Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction — Form S-4 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: S-4/A Amendment No. 1 to Form S-4 HTML 1.43M
4: CORRESP ¶ Comment-Response or Other Letter to the SEC HTML 76K
2: EX-23.1 Ex-23.1: Consent of Ernst & Young LLP HTML 6K
3: EX-23.2 Ex-23.2: Consent of Kpmg LLP HTML 7K
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
Gary L. Sellers, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue New York, New York10017
(212) 455-2000
Joseph M. Titlebaum
General Counsel and Secretary
XM Satellite Radio Holdings Inc.
1500 Eckington Place, NE Washington, DC20002
(202) 380-4000
Thomas H. Kennedy, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square New York, New York10036
(212) 735-3000
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable
after this registration statement becomes effective and all
other conditions to the proposed merger described herein have
been satisfied or waived.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Amount
Proposed Maximum
Proposed Maximum
Amount of
Title of Each Class of
to be
Offering Price
Aggregate Offering
Registration
Securities to be Registered
Registered
Per Share
Price
Fee
Common Stock, par value $0.001 per
share
1,701,908,350(1)
N/A
$4,510,057,126(2)
$138,458.75(3)
(1)
The number of shares of common
stock of the registrant being registered is based upon
(x) an estimate of the maximum number of shares of
Class A common stock, par value $0.01 per share, of XM
Satellite Radio Holdings Inc. (“XM”) presently
outstanding or issuable or expected to be issued in connection
with the merger of XM with a wholly-owned subsidiary of the
registrant multiplied by (y) the exchange ratio of
4.6 shares of common stock, par value $0.001 per share, of
the registrant, for each such share of Class A common stock
of XM.
(2)
Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(f)
under the Securities Act of 1933, as amended. The proposed
maximum aggregate offering price for the common stock is the
product of (x) $12.19, the average of the high and low
sales prices of XM Class A common stock, as quoted on the
NASDAQ Global Select Market, on July 24, 2007, and
(y) 369,980,076, the estimated maximum number of shares of
XM Class A common stock that may be exchanged for the
shares of common stock of the registrant being registered.
(3)
Previously paid.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further Amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this joint proxy statement/prospectus is not
complete and may be changed. We may not sell the securities
offered by this joint proxy statement/prospectus until the
registration statement filed with the Securities and Exchange
Commission is effective. This joint proxy statement/prospectus
does not constitute an offer to sell or a solicitation of an
offer to buy any securities in any jurisdiction where an offer,
solicitation or sale is not permitted.
Each of the boards of directors of Sirius Satellite Radio Inc.
and XM Satellite Radio Holdings Inc. has approved a strategic
merger, combining SIRIUS and XM in what we intend to be a
“merger of equals.” We believe that the proposed
merger will allow XM and SIRIUS to provide more choices for
their respective subscribers and that the combined company will
be better positioned to compete in the rapidly evolving audio
entertainment marketplace.
XM and SIRIUS have entered into an agreement and plan of merger
pursuant to which XM and SIRIUS will combine their businesses
through the merger of XM with a newly formed, wholly-owned
subsidiary of SIRIUS, with XM thereupon becoming a wholly-owned
subsidiary of SIRIUS.
In the proposed merger, XM stockholders will receive
4.6 shares of SIRIUS common stock for each share of XM
Class A common stock, referred to as XM common stock. This
exchange ratio is fixed and will not be adjusted to reflect
stock price changes prior to the closing. SIRIUS’
stockholders will continue to own their existing shares, which
will not be affected by the merger. Upon completion of the
merger, XM’s former stockholders will own
approximately % of the then
outstanding SIRIUS common stock, based on the number of shares
of SIRIUS and XM outstanding
on ,
2007. The value of the merger consideration to be received in
exchange for each share of XM common stock will fluctuate with
the market price of SIRIUS common stock.
Based on the closing sale price for SIRIUS common stock on
February 16, 2007, the last trading day before public
announcement of the merger, the 4.6 exchange ratio represented
approximately $17.02 in value for each share of XM common stock.
Based on the closing sale price for SIRIUS common stock
on ,
2007, the last trading day before the printing of this joint
proxy statement/prospectus, which we refer to as this Proxy
Statement, the 4.6 exchange ratio represented approximately
$ in value for each share of XM
common stock.
SIRIUS common stock is listed on the NASDAQ Global Select Market
under the symbol “SIRI”. XM common stock is listed on
the NASDAQ Global Select Market under the symbol
“XMSR.” We urge you to obtain current market
quotations for the shares of SIRIUS and XM.
Your vote is very important. The merger cannot be
completed unless SIRIUS stockholders approve the amendment to
SIRIUS’ certificate of incorporation and the issuance of
SIRIUS capital stock in the merger and XM stockholders adopt the
merger agreement. Each of XM and SIRIUS is holding a special
meeting of its stockholders to vote on the proposals necessary
to complete the merger. Information about these meetings, the
merger and the other business to be considered by stockholders
is contained in this Proxy Statement. We urge you to read this
Proxy Statement carefully. You should also carefully consider
the risk factors beginning on page 16.
Whether or not you plan to attend your respective
company’s special meeting of stockholders, please submit
your proxy as soon as possible to make sure that your shares are
represented at that meeting.
The SIRIUS board of directors recommends that SIRIUS
stockholders vote FOR the proposals to approve the amendment to
SIRIUS’ certificate of incorporation and the issuance of
SIRIUS capital stock in the merger, both of which are necessary
to effect the merger.
The XM board of directors recommends that XM stockholders
vote FOR the proposal to adopt the merger agreement.
Mel Karmazin
Gary M. Parsons
Chief Executive Officer
Chairman of the Board of Directors
Sirius Satellite Radio Inc.
XM Satellite Radio Holdings Inc.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the
securities to be issued in connection with the merger or
determined if this Proxy Statement is accurate or complete. Any
representation to the contrary is a criminal offense.
This Proxy Statement is
dated ,
2007, and is first being mailed to stockholders of XM and SIRIUS
on or
about ,
2007.
This Proxy Statement incorporates by reference important
business and financial information about SIRIUS and XM from
other documents that are not included in or delivered with this
Proxy Statement. For a listing of the documents incorporated by
reference into this Proxy Statement, see “Where You Can
Find More Information”. This information is available to
you without charge upon your written or oral request. You can
obtain the documents incorporated by reference into this
document through the Securities and Exchange Commission website
at
http://www.sec.gov
or by requesting them in writing or by telephone at the
appropriate address below:
By
Mail:
Sirius
Satellite Radio Inc.
1221 Avenue of the Americas
36th Floor New York, New York10020
Attention: Investor Relations
You may also obtain documents incorporated by reference into
this Proxy Statement by requesting them in writing or by
telephone
from ,
SIRIUS’ proxy solicitor,
or ,
XM’s proxy solicitor, at the following addresses and
telephone numbers:
To receive timely delivery of the documents in advance of the
meetings, you should make your request no later
than ,
2007.
VOTING
ELECTRONICALLY OR
BY TELEPHONE
SIRIUS stockholders of record on the close of business
on ,
2007, the record date for the SIRIUS special meeting, may submit
their proxies by telephone or Internet by following the
instructions on their proxy card or voting form. If you have any
questions regarding whether you are eligible to submit your
proxy by telephone or by Internet, please
contact
by telephone
at
(toll free) or via the Internet
at .
XM stockholders of record on the close of business
on ,
2007, the record date for the XM special meeting, may submit
their proxies by telephone or Internet by following the
instructions on their proxy card or voting form. If you have any
questions regarding whether you are eligible to submit your
proxy by telephone or by Internet, please
contact
by telephone at (toll free) or via the Internet
at .
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
ON ,
2007
To the
Stockholders of Sirius Satellite Radio Inc.:
A special meeting of stockholders of Sirius Satellite Radio Inc.
will be held
at ,
on ,
2007 at a.m., local time, for the following
purposes:
1. To amend SIRIUS’ certificate of incorporation to
increase the number of authorized shares of SIRIUS common stock
(the “Charter Amendment”).
2. To approve the issuance of SIRIUS common stock, par
value $0.001 per share, and SIRIUS Series A convertible
preferred stock, par value $0.001 per share, a new series of
SIRIUS preferred stock, pursuant to the Merger Agreement, dated
as of February 19, 2007, by and among Sirius Satellite
Radio Inc., Vernon Merger Corporation and XM Satellite Radio
Holdings Inc., as the same may be amended from time to time (the
“Share Issuance”).
3. To approve any motion to adjourn or postpone the special
meeting to a later date or dates, if necessary, to solicit
additional proxies if there are insufficient votes at the time
of the special meeting.
4. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof.
Proposals 1 and 2 are conditioned on each other and
approval of each is required for completion of the merger.
The accompanying Proxy Statement further describes the matters
to be considered at the meeting. A copy of the merger agreement
has been included as Annex A to the Proxy Statement.
The SIRIUS board of directors has
set ,
2007 as the record date for the special meeting. Only holders of
record of SIRIUS common stock at the close of business
on ,
2007 will be entitled to notice of and to vote at the special
meeting and any adjournments or postponements thereof. Any
stockholder entitled to attend and vote at the meeting is
entitled to appoint a proxy to attend and vote on such
stockholder’s behalf. Such proxy need not be a holder of
SIRIUS common stock. To ensure your representation at the
special meeting, please complete and return the enclosed proxy
card or submit your proxy by telephone or through the Internet.
Please vote promptly whether or not you expect to attend the
special meeting. Submitting a proxy now will not prevent you
from being able to vote at the special meeting by attending in
person and casting a vote.
The SIRIUS board of directors recommends that you vote FOR
the proposal to amend SIRIUS’ certificate of incorporation
to increase the number of authorized shares of common stock, FOR
the proposal to approve the issuance of SIRIUS common stock and
SIRIUS Series A convertible preferred stock in the merger
and FOR the proposal to approve any motion to adjourn or
postpone the special meeting to a later date or dates if
necessary to solicit additional proxies.
PATRICK L.
DONNELLY Executive Vice President, General Counsel and Secretary
New York, New York
,
2007
PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND
INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU
HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR
SHARES, PLEASE
CALL
AT (TOLL
FREE) OR VIA THE INTERNET
AT .
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
ON ,
2007
To the
Stockholders of XM Satellite Radio Holdings Inc.:
A special meeting of stockholders of XM Satellite Radio Holdings
Inc. will be held
at ,
on ,
2007
at a.m.,
local time, for the following purposes:
1. To adopt the Merger Agreement, dated as of
February 19, 2007, by and among Sirius Satellite Radio
Inc., Vernon Merger Corporation and XM Satellite Radio Holdings
Inc. as the same may be amended from time to time.
2. To approve any motion to adjourn or postpone the special
meeting to a later date or dates, if necessary, to solicit
additional proxies if there are insufficient votes at the time
of the special meeting to approve the proposal to adopt the
merger agreement.
3. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof.
The accompanying Proxy Statement further describes the matters
to be considered at the special meeting. A copy of the merger
agreement has been included as Annex A to this Proxy
Statement.
The XM board of directors has
set ,
2007 as the record date for the special meeting. Only holders of
record of shares of XM common stock at the close of business
on ,
2007 will be entitled to notice of and to vote at the special
meeting and any adjournments or postponements thereof. To
ensure your representation at the special meeting, please
complete and return the enclosed proxy card or submit your proxy
by telephone or through the Internet. Please vote promptly
whether or not you expect to attend the special meeting.
Submitting a proxy now will not prevent you from being able to
vote at the special meeting by attending in person and casting a
vote.
The board of directors of XM recommends that you vote FOR the
proposal to adopt the merger agreement and FOR the proposal to
approve any motion to adjourn or postpone the Special Meeting to
a later date or dates if necessary to solicit additional
proxies.
By Order of
the Board of Directors,
Gary M.
Parsons Chairman of the Board of Directors
,
2007
PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND
INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU
HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR
SHARES, PLEASE
CONTACT
BY TELEPHONE
AT (TOLL
FREE) OR VIA THE INTERNET
AT .
The following questions and answers briefly address some
commonly asked questions about the SIRIUS and the XM special
meetings. They may not include all the information that is
important to stockholders of XM and SIRIUS. We urge stockholders
to read carefully this entire Proxy Statement, including the
annexes and the other documents referred to herein.
Q:
Why am I receiving these materials?
A:
We are sending you these materials to help you decide how to
vote your shares of XM or SIRIUS stock with respect to their
proposed merger.
The merger cannot be completed unless XM stockholders adopt the
merger agreement, and SIRIUS stockholders approve the amendment
of SIRIUS’ certificate of incorporation and the issuance of
SIRIUS capital stock in the merger. Each of SIRIUS and XM is
holding its special meeting of stockholders to vote on the
proposals necessary to complete the merger. Information about
these meetings, the merger and the other business to be
considered by stockholders is contained in this Proxy Statement.
We are delivering this document to you as both a joint proxy
statement of XM and SIRIUS and a prospectus of SIRIUS. It is a
joint proxy statement because each of our boards of directors is
soliciting proxies from its stockholders. It is a prospectus
because SIRIUS will exchange shares of its common stock for
shares of XM in the merger.
Q:
What will stockholders receive in the merger?
A:
In the proposed merger, holders of XM common stock will receive
4.6 shares of SIRIUS common stock for each share of XM
common stock. This exchange ratio is fixed and will not be
adjusted to reflect stock price changes prior to the closing.
The sole holder of XM’s Series A convertible preferred
stock, General Motors, will similarly receive 4.6 shares of
SIRIUS Series A convertible preferred stock, a newly
designated series of preferred stock of SIRIUS.
SIRIUS’ stockholders will continue to own their existing
shares, which will not be affected by the merger.
Q:
When do XM and SIRIUS expect to complete the merger?
A:
XM and SIRIUS expect to complete the merger after all conditions
to the merger in the merger agreement are satisfied or waived,
including after stockholder approvals are received at the
special meetings of XM and SIRIUS and all required regulatory
approvals are received. SIRIUS and XM currently expect to
complete the merger by the end of 2007. However, it is possible
that factors outside of either company’s control could
require SIRIUS or XM to complete the merger at a later time or
not to complete it at all.
Q:
How do the boards of directors of SIRIUS and XM recommend
that I vote?
A:
The SIRIUS board of directors recommends that holders of SIRIUS
common stock vote FOR the proposal to amend SIRIUS’
certificate of incorporation and FOR the proposal to approve the
issuance of SIRIUS common stock and preferred stock in the
merger.
The XM board of directors recommends that XM stockholders vote
FOR the proposal to adopt the merger agreement.
Q:
What do I need to do now?
A:
After carefully reading and considering the information
contained in this Proxy Statement, please vote your shares as
soon as possible so that your shares will be represented at your
respective company’s special meeting. Please follow the
instructions set forth on the proxy card or on the voting
instruction form provided by the record holder if your shares
are held in the name of your broker or other nominee.
Q:
How do I vote?
A:
You may vote before your company’s special meeting in one
of the following ways:
use the toll-free number shown on your proxy card;
•
visit the website shown on your proxy card to vote via the
Internet; or
•
complete, sign, date and return the enclosed proxy card in the
enclosed postage-paid envelope.
You may also cast your vote in person at your company’s
special meeting.
If your shares are held in “street name”, through a
broker, bank or other nominee, that institution will send you
separate instructions describing the procedure for voting your
shares. “Street name” stockholders who wish to vote at
the meeting will need to obtain a proxy form from the
institution that holds their shares.
Q:
When and where are the SIRIUS and XM special meetings of
stockholders?
A:
The special meeting of SIRIUS stockholders will be held
at
at a.m.,
local time,
on ,
2007. Subject to space availability, all stockholders as of the
record date, or their duly appointed proxies, may attend the
meeting. Since seating is limited, admission to the meeting will
be on a first-come, first-served basis. Registration and seating
will begin at a.m., local time.
The special meeting of XM stockholders will be held at
the at a.m.,
local time,
on ,
2007. Subject to space availability, all stockholders as of the
record date, or their duly appointed proxies, may attend the
meeting. Since seating is limited, admission to the meeting will
be on a first-come, first-served basis. Registration and seating
will begin at a.m., local time.
Q:
If my shares are held in “street name” by a broker
or other nominee, will my broker or nominee vote my shares for
me?
A:
Your broker or other nominee does not have authority to vote on
the proposals described in this Proxy Statement. Your broker or
other nominee will vote your shares held by it in “street
name” with respect to these matters ONLY if you provide
instructions to it on how to vote. You should follow the
directions your broker or other nominee provides.
Q:
What constitutes a quorum?
Stockholders who hold a majority in voting power of the SIRIUS
common stock issued and outstanding as of the close of business
on the record date and who are entitled to vote must be present
or represented by proxy in order to constitute a quorum to
conduct business at the SIRIUS special meeting.
Stockholders who hold a majority in voting power of the XM
common stock issued and outstanding as of the close of business
on the record date and who are entitled to vote must be present
or represented by proxy in order to constitute a quorum to
conduct business at the XM special meeting.
Q:
What vote is required to approve each proposal?
A:
To amend the certificate of incorporation of SIRIUS: the
affirmative vote of a majority of the outstanding shares of
common stock of SIRIUS entitled to vote is required to approve
the amendment to the certificate of incorporation to increase
the authorized number of shares of common stock, which is
referred to in this Proxy Statement as the Charter Amendment.
To issue SIRIUS common stock and Series A convertible
preferred stock in the merger: the affirmative vote of a
majority of the SIRIUS shares voting on the proposal is required
to approve the issuance of SIRIUS common stock and Series A
convertible preferred stock in the merger, which is referred to
in this Proxy Statement as the Share Issuance.
To approve the merger agreement: the affirmative vote of
a majority of the outstanding shares of XM common stock entitled
to vote is required to approve the merger agreement, which is
referred to in this Proxy Statement as the Merger Proposal.
Q:
What if I do not vote on the matters relating to the
merger?
A:
If you are a SIRIUS stockholder and you fail to vote or fail to
instruct your broker or other nominee how to vote on the Charter
Amendment, your failure to vote will have the same effect as a
vote against the Charter
Amendment. If you respond with an “abstain” vote, your
proxy will have the same effect as a vote against this proposal.
If you respond but do not indicate how you want to vote on the
Charter Amendment, your proxy will be counted as a vote in favor
of the Charter Amendment.
If you are a SIRIUS stockholder and you fail to vote or fail to
instruct your broker or other nominee how to vote on the Share
Issuance, it will have no effect on the outcome of the vote for
this proposal. Similarly, if you respond with an
“abstain” vote, your proxy will have no effect on the
outcome of the vote for this proposal. If you respond but do not
indicate how you want to vote on the Share Issuance, your proxy
will be counted as a vote in favor of the Share Issuance.
The approval of the Charter Amendment and the Share Issuance are
conditioned on each other, and approval of each is required for
completion of the merger.
If you are an XM stockholder and you fail to vote or fail to
instruct your broker or other nominee how to vote on the Merger
Proposal, it will have the same effect as a vote against the
Merger Proposal. If you respond with an “abstain” vote
on the Merger Proposal, your proxy will have the same effect as
a vote against the Merger Proposal. If you respond but do not
indicate how you want to vote on the Merger Proposal, your proxy
will be counted as a vote in favor of the Merger Proposal.
Q:
What if I hold shares in both XM and SIRIUS?
A.
If you are a stockholder of both XM and SIRIUS, you will receive
two separate packages of proxy materials. A vote as an XM
stockholder for the Merger Proposal will not constitute a vote
as a SIRIUS stockholder for the Charter Amendment or the Share
Issuance, or vice versa. Therefore, please sign, date and return
all proxy cards that you receive, whether from XM or SIRIUS, or
vote as both a XM and SIRIUS stockholder by internet or
telephone.
Q:
May I change my vote after I have delivered my proxy or
voting instruction card?
A:
Yes. You may change your vote at any time before your proxy is
voted at your special meeting. You may do this in one of four
ways:
•
by sending a notice of revocation to the corporate secretary of
SIRIUS or XM, as applicable;
•
by sending a completed proxy card bearing a later date than your
original proxy card;
•
by logging onto the Internet website specified on your proxy
card in the same manner you would to submit your proxy
electronically or by calling the telephone number specified on
your proxy card, in each case if you are eligible to do so and
following the instructions on the proxy card; or
•
by attending your special meeting and voting in person. Your
attendance alone will not revoke any proxy.
If you choose any of the first three methods, you must take the
described action no later than the beginning of the applicable
special meeting.
If your shares are held in an account at a broker or other
nominee, you should contact your broker or other nominee to
change your vote.
Q:
What are the material U.S. federal income tax consequences of
the merger?
A:
SIRIUS and XM intend for the merger to qualify as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, which we refer to as the Code,
for U.S. federal income tax purposes. Assuming the merger
qualifies for such treatment, a holder of XM common stock
generally will not recognize any gain or loss for U.S. federal
income tax purposes upon the exchange of the holder’s
shares of XM common stock for shares of SIRIUS common stock
pursuant to the merger.
Q:
Do I have appraisal rights?
A:
Holders of XM common stock or SIRIUS common stock will not be
entitled to exercise any appraisal rights in connection with the
merger.
No. Please do not send your stock certificates with your
proxy card.
If you are a holder of XM common stock, you will receive written
instructions from the exchange agent after the merger is
completed on how to exchange your stock certificates for SIRIUS
common stock. SIRIUS stockholders will not be required to
exchange their stock certificates in connection with the merger.
SIRIUS stockholders holding stock certificates should keep their
stock certificates both now and after the merger is completed.
Q:
What if I hold XM and SIRIUS stock options or other
stock-based awards?
A:
SIRIUS stock options and other equity-based awards, including
restricted stock units, will remain outstanding and will not be
affected by the merger.
In the merger, all outstanding XM employee stock options and
other stock-based awards will be converted into options and
stock-based awards of SIRIUS, and those options and awards will
entitle the holder to receive SIRIUS common stock. The number of
shares issuable under those options and awards, and, if
applicable, the exercise prices for those options and awards,
will be adjusted based on the exchange ratio.
Q:
Who should I contact if I have any questions about the proxy
materials or voting power?
A:
If you have any questions about the merger or if you need
assistance in submitting your proxy or voting your shares or
need additional copies of the Proxy Statement or the enclosed
proxy card, you should contact the proxy solicitation agent for
the company in which you hold shares.
If you are a SIRIUS stockholder, you should
contact ,
the proxy solicitation agent for SIRIUS. If you are an XM
stockholder, you should
contact ,
the proxy solicitation agent for XM. If your shares are held in
a stock brokerage account or by a bank or other nominee, you
should call your broker or other nominee for additional
information.
This summary highlights selected information contained in
this joint proxy statement/prospectus, referred to as this Proxy
Statement, and does not contain all the information that may be
important to you. SIRIUS and XM urge you to read carefully this
Proxy Statement in its entirety, as well as the annexes.
Additional, important information is also contained in the
documents incorporated by reference into this Proxy Statement;
see “Where You Can Find More Information” beginning on
page 94. Unless stated otherwise, all references in this
Proxy Statement to SIRIUS are to Sirius Satellite Radio Inc.,
all references to XM are to XM Satellite Radio Holdings Inc. and
all references to the merger agreement are to the Merger
Agreement, dated as of February 19, 2007, by and among
SIRIUS, Vernon Merger Corporation and XM, a copy of which is
attached as Annex A to this Proxy Statement.
The
Merger
Each of the boards of directors of XM and SIRIUS has approved a
strategic merger, combining XM and SIRIUS in what the parties
intend to be a “merger of equals.” SIRIUS and XM have
entered into an agreement and plan of merger pursuant to which
SIRIUS and XM will combine their businesses through the merger
of XM with a newly formed, wholly-owned subsidiary of SIRIUS,
with XM thereupon becoming a wholly-owned subsidiary of SIRIUS.
In the proposed merger, XM stockholders will receive
4.6 shares of SIRIUS common stock for each share of XM
common stock. This exchange ratio is fixed and will not be
adjusted to reflect stock price changes prior to the closing.
SIRIUS’ stockholders will continue to own their existing
shares, which will not be affected by the merger.
SIRIUS is a satellite radio provider in the United States. It
offers over 130 channels to its subscribers — 69
channels of 100% commercial-free music and 65 channels of
sports, news, talk, entertainment, traffic, weather and data
content. The core of the SIRIUS enterprise is programming;
SIRIUS is committed to creating the best programming in all of
radio.
SIRIUS broadcasts through its proprietary satellite radio
system, which currently consists of three orbiting satellites,
124 terrestrial repeaters that receive and retransmit
SIRIUS’ signal, a satellite uplink facility and its
studios. Subscribers receive their service through SIRIUS
radios, which are sold by automakers, consumer electronics
retailers, mobile audio dealers and through SIRIUS’
website. Subscribers can also receive SIRIUS’ music
channels and certain other channels over the Internet. As of
June 30, 2007, SIRIUS had 7,142,538 subscribers.
For the year ended December 31, 2006, SIRIUS had revenues
of approximately $637 million and a net loss of
approximately $1.1 billion. For the six months ended
June 30, 2007, SIRIUS had revenues of approximately
$430 million and a net loss of approximately
$279 million.
SIRIUS was incorporated in the State of Delaware as Satellite CD
Radio Inc. on May 17, 1990. SIRIUS’ principal offices
are located at 1221 Avenue of the Americas, 36th Floor, NewYork, New York10020, and its telephone number is
(212) 584-5100.
XM
XM is a satellite radio provider in the United States. It offers
over 170 channels to its subscribers — 69 channels of
100% commercial-free music and over 100 channels of news, talk,
information, entertainment and sports programming. XM believes
that it appeals to consumers because of its innovative and
diverse programming, nationwide coverage, many commercial-free
music channels and digital sound quality.
XM broadcasts through its proprietary satellite radio system,
which currently consists of two orbiting satellites, two
in-orbit spare satellites, terrestrial repeaters that receive
and retransmit XM’s signal, satellite uplink facilities and
its studios. Subscribers receive their service through XM
radios, which are sold by automakers, consumer electronics
retailers, mobile audio dealers and through XM’s website.
Subscribers can also receive XM
music channels and certain other channels over the Internet. As
of June 30, 2007, XM had over 8.25 million subscribers.
For the year ended December 31, 2006, XM had revenues of
approximately $933 million and a net loss of approximately
$719 million. For the six months ended June 30, 2007,
XM had revenues of approximately $541 million and a net
loss of approximately $298 million.
XM is a holding company and was incorporated in the State of
Delaware as AMRC Holdings, Inc. on May 16, 1997. XM’s
principal offices are located at 1500 Eckington Place, NE,
Washington, DC20002, and XM’s telephone number at that
location is
(202) 380-4000.
Merger
Sub
Vernon Merger Corporation, or Merger Sub, a wholly-owned
subsidiary of SIRIUS, is a Delaware corporation formed on
February 15, 2007, for the purpose of effecting the merger.
Upon completion of the merger, Merger Sub will merge with and
into XM, and XM will become a wholly-owned subsidiary of SIRIUS.
Merger Sub has not conducted any activities other than those
incidental to its formation and the matters contemplated by the
merger agreement, including the preparation of applicable
regulatory filings in connection with the merger.
A copy of the merger agreement is attached as Annex A to
this Proxy Statement. We encourage you to read the entire merger
agreement carefully because it is the principal document
governing the merger. For more information on the merger
agreement, see “The Merger Agreement” beginning on
page 52.
Each outstanding share of XM common stock will be converted into
the right to receive 4.6 shares of SIRIUS common stock in
the merger, which we refer to as the exchange ratio. Each
outstanding share of Series A convertible preferred stock
of XM will be similarly converted into the right to receive
4.6 shares of SIRIUS Series A convertible preferred
stock, a newly-designated series of preferred stock of SIRIUS,
in the merger, having substantially the same powers,
designations, preferences, rights and qualifications,
limitations and restrictions as the stock so converted.
Holders of XM common stock will not receive any fractional
SIRIUS shares in the merger. Instead, the total number of shares
that each holder of XM common stock will receive in the merger
will be rounded down to the nearest whole number, and SIRIUS
will pay cash for any resulting fractional share that an XM
stockholder otherwise would be entitled to receive. The amount
of cash payable for a fractional share of SIRIUS common stock
will be determined by multiplying the fraction by the average
closing price for SIRIUS common stock on the last trading day
immediately prior to the merger.
The merger agreement provides for adjustments to the exchange
ratio to reflect fully the effect of any stock split, reverse
stock split, stock dividend (including any dividend or
distribution of securities convertible into XM Series A
convertible preferred stock, common stock or SIRIUS common
stock), reorganization, recapitalization, reclassification or
other like change with respect to XM Series A convertible
preferred stock, SIRIUS common stock or XM common stock with a
record date prior to the merger. For a more complete description
of the merger consideration, see “The Merger
Agreement — Consideration to be Received in the
Merger” beginning on page 52.
In the merger, all outstanding XM employee stock options and
other stock-based awards will be converted into options and
stock-based awards of SIRIUS, and those options and awards will
entitle the holder to receive SIRIUS common stock. The number of
shares issuable under those options and awards, and the exercise
prices for those options and awards, will be adjusted based on
the exchange ratio.
For a more complete discussion of the treatment of XM options
and other stock-based awards, see “The Merger
Agreement — Treatment of XM Options and Other
Stock-based Awards” beginning on page 61.
The SIRIUS board of directors after the merger will initially
consist of 12 directors. Mel Karmazin, SIRIUS’ Chief
Executive Officer, or CEO, and a member of the SIRIUS board of
directors, will remain CEO of the combined company and a member
of the board of directors. Gary M. Parsons, XM’s Chairman,
will become chairman of the board of directors of the combined
company. Of the remaining 10 directors, XM and SIRIUS will
each designate four directors, who will qualify as independent
directors, and XM will designate two additional directors (one
will be a designee of General Motors and the other will be a
designee of American Honda).
For a more complete discussion of the directors and management
of SIRIUS, see “The Merger — Interests of
Directors and Executive Officers in the Merger” beginning
on page 42.
After careful consideration, the SIRIUS board of directors
recommends that holders of SIRIUS common stock vote FOR the
Charter Amendment and the Share Issuance.
For a more complete description of SIRIUS’ reasons for the
merger and the recommendations of the SIRIUS board of directors,
see “The Merger — Reasons for the Merger”
and “— SIRIUS Board of Directors’
Recommendations” beginning on pages 22 and 24, respectively.
After careful consideration, the XM board of directors
recommends that holders of XM common stock vote FOR the Merger
Proposal.
For a more complete description of XM’s reasons for the
merger and the recommendation of the XM board of directors, see
“The Merger — Reasons for the Merger” and
“— XM Board of Directors’ Recommendation”
beginning on pages 22 and 25, respectively.
SIRIUS’ board of directors considered the analyses of
Morgan Stanley & Co. Incorporated, and Morgan Stanley
rendered an opinion that, as of February 18, 2007 and based
upon and subject to the factors and assumptions set forth in the
opinion, the exchange ratio pursuant to the merger agreement was
fair, from a financial point of view, to SIRIUS. The full text
of the Morgan Stanley opinion, dated February 18, 2007, is
attached as Annex B to this Proxy Statement. You are urged
to read the opinion carefully in its entirety for a description
of the assumptions on the review undertaken.
Morgan Stanley provided its opinion for the use and benefit of
the SIRIUS board of directors in connection with its
consideration of the merger. The Morgan Stanley opinion is not
intended to be and does not constitute a recommendation to any
stockholder as to how that stockholder should vote or act with
respect to the proposed merger or any other matter described in
this Proxy Statement. Morgan Stanley was not requested to opine
as to, and its opinion does not in any manner address,
SIRIUS’ underlying business decision to proceed with or
effect the merger. The summary of the Morgan Stanley opinion in
this Proxy Statement is qualified in its entirety by reference
to the full text of the opinion.
Pursuant to the terms of the engagement letter with Morgan
Stanley, SIRIUS has agreed to pay Morgan Stanley a transaction
fee of $10 million for services rendered in connection with
the merger, which will be paid only if the merger is
successfully completed. Also, pursuant to the engagement letter,
Morgan Stanley will be eligible to receive an incentive fee of
up to $7.5 million, payable at the sole discretion of the
SIRIUS board of directors. In the event that the merger
agreement is terminated, Morgan Stanley is entitled to receive
15% of any breakup fee paid to SIRIUS as a result of such
termination, up to a maximum amount of $10 million. In
addition, SIRIUS has agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or
any of its affiliates against certain liabilities and expenses,
including certain liabilities under the federal securities laws,
related to or arising out of Morgan Stanley’s engagement.
For a more complete description of Morgan Stanley’s
opinion, see “The Merger — Opinion of Financial
Advisor to the SIRIUS Board of Directors” beginning on
page 26. See also Annex B to this Proxy Statement.
XM
Financial Advisor
The XM board of directors considered the analyses of
J.P. Morgan Securities Inc., and JPMorgan rendered its oral
opinion that, as of February 18, 2007 and based upon and
subject to the factors and assumptions set forth in its opinion,
the exchange ratio in the merger was fair, from a financial
point of view, to the holders of XM common stock. JPMorgan
subsequently confirmed its oral opinion by delivering its
written opinion, dated February 20, 2007, the full text of
which is attached as Annex C to this Proxy Statement. You
are urged to read the opinion carefully in its entirety for a
description of the assumptions on the review undertaken.
JPMorgan provided its opinion for the use and benefit of the XM
board of directors in connection with its consideration of the
merger. The JPMorgan opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how that
stockholder should vote or act with respect to the proposed
merger or any other matter described in this Proxy Statement.
JPMorgan was not requested to opine as to, and its opinion does
not in any manner address, XM’s underlying business
decision to proceed with or effect the merger. The summary of
the JPMorgan opinion in this Proxy Statement is qualified in its
entirety by reference to the full text of the opinion.
For services rendered in connection with the merger (including
the delivery of its opinion), XM has agreed to pay JPMorgan
$12,500,000, a substantial portion of which is dependent on
completion of the merger. In addition, XM has agreed to
reimburse JPMorgan for its expenses incurred in connection with
its services, including the fees and disbursements of counsel,
and will indemnify JPMorgan against certain liabilities,
including liabilities arising under the federal securities laws.
For a more complete description of the JPMorgan opinion, see
“The Merger — Opinion of Financial Advisor to the
XM Board of Directors” beginning on page 35. See also
Annex C to this Proxy Statement.
You should be aware that some of the directors and officers of
SIRIUS and XM have interests in the merger that are different
from, or are in addition to, the interests of stockholders
generally. These interests relate to the treatment of
equity-based compensation awards held by directors and executive
officers of XM in the merger, the appointment of Gary M.
Parsons, currently XM’s chairman, as chairman of the board
of directors of the combined company, the appointment of Mel
Karmazin, currently CEO and member of the board of directors of
SIRIUS, as CEO of the combined company, the appointment of six
designees of XM (which may be existing XM directors) and four
SIRIUS designees (which may be existing SIRIUS directors) as
directors of the combined company after the merger,
change-in-control
severance arrangements covering XM’s executive officers and
one SIRIUS executive officer, general severance provisions for
other SIRIUS executive officers and the indemnification of
XM’s and SIRIUS’ directors and officers by SIRIUS.
For a further discussion of interests of directors and executive
officers in the merger, see “The Merger —
Interests of Directors and Executive Officers in the
Merger” beginning on page 42.
XM and SIRIUS intend for the merger to qualify as a
reorganization within the meaning of Section 368(a) of the
Code for U.S. federal income tax purposes. Assuming the
merger qualifies for such treatment, a holder of XM common stock
generally will not recognize any gain or loss for
U.S. federal income tax purposes upon the exchange of the
holder’s shares of XM common stock for shares of SIRIUS
common stock pursuant to the merger. It is a condition to each
of XM’s and SIRIUS’ respective obligations to complete
the merger that it receives a separate legal opinion, at the
effective time of the merger, that the merger will be treated as
a reorganization within the meaning of Section 368(a) of
the Code for U.S. federal income tax purposes.
For a more complete description of the material
U.S. federal income tax consequences of the merger, see
“Material U.S. Federal Income Tax Consequences”
beginning on page 50.
The tax consequences of the merger to you may depend on your own
situation. In addition, you may be subject to state, local or
foreign tax laws that are not addressed in this Proxy Statement.
You are urged to consult with your own tax advisor for a full
understanding of the tax consequences of the merger to you.
The merger will be accounted for as an acquisition by SIRIUS of
XM under the purchase method of accounting according to
U.S. generally accepted accounting principles.
Under Section 262 of the General Corporation Law of the
State of Delaware, the holders of SIRIUS common stock and the
holders of XM common stock do not have appraisal rights in
connection with the merger. However, the holder of XM
Series A convertible preferred stock will have the right to
seek appraisal of the fair value of its shares under the
Delaware General Corporation Law.
FCC Approval. Both XM and SIRIUS are subject
to regulation by the Federal Communications Commission, which we
refer to as the FCC, and the FCC must approve the transfer to
the combined company of control of certain licenses held by XM
and SIRIUS or their respective subsidiaries as a result of the
merger. As part of the approval process, the FCC released a
public notice seeking comments on the consolidated application
for authority to transfer control that SIRIUS and XM filed on
March 20, 2007 and released a notice of proposed rule
making seeking public comments on whether language prohibiting
the transfer of control of both satellite radio licenses to a
single entity in a 1997 order is a rule and if so whether the
rule should be changed to allow the merger. While we believe
that this approval will be obtained, there can be no assurance
of this or that burdensome conditions will not be imposed as a
condition of this approval. If such conditions would,
individually or in the aggregate, reasonably be expected to have
a material adverse effect on the combined company following the
merger, the parties may determine not to proceed with the
merger. This FCC approval may not be obtained before our
stockholders vote on the merger. Each party’s obligations
to complete the merger are subject to receipt of FCC approval
and either party can terminate the merger agreement if the
requisite approval has been denied and the denial has become
final and non-appealable. In this case, the terminating party
would not be required to pay a termination fee.
United States Antitrust Approval. The merger
is also subject to the expiration or termination of the
applicable waiting period under the U.S. antitrust laws.
The merger agreement requires SIRIUS and XM to satisfy any
conditions or divestiture requirements imposed upon them by
regulatory authorities, unless the conditions or divestitures
would reasonably be expected to have a material adverse effect
on the combined company after completion of the merger. In this
case, neither XM nor SIRIUS will be obligated to effect the
merger and the merger agreement can be terminated by their
mutual consent. In addition, either party can terminate the
merger agreement if the merger has not been effected by
March 1, 2008. In either case, no termination fee is due.
Subject to the terms and conditions of the merger agreement,
each party will use its reasonable best efforts to prepare and
file as promptly as practicable all documentation to effect all
necessary applications, notices, filings and other documents and
to obtain, as promptly as practicable, the required regulatory
approvals in order to consummate the merger or
any of the other transactions contemplated by the merger
agreement. The United States antitrust approval may not be
obtained before our stockholders vote on the merger. Either
SIRIUS or XM has the right to terminate the merger agreement if
any requisite regulatory approval has been denied and the denial
has become final and non-appealable. In this case, the
terminating party would not be required to pay a termination fee.
For a more complete discussion of regulatory matters relating to
the merger, see “The Merger — Regulatory
Approvals Required for the Merger” beginning on
page 46.
We expect to complete the merger after all the conditions to the
merger in the merger agreement are satisfied or waived,
including after we receive stockholder approvals at the special
meetings of SIRIUS and XM and receive all required regulatory
approvals. We currently expect to complete the merger by the end
of 2007. However, it is possible that factors outside of our
control could require us to complete the merger at a later time
or not to complete it at all.
Each party’s obligation to complete the merger is subject
to the satisfaction or waiver of various conditions, including
the following:
•
receipt of the required stockholder approvals;
•
receipt of NASDAQ authorization for listing of SIRIUS common
stock to be issued in the merger or reserved for issuance upon
exercise of converted XM equity awards;
•
receipt of FCC approval for the merger;
•
expiration or termination of the waiting period under
U.S. antitrust laws;
•
receipt of any other required regulatory approvals;
•
the SEC declaring effective the registration statement, of which
this Proxy Statement is a part, and the registration statement
not being subject to any stop order or threatened stop order;
•
no injunctions, restraints, legal restraints or prohibitions
preventing the consummation of the merger;
•
no action taken by any governmental entity, or other
circumstance, which imposes any restriction upon SIRIUS or the
combined company which would have a material adverse effect on
SIRIUS after the effective time of the merger;
•
accuracy of the other party’s representations and
warranties in the merger agreement, including their
representation that no material adverse change has occurred;
•
the other party’s compliance with its obligations under the
merger agreement; and
•
receipt of opinions of counsel relating to the U.S. federal
income tax treatment of the merger.
The merger agreement provides that any or all of these
conditions may be waived, in whole or in part, by SIRIUS or XM,
to the extent legally allowed. Neither XM nor SIRIUS currently
expects to waive any material condition to the completion of the
merger. If either SIRIUS or XM determines to waive any condition
to the merger that would result in a material and adverse change
in the terms of the merger to XM or SIRIUS stockholders
(including any change in the tax consequences of the transaction
to XM stockholders), proxies would be resolicited from the
SIRIUS or XM stockholders, as applicable. For a more complete
discussion of the conditions to the merger, see “The Merger
Agreement — Conditions to Completion of the
Merger” beginning on page 56.
As a result of the merger, an offer to repurchase a significant
portion of XM’s outstanding debt at 101% of the principal
amount thereof may be required and additional funds to finance
the repurchase may not be available on terms favorable to the
combined company or at all. Any required repurchase offers would
likely be financed with other debt. At June 30, 2007, the
aggregate principal amount of XM’s outstanding notes was
approximately $1.5 billion and none of XM’s
outstanding notes were trading above 101% of the outstanding
principal amount. We
believe that if the notes are trading above 101% at the time of
any repurchase offer, a large majority of the holders would be
unlikely to sell their notes to XM in the repurchase offer.
Moreover, SIRIUS may consider repurchasing outstanding debt in
connection with the merger. Any repurchase would likely be
financed with other debt. At June 30, 2007, the aggregate
principal amount of SIRIUS’ long-term debt was
approximately $1.3 billion.
The merger is expected to be completed by the end of 2007,
subject to the receipt of necessary regulatory approvals and the
satisfaction or waiver of other closing conditions. For a
discussion of the timing of the merger, see “The Merger
Agreement — Closing and Effective Time of the
Merger” beginning on page 52.
In the merger agreement, each of XM and SIRIUS has agreed that
it will not directly or indirectly:
•
solicit, initiate, encourage or knowingly facilitate any
acquisition proposal;
•
participate in any discussions or negotiations regarding, or
furnish to any person any confidential information in connection
with, or knowingly facilitate any effort or attempt to make or
implement, an acquisition proposal; or
•
approve or recommend, or enter into, any letter of intent,
merger agreement, option agreement or other similar agreement
related to any acquisition proposal or propose or agree to do
any of the foregoing.
The merger agreement does not, however, prohibit either party
from considering a bona fide acquisition proposal from a third
party if certain specified conditions are met. For a discussion
of the prohibition on solicitation of acquisition proposals from
third parties, see “The Merger Agreement — No
Solicitation” beginning on page 58.
Generally, the merger agreement may be terminated and the merger
may be abandoned at any time prior to the completion of the
merger (including after stockholder approval):
•
by mutual written consent of SIRIUS and XM; or
•
by either party, if:
•
a governmental entity that must grant a requisite regulatory
approval has denied approval of the merger and the denial has
become final and non-appealable, or any governmental entity
issues an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the
merger, and such order, decree, ruling or other action has
become final and non-appealable;
•
the merger is not consummated on or before March 1, 2008;
•
the other party breached any of the agreements or
representations in the merger agreement, in a way that the
related condition to closing would not be satisfied, and this
breach is either incurable or not cured within 45 days;
•
the required approval by the stockholders of SIRIUS or XM has
not been obtained at the respective stockholders meeting or any
adjournment or postponement thereof; or
•
the board of directors of the other party changes its
recommendation that its stockholders vote in favor of the merger.
Either party will be paid a $175 million termination fee by
the other party if (i) the board of directors of the other
party has, pursuant to the merger agreement, made an adverse
recommendation and such party has timely elected to terminate
the merger agreement; (ii) it is entitled but fails to terminate
the merger agreement in connection with such change in
recommendation and the other party materially breaches its
obligations under the
merger agreement by failing to call its stockholder meeting or
prepare and mail this Proxy Statement; or (iii) the other party
has effected a change in recommendation other than in accordance
with the provisions of the merger agreement or approved,
recommended or entered into an agreement with respect to an
acquisition proposal other than in accordance with the
provisions of the merger agreement.
In addition, if (i) either party terminates the merger
agreement because the stockholder vote required to approve the
merger has not been obtained upon a vote taken at the other
party’s stockholders meeting and (ii) before the other
party’s stockholders meeting an acquisition proposal is
communicated to the senior management or board of directors of
the other party, then this party shall pay one-third of
$175 million. If within twelve months of the date of the
merger termination, the other party or any of its subsidiaries
executes or consummates any acquisition proposal, then it shall
pay the remaining two-thirds of $175 million.
Furthermore, if (i) either party terminates the merger
agreement because the merger is not consummated on or before
March 1, 2008 or a party terminates the merger agreement
because the other party breached any of the covenants or
agreements or any of the representations or warranties in the
merger agreement, (ii) before such termination there is a
“public proposal” with respect to the other party, and
(iii) following the occurrence of the public proposal, the
other party breached intentionally or recklessly (and not cured
after notice) any of its representations, warranties, covenants
or agreements set forth in the merger agreement, which shall
have materially contributed to the failure of the closing to
occur prior to the termination of the merger agreement, then the
breaching party shall pay one-third of the $175 million
termination fee. If within twelve months of the date of the
merger termination, the breaching party or any of its
subsidiaries executes or consummates any acquisition proposal,
then the breaching party shall pay the remaining two-thirds of
the $175 million termination fee.
This termination fee could discourage other companies from
seeking to acquire or merge with either XM or SIRIUS. See
“The Merger Agreement — Termination”,
“— Effect of Termination” and
“— Termination Fees and Expenses” beginning
on pages 59 and 60, respectively.
SIRIUS stockholders will be asked to vote on the following
proposals:
•
to amend SIRIUS’ certificate of incorporation to increase
the number of authorized shares of SIRIUS common stock in
connection with the merger, which is referred to in this Proxy
Statement as the Charter Amendment;
•
to approve the issuance of SIRIUS common stock, par value $0.001
per share, and a new series of SIRIUS preferred stock in the
merger, which is referred to in this Proxy Statement as the
Share Issuance;
•
to approve any motion to adjourn or postpone the SIRIUS special
meeting to another time or place, if necessary, to solicit
additional proxies; and
•
to conduct any other business that properly comes before the
SIRIUS special meeting or any adjournment or postponement
thereof.
The first two proposals listed above relating to the merger are
conditioned upon each other and the approval of each such
proposal is required for completion of the merger.
The SIRIUS board of directors recommends that SIRIUS
stockholders vote FOR all of the proposals set forth above, as
more fully described under “SIRIUS Special Meeting”
beginning on page 64.
to approve any motion to adjourn or postpone the XM special
meeting to another time or place, if necessary, to solicit
additional proxies; and
•
to conduct any other business that properly comes before the XM
special meeting and any adjournment or postponement thereof.
The XM board of directors recommends that XM stockholders vote
FOR all of the proposals set forth above, as more fully
described under “XM Special Meeting” beginning on
page 69.
On ,
2007, the record date set by the SIRIUS board of directors,
directors and executive officers of SIRIUS and their affiliates
owned and were entitled to vote shares of
SIRIUS common stock, or
approximately %, of the total
voting power of the shares of SIRIUS common stock outstanding on
that date.
On ,
2007, the record date set by the XM board of directors,
directors and executive officers of XM and their affiliates
owned and were entitled to vote shares of
XM common stock, or approximately %
of the shares of XM common stock outstanding on that date.
The following table sets forth certain of SIRIUS’
consolidated financial data as of and for each of the periods
indicated. The financial information for the year ended
December 31, 2002, 2003, 2004, 2005 and 2006, and as of
December 31, 2002, 2003, 2004, 2005 and 2006 is derived
from SIRIUS’ audited consolidated financial statements
which are incorporated by reference into this Proxy Statement.
The consolidated financial information as of and for the
six-month periods ended June 30, 2006 and 2007 is derived
from SIRIUS’ unaudited consolidated financial statements
incorporated by reference into this Proxy Statement. In
SIRIUS’ opinion, such unaudited consolidated financial
statements include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of our
financial position and results of operations for such periods.
Interim results for the six months ended June 30, 2007 are
not necessarily indicative of, and are not projections for, the
results to be expected for the full year ending
December 31, 2007.
The selected historical financial data below should be read in
conjunction with the consolidated financial statements that are
incorporated by reference into this document and their
accompanying notes.
Net loss per share applicable to
common stockholders (basic and diluted)
$
(6.13
)
$
(0.38
)
$
(0.57
)
$
(0.65
)
$
(0.79
)
$
(0.50
)
$
(0.19
)
Weighted average common shares
outstanding (basic and diluted)
76,394
827,186
1,238,585
1,325,739
1,402,619
1,395,549
1,459,701
Balance Sheet Data:
Cash and cash equivalents
$
18,375
$
520,979
$
753,891
$
762,007
$
393,421
$
534,963
$
424,749
Marketable securities
155,327
28,904
5,277
117,250
15,500
48,625
4,654
Restricted investments
7,200
8,747
97,321
107,615
77,850
108,315
78,160
Total assets
1,340,940
1,617,317
1,957,613
2,085,362
1,658,528
1,811,396
1,688,272
Long-term debt, net of current
portion
670,357
194,803
656,274
1,084,437
1,068,249
1,083,929
1,281,742
Accrued interest, net of current
portion
46,914
—
—
—
—
—
—
Preferred stock
531,153
—
—
—
—
—
—
Accumulated deficit
(927,479
)
(1,153,694
)
(1,865,856
)
(2,728,853
)
(3,833,720
)
(3,425,225
)
(4,112,612
)
Stockholders’ (deficit)
equity(2)
36,846
1,325,194
1,000,633
324,968
(389,071
)
(57,123
)
(539,476
)
(1)
Net loss and net loss applicable to common stockholders for the
year ended December 31, 2003 included other income of
$256,538 related to our debt restructuring.
(2)
No cash dividends were declared or paid in any of the periods
presented.
The following table sets forth certain of XM’s consolidated
financial data as of and for each of the periods indicated. The
financial information for the year ended December 31, 2002,
2003, 2004, 2005 and 2006, and as of December 31, 2002,
2003, 2004, 2005 and 2006 is derived from XM’s audited
consolidated financial statements which are incorporated by
reference into this Proxy Statement. The consolidated financial
information as of and for the six-month periods ended
June 30, 2006 and 2007 is derived from XM’s unaudited
consolidated financial statements incorporated by reference into
this Proxy Statement. In XM’s opinion, such unaudited
consolidated financial statements include all adjustments
(consisting of normal recurring adjustments) necessary for a
fair presentation of XM’s financial position and results of
operations for such periods. Interim results for the six months
ended June 30, 2007 are not necessarily indicative of, and
are not projections for, the results to be expected for the full
year ending December 31, 2007.
The selected historical financial data below should be read in
conjunction with the consolidated financial statements that are
incorporated by reference into this document and their
accompanying notes.
The following summary unaudited pro forma condensed combined
financial information is designed to show how the merger of
SIRIUS and XM might have affected historical financial
statements if the merger had been completed at an earlier time
and was prepared based on the historical financial results
reported by SIRIUS and XM. The following should be read in
connection with “Unaudited Pro Forma Condensed Combined
Financial Statements” beginning on page 72 and the
SIRIUS and XM audited consolidated financial statements, which
are incorporated by reference into this Proxy Statement.
The unaudited pro forma balance sheet data assumes that the
merger took place on June 30, 2007 and combines
SIRIUS’ consolidated balance sheet as of June 30, 2007
with XM’s consolidated balance sheet as of June 30,2007. The unaudited pro forma statements of operations data for
the six months ended June 30, 2007 and for the year ended
December 31, 2006 give effect to the merger as if it
occurred on January 1, 2006.
The pro forma condensed combined financial data is presented for
illustrative purposes only and is not necessarily indicative of
the financial condition or results of operations of future
periods or the financial condition or results of operations that
actually would have been realized had the entities been a single
company during these periods.
The following table shows per share data regarding loss from
continuing operations, book value per share and cash dividends
for SIRIUS and XM on a historical, pro forma combined basis. The
pro forma book value per share information was computed as if
the merger had been completed on June 30, 2007. The pro
forma loss from continuing operations information was computed
as if the merger had been completed on January 1, 2006. The
XM pro forma equivalent information was calculated by
multiplying the corresponding pro forma combined data by the
exchange ratio of 4.6 to 1.0. This information shows how each
share of XM common stock would have participated in the combined
companies’ losses from continuing operations and book value
per share if the merger had been completed on the relevant
dates. These amounts do not necessarily reflect future per share
amounts of earnings (losses) from continuing operations and book
value per share of the combined company.
