- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
--------------- ----------------
Commission file number 0-26176
ECHOSTAR COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0336997
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
90 INVERNESS CIRCLE EAST
ENGLEWOOD, COLORADO 80112
(Address of principal executive offices) (Zip code)
(303) 799-8222
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
AS OF AUGUST 8, 1997, THE REGISTRANT'S OUTSTANDING VOTING STOCK
CONSISTED OF 11,821,563 SHARES OF CLASS A COMMON STOCK, 29,804,401 SHARES
OF CLASS B COMMON STOCK, AND 1,616,681 SHARES OF 8% SERIES A CUMULATIVE
PREFERRED STOCK, EACH $0.01 PAR VALUE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and June 30, 1997 (Unaudited) . . . . . . . . . 1
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 1996 and 1997 (Unaudited) . . 2
Condensed Consolidated Statements of Cash Flows -
Three and six months ended June 30, 1996 and 1997 (Unaudited) . . 3
Notes to Condensed Consolidated Financial Statements (Unaudited). . 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . None
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . None
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . None
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . None
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 18
DISH NETWORK-SM- IS A SERVICE MARK OF ECHOSTAR COMMUNICATIONS CORPORATION.
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31, JUNE 30,
1996 1997
--------------------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 39,231 $ 182,852
Marketable investment securities . . . . . . . . . . . . . . . . . . . . 18,807 4,952
Trade accounts receivable, net of allowance
for uncollectible accounts of $1,494 and
$1,834, respectively . . . . . . . . . . . . . . . . . . . . . . . . . 13,516 29,475
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,767 63,043
Income tax refund receivable . . . . . . . . . . . . . . . . . . . . . . 4,830 145
Subscriber acquisition costs, net. . . . . . . . . . . . . . . . . . . . 68,129 68,584
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 18,356 10,177
-------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,636 359,228
Restricted Cash and Marketable Investment Securities:
1996 Notes escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,491 --
Satellite Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 112,086
Interest Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 109,084
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,800 8,445
-------------------------
Total restricted cash and marketable investment securities . . . . . . . . 79,291 229,615
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . 590,621 728,237
FCC authorizations, net. . . . . . . . . . . . . . . . . . . . . . . . . . 72,667 94,386
Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,339 79,339
Other noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . . . 83,826 43,675
-------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,141,380 $1,534,480
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,819 $ 49,752
Deferred programming and product revenue -
DISH Network subscriber promotions . . . . . . . . . . . . . . . . . . 97,959 117,121
Deferred revenue - DISH Network. . . . . . . . . . . . . . . . . . . . . 4,407 5,269
Deferred revenue - C-band. . . . . . . . . . . . . . . . . . . . . . . . 734 588
Accrued satellite costs. . . . . . . . . . . . . . . . . . . . . . . . . -- 32,950
Accrued expenses and other current liabilities . . . . . . . . . . . . . 30,495 45,236
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . 12,563 12,198
Current portion of long-term obligations . . . . . . . . . . . . . . . . 11,334 12,332
-------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 198,311 275,446
Long-term obligations, net of current portion:
Long-term deferred signal carriage revenue. . . . . . . . . . . . . . . 5,949 7,366
1994 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437,127 467,210
1996 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386,165 411,256
1997 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 375,000
Mortgage and other notes payable, net of current portion . . . . . . . . 51,428 45,379
Other long-term obligations. . . . . . . . . . . . . . . . . . . . . . . 1,203 5,691
-------------------------
Total long-term obligations, net of current portion. . . . . . . . . . . . 881,872 1,311,902
-------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,183 1,587,348
Commitments and Contingencies (Note 8)
Stockholders' Equity:
Preferred Stock, 20,000,000 shares authorized,
1,616,681 shares of 8% Series A Cumulative
Preferred Stock issued and outstanding, including
accrued dividends of $3,347 and $3,949, respectively . . . . . . . . . 18,399 19,001
Class A Common Stock, $.01 par value, 200,000,000
shares authorized, 11,115,582 and 11,821,513 shares
issued and outstanding, respectively . . . . . . . . . . . . . . . . . 111 118
Class B Common Stock, $.01 par value, 100,000,000
shares authorized, 29,804,401 shares issued
and outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 298
Class C Common Stock, $.01 par value, 100,000,000 shares
authorized, none outstanding. . . . . --
Common Stock Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . 16 11
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 158,113 170,701
Unrealized holding gains (losses) on available-for-sale
securities, net of deferred taxes. . . . . . . . . . . . . . . . . . . (11) (11)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . (115,729) (242,986)
-------------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 61,197 ( 52,868)
-------------------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . $1,141,380 $1,534,480
-------------------------
-------------------------
See accompanying Notes to Condensed Consolidated Financial Statements.
1
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1996 1997 1996 1997
--------------------------- -------------------------
REVENUE:
DTH products and technical services . . . . . . . . . $ 60,458 $ 21,987 $ 97,199 $ 33,649
DISH Network promotions - subscription
television services and products -- 43,943 -- 76,251
DISH Network subscription television services . . . . 5,582 32,189 6,046 57,588
C-band programming. . . . . . . . . . . . . . . . . . 3,194 1,916 6,643 4,079
Loan origination and participation income . . . . . . 4,290 787 5,103 1,278
--------------------------- -------------------------
Total revenue . . . . . . . . . . . . . . . . . . . . . 73,524 100,822 114,991 172,845
EXPENSES:
DTH products and technical services . . . . . . . . . 57,528 18,231 90,278 27,718
DISH Network programming. . . . . . . . . . . . . . . 1,664 25,834 1,769 45,259
C-band programming. . . . . . . . . . . . . . . . . . 2,880 1,545 6,058 3,308
Selling, general and administrative . . . . . . . . . 19,083 34,362 29,816 66,389
Subscriber promotion subsidies. . . . . . . . . . . . -- 17,871 -- 31,013
Amortization of subscriber acquisition costs. . . . . 92 33,316 92 61,418
Depreciation and amortization . . . . . . . . . . . . 6,334 12,684 9,664 25,357
--------------------------- -------------------------
Total expenses. . . . . . . . . . . . . . . . . . . . . 87,581 143,843 137,677 260,462
--------------------------- -------------------------
Operating loss. . . . . . . . . . . . . . . . . . . . . (14,057) (43,021) (22,686) (87,617)
Other Income (Expense):
Interest income . . . . . . . . . . . . . . . . . . . 6,706 1,571 9,383 3,343
Interest expense, net of amounts capitalized. . . . . (27,141) (22,197) (33,184) (42,043)
Other . . . . . . . . . . . . . . . . . . . . . . . . (117) (117) (134) (294)
--------------------------- -------------------------
Total other income (expense). . . . . . . . . . . . . . (20,552) (20,743) (23,935) (38,994)
--------------------------- -------------------------
Loss before income taxes. . . . . . . . . . . . . . . . (34,609) (63,764) (46,621) (126,611)
Income tax benefit (provision), net . . . . . . . . . . 12,055 (25) 16,846 (44)
--------------------------- -------------------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . $(22,554) $(63,789) $(29,775) $(126,655)
--------------------------- -------------------------
--------------------------- -------------------------
Loss attributable to common shares. . . . . . . . . . . $(22,855) $(64,090) $(30,377) $(127,257)
--------------------------- -------------------------
--------------------------- -------------------------
Weighted-average common shares outstanding. . . . . . . 40,432 41,604 40,404 41,265
--------------------------- -------------------------
--------------------------- -------------------------
Loss per common and common equivalent share . . . . . . $( 0.57) $( 1.54) $( 0.75) $( 3.08)
--------------------------- -------------------------
--------------------------- -------------------------
See accompanying Notes to Condensed Consolidated Financial Statements.
2
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1997
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (29,775) $(126,655)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 9,664 25,357
Amortization of subscriber acquisition costs. . . . . . . . . . . 92 61,418
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . (11,534) (365)
Amortization of debt discount and deferred financing costs. . . . 24,530 38,731
Change in reserve for excess and obsolete inventory . . . . . . . 634 1,987
Change in long-term deferred signal carriage revenue. . . . . . . 4,163 1,417
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (666) 4,542
Changes in current assets and current liabilities, net. . . . . . . . (17,163) (15,623)
-------------------------
Net cash flows used in operating activities . . . . . . . . . . . . . . (20,055) (9,191)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities . . . . . . . . . . . . (44,782) (4,706)
Sales of marketable investment securities . . . . . . . . . . . . . . 15,479 18,561
Purchases of restricted marketable investment securities. . . . . . . (9,800) (1,645)
Purchases of property and equipment . . . . . . . . . . . . . . . . . (7,537) (19,129)
Offering proceeds and investment earnings placed in escrow. . . . . . (181,778) (221,654)
Funds released from escrow accounts and restricted cash - other . . . 71,545 72,975
Expenditures for satellite systems under construction . . . . . . . . (73,932) (47,975)
Investment in convertible subordinated debentures from SSET . . . . . -- (500)
Investment in convertible subordinated debentures from DBSI . . . . . (3,000) --
Long-term notes receivable from DBSC. . . . . . . . . . . . . . . . . (12,500) --
Expenditures for FCC authorizations . . . . . . . . . . . . . . . . . (13,652) (129)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (478)
-------------------------
Net cash flows used in investing activities . . . . . . . . . . . . . . (259,957) (204,680)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of 1996 Notes. . . . . . . . . . . . . . . 337,043 --
Net proceeds from issuance of 1997 Notes. . . . . . . . . . . . . . . -- 362,500
Repayments of mortgage indebtedness and notes payable . . . . . . . . (1,082) (5,551)
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . 722 543
-------------------------
Net cash flows provided by financing activities . . . . . . . . . . . . 336,683 357,492
-------------------------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . 56,671 143,621
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . 21,754 39,231
-------------------------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . $ 78,425 $ 182,852
-------------------------
-------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized. . . . . . . . . . $ 7,953 $ 2,352
Cash paid for income taxes. . . . . . . . . . . . . . . . . . . . . . -- --
8% Series A Cumulative Preferred Stock dividends. . . . . . . . . . . 602 602
Accrued satellite construction costs. . . . . . . . . . . . . . . . . -- 32,950
Satellite launch payment for EchoStar II applied
to EchoStar I launch. . . . . . . . . . . . . . . . . . . . . . . . 15,000 --
Increase in note payable for deferred satellite construction
payments for EchoStar I . . . . . . . . . . . . . . . . . . . . . . 3,167 --
Employee incentives funded by issuance of Class A Common Stock. . . . 8 20
The purchase price of DBSC was allocated as follows in
the related purchase accounting:
EchoStar III satellite under construction . . . . . . . . . . . . -- 51,321
FCC authorizations. . . . . . . . . . . . . . . . . . . . . . . . -- 12,500
Accounts payable and accrued expenses . . . . . . . . . . . . . . -- 1,946
Notes payable to EchoStar and subsidiaries. . . . . . . . . . . . -- 46,000
Accrued interest due EchoStar and subsidiaries. . . . . . . . . . -- 3,382
Other notes payable . . . . . . . . . . . . . . . . . . . . . . . -- 500
Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 11,993
See accompanying Notes to Condensed Consolidated Financial Statements.
3
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITIES
PRINCIPAL BUSINESS
EchoStar Communications Corporation ("ECC"), together with its
subsidiaries ("EchoStar" or the "Company"), is primarily engaged in the
operation of a direct broadcast satellite ("DBS") subscription television
service (the "DISH Network"), which commenced operations in March 1996. The
DISH Network currently provides approximately 120 channels of digital video
programming and over 30 channels of CD quality audio programming to consumers
throughout the continental United States. In addition to the DISH Network,
EchoStar designs, manufactures, distributes and installs satellite
direct-to-home ("DTH") products, distributes domestic DTH programming, and
provides consumer financing of EchoStar's DISH Network and domestic DTH
products and services. EchoStar's primary business objective is to become
one of the leading providers of subscription television and other
satellite-delivered services in the United States. EchoStar had
approximately 590,000 subscribers to DISH Network programming as of June 30,
1997.
RECENT DEVELOPMENTS
1997 NOTES OFFERING
As more fully described in Note 7, on June 25, 1997, EchoStar DBS
Corporation ("DBS Corp"), a wholly-owned subsidiary of EchoStar, consummated
an offering (the "1997 Notes Offering") of 12 1/2% Senior Secured Notes due
2002 (the "1997 Notes"). The 1997 Notes Offering resulted in net proceeds to
the Company of approximately $362.5 million. Interest on the 1997 Notes is
payable semi-annually on January 1 and July 1 of each year, commencing
January 1, 1998. Approximately $109.0 million of the net proceeds of the 1997
Notes Offering were placed in an escrow account to fund the first five
semi-annual interest payments (through January 1, 2000). The 1997 Notes were
issued in a private placement pursuant to Rule 144A of the Securities Act of
1933, as amended. The Company agreed to exchange the privately issued notes
for publicly registered notes and on July 23, 1997 filed a registration
statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission. Upon the effectiveness of the Registration Statement,
the Company will make an offer to exchange the 1997 Notes for publicly
registered notes with substantially identical terms (including principal
amount, interest rate, maturity, security and ranking). Prior to consummation
of the 1997 Notes Offering, EchoStar contributed (the "Contribution") all of
the outstanding capital stock of its wholly-owned subsidiary EchoStar
Satellite Broadcasting Corporation ("ESBC") to DBS Corp. As a result of the
Contribution, ESBC is a wholly-owned subsidiary of DBS Corp.
NEWS CORPORATION LITIGATION
On February 24, 1997, EchoStar and The News Corporation Limited ("News")
announced an agreement (the "News Agreement") pursuant to which, among other
things, News agreed to acquire approximately 50% of the outstanding capital
stock of EchoStar. News also agreed to make available for use by EchoStar
the DBS permit for 28 frequencies at 110-DEG- West Longitude
("WL") purchased by MCI Communications Corporation ("MCI") for over $682
million at a Federal Communications Commission ("FCC") auction. During late
April 1997, substantial disagreements arose between the parties regarding
their obligations under the News Agreement.
During May 1997, EchoStar initiated litigation alleging, among other
things, breach of contract, failure to act in good faith, and other causes of
action. News has denied all of EchoStar's material allegations and has
asserted numerous counterclaims against EchoStar and its Chairman and Chief
Executive Officer, Charles W. Ergen. While EchoStar is confident of its
position and believes it will ultimately prevail, the litigation process
could continue for many years and there can be no assurance concerning the
outcome of the litigation.
POTENTIAL NASDAQ DELISTING
EchoStar's Class A Common Stock is listed on the Nasdaq National Market.
In order for an issuer to continue to have one of its securities designated
as a Nasdaq National Market security, the issuer of the security must meet
certain maintenance criteria. As of June 30, 1997, EchoStar's net tangible
assets do not meet the Nasdaq National Market maintenance criteria, and
EchoStar's capital and surplus are not sufficient to meet the Nasdaq SmallCap
Market
4
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
maintenance criteria. EchoStar's negative net tangible assets were
anticipated in its business plan and are the direct result of EchoStar
financing its growth through debt financing, which the Company believes will
ultimately result in a lower cost of capital as compared to equity financing.
Because EchoStar does not satisfy either the Nasdaq National Market or
SmallCap Market listing criteria, EchoStar's Class A Common Stock may be
delisted by the National Association of Securities Dealers, Inc. (the
"NASD"), unless an exception is granted. If delisting occurs, EchoStar
expects to request a review of the delisting by a Committee of the NASD Board
of Governors. The Committee may grant or deny continued designation on the
basis of a written submission and any additional data it deems relevant.
Determinations of the Committee may be appealed to the NASD Board of
Governors. If an exception were not granted from Nasdaq delisting, trading
in EchoStar's Class A Common Stock would thereafter likely be conducted in
the over-the-counter market. If this were to occur, an investor might find
it more difficult to dispose of, or to obtain accurate quotations as to the
price of, EchoStar's Class A Common Stock. Delisting may result in a decline
in the trading market for EchoStar's Class A Common Stock, which, among other
things, could potentially depress EchoStar's stock and bond prices and impair
EchoStar's ability to obtain additional financing. While there can be no
assurance, based upon informal discussions with the NASD during which
EchoStar explained the primary factor contributing to its negative net
tangible asset position was the effect of debt versus equity financing,
EchoStar is optimistic that it will be granted an exception from delisting.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Operating results for the three and six months ended June 30,
1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments purchased with original
maturities of 90 days or less to be cash equivalents. Cash equivalents as of
December 31, 1996 and June 30, 1997 principally consisted of money market
funds, corporate notes and commercial paper; such balances are stated at cost
which equates to market value.
INCOME TAXES
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," requires that the tax benefit of net operating losses ("NOLs")
for financial reporting purposes be recorded as an asset and that deferred
tax assets and liabilities are recorded for the estimated future tax effects
of temporary differences between the tax basis of assets and liabilities and
amounts reported in the consolidated balance sheets. To the extent that
management assesses the realization of deferred tax assets to be less than
"more likely than not," a valuation reserve is established. EchoStar has
fully reserved the 1997 additions to its deferred tax assets.
NET LOSS ATTRIBUTABLE TO COMMON SHARES
Net loss attributable to common shares is calculated based on the
weighted-average number of shares of common stock issued and outstanding
during the respective periods. Common stock equivalents (warrants and
5
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
employee stock options) are excluded as they are antidilutive. Net loss
attributable to common shares is also adjusted for cumulative dividends on
the 8% Series A Cumulative Preferred Stock.
3. RESTRICTED CASH AND MARKETABLE INVESTMENT SECURITIES
Restricted cash and marketable investment securities held in escrow
accounts, as reflected in the accompanying condensed consolidated balance
sheets, represent cash restricted by the indenture associated with the 1997
Notes and the remaining restricted cash proceeds from the 1996 Notes
Offering, plus investment earnings, less amounts expended to date. A portion
of the proceeds from the 1997 Notes Offering are held in two separate escrow
accounts (the "Interest Escrow" and the "Satellite Escrow") as required by
the related indenture. Restricted cash and marketable investment securities
are invested in certain permitted debt and other marketable investment
securities until disbursed for the express purposes identified in the
respective indentures.
Other restricted cash includes balances totaling $5.7 million at
December 31, 1996 and June 30, 1997, respectively, which was restricted to
satisfy certain covenants in the 1994 Notes Indenture regarding launch
insurance for EchoStar II. In addition, as of December 31, 1996, $15.0
million was held in escrow relating to a non-performing manufacturer of DBS
receivers (see Note 8). Also, as of December 31, 1996, $10.0 million was on
deposit in a separate escrow account established, pursuant to an additional
DBS receiver manufacturing agreement, to provide for EchoStar's future
payment obligations. The $15.0 million and $10.0 million deposits were both
released from these escrow accounts in May 1997.
