UNITED STATES | |||
SECURITIES AND EXCHANGE COMMISSION | |||
Washington, D.C. 20549 | |||
| |||
SCHEDULE 14A | |||
| |||
Proxy Statement Pursuant to Section 14(a) of | |||
| |||
Filed by the Registrant x | |||
| |||
Filed by a Party other than the Registrant o | |||
| |||
Check the appropriate box: | |||
o |
Preliminary Proxy Statement | ||
o |
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
x |
Definitive Proxy Statement | ||
o |
Definitive Additional Materials | ||
o |
Soliciting Material Pursuant to §240.14a-12 | ||
| |||
EchoStar Corporation | |||
(Name of Registrant as Specified In Its Charter) | |||
| |||
| |||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | |||
| |||
Payment of Filing Fee (Check the appropriate box): | |||
x |
No fee required. | ||
o |
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | ||
|
(1) |
Title of each class of securities to which transaction applies: | |
|
|
| |
|
(2) |
Aggregate number of securities to which transaction applies: | |
|
|
| |
|
(3) |
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |
|
|
| |
|
(4) |
Proposed maximum aggregate value of transaction: | |
|
|
| |
|
(5) |
Total fee paid: | |
|
|
| |
o |
Fee paid previously with preliminary materials. | ||
o |
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||
|
(1) |
Amount Previously Paid: | |
|
|
| |
|
(2) |
Form, Schedule or Registration Statement No.: | |
|
|
| |
|
(3) |
Filing Party: | |
|
|
| |
|
(4) |
Date Filed: | |
|
|
| |
March 24, 2011
DEAR SHAREHOLDER:
It is a pleasure for me to extend to you an invitation to attend the 2011 Annual Meeting of Shareholders of EchoStar Corporation. The Annual Meeting will be held on May 3, 2011, at 1:00 p.m., local time, at EchoStars headquarters at 100 Inverness Terrace East, Englewood, Colorado 80112.
The enclosed Notice of 2011 Annual Meeting of Shareholders and Proxy Statement describe the proposals to be considered and voted upon at the Annual Meeting. During the Annual Meeting, we will also review EchoStars operations and other items of general interest regarding the corporation.
We hope that all shareholders will be able to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting personally, it is important that you be represented. To ensure that your vote is received and counted, please follow the instructions included with your proxy card to vote online or by mail or telephone.
On behalf of the Board of Directors and senior management, I would like to express our appreciation for your support and interest in EchoStar. I look forward to seeing you at the Annual Meeting.
| |
|
|
CHARLES W. ERGEN |
|
Chairman of the Board of Directors |
|
NOTICE OF 2011 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF ECHOSTAR CORPORATION:
The Annual Meeting of Shareholders of EchoStar Corporation will be held on May 3, 2011, at 1:00 p.m., local time, at 100 Inverness Terrace East, Englewood, Colorado 80112, for the following purposes:
1. To elect seven directors to our Board of Directors;
2. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011;
3. To conduct an advisory vote on executive compensation;
4. To conduct an advisory vote on the frequency of future advisory votes on executive compensation; and
5. To consider and act upon any other business that may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.
You may vote on these matters in person or by proxy. Whether or not you plan to attend the Annual Meeting, we ask that you vote using one of the following methods to ensure that your shares will be represented at the meeting in accordance with your wishes:
· Vote online or by telephone, by following the instructions included with your proxy card; or
· Vote by mail, by completing and returning the enclosed proxy card in the enclosed addressed stamped envelope.
Only shareholders of record at the close of business on March 7, 2011 are entitled to notice of, and to vote at, the Annual Meeting or any adjournment of the meeting. This proxy statement and proxy card were either made available to you over the Internet or mailed to you beginning on or about March 24, 2011.
By Order of the Board of Directors |
|
|
|
| |
|
|
R. STANTON DODGE |
|
Executive Vice President, General Counsel |
|
and Secretary |
|
March 24, 2011
100 Inverness Terrace East · Englewood, Colorado 80112 · Tel: (303) 706-4000 · Fax: (303) 723-1999
PROXY STATEMENT
OF
ECHOSTAR CORPORATION
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are being furnished to you in connection with the 2011 Annual Meeting of Shareholders (the Annual Meeting) of EchoStar Corporation (EchoStar, we, us, our or the Corporation). The Annual Meeting will be held on May 3, 2011, at 1:00 p.m., local time, at 100 Inverness Terrace East, Englewood, Colorado 80112.
This Proxy Statement is being sent or provided on or about March 24, 2011, to holders of record at the close of business on March 7, 2011 of our Class A Common Stock (the Class A Shares) and Class B Common Stock (the Class B Shares).
Your proxy is being solicited by our Board of Directors (the Board or Board of Directors). It may be revoked by written notice given to our Secretary at our headquarters, at 100 Inverness Terrace East, Englewood, Colorado 80112, at any time before being voted. You may also revoke your proxy by submitting a proxy with a later date or by voting in person at the Annual Meeting. To vote online or by telephone, please refer to the instructions included with the proxy card. To vote by mail, please complete the accompanying proxy card and return it to us as instructed in the proxy card. Votes submitted online or by telephone or mail must be received by 11:59 p.m., Eastern Time, on May 2, 2011. Submitting your vote online or by telephone or mail will not affect your right to vote in person, if you choose to do so. Proxies that are timely delivered to us and not revoked before the closing of the polls during the Annual Meeting will be voted for the proposals described in this Proxy Statement in accordance with the instructions set forth in your proxy. The Board is currently not aware of any matters proposed to be presented at the Annual Meeting other than the election of seven directors, the ratification of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011, an advisory vote on executive compensation and an advisory vote on the frequency of future advisory votes on executive compensation. If any other matter is properly presented at the Annual Meeting, the persons named in the accompanying proxy card will have discretionary authority to vote on that matter. Your presence at the Annual Meeting does not of itself revoke your proxy.
Attendance at the Meeting
All of our shareholders of record at the close of business on March 7, 2011, or their duly appointed proxies, may attend the Annual Meeting. Seating is limited, however, and admission to the Annual Meeting will be on a first-come, first-served basis. Registration and seating will begin at 12:45 p.m., local time, and the Annual Meeting will begin at 1:00 p.m., local time. Each shareholder may be asked to present an admission ticket, which is attached to the accompanying proxy card, together with a valid government issued photo identification confirming his or her identity as a shareholder of record, such as a drivers license or passport. Cameras, recording devices, and other electronic devices will not be permitted at the Annual Meeting.
If your shares are held by a broker, bank, or other nominee (often referred to as holding in street name) and you desire to attend the Annual Meeting, you will need to bring a legal proxy or a copy of a brokerage or bank statement reflecting your share ownership as of the record date, March 7, 2011. All shareholders must check in at the registration desk at the Annual Meeting.
Securities Entitled to Vote
Only shareholders of record at the close of business on March 7, 2011 are entitled to notice of the Annual Meeting. Such shareholders may vote shares held by them at the close of business on March 7, 2011 at the Annual Meeting. At the close of business on March 7, 2011, 38,017,818 Class A Shares and 47,687,039 Class B Shares were outstanding. Each of the Class A Shares is entitled to one vote per share on each proposal to be considered by our shareholders. Each of the Class B Shares is entitled to ten votes per share on each proposal to be considered by our shareholders.
Vote Required
In accordance with our Articles of Incorporation (our Articles of Incorporation), the presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the total voting power of all classes of our voting stock taken together shall constitute a quorum for the transaction of business at the Annual Meeting.
The affirmative vote of a plurality of the total votes cast for directors at the Annual Meeting is necessary to elect a director. No cumulative voting is permitted. The seven nominees receiving the highest number of votes cast for will be elected.
The affirmative vote of a majority of the voting power represented at the Annual Meeting is required to approve the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, the advisory vote on executive compensation and the advisory vote on the frequency of future advisory votes on executive compensation.
The total number of votes cast for will be counted for purposes of determining whether sufficient affirmative votes have been cast to approve the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, the advisory vote on executive compensation and the advisory vote on the frequency of future advisory votes on executive compensation. Abstentions from voting on a proposal by a shareholder at the Annual Meeting, as well as broker nonvotes, will be considered for purposes of determining the number of total votes present at the Annual Meeting. Abstentions will have the same effect as votes against the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, the advisory vote on executive compensation and the advisory vote on the frequency of future advisory votes on executive compensation. However, abstentions will not be counted as against or for the election of directors. Broker nonvotes will not be considered in determining the election of directors, the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, the advisory vote on executive compensation or the advisory vote on the frequency of future advisory votes on executive compensation.
Through his direct or indirect ownership of Class A Shares and Class B Shares, Charles W. Ergen possesses approximately 56.0% of our total voting power. Please see Equity Security Ownership below. Mr. Ergen has indicated his intention to vote: (1) for the election of each of the seven director nominees; (2) for the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011; (3) for the advisory approval of executive compensation; and (4) for the holding of an advisory vote on executive compensation once every three years. Accordingly, the election of each of the director nominees, the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011, the advisory approval of executive compensation and the holding of an advisory vote on executive compensation once every three years are assured notwithstanding a contrary vote by any or all shareholders other than Mr. Ergen.
Householding
We have adopted a procedure approved by the Securities and Exchange Commission (SEC) called householding. Under this procedure, service providers that deliver our communications to shareholders may deliver a single copy of our Annual Report and Proxy Statement to multiple shareholders sharing the same address, unless one or more of these shareholders notifies us that they wish to continue receiving individual copies. Shareholders who participate in householding will continue to receive separate proxy cards. This householding procedure will reduce our printing costs and postage fees.
We will deliver promptly upon written or oral request a separate copy of our Annual Report or Proxy Statement, as applicable, to a shareholder at a shared address to which a single copy of the documents was delivered. Please notify our transfer agent at the address provided below to receive a separate copy of our Annual Report or Proxy Statement.
If you are eligible for householding, but you and other shareholders with whom you share an address currently receive multiple copies of our annual reports and/or proxy statements, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of our Annual Report or Proxy Statement for your household, please contact our transfer agent, Computershare Investor Services, at 250 Royall Street, Canton, Massachusetts 02021, telephone number 877-437-8901.
Our Mailing Address
Our mailing address is 100 Inverness Terrace East, Englewood, Colorado 80112.
PROPOSAL NO. 1 ELECTION OF DIRECTORS
Nominees
Our shareholders will elect a Board of seven directors at the Annual Meeting. Each of the directors is expected to hold office until the next annual meeting of our shareholders or until his respective successor shall be duly elected and qualified. The affirmative vote of a plurality of the total votes cast for directors is necessary to elect a director. This means that the seven nominees who receive the most votes will be elected to the seven open directorships even if they get less than a majority of the votes cast. Each nominee has consented to his nomination and has advised us that he intends to serve the entire term if elected. If at the time of the meeting one or more of the nominees have become unable to serve: (i) shares represented by proxies will be voted for the remaining nominees and for any substitute nominee or nominees; or (ii) the Board of Directors may, in accordance with our bylaws, reduce the size of the Board of Directors or may leave a vacancy until a nominee is identified. The Nominating Committee knows of no reason why any of the nominees will be unable to serve.
The nominees for director are as follows:
Name |
|
Age |
|
First Became Director |
|
Position with the Company |
|
|
|
|
|
|
|
Joseph P. Clayton |
|
61 |
|
2008 |
|
Director |
R. Stanton Dodge |
|
43 |
|
2009 |
|
Director, Executive Vice President, General Counsel and Secretary |
Michael T. Dugan |
|
62 |
|
2007 |
|
Director, President and Chief Executive Officer |
Charles W. Ergen |
|
58 |
|
2007 |
|
Chairman of the Board of Directors |
David K. Moskowitz |
|
52 |
|
2007 |
|
Director |
Tom A. Ortolf |
|
60 |
|
2007 |
|
Director |
C. Michael Schroeder |
|
62 |
|
2007 |
|
Director |
The following sets forth the business experience of each of the nominees over the last five years:
Joseph P. Clayton. Mr. Clayton serves as a member of our Board of Directors, and is a member of our Executive Compensation Committee, Nominating Committee, and Audit Committee. The Board of Directors has determined that Mr. Clayton meets the independence requirements of NASDAQ and SEC rules and regulations. Mr. Clayton served as Chairman of Sirius Satellite Radio Inc. (Sirius) from November 2004 through July 2008 and served as Chief Executive Officer of Sirius from November 2001 through November 2004. Prior to joining Sirius, Mr. Clayton served as President of Global Crossing North America, as President and Chief Executive Officer of Frontier Corporation and as Executive Vice President, Marketing and Sales - Americas and Asia, of Thomson S.A. Mr. Clayton is also currently serving on the Board of Directors and Nominating and Corporate Governance and Stock Option and Compensation Committees of Transcend Services, Inc. The Board concluded that Mr. Clayton should continue to serve on the Board due to, among other things, his international marketing and sales experience, acquired, in part, as an executive with Thomson S.A. and his managerial, operational and industrial expertise in the media and telecommunications sectors that Mr. Clayton gained as an executive with Sirius, Global Crossing North America, and Frontier Corporation.
R. Stanton Dodge. Mr. Dodge serves as a member of our Board of Directors and is currently the Executive Vice President, General Counsel and Secretary of DISH Network Corporation (DISH Network) and EchoStar, and is responsible for all legal and government affairs of DISH Network, EchoStar and their subsidiaries. Mr. Dodge serves as our Executive Vice President, General Counsel and Secretary pursuant to a management services agreement between DISH Network and EchoStar that was entered into in connection with the spin-off of EchoStar from DISH Network on January 1, 2008 (the Spin-off). Since joining DISH Network in November 1996, he has held various positions of increasing responsibility in DISH Networks legal department, and assumed responsibility for DISH Network human resources in January 2010 and DISH Network public relations in January 2011. The Board concluded that Mr. Dodge should continue to serve on the Board due to, among other things, his service as our General Counsel and roles of increasing responsibility held at DISH Network during his 14 years of service.
Michael T. Dugan. Mr. Dugan has served as our President and Chief Executive Officer since November 2009. Mr. Dugan has also served as a member of our Board of Directors since our formation in 2007. Mr. Dugan also served as a Senior Advisor to EchoStar from the date of the Spin-off on January 1, 2008 until November 2009. From May 2004 to December 2007, he was a Director of DISH Network, and served DISH Network alternately as Chief Technical Officer and Senior Advisor from time to time. From April 2000 to May 2004, he was President and Chief Operating Officer of DISH Network. Prior to that time, Mr. Dugan held various positions with DISH Network and its subsidiaries commencing in 1990. Mr. Dugan served as a director of Frontier Corporation from October 2006 until November 2009. The Board concluded that Mr. Dugan should continue to serve on the Board due to, among other things, his knowledge of DISH Network from his service as a director and officer and his experience in the telecommunications and related industries from his service over the years as a director or officer with a number of different companies in those industries.
Charles W. Ergen. Mr. Ergen serves as our Chairman. Mr. Ergen served as our Chief Executive Officer from our formation in 2007 until November 2009. Mr. Ergen also served as our President from June 2008 until November 2009. Mr. Ergen is also the Chairman and Chief Executive Officer of DISH Network, a position that he has held since DISH Networks formation in 1980. Mr. Ergen has also served as the President of DISH Network from time to time. During the past ten years he has also held various executive officer and director positions with DISH Networks subsidiaries. The Board concluded that Mr. Ergen should continue to serve on the Board due to, among other things, his role as DISH Networks co-founder and as our controlling shareholder in addition to his extensive experience in our industry.
David K. Moskowitz. Mr. Moskowitz serves as a member of our Board of Directors. Mr. Moskowitz also serves as a Senior Advisor to, and a member of the board of directors of, DISH Network. Mr. Moskowitz was an Executive Vice President of DISH Network as well as its Secretary and General Counsel until 2007. Mr. Moskowitz joined DISH Network in March 1990. The Board concluded that Mr. Moskowitz should continue to serve on the Board due to, among other things, his knowledge of our industry particularly in light of his business and legal expertise obtained during his service as DISH Networks General Counsel for 17 years.
Tom A. Ortolf. Mr. Ortolf serves as a member of our Board of Directors, and is a member of our Executive Compensation Committee, Nominating Committee, and Audit Committee, where he serves as our audit committee financial expert. The Board of Directors has determined that Mr. Ortolf meets the independence requirements and audit committee financial expert requirements of NASDAQ and SEC rules and regulations. Since 2005, Mr. Ortolf has also served as a member of the Board of Directors of DISH Network and as a member of its Executive Compensation Committee, Nominating Committee, and Audit Committee. Mr. Ortolf has been the President of CMC, a privately held investment management firm, for nearly twenty years. The Board concluded that Mr. Ortolf should continue to serve on the Board due to, among other things, his extensive knowledge of EchoStar from his service as a director since 2007 and as a director of DISH Network prior to the Spin-off and his investment and financial experience gained, in part, as President of CMC.
