<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY [ ], 1999
Registration No. 333-71345
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ECHOSTAR DBS CORPORATION
AFFILIATE GUARANTORS LISTED ON SCHEDULE ATTACHED HERETO
(Exact name of Registrant as specified in its charter)
COLORADO 5064 84-1328967
(STATE OF REGISTRANT'S (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
DAVID K. MOSKOWITZ, ESQ.
5701 SOUTH SANTA FE DRIVE SENIOR VICE PRESIDENT, GENERAL
LITTLETON, COLORADO 80120 COUNSEL AND SECRETARY
(303) 723-1000 ECHOSTAR DBS CORPORATION
5701 SOUTH SANTA FE DRIVE
LITTLETON, COLORADO 80120
(303) 723-1000
(ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AND TELEPHONE NUMBER,
AREA CODE, OF REGISTRANT'S PRINCIPAL INCLUDING AREA CODE, OF
EXECUTIVE OFFICE) AGENT FOR SERVICE)
WITH A COPY TO:
DAVID W. AMBROSIA, ESQ.
WINTHROP, STIMSON, PUTNAM & ROBERTS
ONE BATTERY PARK PLAZA
NEW YORK, NY 10004
(212) 858-1000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
-------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
SCHEDULE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PRIMARY STANDARD I.R.S.
EXACT NAME OF GUARANTOR REGISTRANTS AS SPECIFIED STATE OF INDUSTRIAL CLASSIFICATION EMPLOYER IDENTIFICATION
IN THEIR RESPECTIVE CHARTERS FORMATION NUMBER NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ECHO ACCEPTANCE CORPORATION COLORADO 5064 84-1082359
ECHOSPHERE CORPORATION COLORADO 5064 84-0833457
DISH INSTALLATION NETWORK CORPORATION COLORADO 5064 84-1195952
ECHOSTAR TECHNOLOGIES CORPORATION TEXAS 5064 76-0033570
HT VENTURES, INC. COLORADO 5064 84-1239150
ECHOSTAR INTERNATIONAL CORPORATION COLORADO 5064 84-1258859
SATELLITE SOURCE, INC. COLORADO 5064 84-1045974
ECHOSTAR SATELLITE CORPORATION COLORADO 5064 84-1114039
HOUSTON TRACKER SYSTEMS, INC. COLORADO 5064 84-1462072
ECHOSTAR NORTH AMERICA CORPORATION COLORADO 5064 84-1282886
SKY VISTA CORPORATION COLORADO 5064 84-1469204
ECHOSTAR INDONESIA, INC. COLORADO 5064 84-1253832
ECHOSTAR SPACE CORPORATION COLORADO 5064 84-1307367
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY [ ], 1999
PROSPECTUS
ECHOSTAR DBS CORPORATION
Offer to Exchange
$375,000,000 of its 9 1/4% Senior Notes due 2006
which have been registered under the Securities Act
for all outstanding 9 1/4% Senior Notes due 2006
and
$1,625,000,000 of its 9 3/8% Senior Notes due 2009
which have been registered under the Securities Act
for all outstanding 9 3/8% Senior Notes due 2009
The exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless extended.
THE EXCHANGE NOTES
- - The exchange notes are substantially identical to the old notes that we
issued on January 25, 1999, except for certain transfer restrictions,
registration rights and liquidated damages provisions relating to the old
notes.
MATERIAL TERMS OF THE EXCHANGE OFFER
- - You will receive an equal principal amount of exchange notes for all old
notes that you validly tender and do not validly withdraw.
- - The exchange will not be a taxable exchange for U.S. federal income tax
purposes.
- - There has been no public market for the old notes and we cannot assure you
that any public market for the exchange notes will develop. We do not
intend to list the exchange notes on any national securities exchange or
any automated quotation system.
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 16 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE EXCHANGE NOTES TO BE DISTRIBUTED IN THE EXCHANGE
OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............................................................................................. 3
Summary of the Terms of the Exchange Offer..................................................................... 7
Summary Description of the Notes............................................................................... 9
Summary Financial Data......................................................................................... 12
Summary Satellite Data......................................................................................... 14
The EchoStar Organization...................................................................................... 15
Risk Factors................................................................................................... 17
Use of Proceeds................................................................................................ 33
The Exchange Offer............................................................................................. 34
Selected Financial Data........................................................................................ 43
Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 46
Business....................................................................................................... 61
Management..................................................................................................... 85
Certain Relationships and Related Transactions................................................................. 92
Security Ownership of Certain Beneficial Owners and Management................................................. 93
Description of the Notes....................................................................................... 96
Certain United States Federal Income Tax Considerations........................................................ 141
United States ERISA Considerations............................................................................. 144
Plan of Distribution........................................................................................... 145
Legal Matters.................................................................................................. 146
Experts........................................................................................................ 146
Where You Can Find More Information............................................................................ 146
Index to Financial Statements.................................................................................. F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
2
<PAGE>
PROSPECTUS SUMMARY
ECHOSTAR DBS
We are a leading provider of direct broadcast satellite programming
services through our DISH Network-TM- in the United States, a significant
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, 1999, more than 2.3 million households
subscribed to DISH Network programming services. Our market share of new
direct broadcast satellite, or DBS, subscribers has consistently increased
and, during the first quarter of 1999, we estimate that we captured almost
49% of all new satellite subscribers. We presently have four operational
direct broadcast satellites, which is more than any other direct broadcast
satellite operator in the United States. Currently, we have the ability to
provide approximately 200 channels of digital television programming and CD
quality audio programming services to the entire "lower 48" continental
United States. We believe that the DISH Network offers programming packages
that have a better "price-to-value" relationship than packages currently
offered by most other subscription television providers, particularly cable
TV operators. As of March 31, 1999, approximately 11 million United States
households subscribed to direct broadcast satellite and other direct-to-home
satellite services. However, we believe that there continues to be
significant unsatisfied demand for high quality, reasonably priced television
programming services.
If we successfully close the recently announced transaction with The
News Corporation Limited, its ASkyB subsidiary and MCI WorldCom, we expect to
be able to offer approximately 500 video and audio channels to subscribers in
the entire "lower 48" continental United States that may be received with one
dish. See "Business--Recent developments--Agreement with News Corporation and
MCI" and "Business--Government regulation."
ECHOSTAR TECHNOLOGIES CORPORATION
In addition to supplying EchoStar receiver systems for the DISH
Network, EchoStar Technologies Corporation supplies similar digital satellite
receivers to international satellite TV service operators. Currently, we have
two major customers, Telefonica and Bell Canada, which are subsidiaries of
the national telephone companies in Spain and Canada, respectively. We also
offer consulting and integration services to development stage, international
direct-to-home satellite operators. We are actively soliciting new business
for ETC and, although we are optimistic about future growth opportunities, we
cannot provide any assurance in that regard.
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 that we
expect to offer to consumers beginning in mid-1999.
3
<PAGE>
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 seek to:
- - LEVERAGE OUR SIGNIFICANT SHARE OF DBS SPECTRUM BY OFFERING UNIQUE
PROGRAMMING SERVICES THAT WILL DIFFERENTIATE US FROM OUR COMPETITION.
THESE SERVICES INCLUDE SATELLITE-DELIVERED LOCAL SIGNALS AND OTHER 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 THE ETC AND SATELLITE SERVICES BUSINESSES; AND
- - EMPHASIZE ONE-STOP SHOPPING AND SUPERIOR CUSTOMER SERVICE.
Our principal offices are located at 5701 South Santa Fe Drive,
Littleton, Colorado 80120, and our telephone number is (303) 723-1000.
4
<PAGE>
RECENT DEVELOPMENTS
AGREEMENT WITH NEWS CORPORATION AND MCI
We announced an agreement with News Corporation and MCI on November
30, 1998. Under this agreement, among other things that we have described in
more detail in the Business section of this prospectus, our parent company
will acquire in exchange for shares of its common stock valued at $1.17
billion:
- - 28 DBS frequencies at a strategic orbital location;
- - two DBS satellites that will be delivered in orbit at no additional cost
to EchoStar;
- - a digital broadcast operations center in Gilbert, Arizona;
- - a 500,000 unit commitment by an entity affiliated with News Corporation
for the purchase of EchoStar receiver systems from ETC; and
- - a three-year, no fee agreement for the DISH Network to rebroadcast FOX
Broadcasting Company's local station signals in those markets where FOX
owns the local affiliate.
On May 19, 1999, the FCC approved the transfer to us of MCI's
licenses to operate high-powered DBS satellites at the 110DEG. WL orbital
location. Satellites at the 110DEG. WL orbital location are capable of
providing service to the entire continental United States. The MCI satellites
are being constructed by Space Systems/Loral and are currently scheduled to
be launched to the 110DEG. WL orbital location from Cape Canaveral, Florida
on Atlas rockets in August 1999 and December 1999, respectively. Delays or
failures of launches preceding the launch of EchoStar V and EchoStar VI could
postpone these launch dates. Additionally, any anomalies experienced by other
similar satellites could delay the launch of EchoStar V and EchoStar VI until
the cause is discovered and the anomalies are corrected. The construction,
launch and insurance of the satellites are being paid for by News
Corporation. See "Business--Recent developments--Agreement with News
Corporation and MCI" and "Business--Government regulation."
ECHOSTAR COMMUNICATIONS TENDER OFFERS
On December 23, 1998, our parent company commenced cash tender
offers for three series of outstanding debt securities that were issued by
its subsidiaries. On January 4, 1999, our parent company also commenced a
cash tender offer for one series of its own debt securities. The tender
offers formed part of a plan to refinance existing indebtedness at more
favorable interest rates and terms. The tender offers for the first three
series of notes closed on January 25, 1999, concurrently with sale of the old
notes. More than 99% of the holders of each issue of debt securities tendered
their notes after consenting to certain amendments to the indentures. Those
amendments to the indentures eliminated substantially all restrictive
covenants and amended certain other provisions. Our parent company completed
the tender offer for the fourth series of notes on February 2, 1999. More
than 99% of holders of those notes tendered their notes after consenting to
substantially similar amendments to that indenture.
REORGANIZATION
In order to streamline the organization and operations of the EchoStar
group of companies, our parent company reorganized its legal entities as
illustrated under "The EchoStar Organization." We consolidated all direct
broadcast satellites and related FCC licenses into EchoStar Satellite
Corporation, our wholly owned subsidiary. To effect this reorganization, we
merged DirectSat Corporation and Direct
5
<PAGE>
Broadcasting Satellite Corporation, the owners of our EchoStar II and
EchoStar III satellites, into EchoStar Satellite Corporation. We currently
own EchoStar IV and, like the other satellites and related FCC licenses
including those acquired in the transaction with News Corporation and MCI, we
transferred those assets to EchoStar Satellite Corporation. We merged our
Dish, Ltd. and EchoStar Satellite Broadcasting Corporation subsidiaries into
our company. The FCC approved our applications to transfer the assignments of
all FCC DBS licenses held by various subsidiaries to EchoStar Satellite
Corporation.
6
<PAGE>
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The exchange offer relates to the exchange of up to $375,000,000
aggregate principal amount of outstanding 9 1/4% senior notes due 2006 and
$1,625,000,000 aggregate principal amount of outstanding 9 3/8% senior notes
due 2009 for an equal aggregate principal amount of exchange notes. The form
and terms of the exchange notes are identical in all material respects to the
form and terms of the corresponding outstanding old notes, except that the
exchange notes have been registered under the Securities Act, and therefore
will not bear legends restricting their transfer.
The exchange offer....................... We are offering to exchange
$1,000 principal amount of our
exchange notes which have been
registered under the Securities
Act for each $1,000 principal
amount of the applicable series
of outstanding old notes. To be
exchanged, an outstanding old
note must be properly tendered
by you and accepted by us. We
will exchange all outstanding
old notes that are validly
tendered and not validly
withdrawn.
Resale of the exchange notes............. Based on an interpretation by
the staff of the SEC set forth
in no-action letters issued to
third parties, we believe that
the exchange notes may be
offered for resale, resold and
otherwise transferred by you
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act if you are not
our affiliate and the exchange
notes issued in the exchange
offer are being acquired by you
in the ordinary course of your
business.
You must also represent to us
that you are not participating,
do not intend to participate,
and have no arrangement or
understanding with any person to
participate in the distribution
of the exchange notes issued to
you in the exchange offer.
Each broker-dealer that is issued
exchange notes in the exchange
offer for its own account in
exchange for old notes that were
acquired by such broker-dealer as
a result of market-making or
other trading activities must
acknowledge that it will deliver
a prospectus meeting the
requirements of the Securities
Act, in connection with any
resale of the exchange notes
issued in the exchange offer. If
you are a broker-dealer who
purchased such outstanding old
notes directly from us for resale
pursuant to Rule 144A or any
other available exemption under
the Securities Act, you may not
participate in the exchange
offer.
Expiration date.......................... The exchange offer will expire
at 5:00 p.m., New York City
time, , 1999, unless we decide
to extend the expiration date.
You will have certain rights
against us under the registration
rights agreements executed as
part of the offering of the
outstanding old notes if we fail
to consummate the exchange offer.
7
<PAGE>
Special procedures for beneficial
owners................................... If you are the beneficial owner
of old notes and your notes are
registered in the name of a
broker or other institution, and
you wish to participate in the
exchange, you should promptly
contact the person in whose name
your old notes are registered and
instruct such person to tender on
your behalf. If you wish to
tender on your own behalf, you
must, prior to completing and
executing the letter of
transmittal and delivering your
outstanding old notes, either
make appropriate arrangements to
register ownership of the
outstanding old notes in your
name or obtain a properly
completed bond power from the
registered holder. The transfer
of record ownership may take
considerable time.
Guaranteed delivery procedure............ If you wish to tender your old
notes and time will not permit
your required documents to reach
the exchange agent by the
expiration date, or the
procedure for book-entry
transfer cannot be completed on
time or certificates for
registered old notes cannot be
delivered on time, you may
tender your old notes pursuant
to the procedures described in
this prospectus under the
heading "The Exchange Offer--
How to use the guaranteed
delivery procedures if you
will not have enough time to
send all documents to us."
Withdrawal rights........................ You may withdraw the tender of
your old notes at any time
before 5:00 p.m., New York City
time, on 1999, the business day
before the expiration date.
Certain U.S. federal income tax
consequences............................ An exchange of old notes for
exchange notes will not be
taxable to you. See "Certain
United States Federal Income Tax
Considerations--The exchange
offer."
Use of proceeds ......................... We will not receive any proceeds
from the issuance of exchange
notes pursuant to the exchange
offer. We will pay all expenses
incident to
the exchange offer.
Exchange agent........................... U.S. Bank Trust National
Association can be reached at
Corporate Trust Trustee
Administration, 180 E. 5th
Street, St. Paul, Minnesota
55101. For more information with
respect to the exchange offer,
the telephone number for the
exchange agent is (651) 244-8162
and the fax number for the
exchange agent is (651) 244-1537.
8
<PAGE>
SUMMARY DESCRIPTION OF THE NOTES
The exchange offer applies to $375,000,000 aggregate principal
amount of 9 1/4% senior notes due 2006 and $1,625,000,000 aggregate principal
amount of 9 3/8% senior notes due 2009. The form and terms of the exchange
notes are substantially identical to the form and terms of the old notes,
except that the exchange notes have been registered under the Securities Act,
and therefore, will not bear legends restricting the transfer thereof. Each
series of the exchange notes will evidence the same debt as the applicable
series of old notes and will be entitled to the benefits of the applicable
indenture. See "Description of the Notes" below. As used in this summary of
the notes, "subsidiaries" refers to our direct and indirect subsidiaries and
Direct Broadcast Satellite Corporation, or, "DBSC," a wholly-owned subsidiary
of EchoStar Communications Corporation.
Securities offered....................... $375.0 million aggregate
principal amount of 9 1/4% senior
notes due 2006, known as the
seven year notes.
$1.625 billion aggregate
principal amount of 9 3/8% senior
notes due 2009, known as the ten
year notes.
Maturity date............................ February 1, 2006 for the seven
year notes; February 1, 2009 for
the ten year notes.
Interest payment dates................... Interest will accrue at the rate
of 9 1/4% per annum on the seven
year notes and 9 3/8% per annum
on the ten year notes, and will
be payable semi-annually in cash
on February 1 and August 1 of
each year, commencing August 1,
1999.
Ranking.................................. The notes rank senior in right of
payment to all of our
subordinated indebtedness and on
parity in right of payment to
each other and to all of our
senior indebtedness. Although the
notes are titled "Senior," we
have not issued, and do not have
any plans to issue, any
indebtedness to which the notes
would be senior.
The notes and the guarantees are
effectively junior to our secured
obligations and our subsidiaries
to the extent of the collateral
securing those obligations,
including borrowings under our
future secured credit facilities.
As of March 31, 1999, we and our
subsidiaries had long-term
indebtedness that aggregated
approximately $2.04 billion. See
"Description of the Notes" below.
Optional redemption of the seven
year notes............................... Except as set forth below, the
seven year notes are not
redeemable at our option prior to
February 1, 2003. Thereafter, the
seven year notes are subject to
redemption, at option, in whole
or in part, at the redemption
prices set forth herein. In
addition, at any time prior to
February 1, 2002, we may redeem
seven year notes at a redemption
price equal to 109.250% of the
principal amount thereof,
together with accrued and unpaid
interest thereon to the
redemption date, with the net
proceeds of one or more public or
private sales of certain equity
interests of our company, other
than proceeds from a sale to any
of our
9
<PAGE>
subsidiaries, provided that:
- at least 65% of the seven
year notes remain
outstanding immediately
after the occurrence of
such redemption; and
- such redemption occurs
within 120 days of the date
of the closing of any such
sale.
Optional redemption of the ten year
notes.................................... Except as set forth below, the
ten year notes are not redeemable
at our option prior to February
1, 2004. Thereafter, the ten year
notes are subject to redemption,
at our option, in whole or in
part, at the redemption prices
set forth herein. In addition, at
any time prior to February 1,
2002, we may redeem ten year
notes at a redemption price equal
to 109.375% of the principal
amount thereof, together with
accrued and unpaid interest
thereon to the redemption date,
with the net proceeds of one or
more public or private sales of
certain equity interests of our
company, other than proceeds from
a sale to any of our
subsidiaries, provided that:
- at least 65% of the ten year
notes remain outstanding
immediately after the
occurrence of such
redemption; and
- such redemption occurs
within 120 days of the date
of the closing of any such
sale.
Change of control........................ Upon the occurrence of a change
of control as defined in the
"Description of the Notes," we
will be required to make an offer
to each holder of notes to
repurchase all or any part of
such holder's notes at a purchase
price equal to 101% of the
principal amount thereof,
together with accrued and unpaid
interest thereon to the date of
repurchase.
Offer to purchase........................ Upon the occurrence of certain
events described under
"Description of the
Notes--Certain Covenants--Excess
Proceeds Offer," we will be
required to offer to repurchase a
specified amount of notes at a
purchase price equal to 101% of
the principal amount thereof,
together with accrued and unpaid
interest thereon to the date of
repurchase.
Guarantees............................... The ten year notes and the seven
year notes are guaranteed by
substantially all of our
restricted subsidiaries, on a
senior basis, which guarantee
ranks on parity with all senior
unsecured indebtedness of such
restricted subsidiaries. EchoStar
Communications and the
subsidiaries of EchoStar
Communications that are not also
our subsidiaries, other than
DBSC, are not obligated under or
guaranteeing in any manner our
obligations under the ten year
notes and the seven year notes.
See "Description of the
Notes--Guarantees."
Certain other covenants.................. Each indenture restricts, among
other things, the payment of
dividends, the repurchase of our
stock and subordinated
indebtedness, the making of
certain other restricted payments
as defined in the indentures, the
incurrence of certain
indebtedness and the issuance of
preferred stock,
10
<PAGE>
certain asset sales, the creation
of certain liens, certain mergers
and consolidations, and
transactions with affiliates, as
defined in the indentures.
Registration rights; liquidated
damages............................ Pursuant to registration rights
agreements relating to each
series of notes among us, the
guarantors and the initial
purchasers, we and the guarantors
agreed:
- to file an exchange offer
registration statement on or
prior to April 25, 1999,
relating to an exchange
offer for the old notes and
guarantees; and
- to use our best efforts to
cause the exchange offer
registration statement to be
declared effective by the
SEC on or prior to July 24,
1999.
The registration statement
relating to this prospectus is
intended to satisfy these
obligations.
11
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data and the selected financial data
presented elsewhere in this prospectus for the five years ended December 31,
1998, are derived from the Combined and Consolidated Financial Statements of
our company, audited by Arthur Andersen LLP, independent public accountants.
The following summary financial data with respect to the three months ended
March 31, 1998 and 1999, are unaudited; however, in the opinion of
management, such data reflect all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the data for such interim
periods. Operating results for interim periods are not necessarily indicative
of the results that may be expected for a full year. The data set forth in
this table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our company's
Condensed Consolidated Financial Statements and the notes thereto, and other
financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS, SUBSCRIBERS AND PER SUBSCRIBER DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.................... $ 179,313 $ 148,520 $ 197,103 $ 475,902 $ 985,909 $ 214,024 $ 310,063
Operating income (loss).... 13,216 (8,006) (108,865) (224,336) (130,855) (21,682) (57,437)
Net income (loss).......... 90 (12,361) (101,676) (323,424) (294,375) (57,261) (333,317)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable investment securities.. $ 273,735
Total assets................................................. 1,604,115
Long-term debt, net of current portion....................... 2,041,024
Total stockholder's equity (deficit)......................... (1,190,042)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
--------- ---------- ----------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
DISH Network subscribers......... -- -- 350,000 1,040,000 1,940,000 1,202,000 2,265,000
Average monthly revenue per
subscriber..................... $ -- $ -- $ 35.50 $ 38.50 $ 39.25 $ 38.25 $ 41.45
EBITDA (1)....................... 15,459 (4,892) (65,496) (51,500) (28,698) 7,659 (32,875)
Less amortization of
subscriber acquisition costs... -- -- (16,073) (121,428) (18,819) (10,971) --
--------- ---------- ----------- ---------- ---------- --------- ----------
EBITDA, without add back for
amortization of subscriber
acquisition costs.............. 15,459 (4,892) (81,569) (172,928) (47,517) (3,312) (32,875)
Net cash flows from:
Operating activities........... 24,205 (21,888) (22,836) (7,549) (53,949) (26,840) 2,216
Investing activities........... (338,565) (1,431) (294,962) (306,079) (43,340) (3,142) (61,486)
Financing activities........... 325,011 19,764 342,287 337,247 60,538 (4,025) 169,604
Ratio of earnings to fixed
charges (2).................... -- -- -- -- -- -- --
Deficiency of earnings to
fixed charges (2).............. $ (5,206) $ (44,315) $ (188,347) $ (366,447) $ (315,923) $ (65,033) $ (104,518)
</TABLE>
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<PAGE>
- -------------------
(1) We believe it is common practice in the telecommunications industry for
investment bankers and others to use various multiples of current or
projected EBITDA, which stands for earnings before interest, taxes,
depreciation and amortization, for purposes of estimating current or
prospective enterprise value and as one of many measures of operating
performance. Conceptually, EBITDA measures the amount of income generated
each period that could be used to service debt, because EBITDA is
independent of the actual leverage employed by the business; but EBITDA
ignores funds needed for capital expenditures and expansion. Some
investment analysts track the relationship of EBITDA to total debt as one
measure of financial strength. However, EBITDA does not purport to
represent cash provided or used by operating activities and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
EBITDA differs significantly from cash flows from operating activities
reflected in the consolidated statement of cash flows. Cash from
operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash, rather than
accrual, basis, exclusive of non-cash items of income and expenses such
as depreciation and amortization. In contrast, EBITDA is derived from
accrual basis income and is not reduced for cash invested in working
capital. Consequently, EBITDA is not affected by the timing of receivable
collections or when accrued expenses are paid. We are aware of no uniform
standards for determining EBITDA and we believe that presentations of
EBITDA may not be calculated consistently by different entities in the
same or similar businesses. EBITDA is shown with and without the add back
for amortization of subscriber acquisition costs, which were deferred
through September 1997 and amortized over one year.
(2) 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, 1994, 1995, 1996, 1997 and 1998,
and for the three months ended March 31, 1998 and 1999,earnings were
insufficient to cover the fixed charges.
13
<PAGE>
SUMMARY SATELLITE DATA
<TABLE>
<CAPTION>
ECHOSTAR I ECHOSTAR II ECHOSTAR III ECHOSTAR IV ECHOSTAR V ECHOSTAR VI
<S> <C> <C> <C> <C> <C> <C>
Orbital location... 119 degrees WL 119 degrees WL 61.5 degrees WL 148 degrees WL 110 degrees WL 110 degrees WL
Transponders....... 16 @ 24 MHz 16 @ 24 MHz 16/32 @ 24 MHz 10/20 @ 24 MHz 16/32 @ 24 MHz(3) 16/32 @ 24 MHz
Approximate channel
capacity.......... 128 channels 128 channels 128/256 channels 80/160 channels 160/256 channels 160/256 channels
Output power....... 130 watts 130 watts 230/120 watts 230/120 watts 220/110 watts 240/120 watts
Expected end of
commercial life... 2011 2011 2012 2010 2014 2014
Coverage area...... Continental United States Eastern and Western and Continental United States,
and certain regions of Central United Central United Alaska, Hawaii, Puerto Rico and
Canada and Mexico States States certain regions of Canada and
Mexico
</TABLE>
We have not yet obtained permanent authorization to operate EchoStar
IV at the 148 degree orbital location; EchoStar IV currently operates under a
special temporary authorization.
Use of EchoStar V and EchoStar VI and the frequencies at the 110
degree orbital location is contingent upon the closing of the 110 acquisition
under the agreement with News Corporation and MCI and successful launch of
EchoStar V and EchoStar VI.
The transponders on each of EchoStar III, EchoStar IV and EchoStar
VI can be independently switched to provide a range from 16 transponders
operating at 220 or 230 watts of power each (240 watts in the case of
EchoStar VI) to 32 transponders operating at 110 or 120 watts of power each.
Although EchoStar III has experienced an anomaly, the satellite has not
experienced any loss of capacity to date. See "Risk Factors--We may be unable
to settle outstanding claims with insurers" below. EchoStar IV was designed
to operate a total of 32 transponders in 120 watt mode, or 16 transponders in
230 watt mode. As a result of the failure of the solar panels on EchoStar IV
to properly deploy, EchoStar IV is currently capable of sustaining a maximum
of only 18 transponders. That number will decrease over time, but based on
existing data we expect that approximately 16 transponders will probably be
available over the entire expected 12 year life of the satellite, absent
additional failures.
Our parent company's direct broadcast satellite licenses do not
allow full use of that channel capacity. They specifically cover the
following:
- - 11 of the 16 transponders, a maximum of approximately 88 video channels,
on EchoStar I;
- - 10 of the 16 transponders, a maximum of approximately 80 video
channels, on EchoStar II;
- - 11 of the 16 transponders, a maximum of approximately 88 video channels,
on EchoStar III;
- - 24 of the 32 frequencies at the 148 degree orbital location, where
EchoStar IV currently operates under a special
temporary authorization. In light of EchoStar IV's technical constraints,
its maximum temporarily authorized effective capacity is 160 video
channels; and
- - a total of 29 transponders at the 110 degree orbital location to be
operated on EchoStar V and EchoStar VI upon closing of the agreement with
News Corporation and MCI and successful launch of the satellites. The
satellites could achieve a maximum of approximately 290 video channels with
two satellites operating in high power mode or 232 video channels with one
satellite operating over all 29 frequencies in low-power mode. We have not
yet obtained authorization to do so.
With digital compression, each transponder or frequency can yield 8
or more video channels, for example 8 in low-power mode or 10 in high-power
mode.
We have estimated the expected end of commercial life of each
satellite based on each satellite's actual or expected launch date and the
terms of the construction and launch contracts. The minimum design life is 12
years. The licenses are issued for ten year periods, and would, unless
renewed by the FCC, expire prior to the end of the minimum design life. See
"Risk Factors - Our business depends substantially on FCC licenses that can
expire or be revoked or modified."
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<PAGE>
THE ECHOSTAR ORGANIZATION
The following chart illustrates the EchoStar group's corporate structure
prior to completion of the reorganization and where significant assets and
rights were held. The old notes were guaranteed by DBSC and substantially all of
our direct and indirect wholly owned restricted subsidiaries. The following page
sets forth a chart illustrating the EchoStar group's corporate structure
following consummation of the reorganization.
[ORGANIZATION CHART]
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<PAGE>
The following chart illustrates the EchoStar group's corporate
structure and where significant assets and rights are held following the
reorganization that took effect as of March 31, 1999.
[ORGANIZATION CHART]
- ------------------
* Subject to FCC approval and consummation of the transaction with New
Corporation and MCI.
** Subject to consummation of the transaction with News Corporation and MCI.
16
<PAGE>
RISK FACTORS
You should carefully consider all of the information contained in
this prospectus, which may be generally applicable to the old notes as well
as to the exchange notes, before deciding whether to tender your old notes
and, in particular, the following factors:
YOUR OLD NOTES WILL BE SUBJECT TO RESTRICTIONS ON TRANSFER AND THE TRADING
MARKET FOR YOUR OLD NOTES MAY BE LIMITED IF YOU DO NOT TENDER
If you do not exchange your old notes for the exchange notes, you
will continue to be subject to the restrictions on transfer of your old notes
described in the legend on your old notes. The restrictions on transfer of
your old notes arise because we issued the old notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, you may only
offer or sell the old notes if they are registered under the Securities Act
and applicable state securities laws, or they are offered and sold pursuant
to an exemption from such requirements. We do not intend to register the old
notes under the Securities Act. In addition, if you exchange your old notes
in the exchange offer for the purpose of participating in a distribution of
the exchange notes, you may be deemed to have received restricted securities
and, if so, you will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. To the extent we accept and exchange old notes in the
exchange offer, the trading market, if any, for the remaining old notes would
be adversely affected. See "The Exchange Offer" below.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, WE MAY NOT ACCEPT YOUR OLD
NOTES AND THE TRADING MARKET FOR THEM MAY BE LIMITED
We will issue the exchange notes in exchange for your old notes only
after we have timely received your old notes, along with a properly completed
and duly executed letter of transmittal and all other required documents.
Therefore, if you want to tender your old notes in exchange for exchange
notes, you should allow sufficient time to ensure timely delivery. Neither
the exchange agent nor we are under any duty to notify you of defects or
irregularities with respect to the tender of your old notes for exchange. The
exchange offer will expire at 5:00 p.m. New York City time on , 1999, or on a
later extended date and time as we may decide.
The exchange notes and any old notes having the same maturity that
remain outstanding after consummation of the exchange offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage of the notes have taken certain actions or exercised
certain rights under the related indenture.
YOU MAY PARTICIPATE IN THE EXCHANGE OFFER ONLY IF YOU MEET THE FOLLOWING
CONDITIONS
Based on interpretations by staff of the SEC, as set forth in
no-action letters issued to third parties, we believe that you may offer for
resale, resell and otherwise transfer the exchange notes without compliance
with the registration and prospectus delivery provisions of the Securities
Act, subject to certain limitations. These limitations include the following:
- - you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act,
- - you acquire your exchange notes in the ordinary course of your
business and
- - you have no arrangement with any person to participate in the
distribution of such exchange notes.
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<PAGE>
However, we have not submitted a no-action letter to the SEC regarding this
exchange offer and we cannot assure you that the SEC would make a similar
determination with respect to the exchange offer as in such other
circumstances. If you are our affiliate, are engaged in or intend to engage
in or have any arrangement or understanding with respect to a distribution of
the exchange notes to be acquired pursuant to the exchange offer, you may not
rely on the applicable interpretations of the staff of the SEC; you must also
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
RESALES OF THE EXCHANGE NOTES MAY BE SUBJECT TO FURTHER RESTRICTIONS IN SOME
JURISDICTIONS
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus meeting the requirements under the Securities Act in connection
with any resale of such exchange notes. We have agreed to use our best
efforts to make this prospectus available to any participating broker-dealer
for use in connection with any such resale. See "Plan of Distribution" below.
However, to comply with the securities laws of certain jurisdictions, if
applicable, the exchange notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or an exemption
from registration or qualification is available.
RESTRICTIVE COVENANTS IN THE INDENTURES FOR THE NOTES MAY LIMIT OUR ABILITY
TO OPERATE OUR BUSINESS
The indentures relating to each series of notes contain restrictive
covenants that may inhibit our ability to manage our business and to react to
changing market conditions. These restrictions, among other things, limit our
ability and the ability of our subsidiaries to:
- - incur additional indebtedness;
- - issue preferred stock;
- - sell assets;
- - create, incur or assume liens;
- - create dividend and other payment restrictions with respect to our
subsidiaries;
- - merge, consolidate or sell assets;
- - enter into transactions with affiliates; and
- - pay dividends.
See "Description of the Notes" below.
WE HAVE SUBSTANTIAL INDEBTEDNESS AND WE ARE DEPENDENT ON OUR SUBSIDIARIES'
EARNINGS TO PROVIDE INCOME TO MAKE PAYMENTS ON THE NOTES
We have substantial debt service requirements which makes us
vulnerable to changes in general economic conditions. The indenture for each
series of notes restricts our ability and our subsidiaries' ability to incur
additional debt. Thus it is, and will continue to be, difficult for us and
our subsidiaries to obtain additional debt if required or desired in order to
implement our business strategy. Since substantially all of our operations
are conducted through our subsidiaries, our ability to service our debt
obligations, including our obligations under the notes, 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. Some of our
subsidiaries may become parties to other agreements that severely restrict
their ability to
18
<PAGE>
obtain additional debt financing for working capital, capital expenditures
and general corporate purposes. As of March 31, 1999, we had outstanding
long-term debt, including both the current and long-term portion, of
approximately $2.04 billion. Although the notes are titled "Senior," we have
not issued, and do not have any plans to issue, any indebtedness to which the
notes would be senior. 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.
WE EXPECT OPERATING LOSSES THROUGH AT LEAST 2000 AND CANNOT BE CERTAIN WHEN
WE WILL HAVE SUFFICIENT CASH TO MAKE PAYMENTS ON THE NOTES
Our ability to make all payments to you relating to the notes may
eventually be affected if we do not have sufficient income or another source
of cash. The market value or the liquidity of any market for the notes could
also be affected by our financial performance. Due to the substantial
expenditures required 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.
Our operating losses were $109 million, $224 million and $131 million for the
years ended December 31, 1996 and 1997, and 1998, respectively, and $22
million and $57 million for the three months ended March 31, 1998 and 1999,
respectively. We had net losses of $102 million, $323 million, $294 million,
$57 million and $333 million during those same periods. Improvements in our
results of operations are largely dependent 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. No assurance can be given that we will be
effective with regard to these matters. In addition, we incur significant
acquisition costs to obtain DISH Network subscribers. The high cost of
obtaining new subscribers magnifies the negative effects of subscriber
turnover. See "--Increased subscriber turnover could affect our financial
performance." We anticipate that we will continue to experience operating
losses through at least 2000. There can be no assurance that such operating
losses will not continue beyond 2000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
capital resources."
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE, IN ORDER TO
CONTINUE GROWING AND BE ABLE TO MAKE PAYMENTS ON THE NOTES
Our ability to make all payments to you relating to the notes, and
the notes' market value and liquidity, will partly depend on our ability to
continue growing our business, which may require additional capital that we
cannot be certain will be available to us. We may require additional funds to
acquire DISH Network subscribers. 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 a
six satellite low earth orbit satellite system. We will 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 higher than expected
subscriber acquisition costs, a defect in or the loss of any satellite or an
increase in the cost of acquiring subscribers due to additional competition,
among other things. 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and capital resources."
WE MAY BE UNABLE TO PURCHASE NOTES TENDERED UPON A CHANGE OF CONTROL, WHICH
COULD ADVERSELY AFFECT THE VALUE OF YOUR NOTES
The indenture for each series of the notes requires us to offer to
purchase the notes from you if we have a "change of control." However, we
cannot assure you that we will have sufficient funds to
19
<PAGE>
repurchase the notes upon a change of control as defined in the "Description
of the Notes." If we have insufficient funds to redeem all notes tendered for
purchase upon the occurrence of a change of control, and we are unable to
raise additional capital, there could be an event of default under the
indentures governing the notes. An event of default could cause any other
debt that we have to become automatically due, further exacerbating our
financial condition and the value and liquidity of the notes. We cannot
assure you that additional capital would be available on acceptable terms, or
at all.
WE FACE INTENSE COMPETITION FROM DIRECT BROADCAST SATELLITE AND OTHER
SATELLITE SYSTEM OPERATORS, WHICH COULD AFFECT OUR ABILITY TO GROW AND BE
ABLE TO MAKE PAYMENTS ON THE NOTES
Our ability to make payments to you relating to the notes will
partly depend on our ability to compete in the subscription television
industry, which is highly competitive. 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 three direct broadcast
satellites and has 27 frequencies at the 101 degree orbital location that are
capable of full coverage of the "lower 48" continental United States. DIRECTV
and USSB, which operates five more frequencies on one of DIRECTV's
satellites, currently offer more than 200 channels of combined video and
audio programming. DIRECTV and USSB are in an advantageous position with
regard to market entry, programming such as DIRECTV's exclusive sports
programming and, possibly, volume discounts for programming offers. In
December 1998, DIRECTV's parent executed a definitive merger agreement
whereby it would acquire the business and assets of USSB in a transaction
completed on May 20, 1999. In addition to the 5 USSB frequencies at the 101
degree orbital location, this combination gives DIRECTV access to three
additional frequencies controlled by USSB at the 110 degree orbital location,
which is also a very favorable position for coverage of the United States.
We also face competition from PrimeStar, Inc., which currently
leases a medium power satellite at the 85 degree orbital location and as of
March 31, 1999, had approximately 2.3 million subscribers. PrimeStar has also
applied for FCC authorization to acquire control over TCI Satellite
Entertainment, Inc., a company that has an authorization for 11 direct
broadcast satellite frequencies at the 119 degree orbital location and has
launched a satellite to that location. In January 1999, DIRECTV's parent
announced an agreement whereby it would acquire both PrimeStar's existing
medium power business and its rights to acquire TCI's direct broadcast
satellite assets, subject in each case to regulatory approvals and customary
conditions. 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.
See "Business--Competition for our DISH Network business--Other DBS and
direct-to-home satellite system operators."
WE COMPETE WITH CABLE TELEVISION AND OTHER LAND-BASED SYSTEMS, WHICH COULD
AFFECT OUR ABILITY TO GROW AND BE ABLE TO MAKE PAYMENTS ON THE NOTES
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 98
million U.S. television
20
<PAGE>
households, and approximately 67% of total U.S. households currently
subscribe to cable. Cable television operators currently have an advantage
relative to us by providing local programming as well as by providing 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 recently announced that it would provide telephone service over Time
Warner's cable system. As a result of these and other factors, there can be
no assurance that we will be able to continue to expand our subscriber base
or compete effectively against cable television operators. See
"Business--Competition for our DISH Network business--Cable television."
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, digital video compression over
existing telephone lines, and digital "wireless cable" are being implemented
and supported by entities such as regional telephone companies which are
likely to have greater resources than we have. 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.
There can be no assurance that we will be able to compete successfully with
existing competitors or new entrants in the market for subscription
television services. See "Business--Competition for our DISH Network
business--Telephone companies."
CABLE COMPETITORS MAY BLOCK OUR ACCESS TO POPULAR PROGRAMMING
We cannot be certain whether or not cable or other TV service
providers would seek to acquire sports franchises and exclusively distribute
the corresponding programming, which could possibly limit our access to
popular sports programming. For example, on May 19, 1998, we filed a
complaint against Comcast, a major cable provider, seeking access to the
sports programming controlled by Comcast in the Philadelphia area. On January
22, 1999, the FCC denied this complaint, partly on the basis that Comcast's
programming is delivered terrestrially and therefore is not subject to
program access prohibitions. We cannot be certain whether or not other TV
service providers who control production or distribution of their own
programming would switch to terrestrial transmission of their programming and
seek to rely on the FCC's denial of our complaint against Comcast in order to
deny us access to their programming.
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 cancelled prior to expiration of their original term. If any such
agreements are not renewed or are cancelled, we cannot assure you that we
would be able to obtain substitute programming, or that such substitute
programming would be comparable in quality or cost to our existing
programming. In particular, the cost of sports programming has been rising
rapidly. Our competitors currently offer much of the same programming that we
do. Our ability to compete successfully will depend on our ability to
continue to obtain desirable programming and attractively offer it to our
customers at competitive prices. See "Business--DISH Network--Components of a
DBS system--Programming."
21
<PAGE>
WE DEPEND ON THE CABLE ACT FOR ACCESS TO OTHERS' PROGRAMMING
Any change in the Cable Act and the FCC's rules that permits the
cable industry or 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. Pursuant to the Cable Television Consumer Protection and Competition
Act of 1992 and the FCC's rules, programming developed by cable-affiliated
programmers generally must be offered to all multi-channel video programming
distributors on equal 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. In addition, the need to obtain
certain retransmission consents and copyright licenses may limit our strategy
to provide local programming in multiple markets. See "Business--Government
regulation--Regulations--Satellite Home Viewer Act and retransmission
consent."
IMPEDIMENTS TO RETRANSMISSION OF LOCAL BROADCAST SIGNALS; OUR LOCAL
PROGRAMMING STRATEGY FACES UNCERTAINTY
Although we believe that the Satellite Home Viewer Act allows us to
retransmit the programs of a local network station to its local market via
satellite, that view is opposed by several other parties. We also believe
that the compulsory copyright license under the Satellite Home Viewer Act and
the retransmission consent rules of the Communications Act may not be
sufficient to permit us to implement our strategy to retransmit such
programming in the most efficient and comprehensive manner and that new
legislation may be necessary for that purpose. We offer programming telecast
by local affiliates of national television networks to several major
population centers within the continental United States. In order to
retransmit network station programming, satellite TV companies usually must
have a copyright license and also obtain the retransmission consent of the
network station. Although we have entered into a retransmission consent
agreement covering FOX Network owned and operated stations in connection with
the agreement with News Corporation and MCI, we cannot be certain whether we
will obtain retransmission consents if they are required from any local
affiliate. Our inability to retransmit local programming could have an
adverse effect on our strategy to compete with cable companies, which provide
local programming.
TV NETWORKS OPPOSE OUR STRATEGY OF DELIVERING DISTANT NETWORK SIGNALS
There are currently a number of lawsuits regarding the efforts of
satellite TV service providers, including us, to retransmit the signals of
network programming. The national networks and local affiliate stations
recently challenged, based upon copyright infringement, PrimeTime 24's
methods of selling network programming to consumers. Historically, we
obtained distant broadcast network signals for distribution to our customers
through PrimeTime 24, Joint Venture. 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 injunction covers "distributors" as well. The plaintiffs in
the Florida litigation informed us that they considered us a "distributor"
for purposes of that injunction. A federal district court in North Carolina
has also issued an injunction against PrimeTime 24 prohibiting certain
distant signal retransmissions in the Raleigh area and the decision in that
case could be used as legal precedent against us. In response to the recent
legal activity, we have implemented Satellite Home Viewer Act compliance
procedures which materially restrict the market for the sale of network
channels by us.
On October 19, 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
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<PAGE>
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. On November 5, 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 plaintiffs in
that action have also requested the issuance of a preliminary injunction
against us. The case filed by us was subsequently combined with and
transferred to the Miami court.
On February 24, 1999, CBS, NBC, Fox, and ABC filed a "Motion for
Temporary Restraining Order, Preliminary Injunction, and Contempt Finding"
against DIRECTV, Inc. in Miami relating 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 will lose access to
their satellite-provided network channels by June 30, 1999, while other
DIRECTV customers will 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.
The Networks are currently pursuing a Motion for Preliminary
Injunction in the Miami Court, asking that 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 on the same
schedule as DIRECTV has agreed to. In the event of a decision adverse to us
in this case, significant material restrictions on the sale of distant ABC,
NBC, CBS and Fox channels by us could result. Among other things, we could be
required to terminate delivery of network signals to a material portion of
our subscriber base. While the Networks have not sought monetary damages,
they have sought to recover attorney fees if they prevail. See
"Business--Government regulation" and "--Legal proceedings" below.
OUR BUSINESS RELIES ON THE INTELLECTUAL PROPERTY OF OTHERS AND WE MAY
INADVERTENTLY INFRINGE THEIR PATENTS AND PROPRIETARY RIGHTS
Many of our competitors have and may obtain patents that cover or
affect products or services directly or indirectly related to those that we
offer. If our competitors hold such rights, they can either prevent us from
using that product or service, or they can force us to license from them the
right to use the product or service, thereby increasing our costs in a way
that may affect our net income available for making payments to you on the
notes. We cannot assure you that we are aware of all patents that our
products may potentially infringe. In addition, patent applications in the
United States are confidential until a patent is issued and, accordingly, we
cannot evaluate the extent to which our products may infringe claims
contained in pending patent applications. In general, if a court determines
that one or more of our products infringes on patents 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 patents
or to redesign those products in such a way as to avoid infringing the patent
claims. 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. Various parties have contacted
us, claiming patent and other intellectual property rights with respect to
components within our direct broadcast satellite system. We cannot be certain
that we would be able to obtain such licenses 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. See "Business--Legal
proceedings" below.
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. Signal theft or "piracy" of C-band services, cable
television and European direct broadcast satellite services has been widely
reported. We recently received reports that our encryption system has been
compromised. We can take a number of different corrective measures to limit
the amount of damage that would be sustained by
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a breach of our conditional access system including, as a last resort,
complete replacement of the access control system. If our encryption
technology is compromised in a manner that is not promptly corrected, our
revenue and our ability to contract for video and audio services provided by
programmers could be adversely affected. Published reports indicate that the
DIRECTV and USSB encryption systems have been compromised. A Canadian court
has ruled that pirating of DIRECTV programming is not illegal in Canada. This
ruling may encourage the attempted piracy of our programming in Canada,
resulting in lost revenue for us and increased piracy of DIRECTV programming.
Piracy of DIRECTV programming could result in increased sales of DIRECTV
receivers at the expense of loss of potential DISH Network subscribers.
WE USE ONLY ONE DIGITAL BROADCAST CENTER
We will continue to rely upon a single digital broadcast center
located in Cheyenne, Wyoming for key operations for programming signals, such
as reception, encryption and compression. If a natural or other disaster
damaged the digital broadcast center, we cannot assure you that we would be
able to continue to provide programming services to our customers.
OUR SATELLITES ARE SUBJECT TO RISKS DURING THE PLANNED LAUNCHES 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. See "--Insurance coverage of satellites is limited."
OUR SATELLITES HAVE MINIMUM DESIGN LIVES OF 12 YEARS, BUT COULD FAIL BEFORE
THEN
Our ability to earn revenue to make payments to you on the notes
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 and EchoStar IV is 12 years. We can
provide no assurance, however, as to the useful lives of the satellites. Our
operating results would be adversely affected if the useful life of any of
these satellites were significantly shorter than 12 years. The satellite
construction contracts for our satellites contain no warranties in the event
of a failure of EchoStar I, EchoStar II, EchoStar III or EchoStar IV
following launch. Additionally, moving any of these satellites, either
temporarily or permanently, to another orbital location, could decrease the
orbital life of the satellite by up to six months per movement.
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,
there can be no assurance that such use would not adversely affect our
ability to meet the operation deadlines associated with our permits. Failure
to meet such deadlines could result in the loss of such permits and would
have an adverse effect on our operations.
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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 expected.
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, in the event that 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. See "Business--DISH
Network--Components of a DBS system--Programming."
INSURANCE COVERAGE OF OUR SATELLITES IS LIMITED
We have procured in-orbit insurance for EchoStar I, EchoStar II and
EchoStar III through June 25, 1999. 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 satellite insured under the
policy. That notification permits 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 health status of an insured satellite or any loss
occurring after risk has attached does not entitle the insurers to
renegotiate the policy terms. There can be no assurance that insurance policy
renewals will be possible or can be at rates or on terms favorable to us. For
example, if EchoStar I, EchoStar II, EchoStar III or other similar satellites
experience problems while in orbit, the cost to renew in-orbit insurance
could increase significantly or coverage exclusions for similar problems
could be required. See "Business--DISH Network--Satellite insurance."
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 the Company for any loss. For example, as a result of losing 6
transponders on EchoStar III, our new insurance policy for EchoStar III
contains a deductible of 3 to 6 transponders, depending on the power mode
that we operate in. In addition, the EchoStar IV launch insurance policy
provides for insurance of $219.3 million covering the period from launch of
the satellite on May 8, 1998 through May 8, 1999. Due to the anomalies
experienced by EchoStar IV and the pending claim for a total constructive
loss, we did not obtain in-orbit insurance on EchoStar IV. Consequently, in
the event our pending insurance claim is not resolved to our satisfaction,
EchoStar IV will not be insured if further losses occur in the future. In
addition, insurance will not reimburse the Company for business interruption,
loss of business, profit opportunity and similar losses that might arise from
delay in the launch of any EchoStar satellite.
