UPDATE TO OFFERING CIRCULAR
AND SOLICITATION OF CONSENTS
DATED DECEMBER 24, 2002
XM SATELLITE RADIO INC.
and
XM SATELLITE RADIO HOLDINGS INC.
Offer to Exchange Up to
$474,182,582 Aggregate Principal Amount at Maturity ($325,000,000 accreted
value as of March 15, 2003) of
14% Senior Secured Discount Notes due 2009,
Up To $22,750,000 in cash and
Warrants To Purchase Up To
27,625,000 Shares of Class A Common Stock of XM Satellite Radio Holdings Inc.
For XM Satellite Radio Inc.'s
14% Senior Secured Notes due 2010
and
Solicit Consents to Indenture Amendments
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THIS UPDATE DOES NOT EXTEND THE PERIOD FOR THE EXCHANGE OFFER AND THE
SOLICITATION OF CONSENTS TO THE INDENTURE AMENDMENTS. THAT PERIOD WILL
EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON JANUARY 23, 2003, UNLESS
EXTENDED.
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This Update to Offering Circular is intended to notify you that we have
received the necessary consents from the prospective investors in our private
financing transactions and General Motors Corporation to modify the condition to
those transactions that the minimum tender condition for the consummation of
this exchange offer and consent solicitation be 75% rather than 90% of the
aggregate principal amount of existing notes. The private financing and General
Motors transactions together are providing $450 million in aggregate new
financial investment and support as described in this Offering Circular under
"The Concurrent Transactions."
In addition, we have amended this exchange offer to reduce the minimum
tender condition in the exchange offer to 50.1% of the aggregate principal
amount of existing notes. We have also added a specific additional condition
that (to the extent not already contained in the more general existing
conditions to the exchange offer) if less than 75% of the aggregate principal
amount of existing notes tender in the exchange offer, the new investor group
and General Motors shall have consented to a further reduction in the minimum
tender condition to their transactions to the amount actually tendered. As
described above, the General Motors and investor group financing transactions
are now conditioned upon 75% participation by existing noteholders in the
exchange offer, which can be amended only if agreed to by both General Motors
and 66-2/3% of the investor group.
Except as otherwise set forth herein, the terms of the exchange offer and
other information in the Offering Circular remain the same.
This Update also is intended to bring to your attention some additional
information regarding XM Satellite Radio Holdings Inc. (Nasdaq: XMSR) (sometimes
referred to herein as "Holdings") and XM Satellite Radio Inc. (sometimes
referred to herein as "XM").
This updating information should be considered together with the more
extensive information set forth in the Offering Circular dated December 24,
2002, including the discussion of "Risk Factors" beginning on page 14 of the
Offering Circular and the cautionary statement regarding "forward-looking
statements" set forth on page (ii) of the Offering Circular. References in this
document to the Offering Circular are intended to mean the Offering Circular of
Holdings and XM dated December 24, 2002, as updated by this Update.
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The Date of this Update to Offering Circular is January 15, 2003.
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Receipt of Consents from Prospective Investors, General Motors under Concurrent
Transactions to Reduce Minimum Tender Condition from 90% to 75%
On January 15, 2003, we announced that we had received the necessary
consents from the prospective investors in our private financing transactions
and General Motors Corporation, which together are providing $450 million in
aggregate new financial investment and support as described in this Offering
Circular under "The Concurrent Transactions," to modify the condition to those
transactions that the minimum tender condition for the consummation of
this exchange offer and consent solicitation be 75% rather than 90% of the
aggregate principal amount of existing notes. These prospective investors and
General Motors are not obligated to consent to further changes in the condition
to their transactions to reduce the minimum tender condition below 75% of the
aggregate principal amount of existing notes, and there is no assurance that
they would consent to do so.
Reduction of Minimum Tender Condition from 90% to 50.1%
The exchange offer presently is conditioned upon 90% participation by
existing noteholders, which condition can be waived in our sole discretion. We
have amended the exchange offer to reduce the minimum tender condition in the
exchange offer to 50.1% of the aggregate principal amount of existing notes.
