<PAGE>
As filed with the Securities and Exchange Commission on November 15, 2000
Registration No. 333-39176
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
POST-EFFECTIVE AMENDMENT NO. 1
TO FORM S-1
ON FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________________
XM Satellite Radio Holdings Inc.
(Exact name of registrant as specified in its charter)
Delaware 4899 54-1878819
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
________________________
1500 Eckington Place, NE
Washington, DC 20002
(202) 380-4000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
________________________
Joseph M. Titlebaum
Senior Vice President, General Counsel
and Secretary
XM Satellite Radio Holdings Inc.
1500 Eckington Place, NE
Washington, DC 20002
(202) 380-4000
(Name, address, including zip code, and telephone number,
including area code, of registrant's agent for service)
________________________
Copies to:
Steven M. Kaufman, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5600
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on the form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act of 1933 registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
of 1933 registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [_]
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Prospectus dated November __, 2000
PROSPECTUS
XM SATELLITE RADIO HOLDINGS INC.
325,000 Warrants
2,692,933 underlying shares of Class A common stock
of
XM Satellite Radio Holdings Inc.
. This prospectus relates to the resale of 325,000 warrants and the issuance
of underlying shares of our Class A Common Stock upon exercise of the
warrants by subsequent purchasers of the warrants.
. The warrants are not listed or quoted on any National Securities Exchange or
the Nasdaq Stock Market. Our Class A Common Stock is traded on the Nasdaq
National Market under the symbol "XMSR."
See "Risk Factors" beginning on page 5 for a discussion of risks that should be
considered by holders of the warrants and the Class A Common Stock issuable upon
exercise of the warrants.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is November __, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary.................................................................. 1
Summary Consolidated Financial Data...................................... 4
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 16
Description of Capital Stock............................................. 17
Description of the Warrants.............................................. 25
Certain United States Federal Income Tax
Considerations........................................................ 29
Selling Holders.......................................................... 33
Plan of Distribution..................................................... 36
Legal Matters............................................................ 37
Experts.................................................................. 37
Where You Can Find More Information...................................... 37
</TABLE>
<PAGE>
SUMMARY
This summary does not contain all the information that may be important to
you. You should read this entire prospectus carefully, including the section
entitled "Risk Factors." Unless the context otherwise requires, the terms "we,"
"our," and "us" refer to XM Satellite Radio Holdings Inc. and its subsidiaries
("Holdings"), including XM Satellite Radio Inc. and subsidiary ("XM").
Our Business
We seek to become a premier nationwide provider of audio entertainment and
information programming. We will transmit our service, which we will call "XM
Radio," from our satellites to vehicle, home and portable radios. XM Radio plans
to offer up to 100 channels of music, news, talk, sports and children's
programming developed by us or third parties for a monthly subscription price of
$9.95. We believe XM Radio will appeal to consumers because of our clear sound
quality from digital signal radios, variety of programming and nationwide
coverage. We will build a subscriber base for XM Radio through multiple
distribution channels, including an exclusive distribution arrangement with
General Motors, other automotive manufacturers, car audio dealers and national
electronics retailers. We expect to commence commercial operation of our service
in the second quarter of 2001.
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 will broadcast XM Radio throughout the continental United States from
two of the most powerful commercial satellites available and will have a ground
spare in reserve. A network of terrestrial repeaters, which are ground-based
electronics equipment, will receive and re-transmit the satellite signals to
augment our satellite signal coverage. We have contracts to develop, manufacture
and distribute XM radios with several leading consumer electronics
manufacturers. Our radios will be capable of receiving both XM Radio and
traditional AM/FM stations and will be available at national consumer
electronics retailers under the Sony, Pioneer, Alpine and SHARP brand names.
We will offer our consumers a unique listening experience by providing up
to 100 channels of programming, coast-to-coast coverage and clear sound with our
digital signals. We will have original music and talk channels created by XM
Originals, our in-house programming unit, and channels created by well-known
providers of brand name programming, including, for example, CNN, USA Today,
BET, Radio One, Clear Channel, and Hispanic Broadcasting Corporation. We have a
team of programming professionals with a proven record of introducing new radio
formats and building local and national listenership.
In addition to our subscription fee, we expect 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. Through
affinity and niche programming, we will give advertisers an effective way to
aggregate geographically disparate groups of listeners in their targeted
demographic markets.
As of September 30, 2000, we have raised $1.1 billion in debt and equity
proceeds, net of expenses and repayment of debt, from investors and strategic
partners, including $227 million from a Series C preferred stock financing in
August 2000. Our strategic investor companies include General Motors, DIRECTV,
Clear Channel Communications, American Honda, and our parent company, Motient
Corporation.
We are presently a development stage company with no revenue-generating
operations. The funds we have raised as of September 30, 2000 are expected to be
sufficient in the absence of additional financing to cover our funding needs
through commencement of commercial operation of our services in the second
quarter of 2001. However, if we need to significantly alter our system before
commercial operation or our schedule is materially delayed, we may need
additional funding. After we commence commercial service, we will require
significant additional funds before we generate positive cash flow.
We believe that there is a significant market for XM Radio. Market data
show strong demand for radio service. Over 75% of the entire United States
population age 12 and older listens to the radio daily, and over 95% listens to
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<PAGE>
the radio weekly. A market study conducted for us projects that as many as 49
million people may subscribe to satellite radio by 2012.
Our strategy includes offering diverse programming designed to appeal to a
large audience, including urban and rural listeners of virtually all ages,
ethnicities, economic groups and specialty interests. We will tailor our
programming and marketing to appeal to specific groups that our research has
shown are most likely to subscribe to our service. We have several planned
distribution channels, including through major car and radio manufacturers.
Our executive offices are at 1500 Eckington Place, NE, Washington, D.C.
20002, and our telephone number is (202) 380-4000. We maintain an Internet site
on the World Wide Web at www.xmradio.com. Information at our web site is not,
and should not be deemed to be, part of this prospectus.
2
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Resale of Warrants and Underlying Common Stock
Warrants:
Issuer ................................... XM Satellite Radio Holdings Inc.
Warrants Offered ......................... 325,000 warrants which, when
exercised, will entitle the holders
to acquire an aggregate of 2,692,933
shares of Class A Common Stock.
Exercise Price ........................... $47.94 per share of Class A Common
Stock.
Exercise ................................. The warrants are exercisable
beginning on September 16, 2000 and
ending on March 15, 2010.
Expiration ............................... March 15, 2010.
Voting Rights ............................ Warrant holders have no voting
rights.
Anti-dilution ............................ The exercise price and number of
shares of Class A Common Stock
issued upon exercise of the warrants
are subject to adjustment in certain
cases, as described in "Description
of Warrants--Adjustments."
Warrant Shares ........................... The warrants entitle the holders to
acquire 8.285948 shares of Class A
Common Stock of XM Satellite Radio
Holdings Inc. The shares of Class A
Common Stock for which the warrants
are exercisable or which are issued
upon exercise of the warrants are
collectively referred to as "Warrant
Shares."
Warrant Agent ............................ The warrant agent is United States
Trust Company of New York.
Use of Proceeds .......................... We will not receive any proceeds
from resales of warrants. Upon
exercise of the warrants, we will
receive the exercise price of $47.94
per share, subject to adjustment.
See "Use of Proceeds."
United States Federal Income
Tax Consequences ......................... Upon the exercise of a warrant, a
U.S. holder will not recognize gain
or loss, except to the extent of
cash, if any, received in lieu of
the issuance of fractional shares of
common stock. See "United States
Federal Income Tax Consequences."
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Summary Consolidated Financial Data
<TABLE>
<CAPTION>
December 15,
1992
(Date of
Inception)
-------------------------------------- Six Months Ended to September 30,
Years Ended December 31, September 30, 2000
-------------------------------------- ------------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
1997 1998 1999 1999 2000 2000
---------- ---------- ----------- ---------- ----------- --------
(In thousands, except share data)
Consolidated Statements of Operations Data(1):
Revenue.......................................... $ -- $ -- $ -- $ -- $ -- $ --
---------- ---------- ----------- ---------- ----------- ---------
Operating expenses:
Research and development........................ -- 6,941 4,274 3,597 7,634 18,849
Professional fees............................... 1,090 5,242 9,969 5,932 16,534 32,835
General and administrative...................... 20 4,010 16,448 8,286 34,766 55,244
---------- ---------- ----------- ---------- ----------- ---------
Total operating expenses........................ 1,110 16,193 30,691 17,815 58,934 (106,928)
---------- ---------- ----------- ---------- ----------- ---------
Operating loss................................... (1,110) (16,193) (30,691) (17,815) (58,934) (106,928)
Other income--interest income (expense), net..... (549) 26 (6,205) (7,952) 21,046 14,318
---------- ---------- ----------- ---------- ----------- ---------
Net loss......................................... $ (1,659) $ (16,167) $ (36,896) $ (25,767) $ (37,888) $ (92,610)
========== ========== =========== ========== =========== =========
Preferred stock dividend requirement............. -- -- -- -- (9,424)
Series B convertible redeemable preferred stock
deemed dividend................................. -- -- -- -- 11,211
Series C convertible redeemable preferred stock
beneficial conversion........................... -- -- -- -- 123,043
Net loss attributable to common stockholders..... (1,659) (16,167) (36,896) (25,767) (181,566)
---------- ---------- ----------- ---------- -----------
Net loss per share--basic and diluted............ $ (0.26) $ (2.42) $ (2.40) $ (3.85) $ (3.76)
========== ========== =========== ========== ===========
Weighted average shares used in computing net
loss per share--basic and diluted............... 6,368,166 6,689,250 15,334,102 6,693,338 48,350,090
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------- September 30,
1997 1998 1999 2000
------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
(In thousands)
Consolidated Balance Sheets Data:
Cash, cash equivalents and short-term investments.. $ 1 $ 310 $120,170 $ 312,711
Pledged securities(2).............................. -- -- -- 154,147
System under construction.......................... 91,932 169,029 362,358 732,727
Total assets....................................... 91,933 170,485 515,189 1,281,145
Total debt......................................... 82,504 140,332 212 263,782
Total liabilities.................................. 82,949 177,668 30,172 326,181
Stockholders' equity (deficit)..................... 8,984 (7,183) 485,017 954,964
</TABLE>
(1) Business activity for the period from December 15, 1992, which was our date
of inception, through December 31, 1996 was insignificant.
(2) Consists of a portfolio of U.S. government securities held by the trustee
for the benefit of the holders of the Senior Secured Notes and a money
market fund associated with a contract.
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RISK FACTORS
You should consider carefully these risk factors together with all of the
other information included in this prospectus before making an investment
decision.
Some of the information in this prospectus may contain forward looking
statements. Such statements can be identified by the use of forward looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward looking" information. When considering such forward looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward looking statement.
You could lose money on your investment because we have not started operations
or generated any revenues.
We are a development stage company and still need to develop the planned XM
Radio service significantly before we can offer it to consumers. We have not yet
generated any revenues and will not do so until we can start commercial
operation of our service. Unless we generate significant revenues, we will not
become profitable, and you could lose money on your investment. Our ability to
generate revenues and ultimately to become profitable will depend upon several
factors, including
. whether we create and implement the XM Radio system in a timely
fashion;
. whether consumer electronics manufacturers successfully develop and
manufacture XM radios;
. whether we can attract and retain enough subscribers and advertisers
to XM Radio;
. whether we compete successfully; and
. whether the FCC grants us all additional necessary authorizations in a
timely manner.
Our expenditures and losses have been significant and are expected to grow.
As of September 30, 2000, we had incurred significant costs, aggregating
approximately $732.7 million, in connection with the development of the XM Radio
system. We incurred net aggregate losses approximating $92.6 million from our
inception through September 30, 2000. We expect our net losses and negative cash
flow to grow as we build the XM Radio system, make payments under our various
contracts and begin to incur marketing costs. If we are unable ultimately to
generate sufficient revenues to become profitable and have positive cash flow,
you could lose money on your investment.
We need substantial further financing but such financing might not be available
and the terms of our FCC license may restrict our ability to raise funding.
The funds we have raised as of September 30, 2000 are expected to be
sufficient in the absence of additional financing to cover our funding needs
through commencement of commercial operation of our services in the second
quarter of 2001. However, if we need to significantly alter our system before
commercial operation or our schedule is materially delayed, we may need
additional funding. After we commence commercial service, we will require
significant additional funds before we generate positive cash flow. In addition,
we have substantial payment obligations under a distribution agreement with
General Motors. Our actual funding requirements could vary materially from our
current estimates. We may have to raise more funds than expected to remain in
business and to continue to develop and market the XM Radio system.
