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TABLE OF CONTENTS
| Filed pursuant to Rule 424(b)(3) | ||
| Registration No. | 333-106823 333-106823-01 | |
Prospectus
$185,000,000
XM SATELLITE RADIO INC.
XM SATELLITE RADIO HOLDINGS INC.
OFFER TO EXCHANGE ALL OUTSTANDING
12% SENIOR SECURED NOTES DUE 2010
GUARANTEED BY XM SATELLITE RADIO HOLDINGS INC.
FOR 12% SENIOR SECURED NOTES DUE 2010
GUARANTEED BY XM SATELLITE RADIO HOLDINGS INC.
AND REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Interest Payable December 15 and June 15,
Commencing December 15, 2003.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 25, 2003 UNLESS EXTENDED.
Please see "Risk Factors" beginning on page 16, which includes risk factors incorporated herein by reference to our Current Report on Form 8-K, filed with the SEC on June 3, 2003, for a discussion of certain factors you should consider in connection with the exchange offer.
Neither the Securities and Exchange Commission nor any state securities commission has approved the notes to be distributed in the exchange offer, nor have any of these organizations determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is August 27, 2003
You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
We have not taken nor will we take any action in any jurisdiction to permit a public offering of the exchange notes or the possession or distribution of this prosectus other than in the United States.
The Securities and Exchange Commission allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. This prospectus incorporates by reference certain business and financial information about us that is not included in or delivered with this document. You may obtain copies of the documents incorporated by reference in this document, without charge, by writing us at the following address or calling us at the following telephone number:
XM Satellite Radio
1500 Eckington Place, NE
Washington, DC 20002-2194
(202) 380-4000
Attention: General Counsel
To obtain timely delivery of documents requested, you must request the information no later than five business days prior to the expiration date for the exchange offer.
ii
The following summary highlights selected information from this prospectus. It does not contain all of the information that is important to you. The following summary therefore is qualified in its entirety by reference to, and should be read in conjunction with, the information appearing elsewhere in this prospectus, including the section entitled "Risk Factors." Unless otherwise noted, the terms "we," "our" and "us" refer to XM Satellite Radio Holdings Inc. (parent of XM Satellite Radio Inc.) and its subsidiaries. "XM" refers to XM Satellite Radio Inc., the issuer of the notes.
Our Business
We are a nationwide provider of audio entertainment and information programming for reception by vehicle, home and portable radios. Our digital audio XM Radio service offers 100 channels of music, news, talk, sports and children's programming for a monthly subscription fee; we also offer one premium channel for an additional fee. We believe XM Radio appeals to consumers because of our innovative and diverse programming, nationwide coverage, numerous commercial free music and talk channels and digital sound quality. Since our nationwide launch on November 12, 2001, we built our subscriber base to over 692,000 subscribers as of June 30, 2003 through multiple distribution channels, including an exclusive distribution arrangement with General Motors, other automotive manufacturers, car audio dealers and national electronics retailers.
From our nationwide launch through the end of the third quarter of 2002, distribution of our product was almost exclusively through the aftermarket (the sale of radios by consumer electronics retailers and others for installation in automobiles after purchase). Starting with the 2003 automobile model year, which began in late summer 2002, General Motors began making XM Radio available as original equipment in new vehicles. Through an exclusive distribution arrangement with us, General Motors is currently offering 25 models of XM Radio-equipped cars, light trucks and SUVs under the Buick, Chevrolet, Oldsmobile, Cadillac, Pontiac and GMC brand names and will expand to 44 GM models for the 2004 model year. Honda, Isuzu, Nissan, Infiniti, Toyota and Volkswagen/Audi have announced that XM Radio will be available in numerous popular makes and models, including the Honda Accord, Nissan Pathfinder and Toyota Scion. Recently, Acura announced that both the 2004 Acura TL and RL will include XM Radio as a factory-installed standard feature. Toyota has announced that XM Radio will be offered as a dealer-installed option on the 2004 Camry Solara coupe and Audi has announced that beginning in the summer of 2003, XM Radio will be offered as an option on a number of 2004 models, including the A4, S4, A6, A8L and allroad quattro. Broad distribution of XM Radio through the new automobile market is a central element in our business strategy.
We also continue to promote XM Radio actively in the automobile aftermarket. XM radios are available under the Sony, Alpine, Pioneer and Delphi brand names at national consumer electronics retailers, such as Circuit City, Best Buy, participating Radio Shack dealers and franchisees, and others. Our aftermarket distribution network also includes 2,100 Wal-Mart stores that sell the complete line of Delphi SKYFi radios. Delphi introduced the XM SKYFi, a plug-and-play device that offers an enhanced display and attractive pricing, in the fall of 2002. We consider the introduction of the SKYFi product a significant milestone, marking the launch of the second generation of XM radios at a lower cost to consumers than the first generation products, with an enhanced display and true portability from the car to home stereo systems to a boom box. At the 2003 Consumer Electronics Show, the SKYFi audio system was named a finalist for the Best of CES award.
We recently introduced the XM PCR, the first satellite radio receiver designed for personal computers. We believe the XM PCR, SKYFi and other plug and play devices will allow us to penetrate the home and portable radio market. After the retail aftermarket and factory-installed automobile market, this opening up of the home and portable radio market is the third major element of a marketing strategy to increase the availability of XM radio across new markets.
1
We believe, based on our experience in the marketplace, surveys, work with focus groups and market data, that there is a significant market for XM Radio. Over 75% of the entire United States population age 12 and older listens to the radio daily, and over 95% listens to the radio weekly. However, many radio listeners have access to only a limited number of radio stations and listening formats offered by traditional AM/FM radio.
We offer our consumers a unique listening experience by providing diverse programming, coast-to-coast coverage, a substantial number of commercial free channels and clear sound with our digital signals. Our 100 channels (plus one premium channel) include diverse programming designed to appeal to a large audience, and to specific groups that our research has shown are most likely to subscribe to our service, including urban and rural listeners of virtually all ages. Based on listener feedback after our first nine months of broadcasting, we updated our channel lineup and began offering our first premium channel, Playboy Radio. We have original music and talk channels created by our in-house programming unit as well as channels created by well-known providers of brand name programming, including MTV, VH1, ESPN Radio, Radio Disney, CNN, CNBC, Discovery, Fox News, E!, NASCAR, Radio One, Clear Channel, and Hispanic Broadcasting Corporation. We have a team of programming professionals with a successful record of introducing new radio formats and building local and national listenership.
In addition to our subscription fee, we generate revenues from sales of limited advertising time on a number of channels. XM Radio offers a new national radio platform for advertisers that solves many of the problems associated with buying radio advertising nationally on a spot or syndicated basis on traditional AM/FM radio. Through affinity and niche programming, we offer advertisers an effective way to aggregate geographically disparate groups of listeners in their targeted demographic markets. Advertisers on the XM network have included Warner Bros., JC Penney, U.S. Navy, Allstate and Pennzoil.
We transmit the XM Radio signal throughout the continental United States from our two satellites "XM Rock" and "XM Roll." We are planning to launch our spare satellite, presently being modified, in late 2004 as part of a plan to address a solar power anomaly in our existing satellites. We also have a network of approximately 800 terrestrial repeaters, which receive and re-transmit the satellite signals in 60 cities to augment our satellite signal coverage where it might otherwise be affected by buildings, tunnels or terrain. We hold one of only two licenses issued by the Federal Communications Commission to provide satellite digital audio radio service in the United States.
We have raised $2.1 billion of equity and debt net proceeds through June 30, 2003 from investors and strategic partners to fund our operations. This includes $179 million of net proceeds from the sale of 12% senior secured notes due 2010 in June 2003. This also includes $225 million of gross funds raised in the January 2003 financing transactions. The January 2003 financing transactions also included $250 million of payment deferrals and a line of credit from GM. During the six-month period ended June 30, 2003, we have raised $65.7 million through our Direct Stock Purchase Program and issued shares of Class A common stock to eliminate $92.7 million of indebtedness and $19.7 million in shares of Series B preferred stock. As of June 30, 2003, our strategic investors include General Motors, Hughes Electronics/DIRECTV, Clear Channel Communications and American Honda; our financial investors include Columbia Capital, Madison Dearborn Partners, AEA Investors, BayStar Capital and Eastbourne Capital.
So long as we meet the revenue, expense and cash flow projections of our refined business plan, we expect to be fully funded and will not need to raise additional financing to continue operations. Our business plan contemplates the use of either insurance proceeds and/or vendor financing to launch replacement satellite(s).
Our executive offices are at 1500 Eckington Place, N.E., Washington, D.C. 20002, and our telephone number is (202) 380-4000. We maintain an Internet site on the World Wide Web atwww.xmradio.com. Information at our website is not, and should not be deemed to be, part of this prospectus.
2
Our two in-orbit satellites, XM Rock and XM Roll, currently provide excellent performance but continue to experience progressive solar array power degradation consistent with that experienced by other Boeing 702 satellites in-orbit. There has been no meaningful change in the previously predicted rate of degradation.
We have now put in place firm contractual arrangements to launch our spare satellite (XM-3) during the fourth quarter of 2004 (while our two existing satellites are still performing above minimum acceptable levels), and for Boeing to construct a new ground spare (XM-4) to be completed by the fourth quarter of 2005. We have also entered into a contract with Sea Launch to provide an XM-4 launch, as needed in the future.
Under these contract arrangements, our major cash outlays to launch XM-3 will not arise until the fourth quarter of 2004 and those to construct XM-4 will not occur until the first quarter of 2005. We have recently raised sufficient funds to launch XM-3, but will need to obtain insurance reimbursement or other funds to complete construction of XM-4.
Currently, we have insurance claims in process relating to the power degradation trends experienced by our two in-orbit satellites. A group of our insurers recently denied these claims, asserting that the satellites are still performing above the insured levels and the power trend lines are not definitive; these insurers also allege that we failed to comply with certain policy provisions regarding material change and other matters. We will be responding to the insurers' position and will proceed to settlement discussions, arbitration or litigation (as needed) to recover the insured losses.
3
| The Exchange Offer | We are offering to exchange $1,000 principal amount of our 12% Senior Secured Notes due 2010 which have been registered under the Securities Act of 1933, and which we refer to as the "exchange notes," for each $1,000 principal amount of our outstanding unregistered 12% Senior Secured Notes due 2010 which were issued by us on June 17, 2003 in a private offering, and which we refer to as the "outstanding notes." We refer to the exchange notes and the outstanding notes together as the "notes." | |||
In order for your outstanding notes to be exchanged, you must properly tender them before the exchange offer expires. All outstanding notes that are validly tendered and not validly withdrawn will be exchanged. We will issue the exchange notes promptly after the exchange offer expires. | ||||
You may tender your outstanding notes for exchange in whole or in part in integral multiples of $1,000 principal amount. | ||||
Registration Rights Agreement | We sold the outstanding notes on June 17, 2003 to Bear, Stearns & Co. Inc., which we refer to as the "initial purchaser." Simultaneously with that sale we signed a registration rights agreement with the initial purchaser that requires us to conduct this exchange offer. | |||
After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your outstanding notes. | ||||
For a description of the procedures for tendering outstanding notes, see "The Exchange Offer—Procedures for Tendering Outstanding Notes." | ||||
Expiration Date | The exchange offer will expire at 5:00 p.m., New York City time, on September 25, 2003 unless extended by us, in which case the expiration date will mean the latest date and time to which the exchange offer is extended. See "The Exchange Offer—Expiration Date; Extensions; Amendments." | |||
4
Consequences of Failure to Exchange Your Outstanding Notes | If you do not exchange your outstanding notes for exchange notes in the exchange offer, you will continue to be subject to the restrictions on transfer provided in the outstanding notes and the indenture governing the notes. In general, the outstanding notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not plan to register the outstanding notes under the Securities Act. | |||
Conditions to the Exchange Offer | The exchange offer is subject to several customary conditions that we may waive at our sole discretion. All of these conditions, other than those dependent upon the receipt of necessary government approvals, must be asserted, satisfied or waived by us on or before the expiration of the exchange offer. The exchange offer is not conditioned upon any minimum aggregate principal amount at maturity of outstanding notes being tendered. See "The Exchange Offer—Conditions to the Exchange Offer." | |||
We reserve the right, in our sole and absolute discretion, subject to applicable law, at any time and from time to time: | ||||
• | to delay acceptance of the senior secured notes; | |||
• | to terminate the exchange offer if certain specified conditions have not been satisfied; | |||
• | to extend the expiration date of the exchange offer and retain all outstanding notes tendered pursuant to the exchange offer, subject, however, to the right of the holders of outstanding notes to withdraw their tendered outstanding notes; and | |||
• | to waive any condition dependent on the receipt of necessary governmental approvals or otherwise amend the terms of the exchange offer in any respect. | |||
See "The Exchange Offer—Expiration Date; Extensions; Amendments." | ||||
Withdrawal Rights | You may withdraw the tender of your outstanding notes at any time before the expiration date by delivering a written notice of your withdrawal to the exchange agent according to the withdrawal procedures described under the heading "The Exchange Offer—Withdrawal Rights." | |||
5
Procedures for Tendering Outstanding Notes | If you wish to tender your outstanding notes for exchange, you must: | |||
• | complete and sign a letter of transmittal according to the instructions contained in the Letter of Transmittal; and | |||
• | forward the Letter of Transmittal by mail, facsimile transmission or hand delivery, together with any other required documents, to the exchange agent, either with the outstanding notes that you tender or in compliance with the specified procedures for guaranteed delivery of your outstanding notes. | |||
Some brokers, dealers, commercial banks, trust companies and other nominees may also effect tenders by book-entry transfer. | ||||
Please do not send your Letter of Transmittal or certificates representing your outstanding notes to us. You should send those documents only to the exchange agent. You should direct any information requests or questions regarding how to tender your outstanding notes to the exchange agent. See "The Exchange Offer—Exchange Agent." | ||||
Special Procedures for Beneficial Owners | If your outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, we urge you to contact such person promptly if you wish to tender your outstanding notes pursuant to the exchange offer. See "The Exchange Offer—Procedures for Tendering Outstanding Notes." | |||
Resales of Exchange Notes | We believe that with the effectiveness of the registration statement of which this prospectus is a part you will be able to offer for resale, resell and otherwise transfer exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that: | |||
• | you are acquiring the exchange notes in the ordinary course of your business; | |||
• | you are not participating, and have no arrangement or understanding with any person to participate, in the distribution of the exchange notes; and | |||
• | you are not an "affiliate" of Holdings or XM within the meaning of Rule 405 under the Securities Act. | |||
6
Our belief is based on the interpretations by the Staff of the SEC, as set forth in no-action letters issued to third parties unrelated to us. The Staff of the SEC has not considered the exchange offer in the context of a no-action letter, and we cannot assure you that the Staff of the SEC would make a similar determination with respect to this exchange offer. | ||||
If our belief is not accurate and you transfer an exchange note without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from such requirements, you may incur liability under the Securities Act. We do not and will not assume or indemnify you against such liability. | ||||
Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes which were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of these exchange notes. A broker-dealer may use this prospectus for an offer to sell, resale or other transfer of exchange notes. See "Plan of Distribution." | ||||
Exchange Agent | The exchange agent for the exchange offer is The Bank of New York. The address, telephone number and facsimile number of the exchange agent are set forth in "The Exchange Offer—Exchange Agent" and in the Letter of Transmittal. | |||
Use of Proceeds | We will not receive any cash proceeds from the issuance of the exchange notes offered by this prospectus. The net proceeds from the offering of the outstanding notes have been and will be used to further develop the satellite and terrestrial repeater systems and for general corporate purposes. See "Use of Proceeds." | |||
United States Federal Income Tax Consequences | Your acceptance of the exchange offer and the related exchange of your outstanding notes for exchange notes will not be a taxable exchange for United States federal income tax purposes. You should not recognize any taxable gain or loss or any interest income as a result of the exchange. See "The Exchange Offer—United States Federal Income Tax Consequences." | |||
See "The Exchange Offer" for more detailed information concerning the terms of the exchange offer.