We have also added a specific additional condition that (to the extent not
already contained in the more general existing conditions to the exchange offer)
if less than 75% of the aggregate principal amount of existing notes tender in
the exchange offer, the new investor group and General Motors shall have
consented to a further reduction in the minimum tender condition to their
transactions to the amount actually tendered.
As described above, the General Motors and investor group financing
transactions are now conditioned upon 75% participation by existing noteholders
in the exchange offer, which can be amended only if agreed to by both General
Motors and 66-2/3% of the investor group. We cannot predict at the present time
whether we could obtain the required consents from both GM and the investor
group to change the condition in the General Motors and investor group financing
transactions to further reduce or waive the minimum tender condition for the
exchange offer below this 75% threshold. These prospective investors and General
Motors are not obligated to consent to further changes in the condition to their
transactions to reduce the minimum tender condition below 75% of the aggregate
principal amount of existing notes, and there is no assurance that they would
consent to do so. In addition, no assurance can be given that the proposed
private financing transaction or transactions with General Motors Corporation,
as described in this Offering Circular under "The Concurrent Transactions,"
will be consummated. It is not a condition to the exchange offer that the
proposed private financing transactions or transactions with General
Motors be consummated, and there is a risk that these transactions will not be
completed. See the discussion in the Offering Circular under "Risk Factors
Related to the Concurrent Transactions."
We have indicated in the Offering Circular that the exchange offer, if
accepted by a substantial percentage of the outstanding notes, will improve our
liquidity over the next three years because, under the exchange notes, interest
will accrete, rather than be paid in cash, during that time. If the exchange
offer is accepted by 100% of the holders, we would expect to save $45.5 million
in cash interest per year as a result of this accretion. If only 75% of the
holders accept the exchange offer, we would expect to save $34.1 million in cash
interest per year as a result of this accretion. (If 50.1% of the holders accept
the exchange offer, we would expect to save $22.8 million in cash interest per
year as a result of this accretion.) If 75% or 50.1% of the holders accept the
exchange offer and the Concurrent Transactions are successfully completed, we
still expect to be fully funded based upon our refined business plan, as
described in the Offering Circular. So long as our business generates positive
cash flow in accordance with our refined business plan, we will not need to
raise additional financing to continue operations. Our refined business plan
contemplates the use of either insurance proceeds or vendor financing to launch
replacement satellite(s).
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Except as otherwise set forth herein, the terms of the exchange offer and
other information in the Offering Circular remain the same. (This includes the
other conditions to the exchange offer, such as the requirement that no change
or any development involving a prospective change shall have occurred or
be threatened in our business, properties, assets, liabilities, financial
condition, operations, results of operations or prospects and our subsidiaries
taken as a whole that, in our reasonable judgment, is or may be adverse to us,
or we have become aware of facts that, in our reasonable judgment, have or may
have adverse significance with respect to the existing notes or the exchange
consideration.)
Withdrawal Rights
As described in the Offering Circular, holders of existing notes currently
do not have the right to withdraw existing notes previously tendered by them for
exchange. We are not changing this term of the exchange offer, and holders of
existing notes will not have withdrawal rights as a result of the change in
conditions to the exchange offer described above.
Available Information
Since the date of the Offering Circular, we have filed or are filing with
the SEC, on or about the date hereof, and we incorporate by reference (in
addition to the documents listed in the Offering Circular and any future filings
we make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
until the exchange of securities contemplated by the Offering Circular is
completed), a Current Report on Form 8-K (the "Current Report on Form 8-K"). As
with other incorporated information, the information incorporated by reference
is considered to be a part of the Offering Circular. In the event of conflicting
information in these documents, the information in the latest filed document
should be considered correct and supersedes the prior information.
You may obtain a copy of all of our reports filed with the SEC at no cost
by writing or telephoning us at:
XM Satellite Radio
1500 Eckington Place, N.E.
Washington, DC 20002
Attn: Investor Relations
(202) 380-4000
XM Satellite Radio Subscribers, Other Developments
We recently announced that we have over 360,000 subscribers. At December
31, 2002, we had more than 347,000 subscribers. We also recently announced that
General Motors plans to offer XM Satellite Radio on 44 of 57 GM models,
representing more than 75% of GM's fleet.
