AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 2002
REGISTRATION NO. 333 -68618
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ECHOSTAR COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 88-0336997
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5701 South Santa Fe Drive
Littleton, Colorado 80120
(303) 723-1000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
------------------------------------------
David K. Moskowitz, Esq.
Senior Vice President, General Counsel and Secretary
EchoStar Communications Corporation
5701 South Santa Fe Drive
Littleton, Colorado 80120
(303) 723-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
Raymond L. Friedlob, Esq.
John W. Kellogg, Esq.
RaLea Sluga, Esq.
Friedlob Sanderson Paulson & Tourtillott, LLC
1775 Sherman Street, Twenty-First Floor
Denver, Colorado 80203
(303) 571-1400
------------------------------------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(C)) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
OFFERING AGGREGATE REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING PRICE FEE
REGISTERED REGISTERED NOTE (1) (2)
--------------------------------------- ------------ --------- -------------- ------------
5 3/4% Convertible Subordinated Notes $1,000,000,000 100% $1,000,000,000 $250,000
due 2008
Class A Common Stock, $.01 par value 23,100,023 -- -- --
(1) Equals the aggregate principal amount of the securities being registered
pursuant to Rule 457(9).
(2) Previously paid.
(3) Represents the number of shares of Class A Common Stock that are issuable
upon conversion of the convertible notes. Pursuant to Rule 416, the
Registrant is also registering such indeterminate number of shares of Class
A Common Stock as may be issuable upon conversion of the convertible notes
as a result of the antidilution provisions of the convertible notes.
(4) Pursuant to Rule 457(i), no registration fee is required for these shares.
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
(ii)
ECHOSTAR COMMUNICATIONS CORPORATION
$1,000,000,000
5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2008
--------------------------------------------------------------------------------
This prospectus relates to the offer and sale from time to time by
certain selling securityholders of our 5 3/4% Convertible Subordinated Notes due
2008 and the shares of our class A common stock into which the convertible notes
are convertible. The convertible notes and shares will be sold at market prices
prevailing at the time of sale or at privately negotiated prices. We will not
receive any of the proceeds from the sale by the selling securityholders of the
convertible notes or the shares into which they are convertible. THE CONVERTIBLE
NOTES:
o Maturity: May 15, 2008
o Interest: The convertible notes will accrue interest as of the issue
date, which will be payable semiannually in cash on May 15 and November
15, commencing on November 15, 2001
o Conversion: The convertible notes are convertible into shares of our
class A common stock at any time after 90 days following the date of
original issuance of the convertible notes at a conversion price of
$43.29, subject to adjustment in certain events.
o Redemption: We can redeem the convertible notes on or after May 15,
2004. Holders of the convertible notes may also require us to redeem
all or part of their convertible notes upon a change of control event.
o Ranking: The convertible notes are general unsecured obligations
ranking junior to all of our existing and future senior debt. The
convertible notes also effectively rank junior to all of our secured
debts to the extent of the value of the assets securing such debts and
to all of the existing and future debt and other liabilities of our
subsidiaries. In addition, they rank equal to our other convertible
notes. As of September 30, 2001, the convertible notes ranked junior to
$3.0 billion of indebtedness and $1.5 billion of other liabilities of
our subsidiaries, and ranked equal to $1.0 billion of our other
convertible notes.
TRADING FORMAT:
o The convertible notes are eligible for trading in the Portal market of
the National Association of Securities Dealers, Inc. The convertible
notes are not expected to remain eligible for trading on the Portal
system and a trading market may not develop for the notes. We do not
intend to apply for listing of the convertible notes on any securities
exchange or for quotation through any automated quotation system.
o Our class A common stock is quoted on the Nasdaq National Market under
the symbol "DISH." On January 23, 2002, the last reported sale price of
our class A common stock on the Nasdaq National Market was $27.33 per
share.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read this entire prospectus
and any amendments or supplements carefully before you make your investment
decision.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN RISKS YOU SHOULD CONSIDER
BEFORE YOU PURCHASE ANY CONVERTIBLE NOTES OR SHARES OF CLASS A COMMON STOCK.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission, which is referred to as the SEC,
nor any state securities commission has approved or determined whether this
prospectus is truthful or complete, nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
--------------------------------------------------------------------------------
Prospectus dated January 25, 2002
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION...........................................3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS...............................4
PROSPECTUS SUMMARY............................................................6
THE ECHOSTAR ORGANIZATION....................................................11
RISK FACTORS.................................................................12
RATIO OF EARNINGS TO FIXED CHARGES...........................................42
DESCRIPTION OF CONVERTIBLE NOTES.............................................43
REGISTRATION RIGHTS..........................................................57
DESCRIPTION OF OUR CAPITAL STOCK.............................................59
SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS....................62
SELLING SECURITYHOLDERS......................................................68
PLAN OF DISTRIBUTION.........................................................78
LEGAL MATTERS................................................................79
INDEPENDENT ACCOUNTANTS......................................................79
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. NO
ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION.
THE CONVERTIBLE NOTES AND SHARES OF CLASS A COMMON STOCK INTO WHICH
THEY ARE CONVERTIBLE ARE NOT BEING OFFERED IN ANY JURISDICTION WHERE THEIR OFFER
IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THOSE DOCUMENTS.
2
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document that we file
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to you free of
charge at the SEC's web site at http://www.sec.gov.
Our class A common stock is traded as "National Market Securities" on
the Nasdaq National Market. Material filed by us can be inspected at the offices
of the National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede previously filed
information, including information contained in this document.
We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Section 13(a), 13(C)), 14 or 15(d) of
the Securities Exchange Act of 1934 until this offering has been completed:
o Our Annual Report on Form 10-K for the year ended December 31,
2000;
o Our Quarterly Report on Form 10-Q for the quarter ended March
31, 2001;
o Our Quarterly Report on Form 10-Q for the quarter ended June
30, 2001;
o Our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001;
o Our Current Reports on Form 8-K dated May 22, 2001, May 24,
2001, June 14, 2001, July 12, 200, August 6, 2001, September
28, 2001, October 29, 2001, October 31, 2001, November 13,
2001, December 14, 2001, December 20, 2001, January 10, 2002
and January 23, 2002.
o The description of our common stock set forth in our
Registration Statement on Form 8-A filed on May 30, 1995.
You may request free copies of these filings by writing or telephoning
us at our principal offices, which are located at the following address:
EchoStar Communications Corporation
5701 South Santa Fe Drive
Littleton, Colorado 80120
Attention: David K. Moskowitz, Esq.
(303) 723-1000
3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this prospectus.
Whenever you read a statement that is not simply a statement of historical fact
(such as when we describe what we "believe," "expect" or "anticipate" will
occur, and other similar statements), you must remember that our expectations
may not be correct, even though we believe they are reasonable. We do not
guarantee that the transactions and events described in this prospectus will
happen as described or that they will happen at all. You should read this
prospectus and the documents incorporated by reference completely and with the
understanding that actual future results may be materially different from what
we expect. Whether actual results will conform with our expectations and
predictions is subject to a number of risks and uncertainties. The risks and
uncertainties include, but are not limited to:
o our proposed merger with Hughes Electronics Corporation may not
occur as a result of: (1) the failure to obtain necessary Internal
Revenue Service, which is referred to as the IRS, tax rulings,
antitrust clearance, Federal Communications Commission, or FCC,
approval or the requisite approval from General Motors'
stockholders, (2) shareholder litigation challenging the merger, or
(3) the failure to satisfy other conditions;
o while we need substantial additional financing, we are highly
leveraged and subject to numerous constraints on our ability to
raise additional debt;
o we may incur unanticipated costs in connection with the Hughes
merger financing or any refinancings we must undertake or consents
we must obtain to enable us to consummate the Hughes merger;
o regulatory authorities may impose burdensome terms on us as a
condition of granting their approval of the Hughes merger or the
acquisition of Hughes' interest in PanAmSat, and legislative and
regulatory developments may create unexpected challenges for us;
o we may not realize the benefits and synergies we expect from, and
may incur unanticipated costs with respect to, the Hughes merger
due to delays, burdensome conditions imposed by regulatory
authorities, difficulties in integrating the businesses or
disruptions in relationships with employees, customers or
suppliers;
o we are party to various lawsuits which, if adversely decided, could
have a significant adverse impact on our business;
o we may be unable to obtain needed retransmission consents, FCC
authorizations or export licenses;
o our satellite launches may be delayed or fail, our satellites may
fail prematurely in orbit, and we currently do not have traditional
commercial insurance covering losses incurred from the failure of
launches and/or satellites;
o weakness in the global economy may harm our business generally, and
adverse local political or economic developments may occur in some
of our markets;
o service interruptions arising from technical anomalies on some
satellites, or caused by war, terrorist activities or natural
disasters, may cause customer cancellations or otherwise harm our
business;
o we face intense and increasing competition from the cable
television industry, new competitors may enter the subscription
television business, and new technologies may increase competition;
o future acquisitions, strategic partnerships and divestitures may
involve additional uncertainties;
o the September 11, 2001 terrorist attacks and changes in
international political conditions as a result of these events may
continue to affect the U.S. and the global economy and may increase
other risks; and
o we may face other risks described from time to time in periodic
reports we file with the SEC.
4
You should read carefully the section of this prospectus under the
heading "Risk Factors" beginning on page 12. We assume no responsibility for
updating forward-looking information contained or incorporated by reference in
this prospectus.
5
PROSPECTUS SUMMARY
ECHOSTAR COMMUNICATIONS CORPORATION
In this prospectus, the words "we," "our," and "us" refer to EchoStar
Communications Corporation and its subsidiaries, unless the context otherwise
requires. "EDBS" refers to EchoStar DBS Corporation and its subsidiaries and
"EBC" refers to EchoStar Broadband Corporation. You should refer to the section
entitled "The EchoStar Organization" for a simplified chart depicting our
organizational structure. "Hughes" refers to Hughes Electronics Corporation, or
a holding company that is expected to be formed to hold all of the stock of
Hughes Electronics Corporation, and "PanAmSat" refers to PanAmSat Corporation,
in each case including their respective subsidiaries, unless the context
otherwise requires.
OUR BUSINESS
We are a leading provider of direct broadcast satellite, or DBS,
television services in the U.S. through our DISH Network business unit. We are
also an international supplier of digital satellite receiver systems and a
provider of other satellite services.
OUR BUSINESS STRATEGY
Our primary objectives are to continue to expand our DISH Network
subscriber base and to develop our interactive, Internet and high-speed data
services. To achieve this objective, we plan to:
o leverage our significant share of DBS spectrum capacity to offer
more channels than any other video provider in the U.S., and to
offer unique programming services that will differentiate us from
our competition, including niche and foreign language programming
services;
o offer marketing promotions that will enhance our position as a
leading provider of value-oriented programming services and
receiver systems;
o expand and improve DISH Network distribution channels;
o emphasize one-stop shopping for DBS services and equipment and
superior customer service;
o utilize our orbital assets and strategic relationships to provide
interactive and high speed Internet access to DISH Network
customers via one convenient source; and
o develop EchoStar Technologies Corporation and our other businesses.
OUR DISH NETWORK
We started offering subscription television services on the DISH
Network in March 1996. As of September 30, 2001, the DISH Network had
approximately 6.4 million subscribers. From January 1, 2001 to September 30,
2001, we acquired over 57% of net new DBS customers. We now have six DBS
satellites in orbit that enable us to offer over 500 video and audio channels,
together with data services and high definition and interactive TV services, to
consumers across the continental U.S. We believe that the DISH Network offers
programming packages that have a better "price-to-value" relationship than
packages currently offered by most other subscription television providers. As
of September 30, 2001, there were approximately 17.7 million subscribers to DBS
and other direct-to-home satellite services in the U.S. We believe that there
are more than 85 million total pay television subscribers in the U.S., and that
there continues to be significant unsatisfied demand for high quality,
reasonably priced television programming services.
6
BROADBAND AND INTERACTIVE SERVICES
We are continuing to expand our offerings to include interactive,
Internet and high-speed data services. During 2001, we began offering DISH
Network customers an interactive digital receiver with a built-in hard disk
drive that permits viewers to pause and record live programs without the need
for videotape. We now offer receivers capable of storing up to 35 hours of
programming, and expect to increase storage capacity on future models to over
100 hours. We also are offering set-top boxes that can provide a wide variety of
innovative interactive television services and applications.
Together with StarBand Communications, our affiliate, we began offering
to our customers in November 2000 "always on" two-way high-speed satellite
Internet access along with DISH Network satellite television programming via a
single dish. We are also seeking additional ways to expand our Internet and
high-speed data services, including through partnerships with third parties who
have particular expertise in the high-speed transmission of digital information.
We believe we will be able to increase our subscriber base and our average
revenue per subscriber by offering these and other similar services.
ECHOSTAR TECHNOLOGIES CORPORATION
In addition to supplying our satellite receiver systems for the DISH
Network, our EchoStar Technologies Corporation subsidiary supplies similar
digital satellite receivers to international satellite TV service operations. In
addition to the DISH Network, our two major customers are Via Digital, a
subsidiary of Telefonica, Spain's national telephone company, and Bell
ExpressVu, a subsidiary of Bell Canada, Canada's national telephone company.
OUR EXECUTIVE OFFICES
Our principal executive offices are located at 5701 South Santa Fe
Drive, Littleton, Colorado 80120 and our telephone number is (303) 723-1000.
THE PROPOSED MERGER WITH HUGHES
On October 28, 2001, Hughes, General Motors, which is Hughes' parent
corporation, and we signed definitive agreements relating to our merger into
Hughes in a stock-for-stock transaction to occur after the separation of Hughes
from GM by means of a split-off. Hughes is a leading provider of satellite-based
entertainment information and communications services for the home and business
markets, including video, data, voice, multimedia and Internet services. Through
its DIRECTV subsidiary, Hughes is the largest provider of DBS services in the
U.S. Hughes also owns an approximately 81% equity interest in PanAmSat, a
leading global provider of video and data broadcasting services through 21
satellites it owns and operates.
The surviving corporation in the merger will carry our name and will
provide DBS services in the United States and Latin America, primarily under the
DIRECTV brand name, global fixed satellite services and other broadband
communication services. The merger is subject to the prior separation of Hughes
from GM by way of a recapitalization of Hughes and split-off of Hughes from GM
and other conditions and risks. We expect the merger with Hughes and related
transactions to require at least $7.025 billion of cash. We expect that we will
provide approximately $1.5 billion from available cash, approximately $689
million will come from the sale of 9 1/8% senior notes by EDBS, approximately
$1.5 billion from the purchase of our series D preferred stock by Vivendi, and
the remainder will come from new cash raised on or prior to the closing of the
Hughes merger through public or private debt or equity offerings, bank debt or a
combination thereof.
If Hughes cannot complete the merger with us, we may be required to
purchase Hughes' interest in PanAmSat, merge with PanAmSat or make a tender
offer for all of PanAmSat's shares and may also be required to pay a $600
million termination fee to Hughes. If we purchase the Hughes interest in
PanAmSat rather than undertaking the merger or the tender offer, we must make
offers for all PanAmSat shares that remain outstanding. We expect that our
acquisition of Hughes' interest in PanAmSat, which is at a price of $22.47 per
share, together with our assumed purchase of the remaining outstanding PanAmSat
shares and our payment of the termination fee to GM would require at least $3.4
billion of cash and approximately $600 million of our class A common stock. We
expect that we will provide approximately $1.5 billion from the purchase of our
series D preferred stock by Vivendi, approximately $689 million will come from
the sale of 9 1/8% senior notes by EDBS, and the remainder will come from
available cash.
7
We and Hughes have obtained $5.525 billion in bridge financing
commitments for the Hughes merger and related transactions. This commitment has
been reduced to $3.325 billion as a result of the sale of $700 million of senior
notes by EDBS on December 28, 2001 and the closing of the $1.5 billion equity
investment in us as part of our strategic alliance with Vivendi Universal on
January 22, 2002. Any other financing we complete prior to these transactions
will reduce these commitments dollar-for-dollar. We discuss these commitments
under "The Proposed Merger and Related Transactions -- Merger Financing."
We currently expect the Hughes merger to occur in the second half of
2002, subject, among other things, to receiving FCC approval and antitrust
clearance. The section of this prospectus entitled "The Proposed Merger and
Related Transactions" contains a more complete description of these
transactions.
Information in this prospectus relating to potential business
combinations with Hughes and/or PanAmSat is relevant only if we complete the
Hughes merger or acquire Hughes' interest in PanAmSat. For a discussion of the
uncertainties surrounding the completion of the merger or the acquisition by us
and the potential resulting impact on us, see "Risk Factors - Risks Related to
the Proposed Merger and Related Transactions." None of GM, Hughes or PanAmSat is
responsible for the information contained in this prospectus. The completion of
these transactions is not certain. You should consider all the alternative
outcomes in connection with your investment in the convertible notes or our
class A common stock, including the possibility that we complete neither the
Hughes merger nor the acquisition of Hughes' interest in PanAmSat.
OUR REASONS FOR THE MERGER
Our primary objective is to continue to provide a leading multi-channel
subscription television service, to expand our DBS subscriber base, and to
further develop as an integrated full service satellite company. Our planned
merger with Hughes will help facilitate this objective. We plan to:
Integrate DIRECTV and our networks: We intend to integrate DIRECTV and
our networks to realize economies of scale and to offer enhanced services by:
o eliminating duplicative programming and utilizing reclaimed
broadcast spectrum to deliver more program and service offerings;
o standardizing DIRECTV and our set-top boxes to offer a common
service platform to customers and reduce the cost of set-top boxes;
o combining and improving the two distribution networks; and
o consolidating satellite uplink, customer service and other
facilities and infrastructure.
Generate substantial cost and revenue synergies: We believe the
combined companies can generate cost synergies by:
o reducing subscriber acquisition costs through, among other things,
standardizing and reducing the cost of set-top boxes;
o reducing churn by offering increased services and creating
increased customer loyalty;
o reducing programming costs as a result of their larger subscriber
base; and
o eliminating duplicative overhead.
We also believe the combined companies can generate revenue synergies
by:
o introducing local-to-local service in new markets;
o expanding two-way high-speed satellite Internet consumer and
business offerings by providing broadband Internet services at more
attractive pricing;
8
o expanding new high definition television, video-on-demand,
pay-per-view, educational programming and other programming
offerings; and
o generating new sources of local and national advertising revenue.
Expand two-way high-speed satellite Internet access offerings: We plan
to expand "always-on" two-way high-speed Internet access to consumers and
businesses. Our broadband offering could play an important role in spanning the
"digital divide" between urban and suburban customers with multiple choices for
high-speed Internet access and rural customers with few or no choices for
high-speed Internet access. We also believe this service will be successful in
urban and suburban markets.
Improve the operating performance of PanAmSat: We intend to increase
PanAmSat's profitability by:
o increasing satellite capacity utilization;
o creating comprehensive service packages including encryption,
customer care and other services;
o exploring new markets; and
o implementing cost savings.
Leverage Hughes' and our combined research and development efforts: We
plan to leverage the engineering capabilities of the combined companies to
expand the features and functionality of their satellite receiver systems. These
features will include a wide variety of innovative interactive television
services and applications. In addition, we will continue to enhance our
satellite-based broadband communications platform.
RECENT DEVELOPMENTS
Strategic Alliance with Vivendi Universal and Sale of Series D Convertible
Preferred Stock
On December 14, 2001, Vivendi Universal and we announced an eight-year
strategic alliance in which Vivendi Universal will develop and provide our DISH
Network customers in the U.S. a variety of programming and interactive
television services.
As part of this agreement, Vivendi Universal plans to offer our DISH
Network customers five new channels of basic and niche programming content.
Vivendi Universal will also offer expanded pay-per-view and video-on-demand
movies. These services are expected to begin in the fall of 2002. Customary fees
per subscriber will be paid by us. Vivendi Universal and we will also work
together on a new programming initiative to develop new satellite-delivered
broadband channels featuring interactive games, movies, sports, education, and
music to be launched within a three-year period following consummation of the
agreement.
Also as part of the agreement, we will integrate Vivendi Universal's
advanced, interactive middleware technology, MediaHigway, a Canal+Technology, as
a non-exclusive middleware solution that will provide DISH Network customers
using personal video recorders unique interactive television services, such as
movies from Vivendi Universal and music from Universal Music Group. The parties
will look at the broadest possible use of MediaHighway.
As part of this alliance, Jean-Marie Messier, Chairman and CEO of
Vivendi Universal, has become a member of our Board of Directors, and he will
continue as a director following our proposed Hughes merger.
As part of this strategic alliance, on January 22, 2002, Vivendi
Universal acquired 5,760,479 shares of our series D convertible preferred stock
for $1.5 billion, or approximately $260.40 per share. Each share of the series D
preferred stock has the same economic and voting rights as ten shares of class A
common stock into which it is convertible and has a liquidation preference equal
to approximately $260.40 per share. Immediately prior to the consummation of the
Hughes merger, the series D preferred stock will convert into shares of our
class A common stock, which will then be exchanged for shares of class A common
stock of the surviving corporation in the Hughes merger.
In connection with the purchase of the series D convertible preferred
stock, Vivendi Universal also received contingent value rights, intended to
provide protection for the price of the class A common stock to be issued. The
9
maximum payment under the rights is $225 million if the Hughes merger is
completed, or $525 million if the Hughes merger is not completed. Any amount
owing under these rights would be settled three years after completion of the
Hughes merger, except in certain limited circumstances. In addition, if the
Hughes merger is not consummated, these rights will be settled 30 months after
the acquisition of Hughes' 81% interest in PanAmSat or the termination of the
merger agreement and the PanAmSat stock purchase agreement.
The impacts of this strategic alliance on us are not reflected in this
prospectus.
Sale by EDBS of 9 1/8% Senior Notes Due 2009
On December 28, 2001, EDBS closed on the sale of $700 million of 9 1/8%
Senior Notes due 2009, which are referred to as the 9 1/8% Notes. The proceeds
from the 9 1/8% Notes will be used by EDBS to repay a portion of amounts owed to
us, which we intend to use for one or more of the following: (1) to provide a
portion of the financing for the Hughes merger; (2) if we do not consummate the
Hughes merger, to provide a portion of the financing for our acquisition of
Hughes' approximately 81% interest in PanAmSat, and (3) the construction, launch
and insurance of additional satellites, strategic investments and acquisitions
and other general corporate purposes. Despite the sale of the 9 1/8% Notes, we
will need substantial additional financing to complete the Hughes merger from
additional cash raised through public or private debt or equity offerings, bank
debt or a combination thereof by us or our subsidiaries.
10
THE ECHOSTAR ORGANIZATION
The following chart illustrates the corporate structure where significant assets
and rights are held.
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ECHOSTAR COMMUNICATIONS CORPORATION
NASDAQ: DISH
ISSUER OF THE CONVERTIBLE NOTES
Issuer of the 4 7/8% Convertible Subordinated Notes Due 2007
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ECHOSTAR BROADBAND CORPORATION
Issuer of the 10 3/8% Senior Notes due 2007
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ECHOSTAR DBS CORPORATION ECHOSTAR ORBITAL CORPORATION
o Issuer of the 9 1/4% Senior Notes due 2006 o Contracts for the construction and
o Issuer of the 9 3/8% Senior Notes due 2009 launch of the EchoStar VII, EchoStar VIII
o Issuer of the 9 1/8% Senior Notes due 2009 and EchoStar IX satellites
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ECHOSTAR ECHOSPHERE ECHOSTAR ECHOSTAR DISH
TECHNOLOGIES CORPORATION SATELLITE CORPORATION INTERNATIONAL NETWORK
CORPORATION CORPORATION SERVICE CORPORATION
o U.S. distribution of o DISH Network and
o U.S. distribution DTH products and Satellite services o International o Installation of
of EchoStar receiver EchoStar receiver o EchoStar I satellite distribution of DTH DBS products
systems for DISH systems for the o EchoStar II satellite products
Network and DTH DISH Network to o EchoStar III satellite ------------------
products to satellite retailers o EchoStar IV satellite --------------------
Echosphere and distributors o EchoStar V satellite
o Research and o EchoStar VI satellite
development of DBS o 11 frequencies
stand-alone and 61.5(degrees) WL
integrated products o 29 frequencies
110(degrees) WL
----------------------- ------------------------ o 24 frequencies
148(degrees) WL
o 22 frequencies
175(degrees) WL
o DBS programming
contracts
o Wyoming digital
broadcast center
o Arizona digital
broadcast center
o Six customer service
centers
------------------------
11
RISK FACTORS
Investing in the convertible notes or our class A common stock involves
a high degree of risk. You should carefully consider the following risk factors
and all other information contained in this prospectus before deciding whether
to invest in the convertible notes or our class A common stock. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties that we are unaware of, or that we currently believe to be
immaterial, also may become important factors that affect us.
If any of the following events occur, our business, financial condition
or results of operations could be materially and adversely affected. In that
case, the value of the convertible notes or our class A common stock could
decline and you may lose some or all of your investment.
RISKS RELATED TO OUR BUSINESS
WE WILL HAVE SUBSTANTIAL DEBT OUTSTANDING AFTER THE OFFERING AND MAY INCUR
ADDITIONAL DEBT, SO WE MAY BE UNABLE TO PAY INTEREST OR PRINCIPAL ON THE
CONVERTIBLE NOTES.
As of September 30, 2001, on a pro forma basis after giving effect to
the issuance of $700 million of senior notes by EDBS on December 28, 2001, our
total debt, including the debt of our subsidiaries, would have been
approximately $5.7 billion.
If the Hughes merger is completed and necessary consents from holders
of our existing notes and existing notes of our subsidiaries are obtained, the
ultimate structure of the Hughes merger could include the purchase by or
contribution to us of approximately 8.5 million subscribers. We expect that the
subscribers and potential associated cash flow would result in significant
additional capacity to pay dividends and make distributions and other restricted
payments, and to incur additional debt.
Our substantial debt could have significant consequences to you,
including:
o making it more difficult to satisfy our obligations with respect to
the convertible notes;
o increasing our vulnerability to general adverse economic
conditions, including changes in interest rates;
o limiting our ability to obtain additional financing, including
financing to satisfy our obligations with respect to the
convertible notes;
o requiring us to devote a substantial portion of our available cash
and cash flow to make interest and principal payments on our debt,
thereby reducing the amount of available cash for other purposes;
o limiting our financial flexibility in responding to changing
economic and competitive conditions; and
o placing us at a disadvantage compared to our competitors that have
less debt.
RESTRICTIVE COVENANTS UNDER OUR INDEBTEDNESS MAY LIMIT OUR ABILITY TO OPERATE
OUR BUSINESS
The indentures relating to the senior notes of our subsidiaries and our
other long-term indebtedness contain restrictive covenants that may inhibit our
ability to manage our business, engage in certain transactions that we believe
to be beneficial to holders of common stock and the convertible notes and to
react to changing market conditions. These restrictions, among other things,
limit the ability of our subsidiaries to:
o incur additional indebtedness;
o issue preferred stock;
o sell assets;
o create, incur or assume liens;
o merge, consolidate or sell assets;
12
o enter into transactions with affiliates; and
o pay dividends and make other distributions.
In particular, but without limitation, the indentures related to the
outstanding senior notes of our wholly owned subsidiary, EBC, and EBC's
wholly-owned subsidiary, EDBS, limit EBC's ability to pay dividends or make
distributions to us and EDBS' ability to pay dividends or make distributions to
EBC. Since we are a holding company with no significant net assets other than
our ownership in our subsidiaries, we will be dependent on the receipt of funds
from EBC, which is dependent on the receipt of funds from EDBS, to pay interest
and principal on the convertible notes and these limitations could adversely
affect our ability to make such payments on the convertible notes.
INCREASED SUBSCRIBER TURNOVER COULD HARM OUR FINANCIAL PERFORMANCE.
Our percentage churn for the nine months ended September 30, 2001
increased compared to the same period during 2000. The increase resulted from
the slowing economy, significant piracy of the products of the other DBS
provider, bounty programs offered by competitors, our maturing subscriber base
and other factors. As a result of all of these factors, we also expect our
percentage churn for the remainder of 2001 to be higher than our historical
average.
Furthermore, impacts from our litigation with the networks in Florida,
new FCC rules governing the delivery of superstations and other factors could
cause us to terminate delivery of distant network channels and superstations to
a material portion of our subscriber base, which could cause many of those
customers to cancel their subscription to our other services. Any such
terminations could result in a small reduction in average monthly revenue per
subscriber and could result in an increase in our percentage churn.
Commencing January 1, 2002, we were required to comply with the
statutory requirement to carry all qualified over the air television stations by
satellite in any market where we carry any local network channels by satellite.
Any reduction in the number of markets we serve in order to comply with "must
carry" requirements for other markets would adversely affect our operations and
could result in a temporary increase in churn. While there can be no assurance,
based among other things on the number of over the air television stations that
have qualified for "must carry" to date and on other available satellite
capacity, we currently believe we meet statutory "must carry" requirements. We
cannot be sure that the FCC will not interpret or implement its "must carry"
rules in ways that may require us to decrease the number of markets where we
provide local channels. In combination, these resulting subscriber terminations
would result in a small reduction in average monthly revenue per subscriber and
could increase our percentage churn.