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<PAGE>
We plan to raise future funds by selling debt or equity securities, or
both, publicly and/or privately and by obtaining loans or other credit lines
from banks or other financial institutions. We may not be able to raise
sufficient funds on favorable terms or at all. If we fail to obtain any
necessary financing on a timely basis, then
. our satellite construction, launch, or other events necessary to our
business could be materially delayed, or their costs could materially
increase;
. we could default on our commitments to our satellite construction or
launch contractors, creditors or others, leading to termination of
construction or inability to launch our satellites;
. we may not be able to launch our satellite radio service as planned
and may have to discontinue operations or seek a purchaser for our
business or assets; and
. XM may not be able to meet its obligations under the senior secured
notes.
Motient Corporation is our controlling stockholder and controls us under
applicable FCC rules. Motient has certain rights regarding the election of
persons to serve on our board of directors and as of September 30, 2000 holds
approximately 53.9% of the voting power, or 46.5% giving effect to the
conversion of all of our outstanding common stock equivalents. Motient cannot
relinquish its controlling position, its right to designate a majority of our
directors, or hold less than 40% of the voting stock without obtaining the prior
approval of the FCC. Accordingly, prior to our obtaining FCC approval of the
transfer of control from Motient, we will only be able to issue a limited amount
of voting securities or securities convertible into voting securities unless
certain of our stockholders holding nonvoting convertible securities agree not
to convert them into voting securities or we take other steps to permit voting
securities on a basis consistent with FCC rules. Certain holders of our
nonvoting securities have agreed not to convert their securities if it would
cause Motient not to hold at least 40% of our voting stock, until we obtain
approval by the FCC of a change in control. In return, we have agreed not to
issue new voting securities, other than the units sold in March 2000 and other
than up to 2,000,000 shares of Class A common stock (except upon conversion or
exercise of existing securities or under our employee stock plans), if it would
make these holders unable to convert any of their nonvoting securities. We have
filed an application with the FCC to permit Motient to relinquish control of us.
We may not be able to obtain FCC approval or it may take a long period of time
to obtain such approval and there may be conditions imposed in connection with
such approval that may be unfavorable to us. The inability to raise capital
opportunistically, or at all, could adversely affect our business plan.
Our substantial indebtedness could adversely affect our financial health which
could reduce the value of the warrants and our Class A Common Stock.
As of September 30, 2000, we had total indebtedness of $263.8 million and
stockholders' equity of $955.0 million.
Our substantial indebtedness could have important consequences to you. For
example, it could:
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital
expenditures, research and development costs and other general
corporate requirements;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on XM's indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors
that have less debt; and
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. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional
funds. And, failing to comply with those covenants could result in an
event of default which, if not cured or waived, could have a material
adverse effect on us.
Our satellites could be damaged or destroyed during launch.
A significant percentage of satellites never become operational because of
launch failure, satellite destruction or damage during launch, and improper
orbital placement. Launch failure rates vary depending on the particular launch
vehicle and contractor. There is a limited track record for the specific launch
vehicle that will be used for the launch of our satellites, and even launch
vehicles with good track records experience some launch failures. Four of the
five satellite launches from the Sea Launch platform, our intended means of
launch, have been successful, including the most recent launch. If one or more
of our launches fail, we will suffer significant delay that will be very
damaging to our business, and we will incur significant additional costs
associated with the delay in revenue generating activities.
Premature failure of our satellites would damage our business.
If one of our satellites were to fail prematurely, it likely would affect
the quality of our service, substantially delay the commencement or 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. A number of factors may decrease the
useful lives of our satellites to less than the expected approximately 15 years,
including
. defects in construction;
. faster than expected degradation of solar panels;
. loss of fuel on board;
. random failure of satellite components that are not protected by back-
up units;
. electrostatic storms; and
. collisions with other objects in space.
In addition, our network of terrestrial repeaters will communicate principally
with one satellite. If the satellite communicating with the repeater network
fails, we would have to repoint all of the repeaters to communicate with the
other satellite. This would result in an interruption of service that could last
from a few hours to several days and could harm our business.
Damage to our satellites will not be fully covered by insurance.
We intend to purchase standard launch and in-orbit insurance policies from
global space insurance underwriters. Any adverse change in insurance market
conditions may substantially increase the premiums we would have to pay for such
insurance. If the launch of either satellite is a total or partial failure, our
insurance may not fully cover our losses. We do not expect to buy insurance to
cover and would not have protection against business interruption, loss of
business or similar losses. Also, any insurance we obtain will likely contain
certain customary exclusions and material change conditions which would limit
our coverage.
Our system depends on development and integration of complex technologies in a
novel configuration that might not work.
Our system will involve new applications of existing technology and the
complex integration of different technologies, which may not work as planned. In
addition, we may not be able to successfully develop the new technologies
required for our planned XM Radio system.
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The use of terrestrial repeaters with a satellite system is untested and
may not provide the expected transmission quality. Our system will rely on a
network of terrestrial repeaters to retransmit satellite signals in areas where
blockages occur from high concentrations of tall buildings and other
obstructions. Satellites and terrestrial repeater networks have not been
integrated and used together on the scale we contemplate. We cannot be certain
that what we plan will work. Failure to integrate these technologies may result
in areas with impediments to satellite line of sight experiencing dead zones
where our signals cannot be received clearly or are of low quality.
Our business plan relies on the timely development of XM radios. Our
service is to be received by specially designed receivers that have not yet been
developed. They will require a unique integration of existing technologies,
which may take longer than expected.
Integration of components of our system may encounter technical
difficulties. We will have to integrate a number of sophisticated satellite and
other wireless technologies never integrated in the past before we can begin
offering our service. If the technological integration of the XM Radio system is
not completed in a timely and effective manner, our business will be harmed. We
cannot ultimately confirm the ability of the system to function until we have
actually deployed and tested a substantial portion of the system. Hardware or
software errors in space or on the ground may limit or delay the XM Radio
service and therefore reduce anticipated revenues.
Performance failures by our satellite and launch contractors would damage our
business, and we may not have adequate remedies.
We will rely on Boeing Satellite Systems, formerly Hughes Space and
Communications International, Inc., our satellite manufacturer, to build and
deliver our satellites in a timely manner. If Boeing Satellite Systems fails to
deliver functioning satellites in a timely manner, the introduction of our
service would likely be delayed. If Boeing Satellite Systems were to deliver a
satellite late or otherwise default, the remedies we have will not adequately
compensate us for any damage caused to our business. Boeing Satellite Systems
will not be liable for indirect or consequential damages, or lost revenues or
profits, from late delivery or other defaults. Also, our satellite contract
entitles Boeing Satellite Systems to certain excusable delays for which we have
no remedy. If Boeing Satellite Systems breaches its performance warranty, our
only remedy is not to pay Boeing Satellite Systems in-orbit performance
incentive payments of up to a total of $12.5 million for each satellite. This
remedy likely will not adequately compensate us for the damage such breach would
cause to our business.
We are depending on our satellite launch services provider to build our
launch vehicles and to launch the satellites. If the satellite launch services
provider fails to launch the satellites in a timely manner, we may be unable to
meet our business plan timetable. Neither Boeing Satellite Systems nor the
satellite launch services provider will be liable to us for any delay in
delivery of the satellites up to 180 days caused by our scheduled launch
services provider. A delay of more than six months beyond the launch period for
either satellite may allow us to select an alternative launch system. This
remedy, however, likely would not adequately compensate us for the damage such
delay would cause to our business. Although we may be able to use another
satellite launch services provider, switching to another provider could involve
significant delay and a significant increase in cost.
Failure of third party vendors to supply radios to customers in a timely manner
would delay our revenues.
We will rely on third party manufacturers and their distributors to
manufacture and distribute XM radios. If one or more manufacturers fails to
develop XM radios for timely commercial sale, at an affordable price and with
mass market nationwide distribution, the launch of our service would be delayed,
our revenues would be less than expected and our business would suffer. We will
rely on Delphi-Delco, Sony, Motorola, Pioneer, Alpine, Mitsubishi, Audiovox and
Clarion to develop, manufacture and market XM radios for use in the car, and on
Sony and SHARP to develop, manufacture and market XM radios for home and
portable use. XM radios are not yet available, and our agreements with third
party vendors may not result in the timely production of enough affordable XM
radios to permit the widespread introduction of our service.
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<PAGE>
Competition from Sirius Satellite Radio and traditional and emerging audio
entertainment providers could adversely affect our revenues.
In seeking market acceptance, we will encounter competition for both
listeners and advertising revenues from many sources, including
. Sirius Satellite Radio, the other satellite radio licensee;
. traditional and, when available, digital AM/FM radio;
. Internet based audio providers;
. direct broadcast satellite television audio service; and
. cable systems that carry audio service.
Sirius Satellite Radio (formerly named CD Radio) has announced that it has
arrangements for the construction, implementation and distribution of its
service and that it expects to begin receiving revenue from commercial
operations in the first quarter of 2001, which is slightly ahead of our
timetable. If Sirius Satellite Radio begins commercial operations significantly
before we do, it may gain a competitive advantage over us.
Unlike XM Radio, traditional AM/FM radio already has a well established
market for its services and generally offers free broadcast reception supported
by commercial advertising rather than by a subscription fee. Also, many radio
stations offer information programming of a local nature, such as traffic and
weather reports, which XM Radio is not expected to offer as effectively as local
radio, or at all. To the extent that consumers place a high value on these
features of traditional AM/FM radio, we will be at a competitive disadvantage.
Demand for our service may be insufficient for us to become profitable.
There is currently no mobile satellite digital audio radio service in
commercial operation in the United States. As a result, we cannot estimate with
any certainty the potential consumer demand for such a service or the degree to
which we will meet that demand. Among other things, consumer acceptance of XM
Radio will depend upon
. whether we obtain, produce and market high quality programming
consistent with consumers' tastes;
. the willingness of consumers to pay subscription fees to obtain
satellite radio service;
. the cost and availability of XM radios; and
. XM Radio's and our competitors' marketing and pricing strategy.
If demand for our service does not develop as expected, we may not be able
to generate enough revenues to become profitable. Although we have commissioned
market studies which attempt to measure market demand, these studies are based
upon statistical sampling methods and reflect responses to hypothetical
questions. Consequently, the data may not be accurate. We caution you not to
place undue reliance on this data.
Because we expect to derive a significant part of our revenues from
advertisers as well as subscription revenues, advertiser acceptance also will be
critical to the success of our business. Our ability to generate revenues from
advertisers will depend on several factors, including the level and type of
market penetration of our service, competition for advertising dollars from
other media, and changes in the advertising industry. FCC regulations limit our
ability to offer our radio service other than to subscribers on a pay-for-
service basis. These factors may reduce our potential revenue from advertising.
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Large payment obligations under our distribution agreement with General Motors
may prevent us from becoming profitable.
We have significant payment obligations under our long-term agreement with
General Motors for the installation of XM radios in General Motors vehicles and
the distribution of our service to the exclusion of other satellite radio
services. These payment obligations, which could total several hundred million
dollars over the life of the contract, may prevent us from becoming profitable.
A significant portion of these payments are fixed in amount, and we must pay
these amounts even if General Motors does not meet performance targets in the
contract. Although this agreement is subject to renegotiation if General Motors
does not achieve and maintain specified installation levels we cannot predict
the outcome of any such renegotiation.
Joint development agreement funding requirements could be significant.
Under our agreement with Sirius Radio, each party is obligated to fund one
half of the development cost of the technologies used to develop a unified
standard for satellite radios. Each party will be entitled to license fees or a
credit towards its one half of the cost based upon the validity, value, use,
importance and available alternatives of the technology it contributes. The
applicability or validity of Sirius Radio's claims in their former patent suit
against us could affect the determination of the amount of license fees or
credits relating to contributed or licensed technology under the agreement. The
amounts of these fees or credits will be determined over time by agreement of
the parties or by arbitration. We cannot predict at this time the amount of
license fees or contribution payable by XM or Sirius Radio or the size of the
credits to XM and Sirius Radio from the use of their technology. This may
require significant additional capital.
If we default under our joint development agreement, Sirius Satellite Radio's
patent infringement lawsuit against us could be refiled.
Under our agreement with Sirius Radio for the development of a unified
standard for satellite radios, the lawsuit Sirius Radio brought against us in
January 1999 alleging our infringement of three Sirius Radio patents was
withdrawn. We and Sirius Radio have agreed to cross-license our respective
intellectual property. However, if this agreement is terminated before the value
of the licenses has been determined due to our failure to perform a material
covenant or obligation, then this suit could be refiled.
Our business may be impaired by third party intellectual property rights.
Development of the XM Radio system will depend largely upon the
intellectual property that we will develop and license from third parties. If
the intellectual property that we may develop or use is not adequately
protected, others will be permitted to and may duplicate the XM Radio system or
service without liability. In addition, others may challenge, invalidate or
circumvent our intellectual property rights, patents or existing sublicenses.
Some of the know-how and technology we have developed and plan to develop will
not be covered by United States patents. Trade secret protection and contractual
agreements may not provide adequate protection if there is any unauthorized use
or disclosure. The loss of necessary technologies could require us to obtain
substitute technology of lower quality performance standards, at greater cost or
on a delayed basis, which could harm our business.
