UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

 

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Soliciting Material Pursuant to §240.14a-12

 

DISH Network Corporation

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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GRAPHIC

 

March 23, 2011

 

DEAR SHAREHOLDER:

 

It is a pleasure for me to extend to you an invitation to attend the 2011 Annual Meeting of Shareholders of DISH Network Corporation.  The Annual Meeting will be held on May 2, 2011, at 1:00 p.m., local time, at DISH Network’s headquarters located at 9601 S. Meridian Blvd., 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 DISH Network’s 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 will be received and counted, please vote electronically via the Internet, mail or telephone, by following the instructions included with your proxy card.

 

On behalf of the Board of Directors and senior management, I would like to express our appreciation for your support and interest in DISH Network.  I look forward to seeing you at the Annual Meeting.

 

 

GRAPHIC

CHARLES W. ERGEN

Chairman, President and Chief Executive Officer

 



 

GRAPHIC

 

NOTICE OF 2011 ANNUAL MEETING OF SHAREHOLDERS

 

TO THE SHAREHOLDERS OF DISH NETWORK CORPORATION:

 

The Annual Meeting of Shareholders of DISH Network Corporation will be held on May 2, 2011, at 1:00 p.m., local time, at our headquarters located at 9601 S. Meridian Blvd., Englewood, Colorado 80112, for the following purposes:

 

1.     To elect eight 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;

 

5.     To consider a shareholder proposal; and

 

6.     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 by one of the following methods to ensure that your shares will be represented at the meeting in accordance with your wishes:

 

·      Vote electronically through the Internet 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 23, 2011.

 

By Order of the Board of Directors

 

 

GRAPHIC

R. STANTON DODGE

Executive Vice President, General Counsel

and Secretary

 

 

March 23, 2011

 

 

9601 S. Meridian Blvd. · Englewood, Colorado 80112 · Tel: (303) 723-1000 · Fax: (303) 723-1999

 



 

PROXY STATEMENT

OF

DISH NETWORK 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 DISH Network Corporation (“DISH Network,” “we,” “us,” “our” or the “Corporation”).  The Annual Meeting will be held on May 2, 2011, at 1:00 p.m., local time, at our headquarters located at 9601 S. Meridian Blvd., Englewood, Colorado 80112.

 

This Proxy Statement is being sent or provided on or about March 23, 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 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 electronically through the Internet 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 electronically through the Internet or by telephone or mail must be received by 11:59 p.m., Eastern Time, on May 1, 2011.  Submitting your vote electronically through the Internet or by telephone or mail will not affect your right to vote in person, if you choose to do so.  Proxies that are properly 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 on the proxy card.  The Board is currently not aware of any matters proposed to be presented at the Annual Meeting other than the election of eight 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, an advisory vote on the frequency of future advisory votes on executive compensation, and the consideration of a shareholder proposal.  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 in accordance with their best judgment.  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 12:30 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 driver’s 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.

 

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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, 204,989,855 Class A Shares and 238,435,208 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 Amended and Restated 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 eight 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, the advisory vote on the frequency of future advisory votes on executive compensation, and the shareholder proposal.  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, the advisory vote on the frequency of future advisory votes on executive compensation, and the shareholder proposal.

 

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, the advisory vote on the frequency of future advisory votes on executive compensation, and the shareholder proposal.  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, the advisory vote on the frequency of future advisory votes on executive compensation, or the shareholder proposal.

 

Charles W. Ergen, our Chairman, President and Chief Executive Officer, currently possesses approximately 90.5% of the 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 eight director nominees, (2) for the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, (3) for the advisory approval of executive compensation, (4) for the holding of an advisory vote on executive compensation once every three years, and (5) against the shareholder proposal.  Accordingly, the election of each of the director nominees, the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, the advisory approval of executive compensation, the holding of an advisory vote on executive compensation once every three years, and the rejection of the shareholder proposal 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.

 

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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 9601 S. Meridian Blvd., Englewood, Colorado 80112.

 

PROPOSAL NO. 1 — ELECTION OF DIRECTORS

 

Nominees

 

Our shareholders will elect a board of eight 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 or her 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 eight nominees who receive the most votes will be elected to the eight open directorships even if they get less than a majority of the votes cast.  Each nominee has consented to his or her nomination and has advised us that he or she 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

 

 

 

 

 

 

 

James DeFranco

 

58

 

1980

 

Director and Executive Vice President

Cantey Ergen

 

55

 

2001

 

Director and Senior Advisor

Charles W. Ergen

 

58

 

1980

 

Chairman of the Board of Directors,

 

 

 

 

 

 

President and Chief Executive Officer

Steven R. Goodbarn

 

53

 

2002

 

Director

Gary S. Howard

 

60

 

2005

 

Director

David K. Moskowitz

 

52

 

1998

 

Director and Senior Advisor

Tom A. Ortolf

 

60

 

2005

 

Director

Carl E. Vogel

 

53

 

2005

 

Director and Senior Advisor

 

The following sets forth the business experience of each of the nominees over the last five years:

 

James DeFrancoMr. DeFranco is one of our Executive Vice Presidents and has been one of our vice presidents and a member of the Board since our formation.  During the past five years he has held various executive officer and director positions with DISH Network and our subsidiaries.  Mr. DeFranco co-founded DISH Network with Charles W. Ergen and Cantey Ergen in 1980.  The Board concluded that Mr. DeFranco should continue to serve on the Board due to, among other things, his knowledge of DISH Network since its formation, particularly in sales and marketing.

 

Cantey Ergen.  Mrs. Ergen has served on the Board since May 2001, is currently a Senior Advisor to us and has had a variety of operational responsibilities with us over the past 30 years. Mrs. Ergen has served on the board of directors of The Children’s Hospital of Denver since 2001 and served on the board of trustees of The Children’s Hospital Foundation of Denver from 1999 to 2001. Mrs. Ergen co-founded DISH Network with her husband, Charles W. Ergen, and James DeFranco in 1980.  The Board concluded that Mrs. Ergen should continue to serve on the Board due to, among other things, her knowledge of DISH Network since its formation and her service to us in a multitude of roles over the years.

 

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Charles W. ErgenMr. Ergen serves as our Chairman, President and Chief Executive Officer.  Mr. Ergen has been Chairman and Chief Executive Officer of DISH Network since its formation and, during the past five years, has held various executive officer and director positions with DISH Network and our subsidiaries including the position of President from time to time.  Most recently, Mr. Ergen has served as our President since February 2008.  Mr. Ergen, along with his wife, Cantey Ergen, and James DeFranco, was a co-founder of DISH Network in 1980. Mr. Ergen also serves as Chairman of EchoStar Corporation (“EchoStar”) and served as Chief Executive Officer of EchoStar from its formation in October 2007 until November 2009.  Mr. Ergen also served as EchoStar’s President from June 2008 until November 2009.  On January 1, 2008, we completed the spin-off of EchoStar (the “Spin-off”), which was previously our subsidiary.  The Board concluded that Mr. Ergen should continue to serve on the Board due to, among other things, his role as our co-founder and controlling shareholder and the expertise, leadership and strategic direction that he has contributed to us since our formation.

 

Steven R. GoodbarnMr. Goodbarn joined the Board in December 2002 and is a member of our Executive Compensation Committee, Nominating Committee, and Audit Committee, where he serves as our “audit committee financial expert.”  Since July 2002, Mr. Goodbarn has served as director, president and chief executive officer of Secure64 Software Corporation, a company he co-founded. Mr. Goodbarn was chief financial officer of Janus Capital Corporation from 1992 until late 2000.  During that time, he was a member of the executive committee and served on the board of directors of many Janus corporate and investment entities.  Mr. Goodbarn is a CPA and spent 12 years at Price Waterhouse prior to joining Janus.  The Board has determined that Mr. Goodbarn meets the independence and “audit committee financial expert” requirements of NASDAQ and SEC rules and regulations.  Mr. Goodbarn served as a member of the board of directors of EchoStar, and as a member of its Executive Compensation Committee, Nominating Committee, and Audit Committee from its formation in October 2007 until November 2008.  The Board concluded that Mr. Goodbarn should continue to serve on the Board due to, among other things, his knowledge of DISH Network from his service as a director since 2002 and his expertise in accounting, auditing, finance and risk management that he brings to the Board, in particular in light of his background as a CPA and his prior experience serving as chief financial officer of Janus Capital Corporation.

 

Gary S. Howard.  Mr. Howard joined the Board in November 2005 and is a member of our Executive Compensation Committee, Nominating Committee and Audit Committee.  Mr. Howard has served on the board of directors of Interval Leisure Group, Inc., since August 2008.  Mr. Howard served as Executive Vice President and Chief Operating Officer of Liberty Media Corporation from July 1998 to February 2004 as well as serving on Liberty Media Corporation’s board of directors from July 1998 until January 2005. Additionally, Mr. Howard held several executive officer positions with companies affiliated with Liberty Media Corporation. The Board has determined that Mr. Howard meets the independence requirements of NASDAQ and SEC rules and regulations.  The Board concluded that Mr. Howard should continue to serve on the Board due to, among other things, his knowledge of DISH Network from his service as a director since 2005 and his experience in the media and telecommunications industries, including his prior service with Liberty Media Corporation.

 

David K. Moskowitz.  Mr. Moskowitz is one of our Senior Advisors and was an Executive Vice President as well as our Secretary and General Counsel until 2007. Mr. Moskowitz joined us in March 1990. He was elected to the Board in 1998. Mr. Moskowitz performs certain business functions for us and our subsidiaries from time to time. Since October 2007, Mr. Moskowitz has served as a member of the board of directors of EchoStar.  The Board concluded that Mr. Moskowitz should continue to serve on the Board due to, among other things, his knowledge of DISH Network from his service as a director since 1998 and his business and legal expertise that he brings to the Board, in particular in light of his service as our General Counsel for 17 years.

 

Tom A. Ortolf.  Mr. Ortolf joined the Board in May 2005 and is a member of our 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. From 1988 until 1991, Mr. Ortolf served as President and Chief Operating Officer of one of our subsidiaries.  The Board has determined that Mr. Ortolf meets the independence requirements of NASDAQ and SEC rules and regulations. Since October 2007, Mr. Ortolf has also served as a member of the board of directors of EchoStar, and as a member of its Executive Compensation Committee, Nominating Committee, and Audit Committee.  The Board concluded that Mr. Ortolf should continue to serve on the Board due to, among other things, his knowledge of DISH Network from his service as a director since 2005 and his investment and financial experience, in part as an executive with CMC, which brings to the Board insights into finance, business and risk management.

