10-K/A 1 a13-26242_310ka.htm 10-K/A

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-K/A

(Amendment No. 1)

(Mark One)

 

x      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                            TO                           .

 

Commission file number: 0-26176

 

DISH Network Corporation

(Exact name of registrant as specified in its charter)

 

Nevada

 

88-0336997

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

9601 South Meridian Boulevard

 

 

Englewood, Colorado

 

80112

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (303) 723-1000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Class A common stock, $0.01 par value

 

The Nasdaq Stock Market L.L.C.

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes T  No £

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes £ No T

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)  is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

 

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No x

 

As of June 30, 2013, the aggregate market value of Class A common stock held by non-affiliates of the registrant was $9.0 billion based upon the closing price of the Class A common stock as reported on the Nasdaq Global Select Market as of the close of business on the last trading day of the month.

 

As of February 14, 2014, the registrant’s outstanding common stock consisted of 219,907,827 shares of Class A common stock and 238,435,208 shares of Class B common stock, each $0.01 par value.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The following documents are incorporated into this Form 10-K by reference:

 

 

 



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EXPLANATORY NOTE

 

This Amendment No. 1 on Form 10-K/A (this “10-K/A”) is being filed with respect to the Annual Report of DISH Network Corporation (“DISH Network” or the “Corporation”) on Form 10-K for the fiscal year ended December 31, 2013 filed with the Securities and Exchange Commission (“SEC”) on February 21, 2014 (the “10-K”).  The 10-K omitted the information required by Part III (Items 10 through 14), which had been contemplated to be incorporated by reference from DISH Network’s definitive Proxy Statement for its 2014 annual meeting of shareholders, in reliance on General Instruction G(3) of Form 10-K.  As DISH Network’s definitive Proxy Statement for its 2014 annual meeting of shareholders is not expected to be filed within 120 days after the end of DISH Network’s 2013 fiscal year, DISH Network is filing the 10-K/A to provide the disclosures required by Part III pursuant to General Instruction G(3) of Form 10-K.

 

In accordance with Rule 12b-15 under the Exchange Act, Part III, Items 10 through 14 of the 10-K, which were originally omitted and incorporated by reference to the Proxy Statement, have been amended to include this information, and Part IV, Item 15 of the 10-K has been amended solely to include as exhibits the new certifications required by Rule 13a-14(a) under the Exchange Act.  This 10-K/A does not amend or otherwise update any other information in the 10-K.  Accordingly, this 10-K/A should be read in conjunction with the 10-K and with DISH Network’s other filings with the SEC subsequent to the filing of the 10-K.

 




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PART III

 

Item 10.              DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors

 

The names of the members of our board of directors (the “Board” or “Board of Directors”) and certain biographical information concerning each of them are set forth below:

 

Name

 

Age

 

First Became Director

 

Position with DISH Network

 

 

 

 

 

 

 

George R. Brokaw (1)

 

46

 

2013

 

Director

Joseph P. Clayton

 

64

 

2011

 

Director, President and Chief Executive Officer

James DeFranco

 

61

 

1980

 

Director and Executive Vice President

Cantey M. Ergen

 

59

 

2001

 

Director and Senior Advisor

Charles W. Ergen

 

61

 

1980

 

Chairman

Steven R. Goodbarn (1)

 

56

 

2002

 

Director

Charles M. Lillis (1)

 

72

 

2013

 

Director

David K. Moskowitz

 

56

 

1998

 

Director and Senior Advisor

Tom A. Ortolf (1)

 

63

 

2005

 

Director

Carl E. Vogel

 

56

 

2005

 

Director and Senior Advisor

 


(1)         Member of the Audit Committee, the Executive Compensation Committee (the “Compensation Committee”) and the Nominating Committee.

 

George R. Brokaw.  Mr. Brokaw joined the Board in October 2013 and is a member of our Audit Committee, Compensation Committee, and Nominating Committee.  Mr. Brokaw is currently a Managing Partner of the investment firm Trafelet Brokaw & Co., LLC.  Until September 30, 2013, Mr. Brokaw served as Managing Director of the Highbridge Growth Equity Fund at Highbridge Principal Strategies, LLC (“Highbridge”).  Prior to joining Highbridge in 2012, Mr. Brokaw was a Managing Partner and Head of Private Equity at Perry Capital, L.L.C. (“Perry”).  Prior to joining Perry, Mr. Brokaw was Managing Director (Mergers & Acquisitions) of Lazard Frères & Co. LLC (“Lazard”) from 2003 to 2005.  Mr. Brokaw joined the board of directors of Alico, Inc. in November 2013 and continues to serve in that role.  Mr. Brokaw previously served on the board of directors of North American Energy Partners Inc. from 2006 to 2013.  The Board has determined that Mr. Brokaw meets the independence requirements of NASDAQ and SEC rules and regulations.  The Board concluded that Mr. Brokaw should serve as a member of the Board due, among other things, to his financial experience, acquired, in part, during his tenure with Highbridge, Perry and Lazard.  Mr. Brokaw received a B.A. from Yale University and a J.D. and M.B.A. from the University of Virginia.  Mr. Brokaw is a member of the New York Bar.

 

Joseph P. ClaytonMr. Clayton has served on the Board since June 2011, and currently serves as our President and Chief Executive Officer.  Mr. Clayton served as Chairman of Sirius Satellite Radio Inc. (“Sirius”) from November 2004 to July 2008 and served as Chief Executive Officer of Sirius from November 2001 to November 2004.  Prior to joining Sirius, Mr. Clayton served as President of Global Crossing North America from 1999 to 2001, as President and Chief Executive Officer of Frontier Corporation (“Frontier”) from 1997 to 1999 and as Executive Vice President, Marketing and Sales - Americas and Asia, of Thomson S.A prior to Frontier.  Mr. Clayton previously served on the Board of Directors of Transcend Services, Inc. from 2001 to April 2012 and on the Board of Directors of EchoStar Corporation (“EchoStar”) from October 2008 to June 2011.  The Board concluded that Mr. Clayton should serve on the Board due, among other things, to his experience in the radio broadcast and telecommunications industries, including his prior service with Sirius and Frontier.

 

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.  During 1980, Mr. DeFranco co-founded DISH Network with Charles W. Ergen and Cantey M. Ergen.  The Board concluded that Mr. DeFranco should serve on the Board due, among other things, to his knowledge of DISH Network since its formation, particularly in sales and marketing.

 

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Cantey M. 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 since our formation.  Mrs. Ergen served as a member of the board of directors of Children’s Hospital Colorado from 2001 to 2012, and is now an honorary lifetime member.  Mrs. Ergen also served on the board of trustees of Children’s Hospital Colorado Foundation from 2000 to 2001. During 1980, Mrs. Ergen co-founded DISH Network with her future spouse, Charles W. Ergen, and James DeFranco.  The Board concluded that Mrs. Ergen should serve on the Board due, among other things, to her knowledge of DISH Network since its formation and her service to us in a multitude of roles over the years.

 

Charles W. ErgenMr. Ergen serves as our executive Chairman and has been Chairman of the Board of Directors of DISH Network since its formation.  During the past five years, Mr. Ergen has held various executive officer and director positions with DISH Network and our subsidiaries including the position of President and Chief Executive Officer from time to time.  During 1980, Mr. Ergen co-founded DISH Network with his future spouse, Cantey M. Ergen, and James DeFranco.  Mr. Ergen also serves as executive Chairman and Chairman of the Board of Directors of 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 to November 2009.  The Board concluded that Mr. Ergen should serve on the Board due, among other things, to 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 Audit Committee, where he serves as our “audit committee financial expert,” Compensation Committee, and Nominating Committee.  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 (“Janus”) from 1992 to 2000, where 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 from its formation in October 2007 until November 2008.  The Board concluded that Mr. Goodbarn should serve on the Board due, among other things, to 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.