INCREASED SUBSCRIBER ACQUISITION COSTS COULD AFFECT OUR FINANCIAL PERFORMANCE.
We subsidize the cost and installation of our receiver systems in order
to attract new DISH Network subscribers. Our average subscriber acquisition
costs were $403 per new subscriber during the nine months ended September 30,
2001. Subscriber acquisition costs exclude the costs of receiver system
equipment under our Digital Home Plan lease program. Because we retain ownership
of such equipment, we capitalize such costs and depreciate them over the
equipment's useful life. Our subscriber acquisition costs, both in the aggregate
and on a per new subscriber activation basis, may materially increase to the
extent that we continue or expand our current sales promotion activities, or
introduce other more aggressive promotions. Any material increase in subscriber
acquisition costs from current levels could have a material adverse effect on
our business and results of operations.
WE MAY BE UNABLE TO MANAGE RAPIDLY EXPANDING OPERATIONS.
If we are unable to manage our growth effectively, it could have a
material adverse effect on our business and results of operations. To manage our
growth effectively, we must continue to develop our internal and external sales
forces, installation capability, customer service operations and information
systems, and maintain our relationships with third-party vendors. We also need
to continue to expand, train and manage our employee base, and our management
personnel must assume even greater levels of responsibility. If we are unable to
continue to develop our installation capability and customer service operations
in a timely manner to effectively manage growth, we may experience a decrease in
subscriber growth and an increase in churn, which could have a material adverse
effect on our business and results of operations.
13
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE, IN ORDER TO CONTINUE
GROWING, TO INCREASE EARNINGS AND TO MAKE PAYMENTS ON THE CONVERTIBLE NOTES.
Our ability to increase earnings and to make interest and principal
payments on the convertible notes will depend in part on our ability to continue
growing our business by maintaining and increasing our subscriber base. This may
require significant additional capital that may not be available to us.
Funds necessary to meet subscriber maintenance and 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, if needed in the
future.
In addition to our DBS business plan, we have conditional licenses and
pending FCC applications for a two satellite FSS Ku-band satellite system and a
two satellite FSS Ka-band satellite system. We will need to raise additional
capital to construct, launch, and insure satellites and complete these systems.
During February 2000,we announced agreements for the construction and delivery
of three new satellites. We may need to raise additional capital to construct,
launch and insure these satellites. There can be no assurance that additional
financing will be available on acceptable terms, or at all.
WE EXPECT NET LOSSES THROUGH AT LEAST 2001 AND CANNOT BE CERTAIN THAT WE WILL
ACHIEVE OR SUSTAIN PROFITABILITY.
Due to the substantial expenditures necessary to complete construction,
launch and deployment of our DBS system and to obtain and service DISH Network
customers, we have sustained significant losses. If we do not have sufficient
income or other sources of cash, our ability to service our debt and pay our
other obligations could be affected. We had net losses of $650 million and $173
million for the year ended December 31, 2000 and for the nine months ended
September 30, 2001, respectively. Improvements in our results of operations will
depend largely upon our ability to increase our customer base while maintaining
our price structure, effectively managing our costs and controlling churn. We
cannot assure you that we will be effective with regard to these matters.
Acquisition costs to obtain new DISH Network subscribers are responsible for a
substantial portion of the negative effects of churn and may otherwise have a
material adverse effect on our results of operations. We anticipate that we will
continue to experience net losses through 2001. These net losses may continue
beyond 2001.
OUR SATELLITES ARE SUBJECT TO RISKS DURING AND AFTER LAUNCH.
Satellite launches are subject to significant risks, including launch
failure, which may result in incorrect orbital placement or improper commercial
operation. Approximately 15% of all commercial geostationary satellite launches
have resulted in a total or constructive total loss.
During February 2001, we announced an agreement with Lockheed Martin's
International Launch Services division for it to provide launch services for the
EchoStar VII and EchoStar VIII satellites. EchoStar VII is expected to launch on
a Lockheed Martin Atlas IIIB launch vehicle from Cape Canaveral. EchoStar VIII
is expected to launch on a Russian Proton K/Block DM launch vehicle from the
Baikonur Cosmodrome in Kazakhstan.
The EchoStar VII launch is expected to be the first flight for the
Atlas IIIB rocket. The risk of launch delay and failure are usually greater when
the rocket does not have a track record of previously successful flights.
As a result of delays by the satellite manufacturer and insurance
procurement issues resulting from market reticence with respect to Atlas III
launches, particularly following the September 11th tragedy, the earliest
scheduled launch of EchoStar VII is the first quarter of 2002 (subject to
receiving FCC approval). We are evaluating alternative launch vehicles to
potentially minimize the risk of further delays. EchoStar VIII is currently
expected to launch during the first half of 2002 (subject to requesting and
receiving FCC approval). Postponement of the launch of either of these
satellites could result from delays in delivery of the satellite, from
difficulties procuring adequate launch insurance, or from other factors.
Meteoroid events pose a potential threat to all in-orbit geosynchronous
satellites, including our DBS satellites. The probability that our satellites
will be damaged by meteoroids increases significantly when the Earth passes
through
14
the particulate stream left behind by various comets. Due to the current peak in
the 11-year solar cycle, increased solar activity is likely for the next year.
Some of these solar storms pose a potential threat to all in-orbit
geosynchronous satellites, including our DBS satellites. Additionally, some
decommissioned spacecraft are in uncontrolled orbits which pass through the
geostationary belt at various points, and present hazards to operational
spacecraft, including our DBS satellites. We may be required to perform
maneuvers to avoid collisions and these maneuvers may prove unsuccessful. The
loss, damage or destruction of any of our satellites as a result of an
electrostatic storm, collision with space debris, malfunction or other event
would have a material adverse effect on our business and results of operations.
OUR SATELLITES HAVE MINIMUM DESIGN LIVES OF 12 YEARS, BUT COULD FAIL OR SUFFER
REDUCED CAPACITY BEFORE THEN.
Our ability to earn revenue 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 among other things
the quality of their construction, the durability of their component parts, the
efficiency of the launch vehicle used and their ability to continue to maintain
proper orbit. The minimum design life of each of our satellites is 12 years. We
can provide no assurance, however, as to the actual useful lives of the
satellites. Our operating results would be adversely affected if the useful life
of any of our satellites were significantly shorter than 12 years. The satellite
construction contracts for our satellites contain no warranties if EchoStar I,
EchoStar II, EchoStar III, EchoStar IV, EchoStar V or EchoStar VI fails
following launch. The satellite construction contracts for EchoStar VII,
EchoStar VIII and EchoStar IX, the satellites under construction, contain
limited warranties if they fail following launch. Additionally, moving any of
these satellites, either temporarily or permanently, to another orbital location
decreases the orbital life of the satellite by up to six months per movement.
During the second quarter 2000, two transponder pairs on EchoStar III
malfunctioned. Including the three transponder pairs that malfunctioned during
1998, these anomalies have resulted in the failure of ten transponders on this
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 authorized by the FCC to
operate on a firm basis 11 transponders at the 61.5 degree orbital location
(together with an additional six leased transponders), the transponder
malfunctions have not impacted commercial operation of the satellite to date. 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.
As a result of the failure of EchoStar IV solar arrays to fully deploy
and the failure of 30 transponders to date, a maximum of approximately 14 of the
44 transponders on EchoStar IV are available for use at this time. Due to the
normal degradation of the solar arrays, the number of available transponders
will further decrease over time. In addition to the transponder and solar array
failures, EchoStar IV experienced anomalies affecting its thermal systems and
propulsion system. In January 2000, we reduced the total estimated useful life
of EchoStar IV to approximately 4 years as of such date. There can be no
assurance, however, that a total loss of use of this satellite will not occur in
the more immediate future. See "-We currently have no traditional commercial
insurance coverage on our satellites and we may be unable to settle outstanding
claims with insurers."
EchoStar V is equipped with a total of three momentum wheels, including
one spare. During July 2001, EchoStar V experienced an anomaly resulting in the
loss of one momentum wheel. While no further momentum wheel losses are expected,
until the root cause of the anomaly is finally determined, there can be no
assurance future anomalies will not cause further losses which could impact
commercial operation of the satellite. The extent to which the loss of an
additional momentum wheel would impair commercial operation has not yet been
finally determined, but terms for in-orbit insurance, if procured, could be
impacted. During August 2001, one of the thrusters on EchoStar V experienced an
anomalous event resulting in a temporary interruption of service. The satellite
is equipped with a substantial number of backup thrusters.
EchoStar V is also equipped with a total of 48 transponders, including
16 spares. A total of two transponders were taken out of service and replaced by
spares between the launch of the satellite and June 30, 2001. During the third
quarter 2001, EchoStar V experienced anomalous telemetry readings on two
additional transponders. One of those transponders experienced unusually high
telemetry readings and as a precaution, during September 2001 we substituted
that transponder with a spare. To the extent that EchoStar V experiences
anomalous telemetry readings on additional transponders it may be necessary to
utilize additional spare transponders. Until the root cause of the anomalies is
finally
15
determined, there can be no assurance future anomalies will not cause losses
which could impact commercial operation of the satellite.
EchoStar VI is equipped with a total of 48 transponders, including 16
spares. During April 2001, EchoStar VI experienced a series of anomalous events
resulting in a temporary interruption of service. As a result of the anomaly, we
believe that one stationkeeping thruster and a pair of transponders are
unusable. The satellite is equipped with a substantial number of backup
transponders and thrusters. EchoStar VI has also experienced anomalies resulting
in the loss of two solar array strings. The satellite has a total of
approximately 112 solar array strings and approximately 106 are required to
assure full power availability for the 12-year design life of the satellite.
Until the root cause of these anomalies is finally determined, there can be no
assurance future anomalies will not cause further losses which could impact
commercial operation of the satellite.
In the event of a failure or loss of any of our satellites, we may
relocate another satellite and use it as a replacement for the failed or lost
satellite. Such a relocation would require prior FCC approval and, among other
things, a showing to the FCC that the replacement satellite would not cause
additional interference compared to the failed or lost satellite. We cannot be
certain that we could obtain such FCC approval. If we choose to use a satellite
in this manner, we cannot assure you that this use would not adversely affect
our ability to meet the operation deadlines associated with our authorizations.
Failure to meet those deadlines could result in the loss of such authorizations,
which would have an adverse effect on our operations.
WE CURRENTLY HAVE NO TRADITIONAL COMMERCIAL INSURANCE COVERAGE ON OUR SATELLITES
AND WE MAY BE UNABLE TO SETTLE OUTSTANDING CLAIMS WITH INSURERS.
In September 1998, we filed a $219.3 million insurance claim for a
constructive total loss under the launch insurance policies covering EchoStar
IV. The satellite insurance consists of separate substantially identical
policies with different carriers for varying amounts which, in combination,
create a total insured amount of $219.3 million. Our insurance carriers offered
us a total of approximately $88 million, or 40% of the total policy amount, in
settlement of the EchoStar IV insurance claim. The insurers allege that all
other impairment to the satellite occurred after expiration of the policy period
and is not covered. We filed an arbitration claim against them for breach of
contract, failure to pay a valid insurance claim and bad faith denial of a valid
claim, among other things. There can be no assurance that we will receive the
amount claimed or, if we do, that we will retain title to EchoStar IV with its
reduced capacity. Based on the carriers' actions, we have added causes of action
in our EchoStar IV demand for arbitration for breach of the duty of good faith
and fair dealing, and unfair claim practices. Additionally, we filed a lawsuit
against the insurance carriers in the U.S. District Court for the District of
Colorado asserting causes of action for violation of Federal and State antitrust
laws. During March 2001, we voluntarily dismissed our antitrust lawsuit without
prejudice. We have the right to re-file an antitrust action against the insurers
in the future.
At the time we filed our claim in 1998, we recognized an impairment
loss of $106 million to write-down the carrying value of the satellite and
related costs, and simultaneously recorded an insurance claim receivable for the
same amount. We may have to reduce the amount of the receivable if a final
settlement is reached for less than this amount.
The indentures related to the senior notes of EBC and EDBS contain
restrictive covenants that require us to maintain satellite insurance with
respect to at least half of the satellites we own or lease. Insurance coverage
is therefore required for at least three of our six satellites currently in
orbit. We procured normal and customary launch insurance for EchoStar VI, which
expired on July 14, 2001. The in-orbit insurance policies for EchoStar I,
EchoStar II and EchoStar III expired July 25, 2000. To date we have been unable
to obtain insurance on EchoStar I, EchoStar II, EchoStar III, EchoStar V and
EchoStar VI on terms acceptable to us. As a result, we are currently
self-insuring EchoStar I, EchoStar II, EchoStar III, EchoStar IV, EchoStar V and
EchoStar VI. To satisfy insurance covenants related to the outstanding senior
notes of EDBS and EBC, we have reclassified an amount equal to the depreciated
cost of three of our satellites from cash and cash equivalents to cash reserved
for satellite insurance on our balance sheet. As of September 30, 2001, cash
reserved for satellite insurance totaled approximately $128 million. The
reclassifications will continue until such time, if ever, as we can again insure
our satellites on acceptable terms and for acceptable amounts. We believe we
have in-orbit satellite capacity sufficient to expeditiously recover
transmission of most programming in the event one of our in-orbit satellites
fails. However, the cash reserved for satellite insurance is not adequate to
fund the construction,
16
launch and insurance for a replacement satellite in the event of a complete loss
of a satellite. Programming continuity cannot be assured in the event of
multiple satellite losses.
We may not be able to obtain commercial insurance covering the launch
and/or in-orbit operation of EchoStar VII and EchoStar VIII at rates acceptable
to us and for the full amount necessary to construct, launch and insure
replacement satellites. In that event, we will be forced to self-insure all or a
portion of the launch and/or in-orbit operation of each affected satellite. The
manufacturers of EchoStar VII and EchoStar VIII are contractually obligated to
use their reasonable best efforts to obtain commercial insurance for the launch
and in-orbit operation of EchoStar VII and EchoStar VIII for a period of
in-orbit operation to be determined and in an amount up to $225 million. There
is no guarantee that they or we will be able to obtain commercial insurance for
the launch and in-orbit operation of EchoStar VII and EchoStar VIII at
reasonable rates and for the full replacement cost of those satellites. Any
launch vehicle failure, or loss or destruction of EchoStar VII or EchoStar VIII
for which we do not have commercial insurance for the full replacement cost of
such satellites could have a material adverse effect on our ability to comply
with "must carry" and other regulatory obligations and on our financial
condition. See "-We need to increase satellite capacity to avoid potential
disruptions in our service caused by 'must carry' requirements."
OUR BUSINESS DEPENDS SUBSTANTIALLY ON FCC LICENSES THAT CAN EXPIRE OR BE REVOKED
OR MODIFIED AND APPLICATIONS THAT MAY NOT BE GRANTED.
We have licenses to use 21 frequencies at the 119 degree orbital
location, which expire in 2006; a license to operate 11 frequencies at the 61.5
degree orbital location, which expires in 2008; and licenses to operate 29
frequencies at the 110 degree orbital location, which we believe expire in 2009.
Our authorization at the 148 degree orbital location requires us to utilize all
of our FCC-allocated frequencies at that location by December 20, 2002, or risk
losing those frequencies that we are not using. At the 61.5 degree orbital
location we sublease six transponders (corresponding to six frequencies) from
licensee Dominion in addition to our 11 licensed frequencies. For another 13
frequencies at the 61.5 degree orbital location we have special temporary
authority, which the FCC may refuse to renew, and which is subject to several
restrictive conditions. The FCC recently extended the permit to another company
to construct and launch a satellite that would use most of these additional
channels. If our special temporary authority to use the channels assigned to
that other company does not expire sooner, it will be terminated if that company
does actually construct and launch a satellite to the 61.5 degree orbital
location. Third parties have opposed, and we expect them to continue to oppose,
some of our authorizations or pending and future requests to the FCC for
extensions, modifications, waivers and approvals. We have applied for
authorization to launch EchoStar VII to the 119 degree orbital location. No
party has filed a formal opposition against the application. Generally, all of
our licenses are subject to expiration unless renewed by the FCC, and our
special temporary authorizations are granted for periods of 180 days or less,
subject again to possible renewal by the FCC.
In early 2000, we moved EchoStar IV to the 119 degree orbital location.
The move allowed us to transition some of the programming previously on EchoStar
I and EchoStar II to EchoStar IV, which can provide service to Alaska and
Hawaii. In connection with that plan, we have also petitioned the FCC to declare
that we have met our due diligence obligations for the 148 degree orbital
location. The State of Hawaii has opposed that request and there is no assurance
that it will be granted by the FCC. If our request is not granted by the FCC,
our license for the 148 degree orbital location may be revoked or canceled for
any frequencies at the 148 degree orbital location that may not be used by the
December 2002 operation milestone.
We have received FCC authorization to operate EchoStar IV and EchoStar
VI at the 119 degree orbital location. We have also moved EchoStar I from the
119 degree orbital location to the 148 degree orbital location. EchoStar VI
commenced commercial service during October 2000. Given possible launch delays
of EchoStar VII, we are operating EchoStar II at the 148 degree orbital location
under special temporary authority from the FCC, in order to help comply with the
January 1, 2002 "must carry" obligations. This renewable authority is for 30
days beginning on December 28, 2001. This special temporary authority has been
opposed by Pegasus Development Corporation, and there can be no assurance that
the FCC will not reconsider that temporary authorization and revoke it or refuse
to extend it. While we have also applied to the FCC for modification authority
to operate EchoStar II at the 148 degree orbital location on a more firm basis,
this application remains pending and there can be no assurances that it will be
granted by the FCC.
17
In general, our plans involve the relocation of satellites either
within or slightly outside the "cluster" of a particular orbital location, or
from one orbital location to another where we have various types of
authorizations. These changes require FCC approval, and we cannot be sure that
we will receive all needed approvals for our current and future plans.
Furthermore, the states of Alaska and Hawaii requested that the FCC impose
conditions on the license for EchoStar VI, relating to certain aspects of our
service such as prices and equipment. While the FCC denied these requests for
conditions, it cautioned that it may impose similar requirements as a result of
a pending rulemaking. Such requirements could be very onerous for us. In
general, the states of Alaska and Hawaii have expressed views that our service
to these states from various orbital locations does not comply with our
FCC-imposed obligations to serve those states, and we cannot be sure that the
FCC will not accept these views. Such actions would have a material adverse
effect on our business. Moreover, because we cannot meet the geographic service
requirements from the 148 degree orbital location, we had to request and obtain
a conditional waiver of these requirements to allow operation of EchoStar I at
that location. As a result, our current authorization to operate EchoStar I at
the 148 degree orbital location is subject to several conditions that may be
onerous. Furthermore, we have requested an extension of that waiver to also
allow operation of EchoStar II at the same location, and we cannot be sure the
FCC will grant that request.
We have contracted for the construction of two additional DBS
satellites, EchoStar VII and EchoStar VIII. We presently plan to operate these
satellites at the 119 and 110 degree orbital locations, but the launch and
operation of these satellites require FCC approval. We have filed an application
for authority to launch EchoStar VII to the 119 degree orbital location, which
was conditionally granted in an order released by the FCC on January 16, 2002.
We have not yet applied for authorization to launch EchoStar VIII, and we cannot
be sure that this request, when filed, will be timely granted or that it will be
granted at all by the FCC.
In 2000, the FCC approved the transfer of majority control over E-Sat,
a non-geostationary mobile satellite service licensee, from us to another
company, but warned that this approval is without prejudice to its investigation
of complaints relating to E-Sat. We cannot be sure whether any such
investigation will have implications for E-Sat, in which we now have a minority
interest.
On February 25, 2000, Kelly Broadcasting Systems, Inc. was acquired by
us. We recently discovered that Kelly and we inadvertently failed to file with
the FCC the necessary application to transfer control over certain earth
stations licensed to Kelly. We have filed the necessary application for a
transfer of control over these earth stations, and we have requested special
temporary authority from the FCC to continue to operate these earth stations,
while the application to transfer control is being processed by the FCC. We
cannot be sure that the FCC will not deny either or both of these requests or
that it will not commence an enforcement proceeding for our failure to file a
timely transfer of control application, possibly resulting in fines or
revocation of the licenses in question. Any such action that might prevent Kelly
from operating these earth stations would impair our ability to receive certain
types of programming and deliver it to customers.
The telemetry, tracking and control operations of EchoStar I are in an
area of the spectrum called the "C-band." Although the FCC granted us
conditional authority to use these frequencies for telemetry, tracking and
control, in January 1996, a foreign government raised an objection to EchoStar
I's use of these frequencies. We cannot be certain whether that objection will
subsequently require us to relinquish the use of such C-band frequencies for
telemetry, tracking and control purposes. Further, EchoStar II's telemetry,
tracking and control operations are in the "extended" C-band. Our authorization
to use these frequencies expired on January 1, 1999. Although we have timely
applied for extension of that authorization to November 2006, we cannot be sure
that the FCC will grant our request. If we lose the ability to use these
frequencies for controlling either satellite, we would lose the satellite.
Recently, the FCC released a ruling that will allow commercial terrestrial
services and hamper future satellite operations in the "extended" C-band
frequencies. This ruling might have negative implications for us. Also, our
request to operate EchoStar II at the 148 degree orbital location includes a
request to use the extended C-band for TT&C at that orbital location. We cannot
be sure that the FCC will grant that request.
All of our FCC authorizations are subject to conditions imposed by the
FCC in addition to the FCC's authority to modify, cancel or revoke them. In
addition, all of our authorizations for satellite systems that are not yet
operational are subject to construction and progress obligations, milestones,
reporting and other requirements. We have not filed, or not timely filed, some
of the required reports. The FCC has indicated that it may revoke, terminate,
condition or
18
decline to extend or renew such authorizations if we fail to comply with
applicable Communications Act requirements. We have received conditional
licenses from the FCC to operate satellites in the Ka-band and Ku-band and have
an application pending for a system that would use extended Ku-band frequencies
(although that application has remained pending for years). Use of those
licenses and conditional authorizations are subject to certain technical and due
diligence requirements, including the requirement to construct and launch
satellites. The granting of those licenses has been challenged by parties with
interests that are adverse to ours. Among other things, our conditional license
for a Ku-band satellite system is subject to pending petitions for
reconsideration and cancellation. The construction, completion and launch
milestones for both Ku-band satellites have expired. We have filed a timely
request for the extension of these milestones for our Ku-band system. With
respect to our license for the Ka-band system, the FCC recently authorized our
operation of inter-satellite links for the system and assigned milestone
requirements for the construction, launch and operation of the satellite system.
If we fail to file adequate reports or to demonstrate progress in the
construction of our satellite systems, the FCC has stated that it may cancel our
authorizations for those systems. Our license for our Ka-band system allows us
to use only 500 MHZ of Ka-band spectrum in each direction, while other licensees
have been authorized to use 1,000 MHZ in each direction. The FCC recently denied
our modification application to use additional spectrum and granted certain
Ka-band licenses to others that would preclude such expanded capacity for us.
Instead of constructing Ka-band and Ku-band satellites for which we
have a license at the 121 degree orbital location, we are in the process of
constructing a "hybrid" Ku/Ka-band satellite. Launch and operation of this
satellite requires prior FCC approval, which we requested. We cannot be sure
that this request will be granted. That satellite does not currently incorporate
inter-satellite links, and one company has argued to the FCC that this makes us
subject to more expedited milestones for our system, some of which have lapsed.
We have objected to this argument, but cannot be sure what action the FCC will
take.
During November 2000, one of our affiliates purchased a 49.9% interest
in VisionStar, Inc. and in October 2001, the FCC approved our proposed
acquisition of control over VisionStar. Upon consummation, this transaction will
bring our total equity stake to 90%. VisionStar holds an FCC license and is
constructing a Ka-band satellite to launch into the 113 degree orbital location.
The total purchase price was approximately $2.8 million. Pegasus Development
Corporation filed a petition for reconsideration of the FCC's approval of that
transaction. There can be no assurance that the FCC will not reconsider its
approval or otherwise revoke VisionStar's license, rendering our investment
worthless. Furthermore, VisionStar's FCC license currently requires construction
of the satellite to be completed by April 30, 2002 and the satellite to be
operational by May 31, 2002. As a result of, among other things, changes in the
VisionStar satellite design due to the recent failure of the Astrolink Ka-band
satellite venture, it is unlikely that we will meet these milestones and we may
need to request an extension from the FCC. Failure to meet these milestones will
make the license invalid unless the milestones are extended by the FCC. In May
2001, the FCC already denied an earlier request by VisionStar to extend its
milestones. In October 2001, upon approving the acquisition of VisionStar by us,
the FCC conditioned the license transfer on our completing construction of the
satellite by April 2002, launching the satellite by May 2002, and reporting any
change in the status of the spacecraft contract. Failure to meet any of these
conditions could result in the revocation of the Ka-band license at the 113
degree orbital location.
Our projects to construct and launch Ku-band, extended Ku-band and
Ka-band satellites are in the early stages of development and are currently
being challenged by several companies with interests adverse to ours. There can
be no assurance that the FCC will sustain these licenses, or grant the pending
applications, or that we will be able to successfully capitalize on any
resulting business opportunities.
In general, many of our authorizations and pending applications are
subject to petitions and oppositions filed against us by several companies, and
we cannot be sure that our authorizations will not be cancelled, revoked or
modified or that our applications will not be denied.
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, interactivity and
other matters, and significant software development, are integral to our DBS
system and may, at times, not function as we expect. Technology in the satellite
television industry changes rapidly as new technologies are developed. 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 DBS system may
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occur that could adversely affect performance or operation of our DBS system and
could have an adverse effect on our business. Furthermore, if a competitor's
satellite receiver technology becomes commonly accepted as the standard for
satellite receivers in the U.S., we would be at a significant technological
disadvantage, which would in turn have an adverse effect on our business and
results of operations.
WE DEPEND PRIMARILY ON A SINGLE RECEIVER MANUFACTURER.
Sanmina-SCI Corporation (formerly known as SCI Systems, Inc.), a
high-volume contract electronics manufacturer, is the primary manufacturer of
our receiver systems. JVC also manufactures some of our receiver systems, and we
have executed an agreement to have Thomson multimedia manufacture DISH Network
compatible receivers commencing mid-2002. If any of these vendors are unable for
any reason to produce receivers in a quantity sufficient to meet our
requirements, it would impair our ability to add additional DISH Network
subscribers and grow our technology business unit, and adversely affect our
results of operations.
WE RELY ON KEY PERSONNEL.
We believe that our future success will depend to a significant extent
upon the performance of Charles W. Ergen, our chairman and chief executive
officer. The loss of Mr. Ergen or of certain other key executives could have an
adverse effect on our business. We do not maintain "key man" insurance. Although
all of our executives have executed agreements limiting their ability to work
for or consult with competitors if they leave us, we do not have any employment
agreements with any of them.
WE ARE CONTROLLED BY ONE PRINCIPAL STOCKHOLDER.
Charles W. Ergen, our chairman and chief executive officer, currently
beneficially owns approximately 50% of our total equity securities and possesses
approximately 91% of the total voting power. Thus, Mr. Ergen has the ability to
elect a majority of our directors and to control all other matters requiring the
approval of our stockholders. In addition, pursuant to a voting agreement among
Mr. Ergen, News Corporation and MCI WorldCom, News Corporation and MCI WorldCom
agreed commencing 1999 for five years to vote their shares of us in accordance
with the recommendation of our Board of Directors. For Mr. Ergen's total voting
power to go below 51% prior to the Hughes merger, his percentage ownership of
our equity securities would have to go below 10%. If we consummate the Hughes
merger as contemplated, Mr. Ergen would beneficially own 100% of the class B
common stock of the surviving corporation, but control less than 50% of the
total voting power of the surviving corporation.
FOREIGN OWNERSHIP RESTRICTIONS COULD AFFECT OUR BUSINESS PLAN.
The Communications Act and the FCC's implementing regulations provide
that when subsidiaries of a holding company hold certain types of FCC licenses,
foreign nationals or their representatives may not own or vote more than 25% of
the total equity of the holding company, except upon an FCC public interest
determination. There is some ambiguity regarding the extent to which this
foreign ownership prohibition applies to DBS. The FCC has ruled that the foreign
ownership prohibition applies to DBS. The FCC has ruled that the foreign
ownership limitations in the Communications Act do not apply to providers of
subscription DBS services like us. On the other hand, the FCC has left open the
question of whether the FCC's own rules impose on DBS the 25% foreign ownership
limit. Furthermore, the World Trade Organization agreement facilitating certain
foreign investments in telecommunications services does not extend to DBS, and
the standards for waiving the DBS foreign ownership limit to the extent
applicable are therefore unclear. While the FCC has granted us in the past a
waiver to the extent required to allow an investment from a foreign company, we
cannot be sure that the FCC will similarly grant such waiver requests to the
extent required to allow other foreign investments that may implicate the alien
ownership limits in the future. The foreign ownership limitations clearly will
apply to our licenses for fixed satellite service if we hold ourselves out as a
common carrier or if the FCC decides to treat us as such a carrier. The FCC has
noted that we have proposed to operate one of our authorized fixed satellite
service systems on a common carrier as well as a non-common carrier basis. We
have recently informed the FCC that we have no common carrier plans with respect
to that system. If the FCC decides to treat us as a common carrier for any of
our operations or if we operate as one, we cannot be sure that the FCC will
grant any request for a public interest determination that may be needed to
allow any direct or indirect foreign ownership in excess of 25%.
