PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 23, 2001)
10,000,000 SHARES
[Logo]
COMMON STOCK
- --------------------------------------------------------------------------------
We are offering 10,000,000 shares of common stock. Our common stock is
listed on the Nasdaq National Market under the symbol 'SIRI.' The last reported
sale price of our common stock on February 23, 2001 was $23 13/16 per share.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4 IN THE ACCOMPANYING
PROSPECTUS.
PER SHARE TOTAL
--------- -----
Public offering price....................................... $21.00 $210,000,000
Underwriting discount....................................... $ 1.00 $ 10,000,000
Proceeds to us (before expenses)............................ $20.00 $200,000,000
The underwriter may also purchase up to an additional 1,500,000 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus supplement to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the common shares against payment in New
York, New York on February 28, 2001.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
February 23, 2001
[PHOTO]
[SIRIUS LOGO]
SIRIUS Satellite Radio
[PHOTO]
A National
Broadcasting
Powerhouse
One of the most advanced digital radio
broadcasting studios in the world
Production facilities broadcasting up
to 100 channels of programming
coast-to-coast
[PHOTO]
SIRI-1 SIRI-2
In Orbit In Orbit
SIRI-3
In Orbit
[PHOTO]
Automotive Partners
Exclusive automotive deals with nearly 50%
of the US new car and light-truck market
Featuring all brands from:
[BMW LOGO]
[CHRYSLER LOGO]
[MERCEDES-BENZ LOGO]
[FORD LOGO]
THE SIRIUS SERVICE
50 commercial-free music channels
HITS COUNTRY LATIN
Top 40 Alternative Country Latin Hits
Pop Mix Country Hits Latin Love Songs
Soft Rock Country Mix Rock en Espanol
Love Songs Classic Country Mexicana
50's Hits Bluegrass Tejano
60's Hits R&B CLASSICAL
70's Hits R&B Oldies Symphonic
80's Hits Classic Soul Hits Chamber Works
90's Hits Urban Hits Classical Voices
ROCK Rap VARIETY
Classic Rock I Soul Ballads New Age
Classic Rock II Gospel Kids
Alternative I JAZZ Christian Hits
Alternative II Classic Jazz World Music
Hard Rock/Metal Contemporary Jazz Reggae
Album Rock Smooth Jazz Dance
Eclectic Rock STANDARDS Blues
Rock Specials Big Band/Swing Specialty Showcase
Singers & Standards
Broadway's Best
plus up to 50 channels of news,
sports and entertainment
NEWS
CNBC, NPR Now, World Radio Network,
Bloomberg News Radio, C-SPAN, BBC World Service, BBC Espanol, La Red Hispania
SPORTS
Speedvision, Outdoor Life, Sports Byline USA,
Radio Deportivo
ENTERTAINMENT
Discovery Radio, Sci-fi Radio, A&E,
Radio Classics, The Scandal Channel,
Public Radio International, Sirius Comedy,
Personal Achievement Live, NPR Talk,
African American Talk, Hispanic Radio
Network, Radio Mujer, Wisdom Radio,
Women 2 Women, Guy Talk
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Special Note Regarding Forward-Looking Statements........... S-4
Summary..................................................... S-5
Dilution.................................................... S-9
Use of Proceeds............................................. S-9
Price Range of Common Stock................................. S-10
Dividend Policy............................................. S-10
Capitalization.............................................. S-11
Selected Historical Financial Data.......................... S-12
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-13
Business.................................................... S-18
Management.................................................. S-31
Certain Relationships and Related Transactions.............. S-33
Security Ownership of Certain Beneficial Owners and
Management................................................ S-33
Description of Certain Indebtedness......................... S-37
Underwriting................................................ S-42
Legal Matters............................................... S-43
PROSPECTUS
Special Note Regarding Forward-Looking Statements........... 2
About this Prospectus....................................... 3
About Sirius................................................ 3
Risk Factors................................................ 4
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends........................................... 13
Use of Proceeds............................................. 13
Description of Debt Securities.............................. 13
Description of Capital Stock................................ 25
Description of Warrants..................................... 35
Plan of Distribution........................................ 39
Legal Matters............................................... 39
Experts..................................................... 40
Incorporation by Reference.................................. 40
Where You May Find Additional Available Information About
Us........................................................ 40
-------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE RELATED PROSPECTUS OR TO WHICH WE HAVE REFERRED YOU. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
PROSPECTUS SUPPLEMENT AND THE RELATED PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE RELATED PROSPECTUS MAY ONLY BE ACCURATE ON THE DATE OF THIS PROSPECTUS
SUPPLEMENT.
S-3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following cautionary statements identify important factors that could
cause our actual results to differ materially from those projected in the
forward-looking statements made in this prospectus supplement and the related
prospectus. Any statements about our beliefs, plans, objectives, expectations,
assumptions or future events or performance are not historical facts and may be
forward-looking. These statements are often, but not always, made through the
use of words or phrases such as 'will likely result,' 'are expected to,' 'will
continue,' 'is anticipated,' 'estimated,' 'intends,' 'plans,' 'projection' and
'outlook.'Any forward-looking statements are qualified in their entirety by
reference to the factors discussed throughout this prospectus supplement and the
related prospectus, and particularly the risk factors described under 'Risk
Factors' in the related prospectus. Among the significant factors that could
cause our actual results to differ materially from those expressed in the
forward-looking statements are:
the unavailability of radios capable of receiving our service and our
dependence upon third parties to manufacture and distribute them;
the potential risk of delay in implementing our business plan;
the unproven market for our service; and
our need for additional financing.
These and other factors are discussed in 'Risk Factors' in the related
prospectus and elsewhere in this prospectus supplement and the related
prospectus.
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue reliance on
any of these forward-looking statements. In addition, any forward-looking
statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which the statement is made, to
reflect the occurrence of unanticipated events or otherwise. New factors emerge
from time to time, and it is not possible for us to predict which will arise or
to assess with any precision the impact of each factor on our business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
S-4
SUMMARY
This summary highlights information contained elsewhere in this prospectus
supplement and the related prospectus. Because it is a summary, it may not
contain all of the information that is important to you. To understand this
offering fully, you should read this entire prospectus supplement and the
related prospectus carefully, including the financial statements and the
documents incorporated by reference into the related prospectus.
ABOUT OUR BUSINESS
From our three orbiting satellites, we will directly broadcast up to 100
channels of digital-quality radio to motorists throughout the continental United
States for a monthly subscription fee of $9.95. We will deliver 50 channels of
commercial-free music in virtually every genre, and up to 50 channels of news,
sports, talk, comedy and children's programming. Sirius' broad and deep range of
almost every music format as well as its news, sports and entertainment
programming is not available on conventional radio in any market in the United
States. We hold one of only two licenses issued by the Federal Communications
Commission to operate a national satellite radio system.
Upon commencing commercial operations, we expect our primary source of
revenues to be subscription fees, which we expect will be included with the sale
or lease of certain new vehicles. In addition, we expect to derive revenues from
directly selling or bartering limited advertising on our non-music channels.
We design and originate the programming on each of our 50 commercial-free
music channels. Each channel is operated as a separate radio station with a
distinct format and hosts. We will also broadcast up to 50 channels of news,
sports and talk programming, which will include limited advertising. A majority
of the programming on our non-music channels is obtained from third party
content providers, such as CNBC, Bloomberg, NPR, A&E and Discovery.
The market for Sirius consists primarily of motorists. The Federal Highway
Administration estimates that there were approximately 208 million registered
private motor vehicles in the United States at the end of 2000. According to
Arbitron, a radio industry rating agency, in 2000 motorists in the United States
listened to the radio an average of 50 minutes a day, despite the fact that 92%
of cars had a CD or cassette player. In addition, according to Arbitron, in 1999
approximately 79% of total radio listening was to FM stations, which provide
primarily music programming, as compared with AM stations which devote a greater
proportion of their programming to talk and news.
In the new car market, we have exclusive agreements with Ford Motor Company,
DaimlerChrysler Corporation and BMW of North America, LLC that contemplate
manufacturing and selling vehicles that include radios capable of receiving our
broadcasts. These alliances cover all brands and affiliates of these automakers,
including Ford, Chrysler, Mercedes, BMW, Jaguar, Mazda and Volvo. Our agreement
with DaimlerChrsyler also makes us the preferred provider of satellite radio in
Freightliner and Sterling heavy trucks. In 2000, Ford, DaimlerChrysler and BMW
sold or leased approximately 7.5 million vehicles in the continental United
States, which was approximately 43% of all new cars and trucks sold or leased in
the continental United States last year.
In addition, in the autosound aftermarket, we expect that radios capable of
receiving our broadcasts will be available for sale at various national and
regional retailers, such as Best Buy, Circuit City, Tweeter Home Entertainment
Group and Good Guys. In 2000, 11 million car radios were sold through consumer
electronics retailers.
We have entered into agreements with numerous consumer electronics
manufacturers, including Alpine Electronics Inc., Clarion Co., Ltd., Delphi
Delco Electronics Systems, Kenwood Corporation, Matsushita Communication
Industrial Corporation of USA, Recoton Corporation, Sony Electronics Inc. and
Visteon Automotive Systems, to develop radios capable of receiving our
broadcasts. As these radios become available in commercial quantities, they will
be sold to automakers for inclusion in new vehicles and consumer electronics
retailers for sale in the autosound aftermarket.
S-5
THE SIRIUS SYSTEM
The Sirius system consists of three principal components:
THE SATELLITES. Our three-satellite constellation has been launched, tested
and is currently broadcasting. Each satellite acts as a 'bent pipe,' relaying
signals received from our uplink facilities directly to vehicles on the ground.
Our satellites do not contain on-board processors. All of our processing
operations occur on the ground where they are accessible for maintenance and
technological upgrade without the need to launch replacement satellites. Our
satellites have an estimated useful life of approximately 15 years. A fourth,
ground spare, satellite is also being constructed for us and we expect to take
delivery of this satellite in August. In at least 56 areas with high
concentrations of tall buildings, such as urban centers, and in tunnels, we are
installing terrestrial repeaters to rebroadcast our satellite signals,
increasing availability of service.
THE NATIONAL BROADCAST STUDIO. Our programming originates from our national
broadcast studio in Rockefeller Center in New York City. The national broadcast
studio houses our music library, facilities for programming origination,
programming personnel and program hosts, and facilities to transmit programming
to our orbiting satellites, to activate or deactivate service to subscribers and
to perform the tracking, telemetry and control of our satellites.
THE RADIOS. In many new cars and trucks, consumers will receive Sirius
through a new generation of three-band (AM/FM/SAT) radios, which will come
installed by automakers. In the autosound aftermarket, our subscribers will have
the choice of two different receiving devices for their cars -- an FM modulated
receiver or a three-band radio.
FM Modulated Receivers. FM modulated receivers will enable our service to be
received through existing FM radios, which are present in approximately 95% of
all U.S. vehicles. Each receiver will be a small device, approximately the size
of a compact disc changer, that will be mounted in the vehicle's trunk.
Three-Band Radios. Three-band radios will be nearly identical in appearance
to existing car stereos and will allow the user to listen to AM, FM or Sirius
with the push of a button. Like existing radios, three-band radios may also
incorporate cassette or CD players.
We expect to have a limited quantity of radios available for testing during
the first quarter of 2001. We will distribute these radios to select vehicle
manufacturers, radio manufacturers and others as part of a comprehensive quality
assurance program. The technical portion of this program will include end to end
testing and integration of our studio, broadcast, transaction management and
customer service systems. The content portion of this program will refine
Sirius' programming based on feedback obtained from users of these initial
radios.
Once our quality assurance program has been completed and we can ensure a
high quality consumer service radios will be made widely available to consumers.
Subscriptions to Sirius resulting from the sale of radios in the autosound
aftermarket are expected to occur as commercial quantities become available for
sale, with a majority of 2001 subscriptions occurring in the fourth quarter. We
expect factory installation of radios in new vehicles to occur on a limited
basis in the second half of this year, with quantities increasing and additional
vehicle models added beginning early in 2002.
RISK FACTORS
For a discussion of some of the risks you should consider before purchasing
our common stock, see 'Risk Factors' beginning on page 4 of the related
prospectus.
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Our principal executive offices are located at 1221 Avenue of the Americas,
New York, New York 10020. Our telephone number is (212) 584-5100. Our internet
address is siriusradio.com. Siriusradio.com is an inactive textual reference
only, meaning that the information contained on the website is not part of this
prospectus supplement and is not incorporated in this prospectus supplement by
reference.
S-6
THE OFFERING
Common stock offered...................... 10,000,000 shares(1)
Common stock outstanding after the
offering................................ 52,215,114 shares(2)
Use of proceeds........................... We will use the net proceeds of this offering to
finance operating expenses and for general corporate
purposes.
Nasdaq National Market symbol............. SIRI
Dividend policy........................... We have never declared or paid any cash dividends on
our common stock and do not anticipate paying cash
dividends in the foreseeable future. See 'Price Range
of Common Stock' and 'Dividend Policy.'
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(1) Does not include 1,500,000 shares of common stock that we will sell if
Lehman Brothers exercises its over-allotment option in full. Some of the
disclosures in this prospectus supplement will be different if Lehman
Brothers exercises its option. Unless we tell you otherwise, the information
in this prospectus supplement assumes that Lehman Brothers will not exercise
its option.
(2) Based on the number of shares outstanding at December 31, 2000. Excludes
(a) 7,549,975 shares of common stock issuable upon the exercise of
outstanding and unexercised options as of December 31, 2000, (b) 4,132,680
shares of common stock issuable upon the exercise of outstanding and
unexercised warrants (other than those referred to in clauses (c) and (d)
below) as of December 31, 2000, (c) 8,000,000 shares of common stock
issuable upon the exercise of warrants issued to Ford Motor Company and
DaimlerChrysler Corporation, (d) 2,100,000 shares of common stock issuable
upon the exercise of warrants beneficially held by Lehman Commercial Paper
Inc., (e) 2,840,092 shares of common stock issuable upon the conversion of
our 8 3/4% Convertible Subordinated Notes due 2009 as of December 31, 2000
and (f) 14,015,547 shares of common stock issuable upon conversion of our
9.2% Series A Junior Cumulative Convertible Preferred Stock, 9.2% Series B
Junior Cumulative Convertible Preferred Stock and 9.2% Series D Junior
Cumulative Convertible Preferred Stock. Holders of all three series of our
Junior Cumulative Convertible Preferred Stock have the right to vote, on an
as-converted basis, on matters on which the holders of our common stock have
the right to vote. Please refer to the section of the related prospectus
entitled 'Description of Capital Stock.'
S-7
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data shown below as of and for the years
ended December 31, 1996, 1997, 1998, 1999 and 2000 are derived from our
respective audited consolidated financial statements. Our financial statements
as of December 31, 1999 and 2000 and for the three years ended December 31, 2000
are incorporated by reference in the related prospectus.
The summary consolidated financial data should be read together with the
consolidated financial statements, the related notes and the information
contained in this prospectus supplement under the heading 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................................... $ -- $ -- $ -- $ -- $ --
Net loss(1)................................................. (2,831) (4,737) (48,396) (62,822) (134,744)
Preferred stock dividends................................... -- (2,338) (19,380) (30,321) (39,811)
Preferred stock deemed dividends(2)......................... -- (51,975) (11,676) (3,535) (8,260)
Accretion of dividends in connection with the issuance of
warrants on preferred stock................................ -- -- (6,501) (303) (900)
Net loss applicable to common stockholders.................. (2,831) (59,050) (85,953) (96,981) (183,715)
Per common share:
Net loss applicable to common stockholders............... (0.29) (5.08) (4.79) (3.96) (4.72)
Weighted average common shares outstanding (basic and
diluted)................................................ 9,642 11,626 17,932 24,470 38,889
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................... $ 4,584 $ 900 $150,190 $ 81,809 $ 14,397
Marketable securities, at market(3)......................... -- 169,482 115,433 317,810 129,153
Restricted investments, at market(4)........................ -- -- -- 67,454 41,510
Working capital............................................. 4,442 170,894 180,966 303,865 143,981
Total assets................................................ 5,065 323,808 643,880 1,206,612 1,323,582
Short-term notes payable.................................... -- -- 70,863 114,075 --
Deferred satellite payments................................. -- -- 31,324 55,140 60,881
Long-term debt.............................................. -- 131,387 153,033 488,690 472,602
10 1/2% Series C Preferred Stock............................ -- 176,025 156,755 149,285 --
9.2% Series A Junior Cumulative Convertible Preferred
Stock...................................................... -- -- 137,755 148,894 162,380
9.2% Series B Junior Cumulative Convertible Preferred
Stock...................................................... -- -- -- 64,238 70,507
9.2% Series D Junior Cumulative Convertible Preferred
Stock...................................................... -- -- -- -- 210,125
Deficit accumulated during the development stage............ (18,536) (23,273) (71,669) (134,491) (269,235)
Stockholders' equity........................................ 4,898 15,980 77,953 134,179 290,483
- ---------
(1) Included in the 1998 net loss of $48,396 is $25,682 of special charges
related primarily to the termination of launch and orbit related contracts
required when we decided to enhance our satellite delivery system to include
a third in-orbit satellite.
(2) The deemed dividend in 1997 relates to the discount feature associated with
our former 5% Delayed Convertible Preferred Stock and the deemed dividend in
1998 relates primarily to the conversion feature associated with our 9.2%
Series A Junior Cumulative Convertible Preferred Stock. We computed these
deemed dividends in accordance with the SEC's position on accounting for
preferred stock which is convertible at a discount to the market price.
(3) Marketable securities consist of fixed income securities with a maturity at
the time of purchase of greater than three months.
(4) Value of securities held by the trustee of our 14 1/2% Senior Secured Notes
due 2009 to pay interest in full on those notes through May 15, 2002.
S-8
DILUTION
The pro forma net tangible book value of our common stock at December 31,
2000 was approximately $650 million, or $11.58 per share. Pro forma net tangible
book value per share represents the amount of our stockholders' equity, less
intangible assets (including the value of our FCC license), divided by the
number of shares of common stock outstanding as of December 31, 2000, assuming
conversion of each outstanding share of our preferred stock into shares of
common stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering, and the pro forma net tangible book value per share of
common stock immediately after completion of this offering. After the sale of
the 10,000,000 shares of common stock we are offering (using the public offering
price of $21.00 per share) and after deducting underwriting discounts,
commissions and estimated offering expenses payable by us, the pro forma
tangible book value at December 31, 2000 would have been approximately $850
million, or $12.85 per share. This represents an immediate increase in pro forma
net tangible book value of $1.27 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $8.15 per share to
purchasers of common stock in this offering as illustrated in the following
table:
Price to public per share................................... $21.00
Pro forma net tangible book value per share at December
31, 2000.............................................. $11.58
Increase per share attributable to new investors........ 1.27
------
Pro forma net tangible book value per share after this
offering.................................................. 12.85
------
Pro forma net tangible book value dilution per share to new
investors................................................. $ 8.15
------
------
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering will be
approximately $199.5 million ($229.5 million if Lehman Brothers exercises its
over-allotment option in full) after deducting estimated discounts, commissions
and other expenses. We intend to use the net proceeds of this offering to
finance operating expenses and for general corporate purposes.
S-9
PRICE RANGE OF COMMON STOCK
Our common stock began trading on the Nasdaq Small Cap Market on
September 13, 1994. From October 24, 1997 to January 11, 2000, our common stock
was traded on the Nasdaq National Market under the symbol 'CDRD.' On
January 12, 2000, our common stock began trading on the Nasdaq National Market
under the symbol 'SIRI.'
The following table sets forth the high and low sales prices for our common
stock, as reported by the Nasdaq National Market, for the periods indicated.
HIGH LOW
---- ---
1998:
First Quarter........................................... 24 1/4 11 1/2
Second Quarter.......................................... 44 21 3/4
Third Quarter........................................... 38 7/16 14 3/4
Fourth Quarter.......................................... 39 7/8 14 1/4
1999:
First Quarter........................................... 38 5/8 20 1/2
Second Quarter.......................................... 32 19 1/2
Third Quarter........................................... 38 1/2 24 3/4
Fourth Quarter.......................................... 48 1/2 23 1/8
2000:
First Quarter........................................... 69 7/16 37
Second Quarter.......................................... 55 5/8 30
Third Quarter........................................... 56 3/8 37
Fourth Quarter.......................................... 54 7/16 21 1/2
2001:
First Quarter (through February 23, 2001)............... 35 1/2 21
On February 23, 2001, the last reported sale price of our common stock on
the Nasdaq National Market was $23 13/16 per share. On December 31, 2000, there
were approximately 342 holders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
intend to retain any future earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future. The indentures
governing our senior secured notes and our senior secured discount notes contain
provisions that limit our ability to pay dividends on our preferred stock and
common stock. The certificates of designation for our preferred stock contain
provisions that also limit our ability to pay dividends on our common stock.
S-10
CAPITALIZATION
The following table sets forth our cash and capitalization as of December
31, 2000 (1) on an actual basis and (2) on an as adjusted basis to give effect
to the issuance and sale of the common stock in this offering, after deducting
estimated discounts, commissions and other expenses.
AS OF DECEMBER 31, 2000
------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
Cash, cash equivalents and marketable securities, at $ 143,550 $ 343,050
market(1).................................................
---------- ----------
---------- ----------
Restricted investments(2)................................... $ 41,510 $ 41,510
---------- ----------
---------- ----------
Long-term obligations:
Deferred satellite payments, long-term.................. $ 60,881 $ 60,881
15% Senior Secured Discount Notes due 2007.............. 218,405 218,405
14 1/2% Senior Secured Notes due 2009................... 173,361 173,361
8 3/4% Convertible Subordinated Notes due 2009.......... 80,836 80,836
---------- ----------
Total long-term debt obligations.................... 533,483 533,483
---------- ----------
9.2% Series A Junior Cumulative Convertible Preferred
Stock..................................................... 162,380 162,380
9.2% Series B Junior Cumulative Convertible Preferred
Stock..................................................... 70,507 70,507
9.2% Series D Junior Cumulative Convertible Preferred
Stock..................................................... 210,125 210,125
Stockholders' equity
Common stock, at par value, $0.001 per share(3)......... 42 52
Additional paid-in capital(3)........................... 559,676 759,166
Accumulated deficit..................................... (269,235) (269,235)
---------- ----------
Total capitalization................................ $1,266,978 $1,466,478
---------- ----------
---------- ----------
- ---------
(1) Marketable securities consist of fixed income securities with a maturity at
the time of purchase of greater than three months.
(2) Value of securities held by the trustee for our 14 1/2% Senior Secured Notes
due 2009 to pay interest in full on those notes through May 15, 2002.
(3) Excludes: (a) 7,549,975 shares of common stock issuable upon the exercise of
outstanding and unexercised options as of December 31, 2000, (b) 4,132,680
shares of common stock issuable upon the exercise of outstanding and
unexercised warrants (other than those referred to in clauses (c) and (d)
below), (c) 8,000,000 shares of common stock issuable upon the exercise of
warrants issued to Ford Motor Company and DaimlerChrysler Corporation,
(d) 2,100,000 shares of common stock issuable upon the exercise of warrants
beneficially held by Lehman Commercial Paper Inc., (e) 2,840,092 shares of
common stock issuable upon the conversion of our 8 3/4% Convertible
Subordinated Notes due 2009 as of December 31, 2000 and (f) 14,015,547
shares of common stock issuable upon conversion of our 9.2% Series A Junior
Cumulative Convertible Preferred Stock, 9.2% Series B Junior Cumulative
Convertible Preferred Stock and 9.2% Series D Junior Cumulative Convertible
Preferred Stock. Each share of our common stock has a right to receive one
one-hundredth of a share of our Series B Preferred Stock, par value $0.001
per share, upon certain events described in 'Description of Capital Stock --
Preferred Stock Purchase Rights' in the related prospectus.
S-11
SELECTED HISTORICAL FINANCIAL DATA
The selected consolidated financial data shown below as of and for the years
ended December 31, 1996, 1997, 1998, 1999 and 2000 are derived from our
respective audited consolidated financial statements.
The selected historical financial data should be read together with the
consolidated financial statements, the related notes and the information
contained in this prospectus supplement under the heading 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues......................... $ -- $ -- $ -- $ -- $ --
Net loss(1)................................ (2,831) (4,737) (48,396) (62,822) (134,744)
Preferred stock dividends.................. -- (2,338) (19,380) (30,321) (39,811)
Preferred stock deemed dividends(2)........ -- (51,975) (11,676) (3,535) (8,260)
Accretion of dividends in connection with
the issuance of warrants on preferred
stock.................................... -- -- (6,501) (303) (900)
Net loss applicable to common
stockholders............................. (2,831) (59,050) (85,953) (96,981) (183,715)
Net loss per share applicable to common
stockholders (basic and diluted)..... (0.29) (5.08) (4.79) (3.96) (4.72)
Weighted average common shares outstanding
(basic and diluted)...................... 9,642 11,626 17,932 24,470 38,889
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.................. $ 4,584 $ 900 $150,190 $ 81,809 $ 14,397
Marketable securities, at market(3)........ -- 169,482 115,433 317,810 129,153
Restricted investments, at market(4)....... -- -- -- 67,454 41,510
Working capital............................ 4,442 170,894 180,966 303,865 143,981
Total assets............................... 5,065 323,808 643,880 1,206,612 1,323,582
Short-term notes payable................... -- -- 70,863 114,075 --
Deferred satellite payments................ -- -- 31,324 55,140 60,881
Long-term debt............................. -- 131,387 153,033 488,690 472,602
10 1/2% Series C Preferred Stock........... -- 176,025 156,755 149,285 --
9.2% Series A Junior Preferred Stock....... -- -- 137,755 148,894 162,380
9.2% Series B Junior Preferred Stock....... -- -- -- 64,238 70,507
9.2% Series D Junior Preferred Stock....... -- -- -- -- 210,125
Deficit accumulated during the development
stage.................................... (18,536) (23,273) (71,669) (134,491) (269,235)
Stockholders' equity....................... 4,898 15,980 77,953 134,179 290,483
Book value per common share................ 0.48 1.00 3.36 4.67 6.90
- ---------
(1) Included in the 1998 net loss of $48,396 is $25,682 of special charges
related primarily to the termination of launch and orbit related contracts
required when we decided to enhance our satellite delivery system to include
a third in-orbit satellite.
(2) The deemed dividend in 1997 relates to the discount feature associated with
our former 5% Delayed Convertible Preferred Stock and the deemed dividend in
1998 relates primarily to the conversion feature associated with our 9.2%
Series A Junior Cumulative Convertible Preferred Stock. We computed these
deemed dividends in accordance with the SEC's position on accounting for
preferred stock which is convertible at a discount to the market price.
(3) Marketable securities consist of fixed income securities with a maturity at
the time of purchase of greater than three months.
(4) Value of securities held by the trustee for our 14 1/2% Senior Secured Notes
due 2009 to pay interest in full on those notes through May 15, 2002.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus supplement contains forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of some
events could differ materially from those projected in any forward-looking
statements due to a number of factors, including those described under 'Risk
Factors' in the related prospectus and elsewhere in this prospectus supplement
and the related prospectus. See 'Special Note Regarding Forward-Looking
Statements.'
(All dollar amounts referenced below are in thousands, unless otherwise
stated)
OVERVIEW
Sirius Satellite Radio Inc. was organized in May 1990 and is in its
development stage. Our principal activities to date have included:
developing our technology;
obtaining regulatory approval for our service;
constructing four satellites;
launching three satellites;
constructing our national broadcast studio;
acquiring content for our programming;
constructing our terrestrial repeater network;
arranging for the development of radios to receive our service;
strategic planning;
market research;
recruiting our management team; and
securing financing for capital expenditures and working capital.
We will require additional funds for working capital, interest on
borrowings, acquisition of programming, financing costs and operating expenses
until some time after we commence commercial operations. We cannot assure you
that we will ever commence commercial operations, attain any particular level of
revenues or achieve profitability.
Upon commencing commercial operations, we expect our primary source of
revenues to be subscription fees. We anticipate that our subscription fee will
be $9.95 per month, with a one time activation fee per subscriber. We also
expect our subscription to be included with the sale or lease of certain new
vehicles. In addition, we expect to derive revenues from directly selling or
bartering limited advertising on our non-music channels.
The operating expenses associated with our service will consist primarily of
marketing and sales costs, costs to acquire programming, expenses of maintaining
our satellites and broadcasting systems and general and administrative costs.
Costs to acquire programming include payments to build and maintain an extensive
music library and royalty payments for broadcasting music. As of February 20,
2001, we had 173 employees. On December 31, 2001, we expect to have
approximately 250 employees.
We received title to our satellites on July 31, 2000, September 29, 2000 and
December 20, 2000, following the completion of in-orbit testing of each
satellite. We expect our fourth, spare, satellite to be delivered to ground
storage in August 2001.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
We had net losses of $134,744 and $62,822 for the years ended December 31,
2000 and 1999, respectively. Our total operating expenses were $125,634 and
$63,518 for the years ended December 31, 2000 and 1999, respectively.
Engineering design and development costs were $71,000 and $33,134 for the
years ended December 31, 2000 and 1999, respectively. These engineering costs
represented primarily payments to Lucent (38%) and other radio development and
manufacturing partners (33%) in 2000 and payments to Lucent in 1999. The
increase in costs in the 2000 period resulted primarily from the increased
activity in our radio development effort as we prepare to launch our service.