C. Michael Schroeder. Mr. Schroeder serves as a member of our Board of Directors, and serves on our Executive Compensation Committee, Nominating Committee, and Audit Committee. The Board of Directors has determined that Mr. Schroeder meets the independence of NASDAQ and SEC rules and regulations. In 1981, Mr. Schroeder founded Consumer Satellite Systems, Inc. (CSS), which he grew to encompass a 10 state distribution system operating in a region ranging from Wisconsin to Florida. CSS served retailers selling satellite systems, televisions and a range of consumer electronics products. Mr. Schroeder also founded a programming division of CSS that grew to serve over 400,000 subscribers. Prior to the Spin-off of EchoStar from DISH Network, Mr. Schroeder served on the Board of Directors of DISH Network and was a member of DISH Networks Executive Compensation Committee, Nominating Committee, and Audit Committee. The Board concluded that Mr. Schroeder should continue to serve on the Board due to, among other things, his knowledge of EchoStar from his service as a director since 2007 and as a director of DISH Network prior to the Spin-off, and his operational expertise and satellite systems sales knowledge developed, in part, with CSS.
Charles W. Ergen, our Chairman, currently possesses approximately 56.0% of our total voting power. Please see Equity Security Ownership below. Mr. Ergen has indicated his intention to vote in favor of Proposal No. 1. Accordingly, approval of Proposal No. 1 is assured notwithstanding a contrary vote by any or all shareholders other than Mr. Ergen.
The Board of Directors unanimously recommends a vote FOR the election of all of the nominees named herein (Item No. 1 on the enclosed proxy card).
Board of Directors and Committees and Selection Process
Our Board held seven meetings in 2010 and also took action by unanimous written consent on four occasions during 2010. Except for Mr. Moskowitz, each of our directors attended at least 75% of the aggregate of: (i) the total number of meetings of the Board held during the period in which he was a director; and (ii) the total number of meetings held by all committees of the Board on which he served. In addition, our non-employee directors held four executive sessions in 2010.
Directors are elected annually and serve until their successors are duly elected and qualified or their earlier resignation or removal. Officers serve at the discretion of the Board.
We are a controlled company within the meaning of the NASDAQ Marketplace Rules because more than 50% of our voting power is held by Charles W. Ergen, our Chairman. Mr. Ergen currently beneficially owns approximately 43.6% of our total equity securities (assuming conversion of only the Class B Common Stock held by Mr. Ergen into Class A Common Stock) and possesses approximately 56.0% of the total voting power. Mr. Ergens beneficial ownership of us excludes 18,900,405 shares of our Class A Common Stock issuable upon conversion of shares of our Class B Common Stock currently held by certain trusts established by Mr. Ergen for the benefit of his family. These trusts beneficially own approximately 33.5% of our total equity securities (assuming conversion of only the Class B Common Stock held by such trusts into Class A Common Stock) and possess approximately 36.7% of our total voting power. Please see Equity Security Ownership below. Therefore, we are not subject to the NASDAQ listing requirements that would otherwise require us to have: (i) a Board of Directors comprised of a majority of independent directors; (ii) compensation of our executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors; and (iii) director nominees selected, or recommended for the Boards selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors. Nevertheless, the Corporation has created an Executive Compensation Committee (the Compensation Committee) and a Nominating Committee, in addition to an Audit Committee, all of which are composed entirely of independent directors. The charters of our Compensation, Audit and Nominating Committees are available free of charge on our website at http://www.echostar.com. The function and authority of these committees are described below:
Compensation Committee. The Compensation Committee operates under a Compensation Committee Charter adopted by the Board. The principal functions of the Compensation Committee are, to the extent the Board deems necessary or appropriate, to: (i) make and approve all option grants and other issuances of EchoStars equity securities to EchoStars executive officers and Board members other than nonemployee directors; (ii) approve all other option grants and issuances of EchoStars equity securities, and recommend that the full Board make and approve such grants and issuances; (iii) establish in writing all performance goals for performance-based compensation that together with other compensation to senior executive officers could exceed $1 million annually, other than standard stock incentive plan options that may be paid to EchoStars executive officers, and certify achievement of such goals prior to payment; and (iv) set the compensation of Mr. Ergen, who is our Chairman. The Compensation Committee held five meetings and took action by unanimous written consent on two occasions during 2010. The current members of the Compensation Committee are Mr. Ortolf, Mr. Schroeder and Mr. Clayton, with Mr. Ortolf serving as Chairman of the Compensation Committee. The Board has determined that each of these individuals meets the independence requirements of NASDAQ and SEC rules and regulations. The current composition of the Compensation Committee is expected to remain the same following our Annual Meeting.
Audit Committee. Our Board has established a standing Audit Committee in accordance with NASDAQ rules and Section 10A of the Securities Exchange Act of 1934 (the Exchange Act) and related SEC rules and regulations. The Audit Committee operates under an Audit Committee Charter adopted by the Board. The principal functions of the Audit Committee are to: (i) select the independent registered public accounting firm and set their compensation; (ii) select the internal auditor; (iii) review and approve managements plan for engaging our independent registered public accounting firm during the year to perform non-audit services and consider what effect these services will have on the independence of our independent registered public accounting firm; (iv) review our annual financial statements and other financial reports that require approval by the Board; (v) oversee the integrity of our financial statements, our systems of disclosure and internal controls, and our compliance with legal and regulatory requirements; (vi) review the scope of our independent registered public accounting firms audit plans and the results of their audits; and (vii) evaluate the performance of our internal audit function and independent registered public accounting firm.
The Audit Committee held nine meetings and took action by unanimous written consent on one occasion during 2010. The current members of the Audit Committee are Mr. Ortolf, Mr. Schroeder and Mr. Clayton, with Mr. Schroeder serving as Chairman of the Audit Committee and Mr. Ortolf serving as our audit committee financial expert. The Board has determined that each of these individuals meets the independence requirements of NASDAQ and SEC rules and regulations. The Board has also determined that each member of our Audit Committee is financially literate and that Mr. Ortolf qualifies as an audit committee financial expert as defined by applicable SEC rules and regulations. The composition of the Audit Committee is expected to remain the same following our Annual Meeting, with Mr. Ortolf continuing as the audit committee financial expert.
Nominating Committee. The Nominating Committee operates under a Nominating Committee Charter adopted by the Board. The principal function of the Nominating Committee is to recommend independent director nominees for selection by the Board. The Nominating Committee held two meetings and did not take action by written consent during 2010. The current members of the Nominating Committee are Mr. Ortolf, Mr. Schroeder and Mr. Clayton, with Mr. Clayton serving as Chairman of the Committee. The Board has determined that each of these individuals meets the independence requirements of NASDAQ and SEC rules and regulations. The current composition of the Nominating Committee is expected to remain the same following our Annual Meeting.
The Nominating Committee will consider candidates suggested by its members, other directors, senior management and shareholders as appropriate. No search firms or other advisors were retained to identify prospective nominees during the past fiscal year. The Nominating Committee has not adopted a written policy with respect to the consideration of candidates proposed by security holders or with respect to nominating anyone to our Board other than nonemployee directors. Director candidates, whether recommended by the Nominating Committee, other directors, senior management or shareholders are currently considered by the Nominating Committee and the Board, as applicable, in light of the entirety of their credentials, including but not limited to the following diverse factors: (i) their reputation and character; (ii) their ability and willingness to devote sufficient time to Board duties; (iii) their educational background; (iv) their business and professional achievements, experience and industry background; (v) their independence from management under listing standards and the Corporations governance guidelines; and (vi) the needs of the Board and the Corporation.
Board Criteria
In considering whether to recommend a prospective nominee for selection by the Board, including candidates recommended by shareholders, the Nominating Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. However, EchoStar believes that the backgrounds and qualifications of the directors, considered as a group, should provide a diverse mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities. The Nominating Committee recommends, if necessary, measures to be taken so that the Board reflects the appropriate balance of experience, knowledge and abilities required for the Board as a whole and contains at least the minimum number of independent directors required by applicable laws and regulations.
A shareholder who wishes to recommend a prospective nominee for the Board should notify the Corporations Secretary or any member of the Nominating Committee in writing with whatever supporting material the shareholder considers appropriate. The Nominating Committee will also consider whether to nominate any person nominated by a shareholder pursuant to the provisions of the Corporations bylaws relating to shareholder nominations. Communications can be directed to the Corporations Secretary or any member of the Nominating Committee in accordance with the process described in Shareholder Communications below.
Board Leadership Structure
The Board currently separates the role of Chairman of the Board from the role of Chief Executive Officer with Mr. Charles W. Ergen serving as Chairman and Mr. Michael T. Dugan serving as President and Chief Executive Officer of EchoStar. Mr. Dugan is responsible for the day to day management of the Corporation and Mr. Ergen primarily identifies strategic priorities and leads the discussion and execution of strategy for EchoStar. We believe this leadership structure is appropriate for the Corporation, among other reasons, because separating the Chairman and Chief Executive Officer roles allows us to efficiently develop and implement corporate strategy that is consistent with the Boards oversight role, while facilitating strong day-to-day executive leadership. Among other things, separation of these roles allows our Chief Executive Officer and other members of senior management to focus on our day-to-day business, while at the same time the Board is able to take advantage of the unique blend of leadership, experience and knowledge of our industry and business that Mr. Ergen brings to the role of Chairman in providing guidance to and oversight of management. In light of the separation of the role of Chairman of the Board with the role of Chief Executive Officer and Mr. Ergens voting control, we believe that the creation of a lead independent director position is not necessary at this time.
The Boards Role in Risk Oversight
The Board has ultimate responsibility for oversight of the Corporations risk management processes. The Board discharges this oversight responsibility through regular reports received from and discussions with senior management on areas of material risk exposure to the Corporation. These reports and Board discussions include, among other things, operational, financial, legal and regulatory, and strategic risks. Additionally, the Corporations risk management processes are intended to identify, manage and control risks so that they are appropriate considering the Corporations scope, operations and business objectives. The full Board (or the appropriate Committee in the case of risks in areas for which responsibility has been delegated to a particular Committee) engages with the appropriate members of senior management to enable its members to understand and provide input to, and oversight of, our risk identification, risk management and risk mitigation strategies. The Audit Committee also meets regularly in executive session without management present to, among other things, discuss the Corporations risk management culture and processes. For example, as part of its charter, our Audit Committee is responsible for, among other things, discussing Corporation policies with respect to risk assessment and risk management, and reviewing contingent liabilities and risks that may be material to the Corporation. When a Committee receives a report from a member of management regarding areas of risk, the Chairman of the relevant Committee will report on the discussion to the full Board to the extent necessary or appropriate. This enables the Board to coordinate risk oversight, particularly with respect to interrelated or cumulative risks that may involve multiple areas for which more than one committee has responsibility. The Board or applicable committee also has authority to engage external advisors as necessary.
Other Information About Our Board of Directors
Although we do not have a policy with regard to Board members attendance at our annual meetings of shareholders, all of our directors are encouraged to attend such meetings. All of our directors were in attendance at our 2010 annual meeting. We expect that all of our directors will attend our 2011 annual meeting.
Equity Security Ownership
The following table sets forth, to the best of our knowledge, the beneficial ownership of our voting securities as of the close of business on March 7, 2011 by: (i) each person known by us to be the beneficial owner of more than five percent of any class of our voting securities; (ii) each of our directors; (iii) our Chief Executive Officer, Chief Financial Officer and three other most highly compensated persons acting as one of our executive officers for the fiscal year ended December 31, 2010, (collectively, the Named Executive Officers or NEOs); and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, each person listed in the following table (alone or with family members) has sole voting and dispositive power over the shares listed opposite such persons name.
Name (1) |
|
Amount and |
|
Percentage |
|
Class A Common Stock: |
|
|
|
|
|
Charles W. Ergen (2), (3) |
|
29,267,258 |
|
43.6 |
% |
William R. Gouger (4) |
|
18,901,883 |
|
33.2 |
% |
John A. Griffin (5) |
|
2,635,000 |
|
6.9 |
% |
Putnam, LLC (6) |
|
2,011,280 |
|
5.3 |
% |
Michael T. Dugan (7) |
|
354,739 |
|
* |
|
Mark W. Jackson (8) |
|
207,635 |
|
* |
|
David K. Moskowitz (9) |
|
189,849 |
|
* |
|
Steven B. Schaver (10) |
|
69,662 |
|
* |
|
David J. Rayner (11) |
|
60,369 |
|
* |
|
Bernard L. Han (12) |
|
55,999 |
|
* |
|
Tom A. Ortolf (13) |
|
24,240 |
|
* |
|
R. Stanton Dodge (14) |
|
23,581 |
|
* |
|
C. Michael Schroeder (15) |
|
23,020 |
|
* |
|
Joseph P. Clayton (16) |
|
14,500 |
|
* |
|
Roger J. Lynch |
|
|
|
* |
|
All Directors and Executive Officers as a Group (12 persons) (17) |
|
30,234,853 |
|
44.4 |
% |
Class B Common Stock: |
|
|
|
|
|
Charles W. Ergen |
|
28,786,634 |
|
60.4 |
% |
Trusts (18) |
|
18,900,405 |
|
39.6 |
% |
All Directors and Executive Officers as a Group (12 persons) (17) |
|
28,786,634 |
|
60.4 |
% |
* Less than 1%.
(1) Except as otherwise noted below, the address of each such person is 100 Inverness Terrace East, Englewood, Colorado 80112. As of the close of business on March 7, 2011, there were 38,017,818 outstanding shares of Class A Common Stock and 47,687,039 shares of Class B Common Stock.
(2) Mr. Ergen is deemed to own beneficially all of the EchoStar Class A Shares owned by his spouse, Cantey Ergen. Mr. Ergens beneficial ownership includes: (i) 60,970 EchoStar Class A Shares; (ii) 3,705 EchoStar Class A Shares held in the Companys 401(k) Employee Savings Plan (which we refer to as the 401(k) Plan); (iii) the right to acquire 396,000 EchoStar Class A Shares within 60 days upon the exercise of employee stock options; (iv) 47 EchoStar Class A Shares held by Mr. Ergens spouse; (v) 201 EchoStar Class A Shares held in the 401(k) Plan held by Mrs. Ergen; (vi) 14,301 EchoStar Class A Shares held as custodian for his children; (vii) 5,400 Class A Shares held by a charitable foundation for which Mr. Ergen is an officer and (viii) 28,786,634 EchoStar Class A Shares issuable upon conversion of Mr. Ergens EchoStar Class B Shares. Mr. Ergens beneficial ownership of EchoStar Class A Shares excludes (A) 8,051,375 Class A Shares issuable upon conversion of Class B Shares currently held by the Ergen Two-Year GRAT dated November 30, 2009, (B) 2,500,000 Class A Shares issuable upon conversion of Class B Shares currently held by the Ergen Two-Year GRAT dated November 30, 2010, (C) 2,500,000 Class A Shares issuable upon conversion of Class B Shares currently held by the Ergen Three-Year GRAT dated November 30, 2010, (D) 2,500,000 Class A Shares issuable upon conversion of Class B Shares currently held by the Ergen Four-Year GRAT dated November 30, 2010, (E) 2,500,000 Class A Shares issuable upon conversion of Class B Shares currently held by the Ergen Five-Year GRAT dated November 30, 2010 and (F) 849,030 Class A Shares issuable upon conversion of Class B Shares held by certain trusts established by Mr. Ergen for the benefit of his family.
(3) Because each Class B Share is entitled to 10 votes per share, Mr. Ergen owns beneficially equity securities of the Corporation representing approximately 56.0% of the voting power of the Corporation (assuming no conversion of the Class B Shares and after giving effect to the exercise of Mr. Ergens options exercisable within 60 days). Mr. Ergens beneficial ownership excludes 18,900,405 Class A Shares issuable upon conversion of Class B Shares currently held by certain trusts established by Mr. Ergen for the benefit of his family. These trusts beneficially own approximately 39.6% of our total equity securities and possess approximately 36.7% of our total voting power.