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Currently, a subsidiary of News Corporation, an Australian corporation,
owns approximately 2.1% of our total outstanding stock, less than 1% of our
total voting power. In connection with the MCI WorldCom authorization that we
received in connection with our transactions with News Corporation, the FCC has
decided to waive any foreign ownership limitations to the extent applicable. In
light of any subsequent FCC decisions or policy changes, we may in the future
need a separate FCC determination that foreign ownership in excess of any
applicable limits is consistent with the public interest in order to avoid a
violation of the Communications Act or the FCC's rules.
WE COMPETE WITH OTHER SUBSCRIPTION TELEVISION SERVICE PROVIDERS, WHICH COULD
AFFECT OUR ABILITY TO GROW AND INCREASE EARNINGS.
We compete in the highly competitive subscription television service
industry against cable television and other land-based and satellite-based
system operators offering video, audio and data programming and entertainment
services. Many of these competitors have substantially greater financial,
marketing and other resources than we have. Our ability to increase earnings
depends, in part, on our ability to compete with these operators.
DIRECTV's satellite receivers are sold in a significantly greater
number of consumer electronics stores than ours. Moreover, we do not have
manufacturing agreements or arrangements with consumer products manufacturers
other than JVC. As a result, our receivers, and our programming services, are
less well known to consumers than those of DIRECTV. Due to this relative lack of
consumer awareness and other factors, we are at a competitive marketing
disadvantage compared to DIRECTV.
Cable television operators have a large, established customer base, and
many cable operators have significant investments in, and access to,
programming. Of the 97% of U.S. television households in which cable television
service is currently available, approximately 67% currently subscribe to cable.
Cable television operators have advantages relative to us by, among other
things, providing service to multiple television sets within the same household
at a lesser incremental cost to the consumer, by being able to provide local and
other programming in a larger number of geographic areas, and through bundling
their analog video service with expanded digital video services delivered
terrestrially or via satellite, efficient 2-way high-speed internet access, and
telephone service on upgraded cable systems. As a result of these and other
factors, we may not be able to continue to expand our subscriber base or compete
effectively against cable television operators.
New technologies could have a material adverse effect on the demand for
our DBS services. For example, new and advanced local multi-point distribution
services are currently being implemented. In addition, entities such as regional
telephone companies, which are likely to have greater resources than we have,
are implementing and supporting digital video compression over existing
telephone lines and digital "wireless cable." Moreover, mergers, joint ventures,
and alliances among franchise, wireless or private cable television operators,
regional Bell operating companies and others may result in providers capable of
offering bundled cable television and telecommunications services in competition
with us. We may not be able to compete successfully with existing competitors or
new entrants in the market for subscription televisions services.
DIRECTV has launched six high powered DBS satellites and has 46 DBS
frequencies that are capable of full coverage of the continental U.S. DIRECTV
currently offers more than 300 channels of combined video and audio programming
and, as of September 30, 2001, had approximately 10.3 million subscribers. If
the merger with DIRECTV's parent is not completed, we believe DIRECTV could be
in an advantageous position relative to our company with regard to programming
packages, provision of local programming and, possibly, volume discounts for
programming offers.
In addition, other companies in the U.S. have conditional permits or
have leased transponders for DBS assignments that can be used to provide service
to portions of the U.S.
The FCC has proposed to allocate additional expansion spectrum for DBS
services, which could create significant additional competition in the market
for subscription television services.
WE HAVE MADE SIGNIFICANT STRATEGIC INVESTMENTS WHICH MAY NOT BE REALIZABLE.
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We have made strategic equity investments in certain non-marketable
investment securities including Wildblue Communications, StarBand
Communications, VisionStar, Inc. and Replay TV. Through September 30, 2001, the
original cost basis of our investments in these non-marketable investment
securities totaled approximately $166 million. The securities of these companies
are not publicly traded. During August 2001, SONICblue, a publicly-traded
company, completed its acquisition of Replay TV. As such, during the quarter
ended September 30, 2001, EchoStar reclassified this investment as an
available-for-sale marketable investment security. Our ability to create
realizable value for our strategic investments in companies that are not public
is dependent on the success of their business plans. Among other things, there
is relatively greater risk that those companies may not be able to raise
sufficient capital to fully finance and execute their business plans. Since
private markets are not as liquid as public markets, there is also increased
risk that we will not be able to sell these investments, or that when we desire
to sell them that we will not be able to obtain full value for them. StarBand
and Wildblue cancelled their planned initial public stock offerings. As a result
of the cancellation of those offerings and other factors, during the nine months
ended September 30, 2001, we recorded a non- recurring charge, net of
retroactive StarBand equity method accounting adjustments, of approximately $52
million to reduce the carrying value of certain of these non-marketable
investment securities to their estimated fair values. As of September 30, 2001,
the carrying value of all non-marketable investment securities totaled
approximately $64 million, net of equity in losses of StarBand. If we become
aware of any factors that indicate that the carrying value of certain of our
non-marketable investment securities is impaired, we may be required to record
an additional charge to earnings in future periods.
OUR BUSINESS RELIES ON INTELLECTUAL PROPERTY, SOME OF WHICH IS OWNED BY THIRD
PARTIES, AND WE MAY INADVERTENTLY INFRINGE THEIR PATENTS AND PROPRIETARY RIGHTS.
Many entities, including some of our competitors, have or may in the
future obtain patents and other intellectual property rights that cover or
affect products or services related to those that we offer. In general, if a
court determines that one or more of our products infringes on intellectual
property held by others, we may be required to cease developing or marketing
those products, to obtain licenses from the holders of the intellectual
property, or to redesign those products in such a way as to avoid infringing the
patent claims. If a competitor holds intellectual property rights, it may not
allow us to use its intellectual property at any price, which could adversely
affect our competitive position.
We cannot assure you that we are aware of all intellectual property
rights that our products may potentially infringe. In addition, patent
applications in the U.S. are confidential until the Patent and Trademark Office
issues a patent and, accordingly, we cannot evaluate the extent to which our
products may infringe claims contained in pending patent applications. Further,
it is often not possible to determine definitively whether a claim of
infringement is valid, absent protracted litigation.
We cannot estimate the extent to which we may be required in the future
to obtain intellectual property licenses or the availability and cost of any
such licenses. Those costs, and their impact on net income, could be material.
Damages in patent infringement cases may also include treble damages in certain
circumstances. To the extent that we are required to pay royalties to third
parties to whom we are not currently making payments, these increased costs of
doing business could negatively affect our liquidity and operating results. We
are currently being sued in five patent infringement actions by the following
entities: Starsight Telecast, Inc.; Gemstar; Superguide Corp.; IPPV Enterprises,
LLC; and MAAST, Inc. We cannot be certain the courts will conclude these
entities do not own the rights they claim, our products do not infringe on these
rights, that we would be able to obtain licenses from these persons on
commercially reasonable terms or, if we were unable to obtain such licenses,
that we would be able to redesign our products to avoid infringement. Certain of
some of these actions involve claims for damages in excess of $100 million.
In December 2001, the International Trade Commission (ITC) held a 15
day hearing before an administrative judge. The hearing addressed, among other
things, Gemstar's allegations of patent infringement and respondents' (EchoStar,
SCI, Scientific Atlanta and Pioneer) allegations of patent misuse. A decision by
the judge is expected by March 21, 2002 and a ruling by the full ITC is expected
60 days later. An adverse decision in this case could temporarily halt the
import of our receivers and could require us to materially modify certain
user-friendly electronic programming guides and related features we currently
offer to consumers. In addition to the ITC case, Gemstar has filed two other
cases against us alleging patent infringement. These cases are pending in
federal district courts in North Carolina and Georgia but are stayed pending the
resolution of the ITC case. Finally, there is an antitrust action filed by us
against
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Gemstar in the Federal District Court in Denver, Colorado. This antitrust action
has been transferred to Atlanta for pre- trial proceedings.
SATELLITE PROGRAMMING SIGNALS HAVE BEEN PIRATED, WHICH COULD CAUSE US TO LOSE
SUBSCRIBERS AND REVENUE.
The delivery of subscription programming requires the use of encryption
technology to assure that only those who pay can receive the programming. It is
illegal to create, sell or otherwise distribute mechanisms or devices to
circumvent that encryption. Theft of cable and satellite programming has been
widely reported and our signal encryption has been pirated and could be further
compromised in the future. We continue to respond to compromises of our
encryption system with measures intended to make signal theft of our programming
commercially uneconomical. We utilize a variety of tools to continue to
accomplish this goal. Ultimately, if these measures are not successful, it could
be necessary for us to incur significant expense to replace the credit card size
card that controls the security of each consumer set-top box. If we cannot
promptly correct a compromise in our encryption technology, it would adversely
affect our revenue and our ability to contract for video and audio services
provided by programmers.
WE FACE IMPEDIMENTS TO RETRANSMISSION OF DISTANT AND LOCAL BROADCAST SIGNALS AND
OUR LOCAL AND DISTANT PROGRAMMING STRATEGY FACES UNCERTAINTY.
The Copyright Act, as amended by the Satellite Home Viewer Improvement
Act of 1999, or SHVIA, permits satellite retransmission of distant network
channels only to "unserved households." Whether a household qualifies as
"unserved" for the purpose of eligibility to receive a distant network channel
depends, in part, on whether that household can receive a signal of "Grade B
intensity" as defined by the FCC. In February 1999, the FCC released a report
and order on these matters. Although the FCC declined to change the values of
Grade B intensity, it adopted a method for measuring it at particular
households. The FCC also endorsed a method for predicting Grade B intensity at
particular households. In addition, SHVIA instructed the FCC to establish a
predictive model based on the model it had endorsed in February 1999, and also
directed the FCC to ensure that its predictive model takes account of terrain,
building structures and other land cover variations. The FCC issued a report and
order that does not adjust the model to reflect such variations for any VHF
stations. Failure to account for these variations could hamper our ability to
retransmit distant network and superstation signals.
SHVIA has also established a process whereby consumers predicted to be
served by a local station may request that this station waive the unserved
household limitation so that the requesting consumer may receive distant signals
by satellite. If the waiver request is denied, SHVIA entitles the consumer to
request an actual test, with the cost to be borne by either the satellite
carrier, such as us, or the broadcast station depending on the results. The
testing process required by the statute can be very costly. The FCC staff has
informally raised questions about how we implement that process. We can provide
no assurance that the FCC will not find that our implementation of the process
is not in compliance with these requirements. Furthermore, the FCC has
identified a third party organization to examine and propose tester
qualification and other standards for testing. We cannot be sure that this
decision will not have an adverse effect on our ability to test whether a
consumer is eligible for distant signals.
In addition, SHVIA could adversely affect us in several other respects.
The legislation prohibits us from carrying more than two distant signals for
each broadcasting network and leaves the FCC's Grade B intensity standard
unchanged without future legislation. The FCC released a report recommending
that only minor changes be made to the Grade B standard, a recommendation that
is unfavorable to us. While SHVIA reduces the royalty rate that we currently pay
for superstation and distant network signals, it directed the FCC to require us
by November 29, 2000 to delete substantial programming (including sports
programming) from these signals. The FCC has released rules implementing that
directive, which have become effective. Although we have implemented certain
measures in our effort to comply with these rules, these requirements have
significantly hampered, and may further hamper, our ability to retransmit
distant network and superstation signals, and burdens from the rules upon us may
become so onerous that we may be required to substantially alter, or stop
retransmitting, many or all superstation signals. In addition, the FCC's sports
blackout requirements, which apply to all distant network signals, may require
costly upgrades to our system. We recently asked the FCC to reconsider several
aspects of these rules to make the rules less burdensome, but we cannot predict
whether the FCC will take any favorable action with respect to the request, and
other parties have asked for reconsideration to the rules which would be adverse
to our business. On reconsideration, the FCC may resolve certain outstanding
issues
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unfavorably to us. Any changes to, or adverse interpretations of, the existing
regulations may create additional burdens for us.
SHVIA generally gives satellite companies a statutory copyright license
to retransmit local-into-local network programming, subject to obtaining the
retransmission consent of the local network station. Retransmission consent
agreements are important to us because a failure to reach such agreements with
broadcasters who elect retransmission consents instead of mandatory "must carry"
carriage means we cannot carry these broadcasters' signals, and could have an
adverse effect on our strategy to compete with cable and other satellite
companies, which provide local signals. SHVIA requires broadcasters to negotiate
retransmission consent agreements in good faith. The FCC has promulgated rules
governing broadcasters' good faith negotiation obligation. These rules allow
satellite providers to file complaints with the FCC against broadcasters for
violating the duty to negotiate retransmission consent agreements in good faith.
While we have been able to reach retransmission consent agreements with most of
the local network stations we currently carry, any additional roll-out of local
channels in more cities will require more agreements, and we cannot be sure that
we will secure these agreements or that we will secure new agreements upon the
expiration of our current retransmission consent agreements, some of which are
short-term. We were unable to conclude long-term retransmission consent
agreements with the NBC station in San Francisco and the ABC station in
Nashville and discontinued transmission of those channels as a result. On March
1, 2001, we filed a retransmission consent complaint with the FCC against the
owner of these stations, Young Broadcasting, Inc., asserting that Young failed
to negotiate in good faith. The FCC's Cable Services Bureau ruled against us in
this proceeding and also determined that we "failed in [our] duty of candor" to
the FCC and abused the FCC's processes because we disclosed to the public some
information subject to a pending request for confidential treatment that we had
filed and did not immediately notify the FCC of this disclosure. While we
believe that this determination by the FCC was factually and legally wrong
because the FCC did not, and could not, make the underlying findings necessary
to support such a determination, we have not formally appealed that order and
have only informally expressed our views in a letter to the Cable Services
Bureau. We cannot be sure that the FCC will agree with these views. In certain
circumstances, lack of candor can bear on the FCC's evaluation of a company's
fitness to be an FCC licensee. Since that time, Young has lost its NBC
affiliation, and we have reached an agreement with the new NBC affiliate in San
Jose to serve the San Francisco Bay area.
"MUST CARRY" WILL NEGATIVELY AFFECT OUR ABILITY TO OFFER LOCAL NETWORK STATIONS.
Many other provisions of SHVIA could adversely affect us. Among other
things, the law includes the imposition of "must carry" requirements on DBS
providers. The FCC has implemented that requirement and adopted detailed and
onerous "must carry" rules covering both commercial and non-commercial broadcast
stations. Commencing in January 2002, these rules require us to carry all the
local broadcast stations requesting carriage in a timely and appropriate manner
in areas they choose to offer local programming, not just the four major
networks. Since we have limited capacity, the number of markets in which we can
offer local programming is reduced by the "must carry" requirement to carry
large numbers of stations in each market we serve. The legislation also includes
provisions which could expose us to material monetary penalties, and permanent
prohibitions on the sale of all local and distant network channels, based on
inadvertent violations of the legislation, prior law, or the FCC rules.
Imposition of these penalties would have a material adverse effect on our
business operations generally. Several "must carry" complaints by broadcasters
against us are pending at the FCC. We cannot be sure that the FCC will not rule
against us in those proceedings, resulting in carriage of many additional
stations in the markets where we offer local stations. In addition, we cannot be
sure that the FCC will not interpret or implement its rules in such a manner as
to inhibit our current plan for compliance with the "must carry" requirements.
In fact, the National Association of Broadcasters and Association of Local
Television Stations filed an emergency petition on January 4, 2002 asking the
FCC to modify or clarify its rules to prohibit or hamper our compliance plan. On
January 8, 2002, the FCC placed the petition on public notice and stated that it
may be able to resolve the issue by means of a declaratory ruling without the
need for a rulemaking. Any FCC action modifying or clarifying the rules in
accordance with the broadcasters' request could result in a decrease in the
number of local areas where we offer local network programming. We are also
exposed to court actions and damage claims if we are found by any court to have
violated the "must carry" requirements.
On December 7, 2001, the U.S. 4th Circuit Court of Appeals rejected the
satellite industry's constitutional challenge to the "must carry" provisions of
SHVIA and our appeal of the FCC's "must carry" rules, leaving in place the
requirement that, beginning January 1, 2002, we carry all local stations in any
market where we carry a single local
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broadcast station. While we believe that we technologically meet this mandate in
the markets we currently serve, there can be no assurance that the FCC's
interpretation of its "must carry" rules will not result in a future decrease in
the number of local markets where we offer local network programming. In
addition, while the FCC has decided for now not to impose dual digital/analog
carriage obligations - i.e., additional requirements in connection with the
carriage of digital television stations that go beyond carriage of one signal
(whether analog or digital) for each station, the FCC has also issued a further
notice of proposed rulemaking on this matter. We cannot be sure that this
rulemaking will not result in further, even more onerous, digital carriage
requirements.
WE NEED TO INCREASE SATELLITE CAPACITY TO AVOID POTENTIAL DISRUPTIONS IN OUR
SERVICE CAUSED BY "MUST CARRY" REQUIREMENTS.
The proposed merger, as well as adoption of "spot beam" technology on
EchoStar VII and EchoStar VIII, are expected to increase our ability to carry
local programming. As a result of delays by the satellite manufacturer and
insurance procurement issues resulting from among other things market reticence
with respect to Atlas III launches, particularly following the September 11th
tragedy, the earliest scheduled launch of EchoStar VII is the first quarter of
2002. Echostar VIII is currently expected to launch during the first half of
2002. Future postponement of either satellite could result from delays in
delivery of the satellite, from difficulties procuring adequate launch
insurance, or from other factors. Commencing January 1, 2002, we were required
to comply with the statutory requirement to carry substantially all over the air
television stations by satellite in any geographic area where we carry any local
network channels by satellite. Any reduction in the number of areas we serve in
order to comply with "must carry" requirements for other markets, would
adversely affect our operations and could result in a temporary increase in
churn. Failure to comply with "must carry" requirements could result in
substantial fines and other sanctions. While we currently believe we meet
statutory "must carry" requirements, the FCC could interpret or implement its
rules in such manner as to inhibit our current plan for compliance with the
"must carry" requirements.
TV NETWORKS OPPOSE OUR STRATEGY OF DELIVERING DISTANT NETWORK SIGNALS.
Until July 1998, we obtained distant broadcast network channels (ABC,
NBC, CBS and FOX) for distribution to our customers through PrimeTime 24. In
December 1998, the U.S. District Court for the Southern District of Florida
entered a nationwide permanent injunction requiring PrimeTime 24 to shut off
distant network channels to many of its customers, and henceforth to sell those
channels to consumers in accordance with certain stipulations in the injunction.
In December 1998, the networks filed a motion for a preliminary
injunction directly against us. In September 2000, the District Court granted
this motion and made several amendments to it. The injunction required us to
terminate distant network programming to certain of our subscribers. The
Eleventh Circuit Court of Appeals stayed the injunction pending our appeal. In
September 2001, the Eleventh Circuit vacated the District Court's injunction,
finding, among other things, that it was too broad and remanded the case back to
the District Court for an evidentiary hearing. If after the trial or an
evidentiary hearing the injunction is reinstated, it could force us to terminate
delivery of distant network channels to a substantial portion of our distant
network subscriber base, which could also cause many of these subscribers to
cancel their subscription to our other services. Management has determined that
such terminations would result in a small reduction in our reported average
monthly revenue per subscriber and could result in a temporary increase in
churn. If we lose the case at trial, the judge could, among other remedies,
prohibit all future sales of distant network programming by us, which would have
a material adverse effect on our business. In order, among other things, to plan
for the potential re-implementation of the injunction, we may terminate the
delivery of distant network channels to certain subscribers.
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WE DEPEND ON THE CABLE ACT FOR ACCESS TO OTHERS' PROGRAMMING.
We purchase a substantial percentage of our programming from
cable-affiliate programmers. Any change in the Cable Act and the FCC's rules
that permit the cable industry or cable-affiliated programmers to discriminate
against competing businesses, such as ours, in the sale of programming could
adversely affect our ability to acquire programming at all or to acquire
programming on a cost-effective basis. Under the Cable Act and the FCC's rules,
cable-affiliated programmers generally must offer programming they have
developed to all multi-channel video programming distributors on
non-discriminatory terms and conditions. The Cable Act and the FCC's rules also
prohibit some types of exclusive programming contracts involving cable
affiliated programming. This prohibition on exclusivity will sunset in October
2002 unless the FCC acts to extend it. The FCC has commenced a proceeding to
determine whether to extend it. We purchase a substantial percentage of our
programming from cable-affiliated programmers. We cannot be sure that the FCC
will not allow the prohibition to sunset, which would mean that many popular
programs may become unavailable to us. While we have filed several complaints
with the FCC alleging discrimination, exclusivity, or refusals to deal, we have
only had limited success in convincing the FCC to grant us relief. The FCC has
denied or dismissed many of our complaints, and we believe has generally not
shown a willingness to enforce the program access rules strictly. As a result,
we may be limited in our ability to obtain access (or non-discriminatory access)
to cable-affiliated programming. In January 2001, we appealed to the FCC denial
of our complaint regarding certain cable-affiliated sports programming in the
Philadelphia area to the U.S. Court of Appeals for the District of Columbia
Circuit. Our appeal was opposed by the FCC. Comcast Corporation, which controls
the programming at issue, intervened on the side of the FCC opposing our appeal.
Briefing has been completed and oral argument regarding our appeal is scheduled
for February 2002. We cannot predict the outcome of this appeal, or how the
outcome may affect our ability to obtain access to cable affiliated programming.
WE ARE SUBJECT TO EXTENSIVE REGULATORY REQUIREMENTS, AND CHANGE TO THE EXISTING
REGULATORY REGIME COULD AFFECT US ADVERSELY.
The FCC imposes different rules for "subscription" and "broadcast"
services. We believe that because we offer a subscription programming service,
we are not subject to many of the regulatory obligations imposed upon broadcast
licensees. However, we cannot be certain whether the FCC will find in the future
that we should comply with regulatory obligations as a broadcast licensee with
respect to our current and future operations, and certain parties have requested
that we be treated as a broadcaster. If the FCC determined that we are a
broadcast licensee, it could require us to comply with all regulatory
obligations imposed upon broadcast licensees, which are generally subject to
more burdensome regulation than subscription service providers like us.
Under a requirement of the Cable Act, the FCC imposed public interest
requirements on DBS licensees, such as us, to set aside four percent of channel
capacity exclusively for noncommercial programming for which we must charge
programmers below-cost rates and for which we may not impose additional charges
on subscribers. This could displace programming for which we could earn
commercial rates and could adversely affect our financial results. The FCC has
not reviewed our methodology for computing the channel capacity we must set
aside or for determining the rates that we charge public interest programmers,
and we cannot be sure that, if the FCC were to review these methodologies, it
would find them in compliance with the public interest requirements.
Under a requirement of the Telecommunications Act of 1996, the FCC
recently imposed upon broadcasters and certain multichannel video programming
distributors, including us, the responsibility of providing video description
for visually impaired persons. Video description involves the insertion into a
television program of narrated descriptions of settings and actions that are not
otherwise reflected in the dialogue, and is typically provided through the
Secondary Audio Programming (SAP) channel. Commencing April 12, 2002, we will be
required to provide video description for a minimum of 50 hours per calendar
quarter (roughly four hours per week) of prime time and/or children's
programming on each of any of the top five national non-broadcast networks we
carry. In addition, we will be required to "pass through" any video description
we receive from a broadcast station or non-broadcast network if we have
technical capability necessary to do so associated with the channel on which we
distribute the programming with video description. While the FCC acknowledged
that programming networks, and not multichannel video programming distributors,
may actually describe the programming, it declared that for ease of enforcement
and monitoring compliance it would hold distributors responsible for compliance.
These requirements may impose a material burden on us.
26
The FCC has also commenced an inquiry into distribution of high-speed
Internet access services and a rulemaking concerning interactive television
services. In these proceedings, the FCC is considering whether to impose on
distributors, including satellite distributors like us, various types of "open
access" obligations (such as required carriage of independent content
providers). We cannot be sure that the FCC will not ultimately impose such
obligations, which could be very onerous, and could create a significant strain
on our capacity and ability to provide other services.
The FCC has commenced a rulemaking which seeks to streamline and revise
its rules governing DBS operators. The rulemaking involves many proposed DBS
rules. There can be no assurance about the content and effect on any new DBS
rules passed by the FCC, and the rules may include expanded geographic service
requirements for Alaska, Hawaii and Puerto Rico. The FCC has also released a
notice of proposed rulemaking regarding the current restrictions on the
flexibility of DBS operators to provide services other than DBS, and may change
these restrictions.
The FCC has adopted a proposal to allow non-geostationary orbit fixed
satellite services to operate on a co-primary basis in the same frequency as
DBS and Ku-based FSS services, and is currently finalizing rules to govern these
services. These satellite operations could provide global high-speed data
services. In addition to possible interference concerns, this would, among other
things, create additional competition for satellite and other services. In the
same rulemaking, the FCC has been considering a terrestrial service that would
retransmit local television or other video and data services to DBS subscribers
or others in the same DBS spectrum that we use throughout the U.S. Furthermore,
the SHVIA required the FCC to make a determination by November 29, 2000
regarding licenses for facilities that will retransmit broadcast signals to
underserved markets by using spectrum otherwise allocated to commercial use,
possibly including DBS spectrum. Northpoint Technology, Ltd. had already been
allowed by the FCC to conduct experimental operations in Texas and Washington,
D.C.
We have submitted numerous pleadings jointly with DIRECTV to the FCC
objecting to the Northpoint request, which in our view may cause harmful and
substantial interference to the service provided to DBS customers. Furthermore,
other entities have now filed applications similar to the one filed by
Northpoint, and at least one other entity has also obtained a license from the
FCC to conduct experimental operations. If Northpoint or other entities become
authorized to use our spectrum, they could cause harmful and substantial
interference with our service.
The FCC released a Report and Order and Further Notice of Proposed
Rulemaking in this proceeding that concluded that a terrestrial
"point-to-midpoint" service can share the spectrum with DBS on a no interference
basis - a conclusion that may have a significant adverse impact on our
operations. At the same time, the FCC initiated a further notice of proposed
rulemaking to determine the appropriate interference standards and technical
rules with which such a terrestrial service must comply. The FCC also requested
proposals on how to process applications for licenses for the new service, and
tentatively proposed excluding satellite companies from such licenses. We have
filed a petition for reconsideration of the FCC's conclusion and comments on its
proposals.
In addition, recent appropriations legislation required independent
testing of the Northpoint technology, and created a rural loan guarantee program
for providers of certain types of services. The tests mandated by that law have
been completed. MITRE, the independent testing entity, concluded that new
terrestrial service "poses a significant interference threat to DBS operation in
many realistic operation situations"; "a wide variety of mitigation techniques
exist that ... can greatly reduce, or eliminate, the geographical extent of the
regions of potential. . . interference into DBS"; and that "bandsharing appears
feasible if and only if suitable mitigation measures are applied." The
independent study left open the question of whether the potential costs of such
mitigation measures together with the impact of residual interference outweighed
the benefit of allowing the new terrestrial service in the band used by DBS. We
and DIRECTV have asserted to the FCC that MITRE's findings constitute additional
grounds for reconsidering the FCC's conclusion on sharing, while Northpoint had
argued that MITRE conforms Northpoint's ability to share with DBS. We cannot be
sure whether and when these processes will result in the licensing of Northpoint
and/or companies proposing a similar service to operate in the spectrum licensed
to us, what interference standards will be, and how significant the interference
into our operations will be. On December 3, 2001, we and DIRECTV filed with the
FCC a request that it assign spectrum to these new proposed terrestrial systems
other than that currently allocated for use by DBS. We cannot be sure whether
the FCC will take any action on this request, or whether the request will be
granted.
WE DEPEND ON OTHERS TO PRODUCE PROGRAMMING.
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We depend on third parties to provide us with programming services. Our
programming agreements have remaining terms ranging from less than one and up 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, and these
agreements may be canceled prior to expiration of their original term. If we are
unable to renew any of these agreements or the other parties cancel the
agreements, we cannot assure you that we would be able to obtain substitute
programming, or that such substitute programming would be comparable in quality
or cost to our existing programming. In particular, the cost of sports
programming has been rising rapidly. Our competitors currently offer much of the
same programming that we do. Our ability to compete successfully will depend on
our ability to continue to obtain desirable programming and offer it
attractively to our customers at competitive prices.
THE SEPTEMBER 11, 2001 ATTACKS HAVE HARMED THE U.S. ECONOMY AND MAY AMPLIFY
OTHER RISKS WE FACE.
