SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): Commission File Number:
December 23, 2002 0-27441
XM SATELLITE RADIO HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1878819
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
1500 Eckington Place, N.E.
Washington, D.C. 20002-2194
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(202) 380-4000
Date of Report (Date of earliest event reported): Commission File Number:
December 23, 2002 333-39178
XM SATELLITE RADIO INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1805102
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
1500 Eckington Place, N.E.
Washington, D.C. 20002-2194
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(202) 380-4000
EXPLANATORY NOTE
This current report on Form 8-K is filed jointly by XM Satellite
Radio Holdings Inc. ("Holdings") and XM Satellite Radio Inc. ("XM"). XM is a
wholly-owned subsidiary of Holdings.
ITEM 5. OTHER EVENTS.
PROPOSED FINANCING
On December 23, 2002, we issued a press release to announce that (i) we
have signed definitive agreements with General Motors Corporation ("General
Motors" or "GM") and its subsidiary OnStar Corporation ("OnStar") for the
financing of up to $250 million of certain future obligations to General Motors
and (ii) we have signed definitive agreements with various private investors
pursuant to which we are raising up to $200 million of new financing.
We also announced that we plan soon to launch an exchange offer and
consent solicitation pursuant to which we will seek to exchange at least 90% of
our outstanding $325 million in aggregate principal amount of 14% Senior Secured
Notes due March 15, 2010 for new 14% Senior Secured Discount Notes due December
31, 2009, warrants to purchase common stock and cash (the "Exchange Offer").
The following is a description of the transactions related to the
agreements with General Motors and the private investors. As used below, the
terms "we," "our" and "us" refer to Holdings and its subsidiaries.
TRANSACTIONS WITH GENERAL MOTORS
The agreement with General Motors would permit us to issue the following
new securities to General Motors or its subsidiary OnStar Corporation, in lieu
of certain cash payments otherwise accruing to them under our distribution
agreement with General Motors:
. In lieu of our obligation to make $115 million in guaranteed payments
to OnStar under the distribution agreement from 2003 to 2006, we would
issue to OnStar $89 million in aggregate principal amount of 10%
senior secured convertible notes due December 31, 2009.
. We would be entitled to finance up to $100 million of any payments
that may become due under the distribution agreement by drawing under
a senior secured credit facility, also maturing on December 31, 2009,
if we meet certain financial covenants. In connection with the GM
credit facility, we would issue a warrant to General Motors to
purchase 10 million shares of Class A common stock.
. We would be able to make up to $35 million in future subscriber bounty
payments that we may owe to General Motors under the distribution
agreement in shares of our Class A common stock, valued at the then
current fair market value.
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OnStar Notes
In lieu of making $114,972,000 of guaranteed payment obligations for 2003
through 2006, we would issue to OnStar 10% senior secured convertible notes due
December 31, 2009 with a principal amount of $89,042,000. Holdings and XM would
be co-obligors on the OnStar notes. Interest on the notes, which is due
semiannually, would be payable, at our option, in cash or shares of Holdings'
Class A common stock having an aggregate fair market value equal to the amount
of interest due. The fair market value would be based on the average daily
trading prices of the Class A common stock over the ten business days prior to
the day the interest payment is due.
OnStar would be able to convert the notes into shares of Class A common
stock pursuant to a vesting schedule pro rata with the current schedule for the
guaranteed payments. The pro rata portion of the note would become convertible
at the option of OnStar at a conversion price equal to 90% of the fair market
value of a share of Class A common stock on the date of conversion; provided
that the conversion price will be not less than $5 per share nor greater than
$10 per share during 2003, not less than $5 per share nor greater than $15 per
share during 2004, and not less than $5 per share nor greater than $20 per share
thereafter.
Under the terms of the OnStar notes, we would be subject to restrictive
covenants that are similar to those of XM's existing 14% senior secured notes
and the notes issued to new investors, as described below. We would be limited
in our ability to pay dividends and make other types of restricted payments,
incur indebtedness, enter into transactions with our affiliates, use proceeds
from certain asset sales and enter into sale and leaseback transactions. We
would also be required to offer to repurchase the OnStar notes at a purchase
price equal to 101% of the principal amount upon a change of control.
The OnStar notes would be equal in right of payment to, and secured on a
shared basis with, the notes issued to new investors and our indebtedness under
the GM credit facility. The OnStar notes would be secured by substantially all
of our assets and would have the same guarantees as the GM credit facility and
the notes issued to new investors, as described below. They also would be equal
in right of payment to and share the security interest of XM's existing notes,
which is limited to the capital stock of our subsidiary that holds our FCC
licenses.