 

Charles M. Lillis.  Mr. Lillis joined the Board in November 2013 and is a member of our Audit Committee, Compensation Committee, and Nominating Committee.  Since 2011, Mr. Lillis has served as an advisor to Wells Fargo Bank, N.A. (“Wells Fargo”).  Previously, Mr. Lillis was a co-founder and managing partner of Castle Pines Capital LLC (“Castle Pines Capital”) from 2004 to 2011, a private equity concern and a financial services entity.  Castle Pines Capital was acquired by Wells Fargo in 2011.  Mr. Lillis was also previously a co-founder and principal of LoneTree Capital Management LLC (“LoneTree Capital Management”), a private equity investing group formed in 2000.  Prior to LoneTree Capital Management, Mr. Lillis served as Chairman of the board of directors and Chief Executive Officer of MediaOne Group, Inc. from its inception in 1995 through its acquisition by AT&T Corp. in 2000.  Mr. Lillis also has served on the boards of the following public companies:  Medco Health Solutions, Inc. from 2005 to 2012; SUPERVALU Inc. from 1995 to 2011; The Williams Companies Inc. from 2000 to 2009; and Washington Mutual, Inc. from 2005 to 2009.  The Board has determined that Mr. Lillis meets the independence requirements of NASDAQ and SEC rules and regulations.  The Board concluded that Mr. Lillis should serve as a member of the Board due, among other things, to his financial and managerial experience.

 

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.  Mr. Moskowitz served as a member of the board of directors of EchoStar from its formation in October 2007 until May 2012.  The Board concluded that Mr. Moskowitz should serve on the Board due, among other things, to 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.

 

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Tom A. Ortolf.  Mr. Ortolf joined the Board in May 2005 and is a member of our Audit Committee, Compensation Committee, and Nominating Committee.  Mr. Ortolf has been the President of CMC, a privately held investment management firm, for over twenty years.  The Board has determined that Mr. Ortolf meets the independence requirements of NASDAQ and SEC rules and regulations.  Mr. Ortolf has also served as a member of the board of directors of EchoStar since its formation in October 2007.  The Board concluded that Mr. Ortolf should serve on the Board due, among other things, to his knowledge of DISH Network from his service as a director since 2005 and his expertise in finance, business and risk management, in particular in light of his experience as an executive with CMC.

 

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 to February 2008 and served as our Vice Chairman from June 2005 to March 2009.  From October 2007 to March 2009, Mr. Vogel served as the Vice Chairman of the board of directors of, and as a Senior Advisor to, EchoStar.  From 2001 to 2005, Mr. Vogel served as the President and CEO of Charter Communications Inc. (“Charter”), 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 from 1998 to 2001.  Mr. Vogel was one of our executive officers from 1994 to 1997, including serving as our President from 1995 to 1997.  Mr. Vogel is also currently serving on the boards of directors of Shaw Communications, Inc. (which he joined in 2006), Universal Electronics, Inc. (which he joined in 2009), Ascent Capital Group, Inc. (f/k/a Ascent Media Corporation, which he joined in 2009), Sirius (which he joined in 2011) and AMC Networks Inc. (which he joined in 2013).  The Board concluded that Mr. Vogel should serve on the Board due, among other things, to 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.

 

Executive Officers

 

Information regarding our executive officers is contained in Part I of the 10-K filed with the SEC on February 21, 2014 under the caption “Item 1.  Business — Executive Officers of the Registrant.”

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors, executive 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 2013, our directors, executive officers and 10% shareholders complied with all Section 16(a) filing requirements, with the exception of the inadvertent late filing of one Form 4 by Mr. Roger Lynch, our Executive Vice President, Advanced Technologies, which related to a single transaction.  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.

 

Code of Ethics

 

Information regarding our code of ethics is contained in Part I of the 10-K filed with the SEC on February 21, 2014 under the caption “Item 1.  Business — Website Access.”

 

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 current members of the Audit Committee are Mr. Brokaw, Mr. Goodbarn, Mr. Lillis 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.  Our Audit Committee Charter is published in the corporate governance section of our investor relations website at http://www.dish.com.

 

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Item 11.              EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis addresses our compensation objectives and policies for our Chief Executive Officer, Chief Financial Officer and three other most highly compensated persons acting as one of our executive officers in 2013 (collectively, the “Named Executive Officers”), or NEOs, the elements of NEO compensation and the application of those objectives and policies to each element of fiscal 2013 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 2013 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.

 

The Compensation Committee, without Mr. Ergen present, determines Mr. Ergen’s compensation. Mr. Ergen recommends to the Board of Directors, but the Board of Directors ultimately approves, the base compensation of DISH Network’s other NEOs.  The 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. The 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 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.  The Compensation Committee and the Board of Directors 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 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 respective payouts that would become payable to Mr. Ergen upon achievement of those performance goals, the respective

 

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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 equity incentives 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 (the “Class A Shares”). Therefore, DISH Network may grant more equity incentives 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, the Board of Directors and the 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: DirecTV; Comcast Corporation; Time Warner Cable Inc.; Charter Communications, Inc.; Liberty Global, Inc.; Verizon Communications, Inc.; CenturyLink, Inc.; and Level 3 Communications, Inc.  The Proxy Data, along with other information obtained by members of the Compensation Committee 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 members of the Compensation Committee, is used solely as a subjective frame of reference, rather than a basis for benchmarking compensation for DISH Network’s NEOs.  The 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.

 

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 next three most highly compensated executive officers (other than the chief financial officer) 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 Corporation, the Board of Directors or the Compensation Committee 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 the Board of Directors nor the 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.

 

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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 compensation 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.

 

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. The Compensation Committee and the 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 the 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 2013, 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 2013 was made based upon, among other things, the adoption of the 2013 Long Term Incentive Plan, or 2013 LTIP, discussed below.

 

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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 equity incentives 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 Shares. Therefore, DISH Network may grant more equity incentives 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 2013, 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 equity incentives under the 2013 LTIP.

 

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 aid in our retention of employees, 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 Shares on the date of grant or the last trading day prior to the date of grant (if the date of grant is not a trading day). Other than performance-based awards such as those granted under the 2005 LTIP, 2008 LTIP, 2013 LTIP or those granted to Messrs. Ergen, Clayton and Han, 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.

 

The principal provisions of our equity incentive plans, and certain material equity incentive grants under such plans, are summarized below. This summary and the features of these equity incentive plans and grants set forth below, do not purport to be complete and are qualified in their entirety by reference to the provisions of the specific equity incentive plan or grant.

 

Practices Regarding Grant of Equity Incentives

 

Prior to 2013, DISH Network generally awarded equity incentives as of the last day of each calendar quarter and set exercise prices at not less than the fair market value of Class A Shares on the date of grant or the last trading day prior to the date of grant (if the last day of the calendar quarter was not a trading day).  Beginning April 1, 2013, DISH Network generally awards equity incentives as of the first day of each calendar quarter and will set exercise prices at not less than the fair market value of Class A Shares on the date of grant or the last trading day prior to the date of grant (if the date of grant is not a trading day).

