Dish Network 1997 Annual Report Download - page 38

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Availability of Operating Cash Flow to EchoStar
Since all of EchoStar’s, DBS Corp’s, ESBC’s and Dish, Ltd.’s operations are conducted through subsidiaries,
the cash flow of EchoStar, DBS Corp, ESBC and Dish, Ltd., and their ability to service debt, including the 1994 Notes,
the 1996 Notes and the 1997 Notes are dependent upon the earnings of their respective subsidiaries and, in general, the
payment of funds by such subsidiaries to Dish, Ltd., by the payment of funds by Dish, Ltd. to ESBC, by the payment of
funds by ESBC to DBS Corp, and by the payment of funds by DBS Corp to EchoStar in the form of loans, dividends or
other payments.
The cash flow generated by subsidiaries of Dish, Ltd. will only be available if and to the extent that Dish, Ltd.
is able to make such cash available to ESBC in the form of dividends, loans or other payments. The indentures related
to the 1994 Notes, 1996 Notes and the 1997 Notes impose various restrictions on the transfer of funds among EchoStar
and its subsidiaries. The 1994 Notes Indenture contains restrictive covenants that, among other things, impose
limitations on Dish, Ltd. and its subsidiaries with respect to their ability to: (i) incur additional indebtedness; (ii) issue
preferred stock; (iii) sell assets; (iv) create, incur or assume liens; (v) create dividend and other payment restrictions
with respect to Dish, Ltd.’s subsidiaries; (vi) merge, consolidate or sell substantially all of its assets; and (vii) enter into
transactions with affiliates. In addition, Dish, Ltd. may pay dividends on its equity securities only if (1) no default
exists under the 1994 Notes Indenture; and (2) after giving effect to such dividends, Dish, Ltd.’s ratio of total
indebtedness to cash flow (calculated in accordance with the 1994 Notes Indenture) would not exceed 4.0 to 1.0.
Moreover, the aggregate amount of such dividends generally may not exceed the sum of 50% of Dish, Ltd.’s
consolidated net income (less 100% of consolidated net losses) from April 1, 1994, plus 100% of the aggregate net
proceeds to Dish, Ltd. from the sale and issuance of certain equity interests of Dish, Ltd. (including common stock).
The 1996 Notes Indenture contains restrictive covenants that, among other things, impose limitations on
ESBC with respect to its ability to: (i) incur additional indebtedness; (ii) issue preferred stock; (iii) sell assets and apply
the proceeds thereof; (iv) create, incur or assume liens; (v) create dividend and other payment restrictions with respect
to ESBC’s subsidiaries; (vi) merge, consolidate or sell substantially all of its assets; and (vii) enter into transactions
with affiliates. The 1996 Notes Indenture permits ESBC to pay dividends and make other distributions to DBS Corp
without restrictions.
The indenture related to the 1997 Notes (the “ 1997 Notes Indenture”) and the Certificate of Designation for
the Series B Preferred Stock (as defined, see Note 7) contain 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 shall have occurred or 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), in each case from July 1, 1997 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 certain equity interests of DBS Corp or
EchoStar.
The Series B Preferred Stock is exchangeable, at the option of EchoStar, into 12 1/8% Senior Exchange Notes
due 2004 (the “ Senior Exchange Notes”). The indenture issuable upon the exchange of the Series B Preferred Stock for
the Senior Exchange Notes (the “ Exchange Indenture” ) contains restrictive covenants which are substantially identical
to the covenants contained in the 1997 Notes Indenture, including the entity to which the covenants apply. The
Certificate of Designation associated with the Series B Preferred Stock also restricts the ability of DBS Corp and its
subsidiaries to (i) make restricted payments, (ii) incur certain indebtedness or issue certain equity interests, (iii) create
payment restrictions affecting subsidiaries, (iv) engage in transactions with affiliates or (v) engage in certain asset sales.
A majority of the covenants contained in the Certificate of Designation associated with the Series B Preferred Stock
and the indenture related to the Senior Exchange Notes are applicable solely to DBS Corp and its subsidiaries and do
not impose restrictions or limitations on EchoStar or any of EchoStar’s subsidiaries which are not also subsidiaries of
DBS Corp.