 

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Carl E. Vogel.  Mr. Vogel has served on the Board since May 2005 and is currently a Senior Advisor to us. He served as our President from September 2006 until February 2008 and served as our Vice Chairman from June 2005 until March 2009.  From October 2007 until March 2009, Mr. Vogel served as the Vice Chairman of the board of directors of, and as a Senior Advisor to, EchoStar.  From 2001 until 2005, Mr. Vogel served as the President and CEO of Charter Communications Inc., a publicly-traded company providing cable television and broadband services to approximately six million customers. Prior to joining Charter, Mr. Vogel worked as an executive officer in various capacities for companies affiliated with Liberty Media Corporation.  Mr. Vogel was one of our executive officers from 1994 until 1997, including serving as our President from 1995 until 1997. Mr. Vogel is also currently serving on the boards of directors and audit committees of Shaw Communications, Inc., Universal Electronics, Inc. and NextWave Wireless Inc. and on the board of directors, audit committee and executive committee of Ascent Media Corporation.  Mr. Vogel is also currently serving as the chair of NextWave Wireless Inc.’s audit committee and Ascent Media Corporation’s executive committee.  The Board concluded that Mr. Vogel 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, our Chairman, President and Chief Executive Officer, currently possesses approximately 90.5% of the 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 six meetings in 2010 and also took action by unanimous written consent on four occasions during 2010.  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 or she 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, President and Chief Executive Officer.  Mr. Ergen currently beneficially owns approximately 53.6% of our total equity securities and possesses approximately 90.5% of the total voting power.  Mr. Ergen’s beneficial ownership excludes 4,245,151 shares of Class A Common Stock issuable upon conversion of shares of Class B Common Stock currently held by certain trusts established by Mr. Ergen for the benefit of his family.  These trusts beneficially own approximately 2.0% of our total equity securities and possess approximately 1.6% of the 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 Board’s 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.dishnetwork.com.  The function and authority of these committees are described below:

 

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Compensation CommitteeThe 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 DISH Network’s equity securities to DISH Network’s executive officers and Board members other than nonemployee directors; (ii) approve all other option grants and issuances of DISH Network’s 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 DISH Network’s executive officers, and certify achievement of such goals prior to payment; and (iv) set the compensation of Mr. Ergen, who is our Chairman, President and Chief Executive Officer.  The Compensation Committee held seven meetings and took action by unanimous written consent on two occasions during 2010.  The current members of the Compensation Committee are Mr. Goodbarn, Mr. Howard and Mr. Ortolf, with Mr. Goodbarn 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 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 management’s 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 firm’s 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 ten meetings and took action by unanimous written consent on two occasions during 2010.  The current members of the Audit Committee are Mr. Goodbarn, Mr. Howard and Mr. Ortolf, with Mr. Ortolf serving as Chairman of the Audit Committee and Mr. Goodbarn 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. Goodbarn qualifies as an “audit committee financial expert” as defined by applicable SEC rules and regulations.  The current composition of the Audit Committee is expected to remain the same following our Annual Meeting, with Mr. Goodbarn continuing as the “audit committee financial expert”.

 

Nominating CommitteeThe 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 during 2010 and did not take action by written consent during 2010.  The current members of the Nominating Committee are Mr. Goodbarn, Mr. Howard and Mr. Ortolf, with Mr. Howard 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 Corporation’s governance guidelines; and (vi) the needs of the Board and the Corporation.

 

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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, DISH Network 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 Corporation’s 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 Corporation’s bylaws relating to shareholder nominations.  Communications can be directed to the Corporation’s Secretary or any member of the Nominating Committee in accordance with the process described in “Shareholder Communications” below.

 

Board Leadership Structure

 

The Board currently combines the role of Chairman of the Board with the role of Chief Executive Officer, among other reasons, because of Mr. Ergen’s unique position and qualifications as our founder and controlling shareholder.  The Board believes that Mr. Ergen is best situated to serve as Chairman, among other reasons, because he is the director most familiar with the Corporation’s business and industry and is also the person most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy.  We believe that this leadership structure is appropriate for the Corporation, among other reasons, because it helps to ensure clarity regarding leadership of the Corporation, allows the Corporation to speak with one voice and provides for the efficient operation of our Board process. This structure also avoids potential confusion as to leadership roles and duplication of efforts that can result from the roles being separated.  Furthermore, in light of Mr. Ergen’s voting control and position with DISH Network, we believe that the creation of a lead independent director position is not necessary at this time.

 

The Board’s Role in Risk Oversight

 

The Board has ultimate responsibility for oversight of the Corporation’s 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 Corporation’s risk management processes are intended to identify, manage and control risks so that they are appropriate considering the Corporation’s 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 Corporation’s 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.

 

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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 in 2010 (collectively, the “Named Executive Officers”); 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 person’s name.

 

Name (1)

 

Amount and
Nature of
Beneficial
Ownership

 

Percentage
of Class

 

Class A Common Stock:

 

 

 

 

 

Charles W. Ergen (2), (3)

 

235,916,216

 

53.6

%

Cantey Ergen (4)

 

234,709,216

 

53.4

%

Goldman Sachs (5)

 

25,058,399

 

12.2

%

Dodge & Cox (6)

 

16,935,155

 

8.3

%

BlackRock, Inc. (7)

 

15,389,414

 

7.5

%

James DeFranco (8)

 

4,703,683

 

2.3

%

David K. Moskowitz (9)

 

965,315

 

*

 

Carl E. Vogel (10)

 

490,723

 

*

 

Bernard L. Han (11)

 

370,498

 

*

 

Thomas A. Cullen (12)

 

310,498

 

*

 

Gary S. Howard (13)

 

100,100

 

*

 

Tom A. Ortolf (14)

 

86,200

 

*

 

Steven R. Goodbarn (15)

 

30,000

 

*

 

Robert E. Olson (16)

 

20,193

 

*

 

All Directors and Executive Officers as a Group (16 persons) (17)

 

243,652,114

 

68.0

%

Class B Common Stock:

 

 

 

 

 

Charles W. Ergen

 

234,190,057

 

98.2

%

Cantey Ergen

 

234,190,057

 

98.2

%

Trusts (18)

 

4,245,151

 

1.8

%

All Directors and Executive Officers as a Group (16 persons) (17)

 

234,190,057

 

98.2

%

 

 

 

 

 

 

 


*    Less than 1%.

 

(1)     Except as otherwise noted below, the address of each such person is 9601 S. Meridian Blvd., Englewood, Colorado 80112.  As of the close of business on March 7, 2011, there were 204,989,855 outstanding shares of Class A Common Stock and 238,435,208 shares of Class B Common Stock.

 

(2)     Mr. Ergen is deemed to own beneficially all of the Class A Shares owned by his spouse, Cantey Ergen. Mr. Ergen’s beneficial ownership includes: (i) 478,302 Class A Shares; (ii) 19,026 Class A Shares held in the Corporation’s 401(k) Employee Savings Plan (the “401(k) Plan”); (iii) the right to acquire 1,180,000 Class A Shares within 60 days upon the exercise of employee stock options; (iv) 235 Class A Shares held by Mr. Ergen’s spouse; (v) 1,466 Class A Shares held in the 401(k) Plan by Mrs. Ergen; (vi) 20,130 Class A Shares held as custodian for Mr. Ergen’s children; (vii) 27,000 Class A Shares held by a charitable foundation for which Mr. Ergen is an officer and (viii) 234,190,057 Class A Shares issuable upon conversion of Mr. Ergen’s Class B Shares.  Mr. Ergen has sole voting and dispositive power with respect to 149,183,340 shares. Mr. Ergen’s beneficial ownership of Class A Shares excludes 4,245,151 Class A Shares issuable upon conversion of Class B Shares held by certain trusts established by Mr. Ergen for the benefit of his family.

 

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(3)    Because each Class B Share is entitled to 10 votes per share, Mr. Ergen owns beneficially equity securities of the Corporation representing approximately 90.5% of the voting power of the Corporation (assuming no conversion of the Class B Shares and after giving effect to the exercise of Mr. Ergen’s options exercisable within 60 days).  Mr. Ergen’s beneficial ownership includes:  (i) 35,006,717 shares of Class B Common Stock owned beneficially by Mrs. Ergen solely by virtue of her position as trustee of the Ergen Two-Year 2009 DISH GRAT; (ii) 12,500,000 shares of Class B Common Stock owned beneficially by Mrs. Ergen solely by virtue of her position as trustee of the Ergen Two-Year 2010 DISH GRAT; (iii) 12,500,000 shares of Class B Common Stock owned beneficially by Mrs. Ergen solely by virtue of her position as trustee of the Ergen Three-Year 2010 DISH GRAT; (iv) 12,500,000 shares of Class B Common Stock owned beneficially by Mrs. Ergen solely by virtue of her position as trustee of the Ergen Four-Year 2010 DISH GRAT; and (v) 12,500,000 shares of Class B Common Stock owned beneficially by Mrs. Ergen solely by virtue of her position as trustee of the Ergen Five-Year 2010 DISH GRAT.  Mr. Ergen’s beneficial ownership excludes 4,245,151 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 2.0% of our total equity securities and possess approximately 1.6% of the total voting power.

 

(4)     Mrs. Ergen beneficially owns all of the Class A Shares owned by her spouse, Mr. Ergen, except for Mr. Ergen’s right to acquire 1,180,000 Class A Shares within 60 days upon the exercise of employee stock options.

 

(5)     The address of Goldman Sachs Asset Management (“Goldman Sachs”) is 200 West Street, New York, New York, 10282.  Of the Class A Shares beneficially owned, Goldman Sachs has shared voting power as to 23,130,386 Class A Shares and shared dispositive power as to 25,058,399 Class A Shares.  The foregoing information is based solely upon a Schedule 13G filed by Goldman Sachs with the SEC on February 14, 2011.

 

(6)     The address of Dodge & Cox is 555 California Street, 40th Floor, San Francisco, California 94104.  Of the Class A Shares beneficially owned, Dodge & Cox has sole voting power as to 16,079,693 Class A Shares and sole dispositive power as to 16,935,155 Class A Shares.  The foregoing information is based solely upon a Schedule 13G filed by Dodge & Cox with the SEC on February 10, 2011.

 

(7)     The address of BlackRock, Inc. is 40 East 52nd Street, New York, New York 10022.  BlackRock, Inc. has sole voting and dispositive power as to all of the 15,389,414 Class A Shares beneficially owned by it.  The foregoing information is based solely upon a Schedule 13G filed by BlackRock, Inc. with the SEC on February 4, 2011.

 

(8)     Mr. DeFranco’s beneficial ownership includes:  (i) 1,129,438 Class A Shares; (ii) 19,026 Class A Shares held in the 401(k) Plan; (iii) the right to acquire 338,000 Class A Shares within 60 days upon the exercise of employee stock options; (iv) 50,000 Class A Shares held by Mr. DeFranco in an irrevocable trust for the benefit of his children and grandchildren; (v) 12,160 Class A Shares held by Mr. DeFranco as custodian for his children; (vi) 1,250,000 Class A Shares controlled by Mr. DeFranco as general partner of a limited partnership; and (vii) 1,905,059 Class A Shares held by Mr. DeFranco as a general partner of a different limited partnership.

 

(9)     Mr. Moskowitz’s beneficial ownership includes:  (i) 127,779 Class A Shares; (ii) 18,024 Class A Shares held in the 401(k) Plan; (iii) the right to acquire 780,000 Class A Shares within 60 days upon the exercise of employee stock options; (iv) 1,328 Class A Shares held as custodian for his children; (v) 8,184 Class A Shares held as trustee for Mr. Ergen’s children; and (vi) 30,000 Class A Shares held by a charitable foundation for which Mr. Moskowitz is a member of the board of directors.