General and administrative expenses increased for the year ended December
31, 2000 to $54,634 from $30,384 for the year ended December 31, 1999. General
and administrative expenses increased principally due to the growth of our
workforce, expenses in connection with stock and stock options granted to
employees and consultants and in-orbit insurance for our three satellites. The
major components of general and administrative expenses in 2000 were salaries
and employment related costs (39%), marketing costs (14%) and rent and occupancy
costs (13%), while in 1999 the major components were salaries and employment
related costs (32%), marketing costs (14%) and rent and occupancy costs (18%).
The remaining portion of general and administrative expenses (34% in 2000 and
36% in 1999) consisted of other costs such as legal and regulatory, insurance,
consulting, travel, depreciation and supplies, with no such amount exceeding 10%
of the total in either 2000 or 1999.
The increase in interest and investment income to $24,485 for the year ended
December 31, 2000 from $17,502 for the year ended December 31, 1999 was the
result of improved performance of our investments in U.S. government securities
and commercial paper issued by major U.S. corporations with high credit ratings.
The improved performance of these securities was due to higher rates of interest
during 2000.
Interest expense was $33,595 for the year ended December 31, 2000 and
$16,806 for the year ended December 31, 1999, net of capitalized interest of
$63,728 and $56,567, respectively. Gross interest expense increased by $23,950
and capitalized interest increased by $7,161 during 2000. Gross interest expense
and capitalized interest for 2000 increased due to interest accruing on our
14 1/2% Senior Secured Notes due 2009 issued in May 1999 and our 8 3/4%
Convertible Subordinated Notes due 2009 issued in September and October 1999,
which were outstanding throughout 2000 but during only a portion of 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
We had net losses of $62,822 and $48,396 for the years ended December 31,
1999 and 1998, respectively. Our total operating expenses were $63,518 and
$39,079 for the years ended December 31, 1999 and 1998, respectively.
Engineering design and development costs were $33,134 and $2,150 for the
years ended December 31, 1999 and 1998, respectively. These engineering costs
for the year ended December 31, 1999 represented primarily payments to Lucent.
General and administrative expenses increased for the year ended December
31, 1999 to $30,384 from $11,247 for the year ended December 31, 1998. General
and administrative expenses increased principally due to occupancy of our
national broadcast studio and the growth of our management team and workforce.
The major components of general and administrative expenses in 1999 were
salaries and employment related costs (32%), rent and occupancy costs (18%) and
legal and regulatory costs (10%), while in 1998 the major components were
salaries and employment related costs (29%), rent and occupancy costs (20%) and
legal and regulatory costs (17%). The remaining portion of general and
administrative expenses (40% in 1999 and 34% in 1998) consisted of other costs
such as insurance, consulting, travel, depreciation and supplies, with only
marketing (14%) exceeding 10% of the total in 1999 and no amount exceeding 10%
of the total in 1998.
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The increase in interest and investment income to $17,502 for the year ended
December 31, 1999 from $7,250 for the year ended December 31, 1998 was the
result of higher average balances of cash, marketable securities and restricted
investments during 1999. The higher average balances of cash, marketable
securities and restricted investments during 1999 were due to the investment
throughout the year of proceeds from financing activities in 1999, including the
issuance of our 14 1/2% Senior Secured Notes due 2009, our 8 3/4% Convertible
Subordinated Notes due 2009, our 9.2% Series B Junior Cumulative Convertible
Preferred Stock and 3,450,000 shares our common stock.
Interest expense was $16,806 for the year ended December 31, 1999 and
$14,272 for the year ended December 31, 1998, net of capitalized interest of
$56,567 and $16,243, respectively. Gross interest expense increased by $42,858
and capitalized interest increased by $40,324 during 1999. Gross interest
expense and capitalized interest for 1999 increased due to interest accruing on
our 14 1/2% Senior Secured Notes due 2009 issued in May 1999 and our 8 3/4%
Convertible Subordinated Notes due 2009 issued in September and October 1999.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had cash, cash equivalents, marketable securities
and restricted investments totaling $185,060 and working capital of $143,981
compared with cash, cash equivalents, marketable securities and restricted
investments totaling $467,073 and working capital of $303,865 at December 31,
1999.
Funding Requirements. We entered into a satellite contract with Space
Systems/Loral to build and launch the satellites necessary to transmit our
service. The Loral satellite contract requires Space Systems/Loral to:
construct, launch and deliver three satellites in-orbit and checked-out;
construct a fourth satellite for use as a ground spare; and
deliver $15,000 of long-lead time parts for a possible fifth satellite.
We are committed to make aggregate payments of approximately $745,890 under the
Loral satellite contract. As of December 31, 2000, $674,080 of this obligation
had been satisfied. Under the Loral satellite contract, with the exception of a
payment made to Space Systems/Loral in March 1993, payments are made in
installments that commenced in April 1997 and will end in October 2004. Our
future payments due to Space Systems/Loral are as follows: $21,810 in 2001, $0
in 2002, $25,000 in 2003 and $25,000 in 2004.
The amount and timing of our actual cash requirements will depend upon
numerous factors, including timing of construction of our fourth satellite and
completion of our terrestrial repeater network, costs associated with the design
and development of chip sets and radios, the rate of growth of our business
after we commence service, costs of financing and the possibility of
unanticipated costs. We will require additional funds if there are delays, cost
overruns, unanticipated expenses, satellite losses or impairments or shortfalls
in our estimated levels of operating cash flow.
Sources of Funding. To date, we have funded our capital needs through the
issuance of debt and equity securities.
As of December 31, 2000, we had received a total of approximately $874,000
in equity capital as a result of the following transactions:
the sale of shares of our common stock (net proceeds of approximately
$22,000) prior to the issuance of our FCC license in October 1997;
the sale of 5,400,000 shares of our 5% Delayed Convertible Preferred Stock
(net proceeds of approximately $121,000) in April 1997 (in November 1997,
we exchanged 1,846,799 shares of our 10 1/2% Series C Convertible Preferred
Stock for all the outstanding shares of our 5% Delayed Convertible
Preferred Stock) (all shares of our 10 1/2% Series C Convertible Preferred
Stock have since been converted into shares of our common stock);
S-15
the sale of 4,955,488 shares of our common stock (net proceeds of
approximately $71,000) in 1997;
the sale of 5,000,000 shares of our common stock to Prime 66 Partners, L.P.
(net proceeds of approximately $98,000) in November 1998;
the sale of 1,350,000 shares of our 9.2% Series A Junior Cumulative
Convertible Preferred Stock to the Apollo Investment Fund IV, L.P. and
Apollo Overseas Partners IV, L.P. (collectively, the 'Apollo Investors')
(net proceeds of approximately $129,000) in December 1998;
the sale of 650,000 shares of our 9.2% Series B Junior Cumulative
Convertible Preferred Stock to the Apollo Investors (net proceeds of
approximately $63,000) in November 1999;
the sale of 3,450,000 shares of our common stock in an underwritten public
offering (net proceeds of approximately $78,000) in September and October
1999;
the sale of 2,000,000 shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock to affiliates of The Blackstone Group L.P. (net
proceeds of approximately $192,000) in January 2000; and
the sale of 2,290,322 shares of our common stock to DaimlerChrysler
Corporation (net proceeds of approximately $100,000) in February 2000.
As of December 31, 2000, we had received a total of approximately $443,000
in net proceeds from the following public debt offerings:
12,910 units, each consisting of $20 aggregate principal amount at maturity
of our 15% Senior Secured Discount Notes due 2007 and a warrant to purchase
additional 15% Senior Secured Discount Notes due 2007 with an aggregate
principal amount at maturity of $3 in an underwritten public offering (net
proceeds of approximately $116,000) in November 1997. All of these warrants
were exercised in 1997. The aggregate value at maturity of our 15% Senior
Secured Discount Notes due 2007 is approximately $297,000. Our 15% Senior
Secured Discount Notes due 2007 mature on December 1, 2007 and the first
cash interest payment is due in June 2003.
200,000 units, each consisting of $1 aggregate principal amount of our
14 1/2% Senior Secured Notes due 2009 and three warrants, each to purchase
3.947 shares of our common stock (as of December 31, 2000) in an
underwritten public offering (net proceeds of approximately $190,000) in
May 1999. The warrants are exercisable through May 15, 2009 at an exercise
price of $26.45 per share (as of December 31, 2000). We invested
approximately $79,300 of the net proceeds from this offering in a portfolio
of U.S. government securities, which we pledged as security for payment in
full of interest due on the 14 1/2% Senior Secured Notes due 2009 through
May 15, 2002.
$125,000 aggregate principal amount of our 8 3/4% Convertible Subordinated
Notes due 2009 in an underwritten public offering (net proceeds of
approximately $119,000) in September 1999. In October 1999, we issued an
additional $18,750 aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009 to the underwriters of that offering in
connection with their over-allotment option (net proceeds of approximately
$18,000).
The indentures governing our 14 1/2% Senior Secured Notes due 2009 and our 15%
Senior Secured Discount Notes due 2007 contain limitations on our ability to
incur additional indebtedness. These notes are secured by a pledge of the stock
of Satellite CD Radio, Inc., our subsidiary that holds our FCC license. As of
December 31, 2000, we had acquired $62,914 principal amount of our 8 3/4%
Convertible Subordinated Notes due 2009 in exchange for shares of our common
stock.
On September 23, 1999, the SEC declared effective a shelf registration
statement pursuant to which we could offer $500,000 aggregate principal amount
of debt securities, preferred stock, common stock and warrants to the public. As
of December 31, 2000, we had issued $229,138 of common stock and convertible
subordinated notes under this registration statement.
Space Systems/Loral has deferred a total of $50,000 of payments under the
Loral satellite contract originally scheduled for payment in 1999. These
deferred amounts bear interest at 10%
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per year and were originally scheduled to be paid in quarterly installments
beginning in June 2002. However, the agreement governing these deferred amounts
provides that this date, and subsequent payment dates, will be extended by the
number of days that the achievement of any milestone under the Loral satellite
contract is delayed beyond the date set forth in the Loral satellite contract.
Our fourth, spare, satellite was originally expected to be delivered to ground
storage in October 2000 and now is expected to be delivered to ground storage in
August 2001. As a result of this delay, we do not expect to make any required
payments with respect to these deferred amounts until April 2003, at the
earliest. As collateral security for these deferred payments, we have granted
Space Systems/Loral a security interest in our terrestrial repeater network.
We have entered into an agreement with Lehman Commercial Paper Inc. ('LCPI')
and Lehman Brothers Inc. pursuant to which LCPI agreed to provide us a term loan
facility in the aggregate principal amount of $150,000. The loans under this
term loan facility will be made available to us upon the demonstration of our
broadcast system and upon satisfaction of certain customary conditions, and the
proceeds will be used for working capital, capital expenditures and general
corporate purposes. In connection with this term loan facility, we have placed
into escrow, for the benefit of LCPI, 2,100,000 warrants, each to purchase one
share of our common stock at an exercise price of $29.00 per share. Of these
warrants, 525,000 are vested, 1,050,000 will vest upon the making of the loans
under this term loan facility and the remaining 525,000 will vest only under
certain conditions relating to the performance of our publicly issued senior
notes.
Shares of our 9.2% Series A Junior Cumulative Convertible Preferred Stock
and 9.2% Series B Junior Cumulative Convertible Preferred Stock are convertible
into shares of our common stock at a price of $30.00 per share. Dividends on our
9.2% Series A Junior Cumulative Convertible Preferred Stock and 9.2% Series B
Junior Cumulative Convertible Preferred Stock are payable in kind or in cash
annually, at our option. Holders of our 9.2% Series A Junior Cumulative
Convertible Preferred Stock and 9.2% Series B Junior Cumulative Convertible
Preferred Stock have the right to vote, on an as-converted basis, on matters on
which the holders of our common stock have the right to vote. Shares of our 9.2%
Series A Junior Cumulative Convertible Preferred Stock and 9.2% Series B Junior
Cumulative Convertible Preferred Stock:
are callable by us beginning November 15, 2001 at a price of 100% if the
current market price, as defined in the certificates of designation of the
9.2% Series A Junior Cumulative Convertible Preferred Stock and 9.2% Series
B Junior Cumulative Convertible Preferred Stock, of our common stock
exceeds $60.00 per share for a period of 20 consecutive trading days;
will be callable in all events beginning November 15, 2003 at a price of
100%; and
must be redeemed by us on November 15, 2011.
Shares of our 9.2% Series D Junior Cumulative Convertible Preferred Stock
are convertible into shares of our common stock at a price of $34.00 per share.
Dividends on our 9.2% Series D Junior Cumulative Convertible Preferred Stock are
payable in kind or in cash annually, at our option. Holders of our 9.2%
Series D Junior Cumulative Convertible Preferred Stock have the right to vote,
on an as-converted basis, on matters in which the holders of our common stock
have the right to vote. Shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock:
are callable by us beginning December 23, 2002 at a price of 100% if the
current market price, as defined in the certificate of designation of the
9.2% Series D Junior Cumulative Convertible Preferred Stock, of our common
stock exceeds $68.00 per share for a period of 20 consecutive trading days;
will be callable in all events beginning December 23, 2004 at a price of
100%; and
must be redeemed by us on November 15, 2011.
Upon completion of this offering, and assuming that we draw down the Lehman
term loan facility, we will have sufficient funds to operate our business
through the middle of 2002. We will require additional funds to support our
planned operations through the remainder of 2002 and thereafter until our
revenues grow substantially.
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BUSINESS
From our three orbiting satellites, we will directly broadcast up to 100
channels of digital-quality radio to motorists throughout the continental United
States for a monthly subscription fee of $9.95. We will deliver 50 channels of
commercial-free music in virtually every genre, and up to 50 channels of news,
sports, talk, comedy and children's programming. Sirius' broad and deep range of
almost every music format as well as its news, sports and entertainment
programming is not available on conventional radio in any market in the United
States. We hold one of only two licenses issued by the Federal Communications
Commission ('FCC') to operate a national satellite radio system.
Upon commencing commercial operations, we expect our primary source of
revenues to be subscription fees, which we expect will be included with the sale
or lease of certain new vehicles. In addition, we expect to derive revenues from
directly selling or bartering limited advertising on our non-music channels.
We have exclusive agreements with Ford Motor Company, DaimlerChrysler
Corporation and BMW of North America, LLC that contemplate manufacturing and
selling vehicles that include radios capable of receiving our broadcasts. These
alliances cover all brands and affiliates of these automakers, including Ford,
Chrysler, Mercedes, BMW, Jaguar, Mazda and Volvo. Our agreement with
DaimlerChrsyler also makes us the preferred provider of satellite radio in
Freightliner and Sterling heavy trucks. In 2000, Ford, DaimlerChrysler and BMW
sold or leased approximately 7.5 million vehicles in the continental United
States, which was approximately 43% of all new cars and trucks sold or leased in
the continental United States last year.
In addition, in the autosound aftermarket, we expect that radios capable of
receiving our broadcasts will be available for sale at various national and
regional retailers, such as Best Buy, Circuit City, Tweeter Home Entertainment
Group and Good Guys. In 2000, 11 million car radios were sold through consumer
electronics retailers.
We have entered into agreements with numerous consumer electronics
manufacturers, including Alpine Electronics Inc., Clarion Co., Ltd., Delphi
Delco Electronics Systems, Kenwood Corporation, Matsushita Communication
Industrial Corporation of USA, Recoton Corporation, Sony Electronics Inc. and
Visteon Automotive Systems, to develop radios capable of receiving our
broadcasts. As these radios become available in commercial quantities, they will
be sold to automakers for inclusion in new vehicles and consumer electronics
retailers for resale in the autosound aftermarket.
THE SIRIUS SERVICE
Sirius will offer motorists:
a wide choice of finely focused music and non-music formats;
commercial-free music programming; and
nearly seamless signal coverage throughout the continental United States.
Our monthly subscription fee will entitle subscribers to receive all Sirius
channels.
Wide Choice of Programming. We design and originate the programming on each
of our 50 commercial-free music channels and will offer each under the Sirius
brand. Sirius will offer subscribers a far broader range of programming formats
than conventional radio. Each of our 50 music channels has a distinctive format,
such as opera, reggae, classic jazz and children's entertainment, intended to
cater to specific subscriber tastes. Because the economics of the existing
advertiser-supported radio industry dictate that conventional radio stations
generally program for the greatest potential audience, nearly half of all
commercial radio stations in the United States offer one of only three formats:
country, adult contemporary and news/talk. The next five most prevalent formats
account for another 30% of all commercial radio stations. Although niche music
categories, including classical, jazz, rap, gospel, oldies, soundtracks, new age
and children's programming, accounted for approximately 33% of sales of recorded
music in 1999, these formats generally are unavailable on existing radio
stations in many markets. Even in New York City, the
S-18
nation's largest radio market, there are no radio stations devoted solely to
programming such as opera, blues, chamber music, soundtracks and reggae. Sirius'
wide choice of formats is expected to appeal to the large number of currently
underserved radio listeners. Our ability to offer a number of channels devoted
to many of these genres will enable subscribers to listen to a wider range of
music within their preferred format than is available on conventional radio. In
addition, our ability to offer a broad variety of news, talk and entertainment
programming will provide subscribers with listening options that are not
currently available.
Commercial-Free Music Programming. Sirius' 50 channels of music programming
will be entirely commercial-free. Our market research indicates that a principal
complaint of radio listeners concerning conventional radio is the frequency of
commercials, which in some cases can reach 18 minutes an hour, and some industry
analysts attribute a decline in listening to conventional radio to this
significant intrusion of commercials.
'Seamless' Signal Coverage. Sirius will be broadcast throughout the
continental United States, enabling listeners to be almost always within its
signal range. We expect that our nearly seamless signal will appeal to motorists
who frequently outdrive the range of their preferred AM or FM radio stations,
which typically fade after 30 to 40 miles. In addition, we expect that our
broadcasts will appeal to the 45 million underserved consumers who live in areas
that currently receive only a small number of stations.
We believe there will be significant consumer demand for Sirius. According
to the Radio Advertising Bureau, each week radio reaches approximately 95% of
all Americans over the age of 12, with the average listener spending more than
three hours per weekday and more than five hours per weekend listening to the
radio. Market research conducted for us by The Yankee Group, an independent
market research organization, shows that radio listeners today are substantially
dissatisfied with both AM and FM radio because of lack of variety in
programming, frequent commercial interruptions and loss of signal strength. Our
service has been designed to address these key disadvantages of conventional
radio.
The market for Sirius primarily consists of motorists. The Federal Highway
Administration estimates that there were approximately 208 million registered
private motor vehicles in the United States at the end of 2000. According to
Radio Advertising Bureau, more than 40% of all radio listening is done in cars.
According to Arbitron, a radio industry rating agency, in 2000 motorists
listened to the radio an average of 50 minutes a day, despite the fact that 92%
of cars have a CD or cassette player. In addition, according to Arbitron, in
1999 approximately 79% of total radio listening was to FM stations, which
provide primarily music programming, as compared with AM stations, which devote
a greater proportion of their programming to talk and news.
PROGRAMMING
We intend to program 50 channels of commercial-free music under our brand
'Sirius,' and to offer up to 50 additional channels of other formats, such as
news, sports and talk programming. We believe that 50 music channels will enable
us to 'superserve' our subscribers with a greater range of choice of content
within their preferred format than is currently offered by conventional radio,
even in the most widely broadcast formats.
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Our Music Channels. We design and originate the programming on each of our
50 commercial-free music channels. Each channel is operated as a separate radio
station, with a distinct format and its own hosts. Our current line-up of music
channels consists of:
HITS COUNTRY LATIN
Top 40 Alternative Country Latin Hits
Pop Mix Country Hits Latin Love Songs
Soft Rock Country Mix Rock en Espanol
Love Songs Classic Country Mexicana
50's Hits Bluegrass Tejano
60's Hits R&B CLASSICAL
70's Hits R&B Oldies Symphonic
80's Hits Classic Soul Hits Chamber Works
90's Hits Urban Hits Classical Voices
ROCK Rap VARIETY
Classic Rock I Soul Ballads New Age
Classic Rock II Gospel Kids
Alternative I JAZZ Christian Hits
Alternative II Classic Jazz World Music
Hard Rock/Metal Contemporary Jazz Reggae
Album Rock Smooth Jazz Dance
Eclectic Rock STANDARDS Blues
Rock Specials Big Band/Swing Specialty Showcase
Singers & Standards
Broadway's Best
Music programming will be selected from our music library. We have assembled
an extensive music library consisting of a deep range of recorded music in each
genre. To date, we have acquired approximately two million music titles. Our
music library will be updated with new recordings as they are released and, in
some cases, we intend to acquire recordings that are no longer commercially
available.
We have recruited program managers from the recording, broadcasting and
entertainment industries to manage the development of daily programming for each
Sirius music channel. To be accessible to these industries, we have built our
national broadcast studio in New York City.
We expect that well-known music experts and celebrity talent will have a
regular presence, and in some cases will perform, on our service. Conventional
radio stations, which are local businesses, generally do not have the economies
of scale or large enough audiences to attract regular appearances by celebrity
hosts. We believe that, as a national service, Sirius will have the ability to
support and attract regular appearances by celebrity hosts. We believe these
appearances will emphasize our brand and further differentiate us from
conventional radio. To date, we have alliances with the artists Grandmaster
Flash, Bebe Winans, Dave Koz, Ray Manzarek, Randy Travis, Leonard Slatkin and
Michael Feinstein to appear and perform on our service. We believe that
performances by prominent artists will be a regular occurrence at our national
broadcast studio. Among the artists that have already performed and recorded at
our national broadcast studio are Sinead O'Connor, Steve Earle, Dolly Parton,
Shaggy, Yo Yo Ma, Emmylou Harris and Randy Travis. We also have an agreement in
principle to feature live and recorded musical programming from House of Blues
on a number of our music channels.
In connection with our music programming, we must negotiate and enter into
royalty arrangements with two sets of rights holders: holders of copyrights in
musical works -- songs -- and holders of copyrights in sound
recordings -- tapes, compact discs or audio files. Musical works rights holders,
generally songwriters and music publishers, are represented by performing rights
societies such as the American Society of Composers, Authors and Publishers,
Broadcast Music, Inc. and SESAC, Inc. These organizations negotiate fees with
copyright users, collect royalties and distribute them to the rights holders.
Radio broadcasters currently pay a combined total of approximately
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3-4% of their revenues to these performing rights societies. We expect to
negotiate or establish by arbitration royalty arrangements with these
organizations, but such royalty arrangements may be more costly than anticipated
or unavailable. Sound recording rights holders, typically large record
companies, are primarily represented by the Recording Industry Association of
America, which negotiates licenses and collects and distributes royalties. Cable
audio service providers currently pay a royalty rate of 6.5% of gross revenue
for the use of sound recordings for audio services broadcast over cable
television systems. This rate was set by the Librarian of Congress, which has
statutory authority to decide rates through arbitration, and this determination
was affirmed on May 21, 1999 by the U.S. Court of Appeals for the District of
Columbia. Although we believe we can distinguish Sirius sufficiently from cable
audio services in order to negotiate a lower statutory rate, we may not be able
to do so, and we could be required to pay a higher rate. We have commenced the
negotiations of these royalty arrangements.
Our News, Sports and Entertainment Channels. In addition to our music
channels, we will offer up to 50 channels of news, sports and talk programming,
which will include limited commercial advertising. We believe that this array of
non-music programming will increase consumer interest in our service because
much of this content is unavailable on conventional radio. We generally do not
produce programming for our non-music channels; we obtain this programming from
various third party content providers.
We have agreements to air the following news, sports and entertainment
channels on Sirius:
CNBC Discovery Radio Hispanic Radio Network
Sirius News Sci-fi Radio Radio Mujer
NPR Now A&E Wisdom Radio
World Radio Network Radio Classics Women 2 Women
Bloomberg News Radio The Scandal Channel Guy Talk
C-SPAN Public Radio International Speedvision
BBC WorldService Sirius Comedy Outdoor Life
BBC Espanol Personal Achievement Live Sports Byline USA
La Red Hispana NPR Talk Radio Deportivo
African American Talk
In addition, we will feature reports from The Weather Channel on a number of our
channels. We are also discussing additional news, sports and entertainment
programming with other third party content providers and this programming will
be added to our service as agreements are completed.
MARKETING AND DISTRIBUTION
We expect radios capable of receiving our broadcasts to be available factory
installed as standard equipment in newly manufactured Ford, Chrysler, Mercedes,
BMW, Jaguar, Mazda, Volvo and other vehicles. We also expect consumer
electronics retailers to market adapters which will allow radios in existing
vehicles to receive our broadcasts. In 2000, 17 million radios were factory
installed in new vehicles and 11 million car radios were sold through consumer
electronics retailers.
We plan to engage in extensive marketing activities to create consumer
awareness of Sirius. This includes an ongoing major advertising campaign
utilizing network, cable and satellite television, radio, print, internet and
billboards. In addition, we expect the introduction of our service will have
high news value, which will result in significant publicity during the launch of
our service.
We expect that certain demographic groups, including commuters (over 100
million, including 34 million with extended commute times), niche music
listeners (niche genres not generally available on radio were responsible for
33% of recorded music sales in 1999), Hispanic listeners (there are over 32
million Spanish-speaking Americans), sports enthusiasts (often underserved by
limited regional broadcasts), truck drivers (over three million), recreational
vehicle owners (approximately three million) and consumers in areas with sparse
radio coverage (more than forty-five million), are likely to have a high level
of interest in Sirius.
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ALLIANCES WITH AUTOMAKERS
On June 11, 1999, we entered into an agreement with Ford Motor Company which
anticipates Ford manufacturing, marketing and selling vehicles, including cars
and trucks, that include radios capable of receiving our broadcasts. We expect
that the first of these vehicles will be available in the second half of 2001.
This exclusive agreement includes all Ford brands, including Ford, Jaguar, Mazda
and Volvo. As part of this agreement, we agreed to share with Ford a portion of
the revenues we will derive from subscribers using new Ford vehicles equipped to
receive our broadcasts ('Ford Enabled Vehicles'). We also agreed to reimburse
Ford for certain advertising expenses and hardware costs of Ford Enabled
Vehicles, and issued to Ford warrants to purchase 4,000,000 shares of our common
stock at an exercise price of $30.00 per share. These warrants are exercisable
based upon the number of Ford Enabled Vehicles that Ford manufactures, and are
fully exercisable after 4,000,000 Ford Enabled Vehicles are manufactured. This
agreement extends to June 11, 2004, unless earlier terminated.
On January 28, 2000, we entered into an agreement with DaimlerChrysler
Corporation, Mercedes-Benz USA, Inc. and Freightliner Corporation (collectively,
'DaimlerChrysler') which anticipates DaimlerChrysler manufacturing, marketing
and selling vehicles that include radios capable of receiving our broadcasts.
This agreement grants us exclusivity in all cars and light trucks manufactured
by DaimlerChrysler and provides us a preferred status in Freightliner and
Sterling heavy trucks. As part of this agreement, we agreed to share with
DaimlerChrysler a portion of the revenues we will derive from subscribers using
new DaimlerChrysler vehicles equipped to receive our broadcasts
('DaimlerChrysler Enabled Vehicles'). We also agreed to reimburse
DaimlerChrysler for certain advertising expenses and hardware costs of
DaimlerChrysler Enabled Vehicles, and issued to DaimlerChrysler Corporation
warrants to purchase 4,000,000 shares of our common stock at an exercise price
of $60.00 per share. These warrants are exercisable based upon the number of
DaimlerChrysler Enabled Vehicles that DaimlerChrysler manufactures, and are
fully exercisable after 4,000,000 DaimlerChrysler Enabled Vehicles are
manufactured. Concurrently, DaimlerChrysler Corporation purchased 2,290,322
shares of our common stock for an aggregate purchase price of approximately $100
million. The agreement extends to January 28, 2005, unless earlier terminated.
On June 16, 2000, we entered into an agreement with BMW of North America,
LLC which anticipates BMW marketing and selling vehicles that include radios
capable of receiving our broadcasts. This agreement grants us exclusivity in all
BMW vehicles, including cars and trucks. As part of this agreement, we will
share with BMW a portion of the revenues we will derive from subscribers using
certain BMW vehicles equipped to receive our broadcasts ('BMW Enabled
Vehicles'). In addition, we expect to reimburse BMW for certain advertising
expenses and hardware costs of BMW Enabled Vehicles.
In addition to our alliances with Ford, DaimlerChrysler and BMW, we are in
discussions with several other automobile manufacturers to include radios
capable of receiving our broadcasts in new cars and trucks. However, under our
joint development agreement with XM, any new agreements with automakers will be
on a non-exclusive basis and will require that such automakers install radios
capable of receiving both Sirius and XM's satellite radio service. Our objective
is to have radios capable of receiving our broadcasts included as standard
equipment in all cars and trucks sold in the continental United States.
THE SIRIUS SYSTEM
The Sirius system is designed to provide nearly seamless signal coverage
throughout the continental United States. Listeners will almost always be within
the broadcast range of Sirius, unlike current FM radio broadcasts, which have an
average range of only approximately 30 miles. Our system is designed to provide
clear reception in most areas despite variations in terrain, buildings and other
obstructions. The system is designed to enable motorists to receive Sirius in
all outdoor locations where the vehicle has an unobstructed line-of-sight with
one of our satellites or is within range of one of our terrestrial repeaters.