7
The exchange offer relates to the exchange of up to $185,000,000 principal amount of outstanding notes for an equal principal amount of exchange notes. The form and terms of the exchange notes are substantially identical to the form and terms of the outstanding notes, except the exchange notes are registered under the Securities Act and therefore are freely transferable. The exchange notes will evidence the same debt as the outstanding notes, which they replace. Both the outstanding notes and the exchange notes are governed by the same indenture.
| Issuer | XM Satellite Radio Inc. | |||
Notes Offered | $185,000,000 in aggregate principal amount of 12% Senior Secured Notes due 2010. | |||
Maturity Date | June 15, 2010 | |||
Interest | The exchange notes will bear interest at the rate of 12% per year. Interest on the exchange notes will be paid semi-annually in cash in arrears on December 15 and June 15 of each year, commencing December 15, 2003. | |||
Parent Guarantor | XM Satellite Radio Holdings Inc. | |||
Parent Guaranty | XM Satellite Radio Holdings Inc. will guarantee XM's obligations under the notes, including the payment of principal and interest. | |||
Security | Except for certain excluded assets and real property, the notes will be secured with a first priority security interest in substantially all of XM's assets, including the stock of XM's FCC license subsidiary, subject to certain permitted liens. Pursuant to intercreditor agreements, the same collateral will also secure on an equal and ratable basis $569.3 million of XM's indebtedness and certain future indebtedness, and in the case of the security interests in the stock of XM's FCC license subsidiary, all such indebtedness and $22.8 million of additional indebtedness. | |||
Redemption | XM may redeem the notes, in whole or in part, at any time on or after June 15, 2007, at the declining redemption prices set forth in this prospectus plus accrued interest. | |||
At any time prior to June 15, 2006, XM may redeem a portion of the notes with the proceeds of certain equity offerings as long as least $100 million aggregate principal amount of notes remains outstanding after the redemption. | ||||
8
Change of Control | Upon certain change of control events, if XM does not redeem the notes, each holder of notes may require XM to repurchase all or a portion of its notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest. XM cannot assure you that it will have the financial resources to repurchase the notes. See "Description of Exchange Notes." | |||
Ranking | The notes will be XM's senior secured obligations. The notes will rank equal in right of payment with all of XM's other existing and future senior indebtedness and senior in right of payment to all of XM's existing and future subordinated indebtedness. The notes will be equal in right of payment to approximately $592 million of other indebtedness. Your security interest in certain items of the collateral will not be perfected. The notes will not be secured by assets held by subsidiaries of Holdings or XM, and will not have the benefit of guarantees from any such subsidiaries. | |||
Certain Covenants | The indenture governing the notes contains covenants that, among other things, will limit XM's ability and the ability of certain of XM's subsidiaries to: | |||
• | incur additional indebtedness; | |||
• | pay dividends on, redeem or repurchase XM's capital stock; | |||
• | make investments; | |||
• | engage in transactions with affiliates; | |||
• | create certain liens; or | |||
• | consolidate, merge or transfer all or substantially all of XM's assets and the assets of XM's subsidiaries on a consolidated basis. | |||
These covenants are subject to important exceptions and qualifications, which are described under "Description of Exchange Notes." | ||||
For more complete information on the notes, please see the section titled "Description of Exchange Notes" in this prospectus.
You should carefully consider the information under the caption "Risk Factors" in this prospectus before investing in the securities.
9
Summary Consolidated Financial Data
XM Satellite Radio Holdings Inc. and Subsidiaries
The as adjusted information in the following consolidated balance sheets table gives effect to the following as if it had occurred on June 30, 2003:
10
| | Years Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | 2003 | 2002 | ||||||||||||||||||
| | | | | | | (unaudited) | |||||||||||||||||||
| | (In thousands, except subscriber and share amounts) | ||||||||||||||||||||||||
| Consolidated Statements of Operations Data: | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||
| Subscriber revenue(1) | $ | 16,828 | $ | 246 | $ | — | $ | — | $ | — | $ | 28,396 | $ | 4,340 | |||||||||||
| Equipment revenue(1) | 757 | — | — | — | — | 1,609 | — | ||||||||||||||||||
| Net ad sales revenue | 2,333 | 251 | — | — | — | 1,047 | 1,088 | ||||||||||||||||||
| Royalties & other | 263 | 36 | — | — | — | 321 | 196 | ||||||||||||||||||
| Total revenue | 20,181 | 533 | — | — | — | 31,373 | 5,624 | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Cost of revenue (excludes depreciation & amortization, shown below): | |||||||||||||||||||||||||
| Revenue share & royalties(1) | 12,790 | 1,730 | — | — | — | 9,479 | 1,445 | ||||||||||||||||||
| Cost of equipment | 1,679 | — | — | — | — | 2,968 | — | ||||||||||||||||||
| Ad sales(1) | 1,870 | 2,243 | 1,232 | 356 | 369 | 998 | 557 | ||||||||||||||||||
| Customer care & billing operations | 16,070 | 5,724 | 699 | — | — | 10,635 | 6,434 | ||||||||||||||||||
| Satellite & terrestrial | 44,818 | 62,641 | 8,104 | 1,536 | 203 | 22,572 | 22,666 | ||||||||||||||||||
| Broadcast & operations | 19,851 | 21,041 | 19,570 | 5,449 | 1,782 | 10,441 | 8,633 | ||||||||||||||||||
| Programming content | 25,379 | 17,649 | 4,025 | 965 | 642 | 10,048 | 13,497 | ||||||||||||||||||
| Cost of revenue | 122,457 | 111,028 | 33,630 | 8,306 | 2,996 | 67,141 | 53,232 | ||||||||||||||||||
| Research & development (excludes depreciation & amortization, shown below) | 10,843 | 13,689 | 11,948 | 6,510 | 7,311 | 5,386 | 4,735 | ||||||||||||||||||
| General & administrative (excludes depreciation & amortization, shown below) | 26,448 | 21,168 | 17,312 | 11,534 | 4,869 | 14,572 | 10,928 | ||||||||||||||||||
| Marketing (excludes depreciation & amortization, shown below)(1) | 169,164 | 93,594 | 13,016 | 2,829 | 960 | 88,326 | 91,948 | ||||||||||||||||||
| Impairment of goodwill | 11,461 | — | — | — | — | — | — | ||||||||||||||||||
| Depreciation & amortization | 118,588 | 42,660 | 3,573 | 1,512 | 57 | 79,548 | 47,011 | ||||||||||||||||||
| Total operating expenses | 458,961 | 282,139 | 79,479 | 30,691 | 16,193 | 254,973 | 207,854 | ||||||||||||||||||
| Operating Loss | (438,780 | ) | (281,606 | ) | (79,479 | ) | (30,691 | ) | (16,193 | ) | (223,600 | ) | (202,230 | ) | |||||||||||
| Other income (expense) | |||||||||||||||||||||||||
| Interest income | $ | 5,111 | $ | 15,198 | $ | 27,606 | $ | 2,915 | $ | 26 | $ | 1,125 | $ | 3,284 | |||||||||||
| Interest expense | (63,573 | ) | (18,131 | ) | — | (9,120 | ) | — | (50,688 | ) | (31,630 | ) | |||||||||||||
| Other income (expense) | 2,230 | 160 | — | — | — | (14,975 | ) | 1,121 | |||||||||||||||||
| Net loss | (495,012 | ) | (284,379 | ) | (51,873 | ) | (36,896 | ) | (16,167 | ) | (288,138 | ) | (229,455 | ) | |||||||||||
| 8.25% Series B preferred stock dividend requirement | (3,766 | ) | (3,766 | ) | (5,935 | ) | — | — | (1,441 | ) | (1,883 | ) | |||||||||||||
| 8.25% Series C preferred stock dividend requirement | (17,093 | ) | (19,387 | ) | (9,277 | ) | — | — | (8,250 | ) | (8,823 | ) | |||||||||||||
| Series B preferred stock (deemed dividend)/conversion gain | — | — | (11,211 | ) | — | — | 9,488 | — | |||||||||||||||||
| Series C preferred stock beneficial conversion feature | — | — | (123,042 | ) | — | — | — | — | |||||||||||||||||
| Net loss attributable to common stockholders | $ | (515,871 | ) | $ | (307,532 | ) | $ | (201,338 | ) | $ | (36,896 | ) | $ | (16,167 | ) | $ | (288,341 | ) | $ | (240,161 | ) | ||||
| Net loss per share: | |||||||||||||||||||||||||
| Basic and diluted | $ | (5.95 | ) | $ | (5.13 | ) | $ | (4.15 | ) | $ | (2.40 | ) | $ | (2.42 | ) | $ | (2.64 | ) | $ | (2.93 | ) | ||||
| Weighted average shares used in computing net loss per share — basic and diluted | 86,735,257 | 59,920,196 | 48,508,042 | 15,344,102 | 6,689,250 | 109,097,888 | 81,998,663 | ||||||||||||||||||
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Other data(2) | |||||||||||||||||||||||||
| Ratio of earnings to fixed charges (3) | — | — | — | — | — | — | — | ||||||||||||||||||
| Deficiency of earnings to cover fixed charges | $ | 485,876 | $ | 322,702 | $ | 90,925 | $ | 52,717 | $ | 29,312 | $ | 282,609 | $ | 225,022 | |||||||||||
| Pro forma deficiency of earnings to cover fixed charges(4) | $ | 508,976 | $ | 293,197 | |||||||||||||||||||||
| EBITDA(5) | $ | (317,962 | ) | $ | (238,786 | ) | $ | (75,906 | ) | $ | (29,179 | ) | $ | (16,136 | ) | $ | (159,027 | ) | $ | (154,098 | ) | ||||
| Cash flow from operating activities | (294,289 | ) | (203,048 | ) | (37,447 | ) | (16,785 | ) | (1,301 | ) | (149,451 | ) | (174,781 | ) | |||||||||||
| Cash flow from investing activities | (7,036 | ) | (221,361 | ) | (559,401 | ) | (234,412 | ) | (43,912 | ) | 24,177 | (63,367 | ) | ||||||||||||
| Cash flow from financing activities | 151,646 | 382,003 | 771,053 | 301,585 | 45,522 | 438,324 | 157,064 | ||||||||||||||||||
| XM subscriptions (end of period)(6) | 347,159 | 27,733 | — | — | — | 692,253 | 136,718 | ||||||||||||||||||
| | December 31, | June 30, 2003 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | As Adjusted | |||||||||||||||||||
| | 2002 | 2001 | 2000 | 1999 | 1998 | Actual | |||||||||||||||
| | | | | | | (unaudited) | | ||||||||||||||
| | (In thousands) | ||||||||||||||||||||
| Consolidated Balance Sheets Data: | |||||||||||||||||||||
| Cash, cash equivalents and short-term investments | $ | 42,815 | $ | 210,852 | $ | 224,903 | $ | 120,170 | $ | 310 | $ | 345,868 | $ | 355,568 | |||||||
| Restricted investments | 29,742 | 72,759 | 161,166 | — | — | 8,588 | 8,588 | ||||||||||||||
| System under construction. | 55,016 | 55,056 | 674,796 | 229,940 | 78,998 | 56,016 | 56,016 | ||||||||||||||
| Property and equipment, net | 847,936 | 922,149 | 50,052 | 2,551 | 1,146 | 773,145 | 773,145 | ||||||||||||||
| Goodwill, net | — | 11,461 | 12,376 | 13,294 | — | — | — | ||||||||||||||
| DARS license and other intangibles, net | 153,732 | 155,207 | 151,845 | 144,504 | 90,031 | 150,265 | 150,265 | ||||||||||||||
| Total assets | 1,160,280 | 1,456,203 | 1,293,218 | 515,189 | 170,485 | 1,493,142 | 1,503,142 | ||||||||||||||
| Total long-term debt, net of current portion | 412,540 | 411,520 | 262,665 | 212 | 140,332 | 731,492 | 741,492 | ||||||||||||||
| Total liabilities. | 567,969 | 529,552 | 337,266 | 30,172 | 177,668 | 873,961 | 883,961 | ||||||||||||||
| Stockholders' equity (deficit) | 592,311 | 926,651 | 955,952 | 485,017 | (7,183 | ) | 619,181 | 619,181 | |||||||||||||
12
accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance.
| | Years Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | 2003 | 2002 | ||||||||||||||||
| | (In thousands) | ||||||||||||||||||||||
| Reconciliation of Net Loss to EBITDA: | |||||||||||||||||||||||
| Net loss as reported | $ | (495,012 | ) | $ | (284,379 | ) | $ | (51,873 | ) | $ | (36,896 | ) | $ | (16,167 | ) | $ | (288,138 | ) | $ | (229,455 | ) | ||
| Add back non-EBITDA items included in net loss: | |||||||||||||||||||||||
| Interest income | (5,111 | ) | (15,198 | ) | (27,606 | ) | (2,915 | ) | (26 | ) | (1,125 | ) | (3,284 | ) | |||||||||
| Interest expense | 63,573 | 18,131 | — | 9,120 | — | 50,688 | 31,630 | ||||||||||||||||
| Depreciation & amortization | 118,588 | 42,660 | 3,573 | 1,512 | 57 | 79,548 | 47,011 | ||||||||||||||||
| EBITDA | $ | (317,962 | ) | $ | (238,786 | ) | $ | (75,906 | ) | $ | (29,179 | ) | $ | (16,136 | ) | $ | (159,027 | ) | $ | (154,098 | ) | ||
XM Satellite Radio Inc. and Subsidiaries
The as adjusted information in the following consolidated balance sheets table gives effect to the following as if it had occurred on June 30, 2003:
The principal differences between the financial condition of Holdings and XM, which are not significant in amount, are:
Accordingly, the results of operations for XM and its subsidiaries are substantially the same as the results for Holdings and its subsidiaries discussed above except that XM incurs:
13
| | Years Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | 2003 | 2002 | ||||||||||||||||||
| | | | | | | (unaudited) | |||||||||||||||||||
| | (In thousands, except subscriber amounts) | ||||||||||||||||||||||||
| Consolidated Statements of Operations Data: | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||
| Subscriber revenue(1) | $ | 16,828 | $ | 246 | $ | — | $ | — | $ | — | $ | 28,396 | $ | 4,340 | |||||||||||
| Equipment revenue(1) | 757 | — | — | — | — | 1,609 | — | ||||||||||||||||||
| Net ad sales revenue | 2,333 | 251 | — | — | — | 1,047 | 1,088 | ||||||||||||||||||
| Royalties & other | 263 | 36 | — | — | — | 321 | 196 | ||||||||||||||||||
| Total revenue | 20,181 | 533 | — | — | — | 31,373 | 5,624 | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Cost of revenue (excludes depreciation & amortization, shown below): | |||||||||||||||||||||||||
| Revenue share & royalties(1) | 12,790 | 1,730 | — | — | — | 9,479 | 1,445 | ||||||||||||||||||
| Cost of equipment | 1,679 | — | — | — | — | 2,968 | — | ||||||||||||||||||
| Ad sales(1) | 1,870 | 2,243 | 1,232 | 356 | 369 | 998 | 557 | ||||||||||||||||||
| Customer care & billing | 16,070 | 5,724 | 699 | — | — | 10,635 | 6,434 | ||||||||||||||||||
| Satellite & terrestrial | 44,818 | 62,641 | 8,104 | 1,536 | 203 | 22,572 | 22,666 | ||||||||||||||||||
| Broadcast & operations | 23,950 | 22,488 | 19,570 | 5,449 | 1,782 | 12,395 | 10,813 | ||||||||||||||||||
| Programming content | 25,379 | 17,649 | 4,025 | 965 | 642 | 10,048 | 13,497 | ||||||||||||||||||
| Cost of revenue | 126,556 | 112,475 | 33,630 | 8,306 | 2,996 | 69,095 | 55,412 | ||||||||||||||||||
| Research & development (excludes depreciation & amortization, shown below) | 10,843 | 13,689 | 11,948 | 6,510 | 7,311 | 5,386 | 4,735 | ||||||||||||||||||
| General & administrative (excludes depreciation & amortization, shown below) | 27,777 | 20,908 | 16,960 | 11,513 | 4,869 | 15,082 | 11,706 | ||||||||||||||||||
| Marketing (excludes depreciation & amortization, shown below)(1) | 169,164 | 93,594 | 13,016 | 2,829 | 960 | 88,326 | 91,948 | ||||||||||||||||||
| Impairment of goodwill | 11,461 | — | — | — | — | — | — | ||||||||||||||||||
| Depreciation & amortization | 117,202 | 42,180 | 3,573 | 1,512 | 57 | 78,854 | 46,318 | ||||||||||||||||||
| Total operating expenses | 463,003 | 282,846 | 79,127 | 30,670 | 16,193 | 256,743 | 210,119 | ||||||||||||||||||
| Operating Loss | (442,822 | ) | (282,313 | ) | (79,127 | ) | (30,670 | ) | (16,193 | ) | (225,370 | ) | (204,495 | ) | |||||||||||
| Other income (expense) | |||||||||||||||||||||||||
| Interest income | $ | 2,621 | $ | 14,102 | $ | 27,200 | $ | 533 | $ | 26 | $ | 130 | $ | 1,679 | |||||||||||
| Interest expense | (52,037 | ) | (15,157 | ) | — | (43 | ) | — | (45,985 | ) | (25,804 | ) | |||||||||||||
| Other income (expense) | 653 | (607 | ) | — | — | — | (21,507 | ) | 333 | ||||||||||||||||
| Net loss | $ | (491,585 | ) | $ | (283,975 | ) | $ | (51,927 | ) | $ | (30,180 | ) | $ | (16,167 | ) | $ | (292,732 | ) | $ | (228,287 | ) | ||||
| Other data(2) | |||||||||||||||||||||||||
| Ratio of earnings to fixed charges (3) | — | — | — | — | — | — | — | ||||||||||||||||||
| Deficiency of earnings to cover fixed charges | $ | 482,449 | $ | 313,240 | $ | 90,979 | $ | 45,342 | $ | 27,991 | $ | 287,202 | $ | 223,854 | |||||||||||
| Pro forma deficiency of earnings to cover fixed charges(4) | $ | 505,549 | $ | 297,790 | |||||||||||||||||||||
| EBITDA(5) | $ | (324,967 | ) | $ | (240,740 | ) | $ | (75,554 | ) | $ | (29,158 | ) | $ | (16,136 | ) | $ | (168,023 | ) | $ | (157,844 | ) | ||||
| Cash flow from operating activities | (288,042 | ) | (209,690 | ) | (37,516 | ) | (18,186 | ) | (9,365 | ) | (148,864 | ) | (160,739 | ) | |||||||||||
| Cash flow from investing activities | (14,094 | ) | (127,017 | ) | (559,401 | ) | (234,412 | ) | (43,912 | ) | 14,264 | 15,886 | |||||||||||||
| Cash flow from financing activities | 246,494 | 195,884 | 750,478 | 301,918 | 53,586 | 285,815 | 114,257 | ||||||||||||||||||
| XM subscriptions (end of period)(6) | 347,159 | 27,733 | — | — | — | 692,253 | 136,718 | ||||||||||||||||||
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| | December 31, | June 30, 2003 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | As adjusted | |||||||||||||||||||
| | 2002 | 2001 | 2000 | 1999 | 1998 | Actual | |||||||||||||||
| | | | | | | (unaudited) | | ||||||||||||||
| | (In thousands) | ||||||||||||||||||||
| Consolidated Balance Sheets Data: | |||||||||||||||||||||
| Cash, cash equivalents and short-term investments | $ | 6,726 | $ | 72,664 | $ | 203,191 | $ | 119,102 | $ | 310 | $ | 157,941 | $ | 167,641 | |||||||
| Restricted investments | 26,687 | 70,734 | 161,166 | — | — | 5,462 | 5,462 | ||||||||||||||
| System under construction. | 18,558 | 18,597 | 645,939 | 201,082 | 65,303 | 19,558 | 19,558 | ||||||||||||||
| Property and equipment, net | 814,966 | 887,768 | 50,052 | 2,551 | 1,146 | 740,854 | 740,854 | ||||||||||||||
| Goodwill, net | — | 11,461 | 12,376 | 13,294 | — | — | — | ||||||||||||||
| DARS license and other intangibles, net | 153,732 | 155,207 | 151,845 | 144,504 | 90,031 | 150,265 | 150,265 | ||||||||||||||
| Total assets | 1,044,347 | 1,241,362 | 1,242,517 | 485,134 | 156,397 | 1,332,023 | 1,342,023 | ||||||||||||||
| Total long-term debt, net of current portion | 270,347 | 268,934 | 262,665 | 212 | 87 | 610,408 | 620,408 | ||||||||||||||
| Total liabilities. | 429,821 | 385,908 | 337,107 | 30,030 | 28,941 | 756,964 | 766,964 | ||||||||||||||
| Stockholder's equity | 614,526 | 855,454 | 905,410 | 455,104 | 127,456 | 575,059 | 575,059 | ||||||||||||||
| | Years Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | 2003 | 2002 | ||||||||||||||||
| | (In thousands) | ||||||||||||||||||||||
| Reconciliation of Net Loss to EBITDA: | |||||||||||||||||||||||
| Net loss as reported | $ | (491,585 | ) | $ | (283,975 | ) | $ | (51,927 | ) | $ | (30,180 | ) | $ | (16,167 | ) | $ | (292,732 | ) | $ | (228,287 | ) | ||
| Add back non-EBITDA items included in net loss: | |||||||||||||||||||||||
| Interest income | (2,621 | ) | (14,102 | ) | (27,200 | ) | (533 | ) | (26 | ) | (130 | ) | (1,679 | ) | |||||||||
| Interest expense | 52,037 | 15,157 | — | 43 | — | 45,985 | 25,804 | ||||||||||||||||
| Depreciation & amortization | 117,202 | 42,180 | 3,573 | 1,512 | 57 | 78,854 | 46,318 | ||||||||||||||||
| EBITDA | $ | (324,967 | ) | $ | (240,740 | ) | $ | (75,554 | ) | $ | (29,158 | ) | $ | (16,136 | ) | $ | (168,023 | ) | $ | (157,844 | ) | ||
15
You should consider carefully these risk factors together with all of the other information included in this prospectus before deciding whether to tender your outstanding notes for exchange notes. In addition, you should refer to Holdings' Current Report on Form 8-K, filed with the SEC on June 3, 2003, which is incorporated by reference into this prospectus, for a complete discussion of the risks related to our business.