WE MAY BE UNABLE TO SETTLE OUTSTANDING CLAIMS WITH INSURERS
EchoStar IV is currently able to use a maximum of only 18
transponders as a result of a problem with its solar power panels. The number
of available transponders will decrease over time. EchoStar IV has also
experienced transponder problems comparable to those that occurred to
EchoStar III which have resulted in the failure of 3 transponders and the
loss of use of a total of 6 transponders. Based on existing data, we expect
that approximately 16 transponders will probably be available over the entire
expected 12 year life of the satellite, absent significant additional
transponder problems or other failures. In September
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1998, we filed a $219.3 million insurance claim for a constructive total loss
under the launch insurance policy related to EchoStar IV. However, if we
receive $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 in accordance with that definition
in the launch insurance policy, we presently intend to negotiate a settlement
with the insurers that will compensate us for the reduced satellite
transmission capacity and allow us to retain title to the asset. We cannot
assure you that we will receive the amount claimed or, if we receive the full
amount of the claim, that we will retain title to Echostar IV with its
reduced capacity.
During May 1999, EchoStar IV experienced additional anomalies. An
investigation of those anomalies, affecting transponders, heating systems and
fuel lines but which have not caused material reductions in functionality to
date, is continuing. It is not yet possible to conclude whether the
additional anomalies will result in further reductions of satellite
functionality in the future. While there can be no assurance, we do not
currently expect short or medium term satellite operations to be materially
adversely impacted. We have not completed our assessment of the additional
impairment, if any, to EchoStar IV, but we currently believe that insurance
proceeds will be sufficient to offset any additional write-down of satellite
assets that may be required because of lost functionality caused by these
anomalies. However, we can provide no assurance as to the ultimate amount
that may be received from the insurance claim, or that coverage will be
available. We will continue to evaluate the performance of EchoStar IV and
may modify our loss assessment as new events or circumstances develop.
As a result of the recent anomalies experienced by EchoStar IV, we
have instructed our broker to notify our insurance carriers of additional
occurrences under the terms of the EchoStar IV launch insurance policy. The
EchoStar IV launch insurance policy provides for insurance of $219.3 million
covering the period from launch of the satellite on May 8, 1998 through May
8, 1999. Due to the anomalies experienced by EchoStar IV and the pending
claim for a total constructive loss, we did not obtain in-orbit insurance on
EchoStar IV. Consequently, in the event our pending insurance claim is not
resolved to our satisfaction, EchoStar IV will not be insured if further
losses occur in the future.
WE DEPEND PRIMARILY ON A SINGLE RECEIVER MANUFACTURER
SCI Technology, Inc., a high-volume contract electronics
manufacturer, is currently the primary manufacturer of EchoStar receiver
systems. VTech recently began manufacturing some EchoStar receiver systems
for us. JVC manufactures other consumer electronics products incorporating
our receiver systems. If SCI is 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 currently have manufacturing agreements or arrangements
with consumer products manufacturers other than JVC and Philips, and as of
yet, only JVC is manufacturing 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. Due in part to the lack of product
recognition, our receiver systems are carried for sale in approximately
18,000 retail outlets compared to approximately 30,000 retail outlets for our
largest direct satellite broadcast competitor.
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INCREASED SUBSCRIBER TURNOVER COULD AFFECT OUR FINANCIAL PERFORMANCE
From January 1, 1997, our monthly subscriber turnover, which
represents the number of subscriber disconnects during the period divided by
the weighted-average number of subscribers during the period, has averaged
less than 1.25%. If subscriber turnover increases, it would adversely affect
our financial condition and results of operations because we subsidize the
cost of EchoStar receiver systems.
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 will also need to continue to expand, train and manage our employee base,
and our management personnel will be required to assume even greater levels
of responsibility.
WE MAY BE VULNERABLE TO RISKS ASSOCIATED WITH ACQUISITIONS
Acquisitions, including the transaction with News Corporation and
MCI, involve numerous risks, including, among other things, difficulties and
expenses incurred in connection with the acquisition and the subsequent
assimilation of the operations of the acquired company, adverse consequences
of conforming the acquired company's accounting policies to ours, the
difficulty in operating acquired businesses, the diversion of management's
attention from other business concerns and the potential loss of key
employees of acquired companies. There can be no assurance that any
acquisition, including the transaction with News Corporation and MCI, will be
successfully integrated into our on-going operations or that estimated cost
savings will be achieved. We have made a number of acquisitions and will
continue to review future acquisition opportunities. We can provide no
assurance that acquisition candidates will continue to be available on terms
and conditions acceptable to us. In addition, in the event that the
operations of an acquired business do not meet expectations, we may need to
restructure the acquired business or write-off the value of some or all of
the assets of the acquired business.
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 of our parent company. 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
We are a wholly owned subsidiary of EchoStar Communications
Corporation. Although Charles W. Ergen, the Chairman, Chief Executive Officer
and President of EchoStar Communications, currently owns approximately 63% of
the total equity securities of EchoStar Communications, assuming exercise of
employee stock options, he currently possesses approximately 94% of the total
voting power. Furthermore, Mr. Ergen will continue to own a substantial
portion of the total voting power if the transaction with News Corporation
and MCI is completed. For example, if the transaction with News Corporation
and MCI had been completed on March 15, 1999, Mr. Ergen would continue to
control approximately 87% of the total voting power. Thus, Mr. Ergen will
continue to have the ability to elect a majority of the directors of EchoStar
Communications and to control all other matters requiring the
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approval of its stockholders. In addition, pursuant to a voting agreement
among Mr. Ergen, News Corporation and MCI, News Corporation and MCI have
agreed to vote their shares after consummation of their transaction with
EchoStar Communications in accordance with the recommendation of the Board of
Directors of EchoStar Communications for five years. See "Security Ownership
of Certain Beneficial Owners and Management." For Mr. Ergen's total voting
power in EchoStar Communications to be reduced to below 51%, his percentage
ownership of the equity securities of EchoStar Communications would have to
be reduced to below 10%.
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 be treated 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.
Direct broadcast satellite operators like us currently are not
subject to the "must carry" requirements of the Cable Act that require cable
operators to carry all the local broadcast stations in the areas they serve,
not just the four major networks. The cable industry and the broadcasters
have argued that direct broadcast satellite operators should be subject to
these requirements, and the broadcasters also have argued that satellite
companies should not be allowed to distribute local network signals unless
they become subject to such requirements. If the "must carry" requirements of
the Cable Act are revised to include direct broadcast satellite operators, or
if new legislation or regulation of a similar nature is promulgated, our
plans to provide local programming may be adversely affected, and such must
carry requirements could cause the displacement of possibly more attractive
programming. Additionally, the FCC recently imposed public interest
requirements on direct broadcast satellite licensees, such as us, to set
aside four percent of channel capacity exclusively for noncommercial
programming at below-cost rates. This could also displace programming for
which we could be paid commercial rates and cause us to have less net income
available for making payments on the notes.
The FCC has commenced a rulemaking which seeks to streamline and
revise its rules governing direct broadcast satellite. 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.
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, considered on a
fully-diluted basis, 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 has been challenged and the question remains open.
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.
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We believe that our foreign ownership is under 5%. Our pending
transaction with New Corporation, however, would result in the issuance to an
Australian corporation of stock in excess of these limitations if they apply,
and we may need a separate FCC determination that such ownership is
consistent with the public interest in order to avoid a violation of the
Communications Act or the FCC's rules.
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
119DEG. orbital location, which both expire in 2006, and a license to operate
EchoStar III at the 61.5DEG. orbital location, which expires in 2008. Also,
we have filed with the FCC an application for a license to operate EchoStar
IV as well as a request for a waiver of the requirement of serving Alaska and
Hawaii from the 148DEG. orbital location. The state of Hawaii has requested
the FCC to impose several conditions on these requested authorizations, and
we have opposed many of these conditions. We cannot be sure whether the FCC
will grant these requests or whether it will impose onerous conditions. We
currently operate EchoStar IV at the 148DEG. WL orbital location under a
special temporary authorization until permanent authority can be obtained to
operate that satellite at the 148DEG. WL orbital location. Our authorization
at 148DEG. WL requires us to utilize all of our FCC-allocated frequencies at
that location by December 20, 2002, or risk losing those frequencies that we
are not using. Some of our pending and future requests to the FCC for
extensions, waivers and approvals have been, and are expected to continue to
be, opposed by third parties.
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 inhibit 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 authorizations for satellite systems that are not yet
operational, including the licenses that we will get from MCI, 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.
WE MAY BE IN DEFAULT ON CERTAIN OBLIGATIONS
We used satellite vendor financing in connection with the purchase
of each of our current satellites. Under the terms of that financing, we
deferred paying a portion of the purchase price for the satellites until
after the satellites were in orbit. As of March 31, 1999, we had $15.3
million in principal amount outstanding of these deferred payments relating
to EchoStar I, $16.1 million relating to EchoStar II, $10.9 million relating
to EchoStar III and $13.0 million relating to EchoStar IV. The
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outstanding deferred payments relating to EchoStar I and EchoStar II are
secured by substantially all of the assets of one of our wholly-owned
subsidiaries, and its subsidiaries, subject to certain restrictions, and are
guaranteed by our parent company. The consummation of the offering of the old
notes and the exchange notes and the reorganization might result in breaches
of certain covenants in favor of the holders of these outstanding deferred
payments, in particular the holders of outstanding deferred payments relating
to EchoStar I and EchoStar II. We believe that, if there is a breach of such
covenants, we may be liable to the holders of such outstanding deferred
payments for damages, if any, arising out of such breach, including possibly
the obligation to repay such outstanding deferred payments prior to their
scheduled maturity together with the economic equivalent of interest through
the scheduled maturity date.
WE MAY BECOME LIABLE IN A PENDING FEE DISPUTE
In connection with the News Corporation litigation that arose in
1997, our parent company has a contingent fee arrangement with its attorneys,
which provides for the attorneys to be paid a percentage of any net recovery
obtained in its dispute with News Corporation. As the holder of the assets
acquired in the transaction with News Corporation and MCI, we would pay any
fee that is payable under the fee arrangement. The attorneys have asserted
that they may be entitled to receive payments in excess of $80 million to
$100 million under this fee arrangement in connection with the settlement of
the dispute with News Corporation. Our parent company intends to vigorously
contest the attorneys' interpretation of the fee arrangement, which it
believes significantly overstates the magnitude of its liability. If the
attorneys and our parent company are unable to resolve this fee dispute under
the fee arrangement, the fee dispute would be resolved through arbitration.
It is too early to determine the outcome of negotiations or arbitration
regarding this fee dispute.
UNDER FRAUDULENT CONVEYANCE STATUTES, A COURT MAY VOID OR SUBORDINATE OUR
OBLIGATIONS UNDER THE NOTES OR OUR SUBSIDIARY GUARANTORS' OBLIGATIONS UNDER
THEIR GUARANTEES
We have used a portion of the net proceeds of the old notes to make
a distribution to our parent company for repaying a series of debt securities
of our parent company. See "Use of Proceeds." It is possible that our
creditors may challenge the incurrence of indebtedness represented by the
notes as a fraudulent conveyance under relevant federal and state statutes
and, if the court finds that we were insolvent at the time we issued the old
notes, a court could hold that our obligations on the notes may be voided or
are subordinate to our other obligations. Our obligations under the notes are
guaranteed, jointly and severally, by DBSC and certain of our subsidiary
guarantors. It is possible that the creditors of a subsidiary guarantor may
challenge its guarantee as a fraudulent conveyance and the same result could
apply with respect to the subsidiary guarantor. In addition, it is possible
that the amount for which a subsidiary guarantor is liable under its
guarantee may be limited. The measure of insolvency for purposes of the
foregoing may vary depending on the law of the jurisdiction that is being
applied. Generally, however, a court would consider a company insolvent if
the sum of its debts was greater than all of its property at a fair valuation
or if the present fair saleable value of its property was less than the
amount that will be required to pay its probable liability on its existing
debts as they become absolute and mature. The indenture provides that the
obligations of the subsidiary guarantors under the subsidiary guarantees are
limited to amounts that will not result in the subsidiary guarantees being a
fraudulent conveyance under the applicable law. See "Description of the
Notes--Guarantees" below.
FAILURE OF YEAR 2000 COMPLIANCE INITIATIVES COULD ADVERSELY AFFECT US
The Year 2000 issue exists because many computer systems and
applications currently use two-digit date fields to designate a year. Thus,
as the century date approaches, date sensitive systems may recognize the year
2000 as 1900 or not at all. The inability to recognize or properly treat the
year 2000 may cause computer systems to process critical financial and
operational information incorrectly. If our
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Year 2000 remediation plan is not successful or is not completed in a timely
manner, the Year 2000 issue could significantly disrupt our ability to
transact business with our customers and suppliers, and could have a material
impact on our operations. Even if our Year 2000 remediation plan is
successful or completed on time, there can be no assurance that the systems
of other companies with which our systems interact will be timely converted,
or that any such failure to convert by another company would not have an
adverse effect on our business or operations. We cannot estimate the
potential adverse impact that may result from non-compliance with the year
2000 issue by the software and equipment vendors and others with whom we
conduct business.
ACTUAL RESULTS OF OUR OPERATIONS MAY DIFFER FROM THOSE CONTAINED IN
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.
Forward-looking statements involve known and 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
the forward-looking statements. Among the factors that could cause our actual
results to differ materially are a total or partial loss of a satellite due
to operational failures, space debris or otherwise. Our business could also
be adversely affected by a decrease in sales of digital equipment and related
services to international direct-to-home or DTH service providers, a decrease
in DISH Network subscriber growth, an increase in subscriber turnover, an
increase in subscriber acquisition costs or an unexpected product shortage.
Our strategy of providing local channels to customers could be adversely
affected by impediments to the retransmission of local or distant broadcast
network signals, which could result from pending litigation or legislation,
or lower than expected demand for our delivery of local broadcast network
signals. In general our entire business could be adversely affected by an
unexpected business interruption due to the failure of third-parties to
remediate Year 2000 issues or our inability to retain necessary
authorizations from the FCC. Our subscriber base and our planned growth in
numbers of subscribers would be adversely affected by an increase in
competition from cable, direct broadcast satellite, other satellite system
operators, and other providers of subscription television services or the
introduction of new technologies and competitors into the subscription
television business. We could face a newly adverse competitive environment
from a merger of existing DBS competitors or a change in the regulations
governing the subscription television service industry. The outcome of any
litigation in which we may be involved could adversely affect our income or
even our ability to offer some types of popular programming or services. Our
plan to expand our number of channels would be adversely affected by failure
to consummate the transaction with News Corporation and MCI, referred to as
the 110 acquisition. Also our business can be adversely affected by general
business and economic conditions and other risk factors described from time
to time in our reports filed with the SEC.
In addition to statements that explicitly describe such risks and
uncertainties, you 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 in
this prospectus should be read as being applicable to all forward-looking
statements wherever they appear. In this connection, you should consider the
risks described in this prospectus.
THE ABSENCE OF A PUBLIC MARKET COULD REDUCE LIQUIDITY OF YOUR INVESTMENT IN
THE NOTES
We are offering the exchange notes to the holders of the old notes.
We offered and sold the old notes in January 1999 to a limited number of
institutional investors. The old notes are eligible for trading in the Portal
Market.
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The exchange notes will constitute a new issue of securities for
which there is no established trading market. If a trading market does not
develop or is not maintained, you may experience difficulty in reselling the
exchange notes or may be unable to sell them at all. If a market for the
exchange notes develops, any such market may be discontinued at any time and
the exchange notes could trade at prices that may be lower than their initial
price, depending on many factors, including prevailing interest rates, the
markets for companies offering similar services and our financial
performance. The initial purchasers of the old notes have made a market in
the old notes. Although there is currently no market for the exchange notes,
the initial purchasers have advised us that they currently intend to make a
market in the exchange notes. However, they are not obligated to do so, and
they may discontinue any such market-making with respect to the old notes and
the exchange notes at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the
Securities Act and the Securities Exchange Act of 1934, as amended and may be
limited during the exchange offer and the pendency of any shelf registration
statement. See "Description of the Notes--Registration rights; liquidated
damages" below. Accordingly, we cannot assure you that a market for the old
notes and the exchange notes will develop or, if developed, will be liquid.
We do not intend to apply for listing of any of the notes on any securities
exchange or for quotation through the Nasdaq National Market or any other
securities quotation service.
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USE OF PROCEEDS
We will receive no cash proceeds from the exchange offer. The
exchange offer is intended to satisfy some of our obligations under the
registration rights agreements for the notes. We will issue exchange notes in
exchange for old notes in the same principal amount, and for the same terms
and form as the old notes, except that there will be no registration rights
or liquidated damages relating to the exchange notes. The old notes
surrendered in exchange for the exchange notes will be retired and canceled
and cannot be reissued. Accordingly, we will not incur any new debt by
issuing the exchange notes.
The gross proceeds to us from the old notes offering were
approximately $2.0 billion, with net proceeds to us of approximately $1.8
billion. We used a portion of the net proceeds from the old notes offering to
repurchase the 12 7/8% notes, 13 1/8% notes and 12 1/2% notes, to fund a
distribution to our parent company for a repurchase of its Senior Preferred
Exchange Notes and to repay our parent company's loans to DBSC. We will use
the remaining portion to fund subscriber acquisition and marketing expenses
as well as general corporate purposes.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the exchange offer is to fulfill the obligations
of the Company and the guarantors with respect to the registration of the old
notes. We originally issued and sold the old notes on January 25, 1999. We
did not register those sales under the Securities Act, in reliance upon the
exemption provided in section 4(2) of the Securities Act and Rule 144A and
Regulation S promulgated under the Securities Act. In connection with the
sale of the old notes, we agreed to file with the SEC an exchange offer
registration statement relating to the exchange offer. Under the exchange
offer registration statement, exchange notes, consisting of another series of
our notes and containing substantially identical terms to the old notes,
except as set forth in this prospectus, will be offered in exchange for old
notes.
We and our guarantors will file with the SEC a shelf registration
statement to cover resales by you of your old notes if you satisfy certain
conditions relating to the provision of information in connection with the
shelf registration statement under the following conditions:
(1) the applicable exchange offer is not permitted by
applicable law or SEC policy; or
(2) you are a holder of "transfer restricted securities" and
you notify us within the specified time period that:
- you are prohibited by law or SEC policy from
participating in the exchange offer;
- you may not resell the exchange notes acquired by you
in the exchange offer to the public without delivering
a prospectus and this prospectus is not appropriate or
available for such resales; or
- you are a broker-dealer and you own old notes acquired
directly from us or our affiliate.
"Transfer restricted securities" means each old note until the
earliest of:
- the date on which a holder exchanges an old note in the
exchange offer and that holder is entitled to resell it
to the public without complying with prospectus
delivery requirements;
- the date on which a broker-dealer disposes of an old
note pursuant to the "Plan of Distribution" described
by the exchange offer registration statement, including
delivery of the prospectus contained in that exchange
offer registration statement;
- the date on which an old note has been effectively
registered under the Securities Act and disposed of in
accordance with the shelf registration statement; or
- the date on which an old note may be distributed to
the public pursuant to Rule 144(k) under the
Securities Act. See "Description of the Notes--
Registration rights; liquidated damages."
You will be required to make certain representations to us, as
described in the registration rights agreement, in order to participate in the
exchange offer and, if you wish to include your old notes in any
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<PAGE>
shelf registration statement, you must deliver information to be used in
connection with any shelf registration statement and you must provide
comments on the shelf registration statement within the time periods set
forth in the registration rights agreement. You must comply with these
procedures in order to benefit from the provisions regarding liquidated
damages described below.
HOW TO DETERMINE IF YOU ARE ELIGIBLE TO PARTICIPATE IN THE EXCHANGE OFFER
We hereby offer to exchange, upon the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal
accompanying it, $1,000 in principal amount of exchange notes for each $1,000
in principal amount of our old notes that you hold. The terms of the exchange
notes are substantially identical to the terms of the old notes for which
they may be exchanged pursuant to this exchange offer, except that the
exchange notes will generally be freely transferable by you, and you will not
be entitled to certain registration rights and certain liquidated damages
provisions which are applicable to the old notes under the registration
rights agreement. Each series of exchange notes will evidence the same debt
as the corresponding old notes and will be entitled to the benefits of its
respective indenture. See "Description of the Notes" below.
We are not making the exchange offer to, nor will we accept
surrenders for exchange from, holders of outstanding old notes in any
jurisdiction in which this exchange offer or the acceptance thereof would not
be in compliance with the securities or blue sky laws of such jurisdiction.
We are not making the exchange offer conditional upon any minimum
aggregate principal amount of old notes being tendered or accepted for
exchange.
Based on our view of interpretations set forth in no-action letters
issued by the staff of the SEC to third parties, we believe that you may
resell or transfer exchange notes issued pursuant to the exchange offer in
exchange for the old notes, unless you are an "affiliate" of the Company, a
broker-dealer who acquired old notes directly from the Company or a
broker-dealer who acquired old notes as a result of market-making or other
trading activities. We believe that you may resell or transfer such exchange
notes without compliance with the registration and prospectus delivery
provisions of the Securities Act only if such exchange notes are acquired in
the ordinary course of your business and you are not engaged in, and do not
intend to engage in, and have no arrangement or understanding with any person
to participate in, a distribution of such exchange notes.
If our belief is inaccurate and you transfer any note issued to you
in the exchange offer without delivering a prospectus meeting the requirement
of the Securities Act or without an exemption from registration of your old
notes from such requirements, you may incur liability under the Securities
Act. We do not assume or indemnify you against such liability.
If you are a broker-dealer that resells exchange notes that were
received by you for your own account pursuant to the exchange offer, and if
you participate in a distribution of the exchange notes, you may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of exchange notes and any commissions or concessions
received by you may be deemed to be underwriting compensation under the
Securities Act. If you are a broker-dealer who acquires old notes as a result
of market-making or other trading activities, you may use this prospectus, as
supplemented or amended, in connection with resales of the exchange notes. We
have agreed that, for a period of one year after the exchange offer is
consummated, we will make this prospectus available to any broker-dealer for
use in connection with any such resale. If you tender old notes in the
exchange offer for the purpose of participating in a distribution of the
exchange notes, or if you cannot rely upon such interpretations, you must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
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<PAGE>
If you are tendering old notes, you will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of the old notes
pursuant to the exchange offer. The exchange notes will bear interest from
January 25, 1999. If your old notes are accepted for exchange, you will be
deemed to have waived the right to have interest accrue, or to receive any
payment in respect of interest, on the old notes from January 25, 1999, to
the date of the issuance of the exchange notes. Interest on the exchange
notes is payable semiannually in arrears on February 1 and August 1 of each
year, commencing August 1, 1999, accruing from January 25, 1999.
INFORMATION ABOUT THE EXPIRATION DATE OF THE EXCHANGE OFFER AND CHANGES TO IT
The exchange offer expires on the expiration date, which is 5:00
p.m., Eastern time, on unless we, in our sole discretion, extend the period
during which the exchange offer is open. If we extend the period for the
exchange offer, the term "expiration date" means the latest time and date on
which the exchange offer, as so extended, expires. We reserve the right to
extend the exchange offer at any time and from time to time prior to the
expiration date by giving written notice to U.S. Bank Trust National
Association, which is the exchange agent, and by timely public announcement
communicated by no later than 5:00 p.m. on the next business day following
the expiration date, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the exchange offer, all old notes previously tendered pursuant
to the exchange offer will remain subject to the exchange offer.
The initial exchange date will be the first business day following
the expiration date. We expressly reserve the right to terminate the exchange
offer and not accept for exchange any old notes for any reason, including if
any of the events set forth below under "--We may modify or terminate the
exchange offer under some circumstances" have occurred and have not been
waived by us. We also reserve the right to amend the terms of the exchange
offer in any manner, whether before or after any tender of the old notes. If
we terminate or amend the exchange offer, we will notify the exchange agent
in writing and will either issue a press release or give written notice to
you as a holder of the old notes as promptly as practicable. Unless we
terminate the exchange offer prior to 5:00 p.m., Eastern time, on the
expiration date, we will exchange the exchange notes for old notes on the
exchange date.
We will mail this prospectus and the related letter of transmittal
and other relevant materials to you as a record holder of old notes and we
will furnish these items to brokers, banks and similar persons whose names,
or the names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of old notes.
HOW TO TENDER YOUR OLD NOTES
If you tender to us any of your old notes pursuant to one of the
procedures set forth below, that tender will constitute an agreement between
you and us in accordance with the terms and subject to the conditions
described below and in the letter of transmittal.
You may tender old notes by properly completing and signing the
letter of transmittal or a facsimile of it. All references in this prospectus
to the "letter of transmittal" are deemed to include a facsimile of the
letter. You must deliver it, together with the certificate or certificates
representing the old notes that you are tendering and any required signature
guarantees, or a timely confirmation of a book-entry transfer pursuant to the
procedure described below, to the exchange agent at its address set forth on
the back cover of this prospectus on or prior to the expiration date. You may
also tender old notes by complying with the guaranteed delivery procedures
described below.
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<PAGE>
Your signature does not need to be guaranteed if your old notes are
registered in your name, the exchange notes will registered in your name and
you sign the letter of transmittal. In any other case, the tendered old notes
must be endorsed or accompanied by written instruments of transfer in form
satisfactory to us and duly executed by the registered holder. Also, the
signature on the endorsement or instrument of transfer must be guaranteed by
an "eligible institution," such as a bank, broker, dealer, credit union,
savings association, clearing agency or other institution that is a member of
a recognized signature guarantee medallion program within the meaning of Rule
17Ad-15 under the Exchange Act. If the exchange notes or old notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the old notes, the signature on the
letter of transmittal must be guaranteed by such an "eligible institution."
If your old notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender old
notes, you should contact the registered holder promptly and instruct the
holder to tender old notes on your behalf. If you wish to tender your old
notes yourself, you must, prior to completing and executing the letter of
transmittal and delivering your old notes, either make appropriate
arrangements to register ownership of the old notes in your name or follow
the procedures described in the immediately preceding paragraph. Transferring
record ownership from someone else's name to your name may take considerable
time.
HOW TO TENDER IF YOU HOLD YOUR OLD NOTES THROUGH A BROKER OR OTHER
INSTITUTION AND YOU DO NOT HAVE THE ACTUAL OLD NOTES
Any financial institution that is a participant in DTC's systems may
make book-entry delivery of your old notes by causing DTC to transfer your old
notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Although you may deliver your old notes through
book-entry transfer at DTC, you still must send the letter of transmittal, with
any required signature guarantees and any other required documents, to the
exchange agent at the address specified on the back cover of this prospectus on
or prior to the expiration date and the exchange agent must receive these
documents on time. If you will not be able to send all the documents on time,
you can still tender your old notes by using the guaranteed delivery procedures
described below.
YOU ASSUME THE RISK OF CHOOSING THE METHOD OF DELIVERY OF OLD NOTES AND
ALL OTHER DOCUMENTS. IF YOU SEND YOUR OLD NOTES AND YOUR DOCUMENT BY MAIL, WE
RECOMMEND THAT YOU USE REGISTERED MAIL, RETURN RECEIPT REQUESTED, YOU OBTAIN
PROPER INSURANCE, AND YOU MAIL THESE ITEMS SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE.
If you do not provide your taxpayer identification number, which is
your social security number or employer identification number, as applicable,
and certify that such number is correct, the exchange agent will withhold 31% of
the gross proceeds otherwise payable to you pursuant to the exchange offer,
unless an exemption applies under the applicable law and regulations concerning
"backup withholding" of federal income tax. You should complete and sign the
main signature form and the Substitute Form W-9 included as part of the letter
of transmittal, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is proven in
a manner satisfactory to us and the exchange agent.
HOW TO USE THE GUARANTEED DELIVERY PROCEDURES IF YOU WILL NOT HAVE ENOUGH
TIME TO SEND ALL DOCUMENTS TO US
If you desire to accept the exchange offer, and time will not permit a
letter of transmittal or old notes to reach the exchange agent before the
expiration date, you may tender your old notes if the
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<PAGE>
exchange agent has received at its office listed on the letter of transmittal
on or prior to the expiration date a letter, telegram or facsimile
transmission from an eligible institution setting forth: your name and
address, the principal amount of the old notes being tendered, the names in
which the old notes are registered and, if possible, the certificate numbers
of the old notes to be tendered.
The eligible institution's correspondence to the exchange agent must
state that the tender is being made thereby and guarantee that within three
New York Stock Exchange trading days after the date of execution of such
correspondence by the eligible institution, the old notes, in proper form for
transfer, will be delivered by the eligible institution together with a
properly completed and duly executed letter of transmittal and any other
required documents. We may, at our option, reject the tender if your old
notes and accompanying documents are not tendered by either the
above-described method or by a timely book-entry confirmation, and deposited
with the exchange agent within the time period set forth above. Copies of a
notice of guaranteed delivery that may be used by eligible institutions for
the purposes described in this paragraph are available from the exchange
agent.
Your tender will be deemed to be received as of the date when the
exchange agent receives your properly completed letter of transmittal,
accompanied by either the old notes or a timely book-entry confirmation. We
will issue exchange notes in exchange for old notes tendered pursuant to a
notice of guaranteed delivery or correspondence to similar effect as
described above by an eligible institution only against deposit of the letter
of transmittal, any other required documents and either the tendered old
notes or a timely book-entry confirmation.
WE RESERVE THE RIGHT TO DETERMINE VALIDITY OF ALL TENDERS
All questions as to the validity, form, eligibility, including time
of receipt, and acceptance for exchange of your tender of old notes will be
determined by us, whose determination will be final and binding. We reserve
the absolute right to reject any or all of your tenders that are not in
proper form or the acceptances for exchange of which may, in the opinion of
our counsel, be unlawful. We also reserve the absolute right to waive any of
the conditions of the exchange offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in your case. Neither we, the exchange agent nor
any other person will be under any duty to give you notification of any
defects or irregularities in tenders nor shall any of us incur any liability
for failure to give you any such notification. Our interpretation of the
terms and conditions of the exchange offer, including the letter of
transmittal and its instructions, will be final and binding.
TO PARTICIPATE, YOU MUST COMPLETE THE LETTER OF TRANSMITTAL CERTIFYING
INFORMATION ABOUT YOURSELF
By tendering old notes and executing the letter of transmittal, you
certify that the following:
- you are not our "affiliate";
- you are not a broker-dealer that owns old notes acquired
directly from us or our affiliate; and
- you are acquiring the exchange notes offered hereby in the
ordinary course of your business and that you have no
arrangement with any person to participate in the distribution
of such exchange notes.
If you cannot certify the foregoing, you may certify that you are an affiliate
of us or of the initial purchasers of the old notes, and you will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable to you.
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By tendering old notes for exchange, you will exchange, assign and
transfer the old notes to us and irrevocably appoint the exchange agent as your
agent and attorney-in-fact to cause the old notes to be assigned, transferred
and exchanged. You will also represent and warrant that you have full power and
authority to tender, exchange, assign and transfer the old notes and to acquire
exchange notes issuable upon the exchange of such tendered old notes. The letter
of transmittal requires you to agree that, when the old notes are accepted for
exchange, we will acquire good and unencumbered title to them, free and clear of
all liens, restrictions, charges and encumbrances and that they are not subject
to any adverse claim.
You will also warrant that you will, upon our request, execute and
deliver any additional documents that we believe are necessary or desirable to
complete the exchange, assignment and transfer of your tendered old notes. You
must further agree that acceptance of any tendered old notes by us and the
issuance of exchange notes in exchange for them will constitute performance in
full by us of our obligations under the registration rights agreement and that
we will have no further obligations or liabilities under that agreement, except
in certain limited circumstances. All authority conferred by you will survive
your death or incapacity and every obligation of you shall be binding upon your
heirs, legal representatives, successors, assigns, executors and administrators.
IF YOU TENDER OLD NOTES PURSUANT TO THE EXCHANGE OFFER, YOU MAY WITHDRAW THEM AT
ANY TIME PRIOR TO THE EXPIRATION DATE
For your withdrawal to be effective, your written or fax notice of
withdrawal must be timely received by the exchange agent prior to the expiration
date at its address set forth on the back cover of this prospectus. Your notice
of withdrawal must specify the following information:
- The person named in the letter of transmittal as having
tendered old notes to be withdrawn;
- The certificate numbers of old notes to be withdrawn;
- The principal amount of old notes to be withdrawn;
- A statement that you are withdrawing your election to have
such old notes exchanged; and
- The name of the registered holder of such old notes, which may
be a person or entity other than you, such as your
broker-dealer.
Your notice of withdrawal must be signed in the same manner as the original
signature of the letter of transmittal, including any required signature
guarantees. If your notice of withdrawal cannot be so signed, it must be
accompanied by evidence satisfactory to us that you now hold beneficial
ownership of the old notes being withdrawn. The exchange agent will return the
properly withdrawn old notes promptly following receipt of notice of withdrawal.
We will determine all questions as to the validity of notices of withdrawals,
including time of receipt, and our determination will be final and binding on
all parties.
HOW YOUR OLD NOTES WILL BE EITHER EXCHANGED FOR EXCHANGE NOTES OR RETURNED
TO YOU
On the exchange date, we will determine which old notes were validly
tendered and we will issue exchange notes in exchange for them. The exchange
agent will act as your agent for the purpose of receiving exchange notes from us
and causing the old notes to be given to you in exchange for exchange
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notes promptly after acceptance of the tendered old notes. If your old notes
are not accepted for exchange by us, they will be returned without expense to
you. If you tender your old notes by book-entry transfer into the exchange
agent's account at DTC pursuant to the procedures described above, but your
old notes are not accepted for exchange, your non-exchanged old notes will be
credited to an account maintained with DTC. In either case, we will return
your non-exchanged old notes to you promptly following the expiration of the
exchange offer.
WE MAY MODIFY OR TERMINATE THE EXCHANGE OFFER UNDER SOME CIRCUMSTANCES
We are not required to issue exchange notes in respect of any properly
tendered old notes that we have not previously accepted and we may terminate the
exchange offer or, at our option, we may modify or otherwise amend the exchange
offer. If we terminate the exchange offer, it will be by oral or written notice
to the exchange agent and by timely public announcement communicated no later
than 5:00 p.m. on the next business day following the expiration date, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. We may terminate the exchange offer in the following
circumstances:
- Any court or governmental agency brings a legal action seeking
to prohibit the exchange offer or assessing or seeking any
damages as a result of the exchange offer, or resulting in a
material delay in our ability to accept any of the old notes for
exchange offer; or
- Any law or legal action is brought or threatened by any
government or governmental authority, domestic or foreign, that
in our sole judgment, might directly or indirectly result in any
of the consequences referred to above; or, if in our sole
judgment, such activity might result in the holders of exchange
notes having obligations with respect to resales and transfers
of exchange notes that are greater than those described in the
interpretations of the staff of the SEC referred to on the cover
page of this prospectus, or would otherwise make it inadvisable
to proceed with the exchange offer; or
- A material adverse change has occurred in our business,
condition (financial or otherwise), operations or prospects.
The foregoing conditions are for our sole benefit and we may assert
them with respect to all or any portion of the exchange offer regardless of the
circumstances giving rise to such condition. We also reserve the right to waive
these conditions in whole or in part at any time or from time to time in our
discretion. Our failure at any time to exercise any of the foregoing rights will
not be deemed a waiver of any such right, and each right will be deemed an
ongoing right that we may assert at any time or from time to time. In addition,
we have reserved the right, notwithstanding the satisfaction of each of the
foregoing conditions, to terminate or amend the exchange offer.
Any determination by us concerning the fulfillment or nonfulfillment of
any conditions will be final and binding upon all parties.
In addition, we will not accept for exchange any old notes tendered,
and no exchange notes will be issued in exchange for any such old notes, if at
that time any stop order is threatened or in effect with respect to the
registration statement that this prospectus is a part of, or if qualification of
the indentures is required under the Trust Indenture Act of 1939.
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WHERE TO SEND YOUR DOCUMENTS FOR THE EXCHANGE OFFER
U.S. Bank Trust National Association has been appointed as the
exchange agent for the exchange offer. You must send your letter of
transmittal to the exchange agent at:
U.S. Bank Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Telephone: (651) 244-8162
Facsimile: (651) 244-1537
Attention: Corporate Trust Trustee Administration
IF YOU SEND YOUR DOCUMENTS TO ANY OTHER ADDRESS OR FAX NUMBER, THEY
WILL NOT BE VALIDLY DELIVERED AND YOU WILL NOT RECEIVE EXCHANGE NOTES IN
EXCHANGE FOR YOUR OLD NOTES. WE WILL RETURN YOUR OLD NOTES TO YOU.
WE ARE PAYING OUR COSTS FOR THE EXCHANGE OFFER
We have not retained any dealer-manager or similar agent in
connection with the exchange offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the exchange offer. We will,
however, pay the exchange agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses. We will
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding tenders for
their customers. We will pay the expenses incurred in connection with the
exchange offer, including the fees and expenses of the exchange agent and
printing, accounting, investment banking and legal fees. We estimate that
these fees are approximately $250,000.
NO PERSON HAS BEEN AUTHORIZED TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS TO YOU IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS
IF ANYONE ELSE GIVES YOU INFORMATION OR REPRESENTATIONS ABOUT THE
EXCHANGE OFFER, YOU SHOULD NOT RELY UPON THAT INFORMATION OR REPRESENTATION
OR ASSUME THAT IT HAS BEEN AUTHORIZED BY US. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE
RESPECTIVE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THE
EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON
BEHALF OF, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE MAKING OF
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE LAWS OF THAT JURISDICTION. HOWEVER, WE MAY, AT OUR DISCRETION, TAKE SUCH
ACTION AS WE MAY DEEM NECESSARY TO MAKE THE EXCHANGE OFFER IN ANY SUCH
JURISDICTION AND EXTEND THE EXCHANGE OFFER TO HOLDERS OF OLD NOTES IN SUCH
JURISDICTION. IN ANY JURISDICTION WHERE THE SECURITIES LAWS OR BLUE SKY LAWS
REQUIRE THE EXCHANGE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE
EXCHANGE OFFER IS BEING MADE ON BEHALF OF US BY ONE OR MORE REGISTERED
BROKERS OR DEALERS THAT ARE LICENSED UNDER THE LAWS OF THAT JURISDICTION.
THERE ARE NO DISSENTER OR APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
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FEDERAL INCOME TAX CONSEQUENCES TO YOU
The exchange of old notes for exchange notes by you will not be a
taxable exchange for federal income tax purposes, and you should not
recognize any taxable gain or loss or any interest income as a result of the
exchange. See "Certain United States Federal Income Tax Considerations" below.
THIS IS THE ONLY EXCHANGE OFFER THAT WE ARE REQUIRED TO MAKE
Your participation in the exchange offer is voluntary and you should
carefully consider whether to accept the terms and conditions of it. You are
urged to consult your financial and tax advisors in making your own decisions
on what action to take with respect to the exchange offer. If you do not
tender your old notes in the exchange offer, you will continue to hold such
old notes and you will be entitled to all the rights and limitations
applicable to the old notes under the indenture All non-exchanged old notes
will continue to be subject to the restriction on transfer set forth in the
indenture. If old notes are tendered and accepted in the exchange offer, the
trading market, if any, for any remaining old notes could be much less
liquid. See "Risk Factors--Your old notes will be subject to restrictions on
transfer and the trading market for your old notes may be limited if you do
not tender."
We may in the future seek to acquire non-exchanged old notes in the
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. We have no present plan to acquire any old notes that
are not exchanged in the exchange offer.
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SELECTED FINANCIAL DATA
The following selected financial data as of, and for each of the
five years in the period ended December 31, 1998, have been derived from, and
are qualified by reference to, our company's Combined and Consolidated
Financial Statements which have been audited by Arthur Andersen LLP,
independent public accountants. The following selected financial data at
March 31, 1998 and 1999, and for the three months ended March 31, 1998 and
1999, are unaudited; however, in the opinion of management, such data reflect
all adjustments, consisting only of normal recurring adjustments, necessary
to fairly present the data for such interim periods. This data should be read
in conjunction with our company's Condensed Consolidated Financial Statements
and related notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS, SUBSCRIBERS AND PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
DISH Network.................. $ --- $ --- $ 57,888 $341,808 $ 682,109 $ 134,725 $ 263,066
DTH equipment sales and
integration services...... --- 35,816 77,390 90,263 253,841 66,816 31,193
Satellite services............ --- --- 5,822 11,135 22,304 4,595 7,821
C-band and other.............. 179,313 112,704 56,003 32,696 27,655 7,888 7,983
---------- ---------- ----------- -------- ---------- -------- ----------
Total revenue................... 179,313 148,520 197,103 475,902 985,909 214,024 310,063
Costs and Expenses:
DISH Network operating expenses --- --- 42,409 193,170 396,992 80,794 144,715
Cost of sales--DTH equipment
and integration services.. --- 30,404 75,984 60,918 174,615 47,251 23,143
Cost of sales--C-band and other 133,635 84,846 42,345 23,909 16,496 5,942 4,050
Marketing expenses............ 2,346 1,786 53,168 183,345 331,680 53,084 142,398
General and administrative.... 27,873 36,376 48,693 66,060 94,824 19,294 28,632
Depreciation and amortization. 2,243 3,114 43,369 172,836 102,157 29,341 24,562
---------- ---------- ----------- -------- ---------- -------- ----------
Total costs and expenses...... 166,097 156,526 305,968 700,238 1,116,764 235,706 367,500
---------- ---------- ----------- -------- ---------- -------- ----------
Operating income (loss)....... $ 13,216 $ (8,006) $ (108,865) $(224,336) $ (130,855) $(21,682) $ (57,437)
---------- ---------- ----------- -------- ---------- -------- ----------
---------- ---------- ----------- -------- ---------- -------- ----------
Net income (loss)............. $ 90 $ (12,361) $ (101,676) $(323,424) $ (294,375) $(57,261) $ (333,317)
---------- ---------- ----------- -------- ---------- -------- ----------
---------- ---------- ----------- -------- ---------- -------- ----------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
-------------------------------------------------------------- ---------------
1994 1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (UNAUDITED)
Cash, cash equivalents and
marketable investment
securities (1).............. $ 48,544 $ 14,161 $ 57,247 $ 65,965 $ 32,308 $ 273,735
Total assets.................... 472,492 559,297 1,085,545 1,431,774 1,470,173 1,604,115
Long-term obligations, net of
current portion:
9-1/4% senior notes due 2006.... --- --- --- --- --- 375,000
9-3/8% senior notes due 2009.... --- --- --- --- --- 1,625,000
1994 notes...................... 334,206 382,218 437,127 499,863 571,674 1,503
1996 notes...................... --- --- 386,165 438,512 497,955 1,097
1997 notes...................... --- --- --- 375,000 375,000 15
Mortgages and other notes payable,
net of current portion...... 5,393 33,444 51,428 51,846 43,450 38,409
Notes payable to ECC, including
accumulated interest........ --- --- 12,000 54,597 59,812 ---
Other long-term obligations..... --- --- 7,037 19,500 33,358 39,086
Total stockholder's equity (deficit) 103,808 92,892 (6,673) (313,770) (588,137) (1,190,042)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
DISH Network subscribers............... --- --- 350,000 1,040,000 1,940,000 1,202,000 2,265,000
Average monthly revenue per subscriber. $ --- $ --- $ 35.50 $ 38.50 $ 39.25 $ 38.25 $ 41.45
EBITDA (2)............................. 15,459 (4,892) (65,496) (51,500) (28,698) 7,659 (32,875)
Less amortization of subscriber
acquisition costs.................. --- --- (16,073) (121,428) (18,819) (10,971) ---
--------- ---------- ------------ ---------- ------------ -------- ----------
EBITDA, without add back for
amortization of subscriber
acquisition costs.................. 15,459 (4,892) (81,569) (172,928) (47,517) (3,312) (32,875)
Net cash flows from:
Operating activities................... 24,205 (21,888) (22,836) (7,549) (53,949) (26,840) 2,216
Investing activities................... (338,565) (1,431) (294,962) (306,079) (43,340) (3,142) (61,486)
Financing activities................... 325,011 19,764 342,287 337,247 60,538 (4,025) 169,604
Ratio of earnings to fixed charges (3). --- --- --- --- --- --- ---
Deficiency of earnings to fixed
charges (3)........................ $ (5,206) $ (44,315) $ (188,347) $(366,447) $(315,923) $ (65,033) $(104,518)
- -----------
</TABLE>
(1) Excludes restricted cash and marketable investment securities.
(2) We believe it is common practice in the telecommunications industry for
investment bankers and others to use various multiples of current or
projected EBITDA for purposes of estimating current or prospective
enterprise value and as one of many measures of operating performance.
Conceptually, EBITDA measures the amount of income generated each
period that could be used to service debt, because EBITDA is
independent of the actual leverage employed by the business; but EBITDA
ignores funds needed for capital expenditures and expansion. Some
investment analysts track the relationship of EBITDA to total debt as
one measure of financial strength. However, EBITDA does not purport to
represent cash provided or used by operating activities and should not
be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
EBITDA differs significantly from cash flows from operating activities
reflected in the consolidated statement of cash flows. Cash from
operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash, rather than
accrual, basis, exclusive of non-cash items of income and expenses such
as depreciation and
44
<PAGE>
amortization. In contrast, EBITDA is derived from accrual basis income
and is not reduced for cash invested in working capital. Consequently,
EBITDA is not affected by the timing of receivable collections or when
accrued expenses are paid. We are aware of no uniform standards for
determining EBITDA and we believe that presentations of EBITDA may not
be calculated consistently by different entities in the same or similar
businesses. EBITDA is shown with and without add back of amortization
of subscriber acquisition costs, which were deferred through September
1997 and amortized over one year.
(3) 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, 1994,
1995, 1996, 1997 and 1998, and for the three months ended March 31,
1998 and 1999, earnings were insufficient to cover the fixed charges.
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our operations include three interrelated business units--the DISH
Network, Technology and Satellite Services. Our principal business strategy
is to continue to develop our subscription television service in the United
States to provide consumers with a competitive alternative to cable
television service.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998.
REVENUE. Total revenue for the three months ended March 31, 1999 was
$310 million, an increase of $96 million compared to total revenue for the
three months ended March 31, 1998 of $214 million. The increase in total
revenue was primarily attributable to DISH Network subscriber growth. We
expect that our revenues will continue to increase as the number of DISH
Network subscribers increases.
DISH Network subscription television services revenue totaled $261
million for the three months ended March 31, 1999, an increase of $132
million or 103% compared to the same period in 1998. This increase was
directly attributable to the increase in the number of DISH Network
subscribers and higher average revenue per subscriber. Average DISH Network
subscribers for the three months ended March 31, 1999 increased approximately
87% compared to the same period in 1998. As of March 31, 1999, we had
approximately 2.3 million DISH Network subscribers compared to 1.2 million at
March 31, 1998. Monthly revenue per subscriber approximated $41 and $38
during the three months ended March 31, 1999 and 1998, respectively. DISH
Network subscription television services revenue principally consists of
revenue from basic, premium and pay-per-view subscription television
services. DISH Network subscription television services will continue to
increase to the extent we are successful in increasing the number of DISH
Network subscribers and maintaining or increasing revenue per subscriber.
During the three months ended March 31, 1999 and 1998, our subscriber
turnover was approximately 1% per month. Subscriber turnover is calculated as
the number of subscriber disconnects during the period, divided by the
weighted-average number of subscribers during the period.
For the three months ended March 31, 1999, DTH equipment sales and
integration services totaled $31 million, a decrease of $36 million compared
to 1998. DTH equipment sales consist of sales of digital set-top boxes and
other digital satellite broadcasting equipment by us to international DTH
service operators. We currently have agreements to provide equipment to DTH
service operators in Spain and Canada. This expected decrease in DTH
equipment sales and integration services revenue was primarily attributable
to a decrease in demand combined with a decrease in the sales price of
digital set-top boxes attributable to increased competition.
Substantially all of our EchoStar Technologies Corporation or ETC
revenues have resulted from sales to two international DTH providers. As a
result, our ETC business currently is economically dependent on these two DTH
providers. Our future revenue from the sale of DTH equipment and integration
services in international markets depends largely on the success of these DTH
operators and continued demand for our digital set-top boxes. Due to the
continued decrease in the sales price of digital set-top boxes and increasing
competition, we expect that our DTH equipment and integration services
revenue will decline during the remainder of 1999 as compared to 1998. DTH
equipment and integration services revenue may decline as much as 50% during
the remainder of 1999 as compared to 1998.
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<PAGE>
During July 1998, Telefonica, one of the two DTH service providers
described above, announced its intention to merge with Sogecable (Canal Plus
Satellite), one of its primary competitors. In October 1998, Telefonica
announced that the merger negotiations had been suspended. Subsequently,
negotiations between Telefonica and Canal Plus Satellite were resumed and
again suspended. Although we have binding purchase orders from Telefonica for
1999 deliveries of DTH equipment, we cannot yet predict the impact, if any,
that consummation of this merger might have on our future sales to
Telefonica. As part of the 110 acquisition, we expect to receive a minimum
order from a subsidiary of News Corporation for 500,000 set-top boxes.
Although we continue to actively pursue additional distribution and
integration service opportunities internationally, no assurance can be given
that any such additional negotiations will be successful.
Satellite services revenue totaled $8 million during the three
months ended March 31, 1999, an increase of $3 million as compared to the
same period during 1998. These revenues principally include fees charged to
content providers for signal carriage and revenues earned from business
television, or BTV customers. The increase in satellite services revenue was
primarily attributable to increased BTV revenue due to the addition of new
full-time BTV customers. Satellite services revenue is expected to increase
during the remainder of 1999 to the extent we are successful in increasing
the number of our BTV customers and developing and implementing new services.