4. INVENTORIES
Inventories consist of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
--------------------------
(UNAUDITED)
EchoStar Receiver Systems . . . . . . . . . . . $32,799 $46,499
DBS receiver components . . . . . . . . . . . . 15,736 15,201
Consigned DBS receiver components . . . . . . . 23,525 2,681
Finished goods - International. . . . . . . . . 3,491 4,181
Finished goods - C-band . . . . . . . . . . . . 600 359
Spare parts and other . . . . . . . . . . . . . 2,279 1,771
Reserve for excess and obsolete inventory . . . (5,663) (7,649)
--------------------------
$72,767 $63,043
--------------------------
--------------------------
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
DECEMBER 31, JUNE 30,
LIFE 1996 1997
--------------------------------------
(IN YEARS) (UNAUDITED)
EchoStar I. . . . . . . . . . . . . . . 12 $201,607 $201,607
EchoStar II . . . . . . . . . . . . . . 12 228,694 228,694
Furniture, fixtures and equipment . . . 2-12 72,945 82,083
Buildings and improvements. . . . . . . 7-40 26,035 27,488
Tooling and other . . . . . . . . . . . 2 3,253 3,781
Land. . . . . . . . . . . . . . . . . . -- 2,295 2,317
Vehicles. . . . . . . . . . . . . . . . 7 1,323 1,334
Construction in progress. . . . . . . . -- 89,733 241,189
--------------------------
Total property and equipment. . . . . . 625,885 788,493
Accumulated depreciation. . . . . . . . (35,264) (60,256)
--------------------------
Property and equipment, net . . . . . . $590,621 $728,237
--------------------------
--------------------------
6
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Construction in progress consists of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
---------------------------
(UNAUDITED)
Progress amounts for satellite construction,
launch, launch insurance, capitalized interest,
and launch and in-orbit tracking, telemetry and
control services
EchoStar III. . . . . . . . . . . . . . . . . . . $29,123 $151,570
EchoStar IV . . . . . . . . . . . . . . . . . . . 56,320 77,002
Other . . . . . . . . . . . . . . . . . . . . . . 4,290 12,617
---------------------------
$89,733 $241,189
---------------------------
---------------------------
6. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
---------------------------
(UNAUDITED)
Notes receivable from DBSC, including
accrued interest of $3,382 and $0,
respectively. . . . . . . . . . . . . . . . . . . $49,382 $ --
Deferred debt issuance costs. . . . . . . . . . . . 21,284 33,619
SSET convertible subordinated debentures. . . . . . 3,649 4,075
Investment in DBSC. . . . . . . . . . . . . . . . . 4,044 --
DBSI convertible subordinated debentures. . . . . . 4,640 4,640
Other, net. . . . . . . . . . . . . . . . . . . . . 827 1,341
---------------------------
$83,826 $ 43,675
---------------------------
---------------------------
In January 1997, EchoStar acquired the remaining 60% of Direct
Broadcasting Satellite Corporation ("DBSC"), a Delaware corporation, which it
did not previously own. DBSC's principal assets include an FCC conditional
construction permit and specific orbital slot assignments for certain DBS
frequencies. Through the date of the merger, EchoStar had advanced DBSC a
total of $46.0 million to enable it to meet commitments under a satellite
("EchoStar III") construction contract. This transaction was accounted for as
a purchase and the excess of the purchase price over the fair value of DBSC's
tangible assets was allocated to DBSC's FCC authorizations. Upon
consummation of the DBSC merger, the notes receivable from DBSC and
EchoStar's investment in DBSC were eliminated in consolidation. Through June
30, 1997, EchoStar has issued approximately 647,000 shares of its Class A
Common Stock (and expects to issue an additional 11,000 shares) to acquire
the remaining 60% of DBSC which it did not previously own.
7. 1997 NOTES
On June 25, 1997, DBS Corp completed the 1997 Notes Offering consisting
of $375.0 million aggregate principal amount of the 1997 Notes. The 1997
Notes Offering resulted in net proceeds to DBS Corp of approximately $362.5
million (after payment of underwriting discounts and other issuance costs
aggregating approximately $12.5 million). The 1997 Notes bear interest at a
rate of 12 1/2%, computed semi-annually. Interest on the 1997 Notes will be
payable in cash semi-annually on January 1 and July 1 of each year, with the
first interest payment due January 1, 1998. Approximately $109.0 million of
the net proceeds of the 1997 Notes Offering were placed in the Interest
Escrow account to fund the first five semi-annual interest payments (through
January 1, 2000). Approximately $112.0 million of the net proceeds of the
1997 Notes Offering were placed in the Satellite Escrow account to fund the
construction launch and insurance of EchoStar IV.
The 1997 Notes mature on July 1,
2002.
The 1997 Notes rank PARI PASSU in right of payment with all senior
indebtedness of DBS Corp. The 1997 Notes are guaranteed on a subordinated
basis by DBS Corp's parent, EchoStar, and, contingent upon the occurrence of
certain events, will be guaranteed by ESBC and Dish, Ltd. and certain other
subsidiaries of DBS Corp and EchoStar. The 1997 Notes are secured by liens
on the capital stock of DBS Corp, EchoStar IV, and certain other assets of
DBS Corp and EchoStar. Although the 1997 Notes are titled "Senior:" (i) DBS
Corp has not issued, and does not have any plans to issue, any significant
indebtedness to which the 1997 Notes would be senior; and (ii) the 1997 Notes
are effectively subordinated to all liabilities of ECC (except liabilities to
general creditors). In addition, the ability of Dish, Ltd. to make
distributions to DBS Corp is severely limited by the terms of an indenture to
which it is subject, and the cash flow generated by the assets and operations
of DBS Corp's subsidiaries will only be available to satisfy DBS
7
ECHOSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Corp's obligations on the 1997 Notes to the extent that such subsidiaries are
able to make distributions, directly or indirectly, to DBS Corp.
Except under certain circumstances requiring prepayment premiums, and in
other limited circumstances, the 1997 Notes are not redeemable at DBS Corp's
option prior to July 1, 2000. Thereafter, the 1997 Notes will be subject to
redemption, at the option of DBS Corp, in whole or in part, at redemption
prices decreasing from 106.25% during the year commencing July 1, 2000 to
100% on or after July 1, 2002, together with accrued and unpaid interest
thereon to the redemption date.
The 1997 Notes Indenture contains restrictive covenants that, among
other things, impose limitations on the ability of DBS Corp to: (i) incur
additional indebtedness; (ii) issue preferred stock; (iii) apply the proceeds
of certain asset sales; (iv) create, incur or assume liens; (v) create
dividend and other payment restrictions with respect to DBS Corp's
subsidiaries; (vi) merge, consolidate or sell assets; (vii) incur
subordinated or junior debt; and (viii) enter into transactions with
affiliates. In addition, DBS Corp may pay dividends on its equity securities
only if: (1) no default is continuing under the 1997 Notes Indenture; and (2)
after giving effect to such dividend and the incurrence of any indebtedness
(the proceeds of which are used to finance the dividend), DBS Corps's ratio
of total indebtedness to cash flow (calculated in accordance with the 1997
Notes Indenture) would not exceed 6.0 to 1.0. Moreover, the aggregate amount
of such dividends generally may not exceed the sum of the difference of
cumulative consolidated cash flow (calculated in accordance with the 1997
Notes Indenture) minus 150% of consolidated interest expense of DBS Corp
(calculated in accordance with the 1997 Notes Indenture) plus an amount equal
to 100% of the aggregate net cash proceeds received by DBS Corp and its
subsidiaries from the issuance or sale of equity interests of DBS Corp or
EchoStar (other than equity interests sold to a subsidiary of DBS Corp or
EchoStar, since June 25, 1997).
In the event of a change of control, as defined in the 1997 Notes
Indenture, DBS Corp will be required to make an offer to repurchase all of
the 1997 Notes at a purchase price equal to 101% of the aggregate principal
amount thereof, together with accrued and unpaid interest thereon, to the
date of repurchase.
8. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has entered into agreements with various manufacturers to
purchase DBS satellite receivers and related components manufactured to its
specifications. As of June 30, 1997, remaining commitments total
approximately $141.7 million and the total of all outstanding purchase order
commitments with domestic and foreign suppliers was $148.1 million. All of
the purchases related to these commitments are expected to be made during
1997. The Company expects to finance these purchases from unrestricted cash
and additional cash flows generated from sales of DISH Network programming
and related DBS inventory. EchoStar expects that its 1997 purchases of DBS
satellite receivers and related components will significantly exceed its
existing contractual commitments. In addition to the above, EchoStar will
expend $192.6 million between June 30, 1997 and the first quarter of 1998 to
complete the construction phase (including applicable insurance) and launch
of EchoStar III and its fourth DBS satellite ("EchoStar IV").
OTHER RISKS AND CONTINGENCIES
The Company is subject to various other legal proceedings and claims
which arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions
will not materially affect the financial position or results of operations of
the Company.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ALL STATEMENTS CONTAINED HEREIN, AS WELL AS STATEMENTS MADE IN PRESS
RELEASES AND ORAL STATEMENTS THAT MAY BE MADE BY THE COMPANY OR BY OFFICERS,
DIRECTORS OR EMPLOYEES OF THE COMPANY ACTING ON THE COMPANY'S BEHALF, THAT
ARE NOT STATEMENTS OF HISTORICAL FACT, CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE THE ACTUAL RESULTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM THE HISTORICAL RESULTS OF OR
FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY ARE THE FOLLOWING: THE UNAVAILABILITY OF SUFFICIENT CAPITAL ON
SATISFACTORY TERMS TO FINANCE THE COMPANY'S BUSINESS PLAN; INCREASED
COMPETITION FROM CABLE, DIRECT BROADCAST SATELLITE ("DBS"), OTHER SATELLITE
SYSTEM OPERATORS, AND OTHER PROVIDERS OF SUBSCRIPTION TELEVISION SERVICES;
THE INTRODUCTION OF NEW TECHNOLOGIES AND COMPETITORS INTO THE SUBSCRIPTION
TELEVISION BUSINESS; INCREASED SUBSCRIBER ACQUISITION COSTS AND SUBSCRIBER
PROMOTION SUBSIDIES; THE INABILITY OF THE COMPANY TO OBTAIN NECESSARY
SHAREHOLDER AND BOND-HOLDER APPROVAL OF ANY STRATEGIC TRANSACTIONS; THE
INABILITY OF THE COMPANY TO OBTAIN NECESSARY AUTHORIZATIONS FROM THE FEDERAL
COMMUNICATIONS COMMISSION ("FCC"); GENERAL BUSINESS AND ECONOMIC CONDITIONS,
AND OTHER RISK FACTORS DESCRIBED FROM TIME TO TIME IN THE COMPANY'S REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). IN ADDITION TO
STATEMENTS, WHICH EXPLICITLY DESCRIBE SUCH RISKS AND UNCERTAINTIES, READERS
ARE URGED TO CONSIDER STATEMENTS LABELED WITH THE TERMS "BELIEVES," "BELIEF,"
"EXPECTS," "PLANS," "ANTICIPATES," OR "INTENDS" TO BE UNCERTAIN AND
FORWARD-LOOKING. ALL CAUTIONARY STATEMENTS MADE HEREIN SHOULD BE READ AS
BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY
APPEAR. IN THIS CONNECTION, INVESTORS SHOULD CONSIDER THE RISKS DESCRIBED
HEREIN.
OVERVIEW
EchoStar Communications Corporation ("EchoStar" or the "Company")
currently operates four related businesses: (i) operation of the DISH
Network (which commenced commercial operation in March 1996) and the related
digital broadcast center, and DBS satellites (collectively the "EchoStar DBS
System"); (ii) design, manufacture, marketing, installation and distribution
of various DTH products worldwide (including EchoStar's DBS set-top boxes,
receive antennas and other related components (collectively, "EchoStar
Receiver Systems") and C-band systems); (iii) domestic distribution of DTH
programming services; and (iv) consumer financing of EchoStar's domestic
products and programming services. EchoStar expects to derive its future
revenue principally from periodic subscription fees for DISH Network
programming and, to a lesser extent, from the sale of DBS equipment. The
growth of DBS service and equipment sales has had, and will continue to have,
a material negative impact on EchoStar's domestic sales of C-band DTH
products. EchoStar expects the decline in its sales of domestic C-band DTH
products to continue.
On February 24, 1997, EchoStar and The News Corporation Limited
("News") announced an agreement (the "News Agreement") pursuant to which,
among other things, News agreed to acquire approximately 50% of the
outstanding capital stock of EchoStar. News also agreed to make available
for use by EchoStar the DBS permit for 28 frequencies at 110-Registered
Trademark- West Longitude ("WL") purchased by MCI Communications Corporation
("MCI") for over $682 million at an FCC auction. During late April 1997,
substantial disagreements arose between the parties regarding their
obligations under the News Agreement.
During May 1997, EchoStar initiated litigation alleging, among other
things, breach of contract, failure to act in good faith, and other causes of
action. News has denied all of EchoStar's material allegations and has
asserted numerous counterclaims against EchoStar and its Chairman and Chief
Executive Officer, Charles W. Ergen. While EchoStar is confident of its
position and believes it will ultimately prevail, the litigation process
could continue for many years and there can be no assurance concerning the
outcome of the litigation.
In accordance with the News Agreement, EchoStar had expected to meet
its short-and medium-term capital needs through financial commitments from
News. As a result of the failure by News to honor its obligations under the
News Agreement, EchoStar was required to raise additional capital to continue
its contemplated business plan. Accordingly, in June 1997, EchoStar DBS
Corporation ("DBS Corp"), a wholly-owned subsidiary of EchoStar, consummated
an offering (the "1997 Notes Offering") of 12 1/2 % Senior Secured Notes due
2002 (the "1997 Notes") resulting in net proceeds to the Company of
approximately $362.5 million, including approximately $109.0 million
restricted to fund interest payments on the 1997 Notes through January 1,
2000. EchoStar intends to seek recovery from News for any costs of
financing, including those costs associated with the 1997 Notes Offering, in
excess of the costs of the financing committed to by News under the News
Agreement.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996.
REVENUE. Total revenue for the three months ended June 30, 1997 was
$100.8 million, an increase of $27.3 million, or 37%, as compared to total
revenue for the three months ended June 30, 1996 of $73.5 million. The
increase in total revenue in 1997 was primarily attributable to DISH Network
subscriber growth. As of June 30, 1997, EchoStar had approximately 590,000
DISH Network subscribers compared to approximately 70,000 at June 30, 1996.
EchoStar expects this trend to continue as it adds additional DISH Network
subscribers.
The increase in total revenue for the three months ended June 30,
1997 was partially offset by a decrease in international and domestic sales
of C-band satellite receivers and equipment. As was anticipated, domestic
and international demand for C-band DTH products continued to decline during
the second quarter of 1997; this decline is expected to continue for the
foreseeable future. Consistent with the increases in total revenue during
the three months ended June 30,1997, EchoStar experienced a corresponding
increase in trade accounts receivable at June 30, 1997. The Company expects
this trend to continue as the number of DISH Network subscribers increases,
and as EchoStar develops additional channels of distribution for DISH Network
equipment.
Revenue from domestic sales of DTH products and technical services
decreased $46.9 million, or 92%, to $4.0 million during the three months
ended June 30, 1997. Domestically, EchoStar sold approximately 174,000
satellite receivers during the three months ended June 30, 1997, as compared
to approximately 110,000 receivers sold during the comparable period in 1996.
Of the total number of satellite receivers sold during the three months
ended June 30, 1997, approximately 173,000 were EchoStar Receiver Systems.
Although there was a significant increase in the number of satellite
receivers sold in the second quarter of 1997 as compared to same quarter in
1996, overall revenue from domestic sales of DTH products decreased as a
result of decreased prices charged for DBS receivers combined with the
revenue recognition policy applied to DBS satellite receivers sold under
EchoStar's promotions (see Liquidity and Capital Resources - Effects of
Campaigns to Acquire Subscribers).
Revenue from international sales of analog DTH products for the three
months ended June 30, 1997 was $6.1 million, a decrease of $3.5 million, or
36%, as compared to the same period in 1996. This decrease was principally
attributable to a decrease in the number of analog satellite receivers sold,
combined with decreased prices on products sold. Internationally, EchoStar
sold approximately 38,000 analog satellite receivers in the three months
ended June 30, 1997, a decrease of 25%, compared to approximately 51,000
units sold during the comparable period of 1996. Overall, international
demand for EchoStar's analog DTH products continued to decline in the second
quarter of 1997 as a result of consumer anticipation of new international
digital services. This international decline in demand for analog satellite
receivers, which was expected by the Company, is similar to the decline which
has occurred in the United States.
To expand its presence in international markets, EchoStar has entered
into distribution and consulting agreements with international digital
service providers. In January 1997, EchoStar entered into an agreement (the
"ExpressVu Agreement") with ExpressVu, Inc. ("ExpressVu") a majority owned
subsidiary of BEC, Inc. ("Bell Canada"). The first phase of this agreement
includes an initial order for 62,000 satellite receivers, and primary uplink
integration payments, which combined are expected to exceed $40.0 million.
Pursuant to the ExpressVu Agreement, EchoStar is assisting ExpressVu with the
construction of a digital broadcast center for use in conjunction with
ExpressVu's planned DTH service and will act as a distributor of satellite
receivers and related equipment for ExpressVu's Canadian DTH service. Among
other things, EchoStar has agreed not to provide DTH service in Canada and
ExpressVu has agreed not to provide DTH service, including DBS service, in
the U.S. EchoStar recognized revenues of approximately $11.9 million related
to the ExpressVu Agreement during the three months ended June 30, 1997
(included within the "DTH products and technical services" caption in the
Company's statements of operations). Additionally, in June 1997,
Distribuidora de Television Digital S.A. ("Telefonica"), a DBS joint venture
in Spain, selected EchoStar to supply digital set-top boxes for its satellite
television service scheduled to launch in September 1997. Revenues from
Telefonica's initial order of 100,000 digital set-top boxes are expected to
approximate $40.0 million. EchoStar expects to begin delivery of set-top
boxes to Telefonica in September 1997 and expects to fulfill approximately
one-half of the contract during the remainder of 1997. EchoStar expects to
fulfill the remainder of the contract during early 1998. While EchoStar
continues to actively
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
pursue other similar distribution opportunities, no assurance can be given
that any such additional negotiations will be successful. Further,
EchoStar's future revenue from the sale of DBS equipment and receivers in
international markets depends largely on the success of the DBS operator in
that country, which, in turn, depends on other factors, such as the level of
consumer acceptance of DBS products and the intensity of competition for
international DBS subscribers. No assurance can be given regarding the level
of expected future revenues which could be generated from EchoStar's
alliances with these, and potentially other, foreign DBS operators.