Risk Factors Relating to the Exchange Notes
We are not yet generating sufficient cash flow from operations to meet our obligations on the notes.
Our business has not yet begun to generate positive cash flow, and we will be obligated to make cash interest payments on the notes beginning on December 15, 2003. In order to make payments on the notes, we will need to increase our cash flows. There can be no assurance that our future cash flows will be sufficient to make payments of interest or principal on the notes.
The security for your notes and other remedies will be shared with other debtholders.
The grant of security interests by XM for the benefit of the note holders will be on a shared basis with approximately $569.3 million (as of June 30, 2003) of existing indebtedness and certain additional future indebtedness and, in the case of the security interest granted in the stock of our FCC license subsidiary, on a shared basis with all such indebtedness as well as with $22.8 million (as of June 30, 2003) of 14% senior secured notes due 2010. In addition, as a result of intercreditor agreements, it will not be possible to exercise remedies against the collateral unless the holders of a majority of the indebtedness secured by such collateral direct the collateral agent to do so. As the indebtedness under the notes will not constitute a majority of the indebtedness secured by the collateral, your remedies in an event of default may be significantly limited if the holders of other classes of notes do not wish to exercise remedies. In addition, in the event that the collateral is liquidated, the intercreditor agreements will require that all proceeds be distributed on a pro rata basis to the holders of the indebtedness secured by such collateral. Consequently, it is unlikely that the liquidation of the collateral securing the notes would produce proceeds in an amount sufficient to pay in full the principal of, or premium, if any, and accrued interest on your notes and the other indebtedness secured by the collateral.
Your security interest in certain items of the collateral will not be perfected.
Provisions in contracts to which we or our subsidiaries are parties may prohibit us or our subsidiaries from granting security interests in certain assets. In addition, the security interests granted in our intellectual property license agreements may require consent from the licensors thereunder. Similarly, prior approval of the FCC will be required in order for any remedies to be exercised against our assets that would constitute or result in any assignment of XM's FCC license or any change of control of XM. We do not intend to obtain such consents and our failure to do so will limit the assets included in the collateral and may block the exercise of remedies with respect to certain assets. In addition, certain of our assets and the assets of our subsidiaries may be subject to existing security interests or become subject to certain liens that may take priority over the liens granted to you.
The security interests will not be perfected with respect to items of collateral that cannot be perfected by the filing of financing statements in each debtor's jurisdiction of organization, the delivery of possession of certificated capital stock of our subsidiary or the filing of an assignment with the United States Patent and Trademark Office or the United States Copyright Office. Security interests in collateral such as satellites in orbit, deposit accounts and securities accounts, which require additional special filings or the obtaining of additional consents, will not be perfected. To the extent that your security interests in any items of collateral are unperfected, your rights with respect to such collateral will be equal to the rights of our general unsecured creditors in the event of a bankruptcy.
16
The guarantor of the notes will not be subject to restrictive covenants.
The notes will be guaranteed by Holdings, which is XM's parent company. The restrictive covenants contained in the indenture governing the notes apply only to XM and its subsidiaries, not to Holdings. As a result, Holdings could take actions, such as using cash for purposes unrelated to debt service, that may not be consistent with your best interests.
The notes are not secured by assets of subsidiaries.
The notes will not have the benefit of any security interest in the assets of subsidiaries of XM or Holdings (other than XM). In addition, the notes will not have the benefit of any guarantees from those subsidiaries. Although future transfers of assets to one subsidiary, XM Equipment Leasing LLC, are generally prohibited by the indenture, much of XM's repeater equipment is already held by this subsidiary. At June 30, 2003, XM Equipment Leasing LLC had $98.1 million of assets and was a guarantor of $569.3 million of indebtedness of Holdings and XM. In the event of a bankruptcy, these other creditors will be able to realize XM Equipment Leasing LLC's assets before holders of the notes.
We may not have the ability to fund a change of control offer if required by the indenture.
Upon a change of control, we will be required to offer to repurchase all outstanding notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase, and may also be required to repurchase certain of our other indebtedness. However, we cannot assure you that we will have sufficient funds at the time of such event to make any required repurchase of the notes or any such other indebtedness.
The change of control provisions contained in the indenture may not protect holders of notes in the event of certain highly leveraged transactions including certain reorganizations, restructurings or mergers, because these transactions may not involve a change in voting power or beneficial interest of the magnitude required to trigger the change of control provisions.
There is no prior market for the notes and you cannot be sure that an active trading market will develop for them.
Prior to this exchange offer, there has been no trading market for the exchange notes. We have been advised by the initial purchaser that it currently intends to make a market in the notes. However, the initial purchaser is not obligated to do so. Any market-making may be discontinued at any time, and we cannot assure you that an active trading market for the notes will develop or, if a trading market develops, that it will continue. Further, the liquidity of and trading market for the notes may be adversely affected by declines and volatility in the market for high yield securities generally. The liquidity of and trading market for the notes also may be adversely affected by any changes in our financial performance or prospects or in the prospects for the companies in our industry. We expect that the notes will be eligible for trading in the PORTAL™ market. We do not intend to list the notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System.
Holders of outstanding notes who fail to tender may experience diminished liquidity after the exchange offer.
We have not registered nor do we intend to register the outstanding notes under the Securities Act. Consequently, outstanding notes that remain outstanding after consummation of the exchange offer will remain subject to transfer restrictions under applicable securities laws. Unexchanged outstanding notes will continue to bear a legend reflecting these restrictions on transfer. Furthermore, we have not conditioned the exchange offer on receipt of any minimum or maximum principal amount of outstanding notes. As outstanding notes are tendered and accepted in the exchange offer, the principal amount of remaining outstanding notes will decrease. This decrease will reduce the liquidity
17
of the trading market for the outstanding notes, which will make it more difficult for you to sell them. We cannot assure you of the liquidity, or even the continuation, of the trading market for the outstanding notes following the exchange offer.
Holders of outstanding notes must ensure compliance with exchange offer procedures.
You are responsible for complying with all exchange offer procedures. You will receive exchange notes in exchange for your outstanding notes only if, before the expiration date, you deliver the following to the exchange agent:
You should allow sufficient time to ensure that the exchange agent receives all required documents before the exchange offer expires. Neither we nor the exchange agent has any duty to inform you of defects or irregularities with respect to the tender of your outstanding notes for exchange. See "The Exchange Offer."
Risk Factors Related to Recent Developments
Premature degradation or failure of our satellites could damage our business.
If one of our satellites were to fail or suffer performance degradation prematurely and unexpectedly, it likely would affect the quality of our service, interrupt the continuation of our service and harm our business. This harm to our business would continue until we either launched our ground spare satellite or had additional satellites built or launched. In September 2001, Boeing Satellite Systems (BSS) advised us of a progressive degradation problem with the solar array output power of Boeing 702 class satellites, including both XM Rock and XM Roll. Since the issue is common to Boeing 702 class satellites, we and the manufacturer are closely watching the progression of the problem, including data from a satellite that has been in orbit longer than either of our two satellites by approximately 15 and 17 months, respectively. With this advance visibility of performance levels, a spare satellite under construction that is being modified to address the solar power anomaly, the ability to provide full service for some period of time with XM Rock and XM Roll collocated in one orbit slot and the spare located in the other slot (which would allow partial use of the satellites through the first quarter of 2008), our arrangements to construct a new ground spare, and various mitigation actions to extend the full or partial use of the satellites, we believe that we will be able to launch additional satellites prior to the time the solar power problem might cause the broadcast signal strength to fall below minimum acceptable levels. Based on the consistency of the degradation trends (with no substantial improvement to date) and continuing analyses by BSS and us, our management adjusted the estimated useful lives of our in-orbit satellites, with effect from September 2002, to the period running through first quarter 2008 (approximately 6.75 years from launch). There is no assurance that such actions will allow us to maintain adequate broadcast signal strength. Our management will continue to monitor this situation carefully and may re-adjust the estimated useful lives of our in-orbit satellites based on future information.
A number of other factors could decrease the useful lives of our satellites, including:
18
In addition, our network of terrestrial repeaters communicates principally with one satellite. If the satellite communicating with the repeater network fails unexpectedly, we would have to repoint all the repeaters to communicate with the other satellite. This would result in a degradation of service that could last several days and could harm our business.
Losses from satellite degradation may not be fully covered by insurance, and insurance proceeds may not be available in a timely manner.
We purchased launch and in-orbit insurance policies from global space insurance underwriters covering XM Rock and XM Roll. Due to the solar array degradation, we have filed a claim for the aggregate sum insured on both satellites ($200 million per satellite) less applicable salvage under our insurance policies. In July 2003, a group of our insurance carriers denied our claim and asserted that XM Rock and XM Roll are still performing above insured levels, the power trend lines are not definitive and that we failed to comply with certain policy provisions regarding material change and other matters. We have announced that we will respond to the insurance carriers' position and proceed to settlement discussions, arbitration or litigation, as needed, to recover our insured losses, but we may not prevail in this matter or recover the amounts we are seeking from the insurers.
In addition, any amounts we recover from our insurance may not fully cover our losses. For example, our insurance does not cover the full cost of constructing, launching and insuring two new satellites, nor will it cover and we do not have protection against business interruption, loss of business or similar losses. Also, our insurance contains customary exclusions, salvage value provisions, material change and other conditions that could limit our recovery.
Further, any insurance proceeds may not be received on a timely basis in order to launch our spare satellite or construct and launch a replacement satellite. Although we have funds available for the launch of our spare satellite, if adequate insurance proceeds are not received in a timely manner we will need additional funds for the new ground spare satellite (XM-4). This may impair our ability to make timely payments on our outstanding notes and other financial obligations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in it, as well as any prospectus supplement that accompanies it, include "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy and our financing plans are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect" or "intend." These statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Although we believe that our expectations in such forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. Important factors that could cause our actual results to be materially different from our expectations include those disclosed in this prospectus under the caption "Risk Factors," and elsewhere throughout this prospectus.
By its terms, the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995 is not available in the context of an exchange offer. Accordingly, any references to the safe harbor in the documents incorporated by reference into this prospectus are specifically not incorporated into this prospectus.
19
Purpose and Effect of the Exchange Offer
In connection with the sale of the outstanding notes, we entered into a registration rights agreement with the initial purchaser by which we agreed to file with the SEC and to use our reasonable best efforts to cause to become effective as promptly as practicable after filing a registration statement with respect to the exchange of the outstanding notes for exchange notes with terms identical in all material respects to the terms of the outstanding notes. A copy of the registration rights agreement is an exhibit to the registration statement of which this prospectus is a part. We are making the exchange offer to satisfy our contractual obligations under the registration rights agreement.
If you tender your outstanding notes in exchange for exchange notes you will represent to us that:
You also will warrant and agree that you will, upon request, execute and deliver any additional documents deemed by us or the exchange agent to be necessary or desirable to complete the exchange, sale, assignment, and transfer of the outstanding notes you tender in the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes in the exchange offer, where such outstanding notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution."
The exchange offer is not being made to, nor will we accept tenders for exchange from, holders of outstanding notes in any jurisdiction in which the exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the exchange offer means any person in whose name the outstanding notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder, or any participant in DTC whose name appears on a security position listing as a holder of outstanding notes, which, for purposes of the exchange offer, include beneficial interests in the outstanding notes held by direct or indirect participants in DTC and outstanding notes held in definitive form.
Terms of the Exchange Offer
We hereby offer, upon the terms and subject to the conditions set forth in this prospectus and in the accompanying Letter of Transmittal, to exchange $1,000 principal amount of exchange notes for each $1,000 principal amount of outstanding notes properly tendered prior to the expiration date and not properly withdrawn according to the procedures described below. Holders may tender their outstanding notes in whole or in part in integral multiples of $1,000 principal amount.
20
The form and terms of the exchange notes are the same as the form and terms of the outstanding notes except that:
The exchange notes evidence the same indebtedness as the outstanding notes, which they replace, and will be issued pursuant to, and entitled to the benefits of, the indenture.
The exchange offer is not conditioned upon any minimum principal amount of outstanding notes being tendered for exchange. We reserve the right in our sole discretion to purchase or make offers for any outstanding notes that remain outstanding after the expiration date or, as set forth under "—Conditions to the Exchange Offer," to terminate the exchange offer and, to the extent permitted by applicable law, purchase outstanding notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the exchange offer. As of the date of this prospectus, $185,000,000 principal amount of outstanding notes is outstanding.
Holders of outstanding notes do not have any appraisal or dissenters' rights in connection with the exchange offer. Outstanding notes that are not tendered for, or are tendered but not accepted in connection with, the exchange offer will remain outstanding. For a description of the consequences of not tendering outstanding notes for exchange see "Risk Factors—Risks Relating to the Exchange Notes—Holders of outstanding notes who fail to tender may experience diminished liquidity after the exchange offer."
If any tendered outstanding notes are not accepted for exchange because of an invalid tender, the occurrence of other events set forth in this prospectus or otherwise, certificates for the unaccepted outstanding notes will be returned, without expense, to the tendering holder of those notes promptly after the expiration date.
Holders who tender outstanding notes in connection with the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of outstanding notes in connection with the exchange offer. We will pay all charges and expenses, other than applicable taxes described below, in connection with the exchange offer. See "—Fees and Expenses" for a description of the fees and expenses that we will pay in connection with the exchange offer.
Our board of directors makes no recommendation to holders of outstanding notes as to whether to tender or refrain from tendering all or any portion of their outstanding notes in the exchange offer. In addition, no one has been authorized to make any similar recommendation. Holders of outstanding notes must make their own decision whether to tender in the exchange offer and, if so, the aggregate amount of outstanding notes to tender after reading this prospectus and the Letter of Transmittal and consulting with their advisers, if any, based on their financial position and requirements.