In order, among other things, to prepare for a potential adverse
result in our pending litigation with the four major broadcast networks and
their affiliate groups, we have commenced sending letters to some of our
subscribers warning that their access to CBS, NBC, Fox and ABC distant
network channels might be terminated commencing in June of this year. Such
terminations would result in a small reduction in average monthly revenue per
subscriber. While there can be no assurance, any such decreases could be
offset by increases in average monthly revenue per subscriber resulting from
the delivery of local network channels by satellite, and increases in
programming offerings that will follow the scheduled launches of EchoStar V
and EchoStar VI later this year. While there can be no assurance, legislation
pending in the Senate would, if passed into law, reduce the number of
customers whose network channels we may otherwise be required to terminate.
DISH NETWORK OPERATING EXPENSES. DISH Network operating expenses
totaled $145 million during the three months ended March 31, 1999, an
increase of $64 million or 79%, compared to the same period in 1998. The
increase in DISH Network operating expenses was consistent with, and
primarily attributable to, the increase in the number of DISH Network
subscribers. DISH Network operating expenses represented 55% and 63% of
subscription television services revenue during the three months ended March
31, 1999 and 1998, respectively.
Subscriber-related expenses totaled $111 million during the three
months ended March 31, 1999, an increase of $47 million compared to the same
period in 1998. Such expenses, which include programming expenses, copyright
royalties, residuals payable to retailers and distributors, and billing,
lockbox and other variable subscriber expenses, represented 43% of
subscription television services revenues during the three months ended March
31, 1999 compared to 50% during the same period in 1998. The decrease in
subscriber-related expenses as a percentage of subscription television
services revenue resulted primarily from a decrease in programming expenses
on a per subscriber basis, which resulted from a change in product mix
combined with price discounts received from certain content providers.
Although we expect subscriber-related expenses as a percentage of
subscription television services revenue to remain near this level in future
periods, this expense to revenue ratio could increase.
47
<PAGE>
Customer service center and other expenses principally consist of
costs incurred in the operation of our DISH Network customer service centers,
such as personnel and telephone expenses, as well as subscriber equipment
installation and other operating expenses. Customer service center and other
expenses totaled $24 million during the three months ended March 31, 1999, an
increase of $12 million as compared to the same period in 1998. The increase
in customer service center and other expenses resulted from increased
personnel and telephone expenses to support the growth of the DISH Network.
Customer service center and other expenses totaled 9% of subscription
television services revenue during each of the three months ended March 31,
1999 and 1998. Although we expect customer service center and other expenses
as a percentage of subscription television services revenue to remain near
this level in future periods, this expense to revenue ratio could increase.
Satellite and transmission expenses include expenses associated with
the operation of our digital broadcast center, contracted satellite
telemetry, tracking and control services, and satellite in-orbit insurance.
Satellite and transmission expenses totaled $9 million during the three
months ended March 31, 1999, a $4 million increase compared to the same
period in 1998. This increase resulted from higher satellite and other
digital broadcast center operating expenses due to an increase in the number
of operational satellites. We expect satellite and transmission expenses to
continue to increase in the future as additional satellites are placed in
service. However, we expect that satellite and transmission expenses as a
percentage of subscription television services revenue may decline to the
extent we are successful in increasing the number of DISH Network subscribers
and maintaining or increasing revenue per subscriber.
COST OF SALES - DTH EQUIPMENT AND INTEGRATION SERVICES. Cost of
sales -DTH equipment and integration services totaled $23 million during the
three months ended March 31, 1999, a decrease of $24 million compared to the
same period in 1998. This decrease is consistent with the decrease in DTH
equipment revenue. Cost of sales - DTH equipment and integration services
principally includes costs associated with digital set-top boxes and related
components sold to international DTH operators. As a percentage of DTH
equipment revenue, cost of sales represented 74% and 71% during the three
months ended March 31, 1999 and 1998, respectively. We expect that cost of
sales may increase as a percentage of DTH equipment revenue in the future,
due to price pressure resulting from increased competition from other
providers of DTH equipment.
MARKETING EXPENSES. Marketing expenses totaled $142 million during
the three months ended March 31, 1999, an increase of $89 million or 168%,
compared to the same period in 1998. The increase in marketing expenses was
primarily attributable to an increase in subscriber promotion subsidies.
Subscriber promotion subsidies include the excess of transaction costs over
transaction proceeds at the time of sale of EchoStar receiver systems,
activation allowances paid to retailers, and other promotional incentives.
Advertising and other expenses totaled $12 million during the three months
ended March 31, 1999, an increase of $4 million over the same period in 1998.
During the three months ended March 31, 1999, our subscriber
acquisition costs, inclusive of acquisition marketing expenses, totaled $142
million, or approximately $355 per new subscriber activation. Comparatively,
our subscriber acquisition costs during the three months ended March 31,
1998, inclusive of acquisition marketing expenses and deferred subscriber
acquisition costs, totaled $51 million, or approximately $250 per new
subscriber activation. The increase in our subscriber acquisition costs, on a
per new subscriber activation basis, principally resulted from the
introduction of several aggressive marketing promotions to acquire new
subscribers.
During the first quarter of 1999, we introduced the PrimeStar bounty
program and enhanced our Network One-Rate Plan. Our subscriber acquisition
costs under these programs are significantly higher
48
<PAGE>
than those under our other marketing programs. Under the enhanced DISH
Network One-Rate Plan, consumers are eligible to receive a rebate that ranges
from $100 up to $298 on the purchase of certain EchoStar receiver systems. To
be eligible for this rebate, a subscriber must make a one-year commitment to
subscribe to our America's Top 100 CD programming package plus additional
channels. The amount of the monthly programming commitment determines the
amount of the rebate. Although subscriber acquisition costs are materially
higher under this plan compared to previous promotions, DISH Network One-Rate
Plan customers generally provide materially greater average revenue per
subscriber than a typical DISH Network subscriber. In addition, we believe
that these customers represent lower credit risk and therefore may be
marginally less likely to disconnect their service than other DISH Network
subscribers. Under the enhanced DISH Network One-Rate Plan, we presently
expect the participation rate to increase to approximately 30% to 40% of new
subscriber activations during the duration of the promotion. To the extent
that actual consumer participation levels exceed present expectations,
subscriber acquisition costs may materially increase. Although there can be
no assurance as to the ultimate duration of the DISH Network One-Rate Plan,
it will continue through at least July 1999.
Under our PrimeStar bounty program, current PrimeStar customers are
eligible to receive a free base-level EchoStar receiver system, free
installation and six months of our America's Top 40 programming, which
retails for $19.99 per month, without charge. A subscriber must make a
one-year commitment to subscribe to either our America's Top 40 or our
America's Top 100 CD programming package and prove that they are a current
PrimeStar customer to be eligible for this program.
Based upon our current promotions we do not expect a material change
in subscriber acquisition costs during the second quarter of 1999. To the
extent that we expand the PrimeStar bounty program and the DISH Network
One-Rate Plan, our subscriber acquisition costs, both in aggregate and on a
per new subscriber activation basis, may materially increase.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses totaled $29 million during the three months ended March 31, 1999, an
increase of $10 million as compared to the same period in 1998. The increase
in G&A expenses was principally attributable to increased personnel expenses
to support the growth of the DISH Network. G&A expenses as a percentage of
total revenue represented 9% during the each of the three months ended March
31, 1999 and 1998. Although we expect that G&A expenses as a percentage of
total revenue to remain near this level or decline modestly in future
periods, this expense to revenue ratio could increase.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
("EBITDA"). EBITDA was negative $33 million and negative $3 million, during
the three months ended March 31, 1999 and 1998, respectively. EBITDA, as
adjusted to exclude amortization of subscriber acquisition costs, was
negative $33 million for the three months ended March 31, 1999 compared to $8
million for the same period in 1998. This decline in EBITDA principally
resulted from a decrease in DTH equipment revenue and an increase in
subscriber promotion subsidies. It is important to note that EBITDA does not
represent cash provided or used by operating activities and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
As previously discussed, to the extent we expand our current
marketing promotions and our subscriber acquisition costs materially
increase, our EBITDA results will be negatively impacted because subscriber
acquisition costs are expensed as incurred.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses including amortization of subscriber acquisition costs, aggregated
$25 million during the three months ended March 31, 1999, a $4 million
decrease compared to the same period in 1998. The decrease in depreciation
and amortization expenses principally resulted from subscriber acquisition
costs no longer being amortized, partially offset
49
<PAGE>
by an increase in depreciation related to the commencement of operation of
EchoStar IV in August of 1998 and other depreciable assets placed in service
during 1998.
OTHER INCOME AND EXPENSE. Other expense, net totaled $47 million
during the three months ended March 31, 1999, an increase of $12 million as
compared to the same period in 1998. The increase in other expense resulted
primarily from interest expense associated with our 9 1/4% senior notes due
2006, and our 9 3/8% senior notes due 2009, both issued in January 1999,
partially offset by a decrease in interest expense associated with our 12
1/2% Senior Secured Notes due 2002 issued in June 1997, our 12 7/8% Senior
Secured Discount Notes due 2004 issued in 1994, and our 13 1/8% Senior Secured
Discount Notes due 2004 issued in 1996.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997.
REVENUE. Total revenue for the year ended December 31, 1998 was $986
million, an increase of $510 million compared to total revenue for the year
ended December 31, 1997 of $476 million. The increase in total revenue was
primarily attributable to DISH Network subscriber growth combined with
increased revenue from our ETC and Satellite Services business units. We
expect that our revenues will continue to increase as the number of DISH
Network subscribers increases.
DISH Network subscription television services revenue totaled $669
million for the year ended December 31, 1998, an increase of $370 million or
124% compared to 1997. This increase was directly attributable to the
increase in the number of DISH Network subscribers. Average DISH Network
subscribers for the year ended December 31, 1998 increased approximately 120%
compared to 1997. As of December 31, 1998, we had approximately 1.9 million
DISH Network subscribers compared to 1.04 million at December 31, 1997.
Monthly revenue per subscriber approximated $39.25 and $38.50 during the
years ended December 31, 1998 and 1997, respectively. DISH Network
subscription television services revenue principally consists of revenue from
basic, premium and pay-per-view subscription television services. DISH
Network subscription television services will continue to increase to the
extent we are successful in increasing the number of DISH Network subscribers
and maintaining or increasing revenue per subscriber.
For the year ended December 31, 1998, DTH equipment sales and
integration services totaled $254 million, an increase of $164 million
compared to 1997. DTH equipment sales consist of sales of digital set-top
boxes and other digital satellite broadcasting equipment by us to
international DTH service operators. We currently have agreements to provide
equipment to DTH service operators in Spain and Canada. The increase in DTH
equipment sales and integration services revenue was primarily attributable
to an increase in the volume of set-top boxes sold.
Substantially all of our ETC revenues have resulted from sales to
two international DTH providers. As a result, our ETC business currently is
economically dependent on these two DTH providers. Our future revenue from
the sale of DTH equipment and integration services in international markets
depends largely on the success of these DTH operators and continued demand
for our digital set-top boxes. Due to an expected decrease in demand combined
with a decrease in the sales price of digital set-top boxes attributable to
increased competition, we expect that our DTH equipment and integration
services revenue will decline during 1999 as compared to 1998. Such revenue
may decline in 1999 by as much as 50% as compared to 1998.
During July 1998, Telefonica, one of the two DTH service providers
described above, announced its intention to merge with Sogecable (Canal Plus
Satellite), one of its primary competitors. In October 1998, Telefonica
announced that the merger negotiations had been suspended. Subsequently,
negotiations between Telefonica and Canal Plus Satellite have resumed.
Although we have binding
50
<PAGE>
purchase orders from Telefonica for 1999 deliveries of DTH equipment, we
cannot yet predict what impact, if any, consummation of this merger might
have on our future sales to Telefonica. As part of the 110 acquisition with
News Corporation and MCI, we received a minimum order from a subsidiary of
News Corporation for 500,000 set-top boxes. Although we continue to actively
pursue additional distribution and integration service opportunities
internationally, no assurance can be given that any such additional
negotiations will be successful.
Satellite services revenue totaled $22 million during 1998, an
increase of $11 million as compared to 1997. These revenues principally
include fees charged to content providers for signal carriage and revenues
earned from business television customers. The increase in satellite services
revenue was primarily attributable to increased business television revenue
due to the addition of new full-time business television customers. Satellite
services revenue is expected to increase during 1999 to the extent we are
successful in increasing the number of our business television customers and
developing and implementing new services.
DISH Network operating expenses totaled $397 million during 1998, an
increase of $204 million or 106%, compared to 1997. The increase in DISH
Network operating expenses was consistent with, and primarily attributable
to, the increase in the number of DISH Network subscribers. DISH Network
operating expenses represented 59% and 65% of subscription television
services revenue during 1998 and 1997, respectively. Although we expect DISH
Network operating expenses as a percentage of subscription television
services revenue to decline modestly from 1998 levels in future periods, this
expense to revenue ratio could increase.
Subscriber-related expenses totaled $298 million during 1998, an
increase of $154 million compared to 1997. Such expenses, which include
programming expenses, copyright royalties, residuals payable to retailers and
distributors, and billing, lockbox and other variable subscriber expenses,
represented 45% of subscription television services revenues during 1998
compared to 48% during 1997. The decrease in subscriber-related expenses as a
percentage of subscription television services revenue resulted primarily
from a decrease in programming expenses on a per subscriber basis, which
resulted from a change in product mix combined with price discounts received
from certain content providers.
Customer service center and other expenses principally consist of
costs incurred in the operation of our DISH Network customer service centers,
such as personnel and telephone expenses, as well as subscriber equipment
installation and other operating expenses. Customer service center and other
expenses totaled $72 million during 1998, an increase of $37 million as
compared to 1997. The increase in customer service center and other expenses
resulted from increased personnel and telephone expenses to support the
growth of the DISH Network. Customer service center and other expenses
totaled 11% of subscription television services revenue during 1998 compared
to 12% of subscription television services revenue during 1997. Although we
expect customer service center and other expenses as a percentage of
subscription television services revenue to remain near 1998 levels in the
future, this expense to revenue ratio could increase.
Satellite and transmission expenses include expenses associated with
the operation of our digital broadcast center, contracted satellite
telemetry, tracking and control services, and satellite in-orbit insurance.
Satellite and transmission expenses totaled $26 million during 1998, an $11
million increase compared to 1997. This increase resulted from higher
satellite and other digital broadcast center operating expenses due to an
increase in the number of operational satellites. We expect satellite and
transmission expenses to continue to increase in the future as additional
satellites are placed in service.
COST OF SALES - DTH EQUIPMENT AND INTEGRATION SERVICES. Cost of sales -
DTH equipment and integration services totaled $175 million during 1998, an
increase of $114 million compared to 1997. This
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<PAGE>
increase is consistent with the increase in DTH equipment revenue. Cost of
sales - DTH equipment and integration services principally includes costs
associated with digital set-top boxes and related components sold to
international DTH operators. As a percentage of DTH equipment revenue, cost
of sales represented 69% and 68% during 1998 and 1997, respectively. We
expect that cost of sales may increase as a percentage of DTH equipment
revenue in the future due to price pressure resulting from increased
competition from other providers of DTH equipment.
MARKETING EXPENSES. Marketing expenses totaled $332 million during
1998, an increase of $149 million or 81%, compared to 1997. The increase in
marketing expenses was primarily attributable to the increase in subscriber
promotion subsidies. Subscriber promotion subsidies include the excess of
transaction costs over transaction proceeds at the time of sale of EchoStar
receiver systems, activation allowances paid to retailers, and other
promotional incentives. During all of 1998 we recognized subscriber promotion
subsidies as incurred. These expenses totaled $284 million during 1998, an
increase of $135 million over 1997. This increase resulted from increased
subscriber activations and the immediate recognition of all subscriber
promotion subsidies incurred in 1998, because promotions were changed to
eliminate the requirement for new subscribers to prepay for programming.
During 1997, a portion of such expenses were initially deferred and amortized
over the related prepaid subscription term, generally one year. Advertising
and other expenses totaled $48 million during 1998, an increase of $13
million over 1997.
During 1998, our subscriber acquisition costs, inclusive of
acquisition marketing expenses, totaled $314 million, or approximately $285
per new subscriber activation. Comparatively, our 1997 subscriber acquisition
costs, inclusive of acquisition marketing expenses and deferred subscriber
acquisition costs, totaled $252 million, or approximately $340 per new
subscriber activation. The decrease in our subscriber acquisition costs, on a
per new subscriber activation basis, principally resulted from decreases in
the manufactured cost of EchoStar receiver systems. We expect that our
subscriber acquisition costs, on a per new subscriber activation basis, will
increase in the near-term as we introduce aggressive marketing promotions to
acquire new subscribers. For example, during 1999 we introduced the PrimeStar
bounty program. Our subscriber acquisition costs under this program are
significantly higher than those under our other marketing programs. To the
extent that we either extend the duration of the PrimeStar bounty program or
begin to offer similar bounty programs for other competitors' subscribers,
our subscriber acquisition costs, both in the aggregate and on a per new
subscriber activation basis, will materially increase.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses totaled $95 million during 1998, an increase of $29 million as
compared to 1997. The increase in G&A expenses was principally attributable
to increased personnel expenses to support the growth of the DISH Network.
G&A expenses as a percentage of total revenue decreased to 10% during 1998
compared to 14% during 1997. Although we expect that G&A expenses as a
percentage of total revenue will approximate 1998 levels or decline modestly
in the future, this expense to revenue ratio could increase.
EBITDA. EBITDA was negative $29 million and negative $52 million,
during 1998 and 1997, respectively. EBITDA, without the add back for
amortization of subscriber acquisition costs, was negative $48 million for
1998 compared to negative $173 million for 1997. This improvement in EBITDA
principally resulted from increases in our ETC and DISH Network revenues. We
believe our ability to repay our existing debt will be significantly
influenced by our ability to continue to improve reported EBITDA. However,
EBITDA does not purport to represent cash provided or used by operating
activities and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
During the fourth quarter of 1998, we introduced the DISH Network
One-Rate Plan. Under the DISH Network One-Rate Plan, consumers are eligible to
receive a rebate of up to $299 on the purchase of
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certain EchoStar receiver systems. Consequently, the costs of acquiring
subscribers who qualify for the DISH Network One-Rate Plan are materially
higher than for other DISH Network subscribers. The rebate is contingent upon
the subscriber's one-year commitment to subscribe to the America's Top 100 CD
programming package and two premium channel packages, committing the
subscriber to a monthly programming payment of at least $48.98. The consumer
must pay the entire sales price of the system at the time of purchase, but is
not required to prepay for the programming. After receiving the subscriber's
first full programming payment, which is equal to $97.96 for two months of
programming, we issue a rebate of up to $299 to the subscriber. Although
subscriber acquisition costs are materially higher under the DISH Network
One-Rate Plan, we believe that these customers are more profitable because of
the higher average revenue per subscriber. In addition, we believe that these
customers represent lower credit risk and therefore may be marginally less
likely to churn than other DISH Network subscribers. Although there can be no
assurance as to the ultimate duration of the DISH Network One-Rate Plan, it
will continue through at least April 1999.
Our subscriber acquisition costs, both in the aggregate and on a per
subscriber basis, will increase in direct relation to the participation rate
in the DISH Network One-Rate Plan. While we presently expect approximately
one-third of our new subscriber activations to result from the DISH Network
One-Rate Plan during the duration of the promotion, the actual consumer
participation level could be significantly higher. To the extent that actual
consumer participation levels exceed present expectations and subscriber
acquisition costs materially increase, our EBITDA results will be negatively
impacted because subscriber acquisition costs are expensed as incurred.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses during 1998, including amortization of subscriber acquisition costs
of $19 million, aggregated $102 million, a $71 million decrease compared to
1997. The decrease in depreciation and amortization expenses principally
resulted from a decrease in amortization of subscriber acquisition costs of
$102 million, partially offset by an increase in depreciation related to the
commencement of operation of EchoStar III, EchoStar IV and other depreciable
assets placed in service during 1998. Promotional programs changed in October
1997 and we ceased deferral of subscriber acquisition costs after that date.
All previously deferred costs were fully amortized during 1998.
OTHER INCOME AND EXPENSE. Other expense, net totaled $163 million
during 1998, an increase of $64 million as compared to 1997. The increase in
other expense resulted primarily from interest expense associated with our 12
1/2% Senior Secured Notes due 2002 issued in June 1997, combined with
increased interest expense resulting from increased accreted balances on our
12 7/8% Senior Secured Discount Notes due 2004 issued in 1994 and our 13 1/8%
Senior Secured Discount Notes due 2004 issued in 1996.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO THE YEAR ENDED DECEMBER 31, 1996.
REVENUE. Total revenue in 1997 was $476 million, an increase of
141%, or $279 million, as compared to total revenue of $197 million in 1996.
The increase in total revenue in 1997 was primarily attributable to the
operation of the DISH Network during the entirety of 1997, combined with DISH
Network subscriber growth.
DISH Network subscription television services revenue totaled $299
million during 1997, an increase of $249 million compared to 1996. This
increase was directly attributable to the operation of the DISH Network
during the entirety of 1997, combined with the increase in the number of DISH
Network subscribers. Average monthly revenue per subscriber approximated
$38.50 during 1997 compared to approximately $35.50 in 1996. The increase in
monthly revenue per subscriber was primarily due to additional channels added
upon commencement of operations of EchoStar II.
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Other DISH Network revenue totaled $43 million in 1997, an increase
of $35 million compared to 1996. Other DISH Network revenue primarily
consists of incremental revenues over advertised subscription rates realized
from our 1996 promotion, a marketing promotion whereby consumers were able to
purchase a standard EchoStar receiver system for $199, conditioned upon the
consumer's prepaid one-year subscription to a programming package for
approximately $300, as well as installation revenue and loan origination and
participation income. In 1997, we recognized incremental revenues related to
our 1996 promotion of approximately $39 million, an increase of $34 million
over 1996.
During 1997, DTH equipment sales and integration services totaled
$90 million. We currently have agreements for the sale of digital satellite
broadcasting equipment using our proprietary technology to two international
DTH service operators. We realized revenues of $74 million related to these
agreements during 1997. Of this amount, $59 million related to sales of
digital set-top boxes and other DTH equipment while $15 million resulted from
the provision of integration services, such as revenue from uplink center
design, construction oversight, and other project integration services. DBS
accessory sales totaled $10 million during 1997, an $8 million increase
compared to 1996.
DTH equipment sales and integration services revenue totaled $77
million during 1996. These revenues consisted primarily of sales of EchoStar
receiver systems and related accessories prior to the August 1996 nationwide
rollout of our 1996 promotion.
Satellite services revenue totaled $11 million during 1997, an
increase of $5 million, or 91%, compared to 1996. The increase in satellite
services revenue was primarily attributable to an increase in the number of
content providers, increased usage by our business television customers, and
an entire year of operation in 1997.
C-band and other revenue totaled $33 million for 1997, a decrease of
$23 million compared to $56 million in 1996. Other revenue principally
related to domestic and international sales of C-band products and net
domestic C-band programming revenues. This decrease resulted from the
world-wide decrease in demand for C-band products and services. Effective
January 1, 1998, we ceased operation of our C-band programming business.
DISH NETWORK OPERATING EXPENSES. DISH Network operating expenses
totaled $193 million during 1997, an increase of $151 million as compared to
1996. The increase in DISH Network operating expenses was primarily
attributable to operation of the DISH Network during the entirety of 1997 and
the increase in the number of DISH Network subscribers.
Subscriber-related expenses totaled $144 million in 1997, an
increase of $121 million compared to 1996. Such expenses totaled 48% of
subscription television services revenues, compared to 46% of subscription
television services revenues during 1996.
Satellite and transmission expenses increased $8 million in 1997
compared to 1996 primarily as a result of the operation of the DISH Network,
including EchoStar II, during the entirety of 1997.
Customer service center and other operating expenses totaled $35
million in 1997, an increase of $22 million as compared to 1996. The increase
in customer service center and other operating expenses was directly
attributable to the operation of the DISH Network during the entirety of
1997, combined with the increase in the number of DISH Network subscribers.
COST OF SALES--DTH EQUIPMENT AND INTEGRATION SERVICES. Cost of
sales--DTH equipment and integration services totaled $61 million during
1997, a decrease of $15 million, or 20%, as compared to 1996. During 1997,
cost of sales--DTH equipment and integration services principally represented
costs
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associated with set-top boxes and related components sold to international
DTH operators. For 1996, cost of sales--DTH equipment and integration
services totaled $76 million and represented costs of EchoStar receiver
systems sold prior to the August 1996 rollout of the 1996 Promotion.
COST OF SALES--C-BAND AND OTHER. Cost of sales--C-band and other
totaled $24 million during 1997, a decrease of $18 million compared to 1996.
This decrease was consistent with the decrease in related revenues and
resulted from the world-wide decrease in the demand for C-band products and
services.
MARKETING EXPENSES. Marketing expenses totaled $183 million for
1997, an increase of $130 million as compared to 1996. The increase in
marketing expenses was primarily attributable to the increase in subscriber
promotion subsidies. These costs totaled $149 million during 1997, an
increase of $114 million over 1996. This increase resulted from the
commencement of our 1997 promotion, a marketing promotion that maintained the
suggested retail price for a standard EchoStar receiver system at $199, but
eliminated the requirement for the coincident purchase of an extended
subscription commitment, and the increase in the number of EchoStar receiver
systems sold during 1997. Advertising and other expenses increased $17
million to $35 million during 1997 as a result of increased marketing
activity and operation of the DISH Network during the entirety of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. G&A expenses totaled $66
million for 1997, an increase of $17 million as compared to 1996. The
increase in G&A expenses was principally attributable to increased personnel
expenses to support the growth of the DISH Network. G&A expenses as a
percentage of total revenue decreased to 14% during 1997 as compared to 25%
during 1996.
EBITDA. EBITDA was negative $52 million for 1997, as compared to
negative EBITDA of $65 million for 1996. This improvement in EBITDA resulted
from the factors affecting revenue and expenses discussed above. EBITDA does
not purport to represent cash provided by or used by operating activities and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses for 1997, including amortization of subscriber acquisition costs of
$121 million, aggregated $173 million in 1997, an increase of $130 million,
as compared to 1996. The increase in depreciation and amortization expenses
principally resulted from amortization of subscriber acquisition costs
(increase of $105 million) and depreciation of EchoStar II, which was placed
in service during the fourth quarter of 1996.
OTHER INCOME AND EXPENSE. Other expense, net totaled $99 million
during 1997, an increase of $51 million as compared to 1996. The increase in
other expense resulted primarily from interest expense associated with our 12
1/2% notes, and increases in interest expense associated with the 12 7/8% notes
and the 13 1/8% notes due to higher accreted balances thereon. These increases
in interest expense were partially offset by increases in capitalized
interest. Capitalized interest, primarily related to satellite construction,
totaled $43 million during 1997, compared to $32 million during 1996.
INCOME TAX BENEFIT. The $55 million decrease in the income tax
benefit during 1997 principally resulted from ECC's decision to increase its
valuation allowance sufficient to fully offset net deferred tax assets
arising during the year. Realization of these assets is dependent on ECC
generating sufficient taxable income prior to the expiration of the net
operating loss carryforwards. ECC's net deferred tax assets, $67 million at
each of December 31, 1996 and 1997, principally relate to temporary
differences for amortization of original issue discount on the 12 7/8% notes and
13 1/8% notes, net operating loss carryforwards, and various accrued expenses
which are not deductible until paid. If future operating
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results differ materially and adversely from ECC's current expectations, its
judgment regarding the magnitude of its valuation allowance may change.
LIQUIDITY AND CAPITAL RESOURCES
CASH SOURCES
On January 25, 1999 we sold $375 million principal amount of 9 1/4%
senior notes due 2006, referred to in this prospectus as the seven year notes
and $1.625 billion principal amount of 9 3/4% senior notes due 2009, referred
to in this prospectus as the ten year notes. The seven year notes and the ten
year notes are referred to in this prospectus together as the notes.
Concurrently with the closing of these offerings, we used approximately
$1.658 billion of net proceeds received from the sale of the notes to
complete tender offers for our outstanding 1994 notes, 1996 notes and 1997
notes. In February 1999, our parent company used approximately $268 million
of net proceeds received from the sale of the notes to complete a tender
offer for its 12 1/8% Senior Preferred Exchange Notes issued on January 4,
1999, in exchange for all issued and outstanding 12 1/8% Series B Senior
Redeemable Exchangeable Preferred Stock.
As of March 31, 1999, our unrestricted cash, cash equivalents and
marketable investment securities totaled $274 million compared to $32 million
as of December 31, 1998. For the three months ended March 31, 1998 and 1999,
we reported net cash flows from operating activities of ($27 million) and $2
million, respectively.
We expect that our future working capital, capital expenditure and
debt service requirements will be satisfied from existing cash and investment
balances and cash generated from operations. Our ability to generate positive
future operating and net cash flows is dependent upon our ability to continue
to rapidly expand our DISH Network subscriber base, retain existing DISH
Network subscribers and our ability to grow our ETC and Satellite Services
businesses. There can be no assurance that we will be successful in achieving
these goals. The amount of capital required to fund the remainder of our 1999
working capital and capital expenditure needs will vary, dependent upon the
growth rate of the DISH Network and our ability to expand our other business
units. During the first quarter of 1999, subscriber growth exceeded our
expectations. To the extent the subscriber growth rate continues to exceed
our expectations, it may be necessary for us to raise additional capital to
fund increased working capital requirements. In addition, our working capital
and capital expenditure requirements could increase materially in the event
of increased competition for subscription television customers, significant
satellite failures, or general economic downturn, among other factors.
SUBSCRIBER ACQUISITION COSTS
As previously described, we subsidize the cost of EchoStar receiver
systems in order to attract new DISH Network subscribers. Consequently, our
subscriber acquisition costs are significant. During the three months ended
March 31, 1999, our aggregate subscriber acquisition costs, which include
subscriber promotion subsidies and acquisition marketing expenses,
approximated $355 per new subscriber activation. To the extent that we
continue the PrimeStar bounty and the DISH Network One-Rate Plan, our
subscriber acquisition costs, both in the aggregate and on a per new
subscriber activation basis, may materially increase. Funds necessary to meet
these subscriber acquisition costs will be satisfied from existing cash and
investment balances to the extent available. We may, however, be required to
raise additional capital in the future to meet these requirements. There can
be no assurance that additional financing will be available on acceptable
terms, or at all.
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OBLIGATIONS
Interest accrues at a rate of 9 1/4% and 9 3/8% on the seven and ten
year notes, respectively. Interest on the seven and ten year notes is payable
semi-annually in cash in arrears on February 1 and August 1 of each year,
commencing August 1, 1999. Although the seven and ten year notes have lower
interest rates than our previous debt securities, reported interest expense
will not materially decrease because we raised additional debt to cover
tender premiums and consent and other fees related to the refinancing.
FUTURE CAPITAL REQUIREMENTS
As of March 31, 1999, we had approximately $2.0 billion of
outstanding long-term debt. Beginning in August 1999, we will have
semi-annual cash debt service requirements of approximately $94 million
related to the notes. There will be no scheduled principal payment or sinking
fund requirements prior to maturity of the notes.
We utilized $91 million of satellite vendor financing for our first
four satellites. As of March 31, 1999, approximately $55 million of that
satellite vendor financing remained outstanding. The satellite vendor
financing bears interest at 8 1/4% and is payable in equal monthly
installments over five years following launch of the satellite to which it
relates.
During the remainder of 1999, we anticipate total capital
expenditures to be approximately $70 million. This amount includes
approximately $35 million for capital expenditures related to digital
encoders required by the Cheyenne digital broadcast center to accommodate
expansion to approximately 500 video and audio channels, as a result of the
110 acquisition. In addition, we expect to expend over $100 million, and
perhaps more than $125 million, primarily during 2000 in one-time expenses
associated with repositioning subscriber satellite dishes toward the 110DEG.
West Longitude orbital location.
In addition to our DBS business plan, we have licenses, or
applications pending with the FCC, for a two satellite FSS Ku-band satellite
system, a two satellite FSS Ka-band satellite system, and a proposed
modification thereof and a Low Earth Orbit Mobile-Satellite Service
6-satellite system. We will need to raise additional capital to fully
construct these satellites. Further, there may be a number of factors, some
of which are beyond our control or ability to predict, that could require us
to raise additional capital. These factors include unexpected increases in
operating costs and expenses, a defect in or the loss of any satellite, or an
increase in the cost of acquiring subscribers due to additional competition,
among other things. There can be no assurance that additional debt, equity or
other financing, if required, will be available on terms acceptable to us, or
at all.
If cash generated from our operations is not sufficient to meet our
debt service requirements or other obligations, we would be required to
obtain cash from other financing sources. There can be no assurance that such
financing would be available on terms acceptable to us, or if available, that
the proceeds of such financing would be sufficient to enable us to meet all
of our obligations. At March 31, 1999, a total of $2.6 million of 1994 notes,
1996 notes and 1997 notes remain outstanding. We are required to retire these
remaining notes when they mature, and the indentures governing the 1994, 1996
and 1997 notes will remain outstanding, although substantially all of the
restrictive covenants have been eliminated, until each series of notes has
been retired in full.
YEAR 2000 READINESS DISCLOSURE
We have assessed and continue to assess the impact of the Year 2000
issue on our computer systems and operations. The Year 2000 issue exists because
many computer systems and applications
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currently use two-digit date fields to designate a year. Thus, as the century
date approaches, date sensitive systems may recognize the year 2000 as 1900
or not at all. The inability to recognize or properly treat the year 2000 may
cause computer systems to process critical financial and operational
information incorrectly. If our Year 2000 remediation plan is not successful
or is not completed in a timely manner, the Year 2000 issue could
significantly disrupt our ability to transact business with our customers and
suppliers, and could have a material impact on our operations. Even if our
Year 2000 remediation plan is successful or completed on time, there can be
no assurance that the systems of other companies with which our systems
interact will be timely converted, or that any such failure to convert by
another company would not have an adverse effect on our business or
operations.
We have established a five-phase plan to address potential Year 2000
issues:
- - Inventory - the identification of all relevant hardware and software to
establish the scope of subsequent testing;
- - Assessment - the process of evaluating the current level of Year 2000
readiness of all components identified in the inventory phase, defining
actions necessary to retire, replace or otherwise correct all non-
conforming components and estimating resources and timelines required by
action plans;
- - Remediation - the correction of previously identified Year 2000 issues;
- - Validation/testing - the evaluation of each component's performance as
the date is rolled forward to January 1, 2000 and other dates and times
relating to the Year 2000 issue; and
- - Implementation - the process of updating components and correcting Year
2000 issues in the production operating environment of
a system.
In connection with this effort, we have segregated our computer
systems and corresponding Year 2000 readiness risk into three categories:
internal financial and administrative systems, service-delivery systems, and
third-party systems.
INTERNAL FINANCIAL AND ADMINISTRATIVE SYSTEMS
With respect to our internal financial and administrative systems,
we have completed the inventory phase of the Year 2000 readiness plan by
identifying all systems with potential Year 2000 problems. We are currently
in the process of assessing these systems by communicating with our outside
software and hardware vendors and reviewing their certifications of Year 2000
readiness, as well as reviewing internal custom programming codes. We expect
to have the assessment phase substantially completed by the end of May 1999.
Upon completion of the assessment phase, we will begin the
remediation and validation/testing phases. During the remediation phase, we
will attempt to correct all problems detected while performing the assessment
phase. During the validation/testing phase, we will create a parallel
environment of all internal and administrative systems. We will run tests on
the parallel environment to assess its reaction to changes in dates and times
relating to the Year 2000 issue. We currently expect the remediation and
validation/testing phases to be complete by the end of August 1999.
Once all known problems are corrected within the parallel
environment, we will make changes to the actual operating environment of our
internal financial and administrative systems during the implementation
phase. We currently expect to complete the implementation phase by mid
October 1999. While we presently believe that our internal financial and
administrative systems are Year 2000 ready, we will not be able to certify
our Year 2000 readiness until the successful completion of the implementation
phase. As new technology and software are integrated into our financial and
administrative systems we will perform additional testing to attempt to
ensure continued Year 2000 readiness.
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SERVICE-DELIVERY SYSTEMS
We have defined service-delivery systems as all internal systems
necessary to deliver DISH Network programming to our subscribers. During the
inventory phase we initially identified our set-top boxes, compression and
conditional access systems at our digital broadcast center, DBS satellites
and third-party billing system as systems with potential Year 2000 issues.
Given the interdependent nature of the receiver and broadcast
systems used to deliver our service, we previously implemented a smaller,
offline version of our overall system to aid in the evaluation and test of
hardware and software changes that normally occur over time. This system
gives us the ability to perform "real-time" testing of the various elements
of the system by simulating the year 2000 rollover, and confirming system
operation. This ability to perform accurate offline simulations has provided
a tremendous benefit to our Year 2000 test process.
We have completed initial testing of our set-top receivers. During
these tests, the dates in the broadcast system, and hence the set-top
receivers were rolled forward to each of the dates and times affected by the
Year 2000 issue. We deemed these initial tests successful, as no problems
were detected during thorough testing of the set-top receivers when the dates
were rolled forward. These tests also affirm the integrity of the broadcast
systems supplying the set-top receivers with critical operational system
information. As new technology and software are integrated into our set-top
receivers, we will perform additional testing to attempt to ensure continued
Year 2000 readiness.
In addition to the practical testing performed above, we have
completed an independent inventory and assessment of the systems at our
digital broadcast center and are currently in the remediation phase of our
Year 2000 readiness plan. The remediation phase of the plan is expected to be
complete by July 1999. We expect to perform validation and testing of
communications between our digital broadcast center and our DBS satellites
during the third quarter of 1999. The validation and testing of our digital
broadcast center is not expected to cause interruption of programming to DISH
Network subscribers.
During the assessment of our DBS satellites, we determined that our
satellites do not operate under a calendar-driven system. Therefore, we do
not expect changes in dates and times to affect the operation of our DBS
satellites.
We are currently working with the vendor of our third-party billing
system to attempt to ensure its Year 2000 readiness. This vendor has
indicated it has completed all remediation activities and is currently in the
final stages of testing/validation. Subsequent to completion of its
testing/validation activities, the vendor has indicated it will contractually
certify its Year 2000 readiness during the second quarter of 1999, however we
cannot provide any assurance in this regard.
THIRD-PARTY SYSTEMS
We also are currently assessing our vulnerability to unexpected
business interruptions due to the failure of third-parties to remediate Year
2000 readiness issues associated with products or services on which our
business relies. In connection with this assessment, we sent letters to
third-party business partners, suppliers and vendors which we deemed
significant requesting that they certify their Year 2000 readiness. To date,
we have received responses from approximately 70% of these vendors. We are
presently in the process of contacting our critical suppliers and vendors who
have either not responded or have not responded adequately to our requests
for proof of certification and will continue to follow-up on unresolved
issues. There can be no assurance that third-parties who have responded, or
will respond, to our request regarding Year 2000 readiness have responded, or
will respond, accurately or satisfactorily, or that anticipated Year 2000
actions set forth in their responses will be properly conducted.
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CONTINGENCY PLANNING
We also are involved in limited contingency planning. In the event
that previously undetected Year 2000 issues arise, contingency plans will be
used to try to mitigate potential system problems. Our internal financial and
administrative and service-delivery contingency plan includes making back-up
copies of certain systems as well as using standby power generators at our
digital broadcasting center. With respect to other third-party systems, we
will continue to contact our critical vendors in order to obtain
certification of their Year 2000 readiness. However, no assurance can be made
that such contingency plans will resolve any Year 2000 problems that may
occur, in a manner which is satisfactory or desirable to us.
COSTS
We have not yet determined the full cost of our Year 2000 readiness
plan and its related impact on our financial condition. In the ordinary
course of business, we have made capital expenditures over the past few years
to improve our systems, for reasons other than Year 2000 remediation. Because
these upgrades also resulted in improved Year 2000 readiness, replacement and
remediation costs have not been material. We currently have budgeted $300,000
for the completion of our Year 2000 readiness plan. While there can be no
assurance, we believe our costs to successfully mitigate the Year 2000 issue
will not be material to our operations. No assurance can be made, however, as
to the total cost for the Year 2000 plan until the plan has been completed.
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BUSINESS
GENERAL
Our parent company's common stock is publicly traded on the Nasdaq
National Market. We conduct substantially all of our operations through our
subsidiaries. We operate three business units:
- - The DISH Network -- our direct broadcast satellite, or DBS, subscription
television service in the United States. As of March 31, 1999, we had
approximately 2.3 million DISH Network subscribers.
- - EchoStar Technologies Corporation -- our engineering division, which is
principally responsible for the design of digital set-top boxes, or
satellite receivers, necessary for consumers to receive DISH Network
programming, and set-top boxes sold to international direct-to-home
satellite operators. We also provide uplink center design, construction
oversight and other project integration services for international
direct-to-home ventures.
- - Satellite Services -- our division that provides video, audio and data
services to business television customers and other satellite users.
RECENT DEVELOPMENTS
AGREEMENT WITH NEWS CORPORATION LIMITED AND MCI
On November 30, 1998, we announced an agreement with MCI, News
Corporation and its American Sky Broadcasting, LLC subsidiary, pursuant to which
in exchange for shares of our parent company's common stock issued to News
Corporation and MCI, we would acquire or receive:
- - the rights to 28 frequencies at the 110DEG. West Longitude orbital
location from which we could transmit programming to the entire continental
United States;
- - two DBS satellites constructed by Space Systems/Loral, delivered in-orbit,
and currently expected to be launched in 1999;
- - a recently-constructed digital broadcast operations center located in
Gilbert, Arizona;
- - a worldwide license agreement to manufacture and distribute set-top boxes
internationally using News Data System, News Corporation's encryption/
decoding technology;
- - a commitment by an affiliated entity of News Corporation to purchase from
ETC a minimum of 500,000 set-top boxes; and
- - a three-year, no fee retransmission consent agreement for DISH Network to
rebroadcast FOX Network owned-and-operated local station signals to their
respective markets.
We will not incur any of the costs associated with the construction,
launch or insurance (including launch insurance and one year of in-orbit
insurance) of the two DBS satellites. We and MCI also agreed that MCI will have
the non-exclusive right to bundle DISH Network service with MCI's telephony
service offerings on mutually agreeable terms. In addition, we agreed to carry
the FOX News Channel on the DISH Network. We started carrying these signals in
January 1999 and we received standard program launch support payments in
exchange for carrying the programming.
The number of shares of our parent company's stock that would be issued
in the transaction depends on the average closing price of that stock over a 20
day period. If that average closing price exceeds $39.00 per share, the number
of the newly issued shares will be determined by dividing $1.17 billion by that
average price. In a table set forth under "Security Ownership Of Certain
Beneficial Owners and Management," below, we describe the number of shares and
the percentage of the class of shares that may
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be issued in this transaction. Throughout this document, we refer to the
above transaction as the "110 acquisition."
By combining the capacity of the two newly acquired satellites with our
four current satellites, we expect that DISH Network will have the capacity to
provide more than 500 channels of programming, Internet and high-speed data
services and high definition television nationwide to a subscriber's single
18-inch satellite dish. We also believe that this transaction would position us
to offer a one-dish solution for satellite-delivered local programming to major
markets across the country. Since we plan to use many of those channels for
local programming, no particular consumer could subscribe to all 500 channels,
but all of those channels would be capable of being received from a single dish.
We also expect to be able to begin small dish service to Alaska, Hawaii, Puerto
Rico and the United States territories in the Caribbean. However, we expect to
expend over $100 million, and perhaps more than $125 million during 1999 and
2000 in one-time expenses associated with repositioning subscriber satellite
dishes to face the new orbital location.
In connection with this agreement, the litigation with News Corporation
described below under "Legal Proceedings" has been stayed and will be dismissed
with prejudice upon closing or if the transaction is terminated for reasons
other than the breach by, or failure to fulfill a condition within the control
of, News Corporation or MCI, or in certain other limited circumstances.
On May 19, 1999, the FCC approved the transfer to us of MCI's licenses
to operate high-powered DBS satellites at the 110DEG. WL orbital location. These
satellites, named EchoStar V and EchoStar VI, are currently scheduled to be
launched to the 110DEG. WL orbital location from Cape Canaveral, Florida on
Atlas rockets in August 1999 and December 1999, respectively. Delays or failures
of launches preceding the launch of EchoStar V and EchoStar VI could postpone
these launch dates. Additionally, any anomalies experienced by other similar
satellites could delay the launch of EchoStar V and EchoStar VI until the cause
is discovered and the anomalies are corrected. The construction, launch and
insurance of the satellites are being paid for by News Corporation. Satellites
at the 110DEG. WL orbital location are capable of providing service to the
entire continental United States. EchoStar V and EchoStar VI are being
constructed by Space Systems/Loral and are both high-powered FS-1300 series
spacecraft. EchoStar V has 32 110W Ku-band transponders and EchoStar VI has 32
125W Ku-band transponders. Both satellites are capable of power-combining to 16
transponders each of 220W and 250W, respectively. See " -- Government
regulation" below.
DISH NETWORK
We started offering subscription television services on the DISH
Network in March 1996. As of March 31, 1999, more than 2.3 million households
subscribed to DISH Network programming services. We added 100,000 new DISH
Network subscribers during each of the seven months ended April 1999. There can
be no assurance, however, that we will be able to sustain this growth rate in
the future. Our market share of new DBS subscribers has consistently increased
and, during the first quarter of 1999, we estimate that we captured almost 49%
of all new satellite subscribers. We presently have four operational DBS
satellites. Currently, we have the ability to provide approximately 200 channels
of digital television programming and CD quality audio programming services to
the entire continental United States. We believe that the DISH Network offers
programming packages that have a better "price-to-value" relationship than
packages currently offered by most other subscription television providers,
particularly cable TV operators. As of March 31, 1999, approximately 11 million
United States households subscribed to direct broadcast satellite and other
direct-to-home satellite services. However, we believe that there continues to
be significant unsatisfied demand for high quality, reasonably priced television
programming services.
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Since 1994, we have dedicated significant resources to develop the DISH
Network and our related DBS system. Our DBS system presently includes
FCC-allocated DBS licenses, four operational DBS satellites, digital satellite
receivers, a digital broadcast operations center, customer service facilities,
and other assets used in our operations.
"DBS" describes a satellite service with frequency allocation and wide
spacing between satellites that generally permits higher powered transmissions
than other satellite services and allows for reception with a small, 18-24 inch
satellite dish. We believe that DBS provides the most cost-efficient national
point to multi-point transport of video and audio services available today.
We presently have four operational DBS satellites in geostationary
orbit approximately 22,500 miles above the equator. Satellites are located in
orbital positions, or slots, that are designated by their longitude. An orbital
position describes both a physical location and an assignment of spectrum in the
applicable frequency band. The FCC has divided each orbital position into 32
frequency channels. Each transponder on our satellites can exploit one frequency
channel. Through digital compression technology, we can currently transmit
approximately eight digital video channels from each transponder. We are
licensed by the FCC to operate 56 frequencies at the orbital positions where our
satellites are currently located, including 21 frequencies at the 119DEG. WL
orbital location capable of providing service to the entire continental United
States. See " -- Government regulation -- Regulations -- DBS rules."
COMPONENTS OF A DBS SYSTEM
In order to provide programming services to DISH Network subscribers,
we have entered into agreements with programmers, who deliver their programming
content to our digital broadcast operations center in Cheyenne, Wyoming, via
commercial satellites, fiber optics or microwave transmissions. We monitor those
signals for quality, and can add promotional messages, public service
programming or other information. Equipment at our digital broadcast operations
center then digitizes, compresses, encrypts and combines the signal with other
necessary data, such as conditional access information. We then "uplink" or
transmit the signals to one of our DBS satellites where it is then broadcast
directly to DISH Network subscribers.
In order to receive DISH Network programming, a subscriber needs:
- - a satellite antenna, sometimes referred to as a "dish," and related
components;
- - an integrated receiver/decoder, sometimes referred to as a "satellite
receiver" or "set-top box"; and
- - a television set.
Set-top boxes communicate with our authorization center through
telephone lines to report the purchase of pay-per-view movies and other events.
We use digital video and audio compression to maximize the amount of
programming we can offer to consumers. We use conditional access technology to
encrypt the programming so only those who pay can receive the programming. We
use microchips placed on credit card-sized access cards, or "smart cards" to
control access to authorized programming content. These smart cards, which can
be updated or replaced periodically, are a key element in preserving the
security of our conditional access system. When a consumer orders a particular
channel, we send a message by satellite that instructs the smart card to permit
decryption of the programming for viewing by that consumer. The programming is
then decompressed and sent to the consumer's television.
CONDITIONAL ACCESS SYSTEM. We own 50% of NagraStar LLC, a joint venture
that provides us with "smart cards" that control access to DISH Network
programming. NagraStar purchases these smart cards
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from Nagra Plus SA, a Swiss company that owns the other 50% of NagraStar LLC.
The access control system is central to the security network that prevents
unauthorized viewing of programming. Other DBS operators' access control
systems have been commercially pirated. We recently received data that
suggests that our access control system may also have been compromised. We
are presently evaluating the data to determine the corrective measures that
are necessary. Though there can be no assurance, we do not presently believe
that the potential compromise will materially affect future results of
operations.
PROGRAMMING. We currently offer more than 200 channels of digital
television programming and CD-quality audio programming to consumers in the
continental United States from our EchoStar I and EchoStar II satellites.
EchoStar III has the FCC-licensed capacity to provide almost 100 additional
channels to consumers in the Eastern and Central United States time zones.