C-band programming revenue totaled $1.9 million for the three months
ended June 30, 1997, a decrease of $1.3 million, or 40%, compared to the
three months ended June 30, 1996. This decrease was primarily attributable
to the industry-wide decline in demand for domestic C-band programming
services. C-band programming revenue is expected to continue to decrease for
the foreseeable future.
DTH AND DISH NETWORK EXPENSES. DTH and DISH Network expenses for the
three months ended June 30, 1997 aggregated $63.5 million, an increase of
$1.4 million, or 2% compared to the same period in 1996. DTH products and
technical services expenses decreased $39.3 million, or 68%, to $18.2 million
for the three months ended June 30, 1997. These expenses include the costs
of C-band systems and the costs of EchoStar Receiver Systems and related
components sold prior to commencement of EchoStar's promotions. Subscriber
promotion subsidies aggregated $17.9 million for the three months ended June
30, 1997 and represent expenses associated with EchoStar's various
promotions. DISH Network programming expenses totaled $25.8 million for the
three months ended June 30, 1997 as compared to $1.7 million for the
comparable period in 1996. The Company expects that DISH Network programming
expenses will continue to increase in future periods in proportion to
increases in the number of DISH Network subscribers. Such expenses, relative
to related revenues, will vary based on the services subscribed to by DISH
Network customers, the number and types of pay-per-view events purchased by
subscribers, and the extent to which EchoStar is able to realize volume
discounts from programming providers.
C-band programming expenses totaled $1.5 million for the three months
ended June 30, 1997, a decrease of $1.3 million, or 46%, as compared to the
same period in 1996. This decrease is consistent with the decrease in C-band
programming revenue. As previously described, demand for C-band DTH products
continued to decrease as a result of the introduction and widespread consumer
acceptance of DBS products and services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses totaled $34.4 million for the three months
ended June 30, 1997, an increase of $15.3 million as compared to the same
period in 1996. SG&A expenses as a percentage of total revenue increased to
34% for the three months ended June 30, 1997 as compared to 26% for the same
period in 1996. The increase in SG&A expenses was principally attributable
to increased personnel expenses to support the growth of DISH Network service
and increased expenses associated with the operation of the EchoStar DBS
System.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION.
Earnings before interest, taxes, depreciation and amortization (including
amortization of subscriber acquisition costs) ("EBITDA") was $3.0 million for
the three months ended June 30, 1997, an improvement of $10.6 million,
compared to negative EBITDA of $7.6 million during the same period of 1996.
This improvement in EBITDA resulted from the factors affecting revenue and
expenses discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses for the three months ended June 30, 1997 (including amortization of
subscriber acquisition costs of $92,000 and $33.3 million for the three
months ended June 30, 1996 and June 30, 1997, respectively), aggregated $46.0
million, an increase of $39.6 million, as compared to the same period 1996.
The increase in depreciation and amortization expenses principally resulted
from amortization of subscriber acquisition costs and depreciation expense
associated with EchoStar II (placed in service during the fourth quarter of
1996).
OTHER INCOME AND EXPENSE. Other expense, net totaled $20.7 million
for the three months ended June 30, 1997, an increase of $191,000, as
compared to the same period 1996. The increase in other expense in the
second quarter of 1997 resulted primarily from an increase in interest
expense associated with the continued accretion of the 1994 Notes and 1996
Notes, offset by an increase in the amount of interest capitalized during the
three months ended June, 1997. Additionally, interest income decreased
approximately $5.1 million as a result of a
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
decrease in invested balances. EchoStar capitalized interest of
approximately $8.6 million during the three months ended June 30, 1997,
compared to approximately $5.5 million during the three months ended June 30,
1996.
INCOME TAX BENEFIT. The decrease in the income tax benefit of $12.1
million (from $12.1 million for the three months ended June 30, 1996 to an
income tax provision of $25,000 for the three months ended June 30, 1997)
principally resulted from EchoStar's decision to fully reserve the second
quarter addition to its net deferred tax asset. EchoStar's net deferred tax
assets (approximately $67.1 million at June 30, 1997) relate to temporary
differences for amortization of original issue discount on the 1994 Notes and
1996 Notes, net operating loss carryforwards, and various accrued expenses
which are not deductible until paid. If future operating results differ
materially and adversely from EchoStar's current expectations, its judgment
regarding the magnitude of its reserve may change.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996.
REVENUE. Total revenue for the six months ended June 30, 1997 was
$172.8 million, an increase of $57.8 million, or 50%, as compared to total
revenue for the six months ended June 30, 1996 of $115.0 million. The
increase in total revenue in 1997 was primarily attributable to the
introduction of EchoStar's DISH Network service during March 1996, combined
with significant DISH Network subscriber growth since the launch of service.
The increase in total revenue for the six months ended June 30, 1997
was partially offset by a decrease in international and domestic sales of
C-band satellite receivers and equipment. The domestic and international
demand for C-band DTH products continued to decline during the first half of
1997.
Revenue from domestic sales of DTH products and technical services
decreased $66.2 million, or 88%, to $8.7 million for the six months ended
June 30, 1997. Domestically, EchoStar sold approximately 348,000 satellite
receivers during the six months ended June 30, 1997, as compared to
approximately 155,000 receivers sold during the comparable period of 1996.
Of the total number of satellite receivers sold during the six months ended
June 30, 1997, approximately 345,000 were EchoStar Receiver Systems. Although
there was a significant increase in the number of satellite receivers sold
during the six months ended June 30, 1997 as compared to same period in 1996,
overall revenue from domestic sales of DTH products decreased as a result of
decreased prices charged for DBS satellite receivers combined with the
revenue recognition policy applied to DBS satellite receivers sold under
EchoStar's promotions.
Revenue from international sales of analog DTH products for the six
months ended June 30, 1997 totaled $13.0 million, a decrease of $9.2 million,
or 42%, as compared to the same period in 1996. This decrease was directly
attributable to a decrease in the number of analog satellite receivers sold,
combined with decreased prices on products sold. Internationally, EchoStar
sold approximately 91,000 analog satellite receivers during the six months
ended June 30, 1997, a decrease of 28%, compared to approximately 126,000
units sold in the comparable period in 1996.
C-band programming revenue totaled $4.1 million for the six months
ended June 30, 1997, a decrease of $2.6 million, or 39%, compared to the six
months ended June 30, 1996. This decrease was primarily attributable to the
industry-wide decline in demand for domestic C-band programming services.
DTH AND DISH NETWORK EXPENSES. DTH and DISH Network expenses for the
six months ended June 30, 1997 aggregated $107.3 million, an increase of $9.2
million, or 9% compared to the same period in 1996. DTH products and
technical services expense decreased $62.6 million, or 69%, to $27.7 million
during the six months ended June 30, 1997. These expenses include the costs
of C-band systems and the costs of EchoStar Receiver Systems and related
components sold prior to commencement of EchoStar's promotions. Subscriber
promotion subsidies aggregated $31.0 million for the six months ended June
30, 1997. DISH Network programming expenses totaled $45.3 million for the
six months ended June 30, 1997 as compared to $1.8 million for the comparable
period in 1996. The increase is directly attributable to the increase in
DISH Network subscribers at June 30, 1997 compared to June 30, 1996.
C-band programming expenses totaled $3.3 million for the six months
ended June 30, 1997, a decrease of $2.8 million, or 45%, as compared to the
same period in 1996. This decrease is consistent with the decrease in C-band
programming revenue.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses totaled $66.4 million for the six months
ended June 30, 1997, an increase of $36.6 million as compared to the same
period in 1996. SG&A expenses as a percentage of total revenue increased to
38% for the six months ended June 30, 1997 as compared to 26% for the same
period in 1996. The increase in SG&A expenses was principally attributable to
increased personnel expenses to support the growth of DISH Network service
and increased expenses associated with the operation of the EchoStar DBS
System. In future periods, EchoStar expects that SG&A expenses as a
percentage of total revenue will decrease as subscribers are added.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION.
EBITDA was negative $842,000 for the six months ended June 30, 1997, an
improvement of $12.1 million, compared to negative EBITDA of $12.9 million
for the same period in 1996. This improvement in negative EBITDA resulted
from the factors affecting revenue and expenses discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses for the six months ended June 30, 1997 (including amortization of
subscriber acquisition costs of $92,000 and $61.4 million for the six months
ended June 30, 1996 and June 30, 1997, respectively) aggregated $86.8
million, an increase of $77.0 million, as compared to the same period 1996.
The increase in depreciation and amortization expenses primarily was
attributable to amortization of subscriber acquisition costs and depreciation
expense associated with EchoStar II (placed in service during the fourth
quarter of 1996).
OTHER INCOME AND EXPENSE. Other expense, net totaled $39.0 million
for the six months ended June 30, 1997, an increase of $15.1 million, as
compared to the same period 1996. The increase in other expense in the first
half of 1997 resulted primarily from an increase in interest expense
associated with the March 1996 issuance of the 1996 Notes combined with the
continued accretion of the 1994 Notes. Additionally, interest income
decreased approximately $6.0 million as a result of a decrease in invested
balances. EchoStar capitalized $16.6 million and $14.4 million of interest
in the six months ended June 30, 1997 and 1996, respectively.
INCOME TAX BENEFIT. The decrease in the income tax benefit of $16.9
million (from $16.8 million for the six months ended June 30, 1996 to an
income tax provision of $44,000 for the six months ended June 30, 1997)
principally resulted from EchoStar's decision to fully reserve the 1997
additions to its net deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures, including expenditures for satellite systems
under construction, totaled $81.5 million and $67.1 million during the six
months ended June 30, 1996 and 1997, respectively. During the six months
ended June 30, 1997, net cash flows used in operations totaled $9.2 million
compared to $20.1 million used by operations during the six months ended June
30, 1996. EchoStar anticipates that its working capital and capital
expenditure requirements, including subscriber acquisition costs, will
increase substantially throughout the remainder of 1997 as it continues to
aggressively build its DISH Network subscriber base, and as it constructs,
launches and deploys additional DBS satellites. EchoStar's capital
expenditures during 1997 principally have been funded by the proceeds from
the 1996 Notes Offering. The Company anticipates that its remaining 1997
capital expenditures will be funded from proceeds of the 1997 Notes Offering
and cash generated by operations.
EFFECTS OF CAMPAIGNS TO ACQUIRE SUBSCRIBERS
Beginning June 1, 1997, EchoStar implemented a new marketing program
in which independent retailers offer standard EchoStar Receiver Systems to
consumers for a suggested retail price of $199 (the "1997 Promotion").
Previously, consumers could purchase EchoStar Receiver Systems for
approximately $199, but were also required to purchase a prepaid one-year
subscription to the DISH Network's America's Top 50 CDSM programming package
for $300. The 1997 Promotion allows consumers to subscribe to the DISH
Network's various programming offerings on a month-to-month basis without an
extended subscription commitment. While there can be no assurance, EchoStar
believes that by substantially reducing the "up front" cost to the consumer
and eliminating extended subscription commitments, the 1997 Promotion may
significantly increase consumer demand for DISH Network services.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
The 1997 Promotion will significantly increase EchoStar's working
capital requirements. Transaction proceeds associated with the 1997
Promotion, which commenced in June, vary dependent on the type of EchoStar
Receiver System and the number of additional outlet receivers purchased, but
are expected to approximate $225 to $275 per new subscriber. Transaction
costs, consisting of costs of goods sold, activation fees paid to dealers and
distributors, and other promotional costs, are expected to range from $425 to
$500 per new subscriber. Thus, each subscriber initially added pursuant to
the 1997 Promotion will result in a net use of cash of approximately $200 to
$275. Comparatively, EchoStar's prior promotion (which requires an annual
prepaid DISH Network subscription) (the "1996 Promotion"), which will
continue to be available to consumers, results in approximately breakeven net
cash flows at the time of subscriber activation. EchoStar expects that
transaction costs associated with both the 1996 and 1997 Promotions will
decrease during the remainder of 1997 as additional cost reductions for
EchoStar Receiver Systems are realized, thereby reducing the initial net cash
outflow per new subscriber.
The excess of transaction costs over related proceeds from the 1996
Promotion and net transaction costs resulting from the 1997 Promotion are
recognized as subscriber promotion subsidies in the Company's statements of
operations. EBITDA in future periods will be negatively affected to the
extent that a larger portion of future subscriber additions result from the
1997 Promotion rather than from the 1996 Promotion. Since the 1997 Promotion
was not commenced until June 1997, the majority of EchoStar's second quarter
subscriber additions resulted from consumers who purchased an EchoStar
Receiver System pursuant to the 1996 Promotion rather than the 1997
Promotion. EchoStar expects that a significant percentage of its future
subscriber additions will result from the 1997 Promotion. The adverse EBITDA
impact of the 1997 Promotion (relative to the 1996 Promotion) results from
the immediate recognition of all transaction costs at the time of subscriber
activation. Comparatively, a portion of 1996 Promotion transaction costs are
deferred and amortized over the initial prepaid subscription period.
Beginning August 1, 1997, EchoStar began offering an
internally-financed lease program to consumers. The lease provides for an 18
month lease term at competitive rates to qualified consumers. At the end of
the lease term, the consumer has the option of purchasing the equipment.
Each subscriber activated under the lease program is expected to result in a
net use of cash to EchoStar of approximately $400 to $600 (depending on the
number of outlets). Accordingly, the lease program will result in a greater
investment per customer than either the 1997 Promotion or the 1996 Promotion.
While there can be no assurance, EchoStar believes that its investment per
lease customer will significantly improve at the end of the lease term when
the subscriber either continues on a month-to-month basis, purchases the
equipment from EchoStar or returns the equipment to the retailer. Depending
upon the number of subscribers added pursuant to the lease program, EchoStar
may require additional capital to finance the acquisition of additional lease
subscribers. No assurance can be given that additional capital will be
available on terms acceptable to EchoStar, or at all. EchoStar believes the
lease program will be attractive to consumers who would otherwise subscribe
to a DBS service but for the initial "up front" costs associated with DBS
service. The lease program allows the consumer (for less than $100) to
receive an upgraded EchoStar Receiver System, including a professional
installation. Upon activation of service, the consumer is charged a low
monthly equipment rental fee in addition to charges associated with
programming services purchased.
Historically, EchoStar has maintained agreements with third-party
finance companies to make consumer credit available to EchoStar customers.
These financing plans provide consumers the opportunity to lease or finance
EchoStar Receiver Systems, including installation costs and certain DISH
Network programming packages, on competitive terms. Consumer financing
provided by third parties is generally non-recourse to EchoStar. EchoStar
currently maintains one such agreement which expires in the near future. The
third-party finance company with which EchoStar maintains the above mentioned
agreement has notified the Company that it does not intend to renew the
agreement. EchoStar is currently negotiating similar agreements with other
third-party finance companies and expects to consummate at least one such
agreement prior to the expiration of its existing consumer financing
agreement. There can be no assurance that EchoStar will be successful in
these negotiations, or if successful, that any such new agreements will
commence prior to the termination of the existing agreement. In the event
that EchoStar is unsuccessful in executing a new agreement with a third-party
finance company during 1997, future loan origination income will be adversely
affected and growth of the DISH Network subscriber base may be negatively
impacted.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
1997 CAPITAL REQUIREMENTS
In addition to the working capital requirements discussed above,
during the remainder of 1997 EchoStar expects to expend: (i) approximately
$128.1 million in connection with the construction launch, insurance and
deployment of EchoStar III ($83.6 million) and EchoStar IV ($44.5 million).
Additionally, EchoStar will expend approximately $1.3 million per month to
meet debt service requirements relative to deferred satellite construction
payments for EchoStar I and EchoStar II. EchoStar's debt service
requirements on the deferred satellite construction payments will increase to
approximately $1.6 million per month upon the successful launch of EchoStar
III (currently scheduled for launch in September 1997). Capital expenditures
related to EchoStar III and EchoStar IV may increase in the event of delays,
cost overruns, increased costs associated with certain potential change
orders under the Company's satellite or launch contracts, or a change in
launch providers.
EchoStar's 1997 working capital, capital expenditure and debt service
requirements are expected to be funded from existing unrestricted cash and
investment balances, the Satellite Escrow, and cash generated from
operations. The Company expects subscriber growth to accelerate during the
last six months of 1997. Based upon its subscriber growth expectations,
EchoStar anticipates that it will require additional capital during the first
quarter of 1998 to fund additional subscriber growth. If EchoStar's actual
subscriber growth rate exceeds its current expectations, it will require
additional financing sooner than originally expected. In the event that
EchoStar's subscriber growth occures slower than currently expected, its
needs for additional financing will be delayed. There can be no assurance
that additional debt, equity or other financing will be available on terms
acceptable to EchoStar, or at all. Further increases in subscriber
acquisition costs, inadequate supplies of DBS receivers, or significant
launch delays or failures would significantly and adversely affect EchoStar's
operating results and financial condition.
FUTURE CAPITAL REQUIREMENTS
In the first quarter of 1998 EchoStar will expend approximately $64.5
million to construct, launch and support EchoStar IV, which is scheduled to
be launched during the first quarter of 1998. These expenditures will be
funded from the Satellite Escrow. EchoStar's debt service requirements
relative to the deferred satellite construction payments will increase to
approximately $1.9 million per month upon the successful launch of EchoStar
IV (currently scheduled for launch in the first quarter of 1998).
Additionally, beginning in January 1998, EchoStar will be required to make
semi-annual interest payments of $23.4 million on the 1997 Notes. The first
five such semi-annual interest payments will be funded from the Interest
Escrow. As described above, based upon its subscriber growth expectations,
EchoStar anticipates that it will require additional financing in the first
quarter of 1998 to fund additional subscriber growth. There can be no
assurance that additional debt, equity or other financing will be available
on terms acceptable to EchoStar, or at all.