Expiration Date; Extensions; Amendments
The term "expiration date" means 5:00 p.m., New York City time, on September 25, 2003 unless we extend the exchange offer, in which case the term "expiration date" shall mean the latest date and time to which the exchange offer is extended.
We expressly reserve the right in our sole and absolute discretion, subject to applicable law, at any time and from time to time:
21
If the exchange offer is amended in a manner that we determine to constitute a material change, or if we waive a material condition of the exchange offer, we will promptly disclose such amendment or waiver by means of a prospectus supplement that will be distributed to the registered holders of the outstanding notes, and we will extend the exchange offer to the extent required by Rule 14e-1 under the Securities Exchange Act of 1934.
Any delay in acceptance, termination, extension or amendment will be followed promptly by:
Without limiting the manner in which we may choose to make any public announcement, and subject to applicable laws, we shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to an appropriate news agency.
Acceptance for Exchange and Issuance of Exchange Notes
Upon the terms and subject to the conditions of the exchange offer, promptly after the expiration date we will exchange, and will issue to the exchange agent, exchange notes for outstanding notes validly tendered and not withdrawn as described under "—Withdrawal Rights."
In all cases, delivery of exchange notes in exchange for outstanding notes tendered and accepted for exchange in the exchange offer will be made only after timely receipt by the exchange agent of:
Accordingly, the delivery of exchange notes might not be made to all tendering holders at the same time, and will depend upon when outstanding notes, book-entry confirmations with respect to outstanding notes and other required documents are received by the exchange agent.
The term "book-entry confirmation" means a timely confirmation of a book-entry transfer of outstanding notes into the exchange agent's account at DTC.
Subject to the terms and conditions of the exchange offer, we will be deemed to have accepted for exchange, and thereby exchanged, outstanding notes validly tendered and not withdrawn as, if and when we give oral or written notice to the exchange agent of our acceptance of those outstanding notes for exchange in the exchange offer. Any such oral notice shall be promptly confirmed in writing. Our acceptance for exchange of outstanding notes tendered through any of the procedures described above
22
will constitute a binding agreement between the tendering holder and us upon the terms and subject to the conditions of the exchange offer. The exchange agent will act as agent for us for the purpose of receiving tenders of outstanding notes, Letters of Transmittal and related documents, and as agent for tendering holders for the purpose of receiving outstanding notes, letters of transmittal and related documents and transmitting exchange notes to holders who validly tendered outstanding notes. The exchange will be made promptly after the expiration date. If for any reason whatsoever the acceptance for exchange or the exchange of any outstanding notes tendered in the exchange offer is delayed, whether before or after our acceptance for exchange of outstanding notes, or we extend the exchange offer or are unable to accept for exchange or exchange outstanding notes tendered in the exchange offer, then, without prejudice to our rights set forth in this prospectus, the exchange agent may, nevertheless, on our behalf and subject to Rule 14e-l(c) under the Securities Exchange Act of 1934, retain tendered outstanding notes and such outstanding notes may not be withdrawn except to the extent tendering holders are entitled to withdrawal rights as described under "—Withdrawal Rights."
Procedures for Tendering Outstanding Notes
Valid Tender. Except as set forth below, in order for outstanding notes to be validly tendered in the exchange offer, either:
If less than all of the outstanding notes are tendered, a tendering holder should fill in the amount of outstanding notes being tendered in the appropriate box on the Letter of Transmittal. The entire amount of outstanding notes delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated.
If any letter of transmittal, endorsement, bond power, power of attorney, or any other document required by the Letter of Transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by us, evidence satisfactory to us, in our sole discretion, of such person's authority to so act must be submitted.
Any beneficial owner of outstanding notes that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian is urged to contact such entity promptly if such beneficial owner wishes to participate in the exchange offer.
The method of delivery of outstanding notes, the Letter of Transmittal and all other required documents is at the option and sole risk of the tendering holder, and delivery will be deemed made only when actually received by the exchange agent. Instead of delivery by mail, we recommend that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure timely delivery and should obtain proper insurance. No Letter of Transmittal or outstanding notes should be sent to XM. Holders may request that their respective brokers, dealers, commercial banks, trust companies or nominees effect these transactions for them.
Book-Entry Transfer. The exchange agent will make a request to establish an account with respect to the outstanding notes at DTC for purposes of the exchange offer within two business days after the
23
date of this prospectus. Any financial institution that is a participant in DTC's book-entry transfer facility system may make a book-entry delivery of the outstanding notes by causing DTC to transfer those outstanding notes into the exchange agent's account at DTC according to DTC's procedures for transfers. However, although delivery of outstanding notes may be effected through book-entry transfer into the exchange agent's account at DTC, the Letter of Transmittal, or facsimile of the letter, properly completed and duly executed, with any required signature guarantees and any other required documents, must in any case be delivered to and received by the exchange agent at its address set forth under "—Exchange Agent" before the expiration date, or the guaranteed delivery procedure set forth below must be complied with.
Delivery of documents to DTC does not constitute delivery to the Exchange Agent.
Signature Guarantees. Tendering holders do not need to endorse their certificates for outstanding notes, and signature guarantees on a letter of transmittal or a notice of withdrawal, as the case may be, are unnecessary unless:
1. a certificate for outstanding notes is registered in a name other than that of the person surrendering the certificate; or
2. a registered holder completes the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In either of these cases, the certificates for outstanding notes must be duly endorsed or accompanied by a properly executed bond power, with the endorsement or signature on the bond power and on the Letter of Transmittal or the notice of withdrawal, as the case may be, guaranteed by a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934 as an "eligible guarantor institution," including, as such terms are defined in that rule:
unless surrendered on behalf of such eligible institution.
Guaranteed Delivery. If a holder desires to tender outstanding notes in the exchange offer and the certificates for the outstanding notes are not immediately available or time will not permit all required documents to reach the exchange agent before the expiration date, or the procedures for book-entry transfer cannot be completed on a timely basis, the outstanding notes may nevertheless be tendered, provided that all of the following guaranteed delivery procedures are complied with:
24
may be delivered by hand, or transmitted by facsimile or mail to the exchange agent and must include a guarantee by an eligible institution in the form set forth in the Notice of Guaranteed Delivery; and
Determination of Validity. All questions as to the form of documents, validity, eligibility, including time of receipt, and acceptance for exchange of any tendered outstanding notes will be determined by us, in our sole discretion, and that determination shall be final and binding on all parties. We reserve the absolute right, in our sole and absolute discretion, to reject any and all tenders that we determine are not in proper form or the acceptance for exchange of which may, in the view of our counsel, be unlawful. We also reserve the absolute right, subject to applicable law, to waive any of the conditions of the exchange offer as set forth under "—Conditions to the Exchange Offer" or any defect or irregularity in any tender of outstanding notes of any particular holder whether or not we waive similar defects or irregularities in the case of other holders.
Our interpretation of the terms and conditions of the exchange offer, including the Letter of Transmittal and its instructions, will be final and binding on all parties. No tender of outstanding notes will be deemed to have been validly made until all defects or irregularities with respect to such tender have been cured or waived. None of XM, any affiliates of XM, the exchange agent or any other person shall be under any duty to give any notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification.
Resales of Exchange Notes
Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties unrelated to us, we believe that holders of outstanding notes, other than any holder that is (1) a broker-dealer that acquired outstanding notes as a result of market-making activities or other trading activities or (2) a broker-dealer that acquired outstanding notes directly from us for resale in Rule 144A or another available exemption under the Securities Act, who exchange their outstanding notes for exchange notes in the exchange offer may offer for resale, resell and otherwise transfer such exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:
However, the staff of the SEC has not considered the exchange offer in the context of a no-action letter, and we cannot assure you that the staff of the SEC would make a similar determination with respect to the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes in the exchange offer, where such outstanding notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution."
25
If:
Withdrawal Rights
Except as otherwise provided herein, tenders of outstanding notes may be withdrawn at any time before the expiration date.
In order for a withdrawal to be effective, a written or facsimile transmission of such notice of withdrawal must be timely received by the exchange agent at its address set forth under "—Exchange Agent" before the expiration date. Any notice of withdrawal must specify the name of the person who tendered the outstanding notes to be withdrawn, the principal amount of outstanding notes to be withdrawn and, if certificates for such outstanding notes have been tendered, the name of the registered holder of the outstanding notes as set forth on the outstanding notes, if different from that of the person who tendered the outstanding notes.
If certificates for outstanding notes have been delivered or otherwise identified to the exchange agent, the notice of withdrawal must specify the serial numbers on the particular certificates for the outstanding notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an eligible institution, except in the case of outstanding notes tendered for the account of an eligible institution.
If outstanding notes have been tendered by the procedures for book-entry transfer set forth in "—Procedures for Tendering Outstanding Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of outstanding notes and must otherwise comply with the procedures of DTC. Withdrawals of tenders of outstanding notes may not be rescinded. Outstanding notes properly withdrawn will not be deemed validly tendered for purposes of the exchange offer, but may be retendered at any subsequent time before the expiration date by following any of the procedures described above under "—Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility, including time of receipt, of such withdrawal will be determined by us, in our sole discretion, which determination shall be final and binding on all parties. None of XM, any affiliates of XM, the exchange agent or any other person shall be under any duty to give any notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any outstanding notes which have been tendered but which are withdrawn will be returned to the holder of those notes promptly after withdrawal.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer or any extension of the exchange offer, we will not be required to accept for exchange, or to exchange, any outstanding notes for any exchange notes and will not be required to issue exchange notes in exchange for any outstanding notes, and, as described below, may, at any time and from time to time, terminate or amend the exchange offer, whether or not any outstanding notes have been accepted for exchange, or may waive any conditions to
26
or amend the exchange offer, if any of the following conditions or exists or have not been satisfied before the expiration date:
If we determine that any of the foregoing events or conditions has occurred or exists or has not been satisfied at any time prior to the expiration date, we may, subject to applicable law, terminate the exchange offer, whether or not any outstanding notes have been accepted for exchange, or may waive any such condition or otherwise amend the terms of the exchange offer in any respect. If such waiver or amendment constitutes a material change to the exchange offer, we will promptly disclose such waiver or amendment by means of a prospectus supplement that will be distributed to the registered holders of the outstanding notes, and we will extend the exchange offer to the extent required by Rule 14e-1 under the Securities Exchange Act.
United States Federal Income Tax Consequences
The exchange of the outstanding notes for the exchange notes will not constitute a taxable event for federal income tax purposes, and holders of outstanding notes should not recognize any taxable gain or loss or any interest income as a result of such exchange. See "Certain United States Federal Income Tax Considerations" below.
Exchange Agent
We have appointed The Bank of New York, as exchange agent for the exchange offer. Delivery of the letters of transmittal and any other required documents, questions, requests for assistance, and
27
requests for additional copies of this prospectus or of the Letter of Transmittal should be directed to the exchange agent as follows:
The Bank of New York
101 Barclay Street—7 East
New York, NY 10286
Attention: Reorganization Department
Bernard Arsenec
Telephone No.: (212) 815-5098
Telecopier No.: (212) 298-1915
Delivery to other than the above address or facsimile number will not constitute a valid delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail. Additional solicitation may be made personally or by telephone or other means by officers, directors or employees of XM.
We have not retained any dealer-manager or similar agent in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We have agreed to pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses. We will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus and related documents to the beneficial owners of outstanding notes, and in handling or tendering for their customers. However, we will not pay any fees or disbursements of any counsel or other advisor or expert retained by you other than the one nationally recognized firm acting as special counsel to all holders of outstanding notes.
Holders who tender their outstanding notes for exchange will not be obligated to pay any transfer taxes in connection with the tender, except that if exchange notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the outstanding notes tendered, or if a transfer tax is imposed for any reason other than the exchange of outstanding notes in connection with the exchange offer, then the amount of any such transfer tax, whether imposed on the registered holder or any other persons, will be payable by the tendering holder. If satisfactory evidence of payment of such transfer tax or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer tax will be billed directly to such tendering holder.
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The exchange offer is to satisfy certain of our obligations under the registration rights agreement covering the notes. We will not receive any proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive, in exchange, an equal number of outstanding notes in like principal amount. The form and terms of the exchange notes will be identical in all material respects to the form and terms of the outstanding notes, except as otherwise described under "The Exchange Offer—Terms of the Exchange Offer." The outstanding notes surrendered in exchange for exchange notes will be retired and canceled by us and cannot be reissued.
29
XM Satellite Radio Holdings Inc. and Subsidiaries
In considering the following selected consolidated financial data, you should also read our consolidated financial statements and notes thereto which are incorporated by reference into this prospectus. The consolidated statements of operations data for the five-year period ended December 31, 2002 and the consolidated balance sheets data as of December 31, 2002, 2001, 2000, 1999 and 1998 are derived from our consolidated financial statements. These statements have been audited by KPMG LLP, independent certified public accountants. The data as of and for the six months ended June 30, 2003 and 2002 are unaudited, but include, in the opinion of our management, all adjustments, consisting of only normal, recurring adjustments, necessary for a fair presentation of such data. The results of operations for the six months ended June 30, 2003 are not necessarily indicative of results to be expected for the entire year or any other period.
