of a convertible note will be the same as such United States
Holder's tax basis in the convertible note at the time of conversion (reduced by
any basis allocable to a fractional share interest as described below), and the
holding period for the class A common stock received on conversion will include
the holding period of the convertible note converted.
Cash received in lieu of a fractional share of class A common stock
will be treated as a payment in exchange for the fractional share interest in
the class A common stock. Accordingly, the receipt of cash in lieu of a
fractional share of class A common stock will generally result in capital gain
or loss (measured by the difference between the cash received for the fractional
share and the holder's basis in the fractional share).
CONSTRUCTIVE DIVIDENDS
The conversion price of the convertible notes is subject to adjustment
under specified circumstances. Under Section 305 of the Code and applicable
treasury regulations, adjustments or the failure to make adjustments to the
Conversion Price of the convertible notes may result in a taxable constructive
dividend to United States Holders, resulting in ordinary income to the extent of
our earnings and profits, if, and to the extent that, the adjustments in the
Conversion Price increase the proportionate interest of a United States Holder
of a convertible note in our fully diluted stock, class A common stock, whether
or not the United States Holder ever converts the convertible notes into our
class A common stock.
DIVIDENDS ON CLASS A COMMON STOCK
Dividends paid on class A common stock generally will be includible in
the income of a United States Holder as ordinary income to the extent of our
current or accumulated earnings and profits. Subject to certain limitations, a
corporate taxpayer holder of class A common stock that receives dividends
thereon generally will be eligible for a dividends-received deduction equal to
70% of the dividends received.
SALE, EXCHANGE OR REDEMPTION OF CLASS A COMMON STOCK
Upon the sale, exchange or redemption of class A common stock, a United
States Holder generally will recognize capital gain or loss equal to the
difference between the amount realized on the sale, exchange or redemption and
the United States Holder's adjusted basis in the class A common stock. In the
case of a non-corporate United States Holder, the federal tax rate applicable to
capital gains will depend upon the United States Holder's holding period for the
class A common stock, with a preferential rate available for class A common
stock held for more than one year, and upon the holder's marginal tax rate for
ordinary income. The deductibility of capital loss is subject to limitations.
FOREIGN HOLDERS
CONVERTIBLE NOTES
Stated Interest. Payments of interest on a convertible note to a
Foreign Holder will not be subject to United States federal withholding tax
provided that:
45
<PAGE> 48
- the holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote (treating, for such purpose, convertible notes held by a holder
as having been converted into our class A common stock);
- the holder is not a controlled foreign corporation that is
related to us through stock ownership; and
- either (a) the beneficial owner of the convertible note, under
penalties of perjury, provides us or our agent with its name and
address and certifies that it is not a United States person or (b) a
securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") certifies to us or our agent,
under penalties of perjury, that such a statement has been received
from the beneficial owner by it or another financial institution and
furnishes to us or our agent a copy thereof.
For purposes of this summary, we refer to this exemption from U.S.
federal withholding tax as the "Portfolio Interest Exemption." Under United
States treasury regulations, which generally are effective for payments made
after December 31, 2000, subject to certain transition rules, the certification
under penalties of perjury described above may also be provided by a qualified
intermediary on behalf of one or more beneficial owners or other intermediaries,
provided that such intermediary has entered into a withholding agreement with
the IRS and certain other conditions are met.
The gross amount of payments to a Foreign Holder of interest that does
not qualify for the Portfolio Interest Exemption and that is not effectively
connected to a United States trade or business will be subject to United States
federal withholding tax at the rate of 30%, unless a United States income tax
treaty applies to reduce or eliminate withholding.
A Foreign Holder will generally be subject to tax in the same manner as
a United States Holder with respect to payments of interest if such payments are
effectively connected with the conduct of a trade or business by the Foreign
Holder in the United States and, if an applicable tax treaty so provides, such
gain is attributable to an office or other fixed place of business maintained in
the United States by the Foreign Holder. Such effectively connected income
received by a Foreign Holder, which is a corporation, may in certain
circumstances be subject to an additional "branch profits tax" at a 30% rate or,
if applicable, a lower treaty rate.
To claim the benefit of a tax treaty or to claim exemption from
withholding because the income is effectively connected with a U.S. trade or
business, the Foreign Holder must provide a properly executed Form 1001 or 4224,
as applicable, prior to the payment of interest. These forms must be
periodically updated. United States treasury regulations, which generally are
effective for payments made after December 31, 2000, subject to certain
transition rules, require Foreign Holders or, under certain circumstances, a
qualified intermediary to file a withholding certificate with our withholding
agent to obtain the benefit of an applicable tax treaty providing for a lower
rate of withholding tax. Such certificate must contain, among other information,
the name and address of the Foreign Holder.