EchoStar's Class A Common Stock is listed on the Nasdaq National
Market. In order for an issuer to continue to have one of its securities
designated as a Nasdaq National Market security, the issuer of the security
must meet certain maintenance criteria. As of June 30, 1997, EchoStar's net
tangible assets do not meet the Nasdaq National Market maintenance criteria,
and EchoStar's capital and surplus are not sufficient to meet the Nasdaq
SmallCap Market maintenance criteria. EchoStar's negative net tangible
assets were anticipated in its business plan and are the direct result of
EchoStar financing its growth through debt financing, which the Company
believes will ultimately result in a lower cost of capital as compared to
equity financing. Because EchoStar does not satisfy either the Nasdaq
National Market or SmallCap Market listing criteria, EchoStar's Class A
Common Stock may be delisted by the National Association of Securities
Dealers, Inc. (the "NASD"), unless an exception is granted. If delisting
occurs, EchoStar expects to request a review of the delisting by a Committee
of the NASD Board of Governors. The Committee may grant or deny continued
designation on the basis of a written submission and any additional data it
deems relevant. Determinations of the Committee may be appealed to the NASD
Board of Governors. If an exception were not granted from Nasdaq delisting,
trading in EchoStar's Class A Common Stock would thereafter likely be
conducted in the over-the-counter market. If this were to occur, an investor
might find it more difficult to dispose of, or to obtain accurate quotations
as to the price of, EchoStar's Class A Common Stock. Delisting may result in
a decline in the trading market for EchoStar's Class A Common Stock, which,
among other things, could potentially depress EchoStar's stock and bond
prices and impair EchoStar's ability to obtain additional financing. While
there can be no assurance, based upon informal discussions with the NASD
during which EchoStar explained the primary factor contributing to its
negative net tangible asset position was the effect of debt versus equity
financing, EchoStar is optimistic that it will be granted an exception from
delisting.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128), which supersedes Accounting Principles Board Opinion
No. 15, "Earnings Per Share" ("APB No. 15"). SFAS No. 128 simplifies the
requirements for reporting earnings per share ("EPS") by requiring companies
only to report "basic" and "diluted" EPS. SFAS No. 128 is effective for both
interim and annual periods ending after December 15, 1997 but requires
retroactive restatement upon adoption. EchoStar will adopt SFAS No. 128 in
the fourth quarter of 1997. EchoStar does not believe such adoption will
have a material effect on either its previously reported or future EPS.
In March 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" (SFAS
No. 129), which continues the existing requirements of APB No. 15 but expands
the number of companies subject to portions of its requirements.
Specifically, SFAS No. 129 requires that entities previously exempt from the
requirements of APB No. 15 disclose the pertinent rights and privileges of
all securities other than ordinary common stock. SFAS No. 129 is effective
for periods ending after December 15, 1997. EchoStar was not exempt from APB
No. 15; accordingly, the adoption of SFAS No. 129 will not have any effect
on EchoStar.
16
PART II - OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
On February 24, 1997, EchoStar Communications Corporation
("EchoStar") and The News Corporation Limited ("News") announced an agreement
(the "News Agreement") pursuant to which, among other things, News agreed to
acquire approximately 50% of the outstanding capital stock of EchoStar. News
also agreed to make available for use by EchoStar the DBS permit for 28
frequencies at 110-DEG. West Longitude ("WL") purchased by MCI Communications
Corporation ("MCI") for over $682 million following a 1996 Federal
Communications Commission ("FCC") auction. During late April 1997,
substantial disagreements arose between the parties regarding their
obligations under the News Agreement.
On May 8, 1997, EchoStar filed a Complaint in the U.S. District Court
for the District of Colorado (the "Court"), Civil Action No. 97-960,
requesting that the Court confirm EchoStar's position and declare that News
is obligated pursuant to the News Agreement to lend $200 million to EchoStar
without interest and upon such other terms as the Court orders.
On May 9, 1997, EchoStar filed a First Amended Complaint
significantly expanding the scope of the litigation, to include breach of
contract, failure to act in good faith, and other causes of action. EchoStar
seeks specific performance of the News Agreement and damages, including lost
profits based on, among other things, a jointly prepared a ten-year business
plan showing expected profits for EchoStar in excess of $10 billion based on
consummation of the transactions contemplated by the News Agreement.
On June 9, 1997, News filed an answer and counterclaims seeking
unspecified damages. News' answer denies all of the material allegations in
the First Amended Complaint and asserts twenty defenses, including bad faith,
misconduct and failure to disclose material information on the part of
EchoStar and its Chairman and Chief Executive Officer, Charles W. Ergen. The
counterclaims, in which News is joined by its subsidiary American Sky
Broadcasting LLC ("AskyB") assert that EchoStar and Ergen breached their
agreements with News and failed to act and negotiate with News in good faith.
EchoStar has responded to News' answer and denied the allegations in their
counterclaims. EchoStar also has asserted various affirmative defenses.
EchoStar intends to diligently defend against the counterclaims. The parties
are now in discovery. The case has been set for a five week trial commencing
June 1, 1998, but that date could be postponed. The litigation process could
continue for many years and there can be no assurance concerning the outcome
of the litigation. An adverse decision could have a material adverse effect
on EchoStar's financial position and results of operations.
On April 25, 1997, EchoStar Satellite Corporation ("ESC") and Sagem,
S.A., ("Sagem") a French Corporation, executed a settlement and release
agreement under which Sagem agreed to return the $10.0 million down payment
made to Sagem and agreed to release the $15.0 million placed in escrow with a
bank in connection with a manufacturing agreement entered into in April 1995.
ESC and Sagem have released all claims against each other.
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------
3.1(a)* Articles of Incorporation of EchoStar DBS Corporation,
a Colorado corporation ("DBS Corp.") (incorporated by
reference to Exhibit 3.4(a) to the Registration Statement
on Form S-4 of DBS Corp., filed on July 23, 1997).
3.1(b)* Bylaws of DBS Corp. (incorporated by reference to
Exhibit 3.4(b) to the Registration Statement on Form S-4
of DBS Corp., filed on July 23, 1997).
4.1* Registration Rights Agreement, dated as of June 25, 1997,
by and among DBS Corp., EchoStar Communications
Corporation, a Nevada corporation formed in April 1995,
EchoStar Satellite Broadcasting Corporation, a Colorado
corporation, Dish, Ltd. (formerly EchoStar Communications
Corporation, a Nevada corporation formed in December 1993),
Donaldson, Lufkin & Jenrette Securities Corporation and
Lehman Brothers Inc. (incorporated by reference to
Exhibit 4.15 to the Registration Statement on Form S-4
of DBS Corp., filed on July 23, 1997).
4.2* Indenture of Trust, dated as of June 25, 1997, between DBS
Corp. and First Trust National Association ("First Trust"),
as Trustee (incorporated by reference to Exhibit 4.16 to
the Registration Statement on Form S-4 of DBS Corp., filed
on July 23, 1997).
4.3* Interest Escrow Agreement, dated June 25, 1997, between
First Trust, as Escrow Agent and as Trustee, and DBS Corp.
(incorporated by reference to Exhibit 4.17 to the
Registration Statement on Form S-4 of DBS Corp., filed on
July 23, 1997).
4.4* Satellite Escrow Agreement, dated June 25, 1997, between
First Trust, as Escrow Agent and as Trustee, and DBS Corp.
(incorporated by reference to Exhibit 4.18 to the
Registration Statement on Form S-4 of DBS Corp., filed on
July 23, 1997).
4.5* Stock Pledge Agreement of EchoStar in favor of First Trust,
as Trustee under the Indenture filed as Exhibit 4.2 hereto
(incorporated by reference to Exhibit 4.19 to the
Registration Statement on Form S-4 of DBS Corp., filed on
July 23, 1997).
4.6* Escrow Security Agreement, dated June 25, 1997, between
First Trust and DBS Corp. (incorporated by reference to
Exhibit 4.20 to the Registration Statement on Form S-4 of
DBS Corp., filed on July 23, 1997).
4.7* Security Agreement and Collateral Assignment, dated
June 25, 1997, among First Trust, EchoStar Space
Corporation, a Colorado corporation ("EchoStar Space
corporation") and (incorporated by reference to
Exhibit 4.21 to the Registration Statement on Form S-4
of DBS Corp., filed on July 23, 1997).
4.8* Satellite Security Agreement, dated June 25, 1997, between
First Trust and DBS Corp. (incorporated by reference to
Exhibit 4.22 to the Registration Statement on Form S-4 of
DBS Corp., filed on July 23, 1997).
4.9* Security Interest Pledge Agreement, dated June 25, 1997,
between First Trust and DBS Corp. (incorporated by
reference to Exhibit 4.23 to the Registration Statement
on Form S-4 of DBS Corp., filed on July 23, 1997).
10.1 Amendment No. 9 to Satellite Construction Contract,
effective as of July 18, 1996, between Direct Broadcasting
Satellite Corporation, a Delaware corporation ("DBSC") and
Martin Marietta Corporation.**
18
10.2 Amendment No. 10 to Satellite Construction Contract,
effective as of May 31, 1996, between DBSC and Lockheed
Martin Corporation.**
10.3 Contract for Launch Services, dated April 5, 1996, between
Lockheed Martin Commercial Launch Services, Inc. and
EchoStar Space Corporation.**
27 Financial Data Schedule.
99.1* Form of Letter of Transmittal (incorporated by reference
to Exhibit 99.1 to the Registration Statement on Form S-4
of DBS Corp., filed on July 23, 1997).
99.2* Form of Notice of Guaranteed Delivery (incorporated by
reference to Exhibit 99.2 to the Registration Statement
on Form S-4 of DBS Corp., filed on July 23, 1997).
99.3* Form of Letter to Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by
reference to Exhibit 99.3 to the Registration Statement
on Form S-4 of DBS Corp., filed on July 23, 1997).
99.4* Form of Letter to Clients (incorporated by reference to
Exhibit 99.4 to the Registration Statement on Form S-4 of
DBS Corp., filed on July 23, 1997).
99.5* Guidelines for Certification of Taxpayer Identification
Number on Form W-9 (incorporated by reference to
Exhibit 99.5 to the Registration Statement on Form S-4
of DBS Corp., filed on July 23, 1997).
- -----------------------------------
* Incorporated by reference.
** Certain provisions have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment. A confirming electronic copy is being filed herewith.
(B) REPORTS ON FORM 8-K.
On April 28, 1997, a Current Report on Form 8-K was filed to report the
delay in the submission of applications for regulatory approval of The News
Corporation Limited's ("News") investment in EchoStar, in connection with a
binding Letter Agreement between News and EchoStar.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECHOSTAR COMMUNICATIONS CORPORATION
By: /s/ STEVEN B. SCHAVER
---------------------------------------------------
Steven B. Schaver
Chief Operating Officer and Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
By: /s/ JOHN R. HAGER
---------------------------------------------------
John R. Hager
Treasurer and Controller
(PRINCIPAL ACCOUNTING OFFICER)
Date: August 11, 1997
AMENDMENT NO. 9 TO CONTRACT
BETWEEN
DIRECT BROADCASTING SATELLITE CORPORATION
(HEREINAFTER "BUYER")
and
MARTIN MARIETTA CORPORATION
(HEREINAFTER "CONTRACTOR")
This Amendment is effective as of the 18th day of July 1996.
WITNESS THAT:
WHEREAS, Direct Broadcasting Satellite Corporation ("Buyer") and Martin Marietta
Corporation ("Contractor"), mutually agree to amend the subject Contract to:
- revise ARTICLE 4 PAYMENT;
- revise ARTICLE 20 ASSIGNMENT;
- revise EXHIBIT B: SPECIFICATION.
NOW THEREFORE, in consideration of the mutual covenants and conditions contained
herein, Buyer and Contractor agree to modify the Contract as follows:
ARTICLE 4 PAYMENT
- -----------------
Revise paragraph D by deleting the last two sentences and replacing them with
the following:
The In-Orbit payments, including the interest thereon, will be
[CONFIDENTIAL MATERIAL REDACTED] by a written corporate guarantee provided
by EchoStar Communications Corporation (ECC). The security will be
provided no later than ninety (90) days prior to the scheduled launch
date.
ARTICLE 20 ASSIGNMENT
- ---------------------
Add new paragraph C as follows:
C. Buyer consents to the assignment of this contract from Martin Marietta
Corporation to Lockheed Martin Corporation effective as of January 29,
1996.
EXHIBIT B: SPECIFICATION
- ------------------------
The Exhibit B: Specification is hereby modified to include a third command
receiver.
Contractor will use its reasonable best efforts to accomplish the inclusion
of a third command receiver with no negative impact to the delivery
schedule, at no additional charge to Buyer. The Contractor shall notify
Buyer of any negative delivery schedule impact by August 5, 1996. In the
event that notwithstanding Contractor's reasonable best efforts there is a
schedule impact, the Buyer shall either: i) direct the Contractor to
proceed with the extended deliver schedule (and the Buyer will relieve
Contract of liquidated damages shown in ARTICLE 30: LIQUIDATED DAMAGES); or
ii) shall direct the Contractor to proceed with (2) command receivers with
no credit to Buyer. The Buyer shall provide the Contractor with such
direction no later than sixty (60) calendar days after receipt of
Contractor's notification of schedule delay associated with the addition of
the third command receiver. To the extent that Contractor notifies Buyer
that a delay is not expected, but subsequently, notwithstanding
Contractor's reasonable best efforts the command receiver is delivered to
the Contractor later than the command receiver subcontractor's contractual
delivery date to the Contractor, the Buyer shall either: i) direct the
Contractor to proceed with the extended delivery schedule (and the Buyer
will relieve Contractor of liquidated damages shown in ARTICLE 30:
LIQUIDATED DAMAGES); or ii) shall direct the Contractor to proceed with (2)
command receivers with no credit to Buyer.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment to the
Contract.
DIRECT BROADCASTING SATELLITE MARTIN MARIETTA CORPORATION
CORPORATION
By: /S/ H. W. RADIN 8/28/96 By: /S/ PETER H. WIGGETT
------------------------------ -----------------------
Title: Chairman and Chief Executive Title: Director, Commercial Contracts
----------------------------- ------------------------------
AMENDMENT NO. 10 TO CONTRACT
BETWEEN
DIRECT BROADCASTING SATELLITE CORPORATION
(HEREINAFTER "BUYER")
and
LOCKHEED MARTIN CORPORATION
(HEREINAFTER "CONTRACTOR")
This Amendment is effective as of the 31st day of May 1996.
WITNESS THAT:
WHEREAS, Direct Broadcasting Satellite Corporation ("Buyer") and Lockheed Martin
Corporation ("Contractor"), mutually agree to amend the subject Contract to:
- revise ARTICLE 4 PAYMENT;
- revise ARTICLE 18 TERMINATION FOR CONVENIENCE.
NOW THEREFORE, in consideration of the mutual covenants and conditions contained
herein, Buyer and Contractor agree to modify the Contract as follows:
I. ARTICLE 4 PAYMENT
-----------------
Add new Paragraph 4.B.3. as follows:
The preconstruction phase design work for Spacecraft Flight #2 is included in
the price of Spacecraft Flight #1 except for effort associated with unique
orbital locations. Contractor shall not be required to perform further
design effort for Spacecraft Flight #2 unless provided an appropriate
equitable adjustment.
Add new Paragraph 4.C.3. as follows:
In the event that the commencement of construction phase payments are delayed
beyond May 31, 1996 for Spacecraft flight #2, the Contractor will be entitled
to an equitable adjustment for price escalation and program extension costs
as well as delivery schedule, further adjustments may be necessitated by non-
availability of components in cases where suppliers cannot provide units
identical to those procured under the baseline contract.
Delete paragraph D in its entirety and replace with the following:
D. Spacecraft In-Orbit Payments
-----------------------------
1. The Spacecraft In-Orbit payments for Spacecraft Flights #1 and #2
shall be paid over a period of five (5) years from launch.
2. The In-Orbit payments shall be paid [CONFIDENTIAL MATERIAL REDACTED]
until full payment has been received by Contractor.
3. For Spacecraft Flights #1 and #2, the interest rate applicable to the
monthly In-Orbit payments shall fall between [CONFIDENTIAL MATERIAL
REDACTED] and shall be fixed 90 days prior to the scheduled launch and
shall be calculated using [CONFIDENTIAL MATERIAL REDACTED] such date
as follows:
a. If the [CONFIDENTIAL MATERIAL REDACTED] In-Orbit payments shall
accrue [CONFIDENTIAL MATERIAL REDACTED].
b. if the [CONFIDENTIAL MATERIAL REDACTED] In-Orbit payments shall
accrue [CONFIDENTIAL MATERIAL REDACTED].
c. if the [CONFIDENTIAL MATERIAL REDACTED] In-Orbit payments shall
accrue [CONFIDENTIAL MATERIAL REDACTED].
4. The In-Orbit payments, including the interest thereon, will be
[CONFIDENTIAL MATERIAL REDACTED] by a corporate guarantee provided by
the EchoStar Communications Corporation (ECC). The security will be
provided to Contractor no later than August 19, 1996.
5. The Parties are willing to enter into good faith negotiations to
establish an alternative to the schedule set out in D.1. above for the
Spacecraft In-Orbit payments for Spacecraft Flights #1 and #2.
Add new Paragraph J as follows:
The first construction payment for Spacecraft Flight #2 shall be due sixty
(60) days following Buyer's receipt of Contractor's invoice, followed by
Buyer's written confirmation thereof. Additional payments shall follow
monthly thereafter per the Spacecraft Flight #2 Payment Plan.
II. ARTICLE 18 TERMINATION FOR CONVENIENCE
--------------------------------------
Add new Paragraph G as follows:
On or after January 1, 1998, Contractor, by written notice to Buyer, may
notify Buyer of its intention to terminate this Contract one year following
the date of such notice with respect to all Spacecraft Flights for which
Buyer has not made (and does not make) the first construction phase payment
prior to the expiration of such one year period. Such termination shall be
effective as of the date one year following the date of notice.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Contract.
DIRECT BROADCASTING SATELLITE LOCKHEED MARTIN CORPORATION
CORPORATION
By: /S/ H. W. RADIN 8/28/96 By: /S/ PETER H. WIGGETT
------------------------------ -------------------------------
Title: Chairman and Chief Executive Title: Director, Commercial Contracts
------------------------------ -------------------------------
Lockheed Martin Commercial Launch Series Proprietary Data
CONTRACT FOR LAUNCH SERVICES
This Contract is made and entered into by and between Lockheed Martin Commercial
Launch Services, Inc., a Delaware corporation, having its principal place of
business at 101 West Broadway Suite 2000, San Diego, California 92101
("Contractor") and EchoStar Space Corporation having its principal place of
business at 90 Inverness Circle East, Englewood, Colorado, ("Customer").
ARTICLE 1
DEFINITIONS
Unless the context shall otherwise require, capitalized terms used herein shall
have the following meanings:
AFFILIATE means the directors, officers, agents and employees of a Party.
This definition is for identification purposes only and shall not be interpreted
as creating any privity of contract between Affiliates of one Party and the
other Party or its Affiliates.
CSLA means the Commercial Space Launch Act, 49 U.S.C. Sections 70101 - 70119, as
amended.