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The portion of the S-band located between 2320 MHz and 2345 MHz has been
allocated by the FCC exclusively for national satellite radio broadcasts. We use
12.5 MHz of bandwidth in the 2320.0-2332.5 MHz frequency allocation to transmit
our signals from our satellites to our subscribers. Uplink transmissions (from
the ground to our satellites) use 12.5 MHz of bandwidth in the 7060-7072.5 MHz
band.
Each satellite travels in a figure eight pattern extending above and below
the equator, and spends approximately 16 hours per day north of the equator. At
any given time, two of our three satellites operate north of the equator while
the third satellite does not broadcast as it traverses the portion of the orbit
south of the equator. This orbital configuration yields very high signal
elevation angles and thereby mitigates service interruptions that can result
from signal blockage.
The Sirius system consists of three principal components: (1) satellites and
terrestrial repeaters; (2) radios; and (3) our national broadcast studio.
SATELLITES AND TERRESTRIAL REPEATERS
Space Systems/Loral delivered title to our three operating satellites on
July 31, 2000, September 29, 2000 and December 20, 2000, following the
completion of in-orbit testing of each satellite. We expect our fourth, ground
spare, satellite to be delivered to storage in August 2001.
Satellite Design. Our satellites are of the Loral FS-1300 model series. This
family of satellites has a history of reliability with a total of 350 years of
in-orbit operation time. Each satellite is designed to have a useful life of
approximately 15 years.
Each satellite acts as a 'bent pipe,' relaying our broadcasts directly to
the ground, and do not contain on-board processors. All of our processing
operations occur on the ground where they are accessible for maintenance and
continuing technological upgrade without the need to launch replacement
satellites.
Terrestrial Repeaters. In some areas with high concentrations of tall
buildings, such as urban cores, and in tunnels, signals from our satellites will
be blocked and reception will be adversely affected. In at least 56 urban areas,
we plan to install terrestrial repeating transmitters to rebroadcast our
satellite signals, increasing the availability of service. We estimate that
these 56 urban areas will require a total of approximately 94 terrestrial
repeater sites.
As of February 21, 2001, we had substantially completed 60 terrestrial
repeater sites. A terrestrial repeater site is substantially complete when the
site is leased, all necessary zoning and building permits have been obtained,
construction of the necessary cabling, housing and other ancillary hardware has
been completed and is ready for broadcast equipment installation. Broadcast
equipment installation is underway to commission each site for commercial
operations. The remaining 34 terrestrial repeater sites are expected to be
completed during the first and second quarters of 2001. In some cases, these
sites have been delayed as a result of longer than expected local zoning
processes.
Our terrestrial repeater sites are being constructed by third party
contractors under our supervision. Black & Veatch, a construction services firm
based in Kansas City, Missouri, is providing radio frequency design, site
acquisition and site construction services. Globecomm Systems, Inc., a systems
integration and satellite operations company based in Hauppauge, New York, is
designing, developing and manufacturing custom digital broadcast equipment as
well as deploying and commissioning our terrestrial repeater sites. Loral
CyberStar, Inc., a leading satellite service provider, transmits our broadcasts
via one of its satellites from our national broadcast studio to individual
terrestrial repeater sites.
Risk Management and Insurance. We have procured insurance covering in-orbit
failure during the first two years of operation for each of our satellites. This
insurance covers losses arising from partial and total failure of the
satellites. Before expiration of this insurance, we intend to evaluate the need
for in-orbit insurance for the remainder of the estimated useful life of each
satellite. After we begin to generate revenues, we will evaluate the need for
business interruption insurance. Once properly deployed and operational, the
historical risk of premature total satellite failure has been less than 1% for
U.S. geosynchronous commercial communication satellites.
S-23
If we are required to launch our spare satellite due to the in-orbit failure
of one of our satellites, our operations would likely be interrupted or delayed
for at least six months. The in-orbit failure of two or three satellites would
require us to arrange for an additional satellite or satellites to be built and
would likely delay the commencement or continuation of our operations by at
least 16 months.
Satellites are designed to minimize the adverse effects of transmission
component failure through the incorporation of redundant components that
activate automatically or by ground command upon failure. If multiple component
failures occur and the supply of redundant components is exhausted, the
satellite generally will continue to operate, but at reduced capacity.
RADIOS
In many new cars and trucks, consumers will receive Sirius through a new
generation of three-band (AM/FM/SAT) radios, which will come installed by
automakers. In the autosound aftermarket, Sirius subscribers will have the
choice of two different receiving devices for their cars -- an FM modulated
receiver or a three-band radio.
FM Modulated Receivers. FM modulated receivers will enable our service to be
received in all vehicles with FM radios, or approximately 95% of all U.S.
vehicles. Each receiver will be a small device, approximately the size of a
compact disc changer, that will be mounted in the vehicle's trunk.
Three-Band Radios. Three-band radios will be nearly identical in appearance
to existing car stereos and will allow the user to listen to AM, FM or Sirius
with the push of a button. Like existing radios, three-band radios may also
incorporate cassette or CD players.
We have also entered into alliances with Alpine Electronics Inc., Audiovox
Corporation, Clarion Co., Ltd., Delphi Delco Electronics Systems, Harman
International Industries Incorporated, Kenwood Corporation, Matsushita
Communication Industrial Corporation of USA, Mitsubishi Electric Automotive
America, Inc., Pioneer Corporation, Recoton Corporation, Sanyo Electric Co.,
Ltd., Sony Electronics Inc. and Visteon Automotive Systems, to develop radios
capable of receiving our broadcasts for installation by automakers and sale in
the autosound aftermarket. Matsushita has completed the construction of a
manufacturing facility that is capable of producing 1,750 radios per day
commencing in the middle of this year.
We expect to have a limited quantity of radios available for testing during
the first quarter of 2001. These radios will be distributed through select
vehicle and radio manufacturers as part of a comprehensive quality assurance
program. The technical portion of this program will include end to end testing
and integration of our studio, broadcast, transaction management and customer
service systems. The content portion of this program will refine Sirius'
programming based on feedback obtained from users of these initial radios.
Once our quality assurance program has been completed and we can ensure a
high quality consumer service radios will be made widely available to consumers.
Subscriptions to Sirius resulting from the sale of radios in the autosound
aftermarket are expected to occur as commercial quantities become available for
sale, with a majority of 2001 subscriptions occurring in the fourth quarter. We
expect factory installation of radios in new vehicles to occur on a limited
basis in the second half of this year, with quantities increasing and additional
vehicle lines added beginning early in 2002.
Unified Standard. On February 16, 2000, we signed an agreement with XM
Satellite Radio Inc., the other holder of an FCC license to provide a
satellite-based digital audio radio service, to develop a unified standard for
satellite radios to enable consumers to purchase one radio capable of receiving
both our and XM's services. We expect the unified standard to detail the
technology to be employed by manufacturers of such dual-mode radios. The
technology relating to this unified standard will be jointly developed, funded
and owned by the two companies. In addition, we will work together with XM to
promote adoption of the new standard by creating a service mark for satellite
radio. This unified standard is also intended to meet FCC rules that require
interoperability of both licensed satellite radio systems.
S-24
As part of this joint development agreement, we and XM have licensed our
intellectual property to one another; the value of this license will be
considered part of each company's contribution toward the joint development. In
addition, each company has agreed to license its non-core technology, including
non-essential features of its system, to the other at commercially reasonable
rates. As part of this agreement, our previous patent litigation against XM has
been resolved.
We anticipate that it will take several years to develop radios capable of
receiving both services. At the commercial launch of our service, consumers will
be able to purchase radios capable of receiving our service only.
Both companies expect to work with their automobile and radio manufacturing
partners to integrate the new unified standard and have agreed that future
agreements with automakers and radio manufacturers will specify the unified
satellite radio standard. Furthermore, we and XM have agreed that future
agreements with retail and automotive distribution partners and content
providers will be on a non-exclusive basis.
NATIONAL BROADCAST STUDIO
Our programming originates from our national broadcast studio in New York
City. The national broadcast studio houses our corporate headquarters, our music
library, facilities for programming origination, programming personnel and
program hosts, and facilities to transmit programming to our orbiting satellites
and to perform the tracking, telemetry and control of the satellites.
Construction of our national broadcast studio was completed in November 1999.
The studios and transmission facilities at our national broadcast studio are
100% digital, resulting in no cumulative distortion to degrade the sound of our
music and entertainment product. The national broadcast studio contains
state-of-the-art production facilities and has been designed to broadcast 100
radio stations.
Broadcasting originates at our national broadcast studio and is transmitted
to our satellites for broadcast to our radios. The satellites broadcast to the
continental United States at a power level sufficient to enable receipt directly
by subscribers. Service commands to initiate and suspend subscriber service also
will be relayed from the national broadcast studio to our satellites for
retransmission to subscribers' radios.
Tracking, telemetry and control of our orbiting satellites is also performed
from our national broadcast studio. These activities include routine
stationkeeping, such as satellite orbital adjustments and monitoring of the
satellites.
CUSTOMER CARE, BILLING AND CONDITIONAL ACCESS
We have selected Stream International Inc., a call center operator, to
provide our customer care operations. Employees of Stream International have the
ability to access our billing system for various functions including account
activation, billing inquiries, program service changes, address changes and
other general account updates. When appropriate, our representatives at the call
center have the ability to escalate technical concerns to either our technical
help desk or to the appropriate equipment manufacturer. We intend to automate
customer care functions where appropriate using interactive voice response
technology, chat, email, and a customer self-care section on our website. We pay
Stream International an hourly rate for each representative assigned to support
us.
We have deployed an integrated customer relationship management and billing
solution to meet the needs of our business, including all customer service,
subscriber management and billing operations. Infintium Technologies Corp., a
leading provider of information technology services, has designed and deployed
this integrated customer relationship management and billing solution. Infintium
has integrated a customer relationship management application created by The
Vantive Corporation, which was acquired by PeopleSoft, and a billing system
application created by Portal Software Inc. The customer relationship management
solution developed by Infintium is designed to manage the expected rapid growth
of our subscriber base. Our customer relationship
S-25
management program enables us to interface electronically and exchange
information with automobile manufacturers, automobile dealers, consumer
electronics retailers and radio manufacturers, and will facilitate and encourage
subscriber interaction through the internet and by other electronic means.
Infintium manages our customer relationship management operations from its
Richmond, Virginia data center, and is paid for billing services on a per
subscriber basis.
To reduce theft of our service, each Sirius radio will contain a security
circuit with an electronically encoded identification number. After verification
of subscriber billing information, we will transmit a digital signal to activate
that radio's Sirius capability. Through this feature, we can directly (via
satellite) deactivate radios of subscribers who are delinquent in paying our
subscription fee.
COMPETITION
We expect to face competition from two principal sources:
conventional AM/FM radio broadcasting, including, when available,
terrestrial digital radio broadcasting; and
XM, the other holder of an FCC license to provide a satellite-based digital
audio radio service.
The AM/FM radio broadcasting industry is well-established and very
competitive. Radio stations compete for listeners and advertising revenues
directly with other radio stations within their markets on the basis of a
variety of factors, including program content, on-air talent, transmitter power,
assigned frequency, audience characteristics, local program acceptance and the
number and characteristics of other radio stations in the market.
Unlike Sirius, the radio industry has a well established market for its
services and generally offers 'free' broadcast reception paid for by commercial
advertising rather than by a subscription fee. Sirius will compete with
conventional radio stations on the basis of its targeted programming formats,
nearly seamless signal coverage, freedom from advertising on its music channels
and digital quality sound, features which are largely unavailable on
conventional radio.
Currently, radio stations broadcast by means of analog signals, as opposed
to digital transmission. We believe, however, that within several years
conventional broadcasters may be able to place digital audio broadcasts into the
bandwidth occupied by current AM and FM stations and the use of this technology
will permit digital AM sound quality to approach monaural FM sound quality and
permit digital FM broadcasts to approach compact disc sound quality. To receive
these digital AM/FM broadcasts, listeners will need to purchase new digital
radios which currently are not commercially available. While the development of
digital broadcasting would eliminate one of the advantages of Sirius over FM
radio, we do not believe it would enable broadcasters to address the other
advantages of Sirius. In addition, we view the growth of terrestrial digital
broadcasting as a positive force that would encourage listeners to replace
existing radios and thereby facilitate the introduction of radios capable of
receiving our broadcasts.
During 1999, XM entered into an exclusive agreement with General Motors
Corporation, which has a significant equity interest in XM's parent company,
under which GM will install devices capable of receiving XM's service.
Although some existing satellite operators currently provide music
programming to customers at fixed locations, these operators are incapable of
providing Sirius-type service to vehicles as a result of some or all of the
following reasons:
these operators do not broadcast on radio frequencies suitable for
reception in a mobile environment;
Sirius-type service requires fully dedicated satellites;
Sirius-type service requires a custom satellite system design; and
Sirius-type service requires regulatory approvals, which existing satellite
operators do not have.
S-26
The FCC could also grant new licenses that would enable additional
competitors to broadcast satellite radio. There are many portions of the
electromagnetic spectrum that are currently licensed for other uses and some
other portions for which licenses have been granted by the FCC without
restriction as to use, and we cannot assure you that these portions of the
spectrum could not be utilized for satellite radio broadcasting in the future.
Although any of these licensees would face cost and competition barriers, we
cannot assure you that there will not be an increase in the number of
competitors in the satellite radio industry.
TECHNOLOGY AND PATENTS
We have been granted U.S. patents on various features of satellite radio
technology. Although we believe that obtaining patent protection may provide
benefits, we do not believe that our business is dependent on obtaining patent
protection or successfully defending any of the patents that may be obtained
against infringement by others.
Some of our know-how and technology is not the subject of U.S. patents. To
protect our rights, we require some of our employees, consultants, advisors and
collaborators to enter into confidentiality agreements. We cannot assure you,
however, that these agreements will provide meaningful protection for our trade
secrets, know-how or other proprietary information if there is any unauthorized
use or disclosure. In addition, our business may be adversely affected by
competitors who independently develop competing technologies.
Our proprietary technology was principally developed by Robert D. Briskman,
our co-founder, and was assigned and belongs to us. We believe that we are the
sole owner of the technology covered by our issued patents. We cannot assure
you, however, that third parties will not bring suit against us for patent
infringement or for declaratory judgment to have our patents declared invalid.
If a dispute arises concerning our patents, trade secrets or know-how,
litigation might be necessary to enforce our patents, to protect our trade
secrets or know-how or litigation may occur to determine the scope of the
proprietary rights of others. This litigation could result in substantial cost
to, and diversion of effort by, us, and adverse findings in any proceeding could
subject us to significant liabilities to third parties, require us to seek
licenses from third parties or otherwise adversely affect our ability to
successfully develop and market Sirius.
On January 12, 1999, we filed a lawsuit against XM in the U.S. District
Court for the Southern District of New York for patent infringement. On
February 16, 2000, we and XM entered into a joint development agreement to
design and develop radios that are capable of receiving our and XM's broadcasts
and we agreed to withdraw this lawsuit. We and XM have agreed to cross-license
our respective intellectual property and to resolve disputes over the value of
our contributed property through negotiation or arbitration. Only if this joint
development agreement is terminated before the value of the licenses has been
determined due to XM's failure to perform a material covenant or obligation
under the joint development agreement could we refile this suit.
GOVERNMENT REGULATION
As an operator of a privately owned satellite system, we are regulated by
the FCC under the Communications Act of 1934, as amended. The FCC is the
government agency with primary authority in the United States over satellite
radio communications. We currently must comply with regulation by the FCC
principally with respect to:
the licensing of our satellite system;
preventing interference with or to other users of radio frequencies; and
compliance with rules that the FCC has established specifically for U.S.
satellites and rules that the FCC has established for providing a satellite
radio service.
On May 18, 1990, we proposed that the FCC establish a satellite radio
service and applied for an FCC license. On March 3, 1997, the FCC adopted rules
for the national satellite digital audio radio service (the 'FCC Licensing
Rules'). Pursuant to the FCC Licensing Rules, an auction was held among the
applicants on April 1 and 2, 1997. We were a winning bidder for one of two FCC
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licenses with a bid of approximately $83 million; XM was the other winning
bidder for an FCC license with a bid of $89 million. After payment of the full
amount by us, on October 10, 1997, the FCC's International Bureau issued us a
license to place two satellites in geostationary orbit. Our FCC license was
effective immediately; however, for a period of 30 days following the grant of
the FCC license, those parties that had filed comments or petitions to deny in
connection with our license application were entitled to petition for
reconsideration by the International Bureau or to request review of the decision
by the full FCC. An application for review by the FCC was filed by one of the
low-bidding applicants in the auction. This petition requests, among other
things, that the FCC adopt restrictions on foreign ownership, which were not
applied in the license issued to us by the FCC's International Bureau on
October 10, 1997 (the 'IB Order'), and, on the basis of our ownership, overrule
the IB Order. Since December 1997, there have been no further developments
concerning this petition. Although we believe the FCC will uphold the IB Order,
we cannot predict the ultimate outcome of any proceedings relating to this
petition or any other proceeding that may be filed. If this petition is denied,
the complaining party may file an appeal with the U.S. Court of Appeals which
must find that the decision of the FCC was not supported by substantial
evidence, or was arbitrary, capricious or unlawful to overturn the grant of our
FCC license.
Under the FCC Licensing Rules, we are required to meet specific progress
milestones. We are required to:
begin satellite construction within one year of the grant of our FCC
license;
launch and begin operating our first satellite within four years of the
grant of our FCC license; and
begin operating our entire system within six years of the grant of our FCC
license.
The IB Order states that failure to meet these milestones will render our
FCC license null and void. On January 4, 2001, we notified the FCC that we
launched all three of our satellites and were essentially ready to begin
commercial operations but we are awaiting our modified license. On March 27,
1997, a third party requested reconsideration of the FCC Licensing Rules,
seeking, among other things, that the time period allotted for these milestones
be shortened. To date, the FCC has not responded to the petition for
reconsideration. We cannot predict the outcome of this petition.
In 1998, we decided to increase the number of satellites in our system from
two to three and change our orbits from geostationary to inclined, elliptical
geosynchronous, requiring modification of our FCC license. We filed an
application with the FCC for this modification on December 11, 1998. XM and WCS
Radio Inc. have filed comments on our application with the FCC. These comments
requested the FCC to condition approval of our modification on receiver
interoperability and requested us to insure that our service will not cause
harmful interference with wireless services in Central and South America. We
cannot predict the time it will take the FCC to act on our application or any of
those comments, or whether additional submissions or waiver requests will be
necessary, and we cannot be sure that the modification we have requested will be
granted. Failure of the FCC to approve the requested modification to our license
in a timely fashion would have a material adverse effect on our business,
financial condition and prospects. In the interim, on December 20, 1999, we
received special temporary authority from the FCC to launch and test our three
satellites in inclined elliptical geosynchronous orbits. This special temporary
authority was modified on August 31, 2000 and expires on February 27, 2001 or
the date on which permanent authority is granted, whichever occurs first, and
does not authorize us to begin providing our service using our three satellites.
We requested an extension of this special temporary authority on February 21,
2001.
The term of our FCC license is eight years, commencing from the time the FCC
concludes that our first satellite is operational after having been inserted
into orbit. Upon the expiration of the term, we will be required to apply for a
renewal of our FCC license. Although we anticipate that, absent significant
misconduct on our part, our FCC license will be renewed in due course to
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permit operation of our satellites for their useful lives, and that a license
would be granted for any replacement satellites, we cannot assure you of this
renewal or grant.
To operate our satellites, we also will have to obtain a license from the
FCC to operate our uplink facility. Normally, this type of approval is sought
after issuance of an FCC satellite license. We applied for a license to operate
our uplink facility on June 25, 1999. The deadline for the public to file
comments on our application was October 16, 1999, and no comments were filed. We
amended our application on July 26, 2000 and on December 11, 2000, and no
comments were filed on these amendments. The FCC has indicated that it intends
to consider our application to operate our uplink facility in connection with
its consideration of our pending application to modify our satellite license.
Although we cannot assure you that this license will be granted, we do not
expect difficulties in obtaining this license in the ordinary course. We have
received special temporary authority from the FCC to operate our uplink facility
for test purposes. This special temporary authority was effective on June 1,
2000, was renewed on December 7, 2000 and will expire on June 7, 2001.
In the future, any assignments or transfers of control of our FCC license
must be approved by the FCC. We cannot assure you that the FCC would approve any
transfers or assignments.
In some areas with high concentrations of tall buildings, such as urban
cores, or in tunnels, signals from our satellites will be blocked and reception
will be adversely affected. In these cases, we plan to install terrestrial
repeaters to provide our service. The FCC has not yet established rules
governing the construction and operation of terrestrial repeaters. A rulemaking
on the subject was initiated by the FCC on March 3, 1997 and is still pending.
Several comments were received by the FCC that sought to cause the FCC to adopt
rules that would restrict the deployment of our terrestrial repeaters. On
December 17, 1999, XM filed supplemental comments in this rulemaking and we
filed supplemental comments in this rulemaking on January 18, 2000. On
February 22, 2000, the National Association of Broadcasters, the Wireless
Communications Association and BellSouth Corporation filed comments on these
filings. These comments seek to protect adjoining wireless services and ensure
that we do not originate local programming through our terrestrial repeater
network. On March 8, 2000, we filed a reply to these comments reaffirming that
we do not intend to originate local programming through our terrestrial repeater
network and denying that our repeater network will interfere with adjoining
wireless services. Metricom, Inc., MCI WorldCom, Inc. and AFTRCC also filed
reply comments on March 8, 2000 seeking to protect adjoining wireless services,
including flight test receivers. On March 22, 2000, we filed a supplemental
reply to these reply comments reaffirming that our terrestrial repeater network
will not interfere with wireless services in nearby spectrum. On October 12,
2000, we filed a coordination agreement with the FCC that we reached with
AFTRCC. On January 25, 2001, XM and ourselves filed a proposed rule authorizing
terrestrial repeaters for adoption by the FCC. In the interim, we have
constructed a number of terrestrial repeaters under a temporary experimental
license, which will expire on October 1, 2001. We cannot predict the outcome or
the timing of these FCC proceedings.
The IB Order conditions our FCC license on us certifying that our system
includes a receiver design that will permit end users to access XM's system. On
February 16, 2000, we signed an agreement with XM to jointly develop a unified
standard for satellite radios to facilitate the ability of consumers to purchase
one radio capable of receiving both our and XM's services. We believe that this
agreement, and our efforts with XM to develop this unified standard for
satellite radios, will satisfy the interoperability condition contained in our
FCC license although we cannot assure you of this.
The FCC has updated certain regulations and has proposed to update other
regulations to govern the operations of new unlicensed devices that may generate
radio energy in the part of the spectrum to be used by us. The devices would be
required to comply with FCC rules that prohibit these devices from causing
harmful interference to an authorized radio service such as Sirius. If the FCC
does not adopt adequate technical standards specifically applicable to these
devices and use of these unlicensed devices becomes commonplace, it may be
difficult for us to enforce our rights to use spectrum without interference from
such unlicensed devices. We believe that the
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currently proposed FCC rules must be strengthened to ensure protection of the
spectrum allocated for our operations. During 1998, 1999 and 2000, we filed
comments and other written submissions to the FCC and met with FCC staff to
express our concerns and protect our right to use our spectrum without
interference from unlicensed devices. The FCC's failure to adopt adequate
standards could have an adverse effect on reception of our service. We believe
that the FCC will set adequate standards to prevent harmful interference,
although we cannot assure you that it will do so.
Our business operations as currently contemplated may require a variety of
permits, licenses and authorizations from governmental authorities other than
the FCC, but we have not identified any permit, license or authorization that we
believe could not be obtained in the ordinary course of business. The
Communications Act prohibits the issuance of a license to a foreign government
or a representative of a foreign government, and contains limitations on the
ownership of common carrier, broadcast and some other radio licenses by non-U.S.
citizens. We are regulated as a private carrier, not a common carrier, by the
FCC and are not a broadcast service. As such, the IB Order determined that we
are not bound by the foreign ownership provisions of the Communications Act. The
FCC has before it a petition to apply the foreign ownership rules to satellite
digital audio radio services, but has not acted on that petition. We believe
that the FCC will not apply the foreign ownership rules to digital audio radio
services but cannot assure you of that result. As a private carrier, we are free
to set our own prices and serve customers according to our own business
judgment, without economic regulation.
The foregoing discussion reflects the application of current communications
law and FCC regulations to our service in the United States. Changes in law or
regulations relating to communications policy or to matters affecting
specifically the service proposed by us could adversely affect our ability to
retain our FCC license and obtain or retain other approvals required to provide
our service or the manner in which our proposed service would be regulated.
Further, actions of the FCC may be reviewed by U.S. federal courts and we cannot
assure you that if challenged, these actions would be upheld.
THE SIRIUS TRADEMARK
We have an application pending in the U.S. Patent and Trademark Office for
the registration of the trademark 'Sirius' in connection with our service. We
intend to maintain our trademark and the anticipated registration. We are not
aware of any material claims of infringement or other challenges to our right to
use the 'Sirius' trademark in the United States in connection with our service.
PERSONNEL
As of February 20, 2001, we had 173 employees. On December 31, 2001, we
expect to have approximately 250 employees. The extent and timing of the
increase in staffing will depend on the availability of qualified personnel and
other developments in our business. None of our employees are represented by a
labor union, and we believe that our relationship with our employees is
excellent.
CORPORATE INFORMATION
Sirius Satellite Radio Inc. was incorporated in the State of Delaware as
Satellite CD Radio, Inc. on May 17, 1990. On December 7, 1992, we changed our
name to CD Radio Inc., and we formed a wholly owned subsidiary, Satellite CD
Radio, Inc., that is the holder of our FCC license. On November 18, 1999, we
changed our name again to Sirius Satellite Radio Inc. Our executive offices are
located at 1221 Avenue of the Americas, New York, New York 10020 and our
telephone number is (212) 584-5100. Our internet address is siriusradio.com.
Siriusradio.com is an inactive textual reference only, meaning that the
information contained on the website is not part of this prospectus supplement
and is not incorporated in this prospectus supplement by reference.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are described below. Our directors
stand for election annually.
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
David Margolese...................... 43 Chairman of the Board and Chief Executive Officer
Robert D. Briskman(1)................ 68 Executive Vice President, Engineering, and
Director
Joseph S. Capobianco................. 51 Senior Vice President, Content
Dr. Mircho Davidov................... 54 Senior Vice President, Engineering
Patrick L. Donnelly.................. 39 Senior Vice President, General Counsel & Secretary
Lawrence F. Gilberti(2)(3)........... 50 Director
Joseph V. Vittoria(2)(3)............. 66 Director
Ralph V. Whitworth(2)(3)............. 45 Director
- ---------
(1) Mr. Briskman will retire as our Executive Vice President, Engineering, and
as a director on February 28, 2001. Mr. Briskman's services will be
available to us as a consultant until February 28, 2004.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
DAVID MARGOLESE has served as Chairman of the Board and Chief Executive
Officer since August 1993, and as a director since August 1991. Prior to his
involvement with us, Mr. Margolese proposed and co-founded Cantel Inc., Canada's
national cellular telephone carrier, which was acquired by Roger Communications
Inc. in 1989, and Canadian Telecom Inc., Canada's national paging company,
serving as that company's president until the company's sale in 1987.
ROBERT D. BRISKMAN is our co-founder and has served as Executive Vice
President, Engineering, and as a director since October 1991. Before 1986,
during his 22-year career at Communications Satellite Corporation, a satellite
communications company, he was responsible for the engineering and
implementation of numerous major satellite systems, including ITALSAT, ARABSAT
and CHINASAT. Mr. Briskman was one of the early engineers hired at NASA in 1959,
and received the APOLLO Achievement Award for the design and implementation of
the Unified S-Band System. He is past chairman of the IEEE Standards Board, past
president of the Aerospace and Electronics Systems Society and served on the
industry advisory council to NASA. He is the Telecommunications Editor of McGraw
Hill's Encyclopedia of Science and Technology and is a recipient of the IEEE
Centennial Medal.
JOSEPH S. CAPOBIANCO has served as Senior Vice President, Content, since
April 1997. From 1981 to April 1997, he was an independent consultant providing
programming, production, marketing and strategic planning consulting services to
media and entertainment companies, including Home Box Office, a cable television
service and a subsidiary of Time Warner Entertainment Company, L.P., and ABC
Radio. From May 1990 to February 1995, he served as vice president of
programming at Music Choice, which operates a 40-channel music service available
to subscribers to DIRECTV and is partially owned by Warner Music Group Inc.,
Sony Entertainment Inc. and EMI.
DR. MIRCHO DAVIDOV has served as Senior Vice President, Engineering, since
April 2000. From 1995 to 2000, he was vice president at Hughes Network Systems,
a provider of satellite and wireless communications equipment, managing various
programs, including the development of hand held terminals for THURAYA, a mobile
satellite communication system. Prior to Hughes, Dr. Davidov held a number of
technical positions at various companies, including TCSI Group, CellNet and Oak
Industries.
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PATRICK L. DONNELLY has served as Senior Vice President, General Counsel &
Secretary since May 1998. From June 1997 to May 1998, he was vice president and
deputy general counsel of ITT Corporation, a hotel, gaming and entertainment
company that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in
February 1998. From October 1995 to June 1997, he was assistant general counsel
of ITT Corporation. Prior to October 1995, Mr. Donnelly was an associate at the
law firm of Simpson Thacher & Bartlett.