(4) The address of Mr. William R. Gouger is 400 Inverness Parkway, Suite 250, Englewood, CO 80112. Mr. Gougers beneficial ownership includes: (i) 28 Class A Shares owned beneficially directly by Mr. Gouger; (ii) 1,450 Class A Shares owned beneficially indirectly by Mr. Gouger in the 401(k) Plan; (iii) 849,030 Class B Shares owned beneficially by Mr. Gouger solely by virtue of his position as trustee of certain trusts established by Mr. Ergen for the benefit of his family; (iv) 8,051,375 Class B Shares owned beneficially by Mr. Gouger solely by virtue of his position as trustee of the Ergen Two-Year GRAT dated November 30, 2009; (v) 2,500,000 Class B Shares owned beneficially by Mr. Gouger solely by virtue of his position as trustee of the Ergen Two-Year GRAT dated November 30, 2010; (vi) 2,500,000 Class B Shares owned beneficially by Mr. Gouger solely by virtue of his position as trustee of the Ergen Three-Year GRAT dated November 30, 2010; (vii) 2,500,000 Class B Shares owned beneficially by Mr. Gouger solely by virtue of his position as trustee of the Ergen Four-Year GRAT dated November 30, 2010; and (viii) 2,500,000 Class B Shares owned beneficially by Mr. Gouger solely by virtue of his position as trustee of the Ergen Five-Year GRAT dated November 30, 2010.
(5) The address of John A. Griffin is 660 Madison Avenue, 20th Floor, New York, New York 10065. Of the EchoStar Class A Shares beneficially owned, Mr. Griffin has shared voting and dispositive power as to all of the 2,635,000 EchoStar Class A Shares beneficially owned by him. Mr. Griffin is the Managing Member of Blue Ridge Capital Holdings L.L.C. and Blue Ridge Capital Offshore Holdings L.L.C. and in that capacity Mr. Griffin has shared voting and dispositive power over the EchoStar Class A Shares held by those entities. This information is based solely upon a Schedule 13G filed by Mr. Griffin with the SEC on February 14, 2011.
(6) The address of Putnam, LLC (d/b/a Putnam Investments) is One Post Office Square, Boston, Massachusetts 02109. Of the EchoStar Class A Shares beneficially owned, Putnam, LLC has shared voting power as to 82,689 EchoStar Class A Shares beneficially owned by it and shared dispositive power as to 2,011,280 EchoStar Class A Shares beneficially owned by it. The foregoing information is based solely upon a Schedule 13G filed by Putnam, LLC with the SEC on February 14, 2011.
(7) Mr. Dugans beneficial ownership includes: (i) 116 EchoStar Class A Shares; (ii) 1,023 EchoStar Class A Shares held in the 401(k) Plan; and (iii) the right to acquire 353,600 EchoStar Class A Shares within 60 days upon the exercise of employee stock options.
(8) Mr. Jacksons beneficial ownership includes: (i) 93 EchoStar Class A Shares; (ii) 3,542 EchoStar Class A Shares held in the 401(k) Plan; and (iii) the right to acquire 204,000 EchoStar Class A Shares within 60 days upon the exercise of employee stock options.
(9) Mr. Moskowitzs beneficial ownership includes: (i) 25,448 EchoStar Class A Shares; (ii) 4,500 EchoStar Class A Shares held in the 401(k) Plan; (iii) the right to acquire 152,000 EchoStar Class A Shares within 60 days upon the exercise of employee stock options; (iv) 265 EchoStar Class A Shares held as custodian for his children; (v) 1,636 EchoStar Class A Shares held as trustee for Mr. Ergens children and (vi) 6,000 EchoStar Class A Shares held by a charitable foundation for which Mr. Moskowitz is a member of the board of directors.
(10) Mr. Schavers beneficial ownership includes: (i) 482 EchoStar Class A Shares; (ii) 3,581 EchoStar Class A Shares held in the 401(k) Plan; and (iii) the right to acquire 65,599 EchoStar Class A Shares within 60 days upon the exercise of employee stock options.
(11) Mr. Rayners beneficial ownership includes: (i) 369 EchoStar Class A Shares held in the 401(k) Plan; and (ii) the right to acquire 60,000 EchoStar Class A Shares within 60 days upon the exercise of employee stock options.
(12) Mr. Hans beneficial ownership includes the right to acquire 55,999 EchoStar Class A Shares within 60 days upon the exercise of employee stock options.
(13) Mr. Ortolfs beneficial ownership includes: (i) the right to acquire 12,000 EchoStar Class A Shares within 60 days upon the exercise of nonemployee director stock options; (ii) 40 EchoStar Class A Shares held in the name of one of his children; and (iii) 12,200 EchoStar Class A Shares held by a partnership of which Mr. Ortolf is a partner.
(14) Mr. Dodges beneficial ownership includes: (i) 36 EchoStar Class A Shares; (ii) 545 EchoStar Class A Shares held in the 401(k) Plan; and (iii) the right to acquire 23,000 EchoStar Class A Shares within 60 days upon the exercise of employee stock options.
(15) Mr. Schroeders beneficial ownership includes: (i) 11,020 EchoStar Class A Shares; and (ii) the right to acquire 12,000 EchoStar Class A Shares within 60 days upon the exercise of nonemployee director stock options.
(16) Mr. Claytons beneficial ownership includes: (i) 2,000 EchoStar Class A Shares; and (ii) the right to acquire 12,500 EchoStar Class A Shares within 60 days upon the exercise of nonemployee director stock options.
(17) Includes: (i) 100,165 EchoStar Class A Shares; (ii) 17,265 EchoStar Class A Shares held in the 401(k) Plan; (iii) the right to acquire 1,346,698 EchoStar Class A Shares within 60 days upon the exercise of employee and nonemployee director stock options; (iv) 12,200 EchoStar Class A Shares held in a partnership; (v) 28,786,634 EchoStar Class A Shares issuable upon conversion of EchoStar Class B Shares; (vi) 16,242 EchoStar Class A Shares held in the name of, or in trust for, children and other family members; (vii) 11,400 EchoStar Class A Shares held by a charitable foundation; and (viii) 248 EchoStar Class A Shares held by a spouse.
(18) Held by certain trusts established by Mr. Ergen for the benefit of Mr. Ergens family of which Mr. Gouger is trustee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, officers and holders of more than 10% of our common stock to file reports with the SEC regarding their ownership and changes in ownership of our equity securities. We believe that during 2010, our directors, officers and 10% shareholders complied with all Section 16(a) filing requirements. In making these statements, we have relied upon examination of copies of Forms 3, 4 and 5 provided to us and the written representations of our directors and officers.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (CD&A) addresses our compensation objectives and policies for our NEOs, the elements of NEO compensation and the application of those objectives and policies to each element of fiscal year 2010 compensation for our NEOs. Unless otherwise indicated, NEOs in this Proxy Statement refers to our NEOs who did not perform services for us pursuant to the Management Services Agreement between DISH Network and us in connection with the Spin-off of EchoStar from DISH Network. To the extent applicable, the CD&A also contains information regarding performance targets and goals for our executive compensation program. These targets and goals were disclosed to provide information on how executive compensation was determined in 2010 but are not intended to be estimates of future results or other forward-looking guidance. We caution investors against using these targets and goals outside of the context of their use in our executive compensation program as described herein.
Our NEOs in 2010 included Messrs. Michael T. Dugan, Charles W. Ergen, Bernard L. Han, Roger Lynch, Mark W. Jackson, David J. Rayner and Steven B. Schaver. Of these NEOs, Mr. Ergen and Mr. Han were NEOs of DISH Network in 2010. Messrs. Dugan, Jackson, Rayner, and Schaver were employed and solely compensated by EchoStar during 2010. Mr. Ergen and Mr. Lynch were employed and compensated by both EchoStar and DISH Network in 2010. Mr. Han served as our Chief Financial Officer until June 2010 pursuant to a Management Services Agreement between us and DISH Network. Under the Management Services Agreement, Mr. Han was employed by, and received compensation from, DISH Network, and was not directly compensated by us. We made payments to DISH Network pursuant the Management Services Agreement based upon a portion of DISH Networks personnel costs for Mr. Han (taking into account salary and fringe benefits) as determined by reference to the percentages of time spent by Mr. Han performing services for us. During 2010, incentive compensation for Mr. Han was solely the responsibility of DISH Network. See Certain Relationships and Related Transactions Related Party Transactions with DISH Network Management Services Agreement. Other than as described elsewhere with respect to Mr. Ergen and Mr. Lynch and in relation to the payments to be made by us to DISH Network in respect of Mr. Han pursuant to the Management Services Agreement, none of our NEOs received direct compensation from both us and DISH Network during 2010 and the compensation paid by one company in 2010 had no impact on the compensation decisions of the other company in 2010. None of our NEOs has entered into an employment agreement with us.
Overall Compensation Program Objectives and Policies
Compensation Philosophy
EchoStars executive compensation program was guided by the following key principles in 2010:
· Attraction, retention and motivation of executive officers over the long-term;
· Recognition of individual performance;
· Recognition of the achievement of company-wide performance goals, if any; and
· Creation of shareholder value by aligning the interests of management and EchoStars shareholders through equity incentives.
General Compensation Levels
The total direct compensation opportunities, both base salaries and long-term incentives, offered to EchoStars NEOs have been designed to ensure that they are competitive with market practice, support EchoStars executive recruitment and retention objectives, reward individual and company-wide performance and contribute to EchoStars long-term success by aligning the interests of its executive officers and shareholders.
The Compensation Committee of EchoStar, without Mr. Ergen present, determined Mr. Ergens compensation in 2010. Mr. Ergen recommended to the Board of Directors, but the Board of Directors ultimately approved, the base compensation of EchoStars NEOs other than Mr. Ergen. EchoStars Compensation Committee makes and approves grants of options and other equity-based compensation to EchoStars NEOs, and establishes in writing performance goals for any performance-based compensation that together with other compensation to any EchoStar NEO could exceed $1 million annually. The Compensation Committee also certifies achievement of those performance goals prior to payment of performance-based compensation.
In determining the actual amount of each NEOs overall compensation, the Compensation Committee of EchoStar reviews the information described in Compilation of Certain Proxy Data below, its subjective performance evaluation of the individuals performance (after reviewing Mr. Ergens recommendations with respect to the NEOs other than himself), the individuals success in achieving individual and company-wide goals, whether the performance goals of any short-term or long-term incentive plans were met and the payouts that would become payable upon achievement of those performance goals, equity awards previously granted to the individual, and equity awards that would be normally granted upon a promotion in accordance with EchoStars policies for promotions. EchoStars Compensation Committee and Board have also considered the extent to which individual efforts of each of EchoStars NEOs (other than Mr. Ergen) resulted in tangible increases in corporate, division or department success when setting base cash salaries and any short term incentive compensation.
Furthermore, the Compensation Committee of EchoStar also makes a subjective determination as to whether an increase should be made to Mr. Ergens compensation based on its evaluation of Mr. Ergens contribution to the success of EchoStar, whether the performance goals of any short-term or long-term incentive plans were met, the payouts that would become payable to Mr. Ergen upon achievement of those performance goals, the options and other stock awards currently held by Mr. Ergen and whether such awards are sufficient to retain Mr. Ergen.
This approach to general compensation levels is not formulaic and the weight given to any particular factor in determining a particular NEOs compensation depends on the subjective consideration of all factors described above in the aggregate.
With respect to incentive compensation, EchoStar attempts to ensure that each NEO has equity awards at any given time that are significant in relation to such individuals annual cash compensation to ensure that each of the NEOs has appropriate incentives tied to the performance of EchoStars Class A Common Stock. Therefore, EchoStar may grant more options to one particular NEO in a given year if a substantial portion of the NEOs equity incentives are vested and the underlying stock is capable of being sold. In addition, if an NEO recently received a substantial amount of equity incentives, EchoStar may not grant any equity incentives to that particular NEO.
Compilation of Certain Proxy Data
In connection with the approval process for EchoStars executive officer compensation, EchoStars Board of Directors and Compensation Committee had management prepare a compilation of the compensation components for the NEOs of companies selected by the Compensation Committee, as disclosed in their respective publicly-filed proxy statements (the Proxy Data). These surveyed companies included: Pace plc., Intelsat S.A., Loral Space & Communications, Inc., Telesat Canada, Eutelsat Communications, SES S.A., Motorola Inc. and Cisco Systems, Inc. The Proxy Data, along with other information obtained by Compensation Committee members from media reports, such as newspaper or magazine articles or other generally available sources related to executive compensation, and from corporate director events attended by Compensation Committee members, is used solely as a subjective frame of reference to set approximate boundaries for compensation, rather than a basis for benchmarking compensation of EchoStars NEOs. EchoStars Compensation Committee and Board of Directors do not utilize a formulaic or standard, formalized benchmarking level or element in tying or otherwise setting EchoStars executive compensation to that of other companies. Generally, EchoStars overall executive compensation lags behind competitors in the area of base pay, severance packages, and short-term incentives and may be competitive over time in equity compensation. If EchoStars stock performance substantially outperforms similar companies, executive compensation at EchoStar could exceed other companies. Barring significant increases in the stock price, however, EchoStars compensation levels generally lag its peers.
Deductibility of Compensation
Section 162(m) of the U.S. Internal Revenue Code (the Code) places a limit on the tax deductibility of compensation in excess of $1 million paid to certain covered employees of a publicly held corporation (generally, the corporations chief executive officer and its next four most highly compensated executive officers in the year that the compensation is paid). This limitation applies only to compensation that is not considered performance-based under the Section 162(m) rules. The Compensation Committee conducts an ongoing review of EchoStars compensation practices for purposes of obtaining the maximum continued deductibility of compensation paid consistent with EchoStars existing commitments and ongoing competitive needs. However, nondeductible compensation in excess of this limitation may be paid.
Use of Compensation Consultants
No compensation consultants were retained by the Company to either evaluate or recommend the setting of executive compensation during the past fiscal year.
Implementation of Executive Compensation Program Objectives and Policies
Weighting and Selection of Elements of Compensation
As described in General Compensation Levels above, neither EchoStars Board of Directors nor its Compensation Committee has in the past assigned specific weights to any factors considered in determining compensation, and none of the factors are more dispositive than others.
Elements of Executive Compensation
The primary components of EchoStars executive compensation program have included:
· base cash salary;
· long-term equity incentive compensation in the form of stock options and restricted stock units offered under EchoStars stock incentive plan;
· 401(k) plan; and
· other compensation, including perquisites and personal benefits and post-termination compensation.
EchoStars executive compensation program may also include short-term incentive compensation, including conditional and/or performance-based cash incentive compensation and discretionary bonuses. These elements combine to promote the objectives and policies described above. Base salary, 401(k) benefits and other benefits and perquisites provided generally to EchoStar employees provide a minimum level of compensation for our NEOs. While short-term incentives reward individual performance and achievement of annual goals important to EchoStar, during 2010, we elected not to implement a short-term incentive program. Long-term equity-incentive compensation aligns NEO compensation directly with the creation of long-term shareholder value and promotes retention.
EchoStar has not required that a certain percentage of an executives salary be provided in one form versus another. However, the goal of the Compensation Committee is to award compensation that is reasonable in relation to EchoStars compensation program and objectives when all elements of potential compensation are considered. Each element of EchoStars historical executive compensation and the rationale for each element are described below.
Base Cash Salary
EchoStar has traditionally included salary in its executive compensation package under the belief that it is appropriate that some portion of the compensation paid to its executives be provided in a form that is fixed and liquid occurring over regular intervals. Generally, for the reasons discussed in Long-Term Equity Incentive Compensation, EchoStar has weighted overall compensation towards equity components as opposed to base salaries. EchoStars Compensation Committee and Board of Directors have traditionally been free to set base salary at any level deemed appropriate and typically review base salaries once annually. Any increases or decreases in base salary on a year-over-year basis have usually been dependent on a combination of the following factors:
· EchoStars Compensation Committees and Board of Directors respective assessment of EchoStars overall financial and business performance;
· the performance of the NEOs business unit;
· the NEOs individual contributions to EchoStar; and
· the rate of EchoStars standard annual merit increase for employees who are performing at a satisfactory level.
Annual base salaries paid to EchoStars executive officers have historically been at levels below those generally paid to executive officers with comparable experience and responsibilities in the set-top box and satellite services industries or other similarly-sized companies. In addition, EchoStar has stated that it believes the compensation paid to Mr. Dugan and Mr. Ergen has generally been at a level that is below amounts paid to chairmen and chief executive officers at other companies of similar size in comparable industries. Any changes in Mr. Ergens base salary are set by EchoStars Compensation Committee. Mr. Ergen recommends to the Board of Directors, but EchoStars Board of Directors ultimately approves, any changes in the base salary of EchoStars other NEOs.
Short-Term Incentive Compensation
During 2010, the Board of Directors and the Compensation Committee elected not to implement a short-term incentive program. If our Compensation Committee chooses to establish a short-term incentive plan or a cash incentive plan, it will make a determination as to both the performance goals and the payouts that will be made upon achievement of those performance goals. In the future, the Board and Compensation Committee may elect to award short-term incentive compensation that reflect appropriate performance goals for our business.