GM Credit Facility
GM has agreed to provide us with a $100,000,000 senior secured credit
facility, maturing in December 2009, that would enable us to make monthly draws
to finance payments that become due under the OnStar distribution agreement and
other GM payments. Holdings and XM would be co-borrowers under this credit
facility. The outstanding principal amount of all draws would be due December
31, 2009 and bear interest at the applicable LIBOR rate plus 10%. We would be
able to make interest payments in shares of Class A common stock having an
aggregate fair market value at the time of payment equal to the amount of
interest due. The fair market value will be based on the average daily trading
prices of the Class A common stock over the ten
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business days prior to the day the interest payment is due. We would have the
option to prepay all draws in whole or in part at any time but would not be able
to re-borrow any prepaid amounts. Beginning in 2005, we would be required to
prepay the amount of any outstanding advances in an amount equal to the lesser
of (i) 50% of our excess cash and (ii) the amount necessary to prepay the draws
in full.
In order to make draws under the credit facility, we would be required to
have a certain minimum number of subscribers that are not originated by GM and a
minimum pre-marketing cash flow excluding expenses under the GM distribution
agreement.
This credit facility would be equal in right of payment to, and secured on
a shared basis with, the OnStar notes and the notes issued to new investors. The
credit facility would be secured by substantially all of our assets and would
have the same guarantees as the OnStar notes and the notes issued to new
investors, as described below. The GM credit facility also would be equal in
right of payment to and share the security interest of XM's existing notes,
which is limited to the capital stock of our subsidiary that holds our FCC
licenses.
As consideration for GM entering into the credit facility, Holdings would
issue to GM a warrant to purchase 10,000,000 shares of Class A common stock at
an exercise price equal to $3.18. The GM warrant would vest when issued and
expire after five years.
GM Equity Facility
Under the distribution agreement with OnStar, we are required to make a
subscriber bounty payment to OnStar for each person who becomes and remains an
XM subscriber through the purchase of a GM vehicle. We would be able to make up
to $35 million in such subscriber bounty payments in shares of our Class A
common stock, valued at fair market value at the time of payment, instead of
cash.
Other Transactions
We have also agreed to grant to OnStar a certain amount of time to use our
studios on an annual basis and we will provide certain of our audio content for
distribution on OnStar's telematics services.
The notes issued to OnStar would be convertible and the warrant exercisable
only to the extent General Motors would not beneficially own more than 19.9% of
our Class A common stock, unless we and General Motors otherwise agree and
certain stockholder approvals are obtained.
TRANSACTIONS WITH NEW INVESTORS
We have agreed to sell $185 million of 10% senior secured discount
convertible notes due December 31, 2009 to certain institutional and accredited
investors, including some of our current investors. Holdings and XM would be
co-obligors on the notes. Interest would be payable
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semiannually and accrete through December 31, 2005, so that at January 1, 2006,
the aggregate accreted value of the notes would be $246.0 million (assuming a
January 31, 2003 closing). Beginning June 30, 2006, interest would be payable
semiannually in arrears in cash or by the issuance of additional notes on the
same terms as these notes. If all interest is paid in additional notes, the new
financing notes would aggregate $363.4 million (assuming a January 31, 2003
closing)when they matured on December 2009. At any time, a holder of notes would
be able to convert all or part of the accreted value of its notes at a
conversion price of $3.18 per share.
We would not be able to prepay or redeem the notes. Beginning four years
after the issuance of the notes, we would be able to convert all, but not less
than all of the notes at the conversion price if: (i) shares of Holdings' Class
A common stock have traded on the Nasdaq National Market or a national
securities exchange for the previous 30 trading days at 200% of the conversion
price, (ii) Holdings has reported earnings before interest income and expense,
other income, taxes, depreciation (including amounts related to research and
development) and amortization greater than $0 for the immediately preceding
quarterly period for which Holdings reports its financial results, (iii)
immediately following such conversion, the aggregate amount of Holdings' and its
subsidiaries' indebtedness is less than $250 million, and (iv) no shares of
Holdings' Series C preferred stock remain outstanding.
Under the terms of the notes, we would be subject to restrictive covenants
that are similar to those of XM's existing notes and the OnStar notes. We would
also be required to offer to repurchase the notes at a purchase price equal to
101% of the principal amount upon a change of control.
The notes would be equal in right of payment to, and be secured on a shared
basis with, the OnStar notes and our indebtedness under the GM credit facility.
The notes would be secured by substantially all of our assets and would have the
same guarantees as the OnStar notes and the GM credit facility. They also would
be equal in right of payment to and share the security interest of XM's existing
notes, which is limited to the capital stock of our subsidiary that holds our
FCC licenses.