On September 11, 2001, terrorists attacked the World Trade Center in
New York, New York and the Pentagon outside of Washington, D.C. In addition to
the tragic loss of life and suffering occasioned by these attacks, there has
been a disruption of commercial and leisure activities across the nation. The
terrorist attacks and subsequent uncertainty surrounding the continuing conflict
have negatively affected, and are expected to continue to negatively affect, the
U.S. economy generally. These and other developments arising out of the attacks
may make the occurrence of one or more of the "Risk Factors" discussed in this
prospectus more likely to occur.
RISKS RELATED TO THE PROPOSED MERGER AND RELATED TRANSACTIONS
THE FINANCIAL AND OPERATING IMPACTS OF OUR AGREEMENT TO MERGE WITH HUGHES OR
ACQUIRE ITS INTEREST IN PANAMSAT IS COMPLEX AND DIFFICULT TO PREDICT.
Our agreement to merge with Hughes or acquire its interest in PanAmSat
will have complex consequences for us that are difficult to predict. The
consummation of these transactions is subject to extensive conditions relating
to regulatory and other matters beyond our direct control. These transactions
also require substantial new cash financing. Our agreements with Hughes and GM
and EDBS' and EBC's existing debt instruments place significant restrictions on
which corporate entities can raise new financing and the types of financing they
may raise. To provide some of this financing, we may incur additional unsecured
debt and, if we obtain consents from the holders of EBC's and EDBS' outstanding
senior notes, secured debt that would effectively rank senior to the convertible
notes to the extent of the collateral securing it. If we consummate our merger
with Hughes, the amount of this additional secured debt would be limited to $2.7
billion plus the greater of $500 million or up to 1.25 times our 12-month
trailing cash flow, depending on our credit rating. Moreover, if we consummate
the merger, we plan to combine some portion of Hughes' operations with ours in
ways that may have a significant impact on our business, cash flow and
profitability.
WE MAY BE UNABLE TO CONSUMMATE THE HUGHES MERGER AS A RESULT OF SHAREHOLDER
LITIGATION OR THE INABILITY TO SATISFY ONE OR MORE CONDITIONS TO THE MERGER AND
THE RELATED TRANSACTIONS.
The proposed Hughes merger is subject to numerous conditions beyond our
direct control. These conditions include, but are not limited to, the absence of
a court order barring the recapitalization, split-off or the merger, the
requisite GM stockholder approval, GM's receipt of an IRS ruling, antitrust
clearance, FCC approval, financing and the surviving corporation's ability to
issue a minimum amount of capital stock immediately after the Hughes merger
without breaching agreements designed to preserve the tax-free status of the
split-off. In addition, each of the parties to the Hughes merger agreement may
terminate that agreement in various circumstances. As a result, whether we will
merge with Hughes and whether we will have an opportunity to realize the
benefits we expect to realize from the Hughes merger are both highly uncertain.
See "The Proposed Merger and Related Transactions - The Merger."
ANY DELAY OR FAILURE TO CONSUMMATE THE PROPOSED HUGHES MERGER MAY REDUCE OR
ELIMINATE THE BENEFITS WE EXPECT.
The proposed Hughes merger is subject to a number of conditions beyond
our direct control that may prevent, delay or otherwise adversely affect its
consummation. A majority of each class of GM shareholders - GM $1-2/3 and GM
Class H - voting both separately as distinct classes, and also together as a
single class based on their respective per share voting power under the GM
restated Certificate of Incorporation, must approve various proposed
transactions that are conditions to the merger. In addition, the proposed Hughes
merger is subject to regulatory clearance under the Hart-Scott-Rodino Antitrust
Improvements Act, or the HSR Act, and approval by the FCC. The parties must also
receive a
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favorable ruling from the IRS relating to the tax-free status of the split-off
and related transactions. We intend to vigorously pursue all required approvals,
but we cannot predict when or whether they can be obtained. To obtain these
clearances and approvals, the surviving corporation may agree to divestitures or
other onerous conditions that would make the proposed merger less attractive and
could have an adverse affect on our business. We cannot predict when these
clearances and approvals can be obtained, if at all, and the requirement for
such clearances and approvals could delay the consummation of the proposed
merger for a significant period of time or prevent it from occurring. Any delay
or failure to consummate the merger could cause us not to achieve some or all of
the cost savings or revenue synergies that we expect to benefit our business if
we successfully complete the merger and integrate our business with parts of the
Hughes business.
GM, Hughes and we filed an application for FCC approval of the merger
on December 3, 2001. On December 21, 2001, the FCC placed the application on
public notice and invited petitions against the application, oppositions and
other comments by third parties. Specifically, petitions and comments are due on
February 4, 2002, and oppositions and responses are due on February 25, 2002. We
believe that the application for FCC approval of the Hughes merger will be
strongly opposed by many parties. The FCC may fail to approve the Hughes merger
application on a timely basis. It may also agree with the views of parties
opposing the application and deny its approval of the Hughes merger or impose
onerous conditions.
On December 14, 2001, we and Vivendi Universal S.A. announced a
transaction in which Vivendi Universal will, among other things, develop and
provide to our DISH Network customers on a non-exclusive basis a variety of
programming and interactive television services. In addition, on January 22,
2002, Vivendi Universal made a $1.5 billion equity investment in us, which we
intend to use to provide a portion of the funding for our proposed merger with
Hughes. See "Hughes/EchoStar Merger Financing and Related Matters-Other
Financings." We have filed with the FCC a letter in connection with the
application informing the FCC of the Vivendi transaction and we are updating the
record accordingly. While we do not believe that the Vivendi transaction itself
requires FCC approval, we cannot be sure that the transaction will not be
scrutinized by the FCC in connection with its consideration of our proposed
merger with Hughes or that it will not cause delay in the evaluation of the
application.
On January 15, 2002, Pegasus Communications Corporation filed a
petition requesting suspension of the pleading cycle on the ground that the
applicants need to submit additional information about our transaction with
Vivendi, and the National Association of Broadcasters has supported that
petition. The FCC denied the petition, but noted that, should it determine that
the Vivendi investment presents issues not raised in the application or
supplementary documents filed by the applicants, it will request additional
information from the applicants, and, if appropriate, initiate a new comment
period to allow other parties to submit additional information. We cannot be
sure that such actions will not delay the FCC's evaluation of the Hughes merger
proceeding.
EVEN IF WE COMPLETE THE PROPOSED HUGHES MERGER, WE MAY NOT REALIZE THE EXPECTED
BENEFITS.
We expect that portions of Hughes' operations will be integrated with
our business if the Hughes merger is completed. We may not be able to
successfully integrate these operations and realize the full cost savings we
anticipate. The difficulties of combining the operations of two previously
separate businesses include the necessity of coordinating geographically
separated organizations, integrating personnel with diverse business
backgrounds, and combining different corporate cultures. The process of
integrating operations could cause an interruption of, or loss of momentum in,
the activities of our business and the loss of key personnel. The diversion of
management's attention and any delays or difficulties encountered in connection
with the integration of the two companies' operations could have an adverse
effect on our business, results of operations or financial condition.
WE MAY INCUR SIGNIFICANT INTEGRATION-RELATED EXPENSES IN CONNECTION WITH THE
PROPOSED HUGHES MERGER.
We expect after the consummation of our merger with Hughes to incur
substantial expenses in connection with the integration of some of Hughes'
operations with our business. It is difficult to predict the extent of these
expenses. These expenses could, particularly in the near term, exceed the
savings we expect from the elimination of duplicative expenses as well as the
realization of other efficiencies related to the integration of the businesses
following the consummation of the Hughes merger.
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THE ADDITIONAL FINANCING WE OBTAIN TO CONSUMMATE THE HUGHES MERGER MAY CONTAIN
TERMS THAT INHIBIT OUR ABILITY TO CONDUCT OUR BUSINESS.
The consummation of the proposed Hughes merger and related transactions
will require at least $7.025 billion of cash. We expect that we will provide
approximately $1.5 billion from available cash, approximately $689 million will
come from the sale of 9 1/8% senior notes by EDBS, approximately $1.5 billion
from the purchase of our series D preferred stock by Vivendi, and the remainder
will come from new cash raised on or prior to the closing of the Hughes merger
through public or private debt or equity offerings, bank debt or a combination
thereof. It may not be possible to obtain the remainder of the required
financing on acceptable economic terms without agreeing to significant
additional restrictions on our ability to obtain any further needed financing
and to operate our business. These restrictions could also prevent us from
taking advantage of strategic opportunities that would otherwise have been open
to us.
THE MERGER AGREEMENT SIGNIFICANTLY RESTRICTS OUR FLEXIBILITY TO RAISE EQUITY
CAPITAL THAT WE MIGHT NEED.
Our agreement with GM and Hughes places substantial restrictions on its
and our ability to raise equity capital prior to the consummation of the Hughes
merger and for a period ending two years after consummation of the split-off. We
recently raised $1.5 billion of equity capital as part of our transaction with
Vivendi Universal, the proceeds of which we expect to use as part of the
financing for the proposed Hughes merger and for general corporate purposes. We
expect that we would use the proceeds of any additional equity capital that we
raise prior to the Hughes merger as part of the financing for the Hughes merger.
As a result of the $1.5 billion equity investment by Vivendi Universal and the
restrictions in our agreement with GM and Hughes, we may not be able to raise
any further equity capital for a considerable period of time.
TO ENABLE US TO COMPLETE THE HUGHES MERGER, WE MAY HAVE TO INCUR SIGNIFICANT
COSTS TO REFINANCE OUTSTANDING NOTES OR OBTAIN CONSENTS TO AMEND INDENTURES
GOVERNING THEM.
We agreed in the Hughes merger agreement either to use commercially
reasonable efforts to amend the indentures relating to certain of our debt
instruments and our subsidiaries so that the Hughes merger and related
transactions would not constitute a change of control requiring us to make an
offer to repurchase these notes, to obtain additional committed financing, on
terms reasonably satisfactory to Hughes, sufficient to refinance the notes
outstanding under the indentures for which we are unable to obtain consents by
May 26, 2002, or to present to Hughes a plan, taking into account the prevailing
market conditions for the relevant notes, designed so that at and after the
effective time of the Hughes merger, the surviving corporation and its
subsidiaries would not be in breach of their obligations under these indentures.
Our financing costs may increase significantly as a result of obtaining these
consents or refinancing these notes.
THE PROPOSED HUGHES MERGER, IF CONSUMMATED, WILL INCREASE THE SIZE OF OUR
OPERATIONS AND THE RISKS DESCRIBED IN THIS PROSPECTUS.
The completion of the proposed Hughes merger may intensify some of the
other risks described in this prospectus. There will also be the additional
risks associated with managing a significantly larger company, including, among
other things, the application of company-wide controls. The incurrence of
additional debt may cause the rating agencies to lower our debt ratings and thus
increase our cost of financing or even impair our ability to obtain additional
financing in the future.
THE PROPOSED HUGHES MERGER MAY PREVENT US FROM PURSUING OTHER OPPORTUNITIES.
In the merger agreement, we agreed not to merge or consolidate with any
other entity, or acquire assets or capital stock of any other entity which are
material to us and our subsidiaries as a whole prior to the effectiveness of the
proposed Hughes merger or earlier termination of the merger agreement. This
commitment may preclude us from pursuing attractive business opportunities,
should any arise prior that time.
THE FAILURE TO CONSUMMATE THE PROPOSED HUGHES MERGER AS PLANNED COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION.
In the merger agreement, we have agreed to acquire Hughes'
approximately 81% interest in PanAmSat if our merger with Hughes is not
completed under certain circumstances. In that event, we could also be required
to pay
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Hughes a termination fee and expense reimbursement of $600 million in cash. See
"The Proposed Merger and Related Transactions." In addition to these financial
burdens on us, which may affect our ability to raise new capital that we might
need for our business, we will have devoted substantial management resources to
the proposed Hughes merger without realizing the anticipated benefits.
RISKS PRIMARILY RELATED TO THE CONVERTIBLE NOTES
THE CONVERTIBLE NOTES ARE SUBORDINATED TO OTHER DEBT AND NOT SECURED BY ANY OF
OUR ASSETS.
The convertible notes are general unsecured obligations ranking junior
to all our existing and future "Senior Debt," as that term is defined in the
indenture. See "Description of Convertible Notes -- Definitions." In addition,
the convertible notes are effectively junior to all our existing and future
secured indebtedness to the extent of the value of the assets securing that
indebtedness. As a result of such subordination, in the event of our bankruptcy,
liquidation or reorganization or certain other events, our assets will be
available to pay obligations on the convertible notes only after all of our
Senior Debt and all of our secured debt, to the extent of the value of the
assets securing that debt, has been paid in full. Consequently, there may not be
sufficient assets remaining to pay amounts due on any or all of the convertible
notes then outstanding. In addition, to the extent our assets cannot satisfy in
full the secured indebtedness, the holders of the secured indebtedness would
have a claim for any shortfall that would rank senior in right of payment with
respect to the convertible notes, if such secured debt were "Senior Debt," or
would rank equally in right of payment with the convertible notes if such
secured debt were not so classified. The indenture governing the convertible
notes does not prohibit or limit our or our subsidiaries' incurrence of
additional debt, including Senior Debt or secured debt, and the incurrence of
any such additional indebtedness could adversely affect our ability to pay our
obligations on the convertible notes. As of September 30, 2001, on a pro forma
basis after giving effect to the issuance of $700 million of senior notes by
EDBS on December 28, 2001, the convertible notes ranked junior to $3.7 billion
of indebtedness and $1.5 billion of other liabilities of our subsidiaries, and
ranked equal to $1.0 billion of our other convertible notes.
WE HAVE SUBSTANTIAL INDEBTEDNESS AND ARE DEPEND ON OUR SUBSIDIARIES' EARNINGS TO
MAKE PAYMENTS ON OUR INDEBTEDNESS.
We have substantial debt service requirements which make us vulnerable
to changes in general economic conditions. The indentures governing our
subsidiaries' debt restrict their ability to incur additional debt. Thus, it is,
and will continue to be, difficult for us to obtain additional debt if required
or desired in order to implement our business strategy.
Since we conduct substantially all of our operations through our
subsidiaries, our ability to service our debt obligations is dependent upon the
earnings of our subsidiaries and the payment of funds by our subsidiaries to us
in the form of loans, dividends or other payments. We have no significant net
assets other than the capital stock of our subsidiaries. Our subsidiaries are
separate legal entities and they have not guaranteed repayment of the
convertible notes. Furthermore, our subsidiaries are not obligated to make funds
available to us, and creditors of our subsidiaries have a superior claim to our
subsidiaries' assets. In addition, our subsidiaries' ability to make any
payments to us depends on their earnings, the terms of their indebtedness,
business and tax considerations and legal restrictions. The outstanding EBC
senior notes currently restrict EBC's ability to pay any dividends or make other
distributions to us and the outstanding EDBS senior notes currently restrict
EDBS' ability to pay any dividends or make other distributions to EBC. We cannot
assure you that EBC, EDBS or our other subsidiaries will be able to pay
dividends or otherwise distribute or contribute funds to us in an amount
sufficient to pay the principal of or interest on the indebtedness owed by us.
OUR SUBSIDIARIES HAVE SUBSTANTIAL INDEBTEDNESS WHICH EFFECTIVELY RANKS SENIOR TO
THE CONVERTIBLE NOTES.
As of September 30, 2001, on a pro forma basis after giving effect to
the issuance of $700 million of senior notes by EDBS on December 28, 2001, our
subsidiaries had outstanding debt of approximately $3.7 billion and also had
$1.5 billion of other liabilities. Our subsidiaries may incur significant
indebtedness in the future. In the event of bankruptcy, liquidation or
dissolution of any of our subsidiaries, the claims of debtholders and other
creditors of such subsidiary would effectively rank senior to our claims as a
stockholder of such subsidiary with respect to such subsidiary's assets.
Accordingly, such debts and other obligations would have to be satisfied in full
prior to any payments
31
being made to us, and there might be insufficient assets available to satisfy
your claims as a holder of the convertible notes.
FUTURE SALES OF OUR CLASS A COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of our shares of class A common stock in
the public market in connection with this offering, or other offerings by us,
could cause the market price of our class A common stock to decline. During
October 1999, we filed a registration statement registering for sale up to
68,824,928 shares of our class A common stock by News America Incorporated and
MCI WorldCom Network Services, Inc. During December 1999, News America
Incorporated and MCI WorldCom Network Services, Inc. sold 27.6 million of these
shares pursuant to an underwritten offering. Within the past year, News America
and MCI WorldCom sold a total of 26.8 million additional shares on the open
market, pursuant to SEC Rule 144. As of the date of this prospectus, News
America can sell approximately 13.5 million shares of class A common stock. Any
sale of shares by News America or other large stockholders subsequent to the
date of this prospectus may affect the market price of our class A common stock.
WE MAY BE UNABLE TO REPAY OR REPURCHASE THE CONVERTIBLE NOTES UPON A CHANGE OF
CONTROL.
There is no sinking fund with respect to the convertible notes, and the
entire outstanding principal amount of the convertible notes will become due and
payable at maturity. If we experience a change of control, as defined in the
indenture, you may require us to repurchase all or a portion of your convertible
notes prior to maturity. See "Description of Convertible Notes -- Repurchase at
the option of holders." Neither the proposed merger of us with Hughes nor the
acquisition by us of Hughes' interest in PanAmSat would constitute a change of
control under the indenture governing the convertible notes. We may not have
sufficient funds or be able to arrange for additional financing to repay the
convertible notes at maturity or to repurchase convertible notes tendered to us
following a change of control.
The terms of EDBS' and EBC's outstanding senior notes and our
outstanding convertible notes may require us or them to offer to repurchase
those securities upon a change of control of us, limiting the amount of funds
available to us, if any, to repurchase the convertible notes. If we have
insufficient funds to redeem all convertible notes that holders tender for
purchase upon the occurrence of a change of control, and we are unable to raise
additional capital, an event of default could occur under the indenture
governing the convertible notes. An event of default could cause any other debt
that we have to become automatically due, further exacerbating our financial
condition and diminishing the value and liquidity of the convertible notes. We
cannot assure you that additional capital would be available on acceptable
terms, or at all.
THERE MAY BE NO PUBLIC MARKET FOR THE CONVERTIBLE NOTES.
The convertible notes are a new issue of securities with limited
trading activity. Although the initial purchasers have advised us that they
currently intend to make a market in the convertible notes, they have no
obligation to do so and may discontinue any market making at any time without
notice. In addition, any market making activity is subject to the limits imposed
by the Securities Act of 1933 and the Securities Exchange Act of 1934 and may be
limited during the pendency of any registration statement. Accordingly, we
cannot assure you that any market for the convertible notes will develop or, if
it does develop, that it will be maintained. If a trading market is established,
various factors could have a material adverse effect on the trading of the
convertible notes, including fluctuations in the prevailing interest rates. We
expect the convertible notes will be eligible for trading in the Portal Market.
We do not intend to apply for a listing of any of the convertible notes on any
security exchange or for quotation through the Nasdaq National Market.
OUR STOCK PRICE MAY BE VOLATILE.
The price at which our class A common stock trades may be volatile and
may fluctuate substantially due to competition and changes in the subscription
television industry, regulatory changes, launch and satellite failures,
operating results below expectations, our strategic investments and
acquisitions, and other factors. In addition, price and volume fluctuations in
the stock market may affect market prices for our class A common stock for
reasons unrelated to our operating performance.
THE SHARES OF CLASS A COMMON STOCK RECEIVED UPON CONVERSION OF THE CONVERTIBLE
NOTES HAVE LIMITED VOTING RIGHTS.
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Our equity securities consist of common stock and preferred stock. Our
common stock has been divided into three classes with different voting rights.
Holders of class A common stock, which is the class issuable upon conversion of
the convertible notes, and holders of class C common stock are entitled to one
vote per share on all matters submitted to a vote of stockholders. Holders of
class B common stock are entitled to ten votes per share. Holders of series D
convertible preferred stock are entitled to ten votes per share on any matter on
which holders of class A common stock are entitled to vote. No class C common
stock or other series of preferred stock is currently outstanding. However, upon
a change of control of us, any holder of class C common stock would be entitled
to ten votes per share. Holders of common stock generally vote together as a
single class on matters submitted to stockholders. Although the class A common
stock represents approximately 50% of our total common and preferred shares
outstanding, it represents only 9% of our total voting power. Holders of class A
common stock received upon conversion of the convertible notes will therefore
not be able to meaningfully participate in our affairs absent a restructuring of
our capital stock or the conversion of the outstanding class B common stock into
class A common stock.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never declared or paid any cash dividends on any class of our
common stock and we do not expect to declare dividends on our common stock in
the foreseeable future. Payment of any future dividends will depend upon our
earnings and capital requirements, restrictions in our debt facilities and other
factors our Board of Directors considers appropriate. We currently intend to
retain our earnings, if any, to support future growth and expansion. We may
also, in the future, enter into arrangements that limit our ability to pay
dividends.
33
THE PROPOSED MERGER AND RELATED TRANSACTIONS
The following is a summary description of the Hughes merger and related
transactions and the acquisition of Hughes' approximately 81% interest in
PanAmSat. Whether or not either of these transactions is consummated, and
whether or not we successfully integrate Hughes' and our business if the Hughes
merger is consummated, the financing requirements of these transactions may have
a significant impact on our business and our ability to repay the convertible
notes. The completion of these transactions is not certain. You should consider
all the alternative outcomes in connection with your investment in the
convertible notes, including the possibility that we complete neither the Hughes
merger nor the acquisition of the Hughes' interest in PanAmSat.
Information in this prospectus relating to potential business
combinations with Hughes or PanAmSat is relevant only if we complete the Hughes
merger or acquire Hughes' interest in PanAmSat. For a discussion of the
uncertainties surrounding the completion of the Hughes merger or the acquisition
by us and the potential resulting impact of these transactions on us, see "Risk
Factors - Risks Related to the Proposed Merger and Related Transactions." None
of GM, Hughes or PanAmSat has guaranteed or is otherwise responsible in any way
for the convertible notes, or any other securities that we may issue or for the
information contained in this prospectus.
The following description of the Hughes merger and related transactions
and the PanAmSat interest acquisition summarizes the terms of a series of
detailed agreements. We filed copies of these agreements with the SEC on October
31, 2001 on a Current Report on Form 8-K. Under "Where You Can Find More
Information" we explain how you can obtain copies of these documents. This
summary does not contain all of the information concerning the Hughes merger,
the acquisition of Hughes' interest in PanAmSat and related transactions that
you should consider before investing in the convertible notes.
INTRODUCTION
The Hughes merger and related transactions principally comprise:
o the recapitalization of Hughes through the payment of a
dividend in consideration of a reduction of GM's retained
economic interest in Hughes and the issuance of class C common
stock to GM;
o the split-off of Hughes from GM, which includes:
o the distribution of Hughes' class C common stock by
GM to the holders of GM's class H common stock in
redemption of and in exchange for their class H
common stock;
o to the extent that any shares of Hughes' class C
common stock remain outstanding after the
distribution to holders of GM's class H common stock,
the retention by GM of these shares or the
distribution by GM of some or all of these shares to
the holders of its $1-2/3 common stock;
o the exchange of new Hughes' preference stock for any
then outstanding shares of GM series H 6.25%
automatically convertible preference stock; and
o the Hughes merger.
GM has submitted a request to the IRS for rulings to the effect that,
among other things, the split-off will not result in recognition of gain or loss
for tax purposes to GM, its affiliates, Hughes or their stockholders. GM, Hughes
and we have also agreed to use commercially reasonable efforts to cause the
Hughes merger to qualify as a tax-free reorganization. For the split-off to
qualify as tax-free under applicable IRS rules, among other things, certain of
the historic shareholders of Hughes must account for a more than 50% each of the
voting and economic interests in the surviving corporation until the second
anniversary of the split-off. The common stock of Hughes into which our common
stock will convert at the time of the Hughes merger, as well as any other common
or preferred stock, securities convertible into or exercisable or exchangeable
for common or preferred stock or any other equity securities that we, Hughes or
the surviving corporation may issue during this period will be counted for
purposes of this calculation as shares that are not held by the historic
shareholders of Hughes. To assure the satisfaction of this test while preserving
34
some capacity for the surviving corporation to issue equity securities after the
Hughes merger, the merger agreement contains an equity headroom condition, which
we describe in more detail below under "- Equity Headroom Condition."
If the merger agreement is terminated under certain circumstances we
describe under "-The PanAmSat Acquisition," we may be required to purchase
Hughes' approximate 81% interest in PanAmSat, merge with PanAmSat or make a
tender offer for all of its shares, and, in some cases, may also be required to
pay Hughes a $600 million termination fee. If we purchase only the Hughes
interest in PanAmSat, we must make an offer to acquire all other PanAmSat shares
that remain outstanding. We expect that our acquisition of Hughes' interest in
PanAmSat together with our assumed purchase of the remaining outstanding
PanAmSat shares and our payment of the termination fee to GM would require at
least $3.4 billion of cash and approximately $600 million of our class A common
stock. See "-The PanAmSat Acquisition."
THE HUGHES RECAPITALIZATION
To prepare for the split-off, Hughes must first change its capital
structure according to the separation agreement it has entered into with GM. In
the recapitalization, Hughes will pay GM a cash dividend of up to $4.2 billion
in consideration of a reduction in GM's retained economic interest in Hughes in
a commensurate amount and issue shares of its class C common stock to GM. To the
extent of any shortfall in funds available to pay the cash dividend, Hughes may
substitute a demand note, which would be due upon completion of the Hughes
merger, in the amount of the shortfall.
If, after taking into account any reduction in the amount of the GM
debt/equity exchanges described below under "- GM Debt/Equity Exchanges," the
equity headroom condition to the Hughes merger (described below) is not
satisfied or the amount of the cash dividend would exceed the amount of GM's
retained economic interest in Hughes at the time of the consummation of the
recapitalization the cash dividend by the lowest of:
o $700 million;
o the excess exchange amount, which means the product of (a) the
aggregate fair market value of the debt exchanged divided by
the number of shares issued in the GM debt/equity exchanges
prior to the Hughes recapitalization and (b) the amount, if
any, by which the number of shares issued in these exchanges
prior to the split-off exceeds 60 million; and
o the minimum amount necessary to satisfy the equity headroom
condition or the condition that the amount of the cash
dividend to GM not exceed the amount of GM's retained economic
interest in Hughes at the time of the consummation of the
recapitalization, which will be determined by multiplying the
number of "notional" shares representing GM's retained
economic interest in Hughes (determined in accordance with the
terms of the separation agreement) by the volume weighted
average trading price of the GM class H common stock over the
five consecutive trading days immediately prior to the
recapitalization.
GM may unilaterally reduce the amount of the cash dividend further to
enable either of these last conditions to be satisfied, but it is not required
to do so. If the equity headroom condition is not satisfied, GM may elect not to
proceed with the recapitalization and split-off and the Hughes merger will not
be consummated.
The recapitalization is subject to a number of conditions. These
include:
o receipt by GM of a ruling from the IRS that the split-off will
be tax-free to GM, Hughes and their respective shareholders
and a tax opinion drawing the same conclusions from GM's
outside counsel; and
o approval of the recapitalization, split-off and related
transactions pertaining to the separation of Hughes from GM by
a majority of GM's class H common stockholders and $1-2/3
common stockholders, each voting as a separate class and
voting together as a single class.
Without our consent, GM and Hughes may not waive any of these
conditions or amend the agreements governing the recapitalization and other
transactions in any way that could reasonably be foreseen to have an adverse
effect on Hughes, shift liabilities to Hughes or impair or delay the
consummation of the Hughes merger.
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Hughes will use commercially reasonable efforts to cause PanAmSat to
refinance and repay a $1.725 billion note that it owes to Hughes prior to the
recapitalization.
THE SPLIT-OFF
Immediately after the recapitalization and immediately prior to the
merger, GM will effect the split-off of Hughes as follows:
o it will exchange one share of Hughes' class C common stock for
each outstanding share of GM's class H common stock, which it
will redeem and cancel;
o it will either retain or distribute to holders of its $1-2/3
common stock all or a portion of the remaining shares of
Hughes' class C common stock representing its deemed economic
interest in Hughes, depending upon the outcome of the IRS
ruling request; and
o it will distribute shares of Hughes' preference stock in
exchange for its outstanding shares of series H 6.25%
automatically convertible preference stock, if any.
We and Hughes have agreed with GM not to take actions that would
prevent the split-off from otherwise qualifying as a tax-free split-off to GM,
its affiliates, Hughes and their respective shareholders. This agreement
restricts Hughes' and our ability to issue common or preferred stock, options or
securities convertible into or exercisable or exchangeable for stock or other
equity securities during the two-year period following the split-off. Hughes has
agreed to indemnify GM and its affiliates for any tax-related losses from any
action taken by Hughes or us that, or any failure by Hughes or us to take any
action within its control which, could cause the split-off to fail to be
tax-free to GM, its affiliates or their stockholders. If triggered, this
indemnity could amount to several billion dollars.