The following unaudited comparative per share data is derived
from the historical consolidated financial statements of each of
SIRIUS and XM. The information below should be read in
conjunction with the audited consolidated financial statements
and accompanying notes of SIRIUS and XM, which are incorporated
by reference into this Proxy Statement. We urge you also to read
“Unaudited Pro Forma Condensed Combined Financial
Statements” beginning on page 72.
Loss from continuing operations
per common share — basic and diluted
$
(0.79
)
$
(0.19
)
Book value per share
(0.27
)
(0.37
)
Cash dividends
—
—
XM Satellite Radio Holdings
Inc.
Loss from continuing operations
per common share — basic and diluted
$
(2.70
)
$
(0.97
)
Book value per share
(1.30
)
(2.15
)
Cash dividends
—
—
Sirius Satellite Radio Inc. Pro
Forma Combined
Loss from continuing operations
per common share — basic and diluted
$
(0.73
)
$
(0.22
)
Book value per share
N/A
1.75
Cash dividends
—
—
XM Satellite Radio Holdings
Inc. Pro Forma Equivalent(1)
Loss from continuing operations
per common share — basic and diluted
$
(3.36
)
$
(1.01
)
Book value per share
N/A
8.05
Cash dividends
—
—
(1)
XM Satellite Radio Holdings Inc. pro forma equivalent amounts
are calculated by multiplying pro forma combined per share
amounts by the exchange ratio of 4.6.
The table below sets forth, for the calendar quarters indicated,
the high and low sales prices per share of SIRIUS common stock
and XM common stock, both of which trade on the NASDAQ Global
Select Market under the symbol “SIRI” and
“XMSR,” respectively.
On February 16, 2007, the last trading day before the
public announcement of the signing of the merger agreement, the
sales price per share of SIRIUS common stock was $3.70 and the
last sales price per share of XM common stock was $13.98, in
each case on the NASDAQ Global Select Market.
On ,
2007, the latest practicable date before the date of this Proxy
Statement, the last sales price per share of SIRIUS common stock
was $ and the last sales price per
share of XM common stock was $ ,
in each case on the NASDAQ Global Select Market.
SIRIUS has never paid cash dividends on its common stock. It
currently intends to retain earnings, if any, for use in its
business and does not anticipate paying any cash dividends in
the foreseeable future. SIRIUS’
95/8% Senior
Notes due 2013 and the terms of its credit facilities restrict
its ability to pay dividends.
XM has never paid any dividends on its common stock. XM
Satellite Radio Inc., a subsidiary of XM, is restricted by the
indentures governing its senior notes from paying dividends to
XM, which, in turn, significantly limits XM’s ability to
pay dividends. XM does not intend to pay cash dividends on its
common stock in the foreseeable future.
The board of directors of the combined company will determine
the new dividend policy, but it is expected that no dividends
will be paid in the foreseeable future.
We make forward-looking statements in this Proxy Statement and
in the documents that are incorporated by reference. These
forward-looking statements relate to outlooks or expectations
for earnings, revenues, expenses, asset quality or other future
financial or business performance, strategies or expectations,
or the impact of legal, regulatory or supervisory matters on
business, results of operations or financial condition.
Specifically, forward looking statements may include:
•
statements relating to the benefits of the merger, including
anticipated synergies and cost savings estimated to result from
the merger;
•
statements relating to future business prospects, number of
subscribers, revenue, income and financial condition; and
•
statements preceded by, followed by or that include the words
“estimate,”“plan,”“project,”“forecast,”“intend,”“expect,”“anticipate,”“believe,”“seek,”“target” or similar expressions.
These statements reflect management judgment based on currently
available information and involve a number of risks and
uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. With
respect to these forward-looking statements, each of XM and
SIRIUS management has made assumptions regarding, among other
things, subscriber and network usage, subscriber growth and
retention, pricing, operating costs and the economic environment.
Future performance cannot be ensured. Actual results may differ
materially from those in the forward-looking statements. Some
factors that could cause actual results to differ include:
•
the ability to obtain governmental approvals of the merger on
the proposed terms and time schedule, and without the imposition
of significant terms, conditions, obligations or restrictions;
•
the risk that the businesses will not be integrated successfully;
•
expected cost savings from the merger may not be fully realized
within the expected time frames or at all;
•
revenues following the merger may be lower than expected;
•
the effects of vigorous competition in the markets in which
SIRIUS and XM operate;
•
an adverse change in the ratings afforded to debt securities by
rating agencies or a lower rating afforded to the combined
company’s debt securities;
•
the possibility of one or more of the markets in which XM and
SIRIUS compete being impacted by changes in political or other
factors such as monetary policy, legal and regulatory changes or
other external factors over which they have no control;
•
the ability of the combined company to obtain debt financing on
terms favorable to it or at all, whether to complete any
required repurchase of outstanding debt or otherwise;
•
changes in general economic and market conditions; and
•
other risks referenced from time to time in filings with the SEC
and those factors listed or incorporated by reference into this
Proxy Statement under “Risk Factors” beginning on
page 16.
You are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date of
this Proxy Statement, or in the case of a document incorporated
by reference, as of the date of that document. Except as
required by law, neither SIRIUS nor XM undertakes any obligation
to publicly update or release any revisions to these
forward-looking statements to reflect any events or
circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
Additional factors that could cause actual results to differ
materially from those expressed in the forward-looking
statements are discussed in reports filed with the SEC by XM and
SIRIUS. See “Where You Can Find More Information”
beginning on page 94 for a list of the documents
incorporated by reference.
In addition to the other information contained or
incorporated by reference into this Proxy Statement, you should
carefully consider the following risk factors in deciding how to
vote on the merger. In addition, you should read and consider
the risks associated with each of the businesses of SIRIUS and
XM because these risks will also relate to the combined company.
Certain of these risks can be found in the documents
incorporated by reference into this Proxy Statement.
Because
the market price of SIRIUS common stock will fluctuate, XM
stockholders cannot be sure of the market value of the SIRIUS
common stock that they will receive.
When we complete the merger, shares of XM common stock will be
converted into the right to receive 4.6 shares of SIRIUS
common stock. The exchange ratio is fixed and will not be
adjusted for changes in the market price of either SIRIUS common
stock or XM common stock. The merger agreement does not provide
for any price-based termination right. Accordingly, the market
value of the shares of SIRIUS common stock that SIRIUS grants
and XM stockholders will be entitled to receive when we complete
the merger will depend on the market value of shares of SIRIUS
common stock at the time that we complete the merger and could
vary significantly from the market value on the date of this
Proxy Statement or the date of the XM special meeting. The
market value of the shares of SIRIUS common stock will continue
to fluctuate after the completion of the merger. For example,
during the first and the second calendar quarters of 2007, the
market price of SIRIUS common stock ranged from a low of $2.66
to a high of $4.26, all as reported on the NASDAQ Global Select
Market. See “Market Prices and Dividends and Other
Distributions” on page 14.
These variations could result from changes in the business,
operations or prospects of XM or SIRIUS prior to or following
the merger, regulatory considerations, general market and
economic conditions and other factors both within and beyond the
control of SIRIUS or XM. We may complete the merger a
considerable period after the date of the SIRIUS special meeting
and the XM special meeting.
The
issuance of shares of SIRIUS common stock to XM stockholders in
the merger will substantially reduce the percentage interests of
SIRIUS stockholders.
If the merger is completed, SIRIUS will issue up to
approximately 1.7 billion shares of SIRIUS common
stock in the merger. Based on the number of shares of SIRIUS and
XM common stock outstanding on the SIRIUS and XM record dates,
XM stockholders before the merger will own, in the aggregate,
approximately % of the fully
diluted shares of common stock immediately after the merger,
excluding shares issuable upon conversion of XM’s
outstanding convertible debt. The issuance of shares of SIRIUS
common stock to XM stockholders in the merger and to holders of
assumed options and restricted stock units to acquire shares of
XM common stock and warrants will cause a significant reduction
in the relative percentage interest of current SIRIUS
stockholders in earnings, voting, liquidation value and book and
market value.
Uncertainty
about the merger and diversion of management could harm XM,
SIRIUS or the combined company, whether or not the merger is
completed.
In response to the announcement of the merger, existing or
prospective subscribers, retailers, radio manufacturers,
automakers and programming providers of XM or SIRIUS may delay
or defer their purchasing or other decisions concerning XM or
SIRIUS, or they may seek to change their existing business
relationship. In addition, as a result of the merger, current
and prospective employees could experience uncertainty about
their future with XM or SIRIUS or the combined company. These
uncertainties may impair each company’s ability to retain,
recruit or motivate key personnel. Completion of the merger will
also require a significant amount of time and attention from
management. The diversion of management attention away from
ongoing operations could adversely affect ongoing operations and
business relationships.
Failure
to complete the merger for regulatory or other reasons could
adversely affect SIRIUS and XM stock prices and their future
business and financial results.
Completion of the merger is conditioned upon, among other
things, the receipt of certain regulatory and antitrust
approvals, including from the Federal Communications Commission
and under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and approval of
SIRIUS and XM’s stockholders. There is no assurance that we
will receive the necessary approvals or satisfy the other
conditions to the completion of the merger. Failure to complete
the proposed merger would prevent SIRIUS and XM from realizing
the anticipated benefits of the merger. Each company will also
remain liable for significant transaction costs at any time,
including legal, accounting and financial advisory fees. In
addition, XM and Hugh Panero, XM’s former CEO, agreed to
end his employment in August 2007 and, consequently,
Mr. Panero will receive severance payments and benefits
pursuant to his employment agreement. The cash payments under
the employment agreement will be approximately $4.9 million
in the aggregate. These payments are not conditioned upon the
completion of the merger. Also, Nathaniel Davis, XM’s
President, is currently serving as interim Chief Executive
Officer of XM, but XM may have to select a permanent replacement
for Mr. Panero if the merger is not completed. In addition,
the market price of each company’s common stock may reflect
various market assumptions as to whether the merger will occur.
Consequently, the completion of, or failure to complete, the
merger could result in a significant change in the market price
of SIRIUS and XM’s common stock.
Any delay
in completion of the merger may significantly reduce the
benefits expected to be obtained from the merger.
In addition to the required regulatory clearances and approvals,
the merger is subject to a number of other conditions beyond the
control of XM and SIRIUS that may prevent, delay or otherwise
materially adversely affect its completion. See “TheMerger — Regulatory Approvals Required for the
Merger” beginning on page 46 and “The Merger
Agreement — Conditions to Completion of the
Merger” beginning on page 56. XM and SIRIUS cannot
predict whether and when these other conditions will be
satisfied. Further, the requirements for obtaining the required
clearances and approvals could delay the completion of the
merger for a significant period of time or prevent it from
occurring. Any delay in completing the merger may significantly
reduce the synergies and other benefits that SIRIUS and XM
expect to achieve if they successfully complete the merger
within the expected timeframe and integrate their respective
businesses.
The
ability to complete the merger is subject to the receipt of
consents and approvals from government entities, which may
impose conditions that could have an adverse effect on SIRIUS or
XM or could cause either party to abandon the merger.
In deciding whether to grant regulatory or antitrust approvals,
the relevant governmental entities will consider the effect of
the merger on competition within their relevant jurisdictions.
The terms and conditions of the approvals that are granted may
impose requirements, limitations or costs or place restrictions
on the conduct of the combined company’s business.
The merger agreement may require us to accept significant
conditions from regulatory bodies before either of us may refuse
to close the merger on the basis of those regulatory conditions.
Neither XM nor SIRIUS can provide any assurance that either
company will obtain the necessary approvals or that any other
conditions, terms, obligations or restrictions will not have a
material adverse effect on the combined company following the
merger. In addition, we can provide no assurance that these
conditions, terms, obligations or restrictions will not result
in the delay or abandonment of the merger. See “TheMerger — Regulatory Approvals Required for the
Merger” beginning on page 46 and “The Merger
Agreement — Conditions to Completion of the
Merger” beginning on page 56.
The
anticipated benefits of the merger may not be realized fully or
at all or may take longer to realize than expected.
The merger involves the integration of two companies that have
previously operated independently with principal offices in two
distinct locations. Due to legal restrictions, SIRIUS and XM
have conducted only limited
planning regarding the integration of the two companies. The
combined company will be required to devote significant
management attention and resources to integrating the two
companies. Delays in this process could adversely affect the
combined company’s business, financial results, financial
condition and stock price. Even if SIRIUS and XM were able to
integrate their business operations successfully, there can be
no assurance that this integration will result in the
realization of the full benefits of synergies, cost savings,
innovation and operational efficiencies that may be possible
from this integration or that these benefits will be achieved
within a reasonable period of time.
Additionally, as a condition to their approval of the merger,
regulatory agencies may impose requirements, limitations or
costs or require divestitures or place restrictions on the
conduct of the combined company’s business. If SIRIUS and
XM agree to these requirements, limitations, costs, divestitures
or restrictions, the ability to realize the anticipated benefits
of the merger may be impaired.
Because
certain directors and executive officers of XM and SIRIUS have
interests in seeing the merger completed that are different than
those of XM’s and SIRIUS’ other stockholders, these
persons may have conflicts of interest in recommending that XM
and SIRIUS stockholders vote to approve the merger
agreement.
Certain directors of XM and SIRIUS have arrangements or other
interests that provide them with interests in the merger that
are different than those of XM’s or SIRIUS’ other
stockholders. For example, Mel Karmazin, the CEO of SIRIUS, who
is also a director of SIRIUS, will, pursuant to the merger
agreement, keep that title with the combined company and will
remain on the board of directors of the combined company and
Gary Parsons, the Chairman of XM, will become chairman of the
board of directors of the combined company. In addition, up to
six current XM directors and up to four SIRIUS directors may
serve on the combined company’s board. While other XM and
SIRIUS directors will not become directors of the combined
company after the merger, in either case, SIRIUS will indemnify
and maintain liability insurance for each of the directors’
services as directors before the merger. In addition, XM’s
executive directors and one executive officer of SIRIUS have
change in control severance protections that would entitle them
to enhanced severance if their employment were to terminate
following the merger under specific circumstances. In addition,
SIRIUS has employment agreements with each of its executive
officers, which contain provisions regarding payments upon a
termination of employment. These and other material interests of
the directors and executive officers of XM and SIRIUS in the
merger that are different than those of the other XM and SIRIUS
stockholders are described under “The Merger —
Interests of Directors and Executive Officers in the
Merger” beginning on page 42.
The
merger agreement contains provisions that could discourage a
potential competing acquiror that might be willing to pay more
to acquire XM or that may be willing to acquire
SIRIUS.
The merger agreement contains “no shop” provisions
that restrict SIRIUS’ and XM’s ability to solicit or
facilitate proposals regarding a merger or similar transaction
with another party. Further, there are only limited exceptions
to SIRIUS’ or XM’s agreement that their respective
board of directors will not withdraw or adversely qualify its
recommendation regarding the merger agreement. Although each of
the SIRIUS and XM boards are permitted to terminate the merger
agreement in response to a superior proposal if they determine
that a failure to do so would be inconsistent with their
fiduciary duties, its doing so would entitle the other party to
collect a $175 million termination fee from the other
party. In addition, if a third party publicly makes a proposal
for a competing transaction with either SIRIUS or XM before the
special meeting and its stockholders do not approve the merger,
that party will be required to pay the other party a portion of
the termination fee. We describe these provisions under
“The Merger Agreement — Termination”
beginning on page 59 and “— Termination Fees
and Expenses” beginning on page 60.
These provisions could discourage a potential competing acquiror
from considering or proposing that acquisition, even if it were
prepared to pay consideration with a higher value than that
proposed to be paid in the merger, or might result in a
potential competing acquiror proposing to pay a lower per share
price than it might otherwise have proposed to pay because of
the added expense of the termination fee.
In
connection with the merger, a substantial amount of XM
indebtedness may need to be refinanced.
In connection with the merger, an offer to repurchase a
significant portion of XM’s outstanding notes at 101% of
the principal amount thereof may be required under the terms of
such debt. Any required repurchase would likely be financed with
other debt and, due to prevailing conditions in the debt
markets, debt financing to fund such repurchase may not be
available on terms favorable to the combined company or at all.
At June 30, 2007, the aggregate principal amount of
XM’s outstanding notes was approximately $1.5 billion,
and no outstanding notes were trading above 101% of the
outstanding principal amount. We believe that if the notes are
trading above 101% at the time of any required repurchase offer,
a large majority of holders would be unlikely to sell their
notes in the repurchase offer. Moreover, SIRIUS may consider
repurchasing outstanding debt in connection with the merger. Any
repurchase would likely be financed with other debt. At
June 30, 2007, the aggregate principal amount of
SIRIUS’ long-term debt was approximately $1.3 billion.
The
combined company’s indebtedness following the completion of
the merger will be substantial. This indebtedness could
adversely affect the combined company in many ways, including by
reducing funds available for other business purposes.
The pro forma indebtedness of the combined company as of
June 30, 2007, after giving effect to the merger, would
have been approximately $2.8 billion. As a result of this
debt, demands on SIRIUS’ cash resources may increase after
the merger. The increased levels of indebtedness could reduce
funds available for investment in research and development and
capital expenditures or create competitive disadvantages
compared to other companies with lower debt levels. In addition,
existing covenants in the SIRIUS and XM debt instruments limit
the transfer of cash between the two companies and require that
inter-company dealings be effected on an arm’s-length basis.
Resales
of shares of SIRIUS common stock following the merger and
additional obligations to issue shares of SIRIUS common stock
may cause the market price of SIRIUS common stock to
fall.
As of June 30, 2007, SIRIUS had approximately
1.46 billion shares of common stock outstanding and
approximately 164 million shares of common stock
subject to outstanding options and other rights to purchase or
acquire its shares. SIRIUS currently expects that it will issue
approximately 1.70 billion shares of SIRIUS common
stock in connection with the merger. The issuance of these new
shares of SIRIUS common stock and the sale of additional shares
of SIRIUS common stock that may become eligible for sale in the
public market from time to time upon exercise of options
(including a substantial number of SIRIUS options that will
replace existing XM options) could have the effect of depressing
the market price for shares of SIRIUS common stock.
The
trading price of shares of SIRIUS common stock after the merger
may be affected by factors different from those affecting the
price of shares of XM common stock or shares of SIRIUS common
stock before the merger.
When we complete the merger, holders of XM common stock will
become holders of SIRIUS common stock. The results of operations
of SIRIUS, as well as the trading price of SIRIUS common stock,
after the merger may be affected by factors different from those
currently affecting SIRIUS’ or XM’s results of
operations and the trading price of XM common stock. For a
discussion of the businesses of XM and SIRIUS and of certain
factors to consider in connection with those businesses, see the
documents incorporated by reference into this Proxy Statement
and referred to under “Where You Can Find More
Information” beginning on page 94.
The following is a discussion of the merger and the material
terms of the merger agreement between SIRIUS and XM. You are
urged to read carefully the merger agreement in its entirety, a
copy of which is attached as Annex A to this Proxy
Statement and incorporated by reference herein.
Representatives of XM and SIRIUS first discussed the possibility
of a business combination in late 2002 and early 2003, when XM
and SIRIUS were experiencing certain financial challenges and
were in the process of restructuring their respective debt and
equity capital structures. However, XM and SIRIUS were unable to
agree on a basis to proceed with discussions, and, as a result,
those discussions were abandoned.
In February 2006, Mel Karmazin, the CEO of SIRIUS, contacted
Gary M. Parsons, the Chairman of XM, to propose a meeting on a
variety of topics of interest to the two companies and, on
March 6, 2006, Mr. Karmazin met with Mr. Parsons
and Hugh Panero, the CEO of XM at that time. As part of this
meeting, Mr. Karmazin explored with Messrs. Parsons
and Panero their interest in a possible business combination.
Mr. Karmazin discussed in general terms why a combination
would make sense from a business and financial perspective for
the two companies and their stockholders. Messrs. Parsons
and Panero agreed to reflect on the possibility of entering into
discussions regarding a business combination, and indicated that
they would raise the possibility of merger discussions with the
XM board of directors. The XM board of directors was informed of
the possibility of merger discussions with SIRIUS in March of
2006.
No further substantive discussions were held until
September 21, 2006, when Mr. Karmazin and David Frear,
the Executive Vice President and Chief Financial Officer of
SIRIUS, met with Messrs. Parsons and Panero and Joseph
Euteneuer, the Executive Vice President and Chief Financial
Officer of XM. At this meeting, Mr. Karmazin reiterated
SIRIUS’ interest in exploring a business combination with
XM and generally discussed the possibility and benefits of
entering into a discussion to combine their operations.
Messrs. Karmazin and Frear again met with
Messrs. Parsons and Panero on October 17, 2006.
Mr. Parsons expressed an interest in pursuing further
discussions, provided there was a reasonable probability that
required regulatory approvals for a business combination would
be secured. As part of this meeting, SIRIUS and XM agreed to
discuss with their respective counsel the likelihood of
obtaining the required regulatory approvals for a combination.
In the following weeks, SIRIUS had several discussions with its
outside legal counsel, Simpson Thacher & Bartlett LLP
and Wiley Rein LLP, about potential regulatory issues and
received an initial assessment of these matters from both
counsel.
On October 19, 2006, Messrs. Parsons and Panero
briefed the XM board of directors on their meetings with SIRIUS,
and recommended that XM retain the law firms of Jones Day and
Latham and Watkins LLP to provide an assessment of potential
antitrust and FCC issues, respectively. In the following weeks,
XM had several discussions with its outside legal counsel about
potential regulatory issues. On November 15, 2006, the XM
board received an initial assessment of regulatory issues from
outside counsel, and Messrs. Parsons and Panero recommended
that XM engage an investment banking firm to evaluate the merits
of a possible combination. Mr. Parsons described for the XM
board the investment banking firms with whom he had already met
and the concurring recommendation of the Finance Committee of
the XM board of directors.
In late November 2006, Messrs. Parsons, Panero and
Euteneuer met with representatives of JPMorgan to discuss
engaging JPMorgan to act as financial advisor to XM to evaluate
the merits of a possible combination and to assist in
discussions regarding a possible transaction with SIRIUS. During
the following weeks, representatives of XM and JPMorgan met a
number of times to review financial information regarding a
combined XM and SIRIUS.
In early December 2006, Mr. Karmazin briefed the SIRIUS
board of directors on his upcoming meeting with management of XM
and his desire to engage an investment banking firm, and
described for the SIRIUS board the investment banking firms with
whom he had already met. At this meeting, the SIRIUS board of
directors authorized Mr. Karmazin to engage an investment
banking firm to act as its financial advisor in connection with
a possible combination. On December 8, 2006,
Messrs. Karmazin and Frear and Andreas Lazar, the Senior
Vice President of Business Development of SIRIUS, met with
representatives of Morgan Stanley, to discuss engaging Morgan
Stanley to act as financial advisor to SIRIUS in discussions of
a possible transaction with XM. On December 14, 2006,
Messrs. Karmazin, Frear and Lazar met with Morgan Stanley
to discuss the financial aspects of a possible merger with XM.
On December 15, 2006, JPMorgan presented its initial
analysis to the XM board of directors and representatives of
Jones Day and Latham and Watkins presented an analysis of the
regulatory issues to the XM board of directors. At various times
following this meeting, Mr. Parsons updated the board of
directors of XM individually on the status of discussions
between the companies. On December 18, 2006,
Messrs. Karmazin, Frear and Lazar again met with Morgan
Stanley to review financial information regarding a combined
SIRIUS and XM.
On December 19, 2006, Messrs. Karmazin, Frear and
representatives of Morgan Stanley met with Messrs. Parsons,
Panero and Euteneuer of XM and representatives of JPMorgan to
present their ideas regarding the possible structure of a
combination with XM. At this meeting, Mr. Karmazin proposed
that SIRIUS and XM enter into discussions regarding a
stock-for-stock transaction on a “merger of equals”
basis.
On January 11, 2007, representatives of JPMorgan and Morgan
Stanley met to discuss assumptions regarding the calculation of
the relative equity values of XM and SIRIUS.
On January 23, 2007, Mr. Karmazin discussed with the
SIRIUS board of directors management’s views regarding a
possible business combination with XM, conversations between the
respective financial advisors to XM and SIRIUS and expectations
of XM regarding business valuations. After legal counsel
reviewed with the SIRIUS board of directors the corporate and
regulatory process anticipated in connection with a possible
business combination with XM, the SIRIUS board of directors
discussed at length the regulatory environment and potential
challenges associated with seeking approval of a business
combination with XM as well as the potential benefits and
challenges of operating a combined enterprise.
On January 29, 2007, Mr. Karmazin and representatives
of Morgan Stanley met with Mr. Parsons and representatives
of JPMorgan to discuss a merger of SIRIUS and XM, including the
materials that each side would review in refining a proposal and
analyzing the potential benefits of a business combination. On
February 1, 2007, JPMorgan provided additional analysis to
the XM board of directors.
On February 8, 2007, Mr. Karmazin met with
Mr. Parsons and Jack Shaw and Jeff Zients, members of the
board of directors of XM, representatives of JPMorgan and
representatives of Morgan Stanley. Mr. Karmazin and
Mr. Parsons discussed a possible transaction whereby SIRIUS
and XM would seek to negotiate a business combination on the
basis of an exchange ratio of 4.6 shares of SIRIUS common
stock for each share of XM common stock. Mr. Karmazin and
Mr. Parsons agreed that each of SIRIUS and XM would
commence detailed due diligence and contract negotiations
promptly. At this meeting, the participants also reviewed
financial models for a consolidated business and discussed
various other matters. Mr. Karmazin, together with
SIRIUS’ financial and legal advisors, discussed these
developments with the SIRIUS board at a telephonic meeting on
February 9, 2007. The SIRIUS board requested that
management continue discussions with XM and promptly begin
negotiating the financial terms of a possible merger.
The following day, members of senior management of SIRIUS and XM
and their respective financial advisors met telephonically to
discuss how to proceed with the merger negotiations and to
finalize details relating to their respective due diligence
reviews. Around this time, SIRIUS , through its legal advisor
Simpson Thacher, delivered a draft merger agreement to XM
through XM’s legal advisor, Skadden, Arps, Slate,
Meagher & Flom LLP. During the following week, XM and
SIRIUS and their respective representatives and advisors
completed their due diligence reviews and negotiated the
substantive terms and conditions of the merger agreement.
Significant areas of negotiation included the scope and degree
of reciprocity of representations and warranties and interim
operating covenants, the conditions to closing, the terms upon
which XM or SIRIUS could consider an alternative acquisition
proposal and the process for dealing with any such proposal, the
amount and triggers for payment of termination fees and various
benefit and employee related provisions.
The SIRIUS board held a lengthy telephonic meeting on
February 18, 2007, and received reports from management on
the status of discussions with XM and from its outside legal
counsel about the negotiations on terms of the merger agreement.
Simpson Thacher reviewed with the SIRIUS directors their
fiduciary duties in connection with considering and approving
the merger agreement. The SIRIUS board of directors discussed
with SIRIUS management and Simpson Thacher and Wiley Rein the
regulatory approvals that would be necessary to complete
the merger. At that meeting, Morgan Stanley rendered its opinion
that, as of the date of the meeting and based upon and subject
to the factors, assumptions, matters, procedures, limitations
and qualifications set forth in such opinion, the exchange ratio
pursuant to the merger agreement was fair, from a financial
point of view, to SIRIUS. At the February 18, 2007 SIRIUS
board meeting, the SIRIUS board of directors unanimously
determined, among other things, that the merger agreement and
the merger contemplated thereby are advisable and in the best
interest of SIRIUS and its stockholders, authorized the issuance
of shares in the merger, resolved that the amendment to the
SIRIUS certificate of incorporation to increase the number of
authorized shares was advisable and in the best interest of
SIRIUS and its stockholders and resolved to recommend that
SIRIUS stockholders approve the share issuance and the amendment
to SIRIUS’ certificate of incorporation.
The XM board held a lengthy telephonic meeting on February 18
and held another telephonic meeting on February 19, 2007.
At such meetings, the XM board of directors received reports
from management on the status of the discussions with SIRIUS,
and received reports from its financial and legal advisors about
the terms of the merger agreement. Skadden, Arps reviewed with
the XM directors their fiduciary duties in connection with
considering and approving the merger agreement. The XM board
discussed with XM management and outside legal counsel, Jones
Day and Latham & Watkins, the regulatory approvals
that would be necessary to complete the merger. At the
February 18, 2007 XM board of directors meeting, JPMorgan
rendered its oral opinion that, as of the date of the meeting
and based upon and subject to the factors, assumptions, matters,
procedures, limitations and qualifications set forth in such
opinion, the exchange ratio to be received by the holders of XM
shares in the merger was fair, from a financial point of view,
to such holders. JPMorgan subsequently confirmed its oral
opinion by delivering its written opinion, dated
February 20, 2007, to the board of directors of XM. At the
February 19, 2007 XM board of directors meeting, the XM
board of directors unanimously, with the XM director appointed
by General Motors and the XM director appointed by American
Honda each abstaining, determined that the merger agreement and
the merger contemplated thereby are advisable and in the best
interest of XM and its stockholders, approved, adopted and
authorized the merger agreement, and resolved to recommend that
XM stockholders adopt the merger agreement. The XM directors
appointed by each of General Motors and American Honda abstained
from voting with respect to the proposed merger, with the
consent of the other XM directors, given XM’s and
SIRIUS’ commercial and other arrangements with various
automakers, including General Motors and American Honda.
Shortly after the conclusion of the XM board of directors
meeting on February 19, 2007, SIRIUS, XM and Merger Sub
executed and delivered to each other the merger agreement.
Both SIRIUS and XM believe that there are substantial potential
strategic and financial benefits of the proposed merger of
equals. This section summarizes the principal potential
strategies and financial benefits that the parties expect to
realize in the merger. For a discussion of various factors that
could prohibit or limit the parties from realizing some or all
of these benefits, see “Risk Factors” beginning on
page 16.
Each of XM and SIRIUS believes that the merger will enhance
stockholder value through, among other things, enabling SIRIUS
and XM to capitalize on the following strategic advantages and
opportunities:
•
Cost Synergies: SIRIUS and XM believe that the
merger will create significant cost synergies for SIRIUS and XM.
Wall Street equity analysts have published estimates of the
present value of cost synergies ranging from $3 billion to
$9 billion. SIRIUS and XM expect operating cost savings to
be achievable in almost every cost item on the companies’
income statement, including sales and marketing, subscriber
acquisition, research and development, general and
administrative expenses, product development, content, and
programming operating infrastructure. Moreover, over the
long-term, the combined company expects to derive significant
additional value by procuring its future generation satellites
and terrestrial repeaters as a single entity. The combination of
the fixed components of the two companies means that as the
combined business grows, a greater portion of revenue will be
realized as cash flow.
•
Better Competitive Positioning: The market for
audio entertainment in the United States is robustly competitive
and rapidly evolving. SIRIUS and XM must compete directly and
intensely with a host of other audio providers for consumer
attention. The combination will better position satellite radio
to compete for consumers’ attention and entertainment
stability against a host of products and services in the highly
competitive and rapidly evolving audio entertainment
marketplace. In addition to existing competition from free
“over-the-air” AM and FM radio as well as iPods and
mobile phone streaming, satellite radio faces challenges from
the rapid growth of HD Radio, Internet radio and next generation
wireless technologies. In addition, cost reductions resulting
from the combination of SIRIUS and XM will enable satellite
radio to maintain competitive prices for subscription and
devices.
•
Greater Programming Choice: SIRIUS and XM
believe that the merger will permit the combined company to
offer consumers more choices and value. XM and SIRIUS expect to
be able to add the best of the other’s lineup to their
service, subject to obtaining permission of the applicable
content provider — as well as offer other new
programming packages. The combined company will offer American
consumers for the first time the opportunity to choose
programming on an a la carte basis, which will provide consumers
with more choices and lower prices. XM and SIRIUS already
broadcast a wide range of commercial-free music channels;
exclusive and non-exclusive sports coverage; news, talk,
entertainment, and religious programming; channels in Spanish,
French and other foreign languages; as well as weather and
traffic channels for many cities. In the long run, the combined
company is expected to be able to consolidate redundant
programming, making it possible to use channel capacity to
enhance programming diversity, including additional programming
related to public safety and homeland security, and programming
aimed at minority and underserved communities. The merger also
will help accelerate deployment of advanced technology,
including improvements in products such as real-time traffic and
rear seat video and development of a next-generation satellite
system.
•
Advancements in Technology: XM and SIRIUS
believe that the combined company will be able to offer
consumers access to advanced technology sooner than would
otherwise occur. In particular, the combination of the
companies’ two engineering organizations is expected to
lead to better results from each dollar invested in research and
development.
The merger is also expected to foster the commercial
introduction of interoperable satellite radios. In originally
implementing rules for the satellite radio service, the FCC
required SIRIUS and XM to develop designs for a radio capable of
receiving the signal of either system. In accordance with this
requirement, SIRIUS and XM created a jointly funded engineering
team that has developed radios that are interoperable with each
other’s networks. After the transaction is consummated, the
marketplace itself will provide economic incentives to encourage
further innovation and the subsidization and commercial
distribution of interoperable radios. With appropriate subsidies
to lower the costs, radio manufacturers would likely shift some
amount of production, consistent with customer demand, to
fabricating radios that tune to all channels of the combined
service. Eventually, such radios are expected to enable the
combined company to offer enhanced content and services.
•
Advertising Revenue Growth: The combined
company is expected to be more attractive to large national
advertisers, since it will have significantly more reach than
either company on its own.
•
Compatible Cultures and Commitment to
Excellence: XM and SIRIUS expect that the
combined company will have a highly experienced management
assembled from both companies, with extensive industry knowledge
in radio, media, consumer electronics, engineering and
technology.
•
Enhanced Stockholder Value: XM and SIRIUS
believe that the combined company will provide significant,
realizable cost synergies, strong future cash flows, and a
broader audience. All these benefits will provide enhanced value
for stockholders.
The actual synergistic benefits from the merger and costs of
integration could be different from the foregoing estimates and
these differences could be material. Accordingly, there can be
no assurance that any of the potential benefits described above
or included in the factors considered by the SIRIUS board of
directors described under “— SIRIUS Board of
Directors’ Recommendation” beginning on page 24
or by the XM board of directors described under “— XM
Board of Directors’ Recommendation” beginning on
page 25 will be realized. See “Risk Factors” and
“Cautionary Statement Regarding Forward-Looking
Statements” beginning on pages 16 and 15, respectively.
At a meeting on February 18, 2007, the SIRIUS board of
directors (i) determined that the merger and entering into
the merger agreement are advisable and in the best interest of
SIRIUS and its stockholders, (ii) approved the merger and
the merger agreement and the transactions contemplated thereby,
including the Charter Amendment and the Share Issuance, and
(iii) determined to recommend that the holders of SIRIUS
common stock vote FOR the Charter Amendment and FOR the Share
Issuance.
In connection with the foregoing actions, the SIRIUS board of
directors consulted with SIRIUS’ management, as well as
SIRIUS’ financial advisor and outside legal counsel and
considered the following factors and risks in addition to the
specific reasons described above under “— Reasons for
the Merger”:
•
The information concerning SIRIUS’ and XM’s respective
historic businesses, financial results and prospects, including
the result of SIRIUS’ due diligence review of XM.
•
SIRIUS’ assessments that the two companies can effectively
and efficiently be integrated.
•
The opinion of SIRIUS’ financial advisor, Morgan Stanley
(which will receive a fee for its services as financial advisor
to SIRIUS in connection with the merger, which is contingent
upon the completion of the merger), that, as of
February 18, 2007 and subject to the matters stated in its
opinion, the exchange ratio pursuant to the merger agreement was
fair, from a financial point of view, to SIRIUS.
•
The exchange ratio of 4.6 shares of SIRIUS common stock for
each share of XM common stock and the fact that the exchange
ratio is fixed and will not fluctuate based upon changes in
SIRIUS’ stock price between signing and closing.
•
The strong commitment of both parties to complete the merger
pursuant to their respective obligations under the terms of the
merger agreement.
•
The risk that regulatory agencies may not approve the merger or
may impose terms and conditions on their approvals that would
materially and adversely affect the projected financial results
of the combined company.
•
The expectation that XM stockholders, immediately after
completion of the merger, would hold approximately 50.3% of the
shares of common stock of the combined company on a fully
diluted basis, excluding shares issuable on conversion of
XM’s outstanding 1.75% convertible senior notes due 2009.
•
The potential impact of the restrictions under the merger
agreement on SIRIUS’ ability to take certain actions during
the period prior to the closing of the merger (which may delay
or prevent SIRIUS from undertaking business opportunities that
may arise pending completion of the merger).
•
The potential for diversion of management and employee attention
and for increased employee attrition during the period prior to
the closing of the merger agreement, and the potential effect of
these on SIRIUS’ business and relations with customers,
suppliers and regulators.
•
The risk that an unanticipated technological development or
damage to a satellite system may materially and adversely affect
the business benefits anticipated to result from the merger.
•
The risk that certain members of SIRIUS’ senior management
might choose not to remain employed with SIRIUS prior to the
completion of the merger or with the combined company.
•
The fact that the merger agreement provides that the SIRIUS
board of directors after the merger will initially consist of
12 directors, and SIRIUS and XM will each designate four
directors, who will qualify as independent directors, and XM
will designate two additional directors (one will be a designee
of General Motors and the other will be a designee of American
Honda) with the remaining directors being Mel Karmazin,
SIRIUS’ CEO, and Gary M. Parsons, XM’s Chairman, who
will become chairman of the board of directors of the combined
company.
•
The risk that certain of SIRIUS’ directors and officers may
have interests in the merger as individuals that are in addition
to, or that may be different from, the interests of SIRIUS
stockholders.
The fees and expenses associated with completing the merger.
•
The risk that anticipated cost savings will not be achieved.
In view of the wide variety of factors considered in connection
with its evaluation of the merger and the complexity of these
matters, the SIRIUS board of directors did not find it useful to
and did not attempt to quantify, rank or otherwise assign
relative weights to these factors.
In addition, the SIRIUS board of directors did not undertake to
make any specific determination as to whether any particular
factor, or any aspect of any particular factor, was favorable or
unfavorable to its ultimate determination, but rather the SIRIUS
board of directors conducted an overall analysis of the factors
described above, including discussions with the management team
and outside legal and financial advisors. In considering the
factors described above, individual members of the SIRIUS board
of directors may have given different weight to different
factors.
On February 19, 2007, the XM board of directors
(i) determined that the approval of the merger agreement
and the transactions contemplated thereby, including the merger,
are in the best interests of XM and its stockholders,
(ii) approved and adopted the merger agreement and the
transactions contemplated thereby and (iii) resolved to
recommend the adoption of the merger agreement to the
stockholders of XM.
In reaching this conclusion, the XM board of directors consulted
with XM’s management, as well as its financial advisor and
outside legal counsel, and considered the following factors in
addition to the specific reasons described above under
“— Reasons for the Merger” beginning on
page 22:
•
The information concerning XM’s and SIRIUS’ respective
historic businesses, financial results and prospects, including
the results of XM’s due diligence review of SIRIUS.
•
XM’s assessments that the two companies can effectively and
efficiently be integrated.
•
The oral opinion of XM’s financial advisor, JPMorgan (which
will receive a fee for its services as financial advisor to XM
in connection with the merger, a substantial portion of which is
contingent upon the completion of the merger), that, as of
February 18, 2007 and based upon and subject to the factors
and assumptions set forth in its written opinion, the exchange
ratio in the merger was fair, from a financial point of view, to
the holders of XM common stock. Such oral opinion was
subsequently confirmed by JPMorgan by delivery of its written
opinion dated February 20, 2007.
•
The fact that the implied value of the merger consideration,
based on the closing price of SIRIUS common stock on
February 16, 2007 (the last trading day prior to
announcement of the merger) represented a premium of 21.7% to
the closing price of XM common stock on such date, and that the
proposed exchange ratio represented a 31.1% premium to the
average implied historical exchange ratio for the six month
period ended February 16, 2007 and a substantial premium
over other recent historical periods.
•
The expectation that XM stockholders, immediately after
completion of the merger, would hold approximately 50.3% of the
shares of common stock of the combined company on a fully
diluted basis, excluding shares issuable on conversion of
XM’s outstanding 1.75% convertible senior notes due 2009,
and will have the opportunity to share in the future growth and
expected synergies of the combined company while retaining the
flexibility of selling all or a portion of those shares.
•
The strong commitment on the part of both parties to complete
the merger pursuant to their respective obligations under the
terms of the merger agreement.
•
The terms of the merger agreement, including the termination
fee, which, in the view of the XM board of directors, does not
preclude a proposal for an alternative acquisition transaction
involving XM.
•
The fact that the merger agreement allows the XM board of
directors to change or withdraw its recommendation of the merger
agreement if a superior proposal is received from a third party
or if the XM board of directors determines that the failure to
change its recommendation would be inconsistent with its
fiduciary duties under applicable law, subject to the payment of
a termination fee upon termination under certain circumstances.
The fact that the merger agreement provides that the SIRIUS
board of directors after the merger will initially consist of
12 directors, and SIRIUS and XM will each designate four
directors, who will qualify as independent directors, and XM
will designate two additional directors (one will be a designee
of General Motors and the other will be a designee of American
Honda) with the remaining directors being Mel Karmazin,
SIRIUS’ CEO, and Gary M. Parsons, XM’s Chairman, who
will become chairman of the board of directors of the combined
company.
The XM board of directors also identified and considered a
number of uncertainties, risks and other potentially negative
factors, including the following:
•
The risk that regulatory agencies may not approve the merger or
may impose terms and conditions on their approvals that would
materially and adversely affect the financial results of the
combined company.
•
The potential impact of the restrictions under the merger
agreement on XM’s ability to take certain actions during
the period prior to the closing of the merger (which may delay
or prevent XM from undertaking business opportunities that may
arise pending completion of the merger).
•
The potential for diversion of management and employee attention
and for increased employee attrition during the period prior to
the closing of the merger agreement, and the potential effect of
these on XM’s business and relations with customers,
suppliers and regulators.
•
The risk that an unanticipated technological development or
damage to a satellite system may materially and adversely affect
the business benefits anticipated to result from the merger.
•
The fact that certain provisions of the merger agreement,
although reciprocal, may have the effect of discouraging
proposals for alternative acquisition transactions involving XM,
including: (i) the restriction on XM’s ability to
solicit proposals for alternative transactions; (ii) the
requirement that the XM board of directors submit the merger
agreement to the XM stockholders for adoption in certain
circumstances, even if it withdraws its recommendation for the
merger; and (iii) the requirement that XM pay a termination
fee of $175 million to SIRIUS in certain circumstances
following the termination of the merger agreement.
•
The risk that certain of XM’s directors and officers may
have interests in the merger as individuals that are in addition
to, or that may be different from, the interests of the XM
stockholders.
•
The fees and expenses associated with completing the merger.
•
The risk that certain members of XM’s senior management
might choose not to remain employed with XM prior to the
completion of the merger or with the combined company.
•
The risk that anticipated cost savings will not be achieved.
•
The risks of the type and nature described above under
“Risk Factors.”
The XM board recommends that XM common stockholders vote FOR the
Merger Proposal.
In view of the wide variety of factors considered in connection
with its evaluation of the merger and the complexity of these
matters, the XM board of directors did not find it useful to and
did not attempt to quantify, rank or otherwise assign relative
weights to these factors. The XM board of directors conducted an
overall analysis of the factors described above, including
discussions with the management team and outside legal,
financial and accounting advisors. In considering the factors
described above, individual members of the XM board of directors
may have given different weight to different factors.
SIRIUS retained Morgan Stanley to provide financial advisory
services and a financial fairness opinion to the board of
directors of SIRIUS in connection with the merger. The board of
directors selected Morgan Stanley to act as its financial
advisor based on Morgan Stanley’s qualifications,
expertise, reputation and knowledge of the business of SIRIUS.
At the special meeting of the SIRIUS board of directors on
February 18, 2007, Morgan Stanley rendered its oral
opinion, subsequently confirmed in writing as of the same date,
that based upon and subject to the
assumptions, qualifications and limitations set forth in the
opinion, the exchange ratio pursuant to the merger agreement was
fair from a financial point of view to SIRIUS.
The full text of Morgan Stanley’s written opinion, dated
February 18, 2007, which sets forth, among other things,
the assumptions made, procedures followed, matters considered
and qualifications and limitations of the reviews undertaken in
rendering its opinion, is attached as Annex B to this Proxy
Statement. The summary of Morgan Stanley’s fairness opinion
set forth in this Proxy Statement is qualified in its entirety
by reference to the full text of the opinion. Stockholders
should read this opinion carefully and in its entirety. Morgan
Stanley’s opinion is directed to the board of directors of
SIRIUS, addresses only the fairness from a financial point of
view of the exchange ratio pursuant to the merger agreement to
SIRIUS as of the date of the opinion, and does not address any
other aspect of the merger. Morgan Stanley’s opinion does
not constitute a recommendation to any stockholder of SIRIUS as
to how such stockholder should vote with respect to the merger.
In addition, this opinion does not in any matter address the
prices at which SIRIUS common stock will trade following the
consummation of the merger.
In connection with rendering its opinion, Morgan Stanley, among
other things:
•
reviewed certain publicly available financial statements and
other business and financial information of each of XM and
SIRIUS;
•
reviewed certain internal financial statements and other
financial and operating data concerning each of XM and SIRIUS;
•
reviewed certain financial projections prepared by the
management of each of XM and SIRIUS in connection with the
proposed transaction;
•
reviewed information relating to certain strategic, financial
and operational benefits anticipated from the merger, prepared
by the managements of each of XM and SIRIUS;
•
discussed the past and current operations and financial
condition and the prospects of XM, including information
relating to certain strategic, financial and operational
benefits anticipated from the merger, with senior executives of
XM;
•
discussed the past and current operations and financial
condition and the prospects of SIRIUS, including information
relating to certain strategic, financial and operational
benefits anticipated from the merger, with senior executives of
SIRIUS;
•
reviewed the pro forma impact of the merger on SIRIUS;
•
reviewed the reported prices and trading activity for the XM
common stock and the SIRIUS common stock;
•
reviewed the financial terms, to the extent publicly available,
of certain comparable merger of equals transactions;
•
participated in discussions and negotiations among
representatives of XM and SIRIUS and their financial and legal
advisors;
•
reviewed the merger agreement and certain related
documents; and
•
performed such other analyses and considered such other factors
as it deemed appropriate.
In arriving at its opinion, Morgan Stanley assumed and relied
upon, without independent verification, the accuracy and
completeness of the information supplied or otherwise made
available to it by XM and SIRIUS for the purposes of its
opinion. With respect to the financial projections, including
information relating to certain strategic, financial and
operational benefits anticipated from the merger, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the
future financial performance of XM and SIRIUS. In addition,
Morgan Stanley assumed, in all respects material to its
analysis, that the merger will be consummated in accordance with
the terms set forth in the merger agreement without any waiver,
amendment or delay of any terms or conditions, including, among
other things, that the merger will be treated as a tax-free
reorganization pursuant to the Internal Revenue Code of 1986, as
amended. Morgan Stanley assumed that
in connection with the receipt of all the necessary
governmental, regulatory or other approvals and consents
required for the proposed merger, no delays, limitations,
conditions or restrictions will be imposed that would have a
material adverse effect on the contemplated benefits expected to
be derived in the proposed merger. Morgan Stanley relied upon,
without independent verification, the assessment by the
managements of XM and SIRIUS of: (i) the strategic,
financial and other benefits expected to result from the merger;
(ii) the timing and risks associated with the integration
of XM and SIRIUS; (iii) their ability to retain key
employees of XM and SIRIUS, respectively; and (iv) the
validity of, and risks associated with, XM and SIRIUS’
existing and future technologies, intellectual property,
products, services and business models. Morgan Stanley is not a
legal, tax or regulatory advisor and has relied upon, without
independent verification, the assessment of SIRIUS and XM and
their legal, tax and regulatory advisors with respect to such
matters. Morgan Stanley did not make any independent valuation
or appraisal of the assets or liabilities of XM, nor was it
furnished with any such appraisals. Morgan Stanley’s
opinion was necessarily based on financial, economic, market and
other conditions as in effect on, and the information made
available to us as of, February 18, 2007. Events occurring
after February 18, 2007, may affect Morgan Stanley’s
opinion and the assumptions used in preparing it, and Morgan
Stanley did not assume any obligation to update, revise or
reaffirm its opinion.
The following is a summary of the material financial analyses
performed by Morgan Stanley in connection with its oral opinion
of February 18, 2007 and the preparation of its written
opinion of the same date. Some of these summaries include
information in tabular format. In order to understand fully the
financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do
not constitute a complete description of the analyses.
XM
Historical Share Price Analysis
To provide background information and perspective with respect
to the relative historical share prices of XM, Morgan Stanley
reviewed the stock price performance and trading volumes of XM
during various periods ending on February 16, 2007.
Morgan Stanley noted that the range of low and high closing
prices of XM common stock during the 52-week period ending on
February 16, 2007 was approximately $10 to $24, during the
90-day
period ending on February 16, 2007 was approximately $13 to
$17 and during the
30-day
period ending on February 16, 2007 was approximately $13 to
$17. Morgan Stanley noted that the merger consideration as of
February 16, 2007 was valued at $17.02 per share of XM
common stock. The $17.02 merger consideration was calculated by
multiplying the fixed transaction exchange ratio of 4.60 by the
February 16, 2007 closing share price for SIRIUS common
stock of $3.70 per share.
Morgan Stanley next compared the transaction exchange ratio of
4.60 and implied merger consideration value of $17.02 per share
of XM common stock implied by the closing share prices of XM and
SIRIUS shares of common stock as of February 16, 2007 of
$13.98 per share and $3.70 per share, respectively, with
historical exchange ratios and XM share prices for the
90-day
period ending on February 16, 2007. The following table
lists the implied exchange ratio and share price premiums
represented by the merger consideration during the selected
periods:
Transaction Premium to
Transaction Premium to
Days Trading
Exchange Ratio (4.60x)(1)
Share Price ($17.02)(1)
Feb 16, 2007(1)
22
%
22
%
5-Day
25
%
28
%
10-Day
24
%
26
%
20-Day
22
%
23
%
30-Day
19
%
16
%
60-Day
18
%
15
%
90-Day
26
%
21
%
(1)
Based on XM share price of $13.98 and SIRIUS share price of
$3.70, each as of February 16, 2007
To provide background information and perspective with respect
to the relative historical share prices of SIRIUS, Morgan
Stanley reviewed the stock price performance and trading volumes
of SIRIUS during various periods ending on February 16,2007.
Morgan Stanley noted that the range of low and high closing
prices of SIRIUS common stock during the 52-week period ending
on February 16, 2007 was approximately $3.55 and $5.65,
during the 90-day period ending on February 16, 2007 was
approximately $3.55 to $4.30 and during the last 30 days
ending on February 16, 2007 was approximately $3.55 to
$4.15. Morgan Stanley noted that SIRIUS’ common stock price
as of February 16, 2007 was $3.70 per share.
Historical
Exchange Ratio Analysis
Morgan Stanley analyzed the historical trading price of XM
relative to SIRIUS common stock based on closing prices between
February 16, 2005 and February 16, 2007 and calculated
the historical exchange ratios during certain periods implied by
dividing the daily closing prices per share of XM common stock
by those of SIRIUS common stock and the average of those
historical trading ratios for various periods ended on
February 16, 2007. Morgan Stanley also calculated the
exchange ratio implied by the closing price per share of common
stock of each of XM and SIRIUS on February 16, 2007 of
$13.98 and $3.70 per share, respectively. This analysis implied
the following exchange ratios and premiums:
Transaction Premium to
Days Trading
Implied Exchange Ratio(1)(2)
Share Price(1)
Feb 16, 2007
3.78
x
22
%
5-Day
3.67
25
%
10-Day
3.72
24
%
20-Day
3.76
22
%
30-Day
3.88
19
%
60-Day
3.89
18
%
90-Day
3.66
26
%
(1)
Based on XM share price of $13.98 and SIRIUS share price of
$3.70, each as of February 16, 2007.
(2)
Based on transaction exchange ratio of 4.60x.
Equity
Research Analyst Price Targets
Morgan Stanley reviewed public market trading price targets for
XM’s common stock prepared and published by equity research
analysts. These targets reflect each analyst’s estimate of
the future public market trading price of XM’s common
stock. The range of equity analyst
12-month
price targets for XM was from $14.00 to $25.00 per share of XM
common stock. Morgan Stanley noted that the merger consideration
as of February 16, 2007 was $17.02 per share of XM common
stock.