We have also agreed to sell $15,000,000 of our Class A common stock for a
purchase price of $2.70 per share to a private investor.
CONDITIONS
The proposed transactions with General Motors and the proposed financings
with the new investors are conditioned upon each other and upon acceptance of
the exchange offer by holders of at least 90% of the outstanding 14% senior
secured notes. Such condition may be waived by General Motors and 66 2/3% of the
new investors. Other conditions include the absence of a material adverse change
and the obtaining of any necessary approvals. We cannot assure you that we will
be able to satisfy these conditions or that General Motors and the investors in
the proposed financing would waive these conditions.
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In order to reserve enough shares of Class A common stock for shares
ultimately issuable in connection with the GM transactions and the notes issued
to the new investors, we will seek shareholder approval at our next shareholders
meeting to increase the number of authorized shares of Class A common stock.
Until we obtain such shareholder approval, we would have to redeem, at the fair
market value of the conversion shares, any notes that we are unable to issue
pursuant to the request for conversion.
If the proposed transactions with General Motors and the new investors do
not close, we would be obligated to offer to sell Class A common stock to the
new investors at a purchase price of $3.18 per share, up to the same dollar
amount as their proposed investment (or 50% of this amount in limited
circumstances)
AMENDMENTS TO REGISTRATION RIGHTS AGREEMENTS AND SHAREHOLDERS AGREEMENTS
Registration Rights Agreement
Holdings' registration rights agreement with the former holders of its
Series A subordinated convertible notes and the holders of its Series C
preferred stock would be amended to grant additional registration rights to the
purchasers of the 10% senior secured discount convertible notes and to GM for
the Class A common stock underlying the OnStar notes and GM warrant and payable
as interest under the OnStar notes and the GM credit facility. Parties would
have several rights to demand registration of $10.0 million of Class A common
stock or more, subject to Holdings' right to defer the timing of a demand
registration and an underwriters' right to cut back shares in an underwritten
offering. Parties also have rights to include their Class A common stock in
registered offerings that we initiate, other than an offering for high yield
debt. We would also be obligated to initiate shelf registration statements
involving delayed or continuous offerings upon demand, one of which would need
to be filed shortly after closing.
Shareholders' Agreement
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 to add certain of the purchasers of the 10% senior secured
discount convertible notes as parties. Some of the parties to this agreement
have the right to designate directors to our board and to observe board
meetings. Additionally, note holders would have consent rights similar to those
of our Series C preferred stock. Without the consent of 75% of the notes and the
GM Notes voting together, we would not be able to: amend our charter and bylaws
in a way that materially affects the rights of GM or the note holders; 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, the
OnStar notes or the GM credit facility; incur indebtedness with financial or
operational covenants, redeem or repurchase securities that are junior to or on
a parity with the OnStar notes, GM credit facility 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. Note holders,
including General Motors, along with the current parties to the shareholders
agreement, would also have the right to
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participate in any of our future private financings to the extent necessary to
maintain their pro rata fully diluted ownership percentage.
OTHER ARRANGEMENTS
In connection with the transactions described above, we have agreed to make
bandwidth available to Honda, one of our existing investors and a purchaser of
the 10% senior secured discount convertible notes, for use in its telematics
services. Also in connection with these transactions, R. Steven Hicks and a
designee of American Honda would join our board of directors. We have agreed to
issue a warrant to Mr. Hicks to purchase 900,000 shares of our Class A common
stock at an exercise price of $3.18 per share. We also have agreed to purchase
up to $2.5 million of advertising from Hearst Communications, another purchaser
of the notes.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(c) Exhibits.
EXHIBIT NO. EXHIBIT
4.1 Amendment No. 1 to Rights Agreement, dated as of December 20,
2002, between XM Satellite Radio Holdings Inc. and Equiserve
Trust Company, N.A.
10.1 Note Purchase Agreement, dated as of December 21, 2002, by and
among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc.
and OnStar Corporation.
10.2 Note Purchase Agreement, dated as of December 21, 2002, by and
among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc.
and certain investors named therein.
99.1 Press release, dated December 23, 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, each
of the registrants has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XM SATELLITE RADIO HOLDINGS INC.
Date: December 23, 2002 By: /s/ Joseph M. Titlebaum
-----------------------
Joseph M. Titlebaum
Senior Vice President,
General Counsel and
Secretary
XM SATELLITE RADIO INC.
Date: December 23, 2002 By: /s/ Joseph M. Titlebaum
-----------------------
Joseph M. Titlebaum
Senior Vice President,
General Counsel and
Secretary