EchoStar IV has the FCC-licensed and operational capacity to provide almost 100
additional channels to consumers in the Mountain and Pacific United States time
zones. Currently we use those satellites to provide local network programming,
data, business television and other "niche" services. Any particular consumer
could only subscribe to a small percentage of those niche services. If we
consummate the 110 acquisition and successfully deploy two new DBS satellites,
we expect to be able to offer a total of over 500 channels of digital video and
audio programming broadcast nationwide, including satellite-delivered local
programming. Since we plan to use many of those channels for local programming,
no particular consumer could subscribe to all 500 channels, but all of those
channels would be capable of being received from a single dish. See
"--Government regulation -- Regulations -- Satellite Home Viewer Act and
retransmission consent."
We use a "value-based" strategy in structuring the content and pricing
of programming packages available from the DISH Network. For example, we sell
our entry-level "America's Top 40" programming package, which includes 40 of the
most popular cable channels, to consumers for $19.99 per month. We estimate
cable operators charge over $30 per month, on average, for their entry-level
expanded basic service that consists of approximately 55 analog channels. We
believe that our "America's Top 100 CD" programming package, which we sell for
$28.99 per month, also compares favorably to similar cable television
programming. We believe that our America's Top 100 CD package is similar to an
expanded basic cable package plus a digital music service. Based on cable
industry statistics, we estimate that cable operators would charge in excess of
$40 per month for a similar package. Similarly, we offer up to seven premium
movie channels for only $10.99 per month, which is about the same as cable
subscribers typically pay for one or two movie channels.
We are expanding our offerings to include Internet and high-speed data
services. For example, we recently entered into an agreement with WebTV
Networks, Inc., which is wholly-owned by Microsoft Corporation, to provide
Internet TV. This service integrates DISH Network's digital satellite television
programming with Internet TV services from WebTV. This product also provides for
digital video recording, an advanced electronic program guide, broadband data
delivery and video games. The vast majority of the data delivery and video game
services are provided through telephone lines and are not delivered via
satellite. While we are currently only able to provide a limited number of
one-way data services via satellite, we are working to further develop this
technology. There can be no assurance that we will be able to cost-effectively
develop this technology, or at all. We believe we will be able to increase our
subscriber base and average revenue per subscriber by offering these and other
similar services.
LOCAL STRATEGY. In order to provide the strongest possible competition
to cable, and thereby maximize our potential market, we are working on solutions
to seamlessly provide local broadcast network channels to our subscribers.
Subject to eligibility conditions, we currently offer satellite-delivered local
network signals to consumers in some of the largest markets in the continental
United States, including Atlanta, Boston, Chicago, Dallas/Ft. Worth, Denver, Los
Angeles, Miami, New York, Phoenix, Pittsburgh, Salt Lake City, San Francisco and
Washington, D.C. Under existing regulation, we can only broadcast these signals
to "unserved households" in the local areas from which those channels originate.
See "--
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Government regulation." Presently, a subscriber must install a second 18-inch
satellite dish to receive our satellite-delivered local network programming
in most markets. Therefore, we are still at a competitive disadvantage
compared to cable operators because many consumers do not want to install a
second satellite dish. We may be able to implement a one-dish solution for
local programming in 20 or more major markets around the United States if,
among other things, we are able to consummate the 110 acquisition and effect
changes in existing legislation.
ECHOSTAR RECEIVER SYSTEMS. EchoStar receiver systems include an 18-inch
satellite dish, a digital satellite receiver that descrambles signals for
television viewing, a remote control, and other related components. DISH Network
reception equipment cannot be utilized with competitors' systems. We offer a
number of set-top box models. Our standard system comes with an infrared remote
control, an on-screen program guide, and the ability to switch between DISH
Network and off-air local programming using the remote control. Our mid-level
model has all of the basic features but also includes a UHF remote control that
allows subscribers to control their EchoStar receiver system from up to 150 feet
away through walls, and a high-speed data port. Our premium model includes
additional features such as on-screen caller identification capability, event
timers to automatically tune into or record selected programming and one-touch
VCR recording.
Although we internally design and engineer our receiver systems, we
do not manufacture these systems. Rather, we outsource the manufacturing
process to high-volume contract electronics manufacturers. SCI Technology,
Inc. manufactures the majority of our receiver systems. During 1998, VTech
Communications, Ltd. began manufacturing our set-top boxes. JVC Company of
America also manufactures other consumer electronics products, including a
digital VCR, that also incorporates an EchoStar receiver system.
INSTALLATION. Currently, third-parties perform the majority of
EchoStar receiver system installations. We also offer installation services
from 21 of our own locations throughout the United States. We currently
intend to invest to expand our installation business during 1999.
CUSTOMER SERVICE CENTER. We currently operate customer service
centers in Thornton, Colorado, Littleton, Colorado and McKeesport,
Pennsylvania. These centers field all of our customer service calls.
Potential and existing subscribers can call a single telephone number to
receive assistance for hardware, programming, installation and technical
support.
DIGITAL BROADCAST OPERATIONS CENTER. Our digital broadcast
operations center is located in Cheyenne, Wyoming. We would acquire a second
digital broadcast operations center in Gilbert, Arizona, if we are able to
consummate the 110 acquisition. We plan to begin utilizing the second
facility as our customer base expands and the added expense can be justified.
Almost all of the functions necessary to provide satellite-delivered services
occur at the digital broadcast operations center. The digital broadcast
operations center uses fiber optic lines and downlink antennas to receive
programming and other data at the center. The digital broadcast operations
center uplinks programming content to our DBS satellites via large uplink
antennas. The digital broadcast operations center also maintains a number of
large uplink antennas and other equipment necessary to modulate and
demodulate the programming and data signals. All compression and encryption
of the DISH Network's programming signals are performed by equipment at our
digital broadcast operations center.
SUBSCRIBER MANAGEMENT. We presently use a third-party software
system for DISH Network subscriber management and billing functions. We are
currently negotiating a new, multi-year contract for subscriber management
services and expect to sign a contract during the first half of 1999.
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SALES AND MARKETING
EchoStar receiver systems and DISH Network programming services are
currently sold by approximately 18,000 independent distributors, retail stores
and consumer electronics stores. The majority of DISH Network satellite systems
were purchased by subscribers from our independent dealers. These independent
dealers are primarily local retailers who specialize in TV and home
entertainment systems. We intend to enhance consumer awareness of our products
by forming alliances with nationally recognized distributors of other consumer
electronics products. We formed a strategic alliance with JVC in May 1997. JVC
now distributes our receiver systems under the JVC label through certain of its
nationwide retailers.
Through our direct sales efforts, customers can call a single telephone
number (1-800-333-DISH) 24 hours a day, seven days a week, to order EchoStar
receiver systems, activate programming services, schedule installation and
obtain technical support. We believe that we are presently the only DBS provider
to offer a comprehensive, single-point customer service function.
We offer our distributors and retailers a competitive residual, or
commission, program. The program pays qualified distributors and retailers an
activation bonus, along with a fixed monthly residual for programming services
provided over the period that the respective DISH Network subscriber remains
active.
We use regional and national broadcast and print advertising to promote
the DISH Network. We also offer point-of-sale literature, product display,
demonstration kiosks and signage for retail outlets. We provide guides to our
dealers and distributors at nationwide educational seminars and directly by
mail, that describe DISH Network products and services. Our mobile sales and
marketing team visits retail outlets regularly to reinforce training and ensure
that point-of-sale needs are quickly fulfilled. Additionally, we dedicate one
DISH Network channel to providing information about special services and
promotions that we offer from time to time.
Our future success in the subscription television industry depends on
our ability to acquire and retain DISH Network subscribers, among other factors.
Beginning in 1996, to stimulate subscriber growth we reduced the retail price
charged to consumers for EchoStar receiver systems. Accordingly, since August
1996, we have sold our receiver systems to DISH Network subscribers below the
manufactured cost. We developed these marketing promotions to rapidly build our
subscriber base, expand retail distribution of our products, and build consumer
awareness of the DISH Network brand. These programs emphasize our long-term
business strategy of maximizing future revenue by selling DISH Network
programming to the largest possible subscriber base and rapidly increasing the
size of that subscriber base. Since we subsidize our receivers, we incur
significant costs each time we acquire a new subscriber. Assuming subscriber
turnover remains at or near existing levels, we believe that we will be able to
fully recoup the up-front costs of subscriber acquisition from future
subscription television services.
Our marketing strategy is based on current competitive conditions. If
competition increases, or we determine for any other reason that it is necessary
to increase our subscriber acquisition costs to attract new customers, our
profitability and costs of operation could be adversely affected.
SATELLITES
EchoStar I and EchoStar II each have 16 transponders that operate at
130 watts of power. Subject to the anomalies described below, EchoStar III and
EchoStar IV each have 32 transponders that operate at approximately 120 watts
per channel, switchable to 16 transponders operating at over 230 watts per
channel. Each transponder is capable of transmitting multiple digital video,
audio and data channels. Each of our
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satellites was designed to operate for a minimum of 12 years. From these four
satellites, we have the capacity to provide a total of over 400 channels of
video and audio programming.
During 1998, 3 transponders on EchoStar III malfunctioned, resulting in
the failure of a total of 6 transponders on the satellite. While a maximum of 32
transponders can be operated at any time, the satellite was equipped with a
total of 44 transponders to provide redundancy. As a result of this redundancy
and because we are only licensed by the FCC to operate 11 transponders at
61.5DEG. WL, where the satellite is located, the transponder anomaly has not
resulted in a loss of service to date. The satellite manufacturer, Lockheed
Martin, has advised us that it believes it has identified the root cause of the
failures, and that while further transponder failures are possible, Lockheed
Martin does not believe it is likely that the operational capacity of EchoStar
III will be reduced below 32 transponders. Lockheed Martin also believes it is
unlikely that our ability to operate at least the 11 licensed transponders on
the satellite will be affected. We will continue to evaluate the performance of
EchoStar III and may be required to modify our loss assessment as new events or
circumstances develop.
The time for filing a claim for a loss under the satellite insurance
policy that covered EchoStar III at the time of the transponder failures has
passed. While the insurance carriers were notified of the anomaly, as a result
of the built-in redundancy on the satellite and Lockheed Martin's conclusions
with respect to further failures, no claim for loss was filed. During the
anomaly investigation, we obtained a $200 million in-orbit insurance policy on
EchoStar III at standard industry rates, which was renewed through June 25,
1999. However, the policy contains a three-transponder deductible if the
satellite is operating at 120 watts per transponder, or a six-transponder
deductible if the satellite is operating at 230 watts per transponder. As such,
the policy would not cover transponder failures unless transponder capacity is
reduced to less than 26 transponders in the 120 watt mode or 13 transponders in
the 230 watt mode, during the coverage period. As a result of the deductible, we
could potentially experience uninsured losses of capacity on EchoStar III.
Although there can be no assurance, we expect that in-orbit insurance can be
procured on more traditional terms in the future if no further failures occur in
the interim. If further failures do occur, we may not be able to obtain
additional insurance on EchoStar III on commercially reasonable terms. We do not
maintain insurance for lost profit opportunity.
As a result of the failure of the solar power panels on EchoStar IV to
properly deploy, there is currently only sufficient available power on the
satellite to operate approximately 18 transponders. The number of available
transponders will decrease over time. Based on current data, we expect that
approximately 16 transponders will probably be available over the entire 12-year
design life of the satellite, absent significant additional anomalies or other
failures. In addition to the failure of the solar power panels, during the third
quarter of 1998 EchoStar IV also experienced an anomaly similar to that
experienced by EchoStar III, which caused 6 of EchoStar IV's transponders to
fail. Like EchoStar III, this additional anomaly has not yet resulted in a loss
of operational satellite capacity and Lockheed Martin advises that no such loss
is expected. Approximately 16 transponders should be available for the entire
life of the satellite. The satellite is equipped with a total of 44
transponders. Twenty-four operating transponders are necessary to fully utilize
our 24 frequencies at the 148DEG. WL orbital location, where the satellite
is positioned.
In September 1998, we filed a $219.3 million insurance claim for a
constructive total loss, as defined in the launch insurance policy, related to
EchoStar IV. However, if we received $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 constructive total loss of EchoStar IV in
accordance with that definition in the launch insurance policy, we presently
intend to negotiate a settlement with the insurers that will compensate us for
the reduced satellite transmission capacity and allow us to retain title to the
asset. During the third quarter of 1998, we recorded a $106 million impairment
provision related to the failure of the solar power panels that represents our
best estimate of the amount of capacity we lost as a result of the solar power
panels not properly deploying. We
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also recorded a $106 million insurance receivable. That amount reflects our
judgment that it is probable the insurance recovery will be at least equal to
the amount of the impairment loss.
During May 1999, EchoStar IV experienced additional anomalies. An
investigation of those anomalies, affecting transponders, heating systems and
fuel lines but which have not caused material reductions in functionality to
date, is continuing. It is not yet possible to conclude whether the additional
anomalies will result in further reductions of satellite functionality in the
future. While there can be no assurance, we do not currently expect short or
medium term satellite operations to be materially adversely impacted. We have
not completed our assessment of the additional impairment, if any, to EchoStar
IV, but we currently believe that insurance proceeds will be sufficient to
offset any additional write-down of satellite assets that may be required
because of lost functionality caused by these anomalies. However, no assurance
can be provided as to the ultimate amount that may be received from the
insurance claim, or that coverage will be available. We will continue to
evaluate the performance of EchoStar IV and may modify our loss assessment as
new events or circumstances develop.
As a result of the recent anomalies experienced by EchoStar IV, we have
instructed our broker to notify our insurance carriers of additional occurrences
under the terms of the EchoStar IV launch insurance policy. The EchoStar IV
launch insurance policy provides for insurance of $219.3 million covering the
period from launch of the satellite on May 8, 1998 through May 8, 1999. Due to
the anomalies experienced by EchoStar IV and the pending claim for a total
constructive loss, we did not obtain in-orbit insurance on EchoStar IV.
Consequently, in the event our pending insurance claim is not resolved to our
satisfaction, EchoStar IV will not be insured if further losses occur in the
future.
On May 19, 1999, the FCC approved the transfer to us of MCI's licenses
to operate high-powered DBS satellites at the 110DEG. WL orbital location. The
construction, launch and insurance of the satellites are being paid for by News
Corporation. Satellites at the 110DEG. WL orbital location are capable of
providing service to the entire continental United States. EchoStar V and
EchoStar VI are being constructed by Space Systems/Loral and are both
high-powered FS-1300 series spacecraft. EchoStar V has 32 110W Ku-band
transponders and EchoStar VI has 32 125W Ku-band transponders. Both satellites
are capable of power-combining to 16 transponders each of 220W and 250W,
respectively. EchoStar V and EchoStar IV each have a minimum design life of 12
years. Notwithstanding the successful launch of EchoStar V and VI, we would only
be able to exploit the 29 frequencies at 110DEG. WL for which they will be
licensed by the FCC.
SATELLITE LAUNCHES
EchoStar V and EchoStar VI are currently scheduled to be launched to
the 110DEG. WL orbital location from Cape Canaveral, Florida on Atlas rockets in
August 1999 and December 1999, respectively. Delays or failures of launches
preceding the launch of EchoStar V and EchoStar VI could postpone these launch
dates. Additionally, any anomalies experienced by other similar satellites could
delay the launch of EchoStar V and EchoStar VI until the cause is discovered and
the anomalies are corrected.
SATELLITE INSURANCE
We have procured in-orbit insurance for EchoStar I, EchoStar II and
EchoStar III through June 25, 1999. We may not be able to renew these policies
or, if we do, we cannot be certain that renewals will be at rates or on terms
favorable to us. For example, if EchoStar I, EchoStar II, EchoStar III or other
similar satellites experience anomalies while in orbit, the cost to renew
in-orbit insurance could increase significantly or coverage exclusions for
similar anomalies could be required. In addition, the EchoStar IV launch
insurance policy provides for insurance of $219.3 million covering the period
from launch of the satellite on May 8, 1998 through May 8, 1999. Due to the
anomalies experienced by EchoStar IV and the
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pending claim for a total constructive loss, we did not obtain in-orbit
insurance on EchoStar IV. Consequently, in the event our pending insurance
claim is not resolved to our satisfaction, EchoStar IV will not be insured if
further losses occur in the future. The in-orbit insurance policies for
EchoStar I, EchoStar II and EchoStar III include standard commercial
satellite insurance provisions. These provisions include, among other things,
a material change in underwriting information clause that requires 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. A
notification permits the 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 health status of an insured satellite or any loss occurring
after risk has attached does not entitle the insurers to renegotiate the
policy terms.
The satellite insurance policies for EchoStar I, EchoStar II, EchoStar
III and EchoStar IV contain customary exclusions, including:
- - acts of war or similar actions;
- - loss or damage caused by anti-satellite devices;
- - insurrection and similar acts;
- - governmental confiscation;
- - nuclear reaction or radioactive contamination;
- - willful or intentional acts by us or our contractors designed to cause loss
or failure of a satellite;
- - claims for lost revenue and incidental and consequential damages;
- - third-party claims against us; and
- - business interruption, loss of business and similar losses that might arise
from delay in the launch of any satellite.
In addition to the above exclusions, the current insurance policy for
EchoStar III also excludes additional occurrences of the same or similar
anomalies. If one of our satellites does not perform to specifications following
launch, there may be circumstances in which insurance will not fully reimburse
us for any loss.
COMPETITION FOR OUR DISH NETWORK BUSINESS
Our industry is highly competitive. Our competition includes companies
that offer video, audio, data, programming and other entertainment services,
including cable television, wireless cable, direct-to-home satellite, other DBS
companies and companies that are developing new technologies. Many of our
competitors have access to substantially greater financial and marketing
resources than we have. We believe that quality and variety of programming,
quality of picture and service, and cost are the key bases of competition.
CABLE TELEVISION. The United States cable television industry currently
serves over 65 million subscribers. As an established provider of subscription
television services, cable television is a formidable competitor in the overall
market for television households. Cable television systems generally offer 30 to
80 analog channels of video programming. Cable television operators currently
have a competitive advantage over us because they can provide local programming
and service to multiple television sets within the same household without using
another receiver. Many cable television operators are in the process of
upgrading their distribution systems to expand their existing channel capacity
for purposes of providing digital product offerings similar to those offered by
DBS providers. In addition, such expanded capacity may be used to provide
interactive and other new services.
Many of the largest cable systems in the United States have announced
plans to offer access to telephony services through their existing cable
equipment, and have entered into agreements with major
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telephony providers to further these efforts. In some cases, certain cable
systems have actually commenced commercial offerings of such services, the
expansion of which could have a negative impact on the demand for DBS
services. If such trials are successful, many consumers may find cable
service to be more attractive than DBS service.
Since a subscriber needs to have direct line of sight to the satellite
to receive DBS service, some households may not be able to receive DISH Network
programming. Additionally, the initial cost required to receive DISH Network
programming may deter some potential customers from switching to DISH Network
service. Additionally, a subscriber must buy an EchoStar receiver system to
receive DISH Network programming. Cable operators lease their equipment to the
consumer with little, if any, initial hardware payment required. This also may
deter some potential customers from switching to DISH Network service.
Additionally, cable operators pay substantially lower royalty rates for the
retransmission of distant network and superstation signals than we do.
OTHER DBS AND DIRECT-TO-HOME SATELLITE SYSTEM OPERATORS. Several other
companies have DBS licenses and are positioned to compete with us for home
satellite subscribers. DIRECTV, Inc. operates three DBS satellites and has 27
channel assignments at an orbital location that provides coverage to the entire
continental United States. United States Satellite Broadcasting Corporation, or
USSB, owns and operates an additional five transponders on one of DIRECTV's
satellites and presently offers a programming service complementary to DIRECTV's
service. DIRECTV and USSB together offer more than 200 channels of DBS video
programming. As of December 31, 1998, DIRECTV had approximately 4.5 million
subscribers, approximately one-half of whom also subscribed to USSB programming.
In December 1998, DIRECTV's parent executed a definitive merger agreement to
acquire the business and assets of USSB in a transaction expected to be
completed in May or June of 1999, subject to obtaining regulatory and
shareholder approvals. This transaction will give DIRECTV access to additional
DBS frequencies which will enable them to further expand their service offering.
We also compete with PrimeStar, Inc. As of March 31, 1999, PrimeStar
had approximately 2.3 million subscribers. PrimeStar offers approximately 150
channels of medium power satellite service. In January 1999, DIRECTV's parent
announced an agreement to purchase the satellite television business of
PrimeStar, which is comprised of a medium power satellite business and their
rights to acquire Tele-Communications, Inc.'s DBS assets, subject in each case
to regulatory approvals and customary conditions.
Two other satellite companies have conditional permits for a
comparatively small number of DBS frequency assignments that could be used to
provide service to portions of the United States. If the number of DBS operators
increases in the future, DISH Network subscriber growth could be adversely
affected.
TELEPHONE COMPANIES. Certain telecommunications carriers, including
long distance telephone companies, could become significant competitors in the
future as they have expressed an interest in, and in some instances made
substantial investments to become, subscription television and information
providers. For instance, AT&T recently acquired Tele-Communications, Inc. and
has entered into a definitive agreement to acquire MediaOne. Other telephone
companies are also actively engaged in the video programming distribution
business.
VHF/UHF BROADCASTERS. Most areas of the United States can receive
traditional terrestrial VHF/UHF television broadcasts of between three and ten
channels. These broadcasters are often low to medium power operators with a
limited coverage area and provide local, network and syndicated programming. The
local content nature of the programming may be important to the consumer, and
VHF/UHF programming is typically provided free of charge. The FCC has allocated
additional digital spectrum to licensed broadcasters. At least during a
transition period, each existing television station will be
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able to retain its present analog frequencies and also transmit programming
on a digital channel that may permit multiple programming services per
channel.
ECHOSTAR TECHNOLOGIES CORPORATION
Employees of EchoStar Technologies Corporation, one of our wholly-owned
subsidiaries, internally design and engineer EchoStar receiver systems. Our
satellite receivers have won numerous awards from dealers, retailers and
industry trade publications. We outsource the manufacture of EchoStar receiver
systems to third parties who manufacture the receivers in accordance with our
specifications. In addition to supplying EchoStar receiver systems for the DISH
Network, ETC supplies similar digital satellite receivers to international
satellite TV service operators. We also offer consulting and integration
services to development stage, international direct-to-home satellite operators.
We are actively soliciting new business for ETC and, while we are optimistic
about future growth opportunities, we cannot provide any assurance in that
regard.
Our ETC division resulted from the development of the DISH Network. We
believe that we have an opportunity to grow this business in the future. The
employees who design EchoStar receiver systems for the DISH Network are the same
as those who design the set-top boxes sold to international direct-to-home
satellite TV customers. Consequently, international ETC projects may result in
improvements in design and economies of scale in the production of EchoStar
receiver systems for the DISH Network.
Currently, we provide digital set-top boxes to two international
direct-to-home satellite TV providers, one in Canada and one in Spain. A
substantial portion of our ETC revenue in 1997 and 1998 resulted from sales to
these two direct-to-home satellite TV providers. As a result, our ETC business
currently is economically dependent upon these two providers. Upon consummation
of the 110 acquisition, we will receive a minimum order from a subsidiary of
News Corporation for 500,000 set-top boxes. Although we continue to actively
pursue other similar distribution and integration service opportunities, we have
not executed additional agreements. Our future revenue in this area depends
largely on the success of the direct-to-home satellite TV operators we supply in
Canada and Spain, which in turn, depends on other factors, such as the level of
consumer acceptance of direct-to-home satellite TV products and the intensity of
competition for international subscription television subscribers.
COMPETITION FOR OUR ETC BUSINESS
We compete with a substantial number of foreign and domestic companies,
many of which have significantly greater resources, financial or otherwise, than
we have. We expect new competitors to enter this market because of rapidly
changing technology. Our ability to anticipate these technological changes and
introduce enhanced products expeditiously will be a significant factor in our
ability to remain competitive. Existing competitors' actions and new entrants
may have a material adverse impact on our revenues. We do not know if we will be
able to successfully introduce new products and technologies on a timely basis
in order to remain competitive.
SATELLITE SERVICES
Our Satellite Services division primarily leases capacity on our
satellites to customers on either a monthly or hourly basis. Full-time customers
tend to be international services that broadcast foreign language programming to
DISH Network subscribers. Part-time customers are typically Fortune 1000
companies that use our satellite network for 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 that we expect to offer to consumers beginning in mid-1999.
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COMPETITION FOR OUR SATELLITE SERVICES BUSINESS
We compete with a number of other companies, including those using
similar and different technologies, to provide Satellite Services. Many of these
competitors have substantially greater financial and other resources than we
have. Our principal competitors include other satellite system operators, cable
television system operators, Internet service providers, and telephone
companies. We believe that we can compete with these other companies based on
our knowledge and experience in the direct-to-home satellite TV and DBS
industry, our technological leadership and new product capabilities, the quality
of our video, audio and data transmissions, the quality of service provided, and
cost.
GOVERNMENT REGULATION
THE FOLLOWING SUMMARY OF REGULATORY DEVELOPMENTS AND LEGISLATION IS NOT
INTENDED TO DESCRIBE ALL PRESENT AND PROPOSED GOVERNMENT REGULATION AND
LEGISLATION AFFECTING THE VIDEO PROGRAMMING DISTRIBUTION INDUSTRY. GOVERNMENT
REGULATIONS THAT ARE CURRENTLY THE SUBJECT OF JUDICIAL OR ADMINISTRATIVE
PROCEEDINGS, LEGISLATIVE HEARINGS OR ADMINISTRATIVE PROPOSALS COULD CHANGE OUR
INDUSTRY, IN VARYING DEGREES. WE CANNOT PREDICT EITHER THE OUTCOME OF THESE
PROCEEDINGS OR ANY POTENTIAL IMPACT THEY MIGHT HAVE ON THE INDUSTRY OR ON OUR
OPERATIONS. THIS SECTION SETS FORTH A BRIEF SUMMARY OF REGULATORY ISSUES
PERTAINING TO OUR OPERATIONS.
We are required to obtain authorizations and permits from the FCC and
other similar foreign regulatory agencies to construct, launch and operate our
satellites and other components of our DBS system. Additionally, as a private
operator of a United States satellite system, we are subject to the regulatory
authority of the FCC and the Radio Regulations promulgated by the International
Telecommunication Union. We also have to obtain import and general destination
export licenses from the United States Department of Commerce to deliver
products to overseas destinations. Finally, we must abide by United States
export control regulations when we choose to launch our satellites outside the
United States.
FCC PERMITS AND LICENSES
The FCC has jurisdiction and review power over the following general
areas:
- - assigning frequencies and authorizations;
- - ensuring compliance with the terms and conditions of such assignments and
authorizations, including required timetables for construction and
operation of satellites and other due diligence requirements;
- - authorizing individual satellites and earth stations;
- - avoiding interference with other radio frequency emitters;
- - ensuring compliance with applicable provisions of the Communications Act.
Like other DBS operators, we received our FCC authorizations
conditioned on satisfaction of ongoing due diligence, construction, reporting
and other obligations. We cannot be certain that we will be able to comply with
all of the FCC's due diligence obligations. Moreover, the FCC could determine we
have not complied with such due diligence obligations. The FCC has declared that
it will carefully monitor the reports required to be filed by satellite service
permittees. If we do not file adequate reports or are not able to demonstrate
timely progress in the construction of our satellite service system, we could
lose our authorizations. We have not filed, or not timely filed, all required
reports or filings with the FCC. Therefore, there is a risk that the FCC could
determine that we have not complied fully with due diligence requirements and
could revoke or place conditions on our current licenses.
Some of our permits and extension requests have been, and may continue
to be, contested in FCC proceedings and in court by several companies with
adverse interests. Those companies include Dominion
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Video Satellite, Inc., PrimeStar, Tempo Satellite Inc., DIRECTV, GE American
Communications, Inc. and others.
The FCC issues DBS licenses for ten year periods, which is less than
the useful life of a healthy DBS satellite. Upon expiration of the initial
license term, the FCC has the option to renew the satellite operator's license
or authorize the operator to operate for a period of time on special temporary
authority, or decline to renew the license. If the FCC declined to renew the
operator's license, the operator would be required to cease operations and the
frequencies would revert to the FCC. The FCC usually grants special temporary
authorizations for periods of up to 180 days. These authorizations are usually
subject to several other conditions. We also must obtain FCC authorization to
operate our earth stations, including the earth stations necessary to uplink
programming to our satellites.
Our licenses to operate EchoStar I and EchoStar II both will expire in
2006. Our license to operate EchoStar III over 11 channels at 61.5DEG. WL
will expire in 2008. EchoStar IV was originally licensed to operate at our
119DEG. WL orbital location, however, that satellite experienced
malfunctions, as discussed above, that required us to change our plans. We
currently operate EchoStar IV at the 148DEG. WL orbital location under a
special temporary authorization until permanent authority can be obtained to
operate that satellite at the 148DEG. WL orbital location. Our authorization
at 148DEG. WL requires us to utilize all of our FCC-allocated frequencies at
that location by December 20, 2002, or risk losing those frequencies that we are
not using. As a result of the anomalies previously discussed, EchoStar IV cannot
exploit all of our frequencies at the 148DEG. WL orbital location.
In connection with approval of the 110 acquisition, we have asked the
FCC for approval to temporarily move EchoStar IV from its current position at
148DEG. WL to the 110DEG. WL orbital location during June 1999. This temporary
move would provide expanded service to subscribers in advance of the expected
August 1999 launch of EchoStar V. The programming EchoStar IV currently carries
would be moved to EchoStar I and EchoStar II at the 119DEG. WL orbital location.
Accordingly, we believe that there will be no interruption of service to our
customers subscribing to those services.
IN-ORBIT AUTHORIZATIONS
We use specific C-band frequencies to control EchoStar I. The FCC
conditionally approved the use of these frequencies to control EchoStar I in
1995. The condition stated that the coordination process with Canada and Mexico
had not been completed. In January 1996, the Ministry of Communications and
Transportation of Mexico notified the FCC that EchoStar I's telemetry, tracking
and control operations could cause unacceptable interference to Mexican
satellites. Although it is unlikely, the FCC could subsequently require us to
relinquish the use of such C-band frequencies for telemetry, tracking and
control purposes. If that happened, we might not be able to control the
satellite, which could result in a total loss of the satellite unless we were
able to move it to another location.
We use "extended" C-band frequencies to control EchoStar II. In 1996,
we received conditional authority from the FCC to use these frequencies. The
condition stated that we could use those frequencies until January 1, 1999
provided that their use would not cause harmful interference. The FCC indicated
it would review the suitability of those frequencies for telemetry, tracking and
control operations in January 1999. We have timely filed a request to extend the
authorization to November 2006. We do not know whether the FCC will extend that
authorization. If the FCC refuses to extend our authorization, we might not be
able to control EchoStar II, which could result in a total loss of the satellite
unless we were able to move it to another location. Recently, the FCC released a
notice of proposed rulemaking that may inhibit future satellite operations in
the "extended" C-band frequencies. The FCC also is no longer accepting earth
station applications in that band. These recent developments might have negative
implications for us.
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INTERNATIONAL TELECOMMUNICATION UNION STANDARDS
Our DBS system also must conform to the ITU broadcasting satellite
service plan. If any of our operations are not consistent with this plan, the
ITU will only provide authorization on a non-interference basis pending
successful modification of the plan or the agreement of all affected
administrations to the non-conforming operations. Accordingly, unless and until
the ITU modifies its broadcasting satellite service plan to include the
technical parameters of DBS applicants' operations, our satellites, along with
those of other DBS operators, must not cause harmful electrical interference to
other assignments that are in conformance with the plan. Further, DBS satellites
are not presently entitled to any protection from other satellites that are in
conformance with the plan. To our knowledge, the United States government has
filed modification requests with the ITU for EchoStar I, II and III. The ITU has
requested certain technical information in order to process the requested
modifications. We have cooperated, and continue to cooperate, with the FCC in
the preparation of its responses to the ITU requests. We cannot predict when the
ITU will act upon these requests for modification or if they will be granted.
AUTHORIZATIONS AND FREQUENCIES THAT WE COULD LOSE
We also have conditional authorizations for several other DBS and fixed
service satellites that are not operational. One permit for 10 unspecified
western frequencies was set to expire on August 15, 1995. Although we filed a
timely extension request, the FCC has deferred a decision on that request
pending the FCC's analysis of our due diligence for that permit. The FCC has not
yet assigned the frequencies related to that permit because in 1992 it held that
we had not completed contracting for these western assignments -- the first
prong of the required diligence -- and asked us to submit amended contract
documentation. Although we submitted such documentation, the FCC has not yet
ruled on this matter, and we cannot be sure that the FCC will rule in our favor.
We also have a conditional permit for one frequency at the 110DEG.
WL orbital location and a total of 11 western frequencies at the 175DEG. WL
orbital location that is set to expire on August 15, 1999. That expiration date
is pursuant to an extension granted by the FCC's International Bureau in 1996.
That extension was subject to the condition that we make significant progress
toward construction and operation of a DBS system substantially in compliance
with, or ahead of, the most recent timetable that we submitted to the FCC. The
FCC's International Bureau also urged us to expedite construction and launch of
additional satellites for our DBS system at these frequencies. PrimeStar filed a
request with the FCC that is still pending requesting that the FCC reverse the
International Bureau's grant of an extension.
We also have a conditional permit for 11 additional frequencies at
175DEG. WL, which was set to expire on November 30, 1998. That expiration
date was set pursuant to an extension granted by the FCC's International Bureau
in 1995. When it granted the extension, the FCC reserved the right to cancel the
permit if we failed to progress toward operation of the DBS system in accordance
with the timetable that we submitted to the FCC. That extension also is subject
to a still pending challenge by PrimeStar.
While we have timely filed requests for extension of all the western
permits, we cannot be sure how the FCC will act with respect to these requests.
OTHER LICENSES AND CONDITIONAL AUTHORIZATIONS
We also have received licenses and conditional authorizations from the
FCC to operate satellites in the Ka-band, Ku-band and extended Ku-band
frequencies. Use of those licenses and conditional authorizations are subject to
certain technical and due diligence requirements, including the requirement to
construct and launch additional satellites. The granting of those licenses has
been challenged by parties with interests that are adverse to ours. If we
successfully construct and launch Ku-band, extended Ku-band, Ka-
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band or low earth orbit satellites, we might be able to use those satellites
to complement the DISH Network, or for a variety of other uses. It is
possible that the Ku-band and Ka-band orbital locations requested by us and
others could permit construction of satellites with sufficient power to allow
reception of satellite signals by relatively small dishes. As these projects
are in the early stages of development and are currently being challenged by
several companies with interests adverse to ours, there can be no assurance
that the FCC will sustain these licenses, or grant the pending applications,
or that we will be able to successfully capitalize on any resulting business
opportunities.
REGULATIONS
DBS RULES. Once the FCC grants a conditional construction permit, the
permittee must proceed with due diligence in constructing the system. The FCC
has adopted specific milestones that must be met in order to retain the permit,
unless the FCC determines that an extension or waiver is appropriate. Permittees
must file semi-annual reports on the status of their due diligence efforts. The
due diligence milestones require holders of conditional permits to complete
contracting for construction of their systems within one year of grant of the
permit. Additionally, the satellites must be operational within six years of
grant. For permits issued after January 19, 1996, permittees must complete
construction of the first satellite in their system within four years of grant
of the permit. The FCC also may impose other conditions on the grant of the
permit. The holders of new DBS authorizations issued on or after January 19,
1996 must also provide DBS service to Alaska and Hawaii. We are presently not
able to satisfy this requirement with EchoStar IV. Accordingly, we have
requested a waiver of that requirement. The state of Hawaii has requested many
conditions to such a waiver, and we have opposed several of these conditions.
Those holding DBS permits as of January 1996 must provide DBS service to Hawaii
or Alaska from at least one of their DBS satellites or they will have to
relinquish their western assignments.
Subject to applicable regulations governing non-DBS operations, a
licensee may make unrestricted use of its assigned frequencies for non-DBS
purposes during the first five years of the ten-year license term. After the
first five years, the licensee may continue to provide non-DBS service as long
as at it dedicates at least one-half of its total capacity at a given orbital
location to providing DBS service. Further, the FCC indicated its desire to
streamline and revise its rules governing DBS satellites. We cannot be sure
about the content and effect any new DBS rules might have on our business.
CERTAIN OTHER COMMUNICATIONS ACT PROVISIONS. As a distributor of
television programming, we are also affected by numerous laws and regulations,
including the Communications Act.
We believe that we remain free to set prices and serve customers
according to our business judgment, without rate regulation or the statutory
obligation under Title II of the Communications Act to avoid undue
discrimination among customers. Even if, under a future interpretation of the
1996 Act, we were classified as a telecommunications carrier subject to Title
II, we believe that such reclassification would not likely increase
substantially the regulatory burdens imposed on us or have an adverse impact on
our DBS operations, although we cannot be certain.
We believe that, because we are engaged in a subscription television
programming service, we are not subject to many of the regulatory obligations
imposed upon broadcast licensees. However, the FCC could determine in the future
that we should be treated as a broadcast licensee. In fact, certain parties have
requested such treatment. If the FCC determined that we are a broadcast
licensee, we could be required to comply with all regulatory obligations imposed
upon broadcast licensees.
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 in excess of 25% of the
total votes or equity of record of the holding company, considered on a
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fully-diluted basis, except after an FCC public interest determination. Although
the FCC's International Bureau has ruled that these limitations do not apply to
providers of DBS services, certain parties have challenged that ruling. The FCC
has not acted on that challenge. These foreign ownership limitations would apply
to our fixed satellite service authorizations if we call ourselves a common
carrier, or if the FCC decides to treat us as such a carrier. The FCC has noted
that we propose to operate one of our proposed satellite systems on both a
common and non-common carrier basis.
A recent survey of our equity owners disclosed that our foreign
ownership was less than 5%, which is well below these limitations, if they
applied. However, the 110 acquisition contemplates the issuance of common stock
to an Australian corporation that may exceed the alien ownership limitations if
they applied. We filed a petition for a declaratory ruling that it is in the
public interest to waive any applicable limitations to allow this issuance.
Under currently effective precedent, that type of waiver is only required if we
propose to conduct common carrier or broadcast operations. After coordination
with the FCC staff and in the interest of expediting consideration of our
application before the full FCC, we withdrew the petition. We may need to
re-file that petition for consideration by the FCC's International Bureau under
delegated authority to be able to consummate the 110 acquisition. We do not know
how the FCC will rule with respect to this petition, if re-filed. The FCC could
grant our waiver, deny the waiver, or impose adverse conditions on the waiver.
If we do not comply with applicable Communications Act requirements and
FCC rules, regulations, policies, and orders, the FCC could revoke, condition,
or decline to review or decline to extend an authorization.
THE TELECOMMUNICATIONS ACT OF 1996. The 1996 Act clarifies that the FCC
has exclusive jurisdiction over direct-to-home satellite services. It further
clarifies that criminal penalties may be imposed for piracy of direct-to-home
satellite services. The 1996 Act also offers DBS operators relief from private
and local government-imposed restrictions on the placement of receiving
antennas. In some instances, DBS operators have been unable to serve areas due
to laws, zoning ordinances, homeowner association rules, or restrictive property
covenants banning the installation of antennas on or near homes. The FCC
recently announced rules designed to implement Congress' intent. The FCC's rules
prohibit most organizations from imposing restrictions on the installation of
antennas, including DBS satellite dishes smaller than one meter, on or near
homes, unless the restriction is necessary for safety or preservation of a
recognized historic district. Local governments and associations can apply to
the FCC for a waiver of this rule based on local concerns of a highly
specialized or unusual nature. In November 1998, the FCC extended these rules to
allow renters to install antennas within their leaseholds, such as homes,
gardens, patios, terraces and balconies. The FCC declined to extend the rules to
permit the installation of antennas on common property or on property to which a
viewer was not permitted access, such as the locked roof of an apartment
building. Several groups have filed appeals against the November order. The 1996
Act also pre-empted local governments from imposing taxes or fees on
direct-to-home satellite services, including DBS. Finally, the 1996 Act required
that multi-channel video programming distributors, including DBS operators,
fully scramble or block channels providing indecent or sexually explicit adult
programming. If a multi-channel video programming distributor cannot fully
scramble or block such programming, it must restrict transmission to those hours
of the day when minors are unlikely to view the programming.
THE CABLE ACT. In addition to regulating pricing practices and
competition within the franchise cable television industry, the Cable Act was
intended to establish and support existing and new multi-channel video service
providers, such as wireless cable and DBS. We have benefited from the
programming access provisions of the Cable Act and implementing rules, in that
we have been able to gain access to previously unavailable programming services
and, in some circumstances, have obtained certain programming services at
reduced cost. Our business and future results of operations could suffer if the
Cable Act or any of the related rules are amended, or interpreted differently in
the future. For example, if cable
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companies, or any affiliated entities, could discriminate against competitors
like us with regard to programming access, or the terms on which such
programming was available, our ability to acquire programming on a
cost-effective basis would be impaired. Certain of the restrictions on
cable-affiliated programmers will expire in 2002 unless the FCC extends such
restrictions.
On May 19, 1998, we filed a complaint against Comcast Corporation, a
major cable provider, seeking access to the sports programming controlled by
Comcast in the Philadelphia area. On January 22, 1999, the FCC denied this
complaint, partly on the basis that Comcast's programming is delivered
terrestrially and therefore is not subject to the program access prohibitions.
We cannot be certain whether or not other cable operators that control
production or distribution of their own programming would switch to terrestrial
transmission of their programming and seek to rely on the FCC's denial of our
complaint against Comcast in order to deny us access to their programming. We
also cannot be certain whether or not these companies would seek to acquire
sports franchises and exclusively distribute the corresponding programming,
which could possibly limit our access to popular sports programming.
On January 14, 1999, we filed a program access complaint with the FCC
against Speedvision Network, L.L.C. and Outdoor Life Network, L.L.C. seeking
access to the programming controlled by these two networks. Our program access
complaint alleges that the conduct of Speedvision and Outdoor Life Network in
cutting off our access to programming after five days of carriage constitutes an
unreasonable refusal to deal and a prohibited unfair practice under the
Communications Act and the FCC's rules. Speedvision and Outdoor Life Network
have answered and moved to dismiss that complaint, and we cannot be sure how the
FCC will act on our complaint. Speedvision has cut off the service allegedly
based on its view that we breached a November 1998 contract between the parties
and has sued us in federal district court in Connecticut requesting several
remedies. We cannot be sure how the court will rule on Speedvision's and Outdoor
Life Network's complaint.
Pursuant to the Cable Act, the FCC recently imposed public interest
requirements upon DBS licensees that include the obligation to set aside four
percent of the licensee's channel capacity exclusively for non-commercial
programming of an educational or informational nature provided by national
educational programming suppliers. Among other constraints, the FCC defined
relatively narrowly the type of suppliers for which this capacity must be
reserved. They also required that the capacity be made available at
substantially below cost rates. The FCC also applied to DBS service providers
the requirement of providing reasonable access to air-time at favored low rates,
and equal opportunity, for certain qualified candidates for public office.
Although DBS operators are not currently subject to the "must carry"
requirements of the Cable Act, the cable industry and broadcast interests have
argued that DBS operators should be subject to these requirements. The "must
carry" rules generally require cable operators to carry all the local broadcast
stations in areas they serve, not just the four major networks. The broadcasters
also argue that satellite companies should not be allowed to provide
local-into-local network service unless they also become subject to these
requirements. If the "must carry" requirements of the Cable Act are revised to
include DBS operators, or if Congress enacts new legislation of a similar
nature, our plans to provide local programming will be adversely affected.
CERTAIN OTHER RULEMAKINGS. The FCC recently proposed to allocate
additional "expansion" spectrum for DBS operators starting in 2007. DIRECTV has
filed an application for a satellite system using those expansion frequencies.
Foreign satellite systems also are potential providers of DBS service
within the United States. In May 1996, in its DISCO II proceeding, the FCC
proposed permitting non-U.S. satellite systems to serve the United States if the
home country of the foreign-licensed satellite offers open "effective
competitive
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opportunities" in the same satellite service to U.S.-licensed satellites. In
the February 1997 World Trade Organization Agreement, the United States offer
contained an exemption from market opening commitments for, among other
things, DBS and direct-to-home satellite services. In November 1997, the FCC
released new rules that maintained the effective competitive opportunities
test with respect to foreign-licensed satellites seeking to provide DBS and
direct-to-home satellite services in the United States. The FCC also
established a strong presumption in favor of authorizing foreign-licensed
satellites to provide services other than DBS and direct-to-home satellite in
the United States.
The FCC has proposed allowing non-geostationary orbit fixed satellite
services to operate on a co-primary basis in the same frequency as DBS and
Ku-band FSS service. If the proposal is adopted, these satellite operations
could provide global high-speed data services. This would, among other things,
create additional competition for satellite and other services. The FCC has also
requested comment on a request that would allow a terrestrial service proposed
by Northpoint Communications, Inc. to retransmit local television signals and
provide data services to DBS subscribers. Both of these proposed operations, if
authorized and implemented, may cause interference in the DBS spectrum.
LOCAL NETWORK SIGNALS. We believe that our ability to deliver local
programming via satellite into the markets from which the programming originates
might help us attract subscribers who would not otherwise be willing to purchase
satellite systems. Although we have commenced providing local network service to
eligible subscribers in various metropolitan centers, subject to certain
conditions, our ability to provide such a service is limited as detailed below.
SATELLITE HOME VIEWER ACT AND RETRANSMISSION CONSENT. In order to
retransmit network station programming, satellite companies, including us, must
have a copyright license and must obtain the retransmission consent of the
station concerned, subject to certain exceptions. Through our agreement with
News Corporation, we will receive the right to retransmit programming from local
FOX Network-owned and operated stations. However, we have not yet consummated
and we cannot provide any assurance that we will be able to consummate the
transaction. Likewise, we may not be able to obtain the retransmission consents
from any other network station.
The Satellite Home Viewer Act establishes a "statutory" or compulsory
copyright license that generally allows a DBS operator, for a
statutorily-established fee, to retransmit local network signals to subscribers
for private home viewing so long as that retransmission is limited to those
persons in "unserved households." An "unserved household," with respect to a
particular television network, is defined as one that cannot receive a specified
quality over-the-air network signal of a primary network station affiliated with
that network with a conventional outdoor rooftop antenna. That household must
not, during the 90 days prior to subscribing to the DBS service, have subscribed
to a cable service that provides the signal of an affiliate of that network.
While we believe the Satellite Home Viewer Act could be interpreted in a way
that would allow us to retransmit local programming to certain local markets via
satellite, we also believe that the compulsory copyright license under the
Satellite Home Viewer Act may not be sufficient to permit us to implement our
strategy to retransmit such programming in the most efficient and comprehensive
manner.
In the process of setting royalty rates for broadcast signal
retransmissions, the Librarian of Congress published a final ruling, on review
from a Copyright Arbitration Royalty Panel's recommendation, in October 1997.
With respect to "local-into-local" retransmissions, the Librarian affirmed the
zero rate for satellite retransmission of a superstation signal within the
station's local market -- a recommendation that we had supported. The Librarian
modified the panel's recommendation by also establishing a zero rate for
secondary transmissions of a network station's signal to "unserved households"
within the station's local market. The Librarian also reviewed the panel's
recommendation on the meaning of "unserved households." The panel had determined
that the statutory license does not cover such retransmissions and the panel did
not have jurisdiction to recommend a rate for them. The Librarian decided that
the law is silent on the issue.
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Accordingly, he could not definitively say that the panel's decision is
arbitrary or contrary to law. At the same time, the Librarian determined that
the Copyright Office retains the authority to rule on the permissibility of
secondary transmissions of a network station's signal to households within
that station's local market.
In December 1997, we petitioned the Copyright Office to issue a rule
confirming that the statutory license provided by the Satellite Home Viewer Act
and related copyright law allow a satellite carrier to retransmit the local
network signals of the respective local network affiliates. In January 1998, the
Copyright Office initiated a rulemaking proceeding to determine whether the
copyright law permits such "local-into-local" retransmissions. Our petition and
subsequent comments have been opposed by, among others, certain sports leagues,
representatives of the cable industry, several television networks and their
broadcast affiliates, and the Motion Picture Association of America. The staffs
of the San Francisco Regional Office and the Bureau of Economics of the Federal
Trade Commission supported our position. We do not know if these proceedings
will result in a favorable ruling for us.
In case the Copyright Office does not conduct a rulemaking proceeding
or that any such rulemaking may not provide a favorable result to us, we are
continuing to pursue the passage of legislation that would clarify and extend
current laws with respect to local network signals. We do not know whether we
will be successful in this effort. Further, if a court or administrative agency
rejected our interpretation of "unserved household" and legislation does not
pass that clarifies and extends the scope of the compulsory license, we may have
to engage in the relatively cumbersome process of obtaining copyright licenses
from all individual copyright holders instead. Without new legislation in this
area or a favorable outcome in the rulemaking, we do not know whether we would
be successful in any copyright infringement or FCC litigation with copyright
owners or broadcasters regarding the legality of certain local-into-local
network retransmissions. The same is true if we were unable to successfully
negotiate individual copyright licenses and retransmission consent agreements,
if necessary.