 

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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 Chairman Stock Option Plan

 

We have adopted a Class B Chairman stock option plan, which we refer to as the 2002 Class B Chairman Stock Option Plan. The purpose of the 2002 Class B Chairman 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 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 Chairman Stock Option Plan include nonqualified stock options and dividend equivalent rights with respect to DISH Network’s Class B Common Stock (the “Class B Shares”).

 

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 Shares. 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.  On February 11, 2013, our Board adopted an amendment and restatement of the ESPP, which was approved by our shareholders at the 2013 Annual Meeting.  The amendment and restatement of the ESPP increased the number of Class A Shares that may be purchased under the ESPP from 1,800,000 to 2,800,000.

 

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 direct broadcast satellite (“DBS”) 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 the 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 or the last trading day prior to the date of grant (if the last day of the calendar quarter is not a trading day); (b) rights to acquire for no additional consideration a specified smaller number of DISH Network’s Class A Shares; or (c) in some cases, a corresponding combination of a lesser number of option shares and such rights to acquire DISH Network’s Class A Shares. 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 DBS subscribers. The performance goal under the 2005 LTIP was not achieved in 2013, and none of the awards have vested.  Mr. Ergen has 900,000 stock options under the 2005 LTIP that were granted on September 30, 2005.  Mr. Shull has 30,000 stock options under the 2005 LTIP that were granted on March 31, 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. Clayton and Mr. Olson do not have any awards under the 2005 LTIP.

 

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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 were promoted were granted pursuant to the 2009 Stock Incentive Plan.  The purpose of the 2008 LTIP was 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 DBS subscriber threshold. The employees eligible to participate in the 2008 LTIP included DISH Network’s executive officers, vice presidents, directors and certain other key employees designated by the Compensation Committee.  Awards under the 2008 LTIP consisted 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 or the last trading day prior to the date of grant (if the last day of the calendar quarter was not a trading day); (b) rights to acquire for no additional consideration a specified smaller number of DISH Network’s Class A Shares; or (c) in some cases, a corresponding combination of a lesser number of option shares and such rights to acquire DISH Network’s Class A Shares.  Under the 2008 LTIP, the cumulative free cash flow goals and the total net DBS subscriber threshold were measured on the last day of each calendar quarter commencing on March 31, 2009 and continuing through and including December 31, 2015.  As of July 1, 2012, we no longer granted awards under the 2008 LTIP.

 

In the event that a cumulative free cash flow goal was achieved and the total net DBS subscriber threshold was met as of the last day of any such calendar quarter: (i) the applicable cumulative free cash flow goal was retired; and (ii) the corresponding increment of the option/restricted stock unit vested and became exercisable contemporaneously with the filing of the Corporation’s financial results for that quarter or year, as applicable, with the SEC, in accordance with the following schedule (for those employees that received equity awards under the 2008 LTIP before April 1, 2009):

 

Cumulative Free
Cash Flow Goal

 

Total Net DBS
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 DISH Network’s Class A Shares relative to the amounts that were granted to employees at the same level prior to April 1, 2009; such shares were subject to a vesting schedule that varied based upon the date on which such awards were granted.

 

Mr. Ergen was granted 900,000 stock options under the 2008 LTIP on December 31, 2008.  Messrs. Han and Shull were granted 300,000 and 75,000 stock options, respectively, 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. Mr. Clayton did not have any awards under the 2008 LTIP.  During 2009, we generated cumulative free cash flow in excess of $1 billion while also maintaining 13 million DBS 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 2011, we generated cumulative free cash flow in excess of $3 billion while also maintaining 13 million DBS subscribers, which resulted in the cumulative vesting of approximately 45% of the 2008 LTIP stock awards during 2011.  Accordingly, the $2 billion and $3 billion cumulative free cash flow goals under the 2008 LTIP were retired.  During 2012, we generated cumulative free cash flow in excess of $4 billion while also maintaining 13 million DBS subscribers, which resulted in the cumulative vesting of approximately 70% of the 2008 LTIP stock awards during 2012.  Accordingly, the $4 billion cumulative free cash flow goal under the 2008 LTIP was retired.  During 2013, we generated cumulative free cash flow in excess of $5 billion while also maintaining 13 million DBS subscribers, which resulted in the cumulative vesting of 100% of the 2008 LTIP stock awards during 2013.  Accordingly, the $5 billion cumulative free cash flow goal under the 2008 LTIP was retired.

 

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2010 Equity Incentives to Mr. Han

 

During 2010, based on Mr. Ergen’s subjective evaluation of Mr. Han’s contributions to the Corporation’s performance and to align his interests with the long-term interests of DISH Network’s shareholders, Mr. Ergen recommended, and the Compensation Committee agreed, to grant Mr. Han 200,000 restricted stock units (RSUs) and an option to purchase 600,000 shares of Class A Shares, with such awards vesting incrementally before June 30, 2020 according to the following vesting schedules.  Although they are not NEOs for the year ended December 31, 2013, Thomas A. Cullen, our Executive Vice President, Corporate Development, and R. Stanton Dodge, our Executive Vice President, General Counsel and Secretary, each also received the same grant of options and RSUs as Mr. Han.  None of the goals under this grant have been met, and none of the awards have vested.

 

Fifty percent (50%) of the option and RSU awards granted to Mr. Han 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 Goal

 

Options Vesting
Schedule

 

RSUs Vesting
Schedule

 

$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 financial results for that quarter or year, as applicable, with the SEC.

 

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The other fifty percent (50%) of the option and RSU awards granted to Mr. Han 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 Goal

 

Total Net
Subscriber Goal

 

Options Vesting
Schedule

 

RSUs Vesting
Schedule

$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 financial results for that quarter or year, as applicable, with the SEC.

 

For purposes of the total net subscriber goal and total net subscriber threshold under these equity incentive awards, the calculation of “subscribers” is a formula that takes into account, among other things, Pay-TV subscribers and broadband subscribers.  In addition, for purposes of the cumulative free cash flow goals under these equity incentive awards, the calculation of “cumulative free cash flow” is a formula that takes into account, among other things, free cash flow as set forth in the Corporation’s financial results for that quarter or year, as applicable, filed with the SEC.  The Compensation Committee has final authority to, among other things, interpret and calculate any and all aspects of these equity incentive awards, including vesting and all other aspects of calculating the achievement of the goals under these equity incentive awards.

 

2011 Equity Incentives to Mr. Ergen

 

During 2011, the Compensation Committee determined that Mr. Ergen should receive a grant of options to purchase 1,200,000 of the Corporation’s Class A Shares, with such award vesting incrementally before June 30, 2021 according to the following vesting schedules.

 

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Fifty percent (50%) of the option awards granted to Mr. Ergen vest based upon achieving the following specified cumulative free cash flow goals while achieving and maintaining a minimum threshold of 14,250,000 total net subscribers:

 

Cumulative Free
Cash Flow Goal

 

Vesting Schedule

$250 million

 

30,000

$500 million

 

30,000

$750 million

 

30,000

$1 billion

 

30,000

$1.25 billion

 

30,000

$1.5 billion

 

30,000

$1.75 billion

 

30,000

$2 billion

 

30,000

$2.25 billion

 

30,000

$2.5 billion

 

30,000

$2.75 billion

 

30,000

$3 billion

 

30,000

$3.25 billion

 

30,000

$3.5 billion

 

30,000

$3.75 billion

 

30,000

$4 billion

 

30,000

$4.25 billion

 

30,000

$4.5 billion

 

30,000

$4.75 billion

 

30,000

$5 billion

 

30,000

 

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 of the option will vest and shall become exercisable contemporaneously with the filing of the Corporation’s financial results for that quarter or year, as applicable, with the SEC.  During 2013, we generated cumulative free cash flow in excess of $2.5 billion while achieving and maintaining a minimum threshold of 14,250,000 total net subscribers, resulting in the vesting of 300,000 stock options during 2013.  Accordingly, the $250 million, $500 million, $750 million, $1 billion, $1.25 billion, $1.5 billion, $1.75 billion, $2 billion, $2.25 billion and $2.5 billion cumulative free cash flow goals under the grant were retired.