Long-Term Equity Incentive Compensation
EchoStar has operated under the belief that executive officers will be better able to contribute to its long-term success and help build incremental shareholder value if they have a stake in that future success and value. EchoStar believes this stake focuses the executive officers attention on managing EchoStar as owners with equity positions in EchoStar and aligns their interests with the long-term interests of EchoStars shareholders. Equity awards therefore have represented an important and significant component of EchoStars compensation program for executive officers. EchoStar has attempted to create general incentives with its standard stock option grants and conditional incentives through conditional awards that may include payouts in cash or equity.
General Equity Incentives
With respect to equity incentive compensation, EchoStar attempts to ensure that each NEO has equity awards at any given time that are significant in relation to such individuals annual cash compensation to ensure that each of EchoStars NEOs has appropriate incentives tied to the performance of EchoStars Class A Common Stock. Therefore, EchoStar may grant more options to one particular NEO in a given year if a substantial portion of the NEOs equity incentives are vested and the underlying stock is capable of being sold. In addition, if an NEO recently received a substantial amount of equity incentives, EchoStar may not grant any equity incentives to that particular NEO.
In granting equity incentive compensation, the Compensation Committee also takes into account whether the NEO has been promoted in determining whether to award equity awards to that individual. Finally, from time to time, the Compensation Committee may award one-time equity awards based on a number of subjective criteria, including the NEOs position and role in EchoStars success and whether the NEO made any exceptional contributions to EchoStars success.
To encourage executive officers to remain in EchoStars employ, options granted under EchoStars stock incentive plans generally vest at the rate of 20% per year and have exercise prices not less than the fair market value of EchoStars Class A Common Stock on the date of grant. EchoStars standard form of option agreement given to executive officers has included acceleration of vesting upon a change in control of EchoStar for those executive officers that are terminated by us or the surviving entity, as applicable, for any reason other than for cause during the twenty-four month period following such change in control.
Practices Regarding Grant of Equity Incentives
EchoStar has generally awarded equity awards as of the last day of each calendar quarter and has set exercise prices at not less than the fair market value of EchoStars Class A Common Stock on the date of grant or the last trading day prior to the date of grant (if the last day of the calendar quarter is not a trading day).
Stock Incentive Plan
We have adopted an employee stock incentive plan, which we refer to as the 2008 Stock Incentive Plan. The purpose of the 2008 Stock Incentive Plan is to provide incentives to attract and retain executive officers and other key employees. Awards available to be granted under the 2008 Stock Incentive Plan include: (i) stock options; (ii) stock appreciation rights; (iii) restricted stock and restricted stock units; (iv) performance awards; (v) dividend equivalents; and (vi) other stock-based awards.
Class B Chairman Stock Option Plan
We have adopted a Class B Chairman stock option plan, which we refer to as the 2008 Class B Chairman Stock Option Plan. The purpose of the 2008 Class B Chairman Stock Option Plan is to promote the interests of EchoStar and its subsidiaries by aiding in the retention of Charles W. Ergen, the Chairman of EchoStar, who our Board of Directors believes is crucial to assuring our future success, to offer Mr. Ergen incentives to put forth maximum efforts for our future success and to afford Mr. Ergen an opportunity to acquire additional proprietary interests in EchoStar. Mr. Ergen abstained from our Board of Directors vote on this matter. Awards available to be granted under the 2008 Class B Chairman Stock Option Plan include nonqualified stock options and dividend equivalent rights with respect to EchoStars Class B Common Stock. Up to 4 million shares of EchoStars Class B common stock are available for awards under the 2008 Class B Chairman Stock Option Plan. Only Mr. Ergen is eligible to participate in the 2008 Class B Chairman Stock Option Plan. No awards have been granted under the 2008 Class B Chairman Stock Option Plan.
Employee Stock Purchase Plan
We have adopted an employee stock purchase plan, which we refer to as our ESPP. The purpose of the ESPP is to provide our eligible employees with an opportunity to acquire a proprietary interest in us by the purchase of our Class A common stock. All full-time employees who are employed by EchoStar for at least one calendar quarter are eligible to participate in the ESPP. Employee stock purchases are made through payroll deductions. Under the terms of the ESPP, employees are not permitted to deduct an amount that would permit such employee to purchase our capital stock under our ESPP in an amount that exceeds $25,000 in fair market value of capital stock in any one year. The ESPP is intended to qualify under Section 423 of the Code and thereby provide participating employees with an opportunity to receive certain favorable income tax consequences as to stock purchase rights under the ESPP.
Nonemployee Director Stock Option Plan
We have adopted a non-employee director stock option plan, which we refer to as the 2008 Director Plan. The purpose of the 2008 Director Plan is to advance our interests through the motivation, attraction and retention of highly-qualified non-employee directors. The 2008 Director Plan grants our new non-employee directors, upon their initial election or appointment to our Board, an option to acquire a certain number of shares of our A Common Stock. We may also grant, in our discretion, non-employee directors further options to acquire our shares of Class A Common Stock. Up to 250,000 shares of our Class A Common Stock are available for awards under the 2008 Director Plan.
401(k) Plan
EchoStar has adopted a defined-contribution tax-qualified 401(k) plan for its employees, including its executives, to encourage its employees to save some percentage of their cash compensation for their eventual retirement. EchoStars executives participate in the 401(k) plan on the same terms as EchoStars other employees. Under the plan, employees become eligible for participation in the 401(k) plan upon completing ninety days of service with EchoStar and reaching age 19. 401(k) plan participants are able to contribute up to 50% of their compensation in each contribution period, subject to the maximum deductible limit provided by the Internal Revenue Code. EchoStar may also make a 50% matching employer contribution up to a maximum of $1,500 per participant per calendar year. In addition, EchoStar may also make an annual discretionary profit sharing contribution to the 401(k) plan with the approval of its Compensation Committee and Board of Directors. 401(k) plan participants are immediately vested in their voluntary contributions and earnings on voluntary contributions. EchoStars employer contributions to 401(k) plan participants accounts vest 20% per year commencing one year from the employees date of employment.
Perquisites and Personal Benefits, Post-Termination Compensation and Other Compensation
EchoStar has traditionally offered certain plans and other benefits to its executive officers on the same terms as other employees. These plans and benefits have included medical, vision, and dental insurance, life insurance, and the employee stock purchase plan as well as discounts on EchoStars products and services. Relocation benefits may also be reimbursed, but are individually negotiated when they occur. EchoStar has also permitted certain NEOs to use its corporate aircraft for personal use. EchoStar has also paid for annual tax preparation costs for certain NEOs.
EchoStar has not traditionally had any plans in place to provide severance benefits to employees. However, certain stock options and restricted stock units have been granted to its executive officers subject to acceleration of vesting upon a change in control of EchoStar for those executive officers who are terminated by us or the surviving entity, as applicable, for any reason other than for cause during the twenty-four month period following such change in control.
2010 Executive Compensation
EchoStar generally makes decisions with respect to executive compensation for a particular compensation year in the first or second quarter of the applicable compensation year. For 2010, the Compensation Committee (along with Mr. Ergen, for each of the NEOs other than himself) reviewed total compensation of each NEO and the value of (a) historic and current components of each NEOs compensation, including the base salary and bonus paid to the NEO in the prior year, and (b) stock options and restricted stock units held by each NEO in EchoStars incentive plans. EchoStars Compensation Committee (along with Mr. Ergen, for each of the NEOs other than himself) also reviewed the Proxy Data prepared for 2010 and other information described in Compilation of Certain Proxy Data above. As described in General Compensation Levels above, EchoStar aims to provide base salaries and long-term incentives that are competitive with market practice with an emphasis on providing a substantial portion of overall compensation in the form of equity incentives. In addition, EchoStars Compensation Committee has discretion to award performance based compensation that is based on performance goals different from those that were previously set or that is higher or lower than the anticipated compensation that would be awarded under EchoStars incentive plans if particular performance goals were met. EchoStars Compensation Committee did not exercise this discretion in 2010.
Compensation of Our Chief Executive Officer and Our Chairman
2010 Base Salary. Mr. Dugans salary was agreed to between EchoStar and Mr. Dugan in November 2009 in connection with the commencement of Mr. Dugans employment as President and Chief Executive Officer of EchoStar. In connection with our Spin-off from DISH Network, Mr. Ergens base salary for 2009 was set at $1 and remained at such level in 2010.
2010 Cash Bonus. No bonus was paid to Mr. Dugan or to Mr. Ergen.
2010 Equity Incentives. With respect to equity incentives, EchoStar attempts to ensure that both the Chief Executive Officer and the Chairman have equity awards at any given time that are significant in relation to their annual cash compensation to ensure that they have appropriate incentives tied to the performance of EchoStars Class A Common Stock. During 2010, the Compensation Committee determined that Mr. Ergen and Mr. Dugan had sufficient equity awards to ensure that they had appropriate incentives tied to the performance of EchoStars Class A Common Stock and therefore did not award Mr. Ergen or Mr. Dugan any additional equity awards.
Compensation of Other Named Executive Officers
2010 Base Salary.
Base salaries for each of the other NEOs are determined annually by EchoStars Board of Directors primarily based on Mr. Ergens recommendations. The Board of Directors places substantial weight on Mr. Ergens recommendations in light of his role as Chairman and as controlling shareholder of EchoStar. Mr. Ergen made recommendations to the Board of Directors with respect to the 2010 base salary of each of the other NEOs after considering (a) the NEOs base salary in 2010, (b) the range of the percentage increases in base salary for NEOs of the companies contained in the Proxy Data, (c) whether the NEOs base salary was appropriate in light of EchoStars goals, including retention of the NEO, (d) the expected compensation to be paid to other NEOs in 2010 in relation to a particular NEO in 2010, (e) whether the NEO was promoted or newly hired in 2010, and (f) whether in Mr. Ergens subjective determination, the NEOs performance in 2009 warranted an increase in the NEOs base salary in 2010. Placing primary weight on (a) the NEOs base salary in 2009 and (b) whether, in Mr. Ergens subjective view, an increase in 2009 base salary was necessary to retain the NEO, Mr. Ergen recommended the base salary amounts indicated in Executive Compensation and Other Information - Summary Compensation Table below. The basis for Mr. Ergens recommendation with respect to each of the other NEOs is discussed below. The Board of Directors accepted each of Mr. Ergens recommendations on base salaries for each of the other NEOs.
Mr. Jackson. Mr. Ergen determined that Mr. Jacksons performance met expectations for 2009 and that Mr. Jackson was therefore eligible for our standard annual merit increase. In addition, Mr. Ergen determined that Mr. Jackson should receive an additional annual increase in base salary based on Mr. Ergens subjective determination of the amount required to maintain Mr. Jacksons salary within the range of market compensation indicated in the Proxy Data taking into consideration our practices with respect to base salaries. Mr. Ergen also considered Mr. Jacksons particular individual contributions towards development of the Corporations set-top box business in setting Mr. Jacksons 2010 base salary.
Mr. Han. While serving as our Chief Financial Officer until June 2010, Mr. Han was employed by, and received compensation from, DISH Network, and was not directly compensated by us for his services. Instead, we obtained the services of Mr. Han pursuant to the Management Services Agreement between us and DISH Network. Accordingly, Mr. Hans salary was set by the Board of Directors of DISH Network, and we made payments to DISH Network based upon a portion of DISH Networks personnel costs for Mr. Han (taking into account salary and fringe benefits) as determined by reference to the percentages of time spent by Mr. Han performing services for us.
Mr. Lynch. Mr. Lynchs salary was agreed between EchoStar and Mr. Lynch on November 3, 2009 in connection with the commencement of Mr. Lynchs employment as Executive Vice President Advanced Technologies. Mr. Ergen recommended and the Board of Directors agreed that Mr. Lynchs salary from EchoStar should equal the salary Mr. Lynch receives from DISH Network so that Mr. Lynch would be equally incentivized by both companies and therefore not favor one company over the other.
Mr. Rayner. Mr. Ergen determined that Mr. Rayners performance met expectations for 2009 and that Mr. Rayner was therefore eligible for our standard annual merit increase. In addition, in connection with Mr. Rayner being appointed Chief Financial Officer during June 2010, Mr. Ergen determined that Mr. Rayner should receive an additional increase in base salary based on Mr. Ergens subjective determination of the amount required to maintain Mr. Rayners salary within the range of market compensation indicated in the Proxy Data taking into consideration our practices with respect to base salaries.
Mr. Schaver. Mr. Ergen determined that Mr. Schavers performance met expectations for 2009 and that Mr. Schaver was therefore eligible for EchoStars standard annual merit increase. Mr. Ergen determined that Mr. Schaver should receive an additional annual increase in base salary based on Mr. Ergens subjective determination of the amount required to maintain Mr. Schavers salary within the range of market compensation indicated in the Proxy Data taking into consideration our practices with respect to base salaries. Mr. Ergen also considered Mr. Schavers particular individual contributions towards development of the Corporations set-top box business in setting Mr. Schavers 2010 base salary.
2010 Cash Bonus. Mr. Ergen generally recommended that other NEOs receive a discretionary cash bonus only to the extent that Mr. Ergen considered that a particular individuals performance during 2010 made a significant contribution towards development of EchoStars goals. In 2010, no discretionary cash bonuses were awarded to such other NEOs.
2010 Equity Incentives. With respect to equity incentives, EchoStar primarily evaluates the position of each NEO to ensure that each individual has equity awards at any given time that are significant in relation to the NEOs annual cash compensation to ensure that the NEO has appropriate incentives tied to the performance of EchoStars Class A Common Stock. This determination is made by the Compensation Committee primarily on the basis of Mr. Ergens recommendation. As discussed above, in granting awards to the other NEOs for 2010, Mr. Ergen based his recommendation on, and the Compensation Committee took into account, among other things, what was necessary to retain our executive officers. On June 30, 2010, Mr. Jackson was awarded 50,000 stock options and Mr. Schaver was awarded 20,000 stock options. Also on June 30, 2010, in connection with the commencement of Mr. Rayner serving as our Chief Financial Officer, Mr. Rayner was awarded 75,000 stock options. Mr. Ergen recommended that no equity incentives be awarded to Mr. Lynch, as Mr. Ergen subjectively determined that Mr. Lynch already had sufficient equity awards to ensure that Mr. Lynch had appropriate incentives tied to the performance of EchoStars Class A Common Stock. Mr. Ergen recommended that no equity incentives be awarded to Mr. Han, taking into consideration the fact that he performed services for us pursuant to the Management Services Agreement with DISH Network.
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is appointed by the Board of Directors of EchoStar to discharge certain of the Boards responsibilities relating to compensation of EchoStars executive officers.
The Compensation Committee, to the extent the Board deems necessary or appropriate, will:
· Make and approve all option grants and other issuances of EchoStars equity securities to EchoStars executive officers and Board members other than nonemployee directors;
· Approve all other option grants and issuances of EchoStar s equity securities, and recommend that the full Board make and approve such grants and issuances;
· Establish in writing all performance goals for performance-based compensation that together with other compensation to senior executive officers could exceed $1 million annually, other than standard Stock Incentive Plan options that may be paid to EchoStars executive officers, and certify achievement of such goals prior to payment; and
· Set the compensation of the Chairman.
Based on the review of the Compensation Discussion and Analysis and discussions with management, we recommended to EchoStars management that the Compensation Discussion and Analysis be included in the Corporations proxy statement. The Compensation Committee notes that the information with respect to DISH Network is based solely on information supplied by DISH Network to EchoStar.
Respectfully submitted,
The EchoStar Corporation Executive Compensation Committee
Tom A. Ortolf (Chairman)
C. Michael Schroeder
Joseph P. Clayton
The report of the Compensation Committee and the information contained therein shall not be deemed to be soliciting material or filed or incorporated by reference in any filing we make under the Securities Act of 1933 (the Securities Act) or under the Exchange Act, irrespective of any general statement incorporating by reference this Proxy Statement into any such filing, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate this information by reference into a document we file under the Securities Act or the Exchange Act.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Explanatory Note to Summary Compensation Table, Grant of Plan-Based Awards Table, Outstanding Equity Awards at Fiscal Year-End Table, and Option Exercises and Stock Vested Table
Spin-Off from DISH Network
In connection with our Spin-off from DISH Network, which was effective on January 1, 2008, all outstanding DISH Network stock options and restricted stock units (collectively, Stock-Based Awards) held by DISH Network employees, including executive officers, were adjusted as follows:
Options
Each DISH Network stock option was converted into two options:
· an adjusted DISH Network stock option for the same number of shares as were exercisable under the original DISH Network stock option with an exercise price equal to the exercise price of the original DISH Network stock option multiplied by 0.831219.