Morgan Stanley also reviewed public market trading price targets
for SIRIUS’ common stock prepared and published by equity
research analysts. These targets reflect each analyst’s
estimate of the future public market trading price of
SIRIUS’ common stock. The range of equity analyst
12-month
price targets for SIRIUS was from $2.75 to $8.00 per share of
SIRIUS common stock. Morgan Stanley noted that the price per
share of SIRIUS as of February 16, 2007 was $3.70.
The public market trading price targets published by securities
research analysts do not necessarily reflect current market
trading prices for XM and shares of SIRIUS common stock and
these estimates are subject to uncertainties, including the
future financial performance of XM and SIRIUS and future
financial market conditions.
Morgan Stanley calculated a range of equity values per share for
XM based on a
14-year
discounted cash flow analysis. In preparing certain of its
analyses, Morgan Stanley relied upon two specific scenarios with
respect to the projected future financial performance of XM. The
scenario referred to as “Wall Street research consensus
estimates” refers to results of XM derived from a broad
range of publicly available equity research analysts’
estimates. The scenario referred to as the “XM management
plan” reflects certain projections prepared in connection
with the proposed transaction based on discussions with
XM’s management transaction group from 2007 through 2010
and extrapolations by Morgan Stanley of those projections for
the period of 2011 through 2020. The XM management plan has not
been formally approved by the board of directors of XM and has
not been prepared with a view toward public disclosure. XM does
not publicly disclose internal information of the type provided
to Morgan Stanley in connection with Morgan Stanley’s
analysis of the merger. The XM management plan was prepared in
connection with the proposed transaction and is based on
numerous variables and assumptions that are inherently uncertain
and may be beyond the control of management, including, without
limitation, factors related to general economic and competitive
conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in the XM
management plan. Morgan Stanley noted that each of the
projections described in this paragraph were based on numerous
variables and assumptions that are inherently uncertain and may
be beyond the control of management, including, without
limitation, factors related to general economic and competitive
conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in such
projections. With respect to the Wall Street research consensus
estimates, Morgan Stanley noted that the public market trading
price targets published by securities research analysts do not
necessarily reflect current market trading prices for share of
XM and SIRIUS common stock and these estimates are subject to
uncertainties, including the future financial performance of XM
and SIRIUS and future financial market conditions.
Utilizing such projections, Morgan Stanley calculated XM’s
annual after-tax unlevered free cash flows for fiscal years 2007
through 2020. Morgan Stanley estimated a range of terminal
values calculated in 2020 utilizing perpetual growth rates.
Morgan Stanley applied a range of perpetual growth rates of 1.0%
to 4.0% to the unlevered free cash flows in the terminal year.
Morgan Stanley then discounted the unlevered free cash flow
streams and the estimated terminal value to a present value
using a range of discount rates of 10.0% to 12.0%. Based on the
aforementioned projections and assumptions, the discounted cash
flow analysis of XM yielded an implied valuation range for XM
common stock of $13.80 to $25.02 per share utilizing Wall Street
research consensus estimates and $24.74 to $39.27 per share
utilizing the XM management plan. Morgan Stanley noted that the
per share merger consideration was $17.02 as of
February 16, 2007.
SIRIUS
Discounted Cash Flow Analysis
Morgan Stanley calculated a range of equity values per share for
SIRIUS based on a
14-year
discounted cash flow analysis.
Similar to the XM discounted cash flow analysis discussed above,
in preparing certain of its analyses, Morgan Stanley
incorporated two specific scenarios with respect to the
projected future financial performance of SIRIUS. The scenario
referred to as “Wall Street research consensus
estimates” refers to results of SIRIUS derived from a broad
range of publicly available Wall Street equity research
estimates. The scenario referred to as the “SIRIUS
management plan” reflects certain projections prepared in
connection with the proposed transaction based on discussions
with SIRIUS’ management transaction group from 2007 through
2011 and extrapolations by Morgan Stanley of those projections
for the period from 2012 through 2020. The SIRIUS management
plan has not been formally approved by SIRIUS’ senior
management or by the board of directors of SIRIUS and has not
been prepared with a view toward public disclosure. SIRIUS does
not publicly disclose internal information of the type provided
to Morgan Stanley in connection with Morgan Stanley’s
analysis of the merger. The SIRIUS management plan was prepared
in connection with the proposed transaction and is based on
numerous variables and assumptions that are inherently uncertain
and may be beyond the control of management, including, without
limitation, factors related to general economic and competitive
conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in the
SIRIUS management plan. In analyzing these extrapolated
projections, Morgan Stanley relied upon observed trends as
projected by Wall Street research consensus estimates
with respect to the projected period beyond 2011. Morgan Stanley
noted that each of the projections described in this paragraph
are based on numerous variables and assumptions that are
inherently uncertain and may be beyond the control of
management, including, without limitation, factors related to
general economic and competitive conditions and prevailing
interest rates. Accordingly, actual results could vary
significantly from those set forth in such projections.
Utilizing such projections, Morgan Stanley calculated
SIRIUS’ annual after-tax unlevered free cash flows for
fiscal years 2007 through 2020. Morgan Stanley estimated a range
of terminal values calculated in 2020 utilizing perpetual growth
rates. Morgan Stanley applied a range of perpetual growth rates
of 1.0% to 4.0% to the unlevered free cash flows in the terminal
year. Morgan Stanley then discounted the unlevered free cash
flow streams and the estimated terminal value to a present value
using a range of discount rates of 10.0% to 12.0%. Based on the
aforementioned projections and assumptions, the discounted cash
flow analysis of SIRIUS yielded an implied valuation range for
SIRIUS common stock of $3.47 to $5.58 per share utilizing Wall
Street research consensus estimates and $5.67 to $8.77 per share
utilizing the SIRIUS management plan. Morgan Stanley noted that
the price per share of SIRIUS as of February 16, 2007 was
$3.70.
Contribution
Analysis
Morgan Stanley also performed a contribution analysis which
reviewed the pro forma contribution of each of XM and SIRIUS to
the combined entity and implied contributions based on certain
operational, financial and valuation metrics based upon each of
Wall Street research consensus estimates and management plans
for both XM and SIRIUS whenever applicable. Morgan Stanley
reviewed the pro forma effect of the merger and computed the
implied equity contribution of XM and SIRIUS for selected years
from 2005 to 2010, depending on the relevance of the analyzed
operational and financial metric within that period. Such
operational, financial and valuation metrics included
subscribers, revenue, EBITDA pre-equity compensation expenses,
discounted cash flow, Wall Street analyst price targets and
market equity values as of February 16, 2007. Morgan
Stanley also noted the implied exchange ratio derived from the
implied equity contributions across the selected metrics.
The computations resulted in the following equity contributions
and implied exchange ratios:
Based on XM market capitalization of $4.7 billion (share
price: $13.98, FDSO: 333MM) and net debt of $1,054MM; and SIRIUS
market capitalization of $5.6 billion (share price: of
$3.70, FDSO; 1,521MM) and net debt of $623MM as of
February 16, 2007.
Morgan Stanley noted that the 4.60 exchange ratio of XM common
stock to SIRIUS common stock would result in pro forma ownership
of the combined company for holders of SIRIUS common stock equal
to approximately 50%, consistent with a merger of equals.
Morgan Stanley also performed a quarterly historical
contribution analysis which reviewed the pro forma contribution
of each of XM and SIRIUS to the combined entity and implied
contributions based on certain operational and financial
metrics. Morgan Stanley reviewed the pro forma effect of the
merger and computed the implied equity contribution of XM and
SIRIUS on a quarterly basis for the period between the fourth
quarter of 2004 and the fourth quarter of 2006. Such operational
and financial results included subscribers, last twelve months
revenue and run-rate revenue (run-rate revenue is calculated by
annualizing the amount of revenue generated in each analyzed
quarter). The computation showed, among other things, that
SIRIUS implied equity contribution based on ending subscribers
in each quarter increased from 26% in the fourth quarter of 2004
to 44% in the fourth quarter of 2006, increased from 21% in the
fourth quarter of 2004 to 41% in the fourth quarter of 2006
based on last twelve months revenue, and increased from 23% in
the fourth quarter of 2004 to 43% in the fourth quarter of 2006
based on run-rate revenue. The following table details the
implied equity contributions for the selected metrics on a
quarterly basis:
SIRIUS
Implied Asset Value Contribution
4Q’04
1Q’05
2Q’05
3Q’05
4Q’05
1Q’06
2Q’06
3Q’06
4Q’06
Ending Subscribers
26%
28%
29%
30%
36%
39%
40%
42%
44%
Run-Rate Revenue
23%
30%
29%
30%
31%
38%
40%
41%
43%
LTM Revenue
21%
25%
27%
29%
30%
33%
36%
38%
41%
Precedent
Merger of Equals Analysis
Morgan Stanley reviewed the acquisition premium paid for a
target’s common stock one day, 5 days, 10 days,
20 days, 30 days and 90 days prior to the
announcement of the applicable transaction in precedent merger
of equals of
U.S.-based
public companies, focusing on deals with a transaction value
above $5.0 billion since 2004. Morgan Stanley reviewed
transactions where the consideration paid consisted solely of
stock. Morgan Stanley also reviewed the composition of the board
of directors and senior management, and analyzed publicly
available information, including the respective transaction
values and pro-forma ownership, for the selected transactions
reviewed.
Based on these analyses, Morgan Stanley noted a reference range
of premiums paid of 0% – 30% and a strong correlation
between the premium paid and an acquirer’s ability to
nominate directors of the surviving company and appoint senior
management.
No company or transaction utilized in the precedent transaction
analyses is identical to XM, SIRIUS, or the merger. In
evaluating the precedent transactions, Morgan Stanley made
judgments and assumptions with regard to general business,
market and financial conditions and other matters, which are
beyond the control of XM and SIRIUS, such as the impact of
competition on the business of XM, SIRIUS or the industry
generally, industry growth and the absence of any adverse
material change in the financial condition of XM, SIRIUS or the
industry or in the financial markets in general, which could
affect the public trading value of the companies and the
aggregate value of the transactions to which they are being
compared.
Pro-Forma
Discounted Cash Flow Analysis
Morgan Stanley calculated a range of equity values per share for
the combined company based on a
14-year
discounted cash flow analysis of the pro-forma cash flow of the
combined company, including estimated synergies, using two
scenarios: (1) the pro-forma case based on Wall Street
research consensus estimates for both SIRIUS and XM and
(2) the pro-forma case based on management plans and
extrapolations of management plans for both companies. In each
of the Wall Street research consensus estimates and management
plans, Morgan Stanley included cost synergies as projected by a
broad range of Wall Street research analysts (revenue or capital
expenditure synergies were not considered). Utilizing such
projections, Morgan Stanley calculated the combined
company’s annual after-tax unlevered free cash flows for
fiscal years 2007 through 2020. Morgan Stanley estimated a range
of terminal values calculated for 2020 utilizing perpetual
growth rates. Morgan Stanley applied a range of perpetual growth
rates of 1.0% to 4.0% to the unlevered free cash flows in the
terminal year. Morgan Stanley then discounted the unlevered free
cash flow streams and the estimated terminal value to a present
value using a range of discount rates of 10.0% to 12.0%.
Based on the aforementioned projections and assumptions, the
discounted cash flow analysis of the combined company yielded an
implied valuation range of common stock of $4.41 to $6.95 per
share and an implied premium to the closing stock price of
SIRIUS as of February 16, 2007 of 19.1% and 88.0% utilizing
Wall Street research consensus estimates; and an implied
valuation range of common stock of $6.60 to $10.06 per share and
an implied premium to the closing stock price of SIRIUS as of
February 16, 2007 of 78.5% and 172.0% utilizing the
management plans.
Morgan Stanley also noted that based on the proposed transaction
exchange ratio, the closing share prices of SIRIUS and XM as of
February 16, 2007 and an illustrative value of synergies of
approximately $6 billion, calculated by reference to the
equity research consensus estimates, the estimated value
creation for SIRIUS and XM from the proposed transaction would
be $2.5 billion and $3.5 billion, respectively.
Morgan Stanley performed a variety of financial and comparable
analyses for purposes of rendering its opinion. The preparation
of a financial opinion is a complex process and is not
susceptible to partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results
of all of its analyses as a whole and did not attribute any
particular weight to any analysis or factor considered.
Furthermore, Morgan Stanley
believes that the summary provided and the analyses described
above must be considered as a whole and that selecting any
portion of the analyses, without considering all of them as a
whole, would create an incomplete view of the process underlying
Morgan Stanley’s analyses and opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less
weight than other analyses and factors, and may have deemed
various assumptions more or less probable than other
assumptions. As a result, the ranges of valuations resulting
from any particular analysis or combination of analyses
described above should not be taken to be the view of Morgan
Stanley with respect to the actual value of SIRIUS or XM common
stock or the value of the combined company.
In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general
business, regulatory, and economic conditions and other matters,
many of which are beyond the control of Morgan Stanley, SIRIUS
or XM. Any estimates contained in the analyses of Morgan Stanley
are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than
those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as
part of its analysis of the fairness of the merger consideration
pursuant to the merger agreement from a financial point of view
to SIRIUS and in connection with the delivery of its opinion to
SIRIUS’ board of directors. These analyses do not purport
to be appraisals or to reflect the prices at which shares of
common stock of XM or SIRIUS might actually trade.
The merger consideration was determined through
arm’s-length negotiations between SIRIUS and XM and was
approved by SIRIUS’ board of directors. Morgan Stanley
provided advice to SIRIUS during these negotiations. Morgan
Stanley did not, however, recommend any specific merger
consideration to SIRIUS or that any specific merger
consideration constituted the only appropriate consideration for
the merger.
The opinion of Morgan Stanley was one of the many factors taken
into consideration by SIRIUS’ board of directors in making
its determination to approve the merger agreement. Consequently,
the analyses as described above should not be viewed as
determinative of the opinion of SIRIUS’ board of directors
with respect to the merger consideration or of whether
SIRIUS’ board of directors would have been willing to agree
to a different merger consideration. The foregoing summary does
not purport to be a complete description of all of the analyses
performed by Morgan Stanley.
Morgan Stanley is an internationally recognized investment
banking and advisory firm. Morgan Stanley, as part of its
investment banking business, is continuously engaged in the
valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate,
estate and other purposes. In the ordinary course of its
trading, brokerage, investment management and financing
activities, Morgan Stanley or its affiliates may actively trade
the debt and equity securities of SIRIUS, XM and their
affiliates for its own accounts or for the accounts of its
customers and, accordingly, may at any time hold long or short
positions in such securities.
Pursuant to an engagement letter, Morgan Stanley provided SIRIUS
with financial advisory services and a financial opinion in
connection with the merger. Pursuant to the terms of the
engagement letter, SIRIUS has agreed to pay Morgan Stanley a
transaction fee of $10 million for services rendered in
connection with the merger, which will be paid only if the
merger is successfully completed. Also, pursuant to the
engagement letter, Morgan Stanley will be eligible to receive an
incentive fee of up to $7.5 million, payable at
SIRIUS’ sole discretion. The purpose of this incentive fee
is to give the SIRIUS board of directors discretion over the
payment of a portion of Morgan Stanley’s fee. The SIRIUS
board of directors has not yet determined whether to pay Morgan
Stanley this incentive fee, nor has it decided what factors it
will consider in determining whether to pay this fee. In the
event that the merger agreement is terminated, Morgan Stanley is
entitled to receive 15% of any breakup fee paid to SIRIUS as a
result of such termination, up to a maximum amount of
$10 million. In addition, SIRIUS has agreed to indemnify
Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities
under the federal securities laws, related to or arising out of
Morgan Stanley’s engagement and any related transactions.
In the past, Morgan Stanley and its affiliates have provided
financial advisory and financing services for SIRIUS and have
received fees for the rendering of these services. In
particular, an affiliate of Morgan Stanley acts as the
administrative agent and collateral agent under SIRIUS’
$250 million term loan facility. Morgan Stanley
At the meeting of the board of directors of XM on
February 18, 2007, JPMorgan rendered its oral opinion to
the board of directors of XM that, as of such date and based
upon and subject to the factors and assumptions set forth in its
written opinion, the exchange ratio in the merger was fair from
a financial point of view to the holders of common stock of XM.
JPMorgan subsequently confirmed its oral opinion by delivering
its written opinion, dated February 20, 2007, to the board
of directors of XM. No limitations were imposed by XM’s
board of directors upon JPMorgan with respect to the
investigations made or procedures followed by it in rendering
its opinions.
The full text of the written opinion of JPMorgan, dated
February 20, 2007, which sets forth, among other things,
the assumptions made, procedures followed, matters considered
and limitations on the review undertaken in rendering its
opinion, is attached as Annex C. The summary of
JPMorgan’s opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of the
opinion. Stockholders should read this opinion carefully and in
its entirety. JPMorgan’s opinion is directed to the board
of directors of XM, addresses only the fairness from a financial
point of view of the exchange ratio pursuant to the merger
agreement to XM as of the date of the opinion, and does not
address any other aspect of the merger. JPMorgan provided its
advisory services and opinion for the information and assistance
of the board of directors of XM in connection with its
consideration of the proposed merger. The opinion of JPMorgan
does not constitute a recommendation as to how any stockholder
should vote with respect to the proposed merger. In addition,
this opinion does not in any manner address the prices at which
SIRIUS common stock will trade following the consummation of the
merger.
In arriving at its opinion, JPMorgan, among other things:
reviewed certain publicly available business and financial
information concerning XM and SIRIUS and the industries in which
they operate;
•
reviewed the current and historical market prices of the common
stock of XM and the common stock of SIRIUS;
•
reviewed certain internal financial analyses and forecasts
prepared in connection with the proposed transaction by the
managements of XM and SIRIUS relating to their respective
businesses, financial forecasts prepared in connection with the
proposed transaction by XM management (with the assistance
of an independent consultant) relating to SIRIUS’ business,
as well as the estimated amount and timing of the cost savings
and related expenses and other synergies expected to result from
the merger, which are referred to in this Proxy Statement as the
Synergies, and information provided by the managements of each
of XM and SIRIUS relating to certain of their respective tax
attributes; and
•
performed such other financial studies and analyses and
considered such other information as JPMorgan deemed appropriate
for the purposes of this opinion.
JPMorgan also held discussions with certain members of the
management of XM and SIRIUS with respect to certain aspects of
the merger, and the past and current business operations of XM
and SIRIUS, the financial condition and future prospects and
operations of XM and SIRIUS, the effects of the merger on the
financial condition and future prospects of XM and SIRIUS, and
certain other matters JPMorgan believed necessary or appropriate
to its inquiry.
In giving its opinion, JPMorgan relied upon and assumed, without
assuming responsibility or liability for independent
verification, the accuracy and completeness of all information
that was publicly available or was furnished to or discussed
with JPMorgan by XM and SIRIUS or otherwise reviewed by or for
JPMorgan. JPMorgan did not conduct and was not provided with any
valuation or appraisal of any assets or liabilities, nor did
JPMorgan evaluate the solvency of XM or SIRIUS under any state
or federal laws relating to bankruptcy, insolvency or similar
matters. In relying on financial analyses and forecasts provided
to JPMorgan by the managements of XM and
SIRIUS, including the Synergies, JPMorgan assumed that they were
reasonably prepared based on assumptions reflecting the best
then available estimates and judgments by management of XM and
SIRIUS as to the expected future results of operations and
financial condition of XM and SIRIUS to which such analyses or
forecasts relate. JPMorgan expressed no view as to such analyses
or forecasts (including the Synergies) or the assumptions on
which they were based. JPMorgan also assumed that the merger
will qualify as a tax-free reorganization for U.S. federal
income tax purposes, have the tax consequences described in
discussions with representatives of XM, that the other
transactions contemplated by the merger agreement will be
consummated as described in the merger agreement, and that the
definitive merger agreement would not differ in any material
respect from the draft thereof provided to JPMorgan. JPMorgan
relied as to all legal, regulatory or tax matters relevant to
the rendering of its opinion upon the assessments made by
advisors to XM with respect to such issues. JPMorgan further
assumed that all material governmental, regulatory or other
consents, authorizations and approvals necessary for the
consummation of the merger will be obtained without any adverse
effect on XM and SIRIUS or on the contemplated benefits of the
merger.
The JPMorgan opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made
available to JPMorgan as of, the date of the JPMorgan opinion.
Subsequent developments may affect the JPMorgan opinion, and
JPMorgan does not have any obligation to update, revise or
reaffirm the JPMorgan opinion. The JPMorgan opinion is limited
to the fairness, from a financial point of view, to the holders
of common stock of XM of the exchange ratio by which each share
of XM common stock will be converted into shares of SIRIUS
common stock should the merger be completed and JPMorgan has
expressed no opinion as to the fairness of the merger to, or any
consideration to be received by, the holders of any other class
of securities, creditors or other constituencies of XM or as to
the underlying decision by XM to engage in the merger. JPMorgan
has also expressed no opinion as to the price at which the
shares of XM or SIRIUS common stock will trade at any future
time.
In accordance with customary investment banking practice,
JPMorgan employed generally accepted valuation methods in
reaching its opinion. The following is a summary of certain of
the financial analyses undertaken by JPMorgan and delivered to
the board of directors of XM on February 18, 2007, which
analyses were among those considered by JPMorgan in connection
with delivering the JPMorgan opinion.
Projections
In performing its analysis of XM, JPMorgan relied upon
(1) estimates provided by the management of XM prepared in
connection with the proposed transaction for the period 2006 to
2010, plus an extension of such estimates through the period
ending 2016 prepared by JPMorgan and reviewed and approved by
the management of XM, which are referred to in this Proxy
Statement as the XM Management Case and (2) Wall Street
analyst projections, which are referred to in this Proxy
Statement as the XM Street Case. In performing its analysis of
SIRIUS, JPMorgan relied on (1) a base case prepared in
connection with the proposed transaction by the management of XM
with the assistance of an independent consultant based on
estimates provided by the management of SIRIUS for the period
2006 to 2010, plus an extension of such estimates through the
period ending 2016 prepared by JPMorgan and reviewed and
approved by the management of XM, which is referred to in this
Proxy Statement as the SIRIUS Management Case (2) a
sensitivity case prepared in connection with the proposed
transaction by the management of XM with the assistance of an
independent consultant for the period 2006 to 2010, plus an
extension of such estimates through the period ending 2016
prepared by JPMorgan and reviewed and approved by the management
of XM, which is referred to in this Proxy Statement as the
SIRIUS Adjusted Management Case, and (3) Wall Street
analyst projections, which are referred to in this Proxy
Statement as the SIRIUS Street Case. These estimates were based
on assumptions regarding the financial performance of XM and
SIRIUS.
The projections furnished to JPMorgan for XM and SIRIUS were
prepared by the managements of XM (with the assistance of an
independent consultant) and SIRIUS in connection with the
proposed transaction. Neither XM nor SIRIUS publicly discloses
internal management projections of the type provided to JPMorgan
in connection with JPMorgan’s analysis of the merger, and
such projections were prepared in connection with the proposed
transaction and were not prepared with a view toward public
disclosure. These projections were based on numerous variables
and assumptions that are inherently uncertain and may be beyond
the control of management, including,
without limitation, factors related to general economic and
competitive conditions and prevailing interest rates.
Accordingly, actual results could vary significantly from those
set forth in such projections.
Historical
exchange ratio analysis
JPMorgan reviewed the per share daily closing market price of
SIRIUS common stock and XM common stock over the previous year,
and calculated the implied historical exchange ratios during
this period by dividing the daily closing prices per share of XM
common stock by those of SIRIUS common stock and the average of
those implied historical exchange ratios for the
one-day,
five-day,
ten-day,
one-month, three-month, six-month, one-year and two-year periods
ending February 16, 2007. The analysis resulted in the
following average implied exchange ratios for the periods
indicated (rounded to the nearest hundredth):
Exchange
Ratio
Current (02/16/2007)
3.78x
1-day
3.61x
5-day
3.67x
10-day
3.72x
1-month
3.80x
3-month
3.86x
6-month
3.51x
1-year
3.62x
2-year
4.32x
JPMorgan noted that an historical stock trading analysis is not
a valuation methodology and that such analysis was presented
merely for informational purposes.
Relative
Discounted Cash Flow Analysis
JPMorgan conducted a discounted cash flow analysis for each of
XM and SIRIUS for the purpose of determining their respective
fully diluted equity value per share on a stand-alone basis
(i.e., without Synergies).
JPMorgan calculated the unlevered free cash flows that XM and
SIRIUS are expected to generate during fiscal years 2007 through
2016 based upon financial projections prepared by the management
of XM in connection with the proposed transaction. JPMorgan also
calculated a range of terminal values of both XM and SIRIUS at
the end of the
10-year
period ending 2016 by applying a perpetual revenue growth rate
ranging from 2.5% to 4.5%. The unlevered free cash flows and the
range of terminal values were then discounted to present values
using a range of discount rates from 10.0% to 14.0%, which were
chosen by JPMorgan based upon an analysis of the weighted
average cost of capital of XM and SIRIUS. The present value of
the unlevered free cash flows and the range of terminal asset
values were then adjusted for XM and SIRIUS’ estimated 2006
fiscal year-end net debt to obtain fully diluted equity value.
As part of the total equity value calculated for XM, JPMorgan
calculated the present value of the tax benefit from XM’s
estimated net operating loss carry-forwards (referred to as
NOLs) balance as of December 31, 2006. As part of the total
equity value calculated for SIRIUS, JPMorgan calculated the
present value of SIRIUS’ estimated NOLs balance as of
December 31, 2006.
The analysis yielded the following implied equity value per
share:
JPMorgan compared the results for the XM Management Case to the
SIRIUS Management Case and to the SIRIUS Adjusted Management
Case. JPMorgan also compared the results for the XM Street Case
to the SIRIUS Street Case. For each comparison, JPMorgan
compared the highest equity value per share for XM to the lowest
equity value per share for SIRIUS to derive the highest relative
ownership implied by each pair of estimates. JPMorgan also
compared the lowest equity value per share for XM to the highest
equity value per share for SIRIUS to derive the lowest relative
ownership implied by each pair of estimates. These relative
equity ownerships yielded the following implied exchange ratios:
Exchange
Ratio
XM Management Case to SIRIUS
Management Case
Lowest XM equity value per share
to highest SIRIUS equity value per share
3.0x
Highest XM equity value per share
to lowest SIRIUS equity value per share
5.9x
XM Management Case to SIRIUS
Adjusted Management Case
Lowest XM equity value per share
to highest SIRIUS equity value per share
3.6x
Highest XM equity value per share
to lowest SIRIUS equity value per share
7.4x
XM Street Case to SIRIUS Street
Case
Lowest XM equity value per share
to highest SIRIUS equity value per share
2.6x
Highest XM equity value per share
to lowest SIRIUS equity value per share
5.5x
Contribution
Analysis
JPMorgan analyzed the contribution of each of XM and SIRIUS to
the pro forma combined company with respect to subscribers,
EBITDA (pre-stock based compensation), operating cash flow, or
OCF, and levered free cash flow, or LFCF (defined as OCF minus
capital expenditures), for fiscal years 2006 through 2010 and,
except for subscribers,
2007-2010
cumulative. Out of the four metrics, JPMorgan focused on
subscriber projections and LFCF. A focus on subscriber
contributions assumes that per subscriber profitability of XM
and SIRIUS will converge over time. LFCF is more relevant than
EBITDA and OCF because EBITDA and OCF do not take into account
the impact of capital expenditure. Three sets of relative
contribution analyses were prepared comparing: (i) XM
Management Case and SIRIUS Management Case; (ii) XM
Management Case and SIRIUS Adjusted Management Case; and (iii)
XM Street Case and SIRIUS Street Case. These three sets of
analyses yielded the following pro forma diluted equity value
contributions and implied exchange ratios.
For purposes of the contribution analysis, JPMorgan assumed that
the contributions with respect to subscribers, EBITDA and OCF
reflected each company’s contribution to the combined
company’s pro forma firm value. Equity value contributions
were derived by adjusting firm value contributions for
outstanding net debt. JPMorgan assumed that contributions with
respect to LFCF reflected each company’s contribution to
the combined company’s pro forma equity value.
ii. XM Management Case and SIRIUS Adjusted Management
Case
Subscribers
2006
2007
2008
2009
2010
XM contribution
57
%
53
%
51
%
50
%
50
%
Implied exchange ratio
6.1
x
5.1
x
4.7
x
4.5
x
4.5
x
2007-2010
EBITDA
2006
2007
2008
2009
2010
Cumul.
XM contribution
80
%
74
%
NM
60
%
56
%
72
%
Implied exchange ratio
18.5
x
13.1
x
NM
6.8
x
5.8
x
11.8
x
2007-2010
OCF
2006
2007
2008
2009
2010
Cumul.
XM contribution
49
%
NM
NM
47
%
56
%
57
%
Implied exchange ratio
4.4
x
NM
NM
4.1
x
5.8
x
6.0
x
2007-2010
LFCF
2006
2007
2008
2009
2010
Cumul.
XM contribution
42
%
42
%
NM
57
%
61
%
68
%
Implied exchange ratio
3.3
x
3.3
x
NM
6.1
x
7.1
x
9.7
x
iii. XM Street Case and SIRIUS Street Case
Subscribers
2006
2007
2008
2009
2010
XM contribution
55
%
51
%
50
%
50
%
49
%
Implied exchange ratio
5.6
x
4.8
x
4.6
x
4.5
x
4.4
x
2007-2010
EBITDA
2006
2007
2008
2009
2010
Cumul.
XM contribution
76
%
73
%
NM
40
%
38
%
49
%
Implied exchange ratio
14.2
x
12.1
x
NM
3.1
x
2.8
x
4.4
x
2007-2010
OCF
2006
2007
2008
2009
2010
Cumul.
XM contribution
47
%
66
%
45
%
40
%
39
%
40
%
Implied exchange ratio
4.0
x
9.0
x
3.7
x
3.1
x
2.9
x
3.1
x
2007-2010
LFCF
2006
2007
2008
2009
2010
Cumul.
XM contribution
43
%
39
%
NM
37
%
40
%
41
%
Implied exchange ratio
3.5
x
3.0
x
NM
2.7
x
3.1
x
3.1
x
JPMorgan then compared the exchange ratio in the proposed merger
to: (1) the exchange ratios implied by the relative equity
values per share in the discounted cash flow analysis and
(2) the exchange ratios implied by the contribution
analysis.
Historical
premiums analysis
JPMorgan analyzed premiums paid on selected precedent mergers of
equals (82 transactions since 1995) and selected
acquisitions of U.S. targets, excluding mergers of equals,
divided into transactions involving all-stock or mixed
consideration and transactions involving all-cash consideration
(a total of 2,848 transactions since 1999).
Based on the February 16, 2007 (the last trading day prior
to the announcement of the transaction) closing prices of $13.98
and $3.70 for XM and SIRIUS respectively, the premium implied by
the proposed 4.60x exchange ratio is 21.7%.
JPMorgan noted that an historical premiums analysis is not a
valuation methodology and that such analysis was presented
merely for informational purposes.
XM Per
Share Accretion Analysis
JPMorgan prepared a multiples-based analysis of the pro forma
financial impact of the merger. Based on the XM Management Case
and SIRIUS Management Case projections, and XM and SIRIUS share
prices and current net debt as of February 16, 2007,
JPMorgan calculated implied 2010 trading multiples:
Metric
XM
SIRIUS
Firm value / 2010 EBITDA
6.5
x
7.0
x
Equity value / 2010 LFCF
4.4
x
5.6
x
JPMorgan calculated the implied pro forma trading multiples
assuming that immediately after closing, the pro forma company
traded at a constant price of $3.70 (SIRIUS’ share price on
February 16, 2007). JPMorgan also calculated the implied
pro forma share price assuming that the combined entity will
trade at a firm value to 2010 EBITDA multiple equal to the
weighted average of XM and SIRIUS’ standalone multiples.
Finally, JPMorgan calculated the implied pro forma share price
assuming that the combined entity will trade at an equity value
to 2010 LFCF multiple equal to the weighted average of XM and
SIRIUS’ standalone multiples.
Pro forma net debt was adjusted to include the cost to achieve
synergies and transaction costs, and pro forma EBITDA and LFCF
projections reflected XM management’s assumptions on the
synergies that will be realized from the merger. The implied XM
share price accretion/dilution impact was calculated based as
SIRIUS’ implied pro forma share price times the 4.60x
proposed exchange ratio.
Constant
Constant 2010
Constant 2010
Metric
Share Price
FV/EBITDA
EV/LFCF
Implied share price
$
3.70
$
4.39
$
3.97
Implied 2010 FV/EBITDA
5.8
x
6.8
x
6.2
x
Implied 2010 EV/LFCF
4.7
x
5.6
x
5.1
x
Accretion to XM
22
%
44
%
31
%
Value
Creation Analysis
JPMorgan conducted a value creation analysis that compared the
share price of XM common stock derived from a discounted cash
flow valuation on a stand-alone basis to the equity value per
share pro forma for the merger.
The pro forma equity value per share was equal to: (1)
(a) XM’s stand-alone discounted cash flow value
(including the present value of the expected tax shield from
NOLs), plus (b) SIRIUS’ stand-alone discounted cash
flow value, plus (including the present value of the expected
tax shield from NOLs), (c) the present value of the
synergies, less (d) the cost to achieve synergies and
transaction costs, less (e) an NOL adjustment; divided by
(2) pro forma diluted shares outstanding. The NOL
adjustment represented the impact of the transaction on the
present value of the tax shield from NOLs, taking into account
limits on the ability to utilize each of XM’s and
SIRIUS’ NOLs as a result of a change of control under Sec.
382 of the Code and each of XM’s and SIRIUS’ net
unrealized built in gains. The value creation analysis was
repeated using different combinations of projections for the XM
and SIRIUS discounted cash flow, or DCF, valuations: (1) XM
Management Case and SIRIUS Management Case, (2) XM
Management Case and SIRIUS Adjusted Management Case and
(3) XM Street Case and SIRIUS Street Case.
JPMorgan also prepared a value creation analysis that compared
the market price of XM common stock as of February 16, 2007
to the equity value per share pro forma for the merger. The pro
forma equity value per share was equal to: (1) (a) the
public market equity value of XM, plus (b) the public
market equity value of SIRIUS, plus, (c) the value of
expected synergies calculated by applying a multiple to XM
management’s estimate of run-rate synergies, less
(d) the cost to achieve synergies and transaction costs
divided by (2) the pro forma diluted number of shares
outstanding.
XM valuation
SIRIUS Valuation
Accretion
DCF value XM Management Case
DCF value
SIRIUS Management Case
20
%
DCF value XM Management Case
DCF value
SIRIUS Adj. Mgmt. Case
10
%
DCF value XM Street Case
DCF value
SIRIUS Street Case
44
%
Market value
Market value
61
%
The foregoing summary of certain material financial analyses
does not purport to be a complete description of the analyses or
data presented by JPMorgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible
to partial analysis or summary description. JPMorgan believes
that the foregoing summary and its analyses must be considered
as a whole and that selecting portions of the foregoing summary
and these analyses, without considering all of its analyses as a
whole, could create an incomplete view of the processes
underlying the analyses and its opinion. In arriving at its
opinion, JPMorgan did not attribute any particular weight to any
analyses or factors considered by it and did not form an opinion
as to whether any individual analysis or factor (positive or
negative), considered in isolation, supported or failed to
support its opinion. Rather, JPMorgan considered the totality of
the factors and analyses performed in determining its opinion.
Analyses based upon forecasts of future results are inherently
uncertain, as they are subject to numerous factors or events
beyond the control of the parties and their advisors.
Accordingly, forecasts and analyses used or made by JPMorgan are
not necessarily indicative of actual future results, which may
be significantly more or less favorable than suggested by those
analyses. Moreover, JPMorgan’s analyses are not and do not
purport to be appraisals or otherwise reflective of the prices
at which businesses actually could be bought or sold.
As a part of its investment banking business, JPMorgan and its
affiliates are continually engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, investments for passive and control purposes,
negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for
estate, corporate and other purposes. JPMorgan was selected on
the basis of such experience and its familiarity with XM to
advise XM in connection with the merger and to deliver a
fairness opinion to the board of directors of XM addressing only
the fairness from a financial point of view of the exchange
ratio pursuant to the merger agreement to XM as of the date of
such opinion.
For services rendered in connection with the merger (including
the delivery of its opinion), XM has agreed to pay JPMorgan
$12,500,000, a substantial portion of which is dependent on
completion of the transaction. In addition, XM has agreed to
reimburse JPMorgan for its expenses incurred in connection with
its services, including the fees and disbursements of counsel,
and will indemnify JPMorgan against certain liabilities,
including liabilities arising under the federal securities laws.
JPMorgan and its affiliates have performed in the past, and may
continue to perform, certain services for XM, SIRIUS and their
respective affiliates, all for customary compensation, including
(1) acting as joint bookrunner in connection with XM’s
private offering of $600 million of unsecured
9.75% senior notes due 2014 and $200 million of
unsecured senior floating rate notes due 2013 in May 2006,
(2) acting as lead bookrunner in connection with XM’s
$250 million senior secured credit facility in April 2006,
(3) providing treasury and security services to XM on an
ongoing basis, (4) acting as lead bookrunner in connection
with SIRIUS’ prospective offering of $250 million of
senior notes in March 2005, which was not priced due to market
conditions, and (5) acting as underwriter of a block trade
of SIRIUS common stock for Apollo Investment Fund IV, L.P.
and Apollo Overseas Partners IV, L.P. in September 2005.
JPMorgan’s commercial bank affiliate is agent bank and
lender to XM under its $250 million senior secured
revolving credit facility. In the ordinary course of their
businesses, JPMorgan and its affiliates may actively trade the
debt and equity securities of XM or SIRIUS for their own
accounts or for the accounts of customers and, accordingly, they
may at any time hold long or short positions in such securities.
Interests
of Directors and Executive Officers of XM in the
Merger
In considering the recommendations of XM’s board of
directors with respect to its approval of the merger agreement,
XM’s stockholders should be aware that XM’s executive
officers and directors have interests in the merger that are
different from, or in addition to, those of the XM stockholders
generally.
Stock
Options and Restricted Stock
In the merger, all outstanding XM employee stock options and
restricted stock awards will be converted into options and
restricted stock awards of SIRIUS, in each case, on terms
substantially identical to those in effect immediately prior to
the completion of the merger, and those options and restricted
stock awards will entitle the holder to receive SIRIUS common
stock. The number of shares issuable under those options and
restricted stock awards, and, where applicable, the exercise
prices for those options and awards, will be adjusted based on
the exchange ratio. In addition, to the extent that the transfer
of shares of XM common stock issuable upon exercise of any XM
option (or issued in connection with any previously exercised XM
option) is conditioned upon the fair market value of XM common
stock achieving a specified percentage increase over the
exercise price of such XM option, such restriction will be
applied by requiring the same percentage increase in SIRIUS
common stock over the exercise price of the corresponding
converted option (or, in the case of a previously exercised XM
option, the exercise price that would have been determined under
the calculation above had such XM option been outstanding at the
completion of the merger). A similar adjustment will occur with
respect to any transfer restrictions applicable with respect to
shares subject to, or acquired pursuant to, XM restricted stock
awards.
In addition, restricted stock awards held by XM executive
officers will become 100% vested upon an involuntary termination
or resignation for good reason within one year of a change in
control, stock options held by XM executive officers will become
100% vested upon an involuntary termination of employment or
resignation for good reason within one year of a change in
control, and stock options will be fully exercisable for up to
twelve months following such termination. All trading
restrictions on restricted shares and options will also lapse
upon a qualifying termination. For these purposes, “change
in control” is defined in a manner that includes
consummation of the merger. The treatment of outstanding stock
options and restricted stock awards held by the XM Chairman, CEO
and COO are described below under “Employment
Agreements.”
Employment
Agreements
Chairman. XM has an employment agreement with
Gary Parsons, its Chairman, dated August 6, 2004, last
amended April 4, 2007. Pursuant to his employment
agreement, in the event of a termination of employment of
Mr. Parsons without cause, or if Mr. Parsons were to
resign for good reason (which includes a change in control of
XM), he will be paid a lump sum equal to two times the sum of
base salary and target annual bonus for the year of termination
and XM will continue to make available (or pay annually in a
lump sum) all applicable benefits for two years. In the event of
such a termination, Mr. Parsons also will be entitled to
receive a pro-rated portion of his target annual bonus for the
year in which such termination occurs. In addition, all options
and restricted shares granted to
Mr. Parsons will vest immediately and options will remain
exercisable for eighteen months. In addition, contractual
trading restrictions on all restricted shares and shares
acquired pursuant to options granted under
Mr. Parson’s employment agreement will lapse after
termination without cause or resignation for good reason within
one year following a change in control. For these purposes
“change in control” is defined in a manner that
includes the consummation of the merger. The employment
agreement also provides for a
gross-up
payment to be made to Mr. Parsons in the event of any
excise tax penalties imposed by Section 4999 of the Code
(relating to golden parachute payments).
Former Chief Executive Officer. XM has an
employment agreement with Hugh Panero, its former CEO, dated
August 6, 2004, last amended April 4, 2007. XM and
Mr. Panero have agreed that his employment terminated
effective August 10, 2007. Pursuant to the employment
agreement, in connection with such termination,
(1) Mr. Panero will be paid a severance amount equal
to three times the sum of base salary and target bonus for 2007,
(2) XM will make available all applicable benefits for
eighteen months following such termination and will make a cash
payment to Mr. Panero in lieu of three and one-half years
of additional benefit continuation to which he was otherwise
entitled and (3) Mr. Panero will receive a pro-rated
portion of his target annual bonus for 2007. The cash payments
described above will be approximately $4.9 million in the
aggregate. In addition, in connection with such termination, all
options and restricted stock awards vested upon such
termination, other than stock grants made in 2007, which will
vest on completion of the consulting term described below. All
options will remain exercisable for eighteen months. All trading
restrictions on stock acquired pursuant to restricted share
awards and options under the employment agreement lapsed upon
such termination. The agreement also provides that
Mr. Panero will perform part-time consulting services until
the earlier of March 31, 2008 and consummation of the
merger. The agreement also provides for a
gross-up
payment to be made to Mr. Panero for any penalties imposed
by Section 409A of the Code (relating to nonqualified
deferred compensation). The payments and benefits described
above are not conditioned on the completion of the merger. The
agreement also provides for a gross-up payment to be made to
Mr. Panero in the event of any excise tax penalties imposed
by Section 4999 of the Code (relating to golden parachute
payments). It is not known at this time whether any
Section 409A penalties or Section 4999 excise tax
penalties would be imposed on Mr. Panero.
President and Interim Chief Executive
Officer. XM has an employment agreement with
Nathaniel Davis, its President and Interim Chief Executive
Officer, dated July 20, 2006, last amended August 10,2007. The employment agreement provides for a severance amount
equal to two times the sum of base salary and target
discretionary bonus for the year of termination (or, if
following a change in control, target discretionary bonus for
the year of the change in control, if higher), as well as two
years’ benefits continuation, to be paid or provided if
Mr. Davis is terminated without cause or resigns for good
reason (which includes a change in control of XM, and the
appointment of a new CEO of XM other than himself or
Mr. Parsons). Mr. Davis also will be entitled to
receive a pro-rated portion of his annual bonus for the year,
based on target discretionary bonus for the year of termination
(or, if following a change in control, target discretionary
bonus for the year of the change in control, if higher). The
employment agreement also provides for all trading restrictions
on stock acquired pursuant to restricted share awards and
options under the employment agreement to lapse after
termination without cause or resignation for good reason within
one year following a change in control. For these purposes,
“change in control” is defined in a manner that
includes consummation of the merger. The agreement also provides
for a
gross-up
payment to be made to the executive in the event of any excise
tax penalties imposed by Section 4999 of the Code (relating
to golden parachute payments).
Mr. Davis previously served as XM’s President and
Chief Operating Officer, but was appointed President and Interim
Chief Executive Officer in connection with
Mr. Panero’s departure.
Severance
Agreements
XM has entered into change in control severance agreements with
each of the executive officers of XM other than the XM Chairman,
CEO and COO. The agreements provide, among other things, that if
a change in control of XM occurs and as a result the officer is
either involuntarily terminated or terminates his or her
employment for good reason, the officer will receive a lump sum
cash payment equal to two times the sum of the officer’s
base salary and target annual bonus, a pro-rata target annual
bonus in respect of the year of termination, continued health
and insurance benefits for two years, and outplacement services
for two years. All contractual trading restrictions on
stock acquired pursuant to restricted share awards and options
also will lapse. For these purposes, “change in
control” is defined in a manner that would include
consummation of the merger. The change in control agreements
also provide for a
gross-up
payment to be made to the executive in the event of any excise
tax penalties imposed by Section 4999 of the Code (relating
to golden parachute payments).
Indemnification
and Insurance
XM and each of its directors and executive officers have
previously entered into indemnification agreements. Under the
indemnification agreements, each director and executive officer
is entitled to be indemnified against damages, judgments, fines
penalties and settlements in connection with threatened or
actual litigation related to his or her capacity as director or
executive officer. XM’s certificate of incorporation and
its Bylaws provide that XM shall indemnify its directors and
officers to the fullest extent not prohibited by the Delaware
General Corporation Law. In addition, XM has obtained an
insurance policy covering directors and officers for claims that
such directors and officers may otherwise be required to pay or
for which XM is required to indemnify them, subject to certain
exclusions.
The merger agreement provides that, following the completion of
the merger, the combined company will indemnify and hold
harmless, and provide advancement of claims-related expenses to,
all past and present directors, officers and employees of XM and
its subsidiaries against all losses, claims, expenses or
liabilities pertaining to matters occurring prior to the closing
of the merger. This indemnification will apply to the same
extent such persons are indemnified or have the right to
advancement of expenses as of the date of the merger agreement
by XM pursuant to XM’s certificate of incorporation, bylaws
and indemnification agreements in existence on the date hereof
with any directors, officers and employees of XM and its
subsidiaries.
The merger agreement also provides that SIRIUS shall maintain
XM’s current directors’ and officers’ liability
insurance policies for a period of six years.
Designation
of XM’s Chairman as Chairman of the Board of Directors of
the Combined Company
Under the merger agreement, Gary M. Parsons, XM’s Chairman,
will become chairman of the board of directors of the combined
company upon completion of the merger.
Designation
as Directors of the Combined Company
The SIRIUS board of directors after the merger will initially
consist of 12 directors. Mel Karmazin, SIRIUS’ CEO and
a member of the SIRIUS board of directors, will remain CEO of
the combined company and a member of the board of directors.
Gary M. Parsons, XM’s Chairman, will become chairman of the
board of directors of the combined company. Of the remaining
10 directors, SIRIUS and XM will each designate four
directors (who may be existing directors), who will qualify as
independent directors, and XM will designate two additional
directors (one will be a designee of General Motors and the
other will be a designee of American Honda).
Continued
Employment with the Combined Company
Certain of XM’s current executive officers will be offered
continued employment with the combined company after the
effective time of the merger. The exact composition of the
combined company’s executive management following the
merger has not been finalized as of the date of this Proxy
Statement. No executive of either company has given notice of
intent to terminate his or her employment other than
Mr. Panero, as described above. Similarly, neither company
has given notice of intent to terminate the employment of any of
its respective executives. It is therefore not known at this
time whether any terminations of employment in connection with
the merger will occur which will trigger severance and
termination payments.
Interests
of Directors and Executive Officers of SIRIUS in the
Merger
In considering the recommendations of SIRIUS’ board of
directors with respect to its approval of the merger agreement,
SIRIUS’ stockholders should be aware that SIRIUS’
executive officers and directors have interests in the merger
that are different from, or in addition to, those of the SIRIUS
stockholders generally.
The CEO of SIRIUS, who is also a director of SIRIUS, will,
pursuant to the merger agreement, remain CEO of the combined
company and will remain on the board of directors of the
combined company. In addition, four current SIRIUS directors
will serve on the board of directors of the combined company.
Employment
Agreements
SIRIUS has entered into employment agreements with each of its
executive officers, which contain provisions regarding payments
upon a termination of employment.
Chief Executive Officer. In November 2004,
SIRIUS entered into a five-year agreement with Mel Karmazin to
serve as its Chief Executive Officer. Pursuant to SIRIUS’
agreement with Mr. Karmazin, his stock options and shares
of restricted stock will vest upon his termination of employment
for good reason, upon his death or disability, and in the event
of a change in control (defined in a manner that does not
include the proposed merger with XM). In the event
Mr. Karmazin’s employment is terminated by SIRIUS
without cause, his unvested stock options and shares of
restricted stock will vest and become exercisable, and he will
receive his current base salary for the remainder of the term
and any earned but unpaid annual bonus. In the event that any
payment we make, or benefit SIRIUS provides, to
Mr. Karmazin would be deemed to be an “excess
parachute payment” under Section 280G of the Code such
that he would be subject to an excise tax, SIRIUS has agreed to
pay Mr. Karmazin the amount of such tax and such additional
amount as may be necessary to place him in the exact same
financial position that he would have been in if the excise tax
was not imposed.
President, Entertainment and Sports. Scott A.
Greenstein has agreed to serve as SIRIUS’ President,
Entertainment and Sports, through July 2009. If
Mr. Greenstein’s employment is terminated without
cause or he terminates his employment for good reason, he is
entitled to receive a lump sum payment equal to (i) his
base salary in effect from the termination date through July
2009 and (ii) any annual bonuses, at a level equal to 60%
of his base salary, that would have been customarily paid during
the period from the termination date through July 2009. In the
event Mr. Greenstein’s employment is terminated
without cause or he terminates his employment for good reason,
SIRIUS is also obligated to continue his medical, dental, and
life insurance benefits for eighteen months following his
termination. Medical, dental, and life insurance benefits will
continue through July 2009 if the time period at termination is
longer than eighteen months. If, following the occurrence of a
change in control (defined in a manner that does not include the
proposed merger with XM), Mr. Greenstein is terminated
without cause or he terminates his employment for good reason,
SIRIUS is obligated to pay Mr. Greenstein the lesser of
(i) four times his base salary and (ii) 80% of the
multiple of base salary, if any, that SIRIUS’ Chief
Executive Officer would be entitled to receive under his or her
employment agreement if he or she was terminated without cause
or terminated for good reason following such change in control.
SIRIUS is also obligated to continue Mr. Greenstein’s
medical, dental, and life insurance benefits, or pay him an
amount sufficient to replace these benefits, until the third
anniversary of his termination date. In the event that any
payment SIRIUS makes, or benefit it provides, to
Mr. Greenstein would be deemed to be an “excess
parachute payment” under Section 280G of the Code such
that he would be subject to an excise tax, SIRIUS has agreed to
pay Mr. Greenstein the amount of such tax and such
additional amount as may be necessary to place him in the exact
same financial position that he would have been in if the excise
tax was not imposed.
President, Operations and Sales. SIRIUS has
entered into an amended and restated employment agreement with
James E. Meyer, dated June 6, 2007, to continue to serve as
its President, Operations and Sales, through April 30, 2010
at his present salary. If Mr. Meyer’s employment is
terminated without cause or he terminates his employment for
good reason, SIRIUS will pay him a lump sum payment equal to
(i) his annual base salary in effect on the termination
date plus, (ii) the greater of (x) a bonus equal to
60% of his annual base salary or (y) the prior year’s
bonus actually paid to him (the “Designated Amount”).
Pursuant to the employment agreement, Mr. Meyer may elect
to retire in April 2008, April 2009 or April 2010. In the event
he elects to retire, SIRIUS has agreed to pay him a lump sum
payment equal to the Designated Amount.
If, following the consummation of the merger, Mr. Meyer
elects to retire (which he may do shortly following the merger
or the next April following the merger), or Mr. Meyer is
terminated without cause or he terminates his
employment for good reason during the 12 month period
following the merger, SIRIUS will pay him a lump sum payment
equal to two times the Designated Amount.
Upon the expiration of Mr. Meyer’s employment
agreement in April 2010 or following his retirement, if earlier,
SIRIUS has agreed to offer Mr. Meyer a one-year consulting
agreement. SIRIUS expects to reimburse Mr. Meyer for all of
his reasonable out-of-pocket expenses associated with the
performance of his obligations under this consulting agreement,
but does not expect to pay him any cash compensation.
Mr. Meyer’s stock options will continue to vest and
will be exercisable during the term of this consulting agreement.
The employment agreement also provides for a
gross-up
payment to be made to Mr. Meyer in the event of any excise
tax penalties imposed by Section 4999 of the Code (relating
to golden parachute payments).