The parties also agreed that:
o prior to the Hughes split-off, GM and Hughes are expected to
implement a reorganization that would result in the creation
of a Delaware holding company to hold all of the capital stock
of Hughes, and such holding company would be split-off from GM
and merge with us in the Hughes merger; and
o prior to the effective time of the Hughes merger, GM and
Hughes will consult with us regarding any change, amendment or
waiver to be made to any of the major transaction agreements,
and will not make material changes to these agreements unless
we consent.
THE MERGER
Under the merger agreement, we will merge with Hughes or a
newly-created corporation that will own all of Hughes' shares, as described
above. The surviving corporation will carry our name and will provide DBS
services under the DIRECTV brand name. The consummation of the merger is subject
to the fulfillment or waiver of a number of conditions, including:
o the absence of any order, decree, statute, rule or regulation
barring the Hughes merger;
o antitrust approval from the U.S. Department of Justice of
Federal Trade Commission under the HSR Act and any applicable
foreign antitrust authorities;
o FCC approval;
o completion of the recapitalization of Hughes and the
separation of Hughes from GM by means of a tax-free split-off
and related transactions;
o satisfaction of the conditions to the consummation of the
financing for the Hughes merger;
o the equity headroom condition, which is designed to ensure
that the surviving corporation has adequate financial
flexibility at the time of the closing so that it can issue
more stock after the closing of the Hughes merger; and
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o approval for listing on the New York Stock Exchange or
quotation on the Nasdaq market of the class A and class C
common shares of the surviving entity that will be outstanding
after the Hughes merger.
The board of directors of the surviving corporation will consist of
eleven members, as mutually agreed to by Hughes and us. Charles W. Ergen will be
chairman of the board of directors and chief executive officer. Mr. Ergen
controls a family trust that holds all of our outstanding class B common stock.
The agreements relating to the proposed transactions require GM, Hughes
and us to cooperate and take a number of affirmative steps towards assuring
completion of the Hughes merger, and limits Hughes' and our ability prior to the
Hughes merger to take specified actions not in the ordinary course of business.
The agreement does not require the parties to agree to any divestiture, hold
separate any business or assets or take any other similar action if doing so
would result in the expected synergies of the merger being no longer meaningful
or if the action is not conditioned on the consummation of the Hughes merger. We
and Hughes have agreed not to issue additional equity securities, including
capital stock or options or securities convertible into or exchangeable for
capital stock prior to the Hughes merger or to pay dividends on or redeem or
purchase any equity securities, except for limited grants of employee stock
options, financings permitted under "Merger Financing" below, conversions of our
outstanding convertible securities and the exchange of Hughes' preference stock
for GM series H 6.25% automatically convertible preference stock.
We have also agreed, on or prior to May 26, 2002, either to use
commercially reasonable efforts to amend the indentures relating to certain debt
instruments of us and our subsidiaries to provide that the merger and related
transactions would not constitute a change of control requiring us or them to
make an offer to repurchase certain outstanding notes, to obtain additional
committed financing, on terms reasonably satisfactory to Hughes, sufficient to
refinance the notes outstanding under the indentures for which consents are not
obtained. Alternatively, we may present to Hughes a plan, taking into account
the prevailing market conditions for the relevant notes, designed so that at and
after the effective time of the merger, the surviving corporation and its
subsidiaries would not be in breach of their obligations under these indentures.
The surviving corporation will continue specified Hughes severance
plans for two years after the merger, maintain coverage on the contributory
potion of Hughes' defined benefit pension plan or a successor plan for five
years and provide specified retiree health benefits. Satisfying its obligations
under these Hughes plans could cost the surviving corporation hundreds of
millions of dollars.
The merger agreement provides that we and Mr. Ergen, our chief
executive officer, will enter into an employment agreement when the merger
becomes effective on terms agreed upon by Mr. Ergen and the chief executive
officer of Hughes. The independent directors of the board of directors of the
surviving corporation must ratify the terms of this agreement.
TERMINATION OF THE MERGER AND TERMINATION FEES
We and Hughes may agree to terminate the merger agreement at any time.
Either we or Hughes may terminate the Hughes merger if:
o any permanent injunction or other order preventing the Hughes
merger and the related transactions becomes final and
nonappealable.
o we and Hughes have not completed the Hughes merger by January
21, 2003, unless our and Hughes' respective boards of
directors agree to extend this outside date or, before that
date, we and Hughes have entered into a consent decree or
other settlement with the Department of Justice or Federal
Trade Commission, which is referred to as the FTC, permitting
the Hughes merger;
o GM fails to receive the requisite GM stockholder approvals for
the recapitalization, split-off and related transactions
pertaining to the separation of Hughes from GM;
o the other party breaches any of its representations or any
covenants or agreements contained in the merger agreement or
the implementation agreement for the recapitalization and
those breaches would result in the
37
failure of a specified condition to the Hughes merger and in
each case cannot be cured by January 21, 2003; or
o an event, change, circumstance or effect occurs with respect
to the other party that has or is reasonably likely to have a
material adverse effect on its and the combined companies'
business, operations, assets, liabilities or financial
condition (other than as a result of economic factors
generally affecting the economy or financial markets as a
whole or the DBS industry, the recapitalization and split-off
in respect of Hughes only, the announcement of the Hughes
merger and related transactions or the preparatory steps the
parties have agreed to take).
In addition, Hughes may terminate the merger agreement if:
o the applicable waiting period under the HSR Act has not
expired or been terminated at least 15 business days before
January 21, 2003, unless the Department of Justice or FTC has
agreed to a consent decree or other settlement permitting the
Hughes merger in which case Hughes will not be able to
terminate the merger agreement unless the applicable waiting
period under the HSR Act has not expired or been terminated on
or prior to five business days before January 21, 2003;
o all materials orders and approvals of the FCC have not been
obtained and become final at least ten business days before
January 21, 2003 such that the condition to closing relating
to FCC approvals is incapable of being fulfilled, unless the
Department of Justice or FTC has agreed to a consent decree or
other settlement permitting the Hughes merger prior to the
fifteenth business day before January 21, 2003, in which case
Hughes will not be able to terminate the merger agreement
unless all material orders and approvals of the FCC have not
been obtained and become final within three business days
after the date the consent decree or other settlement
permitting the Hughes merger is filed in court;
o the IRS notifies GM that the tax ruling has been withdrawn,
invalidated or modified in an adverse manner or the IRS or
outside tax counsel determines that there is more than an
immaterial possibility that the split- off will not be
tax-free and, assuming the matter is capable of being resolved
by a subsequent ruling of the IRS, the IRS has informed GM and
Hughes that it will not issue a subsequent ruling;
o the required parties do not enter into definitive agreements
for the bridge financing by April 26, 2002;
o GM notifies us that its board of directors has determined in
good faith and upon the advice of legal counsel that in
accordance with its fiduciary duties it cannot or will not be
able to recommend the GM transactions to its stockholders for
approval or must withdraw, revoke or adversely modify its
recommendation, or a notice of non-recommendation, except
under certain limited circumstances; or
o GM proposed to enter into an agreement or arrangement with
respect to a business combination involving Hughes and another
party or acquisition by another party of the capital stock of
Hughes, including GM's class H common stock, or any material
portion of the assets of Hughes or its subsidiaries, after
having complied with its no-solicitation covenant and after
having paid the termination fee.
We may also terminate the merger agreement if:
o GM agrees to, or its board of directors approves or
recommends, a business combination involving Hughes and
another party or an acquisition by another party of the
capital stock of Hughes, including GM's class H common stock,
or any material portion of the assets of Hughes or its
subsidiaries; or
o GM delivers to us a notice of non-recommendation, including by
reason of GM failing, in accordance with the obligations under
the implementation agreement, to confirm to us that its board
of directors continues to recommend the GM transactions and
has a good faith intention and is prepared to submit the GM
transactions to its common stockholders, and continues to take
all actions towards that end and is in compliance with its
no-solicitation covenant in the implementation agreement,
except under limited circumstances.
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Hughes must pay us a termination fee and expense reimbursement of $600
million if we terminate the merger agreement because GM failed to obtain
stockholder approval and under certain circumstances enters into an agreement
with respect to a competing transaction or if we or Hughes terminate the merger
agreement pursuant to the relevant provisions relating to a notice of
non-recommendation and GM's agreeing to a competing transaction. We must pay
Hughes a termination fee and expense reimbursement of $600 million if either we
or Hughes terminates the merger agreement as a result of a permanent injunction
or final and nonappealable order prohibiting the merger in an action brought by
a U.S. federal, state or local authority under U.S. antitrust laws or FCC
regulations, or if Hughes terminates the merger agreement because we fail to
obtain U.S. antitrust or FCC approval within specified time periods. We would
not have to pay this fee if we were prepared to accept a settlement or
compromise proposed by the antitrust authorities or the FCC.
MERGER FINANCING
We and Hughes have obtained a commitment letter for $5.525 billion to
finance the Hughes recapitalization, to refinance other outstanding indebtedness
in connection with the merger and to finance the surviving corporation for a
limited period of time after the Hughes merger. The commitment has been reduced
to $3.325 million as a result of the 9 1/8% notes sold by EDBS on December 28,
2001 and $1.5 billion from the purchase of our class D preferred stock by
Vivendi Universal on January 22, 2002. Any other financing we complete prior to
these transactions will reduce these commitments dollar-for-dollar. Hughes may
terminate the merger agreement if we and Hughes do not enter into definitive
agreements for the bridge financing covered by this commitment letter by April
26, 2002. Prior to the Hughes merger, we may raise up to $885 million in equity
financing if the IRS rules that the disposition of GM's series H 6.25%
automatically convertible preference stock and any securities into which it is
exchanged or converted will not be treated as part of a plan that includes the
split-off which would further reduce the $5.525 billion commitment.
EQUITY HEADROOM CONDITION
An important condition to the Hughes merger is the requirement that the
surviving corporation be able to issue a minimum amount of capital stock
immediately after the merger without breaching agreements designed to preserve
the tax-free status of the split-off. That minimum is capital stock having an
aggregate fair market value of the greater of (a) $250 million if the IRS rules
that the disposition of GM's series H 6.25% automatically convertible preference
stock and any securities into which it is exchanged or converted will not be
treated as part of a plan that includes the split-off or $135 million if the IRS
does not so rule and (b) $1 billion less the value of Hughes' common stock into
or for which our equity securities issued between the date of the merger
agreement and the time of the merger would be convertible, exercisable or
exchangeable. For this purpose, our equity securities will include not only
capital stock we issue during this period but also, under certain circumstances,
capital stock that would be issued upon the exercise, conversion or exchange of
options or securities that are convertible or exchangeable for our capital
stock. Calculation of the equity headroom requires a complex set of assumptions
about the fair market value of each class of stock of the surviving corporation
after the Hughes merger and whether various securities would be treated as part
of the split-off plan. One of these assumptions is that the surviving
corporation would issue shares of class C common stock in exchange for the
outstanding minority interest in PanAmSat, and that these shares would be
treated as part of a plan that includes the split-off.
GM DEBT/EQUITY EXCHANGES
We have agreed that GM may issue and distribute up to an aggregate of
100 million shares of its class H common stock (before the Hughes merger) and/or
Hughes' class C common stock (after the Hughes merger) at any time between the
date of the agreement and the date that is six months after the Hughes merger in
one or more exchanges with holders of GM's debt. The separation agreement
between GM and Hughes restricts the number of shares of Hughes' class C common
stock that GM may distribute in connection with its planned debt/equity
exchanges after the Hughes merger. To the extent necessary to satisfy the equity
headroom condition, the maximum number of shares of Hughes' class C common stock
that GM may distribute in exchanges after the Hughes merger will be reduced by
the lowest of:
o 40 million shares;
39
o 100 million shares less the number of shares of GM's class H
common stock GM has issued prior to the Hughes merger in
debt/equity exchanges; and
o the minimum number of shares necessary for the equity headroom
condition to be satisfied.
If, after GM obtains the requisite GM stockholder approvals and IRS
ruling required for the split-off, we decide to make an underwritten offering of
our class A common stock as part of the Hughes merger financing, we may block GM
from making any of these debt/equity exchanges for up to 90 days. During the
first six months following the Hughes merger, however, GM may block the
surviving corporation from selling its class A or class C common stock or
securities convertible into these shares of common stock for a period of up to
90 days if it has not completed these debt/equity exchanges. Hughes, and during
the first six months following the Hughes merger the surviving corporation, must
use commercially reasonable efforts to register the shares of common stock to be
issued in any debt/equity exchanges under the Securities Act.
THE PANAMSAT ACQUISITION
We have agreed to purchase all of the shares of PanAmSat held by Hughes
and its subsidiaries for approximately $2.7 billion, or $22.47 per share, in a
combination of cash, stock and/or notes, if the merger agreement is terminated
because:
o a court or governmental authority permanently enjoins or
issues an order preventing the Hughes merger in an action
brought by a federal, state or local governmental authority
under the U.S. antitrust laws or FCC regulations or in an
action brought by any other person other than a governmental
authority under the antitrust laws or FCC regulations, and in
each case the injunction or order has become final and
nonappealable;
o the applicable waiting period under the HSR Act has not
expired or been terminated at least 15 business days before
January 21, 2003, unless the Department of Justice or FTC has
agreed to a consent decree or other settlement permitting the
Hughes merger in which case Hughes will not be able to
terminate the merger agreement unless the applicable waiting
period under the HSR Act has not expired or been terminated on
or prior to five business days before January 21, 2003;
o all material orders and approvals of the FCC have not been
obtained and become final at least ten business days before
January 21, 2003 such that the condition to closing relating
to FCC approvals is incapable of being fulfilled, unless the
Department of Justice or FTC has agreed to a consent decree or
other settlement permitting the Hughes merger prior to the
fifteenth business day before January 21, 2003, in which case
all material orders and approvals of the FCC have not been
obtained and become final within three business days after the
date the consent decree or other settlement permitting the
Hughes merger is filed in court; or
o we do not enter into definitive agreements for the Hughes
merger financing before April 26, 2002 or we or Hughes
terminates the merger agreement on or after January 21, 2003
because the conditions to completion of the Hughes merger
financing have not been satisfied by such time.
Our obligation to purchase the PanAmSat shares is subject to the
satisfaction or waiver of a number of conditions, including:
o all applicable waiting periods under the HSR Act shall have
expired or been terminated, all government approvals shall
have been obtained, and filings with governmental authorities
shall have been made;
o the absence of any order, decree, statute, rule or regulation
barring the purchase;
o FCC approval;
o the absence of any material adverse effect with respect to
PanAmSat; and
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o PanAmSat shall not have issued more than 7% of its capital
stock prior to the acquisition of Hughes' approximately 81%
interest in PanAmSat unless such issue would not materially
impair our ability to acquire the remaining shares of
PanAmSat.
The form of consideration that we may be required to pay for the
PanAmSat shares will depend upon the reasons why the merger with Hughes was not
consummated.
The PanAmSat stock purchase agreement terminates automatically upon
consummation of the Hughes merger or upon our satisfaction of its obligations to
purchase the PanAmSat shares in a tender offer or merger as described above. We
or Hughes may also terminate this agreement if:
o we do not consummate the sale of the PanAmSat shares within
nine months of termination of the merger agreement for any of
the reasons listed in the first paragraph under "-PanAmSat
Acquisition" unless extended by mutual agreement of the
parties;
o a court or other governmental body permanently enjoins or
issues an order preventing the transaction and the injunction
or order has become final and nonappealable;
o the merger agreement terminates for any reason not listed in
the first paragraph above;
o the other party materially breaches the agreement and in the
case of a breach by Hughes, the breach has resulted in a
material adverse effect on PanAmSat; or
o by mutual written consent authorized by the respective boards
of directors.
Hughes may also terminate the PanAmSat purchase agreement during the
30-day period following termination of the merger agreement if we have not
entered into definitive agreements for the Hughes merger financing before April
26, 2002 or if the Hughes merger has not been consummated before January 21,
2003 because we fail to obtain the Hughes merger financing.
We have agreed that, unless we have previously consummated a tender
offer involving all of the outstanding PanAmSat shares or a merger, we will
commence an exchange offer for all PanAmSat shares that remain outstanding
following the consummation of the acquisition of Hughes' interest in PanAmSat.
This offer must be for an amount per share, at the option of the holder, either
in cash in an amount equal to the purchase price per share as paid to Hughes, or
a number of shares of our class A common stock having an aggregate fair market
value equal to the purchase price per share we pay to Hughes, and we have agreed
to use commercially reasonable efforts to ensure that the structure of the
exchange offer will be tax-free to the PanAmSat stockholders.
The commitment letter for the bridge financing also covered the
financing we would have needed if we purchase the PanAmSat shares. As a result
of the proceeds from the sale of the 9 1/8% senior notes by EDBS and the series
D convertible preferred stock to Vivendi Universal, however, we have the
financing we would need to purchase the PanAmSat shares, and the commitment for
the bridge financing with respect to PanAmSat has terminated.
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RATIO OF EARNINGS TO FIXED CHARGES
Nine months
Ended
Year Ended December 31, September
------------------------------------------------------------------ 30,
1996 1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ---------- ----------
Ratio of
earnings to
fixed charges -- -- -- -- -- --
========== ========== ========== ========== ========== ==========
Deficiency of
available
earnings to
fixed charges $ (185,066) $ (346,947) $ (272,862) $ (512,986) $ (615,291) $ (161,136)
========== ========== ========== ========== ========== ==========
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, 1996, 1997, 1998, 1999 and 2000 and the nine months ended
September 30, 2001, earnings were insufficient to cover the fixed charges.
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DESCRIPTION OF CONVERTIBLE NOTES
GENERAL
The convertible notes were issued under an indenture, to which we and
U.S. Bank Trust National Association, as trustee, are parties. The following
description is a summary of the material provisions of the indenture. It does
not restate the indenture in its entirety. We urge you to read the indenture and
the registration rights agreement because they, and not this description, define
your rights as a holder of the convertible notes. Copies of the indenture and
the registration rights agreement are available to you upon request.
You can find the definitions of certain terms used in this description
under the subheading "Definitions." In this section of the prospectus entitled
"Description of Convertible Notes" when we use the terms "we," "us," "our" or
similar terms, we are referring only to EchoStar Communications Corporation, the
issuer of the convertible notes, and not to any of our subsidiaries.
The convertible notes are our general unsecured obligations,
subordinated in right and priority of payment to all of our existing and future
Senior Debt as described under the subheading "Subordination of Convertible
Notes" and convertible into our class A common stock as described under the
subheading "Conversion." The indenture does not contain any financial covenants
or restrictions on the payment of dividends, the incurrence of Senior Debt, the
incurrence of other obligations, including debt, ranking equal to the
convertible notes or issuance or repurchase of our securities. The indenture
contains no covenants or other provisions to afford protection to holders of the
convertible notes in the event of a highly leveraged transaction, except to the
extent described under the subheading "Repurchase at the Option of Holders." The
convertible notes are not guaranteed by any of our subsidiaries.
We conduct substantially all of our operations through our
subsidiaries. We are dependent upon the cash flow of our subsidiaries to meet
our obligations, including our obligations under the convertible notes. As a
result, the convertible notes are subordinated to all existing and future
indebtedness and other liabilities and commitments of our subsidiaries with
respect to the cash flow and assets of those subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
We issued convertible notes with a maximum aggregate principal amount
of $1,000,000,000. The convertible notes will mature on May 15, 2008. Interest
on the convertible notes will accrue at a rate of 5 3/4% per annum from the date
of original issuance and will be payable semiannually in cash on May 15 and
November 15, commencing on November 15, 2001. We will make each interest payment
to the holders of record of the convertible notes on the immediately preceding
May 1 and November 1. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. All references herein to a payment of
principal shall include any premium that may be payable.
We are required to pay special interest on the convertible notes under
certain circumstances, all as further described under the caption "Registration
Rights." All references herein to interest on the convertible notes shall
include any such special interest that may be payable.
The convertible notes are payable both as to principal and interest on
presentation of such convertible notes if in certificate form at our offices or
agencies maintained for such purpose or, at our option, payment of interest may
be made by check mailed to the holders of the convertible notes at their
respective addresses listed in the register of holders of convertible notes or,
if a holder who holds an aggregate principal amount of at least $5.0 million of
convertible notes so requests, by wire transfer of immediately available funds
to an account previously specified in writing by such holder to us and the
trustee. Until we designate otherwise, our office or agency is the office of the
trustee maintained for this purpose. The convertible notes have been issued in
registered form, without coupons, and in denominations of $1,000 and integral
multiples of $1,000.
CONVERSION
The holder of any convertible note has the right, exercisable at any
time after 90 days following the date of their original issuance and prior to
maturity, to convert the principal amount thereof (or any portion thereof that
is an integral multiple of $1,000) into shares of our class A common stock at a
conversion price of $43.29 per share, subject to
43
adjustment as described below, we is referred to as the Conversion Price, except
that if a convertible note is called for redemption, the conversion right will
terminate at the close of business on the business day immediately preceding the
date fixed for redemption.
If any convertible notes are converted during the period after any
record date but before the next interest payment date, interest on such
convertible notes will be paid on the next interest payment date,
notwithstanding such conversion, to the holder of record on the record date of
those convertible notes. Any convertible notes that are, however, delivered to
us for conversion after any record date but before the next interest payment
date must, except as described in the next sentence, be accompanied by a payment
equal to the interest payable on such interest payment date on the principal
amount of convertible notes being converted. We will not require the payment to
us described in the preceding sentence if, during that period between a record
date and the next interest payment date, a conversion occurs on or after the
date that we have issued a redemption notice and prior to the date of
redemption. If any convertible notes are converted after an interest payment
date but on or before the next record date, no interest will be paid on those
convertible notes. No fractional shares will be issued upon conversion, but a
cash adjustment will be made for any fractional shares.
The conversion price is subject to adjustment upon the occurrence of
certain events, including:
(1) the issuance of shares of class A common stock as a dividend
or distribution on our common stock;
(2) the subdivision or combination of our outstanding class A
common stock;
(3) the issuance to substantially all holders of our class A
common stock of rights or warrants to subscribe for or
purchase class A common stock (or securities convertible into
class A common stock) at a price per share less than the then
current market price per share, as defined in the indenture;
(4) the distribution of shares of our capital stock (other than
class A common stock), evidences of indebtedness or other
assets (excluding dividends in cash, except as described in
paragraph 5 below) to all holders of our class A common stock;
(5) the distribution, by dividend or otherwise, of cash to all
holders of our class A common stock in an aggregate amount
that, together with the aggregate of any other distributions
of cash that did not trigger a Conversion Price adjustment to
all holders of our class A common stock within the 12 months
preceding the date fixed for determining the stockholders
entitled to such distribution and all Excess Payments (see the
subheading "Definitions") in respect of each tender offer or
other negotiated transaction by us or any of our subsidiaries
for our class A common stock concluded within the preceding 12
months not triggering a Conversion Price adjustment, exceeds
15% of the product of the current market price per share
(determined as set forth below) on the date fixed for the
determination of stockholders entitled to receive such
distribution times the number of shares of our class A common
stock outstanding on that date;
(6) payment of an Excess Payment in respect of a tender offer or
other negotiated transaction by us or any of our subsidiaries
for our class A common stock, if the aggregate amount of such
Excess Payment, together with the aggregate amount of cash
distributions made within the preceding 12 months not
triggering a Conversion Price adjustment and all Excess
Payments in respect of each tender offer or other negotiated
transaction by us or any of our subsidiaries for our class A
common stock concluded within the preceding 12 months not
triggering a Conversion Price adjustment, exceeds 15% of the
product of the current market price per share on the
expiration of such tender offer or the consummation of such
other negotiated transaction, as the case may be, times the
number of shares of our class A common stock outstanding on
that date; and
(7) the distribution to substantially all holders of our class A
common stock of rights or warrants to subscribe for securities
(other than those referred to in paragraph 3 above). In the
event of a distribution to substantially all holders of our
class A common stock of rights to subscribe for additional
shares of our capital stock (other than those referred to in
paragraph 3 above), we may, instead of making any adjustment
in the Conversion Price, make proper provision so that each
holder of a convertible note who converts that
44
convertible note after the record date for such distribution
and prior to the expiration or redemption of such rights will
be entitled to receive upon such conversion, in addition to
shares of class A common stock, an appropriate number of such
rights. No adjustment of the Conversion Price will be made
until cumulative adjustments amount to one percent or more of
the Conversion Price, as last adjusted.
If we reclassify or change our outstanding class A common stock, or
consolidate with or merge into or transfer or lease all or substantially all of
our assets to any person, or are a party to a merger that reclassifies or
changes our outstanding class A common stock, the convertible notes will become
convertible into the kind and amount of securities, cash or other assets which
the holders of the convertible notes would have owned immediately after the
transaction if the holders had converted their convertible notes immediately
before the effective date of the transaction.
The indenture provides that if rights, warrants or options expire
unexercised, the Conversion Price shall be readjusted to take into account the
actual number of such warrants, rights or options which were exercised.
In the indenture, the "current market price" per share of class A
common stock on any date means the average of the daily market prices for the
shorter of (i) ten consecutive business days ending on the last full trading day
on the exchange or market referred to in determining such daily market prices
prior to the time of determination (as defined in the indenture) or (ii) the
period commencing on the date next succeeding the first public announcement of
the issuance of such rights or warrants or such distribution through such last
full trading day prior to the time of determination.
We are permitted to make such reductions in the Conversion Price as we,
in our discretion, determine to be advisable in order that any stock dividend,
subdivision of shares, distribution of rights to purchase stock or securities or
distribution of securities convertible into or exchangeable for stock which we
make to our stockholders will not be taxable to the recipients.
SUBORDINATION OF CONVERTIBLE NOTES
The convertible notes are subordinated in right and priority of payment
to all of our existing and future Senior Debt. The indenture does not prohibit
or limit the amount of indebtedness, including Senior Debt and secured debt,
that we or any of our subsidiaries may incur. As of September 30, 2001, the
convertible notes ranked junior to $3.0 billion of indebtedness and $1.5 billion
of other liabilities of our subsidiaries, and ranked equal to $1.0 billion of
our other convertible notes. The convertible notes also rank junior to the
9 1/8% senior notes issued by EDBS on December 28, 2001.
The payment of the principal of, interest on or any other amounts due
on the convertible notes is subordinated in right and priority of payment to the
prior payment in full of all of our Senior Debt. No payment on account of
principal of, redemption of, interest on or any other amounts due on the
convertible notes, including, without limitation, any payments on the Change of
Control Offer, as that term is defined in the indenture, and no redemption,
purchase or other acquisition of the convertible notes may be made unless (i)
full payment of amounts then due on all Senior Debt have been made or duly
provided for under the terms of the instrument governing such Senior Debt, and
(ii) at the time for, or immediately after giving effect to, any such payment,
redemption, purchase or other acquisition, there shall not exist under any
Senior Debt or any agreement pursuant to which any Senior Debt has been issued,
any default which shall not have been cured or waived and which shall have
resulted in the full amount of such Senior Debt being declared due and payable.
In addition, the indenture provides that if we and the trustee are notified by
any of the holders of any issue of Senior Debt, which is referred to as the
Payment Blockage Notice, that a default has occurred giving the holders of such
Senior Debt the right to accelerate the maturity thereof, no payment on account
of principal, redemption, interest, special interest, if any, or any other
amounts due on the convertible notes and no purchase, redemption or other
acquisition of the convertible notes will be made for the period, which is
referred to as the Payment Blockage Period, commencing on the date notice is
received and ending on the earlier of (A) the date on which such event of
default shall have been cured or waived or (B) 180 days from the date notice is
received. Notwithstanding the foregoing, only one Payment Blockage Notice with
respect to the same event of default or any other events of default existing and
unknown to the person giving such notice at the time of such notice on the same
issue of Senior Debt may be given during any period of 360 consecutive days
unless such event of default or such other events of default have been cured or
waived for a period of not less than 90 consecutive days. No new Payment
Blockage Period may be commenced by the holders of
45
Senior Debt during any period of 360 consecutive days unless all events of
default which triggered the preceding Payment Blockage Period have been cured or
waived.
Upon any distribution of our assets in connection with any dissolution,
winding-up, liquidation or reorganization or acceleration of the principal
amount due on the convertible notes because of any event of default, all Senior
Debt must be paid in full before the holders of the convertible notes are
entitled to any payments whatsoever.
As a result of these subordination provisions, in the event of our
insolvency, holders of the convertible notes may recover ratably less than our
general creditors.
If the payment of the convertible notes is accelerated because of an
event of default, we or the trustee shall promptly notify the holders of Senior
Debt or the trustee(s) for such Senior Debt of the acceleration. We may not pay
the convertible notes until five days after such holders or trustee(s) of Senior
Debt receive notice of such acceleration and, thereafter, may pay the
convertible notes only if the subordination provisions of the indenture
otherwise permit payment at that time.
If the trustee or any holder of convertible notes receives any payment
or distribution of our assets of any kind in contravention of any of the terms
of the indenture, whether in cash, property or securities, including, without
limitation by way of set-off or otherwise, in respect of the convertible notes
before all Senior Debt is paid in full, then such payment or distribution will
be held by the recipient in trust for the benefit of holders of Senior Debt, and
will be immediately paid over or delivered to the holders of Senior Debt or
their representative or representatives to the extent necessary to make payment
in full of all Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holder
of Senior Debt.