CONSTRUCTIVE TOTAL FAILURE means that it can be determined from flight data or
other evidence, that the Launch Vehicle performed, at any time from Launch to
the separation of the Satellite, in a manner that: (i) caused the Satellite's
operational capacity (functional lifetime) or nominal lifetime to be reduced by
fifty percent (50%) or more based on Customer's intended purposes for the
Satellite using its reasonable judgment; or (ii) caused the Satellite's attitude
or orbital conditions after Satellite Separation to be such that correction is
required to place the Satellite into nominal operating condition and this
correction results in a reduction of fifty percent (50%) or more of the
Satellite's nominal lifetime.
CONTRACT means this instrument and all exhibits attached hereto, as the same may
be amended from time to time in accordance with the terms hereof.
Exhibit A - Statement of Work
Exhibit B - Interface Control Document
1
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
CONTRACT PRICE means the Launch Service Price and the applicable Reflight
Launch Fee or Refund Fee, if any, as set forth in Article 4 entitled "Contract
Price."
EFFECTIVE DATE shall have the meaning set forth in Article 32 entitled
"Effective Date."
EXCUSABLE DELAY shall have the meaning set forth in Paragraph 8.1 entitled
"Excusable Delays Defined."
FAILURE REVIEW BOARD shall have the meaning and the duties set forth in
Paragraph 19.5 entitled "Failure Review Board."
INTENTIONAL IGNITION means that point in time, during the launch countdown, when
initiation of the firing command for the gas generator igniters occurs and
firing of any of the gas generator igniters occurs.
INTERFACE CONTROL DOCUMENT or ICD means that document attached as Exhibit B to
this Contract.
LAUNCH means the Intentional Ignition followed by either (i) release of the
Launch Vehicle from the launcher hold down restraints for the purpose of lift
off; or (ii) total loss or destruction of the Satellite or Launch Vehicle.
LAUNCH DATE means the calendar date within the Launch Slot during which the
Launch is scheduled to occur, as established in accordance with Article 6
entitled "Launch Schedule" and as such Launch Date may be adjusted in accordance
with Article 7 entitled "Launch Schedule Adjustments."
LAUNCH OPPORTUNITY means an adequate time period during which Contractor, in its
reasonable judgment, may provide a Launch Service to the Customer , taking into
account all relevant conditions, including but not limited to, commitments to
other customers, maintenance of appropriate clearance times between flights,
hardware availability and requirements of the United States Government for range
support.
LAUNCH PERIOD means a period of ninety (90) days during which a Launch may be
scheduled to occur, and as such Launch Period may be adjusted in accordance
with Article 7 entitled "Launch Schedule Adjustments."
2
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
LAUNCH SERVICE means those services to be provided by Contractor to Customer for
a single Launch as set forth in Exhibit A entitled "Statement of Work."
LAUNCH SERVICE PRICE means the price for any Launch Service as set forth under
the heading "Launch Service Price" in Paragraph 4.1 entitled "Contract Price"
and subject to adjustment as provided herein.
LAUNCH SLOT: means a thirty (30) day period within the Launch Period during
which the Launch is scheduled to occur, as established in accordance with
Article 6 entitled "Launch Schedule" and as may be adjusted in accordance with
Article 7 entitled "Launch Schedule Adjustments"
LAUNCH VEHICLE means the Atlas IIAS launch vehicle system including the Atlas
lower stage and Centaur upper stage connected by an interstage adapter, the
payload fairing and the payload adapter with separation system, ( but excluding
any Customer unique mission requirements).
LAUNCH VEHICLE MISSION FAILURE means the occurrence of a Total Failure or
Constructive Total Failure.
PARTIAL FAILURE means that it can be determined from flight data or other
evidence that the Launch Vehicle performed, at any time from Launch to the
separation of the Satellite, in a manner that: (i) caused the Satellite's
operational capacity (functional lifetime) or nominal lifetime to be reduced by
more than ten percent (10%) but less than fifty percent (50%), based on
Customer's intended purposes for the Satellite using its reasonable judgment; or
(ii) caused the Satellite's attitude or orbital conditions after Satellite
Separation to be such that correction is required to place the Satellite into
nominal operating condition and this correction results in a reduction of more
than ten percent (10%) but less than fifty percent (50%) of the Satellite's
nominal lifetime.
PARTY or PARTIES means Contractor, Customer or both.
REFLIGHT LAUNCH means the additional Launch Service(s) which may be provided to
Customer in accordance with Article 19 entitled "Reflight or Refund."
REFLIGHT LAUNCH FEE means the fee for Reflight Launch coverage set forth in
Article 19 entitled "Reflight or Refund."
3
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
REFUND means the amount payable to the Customer pursuant to Paragraph 19.3
entitled "Terms Governing Refund" in the event the Launch Service is a Total
Failure, Constructive Total Failure, or Partial Failure.
REFUND FEE means the fee for Refund coverage set forth in Article 19 entitled
"Reflight or Refund."
RELATED THIRD PARTIES means (i) the Parties' Affiliates and customers; (ii) the
Parties' contractors, subcontractors and suppliers at any tier involved directly
or indirectly in the performance of this Contract, and their directors,
officers, agents and employees; and (iii) entities involved with payload
processing or other activities in the payload processing facilities, including
Contractor providing the payload processing facilities, other customers of the
payload processing facilities contractor, and all employees and contractors of
those contractors and customers. This definition is for identification purposes
only and shall not be interpreted as creating any privity of contract between
Affiliates of one Party and the other Party or its Affiliates.
REPLACEMENT LAUNCH means the additional Launch Service which may be provided to
the Customer in accordance with Article 20 entitled "Replacement Launch."
SATELLITE means the Customer-provided EchoStar III satellite and associated
property to be launched on the Launch Vehicle.
SATELLITE MISSION FAILURE means that it can be determined from flight data or
other evidence, that (i) the Satellite's operational capacity (functional
lifetime) or nominal lifetime have been reduced by fifty percent (50%) or more
based on Customer's intended purposes for the Satellite using its reasonable
judgment; or (ii) the Satellite's attitude or orbital conditions after
Satellite Separation require correction to place the Satellite into nominal
operating condition and this correction results in a reduction of fifty percent
(50%) or more of the Satellite's nominal lifetime.
SATELLITE SEPARATION means the physical separation of the Satellite from the
Launch Vehicle pursuant to the command activating the separation system that
releases the Satellite.
SUCCESS means a Launch Service which is not a Total Failure, Constructive Total
Failure or Partial Failure.
4
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
TERMINATED IGNITION means the intentional or unintentional shutdown of the first
stage main engines after Intentional Ignition but before the release of the
Launch Vehicle from the launcher hold down restraints continuing until such time
as the pad is declared safe by the Range Safety Officer.
TERMINATION CHARGE means the charge calculated in accordance with Paragraph 21.6
entitled "Termination Charge."
THIRD PARTY means any person or entity other than Contractor, Customer, their
Affiliates and Related Third Parties and the United States Government and its
agencies, contractors or subcontractors involved in the Launch Services.
TOTAL FAILURE means that it can be determined from flight data or other evidence
that the Launch Vehicle, at any time from Launch to the separation of the
Satellite, performed in a manner that caused the Satellite to be totally lost,
completely destroyed or unable to separate from the Launch Vehicle.
ARTICLE 2
SERVICES TO BE PROVIDED
2.1 BASIC LAUNCH SERVICE Contractor shall furnish a Launch Service for one (1)
Launch of a the Customer-provided Satellite from Cape Canaveral Air Station
(CCAS), Florida, United States of America, in accordance with Exhibit A entitled
"Statement of Work."
2.2 REFLIGHT OR REFUND Subject to the provisions of Article 19 of this
Contract entitled "Reflight or Refund," Contractor shall provide a Reflight
Launch for a Customer-furnished Satellite or a Refund of the Launch Service
Price.
2.3 REPLACEMENT LAUNCH Subject to the provisions of Article 20 of this
Contract entitled "Replacement Launch", Contractor shall provide a Replacement
Launch for a Customer-furnished Satellite.
ARTICLE 3
RESERVED
5
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 4
CONTRACT PRICE
4.1 CONTRACT PRICE The Contract Price for the Launch Service shall be the
total of the Launch Service Price plus the Reflight Launch Fee or Refund Fee,
as the case may be, for the coverage described in Article 19 entitled
"Reflight Launch or Refund" should the Customer elect such coverage in
accordance with Article 19 of this Contract. Upon such election, the Contract
Price shall be adjusted accordingly.
Launch Service Reflight Launch Refund Contract
Price Fee* Fee* Price
----- ---- ---- ------
[CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL
MATERIAL MATERIAL MATERIAL MATERIAL
REDATED] REDATED] REDACTED] REDACTED]
*The Reflight Fee and Refund Fee are predicated upon the performance
of a Launch Service by no later than 31 December 1997 and are subject to
adjustment with reference to the-current rates in the event that the Launch
service occurs on or after 1 January 1998. In the event a Launch is
scheduled to occur on or after 1 January 1998, Contractor will invoice
Customer for the amount of any increase to the Reflight Launch Fee or
Refund Launch Fee, as the case may be, at least one hundred and eighty
(180) days before the Launch Date. If the Customer does not pay the
increased amount of the Reflight Launch Fee or Refund Launch Fee within one
hundred and twenty (120) days prior to the Launch Date, then the Customer
will be deemed to have waived and relinquished any rights to a Reflight
Launch or Refund under article 9 entitled "Reflight or Refund" and the
Customer will be entitled to a refund on any Reflight Launch Fee or Refund
Fee paid to Contractor.
4.3 TAXES The Contract Price includes all taxes, duties and other levies
imposed by the United States Government or any political subdivisions thereof
but excludes any taxes duties or other levies that may be imposed on any
Satellite, support equipment or technology by the United States Government or
any other government. Any taxes, duties or levies imposed on such Customer-
furnished items shall be the obligation of Customer and, should such become an
obligation of Contractor for any reason, Customer shall indemnify and hold
harmless Contractor from such obligation and shall reimburse Contractor within
thirty (30) days of Contractor's invoice for payment of such amounts.
6
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 5
PAYMENT
5.1 TIMING OF PAYMENTS Payment of the Contract Price shall be in U.S.
Dollars, subject to conditions set forth in Articles 7 and made in accordance
with the following schedule:
5.1.1 INITIAL PAYMENT: Customer will make an initial payment of
[CONFIDENTIAL MATERIAL REDACTED] for the Launch Service as set forth in
Article 2. This initial payment is due within thirty (30) days of the later
of the effective date of this Contract or the submission of Contractor's
invoice for the amount of the initial payment. The initial payment amount
due will be reduced to [CONFIDENTIAL MATERIAL REDACTED] payment made by the
Customer and received by the Contractor pursuant to a Letter of Intent
executed by the Contractor and Customer on March 27 1996.
5.1.2 PAYMENT NO. 2: Payment number two shall equal [CONFIDENTIAL
MATERIAL REDACTED] and be due upon the Launch of the Customer's EchoStar II
satellite, plus three business days, but in no event shall payment number 2
be due later than September 30, 1996.
5.1.3 REMAINING PAYMENTS: The balance of the payments for the
Launch Service as set forth in Article 2 entitled "Services To Be Provided"
shall be paid in accordance with the Table 5.1 launch payment schedule
below. As used in the payment schedule below, "L" shall mean [CONFIDENTIAL
MATERIAL REDACTED] If a payment due date falls on a Saturday, Sunday or
legal bank holiday, then payment shall be due on the following business
day.
TABLE 5.1. LAUNCH PAYMENT SCHEDULE.
Payment
Payment Number Amount Due Date
-------------- ---------- ----
[CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL
MATERIAL MATERIAL MATERIAL
REDACTED] REDACTED] REDACTED]
5.2 WIRE TRANSFER INSTRUCTIONS All payments to Contractor will be by wire
transfer to the following address:
7
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
Lockheed Martin Commercial Launch Services
Citibank N.A.
One Penn's Way
New Castle, DE. 19720
ABA# 021000089
Acct# 40678123
5.3 INVOICES Contractor shall submit invoices thirty (30) days in advance of
the scheduled payment due dates. Payments shall be deemed made when credit for
the payable amount is established in Contractor's designated bank account.
5.4 INTEREST ON PAYMENTS DUE If any amount due to either Party under this
Contract shall remain unpaid after its due date, then the paying Party shall pay
interest to the other Party at the prevailing prime interest rate (as charged by
the Chase Manhattan Bank, New York City). Interest will be computed commencing
on the day following such due date to and including the day payment is actually
made.
5.5 ACCELERATED PAYMENTS
5.5.1 ACCELERATED LAUNCH SERVICE: In the event that the Launch
Service is accelerated as described in Article 7 entitled "Launch Schedule
Adjustments," the next payment due for such Launch Service following such
acceleration shall be increased to include the balance of the payments that
would have been made had the Contract payments been scheduled on the basis
of the accelerated Launch Period.
5.6 POSTPONED PAYMENTS
5.6.1 POSTPONEMENTS BY CONTRACTOR: In the event of postponement
declared by Contractor for any reason including those in Article 7 and
Article 8, the Contract payments shall be suspended for the length of the
delay and then resumed with all remaining payments postponed by the amount
of the delay. Notwithstanding the above, in the event of a postponement
declared by the Contractor the final payment shall remain due in accordance
with Article 5.1 of this Contract.
8
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
5.6.2 POSTPONEMENTS BY CUSTOMER: In the event of postponement
declared by Customer for any reason including those in Article 7 and
Article 8, the Contract payments shall not be suspended and shall
remain due based upon the effective Launch Period, or Launch Slot or Launch
Date if established, prior to the postponement, except as set forth in
5.6.3 below.
5.6.3 POSTPONEMENTS UNDER ARTICLE 7.1.3 AND 7.1(c): In the
event the Customer exercises its postponement rights in accordance with
Article 7.1.3 or 7.1(c) of this Contract, the Customer shall be entitled to
suspend each remaining payment for the length of the delay.
5.7 PAYMENT TERMS FOR REFLIGHT OR REFUND PROTECTION Payment terms for Reflight
or Refund Protection, as may be elected by the Customer in accordance with
Articles 4 entitled "Contract Price" and 19 entitled "Reflight or Refund" of
this Contract, are as set forth in Article 19 of this Contract.
ARTICLE 6
LAUNCH SCHEDULE
6.1 LAUNCH PERIOD The Launch Period for the Launch as to which Contractor
is providing a Launch Service shall be as follows:
Launch Number Launch Period
------------- -------------
1 1 September 1997-30 November 1997, inclusive
6.2 LAUNCH SLOT At least nine (9) months prior to the first day of the
Launch Period, Contractor will give notice to Customer of a proposed Launch Slot
within the Launch Period, taking into account the requirements for a Launch
Opportunity. The Parties will cooperate in good faith to finalize the selection
of a Launch Slot. However, in the event that the Parties cannot mutually agree
upon a Launch Slot within thirty (30) days of Contractor's proposal, Contractor
shall make such determination taking into account the available Launch
Opportunities and the requirements and interests of Customer.
9
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
6.3 LAUNCH DATE At least four (4) months prior to the first day of the
Launch Slot, Contractor will give notice to Customer of a proposed Launch Date
within the Launch Slot, taking into account the requirements for a Launch
Opportunity. The Parties will cooperate in good faith to finalize the selection
of a Launch Date. However, in the event that the Parties cannot mutually agree
upon a Launch Date within thirty (30) days of Contractor's proposal, Contractor
shall make such determination in good faith taking into account the available
Launch Opportunities and the requirements and interests of Customer.
ARTICLE 7
LAUNCH SCHEDULE ADJUSTMENTS
7.1 CUSTOMER LAUNCH SCHEDULE ADJUSTMENTS Without limiting the Customer's
rights under Article 8 of this Contract entitled "Excusable Delays", Customer
may request either a postponement for the reasons set forth in 7.1(a), 7.1(b) or
7.1(c) or advancement of the Launch Slot or Launch Date previously determined
under Article 6 of this Contract entitled "Launch Schedule," by giving notice to
Contractor proposing a new Launch Period, Launch Slot or Launch Date. The
Parties will cooperate in good faith to select a new Launch Period, Launch Slot
or Launch Date. However, in the event that the Parties cannot mutually agree
within sixty (60) days of Customer's notice (or such shorter time period as
Contractor may determine, in light of the proximity to the Launch), Contractor
shall make such determination in good faith taking into account the available
Launch Opportunities and the requirements and interests of Customer. Until the
new Launch Period, Launch Slot or Launch Date is selected in accordance with
this Paragraph 7.1, the then-current launch schedule shall remain in effect.
7.1(a) The Customer may request a delay (equal to the schedule impact)
to the Launch Period, or Launch Slot or Launch Date if established in the
event the Satellite manufacturer experiences delays in the delivery
schedules of the Satellite.
7.1(b) Notwithstanding and in addition to the foregoing, the Customer
may postpone the Launch Period, Launch Slot or Launch Day, for other
reasons, provided that the cumulative amount of such postponement(s)
does not exceed [CONFIDENTIAL MATERIAL REDACTED]
10
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
7.1(c) The Customer may delay (to the extent of the delay so caused)
the Launch Period, Launch Slot or Launch Date if established, in
the event the Contractor damages the Customer's Satellite and it can be
determined that the damage caused a delay to the launch schedule.
7.1.1 If the launch schedule adjustment results in a later Launch
Period, Launch Slot or Launch Date, then only the total number of calendar
days of delay originally requested by Customer shall be attributed to
Customer.
7.1.2 Postponements by Customer under this Article 7 for the
Launch Service shall not exceed [CONFIDENTIAL MATERIAL REDACTED] except as
stated in Article 7.1.3 below or delays under 7.1(c) above. In the event
that a single postponement, or cumulative postponements, attributed to
Customer exceed such maximum permissible postponement for the Launch
Service, the Launch Service shall, at the election of Contractor, be
subject to termination by Contractor in accordance with Article 21 of this
Contract entitled "Termination."
7.1.3
[CONFIDENTIAL MATERIAL REDACTED]
7.1.4 RANGE SUPPORT: Should Range Support be initiated prior to
the receipt of Customer's notice of postponement Customer will pay an
amount of U.S. [CONFIDENTIAL MATERIAL REDACTED] to Contractor within thirty
(30) days of receipt of the Contractor's invoice for such amount. Range
Support, as used in the preceding sentences, means those activities
conducted by the Contractor and/or United States Government in connection
with a Launch Service as described in Exhibit A entitled "Statement of
Work" and which are conducted no earlier than seven (7) days prior to
Launch.
11
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
7.2 CONTRACTOR LAUNCH SCHEDULE ADJUSTMENTS: Without limiting the
Contractor's rights under Article 8 of this Contract entitled "Excusable
Delays", Contractor may postpone, for the reasons set forth in Articles
7.2(a), and 7.2(b) below, the Launch Period, Launch Slot or Launch Date
previously determined under Article 6 entitled "Launch Schedule" by giving
notice to Customer proposing a new Launch Period, Launch Slot or Launch Date.