· a new EchoStar stock option for one-fifth of the number of shares as were exercisable under the original DISH Network stock option with an exercise price equal to the exercise price of the original DISH Network stock option multiplied by 0.843907.
Restricted Stock Units
Holders of DISH Network restricted stock units retained their DISH Network restricted stock units and received one EchoStar restricted stock unit for every five DISH Network restricted stock units that they held.
These adjustments were made in order to preserve the pre-conversion intrinsic value of the Stock-Based Awards.
Presentation of Summary Compensation Table, Grant of Plan-Based Awards Table, Outstanding Equity Awards at Fiscal Year-End Table, and Option Exercises and Stock Vested Table
With respect to the presentation of NEO compensation in this section: (i) during 2008, 2009 and 2010 until he ceased serving as our Chief Financial Officer in June 2010, Mr. Han, who performed services for us pursuant to the Management Services Agreement, was compensated solely by DISH Network and we made payments to DISH Network for our allocable portions of DISH Networks personnel costs for him; (ii) during 2008, 2009 and 2010, Mr. Ergen and Mr. Lynch, as applicable, were compensated by both us and DISH Network; and (iii) during 2008, 2009 and 2010 all other NEOs were compensated solely by us.
Summary Compensation Table
Our executive officers are compensated by certain of our subsidiaries. The following table sets forth the cash and noncash compensation paid to such executive officers as discussed above for the NEOs for the fiscal year ended December 31, 2010.
Name and Principal Position |
|
Year |
|
Salary |
|
Bonus (1) |
|
Stock |
|
Option |
|
Non-Equity |
|
Change in |
|
All Other |
|
Total |
| ||||||||
Michael T. Dugan (4) |
|
2010 |
|
$ |
750,000 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
5,691 |
|
$ |
755,691 |
|
President and Chief Executive Officer |
|
2009 |
|
$ |
86,538 |
|
$ |
|
|
$ |
|
|
$ |
4,629,908 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
4,716,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Charles W. Ergen (4) |
|
2010 |
|
$ |
1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
124,143 |
|
$ |
124,144 |
|
Chairman |
|
2009 |
|
$ |
1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
168,455 |
|
$ |
168,456 |
|
|
|
2008 |
|
$ |
1 |
|
$ |
|
|
$ |
|
|
$ |
3,925,180 |
|
$ |
|
|
$ |
|
|
$ |
237,979 |
|
$ |
4,163,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
David J. Rayner (5) |
|
2010 |
|
$ |
359,791 |
|
$ |
|
|
$ |
|
|
$ |
499,493 |
|
$ |
|
|
$ |
|
|
$ |
4,000 |
|
$ |
863,284 |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Bernard L. Han (5) |
|
2010 |
|
$ |
56,250 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
688 |
|
$ |
56,938 |
|
Executive Vice President and Chief Operating Officer - DISH Network |
|
2009 |
|
$ |
112,981 |
|
$ |
25,000 |
|
$ |
|
|
$ |
289,500 |
|
$ |
|
|
$ |
|
|
$ |
875 |
|
$ |
428,356 |
|
|
2008 |
|
$ |
100,000 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
3,312 |
|
$ |
103,312 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Mark W. Jackson |
|
2010 |
|
$ |
471,346 |
|
$ |
|
|
$ |
|
|
$ |
332,995 |
|
$ |
|
|
$ |
|
|
$ |
4,191 |
|
$ |
808,532 |
|
President, EchoStar Technologies L.L.C. |
|
2009 |
|
$ |
434,712 |
|
$ |
50,000 |
|
$ |
|
|
$ |
476,374 |
|
$ |
|
|
$ |
|
|
$ |
2,000 |
|
$ |
963,086 |
|
|
2008 |
|
$ |
361,250 |
|
$ |
|
|
$ |
|
|
$ |
1,570,072 |
|
$ |
|
|
$ |
|
|
$ |
4,000 |
|
$ |
1,935,322 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Steven B. Schaver |
|
2010 |
|
$ |
356,833 |
|
$ |
|
|
$ |
|
|
$ |
133,198 |
|
$ |
|
|
$ |
|
|
$ |
4,000 |
|
$ |
494,031 |
|
President, EchoStar International Corporation |
|
2009 |
|
$ |
350,834 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
350,834 |
|
|
2008 |
|
$ |
314,898 |
|
$ |
|
|
$ |
|
|
$ |
785,036 |
|
$ |
|
|
$ |
|
|
$ |
4,000 |
|
$ |
1,103,934 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Roger J. Lynch (6) |
|
2010 |
|
$ |
200,000 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
200,000 |
|
Executive Vice President, Advanced Technologies |
|
2009 |
|
$ |
29,231 |
|
$ |
|
|
$ |
|
|
$ |
1,486,548 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
1,515,779 |
|
(1) 2009 bonus was earned in 2009 but not paid until 2010.
(2) The amounts reported in the Option Awards column reflect the aggregate grant date fair values. Assumptions used in the calculation of these amounts are included in Note 13 to the Corporations audited financial statements for the fiscal year ended December 31, 2010, included in the Corporations Annual Report on Form 10-K filed with the SEC on February 24, 2011.
(3) All Other Compensation for all of the NEOs includes amounts contributed pursuant to our 401(k) matching program, relocation payments and our profit sharing program. Mr. Ergens All Other Compensation also includes tax preparation payments in each year. In addition, with respect to Mr. Ergen, All Other Compensation includes $124,143, $168,455, and $237,979 for Mr. Ergens personal use of corporate aircraft during the years ended December 31, 2010, 2009, and 2008, respectively. We calculated the value of Mr. Ergens personal use of corporate aircraft based upon the incremental cost of such usage to EchoStar.
(4) Mr. Dugan was named President and Chief Executive Officer of EchoStar in November 2009, replacing Mr. Ergen who currently serves as our Chairman.
(5) Mr. Rayner was named Chief Financial Officer of EchoStar in June 2010, replacing Mr. Han who currently serves as Executive Vice President and Chief Operating Officer of DISH Network.
(6) Mr. Lynch became an employee of the Corporation on November 4, 2009.
Grant of Plan-Based Awards
The following table provides information on EchoStar equity awards granted in 2010 for the Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
All Other |
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Awards: |
|
Exercise |
|
Grant Date |
| |||||
|
|
|
|
|
|
Estimated Future Payouts Under |
|
|
|
|
|
|
|
Number of |
|
Number of |
|
or Base |
|
Fair Value of |
| |||||||||
|
|
|
|
Date of |
|
Non-Equity Incentive Plan |
|
Estimated Future Payouts Under |
|
Shares of |
|
Securities |
|
Price of |
|
Stock and |
| |||||||||||||
|
|
|
|
Compensation |
|
Awards |
|
Equity Incentive Plan Awards |
|
Stock or |
|
Underlying |
|
Option |
|
Option |
| |||||||||||||
Name |
|
Grant |
|
Committee |
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
Units (1) |
|
Options |
|
Awards |
|
Awards |
| |||||
Michael T. Dugan |
|
4/6/2010 |
|
2/5/2010 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
199 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
David J. Rayner |
|
4/6/2010 |
|
2/5/2010 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
199 |
|
|
|
$ |
|
|
$ |
|
|
|
|
6/30/2010 |
|
5/4/10 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
75,000 |
|
$ |
19.08 |
|
$ |
499,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Mark W. Jackson |
|
4/6/2010 |
|
2/5/2010 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
199 |
|
|
|
$ |
|
|
$ |
|
|
|
|
6/30/2010 |
|
6/16/2010 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
50,000 |
|
$ |
19.08 |
|
$ |
332,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Steven B. Schaver |
|
4/6/2010 |
|
2/5/2010 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
199 |
|
|
|
$ |
|
|
$ |
|
|
|
|
6/30/2010 |
|
5/4/2010 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
20,000 |
|
$ |
19.08 |
|
$ |
133,198 |
|
(1) The amounts reported in the All Other Stock Awards column represent shares awarded to the eligible NEOs during 2010 pursuant to our profit sharing program.
(2) The amounts reported in the Option Awards column reflect the aggregate grant date fair values. Assumptions used in the calculation of these amounts are included in Note 13 to the Corporations audited financial statements for the fiscal year ended December 31, 2010, included in the Corporations Annual Report on Form 10-K filed with the SEC on February 24, 2011.
Outstanding Equity Awards at Fiscal Year-End
Except as indicated elsewhere, all awards reflected in this table were made in shares of EchoStar common stock and were granted under the terms of EchoStars 2008 Stock Incentive Plan. As discussed above, in connection with the Spin-off of EchoStar, effective January 1, 2008, all DISH Network equity awards were adjusted to reflect the change in the price of DISH Network common stock that occurred as a result of the Spin-off, and an additional award was granted that related to EchoStars common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
Plan |
| |||
|
|
Option Awards |
|
|
|
|
|
Incentive |
|
Awards: |
| |||||||||||
Name |
|
Number of |
|
Number of |
|
Equity |
|
Option |
|
Option |
|
Number of |
|
Market |
|
Plan |
|
Market or |
| |||
Michael T. Dugan |
|
3,600 |
|
|
|
|
|
$ |
24.38 |
|
3/31/2013 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
100,000 |
|
|
|
|
|
$ |
22.94 |
|
12/30/2015 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
420,000 |
|
|
|
|
|
$ |
20.60 |
|
12/30/2015 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
250,000 |
|
500,000 |
|
|
|
$ |
20.14 |
|
12/31/2019 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Charles W. Ergen |
|
200,000 |
|
300,000 |
|
|
|
$ |
29.54 |
|
3/31/2018 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
David J. Rayner |
|
65,000 |
|
|
|
|
|
$ |
28.06 |
|
12/31/2014 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
310,000 |
|
|
|
|
|
$ |
25.64 |
|
12/31/2014 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
9/30/2016 |
|
|
|
$ |
|
|
12,000 |
(4) |
$ |
299,640 |
|
|
|
|
|
|
|
|
|
$ |
|
|
9/30/2016 |
|
|
|
$ |
|
|
60,000 |
(5) |
$ |
1,498,200 |
|
|
|
3,000 |
|
12,000 |
|
|
|
$ |
14.83 |
|
3/31/2019 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
75,000 |
|
|
|
$ |
19.08 |
|
6/30/2020 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Bernard L. Han (3) |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Mark W. Jackson |
|
4,000 |
|
|
|
|
|
$ |
24.38 |
|
3/31/2013 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
20,000 |
|
|
|
|
|
$ |
22.01 |
|
3/31/2013 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
40,000 |
|
|
|
|
|
$ |
25.96 |
|
6/30/2014 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
200,000 |
|
|
|
|
|
$ |
23.56 |
|
6/30/2014 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
60,000 |
|
$ |
24.69 |
|
3/31/2015 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
300,000 |
|
$ |
22.32 |
|
3/31/2015 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
20,000 |
|
|
|
|
|
$ |
25.46 |
|
6/30/2015 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
100,000 |
|
|
|
|
|
$ |
23.07 |
|
6/30/2015 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
40,000 |
|
|
|
|
|
$ |
22.94 |
|
12/30/2015 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
200,000 |
|
|
|
|
|
$ |
20.60 |
|
12/30/2015 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
80,000 |
|
120,000 |
|
|
|
$ |
29.54 |
|
3/31/2018 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
20,000 |
|
80,000 |
|
|
|
$ |
14.83 |
|
3/31/2019 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
50,000 |
|
|
|
$ |
19.08 |
|
6/30/2020 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Steven B. Schaver |
|
3,600 |
|
|
|
|
|
$ |
24.38 |
|
3/31/2013 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
18,000 |
|
|
|
|
|
$ |
22.01 |
|
3/31/2013 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
16,000 |
|
|
|
|
|
$ |
25.96 |
|
6/30/2014 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
80,000 |
|
|
|
|
|
$ |
23.56 |
|
6/30/2014 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
60,000 |
|
$ |
24.69 |
|
3/31/2015 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
300,000 |
|
$ |
22.32 |
|
3/31/2015 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
5,999 |
|
4,001 |
|
|
|
$ |
36.66 |
|
3/31/2017 |
(1) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
30,000 |
|
20,000 |
|
|
|
$ |
34.10 |
|
3/31/2017 |
(2) |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
40,000 |
|
60,000 |
|
|
|
$ |
29.54 |
|
3/31/2018 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
20,000 |
|
|
|
$ |
19.08 |
|
6/30/2020 |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Roger J. Lynch |
|
40,000 |
|
160,000 |
|
|
|
$ |
20.14 |
|
12/31/2019 |
|
|
|
$ |
|
|
|
|
$ |
|
|
(1) Amounts represent outstanding EchoStar awards received by our NEOs as a result of the Spin-off.
(2) Amounts represent outstanding DISH Network awards granted to our NEOs prior to the Spin-off.
(3) Mr. Rayner was named Chief Financial Officer of EchoStar in June 2010, replacing Mr. Han who currently serves as Executive Vice President and Chief Operating Officer of DISH Network.
Option Exercises and Stock Vested
There were no EchoStar stock options that were exercised by the NEOs in 2010 nor were there any EchoStar stock awards that vested for the NEOs in 2010, other than standard awards that vest 20% per year based upon continued employment with the Corporation.
Potential Payments Upon Termination Following a Change in Control
As discussed in Compensation Discussion and Analysis above, our standard form of option agreement given to executive officers includes acceleration of vesting upon a change in control of EchoStar for those executive officers that are terminated by us or the surviving entity, as applicable, for any reason other than for cause during the twenty-four month period following such change in control.
Generally a change in control is deemed to occur upon: (i) a transaction or a series of transactions the result of which is that any person (other than Mr. Ergen, our controlling shareholder, or a related party) individually owns more than fifty percent (50%) of the total equity interests of either (A) EchoStar or (B) the surviving entity in any such transaction(s) or a controlling affiliate of such surviving entity in such transaction(s); and (ii) the first day on which a majority of the members of the Board of Directors of EchoStar are not continuing directors.
Assuming a change in control were to have taken place as of December 31, 2010 and the executives are terminated by EchoStar or the surviving entity at such date, the estimated benefits that would have been provided are as follows:
Name |
|
Maximum |
| |
Michael T. Dugan |
|
$ |
2,415,000 |
|
|
|
|
| |
Charles W. Ergen (1) |
|
$ |
|
|
|
|
|
| |
David J. Rayner |
|
$ |
563,430 |
|
|
|
|
| |
Bernard L. Han (2) |
|
$ |
|
|
|
|
|
| |
Mark W. Jackson |
|
$ |
1,105,700 |
|
|
|
|
| |
Steven B. Schaver |
|
$ |
117,800 |
|
|
|
|
| |
Roger J. Lynch |
|
$ |
772,800 |
|
(1) The value of potentially accelerated unvested options as of December 31, 2010 was zero because all unvested options held by Mr. Ergen were out-of-the-money.
(2) Mr. Rayner was named Chief Financial Officer of EchoStar in June 2010, replacing Mr. Han who currently serves as Executive Vice President and Chief Operating Officer of DISH Network.
Director Compensation and Nonemployee Director Option Plans
Cash Compensation
Our employee directors are not compensated for their services as directors. Each nonemployee director receives an annual retainer of $40,000 which is paid in equal quarterly installments on the last day of each calendar quarter; provided such person is a member of the Board on the last day of the applicable calendar quarter. Our nonemployee directors also receive $1,000 for each meeting attended in person and $500 for each meeting attended by telephone. Additionally, the chairperson of each committee of the Board receives a $5,000 annual retainer, which is paid in equal quarterly installments on the last day of each calendar quarter; provided such person is the chairperson of the committee on the last day of the applicable calendar quarter. Furthermore, our nonemployee directors receive: (i) reimbursement, in full, of reasonable travel expenses related to attendance at all meetings of the Board of Directors and its committees and (ii) reimbursement, in full, of reasonable expenses related to educational activities undertaken in connection with service on the Board of Directors and its committees.
Name |
|
Fees |
|
Stock |
|
Option |
|
Non-Equity |
|
Change in |
|
All Other |
|
Total |
| |||||||
Joseph P. Clayton |
|
$ |
51,500 |
|
$ |
|
|
$ |
30,709 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
82,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Tom A. Ortolf |
|
$ |
51,500 |
|
$ |
|
|
$ |
30,709 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
82,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
C. Michael Schroeder |
|
$ |
50,000 |
|
$ |
|
|
$ |
30,709 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
80,709 |
|
(1) The amounts reported in the Option Awards column reflect the aggregate grant date fair values. Assumptions used in the calculation of these amounts are included in Note 13 to the Corporations audited financial statements for the fiscal year ended December 31, 2010, included in the Corporations Annual Report on Form 10-K filed with the SEC on February 24, 2011.