Foreign Holders should consult their own tax advisors regarding
applicable income tax treaties, which may provide different rules.
Sale, exchange or redemption of the convertible notes. A Foreign Holder
generally will not be subject to United States federal income tax or withholding
tax on gain realized on the sale or exchange of convertible notes unless (1) the
holder is an individual who was present in the United States for 183 days or
more during the taxable year, and certain other conditions are met, (2) the gain
is effectively connected with the conduct of a trade or business of the holder
in the United States and, if an applicable tax treaty so provides, such gain is
attributable to an office or other fixed place of business maintained in the
United States by such holder or (3) EchoStar is or has been a "United States
real property holding corporation" (a "USRPHC") within a specified time period,
as described below under "-- Sale, exchange or redemption of class A common
stock," and the holder owns or has owned (actually or constructively) more than
5% of the total value of the convertible notes at any time during the shorter of
the five-year period preceding the date of the disposition or the holder's
holding period (in which case the gain will be treated as effectively connected
income as described in (2)). In the case of (2), such effectively connected
46
<PAGE> 49
income received by a Foreign Holder which is a corporation may in certain
circumstances be subject to an additional "branch profits tax" at a 30% rate or,
if applicable, a lower treaty rate. Additionally, in the case of (3), it is
possible that a Foreign Holder that initially owns 5% or less of the total value
of the convertible notes may subsequently be considered to own more than 5% of
the total value of the convertible notes due to other holders' conversion of
convertible notes into class A common stock. Regardless of whether a disposition
of any convertible note is taxable to the seller pursuant to the rules regarding
USRPHCs, the withholding requirements of Section 1445 of the Code generally will
not be applicable to a purchaser of the convertible notes or a financial
intermediary involved in any such transaction.
CONVERSION OF THE CONVERTIBLE NOTES
In general, no United States federal income tax or withholding tax will
be imposed upon the conversion of a convertible note into class A common stock
by a Foreign Holder except (1) to the extent the class A common stock is
considered attributable to accrued interest not previously included in income,
which may be taxable under the rules set forth in "Foreign Holders -- Stated
Interest," (2) with respect to the receipt of cash in lieu of fractional shares
by Foreign Holders upon conversion of a convertible note, in each case where
either the conditions described in (1) or (2) above under "Foreign Holders --
Sale, exchange or redemption of the convertible notes" is satisfied or (3) we
are a United States real property holding corporation as discussed below, the
holder owns or has owned (actually or constructively) more than 5% of the value
of the convertible notes at any time during the shorter of the five-year period
preceding the date of conversion of the holder's holding period, and certain
other conditions apply. For purposes of (3), it is possible that a Foreign
Holder that initially owns 5% or less of the total value of the convertible
notes may subsequently be considered to own more than 5% of the total value of
the convertible notes due to other holders' conversion of convertible notes into
class A common stock. Regardless of whether a conversion of any convertible note
is taxable to the seller pursuant to the rules regarding USRPHCs, the
withholding requirements of Section 1445 of the Code generally will not be
applied to us or a financial intermediary involved in any such transaction.
SALE, EXCHANGE OR REDEMPTION OF CLASS A COMMON STOCK
A Foreign Holder will generally not be subject to United States federal
income tax or withholding tax on the sale or exchange of class A common stock
unless either of the conditions described in (1) or (2) above under "Foreign
Holders -- Sale, exchange or redemption of the convertible notes" is satisfied
or EchoStar is or has been a United States real property holding corporation, or
a USRPHC, as defined above, for United States federal income tax purposes at any
time within the shorter of the five-year period preceding such disposition or
such Foreign Holder's holding period. We do not believe we are, nor do we
believe we have ever been a USRPHC. Further, we do not expect in the foreseeable
future to become a USRPHC. If the Company is, or becomes, a USRPHC, so long as
the class A common stock continues to be regularly traded on an established
securities market within the meaning of Section 897(c)(3) of the Code, only a
Foreign Holder who holds or held directly, indirectly or constructively, at any
time during the shorter of the five-year period preceding the date of
disposition or the holder's holding period, more than 5% of the class A common
stock will be subject to U.S. federal income tax on the disposition of the class
A common stock. For purposes of the ownership test described above, a Foreign
Holder of convertible notes will be considered as constructively owning the
class A common stock into which such notes are convertible. Regardless of
whether a disposition of class A common stock is taxable to the seller pursuant
to the rules regarding USRPHCs, the withholding requirements of Section 1445 of
the Code generally will not be applicable to a purchaser of the class A common
stock or a financial intermediary involved in any such transaction.