 

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The other fifty percent (50%) of the option awards granted to Mr. Ergen 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 Goal

 

Total Net
Subscriber Goal

 

Vesting Schedule

$250 million

 

14,250,000

 

30,000

$500 million

 

14,500,000

 

30,000

$750 million

 

14,750,000

 

30,000

$1 billion

 

15,000,000

 

30,000

$1.25 billion

 

15,250,000

 

30,000

$1.5 billion

 

15,500,000

 

30,000

$1.75 billion

 

15,750,000

 

30,000

$2 billion

 

16,000,000

 

30,000

$2.25 billion

 

16,250,000

 

30,000

$2.5 billion

 

16,500,000

 

30,000

$2.75 billion

 

16,750,000

 

30,000

$3 billion

 

17,000,000

 

30,000

$3.25 billion

 

17,250,000

 

30,000

$3.5 billion

 

17,500,000

 

30,000

$3.75 billion

 

17,750,000

 

30,000

$4 billion

 

18,000,000

 

30,000

$4.25 billion

 

18,250,000

 

30,000

$4.5 billion

 

18,500,000

 

30,000

$4.75 billion

 

18,750,000

 

30,000

$5 billion

 

19,000,000

 

30,000

 

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 will vest and shall become exercisable contemporaneously with the filing of the Corporation’s financial results for that quarter or year, as applicable, with the SEC.  During 2013, we achieved the total net subscriber goal of 14,250,000 while achieving and maintaining the cumulative free cash flow goal of at least $250 million, resulting in the vesting of 30,000 stock options during 2013.  Accordingly, the total net subscriber goal of 14,250,000 under the grant was retired.

 

For purposes of the total net subscriber goal and total net subscriber threshold under this equity incentive award, the calculation of “subscribers” is a formula that takes into account, among other things, Pay-TV subscribers and broadband subscribers.  In addition, for purposes of the cumulative free cash flow goals under this equity incentive award, the calculation of “cumulative free cash flow” is a formula that takes into account, among other things, free cash flow as set forth in the Corporation’s financial results for that quarter or year, as applicable, filed with the SEC.  The Compensation Committee has final authority to, among other things, interpret and calculate any and all aspects of this equity incentive award, including vesting and all other aspects of calculating the achievement of the goals under this equity incentive award.

 

2011 Equity Incentives to Mr. Clayton

 

During 2011, the Compensation Committee determined that in connection with the commencement of Mr. Clayton’s employment as President and Chief Executive Officer of DISH Network in June 2011, he should receive a grant of options to purchase 750,000 of the Corporation’s Class A Shares, with such options vesting at the rate of one-third per year commencing December 31, 2011, and a grant of 300,000 restricted stock units (RSUs), with such awards vesting incrementally before December 31, 2013 according to the following vesting schedules.

 

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One hundred thousand (100,000) of the RSU awards granted to Mr. Clayton vested based upon achieving the following specified cumulative free cash flow goals while achieving and maintaining a minimum threshold of 14,250,000 total net subscribers:

 

Cumulative Free
Cash Flow Goal

 

Vesting Schedule

$250 million

 

10,000

$500 million

 

10,000

$750 million

 

10,000

$1 billion

 

10,000

$1.25 billion

 

10,000

$1.5 billion

 

10,000

$1.75 billion

 

10,000

$2 billion

 

10,000

$2.25 billion

 

10,000

$2.5 billion

 

10,000

 

In the event that the total net subscriber threshold was met and a cumulative free cash flow goal was achieved as of the last day of a given calendar quarter: (i) the applicable cumulative free cash flow goal(s) were retired; and (ii) the corresponding increment(s) of the RSU awards vested contemporaneously with the filing of the Corporation’s financial results for that quarter or year, as applicable, with the SEC.  During 2013, we generated cumulative free cash flow in excess of $2.5 billion while achieving and maintaining a minimum threshold of 14,250,000 total net subscribers, resulting in the vesting of 100,000 RSUs during 2013.  Accordingly, the $250 million, $500 million, $750 million, $1 billion, $1.25 billion, $1.5 billion, $1.75 billion, $2 billion, $2.25 billion and $2.5 billion cumulative free cash flow goals under the grant were retired.

 

One hundred thousand (100,000) of the RSU awards granted to Mr. Clayton vested 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 Goal

 

Total Net
Subscriber Goal

 

Vesting Schedule

$250 million

 

14,250,000

 

10,000

$500 million

 

14,500,000

 

10,000

$750 million

 

14,750,000

 

10,000

$1 billion

 

15,000,000

 

10,000

$1.25 billion

 

15,250,000

 

10,000

$1.5 billion

 

15,500,000

 

10,000

$1.75 billion

 

15,750,000

 

10,000

$2 billion

 

16,000,000

 

10,000

$2.25 billion

 

16,250,000

 

10,000

$2.5 billion

 

16,500,000

 

10,000

 

In the event that the cumulative free cash flow goal was met (or was already retired and continued to be met) and a total net subscriber goal was achieved as of the last day of any such calendar quarter: (i) the applicable total net subscriber goal(s) were retired; and (ii) the corresponding increment of the RSU awards vested contemporaneously with the filing of the Corporation’s financial results for that quarter or year, as applicable, with the SEC.  During 2013, we achieved the total net subscriber goal of 14,250,000 while achieving and maintaining the cumulative free cash flow goal of at least $250 million, resulting in the vesting of 10,000 RSUs during 2013.  Accordingly, the total net subscriber goal of 14,250,000 under the grant was retired.

 

For purposes of the total net subscriber goal and total net subscriber threshold under this equity incentive award, the calculation of “subscribers” was a formula that takes into account, among other things, Pay-TV subscribers and broadband subscribers.  In addition, for purposes of the cumulative free cash flow goals under this equity incentive award, the calculation of “cumulative free cash flow” was a formula that takes into account, among other things, free cash flow as set forth in the Corporation’s financial results for that quarter or year, as applicable, filed with the SEC.

 

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The Compensation Committee had final authority to, among other things, interpret and calculate any and all aspects of this equity incentive award, including vesting and all other aspects of calculating the achievement of the goals under this equity incentive award.

 

Fifty thousand (50,000) of the RSU awards granted to Mr. Clayton vested at the rate of 5,000 RSUs per quarter when, in any such quarter, (i) the quarterly net U.S. DBS subscriber additions of the Corporation were greater than the quarterly net U.S. DBS subscriber additions of DirecTV, as measured by net U.S. DBS subscriber additions based on the announced U.S. DBS subscriber counts in each company’s respective Form 10-Q or 10-K for that quarter or year, as applicable, filed with the SEC; and (ii) the quarterly net U.S. DBS subscriber additions of the Corporation were greater than zero.  In 2013, Mr. Clayton achieved the above criteria for the first quarter 2013, resulting in the vesting of five thousand (5,000) RSUs during 2013.