On June 30, 2010, each of the nonemployee directors was granted an option to acquire 5,000 Class A Shares at an exercise price of $19.08 per share. Options granted under our 2008 Director Plan are 100% vested upon issuance. Thus, the amount recognized for financial statement reporting purposes and the full grant date fair value are the same.
Incentive Compensation
Upon election to our Board, our new nonemployee directors are granted an option to acquire a certain number of our Class A Shares under our 2008 Director Plan. Options granted under our 2008 Director Plan are 100% vested upon issuance and have a term of five years. We also expect to annually grant each nonemployee director an option to acquire 5,000 Class A Shares.
Our nonemployee directors do not hold any stock awards except those received as a result of the Spin-off and those granted to the nonemployee directors pursuant to the 2008 Director Plan. We have granted the following options to our nonemployee directors pursuant to the 2008 Director Plan:
|
|
Option Awards |
| |||||
Name |
|
Number of |
|
Option |
|
Option |
| |
Joseph P. Clayton |
|
5,000 |
|
$ |
14.87 |
|
12/31/2013 |
|
|
|
2,500 |
|
$ |
15.94 |
|
6/30/2014 |
|
|
|
5,000 |
|
$ |
19.08 |
|
6/30/2015 |
|
Total Options Outstanding at December 31, 2010 |
|
12,500 |
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Tom A. Ortolf |
|
2,500 |
|
$ |
31.22 |
|
6/30/2013 |
|
|
|
2,500 |
|
$ |
15.94 |
|
6/30/2014 |
|
|
|
5,000 |
|
$ |
19.08 |
|
6/30/2015 |
|
Total Options Outstanding at December 31, 2010 |
|
10,000 |
|
|
|
|
| |
|
|
|
|
|
|
|
| |
C. Michael Schroeder |
|
2,500 |
|
$ |
31.22 |
|
6/30/2013 |
|
|
|
2,500 |
|
$ |
15.94 |
|
6/30/2014 |
|
|
|
5,000 |
|
$ |
19.08 |
|
6/30/2015 |
|
Total Options Outstanding at December 31, 2010 |
|
10,000 |
|
|
|
|
|
Employee Stock Incentive Plan
We have adopted an employee stock incentive plan, which we refer to as the 2008 Stock Incentive Plan. The purpose of the 2008 Stock Incentive Plan is to provide incentives to attract and retain executive officers and other key employees. The 2008 Stock Incentive Plan is administered by our Compensation Committee.
Awards available under the 2008 Stock Incentive Plan include: (i) common stock purchase options; (ii) stock appreciation rights; (iii) restricted stock and restricted stock units; (iv) performance awards; (v) dividend equivalents; and (vi) other stock-based awards. As of December 31, 2010, 7,390,258 of our Class A Shares were available for issuance under the 2008 Stock Incentive Plan. The Compensation Committee retains discretion, subject to plan limits, to modify the terms of outstanding awards and to re-price awards.
As of December 31, 2010, there were outstanding options to purchase 7,203,101 Class A Shares and 130,040 outstanding restricted stock units under the 2008 Stock Incentive Plan. These awards generally vest at the rate of 20% per year commencing one year from the date of grant. The exercise prices of these options, which have generally been equal to or greater than the fair market value of our Class A Shares at the date of grant, range from less than $1.00 to $40.00 per Class A Share.
Equity Compensation Plan Information
In addition to the 2008 Director Plan and the 2008 Stock Incentive Plan, during 2008 we adopted and our shareholders approved the 2008 Class B Chairman Stock Option Plan, under which we have reserved 4 million Class B Shares for issuance. The shares available for issuance under the 2008 Class B Chairman Stock Option Plan are not included in the table below. No options have been granted to date under the 2008 Class B Chairman Stock Option Plan.
These options generally vest at the rate of 20% per year commencing one year from the date of grant. The following table sets forth a description of our equity compensation plans as of December 31, 2010:
Plan Category |
|
Number of |
|
Weighted- |
|
Number of |
| |
Equity compensation plans approved by security holders |
|
7,902,622 |
|
$ |
23.24 |
|
6,880,229 |
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
| |
Total |
|
7,902,622 |
|
$ |
23.24 |
|
6,880,229 |
|
(1) The calculation of the weighted-average exercise price of outstanding options, warrants and rights excludes restricted stock units that provide for the issuance of shares of common stock upon vesting because these awards do not require payment of an exercise price in order to obtain the underlying shares upon vesting.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised solely of nonemployee directors. The Compensation Committee members are Messrs. Ortolf, Schroeder and Clayton. None of these individuals was an officer or employee of EchoStar or DISH Network at any time during the 2010 fiscal year. With the exception of those executive officers and directors who are also executive officers or directors of DISH Network, no executive officer or director of EchoStar served on the board of directors or compensation committee of any other entity that had one or more executive officers who served as a member of EchoStars or DISH Networks Board of Directors or its Compensation Committee during the 2010 fiscal year.
Risk Assessment
We believe our approach to goal setting, setting of targets with payouts at multiple levels of performance, and evaluation of performance results assist in our efforts to mitigate excessive risk-taking. Further, with respect to our incentive compensation programs, when taking into consideration the compensation practices of DISH Network prior to the spin-off, we have historically designed corporate performance metrics that determine payouts for certain business segment leaders in part on the achievement of longer-term company-wide goals. This is based on our belief that applying Company-wide metrics encourages decision-making that is in the best long-term interests of EchoStar and our shareholders as a whole. Finally, the multi-year vesting of our equity awards properly account for the time horizon of risk. Furthermore, as discussed above, EchoStars overall compensation lags behind competitors in the area of base pay, severance packages, and short-term incentives and may be competitive over time in equity compensation.
Annually, management reviews the components of our compensation for each employee other than our executive officers. Base salaries for each of our executive officers (other than Mr. Ergen) are determined annually by our Board of Directors primarily based on Mr. Ergens recommendations. The Board of Directors places substantial weight on Mr. Ergens recommendations in light of his role as Chairman and as controlling shareholder of EchoStar. The Board of Directors ultimately approved base cash salaries for 2010 for each of these executive officers other than Mr. Ergen.
Our Compensation Committee, without Mr. Ergen present, sets Mr. Ergens base cash salary. In connection with our separation from DISH Network, Mr. Ergens base salary for 2009 was set at $1 and remained at such level in 2010. Our Compensation Committee makes and approves grants of options and other equity-based compensation to all of our executive officers.
The primary components of our executive compensation have historically included:
· base cash salary;
· long-term equity incentive compensation in the form of stock options and restricted stock units offered under EchoStars stock incentive plan;
· 401(k) plan; and
· other compensation, including perquisites and personal benefits and post-termination compensation.
EchoStars executive compensation program may also include short-term incentive compensation, including conditional and/or performance-based cash incentive compensation and discretionary bonuses. We design corporate performance metrics that determine payouts for certain business segment leaders in part on the achievement of longer-term company-wide goals. This is based on our belief that applying company-wide metrics encourages decision-making that is in the best long-term interests of EchoStar and our shareholders as a whole. However, during 2010, we elected not to implement a short-term incentive program.
Base salary, 401(k) benefits and other benefits and perquisites provided generally to EchoStar employees provide a minimum level of compensation for our executive officers. EchoStar has included salary as a component of its executive compensation package because we believe it is appropriate that some portion of the compensation paid to executives be provided in a form that is fixed and liquid occurring over regular intervals. Generally, however, EchoStar has weighted overall compensation towards incentives, particularly equity components, as opposed to base salaries.
With respect to other compensation, including perquisites and personal benefits and post-termination compensation, EchoStar has traditionally offered benefits to its executive officers on substantially the same terms as offered to other employees. These benefits have included medical, vision, and dental insurance, life insurance, and the employee stock purchase plan as well as discounts on EchoStars products and services. EchoStar has not traditionally provided severance benefits to employees. However, certain stock options have been granted to its executive officers subject to acceleration of vesting upon a change in control of EchoStar for those executive officers who are terminated by us or the surviving entity, as applicable, for any reason other than for cause during the twenty-four month period following such change in control.
Generally, EchoStars overall executive compensation trails that of its competitors in the areas of base pay, severance packages, and short-term incentives and may be competitive over time in equity compensation. With respect to equity incentive compensation, EchoStar attempts to ensure that each executive officer retain equity awards that at any given time are significant in relation to such individuals annual cash compensation to ensure that each of its executive officers has appropriate incentives tied to the value realized by our shareholders.
EchoStar generally grants stock options and/or restricted stock units only to a limited number of employees at certain levels; the awards generally vest annually at the rate of 20% per year. We believe that the multi-year vesting of our equity awards properly account for the time horizon of risk. EchoStar has operated under the belief that executive officers will be better able to contribute to its long-term success and help build incremental shareholder value prudently if they have a stake in that future success and value over a long period. EchoStar believes this stake focuses the executive officers attention on managing EchoStar as owners with equity positions in EchoStar and aligns their interests with the long-term interests of EchoStars shareholders. Equity awards therefore have represented an important and significant component of EchoStars compensation program for executive officers. These awards, coupled with the relatively longer time frame during which these awards vest, mitigate the effect of short-term variations in our operating and financial performance, and we believe focus management goals appropriately on longer-term value creation for shareholders rather than rewarding short-term gains. In light of our approach towards compensation as set forth above, we believe that our process assists us in our efforts to mitigate excessive risk-taking.
Certain Relationships and Related Transactions
Our Board has adopted a written policy for the review and approval of transactions involving EchoStar and related parties, such as directors, executive officers (and their immediate family members) and DISH Network. In order to identify these transactions, we distribute questionnaires to our officers and directors on a quarterly basis. Our General Counsel then directs the appropriate review of all potential related-party transactions and schedules their presentation at the next regularly-scheduled meetings of the Audit Committee and the Board of Directors. Both the Audit Committee and the Board of Directors must approve these transactions, with all interested parties abstaining from the vote. Once each calendar year, the Audit Committee and the Board of Directors undertake a review of all recurring potential related-party transactions. Both the Audit Committee and the Board of Directors must approve the continuation of each such transaction, with all interested parties abstaining. With respect to transactions involving DISH Network, EchoStar directors who are neither members of DISH Networks management nor its Board of Directors must approve the transaction.
Related Party Transactions with DISH Network
On January 1, 2008, we completed our separation from DISH Network. Following the Spin-off, we and DISH Network have operated as separate public companies and DISH Network has no ownership interest in us. However, a substantial majority of the voting power of the shares of both companies is owned beneficially by our Chairman, Charles W. Ergen or by certain trusts established by Mr. Ergen for the benefit of his family.
In connection with the Spin-off and subsequent to the Spin-off, we and DISH Network have entered into agreements pursuant to which we obtain certain products, services and rights from DISH Network, DISH Network obtains certain products, services and rights from us, and we and DISH Network have indemnified each other against certain liabilities arising from our respective businesses. We also may enter into additional agreements with DISH Network in the future. The following is a summary of the terms of the principal agreements that we have entered into with DISH Network that have an impact on our results of operations.
In the near term, we expect that DISH Network will remain our principal customer. However, except as otherwise noted below, DISH Network has no obligation to purchase digital set-top boxes, satellite services or digital broadcast operation services from us. Therefore, if we are unable to extend these contracts on similar terms with DISH Network, or if we are otherwise unable to obtain similar contracts from third parties before that date, there could be a significant adverse effect on our business, results of operations and financial position.
Generally, the prices charged for products and services provided under the agreements entered into in connection with the Spin-off are based on our cost plus a fixed margin, which varies depending on the nature of the products and services provided.
Broadcast Agreement
In connection with the Spin-off, we and DISH Network entered into a broadcast agreement pursuant to which we provide certain broadcast services to DISH Network, including teleport services such as transmission and downlinking, channel origination services, and channel management services for a period ending on January 1, 2012. DISH Network may terminate channel origination services and channel management services for any reason and without any liability upon at least 60 days notice to us. If DISH Network terminates teleport services for a reason other than our breach, DISH Network is obligated to pay us the aggregate amount of the remainder of the expected cost of providing the teleport services. The fees for services provided under the broadcast agreement are calculated at cost plus a fixed margin, which varies depending on the nature of the products and services provided. We earned revenues of approximately $204 million from DISH Network under the broadcast agreement during 2010.
Broadcast Agreement for Certain Sports Related Programming
During May 2010, we and DISH Network entered into a broadcast agreement pursuant to which we provide certain broadcast services to DISH Network in connection with its carriage of certain sports related programming. The term of this agreement is for ten years. If DISH Network terminates this agreement for a reason other than our breach, DISH Network is generally obligated to reimburse us for any direct costs that we incur related to any such termination that they cannot reasonably mitigate. The fees for the broadcast services provided under this agreement depend, among other things, upon the cost to develop and provide such services. We earned revenue from DISH Network of approximately $0.7 million under this broadcast agreement during 2010.
DISH Remote Access Services Agreement
Effective February 23, 2010, DISH Network entered into an agreement with us pursuant to which DISH Network will receive, among other things, certain remote DVR management services. The fees for the services provided under this services agreement depend, among other things, upon the cost to develop and operate such services. We earned revenues of approximately $1.3 million under the remote access services agreement during 2010. This agreement has a term of five years with automatic renewal for successive one year terms and may be terminated for any reason upon at least 120 days written notice to us.
DISHOnline.com Services Agreement
Effective January 1, 2010, DISH Network entered into a two-year agreement with us pursuant to which DISH Network will receive certain services associated with an online video portal. The fees for the services provided under this services agreement depend, among other things, upon the cost to develop and operate such services. We earned revenues of approximately $5.9 million under the DISHOnline.com services agreement during 2010. DISH Network has the option to renew this agreement for three successive one year terms, and the agreement may be terminated for any reason upon at least 120 days written notice to us.
Employee Matters Agreement
We entered into an employee matters agreement with DISH Network delineating our respective obligations to our employees. Pursuant to the agreement, we established a defined contribution plan for the benefit of our eligible employees in the United States (including our employees that transferred to us prior to the Spin-off). Subject to any adjustments required by applicable law, it is our and DISH Networks present intent that the assets and liabilities of the DISH Network 401(k) Employee Savings Plan attributable to transferring employees, other than certain employees whose employment has terminated prior to January 1, 2008, be transferred to and assumed by the defined contribution plan established by us. In addition, we established welfare plans for the benefit of our eligible employees and their respective eligible dependents that are substantially similar to the welfare plans currently maintained by DISH Network. We also established a stock incentive plan and an employee stock purchase plan as described in Compensation Discussion and Analysis. No payments were made under the employee matters agreement during 2010 and no payments are expected under the employee matters agreement in 2011 except for the reimbursement of certain expenses in connection with these employee benefit plans and potential indemnification payments in accordance with the separation agreement and certain employee transfers between us and DISH Network. The employee matters agreement is non-terminable and will survive for the applicable statute of limitations.
Hard Drive Settlement Agreement
During 2010, we and DISH Network reached a settlement with the manufacturer of certain hard drives purchased by DISH Network and us between 2005 and 2008. Under the terms of this settlement that related to the performance of these hard drives, the manufacturer agreed, among other things, to provide a cash payment and a credit towards the purchase of new hard drives to DISH Network and us. The amount of this payment and credit did not have a material impact on our results of operations. Pursuant to the agreements entered into in connection with the Spin-off, we determined that DISH Network would receive this cash payment and that the credit would be used for hard drives purchased for DISH Network.
Intellectual Property Matters Agreement
We entered into an intellectual property matters agreement with DISH Network and certain of its subsidiaries in connection with the Spin-off. The intellectual property matters agreement governs our relationship with DISH Network with respect to patents, trademarks and other intellectual property. The term of the intellectual property matters agreement will continue in perpetuity. Pursuant to the intellectual property matters agreement DISH Network and certain of its subsidiaries irrevocably assigned to us all right, title and interest in certain patents, trademarks and other intellectual property necessary for the operation of our set-top box business. In addition, the agreement permits us to use, in the operation of our set-top box business, certain other intellectual property currently owned or licensed by DISH Network and its subsidiaries.