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<PAGE> 50
DISTRIBUTIONS ON CLASS A COMMON STOCK
Distributions by us with respect to the class A common stock that are
treated as dividends paid or deemed paid (including a deemed distribution on the
convertible notes or class A common stock as described above under "United
States Holders -- Constructive dividends") to a Foreign Holder, excluding
dividends that are effectively connected with the conduct of a trade or business
in the United States by such Holder which are taxable as described below, will
be subject to United States federal withholding tax at a 30% rate, or lower rate
provided under any applicable income tax treaty. Except to the extent that an
applicable tax treaty otherwise provides, a Foreign Holder will be subject to
tax in the same manner as a United States Holder on dividends paid or deemed
paid that are effectively connected with the conduct of a trade or business in
the United States by the Foreign Holder. If such Foreign Holder is a foreign
corporation, it may in certain circumstances also be subject to a United States
"branch profits tax" on such effectively connected income at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Even though
such effectively connected dividends are subject to income tax, and may be
subject to the branch profits tax, they will not be subject to U.S. withholding
tax if the Foreign Holder delivers IRS Form 4224 to the payor.
Under current United States treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country, unless the payor has knowledge to the contrary, for purposes of the
withholding discussed above, and under the current interpretation of United
States treasury regulations, for purposes of determining the applicability of a
tax treaty rate. Under United States treasury regulations which generally are
effective for payments made after December 31, 2000, subject to certain
transition rules, however, a Foreign Holder of class A common stock who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification requirements. In addition, under current United States
treasury regulations, in the case of class A common stock held by a foreign
partnership, or other fiscally transparent entities, the certification
requirement would generally be applied to the partners of the partnership and
the partnership would be required to provide certain information, including a
United States taxpayer identification number. The treasury regulations also
provide look-through rules for tiered partnerships.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments
of principal, premium, if any, and interest on a convertible note, dividends on
class A common stock, and payments of the proceeds of the sale of a convertible
note or class A common stock to certain non-corporate United States Holders, and
a 31% backup withholding tax may apply to such payment if the United States
Holder (1) fails to furnish or certify his correct taxpayer identification
number to the payer in the manner required, (2) is notified by the IRS that he
has failed to report payments of interest or dividends properly or (3) under
certain circumstances, fails to certify that he has not been notified by the IRS
that he is subject to backup withholding for failure to report interest or
dividend payments.
Information reporting requirements will apply to payments of interest
or dividends to Foreign Holders where such interest or dividends are subject to
withholding or are exempt from United States withholding tax pursuant to a tax
treaty, or where such interest is exempt from United States tax under the
Portfolio Interest Exemption discussed above. Copies of these information
returns may also be made available under the provisions of a specific treaty or
agreement to the tax authorities of the country in which the Foreign Holder
resides.
Treasury regulations provide that backup withholding and information
reporting will not apply to payments of principal on the convertible notes by
the Company to a Foreign Holder if the Foreign Holder certifies as to its status
as a Foreign Holder under penalties of perjury or otherwise establishes an
exemption (provided that neither the Company nor its paying agent has actual
knowledge that the holder is a United States person or that the conditions of
any other exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of convertible notes
or class A common stock to or through the United States office of any broker,
United States or foreign, will be subject to information reporting and possible
backup withholding unless the owner certifies as to its non-United States status
under penalty of perjury or otherwise establishes an exemption, provided that
the broker does not have actual knowledge that the holder is a United States
person or that the conditions of any other exemption are not, in fact,
satisfied. The payment of the proceeds from the disposition of a convertible
note or class A common stock to or through a non-United States
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<PAGE> 51
office of a non-United States broker that is not a United States related person
will not be subject to information reporting or backup withholding. For this
purpose, a "United States related person" is:
- a "controlled foreign corporation" for United States federal
income tax purposes; or
- a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its taxable
year preceding the payment, or for such part of the period that the
broker has been in existence, is derived from activities that are
effectively connected with the conduct of a United States trade or
business.
In the case of the payment of proceeds from the disposition of
convertible notes or class A common stock to or through a non-United States
office of a broker that is either a United States person or a United States
related person, treasury regulations require information reporting on the
payment unless the broker has documentary evidence in its files that the owner
is a Foreign Holder and the broker has no knowledge to the contrary.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
United States treasury regulations, which generally are effective for
payments made after December 31, 2000, subject to certain transition rules, will
generally expand the circumstances under which information reporting and backup
withholding may apply Holders of convertible notes should consult their tax
advisors regarding the application of the information and reporting and backup
withholding rules, including such treasury regulations.
THE ABOVE SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF CONVERTIBLE NOTES IN
LIGHT OF HIS, HER OR ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH
HOLDER OF CONVERTIBLE NOTES SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO THE HOLDER OF THE OWNERSHIP AND DISPOSITION OF THE
CONVERTIBLE NOTES INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS, OR SUBSEQUENT REVISIONS OF THESE TAX LAWS.