 

The remaining fifty thousand (50,000) of the RSU awards granted to Mr. Clayton vested at the rate of 10,000 RSUs for each of the below criteria met in a given year, contemporaneous with the release of the National Quarterly American Customer Satisfaction Index (the “ACSI”) scores in May 2012 and May 2013.  The criteria were as follow:

 

1.              The ACSI score of the Corporation was greater than or equal to a specified figure;

2.              The ACSI score of the Corporation was greater than or equal to certain of the Corporation’s competitors; or

3.              The ACSI score of the Corporation was greater than or equal to all companies in the Corporation’s industry

 

However, in no event could more than a total of fifty thousand (50,000) RSUs have vested under the ACSI criteria above.  In 2013, Mr. Clayton achieved one out of the three criteria set forth above, resulting in the vesting of ten thousand (10,000) RSUs during 2013.

 

As of March 31, 2014, the unvested portion of Mr. Clayton’s RSU award expired, and no further vesting was possible.

 

2013 Long-Term Incentive Plan

 

On November 30, 2012, the Board of Directors and the Compensation Committee approved a long-term, performance-based stock incentive plan, the 2013 Long Term Incentive Plan, or 2013 LTIP, within the terms of DISH Network’s 2009 Stock Incentive Plan. The purpose of the 2013 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 specified long-term cumulative free cash flow goals while maintaining a specified long-term subscriber threshold and total net subscriber goals.  The employees eligible to participate in the 2013 LTIP generally include DISH Network’s executive officers, senior vice presidents, vice presidents and director-level employees. Employees participating in the 2013 LTIP receive a one-time award of: (i) an option to acquire a specified number of shares priced at the market value as of the first day of the calendar quarter in which the option was granted or the last trading day prior to the date of grant (if the first day of the calendar quarter is not a trading day) and (ii) rights to acquire for no additional consideration a specified smaller number of Class A Shares. Initial awards granted under the 2013 LTIP were made as of January 1, 2013.  Under the 2013 LTIP, the cumulative free cash flow goals and the total net subscriber threshold are measured on the last day of each calendar quarter.  The cumulative free cash flow goals commenced April 1, 2013.  The total net subscriber goals are measured on the last day of each calendar quarter commencing on January 1, 2013.  However, regardless of when achieved, no vesting could occur or payment could be made under the 2013 LTIP for any cumulative free cash flow goals or total net subscriber goals until the end of the first calendar quarter following the quarter in which the final cumulative free cash flow goal under the 2008 LTIP was achieved and in no event prior to March 31, 2014.  For purposes of the total net subscriber goal and total net subscriber threshold under the 2013 LTIP, the calculation of “subscribers” is a formula that takes into account, among other things, Pay-TV subscribers and broadband subscribers.  In addition, for purposes of the cumulative free cash flow goals under the 2013 LTIP, the calculation of “cumulative free cash flow” is a formula that takes into account, among other things, free cash flow as set forth in the Corporation’s financial results for that quarter or year, as applicable, filed with the SEC, but excluding free cash flows from the wireless line of business.  The Compensation Committee has final authority to, among other things, interpret and calculate any and all aspects of the 2013 LTIP, including vesting and all other aspects of calculating the achievement of the goals under the 2013 LTIP.

 

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In the event that a cumulative free cash flow goal and/or total net subscriber 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 and/or total net subscriber goal will be retired; and (ii) the corresponding increment of the option/restricted stock unit will vest and shall become exercisable contemporaneously with filing of the Corporation’s financial results for that quarter or year, as applicable, with the SEC, in accordance with the following vesting schedules:

 

Cumulative Free
Cash Flow Goal

 

Total Net Subscriber
Threshold

 

Vesting Schedule

$1 billion

 

14.5 million

 

10%

$2 billion

 

14.5 million

 

10%

$3 billion

 

14.5 million

 

10%

$4 billion

 

14.5 million

 

10%

$5 billion

 

14.5 million

 

10%

 

Total Net Subscriber
Goal

 

Vesting Schedule

14.5 million

 

10%

14.75 million

 

10%

15 million

 

10%

15.25 million

 

10%

15.5 million

 

10%

 

Messrs. Ergen, Clayton, Han and Olson were each granted an option to purchase 60,000 Class A Shares and 30,000 RSUs under the 2013 LTIP on January 1, 2013.  Mr. Shull was granted an option to purchase 30,000 Class A Shares and 15,000 RSUs under the 2013 LTIP on January 1, 2013.  Mr. Shull was granted an additional option to purchase 30,000 Class A Shares and 15,000 RSUs under the 2013 LTIP on April 1, 2013 as a result of his promotion to Executive Vice President and Chief Commercial Officer on March 7, 2013.  During 2013, none of the goals under the 2013 LTIP were achieved.

 

2014 Equity Incentives to Mr. Clayton

 

The Compensation Committee determined that, on April 1, 2014, Mr. Clayton should receive a grant of 200,000 RSUs, with such awards vesting incrementally according to the following vesting schedules.

 

One hundred thousand (100,000) of the RSU awards granted to Mr. Clayton vest based upon achieving certain quarterly earnings goals during 2014, using a formula that takes into account, among other things, adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) as set forth in the Corporation’s financial results for that quarter or year, as applicable, filed with the SEC (each a “Quarterly Earnings Goal”), vesting in increments of twenty five thousand (25,000) RSUs in each calendar quarter.  The Quarterly Earnings Goals for 2014 are as follows: (i) $700 million in the first quarter 2014; (i) $815 million in the second quarter 2014; (iii) $715 million in the third quarter 2014; and (iv) $815 million in the fourth quarter 2014.

 

In the event that a Quarterly Earnings Goal is achieved as of the last day of a given calendar quarter, the corresponding increment(s) of the RSU awards will vest contemporaneously with the filing of the Corporation’s financial results for that quarter or year, as applicable, with the SEC.  Furthermore, in the event that the Corporation achieves an aggregate amount of earnings for 2014 that is greater than or equal to $3.045 billion (the sum of the above Quarterly Earnings Goals), any unvested increment of the one hundred thousand (100,000) RSUs will vest contemporaneously with the filing of the Corporation’s financial results for the year ended December 31, 2014, with the SEC.

 

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One hundred thousand (100,000) of the RSU awards granted to Mr. Clayton vest based upon achieving a positive number of net subscriber additions in each calendar quarter during 2014 (each “Quarterly Net Subscriber Additions Goal”), vesting in increments of twenty five thousand (25,000) RSUs in each calendar quarter.

 

In the event that a Quarterly Net Subscriber Additions Goal is achieved as of the last day of a given calendar quarter, the corresponding increment of the RSU awards will vest contemporaneously with the filing of the Corporation’s financial results for that quarter or year, as applicable, with the SEC.  Furthermore, in the event that the Corporation’s aggregate number of net subscriber additions for 2014 is positive, any unvested increment of the one hundred thousand (100,000) RSUs will vest contemporaneously with the filing of the Corporation’s financial results for the year ended December 31, 2014, with the SEC.

 

For purposes of the Quarterly Net Subscriber Additions Goals under this equity incentive award, the calculation of “subscribers” is a formula that takes into account, among other things, Pay-TV subscribers and broadband subscribers.  In addition, for purposes of the Quarterly Earnings Goals under this equity incentive award, the calculation of “earnings” is a formula that takes into account, among other things, EBITDA as set forth in the Corporation’s financial results for that quarter or year, as applicable, filed with the SEC.  The Compensation Committee has final authority to, among other things, interpret and calculate any and all aspects of this equity incentive award, including vesting and all other aspects of calculating the achievement of the goals under this equity incentive award.

 

401(k) Plan

 

DISH Network has adopted the 401(k) Employee Savings Plan (the “401(k) Plan”), 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 401(k) Plan, employees generally 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 $2,500 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 generally 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 and their family members and guests 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.