General Counsel and Secretary. Patrick
Donnelly has agreed to serve as SIRIUS’ Executive Vice
President, General Counsel and Secretary, through April 30,2010. If Mr. Donnelly’s employment is terminated
without cause or he terminates his employment for good reason,
SIRIUS is obligated to pay Mr. Donnelly his annual salary
and the annual bonus last paid to him and to continue his
medical and life insurance benefits for one year. In the event
that any payment SIRIUS makes, or benefit it provides, to
Mr. Donnelly would be deemed to be an “excess
parachute payment” under Section 280G of the Code such
that he would be subject to an excise tax, SIRIUS has agreed to
pay Mr. Donnelly the amount of such tax and such additional
amount as may be necessary to place him in the exact same
financial position that he would have been in if the excise tax
was not imposed.
Chief Financial Officer. David J. Frear has
agreed to serve as our Executive Vice President and Chief
Financial Officer through July 2008. If Mr. Frear’s
employment is terminated without cause or he terminates his
employment for good reason, SIRIUS is obligated to pay
Mr. Frear his annual salary and the annual bonus last paid
to him and to continue his medical and life insurance benefits
for one year. In the event that any payment SIRIUS makes, or
benefit it provides, to Mr. Frear would be deemed to be an
“excess parachute payment” under Section 280G of
the Code such that he would be subject to an excise tax, SIRIUS
has agreed to pay Mr. Frear the amount of such tax and such
additional amount as may be necessary to place him in the exact
same financial position that he would have been in if the excise
tax was not imposed.
The merger will be accounted for as an acquisition of XM by
SIRIUS under the purchase method of accounting of
U.S. generally accepted accounting principles. Under the
purchase method of accounting, the assets and liabilities of the
acquired company are, as of completion of the merger, recorded
at their respective fair values and added to those of the
reporting public issuer, including an amount for goodwill
representing the difference between the purchase price and the
fair value of the identifiable net assets. Financial statements
of SIRIUS issued after the merger will reflect only the
operations of XM after the merger and will not be restated
retroactively to reflect the historical financial position or
results of operations of XM.
All unaudited pro forma condensed combined financial statements
contained in this Proxy Statement were prepared using the
purchase method of accounting. The final allocation of the
purchase price will be determined after the merger is completed
and after completion of an analysis to determine the fair value
of XM’s assets and liabilities. Accordingly, the final
purchase accounting adjustments may be materially different from
the unaudited pro forma adjustments. Any decrease in the fair
value of the assets or increase in the fair value of the
liabilities of XM as compared to the unaudited pro forma
information included in this Proxy Statement will have the
effect of increasing the amount of the purchase price allocable
to goodwill.
Under the Communications Act of 1934, before the completion of
the merger, the Federal Communications Commission, or FCC, must
approve the transfer to SIRIUS of control of XM and those
subsidiaries of XM that hold FCC licenses and authorizations as
well as the deemed transfer of FCC licenses and authorizations
held by SIRIUS and its subsidiary to the combined company. The
FCC must determine whether SIRIUS is qualified to control these
licenses and authorizations and whether the transfer is
consistent with the public interest, convenience and
necessity. SIRIUS and XM filed on March 20, 2007 a
consolidated application for authority to transfer control with
the FCC. On June 8, 2007, the FCC released a public notice
seeking comment on the consolidated application. Comments and
objections were filed on or before July 9, 2007 and SIRIUS
and XM filed a joint reply on July 24, 2007. On
June 27, 2007, the FCC released a notice of proposed rule
making seeking public comment on whether language prohibiting
the transfer of control of both satellite radio licenses to a
single entity in a 1997 order is a rule and if so whether the
rule should be changed to allow the merger. SIRIUS, XM and other
interested parties filed comments on or before August 13,2007 and reply comments on or before August 27, 2007.
United
States Antitrust Laws
Under the
Hart-Scott-Rodino
Act and the rules promulgated under that act by the Federal
Trade Commission, or FTC, the merger may not be completed until
notifications have been given and information furnished to the
FTC and to the Antitrust Division of the Department of Justice
and the specified waiting period has been terminated or has
expired. XM and SIRIUS each filed notification and report forms
under the
Hart-Scott-Rodino
Act with the FTC and the Antitrust Division on March 12,2007. At any time before or after completion of the merger, the
FTC or the Antitrust Division could take any action under the
antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin completion of the merger
or seeking divestiture of substantial assets of XM or SIRIUS.
The merger also is subject to review under state antitrust laws
and could be the subject of challenges by states or private
parties under the antitrust laws.
On April 12, 2007, XM and SIRIUS received from the
Antitrust Division a request for additional information and
material relating to the merger, generally referred to as a
“Second Request”, under the
Hart-Scott-Rodino
Act. The effect of the Second Request is to extend the waiting
period imposed by the
Hart-Scott-Rodino
Act until 30 days after XM and SIRIUS have substantially
complied with the Second Request, unless that period is extended
voluntarily by the parties or terminated sooner by the
Department of Justice.
C:
Restrictions
on Sales of Shares of SIRIUS Common Stock Received in the
Merger
SIRIUS shares of common stock issued in the merger will not be
subject to any restrictions on transfer arising under the
Securities Act of 1933, as amended, except for SIRIUS shares
issued to any XM stockholder who may be deemed to be an
“affiliate” of XM or SIRIUS.
Under Rule 145, former XM stockholders who were affiliates
of XM at the time of the XM special meeting and who are not
affiliates of SIRIUS after the completion of the merger may sell
their SIRIUS shares at any time subject to the volume and sale
limitations of Rule 144 under the Securities Act. In
addition, so long as former XM affiliates are not affiliates of
SIRIUS following the completion of the merger, and a period of
at least one year has elapsed after the completion of the
merger, the former XM affiliates may sell their SIRIUS shares
without regard to the volume and sale limitations of
Rule 144 under the Securities Act if there is adequate
current public information available about SIRIUS in accordance
with Rule 144. After a period of two years has elapsed
following the completion of the merger, and so long as former XM
affiliates are not affiliates of SIRIUS and have not been for at
least three months before any sale, they may freely sell their
SIRIUS shares. Former XM stockholders who are or become
affiliates of SIRIUS after completion of the merger will remain
or be subject to the volume and sale limitations of
Rule 144 under the Securities Act until they are no longer
affiliates of SIRIUS. The SEC has recently proposed revisions to
Rule 145 which, if adopted as proposed, may change the
applicability of Rule 145 to the merger. The anticipated
timing for the adoption of any revisions to Rule 145 and
whether such revisions will be adopted as proposed are unknown
as of the date of this proxy statement. This Proxy Statement
does not cover resales of SIRIUS received by any person upon
completion of the merger, and no person is authorized to make
any use of this Proxy Statement in connection with any resale.
Under Section 262 of the General Corporation Law of the
State of Delaware, holders of shares of SIRIUS common stock and
XM common stock do not have appraisal rights in connection with
the merger. However, the holder of XM Series A convertible
preferred stock will have the right to seek appraisal of the
fair value of its shares, under Delaware General Corporation Law.
C:
NASDAQ
Listing of SIRIUS Common Stock; Delisting and Deregistration of
XM Common Stock
Before the completion of the merger, SIRIUS has agreed to use
all reasonable efforts to cause the shares of SIRIUS common
stock to be issued in the merger and reserved for issuance under
any equity awards to be approved for listing on the NASDAQ
Global Select Market. Such approval is a condition to the
completion of the merger. If the merger is completed, XM common
stock will cease to be listed on the NASDAQ and its shares will
be deregistered under the Securities Exchange Act of 1934, as
amended, or the Exchange Act.
On March 14 and March 20, 2007, two putative class action
lawsuits entitled Brockwell v. Sirius Satellite Radio,
Inc., et al., Index No. 60019/07 and Johnson v.
Sirius Satellite Radio, Inc., et al., Index
No. 600899/07, were filed against SIRIUS and its directors
in the Supreme Court of the State of New York (New York County).
The Brockwell and Johnson complaints allege that the directors
breached their fiduciary duties and engaged in self-dealing by
agreeing to merge SIRIUS with XM at an unfair exchange rate.
More specifically, the lawsuit alleges that in agreeing to the
merger with XM, the directors failed to adequately account for
and consider: (i) the true value of SIRIUS and XM;
(ii) certain XM litigation and regulatory liabilities; and
(iii) the impact of concessions that SIRIUS and XM would
need to make in order to obtain antitrust approval for the
merger. Plaintiffs seek an order enjoining SIRIUS and the
directors from consummating the merger with XM and an award of
attorneys’ fees.
Shortly after filing the original complaints, Plaintiffs’
counsel in the Brockwell and Johnson actions advised SIRIUS that
they intend to file an amended
and/or
consolidated class action complaint. Accordingly, on
June 11, 2007, SIRIUS entered into a stipulation requiring
plaintiffs to move to consolidate their actions within
30 days, and to file an amended
and/or
consolidated complaint within 30 days from the date the
court enters a consolidation order. So far, the plaintiffs have
not moved to consolidate or amend their actions.
SIRIUS believes the allegations in the Brockwell and Johnson
actions are without merit and intends to fully defend against
the asserted claims. At this time, however, the likely outcome
of the cases cannot be predicted, nor can a reasonable estimate
of loss, if any, be made.
The following is a summary of the material U.S. federal
income tax consequences of the merger applicable to a holder of
shares of XM common stock. This discussion is based upon the
Code, Treasury regulations, judicial authorities, published
positions of the Internal Revenue Service (the “IRS”)
and other applicable authorities, all as currently in effect and
all of which are subject to change or differing interpretations
(possibly with retroactive effect). This discussion is limited
to U.S. holders (as defined below) that hold their shares
of XM common stock as capital assets for U.S. federal
income tax purposes (generally, assets held for investment).
This discussion does not address all of the tax consequences
that may be relevant to a particular XM stockholder or to XM
stockholders that are subject to special treatment under
U.S. federal income tax laws, such as:
•
stockholders that are not U.S. holders;
•
financial institutions;
•
insurance companies;
•
tax-exempt organizations;
•
dealers in securities or currencies;
•
persons whose functional currency is not the U.S. dollar;
•
traders in securities that elect to use a mark to market method
of accounting;
•
persons who own more than 5% of the outstanding stock of XM;
•
persons that hold XM common stock as part of a straddle, hedge,
constructive sale or conversion transaction; and
•
U.S. holders who acquired their shares of XM common stock
through the exercise of an employee stock option or otherwise as
compensation.
If a partnership or other entity taxed as a partnership holds XM
common stock, the tax treatment of a partner in the partnership
generally will depend upon the status of the partner and the
activities of the partnership. Partnerships and partners in such
a partnership should consult their tax advisers about the tax
consequences of the merger to them.
This discussion does not address the tax consequences of the
merger under state, local or foreign tax laws. No assurance can
be given that the IRS would not assert, or that a court would
not sustain, a position contrary to any of the tax consequences
set forth below.
Holders of XM common stock are urged to consult with their
own tax advisors as to the tax consequences of the merger in
their particular circumstances, including the applicability and
effect of the alternative minimum tax and any state, local or
foreign and other tax laws and of changes in those laws.
For purposes of this section, the term
“U.S. holder” means a beneficial owner of XM
common stock that for U.S. federal income tax purposes is:
•
a citizen or resident of the United States;
•
a corporation, or other entity treated as a corporation for
U.S. federal income tax purposes, created or organized in
or under the laws of the United States or any State or the
District of Columbia;
•
an estate that is subject to U.S. federal income tax on its
income regardless of its source; or
•
a trust, the substantial decisions of which are controlled by
one or more U.S. persons and which is subject to the
primary supervision of a U.S. court, or a trust that
validly has elected under applicable Treasury regulations to be
treated as a U.S. person for U.S. federal income tax
purposes.
SIRIUS and XM intend the merger to qualify as a reorganization
within the meaning of Section 368(a) of the Code. It is a
condition to SIRIUS’ obligation to complete the merger that
SIRIUS receive a written opinion of its counsel, Simpson
Thacher & Bartlett LLP, to the effect that the merger
will be treated as a reorganization within the meaning of
Section 368(a) of the Code. It is a condition to XM’s
obligation to complete the merger that XM receive an opinion of
its counsel, Skadden, Arps, Slate, Meagher & Flom LLP,
to the effect that the merger will be treated as a
reorganization within the meaning of Section 368(a) of the
Code. In rendering these opinions, counsel may require and rely
upon representations contained in letters and certificates to be
received from SIRIUS and XM. If the letters or certificates are
incorrect, the conclusions reached in the tax opinions could be
jeopardized. In addition, the opinions will be subject to
certain qualifications and limitations as set forth in the
opinions.
None of the tax opinions given in connection with the merger
will be binding on the IRS. Neither SIRIUS nor XM intends to
request any ruling from the IRS as to the U.S. federal
income tax consequences of the merger. Consequently, no
assurance can be given that the IRS will not assert, or that a
court would not sustain, a position contrary to any of those set
forth below. In addition, if any of the representations or
assumptions upon which those opinions are based is inconsistent
with the actual facts, the U.S. federal income tax
consequences of the merger could be adversely affected.
Assuming that, in accordance with the opinions referred to
above, the merger qualifies as a reorganization within the
meaning of Section 368(a) of the Code, then, except as
provided below with respect to cash received in lieu of
fractional shares, a U.S. holder will not recognize any
gain or loss as a result of the receipt of shares of SIRIUS
common stock pursuant to the merger.
Cash
received in lieu of fractional shares
A U.S. holder that receives cash in lieu of a fractional
share of SIRIUS common stock in the merger will generally be
treated as having received such fractional share and then as
having received such cash in redemption of such fractional share
interest. A U.S. holder generally will recognize gain or
loss measured by the difference between the amount of cash
received and the portion of the basis of the shares of XM common
stock allocable to such fractional interest. Such gain or loss
generally will constitute capital gain or loss and will be
long-term capital gain or loss if the U.S. holder’s
holding period in the XM common stock exchanged was therefore
greater than one year as of the date of the exchange.
Tax Basis
and Holding Period
A U.S. holder’s aggregate tax basis in the SIRIUS
common stock received in the merger will equal such
stockholder’s aggregate tax basis in the XM common stock
surrendered in the merger reduced by any amount allocable to a
fractional share of SIRIUS common stock for which cash is
received. The holding period for the shares of SIRIUS common
stock received in the merger generally will include the holding
period for the shares of XM common stock exchanged therefor.
Reporting
Requirements
A U.S. holder who receives SIRIUS common stock as a result
of the merger will be required to retain records pertaining to
the merger. Each U.S. holder who is required to file a
U.S. tax return and who is a “significant holder”
that receives SIRIUS common stock will be required to file a
statement with such holder’s U.S. federal income tax
return setting forth such holder’s basis in the XM common
stock and the fair market value of the SIRIUS common stock
received in the merger. A “significant holder” is a
U.S. holder, who, immediately before the merger, owned at
least 5% of the outstanding stock of XM.
The following discussion summarizes material provisions of
the merger agreement, a copy of which is attached as
Annex A to this Proxy Statement and is incorporated by
reference herein. The rights and obligations of the parties are
governed by the express terms and conditions of the merger
agreement and not by this summary. This summary is not complete
and is qualified in its entirety by reference to the complete
text of the merger agreement. We urge you to read the merger
agreement carefully in its entirety, as well as this Proxy
Statement, before making any decisions regarding the merger.
The representations and warranties described below and
included in the merger agreement were made by SIRIUS and XM to
each other as of specific dates. The assertions embodied in
those representations and warranties were made solely for
purposes of the merger agreement and may be subject to important
qualifications and limitations agreed to by SIRIUS and XM in
connection with negotiating its terms. Moreover, the
representations and warranties may be subject to a contractual
standard of materiality that may be different from what may be
viewed as material to stockholders, or may have been used for
the purpose of allocating risk between SIRIUS and XM rather than
establishing matters as facts. The merger agreement is described
in this Proxy Statement and included as Annex A only to
provide you with information regarding its terms and conditions,
and not to provide any other factual information regarding
SIRIUS, XM or their respective businesses. Accordingly, you
should not rely on the representations and warranties in the
merger agreement as characterizations of the actual state of
facts about SIRIUS or XM, and you should read the information
provided elsewhere in this Proxy Statement and in the documents
incorporated by reference into this Proxy Statement for
information regarding SIRIUS and XM and their respective
businesses. See “Where You Can Find More Information”
beginning on page 94 of this Proxy Statement.
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, XM will merge with and into
Merger Sub, a wholly owned Delaware subsidiary of SIRIUS, and
will survive the merger as a wholly owned subsidiary of SIRIUS.
The merger will become effective upon the filing of a
certificate of merger with the Secretary of State of the State
of Delaware or at such later time as may be agreed upon by XM
and SIRIUS and as specified in the certificate of merger. The
filing of the certificate of merger will occur as soon as
practicable after the conditions to completion of the merger
have been satisfied or duly waived.
The SIRIUS board of directors after the merger will initially
consist of 12 directors. Mel Karmazin, SIRIUS’ Chief
Executive Officer, or CEO, and a member of the SIRIUS board of
directors, will remain CEO of the combined company and a member
of the board of directors. Gary M. Parsons, XM’s Chairman,
will become Chairman of the board of directors of the combined
company. Of the remaining 10 directors, SIRIUS and XM will
each designate four directors, who will qualify as independent
directors, and XM will designate two additional directors (one
will be a designee of General Motors and the other will be a
designee of American Honda).
XM Common Stock. At the completion of the
merger, each outstanding share of XM common stock (other than
treasury stock and shares owned by SIRIUS immediately prior to
the completion of the merger, which will be cancelled and
extinguished, and shares owned by any wholly-owned subsidiary of
SIRIUS or XM immediately prior to the completion of the merger,
which shares will remain outstanding) will be converted into the
right to receive 4.6 shares of SIRIUS common stock,
together with any cash paid in respect of fractional shares.
Fractional Shares. Holders of XM common stock
will not receive any fractional SIRIUS shares in the merger.
Instead, the total number of SIRIUS common stock that each
holder of XM common stock will receive in the merger will be
rounded down to the nearest whole number and SIRIUS will pay
cash for any resulting fractional shares that an XM stockholder
otherwise would be entitled to receive. The amount of cash
payable for a fractional share of SIRIUS common stock will be
determined by multiplying the fraction by the average closing
price for a share of SIRIUS common stock on the last trading day
immediately prior to the completion of the merger.
Warrants
to Purchase Shares of XM Common Stock
XM will take all actions necessary to ensure that at the
completion of the merger, each warrant to purchase shares of XM
common stock shall be converted into a warrant to purchase
shares of SIRIUS common stock on terms substantially identical
to those in effect immediately prior to the merger under the
terms of the warrant or other related agreement or award
pursuant to which such warrant was granted in a manner similar
to that of options to purchase XM common stock.
XM
Series A Convertible Preferred Stock
Each outstanding share of XM Series A convertible preferred
stock will be converted into 4.6 shares of a newly
designated series of SIRIUS preferred stock in the merger. The
new series of SIRIUS preferred stock, which will be designated
as Series A convertible preferred stock, will have the same
powers, designations, preferences, rights and qualifications,
limitations and restrictions as the XM Series A convertible
preferred stock to the fullest extent practicable, except that
such preferred stock will have the right to vote with the
holders of the SIRIUS common stock as a single class, with each
share of preferred stock having 1/5th of a vote.
Adjustments
to Prevent Dilution
The stock exchange ratio will be appropriately adjusted to
reflect fully the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of
securities convertible into SIRIUS common stock or XM common
stock), reorganization, recapitalization, reclassification or
other like change with respect to SIRIUS common stock or XM
common stock having a record date on or after the date of the
merger and prior to the completion of the merger.
Procedures
for Exchange of Certificates
SIRIUS will appoint an exchange agent for the purpose of
exchanging certificates representing XM common stock. Promptly
after the completion of the merger, XM, or the exchange agent,
will mail transmittal materials to each holder of record of XM
shares of common stock, advising such holders of the
effectiveness of the merger and the procedure for surrendering
their share certificates to the exchange agent.
Each holder of a share of XM capital stock that has been
converted into a right to receive the applicable merger
consideration (as well as cash for fractional shares, dividends
or other distributions payable) will receive the applicable
merger consideration upon surrender to the exchange agent of the
XM capital stock certificate, together with a letter of
transmittal covering such shares and any other documents as the
exchange agent may reasonably require.
After completion of the merger, each certificate that previously
represented shares of XM capital stock will represent only the
right to receive the applicable merger consideration as
described above under “— Consideration to be Received
in the Merger,” including cash for any fractional shares of
SIRIUS common stock as well as any dividends or other
distributions declared with respect to SIRIUS common stock
between the date of the merger agreement and the completion of
the merger.
Holders of XM capital stock should not send in their XM stock
certificates until they receive and complete and submit a signed
letter of transmittal sent by the exchange agent with
instructions for the surrender of XM stock certificates.
XM and SIRIUS are not liable to holders of shares of XM capital
stock for any amount delivered to a public official under
applicable abandoned property, escheat or similar laws.
After completion of the merger, XM will not register any
transfers of the shares of XM capital stock. SIRIUS stockholders
need not exchange their stock certificates.
The merger agreement contains customary and similar
representations and warranties made by SIRIUS and XM to each
other. These representations and warranties relate to, among
other things:
•
organization, capital structure, corporate power and authority,
execution and delivery, required consents, approvals, orders and
authorizations of governmental entities relating to, the merger
agreement and related matters;
•
documents filed with the SEC and the accuracy of information
contained in those documents;
•
financial statements and the absence of undisclosed liabilities,
compliance with applicable laws and reporting requirements;
receipt of fairness opinions from financial advisors.
In addition to the foregoing, the merger agreement contains a
representation and warranty made by XM regarding the amendment
of XM’s stockholders rights plan to allow for the merger
and the other transactions contemplated by the merger agreement.
Under the merger agreement, each of XM, SIRIUS and each of their
respective subsidiaries will carry on their respective
businesses in the usual, regular and ordinary course consistent
with past practice and use all reasonable efforts to preserve
intact their respective present business organization, maintain
their respective rights, franchises, licenses and other
authorizations issued by governmental entities and preserve
their relationships with employees, customers, suppliers and
others having business dealings with them.
In addition, each of XM and SIRIUS and each of their respective
subsidiaries may not, among other things and subject to certain
exceptions, without the consent of the other party:
•
enter into (including via any acquisition) any new line of
business which represents a material change in its operations
and which is material to it;
•
make any material change to its business;
•
enter into, terminate or fail to renew any material agreement,
or make any change to any existing material agreements other
than in the ordinary course of business or consistent with past
practice;
•
make any capital expenditures, other than capital expenditures
which, in the aggregate, do not exceed the aggregate amount for
capital expenditures specified in its respective long-term plans
for 2007 and 2008;
•
declare or pay any dividends on or make other distributions in
respect of its capital stock;
•
split, combine or reclassify any of its capital stock;
•
repurchase, redeem or otherwise acquire, or permit any
subsidiary to redeem, purchase or otherwise acquire, any shares
of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock;
•
sell any shares of its capital stock, any voting debt, any stock
appreciation rights, or any securities convertible into or
exercisable or exchangeable for, or any rights, warrants or
options to acquire, any such shares or voting debt, or enter
into any agreement with respect to any of the foregoing, other
than the issuance of common stock required to be issued upon the
exercise or settlement of stock awards outstanding on the date
of the merger agreement in accordance with the terms of the
applicable stock award;
enter into a plan of consolidation, merger or reorganization
with any person;
•
acquire any business or assets, rights or properties, other than
acquisitions, business combinations that (a) would not
reasonably be expected to delay the merger and (b) for
which the total consideration therefor does not exceed a
specified amount;
•
dispose of any of its assets, rights or properties (including
capital stock of its subsidiaries) which are material to it;
•
incur long term indebtedness for borrowed money;
•
intentionally take any action that would (a) result in
(i) any of its representations and warranties being or
becoming untrue, (ii) any of the conditions to the merger
not being satisfied, or (iii) a violation of any provision
of the merger agreement, or which would materially adversely
affect the ability of the parties to obtain certain regulatory
approvals per the merger agreement or (b) reasonably be
expected to prevent or impede the merger from qualifying as a
tax-free reorganization;
•
except as disclosed in certain SEC filings, change its methods
of accounting in effect at December 31, 2005, or change its
annual tax accounting period or make any tax election having a
material adverse effect;
•
other than in the ordinary course of business consistent with
past practice, enter into, amend or terminate any employee
benefit plan;
•
increase the compensation or fringe benefits of any director,
officer, employee, independent contractor or consultant or pay
any benefit not required by any employee benefit plan;
•
enter into or renew any arrangement providing for the payment of
compensation or benefits contingent, or the terms of which are
materially altered, upon the occurrence of the merger;
•
provide that the vesting of any granted stock option, restricted
stock, restricted stock unit or other equity-related award shall
accelerate or otherwise be affected by the occurrence of the
merger;
adopt a plan of liquidation or authorize a liquidation,
dissolution, restructuring, recapitalization or reorganization;
•
settle or compromise any litigation in excess of specified
amount;
•
enter into any long-term commitment that would limit, in any
material respect, its ability to conduct its business in any
geographic area; or
•
agree to or make any commitment to take or authorize any of the
foregoing actions.
Each party has also agreed to confer with one another and advise
one another regarding material changes to their respective
businesses or material deficiencies in their respective internal
controls. Each party will be provided the opportunity to review
information relating to the other party to be used in filings to
be made in connection with the merger and shall consult with the
other regarding consents and approvals necessary for the merger.
Prior to the completion of the merger, each of XM and SIRIUS
shall exercise, consistent with the terms and conditions of the
merger agreement, complete control and supervision over its and
its subsidiaries’ respective operations.
Best Efforts. SIRIUS and XM have each agreed
to use their reasonable best efforts to take all actions proper
or advisable under the merger agreement and applicable laws,
rules and regulations to complete the merger agreement, as well
as other specified actions, as soon as practicable. However, the
foregoing does not require SIRIUS or XM to (i) agree to or
effect any divestiture or take any other action if doing so
would, individually or in the aggregate, reasonably be expected
to have a material adverse effect on the combined company after
the merger, or (ii) take any such action that is not
conditioned on the consummation of the merger.
Proxy Statement; Stockholders Meetings. SIRIUS
and XM have agreed to cooperate in preparing and filing with the
SEC this Proxy Statement and the registration statement of which
it forms a part. Each has agreed to use its reasonable best
efforts to have this Proxy Statement cleared and the
registration statement of which it forms a part declared
effective, to maintain the same effective as long as is
necessary to consummate the merger and the other transactions
contemplated hereby, and to mail this Proxy Statement to their
respective stockholders as promptly as practicable after it is
declared effective.
Affiliates. XM shall use all reasonable
efforts to cause each person who is an “affiliate”
(for purposes of Rule 145 under the Securities Act) to
deliver to SIRIUS, as soon as reasonably practicable and in any
event prior to the XM special meeting, a written agreement, in
form and substance reasonably satisfactory to SIRIUS, relating
to required transfer restrictions on the SIRIUS common stock
received by them in the merger pursuant to Rule 145 under
the Securities Act.
NASDAQ Listing. SIRIUS shall use all
reasonable efforts to cause (i) the shares of SIRIUS common
stock to be issued in the merger and (ii) the shares of
SIRIUS common stock reserved for issuance upon the exercise,
vesting or payment under any equity award to purchase XM common
stock which becomes an equity award to purchase SIRIUS common
stock (or any award based on XM common stock which becomes an
award based on SIRIUS common stock), to be approved for listing
on NASDAQ, subject to official notice of issuance, prior to the
closing date.
Each party’s obligation to effect the merger is subject to
the satisfaction or waiver of various conditions, which include
the following:
•
receipt of the approval of the holders of capital stock of XM
and SIRIUS required for the completion of the merger;
•
shares of SIRIUS common stock to be issued in the merger or
reserved for issuance shall have been authorized for listing on
the NASDAQ Global Select Market;
certain authorizations, consents, orders or approvals of, or
declarations or filings with, and the expirations of waiting
periods required from, certain governmental entities are filed,
have occurred or been obtained, and are in full force and effect;
•
the registration statement of which this Proxy Statement forms a
part is not the subject of any stop order or proceedings seeking
a stop order;
•
no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
the consummation of the merger exists;
•
no governmental entity of competent jurisdiction makes the
consummation of the merger illegal;
•
there is (i) no action taken, or any statute, rule,
regulation, order or decree enacted deemed applicable to the
merger or the transactions contemplated by the merger agreement
by any governmental entity of competent jurisdiction, or
(ii) any circumstance arising, or transaction, agreement,
arrangement or instrument entered into, or which would be
necessary to be entered into, in connection with the merger or
the transactions contemplated by the merger agreement, which, in
either case, imposes any term, condition, obligation or
restriction upon SIRIUS, XM (after the merger) or their
respective subsidiaries which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect
on the present or prospective consolidated financial condition,
business or operating results of SIRIUS after the completion of
the merger (in no event shall a change in the trading prices of
the party’s capital stock, by itself, be considered
material or constitute a material adverse effect);
•
the representations and warranties of the other being true and
correct on the date of the merger agreement and on the date on
which the merger is to be completed as if made as of that date
or, if these representations and warranties expressly relate to
an earlier date, then as of that specified date, other than any
failures to be true and correct that, individually or in the
aggregate, have not had and would not reasonably be expected to
have a material adverse effect on the other party (except for
representations and warranties regarding capitalization, which
shall be true and correct in all material respects).
•
the other party to the merger agreement having performed in all
material respects all obligations, and complied in all material
respects with the agreements and covenants required to be
performed by or complied with by it under the merger agreement;
•
with respect to SIRIUS’ obligation to effect the merger,
the receipt from Simpson Thacher & Bartlett LLP of an
opinion to the effect that the merger will be treated for
U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code; and
•
with respect to XM’s obligation to effect the merger, the
receipt from Skadden, Arps, Slate, Meagher & Flom LLP
of an opinion to the effect that the merger will be treated for
U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code.
The merger agreement provides that any or all of the additional
conditions described above may be waived, in whole or in part,
by SIRIUS or XM, to the extent legally allowed. Neither SIRIUS
nor XM currently expects to waive any material condition to the
completion of the merger. If either SIRIUS or XM determines to
waive any condition to the merger that would result in a
material adverse change in the terms of the merger to XM or
SIRIUS stockholders (including any change in the tax
consequences of the transaction to XM stockholders), proxies
will be resolicited from the SIRIUS or XM stockholders.
The following shall not be deemed “material” or to
have a “material adverse effect”, including any change
or event caused by or resulting from:
•
changes in prevailing economic or market conditions in the
United States or any other jurisdiction in which such entity has
substantial business operations (except to the extent those
changes have a materially disproportionate effect on such entity
and its subsidiaries relative to the other party and its
subsidiaries);
changes or events, after the date of the merger agreement,
affecting the industries in which the entities operate generally
(except to the extent those changes or events have a materially
disproportionate effect on such entity and its subsidiaries
relative to the other party and its subsidiaries);
•
changes, after the date of the merger agreement, in generally
accepted accounting principles or requirements applicable to
such entity and its subsidiaries (except to the extent those
changes have a materially disproportionate effect on such entity
and its subsidiaries relative to the other party and its
subsidiaries);
•
changes, after the date of the merger agreement, in laws, rules
or regulations of general applicability or interpretations
thereof by any governmental entity (except to the extent those
changes have a materially disproportionate effect on such entity
and its subsidiaries relative to the other party and its
subsidiaries);
•
the execution, delivery and performance of the merger agreement
or the consummation of the transactions contemplated by the
merger agreement or the announcement of such acts; or
•
any outbreak of major hostilities in which the United States is
involved or any act of terrorism within the United States or
directed against its facilities or citizens wherever located.
C:
No
Solicitation
In the merger agreement, each of XM and SIRIUS has agreed that
it will not directly or indirectly:
•
solicit, initiate, encourage or knowingly facilitate any
“acquisition proposal,” as described below;
•
participate in any discussions or negotiations regarding, or
furnish to any person any confidential information in connection
with, or knowingly facilitate any effort or attempt to make or
implement, an acquisition proposal; or
•
approve or recommend, or propose to approve or recommend, or
execute or enter into, any letter of intent, agreement in
principle, merger agreement, asset purchase or share exchange
agreement, option agreement or other similar agreement related
to any acquisition proposal or propose or agree to do any of the
foregoing.
However, if, at any time before the date that the vote required
to be obtained from its stockholders in connection with the
merger has been obtained, XM’s or SIRIUS’ board of
directors may, in good faith:
•
to the extent applicable, and being otherwise in compliance with
certain provisions of the merger agreement, comply with Rule
14d-9 and
Rule 14e-2
promulgated under the Exchange Act relating to communication in
connection with solicitations under the Exchange Act with regard
to an acquisition proposal, or make any disclosure that the
board of directors may determine (after consultation with its
outside legal counsel) is required to be made under applicable
law;
•
if such party’s stockholder meeting has yet to occur,
change its recommendation regarding the merger if (i) there
has been a development, event or occurrence as a result of which
the board, after consultation with its outside legal counsel and
financial advisors, determines in good faith that failure to
effect a recommendation change would be inconsistent with its
fiduciary duties under applicable law, (ii) the board
follows certain notice provisions, and (iii) the board has
engaged in reasonable, good faith negotiations with the other
party to the merger agreement, and has considered in good faith,
after consulting with its financial and legal advisors, any
modifications to the terms and conditions of this agreement
proposed by the other party; and
•
if such party’s stockholder meeting has yet to occur,
engage in any discussions or negotiations with, or provide any
confidential information or data to, any person in response to
an unsolicited bona fide written acquisition proposal by any
such person, if the board, after consultation with outside legal
counsel and financial advisors, concludes in good faith that
there is a reasonable likelihood that such acquisition proposal
constitutes or is reasonably likely to result in a
“superior proposal,” as described below, and prior to
providing any information or data to any person in connection
with an acquisition proposal by any such person, its board
receives from such person a mutually acceptable confidentiality
agreement on terms no less favorable than those in the
confidentiality agreement between SIRIUS and XM.
The term “acquisition proposal” means any proposal or
offer with respect to, or a transaction to effect, a merger,
reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or
similar transaction involving XM, SIRIUS or any of their
respective significant subsidiaries or any purchase or sale of
15% or more of the consolidated assets of it and its
subsidiaries, taken as a whole, or any purchase or sale of, or
tender or exchange offer for, its voting securities that, if
completed, would result in any person beneficially owning
securities representing 15% or more of its total voting power.
The term “superior proposal” means a bona fide written
acquisition proposal which the board of directors of SIRIUS or
XM, as the case may be, concludes in good faith, after
consultation with its financial advisors and legal advisors,
taking into account the legal, financial, regulatory, timing and
other aspects of the proposal and the person making the proposal
(including any
break-up
fees, expense reimbursement provisions and conditions to
consummation): (i) is more favorable to the stockholders of
SIRIUS or XM, as the case may be, from a financial point of
view, than the transactions contemplated by the merger agreement
(after giving effect to any adjustments to the terms and
provisions of the merger agreement committed to in writing by
SIRIUS or XM, as the case may be, in response to such
acquisition proposal) and (ii) is fully financed or
reasonably capable of being fully financed, reasonably likely to
receive all required governmental approvals on a timely basis
and otherwise reasonably capable of being completed on the terms
proposed. However, for purposes of this definition of
“superior proposal,” the term “acquisition
proposal” has the meaning given above, except that the
reference to “15% or more” in the definition of
“acquisition proposal” shall be deemed to be a
reference to “a majority” and “acquisition
proposal” shall only be deemed to refer to a transaction
involving SIRIUS or XM, as the case may be.
The merger agreement also provides that XM and SIRIUS shall
notify the other party to the merger agreement of any
acquisition proposal received by, any information related to an
acquisition proposal requested from, or any discussions with or
negotiations by, it or any of its representatives. XM and SIRIUS
will promptly keep the other party informed of the status and
terms of any such acquisition proposal, the status and nature of
all information requested and delivered, and the status and
terms of any such discussions or negotiations.
Termination
Generally, the merger agreement may be terminated and the merger
may be abandoned at any time prior to the completion of the
merger:
•
by mutual written consent of SIRIUS, Merger Sub and XM; or
•
by either party, if:
•
a governmental entity that must grant a requisite regulatory
approval has denied approval of the merger and the denial has
become final and non-appealable, or any governmental entity
issues an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the
merger, and such order, decree, ruling or other action has
become final and non-appealable; provided,
however, this termination right is not available to any
party whose failure to comply with the merger agreement has been
the cause of, or resulted in, such action;
•
the merger is not consummated on or before March 1, 2008;
except that right is not available to any party whose failure to
comply with the merger agreement has been the cause of, or
resulted in, such failure;
•
the other party breached any of the agreements or
representations in the merger agreement, in a way that the
related condition to closing would not be satisfied, and this
breach is either incurable or not cured within 45 days;
•
the required SIRIUS or XM stockholder vote has not been obtained
at the respective stockholders meeting or any adjournment or
postponement thereof; or
•
the board of directors of the other party changes its
recommendation that its stockholders vote in favor of the merger
or has breached its obligation relating to a third party
acquisition proposal or breached its obligations to call its
stockholders’ meeting or mail this Proxy Statement to its
stockholders. The term “acquisition proposal” has the
meaning described above in “— No Solicitation”,
except that the applicable threshold is a majority instead of
15% or more of the consolidated assets.
If the merger agreement is terminated as described in
“— Termination” above, the agreement will be
void, and there will be no liability or obligation of any party
except that:
•
each party will remain liable for its willful and material
breach of the merger agreement; and
•
designated provisions of the merger agreement, including the
confidential treatment of information and the allocation of fees
and expenses, including, if applicable, the termination fees
described below, will survive termination.
Termination
Fees and Expenses
Either party will be paid a $175 million termination fee by
the other party if (i) the board of directors of the other
party has, pursuant to the merger agreement, made an adverse
recommendation and such party has timely elected to terminate
the merger agreement; (ii) it is entitled but fails to terminate
the merger agreement in connection with such change in
recommendation and the other party materially breaches its
obligations under the merger agreement by failing to call its
stockholder meeting or prepare and mail this Proxy Statement; or
(iii) the other party has effected a change in recommendation
other than in accordance with the provisions of the merger
agreement or approved, recommended or entered into an agreement
with respect to an acquisition proposal other than in accordance
with the provisions of the merger agreement.
In addition, if (i) either party terminates the merger
agreement because the stockholder vote required to approve the
merger has not been obtained upon a vote taken at the other
party’s stockholders meeting and (ii) before the other
party’s stockholders meeting an “acquisition
proposal” is communicated to the senior management or board
of directors of the other party, then this party shall pay
one-third of $175 million. If within twelve months of the
date of the merger termination, the other party or any of its
subsidiaries executes or consummates any acquisition proposal,
then it shall pay the remaining two-thirds of $175 million.
Furthermore, if (i) either party terminates the merger
agreement because the merger is not consummated on or before
March 1, 2008 or a party terminates the merger agreement
because the other party breached any of the covenants or
agreements or any of the representations or warranties in the
merger agreement, (ii) before such termination there is a
“public proposal” with respect to the other party, and
(iii) following the occurrence of the public proposal, the
other party breached intentionally or recklessly (and not cured
after notice) any of its representations, warranties, covenants
or agreements set forth in the merger agreement, which shall
have materially contributed to the failure of the closing to
occur prior to the termination of the merger agreement, then the
breaching party shall pay one-third of the $175 million
termination fee. If within twelve months of the date of the
merger termination, the breaching party or any of its
subsidiaries executes or consummates any acquisition proposal,
then the breaching party shall pay the remaining two-thirds of
the $175 million termination fee.
The term “acquisition proposal” has the meaning
assigned to such term in “— No Solicitation”
above, except that the reference to “15% or more” in
the definition of “acquisition proposal” is a
reference to “a majority”. If the breaching party
fails to pay all amounts due to the other party on the dates
specified, then the breaching party shall pay all costs and
expenses (including legal fees and expenses) incurred by the
other party in connection with any action or proceeding
(including the filing of any lawsuit) taken by it to collect
such unpaid amounts, together with interest on such unpaid
amounts at the prime lending rate prevailing at such time, as
published in the Wall Street Journal, from the date such amounts
were required to be paid until the date actually received by the
other party. In the above clause, the term “public
proposal” refers to an acquisition proposal which is
publicly announced or which is communicated to the breaching
party senior management or board of directors between the date
of the merger agreement and the breaching party stockholders
meeting to approve the merger.
Expenses
Whether or not the merger is completed, all costs and expenses
incurred in connection with the merger agreement and the
transactions contemplated by the merger agreement will be paid
by the party incurring those costs or expenses, except that if
the merger is consummated, SIRIUS will pay property or transfer
taxes imposed on
the parties in connection with the merger, and SIRIUS and XM
will share equally the expenses incurred in connection with
printing and mailing of this Proxy Statement.
C:
Treatment
of XM Options and Other Stock-based Awards
The merger agreement provides that prior to the completion of
the merger, XM and its subsidiaries will take any actions
necessary to provide that options or awards to purchase shares
of XM common stock which are outstanding immediately prior to
completion of the merger shall be converted into and become,
respectively, options to purchase shares of SIRIUS common stock
or stock awards based on shares of SIRIUS common stock, in each
case, on terms substantially identical to those in effect
immediately prior to the completion of the merger, but adjusting
the number of shares, exercise price and other terms to reflect
the exchange ratio as appropriate.
C:
Governance
Matters
By the completion of the merger, the SIRIUS board of directors
will take such actions as are necessary to:
•
amend its by-laws to cause the number of directors that will
comprise its board of directors at the completion of the merger
to be 12 persons. Immediately following the completion of
the merger, the board of directors of the combined company will
consist of: (i) four members selected by SIRIUS, each of
whom shall qualify as an “independent director”
pursuant to the NASDAQ Marketplace Rules in effect from time to
time at all times that SIRIUS common stock is listed on NASDAQ;
(ii) four members selected by XM, each of whom shall
qualify as an independent director at times that SIRIUS common
stock is listed on NASDAQ; (iii) two “designated
directors” selected by XM, one of whom shall be a designee
of General Motors and the other of whom shall be a designee of
American Honda; (iv) the CEO of the combined company; and
(v) the chairman of the board of directors of the combined
company. The “designated directors” do not qualify as
independent directors. Prior to the completion of the merger,
SIRIUS’ board of directors shall approve, by at least a
two-thirds vote of the directors in office at such time, the
above composition of SIRIUS’ board of directors.
•
appoint Mel Karmazin as CEO of the combined company and Gary M.
Parsons as chairman of the board of directors of the combined
company, effective as of the completion of the merger. In such
role, Mr. Parsons will be an officer and employee of the
combined company. In the event that either Mr. Karmazin or
Mr. Parsons is or will be unable to serve in his designated
position, either as notified in writing to the parties by such
individual prior to the completion of the merger or as a result
of such individual’s death or disability, then the
successor to Mr. Karmazin or Mr. Parsons will be
determined by joint agreement of the parties, each of whom will
cooperate in good faith with the other party and use its
reasonable best efforts to identify prior to the completion of
the merger the appropriate successor. In the event that the
parties have been unable to identify a successor within
30 days after the occurrence of the event giving rise to
the need to select such successor, SIRIUS, with respect to
selecting a successor for Mr. Karmazin, or XM, with respect
to selecting a successor for Mr. Parsons, will propose a
successor candidate after consultation in good faith with the
other party. A committee composed of two independent directors
from each of SIRIUS and XM will consider the selected successor.
Approval of a successor will require a majority vote of the
committee. If the committee does not approve the first successor
proposed, SIRIUS or XM, as applicable, will select a second
proposed successor and the committee will repeat the approval
procedure with respect to the second proposed successor. If the
committee does not approve the second proposed successor, the
committee will randomly select three members of the committee as
a subcommittee to choose between the first proposed successor
and the second proposed successor.
•
establish three standing committees: a Nominating and Corporate
Governance Committee, an Audit Committee and a Compensation
Committee. Members of these three committees will be independent
directors. The Chairman of the Nominating and Corporate
Governance Committee will be selected by directors designated by
SIRIUS. The Chairman of the Audit Committee and the Chairman of
the Compensation Committee will be selected by directors
designated by SIRIUS and XM, with each designating one such
chairman. The composition of the members of the Nominating and
Corporate Governance Committee, Audit Committee and Compensation
Committee, including the respective chairman of each such
committee, will be designated in equal shares by directors
designated by SIRIUS and directors designated by XM.
amend the SIRIUS by-laws to provide that, for a period of two
years following the completion of the merger, (i) any
termination or replacement of either the Chief Executive Officer
or Chairman of the board of directors as of the completion of
the merger (or such individual’s successor) or
(ii) any sale, transfer or other disposition of assets,
rights or properties which are material, individually or in the
aggregate, to SIRIUS (or the execution of any agreement to take
any such action), will require the prior approval of a majority
of the independent directors.
C:
Employee
Matters
The merger agreement provides that, following completion of the
merger (with certain exceptions), the XM and SIRIUS employee
benefit plans will remain in effect with respect to employees
covered by such plans at the completion of the merger, and the
parties shall negotiate in good faith to formulate employee
benefit plans that provide benefits for services on a similar
basis to employees who were covered by the XM and SIRIUS
employee benefit plans immediately prior to the completion of
the merger.
C:
Indemnification
and Insurance
The merger agreement provides that, following the completion of
the merger, SIRIUS will indemnify and hold harmless, and provide
advancement of claims-related expenses to, all past and present
directors, officers and employees of XM and its subsidiaries to
the same extent such persons are indemnified or have the right
to advancement of expenses as of the date of the merger
agreement by XM pursuant to XM’s certificate of
incorporation, bylaws and indemnification agreements in
existence on the date hereof with any directors, officers and
employees of XM and its subsidiaries.
The merger agreement also provides that SIRIUS will cause to be
maintained, for a period of six years after the completion of
the merger, the current policies of directors’ and
officers’ liability insurance maintained by XM, or policies
with a substantially comparable insurer of at least the same
coverage and amounts containing terms and conditions that are no
less advantageous, with respect to claims arising from facts or
events that occurred before the date of the completion of the
merger. SIRIUS will not be required to expend in any one year an
amount more than 300% of the annual premiums paid by XM as of
the date of the merger agreement for directors’ and
officers’ liability insurance, and if the annual premiums
of that insurance coverage exceed this amount, SIRIUS will be
obligated to obtain a policy which, in SIRIUS’ good faith
determination, provides the maximum coverage available at an
annual premium equal to 300% of XM’s current premium.
C:
Amendment;
Extension and Waiver
Subject to applicable law:
•
the merger agreement may be amended by the parties in writing at
any time. However, after any approval of the transactions by the
stockholders of SIRIUS and XM, there may not be any amendment
which by law requires further approval by SIRIUS stockholders or
XM stockholders unless SIRIUS and XM obtain again stockholder
approval; and
•
at any time before the completion of the merger, a party may
extend the time for performance of any of the obligations or
other acts of the other party to the merger agreement, waive any
inaccuracies in the representations and warranties of the other
party or waive compliance by the other party with any agreement
or condition in the merger agreement.
C:
Governing
Law
The merger agreement is governed by and will be construed in
accordance with the laws of the State of Delaware.
SIRIUS is a satellite radio provider in the United States. It
offers over 130 channels to its subscribers — 69
channels of 100% commercial-free music and 65 channels of
sports, news, talk, entertainment, traffic, weather and data
content. The core of the SIRIUS enterprise is programming;
SIRIUS is committed to creating the best programming in all of
radio.
SIRIUS broadcasts through its proprietary satellite radio
system, which currently consists of three orbiting satellites,
124 terrestrial repeaters that receive and retransmit
SIRIUS’ signal, a satellite uplink facility and its
studios. Subscribers receive their service through SIRIUS
radios, which are sold by automakers, consumer electronics
retailers, mobile audio dealers and through SIRIUS’
website. Subscribers can also receive SIRIUS’ music
channels and certain other channels over the Internet. As of
June 30, 2007, SIRIUS had 7,142,538 subscribers.
For the year ended December 31, 2006, SIRIUS had revenues
of approximately $637 million and a net loss of
approximately $1.1 billion. For the six months ended
June 30, 2007, SIRIUS had revenues of approximately
$430 million and a net loss of approximately
$279 million.
SIRIUS was incorporated in the State of Delaware as Satellite CD
Radio Inc. on May 17, 1990. SIRIUS’ principal offices
are located at 1221 Avenue of the Americas, 36th Floor, NewYork, New York10020 and its telephone number is
(212) 584-5100.
For more information on SIRIUS, see “Where You Can Find
More Information” on page 94.
XM
XM is a satellite radio provider in the United States. It offers
over 170 channels to its subscribers — 69 channels of
100% commercial-free music and over 100 channels of news, talk,
information, entertainment and sports programming. XM believes
that it appeals to consumers because of its innovative and
diverse programming, nationwide coverage, many commercial-free
music channels and digital sound quality.
XM broadcasts through its proprietary satellite radio system,
which currently consists of two orbiting satellites, two
in-orbit spare satellites, terrestrial repeaters that receive
and retransmit XM’s signal, satellite uplink facilities and
its studios. Subscribers receive their service through XM
radios, which are sold by automakers, consumer electronics
retailers, mobile audio dealers and through XM’s website.
Subscribers can also receive XM music channels and certain other
channels over the Internet. As of June 30, 2007, XM had
over 8.25 million subscribers.
For the year ended December 31, 2006, XM had revenues of
approximately $933 million and a net loss of approximately
$719 million. For the six months ended June 30, 2007,
XM had revenues of approximately $541 million and a net
loss of approximately $298 million.
XM is a holding company and was incorporated in the State of
Delaware as AMRC Holdings, Inc. on May 16, 1997. XM’s
principal offices are located at 1500 Eckington Place, NE,
Washington, DC20002, and XM’s telephone number at that
location is
(202) 380-4000.
For more information on XM, see “Where You Can Find More
Information” on page 94.
C:
Vernon
Merger Corporation
Vernon Merger Corporation, or Merger Sub, a wholly-owned
subsidiary of SIRIUS, is a Delaware corporation formed on
February 15, 2007 for the purpose of effecting the merger.
In the merger, Merger Sub will merge with XM and XM will become
a wholly-owned subsidiary of SIRIUS. Merger Sub has not
conducted any activities other than those incidental to its
formation and the matters contemplated by the merger agreement,
including the preparation of applicable regulatory filings in
connection with the merger.
C:
Joint
Development Agreement
Under the terms of a joint development agreement between XM and
SIRIUS, each party is obligated to fund one half of the
development cost for a unified standard for satellite radios. XM
and SIRIUS are currently unable to determine the expenditures
necessary to complete this process, but do not expect that these
expenditures will be material.
These proxy materials are delivered in connection with the
solicitation by the SIRIUS board of directors of proxies to be
voted at the SIRIUS special meeting, which is to be held
at
at a.m., local time,
on ,
2007. On or
about ,
2007, SIRIUS commenced mailing this Proxy Statement and the
enclosed form of proxy to its stockholders entitled to vote at
the meeting.
C:
Purpose
of the SIRIUS Special Meeting
SIRIUS stockholders will be asked to vote on the following
proposals:
•
to amend SIRIUS’ certificate of incorporation to increase
the number of authorized shares of SIRIUS common stock in
connection with the merger, which we refer to as the Charter
Amendment (Item 1 on the Proxy Card);
•
to approve the issuance of SIRIUS common stock, par value $0.001
per share, and SIRIUS Series A convertible preferred stock,
par value $0.001 per share, a new series of SIRIUS preferred
stock, in the merger, which we refer to as the Share Issuance
(Item 2 on the Proxy Card);
•
approve any motion to adjourn or postpone the SIRIUS special
meeting to another time or place, if necessary, to solicit
additional proxies (Item 3 on the Proxy Card); and
•
to conduct other business that properly comes before the SIRIUS
special meeting or any adjournment or postponement thereof.
The first two proposals listed above relating to the merger
are conditioned upon each other and approval of each such
proposal is required for completion of the merger. The
Charter Amendment and the Share Issuance become effective only
if both proposals related to the merger are approved by the
SIRIUS stockholders and the merger is completed.
C:
SIRIUS
Record Date; Stock Entitled to Vote
The close of business
on ,
2007, which we refer to as the SIRIUS record date, has been
fixed as the record date for the determination of stockholders
entitled to notice of, and to vote at, the SIRIUS special
meeting or any adjournments or postponements of the SIRIUS
special meeting.
As of the SIRIUS record date the following shares were
outstanding and entitled to vote:
Shares
Votes
Designation
Outstanding
Per Share
SIRIUS common stock
1
A complete list of stockholders entitled to vote at the SIRIUS
special meeting will be available for examination by any SIRIUS
stockholder at SIRIUS’ headquarters, 1221 Avenue of the
Americas, 36th Floor, New York, New York for purposes
pertaining to the SIRIUS special meeting, during normal business
hours for a period of ten days before the SIRIUS special
meeting, and at the time and place of the SIRIUS special meeting.
