AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 2003
REGISTRATION NO. 333-101317
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
SIRIUS SATELLITE RADIO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------
DELAWARE 4899 52-1700207
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
1221 AVENUE OF THE AMERICAS, 36TH FLOOR, NEW YORK, NEW YORK 10020
(212) 584-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PATRICK L. DONNELLY
EXECUTIVE 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
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
-------------------
WITH A COPY TO:
GARY L. SELLERS
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE, NEW YORK, NEW YORK 10017
(212) 455-2000
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the effective date of this Registration Statement.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement of
the same offering. [ ]
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 28, 2003
PROSPECTUS_ AND_ SOLICITATION_ STATEMENT
SIRIUS SATELLITE RADIO INC.
[SIRIUS SATELLITE LOGO] OFFER TO EXCHANGE
596,669,765 SHARES OF COMMON STOCK
FOR
$150,000,000 LEHMAN SENIOR TERM LOANS,
$50,000,000 LORAL SENIOR TERM LOANS,
$280,430,000 15% SENIOR SECURED DISCOUNT NOTES DUE 2007,
$200,000,000 14 1/2% SENIOR SECURED NOTES DUE 2009 AND
$16,461,000 8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009,
INCLUDING IN EACH CASE ACCRUED INTEREST
CONSENT SOLICITATION
AND
SOLICITATION OF ACCEPTANCES TO PREPACKAGED PLAN OF REORGANIZATION
Sirius Satellite Radio Inc. has proposed a financial restructuring through
one of the following two alternatives:
an out-of-court restructuring, or 'recapitalization plan,' which consists
of:
-- an offer to exchange all of our outstanding debt securities for common
stock;
-- a consent solicitation to remove all the restrictive covenants in
our outstanding debt;
-- the concurrent exchange of our outstanding preferred stock
for common stock; and
-- the purchase of our common stock by certain investors
for $200 million cash;
or
an in-court restructuring, or 'prepackaged plan,' which will attempt to
accomplish the restructuring on substantially the same terms as the
recapitalization plan, through the solicitation of acceptances under
Chapter 11 of the Bankruptcy Code. Our ability to complete the in-court
restructuring is subject to the prior confirmation by the investors of
their willingness to purchase $200 million of our common stock.
Each holder of our debt securities will receive 779.5 shares of our common
stock for each $1,000 of principal and accrued interest exchanged. The
completion of the recapitalization is conditioned upon, among other conditions,
our receipt of valid tenders from not less than (1) 97% in aggregate principal
amount of our outstanding debt securities and (2) 90% in aggregate principal
amount of our convertible subordinated notes, subject to certain exceptions
described in this prospectus.
The exchange offer, consent solicitation and the solicitation period for
acceptance of the prepackaged plan will expire at 5:00 p.m., New York City time,
on Tuesday, March 4, 2003, unless extended.
Our common stock is listed on the Nasdaq National Market under the symbol
'SIRI.' The closing bid price of our common stock on January 30, 2003 was
$ per share.
SEE 'RISK FACTORS' ON PAGE 13 FOR FACTORS THAT YOU SHOULD CONSIDER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS AND
SOLICITATION STATEMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS AND SOLICITATION STATEMENT IS JANUARY 30, 2003.
DEALER MANAGER
UBS WARBURG
TABLE OF CONTENTS
PAGE
----
Summary..................................................... 1
Risk Factors................................................ 13
Forward-Looking Statements.................................. 28
Use Of Proceeds............................................. 28
Selected Consolidated Historical Financial Data............. 29
Capitalization.............................................. 31
Unaudited Pro Forma Consolidated Financial Data............. 33
Accounting Treatment of the Restructuring................... 39
The Restructuring........................................... 40
The Recapitalization Plan................................... 55
The Exchange Offer And Consent Solicitation................. 57
The Prepackaged Plan........................................ 69
Unaudited Projected Consolidated Financial Information...... 104
Description Of Capital Stock And Warrants................... 108
Management.................................................. 115
Security Ownership Of Certain Beneficial Owners And
Management................................................ 124
Material United States Federal Income Tax Consequences...... 127
Legal Matters............................................... 132
Experts..................................................... 132
Where You May Find Additional Available Information About
Us........................................................ 133
Exhibit A -- Lockup Agreement............................... A-1
Exhibit B -- Opinion of Miller Buckfire Lewis & Co., LLC.... B-1
Exhibit C -- The Prepackaged Plan........................... C-1
INCORPORATION BY REFERENCE
The SEC allows us to 'incorporate by reference' in this prospectus and
solicitation statement other information we file with it, which means that we
can disclose important information to you by referring you to those documents.
This prospectus and solicitation statement incorporates important business and
financial information about us that is not included in or delivered with this
prospectus and solicitation statement. The information we file later with the
SEC will automatically update and supersede the information included in and
incorporated by reference in this prospectus and solicitation statement. 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
expiration of the exchange offer, consent solicitation and solicitation period
for acceptance of the prepackaged plan.
1. Our Annual Report on Form 10-K for the year ended December 31, 2001,
as amended by a Form 10-K/A dated April 30, 2002.
2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2002, June 30, 2002 and September 30, 2002.
3. Our Current Reports on Form 8-K dated January 3, 2002, April 11, 2002
and October 22, 2002.
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.
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.' 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
Executive 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 and solicitation statement. We have not authorized
anyone else to provide you with different information.
i
QUESTIONS AND ANSWERS REGARDING PROCEDURAL ASPECTS
OF THE EXCHANGE OFFER AND SOLICITATION
Q: HOW DO I TENDER MY DEBT SECURITIES IN THE EXCHANGE OFFER, AND WHO DO I SEND
MY DEBT SECURITIES TO?
A: If you hold your debt securities through a broker, dealer, bank, trust
company or other nominee, you should instruct your nominee to tender your debt
securities for you.
If you hold your debt securities in your own name, you should complete the
letter of transmittal included with this prospectus and deliver the completed
letter of transmittal with the debt securities to the exchange agent, The Bank
of New York. The address and telephone number for The Bank of New York is on the
back cover of this prospectus.
Q: HOW LONG IS THE EXCHANGE OFFER OPEN FOR?
A: The exchange offer will expire at 5:00 p.m., New York City time, on Tuesday,
March 4, 2003, unless extended by us.
Q: IF I TENDER MY DEBT SECURITIES, WHEN WILL I RECEIVE MY SHARES OF COMMON
STOCK?
A: Holders of debt securities that tender in the exchange offer will receive
shares of common stock promptly after the closing of the exchange offer.
Q: HOW DO I CONSENT TO THE AMENDMENTS TO THE INDENTURES AND WAIVE THE DEFAULTS
UNDER THE INDENTURES?
A: By tendering your debt securities you also consent to the amendments to the
indentures and agree to waive the defaults under the indentures. You cannot
tender your debt securities without also consenting to the amendments to the
indentures and agreeing to waive the defaults under the indentures.
Q: WHEN IS THE DEADLINE FOR CONSENTING TO THE AMENDMENTS TO THE INDENTURES AND
AGREEING TO WAIVE THE DEFAULTS UNDER THE INDENTURES?
A: The consent solicitation will expire at the same time as the exchange offer,
5:00 p.m., New York City time, on Tuesday, March 4, 2003, unless extended by us.
Q: HOW DO I VOTE ON THE PREPACKAGED PLAN?
A: You should complete the ballot included with this prospectus and deliver the
completed ballot to your broker, dealer, bank, trust company or other nominee.
Q: CAN I REVOKE MY TENDER OF DEBT SECURITIES, OR MY VOTE, ON THE PREPACKAGED
PLAN AT ANY TIME?
A: You can revoke the tender of your debt securities prior to the expiration of
the exchange offer by contacting the exchange agent, The Bank of New York, at
its address on the back cover of this prospectus.
You can revoke your vote in favor of the prepackaged plan prior to the
solicitation expiration date by contacting your broker, bank, trust company or
other nominee.
Q: WHO DO I CALL IF I HAVE QUESTIONS OR NEED ADDITIONAL COPIES OF THIS
PROSPECTUS, THE LETTER OF TRANSMITTAL OR OTHER DOCUMENTS?
A: Additional copies of this prospectus, the letter of transmittal and other
documents can be obtained from the information agent, MacKenzie Partners, Inc.
The address and telephone number for MacKenzie Partners is on the back cover of
this prospectus.
See 'The Exchange Offer and Consent Solicitation -- Procedures for Tendering
Debt Securities and Delivering Consents' and 'The Prepackaged Plan -- The
Prepackaged Plan Solicitation.'
ii
SUMMARY
ABOUT OUR COMPANY
From our three orbiting satellites, we directly broadcast digital-quality
radio to motorists throughout the continental United States for a monthly
subscription fee of $12.95. We deliver 60 original channels of 100%
commercial-free music in virtually every genre, and 40 channels of news, sports,
weather and entertainment programming. Our broad and deep range of almost every
music format as well as our 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.
On February 14, 2002, we launched our service in select markets and on
July 1, 2002, we launched our service nationwide. As of December 31, 2002, we
had 29,947 subscribers. Our financial results from our inception on May 17, 1990
through September 30, 2002 were as follows:
revenues of $120,000;
net losses of approximately $805 million;
net losses from operations of approximately $645 million;
net losses applicable to common stockholders of approximately $1,057
million; and
negative cash flow of approximately $1,590 million.
We believe that the completion of the restructuring is critical to our
continuing viability. At December 31, 2002, we had approximately $180 million of
available cash, cash equivalents, marketable securities and restricted
investments. This amount will cover our estimated funding needs only through the
second quarter of 2003, without giving effect to the restructuring. If the
restructuring is not completed, we may not be able to raise sufficient funds on
favorable terms or at all. If we fail to obtain additional financing on a timely
basis, we will not have sufficient liquidity to continue to operate our business
and we could default on our commitments to our distribution partners, creditors
or others, and may have to seek a purchaser for our business or assets.
We have substantial indebtedness which adversely affects our financial
condition. As of September 30, 2002, the book value of our debt was
$683.6 million and we had stockholders' equity of $170.4 million. We have
significant principal payments under our indebtedness coming due in the next
several years. Unless the restructuring occurs, we will be required to make the
following principal payments on our long-term debt: $49.8 million in the
remainder of 2003 (which includes $15.0 million due but not paid in 2002);
$38.5 million in 2004; $111.7 million in 2005; $280.4 million in 2007; and
$216.5 million in the aggregate thereafter.
The restructuring will eliminate all or substantially all of our outstanding
debt and all of our preferred stock and provide us with sufficient cash to cover
our estimated funding needs into the second quarter of 2004. After giving effect
to the restructuring, we anticipate that we will need further additional funding
of approximately $75 million before we achieve 'cash flow breakeven,' the point
at which our revenues are sufficient to fund expected operating expenses,
capital expenditures, interest and principal payments and taxes. We expect to
raise this $75 million through the issuance of debt, equity or a combination
thereof. This amount is an estimate and may change, and we may need additional
funding to remain in business and continue to develop and market our satellite
radio service. Our estimates are based upon many significant assumptions,
including the assumption that we will have approximately two million subscribers
at year-end 2005. These assumptions are described under the caption 'Unaudited
Projected Consolidated Financial Information.' We are continuing to evaluate
initiatives that could enable us to achieve cash flow breakeven without raising
additional funds.
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 sirius.com. Sirius.com
1
is an inactive textual 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.
THE RESTRUCTURING
We propose to effect a financial restructuring through one of the following
two alternatives:
an out-of-court restructuring, or 'recapitalization plan,' which consists
of:
an offer to exchange all of our outstanding debt securities for common
stock;
a consent solicitation to remove substantially all the restrictive
covenants in our outstanding debt and obtain waivers of defaults;
the concurrent exchange of our outstanding preferred stock for common
stock; and
the purchase of common stock by certain investors for $200 million
cash;
or
an in-court restructuring, or 'prepackaged plan,' which will attempt to
accomplish the restructuring on substantially the same terms as the
recapitalization plan, through the solicitation of acceptances of a
prepackaged plan of reorganization under Chapter 11 of the Bankruptcy Code.
Our ability to complete the in-court restructuring is subject to the prior
confirmation by the investors of their willingness to purchase $200 million
of our common stock.
Under the prepackaged plan, the holders of our debt and equity securities
(as well as the holders of all other claims) will receive the same consideration
in exchange for their claims and interests as they would receive in the
recapitalization plan.
To complete the recapitalization plan, we must receive:
the valid tender of 97% in aggregate principal amount of our
outstanding debt securities and 90% in aggregate principal amount of
our convertible subordinated notes (subject to certain exceptions
described in this prospectus);
the consents of holders of a majority in aggregate principal amount of
our senior secured discount notes, senior secured notes and convertible
subordinated notes; and
the approval of our stockholders to the recapitalization transactions.
To seek confirmation of the prepackaged plan from the bankruptcy court, we
must receive:
for each impaired 'class of claims' (such as each class of our
outstanding debt), the affirmative votes to accept the prepackaged plan
from holders of at least two-thirds in dollar amount and more than
one-half in number of the holders of claims in such class who actually
cast ballots; and
for each impaired 'class of interests' (such as our common stock), the
affirmative votes to accept the prepackaged plan from holders of at
least two-thirds of the number of shares in such class who actually
cast ballots,
unless we seek confirmation of the prepackaged plan under the 'cram down'
provisions of Section 1129 of the Bankruptcy Code. See 'Prepackaged
Plan -- Confirmation of the Prepackaged Plan Without Acceptance by All Classes
of Impaired Claims and Interests.'
If we are not able to complete the recapitalization plan for any reason,
including if the minimum tender condition is not met, but we receive the
required votes from each impaired class of claims or interests to accept the
prepackaged plan and so long as Oppenheimer, Apollo and Blackstone agree to
proceed with the new equity purchase, we will seek confirmation of the
prepackaged plan in the bankruptcy court. If the prepackaged plan is confirmed
by the bankruptcy court, it will bind all of our security holders.
2
THE RECAPITALIZATION PLAN
THE RECAPITALIZATION PLAN
The exchange offer and consent solicitation are a part of, and are being
conducted pursuant to, the recapitalization plan for achieving our financial
restructuring goals. Consummation of the recapitalization plan will result in
the elimination of all or substantially all of our outstanding debt, the
elimination of all of our outstanding preferred stock and the investment of
$200 million of new equity capital. The recapitalization plan consists of the
several concurrent transactions described below, each of which is conditioned
upon the successful consummation of the others.
We have entered into a lockup agreement with Lehman Commercial Paper Inc.,
Space Systems/Loral, Inc., the holders of all of our outstanding preferred stock
and holders of approximately 71% in aggregate principal amount at maturity of
our outstanding senior secured discount notes, approximately 70% in aggregate
principal amount of our outstanding senior secured notes and approximately 64%
in aggregate principal amount of our outstanding convertible subordinated notes,
which agreement sets forth the terms and conditions of the restructuring and the
obligations and commitments of the parties with respect to the restructuring.
Additional holders of our notes may become parties to the lockup agreement. A
copy of the lockup agreement is attached to this prospectus as Exhibit A. For a
description of the lockup agreement, see 'The Restructuring -- Lockup
Agreement.'
EXCHANGE OFFER AND CONSENT SOLICITATION
Pursuant to and upon the terms and conditions set forth in this prospectus,
we are offering to exchange an aggregate of 596,669,765 shares of our common
stock, representing approximately 62% of our outstanding common stock after
giving effect to the restructuring, for all of our outstanding debt securities
(or 779.5 shares of common stock for each $1,000 of principal and accrued
interest).
In connection with the exchange offer, we are soliciting the consent of each
holder of our notes to the adoption of certain amendments to the indentures
under which the notes were issued and the waiver of any defaults and events of
default under such indentures now in existence (whether or not related to the
restructuring) or caused by the recapitalization plan. Pursuant to the lockup
agreement, holders of approximately:
71% in aggregate principal amount at maturity of our outstanding senior
secured discount notes;
70% in aggregate principal amount of our outstanding senior secured notes;
and
64% in aggregate principal amount of our outstanding convertible
subordinated notes,
have agreed to tender their notes in the exchange offer and consent to the
proposed amendments and waivers, thereby assuring that the proposed amendments
and waivers will become effective in the event the exchange offer is completed.
PREFERRED STOCK EXCHANGE
Pursuant to the lockup agreement, affiliates of Apollo Management, L.P., or
Apollo, and The Blackstone Group L.P., or Blackstone, have agreed to exchange
all of our outstanding preferred stock for:
an aggregate of 76,992,865 newly issued shares of our common stock (or
approximately 140 shares of common stock for each $1,000 in liquidation
preference and accrued dividends), as of March 15, 2003 representing
approximately 8% of our outstanding common stock after giving effect to the
restructuring; and
warrants to purchase an aggregate of 87,577,114 shares of our common stock,
representing approximately 9.1% of our outstanding common stock after
giving effect to the restructuring.
3
52,546,268 of these warrants will have an exercise price of $1.04 per share
of common stock, and 35,030,846 of these warrants will have an exercise
price of $0.92 per share of common stock. The warrants will expire two
years after the effective date of the restructuring.
NEW EQUITY INVESTMENT
Pursuant to the lockup agreement, Apollo, Blackstone and certain affiliates
of OppenheimerFunds, Inc., or Oppenheimer, have agreed to purchase an aggregate
of 211,730,379 newly issued shares of our common stock, representing
approximately 22% of our outstanding common stock after giving effect to the
restructuring, for a total purchase price of $200 million cash.
The obligation of each of Apollo, Blackstone and Oppenheimer to purchase
this common stock is conditioned upon each of the other purchasers (or a
replacement purchaser) fulfilling its obligation to purchase common stock on the
closing date of the restructuring and may be terminated by Apollo, Blackstone or
Oppenheimer upon the occurrence of specified events which constitute a material
adverse change, in the event the minimum tender condition of the exchange offer
is not satisfied or upon the commencement of a case under the Bankruptcy Code by
or against us. For a description of the terms and conditions of the new equity
investment, see 'The Restructuring -- Lockup Agreement' and 'The
Recapitalization -- The New Equity Investment.'
PROXY SOLICITATION
Concurrently with the exchange offer and consent solicitation, we are
soliciting proxies from our existing stockholders to:
approve the issuance of shares of our common stock in the exchange offer,
the preferred stock exchange and the new equity investment; and
approve an amendment and restatement of our certificate of incorporation to
increase the authorized number of shares of our common stock.
The consummation of the transactions contemplated by the recapitalization
plan is conditioned upon our receiving the required stockholder approval. We are
also soliciting acceptances of the prepackaged plan from our stockholders
pursuant to the proxy solicitation.
To obtain stockholder approval for the recapitalization plan, we need to
receive the affirmative vote of holders of a majority of the total shares
entitled to vote on such matters and attributable to our outstanding common
stock and preferred stock, voting together as a single class. Pursuant to the
lockup agreement, Apollo and Blackstone (the holders of all of our outstanding
preferred stock and one million shares of our common stock) and Oppenheimer (the
holder of 13,258,200 shares of our common stock) have agreed to vote in favor of
these items in the proxy solicitation, which together represent approximately
30% of the total votes entitled to participate in the proxy solicitation.
Holders of the notes that are party to the lockup agreement have also agreed to
vote any shares of common stock owned by them in favor of the recapitalization
plan.
BOARD OF DIRECTORS
Upon consummation of the restructuring, two members of our board of
directors will resign and two new board members, to be selected by the informal
committee of creditors, will fill those vacancies. See 'Management.'
THE EXCHANGE OFFER AND CONSENT SOLICITATION
THE EXCHANGE OFFER
Subject to the terms and conditions set forth in this prospectus, we are
offering to exchange an aggregate of 596,669,765 shares of our common stock, par
value $0.001 per share, representing
4
approximately 62% of the outstanding shares of our common stock after giving
effect to the restructuring, in exchange for all of our outstanding debt
securities.
The following table sets forth the number of shares of our common stock we
are offering to exchange for each $1,000 of principal amount and accrued and
unpaid interest through March 15, 2003:
NUMBER OF
AGGREGATE SHARES OF
PRINCIPAL ACCRUED TOTAL % OF COMMON
AMOUNT INTEREST SHARES OF COMMON STOCK STOCK TO BE
OUTSTANDING THROUGH COMMON STOCK OUTSTANDING ISSUED PER
AT MARCH 15, MARCH 15, TOTAL TO BE AFTER $1,000 TOTAL
TITLE OF SECURITY 2003 2003(1) OBLIGATION ISSUED RESTRUCTURING(2) OBLIGATION(3)
----------------- ---- ------- ---------- ------ ---------------- -------------
SENIOR SECURED DISCOUNT NOTES... $280,430,000 $12,151,967 $292,581,967 228,067,643 23.7% 779.5
SENIOR SECURED NOTES............ 200,000,000 24,166,667 224,166,667 174,737,917 18.2% 779.5
LEHMAN SENIOR TERM LOANS........ 150,000,000 5,213,333 155,213,333 120,988,793 12.6% 779.5
LORAL SENIOR TERM LOANS......... 50,000,000 25,644,620 75,644,620 58,964,982 6.1% 779.5
CONVERTIBLE SUBORDINATED
NOTES.......................... 16,461,000 1,384,324 17,845,324 13,910,430 1.4% 779.5
------------ ----------- ------------ ----------- -----
TOTAL........................ $696,891,000 $68,560,911 $765,451,911 596,669,765 62.0%
---------
(1) Per $1,000 principal amount of debt, accrued interest through March 15, 2003
will be: $43.33 for the senior secured discount notes; $120.83 for the
senior secured notes; $34.76 for the Lehman senior term loans; $512.89 for
the Loral senior term loans; and $84.10 for the convertible subordinated
notes. Consideration in the exchange offer will be based on the 'total
obligation' calculated above (assuming accrued interest through March 15,
2003) notwithstanding the actual closing date. By participating in the
exchange offer, each holder agrees to treat the common stock as received in
exchange for principal of the debt securities. See 'Material Federal Income
Tax Consequences -- Consequences of the Exchange of Common Stock for Notes.'
(2) Does not give effect to the exercise of warrants that will be outstanding
after the restructuring. See 'Description of Capital Stock and Warrants.'
(3) Based on the closing bid price of our common stock on January 30, 2003,
779.5 shares of our common stock would have a market value of $ .
MINIMUM TENDER CONDITION
The completion of the exchange offer is conditioned upon, among other
conditions, our receipt of valid tenders from not less than (1) 97% in aggregate
principal amount of our outstanding debt securities and (2) 90% in aggregate
principal amount of our convertible subordinated notes; provided that the
holders of a majority of our debt securities may reduce the minimum tender
condition to not less than 90% in aggregate principal amount of our debt
securities and may lower or eliminate the minimum condition applicable to our
convertible subordinated notes. We reserve the right to waive the minimum tender
condition, which we will be able to do only with the prior written consent of
our board of directors, the holders of a majority of our debt securities, Apollo
and Blackstone.
Pursuant to the lockup agreement:
Lehman and Loral agreed to tender all of their outstanding term loans in
the exchange offer; and
the holders of approximately:
-- 71% in aggregate principal amount at maturity of our senior secured
discount notes;
-- 70% in aggregate principal amount of our senior secured notes; and
-- 64% in aggregate principal amount of our convertible subordinated
notes,
agreed to tender their notes in the exchange offer and to consent to the
proposed amendments and waivers, for an aggregate of approximately 79% of total
outstanding debt securities. Under certain circumstances, certain parties to the
lockup agreement will be able to retain a small portion of their debt securities
as more fully described in 'The Exchange Offer and Consent Solicitation -- Terms
of the Exchange Offer and Consent Solicitation.'
5
OTHER CONDITIONS
The completion of the exchange offer is also conditioned upon:
the approval by our existing stockholders of the restructuring,
receipt of any required consents or approvals from governmental
authorities, including the approval of the Federal Communications
Commission, if required,
approvals under the Hart-Scott-Rodino Antitrust Improvements Act, if
required, and
there being no action or proceeding which enjoins, restricts or prohibits
the consummation of the exchange offer.
TENDER EXPIRATION DATE
The exchange offer and consent solicitation will expire at 5:00 p.m., New
York City time, on Tuesday, March 4, 2003, unless extended by us; provided that
we may not extend the tender expiration date to any date later than March 15,
2003 without the prior approval of the holders of a majority of our debt
securities, Apollo and Blackstone. See 'The Exchange Offer and Consent
Solicitation -- Tender Expiration Date; Extension; Amendment and Termination.'
THE CONSENT SOLICITATION
Concurrently with the exchange offer, we are soliciting the consent of each
holder of our notes to:
the adoption of certain amendments to the indentures under which the notes
were issued to eliminate substantially all of the restrictive covenants
contained in the indentures; and
the waiver of any defaults and events of default under the indentures now
in existence (whether or not related to the restructuring) or caused by the
recapitalization plan.
IF THE RECAPITALIZATION PLAN IS COMPLETED AND SUPPLEMENTAL INDENTURES ARE
EXECUTED, THE PROPOSED AMENDMENTS AND WAIVERS WILL BE BINDING UPON NON-TENDERING
HOLDERS OF NOTES, REGARDLESS OF WHETHER SUCH HOLDERS CONSENTED TO THE PROPOSED
AMENDMENTS AND WAIVERS.
Delivery of a properly completed and validly executed letter of transmittal
will constitute delivery of a consent. HOLDERS CANNOT TENDER NOTES IN THE
EXCHANGE OFFER UNLESS THEY ALSO CONSENT TO THE PROPOSED AMENDMENTS AND WAIVERS.
HOLDERS WHO TENDER NOTES IN THE EXCHANGE OFFER IN ACCORDANCE WITH THE PROCEDURES
DESCRIBED IN THIS PROSPECTUS WILL BE DEEMED TO HAVE DELIVERED CONSENTS TO THE
PROPOSED AMENDMENTS AND WAIVERS.
PROPOSED AMENDMENTS
If the proposed amendments become operative, they will eliminate
substantially all of the restrictive covenants contained in the indentures.
The proposed amendments to the senior secured discount notes indenture and
senior secured notes indenture:
delete the provisions of the indentures which limit indebtedness,
restricted payments, permitted investments, issuance and sale of capital
stock of subsidiaries, transactions with affiliates, liens, dividends, the
business activities of our subsidiary and other payment restrictions
affecting subsidiaries; and
delete the provisions of the indentures requiring us to pay taxes and other
claims, maintain in-orbit satellite insurance, and provide a statement by
officers as to default.
The proposed amendments to the convertible subordinated notes indenture will
eliminate certain events of default.
6
REQUISITE CONSENTS
Consents from holders of a majority in aggregate principal amount at
maturity of the senior secured discount notes, a majority in aggregate principal
amount of the senior secured notes and a majority in aggregate principal amount
of the convertible subordinated notes, in each case held by holders that are not
our 'affiliates' within the meaning of the indentures, are necessary to effect
the proposed amendments and waivers. Pursuant to the lockup agreement, our
receipt of requisite consents is assured.
FEDERAL INCOME TAX CONSEQUENCES
We have received an opinion from Simpson Thacher & Bartlett, our outside
counsel, that the exchange of our common stock for debt securities will
constitute a tax-free recapitalization for United States federal income tax
purposes. For a further description of United States federal income tax
consequences of the restructuring, see 'Material Federal Income Tax
Consequences.'
DEALER MANAGER, INFORMATION AGENT AND EXCHANGE AGENT
UBS Warburg LLC is the dealer manager, MacKenzie Partners, Inc. is the
information agent and The Bank of New York is the exchange agent. Their
addresses and telephone numbers are set forth on the back cover of this
prospectus.
THE PREPACKAGED PLAN
We have prepared the prepackaged plan as an alternative to the
recapitalization plan for effecting the restructuring if the conditions to the
completion of the exchange offer, including the minimum tender condition, are
not met or waived but we do receive the required acceptances to seek
confirmation of the prepackaged plan. We are therefore soliciting the vote of
each holder of our debt securities in favor of the prepackaged plan by
soliciting ballots with this prospectus. We are also soliciting acceptances of
the prepackaged plan from our stockholders pursuant to the proxy solicitation.
The prepackaged plan consists of a plan of reorganization under Chapter 11
of the Bankruptcy Code that would effect the same transactions contemplated by
the recapitalization plan, including the issuance of common stock in exchange
for our debt securities and our preferred stock and the new equity investment.
Under the prepackaged plan, the holders of our debt and equity securities (as
well as the holders of all other claims) will receive the same consideration in
exchange for their claims and interests as they would receive in the
recapitalization plan.
However, in the event that we determine to file the prepackaged plan with
the bankruptcy court, Apollo, Blackstone and Oppenheimer may elect to terminate
their obligations to purchase $200 million of common stock in the new equity
investment. In that event, and provided that no suitable alternative new equity
investment is located, the prepackaged plan will not be filed, and your vote in
favor of the prepackaged plan will be disregarded. We have not yet identified
any suitable alternative equity investment.
VOTING ON THE PREPACKAGED PLAN
Under the prepackaged plan, creditors and stockholders who hold
substantially similar legal claims or interests with respect to the distribution
of the value of our assets are divided into separate 'classes' of claims or
interests. Under the Bankruptcy Code, the separate classes of claims and
interests must be designated either as 'impaired' (affected by the plan) or
'unimpaired' (unaffected by the plan). For the prepackaged plan to be confirmed
by the bankruptcy court without invoking the 'cram down' provisions, each class
of claims or interests that is impaired must vote to accept the prepackaged
plan. An impaired class of claims (such as each class of our debt) is deemed to
accept a plan of reorganization under the provisions of the
7
Bankruptcy Code if holders of at least two-thirds in dollar amount and more than
one-half in number of the holders of claims who actually cast ballots vote to
accept the prepackaged plan. An impaired class of interests (such as our
preferred stock and common stock) is deemed to accept a plan of reorganization
if the holders of at least two-thirds in amount of the interests in such class
who actually cast ballots vote to accept the prepackaged plan.
Under the prepackaged plan, the following constitute impaired classes:
the claims held by holders of the Lehman senior term loans, senior
secured discount notes and senior secured notes (Class 2);
the claims held by holders of the Loral senior term loans (Class 3);
the claims held by the holders of our convertible subordinated notes
(Class 5);
the interests held by holders of our preferred stock (Class 8); and
the interests held by holders of our common stock (Class 9).
Pursuant to the lockup agreement, approximately 78% in aggregate principal
amount of Class 2, 100% in aggregate principal amount of Class 3, approximately
64% in aggregate principal amount of Class 5 and Apollo and Blackstone, the
holders of our preferred stock and 100% of the interests in Class 8, have agreed
to vote to accept the prepackaged plan, thereby assuring acceptance of the
prepackaged plan by Classes 3 and 8.
If all classes of impaired claims and interests, other than the interests
held by our common stockholders (Class 9), accept the prepackaged plan, and
Apollo, Blackstone and Oppenheimer (or any replacement purchaser) agree to
proceed with the new equity investment, we intend to pursue confirmation of the
prepackaged plan under the 'cram down' provisions of the Bankruptcy Code. If the
prepackaged plan is confirmed under the 'cram down' provisions of the Bankruptcy
Code, all classes of claims and interests will be bound by the terms of the plan
regardless of whether such class voted to accept the prepackaged plan. See 'The
Prepackaged Plan -- Confirmation of the Prepackaged Plan Without Acceptance by
All Classes of Impaired Claims and Interests.'
VOTING RECORD DATE
The 'voting record date' for determining the holders of claims or interests
for purposes of voting on the prepackaged plan is the close of business on
Tuesday, January 21, 2003.
SOLICITATION EXPIRATION DATE
The ballots must be received by the voting agent by 5:00 p.m., New York City
time, on Tuesday, March 4, 2003 (unless the prepackaged plan solicitation period
is extended, in which case ballots must be received by the voting agent by the
last date to which the prepackaged plan solicitation period is extended). We
will notify the voting agent of any extension by oral or written notice and will
make a public announcement thereof, prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled solicitation expiration
date.
VOTING AGENT AND INFORMATION AGENT
MacKenzie Partners, Inc. is the voting agent and the information agent. Its
address and telephone number is set forth on the back cover of this prospectus.
Questions and requests for assistance or for additional copies of this
prospectus, the letter of transmittal, the ballots or any other required
documents may be directed to the information agent at the address and telephone
number set forth on the back cover of this prospectus.
8
DESCRIPTION OF OUR COMMON STOCK
TO BE ISSUED TO HOLDERS OF DEBT SECURITIES
An aggregate of up to 596,669,765 newly issued shares of common stock, par
value $0.001 per share, will be issued in exchange for our outstanding debt.
After giving effect to the restructuring and assuming that 100% of the debt
securities are exchanged in the exchange offer, we estimate that there will be
962,385,874 shares of our common stock issued and outstanding and approximately
260,106,813 shares reserved for issuance under warrants and stock options.
DIVIDENDS
We have never declared or paid any cash dividends on our capital stock. We
intend to retain future earnings, if any, for use in our business and do not
anticipate paying any cash dividends in the foreseeable future.
VOTING RIGHTS
The holders of our common stock will be entitled to one vote per share on
all matters as to which stockholders may be entitled to vote pursuant to the
Delaware General Corporation Law.
STOCK OPTIONS
In connection with the restructuring, we will implement our new stock option
plan, through which options for approximately 15% of our outstanding common
stock after giving effect to the recapitalization will be available for grant.
TRADING MARKET
Our common stock trades on the Nasdaq National Market under the symbol
'SIRI'.
9
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data shown below as of and for the years
ended December 31, 1999, 2000 and 2001 is derived from our respective audited
consolidated financial statements. The summary consolidated financial data as of
and for the nine months ended September 30, 2001 and 2002 is derived from our
unaudited consolidated financial statements. In the opinion of management, the
unaudited consolidated financial statements include all adjustments, consisting
of normal recurring adjustments, that are necessary for a fair presentation of
our consolidated financial position and results of operations for these periods.
The summary consolidated financial data includes certain reclassifications to
conform to our current presentation. The summary consolidated financial data
should be read together with 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the consolidated financial statements
and related notes from our annual report on Form 10-K for the year ended
December 31, 2001 and our quarterly report on Form 10-Q for the quarter ended
September 30, 2002, both incorporated by reference in this prospectus.
NINE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -------------------------
1999 2000 2001 2001 2002
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues(1)................................... $ -- $ -- $ -- $ -- $ 120
Operating expenses(2)................................... (63,518) (125,634) (168,456) (116,618) (222,451)
Operating loss.......................................... (63,518) (125,634) (168,456) (116,618) (222,331)
Net loss................................................ (62,822) (134,744) (235,763) (163,057) (300,395)
Preferred stock dividends............................... (30,321) (39,811) (41,476) (30,724) (33,494)
Preferred stock deemed dividends(3)..................... (3,535) (8,260) (680) (509) (513)
Accretion of dividends in connection with the issuance
of warrants on preferred stock......................... (303) (900) -- -- --
Net loss applicable to common stockholders.............. (96,981) (183,715) (277,919) (194,290) (334,402)
Net loss per share applicable to common stockholders
(basic and diluted).................................... $ (3.96) $ (4.72) $ (5.30) $ (3.77) $ (4.41)
Weighted average common shares outstanding (basic and
diluted)............................................... 24,470 38,889 52,427 51,575 75,820
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents............................... $ 81,809 $ 14,397 $ 4,726 $ 27,790 $ 63,966
Marketable securities(4)................................ 317,810 121,862 304,218 335,310 184,732
Restricted investments(5)............................... 67,454 48,801 21,998 28,419 7,200
Working capital......................................... 303,865 143,981 275,732 363,850 171,911
Total assets............................................ 1,206,612 1,323,582 1,527,605 1,570,674 1,433,545
Short-term notes payable................................ 114,075 -- -- -- --
Current portion of long-term debt....................... -- -- 15,000 -- 41,500
Deferred satellite payments and accrued interest........ 55,140 60,881 67,201 65,548 72,354
Long-term debt.......................................... 488,690 472,602 589,990 642,885 569,768
10 1/2% Series C Preferred Stock........................ 149,285 -- -- -- --
9.2% Series A Junior Cumulative Convertible Preferred
Stock.................................................. 148,894 162,380 177,120 173,277 189,030
9.2% Series B Junior Cumulative Convertible Preferred
Stock.................................................. 64,238 70,507 77,338 75,559 82,843
9.2% Series D Junior Cumulative Convertible Preferred
Stock.................................................. -- 210,125 230,710 225,408 247,302
Accumulated deficit..................................... (134,491) (269,235) (504,998) (432,292) (805,393)
Stockholders' equity.................................... 134,179 290,483 322,649 344,047 170,404
---------
(1) We were a development stage company until we entered commercial operations
on February 14, 2002.
(2) Operating expenses include non-cash stock compensation expense of $1,206,
$7,176, $14,044, $3,374 and a non-cash stock compensation benefit of $7,995
for the years ended December 31, 1999, 2000 and 2001, and for the nine
months ended September 30, 2001 and 2002, respectively.
(footnotes continued on next page)
10
(footnotes continued from previous page)
(3) Preferred stock deemed dividends for the years ended December 31, 1999 and
2000 relate primarily to the conversions of our 10 1/2% Series C Convertible
Preferred Stock for shares of our common stock.
(4) Marketable securities are stated at market value and consist of fixed income
securities with a maturity at the time of purchase of greater than three
months.
(5) Restricted investments are stated at amortized cost and consist of
securities held by the trustee for the senior secured notes to pay interest
on those notes through May 15, 2002 and certificates of deposit pledged to
secure our reimbursement obligations under letters of credit required by
lessors and other creditors.
11
UNAUDITED PRO FORMA SUMMARY CONSOLIDATED FINANCIAL DATA
The following pro forma summary consolidated financial data for the year
ended December 31, 2001, and as of and for the nine months ended September 30,
2002 has been derived by the application of pro forma adjustments to our
historical consolidated financial statements. The historical consolidated
financial data includes certain reclassifications to conform to our current
presentation. The pro forma summary consolidated financial data is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
restructuring occurred at the beginning of the periods presented, nor is it
indicative of our future financial position or results of operations. The pro
forma summary consolidated balance sheet data as of September 30, 2002 gives
effect to the recapitalization plan and the payment of related fees and expenses
as if each had occurred on the date of the consolidated balance sheet. The
unaudited pro forma consolidated statements of operations data for the year
ended December 31, 2001, and the nine months ended September 30, 2002, give
effect to the restructuring as if it had occurred on January 1, 2001. The pro
forma summary consolidated financial data assumes that 100% of our outstanding
debt securities and preferred stock are exchanged for common stock.
The pro forma summary consolidated financial data is unaudited and based on
assumptions that we believe are reasonable and should be read in conjunction
with 'Capitalization' on page 31, and the consolidated financial statements and
related notes from our annual report on Form 10-K for the year ended December
31, 2001 and our quarterly report on Form 10-Q for the quarter ended
September 30, 2002, both incorporated by reference in this prospectus.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
--------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2001 SEPTEMBER 30, 2002
----------------- ------------------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Operating revenues........................................ $-- $ 120
Operating expenses........................................ (168,456) (222,451)
Operating loss............................................ (168,456) (222,331)
Net loss.................................................. (159,645) (229,994)
Net loss per share (basic and diluted).................... $ (0.17) $ (0.24)
Weighted average common shares outstanding (basic and
diluted)................................................ 937,820 961,213
PRO FORMA AS OF
SEPTEMBER 30, 2002
------------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 249,266
Marketable securities, at market.......................... 184,732
Restricted investments.................................... 7,200
Working capital........................................... 409,366
Total assets.............................................. 1,603,485
Deferred satellite payments and accrued interest.......... --
Long-term debt............................................ --
Preferred stock........................................... --
Accumulated deficit....................................... (530,943)(1)
Stockholders' equity...................................... 1,555,391
---------
(1) The accumulated deficit has been adjusted due to an estimated gain on the
exchange of debt for common stock. We have estimated the gain on the
exchange of debt to be $274,450, based on the assumption that the market
value of our common stock on the closing date of the restructuring will be
$0.64, the closing bid price on December 31, 2002. See 'Accounting Treatment
of the Restructuring -- Exchange of Debt Securities for Common Stock' for
further discussion regarding the calculation of the gain on the exchange of
debt for common stock.
12
RISK FACTORS
You should carefully consider the following risk factors before you decide
to tender your debt securities in the exchange offer, deliver a consent in the
consent solicitation and vote to accept or reject the prepackaged plan.
RISKS RELATED TO THE RESTRUCTURING
IF THE RESTRUCTURING IS NOT COMPLETED, WE MAY NOT BE ABLE TO OBTAIN THE
SUBSTANTIAL ADDITIONAL FINANCING WE NEED BY EARLY 2003 TO CONTINUE TO PROVIDE
SERVICE AND TO FURTHER DEVELOP AND MARKET OUR SATELLITE RADIO SERVICE.
At December 31, 2002, we had approximately $180 million of available cash,
cash equivalents, marketable securities and restricted investments. This amount
is sufficient to cover our estimated funding needs only through the second
quarter of 2003, without giving effect to the restructuring.
We have substantial indebtedness which adversely affects our financial
condition. We have significant principal payments under our indebtedness coming
due in the next several years. Unless the restructuring occurs, we will be
required to make the following principal payments on our long-term debt: $49.8
million in the remainder of 2003 (which includes $15.0 million due but not paid
in 2002); $38.5 million in 2004; $111.7 million in 2005; $280.4 million in 2007;
and $216.5 million in the aggregate thereafter.
If we are not able to complete the restructuring or obtain additional
financing on a timely basis, we may be forced to declare bankruptcy.
WE WILL STILL NEED ADDITIONAL FINANCING FOLLOWING THE RESTRUCTURING, WHICH MAY
NOT BE AVAILABLE.
The restructuring will eliminate all or substantially all of our outstanding
debt and provide us with sufficient cash to cover our estimated funding needs
into the second quarter of 2004. After giving effect to the restructuring, we
anticipate that we will need further additional funding of approximately
$75 million dollars before we achieve cash flow breakeven, the point at which
our revenues are sufficient to fund expected operating expenses, capital
expenditures, interest and principal payments and taxes. This amount is an
estimate and may change, and we may need additional financing in excess of this
estimate. Our actual funding requirements could vary materially from our current
estimates. We may have to raise more funds than expected to remain in business
and continue to develop and market our satellite radio service.
Even if we complete the restructuring, we may continue to struggle to stay
in business. Our financial projections are based on assumptions which we believe
are reasonable but contain significant uncertainties, including, most
importantly, the length of time and level of costs necessary to obtain the
number of subscribers required to sustain our operations.
AN ALTERNATIVE TO THE RESTRUCTURING MAY NOT BE AVAILABLE TO US AND, IF AVAILABLE
AND COMPLETED, MAY BE LESS FINANCIALLY ATTRACTIVE TO OUR CREDITORS THAN THE
RESTRUCTURING.
We believe that the completion of the restructuring is critical to our
continuing viability. If the restructuring is not completed, we may be forced to
seek an alternative restructuring of our capitalization and our obligations to
our creditors and equity holders and obtain their consent to any such
restructuring plan with or without a pre-approved plan of reorganization or
otherwise. An alternative restructuring arrangement or plan may not be
available, or if available, may not result in a successful reorganization or be
on terms as favorable to our creditors and equity holders as the terms of the
restructuring. In addition, there is a risk that distributions to our creditors
under a liquidation or under a protracted and non-orderly reorganization would
be substantially delayed and diminished.
13
WE WILL NOT BE ABLE TO COMPLETE THE RECAPITALIZATION PLAN IF WE DO NOT OBTAIN
STOCKHOLDER APPROVAL OF THE RESTRUCTURING TRANSACTIONS.
The consummation of the transactions contemplated by the recapitalization
plan is conditioned upon our receiving the approval of our existing stockholders
to the issuance of our common stock in the exchange offer, the preferred stock
exchange and the new equity investment and an amendment and restatement of our
certificate of incorporation to increase the authorized number of shares of our
common stock. Therefore, even if the minimum tender condition and each of the
other conditions to the exchange offer are met or waived, the failure to obtain
such stockholder approval will prevent us from consummating the recapitalization
plan and require us to seek to implement the restructuring through the
prepackaged plan.
Pursuant to the lockup agreement, Apollo and Blackstone (the holders of all
of our outstanding preferred stock and one million shares of our common stock)
and Oppenheimer (the holder of 13,258,200 shares of our common stock), which
together represent approximately 30% of the total votes entitled to participate
in the proxy solicitation, have agreed to vote in favor of these items. We
therefore need the affirmative vote of another 21% of our stockholders to obtain
approval for the restructuring.
IF THE MINIMUM TENDER CONDITION IS NOT MET FOR THE EXCHANGE OFFER, THERE MAY BE
SUFFICIENT VOTES TO ACCEPT THE PREPACKAGED PLAN.
The consummation of the exchange offer is conditioned upon, among other
things, our receipt of valid tenders from not less than (1) 97% in aggregate
principal amount of our outstanding debt securities and (2) 90% in aggregate
principal amount of our convertible subordinated notes; provided that the
holders of a majority of our debt securities may reduce the minimum tender
condition to not less than 90% in aggregate principal amount of our debt
securities and may lower or eliminate the minimum tender condition applicable to
our convertible subordinated notes.
To obtain approval of the prepackaged plan, however, we need to receive from
each impaired class of claims (such as each class of our debt) the affirmative
votes of holders of only two-thirds in dollar amount and one-half in number of
the holders of such class who actually cast ballots.
If we are not able to complete the recapitalization plan for any reason,
including if the minimum tender condition is not met, but we receive the
required votes from each impaired class of claims or interests to accept the
prepackaged plan, we will seek confirmation of the prepackaged plan in the
bankruptcy court. If the prepackaged plan is confirmed by the bankruptcy court,
it will bind all of our security holders. Therefore, assuming the prepackaged
plan satisfies the other requirements of the bankruptcy court, a significantly
smaller number of security holders can bind other security holders to the terms
of the prepackaged plan.
Furthermore, if all classes of impaired claims and interests, other than the
interests held by our common stockholders (Class 9), accept the prepackaged
plan, and Apollo, Blackstone and Oppenheimer (or any replacement purchaser)
agree to proceed with the new equity investment, we intend to pursue
confirmation of the prepackaged plan under the 'cram down' provisions of the
Bankruptcy Code. If the prepackaged plan is confirmed under the 'cram down'
provisions of the Bankruptcy Code, all classes of claims and interests will be
bound by the terms of the plan regardless of whether such class voted to accept
the prepackaged plan. See 'The Prepackaged Plan -- Confirmation of the
Prepackaged Plan Without Acceptance by All Classes of Impaired Claims and
Interests.'
WE MAY INCUR INCOME TAX LIABILITY OR LOSE TAX ATTRIBUTES AS A RESULT OF THE
RESTRUCTURING.
We will realize cancellation of indebtedness, or COD, income as a result of
the exchange to the extent that the value of the common stock issued in exchange
for the debt securities is less than the 'adjusted issue price' of the debt
securities. Thus, the precise amount of COD income cannot be determined until
the closing date of the restructuring.
14
We will not recognize COD income to the extent we are considered insolvent
from a tax perspective immediately prior to the completion of the restructuring.
If and to the extent COD income is excluded from taxable income due to
insolvency, we will generally be required to reduce certain of our tax
attributes, including, but not limited to, net operating losses and loss
carryforwards. This may result in a significant reduction in, and possible
elimination of, our tax attributes. Taxable income will result to the extent COD
income exceeds the amount by which we are considered to be insolvent immediately
prior to the completion of the restructuring.
To the extent that we are considered solvent from a tax perspective
immediately prior to the completion of the restructuring and realize COD income,
our available losses may offset all or a portion of the COD income. COD income
realized in excess of available losses will result in a tax liability. In
addition, the issuance of our common stock in the exchange will result in an
ownership change in our company that will significantly limit the use of our
remaining tax attributes, including net operating losses.
Alternatively, if the discharge of the debt securities occurs in a Chapter
11 bankruptcy case pursuant to the prepackaged plan, we will not recognize any
COD income as a result of such discharge although certain of our tax attributes
will be reduced.
RISKS RELATED TO THE EXCHANGE OFFER
THE PROPOSED AMENDMENTS TO THE INDENTURES WILL SIGNIFICANTLY REDUCE THE
PROTECTIONS AFFORDED NON-TENDERING HOLDERS OF THE NOTES.
If the minimum tender condition and each of the other conditions to the
exchange offer are met or waived and the exchange offer and the recapitalization
plan are completed, we and the trustees under the indentures will execute
supplemental indentures effecting the proposed amendments. Upon execution of the
supplemental indentures, the proposed amendments will apply to all of the notes
that remain outstanding and each holder of such notes not tendered in the
exchange offer will be bound by the supplemental indentures, regardless of
whether such holder consented to the proposed amendments. The proposed
amendments will, among other things, eliminate substantially all of the
restrictive covenants contained in the indentures.
The proposed amendments to the senior secured discount notes indenture and
senior secured notes indenture:
delete the provisions of the indentures which limit indebtedness,
restricted payments, permitted investments, issuance and sale of capital
stock of subsidiaries, transactions with affiliates, liens, dividends, the
business activities of our subsidiary and other payment restrictions
affecting subsidiaries; and
delete the provisions of the indentures requiring us to pay taxes and other
claims, maintain in-orbit satellite insurance, and provide a statement by
officers as to default.
The proposed amendments to the convertible subordinated notes indenture
eliminate certain events of default. For a description of the proposed
amendments, see 'The Exchange Offer and Consent Solicitation -- Proposed
Amendments and Waivers.'
Pursuant to the lockup agreement, holders of approximately 71% of our senior
secured discount notes, approximately 70% of our senior secured notes and
approximately 64% of our convertible subordinated notes have agreed to consent
to the proposed amendments and waivers, thereby assuring they will become
effective if the recapitalization plan is consummated.
THE EXCHANGE OFFER WILL REDUCE THE LIQUIDITY OF THE NOTES THAT ARE NOT TENDERED.
There is currently a limited trading market for the notes, and no reliable
public pricing information for the notes is generally available. The notes are
not traded on any national securities exchange or automated quotation system. We
understand that from time to time a small number of brokers and dealers have
made a market in the notes as a service for their clients. The trading market
for unexchanged notes could become even more limited or nonexistent due to the
15
reduction in the amount of such notes outstanding upon completion of the
recapitalization plan, which might adversely affect the liquidity, market price
and price volatility of any unexchanged notes. If a market for unexchanged notes
exists or develops, those notes will likely trade at a discount to the price at
which the notes would trade if the amount outstanding were not reduced,
depending on prevailing interest rates, the market for similar securities and
other factors.
HOLDERS OF THE DEBT SECURITIES WHO RECEIVE COMMON STOCK IN THE EXCHANGE OFFER
WILL LOSE THEIR CONTRACTUAL RIGHTS AS CREDITORS.
Upon tendering debt securities in the exchange offer for our common stock,
holders of debt securities will lose the contractual rights they currently have
as our creditors and will have different rights as our common stockholders. For
example, in a liquidation, a holder of common stock will be paid, if at all,
only after claims of holders of debt are satisfied. Consequently, as
stockholders, the holders of debt securities may suffer more from future adverse
developments relating to our financial condition, results of operations or
prospects than they would as holders of our debt.
ARTHUR ANDERSEN LLP, THE INDEPENDENT PUBLIC ACCOUNTANT THAT AUDITED OUR ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS, HAS NOT CONSENTED TO OUR USE OR INCORPORATION
BY REFERENCE OF ITS AUDIT OPINION AND HAS BEEN CONVICTED OF OBSTRUCTION OF
JUSTICE, WHICH MAY ADVERSELY AFFECT THE ABILITY OF ARTHUR ANDERSEN TO SATISFY
ANY CLAIMS THAT MAY ARISE OUT OF ITS AUDITS OF OUR CONSOLIDATED FINANCIAL
STATEMENTS.
Arthur Andersen LLP is the independent public accountant that audited our
consolidated financial statements as of December 31, 2001 and 2000 and for each
of the three years in the period ended December 31, 2001. Arthur Andersen was
recently convicted of obstruction of justice in connection with the U.S.
government's investigation of Enron Corp. Events arising out of this conviction
may adversely affect the ability of Arthur Andersen to satisfy any claims that
may arise out of Arthur Andersen's audits of our consolidated financial
statements. Additionally, because the personnel responsible for the audits of
our consolidated financial statements are no longer employed by Arthur Andersen,
we have not received Arthur Andersen's consent with respect to the incorporation
by reference of those consolidated financial statements and the related audit
report; accordingly, if those consolidated financial statements are inaccurate,
your ability to make a claim against Arthur Andersen may be limited or
prohibited.
HOLDERS OF THE DEBT SECURITIES WHO DO NOT PARTICIPATE IN THE EXCHANGE OFFER MAY
INCUR TAX CONSEQUENCES.
Holders of the debt securities who choose not to participate in the exchange
offer may be deemed to have exchanged their notes for new notes in an exchange,
which could result in the recognition of gain or loss for tax purposes. In
addition, under certain circumstances, the new notes may be deemed to be issued
with original issue discount, which holders would have to accrue into income on
a constant yield basis. For a more detailed description of the tax consequences
to holders who do not participate in the exchange offer, see 'Material United
States Federal Income Tax Consequences -- Consequences of Not Participating in
the Exchange Offer.'
RISKS RELATED TO THE PREPACKAGED PLAN
THE PREPACKAGED PLAN MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS.
We believe that the solicitation of votes to approve the prepackaged plan,
and the potential subsequent commencement of a prepackaged Chapter 11 case by us
in connection with the prepackaged plan, would not materially adversely affect
our relationships with customers, employees, partners and others, provided that
we can demonstrate sufficient liquidity to continue to operate our business and
a likelihood of success for the prepackaged plan in a reasonably short time
frame. However, the prepackaged plan solicitation or any subsequent commencement
of a prepackaged Chapter 11 case could adversely affect the relationships
between us and our
16
customers, employees, partners and others. There is a risk, due to uncertainty
about our future, that:
customers could seek alternative sources of service from our competitors,
including XM Radio;
employees could be distracted from performance of their duties or more
easily attracted to other career opportunities; and
radio, retail, content or automaker partners could terminate their
relationship with us or require financial assurances or enhanced
performance.
These factors could adversely affect our ability to obtain confirmation of
the prepackaged plan.
EVEN IF ALL CLASSES OF CLAIMS AND INTERESTS THAT ARE ENTITLED TO VOTE ACCEPT THE
PREPACKAGED PLAN, THE PREPACKAGED PLAN MAY NOT BECOME EFFECTIVE.
The confirmation and effectiveness of the prepackaged plan is subject to
certain conditions and requirements that may not be satisfied, and the
bankruptcy court may conclude that the requirements for confirmation and
effectiveness of the prepackaged plan have not been satisfied. See 'The
Prepackaged Plan -- Conditions to Confirmation' and ' -- Conditions to Effective
Date of the Prepackaged Plan.'
Furthermore, in the event that we determine to file the prepackaged plan
with the bankruptcy court, Apollo, Blackstone and Oppenheimer may elect to
terminate their obligations to purchase common stock in the new equity
investment. Without the new equity investment or a suitable alternative new
equity investment, we do not believe the prepackaged plan would meet the
confirmation requirement of Section 1129 of the Bankruptcy Code that the plan be
'feasible.' See 'The Prepackaged Plan -- Conditions to Confirmation.' In that
event, we will not seek confirmation of the prepackaged plan and your vote in
favor of the prepackaged plan will be disregarded.
THE BANKRUPTCY COURT MAY CONCLUDE THAT THE PREPACKAGED PLAN DOES NOT MEET THE
REQUIREMENTS FOR CONFIRMATION AND MAY REQUIRE MODIFICATION TO THE PLAN.
If all of the conditions to the exchange offer cannot be satisfied or waived
by March 15, 2003, but we receive required acceptances to seek confirmation of
the prepackaged plan, then on March 15, 2003 (or such earlier or later date as
we and the other parties to the lockup agreement may agree), we expect to file a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code
and, provided that Apollo, Blackstone and Oppenheimer agree to proceed with the
new equity investment, will seek confirmation of the prepackaged plan as
promptly as practicable thereafter.
However, the prepackaged plan may not be confirmed by the bankruptcy court.
Section 1129 of the Bankruptcy Code, which sets forth the requirements for
confirmation of a plan of reorganization, requires, among other things, a
finding by the bankruptcy court that the plan is 'feasible,' that all claims and
interests have been classified in compliance with the provisions of
Section 1122 of the Bankruptcy Code, and that, under the plan, each holder of a
claim or interest within each impaired class either accepts the plan or receives
or retains cash or property of a value, as of the date the plan becomes
effective, that is not less than the value such holder would receive or retain
if the debtor were liquidated under Chapter 7 of the Bankruptcy Code. A
bankruptcy court may conclude that the feasibility test and other requirements
of Section 1129 of the Bankruptcy Code have not been met with respect to the
prepackaged plan.
If the prepackaged plan is filed, modifications thereto may be required for
confirmation, and such modifications may require a resolicitation of votes on
the prepackaged plan. We believe that, if the prepackaged plan is confirmed, it
would not be followed by a liquidation or an immediate need for further
financial reorganization and that holders of claims and interests in any
impaired class would receive or retain value that is not less than the value
such holders would receive or retain if we were liquidated under Chapter 7 of
the Bankruptcy Code.
17
IF THE PREPACKAGED PLAN CANNOT BE CONFIRMED, OUR REORGANIZATION CASE MAY BE
CONVERTED TO A CASE UNDER CHAPTER 7 OF THE BANKRUPTCY CODE.
If no plan can be confirmed, our reorganization case may be converted to a
case under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would
be appointed or elected to liquidate our assets for distribution in accordance
with the priorities established by the Bankruptcy Code. A discussion of the
effects that a Chapter 7 liquidation would have on the recoveries of holders of
claims and interests and our liquidation analysis are set forth under 'The
Prepackaged Plan -- Liquidation Analysis.' We believe that liquidation under
Chapter 7 would result in:
smaller distributions being made to creditors than those provided for in
the prepackaged plan because of:
-- the likelihood that our assets would have to be sold or otherwise
disposed of in a less orderly fashion over a short period of time;
-- additional administrative expenses involved in the appointment of a
trustee; and
-- additional expenses and claims, some of which would be entitled to
priority, which would be generated during the liquidation and from
the rejection of leases and other executory contracts in connection
with a cessation of our operations; and
no distributions being made to holders of our preferred stock and common
stock.
THE BANKRUPTCY COURT MAY DISAGREE WITH OUR CLASSIFICATION OF CLAIMS AND
INTERESTS.
Section 1122 of the Bankruptcy Code provides that a plan may place a claim
or an interest in a particular class only if such claim or interest is
substantially similar to the other claims or interests of such class. We believe
that the classification of claims and interests under the prepackaged plan
complies with the requirements set forth in the Bankruptcy Code; however, once a
Chapter 11 case has been commenced a claim or interest holder could challenge
the classification. In such event, the cost of the prepackaged plan and the time
needed to confirm the prepackaged plan would increase and the bankruptcy court
may not agree with our classification of claims and interests.
If the bankruptcy court concludes that the classification of claims and
interests under the prepackaged plan does not comply with the requirements of
the Bankruptcy Code, we may need to modify the prepackaged plan. Such
modification could require a resolicitation of votes on the prepackaged plan. If
the bankruptcy court determined that our classification of claims and interests
was not appropriate, the prepackaged plan may not be confirmed.
THE BANKRUPTCY COURT MAY FIND THE SOLICITATION OF ACCEPTANCES INADEQUATE.
Usually, a plan of reorganization is filed and votes to accept or reject the
plan are solicited after the filing of a petition commencing a Chapter 11 case.
Nevertheless, a debtor may solicit votes prior to the commencement of a Chapter
11 case in accordance with Section 1126(b) of the Bankruptcy Code and Bankruptcy
Rule 3018(b). Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b)
require that:
the plan of reorganization be transmitted to substantially all creditors
and other interest holders entitled to vote;
the time prescribed for voting is not unreasonably short; and
the solicitation of votes is in compliance with any applicable
nonbankruptcy law, rule or regulation governing the adequacy of disclosure
in such solicitation or, if no such law, rule or regulation exists, votes
be solicited only after the disclosure of adequate information.
Section 1125(a)(1) of the Bankruptcy Code describes adequate information as
information of a kind and in sufficient detail as would enable a hypothetical
reasonable investor typical of holders of claims and interests to make an
informed judgment about the plan. With regard to solicitation of votes prior to
the commencement of a bankruptcy case, if the bankruptcy court concludes that
18
the requirements of Bankruptcy Rule 3018(b) have not been met, then the
bankruptcy court could deem such votes invalid, whereupon the prepackaged plan
could not be confirmed without a resolicitation of votes to accept or reject the
prepackaged plan. While we believe that the requirements of Section 1126(b) of
the Bankruptcy Code and Bankruptcy Rule 3018 will be met, the bankruptcy court
may not reach the same conclusion.
THE DISTRIBUTION OF PROCEEDS IN THE PREPACKAGED PLAN WILL BE DELAYED UNTIL AFTER
CONFIRMATION.
If we file a Chapter 11 case and the prepackaged plan can be confirmed, the
date of the distributions to be made pursuant to the prepackaged plan will be
delayed until after confirmation of the prepackaged plan by the bankruptcy
court. We estimate that the process of obtaining confirmation of the prepackaged
plan will last a minimum of 30 days from the date of the commencement of our
Chapter 11 case and could last considerably longer. The distribution will be
delayed for a minimum of 10 days thereafter and may be delayed for a
substantially longer period.
OUR FUTURE OPERATIONAL AND FINANCIAL PERFORMANCE MAY VARY MATERIALLY FROM THE
FINANCIAL PROJECTIONS.
We have prepared the financial projections contained in this prospectus as
required by the 'feasability test' of Section 1129 of the Bankruptcy Code. See
'The Prepackaged Plan -- Confirmation of the Prepackaged Plan -- Feasibility of
the Prepackaged Plan.' These projections are based upon a number of assumptions
and estimates, including that the restructuring will be implemented in
accordance with its current terms.
Financial projections are necessarily speculative in nature and one or more
of the assumptions and estimates underlying these projections may prove not to
be valid. The assumptions and estimates underlying these projections are
inherently uncertain and are subject to significant business, economic and
competitive risks and uncertainties, many of which are beyond our control. See
'Risk Factors -- Risks Related to Our Business.' For example, as of December 31,
2002, we had 29,947 subscribers. Our projections assume that our gross
additional subscribers will be 300,000 in 2003, 1.0 million in 2004, 1.7 million
in 2005 and 2.3 million in 2006. Accordingly, our financial condition and
results of operations following the exchange offer may vary significantly from
those set forth in the financial projections. Consequently, the financial
projections should not be regarded as a representation by us, our advisors or
any other person that the projections will be achieved. Holders are cautioned
not to place undue reliance on the financial projections. See 'Unaudited
Projected Consolidated Financial Information.'
RISKS RELATED TO OUR COMMON STOCK
OUR COMMON STOCK MAY BE DELISTED BY NASDAQ.
Our common stock is currently listed on the Nasdaq National Market. We may
fail to comply with the continued listing requirements of Nasdaq, and the
failure to do so may result in the delisting of our common stock. Nasdaq rules
require, among other things, that the minimum bid price of our common stock be
at least $1.00. If the minimum bid price of our common stock closes below $1.00
for more than 30 consecutive trading days and we are unable to cure such defect
within the 90-day cure period, Nasdaq may delist our common stock from the
Nasdaq National Market. On December 23, 2002, Nasdaq notified us that the
minimum bid price of our common stock had closed below $1.00 for more than 30
consecutive days and that we had until March 24, 2003 to cure such defect. If
our common stock fails to close above $1.00 for ten consecutive days prior to
March 24, 2003, we have the right to request a hearing prior to delisting by
Nasdaq. Such delisting will have an adverse impact on the liquidity of our
common stock and, as a result, the market price for our common stock may become
more volatile. Such delisting could make it more difficult for us to raise
additional capital.
While we hope that the restructuring will have the effect of increasing the
minimum bid price of our common stock, the minimum bid price may not increase,
at all or for any period of time,
19
and we may not be successful in maintaining the listing of our common stock on
the Nasdaq National Market.
IF OUR COMMON STOCK IS DEEMED A 'PENNY STOCK,' ITS LIQUIDITY WILL BE ADVERSELY
AFFECTED.
If the market price for our common stock falls below $1.00 per share, our
common stock may be deemed to be penny stock. If our common stock is considered
penny stock, it would be subject to rules that impose additional sales practices
on broker-dealers who sell our securities. For example, broker-dealers must make
a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Also, a disclosure
schedule must be delivered to each purchaser of a penny stock, disclosing sales
commissions and current quotations for the securities. Monthly statements are
also required to be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Because of these additional conditions, some brokers may choose to not effect
transactions in penny stocks. This could have an adverse effect on the liquidity
of our common stock.
WE CANNOT PREDICT THE PRICE AT WHICH OUR COMMON STOCK WILL TRADE FOLLOWING THE
RESTRUCTURING.
We expect to issue approximately 885 million shares of our common stock to
the holders of our debt securities, preferred stock and providers of new equity
capital in connection with the restructuring. There are currently approximately
77 million shares of our common stock issued and outstanding. After giving
effect to the restructuring, we estimate that there will be approximately 962
million shares of our common stock issued and outstanding, which means that our
existing common stockholders will hold only approximately 8% of our common stock
following the restructuring.
This issuance of common stock could materially depress the price of our
common stock if holders of a large number of shares of common stock attempt to
sell all or a substantial portion of their holdings following the restructuring.
We cannot predict what the demand for our stock will be following the
restructuring; how many shares of our common stock will be offered for sale or
be sold following the restructuring; or the price at which our common stock will
trade following the restructuring. There are no agreements or other restrictions
that prevent the sale of a large number of our shares of common stock
immediately following the restructuring. The issuance of the shares of common
stock offered pursuant to this prospectus in exchange for our debt securities
has been registered with the SEC. As a consequence, those shares will, in
general, be freely tradeable. We have also agreed to file a shelf registration
statement covering resales of the shares of common stock to be purchased by
Oppenheimer, Apollo and Blackstone in the new equity investment and the shares
to be issued to Apollo and Blackstone upon exchange of their preferred stock and
exercise of their warrants. Upon effectiveness of this shelf registration
statement, such shares will also be freely tradeable.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS MIGHT FAIL EVEN AFTER THE RESTRUCTURING.
We were a development stage company until early 2002. We began generating
revenues on February 14, 2002, although, to date, these revenues have not been
significant. Our ability to generate significant revenues and ultimately to
become profitable will depend upon several factors, including whether we can
attract and retain a sufficient number of subscribers and advertisers to our
satellite radio service and whether we compete successfully. As of December 31,
2002, we had 29,947 subscribers.
We cannot estimate with any certainty the consumer demand for our service or
the degree to which we will meet that demand. Among other things, consumer
acceptance will depend upon whether we obtain, produce and market high quality
programming consistent with consumers'
20
tastes; the willingness of consumers to pay subscription fees to obtain
satellite radio; the cost and availability of our radios; our marketing and
pricing strategy; and the marketing and pricing strategy of our direct
competitor, XM Radio. If demand for our service does not develop as expected, we
may not be able to generate enough revenues to become profitable or to generate
positive cash flow.
WE WILL NEED ADDITIONAL FINANCING AFTER THE RESTRUCTURING TO OPERATE OUR SERVICE
AND ADDITIONAL FINANCING MIGHT NOT BE AVAILABLE.
Following consummation of the restructuring, we expect to have sufficient
cash to cover our funding needs only into the second quarter of 2004. After
giving effect to the restructuring, we anticipate that we can achieve cash flow
breakeven with further additional funding of approximately $75 million. This
amount is an estimate and may change. However, if the number of actual
subscribers, or the cost to acquire each new subscriber, differs substantially
from our expectations, we may need substantial additional funding.
We plan to raise future funds by selling debt or equity securities, or both,
publicly and/or privately, and by obtaining loans or other credit lines from
banks or other institutions. We may not be able to raise sufficient funds on
favorable terms or at all. If we fail to obtain any necessary financing on a
timely basis, then our business would be materially impacted and we could
default on commitments to our distribution partners, creditors or others, and
may have to discontinue operations or seek a purchaser for our business or
assets.
OUR SUBSTANTIAL INDEBTEDNESS WILL ADVERSELY AFFECT OUR FINANCIAL CONDITION IF WE
FAIL TO COMPLETE THE RESTRUCTURING.
As of September 30, 2002, the book value of our debt was $683.6 million and
we had stockholders' equity of $170.4 million. We have significant principal
payments under our indebtedness coming due in the next several years. Unless we
complete the restructuring, we will be required to make the following principal
payments on our long-term debt: $49.8 million in the remainder of 2003 (which
includes $15.0 million due but not paid in 2002); $38.5 million in 2004; $111.7
million in 2005; $280.4 million in 2007; and $216.5 million in the aggregate
thereafter. Our substantial indebtedness has important consequences. For
example, it:
increases our vulnerability to general adverse economic and industry
conditions;
requires us to dedicate a substantial portion of our cash to payments of
principal and interest on our indebtedness, thereby reducing the cash
available to fund working capital, capital expenditures, research and
development efforts and other general corporate purposes;
limits our flexibility in planning for, or reacting to, changes in our
business and industry; and
limits our ability to raise additional capital.
At December 31, 2002, we had approximately $180 million of available cash,
cash equivalents, marketable securities and restricted investments. However,
with the consent of the parties to the lockup agreement, we chose not to make
any payments in respect of our debt in order to conserve our cash to allow us to
continue to develop our business and attempt to complete the restructuring.
OUR EXPENDITURES AND LOSSES HAVE BEEN SIGNIFICANT AND ARE EXPECTED TO GROW.
We had incurred capital expenditures, excluding capitalized interest, of
$970.1 million and aggregate net losses of approximately $805.4 million from our
inception, May 17, 1990, through September 30, 2002. We expect our cumulative
net losses and negative cash flow to grow as we make payments under our various
contracts, incur marketing and subscriber acquisition costs and make principal
and interest payments on our outstanding indebtedness. If we are unable
ultimately to generate sufficient revenues to become profitable and have
positive cash flow we could default
21
on commitments to our distribution partners, creditors or others, and may have
to discontinue operations or seek a purchaser for our business or assets.