Security Documents
The information regarding the security agreements and inter-creditor
agreements described in the Offering Circular was qualified by reference to the
terms of the definitive documents. The proposed forms of those documents have
now been filed or are being filed as exhibits to the Current Report on Form 8-K,
and a copy may be
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obtained by contacting XM Satellite Radio Holdings Inc., at 1500 Eckington
Place, N.E., Washington, D.C. 20002, Attention: General Counsel.
FCC License Use Agreement
We recently amended the assignment and use agreement relating to our FCC
licenses. This agreement, which is between XM and XM's wholly owned subsidiary,
XM Radio Inc., provides that XM may use the FCC licenses granted to XM Radio
Inc. for the operation of the XM Radio system and that the agreement may be
assigned to lenders or bondholders of either company in connection with a
collateral assignment or grant of security interest. The proposed form of the
assignment and use agreement has now been filed or is being filed as an exhibit
to the Current Report on Form 8-K, and a copy may be obtained by contacting XM
Satellite Radio Holdings Inc., at 1500 Eckington Place, N.E., Washington, D.C.
20002, Attention: General Counsel.
Warrants
The warrants will be issued pursuant to a warrant agreement between
Holdings and The Bank of New York as warrant agent. The information in the
Offering Circular and this Update is not complete and is qualified in its
entirety by reference to the warrant agreement. The proposed form of the warrant
agreement has now been filed or is being filed as an exhibit to the Current
Report on Form 8-K, and a copy may be obtained by contacting XM Satellite Radio
Holdings Inc., at 1500 Eckington Place, N.E., Washington, D.C. 20002, Attention:
General Counsel.
As described in more detail in the Offering Circular, the exercise price of
each warrant may be paid either in cash or without the payment of cash, by
reducing the number of shares of Class A common stock that would be obtainable
upon the exercise of a warrant. Holdings will be filing a registration statement
with the SEC within six months after the issuance of the warrants to register
the issuance of shares of Class A common stock underlying the warrants. Holdings
has agreed to use its commercially reasonable efforts to keep the registration
statement effective for a period of two years from the date it is initially
declared effective by the SEC. Unless that registration statement is effective,
only cashless exercise of warrants (in the manner described in the Offering
Circular and the warrant agreement) will be permitted.
Shareholders' Agreements
As described in the Offering Circular, Holdings' shareholders agreement
with the former holders of its Series A subordinated convertible notes and the
holders of its Series C preferred stock would be amended at the closing of the
concurrent transactions, described in the Offering Circular under the caption
"The Concurrent Transactions," to add purchasers of the 10% Senior Secured
Discount Convertible Notes as parties. It is now intended that the pre-existing
provisions of this agreement regarding rights to designate directors to our
board would be deleted from the agreement, but a separate agreement containing
such provisions would be entered into by certain holders of Class A common stock
and Series C preferred stock (some of which would also hold convertible notes)
regarding these matters. The existing shareholders agreement would still be
amended at the closing of the concurrent transactions, as described in the
Offering Circular, to give noteholders certain veto rights similar to, but in
addition to, those of our Series C preferred stock. Without the consent of 75%
of the new investor noteholders and GM, we would not be able to amend our
charter and bylaws in a way that materially affects the rights of GM or the
noteholders; issue common stock in an amount that increases the amount
outstanding by 20% or more; take any action that would restrict our ability to
honor the rights of GM or the note holders; issue securities that have a
preference over the new notes or the OnStar notes; incur indebtedness with
financial or operational covenants, redeem or repurchase securities that are
junior to or on a parity with the OnStar notes or the new notes; enter into
certain transactions with affiliates, merge or sell all or substantially all of
our assets; or change the principal nature of our business. As described in the
Offering Circular, note holders, including GM, along with the current parties to
the shareholders agreement, would also have the right to participate in any of
our future private financings to the extent necessary to maintain their pro rata
fully diluted ownership percentage.