LAWRENCE F. GILBERTI has been a director since September 1993 and served as
our Secretary from November 1992 until May 1998. Since December 1992, he has
been the Secretary and sole director, and from December 1992 to September 1994
was the President, of Satellite CD Radio, Inc., our subsidiary which holds our
FCC license. Mr. Gilberti is a partner in the law firm of Reed Smith LLP and has
provided legal services to us since 1992. From August 1994 to May 1998, Mr.
Gilberti was a partner in the law firm of Fischbein Badillo Wagner & Harding.
Mr. Gilberti is a member of the Audit and Compensation Committees of our board
of directors.
JOSEPH V. VITTORIA has been a director since April 1998. Since March 2000,
Mr. Vittoria has served as Executive Chairman of Travel Services International,
Inc. and from 1997 to February 2000 he was Chairman and CEO of that company.
Since 1997, Mr. Vittoria has served as a member of the Board of Overseers of
Columbia Business School. From September 1987 to February 1997, Mr. Vittoria was
the Chairman and Chief Executive Officer of Avis Inc., one of the world's
largest rental car companies, and served as its President and Chief Operating
Officer during the prior five years. Mr. Vittoria also serves on the boards of
Resort Quest Inc. and Carey International, Inc. He is Chairman of Transmedia
Asia, Inc. and of Puradyn Filter Technologies, Inc. Mr. Vittoria is a member of
the Audit and Compensation Committees of our board of directors.
RALPH V. WHITWORTH has been a director since March 1994. Mr. Whitworth has
been a principal and managing member at Relational Investors LLC, a private
investment company, since March 1996, and a partner in Batchelder & Partners,
Inc., a financial advisory firm, since January 1997. Since April 1998, he has
also been Chairman of Apria Healthcare Group, Inc., a home-health company. From
August to November 1999, he was Chairman of Waste Management, Inc., a provider
of integrated waste management services. From August 1988 to December 1996, he
was President of Whitworth and Associates, a Washington, D.C.-based consulting
firm. Mr. Whitworth is also a director of Mattel, Inc., Waste Management, Inc.
and Tektronix, Inc. Mr. Whitworth is a member of the Audit and Compensation
Committees of our board of directors.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Gilberti, a director, is a partner in the law firm of Reed Smith LLP and
has provided legal services to us since 1992.
Pursuant to an agreement dated October 21, 1992, we retained the services of
Batchelder & Partners, Inc. to provide certain financial consulting services.
This agreement was terminated on November 30, 1997; however, the parties agreed
that the termination would not affect our obligations with respect to financing
transactions entered into prior to November 30, 1999. In January 1997,
Mr. Whitworth, a director, became a partner in Batchelder. In the fiscal year
ended December 31, 1999, Mr. Whitworth, as a partner in Batchelder, received
approximately $885,000 from the total fees received by Batchelder from us. On
December 29, 1997, Mr. Whitworth received, pursuant to options given Batchelder,
an option to purchase 17,800 shares of our common stock at an exercise price of
$6.25. On February 2, 2000, Mr. Whitworth exercised this option and sold the
common stock received upon exercise of the option.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of
our common stock as of January 31, 2001 by (1) each stockholder known by us to
be the beneficial owner of more than 5% of the outstanding common stock,
(2) each of our directors, (3) each of our executive officers and (4) all
directors and executive officers as a group. Except as otherwise indicated, we
believe that the beneficial owners of the common stock listed below, based on
information furnished by these owners, have sole investment and voting power
with respect to these shares, except as otherwise provided by community property
laws where applicable.
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS OF OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
----------------------------------- ------------------ ---------------------
Apollo Investment Fund IV, L.P.(3) ...................... 7,704,700 15.5%
Apollo Overseas Partners IV, L.P.
Two Manhattanville Road
Purchase, New York 10577
David Margolese(4) ...................................... 6,451,187 14.3%
1221 Avenue of the Americas
36th Floor
New York, New York 10020
Blackstone Management Associates III L.L.C.(5) .......... 6,310,847 13.0%
345 Park Avenue
New York, New York 10154
Prime 66 Partners, L.P.(6) .............................. 4,139,975 9.8%
201 Main Street
Suite 3200
Fort Worth, Texas 76102
Everest Capital Master Fund, L.P.(7)(8) ................. 4,143,222 9.3%
Everest Capital Limited
The Bank of Butterfield Building
65 Front Street
6th Floor
Hamilton, MMJX, Bermuda
Loews Corporation(9) .................................... 2,353,672 5.6%
667 Madison Avenue
New York, New York 10021
DaimlerChrysler Corporation(10) ......................... 2,290,322 5.4%
100 Chrysler Drive
Auburn Hills, Michigan 48326
Robert D. Briskman(11) .................................. 299,076 *
Lawrence F. Gilberti(12) ................................ 55,000 *
(table continued on next page)
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(table continued from previous page)
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS OF OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
----------------------------------- ------------------ ---------------------
Joseph V. Vittoria(13) .................................. 55,000 *
Ralph V. Whitworth(14) .................................. 30,000 *
Joseph S. Capobianco(15) ................................ 107,978 *
Patrick L. Donnelly(16) ................................. 120,425 *
Mircho Davidov(17) ...................................... 40,051 *
All Executive Officers and Directors as a Group
(8 persons)(18) ....................................... 7,158,717 15.7%
- ---------
* Less than 1%
(1) This table is based upon information supplied by directors, officers and
principal stockholders. Percentage of ownership is based on shares of
common stock outstanding on January 31, 2001.
(2) Determined as provided by Rule 13d-3 under the Exchange Act. Under this
rule, a person is deemed to be the beneficial owner of securities that can
be acquired by this person within 60 days from the date of determination
upon the exercise of options, and each beneficial owner's percentage
ownership is determined by assuming that options that are held by this
person (but not those held by any other person) and that are exercisable
within 60 days from the date of determination have been exercised.
(3) Represents 1,595,707 shares of 9.2% Series A Junior Cumulative Convertible
Preferred Stock and 715,703 shares of 9.2% Series B Junior Cumulative
Convertible Preferred Stock, which entitle the holder to vote as if the
shares had been converted to common stock. Each share of 9.2% Series A
Junior Cumulative Convertible Preferred Stock and 9.2% Series B Junior
Cumulative Convertible Preferred Stock is entitled to three and one-third
votes per share.
(4) Includes 1,187 shares of common stock acquired under our 401(k) Plan,
2,850,000 shares of common stock issuable under stock options that are
exercisable within 60 days and 1,600,000 shares owned by Mr. Margolese.
Under a voting trust agreement entered into by Darlene Friedland, as
grantor, David Margolese, as trustee, and us, Mr. Margolese has the power
to vote in his discretion all shares of common stock owned or acquired in
the future by Darlene Friedland and some of her affiliates (2,000,000
shares as of January 31, 2001) until November 20, 2002. Does not include
350,000 shares issuable under stock options that are not exercisable within
60 days.
(5) Represents 2,145,688 shares of 9.2% Series D Junior Cumulative Convertible
Preferred Stock, which entitle the holder to vote as if the shares had been
converted to common stock. Each share of 9.2% Series D Junior Cumulative
Convertible Preferred Stock is entitled to 2.9412 votes per share. This
information is based upon the Schedule 13D dated January 31, 2000 filed by
Blackstone Management Associates III L.L.C. with the SEC.
(6) This information is based upon the Form 4 filed February 10, 2001 by
Prime 66 Partners, L.P. with the SEC.
(7) Represents 1,941,211 shares of common stock and $13,150,000 in aggregate
principal amount of our 8 3/4% Convertible Subordinated Notes due 2009.
This information is based upon the Form 4 dated February 12, 2001 filed by
Everest Capital Limited with the SEC.
(8) Includes shares of common stock issuable under warrants to purchase
1,740,000 shares of common stock at a purchase price of $50 per share.
These warrants are exercisable from June 15, 1998 through and including
June 15, 2005.
(9) This information is based upon the Schedule 13G dated February 12, 2001
filed by CNA Financial Corporation, Loews Corporation and Continental
Casualty Company with the SEC.
(footnotes continued on next page)
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(footnotes continued from previous page)
(10) This information is based upon the Schedue 13G dated February 2, 2000 filed
by DaimlerChrysler Corporation with the SEC.
(11) Includes 1,076 shares of common stock acquired under our 401(k) Plan,
286,322 shares of common stock issuable under stock options exercisable
within 60 days and 11,678 shares of common stock owned by Mr. Briskman.
Does not include 152,000 shares issuable under stock options that are not
exercisable within 60 days.
(12) Represents 55,000 shares of common stock issuable under stock options
exercisable within 60 days.
(13) Represents 55,000 shares of common stock issuable under stock options
exercisable within 60 days.
(14) Represents 30,000 shares of common stock issuable under stock options
exercisable within 60 days.
(15) Includes 978 shares of common stock acquired under our 401(k) Plan and
107,000 shares of common stock issuable under stock options exercisable
within 60 days. Does not include 143,000 shares of common stock issuable
under stock options that are not exercisable within 60 days.
(16) Includes 425 shares of common stock acquired under our 401(k) Plan and
120,000 shares of common stock issuable under stock options exercisable
within 60 days. Does not include 280,000 shares issuable under stock
options that are not exercisable within 60 days.
(17) Includes 51 shares of common stock acquired under our 401(k) Plan and
40,000 restricted shares of common stock. Does not include 300,000 shares
issuable under stock options that are not exercisable within 60 days.
(18) Includes 3,503,322 shares of common stock issuable under stock options
exercisable within 60 days. Does not include 1,225,000 shares issuable
under stock options that are not exercisable within 60 days.
VOTING TRUST AGREEMENT
We are party to a voting trust agreement by and among Darlene Friedland, as
grantor, and David Margolese, as the voting trustee. The following is a summary
of the material provisions of the voting trust agreement. The complete text of
the voting trust agreement is filed with the SEC as an exhibit to the
registration statement that includes the related prospectus.
The voting trust agreement provides for the establishment of a trust (the
'Trust') into which there were deposited all of the shares of common stock owned
by Mrs. Friedland on August 26, 1997 and into which any shares of common stock
acquired by Mrs. Friedland, her spouse Robert Friedland, any member of either of
their immediate families or any entity directly or indirectly controlled by Mrs.
Friedland, her spouse or any member of their immediate families (the 'Friedland
Affiliates') between August 26, 1997 and the termination of the Trust must also
be deposited. The Trust will terminate on November 26, 2002.
The voting trust agreement does not restrict the ability of Mrs. Friedland
or any of the Friedland Affiliates to sell, assign, transfer or pledge any of
the shares of common stock deposited into the Trust, nor does it prohibit Mrs.
Friedland or the Friedland Affiliates from purchasing additional shares of
common stock, provided those shares are deposited in the Trust, as described
above.
Under the voting trust agreement, the trustee has the power to vote shares
of common stock held in the Trust in relation to any matter upon which the
holders of these shares of common stock would have a right to vote, including
without limitation the election of directors. For so long
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as David Margolese remains trustee of the Trust, he may exercise these voting
rights in his discretion. Any successor trustee or trustees of the Trust must
vote as follows:
on the election of directors, the trustee(s) must vote the entire number of
shares of common stock held by the Trust, with the number of shares of
common stock voted for each director (or nominee for director) determined
by multiplying the total number of votes held by the Trust by a fraction,
the numerator of which is the number of votes cast for this director by our
other stockholders and the denominator of which is the sum of the total
number of votes represented by all shares casting any votes in the election
of directors;
if the matter under Delaware law, our Amended and Restated Certificate of
Incorporation or our Amended and Restated Bylaws requires at least an
absolute majority of all outstanding shares of our common stock to be
approved, the trustee(s) must vote all of the shares of common stock in the
Trust in the same manner as the majority of all votes that are cast for or
against the matter by all other stockholders of ours; and
on all other matters, including without limitation any amendment of the
voting trust agreement for which a stockholder vote is required, the
trustee(s) must vote all of the shares in the Trust for or against the
matter in the same manner as all votes that are cast for or against the
matter by all of our other stockholders.
The voting trust agreement may not be amended without our prior written
consent, acting by unanimous vote of our board of directors, and approval of our
stockholders, acting by the affirmative vote of two-thirds of our total voting
power, except in limited circumstances where amendments to the voting trust
agreement must comply with applicable law.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
14 1/2% SENIOR SECURED NOTES DUE 2009
The senior secured notes were originally issued on May 18, 1999, mature on
May 15, 2009 and are secured by a first priority perfected security interest in
all the issued and outstanding stock of Satellite CD Radio, Inc., our wholly
owned subsidiary (the 'Pledged Stock'), which pledge ranks equally with the
pledge of the stock to secure our obligations in respect of the senior secured
discount notes. In addition, at the time we issued the senior secured notes, we
applied approximately $79.3 million of the net proceeds to purchase, and we
pledged to the trustee for the senior secured notes in escrow for the benefit of
the holders of these notes, a portfolio of U.S. government securities in an
amount sufficient to pay the first six payments of interest on these notes. We
pay interest on our senior secured notes on May 15 and November 15 of each year
at a rate of 14 1/2% per annum until May 15, 2009. The senior secured notes
indenture does not provide for a sinking fund.
Except as described below, the senior secured notes are not redeemable
before May 15, 2004. After that date, the senior secured notes are redeemable,
in whole or in part, at our option, at the redemption prices described in the
senior secured notes indenture, plus accrued interest to the applicable
redemption date. Specifically, if redeemed during the 12-month period beginning
on May 15 of the years shown below, the redemption price will be that amount,
expressed as a percentage of the principal amount of the senior secured notes,
shown below:
REDEMPTION
YEAR PRICE
- ---- -----
2004..................................................... 107.250%
2005..................................................... 104.833%
2006..................................................... 102.417%
2007 and thereafter...................................... 100.000%
In addition, at any time or from time to time before May 15, 2002, we are
entitled to redeem up to 35% of the principal amount of the senior secured notes
with the net proceeds of one or more offerings of our equity securities at a
redemption price (expressed as a percentage of principal amount on the
redemption date) of 114.50% plus accrued interest to the redemption date.
If there is a Change of Control (as defined in the senior secured notes
indenture) or asset sales in specific circumstances, we will be required by the
terms of the senior secured notes indenture to make an offer to purchase the
outstanding senior secured notes at a purchase price equal to 101% of the
principal amount of the senior secured notes, plus accrued interest to the date
of purchase.
The indebtedness evidenced by the senior secured notes ranks equally in
right of payment with all of our other existing and future unsubordinated
indebtedness and senior in right of payment to all of our existing and future
obligations expressly subordinated in right of payment to the senior secured
notes.
The senior secured notes indenture contains a number of covenants
restricting our operations and the operations of our subsidiaries, including
those restricting the incurrence of indebtedness; the making of restricted
payments (in the form of the declaration or payment of some kinds of dividends
or distributions, the purchase, redemption or other acquisition of any of our
capital stock, the voluntary prepayment of equal or subordinated indebtedness
and the making of some kinds of investments, loans and advances); transactions
with affiliates; the issuance of liens; sale-leaseback transactions; the
transfer of assets; issuances and sales of capital stock of subsidiaries; the
issuance of guarantees by subsidiaries; dividend and other payment restrictions
affecting subsidiaries; and consolidation, merger or sale of substantially all
of our assets.
The events of default under the senior secured notes indenture include
provisions that are typical of senior debt financings, including a
cross-acceleration to a default by us or any material subsidiary on any
indebtedness that has an aggregate principal amount in excess of $10 million.
Upon the occurrence of an event of default, the trustee or the holders of not
less than 25% in
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principal amount at maturity of the outstanding senior secured notes may
immediately accelerate the maturity of all the senior secured notes as provided
in the senior secured notes indenture.
15% SENIOR SECURED DISCOUNT NOTES DUE 2007
The senior secured discount notes were originally issued on November 27,
1997, mature on December 1, 2007 and are secured by the Pledged Stock, which
pledge ranks equally with the pledge of the stock to secure our obligations in
respect of our senior secured notes due 2009. The senior secured discount notes
accrue the original issue discount at a rate of 15% per annum until December 1,
2002, and thereafter bear interest at the same rate, payable in cash
semiannually in arrears. The senior secured discount notes indenture does not
provide for a sinking fund.
The senior secured discount notes are not redeemable before December 1,
2002. Thereafter, the senior secured discount notes are redeemable, in whole or
in part, at our option, at the redemption prices described in the senior secured
discount notes indenture, plus accrued interest to the applicable redemption
date. Specifically, if redeemed during the 12-month period commencing on
December 1 of the years shown below, the redemption price will be that amount,
expressed as a percentage of the principal amount of the senior secured discount
notes, shown below:
REDEMPTION
YEAR PRICE
- ---- -----
2002..................................................... 112.5%
2003..................................................... 110.0%
2004..................................................... 107.5%
2005..................................................... 105.0%
2006..................................................... 102.5%
If there is a Change of Control (as defined in the senior secured discount
notes indenture) or asset sales in specific circumstances, we will be required
by the terms of the senior secured discount notes indenture to make an offer to
purchase the outstanding senior secured discount notes at a purchase price equal
to 101% of the accrued value of the senior secured discount notes, plus accrued
interest to the date of purchase.
The indebtedness evidenced by the senior secured discount notes ranks
equally in right of payment with all of our other existing and future
unsubordinated indebtedness and senior in right of payment to all of our
existing and future obligations expressly subordinated in right of payment to
the senior secured discount notes.
The senior secured discount notes indenture contains a number of covenants
restricting our operations and the operations of our subsidiaries, including
those restricting the incurrence of indebtedness; the making of restricted
payments (in the form of the declaration or payment of some kinds of dividends
or distributions, the purchase, redemption or other acquisition of any of our
capital stock, the voluntary prepayment of equal or subordinated indebtedness
and the making of some kinds of investments, loans and advances); transactions
with affiliates; the issuance of liens; sale-leaseback transactions; the
transfer of assets; issuances and sales of capital stock of subsidiaries; the
issuance of guarantees by subsidiaries; dividend and other payment restrictions
affecting subsidiaries; and consolidation, merger or sale of substantially all
of our assets.
The events of default under the senior secured discount notes indenture
include provisions that are typical of senior debt financings, including a
cross-acceleration to a default by us or any material subsidiary on any
indebtedness that has an aggregate principal amount in excess of $5 million.
Upon the occurrence of an event of default, the trustee or the holders of not
less than 25% in principal amount at maturity of the outstanding senior secured
discount notes may immediately accelerate the maturity of all the senior secured
discount notes as provided in the senior secured discount notes indenture.
8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009
The convertible subordinated notes were originally issued on September 29,
1999, mature on September 29, 2009 and are unsecured, subordinated obligations.
The notes bear interest at a rate of 8 3/4% per annum. We pay interest on the
convertible subordinated notes at maturity (or earlier
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purchase, redemption or, in certain circumstances, conversion) and semiannually
on March 29 and September 29 of each year, commencing March 29, 2000. The
convertible subordinated notes indenture does not provide for a sinking fund.
The indebtedness evidenced by the convertible subordinated notes is
unsecured and subordinate in right of payment to all of our existing and future
senior indebtedness (as defined in the convertible subordinated notes
indenture). The convertible subordinated notes indenture does not restrict the
incurrence by us or our subsidiaries of indebtedness or other obligations.
The convertible subordinated notes may be converted into shares of common
stock, at the option of the holder, at any time before the close of business on
September 29, 2009, unless the notes have previously been redeemed, at an
initial conversion rate of 35.134 shares of common stock per $1,000 principal
amount of convertible subordinated notes. The conversion rate is subject to
adjustment upon the occurrence of certain events described in the convertible
subordinated notes indenture, including:
the issuance of shares of our common stock as a dividend or a distribution
with respect to our common stock;
subdivisions, combinations and reclassification of our common stock;
the issuance to all holders of our common stock of rights or warrants
entitling them (for a period not exceeding 45 days) to subscribe for shares
of our common stock at less than the Market Price (as defined in the
convertible subordinated notes indenture) of our common stock;
the distribution to holders of our common stock of evidences of our
indebtedness, securities or capital stock, cash or assets (including
securities, but excluding those rights, warrants, dividends and
distributions referred to above and dividends and distributions paid
exclusively in cash);
the payment of dividends (and other distributions) on our common stock paid
exclusively in cash, if the aggregate amount thereof, when taken together
with (i) other all-cash distributions made within the preceding 12 months
not triggering a conversion rate adjustment and (ii) any cash and the fair
market value, as of the expiration of the tender or exchange offer referred
to below, of consideration payable in respect of any tender or exchange
offer by us for the common stock concluded within the preceding 12 months
not triggering a conversion rate adjustment, exceeds 10% of our aggregate
market capitalization; and
payment to holders of our common stock in respect of a tender or exchange
offer (other than an odd-lot offer) by us for our common stock as of the
first trading day following the last date tenders or exchanges may be made,
which involves an aggregate consideration that, together with (i) any cash
and the fair market value of other consideration payable in respect of any
tender or exchange offer made by us for our common stock concluded in the
preceding 12 months and (ii) the aggregate amount of any all-cash
distributions to all holders of our common stock made within the preceding
12 months, exceeds 10% of our aggregate market capitalization.
Except as described below, we may not redeem the convertible subordinated
notes before September 29, 2002. After that date, we may redeem the convertible
subordinated notes for cash as a whole at any time, or in part from time to
time, at our option, at the redemption price described in the convertible
subordinated notes indenture, plus accrued interest to the applicable redemption
date; provided, however, that we may not redeem the convertible subordinated
notes on or after September 29, 2002, unless the last reported sale price on our
common stock is at least 150% of the conversion price for at least 20 trading
days within a period of 30 consecutive days ending within five trading days of
the call for redemption. Specifically, if redeemed during the 12-month period
beginning on September 29 of the years shown below, the redemption price will be
that amount expressed as a percentage of the principal amount of the convertible
subordinated notes, shown below:
S-39
REDEMPTION
YEAR PRICE
- ---- -----
2002........................................................ 106.125%
2003........................................................ 105.250%
2004........................................................ 104.375%
2005........................................................ 103.500%
2006........................................................ 102.625%
2007........................................................ 101.750%
2008 and thereafter......................................... 100.875%
If there is a Change of Control (as defined in the convertible subordinated
notes indenture), each holder will have the right to require us to purchase,
subject to the terms of the convertible subordinated notes indenture, all or any
part of such holder's convertible subordinated notes at a purchase price equal
to 100% of the principal amount of such holder's convertible subordinated notes,
plus accrued cash interest to the Change in Control Purchase Date (as defined in
the convertible subordinated notes indenture).
The events of default under the convertible subordinated notes indenture
include provisions that are typical of convertible subordinated debt financings,
including:
default in payment of the principal amount, interest when due (if such
default shall continue for 31 days), Redemption Price (as defined in the
convertible subordinated notes indenture), or Change in Control Purchase
Price (as defined in the convertible subordinated notes indenture) of any
convertible subordinated note;
our failure to deliver shares of common stock when such common stock is
required to be delivered following conversion of a convertible subordinated
note;
our failure to comply with any of our agreements in the convertible
subordinated notes or the convertible subordinated notes indenture, if such
default is not cured within 90 days after our receipt of a notice of such
default; and
a cross-acceleration to a default by us on any indebtedness that has an
aggregate outstanding principal amount in excess of $10 million.
LEHMAN CREDIT FACILITY
We have entered into a term loan agreement with Lehman Commercial Paper
Inc., as syndication agent and as administration agent, Lehman Brothers Inc., as
arranger, and certain lenders party thereto from time to time providing for a
term loan facility for us in the aggregate principal amount of $150,000,000. The
loans under this facility, the commitments for which expire on May 31, 2001,
will be made available to us upon the successful demonstration of our broadcast
system and upon satisfaction of certain customary conditions, and the proceeds
will be used for working capital, capital expenditures and general corporate
purposes. We have granted security interests in our fourth satellite, all our
contract rights relating to our fourth satellite and the capital stock of our
license subsidiary as collateral for this term loan facility.
The loans under this term loan facility will mature in consecutive quarterly
installments, commencing on March 31, 2003. Each installment will be an amount
equal to the percentages set forth below of the aggregate principal amount of
the loans made on the closing date:
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INSTALLMENT PERCENTAGE
- ----------- ----------
March 31, 2003........................................... 0.25%
June 30, 2003............................................ 0.25%
September 30, 2003....................................... 0.25%
December 31, 2003........................................ 0.25%
March 31, 2004........................................... 2.25%
June 30, 2004............................................ 2.25%
September 30, 2004....................................... 2.25%
December 31, 2004........................................ 2.25%
March 31, 2005........................................... 22.50%
June 30, 2005............................................ 22.50%
September 30, 2005....................................... 22.50%
December 31, 2005........................................ 22.50%
We may prepay the loans in whole or in part at any time or from time to
time. Any such prepayment must be accompanied by a prepayment premium as
specified in the term loan agreement if the prepayment occurs before the third
anniversary of the closing date.
Borrowings under this term loan facility are subject to mandatory
prepayment:
with the net proceeds of certain incurrences of indebtedness;
with the proceeds of asset sales, subject to certain exceptions; and
commencing with the fiscal year ending December 31, 2002, with excess cash.
We will pay commitment fees, payable quarterly in arrears, calculated at a
rate of 0.50% per annum for the period from October 15, 2000 through
December 31, 2000, 1.00% per annum for the period from January 1, 2001 through
March 31, 2001 and 1.25% per annum for the period from April 1, 2001 through May
31, 2001.
All loans under this term loan facility bear interest, at our option, at
either:
(A) 'base rate' equal to, for any day, the higher of:
the prime rate in effect on such day;
the Base CD Rate (as defined in the term loan agreement) in effect on
such day plus 1%; and
the Federal Funds Effective Rate (as defined in the term loan
agreement) in effect on such day plus 1/2 of 1%; or
(B) 'eurodollar base rate' equal to, for each day during each Interest
Period (as defined in the term loan agreement), the annual rate determined
on the basis of the rate for deposits in U.S. dollars for a period equal to
such interest period beginning on the first day of such interest period
appearing on page 3750 of the Telerate screen two business days prior to the
beginning of such interest period;
plus an applicable margin equal to four percent for base rate loans and five
percent for eurodollar base rate loans, subject in either case to adjustment
upward or downward under certain circumstances.
In connection with this term loan facility, we have issued warrants to
purchase our common stock to Lehman Commercial Paper Inc., as described in
'Description of Warrants -- Lehman Warrants' in the related prospectus.
This term loan facility contains customary covenants and restrictions on our
ability to engage in certain activities and customary events of default.
S-41
UNDERWRITING
Lehman Brothers Inc., as underwriter, has agreed, subject to the terms and
conditions of an underwriting agreement, to purchase from us, and we have agreed
to sell, all of the shares of common stock being sold in this offering. The
underwriting agreement provides that the obligation of the underwriter to
purchase the shares is subject to certain conditions, including the delivery of
certain legal opinions by its counsel. Subject to the terms and conditions of
the underwriting agreement, the underwriter is obligated to purchase all the
shares (other than those covered by the option described below) if it purchases
any of the shares.
We have granted to the underwriter an option, exercisable for 30 days from
the date of this prospectus supplement, to purchase up to 1,500,000 additional
shares of our common stock at $21.00 per share.
The following table shows the per share and total underwriting discount and
commissions to be paid to the underwriter by us.
PAID BY US
- ----------
Per common share............................................ $ 1.00
Total (before expenses)..................................... $10,000,000
The underwriter has advised us that it proposes to offer the common shares
directly to the public at the public offering price set forth on the cover page
of this prospectus supplement, and to dealers at the public offering price less
a selling concession not in excess of $0.10 per share. After the offering, the
underwriter may change the offering price and other selling terms.
We, our executive officers and directors, and certain of our existing
stockholders are expected to agree not to do any of the following, whether any
such transaction is to be settled by delivery of our common stock or other
securities, in cash or otherwise, in each case without the prior written consent
of Lehman Brothers Inc. for a period of 90 days after the date of this
prospectus supplement:
(1) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of our
common stock or any securities convertible into or exchangeable or exercisable
for our common stock, whether now owned or hereafter acquired by, or with
respect to which we, our executive officers and directors, and certain of our
existing stockholders have or hereafter acquire the power of disposition, or
exercise any right to require us to file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing; or
(2) enter into any swap or any other agreement or transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequences of ownership of our common stock; provided that the foregoing will
not apply to transfers of shares of our common stock by operation of law.
Our common stock is quoted on the Nasdaq National Market under the symbol
'SIRI.'
In connection with this offering, Lehman Brothers Inc. may purchase and sell
shares of our common stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriter of a greater
number of shares than it is required to purchase in the offering. 'Covered'
short sales are sales made in an amount not greater than the underwriter's
option to purchase additional shares from us in the offering. The underwriter
may close out any covered short position by either exercising its option to
purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriter will consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which it may purchase
shares through its option. 'Naked' short sales are any sales in excess to that
option. The underwriter must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriter is concerned that there may be downward pressure on the price
of our common stock in the open market that could adversely affect investors who
purchase
S-42
in the offering. Stabilizing transactions consist of various bids for or
purchases of common stock made by the underwriter in the open market prior to
the completion of the offering.
Similar to other purchase transactions, the underwriter's purchases to cover
short short sales may have the effect of raising or maintaining the market price
of our common stock or preventing or retarding a decline in the market price of
our common stock. As a result, the price of our common stock may be higher than
the price that might otherwise exist in the open market.