FAILURE OF THIRD PARTIES TO PERFORM COULD AFFECT OUR REVENUES.
We need to assure continued proper manufacturing and distribution of our
radios and development and provision of programming in connection with our
service. Many of these tasks depend on the efforts of third parties, including
Agere Systems, Inc., which has designed, developed and is manufacturing our chip
set and is designing, developing and manufacturing the next generation of our
chip set; consumer electronics manufacturers, which are manufacturing,
distributing and marketing our radios; retailers, which are marketing and
selling our radios and promoting subscriptions to our service; automakers, which
have entered into agreements which contemplate manufacturing, marketing and
selling vehicles capable of receiving our service, but have limited or no
obligations to do so; and other third party vendors, who have designed or
operate important elements of our system, such as our call center or subscriber
management system. If one or more of these third parties do not perform in a
sufficient manner, our business may be adversely affected.
HIGHER THAN EXPECTED SUBSCRIBER ACQUISITION COSTS OR SUBSCRIBER TURNOVER COULD
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE.
We are spending substantial funds on advertising and marketing and in
transactions with car and radio manufacturers, retailers and others to obtain
and attract subscribers. If the costs of attracting subscribers or incentivizing
other parties are greater than expected, our financial performance and results
of operations will be adversely affected.
We expect to experience some subscriber turnover, or churn. We cannot
predict the amount of churn we will experience or how successful we will be at
retaining customers who purchase or lease vehicles that include a subscription
to our service. High subscriber turnover or our inability to attract customers
who purchase or lease new vehicles with our service would adversely affect our
financial performance and results of operations.
COMPETITION FROM XM RADIO AND TRADITIONAL AND EMERGING AUDIO ENTERTAINMENT
PROVIDERS COULD ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUES.
We compete for both listeners and advertising revenues from many sources,
including XM Radio, the other satellite radio licensee; traditional AM/FM radio
and digital AM/FM radio when it becomes available; internet based audio
providers; direct broadcast satellite television audio services; and cable
systems that carry audio services. XM Radio began commercial operations in
September 2001, offers its service for a monthly charge of $9.99, features 100
channels, and has acquired a significant number of subscribers. If consumers
perceive that XM Radio offers a more attractive service or enhanced features,
superior equipment alternatives, or has stronger marketing or distribution
channels, it may gain a long-term competitive advantage over us. As of
December 31, 2002, we had a total of 29,947 subscribers. As of September 30,
2002, XM Radio had reported a total of 201,500 subscribers.
Unlike Sirius, traditional AM/FM radio has a well established and dominant
market presence for its services and generally offers free broadcast reception
supported by commercial advertising rather than by a subscription fee. Further,
the incumbent terrestrial broadcasters have announced intentions to enhance
their existing broadcasts with digital quality services utilizing new technology
in the near future. Also, many radio stations offer information programming of a
local nature, such as traffic and weather reports, which we do not offer as
effectively as local radio. To the extent that consumers place a high value on
these features of traditional AM/FM radio, we are at a competitive disadvantage.
22
PREMATURE DEGRADATION OR FAILURE OF OUR SATELLITES COULD DAMAGE OUR BUSINESS.
We expect that our satellites will function effectively for approximately
15 years, and that after this period their performance in delivering our
satellite radio service will deteriorate. However, the useful life of any
particular satellite may vary from this estimate. Our operating results would be
adversely affected if the useful life of our satellites is significantly shorter
than 15 years.
The useful lives of our satellites will vary and depend on a number of
factors, including:
degradation and durability of solar panels;
quality of construction;
amount of fuel our satellites consume;
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.
Loral, the manufacturer of our satellites, has identified circuit failures
in solar arrays on satellites launched since 1997, including our satellites. The
circuit failures our satellites have experienced to date are not expected to
limit the power of our broadcast signal, reduce the expected useful life of our
satellites or otherwise affect our operations. However, if a substantial number
of additional circuit failures were to occur, the estimated useful life of our
satellites could be reduced.
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
for at least 16 months. In either event, our business would be materially
impacted and we could default on our commitments to our distribution partners,
creditors or others and may have to permanently discontinue operations or seek a
purchaser for our business or assets.
LOSSES FROM SATELLITE DEGRADATION MAY NOT BE COVERED BY INSURANCE, AND THE
COVENANTS REQUIRING US TO MAINTAIN IN-ORBIT INSURANCE ON OUR SATELLITES WILL BE
ELIMINATED AS PART OF THE CONSENT SOLICITATION.
We maintain in-orbit insurance policies from global space insurance
underwriters. Our current policies cover in-orbit losses totaling $110 million
per satellite through March 31, 2003, an amount sufficient to launch our
replacement satellite but not purchase an additional replacement satellite. This
amount decreases to approximately $49 million per satellite from April 1, 2003
until August 1, 2003.
Our indentures currently require us to maintain insurance covering our
in-orbit satellites. Concurrently with the exchange offer, we are soliciting the
consent of each holder of the notes to amend the indentures under which the
notes were issued to eliminate all of the restrictive covenants contained in the
indentures, including the covenants that require us to maintain insurance
covering our in-orbit satellites.
We intend to evaluate the benefits of continuing to purchase in-orbit
satellite insurance in light of the increased costs and the probability of an
insurable failure occurring, and may decline to purchase such insurance or
purchase less insurance than we currently maintain. In the event we decline to
purchase in-orbit satellite insurance, a failure of any of our in-orbit
satellites would not be covered by insurance. Further, if we insure our in-orbit
satellites for an amount less than the cost of replacing the satellites and
launching the replacements, a failure of any of our satellites may not be
covered, or may only be covered in part, by insurance.
23
FAILURE TO COMPLY WITH FCC REQUIREMENTS COULD DAMAGE OUR BUSINESS.
As an owner of one of two FCC licenses to operate a satellite radio service
in the United States, we are subject to FCC rules and regulations, and the terms
of our license, which require us to meet certain conditions such as
interoperability of our system with XM Radio, the other licensed satellite radio
system in the United States; coordination of our satellite radio service with
radio systems operating in the same range of frequencies in neighboring
countries; and coordination of our communications links to our satellites with
other systems that operate in the same frequency band.
Non-compliance by us with these conditions could result in fines, additional
license conditions, license revocation or other detrimental FCC actions. We may
also be subject to interference from adjacent radio frequency users if the FCC
does not adequately protect us against such interference in its rulemaking
process.
The FCC has not yet issued final rules permitting us to operate and deploy
terrestrial repeaters to fill gaps in satellite coverage. We are operating our
repeaters on a non-interference basis pursuant to a grant of special temporary
authority from the FCC, and this authority is currently being challenged by
operators of terrestrial wireless systems who have asserted that our repeaters
may cause interference. The FCC's final terrestrial repeater rules may require
us to reduce the power of our terrestrial repeaters and limit our ability to
deploy additional repeaters. If we are required to significantly reduce the
power of our terrestrial repeaters, this would have an adverse effect on the
quality of our service in certain markets and/or cause us to alter our
terrestrial repeater infrastructure at a substantial cost. If the FCC limits our
ability to deploy additional terrestrial repeaters, our ability to improve any
deficiencies in our service quality that may be identified in the future would
be adversely affected.
THE COMPANY THAT DEVELOPED AND OPERATES OUR SUBSCRIBER MANAGEMENT SYSTEM HAS
FILED A PETITION TO REORGANIZE UNDER CHAPTER 11 OF THE BANKRUPTCY CODE. WE MAY
BEGIN USING A NEW SUBSCRIBER MANAGEMENT SYSTEM IF THE BANKRUPTCY COURT PERMITS
US TO TERMINATE OUR ARRANGEMENT WITH THAT COMPANY.
On November 4, 2002, we notified Sentraliant, Inc., the company that
developed and operates our subscriber management system, that it had breached
the agreement under which it provides that system, and that, unless various
defects and other problems with the system were corrected by January 3, 2003,
the agreement would terminate on that date. We later extended the termination
date to January 17, 2003. Sentraliant has informed us that it believes the
issues we identified have been previously resolved, are enhancements to the
system that had not yet been authorized by us, or are defects that are not
material.
On January 15, 2003, Sentraliant filed a petition under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Virginia. On January 22, 2003, Sentraliant filed a proceeding with the
Bankruptcy Court seeking:
a judgment requiring us to pay approximately $150,000 of fees we have not
paid Sentraliant, and
a declaratory judgment that our agreement with Sentraliant has not
terminated and that our subscriber management system is free of material
defects.
If the Bankruptcy Court finds that the subscriber management system is free
of material defects, we will continue our arrangement with Sentraliant. If the
Bankruptcy Court finds that the agreement is no longer in effect or that the
subscriber management system contains material defects, the agreement will be
terminated. Termination of our agreement with Sentraliant will result in a
non-cash charge of approximately $16 million related to the development of our
subscriber management system.
Upon termination of our agreement with Sentraliant, we are prepared to
implement a new subscriber management system. Our new system effectively manages
our existing customer data,
24
captures new customer data and interfaces with our conditional access system,
although we have not completed development and testing of all of the system's
functions. We expect that this development and testing will be completed during
the first quarter of 2003.
OUR NATIONAL BROADCAST STUDIO, TERRESTRIAL REPEATER NETWORK OR OTHER GROUND
FACILITIES COULD BE DAMAGED BY NATURAL CATASTROPHES OR TERRORIST ACTIVITIES.
An earthquake, tornado, flood or other catastrophic event could damage our
national broadcast studios or terrestrial repeater network, interrupt our
service and harm our business in the affected area. We do not have replacement
or redundant facilities that can be used to assume the functions of our
terrestrial repeater network or national broadcast studio in the event of a
catastrophic event. Any damage to our terrestrial repeater network would likely
result in degradation of our service for some subscribers and could result in
complete loss of service in affected areas. Damage to our national broadcast
studio would restrict our production of programming and require us to obtain
programming from third parties to continue our service.
CONSUMERS COULD PIRATE OUR SERVICE.
Like all radio transmissions, our signal is subject to interception. Pirates
may be able to obtain or rebroadcast our own satellite radio service without
paying the subscription fee. Although we use encryption technology to mitigate
the risk of signal theft, such technology may not be adequate to prevent theft
of our signal. If signal theft becomes widespread, it could harm our business.
WE NEED TO OBTAIN RIGHTS TO PROGRAMMING, WHICH COULD BE MORE COSTLY THAN
ANTICIPATED.
We have yet to enter into music programming royalty arrangements with the
performing rights society, Broadcast Music, Inc., or BMI. Radio broadcasters
currently pay BMI a royalty of approximately 1.6% of their revenues, though BMI
has commenced a court proceeding to obtain a higher royalty rate. We expect to
negotiate or establish a license fee with BMI through a rate court proceeding in
the U.S. District Court for the Southern District of New York, but such royalty
arrangement may be more costly than anticipated.
We must also enter into royalty arrangements with the owners of the
copyrights in the sound recordings we play, who are primarily represented by the
Recording Industry Association of America. Cable audio services recently agreed
to pay these owners 7.0% of gross subscriber revenue earned in 2003 and 2004,
and 7.25% of gross subscriber revenue earned from 2005 through 2007. Our
negotiations to date have not resulted in an agreement, and an arbitration
proceeding is likely to commence in early 2003. Although we believe we can
distinguish our satellite radio system sufficiently from cable audio services in
order to negotiate or obtain through arbitration a lower rate, we may not be
able to do so, and we could be required to pay a higher rate. In any event, we
expect to pay the same rates as XM Radio, the other satellite radio licensee.
RAPID TECHNOLOGICAL AND INDUSTRY CHANGES COULD MAKE OUR SERVICE OBSOLETE.
The satellite industry and the audio entertainment industry are both
characterized by rapid technological change, frequent new product innovations,
changes in customer requirements and expectations, and evolving industry
standards. If we are unable to keep pace with these changes, our business may be
unsuccessful. Products using new technologies, or emerging industry standards,
could make our technologies obsolete. In addition, we may face unforeseen
problems in operating our system that could harm our business. Because we have
depended on third parties to develop technologies used in key elements of our
system, more advanced technologies that we may wish to use may not be available
to us on reasonable terms or in a timely manner. Further, our competitors may
have access to technologies not available to us, which may enable them to
produce entertainment products of greater interest to consumers, or at a more
competitive cost.
25
OUR CHARTER DOCUMENTS, DELAWARE LAW AND OUR STOCKHOLDER RIGHTS AGREEMENT MAY
INHIBIT AN ACQUISITION OF OUR COMPANY, WHICH COULD ADVERSELY AFFECT THE VALUE OF
OUR COMMON STOCK.
Our certificate of incorporation and bylaws, as well as Delaware corporation
law, contain provisions that could delay or prevent a change of control or
changes in our management that a stockholder might consider favorable. These
provisions include, for example:
authorizing the issuance of preferred stock, the terms of which may be
determined at the sole discretion of the board of directors;
establishing advance notice requirements for nomination for election to the
board of directors or for proposing matters that can be acted on by
stockholders at meetings;
providing that special meetings of stockholders may only be called by the
Chief Executive Officer or at least two members of our board of directors;
prohibiting cumulative voting in the election of directors; and
establishing limitations on the amendment of our bylaws.
In addition, our stockholder rights agreement includes provisions designed
to have an anti-takeover effect. For example, under our stockholder rights
agreement, each share of our common stock has associated with it one preferred
stock purchase right. If
any acquiring person merges into the company, transfers assets to the
company in exchange for stock, sells assets to the company on
better-than-arms-length terms or receives compensation or financial
assistance from the company;
any person acquires 15% or more of our common stock; or
the stake held by an acquiring person increases by more than one percent by
virtue of a reclassification, reorganization, merger, consolidation or
other transaction involving the company,
then each holder of a right, other than the acquiring person, will be entitled
to purchase, at the purchase price, a number of our shares of common stock
having a market value two times the purchase price.
All of the foregoing provisions would apply even if the change or event were
considered beneficial by some of our stockholders. If a change of control or
change in management is delayed or prevented by these provisions, the market
price of our common stock could decline. Furthermore, these provisions are
intended to discourage certain types of coercive takeover practices and
inadequate takeover bids, even though such a transaction may offer our
stockholders the opportunity to sell their stock at a price above the prevailing
market price. Prior to the closing of the restructuring, we will amend the
rights agreement to render it inapplicable to the restructuring transactions.
RISKS RELATED TO RELATIONSHIPS WITH STOCKHOLDERS, AFFILIATES AND RELATED PARTIES
IF THE RESTRUCTURING IS COMPLETED, A SMALL NUMBER OF STOCKHOLDERS WILL CONTROL A
SIGNIFICANT PORTION OF OUR COMMON STOCK.
Upon completion of the restructuring, and assuming all of our debt
securities are exchanged for common stock and assuming the exercise of the
warrants issued in the restructuring, Oppenheimer, Apollo, Lehman, Blackstone,
Loral and Continental Casualty Company will be our largest stockholders and will
beneficially own approximately 23%, 16%, 13%, 10%, 6% and 6% of our outstanding
common stock, respectively. As a result, these stockholders have significant
voting power with respect to the ability to:
authorize additional shares of capital stock;
amend our certificate of incorporation or bylaws;
elect our directors; or
effect or reject a merger, sale of assets or other fundamental transaction.
26
The extent of ownership by these stockholders may also discourage a
potential acquirer from making an offer to acquire us. This could reduce the
market price of our common stock.
Furthermore, pursuant to the lockup agreement and in connection with the
restructuring, our board of directors will be reconstituted. Upon consummation
of the restructuring, we expect that Messrs. David Margolese and Joseph V.
Vittoria will resign and our board of directors will appoint two directors, to
be selected by the informal creditors committee, to fill those vacancies.
Biographical information for these two directors will be contained in the press
release we issue announcing their selection. As a result, the reconstituted
board of directors will comprise our Chief Executive Officer, two directors
nominated by Apollo and Blackstone and four directors nominated by (or otherwise
acceptable to) the informal creditors committee. See 'Management.'
27
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 and solicitation statement.
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 solicitation
statement. Among the significant factors that could cause our actual results to
differ materially from those expressed in the forward-looking statements are:
our need for substantial additional financing by early 2003, whether as a
result of the restructuring or otherwise;
our dependence upon third parties to manufacture, distribute, market and
sell Sirius radios and components for those radios;
the unproven market for our service;
our competitive position; XM Satellite Radio, the other satellite radio
service provider in the United States, began offering its service before
us, has substantially more subscribers than us and may have certain
competitive advantages; and
the useful life of our satellites, which have experienced circuit failures
on their solar arrays. The circuit failures our satellites have experienced
to date are not expected to limit the power of our broadcast signal, reduce
the expected useful life of our satellites or otherwise affect our
operations.
These and other factors are discussed in 'Risk Factors' beginning on page 13
of this prospectus and solicitation statement and elsewhere in this prospectus
and solicitation statement.
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 or 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.
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange offer. In
consideration for issuing the common stock in the exchange offer, we will
receive the notes and the cancellation and termination of the term loans. Apollo
and Blackstone will also exchange our outstanding preferred stock for common
stock. The debt securities and preferred stock surrendered in exchange for
common stock will be retired and canceled and cannot be reissued. We will bear
the expenses of the restructuring.
We will receive $200 million of cash proceeds from the new equity
investment, described in 'The Recapitalization Plan -- The New Equity
Investment,' which will be used to pay expenses of the restructuring (estimated
to be approximately $18.2 million) and for general corporate purposes, including
the marketing of our satellite radio service. Under the recapitalization plan,
we will receive the $200 million from the new equity investment only if all of
the conditions to the exchange offer are met, including the minimum tender
condition. Furthermore, Apollo, Blackstone and Oppenheimer may elect to
terminate their obligations to purchase common stock in the new equity
investment under various circumstances, including in the event we determine to
file the prepackaged plan with the bankruptcy court. In that event, we would
abandon the prepackaged plan and your vote in favor of the prepackaged plan
would be disregarded.
28
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated historical financial data shown below as of and
for the years ended December 31, 1997, 1998, 1999, 2000 and 2001 are derived
from our respective audited consolidated financial statements. The selected
consolidated historical financial data shown below as of and for the nine months
ended September 30, 2001 and 2002 are derived from our unaudited consolidated
financial statements. In the opinion of management, the unaudited selected
consolidated financial statements include all adjustments, consisting of normal
recurring adjustments that are necessary for a fair presentation of our
consolidated financial position and results of operations for these periods. The
selected consolidated historical financial data includes certain
reclassifications to conform to our current presentation. The selected
consolidated historical data should be read together with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the consolidated financial statements and related notes from our annual report
on Form 10-K for the year ended December 31, 2001 and our quarterly report on
Form 10-Q for the quarter ended September 30, 2002, both incorporated by
reference in this prospectus.
NINE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- -------------------------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues(1)........... $ -- $ -- $ -- $ -- $ -- $ -- $ 120
Operating expenses(2)........... (6,865) (39,079) (63,518) (125,634) (168,456) (116,618) (222,451)
Operating loss.................. (6,865) (39,079) (63,518) (125,634) (168,456) (116,618) (222,331)
Net loss(3)..................... (4,737) (48,396) (62,822) (134,744) (235,763) (163,057) (300,395)
Preferred stock dividends....... (2,338) (19,380) (30,321) (39,811) (41,476) (30,724) (33,494)
Preferred stock deemed
dividends(4)(5)................ (51,975) (11,676) (3,535) (8,260) (680) (509) (513)
Accretion of dividends in
connection with the issuance of
warrants on preferred stock.... -- (6,501) (303) (900) -- -- --
Net loss applicable to common
stockholders................... (59,050) (85,953) (96,981) (183,715) (277,919) (194,290) (334,402)
Net loss per share applicable to
common stockholders............ $ (5.08) $ (4.79) $ (3.96) $ (4.72) $ (5.30) $ (3.77) $ (4.41)
Weighted average common shares
outstanding (basic and
diluted)....................... 11,626 17,932 24,470 38,889 52,427 51,575 75,820
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents....... $ 900 $150,190 $ 81,809 $ 14,397 $ 4,726 $ 27,790 $ 63,966
Marketable securities(6)........ 169,482 115,433 317,810 121,862 304,218 335,310 184,732
Restricted investments(7)....... -- -- 67,454 48,801 21,998 28,419 7,200
Working capital................. 170,894 180,996 303,865 143,981 275,732 363,850 171,911
Total assets.................... 323,808 643,880 1,206,612 1,323,582 1,527,605 1,570,674 1,433,545
Short-term notes payable........ -- 70,863 114,075 -- -- -- --
Current portion of long-term
debt........................... -- -- -- -- 15,000 -- 41,500
Deferred satellite payments and
accrued interest............... -- 31,324 55,140 60,881 67,201 65,548 72,354
Long-term debt.................. 131,387 153,033 488,690 472,602 589,990 642,885 569,768
10 1/2% Series C Preferred
Stock.......................... 176,025 156,755 149,285 -- -- -- --
9.2% Series A Junior Cumulative
Convertible Preferred Stock.... -- 137,755 148,894 162,380 177,120 173,277 189,030
9.2% Series B Junior Cumulative
Convertible Preferred Stock.... -- -- 64,238 70,507 77,338 75,559 82,843
9.2% Series D Junior Cumulative
Convertible Preferred Stock.... -- -- -- 210,125 230,710 225,408 247,302
Accumulated deficit............. (23,273) (71,669) (134,491) (269,235) (504,998) (432,292) (805,393)
Stockholders' equity............ 15,980 77,953 134,179 290,483 322,649 344,047 170,404
---------
(1) We were a development stage company until we entered commercial operations
on February 14, 2002.
(2) Operating expenses include non-cash stock compensation expense of $ -- ,
$104, $1,206, $7,176, $14,044, $3,374 and a non-cash stock compensation
benefit of $7,995 for the years ended
(footnotes continued on next page)
29
(footnotes continued from previous page)
December 31, 1997, 1998, 1999, 2000 and 2001, and for the nine months ended
September 30, 2001 and 2002, respectively.
(3) 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.
(4) 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.
(5) Preferred stock deemed dividends for the years ended December 31, 1999 and
2000 relate primarily to the conversions of our 10 1/2% Series C Convertible
Preferred Stock for shares of our common stock.
(6) Marketable securities are stated at market and consist of fixed income
securities with a maturity at the time of purchase of greater than three
months.
(7) Restricted investments are stated at amortized cost and include securities
held by the trustee of our senior secured notes to pay interest in full on
those notes through May 15, 2002 and certificates of deposit pledged to
secure or reimbursement obligations under letters of credit required by
lessors and other creditors.
30
CAPITALIZATION
The following table sets forth our cash, restricted investments and
capitalization as of September 30, 2002 (1) on an actual basis and (2) as
adjusted to give effect to:
the recapitalization plan; and
the payment of related fees and expenses of $18.2 million, of which $3.5
million was paid before September 30, 2002.
To better understand this table, you should review 'Selected Consolidated
Historical Financial Data' and 'Unaudited Pro Forma Consolidated Financial Data'
in this prospectus and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the consolidated financial statements
and related notes from our annual report on Form 10-K for the year ended
December 31, 2001 and our quarterly report on Form 10-Q for the quarter ended
September 30, 2002, both incorporated by reference in this prospectus. The 'as
adjusted' data assumes that 100% of our outstanding debt securities and
preferred stock are exchanged for common stock.
AS OF SEPTEMBER 30, 2002
-------------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN THOUSANDS)
Cash, cash equivalents and marketable securities(1)......... $ 248,698 $ 433,998
---------- ----------
---------- ----------
Restricted investments(2)................................... $ 7,200 $ 7,200
---------- ----------
---------- ----------
Debt securities:
Senior secured discount notes........................... $ 273,073 $ --
Senior secured notes.................................... 178,618 --
Lehman senior term loans(3)............................. 143,116 --
Loral senior term loans................................. 72,354 --
Convertible subordinated notes.......................... 16,461 --
---------- ----------
Total debt securities............................... 683,622 --
---------- ----------
9.2% Series A Junior Cumulative Convertible Preferred
Stock..................................................... 189,030 --
9.2% Series B Junior Cumulative Convertible Preferred
Stock..................................................... 82,843 --
9.2% Series D Junior Cumulative Convertible Preferred
Stock..................................................... 247,302 --
Stockholders' equity:
Common stock, at par value, $0.001 per share(4)......... 77 962
Additional paid-in capital(4)........................... 975,057 2,084,709
Accumulated other comprehensive income.................. 663 663
Accumulated deficit(5).................................. (805,393) (530,943)
---------- ----------
Total capitalization................................ $1,373,201 $1,555,391
---------- ----------
---------- ----------
---------
(1) Marketable securities are stated at market value and consist of fixed income
securities with a maturity at the time of purchase of greater than three
months.
(2) Restricted investments include certificates of deposit pledged to secure our
reimbursement obligations under letters of credit required by lessors and
other creditors.
(3) The book value, as shown above, includes the current and long-term portions
of the Lehman senior term loans and excludes the unamortized value of the
warrants issued in connection with the Lehman senior term loans.
(4) Actual numbers exclude: (a) 12,974,163 shares of common stock issuable upon
the exercise of outstanding and unexercised options as of September 30,
2002, (b) 8,000,000 shares of common stock issuable upon the exercise of
warrants held by Ford Motor Company and DaimlerChrysler Corporation,
(c) 2,100,000 shares of common stock issuable upon the exercise of warrants
held by Lehman, (d) 4,233,389 shares of common stock issuable upon the
exercise of other warrants, (e) 578,341 shares of common stock issuable upon
the conversion of our
(footnotes continued on next page)
31
(footnotes continued from previous page)
convertible subordinated notes and (f) 15,304,976 shares of common stock
issuable upon conversion of our preferred stock. Our convertible
subordinated notes and all shares of our preferred stock are expected to be
exchanged for common stock in the restructuring. As a result, as adjusted
numbers include common stock issued in the exchange offer in respect of our
convertible subordinated notes and preferred stock ((e) and (f) above) but
exclude the options and warrants itemized in the first sentence of this
footnote (all of which will remain outstanding after the restructuring), as
the underlying shares will not yet have been issued. The as adjusted numbers
also exclude the 87,577,114 shares issuable upon exercise of the warrants to
be issued to Apollo and Blackstone in connection with the recapitalization
plan. See 'Description of Capital Stock and Warrants.'
(5) The accumulated deficit has been adjusted due to an estimated gain on the
exchange of debt for common stock. We have estimated the gain on the
exchange of debt to be $274,450, based on the assumption that the market
value of our common stock on the closing date of the restructuring will be
$0.64, the closing bid price on December 31, 2002. See 'Accounting Treatment
of the Restructuring -- Exchange of Debt Securities for Common Stock' for
further discussion regarding the calculation of the gain on the exchange of
debt for common stock.
32
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following pro forma consolidated financial data for the year ended
December 31, 2001 and as of and for the nine months ended September 30, 2002 has
been derived by the application of pro forma adjustments to our historical
consolidated financial statements incorporated by reference in this prospectus.
The pro forma consolidated financial data is presented for illustrative purposes
only and is not necessarily indicative of the financial position or results of
operations that would have actually been reported had the recapitalization
occurred at the beginning of the periods presented, nor is it indicative of our
future financial position or results of operations. The historical consolidated
financial data includes certain reclassifications to conform to our current
presentation.
The pro forma consolidated balance sheet as of September 30, 2002 gives
effect to the recapitalization plan and the payment of related fees and expenses
as if each had occurred on the date of the consolidated balance sheet.
The pro forma consolidated statements of operations for the year ended
December 31, 2001, and the nine months ended September 30, 2002, give effect to
the recapitalization plan and the payment of related fees and expenses as if
each had occurred on January 1, 2001 and excludes the effects of non-recurring
adjustments relating to the restructuring.
We have prepared the pro forma consolidated financial data assuming that the
restructuring will occur either by means of the recapitalization plan or the
prepackaged plan.
The pro forma consolidated financial data does not purport to represent what
our interim consolidated financial position or results of operations would have
actually been had the recapitalization plan in fact been completed on that date,
or to project our results of operations for any future period. The pro forma
consolidated financial data is unaudited and based on assumptions that we
believe are reasonable and should be read in conjunction with 'Capitalization'
on page 31, and our consolidated financial statements and related notes from our
annual report on Form 10-K for the year ended December 31, 2001 and our
quarterly report on Form 10-Q for the quarter ended September 30, 2002, both
incorporated by reference in this prospectus. The pro forma consolidated
financial data assumes that 100% of our outstanding debt securities and
preferred stock are exchanged for common stock.
33
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(IN THOUSANDS)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 63,966 $ (8,985)(1) $ 249,266
(1,210)(2)
200,000 (3)
(4,505)(3)
Marketable securities, at market................... 184,732 -- 184,732
Prepaid expense.................................... 20,813 -- 20,813
Other current assets............................... 1,985 (1,595)(3) 390
---------- ---------- ----------
Total current assets................................... 271,496 183,705 455,201
Property and equipment, net........................ 1,056,932 -- 1,056,932
FCC license........................................ 83,654 -- 83,654
Restricted investments, long-term.................. 7,200 -- 7,200
Other long-term assets............................. 14,263 (13,765)(1) 498
---------- ---------- ----------
Total assets........................................... $1,433,545 $ 169,940 $1,603,485
---------- ----------
---------- ---------- ----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 44,435 $ -- $ 44,435
Accrued interest................................... 12,250 (12,250)(1) --
Satellite construction payable..................... 1,400 -- 1,400
Current portion of long-term debt.................. 41,500 (41,500)(1) --
---------- ---------- ----------
Total current liabilities.............................. 99,585 (53,750) 45,835
Long-term debt..................................... 569,768 (569,768)(1) --
Deferred satellite payments........................ 72,354 (72,354)(1) --
Other long-term liabilities........................ 2,259 -- 2,259
---------- ---------- ----------
Total liabilities...................................... 743,966 (695,872) 48,094
Commitments and contingencies
9.2% Series A Junior Cumulative Convertible
Preferred Stock.................................. 189,030 (189,030)(2) --
9.2% Series B Junior Cumulative Convertible
Preferred Stock.................................. 82,843 (82,843)(2) --
9.2% Series D Junior Cumulative Convertible
Preferred Stock.................................. 247,302 (247,302)(2) --
Stockholders' equity:
Common stock....................................... 77 596 (1) 962
77 (2)
212 (3)
Additional paid-in capital......................... 975,057 398,076 (1) 2,084,709
517,888 (2)
193,688 (3)
Accumulated other comprehensive income............. 663 -- 663
Accumulated deficit................................ (805,393) 274,450 (1) (530,943)
---------- ---------- ----------
Total stockholders' equity............................. 170,404 1,384,987 1,555,391
---------- ---------- ----------
Total liabilities and stockholders' equity............. $1,433,545 $ 169,940 $1,603,485
---------- ----------
---------- ---------- ----------
----------
34
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(IN THOUSANDS)
(1) The pro forma adjustments related to the exchange of our outstanding debt
securities for common stock assume 100% of our outstanding debt securities
are exchanged and the market value of our common stock on the closing date
of the restructuring is $0.64, the closing bid price on December 31, 2002.
The pro forma gain on the exchange of our senior secured discount notes,
senior secured notes and term loans is calculated as the difference between
the carrying value of these debt securities, including accrued interest, and
the fair market value of the common stock issued on the closing date, net of
unamortized debt issuance costs and direct costs of $8,985 associated with
the exchange of these debt securities, excluding $1,905 of expenses recorded
in the third quarter. The pro forma gain on our senior secured discount
notes, senior secured notes and term loans is offset by a pro forma loss on
the exchange of our convertible subordinated notes. The pro forma loss of
$9,001 on the exchange of our convertible subordinated notes, included in
the adjustment to additional paid-in capital below, was calculated as the
difference between the fair market value of the common stock issued on the
closing date of $8,903 and the fair market value of the common stock which
would have been issued under the original conversion ratio of $387, adjusted
for unamortized debt issuance costs of $485. The reconciliation of the gain
on the exchange of our outstanding debt securities is as follows:
Adjustments to assets:
Cash paid for expenses on closing date................ $ (8,985)
Adjustment to unamortized debt issuance costs......... (13,765)
Adjustment to liabilities:
Accrued interest...................................... 12,250
Current portion of long-term debt..................... 41,500
Long-term debt........................................ 569,768
Deferred satellite payments........................... 72,354
Adjustments to stockholders' equity:
Common stock.......................................... (596)
Additional paid-in capital............................ (398,076)
--------
Gain on exchange of our debt securities................... $274,450
--------
--------
The exchange offer allows for the minimum tender condition to be reduced to
90% of the aggregate principal amount of our debt securities. If we assumed
90% of the aggregate principal amount of our debt securities is tendered in
the exchange offer, current portion of long-term debt, long-term debt and
deferred satellite payments of $4,150, $56,977 and $7,235, respectively,
would remain outstanding after giving effect to the restructuring. In
addition, the net loss per share applicable to common stockholders would
increase to $0.27 for the nine months ended September 30, 2002 and the gain
on extinguishment of debt securities calculated as of September 30, 2002
would decrease to $246,107, assuming the market value of our common stock on
the closing date of the restructuring is $0.64, the closing bid price on
December 31, 2002.
The actual gain that will be recognized on the exchange of our outstanding
debt securities will vary from the pro forma gain and will be dependent upon
the market value of our common stock on the closing date of the restructuring
and the actual cost of exchanging our outstanding debt securities. See
'Accounting Treatment of the Restructuring -- Exchange of Debt Securities for
Common Stock' on page 39 for further discussion regarding the calculation of
the gain on the exchange of our outstanding debt securities.
(2) The pro forma adjustments related to the exchange of our outstanding
preferred stock for common stock assume 100% of our outstanding preferred
stock is exchanged. The pro forma deemed dividends of $63,557 resulting from
the exchange of our outstanding preferred stock
35
for common stock are not included in the pro forma adjustments as deemed
dividends are not included in the calculation of net loss. The pro forma
deemed dividends assume that the direct cost of exchanging our outstanding
preferred stock is $1,210 and that the market value of our common stock on
the closing date of the restructuring is $0.64, the closing bid price on
December 31, 2002. Deemed dividends resulting from the exchange of our
outstanding preferred stock are calculated as the difference between the
fair market value of the common stock of $49,275 and warrants of $17,049
issued on the closing date and the fair market value of the common stock
which would have been issued under the original conversion ratio, of $10,583
net of unamortized issuance costs of $6,606 and direct costs of $1,210
associated with the exchange. The warrants issued in the restructuring were
valued using a Black-Scholes methodology as of December 31, 2002.
The actual deemed dividends that will be recorded on the exchange of our
outstanding preferred stock will vary from the pro forma deemed dividends
and will be dependent upon the market value of our common stock on the
closing date of the restructuring and the actual cost of exchanging our
outstanding preferred stock. See 'Accounting Treatment of the
Restructuring -- Exchange of Preferred Stock for Common Stock and Warrants'
on page 39 for further discussion regarding the calculation of the deemed
dividend resulting from the exchange of our outstanding preferred stock.
(3) The pro forma adjustments assume that we will receive gross proceeds of
$200,000 from the new equity investment, net of direct expenses estimated to
be $6,100, including $1,595 of which had been paid before September 30,
2002. The reconciliation of the net proceeds is as follows:
Gross proceeds from new equity investment................. $200,000
Cash paid for expenses on closing date.................... (4,505)
Expenses paid in advance of closing date.................. (1,595)
--------
Net proceeds resulting from the new equity investment..... $193,900
--------
--------
The actual net proceeds resulting from the new equity investment will be
dependent upon the actual cost of the restructuring. See 'Accounting
Treatment of the Restructuring -- Issuance of Common Stock for the New Equity
Investment' on page 39 for further discussion regarding the calculation of
net proceeds resulting from the new equity investment.
36
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PRO FORMA
HISTORICAL ADJUSTMENTS(4) PRO FORMA
---------- -------------- ---------
Revenue:
Subscription revenue, net of rebates............ $ -- $-- $ --
Advertising revenue, net of agency fees......... -- -- --
Other revenue................................... -- -- --
--------- -------- ---------
Total revenue....................................... -- -- --
Operating expenses:
Cost of services (excludes depreciation expense
shown separately below):
Satellite and transmission.................. 30,583 -- 30,583
Programming and content..................... 9,462 -- 9,462
Customer service center and billing......... 6,539 -- 6,539
Sales and marketing............................. 21,246 -- 21,246
General and administrative...................... 29,926 -- 29,926
Research and development........................ 47,604 -- 47,604
Depreciation expense............................ 9,052 -- 9,052
Non-cash stock compensation expense (benefit)... 14,044 -- 14,044
--------- -------- ---------
Total operating expenses............................ 168,456 -- 168,456
--------- -------- ---------
Loss from operations................................ (168,456) -- (168,456)
Other income (expense):
Interest and investment income.................. 17,066 -- 17,066
Interest expense, net........................... (89,686) 76,118(1) (13,568)
Gain on extinguishment of debt.................. 5,313 -- 5,313
--------- -------- ---------
Total other income (expense)........................ (67,307) 76,118 8,811
Net loss............................................ (235,763) 76,118 (159,645)
Preferred stock dividends........................... (41,476) 41,476(2) --
Preferred stock deemed dividends.................... (680) 680(3) --
--------- -------- ---------
Net loss applicable to common stockholders.......... $(277,919) $118,274 $(159,645)
--------- -------- ---------
--------- -------- ---------
Net loss per share applicable to common stockholders
(basic and diluted)............................... $ (5.30) $ (0.17)
--------- ---------
--------- ---------
Weighted average common shares outstanding
(basic and diluted)............................... 52,427 937,820(5)
--------- ---------
--------- ---------
---------
(1) Elimination of interest expense related to our debt securities.
(2) Elimination of preferred stock dividends related to all of our preferred
stock.
(3) Elimination of preferred stock deemed dividends related to all of our
preferred stock.
(4) The pro forma adjustments do not include any gain or deemed dividends
resulting from the exchange of our debt securities and preferred stock for
common stock, respectively, because these adjustments are non-recurring and
attributable to the restructuring. We calculated the gain resulting from the
exchange of our debt securities and deemed dividends resulting from the
exchange of preferred stock to be $274,450 and $63,557, respectively, as of
September 30, 2002.
(5) The weighted average number of shares outstanding during the period has been
adjusted to give effect to the shares issued as if the restructuring had
occured on January 1, 2001.
37
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
PRO FORMA
HISTORICAL ADJUSTMENTS(4) PRO FORMA
---------- -------------- ---------
Revenue:
Subscription revenue, net of rebates............ $ 3 $-- $ 3
Advertising revenue, net of agency fees......... 111 -- 111
Other revenue................................... 6 -- 6
--------- -------- ---------
Total revenue....................................... 120 -- 120
Operating expenses:
Cost of services (excludes depreciation expense
shown separately below):
Satellite and transmission.................. 25,347 -- 25,347
Programming and content..................... 12,107 -- 12,107
Customer service center and billing......... 5,579 -- 5,579
Sales and marketing............................. 79,874 -- 79,874
General and administrative...................... 24,249 -- 24,249
Research and development........................ 23,699 -- 23,699
Depreciation expense............................ 59,591 -- 59,591
Non-cash stock compensation expense (benefit)... (7,995) -- (7,995)
--------- -------- ---------
Total operating expenses............................ 222,451 -- 222,451
--------- -------- ---------
Loss from operations................................ (222,331) -- (222,331)
Other income (expense):
Expense associated with restructuring........... (1,905) -- (1,905)
Interest and investment income.................. 4,530 -- 4,530
Interest expense, net........................... (80,689) 70,401(1) (10,288)
--------- -------- ---------
Total other income (expense)........................ (78,064) 70,401 (7,663)
Net loss............................................ (300,395) 70,401 (229,994)
Preferred stock dividends........................... (33,494) 33,494(2) --
Preferred stock deemed dividends.................... (513) 513(3) --
--------- -------- ---------
Net loss applicable to common stockholders.......... $(334,402) $104,408 $(229,994)
--------- -------- ---------
--------- -------- ---------
Net loss per share applicable to common stockholders
(basic and diluted)............................... $ (4.41) $ (0.24)
--------- ---------
--------- ---------
Weighted average common shares outstanding
(basic and diluted)............................... 75,820 961,213(5)
--------- ---------
--------- ---------
---------
(1) Elimination of interest expense related to our debt securities.
(2) Elimination of preferred stock dividends related to all of our preferred
stock.
(3) Elimination of preferred stock deemed dividends related to all of our
preferred stock.
(4) The pro forma adjustments do not include any gain or deemed dividends
resulting from the exchange of our debt securities and preferred stock for
common stock, respectively, because these adjustments are non-recurring and
attributable to the restructuring. We calculated the gain resulting from the
exchange of our debt securities and deemed dividends resulting from the
exchange of preferred stock to be $274,450 and $63,557, respectively, as of
September 30, 2002.
(5) The weighted average number of shares outstanding during the period has been
adjusted to give effect to the shares issued as if the restructuring had
occured on January 1, 2001.
38
ACCOUNTING TREATMENT OF THE RESTRUCTURING
EXCHANGE OF DEBT SECURITIES FOR COMMON STOCK
The exchange of our debt for our common stock will be accounted for as a
troubled debt restructuring pursuant to Statement of Financial Accounting
Standard No. 15, 'Accounting by Debtors and Creditors for Troubled Debt
Restructurings' ('SFAS No. 15'). Our outstanding debt will be exchanged for
596,669,765 shares of our common stock and will be removed from our consolidated
balance sheet. The carrying value of our debt represents the face value of the
debt adjusted for unamortized original issue discounts, unamortized debt
issuance costs and the unamortized value of warrants issued in connection with
the debt. In accordance with SFAS No. 15, we will record a gain on the exchange
of our senior secured discount notes, senior secured notes and term loans as the
difference between the carrying value of these debt securities, including
accrued interest, and the fair market value of the common stock issued on the
closing date, net of unamortized debt issuance costs and direct costs associated
with the exchange of these debt securities. In addition, we will record a loss
on the restructuring as the difference between the fair market value of the
common stock issued in exchange for our convertible subordinated notes on the
closing date of the restructuring and the fair market value of the common stock
which would have been issued under the original conversion ratio, adjusted for
unamortized debt issuance costs, accrued interest and direct costs associated
with the exchange of our convertible subordinated notes.
EXCHANGE OF PREFERRED STOCK FOR COMMON STOCK AND WARRANTS
Our preferred stock will be exchanged for 76,992,865 shares of our common
stock and warrants to purchase 87,577,114 shares of our common stock, and will
be removed from the consolidated balance sheet. We will record a deemed dividend
on preferred stock as the difference between the fair market value of the common
stock and warrants issued in exchange for our preferred stock on the closing
date of the restructuring and the fair market value of the common stock which
would have been issued under the original conversion ratio, net of direct costs
associated with the exchange of our preferred stock.
ISSUANCE OF COMMON STOCK FOR THE NEW EQUITY INVESTMENT
In addition to the common stock that will be issued in exchange for our debt
and preferred stock, on the closing of the restructuring 211,730,379 shares of
our common stock will be sold to Apollo, Blackstone and Oppenheimer for $200
million cash. The par value of newly issued common stock in the restructuring
will be credited to the common stock account and the excess of the total fair
value of the common stock on the closing date of the restructuring will be
credited to paid-in capital, net of issuance costs.
39
THE RESTRUCTURING
BACKGROUND OF AND REASONS FOR THE RESTRUCTURING
Since inception, we have funded the development of our system and the
introduction of our service through the issuance of debt and equity securities.
As of September 30, 2002, we had raised approximately $1.25 billion in equity
capital from the sale of our common stock and convertible preferred stock. In
addition, we have received approximately $638 million in net proceeds from
public debt offerings and private credit arrangements.
We have a limited history of operations. On February 14, 2002, we launched
our service in select markets and on July 1, 2002, we launched our service
nationwide. To date, we have only generated losses and, as a result of our
limited operating history, we have generated very little revenue. Since our
inception, we have concentrated on raising capital, obtaining required licenses,
developing technology, strategic planning, market research, building our
infrastructure and launching our service. Our financial results from our
inception on May 17, 1990 through September 30, 2002 were as follows:
revenues of $120,000;
net losses of approximately $805 million (including net losses of
approximately $236 million during the year ended December 31, 2001 and
approximately $300 million for the nine months ended September 30, 2002);
net losses from operations of approximately $645 million (including net
losses from operations of approximately $168 million during the year ended
December 31, 2001 and approximately $222 million for the nine months ended
September 30, 2002);
net losses applicable to common stockholders of approximately $1,057
million (including net losses applicable to common stockholders of
approximately $278 million during the year ended December 31, 2001 and
approximately $334 million for the nine months ended September 30, 2002);
and
negative cash flow of approximately $1,590 million (including negative cash
flow of approximately $229 million during the year ended December 31, 2001
and approximately $219 million for the nine months ended September 30,
2002).
In addition, at September 30, 2002, the book value of our debt securities
totaled approximately $684 million.
We believe that the completion of the restructuring is critical to our
continuing viability. We have sufficient cash to cover our estimated funding
needs only through the second quarter of 2003, without giving effect to the
completion of the restructuring. If the restructuring is not completed, we
anticipate that our additional funding needs will total approximately
$600 million until our revenues are sufficient to fund expected operating
expenses, capital expenditures, interest and principal payments and taxes, which
we currently anticipate will not occur for several years, when we have
approximately three million subscribers. However, if the growth rate of the
number of subscribers is slower than expected or the cost of obtaining these
subscribers is higher than forecast, our revenues may never become sufficient to
fund expected operating expenses, capital expenditures, interest and principal
payments and taxes, or we may only achieve this point at a later date. The
amount and timing of our cash requirements also depend upon other factors,
including the rate of growth of our business, subscriber acquisition costs and
costs of financing.
In early April 2002, we began to investigate the feasibility of executing a
transaction, or series of transactions, to raise additional capital and reduce
our indebtedness. We began this investigation after we concluded that:
the results of the launch of our service in select markets in February 2002
had not met our expectations;
the availability of Sirius radios to support the national launch of our
service in July 2002 was likely to be limited;
the cost to acquire subscribers was, in general, greater than our initial
expectations; and
40
current capital market conditions, coupled primarily with our operating
results and significant indebtedness, would make it very difficult to
finance our ongoing operations.
As part of those efforts, we commenced informal discussions with Apollo and
Blackstone regarding their willingness to invest additional capital. At that
time, both Apollo and Blackstone indicated to us they would be interested in
making an additional investment in our company if a consensual transaction could
be arranged which reduced our debt, eliminated the covenants contained in the
Lehman senior term loans and attracted new investors. In April 2002, we also
engaged UBS Warburg LLC, an investment bank, as our financial advisor to assist
us in arranging a transaction to raise new capital and reduce our debt.
Throughout this period, we consulted with Simpson Thacher & Bartlett, our
outside counsel.
At our request, during May and June 2002, UBS Warburg LLC began contacting
financial and strategic investors regarding their interest in investing in us.
Investors who expressed an interest in our business and a possible investment
received materials describing our business and were invited to conduct due
diligence and participate in management discussions.
On May 21, 2002, our board of directors determined that it was advisable to
form a special committee, consisting of Lawrence F. Gilberti, James P. Holden
and Joseph V. Vittoria, to evaluate and review, and make recommendations to our
board of directors with respect to, any financing transactions pursued by us to
the extent such transactions involved any of our directors or any of our or
their affiliates or associates. The members of the special committee were
selected by our board of directors because none of them is an officer or
employee of our company or affiliated with Apollo, Blackstone or Oppenheimer.
The special committee was authorized by our board of directors to retain a
financial advisor and legal counsel to assist it in the performance of its
functions. During the first week of June 2002, the special committee engaged
Miller Buckfire Lewis & Co., LLC, or MBL, as its financial advisor, and Davis
Polk & Wardwell, as its legal counsel.
On June 7, 2002, after consulting with the special committee, we and
UBS Warburg LLC commenced discussions with Apollo and Blackstone regarding a
potential rights offering to stockholders to be underwritten in part by Apollo
and Blackstone. The discussions with Apollo and Blackstone continued through
June 2002 and the first two weeks of July 2002. During this period, UBS Warburg
LLC continued to contact potential financial and strategic investors regarding
their interest in engaging in a financing or alternative transaction with us.
Although numerous potential investors were contacted, none indicated any
significant interest, citing general economic and market conditions, our high
level of debt and the risks associated with an investment given our early stage
of operations.
The special committee held several meetings with MBL and Davis Polk &
Wardwell during June and the first two weeks of July 2002 for purposes of
reviewing and analyzing our discussions with Apollo and Blackstone and the
efforts being undertaken by UBS Warburg LLC and us to solicit potential
investors.
At a meeting of the special committee held on July 16, 2002, after (i)
reviewing with MBL the efforts being undertaken by UBS Warburg LLC and us to
solicit potential investors, (ii) reviewing with MBL the terms of a draft
non-binding letter of intent with Apollo and Blackstone with respect to a
proposed recapitalization of our company, (iii) discussing the lack of financing
alternatives available to us and (iv) being advised by Davis Polk & Wardwell as
to its fiduciary duties, the special committee approved the execution of such
non-binding letter of intent.
At a meeting on July 16, 2002, our board of directors also approved the
execution of the non-binding letter of intent with Apollo and Blackstone. Our
board approved the execution of the letter of intent after reviewing with UBS
Warburg LLC the terms of the proposed restructuring and UBS Warburg LLC's
efforts to attract other parties to invest in our company; being advised by
Simpson Thacher & Bartlett as to its fiduciary duties; and after discussing with
the members of the special committee their approval of our execution of the
letter of intent.
41
On July 16, 2002, we executed the non-binding letter of intent with Apollo
and Blackstone. Pursuant to this letter of intent, Apollo and Blackstone agreed
to underwrite an aggregate of $125 million of new capital, provided that, among
other things:
$125 million from other investors was raised as part of the transaction;
no less than $250 million of our debt securities were converted into common
stock as part of the transaction;
no material adverse change occurred in our business affairs, financial
condition or prospects prior to closing;
Apollo and Blackstone were reasonably satisfied with the covenants in our
debt securities (although Blackstone and Apollo did not identify specific
covenants to be deleted or amended); and
the transaction was completed prior to February 1, 2003.
Apollo and Blackstone agreed to purchase this new equity at the market price of
our common stock at the time of the debt exchange, but in no event at a price
greater than $4.00 per share or on terms less favorable than those at which the
additional $125 million of capital was raised.
The letter of intent provided that upon substantial satisfaction of the
conditions to funding the investment, the conversion price of our existing
preferred stock held by Apollo and Blackstone would be reduced to $8.00 per
share on a blended basis. Further, the letter of intent provided that if Apollo
and Blackstone funded their investments they would receive, for each share of
common stock purchased, seven-year warrants to purchase 1.25 shares of common
stock for each share of common stock they received for their $125 million
investment, at an exercise price equal to the price at which they purchased such
common stock. The letter of intent also provided that it could be terminated on
or after August 15, 2002, if definitive agreements relating to the transaction
had not been executed by such date.
Following the execution of this letter of intent, UBS Warburg LLC, on our
behalf, contacted Oppenheimer, Lehman, Loral and certain holders of our senior
secured discount notes and senior secured notes regarding their interest in
exchanging all, or a portion, of their debt securities for shares of our common
stock and/or investing new capital as part of the transaction outlined in the
letter of intent. Following these initial conversations, Oppenheimer, Lehman,
Loral and holders of our senior secured discount notes and senior secured notes
formed the informal noteholders committee, which retained, at our expense,
Fried, Frank, Harris, Shriver & Jacobson as its counsel.
In August 2002, the informal noteholders committee advised us that its
members would not support or participate in the transaction described in the
letter of intent, and on August 14, 2002, we terminated the letter of intent.
The informal noteholders committee instead requested a series of meetings with
management and UBS Warburg LLC to further evaluate our business plans and
financial model, including our marketing and distribution strategy, and engaged,
at our expense, PricewaterhouseCoopers LLC to assist in this evaluation. During
August and September 2002, the informal noteholders committee, with the
assistance of PricewaterhouseCoopers and Fried, Frank, Harris, Shriver &
Jacobson, conducted extensive due diligence, including meeting with our
executive officers and other employees in charge of our marketing, distribution
and sales efforts.
During the course of the informal noteholders committee's due diligence, we
and UBS Warburg LLC had extensive discussions with members of the committee
regarding the possibility of exchanging all of our outstanding debt and
preferred stock for common stock and the infusion of new equity capital into our
company, including the possibility of effecting a transaction through a
prepackaged plan of reorganization under the Bankruptcy Code in which our
existing common stockholders would retain no equity interest. At that time, we
engaged Stutman, Treister & Glatt P.C. as our special bankruptcy counsel.
In August 2002, while conducting discussions with the informal noteholders
committee, we again instructed UBS Warburg LLC to contact potential strategic
and financial investors to solicit an investment in our company as part of a
transaction that would eliminate all, or substantially all, of our debt. During
August and September 2002, we entered into confidentiality agreements with
42
certain investors who expressed a preliminary interest to UBS Warburg LLC,
provided financial and business information to such parties, conducted meetings
with management and answered questions from these investors. Subsequently, none
of these investors indicated any meaningful interest in investing at that time.
In late August 2002, we began negotiating with Apollo, Blackstone,
Oppenheimer and the informal noteholders committee regarding the term sheet that
is attached as Annex A to the lockup agreement. At the beginning of these
negotiations, Oppenheimer indicated to us that it was prepared to invest between
$100 to $150 million in our common stock if the transaction was acceptable.
Apollo and Blackstone also indicated that each was prepared to invest an
additional $25 million in our common stock under acceptable circumstances.
During late August 2002 and September 2002, negotiations relating to the term
sheet were extensive among us, the informal noteholders committee, and Apollo,
Blackstone and Oppenheimer.
Negotiation of the lockup agreement was on-going at the end of September
2002. As a result, we elected not to make an interest payment on our convertible
subordinated notes that was due on September 29, 2002. In addition, we received
waivers from Lehman of the $7.5 million principal payment that was due on the
Lehman senior term loans on September 30, 2002 in order to complete the
negotiation of the lockup agreement.
On October 1, 2002, the special committee held a meeting with its financial
advisor and legal counsel. At the meeting, MBL reviewed with the special
committee the terms contained in the draft lockup agreement, and the continued
efforts of UBS Warburg LLC to solicit potential investors. In addition, MBL and
Davis Polk & Wardwell discussed with the special committee some additional terms
that could possibly be incorporated into the transactions contemplated by the
draft lockup agreement for the benefit of stockholders, other than Apollo,
Blackstone and Oppenheimer. These additional terms included a common stock
rights offering to such stockholders and a requirement that the recapitalization
plan be approved by a majority of such stockholders. After further discussion,
the special committee directed MBL to propose such additional terms to the
parties to the lockup agreement.
During the week following such meeting, at the direction of the special
committee, MBL and Davis Polk & Wardwell requested that we incorporate the
rights offering and special vote into the recapitalization plan. MBL and Davis
Polk & Wardwell also directly made such request to Apollo, Blackstone and
Oppenheimer and the informal noteholders committee (or their respective
advisors). In addition, again at the special committee's request, MBL requested
that the existing common stockholders retain 10% rather than 8% of the common
stock after the recapitalization. Following discussions with respect to such
requests, the informal noteholders committee, Apollo and Blackstone rejected the
incorporation of such terms into the recapitalization plan.
At a meeting of the special committee and its advisors on October 10, 2002,
MBL and Davis Polk & Wardwell reported that the requested additional terms for
the benefit of stockholders (other than Apollo, Blackstone and Oppenheimer) had
been rejected by the informal noteholders committee, Apollo and Blackstone. The
special committee and its advisors also discussed our need for new financing and
the importance of reaching agreement with our creditors promptly. Specifically,
the special committee discussed our projections and the expectation that, in the
absence of any additional financing, we would exhaust our available cash by the
end of the second quarter of 2003. After further discussion, the special
committee determined that it would not object to our execution of the lockup
agreement on the basis that (i) the rights offering and special vote terms would
continue to be pursued after such execution and (ii) the lockup agreement may be
terminated if our board of directors determines such termination to be in our
best interests.
During the following two weeks, the special committee's financial advisor
and legal counsel continued to pursue the rights offering and special vote
protections, but such protections continued to be rejected by the informal
noteholders committee, Apollo and Blackstone.
43
Following these extensive negotiations, on October 17, 2002, our board of
directors approved our execution of the lockup agreement. The lockup agreement
was executed by the parties on October 17, 2002, after such meeting.
On November 8, 2002, the trustee for our convertible subordinated notes
informed us in writing that our failure to pay interest had resulted in an event
of default under the indenture for the convertible subordinated notes.
On November 12, 2002, the special committee held a meeting with its
financial advisor and legal counsel. MBL reviewed for the members of the special
committee the negotiations on the lockup agreement and the terms of the
recapitalization plan. The special committee and its advisors also discussed our
current financial condition and future prospects, including the consequences of
not consummating the recapitalization plan or an alternative financing
transaction promptly. MBL then delivered its opinion to the special committee
orally, which was later confirmed in writing, to the effect that, based upon and
subject to the matters set forth in such opinion, the terms of the
recapitalization plan were fair, from a financial point of view, to holders of
our common stock, other than Apollo, Blackstone and Oppenheimer. Davis Polk &
Wardwell advised the special committee on its legal duties and responsibilities,
and discussed with the special committee certain other legal matters relating to
the recapitalization plan.
After further discussion, the special committee unanimously (i) determined
that the recapitalization plan is fair to and in the best interests of our
stockholders, other than Apollo, Blackstone and Oppenheimer, and
(ii) recommended that our board of directors approve the recapitalization plan.
Effective November 14, 2002, The Bank of New York resigned as trustee under
the indenture for the convertible subordinated notes due to its conflict of
interest caused by its concurrent role as trustee for the senior secured
discount notes and senior secured notes. We expect that HSBC Bank USA will be
appointed as successor trustee under the indenture for the convertible
subordinated notes, although we have not yet executed a supplemental indenture
with HSBC confirming its appointment as trustee.
At a meeting on November 18, 2002, our board of directors approved the
restructuring. As part of that meeting, our board of directors reviewed with UBS
Warburg LLC the terms of the restructuring; discussed with the members of the
special committee their recommendation and the fairness of the recapitalization
plan to our stockholders, other than Apollo, Blackstone and Oppenheimer; was
advised by Simpson Thacher & Bartlett as to fiduciary duties; determined that
the recapitalization plan and the prepackaged plan are fair to, and in the best
interests of, our stockholders; and unanimously recommended that our
stockholders approve the recapitalization plan and vote to accept the
prepackaged plan.
On December 17, 2002, the trustee for our senior secured discount notes
informed us in writing that our failure to pay interest with respect to these
notes on November 15, 2002 had resulted in an event of default under the
indenture for the senior secured discount notes.
On November 11, 2002, we filed an application with the FCC to transfer
control of our space station and ground station licenses because, under the
Communications Act of 1934, the consummation of the recapitalization plan would
result in a deemed change of control. On January 8, 2003, the FCC granted our
transfer of control application with respect to our ground stations, and on
January 14, 2003, the FCC granted our transfer of control application with
respect to our space stations. The FCC's order requires us to complete the
transfer of control within 60 days of the release date of the order, or March
17, 2003. The staff of the FCC has authority to extend this date and has
extended similar dates in connection with change of control applications for
other companies subject to the Communications Act of 1934.
We are pursuing an out-of-court restructuring because we believe that a
consensual transaction with our creditors will best preserve the value of our
company for our common and preferred stockholders and creditors, and will not
expose our business and operations to the uncertainties and stigma often
associated with a bankruptcy filing. We are pursuing an out-of-court
restructuring also because it provides a greater degree of certainty that
Oppenheimer, Apollo and Blackstone
44
will fund the new equity investment, funds that are critical to our continued
operation. We intend to pursue the prepackaged plan with the bankruptcy court
only if we are unable to satisfy the minimum tender condition and, as a result,
are unable to achieve consensually our goal of substantially reducing our
indebtedness.
Although the consummation of the exchange offer and consent solicitation may
not eliminate all our outstanding indebtedness, completion of the exchange offer
and consent solicitation will benefit the noteholders and us by enabling us to
avoid filing for bankruptcy. A bankruptcy filing could damage our key
assets -- our relationships with radio manufacturers, retailers and car
manufacturers, and our brand, Sirius. The prepackaged plan would, however,
permit us to eliminate all of our indebtedness, which may allow us to achieve
cash flow breakeven earlier than through an out-of-court restructuring. In
addition, Oppenheimer, Apollo and Blackstone may elect to terminate their
obligations to make the new equity investment if we file the prepackaged plan.
In that event, and if we were unable to find a replacement investor, we will not
seek confirmation of the prepackaged plan.
Consummation of the exchange offer is conditioned upon our receipt of valid
tenders from not less than 97% in aggregate principal amount of our outstanding
debt securities and 90% in aggregate principal amount of our convertible
subordinated notes; provided that the holders of a majority of our debt
securities may reduce the minimum tender condition to not less than 90% in
aggregate principal amount of our debt securities and may lower or eliminate the
minimum condition applicable to our convertible subordinated notes. For the
prepackaged plan to be confirmed by the bankruptcy court without invoking the
'cram down' provisions, the holders of at least two-thirds in dollar amount and
more than one-half in number of each class of our debt securities who actually
cast ballots must vote to accept the prepackaged plan. In addition, the holders
of at least two-thirds in amount of our common stock and preferred stock who
actually cast ballots must vote to accept the prepackaged plan.
Following completion of the restructuring, our primary source of revenues
will continue to be the sale of subscriptions to our satellite radio service and
advertising on our non-music channels. We intend to continue to pursue the sale
of subscriptions through four principal channels: the retail aftermarket, car
dealerships, car manufacturer installations and specialty markets, such as
trucks, boats, recreational vehicles and commercial establishments.
At December 31, 2002, we had 29,947 subscribers. Following completion of the
restructuring, we estimate that we will need approximately two million
subscribers before we can achieve cash flow breakeven, the point at which our
revenues are sufficient to fund expected operating expenses, capital
expenditures, interest and principal payments and taxes.
The restructuring will substantially strengthen our balance sheet and
improve our cash position. Assuming that we complete the restructuring on March
15, 2003, we expect that we will have approximately $295 million of cash, cash
equivalents and marketable securities on that date. This amount will cover our
estimated funding needs into the second quarter of 2004. We intend to use these
funds, which include net proceeds of approximately $194 million from the new
equity investment, to market and sell subscriptions to our satellite radio
service, to fund capital expenditures for our satellite radio system, to pay
general and administrative expenses and for other corporate purposes. We project
that we will need further funding of approximately $75 million to reach the cash
flow breakeven point. We expect to raise this $75 million through the issuance
of debt, equity or a combination thereof, and may seek all or a portion of this
financing as early as the fourth quarter of 2003 or first half of 2004.
OUR ESTIMATES ARE BASED UPON MANY SIGNIFICANT
ASSUMPTIONS. THESE SIGNIFICANT ASSUMPTIONS ARE DESCRIBED IN
FULL UNDER THE CAPTION 'UNAUDITED PROJECTED CONSOLIDATED
FINANCIAL INFORMATION.'
45
LOCKUP AGREEMENT
As of October 17, 2002, we entered into a lockup agreement with Apollo,
Blackstone and the members of the informal noteholders' committee, including
Oppenheimer, Lehman and Loral, pursuant to which each agreed to use commercially
reasonable best efforts to complete the restructuring as contemplated by the
recapitalization plan or, if the minimum tender condition or any of the other
conditions to the exchange offer are not satisfied or waived or we are otherwise
not able to complete the recapitalization plan, but the required acceptances
have been received to seek confirmation of the prepackaged plan, as contemplated
by the prepackaged plan.
Pursuant to the lockup agreement and in connection with and conditioned upon
the successful consummation of the restructuring:
Lehman, Loral and the holders of approximately 71% in aggregate principal
amount at maturity of our senior secured discount notes, approximately 70%
in aggregate principal amount of our senior secured notes and approximately
64% in aggregate principal amount of our convertible subordinated notes
agreed to tender all their debt securities in the exchange offer (and
thereby deliver a consent to the proposed amendments and waivers);
each of the noteholders which is a party to the lockup agreement, Lehman,
Loral, Apollo and Blackstone agreed (1) to vote to accept the prepackaged
plan and to reject any plan of reorganization of Sirius that does not
contain the terms of the restructuring substantially as set forth in the
term sheet attached to the lockup agreement, and (2) not to transfer any of
the debt securities or preferred stock unless the beneficial owner to whom
such debt securities or preferred stock will be transferred agrees in
writing to be bound by the terms of the lockup agreement;
Apollo and Blackstone agreed (1) to tender for cancellation all of our
outstanding preferred stock in exchange for an aggregate of 76,992,865
newly issued shares of our common stock, warrants to purchase 52,546,268
shares of our common stock at a purchase price of $1.04 per share and
warrants to purchase 35,030,846 shares of our common stock at a purchase
price of $0.92 per share, and (2) in connection with the proxy
solicitation, to vote in favor of the approval of the recapitalization plan
and each of the transactions contemplated thereby; and
Apollo, Blackstone and Oppenheimer agreed to purchase an aggregate of
211,730,379 newly issued shares of our common stock for an aggregate
purchase price of $200 million. Oppenheimer has agreed to purchase
163,609,837 shares of our common stock, representing approximately 17% of
our common stock after giving effect to the restructuring, for a total
purchase price of $150 million cash, or $0.92 per share. Apollo and
Blackstone have each agreed to purchase 24,060,271 shares of our common
stock, representing approximately 2.5% of our outstanding common stock
after giving effect to the restructuring, for a total price of $25 million
cash, or $1.04 per share.
In the event that less than 100% of our outstanding debt securities are
tendered in the exchange offer, each holder of debt securities which is a party
to the lockup agreement (other than Apollo, Blackstone and Oppenheimer) may
retain a pro rata share of its debt securities, provided that the total
outstanding aggregate principal amount of debt securities following the exchange
offer may not exceed the amount permitted by the minimum tender condition.
The obligation of each of Apollo, Blackstone and Oppenheimer to purchase
common stock in the new equity investment is conditioned upon each of the other
purchasers (or, as described below, any replacement purchaser) fulfilling its
respective obligation to purchase common stock on the closing date of the
restructuring. In the event that we are unable to complete the recapitalization
plan and we determine to file the prepackaged plan with the bankruptcy court,
Apollo, Blackstone and Oppenheimer may elect to terminate their obligations to
purchase common stock in the new equity investment. In that event, and so long
as no suitable alternative new equity investment is located, we will not seek
confirmation of the prepackaged plan and your vote
46
in favor of the prepackaged plan will be disregarded. We have not yet identified
any suitable alternative new equity investment.
Under the prepackaged plan: the claims held by holders of the Lehman senior
term loans, senior secured discount notes and senior secured notes (Class 2);
the claims held by holders of the Loral senior term loans (Class 3); the claims
held by the holders of our convertible subordinated notes (Class 5); the
interests held by holders of our preferred stock (Class 8); and the interests
held by holders of our common stock (Class 9), constitute separate impaired
classes of claims or interests. Pursuant to the lockup agreement, approximately
78% in aggregate principal amount of Class 2, 100% in aggregate principal amount
of Class 3, approximately 64% in aggregate principal amount of Class 5 and
Apollo and Blackstone, the holders of our preferred stock and 100% of the
interests in Class 8, have agreed to vote to accept the prepackaged plan.
Unless the restructuring has been completed, the lockup agreement, and the
obligations of the parties to the lockup agreement, will terminate upon the
earliest to occur of:
March 15, 2003, unless a prepackaged plan is filed as set forth in the
lockup agreement, in which case such date will be June 15, 2003;
receipt of written notice from holders of a majority in aggregate principal
amount of the debt securities of their intent to terminate the agreement
upon the occurrence of specified events which constitute a material adverse
change;
ten business days after receipt of written notice from Apollo, Blackstone
or Oppenheimer of its intent to terminate the agreement upon the occurrence
of specified events which constitute a material adverse change;
receipt of written notice from Apollo, Blackstone or Oppenheimer, no later
than five business days after the tender expiration date, of its intent to
terminate its obligation to purchase common stock in the new equity
investment because the minimum tender condition was not satisfied;
a material alteration by us of the terms of the restructuring that was not
permitted under the terms of the lockup agreement;
receipt of written notice from any of the parties to the lockup agreement
of its intent to terminate the lockup agreement upon the occurrence of a
material breach by any of the other parties thereto of its respective
obligations, representations or warranties that is incurable or is curable
and is not cured within 30 days after such notice;
receipt of written notice from us of our intent to terminate the agreement
upon a determination by our board of directors that such termination is in
our best interests;
the thirty-first day following the filing of any bankruptcy proceeding,
other than the prepackaged plan, if such proceeding has not been dismissed
by such day;
the prepackaged proceeding being dismissed or converted to a Chapter 7
case; and
written notice from holders of a majority in aggregate principal amount of
the debt securities to terminate the lockup agreement due to our failure to
pay fees and expenses incurred by the parties in connection with the
restructuring.
In the event that either Apollo or Blackstone (in such capacity, a
'non-funding purchaser') gives notice of its intent to terminate the agreement
upon the occurrence of specified events which constitute a material adverse
change, and any other person (a 'replacement purchaser'), during the ten
business day period following the receipt of such notice, agrees to purchase the
shares of common stock that such non-funding purchaser was obligated to purchase
in the new equity investment, then (i) the lockup agreement shall not terminate
and (ii) such non-funding purchaser shall assign to the replacement purchaser
all title and interest in the shares of common stock and warrants it receives in
exchange for its preferred stock in the preferred stock exchange. In the event
that there is no replacement purchaser and the agreement terminates, (i) we have
agreed to grant co-exclusivity to Lehman, Loral and the informal noteholders
committee with respect to the
47
filing of a Chapter 11 plan and (ii) each of Apollo and Blackstone has agreed
that if it is a non-funding purchaser it will not object to any Chapter 11 plan
on the basis that no distributions are being provided to equity holders.
APPROVAL OF THE RECAPITALIZATION PLAN BY THE SPECIAL COMMITTEE
The special committee was established to evaluate and review, and make
recommendations to our board of directors with respect to, any financing
transactions pursued by us to the extent such transactions involved any of our
directors or any of our or their affiliates or associates.