 

(10)   Mr. Vogel’s beneficial ownership includes:  (i) 10,165 Class A Shares (including 10,000 shares held in an account that is subject to a margin loan); (ii) 558 Class A Shares held in the 401(k) Plan; and (iii) the right to acquire 480,000 Class A Shares within 60 days upon the exercise of employee stock options.

 

(11)   Mr. Han’s beneficial ownership includes:  (i) 498 Class A Shares held in the 401(k) Plan; and (ii) the right to acquire 370,000 Class A Shares within 60 days upon the exercise of employee stock options.

 

(12)   Mr. Cullen’s beneficial ownership includes:  (i) 498 Class A Shares held in the 401(k) Plan; and (ii) the right to acquire 310,000 Class A Shares within 60 days upon the exercise of employee stock options.

 

(13)   Mr. Howard’s beneficial ownership includes:  (i) 75,000 Class A Shares; (ii) 100 Class A Shares owned by his spouse; and (iii) the right to acquire 25,000 Class A Shares within 60 days upon the exercise of nonemployee director stock options.

 

(14)   Mr. Ortolf’s beneficial ownership includes:  (i) the right to acquire 25,000 Class A Shares within 60 days upon the exercise of nonemployee director stock options; (ii) 200 Class A Shares held in the name of one of his children; and (iii) 61,000 Class A Shares held by a partnership of which Mr. Ortolf is a partner.

 

(15)   Mr. Goodbarn’s beneficial ownership includes:  (i) 5,000 Class A Shares; and (ii) the right to acquire 25,000 Class A Shares within 60 days upon the exercise of nonemployee director stock options.

 

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(16)   Mr. Olson’s beneficial ownership includes:  (i) 193 Class A Shares held in the 401(k) Plan; and (ii) the right to acquire 20,000 Class A Shares within 60 days upon the exercise of employee stock options.

 

(17)   Includes:  (i) 1,854,672 Class A Shares; (ii) 63,223 Class A Shares held in the 401(k) Plan; (iii) the right to acquire 4,172,501 Class A Shares within 60 days upon the exercise of employee and nonemployee director stock options; (iv) 3,216,059 Class A Shares held in a partnership; (v) 234,190,057 Class A Shares issuable upon conversion of Class B Shares; (vi) 98,502 Class A Shares held in the name of, or in trust for, children and other family members; (vii) 57,000 Class A Shares held by charitable foundations; and (viii) 100 Class A Shares held by a spouse.  Class A Shares and Class B Shares beneficially owned by both Mr. and Mrs. Ergen are only included once in calculating the aggregate number of shares owned by directors and executive officers as a group.

 

(18)   Held by certain trusts established by Mr. Ergen for the benefit of his family.

 

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 addresses our compensation objectives and policies for our Named Executive Officers, or NEOs, the elements of NEO compensation and the application of those objectives and policies to each element of fiscal 2010 compensation for our NEOs.

 

This Compensation Discussion and Analysis contains information regarding company 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.

 

Overall Compensation Program Objectives and Policies

 

Compensation Philosophy

 

DISH Network’s executive compensation program is guided by the following key principles:

 

·      Attraction, retention and motivation of executive officers over the long-term;

·      Recognition of individual performance;

·      Recognition of the achievement of company-wide performance goals; and

·      Creation of shareholder value by aligning the interests of management and DISH Network’s shareholders through equity incentives.

 

General Compensation Levels

 

The total direct compensation opportunities, both base salaries and long-term incentives, offered to DISH Network’s NEOs have been designed to ensure that they are competitive with market practice, support DISH Network’s executive recruitment and retention objectives, reward individual and company-wide performance and contribute to DISH Network’s long-term success by aligning the interests of its executive officers and shareholders.

 

10



 

The Compensation Committee of DISH Network, without Mr. Ergen present, determines Mr. Ergen’s compensation. Mr. Ergen recommends to the Board of Directors, but DISH Network’s Board of Directors ultimately approves, the base compensation of DISH Network’s other NEOs.  DISH Network’s Compensation Committee has made and approved grants of options and other equity-based compensation to DISH Network’s NEOs, and established in writing performance goals for any performance-based compensation that together with other compensation to any of DISH Network’s NEOs could exceed $1 million annually. DISH Network’s Compensation Committee has also certified achievement of those performance goals prior to payment of performance-based compensation.

 

In determining the actual amount of each NEO’s compensation, the Compensation Committee of DISH Network reviews the information described in “Compilation of Certain Proxy Data” below, the Compensation Committee’s subjective performance evaluation of the individual’s performance (after reviewing Mr. Ergen’s recommendations with respect to the NEOs other than himself), the individual’s 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 DISH Network’s policies for promotions.  DISH Network’s Compensation Committee and Board have also considered the extent to which individual extraordinary efforts of each of DISH Network’s NEOs resulted in tangible increases in corporate, division or department success when setting base cash salaries and short term incentive compensation.

 

Furthermore, the Compensation Committee of DISH Network also makes a subjective determination as to whether an increase should be made to Mr. Ergen’s compensation based on its evaluation of Mr. Ergen’s contribution to the success of DISH Network, 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 NEO’s compensation depends on the subjective consideration of all factors described above in the aggregate.

 

With respect to incentive compensation, DISH Network attempts to ensure that each NEO has stock options and/or restricted stock units at any given time that are significant in relation to such individual’s annual cash compensation to ensure that each of DISH Network’s NEOs has appropriate incentives tied to the performance of DISH Network’s Class A Common Stock. Therefore, DISH Network may grant more options to one particular NEO in a given year if a substantial portion of the NEO’s 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, DISH Network may not grant any equity incentives to that particular NEO.

 

Compilation of Certain Proxy Data

 

In connection with the approval process for DISH Network’s executive officer compensation, DISH Network’s 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: The DirecTV Group, Inc., Comcast Corporation, Cablevision Systems Corporation, Charter Communications, Inc., Liberty Media Corporation,  Liberty Global, Inc., AT&T Inc., Verizon Communications, Inc., Qwest Communications International, Inc., CenturyTel, Inc., Sprint Nextel Corporation, and Level 3 Communications, Inc.  The Proxy Data, along with other information obtained by 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 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 DISH Network’s NEOs.  DISH Network’s Compensation Committee and Board of Directors do not utilize a formulaic or standard, formalized benchmarking level or element in tying or otherwise setting DISH Network’s executive compensation to that of other companies.  Generally, DISH Network’s 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.  If DISH Network’s stock performance substantially outperforms similar companies, executive compensation at DISH Network could exceed that at similar companies.  Barring significant increases in the stock price, however, DISH Network’s compensation levels generally lag its peers.

 

11



 

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 corporation’s chief executive officer and its four next 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 DISH Network’s compensation practices for purposes of obtaining the maximum continued deductibility of compensation paid consistent with DISH Network’s 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 DISH Network’s 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 DISH Network’s executive compensation program have included:

 

·      base cash salary;

·      short-term incentive compensation, including conditional and/or performance-based cash incentive compensation and discretionary bonuses;

·      long-term equity incentive compensation in the form of stock options and restricted stock units offered under DISH Network’s stock incentive plans;

·      401(k) plan; and

·      other compensation, including perquisites and personal benefits and post-termination compensation.

 

These elements combine to promote the objectives and policies described above.  Base salary, 401(k) benefits and other benefits and perquisites provided generally to DISH Network employees provide a minimum level of compensation for our NEOs.  Short-term incentives reward individual performance and achievement of annual goals important to DISH Network. Long-term equity-incentive compensation aligns NEO compensation directly with the creation of long-term shareholder value and promotes retention.

 

DISH Network has not required that a certain percentage of an executive’s salary be provided in one form versus another.  However, the Compensation Committee’s goal is to award compensation that is reasonable in relation to DISH Network’s compensation program and objectives when all elements of potential compensation are considered.  Each element of DISH Network’s historical executive compensation and the rationale for each element is described below.

 

12



 

Base Cash Salary

 

DISH Network 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,” DISH Network has weighted overall compensation towards equity components as opposed to base salaries. DISH Network’s 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:

 

·      the Compensation Committee’s and Board of Directors’ respective assessment of DISH Network’s overall financial and business performance;

·      the performance of the NEO’s business unit;

·      the NEO’s individual contributions to DISH Network; and

·      the rate of DISH Network’s standard annual merit increase for employees who are performing at a satisfactory level.

 

Short-Term Incentive Compensation

 

This compensation program, if implemented for a particular year, generally provides for a bonus that is linked to annual performance as determined by the Compensation Committee at the beginning of each fiscal year when it establishes the short-term incentive plan for that year.  The objective of the short-term incentive plan is to compensate NEOs in significant part based on the achievement of specific annual goals that the Compensation Committee believes will create an incentive to maximize long-term shareholder value.  This compensation program also permits short-term incentive compensation to be awarded in the form of discretionary cash bonuses based on individual performance during the year.

 

During 2010, the Board of Directors and the Compensation Committee elected not to implement a short-term incentive program.  The decision not to implement a short-term incentive program during 2010 was made based upon, among other things, the adoption of the 2008 Long Term Incentive Plan, or 2008 LTIP. The 2008 LTIP is discussed below.  During 2010, we did not achieve any of the goals under the 2008 LTIP.

 

Long-Term Equity Incentive Compensation

 

DISH Network has traditionally 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. DISH Network has stated it believes this stake focuses the executive officers’ attention on managing DISH Network as owners with equity positions in DISH Network and aligns their interests with the long-term interests of DISH Network’s shareholders. Equity awards therefore have represented an important and significant component of DISH Network’s compensation program for executive officers. DISH Network 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, DISH Network attempts to ensure that each NEO has stock options and/or restricted stock units at any given time that are significant in relation to such individual’s annual cash compensation to ensure that each of DISH Network’s NEOs has appropriate incentives tied to the performance of DISH Network’s Class A Common Stock. Therefore, DISH Network may grant more options to one particular NEO in a given year if a substantial portion of the NEO’s 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, DISH Network may not grant any equity incentives to that particular NEO.  In particular, in granting awards for 2010, the Compensation Committee took into account, among other things, the amount necessary to retain our executive officers and that our executive officers had been granted options under the 2008 LTIP.

 

13



 

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 NEO’s position and role in DISH Network’s success and whether the NEO made any exceptional contributions to DISH Network’s success.

 

To encourage executive officers to remain in DISH Network’s employ, options granted under DISH Network’s stock incentive plans generally vest at the rate of 20% per year and have exercise prices not less than the fair market value of DISH Network’s Class A Common Stock on the date of grant or the last trading day prior to the date of grant. Other than performance-based awards such as those granted under the 2005 LTIP, 2008 LTIP or those granted to Messrs. Cullen, Han and Dodge, DISH Network’s standard form of option agreement given to executive officers has included acceleration of vesting upon a change in control of DISH Network for those executive officers that are terminated by DISH Network 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

 

DISH Network has generally awarded stock options and restricted stock units as of the last day of each calendar quarter and has set exercise prices at not less than the fair market value of DISH Network’s Class A Common Stock on the date of grant or the last trading day prior to the date of grant.