Any sale of the shares of our common stock in Canada will be made only
pursuant to an exemption from the prospectus filing requirement and an exemption
from the dealer registration requirement (where such an exemption is not
available, offers shall be made only by a registered dealer) in the relevant
Canadian jurisdiction where any sale is made.
Purchasers of our common stock offered in this prospectus supplement may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriter may be required to make for those liabilities.
This prospectus supplement and the related prospectus in electronic format
may be made available on the web sites maintained by the underwriter and/or
selling group members participating in this offering. The underwriter may agree
to allocate a number of shares to selling group members for sale to their online
brokerage account holders. Internet distributions will be allocated by the
underwriter and/or selling group members that will make internet distributions
on the same basis as other allocations.
The underwriter and its affiliates, from time to time, have provided, and
may continue to provide, investment banking, financial advisory and other
services to us for which we have paid, and intend to pay, customary fees. Lehman
Brothers Inc. and Lehman Commercial Paper Inc. are parties to the term loan
agreement described above under the caption 'Description of Certain
Indebtedness -- Lehman Credit Facility.'
LEGAL MATTERS
Simpson Thacher & Bartlett, New York, New York, has passed upon specific
legal matters with respect to the securities offered by this prospectus
supplement. Certain regulatory matters arising under the Communications Act are
being passed upon by Wiley, Rein & Fielding, Washington, D.C. Cravath, Swaine &
Moore, New York, New York, has represented Lehman Brothers in connection with
this offering.
S-43
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PROSPECTUS
$500,000,000
[LOGO]
DEBT SECURITIES, PREFERRED STOCK,
COMMON STOCK AND WARRANTS
We from time to time may offer:
unsecured or secured debt securities in one or more series;
shares of preferred stock in one or more series;
shares of common stock;
warrants or other rights to purchase debt securities, preferred stock or
common stock or any combination of securities; and
any combination of debt securities, preferred stock, common stock or warrants,
at an aggregate initial public offering price not to exceed $500,000,000.
The number, amount, prices, net proceeds to Sirius Satellite Radio Inc. and
specific terms of the securities will be determined at or before the time of
sale and will be set forth in an accompanying prospectus supplement.
The net proceeds to us from the sale of the securities will be the initial
public offering price or the purchase price of those securities less any
applicable commission or discount, and less any other expenses of Sirius
associated with the issuance and distribution of those securities.
If any agents or any underwriters are involved in the sale of the foregoing
securities, their names and any applicable commission or discount will be set
forth in the accompanying prospectus supplement.
This prospectus may not be used for the sale of any securities unless it is
accompanied by a prospectus supplement. The accompanying prospectus supplement
may modify or supersede any statement in this prospectus.
Nasdaq National Market trading symbol: 'SIRI.'
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE 'RISK FACTORS' BEGINNING ON
PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------------
The date of this prospectus is February 23, 2001.
TABLE OF CONTENTS
PAGE
----
Special Note Regarding Forward-Looking Statements........... 2
About this Prospectus....................................... 3
About Sirius................................................ 3
Risk Factors................................................ 4
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends........................................... 13
Use of Proceeds............................................. 13
Description of Debt Securities.............................. 13
Description of Capital Stock................................ 25
Description of Warrants..................................... 35
Plan of Distribution........................................ 39
Legal Matters............................................... 39
Experts..................................................... 40
Incorporation by Reference.................................. 40
Where You May Find Additional Available Information About
Us........................................................ 40
-------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS PROSPECTUS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following cautionary statements identify important factors that could
cause our actual results to differ materially from those projected in the
forward-looking statements made in this prospectus. Any statements about our
beliefs, plans, objectives, expectations, assumptions or future events or
performance are not historical facts and may be forward-looking. These
statements are often, but not always, made through the use of words or phrases
such as 'will likely result,' 'are expected to,' 'will continue,' 'is
anticipated,' 'estimated,' 'intends,' 'plans,' 'projection' and 'outlook.' Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this prospectus, and particularly the risk factors
described under 'Risk Factors' in this prospectus. Among the significant factors
that could cause our actual results to differ materially from those expressed in
the forward-looking statements are:
the unavailability of radios capable of receiving our service and our
dependence upon third parties to design, develop, manufacture and
distribute them;
the potential risk of delay in implementing our business plan;
the unproven market for our service; and
our need for additional financing.
These and other factors are discussed in 'Risk Factors' and elsewhere in
this prospectus.
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue reliance on
any of these forward-looking statements. In addition, any forward-looking
statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which the statement is made, to
reflect the occurrence of unanticipated events or otherwise. New factors emerge
from time to time, and it is not possible for us to predict which will arise or
to assess with any precision the impact of each factor on our business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
2
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a 'shelf' registration process. Under
this shelf process, we may sell, over the next two years, any combination of the
securities described in this prospectus in one or more offerings up to a total
dollar amount of $500,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may also add, update
or change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement together with the additional
information described under the heading 'Where You May Find Additional Available
Information About Us.'
ABOUT SIRIUS
From our three orbiting satellites, we will directly broadcast up to 100
channels of digital-quality radio to motorists throughout the continental United
States for a monthly subscription fee of $9.95. We will deliver 50 channels of
commercial-free music in virtually every genre, and up to 50 channels of news,
sports, talk, comedy and children's programming. Sirius' broad and deep range of
almost every music format as well as its news, sports and entertainment
programming is not available on conventional radio in any market in the United
States. We hold one of only two licenses issued by the Federal Communications
Commission to operate a national satellite radio system.
Upon commencing commercial operations, we expect our primary source of
revenues to be subscription fees, which we expect will be included with the sale
or lease of certain new vehicles. In addition, we expect to derive revenues from
directly selling or bartering limited advertising on our non-music channels.
We have exclusive agreements with Ford Motor Company, DaimlerChrysler
Corporation and BMW of North America, LLC that contemplate their manufacturing
and selling vehicles that include radios capable of receiving our broadcasts.
These agreements cover all brands and affiliates of these automakers, including
Ford, Chrysler, Mercedes, BMW, Jaguar, Mazda and Volvo. Our agreement with
DaimlerChrsyler also makes us the preferred provider of satellite radio in
Freightliner and Sterling heavy trucks. In 2000, Ford, DaimlerChrysler and BMW
sold or leased approximately 7.5 million vehicles in the continental United
States, which was approximately 43% of all new cars and trucks sold in the
continental United States last year.
In addition, in the autosound aftermarket, we expect that radios capable of
receiving our broadcasts will be available for sale at various national and
regional retailers, such as Best Buy, Circuit City, Tweeter Home Entertainment
Group and Good Guys. In 2000, 11 million car radios were sold through consumer
electronics retailers.
We have entered into agreements with numerous consumer electronics
manufacturers, including Alpine Electronics Inc., Clarion Co., Ltd., Delphi
Delco Electronics Systems, Kenwood Corporation, Matsushita Communication
Industrial Corporation of USA, Recoton Corporation, Sony Electronics Inc. and
Visteon Automotive Systems, to develop radios capable of receiving our
broadcasts. As these radios become available in commercial quantities, they will
be sold to automakers for inclusion in new vehicles and consumer electronics
retailers for sale in the autosound aftermarket.
Sirius Satellite Radio Inc. was incorporated in the State of Delaware as
Satellite CD Radio, Inc. on May 17, 1990. On December 7, 1992, we changed our
name to CD Radio Inc., and we formed a wholly owned subsidiary, Satellite CD
Radio, Inc., that is the holder of our FCC license. On November 18, 1999, we
changed our name again to Sirius Satellite Radio Inc. Our executive offices are
located at 1221 Avenue of the Americas, New York, New York 10020, our telephone
number is (212) 584-5100 and our internet address is siriusradio.com.
Siriusradio.com is an inactive text reference only, meaning that the information
contained on the website is not part of this prospectus and is not incorporated
in this prospectus by reference.
3
RISK FACTORS
In addition to the other information in this prospectus, the following risk
factors should be considered carefully in evaluating us and our business and in
deciding whether to invest in our securities.
RADIOS FOR OUR SERVICE ARE NOT YET AVAILABLE
Integrated circuits for our radios are not yet available. Integrated
circuits which decode, process and output our signals are an essential component
of radios capable of receiving our broadcasts. Samples of certain of these
integrated circuits being developed by Lucent have been shipped to radio
manufacturers, and samples of the remaining integrated circuits are expected to
be shipped to such manufacturers by the end of the first quarter of this year.
Production quantities of these integrated circuits are expected to be shipped to
radio manufacturers in the third quarter of this year, although the development
of these integrated circuits has been delayed in the past, and could be delayed
in the future, by circumstances beyond our control.
We cannot assure you that Lucent will:
deliver fully operable integrated circuits during the third quarter of this
year or in sufficient quantities to meet the demand of radio manufacturers;
or
price these integrated circuits low enough to encourage widespread
distribution of radios capable of receiving our service.
We are dependent upon others to manufacture and distribute our radios.
Following delivery of the integrated circuits, we expect various manufacturers
to promptly produce radios capable of receiving our broadcast. However, we
cannot assure you how quickly manufacturing will commence, the quantity of
radios that will be manufactured or how quickly these radios will be
distributed.
WE ARE NOT SURE THERE WILL BE A MARKET FOR SIRIUS
Currently no one offers a commercial satellite radio service such as Sirius
in the United States. As a result, our proposed market is new and untested, and
we cannot reliably estimate the potential demand for this service or the degree
to which our service will meet that demand. We cannot assure you that there will
be sufficient demand for Sirius to enable us to achieve significant revenues or
cash flow or profitable operations. Sirius will achieve or fail to gain market
acceptance depending upon many factors beyond our control, including:
the willingness of consumers to pay subscription fees to obtain satellite
radio broadcasts;
the cost, availability and consumer acceptance of radios capable of
receiving our broadcasts;
our marketing and pricing strategies and those of XM Satellite Radio, our
direct competitor;
the development of alternative technologies or services; and
general economic conditions.
OUR BUSINESS IS STILL IN THE DEVELOPMENT STAGE
Historically, we have generated only losses. We are a development stage
company. The service we propose to offer, Sirius, is still in development and we
have never recognized any operating revenues or conducted any operations. Since
our inception, we have concentrated on raising capital, obtaining required
licenses, developing technology, strategic planning, market research and
building our infrastructure. Our financial results from our inception on
May 17, 1990 through December 31, 2000 are as follows:
no revenues;
net losses of approximately $269 million (including a net loss of $135
million during the twelve months ended December 31, 2000); and
net losses applicable to common stockholders of approximately $444 million.
4
We do not expect any revenues before the middle of 2001. We do not expect to
generate any revenues from operations until the middle of 2001 or to generate
earnings before interest, taxes, depreciation and amortization ('EBITDA') until
2003, at the earliest. Our ability to generate revenues and EBITDA and achieve
profitability will depend upon a number of factors, including:
the timely receipt of all necessary regulatory authorizations;
the manufacture and distribution by one or more consumer electronics
manufacturers of radios capable of receiving our broadcasts;
the manufacture and distribution by one or more automobile manufacturers of
vehicles including radios capable of receiving our broadcasts; and
the successful marketing and consumer acceptance of Sirius.
We cannot assure you that we will accomplish any of the above, that we will ever
commence operations, that we will attain any particular level of revenues, that
we will generate EBITDA or that we will achieve profitability.
WE NEED ADDITIONAL FINANCING TO OPERATE OUR SERVICE
We need more money to continue implementing our business plan. Upon
completion of this offering and receipt of the $199,500,000 of estimated net
proceeds, and assuming that we draw down a $150,000,000 term loan facility that
we have entered into with Lehman Commercial Paper Inc. and Lehman Brothers Inc.,
we will have sufficient funds to operate our business through the middle of
2002. The loans under this term loan facility will be made available to us upon
the successful demonstration of our broadcast system and upon satisfaction of
customary closing conditions. The commitments under this term loan facility
expire on May 31, 2001 and we cannot assure you that we will be able to satisfy
all of the conditions to borrowing under this term loan facility on or prior to
such date. We will also require additional funds to support our planned
operations through the remainder of 2002 and thereafter until our revenues grow
substanially. We will require more money than estimated if there are operating
delays, cost overruns or other adverse developments.
The funding required to develop a unified satellite radio standard could be
significant. Under a joint development agreement between ourselves and XM
Satellite Radio, each party is obligated to fund one-half of the development
costs of the technologies used to develop a unified standard for satellite
radios. Each party will be entitled to license fees or a credit towards its
one-half of the costs based upon the validity, value, use, importance and
available alternatives of the technology it contributes. The amounts of these
fees or credits will be determined over time by agreement of the parties or by
arbitration. We cannot predict at this time the amount of the license fees or
contribution that will be payable by XM Satellite Radio or us under this joint
development agreement or the size of the credits to XM Satellite Radio and us
from the use of our or their technology. This joint development agreement may
require us to invest significant additional capital.
SUBSCRIBER TURNOVER COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE
After we commence commercial operations, we expect to experience some
subscriber turnover, or churn. Since we have not commenced commercial operations
yet, it is impossible to predict the amount of churn we will experience. In
addition, we do not know whether we will be able to successfully retain
customers who purchase or lease a new vehicle that includes a subscription to
our service. Churn or our inability to retain customers who purchase or lease a
new vehicle could adversely affect our financial performance and results of
operations in the future.
SUBSCRIBER ACQUISITION COSTS COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE
We may, and in certain cases have already agreed to, subsidize a portion of
the costs of radios capable of receiving our broadcasts in order to attract
subscribers to our service. We also are planning a large advertising campaign to
introduce our service and to generate subscriptions to our
5
service. Consequently, our subscriber acquisition costs could be significant.
Our subscriber acquisition costs, both in the aggregate and on a per subscriber
basis, may also increase if we determine that aggressive advertising, promotions
or other marketing efforts are necessary to promote faster subscriber growth,
respond to competition, or are otherwise advisable. These subscriber acquisition
costs could adversely affect our financial performance and results of operations
in the future.
WE FACE MANY FINANCING CHALLENGES AND CONSTRAINTS
We face many challenges and constraints in financing our development and
operations, including those listed below.
Our debt instruments limit our ability to incur indebtedness. The indentures
governing our 15% senior secured discount notes due 2007 and our 14 1/2% senior
secured notes due 2009 and the agreement governing our term loan facility with
Lehman Brothers Commercial Paper Inc. and Lehman Brothers Inc. limit our ability
to incur additional indebtedness. In addition, we expect any future senior
indebtedness to contain similar limits on our ability to incur additional
indebtedness.
A delay in introducing our service could hinder our ability to raise
additional financing. Any delay in implementing our business plan would hurt our
ability to obtain the additional financing we need by adversely affecting our
expected results of operations and increasing our cost of capital. Several
factors could delay us, including the following:
obtaining additional authorizations from the FCC;
delay in commercial availability of radios capable of receiving our
broadcasts; and
failure of our vendors to perform as anticipated.
We have previously incurred some delays in implementing our business plan.
During any period of delay, we would continue to need significant amounts of
cash to fund capital expenditures, administrative and overhead costs,
contractual obligations and debt service. Accordingly, any delay could
materially increase the aggregate amount of funds we need to break even from
operations. Additional financing may not be available on favorable terms or at
all during periods of delay.
Our status as a development stage company may make it more difficult to
raise financing. As a development stage company, we have no revenues, but have
significant expenses. In addition, we expect to report significant net losses
for several years after we commence operations. We have in the past received,
did receive for the year ended December 31, 2000, and may in the future receive,
a 'going concern' qualification in the auditor's report accompanying our annual
financial statements due to our not having, as of the date of our auditor's
report, adequate liquidity to finance our projected cash needs over the ensuing
twelve months. Receiving a 'going concern' qualification could make it more
difficult for us to obtain additional financing that we will need to operate our
business on favorable terms, or at all.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST CONVENTIONAL RADIO STATIONS,
THE OTHER HOLDER OF AN FCC LICENSE TO PROVIDE THIS SERVICE OR OTHER POTENTIAL
PROVIDERS OF THIS SERVICE
We will be competing with conventional radio stations, which, unlike Sirius:
do not charge subscription fees;
do not require users to purchase a separate radio; and
often offer local information programming such as local news and traffic
reports.
In addition to direct competition from XM, we face the possibility of
additional satellite broadcast radio competition:
if the FCC grants additional licenses for satellite-delivered radio
services;
if holders of licenses for other portions of the electromagnetic spectrum
(currently licensed for other uses) obtain changes to their licenses; or
6
if holders of licenses without FCC restrictions for other portions of the
spectrum devise a method of broadcasting satellite radio.
Finally, one or more competitors, including XM, may design a satellite radio
broadcast system that is superior to our system. The competitive factors listed
above could materially adversely affect our results of operations. In addition,
any delays in introducing our service also could place us at a competitive
disadvantage relative to any competitor that begins operations before us.
SOME OBSTRUCTIONS WILL ADVERSELY AFFECT SIRIUS RECEPTION
High concentrations of tall buildings, such as those found in large urban
areas, tunnels and other obstructions will block the signals from our
transmitting satellites. We plan to install terrestrial repeaters to rebroadcast
Sirius in at least 56 urban areas to mitigate this problem. However, some areas
with impediments to satellite line-of-sight may still experience 'dead zones.'
SATELLITES HAVE A LIMITED LIFE AND MAY FAIL IN ORBIT
We expect that our satellites will last approximately 15 years, and that
after this period their performance in delivering Sirius will deteriorate. We
cannot assure you, however, of the useful life of any particular satellite. Our
operating results would be adversely affected if the useful life of our initial
satellites is significantly shorter than 15 years.
The useful lives of our satellites will vary and will depend on a number of
factors, including:
expected gradual environmental degradation of solar panels;
quality of construction;
amount of fuel on board;
durability of component parts;
random failure of satellite components, which could result in damage to or
loss of a satellite; and
in rare cases, damage or destruction by electrostatic storms or collisions
with other objects in space.
If one of our three satellites fails in orbit and we are required to launch
our spare satellite, our operations could be suspended for up to six months. If
two or more of our satellites fail in orbit, our operations could be suspended
by at least 16 months.
INSURANCE MAY NOT COVER ALL RISKS OF OPERATING SATELLITES
Our insurance may not cover all of our losses and may not fully reimburse us
for the following:
expenditures for a satellite which fails to perform to specifications;
damages from business interruption, loss of business and any related
expenditures arising from satellite failures; and
losses for which there are deductibles, exclusions and conditions.
WE ARE SUBJECT TO CONTINUING AND DETAILED REGULATION BY THE FCC
We need a modification to our FCC license before we can begin operation. In
May 1998, we decided to increase the number of satellites in our system from two
to three and to change the orbit of those satellites. To implement these
changes, the FCC must approve changes to our FCC license. On December 11, 1998,
we filed an application with the FCC for these changes. Although we believe that
the FCC will approve our application for these necessary changes, we cannot
assure you that the FCC will do so. XM and WCS Radio Inc. have filed comments on
our application with the FCC. These comments requested the FCC to condition
approval of our modification on receiver interoperability and requested us to
insure that our service will not cause
7
harmful interference with wireless services in Central and South America. We
cannot predict the time it will take the FCC to act on our application or any of
these comments, or whether additional submissions or waiver requests will be
necessary, and we cannot be sure that the modification we have requested will be
granted.
Pursuant to special temporary authority received from the FCC on December
20, 1999, we launched and completed testing of our three satellites. This
special temporary authority was modified on August 31, 2000 and will expire on
February 27, 2001 and does not authorize us to begin providing our service on a
commercial basis using our three satellites. We requested an extension of this
special temporary authority on February 21, 2001.
Our FCC license is being challenged. The FCC's International Bureau granted
us an FCC license after we submitted a winning bid in an FCC auction. One of the
low bidders in that FCC auction applied to have the full FCC review the grant of
our FCC license. The application requests that the FCC adopt restrictions on
foreign ownership and overrule the grant of our FCC license on the basis of our
ownership. Since December 29, 1997, there have been no developments in this
matter. If the FCC denies this application, the complaining party may appeal to
the U.S. Court of Appeals. We cannot predict the ultimate outcome of any
proceedings relating to this application or any other proceedings that
interested parties may file.
We will need to renew our FCC license after eight years. The term of our FCC
license is eight years, beginning on the date our first satellite is declared
operational after it is inserted into orbit, and we anticipate, but we cannot
assure you, that our license term will remain eight years if our application for
modification is granted. When the term of our FCC license expires, we must apply
for a renewal. If the FCC does not renew our FCC license, we would be forced to
cease providing service. We cannot assure you that we will obtain these
renewals.
We need FCC approval to operate our terrestrial repeaters. Although we plan
to install terrestrial repeaters to transmit our service in at least 56 urban
areas, the FCC has not yet established rules governing the application procedure
for obtaining authorizations to construct and operate terrestrial repeaters on a
commercial basis. The FCC initiated a rulemaking on the subject in March 1997
and received several comments urging the FCC to consider placing restrictions on
the ability to deploy terrestrial repeaters. This rulemaking is still pending.
Both we and XM filed supplemental comments in this rulemaking. On February 22,
2000, the National Association of Broadcasters, the Wireless Communications
Association and BellSouth Corporation filed comments seeking to protect
adjoining wireless services and to ensure that we do not originate local
programming through our terrestrial repeater network. On March 8, 2000, we filed
a reply to these comments reaffirming that we do not intend to originate local
programming through our terrestrial repeater network and denying that our
repeater network will interfere with adjoining wireless services. Metricom,
Inc., MCI WorldCom, Inc. and the Aerospace & Flight Test Radio Coordinating
Council ('AFTRCC') also filed reply comments on March 8, 2000 seeking to protect
adjoining wireless services, including flight test receivers. On March 22, 2000,
we filed a supplemental reply to these reply comments reaffirming that our
terrestrial repeater network will not interfere with wireless services in nearby
spectrum. On October 12, 2000, we filed a coordination agreement with the FCC
that we reached with AFTRCC. On January 25, 2001, XM and ourselves filed a
proposed rule authorizing terrestrial repeaters for adoption by the FCC. In the
interim, we have constructed a number of terrestrial repeaters under a temporary
experimental license, which will expire on October 1, 2001. We cannot predict
the outcome or the timing of these FCC proceedings.
New devices may interfere with our service. The FCC has proposed regulations
to allow new devices that may generate radio energy in the part of the spectrum
we intend to use. We believe the current proposed regulations for these devices
do not contain adequate safeguards to prevent interference with services such as
Sirius. If the FCC fails to adopt adequate technical standards specifically
applicable to these devices and if the use of these devices becomes commonplace,
we could experience difficulties enforcing our rights to use spectrum without
interference from unlicensed devices. If the FCC fails to adopt adequate
standards, the new devices could adversely
8
affect reception of our service. Although we believe that the FCC will set
adequate standards to prevent harmful interference, we cannot assure you that it
will do so.
We may be adversely affected by changing regulations. To provide our
service, we must retain our FCC license and obtain or retain other requisite
approvals. Our ability to do so could be affected by changes in laws, FCC
regulations, international agreements governing communications policy generally
or international agreements relating specifically to Sirius. In addition, the
manner in which Sirius is offered or regulated could be affected by these
changes.
We may be adversely affected by foreign ownership restrictions. The
Communications Act restricts ownership in some broadcasters by foreigners. If
these foreign ownership restrictions were applied to us, we would need further
authorization from the FCC if our foreign ownership were to exceed 25%. The
order granting our FCC license determined that, as a private carrier, those
restrictions do not apply to us. However, the order granting our FCC license
stated that our foreign ownership status under the Communications Act could be
raised in a future proceeding. The pending appeal of the grant of our FCC
license may bring the question of foreign ownership restrictions before the full
FCC.
We could be required to comply with public service regulations. The FCC has
indicated that it may impose public service obligations on satellite radio
service providers in the future, which could add to our costs or reduce our
revenues. For example, the FCC could require satellite radio service providers
to set aside channels for educational programming. We cannot predict whether the
FCC will impose public service obligations or the impact that any of these
obligations would have on our results of operations.
WE RELY ON OUR NATIONAL BROADCAST STUDIO
We rely on our national broadcast studio in New York City for key
operations, including the creation of our 50 music channels and the encryption
and compression of our broadcast signal. Although we plan to establish redundant
systems this year, these systems will require significant time and expenditures
to become fully operational. If a natural or other disaster significantly
damaged our national broadcast studio, our ability to provide service to
subscribers would be suspended and our operating results would be materially and
adversely effected.
OUR TECHNOLOGY MAY BECOME OBSOLETE
We depend on technologies being developed by third parties to implement key
aspects of our system. These technologies may become obsolete. We may be unable
to obtain more advanced technologies on a timely basis or on reasonable terms,
or our competitors may obtain more advanced technologies and we may not have
access to these technologies.
WE MAY NOT BE ABLE TO MANAGE RAPID GROWTH
We expect to experience significant and rapid growth in the scope and
complexity of our business as we commence operations. We do not currently employ
sufficient staff to handle all of our expected sales and marketing efforts.
Although we have hired experienced executives in this area, we must hire
additional employees before we begin commercial operations of our service. This
growth may strain our management and operational resources. Our results of
operations could be materially adversely affected if we fail to do any of the
following:
develop and implement effective management systems;
hire and train sufficient personnel to perform all of the functions
necessary to effectively provide our service;
manage our subscriber base and business; or
manage our growth effectively.
9
CONSUMERS MAY STEAL OUR SERVICE
Consumers may steal the Sirius signal. Although we use encryption technology
to mitigate signal piracy, we do not believe that this technology is infallible.
Accordingly, we cannot assure you that we can eliminate theft of the Sirius
signal. Widespread signal theft could reduce the number of motorists willing to
pay us subscription fees and materially adversely affect our results of
operations.
OUR PATENTS MAY NOT BE SUFFICIENT TO PREVENT OTHERS FROM COPYING ELEMENTS OF OUR
SYSTEM
Although our U.S. patents cover various features of satellite radio
technology, our patents may not cover all aspects of our system. Others may
duplicate aspects of our system which are not covered by our patents without
liability to us. In addition, competitors may challenge, invalidate or
circumvent our patents. We may be forced to enforce our patents or determine the
scope and validity of other parties' proprietary rights through litigation. In
this event, we may incur substantial costs and we cannot assure you of success
in this litigation. In addition, others may block us from operating our system
if our system infringes their patents, their pending patent applications which
mature into patents or their inventions developed earlier which mature into
patents. Should we desire to license our technology, we cannot assure you that
we can do so. Assuming we pay all necessary fees on time, the earliest
expiration date on any of our patents is April 10, 2012.
WE MAY NOT BE ABLE TO SATISFY A CHANGE OF CONTROL OFFER
The indentures governing our senior secured notes and our senior secured
discount notes contain provisions requiring us to offer to repurchase such notes
in the event of a change of control of our company. If we have to make such an
offer, we cannot be sure that we will have enough funds to pay for all the
securities that holders could tender. If we fail to pay for our senior secured
notes and our senior secured discount notes in a change of control offer, we
will be in default under the indentures for the affected notes and the holders
of those notes and their trustees may accelerate the maturity of all amounts
outstanding under those notes.
EXISTING STOCKHOLDERS MAY CONTROL US AND THEIR INTERESTS MAY CONFLICT WITH YOURS
As of January 31, 2001, our executive officers and directors beneficially
owned or could vote approximately 15.7% of our outstanding common stock. In
addition, as of that date, our executive officers and directors together with
Prime 66, the Apollo Investors, the Blackstone Investors, entities affiliated
with Loews Corporation and DaimlerChrysler beneficially owned or could vote
approximately 50.1% of our outstanding common stock. As a result of this
concentration of ownership, these stockholders, if they choose to act in
concert, may exert considerable influence over our management and policies.
Similarly, some or all of these stockholders could delay, defer or prevent a
change of control.
OUR STOCK PRICE HAS BEEN VOLATILE
The trading price of our common stock has been volatile, and it may continue
to be so. This trading price could fluctuate widely in response to announcements
of business and technical developments by us or our competitors, our success in
accomplishing our business plan and other events or factors, including
expectations by investors and securities analysts and our prospects. In
addition, stock markets have experienced extreme price volatility in recent
years. This volatility has had a substantial effect on the market prices of
development stage companies, at times for reasons unrelated to their operating
performance. These broad market fluctuations may adversely affect the price of
our common stock.
10
OUR RIGHTS PLAN AND ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD
PREVENT AN ACQUISITION OF OUR COMPANY
Our stockholders rights plan, the anti-takeover provisions in our charter
documents and any issuance of our preferred stock could be deemed to have
anti-takeover effects and may delay, deter or prevent an acquisition of our
company that a stockholder might consider to be in his or her best interest. Our
board of directors has the authority to issue shares of preferred stock in one
or more series and to determine the price, rights, preferences and privileges of
those shares without any further vote or action by stockholders. We have adopted
a stockholders rights plan and in connection with the stockholders rights plan,
our board of directors designated 300,000 shares of preferred stock as Series B
Preferred Stock. Any issuance of our preferred stock, including preferred stock
with voting and conversion rights, as well as our 9.2% Series A Junior
Cumulative Convertible Preferred Stock, our 9.2% Series B Junior Cumulative
Convertible Preferred Stock and our 9.2% Series D Junior Cumulative Convertible
Preferred Stock, which are convertible into shares of common stock, may
adversely affect the voting power of the holders of common stock.