Other parties may have patents or pending patent applications which will
later mature into patents or inventions which may block our ability to operate
our system or license our technology. We may have to resort to litigation to
enforce our rights under license agreements or to determine the scope and
validity of other parties' proprietary rights in the subject matter of those
licenses. This may be expensive. Also, we may not succeed in any such
litigation.
Third parties may bring suit against us for patent or other infringement of
intellectual property rights. Any such litigation could result in substantial
cost to, and diversion of effort by, our company, and adverse findings in any
proceeding could
. subject us to significant liabilities to third parties;
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<PAGE>
. require us to seek licenses from third parties;
. block our ability to operate the XM Radio system or license its
technology; or
. otherwise adversely affect our ability to successfully develop and
market the XM Radio system.
Failure to comply with FCC requirements could damage our business.
As an owner of one of two FCC licenses to operate a commercial satellite
radio service in the United States, we are subject to FCC rules and regulations,
and the terms of our license, which require us to meet certain conditions such
as
. milestone dates, including the requirement that we begin full
operation of our system by October 2003;
. interoperability of our system with the other licensed satellite radio
system;
. coordination of our satellite radio service with radio systems
operating in the same range of frequencies in neighboring countries;
and
. coordination of our communications links to our satellites with other
systems that operate in the same frequency band.
Non-compliance by us with these conditions could result in fines, additional
license conditions, license revocation or other detrimental FCC actions. We may
also be subject to interference from adjacent radio frequency users if the FCC
does not adequately protect us against such interference in its rulemaking
process. In addition, the FCC has not yet issued rules permitting us to deploy
terrestrial repeaters to fill gaps in satellite coverage. Our plans to deploy
terrestrial repeaters may be impacted by the FCC's rules, when issued.
Some of our vendors are subject to United States export regulations and
will need approval from the State Department under technology export statutes
and regulations for the launch of our satellites. Failure to receive such
approval or any change in applicable law or policy may delay our satellite
launch.
If the challenge to our FCC license is successful, our business could be harmed.
The award of our FCC license was challenged by one of the losing bidders in
the initial FCC licensing procedure. The challenge was denied by the FCC, but
the losing bidder filed with the FCC for reconsideration of the license award.
If this challenge is successful, the FCC could take a range of actions, any of
which could harm our ability to proceed with our planned satellite radio
service.
Our service network or other ground facilities could be damaged by natural
catastrophes.
Since our ground-based network will be attached to buildings, towers, and
other structures around the country, an earthquake, tornado, flood or other
catastrophic event anywhere in the United States could damage our network,
interrupt our service and harm our business in the affected area. We will not
have replacement or redundant facilities that can be used to assume the
functions of our repeater network or of our planned central production and
broadcast facility in the event of a catastrophic event. Any damage to our
repeater network would likely result in degradation of our service for some
subscribers and could result in complete loss of service in affected areas.
Damage to our central production and broadcast facility would restrict our
production of programming and require us to obtain programming from third
parties to continue our service.
Consumers could steal our service.
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Like all radio transmissions, the XM Radio signal will be subject to
interception. Pirates may be able to obtain or rebroadcast XM Radio without
paying the subscription fee. Although we plan to use encryption technology to
mitigate the risk of signal theft, such technology may not be adequate to
prevent theft of the XM Radio signal. If widespread, signal theft could harm our
business.
We need to obtain rights to programming, which could be more costly than
anticipated.
We must negotiate and enter into music programming royalty arrangements
with performing rights societies such as the American Society of Composers,
Authors and Publishers, Broadcast Music, Inc. and SESAC, Inc. Radio broadcasters
currently pay a combined total of approximately 4% of their revenues to these
performing rights societies. We expect to negotiate or establish license fees
through a rate court proceeding in the U.S. District Court for the Southern
District of New York, but such royalty arrangements may be more costly than
anticipated. We must also enter into royalty arrangements with the owners of the
sound recordings. Cable audio services currently pay a royalty rate of 6.5% of
gross subscriber revenue set by the Librarian of Congress. Although we believe
we can distinguish XM Radio sufficiently from the cable audio services in order
to negotiate a lower statutory rate, we may not be able to do so.
Rapid technological and industry changes could make our service obsolete.
The satellite industry and the audio entertainment industry are both
characterized by rapid technological change, frequent new product innovations,
changes in customer requirements and expectations, and evolving industry
standards. If we are unable to keep pace with these changes, our business may be
unsuccessful. Products using new technologies, or emerging industry standards,
could make our technologies obsolete. In addition, we may face unforeseen
problems when developing the XM Radio system which could harm our business.
Because we will depend on third parties to develop technologies used in key
elements of the XM Radio system, more advanced technologies which we may wish to
use may not be available to us on reasonable terms or in a timely manner.
Further, our competitors may have access to technologies not available to us,
which may enable them to produce entertainment products of greater interest to
consumers, or at a more competitive cost.
The market price of our stock could be hurt by substantial price and volume
fluctuations.
Historically, stock prices and trading volumes for emerging companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations. This market volatility
could depress the price of our common stock without regard to our operating
performance. In addition, our operating results may be below the expectations of
public market analysts and investors. If this were to occur, the market price of
our common stock would likely significantly decrease.
Our major stockholders own approximately 70.5% of our stock on a fully diluted
basis and effectively control us. Their interests may conflict with our
interests and yours.
As of September 30, 2000, our principal stockholders own approximately
70.5% of our common stock on a fully diluted basis with total voting power of
approximately 81.3%. We have entered into material contracts and transactions
with our principal stockholders and their affiliates, and we may enter into
additional contracts in the future. The composition of our board of directors is
governed by a shareholders' agreement among our principal stockholders, which
grants them effective management control over us. These stockholders could use
their position as principal stockholders and their management control to cause
us to take actions that might not be in our interests or yours.
The holders of our Series C preferred stock have certain veto rights.
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<PAGE>
Under the terms of our Series C preferred stock, the consent of holders of
at least 60% of the Series C preferred stock is required before we can take
certain actions, including issuances of additional securities above specified
levels and the incurrence of indebtedness under which we must meet financial
covenants to avoid default. These requirements could hamper our ability to raise
additional funds. The consent of holders of at least 60% of the Series C
preferred stock is also required for transactions with affiliates, other than on
an arms'-length basis, and for any merger or sale of our assets. The approval
for a merger could make it difficult for a third party to acquire us and thus
could depress our stock price.
We need people with special skills to develop, launch and maintain our new
service. If we cannot find and keep these people, our business and stock price
could suffer.
We depend on the continued efforts of our executive officers and key
employees who have specialized technical knowledge regarding our satellite and
radio systems and business knowledge regarding the radio industry and
subscription services. If we lose the services of one or more of these
employees, or fail to attract qualified replacement personnel, it could harm our
business and our future prospects.
It may be hard for a third party to acquire us, and this could depress our stock
price.
We are a Delaware company with unissued preferred stock, the terms of
which can be set by our board of directors. Antitakeover provisions in Delaware
law and our ability to adopt a shareholder rights plan using our preferred stock
could make it difficult for a third party to acquire us, even if doing so would
benefit our stockholders. This could depress our stock price.
Future sales of our Class A common stock in the public market could lower its
stock price and impair our ability to raise funds in new stock offerings.
As of September 30, 2000, we had 34,034,830 shares of Class A common stock
outstanding, or 71,330,631 shares assuming conversion of all 16,557,262 shares
of our Class B common stock, 10,786,504 shares of our Series A convertible
preferred stock, 867,289 shares of our Series B convertible redeemable preferred
stock and 235,000 shares of our Series C convertible redeemable preferred stock
outstanding. Sales of a large number of shares could adversely affect the market
price of our Class A common stock, which could impair our ability to raise funds
in additional stock offerings.
Motient, which owns 200,000 shares of our Class A common stock and all
16,557,262 shares of our Class B common stock, was prohibited from selling any
of these shares, other than to affiliates, until October 8, 2000 or when we
commence commercial operations, whichever came first. Presently, however, these
shares are freely tradable, subject to the provisions of Rule 144 or Rule 701
under the Securities Act. Motient has experienced substantial appreciation in
the value of its shares relative to the price paid for them. In the event
Motient elects to sell its shares, the price of our stock could materially
decline, irrespective of our performance.
We have filed registration statements under the Securities Act to cover all
5,300,000 shares of our Class A common stock subject to outstanding stock
options or reserved for issuance under our stock plans. These registration
statements became effective upon filing. Accordingly, shares registered under
these registration statements are, subject to vesting provisions and Rule 144
volume limitations applicable to our affiliates, available for sale in the open
market, and in the case of our officers, directors and stockholders who have
entered into lock-up agreements, available for sale after lock-up agreements
expire. As of September 30, 2000, options to purchase 2,915,531 shares of our
Class A common stock were outstanding.
The holders of approximately 16 million shares of our Class A common stock,
all of our Series A convertible preferred stock, all of our Class B common stock
and all of our Series C convertible redeemable preferred stock have the right to
request registration of their shares in future public offerings of our equity
securities. Sony Electronics owns a warrant that may in the future be
exercisable for up to 2% of our Class A common stock on a
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fully-diluted basis depending on Sony's success in achieving certain sales
targets. Sony will have the right to request registration of these shares in
future public offerings.
There is no established trading market for the warrants, which could make it
more difficult for you to sell warrants and could adversely affect their price.
We expect that the warrants will be eligible for trading in the PORTAL
market. We do not intend to apply for a listing or quotation of the warrants on
any securities exchange. The initial purchasers of the warrants have advised us
that they intend to make a market in the warrants. However, they are not
obligated to do so. Any market-making may be discontinued at any time and we
cannot assure you of the development or liquidity of any trading market for the
warrants, or if a trading market develops, that it will continue. The liquidity
of the trading market for the warrants also may be adversely affected by any
changes in our financial performance or prospects or in the prospects for the
companies in our industry.
There may be limitations on the ability of the holders of warrants to exercise
their warrants and receive the underlying common stock.
We agreed to use our reasonable best efforts to make effective within 180
days of the consummation of the unit offering and use our reasonable efforts to
maintain effective until the expiration or exercise of all warrants, a shelf
registration statement on an appropriate form under the Securities Act covering
the warrants and issuance of Warrant Shares. During any period when the shelf
registration statement is not effective, U.S. holders of the warrants will not
be able to exercise their warrants unless they are an "accredited investor" or a
"qualified institutional buyer," within the meaning of the Securities Act, and
make certain representations to us in connection with their exercise. We cannot
assure you that we will be able to cause to be declared effective or keep the
shelf registration statement continuously effective until all of the warrants
have been exercised or expired.
Shares of common stock issued upon exercise of the warrants at a time when
the shelf registration statement is not effective will be "restricted
securities" for purposes of Rule 144 under the Securities Act and will be
subject to restrictions on transfer.
Our forward-looking statements are speculative and may prove to be wrong.
Much of the information in this prospectus consists of forward-looking
statements based on our current expectations. These statements are inherently
predictive and speculative, and you must not assume that they will prove to be
correct. You can often identify these statements by forward-looking words such
as
. "may;"
. "will," "intend," "plan to;"
. "expect," "anticipate," "project, "believe," "estimate;"
. "continue" or similar words.
You should read such statements very carefully because they
. discuss our future plans or expectations;
. contain projections of our future financial condition or results of
operations; or
. state other forward-looking information.
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When you consider such forward-looking statements, you should keep in mind
the risk factors above and the other cautionary statements in this prospectus
because they provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements.
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USE OF PROCEEDS
The registration of the warrants and the common stock underlying the
warrants is to satisfy certain of our obligations under the registration rights
agreement covering the warrants sold in the unit offering in March 2000. Any
proceeds we receive from the exercise of such warrants into shares of our common
stock will be used for working capital, operating losses and general corporate
expenses.
The net proceeds to us from the sale of the warrants, together with the
senior secured notes as part of the unit offering in March 2000, were
approximately $191.3 million, after excluding $123.0 million for an interest
reserve and approximately $10.7 million for underwriting fees and expenses. The
net proceeds from the unit offering have been and will be used as set forth
below.
<TABLE>
<CAPTION>
Amount
-------------
(In thousands)
<S> <C>
Payments under satellite contract.................................... $ 98.7
Payments under terrestrial repeater contracts........................ 68.0
Payments under ground segment contracts.............................. 11.2
Working capital, operating losses and general corporate expenses..... 13.4
--------
Total uses...................................................... $ 191.3
========
</TABLE>
We may re-allocate the proceeds among these categories depending upon the
timing of our funding requirements. In addition, these uses assume that the net
proceeds are the first funds used. To the extent we use cash on hand or from
other financings to meet these funding needs, we may re-allocate the proceeds to
other matters. Pending these uses, the net proceeds from the unit offering may
be temporarily invested in short-term, interest-bearing, investment grade
securities.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 180,000,000 shares of Class A
common stock, $.01 par value per share, 30,000,000 shares of Class B common
stock, $.01 par value per share, 30,000,000 shares of Class C common stock, $.01
par value per share, 15,000,000 shares of Series A convertible preferred stock,
$.01 par value per share, 3,000,000 shares of 8.25% Series B convertible
redeemable preferred stock, $.01 par value per share and 250,000 shares of 8.25%
Series C convertible redeemable preferred stock, $.01 par value per share. The
following summary description of our capital stock is subject to our Restated
Certificate of Incorporation and Restated Bylaws and the Delaware General
Corporation Law.