 

2009 Stock Incentive Plan

 

We have adopted an employee stock incentive plan, which we refer to as the 2009 Stock Incentive Plan. The purpose of the 2009 Stock Incentive Plan is to provide incentives to attract and retain executive officers and other key employees. Awards available to be granted under the 2009 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 CEO Stock Option Plan

 

We have adopted a Class B CEO stock option plan, which we refer to as the 2002 Class B CEO Stock Option Plan. The purpose of the 2002 Class B CEO Stock Option Plan is to promote the interests of DISH Network and its subsidiaries by aiding in the retention of Charles W. Ergen, the Chairman, President and Chief Executive Officer of DISH Network, 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 DISH Network.  Mr. Ergen abstained from our Board of Directors’ vote on this matter.  Awards available to be granted under the 2002 Class B CEO Stock Option Plan include nonqualified stock options and dividend equivalent rights with respect to DISH Network’s Class B Common Stock.

 

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 DISH Network 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 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 purchased under the ESPP.

 

14



 

Nonemployee Director Stock Option Plan

 

We have adopted a non-employee director stock option plan, which we refer to as the 2001 Director Plan. The purpose of the 2001 Director Plan is to advance our interests through the motivation, attraction and retention of highly-qualified non-employee directors. The 2001 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 DISH Network’s Class A Common Stock. We may also grant, in our discretion, any non-employee directors further options to acquire our shares of Class A Common Stock.

 

2005 Long-Term Incentive Plan

 

During January 2005, DISH Network adopted the 2005 Long-Term Incentive Plan, or 2005 LTIP, within the terms of DISH Network’s 1999 Stock Incentive Plan. The purpose of the 2005 LTIP is to promote DISH Network’s interests and the interests of its shareholders by providing key employees with financial rewards through equity participation upon achievement of DISH Network reaching the milestone of 15 million subscribers. The employees eligible to participate in the 2005 LTIP include DISH Network’s executive officers, vice presidents, directors and certain other key employees designated by DISH Network’s Compensation Committee. Awards under the 2005 LTIP consist of a one-time grant of: (a) an option to acquire a specified number of shares priced at the market value as of the last day of the calendar quarter in which the option was granted; (b) rights to acquire for no additional consideration a specified smaller number of shares of DISH Network’s Class A Common Stock; or (c) in some cases, a corresponding combination of a lesser number of option shares and such rights to acquire shares of DISH Network’s Class A Common Stock. The options and rights vest in 10% increments on each of the first four anniversaries of the date of grant and then at the rate of 20% per year thereafter; provided, however, that none of the options or rights shall be exercisable until DISH Network reaches the milestone of 15 million subscribers. The performance goal under the 2005 LTIP was not achieved in 2010. Mr. Ergen has 900,000 stock options under the 2005 LTIP that were granted on September 30, 2005. Mr. Han has 90,000 stock options and 30,000 restricted stock units under the 2005 LTIP that were granted on September 30, 2006. Mr. DeFranco has 300,000 stock options under the 2005 LTIP that were granted on March 31, 2005.  Mr. Cullen has 60,000 restricted stock units under the 2005 LTIP that were granted on December 31, 2006.  Mr. Olson does not have any awards under the 2005 LTIP.

 

2008 Long-Term Incentive Plan

 

During December 2008, DISH Network adopted the 2008 LTIP, within the terms of our 1999 Stock Incentive Plan. After the expiration of the 1999 Stock Incentive Plan on April 16, 2009, awards under the 2008 LTIP to new employee hires or employees who are promoted have been granted pursuant to the 2009 Stock Incentive Plan.  The purpose of the 2008 LTIP is to promote DISH Network’s interests and the interests of its shareholders by providing key employees with financial rewards through equity participation upon achievement of a specified long-term cumulative free cash flow goal while maintaining a specified long-term subscriber threshold. The employees eligible to participate in the 2008 LTIP include DISH Network’s executive officers, vice presidents, directors and certain other key employees designated by DISH Network’s Compensation Committee. Awards under the 2008 LTIP consist of a one-time grant of: (a) an option to acquire a specified number of shares priced at the market value as of the last day of the calendar quarter in which the option was granted; (b) rights to acquire for no additional consideration a specified smaller number of shares of DISH Network’s Class A Common Stock; or (c) in some cases, a corresponding combination of a lesser number of option shares and such rights to acquire shares of DISH Network’s Class A Common Stock.  Under the 2008 LTIP, the cumulative free cash flow goals and the total net subscriber threshold are measured on the last day of each calendar quarter commencing on March 31, 2009 and continuing through and including December 31, 2015.  In the event that a cumulative free cash flow goal is achieved and the total net subscriber threshold is met as of the last day of any such calendar quarter: (i) the applicable cumulative free cash flow goal will be retired; and (ii) the corresponding increment of the option/restricted stock unit will vest and shall become exercisable contemporaneous with filing of the Form 10-Q or Form 10-K for that quarter or year, as applicable, in accordance with the following schedule (for those employees that received equity awards under the 2008 LTIP before April 1, 2009):

 

15



 

Cumulative Free
Cash Flow Goals

 

Total Net Subscriber
Threshold

 

Cumulative Vesting
Schedule

 

$

1 billion

 

13 Million

 

10

%

$

2 billion

 

13 Million

 

25

%

$

3 billion

 

13 Million

 

45

%

$

4 billion

 

13 Million

 

70

%

$

5 billion

 

13 Million

 

100

%

 

Employees who were granted equity awards after April 1, 2009 under the 2008 LTIP received a reduced number of options to acquire shares of DISH Network’s Class A Common Stock relative to the amounts that were granted to employees at the same level prior to April 1, 2009; such shares are subject to a vesting schedule that varies based upon the date on which such shares are granted.

 

Mr. Ergen was granted 900,000 stock options under the 2008 LTIP on December 31, 2008. Messrs. Han, Cullen and DeFranco were each granted 300,000 stock options under the 2008 LTIP on December 31, 2008.  Mr. Olson was granted 240,000 stock options under the 2008 LTIP on June 30, 2009 in connection with the commencement of his employment. During 2009, we generated cumulative free cash flow in excess of $1 billion while also maintaining 13 million subscribers which resulted in the vesting of approximately 10% of the 2008 LTIP stock awards.  Accordingly, the $1 billion cumulative free cash flow goal under the 2008 LTIP was retired.  During 2010, we did not achieve any of the goals under the 2008 LTIP.

 

401(k) Plan

 

DISH Network 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. DISH Network’s executives have participated in the 401(k) plan on the same terms as DISH Network’s other employees. Under the plan, employees have become eligible for participation in the 401(k) plan upon completing ninety days of service with DISH Network 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 Code. DISH Network may also make a 50% matching employer contribution up to a maximum of $1,500 per participant per calendar year. In addition, DISH Network 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.  DISH Network’s employer contributions to 401(k) plan participants’ accounts vest 20% per year commencing one year from the employee’s date of employment.

 

Perquisites and Personal Benefits, Post-Termination Compensation and Other Compensation

 

DISH Network has traditionally offered numerous 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 DISH Network’s services. Relocation benefits may also be reimbursed, but are individually negotiated when they occur. DISH Network has also permitted certain NEOs to use its corporate aircraft for personal use. DISH Network has also paid for annual tax preparation costs for certain NEOs.

 

DISH Network has not traditionally had any plans in place to provide severance benefits to employees. However, certain non-performance based stock options and restricted stock units have been granted to its executive officers subject to accelerated vesting upon a change in control.

 

16



 

2010 Executive Compensation

 

DISH Network has historically made decisions with respect to executive compensation for a particular compensation year in December of the preceding compensation year or the first 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 NEO’s 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 DISH Network’s incentive plans. DISH Network’s 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, DISH Network 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, DISH Network’s 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 DISH Network’s incentive plans if particular performance goals were met.  DISH Network’s Compensation Committee did not exercise this discretion in 2010.

 

Compensation of Chief Executive Officer

 

2010 Base Salary.  Mr. Ergen’s base salary for 2010 was determined based on a review by the Compensation Committee of the expected base salaries in 2010 of each of DISH Network’s other NEOs. The Compensation Committee did not increase Mr. Ergen’s salary in 2010.  DISH Network’s Compensation Committee noted that Mr. Ergen’s base salary continued to be substantially lower than the base salaries of the CEOs of the significant majority of the surveyed companies in the 2010 Proxy Data.

 

2010 Cash Bonus.  No bonus was paid to Mr. Ergen in 2010.

 

2010 Equity Incentives.  With respect to equity incentives, DISH Network attempts to ensure that Mr. Ergen has stock options and/or restricted stock units at any given time that are significant in relation to Mr. Ergen’s annual cash compensation to ensure that Mr. Ergen has appropriate incentives tied to the performance of DISH Network’s Class A Common Stock.   In light of awards previously granted to Mr. Ergen, the Compensation Committee determined that additional awards to Mr. Ergen were not necessary during 2010.

 

Compensation of Other Named Executive Officers

 

2010 Base Salary.

 

Base salaries for each of the other NEOs are determined annually by DISH Network’s Board of Directors primarily based on Mr. Ergen’s recommendations. The Board of Directors places substantial weight on Mr. Ergen’s recommendations in light of his role as CEO and as co-founder and controlling shareholder of DISH Network. 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 NEO’s base salary in 2009, (b) the range of the percentage increases in base salary for NEOs of the companies contained in the Proxy Data, (c) whether the NEO’s base salary was appropriate in light of DISH Network’s 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. Ergen’s subjective determination, the NEO’s performance in 2009 warranted an increase in the NEO’s base salary in 2010.  Placing primary weight on (a) the NEO’s base salary in 2009 and (b) whether, in Mr. Ergen’s subjective view, an increase in 2010 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. Ergen’s recommendation with respect to each of the other NEOs is discussed below.   The Board of Directors accepted each of Mr. Ergen’s recommendations on base salaries for each of the other NEOs.

 

17



 

Mr. CullenIn determining Mr. Cullen’s 2010 base salary, Mr. Ergen subjectively determined that Mr. Cullen’s existing base compensation was already within the range of market compensation indicated in the Proxy Data in light of DISH Network’s practices with respect to base salaries and that therefore an increase over Mr. Cullen’s 2009 base salary was not necessary.

 

Mr. DeFranco. In determining Mr. DeFranco’s 2010 base salary, Mr. Ergen subjectively determined that Mr. DeFranco’s existing base compensation was already within the range of market compensation indicated in the Proxy Data in light of DISH Network’s practices with respect to base salaries and that therefore an increase over Mr. DeFranco’s 2009 base salary was not necessary.

 

Mr. Han.   In determining Mr. Han’s 2010 base salary, Mr. Ergen subjectively determined that Mr. Han’s existing base compensation was already within the range of market compensation indicated in the Proxy Data in light of DISH Network’s practices with respect to base salaries and that therefore an increase over Mr. Han’s 2009 base salary was not necessary.

 

Mr. Olson.   Mr. Olson’s salary was agreed between DISH Network and Mr. Olson on April 27, 2009 in connection with the commencement of Mr. Olson’s employment as Executive Vice President and Chief Financial Officer of DISH Network on April 28, 2009.  In determining Mr. Olson’s 2010 base salary, Mr. Ergen subjectively determined that Mr. Olson’s existing base compensation was already within the range of market compensation indicated in the Proxy Data in light of DISH Network’s practices with respect to base salaries and that therefore an increase over Mr. Olson’s 2009 base salary was not necessary.

