Dish Network 2001 Annual Report Download - page 107

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–42
14. Subsequent Events
Strategic Alliance with Vivendi Universal and Sale of Series D Convertible Preferred Stock
On January 22, 2002, a subsidiary of Vivendi Universal acquired 5,760,479 shares of EchoStar series D
convertible preferred stock for $1.5 billion, or approximately $260.40 per share. Each share of the series D preferred
stock has the same economic (other than liquidation) and voting rights as ten shares of EchoStar class A common stock
into which it is convertible and has a liquidation preference equal to approximately $260.40 per share. Immediately
prior to the consummation of the Hughes merger, the series D preferred stock will convert into shares of EchoStar class
A common stock, which will then be exchanged for shares of class A common stock of the surviving corporation in the
Hughes merger. The series D preferred stock is also convertible into shares of EchoStar’s class A common stock at any
time at the option of the holder and automatically upon the occurrence of certain other specified events. EchoStar
currently expects that the series D preferred stock and related features, discussed below, will be classified as temporary
equity on its balance sheets.
In connection with the purchase of the series D convertible preferred stock, Vivendi Universal also received
contingent value rights, intended to provide protection against any downward price movements in the class A common
stock to be issued upon conversion of the series D convertible preferred stock. The maximum payment under the rights
is $225 million if the Hughes merger is completed and the price of our class A common stock falls below $26.04 per
share on the date specified below, or $525 million if the Hughes merger is not completed and the price of our class A
common stock falls below $26.04 per share on the date specified below. Any amount owing under these rights would
be settled three years after completion of the Hughes merger, except in certain limited circumstances. In addition, if the
Hughes merger is not consummated, these rights will be settled 30 months after the acquisition of Hughes’ 81% interest
in PanAmSat or the termination of the merger agreement and the PanAmSat stock purchase agreement. The contingent
value rights will be recorded as of the date of consummation of the investment and will be periodically adjusted to the
current settlement amount of the contingent value rights, based on the current price of the class A common stock,
through a charge to retained earnings. Future non-cash charges or credits to retained earnings related to adjustments to
the contingent value rights will impact EchoStar’s net income (loss) available to common shareholders.
In addition, the conversion price for the series D convertible preferred stock was set at $26.04 upon execution
of the investment agreement on December 14, 2001. However, the investment was not consummated until January 22,
2002, when the price of EchoStar’s class A common stock was $26.58. Since the price as of the date of consummation
of the investment was above the set conversion price and since consummation of the investment was contingent on
regulatory approval, the series D preferred stock was issued with a beneficial conversion feature. This feature requires
the difference between the conversion price and the price as of the date of consummation to be recorded as a discount
on the series D preferred stock. This discount of $0.54 per share will be charged to retained earnings as of the date of
issuance of the series D preferred stock. Future non-cash charges to retained earnings related to the amortization of the
series D preferred stock discount will have a negative impact on Echostar’s net income (loss) available to common
shareholders.
The issuance costs related to the series D preferred stock will be recorded as a reduction of the carrying value
of the series D preferred stock and corresponding contingent value rights and will be immediately charged to retained
earnings upon issuance of the series D preferred stock, which will have a negative impact on EchoStar’s net income
(loss) available to common shareholders.
In addition, Vivendi Universal and EchoStar announced an eight-year strategic alliance in which Vivendi
Universal will develop and provide EchoStar’s DISH Network customers in the U.S. a variety of programming and
interactive television services.
As part of this alliance, Vivendi Universal plans to offer EchoStar’s DISH Network customers five new non-
exclusive channels of basic and niche programming content. Vivendi Universal will also offer expanded pay-per-view
and video-on-demand movies. These services are expected to begin to launch in the fall of 2002. Customary fees per
subscriber will be paid by EchoStar. Vivendi Universal and EchoStar will also work together on a new programming