Dish Network 2013 Annual Report Download - page 188

DISH NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-78
reduction of our long-term debt obligations associated with our in-orbit incentive payments of $5 million due 2014,
$5 million due 2015, $4 million due 2016, $4 million due 2017, $4 million due 2018 and $22 million due thereafter
and a reduction in our interest expense associated with our in-orbit incentive payments of $3 million due 2014, $2
million due 2015, $2 million due 2016, $2 million due 2017, $1 million due 2018 and $5 million due thereafter.
Since these agreements are among entities under common control, we will record the Tracking Stock at EchoStar
and HSSC’s historical cost basis for those instruments. Any difference between the historical cost basis of the
Tracking Stock received and the net carrying value of the five satellites included in the Satellite and Tracking Stock
Transaction will be recorded as a capital transaction in “Additional paid-in capital” on our Consolidated Balance
Sheet. The Tracking Stock will be accounted for on a cost basis. The Satellite and Tracking Stock Transaction is
further described below:
Transaction Agreement. On February 20, 2014, DISH Operating L.L.C. (“DOLLC”) and DISH
Network L.L.C. (“DNLLC”, together with DOLLC, the “DISH Investors”) and EchoStar XI
Holding L.L.C., all indirect wholly-owned subsidiaries of DISH Network, entered into a
Transaction Agreement (the “Transaction Agreement”) with EchoStar, HSSC and Alpha
Company LLC, a wholly-owned subsidiary of EchoStar, pursuant to which, on March 1, 2014,
we will, among other things, transfer to EchoStar and HSSC five of our satellites (EchoStar I,
EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV, including related in-orbit incentive
obligations and interest payments of approximately $59 million) and approximately $11 million in
cash in exchange for an aggregate of 6,290,499 shares of preferred tracking stock issued by
EchoStar and 81.128 shares of preferred tracking stock issued by HSSC (collectively, the
“Tracking Stock”). The Tracking Stock will generally track the residential retail satellite
broadband business of Hughes Network Systems, LLC, a wholly-owned subsidiary of HSSC
(“Hughes”), including without limitation the operations, assets and liabilities attributed to the
Hughes residential retail satellite broadband business (collectively, the “Hughes Retail Group”).
The shares of the Tracking Stock issued to the DISH Investors will represent an aggregate 80%
economic interest in the Hughes Retail Group. The Transaction Agreement includes, among other
things, customary mutual provisions for representations, warranties and indemnification.
Satellite Capacity Leased from EchoStar. On February 20, 2014, we entered into satellite
capacity agreements with certain subsidiaries of EchoStar pursuant to which, beginning March 1,
2014, we will, among other things, lease certain satellite capacity on the EchoStar I, EchoStar VII,
EchoStar X, EchoStar XI and EchoStar XIV satellites. The total fees for the services provided
under each satellite capacity agreement depends, among other things, upon the number of
transponders on the applicable satellite and the length of the lease. The term of each satellite
capacity agreement generally terminates upon the earlier of: (i) the end of life of the satellite; (ii)
the date the satellite fails; or (iii) a certain date, which depends upon, among other things, the
estimated useful life of the satellite. We generally have the option to renew each satellite capacity
agreement on a year-to-year basis through the end of the respective satellite’s life. There can be
no assurance that any options to renew such agreements will be exercised.
Investor Rights Agreement. On February 20, 2014, EchoStar, HSSC and the DISH Investors also
entered into an Investor Rights Agreement (the “Investor Rights Agreement”) with respect to the
Tracking Stock. The Investor Rights Agreement provides, among other things, certain
information and consultation rights for the DISH Investors; certain transfer restrictions on the
Tracking Stock and certain rights and obligations to offer and sell under certain circumstances
(including a prohibition on transfers of the Tracking Stock for one year, with continuing transfer
restrictions (including a right of first offer in favor of EchoStar) thereafter, an obligation to sell
the Tracking Stock to EchoStar in connection with a change of control of DISH Network and a
right to require EchoStar to repurchase the Tracking Stock in connection with a change of control
of EchoStar, in each case subject to certain terms and conditions); certain registration rights;
certain obligations to provide conversion and exchange rights of the Tracking Stock under certain
circumstances; and certain protective covenants afforded to holders of the Tracking Stock. The
Investor Rights Agreement generally will terminate as to the DISH Investors at such time as the
DISH Investors no longer hold any shares of the HSSC-issued Tracking Stock and any registrable
securities under the Investor Rights Agreement.