Common Stock
As of September 30, 2000, there were 34,034,830 shares of Class A common
stock outstanding and 16,557,262 shares of Class B common stock outstanding.
Class A Common Stock
Holders of our Class A common stock are entitled
. to one vote for each share held on any matter submitted for
stockholder approval;
. to receive on a pro rata basis, dividends and distributions, if any,
as the board of directors may declare out of legally available funds;
and
. upon our liquidation, dissolution, winding up or insolvency to share
ratably in our net assets available after we pay our liabilities and
any preferential amounts to which holders of the Series A convertible
preferred stock may be entitled.
Holders of our Class A common stock have no preemptive, redemption or
sinking fund rights.
Class B Common Stock
Our Class B common stock has the same rights as our Class A common stock
except that our Class B common stock is entitled to three votes for each share.
Shares of our Class B common stock are convertible into shares of Class A common
stock on a one-for-one basis, subject to antidilution protection if we effect a
recapitalization.
Class C Common Stock
Holders of our Class C common stock are entitled to the same rights as
holders of Class A common stock except that the holders of our Class C common
stock are not entitled to vote on any matter submitted for stockholder approval.
Preferred Stock
Our board of directors may issue preferred stock in one or more series and
may fix the designations, powers, preferences and relative, participating,
optional and other special rights, qualifications, limitations and restrictions
on the preferred stock, including the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference, and may fix the number of
shares to be included in any such series. Any of our preferred stock may rank
senior to our common stock for the payment of dividends or amounts upon
liquidation, dissolution or winding-up, or both. In addition, any shares of our
preferred stock may have class or series voting rights. Issuances of our
preferred stock, while providing us with flexibility in connection with general
corporate purposes, may, among other things, have an adverse effect on the
rights of holders of our common stock. The board of directors, without
stockholder approval, can issue preferred stock with voting and conversion
rights that could adversely affect the voting power and other rights of holders
of common stock. Preferred stock could thus be issued quickly with terms
calculated to
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delay or prevent a change of control or to make the removal of management more
difficult. In certain circumstances, this could have the effect of decreasing
the market price of our common stock.
Series A Convertible Preferred Stock
Our Series A convertible preferred stock has the following characteristics:
. a right to receive dividends and distributions ratably with the
holders of our common stock;
. a $9.52 per share payment preference over our common stock in the
event of our liquidation, dissolution, winding up or insolvency;
. a right to convert, at the election of the holder, one share of the
Series A convertible preferred stock into one share of our Class A
common stock; and
. shares of our Series A convertible preferred stock do not have
-- voting rights;
-- any preference with respect to dividends and distributions;
-- preemptive rights;
-- sinking fund rights; or
-- redemption rights.
Following the occurrence of a recapitalization, as described under the
caption "Class B Common Stock," each share of our Series A convertible preferred
stock will be convertible into the kind and number of shares of securities or
other property to which the holders of such share of Series A convertible
preferred stock would have been entitled to receive if the holder had converted
such share of Series A convertible preferred stock into our Class A common stock
immediately prior to the recapitalization.
As of September 30, 2000, there were 10,786,504 shares of our Series A
convertible preferred stock outstanding.
Series B Convertible Preferred Stock
General. Each share of Series B convertible preferred stock has a
"liquidation preference" of $50, which is the amount a holder of one share of
Series B convertible preferred stock would be entitled to receive if we were
liquidated. We will pay cumulative dividends on the Series B convertible
preferred stock at a rate per annum equal to 8.25% of the liquidation preference
per share quarterly in arrears commencing May 1, 2000. Dividends will be payable
in cash or, at our option, in shares of Class A common stock, or a combination
thereof.
Optional Conversion by Holders. Holders of the Series B convertible
preferred stock have the right to convert some or all of their shares of Series
B convertible preferred stock into shares of our Class A common stock, unless we
have already redeemed them. The conversion price is $40 per share. At that
price, holders of the Series B convertible preferred stock would receive 1.25
shares of our Class A common stock for each $50 liquidation preference of Series
B convertible preferred stock. Holders of Series B convertible preferred stock
are not entitled to any accrued dividends upon conversion. The conversion price
will be adjusted if specified dilutive events occur.
Upon the occurrence of a change of control (as defined in the certificate
of designation governing the Series B convertible preferred stock), holders will
have the option, during the period commencing on the date that the applicable
change of control notice is mailed to holders and ending at the close of
business on the 45th day
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thereafter, to convert all, but not less than all, of their shares of Series B
convertible preferred stock into Class A common stock at a conversion rate equal
to $50 (the liquidation preference per share of Series B convertible preferred
stock) divided by a special conversion price which will be based upon a formula
dependent upon the market value of our Class A common stock.
Redemption of the Series B Convertible Preferred Stock by Holdings.
Beginning on February 3, 2003, we will have the right to redeem some or all of
the Series B convertible preferred stock at a redemption price equal to 105.775%
of the liquidation preference, or $52.90 per share, plus accrued dividends, if
any, to the date of redemption. The redemption price will decline until it
equals 100.0% on February 2, 2010, and will remain at 100.0% thereafter until
redeemed. We may pay this redemption price in cash or shares of our Class A
common stock (subject to some restrictions) or a combination of the two.
We will be required to redeem any Series B convertible preferred stock
still outstanding on February 1, 2012, at a redemption price equal to 100% of
the total liquidation preference plus accrued dividends, if any, to that date.
We must pay this redemption price in shares of our Class A common stock.
Method of Dividends and Redemption Payments. We may, at our option, make
any dividend payments due on our Series B convertible preferred stock in cash,
by delivery of freely tradeable shares of our Class A common stock or through
any combination of cash and freely tradeable shares of our Class A common stock.
Any optional redemption payments on our Series B convertible preferred stock
must be paid in cash. Mandatory redemption payments due on the Series B
convertible preferred stock must be paid by delivery of shares of Class A common
stock. Shares of Class A common stock issued to make dividend or mandatory
redemption payments on the Series B convertible preferred stock shall be valued
at 95% of the average market value (as defined in the certificate of
designation) if such shares of Class A common stock are freely tradeable, or 90%
of the average market value if such shares of Class A common stock are not
freely tradeable.
Ranking. The Series B convertible preferred stock ranks:
. junior to all our existing and future indebtedness and other
obligations,
. junior to any of our capital stock or preferred stock which provides
that it be ranked senior to the Series B convertible preferred stock
and which receives the requisite approval of the holders of Series B
convertible preferred stock,
. equal with any of our preferred stock issued in the future which
provides that it be ranked equal with the Series B convertible
preferred stock, and
. senior to all Series A convertible preferred stock and all shares of
our other capital stock, unless the other stock expressly provides
otherwise.
Limited Voting Rights. Holders will generally not be entitled to any voting
rights, unless we have not declared or paid dividends on the Series B
convertible preferred stock for a total of six quarterly periods.
Trading. We have not applied and do not intend to apply for the listing of
the Series B convertible preferred stock on any securities exchange.
As of September 30, 2000, there were 867,289 shares of Series B convertible
preferred stock outstanding.
In August 2000, we issued 1,700,016 shares of our Class A common stock in
exchange for 1,132,711 shares of our outstanding Series B convertible preferred
stock.
Series C Convertible Preferred Stock
Voting Rights. The holders of Series C preferred stock are entitled to
vote on all matters on which the holders of common stock are entitled to vote,
in the same manner and with the same effect as the holders of common stock,
voting together with the holders of common stock as a single class. In any vote
with respect to which the Series C preferred stock vote with the holders of
common stock as a single class, each holder of Series C preferred stock shall
have a number of votes per share of Series C preferred stock equal to the number
of shares of common stock into which such
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shares of Series C preferred stock are convertible. The holders of Series C
preferred stock are entitled to notice of all stockholder meetings in accordance
with our bylaws.
In addition, the affirmative vote or consent of holders of at least 60% of
the outstanding Series C preferred stock is required for the following:
. any change to our certificate of incorporation or bylaws or any
of our subsidiaries material to the Series C holders or any
change to any certificate of designation relating to securities
senior to or pari passu with the Series C preferred stock;
. the authorization, creation, reclassification or issuance of any
series or class of securities senior to or pari passu with the
Series C preferred stock, except that we may issue up to $250
million in aggregate liquidation preference of Series C preferred
stock and securities pari passu with the Series C preferred
stock, which amount includes the Series C preferred stock
issuance;
. any increases in the outstanding number of shares of our Series A
convertible preferred stock or Series B preferred stock and the
Series C preferred stock other than increases in connection with
anti-dilution adjustments in accordance with the terms of such
securities;
. any increase or decrease in the authorized number of shares of
Series C preferred stock;
. the issuance of common stock or securities convertible into
common stock which would increase the number of shares of common
stock outstanding by 20% or more, except for the Series C
preferred stock issuance and issuances in respect of securities
convertible into or exercisable for common stock already
outstanding (securities issued in connection with any high yield
issuance and common stock paid as a dividend on the Series B
preferred stock in accordance with the terms thereof are not
counted in the above 20% calculation);
. the incurrence by us or any of our subsidiaries of indebtedness
or issuance of securities that contain financial, operational or
subscriber maintenance or milestone covenants which if not met
would put us or any of our subsidiaries in default under the
terms of the indebtedness;
. the declaration and payment of any dividends on any securities
junior to or pari passu with the Series C preferred stock other
than dividends consisting solely of common stock to the holders
of Series B preferred stock to the extent required by the terms
thereof and dividends consisting solely of common stock, subject
to the 20% limitation described above;
. any merger or liquidation of us or any of our subsidiaries;
. any action that results in us or our subsidiaries entering into
an agreement that would impose material restrictions on our
ability to honor the exercise of any rights of Series C holders,
or violate, or be in conflict with, the rights of Series C
holders;
. the purchase or redemption of any of our or our subsidiaries
securities except that we can exercise our option to repurchase
up to 35% of our subsidiary's 14% senior secured notes due 2010
and any similar option to repurchase contained in future high
yield issuances, redeem the Series B preferred stock and the
Series C preferred stock in accordance with their terms, and
redeem equity securities in an aggregate amount up to $5 million;
. the making of loans or advances to, transferring properties to,
or guaranteeing any indebtedness of our subsidiaries other than
subsidiaries related to our satellite radio business;
. any change in the principal nature of our or our subsidiaries
business to a business other than the satellite radio business or
a business related thereto;
. any transactions with affiliates, other than those on an arm's
length basis and as to which approval of a majority of the
disinterested directors has been received for transactions in
excess of $5 million, and a fairness opinion has been received
for transactions in excess of $20 million (transactions with
affiliates do not include transactions (including employment
agreements or arrangements or employee benefit plans) in the
ordinary course of business approved by a majority of the
disinterested directors, transactions between or among us and our
wholly-owned subsidiaries, payment of reasonable directors' fees
and provisions of customary indemnification for our directors,
officers and
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employees, and pre-existing contractual arrangements and any
renewals, extensions, implementations or modifications thereof
that are not materially adverse to the Series C holders and that
have been approved by a majority of the disinterested directors);
. the sale or transfer of all or substantially all of our assets
and the assets of our subsidiaries;
. entering into any transaction that would result in any of our
subsidiaries not being wholly owned by us other than pledges of
common stock in connection with any financing transaction; and
. our agreement or commitment to do any of the foregoing.
Redemption. The Series C preferred stock may not be required to be redeemed
for four and a half years. The Series C preferred stock may be redeemed for
cash, or, at the holder's option, in shares of our Class A common stock issued
at the conversion price or in a combination thereof, at our option after four
and a half years at redemption prices ranging from 100.000% to 105.775% of the
liquidation preference plus accumulated and unpaid dividends. Unless it has
already been redeemed or converted, the Series C preferred stock will be
mandatorily redeemed by us, in common stock, on February 1, 2012, at a
redemption price equal to 100% of the liquidation preference, together with
accumulated and unpaid dividends to the mandatory redemption date.
Dividends. The holders of Series C preferred stock will be entitled to
receive, when, as and if dividends are declared by the board of directors out of
funds legally available therefor, cumulative dividends from the issue date of
the Series C preferred stock accruing at the rate per annum of 8.25% of the
liquidation preference per share, payable in arrears. The affirmative vote of
the primary Series C investor and holders of at least 60% of the outstanding
Series C preferred stock will be required for any declaration or payment of
dividends on the Series C preferred stock, except during a liquidation event.