We also may become subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law. These provisions could delay or prevent a
change of our control or adversely affect the market price of our common stock.
Furthermore, the severance provisions of employment agreements with some of our
executive officers provide for payments that could discourage an attempted
change in our control.
THERE IS NO PUBLIC MARKET FOR THE DEBT SECURITIES, PREFERRED STOCK OR WARRANTS
Before the offering of any debt securities, preferred stock or warrants,
there will have been no public market for those securities and we do not intend
to apply for the listing of any debt securities or preferred stock that may be
offered by this prospectus on any securities exchange or for quotation of any
debt securities or preferred stock on any public market. We cannot assure you
that an active public market for any debt securities, preferred stock or
warrants will develop or as to the liquidity, if any, that may develop in such
market. If an active public market in any new class of securities does not
develop, the market price and liquidity of those securities may be adversely
affected. Please refer to the section in this prospectus entitled 'Plan of
Distribution.'
Historically, the market for non-investment grade debt securities and
preferred stock has been affected by disruptions that have caused substantial
volatility in the prices of securities similar to the debt securities, preferred
stock and warrants that may be offered by this prospectus. We cannot assure you
that any market for those securities will not be affected by similar
disruptions.
HOLDERS OF DEBT SECURITIES WITH ORIGINAL ISSUE DISCOUNT MAY BE LIMITED IN
BANKRUPTCY CLAIMS
Debt securities that are issued or treated as issued at a discount from
their principal amount will generally be treated as having original issue
discount. If a bankruptcy case is commenced by or against us under the United
States Bankruptcy Code after the issuance of the debt securities, the claim of a
holder of the debt securities may be limited to an amount equal to the sum of
(1) the initial public offering price for the debt securities and (2) that
portion of the original issue discount that is not deemed to constitute
'unmatured interest' for purposes of the United States Bankruptcy Code. Any
original issue discount that was not amortized as of the date of the
commencement of a bankruptcy filing would constitute 'unmatured interest.'
DILUTION UPON CONVERSION OF PREFERRED STOCK AND CONVERTIBLE DEBT
Our common stock holders and warrant holders may be diluted by the following
actions:
if we issue convertible debt securities (which we may do at any time unless
prior approval of our stockholders is required under Delaware law, the
rules of the Nasdaq National Market or the rules of any other stock
exchange on which our securities may be listed or the issuance is limited
by the instruments governing our debt securities) and the holders thereof
convert their shares into common stock;
11
if the Apollo Investors or the Blackstone Investors convert their preferred
stock into common stock, which may be done at any time;
if we issue additional equity securities, which we may do at any time
unless prior approval of our stockholders is required under Delaware law,
the rules of the Nasdaq National Market or the rules of any other stock
exchange on which our equity securities may be listed;
if Ford exercises its warrants to purchase up to four million shares of our
common stock, which Ford may do only if it satisfies requirements relating
to the manufacture of vehicles capable of receiving Sirius;
if DaimlerChrysler exercises its warrants to purchase up to four million
shares of our common stock, which DaimlerChrysler may do only if it
satisfies requirements relating to the manufacture of vehicles capable of
receiving Sirius; or
if Lehman Commercial Paper Inc. exercises its warrants to purchase up to
2.1 million shares of our common stock, which Lehman Commercial Paper Inc.
may do immediately with respect to 525,000 of its warrants and, with
respect to the balance of its warrants, only if certain requirements
relating to the making of term loans to us and to the trading performance
of our publicly issued senior notes are satisfied.
12
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth our ratio of earnings to combined fixed
charges and preferred stock dividends for the periods indicated.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Ratio of earnings to fixed charges(1).......... -- -- -- -- --
Ratio of earnings to combined fixed charges and
preferred stock dividends(1)................. -- -- -- -- --
- ---------
(1) No figure is provided for any period during which the applicable ratio was
less than 1.00.
The ratio of earnings to fixed charges is computed by dividing our earnings,
which include income before taxes (excluding the cumulative and transition
effects of accounting changes) and fixed charges, by fixed charges. The ratio of
earnings to combined fixed charges and preferred stock dividends is computed by
dividing earnings by the sum of fixed charges and dividends on preferred stock.
'Fixed charges' consist of interest on debt and a portion of rentals determined
to be representative of interest. For the years ended December 31, 1996, 1997,
1998, 1999 and 2000, our earnings were insufficient to cover our fixed charges
by approximately $2.8 million, $4.8 million, $62.3 million, $119.4 million and
$198.5 million. Earnings were also inadequate to cover our combined fixed
charges and preferred stock dividends over the same time periods by
approximately $2.8 million, $59.1 million, $99.9 million, $153.5 million and
$247.4 million.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, we will
use the net proceeds from the sale of the offered securities for general
corporate purposes, including capital expenditures, the reduction of
indebtedness and other purposes. We may invest funds not required immediately
for such purposes in short-term obligations or we may use them to reduce the
future level of our indebtedness.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the debt securities sets forth
certain general terms that may apply to the debt securities. The particular
terms of any debt securities will be described in the prospectus supplement
relating to those debt securities. For purposes of this 'Description of Debt
Securities,' the term 'Sirius' refers to our company but not to any of its
subsidiaries.
Any senior debt securities will be issued in one or more series under an
indenture, as supplemented or amended from time to time, between us and an
institution that we will name in the related prospectus supplement, as trustee.
Any subordinate debt securities will be issued in one or more series under an
indenture, as supplemented or amended from time to time, between us and an
institution that we will name in the related prospectus supplement, as trustee.
For ease of reference, we will refer to the indenture relating to any senior
debt securities as the senior indenture and to the indenture relating to any
subordinate debt securities as the subordinate indenture.
This summary of the terms and provisions of the debt securities and the
indentures is not necessarily complete, and we refer you to the copy of the
forms of the indentures which are filed as exhibits to the registration
statement of which this prospectus forms a part. Whenever we refer to particular
defined terms of the indentures in this section or in a prospectus supplement,
we are incorporating these definitions into this prospectus or the prospectus
supplement.
13
GENERAL
The debt securities will be issuable in one or more series in accordance
with an indenture supplemental to the applicable indenture or a resolution of
our board of directors or a committee of the board. Unless otherwise specified
in a prospectus supplement, each series of senior debt securities will rank
equally in right of payment with all of our other senior obligations. Each
series of subordinate debt securities will be subordinated and junior in right
of payment to the extent and in the manner described in the subordinate
indenture and any supplemental indenture relating to the subordinate debt
securities. Except as otherwise provided in a prospectus supplement, the
indentures do not limit our ability to incur other secured or unsecured debt,
whether under the indentures, any other indenture that we may enter into in the
future or otherwise. For more information, you should read the prospectus
supplement relating to a particular offering of securities.
The applicable prospectus supplement will describe the following terms of
the series of debt securities with respect to which this prospectus is being
delivered:
the title of the debt securities of the series and whether such series
constitutes senior debt securities or subordinated debt securities;
any limit on the aggregate principal amount of the debt securities;
the person to whom any interest on a debt security shall be payable, if
other than the person in whose name that debt security is registered on the
regular record date;
the date or dates on which the principal and premium, if any, of the debt
securities of the series are payable or the method of that determination or
the right to defer any interest payments;
the rate or rates (which may be fixed or variable) at which the debt
securities will bear interest, if any, or the method of determining the
rate or rates, the date or dates from which such interest will accrue, the
interest payment dates on which any such interest will be payable or the
method by which the dates will be determined, the regular record date for
any interest payable on any interest payment date and the basis upon which
interest will be calculated if other than that of a 360-day year of twelve
30-day months;
the place or places where the principal of and any premium and any interest
on the debt securities of the series will be payable, if other than the
Borough of Manhattan, The City of New York;
the period or periods within which, the date or dates on which, the price
or prices at which and the terms and conditions upon which the debt
securities of the series may be redeemed, in whole or in part, at our
option or otherwise;
our obligation, if any, to redeem, purchase or repay the debt securities of
the series pursuant to any sinking fund or analogous provisions or at the
option of the holders and the period or periods within which, the price or
prices at which, the currency or currencies including currency unit or
units in which and the terms and conditions upon which, the debt securities
shall be redeemed, purchased or repaid, in whole or in part;
the terms, if any, upon which the debt securities of the series may be
convertible into or exchanged for other debt securities, preferred stock or
common stock of Sirius and the terms and conditions upon which the
conversion or exchange shall be effected, including the initial conversion
or exchange price or rate, the conversion or exchange period and any other
additional provisions;
the denominations in which any debt securities will be issuable, if other
than denominations of $1,000 and any integral multiple thereof;
the currency, currencies or currency units in which payment of principal of
and any premium and interest on debt securities of the series shall be
payable, if other than United States dollars;
14
any index, formula or other method used to determine the amount of payments
of principal of and any premium and interest on the debt securities;
if the principal amount payable at the stated maturity of debt securities
of the series will not be determinable as of any one or more dates before
the stated maturity, the amount that will be deemed to be the principal
amount as of any date for any purpose, including the principal amount
thereof which will be due and payable upon any maturity other than the
stated maturity or which will be deemed to be outstanding as of any date
(or, in any such case, the manner in which the deemed principal amount is
to be determined), and if necessary, the manner of determining the
equivalent thereof in United States currency;
if the principal of or any premium or interest on any debt securities is to
be payable, at our election or the election of the holders, in one or more
currencies or currency units other than that or those in which such debt
securities are stated to be payable, the currency, currencies or currency
units in which payment of the principal of and any premium and interest on
such debt securities shall be payable, and the periods within which and the
terms and conditions upon which such election is to be made;
if other than the principal amount thereof, the portion of the principal
amount of the debt securities which will be payable upon declaration of the
acceleration of the maturity thereof or provable in bankruptcy;
the applicability of, and any addition to or change in, the covenants and
definitions then set forth in the applicable indenture or in the terms then
set forth in such indenture relating to permitted consolidations, mergers
or sales of assets;
any changes or additions to the provisions of the applicable indenture
dealing with defeasance, including the addition of additional covenants
that may be subject to our covenant defeasance option;
whether any of the debt securities are to be issuable in permanent global
form and, if so, the depositary or depositaries for such global security
and the terms and conditions, if any, upon which interests in such debt
securities in global form may be exchanged, in whole or in part, for the
individual debt securities represented thereby in definitive registered
form, and the form of any legend or legends to be borne by the global
security in addition to or in lieu of the legend referred to in the
applicable indenture;
the appointment of any trustee, any authenticating or paying agents,
transfer agent or registrars;
the terms, if any, of any guarantee of the payment of principal, premium
and interest with respect to debt securities of the series and any
corresponding changes to the provisions of the applicable indenture as then
in effect;
the terms, if any, of the transfer, mortgage, pledge or assignment as
security for the debt securities of the series of any properties, assets,
moneys, proceeds, securities or other collateral, including whether certain
provisions of the Trust Indenture Act are applicable and any corresponding
changes to provisions of the applicable indenture as then in effect;
any addition to or change in the events of default with respect to the debt
securities of the series and any change in the right of the trustee or the
holders to declare the principal, premium and interest with respect to the
debt securities due and payable;
any applicable subordination provisions in addition to those set forth
herein with respect to subordinated debt securities;
if the securities of the series are to be secured, the property covered by
the security interest, the priority of the security interest, the method of
perfecting the security interest and any escrow arrangements related to the
security interest; and
any other terms of the debt securities not inconsistent with the provisions
of the applicable indenture.
15
We may sell debt securities at a substantial discount below their stated
principal amount or debt securities that bear no interest or bear interest at a
rate which at the time of issuance is below market rates. We will describe the
material U.S. federal income tax consequences, accounting and other special
considerations applicable to the debt securities in the applicable prospectus
supplement.
If the purchase price of any of the debt securities is payable in one or
more foreign currencies or currency units or if any debt securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any debt securities is
payable in one or more foreign currencies or currency units, we will set forth
the restrictions, elections, specific terms and other information with respect
to such issue of debt securities and such foreign currency or currency units in
the applicable prospectus supplement.
EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable prospectus supplement,
principal, premium, if any, and interest, if any, on the debt securities will be
payable, without coupons, and the exchange of and the transfer of debt
securities will be registrable, at our office or agency maintained for such
purpose in the Borough of Manhattan, The City of New York and at any other
office or agency maintained for such purpose. Unless otherwise indicated in the
applicable prospectus supplement, the debt securities will be issued in
denominations of $1,000 and any integral multiples thereof.
Holders may present each series of debt securities for exchange as provided
above, and for registration of transfer, with the form of transfer endorsed
thereon, or with a satisfactory written instrument of transfer, duly executed,
at the office of the appropriate securities registrar or at the office of any
transfer agent designated by us for such purpose and referred to in the
applicable prospectus supplement, without service charge and upon payment of any
taxes and other governmental charges as described in the indenture. We will
appoint the trustee of each series of debt securities as securities registrar
for such series under the indenture. If the applicable prospectus supplement
refers to any transfer agents, in addition to the securities registrar initially
designated by us with respect to any series, we may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, provided that we maintain a transfer
agent in each place of payment for the series. We may at any time designate
additional transfer agents with respect to any series of debt securities.
All moneys paid by us to a paying agent for the payment of principal,
premium, if any, or interest, if any, on any debt security which remain
unclaimed for two years after such principal, premium or interest has become due
and payable may be repaid to us, and after such time, the holder of such debt
security may look only to us for payment.
In the event of any redemption, we shall not be required to (a) issue,
register the transfer of or exchange debt securities of any series during a
period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of debt securities of that series to be
redeemed and ending at the close of business on the day of such mailing or (b)
register the transfer of or exchange any debt security called for redemption,
except, in the case of any debt securities being redeemed in part, any portion
not being redeemed.
BOOK-ENTRY SYSTEM
The provisions set forth below in this section headed 'Book-Entry System'
will apply to the debt securities of any series if the prospectus supplement
relating to such series so indicates.
Unless otherwise indicated in the applicable prospectus supplement, the debt
securities of such series will be represented by one or more global securities
registered with a depositary named in the prospectus supplement relating to such
series. Except as set forth below, a global security may be transferred, in
whole but not in part, only to the depositary or another nominee of the
depositary.
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The specific terms of the depositary arrangement with respect to a series of
debt securities will be described in the prospectus supplement relating to the
series. We anticipate that the following provisions will generally apply to
depositary arrangements.
Upon the issuance of a global security, the depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the debt securities represented by such global security to the accounts of
institutions or persons, commonly known as participants, that have accounts with
the depositary or its nominee. The accounts to be credited will be designated by
the underwriters, dealers or agents. Ownership of beneficial interests in a
global security will be limited to participants or persons that may hold
interests through participants. Ownership of interests in such global security
will be shown on, and the transfer of those ownership interests will be effected
only through, records maintained by the depositary (with respect to
participants' interests) and such participants (with respect to the owners of
beneficial interests in such global security). The laws of some jurisdictions
may require that certain purchasers of securities take physical delivery of the
securities in definitive form. These limits and laws may impair the ability to
transfer beneficial interests in a global security.
So long as the depositary, or its nominee, is the registered holder and
owner of such global security, the depositary or such nominee, as the case may
be, will be considered the sole owner and holder for all purposes of the debt
securities and for all purposes under the applicable indenture. Except as set
forth below or as otherwise provided in the applicable prospectus supplement,
owners of beneficial interests in a global security will not be entitled to have
the debt securities represented by such global security registered in their
names, will not receive or be entitled to receive physical delivery of debt
securities in definitive form and will not be considered to be the owners or
holders of any debt securities under the applicable indenture or such global
security. Accordingly, each person owning a beneficial interest in a global
security must rely on the procedures of the depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder of debt securities
under the applicable indenture of such global security. We understand that under
existing industry practice, in the event we request any action of holders of
debt securities or if an owner of a beneficial interest in a global security
desires to take any action that the depositary, as the holder of such global
security is entitled to take, the depositary would authorize the participants to
take such action, and that the participants would authorize beneficial owners
owning through such participants to take such actions or would otherwise act
upon the instructions of beneficial owners owning through them.
Payments of principal of and premium, if any, and interest, if any, on debt
securities represented by a global security will be made to the depositary or
its nominee, as the case may be, as the registered owner and holder of such
global security, against surrender of the debt securities at the principal
corporate trust office of the trustee. Interest payments will be made at the
principal corporate trust office of the trustee or by a check mailed to the
holder at its registered address. Payment in any other manner will be specified
in the prospectus supplement.
We expect that the depositary, upon receipt of any payment of principal,
premium, if any, of interest, if any, in respect of a global security, will
credit immediately participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such global
security as shown on the records of the depositary. We expect that payments by
participants to owners of beneficial interests in a global security held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in 'street name,' and will be the responsibility of
such participant. Neither Sirius nor the trustee nor any agent of Sirius or the
trustee will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in a
global security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of the
relationship between the depositary and its participants or the relationship
between such participants and the owners of beneficial interests in such global
security owning through such participants.
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Unless and until it is exchanged in whole or in part for debt securities in
definitive form, a global security may not be transferred except as a whole by
the depositary to a nominee of such depositary or by a nominee of such
depositary to such depositary or another nominee of such depositary.
Unless otherwise provided in the applicable prospectus supplement, debt
securities represented by a global security will be exchangeable for debt
securities in definitive form of like tenor as such global security in
denominations of $1,000 and in any greater amount that is an integral multiple
thereof if:
the depositary notifies us and the trustee that it is unwilling or unable
to continue as depositary for such global security or if at any time the
depositary ceases to be a clearing agency registered under the Exchange Act
and a successor depositary is not appointed by us within 90 days;
we, in our sole discretion, determine not to have all of the debt
securities represented by a global security and notify the trustee thereof;
or
there shall have occurred and be continuing an event of default or an event
which, with the giving of notice or lapse of time, or both, would
constitute an event of default with respect to the debt securities.
Any debt security that is exchangeable pursuant to the preceding sentence is
exchangeable for debt securities registered in such names as the depositary
shall instruct the trustee. It is expected that such instructions may be based
upon directions received by the depositary from its participants with respect to
ownership of beneficial interests in such global security. Subject to the
foregoing, a global security is not exchangeable except for a global security or
global securities of the same aggregate denominations to be registered in the
name of the depositary or its nominee.
OPTION TO DEFER INTEREST PAYMENTS OR TO PAY-IN-KIND
If so described in the applicable prospectus supplement, we will have the
right, at any time and from time to time during the term of any series of debt
securities, to defer the payment of interest for such number of consecutive
interest payment periods as may be specified in the applicable prospectus
supplement, subject to the terms, conditions and covenants, if any, specified in
such prospectus supplement, provided that an extension period may not extend
beyond the stated maturity of the final installment of principal of the series
of debt securities. If provided in the applicable prospectus supplement, we will
have the right, at any time and from time to time during the term of any series
of debt securities, to make payments of interest by delivering additional debt
securities of the same series.
COVENANTS
The covenants, if any, that will apply to a particular series of debt
securities will be set forth in the indenture relating to such series of debt
securities. Except as otherwise specified in the applicable prospectus
supplement with respect to any series of debt securities, we may remove or add
covenants without the consent of holders of the securities.
DEFEASANCE AND COVENANT DEFEASANCE
We may be discharged from our obligations on the debt securities of any
series that have matured or will mature or be redeemed within one year if we
deposit with the trustee enough cash to pay all the principal, interest and any
premium due to the stated maturity date or redemption date of the debt
securities and comply with certain other conditions set forth in the applicable
indenture.
Each indenture contains a provision that permits us to elect either:
to be discharged after 90 days from all of our obligations (subject to
limited exceptions) with respect to any series of debt securities then
outstanding ('defeasance'); and/or
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to be released from our obligations under certain covenants and from the
consequences of an event of default resulting from a breach of those
covenants or cross-default ('covenant defeasance').
To make either of the above elections, we must deposit in trust with the trustee
money and/or U.S. Government Obligations, if the debt securities are denominated
in U.S. dollars, and/or Foreign Government Securities, if the debt securities
are denominated in a foreign currency, which through the payment of principal
and interest under their terms will provide sufficient money, without
reinvestment, to repay in full those senior or subordinate debt securities. As a
condition to defeasance or covenant defeasance, we must deliver to the trustee
an opinion of counsel that the holders of the debt securities will not recognize
income, gain or loss for federal income tax purposes as a result of the
defeasance.
If either of the above events occur, the holders of the debt securities of
the series will not be entitled to the benefits of the indenture, except for
registration of transfer and exchange of debt securities and replacement of
lost, stolen or mutilated debt securities.
EVENTS OF DEFAULT
The following events are defined in the indentures as 'Events of Default'
with respect to a series of debt securities (unless such event is specifically
inapplicable to a particular series as described in the applicable prospectus
supplement):
failure to pay any interest on any debt security of that series when due,
which failure continues for 30 days;
failure to pay principal of or any premium on any debt security of that
series when due;
failure to deposit any sinking fund payment, within 30 days of when due, in
respect of any debt security of that series;
with respect to each series of debt securities, failure to perform any
other of our covenants applicable to that series, which failure continues
for 90 days after written notice to us by the trustee or to us and the
trustee by the holders of at least 25% in principal amount of the
outstanding debt securities of that series specifying such failure,
requiring it to be remedied and stating that such notice is a 'Notice of
Default';
certain events of bankruptcy, insolvency or reorganization involving us;
and
any other Event of Default provided with respect to debt securities of that
series.
If an Event of Default for any series of debt securities occurs and
continues, the trustee or holders of at least 25% in principal amount of the
debt securities of that series may declare the entire principal amount of all
the debt securities of that series to be due and payable immediately. Subject to
certain conditions, the declaration may be annulled and past defaults (except
uncured payment defaults and certain other specified defaults) may be waived by
the holders of a majority of the principal amount of the outstanding debt
securities of that series.
An Event of Default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under an indenture.
Each indenture will require the trustee, within 90 days after the occurrence
of a default known to it with respect to any outstanding series of debt
securities, to give the holders of that series notice of the default if uncured
or not waived. However, the trustee may withhold this notice if it determines in
good faith that the withholding of this notice is in the interest of those
holders, except that the trustee may not withhold this notice in the case of a
payment default. The term 'default' for the purpose of this provision means any
event that is, or after notice or lapse of time or both would become, an Event
of Default with respect to debt securities of that series.
Other than the duty to act with the required standard of care during an
Event of Default, a trustee is not obligated to exercise any of its rights or
powers under the applicable indenture at the request or direction of any of the
holders of debt securities, unless the holders have offered to the trustee
reasonable indemnification. Each indenture provides that the holders of a
majority in
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principal amount of outstanding debt securities of any series may in certain
circumstances direct the time, method and place of conducting any proceeding for
any remedy available to the trustee, or exercising any trust or other power
conferred on the trustee.
The senior indenture will include a covenant that we will file annually with
the trustee a certificate of no default, or specifying any default that exists.
MODIFICATION, WAIVER AND MEETINGS
We and the trustee may enter into supplemental indentures without the
consent of the holders of debt securities for one or more of the following
purposes:
to evidence the succession of another person to us pursuant to the
provisions of the applicable indenture relating to consolidations, mergers
and sales of assets and the assumption by the successor of our covenants,
agreements and obligations in the applicable indenture and in the debt
securities;
to surrender any right or power conferred upon us by the applicable
indenture, to add to our covenants such further covenants, restrictions,
conditions or provisions for the protection of the holders of all or any
series of debt securities as our board of directors shall consider to be
for the protection of the holders of the debt securities, and to make the
occurrence, or the occurrence and continuance, of a default in any of the
additional covenants, restrictions, conditions or provisions a default or
an Event of Default under the applicable indenture (provided, however, that
with respect to any such additional covenant, restriction, condition or
provision, the supplemental indenture may provide for a period of grace
after default, which may be shorter or longer than that allowed in the case
of other defaults, may provide for an immediate enforcement upon the
default, may limit the remedies available to the trustee upon the default,
or may limit the right of holders of a majority in aggregate principal
amount of any or all series of debt securities to waive the default);
to cure any ambiguity or omission or to correct or supplement any provision
contained in the applicable indenture, in any supplemental indenture or in
any debt securities that may be defective or inconsistent with any other
provision contained therein, to convey, transfer, assign, mortgage or
pledge any property to or with the trustee, or to make such other
provisions in regard to matters or questions arising under the applicable
indenture, in each case as shall not adversely affect the interests of any
holders of debt securities of any series in any material respect;
to modify or amend the applicable indenture to permit the qualification of
such indenture or any supplemental indenture under the Trust Indenture Act
as then in effect;
to add guarantees with respect to any or all of the debt securities or to
secure any or all of the debt securities;
to add to, change or eliminate any of the provisions of the applicable
indenture with respect to one or more series of debt securities; so long as
any such addition, change or elimination not otherwise permitted under the
applicable indenture shall (1) neither apply to any debt security of any
series created before the execution of the supplemental indenture and
entitled to the benefit of the provision nor modify the rights of the
holders of any debt security with respect to the provision, or (2) become
effective only when there is no such debt security outstanding;
to evidence and provide for the acceptance of appointment by a successor or
separate trustee with respect to the debt securities of one or more series
and to add to or change any of the provisions of the applicable indenture
as shall be necessary to provide for or facilitate the administration of
such indenture by more than one trustee;
to establish the form or terms of debt securities of any series;
to provide for uncertificated debt securities in addition to or in place of
certificated debt securities (provided that the uncertificated debt
securities are issued in registered form for
20
purposes of Section 163(f) of the Internal Revenue Code or in a
manner such that the uncertificated debt securities are described in
Section 163(f)(2)(B) of such Code); and
to make any change that does not adversely affect the rights of any holder.
Modifications and amendments of the applicable indenture may be made by us
and the trustee with the consent of the holders of a majority in principal
amount of the outstanding debt securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each outstanding debt
security affected thereby:
change the stated maturity of the principal of, or any installment of
principal of or interest on, any debt security;
reduce the principal amount of, rate of interest on or any premium payable
upon the redemption of any debt security;
reduce the amount of principal of an original issue discount security
payable upon acceleration of the maturity thereof;
change the place of payment where, or the coin or currency in which, any
debt security or any premium or interest thereon is payable;
impair the right to institute suit for the enforcement of any payment on or
with respect to any debt security after the stated maturity, redemption
date or repayment date;
reduce the percentage in principal amount of outstanding debt securities of
any series, the consent of whose holders is required for modification or
amendment of the applicable indenture or for waiver of compliance with
certain provisions of such indenture or for waiver of certain defaults;
change the optional redemption or repurchase provisions in a manner adverse
to any holder; or
modify any of the provisions set forth in this paragraph, except to
increase the percentage of holders whose consent is required for
modifications and amendments of the applicable indenture or to provide that
certain other provisions of the applicable indenture may not be modified or
waived without the consent of the holder of each outstanding debt security
affected thereby.
The holders of a majority in principal amount of the outstanding debt
securities of each series may, on behalf of the holders of all the debt
securities of that series, waive, insofar as that series is concerned,
compliance by us with certain restrictive provisions of the applicable
indenture. The holders of a majority in principal amount of the outstanding debt
securities of each series may, on behalf of all holders of debt securities of
that series and any coupons relating to such series, waive any past default
under the applicable indenture with respect to debt securities of the series,
except a default (a) in the payment of principal of or any premium or interest
on any debt security of such series or (b) in respect of a covenant or provision
of the applicable indenture which cannot be modified or amended without the
consent of each holder of outstanding debt securities of the affected series.
The indentures provide that in determining whether the holders of the
requisite principal amount of the outstanding debt securities have given any
request, demand, authorization, direction, notice, consent or waiver thereunder
or whether a quorum is present at a meeting of holders of debt securities
the principal amount of an original issue discount security that shall be
deemed to be outstanding shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon
acceleration of the maturity thereof;
the principal amount of a debt security denominated in other than U.S.
dollars shall be the U.S. dollar equivalent, determined on the date of
original issuance of such debt security, of the principal amount of such
debt security (or, in the case of an original issue discount
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security, the U.S. dollar equivalent on the date of original issuance of
such debt security of the amount determined (as provided in (a) above) of
such debt security); and
debt securities owned by us or any subsidiary of ours shall be disregarded
and deemed not to be outstanding.
In addition, we and the trustees may execute, without the consent of any
holder of the debt securities, any supplemental indenture for the purpose of
creating any new series of debt securities.
SUBORDINATION
Except as set forth in the applicable prospectus supplement, the subordinate
indenture provides that the subordinate debt securities are subordinate and
junior in right of payment to all of our senior indebtedness.
If an Event of Default occurs with respect to any senior indebtedness
permitting the holders thereof to accelerate the maturity thereof and the
default is the subject of judicial proceedings or written notice of such Event
of Default, requesting that payments on subordinate debt securities cease, is
given to us by the holders of senior indebtedness, then unless and until
(1) the default in payment or Event of Default shall have been cured or waived
or (2) 120 days shall have passed after written notice is given and the default
is not the subject of judicial proceedings, no direct or indirect payment, in
cash, property or securities, by set-off or otherwise, will be made or agreed to
be made on account of the subordinate debt securities or interest thereon or in
respect of any repayment, redemption, retirement, purchase or other acquisition
of subordinate debt securities.