C:
Quorum
and Votes Required
In order to carry on the business of the meeting, SIRIUS must
have a quorum. A quorum requires the presence, in person or by
proxy, of the holders of a majority of the votes entitled to be
cast at the meeting.
Required
Vote to Adopt the Charter Amendment (Item 1 on the Proxy
Card)
The affirmative vote of a majority of the outstanding shares of
common stock of SIRIUS entitled to vote is required to approve
the Charter Amendment.
Required
Vote to Approve the Share Issuance (Item 2 on the Proxy
Card)
The affirmative vote of a majority of the SIRIUS shares voting
on the proposal is required to approve the Share Issuance.
Treatment
of Abstentions, Not Voting and Incomplete Proxies
If a SIRIUS stockholder fails to vote on the Charter Amendment
or responds to the Charter Amendment with an “abstain”
vote, it will have the same effect as a vote against that
proposal. If a SIRIUS stockholder fails to vote on the Share
Issuance or responds to the Share Issuance with an
“abstain” vote, it will have no effect on the outcome
of the vote for the proposal. If a proxy is received without
indication as to how to vote, the SIRIUS stock represented by
that proxy will be considered to be voted in favor of all
matters for consideration at the SIRIUS special meeting. If a
SIRIUS stockholder responds but does not indicate how it wants
to vote on the proposals, the proxy will be counted as a vote in
favor of the proposals.
C:
Voting
by SIRIUS Directors and Executive Officers
On the SIRIUS record date, directors and executive officers of
SIRIUS and their affiliates owned and were entitled to
vote shares of SIRIUS common stock, or
approximately %
and %, respectively, of the total
voting power of the shares of SIRIUS common stock and shares of
SIRIUS capital stock outstanding on that date.
C:
Voting
of Proxies
Giving a proxy means that a SIRIUS stockholder authorizes the
persons named in the enclosed proxy card to vote its shares at
the SIRIUS special meeting in the manner it directs. A SIRIUS
stockholder may vote by proxy or in person at the meeting. To
vote by proxy, a SIRIUS stockholder may use one of the following
methods if it is a registered holder (that is, it holds its
stock in its own name):
•
Telephone voting, by dialing the toll-free number and
following the instructions on the proxy card;
•
Via the Internet, by going to the web
address
and following the instructions on the proxy card; or
•
Mail, by completing and returning the proxy card in the
enclosed envelope. The envelope requires no additional postage
if mailed in the United States.
SIRIUS requests that SIRIUS stockholders complete and sign the
accompanying proxy and return it to SIRIUS as soon as possible
in the enclosed postage-paid envelope. When the accompanying
proxy is returned properly executed, the shares of SIRIUS stock
represented by it will be voted at the SIRIUS special meeting in
accordance with the instructions contained on the proxy card.
If any proxy is returned without indication as to how to vote,
the SIRIUS stock represented by the proxy will be considered a
vote in favor of all matters for consideration at the SIRIUS
special meeting. Unless a SIRIUS stockholder checks the box on
its proxy card to withhold discretionary authority, the
proxyholders may use their discretion to vote on other matters
relating to the SIRIUS special meeting.
If a SIRIUS stockholder’s shares are held in “street
name” by a broker or other nominee, the stockholder should
check the voting form used by that firm to determine whether it
may vote by telephone or the Internet.
Every SIRIUS stockholder’s vote is important.
Accordingly, each SIRIUS stockholder should sign, date and
return the enclosed proxy card, or vote via the Internet or by
telephone, whether or not it plans to attend the SIRIUS special
meeting in person.
C:
Revocability
of Proxies and Changes to a SIRIUS Stockholder’s
Vote
A SIRIUS stockholder has the power to change its vote at any
time before its shares are voted at the special meeting by:
•
notifying SIRIUS’ Corporate Secretary, Patrick L. Donnelly,
in writing at Sirius Satellite Radio Inc., 1221 Avenue of
the Americas, 36th Floor, New York, New York10020 that you
are revoking your proxy; or
executing and delivering a later dated proxy card or submitting
a later dated vote by telephone or in the internet; or
•
voting in person at the special meeting.
However, if a SIRIUS stockholder has shares held through a
brokerage firm, bank or other custodian, it may revoke its
instructions only by informing the custodian in accordance with
any procedures it has established.
C:
Solicitation
of Proxies
The solicitation of proxies from SIRIUS stockholders is made on
behalf of the SIRIUS board of directors. SIRIUS and XM will
generally share equally the cost and expenses of printing and
mailing this Proxy Statement and all fees paid to the SEC.
SIRIUS will pay the costs of soliciting and obtaining these
proxies, including the cost of reimbursing brokers, banks and
other financial institutions for forwarding proxy materials to
their customers. Proxies may be solicited, without extra
compensation, by SIRIUS officers and employees by mail,
telephone, fax, personal interviews or other methods of
communication. SIRIUS has engaged the firm
of
to assist SIRIUS in the distribution and solicitation of proxies
from SIRIUS stockholders and will
pay
an estimated fee of $ plus
out-of-pocket expenses for its services. XM will pay the costs
of soliciting and obtaining its proxies and all other expenses
related to the XM special meeting.
C:
Delivery
of Proxy Materials to Households Where Two or More Stockholders
Reside
As permitted by the Exchange Act, only one copy of this Proxy
Statement is being delivered to stockholders residing at the
same address, unless SIRIUS stockholders have notified SIRIUS of
their desire to receive multiple copies of the Proxy Statement.
This is known as householding.
SIRIUS will promptly deliver, upon oral or written request, a
separate copy of this Proxy Statement to any stockholder
residing at an address to which only one copy was mailed.
Requests for additional copies for this year or future years
should be directed to: Sirius Satellite Radio Inc., Attention:
Corporate Secretary, 1221 Avenue of the Americas,
36th Floor, New York, New York10020.
C:
Attending
the Meeting
Subject to space availability, all stockholders as of the record
date, or their duly appointed proxies, may attend the meeting.
Since seating is limited, admission to the meeting will be on a
first-come, first-served basis. Registration and seating will
begin at a.m., local time.
If you are a registered stockholder (that is, if you hold your
stock in certificate form), an admission ticket is enclosed with
your proxy card. If you wish to attend the special meeting,
please vote your proxy but keep the admission ticket and bring
it with you to the special meeting.
If your shares are held in “street name” (that is,
through a bank, broker or other holder of record) and you wish
to attend the special meeting, you need to bring a copy of a
bank or brokerage statement to the special meeting reflecting
your stock ownership as of the SIRIUS record date.
Item 1.
The
Charter Amendment
(Item 1 on Proxy Card)
SIRIUS is proposing to increase the number of authorized shares
of SIRIUS common stock from 2,500,000,000 shares
to shares.
To effect this change, SIRIUS must amend its certificate of
incorporation.
SIRIUS currently has 2,500,000,000 shares of SIRIUS common
stock authorized for issuance. On the SIRIUS record date, SIRIUS
had
outstanding shares
of SIRIUS common stock and approximately shares of SIRIUS common
stock issuable based on options and stock-based awards. Based on
the number of shares of XM common stock, convertible securities,
and options and warrants to acquire XM common stock outstanding
as of the
SIRIUS record date, as a result of the merger, SIRIUS can expect
to issue up to approximately 1.7 billion additional shares
of SIRIUS common stock. SIRIUS is proposing to increase the
number of authorized shares of SIRIUS common stock to give it
sufficient authorized shares to complete the merger. The
increased share authorization will also provide greater
flexibility in the capital structure of the resulting company by
allowing it to raise capital that may be necessary to further
develop its business, to fund potential acquisitions, to have
shares available for use in connection with stock plans and to
pursue other corporate purposes that may be identified by the
board of directors.
The SIRIUS board of directors will determine whether, when and
on what terms the issuance of shares of SIRIUS common stock may
be warranted in connection with any future actions. No further
action or authorization by SIRIUS stockholders will be necessary
before issuance of the additional shares of SIRIUS common stock
authorized under the amended and restated certificate of
incorporation, except as may be required for a particular
transaction by applicable law or regulatory agencies or by the
rules of the NASDAQ or any other stock exchange on which the
SIRIUS common stock may then be listed.
Although an increase in the authorized shares of SIRIUS common
stock could, under certain circumstances, also be construed as
having an anti-takeover effect (for example, by permitting
easier dilution of the stock ownership of a person seeking to
effect a change in the composition of the board of directors or
contemplating a tender offer or other transaction resulting in
the acquisition of SIRIUS by another company), the proposed
increase in shares authorized is not in response to any effort
by any person or group to accumulate SIRIUS common stock or to
obtain control of SIRIUS by any means. In addition, the proposal
is not part of any plan by the SIRIUS board of directors to
recommend or implement a series of anti-takeover measures.
The increase in the number of authorized shares of SIRIUS common
stock is necessary to effect the merger. The Charter Amendment
will become effective only in connection with and immediately
before the time of completion of the merger. This
Proposal 1 is conditioned on the approval of
Proposal 2, and the approval of both of these Proposals is
required for completion of the merger.
The
SIRIUS board of directors recommends a vote FOR the
Charter Amendment (Item 1).
Item 2.
The
Share Issuance
(Item 2 on Proxy Card)
It is a condition to completion of the merger that SIRIUS issue
shares of SIRIUS common stock and SIRIUS Series A
convertible preferred stock in the merger. When the merger
becomes effective, each share of XM common stock outstanding
immediately before the merger will be converted into the right
to receive 4.6 shares of SIRIUS common stock. Each share of
Series A convertible preferred stock of XM outstanding
immediately before the merger will be similarly converted into
the right to receive 4.6 shares of newly designated series
of SIRIUS convertible preferred stock, which has substantially
the same powers, designations, preferences, rights and
qualifications. For a description of the new series of SIRIUS
convertible preferred stock, see “Description of SIRIUS
Capital Stock — Description of SIRIUS Preferred
Stock — Series A Convertible Preferred
Stock” on page 83. Under Rule 4350(i) of the
NASDAQ, a company listed on the NASDAQ is required to obtain
stockholder approval in connection with a merger with another
company if the number of shares of common stock or securities
convertible into common stock to be issued is in excess of 20%
of the number of shares of common stock then outstanding. If the
merger is completed, SIRIUS will issue up to approximately
1.7 billion shares of SIRIUS common stock in the
merger. On an as converted basis, the aggregate number of shares
of SIRIUS common stock to be issued in the merger will exceed
20% of the shares of SIRIUS common stock outstanding on the
record date for the SIRIUS special meeting, and for this reason
SIRIUS must obtain the approval of SIRIUS stockholders for the
issuance of these securities to XM stockholders in the merger.
SIRIUS is asking its stockholders to approve the Share Issuance.
The issuance of these securities to XM stockholders is necessary
to effect the merger. This Proposal 2 is conditioned on the
approval of Proposal 1, and the approval of both of these
Proposals is required for completion of the merger.
The
SIRIUS board of directors recommends a vote FOR the Share
Issuance (Item 2).
Item 3.
Possible
Adjournment or Postponement of the SIRIUS Special
Meeting
(Item 3 on Proxy Card)
The SIRIUS special meeting may be adjourned or postponed to
another time or place to permit, among other things, further
solicitation of proxies if necessary to obtain additional votes
in favor of the Charter Amendment and Share Issuance.
The
SIRIUS board of directors recommends a vote FOR this
item.
Other
Matters to Come Before the Meeting
No other matters are intended to be brought before the meeting
by SIRIUS, and SIRIUS does not know of any matters to be brought
before the meeting by others. If, however, any other matters
properly come before the meeting, the persons named in the proxy
will vote the shares represented thereby in accordance with the
judgment of management on any such matter.
These proxy materials are delivered in connection with the
solicitation by the XM board of directors of proxies to be voted
at the XM special meeting, which is to be held
at
at a.m., local time
on ,
2007. On or
about ,
2007, XM commenced mailing this Proxy Statement and the enclosed
form of proxy to its stockholders entitled to vote at the
meeting.
XM stockholders will be asked to vote on the following proposals:
•
to adopt the merger agreement, which we refer to as the Merger
Proposal (Item 1 on the Proxy Card);
•
to approve any motion to adjourn or postpone the special meeting
to another time or place, if necessary, to solicit additional
proxies (Item 2 on the Proxy Card); and
•
to conduct any other business that properly comes before the XM
special meeting and any adjournment or postponement thereof.
The close of business
on ,
2007, which we refer to as the XM record date, has been fixed as
the record date for the determination of stockholders entitled
to notice of, and to vote at, the XM special meeting or any
adjournments or postponements of the XM special meeting.
As of the XM record date the following shares were outstanding
and entitled to vote:
Shares
Votes
Designation
Outstanding
Per Share
XM common stock
1
A complete list of stockholders entitled to vote at the XM
special meeting will be available for examination by any XM
stockholder at XM headquarters, 1500 Eckington Place, N.E.,
Washington, DC20002 for purposes pertaining to the XM special
meeting, during normal business hours for a period of ten days
before the XM special meeting, and at the time and place of the
XM special meeting.
In order to carry on the business of the meeting, XM must have a
quorum. A quorum requires the presence, in person or by proxy,
of the holders of a majority of the votes entitled to be cast at
the meeting.
Required
Vote to adopt the Merger Proposal (Item 1 on the Proxy
Card)
The affirmative vote of a majority of the outstanding shares of
XM common stock is required to approve the Merger Proposal.
Treatment
of Abstentions, Not Voting and Incomplete Proxies
If an XM stockholder fails to vote on the Merger Proposal or
responds to the Merger Proposal with an “abstain”
vote, it will have the same effect as a vote against that
proposal. If an XM stockholder responds but does not indicate
how it wants to vote on the proposal, the proxy will be counted
as a vote in favor of the proposal.
On the XM record date, directors and executive officers of XM
and their affiliates owned and were entitled to
vote shares of XM common stock, or
approximately %
and %, respectively, of the total
voting power of the shares of XM common stock and shares of XM
capital stock outstanding on that date.
Giving a proxy means that an XM stockholder authorizes the
persons named in the enclosed proxy card to vote its shares at
the XM special meeting in the manner it directs. An XM
stockholder may vote by proxy or in person at the meeting. To
vote by proxy, an XM stockholder may use one of the following
methods if it is a registered holder (that is, it holds its
stock in its own name):
•
Telephone voting, by dialing the toll-free number and
following the instructions on the proxy card;
•
Via the Internet, by going to the web
address
and following the instructions on the proxy card; or
•
Mail, by completing and returning the proxy card in the
enclosed envelope. The envelope requires no additional postage
if mailed in the United States.
XM requests that XM stockholders complete and sign the
accompanying proxy and return it to XM as soon as possible in
the enclosed postage-paid envelope. When the accompanying proxy
is returned properly executed, the shares of SIRIUS stock
represented by it will be voted at the XM special meeting in
accordance with the instructions contained on the proxy card.
If any proxy is returned without indication as to how to vote,
the XM stock represented by the proxy will be considered a vote
in favor of all matters for consideration at the XM special
meeting. Unless an XM stockholder checks the box on its proxy
card to withhold discretionary authority, the proxyholders may
use their discretion to vote on other matters relating to the XM
special meeting.
If an XM stockholder’s shares are held in “street
name” by a broker or other nominee, the stockholder should
check the voting form used by that firm to determine whether it
may vote by telephone or the Internet.
Every XM stockholder’s vote is important. Accordingly,
each XM stockholder should sign, date and return the enclosed
proxy card, or vote via the Internet or by telephone, whether or
not it plans to attend the XM special meeting in person.
A XM stockholder has the power to change its vote at any time
before its shares are voted at the special meeting by:
•
Notifying XM’s Corporate Secretary, Joseph M. Titlebaum, in
writing at XM Satellite Radio Holdings Inc., 1500 Eckington
Place, NE, Washington, DC20002 that you are revoking your
proxy; or
•
Executing and delivering a later dated proxy card or submitting
a later dated vote by telephone or through the Internet; or
•
Voting in person at the special meeting.
However, if an XM stockholder has shares held through a
brokerage firm, bank or other custodian, it may revoke its
instructions only by informing the custodian in accordance with
any procedures it has established.
The solicitation of proxies from XM stockholders is made on
behalf of the XM board of directors. SIRIUS and XM will
generally share equally the costs and expenses of printing and
mailing this Proxy Statement and all fees paid to the SEC. XM
will pay the costs of soliciting and obtaining these proxies,
including the cost of reimbursing brokers, banks and other
financial institutions for forwarding proxy materials to their
customers. Proxies may be solicited, without extra compensation,
by XM officers and employees by mail, telephone, fax, personal
interviews or other methods of communication. XM has engaged the
firm
of
to assist XM in the distribution and solicitation of proxies
from XM stockholders and will
pay
an estimated fee of
$ plus
out-of-pocket expenses for its services. XM will pay the costs
of soliciting and obtaining its proxies and all other expenses
related to the XM special meeting.
Subject to space availability, all stockholders as of the XM
record date, or their duly appointed proxies, may attend the
meeting. Since seating is limited, admission to the meeting will
be on a first-come, first-served basis. Registration and seating
will begin at a.m., local time.
If you are a registered stockholder (that is, if you hold your
stock in certificate form), an admission ticket is enclosed with
your proxy card. If you wish to attend the special meeting,
please vote your proxy but keep the admission ticket and bring
it with you to the special meeting.
If your shares are held in “street name” (that is,
through a bank, broker or other holder of record) and you wish
to attend the XM special meeting, you need to bring a copy of a
bank or brokerage statement to the XM special meeting reflecting
your stock ownership as of the record date.
Item 1.
The
Merger Proposal
(Item 1 on Proxy Card)
As discussed elsewhere in this Proxy Statement, XM is asking its
stockholders to approve the Merger Proposal. Holders of XM
common stock should read carefully this Proxy Statement in its
entirety, including the annexes, for more detailed information
concerning the merger agreement and the merger. In particular,
holders of XM common stock are directed to the merger agreement,
a copy of which is Annex A to this Proxy Statement.
The XM
board of directors recommends a vote FOR the Merger
Proposal (Item 1).
Item 2.
Possible
Adjournment or Postponement of the XM Special
Meeting
(Item 2 on Proxy Card)
The XM special meeting may be adjourned or postponed to another
time or place, if necessary, to solicit additional proxies if
there are insufficient votes at the time of the XM special
meeting to approve the Merger Proposal (Proposal 1 above).
The XM
board of directors recommends a vote FOR this
Item 2.
Other
Matters to Come Before the Meeting
No other matters are intended to be brought before the special
meeting by XM, and XM does not know of any matters to be brought
before the meeting by others. If, however, any other matters
properly come before the XM special meeting, the persons named
in the proxy will vote the shares represented thereby in
accordance with the judgment of management on any such matter.
The unaudited pro forma condensed combined balance sheet
combines the historical consolidated balance sheets of SIRIUS
and XM, giving effect to the merger as if it had been
consummated on June 30, 2007 and the unaudited pro forma
condensed combined statements of operations for the six months
ended June 30, 2007 and for the year ended
December 31, 2006, giving effect to the merger as if it had
occurred on January 1, 2006. The historical consolidated
financial information has been adjusted to give effect to pro
forma events that are (i) directly attributable to the
merger, (ii) factually supportable, and (iii) with
respect to the statement of operations, expected to have a
continuing impact on the combined results. Intercompany
transactions have not been eliminated as the preliminary
estimates are not material to the unaudited pro forma condensed
combined financial statements.
These unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical
audited consolidated financial information and accompanying
notes of SIRIUS and XM, which have been incorporated by
reference into this Proxy Statement. The unaudited pro forma
condensed combined financial statements are not necessarily
indicative of the operating results or financial position that
would have occurred if the merger had been completed at the
dates indicated. It may be necessary to further reclassify
XM’s financial statements to conform to those
classifications that are determined by the combined company to
be most appropriate. While some reclassifications of prior
periods have been included in the unaudited pro forma condensed
combined financial statements, further reclassifications may be
necessary.
The unaudited pro forma condensed combined financial statements
were prepared using the purchase method of accounting with
SIRIUS treated as the acquiring entity. Accordingly,
consideration paid by SIRIUS to complete the merger with XM will
be allocated to XM’s assets and liabilities based upon
their estimated fair values as of the date of completion of the
merger. The allocation is dependent upon certain valuations and
other studies that have not progressed to a stage where there is
sufficient information to make a definitive allocation.
Additionally, a final determination of the fair value of
XM’s assets and liabilities, which cannot be made prior to
the completion of the transaction, will be based on the actual
net tangible and intangible assets of XM that exist as of the
date of completion of the merger. Accordingly, the pro forma
purchase price adjustments are preliminary, subject to further
adjustments as additional information becomes available and as
additional analyses are performed and have been made solely for
the purpose of providing the unaudited pro forma condensed
combined financial information presented below. Certain
valuations have not been performed on tangible and intangible
assets and liabilities such as property and equipment and
deferred revenue and therefore an estimate of fair value is not
included as a pro forma adjustment. Upon completion of the
merger, final valuations will be performed. Increases or
decreases in the fair value of relevant balance sheet amounts
including property and equipment, deferred revenue, debt and
intangibles will result in adjustments to the balance sheet
and/or
statement of operations. There can be no assurance that the
final determination will not result in material changes.
In addition to the potential adjustments discussed above, given
that a significant portion of XM’s outstanding debt
contains change of control provisions that could be triggered by
the merger, further changes may be required. If these change of
control provisions are triggered, an offer to purchase such
outstanding debt at 101% may be required. Whether holders of XM
outstanding debt would accept such offer depends on the market
price of the debt at the time of the offer, which is influenced
by several factors outside of our control. Given the uncertainty
as to how investors would react to these purchase offers, a
final determination for purposes of the unaudited pro forma
condensed combined financial information presented below cannot
be made prior to the completion of the merger. However, any
changes based on this determination are not expected to have a
material impact on the unaudited pro forma condensed combined
financial statements.
SIRIUS expects to incur significant costs associated with
integrating SIRIUS’ and XM’s businesses. The unaudited
pro forma condensed combined financial statements do not reflect
the cost of any integration activities or benefits that may
result from synergies that may be derived from any integration
activities.
Notes to
Unaudited Pro Forma Condensed Combined Financial
Statements
Note 1.
Basis of
Presentation
On February 19, 2007, SIRIUS and XM jointly announced the
execution of the merger agreement. The accompanying unaudited
pro forma condensed combined financial statements present the
pro forma consolidated financial position and results of
operations of the combined company based upon the historical
financial statements of SIRIUS and XM, after giving effect to
the XM merger and adjustments described in these footnotes, and
are intended to reflect the impact of the merger on SIRIUS.
The accompanying unaudited pro forma condensed combined
financial statements are presented for illustrative purposes
only and do not give effect to any cost savings, revenue
synergies or restructuring costs which may result from the
integration of SIRIUS and XM’s operations.
The unaudited pro forma condensed combined balance sheet
reflects the merger as if it was completed on June 30, 2007
and includes pro forma adjustments for SIRIUS’ preliminary
valuations of certain intangible assets, and long-term debt
acquired. These adjustments are subject to further adjustment as
additional information becomes available and additional analyses
are performed. The unaudited pro forma condensed combined
statements of operations reflect the merger as if it had been
completed on January 1, 2006.
The pro forma condensed combined balance sheet has been adjusted
to reflect the preliminary allocation of the purchase price to
identifiable net assets acquired and the excess purchase price
to goodwill. The purchase price allocation included within these
unaudited pro forma condensed combined financial statements is
based upon a purchase price of approximately $5.7 billion.
This amount was derived from the estimated number of shares of
SIRIUS common stock to be issued of approximately
1.5 billion, based on the outstanding shares of XM common
stock, preferred stock and restricted stock on June 30,2007 and the exchange ratio of 4.6 per each XM share, at a price
of $3.79 per share, the average closing price of SIRIUS shares
of common stock for the two days prior to, including and two
days subsequent to the public announcement of the merger. The
actual number of newly issued shares of SIRIUS common stock to
be delivered in connection with the merger will be based upon
the actual number of XM shares issued and outstanding when the
merger closes. The purchase price also includes the estimated
fair value of warrants, restricted stock and stock options to be
issued as of the closing date of the merger in exchange for
similar securities of XM. XM options, restricted stock and
warrants will be exchanged for stock options, restricted stock
and warrants in SIRIUS and the price per share will be adjusted
for the 4.6 exchange ratio. Vested stock options, restricted
stock and warrants issued by SIRIUS in exchange for options,
restricted stock and warrants held by employees and directors of
XM are considered part of the purchase price. Accordingly, the
purchase price includes an estimated fair value of stock
options, restricted stock and warrants of approximately $197
million.
The fair value of SIRIUS options that will be issued in exchange
for XM options was estimated by using the Black-Scholes option
pricing model with market assumptions. Option pricing models
require the use of highly subjective market assumptions,
including expected stock price volatility, which if changed can
materially affect fair value estimates. The more significant
assumptions used in estimating the fair value include volatility
of 41 percent, an expected life of 1-6 years based on
the age of the original award, and a risk-free interest rate of
4.92%.
Issuance of SIRIUS common stock to
XM stockholders (1.4 billion shares at $3.79)
$
1,411
$
—
$
5,347,527
$
5,348,938
Issuance of SIRIUS preferred stock
to XM stockholders (24.8 million shares at $3.79)
—
25
—
25
Issuance of SIRIUS common stock to
XM restricted stockholders (33.9 million shares at $3.79)
34
—
128,388
128,422
Estimated fair value of
outstanding XM stock options and restricted stock (See
Note 2q)
—
—
129,704
129,704
Estimated fair value of
outstanding XM warrants (See Note 2q)
—
—
66,988
66,988
Total consideration
$
1,445
$
25
$
5,672,607
$
5,674,077
The table below represents a preliminary allocation of the total
consideration to XM’s tangible and intangible assets and
liabilities based on management’s preliminary estimate of
their respective fair values as of June 30, 2007.
Total
(In thousands)
XM historical net book value of
assets and liabilities assumed
$
(597,199
)
XM minority interest assumed
(62,662
)
Elimination of XM historical FCC
license
(141,387
)
Adjustment to fair value FCC
license
1,300,000
Elimination of XM historical
intangible asset related to subscriber and advertiser
relationships and trademarks
(4,015
)
Adjustment to fair value
intangible assets related to subscriber and advertiser
relationships and trademarks
437,000
Adjustment to deferred taxes
related to increased FCC license carrying value (see
Note 2s)
(463,445
)
Estimated transaction costs
(45,000
)
Residual goodwill created from the
merger
5,170,472
Unrecognized compensation on
unvested stock options and restricted stock (See Note 2r)
96,643
Fair value of XM long-term debt
assumed (See Note 2e)
(16,330
)
Total consideration allocated
$
5,674,077
Upon completion of the fair value assessment after the merger,
SIRIUS anticipates that the ultimate price allocation will
differ from the preliminary assessment outlined above. Any
changes to the initial estimates of the fair value of the assets
and liabilities will be recorded as adjustments to those assets
and liabilities and residual amounts will be allocated to
goodwill.
Note 2.
Pro Forma
Adjustments
a. reclassify XM’s activation revenue which was
reported in XM’s other revenue to subscriber revenue to
conform to SIRIUS presentation.
b. reclassify XM’s broadcast expense included in
broadcast and operation expenses to satellite and transmission
and reclassify XM’s operation expense, which includes
facilities and information technology expense,
included in broadcast and operation expense to general and
administrative expenses to conform to SIRIUS presentation.
c. reclassify (i) ad sales expense and
(ii) advertising and marketing and retention and support
included in marketing to sales and marketing to conform to
SIRIUS presentation.
d. reclassify subsidies and distribution included in
marketing to subscriber acquisition costs to conform to SIRIUS
presentation.
e. reflects the adjustment to lower interest expense due to
the adjustment of XM’s long-term debt to fair value at the
time of the merger. (See Note 1). The difference between
the fair value and the face amount of each borrowing is
amortized as a reduction to interest expense over the remaining
term of the borrowing, based on the maturity date using the
effective interest method. Pro forma interest expense
adjustments for the twelve months ended December 31,2006 and six months ended June 30, 2007 is
approximately $26 million and $4 million, respectively.
f. adjustment to reflect the additional amortization
expense due to the adjustment of certain XM’s intangible
assets to fair value at the time of the merger (See
Note 1). Pro Forma amortization expense for the twelve
months ended December 31, 2006 and six months ended
June 30, 2007 of $128 million and $64 million,
respectively, was recorded utilizing the straight-line method of
amortization for the following intangible assets:
g. reclassify XM’s customer loyalty payments from
subscriber acquisition costs to sales and marketing expenses to
conform to SIRIUS presentation.
h. reflects the estimated reclassification of XM’s net
inventory included in prepaid and other current assets to
inventory to conform to SIRIUS presentation.
i. reflects the estimated reclassification of XM’s
system under construction costs to property and equipment to
conform to SIRIUS presentation.
j. reflects the adjustment to record as liabilities the
estimated transaction cost to be incurred by SIRIUS. Included in
the pro forma adjustment is SIRIUS’ estimated investment
banking, attorney and independent accountant fees, and other
transaction-related costs.
k. reflects a preliminary allocation of the purchase price
to XM’s FCC License, certain long-lived intangible assets
and long-term debt. The remaining unallocated purchase price was
allocated to Goodwill (See Note 1). The preliminary
allocation of the purchase price was calculated as follows (in
thousands):
The fair value of XM’s FCC license was based on the
Greenfield Method. The key assumptions in building the model
included projected revenues and estimated start up costs, which
were based primarily on the operating histories of XM and
SIRIUS. The fair value of XM’s trademarks was estimated
based on the Relief from Royalty Method. The royalties relieved
for the use of the XM trademarks were computed by multiplying
the projected revenues by a hypothetical royalty rate. The
resulting royalties relieved represent the cost saved by XM from
not
having to license the trademarks from another owner. The
estimation of a hypothetical royalty rate was based on
comparable licensing agreements and the perceived impact the
trademarks have on the expected cash flow of XM. The fair values
of XM’s subscriber and advertising relationships were based
on projected discounted cash flows, which were derived from
projected revenues after adjusting for attrition rates based on
XM’s historical experience. Each of these calculations
included an estimated discount rate which incorporates the
difficulties and uncertainties associated with the satellite
radio industry.
The final purchase price allocations, may result in different
allocations for tangible and intangible assets than presented in
the unaudited pro forma condensed combined financial statements,
and those differences could be material.
l. residual goodwill created from the merger (See
Note 1).
m. eliminate the historical stockholders’ deficit
accounts of XM at June 30, 2007.
n. reflect the issuance of 4.6 shares of SIRIUS common
stock for each share of XM restricted shares outstanding as
follows (in thousands except for share data):
o. reflect the issuance of 4.6 shares of SIRIUS
preferred stock for each share of XM preferred stock outstanding
as follows (in thousands except for share data):
p. reflect the issuance of 4.6 shares of SIRIUS common
stock for each share of XM common stock outstanding as follows
(in thousands except for share data):
q. reflect the fair value of XM’s employees’
stock options, warrants and restricted stock. The fair value of
XM’s options to be exchanged for SIRIUS options was
estimated using a Black Scholes pricing model. Option pricing
models require the use of highly subjective assumptions
including expected stock price and volatility, that when
changed, can materially affect fair value estimates. The more
significant assumptions used in estimating the fair value
include volatility of 41 percent an expected life of
1-6 years based on the age of the original award, and a
risk-free interest rate of 4.92%.
r. reflect the revaluation of XM’s unvested stock
options and restricted stock as of June 30, 2007. The
original valuation of these awards were determined by XM at the
original grant dates. Upon completion of the merger, these
awards will be revalued using current market assumptions. The
fair value of these awards approximates $97 million at
June 30, 2007. Annual compensation expense related to these
awards is expected to approximate the historic compensation
expense. Total compensation expense for these awards for the
period ended June 30, 2007 was approximately
$28 million. For unvested stock options, the average
remaining vesting period is 1.48 years and the average
remaining contractual life is 6.24 years. For unvested
restricted stock awards, the average remaining vesting period is
2.20 years. Pursuant to FAS 123(R), unvested awards
are not considered a component of purchase price and are solely
recognized in compensation expense in future periods.
$97 million is a reduction of additional paid-in capital.
s. reflects the adjustment to record the deferred tax
liability for the incremental fair value adjustment of the FCC
license included as a pro forma adjustment in the balance sheet
calculated as follows (in thousands):
We have summarized below the material terms of SIRIUS’
capital stock that will be in effect if the merger is completed.
The following description of the material terms of the capital
stock of SIRIUS does not purport to be complete and is qualified
in its entirety by reference to the certificate of incorporation
and bylaws of SIRIUS, which documents are incorporated by
reference as exhibits to the registration statement of which
this Proxy Statement is a part, the applicable provisions of the
Delaware General Corporate Law and the Amendment to the
certificate of incorporation of SIRIUS attached as Annex D
to this Proxy Statement. All references within this section to
common stock mean the common stock of SIRIUS unless otherwise
noted.
The SIRIUS amended certificate of incorporation, which will be
in effect if the merger is completed, provide that the total
number of shares of capital stock which may be issued by SIRIUS
is ,
and the designation, the number of authorized shares and the par
value of the shares of each class or series will be as follows:
Except as otherwise provided by law, as set forth in the SIRIUS
amended certificate of incorporation or as otherwise provided by
any outstanding series of preferred stock, the holders of common
stock will have general voting power on all matters as a single
class.
Votes Per
Share
On each matter to be voted on by the holders of common stock,
each outstanding share of common stock will be entitled to one
vote per share.
Cumulative
Voting
Stockholders of SIRIUS are not entitled to cumulative voting of
their shares in elections of directors.
Liquidation
Rights
In the event of the voluntary or involuntary liquidation,
dissolution or winding up of SIRIUS, the prior rights of
creditors and the aggregate liquidation preference of any
preferred stock then outstanding must first be satisfied. The
holders of common stock will be entitled to share in the
remaining assets of SIRIUS on a pro rata basis.
Dividends
Shares of common stock are entitled to participate equally in
dividends when and as dividends may be declared by the SIRIUS
board of directors out of funds legally available.
Preemptive
Rights
No holder of shares of any class or series of capital stock of
SIRIUS or holder of any security or obligation convertible into
shares of any class or series of capital stock of SIRIUS will
have any preemptive right to subscribe for, purchase or
otherwise acquire shares of any class or series of capital stock
of SIRIUS.
The transfer agent and registrar for the common stock is The
Bank of New York.
Anti-takeover
Provisions
The Delaware General Corporation Law, which we refer to as the
DGCL, and the SIRIUS amended certificate of incorporation and
bylaws contain provisions which could discourage or make more
difficult a change in control of the company without the support
of the board of directors. A summary of these provisions follows.
Notice
Provisions Relating to Stockholder Proposals and
Nominees
SIRIUS’ bylaws contain provisions requiring stockholders to
give advance written notice to the company of a proposal or
director nomination in order to have the proposal or the nominee
considered at an annual meeting of stockholders. The notice must
usually be given not less than 70 days and not more than
90 days before the first anniversary of the preceding
year’s annual meeting. Under the amended and restated
bylaws, a special meeting of stockholders may be called only by
the Secretary or any other officer, whenever directed by not
less than two members of the board of directors or by the CEO.
Business
Combinations
SIRIUS is a Delaware corporation which is subject to
Section 203 of the General Corporation Law of the State of
Delaware. Section 203 provides that, subject to certain
exceptions specified in the law, a Delaware corporation shall
not engage in certain “business combinations” with any
“interested stockholder” for a three-year period
following the time that the stockholder became an interested
stockholder unless:
•
prior to such time, SIRIUS’ board of directors approved
either the business combination or the transaction that resulted
in the stockholder becoming an interested stockholder;
•
upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock outstanding
at the time the transaction commenced, excluding certain
shares; or
•
at or subsequent to that time, the business combination is
approved by SIRIUS’ board of directors and by the
affirmative vote of holders of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
Generally, a “business combination” includes a merger,
asset or stock sale or other transaction resulting in a
financial benefit to the interested stockholder. Subject to
certain exceptions, an “interested stockholder” is a
person who, together with that person’s affiliates and
associates, owns, or within the previous three years did own,
15% or more of SIRIUS’ voting stock.
Under certain circumstances, Section 203 makes it more
difficult for a person who would be an “interested
stockholder” to effect various business combinations with a
corporation for a three year period. The provisions of
Section 203 may encourage companies interested in acquiring
SIRIUS to negotiate in advance with its board of directors
because the stockholder approval requirement would be avoided if
SIRIUS’ board of directors approves either the business
combination or the transaction that results in the stockholder
becoming an interested stockholder. These provisions also may
make it more difficult to accomplish transactions that
stockholders may otherwise deem to be in their best interests.
No
Stockholder Rights Plan
SIRIUS currently does not have a stockholder rights plan.
The preferred stock may be issued from time to time in one or
more series, each of which is to have the voting powers,
designation, preferences and relative, participating, optional
or other special rights and qualifications, limitations or
restrictions thereof as are stated and expressed in the SIRIUS
amended certificate of incorporation, or in a resolution or
resolutions providing for the issue of that series adopted by
the board of directors.
The board of directors has the authority to create one or more
series of preferred stock and, with respect to each series, to
fix or alter as permitted by law:
•
the number of shares and the distinctive designation of the
series;
•
the voting power, if any; and
•
any other terms, conditions, special rights and protective
provisions.
Series A
Convertible Preferred Stock
Designation
and Conversion
In connection with the merger, SIRIUS will establish a new
series of preferred stock, which will be designated
“Series A convertible preferred stock.” There are
currently outstanding 5,393,252 shares of XM Series A
convertible preferred stock. Each share of XM Series A
convertible preferred stock outstanding immediately before the
merger will be converted into the right to receive
4.6 shares of the newly designated SIRIUS Series A
convertible preferred stock, which has substantially the same
powers, designations, preferences, rights and qualifications.
Each holder of Series A convertible preferred stock may
convert any whole number or all of such holder’s shares of
Series A convertible preferred stock into shares of common
stock at the rate of one share of common stock for each share of
Series A convertible preferred stock. Following a
recapitalization, each share of Series A convertible
preferred stock shall be convertible into the kind and number of
shares of stock or other securities or property of SIRIUS or
otherwise to which the holder of such share of Series A
convertible preferred stock would have been entitled to receive
if such holder had converted such share into common stock
immediately prior to such recapitalization. Adjustments to the
conversion rate shall similarly apply to each successive
recapitalization.
Voting
and Other Rights
Except as set forth below, holders of Series A convertible
preferred stock are entitled to vote, together with the holders
of the shares of SIRIUS common stock (and any other class or
series that may similarly be entitled to vote with the shares of
SIRIUS common stock) as a single class, upon all matters upon
which holders of Sirius common stock are entitled to vote, with
each share of Series A convertible preferred stock entitled
to 1/5th of one vote on such matters. Moreover, so long as
any shares of the Series A convertible preferred stock are
outstanding, SIRIUS cannot, without first obtaining the approval
by vote or written consent, in the manner provided by law, of a
majority of the total number of shares of the Series A
convertible preferred stock at the time outstanding, voting
separately as a class, either (a) alter or change any or
all of the rights, preferences, privileges and restrictions
granted to or imposed upon the Series A convertible
preferred stock, or (b) increase or decrease the authorized
number of shares of Series A convertible preferred stock.
Dividends
The holders of Series A convertible preferred stock receive
dividends and distributions of SIRIUS ratably with the holders
of shares of common stock.
Liquidation,
Dissolution, Winding Up or Insolvency
In the event of any liquidation, dissolution, winding up or
insolvency of SIRIUS, the holders of Series A convertible
preferred stock are entitled to be paid first out of the assets
of SIRIUS available for distribution to holders of capital stock
of all classes (whether such assets are capital, surplus or
earnings), an amount equal to
$9.5248159 per share of Series A convertible preferred
stock, together with the amount of any accrued or capitalized
dividends:
•
before any distribution or payment is made to any common
stockholders or holders of any other class or series of capital
stock of SIRIUS designated to be junior to the Series A
convertible preferred stock; and
•
subject to the liquidation rights and preferences of any class
or series of preferred stock designated in the future to be
senior to, or on a parity with, the Series A convertible
preferred stock with respect to liquidation preferences.
After payment in full of the liquidation preference to the
holders of Series A convertible preferred stock, holders of
the Series A convertible preferred stock have no right or
claim to any of the remaining available assets.
XM and SIRIUS are Delaware corporations and are governed by the
DGCL. The combined company will continue to be a Delaware
corporation following the merger and will be governed by the
DGCL.
Upon completion of the merger, XM’s stockholders will
become SIRIUS stockholders. As a condition to the merger,
SIRIUS’ current certificate of incorporation will be
amended immediately before the time of completion of the merger
by the certificate of amendment in the form attached as
Annex D to this Proxy Statement. The rights of the former
XM stockholders and the SIRIUS stockholders will therefore be
governed by the DGCL and the certificate of incorporation, as
amended, and bylaws of SIRIUS.
The following description summarizes the material differences
that may affect the rights of the stockholders of SIRIUS and XM,
but is not a complete statement of all those differences, or a
complete description of the specific provisions referred to in
this summary. Stockholders should read carefully the relevant
provisions of the DGCL and the respective certificates of
incorporation and bylaws of SIRIUS and XM. For more information
on how to obtain the documents that are not attached to this
Proxy Statement, see “Where You Can Find More
Information” beginning on page 94.
The total number of shares of all classes of capital stock
authorized under SIRIUS’ certificate of incorporation is
2.55 billion, which is divided into:
•
2.50 billion shares of common stock, par value $0.001 per
share; and
•
50 million shares of preferred stock, par value $0.001 per
share.
At the special meeting, SIRIUS stockholders will be asked to
approve the Charter Amendment to increase the number of
authorized shares of SIRIUS’ common stock
to .
XM
The total number of shares of all classes of capital stock
authorized under XM’s certificate of incorporation is
675 million shares, which is divided into:
•
600 million shares of class A common stock, par value
$0.01 per share;
•
15 million shares of class C common stock, par value
$0.01 per share;
•
15 million shares of Series A convertible preferred
stock, par value $0.01 per share;
•
3 million shares of 8.25% Series B convertible
redeemable preferred stock, par value $0.01 per share;
•
250,000 shares of 8.25% Series C convertible
redeemable preferred stock, par value $0.01 per share; and
•
250,000 shares of Series D junior participating
preferred stock, par value $0.01 per share.
An additional 41,500,000 shares of preferred stock, par
value $0.01 per share, are available for future issuance in one
or more series to be designated by the XM board of directors.
The holders of SIRIUS common stock are entitled to vote one vote
per share on all matters to be voted on by stockholders.
SIRIUS Series A convertible preferred stock, the newly
designated series of SIRIUS preferred stock into which shares of
XM Series A convertible preferred stock will be converted
in the merger, will have the same powers, designations,
preferences, rights and qualifications, limitations and
restrictions as the XM Series A convertible
preferred stock to the fullest extent practicable, except that
such preferred stock will have the right to vote with the
holders of the SIRIUS common stock as a single class, with each
share of preferred stock having 1/5th of a vote.
XM
The holders of XM common stock are entitled to one vote per
share on all matters to be voted on by the stockholders.
The holders of XM Series A convertible preferred stock are
not entitled to vote on any matter voted upon by stockholders,
except as otherwise required under the DGCL, provided, however,
the majority of the outstanding shares must approve, voting
separately as a class:
•
any change to the rights, preferences, privileges and
restrictions granted to the XM Series A convertible
preferred stock; and
•
the increase or decrease of authorized shares of XM
Series A convertible preferred stock.
The DGCL allows action to be taken by stockholders by written
consent to be made by the holders of the minimum number of votes
that would be needed to approve a matter at an annual or special
meeting of stockholders, unless this right to act by written
consent is denied in the certificate of incorporation.
SIRIUS
SIRIUS’ certificate of incorporation does not limit the
right of SIRIUS’ stockholders to take action by written
consent without an annual or special meeting of stockholders.
XM
XM’s bylaws permit any action to be taken without a
meeting, without prior notice and without a vote, as long as
(i) it is required or permitted to be taken at any annual
or special meeting of the stockholders, and (ii) a consent
in writing, setting forth the action so taken, is signed by
stockholders holding all outstanding stock and delivered to XM.
The DGCL permits a corporation to declare and pay dividends out
of “surplus” or, if there is no “surplus,”
out of its net profits for the fiscal year in which the dividend
is declared
and/or the
preceding fiscal year. “Surplus” is defined as the
excess of the net assets of the corporation over the amount
determined to be the capital of the corporation by the board of
directors. The capital of the corporation cannot be less than
the aggregate par value of all issued shares of capital stock.
Net assets equals total assets minus total liabilities. The DGCL
also provides that dividends may not be paid out of net profits
if, after the payment of the dividend, capital is less than the
capital represented by the outstanding stock of all classes
having a preference upon the distribution of assets.
Under the DGCL, a majority of the directors in office can fill
any vacancy or newly created directorship. A director may be
removed with or without cause by a majority of the shares
entitled to vote at an election of the directors.
SIRIUS
The number of directors may not be less than three nor more than
15 as determined from time to time by the affirmative vote of a
majority of the board of directors at any meeting at which there
is a quorum. Generally,
directors are elected by the holders of a plurality of the
voting power present in person or represented by proxy and
entitled to vote at the annual meeting. Any vacancy on the board
of directors (whether resulting from an increase in the total
number of directors, the departure of one of the directors) may
be filled by the affirmative vote of a majority of the directors
then in office or by a sole remaining director. Each director is
elected annually. The holders of all classes and series of stock
are entitled to vote in the election of directors with the
number of votes specified above. SIRIUS stockholders are not
entitled to cumulative voting rights in the election of
directors. For a discussion of the governance structure after
the merger, see “The Merger Agreement —
Governance Matters” on page 61.
XM
Subject to the provisions of certain director designation
agreements, the number of directors shall be between three and
fifteen as determined from time to time by the board of
directors. Subject to certain exceptions, directors shall be
elected at the annual meeting of the stockholders. Unless
otherwise provided for by the director designation agreements,
vacancies and newly created directorships resulting from death,
resignation, removal and from any increase in the authorized
number of directors or otherwise may be filled by the
affirmative vote of a majority of the directors then in office,
although fewer than a quorum, or by a sole remaining director.
Each director shall hold office until the next annual meeting of
XM stockholders, and until such director’s successor is
elected and qualified, or until the director’s earlier
death, resignation or removal. Except as subject to the rights,
if any, of the holders of preferred stock, any director may be
removed from office at any time by the affirmative vote of the
holders of at least a majority in voting power of the issued and
outstanding capital stock of XM entitled to vote in the election
of directors.
Under the DGCL, an amendment to the articles or certificate of
incorporation requires approval by both the board of directors
and a majority of the votes entitled to be cast. Any proposed
amendment to the certificate of incorporation that would
increase or decrease the authorized shares of a class of stock,
increase or decrease the par value of the shares of a class of
stock, or alter or change the powers, preferences or special
rights of the shares of a class of stock (so as to affect them
adversely) requires approval of the holders of a majority of the
outstanding shares of the affected class, voting as a separate
class, in addition to the approval of a majority of the shares
entitled to vote on that proposed amendment. If any proposed
amendment would alter or change the powers, preferences or
special rights of any series of a class of stock so as to affect
them adversely, but does not affect the entire class, then only
the shares of the series affected by the proposed amendment is
considered a separate class for purposes of the immediately
preceding sentence.
The bylaws may be amended or repealed by the board of directors
or the stockholders. However, the affirmative holders of at
least 80 percent in voting power of all shares of the
corporation entitled to vote generally in the election of
directors, voting together as a single class, are required in
order for the stockholders to amend, repeal or modify
Section 2 (“Special Meetings”) and
Section 11 (“Nominations, etc.”) of
Article 1 or this sentence.
XM
XM’s bylaws may be amended or repealed, or new bylaws may
be adopted, by the board of directors or stockholders, but
notice of such amendment, repeal or adoption must be contained
in the notice of such stockholder or board of directors meeting,
as the case may be. All such amendments must be approved by
either the holders of a majority of the outstanding capital
stock entitled to vote or by a majority of the entire board of
directors then in office.
SIRIUS’ bylaws state that a stockholder may only nominate
directors for election or present an action to be taken at an
annual stockholder’s meeting if the stockholder gives
advance notice not less than 70 days and not more than
90 days before the first anniversary of the preceding
year’s annual meeting; provided, however, that in the event
that the date of the annual meeting is advanced by more than
20 days, or delayed by more than 70 days, from such
anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the 90th day prior to such
annual meeting and not later than the close of business on the
later of the 70th day prior to such annual meeting or the
tenth day following the day on which public announcement of the
date of such meeting is first made. Notwithstanding anything in
the previous sentence to the contrary, in the event that the
number of directors to be elected to the board of directors of
the corporation is increased and there is no public announcement
naming all of the nominees for director or specifying the size
of the increased board of directors made by the corporation at
least eighty days prior to the first anniversary of the
preceding year’s annual meeting, a stockholder’s
notice required by this bylaw shall also be considered timely,
but only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the corporate
secretary at the principal executive offices of the corporation
not later than the close of business on the tenth day following
the day on which such public announcement is first made by the
corporation.
XM
XM’s bylaws state that a stockholder may only nominate
directors for election or present an action to be taken at an
annual stockholder’s meeting if the stockholder gives
advance written notice not less than 90 and not more than
120 days before the first anniversary of the preceding
year’s annual meeting; provided, however, that in the event
that the annual meeting is called for a date not within
30 days before or after the anniversary of the preceding
year’s annual meeting, notice by the stockholder to be
timely must be so received not later than the close of business
on the 10th day following the day on which such notice of
the annual meeting was mailed or such public disclosure was
made, whichever first occurs.
Under the DGCL, a special meeting of a corporation’s
stockholders may be called by the board or by any other person
authorized by the corporation’s articles or certificate of
incorporation or bylaws. All stockholders of record entitled to
vote must receive notice of all stockholder meetings not less
than 10 nor more than 60 days before the date of the
stockholder meeting.
SIRIUS
A special meeting of the stockholders, as required by law or as
provided in SIRIUS’ bylaws, may be called at any time by
the Secretary or any other officer, whenever directed by at
least two members of the board of directors or the Chief
Executive Officer.
XM
Special meetings of the stockholders, for any purpose or
purposes, unless otherwise provided by statute, may be called by
the Chairman, the Chief Executive Officer, the President or the
Secretary, and shall be called by any such officer at the
request of the board of directors, a committee of the board of
directors authorized to do so or by stockholders holding at
least a majority of the outstanding capital stock that is
entitled to vote.
SIRIUS’ certificate of incorporation provide that no SIRIUS
director shall be personally liable to SIRIUS or its
stockholders for monetary damages for breach of fiduciary duty
by that director as a director. However, this limitation does
not eliminate or limit the liability of a director to the extent
provided by applicable law (i) for any breach of the
director’s duty of loyalty to SIRIUS or its stockholders,
(ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(iii) for violation of the DGCL regarding unlawful payment
of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which the director derived an
improper personal benefit.
SIRIUS indemnifies, to the full extent permitted by law, any
person (or the estate of any person) who was or is a party to,
or is threatened to be made a party to, any threatened, pending
or complete action, suit or proceeding, and whether civil,
criminal, administrative, investigative or otherwise, by reason
of the fact that such person is or was a director, officer or
employee of SIRIUS, or is or was serving at the request of
SIRIUS as a director, officer or employee of another
corporation, limited liability company, partnership, joint
venture, trust or other enterprise. SIRIUS may, to the full
extent permitted by law, purchase and maintain insurance on
behalf of any such person against any liability which may be
asserted against him or her. To the full extent permitted by
law, the indemnification includes expenses (including
attorneys’ fees), judgments, fines and amounts paid in
settlement, and any such expenses may be paid by SIRIUS in
advance of the final disposition of such action, suit or
proceeding. The indemnification does not limit SIRIUS’
right to indemnify any other person for any such expenses to the
full extent permitted by law, nor is it exclusive of any other
rights to which any person seeking indemnification from SIRIUS
may be entitled under any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity
while holding such office.
XM
XM’s certificate of incorporation provides that no XM
director will be personally liable to XM or its stockholders for
monetary damages for breach of fiduciary duty as a director.
However, this limitation does not eliminate or limit the
liability of a director to the extent provided by applicable law
(i) for any breach of the director’s duty of loyalty
to XM or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for violation of the DGCL
regarding unlawful payment of dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
XM’s certificate of incorporation and its by-laws further
provides XM shall indemnify, to the full extent authorized by
Delaware law, any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether or not such action
is by or in the right of XM, by reason of the fact that he is or
was a director or officer of XM, or by reason of the fact that
such director or officer is or was serving at the request of XM
as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, domestic or foreign, against expenses (including
attorneys’ fees) judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if such person acted in
good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of XM, and shall advance
expenses incurred by any such officer or director in defending
any such action, suit or proceeding to the full extent
authorized by Delaware law. The previous sentence does not
affect any rights to indemnification to which employees other
than directors and officers may be entitled by law.