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<PAGE> 52
SELLING SECURITYHOLDERS
The convertible notes were originally issued by EchoStar and sold by
the initial purchasers in transactions not requiring registration under the
Securities Act or applicable state securities laws. The initial purchasers of
the convertible notes offered and sold the convertible notes to persons they
reasonably believed to be qualified institutional buyers in reliance on Rule
144A under the Securities Act and to a limited number of other "accredited
investors"(as defined in Rule 501(a)(1)(, (2) or (7) of the Securities Act).
Selling securityholders, which includes their transferees, pledgees or donees
and their successors, may from time to time offer and sell pursuant to this
prospectus any or all of the convertible notes or shares of class A common stock
into which they are convertible.
The following table provides information, as of the date of this
prospectus, regarding the principal amount of the convertible notes and shares
of class A common stock beneficially owned that may be offered and sold by each
selling securityholder. The information is based upon information provided to us
by each selling securityholder. The selling securityholders may have sold,
transferred or otherwise disposed of all or any portion of their convertible
notes or acquired additional convertible notes since the date on which they
provided information to us. Any of the foregoing would have been pursuant to
transactions not requiring registration under the Securities Act or applicable
state securities laws.
Because the selling securityholders may offer all or some portion of
the convertible notes and shares of class A common stock into which they are
convertible, we cannot estimate the amount of convertible notes or the number of
shares of class A common stock that will be held by the selling securityholders
upon termination of such sales.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
1976 Distribution Trust FBO Aerin
Lauder/Zinterhofer $ 18,000 396
1976 Distribution Trust FBO Jane A. Lauder $ 18,000 396
AIG/National Union Fire Ins. $ 675,000 14,855
AIG SoundShore Holdings Ltd. $ 8,229,000 181,096
AIG Soundshore Opportunity Holding Fund Ltd. $ 2,835,000 62,390
AIG SoundShore Strategic Holding Fund Ltd. $ 500,000 11,004
Allstate Life Insurance Co. $ 2,500,000 55,018
Aloha Airlines Non-Pilots Pension Trust $ 180,000 3,961
Aloha Airlines Pilots Retirement Trust $ 100,000 2,201
Alta Partners $ 10,000,000 220,070
Argent Classic Convertible Arbitrage Fund
(Bermuda) L.P. $ 11,500,000 253,081
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Argent Convertible Arbitrage Fund Ltd. $ 3,000,000 66,021
Aristeia International, LLC $ 3,250,000 71,523
Aristeia Trading, LLC $ 1,750,000 38,512
Arkansas PERS $ 1,560,000 34,331
Arkansas Teachers Retirement System $ 4,289,000 94,388
Banc of America Securities, LLC $ 32,212,000 708,891
Bancroft Convertible Fund, Inc. $ 1,000,000 22,007
Bank Austria Cayman Island, Ltd. $ 12,300,000 270,687
Bankers Trust, Trustee for Daimler Chrysler
Corp. Emp. #1 Pension Plan Ltd. 4/1/89 $ 6,000,000 132,042
Baptist Health of South Florida $ 287,000 6,316
BBT Fund, L.P. $ 4,000,000 88,028
Bear, Stearns & Co., Inc. $ 2,500,000 55,018
Black Diamond Offshore, Ltd. $ 1,183,000 26,034
BNP Arbitrage SNC $ 10,150,000 223,371
Boston Museum of Fine Arts $ 195,000 4,291
British Virgin Island Social Security Board $ 37,000 814
C&H Sugar Company, Inc. $ 285,000 6,272
Calpers $ 12,000,000 264,085
Canyon Value Realization (Cayman) Ltd $ 13,900,000 305,898
Christian Science Trustees for Gifts and
Endowments $ 365,000 8,033
Chrysler Corporation Master Retirement Trust* $ 7,240,000 159,331
CIBC World Markets $ 16,290,000 358,495
CIBC World Markets International Arbitrage
Corp. $ 12,500,000 275,088
City University of New York $ 89,000 1,959
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Clinton Riverside Convertible Portfolio Limited $ 5,000,000 110,035
Conseco Direct Life $ 1,150,000 25,308
Cova Bond-Debenture Fund $ 1,500,000 33,011
Deep Haven Domestic Convertible Trading Ltd. $ 3,000,000 66,021
Delaware PERS $ 1,415,000 31,140
Delphi Financial Group, Inc. $ 3,827,000 84,221
Delphi Foundation, Inc. $ 32,000 704