The Parties will cooperate in good faith to select a new Launch Period,
Launch Slot or Launch Date. However, if the Parties cannot mutually agree
within sixty (60) days of Contractor's proposal (or such shorter time period
as Contractor may determine, in light of the proximity to the Launch),
Contractor shall make such determination in good faith taking into account
the available Launch Opportunities and the requirements and interests of
Customer. Until the new Launch Period, Launch Slot or Launch Date is
selected in accordance with this Paragraph 7.2, the then-current launch
schedule shall remain in effect.
7.2(a)
[CONFIDENTIAL MATERIAL REDACTED]
7.2(b) Notwithstanding and in addition to the foregoing, the
Contractor may postpone the Launch Period, Launch Slot or Launch Day, due
to short delays occasioned by delays of launch(es) of other customers
scheduled prior to the Customer's Launch.
7.2.3 If the final launch schedule adjustment results in a later
Launch Period, Launch Slot or Launch Date, then the total number of
calendar days of delay originally requested by Contractor shall be
attributed to Contractor.
7.2.4 Total postponements by Contractor under this Article 7 shall
not exceed a total of [CONFIDENTIAL MATERIAL REDACTED] In the event that a
single postponement, or cumulative postponements, attributed to Contractor
exceed such maximum permissible postponement, the Launch Service shall be
subject to termination by Customer in accordance with Paragraph 21.2
entitled "Termination by Customer for Excessive Launch Postponement."
12
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
7.3 Reserved
7.4 EXCUSABLE DELAYS Days during which an Excusable Delay exists as defined
in Article 8 entitled "Excusable Delays" and which affect the launch
schedule will not be included in determining the length of a postponement
attributable to either Contractor or Customer under this Article 7.
7.5 Reserved
7.6 POSTPONEMENTS ATTRIBUTED TO NON-COMPLYING PARTY UNDER ARTICLE 10 :
Should the failure of either Party to provide required data, hardware and
services result in a delay to the launch schedule, then such non-complying
Party shall be charged with a postponement under this Article 7 upon notice
by the other Party. Requirements to provide data, hardware and services,
delays and the length of postponement chargeable to the non-complying Party
are described in Article 10 entitled "Additional Contractor and Customer
Obligations Prior to Launch."
7.7 OBLIGATION TO GIVE PROMPT NOTICE Contractor and Customer acknowledge and
agree that it is in the best interests of both Parties to promote certainty in
launch schedule decisions and minimize disruption to other customers of
Contractor. Therefore, the Parties agree to give prompt notice of any need for
schedule change under this Article 7 or any actual or potential delay which
might impact the launch schedule.
13
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 8
EXCUSABLE DELAYS
8.1 EXCUSABLE DELAYS DEFINED Neither Party shall be liable to the other in the
event of a delay in the performance of its obligations or commitments, and the
date on which those obligations are to be fulfilled shall be extended for the
period of time of such delay, when the delay was due to causes beyond the
control and not due to the fault of negligence of the Party subject to the
delay. Subject to the foregoing, Excusable Delays shall include, but not be
limited to, the following: Acts of God, unforeseeable circumstances, acts
(including delay or failure to act) of any governmental authority (de jure or de
facto), inability of either Party to obtain any necessary export licenses, wars
(declared or undeclared), riot, revolution, hijacking, fires, strikes, freight
embargoes, labor stoppage, sabotage, epidemics, interruptions of essential
services and supplies such as electricity, natural gas, fuels and water, adverse
weather or launch safety conditions which do not permit launching, range
availability, maintenance of appropriate clearance times between flights, delays
due to any replacement launch required under any other customer agreement(s)
with Contractor, inability to timely obtain from insurance underwriters
necessary and proper third party liability insurance including insurance for
damage to government property, or any condition which jeopardizes the safety of
employees of Contractor, Customer or their respective Related Third Parties.
Delays due to Atlas launch vehicle failures shall not be considered Excusable
Delays.
8.2 NOTICE(S) OF EXCUSABLE DELAYS Contractor and Customer acknowledge and
agree that it is in the best interests of both Parties to promote certainty in
launch schedule decisions and minimize disruption to other customers of
Contractor. Therefore, the Parties agree to give prompt notice of any actual or
potential Excusable Delay under this Article 8.
14
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 9
COORDINATION AND COMMUNICATION BETWEEN
CUSTOMER AND CONTRACTOR
9.1 PROJECT COORDINATORS Each Party hereby identifies to the other a single
technical point of contact to coordinate the activities under this Contract.
The technical points of contact are not authorized to direct work contrary to
the requirements of this Contract or make modifications to this Contract. All
modifications to the terms, conditions and requirements of this Contract shall
be made pursuant to Article 25 entitled "Amendment."
Contractor's Technical Point of Contact is:
Mr. Marv Steinman
Mission Manager
Lockheed Martin Commercial Launch Services, Inc.
P.O Box 179
Denver Colorado 80201
303.977.0153-Telephone
303.971.2472-Facsimile
Customer's Technical Point of Contact is:
Mr. Rohan Zaveri
DBS Program Manager
Echostar Space Corporation
90 Inverness Circle East
Englewood, Colorado 80112
303.7999.8222 Ext 4714
303.799.9430-Facsimile
9.2 NOTICES All notices that are required or permitted to be given under this
Contract shall be in writing and shall be delivered in person or sent by mail or
air courier service, postage prepaid, to the representative and address set
forth below, or to such other representative or address specified in a notice to
the other Party. Notices shall be deemed effective upon delivery in person, or
three (3) days after deposit in the mail or air courier service as described
above if mailed within the continental United States, or seven (7) days after
deposit in the mail or air courier service as described above, return receipt
requested, if mailed to or from a location outside of the continental United
States. Notices which are delivered other than as described above shall be
effective on receipt.
15
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
Notices to Contractor:
Mr. Robert Scott
Manager of Commercial Contracts
Lockheed Martin Commercial Launch Services, Inc.
P.O Box 179
Denver Colorado 80201
303.977.4961-Telephone
303.971.2472-Facsimile
Notices to Customer:
Mr. David Moskowitz
Senior Vice President and General Counsel
EchoStar Space Corporation
90 Inverness Circle East
Englewood, Colorado 80112
303.799.8222 Ext 5323
303.799.0354-Facsimile
9.3 COMMUNICATIONS IN ENGLISH: All documentation, notices, reports and
correspondence under this Contract shall be submitted and maintained in the
English language.
ARTICLE 10
ADDITIONAL CONTRACTOR AND CUSTOMER OBLIGATIONS
PRIOR TO LAUNCH
10.1 OBLIGATION TO PROVIDE INFORMATION Contractor shall provide to
Customer the data, hardware and services identified in Section 6 of Exhibit A
entitled "Statement of Work", and Customer shall provide to Contractor the
data, hardware and services identified in Section 7 of Exhibit A, in
accordance with the schedules contained therein. The data, hardware and
services will be received in a condition suitable for their intended use.
16
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
10.2 REQUIREMENT TO CURE NON-COMPLIANCE In the event that data, hardware
or services specified above are not received in accordance with the schedules
set forth therein or such data, hardware or services are not suitable for
their intended use when received, and such non-compliance has or is
anticipated to negatively impact the launch schedule, in the reasonable
judgment of the Party intended to receive such data, hardware or services,
then the Party intended to receive the data, hardware or services shall
promptly give notice to the non-complying Party of the non-compliance. The
notice shall describe the non-compliance and recommend solutions. The
non-complying Party shall respond within seven (7) days by giving notice that
shall include, but not be limited to, the non-complying Party's statement
that either (a) no non-compliance has occurred or (b) it has cured such
non-compliance or has implemented a plan to cure such non-compliance within a
reasonable period of time, the actual or estimated date by which such cure
has been or will be completed and an analysis of the impact of such
non-compliance on the other Party' continuing performance of its obligations
under this Contract. Upon receipt of the non-complying Party's notice, the
other Party shall use its best efforts to continue to perform its obligations
under the Contract, minimize launch schedule disruption due to such
non-compliance.
10.3 IMPACT OF NON-COMPLIANCE ON LAUNCH SCHEDULE If the non-complying
Party's non-compliance results in a delay to the launch schedule, then the
non-complying Party will be charged with a postponement under Article 7
entitled "Launch Schedule Adjustments" from the first date of the Launch
Period, Launch Slot or Launch Date then in effect ( unless a notice of a
proposed change has been given) until the first day of the new Launch Period,
Launch Slot or Launch Date determined in accordance with Article 7.
10.4 INTERFACE CONTROL DOCUMENT In the event the ICD is not available at
the time of Contract execution, the Parties shall cooperate in good faith and
within a reasonable time generate a mutually acceptable ICD that shall be
designated as Exhibit B to this Contract upon such acceptance.
17
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 11
FACTORY AND LAUNCH SITE ACCESS
11.1 RIGHT OF ACCESS Subject to appropriate security and safety
limitations, Customer shall have access to the Atlas, Centaur and Customer's
mission hardware final assembly areas to witness final acceptance activities.
Customer will similarly have access to the Cape Canaveral Air Station
(CCAS), Florida, launch complex and Satellite encapsulation area to witness
major Customer-related mission tests and to attend regular coordination
meetings. Major launch vehicle tests shall include the Wet Dress Rehearsal
(WRD), Flight Event Demonstration (FED) and Combined Electrical Readiness
Test (CERT).
ARTICLE 12
LICENSES, CLEARANCES AND PERMITS
12.1 RESPONSIBILITY FOR LICENSES, CLEARANCES AND PERMITS Each Party shall
be responsible for obtaining any licenses, clearances or permits, and for
taking any actions necessary to carry out its obligations under this
Contract. Contractor shall be responsible for obtaining all governmental
authorizations necessary for the performance of Contractor's obligations
hereunder.
12.2 TRANSFERS OF TECHNICAL DATA Each Party shall be responsible for
compliance with applicable United States Government regulations relating to
the transfer of technical data to the other Party or to Third Parties.
12.3 Reserved
18
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 13
COMPLIANCE WITH UNITED STATES GOVERNMENT REQUIREMENTS
13.1 CUSTOMER COMPLIANCE WITH REQUIREMENTS Contractor has executed
agreements with various United States Government agencies for use of United
States Government-owned property and facilities relating to the production of
Launch Vehicles and launch operations at CCAS in Florida. Customer agrees
that it will comply with the United States Government's laws and regulations
as they relate to Customer-furnished property and personnel, and those
agreements relating directly to the United States commercial expendable
launch vehicle program. Contractor shall furnish copies of these agreements
to Customer upon request. Customer will indemnify Contractor for any Customer
violation of these laws, regulations or agreements. In furtherance of the
foregoing, Customer shall, before Launch, execute and deliver the Agreement
for Waiver of Claims and Assumption of Responsibility, the execution of which
is required by the United States Department of Transportation as a condition
of granting Contractor's license to Launch the Satellite.
13.2 GOVERNMENT NEED It is the policy of the United States Government to
support the commercialization of domestic launch services by making available
to United States launch services providers its launch-related facilities.
However, both Customer and Contractor agree that, in the event of imperative
national need as set forth in the CSLA, the United States Government may
require use of United States Government or Contractor property and personnel.
In event such use by the United States Government necessitates subsequent
rescheduling of Customer's launch(es), Contractor will promptly notify
Customer of the delay(s) and will reschedule any affected Launch(es) to
accommodate all customers to the extent possible. Such delay shall be
considered an Excusable Delay under Article 8. The United States Government
shall not be liable to Customer for any costs or damages, including
consequential damages, arising out of a delay caused by such priority use of
property or personnel.
ARTICLE 14
COMPLETION OF CONTRACTOR'S OBLIGATION
14.1 COMPLETION OF LAUNCH SERVICES For a Launch Service in which Customer
has not elected a Reflight Launch or Refund, the Launch Services to be
provided under this Contract shall be considered complete upon Launch and the
submission of data required by Exhibit A entitled "Statement of Work,"
Section 4.1.3, entitled "Post Launch Reports". Contractor assumes no other
liabilities or obligations for launch performance.
19
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
14.2 COMPLETION OF LAUNCH SERVICES WHEN REFLIGHT OR REFUND ELECTED For a
Launch Service in which Customer has elected Reflight Launch or Refund
coverage, such Launch Service shall be considered complete upon a Success,
or, in the event of a Total Failure, Constructive Total Failure or Partial
Failure under Paragraph 19.5 entitled "Failure Review Board," shall be
considered complete except for such Reflight Launch or Refund coverage.
Contractor assumes no other liabilities or obligations for launch performance.
14.3 COMPLETION OF LAUNCH SERVICES WHEN REPLACEMENT LAUNCH ELECTED For a
Launch Service in which the Customer has elected a Replacement Launch, such
Launch Service shall be considered complete upon a Success, or in the event
of a Launch Vehicle Mission Failure or Satellite Mission Failure under
Article 20 entitled "Replacement Launch", shall be considered complete except
for such Replacement Launch. Contractor assumes no further liabilities or
obligations for launch performance.
ARTICLE 15
ALLOCATION OF CERTAIN RISKS
15.1 WAIVER OF LIABILITY
15.1.1 Contractor and Customer hereby agree to a reciprocal waiver of
liability pursuant to which each Party agrees not to bring a claim in
arbitration or otherwise or sue the other Party, the United States
Government or Related Third Parties of the other Party for any property
loss or damage it sustains and any property loss or damage, personal injury
or bodily injury, including death, sustained by any of its employees,
directors, officers and agents, arising in any manner in connection with
the performance of or activities carried out pursuant to this Contract, or
other activities in or around the launch site or Satellite processing area,
or the operation or performance of the Launch Vehicle or the Satellite.
Such waiver of liability shall also extend to any indirect special,
incidental or consequential damages or other loss of revenue or business
injury or loss resulting from any delay in Launch, damages to the Satellite
before or after Launch or from the failure of the Satellite to reach its
planned orbit or operate properly. In no event shall this reciprocal
waiver of liability prevent or encumber enforcement of the Parties'
contractual rights and obligations to each other under this Contract.
20
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
15.1.2 Claims of liability are waived and released regardless of
whether loss, damage or injury arises from the acts or omissions, negligent
or otherwise, of either Party or its Related Third Parties. This waiver
shall extend to all theories of recovery, including in contract for
property loss or damage, tort, product liability and strict liability.
15.1.3 Contractor and Customer shall each extend the waiver and
release of claims of liability as provided in Paragraphs 15.1.1 and 15.1.2
to its Related Third Parties (other than employees, directors and officers)
by requiring them to waive and release all claims of liability they may
have against the other Party, its Related Third Parties, the United States
Government and its contractors and subcontractors at every tier and to
agree to be responsible for any property loss or damage, personal injury
or bodily injury, including death, sustained by them arising in any manner
in connection with the performance of or activities carried out pursuant to
this Contract, or other related activities in or around the launch site or
Satellite processing area, or the operation or performance of the Launch
Vehicle or the Satellite.
15.1.4 The waiver and release by each Party and its Related Third
Parties of claims of liability against the other Party and the Related
Third Parties of the other Party extends to the successors and assigns,
whether by subrogation or otherwise, of the Party and its Related Third
Parties. Each Party shall obtain a waiver of subrogation and release of
any right of recovery against the other Party and its Related Third Parties
from any insurer providing coverage for the risks of loss for which the
Party hereby waives claims of liability against the other Party and its
Related Third Parties.
21
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
15.2 INDEMNIFICATION - PROPERTY LOSS AND DAMAGE AND BODILY INJURY
15.2.1 To the extent that such liability is not covered by an
insurance policy of either Contractor or Customer, Contractor and
Customer each agree to defend, hold harmless and indemnify the other
Party and its Related Third Parties, for any liabilities, costs and
expenses (including attorneys' fees, costs and expenses), arising as a
result of claims brought by Related Third Parties of the indemnifying
Party, for property loss or damage, personal injury or bodily injury,
including death, sustained by such Related Third Parties, arising in any
manner in connection with the activities carried out pursuant to this
Contract, other activities in and around the launch site or the
Satellite processing area, or the operation or performance of the Launch
Vehicle or the Satellite. Such indemnification shall extend to any
claim for indirect damages, consequential damages or other loss of
revenue or business injury or loss resulting from any loss of or damage
to the Satellite before or after launch or from the failure of the
Satellite to reach its planned orbit or operate properly.
15.2.2 To the extent that such claims of liability are not covered
by the third party liability insurance referred to in Paragraph 16.1
entitled "Third Party Liability Insurance," or an insurance policy of
either Contractor or Customer or not paid by the United States Government
(as provided in Paragraph 16.2 entitled "Insurance Required by Launch
License"), Contractor will defend, hold harmless and indemnify Customer and
its Related Third Parties for any and all claims of Third Parties, for
property loss or damage, personal injury or bodily injury, including death,
arising in any manner from the operation or performance of the Launch
Vehicle.
15.2.3 To the extent that such claims of liability are not covered
by the third party liability insurance referred to in Paragraph 16.1
entitled "Third Party Liability Insurance," or an insurance policy of
either Contractor or Customer or not paid by the United States Government
(as provided in Paragraph 16.2 entitled "Insurance Required by Launch
License,"), Customer will defend, hold harmless and indemnify Contractor
and its Related Third Parties for any and all claims of Third Parties, for
property loss or damage, personal injury or bodily injury, including death,
arising in any manner from the operation or performance of the Satellite
or from any claim for indirect damages, consequential damages or other loss
of revenue or business injury or loss resulting from any loss of or damage
to the Satellite before or after Launch or from the failure of the
Satellite to reach its planned orbit or operate properly.
22
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
15.2.4 Notwithstanding Paragraphs 15.2.2 and 15.2.3 above, Contractor
shall not be obligated to defend, hold harmless or indemnify Customer for
any claim brought by a Third Party against Customer resulting from any
damage to or loss of the Satellite, whether sustained before or after
Launch and whether due to the operation, performance, non-performance or
failure of the Launch Vehicle or due to any other causes. Customer shall
defend, hold harmless and indemnify Contractor for any claims brought by
Third Parties against Contractor for damage to or loss of the Satellite,
whether sustained before or after Launch or whether due to the operation,
performance, non-performance or failure of the Launch Vehicle or due to
other causes.
15.2.5 The indemnification provided by this Article for property
loss or damage, personal injury or bodily injury extends to all damage or
injury regardless of whether such loss, damage or injury arises from the
acts or omissions, whether negligent or otherwise, of either Party.