 

2010 Cash Bonus.  Consistent with prior years, Mr. Ergen generally recommended that other NEOs receive cash bonuses only to the extent that such amounts would be payable pursuant to the existing short-term incentive plan, if any.  As discussed above, in light of the prior grants of options, the Board of Directors and the Compensation Committee elected not to implement a short-term incentive program for 2010.  Furthermore, no cash bonuses were paid to any of our NEOs for 2010 performance.

 

2010 Equity Incentives.  With respect to equity incentives, DISH Network primarily evaluates the position of each NEO to ensure that each individual has stock options and/or restricted stock units at any given time that are significant in relation to the NEO’s annual cash compensation to ensure that the NEO has appropriate incentives tied to the performance of DISH Network’s Class A Common Stock. This determination is made by the Compensation Committee primarily on the basis of Mr. Ergen’s 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.  In particular, in granting awards for 2010, the Compensation Committee took into account, among other things, the amount necessary to retain our executive officers.

 

On June 30, 2010, Mr. Olson was awarded an option to acquire 25,000 shares of Class A Common Stock with such option vesting at the rate of 20% per year.

 

2010 Equity Grants to Messrs. Cullen and Han

 

On June 30, 2010, based on Mr. Ergen’s subjective evaluation of Messrs. Cullen’s and Han’s respective contributions to the Corporation’s performance and to align their interests with the long-term interests of DISH Network’s shareholders, Mr. Ergen recommended, and the Compensation Committee agreed, to grant each of Messrs. Cullen and Han 200,000 restricted stock units (RSUs) and an option to acquire 600,000 shares of Class A Common Stock, with such awards vesting incrementally before June 30, 2020 according to the following vesting schedules.  Although he is not an NEO for the year ended December 31, 2010, R. Stanton Dodge, our Executive Vice President, General Counsel and Secretary, also received the same grant of options and RSUs as did Messrs. Cullen and Han.

 

18



 

Fifty percent (50%) of the option and RSU awards granted to Messrs. Cullen, Han and Dodge vest based upon achieving the following specified cumulative free cash flow goals while achieving and maintaining a minimum threshold of 15,250,000 total net subscribers:

 

Cumulative Free
Cash Flow Goals

 

Number of
Options Vesting

 

Number of RSUs
Vesting

 

$

250 million

 

15,000

 

5,000

 

$

500 million

 

15,000

 

5,000

 

$

750 million

 

15,000

 

5,000

 

$

1 billion

 

15,000

 

5,000

 

$

1.25 billion

 

15,000

 

5,000

 

$

1.5 billion

 

15,000

 

5,000

 

$

1.75 billion

 

15,000

 

5,000

 

$

2 billion

 

15,000

 

5,000

 

$

2.25 billion

 

15,000

 

5,000

 

$

2.5 billion

 

15,000

 

5,000

 

$

2.75 billion

 

15,000

 

5,000

 

$

3 billion

 

15,000

 

5,000

 

$

3.25 billion

 

15,000

 

5,000

 

$

3.5 billion

 

15,000

 

5,000

 

$

3.75 billion

 

15,000

 

5,000

 

$

4 billion

 

15,000

 

5,000

 

$

4.25 billion

 

15,000

 

5,000

 

$

4.5 billion

 

15,000

 

5,000

 

$

4.75 billion

 

15,000

 

5,000

 

$

5 billion

 

15,000

 

5,000

 

 

In the event that the total net subscriber threshold is met and a cumulative free cash flow goal is achieved as of the last day of a given calendar quarter: (i) the applicable cumulative free cash flow goal(s) will be retired; and (ii) the corresponding increment(s) of the option or RSU awards will vest and shall become exercisable contemporaneously with the filing of the Corporation’s Form 10-Q or Form 10-K for that quarter or year, as applicable, with the SEC.

 

19



 

The other fifty percent (50%) of the option and RSU awards granted to Messrs. Cullen, Han and Dodge vest based upon achieving the following specified total net subscriber goals while achieving and maintaining the specified cumulative free cash flow goal:

 

Cumulative Free
Cash Flow Goals

 

Total Net
Subscriber Goal

 

Number of
Options Vesting

 

Number of RSUs
Vesting

 

$

250 million

 

15,250,000

 

15,000

 

5,000

 

$

500 million

 

15,500,000

 

15,000

 

5,000

 

$

750 million

 

15,750,000

 

15,000

 

5,000

 

$

1 billion

 

16,000,000

 

15,000

 

5,000

 

$

1.25 billion

 

16,250,000

 

15,000

 

5,000

 

$

1.5 billion

 

16,500,000

 

15,000

 

5,000

 

$

1.75 billion

 

16,750,000

 

15,000

 

5,000

 

$

2 billion

 

17,000,000

 

15,000

 

5,000

 

$

2.25 billion

 

17,250,000

 

15,000

 

5,000

 

$

2.5 billion

 

17,500,000

 

15,000

 

5,000

 

$

2.75 billion

 

17,750,000

 

15,000

 

5,000

 

$

3 billion

 

18,000,000

 

15,000

 

5,000

 

$

3.25 billion

 

18,250,000

 

15,000

 

5,000

 

$

3.5 billion

 

18,500,000

 

15,000

 

5,000

 

$

3.75 billion

 

18,750,000

 

15,000

 

5,000

 

$

4 billion

 

19,000,000

 

15,000

 

5,000

 

$

4.25 billion

 

19,250,000

 

15,000

 

5,000

 

$

4.5 billion

 

19,500,000

 

15,000

 

5,000

 

$

4.75 billion

 

19,750,000

 

15,000

 

5,000

 

$

5 billion

 

20,000,000

 

15,000

 

5,000

 

 

In the event that the cumulative free cash flow goal is met (or has already been retired and continues to be met) and a total net subscriber goal is achieved as of the last day of any such calendar quarter: (i) the applicable total net subscriber goal(s) will be retired; and (ii) the corresponding increment of the option or RSU awards will vest and shall become exercisable contemporaneously with the filing of the Corporation’s Form 10-Q or Form 10-K for that quarter or year, as applicable, with the SEC.

 

20



 

EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

 

The Compensation Committee is appointed by the Board of Directors of DISH Network Corporation to discharge certain of the Board’s responsibilities relating to compensation of DISH Network’s 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 DISH Network’s equity securities to DISH Network’s executive officers and Board members other than nonemployee directors;

·                  Approve all other option grants and issuances of DISH Network’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 DISH Network’s executive officers, and certify achievement of such goals prior to payment; and

·                  Set the compensation of the Chairman, President and Chief Executive Officer.

 

Based on the review of the Compensation Discussion and Analysis and discussions with management, we recommended to DISH Network’s management that the Compensation Discussion and Analysis be included in the Corporation’s proxy statement.

 

Respectfully submitted,

 

The DISH Network Executive Compensation Committee

 

Steven R. Goodbarn (Chairman)

Gary S. Howard

Tom A. Ortolf

 

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.

 

21



 

EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

Summary Compensation Table

 

Our executive officers are compensated by certain of our subsidiaries.  The following table sets forth the cash and noncash compensation for the fiscal year ended December 31, 2010 for the NEOs.

 

Name and Principal Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Stock
Awards
($)

 

Option
Awards (1)
($)

 

Non-Equity
Incentive Plan
Compensation
($)

 

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)

 

All Other
Compensation
(2)  ($)

 

Total
($)

 

Charles W. Ergen

 

2010

 

$

600,000

 

$

 

$

 

$

 

$

 

$

 

$

197,909

 

$

797,909

 

Chairman, President and Chief

 

2009

 

$

623,078

 

$

 

$

 

$

 

$

 

$

 

$

376,835

 

$

999,913

 

Executive Officer

 

2008

 

$

600,000

 

$

 

$

 

$

3,817,550

 

$

 

$

 

$

371,652

 

$

4,789,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert E. Olson (3)

 

2010

 

$

306,923

 

$

 

$

 

$

171,790

 

$

 

$

 

$

5,500

 

$

484,213

 

Executive Vice President

 

2009

 

$

200,769

 

$

 

$

 

$

854,165

 

$

 

$

 

$

2,551

 

$

1,057,485

 

and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas A. Cullen

 

2010

 

$

450,000

 

$

 

$

 

$

 

$

 

$

 

$

5,500

 

$

455,500

 

Executive Vice President,

 

2009

 

$

433,464

 

$

100,000

 

$

 

$

 

$

 

$

 

$

3,500

 

$

536,964

 

Programming, Sales and Marketing

 

2008

 

$

337,700

 

$

 

$

 

$

 

$

 

$

 

$

5,500

 

$

343,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bernard L. Han

 

2010

 

$

450,000

 

$

 

$

 

$

 

$

 

$

 

$

5,500

 

$

455,500

 

Executive Vice President

 

2009

 

$

451,923

 

$

100,000

 

$

 

$

1,158,000

 

$

 

$

 

$

3,500

 

$

1,713,423

 

and Chief Operating Officer

 

2008

 

$

400,000

 

$

 

$

 

$

 

$

 

$

 

$

13,246

 

$

413,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James DeFranco

 

2010

 

$

374,640

 

$

 

$

 

$

 

$

 

$

 

$

24,509

 

$

399,149

 

Executive Vice President

 

2009

 

$

389,423

 

$

 

$

 

$

 

$

 

$

 

$

18,900

 

$

408,323

 

 

 

2008

 

$

371,154

 

$

 

$

 

$

 

$

 

$

 

$

20,800

 

$

391,954

 

 


(1)                     The amounts reported in the “Option Awards” column reflect grant date fair values.  These amounts include both performance and non-performance based awards.  The grant date fair values for performance awards are based on the probable outcome of the performance conditions under the awards and do not necessarily reflect the amount of compensation actually realized or that may be realized.

 

22



 

Assuming achievement of all performance conditions underlying the performance awards included in this column, the total grant date fair values would be as follows:

 

 

 

Aggregate Grant Date Fair Value

 

 

 

2010 Performance
Awards

 

2009 Performance
Awards

 

2008 Performance
Awards

 

 

 

 

 

 

 

 

 

Charles W. Ergen

 

$

1,084,427.00

 

$

 

$

3,651,163.00

 

 

 

 

 

 

 

 

 

Robert E. Olson

 

$

217,257.00

 

$

1,566,432.00

 

$

 

 

 

 

 

 

 

 

 

Thomas A. Cullen

 

$

8,513,556.00

 

$

 

$

1,217,054.00

 

 

 

 

 

 

 

 

 

Bernard L. Han

 

$

8,513,556.00

 

$

 

$

1,217,054.00

 

 

 

 

 

 

 

 

 

James DeFranco

 

$

361,476.00

 

$

 

$

1,217,054.00

 

 

 

 

 

 

 

 

 

 

Assumptions used in the calculation of grant date fair values are included in Note 13 to the Corporation’s audited financial statements for the fiscal year ended December 31, 2010, included in the Corporation’s Annual Report on Form 10-K filed with the SEC on February 24, 2011.  Amounts for 2010 include the incremental fair value for performance awards as a result of the repricing related to the Corporation’s 2009 cash dividend.