We granted DISH Network and its subsidiaries a non-exclusive, non-transferable, worldwide license to use the name EchoStar and a portion of the assigned intellectual property as trade names and trademarks for a limited period of time in connection with DISH Networks continued operation of the consumer business. The purpose of such license is to eliminate confusion on the part of customers and others during the period following the Spin-off. After the transitional period, DISH Network and its subsidiaries may not use the EchoStar name as a trademark, except in certain limited circumstances. Similarly, the intellectual property matters agreement provides that we will not make any use of the name or trademark DISH Network or any other trademark owned by DISH Network or its subsidiaries, except in certain circumstances. There were no payments under the intellectual property matters agreement during 2010. There are no payments expected under the intellectual property matters agreement in 2011.
International Programming Rights Agreement
During the years ended December 31, 2010, 2009, and 2008, DISH Network purchased certain international rights for sporting events from us for approximately $2 million, $8 million and $8 million, respectively, of which we only retain a certain portion.
Loan to a Technology Company
During 2010, we agreed to provide a loan in the amount of approximately $900,000 to a company that we expected to provide certain video content and interactive applications to us. Because DISH Network also expected to enter into certain agreements with this company, DISH Network agreed to reimburse us for up to $255,000 in the event that these agreements were not reached and the company fails to repay its loan to us.
Management Services Agreement
In connection with the Spin-off, we entered into a management services agreement with DISH Network pursuant to which DISH Network makes certain of its officers available to provide services (which are primarily legal and accounting services) to us. Specifically, R. Stanton Dodge and Paul W. Orban remain employed by DISH Network, but also serve as our Executive Vice President, General Counsel and Secretary and Senior Vice President and Controller, respectively. Until June 2010, Bernard L. Han, who remains employed by DISH Network, also served as our Executive Vice President and Chief Financial Officer. We make payments to DISH Network based upon an allocable portion of the personnel costs and expenses incurred by DISH Network with respect to such DISH Network officers (taking into account wages and fringe benefits). These allocations are based upon the estimated percentages of time to be spent by the DISH Network executive officers performing services for us under the management services agreement. We also reimburse DISH Network for direct out-of-pocket costs incurred by DISH Network for management services provided to us. We and DISH Network evaluate all charges for reasonableness at least annually and make any adjustments to these charges as we and DISH Network mutually agree upon. We incurred expenses payable to DISH Network of approximately $0.4 million under the management services agreement during 2010.
The management services agreement automatically renewed on January 1, 2011 for an additional one-year period until January 1, 2012 and renews automatically for successive one-year periods thereafter, unless terminated earlier (i) by us at any time upon at least 30 days prior notice; (ii) by DISH Network at the end of any renewal term, upon at least 180 days prior notice; or (iii) by DISH Network upon notice to us, following certain changes in control.
Multimedia Patent Trust
On February 13, 2009, Multimedia Patent Trust (MPT) filed suit against us, DISH Network, DirecTV and several other defendants in the United States District Court for the Southern District of California alleging infringement of United States Patent Nos. 4,958,226, 5,227,878, 5,136,377, 5,500,678 and 5,563,593, which relate to video encoding, decoding and compression technology. MPT is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein.
In December 2009, we and DISH Network reached a settlement with MPT that did not have a material impact on our results of operations. DISH Network has determined that it is obligated under the agreements entered into in connection with the Spin-off to indemnify us for all of the costs to settle this lawsuit relating to the period prior to the Spin-off and a portion of such settlement costs relating to the period after the Spin-off. We have agreed that our contribution towards such settlement costs shall not be applied against our aggregate liability cap under the Receiver Agreement.
Product Support Agreement
In connection with the Spin-off, we entered into a product support agreement pursuant to which DISH Network has the right, but not the obligation, to receive product support (including certain engineering and technical support services) for all set-top boxes and related accessories that our subsidiaries have previously sold and in the future may sell to DISH Network. The fees for the services provided under the product support agreement are calculated at cost plus a fixed margin, which varies depending on the nature of the services provided. The term of the product support agreement is the economic life of such receivers and related accessories, unless terminated earlier. DISH Network may terminate the product support agreement for any reason upon at least 60 days prior notice. In the event of an early termination of this agreement, DISH Network shall be entitled to a refund of any unearned fees paid to us for the services. We earned revenues of approximately $28.6 million from DISH Network under the product support agreement during 2010.
Professional Services Agreement
During 2009, we and DISH Network agreed that we shall continue to have the right, but not the obligation, to receive from DISH Network the following services, among others: information technology, travel and event coordination, internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support services. Additionally, we and DISH Network agreed that we shall continue to have the right, but not the obligation, to engage us to manage the process of procuring new satellite capacity for DISH Network and receive logistics, procurement and quality assurance services from us. The professional services agreement automatically renewed on January 1, 2011 for an additional one-year period until January 1, 2012 and renews automatically for successive one-year periods thereafter, unless terminated earlier by either party upon at least 60 days notice. However, either party may terminate the services it receives with respect to a particular service for any reason upon at least 30 days notice. We incurred expenses payable to DISH Network of approximately $13.3 million under the professional services agreement during 2010. We earned revenues of approximately $7.1 million from DISH Network under the professional services agreement during 2010.
Real Estate Lease Agreements
We have entered into lease agreements pursuant to which DISH Network leases certain real estate from us. The rent on a per square foot basis for each of the leases is comparable to per square foot rental rates of similar commercial property in the same geographic area, and depending on how much space is leased, DISH Network is responsible for all or a portion of the taxes, insurance, utilities and maintenance of the premises. We earned revenues of approximately $11.5 million from DISH Network under the real estate lease agreements during 2010. The term of each of the leases is set forth below:
Inverness Lease Agreement. The lease for certain space at 90 Inverness Circle East in Englewood, Colorado expires on January 1, 2012.
Meridian Lease Agreement. The lease for all of 9601 S. Meridian Blvd. in Englewood, Colorado is for a period ending on January 1, 2012 with a renewal option for one additional year.
Santa Fe Lease Agreement. The lease for all of 5701 S. Santa Fe Dr. in Littleton, Colorado is for a period ending on January 1, 2012 with a renewal option for one additional year.
EDN Sublease Agreement. The sublease for certain space at 211 Perimeter Center in Atlanta, Georgia, is for a period ending on October 31, 2016.
Gilbert Lease Agreement. The lease for certain space at 801 N. DISH Dr. in Gilbert, Arizona is a month to month lease and can be terminated by either party upon 30 days prior notice.
Additionally, during 2008, we entered into a sublease for space at 185 Varick Street, New York, New York from DISH Network for a period of approximately seven years. The rent on a per square foot basis for this sublease was comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the sublease, and we are responsible for our portion of the taxes, insurance, utilities and maintenance of the premises. We incurred expenses payable to DISH Network of approximately $1 million under this sublease agreement during 2010.
Receiver Agreement
In connection with the Spin-off, we entered into a receiver agreement pursuant to which DISH Network has the right but not the obligation to purchase digital set-top boxes and related accessories, and other equipment from us for a period ending on January 1, 2012. The receiver agreement allows DISH Network to purchase digital set-top boxes, related accessories, and other equipment from us at cost plus a fixed margin, which varies depending on the nature of the equipment purchased. We provide DISH Network with standard manufacturer warranties for the goods sold under the receiver agreement. DISH Network may terminate the receiver agreement for any reason upon at least 60 days notice. We may terminate this agreement if certain entities were to acquire DISH Network. The receiver agreement also includes an indemnification provision, whereby the parties indemnify each other for certain intellectual property matters. We earned revenues of approximately $1.5 billion from DISH Network under the receiver agreement during 2010.
Remanufactured Receiver Agreement
In connection with the Spin-off, we entered into a remanufactured receiver agreement with DISH Network pursuant to which we have the right, but not the obligation, to purchase remanufactured receivers and accessories from DISH Network at cost plus a fixed margin, which varies depending on the nature of the equipment purchased. This agreement expires on January 1, 2012. We incurred expenses payable to DISH Network of approximately $3.1 million as a result of our purchase of remanufactured receivers and accessories from DISH Network during 2010. We may terminate the remanufactured receiver agreement for any reason upon at least 60 days written notice to us. DISH Network may also terminate this agreement if certain entities acquire it.
Sale of South.com, L.L.C.
Additionally, during October 2010, we and another party sold our respective interests in South.com, L.L.C. to DISH Network for $2 million and $3 million, respectively. South.com, L.L.C. holds certain authorizations for multichannel video and data distribution service (MVDDS) spectrum in the United States.
Satellite Capacity Agreements
Satellite Capacity Leased from DISH Network. During 2009, we entered into a satellite capacity agreement pursuant to which we lease certain satellite capacity from DISH Network on EchoStar I. The fee for the services provided under this satellite capacity agreement depends, among other things, upon the orbital location of the satellite and the length of the lease. The term of this lease is set forth below:
EchoStar I. We lease certain satellite capacity from DISH Network on EchoStar I. The lease generally terminates upon the earlier of: (i) the end of the life or the replacement of the satellite (unless we determine to renew on a year-to-year basis); (ii) the date the satellite fails; (iii) the date the transponder on which service is being provided fails; or (iv) a certain date, which depends upon, among other things, the estimated useful life of the satellite, whether the replacement satellite fails at launch or in orbit prior to being placed in service, and the exercise of certain renewal options. We generally have the option to renew this lease on a year-to-year basis through the end of the satellites life. There can be no assurance that any options to renew this agreement will be exercised. We incurred expenses payable to DISH Network of approximately $18.8 million under the EchoStar I agreement during 2010.
Satellite Capacity Leased to DISH Network. In connection with the Spin-off and subsequent to the Spin-off, we entered into certain satellite capacity agreements pursuant to which DISH Network leases certain satellite capacity on certain satellites owned or leased by us. The fees for the services provided under these satellite capacity agreements depend, among other things, upon the orbital location of the applicable satellite and the length of the lease. We earned revenues of approximately $151.7 million from DISH Network under the satellite capacity agreements during 2010. The term of each of the leases is set forth below:
EchoStar III, VI, VIII and XII. DISH Network leases certain satellite capacity from us on EchoStar VI, VIII and XII. The leases generally terminate upon the earlier of: (i) the end of life or replacement of the satellite (unless DISH Network determines to renew on a year-to-year basis); (ii) the date the satellite fails; (iii) the date the transponder on which service is being provided fails; or (iv) a certain date, which depends upon, among other things, the estimated useful life of the satellite, whether the replacement satellite fails at launch or in orbit prior to being placed into service, and the exercise of certain renewal options. DISH Network generally has the option to renew each lease on a year-to-year basis through the end of the respective satellites life. There can be no assurance that any options to renew such agreements will be exercised. In August 2010, DISH Networks lease of EchoStar III terminated; it was replaced by EchoStar XV, which is owned by DISH Network.
EchoStar XVI. DISH Network will lease all of the satellite capacity from us on EchoStar XVI after its service commencement date and this lease generally terminates upon the earlier of: (i) the end-of-life or replacement of the satellite; (ii) the date the satellite fails; (iii) the date the transponder(s) on which service is being provided under the agreement fails; or (iv) ten years following the actual service commencement date. Upon expiration of the initial term, DISH Network has the option to renew on a year-to-year basis through the end-of-life of the satellite. There can be no assurance that any options to renew this agreement will be exercised. EchoStar XVI is expected to be launched during the second half of 2012.
EchoStar XV. EchoStar XV is owned by DISH Network and is operated at the 61.5 degree orbital location. The FCC has granted us an authorization to operate the satellite at the 61.5 degree orbital location. For so long as EchoStar XV remains in service at the 61.5 degree orbital location, DISH Network is obligated to pay us a fee which varies depending on the number of frequencies being used by EchoStar XV.
Nimiq 5 Agreement. During 2009, we entered into a fifteen-year satellite service agreement with Telesat Canada (Telesat) to receive service on all 32 DBS transponders on the Nimiq 5 satellite at the 72.7 degree orbital location (the Telesat Transponder Agreement). During 2009, DISH Network also entered into a satellite service agreement (the DISH Telesat Agreement) with us, pursuant to which they will receive service from us on all 32 of the DBS transponders covered by the Telesat Transponder Agreement. We and DISH Network are currently receiving service on 23 of these DBS transponders and will receive service on the remaining nine DBS transponders over a phase-in period that will be completed in 2012.
Under the terms of the DISH Telesat Agreement, DISH Network makes certain monthly payments to us that commenced in 2009 when the Nimiq 5 satellite was placed into service and continue through the service term. We earned revenues of approximately $52.4 million under the DISH Telesat Agreement during 2010. Unless earlier terminated under the terms and conditions of the DISH Telesat Agreement, the service term will expire ten years following the date it was placed into service. Upon expiration of the initial term DISH Network has the option to renew the DISH Telesat Agreement on a year-to-year basis through the end of life of the Nimiq 5 satellite. Upon in-orbit failure or end of life of the Nimiq 5 satellite, and in certain other circumstances, DISH Network has certain rights to receive service from us on a replacement satellite. There can be no assurance that any options to renew this agreement will be exercised or that DISH Network will exercise its option to receive service on a replacement satellite.
QuetzSat-1 Lease Agreement. During 2008, we entered into a ten-year satellite service agreement with SES Latin America S.A. (SES), which provides, among other things, for the provision by SES to us of service on 32 DBS transponders on the QuetzSat-1 satellite expected to be placed into service at the 77 degree orbital location during the second half of 2011. During 2008, we also entered into a transponder service agreement (QuetzSat-1 Transponder Agreement) with DISH Network pursuant to which they will receive service from us on 24 of the DBS transponders on QuetzSat-1, which will replace certain other transponders leased from us. The remaining eight DBS transponders on QuetzSat-1 are expected to be used by Dish Mexico.
Under the terms of the QuetzSat-1 Transponder Agreement, DISH Network will make certain monthly payments to us commencing when the QuetzSat-1 satellite is placed into service and continuing through the service term. Unless earlier terminated under the terms and conditions of the QuetzSat-1 Transponder Agreement, the service term will expire ten years following the actual service commencement date. Upon expiration of the initial term, DISH Network has the option to renew the QuetzSat-1 Transponder Agreement on a year-to-year basis through the end of life of the QuetzSat-1 satellite. Upon a launch failure, in-orbit failure or end of life of the QuetzSat-1 satellite, and in certain other circumstances, DISH Network has certain rights to receive service from us on a replacement satellite. There can be no assurance that any options to renew this agreement will be exercised or that DISH Network will exercise its option to receive service on a replacement satellite.
Satellite Launch Agreement
EchoStar XV Launch Service. During 2009, we assigned certain of our rights under a launch contract to DISH Network for its fair value of $103 million. This amount was paid to us during the first quarter of 2010. We recorded the assignment of these rights at our net book value of $89 million and recorded the $14 million difference between our net book value and DISH Networks purchase price as a capital transaction with DISH Network.
SlingService Services Agreement
Effective February 23, 2010, DISH Network entered into an agreement with us pursuant to which DISH Network will receive certain place-shifting services. The fees for the services provided under this services agreement depend, among other things, upon the cost to develop and operate such services. This agreement has a term of five years with automatic renewal for successive one year terms and may be terminated for any reason upon 120 days written notice to us. We earned revenues from DISH Network of approximately $0.4 million under the SlingService Services Agreement during 2010.
Tax Sharing Agreement
In connection with the Spin-off, we entered into a tax sharing agreement with DISH Network which governs our respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network, and DISH Network will indemnify us for such taxes. However, DISH Network is not liable for and will not indemnify us for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Code because of (i) a direct or indirect acquisition of any of our stock, stock options or assets, (ii) any action that we take or fail to take or (iii) any action that we take that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, we will be solely liable for, and will indemnify DISH Network for, any resulting taxes, as well as any losses, claims and expenses. The tax sharing agreement will terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed. No payments were made under the tax sharing agreement during 2010.
Tivo
Because both we and DISH Network are defendants in the Tivo lawsuit, we and DISH Network are jointly and severally liable to Tivo for any final damages and sanctions that may be awarded by the District Court. DISH Network has agreed that it is obligated under the agreements entered into in connection with the Spin-off to indemnify us for substantially all liability arising from this lawsuit. We have agreed to contribute an amount equal to our $5 million intellectual property liability limit under the Receiver Agreement. We and DISH Network have further agreed that our $5 million contribution would not exhaust our liability to DISH Network for other intellectual property claims that may arise under the Receiver Agreement. We and DISH Network also agreed that we would each be entitled to joint ownership of, and a cross-license to use, any intellectual property developed in connection with any potential new alternative technology.
TT&C Agreement
In connection with the Spin-off, we entered into a telemetry, tracking and control (TT&C) agreement pursuant to which we provide TT&C services to DISH Network and its subsidiaries for a period ending on January 1, 2012. The fees for the services provided under the TT&C agreement are calculated at cost plus a fixed margin. We earned revenues of approximately $2.0 million under the TT&C agreement during 2010. DISH Network may terminate the TT&C agreement for any reason upon at least 60 days prior notice.