Dividends are payable in cash. Holders of Series C preferred stock are also
entitled to receive dividends, on an as converted basis, at any time that a
dividend is declared with respect to our common stock and will receive such
dividend before any dividend is paid on the common stock. If we fail to make
required payments on the Series C preferred stock, or, after a 30-day notice and
cure period, fails to observe the Series C voting requirements or perform under
its covenants with the Series C holders, the dividend rate increases to 10.25%
during the first year of the event of noncompliance and to 12.25% thereafter.
Once the noncompliance is cured, the dividend rate reverts to 8.25%.
Conversion. The shares of Series C preferred stock are convertible at the
holders' option at any time into shares of our Class A common stock at the
conversion price then in effect. Currently the conversion price is $26.50. The
conversion price is subject to adjustment upon stock splits and combinations,
certain dividend payments and distributions in common stock, indebtedness,
securities or assets. The conversion price is also subject to weighted average
anti-dilution adjustments if we issue common stock or common stock-linked
securities at a price less than 100% of the Series C conversion price. Upon a
change of control, each holder of Series C preferred stock has the option to
convert all, but not less than all, of such holder's shares of Series C
preferred stock at the applicable redemption price. After two years, upon the
fiftieth consecutive day that the common stock trading price equals or exceeds
$50 per share, we have the option to convert each share of Series C preferred
stock at a conversion rate equal to the liquidation preference plus accumulated
and unpaid dividends for four and a half years multiplied by 105.775% divided by
the conversion price.
Liquidation Rights. Each share of Series C preferred stock has a
"liquidation preference" of $1,000, which is the amount a holder of one share of
Series C preferred stock would be entitled to receive if we were liquidated,
plus any accrued dividends. Upon our voluntary or involuntary liquidation,
dissolution, winding up or sale or reduction or decrease in our capital stock
resulting in a distribution of assets to the holders of any class or series of
our capital stock, holders of the Series C preferred stock will be entitled to
be paid, out of our assets available for distribution, the greater of (i) the
liquidation preference per share plus an amount equal to all accumulated and
unpaid dividends multiplied by the applicable redemption price per share and
(ii) the amount the holders of Series C preferred stock would have been entitled
to receive if such holders had converted upon a liquidation event before any
distribution is made on any junior securities, including common stock.
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Ranking. The Series C preferred stock ranks senior to all classes of common
stock, the Series A preferred stock and any other class or series of common or
preferred stock issued hereafter, the terms of which do not expressly provide
that it will rank senior to the Series C preferred stock. The Series C preferred
stock ranks on a parity with our Series B preferred stock and any other class or
series of common or preferred stock issued hereafter, the terms of which
expressly provide that it will rank on a parity with the Series C preferred
stock. The Series C preferred stock ranks junior to each class or series of
preferred stock issued hereafter, the terms of which expressly provide that such
class or series will rank senior to the Series C preferred stock.
Registration Rights. Holders of the Series C preferred stock have the right
to demand registration of the shares of Class A common stock issuable upon
conversion of their Series C preferred stock beginning one year after the Series
C issuance. This right is subject to our right to defer the timing of a demand
registration statement and an underwriters' right to cut back shares in an
underwritten offering. In certain instances, if a demand registration is cut
back by more than 75% of the number of shares originally requested to be
registered, then the party requesting registration shall be entitled to one
additional demand registration request. The Series C holders also have rights to
demand registration upon a change of control and to include their Class A common
stock in special registered offerings initiated by us, other than an offering
relating to high yield debt.
Trading. We have not applied and do not intend to apply for the listing of
the Series C preferred stock on any securities exchange.
As of September 30, 2000, there were 235,000 shares of our Series C
preferred stock outstanding.
Warrants
In February 2000, we issued a warrant to Sony exercisable for shares of our
Class A common stock. The warrant will vest at the time that we attain our
millionth customer, and the number of shares underlying the warrant will be
determined by the percentage of XM Radios that have a Sony brand name as of the
vesting date. If Sony achieves its maximum performance target, it will receive
2% of the total number of shares of our Class A common stock on a fully-diluted
basis upon exercise of the warrant. The exercise price of the Sony warrant will
equal 105% of fair market value of our Class A common stock on the vesting date,
determined based upon the 20-day trailing average. The Sony warrant also grants
certain registration rights to Sony for the shares of Class A common stock
issuable upon exercise of the warrant.
In March 2000, we and XM completed a unit offering, which units included
the warrants registered by the registration statement of which this prospectus
is a part and which are discussed below under the caption "Description of the
Warrants."
Certain Provisions of Our Certificate of Incorporation and Bylaws
Certificate of Incorporation
Our certificate of incorporation permits our board of directors without
stockholder approval to issue shares of preferred stock up to the number of
shares authorized for issuance in our certificate of incorporation, except as
limited by Nasdaq rules. We could use these additional shares for a variety of
corporate purposes. These purposes include future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans. Our
ability to issue these shares of preferred stock could make it more difficult or
discourage an attempt to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
Federal communications law prohibits the holding of a broadcast license by
a corporation of which more than 20.0% of the capital stock is owned directly or
beneficially by aliens. Where a corporation controls another entity that holds
such an FCC license, such corporation may not have more than 25.0% of its
directors as aliens and may not have more than 25.0% of its capital stock owned
directly or beneficially by aliens, in each case, if the FCC finds that the
public interest would be served by such prohibitions. Failure to comply with
these requirements may result in the FCC issuing an order requiring divestiture
of alien ownership to bring a company into compliance with
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federal law. In addition, fines or a denial of renewal, or revocation of the
license are possible. Although we are not currently subject to these foreign
ownership restrictions, in order to provide flexibility should our regulatory
status change our restated certificate of incorporation permits the redemption
of common stock from stockholders where necessary to protect our license.
Bylaws
As currently in effect, our bylaws require that the number of directors be
as provided in our shareholders' agreement. Our bylaws provide that special
meetings of the stockholders may be called by the board of directors, by
stockholders holding at least 15% of the outstanding common stock or by the
chief executive officer or the president. The bylaws may be amended or repealed,
or new bylaws may be adopted, by the stockholders or the board of directors,
subject to our shareholders' agreement. If there is a conflict between the
bylaws and the shareholders' agreement, the latter will govern.
Stockholder Actions
Except as otherwise expressly provided in our certificate of incorporation
or bylaws, resolutions may be adopted at stockholders' meetings by the
affirmative vote of a simple majority of the aggregate number of votes
represented by all shares entitled to vote thereon and represented, in person or
by proxy, at the meeting. Our bylaws establish special advance notice procedures
for stockholders who wish to make director nominations or bring other business
before a stockholder meeting. In addition, stockholders may act by written
consent without a meeting if approved by the holders of a majority of the
aggregate number of votes represented by all shares entitled to vote thereon,
provided that notice of any such action must be subsequently furnished to all
stockholders if such approval was not unanimous.
Directors may be elected by a plurality of votes cast by stockholders at a
meeting or by written consent, assuming a quorum is present, in person or by
proxy, or acting by written consent. The quorum required for a meeting or action
by written consent of stockholders consists of stockholders holding a majority
of the issued and outstanding shares present in person or by proxy and entitled
to vote. Stockholders' meetings are convened upon advance notice of at least 10
days and not more than 60 days.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation provides that directors shall not be
personally liable to us or its stockholders for monetary damages for any breach
of fiduciary duty as a director, except for liability
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under a provision of Delaware General Corporation Law relating to
unlawful payment of dividends or unlawful stock purchase or redemption
of stock; or
. for any transaction from which such director derived an improper
personal benefit.
As a result of this provision, we and our stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
In addition, our certificate of incorporation and bylaws provide for the
indemnification of directors and officers and any director or officer who is or
was serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise to the full
extent authorized or permitted by the laws of Delaware against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
in
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connection with any threatened, pending or completed action, suit or proceeding
to which such person was or is made a party or is threatened to be made a party
by reason of serving in any of the foregoing capacities. The indemnification
includes, to the full extent authorized or permitted by the Delaware General
Corporation Law, payment by us of the expenses in advance of any proceeding. In
addition, we have entered or will enter into indemnification agreements with our
directors and executive officers that provide indemnification in addition to the
indemnification provided in our bylaws. Under the bylaws, we may, but are not
obligated to, maintain insurance, at their expense, for our benefit and the
benefit of any person to be indemnified by us.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A common stock is
BankBoston, N.A.
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DESCRIPTION OF THE WARRANTS
The warrants were issued pursuant to a warrant agreement dated March 15,
2000, between us and the United States Trust Company of New York as warrant
agent. The following summary of certain provisions of the warrant agreement is
not complete and is qualified in its entirety by reference to the warrant
agreement. A copy of the warrant agreement may be obtained by contacting XM
Satellite Radio Holdings Inc., at 1500 Eckington Place, N.E., Washington, D.C.
20002, Attention: General Counsel.
General
Each warrant, when exercised, will entitle the holder thereof to purchase
8.285948 fully paid and non-assessable shares of our Class A common stock at an
exercise price of $47.94 per share. The exercise price and the number of shares
of our Class A common stock issuable upon exercise of a warrant are both subject
to adjustment in certain circumstances described below. The warrants will
entitle the holders thereof to purchase shares of our Class A common stock
representing an aggregate beneficial ownership of approximately 3.9% of our
issued and outstanding common stock on a diluted basis as described below under
"--Amendment."
The warrants may be exercised at any time on or after September 16, 2000.
Unless earlier exercised, the warrants will expire on March 15, 2010. We will
give notice of expiration not less than 90 nor more than 120 days before the
expiration date to the registered holders of the then outstanding warrants. If
we fail to give the notice when required, the warrants will not expire until 90
days after notice is given. The warrants will not trade separately from the
senior secured notes until the separation date.
In order to exercise all or any of the warrants, the holder is required, in
the case of a definitive warrant, to surrender to the warrant agent the
certificate representing the warrants to be exercised, and in the case of a
global warrant, to comply with the applicable procedures set forth in the
warrant agreement in each case with the accompanying form of election to
purchase properly completed and executed, and to pay in full the exercise price
for each share of our Class A common stock or other securities issuable upon
exercise of the warrants. The exercise price may be paid:
(i) in cash or by certified or official bank check or by wire
transfer to an account that we have designated for that purpose; or
(ii) without the payment of cash, by reducing the number of shares of
our Class A common stock that would be obtainable upon the exercise of a
warrant and payment of the exercise price in cash so as to yield a number
of shares of our Class A common stock upon the exercise of the warrant
equal to the product of (a) the number of shares of our Class A common
stock for which the warrant is exercisable as of the date of exercise (if
the exercise price were being paid in cash) and (b) the cashless exercise
ratio.
The cashless exercise ratio shall equal a fraction, the numerator of which
is the excess of the current market value per share of our Class A common stock
on the exercise date over the exercise price per share as of the exercise date
and the denominator of which is the current market value per share of our Class
A common stock on the exercise date. When the holder thereof surrenders a
warrant certificate representing more than one warrant in connection with the
option to elect a cashless exercise, the number of shares of our Class A common
stock deliverable upon a cashless exercise shall be equal to the number of
shares of our Class A common stock issuable upon the exercise of warrants that
the holder specifies are to be exercised pursuant to a cashless exercise
multiplied by the cashless exercise ratio. All provisions of the warrant
agreement shall be applicable with respect to a surrender of a warrant
certificate pursuant to a cashless exercise for less than the full number of
warrants represented thereby. When the holder thereof surrenders the warrant
certificate and pays the exercise price, we will deliver or cause to be
delivered to such holder, or upon such holder's written order, a stock
certificate representing 8.285948 shares of our Class A common stock for each
warrant evidenced by such warrant certificate, subject to adjustment as
described herein. If the holder exercises less than all of the warrants
evidenced by a warrant certificate, a new warrant certificate will be issued to
such holder for the remaining number of warrants. No fractional shares of our
Class A common stock will be issued upon exercise of the warrants. At the time
of exercise, we will pay the holder an amount in cash equal to the current
market value of any such fractional share of our Class A common stock.
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If a holder's warrants are not exercised such holder will not be entitled
to receive dividends, to vote, to consent, to exercise any preemptive rights or
to receive notice as a stockholder in respect of any stockholders meeting for
the election of our directors or any other purpose, or to exercise any other
rights whatsoever as a stockholder.
Certificates for warrants will be issued in fully registered form only. No
service charge will be made for registration of transfer or exchange upon
surrender of any warrant certificate at the office of the warrant agent
maintained for that purpose. We may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of warrant certificates.
In the event a bankruptcy or reorganization is commenced by or against us,
a bankruptcy court may hold that unexercised warrants are executory contracts
that may be subject to our rejection with approval of the bankruptcy court. As a
result, a holder may not, even if sufficient funds are available, be entitled to
receive any consideration or may receive an amount less than such holder would
be entitled to receive if such holder had exercised such holder's warrants
before the commencement of any such bankruptcy or reorganization.