15.2.6 The right of either Party or Related Third Parties to
indemnification under this Article is not subject to subrogation or
assignment and either Party's obligation set forth herein to indemnify the
other Party or Related Third Parties extends only to that Party or those
Related Third Parties and not to others who may claim through them by
subrogation, assignment or otherwise.
15.3 INDEMNIFICATION BY UNITED STATES GOVERNMENT
15.3.1 The Parties recognize that under the CSLA and subject
thereto, the Secretary of Transportation shall, to the extent provided in
advance in appropriations acts or to the extent there is enacted additional
legislative authority to provide for the payment of claims, provide for the
payment by the United States Government of successful claims (including
reasonable expenses of litigation or settlement) of a Third Party against
Contractor or subcontractors, or Customer or its contractors or
subcontractors, resulting from activities carried out pursuant to a license
issued or transferred under the CSLA for death, bodily injury, or loss of
or damage to property resulting from activities carried out under the
license, but only to the extent that the aggregate of such successful
claims arising out of the Launch:
23
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
15.3.1.1 is in excess of the amount of insurance or
demonstration of financial responsibility
required of Contractor under its license issued
pursuant to the CSLA; and
15.3.1.2 is not in excess of the level that is
$1,500,000,000 (plus any additional sums
necessary to reflect inflation occurring after
January 1, 1989) above the required amount of
insurance or demonstration of financial
responsibility required by the CSLA.
15.3.2 Contractor makes no representation or warranty that any
payment of claims by the United States Government will be available
pursuant to the CSLA. Contractor's sole obligation is the good faith
effort to obtain such payment as may be available from the United States
Government.
24
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
15.4 INDEMNIFICATION - INTELLECTUAL PROPERTY INFRINGEMENT
15.4.1 Contractor shall defend, hold harmless and indemnify Customer
and its Related Third Parties for any and all claims resulting from the
infringement, or claims of infringement, of the patent rights or any
other intellectual property rights of a Third Party, that may arise from
Contractor's provision of Launch Services.
15.4.2 Customer shall defend, hold harmless and indemnify Contractor
and its Related Third Parties for any and all claims resulting from the
infringement, or claims of infringement, of the patent rights or any other
intellectual property rights of a Third Party, that may arise from the
design, manufacture, launch or operation of Customer's Satellite.
15.5 RIGHTS AND OBLIGATIONS The rights and obligations specified in Paragraphs
15.2 and 15.3 shall be subject to the following conditions:
15.5.1 The Party seeking indemnification shall promptly advise the
other Party in writing of the filing of any suit, or of any written or oral
claim alleging an infringement of any Related Third Party's or any Third
Party's rights, upon receipt thereof; and shall provide the indemnitor, at
the indemnitor's request and expense, with copies of all relevant
documentation.
15.5.2 The Party seeking indemnification shall not make any admission
nor shall it reach a compromise or settlement without the prior written
approval of the other Party, which approval shall not be unreasonably
withheld or delayed.
15.5.3 The Party required to indemnify, defend and hold the other
harmless shall assist in and shall have the right to assume, when not
contrary to the governing rules of procedure, the defense of any claim or
suit or settlement thereof, and shall pay all reasonable litigation and
administrative costs and expenses, including attorney's fees, incurred in
connection with the defense of any such suit, shall satisfy any judgments
rendered by a court of competent jurisdiction in such suits, and shall make
all settlement payments.
15.5.4 The indemnitee may participate in any defense at its own
expense, using counsel reasonably acceptable to the indemnitor, provided
that there is no conflict of interest and that such participation does not
otherwise adversely affect the conduct of the proceedings.
25
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
15.6 INCONSISTENCY WITH GOVERNMENT AGREEMENT In the event of any inconsistency
between any provision of Article 16 "Insurance" and the Agreement for Waiver of
Claims and Assumption of Responsibility referred to in Paragraph 13.1, such
Agreement shall be construed and interpreted so as to be made consistent with
this Contract.
15.7 SURVIVAL OF OBLIGATIONS All indemnities, obligations, liabilities and
payments provided for in this Article 15 shall survive, and remain in full force
and effect, notwithstanding the expiration or other termination of this Contract
and, subject to the limitations set forth in this Article 15, notwithstanding
any other provision of this Contract to the contrary.
ARTICLE 16
INSURANCE
16.1 THIRD PARTY LIABILITY INSURANCE Contractor shall procure and maintain in
effect insurance for third party liability to provide for the payment of claims
resulting from property loss or damage or bodily injury, including death,
sustained by Third Parties in connection with the performance of this Contract
by either Party or the Related Third Parties of either Party or by the United
States Government. The insurance shall have a limit of U.S. $164,000,000 per
occurrence and in the aggregate, or such other amount as may be required by the
United States Department of Transportation. Coverage for damage, loss or injury
arising in any manner in connection with the services provided under this
Contract shall attach upon arrival of the Launch Vehicle at CCAS and for third
party liability arising in any manner in connection with the handling,
processing or Launch of the Satellite will attach from the time the Satellite is
under the care, custody and control of Contractor or its subcontractors.
Coverage for third party liability will terminate upon the return of all parts
of the Launch Vehicle to Earth or twelve (12) months, whichever is earlier and
for the Satellite, shall terminate twelve (12) months following the date of
Launch unless the Satellite is removed from the Satellite processing area or
CCAS other than by Launch, in which case, coverage shall extend only until such
removal. Such insurance shall not cover loss of or damage to the Satellite even
if such claim is brought by any Third Party or Related Third Parties. Such
insurance also shall not pay claims made by the United States Government for
loss of or damage to United States Government property in the care, custody and
control of Customer or Contractor.
16.2 INSURANCE REQUIRED BY LAUNCH LICENSE Contractor shall provide such
insurance as is required by the launch license issued by the United States
Department of Transportation for loss of or damage to United States Government
property.
26
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
16.3 MISCELLANEOUS REQUIREMENTS The Third Party liability insurance shall name
as named insured Contractor and as additional insured Customer and the
respective Related Third Parties of the Parties identified by each Party, the
United States Government and any of its agencies. Such insurance shall provide
that the insurers shall waive all rights of subrogation that may arise by
contract or at law against any named insured or additional insured.
ARTICLE 17
LIMITATION OF LIABILITY AND WARRANTY
17.1 NO REPRESENTATIONS OR WARRANTIES EXCEPT AS EXPRESSLY PROVIDED IN THIS
ARTICLE 17, CONTRACTOR HAS NOT MADE NOR DOES IT MAKE ANY REPRESENTATION OR
WARRANTY, WHETHER WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF DESIGN, OPERATION, CONDITION, QUALITY, SUITABILITY
OR MERCHANTABILITY OR OF FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, ABSENCE OF
LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, WITH REGARD TO THE SUCCESS
OF ANY LAUNCH OR OTHER PERFORMANCE OF ANY LAUNCH SERVICE(S) HEREUNDER.
17.2 EXCLUSION OF LIABILITY WITHOUT LIMITING OR CREATING EXCEPTIONS TO THE
RECIPROCAL WAIVER OF LIABILITY SET FORTH IN ARTICLE 15, OR THE EXCLUSIVE
REMEDIES SET FORTH IN ARTICLE 18, (1) IN NO EVENT SHALL EITHER PARTY BE LIABLE
TO THE OTHER AND TO PERSONS CLAIMING BY OR THROUGH SUCH PARTY UNDER ANY THEORY
OF TORT, CONTRACT, STRICT LIABILITY, NEGLIGENCE OR UNDER ANY OTHER LEGAL OR
EQUITABLE THEORY FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION, COSTS OF EFFECTING COVER, LOST PROFITS, LOST
REVENUES OR COSTS OF RECOVERING A PAYLOAD, ARISING OUT OF OR RELATING TO THIS
CONTRACT; AND (2) IN NO EVENT SHALL CONTRACTOR'S LIABILITY TO CUSTOMER FOR ANY
CLAIM ARISING OUT OF OR RELATING TO THIS CONTRACT, INCLUDING, WITHOUT
LIMITATION, ANY CLAIM FOR TERMINATION, EXCEED THE AMOUNT OF THE CONTRACT PRICE
PAID BY CUSTOMER AS OF THE DATE OF SUCH CLAIM.
27
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 18
REMEDIES AND LIMITATIONS ON REMEDIES
The exclusive remedy for a Total Failure, Constructive Total Failure or Partial
Failure as determined under Paragraph 19.5 entitled "Failure Review Board" shall
be either Reflight Launch or Refund coverage, if Customer has elected such
protection under Article 19 entitled "Reflight or Refund." The exclusive
remedy for a Launch Vehicle Mission Failure or a Satellite Mission Failure shall
be a Replacement Launch, if customer has elected such protection under Article
20 of this Contract entitled "Replacement Launch". The exclusive rights and
remedies of Customer to terminate this Contract for convenience or in the event
of excessive launch postponements by Contractor are described in Paragraph 21.1
entitled "Termination by Customer for Convenience" and Paragraph 21.2 entitled
"Termination by Customer for Excessive Launch Postponements", respectively. The
exclusive rights and remedies of Contractor to terminate this Contract in the
event of nonpayment or excessive launch postponement by Customer are described
in Paragraph 21.3 entitled "Termination by Contractor for Nonpayment" and
Paragraph 21.4 entitled "Termination by Contractor for Excessive Launch
Postponement", respectively.
ARTICLE 19
REFLIGHT OR REFUND
19.1 REFLIGHT LAUNCH OR REFUND There is a single Launch Service Price for the
Launch Service to be provided. No later than one hundred and twenty (120) days
prior to the Launch Date, Customer may elect either Reflight Launch or Refund
protection in accordance with this Article 19 by giving notice to the
Contractor, which protection will be available in the event of a Total Failure,
Constructive Total Failure or Partial Failure as determined under Paragraph 19.5
entitled "Failure Review Board."
19.2 TERMS GOVERNING REFLIGHT LAUNCH The following conditions will apply if
Customer has elected Reflight Launch protection:
19.2.1 Immediately upon election of Reflight Launch protection, the
Contract Price specified in Article 4.1 of this Contract shall be adjusted
to include the Reflight Launch Fee as set forth in Article 4.1. Payment of
the Reflight Launch Fee shall be made to the Contractor within thirty (30)
days of the Contractor's invoice. The Contractor will invoice fifty
percent (50%) of the Reflight Fee upon the Customer's election and the
remaining fifty percent (50%) sixty (60) days prior to Launch.
28
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
19.2.2 One (1) Reflight Launch will be provided in the event that a
Launch is a Total Failure or Constructive Total Failure only and not for a
Partial Failure, all as determined under Paragraph 19.5 entitled "Failure
Review Board." Any Reflight Launch(es) to which Customer may be entitled
under this Contract shall be deemed to be Launches for all purposes under
this Contract, except that Customer shall not be entitled to a second
Reflight Launch following a failure of a Reflight Launch.
19.2.3 Contractor will conduct a Reflight Launch within twelve (12)
months of notice from Customer requesting such Reflight Launch taking
into account all the requirements for a Launch Opportunity.
19.2.4 Reflight Launch protection does not include the cost of
the replacement Satellite.
19.2.5 The Reflight Launch will be governed by the terms and conditions
of this Contract, except for Article 4 entitled "Contract Price" and
Article 5 entitled "Payment."
19.2.6 The configuration and mission requirements of the replacement
Satellite must conform to the mission description contained in Exhibit B
entitled "Interface Control Document." In the event the satellite does not
conform as stated above, the Parties will negotiate in good faith an
equitable adjustment to accommodate changes to the satellite, if possible.
19.3 TERMS GOVERNING REFUND The following conditions will apply if Customer
elects Refund protection:
19.3.1 Immediately upon election of Refund protection, the Contract
Price specified in Article 4.1 of this Contract shall be adjusted to
include the Refund Fee as set forth in Article 4.1. Payment of the Refund
Fee shall be made to the Contractor within thirty (30) days of the
Contractor's invoice. The Contractor will invoice fifty percent (50%) of
the Reflight Fee upon the Customer's election and the remaining fifty
percent (50%) sixty (60) days prior to Launch.
29
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
19.3.2 In the event that the Launch Service is a Total Failure or
Constructive Total Failure, as determined under Paragraph 19.5 entitled
"Failure Review Board," Contractor shall pay to Customer a Refund equal to
the Launch Service Price payments received by Contractor.
19.3.3 In the event that the Launch Service is a Partial Failure,
as determined under Paragraph 19.5 entitled "Failure Review Board,"
Contractor shall pay to Customer a Refund equal to a prorated amount of the
Launch Service Price payments received by Contractor. The proration to be
applied to determine the appropriate Refund shall be calculated as follows:
Proration = 2.5 X (90 - Cp)
Where, Cp (capability percentage) equals the percentage of planned
lifetime or operational capacity expected after Partial Failure.
19.3.4 Refunds will be paid within sixty (60) days after a Partial
Failure, Total Failure or Constructive Total Failure, as the case may be,
is confirmed under Paragraph 19.5 entitled "Failure Review Board."
19.3.5 In no event shall the aggregate amount of any Refund in
connection with a Launch Service exceed the Launch Service Price therefor.
19.4 TERMS APPLICABLE TO BOTH REFLIGHT LAUNCH AND REFUND
19.4.1 The Reflight Launch or Refund protection will attach upon
Launch and will terminate upon the earliest to occur of (a) a Total Failure
or Constructive Total Failure, in the case of Reflight Launch or Refund
protection, (b) Partial Failure in the case of Refund protection, or (c)
Satellite Separation. Damage to the Satellite following Satellite
Separation but caused by the Launch Vehicle shall be deemed to have
occurred prior to separation for purposes of Reflight Launch or Refund
protection.
30
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
19.4.2 Customer will at all times act with due diligence and will
do all things practicable and reasonable to avoid or diminish any loss or
degradation of the lifetime or operational capability of the Satellite.
Prior to Launch, Customer will provide to Contractor all information
including, but not limited to, Satellite specifications, operating
conditions, performance parameters and changes thereto which could
materially affect the risk of loss of or damage to the Satellite or Launch
Vehicle to the full extent such information is provided to the Customer by
the satellite manufacturer, or otherwise developed by the Customer. Both
before and after Launch, Customer will respond to all reasonable written
requests by Contractor for information and/or certifications relating to
Satellite design, test, and quality control. In the event Contractor
determines, in its reasonable judgment, that Customer's Satellite
specifications, operating conditions, performance parameters and/or changes
thereto would affect the risk of loss of or damage to the Satellite or the
Launch Vehicle, then Contractor shall be entitled to renegotiate the terms
of this Article 19, including but not limited to a change in the fees
chargeable for such Reflight Launch or Refund protection, or to terminate
such protection and return all fees paid to date for such protection to
Customer.
19.4.3 If Contractor has not already convened a Failure Review Board,
then in the event Customer believes a Total Failure, Constructive
Total Failure or Partial Failure has occurred for which it is entitled to a
Reflight Launch or Refund as applicable hereunder, Customer shall give
written notice of the occurrence to Contractor as soon as possible, but in
no event later than the earlier of (a) thirty (30) days after a Corporate
Officer or Director of Customer becomes aware of the occurrence and (b) one
hundred and eighty (180) days after the termination of risk specified in
Paragraph 19.4.1. If Customer believes the occurrence entitles it to claim
a Reflight Launch or Refund as applicable hereunder, Customer shall deliver
to Contractor a sworn and notarized proof of loss in such form and
including such information as Contractor may reasonably require and request
as soon as practicable, but in no event later than one hundred and eighty
(180) days after the delivery of the notice of occurrence.
31
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
19.4.4 In the event that any Refund, whether total or partial, is
made to Customer and it is later determined that the anticipated
degradation of the lifetime or operational capability of the Satellite is
reduced or eliminated, Customer will return to Contractor, within forty
five (45) days of such determination, an amount such that the Refund
retained by Customer equals the amount that would have been paid for the
extent of degradation as revised. Reasonable sums expended by the Customer
to reduce the extent of degradation shall be deducted from the amount to be
returned to the Contractor.
19.4.5 In the event that a Reflight Launch is provided to Customer
and it is later determined that the original Launch Service described in
Article 2 entitled "Services To Be Provided" for which such Reflight Launch
was provided is no longer a Total Failure or Constructive Total Failure, as
determined by the Failure Review Board described in Paragraph 19.5 entitled
"Failure Review Board," then Customer will compensate Contractor for the
Reflight Launch by paying to Contractor the Launch Service Price
chargeable for the original Launch Service within thirty (30) days of
Contractor's invoice for such amount. Reasonable sums expended by the
Customer to reduce the extent of degradation shall be deducted from the
amount to be returned to the Contractor.
19.4.6 In the event that a Launch Service is declared a Constructive
Total Failure or Partial Failure and a Reflight Launch, in the case of
a Constructive Total Failure or Refund is provided by Contractor,
Contractor shall be entitled to any salvage value of the Satellite to the
extent of such Refund or value of such Reflight Launch. Such recovery
shall be in proportion with any salvage recovery due to Satellite insurers
as a result of any claim paid under the Satellite insurance program.
Salvage value shall extend to any profits derived from the sale, lease, or
other use or disposal of the Satellite or any portion thereof.
19.4.7 No later than ninety (90) days prior to the established
Launch Date for any Launch Service, Customer may replace an elected Refund
with a Reflight Launch or an elected Reflight Launch with a Refund. In no
event may a Refund or Reflight Launch be canceled in total. Customer must
give notice to Contractor of its desire to replace a Reflight Launch with a
Refund or replace a Refund with a Reflight Launch. The Contract Price will
be adjusted to reflect the change in fees chargeable for such changed
coverage. The credit or debit that results from a change to either
Reflight Launch or Refund will be paid within thirty (30) days of
Contractor's invoice for payment.
32
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
19.4.8 The right of Customer to a Reflight Launch or Refund shall be
deemed to be lost and null and void if Customer conceals or misrepresents,
in writing or otherwise, any material fact or circumstance concerning the
Satellite.
19.4.9 Contractor shall have no obligation to provide a Reflight Launch
or Refund under this Article 19 for any loss, damage or failure caused
by or resulting from:
19.4.9.1 War, hostile or warlike action in time of peace or
war, including action in hindering, combating or defending against an
actual, impending, or expected attack by any government or sovereign
power (de jure or de facto); any authority maintaining or using a
military, naval or air force; a military, naval or air force; or any
agent of any such government, power, authority or force.
19.4.9.2 Any anti-satellite device or device employing atomic or
nuclear fission and/or fusion, or device employing laser or directed
energy beams.
19.4.9.3 Insurrection, strikes, riots, civil commotion, rebellion,
revolution, civil war, usurpation or action taken by a government
authority in hindering, combating or defending against such an
occurrence whether there be a declaration of war or not.
19.4.9.4 Confiscation by order of any government or governmental
authority or agency (whether secret or otherwise), or public
authority.