 

(2)                     “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. Ergen’s and Mr. DeFranco’s “All Other Compensation” also includes tax preparation payments in each year.  In addition, with respect to Mr. Ergen, “All Other Compensation” includes $163,264, $345,090 and $339,592 for Mr. Ergen’s personal use of corporate aircraft during the years ended December 31, 2010, 2009 and 2008, respectively.  We calculated the value of Mr. Ergen’s personal use of corporate aircraft based upon the incremental cost of such usage to DISH Network.

 

(3)                     Mr. Olson became Chief Financial Officer of the Corporation on April 28, 2009.

 

23



 

Grant of Plan-Based Awards

 

The following table provides information on equity awards in 2010 for the Named Executive Officers.

 

 

 

 

 

 

 

Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards

 

Estimated Future Payouts Under
Equity Incentive Plan Awards

 

All Other
Stock
Awards:

 

All Other
Option
Awards:

 

Exercise

 

 

 

 

 

 

 

Date of
Compensation

 

 

 

 

 

Number of
Shares of
Stock or

 

Number of
Securities
Underlying

 

or Base
Price of
Option

 

Grant Date
Fair Value of
Stock and

 

Name

 

Grant
Date

 

Committee
Approval

 

Threshold
($)

 

Target
($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

Units (1)
(#)

 

Options
(#)

 

Awards
($/sh)

 

Option
Awards (2)

 

Charles W. Ergen

 

4/6/2010

 

1/19/2010

 

$

 

$

 

$

 

 

 

 

193

 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert E. Olson

 

4/6/2010

 

1/19/2010

 

$

 

$

 

$

 

 

 

 

193

 

 

$

 

$

 

 

 

6/30/2010

 

6/29/2010

 

$

 

$

 

$

 

 

 

 

 

25,000

 

$

18.15

 

$

171,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas A. Cullen

 

4/6/2010

 

1/19/2010

 

$

 

$

 

$

 

 

 

 

193

 

 

$

 

$

 

 

 

6/30/2010

 

6/29/2010

 

$

 

$

 

$

 

 

 

600,000

 

 

 

$

18.15

 

$

 

 

 

6/30/2010

 

6/29/2010

 

$

 

$

 

$

 

 

 

200,000

 

 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bernard L. Han

 

4/6/2010

 

1/19/2010

 

$

 

$

 

$

 

 

 

 

193

 

 

$

 

$

 

 

 

6/30/2010

 

6/29/2010

 

$

 

$

 

$

 

 

 

600,000

 

 

 

$

18.15

 

$

 

 

 

6/30/2010

 

6/29/2010

 

$

 

$

 

$

 

 

 

200,000

 

 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James DeFranco

 

4/6/2010

 

1/19/2010

 

$

 

$

 

$

 

 

 

 

193

 

 

$

 

$

 

 


(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)                     These amounts include both performance and non-performance based awards.  The grant date fair values for performance awards are based on the probable outcome of the performance conditions under the awards and do not necessarily reflect the amount of compensation actually realized or that may be realized.

 

Assuming achievement of all performance conditions underlying the performance awards included in this column, the total grant date fair values would be as follows:

 

 

 

2010
Performance
Awards

 

 

 

 

 

Thomas A. Cullen

 

$

8,513,556.00

 

 

 

 

 

Bernard L. Han

 

$

8,513,556.00

 

 

Assumptions used in the calculation of grant date fair values are included in Note 13 to the Corporation’s audited financial statements for the fiscal year ended December 31, 2010, included in the Corporation’s Annual Report on Form 10-K filed with the SEC on February 24, 2011.  Amounts for 2010 include the incremental fair value for performance awards as a result of the repricing related to the Corporation’s 2009 cash dividend.

 

24



 

Outstanding Equity Awards at Fiscal Year-End

 

 

 

Option Awards

 

Stock Awards

 

Name

 

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable

 

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

 

Option
Exercise
Price
($)

 

Option
Expiration
Date

 

Number of
Shares or
Units of
Stock That
Have Not
Vested (#)

 

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)

 

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
(#)

 

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested (1)
($)

 

Charles W. Ergen

 

80,000

 

 

 

$

22.01

 

3/31/2013

(3)

 

$

 

 

$

 

 

 

16,000

 

 

 

$

24.38

 

3/31/2013

(2)

 

$

 

 

$

 

 

 

400,000

 

 

 

$

23.56

 

6/30/2014

(3)

 

$

 

 

$

 

 

 

80,000

 

 

 

$

25.96

 

6/30/2014

(2)

 

$

 

 

$

 

 

 

500,000

 

 

 

$

25.64

 

12/31/2014

(3)

 

$

 

 

$

 

 

 

100,000

 

 

 

$

28.06

 

12/31/2014

(2)

 

$

 

 

$

 

 

 

 

 

900,000

 

$

22.58

 

9/30/2015

(3)

 

$

 

 

$

 

 

 

 

 

180,000

 

$

24.96

 

9/30/2015

(2)

 

$

 

 

$

 

 

 

 

 

810,000

 

$

9.09

 

3/31/2017

(3)

 

$

 

 

$

 

 

 

200,000

 

300,000

 

 

$

26.73

 

3/31/2018

(3)

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert E. Olson

 

20,000

 

80,000

 

 

$

14.21

 

6/30/2019

(3)

 

$

 

 

$

 

 

 

 

 

240,000

 

$

14.21

 

3/31/2017

(3)

 

$

 

 

$

 

 

 

 

25,000

 

 

$

18.15

 

6/30/2020

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas A. Cullen

 

160,000

 

40,000

 

 

$

29.62

 

12/31/2016

(3)

 

$

 

60,000

(4)

$

1,179,600

 

 

 

24,000

 

16,000

 

 

$

32.10

 

12/31/2016

(2)

 

$

 

12,000

(2)

$

299,640

 

 

 

30,000

 

 

270,000

 

$

9.09

 

3/31/2017

(3)

 

$

 

 

$

 

 

 

120,000

 

180,000

 

 

$

9.09

 

12/31/2018

(3)

 

$

 

 

$

 

 

 

 

 

 

 

600,000

 

$

18.15

 

6/30/2020

 

 

$

 

200,000

(5)

$

3,932,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bernard L. Han

 

280,000

 

70,000

 

90,000

 

$

25.22

 

9/30/2016

(3)

 

$

 

30,000

(6)

$

589,800

 

 

 

55,999

 

14,001

 

18,000

 

$

27.63

 

9/30/2016

(2)

 

$

 

6,000

(2)

$

149,820

 

 

 

30,000

 

 

270,000

 

$

9.09

 

3/31/2017

(3)

 

$

 

 

$

 

 

 

60,000

 

240,000

 

 

$

9.11

 

3/31/2019

(3)

 

$

 

 

$

 

 

 

 

 

600,000

 

$

18.15

 

6/30/2020

 

 

$

 

200,000

(5)

$

3,932,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James DeFranco

 

8,000

 

 

 

$

22.01

 

3/31/2013

(3)

 

$

 

 

$

 

 

 

1,600

 

 

 

$

24.38

 

3/31/2013

(2)

 

$

 

 

$

 

 

 

200,000

 

 

 

$

23.56

 

6/30/2014

(3)

 

$

 

 

$

 

 

 

40,000

 

 

 

$

25.96

 

6/30/2014

(2)

 

$

 

 

$

 

 

 

 

 

300,000

 

$

22.32

 

3/31/2015

(3)

 

$

 

 

$

 

 

 

 

 

60,000

 

$

24.69

 

3/31/2015

(2)

 

$

 

 

$

 

 

 

100,000

 

 

 

$

23.07

 

6/30/2015

(3)

 

$

 

 

$

 

 

 

20,000

 

 

 

$

25.46

 

6/30/2015

(2)

 

$

 

 

$

 

 

 

30,000

 

 

270,000

 

$

9.09

 

3/31/2017

(3)

 

$

 

 

$

 

 


(1)                     Amount represents the number of unvested, performance-based restricted stock units multiplied by $19.66, the closing market price of DISH Network’s Class A Shares on December 31, 2010.

 

(2)                     Amounts represent outstanding awards received by our NEOs from EchoStar as a result of the Spin-off.

 

(3)                     On November 6, 2009, we declared a dividend of $2.00 per share on our outstanding Class A and Class B Common Stock. The dividend was paid in cash on December 2, 2009 to shareholders of record on November 20, 2009. In light of such dividend, our Compensation Committee, which administers our stock incentive plans, determined to adjust the exercise price of certain stock options issued under the plans by decreasing the exercise price by $2.00 per share; provided that the exercise price of eligible stock options will not be reduced below $1.00. As a result of this

 

25



 

adjustment, a majority of the stock options outstanding as of December 31, 2009 were adjusted subsequent to the year ended December 31, 2009.

 

(4)                     Restricted stock awarded on December 31, 2006 under DISH Network’s Stock Incentive Plans.

 

(5)                     Restricted stock awarded on June 30, 2010 under DISH Network’s Stock Incentive Plans.

 

(6)                     Restricted stock awarded on September 30, 2006 under DISH Network’s Stock Incentive Plans.

 

Option Exercises and Stock Vested

 

There were no DISH Network stock options that were exercised by the NEOs in 2010 nor were there any DISH Network 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 non-performance based option agreement given to executive officers includes acceleration of vesting upon a change in control of DISH Network 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) DISH Network 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 DISH Network 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 DISH Network or the surviving entity at such date, the estimated benefits that would have been provided are as follows:

 

Name

 

Maximum
Value of
Accelerated
Vesting of
Options

 

Charles W. Ergen (1)

 

$

 

 

 

 

 

Robert E. Olson

 

$

473,750

 

 

 

 

 

Thomas A. Cullen

 

$

1,902,600

 

 

 

 

 

Bernard L. Han

 

$

2,532,000

 

 

 

 

 

James DeFranco (2)

 

$

 

 


(1)          The value of potentially accelerated unvested options as of December 31, 2010 was zero because all non-performance based unvested stock options held by Mr. Ergen were out-of-the-money.

 

(2)          Mr. DeFranco did not have any unvested, non-performance based stock options as of December 31, 2010.

 

26



 

Director Compensation and Nonemployee Director Option Plans

 

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
Earned or
Paid in
Cash
($)

 

Stock
Awards
($)

 

Option
Awards (1)
($)

 

Non-Equity
Incentive Plan
Compensation
($)

 

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)

 

All Other
Compensation
($)

 

Total
($)

 

Steven R. Goodbarn

 

$

51,500

 

$

 

$

31,699

 

$

 

$

 

$

 

$

83,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gary S. Howard

 

$

51,500

 

$

 

$

31,699

 

$

 

$

 

$

 

$

83,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tom A. Ortolf

 

$

51,500

 

$

 

$

31,699

 

$

 

$

 

$

 

$

83,199

 

 


(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 Corporation’s audited financial statements for the fiscal year ended December 31, 2010, included in the Corporation’s 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 $18.15 per share.  Options granted under our 2001 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.