 

Shareholder Advisory Vote on Executive Compensation

 

DISH Network provided its shareholders with the opportunity to cast an advisory vote on executive compensation at the annual meeting of shareholders held in May 2011.  Over 99% of the voting power represented at the meeting and entitled to vote on that matter voted in favor of the executive compensation proposal.  The Compensation Committee reviewed these voting results.  Since the voting results affirmed shareholders’ support of DISH Network’s approach to executive compensation, DISH Network did not change its approach in 2013 as a direct result of the vote.  As set forth at the annual meeting of shareholders held in May 2011, DISH Network intends to

 

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continue to seek a shareholder advisory vote on executive compensation once every three years and will seek such vote at the 2014 annual meeting of shareholders.

 

2013 Executive Compensation

 

Generally, 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.  With respect to the executive compensation of each NEO for 2013, 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 annual base salary and bonus paid to the NEO in the prior year, and (b) equity incentives held by each NEO in DISH Network’s stock incentive plans. The Compensation Committee (along with Mr. Ergen, for each of the NEOs other than himself) also reviewed the Proxy Data prepared for 2013 and other information described in “Compilation of Certain Proxy Data” above. As described in “General Compensation Levels” above, DISH Network aims to provide annual 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, the 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.  The Compensation Committee did not exercise this discretion in 2013.

 

Compensation of our Chairman and our President and Chief Executive Officer

 

2013 Base Salary of Chairman.  Mr. Ergen’s annual base salary for 2013 was determined based on a review by the Compensation Committee of the expected annual base salaries in 2013 of each of DISH Network’s other NEOs. Mr. Ergen’s annual base salary was increased to $900,000, effective July 1, 2011.  The Compensation Committee determined that Mr. Ergen’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 annual base salaries and that therefore an increase over Mr. Ergen’s 2012 annual base salary was not necessary.

 

2013 Base Salary of President and Chief Executive Officer.  In determining Mr. Clayton’s 2013 annual base salary, Mr. Ergen subjectively determined that Mr. Clayton’s performance met expectations for 2012 and that Mr. Clayton was therefore eligible for our standard merit increase.  In addition, Mr. Ergen determined that Mr. Clayton should receive an additional increase in base salary based on Mr. Ergen’s subjective determination of the amount required to maintain Mr. Clayton’s base salary within the range of market compensation indicated in the Proxy Data and taking into consideration our practices with respect to base salaries.

 

2013 Cash Bonus.  No cash bonus was paid to Mr. Ergen or to Mr. Clayton in 2013.

 

2013 Equity Incentives.  With respect to equity incentives, DISH Network attempts to ensure that the Chairman and the President and Chief Executive Officer have equity awards at any given time that are significant in relation to their annual cash compensation to ensure that they have appropriate incentives tied to the performance of DISH Network’s Class A Shares.  As discussed above, Mr. Ergen and Mr. Clayton each received awards under the 2013 LTIP on January 1, 2013.  In addition, as previously discussed, Mr. Clayton received certain equity incentive plan awards on April 1, 2014.

 

Compensation of Other Named Executive Officers

 

2013 Base Salary

 

Base salaries for each of the other NEOs are determined annually by the 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 and as co-founder and controlling shareholder of DISH Network. Mr. Ergen made recommendations to the Board of Directors with respect to the 2013 annual base salary of each of the other NEOs after considering: (a) the NEO’s annual base salary in 2012, (b) the range of the percentage increases in annual base salary for NEOs of the companies contained in the Proxy Data, (c) whether the NEO’s annual base salary was appropriate in light of DISH Network’s goals, including retention of the NEO, (d) the expected compensation to be

 

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paid to other NEOs in 2013 in relation to a particular NEO in 2013, (e) whether the NEO was promoted or newly hired in 2013, and (f) whether in Mr. Ergen’s subjective determination, the NEO’s performance in 2012 warranted an increase in the NEO’s annual base salary in 2013.  Placing primary weight on: (i) the NEO’s annual base salary in 2012 and (ii) whether, in Mr. Ergen’s subjective view, an increase in 2013 annual base salary was warranted based on performance and/or necessary to retain the NEO, Mr. Ergen recommended the annual 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 annual base salaries for each of the other NEOs.

 

Mr. Han.  In determining Mr. Han’s 2013 annual base salary, Mr. Ergen subjectively determined that Mr. Han’s performance met expectations for 2012 and that Mr. Han was therefore eligible for our standard merit increase.  In addition, Mr. Ergen determined that Mr. Han should receive an additional increase in annual base salary based on Mr. Ergen’s subjective determination of the amount required to maintain Mr. Han’s annual base salary within the range of market compensation indicated in the Proxy Data and taking into consideration our practices with respect to annual base salaries.

 

Mr. Olson.  In determining Mr. Olson’s 2013 annual base salary, Mr. Ergen subjectively determined that Mr. Olson’s performance met expectations for 2012 and that Mr. Olson was therefore eligible for our standard merit increase.

 

Mr. Shull.  Mr. Shull’s 2013 annual base salary was increased as a result of his promotion to Executive Vice President and Chief Commercial Officer on March 7, 2013.

 

2013 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 prior grants of equity incentives, among other things, the Board of Directors and the Compensation Committee elected not to implement a short-term incentive program for 2013.  No cash bonus was paid to Messrs. Han, Olson or Shull during 2013.

 

2013 Equity Incentives

 

With respect to equity incentives, DISH Network primarily evaluates the position of each NEO to ensure that each individual has equity incentives 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 Shares. 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 2013, 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 2013, the Compensation Committee took into account, among other things, the amount necessary to retain our executive officers.  As discussed above, Messrs. Ergen, Clayton, Han, Olson and Shull each received awards under the 2013 LTIP.  Also, during 2013, the Compensation Committee determined that Mr. Shull should receive an option to purchase 50,000 Class A Shares under the 2009 Stock Incentive Plan in connection with his promotion to Executive Vice President and Chief Commercial Officer on March 7, 2013.

 

During 2013, we generated cumulative free cash flow in excess of $5 billion while also maintaining 13 million DBS subscribers, which resulted in the cumulative vesting of 100% of the 2008 LTIP stock awards during 2013, and accordingly: (i) 270,000 Class A Shares of the stock option granted to Mr. Ergen under the 2008 LTIP vested and became exercisable; (ii) 90,000 Class A Shares of the stock option granted to Mr. Han under the 2008 LTIP vested and became exercisable; (iii) 72,000 Class A Shares of the stock option granted to Mr. Olson under the 2008 LTIP vested and became exercisable; and (iv) 22,500 Class A Shares of the stock option granted to Mr. Shull under the 2008 LTIP vested and became exercisable.

 

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Compensation Committee Interlocks and Insider Participation.  The Compensation Committee is comprised solely of independent directors.  The Compensation Committee members are Mr. Brokaw, Mr. Goodbarn, Mr. Lillis and Mr. Ortolf.  None of these individuals was an officer or employee of DISH Network at any time during the 2013 fiscal year.  With the exception of those executive officers and directors who are also executive officers or 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 2013 fiscal year.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee is appointed by the Board of Directors of DISH Network 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.

 

Based on the review of the Compensation Discussion and Analysis and discussions with management, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Corporation’s annual report on Form 10-K and Proxy Statement.

 

Respectfully submitted,

 

The DISH Network Executive Compensation Committee

 

Steven R. Goodbarn (Chairman)

George R. Brokaw

Charles M. Lillis

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 information 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.

 

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

Compensation Program 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 and as co-founder and controlling shareholder of DISH Network.  The Board of Directors ultimately approved base cash salaries for 2013 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.