30
| | Years Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | 2003 | 2002 | ||||||||||||||||||
| | | | | | | (unaudited) | |||||||||||||||||||
| | (In thousands, except subscriber and share amounts) | ||||||||||||||||||||||||
| Consolidated Statements of Operations Data: | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||
| Subscriber revenue(1) | $ | 16,828 | $ | 246 | $ | — | $ | — | $ | — | $ | 28,396 | $ | 4,340 | |||||||||||
| Equipment revenue(1) | 757 | — | — | — | — | 1,609 | — | ||||||||||||||||||
| Net ad sales revenue | 2,333 | 251 | — | — | — | 1,047 | 1,088 | ||||||||||||||||||
| Royalties & other | 263 | 36 | — | — | — | 321 | 196 | ||||||||||||||||||
| Total revenue | 20,181 | 533 | — | — | — | 31,373 | 5,624 | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Cost of revenue (excludes depreciation & amortization, shown below): | |||||||||||||||||||||||||
| Revenue share & royalties(1) | 12,790 | 1,730 | — | — | — | 9,479 | 1,445 | ||||||||||||||||||
| Cost of equipment | 1,679 | — | — | — | — | 2,968 | — | ||||||||||||||||||
| Ad sales(1) | 1,870 | 2,243 | 1,232 | 356 | 369 | 998 | 557 | ||||||||||||||||||
| Customer care & billing operations | 16,070 | 5,724 | 699 | — | — | 10,635 | 6,434 | ||||||||||||||||||
| Satellite & terrestrial | 44,818 | 62,641 | 8,104 | 1,536 | 203 | 22,572 | 22,666 | ||||||||||||||||||
| Broadcast & operations | 19,851 | 21,041 | 19,570 | 5,449 | 1,782 | 10,441 | 8,633 | ||||||||||||||||||
| Programming & content | 25,379 | 17,649 | 4,025 | 965 | 642 | 10,048 | 13,497 | ||||||||||||||||||
| Cost of revenue | 122,457 | 111,028 | 33,630 | 8,306 | 2,996 | 67,141 | 53,232 | ||||||||||||||||||
| Research & development (excludes depreciation & amortization, shown below) | 10,843 | 13,689 | 11,948 | 6,510 | 7,311 | 5,386 | 4,735 | ||||||||||||||||||
| General & administrative (excludes depreciation & amortization, shown below) | 26,448 | 21,168 | 17,312 | 11,534 | 4,869 | 14,572 | 10,928 | ||||||||||||||||||
| Marketing (excludes depreciation & amortization, shown below)(1) | 169,164 | 93,594 | 13,016 | 2,829 | 960 | 88,326 | 91,948 | ||||||||||||||||||
| Impairment of goodwill | 11,461 | — | — | — | — | — | — | ||||||||||||||||||
| Depreciation & amortization | 118,588 | 42,660 | 3,573 | 1,512 | 57 | 79,548 | 47,011 | ||||||||||||||||||
| Total operating expenses | 458,961 | 282,139 | 79,479 | 30,691 | 16,193 | 254,973 | 207,854 | ||||||||||||||||||
| Operating Loss | (438,780 | ) | (281,606 | ) | (79,479 | ) | (30,691 | ) | (16,193 | ) | (223,600 | ) | (202,230 | ) | |||||||||||
| Other income (expense) | |||||||||||||||||||||||||
| Interest income | $ | 5,111 | $ | 15,198 | $ | 27,606 | $ | 2,915 | $ | 26 | $ | 1,125 | $ | 3,284 | |||||||||||
| Interest expense | (63,573 | ) | (18,131 | ) | — | (9,120 | ) | — | (50,688 | ) | (31,630 | ) | |||||||||||||
| Other income (expense) | 2,230 | 160 | — | — | — | (14,975 | ) | 1,121 | |||||||||||||||||
| Net loss | (495,012 | ) | (284,379 | ) | (51,873 | ) | (36,896 | ) | (16,167 | ) | (288,138 | ) | (229,455 | ) | |||||||||||
| 8.25% Series B preferred stock dividend requirement | (3,766 | ) | (3,766 | ) | (5,935 | ) | — | — | (1,441 | ) | (1,883 | ) | |||||||||||||
| 8.25% Series C preferred stock dividend requirement | (17,093 | ) | (19,387 | ) | (9,277 | ) | — | — | (8,250 | ) | (8,823 | ) | |||||||||||||
| Series B preferred stock (deemed dividend)/conversion gain | — | — | (11,211 | ) | — | — | 9,488 | — | |||||||||||||||||
| Series C preferred stock beneficial conversion feature | — | — | (123,042 | ) | — | — | — | — | |||||||||||||||||
| Net loss attributable to common stockholders | $ | (515,871 | ) | $ | (307,532 | ) | $ | (201,338 | ) | $ | (36,896 | ) | $ | (16,167 | ) | $ | (288,341 | ) | $ | (240,161 | ) | ||||
| Net loss per share: | |||||||||||||||||||||||||
| Basic and diluted | $ | (5.95 | ) | $ | (5.13 | ) | $ | (4.15 | ) | $ | (2.40 | ) | $ | (2.42 | ) | $ | (2.64 | ) | $ | (2.93 | ) | ||||
| Weighted average shares used in computing net loss per share — basic and diluted | 86,735,257 | 59,920,196 | 48,508,042 | 15,344,102 | 6,689,250 | 109,097,888 | 81,998,663 | ||||||||||||||||||
Other data | |||||||||||||||||||||||||
| EBITDA(2) | $ | (317,962 | ) | $ | (238,786 | ) | $ | (75,906 | ) | $ | (29,179 | ) | $ | (16,136 | ) | $ | (159,027 | ) | $ | (154,098 | ) | ||||
| Cash flow from operating activities | (294,289 | ) | (203,048 | ) | (37,447 | ) | (16,785 | ) | (1,301 | ) | (149,451 | ) | (174,781 | ) | |||||||||||
| Cash flow from investing activities | (7,037 | ) | (221,361 | ) | (559,401 | ) | (234,412 | ) | (43,912 | ) | 24,177 | (63,367 | ) | ||||||||||||
| Cash flow from financing activities | 151,646 | 382,003 | 771,053 | 301,585 | 45,522 | 438,324 | 157,064 | ||||||||||||||||||
| XM subscriptions (end of period)(3) | 347,159 | 27,733 | — | — | — | 692,253 | 136,718 | ||||||||||||||||||
31
| | December 31, | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | June 30, 2003 | |||||||||||||||||
| | 2002 | 2001 | 2000 | 1999 | 1998 | |||||||||||||
| | | | | | | (unaudited) | ||||||||||||
| | (In thousands) | |||||||||||||||||
| Consolidated Balance Sheets Data: | ||||||||||||||||||
| Cash, cash equivalents and short-term investments | $ | 42,815 | $ | 210,852 | $ | 224,903 | $ | 120,170 | $ | 310 | $ | 345,868 | ||||||
| Restricted investments | 29,742 | 72,759 | 161,166 | — | — | 8,588 | ||||||||||||
| System under construction. | 55,016 | 55,056 | 674,796 | 229,940 | 78,998 | 56,016 | ||||||||||||
| Property and equipment, net | 847,936 | 922,149 | 50,052 | 2,551 | 1,146 | 773,145 | ||||||||||||
| Goodwill, net | — | 11,461 | 12,376 | 13,294 | — | — | ||||||||||||
| DARS license and other intangibles, net | 153,732 | 155,207 | 151,845 | 144,504 | 90,031 | 150,265 | ||||||||||||
| Total assets | 1,160,280 | 1,456,203 | 1,293,218 | 515,189 | 170,485 | 1,493,142 | ||||||||||||
| Total long-term debt, net of current portion | 412,540 | 411,520 | 262,665 | 212 | 140,332 | 731,492 | ||||||||||||
| Total liabilities | 567,969 | 529,552 | 337,266 | 30,172 | 177,668 | 873,961 | ||||||||||||
| Stockholders' equity (deficit) | 592,311 | 926,651 | 955,952 | 485,017 | (7,183 | ) | 619,181 | |||||||||||
| | Years Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | 2003 | 2002 | ||||||||||||||||
| | (In thousands) | | | ||||||||||||||||||||
| Reconciliation of Net Loss to EBITDA: | |||||||||||||||||||||||
| Net loss as reported | $ | (495,012 | ) | $ | (284,379 | ) | $ | (51,873 | ) | $ | (36,896 | ) | $ | (16,167 | ) | $ | (288,138 | ) | $ | (229,455 | ) | ||
| Add back non-EBITDA items included in net loss: | |||||||||||||||||||||||
| Interest income | (5,111 | ) | (15,198 | ) | (27,606 | ) | (2,915 | ) | (26 | ) | (1,125 | ) | (3,284 | ) | |||||||||
| Interest expense | 63,573 | 18,131 | — | 9,120 | — | 50,688 | 31,630 | ||||||||||||||||
| Depreciation & amortization | 118,588 | 42,660 | 3,573 | 1,512 | 57 | 79,548 | 47,011 | ||||||||||||||||
| EBITDA | $ | (317,962 | ) | $ | (238,786 | ) | $ | (75,906 | ) | $ | (29,179 | ) | $ | (16,136 | ) | $ | (159,027 | ) | $ | (154,098 | ) | ||
32
XM Satellite Radio Inc. and Subsidiaries
In considering the following selected consolidated financial data, you should also read our consolidated financial statements and notes thereto which are incorporated by reference into this prospectus. The consolidated statements of operations data for the five-year period ended December 31, 2002 and the consolidated balance sheets data as of December 31, 2002, 2001, 2000, 1999 and 1998 are derived from our consolidated financial statements. These statements have been audited by KPMG LLP, independent certified public accountants. The data as of and for the six months ended June 30, 2003 and 2002 are unaudited, but include, in the opinion of our management, all adjustments, consisting of only normal, recurring adjustments, necessary for a fair presentation of such data. The results of operations for the six months ended June 30, 2003 are not necessarily indicative of results to be expected for the entire year or any other period.
| | Years Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | 2003 | 2002 | ||||||||||||||||||
| | (In thousands, except subscriber amounts) | (unaudited) | |||||||||||||||||||||||
| Consolidated Statements of Operations Data: | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||
| Subscriber revenue(1) | $ | 16,828 | $ | 246 | $ | — | $ | — | $ | — | $ | 28,396 | $ | 4,340 | |||||||||||
| Equipment revenue(1) | 757 | — | — | — | — | 1,609 | — | ||||||||||||||||||
| Net ad sales revenue | 2,333 | 251 | — | — | — | 1,047 | 1,088 | ||||||||||||||||||
| Royalties & other | 263 | 36 | — | — | — | 321 | 196 | ||||||||||||||||||
| Total revenue | 20,181 | 533 | — | — | — | 31,373 | 5,624 | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Cost of revenue (excludes depreciation & amortization, shown below): | |||||||||||||||||||||||||
| Revenue share & royalties(1) | 12,790 | 1,730 | — | — | — | 9,479 | 1,445 | ||||||||||||||||||
| Cost of equipment | 1,679 | — | — | — | — | 2,968 | — | ||||||||||||||||||
| Ad sales(1) | 1,870 | 2,243 | 1,232 | 356 | 369 | 998 | 557 | ||||||||||||||||||
| Customer care & billing | 16,070 | 5,724 | 699 | — | — | 10,635 | 6,434 | ||||||||||||||||||
| Satellite & terrestrial | 44,818 | 62,641 | 8,104 | 1,536 | 203 | 22,572 | 22,666 | ||||||||||||||||||
| Broadcast & operations | 23,950 | 22,488 | 19,570 | 5,449 | 1,782 | 12,395 | 10,813 | ||||||||||||||||||
| Programming & content | 25,379 | 17,649 | 4,025 | 965 | 642 | 10,048 | 13,497 | ||||||||||||||||||
| Cost of revenue | 126,556 | 112,475 | 33,630 | 8,306 | 2,996 | 69,095 | 55,412 | ||||||||||||||||||
| Research & development (excludes depreciation & amortization, shown below) | 10,843 | 13,689 | 11,948 | 6,510 | 7,311 | 5,386 | 4,735 | ||||||||||||||||||
| General & administrative (excludes depreciation & amortization, shown below) | 27,777 | 20,908 | 16,960 | 11,513 | 4,869 | 15,082 | 11,706 | ||||||||||||||||||
| Marketing (excludes depreciation & amortization, shown below)(1) | 169,164 | 93,594 | 13,016 | 2,829 | 960 | 88,326 | 91,948 | ||||||||||||||||||
| Impairment of goodwill | 11,461 | — | — | — | — | — | — | ||||||||||||||||||
| Depreciation & amortization | 117,202 | 42,180 | 3,573 | 1,512 | 57 | 78,854 | 46,318 | ||||||||||||||||||
| Total operating expenses | 463,003 | 282,846 | 79,127 | 30,670 | 16,193 | 256,743 | 210,119 | ||||||||||||||||||
| Operating Loss | (442,822 | ) | (282,313 | ) | (79,127 | ) | (30,670 | ) | (16,193 | ) | (225,370 | ) | (204,495 | ) | |||||||||||
| Other income (expense) | |||||||||||||||||||||||||
| Interest income | $ | 2,621 | $ | 14,102 | $ | 27,200 | $ | 533 | $ | 26 | $ | 130 | $ | 1,679 | |||||||||||
| Interest expense | (52,037 | ) | (15,157 | ) | — | (43 | ) | — | (45,985 | ) | (25,804 | ) | |||||||||||||
| Other income (expense) | 653 | (607 | ) | — | — | — | (21,507 | ) | 333 | ||||||||||||||||
| Net loss | $ | (491,585 | ) | $ | (283,975 | ) | $ | (51,927 | ) | $ | (30,180 | ) | $ | (16,167 | ) | $ | (292,732 | ) | $ | (228,287 | ) | ||||
Other data | |||||||||||||||||||||||||
| EBITDA(2) | $ | (324,967 | ) | $ | (240,740 | ) | $ | (75,554 | ) | $ | (29,158 | ) | $ | (16,136 | ) | $ | (168,023 | ) | $ | (157,844 | ) | ||||
| Cash flow from operating activities | (288,042 | ) | (209,690 | ) | (37,516 | ) | (18,186 | ) | (9,365 | ) | (148,864 | ) | (160,739 | ) | |||||||||||
| Cash flow from investing activities | (14,094 | ) | (127,017 | ) | (559,401 | ) | (234,412 | ) | (43,912 | ) | 14,264 | 15,886 | |||||||||||||
| Cash flow from financing activities | 246,494 | 195,884 | 750,478 | 301,918 | 53,586 | 285,815 | 114,257 | ||||||||||||||||||
| XM subscriptions (end of period)(3) | 347,159 | 27,733 | — | — | — | 692,253 | 136,718 | ||||||||||||||||||
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| | December 31, | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | June 30, 2003 | |||||||||||||||||
| | 2002 | 2001 | 2000 | 1999 | 1998 | |||||||||||||
| | | | | | | (unaudited) | ||||||||||||
| | (In thousands) | |||||||||||||||||
| Consolidated Balance Sheets Data: | ||||||||||||||||||
| Cash, cash equivalents and short-term investments | $ | 6,726 | $ | 72,664 | $ | 203,191 | $ | 119,102 | $ | 310 | $ | 157,941 | ||||||
| Restricted investments | 26,687 | 70,734 | 161,166 | — | — | 5,462 | ||||||||||||
| System under construction. | 18,558 | 18,597 | 645,939 | 201,082 | 65,303 | 19,558 | ||||||||||||
| Property and equipment, net | 814,966 | 887,768 | 50,052 | 2,551 | 1,146 | 740,854 | ||||||||||||
| Goodwill, net | — | 11,461 | 12,376 | 13,294 | — | — | ||||||||||||
| DARS license and other intangibles, net | 153,732 | 155,207 | 151,845 | 144,504 | 90,031 | 150,265 | ||||||||||||
| Total assets | 1,044,347 | 1,241,362 | 1,242,517 | 485,134 | 156,397 | 1,332,023 | ||||||||||||
| Total long-term debt, net of current portion | 270,347 | 268,934 | 262,665 | 212 | 87 | 610,408 | ||||||||||||
| Total liabilities | 429,821 | 385,908 | 337,107 | 30,030 | 28,941 | 756,964 | ||||||||||||
| Stockholder's equity | 614,526 | 855,454 | 905,410 | 455,104 | 127,456 | 575,059 | ||||||||||||
| | Years Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | 2003 | 2002 | ||||||||||||||||
| | (In thousands) | ||||||||||||||||||||||
| Reconciliation of Net Loss to EBITDA: Net loss as reported | $ | (491,585 | ) | $ | (283,975 | ) | $ | (51,927 | ) | $ | (30,180 | ) | $ | (16,167 | ) | $ | (292,732 | ) | $ | (228,287 | ) | ||
| Add back non-EBITDA items included in net loss: | |||||||||||||||||||||||
| Interest income | (2,621 | ) | (14,102 | ) | (27,200 | ) | (533 | ) | (26 | ) | (130 | ) | (1,679 | ) | |||||||||
| Interest expense | 52,037 | 15,157 | — | 43 | — | 45,985 | 25,804 | ||||||||||||||||
| Depreciation & amortization | 117,202 | 42,180 | 3,573 | 1,512 | 57 | 78,854 | 46,318 | ||||||||||||||||
| EBITDA | $ | (324,967 | ) | $ | (240,740 | ) | $ | (75,554 | ) | $ | (29,158 | ) | $ | (16,136 | ) | $ | (168,023 | ) | $ | (157,844 | ) | ||
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You can find the definitions of certain terms used in this description under the subheading "Certain Definitions."
The outstanding notes were, and the exchange notes (together as used in this Description of Exchange Notes, the "notes") will be, issued pursuant to an indenture (the "Indenture") dated as of June 17, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., as guarantor, and The Bank of New York, as trustee. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended. The Security Agreements referred to under the caption "Security" define the terms of the security interests that will secure the notes.
The following description is a summary of the material provisions of the indenture, the Security Agreements and the Intercreditor Agreements. It does not restate those agreements in their entirety. XM and Holdings urge you to read the indenture, the Security Agreements and the Intercreditor Agreements because they, and not this description, define your rights as holders of the notes. Copies of the indenture, the Security Agreements and the Intercreditor Agreements are available as set forth below under "Incorporation of Documents by Reference." Certain defined terms used in this description but not defined below under "—Certain Definitions" have the meanings assigned to them in the indenture.
As of the date of the indenture, all of XM's Subsidiaries were "Restricted Subsidiaries." However, under the circumstances described below in the definition of "Unrestricted Subsidiary" under the subheading "—Certain Definitions," XM will be permitted to designate certain of XM's Subsidiaries as "Unrestricted Subsidiaries." XM's Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture.
Brief Description of Exchange Notes and Guarantee
The notes:
The guarantee:
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Principal, Maturity and Interest
XM has issued outstanding notes with an aggregate principal amount of $185,000,000 and will issue up to an equal aggregate principal amount of exchange notes pursuant to this exchange offer. XM may issue additional notes under the indenture from time to time after this offering. Any offering of additional notes is subject to the covenant described below under the caption "—Certain Covenants—Incurrence of Indebtedness." The notes and any additional notes subsequently issued under the indenture will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. XM will issue notes in denominations of $1,000 and integral multiples of $1,000. The notes will mature on June 15, 2010.
Interest on the notes accrues at the rate of 12% per annum. Interest will accrue from the date of issuance or, if interest has already been paid, from the date it was most recently paid. Interest is payable semi-annually in arrears on December 15 and June 15, commencing on December 15, 2003. XM will make each interest payment to the holders of record on the immediately preceding December 1 and June 1. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a holder owning $1.0 million or more in aggregate principal amount of the notes has given wire transfer instructions to XM, XM will pay all principal, interest and premium, if any, on that holder's notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless XM elects to make interest payments by check mailed to the holders at their addresses set forth in the register of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. XM may change the paying agent or registrar without prior notice to the holders, and XM or any of XM's Subsidiaries may act as paying agent or registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and XM may require a holder to pay any taxes and fees required by law or permitted by the indenture. XM is not required to transfer or exchange any note selected for redemption. Also, XM is not required to transfer or exchange any note for a period of 15 days before the mailing of a notice of redemption of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all purposes.
Parent Guarantee
The notes are jointly and severally, irrevocably and unconditionally guaranteed on a senior secured basis by Holdings.
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Security
Except for the Excluded Assets, the notes and the Indenture Guarantee are secured by a first priority security interest (on a shared basis with $592.2 million of existing indebtedness as of June 30, 2003 and any additional secured financing of Pari Passu Indebtedness ("Additional Indebtedness") that XM is permitted to incur as set forth in "Certain Covenants—Incurrence of Indebtedness" and "—Liens"), subject to Permitted Liens, in substantially all of the assets of XM and Holdings, including the following assets (to the extent they do not constitute Excluded Assets):
"Excluded Assets" include, among other things, (i) any licenses issued by the FCC to the extent that the licenses cannot be subject to security interests, (ii) assets securing purchase money obligations or Capital Lease Obligations permitted to be incurred under the indenture, (iii) any assets, agreements, leases, permits or licenses or other assets or property that are not permitted to be subjected to a Lien without the consent of third parties, whether pursuant to applicable law or existing agreements, to the extent that such consent is not obtained, (iv) a certain spare satellite bus and related assets, and (v) the capital stock of controlled foreign corporations (as defined in the IRS Internal Revenue Code of 1986, as amended) in excess of 65% of the voting rights of such corporations. The Collateral will not include any interests in real property, whether owned or leased by XM or Holdings.