 

Upon election to our Board, our nonemployee directors are granted an option to acquire a certain number of our Class A Shares under our 2001 Nonemployee Director Stock Option Plan (our “2001 Director Plan”).  Options granted under our 2001 Director Plan are 100% vested upon issuance and have a term of five years.  We also currently grant each continuing nonemployee director an option to acquire 5,000 Class A Shares every year.

 

27



 

Our nonemployee directors do not hold any stock awards except those granted to the nonemployee directors pursuant to our 2001 Director Plan.  We have granted the following options to our nonemployee directors under such plans:

 

 

 

Option Awards

 

Name

 

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

 

Option
Exercise
Price
($)

 

Option
Expiration
Date

 

Steven R. Goodbarn

 

5,000

 

$

23.61

 

6/30/2011

(2)

 

 

1,000

 

$

26.01

 

6/30/2011

(1)

 

 

5,000

 

$

34.05

 

6/30/2012

(2)

 

 

1,000

 

$

36.61

 

6/30/2012

(1)

 

 

5,000

 

$

27.28

 

6/30/2013

(2)

 

 

5,000

 

$

14.21

 

6/30/2014

(2)

 

 

5,000

 

$

18.15

 

6/30/2015

 

Total Options Outstanding at December 31, 2010

 

27,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Gary S. Howard

 

5,000

 

$

23.61

 

6/30/2011

(2)

 

 

1,000

 

$

26.01

 

6/30/2011

(1)

 

 

5,000

 

$

34.05

 

6/30/2012

(2)

 

 

1,000

 

$

36.61

 

6/30/2012

(1)

 

 

5,000

 

$

27.28

 

6/30/2013

(2)

 

 

5,000

 

$

14.21

 

6/30/2014

(2)

 

 

5,000

 

$

18.15

 

6/30/2015

 

Total Options Outstanding at December 31, 2010

 

27,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Tom A. Ortolf

 

5,000

 

$

23.61

 

6/30/2011

(2)

 

 

1,000

 

$

26.01

 

6/30/2011

(1)

 

 

5,000

 

$

34.05

 

6/30/2012

(2)

 

 

1,000

 

$

36.61

 

6/30/2012

(1)

 

 

5,000

 

$

27.28

 

6/30/2013

(2)

 

 

5,000

 

$

14.21

 

6/30/2014

(2)

 

 

5,000

 

$

18.15

 

6/30/2015

 

Total Options Outstanding at December 31, 2010

 

27,000

 

 

 

 

 

 


(1)    Amounts represent outstanding awards received by our Directors from EchoStar as a result of the Spin-off.

 

(2)    On November 6, 2009, we declared a dividend of $2.00 per share on our outstanding Class A and Class B Common Stock. The dividend was paid in cash on December 2, 2009 to shareholders of record on November 20, 2009. In light of such dividend, our Compensation Committee, which administers our stock incentive plans, determined to adjust the exercise price of certain stock options issued under the plans by decreasing the exercise price by $2.00 per share; provided that the exercise price of eligible stock options will not be reduced below $1.00. As a result of this adjustment, a majority of the stock options outstanding as of December 31, 2009 were adjusted subsequent to the year ended December 31, 2009.

 

28



 

Employee Stock Incentive Plans

 

We have three employee stock incentive plans: our 1995 Stock Incentive Plan, 1999 Stock Incentive Plan and 2009 Stock Incentive Plan (the “Stock Incentive Plans”).  We adopted the Stock Incentive Plans to provide incentives to attract and retain executive officers and other key employees.  The Stock Incentive Plans are administered by our Compensation Committee.

 

Awards available under the Stock Incentive Plans 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, 76,198,000 of our Class A Shares were available for issuance under the 2009 Stock Incentive Plan.  Our authorization to grant new awards under the 1995 Stock Incentive Plan and 1999 Stock Incentive Plan has expired.  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 21,918,500 Class A Shares and 1,564,332 outstanding restricted stock units under the Stock Incentive Plans.  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.

 

On November 6, 2009, we declared a dividend of $2.00 per share on our outstanding Class A and Class B Common Stock. The dividend was paid in cash on December 2, 2009 to shareholders of record on November 20, 2009. In light of such dividend, our Compensation Committee, which administers our stock incentive plans, determined to adjust the exercise price of certain stock options issued under the plans by decreasing the exercise price by $2.00 per share; provided that the exercise price of eligible stock options will not be reduced below $1.00. As a result of this adjustment, a majority of the stock options outstanding as of December 31, 2009 were adjusted subsequent to the year ended December 31, 2009.

 

As previously discussed in Compensation Discussion & Analysis, we have adopted the 2005 LTIP and 2008 LTIP under DISH Network’s Stock Incentive Plans.

 

Equity Compensation Plan Information

 

In addition to the 2001 Director Plan and the Stock Incentive Plans, during 2002 we adopted and our shareholders approved in 2002 our Class B CEO Stock Option Plan, under which we have reserved 20 million Class B Shares for issuance.  The shares available for issuance under the 2002 Class B CEO Stock Option Plan are not included in the table below.  No options have been granted to date under the 2002 Class B CEO Stock Option Plan.

 

29



 

The following table sets forth a description of our equity compensation plans as of December 31, 2010:

 

Plan Category

 

Number of
Securities to
be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
(a)

 

Weighted-
Average
Exercise Price
of
Outstanding
Options,
Warrants and
Rights
(b) (1)

 

Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (excluding
securities reflected
in column (a))
(c)

 

Equity compensation plans approved by security holders

 

23,482,832

 

$

18.62

 

76,198,000

 

Equity compensation plans not approved by security holders

 

 

 

 

Total

 

23,482,832

 

$

18.62

 

76,198,000

 

 


(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.

 

We no longer grant equity awards pursuant to our 1995 Stock Incentive Plan or our 1999 Stock Incentive Plan.

 

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee is comprised solely of nonemployee directors.  The Compensation Committee members are Mr. Goodbarn, Mr. Howard and Mr. Ortolf.   None of these individuals was an officer or employee of DISH Network at any time during the 2010 fiscal year.  With the exception of those executive officers and directors who are also executive officers and directors of EchoStar, no executive officer or director of DISH Network 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 DISH Network’s Board of Directors or its Compensation Committee during the 2010 fiscal year.

 

Risk Assessment

 

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. Ergen’s recommendations.  The Board of Directors places substantial weight on Mr. Ergen’s recommendations in light of his role as Chairman, President and Chief Executive Officer and as controlling shareholder of DISH Network.  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. Ergen’s base cash salary.  Our Compensation Committee makes and approves grants of options and other equity-based compensation to all of our executive officers.

 

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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 DISH Network’s stock incentive plan;

·      401(k) plan; and

·      other compensation, including perquisites and personal benefits and post-termination compensation.

 

DISH Network’s 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 DISH Network 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 DISH Network employees provide a minimum level of compensation for our executive officers.  DISH Network 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, DISH Network 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, DISH Network 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 DISH Network’s products and services.  DISH Network has not traditionally provided severance benefits to employees.  However, certain non-performance based stock options and restricted stock units have been granted to its executive officers subject to acceleration of vesting upon a change in control of DISH Network 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, DISH Network’s 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, DISH Network attempts to ensure that each executive officer retain equity awards that at any given time are significant in relation to such individual’s annual cash compensation to ensure that each of its executive officers has appropriate incentives tied to the value realized by our shareholders.

 

DISH Network 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.  DISH Network 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.  DISH Network believes this stake focuses the executive officers’ attention on managing DISH Network as owners with equity positions in DISH Network and aligns their interests with the long-term interests of DISH Network’s shareholders.  Equity awards therefore have represented an important and significant component of DISH Network’s 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.

 

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Certain Relationships and Related Transactions

 

Our Board has adopted a written policy for the review and approval of transactions involving DISH Network and related parties, such as directors, executive officers (and their immediate family members) and EchoStar.  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.  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 EchoStar, DISH Network directors who are neither members of EchoStar’s management nor its Board of Directors must approve the transaction.

 

Related Party Transactions with EchoStar Corporation

 

On January 1, 2008, we completed the Spin-off of EchoStar, which was previously our subsidiary. Following the Spin-off, EchoStar has operated as a separate public company and we have no continued ownership interest in EchoStar. However, a substantial majority of the voting power of the shares of both companies is owned beneficially by Charles W. Ergen, our Chairman, President and Chief Executive Officer, or by certain trusts established by Mr. Ergen for the benefit of his family.

 

EchoStar is our primary supplier of set-top boxes and digital broadcast operations and our key supplier of transponder leasing. Generally, the prices charged for products and services provided under the agreements entered into in connection with the Spin-off are based on pricing equal to EchoStar’s cost plus a fixed margin (unless noted differently below), which will vary depending on the nature of the products and services provided. Prior to the Spin-off, these products were provided and services were performed internally at cost.

 

In connection with the Spin-off and subsequent to the Spin-off, we and EchoStar have entered into certain agreements pursuant to which we obtain certain products, services and rights from EchoStar, EchoStar obtains certain products, services and rights from us, and we and EchoStar have indemnified each other against certain liabilities arising from our respective businesses. We also may enter into additional agreements with EchoStar in the future. The following is a summary of the terms of the principal agreements that we have entered into with EchoStar that may have an impact on our financial position and results of operations.

 

Acquisition of South.com, L.L.C.

 

During October 2010, we purchased all of South.com, L.L.C. from EchoStar and another party for $5 million.  South.com, L.L.C. is an entity that holds certain authorizations for multichannel video and data distribution service (MVDDS) spectrum in the United States.

 

Broadcast Agreement

 

In connection with the Spin-off, we entered into a broadcast agreement pursuant to which EchoStar provides certain broadcast services to us, including teleport services such as transmission and downlinking, channel origination services, and channel management services for a period ending on January 1, 2012.  We may terminate channel origination services and channel management services for any reason and without any liability upon at least 60 days notice to EchoStar.  If we terminate teleport services for a reason other than EchoStar’s breach, we are obligated to pay EchoStar 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 incurred expenses payable to EchoStar of approximately $204.0 million under the broadcast agreement during 2010.

 

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Broadcast Agreement for Certain Sports Related Programming

 

During May 2010, we entered into a broadcast agreement pursuant to which EchoStar provides certain broadcast services to us in connection with our carriage of certain sports related programming.  The term of this agreement is for ten years.  If we terminate this agreement for a reason other than EchoStar’s breach, we are generally obligated to reimburse EchoStar for any direct costs that EchoStar incurs related to any such termination that it 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 incurred expenses payable to EchoStar of approximately $0.7 million under this broadcast agreement during 2010.

 

DISH Remote Access Services Agreement

 

Effective February 23, 2010, we entered into an agreement with EchoStar pursuant to which we 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 incurred expenses payable to EchoStar 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 EchoStar.

 

DISHOnline.com Services Agreement

 

Effective January 1, 2010, we entered into a two-year agreement with EchoStar pursuant to which we 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 incurred expenses payable to EchoStar of approximately $5.9 million under the DISHOnline.com services agreement during 2010.   We have 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 EchoStar.