For purposes of indemnification by XM, a person shall be deemed
to have acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interest
of XM, or, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe such person’s
conduct was unlawful, if such person’s action is based on
the records or books of account of XM or another enterprise, or
on information supplied to such person by XM’s officers or
the officers of another enterprise in the course of their
duties, or on the advice of legal counsel for XM or another
enterprise or on information or records given or reports made to
XM or another
Under the DGCL, the board of directors and the holders of a
majority of the shares entitled to vote must approve a merger,
consolidation or sale of all or substantially all of a
corporation’s assets. However, unless the corporation
provides otherwise in its articles or certificate of
incorporation, no stockholder vote of a constituent corporation
surviving a merger is required if:
each share of stock of the constituent corporation outstanding
before the merger is an identical outstanding or treasury share
of the surviving corporation after the merger; and
•
either no shares of common stock of the surviving corporation
and no shares, securities or obligations convertible into such
stock are to be issued or delivered under the plan of merger, or
the authorized unissued shares or the treasury shares of common
stock of the surviving corporation to be issued or delivered
under the plan of merger plus those initially issuable upon
conversion of any other shares, securities or obligations to be
issued or delivered under such plan do not exceed 20% of the
shares of common stock of such constituent corporation
outstanding immediately prior to the effective date of the
merger.
Neither the SIRIUS nor XM certificate of incorporation contains
any super-majority voting requirements governing mergers,
consolidations, sales of substantially all of the assets,
liquidations, reclassifications or recapitalizations.
Both XM and SIRIUS are subject to Section 203 of the DGCL,
which under certain circumstances may make it more difficult for
a person who would be an “Interested Stockholder”
(defined generally as a person with 15% or more of a
corporation’s outstanding voting stock) to effect a
“Business Combination” (defined generally as mergers,
consolidations and certain other transactions, including sales,
leases or other dispositions of assets with an aggregate market
value equal to 10% or more of the aggregate market value of the
corporation) with the corporation for a three-year period. Under
Section 203, a corporation may under certain circumstances
avoid the restrictions imposed by Section 203. Moreover, a
corporation’s certificate of incorporation or bylaws may
exclude a corporation from the restrictions imposed by
Section 203. Neither the XM or SIRIUS certificate of
incorporation or bylaws exclude the companies from the
restrictions imposed under Section 203.
Neither SIRIUS nor XM common stockholders have appraisal rights
in the merger. However, the holder of XM Series A
convertible preferred stock will have the right to seek
appraisal of the fair value of its shares, under
Section 262 of the DGCL.
SIRIUS does not have a stockholder rights plan in place as of
the date of this Proxy Statement.
XM
In August 2002, XM adopted a shareholders’ Rights Plan
(commonly known as a “poison pill”) in which preferred
stock purchase rights were granted as a dividend at the rate of
one right for each share of common stock held of record as of
the close of business on August 15, 2002. The rights would
be exercisable only upon the occurrence of certain events
relating to an unsolicited take-over or change of control of XM.
On February 19, 2007, in connection with the merger
agreement, Amendment No. 3 to the Rights Agreement, dated
as of August 2, 2002, and as amended as of January 22,2003 and as of March 25, 2004, between XM and Computershare
Investor Services, LLC, as successor rights agent to Equiserve
Trust Company, N.A., or the Rights Agreement, was executed.
Amendment No. 3 provides, among other things, that
(i) neither SIRIUS nor any of its subsidiaries shall be
deemed an “acquiring person” (as defined in the Rights
Agreement) by virtue of (x) their acquisition, or their
right to acquire, beneficial ownership of XM common stock as a
result of their execution of the merger agreement, (y) the
consummation of the merger or (z) any other transaction
contemplated by the merger agreement; and (ii) no
“Distribution Date”, “Section 11(a)(ii)
Event”, “Section 13 Event”, “Stock
Acquisition Date” or “Triggering Event” (as each
such term is defined in the Rights Agreement) shall be deemed to
have occurred by reason of the execution of the merger agreement
or the announcement or consummation of the transactions
contemplated thereby. Except as expressly provided in Amendment
No. 3, the Rights Agreement remains in full force and
effect.
The validity of the SIRIUS common stock and certain
U.S. federal income tax consequences relating to the merger
will be passed upon for SIRIUS by Simpson Thacher &
Bartlett LLP, and certain U.S. federal income tax
consequences relating to the merger will be passed upon for XM
by Skadden, Arps, Slate, Meagher & Flom LLP.
The consolidated financial statements and financial statement
schedule and management’s report on the effectiveness of
internal control over financial reporting incorporated by
reference in this Proxy Statement, which forms part of a
Registration Statement on
Form S-4,
from SIRIUS’
Form 10-K
for the year ended December 31, 2006, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as stated in their reports dated
February 23, 2007 (which contains an explanatory paragraph
relating to the adoption of Statement of Financial Accounting
Standard No. 123 (revised 2004), “Shared-Based
Payment”), and have been so incorporated in reliance upon
such reports given on the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements and schedule of XM
Satellite Radio Holdings Inc. as of December 31, 2006 and
2005, and for each of the years in the three-year period ended
December 31, 2006, and management’s assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2006, have been incorporated by reference
herein and in the registration statement in reliance upon the
reports of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing. The audit
report with respect to the consolidated financial statements
refers to XM Satellite Radio Holdings Inc.’s change in the
method of accounting for stock-based compensation effective
January 1, 2006.
To be eligible for inclusion in the proxy statement and form of
proxy for SIRIUS’ next year’s annual meeting,
stockholder proposals must be submitted in writing by the close
of business on December 24, 2007 to Patrick L. Donnelly,
Executive Vice President, General Counsel and Secretary, Sirius
Satellite Radio Inc., 1221 Avenue of the Americas,
36th Floor, New York, New York10020.
If any proposal that is not submitted for inclusion in next
year’s proxy statement (as described in the preceding
paragraph) is instead sought to be presented directly at next
year’s annual meeting, the proxies may vote in their
discretion if (a) SIRIUS receives notice of the proposal
before the close of business on March 9, 2008 and advises
stockholders in next year’s proxy statement about the
nature of the matter and how management intends to vote on such
matter or (b) SIRIUS does not receive notice of the
proposal prior to the close of business on March 9, 2008.
Notices of intention to present proposals at next year’s
annual meeting should be addressed to Patrick L. Donnelly,
Executive Vice President, General Counsel and Secretary, Sirius
Satellite Radio Inc., 1221 Avenue of the Americas,
36th Floor, New York, New York10020.
Any proposal or proposals by a stockholder intended to be
included in XM’s proxy statement and form of proxy relating
to the 2008 annual meeting of XM stockholders must be received
by XM no later than December 18, 2007, pursuant to the
proxy solicitation rules of the SEC. Nothing in this paragraph
shall be deemed to require XM to include in its proxy statement
and proxy relating to the 2008 annual meeting of XM stockholders
any stockholder proposal which may be omitted from XM’s
proxy materials pursuant to applicable regulations of the SEC in
effect
at the time such proposal is received. For any proposal that is
not submitted for inclusion in next year’s proxy statement
but is instead presented directly at the 2008 annual meeting of
XM stockholders, notice of such proposal must be received in
writing by the Secretary of XM not less than 90 and not more
than 120 days before the first anniversary of the preceding
year’s annual meeting; provided, however, that in the event
that the annual meeting is called for a date not within
30 days before or after the anniversary of the preceding
year’s annual meeting, notice by the stockholder to be
timely must be so received not later than the close of business
on the 10th day following the day on which such notice of
the annual meeting was mailed or such public disclosure was
made. Failure to provide notice in this manner and within this
time period means that such proposal will be considered
untimely. Management will be entitled to vote proxies in its
discretion with respect to any proposal that is presented at the
XM 2008 annual meeting of stockholders but not included in the
proxy statement.
XM and SIRIUS file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and
copy any of this information at the SEC’s public reference
room at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at
1-800-SEC-0330
or
202-942-8090
for further information on the public reference room. The SEC
also maintains an Internet website that contains reports, proxy
statements and other information regarding issuers, including XM
and SIRIUS, who file electronically with the SEC. The address of
that site is www.sec.gov. The information contained on the
SEC’s website is expressly not incorporated by reference
into this Proxy Statement.
SIRIUS has filed with the SEC a registration statement of which
this Proxy Statement forms a part. The registration statement
registers the shares of SIRIUS common stock to be issued to XM
stockholders in connection with the merger. The registration
statement, including the attached exhibits and annexes, contains
additional relevant information about the common stock and
preferred stock of SIRIUS and XM, respectively. The rules and
regulations of the SEC allow SIRIUS and XM to omit certain
information included in the registration statement from this
Proxy Statement.
In addition, the SEC allows SIRIUS and XM to disclose important
information to you by referring you to other documents filed
separately with the SEC. This information is considered to be a
part of this Proxy Statement, except for any information that is
superseded by information included directly in this Proxy
Statement or incorporated by reference subsequent to the date of
this Proxy Statement as described below.
This Proxy Statement incorporates by reference the documents
listed below that SIRIUS and XM have previously filed with the
SEC. They contain important information about the companies and
their financial condition.
In addition, SIRIUS and XM incorporate by reference any future
filings they make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and before the date of the SIRIUS special meeting and
the XM special meeting (excluding any current reports on
Form 8-K
to the extent disclosure is furnished and not filed). Those
documents are considered to be a part of this Proxy Statement,
effective as of the date they are filed. In the event of
conflicting information in these documents, the information in
the latest filed document should be considered correct.
You can obtain any of the other documents listed above from the
SEC, through the SEC’s web site at the address described
above, or from SIRIUS or XM, as applicable, by requesting them
in writing or by telephone from the appropriate company at the
following addresses:
By Mail:
By Mail:
Sirius Satellite Radio Inc. 1221 Avenue of the Americas 36th Floor New York, New York10020 Attention: Investor Relations
XM Satellite Radio Holdings
Inc.
1500 Eckington Place, NE Washington, DC20002
Attention: Investor Relations
These documents are available from SIRIUS or XM, as the case may
be, without charge, excluding any exhibits to them unless the
exhibit is specifically listed as an exhibit to the registration
statement of which this Proxy Statement forms a part. You can
also find information about SIRIUS and XM at their Internet
websites at www.sirius.com and www.xmradio.com, respectively.
Information contained on these websites does not constitute part
of this Proxy Statement.
You may also obtain documents incorporated by reference into
this document by requesting them in writing or by telephone
from ,
SIRIUS’ proxy solicitor,
or ,
XM’s proxy solicitor, at the following addresses and
telephone numbers:
If you are a stockholder of XM and SIRIUS and would like to
request documents, please do so
by ,
2007 to receive them before your special meeting. If you request
any documents from SIRIUS or XM, SIRIUS or XM will mail them to
you by first class mail, or another equally prompt means, within
one business day after SIRIUS or XM, as the case may be,
receives your request.
This document is a prospectus of SIRIUS and is a joint proxy
statement of SIRIUS and XM for the SIRIUS special meeting and
the XM special meeting. Neither SIRIUS nor XM has authorized
anyone to give any information or make any representation about
the merger or SIRIUS or XM that is different from, or in
addition to, that contained in this Proxy Statement or in any of
the materials that SIRIUS or XM has incorporated by reference
into this Proxy Statement. Therefore, if anyone does give you
information of this sort, you should not rely on it. The
information contained in this document speaks only as of the
date of this document unless the information specifically
indicates that another date applies.
AGREEMENT AND PLAN OF MERGER dated as of February 19, 2007
(this “Agreement”) is by and among Sirius
Satellite Radio Inc., a Delaware corporation
(“Sirius”), Vernon Merger Corporation, a
Delaware corporation and a direct wholly-owned subsidiary of
Sirius (“Merger Co.”), and XM Satellite Radio
Holdings Inc., a Delaware corporation (“XM”).
WITNESSETH:
WHEREAS, each of the respective Boards of Directors of Sirius,
Merger Co. and XM has approved, and deemed it advisable and in
the best interests of its stockholders to consummate, the
business combination transaction provided for herein, including
the merger (the “Merger”) of Merger Co. with
and into XM in accordance with the applicable provisions of the
Delaware General Corporation Law (the “DGCL”),
and upon the terms and subject to the conditions set forth
herein;
WHEREAS, Sirius and XM intend the Merger to qualify as a
reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the
“Code”); and
WHEREAS, Sirius and XM desire to make certain representations,
warranties, covenants and agreements in connection with the
Merger and also to prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth herein, the parties hereto agree as follows:
1.5 By-Laws. At the
Effective Time, the By-laws of Merger Co. as in effect
immediately prior to the Effective Time shall be the By-laws of
the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of Merger Co.
as of the Effective Time shall be the directors of the Surviving
Corporation until the earlier of their resignation or removal or
otherwise ceasing to be a director or until their respective
successors are duly elected and qualified.
the “Merger Consideration”). Upon such
conversion, all such shares of the XM Series A Preferred
Stock shall no longer be outstanding and shall automatically be
canceled and extinguished and shall cease to exist, and each
certificate previously representing any such shares shall
thereafter represent only the right to receive the Preferred
Merger Consideration in respect of such shares upon the
surrender of the certificate representing such shares in
accordance with Section 2.2 (or in the case of a lost,
stolen or destroyed certificate, upon delivery of an affidavit
(and bond, if required) in the manner provided in
Section 2.4). The Preferred Exchange Ratio shall be
appropriately adjusted to reflect fully the effect of any stock
split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into XM
Series A Preferred Stock, XM Common Stock or Sirius Common
Stock), reorganization, recapitalization, reclassification or
other like change with respect to XM Series A Preferred
Stock, XM Common Stock or Sirius Common Stock having a record
date on or after the date hereof and prior to the Effective Time.
(d) Merger Co. Capital Stock. Each
share of common stock, par value $0.01 per share, of Merger
Co. outstanding immediately prior to the Effective Time shall be
automatically converted into and become one fully paid and
non-assessable share of common stock of the Surviving
Corporation. Each certificate evidencing ownership of such
shares of common stock of Merger Co. shall thereafter evidence
ownership of shares of common stock of the Surviving Corporation.
Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with
respect to the Sirius Common Stock or Sirius Mirror Preferred
Stock such holder is entitled to receive until the holder of
such Certificate shall surrender such Certificate in accordance
with the provisions of this Section 2.2. Subject to
applicable law, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates
representing whole Sirius Common Stock and Sirius Mirror
Preferred Stock issued in exchange therefor, without interest,
at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time
theretofore paid with respect to such whole Sirius Common Stock
and Sirius Mirror Preferred Stock.
(d) In the event that a transfer of ownership of shares of
XM Merger Stock is not registered in the stock transfer
books or ledger of XM, or if any certificate for the applicable
Merger Consideration is to be issued in a name other than that
in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition to the issuance thereof that
the Certificate or Certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that
the Person requesting such exchange shall have paid to the
Exchange Agent any transfer or other taxes required as a result
of the issuance of a certificate for Sirius Common Stock or
Sirius Mirror Preferred Stock in any name other than that of the
registered holder of such shares of XM Merger Stock, or
establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable. For purposes of this
Agreement, “Person” means an individual, a
corporation, a limited liability company, a partnership, an
association, a trust or any other entity or organization,
including a government or political subdivision or any agency or
instrumentality thereof.
(e) After the Effective Time, there shall be no further
registration of transfers of shares of XM Merger Stock. If,
after the Effective Time, any Certificate formerly representing
shares of XM Merger Stock is presented to the Surviving
Corporation, it shall be canceled and exchanged for the
applicable Merger Consideration provided for, and in accordance
with the procedures set forth, in this Article II.
(f) None of Sirius, Merger Co., XM or any of their
respective Subsidiaries or affiliates shall be liable to any
holder of shares of XM Merger Stock for any Merger
Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) Each of the Exchange Agent, the Surviving Corporation
and Sirius shall be entitled to deduct and withhold from the
Merger Consideration otherwise payable to any holder of shares
of XM Merger Stock, and from any cash dividends or other
distributions that the holder is entitled to receive under
Section 2.2(c), such amounts as the Exchange Agent, the
Surviving Corporation or Sirius is required to deduct and
withhold with respect to the making of such payment under the
Code, or any provision of United States
(“U.S.”) federal, state or local tax law or any
other
non-U.S. tax
law or any other applicable legal requirement. To the extent
that amounts are so withheld by the Exchange Agent, the
Surviving Corporation or Sirius, such amounts withheld from the
Merger Consideration and other such amounts payable under
Section 2.2(c) shall be treated for all purposes of this
Agreement as having been received by the holder of the shares of
XM Merger Stock in respect of which such deduction and
withholding was made by the Exchange Agent, the Surviving
Corporation or Sirius.
(h) Any portion of the certificates evidencing the Sirius
Common Stock or the Sirius Mirror Preferred Stock, the cash to
be paid in respect of fractional shares pursuant to
Section 2.3, and the cash or other property in respect of
dividends or other distributions pursuant to Section 2.2(c)
supplied to the Exchange Agent which remains unclaimed by the
holders of shares of XM Merger Stock twelve
(12) months after the Effective Time shall be returned to
Sirius, upon demand, and any such holder who has not exchanged
his shares of XM Merger Stock for the applicable Merger
Consideration in accordance with this Section 2.2 prior to
the time of demand shall thereafter look only to Sirius for
payment of the applicable Merger Consideration, and any cash
payable in respect thereof in lieu of any fractional shares
pursuant to Section 2.3 and any dividends or distributions
with respect to Sirius Common Stock to which they were entitled
pursuant to Section 2.2(c), in each case, without interest.
Section 2.4) shall be paid upon such surrender (and after
taking into account and aggregating shares of XM Common
Stock represented by all Certificates surrendered by such
holder) cash (without interest) in an amount equal to the
product obtained by multiplying (a) the fractional share
interest to which such holder (after taking into account and
aggregating all shares of XM Common Stock represented by
all Certificates surrendered by such holder) would otherwise be
entitled by (b) the closing price for a share of Sirius
Common Stock on the NASDAQ Global Select Market on the last
trading day immediately preceding the Effective Time. Fractional
shares of Sirius Mirror Preferred Stock may be issued in
exchange for shares of XM Series A Preferred Stock.
2.5 Options and Other XM Stock
Awards. Prior to the Effective Time, XM
and its Subsidiaries shall take all actions necessary to ensure
that from and after the Effective Time, (x) options to
purchase shares of the XM Common Stock (each, an
“XM Option”) held by any employee, consultant,
independent contractor and director and (y) other awards
based on XM Common Stock (collectively with the XM Options,
the “XM Stock Awards”) held by any employee,
consultant, independent contractor and director which are
outstanding immediately prior to the Effective Time shall be
converted into and become, respectively, (x) options to
purchase shares of Sirius Common Stock (each, a
“Converted Option”) and, (y) with respect
to all other XM Stock Awards, awards based on shares of Sirius
Common Stock (the “Converted Stock Awards” and,
together with the Converted Options, the “Converted
Equity Awards”), in each case, on terms substantially
identical to those in effect immediately prior to the Effective
Time under the terms of the stock incentive plan or other
related agreement or award pursuant to which such XM Stock
Award was granted; provided, however, that from
and after the Effective Time, (i) each such Converted
Option may be exercised solely to purchase shares of Sirius
Common Stock, (ii) the number of shares of Sirius Common
Stock issuable upon exercise of such Converted Option shall be
equal to the number of shares of the XM Common Stock that
were issuable upon exercise under the corresponding
XM Option immediately prior to the Effective Time
multiplied by the Common Exchange Ratio and rounded down to the
nearest whole share, (iii) the per share exercise price
under such Converted Option shall be determined by dividing the
per share exercise price of the corresponding XM Option
immediately prior to the Effective Time by the Common Exchange
Ratio and rounded up to the nearest whole cent, (iv) the
number of shares of Sirius Common Stock subject to such
Converted Stock Awards shall be determined by multiplying the
number of the shares of XM Common Stock subject to the
corresponding XM Stock Award immediately prior to the
Effective Time by the Common Exchange Ratio and rounded down to
the nearest whole share, (v) to the extent that the
transfer of shares of XM Common Stock issuable upon
exercise of any XM Option (or issued in connection with any
previously exercised XM Option) is conditioned upon the
fair market value of XM Common Stock achieving a specified
percentage increase over the exercise price of such
XM Option, such restriction shall be applied by requiring
the same percentage increase in Sirius Common Stock over the
exercise price of the corresponding Converted Option determined
under clause (iii) above (or, in the case of a previously
exercised XM Option, the exercise price that would have
been determined under clause (iii) had such XM Option
been outstanding at the Effective Time), (vi) to the extent
the transfer of shares of XM Common Stock issuable or
issued in connection with any XM Stock Award (whether or
not outstanding at the Effective Time) is conditioned upon the
fair market value of XM Common Stock achieving a specified
percentage increase over the fair market value of XM Common
Stock on the date of grant of such XM Stock Award, such
restriction shall be applied by requiring the same percentage
increase in Sirius Common Stock over the number derived by
dividing (a) the fair market value of XM Common Stock on
such date of grant by (b) the Common Exchange Ratio,
rounded up to the nearest whole cent and (vii) to the
extent the transfer of shares of XM Common Stock issuable or
issued in connection with any XM Stock Award (whether or not
outstanding at the Effective Time) is conditioned upon the fair
market value of XM Common Stock achieving a specified dollar
amount, such restriction shall be applied by
(a) determining the percentage increase that such specified
dollar amount represented over the fair market value of
XM Common Stock on the grant date of such XM Stock Award and
(b) requiring the same percentage increase in Sirius Common
Stock (expressed as a dollar amount) over the number derived by
dividing (a) the fair market value of XM Common Stock on
such date of grant by (b) the Common Exchange Ratio,
rounded up to the nearest whole cent.
2.6 XM Warrants. Prior
to the Effective Time, XM and its Subsidiaries shall take all
actions necessary to ensure that from and after the Effective
Time, each warrant to purchase shares of the XM Common Stock
(each, an “XM Warrant”) which is outstanding
immediately prior to the Effective Time, shall be converted into
and become a warrant to purchase shares of Sirius Common Stock
(each, a “Converted Warrant”) on terms
substantially identical to those in effect immediately prior to
the Effective Time under the terms of the warrant or other
related agreement or award pursuant to which such XM Warrant was
granted; provided, however, that, subject to the
terms of the XM Warrants, from and after the Effective
Time, (i) each such Converted Warrant may be exercised
solely to purchase shares of Sirius Common Stock, (ii) the
number of shares of Sirius Common Stock issuable upon exercise
of such Converted Warrant shall be equal to the number of shares
of the XM Common Stock that were issuable upon exercise under
the corresponding XM Warrant immediately prior to the Effective
Time multiplied by the Common Exchange Ratio and rounded down to
the nearest whole share and (iii) the per share exercise
price under such Converted Warrant shall be determined by
dividing the per share exercise price of the corresponding XM
Warrant immediately prior to the Effective Time by the Common
Exchange Ratio and rounded up to the nearest whole cent.
(i) the word “Subsidiary” when used with
respect to any party, means any corporation or other
organization, whether incorporated or unincorporated,
(x) of which such party or any other Subsidiary of such
party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any
Subsidiary of such party do not have a majority of the voting
interests in such partnership), or (y) at least a majority
of the securities or other interests of which, that have by
their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with
respect to such corporation or other organization, is directly
or indirectly owned or controlled by such party or by any one or
more of its Subsidiaries, or by such party and one or more of
its Subsidiaries;
(ii) a “Significant Subsidiary” means any
Subsidiary of XM or Sirius, as the case may be, that would
constitute a Significant Subsidiary of such party within the
meaning of
Rule 1-02
of
Regulation S-X
of the Securities and Exchange Commission (the
“SEC”);
(iii) any reference to any event, change or effect being
“material” with respect to any entity means an
event, change or effect which is material in relation to the
financial condition, properties, assets, liabilities, businesses
or results of operations of such entity and its Subsidiaries
taken as a whole; and
(iv) the term “material adverse effect”
means, with respect to any entity, a material adverse effect on
the financial condition, properties, assets, liabilities,
businesses or results of operations of such entity and its
Subsidiaries taken as a whole; provided that, for
purposes of clause (iii) above and this clause (iv),
the following shall not be deemed “material” or to
have a “material adverse effect”: any change or event
caused by or resulting from (A) changes in prevailing
economic or market conditions in the United States or any other
jurisdiction in which such entity has substantial business
operations (except to the extent those changes have a materially
disproportionate effect on such entity and its Subsidiaries
relative to the other party and its Subsidiaries),
(B) changes or events, after the date hereof, affecting the
industries in which they operate generally (except to the extent
those changes or events have a materially disproportionate
effect on such entity and its Subsidiaries relative to the other
party and its Subsidiaries), (C) changes, after the date
hereof, in generally accepted accounting principles or
requirements applicable to such entity and its Subsidiaries
(except to the extent those changes have a materially
disproportionate effect on such entity and its Subsidiaries
relative to the other party and its Subsidiaries),
(D) changes, after the date hereof, in laws, rules or
regulations of general applicability or interpretations thereof
by any Governmental Entity (as defined in
Section 3.1(c)(iii)) (except to the extent those changes
have a materially disproportionate effect on such entity and its
Subsidiaries relative to the other party and its Subsidiaries),
(E) the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated
hereby or thereby or the announcement thereof, or (F) any
outbreak of major hostilities in which the United States is
involved or any act of terrorism within the United States or
directed against its facilities or citizens wherever located;
and provided, further, that in no event shall a
change in the trading prices of a party’s capital stock, by
itself, be considered material or constitute a material adverse
effect.
(b) Capital
Structure. (i) The authorized capital
stock of XM consists of 600,000,000 shares of
XM Common Stock, 15,000,000 shares of Class C
Common Stock, par value $.01 per share (the
“XM Class C Common Stock”), and
60,000,000 preferred shares, par value $.01 per share (the
“XM Preferred Stock”), of which
(A) 15,000,000 shares of XM Preferred Stock are
designated XM Series A Preferred Stock,
(B) 3,000,000 shares of XM Preferred Stock are
designated Series B Redeemable Preferred Stock (the
“XM Series B Preferred Stock”),
(C) 250,000 shares of XM Preferred Stock are
designated Series C Convertible Redeemable Preferred Stock
(the “XM Series C Preferred Stock”) and
(D) 250,000 shares of XM Preferred Stock are
designated Series D Junior Participating Preferred Stock
and reserved for issuance upon exercise of the rights (the
“Rights”) distributed to the holders of XM
Common Stock pursuant to the Rights Agreement, dated as of
August 2, 2002, between XM and Computershare Investor
Services, LLC, as successor rights agent to Equiserve Trust
Company (as amended to the date hereof, the “Rights
Agreement”). As of the close of business on
February 15, 2007 (x) (1) 309,689,999 shares
of XM Common Stock were issued (including 5,502 shares held
in treasury and 3,427,859 shares of unvested restricted
stock), (2) 5,393,252 shares of XM Common Stock
were reserved for issuance upon the conversion of the XM
Series A Preferred Stock, (3) 8,000,000 shares of
XM Common Stock were reserved for issuance upon the conversion
of XM’s 1.75% Convertible Senior Notes Due 2009, and
(4) 5,502 shares of XM Common Stock were held by XM in
its treasury or by its Subsidiaries,
(y) 5,393,252 shares of XM Series A Preferred
Stock were outstanding, and (z) other than the outstanding
shares of XM Series A Preferred Stock, no shares of XM
Preferred Stock were outstanding or reserved for issuance, and
no shares of XM Class C Common Stock were outstanding. As
of the close of business on February 15, 2007, no shares of
XM Common Stock were reserved for issuance pursuant to XM Stock
Awards outstanding on such date (other than
3,427,859 shares of unvested restricted stock and XM
Options outstanding on such date). As of the close of business
on December 31, 2006, (aa) 11,163,985 shares of
XM Common Stock were reserved for issuance upon the conversion
of XM’s 10% Senior Secured Discount Notes due 2009,
(bb) 15,894,434 shares of XM Common Stock were reserved for
issuance upon the exercise of XM Options outstanding on such
date, with a weighted average exercise price of $17.81 per
share and (cc) 11,314,966 shares of XM Common Stock
were reserved for issuance upon exercise of the XM Warrants. All
outstanding shares of XM Common Stock or XM Preferred Stock have
been
duly authorized and validly issued and are fully paid and,
except as set forth in the DGCL, non assessable and are not
subject to preemptive rights.
(ii) Section 3.1(b)(ii) of the XM Disclosure Schedule
sets forth a complete and accurate list as of February 15,2007 of each XM Warrant then outstanding, the number of shares
of XM Common Stock subject to such XM Warrant and the exercise
or purchase price (if any) and the expiration date thereof.
(iii) No bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which stockholders
may vote (“Voting Debt”) of XM are issued or
outstanding.
(iv) Except for (A) this Agreement, (B) the
outstanding XM Stock Awards specified in
paragraph (i) above, (C) the convertible
securities and warrants specified in paragraph (i) and
described in paragraph (ii) above, and
(D) agreements entered into and securities and other
instruments issued after the date of this Agreement as permitted
by Section 4.1, there are no options, warrants, calls,
rights, commitments or agreements of any character to which XM
or any Subsidiary of XM is a party or by which it or any such
Subsidiary is bound obligating XM or any Subsidiary of XM to
issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or any Voting Debt or
stock appreciation rights of XM or of any Subsidiary of XM or
obligating XM or any Subsidiary of XM to grant, extend or enter
into any such option, warrant, call, right, commitment or
agreement. There are no outstanding contractual obligations of
XM or any of its Subsidiaries (x) to repurchase, redeem or
otherwise acquire any shares of capital stock of XM or any of
its Subsidiaries, or (y) pursuant to which XM or any of its
Subsidiaries is or could be required to register shares of XM
Common Stock or other securities under the Securities Act of
1933, as amended (the “Securities Act”), except
any such contractual obligations entered into after the date
hereof as permitted by Section 4.1.
(v) Since February 15, 2007, except as permitted by
Section 4.1, XM has not (A) issued or permitted to be
issued any shares of capital stock, stock appreciation rights or
securities exercisable or exchangeable for or convertible into
shares of capital stock of XM or any of its Subsidiaries, other
than pursuant to and as required by the terms of XM Stock Awards
granted prior to the date hereof (or awards granted after the
date hereof in compliance with Sections 4.1(c) and 4.1(k));
(B) repurchased, redeemed or otherwise acquired, directly
or indirectly through one or more XM Subsidiaries, any shares of
capital stock of XM or any of its Subsidiaries; or
(C) declared, set aside, made or paid to the stockholders
of XM dividends or other distributions on the outstanding shares
of capital stock of XM.
(vi) After the date hereof, no future offering periods
shall be commenced under XM’s Employee Stock Purchase Plan
(the “ESPP”). Subject to the share issuance
limitations set forth in Section 4.1(c), the current
offering period in effect on the date hereof under the ESPP will
continue in accordance with its terms, and options under the
current offering period will be exercisable at the normally
scheduled time under the ESPP in accordance with its terms;
provided, however, that in all events the
expiration of such offering period and the final exercise under
the ESPP shall occur prior to the Effective Time, and XM shall
take all actions necessary to amend the ESPP to so provide. XM
shall terminate the ESPP effective as of immediately prior to
the Effective Time.
(c) Authority. (i) XM has all
requisite corporate power and authority to enter into this
Agreement and, subject in the case of the consummation of the
Merger to the adoption of this Agreement by the Required XM
Vote, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of XM, subject in
the case of the consummation of the Merger to the Required XM
Vote. This Agreement has been duly executed and delivered by XM
and, assuming due authorization, execution and delivery by
Sirius and Merger Co., constitutes a valid and binding
obligation of XM, enforceable against XM in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights
and to general equitable principles.
(ii) The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby
will not, (A) conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
cancellation, modification
or acceleration of any obligation or the loss of a material
benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on any assets (any such
conflict, violation, default, right of termination,
cancellation, modification or acceleration, loss or creation, a
“Violation”) pursuant to, any provision of the
Certificate of Incorporation or By-laws of XM or any Subsidiary
of XM, or (B) subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations
and filings referred to in paragraph (iii) below,
result in any Violation of any loan or credit agreement, note,
mortgage, indenture, lease, XM Benefit Plan (as defined in
Section 3.1(i)) or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to XM or
any Subsidiary of XM or their respective properties or assets,
which Violation, in the case of clause (B), individually or in
the aggregate, would reasonably be expected to (x) have a
material adverse effect on XM or (y) prevent, delay or
impede XM’s ability to perform its obligations hereunder or
to consummate the transactions contemplated hereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court,
administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a
“Governmental Entity”) is required by or with
respect to XM or any Subsidiary of XM in connection with the
execution and delivery of this Agreement by XM or the
consummation by XM of the transactions contemplated hereby, the
failure to make or obtain which, individually or in the
aggregate, would reasonably be expected to (x) have a
material adverse effect on XM or (y) prevent, delay or
impede XM’s ability to perform its obligations hereunder or
to consummate the transactions contemplated hereby, except for
(A) the filing with the SEC of the Joint Proxy
Statement/Prospectus and such other reports under the Securities
Act and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), as may be required in
connection with this Agreement and the transactions contemplated
hereby and the obtaining from the SEC of such orders as may be
required in connection therewith, (B) the filing of the
Certificate of Merger with the Secretary of State of the State
of Delaware, (C) notices or filings under the Hart Scott
Rodino Antitrust Improvements Act of 1976, as amended (the
“HSR Act”), (D) such notices or filings as
may be required pursuant to the Competition Act (Canada) (the
“Canadian Competition Act”) and, together with
the HSR Act, the “Applicable Antitrust Laws”),
(E) such filings with and consents of the Federal
Communications Commission (“FCC”) and the
Canadian Radio-television and Telecommunications Commission (the
“CRTC”) as may be required (including any
notifications or other filings that do not require consent), and
(F) such filings with and approvals of The Nasdaq Stock
Market, Inc. (“NASDAQ”) as may be required.
(d) SEC Documents; Undisclosed
Liabilities. (i) XM has filed, or
furnished, as applicable, all required reports, schedules,
registration statements and other documents with the SEC since
December 31, 2004 (the “XM SEC
Documents”). As of their respective dates of filing
with the SEC (or, if amended or superseded by a filing prior to
the date hereof, as of the date of such filing), the XM SEC
Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC thereunder
applicable to such XM SEC Documents, and none of the XM SEC
Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The financial statements of XM included in the XM
SEC Documents complied as to form, as of their respective dates
of filing with the SEC, in all material respects with all
applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto (except, in the
case of unaudited statements, as permitted by
Form 10-Q
of the SEC), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
during the periods involved (except as may be disclosed therein)
and fairly present in all material respects the consolidated
financial position of XM and its consolidated Subsidiaries and
the consolidated results of operations, changes in
stockholders’ equity and cash flows of such companies as of
the dates and for the periods shown. There are no outstanding
comments from the Staff of the SEC with respect to any of the XM
SEC Documents.
(ii) Except for (A) those liabilities that are fully
reflected or reserved for in the consolidated financial
statements of XM included in its Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2006, as filed
with the SEC prior to the date of this Agreement (the
“XM Financial Statements”),
(B) liabilities
incurred since September 30, 2006 in the ordinary course of
business consistent with past practice, (C) liabilities
which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on XM,
(D) liabilities incurred pursuant to the transactions
contemplated by this Agreement, and (E) liabilities or
obligations discharged or paid in full prior to the date of this
Agreement in the ordinary course of business consistent with
past practice, XM and its Subsidiaries do not have, and since
September 30, 2006, XM and its Subsidiaries have not
incurred (except as permitted by Section 4.1), any
liabilities or obligations of any nature whatsoever (whether
accrued, absolute, matured, determined, contingent or otherwise
and whether or not required to be reflected in XM’s
financial statements in accordance with generally accepted
accounting principles).
(e) Compliance with Applicable Laws and Reporting
Requirements. (i) XM and its
Subsidiaries hold all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities which are
material to the operation of the businesses of XM and its
Subsidiaries, taken as a whole (the “XM
Permits”), and XM and its Subsidiaries are and have
been in compliance with the terms of the XM Permits and all
applicable laws and regulations and their own privacy policies,
including the Communications Act of 1934, as amended, and the
rules, regulations and published decisions, orders, rulings and
notices of the FCC (the “Communications Laws”),
except where the failure so to hold or comply, individually or
in the aggregate, would not reasonably be expected to have a
material adverse effect on XM.
(ii) The businesses of XM and its Subsidiaries are not
being and have not been conducted in violation of any law,
ordinance or regulation of any Governmental Entity (including
the Sarbanes-Oxley Act of 2002 and the Communications Laws),
except for possible violations which, individually or in the
aggregate, do not have, and would not reasonably be expected to
have, a material adverse effect on XM.
(iii) XM and its Subsidiaries have designed and maintain a
system of internal controls over financial reporting (as defined
in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act) sufficient to provide reasonable assurances
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. XM
(A) has designed and maintains disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e) of
the Exchange Act) to ensure that material information required
to be disclosed by XM in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s
rules and forms and is accumulated and communicated to XM’s
management as appropriate to allow timely decisions regarding
required disclosure, and (B) has disclosed, based on its
most recent evaluation of such disclosure controls and
procedures prior to the date hereof, to XM’s auditors and
the audit committee of XM’s Board of Directors (1) any
significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which
are reasonably likely to adversely affect in any material
respect XM’s ability to record, process, summarize and
report financial information and (2) any fraud, whether or
not material, that involves management or other employees who
have a significant role in XM’s internal controls over
financial reporting.
(f) Legal Proceedings. There is no
claim, suit, action, litigation, arbitration, investigation or
other demand or proceeding (whether judicial, arbitral,
administrative or other) pending or, to the knowledge of XM,
threatened, against or affecting XM or any Subsidiary of XM as
to which there is a significant possibility of an adverse
outcome which would, individually or in the aggregate, have a
material adverse effect on XM, nor is there any judgment,
decree, injunction, rule, award, settlement, stipulation or
order of or subject to any Governmental Entity or arbitrator
outstanding against XM or any Subsidiary of XM having or which
would reasonably be expected to have, individually or in the
aggregate, a material adverse effect on XM. To the knowledge of
XM, no investigation by any Governmental Entity with respect to
XM or any of its Subsidiaries is pending or threatened, other
than, in each case, those the outcome of which, individually or
in the aggregate, would not reasonably be expected to have a
material adverse effect on XM.
(g) Taxes. XM and each of its
Subsidiaries have filed all material tax returns required to be
filed by any of them and have paid (or XM has paid on their
behalf) all taxes shown as due on such returns, and the most
recent financial statements contained in the XM SEC Documents
reflect an adequate reserve, in accordance with generally
accepted accounting principles, for all taxes payable by XM and
its Subsidiaries accrued
through the date of such financial statements. No material
deficiencies or other claims for any taxes have been proposed,
asserted or assessed against XM or any of its Subsidiaries that
are not adequately reserved for. For the purpose of this
Agreement, the term “tax” (including, with
correlative meaning, the terms “taxes” and
“taxable”) shall mean (i) all Federal,
state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property,
withholding, excise, occupancy and other taxes, duties or
assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such
amounts, (ii) liability for the payment of any amounts of
the type described in clause (i) as a result of being or
having been a member of an affiliated, consolidated, combined or
unitary group, and (iii) liability for the payment of any
amounts as a result of being party to any tax sharing agreement
or as a result of any express or implied obligation to indemnify
any other person with respect to the payment of any amounts of
the type described in clause (i) or (ii). Neither XM nor
any of its Subsidiaries has taken any action or knows of any
fact, agreement, plan or other circumstance that could
reasonably be expected to prevent the Merger from qualifying as
a reorganization within the meaning of Section 368(a) of
the Code.
(h) Certain Agreements. Except as
disclosed in or filed as exhibits to the XM SEC Documents filed
prior to the date of this Agreement and except for this
Agreement, neither XM nor any of its Subsidiaries is a party to
or bound by any contract, arrangement, commitment or
understanding (i) with respect to the service of any
directors, officers, employees, or independent contractors or
consultants that are natural persons, involving the payment of
$10 million or more in any 12 month period,
(ii) which is a “material contract” (as such term
is defined in Item 601(b)(10) of
Regulation S-K
of the SEC), (iii) which limits the ability of XM or any of
its Subsidiaries to compete in any line of business, in any
geographic area or with any person, or which requires referrals
of business and, in each case, which limitation or requirement
would reasonably be expected to be material to XM and its
Subsidiaries taken as a whole, (iv) with or to a labor
union or guild (including any collective bargaining agreement),
(v) which is a significant contract, arrangement or
understanding with an automobile manufacturer, (vi) which
is a contract, arrangement or understanding with a content
provider involving the payment of $10 million or more in
any 12 month period, or (vii) which would prevent,
delay or impede the consummation, or otherwise reduce the
contemplated benefits, of any of the transactions contemplated
by this Agreement. XM has previously made available to Sirius or
its representatives complete and accurate copies of each
contract, arrangement, commitment or understanding of the type
described in this Section 3.1(h) (collectively referred to
herein as the “XM Contracts”). All of the XM
Contracts are valid and in full force and effect, except to the
extent they have previously expired in accordance with their
terms or if the failure to be in full force and effect,
individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on XM. Neither XM nor
any of its Subsidiaries has, or is alleged to have, and to the
knowledge of XM, none of the other parties thereto have,
violated any provision of, or committed or failed to perform any
act, and no event or condition exists, which with or without
notice, lapse of time or both would constitute a default under
the provisions of, any XM Contract, except in each case for
those violations and defaults which, individually or in the
aggregate, would not reasonably be expected to result in a
material adverse effect on XM.
(i) Benefit
Plans. (i) Section 3.1(i) of the XM
Disclosure Schedule sets forth a true and complete list of each
material XM Benefit Plan. An “XM Benefit Plan”
is an employee benefit plan including, without limitation, any
“employee benefit plan,” as defined in
Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”), any
multiemployer plan within the meaning of ERISA
Section 3(37)) and each stock purchase, stock option,
severance, employment,
change-in-control,
fringe benefit, collective bargaining, bonus, incentive or
deferred compensation plan, agreement, program, policy or other
arrangement, whether or not subject to ERISA (all the foregoing
being herein called “Benefit Plans”
(x) maintained, entered into or contributed to by XM or any
of its Subsidiaries under which any present or former employee,
director, independent contractor or consultant of XM or any of
its Subsidiaries has any present or future right to benefits or
(y) under which XM or any of its Subsidiaries could
reasonably be expected to have any present or future liability.
No XM Benefit Plan is subject to Section 302 or
Title IV of ERISA or Section 412 of the Code.
(ii) With respect to each material XM Benefit Plan, XM has
made available to Sirius a current, accurate and complete copy
thereof, and, to the extent applicable: (A) any related
trust agreement or other funding
instrument; (B) the most recent determination letter, if
applicable; (C) any summary plan description and summaries
of material modifications; and (D) the most recent
year’s Form 5500 and attached schedules and audited
financial statements.
(iii) With respect to the XM Benefit Plans, individually
and in the aggregate, no event has occurred and, to the
knowledge of XM, there exists no condition or set of
circumstances in connection with which XM or any of its
Subsidiaries could be subject to any liability that would
reasonably be expected to have a material adverse effect on XM
under ERISA, the Code or any other applicable law.
(iv) No XM Benefit Plan exists that could result in the
payment to any person of any money or other property or
accelerate or provide any other rights or benefits to any person
as a result of the transactions contemplated by this Agreement,
whether alone or in connection with any other event, and whether
or not such payment would constitute a parachute payment within
the meaning of Code Section 280G.
(v) Except as would not reasonably be expected to have a
material adverse effect on XM or any of its Subsidiaries,
(A) no liability under Title IV or section 302 of
ERISA has been incurred by XM, or by any trade or business,
whether or not incorporated, that together with XM would be
deemed a “single employer” within the meaning of
section 4001(b) of ERISA (an “XM ERISA
Affiliate”), that has not been satisfied in full, and
(B) no condition exists that presents a risk to XM or any
XM ERISA Affiliate of incurring any such liability.
(j) Subsidiaries. Exhibit 21
to XM’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 filed with the
SEC prior to the date of this Agreement includes all the
Subsidiaries of XM which are Significant Subsidiaries. Each
Subsidiary of XM is a corporation or other entity duly
organized, validly existing and, in the case of corporations, in
good standing under the laws of its jurisdiction of formation,
has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes
such qualification necessary, other than in such jurisdictions
where the failure so to qualify would not, either individually
or in the aggregate, reasonably be expected to have a material
adverse effect on XM. All of the shares of capital stock of each
of the Subsidiaries held by XM or by another XM Subsidiary are
fully paid and nonassessable and are owned by XM or a Subsidiary
of XM free and clear of any material claim, lien or encumbrance,
except for XM Permitted Liens.
(k) Absence of Certain Changes or
Events. Except as disclosed in the XM SEC
Documents filed prior to the date of this Agreement (or, in the
case of actions taken after the date hereof, except as permitted
by Section 4.1), since December 31, 2005, (i) XM
and its Subsidiaries have conducted their respective businesses
in the ordinary course consistent with their past practices and
(ii) there has not been any change, circumstance or event
(including any event involving a prospective change) which,
individually or in the aggregate, has had, or would reasonably
be expected to have, a material adverse effect on XM.
(l) Board Approval. The Board of
Directors of XM, by resolutions duly adopted at a meeting duly
called and held (the “XM Board Approval”), has
(i) determined that this Agreement and the Merger are in
the best interests of XM and its stockholders, (ii) adopted
a resolution approving this Agreement and declaring its
advisability pursuant to Section 251(b) of the DGCL,
(iii) recommended that the stockholders of XM adopt this
Agreement (the “XM Recommendation”) and
directed that such matter be submitted for consideration by XM
stockholders at the XM Stockholders Meeting (as defined in
Section 5.1(b)). To the knowledge of XM, except for
Section 203 of the DGCL (which has been rendered
inapplicable), no “moratorium,”“control
share,”“fair price” or other anti-takeover law
or regulation is applicable to this Agreement, the Merger, or
the other transactions contemplated hereby.
(m) Vote Required. The affirmative
vote of the holders of a majority of the outstanding shares of
XM Common Stock to adopt this Agreement (the “Required
XM Vote”) is the only vote of the holders of any class
or series of XM capital stock necessary to approve and adopt
this Agreement and the transactions contemplated hereby
(including the Merger).
(n) Properties. Except as would
not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on XM, and except as set
forth in Section 3.1(n) of the XM Disclosure Schedule, XM
or one of its Subsidiaries (i) has good and marketable
title to all the properties and assets reflected in the XM
Financial Statements as being owned by XM or one of its
Subsidiaries or acquired after the date thereof which are
material to XM’s business on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof
in the ordinary course of business), free and clear of all
claims, liens, charges, security interests or encumbrances of
any nature whatsoever, except (A) statutory liens securing
payments not yet due or liens which are being properly contested
by XM or one of its Subsidiaries in good faith and by proper
legal proceedings and for which adequate reserves related
thereto are maintained on the XM Financial Statements,
(B) such imperfections or irregularities of title, claims,
liens, charges, security interests, easements, covenants and
other restrictions or encumbrances as do not materially affect
the use of the properties or assets subject thereto or affected
thereby or otherwise materially impair business operations at
such properties, (C) mortgages, or deeds of trust, security
interests or other encumbrances on title related to indebtedness
reflected in the XM Financial Statements (except such liens
which have been satisfied or otherwise discharged in the
ordinary course of business since the date of the XM SEC
Documents), and (D) rights granted to any non-exclusive
licensee of any XM Intellectual Property in the ordinary course
of business consistent with past practices (such liens,
imperfections and irregularities in clauses (A), (B), (C),
and (D) “XM Permitted Liens”), and
(ii) is the lessee of all leasehold estates reflected in
the XM Financial Statements or acquired after the date thereof
which are material to its business on a consolidated basis
(except for leases that have expired by their terms since the
date thereof) and is in possession of the properties purported
to be leased thereunder, and each such lease is valid without
default thereunder by the lessee or, to XM’s knowledge, the
lessor.
(o) Intellectual Property. Except
as would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect, (i) XM or its
Subsidiaries own, free and clear of all claims, liens, charges,
security interests or encumbrances of any nature whatsoever
other than XM Permitted Liens, or have a valid license or right
to use all Intellectual Property used in their business as
currently conducted (the “XM Intellectual
Property”), (ii) to the knowledge of XM, XM and
its Subsidiaries do not infringe, misappropriate, dilute, or
otherwise violate (“Infringe”) the Intellectual
Property rights of any third party and the XM Intellectual
Property is not being Infringed by any third party,
(iii) to the knowledge of XM, none of the material XM
Intellectual Property has expired or been abandoned and, to the
knowledge of XM, all such material XM Intellectual Property is
valid and enforceable and (iv) XM and its Subsidiaries have
taken all reasonable actions to protect and maintain the
confidentiality of any trade secrets and other confidential
information included in the material XM Intellectual Property.
“Intellectual Property” means all intellectual
property, including, without limitation, all United States and
foreign (u) patents, patent applications, patent
disclosures, and all related continuations,
continuations-in-part,
divisionals, reissues, re-examinations, substitutions, and
extensions thereof, (v) proprietary inventions,
discoveries, technology and know-how, (w) copyrights and
copyrightable works, including proprietary rights in software
programs, (x) trademarks, service marks, domain names,
trade dress, trade names, corporate names, brand names, slogans,
logos and other source indicators, and the goodwill of any
business symbolized thereby, (y) rights of publicity, and
(z) trade secrets, and confidential or proprietary business
information.
(p) Environmental Matters. Except
as would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on XM, (i) XM
and its Subsidiaries hold, and are currently, and at all prior
times have been, in continuous compliance with all permits,
licenses, registrations and other governmental authorizations
required under all applicable foreign, federal, state and local
statutes, rules, regulations, ordinances, orders or decrees
relating to contamination, pollution or protection of human
health, natural resources or the environment
(“Environmental Laws”) for XM to conduct its
operations (“Environmental Permits”), and are
currently, and at all prior times have been, otherwise in
continuous compliance with all applicable Environmental Laws
and, to the knowledge of XM, there is no condition that would
reasonably be expected to prevent or interfere with compliance
with all applicable Environmental Laws and all applicable
Environmental Permits in the future, (ii) XM and its
Subsidiaries have not received any written notice, claim,
demand, action, suit, complaint, proceeding or other
communication by any person alleging any violation of, or any
actual or potential liability under, any Environmental Laws (an
“Environmental Claim”), and XM has no knowledge
of any pending or threatened Environmental Claim, (iii) no
hazardous, dangerous or toxic substance, including without
limitation, petroleum (including without limitation crude oil or
any fraction thereof), asbestos and asbestos-containing
materials, polychlorinated biphenyls, radon, fungus, mold,
urea-formaldehyde insulation or any other material that is
regulated pursuant to any Environmental Laws or that
could result in liability under any Environmental Laws has been
generated, transported, treated, stored, installed, disposed of,
arranged to be disposed of, released or threatened to be
released at, on, from or under any of the properties or
facilities currently or formerly owned, leased or otherwise used
by XM or its Subsidiaries, in violation of, or in a manner or to
a location that could give rise to liability to XM or its
Subsidiaries under Environmental Laws, and (iv) XM and its
Subsidiaries have not assumed, contractually or by operation of
law, any liabilities or obligations under or relating to any
Environmental Laws.
(q) Labor and Employment
Matters. Except as would not, individually or
in the aggregate, reasonably be expected to have a material
adverse effect on XM, (i) there is no labor strike,
dispute, slowdown, stoppage or lockout actually pending or, to
the knowledge of XM, threatened against XM or any of its
Subsidiaries, (ii) no union or labor organization
represents, or claims to represent, any group of employees with
respect to their employment by XM or any of Subsidiaries and no
union organizing campaign with respect to the employees of XM or
its Subsidiaries is threatened or underway, (iii) there is
no unfair labor practice charge or complaint against XM or its
Subsidiaries pending or, to the knowledge of XM, threatened
before the National Labor Relations Board or any similar state
or foreign agency, (iv) there is no grievance pending
relating to any collective bargaining agreement or other
grievance procedure, (v) no charges with respect to or
relating to XM or its Subsidiaries are pending before the Equal
Employment Opportunity Commission or any other agency
responsible for the prevention of unlawful employment practices
and (vi) no employee of XM or its Subsidiaries is in
violation of any term of any restrictive covenant, common law
nondisclosure obligation, fiduciary duty, or other obligation to
a former employer of any such employee relating (A) to the
right of any such employee to be employed by XM or its
Subsidiaries or (B) to the knowledge or use of trade
secrets or proprietary information.