Weather Related Programming Agreement
During May 2010, we and DISH Network entered into an agreement pursuant to which, among other things, we agreed to develop certain weather related programming and DISH Network received the right to distribute such programming. This agreement was terminated during June 2010. In July 2010, we sold our interest in the entity that held such weather related programming to DISH Network for $5 million.
Other Agreements
In November 2009, Mr. Roger Lynch became employed by both us and DISH Network as Executive Vice President. Mr. Lynch is responsible for the development and implementation of advanced technologies that are of potential utility and importance to both us and DISH Network. Mr. Lynchs compensation consists of cash and equity compensation and is borne by both DISH Network and us.
Related Party Transactions with NagraStar
We own 50% of NagraStar L.L.C. (NagraStar), a joint venture that is our primary provider of encryption and related security technology used in our set-top boxes. During the year ended December 31, 2010 we purchased $18.6 million of security access devices from NagraStar. As of December 31, 2010, there were outstanding invoices from NagraStar to us totaling less than $1 million. Additionally, as of December 31, 2010, there were outstanding purchase orders from us to NagraStar totaling approximately $4.9 million for security access devices.
Related Party Transactions with Dish Mexico
During 2008, we entered into a joint venture for a DTH satellite service in Mexico known as Dish Mexico, S. de R.L. de C.V. (Dish Mexico). Pursuant to these arrangements, we provide certain broadcast services and satellite capacity and sell hardware such as digital set-top boxes and related equipment to Dish Mexico. Subject to a number of conditions, we committed to provide $112 million of value over an initial ten year period in the form of cash, equipment and services, which was satisfied as of December 31, 2010.
Related Party Transactions with a Joint Venture in Taiwan
During December 2009, we entered into a joint venture to provide a DTH satellite service in Taiwan and certain other targeted regions in Asia. We own 50% and have joint control of the joint venture. Pursuant to these arrangements, we sell hardware such as digital set-top boxes and provide certain technical support services to the joint venture. We have provided $18 million of cash to the joint venture, and an $18 million line of credit that the joint venture may only use to purchase set-top boxes from us. As of December 31, 2010, the remaining amount available under the line of credit was $10 million.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Appointment of Independent Registered Public Accounting Firm
Appointment of Independent Registered Public Accounting Firm for 2011. KPMG LLP served as our independent registered public accounting firm for the fiscal year ended December 31, 2010, and the Board has proposed that our shareholders ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011. Please see Proposal No. 2 below.
The Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee believes that a change would be in the best interests of EchoStar.
Fees Paid to KPMG LLP for 2010 and 2009
The following table presents fees for professional services rendered by KPMG LLP to EchoStar during 2010 and 2009.
|
|
For the Years Ended |
| ||||
|
|
2010 |
|
2009 |
| ||
Audit Fees (1) |
|
$ |
810,690 |
|
$ |
758,863 |
|
Audit-Related Fees |
|
|
|
|
| ||
Total Audit and Audit-Related Fees |
|
810,690 |
|
758,863 |
| ||
Tax Fees (2) |
|
914,049 |
|
661,742 |
| ||
All Other Fees |
|
|
|
|
| ||
Total Fees |
|
$ |
1,724,739 |
|
$ |
1,420,605 |
|
(1) Consists of fees paid by us for the audit of our consolidated financial statements included in our Annual Report on Form 10-K, review of our unaudited financial statements included in our Quarterly Reports on Form 10-Q, fees in connection with the audit of our internal control over financial reporting and fees for other services that are normally provided by the accountant in connection with registration statement filings, issuance of consents and professional consultations with respect to accounting issues.
(2) Consists of fees for tax consultation and tax compliance services.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
The Audit Committee is responsible for appointing, setting compensation, retaining and overseeing the work of our independent registered public accounting firm. The Audit Committee has established a process regarding pre-approval of all audit and permissible non-audit services provided by the independent registered public accounting firm.
Requests are submitted to the Audit Committee in one of the following ways:
· Request for approval of services at a meeting of the Audit Committee; or
· Request for approval of services by members of the Audit Committee acting by written consent.
The request may be made with respect to either specific services or a type of service for predictable or recurring services. 100% of the fees paid by EchoStar to KPMG LLP for services rendered in 2010 and 2009 which relate to EchoStar were pre-approved by the Audit Committee.
REPORT OF THE AUDIT COMMITTEE
The role of the Audit Committee is to assist EchoStars Board of Directors in its oversight of EchoStars financial reporting process, as is more fully described in its charter. EchoStars management is responsible for its financial reporting process, including its system of internal controls, and for the preparation and presentation of its consolidated financial statements in accordance with generally accepted accounting principles. EchoStars independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion as to their conformity with generally accepted accounting principles. Our responsibility is to monitor and review these processes. It is not our duty or our responsibility to conduct auditing or accounting reviews or procedures. We are not and may not be employees of EchoStar, and we may not represent ourselves to be, or to serve as, accountants or auditors by profession or experts in the fields of accounting or auditing. Therefore, we have relied, without independent verification, on representations by EchoStars management that its financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States of America. We have also relied on representations of EchoStars independent registered public accounting firm included in their report on its financial statements. Our oversight does not provide us with an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or policies or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, our considerations and discussions with EchoStars management and independent registered public accounting firm do not assure that EchoStars financial statements are presented in accordance with generally accepted accounting principles, that the audit of EchoStars financial statements has been carried out in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), or that EchoStars independent registered public accounting firm is in fact independent.
In the performance of our oversight function, we reviewed and discussed with EchoStars management its audited financial statements for the fiscal year ended December 31, 2010. We also discussed these audited financial statements with EchoStars independent registered public accounting firm. Our discussions with the independent registered public accounting firm included the matters required to be discussed under the rules adopted by the PCAOB AU Section 380, Communication with Audit Committees, as currently in effect. We also discussed with them their independence and any relationship that might affect their objectivity or independence. In connection with these discussions, we received and reviewed the written disclosures from KPMG LLP required by applicable requirements of the PCAOB. Finally, we have considered whether the non-audit services provided by the independent registered public accounting firm are compatible with maintaining their independence.
Based on the reviews and discussions referred to above, we are not aware of any relationship between the independent registered public accounting firm and EchoStar that affects the objectivity or independence of the independent registered public accounting firm. Based on these discussions and our review discussed above, we recommended to EchoStars Board of Directors that its audited financial statements for fiscal 2010 be included in EchoStars Annual Report on Form 10-K for the year ended December 31, 2010 for filing with the Securities and Exchange Commission.
Respectfully submitted,
The EchoStar Audit Committee
C. Michael Schroeder (Chairman)
Tom A. Ortolf
Joseph P. Clayton
The report of the Audit Committee and the information contained therein shall not be deemed to be soliciting material or filed or incorporated by reference in any filing we make under the Securities Act or under the Exchange Act, irrespective of any general statement incorporating by reference this Proxy Statement into any such filing, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate this information by reference into a document we file under the Securities Act or the Exchange Act.
PROPOSAL NO. 2 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We customarily ask our shareholders to ratify the appointment of our independent registered public accounting firm at each annual meeting. The Audit Committee and the Board have selected and appointed KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011 and we are asking our shareholders to ratify this appointment at the Annual Meeting. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent public registered accounting firm at any time if it determines that such a change would be in the best interests of EchoStar. Representatives of KPMG LLP are expected to be present at the Annual Meeting and will have the opportunity to make any statements they may desire. They also will be available to respond to appropriate questions of shareholders.
Charles W. Ergen, our Chairman, currently possesses approximately 56.0% of our total voting power. Please see Equity Security Ownership above. Mr. Ergen has indicated his intention to vote in favor of Proposal No. 2. Accordingly, approval of Proposal No. 2 is assured notwithstanding a contrary vote by any or all shareholders other than Mr. Ergen.
The Board of Directors unanimously recommends a vote FOR approval of Proposal No. 2 (Item No. 2 on the enclosed proxy card).
PROPOSAL NO. 3 ADVISORY VOTE ON EXECUTIVE COMPENSATION
As required by Section 14A of the Exchange Act and related SEC rules, we are seeking an advisory vote from our shareholders to approve the compensation paid to our NEOs as disclosed in this proxy statement. Shareholders are being asked to approve the following resolution at the Annual Meeting:
RESOLVED, that the shareholders of EchoStar Corporation (the Corporation) hereby approve, on an advisory basis, the compensation paid to the Corporations named executive officers, as disclosed pursuant to Item 402 of Regulation S-K in the Corporations Proxy Statement for its 2011 Annual Meeting of Shareholders (including the Compensation Discussion and Analysis, compensation tables and related narrative discussion therein).
As described more fully in the Compensation Discussion and Analysis section of this proxy statement, the compensation program for our executive officers is guided by several key principles, including attraction, retention and motivation of executive officers over the long-term, recognition of individual and company-wide performance, and creation of shareholder value by aligning the interests of management and our shareholders through equity incentives. We urge shareholders to read the Compensation Discussion and Analysis section, compensation tables and related narrative discussion in this proxy statement for a more detailed discussion of our compensation programs and policies, the compensation-related actions taken in fiscal 2010 and the compensation paid to our NEOs.
Although this vote on executive compensation is advisory and non-binding, the Board and the Compensation Committee will review the results of the vote and take them into consideration when considering future executive compensation policies and decisions.
Charles W. Ergen, our Chairman, currently possesses approximately 56.0% of the total voting power. Please see Equity Security Ownership above. Mr. Ergen has indicated his intention to vote in favor of Proposal No. 3. Accordingly, approval of Proposal No. 3 is assured notwithstanding a contrary vote by any or all shareholders other than Mr. Ergen.
The Board of Directors unanimously recommends a vote FOR approval of Proposal No. 3 (Item No. 3 on the enclosed proxy card).
PROPOSAL NO. 4 ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
Section 14A of the Exchange Act and related SEC rules require us to seek a non-binding, advisory vote of shareholders at least once every six years to determine whether advisory votes on executive compensation should be held every one, two or three years. Accordingly, in connection with this Proposal No. 4, shareholders may vote that future advisory votes on executive compensation be held as follows:
· Every year;
· Every two years; or
· Every three years.
Shareholders may also abstain from voting on this Proposal No. 4. We urge shareholders to review the information presented in connection with Proposal No. 3 in this proxy statement, as well as the Compensation Discussion and Analysis section, compensation tables and related narrative discussion in this proxy statement for a more detailed discussion of our compensation programs and policies and the compensation paid to our NEOs.
The Board has determined that holding an advisory vote on executive compensation every three years is most appropriate for EchoStar and recommends that shareholders vote to hold such advisory votes in the future every three years. The Board believes that holding an advisory vote every three years offers the closest alignment with EchoStars approach to executive compensation and the underlying philosophy that seek to enhance the long-term growth of the company and to attract, retain and motivate our executive offers over the long term. The Board believes a three-year cycle for the advisory vote on executive compensation will provide investors the most meaningful timing alternative by which to evaluate the effectiveness of our executive compensation strategies and their alignment with EchoStars business and results of operations.
Although this vote on the frequency of future advisory votes on executive compensation is advisory and non-binding, the Board and the Compensation Committee value shareholders opinions and will consider the outcome of the vote when considering the frequency of future advisory votes on executive compensation.
Charles W. Ergen, our Chairman, currently possesses approximately 56.0% of the total voting power. Please see Equity Security Ownership above. Mr. Ergen has indicated his intention to vote for the holding of an advisory vote on executive compensation every three years. Accordingly, the approval of the holding of an advisory vote on executive compensation every three years under Proposal No. 4 is assured notwithstanding a contrary vote by any or all shareholders other than Mr. Ergen.
The Board of Directors unanimously recommends a vote for EVERY THREE YEARS under Proposal No. 4 (Item No. 4 on the enclosed proxy card).
WHERE TO GET ADDITIONAL INFORMATION
As a reporting company, we are subject to the informational requirements of the Exchange Act and accordingly file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the SEC. The public may read and copy any materials filed with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room. As an electronic filer, our public filings are maintained on the SECs Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov. In addition, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act may be accessed free of charge through our website as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the SEC. The address of that website is http://www.echostar.com.
COST OF PROXY STATEMENT
We will bear the cost of the solicitation of proxies on behalf of the Board. In addition to the use of the mail, proxies may be solicited by us personally, by telephone or by similar means. None of our directors, officers or employees will be specifically compensated for those activities. We do not expect to pay any compensation for the solicitation of proxies. However, we will reimburse brokerage firms, custodians, nominees, fiduciaries and other persons holding our shares in their names, or in the names of nominees, at approved rates for their reasonable expenses in forwarding proxy materials to beneficial owners of securities held of record by them and obtaining their proxies.
SHAREHOLDER COMMUNICATIONS
General. We provide an informal process for shareholders to send communications to our Board and its members. Shareholders who wish to contact the Board or any of its members may do so by writing to EchoStar Corporation, Attn: Board of Directors, 100 Inverness Terrace East, Englewood, Colorado 80112. At the direction of the Board of Directors, all mail received will be opened and screened for security purposes. Correspondence directed to an individual Board member is referred to that member. Correspondence not directed to a particular Board member is referred to our Executive Vice President, General Counsel and Secretary, Mr. Dodge.
Submission of Shareholder Proposals and Director Nominations for 2012 Annual Meeting. Shareholders who intend to have a proposal or director nomination considered for inclusion in our proxy materials for presentation at our 2012 Annual Meeting of Shareholders must submit the proposal or director nomination to us no later than November 25, 2011. In accordance with our Bylaws, for a proposal or director nomination not included in our proxy materials to be brought before the 2012 Annual Meeting of Shareholders, a shareholders notice of the proposal or director nomination that the shareholder wishes to present must be delivered to R. Stanton Dodge, our Executive Vice President, General Counsel and Secretary, at EchoStar Corporation, 100 Inverness Terrace East, Englewood, Colorado 80112 not less than 90 nor more than 120 days prior to the first anniversary of the 2011 Annual Meeting of Shareholders. Accordingly, any notice given pursuant to our Bylaws and outside the process of Rule 14a-8 must be received no earlier than January 4, 2012 and no later than February 3, 2012. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal or director nomination that does not comply with these and other applicable requirements.
OTHER BUSINESS
Management knows of no other business that will be presented at the Annual Meeting other than that which is set forth in this Proxy Statement. However, if any other matter is properly presented at the Annual Meeting, the persons named in the accompanying proxy card will have discretionary authority to vote on such matter in accordance with their best judgment.
By Order of the Board of Directors |
|
|
|
| |
|
|
R. STANTON DODGE |
|
Executive Vice President, General Counsel and Secretary |
|
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles W. Ergen and R. Stanton Dodge, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated below, all Class A Shares and Class B Shares of EchoStar Corporation held of record by the undersigned on March 7, 2011, at the Annual Meeting of Shareholders to be held on May 3, 2011, or any adjournment thereof.
1. ELECTION OF SEVEN DIRECTORS.
o |
FOR all nominees listed below (except as marked to the contrary) |
o |
WITHHOLD AUTHORITY to vote for all the nominees listed below |
Joseph P. Clayton |
R. Stanton Dodge |
Michael T. Dugan |
Charles W. Ergen | ||
|
|
|
| ||
David K. Moskowitz |
Tom A. Ortolf |
C. Michael Schroeder | |||
(INSTRUCTION: To withhold authority to vote for an individual nominee, cross out that nominees name above.)
2. TO RATIFY THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR ENDING DECEMBER 31, 2011.
o |
FOR |
o |
AGAINST |
o |
ABSTAIN |
3. THE ADVISORY VOTE ON EXECUTIVE COMPENSATION.
o |
FOR |
o |
AGAINST |
o |
ABSTAIN |
4. THE ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION.
o |
EVERY YEAR |
o |
EVERY TWO YEARS |
o |
EVERY THREE YEARS |
o |
ABSTAIN |
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF.
o |
FOR |
o |
AGAINST |
o |
ABSTAIN |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF EACH OF THE SEVEN DIRECTORS SET FORTH ABOVE, (2) FOR THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR ENDING DECEMBER 31, 2011, (3) FOR THE ADVISORY APPROVAL OF EXECUTIVE COMPENSATION, AND (4) FOR THE HOLDING OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY THREE YEARS. THIS PROXY CONFERS DISCRETIONARY AUTHORITY WITH RESPECT TO PROPOSALS NOT KNOWN OR DETERMINED AT THE TIME OF THE MAILING OF THE NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO THE UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement furnished herewith.
|
Dated: |
|
, 2011 |
|
| ||
|
| ||
|
Signature | ||
|