Dish Network 2001 Annual Report Download - page 73

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F–8
1. Organization and Business Activities
Principal Business
The operations of EchoStar Communications Corporation (“ECC,” and together with its subsidiaries, or
referring to particular subsidiaries in certain circumstances, “EchoStar” or the “Company”) include two interrelated
business units:
• The DISH Network - a direct broadcast satellite (“DBS”) subscription television service in the United States.
and
• EchoStar Technologies Corporation (“ETC”) - engaged in the design, development, distribution and sale of
DBS set-top boxes, antennae and other digital equipment for the DISH Network (“EchoStar receiver
systems”) and the design, development and distribution of similar equipment for international satellite
service providers.
Since 1994, EchoStar has deployed substantial resources to develop the “EchoStar DBS System.” The
EchoStar DBS System consists of EchoStar’s FCC-allocated DBS spectrum, seven DBS satellites (“EchoStar I”
through “EchoStar VII”), EchoStar receiver systems, digital broadcast operations centers, customer service facilities,
and other assets utilized in its operations. EchoStar's principal business strategy is to continue developing its
subscription television service in the United States to provide consumers with a fully competitive alternative to cable
television service.
Recent Developments
On October 28, 2001, EchoStar signed definitive agreements with Hughes Electronics Corporation
(“Hughes”), and General Motors (“GM”), which is Hughes’ parent corporation, relating to EchoStar’s merger with
Hughes in a stock-for-stock transaction.
The surviving corporation in the merger will carry EchoStar’s name and will provide DBS services in the
United States and Latin America, primarily under the DIRECTV brand name, global fixed satellite services and
other broadband communication services. The merger is subject to the prior separation of Hughes from GM by way
of a recapitalization of Hughes and split-off of Hughes from GM and other conditions and risks. EchoStar expects
the merger with Hughes and related transactions to require at least $7.025 billion of cash.
Consummation of the Hughes merger and related transactions will require at least $7.025 billion of cash.
At the time of signing of the merger agreement, EchoStar had approximately $1.5 billion of available cash on hand,
and obtained $5.525 billion in bridge financing commitments for the Hughes merger and related transactions. These
commitments have been reduced to $3.325 billion as a result of the sale of $700 million of 9 1/8% senior notes by
EDBS and $1.5 billion of our series D preferred stock to Vivendi. Any other financings EchoStar completes prior to
closing of the Hughes merger will generally further reduce the bridge financing commitments dollar-for-dollar. The
remaining approximately $3.325 billion of required cash, is expected to come from new cash raised by EchoStar,
Hughes or a subsidiary of Hughes on or prior to the closing of the merger through public or private debt or equity
offerings, bank debt or a combination thereof. The amount of such cash that could be raised by EchoStar prior to
completion of the Hughes merger is severely restricted. EchoStar’s agreements with GM and Hughes prohibit it
from raising any additional equity capital beyond the $1.5 billion Vivendi investment. The prohibition will likely
continue for two years following completion of the Hughes merger, absent possible favorable IRS rulings or
termination of the Hughes merger. Further, EchoStar’s agreements with GM and Hughes place substantial
restrictions on EchoStar’s ability to raise additional debt prior to the closing of the Hughes merger.
If Hughes cannot complete the merger with EchoStar, EchoStar may be required to purchase Hughes’ 81%
interest in PanAmSat, merge with PanAmSat or make a tender offer for all of PanAmSat’s shares and may also be
required to pay a $600 million termination fee to Hughes. If EchoStar purchases the Hughes interest in PanAmSat