DISTANT SIGNALS. Section 119 of the Satellite Home Viewer Act
authorizes us to provide satellite-delivered network channels to customers who
qualify as "unserved households," defined in the Satellite Home Viewer Act as
consumers who, among other things, "cannot receive, through the use of a
conventional outdoor rooftop receiving antenna, an over-the-air signal of Grade
B intensity, as defined by the FCC, of a primary network station affiliated with
that network." Historically, we obtained distant broadcast network signals for
distribution to our customers through PrimeTime 24, Joint Venture. PrimeTime 24
also distributed network signals to certain of our competitors in the satellite
industry.
The national networks and local affiliate stations recently challenged,
based upon copyright infringement, PrimeTime 24's methods of selling network
programming to consumers. 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
injunction covers "distributors" as well. The plaintiffs in the Florida
litigation informed us that they considered us a "distributor" for purposes of
that injunction. A federal district court in North Carolina has also issued an
injunction against PrimeTime 24 prohibiting certain distant signal
retransmissions in the Raleigh area. Other copyright litigation against
PrimeTime 24 is pending.
We ceased delivering PrimeTime 24 programming in July 1998, and began
uplinking and distributing network channels directly. We have also implemented
Satellite Home Viewer Act Section 119 compliance procedures which materially
restrict the market for the sale of network channels by us.
On October 19, 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
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that our method of providing distant network programming does not violate the
Satellite Home Viewer Act and hence does not infringe the networks'
copyrights. On November 5, 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 plaintiffs in that
action have also requested the issuance of a preliminary injunction against
us. The case filed by us was subsequently combined with and transferred to
the Miami court.
On February 24, 1999, CBS, NBC, Fox, and ABC filed a "Motion for
Temporary Restraining Order, Preliminary Injunction, and Contempt Finding"
against DIRECTV, Inc. in Miami relating to the delivery of distant network
channels to DIRECTV customers by satellite. On March 12, 1999, DIRECTV and the
four networks announced that they had reached a settlement of that dispute.
Under the terms of the settlement, DIRECTV customers predicted to receive a
strong signal of Grade A intensity from their local stations will lose access to
their satellite provided network channels by June 30, 1999, while DIRECTV
customers predicted to receive a weaker, but allegedly adequate signal of Grade
B intensity from their local stations will 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.
The Networks are currently pursuing a Motion for Preliminary Injunction
in the Miami Court, asking that 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 on the same schedule as DIRECTV
has agreed to. We intend to vigorously contest the issuance of such an
injunction. In the event of a decision adverse to us in this case, significant
material restrictions on the sale of distant ABC, NBC, CBS and Fox channels by
us could result. Among other things, we could be required to terminate delivery
of network signals to a material portion of our subscriber base. While the
Networks have not sought monetary damages, they have sought to recover attorney
fees if they prevail. We have commenced sending letters to some of our
subscribers warning that their access to distant broadcast network channels
might be terminated commencing in June of this year. Such terminations would
result in a small reduction in average monthly revenue per subscriber. While
there can be no assurance, any such decrease could be offset by increases in
average monthly revenue per subscriber resulting from the delivery of local
network channels by satellite, and increases in programming offerings that will
follow the scheduled launches of EchoStar V and EchoStar VI later this year.
While there can be no assurance, legislation pending in the Senate would, if
passed into law, reduce the number of customers whose network channels we may
otherwise be required to terminate.
The Satellite Home Viewer Act permits satellite retransmission of
distant network signals only to "unserved households." The determination of
whether a household qualifies as "unserved" for the purpose of being eligible to
receive a distant network signal depends, in part, on whether that household can
receive a signal of "Grade B intensity" as defined by the FCC. On November 17,
1998, in response to petitions for rulemaking that we and the National Rural
Telecommunications Cooperative filed, the FCC released a notice of proposed
rulemaking concerning the term "Grade B intensity" as used in the Satellite Home
Viewer Act. The notice of proposed rulemaking requested comment and made
tentative proposals, on among other things:
- - the extent of the FCC's authority in connection with the definition,
prediction, and measurement of Grade B intensity;
- - changing the definition of Grade B intensity so that truly unserved
households can be better identified;
- - endorsing or developing a methodology for accurately predicting whether an
individual household is able to receive a signal of Grade B intensity; and
- - developing an easy-to-use and inexpensive method for testing the strength
of a broadcast network signal at an individual household.
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<PAGE>
The FCC also noted that it does not appear to have the statutory
authority to prevent most of PrimeTime 24's subscribers from losing their
network service under the Miami injunction. The notice of proposed rulemaking
was the subject of extensive comments by, among others, the satellite
industry, including us, the networks and broadcast affiliates, and several
sports leagues.
In February 1999, the FCC released its report and order on the
proceeding. 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. 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. We also
cannot be certain whether the application of these methods by the courts will
result in termination of distant signal delivery to a material portion of our
subscribers and decreases in future subscriber activations. See "Legal
proceedings" for additional information regarding specific proceedings we are
involved in.
With respect to the royalty rate for retransmission of distant
network and superstation signals, the Librarian of Congress set the rate at
27 cents per subscriber per month -- a significant increase over the
previously applicable rates. While judicial review of this ruling is
pending, the new rate became effective January 1, 1998.
EXPORT REGULATION. From time to time, we require import licenses and
general destination export licenses to receive and deliver components of
direct-to-home satellite TV systems. In addition, the delivery of satellites
and related technical information for the purpose of launch by a non-U.S.
launch services provider is subject to strict export control and prior
approval requirements. We have contemplated the possibility of satellite
launches by such non-U.S. providers for our next planned satellites, and
cannot be sure that the requisite approvals will be received.
PATENTS AND TRADEMARKS
We use a number of trademarks for our products and services,
including "EchoStar," "DISH Network," "America's Top 40," and others. We have
registered some of these trademarks. We believe that those trademarks that we
have not registered are generally protected by common law and state unfair
competition laws. Although we believe that these trademarks are not essential
to our business, we have taken affirmative legal steps to protect those
trademarks in the past and intend to actively protect these trademarks in the
future.
We have been assigned certain patents for products and product
components that we sell. We do not consider any of these to be significant to
our continuing operations. In addition, we have obtained and, although no
assurances can be given, expect to obtain licenses for certain patents
necessary to the manufacture and sale of DBS receivers and related
components. We have been notified that certain features of the EchoStar
receiver system allegedly infringe on patents held by others, and that we
therefore owe royalties. We are investigating these allegations of
infringement and, if appropriate, we would vigorously defend against any suit
filed by the parties. We do not know whether we would be able to successfully
defend any suit, if brought, or if we would be able to obtain a license for
any patent that might be required.
EMPLOYEES
We had 4,218 employees at March 31, 1999, of which 4,149 worked in
our domestic operations and 69 worked in our international operations. We are
not a party to any collective bargaining agreement and generally consider
relations with our employees to be good.
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PROPERTIES
The following table sets forth certain information concerning the
Company's material properties:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED OR
DESCRIPTION/USE LOCATION FOOTAGE LEASED
- --------------- -------- ----------- --------
<S> <C> <C> <C>
Corporate headquarters............................. Littleton, Colorado 156,000 Owned
EchoStar Technologies Corporation office
and distribution center......................... Englewood, Colorado 155,000 Owned
Office and distribution center..................... Sacramento, California 78,500 Owned
Digital Broadcast Operations Center................ Cheyenne, Wyoming 55,000 Owned
Customer Service Center............................ Thornton, Colorado 55,000 Owned
Customer Service Center............................ McKeesport, Pennsylvania 100,000 Leased
European headquarters and warehouse................ Almelo, The Netherlands 53,800 Owned
Warehouse and distribution center.................. Denver, Colorado 132,800 Leased
</TABLE>
LEGAL PROCEEDINGS
THE NEWS CORPORATION LIMITED
During February 1997, our parent company and News Corporation
announced an agreement pursuant to which, among other things, News
Corporation agreed to acquire approximately 50% of the outstanding capital
stock of our parent company. News Corporation also agreed to make available
for use by us the DBS permit for 28 frequencies at the 110DEG. WL orbital
slot purchased by MCI for more than $682 million following a 1996 FCC
auction. During late April 1997, substantial disagreements arose between the
parties regarding their obligations under this agreement. Those substantial
disagreements led the parties to litigation. In mid-1997, our parent company
filed a complaint seeking specific performance of this agreement and damages,
including lost profits. News Corporation filed an answer and counterclaims
seeking unspecified damages, denying all of the material allegations and
asserting numerous defenses. Discovery commenced in July 1997, and the case
was set for trial commencing March 1999. In connection with the pending 110
acquisition, the litigation between our parent company and News Corporation
has been stayed and will be dismissed with prejudice upon closing or if the
transaction is terminated for reasons other than the breach by, or failure to
fill a condition within the control of, News Corporation or MCI.
In connection with the News Corporation litigation that arose in
1997, our parent company has a contingent fee arrangement with its attorneys,
which provides for the attorneys to be paid a percentage of any net recovery
obtained in its dispute with News Corporation. The attorneys have asserted
that they may be entitled to receive payments in excess of $80 million to
$100 million under this fee arrangement in connection with the settlement of
the dispute with News Corporation. Our parent company intends to vigorously
contest the attorneys' interpretation of the fee arrangement, which it
believes significantly overstates the magnitude of its liability. If the
attorneys and our parent company are unable to resolve this fee dispute under
the fee arrangement, the fee dispute would be resolved through arbitration.
It is too early to determine the outcome of negotiations or arbitration
regarding this fee dispute. As the holder of the assets acquired in the
transaction with News Corporation and MCI, we would pay any fee that is
payable under the fee arrangement.
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WIC PREMIUM TELEVISION LTD.
On July 28, 1998, a lawsuit was filed by WIC Premium Television
Ltd., an Alberta corporation, in the Federal Court of Canada Trial Division,
against certain defendants which include: General Instrument Corporation,
HBO, Warner Communications, Inc., John Doe, Showtime, United States Satellite
Broadcasting Company, Inc., EchoStar Communications Corporation, or ECC, and
two of our wholly-owned subsidiaries. The lawsuit seeks, among other things,
an interim and permanent injunction prohibiting the defendants from
activating receivers in Canada and from infringing any copyrights held by
WIC. It is too early to determine whether or when any other lawsuits or
claims will be filed. It is also too early to make an assessment of the
probable outcome of the litigation or to determine the extent of any
potential liability or damages.
On September 28, 1998, WIC filed another lawsuit in the Court of
Queen's Bench of Alberta Judicial District of Edmonton against certain
defendants, which also include ECC and Echosphere. WIC is a company
authorized to broadcast certain copyrighted work, such as movies and
concerts, to residents of Canada. WIC alleges that the defendants engaged in,
promoted, and/or allowed satellite dish equipment from the United States to
be sold in Canada and to Canadian residents and that some of the defendants
allowed and profited from Canadian residents purchasing and viewing
subscription television programming that is only authorized for viewing in
the United States. The lawsuit seeks, among other things, interim and
permanent injunction prohibiting the defendants from importing hardware into
Canada and from activating receivers in Canada and damages in excess of the
equivalent of $175 million. It is too early to determine whether or when any
other lawsuits or claims will be filed. It is also too early to make an
assessment of the probable outcome of the litigation or to determine the
extent of any potential liability or damages.
BROADCAST NETWORK PROGRAMMING
Section 119 of the Satellite Home Viewer Act authorizes us to
provide satellite-delivered network channels to customers who qualify as
"unserved households," defined in the Satellite Home Viewer Act as consumers
who, among other things, "cannot receive, through the use of a conventional
outdoor rooftop receiving antenna, an over-the-air signal of Grade B
intensity, as defined by the FCC, of a primary network station affiliated
with that network." Historically, we obtained distant broadcast network
signals for distribution to our customers through PrimeTime 24, Joint
Venture. PrimeTime 24 also distributed network signals to certain of our
competitors in the satellite industry.
The national networks and local affiliate stations recently
challenged, based upon copyright infringement, PrimeTime 24's methods of
selling network programming to consumers. 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 injunction covers "distributors" as well. The plaintiffs
in the Florida litigation informed us that they considered us a "distributor"
for purposes of that injunction. A federal district court in North Carolina
has also issued an injunction against PrimeTime 24 prohibiting certain
distant signal retransmissions in the Raleigh area. Other copyright
litigation against PrimeTime 24 is pending.
We ceased delivering PrimeTime 24 programming in July 1998, and
began uplinking and distributing network channels directly. We have also
implemented Satellite Home Viewer Act Section 119 compliance procedures which
materially restrict the market for the sale of network channels by us.
On October 19, 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
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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. On November 5, 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 plaintiffs in
that action have also requested the issuance of a preliminary injunction
against us. The case filed by us was subsequently combined with and
transferred to the Miami court.
On February 24, 1999, CBS, NBC, Fox, and ABC filed a "Motion for
Temporary Restraining Order, Preliminary Injunction, and Contempt Finding"
against DIRECTV, Inc. in Miami relating to the delivery of distant network
channels to DIRECTV customers by satellite. On March 12, 1999, DIRECTV and
the four networks announced that they had reached a settlement of that
dispute. Under the terms of the settlement, DIRECTV customers predicted to
receive a strong signal of Grade A intensity from their local stations will
lose access to their satellite provided network channels by June 30, 1999,
while DIRECTV customers predicted to receive a weaker, but allegedly adequate
signal of Grade B intensity from their local stations will 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.
The Networks are currently pursuing a Motion for Preliminary
Injunction in the Miami Court, asking that 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 on the same
schedule as DIRECTV has agreed to. We intend to vigorously contest the
issuance of such an injunction. In the event of a decision adverse to us in
this case, significant material restrictions on the sale of distant ABC, NBC,
CBS and Fox channels by us could result. Among other things, we could be
required to terminate delivery of network signals to a material portion of
our subscriber base. While the Networks have not sought monetary damages,
they have sought to recover attorney fees if they prevail. We have commenced
sending letters to some of our subscribers warning that their access to
distant broadcast network channels might be terminated commencing in June of
this year. Such terminations would result in a small reduction in average
monthly revenue per subscriber. While there can be no assurance, any such
decrease could be offset by increases in average monthly revenue per
subscriber resulting from the delivery of local network channels by
satellite, and increases in programming offerings that will follow the
scheduled launches of EchoStar V and EchoStar VI later this year. While there
can be no assurance, legislation pending in the Senate would, if passed into
law, reduce the number of customers whose network channels we may otherwise
be required to terminate.
ENVIRONMENTAL PROTECTION AGENCY
In connection with a recent expansion of our digital broadcast
center in Cheyenne, Wyoming, two additional underground storage tanks were
installed by a contractor. The underground storage tanks were properly
installed and are being operated in accordance with Environmental Protection
Agency regulations. However, the EPA has alleged that the State of Wyoming
was not timely advised of the installation of those tanks, and that a
certificate of compliance was not timely filed following installation. As a
result, during May 1999, we received notice that the EPA filed a complaint
against us and has proposed to assess a civil penalty of $9,500. In
accordance with our construction contract for the digital broadcast center,
the general contractor has agreed to defend and indemnify us and to hold us
harmless for any costs involved with resolving the complaint.
We are subject to various other legal proceedings and claims which
arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability with respect to those actions will not
materially affect our financial position or results of operations.
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MANAGEMENT
DIRECTORS AND OFFICERS
Our company is a wholly owned subsidiary of ECC. The following table
sets forth information concerning certain officers and directors of ECC and our
company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles W. Ergen........................................ 45 Chairman, Chief Executive Officer, President and
Director of ECC and our company
O. Nolan Daines......................................... 39 Director of ECC
Raymond L. Friedlob .................................... 54 Director of ECC
James DeFranco ......................................... 45 Executive Vice President and Director of ECC and
our company
David K. Moskowitz...................................... 40 Senior Vice President, General Counsel, Secretary
and Director of ECC and our company
Michael T. Dugan........................................ 49 President, EchoStar Technologies Corporation
Steven B. Schaver....................................... 44 Chief Financial Officer and Chief Operating
Officer of ECC and Chief Financial Officer of our
company
</TABLE>
CHARLES W. ERGEN. Mr. Ergen has been Chairman of the Board of
Directors, President and Chief Executive Officer of ECC since its formation
and, during the past five years, has held various executive officer and
director positions with ECC's subsidiaries. Mr. Ergen, along with his spouse
and James DeFranco, was a co-founder of ECC in 1980.
O. NOLAN DAINES. In 1993, Mr. Daines founded DiviCom, Inc. DiviCom
is a global provider of standards-based MPEG-II encoding product systems for
digital video broadcasting. DiviCom's product lines include audio/video/data
encoding and networking systems, as well as integration consulting and
implementation services. Prior to founding DiviCom, Mr. Daines served as
Executive Director of Engineering and System Architecture at Compression Labs
Inc., where he led the development of digital video products and
communications systems. In March 1998, Mr. Daines was appointed to ECC's
Board of Directors.
RAYMOND L. FRIEDLOB. Mr. Friedlob has been a director of ECC and a
member of its Audit and Executive Compensation Committees since October 1995.
Mr. Friedlob is presently a member of the law firm of Friedlob Sanderson
Raskin Paulson & Tourtillott, LLC. Prior to 1995, Mr. Friedlob was a partner
of Raskin & Friedlob, where he had practiced since 1970. Mr. Friedlob
specializes in federal securities law, corporate law, leveraged acquisitions,
mergers and taxation.
JAMES DEFRANCO. Mr. DeFranco, currently the Executive Vice President
of ECC, has been a Vice President and a Director of ECC since its formation
and, during the past five years, has held various executive officer and
director positions with ECC's subsidiaries. Mr. DeFranco, along with Mr.
Ergen and Mr. Ergen's spouse, was a co-founder of ECC in 1980.
DAVID K. MOSKOWITZ. Mr. Moskowitz is the Senior Vice President,
Secretary and General Counsel of ECC. In March 1998, Mr. Moskowitz was
appointed to ECC's Board of Directors to fill the vacancy created by the
resignation of Mr. R. Scott Zimmer. During the past five years, Mr. Moskowitz
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also has held various executive officer and director positions with ECC's
subsidiaries. Mr. Moskowitz joined ECC in March 1990 and is responsible for
all legal and regulatory affairs of ECC and its subsidiaries.
MICHAEL T. DUGAN. Mr. Dugan is the President of the Consumer
Products Division of ECC. In that capacity, Mr. Dugan is responsible for all
engineering and manufacturing operations at ECC. Mr. Dugan has been with ECC
since 1990.
STEVEN B. SCHAVER. Mr. Schaver was named the Chief Financial Officer
of ECC in February 1996. In November 1996, Mr. Schaver also was named Chief
Operating Officer. From November 1993 to February 1996, Mr. Schaver was the
Vice President of ECC's European and African operations. From July 1992 to
November 1993, Mr. Schaver was the Director of Sales and Marketing for ECC's
largest Spanish customer, Internacional de Telecomunicaciones, S.A. in
Madrid, Spain. Prior to July 1992 and since joining ECC in 1984, he has held
various positions with subsidiaries of ECC, including Vice President of
European operations. Prior to joining ECC Mr. Schaver was a Banking Officer
with Continental Illinois National Bank.
The Board of Directors of ECC currently has an Audit Committee and
an Executive Compensation Committee, both of which were established in
October 1995. The present members of the Audit and Executive Compensation
Committees are Messrs. Daines and Friedlob. The principal functions of the
Audit Committee are: (i) to recommend to the Board of Directors the selection
of independent public accountants; (ii) review management's plan for engaging
ECC's independent public accountants during the year to perform non-audit
services and consider what effect these services will have on the
independence of the accountants; (iii) review the annual financial statements
and other financial reports which require approval by the Board of Directors;
(iv) review the adequacy of ECC's system of internal accounting controls; and
(v) review the scope of the independent public accountants' audit plans and
the results of the audit. The principal function of the Executive
Compensation Committee is to award grants under and administer ECC's Stock
Incentive Plan.
EXECUTIVE COMPENSATION
Executive Officers are compensated by certain subsidiaries of ECC.
The following table sets forth the cash and non-cash compensation for the
fiscal years ended December 31, 1998, 1997 and 1996 for the named executive
officers.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS ALL OTHER
YEAR SALARY BONUS COMPENSATION (1) (#) COMPENSATION(2)
---- ------ ----- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Ergen................ 1998 $ 248,082 $ -- $ -- 30,000 $ 21,510
Chairman, President and Chief 1997 190,000 -- -- 30,000 13,044
Executive Officer 1996 190,000 -- -- 17,300 140,680
James DeFranco.................. 1998 $ 178,860 $ -- $ -- 30,000 $ 15,995
Executive Vice President and 1997 160,000 -- -- 30,000 13,094
Director 1996 160,000 -- -- -- 48,990
Michael T. Dugan................ 1998 $ 209,231 $ -- $ -- 15,000 $ 14,235
President, EchoStar Technologies 1997 160,000 -- -- 138,820 13,094
Corporation 1996 149,615 -- -- 18,735 12,882
David K. Moskowitz.............. 1998 $ 187,311 $ 500,000 $ -- 30,000 $ 14,235
Senior Vice President, Secretary, 1997 157,692 -- -- 30,000 12,918
General Counsel and Director 1996 142,692 10,000 -- 7,495 12,994
Steven B. Schaver............... 1998 $ 183,081 $ -- $ 15,074 39,090 $ 13,765
Chief Operating Officer and Chief 1997 158,462 -- 15,416 59,410 11,984
Financial Officer 1996 142,498 11,787 14,340 -- 12,516
- ------------------
</TABLE>
(1) With respect to Mr. Schaver, "Other Annual Compensation" includes
housing and car allowances related to his overseas assignments.
Although each named executive officer enjoys certain other perquisites,
such perquisites do not exceed the lesser of $50,000 or 10% of such
officer's salary and bonus.
(2) "All Other Compensation" consists of amounts contributed to the
corporation's 401(k) plan on behalf of the named executive officers.
With respect to Mr. Ergen and Mr. DeFranco for 1996, "All Other
Compensation" also includes payments made in connection with a tax
indemnification agreement between ECC and such individuals.
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The following table provides information concerning grants of options
to purchase Class A shares of ECC made in 1998 to the named executive officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE GRANT DATE
NAME GRANTED (#) 1998 PER SHARE ($/SH) EXPIRATION DATE PRESENT VALUE (3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles W. Ergen............ 30,000(1) 4.33% $18.29 April 15, 2006 $318,198
James DeFranco.............. 30,000(1) 4.33% $17.00 April 15, 2006 325,251
Michael T. Dugan............ 15,000(1) 2.17% $17.00 April 15, 2006 162,625
David K. Moskowitz.......... 30,000(1) 4.33% $17.00 April 15, 2006 325,251
Steven B. Schaver........... 30,000(1) 4.33% $17.00 April 15, 2006 325,251
Steven B. Schaver........... 9,090(2) 1.31% $22.00 March 31, 2008 131,268
- ------------------
</TABLE>
(1) In February 1998, ECC adopted the 1998 Executive Bonus Plan which
provided, among other things, the named executive officers with options
to purchase up to 30,000 Class A Shares each, depending upon ECC's
achievement of certain financial and other goals. ECC did not meet any of
the goals during 1998. Accordingly, all stock options granted pursuant to
the 1998 Executive Bonus Plan were cancelled. During February 1999, each
of the named executive officers has been granted awards under the 1999
Executive Bonus Plan, which was recently approved by the Board of
Directors. The 1999 Executive Bonus Plan provides for corporate
performance-based bonuses, including cash and stock options, all of which
are conditioned upon the achievement of certain corporate, financial and
other goals. The 1999 Executive Bonus Plan consists of three components
for each executive covered by the plan: (i) a $75,000 cash bonus; (ii)
options to purchase up to 15,000 Class A shares at $48.00 per share; and
(iii) a long-term incentive grant of options to purchase up to 50,000
Class A shares at $48.00 per share. Each of the above components is
subject to cancellation to the extent ECC does not achieve certain
pre-defined corporate, financial and other goals.
(2) In March 1998, ECC granted options to Mr. Schaver and other key employees
to purchase Class A shares. These options will vest 20% one year following
the date of the grant and continue to vest 20% each year thereafter
through 2003. These options expire five years from the date on which each
portion of the option first becomes exercisable, subject to early
termination in certain circumstances.
(3) Option values reflect Black-Scholes model output for options. The
Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and
are fully transferable. In addition, because option valuation models
require the input of highly subjective assumptions, including the expected
stock price characteristics, significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not
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necessarily provide a reliable single measure of the fair value of its
stock-based compensation awards. The assumptions used in the model were
expected volatility of 67%, risk free rate of return of 5.64%, dividend
yield of 0%, and time to exercise of six years.
The following table provides information as of December 31, 1998
concerning unexercised options to purchase Class A shares:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1998 (#) DECEMBER 31, 1998 ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Ergen - $ - 64,489 80,814 $2,344,164 $2,548,098
James DeFranco - - 47,340 67,279 1,748,148 2,176,592
Michael T. Dugan 17,000 496,163 64,361 137,180 2,074,513 4,361,525
David K. Moskowitz - - 68,679 80,432 2,483,365 2,605,698
Steven B. Schaver - - 34,395 98,058 1,170,798 3,064,854
- -------------------
</TABLE>
(1) The dollar value of each exercisable and unexercisable option was
calculated by multiplying the number of Class A shares underlying the
option by the difference between the exercise price of the option and the
closing price (as quoted in the Nasdaq National Market) of a Class A share
on December 31, 1998.
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION. Prior to October 1995, ECC did not have an Executive
Compensation Committee, and its Board of Directors determined all matters
concerning executive compensation. During 1998, the Executive Compensation
Committee consisted of Messrs. Daines and Friedlob. Mr. Friedlob is a partner
in the law firm of Friedlob, Sanderson, Raskin, Paulson & Tourtillot, LLC,
which billed ECC approximately $210,000 in fees related to securities
offerings in 1997.
DIRECTOR COMPENSATION. Directors of ECC who are not also executive
officers of ECC receive $500 for each meeting of the Board of Directors
attended and are reimbursed for reasonable travel expenses related to
attendance at Board meetings. Directors of ECC who are employees are not
compensated for their services as directors. Directors of ECC are elected
annually by the shareholders of ECC. Directors who are not also employees of
ECC are granted options under the 1995 Non-employee Director Stock Option
Plan to acquire 1,000 Class A shares of ECC upon election to the Board. Mr.
Friedlob was granted an option to acquire 1,000 Class A shares of ECC on
December 22, 1995, pursuant to the Director Stock Option Plan. These options
were 100% vested upon issuance and had an exercise price of $20.25 per share
and a term of five years. These options were repriced to $17.00 per share
during July 1997. Additionally, in February 1997, Mr. Friedlob was granted an
option to acquire 5,000 shares of Class A common stock. These options were
100% vested upon issuance and have an exercise price of $17.00 and a term of
five years. In March 1998, upon appointment to ECC's Board of Directors, Mr.
Daines was granted an option to acquire 1,000 shares of ECC's Class A common
stock. These options were 100% vested upon issuance, have an exercise price
of $22.00, and a term of five years.
STOCK INCENTIVE PLAN. ECC adopted the 1995 Incentive Plan to provide
incentives to attract and retain executive officers and other key employees.
ECC's Executive Compensation Committee
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administers the Incentive Plan. Key employees are eligible to receive awards
under the Incentive Plan at the committee's discretion.
Awards available under the Incentive Plan include (i) common stock
purchase options; (ii) stock appreciation rights; (iii) restricted stock and
restricted stock units; (iv) performance awards; (v) dividend equivalents;
and (vi) other stock-based awards. ECC has reserved up to 10 million Class A
shares for granting awards under the Incentive Plan. Under the terms of the
Incentive Plan, the Executive Compensation Committee retains discretion,
subject to plan limits, to modify the terms of outstanding awards and to
reprice awards.
Pursuant to the Incentive Plan, ECC has granted options to its
executive officers and other key employees for the purchase of a total of
2,780,834 Class A shares. Options to purchase 1,447,015 Class A shares were
outstanding as of December 31, 1998. These options generally vest at the rate
of 20% per year, commencing one year from the date of grant and 20%
thereafter on each anniversary of the date of grant. The exercise prices of
these options, which have always been equal to or greater than the fair
market value at the date of grant, have ranged from $9.33 to $29.36 per Class
A share. Certain of these stock options were repriced as described below.
Effective July 1, 1997, the Executive Compensation Committee voted
to reprice all outstanding options with an exercise price greater than $17.00
per Class A share to $17.00 per Class A share. The price to which the options
were repriced exceeded the fair market value of a Class A share as of the
date of repricing. The market value of Class A shares on the date of
repricing was $15.25 per Class A share. The Executive Compensation Committee
and the Board of Directors indicated that they would not typically consider
reducing the exercise price of previously granted options. However, the
Executive Compensation Committee and the Board of Directors recognized that
certain events beyond the reasonable control of the employees of ECC had
significantly reduced the incentive those options were intended to create. It
was the expectation of the Executive Compensation Committee and the Board of
Directors that by reducing the exercise price of these options to $17.00, the
intended incentive would be restored in part.
LAUNCH BONUS PLAN. Effective May 8, 1998, in connection with the
launch of EchoStar IV, ECC granted a performance award of ten shares of Class
A common stock to all full-time employees with more than 90 days of service.
The total number of shares granted relative to the performance award
approximated 16,600 shares.
401(k) PLAN. In 1983, ECC adopted a defined-contribution
tax-qualified 401(k) plan. ECC's employees become eligible for participation
in the 401(k) plan upon completing six months of service with ECC and
reaching age 21. Participants in the 401(k) plan may contribute between 1%
and 15% of their compensation in each contribution period. ECC may make a 50%
matching contribution up to a maximum of $1,000 per participant per calendar
year. ECC may also make an annual discretionary profit sharing or employer
stock contribution to the 401(k) plan with the approval of the Board of
Directors.
Participants in the 401(k) plan are immediately vested in their
voluntary contributions, plus actual earnings thereon. The balance of the
vesting in 401(k) plan participants' accounts is based on years of service. A
participant becomes 10% vested after one year of service, 20% vested after
two years of service, 30% vested after three years of service, 40% vested
after four years of service, 60% vested after five years of service, 80%
vested after six years of service, and 100% vested after seven years of
service.
In March 1998, ECC contributed 80,000 shares of its Class A common
stock to the 401(k) plan as a discretionary employer stock contribution.
These shares, which were allocated to individual participant 401(k) plan
accounts in proportion to their 1997 eligible compensation, are subject to
the seven-year
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<PAGE>
vesting schedule previously described. Shares of Class A common stock
allocated to the 401(k) plan accounts of the named executive officers
pursuant to the 1997 discretionary employer stock contribution were as
follows: (i) Charles W. Ergen, 539 shares; (ii) Michael T. Dugan, 539 shares
(iii) James DeFranco, 539 shares; (iv) Steven B. Schaver, 534 shares; (v)
David K. Moskowitz, 531 shares and (vi) all officers and directors as a
group, 4,247 shares.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, the law firm of Friedlob, Sanderson, Raskin, Paulson &
Tourtillott, LLC billed ECC approximately $210,000 in fees related to certain
of our 1997 securities offerings. Mr. Friedlob, a member of ECC's Board of
Directors, is a partner of that law firm.
O. Nolan Daines, who was recently appointed to ECC's Board of
Directors, also is the founder of DiviCom. During 1998, ECC purchased
approximately $15 million of equipment for its Digital Broadcast Operations
Center and for certain of its other project integration services for
international direct-to-home satellite TV ventures from DiviCom.
We distributed approximately $269.7 million of the net proceeds of
the offering of old notes to ECC to repurchase ECC's senior preferred
exchange notes pursuant to the tender offers. In addition, ECC contributed
cash or cash equivalents of $200 million to us as common equity. See "Use of
Proceeds."
In addition, we repaid a $12 million demand note payable to ECC in
October 1997. Also, during 1995 and 1996, ECC advanced us $46 million in the
form of notes payable to enable us to make required payments under our
EchoStar III construction contract. The notes payable bear interest at
11.25%, which has been added to principal. We used approximately $60.2
million of the net proceeds of the old notes to repay such notes payable
together with accrued interest.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to our best knowledge, the
beneficial ownership of our parent company's voting securities as of April
30, 1999 by (i) each person known by our parent company, ECC, to be the
beneficial owner of more than five percent of any class of its voting shares;
(ii) each director of ECC; (iii) the five highest compensated persons acting
as an executive officer of ECC, listed below as named executive officers; and
(iv) all directors and executive officers as a group. Unless otherwise
indicated, each person listed in the following table (alone or with family
members) has sole voting and dispositive power over the shares listed
opposite such person's name.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
NAME(1) SHARES CLASS SHARES (2) CLASS (2)
- ------------------------------------------------------ --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
CLASS A COMMON STOCK (3):
Charles W. Ergen (4), (5), (20), (21), (22).... 30,064,053 61.7% 30,064,053 49.5%
The News Corporation Limited (6)............... - - 9,568,818 15.8%
MCI WorldCom, Inc. (6)......................... - - 2,377,272 3.9%
FMR Corp. (7).................................. 2,172,864 4.5% 2,172,864 3.6%
Morgan Stanley Dean Witter & Co (8)............ 1,936,446 4.0% 1,936,446 3.2%
Wellington Management Company, LLP (9)......... 1,657,481 3.4% 1,657,481 2.7%
Montgomery Asset Management, LLC (10).......... 1,202,100 2.5% 1,202,100 2.0%
James DeFranco (11), (20), (21)................ 1,042,049 2.1% 1,042,049 1.7%
Equitable Companies Inc. (12).................. 836,861 1.7% 836,861 1.4%
AMVESCAP, PLC (13)............................. 782,050 1.6% 782,050 1.3%
David K. Moskowitz (14), (20), (21)............ 94,780 * 94,780 *
Michael T. Dugan (15), (20), (21).............. 43,849 * 43,849 *
Steven B. Schaver (16), (20), (21)............. 45,355 * 45,355 *
Raymond L. Friedlob (17), (21)................. 11,000 * 11,000 *
O. Nolan Daines (18), (21)..................... 10,000 * 10,000 *
All directors and executive officers as a group
(14 persons) (19), (20), (21)................ 31,363,895 64.3% 31,363,895 51.7%
NUMBER OF PERCENTAGE
SHARES OF CLASS
--------------- --------------
CLASS B COMMON STOCK:
Charles W. Ergen................................................. 29,804,401 100.0%
All Directors and Executive Officers as a Group (14 persons)..... 29,804,401 100.0%
- -------------------
</TABLE>
* Less than 1%.
(1) Except as otherwise noted, the address of each such person is 5701
Santa Fe Drive, Littleton, Colorado 80120.
(2) Gives effect to the 110 acquisition, assuming it had been consummated
on April 30, 1999 (see Note (6)). Also includes Class A shares issuable
upon conversion of Mr. Ergen's Class B shares.
(3) The following table sets forth, to the best knowledge of ECC, the actual
ownership of Class A shares (including options exercisable within 60
days) as of April 30, 1999 by (i) each person known by ECC to be the
beneficial owner of more than five percent of any class of ECC's voting
shares; (ii) each director or nominee of ECC; (iii) each named executive
officer; and (iv) all directors and executive officers as a group:
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<PAGE>
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENTAGE OF CLASS
-------------------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
CLASS A COMMON STOCK:
FMR Corp................................................ 2,172,864 13.1%
Morgan Stanley Dean Witter & Co......................... 1,936,446 11.6%
Wellington Management Company, LLP...................... 1,657,481 10.0%
Montgomery Asset Management, LLC........................ 1,202,100 7.2%
James DeFranco.......................................... 1,042,049 6.3%
Equitable Companies Inc................................. 836,861 5.0%
AMVESCAP, PLC........................................... 782,050 4.7%
Charles W. Ergen........................................ 259,651 1.6%
David K. Moskowitz...................................... 94,780 *
Michael T. Dugan........................................ 43,849 *
Steven B. Schaver....................................... 45,355 *
Raymond L. Friedlob..................................... 11,000 *
O. Nolan Daines......................................... 10,000 *
All directors and executive officers as a group
(14 persons)............................................ 1,559,494 9.4%
</TABLE>
(4) Includes (i) 2,194 Class A shares held in ECC's 401(k) Employee Savings
Plan; (ii) the right to acquire 84,144 Class A shares within 60 days upon
the exercise of employee stock options; and (iii) 29,804,401 Class A
shares issuable upon conversion of Mr. Ergen's Class B shares.
(5) The percentage of total voting power held by Mr. Ergen is 93.4%, after
giving effect to the exercise of Mr. Ergen's options exercisable within
60 days and would be approximately 90.0% after also giving effect to the
110 acquisition.
(6) The exact number of Class A shares issuable to News Corporation and MCI,
a subsidiary of MCI WORLDCOM, Inc., in connection with the 110
acquisition will not be determinable until consummation of that
transaction. The number of Class A shares that will be issued is subject
to adjustment if the 20 trading day average closing price of ECC's Class
A shares is less than $15.00 or greater than $39.00. Assuming the 110
acquisition had been consummated on April 30, 1999, the 20 trading day
average closing price of the Class A shares would have been $97.94. The
following table illustrates, at various prices, the number of Class A
shares issuable to News Corporation and MCI.
<TABLE>
<CAPTION>
NEWS CORPORATION MCI
----------------------------------- --------------------------------
PERCENTAGE PERCENTAGE
AVERAGE SHARE PRICE SHARES OF CLASS (2) SHARES OF CLASS (2)
- ------------------------ ---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
$10.00 36,045,000 38.5% 8,955,006 9.6%
$15.00 24,030,000 30.6% 5,970,000 7.6%
$39.00 24,030,000 30.6% 5,970,000 7.6%
$40.00 23,429,250 30.1% 5,820,750 7.5%
$50.00 18,743,400 26.0% 4,656,600 6.5%
$60.00 15,619,500 22.9% 3,880,500 5.7%
$70.00 13,388,143 20.5% 3,326,143 5.1%
$80.00 11,714,625 18.5% 2,910,375 4.6%
$90.00 10,413,000 16.9% 2,587,000 4.2%
$100.00 9,371,700 15.6% 2,328,300 3.9%
$110.00 8,519,727 14.4% 2,116,636 3.6%
$120.00 7,809,750 13.4% 1,940,250 3.3%
</TABLE>
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<PAGE>
(7) The address of FMR Corp. is 82 Devonshire Street, Boston,
Massachusetts 02109.
(8) The address of Morgan Stanley Dean Witter & Co. is 1585 Broadway,
New York, New York 10036.
(9) The address of Wellington Management Company, LLP is 75 State Street,
Boston, Massachusetts 02109.
(10) The address of Montgomery Asset Management, LLC is 600 Montgomery
Street, San Francisco, California 94111.
(11) Includes: (i) 2,194 Class A shares held in the 401(k) plan;
(ii) the right to acquire 64,265 Class A shares within 60 days upon the
exercise of employee stock options; (iii) 751 Class A shares held as
custodian for his minor children; and (iv) 375,000 Class A shares
controlled by Mr. DeFranco as general partner of a partnership.
(12) The address of Equitable Companies Inc. is 1290 Avenue of the Americas,
New York, New York 10104.
(13) The address of AMVESCAP, PLC is 1315 Peachtree Street, N.W., Atlanta,
Georgia 30309.
(14) Includes (i) 2,092 Class A shares held in the 401(k) plan; (ii) the
right to acquire 88,040 Class A shares within 60 days upon the exercise
of employee stock options; (iii) 166 Class A shares held as custodian
for his minor children; and (iv) 1,023 Class A shares held as trustee
for Mr. Ergen's children.
(15) Includes: (i) 2,093 Class A shares held in the 401(k) plan and (ii)
the right to acquire 41,716 Class A shares within 60 days upon the
exercise of employee stock options.
(16) Includes: (i) 1,962 Class A shares held in the 401(k) plan and (ii)
the right to acquire 43,353 Class A shares within 60 days upon the
exercise of employee stock options.
(17) Includes the right to acquire 11,000 Class A shares within 60 days upon
the exercise of employee stock options.
(18) Includes the right to acquire 6,000 Class A shares within 60 days upon
the exercise of employee stock options.
(19) Includes (i) 13,522 Class A shares held in the 401(k) plan; (ii) the
right to acquire 383,390 Class A shares within 60 days upon the exercise
of employee stock options; (iii) 375,000 Class A shares held in a
partnership; (iv) 29,804,401 Class A shares issuable upon conversion
of Class B shares; and (v) 2,041 Class A shares held in the name of,
or in trust for, minor children and other family.
(20) Includes 162,175 Class A shares over which Mr. Ergen has voting power as
trustee for the 401(k) plan. These shares also are beneficially owned
through investment power by each individual 401(k) plan participant. The
Class A shares individually owned by each of the named executive officers
through their participation in the 401(k) plan are included in each
respective named executive officer's information above.
(21) Beneficial ownership percentage was calculated assuming exercise or
conversion of all Class B shares, warrants and employee stock options
exercisable within 60 days into Class A shares by all holders of such
derivative securities. Assuming exercise or conversion of derivative
securities by such person, and only by such person, the beneficial
ownership of Class A shares would be as follows: Mr. Ergen, 65.9%; Mr.
DeFranco, 6.5%; less than one percent for Mr. Moskowitz, Mr. Dugan, Mr.
Schaver, Mr. Daines and Mr. Friedlob; and all officers and directors as a
group, 66.6%.
In connection with the 110 acquisition, Mr. Ergen entered into a
voting agreement with News Corporation and MCI pursuant to which News
Corporation and MCI have agreed to vote their shares of ECC stock in the
manner recommended by the Board of Directors of ECC for a period of five
years following consummation of the 110 acquisition. Mr. Ergen disclaims
beneficial ownership of the shares of Class A shares to be issued to News
Corporation and MCI.
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<PAGE>
DESCRIPTION OF THE NOTES
The seven year notes and the ten year notes were each issued
pursuant to an indenture by and among us, the guarantors and U.S. Bank Trust
National Association, as trustee. The terms of the exchange notes are
substantially identical to the terms of the old notes. However, the exchange
notes are not subject to transfer restrictions or registration rights unless
held by certain broker-dealers, our affiliates or certain other persons.
The following summary of some of the provisions of each indenture
and the registration rights agreements relating to each series of notes does
not purport to be complete and is qualified in its entirety by reference to
the applicable indenture and the registration rights agreements.
You can find the definitions of some of the capitalized terms used
in this section under the subheading "--Certain definitions." For purposes of
this section, references to "us," "our company" or "we" mean only EchoStar
DBS Corporation and not our subsidiaries, and references to "ECC" shall mean
ECC together with each Wholly Owned Subsidiary of ECC that beneficially owns
100% of the Equity Interests of our company, but only so long as ECC
beneficially owns 100% of the Equity Interests of such subsidiary.
The terms of the notes include those stated in the applicable
indenture and those made part of each indenture by reference to the Trust
Indenture Act of 1939, as amended. The notes are subject to all such terms,
and holders of notes should refer to the applicable indenture and the Trust
Indenture Act for a statement thereof. A copy of each indenture may be
obtained from us or the initial purchasers.
The following description is a summary of the material provisions of
each indenture. It does not restate each indenture in its entirety. We urge
you to read the applicable indenture because it, and not this description,
defines your rights as a holder of the notes.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
In the following summary, "EchoStar" refers solely to EchoStar
Communications Corporation and does not include any direct or indirect
subsidiaries of EchoStar. Unless the context otherwise requires, all
references herein to the notes shall include the old notes and the exchange
notes.
THE NOTES
The notes are:
- - general unsecured obligations of our company;
- - ranked equally in right of payment to each other;
- - ranked equally in right of payment with all existing and future
senior debt of our company;
- - ranked senior in right of payment to all other existing and future
subordinated debt of our company;
- - effectively junior to (i) all liabilities (including trade payables) of
our company's Subsidiaries (if any) that are Unrestricted Subsidiaries
(and thus not guarantors) or that are otherwise not guarantors and of
ETC or any Subsidiary of our company which constitutes a Non-Core Asset
in the event ETC or such Subsidiary is released from its guarantee
pursuant to the covenant entitled "Certain Covenants--Dispositions of
ETC and non-core assets," (ii) all liabilities (including trade
payables) of any Subsidiary Guarantor if such guarantor's guarantee is
subordinated or avoided by a court of competent jurisdiction (see "Risk
Factors--Under fraudulent conveyance statutes, a
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<PAGE>
court may void or subordinate our obligations under the notes or our
subsidiary guarantors' obligations under their guarantees") and (iii)
all secured obligations, to the extent of the collateral securing such
obligations, including any borrowings under any of our future secured
credit facilities; and
- - unconditionally guaranteed by the guarantors.
The notes are issued in fully registered form only, without coupons,
in denominations of $1,000 and integral multiples thereof. Any ten year notes
that remain outstanding after the completion of the ten year note exchange
offer, together with the ten year exchange notes issued in connection with
the ten year note exchange offer, will be treated as a single class of
securities for all purposes under the ten year note indenture, including,
without limitation, waivers, amendments, redemptions, Change of Control
Offers and Excess Proceeds Offers. Any seven year notes that remain
outstanding after completion of the seven year note exchange offer, together
with the seven year exchange notes issued in connection with the seven year
note exchange offer, will be treated as a single class of securities for all
purposes under the seven year note indenture, including without limitation,
waivers, amendments, redemptions, Change of Control Offers and Excess
Proceeds Offers.
THE GUARANTEES
The notes are guaranteed by the guarantors, which currently include
DBSC and substantially all of our direct and indirect Wholly Owned Restricted
Subsidiaries. The guarantees of the notes are:
- general unsecured obligations of each guarantor;
- ranked equally in right of payment to all other guarantees;
- ranked equally in right of payment with any existing and
future senior debt of the guarantor;
- effectively junior to secured obligations, to the extent of
the collateral securing such obligations, including any
secured guarantees of our obligations under any of our future
credit facilities; and
- ranked senior in right of payment to all other existing and
future subordinated debt of such guarantor.
As of March 31, 1999 there was:
- no outstanding debt ranking ahead of the notes or the
guarantees, as the case may be,
- $63.8 million of outstanding debt ranking equally with the
notes and the guarantees, as the case may be, $44.9 million
of which is secured and
- no outstanding debt ranking behind the notes or the
guarantees, as the case may be.
The indentures permit us and the guarantors to incur additional Indebtedness,
including secured and unsecured Indebtedness that ranks PARI PASSU with the
notes. Any secured Indebtedness will, as to the collateral securing such
Indebtedness, be effectively senior to the notes to the extent of such
collateral.
As of the date of the indentures, all of our Subsidiaries are
"Restricted Subsidiaries" other than E-Sat, Inc., EchoStar Real Estate
Corporation, EchoStar International (Mauritius) Ltd., EchoStar
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<PAGE>
Manufacturing and Distribution Private Ltd. and Satrec Mauritius Ltd., which
are "Unrestricted Subsidiaries." Under certain circumstances, we are
permitted to designate certain of our Subsidiaries as additional
"Unrestricted Subsidiaries." Unrestricted Subsidiaries are not subject to
many of the restrictive covenants in the indenture. Unrestricted Subsidiaries
will not guarantee the notes.
ECC and its Subsidiaries (other than we and substantially all of our
Subsidiaries) will not guarantee or otherwise be obligated in respect of the
notes.
GENERAL
The notes rank PARI PASSU in right of payment to each other, and
with all of our senior indebtedness, except to the extent of any collateral
securing such senior indebtedness, which is effectively senior to the notes
to the extent of such collateral. Each guarantee ranks PARI PASSU in right of
payment with the other guarantees, and with all senior indebtedness of the
guarantor issuing such guarantee, except to the extent of any collateral
securing such senior indebtedness, which is effectively senior to the
guarantees to the extent of such collateral. Although the notes are titled
"Senior," neither we nor any guarantor has issued, and neither has any plans
to issue, any indebtedness to which the notes or the guarantees, as the case
may be, would be senior. As of March 31, 1999 our aggregate consolidated
Indebtedness, for purposes of the indentures was approximately 2.04 billion.
PRINCIPAL, MATURITY AND INTEREST
The ten year notes were issued in an aggregate principal amount of
$1.625 billion. The ten year notes will mature on February 1, 2009. The seven
year notes were issued in an aggregate principal amount of $375.0 million.
The seven year notes will mature on February 1, 2006.
Interest on the notes accrues at the rate per annum set forth on the
cover page of this prospectus and will be payable semiannually in cash on
each February 1 and August 1, commencing August 1, 1999 to holders of record
on the immediately preceding January 15 and July 15, respectively. Interest
on the notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of issuance. Interest on
the notes will be computed on the basis of a 360-day year of twelve 30-day
months.
The notes will be payable both as to principal and interest at the
office or agency of our company maintained for such purpose or, at our
option, payment of interest may be made by check mailed to the holders of the
notes at their respective addresses set forth in the register of holders of
notes. Until otherwise designated by us, our office or agency will be the
office of the trustee maintained for such purpose.
GUARANTEES
Each guarantor jointly and severally guarantees our obligations
under the ten year notes and the seven year notes, respectively. The
obligations of each guarantor under its guarantee is limited as necessary to
prevent such guarantee from constituting a fraudulent conveyance or
fraudulent transfer under applicable law. See "Risk Factors--Under fraudulent
conveyance statutes, a court may void or subordinate our obligations under
the notes or our subsidiary guarantors' obligations under their guarantees."
Each guarantor that makes a payment or distribution under a guarantee shall
be entitled to a pro rata contribution from each other guarantor based on the
net assets of each other guarantor.
Each guarantor may consolidate with or merge into or sell its assets
to us or another guarantor that is our Restricted Subsidiary, or with or to
other persons upon the terms and conditions set forth in the
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indentures. A guarantor may not sell or otherwise dispose of all or
substantially all of its assets, or consolidate with or merge with or into
another person (whether or not such guarantor is the surviving person) unless
certain conditions are met. See "--Certain covenants--Merger, consolidation,
or sale of assets."