Except as set forth in the applicable prospectus supplement, the subordinate
indenture provides that in the event of:
any insolvency, bankruptcy, receivership, reorganization or other similar
proceeding relating to us, our creditors or our property; or
any proceeding for the liquidation or dissolution of Sirius,
all present and future senior indebtedness, including, without limitation,
interest accruing after the commencement of the proceeding, will first be paid
in full before any payment or distribution, whether in cash, securities or other
property, will be made by us on account of subordinate debt securities. In that
event, any payment or distribution, whether in cash, securities or other
property, other than securities of Sirius or any other corporation provided for
by a plan of reorganization or a readjustment, the payment of which is
subordinate, at least to the extent provided in the subordination provisions of
the indenture, to the payment of all senior indebtedness at the time outstanding
and to any securities issued in respect thereof under any such plan of
reorganization or readjustment and other than payments made from any trust
described in the 'Defeasance and Covenant Defeasance' above, which would
otherwise but for the subordination provisions be payable or deliverable in
respect of subordinate debt securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of ours being subordinate to the payment of subordinated debt
securities, will be paid or delivered directly to the holders of senior
indebtedness or to their representative or trustee, in accordance with the
priorities then existing among such holders, until all senior indebtedness shall
have been paid in full. No present or future holder of any senior indebtedness
will be prejudiced in the right to enforce subordination of the indebtedness
evidenced by subordinate debt securities by any act or failure to act on our
part.
The term 'Senior Indebtedness' means:
(1) the principal, premium, if any, interest and all other amounts owed
in respect of all our (A) indebtedness for money borrowed and (B)
indebtedness evidenced by securities, debentures, bonds or other similar
instruments,
(2) all our capital lease obligations,
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(3) all our obligations issued or assumed as the deferred purchase price
of property, all our conditional sale obligations and all our obligations
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business),
(4) all our obligations for the reimbursement of any letter of credit,
banker's acceptance, security purchase facility or similar credit
transaction,
(5) all obligations of the type referred to in clauses (1) through (4)
above of other persons for the payment of which we are responsible or liable
as obligor, guarantor or otherwise, and
(6) all obligations of the type referred to in clauses (1) through (5)
above of other persons secured by any lien on any property or asset of ours
(whether or not such obligation is assumed by us), except for (x) any such
indebtedness that is by its terms subordinated to or pari passu with the
subordinate debt securities and (y) any indebtedness between or among us or
our affiliates, including all other debt securities and guarantees in
respect of those debt securities issued to any trust, or trustee of such
trust, partnership or other entity affiliated with us that is, directly or
indirectly, a financing vehicle of ours (a 'Financing Entity') in connection
with the issuance by such Financing Entity of preferred securities or other
securities that rank pari passu with, or junior to, the subordinate debt
securities.
Except as provided in the applicable prospectus supplement, the subordinate
indenture for a series of subordinated debt does not limit the aggregate amount
of senior indebtedness that may be issued by us. The subordinate debt securities
are effectively subordinated to all existing and future liabilities of our
subsidiaries.
By reason of such subordination, in the event of a distribution of assets
upon insolvency, some of our general creditors may recover more, ratably, than
holders of the subordinated debt securities.
A subordinate indenture may provide that the subordination provisions
thereof will not apply to money and securities held in trust pursuant to the
satisfaction and discharge and the legal defeasance provisions of the
subordinate indenture.
If this prospectus is being delivered in connection with the offering of a
series of subordinated debt securities, the accompanying prospectus supplement
or the information incorporated by reference therein will set forth the
approximate amount of senior indebtedness outstanding as of a recent date.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Except as may otherwise be provided in the prospectus supplement, each
indenture provides that we may not consolidate with or merge with or into any
person, or convey, transfer or lease all or substantially all of its assets, or
permit any person to consolidate with or merge into us, unless the following
conditions have been satisfied:
(a) either (1) we shall be the continuing person in the case of a merger or
(2) the resulting, surviving or transferee person, if other than us (the
'Successor Company'), shall be a corporation organized and existing
under the laws of the United States, any State or the District of
Columbia and shall expressly assume all our obligations under the debt
securities and the applicable indenture;
(b) immediately after giving effect to the transaction (and treating any
indebtedness that becomes an obligation of the Successor Company or any
subsidiary of ours as a result of the transaction as having been
incurred by the Successor Company or the subsidiary at the time of the
transaction), no default, Event of Default or event that, after notice
or lapse of time, would become an Event of Default under the applicable
indenture shall have occurred and be continuing; and
(c) we shall have delivered to the trustee under each indenture an officers'
certificate and an opinion of counsel, each stating that the
consolidation, merger, transfer or lease complies with the provisions of
the applicable indenture.
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Upon completion of any such transaction, the Successor Company resulting
from such consolidation or into which we are merged or the transferee or lessee
to which such conveyance, transfer or lease is made, will succeed to, and be
substituted for, and may exercise every right and power of, us under each
indenture, and thereafter, except in the case of a lease, the predecessor (if
still in existence) will be released from its obligations and covenants under
each indenture and all outstanding debt securities.
NOTICES
Except as otherwise provided in the indentures, notices to holders of debt
securities will be given by mail to the addresses of such holders as they appear
in the Security Register.
CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable prospectus supplement, the
debt securities of any series may be convertible or exchangeable into other
securities. The specific terms on which debt securities of any series may be so
converted or exchanged will be set forth in the applicable prospectus
supplement. These terms may include provisions for conversion or exchange,
either mandatory, at the option of the holder, or at our option, in which case
the number of shares of other securities to be received by the holders of debt
securities would be calculated as of a time and in the manner stated in the
applicable prospectus supplement.
TITLE
Before due presentment of a debt security for registration of transfer, we,
the trustee and any agent of ours or the trustee may treat the person in whose
name such debt security is registered as the owner of such debt security for the
purpose of receiving payment of principal of and any premium and any interest
(other than defaulted interest or as otherwise provided in the applicable
prospectus supplement) on such debt security and for all other purposes
whatsoever, whether or not such debt security be overdue, and neither Sirius,
the trustee nor any agent of ours or the trustee shall be affected by notice to
the contrary.
REPLACEMENT OF DEBT SECURITIES
Any mutilated debt security will be replaced by us at the expense of the
holder upon surrender of such debt security to the trustee. Debt securities that
become destroyed, stolen or lost will be replaced by us at the expense of the
holder upon delivery to the trustee of the debt security or evidence of the
destruction, loss or theft thereof satisfactory to us and the trustee. In the
case of a destroyed, lost or stolen debt security, an indemnity satisfactory to
the trustee and us may be required at the expense of the holder of such debt
security before a replacement debt security will be issued.
GOVERNING LAW
The indentures and the debt securities will be governed by, and construed in
accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
We may appoint a separate trustee for any series of debt securities. As used
herein in the description of a series of debt securities, the term 'trustee'
refers to the trustee appointed with respect to the series of debt securities.
The indentures contain certain limitations on the right of the trustee,
should it become a creditor of ours, to obtain payment of claims in certain
cases or to realize for its own account on certain property received in respect
of any such claim as security or otherwise. The trustee will be permitted to
engage in certain other transactions; however, if it acquires any conflicting
interest and there is a default under the debt securities of any series for
which the trustee serves as trustee, the trustee must eliminate such conflict or
resign.
The trustee or its affiliate may provide certain banking and financial
services to us in the ordinary course of business.
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DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation provides for
authorized capital of 250,000,000 shares, consisting of 200,000,000 shares of
common stock, par value $0.001 per share, and 50,000,000 shares of preferred
stock, par value $0.001 per share.
The following description sets forth the terms and provisions of our common
stock, preferred stock and of certain classes of preferred stock which have been
authorized by our board of directors. The terms of any shares of our capital
stock offered by any prospectus supplement, but not set forth below, will be
described in the prospectus supplement relating to such shares of capital stock.
COMMON STOCK
As of December 31, 2000, we had 42,107,957 shares of common stock
outstanding held of record by approximately 342 persons, and had reserved for
issuance 43,040,680 shares of common stock with respect to incentive stock
plans, outstanding common stock purchase warrants and conversion of our Junior
Preferred Stock.
Holders of the common stock are entitled to cast one vote for each share
held of record on all matters acted upon at any stockholder's meeting and to
receive dividends if, as and when declared by our board of directors out of
funds legally available therefor. There are no cumulative voting rights. If
there is any liquidation, dissolution or winding-up of our company, each holder
of our common stock will be entitled to participate, taking into account the
rights of any outstanding Preferred Stock, ratably in all of our assets
remaining after payment of liabilities. Holders of our common stock have no
preemptive or conversion rights. All outstanding shares of common stock,
including shares of common stock issued upon the exercise of the common stock
warrants, will be fully paid and non-assessable.
Our common stock is quoted on the Nasdaq National Market under the symbol
'SIRI.'
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
an aggregate of 50,000,000 shares of our preferred stock, in one or more series.
Each such series of preferred stock shall have such number of shares,
designations, preferences, powers, qualifications and special or relative rights
or privileges as shall be determined by our board of directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights. The rights of the holders of common stock will be subject to the rights
of holders of any preferred stock issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of our outstanding voting stock.
The specific terms of any preferred stock being offered will be described in
the prospectus supplement relating to that preferred stock. The following
summaries of the provisions of the preferred stock are subject to, and are
qualified in their entirety by reference to, the certificate of designation
relating to the particular class or series of preferred stock. Reference is made
to the prospectus supplement relating to the preferred stock offered with that
prospectus for specific terms, including:
the designation of the preferred stock;
the number of shares of the preferred stock offered, the liquidation
preference per share and the initial offering price of the preferred stock;
the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculating these items applicable to the preferred stock;
the date from which dividends on the preferred stock shall accumulate, if
applicable;
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the procedures for any auction and remarketing of the preferred stock;
the provision of a sinking fund, if any, for the preferred stock;
the provision for redemption, if applicable, of the preferred stock;
any listing of the preferred stock on any securities exchange;
the terms and conditions, if applicable, upon which the preferred stock
will be convertible into or exchangeable for common stock, and whether at
our option or the option of the holder;
whether the preferred stock will rank senior or junior to or on a parity
with any other class or series of preferred stock;
the voting rights, if any, of the preferred stock;
any other specific terms, preference, rights, limitations or restrictions
of the preferred stock; and
a discussion of United States federal income tax considerations applicable
to the preferred stock.
PREFERRED STOCK PURCHASE RIGHTS
On October 22, 1997, our board of directors adopted a stockholders rights
plan and, in connection with the adoption of this plan, declared a dividend
distribution of one 'Right' for each outstanding share of common stock to
stockholders of record at the close of business on November 3, 1997 (the 'Rights
Record Date'). Except as described below, each Right entitles the registered
holder of the Right to purchase from us one-hundredth of a share of Series B
Preferred Stock, par value $0.001 per share (the 'Series B Shares'), at a
purchase price of $115.00 (the 'Purchase Price'), which may be adjusted. The
Purchase Price shall be paid in cash. The description and terms of the Rights
are set forth in a Rights Agreement, dated October 22, 1997 (the 'Rights
Agreement'), by and between us and The Bank of New York (the successor to
Continental Stock Transfer & Trust Company), as Rights Agent, and in amendments
to the Rights Agreement dated October 13, 1998, November 13, 1998, December 22,
1998, June 11, 1999, September 29, 1999, December 23, 1999 and January 28, 2000.
On October 13, 1998, we amended the Rights Agreement to make it inapplicable
to the purchase of 5,000,000 shares of common stock by Prime 66 and to allow
Prime 66 to purchase and own up to an additional 1% of the outstanding shares of
common stock without Prime 66 becoming an 'Acquiring Person' within the meaning
of the Rights Agreement. On November 13, 1998 and December 22, 1998, we amended
the Rights Agreement to render it inapplicable to the purchase of the Junior
Preferred Stock by the Apollo Investors and to permit the Apollo Investors to
(1) acquire additional shares of Junior Preferred Stock issued as dividends
declared on the Junior Preferred Stock, (2) acquire additional shares of common
stock upon the conversion of shares of Junior Preferred Stock into shares of
common stock, and (3) acquire up to an additional 1% of the outstanding shares
of common stock, without the Apollo Investors becoming 'Acquiring Persons'
within the meaning of the Rights Agreement. On June 11, 1999, we amended the
Rights Agreement to make it inapplicable to the issuance of warrants entitling
Ford Motor Company ('Ford') to acquire from us 4,000,000 shares of our common
stock. On September 29, 1999, we amended the Rights Agreement to make it
inapplicable to (1) the purchase by Ford of up to $20 million of our common
stock and (2) the purchase by entities associated with Everest Capital of up to
$30 million of our convertible subordinated notes. On December 23, 1999, we
amended the Rights Agreement to render it inapplicable to the purchase of our
9.2% Series D Junior Cumulative Convertible Preferred Stock by the Blackstone
Investors and to permit the Blackstone Investors to (1) acquire additional
shares of 9.2% Series D Junior Cumulative Convertible Preferred Stock as
dividends on such preferred stock, (2) acquire additional shares of common stock
upon the conversion of shares of 9.2% Series D Junior Cumulative Convertible
Preferred Stock, and (3) acquire up to an additional 1% of the outstanding
shares of common stock, without the Blackstone Investors becoming 'Acquiring
Persons' within the meaning of the Rights
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Agreement. On January 28, 2000, we amended the Rights Agreement to make it
inapplicable to the issuance of warrants entitling DaimlerChrysler Corporation
to acquire up to 4,000,000 shares of our common stock and the purchase by
DaimlerChrysler Corporation of up to 2,290,322 shares of our common stock.
Initially, no separate Right certificates were distributed and the Rights
were evidenced, with respect to any shares of common stock outstanding on the
Rights Record Date, by the certificates representing the shares of common stock.
Until the Rights Separation Date (as defined below), the Rights will be
transferred with, and only with, certificates for shares of common stock. Until
the earlier of the Rights Separation Date and the redemption or expiration of
the Rights, new certificates for shares of common stock issued after the Rights
Record Date will contain a notation incorporating the Rights Agreement by
reference. The Rights are not exercisable until the earlier to occur of (1) 10
business days following a public announcement that a person or group of
affiliated or associated persons (an 'Acquiring Person') has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of common stock (except by reason of (a) exercise by this
person of stock options granted to this person by us under any of our stock
option or similar plans (b) the exercise of conversion rights contained in
specified classes of Preferred Stock, or (c) the exercise of warrants owned on
the date of the Rights Agreement, which include warrants to acquire 1,740,000
shares of common stock issued to an affiliate of Everest Capital Fund, Ltd. or
(2) 15 business days following the commencement of a tender offer or exchange
offer by any person (other than Sirius, any subsidiary of Sirius or any employee
benefit plan of Sirius) if, upon the completion of this tender offer or exchange
offer, this person or group would be the beneficial owner of 15% or more of the
outstanding shares of common stock (the earlier of these dates being called the
'Rights Separation Date'), and will expire on October 22, 2002, unless earlier
redeemed by us as described below. As soon as practicable following the Rights
Separation Date, separate certificates evidencing the Rights will be mailed to
holders of record of the shares of common stock as of the close of business on
the Rights Separation Date and, thereafter, the separate Rights certificates
alone will evidence the Rights. A holder of 15% or more of the common stock as
of the date of the Rights Agreement will be excluded from the definition of
'Acquiring Person' unless the holder increases the aggregate percentage of its
and its affiliates' beneficial ownership interest in us by an additional 1%.
If, at any time following the Rights Separation Date, (1) we are the
surviving corporation in a merger with an Acquiring Person and our shares of
common stock are not changed or exchanged, (2) a person (other than Sirius, any
subsidiary of Sirius or any employee benefit plan of Sirius), together with its
Affiliates and Associates (as defined in the Rights Agreement), becomes an
Acquiring Person (in any manner, except by (a) the exercise of stock options
granted under our existing and future stock option plans, (b) the exercise of
conversion rights contained in specified Preferred Stock issues, (c) the
exercise of warrants specified in the Rights Agreement or (d) a tender offer for
any and all outstanding shares of common stock made as provided by applicable
laws, which remains open for at least 40 Business Days (as defined in the Rights
Agreement) and into which holders of 80% or more of our outstanding shares of
common stock tender their shares), (3) an Acquiring Person engages in one or
more 'self-dealing' transactions as described in the Rights Agreement or
(4) during the time when there is an Acquiring Person, an event occurs (e.g., a
reverse stock split), that results in the Acquiring Person's ownership interest
being increased by more than one percent, the Rights Agreement provides that
proper provision shall be made so that each holder of a Right will thereafter be
entitled to receive, upon the exercise of the Right at the then current exercise
price of the Right, shares of common stock (or, in some circumstances, cash,
property or other securities of ours) having a value equal to two times the
exercise price of the Right.
If, at any time following the first date of public announcement by us or an
Acquiring Person indicating that this Acquiring Person has become an Acquiring
Person (the 'Shares Acquisition Date'), (1) we consolidate or merge with another
person and we are not the surviving corporation, (2) we consolidate or merge
with another person and are the surviving corporation, but in the transaction
our shares of common stock are changed or exchanged or (3) 50% or more
27
of our assets or earning power is sold or transferred, the Rights Agreement
provides that proper provision shall be made so that each holder of a Right
shall thereafter have the right to receive, upon the exercise of the Right at
the then current exercise price of the Right, shares of common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
Our board of directors may, at its option, at any time after the right of
the board to redeem the Rights has expired or terminated (with some exceptions),
exchange all or part of the then outstanding and exercisable Rights (other than
those held by the Acquiring Person and Affiliates and Associates of the
Acquiring Person) for shares of common stock at a ratio of one share of common
stock per Right, as adjusted; provided, however, that the Right cannot be
exercised once a person, together with the person's Affiliates and Associates,
becomes the beneficial owner of 50% or more of the shares of common stock then
outstanding. If our board of directors authorizes this exchange, the Rights will
immediately cease to be exercisable.
Notwithstanding any of the foregoing, following the occurrence of any of the
events described in the fourth and fifth paragraphs of this section, any Rights
that are, or (under some circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or Affiliate or Associate of an
Acquiring Person shall immediately become null and void. The Rights Agreement
contains provisions intended to prevent the utilization of voting trusts or
similar arrangements (except for the voting arrangement between Darlene
Friedland, David Margolese and us) that could have the effect of rendering
ineffective or circumventing the beneficial ownership rules described in the
Rights Agreement.
The Purchase Price payable, and the number of Series B Shares or other
securities or property issuable, upon exercise of the Rights may be adjusted
from time to time to prevent dilution (1) in the event of a dividend of
Series B Shares on, or a subdivision, combination or reclassification of, the
Series B Shares, (2) upon the grant to holders of the Series B Shares of
specific rights or warrants to subscribe for Series B Shares or securities
convertible into Series B Shares at less than the current market price of the
Series B Shares or (3) upon the distribution to holders of the Series B Shares
of debt securities or assets (excluding regular quarterly cash dividends and
dividends payable in Series B Shares) or of subscription rights or warrants
(other than those referred to above).
At any time after the date of the Rights Agreement until ten Business Days
(a period that can be extended) following the Shares Acquisition Date, the board
of directors, with the concurrence of a majority of the independent directors
(those members of our board who are not officers or employees of ours or of any
subsidiary of ours and who are not Acquiring Persons or their Affiliates,
Associates, nominees or representatives, and who either (1) were members of the
board before the adoption of the Rights Plan or (2) were subsequently elected to
our board and were recommended for election or approved by a majority of the
independent directors then on our board), may redeem the Rights, in whole but
not in part, at a price of $0.01 per Right, which may be adjusted. Thereafter,
our board of directors may redeem the Rights only in specified circumstances
including in connection with specific events not involving an Acquiring Person
or an Affiliate or Associate of an Acquiring Person. In addition, our right of
redemption may be reinstated if (1) an Acquiring Person reduces its beneficial
ownership to 10% or less of the outstanding shares of common stock in a
transaction or series of transactions not involving us and (2) there is at the
time no other Acquiring Person. The Rights Agreement may also be amended, as
described below, to extend the period of redemption.
Until a Right is exercised, the holder of the Right, as such, will have no
rights as a stockholder, including the right to vote or to receive dividends.
While the distribution of the Rights will not be taxable to stockholders or to
us, stockholders may, depending upon the circumstances, recognize taxable income
if the Rights become exercisable for shares of our common stock (or other
consideration) or for shares of common stock of the Acquiring Person.
Other than those provisions relating to the principal economic terms of the
Rights or imposing limitations on the right to amend the Rights Agreement, any
of the provisions of the Rights Agreement may be amended by our board of
directors with the concurrence of a majority of the independent directors or by
special approval of our stockholders before the Rights Separation
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Date. Thereafter, the period during which the Rights may be redeemed may be
extended (by action of our board of directors, with the concurrence of a
majority of the independent directors or by special approval of our
stockholders), and other provisions of the Rights Agreement may be amended by
action of the Board with the concurrence of a majority of the independent
directors or by special approval of our stockholders; provided, however, that
(a) this amendment will not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person) and (b) no amendment shall be
made at a time when the Rights are no longer redeemable (except for the
possibility of the right of redemption being reinstated as described above).
DELAWARE ANTI-TAKEOVER LAW AND PROVISIONS IN OUR CHARTER
Section 203 of the Delaware General Corporation Law ('Section 203')
generally provides that a stockholder acquiring more than 15% of the outstanding
voting stock of a corporation subject to the statute (an 'Interested
Stockholder') but less than 85% of this stock may not engage in some types of
Business Combinations (as defined in Section 203) with the corporation for a
period of three years after the time the stockholder became an Interested
Stockholder. The prohibition of Section 203 does not apply under the following
circumstances:
(1) before the time of the acquisition, the corporation's board of
directors approved either the Business Combination or the transaction in
which the stockholder became an Interested Stockholder; or
(2) the Business Combination is approved by the corporation's board of
directors and authorized at a stockholders' meeting by a vote of at least
two-thirds of the corporation's outstanding voting stock not owned by the
Interested Stockholder.
Under Section 203, these restrictions will not apply to specific Business
Combinations proposed by an Interested Stockholder following the earlier of the
announcement or notification of specific extraordinary transactions involving
the corporation and a person who was not an Interested Stockholder during the
previous three years, who became an Interested Stockholder with the approval of
the corporation's board of directors or who became an Interested Stockholder at
a time when the restrictions contained in Section 203 did not apply for reasons
specified in Section 203. The above exception applies if the extraordinary
transaction is approved or not opposed by a majority of the directors who were
directors prior to the person becoming an Interested Stockholder during the
previous three years or were recommended for election or elected to succeed
those directors by a majority of those directors.
Section 203 defines the term 'Business Combination' to encompass a wide
variety of transactions with or caused by an Interested Stockholder. These
include transactions in which the Interested Stockholder receives or could
receive a benefit on other than a pro rata basis with other stockholders,
transactions with the corporation which increase the proportionate interest in
the corporation directly or indirectly owned by the Interested Stockholder or
transactions in which the Interested Stockholder receives other benefits.
The provisions of Section 203, coupled with our board of directors'
authority to issue preferred stock without further stockholder action, could
delay or frustrate the removal of incumbent directors or a change in our
control. The provisions could also discourage, impede or prevent a merger,
tender offer or proxy contest, even if the event would be favorable to the
interests of stockholders. Our stockholders, by adopting an amendment to our
amended and restated certificate of incorporation, may elect not to be governed
by Section 203 effective 12 months after the adoption. Neither our certificate
of incorporation nor our by-laws exclude us from the restrictions imposed by
Section 203.
9.2% SERIES A JUNIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK,
9.2% SERIES B JUNIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK AND
9.2% SERIES D JUNIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK
Our board of directors has authorized the issuance of up to 4,300,000 shares
of 9.2% Series A Junior Cumulative Convertible Preferred Stock and up to
2,100,000 shares of the 9.2% Series B
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Junior Cumulative Convertible Preferred Stock. As of December 31, 2000, we had
1,595,707 shares of 9.2% Series A Junior Cumulative Convertible Preferred Stock
outstanding and 715,703 shares of 9.2% Series B Junior Preferred Stock
outstanding held of record by the Apollo Investors. Our board of directors has
authorized the issuance of up to 10,700,000 shares of 9.2% Series D Junior
Cumulative Convertible Preferred Stock. As of December 31, 2000, we had
2,145,688 shares of 9.2% Series D Junior Cumulative Convertible Preferred Stock
outstanding held of record by the Blackstone Investors.
Dividends. The annual dividend rate per share of the Junior Preferred Stock
is equal to 9.2% of the sum of (1) the liquidation preference of the Junior
Preferred Stock and (2) all unpaid dividends, if any, whether or not declared,
from the date of issuance of the shares of Junior Preferred Stock to the
applicable dividend payment date. Dividends on the shares of Junior Preferred
Stock are cumulative, accruing annually and, when and as declared by our board
of directors, are payable on each November 15 (each, a 'Junior Preferred
Dividend Payment Date'). If any dividend payable on any Junior Preferred
Dividend Payment Date is not declared or paid on the Junior Preferred Dividend
Payment Date in full, in cash or in additional shares of Junior Preferred Stock
of the same series, then the amount of the unpaid dividend ('Default Dividends')
are accumulated and accrue dividends, until paid, compounded annually at a rate
equal to 15% per annum. Dividends may be paid in cash, shares of Junior
Preferred Stock of the same series or any combination of cash and Junior
Preferred Stock, at our option. Default Dividends may only be paid in shares of
Junior Preferred Stock of the same series.
With respect to the payment of dividends, the 9.2% Series A Junior
Cumulative Convertible Preferred Stock, the 9.2% Series B Junior Cumulative
Convertible Preferred Stock and the 9.2% Series D Junior Cumulative Convertible
Preferred Stock rank equally. If and so long as full cumulative dividends
payable on the shares of Junior Preferred Stock in respect of all prior dividend
periods have not been paid or set apart for payment and proper provision has not
been made so that holders of Junior Preferred Stock are offered the opportunity
to make a Payout Election instead of a Conversion Price adjustment (as described
below), we will not pay any dividends, except for dividends payable in common
stock or our capital stock ranking junior to the Junior Preferred Stock in
payment of dividends ('Junior Dividend Stock') or make any distributions of
assets on or redeem, purchase or otherwise acquire for consideration shares of
common stock or Junior Dividend Stock.
If and so long as any accrued and unpaid dividends payable on any shares of
our capital stock ranking senior to the Junior Preferred Stock in payment of
dividends have not been paid or set apart for payment, we will not pay any
dividends in cash on shares of Junior Preferred Stock. No dividends paid in cash
will be paid or declared and set apart for payment on any shares of Junior
Preferred Stock or of our capital stock ranking equally with the Junior
Preferred Stock in the payment of dividends ('Parity Dividend Stock') for any
period unless we have paid or declared and set apart for payment, or
contemporaneously pay or declare and set apart for payment, all accrued and
unpaid dividends on the Junior Preferred Stock for all dividend payment periods
terminating on or before the date of payment of these dividends; provided,
however, that all dividends accrued by us on shares of Junior Preferred Stock or
Parity Dividend Stock will be declared proportionately with respect to all
shares of Junior Preferred Stock and Parity Dividend Stock then outstanding,
based on the ratio of unpaid dividends on the Junior Preferred Stock to unpaid
dividends on the Parity Dividend Stock. No dividends paid in cash will be paid
or declared and set apart for payment on Junior Preferred Stock for any period
unless we have paid or declared and set apart for payment, or contemporaneously
pay or declare and set apart for payment, all accrued and unpaid dividends on
any shares of Parity Dividend Stock for all dividend payment periods terminating
on or before the date of payment of these dividends.
Redemption. Except as described in the following sentence, shares of 9.2%
Series A Junior Cumulative Convertible Preferred Stock and 9.2% Series B Junior
Cumulative Convertible Preferred Stock may not be redeemed by us at our option
before November 15, 2003. From and after November 15, 2001 and before
November 15, 2003, we may redeem shares of 9.2% Series A Junior Cumulative
Convertible Preferred Stock and 9.2% Series B Junior Cumulative Convertible
Preferred Stock, in whole or in part, at any time at a redemption price of 100%
of the liquidation
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preference of the shares of 9.2% Series A Junior Cumulative Convertible
Preferred Stock and 9.2% Series B Junior Cumulative Convertible Preferred Stock
redeemed, plus unpaid dividends, if any, whether or not declared, to the
redemption date, if the average closing price of the common stock as reported in
The Wall Street Journal or, at our election, other reputable financial news
source, for the 20 consecutive trading days before the notice of redemption (the
'Current Market Price') equals or exceeds $60 per share, as adjusted.
From and after November 15, 2003, we may redeem shares of 9.2% Series A
Junior Cumulative Convertible Preferred Stock and 9.2% Series B Junior
Cumulative Convertible Preferred Stock, in whole or in part, at any time at a
redemption price of 100% of the liquidation preference of the 9.2% Series A
Junior Cumulative Convertible Preferred Stock and 9.2% Series B Junior
Cumulative Convertible Preferred Stock redeemed, plus unpaid dividends, if any,
whether or not declared, to the redemption date.
Except as described in the following sentence, shares of our 9.2% Series D
Junior Cumulative Convertible Preferred Stock may not be redeemed by us at our
option before December 23, 2004. From and after December 23, 2002 and before
December 23, 2004, we may redeem shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock, in whole or in part, at any time at a redemption
price of 100% of the liquidation preference of the shares of Junior Preferred
Stock redeemed, plus unpaid dividends, if any, whether or not declared, to the
redemption date, if the Current Market Price of our common stock equals or
exceeds $68 per share, as adjusted.