The Trustee on behalf of the holders of the notes acceded to the FCC License Subsidiary Pledge Agreement pursuant to which XM provides a pledge of the Capital Stock of FCC License Subsidiary to the Collateral Agent for the benefit of the notes, $592.2 million of other indebtedness as of June 30, 2003 and any future Additional Indebtedness. In addition, the Trustee on behalf of the holders of the notes acceded to the General Security Agreement pursuant to which XM and Holdings provide security interests in substantially all of the other Collateral to the Collateral Agent for the benefit of the holders of the notes, $569.3 million of other indebtedness as of June 30, 2003 and any future Additional Indebtedness.
The notes do not have the benefit of any security interest in the assets of subsidiaries of XM or Holdings (other than XM). In addition, the notes do not have the benefit of any Guarantees from those subsidiaries.
So long as no Event of Default or a default under the other secured obligations shall have occurred and be continuing, and subject to certain terms and conditions, XM and Holdings are entitled to exercise any voting and other consensual rights pertaining to all Capital Stock pledged pursuant to the Security Agreements and to remain in possession and retain exclusive control of the Collateral (other than as set forth in the Security Agreements), to operate the Collateral, to alter or repair the Collateral and to collect, invest and dispose of any income thereon. Upon the occurrence and during
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the continuance of an Event of Default or a default under the other secured obligations, subject to the provisions of the Intercreditor Agreements:
In the case of an Event of Default or a default under the other secured obligations, the Collateral Agent will only be permitted, except for certain emergency actions, to exercise remedies and sell the Collateral under either Security Agreement at the direction of the holders of a majority of the indebtedness secured by such Security Agreement. See "—Intercreditor Agreements". If such remedies are exercised by the Collateral Agent, the proceeds from the sale of the Collateral will be applied to all of the indebtedness secured by such Collateral (not just the notes), and may not be sufficient to satisfy our obligations under the notes and the other indebtedness secured by the Collateral in full. See "Risk Factors—The security for your notes and other remedies will be shared with other debtholders."
Upon the full and final payment and performance of all our Obligations under the indenture and the notes, and the security interest for the benefit of the trustee and the noteholders will terminate, and the interest of the trustee and the noteholders in the Collateral will be released. Prior to such time, the Collateral may also be released in connection with asset sales that are permitted under the indenture.
Perfection and Non-Perfection of Security Interests in Collateral
The security interests created by the Security Agreements have not been and will not be perfected with respect to certain items of Collateral. Specifically, XM and Holdings are not required under the Security Agreements to take actions to perfect the security interests in the Collateral other than by filing a financing statement in the jurisdiction of organization of XM and Holdings, delivering possession of certificated Capital Stock of subsidiaries to the Collateral Agent, and making filings with the United States Patent and Trademark Office and the United States Copyright Office. To the extent that such actions are not sufficient to perfect a security interest in certain items of Collateral (as will be the case, for example, for Collateral consisting of deposit accounts and securities accounts, and may also be the case for certain investment property and equipment, including satellites in orbit and equipment affixed to real property so as to constitute fixtures), the Collateral Agent's rights are equal to the rights of XM and Holdings general unsecured creditors (as applicable) in the event of a bankruptcy. Outside of bankruptcy, the security interests of certain other lienholders, such as judgment creditors and any creditors who obtain a perfected security interest in any items of Collateral in which the Collateral Agent's security interest is unperfected, would take priority over Collateral Agent's security interest in such items of Collateral. Accordingly, while XM has agreed not to grant additional security interests in the Collateral (other than security interests constituting Permitted Liens), there can be no assurance that the assets in which the Collateral Agent's security interest is unperfected will be available upon the occurrence of an Event of Default or a default under the other secured obligations to satisfy the Obligations under the notes. In addition, certain assets may be subject to existing perfected Permitted Liens that would take priority over any liens granted in such assets under the Security Agreements.
Certain Limitations on the Collateral
There can be no assurance that the proceeds of any sale of Collateral following an Event of Default or a default under the other secured obligations with respect to the notes would be sufficient
38
to satisfy, or would not be substantially less than, amounts due on the notes and the other obligations secured by the Collateral. See "Risk Factors—The security for your notes and other remedies will be shared with other debtholders."
With respect to some of the Collateral, the Collateral Agent's security interest and ability to foreclose also will be limited by the need to meet certain requirements, such as obtaining third party consents and making additional filings. If XM or Holdings (as applicable) are unable to obtain these consents or make these filings, the security interests may be invalid and the holders will not be entitled to the Collateral or any recovery with respect thereto. In particular, the Collateral Agent under the Security Agreements is not entitled to exercise any rights with respect to the Collateral upon the occurrence of an Event of Default or a default under the other secured obligations if such action would constitute or result in any assignment of FCC License Subsidiary's FCC license or any Change of Control (whether as a matter of law or fact) of XM or FCC License Subsidiary unless the prior approval of the FCC is first obtained. XM cannot assure you that any such required FCC approval can be obtained on a timely basis, or at all. These requirements may limit the number of potential bidders for certain Collateral in any foreclosure and may delay any sale, either of which events may have an adverse effect on the sale price of the Collateral. Therefore, the practical value of realizing on the Collateral may, without the appropriate consents and filings, be limited.
No appraisals of any of the Collateral have been prepared by or on behalf of XM in connection with this offering. The value of the Collateral in the event of a liquidation will depend upon market and economic conditions, the availability of buyers and similar factors. By its nature, some or all of the Collateral will be illiquid and may have no readily ascertainable market value. There also can be no assurance that the Collateral will be saleable and, even if saleable, the timing of its liquidation is uncertain.
The Collateral does not include any interests in real property or any assets that constitute Excluded Assets. In addition, to the extent that Liens, rights and easements granted to third parties encumber real property owned or leased by XM or Holdings on which Collateral is located, such third parties have or may exercise rights and remedies with respect to such real property that could adversely affect the value of the Collateral located at such site and the ability of the Collateral Agent to realize or foreclose on Collateral at such site.
Accordingly, there can be no assurance that the proceeds of any sale of the Collateral pursuant to the indenture, the Intercreditor Agreements and the Security Agreements following an Event of Default or a default under the other secured obligations would be sufficient to satisfy, or would not be substantially less than, amounts due on the notes and the other indebtedness secured by the Collateral. If the proceeds of any sale of the Collateral were not sufficient to repay all amounts due on the notes and the other indebtedness secured by the Collateral, the holders of the notes (to the extent not repaid from the proceeds of the sale of the Collateral) would have only an unsecured claim against the remaining assets of XM and Holdings.
Intercreditor Agreements
The trustee for the notes acceded to the General Security Intercreditor Agreement and the FCC License Subsidiary Pledge Intercreditor Agreement. The holders of an additional $592.2 million of indebtedness are also parties to the FCC License Subsidiary Pledge Intercreditor Agreement. Such intercreditor agreements provide for the appointment of the Collateral Agent to act on behalf of such parties under the General Security Agreement or the FCC License Subsidiary Pledge Agreement, as applicable, and establish the terms and conditions under which the Collateral Agent may exercise remedies against the Collateral under such agreements. Proceeds from any liquidation of Collateral are required under each Intercreditor Agreement to be applied: (i) first, to pay amounts owing to the Collateral Agent, (ii) second, to reimburse the parties secured by such collateral for any indemnification amounts paid to the Collateral Agent, (iii) third, to the payment of accrued and unpaid
39
interest on the indebtedness secured by such Collateral, (iv) fourth, to the payment of all amounts of principal (or, if applicable, unpaid accreted value) in respect of the Indebtedness secured by such Collateral, (v) fifth, to all other amounts then owing in respect of the indebtedness secured by such Collateral, and (iv) sixth, the balance, if any, to XM or such other persons as are entitled thereto. All applications of proceeds pursuant to clauses (ii) though (v) above are required to be allocated among the secured parties on a pro rata basis according to the principal (or, if applicable, accreted value), interest and other amounts owing in respect of the indebtedness secured by the Collateral at the time of the distribution.
If an Event of Default or a default under the other secured obligations occurs under the indenture and the holders of the majority in principal amount of the notes instruct the trustee to direct the Collateral Agent to foreclose on the Collateral, the trustee will notify the Collateral Agent of such event. The Collateral Agent will in turn notify the other parties to the Intercreditor Agreements of such event and will request instructions with respect to any actions to be taken under the Security Agreements. If the unpaid principal amount of the notes represents more than 50% of the aggregate principal amount of indebtedness secured by a Security Agreement, then the Collateral Agent will foreclose on the Collateral subject to such Security Agreement at the direction of the trustee. In the case where the unpaid principal amount of the notes does not represent more than 50% of the aggregate principal amount of the indebtedness secured by a Security Agreement, the Collateral Agent will only foreclose on the Collateral subject to such Security Agreement if other parties to the Intercreditor Agreement relating to such Security Agreement that, together with the trustee, represent more than 50% of the aggregate principal amount of the indebtedness secured by such Security Agreement, also instruct the Collateral Agent to take such action. XM and Holdings cannot assure you that any other parties will instruct the Collateral Agent to foreclose on the Collateral when requested by the trustee. As a result, the trustee and the holders may be precluded from realizing on the Collateral at the time that an Event of Default or a default under the other secured obligations occurs under the indenture.
Certain Bankruptcy Limitations
The right of the trustee to take possession and dispose of the Collateral upon the occurrence of an Event of Default or a default under the other secured obligations is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or against XM and Holdings prior to the trustee having taken possession and disposed of the Collateral. Under the U.S. Bankruptcy Code, a secured creditor is prohibited from taking its security from a debtor in a bankruptcy case, or from disposing of security taken from such debtor, without bankruptcy court approval. Moreover, the Bankruptcy Code permits the debtor in certain circumstances to continue to retain and to use collateral owned as of the date of the bankruptcy filing (and the proceeds, products, offspring, rents or profits of such Collateral) even though the debtor is in default under the applicable debt instruments;provided, that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the Collateral Agent could repossess or dispose of the Collateral or whether or to what extent holders would be compensated for any delay in payment or loss of value of the Collateral through the requirement of "adequate protection."
Furthermore, in the event a bankruptcy court determines the value of the Collateral is not sufficient to repay all amounts due on the notes and the other Obligations secured by such Collateral, the holders of the notes and such other Obligations would hold secured claims to the extent of the value of the Collateral, and would hold unsecured claims with respect to any shortfall. Applicable Federal bankruptcy laws do not permit the payment and/or accrual of post-petition interest, costs and attorneys' fees during a debtor's bankruptcy case unless the claims are oversecured or the debtor is
40
solvent at the time of reorganization. In addition, if XM or Holdings were to become the subject of a bankruptcy case, the bankruptcy court, among other things, may avoid certain pre-petition transfers made by the entity that is the subject of the bankruptcy filing, including, without limitation, transfers held to be preferences or fraudulent conveyances.
Optional Redemption
At any time prior to June 15, 2006, XM may on any one or more occasions redeem an amount of the aggregate principal amount of notes issued under the indenture at a redemption price of 112% of the principal amount thereof, plus accrued and unpaid interest, and liquidated damages if any, to the redemption date, with the net cash proceeds of one or more equity offerings by XM or any parent corporation of XM, the net proceeds of which are contributed to XM's common equity (other than an offering of Disqualified Stock);provided that:
Except pursuant to the preceding paragraph, XM will not have the option to redeem the notes prior to June 15, 2007.
On and after June 15, 2007 XM will have the option to redeem all or a part of the notes upon not less than 10 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, and liquidated damages if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on June 15 of the years indicated below:
| Year | Percentage | |
|---|---|---|
| 2007 | 106% | |
| 2008 | 103% | |
| 2009 and thereafter | 100% |
Mandatory Redemption
XM is not required to make mandatory redemption or sinking fund payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, XM will make an offer (a "Change of Control Offer") to each holder of notes to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that holder's notes pursuant to a Change of Control Offer on the terms set forth in the indenture. In the Change of Control Offer, XM will offer a Change of Control payment in cash equal to 101% of the principal amount (plus accrued and unpaid interest, and liquidated damages if any) thereon to the date of purchase. Within 30 days following any Change of Control, XM will mail a notice to each holder stating that a Change of Control Offer is being made, the purchase price, the Change of Control payment date, which date shall be no earlier than 30 days and no later than 60 calendar days from the date such notice is mailed, and other information regarding the Change of Control Offer required by the indenture. XM will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the notes in connection with a Change of Control. To the extent
41
that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, XM will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such conflict.
On the Change of Control payment date, XM will, to the extent lawful:
The paying agent will promptly mail to each holder of notes so tendered the Change of Control payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a exchange note equal in principal amount to any unpurchased portion of the notes surrendered by such holder, if any;provided that each such exchange note will be in a principal amount of $1,000 or an integral multiple thereof.
XM will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control payment date.
Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the holders of the notes to require that XM repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.
XM will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by XM and purchases all notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of XM and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require XM to repurchase such notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of XM and its Subsidiaries taken as a whole to another person or group may be uncertain.
Asset Sales
XM will not, and will not permit any of XM's Restricted Subsidiaries to, consummate an Asset Sale unless:
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Any Restricted Payment that is permitted under "Certain Covenants—Restricted Payments" will not be deemed to be an Asset Sale.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, XM may:
Pending the final application of any such Net Proceeds, XM may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from such Asset Sale that are not finally applied or invested as provided in the first sentence of the preceding paragraph will constitute "Excess Proceeds." Within five days of each date on which the aggregate amount of Excess Proceeds exceeds $10.0 million, XM will commence an Asset Sale Offer to all holders of notes and all holders of Pari Passu Indebtedness containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount (or, if applicable, accreted value) of notes and such other Pari Passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount (or accreted value, if applicable, of such other Indebtedness plus accrued and unpaid interest, and liquidated damages if any) to the date of closing of the offer. If any Excess Proceeds remain after consummation of an Asset Sale Offer, XM may use such Excess Proceeds for any purpose not
43
otherwise prohibited by the indenture. If the aggregate principal amount of notes and principal amount (or, if applicable, accreted value) of such other Pari Passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee shall select the notes and such other Pari Passu Indebtedness to be purchased on a pro rata basis based on the principal amount of notes and principal amount (or, if applicable, accreted value) of such other Pari Passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
XM will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the indenture, XM will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the indenture by virtue of such conflict.
The agreements governing XM's other Indebtedness contain, or may in the future contain, prohibitions of certain events, including events that would constitute a Change of Control or an Asset Sale. In addition, the exercise by the holders of notes of their right to require XM to repurchase the notes upon a Change of Control or an Asset Sale could cause a default under these other agreements, even if the Change of Control or Asset Sale itself does not. Finally, XM's ability to pay cash to the holders of notes upon a repurchase may be limited by XM's then existing financial resources. See "Risk Factors—We may not have the ability to fund a change of control offer if required by the indenture."
Selection and Notice
If less than all of the notes are to be redeemed or purchased in an offer to purchase at any time, the trustee will select notes for redemption as follows:
Notes and portions of notes selected will be in amounts of $1,000 or whole multiples of $1,000, except that if all notes of a holder are to be redeemed, the entire amount of notes held by such holder, even if not a multiple of $1,000, will be redeemed. Notices of redemption shall be mailed by first class mail at least 10 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that relates to that note shall state the portion of the principal amount thereof to be redeemed. An exchange note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder thereof upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption at the redemption price. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
XM will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
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unless, at the time of and after giving effect to such Restricted Payment:
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The preceding provisions will not prohibit, so long as no Default has occurred and is continuing or would be caused thereby:
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to clause (1)(b) of the definition of "Permitted Debt" set forth below under the caption "—Incurrence of Indebtedness;"
The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by XM or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose good faith resolution with respect thereto shall be conclusive and shall be delivered to the trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $20.0 million. Not later than the date of making any Restricted Payment, XM shall deliver to the trustee an officers' certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the indenture.
Incurrence of Indebtedness
XM will not, and will not permit any of XM's Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and XM will not issue any Disqualified Stock;provided, however, that XM may incur Indebtedness or issue Disqualified Stock and a Subsidiary Guarantor may incur Acquired Debt if the ratio of Total Consolidated Indebtedness to Adjusted Consolidated Operating Cash Flow for XM's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is
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issued would have been at less than or equal to 6.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"):
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XM will not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of XM's unless such Indebtedness is also contractually subordinated in right of payment to the notes on substantially identical terms;provided, however, that no Indebtedness of XM shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of XM solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (15) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, XM will, in its sole discretion, classify such item of Indebtedness in any
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manner that complies with this covenant, and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph of this covenant.
Liens
XM will not, and will not permit any of XM's Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
XM will not, and will not permit any of XM's Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
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Merger, Consolidation or Sale of Assets
XM will not, directly or indirectly, consolidate or merge with or into (whether or not XM is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of XM and XM's Restricted Subsidiaries taken as a whole, in one or more related transactions to, another Person unless:
In addition, XM will not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This "Merger, Consolidation or Sale of Assets" covenant will not apply to a consolidation, merger, sale, assignment, transfer, conveyance or other disposition of properties or assets between or among (1) XM and any of XM's Wholly Owned Restricted Subsidiaries or (2) XM and Holdings.