We are the exclusive obligors on the convertible notes. Since our
operations are conducted wholly through our subsidiaries, our ability to service
debt, including the convertible notes, is dependent upon the earnings of our
subsidiaries and the distribution of those earnings to, or upon loans or other
payments of funds by those subsidiaries to, us. The payment of dividends to us
and the making of loans and advances to us by our subsidiaries may be subject to
statutory or contractual restrictions, is dependent upon the earnings of those
subsidiaries and may be subject to various business considerations. The
outstanding senior notes of EBC currently restrict EBC from paying dividends or
making distributions to us. EBC is an intermediate holding company and its
ability to pay dividends or make other distributions to us is dependent upon the
earnings of its subsidiary, EDBS. The outstanding senior notes of EDBS currently
restrict EDBS from paying dividends or making other distributions to EBC.
Any right that we have to receive assets of any of our subsidiaries
upon their liquidation or reorganization (and the consequent right of the
holders of the convertible notes to participate in those assets) is effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that we ourselves are recognized as a creditor
of such subsidiary, in which case our claims would still be subordinate to any
security interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by us.
The indenture does not prohibit or limit the amount of additional
indebtedness and other liabilities, including Senior Debt, which we can create,
incur, assume or guarantee, nor does the indenture prohibit or limit the amount
of indebtedness and other liabilities which any subsidiary can create, incur,
assume or guarantee.
OPTIONAL REDEMPTION
We may not redeem the convertible notes prior to May 15, 2004.
Thereafter, the convertible notes are subject to redemption at our option, in
whole or in part, upon not less than 30 nor more than 60 days notice, at the
redemption prices set forth below, expressed as percentages of principal amount
plus accrued and unpaid interest thereon, in each case, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 15
of the years indicated below:
Year Percentage
---- ----------
2004 103.286%
2005 102.464%
2006 101.643%
2007 100.821%
2008 100.000%
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MANDATORY REDEMPTION AND REPURCHASE
We are not required to make mandatory redemption or sinking fund
payments with respect to the convertible notes. We are, however, required to
make a Change of Control Offer with respect to a repurchase of the convertible
notes under the circumstances described under the subheading "Repurchase at the
Option of Holders."
SELECTION AND NOTICE
If less than all of the convertible notes are to be redeemed at any
time, selection of convertible notes for redemption will be made by the trustee
in compliance with the requirements of any securities exchange on which the
convertible notes are listed. In the absence of any requirements of any
securities exchange or if the convertible notes are not listed, selection of the
convertible notes to be redeemed will be made on a pro rata basis, provided that
no convertible notes of $1,000 or less may be redeemed in part. Notice of
redemption will be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of convertible notes to be
redeemed at its registered address. If any convertible note is to be redeemed in
part only, the notice of redemption that relates to that convertible note shall
state the portion of the principal amount thereof to be redeemed. A new
convertible note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the holder thereof upon cancellation of the
original convertible note. On and after the redemption date, interest ceases to
accrue on convertible notes or portions of them called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS
If a Change of Control, as that term is defined below, occurs, each
holder of convertible notes will have the right to require us to repurchase all
or any part of that holder's convertible notes equal to $1,000 or an integral
multiple of $1,000, pursuant to the Change of Control Offer at a purchase price
equal to 101% of the principal amount, plus accrued and unpaid interest, if any,
as of the date of repurchase. The payment will be referred to as the Change of
Control Payment. Within 40 days following any Change of Control, we will mail a
notice to each holder, stating:
(1) that the Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control" and that all convertible
notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 40 days from the date such
notice is mailed. This date is referred to as the "Change of
Control Payment Date";
(3) that interest will continue to accrue on any convertible notes
not tendered, as provided in the convertible notes;
(4) that, unless we default in the payment of the Change of
Control Payment, with respect to all convertible notes
accepted for payment pursuant to the Change of Control Offer,
interest will cease to accrue after the Change of Control
Payment Date, as that term is defined in the indenture;
(5) that holders electing to have any convertible notes purchased
pursuant to a Change of Control Offer will be required to
surrender the convertible notes, with the form entitled Option
of Holder to Elect Purchase on the reverse of the convertible
notes completed, to the paying agent at the address specified
in the notice prior to the close of business on the third
Business Day, as that term is defined in the indenture,
preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their election if
the paying agent receives, not later than the close of
business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile
transmission or letter stating the name of the holder, the
principal amount of convertible notes delivered for purchase,
and a statement that the holder is withdrawing the election to
have such convertible notes purchased; and
47
(7) that holders whose convertible notes are being purchased only
in part will be issued new convertible notes equal in
principal amount to the unpurchased portion of the convertible
notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple of $1,000.
We will comply with the requirements of Rules 13e-4 and 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the convertible notes in connection with a Change of Control.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment convertible notes or portions of
convertible notes tendered pursuant to the Change of Control
Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all convertible notes or
portions of convertible notes so tendered; and
(3) deliver or cause to be delivered to the trustee the
convertible notes so accepted together with an officer's
certificate stating the convertible notes or portions of
convertible notes that have been tendered.
The paying agent shall promptly mail to each holder of convertible
notes so accepted, or, if a holder requests, wire transfer immediately available
funds to an account previously specified in writing by the holder to us and the
paying agent, payment in an amount equal to the purchase price for such
convertible notes. The trustee shall promptly authenticate and mail to each
holder a new convertible note equal in principal amount to any unpurchased
portion of the convertible notes surrendered, if any, provided that each new
convertible note shall be in a principal amount of $1,000 or an integral
multiple of $1,000. We will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
Except as described above with respect to a Change of Control, the
indenture does not contain any other provision that permits the holders of the
convertible notes to require that we repurchase or redeem the convertible notes
in the event of a takeover, recapitalization or similar restructuring. The
Change of Control Offer requirement of the convertible notes may, in certain
circumstances, make it more difficult or discourage a takeover, and, thus, the
removal of incumbent management. Management has not entered into any agreement
or plan involving a Change of Control, although it is possible that we could
decide to do so in the future. Subject to the limitations discussed below, we
could, in the future, enter into various transactions including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect our capital structure or credit
ratings.
Our ability to pay cash to the holders of convertible notes pursuant to
a Change of Control Offer may be limited by our then existing financial
resources. See "Risk Factors." Any future credit facilities or other agreements
relating to our or our subsidiaries' indebtedness may contain prohibitions or
restrictions on our ability to effect a Change of Control Payment or may also
require a similar offer to which we or our subsidiaries may be required to
allocate resources, such as with EBC's and EDBS' outstanding senior notes. If a
Change of Control occurs at a time when such prohibitions or restrictions are in
effect, we could seek the consent of our lenders to the purchase of convertible
notes and other indebtedness containing change of control provisions or could
attempt to refinance the borrowings that contain such prohibitions or
restrictions. If we do not obtain such consents or repay such borrowings, we
will be effectively prohibited from purchasing the convertible notes. In such
case, our failure to purchase tendered convertible notes would constitute an
event of default under the indenture. Moreover, the events that constitute a
Change of Control under the indenture may constitute events of default under our
future debt instruments or credit agreements of us or our subsidiaries, and
certain events that constitute a Change of Control under our subsidiaries
indebtedness may not constitute a Change of Control under the indenture. Such
events of default may permit the lenders under those debt instruments or credit
agreements to accelerate the debt and, if the debt is not paid or repurchased,
to enforce their security interests in what may be all or substantially all of
the assets of our subsidiaries. Therefore, our ability to raise cash to repay or
repurchase the convertible notes may be limited.
"Change of Control" means:
48
(1) 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, which terms are defined below (and not controlled by
any person other than the Principal or his Related Parties),
sell, transfer or otherwise dispose of more than 50% of the
total Equity Interests (see the subheading "Definitions") in
us beneficially owned (as defined in Rule 13(d)(3) under the
Exchange Act, but without including any Equity Interests which
may be deemed to be owned solely by reason of the existence of
any voting arrangements) by such persons on the date of the
indenture (as adjusted for stock splits and dividends and
other distributions payable in Equity Interests);
(2) the first day on which a majority of the members of our Board
of Directors are not Continuing Directors (see the subheading
"Definitions"); or
(3) the sale, lease or transfer of all or substantially all of our
assets to any person or "group," within the meaning of Section
13(d)(3) and 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act, other than the Principal and his Related
Parties.
Notwithstanding the foregoing, a Change of Control will not be deemed
to have occurred if, in case of a merger, consolidation, tender offer, share
exchange, sale, lease or transfer of all or substantially all of our assets or
similar transaction or group of related transactions, which are each, a
"Transaction", not less than 70% of the consideration in the Transaction
(excluding cash payments for fractional shares issued in connection with the
Transaction, and excluding debt and other liabilities assumed in the
Transaction) constituting the Change of Control as defined in (a), (b) and (c)
above, consists of common stock traded on a U.S. national securities exchange or
quoted on the Nasdaq National Market (or which will be so traded or quoted when
issued or exchanged in connection with such Change of Control) and as a result
of such transaction or transactions, the convertible notes become convertible
into such common stock or remain convertible into class A common stock.
"Principal" means Charles W. Ergen.
"Related Party" means, with respect to the Principal, (a) the spouse
and each immediate family member of the Principal and (b) each trust,
corporation, partnership or other entity of which the Principal beneficially
holds an 80% or more controlling interest.
COVENANTS
Sale of assets
The indenture provides that we may not sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of our properties or
assets in any one or more related transactions to another corporation, person or
entity unless:
o the entity or person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is
a corporation organized or existing under the laws of the
U.S., any state thereof or the District of Columbia;
o the entity or person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made
assumes all obligations pursuant to a supplemental indenture,
in a form reasonably satisfactory to the trustee, under the
convertible notes and the indenture; and
o immediately after such transaction no default or event of
default exists.
Limitation on status as investment company
The indenture provides that we will not, and will not permit any
subsidiary to, conduct our or its business in a fashion that would cause us to
be required to register as an "investment company" (as that term is defined in
the Investment Company Act of 1940, as amended).
49
Reports
Whether or not required by the rules and regulations of the SEC, so
long as any convertible notes are outstanding, we will furnish to the holders of
convertible notes all quarterly and annual financial information required to be
contained in a filing with the SEC on Forms 10-Q and 10-K, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report by our
certified independent accountants.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an event
of default:
(1) default for 30 days in the payment when due of interest on the
convertible notes;
(2) a default in the payment of principal of any convertible note
when due at its stated maturity, upon optional redemption, in
connection with a Change of Control Offer, upon declaration,
or otherwise;
(3) our failure to comply for 30 days after notice with any of our
obligations under the covenants described under "Repurchase at
the Option of Holders" and "Sale of Assets" (in each case,
other than a failure to purchase convertible notes in
connection with a Change of Control Offer);
(4) our failure for 60 days after notice to comply with certain
other covenants and agreements contained in the indenture or
the convertible notes;
(5) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by us or any of
our subsidiaries that is a Significant Subsidiary, as that
term is defined in the subheading "Definitions", or any group
of two or more subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary, or the payment of which
is guaranteed by us or any of our subsidiaries that is a
Significant Subsidiary or any group of two or more
subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, whether such Indebtedness or guarantee
now exists, or is created after the issuance date, which
default:
(a) is caused by a failure to pay when due principal or
interest on such Indebtedness within the grace period
provided in such Indebtedness, which payment default
continues beyond any applicable grace period; or
(b) results in the acceleration of such Indebtedness
prior to its express maturity; and, in each case, the
principal amount of any such Indebtedness, together
with the principal amount of any other such
Indebtedness under which there has been a payment
default or the maturity of which has been so
accelerated, aggregates $50 million or more;
(6) failure by us or any subsidiary of ours that is a Significant
Subsidiary or any group of two or more subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary to
pay final judgments for the payment of money (other than any
judgment as to which a reputable insurance company has
accepted liability subject to customary terms) aggregating in
excess of $75 million, which judgments are not paid, wired,
discharged or stayed within 60 days after their entry;
(7) certain events of bankruptcy or insolvency with respect to us
or any subsidiary of ours that is a Significant Subsidiary or
any group of two or more subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary; and
(8) the approval by our shareholders of any merger, amalgamation
or consolidation by us (whether or not we are the surviving
corporation) and whether or not such merger, amalgamation or
consolidation is in one or more related transactions if, (i)
the successor corporation, person or entity (A) does not
assume all the obligations, pursuant to a supplemental
indenture in a form reasonably satisfactory to the trustee,
under the convertible notes and the indenture (to the extent
any such supplemental indenture may be necessary, in the
opinion of the trustee, to evidence our continuing obligations
under the indenture) and (B) is not a
50
corporation, person or entity organized or existing under the
laws of the U.S., any state thereof or the District of
Columbia or (ii) immediately after the transaction, any
default or event of default exists.
If any event of default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding convertible
notes may declare all the convertible notes to be due and payable immediately,
subject to the provisions limiting payment described under the subheading
"Subordination of Convertible Notes." Notwithstanding the foregoing, if a
default occurs from (i) the events described in paragraph 8 above regarding
merger, amalgamation or consolidation or (ii) certain events of bankruptcy or
insolvency, with respect to us or any Significant Subsidiary, all outstanding
convertible notes will become immediately due and payable without further action
or notice. Holders of the convertible notes may not enforce the indenture or the
convertible notes except as provided in the indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
convertible notes may direct the trustees in its exercise of any trust or power.
The trustee may withhold from holders of the convertible notes notice of any
continuing default or event of default, except a default or event of default
relating to the payment of principal or interest, if it determines that
withholding notice is in their interest.
If the convertible notes are accelerated because an event of default
has occurred and is continuing as a result of the acceleration of any
Indebtedness described in paragraph 5 above, the acceleration shall be
automatically annulled if:
o the holders of any Indebtedness described in such paragraph 5,
above, have rescinded the declaration of acceleration in
respect of such Indebtedness within 30 days after the date of
such declaration;
o the annulment of the acceleration of the convertible notes
would not conflict with any judgment or decree of a court of
competent jurisdiction; and
o all existing events of default, except for nonpayment of
principal of or interest on the convertible notes that became
due solely because of the acceleration of the convertible
notes, have been cured or waived.
The holders of a majority in aggregate principal amount of the then
outstanding convertible notes by notice to the trustee may on behalf of all of
the holders waive any existing default or event of default and its consequences
under the indenture except a continuing default or event of default in the
payment of interest on or the principal of the convertible notes.
We are required to deliver to the trustee annually a statement
regarding compliance with the indenture, and we are required, upon becoming
aware of any default or event of default, to deliver to the trustee a statement
specifying that default or event of default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of ours, as
such, shall have any liability for any of our obligations under the convertible
notes or the indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of the convertible notes by
accepting a convertible note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the convertible notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the SEC that a waiver of such liabilities
is against public policy.
UNCLAIMED MONEY; PRESCRIPTION
If money deposited with the trustee or paying agent for the payment of
principal or interest remains unclaimed for two years, the trustee and the
paying agent shall pay the money back to us at our written request. After that,
holders of convertible notes entitled to the money must look to us for payment
unless an abandoned property law designates another person and all liability of
the trustee and the paying agent shall cease. Other than as described in this
paragraph, the indenture does not provide for any prescription period for the
payment of interest and principal on the convertible notes.
BOOK ENTRY
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The convertible notes were issued in the form of a global security
issued in reliance on Rule 144A under the Securities Act and a global security
issued in reliance on Regulation S under the Securities Act. Upon the issuance
of a global security, the depository or its nominee credited the accounts of
persons holding through it with the respective principal amounts of the
convertible notes represented by such global security. Such accounts were
designated by the initial purchaser with respect to convertible notes placed by
the initial purchaser for us. Ownership of beneficial interests in a global
security are limited to persons that have accounts with the depository, which
are referred to as "participants," or persons that may hold interests through
participants. Ownership of beneficial interests by participants in a global
security are shown on, and the transfer of that ownership interest will be
effected only through, records maintained by the depository for such global
security. Ownership of beneficial interests in such global security by persons
that hold through participants are shown on, and the transfer of that ownership
interest through such participant are effected only through, records maintained
by such participant. The foregoing may impair the ability to transfer beneficial
interests in a global security.
Payment of all amounts due on convertible notes represented by any such
global security are made to the depository or its nominee, as the case may be,
as the sole holder of the convertible notes represented thereby for all purposes
under the indenture. None of us, the trustee, any of our agents or the initial
purchaser have any responsibility or liability for any aspect of the
depository's records relating to or payments made on account of beneficial
ownership interests in any global security representing any convertible notes or
for maintaining, supervising or reviewing any of the depository's records
relating to such beneficial ownership interests.
We have been advised by the depository that, upon receipt of any
payment on any global security, the depository will immediately credit, on its
book-entry registration and transfer system, the accounts of participants with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such global security as shown on the records of the
depository. Payments by participants to owners of beneficial interests in a
global security held through such participants will be governed by standing
instructions and customary practices as is now the case with securities held for
customer accounts registered in "street name," and will be the sole
responsibility of such participants.
A global security may not be transferred except as a whole by the
depository for such global security to a nominee of such depository or by a
nominee of such depository to such depository or another nominee of such
depository or by such depository or any such nominee to a successor of such
depository or a nominee of such successor. If the depository is at any time
unwilling or unable to continue as depository and a successor depository is not
appointed by us or the depository within 90 days, we will issue convertible
notes in definitive form in exchange for the global security. In either
instance, an owner of a beneficial interest in the global security will be
entitled to have convertible notes equal in principal amount to such beneficial
interest registered in its name and will be entitled to physical delivery of
such convertible notes in definitive form. Convertible notes so issued in
definitive form will be issued in denominations of $1,000 and integral multiples
thereof and will be issued in registered form only, without coupons. Amounts due
on the convertible notes will payable, and the convertible notes may be
presented for registration of transfer or exchange, at the offices of the
trustee.
So long as the depository for a global security, or its nominee, is the
registered owner of such global security, such depository or such nominee, as
the case may be, will be considered the sole holder of the convertible notes
represented by such global security for the purposes of receiving payment on the
convertible notes, receiving notices and for all other purposes under the
indenture and the convertible notes. Beneficial interests in convertible notes
are evidenced only by, and transfers thereof are effected only through, records
maintained by the depository and its participants. Cede & Co. has been appointed
as the nominee of the depository. Except as provided above, owners of beneficial
interests in a global security are not entitled to certificates and are not
considered the holders thereof for any purposes under the indenture. Accordingly
any such person owning a beneficial interest in such a global security must rely
on the procedures of the depository, and, if any such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a holder under the indenture. The
indenture will provide that the depository may grant proxies and otherwise
authorize participants to give or to take any request, demand, authorization,
direction, notice, consent, waiver or other action which a holder is entitled to
give or take under the indenture. We understand that under existing industry
practices, if we request any action of holders or if an owner of a beneficial
interest in such a global security desires to give or take any action which a
holder is entitled to give or take under the indenture, the depository would
authorize the participants holding the relevant beneficial interest to give or
52
take such action and such participants would authorize beneficial owners owning
through such participants to give or take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
The Depository Trust Company, which is referred to as "DTC," has been
appointed as the initial depository. DTC has advised us that it is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under the Exchange Act. DTC was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. DTC's participants include
securities brokers and dealers (including the initial purchaser), banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own the depository. Access to DTC's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies, that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Beneficial interests in any global security may be exchanged for
beneficial interests in any other global security only in connection with a
transfer of such interest. Such transfers are subject to compliance with
customary certification requirements which are set forth in the indenture.
Any beneficial interest in one of the global securities that is
exchanged for an interest in any other global security will cease to be an
interest in such global security and will become an interest in such other
global security. Accordingly, such interest will thereafter be subject to all
transfer restrictions and other procedures applicable to beneficial interests in
such other global security for as long as it remains such an interest. Any
exchange of a beneficial interest in one global security for a beneficial
interest in any other global security will be effected by DTC by means of an
instruction originated by the trustee through its Deposit/Withdraw at Custodian
system. Accordingly, in connection with any such exchange, appropriate
adjustments will be made in the records of the registrar to reflect a decrease
in the principal amount of such global security and a corresponding increase in
the principal amount of such other global security.
PAYMENTS OF PRINCIPAL AND INTEREST
The indenture requires that payments in respect of the convertible
notes held of record by DTC or its nominee (including convertible notes
evidenced by the global securities) be made in same day funds. Payments in
respect of the convertible notes held of record by holders other than DTC may,
at our option, be made by check and mailed to such holders of record as shown on
the register for the convertible notes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the indenture or
the convertible notes may be amended or supplemented with the consent of the
holders of at least a majority in aggregate principal amount of the then
outstanding convertible notes, as applicable, including consents obtained in
connection with a tender offer or exchange offer for the convertible notes, and
any existing default or compliance with any provision of the indenture or the
convertible notes may be waived with the consent of the holders of a majority in
aggregate principal amount of then outstanding convertible notes, including
consents obtained in connection with a tender offer or exchange offer for the
convertible notes.
Without the consent of each holder affected, an amendment or waiver may
not:
o reduce the amount of convertible notes whose holders must
consent to an amendment, supplement or waiver;
o reduce the principal of or change the fixed maturity of any
convertible note or alter the provisions with respect to the
redemption of the convertible notes, except for provisions,
including relevant definitions, relating to repurchases of the
convertible notes pursuant to the covenant described above
under the subheading "Repurchase at the Option of Holders;"
o reduce the rate of or change the time for payment or accrual
of interest on any convertible note;
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o waive a default in the payment of principal of or interest on
any convertible notes, except a rescission of acceleration of
the convertible notes by the holders of at least a majority in
aggregate principal amount of the convertible notes and a
waiver of the payment default that resulted from such
acceleration;
o make any convertible note payable in money other than that
stated in the convertible notes;
o make any change in the provisions of the indenture relating to
waivers of past defaults or the rights of holders of
convertible notes to receive payments of principal of or
interest on the convertible notes;
o waive a redemption payment with respect to any convertible
note;
o impair the right to convert the convertible notes into class A
common stock;
o modify the conversion or subordination provision of the
indenture in a manner adverse to the holders of the
convertible notes; or
o make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of
convertible notes, we and the trustee may amend or supplement the indenture or
the convertible notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated convertible notes in addition to or in place of certificated
convertible notes, to provide for the assumption of our obligations to holders
of the convertible notes in the case of a merger or consolidation or certain
transfers or leases, to make any change that would provide any additional rights
or benefits to the holders of the convertible notes or that does not adversely
affect the legal rights under the indenture of any such holder, or to comply
with requirements of the SEC in order to maintain the qualification of the
indenture under the Trust Indenture Act.
GOVERNING LAW AND JUDGMENTS
The convertible notes and the indenture are governed exclusively by and
construed in accordance with the laws of the State of New York without giving
effect to applicable principles of conflicts of laws to the extent that the
application of the law of another jurisdiction would be required thereby.
We will submit to the jurisdiction of the U.S. federal and New York
state courts located in the borough of Manhattan, City and State of New York for
purposes of all legal actions and proceedings instituted in connection with the
convertible notes and indenture.
CONCERNING THE TRUSTEE
The indenture contains limitations on the rights of the trustee, should
it become a creditor of ours, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as security
or otherwise. The trustee may engage in other transactions; however, if it
acquires any conflicting interest it must eliminate that conflict within 90
days, apply to the SEC for permission to continue or resign.
The holders of the majority in aggregate principal amount of the then
outstanding convertible notes have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
trustee under the indenture, subject to certain exceptions. The indenture
provides that in case an event of default shall occur, which shall not be cured
or waived, the trustee is required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the trustee is under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of convertible
notes, unless the holder shall have offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
DEFINITIONS
The following are selected defined terms that are used in the
indenture. Reference is made to the indenture for a full definition of all
terms, as well as certain other terms used in this description of the
convertible notes for which no definition is provided.
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"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents, however designated, of corporate stock, including,
without limitation, partnership interests.
"Continuing Director" means, as of any date of determination, any
member of our Board of Directors who:
(a) was a member of such Board of Directors on the date of the
indenture; or
(b) was nominated for election or elected to such Board of
Directors with the affirmative vote of a majority of the
Continuing Directors who were members of such Board at the
time of such nomination or election or was nominated for
election or elected by the Principal and his Related Parties.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock, but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock.
"Excess Payment" means the excess of (A) the aggregate of the cash and
value of other consideration paid by us or any of our subsidiaries with respect
to our shares acquired in a tender offer or other negotiated transaction over
(B) the market value of such acquired shares after giving effect to the
completion of a tender offer or other negotiated transaction.
"Exchange Rate Contract" means, with respect to any person, any
currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements, exchange rate insurance and
other agreements or arrangements, or combination thereof, the principal purpose
of which is to provide protection against fluctuations in currency exchange
rates. An Exchange Rate Contract may also include an Interest Rate Agreement.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the Issuance Date and are applied on a consistent basis.
"Guarantee" means a guarantee, other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner, including, without limitation, letters of credit and
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
"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 (which
purchase price is due more than six months after the placing into service or
delivery of such property) including pursuant to capital leases and
sale-and-leaseback transactions, or representing any hedging obligations under
an Exchange Rate Contract or an Interest Rate Agreement, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing indebtedness, other than obligations under an Exchange Rate
Contract or an Interest Rate Agreement, would appear as a liability upon a
balance sheet of such person prepared in accordance with GAAP, and also
includes, to the extent not otherwise included, the Guarantee of items which
would be included within this definition. The amount of any Indebtedness
outstanding as of any date shall be the accreted value thereof, in the case of
any Indebtedness issued with original issue discount. Indebtedness shall not
include liabilities for taxes of any kind.
"Interest Rate Agreement" means, with respect to any person, any
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement or other similar agreement the principal purpose of which is to
protect the party indicated therein against fluctuations in interest rates.
"Issuance Date" means the date on which the convertible notes are first
authenticated and issued.
"Senior Debt" means the principal of, interest on and other amounts due
on (i) our Indebtedness, whether outstanding on the date of the indenture or
thereafter created, incurred, assumed or guaranteed by us, for money borrowed
from banks or other financial institutions; (ii) Indebtedness, whether
outstanding on the date of the indenture or thereafter
55
created, incurred, assumed or guaranteed by us; (iii) our Indebtedness under
interest rate swaps, caps or similar hedging agreements and foreign exchange
contracts, currency swaps or similar agreements; unless, in the instrument
creating or evidencing or pursuant to which Indebtedness under (i) or (ii) is
outstanding, it is expressly provided that such Indebtedness is not senior in
right of payment to the convertible notes. Senior Debt includes, with respect to
the obligations described in clauses (i) and (ii) above, interest accruing,
pursuant to the terms of such Senior Debt, on or after the filing of any
petition in bankruptcy or for reorganization relating to us, whether or not
post-filing interest is allowed in such proceeding, at the rate specified in the
instrument governing the relevant obligation. Notwithstanding anything to the
contrary in the foregoing, Senior Debt shall not include: (a) Indebtedness of or
amounts owed by us for compensation to employees, or for goods or materials
purchased in the ordinary course of business, or for services; and (b)
Indebtedness which we owe to any of our subsidiaries.
"Significant Subsidiary" means any subsidiary of ours which is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act and the Exchange Act, as such regulation is in effect on the date
of the indenture.
56
REGISTRATION RIGHTS
The following summary of the registration rights provided in the
registration rights agreement and the convertible notes is not complete. You
should refer to the registration rights agreement and the convertible notes for
a full description of the registration rights that apply to the convertible
notes and the class A common stock issuable upon conversion thereof.
Pursuant to a registration rights agreement we have agreed for the
benefit of the holders of the convertible notes, that (i) we will, at our cost,
within 90 days after the closing of the sale of the convertible notes, which we
refer to as the "Closing," file a shelf registration statement, which we refer
to as the "Shelf Registration Statement," with the SEC with respect to resales
of the convertible notes and the class A common stock issuable upon conversion
thereof, (ii) we will use our best efforts to cause such Shelf Registration
Statement to be declared effective by the SEC within 270 days after the Closing,
and (iii) we will use our best efforts to keep such Shelf Registration Statement
continuously effective under the Securities Act until, subject to certain
exceptions specified in the registration rights agreement, the second
anniversary of the date of the Closing. We will be permitted to delay the filing
of the Shelf Registration Statement (for a period not to exceed 60 days), which
delay shall not be considered a "Registration Default," as defined below, or
suspend use of the prospectus that is part of the Shelf Registration Statement
during certain periods of time and in certain circumstances relating to pending
corporate developments and public filings with the SEC and similar events as
determined in our sole discretion, which suspension shall not be considered a
"Registration Default," as defined below, unless it continues for a period in
excess of 90 consecutive days. Except as provided above, if (a) we fail to file
the Shelf Registration Statement required by the registration rights agreement
on or before 90 days after Closing, (b) such Shelf Registration Statement is not
declared effective by the SEC on or prior to 270 days after Closing, which is
referred to as the "Effectiveness Target Date," or (c) the Shelf Registration
Statement is effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities (as defined below)
during the periods specified in the registration rights agreement (each such
event referred to in clauses (a) through (c)) above is a "Registration
Default"), then we will pay special interest to each holder of convertible
notes, with respect to the first 90 consecutive-day period immediately following
the occurrence of such Registration Default, an amount equal to an increase in
the annual interest on the convertible notes of 0.25% and with respect to each
subsequent 90 consecutive-day period, an amount equal to an increase in the
annual interest rate on the convertible notes of 0.25% until all Registration
Defaults have been cured up to a maximum increase in the annual rate of interest
on the convertible notes equal to 1.0%. All accrued special interest will be
paid by us on each subsequent interest payment date in cash. Such payment will
be made to the holder of the convertible note by wire transfer of immediately
available funds or by federal funds check. Following the cure of all
Registration Defaults, the accrual of special interest will cease.