Adjustments
The number of shares of our Class A common stock issuable upon the exercise
of the warrants and the exercise price will be subject to adjustment in certain
circumstances, including:
(i) our payment of dividends and other distributions on our Class A
common stock payable in common stock or other equity interests;
(ii) subdivisions, combinations and certain reclassifications of our
Class A common stock;
(iii) the issuance to all holders of our Class A common stock of
rights, options or warrants entitling them to subscribe for additional
shares of common stock, or of securities convertible into or exercisable or
exchangeable for additional shares of our Class A common stock at an
offering price (or with an initial conversion, exercise or exchange price
plus such offering price) that is less than the then current market value
per share of our Class A common stock;
(iv) the distribution to all holders of our Class A common stock of
any of our assets (including cash), our debt securities or any rights or
warrants to purchase any securities (excluding those rights, options and
warrants referred to in clause (iii) above and cash dividends and other
cash distributions from current or retained earnings);
(v) the issuance of shares of our Class A common stock for a
consideration per share that is less than the then current market value per
share of our Class A common stock; and
(vi) the issuance of securities convertible into or exercisable or
exchangeable for our Class A common stock for a conversion, exercise or
exchange price per share that is less than the then current market value
per share of our Class A common stock.
The events described in clauses (v) and (vi) above are subject to certain
exceptions described in the warrant agreement, including, without limitation,
certain bona fide public offerings and private placements, issuances of our
Class A common stock under any option, warrant, right or convertible security
exercisable upon issuance of the warrants and certain issuances of our Class A
common stock pursuant to employee stock incentive plans.
No adjustment in the exercise price will be required unless the adjustment
would result in an increase or decrease of at least 1% in the exercise price;
provided, however, that any adjustment that is not made as a result of this
paragraph will be carried forward and taken into account in any subsequent
adjustment. In addition, we may at any time reduce the exercise price (but not
to an amount that is less than the par value of our Class A common stock) for
any period of time (but not less than 20 business days) as deemed appropriate by
our board of directors.
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If we consolidate or merge, or sell all or substantially all of our assets
to another person, each warrant will thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which the holder thereof would have been entitled as a result of such
consolidation, merger or sale had the warrants been exercised immediately prior
thereto. However, if (i) we consolidate, merge or sell all or substantially all
of our assets to another person and, in connection therewith, the consideration
payable to the holders of our Class A common stock in exchange for their shares
is payable solely in cash or (ii) we dissolve, liquidate or wind-up, then
holders of the warrants will be entitled to receive distributions on an equal
basis with the holders of our Class A common stock or other securities issuable
upon exercise of the warrants, as if the warrants had been exercised immediately
before such event, less the exercise price. Upon receipt of such payment, if
any, the warrants will expire and your rights will cease. In the case of any
such consolidation, merger or sale of assets, the surviving or acquiring person
and, if we dissolve, liquidate or wind-up, we must deposit promptly with the
warrant agent the funds, if any, required to pay the holders. After the funds
and the surrendered warrant certificates are received, the warrant agent is
required to deliver a check in the appropriate amount (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such persons as the warrant agent may be directed by the holders in writing.
In the event of a taxable distribution to holders of our Class A common
stock that results in an adjustment to the number of shares of our Class A
common stock or other consideration for which a warrant may be exercised,
holders may, in certain circumstances, be deemed to have received a distribution
subject to United States federal income tax as a dividend. See "Certain United
States Federal Income Tax Considerations."
Amendment
Any amendment or supplement to the Warrant Agreement that has an adverse
effect on the interests of holders will require the written consent of the
holders of a majority of the then outstanding warrants (excluding any warrants
held by us or any of our affiliates). Notwithstanding the foregoing, from time
to time, we and the warrant agent, without consent of the holders, may amend or
supplement the warrant agreement for certain purposes, including to cure any
ambiguities, defects or inconsistencies or to make any change that does not
adversely affect your rights. The consent of each holder of the warrants
affected will be required for any amendment pursuant to which the exercise price
would be increased or the number of shares of our Class A common stock issuable
upon exercise of the warrants would be decreased (other than pursuant to
adjustments provided for in the warrant agreement) or the exercise period with
respect to the warrants would be shortened.
It is the intent of the warrant agreement to provide that, on and as of the
closing date, the number of warrant shares into which the warrants are
exercisable represents 3.9% of the issued and outstanding shares of common stock
on a fully diluted basis. For purposes of this paragraph, the phrase "on a fully
diluted basis" shall include any and all options, warrants or other rights to
acquire common equity, whether or not exercisable on the closing date but
excluding all such options, warrants (other than the warrants) or other rights
to acquire common equity at an exercise or conversion price greater than the
exercise price of the warrants as of the closing date, as adjusted. If either
(i) the issuance of the warrants causes the application of the anti-dilution
provisions of any of our warrants, options or convertible securities outstanding
as of the closing date to result in an increase in the number of shares of our
common stock issuable thereunder or (ii) after the closing date the exercise
price of our then outstanding warrants, options or convertible securities is
adjusted to an exercise price equal to or less than the exercise price of the
warrants, such additional shares of our Class A common stock, or such shares of
our Class A common stock issuable upon the exercise or conversion of such
warrants, options or convertible securities, as the case may be, will be
included in the calculation of our common stock on a fully diluted basis, then
the number of warrant shares issuable upon exercise of each warrant
automatically shall be adjusted upward by an amount sufficient to bring the
total number of warrant shares issuable pursuant to the warrant agreement to a
number representing 3.9% of the then issued and outstanding shares of our common
stock on a fully diluted basis.
Registration Rights
Pursuant to the warrant agreement and the warrant registration rights
agreement, we have filed this shelf registration statement to cover the resale
of the warrants and the issuance of our Class A common stock upon the
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exercise of the warrants. We are obligated to use our best efforts to keep this
registration statement effective until the earlier either all of the warrants
and Warrant Shares cease to be transfer restricted or April 1, 2010. If we do
not comply with our obligations under the warrant registration rights agreement
we will be required to pay liquidated damages to holders of the warrants under
certain circumstances. There can be no assurance we will be able to keep a
registration statement continuously effective for the required period. In
addition, we will be able to suspend the warrant registration statement for up
to two consecutive 45-day periods during any 365-day period under certain
circumstances.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of some important U.S. federal income
tax considerations relating to the purchase, ownership and disposition of the
warrants and/or shares of common stock that are received upon the exercise of
the warrants to initial purchasers thereof (as defined below). This discussion
is based on currently existing provisions of the Internal Revenue Code (the
"Code"), existing, temporary and proposed Treasury regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all as in
effect or proposed on the date hereof and all of which are subject to change,
possibly with retroactive effect, or different interpretations. This discussion
generally does not address the tax consequences to subsequent purchasers of
warrants (or shares of common stock that are received upon the exercise of the
warrants) and is limited to purchasers who purchased warrants at their "issue
price," as defined below under "Allocation of Purchase Price Between notes and
warrants," and hold such warrants (or shares of common stock that are received
upon the exercise of the warrants) as capital assets, within the meaning of
section 1221 of the Code. Moreover, this discussion is for general information
only and does not address all of the tax consequences that may be relevant to
particular initial purchasers in light of their personal circumstances or to
certain types of initial purchasers who are subject to special rules, such as
certain financial institutions, insurance companies, tax-exempt entities,
traders or dealers in securities or currencies, certain U.S. expatriates and
U.S. holders whose "functional currency" is not the U.S. dollar. This discussion
does not address the tax consequences of the law of any state, locality or
foreign jurisdiction.
ALL PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE WARRANTS (OR SHARES OF COMMON STOCK THAT ARE RECEIVED UPON
THE EXERCISE OF THE WARRANTS), INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX
LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED
CHANGES) IN APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
U.S. HOLDERS
As used herein, a "U.S. holder" is a beneficial owner of a warrant (or
shares of common stock that are received upon the exercise of the warrant) that
is, for U.S. federal income tax purposes:
. an individual citizen or resident of the United States;
. a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof (unless in the case of a partnership, applicable Treasury
Regulations provide otherwise);
. an estate the income of which is subject to U.S. federal income
taxation regardless of source;
. a trust if both (A) a United States court is able to exercise primary
supervision over the administration of the trust, and (B) one or more
United States persons have the authority to control all substantial
decisions of the trust (including specified trusts in existence on
August 20, 1996 and treated as United States persons prior to that
date and that timely elected to continue to be treated as United
States persons).
Allocation of purchase price between notes and warrants
For U.S. federal income tax purposes, the purchase of a unit consisting of
a note and a warrant is treated as the purchase of an "investment unit." The
issue price of a unit for U.S. federal income tax purposes is the first price at
which a substantial amount of units is sold, excluding sales to bond holders,
brokers or similar persons acting as underwriters, placement agents or
wholesalers. The issue price of a unit must be allocated between the note and
the warrant based on the relative fair market values of each such component of
the unit on the issue date. Pursuant to Treasury Regulations issued under
provisions of the Code relating to original issue discount (the "OID
Regulations"), each U.S. holder for U.S. federal income tax purposes will be
bound by XM's and Holdings'
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allocation unless such holder discloses on a statement attached to its tax
return for the taxable year that includes the acquisition date of such unit that
its allocation differs from that of XM and Holdings. We believe that the
aggregate issue price of each unit should be allocated $797.70 to the note and
$202.30 to the warrant. We cannot assure you that the IRS will accept XM's
allocation. If XM's allocation were successfully challenged by the IRS, the gain
or loss on the sale or disposition of a warrant would be different from that
resulting under the allocation determined by XM and Holdings.
The warrants
Exercise of warrants and ownership of common stock. Upon the exercise of a
warrant, a U.S. holder will not recognize gain or loss, except to the extent of
cash, if any, received in lieu of the issuance of fractional shares of common
stock, and will have an adjusted tax basis in the common stock acquired pursuant
to such exercise equal to such U.S. holder's tax basis in the warrant, which
will equal the portion of the issue price of the unit properly allocable to the
warrant, as described above, plus the exercise price of the warrant. The holding
period for such common stock so acquired will generally commence on the date
after the date of exercise of the warrant. If any cash is received in lieu of
fractional shares of common stock, the U.S. holder will recognize gain or loss
in an amount and of the same character that such U.S. holder would have
recognized if such U.S. holder had received such fractional shares and then
immediately sold them for cash back to Holdings. Similarly, upon the sale of
common stock received upon exercise of a warrant, a U.S. holder will recognize
capital gain or loss equal to the difference between the amount realized upon
the sale and such U.S. holder's tax basis in the common stock. Distributions
made with respect to the common stock will constitute dividends to the extent
paid out of current or accumulated earnings and profits of Holdings, as
determined for U.S. federal income tax purposes. To the extent that a
distribution exceeds the earnings and profits of Holdings, it will be treated as
a nontaxable return of capital to the extent of the U.S. holder's adjusted tax
basis in the common stock and the excess, if any, will be treated as capital
gain.
If a U.S. holder of warrants acquires shares of common stock through a
cashless exercise of warrants, the U.S. holder may recognize gain or loss equal
to the excess of the fair market value of the warrants deemed surrendered to pay
the exercise price over the U.S. holder's tax basis in such warrants.
Alternatively, a cashless exercise of warrants may be treated as a tax-free
exchange of warrants for common stock. Under such treatment, it is possible that
a U.S. holder may have a holding period in shares of common stock that included
the holding period of warrants surrendered in the cashless exercise of such
warrants. If a U.S. holder exercises a warrant with a combination of the payment
of cash and through a cashless exercise, the transaction may be divided into the
applicable number of parts with each part treated as described above.
Sale or repurchase. The sale of a warrant will result in the recognition of
capital gain or loss to the U.S. holder in an amount equal to the difference
between the amount realized and such U.S. holder's tax basis in the warrant,
which will equal the portion of the issue price of the unit properly allocable
to the warrant, as described above. With respect to non-corporate U.S. holders,
capital gain is subject to reduced rates of tax if the warrant was held for more
than twelve months, and the deductibility of capital losses is subject to
limitations. It is unclear whether the repurchase of a warrant by Holdings would
be treated as a sale or exchange. If it were not so treated, any gain or loss to
a U.S. holder on such repurchase would be treated as ordinary income or loss.
Lapse. If a warrant expires unexercised, a U.S. holder will recognize a
capital loss equal to such U.S. holder's tax basis in the warrant. Such capital
loss may, subject to certain limitations, be used to offset capital gains, if
any, otherwise realized by a U.S. holder.
Adjustments. Under Section 305 of the Internal Revenue Code, adjustments to
the exercise price or conversion ratio of the warrants which occur under certain
circumstances, or the failure to make such adjustments, may result in the
receipt of taxable constructive dividends by a U.S. holder, subject to a
possible dividends received deduction in the case of corporate U.S. holders, to
the extent of Holdings current or accumulated earnings and profits, regardless
of whether there is a distribution of cash or property.