Delta Air Lines Master Trust* $ 2,745,000 60,409
Deutsche Bank Securities, Inc. $110,018,000 2,421,171
Donaldson Lufkin & Jenrette $ 33,000,000 726,232
Double Black Diamond Offshore, LDC $ 3,187,000 70,136
Ellsworth Convertible Growth and Income
Fund, Inc. $ 1,000,000 22,007
Engineers Joint Pension Fund $ 589,000 12,962
Fidelity Advisor Series II: Fidelity Advisor
Strategic Income Fund $ 600,000 13,204
Fidelity Financial Trust: Fidelity Convertible
Securities Fund $ 9,000,000 198,063
Fidelity Fixed-Income Trust: Fidelity High
Income Fund $ 10,240,000 1,065,360 225,352
Fidelity Management Trust Company on behalf
of accounts managed by it $ 5,330,000 97,500 117,298
Fidelity Puritan Trust: Fidelity Puritan Fund $ 30,000,000 660,211
Fidelity School Street Trust: Fidelity
Strategic Income Fund $ 80,000 1,761
Fiduciary Trust Intl. $ 250,000 5,502
First Republic Bank $ 120,000 2,641
Forest Alternatives Strategies Fund II, LP
Series A5I $ 350,000 7,702
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Forest Alternatives Strategies Fund II, LP
Series A5M $ 225,000 4,952
Forest Fulcrum Fund LP $ 2,250,000 49,516
Forest Global Convertible Fund Series A-5 $ 9,025,000 198,614
Forest Performance Fund, LP $ 1,000,000 22,007
Forrestal Funding Master Trust $ 5,000,000 110,035
Franklin & Marshall $ 450,000 9,903
Fuji U.S. Income Open $ 1,000,000 22,007
General Motors Employees Global Group
Pension Trust $ 6,032,000 132,746
General Motors Foundation, Inc. $ 328,000 7,218
GLG Global Convertible Fund $ 3,625,000 79,776
GLG Global Convertible UCITS Fund $ 875,000 19,256
GLG Market Neutral Fund $ 19,500,000 429,137
The Grable Foundation $ 135,000 2,971
Grace Brothers Limited $ 2,500,000 55,018
Grady Hospital Foundation $ 140,000 3,081
Granville Capital Corporation $ 24,000,000 528,169
Hawaiian Airlines Employees Pension Plan-IAM $ 155,000 3,411
Hawaiian Airlines Pension Plan for Salaried
Employees $ 40,000 880
Hawaiian Airlines Pilots Retirement Plan $ 240,000 5,282
HBK Master Fund, L.P. $ 76,750,000 1,689,040
Highbridge International, LLC $ 16,290,000 358,495
ICI American Holdings Trust $ 680,000 14,965
Island Holdings $ 40,000 880
JMG Capital Partners, LP $ 12,375,000 272,337
JMG Convertible Investments, LP $ 11,750,000 258,583
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
JMG Triton Offshore Fund, Ltd. $ 20,125,000 442,892
JP Morgan Securities, Inc. $ 10,085,000 221,941
KBC Financial Products U.S.A. $ 2,000,000 44,014
KD Offshore Fund CV $ 1,000,000 22,007
Kellner DiLeo & Co. $ 1,000,000 22,007
Kentfield Trading, Ltd. $ 11,875,000 261,334
LB Series Fund Inc. High Yield Portfolio $ 4,250,000 93,530
LB Series Fund Inc. Income Portfolio $ 1,400,000 30,810
Lehman Brothers, Inc. $ 7,200,000 158,451
Liberty View Funds, L.P. $ 1,000,000 22,007
Lincoln National Convertible Securities Fund $ 2,500,000 55,018
Lipper Convertibles, LP $ 8,000,000 176,056
Lipper Offshore Convertibles, LP $ 2,000,000 44,014
LLT, Limited $ 550,000 12,104
Local Initiatives Support Corporation $ 58,000 1,276
Lord Abbett & Co Investment Trust - High
Yield Fund $ 250,000 5,502
Lord Abbett & Co Oxford Fund $ 1,500,000 33,011
Lord Abbett Bond Debenture Fund $ 13,050,000 287,192
Lutheran Brotherhood High Yield Fund $ 1,500,000 33,011
Lutheran Brotherhood Income Fund $ 900,000 19,806
Lyxor Master Fund $ 1,250,000 27,509
Mainstay Convertible Fund $ 2,650,000 58,319
Mass Mutual Corporate Investors $ 400,000 8,803
Mass Mutual High Yield Partners II, LLC $ 3,200,000 70,423
Mass Mutual Participation Investors $ 240,000 5,282
Massachusetts Mutual Life Insurance $ 3,200,000 70,423
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
McMahan Securities Company L.P. $ 750,000 16,505
Merrill Lynch Convertible Fund, Inc. $ 600,000 13,204
Merrill Lynch Insurance Group $ 331,000 7,284
Merrill Lynch Pierce Fenner & Smith Inc. $ 16,400,000 360,915
Morgan Stanley & Co. $ 13,000,000 286,092
Morgan Stanley Dean Witter Income Builder Fund $ 5,000,000 110,035
Morgan Stanley Dean Witter Variable Income
Builder Fund $ 1,400,000 30,810
Motion Picture Industry Health Plan - Active
Member Fund* $ 840,000 18,486
Motion Picture Industry Health Plan - Retiree
Member Fund* $ 420,000 9,243
Motors Insurance Corporation $ 1,608,000 35,387
Museum of Fine Arts, Boston $ 140,000 3,081
Nalco Chemical Company $ 275,000 6,052