The guarantee of a guarantor will be deemed automatically discharged
and released in accordance with the terms of the indenture:
(1) in connection with any direct or indirect sale, conveyance or
other disposition of all of the capital stock or all or substantially all of
the assets of that guarantor (including by way of merger or consolidation),
if such sale or disposition is made in compliance with the applicable
provisions of the indenture (See "--Certain covenants--Asset sales");
(2) if a guarantor is dissolved or liquidated in accordance with the
provisions of the indenture;
(3) if we designate any such guarantor as an Unrestricted
Subsidiary in compliance with the terms of the indentures; or
(4) without limiting the generality of the foregoing, in the case of
ETC or any guarantor which constitutes a Non-Core Asset, upon the sale or
other disposition of any Equity Interest of ETC or such guarantor which
constitutes a Non-Core Asset, respectively. See "--Certain
covenants--Dispositions of ETC and non-core assets."
OPTIONAL REDEMPTION
THE TEN YEAR NOTES
Except as provided in the next paragraph, the ten year notes are not
redeemable at our option prior to February 1, 2004. Thereafter, the ten year
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
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the 12-month period beginning on February 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004..................................................................... 104.688%
2005..................................................................... 103.516
2006..................................................................... 102.344
2007..................................................................... 101.172
2008..................................................................... 100.000
</TABLE>
Notwithstanding the foregoing, at any time prior to February 1,
2002, we may redeem up to 35% of the aggregate principal amount of the ten
year notes outstanding at a redemption price equal to 109.375% of the
principal amount thereof on the repurchase date, together with accrued and
unpaid interest to such repurchase date, with the net cash proceeds of one or
more public or private sales (including sales to ECC, regardless of whether
ECC obtained such funds from an offering of Equity Interests or Indebtedness
of ECC or otherwise) of our Equity Interests (other than Disqualified Stock)
(other than proceeds from a sale to any of our Subsidiaries or any employee
benefit plan in which we or any of our Subsidiaries participates); PROVIDED
that:
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- at least 65% in aggregate principal amount of the ten year
notes originally issued remain outstanding immediately after
the occurrence of such redemption;
- such redemption occurs within 120 days of the date of the
closing of any such sale; and
- the sale of such Equity Interests is made in compliance
with the terms of the indenture.
THE SEVEN YEAR NOTES
Except as provided in the next paragraph, the seven year notes are
not redeemable at our option prior to February 1, 2003. Thereafter, the seven
year 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
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the 12-month period beginning on February 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003..................................................................... 104.625%
2004..................................................................... 102.313
2005..................................................................... 100.000
</TABLE>
Notwithstanding the foregoing, at any time prior to February 1,
2002, we may redeem up to 35% of the aggregate principal amount of the seven
year notes outstanding at a redemption price equal to 109.250% of the
principal amount thereof on the repurchase date, together with accrued and
unpaid interest to such repurchase date, with the net cash proceeds of one or
more public or private sales (including sales to ECC, regardless of whether
ECC obtained such funds from an offering of Equity Interests or Indebtedness
of ECC or otherwise) of our Equity Interests (other than Disqualified Stock)
(other than proceeds from a sale to any of our Subsidiaries or any employee
benefit plan in which we or any of our Subsidiaries participates); PROVIDED
that:
- at least 65% in aggregate principal amount of the seven year
notes originally issued remain outstanding immediately after
the occurrence of such redemption;
- such redemption occurs within 120 days of the date of the
closing of any such sale; and
- the sale of such Equity Interests is made in compliance
with the terms of the indenture.
SELECTION AND NOTICE
If less than all of a series of notes are to be redeemed at any
time, selection of notes of the applicable series for redemption will be made
by the trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such notes are listed or, if such notes
are not so listed, on a pro rata basis, by lot or by such other method as the
trustee deems fair and appropriate, PROVIDED that no notes with a principal
amount of $1,000 or less shall be redeemed in part. Notice of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each holder of notes to be redeemed at its
registered address. If any note is to be redeemed in part only, the notice of
redemption that relates to such note shall state the portion of the principal
amount thereof to be redeemed. A new note of the same series in principal
amount equal to the unredeemed portion thereof will be issued in the name of
the holder thereof upon cancellation of the original note. On and after the
redemption date, if we do not default in the payment of the redemption price,
interest will cease to accrue on notes or portions thereof called for
redemption.
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OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, we will be required to
make an offer (a "Change of Control Offer") to each holder of notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of such holder's notes at a purchase price equal to 101% of the aggregate
principal amount thereof, together with accrued and unpaid interest thereon
to the date of repurchase (in either case, the "Change of Control Payment").
Within 15 days following any Change of Control, we shall 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";
2. the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 40 days after the date
such notice is mailed (the "Change of Control Payment Date");
3. that any notes not tendered will continue to accrue interest
in accordance with the terms of the indenture;
4. that, unless we default in the payment of the Change of
Control Payment, all notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
5. that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of
notes delivered for purchase, and a statement that such holder
is withdrawing his election to have such notes purchased;
6. that holders whose notes are being purchased only in part will
be issued new notes equal in principal amount to the unpurchased
portion of the notes surrendered, which unpurchased portion must
be equal to $1,000 in principal amount or an integral multiple
thereof; and
7. any other information material to such holder's decision to
tender notes.
We will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes in connection with a Change of Control. Due to our
highly leveraged structure and the terms of other indebtedness to which we
and our Subsidiaries are or may in the future be subject, we may not be able
to repurchase all of the notes tendered for purchase upon the occurrence of a
Change of Control. If we fail to repurchase all of the notes tendered for
purchase upon the occurrence of a Change of Control, such failure will
constitute an Event of Default. In addition, the terms of other indebtedness
to which we may be subject may prohibit us from purchasing the notes or
offering to purchase the notes, and a Change of Control Offer or a Change of
Control Payment could trigger a default or event of default under the terms
of such indebtedness. In the event that we were unable to obtain the consent
of the holders of any such other indebtedness to make a Change of Control
Offer or make the Change of Control Payment or to repay such indebtedness, a
Default or Event of Default may occur. See "--Events of default and remedies."
Except as described above with respect to a Change of Control, the
indentures do not contain provisions that permit the holders of the notes to
require that we repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
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CERTAIN COVENANTS
RESTRICTED PAYMENTS. The indentures provide that neither we nor any
of our Restricted Subsidiaries may, directly or indirectly:
(a) declare or pay any dividend or make any distribution on account
of any Equity Interests of our company other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of our company;
(b) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of ECC, our company or any of their respective Subsidiaries
or Affiliates, other than any such Equity Interests owned by our company or
any Wholly Owned Restricted Subsidiary;
(c) purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is expressly subordinated in right of payment to
the notes or the guarantees, except in accordance with the scheduled
mandatory redemption, sinking fund or repayment provisions set forth in the
original documentation governing such Indebtedness;
(d) declare or pay any dividend or make any distribution on account
of any Equity Interests of any Restricted Subsidiary, other than
(x) to our company or any Wholly Owned Restricted Subsidiary or
(y) to all holders of any class or series of Equity Interests of
such Restricted Subsidiary on a PRO RATA basis; PROVIDED that in the
case of this clause (y), such dividends or distributions may not be in
the form of Indebtedness or Disqualified Stock; or
(e) make any Restricted Investment (all such prohibited payments and
other actions set forth in clauses (a) through (e) being collectively
referred to as "Restricted Payments"),
unless, at the time of such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) after giving effect to such Restricted Payment and the
incurrence of any Indebtedness the net proceeds of which are used to finance
such Restricted Payment, the Indebtedness to Cash Flow Ratio of our company
would not have exceeded 8.0 to 1; and
(iii) such Restricted Payment, together with the aggregate of
all other Restricted Payments after the date of the indenture, is less than
the sum of
(A) the difference of
(x) cumulative Consolidated Cash Flow of our company
determined at the time of such Restricted Payment (or, in case such
Consolidated Cash Flow shall be a deficit, minus 100% of such deficit)
minus
(y) 120% of Consolidated Interest Expense of our
company, each as determined for the period (taken as one accounting
period) from April 1, 1999 to the end of our company's most
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recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment; plus
(B) an amount equal to 100% of the aggregate net cash
proceeds and, in the case of proceeds consisting of assets used in
or constituting a business permitted under the covenant described
under " --Activities of our company," 100% of the fair market value
of the aggregate net proceeds other than cash received by our
company either from capital contributions from ECC, or from the
issue or sale (including an issue or sale to ECC) of Equity
Interests (other than Disqualified Stock) of our company (other than
Equity Interests sold to any Subsidiary of our company), since the
date of the Indenture, but, in the case of any net cash proceeds,
only to the extent such net cash proceeds are not used to redeem
notes pursuant to the provision described in the second paragraph
under "--Optional redemption"; PROVIDEd that the proceeds calculated
for purposes of this clause (B) shall exclude cash and non-cash
property and assets received by our company pursuant to the
covenants described under "--The 110 acquisition" and "--The ECC
equity contribution"; plus
(C) in the event that any Unrestricted Subsidiary is designated
by our company as a Restricted Subsidiary, an amount equal to the
fair market value of the net Investment of our company or a
Restricted Subsidiary in such Subsidiary at the time of such
designation PROVIDED, HOWEVER, that the foregoing sum shall not
exceed the amount of the Investments made by our company or any
Restricted Subsidiary in any such Unrestricted Subsidiary since the
date of the indenture, plus
(D) 100% of any cash dividends and other cash distributions
received by our company and its Wholly Owned Restricted Subsidiaries
from an Unrestricted Subsidiary to the extent not included in
Cumulative Consolidated Cash Flow plus
(E) to the extent not included in clauses (A) through (D) above,
an amount equal to the net reduction in Investments of our company
and our Restricted Subsidiaries since the Issue Date resulting from
payments in cash of interest on Indebtedness, dividends, or
repayment of loans or advances, or other transfers of property, in
each case, to our company or to a Wholly Owned Restricted Subsidiary
or from the net cash proceeds from the sale, conveyance or other
disposition of any such Investment; PROVIDED, HOWEVER, that the
foregoing sum shall not exceed, with respect to any person in whom
such Investment was made, the amount of Investments previously made
by our company or any Restricted Subsidiary in such person which
were included in computations made pursuant to this clause (iii).
The foregoing provisions will not prohibit the following (provided that
with respect to clauses (2), (3), (5), (6), (7), (8), (9), (12), (13) and (14)
below, no Default or Event of Default shall have occurred and be continuing
therein):
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of our company in exchange for, or out of the net proceeds
of the substantially concurrent capital contribution from ECC or from the
substantially concurrent issue or sale (including to ECC) of Equity Interests
(other than Disqualified Stock) of our company (other than Equity Interests
issued or sold to any Subsidiary of our company);
(3) Investments in an aggregate amount not to exceed $75 million
plus, to the extent not included in Consolidated Cash Flow, an amount equal to
the net reduction in such Investments resulting from payments in cash of
interest on Indebtedness, dividends or repayment of loans or advances, or other
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transfers of property, in each case, to our company or to a Wholly Owned
Restricted Subsidiary or from the net cash proceeds from the sale, conveyance or
other disposition of any such Investment; PROVIDED, HOWEVER, that the foregoing
sum shall not exceed, with respect to any person in whom such Investment was
made, the amount of Investments previously made by our company or any Restricted
Subsidiary in such person pursuant to this clause (3);
(4) Investments to fund the financing activity of DNCC in the
ordinary course of its business in an amount not to exceed, as of the date of
determination, the sum of
(A) $35 million plus
(B) 40% of the aggregate cost to DNCC for each Satellite
Receiver purchased by DNCC and leased by DNCC to a retail consumer in
excess of 100,000 units;
(5) cash dividends or distributions to ECC to the extent required
for the purchase of employee stock options to purchase Capital Stock of ECC, or
Capital Stock of ECC issued pursuant to the exercise of employee stock options
to purchase Capital Stock of ECC, in an aggregate amount not to exceed $2
million in any calendar year and in an aggregate amount not to exceed $10
million since the date of the indenture;
(6) a Permitted Refinancing (as defined below in
"--Incurrence of indebtedness");
(7) Investments in an amount equal to 100% of the aggregate net
proceeds (whether or not in cash) received by our company from capital
contributions from ECC or from the issue and sale (including a sale to ECC) of
Equity Interests (other than Disqualified Stock) of our company (other than
Equity Interests issued or sold to a Subsidiary of our company), on or after the
date of the indenture; PROVIDED that such proceeds shall include only $300
million in the case of assets contributed pursuant to the covenant described
under "--The 110 acquisition" and shall include all of the cash contributed
pursuant to the covenant described under "--The ECC equity contribution;" plus,
to the extent not included in Consolidated Cash Flow, an amount equal to the net
reduction in such Investments resulting from payments in cash of interest on
Indebtedness, dividends, or repayment of loans or advances, or other transfers
of property, in each case, to our company or to a Wholly Owned Restricted
Subsidiary or from the net cash proceeds from the sale, conveyance, or other
disposition of any such Investment; PROVIDED, HOWEVER, that the foregoing sum
shall not exceed, with respect to any person in whom such Investment was made,
the amount of Investments previously made by our company or any Restricted
Subsidiary in such person pursuant to this clause (7) in each case, PROVIDED
that such Investments are in businesses of the type described under
"--Activities of our company;"
(8) Investments in any Restricted Subsidiary which is a
guarantor but which is not a Wholly Owned Restricted Subsidiary;
(9) Investments in NagraStar in an aggregate amount not to exceed
$25 million and in SkyVista in an aggregate amount not to exceed $10 million;
(10) cash dividends or other cash distributions to ECC in an
amount sufficient to enable ECC to
(A) repurchase its 12 1/8 % Senior Exchange Notes,
(B) pay interest on any of its 12 1/8 % Senior Exchange Notes
which remain outstanding following consummation of the tender offers
and
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(C) either
(x) redeem such 12 1/8% Senior Exchange Notes that
remain outstanding at the prices set forth in the indenture governing
such notes; or
(y) repurchase or defease such notes at any time prior
to such redemption; PROVIDED in each case, that ECC has irrevocably
agreed, for the benefit of the holders of the notes issued under this
indenture, to apply such cash pursuant to the clause above under which
such dividend or other distribution was made;
(11) cash dividends or distributions to ECC to the extent required
for the purchase of odd-lots of Equity Interests of ECC, in an amount not to
exceed $5 million in the aggregate;
(12) the making of any Restricted Payment (including the receipt
of any Investment) permitted under or resulting from any transaction permitted
under the covenant described under "--Dispositions of ETC and non-core assets";
PROVIDED that all conditions to any such Restricted Payment set forth in such
covenant are satisfied; or
(13) Investments made as a result of the receipt of non-cash
proceeds from Asset Sales made in compliance with the covenant described under
"--Asset sales."
Restricted Payments made pursuant to clauses (1), (2), (4), (7) (but
only to the extent that net proceeds received by our company as set forth in
such clause (7) were included in the computations made in clause (iii)(B) of the
first paragraph of this covenant), (11) and (13) (but only to the extent such
Investments pursuant to clause (13) (a) were made as a result of the receipt of
non-cash proceeds from Asset Sales as set forth in the provision described in
clause (y) of the last paragraph under "--Asset sales" and (b) are not
designated as Investments made pursuant to an applicable provision of the
immediately preceding paragraph of this covenant (other than clause (13)
thereof)) shall be included as Restricted Payments in any computation made
pursuant to clause (iii) of the first paragraph of this covenant. Restricted
Payments made pursuant to clauses (3), (5), (6), (7) (but only to the extent
that net proceeds received by our company as set forth in such clause (7) were
not included in the computations made in clause (iii)(B) of the first paragraph
of this covenant), (8), (9), (10), (12) and (13) (but only to the extent such
Investments pursuant to clause (13) (a) were not made as a result of the receipt
of non-cash proceeds from Asset Sales as set forth in the provision described in
clause (y) of the last paragraph of "--Asset sales" or (b) if made pursuant to
such clause (y), were designated as Investments made pursuant to an applicable
provision of the immediately preceding paragraph of this covenant (other than
clause (13) thereof)) shall not be included as Restricted Payments in any
computation made pursuant to clause (iii) of the first paragraph of this
covenant.
If our company or any Restricted Subsidiary makes an Investment which
was included in computations made pursuant to this covenant and the person in
which such Investment was made subsequently becomes a Restricted Subsidiary that
is a guarantor, to the extent such Investment resulted in a reduction in the
amounts calculated under clause (iii) of the first paragraph of or under any
other provision of this covenant, then such amount shall be increased by the
amount of such reduction.
Not later than five business days after January 1 and July 1 of each
year and ten days following a request from the trustee, we shall deliver to the
trustee an officers' certificate stating that each Restricted Payment made in
the six months preceding such January 1, July 1 or date of request, as the case
may be, is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which calculations
shall be based upon our company's latest available financial statements.
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INCURRENCE OF INDEBTEDNESS. The indentures provide that our company
shall not, and shall not permit any of its Restricted Subsidiaries to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt); PROVIDED, HOWEVER, that, notwithstanding
the foregoing our company and any guarantor under the indenture may incur
Indebtedness (including Acquired Debt), if, after giving effect to the
incurrence of such Indebtedness and the application of the net proceeds thereof
on a pro forma basis, the Indebtedness to Cash Flow Ratio of our company would
not have exceeded 8.0 to 1.
The foregoing limitation will not apply to any of the following
incurrences of Indebtedness:
(1) Indebtedness represented by the notes, the guarantees
and the indenture;
(2) the incurrence by our company or any guarantor of
Acquired Subscriber Debt not to exceed $1,250 per Acquired Subscriber;
(3) the incurrence by our company or any guarantor of
Deferred Payments and letters of credit with respect thereto;
(4) Indebtedness of our company or any guarantor that ranks
PARI PASSU with or is subordinated to the notes and the guarantees in an
aggregate principal amount not to exceed $700 million at any one time
outstanding, which Indebtedness may be secured to the extent permitted under
the covenant described under "--Liens"; PROVIDED that up to $75 million at
any one time outstanding of such Indebtedness may be incurred by Restricted
Subsidiaries that are not guarantors; PROVIDED further that any Indebtedness
incurred pursuant to this clause (4) that is incurred pursuant to a Credit
Agreement shall be incurred pursuant to a Credit Agreement under which our
company is the sole primary obligor (and under which the guarantors (and no
other Restricted Subsidiary) may guarantee the primary obligations of our
company);
(5) Indebtedness between and among our company and each of
the guarantors under the indenture;
(6) Acquired Debt of a person incurred prior to the date upon
which such person was acquired by our company or any guarantor under the
indenture (excluding Indebtedness incurred by such entity other than in the
ordinary course of its business in connection with, or in contemplation of,
such entity being so acquired) in an amount not to exceed
(A) $30 million in the aggregate for all such persons
other than those described in the immediately following clause (B); and
(B) $5 million acquired in connection with the
acquisition of Media4;
(7) Existing Indebtedness;
(8) the incurrence of Purchase Money Indebtedness by our company
or any guarantor under the indenture in an amount not to exceed the cost of
construction, acquisition or improvement of assets used in any business
permitted under the covenant "--Activities of our company," being constructed,
acquired or improved as well as any launch costs and insurance premiums related
to such assets;
(9) Hedging Obligations of our company or any of its Restricted
Subsidiaries covering Indebtedness of our company or such Restricted Subsidiary
to the extent the notional principal amount of
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such Hedging Obligation does not exceed the principal amount of the
Indebtedness to which such Hedging Obligation relates; PROVIDED, HOWEVER,
that such Hedging Obligations are entered into to protect our company and its
Restricted Subsidiaries from fluctuation in interest rates on Indebtedness
incurred in accordance with the indenture;
(10) Indebtedness of our company or any Restricted Subsidiary in
respect of performance bonds or letters of credit of our company or any
Restricted Subsidiary or surety bonds provided by our company or any Restricted
Subsidiary incurred in the ordinary course of business and on ordinary business
terms in connection with the businesses permitted under the covenant
"--Activities of our Company";
(11) Indebtedness of our company or any guarantor under the
indenture the proceeds of which are used solely to finance the construction and
development of a call center owned by our company or a guarantor under the
indenture in McKeesport, Pennsylvania or any refinancing thereof; PROVIDED that
the aggregate of all Indebtedness incurred pursuant to this clause (xi) shall in
no event exceed $10 million at any one time outstanding;
(12) the incurrence by our company or any guarantor under the
indenture of Indebtedness issued in exchange for, or the proceeds of which are
used to extend, refinance, renew, replace, substitute or refund in whole or in
part Indebtedness referred to in the first paragraph of this covenant or in
clauses (1), (2), (3), (6), (7) above ("Refinancing Indebtedness"); PROVIDED,
HOWEVER, that:
(A) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount and accrued
interest of the Indebtedness so extended, refinanced, renewed, replaced,
substituted or refunded and any premiums payable and reasonable fees, expenses,
commissions and costs in connection therewith;
(B) the Refinancing Indebtedness shall have a final
maturity later than, and a Weighted Average Life to
Maturity equal to or greater than, the final maturity and Weighted Average Life
to Maturity, respectively, of the Indebtedness being extended, refinanced,
renewed, replaced or refunded; and
(C) the Refinancing Indebtedness shall be subordinated
in right of payment to the notes and the guarantees, if at all, on terms at
least as favorable to the holders of notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced or refunded (a "Permitted Refinancing");
(13) the guarantee by our company or any guarantor under the
indenture of Indebtedness of our company or a Restricted Subsidiary that was
permitted to be incurred by another provision of this covenant; or
(14) Indebtedness under Capital Lease Obligations of our company
or any guarantor under the indenture with respect to no more than two direct
broadcast satellites at any time.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories described in clauses (1) through (14) above or is permitted to be
incurred pursuant to the first paragraph of this covenant and also meets the
criteria of one or more of the categories described in clauses (1) through (14)
above, our company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and may from time to
time reclassify such item of Indebtedness in any manner in which such
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item could be incurred at the time of such reclassification. Accrual of
interest and the accretion of accreted value will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
ASSET SALES. If our company or any Restricted Subsidiary, in a single
transaction or a series of related transactions:
(a) sells, leases (in a manner that has the effect of a disposition),
conveys or otherwise disposes of any of its assets (including by way of a
sale-and-leaseback transaction), other than:
(1) sales or other dispositions of inventory in the
ordinary course of business;
(2) sales or other dispositions to our company or a Wholly
Owned Restricted Subsidiary of our company by our company or any Restricted
Subsidiary;
(3) sales or other dispositions of accounts receivable to
DNCC for cash in an amount at least equal to the fair market value of such
accounts receivable;
(4) sales or other dispositions of rights to construct or
launch satellites; and
(5) sales or other dispositions permitted under
"--Disposition of ETC and non-core assets" (PROVIDED that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
our company shall be governed by the provisions of the indenture described
below under the caption "--Merger, consolidation, or sale of assets");
(b) issues or sells Equity Interests of any Restricted Subsidiary
(other than any issue or sale of Equity Interests of ETC or a Subsidiary
which constitutes a Non-Core Asset permitted under "--Disposition of ETC and
non-core assets"),
in either case, which assets or Equity Interests:
(1) have a fair market value in excess of $35 million (as
determined in good faith by the Board of Directors of our company evidenced
by a resolution of the Board of Directors of our company and set forth in an
officers' certificate delivered to the trustee); or
(2) are sold or otherwise disposed of for net proceeds in
excess of $35 million (each of the foregoing, an "Asset Sale"), then:
(A) our company or such Restricted Subsidiary, as the
case may be, must receive consideration at the time
of such Asset Sale at least equal to the fair market value (as determined in
good faith by the Board of Directors of our company evidenced by a resolution
of the Board of Directors of our company and set forth in an officers'
certificate delivered to the trustee not later than the fifth business day
following January 1 and July 1 of each year and ten days following a request
from the trustee which certificate shall cover each Asset Sale made in the
six months preceding January 1, July 1 or date of request, as the case may
be) of the assets sold or otherwise disposed of; and
(B) at least 75% of the consideration therefor
received by our company or such Restricted Subsidiary, as the case may be,
must be in the form of
(x) cash, Cash Equivalents or Marketable
Securities,
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(y) any asset which is promptly (and in no event
later than 90 days after the date of transfer to our company or a Restricted
Subsidiary) converted into cash; PROVIDED that to the extent that such
conversion is at a price that is less than the fair market value (as
determined above) of such asset at the time of the Asset Sale in which such
asset was acquired, our company shall be deemed to have made a Restricted
Payment in the amount by which such fair market value exceeds the cash
received upon conversion; or
(z) properties and capital assets (excluding
Equity Interests) to be used by our company or any of its Restricted
Subsidiaries in a business permitted under the covenant described under
"--Activities of our company";
PROVIDED, HOWEVER, that up to $20 million of assets in addition to assets
specified in clauses (x), (y) or (z) above at any one time may be considered
to be cash for purposes of this clause (B), PROVIDED that the provisions of
the next paragraph are complied with as such non-cash assets are converted to
cash. The amount of any liabilities of our company or any Restricted
Subsidiary that are assumed by or on behalf of the transferee in connection
with an Asset Sale (and from which our company or such Restricted Subsidiary
are unconditionally released) shall be deemed to be cash for the purpose of
this clause (B).
The indentures also provide that the Net Proceeds from such Asset
Sale shall be used only:
(1) to acquire assets used in, or stock or other ownership
interests in a person that upon the consummation of such Asset Sale becomes a
Restricted Subsidiary and will be engaged primarily in, the business of our
company as described under "--Activities of our company," to repurchase notes
or if our company sells any of its satellites after launch such that our
company or its Restricted Subsidiaries own less than three in-orbit
satellites, only to purchase a replacement satellite; or
(2) as set forth in the next sentence. Any Net Proceeds
from any Asset Sale that are not applied or invested as provided in the
preceding sentence within 365 days after such Asset Sale shall constitute
"Excess Proceeds" and shall be applied to an offer to purchase notes and
other senior Indebtedness of our company if and when required under "--Excess
proceeds offer."
Clause (B) of the second preceding paragraph shall not apply to all
or such portion of the consideration
(1) as is designated by our company in an Asset Sale as
being subject to this paragraph; and
(2) with respect to which the aggregate fair market value
at the time of receipt of all consideration received by our company or any
Restricted Subsidiary in all such Asset Sales so designated does not exceed
the amount contributed to our company under the covenant described under
"--ECC equity contribution" plus, to the extent any such consideration did
not satisfy clauses (B)(x) or B(z) above, upon the exchange or repayment of
such consideration for or with assets which satisfy such clauses, an amount
equal to the fair market value of such consideration (evidenced by a
resolution of the Board of Directors of our company and set forth in an
officers' certificate delivered to the trustee as set forth in clause (A)
above).
In addition, clause (B) above shall not apply to any Asset Sale
(x) where assets not related to the direct broadcast
satellite business are contributed to a joint venture between our company or
one of its Restricted Subsidiaries and a third party that is not an Affiliate
of ECC or any of its Subsidiaries; PROVIDED that following the sale, lease,
conveyance or other
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disposition our company or one of its Wholly Owned Restricted Subsidiaries
owns at least 50% of the voting and equity interest in such joint venture,
(y) to the extent the consideration therefor received
by our company or a Restricted Subsidiary would constitute Indebtedness or
Equity Interests of a person that is not an Affiliate of ECC, our company or
one of their respective Subsidiaries; PROVIDED that the acquisition of such
Indebtedness or Equity Interests is permitted under the provisions of the
covenant described under "--Restricted payments" and
(z) where assets sold are satellites, uplink centers or
call centers, PROVIDED that, in the case of clause (z) our company and its
Restricted Subsidiaries continue to own at least three satellites, one uplink
center and one call center.
LIENS. The indentures provide that our company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or on any income or profits therefrom or assign or convey any right
to receive income therefrom, except Permitted Liens.
MAINTENANCE OF INSURANCE. The indentures provide that at all times,
our company or a Wholly Owned Restricted Subsidiary which is a guarantor
under the indenture will maintain and be the named beneficiary under
Satellite Insurance with respect to at least one-half of the satellites owned
or leased by our company or its Subsidiaries (insured in an amount at least
equal to the depreciated cost of such satellites).
In the event that our company or its Restricted Subsidiaries receive
proceeds from any Satellite Insurance covering any satellite owned by our
company or any of its Restricted Subsidiaries, or in the event that our
company or any of its Subsidiaries receives proceeds from any insurance
maintained by any satellite manufacturer or any launch provider covering any
of such satellites, all such proceeds (including any cash, Cash Equivalents
or Marketable Securities deemed to be proceeds of Satellite Insurance
pursuant to the respective definition thereof) shall be used only:
(1) to purchase a replacement satellite if at such time our
company or a Restricted Subsidiary then owns less than three satellites,
PROVIDED that if such replacement satellite is of lesser value compared to
the insured satellite, any insurance proceeds remaining after purchase of
such replacement satellite must be applied to the construction, launch and
insurance of a satellite of equal or greater value as compared to the insured
satellite (or in accordance with clause (3) below);
(2) for purposes permitted under the covenant entitled
"--Activities of our company" if at such time our company or a Restricted
Subsidiary owns three or more satellites (or in accordance with clause (3)
below); or
(3) to the extent that such proceeds are not applied or
contractually committed to be applied as described in (1) or (2) above within
365 days of the receipt of such proceeds as "Excess Proceeds" to be applied
to an offer to purchase notes as set forth under "--Excess proceeds offer."
ACTIVITIES OF OUR COMPANY. The indentures provide that neither our
company nor any of its Restricted Subsidiaries may engage in any business
other than developing, owning, engaging in and dealing with all or any part
of the business of domestic and international media, entertainment,
electronics or communications, and reasonably related extensions thereof,
including but not limited to the purchase, ownership, operation, leasing and
selling of, and generally dealing in or with, one or more communications
satellites and the transponders thereon, and communications uplink centers,
the
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acquisition, transmission, broadcast, production and other provision of
programming relating thereto and the manufacturing, distribution and
financing of equipment (including consumer electronic equipment) relating
thereto.
DISPOSITIONS OF ETC AND NON-CORE ASSETS. Notwithstanding the
provisions of the covenants described under "--Restricted payments" and
"--Asset sales," in the event that the 110 Acquisition has been consummated,
the requirements set forth under "--The 110 acquisition" have been satisfied
and the Indebtedness to Cash Flow Ratio of our company would not have
exceeded 6.0 to 1 on a pro forma basis after giving effect to the sale of all
of our company's Equity Interests in or assets of ETC, then
(1) the payment of any dividend or distribution consisting
of Equity Interests or assets of ETC or the proceeds of a sale, conveyance or
other disposition of such Equity Interests or assets or the sale, conveyance
or other disposition of Equity Interests or assets of ETC or the proceeds of
a sale, conveyance or other disposition of such Equity Interests or assets
shall not constitute a Restricted Payment and
(2) the sale, conveyance or other disposition of the Equity
Interests or assets of ETC or the proceeds of a sale, conveyance or other
disposition of such Equity Interests or assets shall not constitute an Asset
Sale and
(3) upon delivery of an officers' certificate to the
trustee evidencing satisfaction of the conditions to such release and a
written request to the trustee requesting such a release, ETC shall be
discharged and released from its guarantee under the indenture and, PROVIDED
that our company designates ETC as an Unrestricted Subsidiary, from all
covenants and restrictions contained in the indenture; PROVIDED that no such
payment, dividend, distribution, sale, conveyance or other disposition of any
kind (collectively, a "Payout") described in clauses (1) and (2) above shall
be permitted if at the time of such Payout (1) after giving pro forma effect
to such Payout, our company would not have been permitted under the covenant
described under "--Restricted payments" to make a Restricted Payment in an
amount equal to the total (the "ETC Amount Due") of (x) the amount of all
Investments (other than the contribution of
(i) title to the headquarters building of ETC in
Inverness, Colorado and the tangible assets therein to the extent used by ETC
as of the date of the indenture and
(ii) patents, trademarks and copyrights applied for
or granted as of the date of the indenture to the extent used by ETC or
result from the business of ETC, in each case, to ETC) made in ETC by our
company or its Restricted Subsidiaries since the date of the indenture
(which, in the case of Investments in exchange for assets, shall be valued at
the fair market value of each such asset at the time each such Investment was
made) minus
(y) the amount of the after-tax value of all
cash returns on such Investments paid to our company or its Wholly Owned
Restricted Subsidiaries (or, in the case of a non-Wholly Owned Restricted
Subsidiary, the pro rata portion thereof attributable to our company) minus
(z) $25 million and
(2) any contract, agreement or understanding between ETC and our company or
any Restricted Subsidiary of our company and any loan or advance to or
guarantee with, or for the benefit of, ETC issued or made by our company or
one of its Restricted Subsidiaries, is on terms that are less favorable to
our company or its Restricted Subsidiaries than those that would have been
obtained in a comparable transaction by our company or such Restricted
Subsidiaries with an unrelated person, all as evidenced by a resolution of
the
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Board of Directors of our company set forth in an officers' certificate
delivered to the trustee certifying that each such contract, agreement,
understanding, loan, advance and guarantee has been approved by a majority of
the members of such Board.
In the event that at the time of such Payout, the condition set
forth in clause (1) of the proviso of the preceding sentence cannot be
satisfied, ETC may seek to have a person other than our company or one of its
Restricted Subsidiaries pay in cash an amount to our company or its
Restricted Subsidiaries such that after taxes, such amount is greater than or
equal to the ETC Amount Due or the portion of the ETC Amount Due which would
not have been permitted to be made as a Restricted Payment by our company;
PROVIDED that such payment shall be treated for purposes of this covenant as
a cash return on the Investments made in ETC and provided further that for
all purposes under the indenture, such payment shall not be included in any
calculation under clauses (iii)(A) through (iii)(E) of the first paragraph of
the covenant described under "--Restricted payments." To the extent that the
ETC Amount Due or any portion thereof would have been permitted to be made as
a Restricted Payment by our company and was not paid by another person as
permitted by the preceding sentence, our company shall be deemed to have made
a Restricted Payment in the amount of such ETC Amount Due or portion thereof,
as the case may be. It shall be a condition to any Payout pursuant to the
first paragraph of this covenant that, commencing with the quarter commencing
July 1, 1999, our company shall have caused ETC to maintain, in accordance
with GAAP, consolidated financial statements for ETC and its Subsidiaries on
a "stand-alone" basis.
Notwithstanding the provisions of the covenants described under "
- --Restricted payments" and "--Asset sales,"
(1) the payment of any dividend or distribution consisting of
Equity Interests or assets of any Non-Core Asset or the proceeds of a sale,
conveyance or other disposition of such Equity Interests or assets or the
sale, conveyance or other disposition of Equity Interests in or assets of any
Non-Core Asset or the proceeds of a sale, conveyance or other disposition of
such Equity Interests or assets shall not constitute a Restricted Payment; and
(2) the sale, conveyance or other disposition of the Equity
Interests or assets of any Non-Core Asset or the proceeds of a sale,
conveyance or other disposition of such Equity Interests or assets shall not
constitute an Asset Sale; and
(3) upon delivery of an officers' certificate to the trustee
evidencing satisfaction of the conditions to such release and a written
request to the trustee requesting such a release, any such Non-Core Asset
that is a guarantor under the indenture shall be discharged and released from
its guarantee under the indenture and, provided that our company designates
such Non-Core Asset as an Unrestricted Subsidiary, from all covenants and
restrictions contained in the indenture; PROVIDED that no Payout of any
Non-Core Asset shall be permitted such as described in clauses (1) and (2)
above if at the time of such Payout (1) after giving pro forma effect to such
Payout, our company would not have been permitted under the covenant
described under "--Restricted payments" to make a Restricted Payment in an
amount equal to the total (the "Non-Core Asset Amount Due") of
(x) the amount of all Investments made in such Non-Core
Asset by our company or its Restricted Subsidiaries since the date of the
indenture (which, in the case of Investments in exchange for assets, shall be
valued at the fair market value of each such asset at the time each such
Investment was made) minus
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(y) the amount of the after-tax value of all cash returns
on such Investments paid to our company or its Wholly Owned Restricted
Subsidiaries (or, in the case of a non-Wholly Owned Restricted Subsidiary,
the pro rata portion thereof attributable to our company) minus
(z) $25 million in the aggregate for all such Payouts
and $5 million for any single such Payout
and (2) any contract, agreement or understanding between or relating to a
Non-Core Asset and our company or a Restricted Subsidiary of our company and
any loan or advance to or guarantee with, or for the benefit of, a Restricted
Subsidiary which is a Non-Core Asset issued or made by our company or one of
its Restricted Subsidiaries, is on terms that are less favorable to our
company or its Restricted Subsidiaries than those that would have been
obtained in a comparable transaction by our company or such Restricted
Subsidiaries with an unrelated person, all as evidenced by a resolution of
the Board of Directors of our company set forth in an officers' certificate
delivered to the trustee certifying that each such contract, agreement,
understanding, loan, advance and guarantee has been approved by a majority of
such Board.
In the event that at the time of such Payout, the condition set
forth in clause (1) of the proviso of the preceding sentence cannot be
satisfied, such Restricted Subsidiary which is a Non-Core Asset may seek to
have a person other than our company or one of its Restricted Subsidiaries
pay in cash an amount to our company such that after taxes, such amount, is
greater than or equal to the Amount Due or the portion of the Non-Core Asset
Amount Due which would not have been permitted to be made as a Restricted
Payment by our company; PROVIDED that such payment shall be treated for
purposes of this covenant as a cash return on the Investments made in a
Non-Core Asset and provided further that for all purposes under the
indenture, such payment shall not be included in any calculation under
clauses (iii)(A) through (iii)(E) of the first paragraph of the covenant
described under " --Restricted payments." To the extent that the Non-Core
Asset Amount Due or any portion thereof would have been permitted to be made
as a Restricted Payment by our company and was not paid by another person as
permitted by the preceding sentence, our company shall be deemed to have made
a Restricted Payment in the amount of such Non-Core Asset Amount Due or
portion thereof, as the case may be.
Promptly after any Payout pursuant to the terms of this covenant,
our company shall deliver an officers' certificate to the trustee setting
forth the Investments made by our company or its Restricted Subsidiaries in
ETC or a Non-Core Asset, as the case may be, and certifying that the
requirements of this covenant have been satisfied in connection with the
making of such Payout.
ECC EQUITY CONTRIBUTION. Concurrently with or within five business
days of the consummation of the offering of the old notes, ECC was required
to make a capital contribution to the common equity of our company in the
form of cash, Cash Equivalents or Marketable Securities in an aggregate
amount no less than $200 million.
THE 110 ACQUISITION. The indentures provide that upon consummation
of the 110 Acquisition, all property and assets acquired in such transaction
or the right to receive such property and assets will be contributed as
capital contributions to our company or one or more of the guarantors under
the indenture that is a Wholly Owned Restricted Subsidiary.
ADDITIONAL SUBSIDIARY GUARANTEES. The indentures provide that if our
company or any guarantor under the indenture transfers or causes to be
transferred, in one or a series of related transactions, property or assets
(including, without limitation, businesses, divisions, real property, assets
or equipment) having a fair market value (as determined in good faith by the
Board of Directors of our company evidenced by a resolution of the Board of
Directors of our company and set forth in an officers' certificate delivered
to
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the trustee no later than five business days following January 1 and July 1
of each year or ten days following a request from the trustee, which
certificate shall cover the six months preceding January 1, July 1 or date of
request, as the case may be) exceeding the sum of $20 million in the
aggregate for all such transfers after the date of the indentures minus the
fair market value of Restricted Subsidiaries acquired or created after the
date of the indentures that are not guarantors under the indenture (fair
market value being determined as of the time of such acquisition) to
Restricted Subsidiaries that are not guarantors of the notes, our company,
shall, or shall cause each of such Subsidiaries to which any amount exceeding
such $20 million (less such fair market value) is transferred to:
(1) execute and deliver to the trustee a supplemental indenture
in form and substance reasonably satisfactory to the trustee pursuant to
which such Subsidiary shall unconditionally guarantee all of our company's
obligations under the notes on the terms set forth in the indenture; and
(2) deliver to the trustee an opinion of counsel reasonably
satisfactory to the trustee that such supplemental indenture and guarantee
have been duly authorized, executed and delivered by and are valid and
binding obligations of such Subsidiary or such owner, as the case may be;
PROVIDED, HOWEVER, that the foregoing provisions shall not apply to transfers
of property or assets (other than cash) by our company or any guarantor under
the indenture in exchange for cash, Cash Equivalents or Marketable Securities
in an amount equal to the fair market value (as determined in good faith by
the Board of Directors of our company evidenced by a resolution of the Board
of Directors of our company and set forth in an officers' certificate
delivered to the trustee no later than five business days following January 1
and July 1 of each year or ten days following a request from the trustee,
which certificate shall cover the six months preceding January 1, July 1 or
date of request, as the case may be) of such property or assets.
In addition, if
(1) our company or any of its Restricted Subsidiaries acquires
or creates another Restricted Subsidiary or
(2) an Unrestricted Subsidiary of our company is redesignated
as a Restricted Subsidiary or otherwise ceases to be an Unrestricted
Subsidiary,
such Subsidiary shall execute a supplemental indenture and deliver an
opinion, each as required in the preceding sentence; provided that no
supplemental indenture or opinion shall be required if the fair market value
(as determined in good faith by the Board of Directors of our company and set
forth in an officers' certificate delivered to the trustee no later than five
business days following January 1 and July 1 of each year or ten days
following a request from the trustee, which certificate shall cover the six
months preceding such January 1, July 1 or date of request, as the case may
be) of all such Restricted Subsidiaries created, acquired or designated since
the date of the indenture (fair market value being determined as of the time
of creation, acquisition or designation) does not exceed the sum of $20
million in the aggregate minus the fair market value of the assets
transferred to any Subsidiaries of our company which do not execute
supplemental indentures pursuant to the preceding sentences; PROVIDED FURTHER
that to the extent a Restricted Subsidiary is subject to the terms of any
instrument governing Acquired Debt, as in effect at the time of acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition) which instrument or restriction prohibits
such Restricted Subsidiary from issuing a guarantee of the notes, such
Restricted Subsidiary shall not be required to execute such a supplemental
indenture until it is permitted to issue such guarantee pursuant to the terms
of such Acquired Debt.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Each
indenture provides that our company shall not, and shall not permit any
Restricted Subsidiary of our company to, directly or
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indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distribution to our company
or any of its Restricted Subsidiaries on its Capital Stock or with respect to
any other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to our company or any of its Restricted Subsidiaries;
(b) make loans or advances to our company or any of its
Restricted Subsidiaries; or
(c) transfer any of its properties or assets to our company or
any of its Restricted Subsidiaries;
except for such encumbrances or restrictions existing under or by
reasons of:
(i) Existing Indebtedness and existing agreements as in
effect on the date of the indenture;
(ii) applicable law or regulation;
(iii) any instrument governing Acquired Debt as in effect
at the time of acquisition (except to the extent such Indebtedness was
incurred in connection with, or in contemplation of, such acquisition), which
encumbrance or restriction is not applicable to any person, or the properties
or assets of any person, other than the person, or the property or assets of
the person, so acquired, provided that the Consolidated Cash Flow of such
person shall not be taken into account in determining whether such
acquisition was permitted by the terms of the indenture; except to the extent
that dividends or other distributions are permitted notwithstanding such
encumbrance or restriction and could have been distributed;
(iv) by reason of customary non-assignment provisions in
leases entered into in the ordinary course of business and consistent with
past practices;
(v) Refinancing Indebtedness (as defined in "--Incurrence of
Indebtedness"), PROVIDED that the restrictions contained in the agreements
governing such Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being refinanced;
(vi) the indenture and the notes;
(vii) Permitted Liens; or
(viii) any agreement for the sale of any Subsidiary or its
assets that restricts distributions by that Subsidiary pending its sale;
provided that during the entire period in which such encumbrance or
restriction is effective, such sale (together with any other sales pending)
would be permitted under the terms of the indenture.
ACCOUNTS RECEIVABLE SUBSIDIARY. Each indenture provides that our
company:
(a) may, and may permit any of its Subsidiaries to, notwithstanding
the provisions of the covenant entitled "Restricted Payments," make
Investments in an Accounts Receivable Subsidiary:
(i) the proceeds of which are applied within five Business
Days of the making thereof solely to finance:
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(A) the purchase of accounts receivable of our
company and its Subsidiaries or
(B) payments required in connection with the
termination of all then existing arrangements relating to the sale of
accounts receivable or participation interests therein by an Accounts
Receivable Subsidiary (provided that the Accounts Receivable Subsidiary shall
receive cash, Cash Equivalents and accounts receivable having an aggregate
fair market value not less than the amount of such payments in exchange
therefor) and
(ii) in the form of Accounts Receivable Subsidiary Notes to
the extent permitted by clause (b) below;
(b) shall not, and shall not permit any of its Subsidiaries to, sell
accounts receivable to an Accounts Receivable Subsidiary except for
consideration in an amount not less than that which would be obtained in an
arm's length transaction and solely in the form of cash or Cash Equivalents;
provided that an Accounts Receivable Subsidiary may pay the purchase price
for any such accounts receivable in the form of Accounts Receivable
Subsidiary Notes so long as, after giving effect to the issuance of any such
Accounts Receivable Subsidiary Notes, the aggregate principal amount of all
Accounts Receivable Subsidiary Notes outstanding shall not exceed 20% of the
aggregate purchase price paid for all outstanding accounts receivable
purchased by an Accounts Receivable Subsidiary since the date of the
indenture (and not written off or required to be written off in accordance
with the normal business practice of an Accounts Receivable Subsidiary);
(c) shall not permit an Accounts Receivable Subsidiary to sell any
accounts receivable purchased from our company or its Subsidiaries or
participation interests therein to any other person except on an arm's length
basis and solely for consideration in the form of cash or Cash Equivalents or
certificates representing undivided interests of a Receivables Trust;
provided an Accounts Receivable Subsidiary may not sell such certificates to
any other person except on an arm's length basis and solely for consideration
in the form of cash or Cash Equivalents;
(d) shall not, and shall not permit any of its Subsidiaries to,
enter into any guarantee, subject any of their respective properties or
assets (other than the accounts receivable sold by them to an Accounts
Receivable Subsidiary) to the satisfaction of any liability or obligation or
otherwise incur any liability or obligation (contingent or otherwise), in
each case, on behalf of an Accounts Receivable Subsidiary or in connection
with any sale of accounts receivable or participation interests therein by or
to an Accounts Receivable Subsidiary, other than obligations relating to
breaches of representations, warranties, covenants and other agreements of
our company or any of its Subsidiaries with respect to the accounts
receivable sold by our company or any of its Subsidiaries to an Accounts
Receivable Subsidiary or with respect to the servicing thereof; PROVIDED that
neither our company nor any of its Subsidiaries shall at any time guarantee
or be otherwise liable for the collectibility of accounts receivable sold by
them;
(e) shall not permit an Accounts Receivable Subsidiary to engage in
any business or transaction other than the purchase and sale of accounts
receivable or participation interests therein of our company and its
Subsidiaries and activities incidental thereto;
(f) shall not permit an Accounts Receivable Subsidiary to incur any
Indebtedness other than the Accounts Receivable Subsidiary Notes,
Indebtedness owed to our company and Non-Recourse Indebtedness; PROVIDED that
the aggregate principal amount of all such Indebtedness of an Accounts
Receivable Subsidiary shall not exceed the book value of its total assets as
determined in accordance with GAAP;
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(g) shall cause any Accounts Receivable Subsidiary to remit to our
company or a Restricted Subsidiary of our company on a monthly basis as a
distribution all available cash and Cash Equivalents not held in a collection
account pledged to acquirors of accounts receivable or participation
interests therein, to the extent not applied to
(i) pay interest or principal on the Accounts Receivable
Subsidiary Notes or any Indebtedness of such Accounts Receivable Subsidiary
owed to our company,
(ii) pay or maintain reserves for reasonable operating
expenses of such Accounts Receivable Subsidiary or to satisfy reasonable
minimum operating capital requirements or
(iii) to finance the purchase of additional accounts receivable
of our company and its Subsidiaries; and
(h) shall not, and shall not permit any of its Subsidiaries to, sell
accounts receivable to, or enter into any other transaction with or for the
benefit of, an Accounts Receivable Subsidiary
(i) if such Accounts Receivable Subsidiary pursuant to or
within the meaning of any Bankruptcy Law
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it
in an involuntary case,
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or (E) generally is not paying its debts as they become due; or
(ii) if a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that
(A) is for relief against such Accounts Receivable
Subsidiary in an involuntary case,
(B) appoints a Custodian of such Accounts Receivable
Subsidiary or for all or substantially all of the property of such Accounts
Receivable Subsidiary, or
(C) orders the liquidation of such Accounts Receivable
Subsidiary, and, with respect to clause (ii) hereof, the order or decree
remains unstayed and in effect for 60 consecutive days.
MERGER, CONSOLIDATION, OR SALE OF ASSETS. Each indenture provides
that our company may not consolidate or merge with or into (whether or not
our company is the surviving entity), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another person unless:
(a) our company is the surviving person or the person formed by or
surviving any such consolidation or merger (if other than our company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia;
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(b) the person formed by or surviving any such consolidation or
merger (if other than our company) or the person to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made assumes all the obligations of our company, pursuant to a supplemental
indenture in form reasonably satisfactory to the trustee, under the notes and
the indenture;
(c) immediately after such transaction, no Default or Event of
Default exists; and
(d) our company or the person formed by or surviving any such
consolidation or merger (if other than our company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made
(i) will have Consolidated Net Worth immediately after the
transaction (but prior to any purchase accounting adjustments or accrual of
deferred tax liabilities resulting from the transaction) not less than the
Consolidated Net Worth of our company immediately preceding the transaction; and
(ii) would, at the time of such transaction after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Indebtedness to Cash Flow Ratio test set
forth in the covenant described under "--Incurrence of indebtedness."