Transactions with Affiliates
XM will not, and will not permit any of XM's Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless:
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The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
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Sale and Leaseback Transactions
XM will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction;provided that XM and/or one or more Restricted Subsidiaries may enter into a sale and leaseback transaction if:
Insurance
XM will obtain prior to the launch of each satellite and will maintain launch insurance with respect to each satellite launch covering the period from the launch to 180 days following the launch of each satellite in an amount equal to or greater than the sum of (1) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as the satellite to be replaced, (2) the cost to launch a replacement satellite pursuant to the contract whereby a replacement satellite will be launched and (3) the cost of launch insurance for such replacement or, in the event that XM has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, XM's best estimate of the cost of such comparable insurance (in each case such costs being determined as of the date such insurance is procured by the Board of Directors whose determination shall be conclusive and evidenced by a Board Resolution). Notwithstanding the foregoing, at any time when XM has two primary satellites in-orbit and fully functioning, XM will not be obligated to obtain insurance pursuant to this paragraph with respect to the launch of any satellite that XM does not intend to use as a replacement for one of the two primary satellites used by XM to provide the XM Radio Service.
XM will maintain full in-orbit insurance with respect to each satellite it owns and launches in an amount at least equal to the sum of (1) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as the satellite to be replaced (or such percentage of replacement value as is then reasonably obtainable in the insurance market at a commercially reasonable cost), (2) the cost to launch a replacement satellite pursuant to the contract pursuant to which a replacement satellite will be launched and (3) the cost of launch insurance for such replacement or, in the event that XM has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, XM's best estimate of the cost of such comparable insurance (provided, however, that with respect to any satellite as to which there has been an insured loss, the required amount of such insurance shall equal the lesser of such sum and the amount reasonably obtainable in the insurance market at a commercially reasonable cost, as determined by the Board of Directors whose determination shall be conclusive and evidenced by a Board Resolution). The in-orbit insurance required by this paragraph will provide that if 50% or more of a satellite's capacity is lost, the full amount of insurance will become due and payable, and that if a satellite is able to maintain more than 50% but less than 100% of its capacity, a portion of such insurance will become due and payable.
In the event that XM receives proceeds from insurance relating to any satellite, XM will be entitled to use all or any portion of such proceeds for any purpose, including (1) to repay any vendor
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or third-party purchase money financing pertaining to such satellite that is required to be repaid by reason of the loss giving rise to such insurance proceeds, (2) to develop and construct a replacement satellite, or (3) general corporate purposes.
Limitation on Issuances and Sales of Equity Interests in Restricted Subsidiaries
XM will not, and will not permit any of XM's Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Restricted Subsidiary of XM that owns, operates or otherwise has the right to use Core XM Radio Assets to any Person, and XM will not permit any of its Restricted Subsidiaries to issue any of its Equity Interests other than:
Material Subsidiaries
XM shall cause any Person that becomes a Material Subsidiary of XM, defined as a Restricted Subsidiary that guarantees certain Indebtedness other than the notes, at any time on or after the date of the indenture for the notes, to execute and deliver, reasonably promptly after such event to the trustee under the indenture, an Indenture Guarantee and the General Security Agreement, in each case, duly executed on behalf of such Material Subsidiary by an Officer thereof.
Payments for Consent
Neither XM nor any of XM's Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid and is paid to all holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the rules and regulations of the SEC, so long as any notes are outstanding, XM and the Parent Guarantor will furnish to the holders of notes, within 15 days following the time periods specified in the SEC's rules and regulations:
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Whether or not required by the rules and regulations of the SEC, XM will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request.
If any of XM's Unrestricted Subsidiaries constitute Significant Subsidiaries, then the quarterly and annual financial information required by the preceding paragraphs will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of XM and XM's Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of XM.
Events of Default and Remedies
An "Event of Default" occurs if:
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In the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to XM, any Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, the principal amount of all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the principal amount of the notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal amount, premium or interest) if it determines that withholding notice is in their interest.
The holders of not less than a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest or liquidated damages on, or the principal amount of, the notes.
In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of XM with the intention of avoiding payment of the premium that XM would have had to pay if XM then had elected to redeem the notes pursuant to the optional redemption provisions of the indenture, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law upon the acceleration of the principal amount of the notes. If an Event of Default occurs prior to June 15, 2007, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of XM with the intention of avoiding the prohibition on redemption of the notes prior to such date, then the premium specified in the indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the principal amount of the notes.
XM is required to deliver to the trustee annually an officer's certificate regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, XM is required to deliver to the trustee an officer's certificate specifying such Default or Event of Default.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No past, present or future director, officer, employee, agent, incorporator, member, manager, partner or stockholder of XM or any Guarantor, as such, shall have any liability for any obligations of XM or any Guarantor under the notes, the indenture, the Indenture Guarantees or the Security Agreements or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
XM may, at its option and at any time, elect to have all of XM's and any Guarantors' obligations discharged with respect to the outstanding notes and all obligations under the Indenture Guarantees ("Legal Defeasance") except for:
In addition, XM may, at its option and at any time, elect to have the obligations of XM and the Guarantors released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "—Events of Default" will no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
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Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture, the notes, the Indenture Guarantees, either of the Security Agreements or either of the Intercreditor Agreements may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the notes (including Additional Notes, if any) then outstanding voting as a single class (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the indenture, the notes, the Indenture Guarantees, either of the Security Agreements or either of the Intercreditor Agreements may be waived with the consent of the holders of a majority in principal amount of the then outstanding notes (including Additional Notes, if any) voting as a single class (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes). Each of the Security Agreements may also be amended pursuant to the terms of the applicable Intercreditor Agreement without the consent of the holders of at least a majority in principal amount of the notes.
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Without the consent of each holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting holder):
Notwithstanding the preceding, without the consent of any holder of notes, XM, the Guarantors and the trustee may amend or supplement the indenture, the notes, the Indenture Guarantees, either of the Security Agreements or either of the Intercreditor Agreements:
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Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as to all notes and Indenture Guarantees issued thereunder, when:
In addition, XM must deliver an officers' certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of XM, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default shall occur and be continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any
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holder of notes, unless such holder shall have offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person (x) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person or (y) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, provided that, in each case, such Indebtedness or Lien, as applicable, is not incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person.
"Additional Notes" means additional notes (other than the Initial Notes) issued under the indenture in accordance with the covenant described under "Certain Covenants—Incurrence of Indebtedness," as part of the same series as the Initial Notes.
"Adjusted Consolidated Operating Cash Flow" means Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of XM are available, taken as a whole. For purposes of calculating Consolidated Operating Cash Flow for any four fiscal quarter period for purposes of this definition,
In addition, for purposes of calculating Adjusted Consolidated Operating Cash Flow:
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise;provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings.
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"Asset Sale" means:
Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales:
"Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "beneficially owns" and "beneficially owned" shall have a corresponding meaning.
"Board of Directors" means:
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"Board Resolution" means a resolution duly adopted by the Board of Directors or a committee of the Board of Directors in the case of Holdings, certified by the Secretary or an Assistant Secretary of XM to have been duly adopted and to be in full force and effect on the date of such certification.
"Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means:
"Cash Equivalents" means:
"Change of Control" means the occurrence of any of the following:
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Notwithstanding the foregoing, neither the January 2003 Financing Transactions nor a Parent Company Merger shall constitute a Change of Control.
"Collateral" means (1) the Collateral (as defined in the General Security Agreement), and (2) the Collateral (as defined in the FCC License Subsidiary Pledge Agreement).
"Collateral Agent" means the collateral agent under the applicable Intercreditor Agreement.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP;provided that:
"Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of:
"Consolidated Operating Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such periodplus:
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Notwithstanding the preceding, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary of XM shall be added to Consolidated Net Income to compute Consolidated Operating Cash Flow of XM only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to XM by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders.
"Continuing Directors" means, as of any date of determination, any member of the Board of Directors of XM who:
"Core XM Radio Assets" means XM Radio Assets reasonably necessary to operate the XM Radio Business.
"Cumulative Available Cash Flow" means, as at any date of determination, the positive cumulative Consolidated Operating Cash Flow realized during the period commencing on the beginning of the first fiscal quarter following the date of the indenture and ending on the last day of the most recent fiscal quarter immediately preceding the date of determination for which consolidated financial information of XM is available or, if such cumulative Consolidated Operating Cash Flow for such period is negative, the negative amount by which cumulative Consolidated Operating Cash Flow is less than zero.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
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"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require XM to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that XM may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "—Certain Covenants—Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of XM and XM's Restricted Subsidiaries in existence on the date of the indenture, including the Indebtedness incurred or to be incurred pursuant to the January 2003 Financing Transactions until such amounts are repaid.
"FCC License Subsidiary" means XM Radio Inc., a wholly owned subsidiary of XM that owns all of XM's FCC licenses to provide satellite digital radio service in the United States.
"FCC License Subsidiary Pledge Agreement" means the Amended and Restated Security Agreement, dated as of January 28, 2003, between XM and the Collateral Agent, providing for the pledge of the Capital Stock of FCC License Subsidiary as security for the notes and certain other indebtedness.
"FCC License Subsidiary Pledge Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement (FCC License Subsidiary Pledge Agreement), dated as of January 28, 2003, pursuant to which the collateral agent thereunder is appointed on behalf of the various secured creditor parties to serve as collateral agent under the FCC License Subsidiary Pledge Agreement.
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time.
"General Security Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement (General Security Agreement), dated as of January 28, 2003, pursuant to which the collateral agent thereunder is appointed on behalf of the various secured creditor parties to serve as collateral agent under the General Security Agreement.
"General Security Agreement" means the Security Agreement, dated as of January 28, 2003, among XM, the Parent Guarantor, the Collateral Agent and the other parties thereto, providing for a grant of a security interest in certain assets of XM as security for the notes and certain other indebtedness.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.
"Guarantors" means the Parent Guarantor and the Subsidiary Guarantors.
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"Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:
"Holder" means a Person in whose name a Note is registered.
"Holdings" means XM Satellite Radio Holdings Inc. and any and all successors thereto.
"Hughes Repeater Contract" means the Contract for the Design, Development and Purchase of Terrestrial Repeater Equipment by and between XM and Hughes Electronics Corporation, dated February 14, 2000 as amended from time to time provided that such amendments, taken as a whole, shall not be materially adverse to XM.
"Hughes Repeater Escrow Agreement" means the agreement between XM and Hughes Electronics Corporation, dated as of March 2, 2000, providing for the escrow of funds payable under the Hughes Repeater Contract.
"Hughes Satellite Agreement" means the Satellite Purchase Agreement between XM and Hughes Space and Communications Inc., dated July 21, 1999, as in effect on the date hereof and as it may be amended from time to time in any respect other than with respect to the terms or scope of the security interest granted by XM thereunder.
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of:
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" shall include (a) all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person), (b) to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person and (c) all Attributable Debt of such Person.
The amount of any Indebtedness outstanding as of any date shall be:
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"Indenture Guarantees" means the Guarantee of the Parent Guarantor and of the Subsidiary Guarantors pursuant to the terms of the indenture and substantially in the form attached to the indenture, and "Indenture Guarantee" means any of them.
"Initial Notes" means the notes issued under the indenture on the date thereof.
"Intercreditor Agreements" means the General Security Intercreditor Agreement and the FCC License Subsidiary Pledge Intercreditor Agreement.
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the form of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers, directors and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If XM or any Restricted Subsidiary of XM sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of XM such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of XM, XM shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments." The acquisition by XM or any Restricted Subsidiary of XM of a Person that holds an Investment in a third Person shall be deemed to be an Investment by XM or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person determined as provided in the final paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments."
"January 2003 Financing Transactions" means (1) the issuance to General Motors Corporation or affiliates thereof (collectively, "GM") of XM's and Holdings' Series GM Senior Secured Convertible Note due 2009 (the "GM Note") in the principal amount of $89,042,387 in lieu of certain guaranteed payments due to GM during the period from 2003 to 2006 under XM's Distribution Agreement with GM (the "Distribution Agreement"), (2) the amendment of the Distribution Agreement to provide for, among other things, the issuance of the GM Notes and the payment of up to $35,000,000 in subscriber acquisition payments in the form of Class A Common Stock of Holdings (the "Class A Common Stock"), (3) the issuance of XM's and Holdings' 10% Senior Secured Convertible Discount Notes due 2009 and common stock to certain investors, (4) XM's and Holdings' $100,000,000 Senior Secured Credit Facility with GM to finance certain revenue share payments owed to GM under the Distribution Agreement or other amounts which may be owing from time to time to GM, (5) the issuance of a warrant to GM to purchase 10,000,000 shares of Class A Common Stock at an exercise price of $3.18 per share, (6) the issuance and sale to U.S. Trust Company of 5,555,556 shares of Class A Common Stock and the issuance of a warrant to R. Steven Hicks to purchase 900,000 shares of Class A Common Stock at an exercise price of $3.18 per share in accordance with Section 4(2) of the Securities Act, and (7) the execution, delivery and performance of all agreements, documents and instruments evidencing the transactions described in clauses (1) through (6) above and all arrangements contemplated thereby, in each case as reflected in such agreements, documents and instruments as in effect on the date of the indenture with such amendments that do not (w) have a materially adverse effect on the rights of the trustee or the Holders of the notes under the notes, the Indenture Guarantees, the Security Agreements or the Intercreditor Agreements, taken as a whole (x) increase the principal amount (or accreted value, as applicable) or shorten the fixed maturity of any Indebtedness, or advance the dates or reduce the price with respect to the redemption of the Indebtedness, or (y) increase the rate or change the time of payment of interest, including default interest, on any Indebtedness.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Material Subsidiary" means, a Restricted Subsidiary (other than XM Equipment Leasing LLC) that has Guaranteed any Indebtedness or other obligation of XM or any Restricted Subsidiary represented by clauses (1) or (3) of the definition of the "January 2003 Transactions."
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person and its Restricted Subsidiaries, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
"Net Proceeds" means the aggregate cash proceeds received by XM or any of XM's Restricted Subsidiaries in respect of any Asset Sale or other transaction (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale or other transaction, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale or other transaction and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
"Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
"Parent Company Merger" means (a) a merger or consolidation of XM with or into Holdings or a merger or consolidation of Holdings with or into XM or (b) any assignment, transfer, conveyance or other disposition of all or substantially all of the properties or assets of XM to Holdings or of Holdings to XM.
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"Parent Guarantor" means Holdings, in its capacity as a guarantor of the Obligations under the notes pursuant to the indenture.
"Pari Passu Indebtedness" means Indebtedness of XM that ispari passu in right of payment to the notes or, in the case of a Subsidiary Guarantor, that ispari passu in right of payment to its Indenture Guarantee.
"Permitted Business" means any of the lines of business conducted by XM and XM's Restricted Subsidiaries on the date of the indenture and any business similar, ancillary or related thereto or that constitutes a reasonable extension or expansion thereof, including in connection with XM's existing and future technology, trademarks and patents.
"Permitted Investments" means:
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"Permitted Liens" means:
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"Permitted Refinancing Indebtedness" means any Indebtedness of XM or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of XM or any of its Restricted Subsidiaries (other than intercompany Indebtedness);provided that:
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"Principals" means American Honda Motor Company, Inc., General Motors Corporation, DIRECTV Enterprises, Inc. and Clear Channel Investments, Inc.
"Qualified Receivables" means the aggregate amount of accounts receivables of XM determined in accordance with GAAP that are not more than 90 days past due.
"Qualified Sale and Leaseback Transaction" means a sale and leaseback transaction (1) involving one or more satellites of XM or any Restricted Subsidiary of XM (other than XM Leasing) and (2) the Net Proceeds of which, together with the aggregate Net Proceeds from all other sale and leaseback transactions involving satellites consummated after the date of the indenture (including any subsequent replacements, amendments or modifications thereof), do not exceed $150,000,000.
"Related Party" means:
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any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1).
"Restricted Investment" means any Investment other than a Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.
"Satellite Vendor Indebtedness" means Indebtedness of XM provided by a satellite or satellite launch vendor or Affiliate thereof for the construction, launch and insurance of all or part of one or more replacement satellites or satellite launches for such satellites, where "replacement satellite" means a satellite that is used for continuation of XM's satellite radio service as a replacement for a satellite that is retired, relocated within the existing service area or reasonably determined by XM to no longer meet the requirements for such service, or (ii) a ground spare intended for future use as the same.
"Security Agreements" means the General Security Agreement and the FCC License Subsidiary Pledge Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the indenture.
"Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subscriber" means a subscriber in good standing to the XM Radio Service that has paid subscription fees for at least one month of such service and whose subscription payments are not delinquent.
"Subsidiary" means, with respect to any specified Person:
"Subsidiary Guarantor" means any Restricted Subsidiary of XM that has executed an Indenture Guarantee and the General Security Agreement.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated March 15, 2000 among Holdings, XM and XM Radio Inc., as in effect on the date of the indenture.
"Total Consolidated Indebtedness" means, at any date of determination, an amount equal to the aggregate amount of all Indebtedness of XM and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, outstanding as of the date of determination.