 

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 plans;

·                  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 2013, 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 base 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 generally 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 retains 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.

 

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DISH Network generally grants equity incentives 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.

 

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, 2013 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 (3)

 

2013

 

$

900,000

 

$

 

$

196,488

 

$

218,400

 

$

 

$

 

$

952,478

 

$

2,267,366

 

Chairman

 

2012

 

$

900,000

 

$

 

$

 

$

 

$

 

$

 

$

400,186

 

$

1,300,186

 

 

 

2011

 

$

750,000

 

$

 

$

 

$

 

$

 

$

 

$

208,441

 

$

958,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David M. Shull (4)

 

2013

 

$

295,193

 

$

 

$

199,344

 

$

947,575

 

$

 

$

 

$

8,954

 

$

1,451,066

 

Executive Vice President

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Chief Commercial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joseph P. Clayton (5)

 

2013

 

$

980,769

 

$

 

$

196,488

 

$

218,400

 

$

 

$

 

$

6,500

 

$

1,402,157

 

President and Chief Executive Officer

 

2012

 

$

900,000

 

$

 

$

 

$

 

$

 

$

 

$

7,000

 

$

907,000

 

 

 

2011

 

$

467,307

 

$

 

$

306,700

 

$

9,071,625

 

$

 

$

 

$

 

$

9,845,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bernard L. Han (6)

 

2013

 

$

495,193

 

$

 

$

196,488

 

$

218,400

 

$

 

$

 

$

6,500

 

$

916,581

 

Executive Vice President

 

2012

 

$

475,000

 

$

 

$

 

$

 

$

 

$

 

$

5,500

 

$

480,500

 

and Chief Operating Officer

 

2011

 

$

470,192

 

$

50,000

 

$

 

$

981,070

 

$

 

$

 

$

5,500

 

$

1,506,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert E. Olson (6)

 

2013

 

$

358,078

 

$

 

$

196,488

 

$

218,400

 

$

 

$

 

$

6,500

 

$

779,466

 

Executive Vice President

 

2012

 

$

350,001

 

$

 

$

 

$

 

$

 

$

 

$

5,500

 

$

355,501

 

and Chief Financial Officer

 

2011

 

$

346,154

 

$

 

$

 

$

 

$

 

$

 

$

5,500

 

$

351,654

 

 


(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.

 

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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 of
2013 Performance
Awards

 

Incremental
Grant Date Fair
Value of Previous
Performance
Awards

 

 

 

 

 

 

 

Charles W. Ergen

 

$

2,074,440

 

$

613,292

 

 

 

 

 

 

 

David M. Shull

 

$

2,113,320

 

$

16,979

 

 

 

 

 

 

 

Joseph P. Clayton

 

$

2,074,440

 

$

 

 

 

 

 

 

 

Bernard L. Han

 

$

2,074,440

 

$

480,612

 

 

 

 

 

 

 

Robert E. Olson

 

$

2,074,440

 

$

69,797

 

 

Assumptions used in the calculation of grant date fair values are included in Note 15 to the Corporation’s audited financial statements for the fiscal year ended December 31, 2013, included in the Corporation’s Annual Report on Form 10-K filed with the SEC on February 21, 2014.  Amounts included in “Incremental Grant Date Fair Value of Previous Performance Awards” resulted from adjustment of the price of certain stock options during January 2013 related to the Corporation’s 2012 cash dividend.

 

(2)                         “All Other Compensation” for all of the NEOs includes amounts contributed pursuant to our 401(k) matching program and our profit sharing program.

 

(3)                         Mr. Ergen’s annual base salary was increased to $900,000, effective July 1, 2011.  Mr. Ergen’s “All Other Compensation” also includes a tax preparation payment.  In addition, Mr. Ergen’s, “All Other Compensation” includes $902,413 for Mr. Ergen’s personal use (and on certain occasions for the personal use by members of his family and other guests) of corporate aircraft during the year ended December 31, 2013.  Of the $902,413 attributed to personal use of corporate aircraft, $156,438 was attributed to tax gross-up payments that related to personal use of corporate aircraft by Mr. Ergen and his family members and guests.  We calculated the value of personal use of corporate aircraft based upon the incremental cost of such usage to DISH Network.  Since both the Corporation and EchoStar use the corporate aircraft and Mr. Ergen is an employee of both the Corporation and EchoStar, certain incremental costs related to personal use of corporate aircraft by Mr. Ergen and his family members and guests are allocated between the Corporation and EchoStar.

 

(4)                         Mr. Shull was promoted to Executive Vice President and Chief Commercial Officer of the Corporation on March 7, 2013 and his annual base salary was increased to $300,000 effective March 7, 2013.  As announced by DISH Network on April 28, 2014, Mr. Shull will begin a six-month leave of absence on May 31, 2014.

 

(5)                         Mr. Clayton replaced Mr. Ergen as President and Chief Executive Officer of the Corporation on June 20, 2011.  Mr. Clayton’s annual base salary was increased to $1 million effective March 2, 2013.

 

(6)                         The annual base salaries for Mr. Han and Mr. Olson were increased to $500,000 and $360,000, respectively, effective March 2, 2013.

 

23



Table of Contents

 

Grant of Plan-Based Awards

 

The following table provides information on equity awards in 2013 for the Named Executive Officers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Other

 

All Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock

 

Option

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards:

 

Awards:

 

Exercise

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Number of

 

or Base

 

Grant Date

 

 

 

 

 

Date of

 

Estimated Future Payouts Under

 

Estimated Future Payouts Under

 

Shares of

 

Securities

 

Price of

 

Fair Value of

 

 

 

 

 

Compensation

 

Non-Equity Incentive Plan Awards

 

Equity Incentive Plan Awards

 

Stock or

 

Underlying

 

Option

 

Stock and

 

 

 

Grant

 

Committee

 

Threshold

 

Target

 

Maximum

 

Threshold

 

Target

 

Maximum

 

Units (1)

 

Options

 

Awards

 

Option

 

Name

 

Date

 

Approval

 

($)

 

($)

 

($)

 

(#)

 

(#)

 

(#)

 

(#)

 

(#)

 

($/sh)

 

Awards (2)

 

Charles W. Ergen

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

30,000

 

 

 

$

 

$

196,488

 

 

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

60,000

 

 

 

$

36.40

 

$

218,400

 

 

 

04/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

 

110

 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David M. Shull

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

15,000

 

 

 

$

 

$

109,200

 

 

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

30,000

 

 

 

$

36.40

 

$

98,244

 

 

 

04/01/2013

 

03/07/2013

 

$

 

$

 

$

 

 

 

15,000

 

 

 

$

 

$

114,120

 

 

 

04/01/2013

 

03/07/2013

 

$

 

$

 

$

 

 

 

30,000

 

 

 

$

38.04

 

$

101,100

 

 

 

04/01/2013

 

03/07/2013

 

$

 

$

 

$

 

 

 

 

 

50,000

 

$

38.04

 

$

724,255

 

 

 

04/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

 

110

 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joseph P. Clayton

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

30,000

 

 

 

$

 

$

196,488

 

 

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

60,000

 

 

 

$

36.40

 

$

218,400

 

 

 

04/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

 

110

 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bernard L. Han

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

30,000

 

 

 

$

 

$

196,488

 

 

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

60,000

 

 

 

$

36.40

 

$

218,400

 

 

 

04/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

 

110

 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert E. Olson

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

30,000

 

 

 

$

 

$

196,488

 

 

 

01/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

60,000

 

 

 

$

36.40

 

$

218,400

 

 

 

04/01/2013

 

11/30/2012

 

$

 

$

 

$

 

 

 

 

110

 

 

$

 

$

 

 


(1)             The amounts reported in the “All Other Stock Awards” column represent Class A Shares awarded to the eligible NEOs during 2013 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:

 

 

 

2013
Performance
Awards

 

 

 

 

 

Charles W. Ergen

 

$

2,074,440

 

 

 

 

 

David M. Shull

 

$

2,113,320

 

 

 

 

 

Joseph P. Clayton

 

$

2,074,440

 

 

 

 

 

Bernard L. Han

 

$

2,074,440

 

 

 

 

 

Robert E. Olson

 

$

2,074,440

 

 

24



Table of Contents

 

Assumptions used in the calculation of grant date fair values are included in Note 15 to the Corporation’s audited financial statements for the fiscal year ended December 31, 2013, included in the Corporation’s Annual Report on Form 10-K filed with the SEC on February 21, 2014.