For purposes of the foregoing, "Transfer Restricted Securities" means
each convertible note and the class A common stock issuable upon conversion
thereof until (i) the date on which such convertible note or the class A common
stock issuable upon conversion thereof has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement, (ii) the date on which such convertible note or the class A common
stock issuable upon conversion thereof is distributed to the public pursuant to
Rule 144 under the Securities Act (or any similar provision then in effect) or
is saleable pursuant to Rule 144(k) under the Act or (iii) the date on which
such convertible note or the class A common stock issuable upon the conversion
thereof ceases to be outstanding.
If we expect to file and obtain the effectiveness of a Shelf
Registration Statement within 30 days of the effective date of the Registration
Rights Agreement, which we refer to as an "Expedited Filing," we shall (x) mail,
as promptly as reasonably practicable after the effective date of the
Registration Rights Agreement to the holders of Transfer Restricted Securities,
a Notice and Questionnaire, in substantially the form attached hereto as
Appendix A, which we refer to as a "Notice and Questionnaire," with a response
deadline of 30 days from the date of such notice, which we refer to as the
"Expedited Filing Questionnaire Deadline," and (y) as promptly as practicable
after the response deadline but in any event no later than 30 days thereafter,
prepare a prospectus supplement (and if required file an amendment or a
supplement to the Shelf Registration Statement) or take such other measures, if
any, as are necessary to include in the Shelf Registration Statement the
Transfer Restricted Securities of Electing Holders (as defined below). If we do
not intend to make an Expedited Filing, we shall mail the Notice and
Questionnaire to the holders of Transfer Restricted Securities not less than 20
business days prior to the time we intend in good faith to have the Shelf
Registration Statement declared effective, which we refer to as the "Effective
Time." No holder of Transfer Restricted Securities shall be entitled
57
to be named as a selling security holder in the Shelf Registration Statement as
of the effective time of such Shelf Registration Statement (or in the first
prospectus supplement filed thereafter in the case of the Expedited Filing), and
no holder of Transfer Restricted Securities shall be entitled to use the
prospectus forming a part thereof for offers and resales of Transfer Restricted
Securities at any time, unless such holder has returned a completed and signed
Notice and Questionnaire to us by the deadline for response set forth therein.
We shall not be required to take any action to name such holder as a
selling securityholder in the Shelf Registration Statement until such holder has
returned a completed and signed Notice and Questionnaire to us. Following our
receipt of such Notice and Questionnaire, we will as promptly as possible, but
not prior to the next required amendment or supplement to the Shelf Registration
Statement, include the Transfer Restricted Securities covered thereby in the
Shelf Registration Statement (if not previously included). The term "Electing
Holder" shall mean any holder of Transfer Restricted Securities that has
returned a completed and signed Notice and Questionnaire to us in accordance
with the preceding two paragraphs.
We will provide to each registered holder of convertible notes, or the
class A common stock issuable upon conversion of the convertible notes, who is
named in the prospectus and who so requests in writing, copies of the prospectus
which will be a part of such Shelf Registration Statement, notify each such
holder when such Shelf Registration Statement for the convertible notes or the
class A common stock issuable upon conversion of the convertible notes has
become effective and take certain other actions as required to permit
unrestricted resales of the convertible notes or the class A common stock
issuable upon conversion of the convertible notes. A holder of the convertible
notes or the class A common stock issuable upon conversion of the convertible
notes that sells such securities pursuant to a Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement which are applicable to such holder, including certain indemnification
and contribution rights and obligations.
Upon the initial sale of convertible notes or class A common stock
issuable upon conversion of the convertible notes, each selling holder will be
required to deliver a notice of such sale to the trustee and us. The notice
will, among other things, identify the sale as a transfer pursuant to the Shelf
Registration Statement, certify that the prospectus delivery requirements, if
any, of the Securities Act have been complied with, and certify that the selling
holder and the aggregate principal amount of securities owned by such holder are
identified in the related prospectus in accordance with the applicable rules and
regulations under the Securities Act.
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DESCRIPTION OF OUR CAPITAL STOCK
GENERAL
Our authorized capital stock currently consists of:
o 3,200,000,000 shares of common stock, of which 1,600,000,000
shares are designated class A common stock, 800,000,000 shares
are designated class B common stock and 800,000,000 shares are
designated class C common stock; and
o 20,000,000 shares of preferred stock
As of January 23, 2002, 241,136,634 shares of class A common stock were
issued and outstanding and held of record by 6,092 stockholders, 238,435,208
shares of class B common stock were issued and outstanding and held of record by
Charles W. Ergen, our chairman and chief executive officer, and no shares of
class C common stock were issued and outstanding. As of January 23, 2002,
5,760,470 shares of series D convertible preferred stock were issued and
outstanding and held of record by a wholly-owned subsidiary of Vivendi
Universal. All outstanding shares of the class A common stock, class B common
stock and series D convertible preferred stock are fully paid and nonassessable.
A summary of the powers, preferences and rights of the shares of each class of
common stock and each outstanding series of preferred stock is described below.
The transfer agent for our capital stock, including the class A common
stock, is Computershare Investor Services, formerly known as American Securities
Transfer & Trust, Inc.
CLASS A COMMON STOCK
Each holder of class A common stock is entitled to one vote for each
share owned of record on all matters submitted to a vote of stockholders. Except
as otherwise required by law, the class A common stock votes together with the
class B common stock and the class C common stock on all matters submitted to a
vote of stockholders. Subject to the preferential rights of any outstanding
series of preferred stock and to any restrictions on the payment of dividends
imposed under the terms of our indebtedness, the holders of class A common stock
are entitled to such dividends as may be declared from time to time by our Board
of Directors from legally available funds and, together with the holders of the
class B common stock, are entitled, after payment of all prior claims, to
receive pro rata all of our assets upon a liquidation. Holders of class A common
stock have no redemption, conversion or preemptive rights.
CLASS B COMMON STOCK
Each holder of class B common stock is entitled to ten votes for each
share of class B common stock on all matters submitted to a vote of
stockholders. Except as otherwise required by law, the class B common stock
votes together with the class A common stock and the class C common stock on all
matters submitted to a vote of the stockholders. Each share of class B common
stock is convertible, at the option of the holder, into one share of class A
common stock. The conversion ratio is subject to adjustment from time to time
upon the occurrence of certain events, including: (i) dividends or distributions
on class A common stock payable in class A common stock or certain other capital
stock; (ii) subdivisions, combinations or certain reclassifications of class A
common stock; and (iii) issuances of rights, warrants or options to purchase
class A common stock at a price per share less than the fair market value of the
class A common stock. Each share of class B common stock is entitled to receive
dividends and distributions upon liquidation on a basis equivalent to that of
the class A common stock and class C common stock.
CLASS C COMMON STOCK
Each holder of class C common stock is entitled to one vote for each
share of class C common stock on all matters submitted to a vote of
stockholders. Except as otherwise required by law, the class C common stock
votes together with class A common stock and the class B common stock on all
matters submitted to a vote of stockholders. Each share of class C common stock
is convertible into class A common stock on the same terms as the class B common
stock. Each share of class C common stock is entitled to receive dividends and
distributions upon liquidation on a basis equivalent to that of the class A
common stock and class B common stock. Upon a change of control of our company,
59
each holder of outstanding shares of class C common stock is entitled to cast
ten votes for each share of class C common stock held by such holder. We do not
currently intend to issue any shares of class C common stock. Under current
National Association of Securities Dealers rules, we are not able to issue class
C common stock so long as the class A common stock is quoted on the Nasdaq
National Market.
PREFERRED STOCK
Our Board of Directors is authorized to divide the preferred stock into
series and, with respect to each series, to determine the preferences and rights
and the qualifications, limitations or restrictions of the series, including the
dividend rights, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions, the number of shares
constituting the series and the designation of such series. Our Board of
Directors may, without stockholder approval, issue additional preferred stock of
existing or new series with voting and other rights that could adversely affect
the voting power of the holders of common stock and could have certain
anti-takeover effects.
Series C Preferred Stock
Effective July 6, 2001, we redeemed, for cash, all of our remaining
outstanding 6 3/4% Series C Cumulative Convertible Preferred Stock at a
redemption price of $51.929 per share.
Series D convertible preferred stock
Each share of series D convertible preferred stock is convertible into
ten shares of class A common stock: (i) at the option of the holder at any time
and from time to time and (ii) unless previously converted, automatically: (1)
immediately prior to the effectiveness of our proposed merger with Hughes; (2)
on the first date on which the aggregate number of shares of class A common
stock that Vivendi Universal may receive upon conversion of series D convertible
preferred stock held or received upon prior conversions of series D convertible
preferred stock is less than 29,378,443 (as such number may be adjusted from
time to time as necessary to reflect appropriately any stock splits,
subdivisions, combinations and similar changes to our capital stock); (3) upon
any purported sale, assignment, transfer or disposition of a share of series D
convertible preferred stock or the beneficial ownership thereof to any person
other than Vivendi Universal or any direct or indirect wholly-owned subsidiary
of Vivendi Universal; or (4) on January 22, 2007. The number of shares of the
series D convertible preferred stock is subject to adjustment from time to time
as necessary to reflect appropriately any subdivisions, combinations and similar
changes to our common stock.
The aggregate liquidation preference for the series D convertible
preferred stock is approximately $1.5 billion, or approximately $260.40 per
share, plus any declared and unpaid dividends. The series D convertible
preferred stock ranks senior to our common stock upon liquidation and equal to
all other series and classes of our capital stock which are not specifically
made senior or junior to the series D convertible preferred stock.
The series D convertible preferred stock is entitled to receive, when
and as declared by our Board of Directors, dividends or distributions on each
date that they are payable on our class A common stock, in an amount per share
equal to ten times that amount per share payable to the class A common stock.
Upon a change of control, as defined below, holders of the series D
convertible preferred stock shall be entitled to be paid in full the liquidation
preference per share plus any declared and unpaid dividends to the date of the
change of control. For purposes of the series D convertible preferred stock, a
"change of control" is any transaction or series of related transactions the
result of which is that the holders of our voting stock outstanding immediately
prior to such transaction or series of related transactions have less than 50%
of the voting power in the election of members of our Board of Directors
immediately after such transaction or series of related transactions.
Each share of series D convertible preferred stock is entitled ten
votes per share on any matter on which holders of class A common stock are
entitled to vote. In addition, the vote or consent of the holders of a majority
of the series D convertible preferred stock is required for certain matters that
would adversely affect the rights, privileges and preferences of the series D
convertible preferred stock of such holders.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our articles of incorporation provide that our directors are not
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as a director, except in certain cases where liability is
mandated by Nevada corporate law. The provision has no effect on any
non-monetary remedies that may be available to us or our stockholders and does
not relieve us or our directors from complying with federal or state securities
laws. Our articles of incorporation and by-laws provide for indemnification, to
the fullest extent permitted by Nevada corporate law, of any person who is or
was involved in any manner in any investigation, claim or other proceeding by
reason of the fact that such person is or was a director or officer of our
company, or is or was serving at our request as a director or officer of another
corporation, against all expenses and liabilities actually and reasonably
incurred by such person in connection with the investigation, claim or other
proceeding. However, no indemnification may be made for any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of such person's duty to us.
NEVADA LAW AND LIMITATIONS ON CHANGES IN CONTROL
The Nevada Revised Statutes prevent an "interested stockholder" defined
generally as a person owning 10% or more of a corporation's outstanding voting
stock, from engaging in a "combination" with a publicly-held Nevada corporation
for three years following the date such person became an interested stockholder
unless, before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approves the combination.
The provisions authorizing our Board of Directors to issue preferred
stock without stockholder approval and the provisions of the Nevada Revised
Statutes relating to combinations with interested stockholders could have the
effect of delaying, deferring or preventing a change in our control or the
removal of our existing management. Each of the indentures relating to the
senior notes of EBC and EDBS and the indentures relating to the previously
issued convertible notes and the convertible notes in this offering also contain
provisions with respect to a change of control. The series C preferred stock
certificate of designation also contains certain change of control provisions.
Charles W. Ergen, our chairman and chief executive officer, owns
238,435,208 shares of class B common stock, which constitute all of the
outstanding class B shares. These shares are transferable to other persons,
subject to securities laws limitations. If Mr. Ergen transferred a substantial
portion of his shares of class B common stock, a change in control of us would
result and Mr. Ergen would receive any premium paid for control of our company.
In addition, any such change in control would result in an obligation on the
part of EBC and EDBS to offer to purchase at a premium all of their outstanding
senior notes and for us to purchase the previously issued convertible notes and
the convertible notes offered in this offering.
61
SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal income tax
considerations that may be relevant to the purchase, ownership and disposition
of the convertible notes and the class A common stock into which the convertible
notes may be converted, but does not purport to be a complete analysis of all
the potential tax considerations relating thereto. This summary deals only with
holders that hold convertible notes and class A common stock as capital assets
and does not address tax considerations applicable to investors that may be
subject to special tax rules such as dealers in securities, financial
institutions, insurance companies, tax-exempt entities, persons holding the
convertible notes as part of a hedging or conversion transaction, a straddle or
a constructive sale, persons whose functional currency is not the U.S. dollar,
and holders of convertible notes that did not acquire the convertible notes in
the initial distribution thereof at their original issue price. In addition,
this discussion does not consider the effect of any estate, gift or other tax
laws.
As used in this summary:
o A "United States Holder" means a beneficial owner of the
convertible notes or the class A common stock into which the
convertible notes may be converted, who or that:
o is a citizen or resident of the U.S.;
o is a corporation, partnership or other entity created
or organized in or under the laws of the U.S. or
political subdivision thereof;
o is an estate the income of which is subject to U.S.
federal income taxation regardless of its source; or
o is a trust if (a) a U.S. court is able to exercise
supervision over the administration of the trust and
one or more U.S. fiduciaries have authority to
control all substantial decisions of the trust, or
(b) the trust has a valid election in effect under
applicable U.S. treasury regulations to be treated as
a U.S. Person;
o A "Foreign Holder" is a beneficial owner of convertible notes
or class A common stock that is not a United States Holder;
o "Code" means the U.S. Internal Revenue Code of 1986, as amended to
date; and
o "IRS" means the U.S. Internal Revenue Service.
THE DISCUSSION OF THE U.S. FEDERAL INCOME TAX CONSIDERATIONS BELOW IS
BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, THE APPLICABLE TREASURY
REGULATIONS PROMULGATED AND PROPOSED UNDER THE CODE, JUDICIAL DECISIONS AND
ADMINISTRATIVE INTERPRETATIONS, ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY ON
A RETROACTIVE BASIS. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER YOU ARE
STRONGLY URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO YOUR PARTICULAR TAX
SITUATION AND THE PARTICULAR TAX EFFECTS OF ANY STATE, LOCAL NON-U.S. OR OTHER
TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
UNITED STATES HOLDER
Convertible notes
Stated interest. A United States Holder will be required to include in
gross income the stated interest on a convertible note at the time that such
interest accrues or is received, in accordance with the United States Holder's
regular method of accounting for federal income tax purposes.
Sale, exchange or redemption of the convertible notes. A United States
Holder's tax basis in a convertible note will be its cost. A United States
Holder generally will recognize gain or loss on the sale, exchange or retirement
(including a redemption by us) of a convertible note in an amount equal to the
difference between the amount of cash
62
plus the net fair market value of any property received, other than any such
amount received in respect to accrued interest (which will be taxable as such if
not previously included in income), and the United States Holder's tax basis in
the convertible note. Gain or loss recognized on the sale, exchange or
retirement of a convertible note generally will be a capital gain or loss. In
the case of a non-corporate United States Holder, the federal tax rate
applicable to capital gains will depend upon the United States Holder's holding
period for the convertible notes, with a preferential rate available for
convertible notes held for more than one year, and upon the United States
Holder's marginal tax rate for ordinary income. The deductibility of capital
losses is subject to limitations.
Conversion of the convertible notes
A United States Holder generally will not recognize any income, gain,
or loss upon conversion of a convertible note into class A common stock (except
with respect to cash received in lieu of a fractional share of class A common
stock). Such United States Holder's basis in the class A common stock received
on conversion of a convertible note will be the same as such United States
Holder's tax basis in the convertible note at the time of conversion (reduced by
any basis allocable to a fractional share interest as described below), and the
holding period for the class A common stock received on conversion will include
the holding period of the convertible note.
Cash received in lieu of a fractional share of class A common stock
will be treated as a payment in exchange for the fractional share interest in
the class A common stock. Accordingly, the receipt of cash in lieu of a
fractional share of class A common stock will generally result in capital gain
or loss (measured by the difference between the cash received for the fractional
share and the United States Holder's basis in the fractional share).
Constructive dividends
The conversion price of the convertible notes is subject to adjustment
under specified circumstances. Under Section 305 of the Code and applicable
treasury regulations, adjustments or the failure to make adjustments to the
Conversion Price of the convertible notes may result in a taxable constructive
dividend to United States Holders, resulting in ordinary income to the extent of
our earnings and profits, if, and to the extent that, the adjustments in the
Conversion Price increase the proportionate interest of a United States Holder
of a convertible note in our fully diluted stock, class A common stock, whether
or not the United States Holder ever converts the convertible notes into our
class A common stock.
Dividends on class A common stock
Dividends paid on class A common stock generally will be includible in
the income of a United States Holder as ordinary income to the extent of our
current or accumulated earnings and profits. Subject to certain limitations, a
corporate taxpayer holder of class A common stock that receives dividends
thereon generally will be eligible for a dividends-received deduction equal to
70% of the dividends received.
Sale, exchange or redemption of class A common stock
Upon the sale, exchange or redemption of class A common stock, a United
States Holder generally will recognize capital gain or loss equal to the
difference between the amount realized on the sale, exchange or redemption and
the United States Holder's adjusted basis in the class A common stock. In the
case of a non-corporate United States Holder, the federal tax rate applicable to
capital gains will depend upon the United States Holder's holding period for the
class A common stock, with a preferential rate available for class A common
stock held for more than one year, and upon the United States Holder's marginal
tax rate for ordinary income. The deductibility of capital loss is subject to
limitations.
FOREIGN HOLDERS
Convertible notes
Stated Interest. Payments of interest on a convertible note to a
Foreign Holder will not be subject to U.S. federal withholding tax provided
that:
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o the holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock entitled to
vote (treating, for such purpose, convertible notes held by a holder
as having been converted into our class A common stock);
o the holder is not a controlled foreign corporation that is related to
us through stock ownership; and
o either (a) the beneficial owner of the convertible note, under
penalties of perjury, provides us or our agent wit its name and
address and certifies that it is not a U.S. person or (b) a securities
clearing organization, bank, or other financial institution that holds
customers' securities i the ordinary course of its trade or business
(a "financial institution") certifies to us or our agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or another financial institution and furnishes
to us or our agent a copy thereof.
For purposes of this summary, we refer to this exemption from U.S.
federal withholding tax as the "Portfolio Interest Exemption." Under U.S.
treasury regulations, which generally are effective for payments made after
December 31, 2000, subject to certain transition rules, the certification under
penalties of perjury described above may also be provided by a qualified
intermediary on behalf of one or more beneficial owners or other intermediaries,
provided that such intermediary has entered into a withholding agreement with
the IRS and certain other conditions are met.
The gross amount of payments to a Foreign Holder of interest that does
not qualify for the Portfolio Interest Exemption and that is not effectively
connected to a U.S. trade or business will be subject to U.S. federal
withholding tax at the rate of 30%, unless a U.S. income tax treaty applies to
reduce or eliminate withholding.
A Foreign Holder will generally be subject to tax in the same manner as
a United States Holder with respect to payments of interest if such payments are
effectively connected with the conduct of a trade or business by the Foreign
Holder in the U.S. and, if an applicable tax treaty so provides, such gain is
attributable to a U.S. permanent establishment maintained by the Foreign Holder.
Such effectively connected income received by a Foreign Holder, which is a
corporation, may in certain circumstances be subject to an additional "branch
profits tax" at a 30% rate or, if applicable, a lower treaty rate.
To claim the benefit of a tax treaty or to claim exemption from
withholding because the income is effectively connected with a U.S. trade or
business, the Foreign Holder must provide a properly executed U.S. Treasury Form
W-8 BEN or Form W-8 ECI (or a suitable substitute form), as applicable, prior to
the payment of interest. These forms must be periodically updated. U.S. treasury
regulations, which generally are effective for payments made after December 31,
2000, subject to certain transition rules, require Foreign Holders or, under
certain circumstances, a qualified intermediary to file a withholding
certificate with our withholding agent to obtain the benefit of an applicable
tax treaty providing for a lower rate of withholding tax. Such certificate must
contain, among other information, the name and address of the Foreign Holder.
Foreign Holders should consult their own tax advisors regarding
applicable income tax treaties, which may provide different rules.
Sale, exchange or redemption of the convertible notes. A Foreign Holder
generally will not be subject to U.S. federal income tax or withholding tax on
gain realized on the sale or exchange of convertible notes unless (1) the holder
is an individual who was present in the U.S. for 31 days or more during the
calendar year and for an aggregate of 183 days during a three year period ending
in the current calendar year (which 183 day period includes all days present in
the current calendar year, one-third of the days present in the preceding
calendar year, and one-sixth of the days present in the second preceding
calendar year), and certain other conditions are met ("U.S. Resident"), (2) the
gain is effectively connected with the conduct of a trade or business of the
holder in the U.S. and, if an applicable tax treaty so provides, such gain is
attributable to a U.S. permanent establishment maintained by such holder
("Effectively Connected Income") or (3) we are or have been a "U.S. real
property holding corporation" (a "USRPHC") within a specified time period, as
described below under "-- Sale, exchange or redemption of class A common stock,"
and the holder owns or has owned (actually or constructively) more than 5% of
the total value of the convertible notes at any time during the shorter of the
five-year period preceding the date of the disposition or the holder's holding
period (in which case the gain will be treated as Effectively Connected Income).
Effectively Connected Income received by a Foreign Holder which is a corporation
may in certain circumstances be subject to an additional "branch profits tax" at
a 30% rate or, if applicable, a lower treaty
64
rate. Additionally, for USRPHC purposes, it is possible that a Foreign Holder
that initially owns 5% or less of the total value of the convertible notes may
subsequently be considered to own more than 5% of the total value of the
convertible notes due to other holders' conversion of convertible notes into
class A common stock. Regardless of whether a disposition of any convertible
note is taxable to the seller pursuant to the rules regarding USRPHCs, the
withholding requirements of Section 1445 of the Code generally will not be
applicable to a purchaser of the convertible notes or a financial intermediary
involved in any such transaction.
Conversion of the convertible notes
In general, no U.S. federal income tax or withholding tax will be
imposed upon the conversion of a convertible note into class A common stock by a
Foreign Holder except (1) to the extent the class A common stock is considered
attributable to accrued interest not previously included in income, which may be
taxable under the rules set forth in "Foreign Holders -- Stated Interest," (2)
with respect to the receipt of cash in lieu of fractional shares by Foreign
Holders upon conversion of a convertible note, in each case (and in the case of
both (1) and (2) the Foreign Holder is a U.S. Resident or the income is
Effectively Connected Income), or (3) we are a USRPHC as discussed below, the
Foreign Holder owns or has owned (actually or constructively) more than 5% of
the value of the convertible notes at any time during the shorter of the
five-year period preceding the date of conversion of the Foreign Holder's
holding period, and certain other conditions apply. For purposes of (3), it is
possible that a Foreign Holder that initially owns 5% or less of the total value
of the convertible notes may subsequently be considered to own more than 5% of
the total value of the convertible notes due to other holders' conversion of
convertible notes into class A common stock. Regardless of whether a conversion
of any convertible note is taxable to the seller pursuant to the rules regarding
USRPHCs, the withholding requirements of Section 1445 of the Code generally will
not be applied to us or a financial intermediary involved in any such
transaction.
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Sale, exchange or redemption of class A common stock
A Foreign Holder will generally not be subject to U.S. federal income
tax or withholding tax on the sale or exchange of class A common stock unless
either of the conditions described in (1) or (2) above under "Foreign Holders --
Sale, exchange or redemption of the convertible notes" is satisfied or we are or
have been a USRPHC, for U.S. federal income tax purposes at any time within the
shorter of the five-year period preceding such disposition or such Foreign
Holder's holding period. We do not believe we are, nor do we believe we have
ever been a USRPHC. Further, we do not expect in the foreseeable future to
become a USRPHC. If we are, or become, a USRPHC, so long as the class A common
stock continues to be regularly traded on an established securities market
within the meaning of Section 897(c)(3) of the Code, only a Foreign Holder who
holds or held directly, indirectly or constructively, at any time during the
shorter of the five-year period preceding the date of disposition or the Foreign
Holder's holding period, more than 5% of the class A common stock will be
subject to U.S. federal income tax on the disposition of the class A common
stock. For purposes of the ownership test described above, a Foreign Holder of
convertible notes will be considered as constructively owning the class A common
stock into which such convertible notes are convertible. Regardless of whether a
disposition of class A common stock is taxable to the seller pursuant to the
rules regarding USRPHCs, the withholding requirements of Section 1445 of the
Code generally will not be applicable to a purchaser of the class A common stock
or a financial intermediary involved in any such transaction.
Distributions on class A common stock
Distributions by us with respect to the class A common stock that are
treated as dividends paid or deemed paid (including a deemed distribution on the
convertible notes or class A common stock as described above under "United
States Holders -- Constructive dividends") to a Foreign Holder, excluding
dividends that are effectively connected with the conduct of a trade or business
in the U.S. by such Foreign Holder which are taxable as described below, will be
subject to U.S. federal withholding tax at a 30% rate, or lower rate provided
under any applicable income tax treaty. Except to the extent that an applicable
tax treaty otherwise provides, a Foreign Holder will be subject to tax in the
same manner as a United States Holder on dividends paid or deemed paid that are
effectively connected with the conduct of a trade or business in the U.S. by the
Foreign Holder. If such Foreign Holder is a foreign corporation, it may in
certain circumstances also be subject to a U.S. "branch profits tax" on such
effectively connected income at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. Even though such effectively
connected dividends are subject to income tax, and may be subject to the branch
profits tax, they will not be subject to U.S. withholding tax if the Foreign
Holder delivers U.S. Treasury Form W-8, ECI to the payor.
Under current U.S. treasury regulations, dividends paid to an address
in a foreign country are presumed to be paid to a resident of that country,
unless the payor has knowledge to the contrary, for purposes of the withholding
discussed above, and under the current interpretation of U.S. treasury
regulations, for purposes of determining the applicability of a tax treaty rate.
Under U.S. treasury regulations which generally are effective for payments made
after December 31, 2000, subject to certain transition rules, however, a Foreign
Holder of class A common stock who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification requirements.
In addition, under current U.S. treasury regulations, in the case of class A
common stock held by a foreign partnership, or other fiscally transparent
entities, the certification requirement would generally be applied to the
partners of the partnership and the partnership would be required to provide
certain information, including a U.S. taxpayer identification number. The
treasury regulations also provide look-through rules for tiered partnerships.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments
of principal, premium, if any, and interest on a convertible note, dividends on
class A common stock, and payments of the proceeds of the sale of a convertible
note or class A common stock to certain non-corporate United States Holders, and
a 31% backup withholding tax may apply to such payment if the United States
Holder (1) fails to furnish or certify his correct taxpayer identification
number to the payer in the manner required, (2) is notified by the IRS that he
has failed to report payments of interest or dividends properly or (3) under
certain circumstances, fails to certify that he has not been notified by the IRS
that he is subject to backup withholding for failure to report interest or
dividend payments.
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Information reporting requirements will apply to payments of interest
or dividends to Foreign Holders where such interest or dividends are subject to
withholding or are exempt from U.S. withholding tax pursuant to a tax treaty, or
where such interest is exempt from U.S. tax under the Portfolio Interest
Exemption discussed above. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Foreign Holder resides.
Treasury regulations provide that backup withholding and information
reporting will not apply to payments of principal on the convertible notes by us
to a Foreign Holder if the Foreign Holder certifies as to its status as a
Foreign Holder under penalties of perjury or otherwise establishes an exemption
(provided that neither we nor our paying agent has actual knowledge that the
Foreign Holder is a U.S. person or that the conditions of any other exemption
are not, in fact, satisfied).