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Principal Stockholders
The following table presents, as of September 30, 2002, information based
upon our records and filings with the SEC regarding each person, other than our
directors and executive officers, known to us to be the beneficial owner of more
than 5% of our Class A common stock on an actual basis and on a pro forma basis
to give effect to the closing of the exchange, the proposed transactions with
General Motors and the proposed new financing:
Actual Pro forma
------------------------------- --------------------------------
Percentage of Percentage of
Number of Total Class A Number of Total Class A
Class A Shares Shares Class A Shares Shares
-------------- ------------- -------------- -------------
Beneficial Owners of More Than 5%:
General Motors Corporation................ 19,414,399 (1) 18.8% 22,304,688 (5) 19.9%
100 Renaissance Center
3031 West Grand Boulevard
PO Box 100
Detroit, MI 48265-1000
Hughes Electronics Corporation............ 13,861,147 (2) 14.2% 15,141,992 (6) 14.4%
200 N. Sepulveda Boulevard
El Segundo, CA 90245
Eastbourne Capital Management, LLC........ 10,027,298 11.0% 10,027,298 (7) 10.3%
1101 Fifth Avenue
Suite 160
San Rafael, CA 94901
Black Bear Offshore Master Fund Ltd....... 6,491,765 7.1% 6,491,765 6.7%
c/o CITCO Fund Services
(Cayman Islands) Limited Corporate Centre
West Bay Road
P.O. Box 31106-SMB
Grand Cayman, Cayman Islands
Clear Channel Investments, Inc............ 8,329,877 9.1% 8,329,877 8.6%
200 Concord Plaza, Suite 600
San Antonio, TX 78216
DIRECTV Enterprises, LLC.................. 6,752,963 (3) 6.9% 8,033,808 (8) 7.7%
2230 E. Imperial Highway
El Segundo, CA 90245
George W. Haywood......................... 5,623,281 6.2% 5,623,281 (9) 5.8%
c/o Cronin & Vris, LLP
380 Madison Avenue
24th Floor
New York, NY 10017
American Honda Motor Co., Inc............. 2,999,278 3.2% 21,924,660 (10) 18.4%
1919 Torrance Blvd.
Torrance, CA 90501
Baystar Capital........................... -- -- 10,766,984 (11) 9.9%
80 E. Sir Francis Drake
Larkspur, CA 94939
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Madison Dearborn Capital Partners III, L.P..... 5,153,990 (4) 5.5% 8,356,101 (12) 8.1%
Madison Dearborn Special Equity III, L.P.
Special Advisors Fund I, LLC
3 First National Plaza, Suite 3800
Chicago, IL 60602
AEA XM Investors I LLC................... 3,599,134 3.8% 9,863,052 (13) 9.2%
AEA XM Investors II LLC
AEA XM Investors IA, LLC
AEA XM Investors IIA, LLC
65 E. 55th Street
New York, NY 10022
Columbia XM Radio Partners, L.LC.......... 3,794,921 4.1% 7,748,722 (14) 7.6%
Columbia XM Satellite Partners III, LLC
Columbia Capital Equity Partners II (QP), LP
Columbia Capital Equity Partners III (QP), LP
201 North Union Street, Suite 300
Alexandria, VA 22314
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(1) Includes 10,786,504 shares issuable upon conversion of Series A
convertible preferred stock, 5,393,252 of which are owned by DIRECTV and
1,199,711 shares issuable upon conversion of Series C convertible
preferred stock and accrued dividends owned by DIRECTV and 7,108,184
shares owned by Hughes Electronics.
(2) Includes 5,393,252 shares issuable upon conversion of Series A
convertible preferred stock and 1,199,711 shares issuable upon conversion
of Series C convertible preferred stock and accrued dividends, all of
which are owned by DIRECTV.
(3) Includes 5,393,252 shares issuable upon conversion of Series A
convertible preferred stock and 1,199,711 shares issuable upon conversion
of Series C convertible preferred stock and accrued dividends.