At a meeting held on November 12, 2002, the special committee of our board
of directors unanimously determined that the recapitalization plan is fair to
and in the best interests of our stockholders, other than Apollo, Blackstone and
Oppenheimer, and recommended that our board of directors approve the
recapitalization plan.
In the course of determining that the recapitalization plan is fair to and
in the best interests of our stockholders, other than Apollo, Blackstone and
Oppenheimer, the special committee consulted with its financial and legal
advisors, as well as our management, and considered a number of factors in
making its determination. Many of these factors were also considered by our
board of directors in determining to approve the terms of the restructuring and
are described below. In this connection, the special committee received an
opinion of MBL as to the fairness from a financial point of view of the
recapitalization plan to our common stockholders, other than Apollo, Blackstone
and Oppenheimer.
The determination of the special committee is not, and should not be
interpreted as, a recommendation that any holder of debt securities should or
should not participate in the exchange offer.
OPINION OF THE FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Miller Buckfire Lewis & Co., LLC, or MBL, acted as the financial advisor to
the special committee in connection with the recapitalization plan. At the
November 12, 2002 meeting of the special committee, MBL delivered an oral
opinion, which was later confirmed in writing, to the special committee to the
effect that, as of the date of such opinion and based upon and subject to the
assumptions made, matters considered and limits of the review undertaken by MBL
in connection with rendering such opinion, the terms of the recapitalization
plan were fair, from a financial point of view, to the holders of our common
stock, other than Apollo, Blackstone and Oppenheimer. MBL's opinion is dated and
speaks only as of November 12, 2002, and has not been updated, revised or
reaffirmed by MBL since that date.
THE FULL TEXT OF MBL'S OPINION, WHICH SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY MBL
IN CONNECTION WITH THE OPINION, IS ATTACHED AS EXHIBIT B TO THIS PROSPECTUS. THE
SUMMARY OF MBL'S OPINION SET FORTH BELOW HIGHLIGHTS THE MATERIAL FEATURES OF
MBL'S OPINION. YOU ARE URGED TO READ MBL'S OPINION IN ITS ENTIRETY. MBL'S
OPINION WAS PROVIDED TO THE SPECIAL COMMITTEE TO ASSIST IT IN REVIEWING THE
RECAPITALIZATION PLAN. MBL'S OPINION IS DIRECTED ONLY AS TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE TERMS OF THE RECAPITALIZATION PLAN TO THE HOLDERS
OF OUR COMMON STOCK, OTHER THAN APOLLO, BLACKSTONE AND OPPENHEIMER. MBL'S
OPINION DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW YOU OR ANY OTHER
STOCKHOLDER SHOULD VOTE ON THE RECAPITALIZATION PLAN.
In connection with rendering its opinion, MBL, among other things, reviewed
the following materials and undertook the following actions:
MBL reviewed the lockup agreement and drafts of the exchange offer
documents and consent solicitation materials for the recapitalization plan;
for purposes of its opinion, MBL assumed that the final forms of any such
documents that it reviewed in draft form do not differ in any material
respect from the drafts provided to MBL;
MBL reviewed and analyzed certain publicly available business and financial
information relating to us;
48
MBL reviewed certain internal financial and operating information,
including financial forecasts, analyses and projections, prepared by us and
provided by us to MBL;
MBL held discussions with our management to review and discuss the
foregoing historical and prospective information; this discussion included
a review of our past and current business, operations, assets, liabilities,
and financial condition, our prospects, the effects of the recapitalization
on our financial condition and prospects, management's view of the risks
and uncertainties associated with not pursuing the recapitalization plan,
and certain other matters believed necessary or appropriate to MBL's
inquiry;
MBL regularly held discussions with our management and with representatives
of UBS Warburg LLC, our financial advisor, with respect to the process,
status and prospects of the solicitation by us and UBS Warburg LLC of
alternative sources of financing and other strategic alternatives
potentially available to us, including the identities of the third parties
contacted and the discussions between us and UBS Warburg LLC and such third
parties;
MBL reviewed certain financial and stock market data relating to us, and
compared that data with similar data for certain other companies, the
securities of which are publicly traded, that MBL believed to be comparable
in certain respects to us; and
MBL performed such other financial studies, analyses and investigations and
reviewed such other information as MBL deemed appropriate.
In evaluating our financial condition and prospects, MBL was advised by us
that:
(i) based on our financial projections, assuming no financing or delevering
transaction, we will need approximately $600 million in future funding
prior to reaching breakeven on a cash flow basis;
(ii) based on our financial projections and our current cash position, and
assuming no additional financing, if we were to meet all our existing
payment obligations, including debt service, we would exhaust our
existing cash resources prior to the end of the second quarter of 2003
and would no longer be able to conduct our operations after such date;
(iii) unless we effect the recapitalization plan, or an alternative cash
financing transaction, within the next six months, we would be forced
to commence bankruptcy proceedings;
(iv) UBS Warburg LLC and we have aggressively solicited indications of
interest for a new capital investment in us from numerous strategic
and financial investors (including our current creditors) but have not
received any meaningful indications of interest for any alternative
transaction that would adequately address our liquidity needs; and
(v) based on our financial projections, following the consummation of the
recapitalization plan, we will have sufficient liquidity to fund
expected negative cash flow from operations and any residual debt
service through the end of the first quarter of 2004 and our projected
funding gap prior to our projected cash flow breakeven should not
exceed $75 million.
In preparing its opinion, MBL did not participate in, and did not
independently verify, the solicitation activities of UBS Warburg LLC and us
referenced above. Accordingly, MBL placed significant reliance on the quality
and thoroughness of the solicitation efforts undertaken by UBS Warburg LLC and
us to support our conclusion that no viable alternative source of financing is
available. Moreover, MBL informed the special committee that it placed
substantially greater reliance on the matters described in clauses (i) through
(v) above than on the various financial analyses performed by MBL. In
particular, MBL informed the special committee that:
while MBL performed a discounted cash flow analysis, such analysis is
of limited utility in valuing enterprises, such as ours, that are in
severe financial distress and that have a demonstrated lack of
financing alternatives; and
while MBL reviewed and analyzed the trading prices of the securities of
other companies that are in certain respects comparable to us, and
reviewed the acquisition prices of certain other companies that have
similarities to us, these analyses are not in
49
MBL's view directly relevant due to, among other things, (i) the
absence of accepted metrics by which to compare us to such other
companies given the early stage of development of our business, and
(ii) the absence of a sufficient number of directly comparable
companies.
In conducting the foregoing review and analysis and in formulating its
opinion, MBL with the special committee's consent assumed and relied upon the
accuracy and completeness of all financial and other information provided to it
(including the matters referred to in clauses (i) through (v) of the second
preceding paragraph) or otherwise publicly available. MBL did not assume any
responsibility for the independent verification of such information. MBL
similarly assumed and relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to it by us, and assumed
that such projections, forecasts and analyses were reasonably prepared in good
faith and reflect the best currently available judgments and estimates of our
management. MBL expressed no opinion with respect to such projections, forecasts
and analyses or the assumptions upon which they were based.
In addition, MBL assumed that:
in all respects material to its analysis, the representations and
warranties of us and other parties thereto contained in the restructuring
documents are true and correct;
we will perform all of the covenants and agreements to be performed by us
under the restructuring documents;
all conditions to our obligation to consummate the transactions
contemplated by the restructuring documents will be satisfied without any
waiver thereof;
all material governmental, regulatory or other approvals and consents
required in connection with the consummation of the transactions
contemplated by the restructuring documents will be obtained;
in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or waivers
to any agreements, instruments or orders to which we are a party or subject
or by which we are bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on us or materially reduce the contemplated
benefits of the recapitalization plan to us; and
the recapitalization plan may be tax-free to us.
In addition, MBL did not review any of our books and records, or assume any
responsibility for conducting a physical inspection of our properties or
facilities, or for making or obtaining an independent valuation or appraisal of
our assets or liabilities, and no such independent valuation or appraisal was
provided to MBL. MBL's opinion was necessarily based on economic and market
conditions and other circumstances as they existed and could be evaluated by MBL
as of the date of such opinion. MBL did not express any opinion as to the prices
at which any of our securities will trade at any time, including following the
consummation of the recapitalization plan.
MBL performed, and reviewed with the special committee at its November 12th
meeting, a discounted cash flow analysis of us. MBL calculated the discounted
cash flow value for us as the sum of the net present values of (i) the projected
free cash flow (assuming no debt) that we will generate for the period beginning
October 1, 2002 and ending December 31, 2008, plus (ii) our value at the end of
such period, or the terminal value of our business. MBL calculated the
discounted cash flow for us using our Unaudited Projected Consolidated Financial
Information, including the material assumptions noted therein, located on
pages 104 through 107, and financial projections we provided with respect to
2007 and 2008. MBL used discount rates ranging from 30% to 50%, which MBL viewed
as the appropriate discount rate for a company with our characteristics. Our
terminal values were calculated based on our projected EBITDA for 2008 and
multiples ranging from 7.0 times to 11.0 times trailing EBITDA.
50
MBL determined that 7.0 to 11.0 was the appropriate range of multiples for
calculating the terminal values by analyzing the trading values of the following
26 companies:
Selected Direct Broadcast Satellite Companies
Echostar
Pegasus
XM Radio
Selected Diversified Regional Wireless Companies
ALLTEL
Centennial Communications
nTelos Inc.
Selected Wireless Company Affiliates
AirGate PCS
Alamosa PCS
Dobson Communications
Nextel Partners
Triton PCS
UbiquiTel
US Unwired
Selected National Wireless Companies
AT&T Wireless
Nextel Communications
Sprint PCS
Selected Regional Wireless Companies
Leap Wireless
Rural Cellular
U.S. Cellular
Western Wireless
Selected Cable Companies
Cablevision Systems
Charter Communications
Comcast
Cox Communications
Insight
Mediacom Communications
The following table illustrates the range of enterprise valuations yielded
by MBL's discounted cash flow analysis:
Discounted Cash Flow Analysis -- Enterprise Valuation
EBITDA EXIT MULTIPLES:
----------------------------------------------------
7.0X 8.0X 9.0X 10.0X 11.0X
---- ---- ---- ----- -----
(IN MILLIONS)
Discount Rate:
30%................................ $1,002.3 $1,117.0 $1,231.7 $1,346.4 $1,461.1
35%................................ $ 749.5 $ 840.0 $ 930.6 $1,021.2 $1,111.7
40%................................ $ 556.0 $ 628.1 $ 700.3 $ 772.4 $ 844.5
45%................................ $ 406.7 $ 464.6 $ 522.5 $ 580.4 $ 638.4
50%................................ $ 290.6 $ 337.5 $ 384.3 $ 431.2 $ 478.0
Based on this broad valuation range, MBL estimated an enterprise valuation
for us of $600 million to $800 million, corresponding approximately to a
discount rate range of 35% to 45% and a EBITDA exit multiple of between 8.0x
and 10.0x.
MBL noted that the retention by the holders of our common stock, other than
Apollo, Blackstone and Oppenheimer, of approximately 8.0% of the primary common
stock post-transaction represented an estimated value of approximately $56
million. MBL further noted that this estimated value compared favorably to the
pre-transaction value of our common stock that was indicated by its discounted
cash flow analysis, as its analysis indicated a valuation of our common stock of
zero in light of the fact that the total accreted principal and aggregate
liquidation preference of our debt and our preferred stock ($1.2 billion)
substantially exceeded the estimated valuation range produced by MBL's
discounted cash flow analysis.
The foregoing summary describes all analyses and factors that MBL deemed
material in its presentation to the special committee, but is not a
comprehensive description of all analyses performed and factors considered by
MBL in connection with preparing its opinion. The preparation of a fairness
opinion is a complex process involving the application of subjective business
judgment in determining the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, is not readily susceptible to summary description. MBL believes
that its analyses must be considered as a whole
51
and that considering any portion of such analyses and of the factors considered
without considering all analyses and factors could create a misleading view of
the process underlying the opinion.
In conducting its analyses and arriving at its opinions, MBL utilized a
variety of generally accepted valuation methods. The analyses were prepared
solely for the purpose of enabling MBL to provide its opinion to the special
committee as to the fairness to the holders of our common stock, other than
Apollo, Blackstone and Oppenheimer, from a financial point of view, of the terms
of the recapitalization plan, and does not purport to be an appraisal or to
predict the prices at which businesses or securities actually may be sold.
In connection with its analyses, MBL made, and was provided by our
management with, numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond our control. Analyses based on estimates or forecasts of future results
are not necessarily indicative of actual past or future values or results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond our control or the control of our advisors,
neither we nor MBL nor any other person assumes responsibility if future results
or actual values are materially different from these forecasts or assumptions.
The terms of the recapitalization plan were determined through negotiations
among us and the other parties to the restructuring documents and were approved
by our board of directors. The decision to recommend the recapitalization plan
to our board of directors was solely that of the special committee. As described
above, the opinion and presentation of MBL to the special committee was only one
of a number of factors taken into consideration by our board of directors in
making its determination to approve the recapitalization plan.
The special committee selected MBL as financial advisor in connection with
the recapitalization plan based on MBL's qualifications, expertise, reputation
and experience in restructuring transactions. The special committee retained MBL
pursuant to an engagement letter dated June 5, 2002. As compensation for MBL's
services in connection with the recapitalization plan, MBL received an opinion
fee from us in the amount of $1 million, in addition to monthly cash payments of
$300,000 for the first four months of MBL's engagement as the financial advisor
to the special committee and monthly cash payments of $250,000 for each
additional month thereafter during the term of the engagement. In addition to
these fees, MBL is entitled to be reimbursed by us for reasonable out-of-pocket
expenses, including fees and expenses of counsel, incurred in connection with
its engagement. We have also agreed to indemnify MBL and certain related persons
to the full extent lawful against certain liabilities, including certain
liabilities under the federal securities laws arising out of its engagement or
the recapitalization plan.
MBL is an internationally recognized investment banking firm experienced in
providing advice in connection with restructuring transactions. Pursuant to
MBL's engagement letter, MBL has worked in conjunction with professionals of
Dresdner Kleinwort Wasserstein, Inc. in fulfilling the terms of its engagement.
In the ordinary course of business, Dresdner Kleinwort Wasserstein, Inc. may
actively trade our equity or debt securities for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS OF THE BOARD OF DIRECTORS
At a meeting held on November 18, 2002, our board of directors unanimously
approved the terms of the restructuring and the transactions contemplated
thereby and recommended that our stockholders approve the recapitalization plan
and vote to accept the prepackaged plan. In evaluating the proposed
restructuring, our board of directors identified and considered, among other
things, the following factors:
based on management's financial projections, assuming no financing or
delevering transaction, our projected funding gap prior to our projected
cash flow breakeven is approximately $600 million;
52
based on management's financial projections, the absence of available
borrowing capacity and our current cash position, if we were to meet all of
our existing payment obligations, including debt service, we would likely
exhaust our cash resources prior to the end of the second quarter of 2003
and we would no longer be able to conduct our operations after such time
without additional financing;
unless we consummate the recapitalization or an alternative cash financing
transaction promptly, it is likely that we will be forced to commence
bankruptcy proceedings;
based on management's financial projections, following the consummation of
the recapitalization, we should have sufficient liquidity to fund expected
negative cash flow from operations and any residual debt service into the
second quarter of 2004 and our projected funding gap prior to our projected
cash flow breakeven should not exceed $75 million;
management and UBS Warburg LLC have aggressively pursued alternative
financing and other transactions with potential strategic and financial
investors, but have not received any meaningful indications of interest for
a transaction that would adequately address our liquidity needs;
the fact that the initial proposal submitted by certain creditors would
have resulted in existing common stockholders retaining no interest in our
company;
that the retention by the existing holders of our common stock of
approximately 8% of the outstanding common stock after the recapitalization
represents the maximum amount of common stock our creditors would agree to
permit such holders to retain in connection with the recapitalization plan;
the recommendation of the special committee and the determination of the
special committee that the recapitalization plan is fair to and in the best
interests of our stockholders, other than Apollo, Blackstone and
Oppenheimer;
the opinion of MBL as to the fairness from a financial point of view of the
recapitalization plan to our common stockholders, other than Apollo,
Blackstone and Oppenheimer;
the fact that the lockup agreement may be terminated by us at any time if
our board of directors determines that such termination is in our best
interests;
the significant common stock dilution that will occur as a result of the
transactions contemplated by the recapitalization plan, and the fact that
such transactions will result in our creditors owning a majority of our
common stock; and
the fact that in a non-prepackaged bankruptcy proceeding, it is likely that
our stockholders would receive nothing.
The board of directors did not attempt to quantify, rank or otherwise assign
relative weights to the factors considered in connection with its evaluation of
the restructuring and the transactions contemplated thereby. Furthermore, the
board of directors did not undertake to make any specific determination as to
whether any particular factor was essential to its decision to approve the terms
of the restructuring. Instead, the board of directors conducted an overall
analysis of the factors described above, which included a thorough discussion of
all of the above-listed factors with its legal and financial advisors. The board
of directors relied on the experience and expertise of its financial advisor for
quantitative analysis of the financial terms of the restructuring. In
considering the factors described above, individual directors may have given
different weights to different factors or reached different conclusions as to
whether a specific factor weighed in favor of or against approving the
restructuring.
INTERESTS OF CERTAIN PERSONS IN THE RESTRUCTURING
You should be aware that our directors and executive officers have interests
in the restructuring that are different from, or in addition to, or that might
conflict with, the interests of the holders of our debt securities. The special
committee and our board of directors were aware of these interests and conflicts
when they determined to approve the restructuring.
53
Leon D. Black, a member of our board of directors, is also one of the
founding principals of Apollo Advisors, IV, L.P., one of our large investors and
one of the purchasers in the new equity investment proposed as part of the
restructuring. Peter G. Peterson, a member of our board of directors, is also
the chairman of The Blackstone Group L.P., one of our large investors and one of
the purchasers in the new equity investment. David Margolese, the chairman of
our board of directors and our former chief executive officer, owns a
significant amount of our common stock. For a description of the beneficial
ownership of our common stock, see 'Security Ownership of Certain Beneficial
Owners and Management.' Because of our present financial condition, the
interests of our stockholders and creditors may conflict in certain respects
with each other.
54
THE RECAPITALIZATION PLAN
The exchange offer and consent solicitation are a part of, and are being
conducted pursuant to, the recapitalization plan for achieving our financial
restructuring goals. Consummation of the recapitalization plan will result in
the elimination of all or substantially all of our outstanding debt and all of
our outstanding preferred stock and the investment of $200 million of new equity
capital. The recapitalization plan consists of the several concurrent
transactions described below, each of which is conditioned upon the successful
consummation of the others. The percentage ownerships set forth below after
giving effect to the restructuring assume that all of our debt securities are
exchanged for common stock in the exchange offer and do not give effect to any
shares of our common stock that may be issued pursuant to management options and
warrants, including the warrants held by our automobile partners and the
warrants to be issued to Apollo and Blackstone in the restructuring.
EXCHANGE OFFER AND CONSENT SOLICITATION
We are offering to exchange an aggregate of 596,669,765 shares of our common
stock, representing approximately 62% of the outstanding shares of our common
stock after giving effect to the restructuring, for $150,000,000 aggregate
principal amount of the Lehman senior term loans, $50,000,000 aggregate
principal amount of the Loral senior term loans, $280,430,000 aggregate
principal amount at maturity of our 15% senior secured discount notes due 2007,
$200,000,000 aggregate principal amount of our 14 1/2% senior secured notes due
2009 and $16,461,000 aggregate principal amount of our 8 3/4% convertible
subordinated notes due 2009. In connection with the exchange offer, we are
soliciting the consent of each holder of the notes to (1) the adoption of
certain amendments to the indentures under which the notes were issued to
eliminate substantially all of the restrictive covenants and modify or eliminate
certain events of default and (2) the waiver of any defaults and events of
default under the indentures now in existence or caused by the recapitalization
plan. The completion of the exchange offer is conditioned upon, among other
conditions, the satisfaction of the minimum tender condition and the completion
of each of the other transactions contemplated by the recapitalization plan,
including the preferred stock exchange, the new equity investment and the
approval by our existing stockholders of the restructuring transactions pursuant
to the proxy solicitation.
PREFERRED STOCK EXCHANGE
Pursuant to the lockup agreement, Apollo and Blackstone have agreed to
exchange all 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 held by them for (1) an aggregate
of 76,992,865 newly issued shares of our common stock, representing
approximately 8% of our outstanding common stock after giving effect to the
restructuring and (2) warrants to purchase an aggregate of 87,577,114 shares of
our common stock, representing approximately 9.1% of our outstanding common
stock after giving effect to the restructuring. 52,546,268 of these warrants
will have an exercise price of $1.04 per share of common stock, and 35,030,846
of these warrants will have an exercise price of $0.92 per share of common
stock. The warrants will expire two years after the effective date of the
restructuring.
NEW EQUITY INVESTMENT
Pursuant to the lockup agreement, Apollo, Blackstone and Oppenheimer have
agreed to purchase an aggregate of 211,730,379 newly issued shares of our common
stock, representing approximately 22% of our outstanding common stock after
giving effect to the restructuring, for a total purchase price of $200 million
in cash. Oppenheimer has agreed to purchase 163,609,837 shares of our common
stock, representing approximately 17% of our common stock after giving effect to
the restructuring, for a total purchase price of $150 million cash, or $0.92 per
share. Apollo and Blackstone have each agreed to purchase 24,060,271 shares of
our common stock, representing approximately 2.5% of our outstanding common
stock after giving effect to the
55
restructuring, for a total price of $25 million cash, or $1.04 per share. The
negotiated per share purchase prices reflect the relative number of shares of
common stock each investor agreed to purchase and the perceived importance of
Oppenheimer's investment to the success of the restructuring and our financial
stability. On January 30, 2003, the closing bid price of our common stock was
$ per share.
The obligation of each of Apollo, Blackstone and Oppenheimer to purchase
common stock in the new equity investment is conditioned upon each of the other
purchasers (or a replacement purchaser) fulfilling its obligation to purchase
common stock on the closing date of the restructuring and may be terminated by
Apollo, Blackstone or Oppenheimer upon the occurrence of specified events that
constitute a material adverse change, in the event the minimum tender condition
of the exchange offer is not satisfied, or upon the commencement of a case under
the Bankruptcy Code by or against us. For a description of the terms and
conditions of the new equity investment, see 'The Restructuring -- Lockup
Agreement.'
PROXY SOLICITATION
Concurrently with the exchange offer and consent solicitation, we are
soliciting proxies from our existing stockholders to:
approve the issuance of shares of our common stock in the exchange offer,
the preferred stock exchange and the new equity investment, and
approve an amendment and restatement of our certificate of incorporation to
increase the authorized number of shares of our common stock.
The consummation of the transactions contemplated by the recapitalization plan
is conditioned upon our receiving the required stockholder approval. We are also
soliciting acceptances of the prepackaged plan from our common stockholders
pursuant to the proxy solicitation.
To obtain stockholder approval, we need to receive the affirmative vote from
holders of a majority of the total shares entitled to vote on such matters and
attributable to our outstanding common stock, 9.2% Series A Junior Cumulative
Convertible Preferred Stock, 9.2% Series B Junior Cumulative Convertible
Preferred Stock and 9.2% Series D Cumulative Convertible Preferred Stock, voting
together as a single class. Each share of our common stock is entitled to one
vote. Each share of our 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. Each share of our 9.2% Series D Junior
Cumulative Convertible Preferred Stock is entitled to 2.9412 votes. Pursuant to
the lockup agreement, Apollo and Blackstone (the holders of all of our
outstanding preferred stock and one million shares of our common stock) and
Oppenheimer (the holder of 13,258,200 shares of our common stock) have agreed to
vote in the proxy solicitation in favor of the recapitalization which together
will represent approximately 30% of the total votes entitled to participate in
the proxy solicitation. Holders of the notes that are parties to the lockup
agreement have also agreed to vote any shares of common stock owned by them in
favor of the recapitalization.
BOARD OF DIRECTORS
Our board of directors will be reconstituted in the restructuring under
either the recapitalization plan or the prepackaged plan. Upon consummation of
either plan, we expect that Messrs. David Margolese and Joseph V. Vittoria will
resign and our board of directors will appoint two directors, to be selected by
the informal creditors committee, to fill those vacancies. As a result, the
reconstituted board of directors will comprise our Chief Executive Officer, two
directors nominated by Apollo and Blackstone and four directors nominated by (or
otherwise acceptable to) the informal creditors committee. See 'Management.'
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THE EXCHANGE OFFER AND CONSENT SOLICITATION
TERMS OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
We are offering an aggregate of 596,669,765 shares of our common stock,
representing approximately 62% of the outstanding shares of our common stock
after giving effect to the restructuring, in exchange for all of our outstanding
debt securities.
The following table sets forth the number of shares of our common stock we
are offering to exchange for each $1,000 of principal amount and accrued and
unpaid interest through March 15, 2003:
NUMBER OF
AGGREGATE % OF SHARES OF
PRINCIPAL ACCRUED TOTAL COMMON COMMON
AMOUNT INTEREST SHARES OF STOCK STOCK TO BE
OUTSTANDING THROUGH COMMON OUTSTANDING ISSUED PER
AT MARCH 15, MARCH 15, TOTAL STOCK TO BE AFTER $1,000 TOTAL
TITLE OF SECURITY 2003 2003(1) OBLIGATION ISSUED RESTRUCTURING(2) OBLIGATION(2)
----------------- ---- ------- ---------- ------ ---------------- -------------
SENIOR SECURED DISCOUNT NOTES..... $280,430,000 $12,151,967 $292,581,967 228,067,643 23.7% 779.5
SENIOR SECURED NOTES.............. 200,000,000 24,166,667 224,166,667 174,737,917 18.2% 779.5
LEHMAN SENIOR TERM LOANS.......... 150,000,000 5,213,333 155,213,333 120,988,793 12.6% 779.5
LORAL SENIOR TERM LOANS........... 50,000,000 25,644,620 75,644,620 58,964,982 6.1% 779.5
CONVERTIBLE SUBORDINATED NOTES.... 16,461,000 1,384,324 17,845,324 13,910,430 1.4% 779.5
------------ ----------- ------------ ----------- -----
TOTAL.......................... $696,891,000 $68,560,911 $765,451,911 596,669,765 62.0%
---------
(1) Per $1,000 principal amount of debt, accrued interest through March 15, 2003
will be: $43.33 for the senior secured discount notes; $120.83 for the
senior secured notes; $34.76 for the Lehman senior term loans; $512.89 for
the Loral senior term loans; and $84.10 for the convertible subordinated
notes. Consideration in the exchange offer will be based on the 'total
obligation' calculated above (assuming accrued interest through March 15,
2003) notwithstanding the actual closing date. The accrued and unpaid cash
interest on the debt securities will not be paid and will be cancelled and,
by participating in the exchange offer, each holder agrees to treat the
common stock as received in exchange for principal of the debt securities.
See 'Material Federal Income Tax Consequences -- Consequences of the
Exchange of Common Stock for Notes.'
(2) Based on the closing bid price of our common stock on January 30, 2003,
779.5 shares of our common stock would have a market value of $ .
The percentage ownerships assume that all of our debt securities are
exchanged for common stock in the exchange offer and do not give effect to any
shares of our common stock that may be issued pursuant to management options and
warrants, including the warrants held by our automobile partners and the
warrants to be issued to Apollo and Blackstone in the restructuring.
No fractional shares of common stock will be issued in the restructuring,
but instead each fractional share will be rounded down to the next lower whole
number of shares.
The exchange offer is being conducted concurrently with the consent
solicitation. Each holder of notes that validly tenders notes in the exchange
offer will be deemed to have delivered a consent with respect to such tendered
notes to all of the proposed amendments and waivers. A holder may not deliver a
consent without tendering such holder's notes in the exchange offer and may not,
prior to the consent date, revoke a consent without withdrawing from the
exchange offer such holder's previously tendered notes. Holders may withdraw
from the exchange offer, and thereby revoke the consents, at any time prior to
the tender expiration date.
If we receive the requisite consents to the proposed amendments and waivers
prior to the expiration of the exchange offer and each of the other conditions
to the exchange offer is met or waived, on the effective date of the
recapitalization plan we and the trustees under the indentures will execute
supplemental indentures effecting the proposed amendments. If the proposed
amendments and waivers become operative, each proposed amendment and waiver will
apply to all of the notes that remain outstanding, and each holder of notes not
tendered hereunder will be bound by its respective supplemental indenture
regardless of whether such holder consented to the proposed amendments and
waivers. Pursuant to the lockup agreement, holders of approximately 71% of our
senior secured discount notes, approximately 70% of our senior secured notes and
57
approximately 64% of our convertible subordinated notes have agreed to consent
to the proposed amendments and waivers, thereby assuring such amendments will
become effective if the recapitalization plan is consummated.
In order for the exchange offer and consent solicitation to be successful
and for us to complete the restructuring by means of the recapitalization plan,
not less than (i) 97% of the aggregate principal amount of our debt securities
and (ii) 90% of the aggregate principal amount of our convertible subordinated
notes must be validly tendered for exchange; provided that the holders of a
majority in aggregate principal amount of our debt securities may reduce the
minimum tender condition to not less than 90% in aggregate principal amount of
the debt securities and may lower or eliminate the minimum condition applicable
to our subordinated convertible notes. We reserve the right to waive the minimum
tender condition, which we will be able to do only with the prior written
consent of our board of directors, the holders of a majority in aggregate
principal amount and accrued interest on the debt securities, Apollo and
Blackstone. Pursuant to the lockup agreement, holders of approximately 79% of
our debt securities have already agreed to tender in the exchange offer.
In the event that less than 100% of our outstanding debt securities are
tendered in the exchange offer, each holder of debt securities which is a party
to the lockup agreement (other than Apollo, Blackstone and Oppenheimer) may
retain a pro rata share of its debt securities, provided that the total
outstanding aggregate principal amount of debt securities following the exchange
offer may not exceed the amount permitted by the minimum tender condition.
If less than 100% of the outstanding notes are tendered, but the minimum
tender condition is met or waived and we complete the restructuring under the
recapitalization plan, then:
Notes that are not tendered and accepted for payment pursuant to the
exchange offer will remain outstanding and will be governed by the terms of
the supplemental indentures. For more information regarding our obligations
under such notes, see ' -- Proposed Amendments and Waivers.'
In the future, we may acquire any notes that are not tendered in the
exchange offer (through open market purchases, privately negotiated
transactions, an exchange offer or otherwise), upon such terms and at such
prices as we may determine, which may be more or less than the value of the
common stock being exchanged for the notes under the exchange offer, and
could be for cash or other consideration. We may choose to pursue any (or
none) of these alternatives (or combinations thereof) in the future.
CONDITIONS TO THE EXCHANGE OFFER AND CONSENT SOLICITATION
Our acceptance of notes for exchange in the exchange offer is conditioned
upon the following:
(1) the satisfaction of the minimum tender condition;
(2) the completion of the exchange by our preferred stockholders, Apollo and
Blackstone, of all of our outstanding preferred stock for newly issued
shares of our common stock on the terms described in 'The
Recapitalization Plan -- The Preferred Stock Exchange';
(3) the completion of the purchase by Oppenheimer, Apollo and Blackstone (or
any replacement purchaser, which as of the date hereof we have not
identified) of 211,730,379 shares of our common stock for an aggregate
price of $200 million cash on the terms described in 'The
Recapitalization Plan -- The New Equity Investment';
(4) the approval by our existing stockholders of the restructuring,
including (i) the issuance of common stock in the exchange offer, the
preferred stock exchange and the new equity investment and (ii) an
amendment and restatement of our certificate of incorporation to
increase the authorized shares of our common stock as described in 'The
Recapitalization Plan -- The Proxy Solicitation';
(5) there shall not have been threatened, instituted or pending any action,
proceeding, claim or counterclaim by or before any government or
governmental, regulatory or administrative agency or authority or
tribunal or any court or any other person, domestic
58
or foreign, that enjoins the consummation of the exchange offer, the
consent solicitation, or the acquisition of debt securities tendered
pursuant to the exchange offer or prohibits, prevents, restricts, limits
or delays closing of the exchange offer or the consent solicitation or
that would have a material adverse effect on the exchange offer or the
consent solicitation;
(6) there shall not have been any action threatened, pending or taken, or
approval withheld, or any statue, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
issued, amended, enforced or deemed to be applicable to the exchange
offer or the consent solicitation or us, by any legislative body, court,
authority, agency or tribunal that, in our reasonable judgment, would or
might directly or indirectly (i) make the acceptance for purchase of, or
payment for, some or all of the debt securities tendered illegal or
otherwise restrict or prohibit completion of the exchange offer or the
consent solicitation, (ii) delay or restrict our ability, or render us
unable, to accept for exchange or exchange some or all of the debt
securities or delay or restrict the ability of any holder of our debt
securities, or render any such holder unable, to deliver its debt
securities or any consents with respect thereto, (iii) prevent or impair
the effectiveness of the supplemental indentures or the proposed
amendments or waivers in accordance with the provisions of this
prospectus, in whole or in part, or (iv) materially affect our business,
condition (financial or other), income, operations or prospects, or
otherwise materially impair in any way the contemplated future conduct
of our business; and
(7) any consents or approvals from government bodies and authorities which
are required in order to complete the exchange offer shall have been
obtained, including the approval of the Federal Communications
Commission, if required, and any approvals required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
As noted above, we may waive the condition described in (1) above prior to
the tender expiration date with the approval of our board of directors, the
holders of a majority in aggregate principal amount of the debt securities,
Apollo and Blackstone. We may not waive the conditions described in (2) through
(4) above. However, we may waive the remaining conditions, in whole or in part,
at any time prior to the tender expiration date in our sole discretion. Our
failure at any time to exercise any of the foregoing rights will not be deemed a
waiver of any such right and each such right will be deemed an ongoing right
which may be asserted at any time and from time to time.
PROCEDURES FOR TENDERING DEBT SECURITIES AND DELIVERING CONSENTS
The following summarizes the procedures to be followed by all holders of
debt securities in tendering their debt securities and delivering consents.
Holders who tender notes in the exchange offer in accordance with the procedures
described below will be deemed to have delivered consents to the proposed
amendments and waivers to the indentures.
Only a holder of debt securities may tender such debt securities in the
exchange offer. To tender in the exchange offer, a holder must:
complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to the
tender expiration date; or
comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
the exchange agent must receive debt securities along with the letter of
transmittal; or
the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such debt securities into the
exchange agent's account at DTC
59
according to the procedure for book-entry transfer described below or a
properly transmitted agent's message; or
the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive physical
delivery of the letter of transmittal and other required documents at the
address set forth on the back cover of this prospectus prior to the tender
expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
The method of delivery of debt securities, the letter of transmittal and all
other required documents to the exchange agent is at the holder's election and
risk. Rather than mail these items, we recommend that holders use an overnight
or hand delivery service. In all cases, holders should allow sufficient time to
assure delivery to the exchange agent before the expiration date. Holders should
not send the letter of transmittal or debt securities to us. Holders may request
their brokers, dealers, commercial banks, trust companies or other nominees to
effect the above transactions for them.
Any beneficial owner whose debt securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its debt securities, either:
make appropriate arrangements to register ownership of the debt securities
in such owner's name; or
obtain a properly completed bond power from the registered holder of debt
securities.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another 'eligible guarantor institution' within the meaning of Rule
17Ad-15 under the Exchange Act, unless the debt securities tendered pursuant
thereto are tendered:
by a registered holder who has not competed the box entitled 'Special
Issuance Instructions' or 'Special Delivery Instructions' on the letter of
transmittal; or
for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the registered
holder of any debt securities listed on the debt securities, such debt
securities must be endorsed or accompanied by a properly completed bond power.
The bond power must be signed by the registered holder as the registered
holder's name appears on the debt securities and an eligible institution must
guarantee the signature on the bond power.
If the letter of transmittal or any debt securities or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the debt securities to the exchange
60
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent. The term 'agent's message' means a
message transmitted by DTC, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that:
DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering debt securities that are
the subject of such book-entry confirmation;
such participant has received and agrees to be bound by the terms of the
letter of transmittal, or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
the agreement may be enforced against such participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance of tendered debt
securities and withdrawal of tendered debt securities. Our determination will be
final and binding. We reserve the absolute right to reject any debt securities
not properly tendered or any notes our acceptance of which would, in the opinion
of our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular debt securities. Our
interpretation of the terms and conditions of the exchange offer and consent
solicitation, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of debt securities must be cured within such time as
we shall determine. Although we intend to notify holders of defects or
irregularities with respect to tenders of debt securities, neither we, the
exchange agent nor any other person will incur any liability for failure to give
such notification. Tenders of debt securities will not be deemed made until such
defects or irregularities have been cured or waived. Any debt securities
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned to
the exchange agent without cost to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
In all cases, we will issue common stock for debt securities that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
notes or a timely book-entry confirmation of such debt securities into the
exchange agent's account at DTC; and
a properly completed and duly executed letter of transmittal and all other
required documents or a properly transmitted agent's message.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the debt securities at DTC for purposes of the exchange offer promptly after
the date of this prospectus; and any financial institution participating in
DTC's system may make book-entry delivery of debt securities by causing DTC to
transfer such debt securities into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of debt securities who
are unable to deliver confirmation of the book-entry tender of their debt
securities into the exchange agent's account at DTC or all other documents
required by the letter of transmittal to the exchange agent on or prior to the
expiration date must tender their debt securities according to the guaranteed
delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their debt securities but whose debt securities
are not immediately available or who cannot deliver their debt securities, the
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's Automated Tender Offer Program
prior to the tender expiration date may tender if:
the tender is made through an eligible institution;
61
prior to the tender expiration date, the exchange agent receives from such
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery, by facsimile transmission, mail or
hand delivery, or a properly transmitted agent's message and notice of
guaranteed delivery:
-- setting forth the name and address of the holder, the registered
number(s) of such debt securities and the principal amount of debt
securities tendered;
-- stating that the tender is being made thereby; and
-- guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the letter of transmittal, or
facsimile of the letter of transmittal, together with the debt
securities or a book-entry confirmation, and any other documents
required by the letter of transmittal will be deposited by the
Eligible Institution with the exchange agent; and
the exchange agent receives such properly completed and executed letter of
transmittal, or facsimile of the letter of transmittal, as well as all
tendered debt securities in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three New York Stock Exchange trading days after the
tender expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their debt securities according to the
guaranteed delivery procedures set forth above.
TRANSFERS OF OWNERSHIP OF TENDERED DEBT SECURITIES
Holders may not transfer record ownership of any debt securities validly
tendered into the exchange offer and not validly withdrawn. Beneficial ownership
in tendered debt securities may be transferred by the holder by delivering to
the exchange agent, at one of its addresses set forth on the back cover of this
prospectus, an executed letter of transmittal identifying the name of the person
who deposited the notes to be transferred, and completing the special payment
instructions box with the name of the transferee (or, if tendered by book-entry
transfer, the name of the participant in the book-entry transfer facility whose
name appears on the security position listing as the transferee of such debt
securities) and the principal amount of the debt securities to be transferred.
If certificates have been delivered or otherwise identified (through a
book-entry confirmation with respect to such debt securities) to the exchange
agent, the name of the holder who deposited the debt securities, the name of the
transferee and the certificate numbers relating to such debt securities should
also be provided in the letter of transmittal. A person who succeeds to the
beneficial ownership of tendered debt securities pursuant to the procedures set
forth herein will be entitled to receive the common stock if the debt securities
are accepted for exchange, or to receive the tendered debt securities if the
exchange offer is terminated.
LOST OR MISSING CERTIFICATES
If a holder desires to tender debt securities pursuant to the exchange
offer, but the certificates representing such debt securities have been
mutilated, lost, stolen or destroyed, such holder should write to or telephone
the applicable indenture trustee, at its address or telephone number listed
below, about procedures for obtaining replacement certificates for such debt
securities, arranging for indemnification or about any other matter that
requires handling by the indenture trustee:
The Bank of New York
Corporate Trust Department
101 Barclay Street -- 7 East
New York, New York 10286
Attention: Ms. Carole Montreuil
Telephone: (212) 815-5920
62
WITHDRAWAL OF TENDERS OF NOTES; REVOCATION OF CONSENTS
Holders who tender debt securities (and therefore are deemed to deliver
consents) pursuant to the exchange offer may withdraw such debt securities, and
thereby revoke the related consents, at any time prior to the tender expiration
date.
In the event of a termination of the exchange offer, the debt securities
tendered pursuant to the exchange offer will be promptly returned to the
tendering holders.
For a withdrawal to be effective:
the exchange agent must receive a written notice, which may be by telegram,
telex, facsimile transmission or letter, of withdrawal at the address set
forth on the back cover of this prospectus; or
holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
specify the name of the person who tendered the debt securities to be
withdrawn;
identify the debt securities to be withdrawn, including the principal
amount of such debt securities; and
where certificates for debt securities have been transmitted, specify the
name in which such debt securities were registered, if different from that
of the withdrawing holder.
If certificates for debt securities have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
the serial numbers of the particular certificates to be withdrawn; and
a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If debt securities have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn debt
securities and otherwise comply with the procedures of such facility. We will
determine all questions as to the validity, form and eligibility, including time
of receipt, of such notices, and our determination shall be final and binding on
all parties. We will deem any debt securities so withdrawn not to have been
validly tendered for exchange for purposes of the exchange offer. Any debt
securities that have been tendered for exchange but that are not exchanged for
any reason will be returned to their holder without cost to the holder, or, in
the case of debt securities tendered by book-entry transfer into the exchange
agent's account at DTC according to the procedures described above, such debt
securities will be credited to an account maintained with DTC for debt
securities, as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn debt securities may be
retendered by following one of the procedures described under ' -- Procedures
for Tendering Debt Securities and Delivering Consents' above at any time on or
prior to the tender expiration date.
Any holder of debt securities who has delivered a consent, or who succeeds
to ownership of debt securities in respect of which a consent has previously
been delivered, may validly revoke such consent prior to the consent date only
by withdrawing the debt securities to which such consent related pursuant to the
procedures outlined above.
A withdrawal of debt securities and a revocation of a consent can only be
accomplished in accordance with the foregoing procedures. THE VALID REVOCATION
OF A CONSENT WILL CONSTITUTE THE CONCURRENT VALID WITHDRAWAL OF THE TENDERED
DEBT SECURITIES WITH RESPECT TO WHICH THE CONSENT WAS DELIVERED. AS A RESULT, A
HOLDER OF DEBT SECURITIES WHO VALIDLY REVOKES A PREVIOUSLY DELIVERED CONSENT
WILL NOT RECEIVE COMMON STOCK.
63
TENDER EXPIRATION DATE; EXTENSION; AMENDMENT AND TERMINATION
The exchange offer and consent solicitation is scheduled to expire at
5:00 p.m., New York City time, on Tuesday, March 4, 2003. We reserve the right
to extend the tender expiration date, but in no event may such date be extended
beyond March 15, 2003 unless extended in accordance with the lockup agreement to
such later date as we and the other parties to the lockup agreement may agree.
During any extension of the exchange offer and consent solicitation, all debt
securities previously tendered and not accepted for exchange will remain subject
to the terms and conditions set forth in this prospectus and may, subject to the
terms and conditions set forth herein, be accepted for exchange by us. During
any extension of the exchange offer and consent solicitation, all consents
delivered to the exchange agent will remain effective unless validly revoked
prior to the tender expiration date.
We have agreed not to alter the terms of the recapitalization plan and the
prepackaged plan without prior written consent of the holders of a majority in
aggregate principal amount of our debt securities, Apollo and Blackstone;
provided, that each holder of our debt securities and each of Apollo and
Blackstone must consent to any alteration that adversely affects such party in a
manner inconsistent with other holders of our debt securities. Notwithstanding
the foregoing, we may extend the expiration date of the exchange offer to any
date not later than March 15, 2003, if, at the time of any such extension, the
conditions to closing set forth in the exchange offer have not been satisfied or
waived. Subject to the foregoing, we expressly reserve the absolute right, in
our sole discretion, (1) to amend or modify terms of any or all of the exchange
offer and consent solicitation, or (2) upon failure of any condition, to
terminate the exchange offer and the consent solicitation, in each case if such
amendment, modification or termination is determined by our board of directors
to be in our best interests. Any extension or termination of the exchange offer
and consent solicitation or any amendment or modification of the terms of the
exchange offer and consent solicitation will be followed promptly by public
announcement thereof, such announcement in the case of an extension to be issued
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. Without limiting the manner by which we
may choose to make such announcement, we will not, unless otherwise required by
law, have any obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News Service
or such other means of announcement as we deem appropriate.
ACCEPTANCE OF DEBT SECURITIES AND DELIVERY OF COMMON STOCK
Upon the terms and subject to the conditions to the exchange offer, we will
accept for exchange, and deliver common stock as consideration for, debt
securities validly tendered in the exchange offer (or defectively tendered, if
we have waived such defect) and not validly withdrawn. Holders may not tender
debt securities for exchange subsequent to the tender expiration date.
We expressly reserve the right, in our sole discretion, to delay acceptance
for exchange of debt securities tendered in the exchange offer (subject to Rule
14e-1 under the Exchange Act, which requires that an offeror pay the
consideration offered or return the securities deposited by or on behalf of the
holders thereof promptly after the termination or withdrawal of a tender offer),
or to terminate the exchange offer and not accept for exchange any notes or term
loans, if any of the conditions set forth under ' -- Conditions to the Exchange
Offer and Consent Solicitation' have not been satisfied or waived by us or in
order to obtain, or comply in whole or in part with, any governmental approval.
In all cases, delivery of the common stock for debt securities accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of certificates representing debt securities (or
confirmation of a book-entry transfer thereof), a properly completed and duly
executed letter of transmittal (or a manually signed facsimile thereof) or, in
the case of a book-entry transfer, an agent's message, and any other documents
required thereby.
For purposes of the exchange offer, we will be deemed to have accepted for
exchange validly tendered debt securities (or defectively tendered debt
securities with respect to which we have waived the defect) if, as and when we
give oral (confirmed in writing) or written notice thereof to
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the exchange agent. Delivery of common stock for debt securities accepted for
exchange in the exchange offer will be made by us by promptly depositing such
consideration with the exchange agent, which will act as agent for the tendering
holders for the purpose of receiving the common stock and transmitting the
common stock to such holders.
If, for any reason, acceptance for exchange of, or delivery of common stock
for, validly tendered debt securities pursuant to the exchange offer is delayed
or we are unable to accept for exchange, or to deliver common stock for, validly
tendered debt securities pursuant to the exchange offer, then the exchange agent
may, nevertheless, on our behalf, retain tendered debt securities, without
prejudice to our rights described under ' -- Conditions to the Exchange Offer
and Consent Solicitation,' ' -- Expiration Date; Extension; Amendment and
Termination,' and ' -- Withdrawal of Tenders of Notes; Revocation of Consents,'
subject to Rule 14e-1 under the Exchange Act, which requires that an offeror pay
the consideration offered or return the securities deposited by or on behalf of
the holders thereof promptly after the termination or withdrawal of a tender
offer.
If any tendered debt securities are not accepted for exchange for any reason
pursuant to the terms and conditions of the exchange offer, or if certificates
are submitted evidencing more debt securities than those that are tendered,
certificates evidencing untendered debt securities will be returned, without
expense, to the tendering holder (or, in the case of debt securities tendered by
book-entry transfer into the exchange agent's account at a book-entry transfer
facility (as defined below) pursuant to the procedures set forth in
' -- Procedures for Tendering Debt Securities and Delivering Consents -- Book
Entry Transfer,' such debt securities will be credited to the account maintained
at such book-entry transfer facility from which such debt securities were
delivered), unless otherwise requested by such holder under 'Special Delivery
Instructions' and 'Special Issuance Instructions' in the letter of transmittal,
promptly following the expiration or termination of the exchange offer.
Tendering holders of debt securities exchanged in the exchange offer who
tender directly to DTC will not be obligated to pay brokerage commissions or
fees to us, the dealer manager, the information agent or transfer taxes with
respect to the exchange of their debt securities unless the box entitled
'Special Issuance Instructions' or the box entitled 'Special Delivery
Instructions' in the letter of transmittal has been completed, as described in
the instructions thereto. Holders who tender debt securities through their
broker, commercial bank or other nominee may be required to pay commissions,
fees or other charges and should consult with such institution to determine if
any charges may be applicable. We will pay all other charges and expenses in
connection with the exchange offer and the consent solicitation.
PROPOSED AMENDMENTS AND WAIVERS
The proposed amendments to the senior secured discount notes indenture and
senior secured notes indenture will delete in full the provisions of the
indentures which restrict our ability to:
incur additional indebtedness;
make certain dividend, debt and other restricted payments;
make loans and investments;
issue capital stock of certain subsidiaries;
engage in certain transactions with affiliates;
create or incur liens; and
permit certain subsidiaries to restrict their ability to make dividend
payments;
and which require us to:
pay taxes and other claims;
maintain in-orbit satellite insurance;
provide a statement by officers as to default; and
65
limit the business activities of our subsidiary.
The amendments to the senior secured discount notes indenture and senior
secured notes indenture will not affect any of the other provisions of the
indentures, including those which restrict our ability to merge, consolidate or
sell all or substantially all of our assets and require us to repurchase the
notes upon a change of control or with the proceeds of certain asset sales.
The proposed amendments to the convertible subordinated notes indenture will
eliminate the following events of default:
our breach of any covenant or warranty contained in the notes or the
indenture;
our default under any other indebtedness exceeding, individually or in the
aggregate, $10 million; and
certain events of bankruptcy, insolvency or reorganization of us.
The amendments to the convertible subordinated notes indenture will not affect
any of the other provisions of the indenture, including those which require us
to repurchase the notes upon a change of control.
The restructuring will not constitute a 'change of control' under any of the
indentures.
Other provisions in each of the indentures will be amended to eliminate
defined terms that are no longer used as a result of the proposed amendments.
None of the proposed amendments will affect our obligation to pay interest,
premium, if any, or principal on the notes, when due, to the holders of the
notes that have not delivered consents. By delivering its consent, the holder of
a note will waive any defaults or events of default under the indentures that
may have occurred and be continuing and will not be entitled to receive any
interest, premium, if any, or principal on the notes.
The proposed amendments will be effected through a supplement to each of the
indentures to be executed by us and the indenture trustees. The indentures
require that holders of a majority in principal amount of senior secured
discount notes, senior secured notes and convertible subordinated notes, other
than notes owned by holders that are affiliated with us, consent to the
amendments. Pursuant to the lockup agreement, holders of approximately 71% in
aggregate principal amount at maturity of our senior secured discount notes,
approximately 70% in aggregate principal amount of our senior secured notes and
approximately 64% in aggregate principal amount of our convertible subordinated
notes have agreed to tender their notes in the exchange offer and consent to the
proposed amendments and waivers, thereby assuring that the proposed amendments
and waivers will become effective in the event the exchange offer is completed.
Notes not tendered in connection with the exchange offer will remain outstanding
but will not be entitled to the benefits of the existing covenants and other
provisions contained in the indentures that holders of debt securities of this
type typically enjoy.
In addition, subject to, and effective upon the completion of, the exchange
offer, holders who tender their notes will waive (1) any failure by us to comply
with any term, covenant, provision or condition of the indentures and (2) any
defaults and events of default under the indentures now in existence (whether or
not related to the restructuring) or caused by the recapitalization plan.
DEALER MANAGER
Subject to the terms and conditions set forth in the dealer manager
agreement dated as of January 30, 2003, between us and UBS Warburg LLC, we have
retained UBS Warburg LLC to act as dealer manager and solicitation agent in
connection with the exchange offer and consent solicitation. UBS Warburg LLC
will not be soliciting acceptances to the prepackaged plan. UBS Warburg LLC has
acted as exclusive financial advisor to us in connection with the restructuring.
We are not paying UBS Warburg LLC any additional fees for its services in
connection with the exchange offer and consent solicitation. We have agreed to
reimburse the dealer manager for certain of its reasonable out-of-pocket
expenses incurred in connection with the exchange offer and consent
solicitations and to indemnify the dealer manager against certain
66
liabilities, including liabilities under federal securities laws, and will
contribute to payments the dealer manager may be required to make in respect
thereof.
The dealer manager and its affiliates from time to time have provided in the
past and may provide in the future investment banking, commercial lending and
financial advisory services to us and our affiliates in the ordinary course of
business. The dealer manager has received customary fees for such services. We
will not pay any fees or commissions to any broker, dealer or other person
(other than the dealer manager, the information agent and the exchange agent) in
connection with the solicitation of tenders of notes and deliveries of consents.
Neither the dealer manager nor the exchange agent assumes any responsibility
for the accuracy or completeness of the information contained in this prospectus
or for any failure to disclose events that may affect the significance or
accuracy of such information.
The dealer manager will assist with the mailing of this prospectus and
related materials to holders of notes, respond to inquiries of and provide
information to holders of debt securities in connection with the exchange offer
and consent solicitation, and provide other similar advisory services as we may
request from time to time.
In addition to the dealer manager, our directors, officers and employees,
who will not be specifically compensated for such services, may contact holders
personally or by mail, telephone, telex or telegraph regarding the exchange
offer and the consent solicitation and may request brokers, dealers and other
nominees to forward this prospectus and related materials to beneficial owners
of debt securities.
We are not aware of any jurisdiction where the making of the exchange offer
or the consent solicitation is not in compliance with the laws of such
jurisdiction. If we become aware of any jurisdiction where the making of the
exchange offer or the consent solicitation would not be in compliance with such
laws, the exchange offer and the consent solicitation will not be made to (nor
will tenders of debt securities or delivery of consents be accepted from or on
behalf of) a holder residing in such jurisdiction in which the making or
acceptance of the exchange offer and the consent solicitation would not be in
compliance with the laws of such jurisdiction.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer and consent solicitation. Questions and requests for assistance, and all
correspondence in connection with the exchange offer and consent solicitation,
or requests for additional letters of transmittal and any other required
documents, may be directed to the exchange agent at its address and telephone
number set forth on the back cover of this prospectus.
INFORMATION AGENT
MacKenzie Partners, Inc. is serving as information agent in connection with
the exchange offer and consent solicitation. The information agent will assist
with the mailing of this prospectus and related materials to holders of notes,
respond to inquiries of and provide information to holders of debt securities in
connection with the exchange offer and consent solicitation, and provide other
similar advisory services as we may request from time to time.
Requests for additional copies of this prospectus, letters of transmittal
and any other required documents should be directed to the dealer manager or to
the information agent at one of its addresses and telephone numbers set forth on
the back cover of this prospectus.
FEES AND EXPENSES
In addition to the reimbursement of the expenses to the dealer manager
pursuant to the dealer manager agreement, we will pay the exchange agent and the
information agent reasonable and customary fees for their services (and will
reimburse them for their reasonable out-of-pocket expenses in connection
therewith), and will pay brokerage houses and other custodians, nominees and
fiduciaries their reasonable out-of-pocket expenses incurred in connection with
forwarding
67
copies of this prospectus and related documents to the beneficial owners of the
debt securities and in handling or forwarding tenders for exchange. In addition,
we will indemnify the exchange agent and the information agent against certain
liabilities in connection with their services, including liabilities under the
federal securities laws.
We will pay all transfer taxes, if any, applicable to the exchange of debt
securities pursuant to the exchange offer. If, however, any common stock or
tendered debt securities not accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the debt securities or if common stock is to be registered
in the name of any person other than the person signing the letter of
transmittal or, in the case of book-entry transfer, transmitting instructions
through DTC's Automated Tender Offer Program procedures or if a transfer tax is
imposed for any reason other than the exchange of debt securities pursuant to
the exchange offer, then the amount of any such transfer tax (whether imposed on
the registered holder or any other person) will be payable by the tendering
holder.
We have agreed to pay UBS Warburg LLC a transaction fee of $10 million and
an advisory fee of $200,000 per month in connection with the restructuring. We
paid UBS Warburg LLC half of the transaction fee following the execution of the
lockup agreement. The remaining portion of the transaction fee is due and
payable to UBS Warburg LLC on the closing of the restructuring. Since May 2002
we have also paid UBS Warburg LLC its monthly advisory fee in connection with
the restructuring and have agreed to pay UBS Warburg LLC this advisory fee
through March 2003, whether or not we terminate the engagement prior to April
2003. These fees are all payable in cash. In addition to these fees, UBS Warburg
LLC is entitled to be reimbursed by us for reasonable out-of-pocket expenses,
including fees and expenses of counsel, in connection with its engagement.
We paid MBL an opinion fee of $1 million for rendering an opinion to the
special committee of our board of directors with respect to the fairness from a
financial point of view of the terms of the recapitalization plan to the holders
of our common stock, other than Apollo, Blackstone and Oppenheimer. We also paid
MBL monthly cash payments of $300,000 for the first four months of its
engagement as financial advisor to the special committee of the board of
directors and monthly cash payments of $250,000 for each additional month
thereafter during the term of the engagement. In addition to these fees, MBL is
entitled to be reimbursed by us for reasonable out-of-pocket expenses, including
fees and expenses of counsel, in connection with its engagement. We have also
agreed to indemnify MBL and certain related persons to the full extent lawful
against certain liabilities, including certain liabilites under the federal
securities laws arising out if its engagement or the recapitalization plan.
Effective November 30, 2002, the special committee of our board of directors
terminated the engagement of MBL following the delivery of their fairness
opinion.
We have also agreed to pay the reasonable out-of-pocket expenses of the
parties to the lockup agreement in connection with the restructuring.
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THE PREPACKAGED PLAN
WE HAVE NOT COMMENCED A CASE, WHICH WE REFER TO HEREIN
AS A 'REORGANIZATION CASE', UNDER THE BANKRUPTCY CODE AND
HAVE NOT FILED THE PREPACKAGED PLAN IN A CASE UNDER THE
BANKRUPTCY CODE AT THIS TIME. THIS PROSPECTUS SOLICITS
ADVANCE ACCEPTANCE OF THE PREPACKAGED PLAN IN THE EVENT THAT
A REORGANIZATION CASE IS COMMENCED AND THE PREPACKAGED PLAN
IS FILED, AND CONTAINS INFORMATION RELEVANT TO A DECISION TO
ACCEPT OR REJECT THE PREPACKAGED PLAN.
For a summary of our financial condition, the background of and reasons for
the restructuring and the reasons why we are seeking acceptance of the
prepackaged plan, see 'The Restructuring -- Background of and Reasons for the
Restructuring' on pages 40 through 45.
In order to allow us to effect a bankruptcy reorganization in the quickest
and most cost efficient manner, we are soliciting acceptances of the prepackaged
plan from holders of impaired claims and interests under the prepackaged plan.
The prepackaged plan provides for, among other things, the exchange of the debt
securities and our preferred stock for common stock.
We are soliciting acceptances of the prepackaged plan from the holders of
our debt securities pursuant to this prospectus. We are soliciting acceptances
of the prepackaged plan from our common and preferred stockholders pursuant to
the proxy statement distributed to them in connection with the proxy
solicitation.
If the conditions to completion of the recapitalization plan, including the
minimum tender condition of the exchange offer, are not met or waived, but we do
receive the acceptance of the prepackaged plan by those classes of impaired
claims and interests necessary to confirm the plan, we may commence a
reorganization case and, provided that Apollo, Blackstone and Oppenheimer elect
to proceed with the new equity investment, file and seek confirmation of the
prepackaged plan. In connection with the implementation of the prepackaged plan,
we do not currently anticipate that it will be necessary for our subsidiary,
Satellite CD Radio, Inc., to commence a reorganization case under the Bankruptcy
Code.
UNDER THE PREPACKAGED PLAN, THE HOLDERS OF OUR DEBT SECURITIES AND OUR
PREFERRED STOCK (AS WELL AS THE HOLDERS OF ALL OTHER CLAIMS AND INTERESTS) WILL
RECEIVE THE SAME CONSIDERATION IN EXCHANGE FOR THEIR CLAIMS AND INTERESTS AS
THEY WOULD RECEIVE IN THE EXCHANGE OFFER IN THE EVENT THE PREPACKAGED PLAN IS
CONFIRMED AND BECOMES EFFECTIVE. MOREOVER, UPON CONFIRMATION, THE PREPACKAGED
PLAN WILL BE BINDING ON ALL OF OUR CREDITORS REGARDLESS OF WHETHER SUCH
CREDITORS VOTED TO ACCEPT THE PLAN.
If each impaired class of claims or interests under the prepackaged plan
does not accept the prepackaged plan, we may nevertheless seek to have the
prepackaged plan confirmed under the 'cram down' provision of Section 1129(b) of
the Bankruptcy Code described below. The 'cram down' provisions insure that
holders of junior claims or interests cannot recover or retain any property or
account of that claim or interest in the debtor under a plan that has been
rejected by a senior class of impaired claims or interests. THEREFORE, IN THE
EVENT THAT ANY IMPAIRED CLASS OF CLAIMS OR INTERESTS DOES NOT ACCEPT THE
PREPACKAGED PLAN AND WE SEEK CONFIRMATION OF THE PREPACKAGED PLAN UNDER THE CRAM
DOWN PROVISIONS, WE MAY BE REQUIRED TO AMEND THE PREPACKAGED PLAN AND SUCH
AMENDMENTS MAY INCLUDE STOCKHOLDERS RECOVERING OR RETAINING NOTHING.
The prepackaged plan is predicated on the completion of the new equity
investment. Apollo, Blackstone and Oppenheimer have the right to terminate their
obligation to purchase common stock in the new equity investment upon the
occurrence of certain events, including in the event we choose to file a
bankruptcy case. Without a new equity investment, we do not believe the
prepackaged plan would meet the requirement for confirmation contained in
Section 1129 of the Bankruptcy Code that the plan be 'feasible.' See
' -- Confirmation of the Prepackaged Plan -- Feasibility of Prepackaged Plan.'
Therefore, in the event that Apollo, Blackstone and Oppenheimer elect to
terminate their obligations to purchase common stock in the new equity
investment, and no suitable alternative new equity investment is located, we do
not plan to seek confirmation of the prepackaged plan and your vote in favor of
the prepackaged plan will be disregarded.
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The form of the prepackaged plan is attached to this prospectus as
Exhibit C. The prepackaged plan and this prospectus should be read and studied
in their entirety prior to voting on the prepackaged plan. See 'Risk
Factors -- Risks Related to the Prepackaged Plan' for a discussion of risks
associated with the prepackaged plan and the transactions contemplated
thereunder. You are urged to consult your counsel about the prepackaged plan and
its effect on your legal rights before voting.
ANTICIPATED EVENTS IN A REORGANIZATION CASE
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Pursuant to Chapter 11, a debtor may remain in possession of
its assets and business and attempt to reorganize its business for the benefit
of the debtor, its creditors and other parties in interest.
The commencement of a reorganization case creates an estate comprising all
the legal and equitable interests of a debtor in property as of the date the
petition is filed. Sections 1107 and 1108 of the Bankruptcy Code provide that a
debtor may continue to operate its business and remain in possession of its
property as a 'debtor in possession,' unless the bankruptcy court orders the
appointment of a trustee. The filing of a reorganization case also triggers the
automatic stay provisions of the Bankruptcy Code. Section 362 of the Bankruptcy
Code provides, among other things, for an automatic stay of all attempts to
collect prepetition claims from the debtor or otherwise interfere with its
property or business. Except as otherwise ordered by the bankruptcy court, the
automatic stay generally remains in full force and effect until confirmation of
a plan of reorganization.
The Bankruptcy Code provides that upon commencement of a Chapter 11
bankruptcy case, the Office of the United States Trustee may appoint a committee
of unsecured creditors and may, in its discretion, appoint additional committees
of creditors or of equity security holders if necessary to assure adequate
representation. The Bankruptcy Code provides that, once appointed, each official
committee may appear and be heard on any issue in the Chapter 11 case and may
also:
consult with the trustee or debtor in possession concerning the
administration of the case;
investigate the acts, conduct, assets, liabilities, and financial condition
of the debtor, the operation of the debtor's business and the desirability
of the continuance of such business, and any other matter relevant to the
case or to the formulation of a plan of reorganization;
participate in the formulation of a plan, advise those represented by such
committee of such committee's determinations as to any plan of
reorganization formulated, and collect and file with the bankruptcy court
acceptances or rejections of a plan of reorganization;
request the appointment of a trustee or examiner; and
perform such other services as are in the interest of those represented.
Upon commencement of a Chapter 11 bankruptcy case, all creditors and equity
securityholders have standing to be heard on any issue in the Chapter 11
proceedings pursuant to Section 1109(b) of the Bankruptcy Code.
The formulation and confirmation of a plan of reorganization is the
principal objective of a Chapter 11 case. The plan sets forth the means for
satisfying the claims against and interests in the debtor. The prepackaged plan
we propose provides for the reorganization of our capital structure, thereby
enabling us to continue as a viable business enterprise.
SOLICITATIONS OF ACCEPTANCES OF THE PREPACKAGED PLAN
Usually, a plan of reorganization is filed and votes to accept or reject the
plan are solicited after the filing of a reorganization case. Nevertheless, a
debtor may solicit votes prior to the commencement of a reorganization case in
accordance with Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule
3018(b). In accordance with such provisions, we are soliciting acceptances from
holders of impaired claims and interests in connection with our reorganization
case.
Bankruptcy Rule 3018(b) requires that:
the plan of reorganization be transmitted to substantially all creditors
and interest holders entitled to vote on the plan;
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the time prescribed for voting to reject or accept such plan not be
unreasonably short; and
the solicitation of votes be in compliance with any applicable
nonbankruptcy law, rule or regulation governing the adequacy of disclosure
in such solicitation or, if no such law, rule or regulation exists, votes
be solicited only after the disclosure of adequate information.
Section 1125(a)(1) of the Bankruptcy Code describes adequate information as
information of a kind and in sufficient detail as would enable a hypothetical
reasonable investor typical of holders of claims and interests to make an
informed judgment about the plan. With regard to a solicitation of votes prior
to the commencement of a reorganization case, Bankruptcy Rule 3018(b)
specifically provides that acceptances or rejections of the plan by holders of
claims or interests prior to the commencement of a reorganization case will not
be deemed acceptances or rejections of the plan, if the bankruptcy court
determines, after notice and a hearing, that the plan was not transmitted to
substantially all creditors and equity security holders entitled to vote on the
plan, that an unreasonably short time was prescribed for such creditors and
equity security holders to vote on the plan, or that the solicitation was not
otherwise in compliance with Section 1126(b) of the Bankruptcy Code. If the
conditions of the Bankruptcy Code and Bankruptcy Rules are met, all acceptances
and rejections received prior to the commencement of the reorganization case and
within the prescribed solicitation period will be deemed to be acceptances and
rejections of the plan for purposes of confirmation of the plan under the
Bankruptcy Code.
We may file a reorganization case seeking approval of the prepackaged plan
if all the conditions of the recapitalization plan cannot be satisfied and/or
waived on or before March 15, 2003 (or such earlier or later date as we and the
other parties to the lockup agreement may agree), so long as we have received
acceptances from those impaired classes of claims and interests necessary to
confirm the plan.
However, the bankruptcy court may conclude that the requirements of Section
1129 of the Bankruptcy Code for confirmation of the prepackaged plan have not
been met. The bankruptcy court may find that the holders of impaired claims and
interests have not accepted the prepackaged plan if the bankruptcy court finds
that the prepackaged plan solicitation did not comply with all of the applicable
provisions of the Bankruptcy Code and the Bankruptcy Rules (including the
requirement under Section 1126(b) of the Bankruptcy Code that the prepackaged
plan solicitation comply with any applicable nonbankruptcy law, rule or
regulation governing the adequacy of disclosure or that the prepackaged plan
solicitation is made after disclosure of adequate information). In such an
event, we may be required to resolicit votes on the prepackaged plan before
seeking confirmation of the prepackaged plan, in which case confirmation of the
prepackaged plan could be delayed and possibly jeopardized.
Bankruptcy Rule 3016(b) provides that either a disclosure statement under
Section 1125 of the Bankruptcy Code or evidence showing compliance with Section
1126(b) of the Bankruptcy Code shall be filed with the prepackaged plan or
within the time fixed by the court. This prospectus is presented to holders of
our impaired claims to satisfy the requirements of Section 1126(b) of the
Bankruptcy Code and Bankruptcy Rules 3016(b) and 3018(b). We believe that this
prospectus and the solicitation process we undertake will meet these
requirements.
This prepackaged plan solicitation is being conducted at this time to obtain
the acceptance of each impaired class of claims and interests entitled to vote.
If we seek relief under Chapter 11 of the Bankruptcy Code, we will attempt to
use such acceptances to obtain confirmation of the prepackaged plan as promptly
as practicable. If we commence a reorganization case, we will promptly seek to
obtain an order of the bankruptcy court finding that the prepackaged plan
solicitation was in compliance with Section 1126(b) of the Bankruptcy Code and
Bankruptcy Rule 3018(b) and that the acceptance of each class of impaired claims
and interests can be used for purposes of confirmation of the prepackaged plan
under Chapter 11 of the Bankruptcy Code. We reserve the right to use the
acceptances to seek confirmation of any permitted amendment or modification of
the prepackaged plan, provided that we may not make any amendment or
modification to the prepackaged plan prohibited by the prepackaged plan or the
lockup agreement.
As more fully described below, we are soliciting acceptances of the
prepackaged plan from holders of each class of claims and interests in classes
2, 3, 5, 8 and 9.
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SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PREPACKAGED PLAN(1)
APPROXIMATE APPROXIMATE
CLASS OR TYPE OF CLAIM ALLOWED PERCENTAGE
SUBCLASS OR EQUITY INTEREST TREATMENT AMOUNT(2) RECOVERY(3)
-------- ------------------ --------- --------- -----------
-- Administrative Claims Unclassified; paid in $ -- 100%
full in cash on the
distribution date or such
later date that the
claims become due and
owing in the ordinary
course of business.
-- Priority Tax Claims Unclassified; paid in $ -- 100%
full in cash on the
distribution date or such
later date as the claims
become due and owing in
the ordinary course of
business.
1 Other Priority Claims Unimpaired; paid in full $ -- 100%
in cash on the
distribution date or such
later date as the claims
become due and owing in
the ordinary course of
business.