From and after December 23, 2004, we may redeem shares of our 9.2% Series D
Junior Cumulative Convertible Preferred Stock, in whole or in part, at any time
at a redemption price of 100% of the liquidation preference of the 9.2%
Series D Junior Cumulative Convertible Preferred Stock redeemed, plus unpaid
dividends, if any, whether or not declared, to the redemption date.
On November 15, 2011, we will be required to redeem all outstanding shares
of Junior Preferred Stock at a redemption price of 100% of the liquidation
preference of the Junior Preferred Stock redeemed, plus unpaid dividends, if
any, whether or not declared, to the redemption date.
The amount paid to the holders of shares of Junior Preferred Stock upon
redemption that is allocable to the liquidation preference of the shares of
Junior Preferred Stock will be paid in cash and the amount of any unpaid
dividends to be paid on the shares of Junior Preferred Stock redeemed will be
paid in cash, shares of Junior Preferred Stock of the same series or any
combination of cash and Junior Preferred Stock at our option.
Change of Control. Upon the occurrence of a Change of Control, we must make
an offer (a 'Change of Control Offer') to purchase all then outstanding shares
of Junior Preferred Stock at a purchase price in cash equal to 101% of their
liquidation preference, plus unpaid dividends (paid in cash), if any, whether or
not declared, to the date the shares are purchased; provided that if the
purchase of the Junior Preferred Stock would violate or constitute a default
under (1) our senior discount notes or the indenture relating to our senior
discount notes or (2) the indenture or indentures or other agreement or
agreements under which there may be issued or outstanding from time to time
other indebtedness of Sirius ('Other Agreements') in an aggregate principal
amount not exceeding $450 million (less the amount, if any, of indebtedness
issued to replace, refinance or refund our senior discount notes) because we
have not satisfied all of our obligations under the indenture relating to our
senior discount notes and the Other Agreements arising from the Change of
Control (collectively, the 'Senior Obligations'), then we will be required to
use our best efforts to satisfy the Senior Obligations as promptly as possible
or to obtain the requisite consents necessary to permit the repurchase of the
Junior Preferred Stock, and until the Senior Obligations are satisfied or
consents are obtained, we will not be obligated to make a Change of Control
Offer.
With respect to the Junior Preferred Stock, a 'Change of Control' is defined
as the occurrence of any of the following events: (1) any 'person' or 'group'
(as these terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have 'beneficial
ownership' of all securities that the person has the right to acquire, whether
the right
31
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 40% of our total outstanding voting stock; (2) we
consolidate with or merge with or into another person or convey, transfer, lease
or otherwise dispose of all or substantially all of our assets to any person, or
any person consolidates with or merges with or into us, in a transaction in
which our outstanding voting stock is converted into or exchanged for cash,
securities or other property, other than, at all times when the senior discount
notes are outstanding, those transactions that are not deemed a 'Change of
Control' under the terms of the indenture relating to our senior discount notes;
(3) during any consecutive two-year period, individuals who at the beginning of
the period constituted our board of directors (together with any new directors
whose election to our board of directors, or whose nomination for election by
our stockholders, was approved by a vote of 66 2/3% of the directors then still
in office who were either directors at the beginning of the period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of our board of directors then in office; or
(4) we are liquidated or dissolved or a special resolution is passed by our
stockholders approving the plan of liquidation or dissolution, other than, at
all times when our senior discount notes are outstanding, those transactions
that are not deemed a 'Change of Control' under the terms of the indenture
relating to our senior discount notes.
Notwithstanding the foregoing, no transaction or event will be deemed a
'Change of Control' if (1) all of the outstanding shares of common stock are to
be converted pursuant thereto solely into the right to receive, for each share
of common stock so converted, cash and/or shares of Qualifying Acquiror common
stock (valued at its Current Market Price) together having a value in excess of
$30.30, in the case of our 9.2% Series A Junior Cumulative Convertible Preferred
Stock and our 9.2% Series B Junior Cumulative Convertible Preferred Stock or
$37.50 in the case of our 9.2% Series D Junior Cumulative Convertible Preferred
Stock, (2) we have declared and paid all dividends on the Junior Preferred
Stock, whether or not theretofore declared or undeclared, to the date of the
Change of Control and the holders of Junior Preferred Stock have been given
reasonable opportunity to convert, before the Change of Control, any shares of
Junior Preferred Stock so issued as a dividend, and (3) immediately following
the event the number of shares of Qualifying Acquiror common stock into which
shares of Junior Preferred Stock have been converted (together with, if shares
of Junior Preferred Stock are to remain outstanding, any shares of Qualifying
Acquiror common stock into which all outstanding shares of Junior Preferred
Stock would be convertible) represent both (a) less than 5% of the total number
of shares of Qualifying Acquiror common stock outstanding immediately after the
Change of Control and (b) less than one third of the number of shares of
Qualifying Acquiror common stock that would be Publicly Traded immediately after
the event. The term 'Qualifying Acquiror common stock' means the common stock of
any corporation if listed on or admitted to trading on the New York Stock
Exchange, American Stock Exchange or Nasdaq, and the term 'Publicly Traded'
means shares of Qualifying Acquiror common stock that are both (a) held by
persons who are neither officers, directors or Affiliates of the corporation nor
the 'beneficial owner' (as the term is defined in Rule 13d-3 under the Exchange
Act) of 5% or more of the total number of shares then issued and outstanding,
and (b) not 'restricted securities' (as the term is defined in Rule 144 of the
Securities Act).
Conversion. Each share of our 9.2% Series A Junior Cumulative Convertible
Preferred Stock and our 9.2% Series B Junior Cumulative Convertible Preferred
Stock may be converted at any time, at the option of the holder, unless
previously redeemed, into a number of shares of common stock calculated by
dividing the liquidation preference of such preferred stock (without unpaid
dividends) by $30.00. Each share of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock may be converted at any time, at the option of the
holder, unless previously redeemed, into a number of shares of common stock
calculated by dividing the liquidation preference of such preferred stock
(without unpaid dividends) by $34.00. These conversion prices will not be
adjusted at any time for unpaid dividends on the shares of Junior Preferred
Stock, but will be adjusted for the occurrence of some corporate events
affecting the common stock. Upon conversion, holders of the Junior Preferred
Stock will be entitled to receive any unpaid dividends upon the shares of
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Junior Preferred Stock converted payable in cash, shares of common stock or a
combination of cash and common stock, at our option.
The conversion prices for shares of Junior Preferred Stock will be adjusted
in some events, including (1) dividends and other distributions payable in
common stock on any class of our capital stock, (2) subdivisions, combinations
and reclassifications of the common stock, (3) the issuance to all holders of
common stock of rights or warrants entitling them to subscribe for or purchase
common stock at less than fair market value, (4) distributions to all holders of
common stock of evidence of our indebtedness or assets, (5) repurchases,
redemptions or other acquisitions of our common stock by us at a price per share
greater than the Current Market Price per share of our common stock on the date
of the event, (6) issuance or sale of common stock by us at a price per share
more than 15% below (or, in the case of any issuance or sale to an affiliate of
ours, any amount below) the Current Market Price per share of our common stock
on the date of the event (except for issuances to or through a nationally
recognized investment banking firm in which our affiliates purchase less than
25% of the shares in the offering) and (7) a consolidation or merger to which we
are a party or the sale or transfer of all or substantially all of our assets.
The conversion prices for shares of Junior Preferred Stock will not be
adjusted if (1) the adjustment would not require an increase or decrease of at
least 1% in the conversion prices then in effect or (2) with respect to each
series of Junior Preferred Stock and in connection with an adjustment that would
be made in respect of a dividend, purchase, redemption or other acquisition,
holders of a majority of the outstanding shares of the series of Junior
Preferred Stock elect to participate in the dividend, purchase, redemption or
other acquisition (a 'Payout Election') proportionately with the holders of
common stock or capital stock ranking junior to the Junior Preferred Stock
('Junior Stock').
Voting Rights. So long as any shares of Junior Preferred Stock are
outstanding, each share of Junior Preferred Stock entitles its holder to vote,
in person or by proxy, at any special or annual meeting of stockholders, on all
matters entitled to be voted on by holders of common stock voting together as a
single class with all other shares entitled to vote those matters. With respect
to these matters, each share of Junior Preferred Stock entitles its holder to
cast that number of votes per share as is equal to the number of votes that the
holder would be entitled to cast had the holder converted its shares of Junior
Preferred Stock into shares of common stock on the record date for determining
our stockholders eligible to vote on these matters.
In addition to any vote or consent of stockholders required by law or by our
amended and restated certificate of incorporation, the consent of the holders of
at least a majority of the shares of a particular series of Junior Preferred
Stock at any time issued and outstanding will be necessary for effecting or
validating any reclassification of that series of Junior Preferred Stock or
amendment, alteration or repeal of any of the provisions of our amended and
restated certificate of incorporation or amended and restated by-laws which
adversely affects the voting powers, rights or preferences of the holders of the
shares of that series of Junior Preferred Stock. The consent of the holders of
at least a majority of the shares of Junior Preferred Stock at the time issued
and outstanding, acting as a single class, will be necessary for effecting or
validating any amendment, alteration or repeal of any of the provisions of our
amended and restated certificate of incorporation or amended and restated
by-laws which affects adversely the voting powers, rights or preferences of the
holders of the shares of any series of Junior Preferred Stock. Any amendment of
the provisions of our amended and restated certificate of incorporation so as to
authorize or create, or to increase the authorized amount of, any Junior Stock
will not be deemed to affect adversely the voting powers, rights or preferences
of the holders of shares of Junior Preferred Stock. The consent of at least a
majority of the shares of each series of Junior Preferred Stock will also be
necessary for:
(1) the authorization or creation of, or the increase in the authorized
amount of, or the issuance of any shares of any class or series of, capital
stock ranking senior to the Junior Preferred Stock ('Senior Stock') or any
security convertible into shares of any class or series of Senior Stock;
33
(2) the authorization or creation of, or the increase in the authorized
amount of, or the issuance of any shares of any class or series of capital
stock ranking equally with the Junior Preferred Stock ('Parity Stock') or
any security convertible into shares of any class or series of Parity Stock
(other than shares of Junior Preferred Stock issued as a dividend in respect
of shares of Junior Preferred Stock issued to the Apollo Investors and the
Blackstone Investors);
(3) our merger or consolidation with or into any other entity, unless,
after the merger or consolidation, the resulting corporation will have no
class or series of shares and no other securities either authorized or
outstanding ranking before, or equally with, shares of Junior Preferred
Stock; provided, however, that no vote or consent of the holders of Junior
Preferred Stock will be required if before the time when the merger or
consolidation is to take effect, and regardless of whether the merger or
consolidation would constitute a Change of Control, a Change of Control
Offer is made for all shares of Junior Preferred Stock at the time
outstanding; and
(4) the application of any of our funds, property or assets to the
purchase, redemption, sinking fund or other retirement of any shares of any
class of Junior Stock, or the declaration, payment or making of any dividend
or distribution on any shares of any class of Junior Stock, other than a
dividend or dividends payable solely in shares of common stock or Junior
Stock of the same series, unless the holders of Junior Preferred Stock have
been offered the opportunity to make a Payout Election with respect to this
event.
In connection with the foregoing class rights to vote, each holder of shares
of Junior Preferred Stock shall have one vote for each share of Junior Preferred
Stock held. No consent of holders of Junior Preferred Stock is required for the
creation of any indebtedness of any kind by us.
Liquidation. If we are voluntarily or involuntarily liquidated, dissolved or
wound up, the holders of shares of Junior Preferred Stock will be entitled to
receive, before any distribution of our assets to the holders of shares of
common stock or any other class or series of Junior Stock, but after payment of
the liquidation preference payable on any class or series of Senior Stock, out
of our assets available for distribution to our stockholders, whether from
capital, surplus or earnings, an amount per share of Junior Preferred Stock
equal to $100, plus accrued and unpaid dividends on each share of Junior
Preferred Stock, if any, to the date of final distribution.
If we are voluntarily or involuntarily liquidated, dissolved or wound up,
before any distribution of our assets to the holders of shares of Junior
Preferred Stock or Parity Stock, the holders of any shares of Senior Stock will
be entitled to receive out of our assets available for distribution to our
stockholders, whether from capital, surplus or earnings, an amount per share of
Senior Stock equal to the liquidation preference of the Senior Stock, plus
accrued and unpaid dividends on the Senior Stock, if any, to the date of final
distribution.
If, upon any liquidation, dissolution or winding-up of us, the amounts
payable with respect to the shares of Junior Preferred Stock or any Parity Stock
are not paid in full, then holders of Junior Preferred Stock and Parity Stock
will share ratably in the distribution of assets, or proceeds of the
liquidation, dissolution or winding-up, in proportion to the full respective
preferential amounts to which they are entitled. Neither a consolidation nor a
merger of us with one or more other corporations, nor a sale or a transfer of
all or substantially all of our assets, will be deemed to be a voluntary or
involuntary liquidation, dissolution or winding-up of us.
Registration Rights. At any time after December 23, 2000, holders of shares
of 9.2% Series A Junior Cumulative Convertible Preferred Stock, or shares of
common stock into which shares of 9.2% Series A Junior Cumulative Convertible
Preferred Stock have been converted, representing, in the aggregate, at least
50% of the shares of common stock into which shares of 9.2% Series A Junior
Cumulative Convertible Preferred Stock have been or may be converted ('Series A
Registrable Securities') will be entitled, on two occasions, to require us to
register the Series A Registrable Securities for sale in an underwritten public
offering by a nationally recognized investment banking firm or firms reasonably
acceptable to us. At any time after December 23, 2000, holders of shares of 9.2%
Series B Junior Cumulative Convertible Preferred Stock, or shares of common
stock into which shares of 9.2% Series B Junior Cumulative Convertible Preferred
34
Stock have been converted, representing, in the aggregate, at least 50% of the
shares of common stock into which shares of 9.2% Series B Junior Cumulative
Convertible Preferred Stock have been or may be converted ('Series B Registrable
Securities') will be entitled, on one occasion, to require us to register the
Series B Registrable Securities for sale in an underwritten public offering by a
nationally recognized investment banking firm or firms reasonably acceptable to
us.
At any time after January 31, 2002, holders of shares of 9.2% Series D
Junior Cumulative Convertible Preferred Stock, or shares of common stock into
which shares of 9.2% Series D Junior Cumulative Convertible Preferred Stock have
been converted, representing, in the aggregate, at least 50% of the shares of
common stock into which shares of 9.2% Series D Junior Cumulative Convertible
Preferred Stock have been or may be converted ('Series D Registrable
Securities') will be entitled, on three occasions, to require us to register the
Series D Registrable Securities for sale in an underwritten public offering by a
nationally recognized investment banking firm or firms reasonably acceptable to
us.
If a demand registration would be seriously detrimental to us and our
stockholders, the demand registration may be deferred, at our request, twice in
any 12-month period, for an aggregate period of time of up to 90 days. In
addition, holders of Junior Preferred Stock will be bound by customary 'lockup'
agreements at the request of the managing underwriter of any public offering on
our behalf. If we plan to file a registration statement on behalf of one or more
security holders, holders of Junior Preferred Stock also have the right, taking
into account customary limitations and the rights of the other security holders,
to request that the registration include their Registrable Securities. Holders
of Junior Preferred Stock or Registrable Securities are entitled to an unlimited
number of these 'piggy-back' registrations.
Tag-Along Agreement. David Margolese, our Chairman and Chief Executive, and
we also entered into a tag-along agreement with the Apollo Investors. Under the
tag-along agreement, if Mr. Margolese sells more than 800,000 shares of our
common stock before the earlier of the date that the Apollo Investors
beneficially own less than 2,000,000 shares of the common stock or the date that
is six months after the nationwide commercial introduction of our service, then
the Apollo Investors have rights to sell, proportionately with Mr. Margolese, a
portion of the common stock owned by them in any subsequent transaction in which
Mr. Margolese disposes of 80,000 or more shares of our common stock.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of debt securities, preferred stock,
common stock or any combination thereof. Warrants may be issued independently or
together with any other securities offered in an applicable prospectus
supplement and may be attached to or separate from such securities. Warrants may
be issued under warrant agreements (each, a 'warrant agreement') to be entered
into between us and a warrant agent specified in the applicable prospectus
supplement. The warrant agent will act solely as our agent in connection with
the warrants of a particular series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
warrants. The following sets forth certain general terms and provisions of
warrants which may be offered. Further terms of the warrants and the applicable
warrant agreement will be set forth in an applicable prospectus supplement.
DEBT WARRANTS
The prospectus supplement relating to a particular issue of warrants for the
purchase of debt securities ('debt warrants') will describe the terms of the
debt warrants, including the following:
the title of the debt warrants;
the offering price for the debt warrants, if any;
the aggregate number of the debt warrants;
the designation and terms of the debt securities purchasable upon exercise
of the debt warrants;
35
if applicable, the designation and terms of the debt securities that the
debt warrants are issued with and the number of debt warrants issued with
each debt security;
if applicable, the date from and after which the debt warrants and any debt
securities issued with them will be separately transferable;
the principal amount of debt securities that may be purchased upon exercise
of a debt warrant and the price at which the debt securities may be
purchased upon exercise (which may be payable in cash, securities or other
property);
the dates on which the right to exercise the debt warrants will commence
and expire;
if applicable, the minimum or maximum amount of the debt warrants that may
be exercised at any one time;
information with respect to book-entry procedures, if any;
the currency or currency units in which the offering price, if any, and the
exercise price are payable;
if applicable, a discussion of material United States federal income tax
considerations;
the antidilution provisions of the debt warrants, if any;
the redemption or call provisions, if any, applicable to the debt warrants;
and
any additional terms of the debt warrants, including terms, procedures, and
limitations relating to the exchange and exercise of the debt warrants.
STOCK WARRANTS
The prospectus supplement relating to a particular issue of warrants for the
purchase of common stock or preferred stock will describe the terms of the
warrants, including the following:
the title of the warrants;
the offering price for the warrants, if any;
the aggregate number of the warrants;
the designation and terms of the common stock or preferred stock that may
be purchased upon exercise of the warrants;
if applicable, the designation and terms of the securities that the
warrants are issued with and the number of warrants issued with each
security;
if applicable, the date from and after which the warrants and any
securities issued with the warrants will be separately transferable;
the number of shares of common stock or preferred stock that may be
purchased upon exercise of a warrant and the price at which such shares may
be purchased upon exercise;
the dates on which the right to exercise the warrants will commence and
expire;
if applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time;
the currency or currency units in which the offering price, if any, and the
exercise price are payable;
if applicable, a discussion of material United States federal income tax
considerations;
the antidilution provisions of the warrants, if any;
the redemption or call provisions, if any, applicable to the warrants; and
any additional terms of the warrants, including terms, procedures, and
limitations relating to the exchange and exercise of the warrants.
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EXERCISE OF WARRANTS
Each warrant will entitle the holder of warrants to purchase for cash the
amount of shares of preferred stock, shares of common stock or debt securities
at the exercise price as shall in each case be set forth in, or be determinable
as set forth in, the prospectus supplement relating to the warrants offered
thereby. Warrants may be exercised at any time up to the close of business on
the expiration date set forth in the prospectus supplement relating to the
warrants offered thereby. After the close of business on the expiration date,
unexercised warrants will become void.
Warrants may be exercised as set forth in the prospectus supplement relating
to the warrants offered thereby. Upon receipt of payment and the warrant
certificate properly completed and duly executed at the corporate trust office
of the warrant agent or any other office indicated in the prospectus supplement,
we will, as soon as practicable, forward the shares of preferred stock, shares
of common stock or debt securities purchasable upon such exercise. If less than
all of the warrants represented by the warrant certificate are exercised, a new
warrant certificate will be issued for the remaining warrants.
THE UNIT OFFERING WARRANTS
On May 18, 1999, we issued units composed of our 14 1/2% Senior Secured
Notes due 2009 and warrants to purchase an aggregate of 2,368,200 shares of
common stock at a price of $26.45 per share. These warrants were issued under a
warrant agreement, dated as of May 15, 1999, between us, as issuer, and United
States Trust Company of New York, as warrant agent. The number of shares of
common stock to be issued under these warrants will be adjusted in some cases if
we issue additional shares of common stock, options, warrants or convertible
securities and in some other events. These warrants expire on May 15, 2009.
A shelf registration statement covering the resale of the unit offering
warrants has been filed and declared effective. We have agreed to cause the
shelf registration statement to remain effective until the earliest of (1) two
years after the issuance of the unit offering warrants, (2) the time when all
unit offering warrants have been sold under the shelf registration statement and
(3) the time when the unit offering warrants can be sold by persons who are not
our affiliates without restriction under the Securities Act.
A shelf registration statement covering the issuance of the shares of common
stock issuable upon the exercise of the unit offering warrants has been filed
and declared effective. We have agreed to cause this shelf registration
statement to remain effective until the earlier of (1) the time when all unit
offering warrants have been exercised and (2) May 15, 2009.
THE FORD WARRANT
On June 15, 1999, we issued a warrant to Ford which entitles Ford to
purchase up to 4,000,000 shares of our common stock at a purchase price of
$30 per share.
Ford's right to exercise this warrant vests:
with respect to 1,000,000 shares of common stock, on the date that Ford has
manufactured 500,000 new vehicles containing Sirius radios ('Ford Enabled
Vehicles');
with respect to an additional 500,000 shares of common stock, on the date
that Ford has manufactured an aggregate of 1,000,000 Ford Enabled Vehicles;
with respect to an additional 500,000 shares of common stock, on the date
that Ford has manufactured an aggregate of 2,000,000 Ford Enabled Vehicles;
with respect to an additional 1,000,000 shares of common stock, on the date
that Ford has manufactured an aggregate of 3,000,000 Ford Enabled Vehicles;
and
with respect to an additional 1,000,000 shares of common stock, on the date
that Ford has manufactured an aggregate of 4,000,000 Ford Enabled Vehicles.
37
The number of shares of common stock to be issued under this warrant will be
adjusted in some cases if we issue stock dividends, combine stock, reorganize or
reclassify capital stock, merge, sell all of our assets and in some other
events. This warrant will expire on the earlier of June 11, 2009 and the date of
termination or expiration of the agreement, dated June 11, 1999, between us and
Ford.
We are required to give Ford notice of adjustments in the number of shares
issuable under this warrant and of extraordinary corporate events.
DAIMLERCHRYSLER WARRANTS
On January 28, 2000, we issued a warrant to DaimlerChrysler which entitles
DaimlerChrysler to purchase up to 4,000,000 shares of our common stock at a
purchase price of $60 per share.
DaimlerChrysler's right to exercise this warrant vests:
with respect to 1,000,000 shares of common stock, on the date that
DaimlerChrysler and its affiliates have manufactured 500,000 new vehicles
containing Sirius radios ('DaimlerChrysler Enabled Vehicles');
with respect to an additional 500,000 shares of common stock, on the date
that DaimlerChrysler and its affiliates have manufactured an aggregate of
1,000,000 DaimlerChrysler Enabled Vehicles;
with respect to an additional 500,000 shares of common stock, on the date
that DaimlerChrysler and its affiliates have manufactured an aggregate of
2,000,000 DaimlerChrysler Enabled Vehicles;
with respect to an additional 1,000,000 shares of common stock, on the date
that DaimlerChrysler and its affiliates have manufactured an aggregate of
3,000,000 DaimlerChrysler Enabled Vehicles; and
with respect to an additional 1,000,000 shares of common stock, on the date
that DaimlerChrysler and its affiliates have manufactured an aggregate of
4,000,000 DaimlerChrysler Enabled Vehicles.
The number of shares of common stock to be issued under this warrant will be
adjusted in some cases if we issue stock dividends, combine stock, reorganize or
reclassify capital stock, merge, sell all of our assets and in some other
events. This warrant will expire on the date of termination or expiration of the
agreement, dated January 28, 2000, among us, DaimlerChrysler Corporation,
Freightliner Corporation and Mercedes-Benz USA, Inc.
We are required to give DaimlerChrysler notice of adjustments in the number
of shares issuable under this warrant and of extraordinary corporate events. If
we issue shares of common stock in an underwritten public offering, we also must
notify DaimlerChrysler and offer to issue DaimlerChrysler, for cash at an equal
price, the number of shares of common stock required so that DaimlerChrysler
will have the same percentage of the total number of shares of common stock
issued and outstanding immediately prior to the offering as after giving effect
to the offering. DaimlerChrysler, however, must exercise this preemptive
purchase right within five days after receiving notice from us and must purchase
its common shares simultaneous with the closing of the offering.
LEHMAN WARRANTS
In connection with a term loan facility entered into among us, certain
lenders party thereto from time to time, Lehman Commercial Paper Inc. ('LCPI'),
as syndication agent and as administration agent, and Lehman Brothers Inc., as
arranger, we issued to LCPI a warrant to purchase up to 2,100,000 shares of our
common stock at a purchase price of $29.00 per share.
LCPI's right to exercise this warrant vests:
in a tranche of 525,000 shares of common stock, on December 27, 2000;
in a tranche of 1,050,000 shares of common stock, on the date of the making
of the loans under the term loan facility; and
38
in a tranche of 525,000 shares of common stock, only under certain
conditions relating to the performance of our publicly issued senior notes.
This warrant expires, with respect to any of the tranches described above,
on the tenth anniversary of the vesting date with respect to such tranche. The
number of shares of common stock to be issued under this warrant and the
exercise price of the warrant will be adjusted in some cases if we issue stock
dividends, subdivide or combine stock, reorganize or reclassify capital stock,
distribute cash dividends, issue common stock or other securities convertible
into common stock (other than in a bona fide underwritten public offering) and
in certain other events. We are also required to give LCPI notice of adjustments
in the number of shares issuable under this warrant and of extraordinary
corporate events.
PLAN OF DISTRIBUTION
We may sell the securities:
to one or more underwriters or dealers for public offering and sale by
them; and
to investors directly or through agents.
The distribution of securities may be effected from time to time in one or
more transactions at a fixed price or prices (which may be changed from time to
time), at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Each prospectus
supplement will describe:
the method of distribution of the securities offered thereby;
the purchase price and the proceeds we will receive from the sale; and
any securities exchanges on which the securities of such series may be
listed.
In connection with the sale of the securities, underwriters, dealers or
agents may receive compensation from us or from purchasers of the securities for
whom they may act as agents, in the form of discounts, concessions or
commissions. The underwriters, dealers or agents that participate in the
distribution of the securities may be deemed to be underwriters under the
Securities Act and any discounts or commissions received by them and any profit
on the resale of the securities received by them may be deemed to be
underwriting discounts and commissions thereunder. Any such underwriter, dealer
or agent will be identified and any such compensation received from us will be
described in the applicable prospectus supplement. Any initial public offering
price and any discounts or concessions allowed or paid to dealers may be changed
from time to time.
Under the agreements that may be entered into with us, underwriters, dealers
and agents may be entitled to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which the underwriters, dealers or agents may be
required to make in respect thereof.
Each underwriter, dealer and agent participating in the distribution of any
securities that are issuable in bearer form will agree that it will not offer,
sell, resell or deliver, directly or indirectly, securities in bearer form to
persons located in the United States or to United States persons (other than
qualifying financial institutions), in connection with the original issuance of
the securities.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for us in the ordinary
course of business.
Certain persons participating in an offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the securities, including
over-allotment, stabilizing and short-covering transactions in such securities,
the imposition of a penalty bid, and bidding for and purchasing shares of our
common stock in the open market during and after an offering.
LEGAL MATTERS
Simpson Thacher & Bartlett, New York, New York, will pass upon specific
legal matters with respect to the securities. Certain regulatory matters arising
under the Communications Act will be passed upon by Wiley, Rein & Fielding,
Washington, D.C.
39
EXPERTS
The financial statements incorporated by reference in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.
Reference is made to said report, which includes an explanatory paragraph with
respect to the uncertainty regarding the company's ability to continue as a
going concern as discussed in Note 2 to the financial statements.
INCORPORATION BY REFERENCE
The SEC allows us to 'incorporate by reference' in this prospectus other
information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act until we sell all of the securities covered by this
prospectus.
1. Our Annual Report on Form 10-K for the year ended December 31, 1999.
2. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 2000, June 30, 2000 and September 30, 2000.
3. Our Current Reports on Form 8-K dated February 1, 2000 and February 23,
2001.
4. The description of our common stock contained in our Registration
Statement on Form 8-A filed pursuant to Section 12(b) of the Exchange Act
and declared effective on September 13, 1994 (including any amendment or
report filed for the purpose of updating such description).
We have filed each of these documents with the SEC and they are available
from the SEC's internet site and public reference rooms described under 'Where
You May Find Additional Available Information About Us' below. You may also
request a copy of these filings, at no cost, by writing or calling us at the
following address or telephone number:
Patrick L. Donnelly
Senior Vice President, General Counsel and Secretary
Sirius Satellite Radio Inc.
1221 Avenue of the Americas, 36th Floor
New York, New York 10020
(212) 584-5100
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information.
WHERE YOU MAY FIND ADDITIONAL AVAILABLE INFORMATION ABOUT US
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any of these reports, statements
or other information at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549 or at its regional offices in New York City, New
York, and Chicago, Illinois. You can request copies of those documents, upon
payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public at the SEC's internet site at
http://www.sec.gov.
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[PHOTOS]
Sirius Satellite Control
10,000,000 SHARES
[Logo]
COMMON STOCK
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PROSPECTUS SUPPLEMENT
FEBRUARY 23, 2001
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LEHMAN BROTHERS