(r) Insurance. All material
insurance policies of XM and its Subsidiaries are in full force
and effect and provide insurance in such amounts and against
such risks as the management of XM reasonably has determined to
be prudent in accordance with industry practices or as is
required by law. Neither XM nor any of its Subsidiaries is in
material breach or default, and neither XM nor any of its
Subsidiaries has taken any action or failed to take any action
which, with notice or the lapse of time or both, would
constitute such a breach or default, or permit termination or
modification, of any of such material insurance policies.
(s) Brokers or Finders. No agent,
broker, investment banker, financial advisor or other firm or
person except J.P. Morgan Securities Inc.
(“J.P. Morgan”) is or will be entitled to
any broker’s or finder’s fee or any other similar
commission or fee in connection with any of the transactions
contemplated by this Agreement. XM has disclosed to Sirius all
material terms of the engagement of J.P. Morgan.
(t) Opinion of XM Financial
Advisor. XM has received the opinion of
J.P. Morgan, dated the date of this Agreement, to the
effect that the Common Exchange Ratio is fair, from a financial
point of view, to XM and the holders of XM Common Stock.
(u) Rights Agreement. The Board of
Directors of XM has caused the Rights Agreement to be amended so
that neither Sirius nor Merger Co. will become an
“Acquiring Person,” and that no “Stock
Acquisition Date”, “Distribution Date” or
“Triggering Event” (as such terms are defined in the
Rights Agreement) will occur, as a result of the approval,
execution or delivery of this Agreement or the consummation of
the transactions contemplated hereby.
standing to do business in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties
makes such qualification necessary, other than in such other
jurisdictions where the failure so to qualify and be in such
standing would not, either individually or in the aggregate,
reasonably be expected to have a material adverse effect on
Sirius. The Certificate of Incorporation and By-laws of Sirius,
copies of which were previously made available to XM, are true,
complete and correct copies of such documents as in effect on
the date of this Agreement.
(b) Capital
Structure. (i) The authorized capital
stock of Sirius consists of 2,500,000,000 shares of Sirius
Common Stock and 50,000,000 shares of preferred stock, par
value $.001 per share (the “Sirius Preferred
Stock”). As of the close of business on
February 16, 2007, (A)(1) 1,458,248,306 shares of
Sirius Common Stock were issued (including shares held in
treasury), (2) 82,044,101 shares of Sirius Common
Stock were reserved for issuance upon the exercise or payment of
stock options outstanding on such date, with a weighted average
exercise price of $5.34 per share, and
4,693,522 shares of Sirius Common Stock were reserved for
issuance upon the exercise or payment of stock units or other
equity-based incentive awards granted pursuant to any plans,
agreements or arrangements of Sirius and outstanding on such
date (collectively, the “Sirius Stock Awards”),
(3) 61,274 shares of Sirius Common Stock were reserved
for issuance upon the conversion of the Sirius’s
83/4% Convertible
Subordinated Notes due 2009, (4) 26,392,764 shares of
Sirius Common Stock were reserved for issuance upon the
conversion of the Sirius’s
31/2% Convertible
Notes due 2008, (5) 68,027,220 shares of Sirius Common
Stock were reserved for issuance upon the conversion of the
Sirius’s
21/2%
Convertible Notes due 2009, (6) 43,396,216 shares of
Sirius Common Stock were reserved for issuance upon the
conversion of the Sirius’s
31/4% Convertible
Notes due 2011, (7) 123,955,189 shares of Sirius
Common Stock were reserved for issuance upon exercise of the
Sirius Warrants (as defined below) and (8) no shares of
Sirius Common Stock were held by Sirius in its treasury or by
its Subsidiaries; and (B) no shares of Sirius Preferred
Stock were outstanding or reserved for issuance. All outstanding
shares of Sirius Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable and not
subject to preemptive rights. The shares of Sirius Common Stock
to be issued pursuant to or as specifically contemplated by this
Agreement will have been duly authorized as of the Effective
Time and, if and when issued in accordance with the terms hereof
or thereof, will be validly issued, fully paid and
non-assessable and will not be subject to preemptive rights.
(ii) Section 3.2(b)(ii) of the Sirius Disclosure
Schedule sets forth a complete and accurate list as of
February 15, 2007 of each warrant to purchase shares of
Sirius Common Stock (the “Sirius Warrants”)
then outstanding, the number of shares of Sirius Common Stock
subject to such Sirius Warrant and the exercise or purchase
price (if any) and the expiration date thereof.
(iii) No Voting Debt of Sirius is issued or outstanding.
(iv) Except for (A) this Agreement,
(B) outstanding Sirius Stock Awards described in
paragraph (i) above, (C) the convertible
securities and warrants described in
paragraphs (i) and (ii) above which represented,
as of February 15, 2007, the right to acquire up to an
aggregate of 261,832,663 shares of Sirius Common Stock, and
(D) agreements entered into and securities and other
instruments issued after the date of this Agreement as permitted
by Section 4.2, there are no options, warrants, calls,
rights, commitments or agreements of any character to which
Sirius or any Subsidiary of Sirius is a party or by which it or
any such Subsidiary is bound obligating Sirius or any Subsidiary
of Sirius to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or any
Voting Debt or stock appreciation rights of Sirius or of any
Subsidiary of Sirius or obligating Sirius or any Subsidiary of
Sirius to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement. There are no outstanding
contractual obligations of Sirius or any of its Subsidiaries
(x) to repurchase, redeem or otherwise acquire any shares
of capital stock of Sirius or any of its Subsidiaries or
(y) pursuant to which Sirius or any of its Subsidiaries is
or could be required to register shares of Sirius Common Stock
or other securities under the Securities Act, except any such
contractual obligations entered into after the date hereof as
permitted by Section 4.2.
(v) Since February 15, 2007, except as permitted by
Section 4.2, Sirius has not (A) issued or permitted to
be issued any shares of capital stock, stock appreciation rights
or securities exercisable or exchangeable for or convertible
into shares of capital stock, of Sirius or any of its
Subsidiaries, other than pursuant to and as
required by the terms of Sirius Stock Awards granted prior to
the date hereof (or awards granted after the date hereof in
compliance with Sections 4.2(c) and 4.2(k));
(B) repurchased, redeemed or otherwise acquired, directly
or indirectly through one or more Sirius Subsidiaries, any
shares of capital stock of Sirius or any of its Subsidiaries; or
(C) declared, set aside, made or paid to the stockholders
of Sirius dividends or other distributions on the outstanding
shares of capital stock of Sirius.
(c) Authority. (i) Sirius has
all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated
hereby, subject to the approval of the issuance of shares of
Sirius Common Stock in the Merger (the “Sirius Share
Issuance”) and the amendment of Sirius’s
certificate of incorporation to increase the total number of
shares of all classes of stock that Sirius shall have the
authority to issue to, and to increase the number of shares of
Sirius Common Stock that Sirius shall have the authority to
issue, in each case, to such number that is, at minimum,
sufficient to consummate the transactions contemplated by this
Agreement (the “Sirius Charter Amendment”) by
the applicable Required Sirius Votes, and the designation of the
Sirius Mirror Preferred Stock by the Sirius Board of Directors.
The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
Sirius, except for the Required Sirius Votes. This Agreement has
been duly executed and delivered by Sirius and, assuming due
authorization, execution and delivery by XM, constitutes a valid
and binding obligation of Sirius, enforceable against Sirius in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting
creditors’ rights and to general equitable principles.
(ii) The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby
will not, (A) result in any Violation pursuant to any
provision of the Certificate of Incorporation or By-laws of
Sirius or any Subsidiary of Sirius, or (B) subject to
obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred
to in paragraph (iii) below, result in any Violation
of any loan or credit agreement, note, mortgage, indenture,
lease, Sirius Benefit Plan (as defined in Section 3.2(i))
or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Sirius or any
Subsidiary of Sirius or their respective properties or assets
which Violation, in the case of clause (B), individually or
in the aggregate, would reasonably be expected to (x) have
a material adverse effect on Sirius or (y) prevent, delay
or impede Sirius’s ability to perform its obligations
hereunder or to consummate the transactions contemplated hereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Entity is required by or with respect to Sirius or any
Subsidiary of Sirius in connection with the execution and
delivery of this Agreement by Sirius or the consummation by
Sirius of the transactions contemplated hereby, the failure to
make or obtain which, individually or in the aggregate, would
reasonably be expected to (x) have a material adverse
effect on Sirius or (y) prevent, delay or impede
Sirius’s ability to perform its obligations hereunder or to
consummate the transactions contemplated hereby, except for
(A) the filing with the SEC of the
Form S-4
and such other reports under the Securities Act and the Exchange
Act as may be required in connection with this Agreement and the
transactions contemplated hereby and the obtaining from the SEC
of such orders as may be required in connection therewith,
(B) such filings and approvals as are required to be made
or obtained under the securities or blue sky laws of various
states in connection with the transactions contemplated by this
Agreement, (C) the filing of the Sirius Charter Amendment,
the Certificate of Merger and a Certificate of Designations with
respect to the Sirius Preferred Stock with the Secretary of
State of the State of Delaware, (D) the approval of the
listing of the Sirius Common Stock to be issued in the Merger on
NASDAQ, (E) such filings with and consents of the FCC and
the CRTC as may be required (including any notifications or
other filings that do not require consent), and
(F) notices, filings and other authorizations under the
Applicable Antitrust Laws.
(d) SEC Documents; Undisclosed
Liabilities. (i) Sirius has filed all
required reports, schedules, registration statements and other
documents with the SEC since December 31, 2004 (the
“Sirius SEC Documents”). As of their respective
dates of filing with the SEC (or, if amended or superseded by a
filing prior to the date hereof, as of the date of such filing),
the Sirius SEC Documents complied in all material respects, with
the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and
regulations of the SEC thereunder applicable to such Sirius SEC
Documents, and none of the Sirius SEC Documents when filed
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial
statements of Sirius included in the Sirius SEC Documents
complied as to form, as of their respective dates of filing with
the SEC, in all material respects with all applicable accounting
requirements and with the published rules and regulations of the
SEC with respect thereto (except, in the case of unaudited
statements, as permitted by
Form 10-Q
of the SEC), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
during the periods involved (except as may be disclosed therein)
and fairly present in all material respects the consolidated
financial position of Sirius and its consolidated Subsidiaries
and the consolidated results of operations, changes in
stockholders’ equity and cash flows of such companies as of
the dates and for the periods shown. There are no outstanding
comments from the Staff of the SEC with respect to any of the
Sirius SEC Documents.
(ii) Except for (A) those liabilities that are fully
reflected or reserved for in the consolidated financial
statements of Sirius included in its Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2006, as filed
with the SEC prior to the date of this Agreement (the
“Sirius Financial Statements”),
(B) liabilities incurred since September 30, 2006 in
the ordinary course of business consistent with past practice,
(C) liabilities which would not, individually or in the
aggregate, reasonably be expected to have a material adverse
effect on Sirius, (D) liabilities incurred pursuant to the
transactions contemplated by this Agreement, and
(E) liabilities or obligations discharged or paid in full
prior to the date of this Agreement in the ordinary course of
business consistent with past practice, Sirius and its
Subsidiaries do not have, and since September 30, 2006,
Sirius and its Subsidiaries have not incurred (except as
permitted by Section 4.2), any liabilities or obligations
of any nature whatsoever (whether accrued, absolute, contingent
or otherwise and whether or not required to be reflected in
Sirius’s financial statements in accordance with generally
accepted accounting principles).
(e) Compliance with Applicable Laws and Reporting
Requirements. (i) Sirius and its
Subsidiaries hold all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities which are
material to the operation of the businesses of Sirius and its
Subsidiaries, taken as a whole (the “Sirius
Permits”), and Sirius and its Subsidiaries are and have
been in compliance with the terms of the Sirius Permits and all
applicable laws and regulations and their own privacy policies,
including the Communications Laws, except where the failure so
to hold or comply, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on
Sirius.
(ii) The businesses of Sirius and its Subsidiaries are not
being and have not been conducted in violation of any law,
ordinance or regulation of any Governmental Entity (including
the Sarbanes-Oxley Act of 2002 and the Communications Laws),
except for possible violations which, individually or in the
aggregate, do not have, and would not reasonably be expected to
have, a material adverse effect on Sirius.
(iii) Sirius and its Subsidiaries have designed and
maintain a system of internal controls over financial reporting
(as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act) sufficient to provide reasonable assurances
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Sirius
(A) has designed and maintains disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e) of
the Exchange Act) to ensure that material information required
to be disclosed by Sirius in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SEC’s rules and forms and is accumulated and communicated
to Sirius’s management as appropriate to allow timely
decisions regarding required disclosure, and (B) has
disclosed, based on its most recent evaluation of such
disclosure controls and procedures prior to the date hereof, to
Sirius’s auditors and the audit committee of Sirius’s
Board of Directors (1) any significant deficiencies and
material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to
adversely affect in any material respect Sirius’s ability
to record, process, summarize and report financial information
and (2) any fraud, whether or not material, that involves
management or other employees who have a significant role in
Sirius’s internal controls over financial reporting.
(f) Legal Proceedings. There is no
claim, suit, action, litigation, arbitration, investigation or
other demand or proceeding (whether judicial, arbitral,
administrative or other) pending or, to the knowledge of Sirius,
threatened, against or affecting Sirius or any Subsidiary of
Sirius as to which there is a significant possibility of an
adverse outcome which would, individually or in the aggregate,
have a material adverse effect on Sirius, nor is there any
judgment, decree, injunction, rule, award, settlement,
stipulation or order of or subject to any Governmental Entity or
arbitrator outstanding against Sirius or any Subsidiary of
Sirius having, or which would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on
Sirius. To the knowledge of Sirius, no investigation by any
Governmental Entity with respect to Sirius or any of its
Subsidiaries is pending or threatened, other than, in each case,
those the outcome of which, individually or in the aggregate,
would not reasonably be expected to have a material adverse
effect on Sirius.
(g) Taxes. Sirius and each of its
Subsidiaries have filed all material tax returns required to be
filed by any of them and have paid (or Sirius has paid on their
behalf) all taxes shown as due on such returns, and the most
recent financial statements contained in the Sirius SEC
Documents reflect an adequate reserve, in accordance with
generally accepted accounting principles, for all taxes payable
by Sirius and its Subsidiaries accrued through the date of such
financial statements. No material deficiencies or other claims
for any taxes have been proposed, asserted or assessed against
Sirius or any of its Subsidiaries that are not adequately
reserved for. Neither Sirius nor any of its Subsidiaries has
taken any action or knows of any fact, agreement or plan or
other circumstance that could reasonably be expected to prevent
the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(h) Certain Agreements. Except as
disclosed in or filed as exhibits to the Sirius SEC Documents
filed prior to the date of this Agreement and except for this
Agreement, neither Sirius nor any of its Subsidiaries is a party
to or bound by any contract, arrangement, commitment or
understanding (i) with respect to the service of any
directors, officers, employees, or independent contractors or
consultants that are natural persons, involving the payment of
$10 million or more in any 12 month period,
(ii) which is a “material contract” (as such term
is defined in Item 601(b)(10) of
Regulation S-K
of the SEC), (iii) which limits the ability of Sirius or
any of its Subsidiaries to compete in any line of business, in
any geographic area or with any person, or which requires
referrals of business and, in each case, which limitation or
requirement would reasonably be expected to be material to
Sirius and its Subsidiaries taken as a whole, (iv) with or
to a labor union or guild (including any collective bargaining
agreement), (v) which is a significant contract,
arrangement or understanding with an automobile manufacturer,
(vi) which is a contract, arrangement or understanding with
a content provider involving the payment of $10 million or
more in any 12 month period or (vii) which would
prevent, delay or impede the consummation, or otherwise reduce
the contemplated benefits, of any of the transactions
contemplated by this Agreement. Sirius has previously made
available to XM or its representatives complete and accurate
copies of each contract, arrangement, commitment or
understanding of the type described in this Section 3.2(h)
(collectively referred to herein as “Sirius
Contracts”). All of the Sirius Contracts are valid and
in full force and effect, except to the extent they have
previously expired in accordance with their terms or if the
failure to be in full force and effect, individually or in the
aggregate, would not reasonably be expected to have a material
adverse effect on Sirius. Neither Sirius nor any of its
Subsidiaries has, or is alleged to have, and to the knowledge of
Sirius, none of the other parties thereto have, violated any
provision of, or committed or failed to perform any act, and no
event or condition exists, which, with or without notice, lapse
of time or both would constitute a default under the provisions
of, any Sirius Contract, except in each case for those
violations and defaults which, individually or in the aggregate,
would not reasonably be expected to result in a material adverse
effect on Sirius.
(i) Benefit
Plans. (i) Section 3.2(i) of the
Sirius Disclosure Schedule sets forth a true and complete list
of each material Sirius Benefit Plan. A “Sirius Benefit
Plan” is a Benefit Plan (x) maintained, entered
into or contributed to by Sirius or any of its Subsidiaries
under which any present or former employee, director,
independent contractor or consultant of Sirius or any of its
Subsidiaries has any present or future right to benefits or
(y) under which Sirius or any of its Subsidiaries could
reasonably be expected to have any present or future liability.
No Sirius Benefit Plan is subject to Section 302 or
Title IV of ERISA of section 412 of the Code.
(ii) With respect to each material Sirius Benefit Plan,
Sirius has made available to XM a current, accurate and complete
copy thereof, and, to the extent applicable: (A) any
related trust agreement or other funding
instrument; (B) the most recent determination letter, if
applicable; (C) any summary plan description and summaries
of material modifications; and (D) the most recent
year’s Form 5500 and attached schedules and audited
financial statements.
(iii) With respect to the Sirius Benefit Plans,
individually and in the aggregate, no event has occurred and, to
the knowledge of Sirius, there exists no condition or set of
circumstances in connection with which Sirius or any of its
Subsidiaries could be subject to any liability that would
reasonably be expected to have a material adverse effect on
Sirius under ERISA, the Code or any other applicable law.
(iv) No Sirius Benefit Plan exists that could result in the
payment to any person of any money or other property or
accelerate or provide any other rights or benefits to any person
as a result of the transactions contemplated by this Agreement,
whether alone or in connection with any other event, and whether
or not such payment would constitute a parachute payment within
the meaning of Code Section 280G.
(v) Except as would not reasonably be expected to have a
material adverse effect on Sirius or any of its Subsidiaries,
(A) no liability under Title IV or section 302 of
ERISA has been incurred by Sirius, or by any trade or business,
whether or not incorporated, that together with Sirius would be
deemed a “single employer” within the meaning of
section 4001(b) of ERISA (a “Sirius ERISA
Affiliate”), that has not been satisfied in full, and
(B) no condition exists that presents a risk to Sirius or
any Sirius ERISA Affiliate of incurring any such liability.
(j) Subsidiaries. Exhibit 21
to Sirius’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 filed with the
SEC prior to the date of this Agreement includes all the
Subsidiaries of Sirius which are Significant Subsidiaries. Each
Subsidiary of Sirius is a corporation or other entity duly
organized, validly existing and, in the case of corporations, in
good standing under the laws of its jurisdiction of formation,
has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes
such qualification necessary, other than in such jurisdictions
where the failure so to qualify would not, either individually
or in the aggregate, reasonably be expected to have a material
adverse effect on Sirius. All of the shares of capital stock of
each of the Subsidiaries held by Sirius or by another Subsidiary
of Sirius are fully paid and nonassessable and are owned by
Sirius or a Subsidiary of Sirius free and clear of any material
claim, lien or encumbrance, except for Sirius Permitted Liens.
(k) Absence of Certain Changes or
Events. Except as disclosed in the Sirius SEC
Documents filed prior to the date of this Agreement (or, in the
case of actions taken after the date hereof, except as permitted
by Section 4.2), since December 31, 2005,
(i) Sirius and its Subsidiaries have conducted their
respective businesses in the ordinary course consistent with
their past practices and (ii) there has not been any
change, circumstance or event (including any event involving a
prospective change) which, individually or in the aggregate, has
had, or would reasonably be expected to have, a material adverse
effect on Sirius.
(l) Board Approval. The Board of
Directors of Sirius, by resolutions duly adopted at a meeting
duly called and held (the “Sirius Board
Approval”), has (i) determined that this Agreement
and the Merger are in the best interests of Sirius and its
stockholders and the issuance of Sirius Common Stock in the
Merger and the Sirius Charter Amendment to be advisable,
(ii) adopted a resolution approving this Agreement, and
(iii) recommended that the stockholders of Sirius approve
the issuance of Sirius Common Stock in the Merger and the Sirius
Charter Amendment (the “Sirius Recommendation”)
and (iii) directed that such matters be submitted for
consideration by Sirius stockholders at the Sirius Stockholders
Meeting (as defined in Section 5.1(c)). To the knowledge of
Sirius, no “moratorium,”“control share,”“fair price” or other anti-takeover law or regulation
is applicable to this Agreement, the Merger or the other
transactions contemplated hereby.
(m) Vote Required. Other than
(i) the affirmative vote to approve the Sirius Share
Issuance of the holders of Sirius Common Stock representing a
majority of the votes cast by such holders at a meeting of
stockholders of Sirius called for such purpose and entitled to
vote thereon and (ii) the affirmative vote of a majority of
the outstanding shares of Sirius Common Stock to approve the
Sirius Charter Amendment (together, the “Required Sirius
Votes” and, together with the Required XM Vote, the
“Required Stockholder
Votes”), no vote or consent of the holders of any
class or series of capital stock of Sirius is required to
approve this Agreement or the transactions contemplated hereby
(including the Merger).
(n) Properties. Except as would
not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on Sirius, Sirius or one of
its Subsidiaries (i) has good and marketable title to all
the properties and assets reflected in the Sirius Financial
Statements as being owned by Sirius or one of its Subsidiaries
or acquired after the date thereof which are material to
Sirius’s business on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof
in the ordinary course of business), free and clear of all
claims, liens, charges, security interests or encumbrances of
any nature whatsoever, except (A) statutory liens securing
payments not yet due or liens which are being properly contested
by Sirius or one of its Subsidiaries in good faith and by proper
legal proceedings and for which adequate reserves related
thereto are maintained on the Sirius Financial Statements,
(B) such imperfections or irregularities of title, claims,
liens, charges, security interests, easements, covenants and
other restrictions or encumbrances as do not materially affect
the use of the properties or assets subject thereto or affected
thereby or otherwise materially impair business operations at
such properties, (C) mortgages, or deeds of trust, security
interests or other encumbrances on title related to indebtedness
reflected on the Sirius Financial Statements (except such liens
which have been satisfied or otherwise discharged in the
ordinary course of business since the date of the Sirius SEC
Documents), and (D) rights granted to any non-exclusive
licensee of any Sirius Intellectual Property in the ordinary
course of business consistent with past practices (such liens,
imperfections and irregularities in clauses (A), (B),
(C) and (D), “Sirius Permitted Liens”),
and (ii) is the lessee of all leasehold estates reflected
in the Sirius Financial Statements or acquired after the date
thereof which are material to its business on a consolidated
basis (except for leases that have expired by their terms since
the date thereof) and is in possession of the properties
purported to be leased thereunder, and each such lease is valid
without default thereunder by the lessee or, to Sirius’s
knowledge, the lessor.
(o) Intellectual Property. Except
as would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect, (i) Sirius or
its Subsidiaries own, free and clear of all claims, liens,
charges, security interests or encumbrances of any nature
whatsoever other than Sirius Permitted Liens, or have a valid
license or right to use all Intellectual Property used in their
business as currently conducted (the “Sirius
Intellectual Property”), (ii) to the knowledge of
Sirius and its Subsidiaries do not Infringe the Intellectual
Property rights of any third party and the Sirius Intellectual
Property is not being Infringed by any third party,
(iii) to the knowledge of Sirius none of the material
Sirius Intellectual Property has expired or been abandoned and
to the knowledge of Sirius, all such material Sirius
Intellectual Property is valid and enforceable and
(iv) Sirius and its Subsidiaries have taken all reasonable
actions to protect and maintain the confidentiality of any trade
secrets and other confidential information included in the
material Sirius Intellectual Property.
(p) Environmental Matters. Except
as would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on Sirius,
(i) Sirius and its Subsidiaries hold, and are currently,
and at all prior times have been, in continuous compliance with
all Environmental Permits, and are currently, and at all prior
times have been, otherwise in continuous compliance with all
applicable Environmental Laws and, to the knowledge of Sirius,
there is no condition that would reasonably be expected to
prevent or interfere with compliance with all applicable
Environmental Laws and all applicable Environmental Permits in
the future, (ii) Sirius and its Subsidiaries have not
received any Environmental Claim, and Sirius has no knowledge of
any pending or threatened Environmental Claim, (iii) no
hazardous, dangerous or toxic substance, including without
limitation, petroleum (including without limitation crude oil or
any fraction thereof), asbestos and asbestos-containing
materials, polychlorinated biphenyls, radon, fungus, mold,
urea-formaldehyde insulation or any other material that is
regulated pursuant to any Environmental Laws or that could
result in liability under any Environmental Laws has been
generated, transported, treated, stored, installed, disposed of,
arranged to be disposed of, released or threatened to be
released at, on, from or under any of the properties or
facilities currently or formerly owned, leased or otherwise used
by Sirius or its Subsidiaries, in violation of, or in a manner
or to a location that could give rise to liability to Sirius or
its Subsidiaries under Environmental Laws, and (iv) Sirius
and its Subsidiaries have not assumed, contractually or by
operation of law, any liabilities or obligations under or
relating to any Environmental Laws.
(q) Labor and Employment
Matters. Except as would not, individually or
in the aggregate, reasonably be expected to have a material
adverse effect on Sirius, (i) there is no labor strike,
dispute, slowdown, stoppage or lockout actually pending or, to
the knowledge of Sirius, threatened against Sirius or any of its
Subsidiaries, (ii) no union or labor organization
represents, or claims to represent, any group of employees with
respect to their employment by Sirius or any of its Subsidiaries
and no union organizing campaign with respect to the employees
of Sirius or its Subsidiaries is threatened or underway,
(iii) there is no unfair labor practice charge or complaint
against Sirius or its Subsidiaries pending or, to the knowledge
of Sirius, threatened before the National Labor Relations Board
or any similar state or foreign agency, (iv) there is no
grievance pending relating to any collective bargaining
agreement or other grievance procedure, (v) no charges with
respect to or relating to Sirius or its Subsidiaries are pending
before the Equal Employment Opportunity Commission or any other
agency responsible for the prevention of unlawful employment
practices and (vi) no employee of Sirius or its
Subsidiaries is in violation of any term of any restrictive
covenant, common law nondisclosure obligation, fiduciary duty,
or other obligation to a former employer of any such employee
relating (A) to the right of any such employee to be
employed by Sirius or its Subsidiaries or (B) to the
knowledge or use of trade secrets or proprietary information.
(r) Insurance. All material
insurance policies of Sirius and its Subsidiaries are in full
force and effect and provide insurance in such amounts and
against such risks as the management of Sirius reasonably has
determined to be prudent in accordance with industry practices
or as is required by law. Neither Sirius nor any of its
Subsidiaries is in material breach or default, and neither
Sirius nor any of its Subsidiaries has taken any action or
failed to take any action which, with notice or the lapse of
time or both, would constitute such a breach or default, or
permit termination or modification, of any of such material
insurance policies.
(s) Brokers or Finders. No agent,
broker, investment banker, financial advisor or other firm or
person except Morgan Stanley & Co. Incorporated
(“Morgan Stanley”) is or will be entitled to
any broker’s or finder’s fee or any other similar
commission or fee in connection with any of the transactions
contemplated by this Agreement. Sirius has disclosed to XM all
material terms of the engagement of Morgan Stanley.
(t) Opinion of Sirius Financial
Advisor. Sirius has received the opinion of
Morgan Stanley, dated February 18, 2007, to the effect that
the Common Exchange Ratio is fair, from a financial point of
view, to Sirius.
(a) Ordinary Course. XM and its
Subsidiaries shall carry on their respective businesses in the
usual, regular and ordinary course consistent with past practice
and use all reasonable efforts to preserve intact their present
business organizations, maintain their rights, franchises,
licenses and other authorizations issued by Governmental
Entities and preserve their relationships with employees,
customers, suppliers and others having business dealings with
them to the end that their goodwill and ongoing businesses shall
not be impaired in any material respect at the Effective Time.
XM shall not, nor shall it permit any of its Subsidiaries to,
(i) except as disclosed in the XM SEC Documents prior to
the date of this Agreement or except as set forth in
Section 4.1(a)(i) of the XM Disclosure Schedule, enter into
(including via any acquisition) any new line of business which
represents a material change in the operations of XM and its
Subsidiaries and which is material to XM and its Subsidiaries,
taken as a whole, (ii) make any material change to its or
its Subsidiaries’ businesses, except as required by
applicable legal requirements, (iii) enter into, terminate
or fail to renew any material lease, contract, license or
agreement, or make any change to any existing material leases,
contracts, licenses or agreements other than in the ordinary
course of business or consistent with past practice or
(iv) make any capital expenditures, other than capital
expenditures which, in the aggregate, do not exceed the
aggregate
amount for capital expenditures specified in XM’s long-term
plan for 2007 and 2008 (a true and complete copy of which has
been provided to Sirius prior to the date of this Agreement).
(b) Dividends; Changes in
Stock. Except as set forth in
Section 4.1(b) of the XM Disclosure Schedule, XM shall not,
nor shall it permit any of its Subsidiaries to, or propose to,
(i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, except for
dividends by a wholly-owned Subsidiary of XM, (ii) split,
combine or reclassify any of its capital stock or issue or
authorize or propose the issuance or authorization of any other
securities in respect of, in lieu of or in substitution for,
shares of its capital stock, or (iii) repurchase, redeem or
otherwise acquire, or permit any Subsidiary to redeem, purchase
or otherwise acquire, any shares of its capital stock or any
securities convertible into or exercisable for any shares of its
capital stock.
(c) Issuance of Securities. Except
as set forth in Section 4.1(c) of the XM Disclosure
Schedule, and except for issuances of XM Common Stock,
restricted stock or rights or options to acquire XM Common Stock
in the ordinary course of business consistent with past practice
up to an aggregate amount set forth in Section 4.1(c) of
the XM Disclosure Schedule, XM shall not, nor shall it permit
any of its Subsidiaries to, issue, deliver or sell, or authorize
or propose the issuance, delivery or sale of, any shares of its
capital stock of any class, any Voting Debt, any stock
appreciation rights, or any securities convertible into or
exercisable or exchangeable for, or any rights, warrants or
options to acquire, any such shares or Voting Debt, or enter
into any agreement with respect to any of the foregoing, other
than (i) the issuance of XM Common Stock required to be
issued upon the exercise or settlement of XM Stock Awards
outstanding on the date hereof in accordance with the terms of
the applicable XM Stock Award, and (ii) issuances by a
wholly owned Subsidiary of its capital stock to its parent or to
another wholly-owned Subsidiary of XM.
(d) Governing Documents, Etc. XM
shall not amend or propose to amend its Certificate of
Incorporation or By-laws or, except as permitted pursuant to
Section 4.1(e) or (f), enter into, or permit any Subsidiary
to enter into, a plan of consolidation, merger or reorganization
with any person other than a wholly-owned Subsidiary of XM.
(e) No Acquisitions. Other than
acquisitions (whether by means of merger, share exchange,
consolidation, tender offer, asset purchase or otherwise) and
other business combinations (collectively,
“Acquisitions”) that (A) would not
reasonably be expected to delay, impede or affect the
consummation of the transactions contemplated by this Agreement
in the manner contemplated hereby and (B) for which the
fair market value of the total consideration paid by XM and its
Subsidiaries in such Acquisitions does not exceed in the
aggregate the amount set forth in Section 4.1(e) of the XM
Disclosure Schedule, XM shall not, and shall not permit any of
its Subsidiaries to, acquire or agree to acquire, by merging or
consolidating with, by purchasing a substantial equity interest
in or a substantial portion of the assets of, by forming a
partnership or joint venture with, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire
or agree to acquire any assets, rights or properties;
provided, however, that the foregoing shall not
prohibit (i) internal reorganizations or consolidations
involving existing Subsidiaries that would not present a
material risk of any delay in the receipt of any Requisite
Regulatory Approval (as defined in Section 6.1(c)) or
(ii) the creation of new Subsidiaries organized to conduct
or continue activities otherwise permitted by this Agreement.
(f) No Dispositions. Other than
(i) internal reorganizations or consolidations involving
existing Subsidiaries that would not present a material risk of
any material delay in the receipt of any Requisite Regulatory
Approval, (ii) dispositions disclosed in
Section 4.1(f) of the XM Disclosure Schedule, and
(iii) other dispositions of assets (including Subsidiaries)
if the fair market value of the total consideration received
therefrom does not exceed in the aggregate the amount set forth
in Section 4.1(f) of the XM Disclosure Schedule, XM shall
not, and shall not permit any of its Subsidiaries to, sell,
lease, assign, encumber or otherwise dispose of, or agree to
sell, lease, assign, encumber or otherwise dispose of, any of
its assets, rights or properties (including capital stock of its
Subsidiaries and indebtedness of others held by XM and its
Subsidiaries) which are material, individually or in the
aggregate, to XM.
(g) Indebtedness. XM shall not,
and shall not permit any of its Subsidiaries to, incur, create
or assume any long term indebtedness for borrowed money (or
modify any of the material terms of any such outstanding
long-term indebtedness), guarantee any such long term
indebtedness or issue or sell any long term debt securities or
warrants or rights to acquire any long term debt securities of
XM or any of its Subsidiaries or guarantee any long term debt
securities of others, other than (i) in replacement of
existing or maturing debt, (ii) indebtedness of any
Subsidiary of XM to XM or to another Subsidiary of XM, or
(iii) indebtedness that does not exceed in the aggregate
the amount set forth in Section 4.1(g) of the XM Disclosure
Schedule.
(h) Other Actions. XM shall not,
and shall not permit any of its Subsidiaries to, intentionally
take any action that would, or reasonably might be expected to,
result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, subject to such
exceptions as do not have, and would not reasonably be expected
to have, individually or in the aggregate, a material adverse
effect on XM or Sirius following the Effective Time, or in any
of the conditions to the Merger set forth in Article VI not
being satisfied or in a violation of any provision of this
Agreement, or (unless such action is required by applicable law)
which would materially adversely affect the ability of the
parties to obtain any of the Requisite Regulatory Approvals
without taking any action of the type referred to in
Section 5.3(b)(i).
(i) Accounting Methods; Tax
Matters. Except as disclosed in any XM SEC
Document filed prior to the date of this Agreement, XM shall not
change its methods of accounting in effect at December 31,2005, except as required by generally accepted accounting
principles as concurred in by XM’s independent auditors. XM
shall not (i) change its annual tax accounting period and
(ii) make any tax election that, individually or in the
aggregate, would reasonably be likely to have a material adverse
effect on XM or Sirius after the Effective Time.
(j) Tax Free Qualification. XM
shall not, and shall not permit any of its Subsidiaries to,
intentionally take or cause to be taken any action, whether
before or after the Effective Time, which would reasonably be
expected to prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Code.
(k) Compensation and Benefit
Plans. During the period from the date of
this Agreement and continuing until the Effective Time, XM
agrees as to itself and its Subsidiaries that, except as set
forth in Section 4.1(k) of the XM Disclosure Schedule, it
will not: (i) other than in the ordinary course of business
consistent with past practice, enter into, adopt, amend (except
for such amendments as may be required by law) or terminate any
XM Benefit Plan, (ii) except as required by any XM Benefit
Plan as in effect as of the date hereof and except for normal
payments, awards and increases in the ordinary course of
business consistent with past practice, increase in any manner
the compensation or fringe benefits of any director, officer,
employee, independent contractor or consultant or pay any
benefit not required by any XM Benefit Plan as in effect as of
the date hereof or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing,
(iii) enter into or renew any contract, agreement,
commitment or arrangement (other than a renewal occurring in
accordance with the terms of an XM Benefit Plan) providing for
the payment to any director, officer, employee, independent
contractor or consultant of compensation or benefits contingent,
or the terms of which are materially altered, upon the
occurrence of any of the transactions contemplated by this
Agreement, or (iv) provide, with respect to the grant of
any stock option, restricted stock, restricted stock unit or
other equity-related award on or after the date hereof to the
extent permitted by Section 4.1(c), that the vesting of any
such stock option, restricted stock, restricted stock unit or
other equity-related award shall accelerate or otherwise be
affected by the occurrence of any of the transactions
contemplated by this Agreement.
(l) No Liquidation. XM shall not,
and shall not permit any of its Significant Subsidiaries to,
adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a
dissolution, restructuring, recapitalization or reorganization.
(m) Litigation. XM shall not, and
shall not permit any of its Subsidiaries to, settle or
compromise any litigation other than settlements or compromises
of litigation where the amount paid (less the amount reserved
for such matters by XM) in settlement or compromise, in
each case, does not exceed an amount set forth in
Section 4.1(m) of the XM Disclosure Schedule.
(n) No Restrictions on
Business. XM shall not, and shall not permit
any of its Subsidiaries to, enter into or otherwise become party
to any contract, arrangement, commitment or understanding that
will restrict or
limit, in any material respect, the ability of XM or any of its
Subsidiaries or affiliates from conducting, from and after the
Closing, any of their businesses in any geographical area, other
than any contract, arrangement, commitment or understanding
terminable in full (including the restrictions and limitations
on conduct of business) on notice of not more than 45 days
by XM or a Subsidiary thereof without the incurrence of any
liability (including an incurrence of an obligation to make any
payment of any amount in respect of such termination).
(o) Other Agreements. XM shall
not, and shall not permit any of its Subsidiaries to, agree to,
or make any commitment to, take, or authorize, any of the
actions prohibited by this Section 4.1.
(a) Ordinary Course. Sirius and
its Subsidiaries shall carry on their respective businesses in
the usual, regular and ordinary course consistent with past
practice and use all reasonable efforts to preserve intact their
present business organizations, maintain their rights,
franchises, licenses and other authorizations issued by
Governmental Entities and preserve their relationships with
employees, customers, suppliers and others having business
dealings with them to the end that their goodwill and ongoing
businesses shall not be impaired in any material respect at the
Effective Time. Sirius shall not, nor shall it permit any of its
Subsidiaries to, (i) except as disclosed in the Sirius SEC
Documents prior to the date of this Agreement, enter into
(including via any acquisition) any new line of business which
represents a material change in the operations of Sirius and its
Subsidiaries and which is material to Sirius and its
Subsidiaries, taken as a whole, (ii) make any material
change to its or its Subsidiaries’ businesses, except as
required by applicable legal requirements, (iii) enter
into, terminate or fail to renew any material lease, contract,
license or agreement, or make any change to any existing
material leases, contracts, licenses or agreements other than in
the ordinary course of business or consistent with past practice
or (iv) make any capital expenditures, other than capital
expenditures which, in the aggregate, do not exceed the
aggregate amount for capital expenditures specified in
Sirius’s long-term plan for 2007 and 2008 (a true and
complete copy of which has been provided to XM prior to the date
of this Agreement).
(b) Dividends; Changes in
Stock. Except as set forth in
Section 4.2(b) of the Sirius Disclosure Schedule, Sirius
shall not, nor shall it permit any of its Subsidiaries to, or
propose to, (i) declare or pay any dividends on or make
other distributions in respect of any of its capital stock,
except for dividends by a wholly owned Subsidiary of Sirius,
(ii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance or authorization
of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, or
(iii) repurchase, redeem or otherwise acquire, or permit
any Subsidiary to redeem, purchase or otherwise acquire, any
shares of its capital stock or any securities convertible into
or exercisable for any shares of its capital stock.
(c) Issuance of Securities. Except
as set forth in Section 4.2(c) of the Sirius Disclosure
Schedule, and except for issuances of Sirius Common Stock,
restricted stock or rights or options to acquire Sirius Common
Stock in the ordinary course of business consistent with past
practice up to an aggregate amount set forth in
Section 4.2(c) of the Sirius Disclosure Schedule. Sirius
shall not, nor shall it permit any of its Subsidiaries to,
issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any
class, any Voting Debt, any stock appreciation rights or any
securities convertible into or exercisable or exchangeable for,
or any rights, warrants or options to acquire, any such shares
or Voting Debt, or enter into any agreement with respect to any
of the foregoing, other than (i) the issuance of Sirius
Common Stock required to be issued upon the exercise or
settlement of Sirius Stock Awards outstanding on the date hereof
in accordance with the terms of the applicable Sirius Stock
Award, and (ii) issuances by a wholly owned Subsidiary of
its capital stock to its Sirius or to another wholly-owned
Subsidiary of Sirius.
(d) Governing Documents. Except
for the Sirius Charter Amendment and except as contemplated in
Section 5.10, Sirius shall not amend or propose to amend
its Certificate of Incorporation or By-laws or, except
as permitted pursuant to Section 4.2(e) or 4.2(f), enter
into, or permit any Subsidiary to enter into, a plan of
consolidation, merger or reorganization with any person other
than a wholly-owned Subsidiary of Sirius.
(e) No Acquisitions. Other than
Acquisitions that (A) would not reasonably be expected to
delay, impede or affect the consummation of the transactions
contemplated by this Agreement in the manner contemplated hereby
and (B) for which the fair market value of the total
consideration paid by Sirius and its Subsidiaries in such
Acquisitions does not exceed in the aggregate the amount set
forth in Section 4.2(e) of the Sirius Disclosure Schedule,
Sirius shall not, and shall not permit any of its Subsidiaries
to, acquire or agree to acquire, by merging or consolidating
with, by purchasing a substantial equity interest in or a
substantial portion of the assets of, by forming a partnership
or joint venture with, or by any other manner, any business or
any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree
to acquire any assets, rights or properties; provided,
however, that the foregoing shall not prohibit
(i) internal reorganizations or consolidations involving
existing Subsidiaries that would not present a material risk of
any material delay in the receipt of any Requisite Regulatory
Approval or (ii) the creation of new Subsidiaries organized
to conduct or continue activities otherwise permitted by this
Agreement.
(f) No Dispositions. Other than
(i) internal reorganizations or consolidations involving
existing Subsidiaries that would not present a material risk of
any material delay in the receipt of any Requisite Regulatory
Approval, (ii) dispositions disclosed in
Section 4.2(f) of the Sirius Disclosure Schedule, and
(iii) other dispositions of assets (including Subsidiaries)
if the fair market value of the total consideration received
therefrom does not exceed in the aggregate the amount set forth
in Section 4.2(f) of the Sirius Disclosure Schedule, Sirius
shall not, and shall not permit any of its Subsidiaries to,
sell, lease, assign, encumber or otherwise dispose of, or agree
to sell, lease, assign, encumber or otherwise dispose of, any of
its assets, rights or properties (including capital stock of its
Subsidiaries and indebtedness of others held by Sirius and its
Subsidiaries) which are material, individually or in the
aggregate, to Sirius.
(g) Indebtedness. Sirius shall
not, and shall not permit any of its Subsidiaries to, incur,
create or assume any long term indebtedness for borrowed money
(or modify any of the material terms of any such outstanding
long-term indebtedness), guarantee any such long term
indebtedness or issue or sell any long term debt securities or
warrants or rights to acquire any long term debt securities of
Sirius or any of its Subsidiaries or guarantee any long term
debt securities of others, other than (i) in replacement of
existing or maturing debt, (ii) indebtedness of any
Subsidiary of Sirius to Sirius or to another Subsidiary of
Sirius, or (iii) indebtedness that does not exceed in the
aggregate the amount set forth in Section 4.2(g) of the
Sirius Disclosure Schedule.
(h) Other Actions. Sirius shall
not, and shall not permit any of its Subsidiaries to,
intentionally take any action that would, or reasonably might be
expected to, result in any of its representations and warranties
set forth in this Agreement being or becoming untrue, subject to
such exceptions as do not have, and would not reasonably be
expected to have, individually or in the aggregate, a material
adverse effect on Sirius following the Effective Time, or in any
of the conditions to the Merger set forth in Article VI not
being satisfied or in a violation of any provision of this
Agreement, or (unless such action is required by applicable law)
which would materially adversely affect the ability of the
parties to obtain any of the Requisite Regulatory Approvals
without taking any action of the type referred to in
Section 5.3(b)(i).
(i) Accounting Methods; Tax
Matters. Except as disclosed in any Sirius
SEC Document filed prior to the date of this Agreement, Sirius
shall not change its methods of accounting in effect at
December 31, 2005, except as required by generally accepted
accounting principles as concurred in by Sirius’s
independent auditors. Sirius shall not (i) change its
annual tax accounting period and (ii) make any tax election
that, individually or in the aggregate, would reasonably be
likely to have a material adverse effect on Sirius after the
Effective Time.
(j) Tax Free Qualification. Sirius
shall not, and shall not permit any of its Subsidiaries to,
intentionally take or cause to be taken any action, whether
before or after the Effective Time, which would reasonably be
expected to prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Code.
(k) Compensation and Benefit
Plans. During the period from the date of
this Agreement and continuing until the Effective Time, Sirius
agrees as to itself and its Subsidiaries that, except as set
forth in Section 4.2(k) of the Sirius Disclosure Schedule,
it will not: (i) other than in the ordinary course of
business consistent with past practice, enter into, adopt, amend
(except for such amendments as may be required by law) or
terminate any Sirius Benefit Plan, (ii) except as required
by any Sirius Benefit Plan as in effect as of the date hereof
and except for normal payments, awards and increases in the
ordinary course of business consistent with past practice,
increase in any manner the compensation or fringe benefits of
any director, officer, employee, independent contractor or
consultant or pay any benefit not required by any Sirius Benefit
Plan as in effect as of the date hereof or enter into any
contract, agreement, commitment or arrangement to do any of the
foregoing, (iii) enter into or renew any contract,
agreement, commitment or arrangement (other than a renewal
occurring in accordance with the terms of a Sirius Benefit Plan)
providing for the payment to any director, officer, employee,
independent contractor or consultant of compensation or benefits
contingent, or the terms of which are materially altered, upon
the occurrence of any of the transactions contemplated by this
Agreement, or (iv) provide, with respect to the grant of
any stock option, restricted stock, restricted stock unit or
other equity-related award on or after the date hereof to the
extent permitted by Section 4.2(c), that the vesting of any
such stock option, restricted stock, restricted stock unit or
other equity-related award shall accelerate or otherwise be
affected by the occurrence of any of the transactions
contemplated by this Agreement.
(l) No Liquidation. Sirius shall
not, and shall not permit any of its Significant Subsidiaries
to, adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, restructuring, recapitalization or reorganization.
(m) Litigation. Sirius shall not,
and shall not permit any of its Subsidiaries to, settle or
compromise any litigation other than settlements or compromises
of litigation where the amount paid (less the amount reserved
for such matters by Sirius) in settlement or compromise, in each
case, does not exceed an amount set forth in Section 4.2(m)
of the Sirius Disclosure Schedule.
(n) No Restrictions on
Business. Sirius shall not, and shall not
permit any of its Subsidiaries to, enter into or otherwise
become party to any contract, arrangement, commitment or
understanding that will restrict or limit, in any material
respect, the ability of Sirius or any of its Subsidiaries or
affiliates from conducting, from and after the Closing, any of
their businesses in any geographical area, other than any
contract, arrangement, commitment or understanding terminable in
full (including the restrictions and limitations on conduct of
business) on notice of not more than 45 days by Sirius or a
Subsidiary thereof without the incurrence of any liability
(including an incurrence of an obligation to make any payment of
any amount in respect of such termination).
(o) Other Agreements. Sirius shall
not, and shall not permit any of its Subsidiaries to, agree to,
or make any commitment to, take, or authorize, any of the
actions prohibited by this Section 4.2.
Subsidiaries shall be required to provide access to or to
disclose information where such access or disclosure would
violate or prejudice the rights of its customers, jeopardize the
attorney-client privilege of the institution in possession or
control of such information or contravene any law, rule,
regulation, order, judgment, decree or binding agreement entered
into prior to the date of this Agreement. The parties will make
appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding
sentence apply.
(iv) XM and Sirius shall make any necessary filings with
respect to the Merger under the Securities Act and the Exchange
Act and the rules and regulations thereunder. Sirius shall use
its reasonable best efforts to take any action required to be
taken under any applicable state securities laws in connection
with the Merger and each party shall furnish all information
concerning it and the holders of its capital stock as may be
reasonably requested in connection with any such action.
(v) Each party will advise the other party, promptly after
it receives notice thereof, of the time when the
Form S-4
has become effective, the issuance of any stop order, the
suspension of the qualification of the Sirius Common Stock
issuable in connection with the Merger for offering or sale in
any jurisdiction, or any request by the SEC for amendment of the
Joint Proxy Statement/Prospectus or the
Form S-4.
If at any time prior to the Effective Time any information
relating to either of the parties, or their respective
affiliates, officers or directors, should be discovered by
either party which should be set forth in an amendment or
supplement to any of the
Form S-4
or the Joint Proxy Statement/Prospectus so that such documents
would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information
shall promptly notify the other party hereto and, to the extent
required by law, rules or regulations, an appropriate amendment
or supplement describing such information shall be promptly
filed with the SEC and disseminated to the stockholders of XM
and Sirius.
(vi) Except as otherwise set forth in this Agreement, no
amendment or supplement (including by incorporation by
reference) to the Joint Proxy Statement/Prospectus or the
Form S-4
shall be made without the approval of XM and Sirius, which
approval shall not be unreasonably withheld or delayed;
provided that XM, in connection with a Change in XM
Recommendation, and Sirius, in connection with a Change in
Sirius Recommendation, may amend or supplement the proxy
statement for XM, the proxy statement for Sirius or the
Form S-4
(including by incorporation by reference) pursuant to a
Qualifying Amendment to effect or reflect such change, and in
such event, the right of approval set forth in this
Section 5.1(a)(vi) shall not apply to such Qualifying
Amendment; provided that the right of approval shall
continue to apply with respect to such information relating to
the other party or its business, financial condition or results
of operations, subject to the right of each party to have its
Board of Directors’ deliberations and conclusions be
accurately described. A “Qualifying Amendment”
means an amendment or supplement to the proxy statement for XM,
the proxy statement for Sirius or the
Form S-4
(including by incorporation by reference) which effects or
reflects a Change in XM Recommendation or a Change in Sirius
Recommendation (as the case may be); provided that any such
amendment or supplement is limited to (A) a Change in XM
Recommendation or a Change in Sirius Recommendation (as the case
may be), (B) a discussion of the reasons of the Board of
Directors of XM or Sirius (as the case may be) for making such
Change in XM Recommendation or Change in Sirius Recommendation
(as the case may be) and (C) background information
regarding the XM Board of Directors’ or Sirius Board of
Directors’ (as the case may be) deliberations and
conclusions relating to the Change in XM Recommendation or
Change in Sirius Recommendation (as the case may be) or other
factual information reasonably related thereto.
(b) XM shall duly take all lawful action to call, give
notice of, convene and hold a meeting of its stockholders as
promptly as practicable, and in any event within 45 days,
following the date upon which the
Form S-4
becomes effective (the “XM Stockholders
Meeting”) for the purpose of obtaining the Required XM
Vote with respect to the transactions contemplated by this
Agreement and, unless it is permitted to make a Change in XM
Recommendation (as defined below) pursuant to
Section 5.4(b), shall use all reasonable best efforts to
solicit the adoption of this Agreement by its stockholders in
accordance with applicable legal requirements. The Board of
Directors of XM shall include the XM Recommendation in the Joint
Proxy Statement/Prospectus and shall not (x) withdraw or
modify in any manner adverse to Sirius, the XM Recommendation or
(y) publicly propose to, or publicly announce that the
Board of Directors of XM has resolved to, take any such action
(any of the foregoing, a “Change in XM
Recommendation”), except as and to the extent expressly
permitted by Section 5.4(b). Notwithstanding any Change in
XM Recommendation, unless earlier terminated in accordance with
Section 7.1, this Agreement shall be submitted to the
stockholders of XM at the XM Stockholders Meeting for the
purpose of adopting this Agreement and nothing contained herein
shall be deemed to relieve XM of such obligation.