(4) Includes 2,999,278 shares issuable upon conversion of Series C
convertible preferred stock and accrued interest, of which Madison
Dearborn Capital Partners III, L.P. owns 2,934,134 shares and Madison
Dearborn Special Equity III, L.P. owns 65,144 shares.
(5) Includes 10,786,504 shares issuable upon conversion of Series A
convertible preferred stock, 5,393,252 of which are owned by DIRECTV and
2,480,556 shares issuable upon conversion of Series C convertible
preferred stock and accrued dividends owned by DIRECTV and 7,108,184
shares owned by Hughes Electronics. Excludes 3,144,654 shares issuable
upon conversion of 10% Senior Secured Discount Convertible Notes due
2009 owned by Hughes Electronics that will not be exercisable until 61
days after the later of (a) our next stockholder meeting and (b) six
months after the initial issuance of such Notes. Under our agreements
with General Motors, the convertible notes issued to General Motors
are not convertible and the warrant issued to General Motors is not
exercisable to the extent General Motors would own more than 19.9% of
our Class A common stock. The number of shares issuable upon
conversion of convertible notes issued to General Motors (which vest
over a four-year period in installments) or that may be issued in lieu
of subscriber acquisition payments or as payment of interest cannot be
determined at the present time because they depend on fair market
values in the future. See "Offering Circular -- The Concurrent
Transactions -- Transactions with General Motors."
(6) Includes 5,393,252 shares issuable upon conversion of Series A
convertible preferred stock and 2,480,556 shares issuable upon
conversion of Series C convertible preferred stock and accrued
dividends, all of which are owned by DIRECTV. Excludes 3,144,654
shares issuable upon conversion of 10% Senior Secured Discount
Convertible Notes due 2009 that will not be exercisable until 61 days
afer the later of (a) our next stockholder meeting and (b) six months
after the initial issuance of such Notes. See "Offering Circular --
The Concurrent Transactions -- Transactions with New Investors."
(7) Includes 6,491,765 shares owned by Black Bear Offshore Master Fund
Ltd., 4,938,433 shares owned by Black Bear Fund I, L.P., and 784,427
shares owned by Black Bear Fund II, L.L.C., each of which disclaims
beneficial ownership of any shares not held directly by such entity.
Excludes 2,187,327 shares issuable upon conversion of 10% Senior
Secured Discount Convertible Notes due 2009 that will not be
exercisable until 61 days after the later of (a) our next stockholder
meeting and (b) six months after the initial issuance of such Notes.
See "Offering Circular -- The Concurrent Transactions --Transactions
with New Investors."
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(8) Includes 5,393,252 shares issuable upon conversion of Series A
convertible preferred stock and 2,480,556 shares issuable upon conversion
of Series C convertible preferred stock and accrued dividends. Excludes
3,144,654 shares issuable upon conversion of 10% Senior Secured Discount
Convertible Notes due 2009 owned by Hughes Electronics that will not be
exercisable until 61 days after the later of (a) our next stockholder
meeting and (b) six months after the initial issuance of such Notes. See
"Offering Circular -- The Concurrent Transactions -- Transactions with
New Investors."
(9) Excludes 2,201,258 shares issuable upon conversion of the 10% Senior
Secured Discount Convertible Notes due 2009 that will not be exercisable
until 61 days after the later of (a) our next stockholder meeting and (b)
six months after the initial issuance of such Notes. See "Offering
Circular -- The Concurrent Transactions -- Transactions with New
Investors."
(10) Includes 6,201,389 shares issuable upon conversion of Series C
convertible preferred stock and accrued dividends. Includes 15,723,270
shares issuable upon conversion of the 10% Senior Secured Discount
Convertible Notes due 2009. See "Offering Circular -- The Concurrent
Transactions -- Transactions with New Investors."
(11) Includes 10,766,984 shares issuable upon conversion of 10% Senior Secured
Discount Convertible Notes due 2009. Does not include 805,343 shares
issuable upon conversion of 10% Senior Secured Discount Convertible Notes
due 2009 that are not convertible to the extent that Baystar Capital
would own more than 9.999% of our Class A common stock. See "Offering
Circular -- The Concurrent Transactions --Transactions with New
Investors."