"Total Incremental Equity" means, at any date of determination, the sum of, without duplication: (1) the aggregate cash proceeds received by XM since January 29, 2003 from the issuance or sale of Capital Stock of XM (other than Disqualified Stock but including Capital Stock issued upon the
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conversion of convertible Indebtedness or from the exercise of options, warrants or rights to purchase Capital Stock of XM other than Disqualified Stock), or of contributions to the equity capital of XM by Holdings or the fair market value of the consideration (if other than cash) from the issuance or sale of Equity Interests (other than Disqualified Stock) of XM or of actual or deemed capital contributions to the common equity capital of XM by Holdings from the issuance of Equity Interests of Holdings in exchange for the retirement of Pari Passu Indebtedness of XM since January 29, 2003, to any Person other than a Restricted Subsidiary; plus (2) an amount equal to the sum of (a) the net reduction in Investments in any Person (other than Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to XM or any Restricted Subsidiary after the date of issuance of the Initial Notes from such Person and (b) the portion (proportionate to XM's equity interest in such Restricted Subsidiary) of the fair market value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (a) or (b) above, the foregoing sum shall not exceed the amount of Investments previously made (and treated as a Restricted Payment) by XM or any Restricted Subsidiary in such Person or Unrestricted Subsidiary and that constitutes a Restricted Payment that has been deducted from Total Incremental Equity pursuant to clause (3) below; minus (3) the aggregate amount of all Restricted Payments declared or made on or after the date of issuance of the Initial Notes (including the aggregate amount paid pursuant to clauses (1), (2), (3), (4), (5), (6) and (8) of the second paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments."
"Unrestricted Subsidiary" means any Subsidiary of XM (other than the FCC License Subsidiary) that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary:
Any designation of a Subsidiary of XM as an Unrestricted Subsidiary shall be evidenced to the trustee by filing with the trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "—Certain Covenants—Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of XM as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "—Certain Covenants—Incurrence of Indebtedness," XM shall be in default of such covenant. XM's Board of Directors may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of XM of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption
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"—Certain Covenants—Incurrence of Indebtedness," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness or Disqualified Stock at any date, the number of years obtained by dividing:
"Wholly Owned Restricted Subsidiary" of any specified Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person.
"XM Leasing" means XM Equipment Leasing LLC, a Delaware limited liability company, and any and all of XM's Subsidiary successors thereto, for so long as XM Leasing is not a Subsidiary Guarantor and is a guarantor of, or provides security for, other Indebtedness of XM and/or its Restricted Subsidiaries represented by clauses (1) or (3) of the definition of the "January 2003 Transactions;" provided, that after XM Leasing ceases to satisfy these criteria all references to XM Leasing shall be deemed deleted and of no further force or effect.
"XM Radio Assets" means all assets, rights, services and properties, whether tangible or intangible, used or intended for use in connection with an XM Radio Business, including satellites, terrestrial repeating stations, FCC licenses, uplink facilities, musical libraries and other recorded programming, furniture, fixtures and equipment and telemetry, tracking, monitoring and control equipment.
"XM Radio Business" means the business of transmitting digital radio programming throughout the United States by satellite and terrestrial repeating stations to be received by subscribers, including any business in which XM was engaged on the date of the indenture, and any business reasonably related thereto.
"XM Radio Service" means digital radio programming transmitted by satellites and terrestrial repeating stations to vehicle, home and portable radios in the United States.
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Except as described in the next paragraph, the outstanding notes were, and the exchange notes will be, initially issued in the form of one or more notes in registered, global form ("Global Notes"). The Global Notes were deposited on the date of the closing of the note offering with the Trustee, as custodian for the Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant as described below.
Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for definitive notes in registered, certificated form without interest coupons ("Certificated Notes") except in the limited circumstances described below. See "—Exchange of Book-Entry Notes for Certificated Notes."
Transfer of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants, which may change from time to time.
Depository Procedures
DTC has advised XM that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of Participants. The Participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.
DTC has also advised XM that pursuant to procedures established by it:
You may hold your interests in the Global Notes directly through DTC if you are a participant in DTC, or you may hold your interests in the Global Notes indirectly through organizations which are participants in DTC. Transfers between holders whose interests in the Global Notes are directly or indirectly held by DTC will be effected in accordance with DTC's rules and will be settled in same-day funds.
The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interest in a Global Note to such persons may be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in a Global Note to pledge such interest to persons or entities that do not participate in DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of physical certificate evidencing such interests. For certain other restrictions on the transferability of the
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notes see, "—Exchange of Book-Entry Notes for Certificated Notes" and "Exchange of Interests in Global Notes for Certificated Notes."
Except as described below, owners of interests in the Global Notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or holders thereof under the indenture for any purpose.
Payments in respect of the principal and premium and liquidated damages, if any, and interest on a Global Note registered in the name of DTC or its nominee will be payable by the Trustee to DTC or its nominee in its capacity as the registered holder under the indenture. Under the terms of the indenture, XM and the Trustee will treat the persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither XM, the Trustee nor any agent of XM or the Trustee has or will have any responsibility or liability for:
DTC has advised XM that its current practices, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security such as the Global Notes as shown on the records of DTC. Payments by Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or XM. Neither XM nor the Trustee will be liable for any delay by DTC or its Participants in identifying the beneficial owners of the notes, and XM and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the notes for all purposes.
Although DTC has agreed to the foregoing procedures to facilitate transfers of interests among participants in DTC, it is under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of XM, the initial purchaser or the Trustee will have any responsibility for the performance by DTC or its respective participants or indirect participants of its obligations under the rules and procedures governing its operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive notes in registered certificated form if:
In addition, beneficial interests in a Global Note may be exchanged for certificated notes upon request but only upon at least 20 days prior written notice given to the Trustee by or on behalf of DTC in accordance with customary procedures. In all cases, certificated notes delivered in exchange for any Global Note or beneficial interest therein will be registered in names, and issued in any approved
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denominations, requested by or on behalf of DTC (in accordance with its customary procedures) and will bear the restrictive legend referred to in "Notice to Investors" unless XM determines otherwise in compliance with applicable law.
Certificated Notes
Subject to certain conditions, any person having a beneficial interest in the Global Note may, upon request to the Trustee, exchange such beneficial interest for notes in the form of certificated notes. Upon any such issuance, the Trustee is required to register such certificated notes in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). In addition, if (i) XM notifies the Trustee in writing that DTC is no longer willing or able to act as a depository and XM is unable to locate a qualified successor within 90 days or (ii) XM, at its option, notifies the Trustee in writing that XM elects to cause the issuance of notes in the form of certificated notes under the indenture, then, upon surrender by the Global Note Holder of its Global Note, notes in such form will be issued to each person that the Global Note Holder and DTC identify as being the beneficial owner of the related notes.
Neither XM nor the Trustee will be liable for any delay by the Global Note Holder or DTC in identifying the beneficial owners of notes and XM and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note Holder or DTC for all purposes.
Same Day Settlement and Payment
The indenture will require that payments in respect of the notes represented by the Global Note (including principal, premium, if any, interest and liquidated damages, if any) be made by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. With respect to certificated notes, XM will make all payments of principal, premium, if any, interest and liquidated damages, if any, by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. XM expects that secondary trading in the certificated notes will also be settled in immediately available funds.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. federal income tax consequences of the exchange of original notes for exchange notes pursuant to the exchange offer and of the ownership and disposition of the notes. This summary is limited to the U.S. federal income tax consequences relevant to original notes that were purchased in connection with their original issue at the issue price for cash and to notes that are held as capital assets for U.S. federal income tax purposes (generally, property held for investment). This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), administrative pronouncements of the Internal Revenue Service (the "IRS"), judicial decisions and final, temporary and proposed Treasury regulations, changes to any of which subsequent to the date of this offering circular may affect the tax consequences described herein, possibly with retroactive effect.
This summary is intended for general information only and does not describe all of the U.S. federal income tax consequences that may be relevant to holders in light of their particular circumstances, or to holders subject to special U.S. federal income tax rules, such as:
Moreover, this summary does not address any aspect of U.S. federal tax law other than income taxation and does not describe any state, local or non-U.S. tax laws that may be applicable to holders.
Persons considering the purchase of notes are urged to consult their tax advisors with regard to the application of the U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
As used herein, the term "U.S. holder" means a beneficial owner of a note that, for U.S. federal income tax purposes, is:
A "non-U.S. holder" is a beneficial owner of a note that is not a U.S. holder.
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The U.S. federal income tax treatment of a partner in a partnership holding notes generally will depend on the status of the partner and the activities of the partnership. If you are a partner in a partnership, you should consult your tax advisor regarding the U.S. federal income tax consequences of an investment by the partnership in the notes.
Exchange of Original Notes for Exchange Notes
The exchange of original notes for exchange notes pursuant to the exchange offer will not constitute a taxable event to holders. Rather, the exchange notes will be treated as a continuation of the original notes for federal income tax purposes, and are referred to together as "notes" in this summary of federal income tax considerations. Consequently, no gain or loss will be recognized by a holder upon receipt of an exchange note, the holding period of the exchange note will include the holding period of the original note, and the initial basis of the exchange note will be the same as the basis of the original note immediately before the exchange.
Taxation of U.S. Holders
Stated Interest on the Notes
Stated interest paid or accrued on the notes will be taxable to a U.S. holder as ordinary interest income when it is paid or accrued in accordance with such U.S. holder's method of accounting for U.S. federal income tax purposes.
Liquidated Damages on Notes
If we fail to register the notes with the SEC on a shelf registration statement to permit you to resell your notes, we will be required to pay you liquidated damages. We intend to take the position for U.S. federal income tax purpose that any payments of liquidated damages should be taxable to you as additional interest income when paid or accrued, in accordance with your method of accounting. This position is based in part on the assumption that as of the date of issuance of the notes, the possibility that liquidated damages will have to be paid is a "remote" or "incidental" contingency within the meaning of applicable Treasury regulations. Our determination that such possibility is a remote or incidental contingency is binding on you, unless you explicitly disclose that you are taking a different position to the IRS on your tax return for the year during which you acquire the notes. However, the IRS may take a contrary position from that described above, which could affect the timing and character of both your income from the notes and our deduction with respect to the payments of liquidated damages.
Market Discount
The resale value of your notes may be affected by the market discount rules under the Code. Under these rules, if a U.S. holder acquires a note for an amount that is less than its stated principal amount, the amount of such difference is treated as "market discount" for U.S. federal income tax purposes, unless such difference is less than a specifiedde minimis amount.
A U.S. holder that purchases a note with market discount is required to treat any payment of principal on, or any gain upon the sale, exchange, or retirement (including redemption or repurchase) of a note, as ordinary income to the extent of the accrued market discount on the note that has not previously been included in gross income. If a U.S. holder disposes of the note in certain otherwise nontaxable transactions, accrued market discount is includible in gross income by the U.S. holder, as ordinary income, as if such U.S. holder had sold the note at its then fair market value.
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In general, the amount of market discount that has accrued is determined on a ratable basis. A U.S. holder may, however, elect to determine the amount of accrued market discount on a constant yield to maturity basis. This election is made on a note-by-note basis and is irrevocable.
A U.S. holder may not be allowed to deduct immediately a portion of the interest expense on any indebtedness incurred or continued to purchase or to carry notes with market discount. A U.S. holder may, however, elect to include market discount in gross income currently as it accrues, rather than upon a disposition of the note, in which case the interest deferral rule will not apply. An election to include market discount in gross income on an accrual basis will apply to all debt instruments acquired by the U.S. holder on or after the first day of the first taxable year to which such election applies and is irrevocable without the consent of the IRS. A U.S. holder's tax basis in a note will be increased by the amount of market discount included in such U.S. holder's gross income under such an election.
Sale or Other Taxable Disposition of the Notes
Upon the sale or other taxable disposition (including redemption or repurchase) of a note, a U.S. holder generally will recognize taxable gain or loss equal to the difference between the amount realized on the sale or other taxable disposition of the note (except to the extent the amount realized is attributable to accrued interest, which will be taxable as ordinary interest income), and the U.S. holder's adjusted tax basis in the note. A U.S. holder's adjusted tax basis in a note generally will be the amount such U.S. holder paid for the note. Gain or loss recognized on the sale or other taxable disposition of a note generally will be capital gain or loss and will be long-term capital gain or loss if at the time of sale, or other taxable disposition, the note has been held for more than one year. Long-term capital gains for non-corporate taxpayers are subject to reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
Information reporting requirements will apply in connection with payments of principal and interest on the notes and payments of the proceeds from a sale or other disposition of the notes. A U.S. holder may be subject to U.S. backup withholding tax at the rates specified in the Code on these payments if it fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment will be allowed as a credit against the U.S. holder's U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that the required information is furnished to the IRS.
Taxation of Non-U.S. Holders
Payments of Interest
Subject to the discussion of backup withholding below, if you are a non-U.S. holder of notes, interest paid to you will not be subject to U.S. federal income taxes or withholding tax if the interest is not effectively connected with your conduct of a trade or business within the United States, provided that you:
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If you do not qualify for an exemption under these rules, interest income from the notes may be subject to withholding tax at the rate of 30% (or lower applicable treaty rate) at the time it is paid. The payment of interest effectively connected with your U.S. trade or business, however, would not be subject to a 30% withholding tax so long as you provide us or our agent an adequate certification (currently on Form W-8ECI), but such interest would be subject to U.S. federal income tax on a net basis at the rates applicable to United States persons generally. In addition, if you are a foreign corporation and the payment of interest is effectively connected with your U.S. trade or business, you may also be subject to a 30% (or lower applicable treaty rate) branch profits tax.
To claim the benefit of a tax treaty, you must provide a properly-executed Form W-8BEN before the payment of interest and you may be required to obtain a U.S. taxpayer identification number and provide documentary evidence issued by foreign governmental authorities to prove residence in the foreign country.
Liquidated Damages on Notes
Any payment of liquidated damages on the notes as discussed under "Taxation of U.S. Holders—Liquidated Damages on Notes" should be treated as a payment of interest to the non-U.S. holder as discussed above.
Sale or Other Taxable Dispositions of the Notes
If you are a non-U.S. holder, you generally will not be subject to U.S. federal income tax on any amount which constitutes capital gain upon retirement or disposition of a note, unless any of the following is true:
If you have a U.S. trade or business and the investment in the notes is effectively connected with that trade or business, the payment of the sales proceeds with respect to the notes would be subject to U.S. federal income tax on a net basis at the rate applicable to United States persons generally. In addition, foreign corporations may be subject to a 30% (or lower applicable treaty rate) branch profits tax if the investment in the note is effectively connected with the foreign corporation's U.S. trade or business.
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Information Reporting and Backup Withholding
United States Backup withholding tax will not apply to payments on the notes to a non-U.S. holder if the statement described above under "Taxation of Non-U.S. holders—Payments of Interest" is duly provided by such holder. Information reporting requirements may apply with respect to interest payments on the notes, in which event the amount of interest paid and tax withheld (if any) with respect to each non-U.S. holder will be reported annually to the Internal Revenue Service. Information reporting requirements and backup withholding tax will not apply to any payment of proceeds of the sale of notes effected outside the United States by a foreign office of a "broker" as defined in applicable United States Treasury regulations, unless such broker:
Payment of the proceeds of any such sale effected outside the United States by a foreign office of any broker that is described in one of the categories listed the preceding sentence may be subject to backup withholding tax and information reporting requirements, unless such broker has documentary evidence in its records that the beneficial owner is a non-U.S. holder and certain other conditions are met, or the beneficial owner otherwise establishes an exemption. Payment of the proceeds of any such sale to or through the United States office of a broker is subject to information reporting and backup withholding requirements unless the beneficial owner of the notes provides the statement described above under "Taxation of Non-U.S. holders—Payments of Interest" or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder will be allowed as a credit against such non-U.S. holder's United States federal income tax and may entitle the non-U.S. holder to a refund, provided that the required information is furnished to the IRS.
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Each broker-dealer that receives exchange notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired as a result of market-making activities or other trading activities. We have agreed that we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to the exchange offer, including the expenses of one counsel for the holders of the outstanding notes other than commissions or concessions of any brokers or dealers, and will indemnify the holders of the outstanding notes against various liabilities under the Securities Act.
Certain legal matters with respect to the notes offered by this prospectus will be passed upon for XM by Hogan & Hartson L.L.P. Washington, D.C.
The consolidated financial statements and schedules of XM Satellite Radio Holdings Inc. and subsidiaries ("Holdings") and XM Satellite Radio Inc. and subsidiaries ("XM") as of December 31, 2002 and 2001, and for each of the years in the three year period ending December 31, 2002, included in this prospectus, have been incorporated by reference herein and in the registration statement, in reliance upon the reports of KPMG LLP, independent accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The audit reports contain an explanatory paragraph that states that Holdings and XM adopted the provisions of Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets as of January 1, 2002.
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INCORPORATION OF DOCUMENTS BY REFERENCE
This prospectus is part of a registration statement we filed with the SEC. The SEC allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below, which we have previously filed with the SEC, and any future filings made with the SEC prior to the termination of this exchange offer under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934.
WHERE YOU CAN FIND MORE INFORMATION
You may obtain copies of documents incorporated by reference in this document, without charge, by writing us at the following address or calling us at the telephone number listed below:
XM Satellite Radio
1500 Eckington Place, N.E.
Washington, DC 20002
Attention: General Counsel
(202) 380-4000
Our reports and amendments filed with the SEC can be accessed, free of charge, through our website athttp://www.xmradio.com/investor/investor_financial_and_company.html on the same day that they are electronically filed with the SEC.
You may read and copy materials that we have filed with the SEC, including the registration statement, at the following location:
Public Reference Room
450 Fifth Street, N.W.
Washington, DC 20549
You may obtain information on the operation of the SEC's Public Reference Room by calling the SEC at (800) SEC-0330. Our SEC filings are also available to the public on the SEC's Internet site at http://www.sec.gov.
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