 

Outstanding Equity Awards at Fiscal Year-End

 

 

 

Option Awards

 

Stock Awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive

 

Awards:

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Plan

 

Market or

 

 

 

 

 

 

 

Incentive

 

 

 

 

 

 

 

 

 

Awards:

 

Payout

 

 

 

 

 

 

 

Plan

 

 

 

 

 

 

 

 

 

Number of

 

Value of

 

 

 

 

 

 

 

Awards:

 

 

 

 

 

 

 

 

 

Unearned

 

Unearned

 

 

 

Number of

 

Number of

 

Number of

 

 

 

 

 

Number of

 

Market

 

Shares,

 

Shares,

 

 

 

Securities

 

Securities

 

Securities

 

 

 

 

 

Shares or

 

Value of

 

Units or

 

Units or

 

 

 

Underlying

 

Underlying

 

Underlying

 

 

 

 

 

Units of

 

Shares or

 

Other

 

Other

 

 

 

Unexercised

 

Unexercised

 

Unexercised

 

Option

 

 

 

Stock

 

Units of

 

Rights

 

Rights That

 

 

 

Options

 

Options

 

Unearned

 

Exercise

 

Option

 

That Have

 

Stock That

 

That Have

 

Have Not

 

 

 

(#)

 

(#)

 

Options

 

Price

 

Expiration

 

Not Vested

 

Have Not

 

Not Vested

 

Vested (1)

 

Name

 

Exercisable

 

Unexercisable

 

(#)

 

($)

 

Date

 

(#)

 

Vested ($)

 

(#)

 

($)

 

Charles W. Ergen

 

100,000

 

 

 

$

28.06

 

12/31/2014

(2)

 

$

 

 

$

 

 

 

 

 

900,000

 

$

19.81

 

09/30/2015

(3)

 

$

 

 

$

 

 

 

 

 

180,000

 

$

24.96

 

09/30/2015

(2)

 

$

 

 

$

 

 

 

495,000

 

 

 

$

6.32

 

03/31/2017

(3)

 

$

 

 

$

 

 

 

100,000

 

 

 

$

23.96

 

03/31/2018

(3)

 

$

 

 

$

 

 

 

330,000

 

 

870,000

 

$

27.90

 

09/30/2021

(3)

 

$

 

 

$

 

 

 

 

 

60,000

 

$

36.40

 

01/01/2023

 

 

$

 

30,000

(7)

$

1,737,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David M. Shull

 

 

 

30,000

 

$

19.55

 

03/31/2015

(3)

 

$

 

 

$

 

 

 

 

 

6,000

 

$

24.69

 

03/31/2015

(2)

 

$

 

 

$

 

 

 

10,002

 

 

 

$

6.32

 

12/31/2008

(3)

 

$

 

 

$

 

 

 

 

15,000

 

 

$

21.59

 

03/31/2021

(3)

 

$

 

 

$

 

 

 

 

20,000

 

 

$

32.16

 

03/31/2022

(3)

 

$

 

 

$

 

 

 

 

 

30,000

 

$

36.40

 

01/01/2023

 

 

$

 

15,000

(7)

$

868,800

 

 

 

 

 

30,000

 

$

38.04

 

01/01/2023

 

 

$

 

15,000

(8)

$

868,800

 

 

 

 

50,000

 

 

$

38.04

 

04/01/2023

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joseph P. Clayton

 

600,000

 

 

 

$

27.90

 

06/30/2021

(3)

 

$

 

95,000

(4)

$

5,502,400

 

 

 

 

 

60,000

 

$

36.40

 

01/01/2023

 

 

$

 

30,000

(7)

$

1,737,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bernard L. Han

 

 

 

90,000

 

$

22.45

 

09/30/2016

(3)

 

$

 

30,000

(5)

$

1,737,600

 

 

 

 

 

18,000

 

$

27.63

 

09/30/2016

(2)

 

$

 

6,000

(2)

$

298,320

 

 

 

90,000

 

 

 

$

6.32

 

03/31/2017

(3)

 

$

 

 

$

 

 

 

60,000

 

60,000

 

 

$

6.34

 

03/31/2019

(3)

 

$

 

 

$

 

 

 

 

 

600,000

 

$

15.38

 

06/30/2020

(3)

 

$

 

200,000

(6)

$

11,584,000

 

 

 

40,000

 

60,000

 

 

$

21.59

 

03/31/2021

(3)

 

$

 

 

$

 

 

 

 

 

60,000

 

$

36.40

 

01/01/2023

 

 

$

 

30,000

(7)

$

1,737,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert E. Olson

 

 

20,000

 

 

$

11.44

 

06/30/2019

(3)

 

$

 

 

$

 

 

 

11,000

 

10,000

 

 

$

15.38

 

06/30/2020

(3)

 

$

 

 

$

 

 

 

 

 

60,000

 

$

36.40

 

01/01/2023

 

 

$

 

30,000

(7)

$

1,737,600

 

 

25



Table of Contents

 


(1)                          Amount represents the number of unvested, performance-based restricted stock units multiplied by $57.92 or $49.72, the closing market prices of DISH Network’s and EchoStar’s Class A Shares, respectively, on December 31, 2013.

 

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

 

(3)                         On December 2, 2012, we declared a dividend of $1.00 per share on our outstanding Class A Shares and Class B Shares. The dividend was paid in cash on December 28, 2012 to shareholders of record on December 14, 2012.  In light of such dividend, our Board of Directors and 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 up to $1.00 per share; provided that the exercise price of eligible stock options will not be reduced below $1.00.  As a result of this adjustment, the exercise price of these stock options was decreased by $0.77 per share during January 2013.

 

(4)                         Restricted stock awarded on June 30, 2011 under DISH Network’s Stock Incentive Plans.

 

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

 

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

 

(7)                         Restricted stock awarded on January 1, 2013 under DISH Network’s Stock Incentive Plans.

 

(8)                         Restricted stock awarded on April 1, 2013 under DISH Network’s Stock Incentive Plans.

 

Option Exercises and Stock Vested

 

 

 

Option Awards

 

Stock Awards

 

Name

 

Number of
Shares
Acquired on
Exercise
(#)

 

Value
Realized on
Exercise (1)
($)

 

Number of
Shares Acquired
on Vesting (#)

 

Value
Realized on
Vesting
($)

 

Charles W. Ergen

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

David M. Shull

 

87,500

 

$

1,618,250

 

 

$

 

 

 

 

 

 

 

 

 

 

 

Joseph P. Clayton

 

 

$

 

125,000

 

$

4,922,400