(12) Includes 6,201,389 shares issuable upon conversion of Series C
convertible preferred stock and accrued dividends.
(13) Includes 7,441,668 shares issuable upon conversion of Series C
convertible preferred stock and accrued dividends. Includes
2,421,384 shares issuable upon conversion of 10% Senior Secured Discount
Convertible Notes due 2009. See "Offering Circular -- The Concurrent
Transactions -- Transactions with New Investors."
(14) Includes 2,480,556 shares issuable upon conversion of Series C
convertible preferred stock and accrued dividends. Includes 2,672,956
shares issuable upon conversion of 10% Senior Secured Discount
Convertible Notes due 2009. See "Offering Circular -- The Concurrent
Transactions -- Transactions with New Investors."
Security Ownership of Directors and Executive Officers
The following table presents, as of September 30, 2002, information
regarding the beneficial ownership of Class A common stock by each of our
directors and executive officers and all of our directors and executive officers
as a group on an actual basis and on a pro forma basis to give effect to the
closing of the exchange, the proposed transactions with General Motors and the
proposed new financing:
Pro forma
Number of Class A Percentage of percentage of
Shares Beneficially Total Class A Total Class A
Owned Shares Shares
------------------- ------------- -------------
Directors and Named Executive Officers:
Gary M. Parsons 463,954 (1) * *
Hugh Panero 522,964 (2) * *
Randall T. Mays 46,757 * *
Chester A. Huber, Jr. -- * *
Jack Shaw 26,757 * *
James N. Perry, Jr. -- (3) * *
Nathaniel Davis 46,757 * *
Thomas R. Donohue 46,757 * *
Pierce J. Roberts, Jr. 63,751 (4) * *
Joseph J. Euteneuer 100,000 (5) * *
Steve Gavenas 57,818 (6) * *
Stephen Cook 135,806 (7) * *
Stelios Patsiokas 142,064 (8) * *
All directors and executive officers as a group (14 persons) 1,772,992 (9) 1.82% *
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* Less than 1%.
(1) Does not include 387,680 shares issuable upon exercise of options that are
not exercisable within 60 days. A trust for the benefit of Mr. Parsons'
minor children, of which Mr. Parsons' spouse is the trustee, has acquired a
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minority membership interest in each of Madison Dearborn Capital Partners
III, L.P. and Madison Dearborn Special Equity III, L.P. and 16,179 shares.
Mr. Parsons disclaims beneficial ownership of these interests.
(2) Does not include 299,999 shares issuable upon exercise of options that are
not exercisable within 60 days.
(3) Mr. Perry is a partner in each of Madison Dearborn Capital Partners III,
L.P., Madison Dearborn Special Equity III, L.P. and Special Advisors Fund
I, LLC, which collectively own 5,193,990 shares. Mr. Perry disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein.
(4) Includes 2,500 shares issuable upon exercise of Series B convertible
preferred stock. Mr. Roberts is affiliated with AEA XM Investors Inc.,
which is the general partner of each of XM Investors I LP, a Delaware
limited partnership, and XM Investors II LP, a Delaware limited
partnership, which each manage AEA XM Investors I LLC and AEA XM Investors
II LLC, respectively. AEA XM Investors I and AEA XM Investors II
beneficially own 6,589,720 and 851,948 shares, respectively. Mr. Roberts
disclaims beneficial ownership of the shares of Class A common stock
beneficially owned by each of AEA XM Investors I LLC and AEA XM Investors
II LLC.
(5) Does not include 150,000 shares issuable upon exercise of options that are
not exercisable within 60 days.
(6) Does not include 137,833 shares issuable upon exercise of options that are
not exercisable within 60 days.
(7) Does not include 130,000 shares issuable upon exercise of options that are
not exercisable within 60 days.
(8) Does not include 146,666 shares issuable upon exercise of options that are
not exercisable within 60 days.
(9) Does not include 1,164,496 shares issuable upon exercise of options that
are not exercisable within 60 days.
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