Notwithstanding the foregoing, our company may merge with another
person if:
(a) our company is the surviving person;
(b) the consideration issued or paid by our company in such merger
consists solely of Equity Interests (other than Disqualified Stock) of our
company or Equity Interests of ECC; and
(c) immediately after giving effect to such merger, our company's
Indebtedness to Cash Flow Ratio does not exceed our company's Indebtedness to
Cash Flow Ratio immediately prior to such merger.
Each guarantor under the indenture (other than any guarantor whose
guarantee is to be released in accordance with the terms of the guarantee and
the indenture and other than ETC and any Non-Core Asset in connection with
any transaction permitted under "--Dispositions of ETC and non-core assets")
will not, and our company will not cause or permit any guarantor under the
indenture to, consolidate or merge with or into (whether or not such
guarantor is the surviving entity), or sell, assign, transfer, lease, convey,
or otherwise dispose of all or substantially all of its properties or assets
in one or more related transactions to, any person other than our company or
a Guarantor under the indenture unless:
(a) the guarantor under the indenture is the surviving person or the
person formed by or surviving any such consolidation or merger (if other than
the guarantor) or the 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;
(b) the person formed by or surviving any such consolidation or merger
(if other than the guarantor under the indenture) or the person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the guarantor under the indenture,
pursuant to a supplemental indenture in form reasonably satisfactory to the
trustee, under the notes and the indenture;
(c) immediately after such transaction, no Default or Event of
Default exists; and
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(d) our company will have Consolidated Net Worth immediately after
the transaction (after any purchase accounting adjustments or accrual of
deferred tax liabilities resulting from the transaction) not less than the
Consolidated Net Worth of our company immediately preceding the transaction.
TRANSACTIONS WITH AFFILIATES. Each indenture provides that our
company shall not and shall not permit any Restricted Subsidiary to, sell,
lease, transfer or otherwise dispose of any of its properties or assets to,
or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (including any Unrestricted Subsidiary) (each of the
foregoing, an "Affiliate Transaction"), unless:
(a) such Affiliate Transaction is on terms that are no less
favorable to our company or its Restricted Subsidiaries than those that would
have been obtained in a comparable transaction by our company or such
Subsidiaries with an unrelated person; and
(b) if such Affiliate Transaction involves aggregate payments in
excess of $15 million such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors of our
company, and our company delivers to the trustee no later than five business
days following January 1 or July 1 of each year or ten days following a
request from the trustee a resolution of the Board of Directors of our
company set forth in an officers' certificate certifying that such Affiliate
Transaction has been so approved and complies with clause (a) above;
PROVIDED, HOWEVER, that
(i) the payment of compensation to directors and management
of ECC and its Subsidiaries;
(ii) transactions between or among our company and its Wholly
Owned Subsidiaries (other than Unrestricted Subsidiaries of our company);
(iii) any dividend, distribution, sale, conveyance or other
disposition of any assets of, or Equity Interests in, any Non-Core Assets or
ETC or the proceeds of a sale, conveyance or other disposition thereof, in
accordance with the provisions of the indenture;
(iv) transactions permitted by the provisions of the indenture
described above under clauses (1), (2), (5), (6), (8), (9), (10), (11) and (12)
of the second paragraph of the covenant described under "--Restricted Payments";
(v) so long as it complies with clause (a) above, the provision
of backhaul, uplink, transmission, billing, customer service, programming
acquisition and other ordinary course services by our company or any of its
Restricted Subsidiaries to Satellite Communications Operating Corporation and to
Transponder Encryption Services Corporation on a basis consistent with past
practice; and
(vi) any transactions between our company or any Restricted
Subsidiary of our company and any Affiliate of our company the Equity Interests
of which Affiliate are owned solely by our company or one of its Restricted
Subsidiaries, on the one hand, and by persons who are not Affiliates of our
company or Restricted Subsidiaries of our company, on the other hand, shall, in
each case, not be deemed Affiliate Transactions.
REPORTS. Whether or not required by the rules and regulations of the
SEC, so long as any notes are outstanding, our company will file with the SEC
and furnish to the holders of notes all quarterly and annual financial
information that would be required to be contained in a filing with the SEC
on Forms 10-
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Q and 10-K if our company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
thereon by our company's certified public accountants.
PAYMENTS FOR CONSENT. Our company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any
holder of a note for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the indenture or the notes unless such
consideration is offered to be paid or agreed to be paid to all holders of
the notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
EXCESS PROCEEDS OFFER. When the cumulative amount of Excess Proceeds
that have not been applied in accordance with the covenants entitled "Asset
Sales" and "Maintenance of Insurance" or this paragraph exceeds $17.5
million, our company will be obligated to make an offer to all holders of the
notes (an "Excess Proceeds Offer") to purchase the maximum principal amount
of notes that may be purchased out of such Excess Proceeds at an offer price
in cash in an amount equal to 101% of the principal amount thereof, together
with accrued and unpaid interest to the date fixed for the closing of such
offer in accordance with the procedures set forth in the indenture. To the
extent our company or a Restricted Subsidiary is required under the terms of
Indebtedness of our company or such Restricted Subsidiary which is PARI PASSU
with, or (in the case of any secured Indebtedness) senior with respect to
such collateral to, the notes with any proceeds which constitute Excess
Proceeds under the indentures, our company shall make a pro rata offer to the
holders of all other pari passu Indebtedness (including the notes) with such
proceeds. If the aggregate principal amount of notes and other pari passu
indebtedness surrendered by holders thereof exceeds the amount of such Excess
Proceeds, the trustee shall select the notes and other pari passu
Indebtedness to be purchased on a pro rata basis. To the extent that the
principal amount of notes tendered pursuant to an Excess Proceeds Offer is
less than the amount of such Excess Proceeds, our company may use any
remaining Excess Proceeds for general corporate purposes. Upon completion of
an Excess Proceeds Offer, the amount of Excess Proceeds shall be reset at
zero.
EVENTS OF DEFAULT AND REMEDIES
Each indenture provides that each of the following constitutes an
Event of Default:
(a) default for 30 days in the payment when due of
interest on the notes issued thereunder;
(b) default in payment when due of principal of the notes
issued thereunder at maturity, upon repurchase, redemption or
otherwise;
(c) failure to comply with the provisions described under
"--Offer to Purchase upon Change of Control," "--Certain
covenants--Maintenance of insurance," "--Certain
covenants--Transactions with affiliates," or "--Certain
covenants--Asset sales";
(d) default under the provisions described under "--Certain
covenants--Restricted payments" or "--Certain covenants--Incurrence of
indebtedness" which default remains uncured for 30 days, or the breach
of any representation or warranty, or the making of any untrue
statement, in any certificate delivered by our company pursuant to the
indenture;
(e) failure by our company for 60 days after notice from the
trustee or the holders of at least 25% in principal amount then
outstanding of any issue of notes to comply with any of its other
agreements in the indenture or the notes of such issue;
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(f) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by our company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by our
company or any of its Restricted Subsidiaries), which default is caused
by a failure to pay when due principal or interest on such Indebtedness
within the grace period provided in such Indebtedness (a "Payment
Default"), and the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which
there has been a Payment Default, aggregates $20 million or more;
(g) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by our company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by our
company or any of its Restricted Subsidiaries), which default results
in the acceleration of such Indebtedness prior to its express maturity
and the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so
accelerated, aggregates $20 million or more; provided that any
acceleration (other than an acceleration which is the result of a
Payment Default under clause (f) above) of Indebtedness under the
Outstanding Deferred Payments in aggregate principal amount not to
exceed $50 million shall be deemed not to constitute an acceleration
pursuant to this clause (g);
(h) failure by our company or any of its Restricted
Subsidiaries to pay final judgments (other than any judgment as to
which a reputable insurance company has accepted full liability)
aggregating in excess of $20 million, which judgments are not stayed
within 60 days after their entry;
(i) certain events of bankruptcy or insolvency with respect to
ECC, our company or certain of our company's Subsidiaries (including
the filing of a voluntary case, the consent to an order of relief in an
involuntary case, the consent to the appointment of a custodian, a
general assignment for the benefit of creditors or an order of a court
for relief in an involuntary case, appointing a custodian or ordering
liquidation, which order remains unstayed for 60 days); and
(j) any guarantee under the indenture of the notes shall be
held in a judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect, or any guarantors,
or any person acting on behalf of any guarantor, shall deny or
disaffirm its obligations under its guarantee of any notes.
If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount then outstanding of any series of
notes may declare all the notes of such series to be due and payable immediately
(plus, in the case of an Event of Default that is the result of an action by our
company or any of its Subsidiaries intended to avoid restrictions on or premiums
related to redemptions of the notes contained in the indenture or the notes, an
amount of premium that would have been applicable pursuant to the notes or as
set forth in the indenture). Notwithstanding the foregoing, in the case of an
Event of Default arising from the events of bankruptcy or insolvency with
respect to our company or any of its Subsidiaries described in (i) above, all
outstanding notes will become due and payable without further action or notice.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in such holders' interest.
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The holders of a majority in aggregate principal amount then
outstanding of each series of notes, by notice to the trustee, may on behalf
of the holders of all of the notes of such series waive any existing Default
or Event of Default and its consequences under its respective indentures,
except a continuing Default or Event of Default in the payment of interest or
premium on, or principal of, such series of notes.
We are required to deliver to the trustee annually a statement
regarding compliance with the indentures, and we are required upon becoming
aware of any Default or Event of Default to deliver to the trustee a
statement specifying such Default or Event of Default.
All powers of the trustee under the indentures will be subject to
applicable provisions of the Communications Act, including without
limitation, the requirements of prior approval for DE FACTO or DE JURE
transfer of control or assignment of Title III licenses.
NO PERSONAL LIABILITY OF DIRECTORS, OWNERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of our
company or any of its Affiliates, as such, shall have any liability for any
obligations of our company or any of its Affiliates under the 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 notes by accepting a note
waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of
the SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Each indenture provides that with respect to the notes issued
thereunder, our company may, at its option and at any time, elect to have all
obligations discharged with respect to the outstanding notes of such issue
("Legal Defeasance"). Such Legal Defeasance means that we will be deemed to
have paid and discharged the entire indebtedness represented by the
outstanding notes of such issue, except for:
(a) the rights of holders of outstanding notes of such issue to
receive payments in respect of the principal of, premium, if any, and
interest on the notes of such issue when such payments are due, or on the
redemption date, as the case may be;
(b) our company's obligations with respect to the notes
concerning issuing temporary notes, registration of notes, mutilated,
destroyed, lost or stolen notes of such issue and the maintenance of an
office or agency for payment and money for security payments held in trust;
(c) the rights, powers, trust, duties and immunities of the
trustee, and our obligations in connection therewith; and
(d) In addition, the indenture provides that with respect to
each issue of notes, we may, at our option and at any time, elect to have all
obligations released with respect to certain covenants that are described in
the indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the notes of such issue. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Events of default
and remedies" will no longer constitute an Event of Default with respect to
the notes of such issue.
In order to exercise either Legal Defeasance or Covenant Defeasance:
each indenture provides that with respect to the notes issued thereunder,
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(i) We must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of the notes of such issue, cash in U.S.
dollars, non-callable U.S. government obligations, or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the trustee, to
pay the principal of, premium, if any, and interest on the outstanding notes
of such issue on the stated maturity or on the applicable optional redemption
date, as the case may be;
(ii) in the case of Legal Defeasance, we shall have
delivered to the trustee an opinion of counsel in the United States
reasonably acceptable to the trustee confirming that
(A) we have received from, or there has been published
by, the Internal Revenue Service a ruling or
(B) since the date of the indenture, there has been a
change in the applicable federal income tax law, in each case to the effect
that, and based thereon such opinion of counsel shall confirm that, the
holders of the notes of such issue will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance, and
will be subject to federal income tax in the same amount, in the same manner
and at the same times as would have been the case if such Legal Defeasance
had not occurred;
(iii) in the case of Covenant Defeasance, we shall have
delivered to the trustee an opinion of counsel reasonably acceptable to such
trustee confirming that the holders of the notes of such issue will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or insofar as Events of Default
from bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, the
indenture or any other material agreement or instrument to which we or any of
our Subsidiaries is a party or by which we or any of our Subsidiaries is
bound;
(vi) we shall have delivered to the trustee an officers'
certificate stating that the deposit was not made by us with the intent of
preferring the holders of the notes of such series over any of our other
creditors or with the intent of defeating, hindering, delaying or defrauding
any of our other creditors or others; and
(vii) we shall have delivered to the trustee an officers'
certificate stating that all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance relating to such series of
notes have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next paragraph, each indenture and the
notes issued thereunder may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the notes of such
series then outstanding (including consents obtained in connection with a
tender offer or exchange offer for notes of such series), and any existing
default or compliance with any provision of the indenture or the notes of
such series may be waived with the consent of the holders of a majority in
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principal amount of the then outstanding notes of such series (including
consents obtained in connection with a tender offer or exchange offer for
notes of such series).
Without the consent of each holder affected, however, an amendment
or waiver may not (with respect to any note held by a non-consenting holder):
(a) reduce the aggregate principal amount of notes whose
holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any note or alter the provisions with respect to the redemption of the
notes;
(c) reduce the rate of or change the time for payment of
interest on any notes;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the notes (except a
rescission of acceleration of the notes of a series by the holders of
at least a majority in aggregate principal amount of the notes of such
series and a waiver of the payment default that resulted from such
acceleration);
(e) make any note payable in money other than that stated
in the notes;
(f) make any change in the provisions of the indenture
relating to waivers of past Defaults or the rights of holders of notes
to receive payments of principal of or interest on the notes;
(g) waive a redemption payment with respect to any note; or
(h) make any change in the foregoing amendment and waiver
provisions.
In addition, without the consent of at least 66 2/3% of the notes of
a series then outstanding, an amendment or a waiver may not make any change
to the covenants in the indenture entitled "Asset Sales," "Offer to Purchase
Upon a Change of Control" and "Excess Proceeds Offer" (including, in each
case, the related definitions) as such covenants apply to such series of
notes.
Notwithstanding the foregoing, without the consent of any holder of
notes, we, the guarantors under the indenture and the trustee may amend or
supplement each indenture, the notes or the guarantees to cure any ambiguity,
defect or inconsistency, to provide for uncertificated notes or guarantees in
addition to or in place of certificated notes or the guarantees, to provide
for the assumption of our company's or a guarantor's obligations to holders
of the notes in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the holders of the
notes or the guarantees 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 effect or maintain the qualification of the indenture under
the Trust Indenture Act.
CONCERNING THE TRUSTEE
Each indenture contains certain limitations on the rights of the
trustee, if the trustee becomes a creditor of our company, 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 will be
permitted to engage in other transactions with us; however, if the trustee
acquires any conflicting interest, it must eliminate such conflict within 90
days, apply to the SEC for permission to continue as trustee or resign.
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With respect to such series of notes, the holders of a majority in
principal amount of the then outstanding notes of such series will have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the trustee, subject to certain
exceptions. Each indenture provides that in case an Event of Default shall
occur (which shall not be cured), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. The trustee will not be relieved from
liabilities for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that:
(i) this sentence shall not limit the preceding sentence of
this paragraph;
(ii) the trustee shall not be liable for any error of judgment
made in good faith, unless it is proved that the trustee was negligent in
ascertaining the pertinent facts; and
(iii) the trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to the first sentence of this paragraph. Subject to
such provisions, the trustee will be under no obligation to exercise any of
its rights or powers under the indenture at the request of any holder of
notes, unless such holder shall have offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes of each series will be represented by one or more
registered global notes without interest coupons. Upon issuance, the global
exchange notes will be deposited with the trustee, as custodian for The
Depository Trust Company, in New York, New York, and registered in the name
of DTC or its nominee for credit to the accounts of DTC's direct and indirect
participants.
The global exchange 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
in certain limited circumstances. Beneficial interests in the global exchange
notes may be exchanged for notes in certificated form in certain limited
circumstances. See "--Transfer of interests in global notes for certificated
notes." Such certificated notes may, unless the global exchange note has
previously been exchanged for certificated notes, be exchanged for an
interest in the global exchange note representing the principal amount of
exchange notes being transferred. In addition, transfer of beneficial
interests in any global exchange 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.
DEPOSITARY PROCEDURES. DTC has advised us that DTC is a
limited-purpose trust company created to hold securities for its
participating organizations, known as "direct participants", and to
facilitate the clearance and settlement of transactions in those securities
between direct participants through electronic book-entry changes in accounts
of participants. The direct participants include securities brokers and
dealers, including the initial purchasers of the old notes, banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and CEDEL. Access to DTC's system is also available to other
entities that clear through or maintain a direct or indirect, custodial
relationship with a direct participant, known as "indirect participants."
DTC has also advised us that, pursuant to DTC procedures, upon
deposit of the global exchange notes, DTC will credit the accounts of direct
participants with portions of the principal amount of global exchange notes
that have been allocated to them by the initial purchasers, and DTC will
maintain records of the ownership interests of such direct participants in
the global exchange notes and the transfer of ownership interests by and
between direct participants. DTC will not maintain records of the ownership
interests of, or the transfer of ownership interests by and between, indirect
participants or other owners of
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beneficial interests in the global exchange notes. Direct participants and
indirect participants must maintain their own records of the ownership
interests of, and the transfer of ownership interests by and between,
indirect participants and other owners of beneficial interests in the global
exchange notes. We expect that payments by direct participants to owners of
beneficial interests in such global exchange notes held through such direct
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in the name of nominees for such customers. Such
payments will be the responsibility of such direct participants.
Investors in the global exchange notes may hold their interests
therein directly through DTC if they are direct participants in DTC or
indirectly through organizations, including Euroclear and CEDEL, which are
direct participants in DTC. Euroclear and CEDEL will hold interests in the
global exchange notes on behalf of their participants through customers'
securities accounts in their respective names on the books of their
respective depositaries, which are Morgan Guaranty Trust Company of New York,
Brussels office, as operator or Euroclear and Citibank, N.A., as depositary
of CEDEL. The depositaries, in turn, will hold such interests in the global
exchange notes in customers' securities accounts in the depositaries' names
on the books of DTC. All ownership interests in any global exchange notes,
including those of customers' securities accounts held through Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear and CEDEL may also be subject to the
procedures and requirements of such systems.
The laws of some states require that certain persons take physical
delivery in definitive, certificated form, of securities that they own. This
may limit or curtail the ability to transfer beneficial interests in a global
exchange note to such persons. Because DTC can act only on behalf of direct
participants, which in turn act on behalf of indirect participants and
others, the ability of a person having a beneficial interest in a global
exchange note to pledge such interest to persons or entities that are not
direct participants in DTC, or to otherwise take actions in respect of such
interests, may be affected by the lack of physical certificates evidencing
such interests. For certain other restrictions on the transferability of the
notes see "--Transfers of interests in global notes for certificated notes."
Except as described in "--Transfers of interests in global notes for
certificated notes," owners of beneficial interests in the global exchange
notes will not have notes registered in their names, will not receive
physical delivery of notes in certificated form and will not be considered
the registered owners or holders thereof under the indentures for any purpose.
Under the terms of each indenture, we, the guarantors under the
indenture and the trustee will treat the persons in whose names the notes are
registered (including notes represented by global exchange notes) as the
owners thereof for the purpose of receiving payments and for any and all
other purposes whatsoever. Payments in respect of the principal, premium,
liquidated damages, if any, and interest on global exchange notes registered
in the name of DTC or its nominee will be payable by the trustee to DTC or
its nominee as the registered holder under each indenture. 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 direct
participant's or indirect participant's records relating to or payments made
on account of beneficial ownership interests in the global exchange notes or
for maintaining, supervising or reviewing any of DTC's records or any direct
participant's or indirect participant's records relating to the beneficial
ownership interests in any global exchange note or any other matter relating
to the actions and practices of DTC or any of its direct participants or
indirect participants.
DTC has advised us that its current payment practice for payments of
principal, interest and the like with respect to securities such as the notes
is to credit the accounts of the relevant direct participants with such
payment on the payment date in amounts proportionate to such direct
participant's respective ownership interests in the global exchange notes as
shown on DTC's records. Payments by direct
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participants and indirect participants to the beneficial owners of the notes
will be governed by standing instructions and customary practices between
them and will not be the responsibility of DTC, the trustee, us or the
guarantors under the indenture. Neither we, the guarantors under the
indenture nor the trustee will be liable for any delay by DTC or its direct
participants or indirect participants in identifying the beneficial owners of
the notes, and we and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the
registered owner of the notes for all purposes.
The global exchange notes will trade in DTC's Same-Day Funds
Settlement System and, therefore, transfers between direct participants in
DTC will be effected in accordance with DTC's procedures, and will be settled
in immediately available funds. Transfers between indirect participants,
other than indirect participants who hold an interest in the notes through
Euroclear or CEDEL, who hold an interest through a direct participant will be
effected in accordance with the procedures of such direct participant but
generally will settle in immediately available funds. Transfers between and
among indirect participants who hold interests in the notes through Euroclear
and CEDEL will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to
the notes described herein, cross-market transfers between direct
participants in DTC, on the one hand, and indirect participants who hold
interests in the exchange notes through Euroclear or CEDEL, on the other
hand, will be effected by Euroclear's or CEDEL's respective nominee through
DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL; HOWEVER,
delivery of instructions relating to crossmarket transactions must be made
directly to Euroclear or CEDEL, as the case may be, by the counterparty in
accordance with the rules and procedures of Euroclear or CEDEL and within
their established deadlines, which is Brussels time for Euroclear and UK time
for CEDEL. Indirect participants who hold interest in the exchange notes
through Euroclear and CEDEL may not deliver instructions directly to
Euroclear's or CEDEL's nominee. Euroclear or CEDEL will, if the transaction
meets its settlement requirements, deliver instructions to its respective
nominee to deliver or receive interests on Euroclear's or CEDEL's behalf in
the relevant global exchange note in DTC, and make or receive payment in
accordance with normal procedures for same-day fund settlement applicable to
DTC.
Because of time zone differences, the securities accounts of an
indirect participant who holds an interest in the exchange notes through
Euroclear or CEDEL purchasing an interest in a global exchange note from a
direct participant in DTC will be credited, and any such crediting will be
reported to Euroclear or CEDEL during the European business day immediately
following the settlement date of DTC in New York. Although recorded in DTC's
accounting records as of DTC's settlement date in New York, Euroclear and
CEDEL customers will not have access to the cash amount credited to their
accounts as a result of a sale of an interest in a global exchange note to a
DTC participant until the European business day for Euroclear or CEDEL
immediately following DTC's settlement date.
DTC has advised us that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more direct
participants to whose account interests in the global exchange notes are
credited and only in respect of such portion of the aggregate principal
amount of the notes of a series as to which such direct participant or direct
participants has or have given direction.
Although DTC, Euroclear and CEDEL have agreed to the foregoing
procedures to facilitate transfers of interests in the global exchange notes
among direct participants, including Euroclear and CEDEL, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we, the guarantors under
the indenture, the initial purchasers of the old notes nor the trustee shall
have any responsibility for the performance by DTC, Euroclear or CEDEL or
their respective direct and indirect participants of their respective
obligations under the rules and procedures governing any of their operations.
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The information in this section concerning DTC, Euroclear and CEDEL
and their book-entry systems has been obtained from sources that we believe
are reliable, but we take no responsibility for the accuracy thereof.
TRANSFER OF INTERESTS IN GLOBAL EXCHANGE NOTES FOR CERTIFICATED NOTES
An entire global exchange note may be exchanged for definitive notes
of a series in registered, certificated form without interest coupons if DTC
notifies us that it is unwilling or unable to continue as depositary for the
global exchange notes and we thereupon fail to appoint a successor depositary
within 90 days or if DTC has ceased to be a clearing agency registered under
the Exchange Act. Alternatively, our company, at its option, may notify the
trustee in writing that it elects to cause the issuance of certificated notes
or certificated notes will be issued if there shall have occurred and be
continuing to occur a Default or an Event of Default with respect to the
notes of such series. In any such case, we will notify the trustee in writing
that, upon surrender by the direct and indirect participants of their
interest in such global note, certificated notes will be issued to each
person that such direct and indirect participants and DTC identify as being
the beneficial owner of the related notes.
Beneficial interests in global notes held by any direct or indirect
participant may be exchanged for certificated notes upon request to DTC, on
behalf of such direct participant (for itself or on behalf of an indirect
participant), to the trustee in accordance with customary DTC procedures.
Certificated notes delivered in exchange for any beneficial interest in any
global note will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such direct or indirect
participants, in accordance with DTC's customary procedures.
Neither we, the guarantors under the indenture nor the trustee will
be liable for any delay by the holder of the global notes or DTC in
identifying the beneficial owners of notes, and we and the trustee may
conclusively rely on, and will be protected in relying on, instructions from
the holder of the global note or DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
Each indenture requires that payments in respect of the notes
represented by the global exchange notes, including principal, premium, if
any, interest and liquidated damages, if any, be made by wire transfer of
immediately available same day funds to the accounts specified by the holder
of interests in such global exchange notes. With respect to certificated
notes, we will make all payments of principal, premium, if any, interest and
liquidated damages, if any, by wire transfer of immediately available same
day funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. We expect that secondary trading in the certificated notes will also
be settled in immediately available funds.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the
applicable indenture without charge by writing to us at, 5701 South Sante Fe
Drive, Littleton, Colorado 80120, attention David K. Moskowitz, facsimile
(303) 723-1699.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
WE AND THE GUARANTORS UNDER THE INDENTURE ARE MAKING THE EXCHANGE
OFFER TO COMPLY WITH OUR OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENTS
TO REGISTER THE EXCHANGE OF EXCHANGE NOTES FOR THE OLD NOTES. IN THE
REGISTRATION RIGHTS AGREEMENTS, WE AND SUCH GUARANTORS ALSO AGREED UNDER
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CERTAIN CIRCUMSTANCES TO FILE A SHELF REGISTRATION STATEMENT TO REGISTER THE
RESALE OF CERTAIN OLD NOTES AND EXCHANGE NOTES.
We, the guarantors under the indenture and the initial purchasers of
the old notes entered into the registration rights agreements on January 25,
1999. In the registration rights agreement relating to each series of notes,
we and the guarantors agreed to file the exchange offer registration
statement relating to such issue with the SEC within 90 days of the closing
date of the initial sale of the notes to the initial purchasers, and use our
respective best efforts to have it then declared effective at the earliest
possible time. We and the guarantors also agreed to use our best efforts to
cause that exchange offer registration statement to be effective
continuously, to keep each exchange offer open for a period of not less than
20 business days and cause each exchange offer to be consummated no later
than the 210th day after that closing date. Pursuant to the exchange offer,
certain holders of notes which constitute "transfer restricted securities"
will be allowed to exchange their transfer restricted securities for
registered exchange notes.
Each registration rights agreement provides that the following
events will constitute a "registration default":
- if we or the guarantors under the indenture fail to file an
exchange offer registration statement with the SEC on or prior
to the 90th day after the closing date of the initial sale of
the notes to the initial purchasers,
- if the exchange offer registration statement is not declared
effective by the SEC on or prior to the 180th day after that
closing date,
- if the exchange offer is not consummated on or before the 210th day
after that closing date,
- if obligated to file the shelf registration statement and we and
the guarantors under the indenture fail to file the shelf
registration statement with the SEC on or prior to the 90th day
after that closing date or the 30th day after such filing obligation
arises,
- if obligated to file a shelf registration statement and the shelf
registration statement is not declared effective on or prior to
the 90th day after the obligation to file a shelf registration
statement arises, or
- if the exchange offer registration statement or the shelf
registration statement, as the case may be, is declared effective
but thereafter ceases to be effective or useable in connection
with resales of the transfer restricted securities, for such time
of non-effectiveness or non-usability.
If there is a registration default, then we and the guarantors under
the indenture agree to pay to each holder of transfer restricted securities
affected thereby liquidated damages in an amount equal to $0.05 per week per
$1,000 in principal amount of transfer restricted securities held by such
holder for each week or portion thereof that the registration default
continues for the first 90-day period immediately following the occurrence of
that registration default. The amount of the liquidated damages shall
increase by an additional $0.05 per week per $1,000 in principal amount of
transfer restricted securities with respect to each subsequent 90-day period
until all registration defaults have been cured or until the transfer
restricted securities become freely tradable without registration under the
Securities Act, up to a maximum amount of liquidated damages of $0.30 per
week per $1,000 in principal amount of transfer restricted securities. We and
the guarantors under the indenture shall not be required to pay liquidated
damages for more than one of these registration defaults at any given time.
Following the cure of all of these registration defaults, the accrual of
liquidated damages will cease.
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All accrued liquidated damages are to be paid by us or the
guarantors under the indenture to holders entitled thereto by wire transfer
to the accounts specified by them or by mailing checks to their registered
address if no such accounts have been specified.
Holders of notes are required to make certain representations to us,
as described in the registration rights agreements, in order to participate
in the exchange offer and are required to deliver information to be used in
connection with the shelf registration statement and to provide comments on
the shelf registration statement within the time periods set forth in the
registration rights agreements in order to have their notes included in the
shelf registration statement and benefit from the provisions regarding
liquidated damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in each indenture.
Reference is made to the applicable indenture for a full disclosure of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"ACCOUNTS RECEIVABLE SUBSIDIARY" means one Unrestricted Subsidiary
of our company specifically designated as an Accounts Receivable Subsidiary
for the purpose of financing the accounts receivable of our company, and
provided that any such designation shall not be deemed to prohibit our
company from financing accounts receivable through any other entity,
including, without limitation, any other Unrestricted Subsidiary.
"ACCOUNTS RECEIVABLE SUBSIDIARY NOTES" means the notes to be issued
by the Accounts Receivable Subsidiary for the purchase of accounts receivable.
"ACQUIRED DEBT" means, with respect to any specified person,
Indebtedness of any other person existing at the time such other person
merges with or into or becomes a Subsidiary of such specified person, or
Indebtedness incurred by such person in connection with the acquisition of
assets, including Indebtedness incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Subsidiary of such specified person or the acquisition of such assets, as the
case may be.
"ACQUIRED SUBSCRIBER" means a subscriber to a pay television service
provided by a pay television provider that is not an Affiliate of our company
at the time our company or one of its Restricted Subsidiaries purchases the
right to provide pay television service to such subscriber from such pay
television provider, whether directly or through the acquisition of the
entity providing pay television service to such subscriber.
"ACQUIRED SUBSCRIBER DEBT" means (i) Indebtedness the proceeds of
which are used to pay the purchase price for Acquired Subscribers or to
acquire the entity which has the right to provide pay television service to
such Acquired Subscribers or to acquire from such entity or an Affiliate of
such entity assets used or to be used in connection with such pay television
business; PROVIDED that such Indebtedness is incurred within three years
after the date of the acquisition of such Acquired Subscriber and (ii)
Acquired Debt of any such entity being acquired; PROVIDED that in no event
shall the amount of such Indebtedness and Acquired Debt for any Acquired
Subscriber exceed the sum of the actual purchase price (inclusive of such
Acquired Debt) for such Acquired Subscriber, such entity and such assets plus
the cost of converting such Acquired Subscriber to usage of a delivery format
for pay television service made available by our company or any of its
Restricted Subsidiaries.
"AFFILIATE" of any specified person means any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this
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definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such person, whether through the ownership of voting securities, by agreement
or otherwise; PROVIDED, HOWEVER, that beneficial ownership of 10% or more of
the voting securities of a person shall be deemed to be control; PROVIDED
FURTHER that no individual, other than a director of ECC or our company or an
officer of ECC or our company with a policy making function, shall be deemed
an Affiliate of our company or any of its Subsidiaries solely by reason of
such individual's employment, position or responsibilities by or with respect
to ECC, our company or any of their respective Subsidiaries.
"CAPITAL LEASE OBLIGATION" means, as to any person, the obligations
of such person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at the time any determination
thereof is to be made shall be the amount of the liability in respect of a
capital lease that would at such time be so required to be capitalized on a
balance sheet in accordance with GAAP.
"CAPITAL STOCK" means any and all shares, interests, participations,
rights or other equivalents, however designated, of corporate stock or
partnership or membership interests, whether common or preferred.
"CASH EQUIVALENTS" means: (a) United States dollars; (b) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition; (c) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $500
million; (d) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (b) and (c)
entered into with any financial institution meeting the qualifications
specified in clause (c) above; (e) commercial paper rated P-1, A-1 or the
equivalent thereof by Moody's or S&P, respectively, and in each case maturing
within six months after the date of acquisition and (f) money market funds
offered by any domestic commercial or investment bank having capital and
surplus in excess of $500 million at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (a) through (e)
of this definition.
"CHANGE OF CONTROL" means: (a) any transaction or series of
transactions (including, without limitation, a tender offer, merger or
consolidation) the result of which is that the Principal and his Related
Parties or an entity controlled by the Principal and his Related Parties (and
not controlled by any person other than the Principal or his Related Parties)
(i) sell, transfer or otherwise dispose of more than 50% of the total Equity
Interests in ECC 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), after giving
effect to the repurchase of the Series A Preferred Stock on or about the date
of the indenture, or (ii) do not have the voting power to elect at least a
majority of the Board of Directors of ECC; (b) the first day on which a
majority of the members of the Board of Directors of ECC are not Continuing
Directors; or (c) any time that ECC shall cease to beneficially own 100% of
the Equity Interests of our company.
"CONSOLIDATED CASH FLOW" means, with respect to any person for any
period, the Consolidated Net Income of such person for such period, plus, to
the extent deducted in computing Consolidated Net Income: (a) provision for
taxes based on income or profits; (b) Consolidated Interest Expense; (c)
depreciation and amortization (including amortization of goodwill and other
intangibles) of such
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person for such period; and (d) any extraordinary loss and any net loss
realized in connection with any Asset Sale, in each case, on a consolidated
basis determined in accordance with GAAP, provided that Consolidated Cash
Flow shall not include interest income derived from the net proceeds of the
offering.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any person
for any period, consolidated interest expense of such person for such period,
whether paid or accrued, including amortization of original issue discount
and deferred financing costs, non-cash interest payments and the interest
component of Capital Lease Obligations, on a consolidated basis determined in
accordance with GAAP; PROVIDED HOWEVER that with respect to the calculation
of the consolidated interest expense of our company, the interest expense of
Unrestricted Subsidiaries shall be excluded.
"CONSOLIDATED NET INCOME" means, with respect to any person for any
period, the aggregate of the Net Income of such person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, HOWEVER, that: (a) the Net Income of any person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent person, in the case of a gain, or to the extent
of any contributions or other payments by the referent person, in the case of
a loss; (b) the Net Income of any person that is a Subsidiary that is not a
Wholly Owned Subsidiary (or, with respect to the calculation of the
Consolidated Net Income of our company, a Wholly Owned Restricted Subsidiary)
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent person; (c) the Net Income of any
person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded; (d) the Net Income of any
Subsidiary of such person shall be excluded to the extent that the
declaration or payment of dividends or similar distributions is not at the
time permitted by operation of the terms of its charter or bylaws or any
other agreement, instrument, judgment, decree, order, statute, rule or
government regulation to which it is subject; and (e) the cumulative effect
of a change in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any person, the sum
of: (a) the stockholders' equity of such person; plus (b) the amount reported
on such person's most recent balance sheet with respect to any series of
preferred stock (other than Disqualified Stock) that by its terms is not
entitled to the payment of dividends unless such dividends may be declared
and paid only out of net earnings in respect of the year of such declaration
and payment, but only to the extent of any cash received by such person upon
issuance of such preferred stock, less: (i) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of
tangible assets of a going concern business made within 12 months after the
acquisition of such business) subsequent to the date of the indenture in the
book value of any asset owned by such person or a consolidated Subsidiary of
such person; and (ii) all unamortized debt discount and expense and
unamortized deferred charges, all of the foregoing determined in accordance
with GAAP.
"CONTINUING DIRECTOR" means, as of any date of determination, any
member of the Board of Directors of ECC 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.
"CREDIT AGREEMENT" means any one or more credit agreements (which
may include or consist of revolving credits) between our company and one or
more banks or other financial institutions providing financing for the
business of our company and our company's Restricted Subsidiaries, provided
that the lenders party to the Credit Agreement may not be Affiliates of ECC,
our company or their respective Subsidiaries and provided further that the
guarantors under the indenture may be guarantors under such agreements.
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"DBSC" means Direct Broadcasting Satellite Corporation, a Colorado
corporation.
"DEFAULT" means any event that is, or with the passage of time or
the giving of notice or both would be, an Event of Default.
"DEFERRED PAYMENTS" means Indebtedness to satellite construction or
launch contractors incurred after the date of the Indenture in connection
with the construction or launch of one or more satellites of our company or
its Restricted Subsidiaries used by it in the businesses described in the
covenant "--Certain covenants--Activities of our company" in an amount not to
exceed at any one time outstanding in the aggregate $135 million.
"DNCC" means Dish Network Credit Corporation, a Colorado corporation.
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to date
on which the notes mature; PROVIDED, HOWEVER, that any such Capital Stock may
require our company of such Capital Stock to make an offer to purchase such
Capital Stock upon the occurrence of certain events if the terms of such
Capital Stock provide that such an offer may not be satisfied and the
purchase of such Capital Stock may not be consummated until the 91st day
after the notes have been paid in full.
"ELIGIBLE INSTITUTION" means a commercial banking institution that
has combined capital and surplus of not less than $500 million or its
equivalent in foreign currency, whose debt is rated Investment Grade at the
time as of which any investment or rollover therein is made.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"ETC" means EchoStar Technologies Corporation, a Texas corporation.
"EXISTING INDEBTEDNESS" means the notes and any other Indebtedness
of our company and its Subsidiaries in existence on the date of the
indentures until such amounts are repaid.
"GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the U.S., which are
applicable as of the date of determination; PROVIDED that, except as
otherwise specifically provided, all calculations made for purposes of
determining compliance with the terms of the provisions of the indenture
shall utilize GAAP as in effect on the date of the indentures.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part
of any Indebtedness.
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"HEDGING OBLIGATIONS" means, with respect to any person, the
obligations of such person pursuant to any arrangement with any other person,
whereby, directly or indirectly, such person is entitled to receive from time
to time periodic payments calculated by applying either floating or a fixed
rate of interest on a stated notional amount in exchange for periodic
payments made by such other person calculated by applying a fixed or a
floating rate of interest on the same notional amount and shall include,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements designed to protect such person against fluctuations in interest
rates.
"INDEBTEDNESS" means, with respect to any person, any indebtedness
of such person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases) or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and
to the extent any of the foregoing (other than Hedging Obligations) would
appear as a liability upon a balance sheet of such person prepared in
accordance with GAAP, and also includes, to the extent not otherwise
included, the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such person, the liquidation preference with
respect to, any Preferred Equity Interests (but excluding, in each case, any
accrued dividends) as well as the guarantee of items that would be included
within this definition.
"INDEBTEDNESS TO CASH FLOW RATIO" means, with respect to any person,
the ratio of: (a) the Indebtedness of such person and its Subsidiaries (or,
if such person is our company, of our company and its Restricted
Subsidiaries) as of the end of the most recently ended fiscal quarter, plus
the amount of any Indebtedness incurred subsequent to the end of such fiscal
quarter; to (b) such person's Consolidated Cash Flow for the most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such event for which such
calculation is being made shall occur (the "Measurement Period"), PROVIDED,
HOWEVER; that: (i) in making such computation, Indebtedness shall include the
total amount of funds outstanding and available under any revolving credit
facilities; and (ii) in the event that such person or any of its Subsidiaries
(or, if such person is our company, any of its Restricted Subsidiaries)
consummates a material acquisition or an Asset Sale or other disposition of
assets subsequent to the commencement of the Measurement Period but prior to
the event for which the calculation of the Indebtedness to Cash Flow Ratio is
made, then the Indebtedness to Cash Flow Ratio shall be calculated giving pro
forma effect to such material acquisition or Asset Sale or other disposition
of assets, as if the same had occurred at the beginning of the applicable
period.
"INVESTMENT GRADE" means with respect to a security, that such
security is rated, by at least two nationally recognized statistical rating
organizations, in one of each such organization's four highest generic rating
categories.
"INVESTMENTS" means, with respect to any person, all investments by
such person in other persons (including Affiliates) in the forms of loans
(including guarantees), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or
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agreement to give any financing statement under the Uniform Commercial Code
(or equivalent status) of any jurisdiction).
"MARKETABLE SECURITIES" means: (a) Government Securities; (b) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution; (c)
commercial paper maturing not more than 365 days after the date of
acquisition issued by a corporation (other than an Affiliate of our company)
with an Investment Grade rating, at the time as of which any investment
therein is made, issued or offered by an Eligible Institution; (d) any
bankers acceptances or money market deposit accounts issued or offered by an
Eligible Institution; and (e) any fund investing exclusively in investments
of the types described in clauses (a) through (d) above.
"MAXIMUM SECURED AMOUNT" means at any time (i) in the event our
company at such time has a rating or has received in writing an indicative
rating on all outstanding notes of both "Ba3" from Moody's and "BB-" from
S&P, an amount equal to the greater of (x) the product of 1.25 times the
Trailing Cash Flow Amount and (y) $500 million and (ii) in the event our
company does not have both of such ratings or indicative ratings at such
time, $500 million.
"MEDIA 4" means Media4, Inc., a Georgia corporation.
"MOODY'S" means Moody's Investors Service, Inc.
"NAGRASTAR" means NagraStar LLC, a Colorado limited liability
corporation.
"NET INCOME" means, with respect to any person, the net income
(loss) of such person, determined in accordance with GAAP, excluding,
however, any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions), and excluding any extraordinary gain (but not loss), together
with any related provision for taxes on such extraordinary gain (but not
loss) and excluding any unusual gain (but not loss) relating to recovery of
insurance proceeds on satellites, together with any related provision for
taxes on such extraordinary gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by our
company or any of its Restricted Subsidiaries, as the case may be, in respect
of any Asset Sale, net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees, and sales commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that are the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets.
Net Proceeds shall exclude any non-cash proceeds received from any Asset
Sale, but shall include such proceeds when and as converted by our company or
any Restricted Subsidiary to cash.
"NON-CORE ASSETS" means: (1) all intangible authorizations, rights,
interests and other intangible assets related to all "western" DBS orbital
locations other than the 148 degree orbital slot (as the term "western" is
used by the FCC) held by our company and/or any of its Subsidiaries at any
time, including without limitation the authorizations for 22 DBS frequencies
at 175 degrees WL and ESC's permit for 11 unspecified western assignments;
(2) all intangible authorizations, rights, interests and other intangible
assets related to the FSS in the Ku-band, Ka-band and C-band held by our
company and/or any of its Subsidiaries at any time, including without
limitation the license of ESC for a two satellite Ku-band system at 83
degrees and 121 degrees WL, the license of ESC for a two satellite Ka-band
system at 83 degrees WL and 121 degrees WL, and the application of ESC to add
C-band capabilities to a Ku-band
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satellite authorized at 83 degrees WL; (3) all intangible authorizations,
rights, interests and other intangible assets related to the Mobile-Satellite
Service held by our company and/or any of its Subsidiaries at any time,
including without limitation the license of E-SAT, Inc. for a low-earth orbit
MSS system, (4) all intangible authorizations, rights, interests and other
intangible assets related to local multi-point distribution service and (5)
any Subsidiary of our company the assets of which consist solely of (i) any
combination of the foregoing and (ii) other assets to the extent permitted
under the provision described under the second paragraph of "--Certain
covenants--Dispositions of ETC and non-core assets."
"NON-RECOURSE INDEBTEDNESS" of any person means Indebtedness of such
person that: (i) is not guaranteed by any other person (except a Wholly Owned
Subsidiary of the referent person); (ii) is not recourse to and does not
obligate any other person (except a Wholly Owned Subsidiary of the referent
person) in any way; (iii) does not subject any property or assets of any
other person (except a Wholly Owned Subsidiary of the referent person),
directly or indirectly, contingently or otherwise, to the satisfaction
thereof, and (iv) is not required by GAAP to be reflected on the financial
statements of any other person (other than a Subsidiary of the referent
person) prepared in accordance with GAAP.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED INVESTMENTS" means: (a) Investments in our company or in
a Wholly Owned Restricted Subsidiary of our company that is a guarantor under
the indenture, (b) Investments in Cash Equivalents and Marketable Securities;
and (c) Investments by our company or any Subsidiary of our company in a
person if, as a result of such Investment: (i) such person becomes a Wholly
Owned Restricted Subsidiary of our company and becomes a guarantor under the
indenture, or (ii) such person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, our company or a Wholly Owned Restricted Subsidiary of our
company that is a guarantor; PROVIDED that if at any time a Restricted
Subsidiary of our company shall cease to be a Subsidiary of our company, our
company shall be deemed to have made a Restricted Investment in the amount of
its remaining investment, if any, in such former Subsidiary.
"PERMITTED LIENS" means: (a) Liens securing the notes and Liens
securing any guarantee under the indenture; (b) Liens securing the Deferred
Payments; (c) Liens securing any Indebtedness permitted under the covenant
described under "--Certain covenants--Incurrence of indebtedness"; PROVIDED
that such Liens under this clause (c) shall not secure Indebtedness in an
amount exceeding the Maximum Secured Amount at the time that such Lien is
incurred; (d) Liens securing Purchase Money Indebtedness, PROVIDED that such
Indebtedness was permitted to be incurred by the terms of the indenture and
such Liens do not extend to any assets of our company or its Restricted
Subsidiaries other than the assets so acquired; (e) Liens securing
Indebtedness the proceeds of which are used to develop, construct, launch or
insure any satellites other than EchoStar I, EchoStar II, EchoStar III,
EchoStar IV or any permitted replacements of any such satellites, PROVIDED
that such Indebtedness was permitted to be incurred by the terms of the
indenture and such Liens do not extend to any assets of our company or its
Restricted Subsidiaries other than such satellites being developed,
constructed, launched or insured, and to the related licenses, permits and
construction, launch and TT&C contracts; (f) Liens on orbital slots, licenses
and other assets and rights of our company, PROVIDED that such orbital slots,
licenses and other assets and rights relate solely to the satellites referred
to in clause (e) of this definition; (g) Liens on property of a person
existing at the time such person is merged into or consolidated with our
company or any Restricted Subsidiary of our company, PROVIDED, that such
Liens were not incurred in connection with, or in contemplation of, such
merger or consolidation, other than in the ordinary course of business; (h)
Liens on property of an Unrestricted Subsidiary at the time that it is
designated as a Restricted Subsidiary pursuant to the definition of
"Unrestricted Subsidiary," PROVIDED that such Liens were not incurred in
connection with, or
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contemplation of, such designation; (i) Liens on property existing at the
time of acquisition thereof by our company or any Restricted Subsidiary of
our company; PROVIDED that such Liens were not incurred in connection with,
or in contemplation of, such acquisition and do not extend to any assets of
our company or any of its Restricted Subsidiaries other than the property so
acquired; (j) Liens to secure the performance of statutory obligations,
surety or appeal bonds or performance bonds, or landlords', carriers',
warehousemen's, mechanics', suppliers', materialmen's or other like Liens, in
any case incurred in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as is
required by GAAP shall have been made therefore; (k) Liens existing on the
date of the indentures; (l) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded; PROVIDED that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor; (m) Liens
incurred in the ordinary course of business of our company or any Restricted
Subsidiary of our company (including, without limitation, Liens securing
Purchase Money Indebtedness) with respect to obligations that do not exceed
$10 million in principal amount in the aggregate at any one time outstanding;
(n) Liens securing Indebtedness in an amount not to exceed $10 million
incurred pursuant to clause (xi) of the second paragraph of the covenant
described under "Incurrence of indebtedness;" (o) Liens on any asset of our
company or a guarantor under the indenture securing Indebtedness in an amount
not to exceed $10 million; (p) Liens securing Indebtedness permitted under
clause (12) of the second paragraph of the provision described under
"--Certain covenants--Incurrence of indebtedness"; provided that such Liens
shall not extend to assets other than the assets that secure such
Indebtedness being refinanced; (q) any interest or title of a lessor under
any Capital Lease Obligation; PROVIDED that such Capital Lease Obligation is
permitted under the other provisions of the indenture; (r) Liens not provided
for in clauses (a) through (q) above, securing Indebtedness incurred in
compliance with the terms of the indentures provided that the notes are
secured by the assets subject to such Liens on an equal and ratable basis or
on a basis prior to such Liens; PROVIDED that to the extent that such Lien
secured Indebtedness that is subordinated to the notes, such Lien shall be
subordinated to and be later in priority than the notes on the same basis and
(s) extensions, renewals or refundings of any Liens referred to in clauses
(a) through (q) above, PROVIDED that (i) any such extension, renewal or
refunding does not extend to any assets or secure any Indebtedness not
securing or secured by the Liens being extended, renewed or refinanced and
(ii) any extension, renewal or refunding of a Lien originally incurred
pursuant to clause (c) above shall not secure Indebtedness in an amount
greater than the Maximum Secured Amount at the time of such extension,
renewal or refunding.