19.4.9.5 Nuclear reaction, nuclear radiation or radioactive
contamination of any nature, whether such loss or damage be direct or
indirect, except for radiation naturally occurring in the space
environment.
19.4.9.6 Electromagnetic or radio frequency interference, except
for physical damage to the Launch Vehicle and/or directly resulting
from such interference.
19.4.9.7 Willful or intentional acts of Customer, or any person
authorized by Customer (except the Range Safety Officer) to have
access to the Satellite and/or Launch Vehicle, designed to cause
loss or failure of the Satellite and/or Launch Vehicle.
33
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
19.4.9.8 Loss of revenue, extra expenses, incidental damages or
consequential damages.
19.4.9.9 Claims made against Customer by third parties.
19.4.9.10 Any exclusions in addition to the foregoing or any
modifications thereto as are customary in first-party launch
insurance contracts.
19.5 FAILURE REVIEW BOARD In the event of a suspected Partial Failure, Total
Failure or Constructive Total Failure, implementation of this Article 19 shall
be based on the findings of the Failure Review Board. Customer will receive
notice of the findings of the Failure Review Board. If Contractor has not
already convened a Failure Review Board to evaluate a suspected Total Failure,
Constructive Total Failure or Partial Failure, then Customer may give notice to
Contractor requesting that a Failure Review Board be convened.
19.5.1 The Failure Review Board shall consist of those technical
disciplines determined by Contractor to be necessary to assess the failure,
its cause and necessary corrective action, if any, required for future
launches. Customer may provide representation to the Failure Review
Board, but such representation shall be limited to data review,
consultation and recommendation only. Customer will provide evidence of
the damage, if any, to the Satellite as a result of the failure. The
Failure Review Board shall make a determination of whether there has been a
Partial Failure, Total Failure or Constructive Total Failure and, in making
such determination, shall consider favorably the agreement of any insurers
providing coverage for such events to pay claims arising therefrom.
34
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
19.5.2 In the event the Failure Review Board fails to render a
decision within ninety (90) days of the Launch or Customer and Contractor
do not otherwise reach mutual agreement as to occurrence of a Total
Failure, Constructive Total Failure or Partial Failure, or in the event
Customer disagrees with the findings of the Failure Review Board, both
Customer and Contractor shall promptly and without undue delay, each
appoint an expert in the field who is not associated with either Customer
or Contractor. The two (2) experts shall review all of the materials
provided to the Failure Review Board and, following this review, transmit
their findings in writing to Customer and Contractor at the same time. In
the event of disagreement between the two (2) experts, these experts shall
appoint a third expert who shall review the materials provided to the
Failure Review Board, and all decisions of this panel of three experts
shall be by majority vote. In the event the experts fail to agree upon
appointment of a third expert within thirty (30) days of written notice by
Customer and Contractor to appoint a third expert, Customer and Contractor
agree to allow (______* ) to select such third expert. Customer and
Contractor agree to be bound by the findings and/or appraisal of the first
two experts provided for under this Article or, if the first two experts
should disagree, by the majority vote of the three experts provided for
under this Article. Customer and Contractor shall each be responsible for
the cost of the selection and use of their respective appointed expert, and
both Customer and Contractor shall share equally the cost of the selection
and use of the third expert. The initial two experts, and the panel of
three experts if necessary, shall conduct their review and determination in
accordance with the rules of the American Arbitration Association for
resolution of disputes for commercial contracts.
*to be agreed to between Customer and Contractor.
ARTICLE 20
REPLACEMENT LAUNCH
20.1 TERMS GOVERNING REPLACEMENT LAUNCH The Customer may request a Replacement
Launch for a Launch Vehicle Mission Failure or Satellite Mission Failure,
provided that the Satellite Mission Failure must occur prior to the completion
of Satellite check-out.
35
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
20.1.1 Contractor will conduct the Replacement Launch within twelve
(12) months of notice from Customer requesting such Replacement Launch,
taking into account all the requirements for a Launch Opportunity.
20.1.2 The Replacement Launch does not include the cost of a
replacement satellite.
20.1.3 The Replacement Launch will be governed by the terms of this
Contract. The Replacement Launch shall be deemed a Launch Service for all
purposes under this Contract, except that the Customer shall not be
entitled to a second replacement launch following a failure of the
Replacement Launch. Article 19 "Reflight or Refund" shall not apply to the
Replacement Launch.
20.1.4 The Contract Price and corresponding payment schedule for
the Replacement Launch will be determined by mutual agreement of the
Parties within sixty (60) days of Customer's notice requesting a
Replacement Launch. In the event the Parties have been unable to mutually
agree on a Contract Price for a Replacement Launch within such period of
time after reasonable attempts to do so, then this Article 20 shall be
deemed to be terminated and Contractor shall be released from its
obligation to provide a Replacement Launch.
20.1.5 The configuration and mission requirements of the replacement
satellite must conform to the mission description contained in Exhibit B
"Interface Control Document".
20.2 Contractor shall not be obligated to provide a Replacement Launch
to Customer in the event that Customer is entitled to a Reflight Launch
under the provisions of Article 19 of this Contract.
36
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 21
TERMINATION
21.1 TERMINATION BY CUSTOMER FOR CONVENIENCE Customer may terminate the
Launch Service under this Contract for any reason following written notice
to Contractor given at least thirty (30) days prior to the then-scheduled
Launch Period, Launch Slot or Launch Date. If Customer terminates the Launch
under this Paragraph 21.1, Contractor shall be entitled to retain the
Termination Charge set forth in Paragraph 21.6.
21.2 TERMINATION BY CUSTOMER FOR EXCESSIVE LAUNCH POSTPONEMENTS Customer
may terminate the Launch Service under this Contract if: (a) Contractor has
actually postponed or provided notice of postponement of such Launch Service
under Article 7 entitled "Launch Schedule Adjustments" for longer than the
permissible postponements under said Article. If Customer does not provide
a notice of termination to Contractor within sixty (60) days of postponement
or notice of postponement by Contractor, Customer waives its right to
terminate the postponed Launch Service under this Paragraph 21.2 unless
Contractor further postpones the Launch Service under Article 7. If Customer
terminates a Launch Service in accordance with this Paragraph 21.2,
Contractor shall reimburse Customer for all payments made to Contractor for
such Launch Service.
21.3 TERMINATION BY CONTRACTOR FOR NON-PAYMENT Contractor may terminate
the Launch Service under this Contract if Customer fails to make any payment
to Contractor relating to such Launch Service on the due date as required by
this Contract, provided Customer fails to remedy such non-payment within
thirty (30) days of notice from Contractor describing such non-payment and
stating Contractor's intent to terminate the Launch Service. If Contractor
terminates a Launch Service in accordance with this Paragraph 21.3,
Contractor shall be entitled to retain the Termination Charge set forth in
Paragraph 21.6.
37
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
21.4 TERMINATION BY CONTRACTOR FOR EXCESSIVE LAUNCH POSTPONEMENTS
Contractor may terminate the Launch Service under this Contract if: (a)
Customer has actually postponed or given notice of postponement of such
Launch Service under Article 7 entitled "Launch Schedule Adjustments" for
more than the permissible postponements under said Article. If Contractor
does not provide a notice of termination to Customer within sixty (60) days
of postponement or notice of postponement by Customer, Contractor waives its
right to terminate the postponed Launch Service under this Paragraph 21.4
unless Customer further postpones the Launch Service under Article 7. If
Contractor terminates a Launch Service in accordance with this Paragraph
21.4, Contractor shall be entitled to retain the Termination Charge set forth
in Paragraph 21.6.
21.5 TERMINATION DATE The effective termination date of any Launch
Service terminated under this Article 21 shall be the effective date of
notice of termination.
21.6 TERMINATION CHARGE If a Launch Service is terminated in accordance
with the provisions of Paragraphs 21.1, 21.3 or 21.4, Contractor shall be
entitled to a Termination Charge equal to [CONFIDENTIAL MATERIAL REDACTED] of
all amounts paid or payable under Article 5 entitled "Payment" as of the
effective termination date for the terminated Launch Service,
[CONFIDENTIAL MATERIAL REDACTED] If such effective termination date falls
between the payment due dates, the Termination Charge attributable to such
partial period shall be prorated through the effective termination date.
Customer will pay to Contractor any unpaid portion of the Termination Charge
within thirty (30) days of Contractor's invoice. Contractor shall refund to
Customer any amount paid under this Contract for the terminated Launch
Service(s) in excess of the Termination Charge within thirty (30) days of the
effective termination date for such Launch Service.
21.7 EFFECT OF TERMINATION If either Party terminates a Launch Service
[or this Contract] under this Article 21, both Parties' obligations under
this Contract with respect to such Launch Service(s) shall be discharged as
of the Launch Service effective termination date except that the Contractor's
obligation to refund payments in accordance with Article 21.2, and Customer's
obligation to pay the Termination Charge described in Paragraph 21.6, as the
case may be, shall survive the termination of this Contract.
38
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 22
ARBITRATION
22.1 NOTICE OF ARBITRATION If any controversy or claim arising out of or
relating to this Contract or the breach thereof, including controversies
concerning the validity, scope or enforceability of this provision, fails to
be resolved through negotiation or mediation within a period of sixty (60)
days, then upon written notice by any Party, such controversy or claim shall
be settled by arbitration in accordance with the terms and conditions of this
Article 22.
22.2 RULES Arbitration proceedings in connection with this Contract shall
be administered by the American Arbitration Association in accordance with
its then in effect Commercial Arbitration Rules of the American Arbitration
Association, together with any relevant supplemental rules including but not
limited to its Supplementary Procedures for International Commercial
Arbitration, as modified by the terms and conditions of this Contract.
22.3 LANGUAGE Arbitration proceedings in connection with this Contract
shall be conducted in the English language, provided that at the request and
expense of the requesting Party, documents and testimony shall be translated
into any language specified by the requesting Party.
22.4 SELECTION OF ARBITRATORS Arbitration proceedings in connection with
this Contract shall be conducted before a panel of three (3) arbitrators.
Within fifteen (15) days after the notice of arbitration, each Party shall
select one person to serve as an arbitrator on the panel, and within ten (10)
days of their selection, the two arbitrators shall select a third arbitrator,
who shall serve as chairman of the arbitration panel.
22.5 LOCALE OF MEETINGS All meetings for arbitration proceedings in
connection with this Contract shall be held in Washington, D.C
22.6 INJUNCTIVE RELIEF Either Party to this Contract may make an
application to the arbitrators seeking injunctive relief until such time as
the arbitration award is rendered or the controversy or claim is otherwise
resolved.
22.7 DISCOVERY The arbitrators shall have the discretion to order a
pre-hearing exchange of information by the Parties, including without
limitation production of requested documents, exchange of summaries of
testimony of proposed witnesses.
39
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
22.8 CONSOLIDATION Arbitration proceedings in connection with this
Contract may be consolidated with arbitration proceedings pending between a
Party and any Subcontractor if the arbitration proceedings arise out of the
same transaction or relate to the same subject matter and if such Party and
Subcontractors are bound by an arbitration agreement which is substantially
similar to that contained in this Contract. If proceedings are consolidated,
all references to Party in this Article shall also mean Subcontractor.
22.9 AWARD AND JUDGMENT The arbitrators shall have no authority to award
punitive damages, or any other damages except as authorized under the express
terms and conditions of this Contract. Subject to the foregoing, the Parties
agree that the judgment of the arbitrators shall be final and binding upon
the Parties, and that judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction over the Parties or their assets
or application may be made to such court for a judicial acceptance of the
award and an order of enforcement, as the case may be.
22.10 CONFIDENTIALITY Without the prior written consent of all Parties to
any arbitration proceeding in connection with this Contract, no Party or
arbitrator may disclose (a) the existence, content, or results of such
proceeding; or (b) any information or documents disclosed by any Party in
connection with such proceeding.
22.11 FEES AND EXPENSES All fees and expenses of any arbitration
proceedings in connection with this Contract shall be borne by the Parties
equally. However, each Party shall bear the expense of its own counsel,
experts, witnesses, and preparation and presentation of evidence.
ARTICLE 23
CONFIDENTIALITY
23.1 CONTRACT PROVISIONS
23.1.1 Each Party shall make reasonable efforts to assure that its
employees do not disclose the terms or conditions of this Contract, except
as may be required to perform this Contract, to acquire insurance or the
benefit thereof, in support of arbitration or legal proceedings relating
hereto, as required by their respective governments, or in the normal
course of reporting to its parent company.
40
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
23.1.2 No publicity or information regarding this Contract will be
given or released without the prior written consent of the other Party.
Consent to release of information by either Party shall not be unreasonably
withheld.
23.2 PROPRIETARY DATA It is recognized that Customer and Contractor each will
have developed technical information relating to the mating and launching of the
Launch Vehicle and the Satellite which will be exchanged between the Parties.
To the extent that such data is considered "Proprietary Information" by either
Party, such disclosures shall be handled in accordance with this Article 23.
23.2.1 "Proprietary Information" (i) shall be that information,
data or material in written form which is conspicuously marked
"Proprietary," and which is delivered by Contractor or by Customer, as the
case may be, to the representative designated for receipt thereof by the
other Party, as set forth in Article 9.1 of this Contract and (ii) shall
include all copies in whole or in part made of such information, data or
material or derivative uses thereof. Oral disclosure, if identified as
"Proprietary Information" prior to disclosure, will be treated as
proprietary under this Article provided that the oral information is
reduced to writing and a copy marked as "Proprietary" is sent to the
recipient within thirty (30) days of such disclosure.
23.2.2 Each Party agrees not to use the other Party's Proprietary
Information for any purpose other than for the performance of this
Contract. Any other use or disclosure of such Proprietary Information
shall be made only upon prior written consent of the other Party.
23.2.3 Each Party agrees to restrict disclosures of the Proprietary
Information of the other Party to only those having a need to know in the
performance of this Contract and to have all such Proprietary Information
protected with reasonable care such as that care normally used to protect
its own Proprietary Information within its own organization. If such care
is used, the recipient shall not be liable for the unauthorized disclosure
of Proprietary Information.
23.2.4 The aforementioned restrictions on use and disclosure of
Proprietary Information will not apply:
23.2.4.1 If either Party can show that the Proprietary
Information received from the other is or has
become generally available through the public
domain without fault of such Party;
41
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
23.2.4.2 If the Proprietary Information is in a written
record in one Party's files prior to its receipt
from the other Party and is not otherwise restricted
as to its use or disclosure;
23.2.4.3 If either Party at any time lawfully obtains the
Proprietary Information in writing from a Third Party
under circumstances permitting its disclosure;
23.2.4.4 If the Proprietary Information is disclosed with the
prior written consent of the other Party, provided
such disclosure complies in all respects with the terms
of the written consent;
23.2.4.5 When the Proprietary Information is disclosed more
than six (6) years after the date of receipt of the
information.
23.2.5 Upon termination or expiration of this Contract, the Parties,
within a reasonable period of time, will return all Proprietary
Information received from the other Party under the terms of this Contract
or certify that all the Proprietary Information has been destroyed.
23.2.6 It is understood that neither Party assumes any liability to
the other for damages arising from the other Parties use of or reliance
upon any Proprietary Information disclosed pursuant to this Article except
as provided elsewhere herein.
ARTICLE 24
PATENT AND DATA RIGHTS
Neither Party will acquire, as a result of the services to be provided under
this Contract, any rights to the inventions, patents, copyrights, or other
technical property or any rights to the proprietary data of the other Party or
the Related Third Parties of the other Party, except as set forth elsewhere in
this Contract.
42
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 25
AMENDMENT
Except as may be specifically provided elsewhere in this Contract, any
amendment, modification or change to this Contract, including but not limited
to launch requirements, changes in quantity or schedule adjustments, may only
be made in writing and upon mutual agreement of Customer and Contractor.
ARTICLE 26
GOVERNING LAW
This Contract shall be governed by and construed in accordance with the laws of
the State of Colorado, exclusive of that jurisdiction's choice of law rules.
The provisions of the United Nations Convention for the International Sale of
Goods shall not be applicable to this Contract.
ARTICLE 27
WAIVER OF BREACH
The failure of either Party, at any time, to require performance of the other
Party of any provision of this Contract shall not waive the requirement for such
performance at any time thereafter.
ARTICLE 28
ASSIGNMENT
This Contract shall not be transferred, assigned or delegated to any other
individual, firm, institution, organization or government agency by either Party
without the prior written consent of the other Party, except for assignments or
delegations made by either Party to its parent company, a subsidiary of either
Party or its parent company, or a division. Consent to assignment or delegation
by either Party shall not be unreasonably withheld. Any attempted assignment or
delegation, without such consent, shall be void and without effect. Any
permitted assignment or delegation shall not act to release a Party from its
obligations under this Contract unless the consent to assignment or delegation
from the other Party specifically provides for such release.
43
5 April 1996
Lockheed Martin Commercial Launch Series Proprietary Data
ARTICLE 29
ORDER OF PRECEDENCE
In the event of any conflict among the various portions of this Contract, the
following order of precedence shall prevail:
Articles 1 through 32
Exhibit A - "Statement of Work"
All other Exhibits to this Contract.
ARTICLE 30
ENTIRE AGREEMENT
This Contract constitutes the entire agreement and understanding between the
Parties. No other promises or representations, either verbal or written, with
the exception of duly executed subsequent written modifications to the Contract
shall have any force or effect in regard to the contractual obligations of the
Parties herein.
ARTICLE 31
EFFECTIVE DATE OF CONTRACT
The effective date of this Contract is 5 April 1996.
ARTICLE 32
EXECUTION OF THE CONTRACT
IN WITNESS WHEREOF, the Parties hereto have executed this Contract as of the day
and year first above written:
For Customer: For Contractor:
EchoStar Space Lockheed Martin Commercial Launch
Corporation Services, Inc.
/S/ CHARLES ERGEN /S/ MICHAEL R. WASH
- ----------------------------- -----------------------------
By: Charles Ergen By: Michael R. Wash
Title: Chairman and C.E.O Title: President
Date: 5 April 1996 Date: 5 April 1996
44
5 April 1996
5
1,000
U.S. DOLLARS
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
1
182,852
4,952
31,309
1,834
63,043
359,228
788,493
60,256
1,534,480
275,446
1,298,845
19,001
0
416
(72,285)
1,534,480
171,567
172,845
76,285
260,462
38,994
2,214
42,043
(126,611)
44
(126,655)
0
0
0
(126,655)
(3.08)
(3.08)
INCLUDES SALES OF PROGRAMMING.
INCLUDES COSTS OF PROGRAMMING.
NET OF AMOUNTS CAPITALIZED.