 

Employee Matters Agreement

 

In connection with the Spin-off, we entered into an employee matters agreement with EchoStar delineating our respective obligations to our employees. Pursuant to the agreement, EchoStar established a defined contribution plan for the benefit of its eligible employees in the United States (including its employees that transferred prior to the Spin-off).  Subject to any adjustments required by applicable law, the assets and liabilities of the DISH Network 401(k) Employee Savings Plan attributable to transferring employees, other than certain employees whose employment terminated prior to January 1, 2008, have been transferred to and assumed by the defined contribution plan established by EchoStar.  In addition, EchoStar established welfare plans for the benefit of its eligible employees and their respective eligible dependents that are substantially similar to the welfare plans currently maintained by DISH Network. 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 EchoStar. The employee matters agreement is non-terminable and will survive for the applicable statute of limitations.

 

Hard Drive Settlement Agreement

 

During 2010, we and EchoStar reached a settlement with the manufacturer of certain hard drives purchased by EchoStar 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 EchoStar 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, EchoStar determined that we would receive this cash payment and that the credit would be used for hard drives purchased for us.

 

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Loan to a Technology Company

 

During 2010, EchoStar agreed to provide a loan in the amount of approximately $900,000 to a company that EchoStar expected to provide certain video content and interactive applications to it.  Because we also expected to enter into certain agreements with this company, we agreed to reimburse EchoStar for up to $255,000 in the event that these agreements were not reached and the company fails to repay its loan to EchoStar.

 

Intellectual Property Matters Agreement

 

In connection with the Spin-off, we entered into an intellectual property matters agreement with EchoStar. The intellectual property matters agreement governs our relationship with EchoStar 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 we irrevocably assigned to EchoStar all right, title and interest in certain patents, trademarks and other intellectual property necessary for the operation of EchoStar’s set-top box business.  In addition, the agreement permits EchoStar to use, in the operation of its set-top box business, certain other intellectual property currently owned or licensed by us and our subsidiaries. EchoStar granted to us and our 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 the continued operation of our 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, we may not use the “EchoStar” name as a trademark, except in certain limited circumstances.  Similarly, the intellectual property matters agreement provides that EchoStar will not make any use of the name or trademark “DISH Network” or any other trademark owned by us, 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, we purchased approximately $2 million, $8 million and $8 million, respectively, of certain international rights for sporting events from EchoStar, of which EchoStar retained only a certain portion.

 

Management Services Agreement

 

In connection with the Spin-off, we entered into a management services agreement with EchoStar pursuant to which we make certain of our officers available to provide services (which are primarily legal and accounting services) to EchoStar.  Specifically, R. Stanton Dodge and Paul W. Orban remain employed by us, but also serve as EchoStar’s Executive Vice President, General Counsel and Secretary, and Senior Vice President and Controller, respectively.  EchoStar makes payments to us based upon an allocable portion of the personnel costs and expenses incurred by us with respect to such officers (taking into account wages and fringe benefits).  These allocations are based upon the estimated percentages of time to be spent by our executive officers performing services for EchoStar under the management services agreement.  EchoStar also reimburses us for direct out-of-pocket costs incurred by us for management services provided to EchoStar.  We and EchoStar evaluate all charges for reasonableness at least annually and make any adjustments to these charges as we and EchoStar mutually agree upon. We earned revenues of approximately $0.4 million from EchoStar 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 EchoStar at any time upon at least 30 days prior notice; (ii) by us at the end of any renewal term, upon at least 180 days prior notice; or (iii) by us upon notice to EchoStar, following certain changes in control.

 

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Multimedia Patent Trust

 

On February 13, 2009, Multimedia Patent Trust (“MPT”) filed suit against us, EchoStar, 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 EchoStar reached a settlement with MPT that did not have a material impact on our results of operations.  In December 2009, we determined that we are obligated under the agreements entered into in connection with the Spin-off to indemnify EchoStar 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.  EchoStar has agreed that its contribution towards such settlement costs shall not be applied against EchoStar’s 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 we have the right, but not the obligation, to receive product support from EchoStar (including certain engineering and technical support services) for all set-top boxes and related accessories that EchoStar has previously sold and in the future may sell to us.  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.  We incurred expenses payable to EchoStar of approximately $28.6 million under the product support agreement during 2010.   The term of the product support agreement is the economic life of such receivers and related accessories, unless terminated earlier.  We 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, we are entitled to a refund of any unearned fees paid to EchoStar for the services.

 

Professional Services Agreement

 

During 2009, we and EchoStar agreed that EchoStar shall continue to have the right, but not the obligation, to receive from us 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 EchoStar agreed that we shall continue to have the right, but not the obligation, to engage EchoStar to manage the process of procuring new satellite capacity for DISH Network and receive logistics, procurement and quality assurance services from EchoStar.  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 earned revenues of approximately $13.3 million from EchoStar under the professional services agreement during 2010.  We incurred expenses payable to EchoStar of approximately $7.1 million under the professional services agreement during 2010.

 

Real Estate Lease Agreements

 

We have entered into lease agreements pursuant to which we lease certain real estate from EchoStar.  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, EchoStar is responsible for its portion (if any) of the taxes, insurance, utilities and maintenance of the premises.  We incurred expenses payable to EchoStar of approximately $11.5 million 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.

 

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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 AgreementThe 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 to EchoStar 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 EchoStar is responsible for its portion of the taxes, insurance, utilities and maintenance of the premises.   We earned revenues of approximately $1million from EchoStar under the Varick Street lease agreement during 2010.

 

Receiver Agreement

 

In connection with the Spin-off, we entered into a receiver agreement pursuant to which we have the right, but not the obligation, to purchase digital set-top boxes and related accessories, and other equipment from EchoStar for a period ending on January 1, 2012.  The receiver agreement allows us to purchase digital set-top boxes, related accessories and other equipment from EchoStar at cost plus a fixed margin, which varies depending on the nature of the equipment purchased.  We incurred expenses payable to EchoStar of approximately $1.5 billion under the receiver agreement during 2010.  Additionally, EchoStar provides us with standard manufacturer warranties for the goods sold under the receiver agreement.  We may terminate the receiver agreement for any reason upon at least 60 days notice to EchoStar.  EchoStar may terminate the receiver agreement if certain entities were to acquire us.  The receiver agreement also includes an indemnification provision, whereby the parties indemnify each other for certain intellectual property matters.

 

Remanufactured Receiver Agreement

 

In connection with the Spin-off, we entered into a remanufactured receiver agreement with EchoStar pursuant to which EchoStar had the right, but not the obligation, to purchase remanufactured receivers and accessories from us at cost plus a fixed margin, which varies depending on the nature of the equipment purchased.  This agreement expires on January 1, 2012.  We earned revenues of approximately $3.1 million as a result of EchoStar’s purchases of remanufactured receivers and accessories from us in 2010.  EchoStar may terminate the remanufactured receiver agreement for any reason upon at least 60 days written notice to us.  We may also terminate this agreement if certain entities acquire us.

 

Satellite Capacity Agreements

 

Satellite Capacity Leased from EchoStar.  In connection with the Spin-off and subsequent to the Spin-off, we entered into certain satellite capacity agreements pursuant to which we lease certain satellite capacity on certain satellites owned or leased by EchoStar.  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 incurred expenses payable to EchoStar of approximately $151.7 million under the satellite capacity agreements during 2010.  The term of each of the leases is set forth below:

 

EchoStar III, VI, VIII and XII.  We lease certain satellite capacity from EchoStar 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 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 into service and the exercise of certain renewal options.  We generally have the option to renew each lease on a year-to-year basis through the end of the respective satellite’s life.  There can be no assurance that any options to renew such agreements will be exercised.  In August 2010, our lease of EchoStar III terminated when it was replaced by EchoStar XV.

 

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EchoStar XVI.  We will all of the satellite capacity from EchoStar 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, we have 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 us and is operated at the 61.5 degree orbital location.  The FCC has granted EchoStar 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, we are obligated to pay EchoStar a fee, which varies depending on the number of frequencies being used by EchoStar XV.

 

Nimiq 5 Agreement.  During September 2009, EchoStar 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 September 2009, EchoStar also entered into a satellite service agreement (the “DISH Telesat Agreement”) with us, pursuant to which we will receive service from EchoStar on all 32 of the DBS transponders covered by the Telesat Transponder Agreement.  We and EchoStar 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.  We have also guaranteed certain obligations of EchoStar under the Telesat Transponder Agreement. Additionally, we made certain payments to EchoStar prior to the Nimiq 5 satellite being placed into service in connection with the use of the 72.7 degree orbital location.

 

Under the terms of the DISH Telesat Agreement, we make certain monthly payments to EchoStar that commenced in October 2009 when the Nimiq 5 satellite was placed into service and continue through the service term.  We incurred expenses payable to EchoStar 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 we have 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, we have certain rights to receive service from EchoStar on a replacement satellite.

 

QuetzSat-1 Lease Agreement.  During 2008, EchoStar 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 EchoStar 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, EchoStar also entered into a transponder service agreement (“QuetzSat-1 Transponder Agreement”) with us pursuant to which we will receive service from EchoStar on 24 of the DBS transponders.

 

Under the terms of the QuetzSat-1 Transponder Agreement, we will make certain monthly payments to EchoStar 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, we have 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, we have certain rights to receive service from EchoStar on a replacement satellite.  There can be no assurance that any options to renew this agreement will be exercised or that we will exercise our option to receive service on a replacement satellite.

 

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Satellite Capacity Leased to EchoStar. During 2009, we entered into a satellite capacity agreement pursuant to which EchoStar leases satellite capacity on a certain satellite owned by us. 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. EchoStar leases certain satellite capacity from us on EchoStar I. The lease generally terminates upon the earlier of: (i) the end of the life or the replacement of the satellite (unless EchoStar 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 in service, and the exercise of certain renewal options. EchoStar generally has the option to renew this lease on a year-to-year basis through the end of the satellite’s life. There can be no assurance that any options to renew this agreement will be exercised. We earned revenues of approximately $18.8 million from EchoStar under the EchoStar I agreement during 2010.

 

Satellite Launch Agreement

 

EchoStar XV Launch Service.  During 2009, EchoStar assigned certain of its rights under a launch contract to us for EchoStar’s fair value of $103 million.  This amount was paid by us during the first quarter of 2010.  We recorded these rights at EchoStar’s net book value of $89 million and recorded the $14 million difference between EchoStar’s net book value and our purchase price as a capital transaction with EchoStar.  We used these rights to launch EchoStar XV in July 2010.

 

SlingService Services Agreement

 

Effective February 23, 2010, we entered into an agreement with EchoStar pursuant to which we 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 EchoStar.   We incurred expenses payable to EchoStar of approximately $0.4 million under the SlingService agreement during 2010.

 

Tax Sharing Agreement

 

In connection with the Spin-off, we entered into a tax sharing agreement with EchoStar 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 us, and we will indemnify EchoStar for such taxes.  However, we are not liable for and will not indemnify EchoStar 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 EchoStar’s stock, stock options or assets; (ii) any action that EchoStar takes or fails to take; or (iii) any action that EchoStar takes 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, EchoStar is solely liable for, and will indemnify us for, any resulting taxes, as well as any losses, claims and expenses.  The tax sharing agreement will only 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.

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