Important Federal Income Tax Information Related to the Separation of EchoStar Holding Corporation from EchoStar Communications Corporation
On January 1, 2008, EchoStar Communications Corporation ("ECC") was separated into two public companies. ECC transferred its digital set-top box business and fixed satellite services business into a new corporation, EchoStar Holding Corporation ("EHC"), and all the shares of EHC were subsequently distributed to the stockholders of ECC ("distribution"). The distribution is described in detail in the Information Statement, dated December 28, 2007, which was provided to all stockholders of record as of December 19, 2007.
As a result of the distribution, each holder of ECC common stock received one share of EHC common stock for every 5 shares of such holder's ECC stock. Cash was paid in lieu of fractional shares.
You will need to allocate your tax basis in the ECC common stock that you held
immediately before the distribution between your ECC common stock that you retained after the distribution and the EHC common stock you received in the distribution (including any fractional share for which cash was received). This basis allocation should be made in proportion to the fair market values of the EHC common stock received (including any fractional share of EHC common stock for which cash was received) and the ECC common stock in respect of which such EHC common stock was received. The difference between the cash received in lieu of a fractional share of EHC common stock over the tax basis allocated to such fractional share will generally be treated as capital gain or loss from the sale of such fractional share.
Shareholders are solely responsible for the allocation and the methodology for the
allocation and should consult their own tax advisers about individual tax issues. ECC and EHC are not responsible for such allocation. Federal tax law does not specifically identify how to determine the fair market value of the shares of ECC or EHC common stock for the purposes of allocating tax basis. Alternative methods to determine the fair market value, which are simply illustrative, include using: (i) the average of the high and low trading prices of such stock on January 2, 2008 (the day on which the stock first traded); (ii) the opening trading price on January 2, 2008; and (iii) the closing trading price on January 2, 2008.
For example, if you chose to base the fair market values of your ECC and EHC common stock on the closing trading prices on January 2, 2008, 83.12 percent of your pre-distribution federal income tax basis in your ECC stock would be allocated to your ECC stock and 16.88 percent would be allocated to your EHC stock.
Hypothetical Example of Tax Basis Allocation
The following is an example of how the basis allocation may be applied based upon the example described above and the following assumptions:
Number of Echostar Communications Corporation shares held: 1,000
Stockholder's total tax basis ($30 per share): $30,000
Number of EchoStar Holding Corporation shares received: 200
Tax Basis Allocation:
EchoStar Communications Corporation: $30,000 x 83.12% = $24,936 or $24.94 per share.
Echostar Holding Corporation: $30,000 x 16.88% = $5,064 or $25.32 per share. (Distribution equaled 0.2 shares of EchoStar Holding for every share of EchoStar Communications Corporation share held)
The information in this letter does not constitute tax advice. Each stockholder
should consult his or her own tax advisor as to the tax consequences of the separation and
distribution under U.S. federal, state, local and foreign tax laws. To ensure compliance
with requirements imposed by the IRS, we inform you that any information deemed to be
U.S. federal tax advice contained in this communication is not intended or written to be
used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal
Revenue Code or (ii) promoting, marketing or recommending to another party any
transaction or matter addressed herein.
You can find electronic versions of our SEC filings on this web site through the SEC Filings link or through the SEC's EDGAR database at www.sec.gov, or you can request hard copies directly from the SEC.
The transfer agent for EchoStar is Computershare Trust Company, Inc. Computershare can be reached at 1 877-437-8901 and will answer questions from registered stockholders on stockholder address changes, stock transfers, and lost securities for common stock.