The payment of the proceeds from the disposition of convertible notes
or class A common stock to or through the U.S. office of any broker, U.S. or
foreign, will be subject to information reporting and possible backup
withholding unless the owner certifies as to its non-U.S. status under penalty
of perjury or otherwise establishes an exemption, provided that the broker does
not have actual knowledge that the Foreign Holder is a U.S. person or that the
conditions of any other exemption are not, in fact, satisfied. The payment of
the proceeds from the disposition of a convertible note or class A common stock
to or through a non-U.S. office of a non-U.S. broker that is not a U.S. related
person will not be subject to information reporting or backup withholding. For
this purpose, a "U.S. related person" is:
o a "controlled foreign corporation" for U.S. federal income tax
purposes; or
o a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connecte with the conduct of a U.S. trade or business.
In the case of the payment of proceeds from the disposition of
convertible notes or class A common stock to or through a non-U.S. office of a
broker that is either a U.S. person or a U.S. related person, treasury
regulations require information reporting on the payment unless the broker has
documentary evidence in its files that the owner is a Foreign Holder and the
broker has no knowledge to the contrary.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
U.S. treasury regulations, which generally are effective for payments
made after December 31, 2000, subject to certain transition rules, will
generally expand the circumstances under which information reporting and backup
withholding may apply. Holders of convertible notes should consult their tax
advisors regarding the application of the information and reporting and backup
withholding rules, including such treasury regulations.
THE ABOVE SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF CONVERTIBLE NOTES IN
LIGHT OF HIS, HER OR ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH
HOLDER OF CONVERTIBLE NOTES SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO THE HOLDER OF THE OWNERSHIP AND DISPOSITION OF THE
CONVERTIBLE NOTES INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS, OR SUBSEQUENT REVISIONS OF THESE TAX LAWS.
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SELLING SECURITYHOLDERS
The convertible notes were originally issued by us and sold by the
initial purchasers in transactions not requiring registration under the
Securities Act or applicable state securities laws. The initial purchasers of
the convertible notes offered and sold the convertible notes to persons they
reasonably believed to be qualified institutional buyers in reliance on Rule
144A under the Securities Act and to a limited number of other "accredited
investors"(as defined in Rule 501(a)(1)(, (2) or (7) of the Securities Act).
Selling securityholders, which includes their transferees, pledgees or donees
and their successors, may from time to time offer and sell pursuant to this
prospectus any or all of the convertible notes or shares of class A common stock
into which they are convertible.
The following table provides information, as of the date of this
prospectus, regarding the principal amount of the convertible notes and shares
of class A common stock beneficially owned that may be offered and sold by each
selling securityholder. The information is based upon information provided to us
by each selling securityholder. The selling securityholders may have sold,
transferred or otherwise disposed of all or any portion of their convertible
notes or acquired additional convertible notes since the date on which they
provided information to us. Any of the foregoing would have been pursuant to
transactions not requiring registration under the Securities Act or applicable
state securities laws.
Because the selling securityholders may offer all or some portion of
the convertible notes and shares of class A common stock into which they are
convertible, we cannot estimate the amount of convertible notes or the number of
shares of class A common stock that will be held by the selling securityholders
upon termination of such sales.
SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
Abele, John $ 100,000 2,310
AFTRA Health Fund $ 190,000 4,389
AIG/National Union Fire Insurance $ 875,000 20,213
AK Steel Master Pension Trust $ 4,520,000 104,412
Alexandra Global Investment Fund 1, Ltd. $ 2,000,000 46,200
Allstate Insurance Company $ 4,800,000 110,880
Allstate Life Insurance Company $ 1,200,000 27,720
Alta Partners Holdings, LDC $ 19,500,000 450,450
American Investors Life Insurance $ 400,000 9,240
Company
American Samoa Government $ 52,000 1,201
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SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
Amerus Life Insurance Company $ 500,000 11,550
(Amerus Multi-Fund Convertible Account)
Arbitrex Master Fund L.P. $ 9,000,000 207,900
Argent Classic Convertible Arbitrage Fund $ 6,000,000 138,600
L.P.
Argent Classic Convertible Arbitrage Fund $ 11,000,000 254,100
(Bermuda) Ltd.
Argent Convertible Arbitrage Fund Ltd. $ 12,000,000 277,200
Argent LowLev Convertible Arbitrage Fund $ 500,000 11,550
LLC
Bank Austria Cayman Islands, Ltd. $ 12,030,000 277,893
Bankers Trust Company $ 1,065,360 24,610
Bear Stearns & Co. Inc. $ 3,600,000 83,160
Black Diamond Convertible Offshore LDC $ 500,000 11,550
Black Diamond Offshore Ltd. $ 1,180,000 27,258
BNY Hamilton Equity Income Fund $ 6,000,000 138,600
BP Amoco PLC Master Trust $ 1,535,000 35,459
BTES - Convertible ARB $ 2,000,000 46,200
BTPO - Growth VS Value $ 4,000,000 92,400
California Public Employees' Retirement $ 20,000,000 462,000
System
Campbell, Estate of James $ 331,000 7,646
Cannizaro, Salvatore $ 55,000 1,271
Canyon Capital Arbitrage Master Hedge $ 25,000,000 577,501
Fund, Ltd
Canyon MAC 18 LTD (RMF) $ 7,000,000 161,700
69
SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
Canyon Value Realization Fund (Cayman), $ 45,000,000 1,039,501
Ltd.
Canyon Value Realization Fund L.P. $ 25,000,000 577,501
CFFX, LLC $ 3,000,000 69,300
Chase Manhattan Private Bank & Trust $ 55,000 1,271
Chrysler Corporation Master Retirement $ 3,950,000 91,245
Trust
Cinader, Arthur $ 105,000 2,426
Circlet (IMA) Limited $ 2,000,000 46,200
Citicorp Life Insurance Company $ 40,000 924
Citi-SAM Fund-Ltd $ 4,300,000 99,330
Class I C Company $ 2,000,000 46,200
Clinton Multistrategy Master Fund Ltd. $ 9,850,000 227,535
Clinton Riverside Convertible Portfolio $ 15,650,000 361,515
Limited
Convertible Securities Fund $ 150,000 3,465
Crusade for Family Prayer $ 90,000 2,079
Delta Airlines Master Trust $ 1,075,000 24,833
Delta Airlines Master Trust - High Income $ 340,000 7,854
Delta Pilots D&S Trust $ 555,000 12,821
Deutsche Banc Alex Brown Inc. $ 48,200,000 1,113,421
Double Black Diamond Offshore LDC $ 5,512,000 127,327
Educational Trust $ 5,000 116
Elizabeth Town College $ 130,000 3,003
Enron North America Corp. $ 6,000,000 138,600
70
SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
Fidelity Advisor Series I: Fidelity Advisor $ 4,750,000 109,725
Dividend Growth Fund
Fidelity Advisor Series VII: Fidelity $ 5,700,000 131,670
Advisor Telecommunications & Utilities
Growth Fund
Fidelity Charles Street Trust: Fidelity Asset $ 34,160,000 789,097
Manager
Fidelity Charles Street Trust: Fidelity Asset $ 17,360,000 401,016
Manger: Growth
Fidelity Financial Trust: Fidelity $ 5,500,000 127,050
Convertible Securities Fund
Fidelity Hastings Street Trust: Fidelity Fund $ 14,620,000 337,722
Fidelity Hastings Street Trust: Fidelity $ 2,760,000 63,756
Growth & Income II Portfolio
Fidelity Management Trust Company $ 380,000 8,778
Fidelity Securities Fund: Fidelity Dividend $ 33,730,000 779,164
Growth Fund
Fidelity Select Portfolios: Multimedia $ 2,000,000 46,200
Portfolio
Fidelity Select Portfolios: $ 3,700,000 85,470
Telecommunications Portfolio
Fidelity Summer Street Trust: Fidelity $ 20,000,000 462,000
Capital & Income Fund
Fidelity Trend Fund: Fidelity Trend Fund $ 1,000,000 23,100
First Union National Bank $ 10,000,000 231,000
First Union Securities, Inc. $ 2,130,000 49,203
Fleetwood Retirement Plan $ 395,000 9,125
GCG Mid Cap Growth Series (Novelty & $ 29,680,000 685,609
Co.)
Goldman, Sachs and Company $ 330,000 7,623
71
SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
Golub Corporation Employee Retirement $ 165,000 3,812
Plan
Guidepost- A Church Corporation $ 125,000 2,888
Hamilton Partners Limited $ 10,000,000 231,000
HBK Master Fund L.P. $ 37,000,000 854,701
HFR TQA Master Trust $ 200,000 4,620
Hollow Battle & Co. $ 2,000,000 46,200
Hotel Union & Hotel Industry of Hawaii $ 565,000 13,052
Pension Plan
IL Annuity and Insurance Company $ 750,000 17,325
IMF Convertible Fund $ 900,000 20,790
Investcorp-SAM Fund Ltd $ 3,800,000 87,780
Island Holdings $ 50,000 1,155
James Campbell Corporation $ 433,000 10,002
Jeffries & Company Inc. $ 12,000 277
Jersey (IMA) Ltd. $ 550,000 12,705
JMG Capital Partners, L.P. $ 57,250,000 1,322,476
JMG Triton Offshore FD Ltd. $ 60,250,000 1,391,776
JP Morgan Securities Inc. $ 17,150,000 396,165
KBC Financial Products USA Inc. $ 3,000,000 69,300
LDG Limited $ 465,000 10,742
Leonardo L.P. $ 13,000,000 300,300
Lexington Vantage Fund Ltd. $ 200,000 4,620
LibertyView Fund LLC $ 100,000 2,310
LibertyView Funds L.P. $ 1,850,000 42,735
72
SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
Lincoln National Convertible Securities $ 500,000 11,550
Fund
Lipper Convertibles, L.P. $ 3,000,000 69,300
Lipper Convertibles, L.P. (Class B) $ 1,000,000 23,100
Lipper Convertibles Series II, L.P. $ 1,000,000 23,100
Lipper Offshore Convertibles, L.P. $ 3,000,000 69,300
Lipper Offshore Convertibles, L.P. #2 $ 1,000,000 23,100
Liz Claiborne Foundation $ 45,000 1,040
Long Island Trust c/o Klukwan, Inc. $ 5,000 116
Lyxor Master Fund $ 2,000,000 46,200
Mainstay Convertible Fund $ 2,680,000 61,908
Mainstay VP Convertible Portfolio $ 760,000 17,556
MFS Mid Cap Growth Fund $ 100,000,000 2,310,002
MFS/Sunlife Series Trust-Mid Cap Growth $ 1,380,000 31,878
Series
MFS Total Return Fund $ 5,000,000 115,500
MFS VIT-MFS Mid Cap Growth Series $ 620,000 14,322
Microsoft Corporation $ 2,820,000 65,142
Microsoft Corporation - High Income $ 1,840,000 42,504
Morgan Stanley & Co. $ 10,000,000 231,000
Motion Picture Industry Health Plan - $ 365,000 8,432
Active Member Fund
Motion Picture Industry Health Plan - $ 115,000 2,657
Retiree Member Fund
Nations Convertible Securities Fund $ 5,850,000 135,135
New York Life Separate Account #7 $ 370,000 8,547
73
SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
NMS Services (Cayman) Inc. $ 25,500,000 589,051
OCM Convertible Trust $ 1,850,000 42,735
OCM High Income Convertible Limited $ 570,000 13,167
Partnership
Ohio National Growth & Income $ 1,000,000 23,100
Ondeo Nalco $ 220,000 5,082
Partner Reinsurance Company Ltd. $ 635,000 14,669
Penn Capital Strategic High Yield Fund $ 510,000 11,781
Penn High Yield Fund $ 630,000 14,553
Pimco Convertible Fund $ 500,000 11,550
Primerica Life Insurance Company $ 728,000 16,817
Qwest Occupational Health Trust $ 275,000 6,353
Ramius Capital Group $ 1,000,000 23,100
RCG Halifax Master Fund, Ltd. $ 600,000 13,860
RCG Latitude Master Fund Ltd. $ 3,370,000 77,847
RCG Multi Strategy L.P. $ 500,000 11,550
Rhapsody Fund , L.P. $ 5,400,000 124,740
Rogers Corp. DB Pension Plan $ 40,000 924
Rogers Corp. Employees' Pension Plan $ 20,000 462
RS Mid Cap Opportunities Fund $ 1,000,000 23,100
Ruth Berry Trust DTD $ 50,000 1,155
R(2)Investments, LDC $ 60,000,000 1,386,001
Sage Capital $ 2,000,000 46,200
Salomon Smith Barney Inc. $ 8,000,000 184,800
74
SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
San Diego County Employee's Retirement $ 250,000 5,775
Association - High Income
Sandler Associates $ 4,350,000 100,485
Sandler Internet Partners $ 1,800,000 41,580
Shell Pension Trust $ 515,000 11,897
Shepard Investments International, Ltd $ 5,486,000 126,727
Sherman Fairchild Foundation, Inc. $ 330,000 7,623
Sloane, Carl S. and Toby M $ 40,000 924
Southern Farm Bureau Life Insurance $ 450,000 10,395
St. Albans Partners $ 5,000,000 115,500
Stark International $ 5,514,000 127,374
State Employees' Retirement Fund of the $ 1,570,000 36,267
State of Delaware
State of Connecticut Combined Investment $ 3,190,000 73,689
Funds
SunAmerica/MFS Mid Cap Growth $ 7,630,000 176,253
Portfolio
Sunrise Partners L.L.C $ 2,500,000 57,750
Susquehanna Capitol Group $ 1,400,000 32,340
TQA Master Fund Ltd. $ 6,138,000 141,788
Transamerica Life Canada IMS Asset $ 2,000,000 46,200
Allocation Fund
Travelers Indemnity Company, The $ 2,754,000 63,617
Travelers Insurance Company - Life, The $ 1,289,000 29,776
Travelers Insurance Company Separate $ 90,000 2,079
Account - TLAC, The
Travelers Life and Annuity Company, The $ 99,000 2,287
75
SHARES OF
CLASS A
COMMON
STOCK
OWNED
PRINCIPAL AMOUNT OF PRIOR TO
CONVERTIBLE NOTES THE SHARES OF CLASS A
BENEFICIALLY OWNED OFFERING COMMON STOCK OFFERED
NAME AND OFFERED HEREBY (1)(2) HEREBY(2)
Travelers Mid Cap Growth Portfolio $ 6,590,000 152,229
Tribeca Investments L.L.C $ 5,000,000 115,500
UBS AG $ 34,500,000 796,951
UBS AG London Branch $ 62,000,000 1,432,201
UBS Warburg LLC $ 41,385,000 955,994
University of Chicago $ 1,215,000 28,067
Value Realization Fund, LP $ 25,000,000 577,501
Vanguard Convertible Securities Fund, Inc. $ 3,250,000 75,075
Variable Insurance Products Fund III: $ 21,240,000 490,644
Growth & Income Portfolio
Viacom Inc. Pension Plan Master Trust $ 60,000 1,386
West Jersey Health and Hospital $ 45,000 1,040
Foundation
West Jersey Health System Reserve Fund $ 220,000 5,082
White River Securities L.L.C $ 2,500,000 57,750
Worldwide Transactions Ltd. $ 308,000 7,115
Zola Partners, LP $ 250,000 5,775
Zurich Institutional Benchmarks Master $ 200,000 4,620
Fund
Zurich Institutional Benchmarks Master $ 312,000 7,207
Fund Limited
Other current and future holders of $ (242,168,360) (5,594,095)
convertible notes(3)
TOTALS $ 1,000,000,000 23,100,023
----------
(1) Includes shares of class A common stock into which the notes
are convertible.
(2) Assumes a conversion price of $43.29 per share and the payment
of cash in lieu of fractional shares.
76
(3) Information concerning other selling securityholders,
including current holders of convertible notes for which we
have not received information regarding their holdings of
convertible notes and class A common stock, will be included
in supplements to this prospectus, if required. For purposes
of this table, we have assumed that such holders do not
beneficially own any other shares of class A common stock,
other than the shares issuable upon conversion of the
convertible notes.
None of the selling securityholders has had any material relationship
with us or our affiliates within the past three years.
Information concerning the selling securityholders may change from time
to time and any such changed information will be set forth in supplements to
this prospectus if and when necessary. In addition, the conversion price of the
convertible notes may be adjusted under certain circumstances which will change
the number of shares of class A common stock received upon their conversion.
77
PLAN OF DISTRIBUTION
The selling securityholders and their successors (which term includes
their transferees, pledgees or donees of their successors) may sell the
convertible notes and the class A common stock into which they are convertible
directly to purchasers or through underwriters, broker-dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions
from the selling securityholders or the purchasers (which discounts, concessions
or commissions as to any particular underwriter, broker-dealer or agent may be
in excess of those customary in the types of transactions involved).
The convertible notes and the class A common stock into which they are
convertible may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at prices related to such
prevailing market prices, at varying prices determined at the time of sale, or
at negotiated prices. Such sales may be effected in transactions (which may
involve crosses or block transactions): (1) on any national securities exchange
or quotation service on which the notes or the class A common stock may be
listed or quoted at the time of sale; (2) in the over-the-counter market; (3) in
transactions otherwise than on such exchanges or services or in the
over-the-counter market; (4) through the writing of options (whether such
options are listed on an options exchange or otherwise); or (5) through the
settlement of short sales. In connection with the sale of the convertible notes
and the class A common stock received upon their conversion or otherwise, the
selling securityholders may enter into hedging transactions with broker-dealers
or other financial institutions which may in turn engage in short sales of the
notes or the class A common stock, into which they are convertible and deliver
these securities to close out such short positions, or loan or pledge the notes
or the class A common stock into which they are convertible to broker-dealers
that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of
the convertible notes or class A common stock into which they are convertible
offered by them hereby will be the purchase price of such convertible notes or
common stock less discounts and commissions, if any. Each of the selling
securityholders reserves the right to accept and, together with their agents
from time to time, to reject, in whole or in part, any proposed purchase of
notes or common stock to be made directly or through agents. We will not receive
any of the proceeds from this offering.
Our outstanding class A common stock is listed for trading on Nasdaq
National Market. We do not intend to list the convertible notes for trading on
any national securities exchange or on the Nasdaq National market and can give
no assurance about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if
applicable, the convertible notes and class A common stock into which they are
convertible may be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the convertible notes
and class A common stock into which they are convertible may not be sold unless
they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.
The selling securityholders and any underwriters, broker-dealers or
agents that participate in the sale of the convertible notes and common stock
into which they are convertible may be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions or
profit they earn on any resale or the shares may be underwriting discounts and
commissions under the Securities Act. Selling securityholders who are
"underwriters" within the meaning of Section 2(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act. The
selling securityholders have acknowledged that they understand their obligations
to comply with the provisions of the Exchange Act and the rules thereunder
relating to stock manipulation, particularly Regulation M, and have agreed that
they will not engage in any transaction in violation of such provisions.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling
securityholder may not sell any convertible notes or class A common stock
described herein and may not transfer, devise or gift such securities by other
means not described in this prospectus.
To the extent required, the specific convertible notes or shares of
class A common stock to be sold, the names of the selling securityholders, the
respective purchase prices and public offering prices, the names of any agent,
dealer
78
or underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
LEGAL MATTERS
Friedlob Sanderson Paulson & Tourtillott, LLC, Denver, Colorado, will
pass on the validity of the convertible notes and the class A common stock
issuable upon their conversion. Mr. Friedlob, a member of the firm, is also a
member of our Board of Directors and currently owns options to acquire 38,000
shares of class A common stock. Friedlob Sanderson Paulson & Tourtillott, LLC
will rely on an opinion of Hale Lane Peek Dennison Howard and Anderson, Reno,
Nevada, as to matters of Nevada law.
Certain legal matters will be passed upon for the initial purchaser by
Paul, Hastings, Janofsky & Walker LLP, New York, New York.
INDEPENDENT ACCOUNTANTS
The audited financial statements incorporated by reference in this
prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference in reliance upon
the authority of said firm as experts in giving said report.
79
================================================================================
January 25, 2002
ECHOSTAR COMMUNICATIONS CORPORATION
$1,000,000,000
5 3/4% Convertible Subordinated Notes Due 2008
-----------------------------------------
PROSPECTUS
-----------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than any
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee.
SEC registration fee $ 250,000
Legal fees and expenses 50,000
Printing fees 25,000
Accounting fees and expenses 15,000
Transfer agent fees 50
Miscellaneous 950
------------
Total $ 341,000
============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 78.7502(1) of the Nevada Revised Statutes allows us to
indemnify any person made or threatened to be made a party to any action (except
an action by or in the right of us, a "derivative action"), by reason of the
fact that he is or was a director, officer, employee or agent of us, or is or
was serving at the request of us as a director, officer, employee or agent of
another corporation, against expenses including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in a good faith
manner which he reasonably believed to be in or not opposed to the best
interests of us and, with respect to any criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful. Under chapter 78.7502(2), a
similar standard of care applies to derivative actions, except that
indemnification is limited solely to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of the action and court
approval of the indemnification is required where the person seeking
indemnification has been found liable to us. In addition, Chapter 78.751(2)
allows us to advance payment of indemnifiable expenses prior to final
disposition of the proceeding in question. Decisions as to the payment of
indemnification are made by a majority of the Board of Directors at a meeting at
which a quorum of disinterested directors is present, or by written opinion of
special legal counsel, or by the stockholders.
Provisions relating to liability and indemnification of officers and
directors of us for acts by such officers and directors are contained in Article
IX of the Amended and Restated Articles of Incorporation of us and Article IX
our by- laws. These provisions state, among other things, that, consistent with
and to the extent allowable under Nevada law, and upon the decision of a
disinterested majority of our Board of Directors, or a written opinion of
outside legal counsel, or our stockholders: (1) we shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (other than an
action by or in the right of us) by reason of the fact that he is or was our
director, officer, employee, fiduciary or agent, or is or was serving at the
request of us as director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he conducted himself in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of us, and with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful; and (2) we shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in our right to procure a judgment in
our favor by reason of the fact that he is or was our director, officer,
employee, fiduciary or agent, or is or was serving at the request of us as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of us, except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
II-1
to be liable for negligence or misconduct in the performance of his duty to us
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
ITEM 16. EXHIBITS
2.1 Agreement and Plan of Merger, dated October 28, 2001, by and between
EchoStar Communications Corporation and Hughes Electronics Corporation
(incorporated by reference to Exhibit 99.1 to our Current Report on
Form 8-K filed October 29, 2001, Commission File No. 000-26176)
2.2 Implementation Agreement, dated October 28, 2001, by and among General
Motors Corporation, Hughes Electronics Corporation and EchoStar
Communications Corporation (incorporated by reference to Exhibit 99.2
to our Current Report on Form 8-K filed October 29, 2001, Commission
File No. 000-26176)
2.3 Stock Purchase Agreement, dated October 28, 2001, among EchoStar
Communications Corporation, Hughes Electronics Corporation, Hughes
Communications Galaxy, Inc., Hughes Communications Satellite Services,
Inc. and Hughes Communications Inc. (incorporated by reference to
Exhibit 99.3 to our Current Report on Form 8-K filed October 29, 2001,
Commission File No. 000-26176)
4.1 Indenture, dated as of May 31, 2001 between EchoStar Communications
Corporation and U.S. Bank Trust National Association, as trustee,
including the form of 5 3/4% Convertible Subordinated Note Due 2008
attached as Exhibit A thereto (incorporated by reference to Exhibit 4.1
to the our Quarterly Report on Form 10-Q for the quarter ended June 30,
2001, Commission File No. 000-26176)
4.2 Registration Rights Agreement, dated as of May 31, 2001, by and among
EchoStar Communications Corporation and the initial purchasers
(incorporated by reference to Exhibit 4.2 to our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001, Commission File No.
000-26176)
5.1 Opinion of Hale Lane Peek Dennison Howard and Anderson*
5.2 Opinion of Friedlob Sanderson Paulson & Tourtillott, LLC*
12.1 Computation of Ratio of Earnings to Fixed Changes**
23.1 Consent of Arthur Andersen LLP**
23.2 Consent of Hale Lane Peek Dennison Howard and Anderson (included in
Exhibit 5.1)*
23.3 Consent of Friedlob Sanderson Paulson & Tourtillott, LLC (included in
Exhibit 5.2)*
24.1 Power of Attorney (included on page II-4 of this registration
statement)*
25.1 Form T-1 Statement of Eligibility of U.S. Bank Trust National
Association to act as trustee under the Indenture*
99.1 Separation Agreement, dated October 28, 2001, by and between General
Motors Corporation and Hughes Electronics Corporation (incorporated by
reference to Exhibit 99.4 to our Current Report on Form 8-K filed
October 29, 2001, Commission File No. 000-26176)
----------
* PREVIOUSLY FILED
** FILED HEREWITH
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
II-2
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement;
(2) that, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering;
(4) for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(5) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue; and
(6) to file an application for the purpose of determining the
eligibility of the trustee to act under Section 310 of the Trust Indenture Act
in accordance with the rules and regulations prescribed by the SEC under Section
305(b)(2) of the Act.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Littleton, State of Colorado on January 25, 2002.
ECHOSTAR COMMUNICATIONS CORPORATION
By: /s/ Michael R. McDonnell
----------------------------------
Michael R. McDonnell
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Charles W. Ergen* Chairman and Chief Executive Officer January 25, 2002
------------------------------ (Principal Executive Officer)
Charles W. Ergen
/s/ Michael R. McDonnell Chief Financial Officer January 25, 2002
------------------------------ (Principal Financial Officer)
Michael R. McDonnell
/s/ Cantey M. Ergen* Director January 25, 2002
------------------------------
Cantey M. Ergen
/s/ David K. Moskowitz* Director January 25, 2002
------------------------------
David K. Moskowitz
/s/ Raymond L. Friedlob* Director January 25, 2002
------------------------------
Raymond L. Friedlob
/s/ O. Nolan Daines* Director January 25, 2002
------------------------------
O. Nolan Daines
/s/ James DeFranco* Director January 25, 2002
------------------------------
James DeFranco
/s/ Peter A. Dea* Director January 25, 2002
------------------------------
Peter A. Dea
*/s/ Michael R. McDonnell January 25, 2002
------------------------------
Michael R. McDonnell
Attorney-in-Fact
II-4
INDEX TO EXHIBITS
NUMBER TITLE
------- -----
2.1 Agreement and Plan of Merger, dated October 28, 2001, by and
between EchoStar Communications Corporation and Hughes
Electronics Corporation (incorporated by reference to Exhibit
99.1 to our Current Report on Form 8-K filed October 29, 2001,
Commission File No. 000-26176)
2.2 Implementation Agreement, dated October 28, 2001, by and among
General Motors Corporation, Hughes Electronics Corporation and
EchoStar Communications Corporation (incorporated by reference
to Exhibit 99.2 to our Current Report on Form 8-K filed
October 29, 2001, Commission File No. 000-26176)
2.3 Stock Purchase Agreement, dated October 28, 2001, among
EchoStar Communications Corporation, Hughes Electronics
Corporation, Hughes Communications Galaxy, Inc., Hughes
Communications Satellite Services, Inc. and Hughes
Communications Inc. (incorporated by reference to Exhibit 99.3
to our Current Report on Form 8-K filed October 29, 2001,
Commission File No. 000-26176)
4.1 Indenture, dated as of May 31, 2001, between EchoStar
Communications Corporation and U.S. Bank Trust National
Association, as trustee, including the form of 5 3/4%
Convertible Subordinated Note Due 2007 attached as Exhibit A
thereto (incorporated by reference to Exhibit 4.1 to our
Quarterly Report on Form 10-Q for the quarter ended June 30,
2001, Commission File No. 000-26176)
4.2 Registration Rights Agreement, dated as of May 31, 2001, by
and among EchoStar Communications Corporation and the initial
purchasers (incorporated by reference to Exhibit 4.2 to our
Quarterly Report on Form 10-Q for the quarter ended June 30,
2001, Commission File No. 000-26176)
5.1 Opinion of Hale Lane Peek Dennison Howard and Anderson*
5.2 Opinion of Friedlob Sanderson Paulson & Tourtillott, LLC*
12.1 Computation of Ratio of Earnings to Fixed Changes**
23.1 Consent of Arthur Andersen LLP**
23.2 Consent of Hale Lane Peek Dennison Howard and Anderson
(included in Exhibit 5.1)*
23.3 Consent of Friedlob Sanderson Paulson & Tourtillott, LLC
(included in Exhibit 5.2)*
24.1 Power of Attorney (included on page II-4 of this registration
statement)*
25.1 Form T-1 Statement of Eligibility of U.S. Bank Trust National
Association to act as trustee under the Indenture*
99.1 Separation Agreement, dated October 28, 2001, by and between
General Motors Corporation and Hughes Electronics Corporation
(incorporated by reference to Exhibit 99.4 to our Current
Report on Form 8-K filed October 29, 2001, Commission File No.
000-26176)
* Previously filed
** Filed herewith