2 Senior Secured Claims
2A Senior Secured Discount Note Impaired; a pro rata $292,581,967 72%
Claims share of 228,067,643
shares of our common
stock, representing
approximately 23.7% of
our outstanding common
stock as of the effective
date of the prepackaged
plan.
2B Senior Secured Note Claims Impaired; a pro rata $224,166,667 72%
share of 174,737,417
shares of our common
stock, representing
approximately 18.2% of
our outstanding common
stock as of the effective
date of the prepackaged
plan.
2C Lehman Senior Credit Facility Impaired; Lehman will $155,213,333 72%
Claims receive 120,988,793
shares of our common
stock, representing
approximately 12.6% of
our outstanding common
stock as of the effective
date of the prepackaged
plan.
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APPROXIMATE APPROXIMATE
CLASS OR TYPE OF CLAIM ALLOWED PERCENTAGE
SUBCLASS OR EQUITY INTEREST TREATMENT AMOUNT(2) RECOVERY(3)
-------- ------------------ --------- --------- -----------
3 Loral Claims Impaired; Loral will $ 75,644,620 72%
receive 58,964,982 shares
of our common stock,
representing
approximately 6.1% of our
outstanding common stock
as of the effective date
of the prepackaged plan.
4 Other Secured Claims Unimpaired; at our $ -- 100%
option, collateral
returned to creditor or
claim cured and
reinstated.
5 Convertible Subordinated Note Impaired; pro rata share $ 17,845,324 72%
Claims of 13,910,430 shares of
our common stock,
representing
approximately 1.4% of our
outstanding common stock
as of the effective date
of the prepackaged plan.
6 Insured Claims Unimpaired; legal, $ -- 100%
equitable and contractual
rights of Insured Claims
are unaffected by the
prepackaged plan.
7 General Unsecured Claims Unimpaired; paid in full $ 40,000,000 100%
in cash, on the
distribution date or such
later date as the claims
become due and owing in
the ordinary course of
business.
8 Preferred Stock Interests
8A Series A Preferred Stock Interests Impaired; pro rata share $196,037,699 16%
of: (a) 27,564,584 shares
of our common stock
(representing
approximately 2.8% of our
outstanding common stock
as of the effective date
of the prepackaged plan);
plus (b) warrants to
purchase an aggregate of
31,353,901 shares of our
common stock
(representing
approximately 3.2% of our
outstanding common stock
as of the effective date
of the prepackaged plan).
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APPROXIMATE APPROXIMATE
CLASS OR TYPE OF CLAIM ALLOWED PERCENTAGE
SUBCLASS OR EQUITY INTEREST TREATMENT AMOUNT(2) RECOVERY(3)
-------- ------------------ --------- --------- -----------
8B Series B Preferred Stock Interests Impaired; pro rata share $ 87,926,437 16%
of: (a) 12,363,212 shares
of our common stock
(representing
approximately 1.3% of our
outstanding common stock
as of the effective date
of the prepackaged plan);
plus (b) warrants to
purchase an aggregate of
14,062,789 shares of our
common stock (representing
approximately 1.5% of our
outstanding common stock
as of the effective date
of the prepackaged plan).
8C Series D Preferred Stock Interests Impaired; pro rata share $263,604,593 16%
of: (a) 37,065,069 shares
of our common stock
(representing
approximately 3.9% of our
outstanding common stock
as of the effective date
of the prepackaged plan);
plus (b) warrants to
purchase an aggregate of
42,160,424 shares of our
common stock
(representing
approximately 4.4% of our
outstanding common stock
as of the effective date
of the prepackaged plan).
9 Common Stock Interests Impaired; interest N/A N/A
retained but diluted as a
result of the issuance of
additional shares of our
common stock.
10 Other Interests Unimpaired; holders will N/A 100%
retain their Other
Interests and the legal,
equitable and contractual
rights of such holders
will be unaltered by the
prepackaged plan.
---------
(1) This table is only a summary of the classification and treatment of claims
and interests under the prepackaged plan. Reference should be made to this
prospectus and the prepackaged plan attached to this prospectus as Exhibit C
for a complete description of the classification and treatment of claims and
interests.
(2) The amounts are solely estimates; the actual allowed amounts may vary
materially, depending on the nature and extent of claims actually asserted
and the final reconciliation of all administrative expenses and other
claims.
(footnotes continued on next page)
74
(footnotes continued from previous page)
(3) The approximate percentage recovery for any class is the aggregate value of
all cash, common stock and warrants to be distributed to that class. Solely
for purposes of calculating approximate percentage recovery, the value of
our common stock has been derived from the price at which Oppenheimer has
agreed to purchase common stock in the new equity investment. Oppenheimer
has agreed to purchase common stock at a price per share of $0.92 in the new
equity investment. Apollo and Blackstone have agreed to purchase common
stock at a price per share of $1.04 in the new equity investment. In
calculating approximate percentage recovery, we selected the price at which
Oppenheimer has agreed to purchase common stock in the new equity investment
because we believe it represents a reasonable price at which an
institutional investor would be willing to purchase $50 million or more of
our common stock in a negotiated transaction and it represents a more
conservative valuation of our company than the price at which Apollo and
Blackstone have agreed to purchase common stock. On January 30, 2003, the
closing bid price of our common stock on the Nasdaq National Market was
$ per share. The warrants to be distributed to Apollo and Blackstone
have an assumed value of $17 million, which was derived using a
Black-Scholes methodology as of December 31, 2002.
HOLDERS OF CLAIMS ENTITLED TO VOTE; VOTING RECORD DATE
Chapter 11 does not require that each holder of a claim against or interest
in a debtor vote in favor of a plan of reorganization in order for the
bankruptcy court to confirm the plan. The Bankruptcy Code requires that each
claim or interest be placed in a class with claims or interests that are
'substantially similar'. Consents to a plan of reorganization are then solicited
and tallied for each class. At a minimum, at least one class of impaired claims
(without including any acceptance of the plan by any insider of the debtor)
under the plan must vote to accept the plan. An impaired class of claims will be
deemed to accept the prepackaged plan if the holders of claims in that class
casting votes in favor of acceptance of the prepackaged plan (1) hold at least
two-thirds in aggregate dollar amount of the claims of the holders in such class
who cast votes with respect to the prepackaged plan, and (2) constitute more
than one-half in number of holders of allowed claims in such class who cast
votes with respect to the prepackaged plan. An impaired class of interests will
be deemed to accept the prepackaged plan if the holders of interests in that
class casting votes in favor of acceptance of the prepackaged plan hold at least
two-thirds in amount of the allowed interests in such class who cast votes with
respect to the prepackaged plan.
Classes of claims or interests that are not 'impaired' under a plan of
reorganization are conclusively presumed to have accepted the plan of
reorganization and are not entitled to vote. By contrast, classes of claims or
interests that do not receive or retain any property under a plan on account of
such claims or interests are deemed to have rejected the plan and do not vote.
Acceptances of the prepackaged plan are being solicited only from those persons
who hold claims or interests in a class which may be impaired under the
prepackaged plan and who are not deemed by the Bankruptcy Code to have rejected
the prepackaged plan. A class of claims or interests is 'impaired' if the legal,
equitable, or contractual rights to which the claims or interests entitle the
holders of claims or interests of that class are altered.
The following classes of claims and interests are impaired under the
prepackaged plan, and all holders of claims and interests in such classes as of
the voting record date are entitled to vote to accept or reject the prepackaged
plan:
CLASS 2 Senior Secured Claims
CLASS 3 Loral Claims
CLASS 5 Convertible Subordinated Note Claims
CLASS 8 Preferred Stock Interests
CLASS 9 Common Stock Interests
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CLASSES 1, 4, 6, 7 AND 10 ARE UNIMPAIRED UNDER THE
PREPACKAGED PLAN IN ACCORDANCE WITH SECTION 1124 OF THE
BANKRUPTCY CODE AND, ACCORDINGLY, HOLDERS OF CLAIMS OR
INTERESTS IN SUCH CLASSES ARE DEEMED TO HAVE ACCEPTED THE
PREPACKAGED PLAN AND ARE NOT ENTITLED TO VOTE ON THE
PREPACKAGED PLAN.
To be entitled to vote to accept or reject the prepackaged plan, a holder of
an allowed claim or interest in any such Class 2, 3, 5, 8 and 9 must have been
the beneficial owner of such claim or interest at the close of business on the
voting record date, regardless of whether such claim is held of record on the
voting record date in such holder's name or in the name of such holder's broker,
dealer, commercial bank, trust company or other nominee. If a claim is held in
the name of a holder's broker, dealer, commercial bank, trust company or other
nominee, the beneficial owner will vote on the prepackaged plan by completing
the information requested on the ballot, voting and signing the ballot and then
providing the ballot to the record holder holding the claim for the beneficial
owner's benefit if the ballot has not already been signed by the beneficial
owner's nominee or agent. If the ballot has already been signed by the
beneficial owner's agent or nominee, the beneficial owner can vote on the
prepackaged plan by completing the information requested on the ballot,
indicating their vote on the ballot and returning their ballot in the enclosed,
pre-addressed postage paid envelope so it is actually received by the voting
agent before the solicitation expiration date. No appraisal rights are available
to holders of claims or interests in connection with the prepackaged plan.
Each holder of a claim or interest in an impaired class of claims or
interests should refer to the detailed instructions contained in ' -- The
Prepackaged Plan Solicitation' on page 97 which describes the voting procedures
for such class and in the other materials delivered with this prospectus.
VOTE REQUIRED FOR CLASS ACCEPTANCE OF THE PREPACKAGED PLAN
As a condition to confirmation, the Bankruptcy Code requires that, except to
the extent the prepackaged plan meets the 'nonconsensual confirmation' standards
discussed below under ' -- Confirmation of the Prepackaged Plan without
Acceptance By All Classes of Impaired Claims and Interests,' each impaired class
of claims and interests accept the prepackaged plan.
For a class of impaired claims or interests to accept the prepackaged plan,
Section 1126 of the Bankruptcy Code requires acceptance by:
in the case of claims, holders of claims that hold at least two-thirds in
amount and over one-half in number of holders of the allowed claims of such
class, and
in the case of interests, holders of interests that hold at least
two-thirds in amount of the allowed interests of such class,
in each case counting only those holders who actually vote to accept or reject
the prepackaged plan. Holders of claims or interests which fail to vote or
abstain from voting are not counted as either accepting or rejecting the
prepackaged plan. Accordingly, the prepackaged plan could be approved by any
impaired class of claims with the affirmative vote of significantly less than
two-thirds in amount and one-half in number of the claims in such class and any
impaired class of interests with the affirmative vote of significantly less than
two-thirds in amount of the interests in such class.
Pursuant to the lockup agreement, approximately 78% in aggregate principal
amount of Class 2, 100% in aggregate principal amount of Class 3, approximately
64% in aggregate principal amount of Class 5 and Apollo and Blackstone, the
holders of our preferred stock, and 100% of the interests in Class 8 have agreed
to vote to accept the prepackaged plan, thereby assuring acceptances of the
prepackaged plan by Classes 3 and 8.
If the prepackaged plan is confirmed, each holder of a claim or interest in
a class will receive the same consideration as the other members of the class,
and the prepackaged plan will be
76
binding with respect to all holders of claims and interests of each class,
including members who did not vote or who voted to reject the prepackaged plan.
CLASSIFICATIONS UNDER THE PREPACKAGED PLAN
The principal provisions of the prepackaged plan are summarized below. This
summary is qualified in its entirety by reference to the prepackaged plan. WE
URGE ALL CLAIM HOLDERS AND OTHER PARTIES IN INTEREST TO READ AND STUDY CAREFULLY
THE PREPACKAGED PLAN.
CLASSIFICATION AND ALLOWANCE OF CLAIMS AND INTERESTS
Section 1123 of the Bankruptcy Code provides that a plan of reorganization
must classify claims against, and interests in, a debtor. Under Section 1122 of
the Bankruptcy Code, a plan of reorganization may classify claims and interests
only into classes containing claims and interests which are 'substantially
similar' to such claims or interests. The prepackaged plan designates seven
classes of claims and three classes of interests. A plan of reorganization
cannot be confirmed if there has been an improper classification of claims and
interests.
We believe that we have classified all claims and interests in compliance
with the provisions of Section 1122 of the Bankruptcy Code. However, once our
reorganization case has been commenced, a claim holder or interest holder could
challenge our classification of claims and interests, and the bankruptcy court
could determine that a different classification is required for the prepackaged
plan to be confirmed. In such event, it is our intention to seek to modify the
prepackaged plan to provide for whatever classification might be required by the
bankruptcy court and to use the sufficient acceptances received, to the extent
permitted by the bankruptcy court, to demonstrate the acceptance of the class or
classes which are affected. Any such reclassification could affect a class's
acceptance of the prepackaged plan by changing the composition of such class and
the required vote for acceptance of the prepackaged plan and could potentially
require a resolicitation of votes on the prepackaged plan.
The prepackaged plan provides for the classification and treatment of claims
and our interest holders allowed under Section 502 of the Bankruptcy Code. Only
the holder of an allowed claim or an allowed interest is entitled to receive a
distribution under the prepackaged plan.
An allowed claim or allowed interest is:
any claim or interest that is scheduled as liquidated in an amount and not
disputed nor contingent and no objection to the allowance of the claim or
interest or request to estimate the claim or interest, has been interposed
within any time period provided under the plan or under applicable law; or
any disputed claim or disputed interest that has been adjudicated as an
allowed claim or interest; or
any claim or interest that is specified as an allowed claim or allowed
interest under the prepackaged plan or the confirmation order.
A disputed claim or disputed interest is a claim or interest that is not an
allowed claim or allowed interest and:
the claim or interest is not contained on a schedule to the prepackaged
plan;
the claim or interest is scheduled as unliquidated, disputed, contingent or
unknown;
the claim or interest is the subject of a timely objection or request for
estimation in accordance with the Bankruptcy Code, the Bankruptcy Rules,
any applicable order of the bankruptcy court, the prepackaged plan or
applicable non-bankruptcy law, which objection or request for estimation
has not been withdrawn or resolved; or
the claim or interest is otherwise specified as 'disputed' or as a
'disputed claim' pursuant to the prepackaged plan.
77
SUMMARY OF DISTRIBUTIONS UNDER THE PREPACKAGED PLAN
THE FOLLOWING SUMMARY OF DISTRIBUTIONS UNDER THE PREPACKAGED PLAN IS
SUBJECT, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE, TO THE PREPACKAGED PLAN.
If the prepackaged plan is confirmed by the bankruptcy court, each holder of
an allowed claim or allowed interest in a particular class will receive the same
treatment as the other holders in the same class of claims or interests, whether
or not such holder voted to accept the prepackaged plan. Moreover, upon
confirmation, the prepackaged plan will be binding on all of our creditors and
stockholders regardless of whether such creditors or stockholders voted to
accept the prepackaged plan (unless such holder agrees to accept less favorable
treatment). Such treatment will be in full satisfaction, release and discharge
of and in exchange for such holder's claims against or interests in us, except
as otherwise provided in the prepackaged plan.
Treatment of Unclassified Claims. The Bankruptcy Code does not require
classification of certain priority claims against a debtor. In this case, these
unclassified claims include administrative claims and priority tax claims as set
forth below.
1. Administrative Claims. An 'administrative claim' is any cost or
expense of administration of our reorganization case allowed under Section
503(b), and referred to in Section 507(a)(1), of the Bankruptcy Code. These
claims include, without limitation:
any actual and necessary costs and expenses of preserving our estate
and operating our business during our reorganization case, including
any indebtedness or obligations incurred or assumed by us as debtor in
possession in connection with our conduct of our business or for the
acquisition or lease of property or for the rendition of services, and
any of our costs and expenses for the management, preservation, sale or
other disposition of assets during our reorganization case, the
administration, prosecution or defense of claims by or against us and
for distributions under the prepackaged plan; and
any allowances of compensation or reimbursement of expenses to the
extent allowed by final order of the bankruptcy court under
Sections 330 and 503(b) of the Bankruptcy Code.
Subject to the bar date provisions contained in the prepackaged plan,
each holder of an allowed administrative claim will, in full satisfaction,
release, and discharge of such allowed administrative claim: (a) to the
extent such claim is due and owing on the effective date of the prepackaged
plan, be paid in full, in cash, on the distribution date; (b) to the extent
such claim is not due and owing on the effective date of the prepackaged
plan, be paid in full, in cash, in accordance with the terms of any
agreement between us and such holder, or as may be due and owing under
applicable nonbankruptcy law or in the ordinary course of business; or
(c) on such other terms and conditions as are acceptable to the parties.
If the bankruptcy court confirms the prepackaged plan within the time
frame anticipated by us, we expect that the amount of administrative claims
will be significantly less than if we had commenced a reorganization case
without prior receipt of the approvals necessary to confirm the prepackaged
plan. In the event the bankruptcy court confirms the prepackaged plan within
45 days after the commencement of our reorganization case, and assuming
there is no significant litigation initiated or objections filed with
respect to the prepackaged plan, we estimate that the aggregate allowed
amount of administrative claims (other than those discharged or to be
satisfied by us in the ordinary course of business) will be approximately
$5 million as of the date the prepackaged plan becomes effective.
2. Priority Tax Claims. A 'priority tax claim' is that portion of any
claim against us for unpaid taxes which is entitled to priority in right of
payment under Section 507(a)(7) of the Bankruptcy Code. We are now current
and anticipate that we will continue to be current on our tax obligations at
the time we commence our reorganization case. Assuming the bankruptcy court
confirms the prepackaged plan within 45 days after the commencement of our
reorganization case, we estimate that the aggregate allowed amount of
priority tax claims
78
(other than those discharged by us in the ordinary course of business) will
be less than $500,000 on the date the prepackaged plan becomes effective.
Pursuant to the prepackaged plan, each holder of a priority tax claim
that is an allowed claim will, in full satisfaction, release, and discharge
of such allowed priority tax claim: (a) to the extent such claim is due and
owing on the effective date of the prepackaged plan, be paid in full, in
cash, on the distribution date; (b) to the extent such claim is not due and
owing on the effective date of the prepackaged plan, be paid in full, in
cash, in accordance with the terms of any agreement between the parties, or
as may be due and owing under applicable nonbankruptcy law, or in the
ordinary course of business; or (c) on such other terms and conditions as
are acceptable to the parties.
Treatment of Classified Claims. The following describes the prepackaged
plan's classification of the claims and interests that are required to be
classified under the Bankruptcy Code and the treatment that the holders of
allowed claims or allowed interests will receive for such claims or interests:
Class 1 -- Other Priority Claims. Class 1 consists of all priority
claims. A priority claim is any claim against us for an amount entitled to
priority under Section 507(a) of the Bankruptcy Code, other than an
administrative claim or a priority tax claim. These claims are primarily for
employee wages, vacation pay, severance pay, contributions to benefit plans
and other similar amounts. We estimate that the aggregate allowed amount of
priority claims will be less than $5 million on the date the prepackaged
plan becomes effective.
We intend to seek an order approving the pre-effective date payment of
priority claims. To the extent such an order is not entered or such claims
are not paid prior to the date the prepackaged plan becomes effective,
pursuant to the prepackaged plan, the legal, equitable and contractual
rights of the holders of allowed Class 1 claims are unaltered by the plan.
Each holder of an allowed Class 1 claim, will, in full satisfaction of and
in exchange for such allowed Class 1 claim: (a) to the extent such claim is
due and owing on the effective date of the prepackaged plan, be paid in
full, in cash, on the distribution date; (b) to the extent such claim is not
due and owing on the effective date of the prepackaged plan, be paid in
full, in cash, in accordance with the terms of any agreement between the
parties, or as may be due and owing under applicable non-bankruptcy law or
in the ordinary course of business; or (c) on such other terms and
conditions as are acceptable to the parties.
CLASS 1 IS UNIMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 1 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN.
Class 2 -- Senior Secured Claims. Class 2 consists of all senior secured
claims. The senior secured claims are comprised of the senior secured
discount note claims, senior secured note claims and Lehman senior credit
facility claims, all of which are secured by common collateral.
As to the senior secured discount note claims, our records reflect
approximately 200 beneficial holders and a total obligation at March 15,
2003, which includes principal and accrued interest, of $292,581,967. As to
the senior secured note claims, our records reflect approximately 200
beneficial holders and a total obligation at March 15, 2003, which includes
principal and accrued interest, of $224,166,667. As to the Lehman senior
term loan claims, our records reflect one beneficial holder, Lehman, and a
total obligation at March 15, 2003, which includes principal and accrued
interest, of $155,213,333.
Each holder of an allowed Class 2 claim will receive a pro rata
distribution of our common stock, equal to approximately 779.5 shares for
each $1,000 of principal and interest as of March 15, 2003. For purposes of
calculating that distribution, the prepackaged plan divides Class 2 into
subclasses and provides for a pro rata distribution of the following number
of shares of our common stock to each of the subclasses:
Class 2A (Senior Secured Discount Note Claims) -- 228,067,643 shares
of our common stock.
Class 2B (Senior Secured Note Claims) -- 174,737,417 shares of our
common stock.
79
Class 2C (Lehman Senior Credit Facility Claims) -- 120,988,793 shares
of our common stock.
CLASS 2 IS IMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 2 ARE ENTITLED
TO VOTE ON THE PREPACKAGED PLAN.
Class 3 -- Loral Claims. Class 3 consists of the senior term loan claims
of Loral. As to the Loral senior term loan claims, our records reflect one
beneficial holder, Loral, and a total obligation at March 15, 2003, which
includes principal and accrued interest, of $75,644,620. Loral, as the
holder of record of the allowed Class 3 claim, on the distribution record
date will receive 58,964,982 shares of our common stock, equal to
approximately 779.5 shares for each $1,000 of principal and interest as of
March 15, 2003.
CLASS 3 IS IMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 3 ARE ENTITLED
TO VOTE ON THE PREPACKAGED PLAN.
Class 4 -- Other Secured Claims. Class 4 consists of all secured claims
other than the claims in Classes 2 and 3. For purposes of the prepackaged
plan each such allowed other secured claim will be deemed a separate
subclass. We estimate that the amount of such claims will not exceed $5
million in the aggregate. At our option, each holder of an allowed Class 4
claim will either (a) have the property that serves as collateral for its
claim returned, or (b) have its claim 'cured and reinstated', in accordance
with Section 1124(2) of the Bankruptcy Code.
CLASS 4 IS UNIMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 4 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN AND ARE NOT ENTITLED TO VOTE.
Class 5 -- Convertible Subordinated Note Claims. Class 5 consists of all
convertible subordinated note claims. As to the convertible subordinated
note claims, our records reflect approximately 300 beneficial holders and a
total obligation at March 15, 2003, which includes principal and accrued
interest, of $17,845,324. Each holder of record of an allowed Class 5 claim
on the distribution record date will receive 779.5 shares of our common
stock on account of each $1,000 of principal and interest as of March 15,
2003, for an aggregate distribution of 13,910,430 shares of common stock.
CLASS 5 IS IMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 5 ARE ENTITLED
TO VOTE ON THE PREPACKAGED PLAN.
Class 6 -- Insured Claims. Class 6 consists of all claims that are
covered by insurance policies maintained by or for our benefit, but only to
the extent of insurance coverage under such insurance policies. We are
presently unable to determine the amount of such claims (if any) that will
be asserted in this class. Under the prepackaged plan, holders of insured
claims that become allowed claims will have their legal, equitable and
contractual rights unaltered by the plan.
CLASS 6 IS UNIMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 6 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN AND ARE NOT ENTITLED TO VOTE.
Class 7 -- General Unsecured Claims. Class 7 consists of all unsecured
claims, except for administrative claims, priority tax claims or claims in
Classes 1 through 6, inclusive. General unsecured claims will include trade
and vendor claims. Our records indicate approximately $40 million in
accounts payable that would be included in Class 7. To the extent any
allowed general unsecured claim has not been paid or satisfied by
performance in full prior to the date the prepackaged plan becomes
effective, the legal, equitable and contractual rights of the holders of
allowed Class 7 claims are unaltered by the prepackaged plan. In full
satisfaction of and in exchange for each allowed Class 7 claim, the holder
will: (a) to the extent such claim is due and owing on the effective date of
the prepackaged plan, be paid in full, in cash, on the distribution date;
(b) to the extent such claim is not due and owing on the effective date of
the prepackaged claim, be paid in full, in cash, in accordance with the
terms of any
80
agreement between the parties, or as may be due and owing under applicable
nonbankruptcy law or in the ordinary course of business; or (c) on such
other terms and conditions as are acceptable to the parties.
CLASS 7 IS UNIMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 7 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN AND ARE NOT ENTITLED TO VOTE.
Class 8 -- Preferred Stock. Class 8 consists of all preferred stock
interests and is divided into three subclasses for the purposes of
calculating distributions.
Class 8A -- Series A Preferred Stock Interests. Class 8A consists of all
interests of holders of our 9.2% Series A Junior Cumulative Convertible
Preferred Stock issued and outstanding on the date the petition for relief
is filed with the bankruptcy court. Apollo is the only holder of a Class 8A
interest. Apollo, as the holder of record of the allowed Class 8A interest
on the distribution record date, will receive an aggregate of 27,564,584
newly issued shares of our common stock and warrants to purchase 31,353,901
shares of our common stock. 18,812,340 of these warrants will have an
exercise price of $1.04 per share and 12,541,561 of these warrants will have
an exercise price of $0.92 per share, and all of these warrants will expire
two years after the effective date of the restructuring.
CLASS 8A IS IMPAIRED, AND THE HOLDER OF INTERESTS IN CLASS 8A IS
ENTITLED TO VOTE ON THE PREPACKAGED PLAN.
Class 8B -- Series B Preferred Stock Interests. Class 8B consists of all
interests of holders of our 9.2% Series B Junior Cumulative Convertible
Preferred Stock issued and outstanding on the date the petition for relief
is filed with the bankruptcy court. Apollo is the only holder of a Class 8B
interest. Apollo, as the holder of record of the allowed Class 8B interest
on the distribution record date, will receive an aggregate of 12,363,212
newly issued shares of our common stock and warrants to purchase 14,062,789
shares of our common stock. 8,437,673 of these warrants will have an
exercise price of $1.04 per share and 5,625,116 of these warrants will have
an exercise price of $0.92 per share, and all of these warrants will expire
two years after the effective date of the restructuring.
CLASS 8B IS IMPAIRED, AND THE HOLDER OF INTERESTS IN CLASS 8B IS
ENTITLED TO VOTE ON THE PREPACKAGED PLAN.
Class 8C -- Series D Preferred Stock Interests. Class 8 consists of all
interests of holders of our 9.2% Series D Junior Cumulative Convertible
Preferred Stock issued and outstanding on the date the petition for relief
is filed with the bankruptcy court. Blackstone is the only holder of a
Class 8C interest. Blackstone, as the holder of record of the allowed
Class 8C interest on the distribution record date will receive an aggregate
of 37,065,069 newly issued shares of our common stock and warrants to
purchase 42,160,424 shares of our common stock. 25,296,255 of these warrants
will have an exercise price of $1.04 per share and 16,864,169 of these
warrants will have an exercise price $0.92 per share, and all of these
warrants will expire two years after the effective date of the
restructuring.
CLASS 8C IS IMPAIRED, AND THE HOLDER OF INTERESTS IN CLASS 8C IS
ENTITLED TO VOTE ON THE PREPACKAGED PLAN.
Class 9 -- Common Stock Interests. Class 9 consists of all interests of
holders of our common stock issued and outstanding on the date the petition
for relief is filed with the bankruptcy court. We estimate that, as of the
date of this prospectus, there are approximately 75,000 beneficial holders
of Class 9 interests. Each holder of a Class 9 interest will retain its
interest as it existed on the date the petition for relief is filed with the
bankruptcy court; however, the issuance of common stock in exchange for the
impaired classes of claims and interests under the prepackaged plan will
substantially dilute the ownership interest of each holder of a Class 9
interest.
CLASS 9 IS IMPAIRED AND THE HOLDERS OF INTERESTS IN CLASS 9 ARE ENTITLED
TO VOTE ON THE PREPACKAGED PLAN.
81
Class 10 -- Other Interests. Class 10 consists of all interests of
holders of our warrants and options issued and outstanding on the date the
petition for relief is filed with the bankruptcy court. These other
interests include warrants issued to automotive partners, content providers,
and certain warrants issued in connection with the senior secured notes and
Lehman senior term loans as well as options issued to employees, consultants
and members of our board of directors. We estimate that, as of the date of
this prospectus, there are approximately 350 beneficial holders of Class 10
interests. Under the prepackaged plan, the other interests will be retained
by their holders.
CLASS 10 IS UNIMPAIRED AND THE HOLDERS OF INTERESTS IN CLASS 10 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN.
CONFIRMATION OF THE PREPACKAGED PLAN
If we seek to implement the prepackaged plan by commencing a reorganization
case, we will promptly request that the bankruptcy court hold a confirmation
hearing (including a determination that the prepackaged plan solicitation was in
compliance with any applicable nonbankruptcy law, rule or regulation governing
the adequacy of disclosure or, if there is not any such law, rule or regulation,
was made after disclosure of adequate information as defined in the Bankruptcy
Code), upon such notice to parties in interest as is required by the Bankruptcy
Code and the bankruptcy court. Rule 2002(b) of the Bankruptcy Rules requires no
less than 25 days' notice by mail of the time for filing objections to
confirmation of the prepackaged plan and of the time and place of the
confirmation hearing, unless the bankruptcy court shortens or lengthens this
period. Parties in interest, including all holders of impaired claims and
interests, will be provided notice by mail, or by publication if required by the
bankruptcy court, of the date and time fixed by the bankruptcy court for the
confirmation hearing. Section 1128(b) of the Bankruptcy Code provides that any
party in interest may object to confirmation of the prepackaged plan. The
bankruptcy court will also establish procedures for the filing and service of
objections to confirmation of the prepackaged plan. Such procedures will be
described to parties in interest in the notice informing them of the time for
filing objections to confirmation of the prepackaged plan.
ANY OBJECTIONS TO CONFIRMATION OF THE PREPACKAGED PLAN
MUST BE FILED WITH THE BANKRUPTCY COURT IN ACCORDANCE WITH
APPLICABLE BANKRUPTCY RULES AND ANY PROCEDURES ESTABLISHED
BY THE BANKRUPTCY COURT.
In order for the prepackaged plan to be confirmed, and regardless of whether
all impaired classes of claims and interests vote to accept the prepackaged
plan, the Bankruptcy Code requires that the bankruptcy court determine that the
prepackaged plan complies with the requirements of Section 1129 of the
Bankruptcy Code. Section 1129 of the Bankruptcy Code requires for confirmation,
among other things, that:
except to the extent the prepackaged plan meets the 'nonconsensual
confirmation' standards discussed below under ' -- Confirmation of the
Prepackaged Plan Without Acceptance By All Classes of Impaired Claims and
Interests,' the prepackaged plan be accepted by each impaired class of
claims and interests by the requisite votes of holders of claims or
interests in such impaired classes;
the prepackaged plan is feasible (that is, there is a reasonable
probability that we will be able to perform our obligations under the
prepackaged plan and continue to operate our business without the need for
further financial reorganization) (see ' -- Feasibility of the Prepackaged
Plan'); and
the prepackaged plan meets the requirements of Section 1129(a)(7) of the
Bankruptcy Code, which requires that, with respect to each impaired class,
each holder of a claim or interest in such class either (a) accepts the
prepackaged plan or (b) receives at least as much pursuant to the
prepackaged plan as such holder would receive in our liquidation under
Chapter 7 of the Bankruptcy Code (see ' -- The Best Interests Test').
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In addition, we must demonstrate in accordance with Section 1129 of the
Bankruptcy Code that:
the prepackaged plan is proposed in good faith;
the prepackaged plan complies with the Bankruptcy Code;
payments for services or costs and expenses in or in connection with the
case, or in connection with the prepackaged plan, have been approved by or
are subject to the approval of the bankruptcy court;
the individuals to serve as our officers and directors have been disclosed
and their appointment or continuance in such office is consistent with the
interests of creditors and interest holders;
the identity of any insider that will be employed or retained by us is
disclosed, as well as any compensation to be paid to such insider;
all statutory fees have been or will be paid; and
the prepackaged plan provides for the continued maintenance of retiree
benefits, if any, at a certain level.
ACCEPTANCE OF THE PREPACKAGED PLAN
As a condition to confirmation, the Bankruptcy Code requires that each
impaired class of claims or interests accept a plan of reorganization, unless
the 'cram down' requirements of Section 1129(b) of the Bankruptcy Code are met.
Classes of claims or interests that are not 'impaired' under a plan are deemed
to have accepted the plan and are not entitled to vote.
FEASIBILITY OF THE PREPACKAGED PLAN
The Bankruptcy Code requires that, in order to confirm the prepackaged plan,
the bankruptcy court must find that confirmation of the prepackaged plan will
not likely be followed by the liquidation or the need for further financial
reorganization. For the prepackaged plan to meet the 'feasibility test,' the
bankruptcy court must find that we will possess the resources and working
capital necessary to fund our operations and that we will be able to meet our
obligations under the prepackaged plan.
We have analyzed our ability to meet our obligations under the prepackaged
plan. As part of our analysis, we have considered our forecasts of our financial
performance after completion of our reorganization case contained herein. These
projections and the significant assumptions on which they are based are included
in this prospectus. See 'Unaudited Projected Consolidated Financial
Information.' We believe, based on our analysis, that the prepackaged plan
provides a feasible means of reorganization from which there is a reasonable
expectation that, following the effectiveness of the prepackaged plan, we will
possess the resources and working capital necessary to fund our operations and
to meet our obligations under the prepackaged plan.
However, the prepackaged plan is predicated on the completion of the new
equity investment. Apollo, Blackstone and Oppenheimer have the right to
terminate their obligation to purchase common stock in the new equity investment
upon the occurrence of certain events, including in the event we choose to file
a bankruptcy case. Without a new equity investment, we do not believe the
prepackaged plan would meet the 'feasibility test.' Therefore, in the event that
Apollo, Blackstone and Oppenheimer elect to terminate their obligations to
purchase common stock in the new equity investment, and no suitable alternative
new equity investment is located, we do not plan to seek confirmation of the
prepackaged plan and your vote in favor of the prepackaged plan will be
disregarded.
In connection with confirmation of the prepackaged plan, the bankruptcy
court will have to determine that the prepackaged plan is feasible. The
bankruptcy court may not agree with our determination or accept the projections
or the assumptions underlying our determination.
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THE BEST INTERESTS TEST
Even if the prepackaged plan is accepted by each impaired class of claims
and interests, Section 1129(a)(7) of the Bankruptcy Code requires that in order
to confirm the prepackaged plan, the bankruptcy court must determine that
either:
each member of an impaired class of claims or interests has accepted the
prepackaged plan; or
the prepackaged plan will provide each nonaccepting member of an impaired
class of claims or interests a recovery that has a value at least equal to
the value of the distribution that such member would receive if we were
liquidated under Chapter 7 of the Bankruptcy Code.
If all members of an impaired class of claims or interests accept the
prepackaged plan, the best interests test does not apply with respect to that
class.
The first step in meeting the best interests test is to determine the dollar
amount that would be generated from the liquidation of our assets and properties
in a Chapter 7 liquidation case. The total amount available would be the sum of
the proceeds from the disposition of our assets and the cash held by us at the
time of the commencement of the Chapter 7 case. The next step is to reduce that
total by the amount of any claims secured by such assets, the costs and expenses
of the liquidation, and such additional administrative expenses and priority
claims that may result from the termination of our business and the use of
Chapter 7 for the purposes of liquidation. Finally, the present value of that
amount (taking into account the time necessary to accomplish the liquidation) is
allocated to creditors and stockholders in the strict order of priority in
accordance with Section 726 of the Bankruptcy Code which requires that no junior
creditor receive any distribution until all senior creditors are paid in full
and can be compared to the value of the property that is proposed to be
distributed under the prepackaged plan on the date the prepackaged plan becomes
effective.
After consideration of the effects that a Chapter 7 liquidation would have
on the ultimate proceeds available for distribution to creditors in a Chapter 11
case, including:
the increased costs and expenses of a liquidation under Chapter 7 arising
from fees payable to a trustee in bankruptcy and professional advisors to
such trustee;
the erosion in value of assets in a Chapter 7 case in the context of the
expeditious liquidation required under Chapter 7 and the 'forced sale'
atmosphere that would prevail; and
substantial increases in claims which would be satisfied on a priority
basis or on a parity with creditors in a Chapter 11 case,
we have determined that confirmation of the prepackaged plan will provide each
creditor and equity holder with a recovery that is not less than it would
receive pursuant to our liquidation under Chapter 7 of the Bankruptcy Code.
Moreover, we believe that the value of any distributions from the liquidation
proceeds to each class of allowed claims and interests in a Chapter 7 case would
be less than the value of distributions under the prepackaged plan because such
distributions in Chapter 7 may not occur for a substantial period of time. In
this regard, it is possible that distribution of the proceeds of the liquidation
could be delayed for a substantial time after the completion of such liquidation
to resolve all objections to claims and prepare for distributions.
LIQUIDATION ANALYSIS
THE FOLLOWING LIQUIDATION ANALYSIS IS AN ESTIMATE OF THE PROCEEDS THAT MAY
BE GENERATED AS A RESULT OF THE HYPOTHETICAL CHAPTER 7 LIQUIDATION OF OUR
ASSETS. THE ANALYSIS IS BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS WHICH ARE
DESCRIBED BELOW. THE LIQUIDATION ANALYSIS DOES NOT PURPORT TO BE A VALUATION OF
OUR ASSETS AND IS NOT NECESSARILY INDICATIVE OF THE VALUES THAT MAY BE REALIZED
IN AN ACTUAL LIQUIDATION.
84
LIQUIDATION ANALYSIS
AS OF MARCH 31, 2003
(UNAUDITED)
(IN MILLIONS)
BOOK VALUE RECOVERY RECOVERY
---------- ----------------- ---------------
LOW HIGH LOW HIGH
PROCEEDS --- ---- --- ----
Cash, cash equivalents and marketable
securities(1).............................. $ 87 $ 87 $ 87 100.0% 100.0%
Prepaid expenses............................. 5 0 0 0.0 0.0
Property and equipment, net(2)
Satellites(3)............................ 869 13 32 1.5 3.7
Terrestrial repeater equipment(4)........ 70 0 0 0.0 0.0
Broadcast studio equipment(5)............ 17 3 5 17.7 29.4
Customer care, billing and conditional
access systems(6)...................... 17 0 0 0.0 0.0
Satellite telemetry, tracking and control
equipment(7)........................... 11 0 0 0.0 0.0
Leasehold improvements................... 20 0 0 0.0 0.0
Furniture, fixtures and equipment........ 13 1 1 7.7 7.7
FCC license(8)............................... 84 0 0 0.0 0.0
-------- ------ ------
Total proceeds....................... $ 1,193 $ 104 $ 125 8.7% 10.5%
-------- ------ ------
-------- ------ ------
LESS
Administrative and priority claims
Severance............................................ $ 3 $ 3
Wind-down operating costs............................ 1 1
Trustee and professional fees........................ 3 3
------ ------
PROCEEDS AVAILABLE FOR DISTRIBUTION...................... $ 97 $ 118
------ ------
------ ------
Secured Claims:
Class 2 (Senior Secured Claims).......... $ 672
Class 3 (Loral Claims)................... 76
Class 4 (Other Secured Claims)........... 1
--------
Total Secured Claims................. $ 749
--------
--------
Class 2 (Senior Secured Claims)
Proceeds from FCC license and spare satellite(9)......... $ 12 $ 31 1.8% 4.6%
Class 2 deficiency claim................................. 660 641
Class 3 (Loral Claims)
Proceeds from terrestrial repeater network(10)........... 0 0 0.0% 0.0%
Class 3 deficiency claim................................. 76 76
Class 4 (Other Secured Claims) (11)
Proceeds from collateral................................. 1 1 100.0% 100.0%
Class 4 deficiency claim................................. 0 0
Unsecured Claims:
Deficiency Claims:
Class 2 deficiency claim........................... 660 641
Class 3 deficiency claim........................... 76 76
Class 4 deficiency claim........................... 0 0
Class 5 (Convertible Subordinated Note Claims)....... 18 18
Class 7 (General Unsecured Claims)(12)............... 150 150
------ ------
Total unsecured claims........................... $ 904 $ 885
------ ------
------ ------
Proceeds available for distribution to Unsecured Claims
(total proceeds minus distributions to secured
creditors)............................................. 84 86 9.3% 9.7%
Interests (Preferred and Common Stock):
Proceeds available for distribution to Interests......... 0 0 0.0% 0.0%
(footnotes on next page)
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(footnotes from previous page)
(1) Marketable securities are stated at fair market value and consist of U.S.
government agencies and commercial paper issued by major U.S. corporations
with high credit ratings. These amounts may vary significantly depending on
the number of subscribers acquired and any unforeseen costs.
(2) Property and equipment, net includes leasehold improvements, satellites,
terrestrial repeater equipment, broadcast studio equipment, satellite
telemetry tracking and control, customer care, billing and conditional
access equipment and furniture, fixtures and equipment. The estimated
recovery with respect to these assets is based on management estimates, net
of the costs and expenses associated with the sale of these assets.
(3) We expect to dispose of our three satellites in outer space in accordance
with the rules proposed by the FCC relating to the Mitigation of Orbital
Debris. In accordance with these rules, we expect to maneuver our three
satellites into orbits with perigee altitudes above 36,100 kilometers, or
approximately 300 kilometers above synchronous altitude. We do not expect
any proceeds from the disposition of these satellites because, under the
terms of our FCC license, these satellites may only be employed for
satellite radio and ancillary services. We estimate that our fourth
satellite, currently in storage at Loral's facility in Palo Alto,
California, could be sold for approximately $12 to $31 million of its $90
million purchase price. We estimate that the $15 million of spare parts we
purchased for a fifth satellite could be sold for approximately
$1 million.
(4) We believe the cost of recovering our terrestrial repeater equipment for
salvage will exceed the proceeds from the sale of the equipment.
(5) We believe that the market value of our existing broadcast studio equipment
is approximately 18% to 29% of the net book value of this equipment.
(6) The hardware and software employed by our customer care, billings and
conditional access operations has been developed for use only with our
system. As a result, we do not expect any recovery with respect to such
equipment.
(7) Our satellite telemetry, tracking and control equipment was purchased and
designed for use only with our satellites which, in turn, employ spectrum
licensed by the FCC. We do not expect any potential purchasers of this
equipment in the event we are forced to liquidate.
(8) We do not believe we will be able to find a buyer for our FCC license given
the restrictions and conditions of such license.
(9) The Lehman senior term loans, senior secured discount notes and senior
secured notes are secured equally by a pledge of the stock of Satellite CD
Radio, Inc., our subsidiary that holds our FCC license, and by a lien on
our fourth, spare satellite. The spare parts we purchased for a fifth
satellite are not subject to any liens.
(10) The Loral senior term loans are secured by a lien on our terrestrial
repeater network.
(11) Other Secured Claims consist primarily of secured claims associated with
the financing of furniture, fixtures and equipment. For purposes of this
analysis, we have assumed that the proceeds of furniture, fixtures and
equipment serves as collateral for all Other Secured Claims.
(12) Other unsecured claims consist of amounts related to terminated agreements
and an estimate of accounts payable at March 31, 2003, projected to be
approximately $150 million. We expect our lease rejection claims to
aggregate approximately $7 million, which we expect will be satisfied from
proceeds of our restricted investments.
-------------------
THESE ESTIMATED LIQUIDATION VALUES ARE SPECULATIVE AND COULD VARY
DRAMATICALLY FROM THE AMOUNTS THAT MAY ACTUALLY BE RECOVERED IN AN ACTUAL
LIQUIDATION UNDER CHAPTER 7 OF THE BANKRUPTCY CODE. FURTHER, MANY OF OUR ASSETS,
SUCH AS OUR SATELLITE CONSTELLATION, OUR SPARE SATELLITE, OUR FCC LICENSE AND
SATELLITE TELEMETRY, TRACKING AND CONTROL EQUIPMENT, HAVE BEEN
86
DESIGNED, BUILT AND DEPLOYED FOR USE SOLELY IN A OUR SATELLITE RADIO SYSTEM. IN
MANY CASES, OUR ASSETS MIGHT NOT COMMAND SIGNIFICANT PRICES IF PURCHASED FOR
USES OTHER THAN SATELLITE RADIO.
OUR FCC LICENSE MAY NOT BE TRANSFERRED OR SOLD WITHOUT THE APPROVAL OF THE
FEDERAL COMMUNICATIONS COMMISSION.
As described above, to estimate the liquidation proceeds we assumed that our
assets are disposed of in a straight liquidation during a three-month wind-down
period.
Our belief that confirmation of the prepackaged plan will provide each
holder of a claim in an impaired class with a recovery at least equal to the
recovery that such holder would receive pursuant to a liquidation under Chapter
7 of the Bankruptcy Code is based on a comparison of the liquidation values set
forth in the liquidation analysis above with our estimate of the value of the
distributions to the holders of claims pursuant to the prepackaged plan.
In preparing this liquidation analysis, UBS Warburg LLC assisted us in
valuing certain contracts and reviewed liquidation values of our assets using
data and assumptions supplied by us. UBS Warburg LLC did not prepare a valuation
report or opinion regarding our company or any of our assets.
ALTERNATIVES TO CONFIRMATION OF THE PREPACKAGED PLAN
If the prepackaged plan is not confirmed, we or, subject to further
determination by the bankruptcy court as to extensions of our exclusive period
within which to propose a plan of reorganization (which is the first 120 days
after the commencement of reorganization case, subject to reduction or extension
by the bankruptcy court), any other party in interest in our reorganization case
could attempt to formulate and propose a different plan or plans of
reorganization. Such plans could involve a reorganization and continuation of
our businesses, a sale of our business as a going concern, an orderly
liquidation of our assets, or any combination thereof. If no plan of
reorganization is confirmed by the bankruptcy court, our reorganization case may
be converted to a liquidation case under Chapter 7 of the Bankruptcy Code. In
that event, the bankruptcy court may grant holders of secured claims relief from
the automatic stay to foreclose on their collateral and, accordingly, our
valuable assets may be lost.
We have agreed that, in the event the lockup agreement is terminated by
Apollo, Blackstone or Oppenheimer upon the occurrence of specified events that
constitute a material adverse change, we will grant co-exclusivity to propose a
plan of reorganization to Lehman, Loral and the members of the informal
noteholders' committee which negotiated the terms of the restructuring with us.
In a Chapter 7 case, a trustee would be appointed or elected with the
primary duty of liquidating our assets. Typically, in a liquidation, assets are
sold for less than their going concern value and, accordingly, the return to
creditors would be reduced. Proceeds from liquidation would be distributed to
our creditors in accordance with the priorities set forth in the Bankruptcy
Code.
Because of the difficulties in estimating what our assets would bring in a
liquidation and the uncertainties concerning the aggregate claims to be paid and
their priority in liquidation, it is not possible to predict with certainty what
return, if any, each class of claims or interests might receive in a
liquidation. Nevertheless, we believe that the most likely result would be the
sale of our assets at a price which is significantly less than needed to pay our
debts in full. We believe that holders of impaired claims and interests would
realize a greater recovery under the prepackaged plan than would be realized
under a Chapter 7 liquidation.
MEANS FOR IMPLEMENTING THE PREPACKAGED PLAN
MANAGEMENT
On the date the prepackaged plan becomes effective, our management, control
and operation will become the general responsibility of our board of directors
in accordance with Delaware law. Our board of directors on the effective date is
described under 'Management.' The prepackaged
87
plan also authorizes us to enter into new employment agreements with our
executive officers, which will become effective on the date the prepackaged plan
becomes effective. For a description of the directors' and officers'
backgrounds, affiliations, salary compensation and whether or not such persons
are also insiders, see 'Management.'
We will disclose, prior to the hearing on the confirmation of the
prepackaged plan, such additional information as is necessary to satisfy Section
1129(a)(5) of the Bankruptcy Code including (1) the identity and affiliation of
any other individual who is proposed to serve as one of our officers or
directors, to the extent it is different than disclosed herein, and (2) the
identity of any other insider that will be employed or retained by us and said
insider's compensation.
RESTATED CORPORATE DOCUMENTS
On the date the prepackaged plan becomes effective, our certificate of
incorporation will be amended and restated to include (1) the amendments
necessary to effect the restructuring, including an increase in the number of
authorized shares of our common stock and (2) in accordance with
Section 1123(a)(6) of the Bankruptcy Code, a prohibition on the issuance of
non-voting equity securities.
CANCELLATION OF EXISTING SECURITIES AND INDEBTEDNESS
As a general matter, on the effective date, all notes, indentures,
instruments and other documents evidencing the claims or interests classified in
Classes 2, 3, 5 and 8 of the prepackaged plan will be cancelled and any
collateral security with respect to such claims will be released. Without
limiting the generality of the foregoing, on the effective date of the plan,
each of the following will be cancelled:
the senior secured discount notes;
the senior secured discount notes indenture;
the senior secured notes;
the senior secured notes indenture;
Lehman credit agreement;
Loral credit agreement;
the convertible subordinated notes;
the convertible subordinated notes indenture;
the collateral agreements relating to our senior secured discount notes;
senior secured notes; Lehman senior term loans and Loral senior term loans;
the series A preferred stock;
the series B preferred stock; and
the series D preferred stock.
NEW EQUITY INVESTMENT
As a condition to the effective date, Apollo, Blackstone and Oppenheimer
will purchase an aggregate of 211,730,379 shares of our common stock for $200
million in cash. The obligation of Apollo, Blackstone and Oppenheimer to
consummate the new equity investment is detailed in the lockup agreement and is
subject to certain terms and conditions, including the option of each party to
terminate its obligation to consummate the new equity investment upon the
commencement of our reorganization case.
STOCKHOLDER APPROVAL
We are concurrently seeking the approval of our existing stockholders to the
issuance of common stock in accordance with the terms of the prepackaged plan,
an amendment and
88
restatement of our certificate of incorporation and our new stock option plan.
If we do not receive the required stockholder approval, then we intend to seek
confirmation of the prepackaged plan under the 'cram down' provisions of
Section 1129 of the Bankruptcy Code.
ISSUANCE OF COMMON STOCK AND WARRANTS
On the effective date of the prepackaged plan, we will issue, in accordance
with the terms of the prepackaged plan, an aggregate of up to 962,385,874 newly
issued shares of our common stock. All shares to be issued pursuant to the
prepackaged plan will be, upon issuance, fully paid and non-assessable. The
holders of this common stock will have no preemptive or other rights to
subscribe for additional shares. The confirmation order of the bankruptcy court
will provide that the issuance of common stock and warrants will be exempt from
the registration requirements of the Securities Act in accordance with
Section 1145 of the Bankruptcy Code.
MANAGEMENT STOCK OPTION PLAN
We will adopt, as of the effective date of the prepackaged plan, our new
stock option plan through which options for up to 15% of the common stock
outstanding on a fully diluted basis may be granted to our employees and
consultants by our board of directors.
CONFIRMATION OF THE PREPACKAGED PLAN WITHOUT ACCEPTANCE BY ALL CLASSES OF
IMPAIRED CLAIMS AND INTERESTS
The Bankruptcy Code contains provisions for confirmation of a plan even if
the plan is not accepted by all impaired classes, as long as at least one
impaired class of claims has accepted the plan. These 'cram down' provisions are
set forth in Section 1129(b) of the Bankruptcy Code. Under the 'cram down'
provisions, upon the request of a plan proponent, the bankruptcy court will
confirm a plan despite the lack of acceptance by an impaired class or classes if
the bankruptcy court finds that:
the plan does not discriminate unfairly with respect to each non-accepting
impaired class; and
the plan is fair and equitable with respect to each non-accepting impaired
class.
These standards ensure that holders of junior interests, such as
stockholders, cannot retain any interest in the debtor under a plan that has
been rejected by a senior class of impaired claims or interests unless such
impaired claims or interests are paid in full.
As used by the Bankruptcy Code, the phrases 'discriminate unfairly' and
'fair and equitable' have narrow and specific meanings unique to bankruptcy law.
A plan does not 'discriminate unfairly' if claims or interests in different
classes but with similar priorities and characteristics receive or retain
property of similar value under a plan. By establishing separate classes for the
holders of each type of claim or interest and by treating each holder of a claim
or interest in each class identically, the prepackaged plan has been structured
so as to meet the 'unfair discrimination' test of Section 1129(b) of the
Bankruptcy Code.
The Bankruptcy Code sets forth different standards for establishing that a
plan is 'fair and equitable' with respect to a dissenting class, depending on
whether the class is comprised of secured or unsecured claims or interests. In
general, Section 1129(b) of the Bankruptcy Code permits confirmation
notwithstanding non-acceptance by an impaired class if that class and all junior
classes are treated in accordance with the 'absolute priority' rule, which
requires that the dissenting class be paid in full before a junior class may
receive any distributions under the plan. In addition, case law surrounding
Section 1129(b) requires that no class senior to a non-accepting impaired class
receives more than payment in full on its claims.
89
With respect to a class of unsecured claims that does not accept the
prepackaged plan, we must demonstrate to the bankruptcy court that either:
each holder of an unsecured claim in the dissenting class receives or
retains under such plan property of a value equal to the allowed amount of
its unsecured claim; or
the holders of claims or holders of interests that are junior to the claims
of the holders of such unsecured claims will not receive or retain any
property under the prepackaged plan.
Additionally, we must demonstrate that the holders of claims or interests
that are senior to the claims or interests of the dissenting class of unsecured
claims or interests receive no more than payment in full on their claims or
interests under the prepackaged plan.
Neither us nor any of our advisors, including UBS Warburg LLC, have
undertaken to value our assets or our business. We also have not engaged any
person to conduct a valuation of our assets or business in connection with the
prepackaged plan. Our common stock is traded on the Nasdaq National Market, and
a valuation for our company can be derived from trading information relating to
our common stock.
The price at which Apollo and Blackstone have agreed to purchase our common
stock in the restructuring would result in an implied enterprise value of
approximately $1 billion, and the price at which Oppenheimer has agreed to
purchase our common stock in the restructuring would result in an implied
enterprise value of approximately $882 million.
We believe that the prepackaged plan satisfies the 'cram down' requirements
of the Bankruptcy Code. If all classes of impaired claims and interests, other
than the interests held by our common stockholders (Class 9), accept the
prepackaged plan, and Apollo, Blackstone and Oppenheimer (or any replacement
purchaser) agree to proceed with the new equity investment, we intend to pursue
confirmation of the prepackaged plan under the 'cram down' provisions of the
Bankruptcy Code. However, the bankruptcy court may determine that the
prepackaged plan does not meet the requirements of Section 1129(b) of the
Bankruptcy Code and we may be required to amend the prepackaged plan. Such
amendments may include stockholders receiving nothing.
DISTRIBUTIONS
All distributions required under the prepackaged plan to holders of allowed
claims and interests shall be made by a disbursing agent pursuant to a
disbursing agreement. The disbursing agent may designate, employ or contract
with other entities to assist in or perform the distributions. The disbursing
agent and such other entities will serve without bond.
The distribution date will mean the date, occurring on or as soon as
practicable after the later of:
the effective date; and
the date when a claim becomes an allowed claim or an interest becomes an
allowed interest.
Only holders of record of note and term loan claims as of the distribution
record date shall be entitled to receive the distributions provided for in the
prepackaged plan. As of the close of business on the distribution record date,
the respective transfer ledgers in respect of the notes and term loans will be
closed, for purposes of making the distributions required in accordance with the
provisions of the prepackaged plan. We and the disbursing agent will have no
obligation to recognize any transfer of notes or term loans occurring after the
distribution record date for purposes of such distributions. We and the
disbursing agent will recognize and, for purposes of making such distributions
under the prepackaged plan, deal only with those holders of record reflected on
the transfer ledgers maintained by the registrars for the notes and term loans
as of the close of business on the distribution record date, provided that
nothing contained in the prepackaged plan will be deemed to prohibit or
otherwise restrict the right of any such holder to transfer such securities at
any time.
Distributions to holders of allowed claims and allowed interests will be
made at the address of each such holder as set forth on the schedules filed by
us with the bankruptcy court unless
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superseded by the address as set forth on the proofs of claim or proofs of
interest filed by such holder or other writings notifying us of a change of
address (or at the last known address of such holder if no proof of claim or
proof of interest is filed or if we have not been notified in writing of a
change of address), or in the case of holders of note or term loan claims may be
made at the addresses of the registered holders contained in the records of the
registrar as of the distribution record date, except as provided below. If any
holder's distribution is returned as undeliverable, no further distributions to
such holder will be made, unless and until we or the disbursing agent are
notified of such holder's then current address, at which time all missed
distributions will be made to such holder together with any interest or
dividends earned thereon. Amounts in respect of undeliverable distributions made
through a disbursing agent will be returned to such disbursing agent making such
distribution until such distributions are claimed. All claims for undeliverable
distributions will be made on or before the later of the second anniversary of
the date the prepackaged plan becomes effective and the date 90 days after such
claim is allowed. After such date all unclaimed property held by a disbursing
agent for distribution to holders will be returned to us and the claim of any
holder with respect to such property will be discharged and forever barred.
CONDITIONS TO EFFECTIVE DATE OF THE PREPACKAGED PLAN
The effective date of the prepackaged plan will not occur until the
conditions set forth below have been satisfied or waived:
the confirmation order is a final order;
the new equity investment is funded; and
any waiting period applicable to the consummation of the prepackaged plan
and occurrence of the effective date under the Hart-Scott-Rodino Act shall
have expired or be terminated.
Only the debtor may waive the 'final order' condition in its sole and
absolute discretion, by filing a written waiver. No other condition is waivable
by any party in interest.
MODIFICATION OF PREPACKAGED PLAN
The proponents of the prepackaged plan reserve the right in accordance with
Section 1127(a) of the Bankruptcy Code and Bankruptcy Rule 3019, after hearing
on notice to the committee(s) and such other entities designated by the
bankruptcy court, to amend or modify the prepackaged plan prior to the entry of
the confirmation order of the bankruptcy court by amending or modifying or
supplementing the prepackaged plan, the indentures, instruments or agreements to
be executed and delivered pursuant to the prepackaged plan or any other
documents.
If the bankruptcy court finds that the proposed modification does not
'adversely change' the treatment of a creditor or interest holder, the
modification will be deemed accepted by all those who previously accepted the
plan. If the proposed modification 'adversely changes' the treatment of a
creditor or interest holder who has accepted the plan prior to the modification,
we will solicit the acceptance of such modification from such creditors or
equity holders, unless such holders have:
consented in writing to the modification;
been deemed to accept pursuant to Section 1126(f) of the Bankruptcy Code;
or
been deemed to have rejected pursuant to Section 1126(g) of the Bankruptcy
Code.
WITHDRAWAL OF PREPACKAGED PLAN
We reserve the right to revoke and withdraw the prepackaged plan at any time
prior to the entry of the confirmation order of the bankruptcy court. After
withdrawal, or if entry of the confirmation order of the bankruptcy court does
not occur, the prepackaged plan will be deemed null and void. In that event,
nothing contained in the prepackaged plan or in any letter of transmittal or
ballot shall be deemed to constitute a waiver or release of any claims by or
against
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or any interests in us, or to prejudice in any manner our rights or the holders
of any claim or interest in any further proceedings.
EFFECTS OF PREPACKAGED PLAN CONFIRMATION
DISCHARGE
The rights afforded in the plan and the treatment of all claims and
interests therein shall be in exchange for and in complete satisfaction,
discharge and release of all claims and interests of any nature, whatsoever,
including any interest accrued on such claims from and after the petition date.
Except as otherwise provided in the plan or the confirmation order, on or after
the effective date: (i) we will be discharged and released to the fullest extent
permitted by Section 1141 of the Bankruptcy Code from all claims and interests,
including claims and interests that arose before the effective date and all
debts of the kind specified in Sections 502(g), 502(h) or 502(i) of the
Bankruptcy Code whether or not: (a) a proof of claim or proof of interest based
on such claim or interest is filed or deemed filed pursuant to Section 501 of
the Bankruptcy Code, (b) a claim or interest based on such claim or interest is
allowed pursuant to Section 502 of the Bankruptcy Code, or (c) the holder of a
claim or interest based on such claim or interest has accepted the plan; and
(ii) all persons will be precluded from asserting against us, our successors or
our assets or properties any other or future claims or interests based upon any
act or omission, transaction or other activity of any kind or nature that
occurred before the effective date.
Except as otherwise provided in the plan or the confirmation order and in
addition the injunction provided under Sections 524(a) and 1141 of the
Bankruptcy Code, on and after the effective date of the prepackaged plan, all
persons who have held, currently hold or may hold a debt, claim or interest
discharged under the plan are permanently enjoined from taking any of the
following actions on account of any such discharge, debt, claim or interest:
commencing or continuing in any manner any action or other proceeding
against our successors or our respective properties;
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against us, our successors, or our properties;
creating, perfecting or enforcing any lien or encumbrance against us, our
successors or our properties;
asserting any setoff, right of subrogation or recoupment of any kind
against any obligation due us, our successors or our properties; and
commencing or continuing any action in any manner, in any place that does
not comply with or is inconsistent with the provisions of the plan or the
confirmation order.
Any person injured by any willful violation of such injunction may recover
actual damages, including costs and attorneys' fees and, in appropriate
circumstances, may recover punitive damages from the willful violator.
REVESTING OF ASSETS AND OPERATIONS OF PROPERTY
As of the effective date, all property of the estate shall revest in us free
and clear of all claims, liens, encumbrances and other interests of the holders
of claims and interests. All rights, privileges, entitlements, the
authorizations, grants, permits, licenses, easements, franchises, and other
similar items which constitute part of, or are necessary or useful in the
operation of our property or business now conducted by us (including our FCC
licenses), will be vested in us on the effective date of the prepackaged plan
and will thereafter be exercisable and usable by us to the same and fullest
extent they would have been exercisable and usable by us before the petition
date. From and after the effective date, we may operate our business and use,
acquire and dispose of property and settle and compromise claims or interests
without supervision by the bankruptcy court and free of any restrictions of the
Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly
imposed by the plan and the confirmation order.
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RETENTION OF CAUSES OF ACTION
Except to the extent such rights, claims, causes of action, defenses, and
counterclaims are expressly and specifically released in connection with the
plan, or in any settlement agreement approved during our reorganization case:
all rights, claims, causes of action, defenses, and counterclaims of or
accruing to us will remain our assets, whether or not litigation relating
thereto is pending on the effective date, and whether or not any such
rights, claims, causes of action, defenses, and counterclaims have been
listed or referred to in the plan, the schedules, or any other document
filed with the bankruptcy court, and
we do not waive, relinquish, or abandon (nor will we be estopped or
otherwise precluded from asserting) any right, claim, cause of action,
defense, or counterclaim: (a) whether or not such right, claim, cause of
action, defense, or counterclaim has been listed or referred to in the plan
or the schedules, or any other document filed with the bankruptcy court,
(b) whether or not such right, claim, cause of action, defense, or
counterclaim is currently known to us, and (c) whether or not a defendant
in any litigation relating to such right, claim, cause of action, defense,
or counterclaim filed a proof of claim or interest in the reorganization
case, filed a notice of appearance or any other pleading or notice in the
reorganization case, voted for or against the prepackaged plan, or received
or retained any consideration under the prepackaged plan. Without in any
manner limiting the generality of the foregoing, notwithstanding any
otherwise applicable principle of law or equity, including, without
limitation, any principles of judicial estoppel, res judicata, collateral
estoppel, issue preclusion, or any similar doctrine, the failure to list,
disclose, describe, identify, or refer to a right, claim, cause of action,
defense, or counterclaim, or potential right, claim, cause of action,
defense, or counterclaim, in the plan, the schedules, or any other document
filed with the bankruptcy court will in no manner waive, eliminate, modify,
release, or alter our right to commence, prosecute, defend against, settle,
and realize upon any rights, claims, causes of action, defenses, or
counterclaims that we have or may have, as of the confirmation date. We may
commence, prosecute, defend against, settle, and realize upon any rights,
claims, causes of action, defenses, and counterclaims in our sole
discretion, in accordance with what is in our best interests.
OBJECTIONS TO CLAIMS AND INTERESTS/DISTRIBUTIONS
The prepackaged plan provides that we may object to the allowance of claims
or interests filed with the bankruptcy court and that after the date the
prepackaged plan becomes effective only we may object to the allowance of claims
and interests. Such objections may be resolved by a final order or by compromise
or settlement. We, on the one hand, or the holder of any disputed claim, on the
other hand, may seek resolution and/or enforcement of an unimpaired disputed
claim (other than a claim arising from the rejection of an unexpired lease or
executory contract), if proof of the claim is timely filed, in the bankruptcy
court, or, if no proof of claim is timely filed, in any other court of competent
jurisdiction, either before or after the date the prepackaged plan becomes
effective. Rejection claims may be resolved only in the bankruptcy court
pursuant to the provisions of the prepackaged plan.
At such time as a disputed claim or disputed interest becomes an allowed
claim or allowed interest, in whole or in part, the prepackaged plan provides
that the holder of such claim or interest will receive on the distribution date
the property that would have been distributed to such holder on the date the
prepackaged plan becomes effective if such allowed claim or allowed interest was
an allowed claim or allowed interest on the date the prepackaged plan becomes
effective.
LIMITATION OF LIABILITY
Except as otherwise provided in the plan or the confirmation order, neither
us, the committee established by the bankruptcy court, the informal creditors'
committee, any signatory to the lockup
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agreement nor any of their respective officers, directors, members or employees
(acting in such capacity), nor any professional persons employed by any of them
shall have or incur any liability to any entity or person for any action taken
or omitted to be taken in connection with or related to our reorganization case,
the formulation, preparation, dissemination, solicitation, confirmation or
consummation of the prepackaged plan, the lockup agreement, or any other action
taken or omitted to be taken in connection with the plan or the prepetition
restructuring efforts; provided that the foregoing will have no effect on the
liability of any entity that would otherwise result from any such act or
omission to the extent that such act or omission is determined in a final order
to have constituted gross negligence or willful misconduct.
RETENTION OF JURISDICTION
The prepackaged plan provides that the bankruptcy court will retain and have
jurisdiction of all matters arising in, arising under, and related to our
reorganization case and the prepackaged plan pursuant to, and for the purposes
of, Sections 105(a) and 1142 of the Bankruptcy Code.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
On the effective date of the prepackaged plan, and to the extent permitted
by applicable law, all of our executory contracts and unexpired leases will be
assumed in accordance with the provisions of Section 365 and Section 1123 of the
Bankruptcy Code, excluding:
any and all executory contracts or unexpired leases which are the subject
of separate motions filed pursuant to Section 365 of the Bankruptcy Code by
us prior to the commencement of the hearing on confirmation of the
prepackaged plan; and
all executory contracts or unexpired leases rejected prior to the entry of
the confirmation order of the bankruptcy court.
Contracts or leases entered into after the date of commencement of our
reorganization case will be performed by us in the ordinary course of business.
In order to assume an executory contract or unexpired lease, we must, if there
has been a default in such executory contract or unexpired lease, other than a
default caused solely by the filing of our reorganization case, at the time of
assumption:
cure, or provide adequate assurance that we will cure such default;
compensate or provide adequate assurance that we will promptly compensate,
a party to such contract or lease, for any actual pecuniary loss to such
party resulting from such default; and
provide adequate assurance of future performance under such contract or
lease.
Any claims arising out of the rejection of contracts or leases must be filed
with the bankruptcy court within 30 days after the later of:
the entry of a final order authorizing such rejection; and
the confirmation date of the prepackaged plan, or be forever barred.
Each such claim will constitute a Class 7 claim, to the extent such claim is
allowed by the bankruptcy court.
The prepackaged plan provides that we will assume, on the date the
prepackaged plan becomes effective, our agreement with UBS Warburg LLC
concerning the engagement of UBS Warburg LLC by us to render financial advisory
services to us in connection with the recapitalization plan. We believe that we
will be able to satisfy the requirements for assumption of our agreement with
UBS Warburg LLC on the date the prepackaged plan becomes effective.
If the prepackaged plan is confirmed, we will remain responsible to pay UBS
Warburg LLC, subject to the approval of the bankruptcy court in accordance with
the applicable provisions of the Bankruptcy Code, the transaction fee. We are
also obligated to pay UBS Warburg LLC reasonable out-of-pocket expenses
(including counsel fees) and will retain certain indemnity obligations
94
pursuant to this agreement. We have paid the monthly fees owing under our
agreement with UBS Warburg LLC and have committed to continue to pay the monthly
fees. For a description of our agreement with UBS Warburg LLC, see 'The Exchange
Offer and Consent Solicitation -- Fees and Expenses.'
We currently intend to assume substantially all other executory contracts
and unexpired leases in accordance with their terms.
MISCELLANEOUS PREPACKAGED PLAN PROVISIONS
UNCLAIMED DISTRIBUTIONS
If any person entitled to receive common stock directly from the disbursing
agent cannot be located on the date the prepackaged plan becomes effective, such
common stock will be set aside and held by us. If such person is located within
two years after the date the prepackaged plan becomes effective, such common
stock will be paid or distributed to such person. If such person cannot be
located within two years after the date the prepackaged plan becomes effective
all unclaimed property held by the disbursing agent for holders of allowed note
and term loan claims will be returned to us, and we will retain such property
representing securities allocable to such holders of note and term loan claims
(excluding such property as may be reserved by any indenture trustee pursuant to
an indenture trustee charging lien). All such property which is so returned to
us will be canceled, and all other unclaimed property will be returned to us,
and the claim of any holder with respect to such property will be discharged and
forever barred.
SOURCES AND USES OF FUNDS
We estimate that approximately $45 million will be required to make the cash
payments that are to be made pursuant to the provisions of the prepackaged plan,
i.e., the cash required to pay administrative claims, trade claims and employee
expenses during our reorganization case. We estimate that our existing cash will
be sufficient to cover our cash obligations under the prepackaged plan, as well
as provide us with sufficient working capital to meet our ongoing obligations
and any additional cash needs.