New Hampshire Retirement System $ 810,000 17,826
New Orleans Fire Fighters Pension/Relief Fund $ 143,000 3,147
New York Life Insurance Company $ 18,000,000 396,127
New York Life Insurance and Annuity Corporation $ 2,000,000 44,014
Nicholas Appelgate Convertible Fund $ 1,206,000 26,540
Nomura Securities International Inc. $ 4,750,000 104,533
Northwest Mutual Life Insurance Co. $ 6,000,000 132,042
Occidential Petroleum Corporation $ 247,000 5,436
OCM Convertible Limited Partnership* $ 40,000
OCM Convertible Limited Partnership Reg. D -i* $ 185,000 4,071
OCM Convertible Trust* $ 3,280,000 72,183
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Ohio Bureau of Workers Compensation $ 168,000 3,697
Palladin Securities $ 1,550,000 34,111
Parker-Hannifin Corporation $ 270,000 5,942
Partner Reinsurance Company, Ltd.* $ 1,535,000 33,781
Penn Treaty Network American Insurance Co. $ 400,000 8,803
PGEP III, LLC $ 1,150,000 25,308
Physicians Life $ 458,000 10,079
Pilgrim Convertible Fund $ 5,256,000 115,669
Pro Mutual $ 510,000 11,224
Putnam Asset Allocation Funds - Balanced
Portfolio $ 800,000 17,606
Putnam Asset Allocation Funds - Conservative
Portfolio $ 500,000 11,004
Putnam Balanced Retirement Fund $ 260,000 5,722
Putnam Convertible Income-Growth Trust $ 11,000,000 242,077
Putnam Convertible Opportunity and Income Trust $ 380,000 8,363
Quattro Fund Ltd. $ 1,000,000 22,007
Queen's Health Plan $ 60,000 1,320
R2 Investments, LDC $ 19,175,000 421,985
Ramius Capital Group Holdings, Ltd. $ 3,000,000 66,021
RCG Latitude Master Fund, Ltd. $ 200,000 4,401
Saar Holdings CDO Limited $ 1,850,000 40,713
Sagamore Hill Hub Fund Ltd. $ 5,500,000 121,039
Salomon Smith Barney, Inc. $ 3,790,000 83,407
San Diego City Retirement $ 1,186,000 26,100
San Diego County Convertible $ 3,422,000 75,308
SG-Cowen Securities $ 14,000,000 308,099
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Shell Pension Trust $ 248,000 5,458
Southern Farm Bureau Life Insurance $ 1,075,000 23,658
Southport Management Partners, L.P. $ 600,000 13,204
Southport Partners International, Ltd. $ 1,200,000 26,408
Spear Leeds & Kellogg $ 1,000,000 22,007
Starvest Combined Portfolio $ 850,000 18,706
State of Connecticut Combined Investment Funds* $ 8,175,000 179,908
State Employees' Retirement Fund of the State
of Delaware* $ 3,730,000 82,086
State of Maryland Retirement Agency $ 3,344,000 73,592
State of Oregon Equity $ 6,900,000 151,849
State of Oregon/SAIF Corporation $ 8,450,000 185,960
State Street Bank Custodian for GE Pension
Trust $ 3,150,000 69,322
STI Capital Management $ 3,500,000 77,025
Summer Hill Equity Income LLC $ 135,000 2,971
Sun America High Income Fund $ 1,000,000 22,007
Sun America Series Trust High Yield Portfolio $ 1,000,000 22,007
Sylvan IMA Ltd $ 1,800,000 39,613
The TCW Group, Inc. $ 22,725,000 500,110
TQA Master Plus Fund, Ltd. $ 5,400,000 118,838
Transamerica Occidental Life Insurance Co. $ 22,500,000 495,158
Transamerica Premier High Yield Fund $ 1,750,000 38,512
Triton Capital Investments, Ltd. $ 1,000,000 22,007
University of Rochester $ 130,000 2,861
Value Line Convertible Fund, Inc. $ 1,000,000 22,007
Value Realization Fund, LP $ 11,225,000 247,029
</TABLE>
57
<PAGE> 60
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE SHARES OF CLASS A
NOTES BENEFICIALLY COMMON STOCK SHARES OF CLASS A
OWNED AND OFFERED OWNED PRIOR TO THE COMMON STOCK
NAME HEREBY(1) THE OFFERING(1)(2) OFFERED HEREBY(2)
-------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Value Realization Fund B, LP $ 800,000 17,606
Vanguard Convertible Securities Fund, Inc.* $ 8,110,000 178,477
Variable Insurance Products Fund III: Balanced
Portfolio $ 100,000 2,201
Variable Insurance Products Fund: High Income
Portfolio $ 20,250,000 445,643
Wake Forest University $ 1,437,000 31,624
White River Securities, LLC $ 5,500,000 121,039
Worldwide Transactions, Ltd. $ 280,000 6,162
Writers Guild - Industry Health Fund $ 360,000 7,923
Zeneca Holdings Pension Trust $ 650,000 14,305
Other current and future holders of
convertible notes(3) $ (5,177,000) (113,930)
------------------ ------------------ ------------------
TOTALS $1,000,000,000 1,162,860 22,007,042
</TABLE>
----------
(1) Includes shares of class A common stock into which the notes are
convertible.