(c) Sirius shall duly take all lawful action to call, give
notice of, convene and hold a meeting of its stockholders as
promptly as practicable, and in any event within 45 days,
following the date upon which the
Form S-4
becomes effective (the “Sirius Stockholders
Meeting” and, together with the XM Stockholders
Meeting, the “Required Stockholders Meetings”)
for the purpose of obtaining the Required Sirius Votes with
respect to the transactions contemplated by this Agreement and,
unless it is permitted to make a Change in Sirius Recommendation
(as defined below) pursuant to Section 5.4(b), shall use
all reasonable best efforts to solicit the approval of its
stockholders of the Sirius Share Issuance and the Sirius Charter
Amendment in accordance with applicable legal requirements. The
Board of Directors of Sirius shall include the Sirius
Recommendation in the Joint Proxy Statement/Prospectus and
shall not (x) withdraw or modify in any manner adverse to
XM, the Sirius Recommendation or (y) publicly propose to,
or publicly announce that the Board of Directors of Sirius has
resolved to, take any such action (a “Change in Sirius
Recommendation”), except as and to the extent expressly
permitted by Section 5.4(b). Notwithstanding any Change in
Sirius Recommendation, unless earlier terminated in accordance
with Section 7.1, this Agreement shall be submitted to the
stockholders of Sirius at the Sirius Stockholders Meeting for
the purpose of approving the matters comprising the Required
Sirius Votes and nothing contained herein shall be deemed to
relieve Sirius of such obligation.
(d) XM and Sirius shall each use its reasonable best
efforts to cause the XM Stockholders Meeting and the Sirius
Stockholders Meeting to be held on the same date.
5.2 Access to Information;
Confidentiality. (a) Upon reasonable
notice, XM and Sirius shall each (and shall cause each of their
respective Subsidiaries to) afford to the representatives of the
other, access, during normal business hours during the period
prior to the Effective Time, to all its properties, books,
contracts, records and officers and, during such period, each of
XM and Sirius shall (and shall cause each of their respective
Subsidiaries to) make available to the other such information
concerning its business, properties and personnel as such other
party may reasonably request. Neither party nor any of its
Subsidiaries shall be required to provide access to or to
disclose information where such access or disclosure would
violate or prejudice the rights of its customers, jeopardize the
attorney-client privilege of the institution in possession or
control of such information or contravene any law, rule,
regulation, order, judgment, decree or binding agreement entered
into prior to the date of this Agreement. The parties will make
appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding
sentence apply, including adopting additional specific
procedures to protect the confidentiality of certain sensitive
material and to ensure compliance with Applicable Antitrust
Laws, and, if necessary, restricting review of certain sensitive
material to the receiving party’s financial advisors or
outside legal counsel.
(b) The parties will hold any such information which is
nonpublic in confidence to the extent required by, and in
accordance with, the provisions of the letter agreement, dated
February 12, 2007, between Sirius and XM (the
“Confidentiality Agreement”), which
Confidentiality Agreement will remain in full force and effect.
(c) No such investigation by either Sirius or XM shall
affect the representations and warranties of the other.
any action, agree to take any action or consent to the taking of
any action (including with respect to selling, holding separate
or otherwise disposing of any business or assets or conducting
its (or its Subsidiaries’) business in any specified
manner) if doing so would, individually or in the aggregate,
reasonably be expected to result in a material adverse effect on
Sirius after the Effective Time, or (ii) Sirius or XM (or
any of their respective Subsidiaries) to take any such action
that is not conditioned on the consummation of the Merger.
Neither party shall take or agree to take any action identified
in clause (i) or (ii) of the preceding sentence
without the prior written consent of the other party.
(c) Each of Sirius and XM shall, in connection with the
efforts referenced in Section 5.3(a), use its reasonable
best efforts to (i) cooperate in all respects with each
other in connection with any filing or submission and in
connection with any investigation or other inquiry, including
any proceeding initiated by a private party, (ii) promptly
inform the other party of the status of any of the matters
contemplated hereby, including providing the other party with a
copy of any written communication (or summary of oral
communications) received by such party from, or given by such
party to, the Antitrust Division of the Department of Justice,
the Federal Trade Commission, FCC or any other Governmental
Entity and of any written communication (or summary of oral
communications) received or given in connection with any
proceeding by a private party, in each case regarding any of the
transactions contemplated hereby, and (iii) to the extent
practicable, consult with each other in advance of any meeting
or conference with any such Governmental Entity or, in
connection with any proceeding by a private party, with any such
other person, and to the extent permitted by any such
Governmental Entity or other person, give the other party the
opportunity to attend and participate in such meetings and
conferences.
(d) In furtherance and not in limitation of the covenants
of the parties contained in this Section 5.3, if
(i) any objections are asserted with respect to the
transactions contemplated hereby under any law, rule,
regulation, order or decree, (ii) any administrative or
judicial action or proceeding is instituted (or threatened to be
instituted) by any Governmental Entity or private party
challenging the Merger or the other transactions contemplated
hereby as violative of any law, rule, regulation, order or
decree or which would otherwise prevent, delay or impede the
consummation, or otherwise materially reduce the contemplated
benefits, of the Merger or the other transactions contemplated
hereby, or (iii) any law, rule, regulation, order or decree
is enacted, entered, promulgated or enforced by a Governmental
Entity which would make the Merger or the other transactions
contemplated hereby illegal or would otherwise prevent, delay or
impede the consummation, or otherwise materially reduce the
contemplated benefits, of the Merger or the other transactions
contemplated hereby, then each of XM and Sirius shall use its
reasonable best efforts to resolve any such objections, actions
or proceedings so as to permit the consummation of the
transactions contemplated by this Agreement, including, subject
to Section 5.3(b), selling, holding separate or otherwise
disposing of or conducting its or its Subsidiaries’
business or asset in a specified manner, or agreeing to sell,
hold separate or otherwise dispose of or conduct its or its
Subsidiaries’ business or assets in a specified manner,
which would resolve such objections, actions or proceedings.
(e) In furtherance and not in limitation of the covenants
of the parties contained in this Section 5.3, but subject
to first complying with the obligations of Section 5.3(d),
if any of the events specified in Section 5.3(d)(ii) or
(iii) occurs, then each of Sirius and XM shall cooperate in
all respects with each other and use its reasonable best
efforts, subject to Section 5.3(b), to contest and resist
any such administrative or judicial action or proceeding and to
have vacated, lifted, reversed or overturned any judgment,
injunction or other decree or order, whether temporary,
preliminary or permanent, that is in effect and that prevents,
materially delays or materially impedes the consummation, or
otherwise materially reduces the contemplated benefits, of the
Merger or the other transactions contemplated by this Agreement
and to have such law, rule, regulation, order or decree
repealed, rescinded or made inapplicable so as to permit
consummation of the transactions contemplated by this Agreement,
and each of Sirius and XM shall use its reasonable best efforts
to defend, at its own cost and expense, any such administrative
or judicial actions or proceedings.
(f) Notwithstanding the foregoing or any other provision of
this Agreement, nothing in this Section 5.3 shall limit a
party’s right to terminate this Agreement pursuant to
Section 7.1(b) or 7.1(c) so long as such party has
otherwise complied with its obligations under this
Section 5.3 prior to such termination.
(g) Sirius shall agree to execute and deliver, at or prior
to the Effective Time, supplemental indentures, loan amendments
and other instruments required for the due assumption, as
determined by the parties hereto, of XM’s
outstanding debt, guarantees and other securities to the extent
required by the terms of such debt, guarantees and securities
and the instruments and agreements relating thereto, and XM
shall assist Sirius in accomplishing the same.
(h) Each of XM and Sirius and their respective Boards of
Directors shall, if any “moratorium,”“control
share,”“fair price” or other anti-takeover law
or regulation becomes applicable to this Agreement, the Merger,
or any other transactions contemplated hereby, use its
reasonable best efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated
as promptly as practicable on the terms contemplated hereby and
otherwise to minimize the effect of such law or regulation on
this Agreement, the Merger and the other transactions
contemplated hereby.
5.4 Acquisition
Proposals. (a) Each of Sirius and XM
agrees that neither it nor any of its Subsidiaries nor any of
the officers and directors of it or its Subsidiaries shall, and
that it shall use its reasonable best efforts to cause its and
its Subsidiaries’ employees, agents and representatives
(including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or
indirectly, (i) initiate, solicit, encourage or knowingly
facilitate the making of any proposal or offer with respect to,
or a transaction to effect, a merger, reorganization, share
exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving it or
any of its Significant Subsidiaries (other than any such
transaction permitted by Section 4.1(e) or (f) in the
case of XM, and Section 4.2(e) or (f) in the case of
Sirius) or any purchase or sale of 15% or more of the
consolidated assets (including, without limitation, stock of its
Subsidiaries) of it and its Subsidiaries, taken as a whole, or
any purchase or sale of, or tender or exchange offer for, its
voting securities that, if consummated, would result in any
person (or the stockholders of such person) beneficially owning
securities representing 15% or more of its total voting power
(or of the surviving parent entity in such transaction) of any
of its Significant Subsidiaries (any such proposal, offer or
transaction (other than a proposal or offer made by the other
party to this Agreement) being hereinafter referred to as an
“Acquisition Proposal”), (ii) have any
discussions with or provide any confidential information or data
to any person relating to an Acquisition Proposal, or engage in
any negotiations concerning an Acquisition Proposal, or
knowingly facilitate any effort or attempt to make or implement
an Acquisition Proposal, or (iii) approve or recommend, or
propose to approve or recommend, or execute or enter into, any
letter of intent, agreement in principle, merger agreement,
asset purchase or share exchange agreement, option agreement or
other similar agreement related to any Acquisition Proposal or
propose or agree to do any of the foregoing.
(b) Notwithstanding anything in this Agreement to the
contrary, either party to this Agreement or its respective Board
of Directors shall be permitted to (A) to the extent
applicable and being otherwise in compliance with this
Section 5.4(b), comply with
Rule 14d-9
and
Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition
Proposal, or make any disclosure that the Board of Directors may
determine (after consultation with its outside legal counsel) is
required to be made under applicable law, (B) effect a
Change in XM Recommendation or a Change in Sirius Recommendation
(as applicable, a “Change in Recommendation”),
and (C) engage in any discussions or negotiations with, or
provide any confidential information or data to, any person in
response to an unsolicited bona fide written Acquisition
Proposal by any such person first made after the date of this
Agreement, if and only to the extent that,
(i) in any such case referred to in clause (B) or
(C) above, (I) such party’s Required Stockholders
Meeting shall not have occurred, (II) such party has
complied in all material respects with this Section 5.4,
and (III) its Board of Directors, after consultation with
its outside legal counsel, determines in good faith that failure
to take such action would be inconsistent with its fiduciary
duties under applicable law,
(ii) in the case of clause (B) above,
(I) there has been a development, event or occurrence after
the date of this Agreement (an “Occurrence”) as
a result of which the Board of Directors, after consultation
with its outside legal counsel and financial advisors,
determines in good faith that failure to effect a Change in
Recommendation would be inconsistent with its fiduciary duties
under applicable law, (II) it has notified the other party
to this Agreement, at least seven business days in advance of a
date (in the case of a notification by XM, the “Sirius
Election Date”, and in the case of a notification by
Sirius, the “XM Election Date”) of its
intention to effect a Change in Recommendation (a
“Notice of Recommendation Change”), and
furnished to the other party to this Agreement any material
information possessed by it with respect to such Occurrence
(including, if the Occurrence is the receipt of an Acquisition
Proposal from a third party, the material terms and conditions
of such Acquisition Proposal, the identity of the party making
such Acquisition Proposal and a copy of any relevant proposed
transaction agreements with the party making such Acquisition
Proposal and any other material documents received by it or its
representatives in connection therewith), and (III) prior
to effecting such a Change in Recommendation, it has (together
with its financial and legal advisors) engaged in reasonable,
good faith negotiations with the other party to this Agreement,
and has considered in good faith, after consulting with its
financial and legal advisors, any modifications to the terms and
conditions of this Agreement proposed by the other party hereto
to determine whether such modifications cause the Board of
Directors to conclude that such Occurrence no longer requires a
Change in Recommendation;
(iii) in the case of clause (C) above, its Board
of Directors, after consultation with outside legal counsel and
financial advisors, concludes in good faith that there is a
reasonable likelihood that such Acquisition Proposal constitutes
or is reasonably likely to result in a Superior Proposal, and
prior to providing any information or data to any person in
connection with an Acquisition Proposal by any such person, its
Board of Directors receives from such person an executed
confidentiality agreement having provisions that are no less
favorable to the party providing such information than those
contained in the Confidentiality Agreement; provided that
the provisions in such confidentiality agreement with respect to
treatment of certain sensitive confidential information to
ensure compliance with Applicable Antitrust Laws may differ due
to the nature of the person or entity making such Acquisition
Proposal.
(c) Each of Sirius and XM shall notify the other party to
this Agreement of any Acquisition Proposal received by, any
information related to an Acquisition Proposal requested from,
or any discussions with or negotiations by, it or any of its
representatives, indicating, in connection with such notice, the
identity of such person and the material terms and conditions of
any such Acquisition Proposal or request for information
(including a copy thereof if in writing and any related
available documentation or correspondence), and in any event
each of Sirius and XM shall provide written notice to the other
party of any Acquisition Proposal, request for information or
initiation of such discussions or negotiations within
48 hours of such event. Each of Sirius and XM agrees that
it will promptly keep the other party informed of the status and
terms of any such Acquisition Proposal (including whether
withdrawn or rejected), the status and nature of all information
requested and delivered, and the status and terms of any such
discussions or negotiations, and in any event each of Sirius and
XM shall provide the other party with written notice of any
material development thereto within 48 hours thereof. Each
of Sirius and XM also agrees to provide the other party hereto
with copies of any written information that it provides to the
third party making the request therefor within 24 hours of
the time it provides such information to such third party,
unless the other party hereto (i) has already been provided
with such information or (ii) is restricted from receiving
such information to ensure compliance with Applicable Antitrust
Laws; provided that in such case, such party shall inform
the other party of the type of information to be provided to the
third party making the request.
(d) Each of Sirius and XM agrees that (i) it will and
will cause its Subsidiaries, and its and their officers,
directors, agents, representatives and advisors to, cease
immediately and terminate any and all existing activities,
discussions or negotiations with any third parties conducted
heretofore with respect to any Acquisition Proposal, and
(ii) it will not release any third party from, or waive any
provisions of, any confidentiality or standstill agreement to
which it or any of its Subsidiaries is a party with respect to
any Acquisition Proposal. Each of Sirius and XM agrees that it
will use reasonable best efforts to promptly inform its and its
Subsidiaries’ respective directors, executive officers and
financial and legal advisors of the obligations undertaken in
this Section 5.4. Each party shall, if it has not already
done so, promptly request, to the extent it has a contractual
right to do so, that each person, if any, that has heretofore
executed a confidentiality agreement within the six months prior
to the date of this Agreement in connection with its
consideration of any Acquisition Proposal to return or destroy
all confidential information or data heretofore furnished to any
person by or on behalf of it or any of its Subsidiaries.
(e) Nothing in this Section 5.4 shall (x) permit
either party to terminate this Agreement or (y) affect any
other obligation of the parties under this Agreement. Neither
party shall submit to the vote of its stockholders any
Acquisition Proposal other than the Merger prior to the
termination of this Agreement. XM shall not amend, modify or
waive any provision of the Rights Agreement, and shall not take
any action to redeem the Rights or render the Rights
inapplicable to any transaction, other than the Merger, prior to
any termination of this Agreement.
(f) For purposes of this Agreement, “Superior
Proposal” means a bona fide written Acquisition
Proposal which the Board of Directors of Sirius or XM, as the
case may be, concludes in good faith, after consultation with
its financial advisors and legal advisors, taking into account
the legal, financial, regulatory, timing and other aspects of
the proposal and the person making the proposal (including any
break-up
fees, expense reimbursement provisions and conditions to
consummation): (i) is more favorable to the stockholders of
Sirius or XM, as the case may be, from a financial point of
view, than the transactions contemplated by this Agreement
(after giving effect to any adjustments to the terms and
provisions of this Agreement committed to in writing by Sirius
or XM, as the case may be, in response to such Acquisition
Proposal) and (ii) is fully financed or reasonably capable
of being fully financed, reasonably likely to receive all
required governmental approvals on a timely basis and otherwise
reasonably capable of being completed on the terms proposed;
provided that, for purposes of this definition of
“Superior Proposal,” the term Acquisition Proposal
shall have the meaning assigned to such term in
Section 5.4(a), except that the reference to “15% or
more” in the definition of “Acquisition Proposal”
shall be deemed to be a reference to “a majority” and
“Acquisition Proposal” shall only be deemed to refer
to a transaction involving Sirius or XM, as the case may be.
(a) On or prior to the Effective Time, Sirius’s Board
of Directors shall take such actions as are necessary to amend
its By-Laws to cause the number of directors that will comprise
the Board of Directors of Sirius at the Effective Time to be 12
persons. Immediately following the Effective Time, the Board of
Directors of Sirius shall consist of: (i) four members
selected by Sirius, each of whom shall qualify as an independent
director pursuant to the NASDAQ Marketplace Rules in effect from
time to time (an “Independent Director”) at all
times that Sirius Common Stock is listed on NASDAQ;
(ii) four members selected by XM, each of whom shall
qualify as an Independent Director at all times that Sirius
Common Stock is listed on NASDAQ; (iii) two members
selected by XM, one of whom shall be a designee of General
Motors and the other of whom shall be a designee of American
Honda (the “Designated Directors”);
(iv) the Chief Executive Officer of Sirius and (v) the
Chairman of the Board of Directors. For all purposes hereunder,
the Designated Directors shall not be deemed to qualify as
Independent Directors. Prior to the Effective Time,
Sirius’s Board of Directors shall approve by a vote of at
least two-thirds of the directors in office at such time the
composition of Sirius’s Board of Directors as set forth in
this Section 5.10(a), effective immediately following the
Effective Time.
(b) On or prior to the Effective Time, the Sirius Board of
Directors shall take such actions as are necessary to appoint
Mel Karmazin as Chief Executive Officer of Sirius, effective as
of the Effective Time. On or prior to the Effective Time, the
Sirius Board of Directors shall take such actions as are
necessary to appoint Gary M. Parsons as Chairman of the Board of
Directors of Sirius, effective as of the Effective Time. In the
event that either Mr. Karmazin or Mr. Parsons is or
will be unable to serve in his designated position beginning as
of the Effective Time, either as notified in writing to the
parties by such individual prior to the Effective Time or as a
result of such individual’s death or disability, then the
individual to replace Mr. Karmazin or Mr. Parsons, as
the case may be (in either case, the
“Successor”), shall be determined by joint
agreement of the parties, each of whom shall cooperate in good
faith with the other party and use its reasonable best efforts
to identify, as promptly as practicable and in any event prior
to the Effective Time, the appropriate Successor. In the event
that the parties have been unable to identify and reach
agreement with each other regarding a Successor within
30 days after the occurrence of the event giving rise to
the need to select such Successor (“Deadlock”),
the parties shall follow the procedures set forth on
Section 5.10(b) of each of the XM Disclosure Schedule and
the Sirius Disclosure Schedule.
(c) On or prior to the Effective Time, the Sirius Board of
Directors shall take such actions as are necessary to establish
three standing committees: a Nominating and Corporate Governance
Committee, an Audit Committee and a Compensation Committee.
Members of the Nominating and Corporate Governance Committee,
Audit Committee and Compensation Committee shall qualify as
Independent Directors. The Chairman of the Nominating and
Corporate Governance Committee shall be selected by directors
designated by Sirius. The Chairman of the Audit Committee and
the Chairman of the Compensation Committee shall be selected by
directors designated by Sirius and XM, with each designating one
such chairman. The composition of the members of the Nominating
and Corporate Governance Committee, Audit Committee and
Compensation Committee, including the respective chairman of
each such committee, shall be designated in equal shares by
directors designated by Sirius and directors designated by XM.
(d) On or prior to the Effective Time, the Sirius Board of
Directors shall take such actions as are necessary to amend its
By-Laws to provide that, for a period of two years following the
Effective Time, (i) any termination or replacement of
either the Chief Executive Officer or Chairman of the Board of
Directors as of the Effective Time (or such individual’s
successor) and (ii) any sale, transfer or other disposition
of assets, rights or properties which are material, individually
or in the aggregate, to Sirius (or the execution of any
agreement to take any such action), shall require the prior
approval of a majority of the Independent Directors.
or any Subsidiary of XM, and pertaining to any matter existing
or occurring, or any acts or omissions occurring, at or prior to
the Effective Time, whether asserted or claimed prior to, or at
or after, the Effective Time (including matters, acts or
omissions occurring in connection with the approval of this
Agreement and the consummation of the transactions contemplated
hereby) to the same extent such persons are indemnified or have
the right to advancement of expenses as of the date of this
Agreement by XM pursuant to XM’s Certificate of
Incorporation, By-laws and indemnification agreements, if any,
in existence on the date hereof with any directors, officers and
employees of XM and its Subsidiaries.
(b) For a period of six years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect the
current policies of directors’ and officers’ liability
insurance maintained by XM (provided that the Surviving
Corporation may substitute therefor policies with a
substantially comparable insurer of at least the same coverage
and amounts containing terms and conditions which are no less
advantageous to the insured) with respect to claims arising from
facts or events which occurred at or before the Effective Time;
provided, however, that the Surviving Corporation
shall not be obligated to make annual premium payments for such
insurance to the extent such premiums exceed 300% of the
premiums paid as of the date hereof by XM for such insurance
(“XM’s Current Premium”), and if such
premiums for such insurance would at any time exceed 300% of
XM’s Current Premium, then the Surviving Corporation shall
cause to be maintained policies of insurance which, in the
Surviving Corporation’s good faith determination, provide
the maximum coverage available at an annual premium equal to
300% of XM’s Current Premium.
(c) The Surviving Corporation shall pay (as incurred) all
expenses, including reasonable fees and expenses of counsel,
which an indemnified person may incur in enforcing the indemnity
and other obligations provided for in this Section 5.11.
(d) If the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger, or
(ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such
case, to the extent necessary, proper provision shall be made so
that the successors and assigns of the Surviving Corporation, as
the case may be, shall assume the obligations set forth in this
Section 5.11.
(e) The provisions of this Section 5.11 are intended
to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his or her heirs and representatives and are
in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by
contract or otherwise.
5.12 Public
Announcements. Sirius, Merger Co. and XM
shall use reasonable best efforts (i) to develop a joint
communications plan, (ii) to ensure that all press releases
and other public statements with respect to the transactions
contemplated hereby shall be consistent with such joint
communications plan, and (iii) except in respect of any
announcement required by applicable law or by obligations
pursuant to any listing agreement with or rules of NASDAQ in
which it is impracticable to consult with each other as
contemplated by this clause (iii), to consult with each
other before issuing any press release or, to the extent
practical, otherwise making any public statement with respect to
this Agreement or the transactions contemplated hereby. In
addition to the foregoing, except to the extent disclosed in or
consistent with the Joint Proxy Statement/Prospectus in
accordance with the provisions of Section 5.1 or as
otherwise permitted under Section 4.3, no party shall issue
any press release or otherwise make any public statement or
disclosure concerning the other party or the other party’s
business, financial condition or results of operations without
the consent of such other party, which consent shall not be
unreasonably withheld or delayed.
(b) Performance of Obligations of
XM. XM shall have performed in all material
respects all obligations, and complied in all material respects
with the agreements and covenants, required to be performed by
or complied with by it under this Agreement at or prior to the
Closing Date, and Sirius shall have received a certificate
signed on behalf of XM by an authorized executive officer of XM
to such effect.
(c) Tax Opinion. Sirius shall have
received the opinion of Simpson Thacher & Bartlett
LLP, counsel to Sirius, dated the Closing Date, to the effect
that the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of
the Code. In rendering such opinion, counsel to Sirius shall be
entitled to rely upon customary representations and assumptions
provided by Sirius, Merger Co. and XM that counsel to Sirius
reasonably deems relevant.
any party whose failure to comply with Section 5.3 or any
other provision of this Agreement has been the cause of, or
resulted in, such action;
(c) by either Sirius or XM, upon written notice to the
other party, if the Merger shall not have been consummated on or
before March 1, 2008; provided, however, that
the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any party whose
failure to comply with any provision of this Agreement has been
the cause of, or resulted in, the failure of the Effective Time
to occur on or before such date;
(d) by Sirius, upon written notice to XM, if:
(i)(A) an Occurrence with respect to XM has occurred,
(B) XM has delivered a Notice of Recommendation Change to
Sirius pursuant to Section 5.4(b)(ii)(II), (C) XM
shall have not withdrawn such Notice of Recommendation Change,
and (D) Sirius has elected (by written notice to XM made by
the close of business on the Sirius Election Date) to terminate
this Agreement pursuant to this Section 7.1(d);
(ii) Sirius is entitled but fails to terminate this
Agreement pursuant to Section 7.1(d)(i) by the close of
business on the Sirius Election Date and thereafter (A) XM
shall have materially breached its obligations under this
Agreement by reason of a failure to call the XM Stockholders
Meeting in accordance with Section 5.1(b) or (B) XM
shall have failed to prepare and mail to its stockholders the
Joint Proxy Statement/Prospectus in accordance with
Section 5.1(a); or
(iii)(A) XM shall have effected a Change in XM
Recommendation other than in accordance with the terms of this
Agreement or (B) XM shall have materially breached its
obligations under Section 5.4(a)(iii);
(e) by XM, upon written notice to Sirius, if:
(i) (A) an Occurrence with respect to Sirius has
occurred, (B) Sirius has delivered a Notice of
Recommendation Change to XM pursuant to
Section 5.4(b)(ii)(II), (C) Sirius shall have not
withdrawn such Notice of Recommendation Change, and (D) XM
has elected (by written notice to Sirius made by the close of
business on the XM Election Date) to terminate this Agreement
pursuant to this Section 7.1(e);
(ii) XM is entitled but fails to terminate this Agreement
pursuant to Section 7.1(e)(i) by the close of business on
the Sirius Election Date and thereafter (A) Sirius shall
have materially breached its obligations under this Agreement by
reason of a failure to call the Sirius Stockholders Meeting in
accordance with Section 5.1(c) or (B) Sirius shall
have failed to prepare and mail to its stockholders the Joint
Proxy Statement/Prospectus in accordance with
Section 5.1(a); or
(iii) (A) Sirius shall have effected a Change in
Sirius Recommendation other than in accordance with the terms of
this Agreement or (B) Sirius shall have materially breached
its obligations under Section 5.4(a)(iii);
(f) by either Sirius or XM, upon written notice to the
other party, if there shall have been a breach by the other
party of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the
part of such other party, which breach, either individually or
in the aggregate, would result in, if occurring or continuing on
the Closing Date, the failure of the condition set forth in
Section 6.2(a) or (b) or Section 6.3(a) or (b),
as the case may be, and which breach has not been cured within
45 days following written notice thereof to the breaching
party or, by its nature, cannot be cured within such time
period; or
(g) by either Sirius or XM, if the Required Sirius Votes or
Required XM Vote shall not have been obtained upon a vote taken
thereon at the duly convened Sirius Stockholders Meeting or XM
Stockholders Meeting, as the case may be, or any adjournment or
postponement thereof at which the applicable vote was taken.
Article VIII (General Provisions), which shall survive such
termination and except that no party shall be relieved or
released from any liabilities or damages arising out of its
willful and material breach of this Agreement.
(b) Sirius shall pay XM, by wire transfer of immediately
available funds to such accounts as XM may designate, the sum of
$175 million (the “Sirius Termination
Fee”) if this Agreement is terminated as follows:
(i) if XM shall terminate this Agreement pursuant to
Section 7.1(e), then Sirius shall pay the Sirius
Termination Fee within three business days following such
termination;
(ii) if (A) either party shall terminate this
Agreement pursuant to Section 7.1(g) because the Required
Sirius Votes shall not have been received and (B) at any
time after the date of this Agreement and at or before the date
of the Sirius Stockholders Meeting an Acquisition Proposal shall
have been publicly announced or otherwise communicated to the
senior management or Board of Directors of Sirius (a
“Public Proposal”) with respect to Sirius, then
Sirius shall pay one-third of the Sirius Termination Fee within
three business days following such termination; and if
(C) within 12 months of the date of such termination
of this Agreement, Sirius or any of its Subsidiaries executes
any definitive agreement with respect to, or consummates, any
Acquisition Proposal, then Sirius shall pay the remaining
two-thirds of the Sirius Termination Fee upon the date of such
execution or consummation; or
(iii) if (A) either party shall terminate this
Agreement pursuant to Section 7.1(c) or XM shall terminate
this Agreement pursuant to Section 7.1(f), (B) at any
time after the date of this Agreement and before such
termination there shall have been a Public Proposal with respect
to Sirius, and (C) following the occurrence of such Public
Proposal, Sirius shall have breached intentionally or recklessly
(and not cured after notice thereof) any of its representations,
warranties, covenants or agreements set forth in this Agreement,
which breach shall have materially contributed to the failure of
the Effective Time to occur prior to the termination of this
Agreement, then Sirius shall pay one-third of the Sirius
Termination Fee within three business days following such
termination; and if (D) within 12 months of the date
of such termination of this Agreement, Sirius or any of its
Subsidiaries executes any definitive agreement with respect to,
or consummates, any Acquisition Proposal, then Sirius shall pay
the remaining two-thirds of the Sirius Termination Fee upon the
date of such execution or consummation.
For purposes of clauses (ii) and (iii) of this
Section 7.2(b), the term “Acquisition Proposal”
shall have the meaning assigned to such term in
Section 5.4(a) except that the reference to “15% or
more” in the definition of “Acquisition Proposal”
shall be deemed to be a reference to “a majority”. If
Sirius fails to pay all amounts due to XM on the dates
specified, then Sirius shall pay all costs and expenses
(including legal fees and expenses) incurred by XM in connection
with any action or proceeding (including the filing of any
lawsuit) taken by it to collect such unpaid amounts, together
with interest on such unpaid amounts at the prime lending rate
prevailing at such time, as published in the Wall Street
Journal, from the date such amounts were required to be paid
until the date actually received by XM.
(c) XM shall pay Sirius, by wire transfer of immediately
available funds, the sum of $175 million (the “XM
Termination Fee”) if this Agreement is terminated as
follows:
(i) if Sirius shall terminate this Agreement pursuant to
Section 7.1(d), then XM shall pay the XM Termination Fee
within three business days following such termination;
(ii) if (A) either party shall terminate this
Agreement pursuant to Section 7.1(g) because the Required
XM Vote shall not have been received and (B) at any time
after the date of this Agreement and at or before the date of
the XM Stockholders Meeting there shall have been a Public
Proposal with respect to XM, then XM shall pay one-third of the
XM Termination Fee within three business days following such
termination; and if (C) within 12 months of the date
of such termination of this Agreement, XM or any of its
Subsidiaries enters into any definitive agreement with respect
to, or consummates, any Acquisition Proposal, then XM shall pay
the remaining two-thirds of the XM Termination Fee on the date
of such execution or consummation; or
(iii) if (A) either party shall terminate this
Agreement pursuant to Section 7.1(c) or Sirius shall
terminate this Agreement pursuant to Section 7.1(f),
(B) at any time after the date of this Agreement and before
such termination there shall have been a Public Proposal with
respect to XM, and (C) following the occurrence of
such Public Proposal, XM shall have breached intentionally or
recklessly (and not cured after notice thereof) any of its
representations, warranties, covenants or agreements set forth
in this Agreement, which breach shall have materially
contributed to the failure of the Effective Time to occur prior
to the termination of this Agreement, then XM shall pay
one-third of the XM Termination Fee within three business days
following such termination; and, if (D) within
12 months of the date of such termination of this
Agreement, XM or any of its Subsidiaries executes any definitive
agreement with respect to, or consummates, any Acquisition
Proposal, then XM shall pay the remaining two-thirds of the XM
Termination Fee upon the date of such execution or consummation.
For purposes of clauses (ii) and (iii) of this
Section 7.2(c), the term “Acquisition Proposal”
shall have the meaning assigned to such term in
Section 5.4(a) except that the reference to “15% or
more” in the definition of “Acquisition Proposal”
shall be deemed to be a reference to “a majority”. If
XM fails to pay all amounts due to Sirius on the dates
specified, then XM shall pay all costs and expenses (including
legal fees and expenses) incurred by Sirius in connection with
any action or proceeding (including the filing of any lawsuit)
taken by it to collect such unpaid amounts, together with
interest on such unpaid amounts at the prime lending rate
prevailing at such time, as published in the Wall Street
Journal, from the date such amounts were required to be paid
until the date actually received by Sirius.
postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
IN WITNESS WHEREOF, Sirius Satellite Radio Inc., Vernon Merger
Corporation and XM Satellite Radio Holdings Inc. have caused
this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first set forth
above.
We understand that XM Satellite Radio Holdings, Inc.
(“XM”), Sirius Satellite Radio, Inc.
(“Sirius”) and Vernon Merger Corporation, a wholly
owned subsidiary of Sirius (“Merger Co.”), proposed to
enter into an Agreement and Plan of Merger, substantially in the
form of the draft dated February 18, 2007 (the
“Agreement”), which provides, among other things, for
the merger (the “Merger”) of Merger Co. with and into
XM. Pursuant to the Merger, XM will become a wholly owned
subsidiary of Sirius, and each outstanding share of Class A
common stock of XM, par value $0.01 per share (the “XM
Common Stock”), other than shares held in treasury or held
by Sirius or any direct or indirect wholly owned subsidiary of
Sirius or XM, will be converted into the right to receive
4.60 shares (the “Exchange Ratio”) of common
stock, par value $0.001 per share, of Sirius (the “Sirius
Common Stock”). The terms and conditions of the Merger are
more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio
pursuant to the Merger Agreement is fair from a financial point
of view to Sirius.
For purposes of the opinion set forth herein, we have:
(a) reviewed certain publicly available financial
statements and other business and financial information of XM
and Sirius, respectively;
(b) reviewed certain internal financial statements and
other financial and operating data concerning XM and Sirius,
respectively;
(c) reviewed certain financial projections prepared by the
managements of XM and Sirius, respectively;
(d) reviewed information relating to certain strategic,
financial and operational benefits anticipated from the Merger,
prepared by the managements of XM and Sirius, respectively;
(e) discussed the past and current operations and financial
condition and the prospects of XM, including information
relating to certain strategic, financial and operational
benefits anticipated from the Merger, with senior executives of
XM;
(f) discussed the past and current operations and financial
condition and the prospects of Sirius, including information
relating to certain strategic, financial and operational
benefits anticipated from the Merger, with senior executives of
Sirius;
(g) reviewed the pro forma impact of the Merger on Sirius;
(h) reviewed the reported prices and trading activity for
the XM Common Stock and the Sirius Common Stock;
(i) reviewed the financial terms, to the extent publicly
available, of certain comparable merger of equals transactions;
(j) participated in discussions and negotiations among
representatives of XM and Sirius and their financial and legal
advisors;
(k) reviewed the Merger Agreement and certain related
documents; and
(l) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon, without independent
verification, the accuracy and completeness of the information
supplied or otherwise made available to us by XM and Sirius for
the purposes of this opinion. With
respect to the financial projections, including information
relating to certain strategic, financial and operational
benefits anticipated from the Merger, we have assumed that they
have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future
financial performance of XM and Sirius. In addition, we have
assumed, in all respects material to our analysis, that the
Merger will be consummated in accordance with the terms set
forth in the Merger Agreement without any waiver, amendment or
delay of any terms or conditions, including, among other things,
that the Merger will be treated as a tax-free reorganization
pursuant to the Internal Revenue Code of 1986, as amended.
Morgan Stanley has assumed that in connection with the receipt
of all the necessary governmental, regulatory or other approvals
and consents required for the proposed Merger, no delays,
limitations, conditions or restrictions will be imposed that
would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed Merger. We have
relied upon, without independent verification, the assessment by
the managements of XM and Sirius of: (i) the strategic,
financial and other benefits expected to result from the Merger;
(ii) the timing and risks associated with the integration
of XM and Sirius; (iii) their ability to retain key
employees of XM and Sirius, respectively and (iv) the
validity of, and risks associated with, XM and Sirius’s
existing and future technologies, intellectual property,
products, services and business models. We are not legal, tax or
regulatory advisors and have relied upon, without independent
verification, the assessment of Sirius and XM and their legal,
tax and regulatory advisors with respect to such matters. We
have not made any independent valuation or appraisal of the
assets or liabilities of XM, nor have we been furnished with any
such appraisals. Our opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof. Events
occurring after the date hereof may affect this opinion and the
assumptions used in preparing it, and we do not assume any
obligation to update, revise or reaffirm this opinion.
We have acted as financial advisor to the Board of Directors of
Sirius in connection with this transaction and will receive a
fee for our services which is contingent upon the closing of the
Merger. In the past, we have provided financial advisory and
financing services for Sirius and XM and have received fees in
connection with such services. Morgan Stanley may also seek to
provide such services to Sirius and XM in the future and will
receive fees for the rendering of these services. In the
ordinary course of our trading, brokerage, investment management
and financing activities, Morgan Stanley or its affiliates may
at any time hold long or short positions, and may trade or
otherwise effect transactions, for our own account or the
accounts of customers, in debt or equity securities or senior
loans of Sirius, XM or any other company or any currency or
commodity that may be involved in this transaction.
It is understood that this letter is for the information of the
Board of Directors of Sirius and may not be used for any other
purpose without our prior written consent, except that a copy of
this opinion may be included in its entirety in any filing
Sirius is required to make with the Securities and Exchange
Commission in connection with this transaction if such inclusion
is required by applicable law. In addition, this opinion does
not in any manner address the prices at which Sirius’s
Common Stock will trade following consummation of the Merger and
Morgan Stanley expresses no opinion or recommendation as to how
the shareholders of Sirius and XM should vote at the
shareholders’ meetings to be held in connection with the
Merger.
Based on and subject to the foregoing, we are of the opinion on
the date hereof that the Exchange Ratio pursuant to the Merger
Agreement is fair from a financial point of view to Sirius.
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of Class A common
stock, par value $0.01 per share (the “Company Common
Stock”), of XM Satellite Radio Holdings Inc. (the
“Company”) of the Exchange Ratio (as defined below) in
the proposed merger (the “Merger”) of the Company with
a wholly-owned subsidiary (the “Merger Subsidiary”) of
Sirius Satellite Radio Inc. (the “Merger Partner”).
Pursuant to the draft Agreement and Plan of Merger, dated as of
February 18, 2007 (the “Agreement”), among the
Company, the Merger Partner and the Merger Subsidiary, the
Company will become a wholly-owned subsidiary of the Merger
Partner, and each outstanding share of Company Common Stock,
other than shares of Company Common Stock held in treasury or
owned by wholly owned subsidiaries of the Company or the Merger
Partner or its wholly owned subsidiaries, will be converted into
the right to receive 4.60 shares (the “Exchange
Ratio”) of the Merger Partner’s common stock, par
value $0.001 per share (the “Merger Partner Common
Stock”).
In arriving at our opinion, we have (i) reviewed a draft
dated February 18, 2007 of the Agreement;
(ii) reviewed certain publicly available business and
financial information concerning the Company and the Merger
Partner and the industries in which they operate;
(iii) reviewed the current and historical market prices of
the Company Common Stock and the Merger Partner Common Stock;
(iv) reviewed certain internal financial analyses and
forecasts prepared by the managements of the Company and the
Merger Partner relating to their respective businesses,
financial forecasts prepared by the management of the Company
relating to the Merger Partner’s business, as well as the
estimated amount and timing of the cost savings and related
expenses and other synergies expected to result from the Merger
(the “Synergies”) and information provided by the
managements of each of the Company and the Merger Partner
relating to certain of their respective tax attributes; and
(v) performed such other financial studies and analyses and
considered such other information as we deemed appropriate for
the purposes of this opinion.
In addition, we have held discussions with certain members of
the management of the Company and the Merger Partner with
respect to certain aspects of the Merger, and the past and
current business operations of the Company and the Merger
Partner, the financial condition and future prospects and
operations of the Company and the Merger Partner, the effects of
the Merger on the financial condition and future prospects of
the Company and the Merger Partner, and certain other matters we
believed necessary or appropriate to our inquiry.
In giving our opinion, we have relied upon and assumed, without
assuming responsibility or liability for independent
verification, the accuracy and completeness of all information
that was publicly available or was furnished to or discussed
with us by the Company and the Merger Partner or otherwise
reviewed by or for us. We have not conducted or been provided
with any valuation or appraisal of any assets or liabilities,
nor have we evaluated the solvency of the Company or the Merger
Partner under any state or federal laws relating to bankruptcy,
insolvency or similar matters. In relying on financial analyses
and forecasts provided to us by the managements of the Company
and the Merger Partner, including the Synergies, we have assumed
that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments
by managements of the Company and the Merger Partner as to the
expected future results of operations and financial condition of
the Company and the Merger Partner to which such analyses or
forecasts relate. We express no view as to such analyses or
forecasts (including the Synergies) or the assumptions on which
they were based. We have also assumed that the Merger will
qualify as a tax-free reorganization for United States federal
income tax purposes, have the tax consequences described in
discussions with, and materials furnished to us by,
representatives of the Company, that the other transactions
contemplated by the Agreement will be consummated as described
in the Agreement, and that
the definitive Agreement will not differ in any material
respects from the draft thereof furnished to us. We have also
assumed that the representations and warranties made by the
Company and the Merger Partner in the Agreement and the related
agreements are and will be true and correct in all ways material
to our analysis. We are not legal, regulatory or tax experts and
have relied on the assessments made by advisors to the Company
with respect to such issues. We have further assumed that all
material governmental, regulatory or other consents and
approvals necessary for the consummation of the Merger will be
obtained without any adverse effect on the Company or the Merger
Partner or on the contemplated benefits of the Merger in any
ways material to our analysis.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof. It should be understood that
subsequent developments may affect this opinion and that we do
not have any obligation to update, revise, or reaffirm this
opinion. Our opinion is limited to the fairness, from a
financial point of view, to the holders of the Company Common
Stock of the Exchange Ratio in the proposed Merger and we
express no opinion as to the fairness of the Merger to, or any
consideration to be received by, the holders of any other class
of securities, creditors or other constituencies of the Company
or as to the underlying decision by the Company to engage in the
Merger. We are expressing no opinion herein as to the price at
which the Company Common Stock or the Merger Partner Common
Stock will trade at any future time.
We note that we were not authorized to and did not solicit any
expressions of interest from any other parties with respect to
the sale of all or any part of the Company or any other
alternative transaction.
We have acted as financial advisor to the Company with respect
to the proposed Merger and will receive a fee from the Company
for our services, a substantial portion of which will become
payable only if the proposed Merger is consummated. In addition,
the Company has agreed to indemnify us for certain liabilities
arising out of our engagement. We and our affiliates have
performed in the past, and may continue to perform, certain
services for the Company, the Merger Partner and their
respective affiliates, all for customary compensation, including
(i) acting as joint bookrunner in connection with the
Company’s private offering of $600 million of
unsecured 9.75% senior notes due 2014 and $200 million
of unsecured senior floating rate notes due 2013 in May 2006,
(ii) acting as lead bookrunner in connection with the
Company’s $250 million senior secured credit facility
in April 2006, (iii) providing treasury and security
services to the Company on an ongoing basis, (iv) acting as
lead bookrunner in connection with the Merger Partner’s
prospective offering of $250 million of senior notes in
March 2005, which was not priced due to market conditions, and
(v) acting as underwriter of a block trade for Apollo
Investment Fund IV, L.P. and Apollo Overseas Partners IV,
L.P., each an affiliate of the Merger Partner, in September
2005. Our commercial bank affiliate is agent bank and lender to
the Company under its $250 million senior secured revolving
credit facility. In the ordinary course of our businesses, we
and our affiliates may actively trade the debt and equity
securities of the Company or the Merger Partner for our own
account or for the accounts of customers and, accordingly, we
may at any time hold long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion
as of the date hereof that the Exchange Ratio in the proposed
Merger is fair, from a financial point of view, to the holders
of the Company Common Stock.
This letter is provided to the Board of Directors of the Company
in connection with and for the purposes of its evaluation of the
Merger. This opinion does not constitute a recommendation to any
shareholder of the Company as to how such shareholder should
vote with respect to the Merger or any other matter. This
opinion may not be disclosed, referred to, or communicated (in
whole or in part) to any third party for any purpose whatsoever
except with our prior written approval. This opinion may be
reproduced in full in any proxy or information statement mailed
to shareholders of the Company but may not otherwise be
disclosed publicly in any manner without our prior written
approval.
The undersigned officer of Sirius Satellite Radio Inc., a
corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the
“Corporation”), DOES HEREBY CERTIFY as follows:
FIRST: The name of the Corporation is Sirius Satellite Radio Inc.
SECOND: The Amended and Restated Certificate of Incorporation of
the Corporation is hereby amended by changing Section (1)
of the Article numbered “Fourth” so that, as amended,
said Section of said Article shall be and read as follows:
“Fourth: (1) The total number of shares of all classes
of stock which the Corporation shall have authority to issue
is shares,
consisting of (1) 50,000,000 shares of preferred
stock, par value $0.001 per share (“Preferred Stock”),
and
(2) shares
of common stock, par value $0.001 per share (“Common
Stock”).”
THIRD: The foregoing amendment was duly adopted in accordance
with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has signed this Certificate
of Amendment as of this day
of .
Section 145 of the DGCL permits each Delaware business
corporation to indemnify its directors, officers, employees and
agents against liability for each such person’s acts taken
in his or her capacity as a director, officer, employee or agent
of the corporation if such actions were taken in good faith and
in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and with
respect to any criminal action, if he or she had no reasonable
cause to believe his or her conduct was unlawful. SIRIUS’
Amended and Restated Certificate of Incorporation provides that
we, to the full extent permitted by law, shall indemnify any of
SIRIUS’ past and present directors, officers, employees or
any person that is or was serving at SIRIUS’ request as a
director, officer or employee of another enterprise if they were
or are a party to, or are threatened to be made a party to, any
threatened, pending or complete action, suit or proceeding. The
indemnification provided therein includes expenses (including
attorneys’ fees), judgments, fines and amounts paid in
settlement and may be paid by us in advance of the final
disposition of such action, suit or proceeding. In addition,
SIRIUS’ Amended and Restated Certificate of Incorporation
provides that SIRIUS may, to the full extent permitted by law,
indemnify any other person for any such expenses as to actions
in their official capacity or actions in another capacity while
holding such office.
As permitted by Section 102(b)(7) of the DGCL, SIRIUS’
Amended and Restated Certificate of Incorporation provides that
no director shall be liable to us for monetary damages for
breach of fiduciary duty as a director, except for liability:
(i) for any breach of the director’s duty of loyalty;
(ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
(iii) for the unlawful payment of dividends on or
redemption of SIRIUS’ capital stock; or
(iv) for any transaction from which the director derived an
improper personal benefit.
SIRIUS has obtained policies insuring SIRIUS and its directors
and officers against certain liabilities, including liabilities
under the Securities Act.
Item 21.
Exhibits
and Financial Statement Schedules
(a) Exhibits
Exhibit
Number
Exhibit Description
2
.1
Agreement and Plan of Merger,
dated as of February 19, 2007, by and among Sirius
Satellite Radio Inc., Vernon Merger Corporation and XM Satellite
Radio Holdings Inc. (incorporated by reference to
Exhibit 2.1 of Sirius Satellite Radio Inc.’s Current
Report on
Form 8-K
filed on February 21, 2007).
3
.1
Amended and Restated Certificate
of Incorporation of Sirius Satellite Radio Inc., dated
March 4, 2003 (incorporated by reference to
Exhibit 3.1 to Sirius Satellite Radio Inc.’s Annual
Report on
Form 10-K
for the year ended December 31, 2002).
3
.2
Form of Amendment to Amended and
Restated Certificate of Incorporation of Sirius Satellite Radio
Inc. (included as Annex D to the joint proxy
statement/prospectus forming part of this Registration Statement
and incorporated herein by reference).
3
.3
Form of certificate for shares of
Common Stock of Sirius Satellite Radio Inc. (incorporated by
reference to Exhibit 4.3 to Sirius Satellite Radio
Inc.’s Registration Statement on
Form S-1
(File
No. 33-74782)).
3
.4
Amended and Restated By-Laws of
Sirius Satellite Radio Inc. (incorporated by reference to
Exhibit 3.2 to Sirius Satellite Radio Inc.’s Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2001).
5
.1*
Opinion of Simpson
Thacher & Bartlett LLP regarding legality of
securities being registered.
8
.1*
Opinion of Simpson
Thacher & Bartlett LLP regarding certain U.S. income
tax aspects of the merger.
8
.2*
Opinion of Skadden, Arps, Slate,
Meagher & Flom LLP regarding certain U.S. income tax
aspects of the merger.
Consent of Simpson
Thacher & Bartlett LLP (included as part of
Exhibit 5.1).
23
.5*
Consent of Simpson
Thacher & Bartlett LLP (included as part of
Exhibit 8.1).
23
.6*
Consent of Skadden, Arps, Slate,
Meagher & Flom LLP (included as part of
Exhibit 8.2).
24
.1***
Powers of Attorney for Sirius
Satellite Radio Inc. (included on signature page).
99
.1*
Form of Proxy for Sirius Satellite
Radio Inc.
99
.2*
Form of Proxy for XM Satellite
Radio Holdings Inc.
99
.3
Opinion of Morgan
Stanley & Co. Incorporated (included as Annex B
to the joint proxy statement/prospectus forming part of this
Registration Statement and incorporated herein by reference).
99
.4
Opinion of J.P. Morgan
Securities Inc. (included as Annex C to the joint proxy
statement/prospectus forming part of this Registration Statement
and incorporated herein by reference).
99
.5
Consent of Morgan
Stanley & Co. Incorporated (included as part of
Exhibit 99.3).
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set
forth in the “Calculation of Registration Fee” table
in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial,
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(B) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant’s annual report
pursuant to Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan’s annual report pursuant to
Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(C) (1) The undersigned registrant hereby undertakes
as follows: that before any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus:
(i) that is filed pursuant to paragraph
(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to
Rule 415, will be filed as part of an amendment to the
registration statement and will not be used until such amendment
is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(D) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(E) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by reference in
the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the
registration statement through the date of responding to the
request.
(F) The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the
30th day of August, 2007.
SIRIUS SATELLITE RADIO INC.
By:
/s/ Patrick
L. Donnelly
Patrick L. Donnelly
Executive Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and the Power of Attorney has been signed
by the following persons in the capacities and on the dates
indicated.
Agreement and Plan of Merger,
dated as of February 19, 2007, by and among Sirius
Satellite Radio Inc., Vernon Merger Corporation and XM Satellite
Radio Holdings Inc. (incorporated by reference to
Exhibit 2.1 of Sirius Satellite Radio Inc.’s Current
Report on
Form 8-K
filed on February 21, 2007).
3
.1
Amended and Restated Certificate
of Incorporation of Sirius Satellite Radio Inc., dated
March 4, 2003 (incorporated by reference to
Exhibit 3.1 to Sirius Satellite Radio Inc.’s Annual
Report on
Form 10-K
for the year ended December 31, 2002).
3
.2
Form of Amendment to Amended and
Restated Certificate of Incorporation of Sirius Satellite Radio
Inc. (included as Annex D to the joint proxy
statement/prospectus forming part of this Registration Statement
and incorporated herein by reference).
3
.3
Form of certificate for shares of
Common Stock of Sirius Satellite Radio Inc. (incorporated by
reference to Exhibit 4.3 to Sirius Satellite Radio
Inc.’s Registration Statement on
Form S-1
(File
No. 33-74782)).
3
.4
Amended and Restated By-Laws of
Sirius Satellite Radio Inc. (incorporated by reference to
Exhibit 3.2 to Sirius Satellite Radio Inc.’s Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2001).
5
.1*
Opinion of Simpson
Thacher & Bartlett LLP regarding legality of
securities being registered.
8
.1*
Opinion of Simpson
Thacher & Bartlett LLP regarding certain U.S. income
tax aspects of the merger.
8
.2*
Opinion of Skadden, Arps, Slate,
Meagher & Flom LLP regarding certain U.S. income tax
aspects of the merger.
23
.1**
Consent of Ernst & Young
LLP.
23
.2**
Consent of KPMG LLP.
23
.4*
Consent of Simpson
Thacher & Bartlett LLP (included as part of
Exhibit 5.1).
23
.5*
Consent of Simpson
Thacher & Bartlett LLP (included as part of
Exhibit 8.1).
23
.6*
Consent of Skadden, Arps, Slate,
Meagher & Flom LLP (included as part of
Exhibit 8.2).
24
.1***
Powers of Attorney for Sirius
Satellite Radio Inc. (included on signature page).
99
.1*
Form of Proxy for Sirius Satellite
Radio Inc.
99
.2*
Form of Proxy for XM Satellite
Radio Holdings Inc.
99
.3
Opinion of Morgan
Stanley & Co. Incorporated (included as Annex B
to the joint proxy statement/prospectus forming part of this
Registration Statement and incorporated herein by reference).
99
.4
Opinion of J.P. Morgan
Securities Inc. (included as Annex C to the joint proxy
statement/prospectus forming part of this Registration Statement
and incorporated herein by reference).
99
.5
Consent of Morgan
Stanley & Co. Incorporated (included as part of
Exhibit 99.3).