TREATMENT OF TRADE CREDITORS AND EMPLOYEES DURING OUR REORGANIZATION CASE
WE INTEND PROMPTLY FOLLOWING THE COMMENCEMENT OF OUR REORGANIZATION CASE TO
SEEK BANKRUPTCY COURT APPROVAL OF VARIOUS MEASURES DESIGNED TO ENSURE THAT OUR
TRADE CREDITORS AND EMPLOYEES ARE UNAFFECTED BY THE FILING.
We intend to seek the approval of the bankruptcy court, promptly following
the commencement of our reorganization case, to make payments in the ordinary
course of business in respect of claims of trade creditors. However, the
bankruptcy court may not permit an early payment of the claims of trade
creditors. IN ANY EVENT, THE PREPACKAGED PLAN PROVIDES THAT VALID CLAIMS OF
TRADE CREDITORS ARE TO BE PAID IN FULL AND THAT THE HOLDERS OF SUCH CLAIMS WILL
NOT BE REQUIRED TO FILE A PROOF OF CLAIM OR TAKE ANY OTHER FORMAL ACTION TO
OBTAIN SUCH PAYMENT.
Salaries, wages, expense reimbursements, accrued paid vacations,
health-related benefits, severance benefits and similar benefits of our
employees will be unaffected by the prepackaged plan. To ensure the continuity
of our work force and to further accommodate the unimpaired treatment of
employee benefits, we intend to seek the approval of the bankruptcy court,
promptly following the commencement of our reorganization case, to pay all
accrued prepetition salaries or wages, expense reimbursements and severance
benefits, to permit employees to utilize their paid vacation time which accrued
prior to the commencement of our reorganization case (so long as they remain our
employees) and to continue paying medical benefits under our health plans.
However, the bankruptcy court may not permit early payment of employee claims
and health benefits. IN ANY EVENT, THE PREPACKAGED PLAN PROVIDES FOR ALL
EMPLOYEE CLAIMS AND BENEFITS TO BE PAID OR HONORED NO LATER THAN THE DATE THE
PREPACKAGED PLAN BECOMES EFFECTIVE OR THE DATE WHEN
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SUCH PAYMENT OR OTHER OBLIGATION BECOMES DUE AND PERFORMABLE. EMPLOYEES SHALL
NOT BE REQUIRED TO FILE A PROOF OF CLAIM OR TAKE ANY OTHER FORMAL ACTION TO
OBTAIN SUCH PAYMENT.
We estimate that payments to trade creditors and employees will total
approximately $20 million over 45 days.
In addition to any orders relating to the payment of prepetition claims of
trade creditors, customers and employees, before the date the bankruptcy
petition is filed, we intend to seek certain orders very shortly after
commencement of our reorganization case, including the following (if necessary):
an order authorizing the retention of professionals (including accountants,
attorneys and financial advisors) in connection with our reorganization
case;
an order authorizing the retention of ordinary course professionals without
the filing of individual retention applications and affidavits;
an order authorizing us (a) to continue our current cash management system,
(b) to maintain prepetition bank accounts and (c) to continue use of
existing business forms and existing books and records;
an order to permit us to use our current internal financial records and to
be relieved from the filing of certain forms and schedules otherwise
required by the 'United States Trustee Operating Guidelines and Reporting
Requirements' (the 'Guidelines') to the extent the Guidelines are
inconsistent with such current internal financial records;
an order authorizing us to continue our current investment guidelines and
invest our available cash in the customary manner and consistent with past
practices;
an order fixing the dates for the hearings on approval of this prospectus
and the prepackaged plan solicitation and confirmation of the prepackaged
plan;
an order enjoining the continuation of collection or other enforcement
actions against us pending confirmation of the prepackaged plan; and
such other orders as are typical in reorganization cases or that may be
necessary for the preservation of our assets or for confirmation of the
prepackaged plan.
This list is subject to change depending upon our needs in connection with
our operations during our reorganization case. Failure of the bankruptcy court
to enter one or more of these orders, or a delay in doing so, could result in
our reorganization case becoming protracted and could delay, perhaps materially,
the hearing on, and the ultimate confirmation of, the prepackaged plan.
TREATMENT OF HOLDERS OF CERTAIN INDEMNITY CLAIMS
We believe that our obligations to indemnify our present and former
directors, controlling persons, officers, affiliates, employees, advisors or
agents against any obligation pursuant to our certificate of incorporation,
bylaws, applicable state law or any specific agreement, or any combination of
the foregoing, would constitute general unsecured claims in Class 7 under the
prepackaged plan, which are unimpaired and which survive the confirmation of the
prepackaged plan. The prepackaged plan provides specifically with regard to such
indemnity claims that they will survive confirmation of the prepackaged plan,
remain unaffected thereby, and not be discharged, regardless of whether
indemnification is owed in connection with an event occurring before or after
the commencement of our reorganization case. We currently have obligations
pursuant to our certificate of incorporation, bylaws and by specific agreement
to indemnify such persons against any and all claims that may be made against
them as a result of their services to us to the extent permitted by the laws of
the State of Delaware. It is our intention that this obligation to indemnify
extend to the fullest extent permitted by Sections 1123 and 1141 of the
Bankruptcy Code. This indemnification is in addition to, and does not supersede,
the 'safe harbor' from liability provided by Section 1125(e) of the Bankruptcy
Code for violation of applicable laws
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governing the solicitation of votes on a plan or the offer, issuance, sale or
purchase of securities in connection with a plan.
Pursuant to Section 502(e) of the Bankruptcy Code, the bankruptcy court will
disallow any claim for reimbursement or contribution of an entity that is liable
with the debtor on or has secured the claim of a creditor, to the extent that
such claim is contingent as of the time of allowance or disallowance. Although
we are unaware of any indemnification claims discussed above which may be for
reimbursement or contribution of an entity that is liable with us on or has
secured the claim of a creditor and which are contingent, should any such claims
arise before the commencement of our reorganization case, and should the holder
of any such claim elect to file proof of their claim pursuant to the prepackaged
plan, then such claim should be disallowed if contingent at the time of its
consideration by the bankruptcy court. However, should the holder of any such
claim elect not to file proof of their claim pursuant to the prepackaged plan,
then the holder of such claim will be entitled to enforce their claim outside
the bankruptcy court at such time as their claim becomes non-contingent, in
which case the provisions of Section 502(e) of the Bankruptcy Code will have no
application.
THE PREPACKAGED PLAN SOLICITATION
Upon the terms and subject to the conditions set forth herein, we are
soliciting acceptances of the prepackaged plan from beneficial holders on the
voting record date of Classes 2, 3, 5, 8 and 9. Procedures for voting by
beneficial owners of securities in these classes and, if a beneficial owner is
not also the record holder, procedures for voting in conjunction with such
record holder, are discussed below. The term 'beneficial owner' includes any
person who has or shares, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise, the power to vote or
direct the voting of a security or other claim and/or dispose or direct the
disposition of a security even though such person may not be the registered
holder or holder of record on our books as of the close of business on the
'voting record date.' For purposes hereof, 'record holder' means a holder in
whose name a security is registered or held of record on our books as of the
close of business on the voting record date. The voting record date for purposes
of voting on the prepackaged plan is the close of business on January 21, 2003.
VOTING BY HOLDERS
Record holders of the securities in Classes 2, 3 and 5 will receive with
this disclosure statement a form of ballot to be used for voting to accept or
reject the prepackaged plan. In addition, record holders who are likely to be
brokerage firms, commercial banks, trust companies or other nominees
(collectively, 'nominees') will receive a form of master ballot which is to be
used by nominees to record the votes of the beneficial owners for whom they hold
the notes. Beneficial owners who are not the record holders of notes on the
voting record date will vote on the prepackaged plan through their respective
record holders by returning to the nominee a completed ballot for inclusion by
such nominee in the total amount of notes voted by such nominee on the
corresponding master ballot.
Record holders of the securities who are also beneficial owners should
complete the ballot they receive and return it to the voting agent in the
envelope provided so that it is received by the voting agent no later than the
solicitation expiration date.
Nominees will receive, in addition to this prospectus, a form of ballot
which beneficial owners will use to instruct their nominees to cast their votes
for or against the prepackaged plan. Nominees should:
promptly provide copies of this prospectus and the ballot to their
beneficial owners who are their customers or who are the beneficial owners
for whose account they hold; and
request such beneficial owners to vote on the prepackaged plan and to
forward a properly completed ballot, as instructed by such nominee, to the
nominee.
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A nominee collecting the ballots of its customers should instruct its
customers to return their ballots to the nominee and should compile the votes of
the beneficial owners who return executed ballots. Any such nominee should
complete a master ballot indicating the total amount of securities and number of
beneficial owners of such securities for which it received ballots, and the
total amount of securities and the number of beneficial owners of such
securities voted to accept or to reject the prepackaged plan, and return such
master ballot to the voting agent, prior to the solicitation expiration date.
The nominee should also retain all ballots it receives from its beneficial
owners for disclosure to the bankruptcy court if necessary. A nominee who is
also the beneficial owner of securities, registered in its own name on the
voting record date, should execute a ballot to cast its own vote and then record
that vote on the master ballot to be returned.
THE DECISION TO VOTE ON THE PREPACKAGED PLAN IS
COMPLETELY INDEPENDENT FROM THE DECISION OF WHETHER OR NOT
TO TENDER DEBT SECURITIES IN THE EXCHANGE OFFER OR TO VOTE
IN FAVOR OF OR AGAINST THE PROPOSED AMENDMENTS AND WAIVERS.
NEITHER TENDER OF DEBT SECURITIES IN THE EXCHANGE OFFER NOR
CONSENT TO THE PROPOSED AMENDMENTS AND WAIVERS WILL
CONSTITUTE ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN.
THEREFORE, ALL HOLDERS OF OUTSTANDING DEBT SECURITIES ARE
ENCOURAGED TO VOTE TO ACCEPT OR REJECT THE PREPACKAGED PLAN
REGARDLESS OF WHETHER THEY CHOOSE TO PARTICIPATE IN THE
EXCHANGE OFFER. IN ADDITION, HOLDERS OF OUTSTANDING DEBT
SECURITIES WHO ARE NOT ACCEPTING THE EXCHANGE OFFER SHOULD
NOT RETURN THEIR OUTSTANDING DEBT SECURITIES WITH THE LETTER
OF TRANSMITTAL, WHETHER OR NOT THEY VOTE TO ACCEPT OR REJECT
THE PREPACKAGED PLAN.
PLEASE NOTE THAT A VOTE BY A HOLDER OF OUTSTANDING
SECURITIES TO ACCEPT THE PREPACKAGED PLAN OR A FAILURE TO
OBJECT TO CONFIRMATION OF THE PREPACKAGED PLAN DOES NOT
CONSTITUTE THE ACCEPTANCE OR ACKNOWLEDGEMENT BY THE HOLDER
OF THE ACCURACY OF ANY OF THE STATEMENTS, REPRESENTATIONS,
VALUATIONS, FORECASTS OR OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS AND MAY NOT BE USED BY US OR ANY OTHER PERSON AS
AN ADMISSION OF ANY KIND ON THE PART OF THE HOLDER. A VOTE
BY ANY SUCH HOLDER TO ACCEPT THE PREPACKAGED PLAN MAY BE
USED BY US SOLELY FOR PURPOSES OF DETERMINING AND
REPRESENTING TO THE BANKRUPTCY COURT THE ACCEPTANCE OR
REJECTION OF THE PREPACKAGED PLAN BY THE CLASS INTO WHICH
SUCH HOLDER'S CLAIM HAS BEEN PLACED.
Any beneficial owner of a security who acquired such security after the
voting record date and who wishes to vote on the prepackaged plan must arrange
to vote with its transferor by delivery to it of the ballot duly executed in
blank by (or a duly executed proxy from) the beneficial owner of such security
on the voting record date.
Please see the ballots, master ballots and accompanying instructions for
more detailed instructions for completing and executing the ballots and master
ballots.
SOLICITATION EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The solicitation of votes on the prepackaged plan pursuant to this
prospectus will expire on the solicitation expiration date, which is 5:00 p.m.,
New York City time, on Tuesday, March 4, 2003 unless such date is extended as
set forth below, in which case the date to which it is extended will be the
solicitation expiration date. Except to the extent we so determine and as
permitted by the bankruptcy court, ballots that are received after 5:00 p.m.,
New York City time, on the solicitation expiration date will not be accepted or
used by us in connection with our request for confirmation of the prepackaged
plan.
We expressly reserve the right, at any time or from time to time, to extend
the period of time for which the solicitation of acceptances of the prepackaged
plan is to remain open by giving oral or written notice to the voting agent of
such extension. Any extension of the expiration of the solicitation period will
be followed by a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled solicitation
expiration date. Without limiting the manner in which we may choose to make the
public announcement, we will not have any obligation, unless otherwise required
by law, to publish, advertise or otherwise
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communicate any such public announcement other than by making a timely release
to the Dow Jones News Service. During any extension of the prepackaged plan
solicitation, all ballots previously given will remain subject to all the terms
and conditions of the prepackaged plan solicitation, including the withdrawal
and revocation rights specified herein.
We expressly reserve the right to amend, at any time and from time to time,
the terms of the prepackaged plan solicitation or to terminate the prepackaged
plan solicitation and not accept any ballots or master ballots. If we make a
material change in the terms of the prepackaged plan solicitation, we will
disseminate additional solicitation materials and will extend the solicitation
period, in each case to the extent required by law.
TERMINATION
Notwithstanding any provisions of the prepackaged plan solicitation, we will
not be required to accept any ballot or master ballot and we may terminate this
prepackaged plan solicitation at our option at any time on or after the date of
the commencement of the prepackaged plan solicitation. Any termination of the
prepackaged plan solicitation prior to the solicitation expiration date will be
followed by a public announcement thereof not later than 9:00 a.m., New York
City time, on the next business day after such termination.
AGREEMENTS UPON FURNISHING BALLOTS
The delivery of a ballot by a beneficial owner or record holder in
accordance with the procedures set forth herein will constitute an agreement
between such person or entity and us to accept all the terms of, and conditions
to, this prepackaged plan solicitation.
In addition, by executing and delivering a ballot to a brokerage firm,
commercial bank, trust company or other nominee for the purpose of reflecting a
vote in such nominee's master ballot, a beneficial owner will authorize and
consent to the delivery of such beneficial owner's ballot to the voting agent by
such brokerage firm, commercial bank, trust company, or other nominee upon the
written request therefor by us or the voting agent.
MISCELLANEOUS
ANY BALLOT THAT IS EXECUTED AND RETURNED BUT DOES NOT INDICATE AN ACCEPTANCE
OR REJECTION OF THE PREPACKAGED PLAN (OR THAT INDICATES BOTH AN ACCEPTANCE AND A
REJECTION OF THE PREPACKAGED PLAN) WILL BE DEEMED TO CONSTITUTE AN ABSTENTION
WITH RESPECT TO THE PREPACKAGED PLAN. FAILURE BY A BENEFICIAL OWNER OR RECORD
HOLDER TO SEND A SIGNED BALLOT WILL ALSO BE DEEMED TO CONSTITUTE AN ABSTENTION
WITH RESPECT TO THE PREPACKAGED PLAN.
ANY BALLOT OR MASTER BALLOT THAT IS EXECUTED, RETURNED
AND INDICATES EITHER AN ACCEPTANCE OR REJECTION OF THE
PREPACKAGED PLAN BUT IN WHICH THE INFORMATION PERTAINING TO
THE SECURITIES BEING VOTED HAS BEEN MISSTATED OR IS NOT
STATED BY THE OWNER WILL BE DEEMED TO CONSTITUTE A VOTE OF
THE TOTAL AMOUNT OF THE SECURITIES OF THAT TYPE HELD OF
RECORD OR HELD THROUGH A NOMINEE BY THE OWNER AND WHICH
COULD VALIDLY HAVE BEEN VOTED BY SAID BALLOT OR MASTER
BALLOT, AS INDICATED.
Unless a ballot or master ballot is completed acceptably and timely
submitted to the voting agent on or prior to the solicitation expiration date,
together with any other documents required by such ballot, we may, unless the
bankruptcy court determines otherwise, in our sole discretion, reject such
ballot or master ballot as invalid and, therefore, decline to utilize it in
connection with seeking confirmation of the prepackaged plan by the bankruptcy
court. For more specific information regarding the address to which the
ballot(s) should be returned, refer to the instructions accompanying the
ballot(s) or master ballot(s) or contact the voting agent at any of its
addresses or phone numbers set forth on the back cover of this prospectus.
IN NO CASE SHOULD A BALLOT BE DELIVERED TO US OR THE INDENTURE TRUSTEES.
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IF YOU HAVE ANY QUESTIONS AS TO VOTING ON THE PREPACKAGED PLAN, CONTACT THE
INFORMATION AGENT AT ITS ADDRESS OR PHONE NUMBER SET FORTH ON THE BACK COVER OF
THIS PROSPECTUS.
CERTIFICATIONS
By executing and returning a ballot, a person or entity
will certify that such person or entity is the beneficial owner on the
voting record date (or has a duly executed proxy from such beneficial
owner) of the claims or interests being voted and that such person or
entity has full power and authority to vote to accept or to reject the
prepackaged plan;
will certify that such person or entity has received and/or has had an
opportunity to review a copy of this prospectus and the other applicable
solicitation materials and will acknowledge that the prepackaged plan
solicitation is being made pursuant to the terms and conditions set forth
therein;
in the case of a ballot for a class of note claims, will certify that such
person or entity either (a) is not submitting any other ballots with
respect to securities of the same class, held in other accounts or other
record names, or (b) is providing the names of, aggregate number of
accounts with, and principal amount of all notes held by each record holder
on its behalf on the voting record date and the number of ballots submitted
on its behalf, and, in each case, that such person or entity has cast the
same vote on all ballots to be submitted on its behalf with respect to the
securities that it owns within a given class, and acknowledges that its
vote with respect to such securities within a given class will be counted
once in determining whether the requisite number of beneficial owners of
such class voted to accept the prepackaged plan; and
will acknowledge that the submission of a ballot will constitute a request
of the beneficial owner to be treated as the holder of record of the
securities to which such ballot related within the meaning of Bankruptcy
Rule 3018(b).
A broker, dealer, commercial bank, trust company or other nominee which is a
record holder of notes will prepare, execute and deliver master ballot(s) to the
voting agent to reflect the votes of the beneficial owners for whom it holds
securities. By executing and returning a master ballot(s) such nominee:
will certify that each such master ballot is an accurate compilation of the
information included in the completed and executed ballots received from
its beneficial owners;
will certify that such nominee will retain in its files for disclosure to
the bankruptcy court, if ordered, all ballots submitted to it, or copies
thereof, until the earlier to occur of the entry of a final order
confirming the prepackaged plan or the entry of a final decree closing our
reorganization case;
will certify that such nominee has provided a copy of the prospectus and
other applicable solicitation materials to each beneficial owner included
in such master ballot and will acknowledge that the solicitation is subject
to all the terms and conditions set forth in the prospectus;
will certify that such nominee has received a duly completed and executed
ballot, including all certifications required therein, from each beneficial
owner included in such master ballot;
will certify that such nominee is the record holder (or holds a written
proxy to vote on behalf of such record holder) of the securities included
in each such master ballot and/or has full power and authority to vote to
accept or to reject the prepackaged plan and will acknowledge that the
submission of such master ballot will constitute a request of such nominee
to be treated as the holder of record of the securities to which such
master ballot relates within the meaning of Bankruptcy Rule 3018(b); and
will provide the total amount of notes in each respective master ballot
voted to accept and voted to reject the prepackaged plan.
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WAIVER OF IRREGULARITIES
Unless otherwise directed by the bankruptcy court, all questions as to the
validity, form, eligibility (including time of receipt), acceptance and
revocation or withdrawal of master ballots or ballots will be determined in our
sole discretion, which determination will be final and binding. We also
expressly reserve the right to reject any and all master ballots or ballots not
in proper form the acceptance of which would, in our opinion or in the opinion
of our counsel, be unlawful. We further expressly reserve the right to waive any
defects or irregularities or conditions of delivery as to any particular master
ballot or ballot. Our interpretation (including of the master ballot or ballot
and the respective instructions thereto), unless otherwise directed by the
bankruptcy court, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with deliveries of master ballots or
ballots must be cured within such time as we (or the bankruptcy court)
determine. Neither we nor any other person will be under any duty to provide
notification of defects or irregularities with respect to deliveries of, nor
notices of revocation or withdrawal of master ballots or ballots, nor will any
of them incur any liabilities for failure to provide such notifications. Unless
otherwise directed by the bankruptcy court, delivery of such master ballots or
ballots will not be deemed to have been made until such irregularities have been
cured or waived. Master ballots or ballots previously furnished (and as to which
any irregularities have not been cured or waived) will be invalidated.
WITHDRAWAL; REVOCATION RIGHTS
Acceptances or rejections may be withdrawn or revoked at any time prior to
the solicitation expiration date by the beneficial owner on the voting record
date who completed the original master ballot or ballot, or by the nominee who
completed the master ballot in such beneficial owner's name, as the case may be.
We do not intend to commence a reorganization case prior to the solicitation
expiration date, although we reserve the right to do so in our sole discretion.
After commencement of our reorganization case, withdrawal or revocation of votes
accepting or rejecting the prepackaged plan may be effected only with the
approval of the bankruptcy court.
Acceptances or rejections in regard to the prepackaged plan may be withdrawn
or revoked prior to commencement of our reorganization case by complying with
the following procedures: (1) a beneficial owner of notes should deliver a
written notice of withdrawal or revocation to such record holder for endorsement
and delivery to the voting agent and (2) a record holder of notes who voted
securities held for their own account should deliver a written notice of
withdrawal or revocation to the voting agent. To be effective, a notice of
revocation and withdrawal must:
be timely received by the voting agent at its address specified on the back
cover of this prospectus,
specify the name and/or customer account number of the beneficial owner
whose vote on the prepackaged plan is being withdrawn or revoked,
contain the description of the claim as to which a vote on the prepackaged
plan is withdrawn or revoked, and
be signed by the beneficial owner of the claim who executed the ballot
reflecting the vote being withdrawn or revoked, or by the nominee who
executed the master ballot reflecting the vote being withdrawn or revoked,
as applicable, in each case in the same manner as the original signature on
the ballot or master ballot, as the case may be.
After the commencement of our reorganization case, a notice of withdrawal of
a previously furnished ballot or master ballot will not be effective without the
approval of the bankruptcy court.
FEES AND EXPENSES
Arrangements may be made with brokerage firms and other custodians, nominees
and fiduciaries to forward the material regarding the prepackaged plan
solicitation to beneficial owners.
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We will reimburse such agents for reasonable out-of-pocket expenses incurred by
them, but no compensation will be paid for their services.
The voting agent will act as ballot agent with respect to votes by all
classes that are voting. The voting agent will receive reasonable and customary
compensation for its services, will be reimbursed for reasonable out-of-pocket
expenses and will be indemnified against certain expenses in connection
therewith. All questions regarding the prepackaged plan solicitation should be
directed to the information agent. All deliveries to the voting agent relating
to the prepackaged plan solicitation should be directed to the address set forth
on the back cover of this prospectus and included in the solicitation materials.
REQUESTS FOR INFORMATION OR ADDITIONAL COPIES OF THIS PROSPECTUS, VOTING
INSTRUCTIONS, MASTER BALLOTS OR BALLOTS SHOULD BE DIRECTED TO THE INFORMATION
AGENT AT ITS ADDRESS OR PHONE NUMBER SET FORTH ON THE BACK COVER OF THIS
PROSPECTUS.
RESTRICTION ON TRANSFER OF SECURITIES
The securities to be issued pursuant to the prepackaged plan may be freely
transferred by most recipients thereof, and all resales and subsequent
transactions in the new securities will be exempt from registration under
federal and state securities laws, unless the holder is an 'underwriter' with
respect to such securities. Section 1145(b) of the Bankruptcy Code defines four
types of 'underwriters':
(1) persons who purchase a claim against, an interest in, or a claim for
administrative expense against the debtor with a view to distributing
any security received in exchange for such a claim or interest;
(2) persons who offer to sell securities offered under a plan for the
holders of such securities;
(3) persons who offer to buy such securities for the holders of such
securities, if the offer to buy is (a) with a view to distributing such
securities or (b) made under a distribution agreement; and
(4) a person who is an 'issuer' with respect to the securities, as the term
'issuer' is defined in Section 2(11) of the Securities Act.
Under Section 2(11) of the Securities Act, an 'issuer' includes any person
directly or indirectly controlling or controlled by the issuer, or any person
under direct or indirect common control with the issuer.
To the extent that persons deemed to be 'underwriters' receive securities
pursuant to the prepackaged plan, resales by such persons would not be exempted
by Section 1145 of the Bankruptcy Code from registration under the Securities
Act or other applicable law. Persons deemed to be 'underwriters,' however, may
be able to sell such securities without registration, subject to the provisions
of Rule 144 under the Securities Act, which permits the public sale of
securities received pursuant to the prepackaged plan by 'underwriters,' subject
to the availability to the public of current information regarding the issuer,
volume limitations and certain other conditions.
Whether or not any particular person would be deemed to be an 'underwriter'
with respect to any security to be issued pursuant to the prepackaged plan would
depend upon various facts and circumstances applicable to that person.
Accordingly, we express no view as to whether any person would be an
'underwriter' with respect to any security to be issued pursuant to the
prepackaged plan.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF
WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER, WE MAKE
NO REPRESENTATION CONCERNING THE RIGHT OF ANY PERSON TO
TRADE IN THE COMMON STOCK TO BE DISTRIBUTED PURSUANT TO THE
PREPACKAGED PLAN. WE RECOMMEND THAT POTENTIAL RECIPIENTS OF
COMMON STOCK CONSULT THEIR OWN COUNSEL CONCERNING WHETHER
THEY MAY TRADE SUCH SECURITIES FREELY.
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SECURITIES LAW MATTERS
To the extent that the issuance, transfer or exchange of the securities to
be issued under the prepackaged plan are not exempt under Section 1145 of the
Bankruptcy Code, the issuance, transfer and exchange of the securities to be
issued under the prepackaged plan will be made by us in reliance upon the
exemption from the registration requirements of the Securities Act, afforded by
Rule 506 under the Securities Act.
CERTAIN TRANSACTIONS BY STOCKBROKERS
Under Section 1145(a)(4) of the Bankruptcy Code, stockbrokers are required
to deliver a copy of this prospectus (and supplements hereto, if any, if ordered
by the bankruptcy court) at or before the time of delivery of securities issued
under the prepackaged plan to their customers for the first 40 days after the
date the prepackaged plan becomes effective. This requirement specifically
applies to trading and other aftermarket transactions in such securities.
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UNAUDITED PROJECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are financial projections with respect to the estimated
effect of the transactions contemplated by the restructuring on our results of
operations and cash flows for the years ending December 31, 2003, 2004, 2005 and
2006. We do not, as a matter of course, publicly disclose projections as to our
future revenues, earnings or cash flow. In connection with our consideration of
the restructuring, certain projections of our future financial performance of
our operating businesses were prepared. Accordingly, we do not intend to review,
update or otherwise revise the projections. Significant assumptions underlying
the financial projections are set forth below and should be read in conjunction
with 'Unaudited Pro Forma Consolidated Financial Data.'
THE PROJECTIONS ARE BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS. ACTUAL
OPERATING RESULTS WILL VARY.
We prepared these projections to analyze our ability to meet our obligations
under the restructuring and to assist each holder of a claim in determining
whether to vote to accept or reject the prepackaged plan. These projections are
contained in this prospectus as required in connection with the filing of the
prepackaged plan, and, accordingly, should not be taken into account in making
your decision to tender your debt securities in the exchange offer. The
projections were not prepared to conform to the guidelines established by the
American Institute of Certified Public Accountants regarding financial forecasts
and were neither audited, compiled nor reviewed by our independent public
auditors. While presented with numerical specificity, these projections are
based upon a variety of assumptions (which we believe are reasonable), and are
subject to significant business, economic, and competitive uncertainties and
contingencies, many of which are beyond our control. Consequently, the inclusion
of the projections should not be regarded as a representation by us (or any
other person) that the projections will be realized, and actual results will
vary materially from those presented below. See 'Risk Factors' beginning on
page 13. The financial projections are based on assumptions which we believe are
reasonable but inherently contain significant uncertainties. Holders are
cautioned not to place undue reliance on these financial projections.
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
2003 2004 2005 2006
---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................................... $ 32 $ 146 $ 418 $ 819
Operating expenses.......................................... (425) (559) (631) (793)
------ ------ ------ -----
Income (loss) from operations............................... (393) (413) (213) 26
Restructuring of debt....................................... 327 -- -- --
Interest and investment income.............................. 1 -- -- 2
Interest expense............................................ (21) -- -- --
Preferred dividends......................................... (73) -- -- --
------ ------ ------ -----
Net income (loss) applicable to common stockholders......... $ (159) $ (413) $ (213) $ 28
Net income (loss) per share applicable to common
stockholders.............................................. $(0.20) $(0.43) $(0.22) $0.03
Weighted average common shares outstanding.................. 786 964 965 966
Adjusted EBITDA............................................. $ (295) $ (312) $ (112) $ 127
STATEMENT OF CASH FLOW DATA:
Cash, cash equivalents and marketable
securities -- beginning of period......................... $ 174 $ 58 $ (75) $ 56
Cash flows from operating activities........................ (293) (125) 145 388
Cash flows from investing activities........................ (17) (8) (14) (23)
Cash flows from financing activities........................ 194 -- -- --
------ ------ ------ -----
Cash and cash equivalents -- end of period.................. $ 58 $ (75) $ 56 $ 421
------ ------ ------ -----
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SUMMARY OF SIGNIFICANT ASSUMPTIONS
We have developed the projections to assist holders of our debt securities
in their evaluation of the prepackaged plan and to analyze its feasibility. The
projections are based upon a number of significant assumptions described below.
ACTUAL OPERATING RESULTS AND CASH FLOWS WILL VARY MATERIALLY FROM THOSE
PROJECTED. IN ADDITION, WE ARE ACTIVELY EXPLORING INITIATIVES TO REDUCE
OPERATING EXPENSES AND INCREASE OPERATING REVENUES. THESES INITIATIVES, IF
IMPLEMENTED, COULD HAVE A SIGNIFICANT EFFECT ON THE PROJECTIONS CONTAINED IN
THIS PROSPECTUS AND COULD AFFECT THE VALIDITY OF THE ASSUMPTIONS DESCRIBED
BELOW.
CLOSING DATE
Our projections assume the restructuring closes on March 15, 2003. If the
restructuring does not close by March 15, 2003, additional bankruptcy-related
expenses will be incurred until such time as a new plan of reorganization is
confirmed. These expenses could significantly impact our results of operations
and cash flows.
OPERATING REVENUES
We recognize revenue from subscription fees, activation fees, and
advertising we sell on our non-music channels. Our projected operating revenues
are based upon the assumptions described below as to subscription revenue,
subscriber acquisition, deactivations, activation revenue and advertising
revenue.
SUBSCRIPTION REVENUE
Our subscription fee is currently $12.95 per month. If a consumer prepays
for a multi-year subscription they currently receive a discount on the
subscription price. We project that our average annual revenue per subscriber,
excluding activation fee and advertising revenue, will increase from $143 in
2003 to $156 in 2006 as we identify new revenue streams, largely premium
offerings.
SUBSCRIBERS
Our projections assume that our gross additional subscribers will be 300,000
in 2003, 1.0 million in 2004, 1.7 million in 2005 and 2.3 million in 2006. End
of period subscribers are assumed to be 321,000 in 2003, 1.3 million in 2004,
2.9 million in 2005 and 4.9 million in 2006. We have also assumed that the
number of gross additional subscribers increases significantly in the second
half of 2003.
DEACTIVATIONS, OR CHURN
Our projections assume that our churn will be approximately 1.5% of our
subscriber base per month for monthly, quarterly, and semi-annual subscriptions
through 2005, increasing to 2.0% of our subscriber base per month thereafter. We
have assumed that our churn will increase as the price of our radios to
consumers decrease.
In preparing the projections, we also have assumed that 10% of all
multi-year prepaid subscribers deactivate our service at the end of their
respective terms through 2005. Commencing in 2006, we have assumed that
approximately 13% of all multi-year prepaid subscribers deactivate our service
at the end of their respective terms. For the prepaid subscribers who continue
with our service after their term is complete, we assume approximately 60% in
2003, increasing to 70% in 2004 renew subscriptions on a multi-year basis.
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ACTIVATION FEES
We receive a one-time activation fee of $15 for the majority of our
subscribers. Our projections assume that the majority of our future subscribers
will continue to pay this one-time activation fee.
ADVERTISING REVENUE
We receive advertising revenue from the sale of spot announcements to
advertisers on our non-music channels as the announcements are broadcast, less
any agency fees associated with the sale of each spot. Agency fees are
calculated based on a stated percentage applied to gross billing revenue for our
advertising inventory. The projections are based on the assumption that the unit
rate and sell out ratio for our advertising inventory significantly increase
each year as our subscriber base increases.
OPERATING EXPENSES
Operating expenses include both variable and fixed expenses. Fixed expenses
include general and administrative costs, overhead, sales and marketing
arrangements with radio manufacturers, retailers and OEMs, research and
development expenses and license fees we pay to third parties that provide our
non-music content. We project that our fixed operating expenses will increase
approximately 5% per year.
Our variable expenses are based on the number of subscribers and include
various items related to our business such as the following: hardware and
chipset subsidies, sales commissions and manufacturing and development funds,
which we call subscriber acquisition costs, that we pay in connection with the
acquisition of a subscriber; the costs we incur for customer care agents to
assist our subscribers; the costs associated with the maintenance of the
subscriber management system; the percentage of revenues we pay for music
royalties to performing rights organizations, such as The American Society of
Composers, Authors, and Publishers and The Recording Industry Association of
America; transaction fees we incur to credit card companies; the payments we
make to our automaker partners that are calculated on the volume of vehicles
they manufacture which are equipped with our radios; the per subscriber payments
we make to retailers and certain radio manufacturers; and the portion of
advertising spots we share with our non-music content providers. Although we
have assumed that subscriber acquisition costs decrease on a per subscriber
basis over time, we have assumed that our variable costs in the aggregate
increase in relation to our subscriber base.
INTEREST EXPENSE
We assume that following the consummation of the restructuring, all of our
outstanding debt will be exchanged for common stock. As a result, we have
eliminated all interest expense in our projections with respect to our Lehman
senior term loans, Loral senior term loans, senior secured discount notes,
senior secured notes and convertible subordinated notes following the closing of
the restructuring on March 15, 2003.
RESTRUCTURING OF DEBT
The estimated gain on the extinguishment of debt assumes the closing bid
price of our common stock on December 31, 2002, $0.64 per share, to be the
closing bid price on the closing date of the restructuring. In addition, our
projections assume that all of our outstanding debt will be exchanged for common
stock following the consummation of the restructuring. All costs related to the
restructuring of our debt will be expensed in the period in which they are
incurred. See 'Accounting Treatment of the Restructuring -- Exchange of Debt
Securities for Common Stock' for further discussion regarding the calculation of
the gain on the extinguishment of debt.
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PREFERRED STOCK DEEMED DIVIDENDS
The estimated preferred stock deemed dividend resulting from the exchange of
preferred stock for our common stock and warrants to purchase shares of our
common stock assumes the closing bid price of our common stock on the closing of
the restructuring will be $0.64 per share, the closing bid price on
December 31, 2002, and the total value of the warrants to be $17.0 million on
the closing date of the restructuring. In addition, our projections assume that
all of the outstanding preferred stock will be exchanged for common stock
following the consummation of the restructuring. Based on these assumptions, we
estimated the preferred stock deemed dividend resulting from this transaction to
be $62.8 million. See 'Accounting Treatment of the Restructuring -- Exchange of
Preferred Stock for Common Stock and Warrants' for further discussion regarding
the calculation of the preferred stock deemed dividend.
WEIGHTED AVERAGE COMMON SHARES
We have assumed an increase in our weighted average common shares
outstanding as a result of the conversion of our debt securities and preferred
stock into common shares in the restructuring. In addition, we have assumed that
our weighted average common shares outstanding increase as a result of issuing
shares of our common stock to an employee benefits plan.
ADJUSTED EBITDA
We define Adjusted EBITDA as earnings before interest, taxes, depreciation,
amortization and restructuring of debt. We have included Adjusted EBITDA data
because it is commonly used as a measure of performance. Adjusted EBITDA is not,
and should not be used as, an indicator or alternative to operating income
(loss), net income (loss) or cash flow as reflected in the company's
consolidated financial statements. Adjusted EBITDA is not a measure of financial
performance under accounting principles generally accepted in the United States
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with accounting principles generally accepted
in the United States. In addition, our calculation of Adjusted EBITDA may not be
comparable to EBITDA calculated by other companies.
CASH FLOW FROM OPERATING ACTIVITIES
We have assumed an increase over time in the percentage of subscribers
electing to prepay for multi-year subscriptions as well as improvement in
payment terms to various third parties, such as radio manufacturers and
retailers. Currently, approximately 35% of our subscribers pay monthly,
approximately 2.5% pay quarterly, approximately 2.5% pay semi-annually, and
approximately 60% pay once per year. Beginning in 2004, our projections assume a
greater shift toward multi-year subscriptions, particularly with respect to
subscriptions sold in our OEM and dealer aftermarket channels, when we expect
that subscriptions will be bundled into the financing and leases of a vehicle.
CASH FLOW FROM INVESTING ACTIVITIES
Cash flow from investing activities represents additions to property, plant
and equipment. Our projections assume that we make investments to replace our
terrestrial repeater equipment in the ordinary course of business and make other
investments in broadcast and satellite operations equipment. The balance of our
capital expenditures are projected to consist of investments in website
development and enhancements, and development and license fees related to our
subscriber management system.
CASH FLOW FROM FINANCING ACTIVITIES
Upon completion of the restructuring in 2003, we expect to receive $200
million in gross proceeds, or approximately $194 million in net proceeds, from
the sale of newly issued common stock in the new equity investment.
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DESCRIPTION OF CAPITAL STOCK AND WARRANTS
Our certificate of incorporation provides for authorized capital of
550,000,000 shares, consisting of 500,000,000 shares of common stock, par value
$0.001 per share, and 50,000,000 shares of preferred stock, par value $0.001 per
share. As part of the recapitalization, we are soliciting proxies from our
stockholders to amend and restate our certificate of incorporation to increase
our authorized shares to 2,500,000,000.
COMMON STOCK
As of December 31, 2002, we had 77,454,197 shares of common stock
outstanding held of record by approximately 75,000 persons, and had reserved for
issuance 85,979,164 shares of common stock with respect to incentive stock
plans, outstanding common stock purchase warrants and conversion of our
preferred stock.
Holders of our 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 our 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.'
If the minimum bid price of our common stock closes below $1.00 per share
for 30 or more consecutive trading days and we are unable to cure such defect
within a 90 day cure period, Nasdaq may delist our common stock from the Nasdaq
National Market. On December 23, 2002, Nasdaq notified us that the minimum bid
price of our common stock had closed below $1.00 for more that 30 consecutive
trading days and that we had until March 24, 2003 to cure such defect. If our
common stock fails to close above $1.00 for ten consecutive days prior to
March 24, 2003, we have the right to request a hearing prior to delisting by
Nasdaq. Such delisting will have an adverse impact on the liquidity of our
common stock and, as a result, the market price of our common stock may become
more volatile.
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 will have such number of shares,
designations, preferences, powers, qualifications and special or relative rights
or privileges as will 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 our 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.
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 9.2% Series B Junior Cumulative Convertible Preferred Stock.
As of December 31, 2001, we had 1,742,512 shares of 9.2% Series A Junior
Cumulative Convertible Preferred Stock outstanding and 781,548 shares of 9.2%
Series B Junior Cumulative Convertible Preferred Stock outstanding held of
record by Apollo. 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, 2001, we had
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2,343,091 shares of 9.2% Series D Junior Cumulative Convertible Preferred Stock
outstanding held of record by Blackstone.
In connection with the restructuring, all of our outstanding preferred stock
will be exchanged for common stock and will be retired and cancelled.
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, 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, January 28, 2000, August 7, 2000,
January 8, 2002 and October 22, 2002.
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 Partners, L.P.
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 Investment Fund IV,
L.P. and Apollo Overseas Partners IV, L.P. (collectively, 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 Junior Preferred Stock by The
Blackstone Group L.P. and certain of its affiliates and to permit the Blackstone
investors to (1) acquire additional shares of Junior Preferred Stock as
dividends on such preferred stock, (2) acquire additional shares of common stock
upon the conversion of shares of Junior 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 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. On August 7, 2000, we amended the Rights Agreement to appoint The Bank of
New York as the successor Rights Agent to Continental Stock Transfer & Trust
Company. On January 8, 2002, we amended the Rights Agreement to permit
OppenheimerFunds, Inc. and its affiliates to acquire up to 20% of the
outstanding shares of without becoming 'Acquiring Persons' within the meaning of
the Rights Agreement. On October 22, 2002, we amended the Rights Agreement to
extend the expiration date of the Rights to May 1, 2003. Prior to the closing of
the restructuring, we will further amend the Rights Agreement to render the
Rights Agreement inapplicable to the restructuring transactions.
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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 May 1, 2003, 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 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.
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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 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 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 our board of
directors with the concurrence of a majority of the independent directors or by
special approval of our stockholders; provided, however, that (a) this
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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:
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
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.
THE UNIT OFFERING WARRANTS
On May 18, 1999, we issued units composed of our senior secured notes and
warrants to purchase an aggregate of 2,190,000 shares of common stock at a price
of $28.60 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. In the event that we issue
common stock in the restructuring at a price below the current market value per
share as of the issue date, the number
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of shares of common stock issuable upon the exercise of these warrants and the
exercise price will be adjusted. As of September 30, 2002, there were warrants
outstanding to purchase 2,425,389 shares of common stock at a price of $24.92.
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 October 7, 2002, we canceled an existing warrant previously issued to
Ford and issued a new warrant to Ford which entitles Ford to purchase up to
4,000,000 shares of our common stock at a purchase price of $3.00 per share.
Ford's right to exercise this warrant vests:
with respect to 200,000 shares of our common stock, on the date the first
Ford vehicle with a Sirius radio installed by Ford or one of its dealers
(each, a 'Ford Enabled Vehicle') is activated by us for a bona fide
customer;
with respect to 200,000 shares of our common stock, on the date the first
Ford Enabled Vehicle that has a factory-installed Sirius radio is activated
by us for a bona fide customer;
with respect to 200,000 shares of our common stock, on the date that Ford
and us jointly launch a national advertising campaign promoting our
satellite radio service in Ford vehicles;
with respect to 100,000 shares of our common stock, on each date that a
Sirius radio is first available to be ordered by a bona fide customer as an
original equipment option on a Ford vehicle line; provided that in no event
will more than 1,400,000 shares of our common stock vest and become
exercisable pursuant to this provision;
with respect to one share of our common stock, upon the manufacture by Ford
of each of the first 375,000 Ford Enabled Vehicles;
with respect to 625,000 shares of our common stock, on the date that Ford
has manufactured an aggregate of 375,000 Ford Enabled Vehicles;
with respect to 500,000 shares of our common stock, on the date that Ford
has manufactured an aggregate of 750,000 Ford Enabled Vehicles; and
with respect to 500,000 shares of our common stock, on the date that Ford
has manufactured an aggregate of 1,500,000 Ford Enabled Vehicles.
If Ford terminates the exclusivity provisions contained in our agreement, we may
reduce by one-half the number of shares granted and the number of shares of our
common stock that vest and become exercisable under this warrant.
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 October 6, 2012 and the date
of termination or expiration of the agreement, dated October 7, 2002, 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. In the event
that we issue common stock in the restructuring at a price below the current
market value per share as of the issue date, the number of shares of common
stock issuable upon the exercise of the Ford warrant and the exercise price will
be adjusted. We may also grant additional warrants to Ford following completion
of the restructuring.
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THE DAIMLERCHRYSLER WARRANT
On October 25, 2002, we canceled an existing warrant previously issued to
DaimlerChrysler and issued a new warrant to DaimlerChrysler which entitles
DaimlerChrysler to purchase up to 4,000,000 shares of our common stock at a
purchase price of $3.00 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 250,000 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
800,000 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
1,600,000 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
2,400,000 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
3,200,000 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 October 25, 2002, 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. In
the event that we issue common stock in the restructuring at a price below the
current market value per share as of the issue date, the number of shares of
common stock issuable upon the exercise of the DaimlerChrysler warrant and the
exercise price of this warrant will be adjusted. We also plan to grant
additional warrants to DaimlerChrysler following completion of the
restructuring.
THE LEHMAN WARRANTS
In connection with the Lehman senior term loans, we issued to Lehman
warrants to purchase up to 2,100,000 shares of our common stock at a purchase
price of $15.00 per share. All of these warrants have vested.
525,000 of these warrants expire on December 27, 2010, 1,050,000 of these
warrants expire on March 7, 2011 and 525,000 warrants expire on April 4, 2011.
The number of shares of common stock to be issued under these warrants and the
exercise price of the warrants 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 Lehman notice of
adjustments in the number of shares issuable under these warrants and of
extraordinary corporate events. In the event that we issue common stock in the
restructuring at a price below the current market value per share as of the
issue date, the number of shares of common stock issuable upon the exercise of
the Lehman warrants and the exercise price of this warrant will be adjusted.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our current executive officers and directors are described below.
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
Joseph P. Clayton............................ 53 President and Chief Executive Officer and a
Director
Guy D. Johnson............................... 42 Executive Vice President, Sales and Marketing
Mary Patricia Ryan........................... 46 Executive Vice President, Marketing
John J. Scelfo............................... 45 Executive Vice President and Chief Financial
Officer
Patrick L. Donnelly.......................... 41 Executive Vice President, General Counsel and
Secretary
Michael S. Ledford........................... 53 Executive Vice President, Engineering
David Margolese.............................. 45 Chairman of the Board of Directors and a
Director
Leon D. Black................................ 51 Director
Lawrence F. Gilberti(1)(2)(3)................ 52 Director
James P. Holden(1)(3)........................ 51 Director
Peter G. Peterson(2)(3)...................... 76 Director
Joseph V. Vittoria(1)(2)..................... 67 Director
---------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Finance Committee.
JOSEPH P. CLAYTON has served as President and Chief Executive Officer since
November 2001. Mr. Clayton served as Vice Chairman of Global Crossing Ltd., a
global internet and long distance services provider, and President, Global
Crossing North America, from September 1999 until November 2001. On January 28,
2002, Global Crossing Ltd. and certain of its affiliates filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York. From August 1997
to September 1999, Mr. Clayton was President and Chief Executive Officer of
Frontier Corporation, a Rochester-based national provider of local telephone,
long distance, data, conferencing and wireless communications services, which
was acquired by Global Crossing in September 1999. Prior to joining Frontier,
Mr. Clayton was Executive Vice President, Marketing and Sales -- Americas and
Asia, of Thomson S.A., a leading consumer electronics company. Mr. Clayton is a
member of the board of directors of Transcend Services Inc., a trustee of
Bellarmine College and The Rochester Institute of Technology and a member of the
advisory board of the Indiana University School of Business.
GUY D. JOHNSON has served as Executive Vice President, Sales and Marketing,
since January 2002. From 1999 until January 2002, Mr. Johnson was a senior
strategic consultant to Thomson S.A., a leading consumer electronics company.
Prior to 1999, he was Senior Vice President, Sales and Product
Management -- Americas, for Thomson S.A.
MARY PATRICIA RYAN has served as Executive Vice President, Marketing, since
June 2002. From September 1999 to June 2002, Ms. Ryan was Executive Vice
President, Worldwide Marketing, of IMAX, Ltd., one of the world's leading film
and digital imaging technologies companies. From September 1998 to July 1999,
she was Executive Vice President, Marketing, of Lifetime Entertainment Services,
a cable television network, and prior to that she was Executive Vice President,
Marketing and Programming, of U.S. Satellite Broadcasting Company, the satellite
television service that was acquired by DirecTV in 1999.
JOHN J. SCELFO has served as Executive Vice President and Chief Financial
Officer since April 2001. From November 1999 to April 2001, Mr. Scelfo was Vice
President, Finance, for the Asian operations of Dell Computer Corporation, the
leading direct global computer systems company. Prior to Dell, he spent
19 years with Mobil Oil Corporation, an integrated energy operator,
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including as its Corporate Assistant Treasurer, Vice President of Global Risk
Management, and Chief Financial Officer of its operations in Japan and
Singapore.
PATRICK L. DONNELLY has served as Executive Vice President, General Counsel
and 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.
MICHAEL S. LEDFORD has served as Executive Vice President, Engineering,
since December 2002, and served as Senior Vice President, Engineering, from
September 2001 to December 2002. From July 2000 to September 2001, Mr. Ledford
was Vice President of Automotive Strategy at Wingcast, a joint venture between
Ford Motor Company and Qualcomm developing advanced wireless vehicle
applications, or telematics. Prior to Wingcast, he was the Executive Director of
Telematics at Ford, and prior to that was Corporate Executive Director for
Process Engineering responsible for overseeing Ford's worldwide introduction of
new technologies.
DAVID MARGOLESE has served as Chairman of our board of directors since
August 1993, and as a director since August 1991. From August 1993 to October
2001, Mr. Margolese served as our Chief Executive Officer. Prior to his
involvement with us, Mr. Margolese proposed and co-founded Cantel Inc., Canada's
national cellular telephone carrier, which was acquired by Rogers Communications
Inc. in 1989, and Canadian Telecom Inc., Canada's national paging company,
serving as that company's president until its sale in 1987. Mr. Margolese has
been inducted into NASA's Space Technology Hall of Fame and was nominated by
Harvard Business School as Entrepreneur Of The Year in 1999. We expect that
Mr. Margolese will resign from our board of directors effective upon
consummation of the restructuring.
LEON D. BLACK has been a director since June 2001. Mr. Black is one of the
founding principals of Apollo Advisors, L.P and Lion Advisors, L.P, which manage
investment capital on behalf of institutions. He is also the founder of Apollo
Real Estate Advisors, L.P. From 1977 to 1990, Mr. Black worked at Drexel Burnham
Lambert Incorporated, where he served as Managing Director, head of the Mergers
& Acquisitions Group and co-head of the Corporate Finance Department. Mr. Black
is a director of Sequa Corporation, United Rentals, Inc., Allied Waste
Industries, Inc., AMC Entertainment Inc. and Wyndham International, Inc.
Mr. Black is a trustee of The Museum of Modern Art, Mt. Sinai Hospital, The
Metropolitan Museum of Art, Lincoln Center for The Performing Arts, Prep for
Prep, The Jewish Museum, the Asia Society and the Vail Valley Foundation.
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. Since June 2000, Mr. Gilberti has been a partner in the law firm of
Reed Smith LLP; from May 1998 through May 2000, he was of counsel to that firm.
From August 1994 to May 1998, Mr. Gilberti was a partner in the law firm of
Fischbein Badillo Wagner & Harding. Mr. Gilberti has provided legal services to
us since 1992.
JAMES P. HOLDEN has been a director since August 2001. From October 1999
until November 2000, Mr. Holden was the President and Chief Executive Officer of
DaimlerChrysler Corporation, a subsidiary of DaimlerChrysler AG, one of the
world's largest automakers. Prior to being appointed President in 1999,
Mr. Holden held numerous senior positions within Chrysler Corporation during his
19-year career at the company.
PETER G. PETERSON has been a director since June 2001. Mr. Peterson has been
chairman of The Blackstone Group L.P, an investment bank, since 1985. Prior to
his involvement with Blackstone, Mr. Peterson served as chairman and chief
executive officer of Lehman Brothers, Kuhn, Loeb, Inc., the investment bank, for
eleven years. He was Secretary of Commerce in 1972 and 1973 after serving as
Assistant to the President for International Economic Affairs and Executive
Director of the Council on Economic Policy in 1971 and 1972. Prior to his
government
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service, Mr. Peterson was with Bell & Howell Company for thirteen years,
beginning as an executive vice president and director and later as chief
executive officer. Mr. Peterson is a director of Sony Corp. He is chairman of
the board of The Federal Reserve Bank of New York, the Council on Foreign
Relations and Institute for International Economics, founding president of The
Concord Coalition and a trustee of the Committee for Economic Development, the
National Bureau of Economic Research and The Museum of Modern Art. Mr. Peterson
has been a director of 3M, RCA, General Foods, Federated Department Stores,
Continental Group, Black & Decker and Cities Services.
JOSEPH V. VITTORIA has been a director since April 1998. From 1997 until
February 2000, Mr. Vittoria was Chairman and Chief Executive Officer of Travel
Services International, Inc., a travel services distributor. Mr. Vittoria has
served as a member of the Board of Overseers of Columbia Business School since
1988. 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. Mr. Vittoria is a director of ResortQuest International, Inc. and is
Chairman of Transmedia Asia Pacific, Inc. and Puradyn Filter Technologies, Inc.
We expect that Mr. Vittoria will resign from our board of directors effective
upon consummation of the restructuring.
-------------------
Upon consummation of the restructuring, under either the recapitalization
plan or the prepackaged plan, our board of directors will be reconstituted. We
expect that Messrs. David Margolese and Joseph V. Vittoria will resign and our
board of directors will appoint two directors, to be selected by the informal
creditors committee, to fill those vacancies. Biographical information for these
two directors will be contained in the press release we issue announcing their
selection.
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EXECUTIVE COMPENSATION
The table below shows the compensation for the last three years for our
President and Chief Executive Officer and the five next highest paid executive
officers at the end of 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-----------------------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCKS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS COMPENSATION($)(1)
--------------------------- ---- --------- -------- --------------- --------- ------- ------------------
Joseph P. Clayton (2) ...... 2001 61,538 -- -- -- 750,000 --
President and Chief 2000 -- -- -- -- -- --
Executive Officer 1999 -- -- -- -- -- --
David Margolese (3) ........ 2001 435,417 -- 6,066(4) -- 1,500,000 10,500
Chairman of the Board and 2000 500,000 500,000(5) -- -- -- 10,500
Chief Executive Officer 1999 450,000 -- -- -- 2,500,000 10,000
John J. Scelfo (6) ......... 2001 225,000 225,000 -- -- 300,000 10,500
Executive Vice President 2000 -- -- -- -- -- --
and Chief Financial Officer 1999 -- -- -- -- -- --
Patrick L. Donnelly ........ 2001 325,000 225,000 -- -- 100,000 10,500
Executive Vice President, 2000 310,417 323,000(5) -- -- 75,000 10,500
General Counsel and 1999 277,500 -- -- -- 215,000 10,000
Secretary
Michael S. Ledford (7) ..... 2001 99,167 100,000 -- 200,000(8) 300,000 --
Executive Vice President, 2000 -- -- -- -- -- --
Engineering 1999 -- -- -- -- -- --
Joseph S. Capobianco (9) ... 2001 291,667 75,000 -- -- -- 10,500
Senior Vice President, 2000 269,135 275,000(5) -- -- 50,000 10,500
Content 1999 241,667 -- -- -- 100,000 10,000
---------
(1) Represents matching contributions by us under our 401(k) Savings Plan. These
amounts were paid in the form of common stock.
(2) Mr. Clayton became our President and Chief Executive Officer on
November 26, 2001.
(3) Mr. Margolese resigned as our Chief Executive Officer on October 16, 2001.
Mr. Margolese remains a director and non-executive chairman of our board of
directors.
(4) Represents commuting costs reimbursed by us.
(5) In addition, in February 2000, we also paid Mr. Margolese a bonus of
$500,000, Mr. Capobianco a bonus of $150,000 and Mr. Donnelly a bonus of
$290,000 in recognition of the executives' efforts in securing our alliances
with DaimlerChrysler and BMW.
(6) Mr. Scelfo became our Executive Vice President and Chief Financial Officer
in April 2001.
(7) Mr. Ledford became our Senior Vice President, Engineering, on September 17,
2001.
(8) On September 17, 2001, we granted Mr. Ledford 50,000 restricted shares of
our common stock. The restrictions applicable to these shares of common
stock lapse in equal increments over four years. Amount represents the value
of the restricted stock (calculated by multiplying the closing price of our
common stock on September 17, 2001, $4.00 per share, by the number of shares
awarded, 50,000).
(9) Mr. Capobianco ceased to be an executive officer on October 1, 2002.
118
STOCK OPTION GRANTS
The following table sets forth certain information for the fiscal year ended
December 31, 2001, with respect to options granted to individuals named in the
Summary Compensation Table above.
OPTION GRANTS IN 2001
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO PRICE EXPIRATION ---------------------------
NAME GRANTED EMPLOYEES ($/SHARE) DATE 5%($) 10%($)
---- ------- --------- --------- ---- ----- ------
Joseph P. Clayton.............. 750,000 17.7% 5.25 11/26/11 2,476,273 6,275,361
David Margolese................ 1,500,000 35.4 12.67 05/11/11 11,952,142 30,289,075
John J. Scelfo................. 300,000 7.1 6.91 04/04/11 1,303,699 3,303,828
Patrick L. Donnelly............ 100,000 2.4 7.61 05/01/11 478,589 1,212,838
Michael S. Ledford............. 300,000 7.1 4.00 09/17/11 754,674 1,912,491
EXERCISES OF STOCK OPTIONS
The following table shows the aggregate exercises of options to purchase our
common stock and sets forth certain information with respect to the number of
shares covered by both exercisable and unexercisable stock options held by the
individuals named in the Summary Compensation Table as of December 31, 2001.
Also reported are the values for 'in-the-money' stock options that represent the
positive spread between the respective exercise prices of outstanding stock
options and the fair market value of our common stock as of December 31, 2001
($11.63 per share).
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR END FISCAL YEAR END($)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
Joseph P. Clayton (1)... -- -- 750,000 -- 4,785,000 --
David Margolese......... -- -- 4,700,000 -- 3,216,000 --
John J. Scelfo.......... -- -- 75,000 225,000 354,000 1,062,000
Patrick L. Donnelly..... -- -- 500,000 -- 2,054,000 --
Michael S. Ledford...... -- -- -- 300,000 -- 2,289,000
Joseph S. Capobianco.... -- -- 131,500 118,500 543,095 489,405
---------
(1) Under his employment agreement, we are obligated to issue Mr. Clayton
options to purchase up to 750,000 shares of our common stock at an exercise
price of $5.25 per share on each of November 26, 2002, November 26, 2003 and
November 26, 2004. These options will be exercisable on the date of grant.
REPRICINGS OF STOCK OPTIONS
The following table sets forth certain information with respect to stock
options held by our executive officers that were repriced during the year ended
December 31, 2001.
119
10-YEAR OPTION REPRICINGS
NUMBER OF LENGTH OF
SECURITIES ORIGINAL OPTION
UNDERLYING MARKET PRICE EXERCISE PRICE TERM REMAINING
OPTIONS OF STOCK AT TIME AT TIME OF NEW AT DATE OF
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT($)(1) AMENDMENT($) PRICE($) AMENDMENT
---- ---- ------- --------------- ------------ -------- ---------
Patrick L. Donnelly ..... April 9, 2001 110,000 $7.60 3$3.50 $7.50 7 years, 1 month
Executive Vice 90,000 7.60 23.75 7.50 7 years, 11 months
President, General 125,000 7.60 30.50 7.50 8 years, 8 months
Counsel and Secretary 25,000 7.60 40.875 7.50 8 years, 9 months
50,000 7.60 21.50 7.50 9 years, 8 months
Joseph S. Capobianco .... April 9, 2001 50,000 7.60 13.00 7.50 6 years
Senior Vice President, 25,000 7.60 15.375 7.50 7 years
Content 25,000 7.60 14.50 7.50 7 years
40,000 7.60 23.75 7.50 8 years, 2 months
60,000 7.60 30.50 7.50 8 years, 8 months
50,000 7.60 21.50 7.50 9 years, 8 months
---------
(1) The revised exercise price was determined by the Compensation Committee of
our board of directors based on the five day average of our common stock
immediately prior to the repricing.
EMPLOYMENT AGREEMENTS
We are a party to an employment agreement with Joseph P. Clayton, Guy D.
Johnson, Mary Patricia Ryan, John J. Scelfo, Patrick L. Donnelly and Michael S.
Ledford. The recapitalization plan will not constitute a change of control for
purposes of these employment agreements.
EMPLOYMENT AGREEMENT WITH JOSEPH P. CLAYTON
On November 26, 2001, we entered into an employment agreement with Joseph P.
Clayton to serve as our President and Chief Executive Officer for three years.
This agreement provides for an annual base salary of $600,000, subject to
increase from time to time by our board of directors. We have also agreed to
reimburse Mr. Clayton for the reasonable costs of an apartment in New York City
and for the reasonable costs of commercial travel to and from his home in
Rochester, New York, to our headquarters in New York City. Mr. Clayton is
guaranteed a bonus with respect to 2002 in an amount at least equal to 50% of
his base salary, and may earn a bonus in an amount greater than this, based upon
performance criteria established by our board of directors. In connection with
this agreement, we agreed to grant Mr. Clayton options to purchase 3,000,000
shares of our common stock at an exercise price of $5.25 per share. 1,500,000 of
these options are issued and exercisable. The remaining options will be issued
and become exercisable in increments of 750,000 on November 26, 2003 and
November 26, 2004.
Under the terms of this agreement, if Mr. Clayton's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), then he is entitled to receive a lump sum amount equal to
(1) his base salary in effect from the termination date through December 31,
2004 and (2) any annual bonuses, at a level equal to 75% of his base salary,
that would have been customarily paid during the period from the termination
date through December 31, 2004; provided that in no event shall this amount be
less than 1.75 times his base salary. In the event Mr. Clayton's employment is
terminated without cause or he terminates his employment for good reason, we are
also obligated to continue his medical and life insurance benefits until
December 31, 2004.
If, following the occurrence of a 'change of control', Mr. Clayton is
terminated without cause or he terminates his employment for good reason, we are
obligated to pay to Mr. Clayton an amount equal to 5.25 times his base salary
and continue his medical and life insurance benefits until the third anniversary
of his termination date. If, in the opinion of a nationally recognized
120
accounting firm, a 'change of control' would require Mr. Clayton to pay an
excise tax under the United States Internal Revenue Code on any amounts received
by him, we have agreed to pay Mr. Clayton the amount of such taxes and such
additional amount as may be necessary to place him in the exact same financial
position that he would have been in if the excise tax was not imposed. Under the
terms of the employment agreement, Mr. Clayton may not disclose any of our
proprietary information or, during his employment with us and for three years
thereafter, engage in any business involving the transmission of radio
entertainment programming in North America.
EMPLOYMENT AGREEMENT WITH GUY D. JOHNSON
On January 7, 2002, we entered into an employment agreement with Guy D.
Johnson to serve as our Executive Vice President, Sales and Marketing, for three
years. This agreement provides for an annual base salary of $400,000, subject to
increase from time to time by our board of directors. We have also agreed to
reimburse Mr. Johnson for his living expenses in New York City, up to $6,000 per
month, and for the reasonable costs of commercial travel to and from his home in
British Columbia to our headquarters in New York City. Mr. Johnson is guaranteed
a bonus with respect to 2002 in an amount at least equal to 50% of his base
salary, and may earn a bonus in an amount greater than this, based upon
performance criteria established by our board of directors. In connection with
this agreement, we agreed to grant Mr. Johnson options to purchase 500,000
shares of our common stock at an exercise price of $9.46 per share. Options with
respect to 250,000 of these shares are currently exercisable. The remaining
options become exercisable in increments of 125,000 on January 7, 2004 and
January 7, 2005. We also granted Mr. Johnson 100,000 restricted shares of common
stock. Mr. Johnson forfeited 34,000 of these shares on January 7, 2003 because
the average price of our common stock during the twenty trading days preceding
January 7, 2003 failed to equal or exceed $15.00, the performance target
established by our board of directors for vesting of these shares. The
restrictions applicable to 33,000 of these shares will lapse on January 7, 2004
if the average price of our common stock on the twenty trading days preceding
January 7, 2004 equals or exceeds $20.00; and the restrictions applicable to the
remaining 33,000 shares will lapse on January 7, 2005 if the average price of
our common stock on the twenty trading days preceding January 7, 2005 equals or
exceeds $25.00. Any shares of restricted stock which do not vest on January 7,
2004 or January 7, 2005 will be forfeited.
Under the terms of this agreement, if Mr. Johnson's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), then he is entitled to receive a lump sum amount equal to
(1) his base salary in effect from the termination date through January 6, 2005
and (2) any annual bonuses, at a level equal to 75% of his base salary, that
would have been customarily paid during the period from the termination date
through January 6, 2005; provided that in no event shall this amount be less
than 1.00 times his base salary. In the event Mr. Johnson's employment is
terminated without cause or he terminates his employment for good reason, we are
also obligated to continue his medical and life insurance benefits until
January 6, 2005.
If, following the occurrence of a 'change of control', Mr. Johnson is
terminated without cause or he terminates his employment for good reason, we are
obligated to pay to Mr. Johnson an amount equal to 1.75 times his base salary
and continue his medical and life insurance benefits until the third anniversary
of his termination date. If, in the opinion of a nationally recognized
accounting firm, a 'change of control' would require Mr. Johnson to pay an
excise tax under the United States Internal Revenue Code on any amounts received
by him, we have agreed to pay Mr. Johnson the amount of such taxes and such
additional amount as may be necessary to place him in the exact same financial
position that he would have been in if the excise tax was not imposed.
Under the terms of the agreement, Mr. Johnson may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter, engage in any business involving the transmission of radio
entertainment programming in North America.
121
EMPLOYMENT AGREEMENT WITH MARY PATRICIA RYAN
On May 3, 2002, we entered into an employment agreement with Mary Patricia
Ryan to serve as our Executive Vice President, Marketing, for three years. This
agreement provides for an annual base salary of $320,000, subject to increase
from time to time by our board of directors. Under this agreement, we paid Ms.
Ryan a $25,000 starting bonus and have guaranteed her a bonus of $160,000 with
respect to 2002, although she may earn a larger bonus based upon performance
criteria established by our board of directors. In connection with this
agreement, we also granted Ms. Ryan options to purchase 240,000 shares of our
common stock at an exercise price of $3.67 per share. Options with respect to
60,000 of these shares became exercisable upon execution of the agreement and
the remaining options become exercisable in increments of 60,000 on June 10,
2003, June 10, 2004 and June 10, 2005.
Under the terms of this agreement, if Ms. Ryan's employment is terminated
without cause or she terminates her employment for good reason (as defined in
the employment agreement), we are obligated to pay Ms. Ryan an amount equal to
the sum of her annual salary and the annual bonus last paid to her.
If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Ms. Ryan to pay an excise tax under the United States
Internal Revenue Code on any amounts received by her, we have agreed to pay
Ms. Ryan the amount of such taxes and such additional amount as may be necessary
to place her in the exact same financial position that she would have been in if
the excise tax was not imposed.
Under the terms of the agreement, Ms. Ryan may not disclose any of our
proprietary information or, during her employment with us and for two years
thereafter (or one year thereafter if Ms. Ryan's employment is terminated
without cause or she terminates her employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.
EMPLOYMENT AGREEMENT WITH JOHN J. SCELFO
On March 7, 2001, we entered into an employment agreement with John J.
Scelfo to serve as our Executive Vice President and Chief Financial Officer for
three years. This agreement provides for an annual base salary of $300,000,
subject to increase from time to time by our board of directors. On January 1,
2002, our board of directors increased Mr. Scelfo's salary to $345,000 per year.
In connection with this agreement, we granted Mr. Scelfo options to purchase
300,000 shares of our common stock at an exercise price of $6.91 per share.
Options with respect to 75,000 shares became exercisable on each of October 4,
2001, April 4, 2002 and October 4, 2002, and the remaining options become
exercisable on April 4, 2003.
Under the terms of this agreement, if Mr. Scelfo's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), we are obligated to pay Mr. Scelfo an amount equal to the
sum of his annual salary and the annual bonus last paid to him.
If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Scelfo to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay Mr.
Scelfo the amount of such taxes and such additional amount as may be necessary
to place him in the exact same financial position that he would have been in if
the excise tax was not imposed.
Under the terms of the agreement, Mr. Scelfo may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if Mr. Scelfo's employment is terminated
without cause or he terminates his employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.
122
EMPLOYMENT AGREEMENT WITH PATRICK L. DONNELLY
On March 28, 2000, we entered into an employment agreement with Patrick L.
Donnelly to serve as our Executive Vice President, General Counsel and Secretary
for three years. Pursuant to this agreement, in 2001 we paid Mr. Donnelly an
annualized base salary of $325,000. This base salary is subject to increase from
time to time by our board of directors. On January 1, 2002, our board of
directors increased Mr. Donnelly's salary to $345,000 per year.
Under the terms of this agreement, if Mr. Donnelly's employment is
terminated without cause or he terminates his employment for good reason (as
defined in the employment agreement), we are obligated to pay Mr. Donnelly an
amount equal to the sum of his annual salary and the annual bonus last paid to
him.
If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Donnelly to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay Mr.
Donnelly the amount of such taxes and such additional amount as may be necessary
to place him in the exact same financial position that he would have been in if
the excise tax was not imposed.
Under the terms of the agreement, Mr. Donnelly may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if Mr. Donnelly's employment is terminated
without cause or he terminates his employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.
EMPLOYMENT AGREEMENT WITH MICHAEL S. LEDFORD
On August 29, 2001, we entered into an employment agreement with Michael S.
Ledford to serve as our Senior Vice President, Engineering, for three years.
This agreement provides for an annual base salary of $340,000, subject to
increase from time to time by our board of directors. In connection with this
agreement, we granted Mr. Ledford options to purchase 300,000 shares of our
common stock at an exercise price of $4.00 per share. These options become
exercisable in increments of 100,000 shares on September 17, 2002,
September 17, 2003 and September 17, 2004. We also granted Mr. Ledford 50,000
restricted shares of common stock. The restrictions applicable to these shares
of common stock lapse on September 17, 2002, September 17, 2003, September 17,
2004 and September 17, 2005 in equal increments of 12,500 shares.
Under the terms of this agreement, if Mr. Ledford's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), we are obligated to pay Mr. Ledford an amount equal to
his annual salary.