(2) Assumes a conversion price of $45.44 per share and the payment of cash in
lieu of fractional shares.
(3) Information concerning other selling securityholders, including current
holders of convertible notes for which we have not received current
information regarding their holdings of convertible notes and class A
common stock, or information reflecting transfers of their convertible
notes and class A common stock to other selling securityholders, will be
included in supplements to this prospectus, if required. For purposes of
this table, we have assumed that such holders do not beneficially own any
other shares of class A common stock, other than the shares issuable upon
conversion of the convertible notes.
None of the selling securityholders has had any material relationship
with EchoStar or its affiliates within the past three years.
Information concerning the selling securityholders may change from time
to time and any such changed information will be set forth in supplements to
this prospectus if and when necessary. In addition, the conversion price of the
convertible notes may be adjusted under certain circumstances which will change
the number of shares of class A common stock received upon their conversion.
58
<PAGE> 61
PLAN OF DISTRIBUTION
The selling securityholders and their successors (which term includes
their transferees, pledgees or donees of their successors) may sell the
convertible notes and the class A common stock into which they are convertible
directly to purchasers or through underwriters, broker-dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions
from the selling securityholders or the purchasers (which discounts, concessions
or commissions as to any particular underwriter, broker-dealer or agent may be
in excess of those customary in the types of transactions involved).
The convertible notes and the class A common stock into which they are
convertible may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at prices related to such
prevailing market prices, at varying prices determined at the time of sale, or
at negotiated prices. Such sales may be effected in transactions (which may
involve crosses or block transactions) (1) on any national securities exchange
or quotation service on which the notes or the class A common stock may be
listed or quoted at the time of sale, (2) in the over-the-counter market, (3) in
transactions otherwise than on such exchanges or services or in the
over-the-counter market, (4) through the writing of options (whether such
options are listed on an options exchange or otherwise), or (5) through the
settlement of short sales. In connection with the sale of the convertible notes
and the class A common stock received upon their conversion or otherwise, the
selling securityholders may enter into hedging transactions with broker-dealers
or other financial institutions which may in turn engage in short sales of the
notes or the class A common stock, into which they are convertible and deliver
these securities to close out such short positions, or loan or pledge the notes
or the class A common stock into which they are convertible to broker-dealers
that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of
the convertible notes or class A common stock into which they are convertible
offered by them hereby will be the purchase price of such notes or common stock
less discounts and commissions, if any. Each of the selling securityholders
reserves the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase of notes or common stock
to be made directly or through agents. We will not receive any of the proceeds
from this offering.
Our outstanding class A common stock is listed for trading on Nasdaq
National Market. We do not intend to list the convertible notes for trading on
any national securities exchange or on the Nasdaq National market and can give
no assurance about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if
applicable, the convertible notes and class A common stock into which they are
convertible may be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the convertible notes
and class A common stock into which they are convertible may not be sold unless
they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.
The selling securityholders and any underwriters, broker-dealers or
agents that participate in the sale of the notes and common stock into which
they are convertible may be "underwriters" within the meaning of Section 2(11)
of the Securities Act. Any discounts, commissions, concessions or profit they
earn on any resale or the shares may be underwriting discounts and commissions
under the Securities Act. Selling securityholders who are "underwriters" within
the meaning of Section 2(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act. The selling
securityholders have acknowledged that they understand their obligations to
comply with the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation, particularly Regulation M, and have agreed that they will
not engage in any transaction in violation of such provisions.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling
securityholder may not sell any convertible notes or class A common stock
described herein and may not transfer, devise or gift such securities by other
means not described in this prospectus.