30
<PAGE>
NON-U.S. HOLDERS
The following discussion summarizes certain United States federal income
tax consequences relevant to a Non-U.S. holder of a warrant or common stock
acquired through exercise of a warrant. As used herein, a "Non-U.S. holder" is a
beneficial owner of a warrant (or shares of common stock that are received upon
the exercise of the warrant) that is not a U.S. holder.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to any particular Non-U.S. holder in light
of that holder's personal circumstances with respect to such holder's purchase,
ownership or disposition of the warrants or common stock acquired through
exercise of a warrant, or with respect to exercising a warrant, including such
holder holding the warrant or common stock acquired through exercise of a
warrant through a partnership. For example, persons who are partners in foreign
partnerships and beneficiaries of foreign trusts or estates who are subject to
United States federal income tax because of their own status, such as United
States residents or foreign persons engaged in a trade or business in the United
States, may be subject to United States federal income tax even though the
entity is not subject to such tax.
Sale or Redemption of Warrants or Common Stock; Exercise of Warrants
Except as described below and subject to the discussion concerning backup
withholding, a Non-U.S. holder generally will not be subject to withholding of
United States federal income tax with respect to any gain realized upon the sale
or redemption of warrants or common stock acquired on the exercise of warrants
or from the exercise of a warrant. Further, a Non-U.S. holder generally will not
be subject to United States federal income tax with respect to any such gain
unless (i) the gain is effectively connected with a United States trade or
business of such Non-U.S. person (and, if a tax treaty applies, is attributable
to a U.S. permanent establishment of the Non-U.S. holder), (ii) subject to
certain exceptions, the Non-U.S. holder is an individual who holds the warrant
or common stock as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition, (iii) the Non-U.S. holder
is subject to tax pursuant to the provisions of United States tax law applicable
to certain United States expatriates, or (iv) the common stock constitutes a
United States real property interest by reason of Holdings status as a "United
States real property holding corporation" ("USRPHC") for federal income tax
purposes at any time within the shorter of the five-year period preceding such
disposition or such Non-U.S. holder's holding period for such common stock.
Holdings does not believe that it is or it will become a USRPHC for federal
income tax purposes.
Dividends on Common Stock
Any distribution on common stock to a Non-U.S. holder will generally be subject
to United States federal income tax withholding at a rate of 30%, unless (i) a
lower rate is provided by an applicable tax treaty or (ii) the distribution is
effectively connected with the conduct of a trade or business in the United
States by the Non-U.S. holder, in which case the distribution may be subject to
graduated U.S. federal income tax as if such amounts were earned by a U.S.
holder and, for corporate Non-U.S. holders, may also be subject to an additional
30% branch profits tax (on a lower rate provided by an applicable treaty). For
either of these exceptions to apply, the Non-U.S. holder may be required to
provide a properly executed certificate claiming the benefits of a treaty or
exemption (currently Form 1001 (or W-8BEN) or 4224 (or W-8ECI), as applicable).
Information reporting and backup withholding
In general, information reporting requirements will apply to payments of
dividends on common stock and payments of the proceeds of the sale of a warrant
or common stock to certain non-corporate U.S. holders, and a 31% backup
withholding tax may apply to such payments if the U.S. holder (i) fails to
furnish or certify his correct taxpayer identification number to the payer in
the manner required, (ii) is notified by the IRS that he has failed to report
payments of interest or dividends properly, or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that he
is subject to backup withholding for failure to report interest or dividend
payments.
31
<PAGE>
Information reporting requirements will apply to payments of dividends to
Non-U.S. holders where such dividends are subject to withholding or are exempt
from U.S. withholding tax pursuant to a tax treaty. Backup withholding may apply
to payments of dividends on common stock to Non-U.S. holders unless they certify
their foreign status or qualify for a treaty benefit. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. holder resides.
The payment of proceeds from the disposition of warrants or common stock to
or through the U.S. office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as to its non-U.S. status under penalty of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a
warrant or common stock to or through a non-U.S. office of a non-U.S. broker
will not be subject to information reporting or backup withholding unless such
broker is (i) a "controlled foreign corporation" for U.S. federal income tax
purposes, or (ii) a foreign person 50% or more of whose gross income from all
sources for the 3-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker has been
in existence, is derived from activities that are effectively connected with the
conduct of a U.S. trade or business (a "U.S. related person").
In the case of the payment of proceeds from the disposition of warrants or
common stock to or through a non-U.S. office of a broker that is either a U.S.
person or a U.S. related person, Treasury regulations require information
reporting on the payment unless the broker has documentary evidence in its files
that the owner is a Non-U.S. holder and the broker has no knowledge to the
contrary.
Holders of warrants (or holders of common stock received upon exercise of
the warrants) should be aware that the Treasury Department promulgated revised
final regulations regarding the withholding and information reporting rules
discussed above. In general, the final regulations do not significantly alter
the substantive withholding and information reporting requirements but unify
certain certification procedures and forms and clarify reliance standards. The
final regulations would generally be effective for payments made after December
31, 2000, subject to certain transition rules should consult their tax advisors
regarding the application of such Treasury regulations.
Any amounts withheld under the backup withholding rules from a payment to a
holder would be allowed as a refund or a credit against such holder's federal
income tax liability, provided the required information is furnished to the IRS.
32
<PAGE>
SELLING HOLDERS
The warrants were originally issued and sold by the initial purchasers
in a transaction exempt from the registration requirements of the Securities Act
to persons reasonably believed by such initial purchasers to be qualified
institutional buyers. Selling holders, which term includes their transferees,
pledgees or donees or their successors, may from time to time offer and sell
pursuant to this prospectus any or all of the warrants and common stock
receivable from exercise of the warrants.
The following table sets forth the name of each selling holder, any
material relationship of such holder with us, and the following information as
of October 30, 2000:
. the number of warrants owned by each selling holder;
. the maximum number of warrants which may be offered for the account of such
selling holder under this prospectus;
. the amount of common stock owned by each selling holder; and
. the maximum amount of common stock which may be offered for the account of
such selling holder under this prospectus.
This information with respect to each selling holder is based upon
information provided by or on behalf of such selling holder. The selling holders
may offer all, some or none of the warrants or common stock issuable upon
exercise of the warrants. Because the selling holders may offer all or some
portion of the warrants or the common stock, we cannot estimate the amount of
warrants or common stock that will be held by the selling holders upon
termination of sales pursuant to this prospectus. In addition, the selling
holders identified below may have sold, transferred or otherwise disposed of all
or a portion of their warrants since the date on which they provided the
information regarding their warrants in transactions exempt from the
registration requirements of the Securities Act.
<TABLE>
<CAPTION>
Warrants Common Stock
Name of Selling Beneficially Owned Warrants Beneficially Owned Common Stock
Stockholder Prior to the Offering Offered Hereby Prior to the Offering (1) Offered Hereby (2)
----------- --------------------- -------------- --------------------- --------------
<S> <C> <C> <C> <C>
American Express Trust 1,900 1,900 15,743 15,743
Company
Bank of New York 19,630 19,630 162,653 162,653
Bankers Trust Company 15,280 15,280 126,609 126,609
Bear, Stearns Securities 12,290 12,290 101,834 101,834
Corp.
Boston Safe Deposit and 10,280 10,280 85,179 85,179
Trust Company
Brown Brothers Harriman 795 795 6,587 6,587
& Co.
Carty & Company, Inc. 250 250 2,071 2,071
Chase Bank of Texas, N.A. 12,000 12,000 99,431 99,431
Chase Manhattan Bank 28,800 28,800 238,635 238,635
Chase Manhattan Bank, 4,000 4,000 33,143 33,143
Trust
Citibank, N.A. 25,925 25,925 214,813 214,813
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Credit Suisse First 3,000 3,000 24,857 24,857
Boston Corporation
Custodial Trust Company 5,000 5,000 41,429 41,429
Donaldson, Lufkin and 10,050 10,050 83,273 83,273
Jenrette Securities
Corporation
Firstar Bank, N.A. 3,510 3,510 29,083 29,083
Fleet National Bank 275 275 2,278 2,278
FUNB - Phila. Main 1,255 1,255 10,398 10,398
Investors Bank & Trust 9,500 9,500 78,716 78,716
Company
Lehman Brothers, Inc. 14,155 14,155 117,287 117,287
LBI-Lehman Government 1,250 1,250 10,357 10,357
Securities, Inc.
McDonald Investments Inc. 5 5 41 41
Mercantile-Safe Deposit 80 80 662 662
& Trust Company
Merrill Lynch, Pierce, 19,755 19,755 163,688 163,688
Fenner & Smith Inc.
Merrill Lynch SFKPG 11,000 11,000 91,145 91,145
J.P. Morgan Securities 9,500 9,500 78,716 78,716
Inc.
Morgan Stanley & Co. 175 175 1,450 1,450
Incorporated
Northern Trust Company 2,750 2,750 22,786 22,786
Paine Webber Incorporated 1,500 1,500 12,428 12,428
PNC Bank, National 4,685 4,685 38,819 38,819
Association
Prudential Securities 12,150 12,150 100,674 100,674
Custody
RBC Dominion Securities 5,000 5,000 41,429 41,429
Corporation
Salomon Smith Barney 950 950 7,871 7,871
Inc./Salomon Brothers
Salomon Brothers 15 15 124 124
State Street Bank and 66,765 66,765 553,211 553,211
Trust Company
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Southwest Securities, 100 100 828 828
Inc.
Sumitomo Trust & Banking 275 275 2,278 2,278
Co.
Swiss American 100 100 828 828
Securities Inc.
U.S. Bank National 10,750 10,750 89,073 89,073
Association
Fifth Third Bank 300 300 2,485 2,485
Any other holder of
warrants or future
transferee of such
holder (3) (4)
</TABLE>
(1) Comprises the shares of common stock owned by each selling holder prior to
the offering, including the shares of common stock which are issuable upon
exercise of the warrants at an exercise price of $47.94 per share, excluding
fractional shares. Fractional shares will not be issued upon exercise of the
warrants; rather, cash will be paid in lieu of fractional shares, if any. The
exercise price and the number of shares of common stock issuable upon exercise
of the warrants are subject to adjustment under specified circumstances, which
are described in more detail under "Description of the Warrants - General."
Accordingly, the number of shares of common stock issuable upon exercise of the
warrants may increase or decrease from time to time.
(2) Assumes issuance of common stock of full amount issuable upon exercise of
the warrants at an exercise price of $47.94 per share and the offering of those
shares by the selling holder pursuant to this prospectus. The exercise price and
the number of shares of common stock issuable upon exercise of the warrants are
subject to adjustment under specified circumstances which are described in more
detail under "Description of Warrants - General." Accordingly, the number of
shares of common stock issuable upon exercise of the warrants may increase or
decrease from time to time. Fractional shares will not be issued upon exercise
of the warrants; rather, cash will be paid in lieu of fractional shares, if any.
The selling holders may offer and sell pursuant to the prospectus, their
warrants, the shares of common stock issued upon exercise of the warrants, or
both.
(3) Information concerning other selling holders of warrants will be set forth
in prospectus supplements from time to time, as required. No holder may offer
warrants pursuant to this prospectus until such holder is included as a selling
holder in a supplement to this prospectus in accordance with the registration
rights agreement.
(4) Assumes that any other holders of warrants or any future transferee from
any such holder does not beneficially own any common stock other than common
stock into which the warrants are convertible at the conversion price of $47.94
per share.
Other than as noted above, none of the selling holders has had any material
relationship with us or our affiliates within the past three years. The warrants
were initially issued by us in a private transaction on March 15, 2000. All of
the warrants were "restricted securities" under the Securities Act prior to this
registration.
We agreed to prepare and file all necessary amendments and supplements to
the registration statement to keep it effective until April 1, 2010.
Information concerning the selling holders may change from time to time and
any such changed information will be set forth in supplements to this prospectus
if and when necessary. In addition, the exercise price, and therefore the number
of shares of common stock issuable upon exercise of the warrants, is subject to
adjustment under certain circumstances. Accordingly, the number of warrants and
the number of shares of common stock issuable upon exercise of the warrants may
increase or decrease. We will pay the expenses of registering the warrants and
common stock being offered by this prospectus.
35
<PAGE>
PLAN OF DISTRIBUTION
The selling holders and their successors, which term includes their
transferees, pledgees or donees or their successors, may sell the warrants and
the common stock issuable upon exercise of the warrants directly to purchasers
or through underwriters, broker-dealers or agents, who may receive compensation
in the form of discounts, concessions or commissions from the selling holders or
the purchasers, which discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The warrants and the common stock may be sold in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at prices
related to such prevailing market prices, at varying prices determined at the
time of sale, or at negotiated prices. Such sales may be effected in
transactions, which may involve crosses or block transactions:
. on any national securities exchange or quotation service on which the
warrants or the common stock may be listed or quoted at the time of
sale,
. in the over-the-counter market,
. in transactions otherwise than on such exchanges or services or in the
over-the-counter market,
. through the writing of options, whether such options are listed on an
options exchange or otherwise, or
. through the settlement of short sales.