If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Ledford to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay Mr.
Ledford the amount of such taxes and such additional amount as may be necessary
to place him in the exact same financial position that he would have been in if
the excise tax was not imposed.
Under the terms of the agreement, Mr. Ledford may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if Mr. Ledford's employment is terminated
without cause or he terminates his employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.
123
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of
our common stock as of December 31, 2002 and after giving effect to the
restructuring, assuming that all of our debt securities are exchanged for common
stock, by (1) each person 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.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED AS OF OWNED AFTER
DECEMBER 31, 2002 THE RESTRUCTURING
NAME AND ADDRESS OF BENEFICIAL ----------------------- ------------------------
OWNER OF COMMON STOCK(1) NUMBER PERCENT(2) NUMBER PERCENT(2)
------------------------ ------ ---------- ------ ----------
OppenheimerFunds, Inc.(3) ...................... 13,258,200 17.1% 225,443,878 23.4%
Atlas Global Growth Fund
Clarington Global Equity Fund
Security Benefit Life Global Series Fund
Security Benefit Life Worldwide Equity Series
D/VA
CUNA Global Series Fund/VA
JNL/Oppenheimer Global Growth Series VA
Oppenheimer Global Fund
Oppenheimer Global Securities Fund/VA
Oppenheimer Global Growth & Income Fund
498 Seventh Avenue
New York, New York 10018
Apollo Investment Fund IV, L.P.(4).............. 10,187,577 11.8% 162,986,042 16.0%
Apollo Overseas Partners IV, L.P.
Two Manhattanville Road
Purchase, New York 10577
Lehman Commercial Paper Inc.(5) ................ 2,100,000 2.6% 126,800,370 13.1%
745 Seventh Avenue
New York, New York 10019
Blackstone Management Associates III 7,525,456 8.9% 103,285,764 10.3%
L.L.C.(6) ....................................
345 Park Avenue
New York, New York 10154
Space Systems/Loral, Inc.(7) ................... -- -- 58,964,982 6.1%
3825 Fabian Way
Palo Alto, California 94303
Continental Casualty Company(8) ................ -- -- 54,632,378 5.7%
333 South Wabash Avenue
Chicago, Illinois 60685
David Margolese(9).............................. 6,300,000 7.7% 6,300,000 *
Joseph P. Clayton(10)........................... 1,610,000 2.0% 1,610,000 *
Guy D. Johnson(11).............................. 386,096 * 386,096 *
Leon D. Black(12)............................... -- * -- *
Lawrence F. Gilberti(13)........................ 65,000 * 65,000 *
James P. Holden(14)............................. 40,000 * 40,000 *
Peter G. Peterson(15)........................... -- * -- *
Joseph V. Vittoria(16).......................... 65,000 * 65,000 *
Patrick L. Donnelly(17)......................... 504,534 * 504,534 *
Michael S. Ledford(18).......................... 137,941 * 137,941 *
John J. Scelfo(19).............................. 330,816 * 330,816 *
Mary Patricia Ryan(20).......................... 60,000 * 60,000 *
All Executive Officers and Directors as a Group
(12 persons)(21).............................. 9,499,387 11.2% 9,499,387 1.0%
---------
* Less than one percent.
(footnotes continued on next page)
124
(footnotes continued from previous page)
(1) This table is based upon information supplied by directors, officers and
principal stockholders and information derived from the lockup agreement.
Unless otherwise indicated, the address of the beneficial owner is Sirius
Satellite Radio Inc., 1221 Avenue of the Americas, 36th Floor, New York,
New York 10020.
(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) This information is based upon a letter dated October 16, 2002 from
Oppenheimer to us, indicating that Atlas Global Growth Fund owns 55,100
shares of our common stock, Clarington Global Equity Fund owns 44,100
shares of our common stock, Security Benefit Life Global Series Fund owns
39,500 shares of our common stock, Security Benefit Life Worldwide Equity
Series D/VA owns 213,700 shares of our common stock, CUNA Global Series
Fund/VA owns 4,700 shares of our common stock, JNL/Oppenheimer Global
Growth Series VA owns 19,100 shares of our common stock, Oppenheimer Global
Fund owns 3,502,500 shares of our common stock, Oppenheimer Global
Securities Fund/VA owns 879,500 shares of our common stock and Oppenheimer
Global Growth & Income Fund owns 8,500,000 shares of our common stock.
Oppenheimer is an investment adviser registered under the Investment
Advisers Act of 1940 and disclaims beneficial ownership of shares of common
stock owned by such funds. Upon consummation of the restructuring,
Oppenheimer and its affiliates will acquire an additional 163,609,837
shares of common stock for $150 million cash and an additional 48,575,841
shares of common stock in exchange for $27.5 million in principal amount at
maturity of senior secured discount notes and $30 million in principal
amount of senior secured notes.
(4) Represents 1,902,823 shares of 9.2% Series A Junior Cumulative Convertible
Preferred Stock and 853,450 shares of 9.2% Series B Junior Cumulative
Convertible Preferred Stock, which are immediately convertible into
9,187,577 shares of our common stock, and 1,000,000 shares of common stock.
Upon consummation of the restructuring, Apollo will acquire an additional
39,927,796 shares of common stock in exchange for the 9.2% Series A Junior
Cumulative Convertible Preferred Stock and 9.2% Series B Junior Cumulative
Convertible Preferred Stock held by them. In addition, Apollo will acquire
24,060,271 shares of common stock for $25 million in cash and will also
receive warrants to purchase 45,416,690 shares of common stock. Apollo will
also acquire an additional 52,581,285 shares of common stock in exchange
for $46.5 million in principal amount at maturity of senior secured
discount notes and $16.9 million in principal amount of senior secured
notes.
(5) Represents warrants to purchase 2,100,000 shares of common stock at a
purchase price of $15.00 per share, all of which are immediately
exercisable. Upon consummation of the restructuring, Lehman will acquire an
additional 124,700,370 shares of common stock in exchange for the Lehman
senior term loans and $4.2 million in principal amount of senior secured
notes.
(6) Represents 2,558,655 shares of 9.2% Series D Junior Cumulative Convertible
Preferred Stock, which are immediately convertible into 7,525,456 shares of
our common stock. Upon consummation of the restructuring, Blackstone will
acquire an additional 37,065,069 shares of common stock in exchange for the
9.2% Series D Junior Cumulative Convertible Preferred Stock held by them.
In addition, Blackstone will acquire 24,060,271 shares of common stock for
$25 million in cash and will also receive warrants to purchase 42,160,424
shares of common stock.
(footnotes continued on next page)
125
(footnotes continued from previous page)
(7) Upon consummation of the restructuring, Loral will acquire 58,964,982
shares of common stock in exchange for the Loral senior term loans.
(8) Upon consummation of the restructuring, Continental will acquire 54,632,378
shares of common stock in exchange for $30 million in principal amount at
maturity of senior secured discount notes and $34.6 million in principal
amount of senior secured notes.
(9) Includes 4,700,000 shares of common stock issuable under stock options that
are exercisable within 60 days and 1,600,000 shares owned by Mr. Margolese.
(10) Represents 1,500,000 shares of common stock issuable under stock options
exercisable within 60 days and 110,000 shares beneficially owned by Mr.
Clayton.
(11) Includes 35,000 shares owned by Mr. Johnson, 100,000 restricted shares of
common stock, 1,096 shares of common stock acquired under our 401(k) Plan
and 250,000 shares of common stock issuable under stock options exercisable
within 60 days. Does not include 250,000 shares issuable under stock
options that are not exercisable within 60 days.
(12) Mr. Black is the founding partner of Apollo Management, L.P., an affiliate
of Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.
Mr. Black disclaims beneficial ownership of all shares of our common stock
in excess of his pecuniary interest, if any.
(13) Represents 65,000 shares of common stock issuable under stock options
exercisable within 60 days.
(14) Represents 40,000 shares of common stock issuable under stock options
exercisable within 60 days.
(15) Mr. Peterson is the founder and chairman of The Blackstone Group L.P. Mr.
Peterson disclaims beneficial ownership of all shares of our common stock
owned by Blackstone and its affiliated funds.
(16) Represents 65,000 shares of common stock issuable under stock options
exercisable within 60 days.
(17) Includes 4,534 shares of common stock acquired under our 401(k) Plan and
500,000 shares of common stock issuable under stock options exercisable
within 60 days.
(18) Includes 37,500 restricted shares of common stock, 441 shares of common
stock acquired under our 401(k) Plan and 100,000 shares of common stock
issuable under stock options exercisable within 60 days. Does not include
200,000 shares issuable under stock options that are not exercisable within
60 days.
(19) Includes 5,000 shares of common stock owned by Mr. Scelfo, 816 shares of
common stock acquired under our 401(k) Plan and 325,000 shares of common
stock issuable under stock options exercisable within 60 days. Does not
include 75,000 shares issuable under stock options that are not exercisable
within 60 days.
(20) Includes 60,000 shares of common stock issuable under stock options
exercisable within 60 days. Does not include 180,000 shares issuable under
stock options that are not exercisable within 60 days.
(21) Includes 7,605,000 shares of common stock issuable under stock options
exercisable within 60 days. Does not include 705,000 shares issuable under
stock options that are not exercisable within 60 days.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following describes the material United States federal income tax
consequences to noteholders of the exchange of common stock for our notes and,
where indicated, represents the opinion of Simpson Thacher & Bartlett, our
counsel. If you hold Lehman senior term loans or Loral senior term loans, you
should consult your own tax advisor concerning the United States federal income
tax consequences of the exchange of common stock for the term loans. Except
where noted, this summary deals only with notes held as capital assets and does
NOT deal with special situations, such as those of:
dealers in securities or currencies;
financial institutions;
tax exempt entities;
insurance companies;
regulated investment companies;
real estate investment trusts;
persons holding notes as part of a hedging, integrated, conversion or
constructive sale transaction or a straddle;
traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
corporations that accumulate earnings to avoid federal income tax;
persons subject to the alternative minimum tax; and
investors in pass-through entities.
Furthermore, this discussion is based on the Internal Revenue Code of 1986,
as amended (the 'Code'), and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified so as to result in United States federal income tax consequences
different from those discussed below. PERSONS CONSIDERING EXCHANGING THEIR NOTES
FOR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
Except where noted, the following discussion addresses only U.S. Holders of
the notes. As used herein, a 'U.S. Holder' of notes means a holder that is for
United States federal income tax purposes:
a citizen or resident of the United States,
a corporation created or organized in or under the laws of the United
States or any political subdivision thereof,
an estate the income of which is subject to United States federal income
taxation regardless of its source, or
a trust if:
-- it is subject to the primary supervision of a court within the
United States and one or more United States persons have the
authority to control all substantial decisions of the trust; or
-- it has a valid election in effect under applicable Treasury
regulations to be treated as a United States person.
A 'Non-U.S. Holder' is a holder other than a 'U.S. Holder.'
If a partnership holds notes, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding notes, you should consult your tax
advisor.
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CONSEQUENCES OF THE EXCHANGE OF COMMON STOCK FOR NOTES
Counsel is of the opinion that the exchange of common stock for notes will
constitute a 'recapitalization' for United States federal income tax purposes
and that no gain or loss will be recognized (except as discussed below) by U.S.
Holders of notes upon receipt of the common stock. Counsel's opinion is based on
the notes being treated as 'securities' for United States federal income tax
purposes. In general, a debt instrument will be treated as a security if it
represents a participating, continuing interest in the issuer, rather than a
mere right to a cash payment. As a result, the term of the debt instrument is
usually regarded as a significant factor in determining whether it is a
'security.' The Internal Revenue Service ('IRS') has ruled that a debt
instrument with a maturity of ten years or more is a 'security.' In addition,
courts have held that debt instruments with maturities between five and ten
years are 'securities.' Because the length of time from issuance to maturity of
the notes is ten years, and given the other terms of the notes, the notes are
'securities' for United States federal income tax consequences.
Notwithstanding the above, to the extent that consideration received in the
exchange is attributable to accrued and unpaid interest not previously included
in income, such amounts will be treated as ordinary interest income. In
addition, a loss may be recognized to the extent that the consideration received
in the recapitalization that is attributable to accrued and unpaid interest is
less than the amount of accrued and unpaid interest that has been previously
included in income. We and the holders of notes will agree to treat the common
stock as received in exchange for principal on the notes. Therefore, no portion
of the common stock will be attributable to accrued and unpaid interest on the
notes. The IRS may take a contrary position, however, in which case a U.S.
Holder of notes would have income, or a reduced amount of loss, to the extent
the common stock was attributable to accrued interest.
Provided that the exchange qualifies as a recapitalization, a U.S. Holder's
tax basis in the common stock will equal such U.S. Holder's adjusted tax basis
in the notes immediately prior to the exchange plus the amount of interest
income, if any, recognized in the exchange. A U.S. Holder's holding period for
the common stock will include the period during which the notes were held.
U.S. Holders of the notes should note that no ruling has been requested from
the IRS regarding the tax consequences of the exchange of notes for the common
stock. The positions we intend to take may not be accepted by the IRS or a
court. Any person who is considering exchanging notes for common stock should
consult his or her tax advisor regarding federal, state, local and foreign
income and other tax consequences.
CONSEQUENCES TO HOLDERS OF COMMON STOCK
U.S. HOLDERS
Dividends
Distributions to U.S. Holders of common stock will be treated as dividend
income to such holders, to the extent paid out of current or accumulated
earnings and profits, as determined under United States federal income tax
principles. If the U.S. Holder is a corporation, a dividends received deduction
may be available to such U.S. Holder with respect to any such dividends paid on
the common stock, subject to applicable limitations under the Code. We do not
intend to pay dividends on the common stock.
To the extent that the amount of any distribution exceeds our current and
accumulated earnings and profits for a taxable year, the distribution will first
be treated as a tax-free return of capital. Such treatment will cause a
reduction in the adjusted basis of the common stock (thereby increasing the
amount of gain, or decreasing the amount of loss, to be recognized by the
investor on a subsequent disposition of the common stock). The balance in excess
of adjusted basis will be taxed as capital gain recognized on a sale or
exchange.
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Sale, Exchange and Retirement of Common Stock
For United States federal income tax purposes, a U.S. Holder will recognize
taxable gain or loss on any sale or exchange of a share of common stock in an
amount equal to the difference between the amount realized for the share and the
U.S. Holder's basis in the share. Such gain or loss will be a capital gain or
loss except that any gain will be ordinary income to the extent:
that a U.S. Holder claimed a bad debt deduction with respect to the notes;
or
of any accrued market discount on the notes, as of the time of the
exchange, not previously included in income that is allocable to the common
stock received in the exchange.
Capital gains of individuals derived with respect to capital assets held for
more than one year are eligible for reduced rates of taxation. The deductibility
of capital losses is subject to limitations.
NON-U.S. HOLDERS
The following is a summary of certain United States federal tax consequences
that will apply to you if you are a Non-U.S. Holder of common stock. Special
rules may apply to some Non-U.S. holders, such as:
'controlled foreign corporations;'
'passive foreign investment companies;'
'foreign personal holding companies;'
corporations that accumulate earnings to avoid United States federal income
tax; and
individuals who are United States expatriates.
These Non-U.S. Holders are subject to special treatment under the Code and
should consult their own tax advisors to determine the United States federal,
state, local and other tax consequences that may be relevant to them.
Dividends
Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. However,
dividends that are effectively connected with the conduct of a trade or business
by the Non-U.S. Holder within the United States (or, where a tax treaty applies,
attributable to a United States permanent establishment of the Non-U.S. Holder),
are not subject to the withholding tax. Instead, such effectively connected
dividends are subject to United States federal income tax on a net income basis
at applicable graduated individual or corporate rates. Certain certification and
disclosure requirements must be complied with in order for effectively connected
income to be exempt from withholding. Any such effectively connected dividends
received by a foreign corporation may, under certain circumstances, be subject
to an additional 'branch profits tax' at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
A Non-U.S. Holder of common stock who wishes to claim the benefit of an
applicable treaty rate (and avoid backup withholding as discussed below) for
dividends paid will be required:
to complete IRS Form W-8BEN (or other applicable form) and certify under
penalty of perjury that such holder is not a United States person; or
if the common stock is held through certain foreign intermediaries, to
satisfy the relevant certification requirements of applicable United States
Treasury regulations. Special certification and other requirements apply to
certain Non-U.S. Holders that are entities rather than individuals.
A Non-U.S. Holder of common stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
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Sale, Exchange and Retirement of Common Stock
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
common stock unless:
the gain is effectively connected with a trade or business of the Non-U.S.
Holder in the United States, and, where a tax treaty applies, is
attributable to a United States permanent establishment of the Non-U.S.
Holder;
in the case of a Non-U.S. Holder who is an individual and holds the common
stock as a capital asset, such holder is present in the United States for
183 or more days in the taxable year of the sale or other disposition and
certain other conditions are met; or
the Company is or has been a 'United States real property holding
corporation' for United States federal income tax purposes.
A Non-U.S. Holder described in the first bullet point above will be subject
to tax on the net gain derived from the sale under regular graduated United
States federal income tax rates and, if it is a corporation, may be subject to
an additional branch profits tax at a 30% rate or at such lower rate as may be
specified by an applicable income tax treaty. An individual Non-U.S. Holder
described in the second bullet point above will be subject to a flat 30% tax on
the gain derived from the sale, which may be offset by United States source
capital losses (even though the individual is not considered a resident of the
United States).
We believe that we are not and do not anticipate becoming a 'United States
real property holding corporation' for United States federal income tax
purposes.
United States Federal Estate Tax
Common stock held by an individual Non-U.S. Holder at the time of death will
be included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS
In general, information reporting requirements will apply to payments of
dividends on the common stock, and to the proceeds of a sale of the common stock
made to U.S. Holders other than certain exempt recipients (such as
corporations). A backup withholding tax will apply to such payments if the U.S.
Holder fails to provide a taxpayer identification number or certification of
exempt status or fails to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
NON-U.S. HOLDERS
We must report annually to the IRS and to each Non-U.S. Holder the amount of
dividends paid to such holder and the tax withheld with respect to such
dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
Backup withholding may apply to dividends paid to a Non-U.S. Holder unless
the beneficial owner provides his name, and address. The beneficial owner must
also certify, under penalty of perjury, that he is not a United States person
(which certification may be made on Form W-8BEN). If a financial institution
holds the common stock on behalf of the beneficial owner, such institution must
certify, under penalty of perjury, that such statement has been received by it
and furnishes a paying agent with a copy thereof.
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Information reporting and, depending on the circumstances, backup
withholding will apply to the proceeds of a sale of common stock within the
United States or conducted through United States-related financial
intermediaries unless:
the beneficial owner certifies under penalty of perjury that it is a
Non-U.S. Holder (and the payor does not have actual knowledge or reason to
know that the beneficial owner is a United States person); or
the holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
CONSEQUENCES OF NOT PARTICIPATING IN THE EXCHANGE OFFER
If the restructuring is implemented pursuant to the recapitalization plan,
then a holder of the notes that does not participate in the exchange offer could
potentially have a taxable event if the proposed amendments are adopted. Under
general principles of tax law, the modification of a debt instrument creates a
deemed exchange (upon which gain or loss may be realized) if the modified debt
instrument differs materially either in kind or in extent from the original debt
instrument. Under applicable Treasury Regulations (the 'Regulations'), the
modification of a debt instrument is a 'significant' modification which will
create a deemed exchange if, based on all the facts and circumstances and taking
into account all modifications of the debt instrument collectively, the legal
rights or obligations that are altered and the degree to which they are altered
is 'economically significant.'
The Regulations provide that a modification of a debt instrument that adds,
deletes or alters customary accounting or financial covenants is not a
significant modification. Because there is no authority interpreting the
Regulations, their application to the proposed amendments is unclear. Due to the
absence of authority, our counsel cannot opine as to whether the proposed
amendments extend beyond the exception for customary accounting or financial
covenants. Nevertheless, we intend to take the position that the adoption of the
proposed amendments will not cause a significant modification of the notes under
the Regulations and therefore will not result in a deemed exchange of the notes
for United States federal income tax purposes. This conclusion is based, in
part, on the determination that the proposed amendments are similar to
modifications that add, delete or alter customary accounting or financial
covenants. In this case, no gain or loss will be recognized by U.S. Holders of
the notes. If, however, the adoption of the proposed amendments is found to
result in a deemed exchange of the notes for new notes, and both the notes and
the new notes constitute 'securities,' as discussed above under 'Consequences of
the Exchange of Common Stock for Notes,' the deemed exchange of the notes would
constitute a tax-free recapitalization for United States federal income tax
purposes and no gain or loss would be recognized by U.S. Holders of the notes.
If the adoption of the proposed amendments is found to result in a deemed
exchange but the deemed exchange does not qualify as a tax-free recapitalization
for United States federal income tax purposes, a U.S. Holder of the notes would
recognize gain or loss in an amount equal to the difference between the sum of
the issue price of the new notes (the fair market value of the notes, if the
notes or the new notes are publicly traded for purposes of the original issue
discount provisions of the Code, or the stated principal amount of the new
notes, if neither the notes nor the new notes are so publicly traded) and the
U.S. Holder's adjusted tax basis in the notes. Gain recognized would generally
be long-term capital gain if the U.S. Holders have held the notes for more than
one year. However, any gain attributable to accrued but unrecognized market
discount and any portion of the new notes attributable to accrued but unpaid
interest would be subject to tax as ordinary income.
If, as a result of the deemed exchange, the new notes are treated as issued
at an original issue discount (i.e., if the stated redemption price at maturity
of the new notes is greater than the fair market value of the notes exchanged by
more than 0.25% of the new notes' stated redemption price at maturity times the
number of complete years to maturity of the new notes), U.S. Holders
131
will be required to include such discount in income as it accrues, before they
have received the cash attributable to such income.
A U.S. Holder's initial tax basis in the new notes would be the issue price
of the new notes on the date of the deemed exchange, and the holding period of
the new notes would begin on the day after the deemed exchange.
TAX CONSEQUENCES TO US
We will realize income from cancellation of indebtedness ('COD') as a result
of the exchange to the extent the value of the stock issued in exchange for the
debt securities is less than the 'adjusted issue price' of the debt securities.
Thus, the precise amount of COD income which we will realize cannot be
determined until the date of the exchange. We will not recognize such COD income
to the extent we are considered insolvent from a tax perspective immediately
prior to the debt exchange. However, we will be required to reduce certain of
our tax attributes, including our net operating losses and loss carryforwards,
to the extent such income is excluded from taxable income. To the extent that we
are considered solvent and realize COD income, our available losses may offset
all or a portion of the COD income. COD income realized in excess of available
losses will result in a tax liability. In addition, the issuance of common stock
in the exchange will result in an 'ownership change' of our company. This
ownership change will significantly limit or eliminate the use of our remaining
tax attributes, including net operating losses, available after the exchange.
To the extent the discharge of our debt securities occurs in a Chapter 11
bankruptcy case pursuant to the prepackaged plan, COD income will be excluded
with a corresponding tax attribute reduction. However, the limitation on use of
our remaining tax attributes may not apply or may apply with different effect.
TAX RETURN DISCLOSURE AND INVESTOR LIST REQUIREMENTS
Recently promulgated Treasury regulations require taxpayers that participate
in 'reportable transactions' to disclose such transactions on their tax returns
by attaching IRS Form 8886 and to retain information related to such
transactions. In addition, organizers and sellers of a 'reportable transaction'
are required to maintain records including lists identifying investors in the
transaction and to furnish those records to the IRS upon demand. A transaction
may be a 'reportable transaction' based upon any of several indicia, one or more
of which may be present with respect to this transaction. As a result, we may
have to disclose this transaction on our tax return. You should consult your own
tax advisers concerning any possible disclosure obligation with respect to your
investment and should be aware that we and other participants in the transaction
may be required to report this transaction and/or maintain an investor list.
LEGAL MATTERS
The validity under Delaware law of our common stock offered hereby will be
passed upon for us by Simpson Thacher & Bartlett, New York, New York. From time
to time, Simpson Thacher & Bartlett represents Blackstone and Lehman on various
matters in the regular course of its business. The firm represented Lehman in
connection with the Lehman senior term loans and Blackstone in connection with
its purchase of our preferred stock. Certain partners of Simpson Thacher &
Bartlett, members of their families, and related persons, have an indirect
interest, through limited partnerships, in less than 1% of our preferred stock
through a fund affiliated with Blackstone.
EXPERTS
Our audited consolidated financial statements as of December 31, 2001 and
2000 and for each of the three years in the period ended December 31, 2001
incorporated by reference in this prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included in this prospectus in reliance upon the
authority of said firm as experts in giving said reports.
Section 11(a) of the Securities Act provides that if a registration
statement at the time it becomes effective contains an untrue statement of a
material fact, or omits a material fact required
132
to be stated therein or necessary to make the statements therein not misleading,
any person acquiring a security pursuant to such registration statement (unless
it is proven that at the time of such acquisition such person knew of such
untruth or omission) may assert a claim against, among others, an accountant who
has consented to be named as having certified any part of the registration
statement or as having prepared any report for use in connection with the
registration statement.
On April 11, 2002, we dismissed Arthur Andersen LLP as our independent
auditors and appointed Ernst & Young LLP. Prior to the date of this prospectus,
the Arthur Andersen partner responsible for the audit of our most recent audited
financial statements as of and for the year ended December 31, 2001 resigned
from Arthur Andersen LLP. As a result, after reasonable efforts, we have been
unable to obtain Arthur Andersen's written consent to the incorporation by
reference into this prospectus of its audit reports with respect to our
consolidated financial statements as of December 31, 2001 and 2000 and for the
years ended December 31, 2001, 2000 and 1999. Under these circumstances,
Rule 437a under the Securities Act permits us to file this prospectus without a
written consent from Arthur Andersen LLP. However, as a result, Arthur Andersen
LLP will not have any liability under Section 11(a) of the Securities Act for
any untrue statements of a material fact contained in the consolidated financial
statements audited by Arthur Andersen LLP or any omissions of a material fact
required to be stated therein. Accordingly, you will be unable to assert a claim
against Arthur Andersen LLP under Section 11(a) of the Securities Act because it
has not consented to the incorporation by reference of its previously issued
report into this prospectus.
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. 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.
133
EXHIBIT A
LOCKUP AGREEMENT
LOCKUP AGREEMENT, dated as of October 17, 2002, by and among Sirius
Satellite Radio Inc., a Delaware corporation (the 'Company'), Apollo Investment
Fund IV, L.P., a Delaware limited partnership ('AIF'), Apollo Overseas Partners
IV, L.P., a Cayman Islands limited partnership ('AOP', and together with AIF,
'Apollo'), Blackstone CCC Capital Partners L.P., a Delaware limited partnership
('BCC'), Blackstone CCC Offshore Capital Partners L.P., a Cayman Islands limited
partnership ('BCO'), Blackstone Family Investment Partnership III L.P., a
Delaware limited partnership ('BF'), LJH Partners, LP, a Delaware limited
partnership ('LJH'), Robert C. Fanch Revocable Trust ('Fanch'), BCI Investments
II, LLC, a Delaware limited liability company ('BCI', and together with BCC,
BCO, BF, LJH and Fanch, 'Blackstone'), Space Systems/Loral, Inc., a Delaware
corporation ('SS/L'), Lehman Commercial Paper Inc., a Delaware corporation
('LCPI') and the undersigned beneficial owners (or investment managers or
advisors for the beneficial owners) of the Notes (as defined below) identified
on Schedule A to this Agreement on the date of this Agreement and each other
beneficial owner (or investment managers or advisors for the beneficial owners)
of Notes that executes a counterpart signature page to this Agreement after the
date of this Agreement as provided in Section 27 (collectively, the
'Noteholders,' and each, individually, a 'Noteholder').
For purposes hereof, all references in this Agreement to Noteholders or
parties that are 'signatories to this Agreement' shall mean, as of any date of
determination, those Noteholders or parties, as the case may be, who executed
and delivered this Agreement as an original signatory on or before the date of
this Agreement, together with those additional Noteholders or parties, as the
case may be, who after the date of this Agreement but, on or before such date of
determination, become party to this Agreement by executing and delivering
counterpart signature pages as provided in Section 27. After the date of this
Agreement, when Noteholders become signatories to this Agreement, Schedule A
shall be updated to include the Notes held by such Noteholder. To the extent
Apollo, Blackstone, SS/L and Oppenheimer and/or their affiliates and LCPI are
also the beneficial holders of Notes, references to 'Noteholders' shall also
include such parties in their capacity as such.
WHEREAS, the Company, Apollo, Blackstone, LCPI, SS/L and the Noteholders
have engaged in good faith negotiations with the objective of restructuring the
debt and equity capital structures of the Company (the 'Restructuring'),
substantially as reflected in the Restructuring Term Sheet (as defined below)
which sets forth the terms and conditions of (i) the Exchange Offer, (ii) the
Consent Solicitation, (iii) the Preferred Stock Exchange, (iv) the Common Stock
Purchase, (v) the Proxy Solicitation and (vi) the Prepackaged Plan (each as
defined in the Restructuring Term Sheet); and
WHEREAS, the Company, Apollo, Blackstone, LCPI, SS/L and the Noteholders
desire that the Company conduct the Exchange Offer, the Consent Solicitation and
the Proxy Solicitation as soon as practicable on the terms described in the
Restructuring Term Sheet to accomplish the Restructuring, or, if necessary under
the terms of the Restructuring Term Sheet, that the Company commence a case
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of New York to accomplish the Restructuring through
the confirmation of the Prepackaged Plan (the 'Prepackaged Proceeding').
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each of the parties
signatory to this Agreement hereby agrees as follows:
1. Definitions. Capitalized terms used and not defined in this Agreement
have the meaning ascribed to them in the Restructuring Term Sheet, and the
following terms shall have the following meanings:
'A/B Purchasers' means Apollo and Blackstone.
A-1
'Agreement' means this Lockup Agreement, including the Schedules,
Annexes and Exhibits hereto (including any agreements incorporated herein or
therein), all of which are incorporated by reference herein.
'Common Stock' means the common stock, par value $0.001 per share, of
the Company.
'Convertible Subordinated Notes' means the 8 3/4% Convertible
Subordinated Notes due 2009, in a currently outstanding aggregate principal
amount of $16,461,000, issued by the Company pursuant to the Convertible
Subordinated Notes Indenture.
'Convertible Subordinated Notes Indenture' means the Indenture and the
First Supplemental Indenture (as amended, modified or supplemented from time
to time), each dated as of September 29, 1999, between the Company and U.S.
Trust Company of Texas, as trustee.
'Creditors' means each of the Noteholders, LCPI and SS/L.
'HSR Act' means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations of the Federal Trade
Commission promulgated thereunder.
'Indenture Amendments' means an amendment to each of the Indentures,
which, among other things, deletes substantially all of the restrictive
covenants contained in each of the Indentures.
'Indentures' means the Senior Secured Discount Notes Indenture, the
Senior Secured Notes Indenture and the Convertible Subordinated Notes
Indenture.
'Informal Creditors' Committee' means the informal committee of
creditors that has negotiated the terms of the Restructuring with the
Company, consisting of LCPI, SS/L and the following Noteholders: Continental
Casualty Company, Stonehill Capital Management LLC, Redwood Asset
Management, Farallon Capital Management, LLC, Dreyfus, The Huff Alternative
Fund, L.P.
'Lehman Credit Facility' means that certain existing $150,000,000 senior
secured credit facility evidenced by the Term Loan Agreement (as amended,
modified or supplemented from time to time), dated as of June 1, 2000, among
the Company, as borrower, the several lenders from time to time parties
thereto, Lehman Brothers Inc., as arranger, and LCPI, as syndication agent
and administrative agent.
'Material Adverse Change' means (i) any change, event or effect that is
materially adverse to the operations or financial condition of the Company
and its subsidiaries (taken as a whole); (ii) any material degradation in
the performance of the Company's satellite radio system following the date
hereof; or (iii) the Company receives a written notice from any of
DaimlerChrysler AG, Ford Motor Company, BMW of North America LLC or Kenwood
Corporation or any of their respective affiliates indicating that the
Company has failed to satisfy the requirements, if any, contained in
agreements with such car or radio manufacturer and, as a result of such
failure, such car or radio manufacturer will not introduce, or will
materially delay the introduction of, the Company's product or will
materially reduce the planned availability of the Company's product;
provided that the filing of the Prepackaged Proceeding shall not constitute
a Material Adverse Change; and provided further that a change shall not be
considered to be a Material Adverse Change if (x) its effect is not likely
to last beyond the term of this Agreement; or (y) it arises from actions
required to be taken by the Company pursuant to this Agreement; and provided
further that if the Common Stock Purchase is consummated, no Material
Adverse Change shall be deemed to have occurred.
'Minimum Tender Condition' means the condition to the consummation of
the Exchange Offer that there be validly tendered and not withdrawn not less
than (i) 97% in aggregate principal amount of the Outstanding Indebtedness
and (ii) 90% in aggregate principal amount of the Convertible Subordinated
Notes; provided however, that, upon the written instruction of the Required
Creditors, the Minimum Tender Condition shall be reduced to not less than
90%
A-2
in aggregate principal amount of the Outstanding Indebtedness (which
instruction may lower or eliminate any minimum requirement with respect to
the Convertible Subordinated Notes).
'Notes' means the Senior Secured Discount Notes, the Senior Secured
Notes and the Convertible Subordinated Notes.
'Outstanding Indebtedness' means all indebtedness outstanding under the
Notes, the SS/L Credit Agreement and the Lehman Credit Facility.
'Person' means any individual, partnership, corporation, limited
liability company, association, trust, joint venture, unincorporated
organization, governmental unit or other entity.
'Preferred Holders' means, collectively, Apollo and Blackstone.
'Preferred Stock' means the Company's 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.
'Required Creditors' means holders of a majority in aggregate principal
amount of, and accrued interest on, the Outstanding Indebtedness.
'Restructuring Term Sheet' means that certain Restructuring Term Sheet
attached hereto as Annex A which sets forth the material terms and
conditions of the Restructuring.
'Securities Act' means the Securities Act of 1933, as amended.
'Senior Secured Discount Notes' means the 15% Senior Secured Discount
Notes due 2007 in the aggregate principal amount at maturity of $280,430,000
issued by the Company pursuant to the Senior Secured Discount Notes
Indenture.
'Senior Secured Discount Notes Indenture' means the Indenture (as
amended, modified or supplemented from time to time), dated as of November
26, 1997, between the Company (formerly known as CD Radio Inc.), as issuer,
and The Bank of New York (as successor to IBJ Schroder Bank & Trust
Company), as trustee.
'Senior Secured Notes' means the 14 1/2% Senior Secured Notes due 2009
in the aggregate principal amount of $200,000,000 issued by the Company
pursuant to the Senior Secured Notes Indenture.
'Senior Secured Notes Indenture' means the Indenture (as amended,
modified or supplemented from time to time), dated as of May 15, 1999,
between the Company, as issuer, and United States Trust Company of New York,
as trustee.
'SS/L Credit Agreement' means the Deferral Credit Agreement (as amended,
modified or supplemented from time to time), dated as of April 15, 1999, by
and between the Company (formerly known as CD Radio Inc.) and SS/L, as
lender.
'Special Committee of the Board of Directors' means the special
committee of the Board of Directors of the Company formed to evaluate
certain aspects of the Restructuring and consisting of Lawrence F. Gilberti,
James P. Holden and Joseph V. Vittoria.
'Transfer' means to directly or indirectly (i) sell, pledge, assign,
encumber, grant an option with respect to, transfer or dispose of any
participation or interest (voting or otherwise) in or (ii) enter into an
agreement, commitment or other arrangement to sell, pledge, assign,
encumber, grant an option with respect to, transfer or dispose of any
participation or interest (voting or otherwise) in, or the act thereof.
2. Agreement to Complete the Restructuring. Subject to the terms and
conditions of this Agreement, the parties to this Agreement agree to use
commercially reasonable best efforts to complete the Restructuring through the
Exchange Offer, the Consent Solicitation, the Preferred Stock Exchange, the
Common Stock Purchase and the Proxy Solicitation, as each is described in the
Restructuring Term Sheet; or, alternatively, if the Minimum Tender Condition is
not satisfied or waived or the Company is otherwise not able to consummate the
Exchange Offer but the required consents of holders of the Outstanding
Indebtedness and the Preferred Holders are received to confirm the Prepackaged
Plan, then through the Prepackaged Plan in accordance with
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the terms of the Restructuring Term Sheet. The obligations of the parties
hereunder are several and not joint nor joint and several and no party hereto
shall be responsible for the failure of any other party hereto to perform its
obligations hereunder.
3. The Company's Obligations to Support the Restructuring. (a) The Company
agrees to use its commercially reasonable best efforts to commence the Exchange
Offer, the Consent Solicitation and the Proxy Solicitation as promptly as
practicable, to do all things reasonably necessary and appropriate in
furtherance thereof, including filing any related documents with the Securities
and Exchange Commission, and to use its commercially reasonable best efforts to
complete the same within 45 business days of the date of commencement of the
Exchange Offer.
(a) The Company agrees that it will not waive the Minimum Tender
Condition without the prior written consent of the Board of Directors, the
Required Creditors and the A/B Purchasers.
(b) If all of the conditions to the Exchange Offer are not satisfied or
waived by March 15, 2003, but the required consents of holders of the
Outstanding Indebtedness and the Preferred Holders are received to confirm
the Prepackaged Plan, then on such date (or such earlier or later date as
the Required Creditors may agree), the Company shall file the Prepackaged
Proceeding and seek confirmation of the Prepackaged Plan.
(c) The Company shall not, without the prior written consent of the
Required Creditors and the A/B Purchasers: (i) initiate any exchange offer
for the Notes and/or the term loans under the Lehman Credit Facility and the
SS/L Credit Agreement, except the Exchange Offer described in the
Restructuring Term Sheet; (ii) otherwise seek to restructure or recapitalize
the Company except through the Restructuring in accordance with the
Restructuring Term Sheet; or (iii) dispose of assets outside the ordinary
course of business or engage in any business combination or similar
extraordinary transaction; provided that, without the prior written consent
of each Noteholder and each of LCPI, SS/L and each of the Preferred Holders,
there shall be no alteration that adversely affects such party in a manner
inconsistent with the other Creditors.
(d) Subject to the terms and conditions of this Agreement, the Company
shall consummate the Common Stock Purchase concurrently and in connection
with and conditioned upon the consummation of the Restructuring on the terms
set forth in the Restructuring Term Sheet and will agree to register for
resale the shares of Common Stock purchased in the Common Stock Purchase
with a view toward liquidity of such Common Stock on the closing date
thereof.
(e) Subject to the terms and conditions of this Agreement and in
consideration of the Preferred Holders' participation in the Preferred Stock
Exchange and the Common Stock Purchase, the Company shall issue to the
Preferred Holders warrants (the 'Apollo/Blackstone Warrants') to purchase
additional shares of Common Stock concurrently and in connection with and
conditioned upon the consummation of the Restructuring on the terms set
forth in the Restructuring Term Sheet.
(f) Subject to the terms and conditions of this Agreement, the Company
shall use its best efforts to take all necessary action to effect a
restructuring of its board of directors concurrently and in connection with
and conditioned upon the consummation of the Restructuring on the terms set
forth in the Restructuring Term Sheet.
(g) The Company further agrees that it will not object to, or otherwise
commence any proceeding to oppose, the Restructuring and shall not take any
action that is inconsistent with, or that would unreasonably delay the
consummation of, the Restructuring.
(h) Nothing in this Agreement shall be deemed to prevent the Company
from taking, or failing to take, any action that it is obligated to take (or
fail to take) in the performance of any fiduciary or similar duty which the
Company owes to any other Person; it being understood and agreed that if any
such action (or failure to act) results in (i) an alteration of the terms of
the Restructuring not permitted by Section 10 or (ii) the Company giving
written notice of its intent to terminate this Agreement pursuant to Section
11(vii), this Agreement
A-4
and all of the obligations and undertakings of the parties set forth in this
Agreement, other than the obligations of the Company contained in
Sections 13 and 30, shall terminate and expire.
4. LCPI's and SS/L's Obligations to Support the Restructuring. Subject to
the terms and conditions of this Agreement:
(a) LCPI agrees with each of the other parties to this Agreement, in
connection with and conditioned upon the consummation of the Restructuring
upon the terms set forth in the Restructuring Term Sheet, to: (i) tender for
cancellation and termination all of the outstanding term loans under the
Lehman Credit Facility pursuant to and in accordance with the Exchange Offer
within ten business days following the commencement of the Exchange Offer;
(ii) vote to accept the Prepackaged Plan within ten business days following
the commencement of the Exchange Offer; (iii) vote to reject any plan of
reorganization for the Company that does not contain the terms of the
Restructuring substantially as set forth in the Restructuring Term Sheet;
and (iv) subject to the terms of the Restructuring Term Sheet, not to
withdraw or revoke any of the foregoing unless and until this Agreement is
terminated in accordance with its terms.
(b) SS/L agrees with each of the other parties to this Agreement, in
connection with and conditioned upon the consummation of the Restructuring
upon the terms set forth in the Restructuring Term Sheet, to: (i) tender for
cancellation and termination all of the outstanding term loans under the
SS/L Credit Agreement pursuant to and in accordance with the Exchange Offer
within ten business days following the commencement of the Exchange Offer;
(ii) vote to accept the Prepackaged Plan within ten business days following
the commencement of the Exchange Offer; (iii) vote to reject any plan of
reorganization for the Company that does not contain the terms of the
Restructuring substantially as set forth in the Restructuring Term Sheet;
and (iv) subject to the terms of the Restructuring Term Sheet, not to
withdraw or revoke any of the foregoing unless and until this Agreement is
terminated in accordance with its terms.
(c) Each of LCPI and SS/L agrees, so long as this Agreement remains in
effect, not to Transfer any of the term loans under the Lehman Credit
Facility or the SS/L Credit Agreement, in whole or in part, or any
participation or other interest therein, unless the beneficial owner(s) to
whom the term loans are being Transferred (the 'Transferee') agrees in
writing to be bound by the terms of this Agreement. In the event that LCPI
or SS/L Transfer any of such term loans, as a condition precedent to such
Transfer, each of LCPI and SS/L agrees to cause the Transferee to execute
and deliver a joinder agreement in customary form confirming the agreement
of such Transferee to be bound by the terms of this Agreement for so long as
this Agreement shall remain in effect. In the event that the Company's
consent is required for any Transfer of the term loans under the Lehman
Credit Facility or the SS/L Credit Agreement, the Company hereby agrees to
grant such consent promptly in accordance with the requirements of this
Agreement. Any Transfer of the term loans in violation of the foregoing
shall be deemed ineffective to Transfer any right to accept or reject the
Exchange Offer or to accept or reject the Prepackaged Plan, which right
shall remain with and be exercised only by the purported transferor.
(d) Each of LCPI and SS/L agrees that it will (i) not vote for, consent
to, provide any support for, participate in the formulation of, or solicit
or encourage others to formulate any other tender offer, settlement offer,
or exchange offer for the outstanding term loans under the Lehman Credit
Facility or the SS/L Credit Agreement other than the Exchange Offer; and
(ii) permit public disclosure, including in a press release, of the contents
of this Agreement, including, but not limited to, the commitments given in
this Section 4 and the Restructuring Term Sheet.
(e) Each of LCPI and SS/L further agrees that it will not object to, or
otherwise commence any proceeding to oppose, the Restructuring and shall not
take any action that is materially inconsistent with, or that would
unreasonably delay the consummation of, the Restructuring in accordance with
the terms of the Restructuring Term Sheet. Accordingly, so
A-5
long as this Agreement is in effect, LCPI and SS/L agree that each shall not
(i) object to confirmation of the Prepackaged Plan or otherwise commence any
action or proceeding to alter, oppose or add any other provision to the
Prepackaged Plan or any other documents or agreements consistent with the
Prepackaged Plan; (ii) object to the approval of any disclosure statement
that describes the Prepackaged Plan; (iii) vote for, consent to, support,
intentionally induce or participate directly or indirectly in the formation
of any other plan of reorganization or liquidation proposed or filed, or to
be proposed or filed, in any Chapter 11 case for the Company; (iv) commence
or support any action or proceeding to shorten or terminate the period
during which only the Company may propose and/or seek confirmation of a plan
of reorganization for the Company; (v) directly or indirectly seek, solicit,
support or encourage any other plan, sale, proposal or offer of winding up,
liquidation, reorganization, merger, consolidation, dissolution or
restructuring of the Company; or (vi) commence or support any action filed
by the Company or any other party in interest to appoint a trustee,
conservator, receiver or examiner for the Company, or to dismiss any Chapter
11 case, or to convert such Chapter 11 case to one under Chapter 7.
(f) Nothing in this Agreement shall be deemed to prevent LCPI or SS/L
from taking, or failing to take, any action that it is obligated to take (or
fail to take) in the performance of any fiduciary or similar duty which LCPI
or SS/L owes to any other Person, including any duties that may arise as a
result of LCPI's or SS/L's appointment to any committee in the Prepackaged
Proceeding or any other bankruptcy or insolvency proceeding.
(g) Each of LCPI and SS/L further agrees that any Notes acquired by
either of them following the date of this Agreement shall be subject to the
terms and conditions of this Agreement relating to the Notes held by the
Noteholders and shall be subject to the same treatment in the Restructuring
as the Notes held by the Noteholders as of the date hereof.
5. Noteholders' Obligations to Support the Restructuring. Subject to the
terms and conditions of this Agreement:
(a) Each Noteholder agrees with each of the other parties to this
Agreement, in connection with and conditioned upon consummation of the
Restructuring upon the terms set forth in the Restructuring Term Sheet, to:
(i) tender its Notes pursuant to and in accordance with the Exchange Offer
and the other terms and conditions of the Restructuring Term Sheet within
ten business days following the commencement of the Exchange Offer;
(ii) grant its consent pursuant to the Consent Solicitation and agree to the
Indenture Amendments; (iii) vote to accept the Prepackaged Plan within ten
business days following the commencement of the Exchange Offer; (iv) vote to
reject any plan of reorganization for the Company that does not contain the
terms of the Restructuring substantially as set forth in the Restructuring
Term Sheet; and (v) subject to the terms of the Restructuring Term Sheet,
not to withdraw or revoke any of the foregoing unless and until this
Agreement is terminated in accordance with its terms. Each Noteholder
acknowledges that by tendering its Notes in the Exchange Offer, it will be
deemed to have delivered the consents required in the Consent Solicitation
for the Indenture Amendments.
(b) Each Noteholder agrees, so long as this Agreement remains in effect,
not to Transfer any of the Notes held by it, in whole or in part, unless the
Transferee agrees in writing to be bound by the terms of this Agreement. In
the event that any Noteholder Transfers any of the Notes, as a condition
precedent to such Transfer, each Noteholder agrees to cause the Transferee
to execute and deliver a joinder agreement in customary form confirming the
agreement of such Transferee to be bound by the terms of this Agreement for
so long as this Agreement shall remain in effect. In the event that the
Company's consent is required for any Transfer of the Notes, the Company
hereby agrees to grant such consent promptly in accordance with the
requirements of this Agreement. Any Transfer of the Notes in violation of
the foregoing shall be deemed ineffective to Transfer any right to accept or
reject the Exchange Offer, to consent to or reject the Indenture Amendments,
or to accept or reject the Prepackaged Plan, which right shall remain with
and be exercised only by the purported transferor.
A-6
(c) Each Noteholder agrees that it will (i) not vote for, consent to,
provide any support for, participate in the formulation of, or solicit or
encourage others to formulate any other tender offer, settlement offer, or
exchange offer for the Notes other than the Exchange Offer; and (ii) permit
public disclosure, including in a press release, of the contents of this
Agreement, including, but not limited to, the commitments contained in this
Section 5 and the Restructuring Term Sheet, but not including information
with respect to such Noteholder's specific ownership of Notes.
(d) Each Noteholder further agrees that it will not object to, or
otherwise commence any proceeding to oppose, the Restructuring and shall not
take any action that is materially inconsistent with, or that would
unreasonably delay the consummation of, the Restructuring in accordance with
the terms of the Restructuring Term Sheet. Accordingly, so long as this
Agreement is in effect, each Noteholder agrees that it shall not (i) object
to confirmation of the Prepackaged Plan or otherwise commence any action or
proceeding to alter, oppose or add any other provision to the Prepackaged
Plan or any other documents or agreements consistent with the Prepackaged
Plan; (ii) object to the approval of any disclosure statement that describes
the Prepackaged Plan; (iii) vote for, consent to, support, intentionally
induce or participate directly or indirectly in the formation of any other
plan of reorganization or liquidation proposed or filed, or to be proposed
or filed, in any Chapter 11 case for the Company; (iv) commence or support
any action or proceeding to shorten or terminate the period during which
only the Company may propose and/or seek confirmation of a plan of
reorganization for the Company; (v) directly or indirectly seek, solicit,
support or encourage any other plan, sale, proposal or offer of winding up,
liquidation, reorganization, merger, consolidation, dissolution or
restructuring of the Company; or (vi) commence or support any action filed
by the Company or any other party in interest to appoint a trustee,
conservator, receiver or examiner for the Company, or to dismiss any
Chapter 11 case, or to convert such Chapter 11 case to one under Chapter 7.
(e) Nothing in this Agreement shall be deemed to prevent any Noteholder
from taking, or failing to take, any action that it is obligated to take (or
fail to take) in the performance of any fiduciary or similar duty which the
Noteholder owes to any other Person, including any duties that may arise as
a result of any Noteholder's appointment to any committee in the Prepackaged
Proceeding or any other bankruptcy or insolvency proceeding.
(f) Each Noteholder further agrees that any Notes acquired by such
Noteholder following the date of this Agreement shall be subject to the
terms and conditions of this Agreement and shall be subject to the same
treatment in the Restructuring as the Notes held by such Noteholder as of
the date hereof.
6. Preferred Holders' Obligations to Support the Restructuring. Subject to
the terms and conditions of this Agreement:
(a) Each Preferred Holder agrees with each of the other parties to this
Agreement, in connection with and conditioned upon the consummation of the
Restructuring upon the terms set forth in the Restructuring Term Sheet, to
tender for cancellation and termination all of the Preferred Stock held by
such Preferred Holder in exchange for shares of Common Stock pursuant to and
in accordance with the terms and conditions of the Restructuring Term Sheet.
(b) Each Preferred Holder agrees with each of the other parties to this
Agreement, in connection with and conditioned upon consummation of the
Restructuring upon the terms set forth in the Restructuring Term Sheet, at
every meeting of the stockholders of the Company called, and at every
adjournment or postponement thereof, and on every action or approval by
written consent of the stockholders of the Company to attend such meeting in
person or by his proxy and to vote in favor of the approval of the
Restructuring (on the terms and conditions contemplated hereby).
(c) Each Preferred Holder agrees, so long as this Agreement remains in
effect, not to Transfer any of the shares of Preferred Stock held by it, in
whole or in part, unless the Transferee agrees in writing to be bound by the
terms of this Agreement. In the event that
A-7
either of the Preferred Holders Transfer any of the Preferred Stock, as a
condition precedent to such Transfer, each Preferred Holder agrees to cause
the Transferee to execute and deliver a joinder agreement in customary form
confirming the agreement of such Transferee to be bound by the terms of this
Agreement for so long as this Agreement shall remain in effect. In the event
that the Company's consent is required for any Transfer of the Preferred
Stock, the Company hereby agrees to grant such consent promptly in
accordance with the requirements of this Agreement. Any Transfer of the
Preferred Stock in violation of the foregoing shall be deemed ineffective to
transfer any right to vote on the approval of the Restructuring or to accept
or reject the Prepackaged Plan, which rights shall remain with and be
exercised only by the purported transferors.
(d) Each Preferred Holder agrees that it will permit public disclosure,
including in a press release, of the contents of this Agreement, including,
but not limited to, the commitments contained in this Section 6 and the
Restructuring Term Sheet.
(e) Each Preferred Holder further agrees that it will not object to, or
otherwise commence any proceeding to oppose, the Restructuring and shall not
take any action that is materially inconsistent with, or that would
unreasonably delay the consummation of, the Restructuring in accordance with
the terms of the Restructuring Term Sheet. Accordingly, so long as this
Agreement is in effect, each Preferred Holder agrees that it shall not
(i) object to confirmation of the Prepackaged Plan or otherwise commence any
action or proceeding to alter, oppose or add any other provision to the
Prepackaged Plan or any other documents or agreements consistent with the
Prepackaged Plan; (ii) object to the approval of any disclosure statement
that describes the Prepackaged Plan; (iii) vote for, consent to, support,
intentionally induce or participate directly or indirectly in the formation
of any other plan of reorganization or liquidation proposed or filed, or to
be proposed or filed, in any Chapter 11 case for the Company; (iv) commence
or support any action or proceeding to shorten or terminate the period
during which only the Company may propose and/or seek confirmation of a plan
of reorganization for the Company; (v) directly or indirectly seek, solicit,
support or encourage any other plan, sale, proposal or offer of winding up,
liquidation, reorganization, merger, consolidation, dissolution or
restructuring of the Company; or (vi) commence or support any action filed
by the Company or any other party in interest to appoint a trustee,
conservator, receiver or examiner for the Company, or to dismiss any
Chapter 11 case, or to convert such Chapter 11 case to one under Chapter 7.
(f) Nothing in this Agreement shall be deemed to prevent any Preferred
Holder from taking, or failing to take, any action that it is obligated to
take (or fail to take) in the performance of any fiduciary or similar duty
which the Preferred Holder owes to any other Person, including any duties
that may arise as a result of any Preferred Holder's appointment to any
committee in the Prepackaged Proceeding or any other bankruptcy or
insolvency proceeding.
7. Additional Obligations to Support the Restructuring. Subject to the terms
and conditions of this Agreement:
(a) Subject to Section 2 of this Agreement, each party to this Agreement
agrees that so long as it is the legal owner or beneficial owner of all or
any portion of either a referenced 'claim' or referenced 'interest' within
the meaning of 11 U.S.C. 'SS'SS' 101, et seq. (each a 'Claim'), it will:
(i) take all reasonable steps to support the Prepackaged Plan, use its
commercially reasonable best efforts to defend the adequacy of pre-petition
disclosure and solicitation procedures in connection with the Prepackaged
Plan and the Exchange Offer and, to the extent necessary, support the
adequacy of any post-petition disclosure statement that may be required by
the bankruptcy court and circulated in connection herewith or therewith;
(ii) from and after the date hereof, not agree to, consent to, provide any
support to, participate in the formulation of, or vote for any plan of
reorganization or liquidation of the Company, other than the Prepackaged
Plan; and (iii) agree to permit disclosure in the Prepackaged Plan or any
document ancillary thereto (hereinafter a 'Reorganization Document') or any
necessary filings by the Company with the Securities and Exchange
A-8
Commission (the 'Commission') of the contents of this Agreement (excluding
information with respect to any Noteholder's specific ownership of Notes).
(b) Each party to this Agreement agrees that so long as it is a holder
of all or any portion of a Claim, it shall not object to, or otherwise
commence any proceeding to oppose or alter, the Prepackaged Plan or any
other Reorganization Document and shall not take any action which is
inconsistent with, or that would unreasonably delay or impede approval or
confirmation of the Prepackaged Plan or any of the Reorganization Documents.
Without limiting the generality of the foregoing, no party may directly or
indirectly seek, solicit, support or encourage any other plan, sale,
proposal or offer of dissolution, winding up, liquidation, reorganization,
merger, consolidation, liquidation or restructuring of the Company that
could reasonably be expected to prevent, delay or impede the confirmation of
the Prepackaged Plan or approval of any Reorganization Document.
(c) Each of the Noteholders, LCPI and SS/L agrees to waive its
respective rights and remedies under the Senior Secured Notes Indenture, the
Senior Secured Indenture, the Convertible Subordinated Notes Indenture, the
Lehman Credit Facility and the SS/L Credit Agreement and related documents
or applicable law in respect of or arising out of any 'Default' (as defined
in such documents) or 'Event of Default' (as defined in such documents)
arising under: (i) the Senior Secured Discount Notes Indenture, (ii) the
Senior Secured Notes Indenture, (iii) the Convertible Subordinated Notes
Indenture, (iv) the term loan agreement evidencing the Lehman Credit
Facility and (v) the SS/L Credit Agreement, in each case until this
Agreement is terminated as provided in Section 11. If this Agreement is
terminated as provided in Section 11, the agreement of the Noteholders, LCPI
and SS/L to waive shall automatically and without further action terminate
and be of no force and effect, it being expressly agreed that the effect of
such termination shall be to permit each of them to exercise any rights and
remedies immediately; provided that nothing herein shall be construed as a
waiver by the Company of any right it may have as a 'debtor' under the
Prepackaged Proceeding or other bankruptcy proceeding or by any Creditor to
seek adequate protection retroactive to the date of filing of the
Prepackaged Proceeding or other bankruptcy proceeding.
8. Obligations of Preferred Holders and Oppenheimer to Participate in the
Common Stock Purchase. Subject to the terms and conditions of this Agreement and
the Restructuring Term Sheet:
(a) Apollo agrees to subscribe for and purchase a number of shares equal
to 2.5% of the Common Stock that would be outstanding after giving effect to
the Restructuring if 100% of the Outstanding Indebtedness were exchanged for
Common Stock in the Exchange Offer (expected to be 24,000,000 shares) from
the Company for an aggregate purchase price of $25,000,000 in the Common
Stock Purchase upon the earlier of the consummation of the Exchange Offer
and the effectiveness of the Prepackaged Plan;
(b) Blackstone agrees to subscribe for and purchase a number of shares
equal to 2.5% of the Common Stock that would be outstanding after giving
effect to the Restructuring if 100% of the Outstanding Indebtedness were
exchanged for Common Stock in the Exchange Offer (expected to be 24,000,000
shares) from the Company for an aggregate purchase price of $25,000,000 in
the Common Stock Purchase upon the earlier of the consummation of the
Exchange Offer and the effectiveness of the Prepackaged Plan; and
(c) Atlas Global Growth Fund, Clarington Global Equity Fund, Security
Benefit Life Global Series Fund, Security Benefit Life Worldwide Equity
Series D/VA, CUNA Global Series Fund/VA, JNL/Oppenheimer Global Growth
Series VA, Oppenheimer Global Fund, TD Global Select Fund, Oppenheimer
Global Securities Fund/VA, and Oppenheimer Global Growth & Income Fund/VA or
their respective designees (collectively, 'Oppenheimer', and together with
Apollo and Blackstone, the 'Purchasers'), agree to subscribe for and
purchase an aggregate number of shares equal to 17% of the Common Stock that
would be outstanding after giving effect to the Restructuring if 100% of the
Outstanding Indebtedness were exchanged for Common Stock in the Exchange
Offer (expected to be 163,200,000 shares) of
A-9
Common Stock from the Company for an aggregate purchase price of
$150,000,000 in the Common Stock Purchase upon the earlier of the
consummation of the Exchange Offer and the effectiveness of the Prepackaged
Plan; provided that, in no event may Oppenheimer's total equity ownership in
the Company exceed 24.95% and, to the extent Oppenheimer's total equity
ownership in the Company after giving effect to the Restructuring would
exceed 24.95%, the number of shares it is obligated to subscribe for and
purchase in the Common Stock Purchase shall be reduced accordingly; and
provided further that, from the date hereof until the closing date of the
Restructuring, Oppenheimer shall not acquire any additional securities of
the Company;
provided that, (i) in the event that a case under any chapter of the Bankruptcy
Code is commenced by or against the Company as debtor, the obligation of the
Purchasers to subscribe for and purchase Common Stock in the Common Stock
Purchase shall terminate immediately, in the case of a voluntary filing or, in
the case of an involuntary filing, shall be suspended and shall terminate on the
thirty-first day following the filing if such proceeding has not been dismissed
by such day; and (ii) the obligation of each of the Purchasers to purchase the
Common Stock in the Common Stock Purchase is conditioned upon each of the other
Purchasers (or Replacement Purchaser under Section 11(b)) fulfilling their
respective obligations to purchase Common Stock on the closing date of the
Restructuring.
9. Effectiveness of this Agreement. The effectiveness of this Agreement, and
the respective obligations of the parties under this Agreement, are conditioned
upon the receipt of the consent and signature hereto of the Company, Apollo,
Blackstone, LCPI, SS/L and Noteholders holding a majority of the aggregate
principal amount at maturity of the Senior Secured Discount Notes and a majority
of aggregate principal amount of the Senior Secured Notes.
10. Amendments to the Restructuring. The Company shall not alter the terms
of the Restructuring without the prior written consent of the Required Creditors
and the A/B Purchasers; provided however, that the consent of the A/B Purchasers
shall not be required for any alteration that affects only the allocation among
the Noteholders, LCPI and SS/L of the equity to be received by the Noteholders,
LCPI and SS/L pursuant to the Restructuring Term Sheet; and provided further
that, without the prior written consent of each Noteholder and each of LCPI,
SS/L and each of the Preferred Holders, there shall be no alteration that
adversely affects such party in a manner inconsistent with the other Creditors.
Notwithstanding the foregoing, the Company may extend the expiration date of the
Exchange Offer to any date not later than March 15, 2003, if at the time of any
such extension the conditions to closing set forth in the Exchange Offer shall
not have been satisfied or waived as provided in this Agreement.
11. Termination of Agreement. Notwithstanding anything to the contrary set
forth in this Agreement:
(a) Unless the Restructuring has been consummated as provided in this
Agreement, this Agreement and all of the obligations and undertakings of the
parties set forth in this Agreement shall terminate and expire upon the
earliest to occur of:
(i) March 15, 2003 (provided that if a Prepackaged Proceeding is
filed as set forth in Section 3(c), such date shall be June 15, 2003),
unless extended pursuant to Section 10;
(ii) receipt of written notice from the Required Creditors of their
intent to terminate this Agreement upon the occurrence of a Material
Adverse Change;
(iii) subject to Section 11(b), 10 business days after receipt of
written notice from any of Apollo, Blackstone or Oppenheimer of its
intent to terminate this Agreement upon the occurrence of a Material
Adverse Change;
(iv) in the event the Minimum Tender Condition is not satisfied upon
the expiration of the Exchange Offer, receipt of written notice from
Apollo, Blackstone or Oppenheimer of its intention to terminate its
obligations under Section 8 of this Agreement, which notice must be
provided no later than 5 business days after the expiration of the
Exchange Offer;
A-10
(v) a material alteration by the Company of the terms of the
Restructuring not permitted under Section 10;
(vi) receipt of written notice from any of the parties hereto of its
intent to terminate this Agreement upon the occurrence of a material
breach by any of the other parties hereto of its respective obligations,
representations or warranties under this Agreement that is incurable or
that is curable and is not cured within 30 days after notice of such
breach;
(vii) receipt of written notice from the Company of its intent to
terminate this Agreement upon a determination by the Board of Directors
that such termination is in the best interests of the Company;
(viii) the thirty-first day following the filing of any involuntary
bankruptcy or other insolvency proceeding involving the Company, other
than the Prepackaged Proceeding contemplated by this Agreement, if such
proceeding has not been dismissed by such day;
(ix) the Prepackaged Proceeding being dismissed or converted to
chapter 7; and
(x) receipt of written notice from the Required Creditors to
terminate this Agreement due to the Company's failure to pay the fees and
expenses incurred by the parties hereto in connection with the
Restructuring;
provided however that the obligations of the Company contained in Sections 13
and 30 shall survive any termination pursuant to this Section 11.
(b) In the event the Company receives notice from either Apollo or
Blackstone (in such capacity, a 'Non-Funding Purchaser') of its intention to
terminate this Agreement solely pursuant to Section 11(a)(iii), and in the
event any other Person (a 'Replacement Purchaser'), during the ten business
day period following the receipt of such notice, agrees to subscribe for and
purchase (on the same terms and conditions) the shares of Common Stock that
such Non-Funding Purchaser was obligated to purchase in the Common Stock
Purchase, then (i) this Agreement shall not terminate, (ii) such Non-Funding
Purchaser shall assign to such Replacement Purchaser all title and interest
in the shares of Common Stock and Apollo/Blackstone Warrants it receives in
exchange for its Preferred Stock in the Preferred Stock Exchange, and
(iii) such Non-Funding Purchaser shall be released from its obligations as a
Preferred Holder hereunder and shall have no further obligations under this
Agreement other than those described in (ii).
(c) In the event this Agreement is terminated solely pursuant to
Section 11(a)(iii) and there is no Replacement Purchaser, (i) the Company
agrees to grant co-exclusivity to the Informal Creditors' Committee with
respect to the filing of a Chapter 11 plan and (ii) each of Apollo and
Blackstone agrees that if it is a Non-Funding Purchaser it will not object
to any Chapter 11 plan filed on the basis that no distributions are being
provided to equity holders.
12. Representations and Warranties. (a) Each of the signatories to this
Agreement represents and warrants to the other signatories to this Agreement
that:
(i) if an entity, it is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has all
requisite corporate, partnership or other power and authority to enter into
this Agreement and to carry out the transactions contemplated by, and
perform its respective obligations under, this Agreement;
(ii) the execution and delivery of this Agreement and the performance of
its obligations hereunder have been duly authorized by all necessary
corporate, partnership or other action on its part;
(iii) the execution, delivery and performance by it of this Agreement do
not and shall not (A) violate any provision of law, rule or regulation
applicable to it or any of its affiliates or its certificate of
incorporation or bylaws or other organizational documents or those of any of
its subsidiaries or (B) conflict with, result in the breach of or constitute
(with due notice or lapse of time or both) a default under any material
contractual obligations to which it or any
A-11
of its affiliates is a party or under its certificate of incorporation,
bylaws or other governing instruments;
(iv) the execution, delivery and performance by it of this Agreement do
not and shall not require any registration or filing with, the consent or
approval of, notice to, or any other action with respect to, any Federal,
state or other governmental authority or regulatory body, except for
(A) the registration under the Securities Act of the shares of the Common
Stock to be issued in the Exchange Offer and such consents, approvals,
authorizations, registrations or qualifications as may be required under the
state securities or Blue Sky laws in connection with the issuance of those
shares, (B) the filing with the Commission of a proxy statement in
connection with the Proxy Solicitation, (C) such other filings as may be
necessary or required by the Commission, (D) the approval of the Federal
Communications Commission, if required, and (E) any filings required under
the HSR Act;
(v) assuming the due execution and delivery of this Agreement by each of
the other parties hereto, this Agreement is the legally valid and binding
obligation of it, enforceable against it in accordance with its terms; and
(vi) it has been represented by counsel in connection with this
Agreement and the transactions contemplated by this Agreement.
(b) Each of the Noteholders further represents and warrants to the other
signatories to this Agreement that:
(i) as of the date of this Agreement, such Noteholder is the beneficial
owner of, or the investment adviser or manager for the beneficial owners of,
the principal amount at maturity of the Notes, set forth opposite such
Noteholder's name on Schedule B hereto, with the power and authority to vote
and dispose of such Notes;
(ii) such Noteholder has reviewed, or has had the opportunity to review,
with the assistance of professional and legal advisors of its choosing,
sufficient information necessary for such Noteholder to decide to tender its
Notes pursuant to the Exchange Offer and to accept the proposed terms of the
Prepackaged Plan as set forth in the Restructuring Term Sheet; and
(iii) as of the date of this Agreement, such Noteholder is not aware of
any event that, due to any fiduciary or similar duty to any other Person,
would prevent it from taking any action required of it under this Agreement.
(c) Each of the Preferred Holders further represents and warrants to the
other signatories to this Agreement that:
(i) as of the date of this Agreement, such Preferred Holder is the
beneficial owner of all of the shares of the Preferred Stock identified on
its signature page to this Agreement;
(ii) it has reviewed, or has had the opportunity to review, with the
assistance of professional and legal advisors of its choosing, sufficient
information necessary for it to decide to tender for cancellation and
termination all of the Preferred Stock it holds pursuant to the
Restructuring and to accept the proposed terms of the Prepackaged Plan as
set forth in the Restructuring Term Sheet; and
(iii) as of the date of this Agreement, it is not aware of any event
that, due to any fiduciary or similar duty to any other Person, would
prevent it from taking any action required of it under this Agreement;
(d) Each of LCPI and SS/L further represents and warrants to the other
signatories to this Agreement that:
(i) as of the date of this Agreement, it is the owner of all the
outstanding indebtedness owing under the Lehman Credit Facility and SS/L
Credit Agreement, respectively;
(ii) it has reviewed, or has had the opportunity to review, with the
assistance of professional and legal advisors of its choosing, sufficient
information necessary for it to decide to tender for cancellation and
termination all the outstanding term loans, and accrued interest thereon,
under the Lehman Credit Facility and SS/L Credit Facility, respectively,
pursuant to
A-12
the Restructuring and to accept the proposed terms of the Prepackaged Plan
as set forth in the Restructuring Term Sheet; and
(iii) as of the date of this Agreement, it is not aware of any event
that, due to any fiduciary or similar duty to any other Person, would
prevent it from taking any action required of it under this Agreement.
13. Payment of Expenses. The Company hereby agrees to reimburse each of the
parties to this Agreement for all reasonable out-of-pocket fees and expenses
incurred in connection with the Restructuring, including but not limited to fees
and disbursements of counsel.
14. Preparation of Restructuring Documents. Notwithstanding anything to the
contrary contained in this Agreement, the obligations of the signatories to this
Agreement shall be subject to the preparation of definitive documents (in form
and substance reasonably satisfactory to each of the parties hereto and their
respective counsel) relating to the transactions contemplated by this Agreement,
including, without limitation, the documents relating to the Exchange Offer, the
Prepackaged Plan, the Consent Solicitation, the Preferred Stock Exchange, the
Common Stock Purchase, the Proxy Solicitation and each Reorganization Document,
which documents shall be in all respects materially consistent with this
Agreement (including the Restructuring Term Sheet) and shall include appropriate
releases.
15. Good Faith. Each of the signatories to this Agreement agrees to
cooperate in good faith with each other to facilitate the performance by the
parties of their respective obligations hereunder and the purposes of this
Agreement. Each of the signatories to this Agreement further agrees to review
and comment upon the definitive documents in good faith and, in any event, in
all respects consistent with the Restructuring Term Sheet.