"PREFERRED EQUITY INTEREST," in any person, means an Equity Interest
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such person,
over Equity Interests of any other class in such person.
"PRINCIPAL" means Charles W. Ergen.
"PURCHASE MONEY INDEBTEDNESS" means (i) indebtedness of our company
or any guarantor under the indenture (including indebtedness that otherwise
satisfies this clause (i) which was incurred prior to the date the obligor
thereunder became a guarantor under the indenture) incurred (within 365 days
of such purchase) to finance the purchase of any assets (including the
purchase of Equity Interests of persons that are not Affiliates of our
company) of our company or any Guarantor under the indenture: (a) to the
extent the amount of Indebtedness thereunder does not exceed 100% of the
purchase cost of such assets; and (b) to the extent that no more than $20
million of such Indebtedness at any one time outstanding is recourse to our
company or any of its Restricted Subsidiaries or any of their respective
assets, other than the assets so purchased; or (ii) indebtedness of our
company or any guarantor under the indenture which
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refinances indebtedness referred to in clause (i) of this definition,
PROVIDED that such refinancing satisfies subclauses (a) and (b) of such
clause (i).
"RECEIVABLES TRUST" means a trust organized solely for the purpose
of securitizing the accounts receivable held by the Accounts Receivable
Subsidiary that (a) shall not engage in any business other than (i) the
purchase of accounts receivable or participation interests therein from the
Accounts Receivable Subsidiary and the servicing thereof, (ii) the issuance
of and distribution of payments with respect to the securities permitted to
be issued under clause (b) below and (iii) other activities incidental to the
foregoing, (b) shall not at any time incur Indebtedness or issue any
securities, except (i) certificates representing undivided interests in the
trust issued to the Accounts Receivable Subsidiary and (ii) debt securities
issued in an arm's length transaction for consideration solely in the form of
cash and Cash Equivalents, all of which (net of any issuance fees and
expenses) shall promptly be paid to the Accounts Receivable Subsidiary, and
(c) shall distribute to the Accounts Receivable Subsidiary as a distribution
on the Accounts Receivable Subsidiary's beneficial interest in the trust no
less frequently than once every six months all available cash and Cash
Equivalents held by it, to the extent not required for reasonable operating
expenses or reserves therefor or to service any securities issued pursuant to
clause (b) above that are not held by the Accounts Receivable Subsidiary.
"RECEIVER SUBSIDY" means a subsidy, rebate or other similar payment
by EchoStar or any of its Subsidiaries, in the ordinary course of business,
to subscribers, vendors or distributors, relating to an EchoStar receiver
system, not to exceed the retail price of such EchoStar receiver system,
together with the retail price of installation of such EchoStar receiver
system.
"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.
"RESTRICTED INVESTMENT" means an Investment other than Permitted
Investments.
"RESTRICTED SUBSIDIARY" means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by our company or one or
more Subsidiaries of our company or a combination thereof, other than
Unrestricted Subsidiaries.
"S&P" means Standard & Poor's Rating Services.
"SATELLITE INSURANCE" means insurance providing coverage for a
satellite in an amount which is, together with cash, Cash Equivalents and
Marketable Securities segregated and reserved on the balance sheet of our
company, for the duration of the insured period or until applied in
accordance with the covenant entitled "Maintenance of insurance." For
purposes of the indenture, the proceeds of any Satellite Insurance shall be
deemed to include the amount of cash, Cash Equivalents and Marketable
Securities segregated and reserved by our company for purposes of the
preceding sentence.
"SATELLITE RECEIVER" means any satellite receiver capable of
receiving programming from the EchoStar Dish Network.-SM-
"SERIES A CUMULATIVE PREFERRED STOCK" means the Series A Cumulative
Preferred Stock of ECC outstanding on the date of the indentures.
"SKYVISTA" means SkyVista Corporation, a Colorado corporation.
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"SUBSIDIARY" means, with respect to any person, any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such person or one or more of the other Subsidiaries of such
person or a combination thereof. Notwithstanding the foregoing, for purposes
of the indentures, until the consummation of the reorganization, DBSC was
deemed to be a Subsidiary of our company.
"TRAILING CASH FLOW AMOUNT" means the Consolidated Cash Flow of our
company during the most recent four fiscal quarters of our company for which
financial statements are available.
"UNRESTRICTED SUBSIDIARY" means; (A) E-Sat, Inc., EchoStar Real
Estate Corporation, EchoStar International (Mauritius) Ltd., EchoStar
Manufacturing and Distribution Pvt. Ltd. and Satrec Mauritius Ltd.; and (B)
any Subsidiary of our company designated as an Unrestricted Subsidiary in a
resolution of the Board of Directors of our company (a) no portion of the
Indebtedness or any other obligation (contingent or otherwise) of which,
immediately after such designation: (i) is guaranteed by our company or any
other Subsidiary of our company (other than another Unrestricted Subsidiary);
(ii) is recourse to or obligates our company or any other Subsidiary of our
company (other than another Unrestricted Subsidiary) in any way; or (iii)
subjects any property or asset of our company or any other Subsidiary of our
company (other than another Unrestricted Subsidiary), directly or indirectly,
contingently or otherwise, to satisfaction thereof; (b) with which neither
our company nor any other Subsidiary of our company (other than another
Unrestricted Subsidiary) has any contract, agreement, arrangement,
understanding or is subject to an obligation of any kind, written or oral,
other than on terms no less favorable to our company or such other Subsidiary
than those that might be obtained at the time from persons who are not
Affiliates of our company; and (c) with which neither our company nor any
other Subsidiary of our company (other than another Unrestricted Subsidiary)
has any obligation: (i) to subscribe for additional shares of Capital Stock
or other equity interests therein; or (ii) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results; PROVIDED, HOWEVER, that none of our
company, ESC and Echosphere Corporation may be designated as Unrestricted
Subsidiaries. At any time after the date of the indentures that our company
designates an additional Subsidiary (other than ETC or a Subsidiary that
constitutes a Non-Core Asset) as an Unrestricted Subsidiary, our company will
be deemed to have made a Restricted Investment in an amount equal to the fair
market value (as determined in good faith by the Board of Directors of our
company evidenced by a resolution of the Board of Directors of our company
and set forth in an officers' certificate delivered to the trustee no later
than five business days following January 1 and July 1 of each year and ten
days following a request from the trustee, which certificate shall cover the
six months preceding such January 1, July 1 or date of request, as the case
may be) of such Subsidiary and to have incurred all Indebtedness of such
Unrestricted Subsidiary. An Unrestricted Subsidiary may be designated as a
Restricted Subsidiary of our company if, at the time of such designation
after giving pro forma effect thereto, no Default or Event of Default shall
have occurred or be continuing.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the
then outstanding principal amount of such Indebtedness into (b) the total of
the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means a Wholly Owned Subsidiary
of our company that is a Restricted Subsidiary.
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"WHOLLY OWNED SUBSIDIARY" means, with respect to any person, any
Subsidiary all of the outstanding voting stock (other than directors'
qualifying shares) of which is owned by such person, directly or indirectly.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In this section we discuss the material United States federal income
tax consequences of participating in the exchange offer and owning and
disposing of exchange notes.
In this section we discuss only United States federal income tax
consequences to U.S. holders that participate in the exchange offer, and that
hold old notes, and that will hold exchange notes, as capital assets within
the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended.
We generally do not address any tax considerations relevant to holders other
than U.S. holders or to U.S. holders that may be subject to special tax
rules, such as banks, insurance companies, dealers in securities, holders of
10% or more of our voting stock, persons who "mark to market" their
securities, persons who have a "functional currency" other than the United
States dollar, or persons that will hold notes as a position in a "straddle"
for tax purposes or as part of a "synthetic security" or a "conversion
transaction" or other integrated investment consisting of notes and one or
more other investments.
The term "U.S. holder" means a beneficial owner of an old note or an
exchange note that is:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized
under the laws of the United States, any state thereof or the
District of Columbia;
- a trust the administration of which is subject to the primary
supervision of a United States court and with respect to which
one or more United States persons have the authority to control
all substantial decisions; or
- an estate the income of which is subject to United States
federal income tax regardless of its source.
This section is based upon the Internal Revenue Code, Treasury
regulations promulgated thereunder and rulings and judicial decisions now in
effect. Those authorities could change at any time, and any such change could
be retroactive. If that occurred, the tax consequences of participating in
the exchange offer and owning and disposing of exchange notes could differ
from the consequences described below.
THE EXCHANGE OFFER
If you exchange an old note for an exchange note in the exchange
offer, the exchange will not be a taxable transaction for United States
federal income tax purposes. Accordingly, you will not recognize any gain or
loss when you receive the exchange note, and you will be required to continue
to include interest on the exchange note in gross income as described below.
Your holding period for the exchange note will include your holding period
for the old note exchanged therefor, and your adjusted tax basis in the
exchange note will be the same as your adjusted tax basis in such old note,
in each case immediately before the exchange.
If the IRS disagreed and treated the exchange of an old note for an
exchange note in the exchange offer as a taxable transaction, the United
States federal income tax consequences to you generally would be as described
below under "Dispositions of Notes."
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INTEREST ON THE NOTES
Interest on the notes generally will be taxable to a holder as
ordinary income at the time it is received or accrued in accordance with the
holder's method of accounting for United States federal income tax purposes.
We are obligated to pay liquidated damages in the form of additional
interest in certain circumstances, as described under "Description of the
Notes--Registration rights; liquidated damages" above. We believe, and intend
to take the position, that the possibility of payment of liquidated damages
should not cause the notes to be issued with original issue discount. You
should consult your own tax advisor regarding the possible payment of
liquidated damages.
MARKET DISCOUNT
If a holder purchased an old note for less than its stated
redemption price at maturity, the difference is treated as "market discount"
for United States federal income tax purposes if it exceeds a specified DE
MINIMIS amount. Under the market discount rules, when the holder disposes of
the exchange note received in exchange for such old note, the holder will
have to treat any gain as ordinary income to the extent that market discount
has accrued on the old note and the exchange note and the holder has not
included the market discount in income. In addition, if the holder incurred
or continued any indebtedness to purchase or carry the old note or exchange
note, the holder may have to defer the deduction of all or a portion of the
related interest expense until the exchange note matures or the holder
disposes of the exchange note.
Market discount will accrue ratably from the date the holder
acquired the old note to the date that the exchange note matures, unless the
holder elects to accrue it under a constant-yield method. A holder may elect
to include market discount in income currently as it accrues, either ratably
or under a constant-yield method. If the holder elects to do so, the rule
described above regarding deferral of interest deductions will not apply. The
election to include market discount in income currently applies to all market
discount obligations that the holder holds or acquires on or after the first
day of the first taxable year to which the election applies. The holder may
not revoke the election without the consent of the IRS.
AMORTIZABLE BOND PREMIUM
If a holder purchased an old note for more than its stated
redemption price at maturity, the holder will be treated as having purchased
the old note at a "premium" and may elect to amortize the premium over the
remaining term of the old note and the exchange note under a constant-yield
method. The amount amortized in any year will be treated as a reduction of
the holder's interest income from the exchange note. Premium on an old note
and an exchange note held by a U.S. holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
a disposition of the exchange note. The election to amortize premium under a
constant-yield method applies to all debt obligations that the holder holds
or acquires on or after the first day of the first taxable year to which the
election applies. The holder may not revoke the election without the consent
of the IRS.
DISPOSITIONS OF NOTES
Gain or loss recognized by a holder on a disposition (including a
sale, exchange or redemption) of an exchange note will generally equal the
difference between the amount realized by the holder on the disposition
(except to the extent that such amount realized is attributable to accrued
but unpaid interest not previously included in income, which will be taxable
as ordinary income) and the holder's adjusted
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tax basis in the exchange note. A holder's adjusted tax basis in an exchange
note generally will equal the holder's cost of the old note exchanged
therefor, increased by any market discount that the holder previously
included in income. Except as described above with respect to market
discount, gain or loss recognized on a disposition of an exchange note
generally will be long-term capital gain or loss if, at the time of the
disposition, the exchange note has been held for more than one year. In
general, long-term capital gains of individuals are eligible for reduced
rates of United States federal income taxation. The deductibility of losses
is subject to limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, payments of interest on, and the proceeds from the sale,
redemption or other disposition of exchange notes (other than exchange notes
held by certain exempt persons, including most corporations and other persons
who, when required, demonstrate their exempt status) will be subject to
information reporting requirements. "Backup withholding" at a rate of 31% may
apply to such payments if the holder fails to furnish a correct taxpayer
identification number or otherwise fails to comply with all backup
withholding requirements.
The backup withholding tax is not an additional tax and may be
credited against a holder's regular United States federal income tax
liability or refunded by the IRS.
The payment of proceeds from the disposition of exchange notes to or
through the United States office of a broker will be subject to information
reporting and backup withholding rules unless the owner establishes an
exemption. Special rules may apply with respect to the payment of the
proceeds from the disposition of exchange notes to or through foreign offices
of certain brokers.
Treasury regulations that are generally effective for payments made
after December 31, 1999, subject to certain transition rules, modify in
certain respects the backup withholding and information reporting rules. In
general, these regulations do not significantly alter the substantive
requirements of these rules, but unify current procedures and forms and
clarify reliance standards. You should consult your own tax advisor regarding
these regulations.
THE FOREGOING DISCUSSION DOES NOT PURPORT TO BE COMPLETE, IS FOR
GENERAL INFORMATION PURPOSES ONLY, AND IS NOT TAX ADVICE. ACCORDINGLY, YOU
SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
YOU RESULTING FROM PARTICIPATING IN THE EXCHANGE OFFER AND OWNING AND
DISPOSING OF EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN INCOME TAX LAWS, AND ANY ESTATE, GIFT OR OTHER TAX
LAWS, AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS, AS WELL
AS THE TAX CONSEQUENCES OF NOT PARTICIPATING IN THE EXCHANGE OFFER.
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UNITED STATES ERISA CONSIDERATIONS
ANY UNITED STATES EMPLOYEE BENEFIT PLAN THAT PROPOSES TO PURCHASE
THE NOTES SHOULD CONSULT WITH ITS COUNSEL WITH RESPECT TO THE POTENTIAL
CONSEQUENCES OF SUCH INVESTMENT UNDER THE FIDUCIARY RESPONSIBILITY PROVISIONS
OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED AND THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE CODE.
ERISA and the Internal Revenue Code impose certain requirements on
employee benefit plans and certain other retirement plans and arrangements,
including individual retirement accounts and annuities, that are subject to
ERISA or the Internal Revenue Code, all of which are referred to as "ERISA
plans," and on persons who are fiduciaries with respect to such ERISA plans.
A person who exercises discretionary authority or control with respect to the
management or assets of an ERISA plan will be considered a fiduciary of the
ERISA plan under ERISA. In accordance with ERISA's general fiduciary
standards, before investing in the notes, an ERISA plan fiduciary should
determine whether such an investment is permitted under the governing ERISA
plan instruments and is appropriate for the ERISA plan in view of its overall
investment policy and the composition and diversification of its portfolio.
Other provisions of ERISA and the Internal Revenue Code prohibit certain
transactions involving the assets of an ERISA plan and persons who have
certain specified relationships to the ERISA plan, "parties in interest"
within the meaning of ERISA or "disqualified persons" within the meaning of
the Internal Revenue Code. Thus, an ERISA plan fiduciary considering an
investment in the notes should also consider whether such an investment may
constitute or give rise to a prohibited transaction under ERISA or the
Internal Revenue Code and whether an administrative exemption may be
applicable to such investment.
The acquisition of the notes by an ERISA plan could be a prohibited
transaction if either ECC, an initial purchaser or any of their respective
affiliates or, "offering participant," are parties in interest or
disqualified persons with respect to the ERISA plan. Any prohibited
transaction could be treated as exempt under ERISA and the Internal Revenue
Code if the notes were acquired pursuant to and in accordance with one or
more "class exemptions" issued by the United States Department of Labor, such
as PTCE 84-14, which is an exemption for certain transactions determined by
an independent qualified professional asset manager, PTCE 91-38, which is an
exemption for certain transactions involving bank collective investment
funds, or PTCE 90-1, which is an exemption for certain transactions involving
insurance company pooled separate accounts. Prior to acquiring the notes in
this offering, an ERISA plan or fiduciary should determine either that none
of the offering participants is a party in interest or disqualified person
with respect to the ERISA plan or that an exemption from the prohibited
transaction rules is available for such acquisition.
An ERISA plan fiduciary considering the purchase of the notes should
consult its tax and/or legal advisors regarding ECC, the availability, if
any, of exemptive relief from any potential prohibited transaction and other
fiduciary issues and their potential consequences. Each purchaser acquiring
the notes with the assets of an ERISA plan with respect to which any offering
participant is a party in interest or a disqualified person shall be deemed
to have represented that a statutory or an administrative exemption from the
prohibited transaction rules under Section 406 of ERISA and Section 4975 of
the Internal Revenue Code is applicable to such purchaser's acquisition of
the notes.
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PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters
issued to third parties, including "Exxon Capital Holdings Corporation,"
available May 13, 1988, "Morgan Stanley & Co. Incorporated," available June
5, 1991, "Mary Kay Cosmetics, Inc." available June 5, 1991, and "Warnaco,
Inc.," available October 11, 1991, our company believes that exchange notes
issued pursuant to the exchange offer in exchange for the old notes may be
offered for resale, resold and otherwise transferred by holders so long as
such holder is not (i) our affiliate, (ii) a broker-dealer who acquired old
notes directly from us or our affiliate or (iii) a broker-dealer who acquired
old notes as a result of market-making or other trading activities. Offers,
sales and transfers may be made without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
exchange notes are acquired in the ordinary course of such holders' business,
and such holders are not engaged in, and do not intend to engage in, and have
no arrangement or understanding with any person to participate in, a
distribution of such exchange notes and that participating broker-dealers
receiving exchange notes in the exchange offer will be subject to a
prospectus delivery requirement with respect to resales of such exchange
notes. To date, the staff of the SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the exchange offer (other than a resale of
an unsold allotment from the sale of the old notes to the initial purchasers)
with the prospectus contained in the registration statement relating to the
exchange offer. Pursuant to the registration rights agreements, we have
agreed to permit participating broker-dealers and other persons, if any,
subject to similar prospectus delivery requirements to use this prospectus in
connection with the resale of such exchange notes. We have agreed that, for a
period of one year after the consummation of the exchange offer, we will make
this prospectus, and any amendment or supplement to this prospectus,
available to any broker-dealer that requests such documents in the letter of
transmittal for the exchange offer. Each holder of the old notes who wishes
to exchange its old notes for exchange notes in the exchange offer will be
required to make certain representations to us as set forth in "The Exchange
Offer." In addition, each holder who is a broker-dealer and who receives
exchange notes for its own account in exchange for old notes that were
acquired by it as a result of market-making activities or other trading
activities will be required to acknowledge that it will deliver a prospectus
in connection with any resale by it of such exchange notes.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the exchange notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers
of any such exchange notes. Any broker-dealer that resells exchange notes
that were received by it for its own account pursuant to the exchange offer
and any broker or dealer that participates in a distribution of such exchange
notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of exchange notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
for the exchange offer states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in
the registration rights agreements.
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Following consummation of the exchange offer, we may, in our sole
discretion, commence one or more additional exchange offers to holders of old
notes who did not exchange their old notes for exchange notes in the exchange
offer, on terms that may differ from those contained in the registration
statement. This prospectus, as it may be amended or supplemented from time to
time, may be used by us in connection with any such additional exchange
offers. Such additional exchange offers will take place from time to time
until all outstanding old notes have been exchanged for exchange notes
pursuant to the terms and conditions herein.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by
Winthrop, Stimson, Putnam & Roberts, New York, New York, as to matters of New
York law, and Friedlob Sanderson Raskin Paulson & Tourtillott, LLC, Denver,
Colorado, as to matters of Colorado law.
EXPERTS
The audited financial statements of our company included 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 such reports.
WHERE YOU CAN FIND MORE INFORMATION
We and ECC are subject to the informational requirements of the
Exchange Act and each of ECC and our company files reports, proxy statements
and other information with the SEC. The public may read and copy the reports,
proxy statements and other information filed by the foregoing companies at
the public reference facilities maintained by the Commission at its Public
Reference Room, 450 Fifth Street, N.W. Washington D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. ECC's Class A common stock is traded on the Nasdaq
National Market and reports and other information concerning ECC can also be
inspected at the Nasdaq National Market Exchange, 1735 K Street, N.W.,
Washington, D.C. 20546. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. Such material may also be
accessed electronically by means of the EDGAR database at the SEC's website
at HTTP://WWW.SEC.GOV. We also maintain a website about us at
WWW.DISHNETWORK.COM.
We have filed with the SEC a registration statement on Form S-4 with
respect to the notes. This prospectus, which is part of the registration
statement, omits certain information included in the registration statement.
Statements made in the prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. With respect to
each such contract, agreement or other document filed as an exhibit to the
registration statement, we refer you to such exhibit for a more complete
description of the matter involved.
146
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following subparagraphs briefly describe indemnification
provisions for directors, officers and controlling persons of the Company
against liability, including liability under the Securities Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company 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, as amended (the "Securities Act")
and is, therefore, unenforceable.
COLORADO CORPORATIONS
As provided in the Articles of Incorporation of the Company, a
Colorado corporation, the Company may eliminate or limit the personal
liability of a director to the Company or to its shareholders for monetary
damages for breach of fiduciary duty as a director; except that such
provision shall not eliminate or limit the liability of a director to the
Company or to its shareholders for monetary damages for: any breach of the
director's duty of loyalty to the Company or to its shareholders; acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; acts specified in Section 7-108-403 of the Colorado
Business Corporation Act; or any transaction from which the director derived
an improper personal benefit. No such provisions eliminate or limit the
liability of a director to the Company or to its shareholders for monetary
damages for any act or omission occurring prior to the date when such
provision becomes effective.
1. Under provisions of the Bylaws of the Company and the Colorado
Business Corporation Act (the "Colorado Act"), each person who is or was a
director of officer of the Company will be indemnified by the Company as a
matter of right summarized as follows:
(a) Under the Colorado Act, a person who is wholly successful on the
merits in defense of a suit or proceeding brought against him by reason of
the fact that he is a director or officer of the Company shall be indemnified
against reasonable expenses (including attorneys' fees) in connection with
such suit or proceeding.
(b) Except as provided in subparagraph (c) below, a director may be
indemnified under such law against both (1) reasonable expenses (including
attorneys' fees), and (2) judgments, penalties, fines and amounts paid in
settlement, if he acted in good faith and reasonably believed, in the case of
conduct in his official capacity as a director, that his conduct was in the
Company's best interests, or in all other cases that his conduct was not
opposed to the best interests of the Company, and with respect to any
criminal action, he had no reasonable cause to believe his conduct was
unlawful, but the Company may not indemnify the director if the director is
found liable to the Company or is found liable on the basis that personal
benefit was improperly received by the director in connection with any suit
or proceeding charging improper personal benefit to the director;
(c) In connection with a suit or proceeding by or in the right of
the Company, indemnification is limited to reasonable expenses incurred in
connection with the suit or proceeding, but the Company may not indemnify the
director if the director was found liable to the Company; and
<PAGE>
(d) Officers of the Company will be indemnified to the same extent
as directors as described in (a), (b) and (c) above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1(a) Articles of Incorporation of the Company (incorporated by reference to Exhibit
3.4(a) to the Company's Registration Statement on Form S-4, Registration No.
333-31929).
3.1(b) Bylaws of the Company (incorporated by reference to Exhibit 3.4(b) to the
Company's Registration Statement on Form S-4, Registration No. 333-31929).
4.1* Indenture relating to the Seven Year Notes, dated as of January 25, 1999, by and
among the Company, the Guarantors and U.S. Bank Trust National Association, as
trustee.
4.2 Form of Series A Note for Seven Year Notes (included in Exhibit 4.1).
4.3* Indenture relating to the Ten Year Notes, dated as of January 25, 1999, by and
among the Company, the Guarantors and U.S. Bank Trust National Association, as
trustee.
4.4 Form of Series A Note for Ten Year Notes (included in Exhibit 4.3).
4.5* Registration Rights Agreement relating to the Seven Year Notes by and among the
Company, the Guarantors and the parties named therein.
4.6* Registration Rights Agreement relating to the Ten Year Notes by and among the
Company, the Guarantors and the parties named therein.
5.1* Opinion of Winthrop, Stimson, Putnam & Roberts regarding legality of securities
being registered.
5.2* Opinion of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC regarding the
legality of securities being registered.
10.1(a) Satellite Construction Contract, dated as of February 6, 1990, between EchoStar
Satellite Corporation ("ESC") and Martin Marietta as successor to General
Electric, EchoStar, Astro-Space Division ("General Electric") (incorporated by
reference to Exhibit 10.1(a) to the Registration Statement on Form S-1 of Dish,
Ltd. ("Dish") Registration No. 33-76450).
10.1(b) First Amendment to the Satellite Construction Contract, dated as of October 2,
1992, between ESC and Martin Marietta as successor to General Electric
(incorporated by reference to Exhibit 10.1(b) to the Registration Statement on
Form S-1 of Dish, Registration No. 33-76450).
10.1(c) Second Amendment to the Satellite Construction Contract, dated as of October 30,
1992, between ESC and Martin Marietta as successor to General Electric
(incorporated by
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
reference to Exhibit 10.1(c) to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
10.1(d) Third Amendment to the Satellite Construction Contract, dated as of April 1,
1993, between ESC and Martin Marietta (incorporated by reference to Exhibit
10.1(d)to the Registration Statement on Form S-1 of Dish, Registration No.
33-76450).
10.1(e) Fourth Amendment to the Satellite Construction Contract, dated as of August 19,
1993, between ESC and Martin Marietta (incorporated by reference to Exhibit
10.1(e) to the Registration Statement on Form S-1 of Dish, Registration No.
33-76450).
10.1(f) Form of Fifth Amendment to the Satellite Construction Contract, between ESC and
Martin Marietta (incorporated by reference to Exhibit 10.1(f) to the
Registration Statement on Form S-1 of Dish, Registration No. 33-81234).
10.1(g) Sixth Amendment to the Satellite Construction Contract, dated as of June 7,
1994, between ESC and Martin Marietta (incorporated by reference to Exhibit
10.1(g) to the Registration Statement on Form S-1 of Dish, Registration No.
33-81234).
10.1(h) Eighth Amendment to the Satellite Construction Contract, dated as of July 18,
1996, between ESC and Martin Marietta (incorporated by reference to Exhibit
10.1(h) to the Quarterly Report on Form 10-Q of EchoStar for the quarter ended
June 30, 1996, Commission File No. 0-26176).
10.2 Master Purchase and License Agreement, dated as of August 12, 1986, between
Houston Tracker Systems, Inc. ("HTS") and Cable/Home Communications Corp. (a
subsidiary of General Instruments Corporation) (incorporated by reference to
Exhibit 10.4 to the Registration Statement on Form S-1 of Dish, Registration No.
33-76450).
10.3 Master Purchase and License Agreement, dated as of June 18, 1986, between
Echosphere Corporation and Cable/Home Communications Corp. (a subsidiary of
General Instruments Corporation) (incorporated by reference to Exhibit 10.5 to
the Registration Statement on Form S-1 of Dish, Registration No. 33-76450).
10.4 Merchandising Financing Agreement, dated as of June 29, 1989, between Echo
Acceptance Corporation and Household Retail Services, Inc. (incorporated by
reference to Exhibit 10.6 to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
10.5 Key Employee Bonus Plan, dated as of January 1, 1994 (incorporated by reference
to Exhibit 10.7 to the Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
10.6 Consulting Agreement, dated as of February 17, 1994, between ESC and Telesat
Canada (incorporated by reference to Exhibit 10.8 to the Registration Statement
on Form S-1 of Dish, Registration No. 33-76450).
10.7 Form of Satellite Launch Insurance Declarations (incorporated by reference to
Exhibit 10.10 to the Registration Statement on Form S-1 of Dish, Registration
No. 33-81234).
10.8 Dish 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.11 to
the Registration Statement on Form S-1 of Dish, Registration No. 33-76450).
</TABLE>
II-3
<PAGE>
<TABLE><S> <C>
10.9 Form of Tracking, Telemetry and Control Contract between AT&T Corp. and ESC
(incorporated by reference to Exhibit 10.12 to the Registration Statement on
Form S-1 of Dish, Registration No. 33-81234).
10.10 Manufacturing Agreement, dated as of March 22, 1995, between Houston Tracker
Systems, Inc. and SCI Technology, Inc. (incorporated by reference to Exhibit
10.12 to the Registration Statement on Form S-1 of Dish, Commission File No.
33-81234).
10.11 Manufacturing Agreement dated as of April 14, 1995 by and between ESC and Sagem
Group (incorporated by reference to Exhibit 10.13 to the Registration Statement
on Form S-1 of EchoStar Communications Corporation ("ECC"), Registration No.
33-91276).
10.12 Statement of Work, dated January 31, 1995 from ESC to Divicom Inc. (incorporated
by reference to Exhibit 10.14 to the Registration Statement on Form S-1 of ECC,
Registration No. 33-91276).
10.13 Launch Services Contract, dated as of June 2, 1995, by and between EchoStar
Space Corporation and Lockheed-Khrunichev-Energia International, Inc.
(incorporated by reference to Exhibit 10.15 to the Registration Statement on
Form S-1 of ECC, Registration No. 33-91276).
10.14 EchoStar 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.16
to the Registration Statement on Form S-1 of ECC, Registration No. 33-91276).
10.15(a) Eighth Amendment to Satellite Construction Contract, dated as of February 1,
1994, between DirectSat Corporation and Martin Marietta (incorporated by
reference to Exhibit 10.17(a) to the Quarterly Report on Form 10-Q of ECC for
the quarter ended June 30, 1996, Commission File No. 0-26176).
10.15(b) Ninth Amendment to Satellite Construction Contract, dated as of February 1, 1994, between
DirectSat Corporation and Martin Marietta (incorporated by reference to Exhibit 10.15 to the
Registration Statement of Form S-4 of ECC, Registration No. 333-03584).
10.15(c) Tenth Amendment to Satellite Construction Contract, dated as of July 18, 1996,
between DirectSat Corporation and Martin Marietta (incorporated by reference to
Exhibit 10.17(b) to the Quarterly Report on Form 10-Q of ECC for the quarter
ended June 30, 1996, Commission File No. 0-26176).
10.16 Satellite Construction Contract, dated as of July 18, 1996, between EDBS and
Lockheed Martin Corporation (incorporated by reference to Exhibit 10.18 to the
Quarterly Report on Form 10-Q of ECC for the quarter ended June 30, 1996,
Commission File No. 0-26176).
10.17 Confidential Amendment to Satellite Construction Contract between DBSC and
Martin Marietta, dated as of May 31, 1995 (incorporated by reference to Exhibit
10.14 to the Registration Statement of Form S-4 of ECC, Registration No.
333-03584).
10.18 Right and License Agreement by and among HTS and Asia Broadcasting and
Communications Network, Ltd., dated December 19, 1996 (incorporated by reference
to Exhibit 10.18 to the Annual Report on Form 10-K of ECC for the year ended
December 31, 1996, as amended, Commission file No. 0-26176).
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.19 Agreement between HTS, ESC and ExpressVu Inc., dated January 8, 1997, as amended
(incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K of
ECC for the year ended December 31, 1996, as amended, Commission file No.
0-26176).
10.20 Amendment No. 9 to Satellite Construction Contract, effective as of July 18,
1996, between Direct Satellite Broadcasting Corporation, a Delaware corporation
("DBSC") and Martin Marietta Corporation (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of ECC for the quarterly period ended
June 30, 1997, Commission File No. 0-26176).
10.21 Amendment No. 10 to Satellite Construction Contract, effective as of May 31,
1996, between DBSC and Lockheed Martin Corporation (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q of ECC for the quarterly
period ended June 30, 1997, Commission File No. 0-26176).
10.22 Contract for Launch Services, dated April 5, 1996, between Lockheed Martin
Commercial Launch Services, Inc. and EchoStar Space Corporation (incorporated by
reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of ECC for the
quarterly period ended June 30, 1997, Commission File No. 0-26176).
10.23 OEM Manufacturing, Marketing and Licensing Agreement, dated as of February 17,
1998, by and among HTS, ESC and Philips Electronics North America Corporation
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of ECC for the quarterly period ended March 31, 1998, Commission File No.
0-26176).
10.24 Licensing Agreement, dated as of February 23, 1998, by and among HTS, ESC and
VTech Communications Ltd. (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of ECC for quarterly period ended March 31, 1998,
Commission File No. 0-26176).
10.25 Agreement to form NagraStar LLC, dated as of June 23, 1998 by and between
Kudelski S.A., ECC and ESC (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of ECC for quarterly period ended June 30, 1998,
Commission File No. 0-26176).
10.26 Purchase Agreement by and among American Sky Broadcasting, LLC, The News
Corporation Limited, MCI Telecommunications Corporation and EchoStar
Communications Corporation, dated November 30, 1998. (incorporated by reference
to Exhibit 10.1 to the Form 8-K filed by ECC on November 30, 1998, Commission
File No. 0-26176).
10.27 Form of Registration Rights Agreement to be entered into among EchoStar
Communications Corporation, MCI Telecommunications Corporation, and a
to-be-named wholly-owned subsidiary of MCI Telecommunications Corporation,
American Sky Broadcasting, LLC, and a to-be-named wholly-owned subsidiary of The
News Corporation Limited (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K of EchoStar, filed as of December 1, 1998).
10.28 Voting Agreement dated November 30, 1998, among EchoStar Communications
Corporation, American Sky Broadcasting, LLC, The News Corporation Limited and MCI
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
Telecommunications Corporation (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K of EchoStar, filed as of December 1, 1998).
12** Statements re computation of ratios.
21* Subsidiaries of the Company.
23.1 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit 5.1).
23.2 Consent of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC (included in
Exhibit 5.2).
23.3** Consent of Arthur Andersen LLP.
24.1* Power of Attorney (included in the signature pages to this Registration Statement).
25.1* Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939 of
U.S. Bank Trust National Association, as Trustee of the Indenture, relating to
the Seven Year Notes (separately bound).
25.2* Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939 of
U.S. Bank Trust National Association, as Trustee of the Indenture, relating to
the Ten Year Notes (separately bound).
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
- -------------------
</TABLE>
* Previously filed
** Filed herewith
ITEM 22. UNDERTAKINGS
(a) 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 Act 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 of 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.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
Prospectus pursuant to items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporating
documents by first class mail or other equally prompt means. This includes
information contained in the documents filed subsequent to the effective date
of the registration statement through the date of responding to the request.
II-6
<PAGE>
(c) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) 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.
(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.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Act of 1933, as amended, the
Registrants have duly caused this Amendment No. 3 to the Registration
Statement to be signed on their behalf by the undersigned, thereunto duly
authorized in the City of Littleton, State of Colorado, as of May 26, 1999.
ECHOSTAR DBS CORPORATION HOUSTON TRACKER SYSTEMS, INC.
ECHO ACCEPTANCE CORPORATION ECHOSTAR NORTH AMERICA
ECHOSPHERE CORPORATION CORPORATION
DISH INSTALLATION NETWORK SKY VISTA CORPORATION
CORPORATION ECHOSTAR INDONESIA, INC.
ECHOSTAR TECHNOLOGIES CORPORATION ECHOSTAR SPACE CORPORATION
HT VENTURES, INC.
ECHOSTAR INTERNATIONAL
CORPORATION
SATELLITE SOURCE, INC.
ECHOSTAR SATELLITE CORPORATION
By: *
-------------------------
Charles W. Ergen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Amendment No. 3 to the Registration Statement has been
signed below on May 26, 1999, by the following persons in the capacities
indicated:
SIGNATURE TITLE
- --------- -----
* Chairman, Chief Executive Officer and
- ----------------------- Director (Principal Executive Officer)
Charles W. Ergen
* Chief Operating Officer and
- ----------------------- Chief Financial Officer
Steven B. Schaver (Principal Financial and Accounting Officer)
* Director
- -----------------------
James DeFranco
/s/ David K. Moskowitz Director
- -----------------------
David K. Moskowitz
*By /s/ David K. Moskowitz
-----------------------
David K. Moskowitz
Attorney-in-Fact
II-8
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Page Number
- ----------- ----------- -----------
<S> <C> <C>
3.1(a) Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.4(a) to the Company's Registration Statement on Form S-4,
Registration No. 333-31929).
3.1(b) Bylaws of the Company (incorporated by reference to Exhibit 3.4(b) to
the Company's Registration Statement on Form S-4, Registration No.
333-31929).
4.1* Indenture relating to the Seven Year Notes, dated as of January 25,
1999, by and among the Company, the Guarantors and U.S. Bank Trust
National Association, as trustee.
4.2 Form of Series A Note for Seven Year Notes (included in Exhibit 4.1).
4.3* Indenture relating to the Ten Year Notes, dated as of January 25,
1999, by and among the Company, the Guarantors and U.S. Bank Trust
National Association, as trustee.
4.4 Form of Series A Note for Ten Year Notes (included in Exhibit 4.3).
4.5* Registration Rights Agreement relating to the Seven Year Notes by and
among the Company, the Guarantors and the parties named therein.
4.6* Registration Rights Agreement relating to the Ten Year Notes by and
among the Company, the Guarantors and the parties named therein.
5.1* Opinion of Winthrop, Stimson, Putnam & Roberts regarding legality of
securities being registered.
5.2* Opinion of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
regarding the legality of securities being registered.
10.1(a) Satellite Construction Contract, dated as of February 6, 1990, between
EchoStar Satellite Corporation ("ESC") and Martin Marietta as
successor to General Electric, EchoStar, Astro-Space Division
("General Electric") (incorporated by reference to Exhibit 10.1(a) to
the Registration Statement on Form S-1 of Dish, Ltd. ("Dish")
Registration No. 33-76450).
10.1(b) First Amendment to the Satellite Construction Contract, dated as of
October 2, 1992, between ESC and Martin Marietta as successor to
General Electric (incorporated by reference to Exhibit 10.1(b) to the
Registration Statement on Form S-1 of Dish, Registration No. 33-76450).
10.1(c) Second Amendment to the Satellite Construction Contract, dated as of
October 30, 1992, between ESC and Martin Marietta as successor to
General Electric (incorporated by reference to Exhibit 10.1(c) to the
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Registration Statement on Form S-1 of Dish, Registration No. 33-76450).
10.1(d) Third Amendment to the Satellite Construction Contract, dated as of
April 1, 1993, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(d)to the Registration Statement on Form S-1
of Dish, Registration No. 33-76450).
10.1(e) Fourth Amendment to the Satellite Construction Contract, dated as of
August 19, 1993, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(e) to the Registration Statement on Form S-1
of Dish, Registration No. 33-76450).
10.1(f) Form of Fifth Amendment to the Satellite Construction Contract,
between ESC and Martin Marietta (incorporated by reference to Exhibit
10.1(f) to the Registration Statement on Form S-1 of Dish,
Registration No. 33-81234).
10.1(g) Sixth Amendment to the Satellite Construction Contract, dated as of
June 7, 1994, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(g) to the Registration Statement on Form S-1
of Dish, Registration No. 33-81234).
10.1(h) Eighth Amendment to the Satellite Construction Contract, dated as of
July 18, 1996, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(h) to the Quarterly Report on Form 10-Q of
EchoStar for the quarter ended June 30, 1996, Commission File No.
0-26176).
10.2 Master Purchase and License Agreement, dated as of August 12, 1986,
between Houston Tracker Systems, Inc. ("HTS") and Cable/Home
Communications Corp. (a subsidiary of General Instruments Corporation)
(incorporated by reference to Exhibit 10.4 to the Registration
Statement on Form S-1 of Dish, Registration No. 33-76450).
10.3 Master Purchase and License Agreement, dated as of June 18, 1986,
between Echosphere Corporation and Cable/Home Communications Corp. (a
subsidiary of General Instruments Corporation) (incorporated by
reference to Exhibit 10.5 to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).
10.4 Merchandising Financing Agreement, dated as of June 29, 1989, between
Echo Acceptance Corporation and Household Retail Services, Inc.
(incorporated by reference to Exhibit 10.6 to the Registration
Statement on Form S-1 of Dish, Registration No. 33-76450).
10.5 Key Employee Bonus Plan, dated as of January 1, 1994 (incorporated by
reference to Exhibit 10.7 to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).
10.6 Consulting Agreement, dated as of February 17, 1994, between ESC and
Telesat Canada (incorporated by reference to Exhibit 10.8 to the
Registration Statement on Form S-1 of Dish, Registration No. 33-76450).
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
10.7 Form of Satellite Launch Insurance Declarations (incorporated by
reference to Exhibit 10.10 to the Registration Statement on Form S-1
of Dish, Registration No. 33-81234).
10.8 Dish 1994 Stock Incentive Plan (incorporated by reference to Exhibit
10.11 to the Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
10.9 Form of Tracking, Telemetry and Control Contract between AT&T Corp.
and ESC (incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form S-1 of Dish, Registration No. 33-81234).
10.10 Manufacturing Agreement, dated as of March 22, 1995, between Houston
Tracker Systems, Inc. and SCI Technology, Inc. (incorporated by
reference to Exhibit 10.12 to the Registration Statement on Form S-1
of Dish, Commission File No. 33-81234).
10.11 Manufacturing Agreement dated as of April 14, 1995 by and between ESC
and Sagem Group (incorporated by reference to Exhibit 10.13 to the
Registration Statement on Form S-1 of EchoStar Communications
Corporation ("ECC"), Registration No. 33-91276).
10.12 Statement of Work, dated January 31, 1995 from ESC to Divicom Inc.
(incorporated by reference to Exhibit 10.14 to the Registration
Statement on Form S-1 of ECC, Registration No. 33-91276).
10.13 Launch Services Contract, dated as of June 2, 1995, by and between
EchoStar Space Corporation and Lockheed-Khrunichev-Energia
International, Inc. (incorporated by reference to Exhibit 10.15 to the
Registration Statement on Form S-1 of ECC, Registration No. 33-91276).
10.14 EchoStar 1995 Stock Incentive Plan (incorporated by reference to
Exhibit 10.16 to the Registration Statement on Form S-1 of ECC,
Registration No. 33-91276).
10.15(a) Eighth Amendment to Satellite Construction Contract, dated as of
February 1, 1994, between DirectSat Corporation and Martin Marietta
(incorporated by reference to Exhibit 10.17(a) to the Quarterly Report
on Form 10-Q of ECC for the quarter ended June 30, 1996, Commission
File No. 0-26176).
10.15(b) Ninth Amendment to Satellite Construction Contract, dated as of
February 1, 1994, between DirectSat Corporation and Martin Marietta
(incorporated by reference to Exhibit 10.15 to the Registration
Statement of Form S-4 of ECC, Registration No. 333-03584).
10.15(c) Tenth Amendment to Satellite Construction Contract, dated as of July
18, 1996, between DirectSat Corporation and Martin Marietta
(incorporated by reference to Exhibit 10.17(b) to the Quarterly Report
on Form 10-Q of ECC for the quarter ended June 30, 1996, Commission
File No. 0-26176).
10.16 Satellite Construction Contract, dated as of July 18, 1996, between EDBS
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3
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<S> <C> <C>
and Lockheed Martin Corporation (incorporated by reference to Exhibit
10.18 to the Quarterly Report on Form 10-Q of ECC for the quarter
ended June 30, 1996, Commission File No. 0-26176).
10.17 Confidential Amendment to Satellite Construction Contract between DBSC
and Martin Marietta, dated as of May 31, 1995 (incorporated by
reference to Exhibit 10.14 to the Registration Statement of Form S-4
of ECC, Registration No. 333-03584).
10.18 Right and License Agreement by and among HTS and Asia Broadcasting and
Communications Network, Ltd., dated December 19, 1996 (incorporated by
reference to Exhibit 10.18 to the Annual Report on Form 10-K of ECC
for the year ended December 31, 1996, as amended, Commission file No.
0-26176).
10.19 Agreement between HTS, ESC and ExpressVu Inc., dated January 8, 1997,
as amended (incorporated by reference to Exhibit 10.18 to the Annual
Report on Form 10-K of ECC for the year ended December 31, 1996, as
amended, Commission file No. 0-26176).
10.20 Amendment No. 9 to Satellite Construction Contract, effective as of
July 18, 1996, between Direct Satellite Broadcasting Corporation, a
Delaware corporation ("DBSC") and Martin Marietta Corporation
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q of ECC for the quarterly period ended June 30, 1997,
Commission File No. 0-26176).
10.21 Amendment No. 10 to Satellite Construction Contract, effective as of
May 31, 1996, between DBSC and Lockheed Martin Corporation
(incorporated by reference to Exhibit 10.2 to the Quarterly Report on
Form 10-Q of ECC for the quarterly period ended June 30, 1997,
Commission File No. 0-26176).
10.22 Contract for Launch Services, dated April 5, 1996, between Lockheed
Martin Commercial Launch Services, Inc. and EchoStar Space Corporation
(incorporated by reference to Exhibit 10.3 to the Quarterly Report on
Form 10-Q of ECC for the quarterly period ended June 30, 1997,
Commission File No. 0-26176).
10.23 OEM Manufacturing, Marketing and Licensing Agreement, dated as of
February 17, 1998, by and among HTS, ESC and Philips Electronics North
America Corporation (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of ECC for the quarterly period ended
March 31, 1998, Commission File No. 0-26176).
10.24 Licensing Agreement, dated as of February 23, 1998, by and among HTS,
ESC and VTech Communications Ltd. (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q of ECC for quarterly
period ended March 31, 1998, Commission File No. 0-26176).
10.25 Agreement to form NagraStar LLC, dated as of June 23, 1998 by and
between Kudelski S.A., ECC and ESC (incorporated by reference to
Exhibit
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4
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<S> <C> <C>
10.1 to the Quarterly Report on Form 10-Q of ECC for quarterly period
ended June 30, 1998, Commission File No. 0-26176).
10.26 Purchase Agreement by and among American Sky Broadcasting, LLC, The
News Corporation Limited, MCI Telecommunications Corporation and
EchoStar Communications Corporation, dated November 30, 1998.
(incorporated by reference to Exhibit 10.1 to the Form 8-K filed by
ECC on November 30, 1998, Commission File No. 0-26176).
10.27 Form of Registration Rights Agreement to be entered into among
EchoStar Communications Corporation, MCI Telecommunications
Corporation, and a to-be-named wholly-owned subsidiary of MCI
Telecommunications Corporation, American Sky Broadcasting, LLC, and a
to-be-named wholly-owned subsidiary of The News Corporation Limited
(incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K of EchoStar, filed as of December 1, 1998).
10.28 Voting Agreement dated November 30, 1998, among EchoStar
Communications Corporation, American Sky Broadcasting, LLC, The News
Corporation Limited and MCI Telecommunications Corporation
(incorporated by reference to Exhibit 10.3 to the Current Report on
Form 8-K of EchoStar, filed as of December 1, 1998).
12** Statements re computation of ratios.
21* Subsidiaries of the Company.
23.1 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit 5.1).
23.2 Consent of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC (included in
Exhibit 5.2).
23.3** Consent of Arthur Andersen LLP.
24* Power of Attorney (included in the signature pages to this Registration Statement).
25.1* Statement of Eligibility on Form T-1 under the Trust Indenture Act of
1939 of U.S. Bank Trust National Association, as Trustee of the
Indenture, relating to the Seven Year Notes (separately bound).
25.2* Statement of Eligibility on Form T-1 under the Trust Indenture Act of
1939 of U.S. Bank Trust National Association, as Trustee of the
Indenture, relating to the Ten Year Notes (separately bound).
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
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* Previously filed
** Filed herewith
5
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EXHIBIT 12
PAGE 1 OF 1
ECHOSTAR DBS CORPORATION AND SUBSIDIARIES AND AFFILIATES
COMPUTATION OF RATIOS
(IN THOUSANDS)
(UNAUDITED)
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes.. $ 489 $ (18,552) $(156,529) $(323,278) $(294,304) $ (57,090) $(104,518)
Interest expense............ 21,408 23,985 62,430 110,003 172,942 38,660 50,594
Capitalized interest........ 5,695 25,763 31,818 43,169 21,619 7,943 -
Interest component of
rent expense (1)........... 94 71 84 64 57 8 10
---------- ---------- ---------- ---------- ----------- ---------- ----------
Total fixed charges........ 27,197 49,819 94,332 153,236 194,618 46,611 50,604
Earnings before fixed
charges.................... $ 21,991 $ 5,504 $ (94,015) $(213,211) $(121,305) $ (18,422) $ (53,914)
Ratio of earnings to fixed
charges.................... 0.81 0.11 (1.00) (1.39) (0.62) (0.40) (1.07)
========== ========== ========== ========== =========== ========== ==========
Deficiency of available
earnings to fixed charges.. $ (5,206) $(44,315) $(188,347) $(366,447) $(315,923) $ (65,033) $(104,518)
========== ========== ========== ========== =========== ========== ==========
</TABLE>
(1) The interest component of rent expense has been estimated by taking the
difference between the gross rent expense and net present value of rent
expense using a weighted-average cost of capital of approximately 13%
for the years ended December 31, 1994, through December 31, 1998. The
weighted-average cost of capital for the three months ended March 31,
1998 and 1999 approximated 13% and 9%, respectively. The cost of
capital used to calculate the interest component of rent expense is
representative of the Company's outstanding secured borrowings during
each respective period.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
MAY 25, 1999