In connection with the sale of the warrants and the common stock issuable upon
exercise of the warrants or otherwise, the selling holders may enter into
hedging transactions with broker-dealers or other financial institutions which
may in turn engage in short sales of the warrants or the common stock issuable
upon exercise of the warrants and deliver these securities to close out such
short positions, or loan or pledge the warrants or the common stock issuable
upon exercise of the warrants to broker-dealers that in turn may sell these
securities.
At the time a particular offering of the warrants or the common stock
issuable upon exercise of the warrants is made, a supplement to this prospectus
(a "prospectus supplement"), if required, will be distributed which will set
forth the aggregate amount of warrants or common stock being offered and the
terms of the offering, including the name or names of any underwriters, broker-
dealers or agents, any discounts, commissions and other terms constituting
compensation from the selling holders and any discounts, commissions or
concessions allowed or reallowed or paid to broker-dealers. Each broker-dealer
that receives the warrants or common stock for its own account pursuant to this
prospectus must acknowledge that it will deliver the prospectus and any
prospectus supplement in connection with any sale of such warrants or common
stock.
The aggregate proceeds to the selling holders from the sale of the warrants
or the common stock issuable upon exercise of the warrants offered by them
hereby will be the purchase price of such warrants or common stock less
discounts and commissions, if any. Each of the selling holders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of warrants or common stock to be made
directly or through agents. We will not receive any of the proceeds from this
offering.
Our outstanding common stock is listed for trading on the Nasdaq National
Market. We do not intend to list the warrants for trading on any national
securities exchange or on the Nasdaq National Market and can give no assurance
about the development of any trading market for the warrants.
In order to comply with the securities laws of certain jurisdictions, if
applicable, the warrants and the common stock issuable upon exercise of the
warrants may be sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the warrants and common stock
issuable upon exercise of the warrants may not be sold unless they have been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
36
<PAGE>
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the warrants and common stock issuable upon exercise
of the warrants may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under the
Securities Act. Selling holders who are "underwriters" within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The selling holders have acknowledged that
they understand their obligations to comply with the provisions of the Exchange
Act and the rules thereunder relating to stock manipulation, particularly
Regulation M, and have agreed that they will not engage in any transaction in
violation of such provisions.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling holder
may not sell any warrants or common stock described herein and may not transfer,
devise or gift such securities by other means not described in this prospectus.
To the extent required, the specific warrants or common stock to be sold,
the names of the selling holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement of which this prospectus is a
part.
We entered into a registration rights agreement for the benefit of holders
of the warrants to register their warrants and common stock under applicable
federal and state securities laws under particular circumstances and at
specified times. The registration rights agreement provides for cross-
indemnification of the selling holders and XM Satellite Radio Holdings Inc. and
their respective directors, officers and controlling persons against certain
liabilities in connection with the offer and sale of the warrants and the common
stock, including liabilities under the Securities Act. We will pay all of our
expenses and substantially all of the expenses incurred by the selling holders
incident to the offering and sale of the warrants and the common stock, provided
that each selling holder will be responsible for payment of commissions,
concessions and discounts of underwriters, broker-dealers or agents.
LEGAL MATTERS
Certain legal matters with respect to the warrants and shares of common
stock offered by this prospectus have been passed upon for us by Hogan & Hartson
L.L.P., Washington, D.C.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1999 and
for each of the years in the three-year period ended December 31, 1999 and for
the period from December 15, 1992 (date of inception) through December 31, 1999,
have been incorporated by reference herein and in the registration statement, in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG LLP contains an explanatory
paragraph that states that we have not commenced operations and are dependent
upon additional debt or equity financings, which raises substantial doubt about
our ability to continue as a going concern. Our consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 (the "Exchange Act"). You may read and copy any of the
information we file with the SEC at the SEC's public reference rooms at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at 7 World Trade Center,
13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You can also obtain copies of filed
documents by mail from the Public Reference Section of the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. You may call the
SEC at 1-800-SEC-0330 for further information on
37
<PAGE>
the operation of the public reference rooms. We file information electronically
with the SEC. Our SEC filings also are available from the SEC's Internet site at
http://www.sec.gov, which contains reports, proxy and information statements,
and other information regarding issuers that file electronically. Our common
stock is quoted on the Nasdaq National Market under the symbol "XMSR," and
reports, proxy statements and other information concerning XM Satellite Radio
Holdings Inc. can also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
This prospectus is part of a registration statement we filed with the SEC
under the Securities Act of 1933 (the "Securities Act"). As permitted by SEC
rules, this prospectus omits certain information that is included in the
registration statement. For further information about us and our common stock,
you should refer to the registration statement and its exhibits. If we have
filed a contract, agreement or other document as an exhibit to the registration
statement, you may read the exhibit for a more complete understanding of the
document or matter involved. Each statement in this prospectus (including
statements incorporated by reference as discussed below) regarding a contract,
agreement or other document is qualified in its entirety by reference to the
actual document.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document we have filed separately with the SEC. The
information incorporated by reference is considered to be part of this
prospectus. This prospectus incorporates by reference the documents set forth
below that we have previously filed with the SEC under Section 13(a), 14 or
15(d) of the Exchange Act, 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 offering of
securities covered by this prospectus is completed. These documents contain
important information about us and our financial condition. Information in this
prospectus may update or supersede information contained in prior SEC filings,
and information included in future SEC filings will update or supersede
information in this prospectus.
. Our Annual Report on Form 10-K for our fiscal year ended December 31,
1999, filed with the SEC on March 16, 2000.
. Our Quarterly Report on Form 10-Q for our fiscal quarter ended March
31, 2000, filed with the SEC on May 12, 2000.
. Our Quarterly Report on Form 10-Q for our fiscal quarter ended June
30, 2000, filed with the SEC on August 11, 2000.
. Our Quarterly Report on Form 10-Q for our fiscal quarter ended
September 30, 2000, filed with the SEC on November 13, 2000.
. Our Proxy Statement, filed with the SEC on April 26, 2000.
. Our Current Reports on Form 8-K, filed with the SEC on February 28,
2000 and July 14, 2000.
We will provide a copy of the information we incorporate by reference, at
no cost, to each person, including any beneficial owner of our common stock, to
whom this prospectus is delivered. To request a copy of any or all of this
information, you should contact us at the following address and telephone
number:
XM Satellite Radio Holdings Inc.
1500 Eckington Place, NE
Washington, DC 20002
Attn: General Counsel
(202) 380-4000
38
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following are the estimated expenses to be incurred in connection with
the issuance and distribution of the securities being registered.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee................ $ 11,726
Printing and engraving expenses..... 20,000
Legal fees and expenses............. 37,500
Blue Sky fees and expenses.......... 0
NASD filing fees.................... 17,500
Accounting fees and expenses........ 20,000
Transfer agent fees................. 500
Listing fees........................ 0
Miscellaneous....................... 0
Total.......................... $ 107,226
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 145 of Delaware General Corporation Law permits indemnification of
officers and directors of our company under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation law.
Article Ninth of our Restated Certificate of Incorporation and Article VI,
Section 1 of our Bylaws provide that we shall indemnify our directors and
officers and any such directors and officers serving at our request as a
director, officer, employee or agent of another entity to the fullest extent not
prohibited by the Delaware General Corporation Law. The Bylaws also provide that
we may, but shall not be obligated to, maintain insurance, at our expense, for
the benefit of our company and of any person to be indemnified. In addition, we
have entered or will enter into indemnification agreements with our directors
and officers that provide for indemnification in addition to the indemnification
provided in our Bylaws. The indemnification agreements contain provisions that
may require our company, among other things, to indemnify our directors and
executive officers against certain liabilities (other than liabilities arising
from intentional or knowing and culpable violations of law) that may arise by
reason of their status or service as directors or executive officers of our
company or other entities to which they provide service at the request of our
company and to advance expenses they may incur as a result of any proceeding
against them as to which they could be indemnified. We believe that these
provisions and agreements are necessary to attract and retain qualified
directors and officers. We have obtained an insurance policy covering directors
and officers for claims that such directors and officers may otherwise be
required to pay or for which we are required to indemnify them, subject to
certain exclusions.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article Eighth of our Restated Certificate of Incorporation provides that a
director shall not be personally liable for monetary damages or breach of
fiduciary duty as a director, except for liability
. for any breach of the director's duty of loyalty to our company or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
II-1
<PAGE>
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived any improper
personal benefit.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Incorporated by reference to the Exhibit Index beginning on page II-5
hereto.
(b) Financial Statement Schedules included separately in the Registration
Statement:
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)3 of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or (ii) the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the General Corporation Law of the State of Delaware, the
Restated Certificate of Incorporation, as amended, or the Amended and Restated
Bylaws of registrant, indemnification agreements entered into between registrant
and its officers and directors, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amended
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the District of Columbia, on November 15, 2000.
XM SATELLITE RADIO HOLDINGS INC.
By: *
----------------------------------------
Hugh Panero
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer and November 15, 2000
-----------------------------------
Hugh Panero Director (Principal Executive Officer)
Senior Vice President, Chief Financial
* Officer (Principal Financial and November 15, 2000
-----------------------------------
Heinz Stubblefield Accounting Officer)
* Chairman of the Board of Directors November 15, 2000
-----------------------------------
Gary M. Parsons
* Director November 15, 2000
-----------------------------------
Nathaniel A. Davis
* Director November 15, 2000
-----------------------------------
Thomas J. Donohue
* Director November 15, 2000
-----------------------------------
Randall T. Mays
* Director November 15, 2000
-----------------------------------
Randy S. Segal
Director ____________, 2000
-----------------------------------
Jack Shaw
* Director November 15, 2000
-----------------------------------
Dr. Rajendra Singh
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
Director ____________, 2000
-----------------------------------
Ronald L. Zarrella
Director ____________, 2000
-----------------------------------
Pierce J. Roberts, Jr.
* Director November 15, 2000
-----------------------------------
Walter V. Purnell, Jr.
</TABLE>
*By: /s/ Joseph M. Titlebaum
Joseph M. Titlebaum
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- --------------------------------------------------------
3.1 Restated Certificate of Incorporation of XM Satellite Radio Holdings
Inc. (incorporated by reference to the Registrant's Registration
Statement on Form S-1, File No. 333-83619).
3.2 Restated Bylaws of XM Satellite Radio Holdings Inc. (incorporated by
reference to the Registrant's Registration Statement on Form S-1, File
No. 333-83619).
4.1 Form of Certificate for our Class A common stock (incorporated by
reference to Exhibit 3 to the Registrant's Registration Statement on
Form 8-A, filed with the SEC on September 23, 1999).
4.2 Form of Certificate for our 8.25% Series B Convertible Redeemable
Preferred Stock (incorporated by reference to the Registrant's
Registration Statement on Form S-1, File No. 333-93529).
4.3 Certificate of Designation Establishing the Voting Powers,
Designations, Preferences, Limitations, Restrictions and Relative
Rights of 8.25% Series B Convertible Redeemable Preferred Stock due
2012 (incorporated by reference to the Registrant's Annual Report on
Form 10-K, filed with the SEC on March 16, 2000).
4.4 Warrant to purchase shares of XM Satellite Radio Holdings Inc.'s Class
A common stock, dated February 9, 4.4 2000, issued to Sony
Electronics, Inc. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q, filed with the SEC on May 12, 2000).
4.5+ Warrant Agreement, dated March 15, 2000, between XM Satellite Radio
Holdings Inc. as Issuer and United States Trust Company of New York as
Warrant Agent.
4.6+ Warrant Registration Rights Agreement, dated March 15, 2000, between
XM Satellite Radio Holdings Inc. and Bear, Stearns & Co. Inc.,
Donaldson, Lufkin and Jenrette Securities Corporation, Salomon Smith
Barney Inc. and Lehman Brothers Inc.
4.7+ Form of Warrant.
4.8+ Certificate of Designation Establishing the Powers, Preferences,
Rights, Qualifications, Limitations and Restrictions of the 8.25%
Series C Convertible Redeemable Preferred Stock due 2012.
4.9+ Form of Certificate for our 8.25% Series C Convertible Redeemable
Preferred Stock.
4.10 Indenture, dated as of March 15, 2000, between XM Satellite Radio Inc.
and United States Trust Company of New York (incorporated by reference
to XM Satellite Radio Inc.'s Registration Statement on Form S-4, File
No. 333-39178)
5.1+ Opinion of Hogan & Hartson L.L.P. concerning the legality of the
warrants and underlying common stock..
23.1 Consent of KPMG LLP.
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
27.1+ Financial Data Schedule.
________________
+ Previously filed.
II-5