16. Amendments and Modifications. Except as otherwise expressly provided in
this Agreement, this Agreement shall not be amended, modified or supplemented,
except in writing signed by the Company, the Required Creditors and the
Preferred Holders; provided that, without the prior written consent of each
Noteholder and each of LCPI, SS/L and each of the Preferred Holders, there shall
be no alteration that adversely affects such party in a manner inconsistent with
the other Creditors.
17. No Waiver. Each of the signatories to this Agreement expressly
acknowledges and agrees that, except as expressly provided in this Agreement,
nothing in this Agreement is intended to, or does, in any manner waive, limit,
impair or restrict the ability of any party to this Agreement to protect and
preserve all of its rights, remedies and interests, including, without
limitation, with respect to its claims against and interests in the Company.
18. Further Assurances. Each of the signatories to this Agreement hereby
further covenants and agrees to execute and deliver all further documents and
agreements and take all further action that may be reasonably necessary or
desirable in order to enforce and effectively implement the terms and conditions
of this Agreement.
19. Complete Agreement. This Agreement, including the Schedules and Annexes
hereto, constitutes the complete agreement between the signatories to this
Agreement with respect to the subject matter hereof and supersedes all prior and
contemporaneous negotiations, agreements and understandings with respect to the
subject matter hereof. The provisions of this Agreement shall be interpreted in
a reasonable manner to effect the intent of the signatories to this Agreement.
20. Notices. All notices, requests, demands, claims and other communications
hereunder shall be in writing and shall be (a) transmitted by hand delivery, or
(b) mailed by first class, registered or certified mail, postage prepaid, or
(c) transmitted by overnight courier, or (d) transmitted by telecopy, and in
each case, if to the Company, at the address set forth below:
A-13
Sirius Satellite Radio Inc.
1221 Avenue of the Americas, 36th Floor
New York, New York 10020
Telephone: (212) 584-5100
Fax: (212) 584-5353
Attention: Patrick L. Donnelly
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 455-2000
Fax: (212) 455-2500
Attention: Gary L. Sellers
and
Stutman Treister & Glatt
3699 Wilshire Boulevard, Suite 900
Los Angeles, California 90010
Telephone: (213) 251-5160
Fax: (213) 251-5288
Attention: Frank A. Merola
if to Apollo, Blackstone, LCPI or SS/L, to the address set forth on the
applicable signature pages to this Agreement; and
if to a Noteholder, to the address set forth on the signature pages to this
Agreement, with a copy to the Noteholders' counsel:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telephone: (212) 859-8000
Fax: (212) 859-4000
Attention: Brad Eric Scheler
Notices mailed or transmitted in accordance with the foregoing shall be deemed
to have been given upon receipt.
21. Governing Law. This Agreement shall be governed in all respects by the
laws of the State of New York, except to the extent such law is preempted by the
Federal Bankruptcy Code.
22. Jurisdiction. By its execution and delivery of this Agreement, each of
the signatories to this Agreement irrevocably and unconditionally agrees that
any legal action, suit or proceeding against it with respect to any matter under
or arising out of or in connection with this Agreement or for recognition or
enforcement of any judgment rendered in any such action, suit or proceeding,
shall be brought (a) in the United States Bankruptcy Court for the Southern
District of New York if the Company has commenced a case under Chapter 11 of the
Bankruptcy Code or (b) in a federal or state court of competent jurisdiction in
the State of New York located in the Borough of Manhattan if the Company has not
commenced a case under Chapter 11 of the Bankruptcy Code. By its execution and
delivery of this Agreement, each of the signatories to this Agreement
irrevocably accepts and submits itself to the jurisdiction of the United States
Bankruptcy Court for the Southern District of New York or a court of competent
jurisdiction in the State of New York, as applicable under the preceding
sentence, with respect to any such action, suit or proceeding.
23. Consent to Service of Process. Each of the signatories to this Agreement
irrevocably consents to service of process by mail at the address listed with
the signature of each such party on the signature pages to this Agreement. Each
of the signatories to this Agreement agrees that its submission to jurisdiction
and consent to service of process by mail is made for the express benefit of
each of the other signatories to this Agreement.
A-14
24. Specific Performance. It is understood and agreed by each of the
signatories to this Agreement that money damages would not be a sufficient
remedy for any breach of this Agreement by any party and each non-breaching
party shall be entitled to specific performance, injunctive, rescissionary or
other equitable relief as remedy for any such breach.
25. Headings. The headings of the sections, paragraphs and subsections of
this Agreement are inserted for convenience only and shall not affect the
interpretation hereof.
26. Successors and Assigns. This Agreement is intended to bind and inure to
the benefit of the signatories to this Agreement to this Agreement and their
respective successors, permitted assigns, heirs, executors, administrators and
representatives. The agreements, representations and obligations of the
undersigned parties under this Agreement are, in all respects, several and not
joint.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page by facsimile shall be effective as delivery of a manually
executed counterpart. Any Noteholder may become party to this Agreement on or
after the date of this Agreement by executing a signature page to this
Agreement.
28. No Third-Party Beneficiaries. Unless expressly stated in this Agreement,
this Agreement shall be solely for the benefit of the signatories to this
Agreement, and no other Person or entity shall be a third-party beneficiary
hereof.
29. No Solicitations. This Agreement is not intended to be, and each
signatory to this Agreement acknowledges that it is not, a solicitation of the
acceptance or rejection of any Prepackaged Plan of reorganization for the
Company pursuant to Section 1125 of the Bankruptcy Code.
30. Indemnification Obligations. The Company agrees that it shall fully
indemnify (i) each Noteholder, (ii) LCPI, (iii) SS/L, (iv) Apollo,
(v) Blackstone and (vi) Oppenheimer and each and every other person by reason of
the fact that such person is or was a director, officer, employee, agent,
shareholder, counsel, financial advisor or other authorized representative of
any of the foregoing (all of the foregoing persons and the entities in (i)
through (vi) above, the 'Indemnitees') against any claims, liabilities, actions,
suits, damages, fines, judgments or expenses (including reasonable attorney's
fees), brought or asserted by anyone (other than the Company, the Indemnitees or
any entity to whom any of the Indemnitees owe a fiduciary obligation with
respect to asserted violations of this Agreement or any other agreement with the
Company entered into by such Indemnitee in connection with the Restructuring)
arising during the course of, or otherwise in connection with or in any way
related to, the negotiation, preparation, formulation, solicitation,
dissemination, implementation, confirmation and consummation of the
Restructuring, provided, that this indemnity shall not extend to any claims
asserted by (i) each Noteholder, (ii) LCPI, (iii) SS/L, (iv) Apollo,
(v) Blackstone and (vi) Oppenheimer against any other Indemnitee, and provided,
further, that the foregoing indemnification shall not apply to any tax
liabilities that result solely from the conversion of such Noteholders' Notes
into the equity of the Company as set forth in the Restructuring Term Sheet and
any liabilities to the extent arising solely from the gross negligence or
willful misconduct of any Indemnitee as determined by a final judgment of a
court of competent jurisdiction. If any claim, action or proceeding is brought
or asserted against an Indemnitee in respect of which indemnity may be sought
from the Company, the Indemnitee shall promptly notify the Company in writing,
and the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnitee, and the payment of all
expenses. The Indemnitee shall have the right to employ separate counsel in any
such claim, action or proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the Indemnitee
unless and until (a) the Company has agreed to pay the fees and expenses of such
counsel, or (b) the Company shall have failed promptly to assume the defense of
such claim, action or proceeding and employ counsel reasonably satisfactory to
the Indemnitee in any such claim, action or proceeding or (c) the named parties
to any such claim, action or proceeding (including any impleaded parties)
include both the Indemnitee and the Company, and the Indemnitee reasonably
believes that the joint representation
A-15
of the Company and the Indemnitee may result in a conflict of interest (in which
case, if the Indemnitee notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of the
Indemnitee). In addition, the Company shall not effect any settlement or release
from liability in connection with any matter for which the Indemnitee would have
the right to indemnification from the Company, unless such settlement contains a
full and unconditional release of the Indemnitee, or a release of the Indemnitee
satisfactory in form and substance to the Indemnitee.
31. Consideration. It is hereby acknowledged by each of the signatories to
this Agreement that no consideration (other than the obligations of the other
parties under this Agreement) shall be due or paid to the parties for their
agreement to support the Prepackaged Plan in accordance with the terms and
conditions of this Agreement, other than the Company's agreement to use
commercially reasonable best efforts to obtain approval of confirmation of the
Prepackaged Plan in accordance with the terms and conditions of this Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
A-16
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed and delivered by its duly authorized officers as of the date first
written above.
SIRIUS SATELLITE RADIO INC.
By: /s/ JOSEPH P. CLAYTON
---------------------------------
JOSEPH P. CLAYTON
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
A-17
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
APOLLO INVESTMENT FUND IV, L.P.
By: Apollo Advisors, IV, L.P., its general
partner
By: Apollo Capital Management IV, Inc.,
its general partner
By: /s/ SCOTT KLEINMAN
----------------------------------
Name: Scott Kleinman
Title: Principal
c/o Apollo Management, L.P.
1301 Avenue of the Americas
38th Floor
New York, New York 10019
Number of shares held:
Series A Preferred Stock:
1,653,798
Series B Preferred Stock:
740,326
APOLLO OVERSEAS PARTNERS IV, L.P.
By: Apollo Advisors, IV, L.P., its general
partner
By: Apollo Capital Management IV, Inc.,
its general partner
By: /s/ SCOTT KLEINMAN
----------------------------------
Name: Scott Kleinman
Title: Principal
c/o Apollo Management, L.P.
1301 Avenue of the Americas
38th Floor
New York, New York 10019
Number of shares held:
Series A Preferred Stock:
88,714
Series B Preferred Stock:
41,222
A-18
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
BLACKSTONE CCC CAPITAL PARTNERS L.P.
By: Blackstone Management Associates III
L.L.C., its general partner
By: /s/ CHINH E. CHU
--------------------------------------
Name: Chinh E. Chu
Title: Senior Managing Director
c/o The Blackstone Group L.P.
345 Park Avenue
31st Floor
New York, New York 10154
Number of shares held
Series D Preferred Stock:
1,860,405
BLACKSTONE CCC OFFSHORE CAPITAL
PARTNERS L.P.
By: Blackstone Management Associates III
L.L.C., its general partner
By: /s/ CHINH E. CHU
--------------------------------------
Name: Chinh E. Chu
Title: Senior Managing Director
c/o The Blackstone Group L.P.
345 Park Avenue
31st Floor
New York, New York 10154
Number of shares held
Series D Preferred Stock: 336,594
A-19
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP III L.P.
By: Blackstone Management Associates III
L.L.C., its general partner
By: /s/ CHINH E. CHU
--------------------------------------
Name: Chinh E. Chu
Title: Senior Managing Director
c/o The Blackstone Group L.P.
345 Park Avenue
31st Floor
New York, New York 10154
Number of shares held
Series D Preferred Stock: 140,234
LJH PARTNERS, L.P.
By: Lamont Partners LLC, its general partner
By: /s/ DOUGLAS S. LURE
--------------------------------------
Name: Douglas S. Lure
Title: Managing Member
c/o The Blackstone Group L.P.
345 Park Avenue
31st Floor
New York, New York 10154
Number of shares held
Series D Preferred Stock: 2,343
A-20
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
ROBERT C. FANCH REVOCABLE TRUST
By: /s/ ROBERT C. FANCH
----------------------------------------
Name: Robert C. Fanch
Title: Trustee
c/o The Blackstone Group L.P.
345 Park Avenue
31st Floor
New York, New York 10154
Number of shares held
Series D Preferred Stock: 2,343
BCI INVESTMENTS II, LLC
By: /s/ WILLIAM BRESNAN
----------------------------------------
Name: William Bresnan
Title: Manager
c/o The Blackstone Group L.P.
345 Park Avenue
31st Floor
New York, New York 10154
Number of shares held
Series D Preferred Stock: 1,172
A-21
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
LEHMAN COMMERCIAL PAPER INC.
By: /s/ STEVE HANNAN
----------------------------------------
Name: Steve Hannan
Title: Senior Vice President
745 Seventh Avenue
New York, New York 10019
Aggregate principal amount, excluding
accrued interest, of term loans held:
$150,000,000
SPACE SYSTEMS/LORAL, INC.
By: /s/ RICHARD P. MASTOLONI
----------------------------------------
Name: Richard P. Mastoloni
Title: Vice President and Treasurer
3825 Fabian Way
Palo Alto, California 94303
Aggregate principal amount, excluding
accrued interest, of term loans held:
$50,000,000
A-22
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
CONTINENTAL CASUALTY COMPANY
By: /s/ DENNIS R. HEMME
----------------------------------------
Name: Dennis R. Hemme
Title: Vice President
CNA Plaza, 333 S. Wabash Avenue, 23
South
Chicago, Illinois 60685
STONEHILL INSTITUTIONAL PARTNERS, L.P.
By: /s/ JOHN MOTULSKY
----------------------------------------
Name: John Motulsky
Title: General Partner
885 Third Avenue
30th Floor
New York, New York 10022
STONEHILL OFFSHORE PARTNERS LIMITED
By: Stonehill Advisors LLC
By: /s/ JOHN MOTULSKY
---------------------------------
Name: John Motulsky
Title: Managing Member
c/o Stonehill Capital Management
LLC
885 Third Avenue
30th Floor
New York, NY 10022
A-23
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
REDWOOD CAPITAL MANAGEMENT, LLC
By: /s/ JONATHAN KOLATCH
----------------------------------------
Name: Jonathan Kolatch
Title: Principal
910 Sylvan Avenue
Suite 130
Englewood Cliffs, New Jersey 07632
FARALLON CAPITAL MANAGEMENT, LLC
By: /s/ WILLIAM F. MELLIN
----------------------------------------
Name: William F. Mellin
Title: Managing Member
One Maritime Plaza
Suite 1325
San Francisco, California 94111
THE HUFF ALTERNATIVE FUND, L.P., on behalf
of itself and affiliates,
By: Ed Banks, a general partner
By: /s/ ED BANKS
--------------------------------------
Name: Ed Banks
Title: Partner
67 Park Place
Morristown, New Jersey 07960
A-24
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
DREYFUS HIGH YIELD STRATEGIES FUND*
By: /s/ GERALD THUNELIUS
----------------------------------------
Name: Gerald Thunelius
Title: Director, Taxable Fixed Income
200 Park Avenue
55th Floor
Attention: Keith Chan
New York, New York 10166
DREYFUS PREMIER FIXED INCOME FUNDS:
DREYFUS PREMIER HIGH YIELD SECURITIES FUND**
By: /s/ GERALD THUNELIUS
----------------------------------------
Name: Gerald Thunelius
Title: Director, Taxable Fixed Income
200 Park Avenue
55th Floor
Attention: Keith Chan
New York, New York 10166
---------
* The past, present and future trustees, shareholders, officers, employees or
agents of Dreyfus High Yield Strategies Fund, a Massachusetts business trust,
shall not be individually bound or liable for the matters set forth herein.
** The past, present and future trustees, shareholders, officers, employees or
agents of Dreyfus Premier Fixed Income Funds: Dreyfus Premier High Yield
Securities Fund, a Massachusetts business trust, shall not be individually
bound or liable for the matters set forth herein.
A-25
[SIGNATURE PAGE TO LOCKUP AGREEMENT DATED AS OF OCTOBER 17, 2002]
OppenheimerFunds, Inc. as investment advisor
and not for its own account:
ATLAS GLOBAL GROWTH FUND
CLARINGTON GLOBAL EQUITY FUND
SECURITY BENEFIT LIFE GLOBAL SERIES FUND
SECURITY BENEFIT LIFE WORLDWIDE EQUITY
SERIES D/VA
CUNA GLOBAL SERIES FUND/VA
JNL/OPPENHEIMER GLOBAL GROWTH SERIES VA
OPPENHEIMER GLOBAL FUND
TD GLOBAL SELECT FUND
OPPENHEIMER GLOBAL SECURITIES FUND/VA
By: /s/ WILLIAM L. WILBY
----------------------------------------
William L. Wilby, Senior Vice President
c/o OppenheimerFunds, Inc.
498 Seventh Avenue
New York, New York 10018
OppenheimerFunds, Inc. as investment adviser
and not for its own account:
OPPENHEIMER GLOBAL GROWTH & INCOME FUND
By: /s/ FRANK V. JENNINGS
----------------------------------------
Frank V. Jennings, Vice President
c/o OppenheimerFunds, Inc.
498 Seventh Avenue
New York, NY 10018
A-26
SCHEDULE A
NOTEHOLDERS AND AGGREGATE PRINCIPAL AMOUNT OF NOTES HELD
Continental Casualty Company
Dreyfus High Yield Strategies Fund
Dreyfus Premier Fixed Income Funds: Dreyfus Premier High Yield Securities
Fund
Farallon Capital Management, LLC
Lehman Commercial Paper Inc.
OppenheimerFunds, Inc. (as investment adviser and not for its own account)
Redwood Capital Management, LLC
Stonehill Institutional Partners, L.P.
Stonehill Offshore Partners Limited
The Huff Alternative Fund, L.P.
CRT Capital LLC
Aggregate Principal Amount of Senior Secured Discount Notes held by
Noteholders: $149,292,000.00
Aggregate Principal Amount of Senior Secured Notes held by Noteholders:
$119,549,000.00
Aggregate Principal Amount of Convertible Subordinated Notes held by
Noteholders: $8,800,000.00
A-27
ANNEX A
RESTRUCTURING TERM SHEET
SUMMARY OF TERMS AND CONDITIONS OF FINANCIAL
RESTRUCTURING OF SIRIUS SATELLITE RADIO INC.
This Summary of Terms and Conditions sets forth the principal terms and
conditions of a financial restructuring (the 'Restructuring Transaction') of the
outstanding indebtedness and equity of Sirius Satellite Radio Inc. ('Sirius' or
the 'Company'), including, without limitation, (i) the 15% Senior Secured
Discount Notes due 2007, the 14 1/2% Senior Secured Notes due 2009 and the
8 3/4% Convertible Subordinated Notes due 2009 (collectively, the 'Notes', and
the holders thereof, collectively, the 'Noteholders'), (ii) that certain
Deferral Loan Agreement between Sirius and Space Systems/Loral, Inc. ('SS/L')
and that certain Term Loan Agreement between Sirius and Lehman Commercial Paper
Inc. ('LCPI', and together with SS/L, the 'Lenders'), as amended (collectively,
the 'Loan Agreements') (the Noteholders and Lenders, each a 'Creditor'), and
(iii) 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 (collectively, the 'Preferred
Stock').
The Restructuring Transaction will be effectuated through either an exchange
offer (the 'Exchange Offer') for the Notes and the loans issued pursuant to the
Loan Agreements or a prepackaged Chapter 11 plan of reorganization (the
'Prepackaged Plan') described below. The percentage ownerships of Sirius
referenced below do not give effect to any shares of Common Stock (as defined
below) issued pursuant to management stock options, OEM warrants and upon
exercise of the Apollo/Blackstone warrants described below, and assume that 100%
of the Company's indebtedness is converted into Common Stock as part of the
Exchange Offer. Capitalized terms used and not defined herein shall have the
meanings assigned to them in the Lockup Agreement.
CREDITORS: The Noteholders and the Lenders will, in exchange for 100%
of their outstanding debt plus accrued interest through the
closing of the Restructuring Transaction, receive their pro
rata share of 62% of the common stock of Sirius, par value
$0.001 per share (the 'Common Stock').
Shares of Common Stock will be exchanged pro rata based on
the sum of (a) the face amount of the Outstanding Debt and
(b) the amount of regular cash interest payments that are
accrued but unpaid as of the closing of the Restructuring
Transaction.
PREFERRED STOCKHOLDERS: Holders of the Preferred Stock will, in exchange for 100% of
their outstanding interests plus accrued dividends, receive
their pro rata share of (a) a number of shares equal to 8%
of the number of shares of Common Stock that would be
outstanding if 100% of the Company's indebtedness were
converted into Common Stock in the Restructuring and (b)
warrants to purchase 9.1% of the primary Common Stock,
subject to dilution, of which 5.46% of the warrants shall
have an exercise price per share of Common Stock equal to
the per share price paid by Apollo/Blackstone in the
Apollo/Blackstone Purchase and 3.64% of the warrants shall
have an exercise price per share of Common Stock equal to
the per share price paid by Oppenheimer in the Oppenheimer
Purchase, exercisable within two (2) years of the close of
the Restructuring Transaction (the 'Preferred Stock
Exchange').
COMMON STOCKHOLDERS: Existing holders of Sirius' Common Stock will retain their
pro rata share of 8% of the Common Stock.
A-28
NEW EQUITY INVESTMENT: Upon the closing of the Exchange Offer:
(i) Oppenheimer Global Growth & Income Fund and/or its
subsidiaries and affiliates (collectively, 'Oppenheimer')
will invest $150 million of new money in Sirius in exchange
for a number of shares equal to 17% of the number of shares
of Common Stock that would be outstanding if 100% of the
Outstanding Indebtedness were converted into Common Stock in
the Restructuring (the 'Oppenheimer Purchase'), which number
of shares shall not be adjusted if less than 100% of the
Outstanding Indebtedness converts; and
(ii) Apollo Management, L.P. and/or its affiliates
(collectively, 'Apollo') and The Blackstone Group L.P.
and/or its affiliates (collectively, 'Blackstone', and
together with Apollo, 'Apollo/Blackstone') will each invest
$25 million of new money in Sirius in exchange for a number
of shares equal to 5% of the number of shares of Common
Stock that would be outstanding if 100% of the Company's
indebtedness were converted into Common Stock in the
Restructuring (the 'Apollo/Blackstone Purchase', and
together with the Oppenheimer Purchase, the 'Common Stock
Purchase'), which number of shares shall not be adjusted if
less than 100% of the Outstanding Indebtedness converts,
provided that, (i) in the event a case under any chapter of
the Bankruptcy Code is commenced by or against the Company
as debtor, the obligations of Apollo/Blackstone and
Oppenheimer to subscribe for and purchase Common Stock in
the Common Stock Purchase shall terminate immediately, in
the case of a voluntary filing, or in the case of an
involuntary filing, shall be suspended and shall terminate
on the thirty-first day following the filing if such
proceeding has not been dismissed by such day; and (ii) the
obligation of each of the Apollo, Blackstone and Oppenheimer
to purchase the Common Stock in the Common Stock Purchase is
conditioned upon each of the other purchasers in the Common
Stock Purchase (or Replacement Purchaser (as defined below))
fulfilling their respective obligations to purchase Common
Stock on the closing date of the Restructuring.
In the event the Company receives notice from either Apollo
or Blackstone (in such capacity, a 'Non-Funding Purchaser')
of its intention to terminate the Lockup Agreement solely
pursuant to a Material Adverse Change and in the event any
other Person (a 'Replacement Purchaser'), during the ten
business day period following the receipt of such notice,
agrees to subscribe for and purchase (on the same terms and
conditions) the shares of Common Stock that such Non-Funding
Purchaser was obligated to purchase in the Common Stock
Purchase, then (i) the Lockup Agreement shall not terminate,
(ii) such Non-Funding Purchaser shall assign to such
Replacement Purchaser all title and interest in the shares
of Common Stock and Apollo/Blackstone Warrants it receives
in exchange for its Preferred Stock in the Preferred Stock
Exchange and (iii) such Non-Funding Purchaser shall be
released from its obligations as a Preferred Holder under
the Lockup Agreement and shall have no further obligations
under the Lockup Agreement other than those described in
(ii).
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In the event the Lockup Agreement is terminated by Apollo,
Blackstone or Oppenheimer on the basis of a Material Adverse
Change, and there is no Replacement Purchaser, (i) the
Company agrees to grant co-exclusivity to the Informal
Creditors' Committee (or any successor committee) so as to
permit the Informal Committee to file a Chapter 11 plan and
(ii) each of Apollo and Blackstone agrees that if it is a
Non-Funding Purchaser it will not object to any Chapter 11
plan filed on the basis that no distributions are being
provided to equity holders.
CORPORATE GOVERNANCE: On the closing of the Restructuring Transaction a new board
of directors, consisting of seven (7) members (the 'New
Board of Directors'), will be elected. Initially, the New
Board of Directors shall be as follows: four (4) members
shall be nominated by the Informal Creditors' Committee; one
(1) member shall be nominated by Apollo; one (1) member
shall be nominated by Blackstone; and one (1) member shall
be nominated by the management of Sirius. One of the
Informal Creditors' Committee's nominees will be nominated
by W.R. Huff Asset Management, L.P. and such nominee shall
serve on the Finance Committee of the New Board of
Directors. The Apollo/Blackstone nominees will serve on each
committee of the New Board of Directors (if legally
permitted), provided that such nominees shall not constitute
a majority of any such committee.
IMPLEMENTATION OF THE
RESTRUCTURING TRANSACTION: The Restructuring Transaction will be implemented pursuant
to the Exchange Offer for the Notes and the loans under the
Loan Agreements. The effectiveness of the Exchange Offer
will be conditioned upon the tender of not less than 97% in
aggregate principal amount of the Outstanding Indebtedness
and not less than 90% in aggregate principal amount of the
Convertible Subordinated Notes (the 'Minimum Tender
Condition'). Upon the written instruction of the Required
Creditors, the Minimum Tender Condition shall be reduced to
not less than 90% in aggregate principal amount of the
Outstanding Indebtedness (which instruction may lower or
eliminate any minimum requirement with respect to the
Convertible Subordinated Notes). The Company may not waive
the Minimum Tender Condition without the prior consent of
the Board of Directors, the Required Creditors, and the
Purchasers. For each percentage of total debt that does not
tender in the Exchange Offer, each member of the Creditors'
Committee may retain an equal percentage of its debt,
provided that the total outstanding debt following the
Exchange Offer may not exceed the amount permitted by the
Minimum Tender Condition. No shares shall be issued to any
party in respect of Outstanding Indebtedness that is not
tendered for exchange in the Exchange Offer, with the result
that the total number of shares outstanding at the
completion of the Restructuring Transaction may be less than
the number of shares that would have been outstanding if
100% of the Outstanding Indebtedness were converted into
Common Stock in the Restructuring.
The Exchange Offer will include a simultaneous (1)
solicitation of consents (each, a 'Consent') to the
amendment of the applicable indentures under which the Notes
were issued and the Loan Agreements to eliminate all
restrictive covenants contained therein (the 'Consent
Solicitation') and (2) solicitation of acceptances of
A-30
the Prepackaged Plan to be filed in the United States
Bankruptcy Court for the Southern District of New York in
the event that the Minimum Tender Condition is not
satisfied. All tendering holders of Notes and loans under
the Loan Agreements will be deemed to have delivered a
Consent with respect to any Notes or loans tendered. All
tendering Creditors will also irrevocably agree to vote to
accept the Prepackaged Plan.
PROXY SOLICITATION: Concurrently with the Exchange Offer, Sirius will solicit
the consent of its existing stockholders to the issuance of
Common Stock in the Restructuring Transaction, a related
amendment and restatement of its certificate of
incorporation and approval of a new stock option plan (the
'Proxy Solicitation').
MANAGEMENT STOCK OPTIONS: To be determined by the New Board of Directors.
CONDITIONS TO CLOSING: i) No Material Adverse Change shall have occurred;
ii) In connection with the Exchange Offer, the Company shall
have received the approval of its existing stockholders to
the consummation of the Restructuring Transaction;
iii) All applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended, shall have expired or been terminated; and
iv) Approval of the Federal Communications Commission, if
required.
GOVERNING LAW: New York law
A-31
EXHIBIT B
November 12, 2002
Independent Committee of the Board of Directors
of Sirius Satellite Radio Inc.
c/o Sirius Satellite Radio Inc.
1221 Avenue of the Americas
New York, NY 10020
Members of the Independent Committee:
We understand that Sirius Satellite Radio Inc. (the 'Company') proposes to
undertake the series of transactions described below for the purpose of
restructuring its existing debt and equity securities and obtaining new equity
financing (collectively, the 'Proposed Recapitalization'). The elements of the
Proposed Recapitalization are as follows:
The Company will make an offer to the holders of its 14 1/2% Senior Secured
Notes due 2009, 15% Senior Secured Discount Notes due 2007 and 8 3/4%
Convertible Subordinated Notes due 2009 (collectively, the 'Notes') and
term loans issued under the Term Loan Agreement, dated as of June 1, 2000
(as amended, the 'Term Loan Agreement'), between the Company and Lehman
Commercial Paper Inc. ('Lehman') and the term loans issued under the
Deferral Credit Agreement, dated as of April 15, 1999 (as amended, the
'Deferral Credit Agreement'), between the Company and Space Systems/Loral,
Inc. ('Loral') (collectively, the 'Term Loans'), which Notes and Term Loans
had an accreted principal amount of approximately $710 million as of
September 30, 2002, to exchange the Notes and the Term Loans for an
aggregate of up to approximately 597 million shares of the Company's common
stock, par value $0.01 per share (the 'Common Stock'), such consideration
to be ratably adjusted in the event the offer is not fully subscribed
(collectively, the 'Exchange Offer');
Pursuant to the lockup agreement, dated as of October 17, 2002 (the 'Lockup
Agreement'), among the Company, affiliates of Apollo Management, L.P.
('Apollo'), affiliates of The Blackstone Group L.P. ('Blackstone', and
together with Apollo, the 'Sponsors'), OppenheimerFunds, Inc., as
investment adviser for its affiliates ('Oppenheimer'), Lehman, Loral and
certain holders of the Notes, the Company will issue to the Sponsors
(i) an aggregate of approximately 77 million shares of Common Stock and
(ii) warrants for approximately an additional 88 million shares of Common
Stock (the 'Warrants'), in consideration of the cancellation of the
Company's 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 having an aggregate
liquidation preference of approximately $519 million as of September 30,
2002, beneficially owned by the Sponsors (the 'Preferred Conversion');
Pursuant to the Lockup Agreement, the Company will issue and sell to the
Sponsors an aggregate of approximately 48 million shares of Common Stock
for aggregate consideration of $50,000,000 in cash (the 'Sponsors' New
Money Investment'); and
Pursuant to the Lockup Agreement, the Company will issue and sell to
Oppenheimer an aggregate of approximately 164 million shares of Common
Stock for aggregate consideration of $150,000,000 in cash (the 'Oppenheimer
New Money Investment', together with the Sponsors' New Money Investment,
the 'New Money Component').
As a result of the foregoing transactions, the outstanding Common Stock
owned by the Company's existing holders of Common Stock will be reduced to
approximately 8.0% (or approximately 7.3% on a fully diluted basis, giving
effect to the shares of Common Stock issuable under the Warrants to be issued to
the Sponsors in connection with the Preferred Conversion).
You have requested our opinion as to the fairness, from a financial point of
view, of the Proposed Recapitalization to the existing holders of Common Stock
other than the Sponsors and Oppenheimer (collectively, the 'Non-Participating
Stockholders').
B-1
In connection with rendering our opinion, we have reviewed the Lockup
Agreement and drafts of the exchange offer documents and consent solicitation
materials for the Proposed Recapitalization; for the purposes this opinion we
have assumed that the final forms of any such documents that we have reviewed in
draft form will not differ in any material respect from the drafts provided to
us. We have also reviewed and analyzed certain publicly available business and
financial information relating to the Company for recent years and interim
periods to date, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared by
or on behalf of the Company and provided to us for the purposes of our analysis.
We have also met with the management of the Company to review and discuss such
information and, among other matters, the Company's past and current business,
operations, assets, liabilities, financial condition and prospects, including
management's view of the risks and uncertainties associated with not pursuing
the Proposed Recapitalization. In addition, we have had numerous discussions
with the Company and its financial advisor, UBS Warburg LLC ('UBS'), concerning
the process, status and prospects of the Company's solicitation of alternative
sources of financing and other potential strategic alternatives, including the
identity of the third parties contacted and the discussions between the Company
and UBS and such third parties.
We have also reviewed and considered certain financial and stock market data
relating to the Company, compared that data with similar data for certain other
companies, the securities of which are publicly traded, that we believe are
comparable in certain respects to the Company, and performed such other
financial studies, analyses and investigations and reviewed such other
information as we considered appropriate for purposes of this opinion.
In evaluating the Company's financial condition and prospects, we have been
advised by the Company that:
(i) based on the Company's financial projections, assuming no financing
or delevering transaction, the Company's projected funding gap prior to its
projected cash flow breakeven will be approximately $600 million;
(ii) based on the Company's financial projections, the absence of
available borrowing capacity and its current cash position, if the Company
were to meet all its existing payment obligations, including debt service,
the Company would exhaust its cash resources prior to the end of the second
quarter of the Company's 2003 fiscal year and would no longer be able to
conduct its operations after such date without additional financing;
(iii) unless the Company enters into the Proposed Recapitalization or an
alternative cash financing transaction within the next six months, it will
be forced to commence bankruptcy proceedings;
(iv) the Company and UBS have aggressively solicited indications of
interest for a new capital investment in the Company from numerous strategic
and financial investors (including from holders of the Notes and Term Loans)
but have not received any indications of interest for a transaction that
would adequately address the Company's liquidity needs; and
(v) based on the Company's financial projections, following the
consummation of the Proposed Recapitalization the Company will have
sufficient liquidity to fund expected negative cash flow from operations and
any residual debt service through the end of the first quarter of the
Company's 2004 fiscal year and the Company's projected funding gap prior to
its projected cash flow break-even should not exceed $75 million.
As you know, we did not participate in, or otherwise independently verify,
the solicitation activities referenced above. Accordingly, with your consent, we
have placed significant reliance on the quality and thoroughness of the
solicitation efforts undertaken by the Company and UBS to support the Company's
conclusion that no viable alternative source of financing is available.
Moreover, we have placed substantially greater reliance on the matters described
in clauses (i) through (v) above than on the financial analysis that we have
performed as a result of our belief that (a) our discounted cash flow analysis
is of limited utility in valuing enterprises in severe financial distress that
have a demonstrated lack of financing alternatives and (b) our analysis of
trading prices of the securities of other companies and our analysis of
acquisitions of other companies cannot yield directly relevant findings due to,
among other things, (1) the absence of
B-2
accepted metrics by which to compare the Company to such other companies given
the early stage of development of the Company's business and (2) the absence of
a sufficient number of directly comparable companies.
In our review and analysis and in formulating our opinion, we have with your
consent assumed and relied upon the accuracy and completeness of all financial
and other information provided to us (including the matters referred to in
clauses (i) through (v) of the second preceding paragraph) or otherwise publicly
available, and we have not assumed any responsibility for the independent
verification of such information. We have similarly assumed and relied upon the
reasonableness and accuracy of the financial projections, forecasts and analyses
provided to us, and we have assumed that such projections, forecasts and
analyses were reasonably prepared in good faith and reflect the best currently
available judgements and estimates of the Company's management. We express no
opinion with respect to such projections, forecasts and analyses or the
assumptions upon which they are based. Moreover, we have not reviewed any of the
books and records of the Company, or assumed any responsibility for conducting a
physical inspection of the properties or facilities of the Company, or for
making or obtaining an independent valuation or appraisal of the assets or
liabilities of the Company, and no such independent valuation or appraisal was
provided to us. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by us as
of the date hereof. We are not expressing any opinion herein as to the prices at
which any securities of the Company will actually trade at any time.
We are acting as financial advisor to the Independent Committee of the Board
of Directors of the Company in connection with the Proposed Recapitalization and
will receive a fee for our services, as well as a fee for rendering this
opinion. Pursuant to our engagement agreement dated June 5, 2002 with the
Independent Committee and the Company, we have, from time to time, worked in
conjunction with professionals of Dresdner Kleinwort Wasserstein, Inc. ('DrKW')
in fulfilling the terms of our engagement. In the ordinary course of business,
DrKW may actively trade the equity or debt securities of the Company for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
This opinion only addresses the fairness, from a financial point of view, to
the Non-Participating Stockholders of the Proposed Recapitalization. This
opinion does not address the Company's underlying business decision to effect
the Proposed Recapitalization, the price of the New Money Component, the prices
implied by the conversion of obligations and interests under the Proposed
Recapitalization, whether any other transaction might have been available as an
alternative to the Proposed Recapitalization, or the terms upon which any such
alternative transaction could be or would have been achieved. In addition, this
opinion does not address the solvency of the Company following consummation of
the Proposed Recapitalization or at any other time.
It is understood that this opinion is for the benefit and use of the
Independent Committee of the Board of Directors of the Company in its
consideration of the Proposed Recapitalization. This opinion may be reproduced
in full in any proxy statement mailed to stockholders of the Company in
connection with the Proposed Recapitalization but may not otherwise be quoted,
referred to or reproduced at any time or in any manner without our prior written
consent. This opinion does not constitute a recommendation to any stockholder or
any other person as to how such holder or person should vote with respect to the
Proposed Recapitalization, and should not be relied upon by any stockholder or
other person as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the terms of the Proposed Recapitalization are fair to the Non-Participating
Stockholders from a financial point of view.
Very truly yours,
/s/ MILLER BUCKFIRE LEWIS & CO., LLC
B-3
EXHIBIT C
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------
In re:
Sirius Satellite Radio Inc., Chapter 11
Debtor. Case No.
-------------------------
---------------------------------------
DEBTOR'S PREPACKAGED PLAN OF REORGANIZATION
( , 2003)
STUTMAN, TREISTER & GLATT P.C.
Frank A. Merola, Eric D. Goldberg
3699 Wilshire Blvd., Suite 900
Los Angeles, California 90010
(213) 251-5100
-and-
SIMPSON THACHER & BARTLETT
Gary L. Sellers
425 Lexington Avenue
New York, NY 10017-3954
(212) 455-2000
Attorneys for Sirius Satellite Radio Inc.
Debtor and Debtor in Possession
New York, New York
____________________, 2003
NO CHAPTER 11 CASE HAS BEEN COMMENCED AT THIS TIME. THE SOLICITATION MATERIALS
ACCOMPANYING THIS PLAN OF REORGANIZATION HAVE NOT BEEN APPROVED BY THE
BANKRUPTCY COURT AS CONTAINING 'ADEQUATE INFORMATION' WITHIN THE MEANING OF
BANKRUPTCY CODE SECTION 1125(a). FOLLOWING THE COMMENCEMENT OF ITS CHAPTER 11
CASE, THE DEBTOR EXPECTS TO PROMPTLY SEEK AN ORDER OF THE BANKRUPTCY COURT
(1) APPROVING THE SOLICITATION OF VOTES AS HAVING BEEN IN COMPLIANCE WITH
BANKRUPTCY CODE SECTION 1126(b); AND (2) CONFIRMING THE PLAN OF REORGANIZATION
PURSUANT TO BANKRUPTCY CODE SECTION 1129.
C-1
Sirius Satellite Radio Inc., a Delaware corporation (the 'Debtor'), hereby
submits the following 'Debtor's Prepackaged Plan of Reorganization
( , 2003)' (the 'Plan') and requests confirmation of the Plan pursuant
to section 1129 of the Bankruptcy Code. All Holders of Claims and Interests are
encouraged to read the Plan and the accompanying solicitation materials in their
entirety before voting to accept or reject the Plan. No materials other than the
accompanying solicitation materials and any exhibits and schedules attached
thereto or referenced therein have been authorized by the Debtor for use in
soliciting acceptances or rejections of the Plan.
ARTICLE I
DEFINITIONS, RULES OF INTERPRETATION,
AND COMPUTATION OF TIME
A. DEFINITIONS
As used in the Plan, the following terms shall have the following meanings:
1.1 'ADMINISTRATIVE CLAIM' means an Unsecured Claim: (a) for costs and
expenses of administration of the Reorganization Case incurred prior to
the Effective Date and allowable under Bankruptcy Code section 503(b) or
507(b); and (b) Professional Fee Claims.
1.2 'AGGREGATE LIQUIDATION PREFERENCE' means the aggregate liquidation
preferences for any class of Preferred Stock as listed in the Schedules.
1.3 'ALLOWED CLAIM' means:
(a) any Claim that is Scheduled by the Debtor as liquidated in amount and
not disputed nor contingent and no objection to the allowance of the
Claim, or request to estimate the Claim, has been interposed within
any time period provided under the Plan or under applicable law; or
(b) any Disputed Claim, the amount of which Claim has been determined by
a Final Order; or
(c) any Claim that is specified as an Allowed Claim under the Plan or the
Confirmation Order.
1.4 'ALLOWED INTEREST' means:
(a) any Interest that is Scheduled by the Debtor as liquidated in amount
and not disputed nor contingent and no objection to the allowance of
the Interest, or request to estimate the Interest, has been
interposed within any time period provided under the Plan or under
applicable law; or
(b) any Disputed Interest, the amount of which Disputed Interest has been
determined by a Final Order; or
(c) any Interest that is specified as an Allowed Interest under the Plan
or the Confirmation Order.
1.5 'ALLOWED CLAIM' or 'ALLOWED INTEREST' means an Allowed Claim or
Allowed Interest: (a) in the specified Class (as described in the Plan);
or (b) of the type of unclassified Claim that is specified.
1.6 'ANNEX' means an Annex to the Plan.
1.7 'ANNEX FILING DATE' means a Business Day selected by the Debtor for
Filing all Annexes to the Plan, which day shall not be less than seven
(7) days prior to the Confirmation Hearing.
1.8 'BALLOT RECORD DATE' means , 2003.
1.9 'BANKRUPTCY CODE' means the Bankruptcy Reform Act of 1978, as codified
in title 11 of the United States Code, 11 U.S.C. 'SS'SS' 101 et seq., as
now in effect or hereafter amended (to the extent any such amendments
apply to this Reorganization Case).
1.10 'BANKRUPTCY COURT' means the United States Bankruptcy Court for the
Southern District of New York, or any other court with jurisdiction
over this Reorganization Case.
C-2
1.11 'BANKRUPTCY RULES' means, collectively, the (a) Federal Rules of
Bankruptcy Procedure and (b) Local Rules of the Bankruptcy Court, all
as now in effect or hereafter amended (to the extent any such
amendments apply to this Reorganization Case).
1.12 'BNY' means The Bank of New York, a bank duly organized and existing
under the laws of the State of New York and any successor thereto.
1.13 'BUSINESS DAY' means any day, excluding Saturdays, Sundays or 'legal
holidays' as defined in Bankruptcy Rule 9006(a).
1.14 'CASH' means legal tender of the United States of America.
1.15 'CLAIM' means a 'claim', as defined in Bankruptcy Code section 101(5),
against the Debtor.
1.16 'CLASS' means one of the classes of Claims or Interests listed in
Article II.
1.17 'COMMITTEE' means the official committee or committees, if any,
appointed in the Reorganization Case pursuant to Bankruptcy Code
section 1102 as such committee or committees may be reconstituted from
time to time.
1.18 'COMMON STOCK' means the common stock, par value $0.001 per share, of
the Debtor.
1.19 'CONFIRMATION' means the Bankruptcy Court's confirmation of the Plan
pursuant to Bankruptcy Code section 1129.
1.20 'CONFIRMATION DATE' means the day on which the Confirmation Order is
entered by the Bankruptcy Court on its docket.
1.21 'CONFIRMATION HEARING' means the hearing held pursuant to Bankruptcy
Rule 3020(b)(2), including any adjournments thereof, at which the
Bankruptcy Court will consider Confirmation of the Plan.
1.22 'CONFIRMATION ORDER' means the Order of the Bankruptcy Court approving
Confirmation of the Plan.
1.23 'CONVERTIBLE SUBORDINATED NOTE CLAIM' means all Claims arising under or
related to the Convertible Subordinated Notes or the Convertible
Subordinated Notes Indenture.
1.24 'CONVERTIBLE SUBORDINATED NOTES' means the 8 3/4% Convertible
Subordinated Notes due 2009, in a currently outstanding aggregate
principal amount of $16,461,000, issued by the Debtor pursuant to the
Convertible Subordinated Notes Indenture.
1.25 'CONVERTIBLE SUBORDINATED NOTES INDENTURE' means the Indenture and the
First Supplemental Indenture (as amended, modified or supplemented from
time to time), each dated as of September 29, 1999, between the Debtor
and BNY (as successor to U.S. Trust Company of Texas, N.A.), as
trustee.
1.26 'CONVERTIBLE SUBORDINATED NOTES INDENTURE TRUSTEE' means BNY or any
successor trustee under the Convertible Subordinated Notes Indenture.
1.27 'CORPORATE DOCUMENTS' means, as applicable, the certificate of
incorporation and by-laws (or any other applicable organizational
documents) of the Debtor in effect as of the Petition Date.
1.28 'DEBTOR' means Sirius Satellite Radio Inc., formerly known as CD Radio
Inc.
1.29 'DEBTOR IN POSSESSION' means the Debtor when acting in the capacity of
representative of its Estate in the Reorganization Case.
1.30 'DISALLOWED CLAIM' or 'DISALLOWED INTEREST' means any Claim against, or
Interest in, the Debtor that has been disallowed, in whole or in part,
by a Final Order, or which has been withdrawn, in whole or in part, by
the Holder thereof.
1.31 'DISBURSING AGENT' means the Reorganized Debtor and/or one or more
parties designated by the Debtor or Reorganized Debtor, in its sole
discretion, to serve as a disbursing agent under the Plan.
1.32 'DISPUTED CLAIM' means a Claim as to which any one of the following
applies:
(a) the Claim is not Scheduled;
C-3
(b) the Claim is Scheduled as unliquidated, disputed, contingent or
unknown;
(c) the Claim is the subject of a timely objection or request for
estimation in accordance with the Bankruptcy Code, the Bankruptcy
Rules, any applicable order of the Bankruptcy Court, the Plan or
applicable non-bankruptcy law, which objection or request for
estimation has not been withdrawn or determined by a Final Order;
or
(d) the Claim is otherwise treated as a 'Disputed Claim' pursuant to
the Plan.
1.33 'DISPUTED INTEREST' means an Interest as to which any one of the
following applies:
(a) the Interest is not Scheduled;
(b) the Interest is Scheduled as unliquidated, disputed, contingent or
unknown;
(c) the Interest is the subject of a timely objection or request for
estimation in accordance with the Bankruptcy Code, the Bankruptcy
Rules, any applicable order of the Bankruptcy Court, the Plan or
applicable non-bankruptcy law, which objection or request for
estimation has not been withdrawn or determined by a Final Order;
or
(d) the Interest is otherwise treated as a 'Disputed Interest' pursuant
to the Plan.
1.34 'DISPUTED RESERVE' means the reserve established pursuant to section
VI.N.2 hereof to hold the Cash, New Common Stock or New Warrants that
would be distributed to the Holder of a Disputed Claim or Disputed
Interest upon becoming an Allowed Claim or Allowed Interest.
1.35 'DISTRIBUTION DATE' means, with respect to distributions under the Plan
to Holders of Allowed Claims or Allowed Interests, the date, occurring
on or as soon as practicable after the later of:
(a) the Effective Date;
(b) the date when a Claim becomes an Allowed Claim or an Interest
becomes an Allowed Interest, as applicable; and
(c) the date when the Disbursing Agent can make a distribution to a
Holder of Allowed Claims and Allowed Interests as provided in
Article VI hereof.
1.36 'DISTRIBUTION RECORD DATE' means the record date for purposes of making
distributions under the Plan on account of Allowed Claims or Allowed
Interests, which date shall be the Effective Date.
1.37 'EFFECTIVE DATE' has the meaning ascribed to it in Article VIII hereof.
1.38 'ESTATE' means the estate of the Debtor in the Reorganization Case as
created under Bankruptcy Code section 541.
1.39 'FCC' means the Federal Communications Commission.
1.40 'FCC LICENSES' means all licenses, permits and authorizations issued by
the FCC or any department, division or bureau of the FCC that are held
by the Debtor or its subsidiary as of the Petition Date.
1.41 'FILE' or 'FILED' means file or filed with the Clerk of the Bankruptcy
Court, as applicable.
1.42 'FINAL ORDER' means an Order of the Bankruptcy Court or other
applicable court of competent jurisdiction, as entered on its docket,
which has not been reversed, stayed, modified, or amended, that is in
full force and effect, and as to which:
(a) the time to seek a rehearing, to appeal or seek certiorari has
expired and no request for rehearing, appeal or petition for
certiorari has been timely filed; or
(b) any rehearing or appeal that has been or may be taken or any
petition for certiorari that has been or may be filed has been
resolved by the highest court (or any other tribunal having
appellate jurisdiction over the order or judgment) to which the
order or judgment was reheard, appealed or from which certiorari
was sought.
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1.43 'GENERAL UNSECURED CLAIM' means any Unsecured Claim against the Debtor
that is not (a) included in Classes 1 through 6, inclusive; (b) an
Administrative Claim; or (c) a Priority Tax Claim.
1.44 'HOLDER' means any individual, corporation, limited or general
partnership, limited liability company, joint venture, association,
joint stock company, estate, trust, trustee, unincorporated
organization, government, governmental entity, agency or political
subdivision thereof.
1.45 'IMPAIRED' means, when used with reference to a Claim or Interest, a
Claim or Interest that is impaired within the meaning of Bankruptcy
Code section 1124.
1.46 'INDENTURES' means, collectively, the Senior Secured Discount Notes
Indenture, the Senior Secured Notes Indenture and the Convertible
Subordinated Notes Indenture.
1.47 'INDENTURE TRUSTEE' means, collectively, the Senior Secured Notes
Indenture Trustee; the Senior Discount Notes Indenture Trustee and the
Convertible Subordinated Notes Indenture Trustee.
1.48 'INFORMAL CREDITORS' COMMITTEE' means the informal committee of
creditors that negotiated Lockup Agreement with the Debtor, consisting
of LCPI, SS/L and the following Noteholders: Continental Casualty
Company, Stonehill Capital Management LLC, Redwood Asset Management,
Farallon Capital Management, LLC, Dreyfus and The Huff Alternative
Fund, L.P.
1.49 'INSTRUMENT' means any share of stock, security, promissory note, bond,
or any other 'Instrument,' as that term is defined in section 9-102(47)
of the Uniform Commercial Code in effect in the State of New York on
the Petition Date.
1.50 'INSURED CLAIMS' means any Claims that are covered by insurance
policies maintained by or for the benefit of the Debtor, but only to
the extent of insurance coverage under such insurance policies.
1.51 'INTEREST' means an 'equity security', as defined in Bankruptcy Code
section 101(16), of the Debtor.
1.52 'LCPI' means Lehman Commercial Paper Inc.
1.53 'LEHMAN' means, collectively, Lehman Brothers Inc. and LCPI.
1.54 'LEHMAN CREDIT FACILITY' means that certain existing $150,000,000
senior secured credit facility evidenced by the Term Loan Agreement (as
amended, modified or supplemented from time to time), dated as of
June 1, 2000, among the Debtor, as borrower, the several lenders from
time to time parties thereto, Lehman Brothers Inc., as arranger, and
LCPI, as syndication agent and administrative agent.
1.55 'LEHMAN SENIOR CREDIT FACILITY CLAIMS' means all Claims (both Secured
Claims and Unsecured Claims) arising out of or related to the Lehman
Credit Facility.
1.56 'LOCKUP AGREEMENT' means the Lockup Agreement, dated as of October 17,
2002, as amended from time to time, including the schedules, annexes
and exhibits thereto, among the Debtor, Apollo Investment Fund IV,
L.P., a Delaware limited partnership ('AIF'), Apollo Overseas Partners
IV, L.P., a Cayman Islands limited partnership ('AOP', and together
with AIF, 'Apollo'), Blackstone CCC Capital Partners L.P., a Delaware
limited partnership ('BCC'), Blackstone CCC Offshore Capital Partners
L.P., a Cayman Islands limited partnership ('BCO'), Blackstone Family
Investment Partnership III L.P., a Delaware limited partnership ('BF'),
LJH Partners, L.P., a Delaware limited partnership ('LJH'), Robert C.
Fanch Revocable Trust ('Fanch'), BCI Investments II, LLC, a Delaware
limited liability company ('BCI', and together with BCC, BCO, BF, LJH
and Fanch, 'Blackstone'), SS/L, LCPI, and the beneficial owners (or
investment managers or advisors for the beneficial owners) of the Notes
identified on Schedule A to such agreement on the date thereof and each
other beneficial owner (or investment managers or advisors for the
beneficial owners) of Notes that executes a counterpart signature page
to such agreement, or enters into a joinder agreement, after the date
of such agreement.
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1.57 'LOCKUP SIGNATORY' means all entities that have or will execute the
Lockup Agreement, or a joinder agreement relating to the Lockup
Agreement, prior to the Confirmation Date, other than the Debtor.
1.58 'NEW A WARRANTS' means warrants to purchase 52,546,269 shares of New
Common Stock at an exercise price of $1.04 per share.
1.59 'NEW B WARRANTS' means warrants to purchase 35,030,846 shares of New
Common Stock at an exercise price of $.92 per share.
1.60 'NEW COMMON STOCK' means the Common Stock of the Reorganized Debtor to
be issued on the Effective Date pursuant to Article VI.H. hereof.
1.61 'NEW EQUITY INVESTMENT' means the purchase of New Common Stock for $200
million in Cash as provided for in Article V.F. hereof.
1.62 'NEW WARRANTS' means, collectively, the New A Warrants and New B
Warrants to be issued on the Effective Date to purchase an aggregate of
87,577,114 shares of New Common Stock. The New Warrants shall expire on
the second anniversary of the Effective Date.
1.63 'NOTES' means, collectively, the Senior Secured Discount Notes, the
Senior Secured Notes and the Convertible Subordinated Notes.
1.64 'OLD COMMON STOCK' means the Common Stock of the Debtor issued and
outstanding as of the Petition Date.
1.65 'OPPENHEIMER' means OppenheimerFunds, Inc., and its subsidiaries and
affiliated funds.
1.66 'ORDER' means an order or judgment of the Bankruptcy Court as entered
on the docket.
1.67 'OTHER INTERESTS' means all Interests in the Debtor as of the Petition
Date that are not included in Classes 8 and 9, inclusive. Other
Interests shall include the Interests of Holders of warrants to
purchase Old Common Stock issued and outstanding on the Petition Date
and options to purchase Old Common Stock issued and outstanding on the
Petition Date.
1.68 'OTHER PRIORITY CLAIM' means a Claim entitled to priority under
Bankruptcy Code sections 507(a)(2),(3),(4),(5),(6),(7) and/or (9).
1.69 'OTHER SECURED CLAIM' means any Secured Claim against the Debtor, other
than Claims in Classes 2 and 3. Each Other Secured Claim shall be
classified in its own Subclass and be subject to treatment as set forth
in Article III.C.3.
1.70 'PETITION DATE' means the date on which the Debtor files its voluntary
petition commencing the Reorganization Case.
1.71 'PLAN' means this plan of reorganization, as it may be amended,
modified, or supplemented from time to time.
1.72 'PLAN DOCUMENTS' means the documents contemplated by or executed in
connection with the Plan.
1.73 'PREFERRED STOCK' means, collectively, Series A Preferred Stock, Series
B Preferred Stock and Series D Preferred Stock.
1.74 'PREPETITION COLLATERAL AGREEMENTS' means, collectively, the Second
Amended and Restated Pledge Agreement, dated as of March 7, 2001, among
the Debtor, as pledgor, BNY, as trustee and collateral agent, United
States Trust Company of New York, as trustee, and LCPI, as
administrative agent, and the Collateral Agreement, dated as of
March 7, 2001, between the Debtor, as borrower, and BNY, as collateral
agent.
1.75 'PREPETITION RESTRUCTURING EFFORTS' means the exchange offer, proxy
solicitation, or any other act the Debtor undertook, to restructure its
outstanding indebtedness after the date of the Lockup Agreement but
prior to the Petition Date.
1.76 'PRIORITY TAX CLAIM' means a Claim that is entitled to priority under
section 507(a)(8) of the Bankruptcy Code.
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1.77 'PROFESSIONAL FEE CLAIMS' means the Claims of Professional Persons for
compensation or reimbursement of costs and expenses relating to
services performed after the Petition Date and to and including the
Effective Date.
1.78 'PROFESSIONAL PERSON' means a professional person, as that term is used
in sections 327, 328, 330, 331, 503(b)(2) and/or 1103 of the Bankruptcy
Code, who is employed by the Debtor or the Committee directly in
connection with the Reorganization Case.
1.79 'PRO RATA' means proportionately so that the ratio of
(a) the amount of consideration (such as New Common Stock) distributed
on account of a particular Allowed Claim or Allowed Interest to
(b) the amount of such Allowed Claim or Allowed Interest, is the same
as the ratio of:
(x) the amount of consideration distributed on account of all Allowed
Claims or Allowed Interests of that Class to
(y) the amount of all Allowed Claims or Allowed Interests of that
Class.
1.80 'REORGANIZATION CASE' means the bankruptcy case of the Debtor commenced
under chapter 11 of the Bankruptcy Code, captioned In re Sirius
Satellite Radio Inc. (Case No. ).
1.81 'REORGANIZED DEBTOR' means the Debtor as revested with the property of
the Estate on and after the Effective Date.
1.82 'RESTATED CORPORATE DOCUMENTS' means as applicable, the amended and
restated certificate of incorporation and by-laws (or any other
applicable organizational documents) of the Reorganized Debtor in
effect on the Effective Date, a copy of which will be filed as an Annex
to the Plan on or before the Annex Filing Date.
1.83 'SCHEDULED' means set forth on the Schedules.
1.84 'SCHEDULES' means the Schedules of Assets and Liabilities that have
been filed by the Debtor with the Bankruptcy Court pursuant to
Bankruptcy Rule 1007(b), as the same may be amended from time to time.
1.85 'SECURED CLAIM' means any Claim that is a secured claim within the
meaning of, and to the extent allowable as a secured claim under,
section 506 of the Bankruptcy Code.
1.86 'SENIOR SECURED CLAIMS' means, collectively, the:
(a) Senior Secured Discount Notes Claims;
(b) Senior Secured Notes Claims; and
(c) Lehman Senior Credit Facility Claims.
All of the Senior Secured Claims are secured by the Prepetition
Collateral Agreements.
1.87 'SENIOR SECURED DISCOUNT NOTES CLAIMS' means all Claims (both Secured
Claims and Unsecured Claims) arising out of or related to the Senior
Secured Discount Notes or the Senior Secured Discount Notes Indenture.
1.88 'SENIOR SECURED DISCOUNT NOTES' means the 15% Senior Secured Discount
Notes due 2007, in the aggregate principal amount at maturity of
$280,430,000, issued by the Debtor pursuant to the Senior Secured
Discount Notes Indenture.
1.89 'SENIOR SECURED DISCOUNT NOTES INDENTURE' means the Indenture (as
amended, modified or supplemented from time to time), dated as of
November 26, 1997, between the Debtor, as issuer, and BNY (as successor
to IBJ Schroder Bank & Trust Company), as trustee.
1.90 'SENIOR SECURED DISCOUNT NOTES INDENTURE TRUSTEE' means BNY or any
successor trustee under the Senior Secured Discount Notes Indenture.
1.91 'SENIOR SECURED NOTES' means the 14 1/2% Senior Secured Notes due 2009,
in the aggregate principal amount of $200,000,000, issued by the Debtor
pursuant to the Senior Secured Notes Indenture.
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1.92 'SENIOR SECURED NOTES CLAIMS' means all Claims (both Secured Claims and
Unsecured Claims) arising out of or related to the Senior Secured Notes
or the Senior Secured Notes Indenture.
1.93 'SENIOR SECURED NOTES INDENTURE' means the Indenture (as amended,
modified or supplemented from time to time), dated as of May 15, 1999,
between the Debtor, as issuer, and BNY (as successor to United States
Trust Company of New York), as trustee.
1.94 'SENIOR SECURED NOTES INDENTURE TRUSTEE' means BNY or any successor
trustee under the Senior Secured Notes Indenture.
1.95 'SERIES A PREFERRED STOCK' means the Debtor's 9.2% Series A Junior
Cumulative Convertible Preferred Stock issued and outstanding as of the
Petition Date.
1.96 'SERIES B PREFERRED STOCK' means the Debtor's 9.2% Series B Junior
Cumulative Convertible Preferred Stock issued and outstanding as of the
Petition Date.
1.97 'SERIES D PREFERRED STOCK' means the Debtor's 9.2% Series D Junior
Cumulative Convertible Preferred Stock issued and outstanding as of the
Petition Date.
1.98 'SS/L' means Space Systems/Loral, Inc., a Delaware corporation.
1.99 'SS/L CLAIMS' means Claims (both Secured Claims and Unsecured Claims)
arising out of or related to the SS/L Credit Agreement.
1.100 'SS/L CREDIT AGREEMENT' means the Deferral Credit Agreement (as
amended, modified or supplemented from time to time), dated as of
April 15, 1999, by and between the Debtor and SS/L, as lender.
1.101 'STIPULATED DISTRIBUTION BASIS' means, in relation to any Class or
Subclass of Claims, the sum of: (a) the aggregate face amount of all
outstanding debt classified therein; and (b) the aggregate amount of
regular Cash interest payments that are accrued but unpaid as of
March 15, 2003, which amounts were agreed to by the Debtor and the
Informal Creditors' Committee.
1.102 'SUBCLASS' means a subdivision of any Class described herein.
1.103 'UNSECURED CLAIM' means any Claim against the Debtor that is not an
Other Priority Claim, Priority Tax Claim or Secured Claim.
1.104 'U.S. TRUSTEE' means the Office of the United States Trustee.
B. INTERPRETATION, RULES OF CONSTRUCTION, COMPUTATION OF TIME, AND GOVERNING
LAW.
1. DEFINED TERMS.
Any term used in the Plan that is not defined in the Plan, either in
section I.A or elsewhere, but that is used in the Bankruptcy Code or the
Bankruptcy Rules has the meaning ascribed to that term in the Bankruptcy
Code or the Bankruptcy Rules.
2. RULES OF INTERPRETATION.
For purposes of the Plan: (a) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural; (b) any reference in the Plan to a
contract, Instrument, release or other agreement or document being in a
particular form or on particular terms and conditions means that such
document shall be substantially in such form or substantially on such terms
and conditions, but if there exists any inconsistency between a summary of,
or reference to, any document in the Plan or Confirmation Order and the
document itself, the terms of the document as of the Effective Date shall
control; (c) any reference in the Plan to an existing document or Annex
Filed or to be Filed means such document or Annex, as it may have been or
may subsequently be amended, modified or supplemented; (d) unless otherwise
specified in a particular reference, all references in the Plan to
'section,' 'article' and 'Annex' are references to a section, article and
Annex of or to the Plan; (e) the words 'herein,' 'hereof,' 'hereto,'
'hereunder,' and other words of similar import refer to the Plan in its
entirety rather
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than to only a particular portion of the Plan; (f) captions and headings to
articles and sections are inserted for convenience or reference only and are
not intended to be a part of or to affect the interpretation of the Plan;
and (g) the rules of construction set forth in Bankruptcy Code section 102
shall apply.
3. TIME PERIODS.
In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
4. GOVERNING LAW.
Except to the extent that the Bankruptcy Code or Bankruptcy Rules are
applicable, and subject to the provisions of any contract, Instrument,
release, or other agreement or document entered into in connection with the
Plan, the rights and obligations arising under the Plan shall be governed
by, and construed and enforced in accordance with, the laws of the State of
New York.
ARTICLE II
DESIGNATION OF CLAIMS AND INTERESTS
The following is a designation of the Classes of Claims and Interests under
the Plan. In accordance with Bankruptcy Code section 1123(a)(1), Administrative
Claims and Priority Tax Claims have not been classified and are excluded from
the following Classes. A Claim or Interest is classified in a particular Class
only to the extent that the Claim or Interest is within the description of that
Class and is classified in another Class to the extent that any remainder of the
Claim or Interest qualifies within the description of such other Class or
Classes. A Claim or Interest is classified in a particular Class only to the
extent that the Claim or Interest is an Allowed Claim or Allowed Interest and
has not been paid, released or otherwise satisfied before the Effective Date.
A. CLASS 1 (OTHER PRIORITY CLAIMS).
Class 1 consists of all Other Priority Claims.
B. SECURED CLAIMS.
1. CLASS 2 (SENIOR SECURED CLAIMS).
Class 2 consists of all Senior Secured Claims.
2. CLASS 3 (SS/L CLAIMS).
Class 3 consists of all SS/L Claims.
3. CLASS 4 (OTHER SECURED CLAIMS).
Class 4 consists of all Other Secured Claims. Each Other Secured Claim
shall be classified in its own Subclass.
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C. UNSECURED CLAIMS.
1. CLASS 5 (CONVERTIBLE SUBORDINATED NOTE CLAIMS).
Class 5 consists of all Convertible Subordinated Note Claims.
2. CLASS 6 (INSURED CLAIMS).
Class 6 consists of all Insured Claims.
3. CLASS 7 (GENERAL UNSECURED CLAIMS).
Class 7 consists of all General Unsecured Claims.
D. INTERESTS.
1. CLASS 8 (PREFERRED STOCK).
Class 8 consists of all Interests that are Preferred Stock.
2. CLASS 9 (COMMON STOCK).
Class 9 consists of all Interests that are Common Stock.
3. CLASS 10 (OTHER INTERESTS).
Class 10 consists of all Other Interests.
ARTICLE III
TREATMENT OF CLAIMS AND INTERESTS
A. UNCLASSIFIED CLAIMS.
In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims and Priority Tax Claims are not classified and are not entitled to vote
on the Plan.
1. ADMINISTRATIVE CLAIMS.
A. GENERALLY.
Subject to the bar date provisions contained herein, each Holder of an
Allowed Administrative Claim shall, in full satisfaction, release, and
discharge of such Allowed Administrative Claim: (i) to the extent such Claim
is due and owing on the Effective Date, be paid in full, in Cash, on the
Distribution Date; (ii) to the extent such Claim is not due and owing on the
Effective Date, be paid in full, in Cash, in accordance with the terms of
any agreement between the Debtor and such Holder, or as may be due and owing
under applicable non-bankruptcy law or in the ordinary course of business;
or (iii) on such other terms and conditions as are acceptable to the Debtor
and the Holder of such Claim.
B. BAR DATE FOR ADMINISTRATIVE CLAIMS.
(1) GENERAL PROVISIONS.
Except for (a) non-tax liabilities incurred in the ordinary course of
business by the Debtor in Possession, (b) claims by governmental units for
payment of taxes (and interest and/or penalties related to such taxes) and
(c) claims for U.S. Trustee fees under 28 U.S.C. 'SS' 1930, all requests for
payment of Administrative Claims must be Filed and served on counsel for the
Reorganized Debtor and any other party specifically requesting a copy in
writing, no later than thirty (30) days after the Effective Date. Holders of
Administrative Claims that are required to File a request for payment of
such claims and that do not File and serve such requests by the applicable
bar date set forth herein or in the following subsections shall be forever
barred from asserting such claims against the Debtor, the Reorganized Debtor
or its property.
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(2) PROFESSIONAL FEE CLAIMS AND REQUESTS FOR 'SUBSTANTIAL
CONTRIBUTION'.
All Professional Persons asserting Professional Fee Claims and any
entity requesting a claim for making a 'substantial contribution' in the
Reorganization Case shall File and serve on counsel for the Reorganized
Debtor, the U.S. Trustee and any other party specifically requesting a copy
in writing an application for a Professional Fee Claim no later than thirty
(30) days after the Effective Date. Any interested party desiring to object
to the Professional Fee Claim must File and serve its objection on the
Reorganized Debtor, the U.S. Trustee, and the Professional Person to whose
application the objections are addressed no later than forty-five (45) days
after the Effective Date.
(3) ADMINISTRATIVE ORDINARY COURSE LIABILITIES.
Holders of Administrative Claims that are based on liabilities incurred
in the ordinary course of the Debtor in Possession's business (other than
claims of governmental units for taxes (and for interest and/or penalties
related to such taxes)) shall not be required to File any request for
payment of such claims. Such Administrative Claims, unless objected to by
the Debtor, shall be assumed and paid by the Debtor in Possession, in Cash,
pursuant to the terms and conditions of the particular transaction giving
rise to such Administrative Claim.
(4) ADMINISTRATIVE TAX CLAIMS.
All requests for payment of Administrative Claims by a governmental unit
for taxes (and for interest and/or penalties related to such taxes) for any
tax year or period, all or any portion of which occurs or falls within the
period from and including the Petition Date through and including the
Effective Date ('Postpetition Tax Claims'), and for which no bar date has
otherwise been previously established, must be Filed and served on the
Reorganized Debtor and any other party specifically requesting a copy in
writing on or before the later of (a) thirty (30) days following the
Effective Date; and (b) one hundred and twenty (120) days following the
filing of the tax return for such taxes for such tax year or period with the
applicable governmental unit. Any Holder of any Postpetition Tax Claim that
is required to File a request for payment of such taxes and does not File
and properly serve such a claim by the applicable bar date shall be forever
barred from asserting any such Postpetition Tax Claim against the Debtor,
the Reorganized Debtor or its property, regardless of whether any such
Postpetition Tax Claim is deemed to arise prior to, on, or subsequent to the
Effective Date. Any interested party desiring to object to an Administrative
Claim for taxes must File and serve its objection on counsel to the Debtor
and the relevant taxing authority no later than ninety (90) days after the
taxing authority Files and serves its application.
2. PRIORITY TAX CLAIMS.
Each Holder of an Allowed Priority Tax Claim shall, in full
satisfaction, release, and discharge of such Allowed Priority Tax Claim: (a)
to the extent such Claim is due and owing on the Effective Date, be paid in
full, in Cash, on the Distribution Date; (b) to the extent such Claim is not
due and owing on the Effective Date, be paid in full, in Cash, in accordance
with the terms of any agreement between the Debtor and such Holder, or as
may be due and owing under applicable non-bankruptcy law, or in the ordinary
course of business; or (c) on such other terms and conditions as are
acceptable to the Debtor and the Holder of such Claim.
B. OTHER PRIORITY CLAIMS (CLASS 1).
1. NON-IMPAIRMENT.
Class 1 is not Impaired under the Plan and, consequently, the Holders of
Allowed Class 1 Claims are not entitled to vote on the Plan.
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2. TREATMENT.