59
<PAGE> 62
To the extent required, the specific convertible notes or shares of
class A common stock to be sold, the names of the selling securityholders, the
respective purchase prices and public offering prices, the names of any agent,
dealer or underwriter, and any applicable commissions or discounts with respect
to a particular offer will be set forth in an accompanying prospectus supplement
or, if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
LEGAL MATTERS
Friedlob Sanderson Paulson & Tourtillott, LLC, Denver, Colorado, will
pass on the validity of the convertible notes and the class A common stock
issuable upon their conversion. Mr. Friedlob, a member of the firm, is also a
member of our Board of Directors and currently owns options to acquire 14,000
shares of class A common stock. Friedlob Sanderson Paulson & Tourtillott, LLC
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.
60
<PAGE> 63
================================================================================
June 30, 2000
ECHOSTAR COMMUNICATIONS CORPORATION
$1,000,000,000
4 7/8% Convertible Subordinated Notes Due 2007
-----------------------------------------
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> 64
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.
SEC registration fee $264,000
NASDAQ Fee -
Legal fees and expenses 30,000
Accounting fees and expenses 7,500
Printing fees 1,500
Transfer agent fees 50
Miscellaneous 950
--------
Total $304,000
========
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 incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a
II-1
<PAGE> 65
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
4.1 Indenture, dated as of December 8, 1999, between EchoStar
Communications Corporation and U.S. Bank Trust National Association, as
trustee, including the form of 4 7/8% Convertible Subordinated Note Due
2007 attached as Exhibit A thereto*
4.2 Registration Rights Agreement, dated as of December 8, 1999, by and
among EchoStar Communications Corporation and the initial purchasers*
5.1 Opinion of Hale Lane Peek Dennison Howard and Anderson*
5.2 Opinion of Friedlob Sanderson Paulson & Tourtillott, LLC*
12.1 Computation of Ratio of Earnings to Fixed Changes
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hale Lane Peek Dennison Howard and Anderson (included in
Exhibit 5.1)*
23.3 Consent of Friedlob Sanderson Paulson & Tourtillott, LLC (included in
Exhibit 5.2)*
24.1 Power of Attorney (included on page II-4 of this registration
statement)*
25.1 Form T-1 Statement of Eligibility of U.S. Bank Trust National
Association to act as trustee under the Indenture*
-----------
*Previously filed.
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.
II-2
<PAGE> 66
(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.
(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.
(6) To file an application for the purpose of determining the
eligibility of the trustee to act under Section 310 of the Trust Indenture Act
in accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
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<PAGE> 67
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 June 30, 2000.
ECHOSTAR COMMUNICATIONS CORPORATION
By: /s/ David K. Moskowitz
----------------------------------
David K. Moskowitz
Senior Vice President, General
Counsel, Secretary and Director
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, President and Director June 30, 2000
------------------------------ (Principal Executive Officer)
Charles W. Ergen
/s/ Steven B. Schaver* Chief Financial Officer June 30, 2000
------------------------------ (Principal Financial Officer)
Steven B. Schaver
/s/ James DeFranco* Director June 30, 2000
------------------------------
James DeFranco
/s/ David K. Moskowitz* Director June 30, 2000
------------------------------
David K. Moskowitz
/s/ Raymond L. Friedlob* Director June 30, 2000
------------------------------
Raymond L. Friedlob
/s/ O. Nolan Daines* Director June 30, 2000
------------------------------
O. Nolan Daines
*By /s/ David K. Moskowitz
---------------------------
David K. Moskowitz
Attorney-In-Fact
</TABLE>
II-4
<PAGE> 68
INDEX TO EXHIBITS
Number Title
------ -----
4.1 Indenture, dated as of December 8, 1999, between EchoStar
Communications Corporation and U.S. Bank Trust National Association, as
trustee, including the form of 4 7/8% Convertible Subordinated Note Due
2007 attached as Exhibit A thereto*
4.2 Registration Rights Agreement, dated as of December 8, 1999, by and
among EchoStar Communications Corporation and the initial purchasers*
5.1 Opinion of Hale Lane Peek Dennison Howard and Anderson*
5.2 Opinion of Friedlob Sanderson Paulson & Tourtillott, LLC*
12.1 Computation of Ratio of Earnings to Fixed Changes
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hale Lane Peek Dennison Howard and Anderson (included in
Exhibit 5.1)*
23.3 Consent of Friedlob Sanderson Paulson & Tourtillott, LLC (included in
Exhibit 5.2)*
24.1 Power of Attorney (included on page II-4 of this registration
statement)*
25.1 Form T-1 Statement of Eligibility of U.S. Bank Trust National
Association to act as trustee under the Indenture*
-----------
*Previously filed.
II-5