The legal, equitable and contractual rights of the Holders of Allowed
Class 1 Claims are unaltered by the Plan. Without limiting the generality of
the foregoing, each Holder of an Allowed Class 1 Claim, shall, in full
satisfaction of and in exchange for such Allowed Class 1 Claim: (a) to the
extent such Claim is due and owing on the Effective Date, be paid in full,
in Cash, on the Distribution Date, (b) to the extent such Claim is not due
and owing on the Effective Date, be paid in full, in Cash, in accordance
with the terms of any agreement between the Debtor and such Holder, or as
may be due and owing under applicable non-bankruptcy law or in the ordinary
course of business, or (c) on such other terms and conditions as are
acceptable to the Debtor and the Holder of such Claim.
C. SECURED CLAIMS.
1. CLASS 2 (SENIOR SECURED CLAIMS).
A. IMPAIRMENT.
Class 2 is Impaired under the Plan and, consequently, the Holders of
Allowed Class 2 Claims are entitled to vote on the Plan.
B. ALLOWANCE AND TREATMENT.
Solely for purposes of calculating distributions under the Plan, Class 2
is divided into three (3) Subclasses.
(1) CLASS 2A (SENIOR SECURED DISCOUNT NOTE CLAIMS).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 2A
Claim in the aggregate amount of $292,581,967, which amount is the
Stipulated Distribution Basis for Class 2A.
(B) TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 2A Claim shall
receive a Pro Rata distribution of 228,067,643 shares of New Common Stock.
(2) CLASS 2B (SENIOR SECURED NOTE CLAIMS).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 2B
Claim in the aggregate amount of $224,166,667, which amount is the
Stipulated Distribution Basis for Class 2B.
(B) TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 2B Claim shall
receive a Pro Rata distribution of 174,737,417 shares of New Common Stock.
(3) CLASS 2C (LEHMAN SENIOR CREDIT FACILITY CLAIMS).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed
Class 2C Claim in the aggregate amount of $155,213,333, which amount is the
Stipulated Distribution Basis for Class 2C.
(B) TREATMENT.
On the Distribution Date, Lehman, the Holder of the Allowed Class 2C
Claim, shall receive 120,988,793 shares of New Common Stock.
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2. CLASS 3 (SS/L CLAIMS).
A. IMPAIRMENT.
Class 3 is Impaired under the Plan and, consequently, the Holders of
Allowed Class 3 Claims are entitled to vote on the Plan.
B. ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 3
Claim in the aggregate amount of $75,644,620, which amount is the Stipulated
Distribution Basis for Class 3.
C. TREATMENT.
On the Distribution Date, SS/L, the Holder of the Allowed Class 3 Claim,
shall receive 58,964,982 shares of New Common Stock.
3. CLASS 4 (OTHER SECURED CLAIMS).
A. NON-IMPAIRMENT.
Class 4 is not Impaired under the Plan and, consequently, the Holders of
Allowed Class 4 Claims are not entitled to vote on the Plan.
B. TREATMENT.
Each Allowed Class 4 Claim shall be treated under Option A or Option B
described below, at the election of the Reorganized Debtor:
OPTION A: The Reorganized Debtor may transfer the property, securing
the Allowed Class 4 Claim, to the Holder of such Claim, in sole
satisfaction of such Holder's Other Secured Claim.
OPTION B: Each Allowed Class 4 Claim shall be satisfied as follows:
(a) any default other than a default of the kind specified in section
365(b)(2) of the Bankruptcy Code shall be cured; (b) the maturity of the
Claim shall be reinstated as the maturity existed before any default; (c)
the Holder of the Claim shall be compensated for any damages incurred as
a result of any reasonable reliance by the Holder on any provision that
entitled the Holder to accelerate maturity of the Claim; and (d) the
other legal, equitable and contractual rights to which the Claim entitles
the Holder shall not otherwise be altered.
The Debtor shall be deemed to have elected Option B, except with respect to
any Secured Claim as to which the Debtor elects Option A, in writing, prior
to the Effective Date.
D. TREATMENT OF UNSECURED CLAIMS.
1. CLASS 5 (CONVERTIBLE SUBORDINATED NOTE CLAIMS).
A. IMPAIRMENT.
Class 5 is Impaired under the Plan and, consequently, the Holders of
Allowed Class 5 Claims are entitled to vote on the Plan.
B. ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 5
Claim in the aggregate amount of $17,845,324, which amount is the Stipulated
Distributed Basis for Class 5.
C. TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 5 Claim shall
receive a Pro Rata distribution of 13,910,430 shares of New Common Stock.
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2. CLASS 6 (INSURED CLAIMS).
A. NON-IMPAIRMENT.
Class 6 is not Impaired under the Plan, consequently, Holders of Allowed
Class 6 Claims are not entitled to vote on the Plan.
B. TREATMENT.
The legal, equitable and contractual rights of the Holders of Allowed
Class 6 Claims are unaltered by the Plan.
3. CLASS 7 (GENERAL UNSECURED CLAIMS).
A. NON-IMPAIRMENT.
Class 7 is not Impaired under the Plan, consequently, Holders of Allowed
Class 7 Claims are not entitled to vote on the Plan.
B. TREATMENT.
The legal, equitable and contractual rights of the Holders of Allowed
Class 7 Claims are unaltered by the Plan. Without limiting the generality of
the foregoing, each Holder of an Allowed Class 7 Claim shall, in full
satisfaction of and in exchange for such Allowed Class 7 Claim: (a) to the
extent such Claim is due and owing on the Effective Date be paid in full, in
Cash, on the Distribution Date; (b) to the extent such Claim is not due and
owing on the Effective Date, be paid in full, in Cash, in accordance with
the terms of any agreement between the Debtor and such Holder, or as may be
due and owing under applicable non-bankruptcy law or in the ordinary course
of business; or (c) on such other terms and conditions as are acceptable to
the Debtor and the Holder of such Claim.
E. TREATMENT OF INTERESTS.
1. CLASS 8 (PREFERRED STOCK).
A. IMPAIRMENT.
Class 8 is Impaired under the Plan, and consequently, Holders of Allowed
Class 8 Interests are entitled to vote on the Plan.
B. ALLOWANCE AND TREATMENT.
Solely for the purpose of calculating distributions under this Plan,
Class 8 is divided into three (3) Subclasses.
(1) SUBCLASS 8A (SERIES A PREFERRED STOCK).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 8A
Interest in the aggregate amount of $196,037,699, the Aggregate Liquidation
Preference for the Series A Preferred Stock.
(B) TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 8A Interest
shall receive a Pro Rata share (based on such Holder's Aggregate Liquidation
Preference of Series A Preferred Stock) of: (1) 27,564,584 shares of New
Common Stock, (2) 18,812,340 New A Warrants, and (3) 12,541,561 New B
Warrants.
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(2) CLASS 8B (SERIES B PREFERRED STOCK).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 8B
Interest in the aggregate amount of $87,926,437, the Aggregate Liquidation
Preference for the Series B Preferred Stock.
(B) TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 8B Interest
shall receive a Pro Rata share (based on such Holder's Aggregate Liquidation
Preference of the Series B Preferred Stock) of: (1) 12,363,212 shares of New
Common Stock, (2) 8,437,673 New A Warrants, and (3) 5,625,116 New B
Warrants.
(3) CLASS 8C (SERIES D PREFERRED STOCK).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 8C
Interest in the aggregate amount of $263,604,593, the Aggregate Liquidation
Preference for the Series D Preferred Stock.
(B) TREATMENT.
Each Holder of an Allowed Class 8C Interest shall receive a Pro Rata
share (based on such Holder's Aggregate Liquidation Preference of Series D
Preferred Stock) of: (1) 37,065,069 shares of New Common Stock,
(2) 25,296,255 New A Warrants, and (3) 16,864,169 New B Warrants.
2. CLASS 9 (COMMON STOCK).
A. IMPAIRMENT.
Class 9 is Impaired under the Plan, and consequently, Holders of Allowed
Class 9 Interests are entitled to vote on the Plan.
B. ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 9
Interest in the aggregate amount of .
C. TREATMENT.
Each Holder of an Allowed Class 9 Interest shall retain the Old Common
Stock, but the Corporate Documents will be superceded by the Restated
Corporate Documents and the Old Common Stock will be diluted by the issuance
of the New Common Stock and New Warrants.
3. CLASS 10 (OTHER INTERESTS).
A. NON-IMPAIRMENT.
Class 10 is not Impaired under the Plan, and consequently, Holders of
Allowed Class 10 Interest are entitled to vote on the Plan.
B. ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 10
Interest in the aggregate amount of .
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C. TREATMENT.
The legal, equitable and contractual rights of Allowed Class 10
Interests are unaltered by the Plan. Without limiting the generality of the
foregoing, each Holder of an Allowed Class 10 Interest shall retain the
Other Interests.
ARTICLE IV
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. ASSUMPTION.
Each executory contract or unexpired lease of the Debtor that has not
expired by its own terms before the Effective Date or previously been rejected
by the Debtor in Possession, that is either: (1) listed on the 'Schedule of
Executory Contracts and Unexpired Leases to be Assumed' (to be Filed on or
before the day of the Confirmation Hearing), or (2) is not rejected, is assumed
as of the Effective Date, pursuant to Bankruptcy Code section 365. Nothing in
the Plan, any Annex to the Plan, or any document executed or delivered in
connection with the Plan or any such Annex creates any obligation or liability
on the part of the Debtor, the Reorganized Debtor or any other person or entity
that is not currently liable for such obligation, with respect to any executory
contract or unexpired lease except as otherwise provided in the Plan.
B. CURE PAYMENTS.
Any monetary defaults under each executory contract and unexpired lease to
be assumed under the Plan shall be satisfied by the Reorganized Debtor, under
section 365(b)(1) of the Bankruptcy Code, either by payment of the cure amount
(if any), in Cash, on the Effective Date, such other terms as agreed to by the
Reorganized Debtor and the non-debtor party to the executory contract or
unexpired lease, or as ordered by the Court. Unless the non-debtor party to any
executory contract or unexpired lease to be assumed Filed and served on the
Debtor and its counsel an objection to the 'cure amount' specified on the
Schedule of Executory Contracts and Unexpired Leases to be Assumed on or before
the last date established by the Bankruptcy Court to File and serve objections
to Confirmation of the Plan, such 'cure amount' shall be forever binding on such
non-debtor party to said executory contract or unexpired lease. In the event of
a timely Filed and served objection regarding (1) the amount of any cure
payments, (2) the ability of the Reorganized Debtor to provide adequate
assurance of future performance under the executory contract or unexpired lease
to be assumed, or (3) any other matter pertaining to assumption, any cure
payment required by section 365(b)(1) of the Bankruptcy Code shall be made
following the entry of a Final Order resolving the dispute and approving the
assumption.
C. REJECTION.
Effective immediately prior to the Effective Date, each executory contract
or unexpired lease of the Debtor listed on the 'Schedule of Executory Contracts
and Unexpired Leases to be Rejected' (to be Filed on or before the Annex Filing
Date), is rejected, to the extent, if any, each constitutes an executory
contract or unexpired lease, and without conceding that each constitutes an
executory contract or unexpired lease or that the Debtor has any liability under
each. Listing a contract or lease on the Schedule of Executory Contracts and
Unexpired Leases to be Rejected is not deemed an admission by the Debtor or the
Reorganized Debtor that such contract is an executory contract or unexpired
lease or that the Debtor or the Reorganized Debtor has any liability thereunder.
The Debtor reserves the right at any time before Confirmation to amend the
Schedule of Executory Contracts and Unexpired Leases to be Rejected, including
to (a) delete any executory contract or unexpired lease listed on such Schedule
and provide for its assumption or (b) add any executory contract or unexpired
lease to such Schedule, thus providing for its rejection. The Debtor shall
provide notice of any amendment of such Schedule to the party to the affected
executory contract or unexpired lease, counsel for the Committee and the U.S.
Trustee.
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The Confirmation Order shall constitute an order of the Bankruptcy Court
approving all such rejections as of the Effective Date. Any proofs of claim for
damages arising from the rejection under the Plan of an executory contract or
unexpired lease must be Filed within thirty (30) days after the mailing of
notice of Confirmation or be forever barred and unenforceable against the
Debtor, the Reorganized Debtor and its properties and barred from receiving any
distribution under the Plan. Any such Claims that become Allowed Claims shall be
classified in Class 7 of the Plan.
ARTICLE V
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. REVESTING OF ASSETS AND OPERATIONS OF PROPERTY.
Except as otherwise set forth herein or in the Confirmation Order, as of the
Effective Date, all property of the Estate shall revest in the Reorganized
Debtor free and clear of all claims, liens, encumbrances and other interests of
the Holders of Claims or Interests. Without limiting the generality of the
foregoing, all rights, privileges, entitlements, the authorizations, grants,
permits, licenses, easements, franchises, and other similar items which
constitute part of, or are necessary or useful in the operation of the property
of the Estate or the business of providing satellite radio service to
subscribers now conducted by the Debtor (including the FCC Licenses), shall be
vested in the Reorganized Debtor on the Effective Date, and shall thereafter be
exercisable and usable by the Reorganized Debtor to the same and fullest extent
they would have been exercisable and usable by the Debtor before the Petition
Date or the Estate or Debtor in Possession during the Reorganization Case in the
absence of the Plan. From and after the Effective Date, the Reorganized Debtor
may operate its business and use, acquire and dispose of property and settle and
compromise claims or interests without supervision by the Bankruptcy Court and
free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than
those restrictions expressly imposed by the Plan and the Confirmation Order.
B. RETENTION OF CAUSES OF ACTION.
Except to the extent such rights, claims, causes of action, defenses, and
counterclaims are expressly and specifically released in connection with the
Plan, or in any settlement agreement approved during the Reorganization Case:
(1) any and all rights, claims, causes of action, defenses, and counterclaims of
or accruing to the Debtor or its Estate shall remain assets of and vest in the
Reorganized Debtor, whether or not litigation relating thereto is pending on the
Effective Date, and whether or not any such rights, claims, causes of action,
defenses, and counterclaims have been listed or referred to in the Plan, the
Schedules, or any other document Filed with the Bankruptcy Court, and
(2) neither the Debtor nor the Reorganized Debtor waives, relinquishes, or
abandons (nor shall they be estopped or otherwise precluded from asserting) any
right, claim, cause of action, defense, or counterclaim that constitutes
property of the Estate: (a) whether or not such right, claim, cause of action,
defense, or counterclaim has been listed or referred to in the Plan or the
Schedules, or any other document Filed with the Bankruptcy Court, (b) whether or
not such right, claim, cause of action, defense, or counterclaim is currently
known to the Debtor, and (c) whether or not a defendant in any litigation
relating to such right, claim, cause of action, defense, or counterclaim Filed a
proof of claim in the Reorganization Case, Filed a notice of appearance or any
other pleading or notice in the Reorganization Case, voted for or against the
Plan, or received or retained any consideration under the Plan. Without in any
manner limiting the generality of the foregoing, notwithstanding any otherwise
applicable principle of law or equity, including, without limitation, any
principles of judicial estoppel, res judicata, collateral estoppel, issue
preclusion, or any similar doctrine, the failure to list, disclose, describe,
identify, or refer to a right, claim, cause of action, defense, or counterclaim,
or potential right, claim, cause of action, defense, or counterclaim, in the
Plan, the Schedules, or any other document Filed with the Bankruptcy Court shall
in no manner waive, eliminate, modify, release, or alter the Reorganized
Debtor's right to commence, prosecute, defend against, settle, and realize upon
any rights, claims, causes of action, defenses, or counterclaims that the Debtor
or the Reorganized Debtor has, or may have, as of the Confirmation Date. The
Reorganized Debtor may commence, prosecute, defend against, settle, and realize
upon any
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rights, claims, causes of action, defenses, and counterclaims in its sole
discretion, in accordance with what is in the best interests, and for the
benefit, of the Reorganized Debtor.
C. CORPORATE MATTERS REGARDING THE REORGANIZED DEBTOR.
The Reorganized Debtor shall continue to exist after the Effective Date as a
separate corporate entity in accordance with applicable nonbankruptcy law. On
the Effective Date or as soon as practicable thereafter, the Reorganized Debtor
shall (to the extent necessary) file with the Secretary of State of the State of
Delaware in accordance with sections 103 and 303 of the Delaware General
Corporation Law, the Restated Corporate Documents. The form of the Restated
Corporate Documents shall be Filed as an Annex to the Plan on or before the
Annex Filing Date. The Restated Corporate Documents are authorized and directed
without the need for any further corporate action, under applicable law,
regulation, order, rule or otherwise. On and after the Effective Date, the
Restated Corporate Documents shall govern the Reorganized Debtor's operation,
unless amended or modified.
D. MANAGEMENT OF THE REORGANIZED DEBTOR.
1. BOARD OF DIRECTORS.
On the Effective Date, the management, control and operation of the
Reorganized Debtor shall become the general responsibility of the Board of
Directors of the Reorganized Debtor in accordance with Delaware law. The initial
Board of Directors of the Reorganized Debtor shall consist of 7 members. On or
before the Annex Filing Date, the Debtor shall File with the Bankruptcy Court a
schedule setting forth the names of the persons to be appointed to the Board of
Directors of the Reorganized Debtor pursuant to this section. The initial Board
of Directors of the Reorganized Debtor shall serve until the first annual
meeting of the Holders of the New Common Stock. Thereafter, the Board of
Directors of the Reorganized Debtor will be elected in accordance with the
Restated Corporate Documents and applicable non-bankruptcy law.
2. MANAGEMENT.
On or before the Annex Filing Date, the Debtor will File an Annex disclosing
such additional information as is necessary to satisfy section 1129(a)(5) of the
Bankruptcy Code including (1) the identity and affiliation of any other
individual who is proposed to serve as an officer or director of the Reorganized
Debtor; (2) the identity of any other insider who will be employed or retained
by the Reorganized Debtor; and (3) the compensation for each such individual. As
of the Effective Date, the Reorganized Debtor will adopt a new stock option plan
through which options for up to 15% of the New Common Stock outstanding on a
fully diluted basis may be granted to employees of, and consultants to, the
Debtor by the Board of Directors.
E. AUTHORIZATION AND ISSUANCE OF NEW STOCK AND NEW WARRANTS.
On the Effective Date, the Reorganized Debtor will issue an aggregate of
962,385,874 shares of New Common Stock and New Warrants. All shares of New
Common Stock issued pursuant to the Plan will be, upon issuance, fully paid and
non-assessable, and the Holders thereof will have no preemptive or other rights
to subscribe for additional shares. The Confirmation Order shall provide that
the issuance of New Common Stock shall be exempt from the registration
requirements of the Securities Act of 1933, as amended, in accordance with
section 1145 of the Bankruptcy Code. As of the Effective Date, the Old Common
Stock shall remain outstanding and shall continue to be fully paid and non-
assessable.
On the Effective Date, the Reorganized Debtor will issue an aggregate of
87,577,115 New Warrants.
The issuance and distribution of the New Common Stock and the New Warrants
by the Reorganized Debtor in accordance with the Plan is hereby authorized and
directed without the need for any further corporate action or authorization
under applicable law, regulation, rule, order or otherwise.
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F. NEW EQUITY INVESTMENT.
As a condition to the Effective Date, Apollo, Blackstone and Oppenheimer
will purchase an aggregate of 211,730,379 shares of New Common Stock for $200
million in Cash. The obligation of Apollo, Blackstone and Oppenheimer to
consummate the New Equity Investment is detailed in the Lockup Agreement and is
subject to certain terms and conditions, including the option of each party to
terminate its obligation to consummate the New Equity Investment upon the
commencement of Reorganization Case. Assuming that terms and conditions of the
Lockup Agreement are satisfied and the New Equity Investment is funded, the
Debtor is authorized and directed without the need for any further corporate
action or authorization, to execute and deliver all documents necessary to
document and effectuate the New Equity Investment.
G. CANCELLATION OF EXISTING SECURITIES AND INDEBTEDNESS.
Except for the purposes of evidencing a right to distribution under the Plan
and except as expressly provided in the Plan or the Confirmation Order, on the
Effective Date, all Notes, Indentures, Instruments and other documents
evidencing the Claims or Interests classified in Classes 2, 3, 5 and 8 hereof,
inclusive, shall be deemed cancelled and of no further force and effect and any
collateral security with respect to such Claims shall be deemed released.
Without limiting the generality of the foregoing, on the Effective Date, each of
the following shall be deemed cancelled and of no further force and effect:
1. Senior Secured Discount Notes;
2. Senior Secured Discount Notes Indenture;
3. Senior Secured Notes;
4. Senior Secured Notes Indenture;
5. Lehman Credit Facility;
6. SS/L Credit Agreement;
7. Convertible Subordinated Notes;
8. Convertible Subordinated Notes Indenture;
9. Prepetition Collateral Agreements;
10. Series A Preferred Stock;
11. Series B Preferred Stock; and
12. Series D Preferred Stock.
provided, however, that each Indenture, Instrument or other agreement that
governs the rights of a Holder of a Claim and that is administered by an
Indenture Trustee shall continue in effect for the purposes of allowing the
Indenture Trustee to make any distributions on account of such Claims pursuant
to the Plan and to perform any other necessary administrative functions with
respect thereto. Notwithstanding any provision to the contrary contained in the
Plan, distributions on account of the Notes shall not be reduced by the amount
of the reasonable fees and out-of-pocket expenses incurred by the Indenture
Trustees or any undisputed claim for payment by the Indenture Trustees (which
includes the reasonable fees and out-of-pocket expenses of any professionals
retained by the Indenture Trustees). In addition, upon the occurrence of the
Effective Date, the asserted charging liens of the Indenture Trustees shall be
released and their sole claims shall be for their reasonable fees and out-of-
pocket expenses.
H. HSR FILINGS.
To the extent required, on or before the Confirmation Date, the Debtor shall
file a notification and report form (the 'HSR Filing') under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the 'HSR Act').
Pursuant to Bankruptcy Code section 363(b)(2)(B), the required waiting period
shall end on the 15th day after receipt of the HSR Filing by the specified
parties.
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I. DISCHARGE OF DEBTOR AND INJUNCTION.
The rights afforded in the Plan and the treatment of all Claims and
Interests therein shall be in exchange for and in complete satisfaction,
discharge and release of all Claims and Interests of any nature, whatsoever,
including any interest accrued on such Claims from and after the Petition Date
against the Debtor, the Debtor in Possession, or any of its assets or
properties. Except as otherwise provided in the Plan or the Confirmation Order,
on or after the Effective Date: (i) the Debtor shall be deemed discharged and
released to the fullest extent permitted by section 1141 of the Bankruptcy Code
from all Claims and Interests, including Claims and Interests that arose before
the Effective Date and all debts of the kind specified in sections 502(g),
502(h) or 502(i) of the Bankruptcy Code whether or not: (a) a proof of claim or
proof of interest based on such debt or interest is Filed or deemed Filed
pursuant to section 501 of the Bankruptcy Code, (b) a Claim or Interest based on
such debt or interest is allowed pursuant to section 502 of the Bankruptcy Code,
or (c) the Holder of a Claim or Interest based on such debt or interest has
accepted the Plan; and (ii) all persons shall be precluded from asserting
against the Reorganized Debtor, its successors or their assets or properties any
other or future Claims or Interests based upon any act or omission, transaction
or other activity of any kind or nature that occurred before the Effective Date.
Except as otherwise provided in the Plan or the Confirmation Order, and in
addition to the injunction provided under sections 524(a) and 1141 of the
Bankruptcy Code, on and after the Effective Date, all persons who have held,
currently hold or may hold a debt, Claim or Interest discharged under the Plan
are permanently enjoined from taking any of the following actions on account of
any such discharge, debt, Claim or Interest: (1) commencing or continuing in any
manner any action or other proceeding against the Debtor, the Reorganized
Debtor, its successors or their respective properties; (2) enforcing, attaching,
collecting or recovering in any manner any judgment, award, decree or order
against the Debtor, the Reorganized Debtor, its successors, or their respective
properties; (3) creating, perfecting or enforcing any lien or encumbrance
against the Debtor, the Reorganized Debtor, its successors or their respective
properties; (4) asserting any setoff, right of subrogation or recoupment of any
kind against any obligation due the Debtor, the Reorganized Debtor, its
successors or their respective properties; and (5) commencing or continuing any
action in any manner, in any place that does not comply with or is inconsistent
with the provisions of the Plan or the Confirmation Order. Any person injured by
any willful violation of such injunction may recover actual damages, including
costs and attorneys' fees and, in appropriate circumstances, may recover
punitive damages from the willful violator.
J. LIMITATION OF LIABILITY.
Except as otherwise provided in the Plan or the Confirmation Order, neither
the Debtor, the Committee, the Informal Creditors' Committee, any Lockup
Signatory nor any of their respective officers, directors, members or employees
(acting in such capacity), nor any attorney, accountant, financial advisor or
other professional person employed by any of them shall have or incur any
liability to any entity or person for any action taken or omitted to be taken in
connection with or related to the Reorganization Case, the formulation,
preparation, dissemination, solicitation, Confirmation or consummation of the
Plan, the Lockup Agreement, or any other action taken or omitted to be taken in
connection with the Plan or the Prepetition Restructuring Efforts; provided that
the foregoing provisions of this section J shall have no effect on the liability
of any entity that would otherwise result from any such act or omission to the
extent that such act or omission is determined in a Final Order to have
constituted gross negligence or willful misconduct.
K. SURVIVAL OF INDEMNIFICATION AND CORPORATION CONTRIBUTION.
Notwithstanding anything to the contrary contained in the Plan, the
obligations of the Debtor to indemnify and/or provide contribution to its
directors, officers, agents, employees and representatives who are serving in
such capacity on the Petition Date, pursuant to the Corporate Documents,
applicable statutes or contractual obligations, in respect of all past, present
and future actions, suits and proceedings against any of such directors,
officers, agents, employees and representatives, based on any act or omission
related to the service with, for or on behalf of the Debtor shall not be
discharged or
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impaired by Confirmation or consummation of the Plan, but shall survive
unaffected by the reorganization contemplated by the Plan.
L. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS.
The Debtor or the Reorganized Debtor (as the case may be) shall be
authorized to execute, deliver, file, or record such contracts, Instruments,
releases, indentures, and other agreements or documents, and take such actions,
as may be necessary or appropriate to effectuate and further evidence the terms
and conditions of the Plan. The secretary or any assistant secretary of the
Debtor or the Reorganized Debtor shall be authorized to certify or attest to any
of the foregoing actions.
M. EXEMPTION FROM CERTAIN TRANSFER TAXES.
Pursuant to section 1146(c) of the Bankruptcy Code, any transfers from the
Debtor to the Reorganized Debtor or any other person or entity pursuant to the
Plan shall not be subject to any document recording tax, stamp tax, conveyance
fee, intangibles or similar tax, mortgage tax, stamp act, real estate transfer
tax, mortgage recording tax, or other similar tax or governmental assessment,
and the Confirmation Order shall direct the appropriate state or local
governmental officials or agents to forego the collection of any such tax or
governmental assessment and to accept for filing and recordation any of the
foregoing Instruments or other documents without the payment of any such tax or
governmental assessment.
N. OBJECTIONS TO CLAIMS.
Except as otherwise provided for Professional Fee Claims and Administrative
Claims under Article III.A.1.b. hereof, and as otherwise ordered by the
Bankruptcy Court, objections to claims shall be Filed by the Reorganized Debtor
and served upon the Holder of such claim as applicable, not later than the later
of (1) ninety (90) days after the Effective Date, and (2) sixty (60) days after
a proof of claim is Filed. Nothing in this section shall be construed to extend
the applicable bar date or dates for the Filing of proofs of claims or requests
for payment in these cases, or to make timely any proof of claim or request for
payment Filed after the applicable bar date.
O. PAYMENT OF STATUTORY FEES.
On or before the Effective Date, all fees payable pursuant to 28 U.S.C.
'SS' 1930, as determined by the Bankruptcy Court at the Confirmation Hearing,
shall be paid to the U.S. Trustee, in Cash.
P. LOCKUP AGREEMENT FEES.
Pursuant to the Lockup Agreement, on the Effective Date, the Reorganized
Debtor shall reimburse each Lockup Signatory for reasonable out-of-pocket fees
and expenses incurred prior to the Effective Date, including fees and
disbursements of counsel.
ARTICLE VI
DISTRIBUTIONS
A. DISTRIBUTION RECORD DATE.
As of the close of business on the Distribution Record Date, the various
transfer and claims registers for each of the Classes of Claims or Interests as
maintained by the Debtor, its respective agents, or the Indenture Trustees shall
be deemed closed, and there shall be no further changes in the record Holders of
any of the Claims or Interests. The Debtor shall have no obligation to recognize
any transfer of the Claims or Interests occurring after the close of business on
the Distribution Record Date. The Debtor and the Indenture Trustees shall be
entitled to recognize and deal for all purposes hereunder only with those record
Holders stated on the transfer ledgers as of the close of business on the
Distribution Record Date, to the extent applicable.
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B. SATISFACTION OF CLAIMS OR INTERESTS.
Unless otherwise provided herein, any distributions and deliveries to be
made on account of Allowed Claims or Allowed Interests shall be in complete
settlement, satisfaction and discharge of such Allowed Claims or Allowed
Interests.
C. WAIVER OF SUBORDINATION.
The distributions under the Plan take into account the relative priority of
the Claims and Interests in each Class in connection with any contractual
subordination provisions relating thereto. Accordingly, the distributions to the
Holders of Claims and Interests shall not be subject to levy, garnishment,
attachment, or other legal or equity process by any Holder of indebtedness
purportedly senior to the indebtedness of the Holder of other Claims and
Interests, by reason of contractual subordination rights. On the Effective Date,
all Holders of Claims shall be deemed to have waived any and all contractual
subordination rights they may have with respect to such distribution, and the
Confirmation Order shall permanently enjoin, effective as of the Effective Date,
all Holders of Claims and Interests from enforcing or attempting to enforce any
such rights with respect to distributions under the Plan.
D. DISBURSING AGENT.
The Reorganized Debtor, or such other entity as the Reorganized Debtor may
employ, shall act as the Disbursing Agent under the Plan and make all
distributions required under the Plan. Unless otherwise required, the Disbursing
Agent shall serve without bond. In the event the Reorganized Debtor serves as
the Disbursing Agent, it shall do so without charging fees, but shall be
entitled to be reimbursed for reasonable expenses. Any other entity serving as
the Disbursing Agent shall be entitled to customary and reasonable fees and
expenses for performing such services.
E. RIGHTS AND POWERS OF DISBURSING AGENT.
1. POWERS OF THE DISBURSING AGENT.
The Disbursing Agent shall be empowered to (i) effect all actions and
execute all agreements, Instruments, and other documents necessary to perform
its duties under the Plan, (ii) make all distributions contemplated hereby,
(iii) employ professionals to represent it with respect to its responsibilities,
and (iv) exercise such other powers as may be vested in the Disbursing Agent by
order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the
Disbursing Agent to be necessary and proper to implement the provisions hereof.
2. EXPENSES INCURRED ON OR AFTER THE EFFECTIVE DATE.
Except as otherwise ordered by the Bankruptcy Court, the amount of any
reasonable fees and expenses incurred by the Disbursing Agent on or after the
Effective Date (including, without limitation, taxes) and any reasonable
compensation and expense reimbursement claims (including, without limitation,
reasonable attorney and other professional fees and expenses) made by the
Disbursing Agent shall be paid in Cash by the Reorganized Debtor.
F. SURRENDER OF INSTRUMENTS.
Unless otherwise provided herein, as a condition to receiving any
distribution under the Plan, each Holder of a Claim or Interest represented by
an Instrument, including Notes and stock certificates, may be required to
surrender such Instrument held by it to the Disbursing Agent or its designee
accompanied by a letter of transmittal. Any Holder that fails to (i) surrender
such Instrument or (ii) execute and deliver an affidavit of loss and/or
indemnity reasonably satisfactory to the Disbursing Agent and furnish a bond in
form, substance, and amount reasonably satisfactory to the Disbursing Agent
before the first anniversary of the Effective Date shall be deemed to have
forfeited all rights and claims and may not participate in any distribution
under the Plan in respect of such Claim or Interest. Any distribution so
forfeited shall become the sole and exclusive property of the Reorganized
Debtor.
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G. DELIVERY OF DISTRIBUTIONS.
Unless otherwise provided herein, all distributions to any Holder of an
Allowed Claim or Allowed Interest, shall be made at the address of such Holder
as set forth on the Schedules Filed with the Bankruptcy Court or on the books
and records of the Debtor or its agents, unless the Debtor has been notified, in
advance, in writing of a change of address, including, without limitation, by
the filing of a proof of claim or interest by such Holder that contains an
address for such Holder different from the address reflected on such Schedules
for such Holder. In the event that any distribution to any Holder is returned as
undeliverable, no distribution to such Holder shall be made unless and until the
Disbursing Agent has been notified of the then current address of such Holder,
at which time or as soon as reasonably practicable thereafter such distribution
shall be made to such Holder without interest; provided that such distributions
shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code
at the expiration of two years from the later of (i) the Effective Date and
(ii) the date such Holder's Claim or Interest becomes an Allowed Claim or
Allowed Interest. After such date, all unclaimed property or interest in
property shall revert to the Reorganized Debtor, and the Claim or Interest of
any other Holder to such property or interest in property shall be discharged
and forever barred. The Reorganized Debtor and the Disbursing Agent shall have
no obligation to attempt to locate any Holder of an Allowed Claim or Allowed
Interest other than by reviewing their books and records (including any proofs
of claim Filed against the Debtor).
H. DISTRIBUTION OF NEW COMMON STOCK.
All distributions of New Common Stock made under the Plan in respect to the
Notes will be made to the respective Indenture Trustee, which, in turn, will
distribute such property pursuant to the respective Indenture. As a condition of
receiving any distribution as provided herein, each Holder of the Notes must
surrender any Instruments or certificates representing or evidencing such Notes
held by each such Holder to the respective Indenture Trustee accompanied by a
letter of transmittal in a form to be designated by the Debtor. The Indenture
Trustee will cancel and destroy each such Instrument or certificate, and then
promptly certify to the Reorganized Debtor the destruction of each such
Instrument or certificate in accordance with the terms of the respective
Indentures. Any Holder that fails to (a) surrender such Instrument or
certificate, or (b) execute and deliver an affidavit of loss and/or indemnity
reasonably satisfactory to the respective Indenture Trustee before the first
anniversary of the Effective Date will be deemed to have forfeited all rights
and claims and may not participate in any distribution under the Plan in respect
of such Claims. Any distribution so forfeited will become the sole and exclusive
property of the Reorganized Debtor.
Following distribution by the Indenture Trustees of the New Common Stock
received in accordance with the Plan pursuant to the Indentures, and following
the cancellation and certification of the destruction of the Instruments or
certificates as provided above, the Indenture Trustees and their agents will be
relieved of, and released from, all obligations associated with the Notes
arising under the Indentures or under other applicable agreements or law and the
Indentures will be deemed to be discharged.
On the Effective Date, or as soon thereafter as is practicable, the Debtor
will pay, in Cash, the amounts incurred, pursuant to the Indentures, to the
Indenture Trustees, together with their agents and attorneys, including
reasonable fees and expenses and costs and expenses of collection, including,
but not limited to, reasonable attorneys' fees.
I. MANNER OF PAYMENT UNDER PLAN OF REORGANIZATION.
Except as specifically provided herein, at the option of the Debtor, any
Cash payment to be made hereunder may be made by a check or wire transfer or as
otherwise required or provided in applicable agreements.
J. FRACTIONAL SHARES.
No fractional shares of New Common Stock will be issued. For purposes of
Plan distributions, fractional shares of New Common Stock shall be rounded down
to the next whole number or zero, as
C-23
applicable. Neither the Debtor, the Reorganized Debtor nor the Disbursing Agent
shall have any obligation to make a distribution that is less than one (1) share
of New Common Stock.
K. COMPROMISE OF CONTROVERSIES.
Pursuant to Bankruptcy Rule 9019, and in consideration for the
classification, distribution and other benefits provided under the Plan, the
provisions of the Plan shall constitute a good faith compromise and settlement
of all Claims and controversies resolved pursuant to the Plan, including,
without limitation, all Claims arising prior to the Petition Date, whether known
or unknown, foreseen or unforeseen, asserted or unasserted, arising out of,
relating to or in connection with the business or affairs of, or transactions
with, the Debtor. The entry of the Confirmation Order shall constitute the
Bankruptcy Court's approval of each of the foregoing compromises or settlements,
and all other compromises and settlements provided for in the Plan of
Reorganization, and the Bankruptcy Court's findings shall constitute its
determination that such compromises and settlements are in the best interests of
the Debtor, the Estate, creditors and other parties in interest, and are fair,
equitable and within the range of reasonableness.
L. EXEMPTION FROM SECURITIES LAWS.
The issuance of the New Common Stock and New Warrants pursuant to the Plan
shall be exempt from any securities laws registration requirements to the
fullest extent permitted by section 1145 of the Bankruptcy Code.
M. GENERAL UNSECURED CLAIMS.
Notwithstanding the contents of the Schedules, Claims listed therein as
undisputed, liquidated and not contingent shall be reduced by the amount, if
any, that was paid by the Debtor prior to the Distribution Record Date,
including pursuant to orders of the Bankruptcy Court. To the extent such
payments are not reflected in the Schedules, such Schedules are hereby amended
and reduced to reflect that such payments were made. Nothing in the Plan shall
preclude the Reorganized Debtor from paying Claims that the Debtor was
authorized to pay pursuant to any Final Order entered by the Bankruptcy Court
prior to the Confirmation Date.
N. DISPUTED CLAIMS AND DISPUTED INTERESTS.
1. NO DISTRIBUTIONS.
No payment or distribution will be made with respect to all or a portion of
any Disputed Claim or Disputed Interest until such Claim or Interest is an
Allowed Claim or Allowed Interest.
2. DISPUTED RESERVE.
Notwithstanding any other provision of this Plan, the Disbursing Agent shall
withhold from the property to be distributed under this Plan on account of any
Disputed Claim or Disputed Interest and shall place in the Disputed Reserve the
amount of Cash, New Common Stock or New Warrants that would be distributed on
account of the 'face amount' of such Disputed Claims or Disputed Interests as of
the Distribution Date. For purposes of this provision, the 'face amount' of a
Claim or Interest is the liquidated amount set forth on the proof of the claim
or interest , or if no proof of the claim or interest has been Filed, the amount
of the Claim or Interest Scheduled as not being disputed, contingent, or
unliquidated. In the case of any Disputed Claim or Disputed Interest that is
filed in an unliquidated or undetermined amount, the Bankruptcy Court shall,
upon motion by the Reorganized Debtor, or such other party or parties as might
have standing therefor, determine an amount sufficient to withhold and reserve
with respect to such Claim or Interest and may estimate the likely maximum
amount of the claim in order to make such determination. Any Holder whose Claim
or Interest is so estimated shall not have recourse to the Reorganized Debtor,
any assets theretofore distributed on account of any Allowed Claim or Allowed
Interest, any other Disputed Reserve, or any other entity or property if the
finally allowed Claim or Interest of such Holder exceeds that maximum. Instead,
such Holder shall have
C-24
recourse only to undistributed assets in the Disputed Reserve that were
allocated in such Disputed Reserve for the Claim of that Holder.
To the extent practicable, the Disbursing Agent shall invest any cash in the
Disputed Reserve in any manner permitted by section 345 of the Bankruptcy Code
or any order of the Bankruptcy Court that has established investment guidelines
for funds of the Estate, or any further order of the Bankruptcy Court.
3. DISTRIBUTION ON DISPUTED CLAIMS OR DISPUTED INTERESTS.
The property in the Disputed Reserve shall be distributed on account of the
Disputed Claims or Disputed Interests as those claims become Allowed Claims or
Allowed Interests by a Final Order. Beginning on the date that is sixty (60)
days after the Effective Date, and every sixty (60) days thereafter until all
Disputed Claims and Disputed Interests are resolved, the Disbursing Agent shall
make a distribution to each Holder of a Disputed Claim or Disputed Interest
whose claim became an Allowed Claim or Allowed Interest in the preceding sixty
(60) days; provided that the Holder of a Disputed Claim or Disputed Interest
whose Claim or Interest has been individually estimated and reserved as provided
for in section N.2, above, shall have its distribution limited to the amount
reserved in its specific Disputed Reserve for that Disputed Claim or Disputed
Interest. As part of the distribution described in the preceding sentence, the
Disbursing Agent shall deliver to the Reorganized Debtor all property that was
held in the Disputed Reserve on account of the Disputed Claims or Disputed
Interests that were resolved in the preceding sixty days to the extent that the
amounts reserved on account of such Claims or Interests exceed the eventually
allowed amounts of such Claims or Interests.
Any property in the Disputed Reserve remaining after the resolution of all
disputes over the allowance of Claims or Interests in such Class, including the
remaining net return yielded from the investment of any cash in the Disputed
Reserve, shall be returned to the Reorganized Debtor.
ARTICLE VII
MISCELLANEOUS PROVISIONS
A. RETENTION OF JURISDICTION.
Following Confirmation of the Plan, the Bankruptcy Court shall retain such
jurisdiction as is legally permissible after Confirmation, including, without
limitation, for the following purposes:
1. To determine the allowability, amount, classification, or priority of
Claims upon objection by the Debtor;
2. To construe and to take any action to execute and enforce the Plan,
the Confirmation Order, or any other order of the Bankruptcy Court, to issue
such orders as may be necessary for the implementation, execution,
performance, and consummation of the Plan and all matters referred to
herein, and to determine all matters that may be pending before the
Bankruptcy Court in the Reorganization Case on or before the Effective Date;
3. To rule on any and all Professional Fee Claims for periods before the
Effective Date;
4. To rule on any other request for payment of any Administrative Claim;
5. To resolve any dispute regarding the implementation, execution,
performance, consummation, or interpretation of the Plan;
6. To resolve all applications, adversary proceedings, contested
matters, and other litigated matters instituted on or before the Effective
Date;
7. To determine such other matters and to perform other functions as may
be provided in the Confirmation Order;
8. To modify the Plan under section 1127 of the Bankruptcy Code, to
remedy any apparent nonmaterial defect or omission in the Plan, or to
reconcile any nonmaterial inconsistency in the Plan so as to carry out its
intent and purposes;
C-25
9. To issue injunctions or take such other actions or make such other
orders as may be necessary or appropriate to restrain interference with the
Plan or its execution or implementation by any entity; and
10. To issue such orders in aid of execution of the Plan and the
Confirmation Order, notwithstanding any otherwise applicable nonbankruptcy
law, with respect to any entity, to the full extent authorized by the
Bankruptcy Code.
B. SUCCESSORS AND ASSIGNS.
The rights, benefits and obligations of any entity named or referred to in
the Plan are binding on, and will inure to the benefit of, any permitted heirs,
executors, administrators, successors or assigns of such entity.
C. AMENDMENT, MODIFICATION AND SEVERABILITY.
1. The Plan may be amended or modified before the Effective Date by the
Debtor to the extent provided by section 1127 of the Bankruptcy Code, and in
accordance with the Lockup Agreement.
2. The Debtor reserves the right to modify or amend the Plan upon a
determination by the Bankruptcy Court that the Plan, as it is currently drafted,
is not confirmable pursuant to section 1129 of the Bankruptcy Code. To the
extent such a modification or amendment is permissible under section 1127 of the
Bankruptcy Code without the need to resolicit acceptances, the Debtor reserves
the right to sever any provisions of the Plan that the Bankruptcy Court finds
objectionable.
D. REVOCATION OF THE PLAN.
The Debtor reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtor revokes or withdraws the Plan, or if
Confirmation does not occur, then the Plan shall be null and void, and nothing
contained in the Plan shall: (1) constitute a waiver or release of any Claims by
or against, or any Interests in, the Debtor; or (2) prejudice in any manner the
rights of the Debtor in any further proceedings.
E. DISSOLUTION OF COMMITTEE.
On the Effective Date, the Committee shall dissolve and the members of the
Committee shall be released and discharged from all authority, duties,
responsibilities and obligations related to and arising from and in connection
with the Reorganization Case, except with respect to any appeal of any Order.
F. NO ADMISSIONS.
Notwithstanding anything herein to the contrary, nothing contained in the
Plan shall be deemed as an admission by the Debtor with respect to any matter
set forth herein including, without limitation, liability on any claim.
ARTICLE VIII
CONDITIONS TO THE EFFECTIVE DATE
A. CONDITIONS.
The Effective Date of the Plan shall not occur unless and until each of the
conditions set forth below has been satisfied or duly waived.
1. The Confirmation Order is a Final Order.
2. The New Equity Investment shall be funded.
3. Any waiting period applicable to the consummation of the Plan and
occurrence of the Effective Date under the HSR Act shall have expired or be
terminated.
C-26
B. WAIVER OF CONDITIONS.
Only the Debtor may waive condition VIII.A.1. in its sole and absolute
discretion, by filing a written waiver. No other condition is waivable by any
party in interest.
C. FAILURE TO SATISFY CONDITIONS.
The Effective Date must occur on or before the later of: (1) ,
2003; or (2) such other date as is agreed to by the Debtor and the Committee,
and if it does not occur, the Confirmation Order shall automatically be vacated.
If the Confirmation Order is automatically vacated, the Plan and the
Confirmation Order shall be deemed null and void, of no force or effect and
shall not be used by any party for any purpose and nothing in the Plan or the
Confirmation Order shall prejudice or constitute a waiver or release of any
right, claim or remedy by or against the Debtor or any other party.
ARTICLE IX
CONFIRMATION REQUEST
The Debtor requests Confirmation of the Plan under Bankruptcy Code
section 1129. If any Impaired Class does not accept the Plan pursuant to
Bankruptcy Code section 1126, the Debtor requests Confirmation pursuant to
Bankruptcy Code section 1129(b). In that event, the Debtor reserves the right to
modify the Plan to the extent (if any) that Confirmation of the Plan under
Bankruptcy Code section 1129(b) requires modification.
Plan Proposed By:
SIRIUS SATELLITE RADIO INC.
By:
..................................
Patrick L. Donnelly
Executive Vice President, General
Counsel and Secretary
Plan Presented By:
STUTMAN, TREISTER & GLATT P.C.
By:
..................................
Frank A. Merola
Eric D. Goldberg
Members of the Firm
Reorganization Counsel
for Sirius Satellite Radio Inc.
C-27
DELIVERY OF LETTERS OF TRANSMITTAL AND CONSENT
Manually signed facsimile copies of the letters of transmittal and consent
will be accepted. The letters of transmittal and consent and notes and any other
required documents should be sent or delivered by each tendering holder or a
beneficial owner's broker, dealer, commercial bank, trust company or other
nominee to The Bank of New York, the exchange agent, at its address set forth
below.
THE BANK OF NEW YORK
By Registered or Certified Mail, By Facsimile Transmission:
By Hand or Overnight Delivery: (212) 298-1915
The Bank of New York
Corporate Trust Operations To Confirm By Telephone
101 Barclay Street -- 7 East or For Information Call:
New York, New York 10286 (212) 815-5920
Attention: Ms. Carole Montreuil
-------------------
DELIVERY OF BALLOTS
Manually signed facsimile copies of ballots relating to the prepackaged plan
should be sent or delivered by holders of debt securities or a beneficial
owner's broker, dealer, commercial bank, trust company or other nominee to
MacKenzie Partners, Inc., the voting agent, at its address set forth below.
Questions and requests for assistance or for additional copies of this
offer, the letter of transmittal and consent, the notice of guaranteed delivery
or ballots on the prepackaged plan may also be directed to the information agent
and voting agent.
The information agent and voting agent for this offer and solicitation is:
[MACKENZIE PARTNERS LOGO]
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Facsimile: (212) 929-0308
Email: proxy@mackenziepartners.com
-------------------
The dealer manager for this offer and solicitation is:
UBS WARBURG LLC
299 Park Avenue
New York, New York 10019
Telephone: (212) 821-3510
Attention: Andrew Rothstein
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a corporation
to indemnify its directors, officers, employees and agents against certain
liabilities they may incur in such capacities, including liabilities under the
Securities Act, provided they act in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation. Our
certificate of incorporation requires us to indemnify our officers, directors,
employees and agents to the full extent permitted by Delaware law.
Section 102 of the Delaware General Corporation Law authorizes a corporation
to limit or eliminate its directors' liability to the corporation or its
stockholders for monetary damages for breaches of fiduciary duties, other than
for (i) breaches of the duty of loyalty, (ii) acts or omissions involving bad
faith, intentional misconduct or knowing violations of the law, (iii) unlawful
payments of dividends, stock purchases or redemptions, or (iv) transactions from
which a director derives an improper personal benefit. Our certificate of
incorporation contains provisions limiting the liability of the directors to us
and to our stockholders to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law authorizes a corporation
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him and incurred by him or her in any such capacity, or arising
out of his or her status as such. Our certificate of incorporation provides that
we may, to the full extent permitted by law, purchase and maintain insurance on
behalf of any director, officer, employee or agent of ours against any liability
that may be asserted against him or her, and we currently maintain such
insurance. We have acquired $20 million of liability insurance covering our
directors and officers for claims asserted against them or incurred by them in
such capacity, including claims brought under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO. DESCRIPTION
------- -----------
4.1.1 -- Form of Certificate for shares of common stock
(incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-1 (File No.
33-74782)).
4.1.2 -- Certificate of Designations of 5% Delayed Convertible
Preferred Stock (incorporated by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1996 (the '1996 Form 10-K')).
4.1.3 -- Form of Certificate of Designations of Series B Preferred
Stock (incorporated by reference to Exhibit A to
Exhibit 1 to the Company's Registration Statement on
Form 8-A filed on October 30, 1997 (the 'Form 8-A')).
4.1.4 -- Form of Certificate for shares of 10 1/2% Series C
Convertible Preferred Stock (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on
Form S-4 (File No. 333-34761)).
4.1.5 -- Form of Certificate for shares of 9.2% Series A Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 (the
'1998 Form 10-K')).
4.1.6 -- Form of Certificate for shares of 9.2% Series B Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.2 to the 1998 Form 10-K).
4.1.7 -- Form of Certificate for shares of 9.2% Series D Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 (the '1999
Form 10-K')).
II-1
EXHIBIT
NO. DESCRIPTION
------- -----------
4.1.8 -- Form of Certificate of Designations, Preferences and Relative, Participating, Optional and
Other Special Rights of 10 1/2% Series C Convertible Preferred Stock (the 'Series C
Certificate of Designations') (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (File No. 333-34761)).
4.1.9 -- Certificate of Correction to Series C Certificate of Designations (incorporated by
reference to Exhibit 3.5.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (the '1997 Form 10-K')).
4.1.10 -- Certificate of Increase of 10 1/2% Series C Convertible Preferred Stock (incorporated by
reference to Exhibit 3.5.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998).
4.1.11 -- Certificate of Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of the Company's 9.2% Series A Junior Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 3.6 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
4.1.12 -- Certificate of Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of the Company's 9.2% Series B Junior Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 3.7 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
4.1.13 -- Certificate of Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of the Company's 9.2% Series D Junior Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K
filed on December 29, 1999).
4.2.1 -- Rights Agreement, dated as of October 22, 1997, between the Company and Continental Stock
Transfer & Trust Company, as rights agent (the 'Rights Agreement') (incorporated by
reference to Exhibit 1 to the Form 8-A).
4.2.2 -- Form of Right Certificate (incorporated by reference to Exhibit B to Exhibit 1 to the
Form 8-A).
4.2.3 -- Amendment to the Rights Agreement, dated as of October 13, 1998 (incorporated by reference
to Exhibit 99.2 to the Company's Current Report on Form 8-K filed on October 13, 1998).
4.2.4 -- Amendment to the Rights Agreement, dated as of November 13, 1998 (incorporated by
reference to Exhibit 99.7 to the Company's Current Report on Form 8-K filed on November 17,
1998).
4.2.5 -- Amended and Restated Amendment to Rights Agreement, dated as of December 22, 1998
(incorporated by reference to Exhibit 6 to the Amendment No. 1 to the Form 8-A, filed on
January 6, 1999).
4.2.6 -- Amendment to the Rights Agreement, dated as of June 11, 1999 (incorporated by reference to
Exhibit 4.1.8 to the Company's Registration Statement on Form S-4 (File No. 333-82303)
filed on July 2, 1999 (the '1999 Units Registration Statement')).
4.2.7 -- Amendment to the Rights Agreement, dated as of September 29, 1999 (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 13,
1999).
4.2.8 -- Amendment to the Rights Agreement, dated as of December 23, 1999 (incorporated by
reference to Exhibit 99.4 to the Company's Current Report on Form 8-K filed on December 29,
1999).
4.2.9 -- Amendment to the Rights Agreement, dated as of January 28, 2000 (incorporated by reference
to Exhibit 4.6.9 to the 1999 Form 10-K).
4.2.10 -- Amendment to the Rights Agreement, dated as of August 7, 2000 (filed as Exhibit 4.6.10 to
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
II-2
EXHIBIT
NO. DESCRIPTION
------- -----------
4.2.11 -- Amendment to the Rights Agreement, dated as of January 8, 2002 (filed as Exhibit 4.6.11
to the Company's Annual Report on Form 10-K for the year ended December 31, 2001).
4.2.12 -- Amendment to the Rights Agreement, dated as of October 22, 2002 (incorporated by
reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed on
October 24, 2002).
4.3 -- Indenture, dated as of November 26, 1997, between the Company and IBJ Schroder Bank
& Trust Company, as trustee, relating to the Company's 15% Senior Secured Discount
Note due 2007 (incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-3 (File No. 333-34769) (the '1997 Units Registration Statement')).
4.4 -- Form of 15% Senior Secured Discount Note due 2007 (incorporated by reference to
Exhibit 4.2 to the 1997 Units Registration Statement).
4.5 -- Warrant Agreement, dated as of November 26, 1997, between the Company and IBJ
Schroder Bank & Trust Company, as warrant agent (incorporated by reference to
Exhibit 4.3 to the 1997 Units Registration Statement).
4.6 -- Form of Warrant (incorporated by reference to Exhibit 4.4 to the 1997 Units Registration
Statement).
4.7 -- Form of Preferred Stock Warrant Agreement, dated as of April 9, 1997, between the
Company and each warrantholder thereof (incorporated by reference to Exhibit 4.12 to
the 1997 Form 10-K).
4.8 -- Form of Common Stock Purchase Warrant granted by the Company to Everest Capital
Master Fund, L.P. and to The Ravich Revocable Trust of 1989 (incorporated by reference
to Exhibit 4.11 to the 1997 Form 10-K).
4.9 -- Indenture, dated as of May 15, 1999, between the Company and United States Trust
Company of New York, as trustee, relating to the Company's 14 1/2% Senior Secured Notes
due 2009 (incorporated by reference to Exhibit 4.4.2 to the 1999 Units Registration
Statement).
4.10 -- Form of 14 1/2% Senior Secured Note due 2009 (incorporated by reference to Exhibit 4.4.2
to the 1999 Units Registration Statement).
4.11 -- Indenture, dated as of September 29, 1999, between the Company and United States
Trust Company of Texas, N.A., as trustee, relating to the Company's 8 3/4% Convertible
Subordinated Notes due 2009 (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed on October 13, 1999).
4.12 -- First Supplemental Indenture, dated as of September 29, 1999, between the Company and
United States Trust Company of Texas, N.A., as trustee, relating to the Company's 8 3/4%
Convertible Subordinated Notes due 2009 (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on October 1, 1999).
4.13 -- Form of 8 3/4% Convertible Subordinated Note due 2009 (incorporated by reference to
Article VII of Exhibit 4.01 to the Company's Current Report on Form 8-K filed on
October 11, 1999).
4.14 -- Warrant Agreement, dated as of May 15, 1999, between the Company and United States
Trust Company of New York, as warrant agent (incorporated by reference to Exhibit 4.4.4
to the 1999 Units Registration Statement).
4.15 -- Second Amended and Restated Pledge Agreement, dated as of March 7, 2001, among the
Company, as pledgor, The Bank of New York, as trustee and collateral agent, United
States Trust Company of New York, as trustee, and Lehman Commercial Paper Inc., as
administrative agent (incorporated by reference to Exhibit 4.25 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
4.16 -- Collateral Agreement, dated as of March 7, 2001, between the Company, as borrower, and
The Bank of New York, as collateral agent (incorporated by reference to Exhibit 4.26 to
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).
II-3
EXHIBIT
NO. DESCRIPTION
------- -----------
4.17 -- Amended and Restated Intercreditor Agreement, dated as of March 7, 2001, by and
between The Bank of New York, as trustee and collateral agent, United States Trust Company
of New York, as trustee, and Lehman Commercial Paper, as administrative agent (incorporated
by reference to Exhibit 4.27 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).
4.18 -- Common Stock Purchase Warrant granted by the Company to Ford Motor Company,
dated October 7, 2002 (incorporated by reference to Exhibit 4.16 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
4.19 -- Common Stock Purchase Warrant granted by the Company to DaimlerChrysler
Corporation, dated October 25, 2002 (incorporated by reference to Exhibit 4.20 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
4.20 -- Term Loan Agreement, dated as of June 1, 2000, among the Company, Lehman Brothers
Inc., as arranger, and Lehman Commercial Paper Inc., as syndication and administrative
agent (incorporated by reference to Exhibit 4.22 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
4.21 -- First Amendment, dated as of October 20, 2000, to the Term Loan Agreement
(incorporated by reference to Exhibit 4.22 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001).
4.22 -- Second Amendment, dated as of December 27, 2000, to the Term Loan Agreement
(incorporated by reference to Exhibit 4.23 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001).
4.23 -- Third Amendment, dated as of March 26, 2002, to the Term Loan Agreement
(incorporated by reference to Exhibit 4.24 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002).
4.24 -- Amended and Restated Warrant Agreement, dated as of December 27, 2000, between the
Company and United States Trust Company of New York, as warrant agent and escrow
agent (incorporated by reference to Exhibit 4.27 to the Company's Registration Statement
on Form S-3 (File No. 333-65602)).
4.25 -- Form of Senior Indenture (incorporated by reference to Exhibit 4.6.1 to the Company's
Registration Statement on Form S-3 (File No. 333-86003)).
4.26 -- Form of Subordinate Indenture (incorporated by reference to Exhibit 4.6.2 to the
Company's Registration Statement on Form S-3 (File No. 333-86003)).
5.1 -- Opinion of Simpson Thacher & Bartlett regarding legality (filed herewith).
8.1 -- Opinion of Simpson Thacher & Bartlett regarding tax matters (filed herewith).
23.1 -- Notice Regarding Consent of Arthur Andersen LLP (previously filed with the registration
statement).
23.2 -- Consent of Simpson Thacher & Bartlett (included in Exhibits 5.1 and 8.1 herewith).
24.1 -- Powers of Attorney (previously filed with this registration statement).
99.1 -- Letter of Transmittal and Consent (previously filed with this registration statement).
99.2 -- Notice of Guaranteed Delivery (previously filed with this registration statement).
99.3 -- Form of Ballot (previously filed with this registration statement).
99.4 -- Form of Master Ballot (previously filed with this registration statement).
99.5 -- Consent of Miller Buckfire Lewis & Co., LLC (previously filed with this registration
statement).
II-4
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Exchange Act) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to provisions described in
Item 20, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer of controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on January 28,
2003.
SIRIUS SATELLITE RADIO INC.
By: /S/ PATRICK L. DONNELLY
.................................
PATRICK L. DONNELLY
EXECUTIVE VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on January 28, 2003.
SIGNATURE TITLE
--------- -----
* President, Chief Executive Officer and Director (principal
......................................... executive officer)
(JOSEPH P. CLAYTON)
* Executive Vice President and Chief Financial Officer
......................................... (principal financial officer)
(JOHN J. SCELFO)
* Vice President and Controller (principal accounting
......................................... officer)
(EDWARD WEBER, JR.)
* Director
.........................................
(LEON D. BLACK)
* Director
.........................................
(LAWRENCE F. GILBERTI)
* Director
.........................................
(JAMES P. HOLDEN)
* Chairman of the Board of Directors and Director
.........................................
(DAVID MARGOLESE)
* Director
.........................................
(PETER G. PETERSON)
* Director
.........................................
(JOSEPH V. VITTORIA)
* Signed by Patrick L. Donnelly,
as Attorney-in-fact
II-6
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
4.1.1 -- Form of Certificate for shares of common stock
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File No. 33-74782)).
4.1.2 -- Certificate of Designations of 5% Delayed Convertible
Preferred Stock (incorporated by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1996 (the '1996 Form 10-K')).
4.1.3 -- Form of Certificate of Designations of Series B Preferred
Stock (incorporated by reference to Exhibit A to
Exhibit 1 to the Company's Registration Statement on
Form 8-A filed on October 30, 1997 (the 'Form 8-A')).
4.1.4 -- Form of Certificate for shares of 10 1/2% Series C
Convertible Preferred Stock (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on
Form S-4 (File No. 333-34761)).
4.1.5 -- Form of Certificate for shares of 9.2% Series A Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 (the
'1998 Form 10-K')).
4.1.6 -- Form of Certificate for shares of 9.2% Series B Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.2 to the 1998 Form 10-K).
4.1.7 -- Form of Certificate for shares of 9.2% Series D Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 (the '1999
Form 10-K')).
4.1.8 -- Form of Certificate of Designations, Preferences and
Relative, Participating, Optional and Other Special Rights
of 10 1/2% Series C Convertible Preferred Stock (the
'Series C Certificate of Designations') (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (File No. 333-34761)).
4.1.9 -- Certificate of Correction to Series C Certificate of
Designations (incorporated by reference to Exhibit 3.5.2
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (the '1997 Form 10-K')).
4.1.10 -- Certificate of Increase of 10 1/2% Series C Convertible
Preferred Stock (incorporated by reference to Exhibit
3.5.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998).
4.1.11 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's 9.2% Series A Junior Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 3.6
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).
4.1.12 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's 9.2% Series B Junior Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 3.7
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).
4.1.13 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's 9.2% Series D Junior Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 99.2
to the Company's Current Report on Form 8-K filed on
December 29, 1999).
4.2.1 -- Rights Agreement, dated as of October 22, 1997, between
the Company and Continental Stock Transfer & Trust
Company, as rights agent (the 'Rights Agreement')
(incorporated by reference to Exhibit 1 to the Form 8-A).
4.2.2 -- Form of Right Certificate (incorporated by reference to
Exhibit B to Exhibit 1 to the Form 8-A).
4.2.3 -- Amendment to the Rights Agreement, dated as of
October 13, 1998 (incorporated by reference to Exhibit
99.2 to the Company's Current Report on Form 8-K filed on
October 13, 1998).
EXHIBIT
NO. DESCRIPTION
--- -----------
4.2.4 -- Amendment to the Rights Agreement, dated as of
November 13, 1998 (incorporated by reference to Exhibit
99.7 to the Company's Current Report on Form 8-K filed on
November 17, 1998).
4.2.5 -- Amended and Restated Amendment to Rights Agreement, dated
as of December 22, 1998 (incorporated by reference to
Exhibit 6 to the Amendment No. 1 to the Form 8-A, filed
on January 6, 1999).
4.2.6 -- Amendment to the Rights Agreement, dated as of June 11,
1999 (incorporated by reference to Exhibit 4.1.8 to the
Company's Registration Statement on Form S-4
(File No. 333-82303) filed on July 2, 1999 (the '1999
Units Registration Statement')).
4.2.7 -- Amendment to the Rights Agreement, dated as of
September 29, 1999 (incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K filed on
October 13, 1999).
4.2.8 -- Amendment to the Rights Agreement, dated as of
December 23, 1999 (incorporated by reference to Exhibit
99.4 to the Company's Current Report on Form 8-K filed on
December 29, 1999).
4.2.9 -- Amendment to the Rights Agreement, dated as of
January 28, 2000 (incorporated by reference to Exhibit
4.6.9 to the 1999 Form 10-K).
4.2.10 -- Amendment to the Rights Agreement, dated as of August 7,
2000 (filed as Exhibit 4.6.10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
2000).
4.2.11 -- Amendment to the Rights Agreement, dated as of
January 8, 2002 (filed as Exhibit 4.6.11 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 2001).
4.2.12 -- Amendment to the Rights Agreement, dated as of
October 22, 2002 (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K filed on
October 24, 2002).
4.3 -- Indenture, dated as of November 26, 1997, between the
Company and IBJ Schroder Bank & Trust Company, as trustee,
relating to the Company's 15% Senior Secured Discount Note
due 2007 (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (File No.
333-34769) (the '1997 Units Registration Statement')).
4.4 -- Form of 15% Senior Secured Discount Note due 2007
(incorporated by reference to Exhibit 4.2 to the 1997
Units Registration Statement).
4.5 -- Warrant Agreement, dated as of November 26, 1997, between
the Company and IBJ Schroder Bank & Trust Company, as
warrant agent (incorporated by reference to Exhibit 4.3 to
the 1997 Units Registration Statement).
4.6 -- Form of Warrant (incorporated by reference to Exhibit 4.4
to the 1997 Units Registration Statement).
4.7 -- Form of Preferred Stock Warrant Agreement, dated as of
April 9, 1997, between the Company and each warrantholder
thereof (incorporated by reference to Exhibit 4.12 to the
1997 Form 10-K).
4.8 -- Form of Common Stock Purchase Warrant granted by the
Company to Everest Capital Master Fund, L.P. and to The
Ravich Revocable Trust of 1989 (incorporated by reference
to Exhibit 4.11 to the 1997 Form 10-K).
4.9 -- Indenture, dated as of May 15, 1999, between the Company
and United States Trust Company of New York, as trustee,
relating to the Company's 14 1/2% Senior Secured Notes due
2009 (incorporated by reference to Exhibit 4.4.2 to the
1999 Units Registration Statement).
4.10 -- Form of 14 1/2% Senior Secured Notes due 2009
(incorporated by reference to Exhibit 4.4.2 to the 1999
Units Registration Statement).
EXHIBIT
NO. DESCRIPTION
--- -----------
4.11 -- Indenture, dated as of September 29, 1999, between the
Company and United States Trust Company of Texas, N.A., as
trustee, relating to the Company's 8 3/4% Convertible
Subordinated Notes due 2009 (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed on October 13, 1999).
4.12 -- First Supplemental Indenture, dated as of September 29,
1999, between the Company and United States Trust Company
of Texas, N.A., as trustee, relating to the Company's
8 3/4% Convertible Subordinated Notes due 2009
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on October 1, 1999).
4.13 -- Form of 8 3/4% Convertible Subordinated Note due 2009
(incorporated by reference to Article VII of Exhibit 4.01
to the Company's Current Report on Form 8-K filed on
October 11, 1999).
4.14 -- Warrant Agreement, dated as of May 15, 1999, between the
Company and United States Trust Company of New York, as
warrant agent (incorporated by reference to Exhibit 4.4.4
to the 1999 Units Registration Statement).
4.15 -- Second Amended and Restated Pledge Agreement, dated as of
March 7, 2001, among the Company, as pledgor, The Bank of
New York, as trustee and collateral agent, United States
Trust Company of New York, as trustee, and Lehman
Commercial Paper Inc., as administrative agent
(incorporated by reference to Exhibit 4.25 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).
4.16 -- Collateral Agreement, dated as of March 7, 2001, between
the Company, as borrower, and The Bank of New York, as
collateral agent (incorporated by reference to Exhibit
4.26 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001).
4.17 -- Amended and Restated Intercreditor Agreement, dated as of
March 7, 2001, by and between The Bank of New York, as
trustee and collateral agent, United States Trust Company
of New York, as trustee, and Lehman Commercial Paper, as
administrative agent (incorporated by reference to Exhibit
4.27 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001).
4.18 -- Common Stock Purchase Warrant granted by the Company to
Ford Motor Company, dated October 7, 2002 (incorporated by
reference to Exhibit 4.16 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
2002).
4.19 -- Common Stock Purchase Warrant granted by the Company to
DaimlerChrysler Corporation, dated October 25, 2002
(incorporated by reference to Exhibit 4.20 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).
4.20 -- Term Loan Agreement, dated as of June 1, 2000, among the
Company, Lehman Brothers Inc., as arranger, and Lehman
Commercial Paper Inc., as syndication and administrative
agent (incorporated by reference to Exhibit 4.22 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000).
4.21 -- First Amendment, dated as of October 20, 2000, to the
Term Loan Agreement (incorporated by reference to Exhibit
4.22 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001).
4.22 -- Second Amendment, dated as of December 27, 2000, to the
Term Loan Agreement (incorporated by reference to Exhibit
4.23 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001).
4.23 -- Third Amendment, dated as of March 26, 2002, to the Term
Loan Agreement (incorporated by reference to Exhibit 4.24
to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).
4.24 -- Amended and Restated Warrant Agreement, dated as of
December 27, 2000, between the Company and United States
Trust Company of New York, as warrant agent and escrow
agent (incorporated by reference to Exhibit 4.27 to the
Company's Registration Statement on Form S-3 (File No.
333-65602)).
EXHIBIT
NO. DESCRIPTION
--- -----------
4.25 -- Form of Senior Indenture (incorporated by reference to
Exhibit 4.6.1 to the Company's Registration Statement on
Form S-3 (File No. 333-86003)).
4.26 -- Form of Subordinate Indenture (incorporated by reference
to Exhibit 4.6.2 to the Company's Registration Statement
on Form S-3 (File No. 333-86003)).
5.1 -- Opinion of Simpson Thacher & Bartlett regarding legality
(filed herewith).
8.1 -- Opinion of Simpson Thacher & Bartlett regarding tax
matters (filed herewith).
23.1 -- Notice Regarding Consent of Arthur Andersen LLP
(previously filed with this registration statement).
23.2 -- Consent of Simpson Thacher & Bartlett (included in
Exhibits 5.1 and 8.1 herewith).
24.1 -- Powers of Attorney (previously filed with this
registration statement).
99.1 -- Letter of Transmittal and Consent (previously filed with
this registration statement).
99.2 -- Notice of Guaranteed Delivery (previously filed with this
registration statement).
99.3 -- Form of Ballot (previously filed with this registration
statement).
99.4 -- Form of Master Ballot (previously filed with this
registration statement).
99.5 -- Consent of Miller Buckfire Lewis & Co., LLC (previously
filed with this registration statement).
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as............................... 'SS'